As filed with the Securities and Exchange Commission on March 27, 1998
Registration Statement Nos. 333-47737 and 47737-01
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
Pre-Effective Amendment No. 1
to
FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
----------------
MEDITRUST CORPORATION MEDITRUST OPERATING COMPANY
(Exact name of Registrant (Exact name of Registrant
as specified in its Charter) as specified in its Charter)
Delaware Delaware
(State or Other Jurisdiction (State or other Jurisdiction
of Organization) of Organization)
7948 7948
(Primary Standard Industrial (Primary Standard Industrial
Classification Code No.) Classification Code No.)
95-3520818 95-3419438
(I.R.S. Employer Identification No.) (I.R.S. Employer Identification No.)
197 First Avenue, Suite 300 197 First Avenue, Suite 100
Needham, MA 02194 Needham, MA 02194
(781) 433-6000 (781) 453-8062
(Address, Including Zip Code, and (Address, Including Zip Code, and
Telephone Number, Including Area Code, Telephone Number, Including Area Code,
of Registrant's Principal of Registrant's Principal
Executive Offices) Executive Offices)
DAVID F. BENSON ABRAHAM D. GOSMAN
President Chairman of the Board and
Chief Executive Officer
MEDITRUST CORPORATION MEDITRUST OPERATING COMPANY
197 First Avenue, Suite 300 197 First Avenue, Suite 100
Needham, MA 02194 Needham, MA 02194
(781) 433-6000 (781) 453-8062
(Name, Address, Including Zip Code, (Name, Address, Including Zip Code,
and Telephone Number, Including and Telephone Number, Including
Area Code, of Agent for Service) Area Code, of Agent for Service)
----------------
Copies to:
GILBERT G. MENNA, P.C.
DAVID W. WATSON, P.C.
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, MA 02109-2881
(617) 570-1000
----------------
Approximate date of commencement of proposed sale to the public: Upon
consummation of the merger of La Quinta Inns, Inc. ("La Quinta") with and into
Meditrust Corporation ("Meditrust") pursuant to an Agreement and Plan of Merger
dated as of January 3, 1998, described in the enclosed Joint Proxy
Statement/Prospectus.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
The Registrants hereby amend this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrants
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until this Registration Statement
shall become effective on such date as the Securities and Exchange Commission,
acting pursuant to said Section 8(a), may determine.
================================================================================
<PAGE>
SUBJECT TO COMPLETION, DATED MARCH 27, 1998
[MEDITRUST LOGO] [LA QUINTA LOGO]
MERGER PROPOSED -- YOUR VOTE IS VERY IMPORTANT
The Boards of Directors of The Meditrust Companies and La Quinta Inns, Inc.
have approved a merger agreement that would result in an acquisition of La
Quinta by Meditrust Corporation by means of a merger of the two companies.
In the merger, La Quinta shareholders may receive shares of common stock of
both Meditrust Corporation and Meditrust Operating Company which are "paired"
and trade on the New York Stock Exchange as a single unit. Following the
merger, Meditrust Corporation will pay a cash earnings and profits distribution
on all of its outstanding shares, including those issued to La Quinta
shareholders in the merger. The combined amount of the paired shares and the
earnings and profits distribution will vary depending on the market price of
the paired shares during a period prior to the La Quinta shareholders meeting.
Alternatively, La Quinta shareholders may elect to receive cash for each of
their La Quinta shares, but the total cash payable in the merger and the
earnings and profits distribution payable on the paired shares received in the
merger is limited. As a result of this limitation, it is unlikely that any La
Quinta shareholder who elects to receive cash will receive only cash for his or
her La Quinta shares, but instead will receive a combination of cash and paired
shares. Shareholders of The Meditrust Companies will continue to own their
existing paired shares.
The number of paired shares to be issued by The Meditrust Companies will be
determined by a formula described in the merger agreement and on page of
this Joint Proxy Statement/Prospectus. Additionally, after May 19, 1998,
shareholders may call our joint proxy solicitor, toll-free, at (800) 578-5378,
to hear an announcement of the final exchange ratio and the final amount of the
earnings and profits distribution to be made by Meditrust Corporation. We
estimate that current shareholders of The Meditrust Companies will own
approximately % of the paired shares of The Meditrust Companies after the
merger, based on certain assumptions described on page 1 of this Joint Proxy
Statement/Prospectus. Likewise, the paired shares to be issued to La Quinta
shareholders will represent approximately % of the outstanding paired shares
of The Meditrust Companies after the merger.
The merger cannot be completed unless (i) holders of a majority of the shares
of Meditrust Corporation and two-thirds of the shares of La Quinta approve it,
and (ii) holders of a majority of the shares of Meditrust Operating Company
voting approve the issuance of Meditrust Operating Company common stock in the
merger. YOUR VOTE IS VERY IMPORTANT.
Whether or not you plan to attend your shareholders meeting, please take the
time to vote on the proposal(s) submitted at your meeting by completing and
mailing the enclosed proxy card to us. If you sign, date and mail your proxy
card without indicating how you wish to vote, your proxy will be counted as a
vote in favor of the proposal(s) submitted at your meeting. If a La Quinta
shareholder or a Meditrust Corporation shareholder fails to return his or her
proxy card, the effect will be a vote against the merger, unless he or she
attends the meetings and votes in person for the merger.
The dates, times and places of the shareholder meetings are as follows:
For Meditrust Corporation and
Meditrust Operating Company shareholders:
Thursday, May 28, 1998
10:00 a.m., local time for Meditrust Corporation
10:30 a.m., local time for Meditrust Operating Company
Goodwin, Procter & Hoar LLP
Conference Center
Second Floor, 53 State Street
Boston, Massachusetts
For La Quinta shareholders:
Thursday, May 28, 1998
10:00 a.m., local time
La Quinta Inns, Inc.
112 E. Pecan Street
Third Floor Conference Room
San Antonio, Texas
Shareholders are urged to consider those matters set forth in "Risk Factors"
beginning on page of this Joint Proxy Statement/Prospectus. Neither the
Securities and Exchange Commission nor any state securities regulators have
approved or disapproved of the paired shares to be issued under this Joint
Proxy Statement/Prospectus or passed upon the adequacy of this Joint Proxy
Statement/Prospectus. Any representation to the contrary is a criminal
offense.
This Joint Proxy Statement/Prospectus provides you with detailed information
about the proposed merger. In addition, you may obtain information about our
companies from documents that we have filed with the Securities and Exchange
Commission. We encourage you to read this entire document carefully.
- ------------------------------------- -------------------------------------
Abraham D. Gosman Thomas M. Taylor
Chairman of the Boards of Directors of Chairman of the Board of Directors of
The Meditrust Companies La Quinta Inns, Inc.
Joint Proxy Statement/Prospectus dated April , 1998, and first mailed to
shareholders on or about April , 1998.
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an
offer to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
<PAGE>
MEDITRUST CORPORATION
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
The Special Meeting of Shareholders of Meditrust Corporation ("Meditrust")
will be held at Goodwin, Procter & Hoar LLP Conference Center, Second Floor, 53
State Street, Boston, Massachusetts 02109 on Thursday, May 28, 1998 at 10:00
a.m. local time (together with all adjournments and postponements thereof, the
"Meditrust Meeting"), for the following purposes:
1. To consider and act upon a proposal to approve and adopt the Agreement
and Plan of Merger dated as of January 3, 1998 (the "Merger Agreement"), among
Meditrust, Meditrust Operating Company, a Delaware corporation ("Operating
Company"), and La Quinta Inns, Inc., a Texas corporation ("La Quinta"). The
Merger Agreement provides for the merger of La Quinta with and into Meditrust,
and the issuance of a certain number of paired shares of common stock of
Meditrust and Operating Company or the payment of cash, subject to certain
limitations, in exchange for each outstanding share of La Quinta. The merger is
described more fully in the attached Joint Proxy Statement/Prospectus which
includes a copy of the Merger Agreement.
2. To consider and act upon such other business and matters or proposals
as may properly come before the Meditrust Meeting.
The Board of Directors of Meditrust has fixed the close of business on
April 22, 1998 as the record date for determining the shareholders having the
right to receive notice of and to vote at the Meditrust Meeting. Only
shareholders of record at the close of business on such date are entitled to
notice of and to vote at the Meditrust Meeting. A list of shareholders entitled
to vote at the Meditrust Meeting will be available during ordinary business
hours at Meditrust's executive offices, 197 First Avenue, Suite 300, Needham,
Massachusetts 02194, for ten days prior to the Meditrust Meeting, for
examination by any Meditrust shareholder for purposes germane to the Meditrust
Meeting.
The Board of Directors of Meditrust recommends that you vote "FOR"
approval and adoption of the Merger Agreement.
Your vote is important. Approval and adoption of the Merger Agreement,
requires the affirmative vote of a majority of the outstanding shares of
Meditrust entitled to vote at the Meditrust Meeting. Whether or not you expect
to attend the Meditrust Meeting, please sign and mail promptly the enclosed
proxy which is being solicited on behalf of the Board of Directors of
Meditrust. A return envelope which requires no postage if mailed in the United
States is enclosed for that purpose.
Failure to return a properly executed proxy will have the same effect as a
vote against the merger unless you vote in person at the Meditrust Meeting.
By Order of the Board of Directors of
MEDITRUST CORPORATION
MICHAEL S. BENJAMIN
Secretary
Needham, Massachusetts
April , 1998
<PAGE>
MEDITRUST OPERATING COMPANY
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
The Special Meeting of Shareholders of Meditrust Operating Company
("Operating Company") will be held at Goodwin, Procter & Hoar LLP Conference
Center, Second Floor, 53 State Street, Boston, Massachusetts 02109 on Thursday,
May 28, 1998 at 10:30 a.m. local time (together with all adjournments and
postponements thereof, the "Operating Company Meeting"), for the following
purposes:
1. To consider and act upon a proposal to approve the issuance of shares
of common stock of Operating Company, as set forth in the Agreement and Plan of
Merger dated as of January 3, 1998 (the "Merger Agreement"), among Meditrust
Corporation, a Delaware corporation, Operating Company, and La Quinta Inns,
Inc., a Texas corporation ("La Quinta"), and the subscription agreement
referred to therein. The issuance of Operating Company shares is described more
fully in the attached Joint Proxy Statement/Prospectus which includes a copy of
the Merger Agreement.
2. To consider and act upon such other business and matters or proposals
as may properly come before the Operating Company Meeting.
The Board of Directors of Operating Company has fixed the close of
business on April 22, 1998 as the record date for determining the shareholders
having the right to receive notice of and to vote at the Operating Company
Meeting. Only shareholders of record at the close of business on such date are
entitled to notice of and to vote at the Operating Company Meeting. A list of
shareholders entitled to vote at the Operating Company Meeting will be
available during ordinary business hours at Operating Company's executive
offices, 197 First Avenue, Suite 100, Needham, Massachusetts 02194, for ten
days prior to the Operating Company Meeting, for examination by any Operating
Company shareholder for purposes germane to the Operating Company Meeting.
The Board of Directors of Operating Company recommends that you vote "FOR"
approval of the issuance of the Operating Company common stock.
Your vote is important. Approval of the issuance of the Operating Company
common stock requires the affirmative vote of a majority of the votes cast at
the Operating Company Meeting by the holders of Operating Company common stock
entitled to vote at the Operating Company Meeting, provided that the total vote
cast represents over 50% in interest of all shares entitled to vote. Whether or
not you expect to attend the Operating Company Meeting, please sign and mail
promptly the enclosed proxy which is being solicited on behalf of the Board of
Directors of Operating Company. A return envelope which requires no postage if
mailed in the United States is enclosed for that purpose.
By Order of the Board of Directors of
MEDITRUST OPERATING COMPANY
MICHAEL J. BOHNEN
Secretary
Needham, Massachusetts
April , 1998
<PAGE>
LA QUINTA INNS, INC.
112 E. Pecan Street
San Antonio, Texas 78205
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
The Special Meeting of Shareholders of La Quinta Inns, Inc., a Texas
corporation ("La Quinta") will be held at the offices of La Quinta, 112 E.
Pecan Street, Third Floor Conference Room, San Antonio, Texas, on Thursday, May
28, 1998 at 10:00 a.m., local time (together with all adjournments and
postponements thereof, the "La Quinta Meeting"), for the following purposes:
1. To consider and act upon a proposal to approve and adopt the Agreement
and Plan of Merger, dated as of January 3, 1998 (the "Merger Agreement"), among
Meditrust Corporation, a Delaware corporation ("Meditrust"), Meditrust
Operating Company, a Delaware corporation ("Operating Company"), and La Quinta.
The Merger Agreement provides for the merger of La Quinta with and into
Meditrust, with Meditrust as the surviving corporation, and the issuance of a
certain number of paired shares of common stock of Meditrust and Operating
Company or the payment of cash, subject to certain limitations, in exchange for
each outstanding share of La Quinta.
2. To consider and act upon such other business and matters or proposals
as may properly come before the La Quinta Meeting.
The Board of Directors of La Quinta has fixed the close of business on
April 22, 1998 as the record date for determining the shareholders having the
right to receive notice of and to vote at the La Quinta Meeting. Only
shareholders of record at the close of business on such date are entitled to
notice of and to vote at the La Quinta Meeting. A list of shareholders entitled
to vote at the La Quinta Meeting will be available during usual business hours
at the principal offices of La Quinta, 112 E. Pecan Street, San Antonio, Texas
for ten days prior to the La Quinta Meeting, for inspection by any shareholder
of La Quinta. Only business within the purposes described in this Notice may be
conducted at the La Quinta Meeting.
The Board of Directors of La Quinta recommends that you vote "FOR" the
approval and adoption of the Merger Agreement.
Your vote is important. Adoption of the Merger Agreement requires the
affirmative vote of two-thirds of the outstanding shares of La Quinta entitled
to vote at the La Quinta Meeting. Whether or not you expect to attend the La
Quinta Meeting, please sign and mail promptly the enclosed proxy which is being
solicited on behalf of the Board of Directors of La Quinta. A return envelope
which requires no postage if mailed in the United States is enclosed for that
purpose.
Failure to return a properly executed proxy will have the same effect as a
vote against the merger, unless you vote in person at the La Quinta Meeting.
JOHN F. SCHMUTZ
Secretary
San Antonio, Texas
April , 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
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WHAT LA QUINTA SHAREHOLDERS WILL
RECEIVE IN THE TRANSACTION ........................ 1
QUESTIONS AND ANSWERS ABOUT THE
TRANSACTION ....................................... 3
SUMMARY .............................................. 6
RISK FACTORS ......................................... 20
Total Cash Consideration Is Limited; Receipt
of Cash or Paired Shares Dependent on
Elections of Other Shareholders ................ 20
La Quinta Shareholders Who Receive
Paired Shares Must Hold Their Shares
For a Period of Time After the Merger in
Order to Receive the Earnings and Profits
Distribution ................................... 20
Some La Quinta Shareholders May Vote to
Approve the Merger Before the Exchange
Ratio is Established; Risk of Decline in
Paired Share Price; Effect of
Ex-Dividend Date ............................... 20
Dilution to Existing Shareholders of
The Meditrust Companies .......................... 21
The Meditrust Companies Will Have
Substantial Debt Obligations Upon
Consummation of the Merger ..................... 21
Tax Risks Related to Real Estate
Investment Trusts .............................. 21
Dependence on Qualification as a
REIT ..................................... 21
Adverse Effects of REIT Minimum
Distribution Requirements ................ 23
Requirement to Distribute
Accumulated Earnings and Profits ......... 23
Implications of Merger Under ERISA .................. 23
Risks Associated with Rapid Growth of The
Meditrust Companies; Execution of
Growth Strategy .................................. 24
The Meditrust Companies Are Heavily
Dependent on Health Care Related
Properties and Will Need to Rely on
New Members of Management as They
Diversify Their Operations ..................... 24
Interests of Certain Principal Shareholders,
Directors and Officers of La Quinta in the
Merger May Be Different From Interests of
La Quinta Shareholders Generally ............... 24
Health Care Industry Risks .......................... 25
Operating Risks ................................ 25
Government Regulation May Increase ............. 25
</TABLE>
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Reliance on Third-Party Payors;
Availability of Reimbursement ............... 25
Lodging Industry Risks .............................. 25
Competition .................................... 26
Extensive Employment and Other
Governmental Regulation ..................... 26
Fluctuations in Operating Results .............. 26
Expansion Strategy May Not Be
Successfully Continued ...................... 26
Construction ................................... 26
Real Estate Investment Risks ........................ 26
General Risks .................................. 26
Value and Illiquidity of Real Estate ........... 27
Increases in Property Taxes Could Affect
Ability to Make Expected Shareholder
Distributions ............................... 27
Environmental Matters .......................... 27
Compliance with the ADA May Affect
Expected Distributions to Meditrust's
Shareholders ................................ 27
Uninsured and Underinsured Losses .............. 27
Financing for the Cash Component of
Merger Consideration, Earnings and
Profits Distribution and Transaction
Expenses Has Not Been Finalized .................. 28
Potential Dilutive Effect of Issuance by the
Meditrust Companies of Capital Stock
with Purchase Price Adjustment
Mechanism ...................................... 28
Rights of La Quinta Shareholders Will Be
Governed by Delaware Law and The
Meditrust Companies' Organizational
Documents ...................................... 28
Possible Adverse Effects of Failure to
Consummate the Cobblestone Acquisition ........... 29
Golf Course Industry Risks .......................... 29
Real Estate Investment Considerations .......... 29
Competition .................................... 30
Consumer Spending and Trends ................... 30
Substantial Expenses Related to the Merger;
Termination Fee ................................ 30
Year 2000 Issues .................................... 30
Cautionary Statements Concerning
Forward-Looking Statements ..................... 30
THE MEETINGS ......................................... 31
The Meditrust and Operating Company
Meetings ....................................... 31
Purpose of the Meetings ............................ 31
Record Date; Voting Rights; Proxies ................ 31
Solicitation of Proxies ............................ 32
</TABLE>
i
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Quorum ............................................. 32
Required Vote ...................................... 32
The La Quinta Meeting .............................. 33
General ........................................... 33
Matters to be Considered .......................... 33
Board of Directors Recommendations ................ 33
Record Date and Voting ............................ 33
Proxies; Revocation of Proxies .................... 34
THE MERGER .......................................... 36
Background of the Merger ........................... 36
Recommendation of The Meditrust
Companies' Boards of Directors; The
Meditrust Companies' Reasons for the
Merger and the Share Issuance ................. 39
Recommendation of the Board of Directors
of La Quinta; Reasons for the Merger .......... 41
Opinion of The Meditrust Companies'
Financial Advisor ............................... 43
Opinion of La Quinta Financial Advisor ............. 46
Interests of Certain Persons in the Merger ......... 51
Certain Regulatory Matters ......................... 53
Accounting Treatment ............................... 53
No Appraisal Rights ................................ 53
Resales of Paired Shares Received Pursuant
to the Merger Agreement ......................... 53
Stock Exchange Listing of Paired Shares;
Delisting and Deregistration of La Quinta
Common Stock .................................. 54
Dividends .......................................... 54
Pending Litigation Regarding the Merger .......... 55
Financing .......................................... 55
THE MERGER AGREEMENT ................................ 56
General ............................................ 56
Distribution of Earnings and Profits ............... 56
Subscription Agreement ............................. 56
Transaction Consideration .......................... 56
Cash Election Procedure ............................ 58
Exchange of La Quinta Certificates ................. 59
La Quinta Stock Option Plans ....................... 59
Representations and Warranties ..................... 60
Covenants .......................................... 60
Conditions to Consummate the Merger ................ 63
Termination; Fees and Expenses ..................... 64
Amendment; Waiver .................................. 65
Certain Shareholder Arrangements ................... 65
THE COMPANIES ....................................... 66
The Meditrust Companies ............................ 66
La Quinta .......................................... 66
Surviving Companies ................................ 66
</TABLE>
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Recent Developments ................................ 73
FEDERAL INCOME TAX
CONSIDERATIONS ................................... 74
Tax Consequences of the Merger ..................... 74
Distribution of Earnings and Profits ............... 77
REIT Qualification ................................. 77
Effects of Compliance with REIT
Requirements .................................... 79
Non-Deductibility of Parachute Payment ............. 79
Taxation of Operating Company;
Non-Controlled Subsidiaries ..................... 80
Federal Income Taxation of Holders of
Paired Shares ................................... 80
PRINCIPAL AND MANAGEMENT
SHAREHOLDERS OF THE MEDITRUST
COMPANIES ........................................ 83
PRINCIPAL AND MANAGEMENT
SHAREHOLDERS OF LA QUINTA ........................ 84
COMPARATIVE PER SHARE MARKET
PRICE AND DIVIDEND INFORMATION ................... 87
UNAUDITED PRO FORMA FINANCIAL
STATEMENTS ....................................... 89
THE MEDITRUST COMPANIES'
SELECTED FINANCIAL DATA .......................... 102
LA QUINTA SELECTED
FINANCIAL DATA ................................... 103
DESCRIPTION OF CAPITAL STOCK OF
THE MEDITRUST COMPANIES .......................... 104
Authorized Capital Stock ........................... 104
Common Stock ....................................... 104
Series Common Stock ................................ 104
Series A Non-Voting Convertible
Common Stock .................................. 104
Preferred Stock .................................... 104
Rights Agreement ................................... 105
The Pairing ........................................ 106
Restrictions on Transfers .......................... 107
Registrar and Transfer Agent ....................... 107
COMPARISON OF SHAREHOLDER
RIGHTS ........................................... 107
General ............................................ 107
Authorized Capital Stock ........................... 107
Shareholder Voting ................................. 108
Special Meetings of Shareholders ................... 108
Directors .......................................... 108
Removal of Directors ............................... 108
Vacancies on the Board of Directors ................ 109
</TABLE>
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Amendment to Articles/Certificates of
Incorporation .................................. 109
Amendment to By-laws .............................. 109
Mergers and Other Fundamental
Transactions ................................... 109
Anti-Takeover Provisions of The Meditrust
Companies ...................................... 110
Appraisal/Dissenter's Rights ...................... 111
Restrictions on Ownership ......................... 111
Indemnification of Directors and Officers ......... 112
OTHER MATTERS ...................................... 112
LEGAL MATTERS ...................................... 112
EXPERTS ............................................ 113
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FUTURE SHAREHOLDER PROPOSALS ....................... 113
WHERE YOU CAN FIND MORE
INFORMATION ..................................... 113
ANNEX A -- MERGER AGREEMENT ........................ A-1
ANNEX B -- OPINION OF SALOMON
SMITH BARNEY .................................... B-1
ANNEX C -- OPINION OF MERRILL
LYNCH, PIERCE, FENNER & SMITH
INCORPORATED .................................... C-1
ANNEX D -- SHAREHOLDERS
AGREEMENT ....................................... D-1
</TABLE>
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<PAGE>
WHAT LA QUINTA SHAREHOLDERS WILL RECEIVE IN THE TRANSACTION
In the merger, La Quinta shares may be exchanged for paired shares of
The Meditrust Companies or, at your election, exchanged for cash. The La Quinta
shares exchanged for paired shares of The Meditrust Companies, along with the
other outstanding paired shares, will be entitled to receive a cash earnings
and profits distribution from Meditrust Corporation. The shares exchanged for
cash will receive $26 in cash. However, the amount of cash available to be paid
by The Meditrust Companies is limited, as described below. Therefore, if you
elect to exchange your La Quinta shares for cash, you will likely instead
receive a combination of cash and paired shares rather than all cash for your
La Quinta shares.
Paired Shares and Earnings and Profits Distribution
In the merger, La Quinta shareholders who do not elect to receive cash
will receive paired shares of The Meditrust Companies. Following the merger,
Meditrust Corporation will pay a cash earnings and profits distribution on all
of its outstanding shares, including those shares issued in the merger to La
Quinta shareholders. The combined amount of the paired shares and the earnings
and profits distribution will vary depending on the market price of the paired
shares during a period prior to the La Quinta shareholders meeting.
The combined amount of the paired shares and the earnings and profits
distribution is expected to be not less than $23.11 nor greater than $28.36 per
La Quinta share. In the event that the combined amount is less than $23.11 per
La Quinta share, La Quinta has the right to elect to terminate the merger
agreement, unless The Meditrust Companies choose to increase the combined
amount to $23.11 per La Quinta share. However, in the event that the combined
amount is less than $21.67 per La Quinta share, La Quinta has the right to
elect to terminate the merger agreement, whether or not The Meditrust Companies
choose to increase the combined amount. In any event, unless the merger
agreement has been previously terminated, La Quinta shareholders will be
entitled to vote on the merger.
The stock consideration payable in the merger will be paid in paired
shares of The Meditrust Companies under an exchange ratio. The exchange ratio
will be determined based on the average closing price of the paired shares for
20 randomly selected trading days in a 30 trading day period ending the eighth
day prior to the La Quinta shareholders meeting.
Meditrust Corporation and Meditrust Operating Company intend to issue a
press release announcing the exchange ratio to be used to determine the actual
amount of paired shares to be issued in the merger, as well as the amount of
the earnings and profits distribution, at least six trading days prior to the
La Quinta shareholders meeting. In addition, after May 19, 1998, shareholders
may call our joint proxy solictor, toll-free, at (800) 578-5378, to hear an
announcement of the final exchange ratio and the final amount of the earnings
and profits distribution to be made by Meditrust Corporation.
Meditrust Corporation and Meditrust Operating Company will not issue any
fractional paired shares. Instead, La Quinta shareholders otherwise entitled to
receive fractional paired shares will receive a check in the amount of the net
proceeds from the sale of those shares in the market.
La Quinta shareholders who receive paired shares in the merger should be
aware that, in order to receive their pro rata portion of the earnings and
profits distribution, they will need to hold their paired shares for
approximately fifteen to forty-five days after the merger is consummated,
because the record date for the earnings and profits distribution will occur
during that time period. Accordingly, if you dispose of your paired shares
received in the merger prior to the record date, you will not receive the
earnings and profits distribution.
Cash
Alternatively, you may elect to receive $26 in cash in the merger for
each of your La Quinta shares. However, the total cash payable in the merger
and the portion of the earnings and profits distribution payable with respect
to shares issued in the merger to La Quinta shareholders is limited to
approximately $521 million in the aggregate. If the total cash elections in the
merger exceed the maximum cash available to be paid in the merger, the
available cash will be prorated among La Quinta shareholders making cash
elections. As a result, if you elect to exchange your La Quinta shares for cash
in the merger, you will likely instead receive cash for some of your La Quinta
shares and paired shares of The Meditrust Companies for the balance of your La
Quinta shares. At the time of the La Quinta shareholders meeting, La Quinta
shareholders will not know the number of La Quinta shares for which cash
elections have been made or to what extent the cash to be paid in the merger
will be prorated.
Illustration of Transaction Consideration
The following table illustrates one example of the transaction
consideration per La Quinta share based on various possible paired share
prices, and assuming an
1
<PAGE>
earnings and profits distribution to all shareholders of Meditrust Corporation
of $325 million. The following table is solely for illustration purposes and is
based on numerous assumptions. The actual transaction consideration may vary
substantially from this illustration. Under this illustration, based on the $
closing price of the paired shares on April 22, 1998, the paired shares to be
issued to La Quinta shareholders will represent approximately % of the
outstanding paired shares of The Meditrust Companies after the merger. Current
shareholders of The Meditrust Companies will own an estimated % of the
paired shares after the merger. See "The Merger Agreement -- Transaction
Consideration."
<TABLE>
<CAPTION>
Paired Share
Consideration Earnings and
Issued in the Merger, Profits Distribution,
Per La Quinta Share Per La Quinta
Exchanged for Share Exchanged Maximum
Meeting Date Paired Shares for Paired Shares Total Cash
Price(1) in the Merger(2) in the Merger(3) Consideration Shares(4)
- -------------- ----------------------- ---------------------- --------------- -------------
<S> <C> <C> <C> <C>
$45.60 $ 26.83 $ 1.53 $ 28.36 16,445,910
$41.80 $ 24.47 $ 1.53 $ 26.00 16,459,164
$38.00 $ 24.37 $ 1.63 $ 26.00 16,211,332
$34.20 $ 24.26 $ 1.74 $ 26.00 15,926,487
$30.40 $ 21.38 $ 1.73 $ 23.11(5) 15,951,262
$28.50 $ 19.94 $ 1.73 $ 21.67(6) 15,951,262
</TABLE>
- ------------
(1) Meeting Date Price represents the average closing price of a paired
share for 20 randomly selected trading days in a 30 trading day period
ending the eighth trading day prior to the La Quinta shareholders
meeting.
(2) Paired share consideration is stated based on the average paired share
price.
(3) Based on an assumed accumulated and current earnings and profits
distribution of $325 million to all shareholders of Meditrust
Corporation, which amount is being used solely for illustrative
purposes. As of the date of this Joint Proxy Statement/Prospectus, the
amount of the earnings and profits distribution has not yet been
determined. See "The Merger Agreement -- Transaction Consideration."
(4) Maximum number of La Quinta shares which would be entitled to elect to
receive $26 in cash merger consideration.
(5) In the event that the total consideration is less than $23.11, La
Quinta may have the right to terminate the merger agreement, as
discussed above.
(6) In the event that the total consideration is less than $21.67, La
Quinta will have the right to terminate the merger agreement, as
discussed above.
2
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE TRANSACTION
Q: Why are The Meditrust Companies and La Quinta proposing the merger?
A: The acquisition of La Quinta by means of a merger with Meditrust
Corporation allows Meditrust Corporation and Meditrust Operating Company
(together, "The Meditrust Companies") to make use of their paired share
structure in an industry for which it is particularly well suited. The
paired share structure is particularly suited to the hotel business because
it enables shareholders to realize the economic benefits of both owning and
operating valuable real estate while providing tax benefits associated with
the ownership of real estate by a real estate investment trust, or REIT.
When hotels are owned by a real estate investment trust that does not have
a paired share structure, the shareholders of the real estate investment
trust do not realize the economic benefits of hotel operations, which must
be provided by an unrelated party in those circumstances. Similarly, a
company that owns and operates hotels but does not qualify as a real estate
investment trust, generally is required to pay taxes on its income, which
reduces amounts available for distributions to shareholders.
Q: What do I need to do now?
A: This Joint Proxy Statement/Prospectus contains important information
regarding the proposed merger and the earnings and profits distribution to
be made by Meditrust Corporation ("Meditrust"), as well as information
about The Meditrust Companies and La Quinta. It also contains important
information about what the management and the Boards of Directors of each
of The Meditrust Companies and La Quinta considered in evaluating the
proposed merger. We urge you to read this Joint Proxy Statement/Prospectus
carefully, including its Annexes, and to consider how the merger affects
you as a shareholder. You also may want to review the documents referenced
under "Where You Can Find More Information." For information about where to
call to get answers to your questions, see "Whom Shall I Call with
Questions?" on page .
Q: How do I vote?
A: Just complete, sign and mail your proxy card in the enclosed return
envelope as soon as possible, so that your shares may be represented at the
shareholder meetings. The Boards of Directors of Meditrust and La Quinta
unanimously recommend voting in favor of the merger agreement and the
merger. The Board of Directors of Meditrust Operating Company ("Operating
Company") unanimously recommends voting in favor of the issuance of shares
of Operating Company common stock in connection with the merger.
Q: Can I change my vote?
A: Yes. You can change your vote at any time before we vote your proxy at the
Meditrust meeting, the Operating Company meeting or the La Quinta meeting.
You can do so in one of three different ways. First, you can send a written
notice stating that you would like to revoke your proxy to the Secretary of
Meditrust or Operating Company, at the addresses below if you are a
Meditrust or Operating Company shareholder or to the Secretary of La Quinta
at the address below if you are a La Quinta shareholder. Second, you can
complete a new proxy card and send it to the Secretary of Meditrust,
Operating Company or La Quinta, as the case may be, and the new proxy card
will automatically replace any earlier dated proxy card that you returned.
Third, you can attend your shareholder meeting and vote in person.
You should send any written notice of revocation, request for a new proxy
card or completed new proxy card to the Secretary of Meditrust, Operating
Company or La Quinta, as the case may be, to the following addresses:
Meditrust Corporation, 197 First Avenue, Suite 300, Needham, Massachusetts
02194, Attention: Secretary; Meditrust Operating Company, 197 First Avenue,
Suite 100, Needham, Massachusetts 02194, Attention: Secretary; or La Quinta
Inns, Inc., P.O. Box 2636, San Antonio, Texas 78299-2636, Attention:
Secretary.
Q. If my shares are held in "street name" by my broker, will my broker vote my
shares for me?
A: Your broker will vote your shares only if you provide instructions on how
to vote. Please tell your broker how you would like him or her to vote your
shares. If you do not tell your broker how to vote, your shares will not be
voted by your broker, which, in the case of La Quinta and Meditrust
shareholders, will have the effect of a vote against the merger.
Q: Should I send in my share certificates now?
A: No. After the merger is completed, La Quinta shareholders will receive
written instructions for exchanging their share certificates representing
La Quinta shares for share certificates representing paired shares of The
Meditrust Companies, cash, or a combination thereof. The Meditrust
Companies shareholders should keep their certificates.
3
<PAGE>
Q: What will I receive in the transaction?
A: La Quinta shareholders:
In the merger, La Quinta shareholders will receive either paired shares of
The Meditrust Companies, cash, or a combination of paired shares and cash.
Following the merger, Meditrust will pay an earnings and profits
distribution on all of its outstanding shares of common stock, including
those issued to La Quinta shareholders in the merger. After May , 1998,
La Quinta shareholders may call our joint proxy solicitor, toll-free, at
(800) 578-5378, to receive information about the final exchange ratio and
the final amount of the earnings and profit distribution. See "What La
Quinta Shareholders Will Receive in the Transaction" on page 1.
The Meditrust Companies shareholders:
If you currently own paired shares of The Meditrust Companies, you will
continue to own those paired shares after the merger.
In addition, provided that you hold your paired shares on the record date
of the earnings and profits distribution, you will also receive your pro
rata share of the distribution.
Q: How do La Quinta shareholders elect to receive cash in the merger?
A: For a cash election to be effective, a form of election must be properly
completed and received by the exchange agent no later than 5:00 p.m.,
Boston time, on May , 1998. See "The Merger Agreement -- Cash Election
Procedure."
Q: Assuming the merger is completed, what happens to La Quinta shareholders
who do not vote or elect to receive cash?
A: La Quinta shareholders who do not vote or elect to receive cash in the
merger will receive paired shares of The Meditrust Companies.
Q: When and where are the shareholders meetings?
A: The Meditrust meeting and the Operating Company meeting will take place on
Thursday, May 28, 1998 at the Goodwin, Procter & Hoar LLP Conference
Center, Second Floor, 53 State Street, Boston, Massachusetts at the
following local times: 10:00 a.m. for Meditrust and 10:30 a.m. for
Operating Company.
The La Quinta meeting will take place on Thursday, May 28, 1998 at the
offices of La Quinta, 112 E. Pecan Street, Third Floor Conference Room, San
Antonio, Texas, at 10:00 a.m., local time.
Q: What else will happen at the Meditrust and the Operating Company
shareholders meetings?
A: No other matters are scheduled to be voted on at the Meditrust and
Operating Company shareholders meetings.
Q: What else will happen at the La Quinta shareholders meeting?
A: No other matters are scheduled to be voted on at the La Quinta shareholders
meeting.
Q: When do you expect the merger to be completed?
A: We hope to complete the merger in the second quarter of 1998 shortly after
the shareholders meetings.
Q: What happens to my future dividends?
A: We expect no changes in the dividend policies of The Meditrust Companies or
La Quinta before the merger.
Immediately prior to the merger, Meditrust will declare an earnings and
profits distribution, which will be payable to holders of shares of
Meditrust common stock on the record date for the earnings and profits
distribution. The record date, which will be determined by the Meditrust
Board of Directors, will be between fifteen and forty-five days following
the completion of the merger. The distribution will be paid within fifteen
days of the record date. La Quinta shareholders who dispose of the paired
shares received in the merger prior to the record date for the earnings and
profits distribution will not receive the distribution.
After the distribution, The Meditrust Companies expect their annualized
dividend rate (without giving effect to the earnings and profits
distribution) will be $2.43 per paired share, which is equivalent to the
current annualized dividend rate paid by Meditrust. As a real estate
investment trust, Meditrust is obligated to distribute substantially all of
its current taxable earnings to its shareholders on an annual basis. The
payment of dividends in the future will depend on tax law requirements,
Meditrust's financial condition and earnings, business conditions and other
factors. Operating Company does not presently pay dividends.
After the merger, the separate corporate existence of La Quinta will
terminate and dividends on La Quinta common stock will cease.
Q: Will I have to pay federal income taxes as a result of the transaction?
A: The transaction is anticipated to be tax-free to La Quinta shareholders who
receive only paired shares of The Meditrust Companies, except to the
4
<PAGE>
extent of: (i) the value of the Operating Company portion of the paired
shares, which is estimated not to exceed 5% of the total value of the
paired shares, and (ii) the earnings and profits distribution referred to
above. Cash merger consideration received by La Quinta shareholders in the
transaction will generally be taxable as capital gains.
The earnings and profits distribution received by shareholders of The
Meditrust Companies, including former La Quinta shareholders who receive
paired shares in the merger, generally will result in the recognition of
ordinary income by the shareholders.
Q: What is a paired share and why is it beneficial?
A: A paired share is a share that represents ownership in two separate
companies. This means that shares of both companies trade and are
transferable as a single unit.
For example, a shareholder of The Meditrust Companies owns stock in
Meditrust Corporation and Meditrust Operating Company in exactly the same
proportion. Accordingly, a sale of stock of one of The Meditrust Companies
results in a sale of both companies' stock.
The paired share structure is beneficial because it links an operating
company with a real estate investment trust, or REIT. A REIT may own and
lease real estate but it generally may not conduct an operating business on
the real property that it owns. For example, a REIT may own a hotel, but it
generally cannot run the operations of the hotel. Instead, it must lease
the hotel to a third party operator. By linking a REIT, which can own and
lease real estate, with an operating company, which can operate a business
on the underlying real estate, the owners of the paired shares receive the
economic benefits (and, consequently, assume the related risks) associated
with owning and operating real estate. Consequently, operating profits
which normally would accrue to a third party operator instead are earned by
a company in which you own stock.
There are currently pending legislative proposals which, if enacted in the
form proposed, could substantially limit The Meditrust Companies' ability
to use the paired share structure in the future. See "Risk Factors -- Tax
Risks Related to Real Estate Investment Trusts."
Q. Whom should I call with questions?
A. If you would like additional copies of this Joint Proxy
Statement/Prospectus or if you have questions about the merger, you should
contact D.F. King & Co., Inc., by mail at 77 Water Street, 20th Floor, New
York, New York 10005, or by telephone, toll free, at (800) 549-6746. D.F.
King & Co., Inc. is acting as our joint proxy solicitor. In addition, after
May 19, 1998, shareholders may call our joint proxy solicitor, toll-free,
at (800) 578-5378, to hear an announcement of the final exchange ratio and
the amount of the earnings and profits distribution to be made by
Meditrust.
If you are a Meditrust shareholder, you can also call the Investor
Relations Department at Meditrust, at (781) 433-6000.
If you are an Operating Company shareholder, you can also call the Investor
Relations Department at Operating Company, at (781) 453-8062.
If you are a La Quinta shareholder, you can also call Investor Relations at
La Quinta, at (210) 302-6000.
5
<PAGE>
SUMMARY
This summary highlights selected information from this Joint Proxy
Statement/Prospectus and may not contain all of the information that is
important to you. To better understand the merger and for a more complete
description of the legal terms of the merger, you should carefully read this
entire document and the documents to which we have referred you. See "Where You
Can Find More Information" on page .
This Joint Proxy Statement/Prospectus contains certain forward-looking
statements concerning the benefits expected as a result of the merger and the
future financial performance of The Meditrust Companies (including the La
Quinta hotels) after the merger. Actual results may differ significantly from
the forward-looking statements. See "Risk Factors -- Cautionary Statements
Concerning Forward-Looking Statements" on page .
The Companies
Meditrust Corporation
197 First Avenue, Suite 300
Needham, Massachusetts 02194
(781) 433-6000
Meditrust Corporation ("Meditrust") is a real estate investment trust,
or REIT, incorporated in the State of Delaware. Meditrust has historically
invested primarily in health care related real property. Meditrust also invests
in other entities outside of the United States which make similar health care
related real estate investments. In addition to its health care related real
estate investments, Meditrust also owns Santa Anita Park in California and has
entered into a definitive merger agreement to acquire Cobblestone Holdings,
Inc., parent of Cobblestone Golf Group, Inc. ("Cobblestone").
Meditrust Operating Company
197 First Avenue, Suite 100
Needham, Massachusetts 02194
(781) 453-8062
Meditrust Operating Company ("Operating Company") is a Delaware
corporation which currently operates the thoroughbred horse racing business at
Santa Anita Park. Upon completion of the Cobblestone acquisition, Operating
Company will operate Cobblestone golf courses and related facilities. Operating
Company does not currently conduct any other material operations.
Meditrust and Operating Company, together referred to as "The Meditrust
Companies," have an organizational structure called a "paired share structure."
The shares of the capital stock of the two companies are sold and trade
together as a single unit, which are referred to as the "paired shares."
Prior to November 5, 1997, the name of Meditrust Corporation was Santa
Anita Realty Enterprises, Inc., and the name of Meditrust Operating Company was
Santa Anita Operating Company. On November 5, 1997, the names of these
companies were changed in connection with the merger of Meditrust, a
Massachusetts business trust ("Meditrust's Predecessor"), with and into Santa
Anita Realty Enterprises, Inc. Shareholders of Meditrust's Predecessor received
paired shares of The Meditrust Companies through that merger and thereby
acquired the benefits of the paired share structure.
La Quinta Inns, Inc.
112 E. Pecan Street
San Antonio, Texas 78205
(210) 302-6000
La Quinta Inns, Inc. ("La Quinta") is a Texas corporation. La Quinta is
a fully integrated lodging company that focuses on the ownership, operation and
development of its two hotel products: (i) La Quinta Inns, a chain positioned
in the mid-priced segment of the lodging industry, and (ii) La Quinta Inns &
Suites, a new lodging concept positioned at the upper end of the mid-priced
segment of the lodging industry. As of February 13, 1998, La Quinta owned and
operated 270 hotels containing a total of approximately 35,000 rooms located in
28 states concentrated in the western and southern regions of the United
States. Substantially all of these rooms are operated under the company's own
La Quinta[RegTM] Inns or La Quinta[RegTM] Inn & Suites brand names.
Recent Developments (see page )
On March 23, 1998, The Meditrust Companies announced that certain
shareholders of La Quinta holding approximately 29% of the outstanding shares
of La Quinta common stock and The Meditrust Companies reached an
agreement-in-principle to amend a shareholders agreement entered into
concurrently with the merger agreement. The parties have agreed that these
shareholders, including Gary L. Mead, Thomas M. Taylor & Co. and certain other
entities and individuals associated with the Bass family, may receive paired
shares in exchange for their La Quinta shares, are no longer obligated to make
the maximum cash election as provided in the shareholders agreement and that
the Bass group may own up to 9.25% of the paired shares of The Meditrust
Companies. Thomas M. Taylor, the chairman and a principal shareholder of La
Quinta, is expected to join the Boards of Directors of The Meditrust Companies.
6
<PAGE>
On March 17, 1998, The Meditrust Companies filed a Registration
Statement on Form S-3 to register 7.62 million paired shares in connection with
the pending Cobblestone acquisition. The paired shares are to be issued to
Cobblestone shareholders, who will then have the ability to resell them
following the Cobblestone acquisition, subject to certain legal and contractual
limitations.
In March 1998, Meditrust acquired five golf courses from I.R.I. Golf
Group, L.L.C., referred to as "I.R.I.," a privately held owner, operator and
developer of golf facilities, for $41 million in cash. The courses will be
operated by Cobblestone. I.R.I. and Cobblestone also announced a new strategic
alliance under which I.R.I. will develop and build new courses to be owned and
operated by Cobblestone.
On February 26, 1998, The Meditrust Companies entered into certain
transactions with Merrill Lynch International, whereby Merrill Lynch
International agreed to purchase 8,500,000 shares of Series A Non-Voting
Convertible Common Stock from The Meditrust Companies at a purchase price of
$32.625 per share, subject to adjustment in the event the market price of the
paired shares declines. These securities were issued on February 27, 1998. They
are initially non-voting and will convert into voting paired shares of The
Meditrust Companies on the earlier of (a) the business day following the date
on which shareholders of The Meditrust Companies have approved the merger or
(b) the date of any termination of the merger agreement. See "The Merger --
Opinion of La Quinta Financial Advisor" and "The Companies -- Recent
Developments."
On January 11, 1998, The Meditrust Companies entered into a definitive
merger agreement with Cobblestone pursuant to which The Meditrust Companies
will acquire all of the outstanding capital stock of Cobblestone for paired
shares valued at approximately $241 million. In addition, The Meditrust
Companies will assume or refinance approximately $154 million of Cobblestone
debt and associated costs. Cobblestone is one of the nation's leading
developers and operators of golf courses and related facilities.
The Meditrust Companies' Board
Recommendations to Shareholders
and Reasons for the Merger and
the Issuance of Operating
Company Common Stock
The Boards of Directors of Meditrust and Operating Company believe that
the merger and the issuance of paired shares, including shares of Operating
Company common stock, are in your best interests and unanimously recommend that
you vote for the proposals to approve the merger and the issuance of paired
shares to La Quinta shareholders in the merger.
We recommend the merger and the issuance of paired shares because:
[bullet] the merger will combine La Quinta's quality hotel portfolio and
experienced management team with Meditrust's enhanced access to the
capital markets and diversified property portfolio;
[bullet] the merger will create a diversified owner/operator of various types of
real estate properties. We believe this diversification will mitigate
the adverse effects of changes in general economic conditions on The
Meditrust Companies as a whole;
[bullet] the transaction is expected to be accretive to The Meditrust Companies'
funds from operations per share for the first twelve months of combined
operations;
[bullet] we believe the merger with La Quinta provides an attractive opportunity
to put The Meditrust Companies' paired share structure to work in an
industry for which it is particularly well suited. The paired share
structure is well suited to the hotel business because Meditrust can
hold valuable real estate, namely La Quinta's hotels, while at the same
time providing its shareholders with the economic benefits of owning
the underlying hotel-operating business;
[bullet] in addition to La Quinta's hotels, The Meditrust Companies will acquire
another valuable asset -- the La Quinta[RegTM] brand name. Because La
Quinta operates substantially all of its hotels under its own brand
name, La Quinta is not required to pay franchise or license fees to
third parties for the right to use this recognized brand name in the
hotel market; and
[bullet] many of the La Quinta properties have recently undergone extensive
renovations. We expect that the renovations will allow The Meditrust
Companies to focus their hotel financing and development efforts on
continued expansion of La Quinta's portfolio of hotel properties,
through individual developments as well as through acquisitions of
other hotel property portfolios.
To review the reasons for the merger and the issuance of shares of
Operating Company common stock in greater detail, as well as related
uncertainties, see pages through .
7
<PAGE>
La Quinta's Board Recommendation to Shareholders
and Reasons for the Merger
The Board of Directors of La Quinta believes that the merger is in your
best interests and unanimously recommends that you vote for the proposal to
approve and adopt the merger agreement and the merger.
We recommend the merger because:
[bullet] we believe that the merger will enable La Quinta to benefit from
diversification into other industries;
[bullet] we believe the diversification achieved in the merger may allow La
Quinta to expand into other segments of the hotel industry, which may
enable La Quinta to compete more effectively given the recent
consolidation in the lodging industry;
[bullet] we believe that the merger will give La Quinta improved access to the
capital required to continue to execute La Quinta's growth and
development plans; and
[bullet] we believe that the value to be received by shareholders of La Quinta
in the merger represents a premium over the trading prices of La
Quinta's common stock prior to the execution of the merger agreement.
To review the reasons for the merger in greater detail, as well as
related uncertainties, see pages through .
The Meditrust Meeting
The special meeting of shareholders of Meditrust Corporation will be
held at the Goodwin, Procter & Hoar LLP Conference Center, Second Floor, 53
State Street, Boston, Massachusetts 02109 on Thursday, May 28, 1998 at 10:00
a.m., local time.
At the Meditrust meeting, holders of Meditrust common stock will
consider and vote upon a proposal to approve the merger of La Quinta into
Meditrust and the issuance of Meditrust common stock to holders of La Quinta
common stock in the merger.
Approval of the merger requires the affirmative vote of the holders of a
majority of all outstanding shares of common stock entitled to vote at the
Meditrust meeting.
Only holders of Meditrust common stock who are holders at the close of
business on the Meditrust record date, April 22, 1998, will be entitled to
notice of and to vote at the Meditrust meeting. As of April 22, 1998, directors
and executive officers of Meditrust and their affiliates were beneficial owners
of approximately % of the outstanding shares of Meditrust common stock.
As of April 22, 1998, a total of votes were eligible to
be cast at the Meditrust meeting.
The Operating Company Meeting
The special meeting of shareholders of Operating Company will be held at
the Goodwin, Procter & Hoar LLP Conference Center, Second Floor, 53 State
Street, Boston, Massachusetts 02109 on Thursday, May 28, 1998, at 10:30 a.m.,
local time.
At the Operating Company meeting, holders of Operating Company common
stock will consider and vote upon a proposal to approve the issuance of shares
of Operating Company common stock to holders of La Quinta common stock in the
merger.
Approval of the issuance of Operating Company common stock requires the
affirmative vote of the holders of a majority of the shares of common stock
represented in person or by proxy, and entitled to vote at the Operating
Company meeting.
Only holders of Operating Company common stock who are holders at the
close of business on the Operating Company record date, April 22, 1998, will be
entitled to notice of and to vote at the Operating Company meeting. As of April
22, 1998, directors and executive officers of Operating Company and their
affiliates were beneficial owners of approximately % of the outstanding
shares of Operating Company common stock.
As of April 22, 1998, a total of votes were eligible to
be cast at the Operating Company meeting.
The La Quinta Meeting
The special meeting of shareholders of La Quinta will be held at 112
East Pecan Street, Third Floor Conference Room, San Antonio, Texas on Thursday,
May 28, 1998 at 10:00 a.m., local time.
At the La Quinta meeting, holders of La Quinta common stock will
consider and vote upon a proposal to approve and adopt the merger agreement and
the merger.
Approval and adoption of the merger agreement and the merger requires
the affirmative vote of two-thirds of the outstanding shares of La Quinta
common stock that are entitled to vote at the La Quinta meeting.
Only holders of La Quinta common stock who are holders at the close of
business on the La Quinta record
8
<PAGE>
date, April 22, 1998, will be entitled to notice of and to vote at the La
Quinta meeting. As of April 15, 1998, directors and executive officers of La
Quinta and their affiliates were the beneficial owners of approximately %
of the outstanding shares of La Quinta common stock.
In addition, holders of approximately 22.3 million shares of La Quinta
common stock, or approximately 29% of the outstanding shares of La Quinta
common stock, entered into a shareholders agreement with The Meditrust
Companies and La Quinta pursuant to which these shareholders agreed to vote in
favor of approval and adoption of the merger agreement and the merger. See "The
Merger Agreement -- Certain Shareholder Arrangements."
As of April 22, 1998, a total of votes were eligible to be
cast at the La Quinta meeting.
The Merger
The merger agreement is attached as Annex A to this Joint Proxy
Statement/Prospectus. We encourage you to read the merger agreement as it is
the legal document that governs the merger.
What La Quinta Shareholders Will Receive in the Transaction (see page 1)
In the merger, La Quinta shareholders will receive either paired shares
of The Meditrust Companies, cash or a combination of paired shares and cash.
Following the merger, Meditrust will pay a cash earnings and profits
distribution on all of its outstanding shares, including those issued to La
Quinta shareholders in the merger.
After May 19, 1998, La Quinta shareholders may call our joint proxy
solicitor, toll-free, at (800) 578-5378, to receive information about the final
exchange ratio and the amount of the earnings and profits distribution to be
made by Meditrust.
La Quinta shareholders should not send in their stock certificates for
exchange until instructed to do so after we complete the merger.
The Earnings and Profits Distribution (see page )
La Quinta has operated as a taxable corporation for federal income tax
purposes since its incorporation. As such, La Quinta generates taxable income
and, in some situations, losses. To the extent La Quinta's taxable income in
any given year is not distributed to its shareholders, it becomes accumulated
earnings and profits. Accumulated earnings and profits are periodically reduced
by losses and distributions or dividends to a company's shareholders in excess
of the company's current taxable income.
La Quinta estimated that it had, as of September 30, 1997, no more than
$325 million of accumulated earnings and profits. However, the actual amount of
La Quinta's earnings and profits may change prior to the time at which
Meditrust announces the amount of the earnings and profits distribution. The
amount of La Quinta's earnings and profits at the time of the merger could be
affected by a number of factors, including, without limitation: the earnings
and profits generated by La Quinta after September 30, 1997 but prior to the
merger (which would increase the number); the cash settlement of employee stock
options and other compensation expenses provided for in the merger agreement
(which would decrease the number); and a possible sale, or other taxable
transfer, at a gain of certain assets of La Quinta pursuant to the merger
agreement (which would increase the number). Other adjustments may occur prior
to the merger.
After the merger, Meditrust will succeed to La Quinta's accumulated
earnings and profits. As a REIT, Meditrust is not permitted to complete any
taxable year with accumulated earnings and profits from a taxable corporation.
Accordingly, as necessary to preserve its REIT status, after the merger,
Meditrust will make a distribution of earnings and profits to all Meditrust
shareholders who hold paired shares on the record date for the earnings and
profits distribution, including La Quinta shareholders who receive paired
shares in the merger.
The merger agreement provides that Meditrust will declare the earnings
and profits distribution prior to the merger. The earnings and profits
distribution will be payable to those Meditrust shareholders who hold their
paired shares on the record date for the earnings and profits distribution. The
record date, which will be determined by the Meditrust Board of Directors, will
be between fifteen and forty-five days following the completion of the merger.
The earnings and profits distribution will be paid within fifteen days of the
record date for the earnings and profits distribution.
Under the merger agreement, the portion of the earnings and profits
distribution payable on paired shares issued to La Quinta shareholders reduces
the exchange ratio used to calculate the number of paired shares to be received
by La Quinta shareholders in the merger. Accordingly, the number of paired
shares La Quinta shareholders will receive in the merger decreases as the
distribution increases. Conversely, the number of paired shares La Quinta
shareholders will receive in the merger increases as the earnings and profits
distribution decreases.
La Quinta shareholders who dispose of their paired shares received in
the merger prior to the record date for the earnings and profits distribution
will not receive the distribution.
9
<PAGE>
What Current Shareholders of The Meditrust Companies Will Hold After The Merger
(see page )
Shareholders of The Meditrust Companies will continue to own their
existing paired shares after the merger. All holders of paired shares on the
record date for the earnings and profits distribution will receive their pro
rata share of the distribution.
Shareholders of The Meditrust Companies should not send in their stock
certificates in connection with the merger.
Effective Time of the Merger (see page )
Under Delaware law and Texas law, the merger will be effective when a
certificate of merger is issued by the Texas Secretary of State, unless we
specify a later effective time. We expect that the merger will be completed as
soon as practicable following the approval by the shareholders of Meditrust,
Operating Company and La Quinta at their shareholders meetings, if all other
conditions have been satisfied.
Advantages of the Merger to The Meditrust Companies and their Shareholders (see
page __)
The Meditrust Companies and their shareholders will receive benefits
associated with diversification of The Meditrust Companies' real estate
portfolio. The Meditrust Companies believe that diversification will mitigate
the adverse effects of changes in general economic conditions on The Meditrust
Companies. In addition, the transaction is expected to be accretive to The
Meditrust Companies' funds from operations per share for the first twelve
months of combined operations. See "The Merger--Recommendation of The Meditrust
Companies' Board of Directors; The Meditrust Companies' Reasons for the Merger
and the Share Issuance."
Disadvantages of the Merger to The Meditrust Companies and their Shareholders
(see page __ and __)
As The Meditrust Companies diversify, it is likely that Operating
Company will rely heavily upon the expertise of the existing management of the
acquired company or will need to hire outside management to operate the
acquired company. Operating Company may be unable to hire and retain qualified
management. In addition, The Meditrust Companies will also need to
significantly increase the total amount of debt on their combined balance sheet
in order to pay certain of La Quinta's existing debt as well as the cash
component of the merger consideration, the earnings and profits distribution
and transaction expenses. See "Risk Factors--Financing for the Cash Component
of Merger Consideration, Earnings and Profits Distribution and Transaction
Expenses Has Not Been Finalized."
In addition, the issuance of paired shares to acquire La Quinta will
result in substantial dilution of the voting power of the current shareholders
of The Meditrust Companies. See "Risk Factors--Dilution to Existing
Shareholders of the Meditrust Companies."
Advantages of the Merger to La Quinta and its Shareholders (see page )
We believe that La Quinta and its shareholders will benefit from
diversification into other industries. As a result of the merger, La Quinta may
expand into other segments of the hotel industry. In addition, the La Quinta
Board of Directors believes the value received by shareholders in the merger
represents a premium over trading prices of La Quinta common stock prior to the
execution of the merger agreement. See "The Merger -- Recommendation of the
Board of Directors of La Quinta; Reasons for the Merger."
Disadvantages of the Merger to La Quinta and its Shareholders (see page )
Real estate investment trusts have certain tax constraints and other
limitations that La Quinta currently does not have. In addition, while the
paired share structure of a real estate investment trust has many advantages,
those advantages may be limited or eliminated as result of pending legislation.
See "Risk Factors--Tax Risks Related to Real Estate Investment Trusts."
Ownership of The Meditrust Companies
Following the Merger (see page )
The number of paired shares to be issued by The Meditrust Companies in
the merger will be determined by a formula described in the merger agreement
and on page of this Joint Proxy Statement/Prospectus. We estimate that
current shareholders of The Meditrust Companies will continue to own
approximately % of the paired shares of The Meditrust Companies after the
merger, based on certain assumptions described in this Joint Proxy Statement/
Prospectus. Likewise, the paired shares to be issued to La Quinta shareholders
will represent approximately % of the outstanding paired shares of The
Meditrust Companies after the merger.
10
<PAGE>
Boards of Directors and Management of The Meditrust Companies Following the
Merger (see page )
There will be no change in the management or the Boards of Directors of
The Meditrust Companies upon completion of the merger, except that Thomas M.
Taylor is expected to join the Boards of Directors of The Meditrust Companies.
We expect that La Quinta's operating management generally will remain in place,
with La Quinta operating as a business unit of Operating Company after the
merger.
Gary L. Mead, La Quinta's current president and chief executive officer,
will step down after the merger. Ezzat S. Coutry, La Quinta's current executive
vice-president and chief operating officer, will become the president and chief
executive officer of the La Quinta business unit of Operating Company after the
merger.
Other Interests of La Quinta Officers, Directors and Certain Shareholders in
the Merger (see page )
Officers, directors and certain shareholders of La Quinta may receive
benefits as a result of the merger which are different from the benefits you
will receive. You may want to consider these benefits in deciding whether to
vote in favor of the transaction.
For example, unvested stock options, restricted stock and similar stock
incentive awards held by officers of La Quinta will vest immediately upon
completion of the merger. Officers holding options may choose to have these
options purchased for cash or assumed by Meditrust. Options which are not
assumed by Meditrust and restricted stock will be cashed out at their spread
value. The total value of options and restricted stock which will vest as a
result of the merger held by executive officers of La Quinta is approximately
$12.1 million.
La Quinta has entered into severance arrangements with all of its
executive officers and certain other employees. Aggregate payments to be paid
under severance agreements to executive officers, if all such persons were
terminated after the merger, would be approximately $8.6 million. Prior to
completion of the merger, Mr. Coutry will enter into an employment agreement
with Operating Company to serve as president and chief executive officer of the
La Quinta business unit of Operating Company.
Regardless of whether or not the merger is consummated, certain
executives of La Quinta will also benefit from the vesting and full funding of
their supplemental retirement benefits and will receive tax gross-up payments
from La Quinta. These aggregate amounts are estimated to be approximately $1.5
million and $1.0 million, respectively.
Certain shareholders of La Quinta holding approximately 29% of the
outstanding shares of La Quinta common stock, have entered into a shareholders
agreement with The Meditrust Companies and La Quinta. These shareholders,
including Mr. Mead and Thomas M. Taylor & Co. and certain other entities and
individuals associated with the Bass family, have agreed to vote in favor of
the merger. These shareholders have further agreed to certain restrictions on
their ability to sell their La Quinta shares and any paired shares received in
the merger. Pursuant to an agreement-in-principle to amend the shareholders
agreement, Thomas M. Taylor is expected to join the Boards of Directors of The
Meditrust Companies.
Conditions to the Merger (see page )
A number of conditions must be met before the merger is completed
including:
[bullet] the approval of the merger by the shareholders of Meditrust and La
Quinta;
[bullet] the approval of the issuance of shares of Operating Company common
stock by the shareholders of Operating Company;
[bullet] the authorization for listing on the New York Stock Exchange of the
paired shares to be issued in the merger;
[bullet] the effectiveness of the registration statement filed with the
Securities and Exchange Commission relating to the issuance of paired
shares in the merger;
[bullet] the absence of any injunction or other court order which would prohibit
or prevent the merger;
[bullet] the receipt by La Quinta of a legal opinion confirming Meditrust's REIT
status;
[bullet] the receipt of legal opinions regarding treatment of the merger as a
reorganization under Section 368(a) of the Internal Revenue Code; and
[bullet] the absence of any legislative or regulatory change causing The
Meditrust Companies to lose their paired share REIT status immediately
before or after the merger.
All of the conditions to the merger may be waived, if permitted by
applicable law, by the company entitled to assert the condition.
Termination of the Merger Agreement
(see page )
The Meditrust Companies and La Quinta may agree to terminate the merger
agreement before the merger has been completed, and either Meditrust or La
11
<PAGE>
Quinta may terminate the merger agreement if any of the following occurs:
[bullet] the merger has not been consummated by July 31, 1998;
[bullet] by Meditrust if the Board of Directors of La Quinta withdraws or
adversely changes its recommendation to shareholders that they vote in
favor of the merger;
[bullet] by La Quinta if the Board of Directors of Meditrust or Operating
Company withdraws or adversely changes its recommendation to
shareholders that they vote in favor of the merger or the share
issuance;
[bullet] the required shareholder approvals are not obtained;
[bullet] a court or other governmental authority permanently prohibits the
merger;
[bullet] the meeting date price (as defined) of the paired shares is below
$28.50 (only La Quinta may terminate the merger agreement for this
reason); or
[bullet] La Quinta's Board of Directors, under certain circumstances, determines
that its fiduciary obligations require acceptance of an acquisition
agreement from a third party.
Termination Fee (see page )
Meditrust generally must pay La Quinta $75 million if the merger
agreement is terminated because Meditrust's or Operating Company's Board of
Directors withdraws or adversely changes its recommendation to shareholders
that they vote in favor of the merger or the issuance of Operating Company
common stock, as the case may be.
La Quinta generally must pay The Meditrust Companies $75 million if the
merger agreement is terminated because La Quinta's Board of Directors withdraws
or adversely changes its recommendation to shareholders that they vote in favor
of the merger. In addition, La Quinta must pay the $75 million to Meditrust if,
under certain circumstances, La Quinta enters into an agreement with a third
party for the acquisition of La Quinta by the third party.
Regulatory Approvals (see page )
The Hart-Scott-Rodino Antitrust Improvements Act of 1976 prohibits us
from completing the merger until after we have provided certain information and
materials to the Antitrust Division of the United States Department of Justice
and the United States Federal Trade Commission, and a required waiting period
has ended. The waiting period expired on February 25, 1998.
Accounting Treatment (see page )
The merger is expected to be accounted for by Meditrust using purchase
accounting.
Opinions of Financial Advisors (see page )
Opinion of Financial Advisor to The Meditrust Companies.
Smith Barney Inc. (now associated with Salomon Brothers Inc and together
with Salomon Brothers Inc doing business as, and referred to in this Joint
Proxy Statement/ Prospectus as, Salomon Smith Barney) has acted as financial
advisor to The Meditrust Companies in connection with the merger. Salomon Smith
Barney has delivered to the Boards of Directors of The Meditrust Companies an
oral opinion on January 2, 1998, which was confirmed by a written opinion dated
January 3, 1998 (the date of the merger agreement), to the effect that, as of
the date of the opinion and based upon and subject to certain matters stated in
the opinion, the merger consideration provided for in the merger agreement was
fair, from a financial point of view, to The Meditrust Companies. The full text
of the written opinion of Salomon Smith Barney dated January 3, 1998, which
sets forth the assumptions made, matters considered and limitations on the
review undertaken, is attached as Annex B to this Joint Proxy Statement/
Prospectus and should be read carefully in its entirety. The opinion of Salomon
Smith Barney was provided for the information and assistance of the Boards of
Directors of The Meditrust Companies and does not constitute a recommendation
to any shareholder as to how a shareholder should vote at The Meditrust
Companies shareholder meetings.
Opinion of Financial Advisor to La Quinta.
Merrill Lynch, Pierce, Fenner & Smith Incorporated has acted as
financial advisor to La Quinta in connection with the merger and has delivered
to the Board of Directors of La Quinta a written opinion dated January 2, 1998
to the effect that, as of the date of such opinion and based upon and subject
to certain matters stated therein, the consideration to be received by the
shareholders of La Quinta pursuant to the merger and the earnings and profits
distribution is fair from a financial point of view to the shareholders of La
Quinta. The full text of the written opinion of Merrill Lynch dated January 2,
1998, which sets forth the assumptions made, matters considered and limitations
on the review undertaken, is attached as Annex C to this Joint Proxy Statement/
12
<PAGE>
Prospectus and should be read carefully in its entirety. The opinion of Merrill
Lynch is directed to the Board of Directors of La Quinta and addresses only the
fairness, from a financial point of view, of the consideration to be received
by the La Quinta shareholders pursuant to the merger and the earnings and
profits distribution and does not address the merits of the underlying decision
by La Quinta to engage in the transaction and does not constitute a
recommendation to any shareholder as to how a shareholder should vote at the La
Quinta meeting.
Federal Income Tax Considerations (see page )
La Quinta Shareholders. The merger is anticipated to be tax-free to a La
Quinta shareholder who receives paired shares of The Meditrust Companies in the
merger, except that such shareholder will recognize gain, but not loss, in an
amount equal to the lesser of the following amounts: (i) the fair market value
of the Operating Company common stock that the shareholder receives, plus the
amount of cash received pursuant to the shareholder's election or in lieu of
fractional shares of Operating Company common stock, and (ii) the amount by
which the fair market value of the paired shares, plus the amount of cash
received (whether on account of the cash election or in lieu of fractional
paired shares), exceeds the shareholder's tax basis in his or her La Quinta
common stock. A La Quinta shareholder also will recognize gain or loss with
respect to cash received in lieu of fractional shares of Meditrust common
stock, measured by the difference between the amount of cash received and the
portion of the basis of the shares of Meditrust common stock allocable to such
fractional shares. Any gain or loss recognized by La Quinta shareholders in
connection with the merger generally will be characterized as a capital gain or
loss. See "Federal Income Tax Considerations--Tax Consequences of the Merger."
In addition, the earnings and profits distribution received by
shareholders of The Meditrust Companies, including former La Quinta
shareholders who receive paired shares in the merger, generally will result in
the recognition of ordinary income by the shareholders.
The Meditrust Companies Shareholders. No gain or loss generally will be
recognized by Meditrust or Operating Company or by their shareholders as a
result of the merger. The earnings and profits distribution will be taxable to
Meditrust's taxable U.S. shareholders as ordinary income to the extent it is
made out of earnings and profits.
REIT Status of Meditrust. Meditrust has elected to be taxed as a REIT
under the Internal Revenue Code of 1986, as amended. Meditrust expects to
continue to operate in a manner so as to qualify for taxation as a REIT after
the merger. Meditrust's ability to qualify for taxation as a REIT depends upon
its ability to meet certain distribution levels, specified diversity of stock
ownership requirements, specified income and asset tests and various other
qualifications imposed by the Internal Revenue Code.
No Appraisal Rights (see page )
Under Texas law, La Quinta shareholders have no right to an appraisal of
the value of their shares in connection with the merger.
Stock Exchange Listing of Paired Shares
(see page )
Meditrust and Operating Company will list the paired shares to be issued
to La Quinta shareholders in connection with the merger on the New York Stock
Exchange. After the effectiveness of the merger, the La Quinta common stock
will be delisted from the New York Stock Exchange and deregistered for purposes
of the Securities Exchange Act of 1934.
Dividends (see page )
The current annualized rate of dividends on the paired shares is $2.43.
We expect that The Meditrust Companies will maintain this dividend rate after
completion of the merger without giving effect to the earnings and profits
distribution, subject to approval and declaration by the Boards of Directors of
Meditrust and Operating Company. As a REIT, Meditrust is obligated to
distribute substantially all of its current taxable earnings to its
shareholders on an annual basis. The payment of dividends by Meditrust in the
future will depend on tax requirements, business conditions, its financial
position and earnings, and other factors.
The current annualized rate of dividends on shares of La Quinta common
stock is $.07. Dividends on shares of La Quinta common stock will cease and the
separate corporate existence of La Quinta will terminate when the merger is
consummated.
Risk Factors (see pages and )
This Joint Proxy Statement/Prospectus includes, or incorporates by
reference, certain additional factors related to the operations and strategies
of The Meditrust Companies, La Quinta and Cobblestone generally, and this
transaction and its effect on the combined entities specifically. Shareholders
should read carefully the section entitled "Risk Factors."
13
<PAGE>
Forward-Looking Statements May Prove Inaccurate (see page )
Each of the companies has made forward-looking statements in this
document (and in documents that are incorporated by reference) that are subject
to risks and uncertainties. Forward-looking statements include the information
concerning possible or assumed future results of operations of The Meditrust
Companies, La Quinta, or Cobblestone, including the anticipated benefits from
the merger. Also, when we use words such as "believes," "expects,"
"anticipates" or similar expressions, we are making forward-looking statements.
Shareholders should note that many factors could affect the future financial
results of The Meditrust Companies, La Quinta or Cobblestone, and could cause
these results to differ materially from those expressed in our forward-looking
statements.
Comparative Per Share Market
Price Information
(see page )
Shares of La Quinta common stock and the paired shares of The Meditrust
Companies are listed on the New York Stock Exchange. On January 2, 1998, the
last full trading day prior to the public announcement of the signing of the
merger agreement, the paired shares closed at $36.375 per share and shares of
La Quinta common stock closed at $20.25. On April 22, 1998, the paired shares
closed at $ per share and La Quinta common stock closed at $ per share.
14
<PAGE>
SUMMARY COMBINED HISTORICAL AND PRO FORMA FINANCIAL DATA
(in thousands, except per share amounts)
The following tables set forth historical financial information for The
Meditrust Companies and La Quinta and condensed pro forma combined financial
information for The Meditrust Companies and should be read in conjunction with,
and are qualified in their entirety by, the historical financial statements and
notes thereto of The Meditrust Companies and La Quinta and the pro forma
condensed combined financial statements and notes thereto of The Meditrust
Companies.
<TABLE>
<CAPTION>
For the Year Ended December 31, 1997
---------------------------------------------------------------
Historical (1) Historical Pro Forma (2)(3)
The Meditrust Companies La Quinta The Meditrust Companies
------------------------- ------------ ------------------------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenue ..................................... $ 294,355 $ 502,569 $ 878,865
Total expenses .................................... 131,943 415,265 715,967
--------- --------- ---------
Income before extraordinary items available for
Paired Common Shares ............................ $ 162,412 $ 87,304 $ 162,898
========= ========= =========
Income allocated to Series A Non-Voting
Convertible Common Stock ........................ N/A N/A $ 17,590
---------
Income available for Paired Common Shares ......... N/A N/A $ 145,308
=========
PER SHARE DATA:
Basic earnings .................................... $ 2.14 $ 1.13 $ 1.15
Diluted earnings .................................. $ 2.12 $ 1.09 $ 1.14
Basic weighted average shares outstanding ......... 76,070 77,426 126,805
Diluted weighted average shares outstanding ....... 76,524 80,160 127,259
CASH FLOW DATA:
Funds from operations (4)(5) ...................... 191,511 N/A 310,813
Cash provided by operating activities (6) ......... 184,412 161,768 N/A
Cash used in investing activities (6) ............. 571,325 339,109 N/A
Cash provided by financing activities (6) ......... 387,919 177,943 N/A
</TABLE>
<TABLE>
<CAPTION>
December 31, 1997
--------------------------------------------
(unaudited)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Real estate investments, net ......... $2,935,772 $1,449,215 $5,698,476
Total assets ......................... $3,323,891 $1,502,024 $6,905,950
Total indebtedness, net .............. $1,377,438 $ 901,685 $3,137,128
Total liabilities .................... $1,498,152 $1,069,498 $3,403,288
Total shareholders' equity ........... $1,825,739 $ 432,526 $3,502,662
Total shares outstanding ............. 88,128 77,137 147,364
</TABLE>
- ----------------
(1) The historical financial data contained herein includes the historical
results of operations of Meditrust's Predecessor from January 1, 1997
through November 5, 1997 and The Meditrust Companies after November 5,
1997 through December 31, 1997, as well as the balance sheets of The
Meditrust Companies as of December 31, 1997.
(2) The pro forma information contained herein includes the pro forma
adjustments for the La Quinta as well as the Cobblestone transactions.
(3) The pro forma information does not purport to represent what The Meditrust
Companies' results of operations would have been for the fiscal year ended
December 31, 1997 if the Merger had in fact occurred on January 1, 1997.
Such pro forma information should not be used or relied upon to project
The Meditrust Companies' combined financial position for any future
periods or to project The Meditrust Companies' combined results of
operations for any future periods.
(4) The White Paper on Funds from Operations approved by the Board of Governors
of the National Association of Real Estate Investment Trusts ("NAREIT") in
March 1995 defines Funds from Operations as net income (loss) (computed in
accordance with generally accepted accounting principles ("GAAP")),
excluding gains (or losses) from debt restructuring and sales of
properties, plus real estate related depreciation and amortization and
after
15
<PAGE>
adjustments for unconsolidated partnerships and joint ventures. The
Meditrust Companies believe that Funds from Operations is helpful to
investors as a measure of the performance of an equity REIT because, along
with cash flow from operating activities, financing activities and
investing activities, it provides investors with an indication of the
ability of The Meditrust Companies to incur and service debt, to make
capital expenditures and to fund other cash needs. The Meditrust Companies
compute Funds from Operations in accordance with standards established by
NAREIT which may not be comparable to Funds from Operations reported by
other REITs that do not define the term in accordance with the current
NAREIT definition or that interpret the current NAREIT definition
differently than The Meditrust Companies. Funds from Operations does not
represent cash generated from operating activities determined in accordance
with GAAP and should not be considered as an alternative to net income
(determined in accordance with GAAP) as an indication of The Meditrust
Companies' financial performance or to cash flow from operating activities
(determined in accordance with GAAP) as a measure of The Meditrust
Companies' liquidity, nor is it indicative of funds available to fund The
Meditrust Companies' cash needs, including its ability to make cash
distributions.
(5) Represents total funds from operations of $328,403 less the income
allocated to Series A Non-Voting Convertible Common Stock of $17,590.
(6) Pro forma operating, investing and financing activities are not presented
due to the significant number of assumptions required to complete the
calculation.
16
<PAGE>
THE MEDITRUST COMPANIES SUMMARY FINANCIAL INFORMATION
The following table presents selected financial information with respect
to The Meditrust Companies for the five years ended December 31, 1997. This
financial information has been derived from audited financial statements
included in or incorporated by reference in the Meditrust Annual Report on Form
10-K for the fiscal years ended December 31, 1993 through December 31, 1997 and
should be read in conjunction with such financial statements and the
accompanying footnotes. See "Where You Can Find More Information."
<TABLE>
<CAPTION>
For the Year Ended December 31,
---------------------------------------------------------------------
1997 1996 1995 1994 1993
------------- ------------- ------------- ------------- -------------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue ............................................. $ 294,355 $ 254,024 $ 209,369 $ 172,993 $ 150,375
Expenses:
Interest expense ................................... 87,428 64,216 64,163 67,479 62,193
Depreciation and amortization ...................... 27,125 23,207 18,176 17,171 16,277
General and administrative expenses ................ 10,558 8,625 7,058 7,883 8,269
Other operating expenses ........................... 6,832 -- -- -- --
--------- --------- --------- --------- ---------
Total expenses ...................................... 131,943 96,048 89,397 92,533 86,739
--------- --------- --------- --------- ---------
Net income before extraordinary items ............... 162,412 157,976 119,972 80,460 63,636
Loss on prepayment of debt .......................... -- -- 33,454 -- --
--------- --------- --------- --------- ---------
Net income .......................................... $ 162,412 $ 157,976 $ 86,518 $ 80,460 $ 63,636
========= ========= ========= ========= =========
PER SHARE DATA:
Basic earnings per Paired Common Share
Net income before extraordinary items ............... $ 2.14 $ 2.21 $ 2.10 $ 2.28 $ 2.03
Loss on prepayment of debt .......................... -- -- 0.59 -- --
--------- --------- --------- --------- ---------
Basic earnings per Paired Common Share .............. $ 2.14 $ 2.21 $ 1.51 $ 2.28 $ 2.03
========= ========= ========= ========= =========
Diluted earnings per Paired Common Share
Net income before extraordinary items ............... $ 2.12 $ 2.20 $ 2.09 $ 1.89 $ 1.68
Loss on prepayment of debt .......................... -- -- 0.58 -- --
--------- --------- --------- --------- ---------
Diluted earnings per Paired Common Share ............ $ 2.12 $ 2.20 $ 1.51 $ 1.89 $ 1.68
========= ========= ========= ========= =========
Distributions paid .................................. $ 2.38 $ 2.31 $ 2.25 $ 2.18 $ 2.11
Book value .......................................... $ 20.72 $ 22.57 $ 20.75 $ 19.44 $ 17.84
Basic weighted average shares outstanding ........... 76,070 71,445 57,151 35,314 31,310
Diluted weighted average shares outstanding ......... 76,524 71,751 57,457 42,564 37,840
CASH FLOW DATA:
Cash provided by operating activities ............... $ 184,412 $ 188,551 $ 149,997 $ 100,819 $ 79,291
Cash used in investing activities ................... 571,325 437,150 310,135 284,996 208,649
Cash provided by financing activities ............... 387,919 247,077 164,449 207,808 120,806
</TABLE>
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------------------
1997 1996 1995 1994 1993
------------- ------------- ------------- ------------- -------------
(in thousands)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Real estate investments, net ......... $2,935,772 $2,188,078 $1,777,798 $1,484,229 $1,214,308
Total assets ......................... $3,323,891 $2,316,875 $1,891,852 $1,595,130 $1,310,401
Indebtedness, net .................... $1,377,438 $ 858,760 $ 762,291 $ 765,752 $ 658,245
Total liabilities .................... $1,498,152 $ 931,934 $ 830,097 $ 824,983 $ 724,606
Total shareholders' equity ........... $1,825,739 $1,384,941 $1,061,755 $ 770,147 $ 585,795
</TABLE>
17
<PAGE>
LA QUINTA SUMMARY COMBINED FINANCIAL DATA
(in thousands, except per share amounts)
The following table sets forth certain combined financial information of
La Quinta, its wholly-owned subsidiaries, its combined unincorporated
partnerships and joint ventures and is qualified in its entirety by, and should
be read in conjunction with, "Management's Discussion and Analysis of Financial
Condition and Results of Operations" incorporated by reference into this Joint
Proxy Statement/Prospectus, the combined financial statements and the notes
thereto incorporated by reference into this Joint Proxy Statement/Prospectus
and other financial, pro forma and statistical information included or
incorporated by reference in this Joint Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
Years Ended December 31
---------------------------------------------------------------------
1997 1996 1995 1994 1993
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Total revenues ........................................... $ 502,569 $ 443,059 $ 413,919 $ 362,242 $ 271,850
Operating income (1) ..................................... 178,727 139,690 132,663 110,757 75,367
Earnings before extraordinary items and cumulative
effect of accounting change ............................ 87,304 60,719 51,374 37,815 19,420
Net earnings available to shareholders (2) ............... 87,266 60,195 4,293 37,815 20,301
PER SHARE DATA
Basic earnings after conversion of partner's interest into
common stock and before extraordinary items and
cumulative effect of accounting change (3) ............. 1.13 0.78 0.07 0.55 0.29
Basic net earnings available to shareholders (3) ......... 1.13 0.77 0.06 0.55 0.30
Diluted earnings after conversion of partner's interest
into common stock and before extraordinary items
and cumulative effect of accounting change (3) ......... 1.09 0.75 0.07 0.52 0.27
Diluted net earnings available to shareholders (3) ....... 1.09 0.74 0.06 0.52 0.29
Dividends paid ........................................... 0.07 0.07 0.07 0.05 0.01
Basic weighted average number of shares outstanding ...... 77,426 77,736 74,360 68,914 68,105
Diluted weighted average number of shares outstanding 80,160 80,961 77,991 72,983 71,212
CASH FLOW DATA
Cash provided by operating activities .................... $ 161,768 $ 148,262 $ 128,798 $ 94,233 $ 78,043
Cash used by investing activities ........................ 339,109 275,179 158,828 156,492 145,027
Cash provided by financing activities .................... 177,943 125,835 30,031 41,000 77,971
BALANCE SHEET DATA
Property and equipment, net .............................. $1,449,215 $1,148,190 $ 915,750 $ 793,928 $ 678,189
Total assets ............................................. 1,502,024 1,199,800 964,115 845,781 749,495
Total debt ............................................... 901,685 692,668 531,738 488,234 436,495
Partners' capital ........................................ 2,667 3,293 6,309 92,099 85,976
Shareholders' equity ..................................... $ 432,526 $ 365,576 $ 331,713 $ 189,231 $ 149,057
</TABLE>
- ----------------
1) Operating income includes a provision for premature retirement of assets
related to La Quinta's Gold Medal[RegTM] rooms program of approximately
$18,076 and $12,630 in 1996 and 1995, respectively. Operating income in
1993 includes a charge of approximately $4,407 to record compensation
expense related to certain performance stock options.
2) Net earnings available to shareholders in 1995 includes a non-recurring,
non-cash charge of approximately $46,364 related to the conversion of
partner's interest into common stock.
3) Basic earnings per share reflects the earnings available to each share of
common stock outstanding during the reporting period. Diluted earnings per
share reflects the earnings available to each share of common stock
outstanding during the reporting period and to each share that would have
been outstanding assuming the issuance of common shares for all dilutive
potential common shares outstanding during the reporting period. All
earnings per share disclosures have been restated to give effect to La
Quinta's stock splits effected in the form of stock dividends.
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COMPARATIVE PER SHARE DATA
We have summarized below the per share information for our respective
companies on an historical, pro forma combined and pro forma equivalent basis.
The pro forma information gives effect to the merger accounted for on a
purchase basis. You should read this information in conjunction with our
historical financial statements (and related notes) contained in the reports
and other information that we have filed with the SEC. See "Where You Can Find
More Information." You should also read this information in connection with the
pro forma financial information set forth under the heading "Unaudited Pro
Forma Financial Statements." You should not rely on the pro forma information
as being indicative of the historical results that we would have had or the
future results that we will experience after the merger.
<TABLE>
<CAPTION>
Year Ended December 31, 1997
-------------------------------------------
Pro Forma Pro Forma
Historical Combined Equivalent(2)
------------ ----------- --------------
<S> <C> <C> <C>
Net income -- basic earnings: (1)
The Meditrust Companies ......... $ 2.14 $ 1.15 --
La Quinta ....................... $ 1.13 -- $ 0.81
Distributions paid: (3)
The Meditrust Companies ......... $ 2.54 -- --
La Quinta ....................... $ .07 -- --
Book value: (4)
The Meditrust Companies ......... $ 20.72 $ 23.77 --
La Quinta ....................... $ 5.61 -- $ 16.78
</TABLE>
- ----------------
(1) The pro forma per share data for The Meditrust Companies for the year ended
December 31, 1997 has been prepared as if the merger had occurred on
January 1, 1997, resulting in weighted average shares outstanding of
126,805,000 for the year ended December 31, 1997.
(2) The pro forma equivalent per share amounts of The Meditrust Companies are
calculated by multiplying pro forma net income per share of The Meditrust
Companies and pro forma book value per share of The Meditrust Companies by
the exchange ratio applicable for an assumed Meeting Date Price of $32.00
which is .7060, based on the assumptions described within the section
entitled "The Merger Agreement--Transaction Consideration."
(3) For a discussion of the dividend policy of The Meditrust Companies
following the merger, see "Comparative Per Share Market Price and Dividend
Information."
(4) Book value per common share was calculated using shareholders' equity as
reflected in the historical and pro forma financial statements divided by
the number of shares of common stock outstanding.
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RISK FACTORS
In addition to the other information contained or incorporated by reference
in this Joint Proxy Statement/Prospectus, you should consider the following risk
factors before you decide whether or not you wish to approve the merger or the
issuance of Operating Company common stock, as the case may be.
Total Cash Consideration is Limited; Receipt of Cash or Paired Shares Dependent
on Elections of Other Shareholders
The aggregate amount of cash payable by The Meditrust Companies to La
Quinta shareholders as (i) the earnings and profits distribution on paired
shares received by La Quinta shareholders in the merger, and (ii) cash paid to
La Quinta shareholders who elect to receive cash in the merger is limited to
approximately $521 million.
If the combined total amount of cash elected by the La Quinta shareholders
and the La Quinta shareholders' portion of the earnings and profits
distribution exceeds the maximum cash payable by Meditrust under the merger
agreement, the available cash will be prorated among the La Quinta shareholders
making cash elections. These La Quinta shareholders will then receive a
combination of (i) their prorated portion of the available cash and (ii) paired
shares. La Quinta shareholders who hold paired shares on the record date for
the earnings and profits distribution will also receive their portion of the
earnings and profits distribution.
La Quinta and Meditrust presently believe that it is unlikely that any La
Quinta shareholder who elects to receive cash will receive all cash. Rather, it
is likely that La Quinta shareholders who elect to receive cash will receive a
combination of cash and paired shares. However, La Quinta shareholders will not
know the number of cash elections that have been made or whether, and to what
extent, the available cash consideration will be prorated at the time of the La
Quinta meeting. See "What La Quinta Shareholders Will Receive in the
Transaction" and "The Merger Agreement -- Transaction Consideration" for a
discussion of the proration of the cash available for payment to La Quinta
shareholders who make cash elections.
La Quinta Shareholders Who Receive Paired Shares Must Hold Their Paired Shares
For a Period of Time After the Merger in Order to Receive the Earnings and
Profits Distribution
If the merger is approved, La Quinta shareholders who receive paired
shares in the merger will need to hold the shares until the record date for the
earnings and profits distribution in order to receive the earnings and profits
distribution. The merger agreement contemplates that the record date for the
earnings and profits distribution will be between fifteen and forty-five days
after the merger is completed. During this period, the paired shares will be
subject to market risks and other risks inherent in holding equity securities,
including the risk that the market price of the paired shares may decline. In
the event a La Quinta shareholder disposes of the paired shares received in
connection with the merger prior to the record date for the earnings and
profits distribution, he or she will not receive the distribution. See "What La
Quinta Shareholders Will Receive in the Transaction" and "The Merger
Agreement -- Distribution of Earnings and Profits."
Some La Quinta Shareholders May Vote to Approve the Merger Before the Exchange
Ratio is Established; Risk of Decline in Paired Share Price; Effect of
Ex-Dividend Date
The paired share price, referred to as the "Meeting Date Price,"
establishing the number of paired shares into which shares of La Quinta common
stock will be converted, will be determined eight trading days before the La
Quinta meeting. As a result, the final exchange ratio may not be determined
until after some La Quinta shareholders have voted to approve the merger.
Consequently, at the time they vote, these shareholders will not know the
amount of paired shares they will receive in exchange for their La Quinta
shares. The Meeting Date Price will be based on the average closing price of a
paired share on twenty randomly selected trading days during the thirty trading
day period preceding the determination date.
If the Meeting Date Price is below $34.20, the combination of the cash to
be received in the earnings and profits distribution and the paired shares to
be received by La Quinta shareholders in connection with the merger will have a
stated amount of less than $26 per share of La Quinta common stock. Between
January 4, 1998 and April 22, 1998, the closing price of the paired shares was
below $34.20 on trading days. As of April 22, 1998, the combination of
the cash
20
<PAGE>
to be received in the earnings and profits distribution and the paired shares
to be received by La Quinta shareholders would have a stated amount of
$ .
The closing prices of the paired shares and the La Quinta shares at the
effective time of the merger may vary significantly from the prices as of the
date of the merger agreement, the date of this Joint Proxy Statement/Prospectus
or the date of the shareholders' meetings. These variances may be due to, among
other things, changes in the business, operations and prospects of The
Meditrust Companies and La Quinta and market assessments of the timing or
likelihood that the merger will be consummated. The prices of the paired shares
and the shares of La Quinta common stock are also subject to general market
conditions and economic and market perception of paired share stocks, REIT
stocks, hotel and health care related stocks and the stock market generally. We
cannot assure you that the price of the paired shares or the La Quinta common
stock will not decline between the date of this Joint Proxy
Statement/Prospectus and the effective time of the merger.
Meditrust will declare the earnings and profits distribution immediately
prior to the completion of the merger. The earnings and profits distribution
will be payable to holders of record of paired shares as of a date between
fifteen and forty-five days following the completion of the merger. Under the
rules of the New York Stock Exchange, the paired shares will be traded without
the right to receive the distribution two business days prior to the record
date. This date is referred to as the ex-dividend date. After the ex-dividend
date, a stock's price may decrease by the amount of the expected per share
distribution. Holders of paired shares should be aware that as the ex-dividend
date for the earnings and profits distribution approaches, the market price of
the paired shares may be affected in a similar manner.
Dilution to Existing Shareholders of The Meditrust Companies
Depending on the number of shares of La Quinta common stock whose holders
have elected to receive cash consideration in the merger, the number of paired
shares issued in the merger could range from approximately to .
After the merger, the pre-merger shareholders of The Meditrust Companies will
own approximately % to %, and former La Quinta shareholders will own
approximately % to %, of the outstanding paired shares (based on the number
of issued and outstanding shares of La Quinta common stock on April 22, 1998)
and, accordingly, the voting power of the current shareholders of The Meditrust
Companies will be substantially diluted.
The Meditrust Companies Will Have Substantial Debt Obligations Upon
Consummation of the Merger
Following the consummation of the merger and the Cobblestone acquisition,
The Meditrust Companies will have approximately $3.14 billion of pro forma
combined total indebtedness, as compared to combined total indebtedness of The
Meditrust Companies, without giving effect to the merger and the Cobblestone
acquisition, of approximately $1.38 billion. The interest rates of The
Meditrust Companies' credit facility bears interest at variable rates based, in
part, on The Meditrust Companies' leverage ratio. Consequently, the incurrence
of indebtedness in connection with the merger and the earnings and profits
distribution, and the resulting increase in the leverage ratio, may result in
increased interest expense under The Meditrust Companies' credit facility. In
addition, increases in market interest rates will also result in increased
borrowing cost for The Meditrust Companies, which may adversely affect The
Meditrust Companies' cash flow and amounts available for distribution to their
shareholders.
The foregoing risks associated with the debt obligations of The Meditrust
Companies may adversely affect the market price of the paired shares following
the merger and may inhibit the ability of The Meditrust Companies to raise
capital in both the public and private markets following the consummation of
the merger and the Cobblestone acquisition.
Tax Risks Related to Real Estate Investment Trusts
Dependence on Qualification as a REIT. Meditrust operates and will operate
in the future, so as to qualify as a REIT for federal income tax purposes.
However, we cannot assure you that Meditrust will continue to qualify as a REIT
in the future. Qualification as a REIT involves the application of highly
technical and complex Code provisions for which there are only limited judicial
or administrative interpretations. The complexity of these provisions is
greater in the case of a paired share REIT. Qualification as a REIT also
involves the determination of various factual matters and circumstances not
entirely within Meditrust's control. In addition, Meditrust's ability to
qualify as a REIT is dependent upon its continued exemption from certain
anti-pairing rules provided in the Code which otherwise would
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<PAGE>
prevent Meditrust from qualifying as a REIT. Under a "grandfathering" rule,
these anti-pairing rules do not apply to a paired share REIT if the REIT and
its paired Operating Company were paired on June 30, 1983. Meditrust was paired
with operating company on June 30, 1983. There are, however, no judicial or
administrative authorities interpreting this "grandfathering" rule in the
context of a merger or otherwise. Moreover, if for any reason Meditrust failed
to qualify as a REIT in 1983, the benefit of the "grandfathering" rule would
not be available to Meditrust, in which case Meditrust would not qualify as a
REIT for any taxable year. See "Federal Income Tax Considerations -- REIT
Qualification."
On February 2, 1998, the Department of Treasury released an explanation of
the revenue proposals included in the Clinton Administration's fiscal 1999
budget (the "Tax Proposals"). The Tax Proposals, among other things, include a
freeze on the grandfathered status of paired share REITs such as The Meditrust
Companies. Under this proposal, Meditrust and Operating Company would be treated
as one entity with respect to properties acquired on or after the date of the
first Congressional committee action with respect to such proposal and with
respect to activities or services relating to such properties that are
undertaken or performed by one of the paired entities on or after such date. The
Tax Proposals also would prohibit REITs from holding stock of a corporation
possessing more than 10% of the vote or value of all classes of stock of the
corporation. This proposal would be effective with respect to stock acquired on
or after the date of the first Congressional committee action with respect to
the proposal; provided that the proposal would apply to stock acquired before
such effective date if, on or after such date, the subsidiary corporation
engaged in a new trade or business or acquired substantial new assets. If the
Tax Proposals are enacted in their current form, and the merger closes on or
after the date of first committee action, Operating Company (including corporate
subsidiaries of Meditrust that are controlled by Operating Company) would not be
able to operate the hotels acquired by Meditrust in the merger in the manner
currently contemplated without disqualifying Meditrust as a REIT. Moreover, the
Treasury's explanation provides only a general description of the Tax Proposals,
and the details of the statutory amendments that would implement the Tax
Proposals are not known. Consequently, it is impossible to determine all of the
ramifications of the Tax Proposals. Restructuring the operations of Meditrust
and Operating Company to comply with the rules contemplated by the Tax Proposals
could cause The Meditrust Companies to incur substantial tax liabilities or
otherwise adversely affect The Meditrust Companies.
On March 26, 1998, Representative William Archer, Chairman of the House
Ways and Means Committee, and Senator William V. Roth, Jr., Chairman of the
Senate Finance Committee, introduced identical legislation to limit this
"grandfathering" rule. Under the proposed legislation, the anti-pairing rules
provided in the Code would apply to real property interests acquired after
March 26, 1998 by The Meditrust Companies, or a subsidiary or partnership in
which a ten percent or greater interest is owned by The Meditrust Companies
(collectively, the "REIT Group"), unless (1) the real property interests are
acquired pursuant to a written agreement which was binding on March 26, 1998
and all times thereafter or (2) the acquisition of such real property interests
was described in a public announcement or in a filing with the SEC on or before
March 26, 1998.
Under this legislation as currently proposed, the properties to be acquired
from La Quinta would not be subject to these anti-pairing rules. However, we
cannot assure you that the legislation will be adopted in its current form, with
a consequence that the properties to be acquired from La Quinta or other
properties of The Meditrust Companies could become subject to the anti-pairing
rules of the Code in the future. In addition, the proposed legislation also
provides that a property held by The Meditrust Companies that is not subject to
the anti-pairing rules would become subject to such rules in the event of an
improvement placed in service after December 31, 1999 that changes the use of
the property and the cost of which is greater than 200 percent of (1) the
undepreciated cost of the property (prior to the improvement) or (2) in the case
of property acquired where there is a substituted basis (e.g., the properties to
be acquired from La Quinta), the fair market value of the property on the date
it was acquired by The Meditrust Companies. There is an exception for
improvements placed in service before January 1, 2004 pursuant to a binding
contract in effect on December 31, 1999 and at all times thereafter. This
proposed restriction on property improvements would apply to the properties to
be acquired from La Quinta, as well as all other properties owned by The
Meditrust Companies, and would limit the ability of The Meditrust Companies to
improve or change the use of those properties after December 31, 1999.
Other legislation, as well as regulations, administrative interpretations
or court decisions, also could change the tax law with respect to Meditrust's
qualification as a REIT and the federal income tax consequence of such
qualification. The adoption of any such legislation, regulations or
administrative interpretations or court decisions could have a material adverse
effect on the results of operations, financial condition and prospects of The
Meditrust Companies.
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<PAGE>
Qualification of Meditrust as a REIT for periods following the merger also
generally depends on the REIT qualification of Meditrust for periods prior to
the merger and the REIT qualification of Meditrust's Predecessor, for periods
prior to the merger with Santa Anita Realty Enterprise, Inc. See "Federal
Income Tax Considerations -- REIT Qualification."
If Meditrust fails to qualify as a REIT, it would be subject to federal
income tax (including any applicable alternative minimum tax) on its taxable
income at corporate rates. In addition, unless entitled to relief under certain
statutory provisions and subject to the discussion above regarding the impact
if Meditrust failed to qualify as a REIT in 1983, Meditrust also would be
disqualified from re-electing REIT status for the four taxable years following
the year during which qualification is lost. Failure to qualify as a REIT would
reduce the net earnings of Meditrust available for distribution to shareholders
because of the additional tax liability to Meditrust for the year or years
involved. To the extent that distributions to shareholders would have been made
in anticipation of Meditrust's qualifying as a REIT, Meditrust might be
required to borrow funds or to liquidate certain of its investments to pay the
applicable tax. The failure to qualify as a REIT would also constitute a
default under certain debt obligations of Meditrust. See "Federal Income Tax
Considerations -- REIT Qualification."
Meditrust believes that it has operated (and that prior to the Santa Anita
merger, Meditrust's Predecessor operated), and will operate following the
merger, in a manner that permits Meditrust to qualify as a REIT under the Code
for each taxable year since its formation. Goodwin, Procter & Hoar LLP, counsel
for Meditrust, has rendered an opinion regarding (i) Meditrust's qualification
as a REIT for periods prior to the merger and (ii) Meditrust's ability to
qualify as a REIT following the merger.
Adverse Effects of REIT Minimum Distribution Requirements. In order to
qualify as a REIT, Meditrust is generally required each year to distribute to
its shareholders at least 95% of its taxable income (excluding any net capital
gain). In addition, if Meditrust disposes of assets acquired from La Quinta
during the ten-year period following the merger, Meditrust will be required to
distribute at least 95% of the amount of any "built-in gain" attributable to
such assets that Meditrust recognizes in the disposition, less the amount of
any tax paid with respect to such recognized built-in gain. For a further
discussion of this requirement, shareholders should see the section of this
Joint Proxy Statement/Prospectus entitled "Federal Income Tax
Considerations -- REIT Qualification -- Built-In Gain Tax." Meditrust generally
is subject to a 4% nondeductible excise tax on the amount, if any, by which
certain distributions paid by it with respect to any calendar year are less
than the sum of (i) 85% of its ordinary income for that year, (ii) 95% of its
capital gain net income for that year, and (iii) 100% of its undistributed
income from prior years.
Meditrust intends to make distributions to its shareholders to comply with
the 95% distribution requirement and to avoid the nondeductible excise tax.
Differences in timing between the recognition of taxable income and the receipt
of cash available for distribution and the seasonality of the lodging industry
could require Meditrust to borrow funds on a short-term basis to meet the 95%
distribution requirement and to avoid the nondeductible excise tax.
Distributions by The Meditrust Companies are determined by their
respective Boards of Directors and depend on a number of factors, including the
amount of cash available for distribution, financial condition, any decision by
either Board of Directors to reinvest funds rather than to distribute such
funds, capital expenditures, the annual distribution requirements under the
REIT provisions of the Code (in the case of Meditrust Corporation) and such
other factors as either Board of Directors deems relevant. For federal income
tax purposes, distributions paid to shareholders may consist of ordinary
income, capital gains (in the case of Meditrust Corporation), return of
capital, or a combination thereof. The Meditrust Companies will provide
shareholders with annual statements as to the taxability of distributions.
Requirement to Distribute Accumulated Earnings and Profits. To maintain
its qualification as a REIT following the merger, Meditrust will be required to
distribute the current and accumulated earnings and profits of La Quinta (as
determined for federal income tax purposes). Following the merger, Meditrust
will make a distribution of earnings and profits in the amount determined by
Meditrust to be necessary for federal income tax purposes. The distribution
will be taken into account by Meditrust's taxable U.S. shareholders as ordinary
income to the extent it is made out of current or accumulated earnings and
profits, and will not be eligible for the dividends received deduction
generally available for corporations. For a further discussion of that
requirement, see the section of this Joint Proxy Statement/ Prospectus
entitled "Federal Income Tax Considerations -- Federal Income Taxation of
Holders of Paired Shares."
In rendering its opinion regarding REIT qualification, Goodwin, Procter &
Hoar LLP has relied upon the representations of Meditrust to the effect that it
will distribute with respect to the taxable year in which the merger closes
23
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all earnings and profits inherited from La Quinta. If the Internal Revenue
Service ("IRS") were to determine that La Quinta's actual earnings and profits
exceeded the amounts distributed or deemed distributed by Meditrust in 1998
following the merger, Meditrust would be disqualified as a REIT.
Implications of Merger Under ERISA
ERISA is a broad statutory framework that governs most non-governmental
employee benefit plans in the United States. Fiduciaries of pension,
profit-sharing or other employee benefit plans subject to ERISA ("ERISA
Plans"), in consultation with their advisers, should carefully consider the
impact of ERISA and the regulations of the Department of Labor (the "DOL")
thereunder on the Plan's decision whether to approve the merger and, in the
case of La Quinta shareholders, whether to elect cash. In particular, a
fiduciary of an ERISA Plan should consider whether its decisions with respect
to these matters would satisfy the requirements set forth in Part 4 of subtitle
B of Title I of ERISA, including (a) the diversification and prudence
requirements of ERISA, (b) the requirement that the decisions be in the best
interests of the participants and beneficiaries of the ERISA Plan, and (c) the
requirement that the decisions be authorized under the appropriate governing
instruments and investment policies of the ERISA Plan.
An ERISA Plan fiduciary should also consider whether the assets of The
Meditrust Companies will constitute "plan assets" subject to ERISA after the
merger. The DOL has promulgated a regulation under ERISA, 29 C.F.R. [sec]
2510.3-101 (the "DOL Regulation"), that specifies the circumstances under which
the underlying assets of an entity in which an ERISA Plan acquires an equity
interest will be considered to be assets of the ERISA Plan for purposes of
ERISA (including the prohibited transaction rules of Section 406 of ERISA) and
the prohibited transaction provisions of Code Section 4975. If the assets of
The Meditrust Companies were considered to be assets of an ERISA Plan investor,
management of The Meditrust Companies would be ERISA fiduciaries with respect
to such ERISA Plan, and The Meditrust Companies would be subject to ERISA,
including ERISA's prohibited transaction rules, and the prohibited transaction
rules of the Code.
Under the DOL Regulation, the assets of an entity will not be considered
to be assets of any ERISA Plan that acquires an equity interest in the entity
if one or more specified exceptions applies. We believe that one or more of
these exceptions will be available with respect to an ERISA Plan's investment
in The Meditrust Companies and therefore intends to proceed on the basis that
assets of The Meditrust Companies will not constitute ERISA Plan assets.
Risks Associated with Rapid Growth of The Meditrust Companies; Execution of
Growth Strategy
The Meditrust Companies currently are experiencing a period of rapid
growth through acquisitions. The Meditrust Companies and Meditrust's
Predecessor have recently consummated or entered into merger agreements with
Santa Anita Realty, Inc. and Santa Anita Operating Company, La Quinta and
Cobblestone. Failure to efficiently manage this growing asset base, or the
failure of The Meditrust Companies to successfully integrate La Quinta's and
Cobblestone's operations with existing operations and the operations of other
acquired businesses could have a material adverse effect on the results of
operations and financial condition of The Meditrust Companies. The success of
any completed acquisition will depend in large measure on The Meditrust
Companies' ability to integrate the properties within The Meditrust Companies'
existing portfolio and improve the operating results of the acquired
properties. The process of integrating acquired properties, and, in particular,
geographically diverse properties, with The Meditrust Companies' existing
properties may involve unforeseen difficulties and may require a
disproportionate amount of The Meditrust's Companies' financial and other
resources, including management time, which could adversely impact The
Meditrust Companies' existing operations and their ability to execute their
growth strategy. See "The Companies -- The Meditrust Companies."
The Meditrust Companies' growth strategy depends, in large part, on their
ability to identify, finance, acquire and successfully operate additional real
estate interests. We cannot assure you that The Meditrust Companies will find
suitable acquisitions, that The Meditrust Companies will be able to consummate
these acquisitions in a timely manner or at all, or that these acquisitions
will not be acquired by The Meditrust Companies' competitors.
The Meditrust Companies Are Heavily Dependent on Health Care Related Properties
and Will Need to Rely on New Members of Management as They Diversify Their
Operations
Currently, approximately 93% of The Meditrust Companies' real property
portfolio is comprised of health care related real property. Recently, through
acquisitions such as Cobblestone, I.R.I. or La Quinta that are either pending
or have been consummated, The Meditrust Companies have begun to diversify their
operations as well as their real
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property portfolio. As The Meditrust Companies diversify into new areas
through acquisitions, it is likely that Operating Company will rely heavily upon
the expertise of the existing management of the acquired businesses or will need
to hire outside management to operate these diversified operations. We cannot
assure you that Operating Company will be able to hire and retain experienced
management to operate the businesses they acquire or propose to acquire.
Interests of Certain Principal Shareholders, Directors and Officers of La
Quinta in the Merger May Be Different From Interests of La Quinta Shareholders
Generally
Shareholders of La Quinta and The Meditrust Companies should be aware that
certain members of La Quinta's management and the Board of Directors of La
Quinta have interests in, and will receive benefits as a consequence of, the
merger that are separate from the interests of, and benefits to, shareholders
of La Quinta generally.
La Quinta has entered into severance agreements and other arrangements
with several executive officers that, under certain circumstances, entitle each
officer to receive payments and other benefits if the officer's employment is
terminated following the merger. In addition, Gary L. Mead, La Quinta's
president and chief executive officer, will step down at the time of the
merger. Mr. Mead will receive a severance payment of approximately $2.8 million
in connection with the termination of his employment. La Quinta currently
estimates that the aggregate required payments to executive officers, including
Mr. Mead, under the severance arrangements would be approximately $8.6 million,
assuming all such executive officers are terminated within one year following
the merger. The merger agreement also provides for the vesting of options,
restricted stock and other incentive based awards. The aggregate value of the
options and restricted stock of executive officers accelerated due to the
merger is approximately $12.1 million. La Quinta also entered into new
severance agreements and/or adopted new severance policies with respect to
certain other employees of La Quinta. Aggregate payments to be paid under
severance agreements to executive officers, if all such persons were terminated
after the merger would be approximately $8.6 million. The merger agreement
provides that holders of La Quinta options, including executive officers and
directors, may elect to have their options cashed out rather than converting
them into options to purchase paired shares. The options will be cashed out by
paying the spread between $26 and the option's exercise price regardless of
whether the La Quinta shareholders will receive more or less than $26 in total
amount of consideration, based upon the meeting date price of the paired
shares.
Executives of La Quinta are covered under a supplemental retirement plan.
Regardless of whether or not the merger is consummated, as a result of the
execution of the merger agreement, the executives' benefits under the plan will
become fully vested. La Quinta is required to fund the value of these benefits
in a separate trust or distribute the allocable funds to the participants. As
the executives will then be taxed on the value of their supplemental retirement
benefits, La Quinta is also required to provide a tax gross-up payment to each
affected executive. See "The Merger -- Interests of Certain Persons in the
Merger" for a more detailed discussion of the benefits that certain directors,
executive officers and principal shareholders of La Quinta may receive in
connection with the merger.
Health Care Industry Risks
Operating Risks. One of Meditrust's primary businesses is that of buying,
selling, financing and leasing health care related properties. The risks of
this business include, among other things: competition for tenants; competition
from other health care financing providers, a number of which may have greater
marketing, financial resources and experience than Meditrust; changes in
government regulation of health care; changes in the availability and cost of
insurance coverage; increases in operating costs due to inflation and other
factors; and adverse effects of general and local economic conditions.
Government Regulation May Increase. The health care industry is subject to
changing political, economic, regulatory and demographic influences that may
affect the operations of health care facilities and providers. During the past
several years, the health care industry has been subject to an increase in
government regulation of, among other things, reimbursement rates and certain
capital expenditures. Some elected officials have announced that they intend to
examine certain aspects of the U.S. health care system including proposals
which may further increase governmental involvement in health care. For
example, the President and Congress have in the past, and may in the future,
propose health care reforms which could impose additional regulations on The
Meditrust Companies and its operators or limit the amounts that operators may
charge for services. The Meditrust Companies and its operators are and will
continue to be subject to varying degrees of regulation and licensing by health
or social service agencies and other regulatory authorities in the various
states and localities in which they operate or in which they will operate.
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Reliance on Third-Party Payors; Availability of Reimbursement. The cost of
many of the services offered by The Meditrust Companies' current operators are
reimbursed or paid for by third-party payors such as Medicare and Medicaid
programs for elderly, low income and disabled patients and state Medicaid
programs for maintenance organizations and managed care organizations. We
cannot assure you that third-party reimbursement for The Meditrust Companies'
operators will continue to be available or when reimbursement will be offered.
The increase in the number of providers contracting to provide per person fixed
cost health care to a patient population has increased pressure on third party
payors to lower costs.
These factors could affect the ability of The Meditrust Companies'
operators to generate revenues and make payments to Meditrust. This, in turn,
could adversely affect The Meditrust Companies' ability to generate revenues
and make expected distributions to shareholders.
Lodging Industry Risks
Following the merger, La Quinta will be operated as a business unit of
Operating Company and its real estate assets will be owned by Meditrust.
Competition. The profitability of La Quinta hotels is subject to general
economic conditions, competition, the desirability of particular locations, the
relationship between supply of and demand for hotel rooms and other factors. La
Quinta hotels generally operate in markets that contain numerous competitors,
including a wide range of lodging facilities offering full-service,
limited-service and all-suite lodging options to the public. The continued
success of La Quinta's hotels will be dependent, in large part, upon their
ability to compete in such areas as reasonableness of room rates, quality of
accommodations, name recognition, service level and convenience of locations.
Additionally, an increasing supply of hotel rooms in La Quinta's market segment
and recent consolidations in the lodging industry generally resulting in the
creation of several large, multi-branded hotel chains with diversified
operations may adversely impact La Quinta's financial condition, results of
operations and business. We cannot assure you that demographic, geographic or
other changes in markets will not adversely affect the convenience or
desirability of the locations of La Quinta's hotels. Furthermore, we cannot
assure you that, in the markets in which La Quinta's hotels operate, competing
hotels will not provide greater competition for guests than currently exists,
and that new hotels will not enter such markets. Additionally, La Quinta's
hotels are concentrated in the western and southern regions of the United
States. As a result, La Quinta is sensitive to economic and competitive
conditions in those regions.
Extensive Employment and Other Governmental Regulation. The hotel business
is subject to extensive federal, state and local regulatory requirements,
including building and zoning requirements, all of which can prevent, delay,
make uneconomical or significantly increase the cost of developing additional
lodging facilities. In addition, La Quinta's hotels and Operating Company are
subject to laws governing their relationship with employees, including minimum
wage requirements, overtime, working conditions, work permit requirements and
discrimination claims. An increase in the minimum wage rate, employee benefit
costs or other costs associated with employees, could adversely affect La
Quinta's hotels and The Meditrust Companies.
Fluctuations in Operating Results. The lodging industry may be adversely
affected by changes in economic conditions, changes in local market conditions,
oversupply of hotel space, a reduction in demand for hotel space in specific
areas, changes in travel patterns, extreme weather conditions, changes in
governmental regulations that influence or determine wages, prices or
construction costs, changes in interest rates, the availability of financing
for operating or capital needs, and changes in real estate tax rates and other
operating expenses. Room supply and demand historically have been sensitive to
shifts in GNP growth, which has resulted in cyclical changes in average daily
room and occupancy rates. Due in part to the strong correlation between the
lodging industry's performance and economic conditions, the lodging industry is
subject to cyclical changes in revenues. Furthermore, the lodging industry is
seasonal in nature, with revenues and profitability typically higher in summer
periods than in winter periods.
Expansion Strategy May Not Be Successfully Continued. Meditrust intends to
continue La Quinta's strategy of growth through both the construction of new
lodging facilities and the opportunistic acquisition of existing lodging
facilities. We cannot assure you that Meditrust will find suitable sites for
construction or suitable properties for acquisition or that these sites and
properties will not be acquired by competitors. Meditrust will incur certain
costs in connection with the acquisition of new properties and may be required
to provide significant capital expenditures for conversions and upgrades when
acquiring a property operating as other than a La Quinta[RegTM] brand property.
We cannot assure
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you that any of the properties Meditrust may construct or acquire will be
profitable following such construction or acquisition. The construction or
acquisition of a property that is not profitable, or the acquisition of a
property that results in significant unanticipated conversion costs, could
adversely affect Meditrust's profitability. Meditrust may in the future require
additional financing in order to continue to make acquisitions. We cannot assure
you that such additional financing, if any, will be available to Meditrust on
acceptable terms.
Construction. Meditrust may from time to time experience shortages of
materials or qualified tradespeople or volatile increases in the cost of
certain construction materials, resulting in longer than normal construction
and remodeling periods, loss of revenue and increased costs. Meditrust will
rely heavily on local contractors, who may be inadequately capitalized or
understaffed. The inability or failure of one or more local contractors to
perform may result in construction or remodeling delays, increased cost and
loss of revenue.
Real Estate Investment Risks
General Risks. Meditrust's investments (including those of La Quinta and
Cobblestone, assuming consummation of their respective mergers) will be subject
to the risks inherent in owning real estate. The underlying value of Meditrust's
real estate investments and Meditrust's income and ability to make distributions
to its shareholders will depend on the ability of the lessees, the operators and
Operating Company to operate Meditrust's properties in a manner sufficient to
maintain or increase revenues and to generate sufficient income in excess of
operating expenses to make rent payments under their leases or loan payments in
respect of their loans from Meditrust.
Income from Meditrust's properties may also be adversely affected by:
[bullet] changes in national economic conditions, changes in local market
conditions due to changes in general or local economic conditions and
neighborhood characteristics;
[bullet] changes in interest rates and in the availability, cost and terms of
mortgage funds;
[bullet] the impact of present or future environmental legislation and
compliance with environmental laws and other regulatory requirements;
[bullet] the ongoing need for capital improvements, particularly in older
structures;
[bullet] changes in real estate tax rates and assessments and other operating
expenses;
[bullet] adverse changes in governmental rules and fiscal policies;
[bullet] adverse changes in zoning and other land use laws; and
[bullet] civil unrest, earthquakes and other natural disasters (which may result
in uninsured losses) and other factors which are beyond our control.
Value and Illiquidity of Real Estate. Real estate investments are
relatively illiquid. Meditrust's ability to vary its portfolio in response to
changes in economic and other conditions will therefore be limited. If
Meditrust wants to sell an investment, we cannot assure you that Meditrust will
be able to dispose of it in the time period it desires or that the sales prices
of any investment will recoup or exceed the amount of Meditrust's investment.
Increases in Property Taxes Could Affect Ability to Make Expected
Shareholder Distributions. Meditrust's health care facilities and real estate
investments, La Quinta's and Cobblestone's properties and Meditrust's racing
facilities are all subject to real property taxes. The real property taxes on
properties in which Meditrust invests may increase or decrease as property tax
rates change and as the value of the properties are assessed or reassessed by
taxing authorities. In addition, as a result of the merger, certain of
Meditrust's properties may be subject to reappraisal or reassessment. If
property taxes increase as a result of such reappraisals or reassessments,
Meditrust's ability to make expected distributions to shareholders could be
adversely affected.
Environmental Matters. The obligation to pay for the cost of complying
with existing environmental laws, ordinances and regulations, as well as the
cost of complying with future legislation, may affect the operating costs of
Meditrust, Operating Company, La Quinta and Cobblestone. Under various federal,
state and local environmental laws, ordinances and regulations, a current or
previous owner or operator of real property may be liable for the costs of
removal or remediation of hazardous or toxic substances on, or under the
property. Environmental laws often impose
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liability whether or not the owner or operator knew of, or was responsible
for, the presence of hazardous or toxic substances and whether or not the
substances originated from the real property. In addition, the presence of
hazardous or toxic substances, or the failure to remediate such property
properly, may adversely affect Meditrust's ability to borrow by using the real
property as collateral.
Persons who arrange for the transportation, disposal or treatment of
hazardous or toxic substances may also be liable for the costs of removal or
remediation of hazardous or toxic substances at the disposal or treatment
facility, whether or not the facility is or ever was owned or operated by such
persons. Certain environmental laws and common law principles could be used to
impose liability for releases of hazardous materials, including
asbestos-containing materials or "ACMs," into the environment. In addition,
third parties may seek recovery from owners or operators of real properties for
personal injury associated with exposure to released ACMs or other hazardous
materials. Environmental laws may also impose restrictions on the use or
transfer of property, and these restrictions may require expenditures. In
connection with the ownership and operation of any of Meditrust's properties,
Meditrust, Operating Company, the lessees or the operators may be liable for
any such costs. The cost of defending against claims of liability or
remediating contaminated property and the cost of complying with environmental
laws could materially adversely affect Meditrust's results of operations and
financial condition.
Compliance with the ADA May Affect Expected Distributions to Meditrust's
Shareholders. Under the American with Disabilities Act of 1990 (the "ADA"), all
public accommodations are required to meet certain federal requirements related
to access and use by disabled persons. A determination that Meditrust,
Operating Company or La Quinta is not in compliance with the ADA could result
in the imposition of fines and/or an award of damages to private litigants. If
Meditrust, Operating Company or La Quinta were required to make modifications
to comply with the ADA, the ability of Meditrust or Operating Company to make
expected distributions to its shareholders could be adversely affected.
Uninsured and Underinsured Losses. Each of Meditrust's and, to the extent
applicable, La Quinta's leases and mortgage loans specifies comprehensive
insurance to be maintained on each of the applicable properties, including
liability, fire and extended coverage. Meditrust believes such specified
coverage is of the type and amount customarily obtained for or by an owner of
such properties. Leases and loan documents for new investments (including those
leased to Operating Company) will contain similar provisions. However, there
are certain types of losses, generally of a catastrophic nature, such as
earthquakes and floods, that may be uninsurable or not economically insurable.
We will use our discretion in determining amounts, coverage limits and
deductibility provisions of insurance, with a view to maintaining appropriate
insurance coverage on the investments of Meditrust, Operating Company, La
Quinta and Cobblestone at a reasonable cost and on suitable terms. This may
result in insurance coverage that, in the event of a substantial loss, would
not be sufficient to pay the full current market value or current replacement
cost of the lost investment of Meditrust or Operating Company. Inflation,
changes in building codes, zoning or other land use ordinances, environmental
considerations, lender imposed restrictions and other factors also might make
it infeasible to use insurance proceeds to replace the property after such
property has been damaged or destroyed. Under those circumstances, the
insurance proceeds received by Meditrust or Operating Company might not be
adequate to restore its economic position with respect to such property.
Additionally, La Quinta has established a paid loss insurance program for
commercial general liability, automobile liability and workers' compensation
and employer's liability. All of La Quinta's hotels participate in the program.
Under the program claims and expenses are shared pro rata, with excess umbrella
insurance being maintained to cover losses, claims and costs in excess of the
deductible limits.
Financing for the Cash Component of Merger Consideration, Earnings and Profits
Distribution and Transaction Expenses Has Not Been Finalized
The Meditrust Companies are exploring various alternative means to finance
most effectively the earnings and profits distribution, the cash consideration
to be paid in the merger pursuant to cash elections by La Quinta shareholders
and the other costs associated with the merger, including refinancing and
assumption of certain La Quinta debt. This financing may consist of public or
private offerings of equity or debt, or a combination thereof. We cannot assure
you, however, that The Meditrust Companies will successfully obtain the
financing necessary to consummate the merger, or if obtained, that such
financing will be on terms and conditions favorable to The Meditrust Companies.
The Meditrust Companies' obligations under the merger agreement are not
conditioned on the obtaining of financing. See "The Companies -- The Surviving
Companies -- Liquidity and Financial Resources."
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Potential Dilutive Effect of Issuance by The Meditrust Companies of Capital
Stock With Purchase Price Adjustment Mechanism
In connection with a private placement of 8,500,000 shares of Series A
Non-Voting Convertible Common Stock to Merrill Lynch International, The
Meditrust Companies entered into a Purchase Price Adjustment Mechanism
Agreement, dated as of February 26, 1998, with Merrill Lynch International (the
"Price Adjustment Agreement"), pursuant to which the parties agreed to adjust
the purchase price of the 8,500,000 Paired Shares on or prior to February 26,
1999 by the difference between (i) the market price for the Paired Shares at
the time of the settlement and (ii) a reference price (the "Reference Price)
based on the closing price for the Paired Shares on February 25, 1998 plus a
forward accretion, minus an adjustment to reflect distributions on the Paired
Shares during the transaction period (such difference, the "Price Difference").
If the Price Difference is positive, Merrill Lynch International agrees to
deliver Paired Shares to The Meditrust Companies equal in value to the
aggregate Price Difference. If the Price Difference is negative, The Meditrust
Companies agree to deliver additional Paired Shares equal in value to the
aggregate Price Difference to Merrill Lynch International. In the event that
the market price for the Paired Shares at the time of settlement is lower than
the Reference Price, The Meditrust Companies will have to deliver additional
Paired Shares to Merrill Lynch International, which would have dilutive effects
on the capital stock of The Meditrust Companies. Additionally, under
certain adverse market conditions, Merrill Lynch International has the right to
accelerate the settlement of all or a portion of the obligation under the Price
Adjustment Agreement. Such early settlements may force The Meditrust Companies
to issue Paired Shares at a depressed price, which may heighten the dilutive
effects on the capital stock of The Meditrust Companies.
Rights of La Quinta Shareholders Will Be Governed By Delaware Law and The
Meditrust Companies' Organizational Documents
Meditrust and Operating Company are organized under the laws of the State
of Delaware and La Quinta is incorporated under the laws of the State of Texas.
If the merger is consummated, the La Quinta shareholders, whose rights as
shareholders are currently governed by the Texas Business Corporation Act, the
La Quinta Amended and Restated Articles of Incorporation and the La Quinta
Amended and Restated By-laws, will, upon completion of the merger, become
holders of paired shares. Their rights as holders of paired shares will be
governed by the Delaware General Corporation Law and the Certificates of
Incorporation, as amended, and By-laws, as amended, of The Meditrust Companies.
La Quinta shareholders should be aware that certain provisions of The
Meditrust Companies' certificates of incorporation and by-laws could have a
potential anti-takeover effect. The following provisions of these governing
documents could have the effect of making it more difficult for a third party
to acquire control of Meditrust and Operating Company, including certain
acquisitions that shareholders may deem to be in their best interests:
[bullet] the certificates of incorporation and by-laws provide for a classified
board of directors;
[bullet] Delaware law permits removal of directors of Meditrust and Operating
Company, other than upon expiration of their term, only for cause;
[bullet] the certificates of incorporation and the by-laws do not permit
shareholders to call a special meeting of shareholders;
[bullet] the by-laws contain restrictions on the number of shares that may be
owned by any shareholder or group of shareholders;
[bullet] the certificates of incorporation permit the issuance of one or more
series of a new class of preferred stock or common stock with rights
and preferences to be determined by the Board of Directors;
[bullet] the certificates of incorporation and Delaware law restrict certain
business combinations with interested shareholders; and
[bullet] the by-laws require advance notice of shareholder proposals and
director nominations.
See "Comparison of Shareholder Rights."
Possible Adverse Effects of Failure to Consummate the Cobblestone Acquisition
The consummation of the Cobblestone acquisition is subject to, among other
things, regulatory approval and the approval of the shareholders of
Cobblestone. The Meditrust Companies have incurred substantial expenses in
connection with the Cobblestone acquisition. The Meditrust Companies may also
be responsible for a termination fee,
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under certain circumstances, if the Cobblestone acquisition does not occur.
In addition, if the Cobblestone acquisition is not consummated, Cobblestone's
expertise in developing, operating and managing golf courses would not be
available to The Meditrust Companies as it pursues its strategy to offer
recreational opportunities to residents of its senior living communities. We
cannot assure you that the Cobblestone acquisition will be consummated.
Golf Course Industry Risks
Upon consummation of the Cobblestone acquisition and the acquisition of
five golf course facilities from I.R.I., The Meditrust Companies will have made
a significant investment in golf courses and related facilities. You may wish
to consider the following specific risks, among others, associated with this
investment.
Real Estate Investment Considerations. Investments in golf courses and
related properties are subject to risks typically associated with investments in
real estate. Revenue from golf courses may be affected by many factors,
including changes in government regulations, general or local economic
conditions, the available local supply of golf courses, a decrease in the number
of people playing golf or adverse weather conditions. One factor specifically
affecting real estate investments in golf facilities is the availability of
water. A severe water shortage could adversely affect the revenue received from
these investments.
In addition, the golf courses which The Meditrust Companies will acquire
in the Cobblestone acquisition are generally located in sun-belt states. Nine
golf facilities are located in Texas, eight in California, four in Arizona and
one in each of Florida, Georgia and Virginia. The five golf courses acquired in
the transaction with I.R.I. are all located in Texas. The geographic proximity
of many of these golf courses may mean that adverse economic and/or weather
conditions in the same geographic area could adversely affect the operating
results of a large portion of The Meditrust Companies' golf course facilities.
Competition. Meditrust intends to continue to acquire golf courses in
order to expand its operations and increase its portfolio. The Meditrust
Companies will compete with several national and regional golf course companies
for the purchase, lease and management of golf courses. We cannot assure you
that suitable golf course acquisition opportunities will be available or that,
because of competition from other purchasers or other reasons, Meditrust will
be able to consummate acquisitions on satisfactory terms or to obtain necessary
acquisition financing. In addition, the acquisition of golf courses may become
more expensive in the future if demand for properties increases.
Golf courses are also subject to competition for players and members from
other golf courses located in the same geographic areas. The number and quality
of golf courses in a particular area could have a material effect on the
revenue of a golf course. The availability of sufficient acreage often limits
the number of competing courses, particularly in metropolitan areas. However,
the parts of Arizona and Texas in which many of Cobblestone's existing
properties, and all of the I.R.I. golf course facilities, are clustered have
significant open land available, and there has been continued construction of
both public and private golf facilities in those areas. In addition, revenue
will be affected by a number of factors including the demand for golf and the
availability of other forms of recreation.
Consumer Spending and Trends. The amount spent by consumers on
discretionary items, such as those offered by Cobblestone and I.R.I., has
historically been dependent upon levels of discretionary income which may be
adversely affected by general economic conditions. A decrease in the number of
golfers and in consumer spending on golf and golf associated activities could
have a material adverse effect on The Meditrust Companies' golf course
division's financial condition and results of operations.
Substantial Expenses Related to the Merger; Termination Fee
We cannot assure you that the merger will be completed. Meditrust,
Operating Company and La Quinta have incurred substantial expenses in
connection with the transactions described in this Joint Proxy
Statement/Prospectus. In addition, the merger agreement provides that a
termination fee of $75 million may be payable by La Quinta or Meditrust, as the
case may be, in the event the merger agreement is terminated for certain
reasons or certain other events occur under the merger agreement. For a more
complete description of the circumstances under which a termination fee may be
payable, see "The Merger Agreement -- Termination; Fees and Expenses."
Year 2000 Issues
The Meditrust Companies and La Quinta have begun the process of
identifying, evaluating and implementing changes to computer programs necessary
to address the year 2000 issue. This issue affects computer systems that have
time-sensitive programs that may not properly recognize the year 2000. This
could result in system failures or mis-
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calculations. The Meditrust Companies and La Quinta are currently
addressing their internal year 2000 issues with modifications to existing
programs and conversions to new programs. The Meditrust Companies and La Quinta
are also communicating with financial institutions, software vendors and others
with which they conduct business to help them identify and resolve the year 2000
issue. The total cost of converting all internal systems has not been completely
quantified, but it is not expected to be a material cost. However, no estimates
can be made as to the potential adverse impact that may result from the
financial institutions, software vendors and others with which it conducts
business. Costs related to the year 2000 issue are being expensed as incurred.
Cautionary Statements Concerning Forward-Looking Statements
Any statements in this Joint Proxy Statement/Prospectus, including the
documents that are incorporated by reference as set forth under "Where You Can
Find More Information," that are not strictly historical are forward-looking
statements within the meaning of the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. The statements include, among other
things, statements regarding the intent, belief or expectations of The
Meditrust Companies and La Quinta and their respective directors and officers
with respect to (i) the declaration or payment of distributions by The
Meditrust Companies, (ii) the consummation of the merger, (iii) the ownership,
management and operation of hotels and health care related facilities,
including the integration of the acquisitions effected or proposed by The
Meditrust Companies, (iv) potential acquisitions or dispositions of properties,
assets or other public or private companies by The Meditrust Companies,
including the acquisition of Cobblestone, (v) the policies of The Meditrust
Companies and La Quinta regarding investments, acquisitions, dispositions,
financings, conflicts of interest and other matters, (vi) Meditrust's
qualification as a REIT under the Internal Revenue Code and the paired share
"grandfathering" rule, (vii) the health care, real estate and lodging
industries and real estate markets in general, (viii) the availability of debt
and equity financing, (ix) interest rates, (x) general economic conditions,
(xi) supply and customer demand and (xii) trends affecting The Meditrust
Companies', La Quinta's and Cobblestone's financial condition or results of
operations. Shareholders are cautioned that, while forward-looking statements
reflect the respective companies' good faith beliefs, they are not guarantees
of future performance and they involve known and unknown risks and
uncertainties. Actual results may differ materially from those in the
forward-looking statements as a result of various factors. The information
contained or incorporated by reference in this Joint Proxy
Statement/Prospectus, including, without limitation, the information set forth
in "Risk Factors," identifies important factors that could cause such
differences.
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THE MEETINGS
This Joint Proxy Statement/Prospectus is furnished in connection with the
solicitation of proxies (i) from the holders of Meditrust and Operating Company
common stock by the Meditrust and Operating Company's Boards of Directors for
use at the Meditrust Meeting and the Operating Company Meeting (as defined
below) and (ii) from the holders of La Quinta common stock by the La Quinta
Board of Directors for use at the La Quinta Meeting (as defined below). This
Joint Proxy Statement/Prospectus and accompanying form of proxy are first being
mailed to the respective shareholders of The Meditrust Companies and La Quinta
on or about April , 1998.
The Meditrust and Operating Company Meetings
Purpose of the Meetings
Meditrust
At the special meeting of the shareholders of Meditrust to be held at the
Goodwin, Procter & Hoar LLP Conference Center, Second Floor, 53 State Street,
Boston, Massachusetts on May 28, 1998, at 10:00 a.m. local time (together with
all adjournments and postponements thereof, the "Meditrust Meeting"), holders
of Meditrust common stock, par value $.10 per share, will consider and vote
upon (i) a proposal to adopt and approve the merger of La Quinta with and into
Meditrust, with Meditrust as the surviving corporation (the "Merger") and the
Agreement and Plan of Merger dated as of January 3, 1998 among Meditrust,
Operating Company and La Quinta (the "Merger Agreement"), and (ii) such other
matters as may properly be brought before the Meditrust Meeting.
THE MEDITRUST BOARD HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE ISSUANCE OF MEDITRUST COMMON
STOCK, AND RECOMMENDS THAT YOU VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AND
THE MERGER AGREEMENT.
Operating Company
At the special meeting of the shareholders of Operating Company to be held
at the Goodwin, Procter & Hoar LLP Conference Center, Second Floor, 53 State
Street, Boston, Massachusetts on May 28, 1998, at 10:30 a.m. local time
(together with all adjournments and postponements thereof, the "Operating
Company Meeting"), holders of Operating Company common stock, par value $.10
per share, (together with the Meditrust common stock, the "Paired Shares") will
consider and vote upon (i) a proposal to approve the issuance of Operating
Company common stock in connection with the Merger and pursuant to the
subscription agreement, and (ii) such other matters as may properly be brought
before the Operating Company Meeting.
THE OPERATING COMPANY BOARD HAS UNANIMOUSLY APPROVED THE ISSUANCE OF
OPERATING COMPANY COMMON STOCK IN CONNECTION WITH THE MERGER AND RECOMMENDS
THAT YOU VOTE FOR APPROVAL OF THE ISSUANCE OF OPERATING COMPANY COMMON STOCK.
Record Date; Voting Rights; Proxies
The Meditrust Companies have fixed the close of business on April 22, 1998
as the record date ("The Meditrust Companies Record Date") for determining
holders of Paired Shares entitled to notice of and to vote at the Meditrust
Meeting and the Operating Company Meeting. Only holders of Paired Shares at the
close of business on The Meditrust Companies Record Date will be entitled to
notice of and to vote at the Meditrust Meeting and the Operating Company
Meeting. As of The Meditrust Companies Record Date, there were outstanding and
entitled to vote Paired Shares. Paired Shares held in the treasury of
Meditrust or Operating Company are not considered outstanding.
All Paired Shares which are entitled to vote and are represented at the
Meditrust Meeting and the Operating Company Meeting by properly executed
proxies received prior to or at the respective meeting will be voted at the
meeting in accordance with the instructions indicated on the proxies. If no
instructions are given on a proxy card, it will be voted FOR approval and
adoption of the respective proposals set forth thereon.
A shareholder who has given a proxy may revoke it at any time before it is
exercised by giving written notice to the Secretary of Meditrust or Operating
Company, as the case may be, by signing and returning a later dated proxy, or
by voting
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in person at the Meditrust or Operating Company Meeting, as the case may be;
however mere attendance at the Meditrust Meeting or the Operating Company
Meeting will not in and of itself have the effect of revoking the proxy.
If any other matters are properly presented at the Meditrust or Operating
Company Meeting for consideration, including, among other things, consideration
of a motion to adjourn such meeting to another time and/or place (including,
without limitation, for the purposes of soliciting additional proxies or
allowing additional time for the satisfaction of conditions to the Merger), the
persons named in the enclosed forms of proxy will have discretion to vote on
such matters in accordance with their best judgment. However, proxies voted
against the Merger will not be voted in favor of adjournment in order to
continue to solicit proxies. Pursuant to the by-laws of The Meditrust
Companies, no notice of an adjourned meeting need be given other than
announcement at the Meditrust or Operating Company Meeting, except where the
meeting is adjourned for 30 days or more.
Solicitation of Proxies
Meditrust and Operating Company will each bear its own costs of
solicitation of proxies, except that the cost of preparing, printing and
mailing this Joint Proxy Statement/Prospectus will be borne equally by The
Meditrust Companies and La Quinta. Brokerage houses, fiduciaries, nominees and
others will be reimbursed for their out-of-pocket expenses in forwarding proxy
materials to beneficial owners of Paired Shares held in their names. In
addition to the solicitation of proxies by use of the mails, proxies may be
solicited from holders of Paired Shares by directors, officers and employees of
The Meditrust Companies in person or by telephone, telegraph, facsimile or
other appropriate means of communications. No additional compensation, except
for reimbursement of reasonable out-of-pocket expenses, will be paid to these
directors, officers and employees of The Meditrust Companies in connection with
the solicitation. In addition, D.F. King & Co., Inc., a proxy solicitation
firm, has been engaged by The Meditrust Companies to act as proxy solicitor and
will receive fees estimated at $20,000, plus reimbursement of out-of-pocket
expenses.
Quorum
The holders of a majority of the common stock issued and outstanding and
entitled to vote, present in person or represented by proxy, shall constitute a
quorum at the Meditrust Meeting and the Operating Company Meeting. Votes cast
in person or by proxy at the Meditrust Meeting and the Operating Company
Meeting will be tabulated by the inspector of elections appointed for the
meeting and will determine whether or not a quorum is present. The inspector of
elections will treat abstentions as shares that are present and entitled to
vote for purposes of determining the presence of a quorum but as unvoted for
purposes of determining the approval of any matter submitted to the
shareholders for a vote. If a broker indicates on the proxy that it does not
have discretionary authority as to certain shares to vote on a particular
matter, those shares will be considered as present but not entitled to vote
with respect to that matter. The failure of a Meditrust shareholder to return a
proxy will have the effect of a vote against the Merger.
Required Vote
Meditrust Voting Requirements. The adoption and approval of the Merger
Agreement and the Merger requires the affirmative vote of the holders of a
majority of the outstanding shares of Meditrust common stock entitled to vote
at the Meditrust Meeting, which shall be duly convened and at which a quorum
was present and acting throughout.
As of April 15, 1998, the directors and executive officers of Meditrust
beneficially owned approximately ___% of the outstanding common stock of
Meditrust and have expressed their intention to vote in favor of the approval
and adoption of the merger agreement and the merger.
Operating Company Voting Requirements. The approval of the issuance of
Operating Company common stock in the Merger requires the affirmative vote of
the holders of the majority of shares of Operating Company common stock present
in person or represented by proxy at a duly convened meeting provided that the
total vote cast represents over 50% in interest of all shares entitled to vote
on the proposal.
As of April 15, 1998, the directors and executive officers of Operating
Company beneficially owned approximately ___% of the outstanding common stock
of Operating Company and have expressed their intention to vote in favor of the
approval of the issuance of shares of Operating Company common stock.
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The La Quinta Meeting
General
This Joint Proxy Statement/Prospectus is being furnished to holders of La
Quinta common stock in connection with the solicitation of proxies by the Board
of Directors of La Quinta for use at the special meeting of the shareholders of
La Quinta to be held at the corporate offices of La Quinta, 112 E. Pecan
Street, Third Floor Conference Room, San Antonio, Texas, on Thursday, May 28,
1998, commencing at 10:00 a.m., local time (together with any adjournments or
postponements thereof, the "La Quinta Meeting").
Matters to be Considered
At the La Quinta Meeting, holders of La Quinta common stock will be asked
to consider and vote upon (i) a proposal to approve and adopt the Merger
Agreement, pursuant to the terms of which (a) La Quinta will be merged with and
into Meditrust, with Meditrust as the surviving corporation, and (b) the
issuance of a certain number of Paired Shares or the payment of cash, subject
to certain limitations, in exchange for each outstanding share of La Quinta,
and (ii) such other matters as may properly be brought before the La Quinta
Meeting, or any adjournments or postponements thereof. Only business within the
purposes described in the La Quinta Notice of Special Meeting of Shareholders
may be conducted at the La Quinta Meeting.
Board of Directors Recommendation
THE BOARD OF DIRECTORS OF LA QUINTA HAS UNANIMOUSLY APPROVED THE MERGER
AGREEMENT AND RECOMMENDS THAT YOU VOTE FOR APPROVAL AND ADOPTION OF THE MERGER
AGREEMENT. SEE "THE MERGER -- RECOMMENDATION OF THE BOARD OF DIRECTORS OF LA
QUINTA; REASONS FOR THE MERGER."
Record Date and Voting
The Board of Directors of La Quinta has fixed April 22, 1998 as the record
date for the determination of the shareholders entitled to notice of and to
vote at the La Quinta Meeting. Accordingly, only holders of record of La Quinta
common stock on the record date will be entitled to notice of and to vote at
the La Quinta Meeting. As of April 22, 1998, there were issued and
outstanding shares of La Quinta common stock, held by holders of record.
Each holder of record of La Quinta common stock on the record date is entitled
to one vote per share, which may be cast either in person or by properly
executed proxy.
The approval and adoption of the Merger Agreement will require the
affirmative vote of the holders of the two-thirds of the La Quinta common stock
outstanding on the record date.
The presence either in person or by properly executed proxy of the holders
of a majority of the outstanding La Quinta common stock entitled to vote at the
respective La Quinta Meeting is necessary to constitute a quorum at such
meeting. Shares of La Quinta represented in person or by proxy will be counted
for the purpose of determining whether a quorum is present at the La Quinta
Meeting. Shares which abstain from voting as to a particular matter will be
treated as shares that are present and entitled to vote at the La Quinta
Meeting for purposes of determining whether a quorum exists. Because the Merger
Agreement must be approved by the holders of two-thirds of the shares of La
Quinta outstanding on the record date, abstentions will have the same effect as
a vote against the Merger Agreement.
Gary L. Mead, Thomas M. Taylor & Co. and entities and individuals
associated with certain members of the Bass family, collectively holding
approximately 22.3 million shares of La Quinta common stock, representing
approximately 29% of the outstanding La Quinta common stock as of the record
date for the La Quinta Meeting, have entered into a shareholders agreement with
Meditrust, Operating Company and La Quinta, pursuant to which such holders have
agreed, among other things, to vote their La Quinta common stock in favor of
the Merger Agreement. See "The Merger Agreement -- Certain Shareholder
Arrangements -- Shareholders Agreement." As of April 15, 1998, directors and
executive officers of La Quinta and its affiliates may be deemed to have or
share beneficial ownership of approximately % of the outstanding La Quinta
common stock. Each of the directors and executive officers of La Quinta has
advised La Quinta that he intends to vote or direct the vote of all of his
shares over which he has or shares voting
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control for approval and adoption of the Merger Agreement. Collectively, as of
April 15, 1998, the directors and executive officers and the shareholders of La
Quinta subject to the shareholders agreement held % of the outstanding La
Quinta common stock and are expected to vote in favor of the approval and
adoption of the Merger Agreement and the Merger. See "Principal and Management
Shareholders of La Quinta."
Proxies; Revocation of Proxies
This Joint Proxy Statement/Prospectus is being furnished to the
shareholders of La Quinta in connection with the solicitation of proxies by and
on behalf of the Board of Directors of La Quinta for use at the La Quinta
Meeting, and is accompanied by a form of proxy. The approximate date on which
this Joint Proxy Statement/Prospectus and the accompanying form of proxy are
first sent or given to security holders is April , 1998.
All shares of La Quinta which are entitled to vote and are represented at
the La Quinta Meeting by properly executed proxies received prior to or at such
meetings, and not revoked, will be voted at such meetings in accordance with
the instructions indicated on such proxies. If no instructions are indicated,
such proxies will be voted FOR approval and adoption of the Merger Agreement.
If any other matters are properly presented at the La Quinta Meeting for
consideration, including, among other things, consideration of a motion to
adjourn such meeting to another time and/or place (including, without
limitation, for the purposes of soliciting additional proxies or allowing
additional time for the satisfaction of conditions to the Merger), the persons
named in the enclosed forms of proxy will have discretion to vote on such
matters in accordance with their best judgment. However, proxies voted against
the Merger will not be voted in favor of adjournment in order to continue to
solicit proxies. Pursuant to the By-Laws of La Quinta, no notice of an
adjourned meeting need be given other than announcement at the La Quinta
Meeting, except where the meeting is adjourned for 30 days or more.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing
with the Secretary of La Quinta, at or before the taking of the vote at the La
Quinta Meeting, a written notice of revocation bearing a later date than the
proxy, or (ii) duly executing a later dated proxy relating to the same shares
and delivering it to the Secretary before the taking of the vote at such
meeting or voting in person at the meeting (although attendance at the La
Quinta Meeting will not in and of itself constitute a revocation of a proxy).
Any written notice of revocation or subsequent proxy should be sent, in the
case of La Quinta to La Quinta Inns, Inc. P.O. Box 2636, San Antonio, Texas
78299-2636, Attention: Secretary; or hand delivered to the Secretary at or
before the taking of the vote at the La Quinta Meeting.
All expenses of La Quinta's solicitation of proxies for the La Quinta
Meeting will be borne by La Quinta, except that the cost of preparing and
mailing this Joint Proxy Statement/Prospectus will be borne equally by La
Quinta and The Meditrust Companies. In addition to solicitation by use of the
mails, proxies may be solicited from the La Quinta shareholders by directors,
officers and employees of La Quinta in person or by telephone, telegram or
other means of communications. Such directors, officers and employees will not
be additionally compensated, but may be reimbursed for reasonable out-of-pocket
expenses in connection with such solicitation. La Quinta has retained D.F. King
& Co., Inc., a proxy solicitation firm, for assistance in connection with the
solicitation of proxies for the La Quinta Meeting at a cost of approximately
$10,000 plus reimbursement of reasonable out-of-pocket expenses. Any questions
or requests for assistance regarding this Joint Proxy Statement/Prospectus and
related proxy materials may be directed to D.F. King & Co., Inc. by telephone,
toll free, at (800) 549-6746. Arrangements also will be made with brokerage
houses, custodians, nominees and fiduciaries for forwarding of proxy
solicitation materials to beneficial owners of shares held of record by such
brokerage houses, custodians, nominees and fiduciaries, and La Quinta will
reimburse such brokerage houses, custodians, nominees and fiduciaries for their
reasonable expenses incurred in connection therewith.
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THE MERGER
This section of the Joint Proxy Statement/Prospectus, as well as the
section entitled "The Merger Agreement," describes certain aspects of the
Merger. To the extent that it relates to the Merger Agreement, the following
description does not purport to be complete and is qualified in its entity by
reference to the Merger Agreement, a copy of which is attached to this Joint
Proxy Statement/Prospectus as Annex A and is incorporated herein by reference.
All shareholders are urged to read the Merger Agreement in its entirety.
Background of the Merger
In the third quarter of 1997, management of La Quinta, in consultation
with the members of the Executive Committee of the La Quinta Board of
Directors, began analyzing various strategies for enhancing long-term
shareholder value. These strategies included, among other things: separating La
Quinta's real estate business from its hotel management business and converting
its real estate business from a taxable corporation into a real estate
investment trust; a tax-free spin-off of La Quinta's hotel management
operations; and possible strategic combinations involving other lodging
companies or real estate investment trusts.
At a regularly scheduled meeting of the La Quinta Board of Directors held
on September 19, 1997, management briefed the board on recent trends in the
lodging industry, including growth in the supply of hotel rooms in La Quinta's
market segment and consolidation in the industry, which has had the effect of
creating several large, multi-branded hotel chains with diversified operations.
The La Quinta Board of Directors noted that these factors may have an adverse
impact on La Quinta's ability to grow at levels consistent with prior
performance.
Following the La Quinta Board of Directors meeting on September 19,
management of La Quinta contacted members of the La Quinta Board of Directors
and described the various strategic alternatives under consideration by
management.
In late September and early October, Gary L. Mead, La Quinta's president
and chief executive officer, met with representatives of senior management at
several lodging companies and real estate investment trusts in an effort to
evaluate the level of interest by those companies in a strategic combination
with La Quinta. Based on these meetings, management of La Quinta concluded that
there were sufficient business reasons for and interest in a strategic
combination to warrant further consideration of this alternative.
In late October, after discussion among the senior management of La
Quinta, the Executive Committee, and members of La Quinta's Board, La Quinta
engaged Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") to
act as La Quinta's financial advisor. Merrill Lynch was engaged to analyze a
number of different strategic alternatives, including conversion of La Quinta
into a REIT, a tax-free spin-off and a strategic combination.
During the month of November, as part of management's review with Merrill
Lynch of various strategic alternatives, it became apparent that there were
significant difficulties and costs associated with converting La Quinta into a
REIT or accomplishing a tax-free spin-off of La Quinta's hotel management
operations. In order to convert into a REIT, La Quinta would be required first
to distribute to its shareholders as a taxable dividend an amount equal to La
Quinta's earnings and profits (as defined for tax purposes) accumulated since
La Quinta's inception. La Quinta would need to establish financing for such a
dividend. In addition, it was unclear whether a spin-off of the hotel
management operations could be accomplished in a tax-free transaction. Finally,
there was uncertainty as to whether the separation of La Quinta into two public
companies would create entities of sufficient size and financial stability that
they would be able to attract the capital needed to grow their businesses
efficiently. As a result of the foregoing difficulties and uncertainties,
management and Merrill Lynch intensified their focus on the strategic
combination alternative.
From October through mid-November, 1997, Merrill Lynch and management
identified a list of entities that might be attractive candidates to enter into
a strategic combination with La Quinta. This list included over a dozen large
lodging companies and real estate investment trusts. These entities were
contacted by Merrill Lynch, and several of them entered into confidentiality
agreements with La Quinta and received confidential information regarding La
Quinta (including The Meditrust Companies, which entered into a confidentiality
agreement with La Quinta on November 13, 1997). Representatives from La Quinta
and/or Merrill Lynch had discussions with and provided information to
representatives from a total of thirteen entities. During the course of these
meetings, the parties were instructed that if they had a serious interest in
discussing a strategic combination with La Quinta, such interest should be
expressed no later than late December, 1997.
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As part of this process, on December 2, 1997, Mr. Mead, William S.
McCalmont, chief financial officer of La Quinta, and representatives of Merrill
Lynch met in New York City with David F. Benson, president of Meditrust, Laurie
Gerber, chief financial officer of Meditrust, representatives from Salomon
Smith Barney, and other advisors to Meditrust, to discuss La Quinta's business
and the possibility of a strategic business combination with Meditrust.
On December 5, 1997, the Boards of Directors of The Meditrust Companies
held a joint meeting in Boston, Massachusetts to discuss the proposed merger
with La Quinta. All of the directors of The Meditrust Companies were present in
person or by telephone. Management summarized that, based upon their
preliminary analysis of the financial impact to The Meditrust Companies of a
transaction with La Quinta, such a transaction would likely be accretive to The
Meditrust Companies' funds from operations for the first twelve months of
combined operations following the consummation of the Merger. The Board of
Directors also discussed engaging a financial advisor for the transaction.
On or about December 8, 1997, Mr. Abraham Gosman, Chairman of the Board of
The Meditrust Companies, contacted Mr. Mead to arrange a meeting between Mr.
Gosman and Mr. Mead for December 11, 1997.
On December 11, 1997, the La Quinta Board of Directors held a regularly
scheduled board meeting in Austin, Texas at which all directors were present.
Mr. Mead updated the La Quinta Board of Directors on the review of strategic
alternatives considered to date by management and Merrill Lynch, and the
preliminary outcome of such review. Mr. Mead also reviewed for the La Quinta
Board in detail each of the entities (including The Meditrust Companies) that
had been contacted by Merrill Lynch and the status of discussion with each of
these entities.
Later that day, Mr. Mead and Mr. Gosman met in Austin, Texas. Mr. Mead and
Mr. Gosman discussed their respective businesses in detail, as well as the
process and timing related to La Quinta's review of strategic alternatives. Mr.
Gosman indicated that The Meditrust Companies were prepared to move quickly to
analyze a possible business combination and present La Quinta with a preemptive
proposal. Mr. Gosman indicated a desire to have La Quinta negotiate with The
Meditrust Companies on an exclusive basis. Mr. Mead stated that exclusive
negotiations would not be possible given the fact that several other entities
were already actively reviewing the possibility of a combination transaction
with La Quinta, and that if The Meditrust Companies wished to present a
preemptive proposal, they should do so promptly. Mr. Mead and Mr. Gosman each
indicated that they would review the possibility of an expedited transaction
with their senior officers, advisors and certain members of their respective
Boards of Directors and talk again on December 15. Following such meeting, Mr.
Mead reported to members of the La Quinta Board the outcome of the meeting with
Mr. Gosman and The Meditrust Companies' desire to pursue a transaction as
expeditiously as possible. Management of La Quinta and Merrill Lynch continued
to provide information to the other entities that were continuing to review a
possible strategic combination.
On December 15, 1997, Mr. Mead and Mr. Gosman spoke by telephone, and they
agreed to meet in Florida the next day. On December 16, Mr. Mead and Mr. Gosman
met at length, discussing a wide range of issues, including the businesses of
their respective companies, management issues, the overall structure of a
potential transaction, tax issues present in the various proposed structures,
and the method for valuing the La Quinta common stock in a possible
transaction. Mr. Mead and Mr. Gosman continued to meet the following day, and
then Mr. Mead traveled to Boston, Massachusetts.
On December 17, Mr. Mead, Mr. McCalmont, John F. Schmutz, La Quinta's vice
president and general counsel, and La Quinta's outside counsel, met in Boston
with Mr. Benson, Ms. Gerber, Michael S. Benjamin, Meditrust's senior vice
president and general counsel, and Meditrust's outside counsel, to continue
discussions regarding the structure of the possible transaction and related tax
ramifications. In addition, the parties commenced detailed due diligence on
each other's business, and began negotiations on a proposed form of merger
agreement. These meetings continued on an uninterrupted basis from December 17
through December 24. During the course of these meetings, Mr. Gosman and Mr.
Mead continued to discuss various issues related to valuation of the La Quinta
common stock in the context of various proposed transaction structures.
Ultimately, Mr. Mead and Mr. Gosman reached a tentative understanding that
shares of La Quinta common stock would be entitled to receive $26.50 of total
consideration (subject to certain cap and collar mechanisms) in both the merger
and the Distribution to all Meditrust shareholders of La Quinta's accumulated
earnings and profits, consisting of $19.75 of Paired Shares (valued at an
average market price prior to the Merger) and an aggregate of $6.75 of cash
(payable in the merger and the earnings and profits distribution).
On December 26, the Boards of Directors of The Meditrust Companies held a
joint special meeting in Boston, Massachusetts to discuss the proposed merger
with La Quinta. All of the directors of The Meditrust Companies, except
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for one, were present in person or by telephone. Also present at the meeting
were members of The Meditrust Companies management, representatives of Salomon
Smith Barney, Goodwin, Procter & Hoar LLP (The Meditrust Companies' outside
counsel) and Nutter McClennen & Fish, LLP (The Meditrust Companies' outside
counsel). Management of The Meditrust Companies made presentations to the
Boards of Directors with respect to both the lodging industry generally and La
Quinta specifically. The Meditrust Companies Boards of Directors also discussed
how the proposed acquisition would fit within The Meditrust Companies' growth
strategy. Salomon Smith Barney also reviewed with The Meditrust Companies
Boards of Directors the lodging industry generally and certain business and
financial information relating to La Quinta, as well as discussing its
preliminary view of the proposed merger and its potential financial impact on
The Meditrust Companies' operations and growth strategy. Goodwin, Procter &
Hoar LLP made presentations with respect to the terms of the proposed merger
agreement, as well as the process that The Meditrust Companies would need to
undertake to pursue the proposed acquisition. After further discussions
regarding the proposed acquisition, the Boards of Directors directed The
Meditrust Companies' management to pursue, on a confidential basis, a detailed
review of the impact of the proposed acquisition on The Meditrust Companies'
access to the capital markets in the future, including, specifically, an
analysis of the effect of the proposed acquisition on The Meditrust Companies'
ratings by Standard & Poors, Moody's and other similar rating agencies. The
Meditrust Companies Boards of Directors also directed The Meditrust Companies'
management to continue to develop an investor communications plan with respect
to the proposed transaction. The Meditrust Companies Boards of Directors did
not take further action on the proposed merger at this time and elected to
delay the consideration of the proposed merger and the resulting issuance of
Paired Shares pending the review of the impact on The Meditrust Companies'
access to capital.
On December 26, the La Quinta Board of Directors held a special meeting
near Dallas, Texas to discuss the proposed transaction with The Meditrust
Companies. All of the directors were present in person or by telephone. The La
Quinta Board of Directors considered a draft merger agreement and the
transactions contemplated thereby, including the proposed consideration to be
paid to La Quinta's shareholders. Management of La Quinta reported to the La
Quinta Board that, although a number of entities other than The Meditrust
Companies were reviewing the possibility of a strategic combination with La
Quinta, no entity other than The Meditrust Companies had made any offer or
proposal for a transaction with La Quinta. Merrill Lynch and Latham & Watkins,
La Quinta's outside legal counsel, made presentations to the La Quinta Board of
Directors regarding their views and analyses of various aspects of the proposed
transactions, the terms of the proposed merger agreement, and the other matters
described below under "Recommendation of the Board of Directors of La Quinta;
Reasons for the Merger." At this meeting, Merrill Lynch delivered its oral
opinion that, based on the matters presented to the La Quinta Board of
Directors and as set forth in its opinion, as of the date of the opinion, the
consideration proposed to be received by the shareholders of La Quinta pursuant
to the proposed merger and the earnings and profits distribution was fair, from
a financial point of view, to the La Quinta shareholders. After discussion and
consideration, the meeting concluded without any effective action having been
taken due to the decision by The Meditrust Companies Boards of Directors to
delay their consideration of the proposed merger as described above.
Thereafter, following presentations to the various rating agencies and
further development of investor communication plans, representatives of The
Meditrust Companies and La Quinta and their respective financial advisors
continued to discuss the valuation of La Quinta's common stock pursuant to the
proposed merger transaction, as well as various terms of the proposed merger
agreement, including the formula for conversion of La Quinta shares into Paired
Shares. On December 31, after considering the impact of the proposed
transaction on The Meditrust Companies' ratings by Standard & Poor's, Moody's
and other similar ratings agencies, and after a further review of projections
of La Quinta's future financial performance and a further consideration of the
valuation of La Quinta common stock, senior management of La Quinta and The
Meditrust Companies agreed to a reduction in the number of Paired Shares that
would be issued in the proposed merger to La Quinta shareholders, which
agreement was subject to the approval of the Boards of Directors of La Quinta
and The Meditrust Companies. As revised, and as a result of negotiations
between the parties with input from their respective senior management and
financial advisors, the proposed transaction consideration for the shares of La
Quinta common stock consisted of $26.00 of total consideration (subject to
certain cap and collar mechanisms), comprised of $19.25 of Paired Shares
(valued at an average market price prior to the Merger) and an aggregate of
$6.75 of cash (payable in the merger and the earnings and profits
distribution).
On January 2, 1998, the Boards of Directors of The Meditrust Companies
held a joint special meeting in Boston, Massachusetts to further discuss and
consider the proposed acquisition of La Quinta through a merger with Meditrust.
All
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of the directors, except one, were present in person or by telephone. The
Meditrust Companies Boards of Directors considered a draft merger agreement,
shareholders agreement and registration rights agreement and the transactions
contemplated by each of these agreements. Initial drafts of these documents had
been provided to The Meditrust Companies Boards of Directors prior to their
joint meeting on December 26, 1997. Management of The Meditrust Companies made
presentations to the Boards of Directors with respect to the review of La
Quinta's business, operations and properties. Goodwin, Procter & Hoar LLP made
presentations to the Boards of Directors regarding their views and analyses of
various aspects of the proposed transactions, the terms of the proposed merger
agreement and related agreements, as well as the necessary procedures that The
Meditrust Companies would need to take in order to complete the proposed
merger. At this meeting, Salomon Smith Barney reviewed with The Meditrust
Companies Boards of Directors the financial analyses performed by Salomon Smith
Barney in respect of the merger consideration and delivered to The Meditrust
Companies Boards of Directors its oral opinion (which opinion was subsequently
confirmed by delivery of a written opinion dated January 3, 1998, the date of
the Merger Agreement) to the effect that, as of the date of such opinion and
based upon and subject to certain matters stated therein, the merger
consideration to be paid by The Meditrust Companies pursuant to the Merger
Agreement was fair, from a financial point of view, to The Meditrust Companies.
See "Opinion of The Meditrust Companies' Financial Advisor." After further
discussion and consideration, The Meditrust Companies Boards of Directors
unanimously approved the proposed merger agreement, shareholders agreement and
registration rights agreement and the transactions contemplated thereby,
subject to execution of definitive agreements.
On January 2, 1998, the Board of Directors of La Quinta held a special
telephonic meeting to discuss the revised terms of the proposed transaction
with The Meditrust Companies. All of the directors were present. The La Quinta
Board of Directors considered the revised consideration proposed to be paid to
La Quinta's shareholders. Merrill Lynch and Latham & Watkins made presentations
to the La Quinta Board of Directors regarding their views and analyses of
various aspects of the revised transactions. Mr. Mead reported to the La Quinta
Board of Directors that, as of such date, no entity other than The Meditrust
Companies had made any offer or proposal for a transaction with La Quinta. At
this meeting, Merrill Lynch delivered its oral opinion (which was subsequently
confirmed in writing) that, based on the matters presented to the La Quinta
Board of Directors and as set forth in its opinion, as of the date of the
opinion, the revised consideration to be received by the shareholders of La
Quinta pursuant to the Merger and the earnings and profits distribution was
fair, from a financial point of view, to such shareholders. After discussion
and consideration, the La Quinta Board of Directors unanimously approved the
proposed merger agreement and the transactions contemplated thereby, subject to
execution of definitive agreements.
The Merger Agreement and related documents were executed in the morning of
January 3, 1998, and publicly announced on Sunday, January 4, 1998.
Recommendation of The Meditrust Companies Boards of Directors; The Meditrust
Companies' Reasons for the Merger and the Share Issuance
The Meditrust Companies Boards of Directors have unanimously approved the
Merger Agreement, have determined that the Merger and the other transactions
contemplated thereby, including the issuance of Paired Shares, are advisable
and fair and in the best interests of The Meditrust Companies and their
respective shareholders and recommend unanimously, (i) in the case of Meditrust
shareholders, that they vote "FOR" approval and adoption of the Merger
Agreement and the Merger, including the issuance of Meditrust common stock, and
(ii) in the case of Operating Company shareholders, that they vote "FOR"
approval of the issuance of Operating Company common stock in the Merger.
In reaching its decision to approve the Merger Agreement and to recommend
that Meditrust shareholders vote to approve and adopt the Merger Agreement and
the Merger, including the issuance of Meditrust common stock, and that
Operating Company shareholders vote to approve the issuance of Operating
Company common stock, The Meditrust Companies Boards of Directors considered,
among other things, the following factors:
(i) The Meditrust Companies Business, Condition and Prospects. The
Meditrust Companies Boards of Directors reviewed with The Meditrust Companies
management and financial advisor, and considered information with respect to,
the financial condition, results of operations and business of The Meditrust
Companies, on both an historical and prospective basis, including the potential
pro forma financial impact on The Meditrust Companies of the proposed merger
with La Quinta, and current industry, economic and market conditions. The
Meditrust Companies Boards of Directors also considered the need to diversify
Meditrust's real estate portfolio and to make use of their paired share
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structure through acquisitions such as the proposed transaction with La Quinta.
In addition, the Boards of Directors considered the positive impact of
diversification and the paired share structure on The Meditrust Companies'
financial condition, results of operations and business. Finally, The Meditrust
Companies Boards of Directors concluded that the Merger should be accretive to
Meditrust's funds from operations for the first year following completion of
the Merger.
(ii) La Quinta's Business, Condition and Prospects; Special
Characteristics of La Quinta. The Meditrust Companies Boards of Directors
reviewed with The Meditrust Companies' management and financial advisor, and
considered information with respect to, the financial condition, results of
operations and business of La Quinta, on both an historical and prospective
basis, and current industry, economic and market conditions. The Meditrust
Companies Boards of Directors considered recent trends in the segment of the
lodging industry in which La Quinta competes, including high growth in demand
in the mid-price sector without food and beverage facilities and consolidation
in the industry which has had the effect of creating several large,
multi-branded hotel chains with diversified operations. The Meditrust Companies
Boards of Directors also reviewed, however, the overall composition of the
industry and noted that, notwithstanding this consolidation, a large number of
independent operators still exist in what has historically been a fragmented
industry. The Meditrust Companies Boards of Directors also considered the fact
that the nature of La Quinta's operations (an owner of its real estate, as well
as an operator of the business conducted thereon) were an appropriate fit for
The Meditrust Companies paired share structure. The Meditrust Companies Boards
of Directors also considered La Quinta's recent capital improvement efforts and
the impact that these improvements would have upon The Meditrust Companies
liquidity and capital resources after completion of the Merger given the fact
that La Quinta's portfolio of properties have recently received extensive
capital improvements and would likely require only ordinary course maintenance
for the near term. The Meditrust Companies Boards of Directors also considered
La Quinta's strong market presence as evidenced by the fact that, in its price
segment, La Quinta is the fourth largest chain, based on number of rooms, and
the largest owner-operator. Finally, The Meditrust Companies Boards of
Directors considered the fact that La Quinta owned both its real estate
properties, and its well-recognized brand names. Accordingly, payments to third
parties in connection with the operation of La Quinta hotel properties could be
minimized.
(iii) Financial Impact; Diversification of Operations. The Meditrust
Companies Boards of Directors considered the fact that the execution of La
Quinta's growth and development plans would require substantial additional
capital, and that combining with The Meditrust Companies and their greater
access to capital would be expected to provide La Quinta with a platform from
which to grow within the midpriced segment without food and beverage
facilities, of the lodging industry. The Meditrust Companies Boards of
Directors also noted that several characteristics of La Quinta's operations
made it attractive to The Meditrust Companies, including La Quinta's strong
operating margins, La Quinta's recently completed company-wide capital
improvement project, La Quinta's significant portfolio of owned lodging
properties, La Quinta's historical successful real estate renovation and
development efforts and La Quinta's ownership of its brand name. The Meditrust
Companies Boards of Directors also considered the fact that La Quinta's
operations in the lodging industry will significantly diversify Meditrust's
portfolio of real properties as well as its real estate operations. Although
the diversification poses risks inherent in entering a new industry, The
Meditrust Companies Boards of Directors determined that La Quinta's operations
were significantly large enough to provide Meditrust with a substantial entry
into the lodging industry, while also providing a strong foundation from which
to grow within the industry.
(iv) Opinion of Salomon Smith Barney. The Meditrust Companies Boards of
Directors considered the financial presentation of Salomon Smith Barney,
including a comparative analysis of the market values and trading multiples of
La Quinta and selected companies in the lodging industry, a comparative
analysis of the purchase prices, transaction multiples and premiums paid in
selected transactions in the lodging industry with those payable in the Merger,
and a review of the projected free cash flows of La Quinta and pro forma
financial impact of the Merger on The Meditrust Companies. The Meditrust
Companies Boards of Directors also considered the oral opinion of Salomon Smith
Barney delivered to them on January 2, 1998 by Salomon Smith Barney (which
opinion was subsequently confirmed by delivery of a written opinion dated
January 3, 1998, the date of the Merger Agreement) to the effect that, as of
the date of such opinion and based upon and subject to certain matters stated
therein, the merger consideration to be paid by The Meditrust Companies
pursuant to the Merger Agreement was fair, from a financial point of view, to
The Meditrust Companies. See "--Opinion of The Meditrust Companies' Financial
Advisor."
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(v) Terms of the Merger. The Meditrust Companies Boards of Directors
considered the terms and conditions of the Merger Agreement, including
provisions which require the approval of the Merger by the Meditrust
shareholders and the approval of the issuance of shares of Operating Company
common stock by the Operating Company shareholders. The Boards of Directors
also considered provisions relating to the payment of a $75 million termination
fee to The Meditrust Companies if the Merger Agreement is terminated under
certain circumstances. They also considered the shareholders agreement and the
registration rights agreement. The Meditrust Companies Boards of Directors also
considered that, pursuant to the shareholders agreement, the holders of
approximately 29% of the outstanding shares of La Quinta have agreed to vote
their shares of La Quinta common stock in favor of the Merger.
The foregoing discussion of the information and factors considered by The
Meditrust Companies Boards of Directors is not intended to be exhaustive. In
view of the variety of factors considered in connection with the evaluation of
the Merger, The Meditrust Companies Boards of Directors did not find it
practicable to and did not quantify or otherwise assign relative weights to the
specific factors considered in reaching its determination. In addition,
individual members of each of the respective Boards of Directors may have given
different weights to different factors.
THE MEDITRUST BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT MEDITRUST
SHAREHOLDERS VOTE "FOR" APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE
MERGER, INCLUDING THE ISSUANCE OF MEDITRUST COMMON STOCK.
THE OPERATING COMPANY BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT OPERATING
COMPANY SHAREHOLDERS VOTE "FOR" APPROVAL OF THE ISSUANCE OF OPERATING COMPANY
COMMON STOCK IN CONNECTION WITH, AND AS A RESULT OF, THE MERGER AND THE
SUBSCRIPTION AGREEMENT.
Recommendation of the Board of Directors of La Quinta; Reasons for the Merger
The La Quinta Board of Directors has determined and believes that the
terms of the Merger Agreement are fair to, and in the best interests of, La
Quinta and its shareholders. Accordingly, the La Quinta Board of Directors has
approved and adopted the Merger Agreement and the transactions contemplated
thereby and recommends its approval and adoption by the shareholders of La
Quinta.
In reaching its determination, the La Quinta Board of Directors consulted
with La Quinta management, as well as its legal counsel and financial advisor,
and considered a number of positive and negative factors, including:
(i) La Quinta's Business, Condition and Prospects. The La Quinta Board of
Directors considered information with respect to the financial condition,
results of operations and business of La Quinta, on both an historical and
prospective basis, and current industry, economic and market conditions. The La
Quinta Board of Directors considered La Quinta's historical growth strategies,
including the current new hotel development program. Management and La Quinta's
financial advisors made presentations to and provided the La Quinta Board of
Directors with information regarding La Quinta's financial condition and
prospects. The La Quinta Board of Directors considered recent trends in the
lodging industry, including growth in the supply of hotel rooms in La Quinta's
market segment, and consolidation in the industry which has had the effect of
creating several large, multi-branded hotel chains with diversified operations.
The La Quinta Board of Directors noted that these factors may have an adverse
impact on La Quinta's ability to grow at levels consistent with prior
performance. The La Quinta Board of Directors also considered the fact that, as
an owner and operator of hotel properties, La Quinta's trading multiple range
was lower than those companies that simply managed hotel properties.
(ii) The Meditrust Companies Business, Condition and Prospects. The La
Quinta Board of Directors considered information with respect to the financial
condition, results of operations and business of The Meditrust Companies on
both an historical and prospective basis, and current industry, economic and
market conditions. Management and La Quinta's financial advisors made
presentations to and provided the La Quinta Board of Directors with information
regarding The Meditrust Companies' financial condition and prospects after
conducting business, legal and financial due diligence. In evaluating The
Meditrust Companies' prospects, the La Quinta Board of Directors considered,
among other things, the performance of Meditrust's portfolio of assets, the
strength of its management team, its record of funds from operations and
dividend growth since its initial public offering in 1985, its investment grade
rating on its
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senior debt, and its status as a "paired share" real estate investment trust.
In addition, the La Quinta Board of Directors concluded that the Merger should
be accretive to Meditrust's funds from operations in the first full year.
(iii) Opinion of Merrill Lynch. The La Quinta Board of Directors
considered the oral opinion delivered on January 2, 1998 by Merrill Lynch that
as of such date, and based upon the assumptions made, matters considered and
limits of review set forth therein, the consideration to be received by the
shareholders of La Quinta pursuant to the Merger and the earnings and profits
distribution (the "Distribution") was fair, from a financial point of view, to
such shareholders. The La Quinta Board of Directors also considered the oral
and written presentations made to it by Merrill Lynch. See "Opinion of
Financial Advisor to La Quinta." A copy of Merrill Lynch's written opinion, is
attached as Annex C to this Joint Proxy Statement/Prospectus and is
incorporated herein by reference.
(iv) Financial Condition. The La Quinta Board of Directors considered the
fact that the execution of La Quinta's growth and development plans would
require substantial additional capital, and that combining with a large,
financially stable company such as The Meditrust Companies would be expected to
provide La Quinta with improved access to capital. In addition, the La Quinta
Board of Directors noted that there has been significant recent consolidation
in the hotel industry, which has had the result of creating several large,
multi-branded hotel companies, which could adversely affect La Quinta's
competitive position because La Quinta was operating with a single brand in a
single segment of the hotel market. By combining with The Meditrust Companies,
La Quinta is expected to benefit from diversification into other industries, as
well as potentially providing a platform for expansion into other segments of
the hotel market. The La Quinta Board of Directors also noted that there were
risks to this diversification, as The Meditrust Companies continues to expand
into new lines of business outside of its areas of traditional expertise.
(v) Terms of the Merger. The La Quinta Board of Directors considered the
terms and conditions of the Merger Agreement, the shareholders agreement, and
the registration rights agreement, including the terms of the Merger Agreement
that allows La Quinta to terminate the Merger Agreement under certain
circumstances upon payment to Meditrust of a $75 million termination fee. The
La Quinta Board of Directors considered such a termination fee in light of the
range of fees payable in comparable transactions. The La Quinta Board of
Directors also considered that, pursuant to the shareholders agreement, the
holders of approximately 29% of the outstanding shares of La Quinta have agreed
to vote their shares of La Quinta common stock in favor of the Merger. The La
Quinta Board of Directors also considered the fact that the Merger is generally
not expected to result in federal income tax to the shareholders of La Quinta
with respect to the portion of the merger consideration which consists of
Paired Shares (except to the extent of the fair market value of the Operating
Company common stock).
(vi) Alternative Transactions. The La Quinta Board of Directors took into
consideration the results of the process undertaken by La Quinta and Merrill
Lynch to identify and solicit indications of interest with respect to a
strategic combination with other entities. The La Quinta Board of Directors
noted that, prior to January 2, 1998, while certain of the third parties
contacted by La Quinta or Merrill Lynch demonstrated varied levels of interest
in further discussions, none other than The Meditrust Companies formally
proposed a transaction involving La Quinta. In addition to considering
strategic business combinations, the La Quinta Board of Directors also reviewed
alternative transactions which might be available to La Quinta. The possibility
of reorganizing La Quinta into a real estate investment trust was considered,
as well as the possibility of a tax-free spin-off of La Quinta's hotel
management operations. These alternatives involved a number of difficulties and
uncertainties, as discussed above under "Background of the Merger."
(vii) Trading Prices of La Quinta Common Stock. The La Quinta Board of
Directors reviewed the trading price of La Quinta's common stock, including
recent trends and the effect of La Quinta's announcement of financial results
for the quarter ended September 30, 1997. The Board of Directors noted that on
January 2, 1998, the last trading day prior to the announcement of execution of
the Merger Agreement, La Quinta common stock closed at $20.25 per share on the
New York Stock Exchange ("NYSE"). The La Quinta Board considered the fact that
the value to be received in the Merger represented a premium over the recent
historical trading price of La Quinta's common stock.
The foregoing discussion of the information and factors considered and
given weight by the La Quinta Board of Directors is not intended to be
exhaustive but is believed to include all material factors considered by the
board. In addition, in reaching the determination to approve and recommend
approval and adoption of the Merger Agreement by La Quinta's shareholders, in
view of the wide variety of factors considered in connection with its
evaluation thereof, the La Quinta Board of Directors did not assign any
relative or specific weights to the foregoing factors, and individual directors
may have given differing weights to different factors.
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THE LA QUINTA BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY AND BELIEVES THAT THE TERMS
OF THE MERGER ARE FAIR TO, AND IN THE BEST INTERESTS OF, LA QUINTA AND ITS
SHAREHOLDERS. THE LA QUINTA BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL
AND ADOPTION OF THE MERGER AGREEMENT.
Opinion of The Meditrust Companies' Financial Advisor
Salomon Smith Barney was retained by The Meditrust Companies to act as
their financial advisor in connection with the Merger. In connection with such
engagement, The Meditrust Companies requested that Salomon Smith Barney
evaluate the fairness, from a financial point of view, to The Meditrust
Companies of the consideration to be paid by The Meditrust Companies in the
Merger. On January 2, 1998, at a meeting of the Boards of Directors of The
Meditrust Companies held to evaluate the Merger, Salomon Smith Barney delivered
an oral opinion (which opinion was subsequently confirmed by delivery of a
written opinion dated January 3, 1998, the date of the Merger Agreement) to the
Boards of Directors of The Meditrust Companies to the effect that, as of the
date of such opinion and based upon and subject to certain matters stated
therein, the merger consideration to be paid by The Meditrust Companies
pursuant to the Merger Agreement was fair, from a financial point of view, to
The Meditrust Companies.
In arriving at its opinion, Salomon Smith Barney reviewed the Merger
Agreement and held discussions with certain senior officers, directors and
other representatives and advisors of The Meditrust Companies and certain
senior officers and other representatives and advisors of La Quinta concerning
the businesses, operations and prospects of The Meditrust Companies and La
Quinta. Salomon Smith Barney examined certain publicly available business and
financial information relating to The Meditrust Companies and La Quinta as well
as certain financial forecasts and other information and data for The Meditrust
Companies and La Quinta which were provided to or otherwise discussed with
Salomon Smith Barney by the respective managements of The Meditrust Companies
and La Quinta, including information relating to certain strategic implications
and operational benefits anticipated to result from the Merger. Salomon Smith
Barney reviewed the financial terms of the Merger as set forth in the Merger
Agreement in relation to, among other things: current and historical market
prices and trading volumes of the Paired Shares and La Quinta common stock; the
historical and projected earnings and other operating data of The Meditrust
Companies and La Quinta; and the capitalization and financial condition of The
Meditrust Companies and La Quinta. Salomon Smith Barney also considered, to the
extent publicly available, the financial terms of other transactions recently
effected which Salomon Smith Barney considered relevant in evaluating the
Merger and analyzed certain financial, stock market and other publicly
available information relating to the businesses of other companies whose
operations Salomon Smith Barney considered relevant in evaluating those of The
Meditrust Companies and La Quinta. Salomon Smith Barney also evaluated the
potential pro forma financial impact of the Merger on The Meditrust Companies.
In addition to the foregoing, Salomon Smith Barney conducted such other
analyses and examinations and considered such other financial, economic and
market criteria as Salomon Smith Barney deemed appropriate in arriving at its
opinion. Salomon Smith Barney noted that its opinion was necessarily based upon
information available, and financial, stock market and other conditions and
circumstances existing and disclosed, to Salomon Smith Barney as of the date of
its opinion.
In rendering its opinion, Salomon Smith Barney assumed and relied, without
independent verification, upon the accuracy and completeness of all financial
and other information and data publicly available or furnished to or otherwise
reviewed by or discussed with Salomon Smith Barney. With respect to financial
forecasts and other information and data provided to or otherwise reviewed by
or discussed with Salomon Smith Barney, the managements of The Meditrust
Companies and La Quinta advised Salomon Smith Barney that such forecasts and
other information and data were reasonably prepared on bases reflecting the
best currently available estimates and judgments of the managements of The
Meditrust Companies and La Quinta as to the future financial performance of The
Meditrust Companies and La Quinta and the strategic implications and
operational benefits anticipated to result from the Merger. Salomon Smith
Barney assumed, with the consent of the Boards of Directors of The Meditrust
Companies, that the Merger will be treated as a tax-free reorganization for
federal income tax purposes and that the Merger and the transactions
contemplated thereby will not adversely affect the real estate investment trust
status of the combined entity resulting from the Merger or the pairing of the
Paired Shares. Salomon Smith Barney did not express any opinion as to what the
value of the Paired Shares actually will be when issued to La Quinta
shareholders pursuant to the Merger or the prices at which the Paired Shares
will trade subsequent to the Merger. Salomon Smith Barney did not make
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and was not provided with an independent evaluation or appraisal of the assets
or liabilities (contingent or otherwise) of The Meditrust Companies or La
Quinta nor did Salomon Smith Barney make any physical inspection of the
properties or assets of The Meditrust Companies or La Quinta. Salomon Smith
Barney was not requested to consider, and Salomon Smith Barney's opinion does
not address, the relative merits of the Merger as compared to any alternative
business strategies that might exist for The Meditrust Companies or the effect
of any other transaction in which The Meditrust Companies might engage.
Although Salomon Smith Barney evaluated the merger consideration from a
financial point of view, Salomon Smith Barney was not asked to and did not
recommend the specific consideration payable in the Merger, which was
determined through negotiation between The Meditrust Companies and La Quinta.
No other limitations were imposed by The Meditrust Companies on Salomon Smith
Barney with respect to the investigations made or procedures followed by
Salomon Smith Barney in rendering its opinion.
The full text of the written opinion of Salomon Smith Barney dated January
3, 1998, which sets forth the assumptions made, matters considered and
limitations on the review undertaken, is attached to this Joint Proxy
Statement/Prospectus as Annex B and should be read carefully in its entirety.
The opinion of Salomon Smith Barney is directed to the Boards of Directors of
The Meditrust Companies and relates only to the fairness of the merger
consideration from a financial point of view to The Meditrust Companies, does
not address any other aspect of the Merger or related transactions and does not
constitute a recommendation to any shareholder as to how such shareholder
should vote at the Meditrust and Operating Company Meetings. The summary of the
opinion of Salomon Smith Barney set forth in this Joint Proxy
Statement/Prospectus is qualified in its entirety by reference to the full text
of such opinion.
In preparing its opinion, Salomon Smith Barney performed a variety of
financial and comparative analyses, including those described below. The
summary of such analyses does not purport to be a complete description of the
analyses underlying Salomon Smith Barney's opinion. The preparation of a
fairness opinion is a complex analytic process involving various determinations
as to the most appropriate and relevant methods of financial analyses and the
application of those methods to the particular circumstances and, therefore,
such an opinion is not readily susceptible to summary description. Accordingly,
Salomon Smith Barney believes that its analyses must be considered as a whole
and that selecting portions of its analyses and factors, without considering
all analyses and factors, could create a misleading or incomplete view of the
processes underlying such analyses and opinion. In its analyses, Salomon Smith
Barney made numerous assumptions with respect to The Meditrust Companies, La
Quinta, industry performance, general business, economic, market and financial
conditions and other matters, many of which are beyond the control of The
Meditrust Companies and La Quinta. The estimates contained in such analyses and
the valuation ranges resulting from any particular analysis are not necessarily
indicative of actual values or predictive of future results or values, which
may be significantly more or less favorable than those suggested by such
analyses. In addition, analyses relating to the value of businesses or
securities do not purport to be appraisals or to reflect the prices at which
businesses or securities actually may be sold. Accordingly, such analyses and
estimates are inherently subject to substantial uncertainty. Salomon Smith
Barney's opinion and analyses were only one of many factors considered by the
Boards of Directors of The Meditrust Companies in their evaluation of the
Merger and should not be viewed as determinative of the views of the Boards of
Directors or management of The Meditrust Companies with respect to the merger
consideration or the proposed Merger.
Selected Company Analysis. Using publicly available information, Salomon
Smith Barney analyzed, among other things, the market values and trading
multiples of La Quinta and the following selected publicly traded companies in
the lodging industry: Marriott International, Inc.; Promus Hotel Corporation;
Bristol Hotel Company; Prime Hospitality Corp.; Sunburst Hospitality
Corporation; Choice Hotels International, Inc.; and Equity Inns, Inc.
(collectively, the "Selected Companies"). Salomon Smith Barney compared market
values as a multiple of, among other things, estimated calendar 1997 and 1998
earnings per share ("EPS"), and adjusted market values (equity market value,
plus total long-term debt, plus current maturities net of cash) as a multiple
of, among other things, estimated calendar 1997 and 1998 earnings before
interest, taxes, depreciation and amortization ("EBITDA"). All multiples were
based on closing stock prices as of December 31, 1997. Estimated financial data
for the Selected Companies were based on estimates of selected investment
banking firms and estimated financial data for La Quinta were based on internal
estimates of the management of La Quinta ("Case I") and certain adjustments to
the Case I estimates prepared by the managements of The Meditrust Companies
which assumed, among other things, more conservative revenue per available room
growth rates for La Quinta ("Case II"). Applying a range of multiples for the
Selected Companies of esti-
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mated calendar 1997 and 1998 EPS and estimated calendar 1997 and 1998 EBITDA of
22.9x to 30.9x, 17.7x to 25.3x, 9.4x to 12.5x and 7.1x to 10.5x, respectively,
to corresponding financial data for La Quinta resulted in an equity reference
range for La Quinta of approximately $19.17 to $29.42 per share (Case I) and
$18.27 to $28.12 per share (Case II), as compared to the equity value implied
by the merger consideration of approximately $26.00 per share based on a
closing price of the Paired Shares on December 31, 1997.
Selected Merger and Acquisition Transactions Analysis. Using publicly
available information, Salomon Smith Barney analyzed the purchase price and
implied transaction value multiples paid or proposed to be paid in selected
transactions in the lodging industry, consisting of (acquiror/target): Patriot
American Hospitality, Inc./Interstate Hotels Company; Whitehall Street Real
Estate Limited Partnership/Chartwell Leisure Inc.; Starwood Lodging Trust/ITT
Corporation; Patriot American Hospitality, Inc./Carnival Hotels and Resorts
Inc.; Patriot American Hospitality, Inc./ WHG Resorts & Casino Inc.; Starwood
Lodging Trust/Westin Hotel Company; Promus Hotel Corporation/Doubletree
Corporation; Sunstone Hotel Investors, Inc./Kahler Realty Corp.; Wyndham Hotel
Corp./Clubhouse Hotels Inc.; Patriot American Hospitality, Inc./Wyndham Hotel
Corp.; Marriott International, Inc./Renaissance Hotels, Inc.; Starwood Lodging
Trust/HEI Hotels; TRT Holdings Inc./Omni Hotels Group; Bristol Hotel
Company/Bass PLC-N American Holiday Inn; Interstate Hotels Company/Equity Inns,
Inc. (Trust Leasing Inc.); Doubletree Corporation/Red Lions Hotels, Inc.;
Doubletree Corporation/RFS Inc.; FelCor Suite Hotels, Inc./Crown Sterling
Suites; The Hampstead Group/Harvey Hotels/United Inns, Inc.; and Saudi Prince
Al-Waleed/Four Seasons Hotels, Inc. (the "Selected Transactions"). Salomon
Smith Barney compared purchase prices in the Selected Transactions as multiples
of latest 12 months and one-year forward net income, and transaction values as
multiples of, among other things, estimated calendar 1997 and 1998 EBITDA. All
multiples for the Selected Transactions were based on information available at
the time of announcement of the transaction. Applying a range of selected
multiples for the Selected Transactions of latest 12 months and one-year
forward net income and estimated calendar 1997 and 1998 EBITDA of 23.5x to
29.2x, 19.3x to 22.7x, 10.7x to 14.5x and 8.8x to 11.3x, respectively, to the
estimated calendar 1997 and 1998 net income and EBITDA of La Quinta resulted in
an equity reference range for La Quinta of approximately $22.95 to $31.00 per
share (Case I) and $21.90 to $29.72 per share (Case II), as compared to the
equity value implied by the merger consideration of approximately $26.00 per
share based on a closing price of the Paired Shares on December 31, 1997.
No company, transaction or business used in the "Selected Company
Analysis" or "Selected Merger and Acquisition Transactions Analysis" as a
comparison is identical to The Meditrust Companies, La Quinta or the Merger.
Accordingly, an analysis of the results of the foregoing is not entirely
mathematical; rather, it involves complex considerations and judgments
concerning differences in financial and operating characteristics and other
factors that could affect the acquisition, public trading or other values of
the Selected Companies, Selected Transactions or the business segment, company
or transaction to which they are being compared.
Discounted Cash Flow Analysis. Salomon Smith Barney performed a discounted
cash flow analysis of the projected free cash flow of La Quinta for fiscal
years 1998 through 2001, based both on Case I estimates and Case II estimates.
The stand-alone discounted cash flow analysis of La Quinta was determined by
(i) adding (x) the present value of projected free cash flows of La Quinta over
the four-year period from 1998 to 2001 and (y) the present value of the
estimated terminal value of La Quinta in year 2001 and (ii) subtracting the
current net debt of La Quinta. The range of estimated terminal values for La
Quinta at the end of the four-year period was calculated by applying terminal
value multiples of 10.0x to 12.0x to the projected 2001 EBITDA of La Quinta.
The cash flows and terminal values of La Quinta were discounted to present
value using discount rates ranging from 11% to 13%. Utilizing such terminal
multiples and discount rates, this analysis resulted in an equity reference for
La Quinta of approximately $26.95 to $39.28 per share (Case I) and $22.30 to
$33.45 per share (Case II), as compared to the equity value implied by the
merger consideration of approximately $26.00 per share based on a closing price
of the Paired Shares on December 31, 1997.
Pro Forma Merger Analysis. Salomon Smith Barney analyzed certain pro forma
effects resulting from the Merger, including, among other things, the impact of
the Merger on the estimated funds from operations of The Meditrust Companies in
fiscal year 1998 based, with respect to La Quinta, on both Case I and Case II
estimates and, with respect to The Meditrust Companies, on internal estimates
of the managements of The Meditrust Companies, after adjustment for certain
transaction costs and assuming, among other things, certain cost savings and
other potential synergies anticipated by the managements of The Meditrust
Companies and La Quinta to result from the Merger were achieved. The results of
the pro forma merger analysis suggested that the Merger could be accretive to
the funds from
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operations of The Meditrust Companies in fiscal year 1998. The actual results
achieved by the combined company may vary from projected results and the
variations may be material.
Premium Analysis. Salomon Smith Barney compared the premiums paid or
proposed to be paid in the Selected Transactions with the implied premium
payable in the Merger. Applying a range of mean premiums (excluding outliers)
for the Selected Transactions of 21.5% to 66.7% to the closing stock price of
La Quinta common stock on December 31, 1997 resulted in an equity reference
range for La Quinta of approximately $23.46 to $32.19 per share, as compared to
the equity value implied by the merger consideration of approximately $26.00
per share based on a closing price of the Paired Shares on December 31, 1997.
The trading range of La Quinta common stock over the 52-week period prior to
public announcement of the Merger was between approximately $16.00 and $24.38
per share.
Other Factors and Comparative Analyses. In rendering its opinion, Salomon
Smith Barney considered certain other factors and conducted certain other
comparative analyses, including, among other things, a review of (i) the
historical and projected financial results of The Meditrust Companies and La
Quinta, (ii) the implied market value and trading multiples of The Meditrust
Companies relative to selected real estate investment trusts, (iii) the
historical ratio of the daily closing prices of the Paired Shares and La Quinta
common stock and (iv) the pro forma ownership and shareholder profile of the
combined company.
Pursuant to the terms of Salomon Smith Barney's engagement, The Meditrust
Companies have agreed to pay Salomon Smith Barney for its services in
connection with the Merger an aggregate financial advisory fee based on a
percentage of the total consideration (including liabilities assumed) payable
in connection with the Merger. The aggregate fee payable to Salomon Smith
Barney is currently estimated to be approximately $10.7 million. The Meditrust
Companies have also agreed to reimburse Salomon Smith Barney for reasonable
travel and other out-of-pocket expenses incurred by Salomon Smith Barney in
performing its services, including the reasonable fees and expenses of its
legal counsel, and to indemnify Salomon Smith Barney and related persons
against certain liabilities, including liabilities under the federal securities
laws, arising out of Salomon Smith Barney's engagement.
Salomon Smith Barney has advised The Meditrust Companies that, in the
ordinary course of business, Salomon Smith Barney and its affiliates may
actively trade or hold the securities of The Meditrust Companies and La Quinta
for their own account or for the account of customers and, accordingly, may at
any time hold a long or short position in such securities. Salomon Smith Barney
has in the past provided investment banking services to The Meditrust Companies
and La Quinta unrelated to the Merger, for which services Salomon Smith Barney
has received compensation. In addition, Salomon Smith Barney and its affiliates
(including Travelers Group Inc. and its affiliates) may maintain relationships
with The Meditrust Companies and La Quinta.
Salomon Smith Barney is an internationally recognized investment banking
firm and was selected by The Meditrust Companies based on its experience,
expertise and familiarity with The Meditrust Companies and its business.
Salomon Smith Barney regularly engages in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, competitive bids, secondary distributions of listed and unlisted
securities, private placements and valuations for estate, corporate and other
purposes.
Opinion of La Quinta Financial Advisor
Merrill Lynch was engaged by La Quinta to deliver a fairness opinion to
assist La Quinta in evaluating a strategic merger between The Meditrust
Companies and La Quinta. On January 2, 1998, Merrill Lynch delivered its
opinion (the "Merrill Lynch Opinion") to the Board of Directors of La Quinta
stating that, as of January 2, 1998, and based upon the assumptions made,
matters considered and limits of review set forth therein, the consideration to
be received by the La Quinta shareholders pursuant to the Merger and the
Distribution are fair, from a financial point of view, to the La Quinta
shareholders.
The full text of the Merrill Lynch Opinion, which sets forth assumptions
made, matters considered and limits on the review undertaken, is attached to
this Joint Proxy Statement/Prospectus as Annex C and is incorporated herein by
reference. The description of the Merrill Lynch Opinion set forth herein is
qualified in its entirety by reference to the full text of the Merrill Lynch
Opinion. La Quinta shareholders are urged to read the Merrill Lynch Opinion in
its entirety.
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THE MERRILL LYNCH OPINION IS ADDRESSED TO THE BOARD OF DIRECTORS OF LA
QUINTA AND ADDRESSES ONLY THE FAIRNESS, FROM A FINANCIAL POINT OF VIEW, OF THE
MERGER CONSIDERATION AND THE DISTRIBUTION TO BE RECEIVED BY THE LA QUINTA
SHAREHOLDERS PURSUANT TO THE MERGER AND DOES NOT ADDRESS THE MERITS OF THE
UNDERLYING DECISION BY LA QUINTA TO ENGAGE IN THE TRANSACTION AND DOES NOT
CONSTITUTE, NOR SHOULD IT BE CONSTRUED AS, A RECOMMENDATION TO ANY LA QUINTA
SHAREHOLDER AS TO HOW SUCH SHAREHOLDER SHOULD VOTE AT THE LA QUINTA MEETING.
THE MERGER CONSIDERATION WAS DETERMINED ON THE BASIS OF NEGOTIATIONS BETWEEN LA
QUINTA AND THE MEDITRUST COMPANIES AND WAS APPROVED BY THE LA QUINTA BOARD OF
DIRECTORS.
In connection with the preparation of the Merrill Lynch Opinion, Merrill
Lynch, among other things: (i) reviewed certain publicly available business and
financial information relating to La Quinta and The Meditrust Companies which
Merrill Lynch deemed to be relevant; (ii) reviewed certain information,
including financial forecasts, relating to the business, earnings, cash flow,
assets, liabilities and prospects of La Quinta, as well as the amount and
timing of the cost savings and related expenses and synergies expected to
result from the Merger (the "Expected Synergies"), furnished to Merrill Lynch
by La Quinta; (iii) reviewed certain information, including financial forecasts
with respect to fiscal year 1998, relating to the business, earnings, cash
flow, assets, liabilities and prospects of The Meditrust Companies, furnished
to Merrill Lynch by The Meditrust Companies, and certain other information
prepared by Merrill Lynch and reviewed by The Meditrust Companies, including
financial forecasts relating to the business, operations and prospects of The
Meditrust Companies; (iv) conducted discussions with members of senior
management of La Quinta and The Meditrust Companies concerning the matters
described in clauses (i), (ii) and (iii) above, as well as their respective
businesses and prospects before and after giving effect to the Merger and the
Expected Synergies; (v) reviewed the market prices and valuation multiples for
the La Quinta common stock and the Paired Shares and compared them with those
of certain publicly traded companies that Merrill Lynch deemed relevant; (vi)
reviewed the results of operations of La Quinta and The Meditrust Companies and
compared them with those of certain publicly traded companies that Merrill
Lynch deemed to be relevant; (vii) compared the proposed financial terms of the
Merger with the financial terms of certain other transactions which Merrill
Lynch deemed to be relevant; (viii) participated in certain discussions and
negotiations among representatives of La Quinta and The Meditrust Companies and
their financial and legal advisors; (ix) reviewed the potential pro forma
impact of the Merger; (x) reviewed a draft, dated January 2, 1998, of the
Merger Agreement; and (xi) reviewed such other financial studies and analyses
and took into account such other matters as Merrill Lynch deemed necessary,
including its assessment of general economic, market and monetary conditions.
In preparing the Merrill Lynch Opinion, Merrill Lynch assumed and relied
on the accuracy and completeness of all information supplied or otherwise made
available to Merrill Lynch, discussed with or reviewed by or for Merrill Lynch,
or publicly available, and Merrill Lynch has not assumed any responsibility for
independently verifying such information or undertaken an independent
evaluation or appraisal of any of the assets or liabilities of La Quinta or The
Meditrust Companies or been furnished with any such evaluation or appraisal. In
addition, Merrill Lynch did not assume any obligation to conduct any physical
inspection of the properties or facilities of La Quinta or The Meditrust
Companies. With respect to the financial forecast information and the Expected
Synergies furnished to or discussed with Merrill Lynch by La Quinta or The
Meditrust Companies, Merrill Lynch assumed that they have been reasonably
prepared and reflect the best currently available estimates and judgment of La
Quinta's or The Meditrust Companies' management as to the expected future
financial performance of La Quinta or The Meditrust Companies, as the case may
be, and the Expected Synergies. Merrill Lynch also assumed that the final form
of the Merger Agreement is substantially similar to the last draft reviewed by
Merrill Lynch.
The Merrill Lynch 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 Merrill Lynch as of, the date of the Merrill Lynch Opinion.
Merrill Lynch assumed that in the course of obtaining the necessary regulatory
or other consents or approvals (contractual or otherwise) for the Merger, no
restrictions, including any divestiture requirements or amendments or
modifications, will be imposed that will have a material adverse effect on the
contemplated benefits of the Merger. Merrill Lynch also assumed that the Merger
will not change the REIT status of the pro forma entity.
Merrill Lynch's Opinion as to the fairness from a financial point of view
of the proposed merger consideration and Distribution to be received by the La
Quinta shareholders addresses the cash consideration and ownership position
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in the combined entity to be received by the La Quinta shareholders pursuant to
the Merger on the terms set forth in the Merger Agreement based upon the
relative contributions of La Quinta and The Meditrust Companies to the combined
entity. Merrill Lynch expressed no opinion as to prices at which the Paired
Shares will trade following the announcement of the execution of the Merger
Agreement or the consummation of the Merger or prices which could be obtained
for the Paired Shares in a sale of the combined entity following the
consummation of the Merger. The Merrill Lynch Opinion does not address the
relative merits of the Merger as compared with any other business plan or
opportunity that might be presented to La Quinta, including alternative
business combinations with third parties, or the effect of any other
arrangement in which La Quinta might engage.
At the meeting of the Board of Directors of La Quinta held on January 2,
1998, Merrill Lynch presented certain financial analyses accompanied by written
materials in connection with the delivery of the Merrill Lynch Opinion. The
following is a summary of the material financial and comparative analyses
performed by Merrill Lynch in arriving at the Merrill Lynch Opinion.
Historical Trading Performance and Current Capitalization. Merrill Lynch
reviewed certain trading information for La Quinta and The Meditrust Companies
and, on the basis thereof, calculated their respective trading multiples based
on closing stock prices of $18.75 for La Quinta as of December 23, 1997, and
$36.06 for the Paired Shares as of December 23, 1997. Merrill Lynch then
calculated La Quinta's Enterprise Value ("Enterprise Value" is defined as the
product of the number of shares outstanding and market price, plus total
financial debt, plus minority interest less cash and marketable securities as
of the latest available public disclosure) as multiples of estimated and
projected earnings before interest, taxes, depreciation and amortization
("EBITDA"), based on recent research reports. For La Quinta, Enterprise Value
as multiples of estimated 1997 EBITDA and projected 1998 EBITDA were 9.9x and
8.5x, respectively. Merrill Lynch then calculated the market value of The
Meditrust Companies as a multiple of projected funds from operations (based on
mean estimates of funds from operations provided by First Call, an industry
service provider of earnings estimates based on an average of earnings
estimates published by various investment banking firms ("First Call")). The
Meditrust Companies' funds from operations multiples for 1997, 1998 and 1999
were 14.4x, 14.1x and 11.9x, respectively.
Merrill Lynch also reviewed the stock price and trading volume history for
La Quinta and The Meditrust Companies for the period December 20, 1996 to
December 22, 1997 and compared such information to performance of the Standard
& Poor's 500 Index.
Analysis of Selected Comparable Publicly Traded Companies. Using publicly
available information and estimates of future financial results published by
First Call and taken from recent research reports, Merrill Lynch compared
certain financial and operating information and ratios for both La Quinta and
The Meditrust Companies with the corresponding financial and operating
information for a group of publicly traded companies, with respect to La
Quinta, engaged primarily in the lodging industry and with respect to The
Meditrust Companies, operating as REITs having a paired share or paper-clipped
structure, which Merrill Lynch deemed to be reasonably comparable to La Quinta
and The Meditrust Companies, respectively. For the purposes of its analyses,
the following companies were used as comparable companies to La Quinta: Host
Marriott Corporation, Bristol Hotel Company, CapStar Hotel Company, Red Roof
Inns, Inc., Servico, Inc., Sunburst Hospitality Corporation, John Q. Hammons
Hotels, Inc., Hilton Hotels Corporation, Prime Hospitality Corporation and
Choice Hotels International, Inc. (collectively, the "La Quinta Comparable
Companies"). For the purpose of its analyses, the following companies were used
as comparable companies to The Meditrust Companies: Starwood Lodging
Corporation, Crescent Real Estate Equities, Vornado Realty Trust and Patriot
American Hospitality (collectively, the "Meditrust Comparable Companies," and
together with the La Quinta Comparable Companies, the "Comparable Companies").
Merrill Lynch's calculations resulted in the following relevant ranges for
the La Quinta Comparable Companies and for La Quinta as of December 23, 1997: a
range of Enterprise Value as a multiple of estimated 1997 EBITDA of 6.5x to
16.4x, with a mean of 10.1x and a median of 9.0x (as compared to La Quinta at
9.9x); a range of Enterprise Value as a multiple of estimated 1998 EBITDA of
5.6x to 13.3x, with a mean of 8.1x and a median of 7.3x (as compared to La
Quinta at 8.5x); a range of share price as a multiple of estimated 1997
earnings per share of 12.6x to 29.8x, with a mean of 23.9x and a median of
21.8x (as compared to La Quinta at 18.6x); and a range of share price as a
multiple of projected 1998 earnings per share of 10.9x to 23.8x, with a mean of
18.5x and a median of 18.0x (as compared to La Quinta at 15.0x). Based on
Merrill Lynch's judgment, a range of multiples for the La Quinta Comparable
Companies of estimated calendar 1998 earnings per share and 1998 EBITDA of
16.0x to 19.0x and 7.5x to 8.5x was applied, respectively, to corresponding
financial data for La Quinta resulting in a range of equity value of $17.25 to
$25.00.
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Merrill Lynch's calculations resulted in the following relevant ranges for
the Meditrust Comparable Companies and for The Meditrust Companies as of
December 23, 1997: a range of market value as a multiple of estimated 1997
funds from operations of 18.8x to 36.8x, with a mean of 25.4x and a median of
22.9x (as compared to The Meditrust Companies at 14.4x); a range of market
value as a multiple of projected 1998 FFO of 10.2x to 20.0x, with a mean of
14.3x and a median of 13.6x (as compared to The Meditrust Companies at 14.1x).
Based on Merrill Lynch's judgment, a range of multiples for the Meditrust
Comparable Companies of projected 1998 funds from operations of 12.0x to 14.0x
was applied to corresponding financial data for Meditrust resulting in a range
of equity values for The Meditrust Companies of $29.50 to $34.50.
None of the Comparable Companies is, of course, identical to The Meditrust
Companies or La Quinta. Accordingly, a complete analysis of the results of the
foregoing calculations cannot be limited to a quantitative review of such
results and involves complex considerations and judgments concerning
differences in financial and operating characteristics of the Comparable
Companies and other factors that could affect the public trading volume of the
Comparable Companies, as well as that of The Meditrust Companies or La Quinta.
In addition, Enterprise Value as multiples of estimated 1997 EBITDA and
estimated 1998 EBITDA, share price as multiples of estimated 1997 earnings per
share and projected 1998 earnings per share, the multiples of market value to
estimated 1997 and projected 1998 FFO for the Comparable Companies are based on
projections prepared by research analysts using only publicly available
information. Accordingly, such estimates may or may not prove to be accurate.
Comparable Transactions Analysis. Merrill Lynch also compared certain
financial ratios of the Merger with those of other mergers and strategic
transactions involving REITs and/or lodging companies which Merrill Lynch
deemed to be relevant. These transactions were the Interstate Hotel Company
merger with Patriot American Hospitality, Inc., ITT Corporation merger with
Starwood Lodging Trust, CHC International merger with Patriot American
Hospitality, Inc., Westin Hotels & Resorts Worldwide, Inc. merger with Starwood
Lodging Trust, Promus Hotel Corporation merger with Doubletree Corporation,
Wyndham Hotel Corporation merger with Patriot American Hospitality, Inc., Bass
Plc - Holiday Inns, Inc. merger with Bristol Hotel Company and Red Lion Hotels,
Inc. merger with Doubletree Corporation (collectively, the "Comparable
Transactions").
Merrill Lynch then compared certain financial ratios for the Comparable
Transactions to those of the Merger. Merrill Lynch compared the prices paid in
the Comparable Transactions in terms of, among other things, the Transaction
Value ("Transaction Value" is defined as offer value ("offer value" is defined
as offer price per share multiplied by the number of shares and in-the-money
options outstanding) plus preferred equity at liquidation value and net debt)
as multiples of the last twelve months ("LTM") EBITDA, Forward Year EBITDA
(based on annual estimates from pre-transaction research reports), LTM earnings
before interest and taxes ("EBIT") and LTM sales. An analysis of the multiples
for the Comparable Transactions produced the following results: (i) Transaction
Value as a multiple of LTM EBITDA yielded a range of 7.4x to 16.7x, with a mean
of 12.6x and median of 13.6x; (ii) Transaction Value as a multiple of Forward
Year EBITDA yielded a range of 6.5x to 12.8x, with a mean of 10.0x and a median
of 10.4x; (iii) Transaction Value as a multiple of LTM EBIT yielded a range of
12.3x to 20.4x, with a mean of 16.9x and median of 17.9x; and (iv) Transaction
Value as a multiple of LTM sales yielded a range of 1.4x to 8.3x, with a mean
of 3.5x and median of 3.1x. Based on Merrill Lynch's judgment, a range of
multiples for the Comparable Transactions of Forward Year EBITDA of 9.0x to
11.0x was applied to corresponding financial data for La Quinta resulting in a
range of equity value for La Quinta of $23.00 to $31.00.
Discounted Cash Flow Analysis. Merrill Lynch performed discounted cash
flow analyses (i.e., an analysis of the present value of the projected
unlevered free cash flows (EBIT tax effected, plus depreciation and
amortization minus capital expenditures minus (plus) increases (decreases) in
working capital) for the periods and using the discount rates indicated) of La
Quinta based upon 1998-2002 forecasts prepared by La Quinta's management.
Utilizing these forecasts, Merrill Lynch calculated a range of equity per share
values for La Quinta based upon the sum of the discounted net present value of
La Quinta's four-year stream of projected unlevered free cash flows as of
December 31, 1997 plus the discounted net present value of the terminal value
based on a range of multiples of its projected calendar year 2002 EBITDA less
net debt. Based on Merrill Lynch's judgment, discount rates reflecting a
weighted average cost of capital ranging from 9.5% to 11.5% and terminal value
multiples of calendar year 2002 EBITDA ranging from 7.5x to 8.5x were used to
calculate a range of equity per share values for La Quinta common stock of
$21.50 to $29.00.
Further, Merrill Lynch performed discounted cash flow analyses of The
Meditrust Companies on a standalone basis, based on 1998 forecasts prepared by
Merrill Lynch and reviewed by The Meditrust Companies' management. Utilizing
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these forecasts, Merrill Lynch calculated a range of equity values per share
based upon the sum of the discounted net present value of Meditrust's four-year
stream of projected funds from operations per share as of December 31, 1997
plus the present value of the terminal value based on a range of forward
multiples of its projected calendar year 2002 funds from operations per share.
Based on Merrill Lynch's judgment, discount rates reflecting a cost of equity
ranging from 10.5% to 12.5% and terminal value multiples of forward funds from
operations (calendar year 2002) ranging from 12.0x to 14.0x were used to
calculate a range of equity per share values of Meditrust Paired Shares of
$30.00 to $36.00.
Valuation of Merger Consideration. Based on the aforementioned analysis
and Merrill Lynch's collective judgment, Merrill Lynch determined a reference
range of equity values for La Quinta of $21.00 to $26.00 and a reference range
of equity value of Meditrust of $30.00 to $36.00. Merrill Lynch then calculated
the value of the weighted average merger consideration (assuming all
shareholders elect maximum cash) at the minimum, midpoint and maximum Meditrust
share prices within the collar and compared them to the La Quinta reference
range. The range of implied blended values to La Quinta shareholders are $23.65
to $27.03, $21.94 to $24.98 and $20.58 to $23.35, respectively for the minimum,
midpoint and maximum collar pricing points.
The summary set forth above does not purport to be a complete description
of the analyses performed by Merrill Lynch in arriving at the Merrill Lynch
Opinion. The preparation of a fairness opinion is a complex process and not
necessarily susceptible to partial or summary description. Merrill Lynch
believes that its analyses must be considered as a whole and that selecting
portions of its analyses and of the factors considered by it, without
considering all factors and analyses, could create a misleading view of the
process underlying the Merrill Lynch Opinion. In its analyses, Merrill Lynch
made numerous assumptions with respect to industry performance, general
business and economic conditions and other matters, many of which are beyond La
Quinta's, The Meditrust Companies' and Merrill Lynch's control. Any estimates
contained in Merrill Lynch's analyses are not necessarily indicative of actual
values, which may be significantly more or less favorable than as set forth
therein. Estimated values do not purport to be appraisals and do not
necessarily reflect the prices at which businesses or companies may be sold in
the future, and such estimates are inherently subject to uncertainty.
The La Quinta Board of Directors selected Merrill Lynch to render a
fairness opinion because Merrill Lynch is an internationally recognized
investment banking firm with substantial experience in transactions similar to
the Merger and because it is familiar with La Quinta and its business. Merrill
Lynch is continually engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, leveraged buyouts,
negotiated underwritings, secondary distributions of listed and unlisted
securities and private placements.
Pursuant to a letter agreement dated October 30, 1997, La Quinta agreed to
pay Merrill Lynch fees as follows: (i) a fee of $100,000, payable on the date
of such letter agreement; (ii) an additional fee of approximately $7.6 million
based on the fair market value of the merger consideration and Distribution to
be received by the La Quinta shareholders. Any fees previously paid to Merrill
Lynch pursuant to the first clause above will be deducted from any fee to which
Merrill Lynch is entitled pursuant to the second clause. La Quinta also agreed
to reimburse Merrill Lynch for its reasonable out-of-pocket expenses incurred
in connection with its advisory work, including the reasonable fees and
disbursements of its legal counsel, subject to certain limitations, and to
indemnify Merrill Lynch and certain related persons against certain liabilities
arising out of or in conjunction with its rendering of services under such
letter agreement, including certain liabilities under the federal securities
laws.
Merrill Lynch may provide financial advisory and financing services to La
Quinta and The Meditrust Companies and may receive fees for the rendering of
such services. In the ordinary course of its business, Merrill Lynch may
actively trade in the securities of La Quinta or The Meditrust Companies for
its own account and the account of its customers and, accordingly, may at any
time hold a long or short position in such securities.
On February 26, 1998, The Meditrust Companies entered into certain
transactions with Merrill Lynch International, a UK-based broker/dealer
subsidiary of Merrill Lynch, whereby Merrill Lynch International agreed to
purchase 8,500,000 shares of Series A Non-Voting Convertible Common Stock (the
"Series A Stock") from The Meditrust Companies at a purchase price of $32.625
per share, subject to adjustment in the event of a decline in the market price
of the paired shares. The Series A Stock is initially non-voting and will
convert into voting Paired Shares on the earlier of (a) the business day
following the date on which shareholders of The Meditrust Companies have
approved the Merger or (b) the date of any termination of the Merger Agreement.
The original purchase price per share is subject to adjustment within one year
pursuant to a purchase price adjustment agreement. See "The Companies -- Recent
Developments."
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Interests of Certain Persons in the Merger
In considering the recommendation of the Board of Directors of La Quinta
with respect to the Merger, holders of La Quinta common stock should be aware
that certain members of management of La Quinta and of the La Quinta Board of
Directors have interests in the Merger that are different from, or in addition
to, the interests of the holders of La Quinta common stock generally. The Board
of Directors of La Quinta was aware of such interests and considered them,
among other matters, in approving the Merger Agreement and the transactions
contemplated thereby.
Employment Agreement. Prior to the closing of the Merger, Ezzat S. Coutry,
La Quinta's executive vice president and chief operating officer, will enter
into an employment agreement with Operating Company pursuant to which he will
be employed as president and chief executive officer of the La Quinta business
unit of Operating Company. The terms of Mr. Coutry's employment agreement are
currently under discussion.
Severance Agreements. Prior to the Merger, La Quinta entered into
severance agreements with six executive officers and all other officers of La
Quinta which provide certain benefits in the event of the termination of such
officer's employment without "cause" or by such officer for "good reason" (each
as defined in the severance agreements) or, in the case of Messrs. Coutry,
Schultz, McCalmont, Hickey and Schmutz, by such officer for any reason, or no
reason, within thirty days following the one-year anniversary after a "change
of control" of La Quinta) or, in the case of Mr. Mead, in the event of his
termination for any reason or no reason within 90 days following a change of
control of La Quinta. The Merger will constitute such a "change of control" of
La Quinta under the severance agreements. Severance payments under these
agreements will equal three times the Base Amount (as defined below) for
Messrs. Mead, Coutry and Schultz, two times the Base Amount for Messrs.
McCalmont, Hickey and Schmutz and one times the Base Amount for the other vice
presidents. "Base Amount" means the sum of (i) such employee's annual base
salary at the date of termination or immediately prior to the change of
control, whichever is greater, and (ii) such employee's targeted annual bonus
at the date of termination or immediately prior to the change in control,
whichever is greater. Other severance benefits include (i) family medical
coverage for a number of years equal to the applicable multiple, (ii)
acceleration of vesting of stock options and restricted stock; (iii)
accelerated vesting of certain pension benefits and (iv) legal fees and costs
to the employee in any dispute related to the severance agreement. In the event
that Messrs. Mead, Coutry or Schultz becomes entitled to payments which are
subject to an excise tax provided under the Code applicable to certain "golden
parachute" payments, the severance agreements provide that Operating Company
shall pay such employee a gross-up payment such that the net amount retained by
the employee after deduction of the excise tax on the payments and all excise
tax and other taxes on the gross-up payment shall equal the initial lump sum
amount.
La Quinta also entered into new severance agreements and/or adopted new
severance policies with respect to certain other employees of La Quinta.
Stock Options and Restricted Stock. Each of La Quinta's Amended and
Restated 1984 Stock Option Plan, the Non-Qualified Stock Option Plan of Gary L.
Mead and the 1997 Equity Participation Plan (collectively, the "La Quinta
Plans"), provides for vesting of options and restricted stock upon a "change in
control." The Merger will constitute a change in control under the La Quinta
Plans. As a result, all of the currently unvested options and restricted stock
outstanding under the La Quinta Plans will become fully vested and immediately
exercisable upon consummation of the Merger. The treatment in the Merger of
outstanding options and restricted stock granted under the La Quinta Plans is
described under "The Merger Agreement -- La Quinta Stock Option Plans." Holders
of these options may elect to have their options (i) canceled and the spread
value ($26 minus the exercise price of such option) paid in cash by La Quinta
or (ii) assumed by Meditrust and Operating Company and be exercisable for such
number of Paired Shares equal to the exchange ratio (described under "The
Merger Agreement -- Transaction Consideration") multiplied by the number of La
Quinta shares covered by such option, at an exercise price equal to the
exercise price of such option divided by the exchange ratio. In connection with
the Merger, a total of approximately 1.9 million La Quinta options will become
immediately exercisable. The Merger Agreement provides that executive officers
and directors may elect to have their options cashed out rather than converting
them into options to purchase Paired Shares. The options will be cashed out by
paying the spread between $26 and the exercise price of the option regardless
of whether the La Quinta shareholders will receive more or less than $26 in
total amount of consideration, based upon the Meeting Date Price (as defined)
of the Paired Shares.
The following table sets forth for each of La Quinta's chief executive
officer and the four other most highly compensated executive officers at the
end of the last fiscal year: the estimated value of certain severance payments
(assum-
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ing for purposes of presentation that each of such officers are terminated
within the first year following the Merger) and the value of outstanding stock
options held by such executive officers which will be accelerated as a result
of the Merger.
<TABLE>
<CAPTION>
Estimated Value Estimated Value
Estimated of Unvested Stock of Total Potential
Value of Contingent Options Accelerated Benefits from
Name Severance Payments by the Merger the Merger
- ------------------------------------------------ --------------------- --------------------- -------------------
<S> <C> <C> <C>
Gary L. Mead
President and Chief Executive Officer ......... $2,774,000 $2,215,000 $4,989,000
Ezzat S. Coutry
Executive Vice President and
Chief Operating Officer ....................... 2,380,000 2,831,000 5,211,000
Steven T. Schultz
Executive Vice President-Development .......... 1,534,000 1,235,000 2,769,000
Stephen B. Hickey
Senior Vice President-Marketing ............... 685,000 1,409,000 2,094,000
John F. Schmutz
Vice President and
General Counsel ............................... 543,000 322,000 865,000
</TABLE>
Directors and Officers Insurance; Limitation of Liability of La Quinta
Directors and Officers. The Merger Agreement provides that all rights to
indemnification and exculpation, to the extent applicable, from liabilities for
acts or omissions occurring at or prior to the effective time of the Merger
existing in favor of the current or former directors or officers of La Quinta
and its subsidiaries as provided in their respective certificates of
incorporation and by-laws and existing indemnification contracts to which La
Quinta is a party will be assumed by The Meditrust Companies and will continue
in effect in accordance with their respective terms for a period of not less
than six years from the effective time of the Merger. The Merger Agreement also
provides that, for not less than six years after the effective time of the
Merger, The Meditrust Companies will provide liability insurance covering acts
or omissions existing or occurring at or prior to the effective time of the
Merger with respect to those persons who were covered by La Quinta's directors'
and officers' liability insurance policy on terms that are no less favorable,
as to coverage and amounts, than those in effect on the date of the Merger
Agreement, provided that The Meditrust Companies will not be required to pay
more than 150% of the current amount paid by La Quinta to maintain its
directors' and officers' liability insurance policy on an annual basis.
Noncompetition and Nonsolicitation Agreement. Mr. Mead has entered into a
non-competition agreement with La Quinta for one year following the termination
of his employment which provides that he will not become an owner, principal,
agent, employee or consultant of any entity that derives more than 20% of its
revenues from owning, operating, managing or granting franchise rights with
respect to upscale limited service lodging facilities, mid-scale, economy and
budget lodging facilities; however this prohibition does not prohibit Mr. Mead
from owning up to 5% of the shares of any publicly-held corporation engaged in
the lodging business. This agreement also includes a one-year non-solicitation
of employees covenant which prohibits the direct or indirect solicitation or
inducement by Mr. Mead of any present or future employee of La Quinta to accept
employment with Mr. Mead or with any business entity with which Mr. Mead may be
associated; however, this prohibition does not apply if Mr. Mead is approached
by an employee. The agreement also includes a confidentiality agreement
pursuant to which Mr. Mead agrees, for an unlimited term, not to disclose any
of La Quinta's business secrets or other matters of a proprietary or
confidential nature, including, but not limited to, business opportunities and
plans, sales and marketing plans, price and cost information, earnings
information and projections, business relationships, joint ventures, finances,
various sales techniques and other confidential information.
Certain Shareholder Arrangements. Shareholders should refer to the section
entitled "The Merger Agreement -- Certain Shareholder Arrangements" for a
discussion of a shareholders agreement and registration rights agreement
entered into with certain shareholders of La Quinta, including Gary L. Mead, La
Quinta's president and chief executive officer, and certain shareholders
affiliated with Thomas M. Taylor & Co. and certain other entities and
individuals associated with the Bass family.
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Retirement Plans. La Quinta's Restated Supplemental Executive Retirement
Plan (the "SERP") requires annual funding upon a change of control. The
execution of the Merger Agreement is deemed a change of control under the SERP.
As a result, certain executives of La Quinta will benefit from the vesting and
full funding of their supplemental retirement benefits and will receive tax
gross-up payments from La Quinta regardless of whether or not the Merger is
consummated. The amounts of the funding and tax gross-up payment are estimated
to be approximately $1.5 million and $1.0 million, respectively.
Certain Regulatory Matters
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the "HSR Act"), and the rules promulgated thereunder by the Federal Trade
Commission (the "FTC"), the Merger and certain related transactions may not be
consummated until notifications have been given and certain information
furnished to the FTC and the Antitrust Division of the United States Department
of Justice (the "Antitrust Division") and specified waiting period requirements
have been satisfied. Operating Company and La Quinta have filed the required
notification and report forms under the HSR Act with the FTC and the Antitrust
Division, and the applicable waiting period expired on February 25, 1998.
The Meditrust Companies and La Quinta do not believe that any additional
governmental filings in the United States, other than the Articles of Merger
and the Certificate of Merger to be filed with the Texas and Delaware
Secretaries of State, respectively, are required with respect to the merger and
the issuance of Operating Company common stock. The FTC, the Antitrust Division
or certain private parties could take such action under the HSR as they deem
necessary or desirable, including seeking divestiture of assets of The
Meditrust Companies or La Quinta. Consummation of the Merger and the issuance
of Operating Company common stock is conditioned upon, among other things, the
absence of any preliminary or permanent injunction or other orders issued by
any court or other judicial or administrative body of competent jurisdiction
which prohibits or prevents consummation of the Merger.
Accounting Treatment
The Merger is expected to be accounted for by Meditrust using the purchase
method of accounting.
No Appraisal Rights
Holders of La Quinta common stock are not entitled to appraisal rights
under Texas law in connection with the merger. Article 5.11 of the Texas
Business Corporation Act (the "TBCA") provides, in part, that shareholders are
not entitled to appraisal rights in a merger if (i) at the record date for the
shareholders' meeting to vote on a merger, the shareholder's shares are part of
a class which is listed on a national securities exchange or held of record by
at least 2,000 persons, and (ii) under the terms of a merger agreement, the
shareholder is not required to accept in exchange for such shareholder's shares
anything other than (x) shares of a corporation that, at the effectiveness of
the merger, will be listed on a national securities exchange or held of record
by at least 2,000 persons and (y) cash in lieu of fractional shares. See
"Comparison of Shareholder Rights -- Appraisal/Dissenter's Rights."
Resales of Paired Shares Received Pursuant to the Merger Agreement
The Paired Shares issued pursuant to the Merger Agreement will be freely
transferrable under the Securities Act of 1933, as amended (the "Securities
Act"), except for shares issued to any La Quinta shareholder who may be deemed
to be an affiliate of The Meditrust Companies (or either of them) for purposes
of Rule 144 promulgated under the Securities Act ("Rule 144") or an affiliate
of La Quinta for purposes of Rule 145 promulgated under the Securities Act
("Rule 145") (each, an "Affiliate "). Affiliates will include persons
(including all directors of The Meditrust Companies and former directors of La
Quinta) who control, are controlled by, or under common control with (i) The
Meditrust Companies (or either of them) or La Quinta at the time of the La
Quinta Meeting, or (ii) The Meditrust Companies (or either of them) at or after
the effective time.
Rule 144 and Rule 145 will restrict the sale of Paired Shares received
pursuant to the Merger Agreement by Affiliates and certain of their families
and related interests. Generally speaking, during the year following the
effective time, persons who are affiliates of La Quinta at the time of the La
Quinta Meeting (assuming that they are not Affiliates of The Meditrust
Companies (or either of them) at or after the effective time) may publicly
resell any Paired Shares
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received by them pursuant to the Merger Agreement, subject to certain
limitations as to, among other things, the amount of Paired Shares, sold by
them in any three-month period and as to the manner of sale. After the one-year
period following the effective time, these Affiliates may resell their Paired
Shares without restriction so long as there is adequate public information with
respect to The Meditrust Companies as required by Rule 144. Persons who become
Affiliates of The Meditrust Companies (or either of them) prior to, or at or
after the Effective Time, may publicly resell the Paired Shares received by
them pursuant to the Merger Agreement subject to similar limitations, and
subject to certain holding period and filing requirements specified in Rule
144.
The ability of Affiliates to resell Paired Shares received pursuant to the
Merger Agreement under Rule 144 or Rule 145 as summarized herein generally will
be subject to The Meditrust Companies having satisfied their respective
reporting requirements under the Securities Exchange Act of 1934, as amended
(the "Exchange Act") for specified periods of time prior to the time of sale.
Affiliates also would be permitted to resell Paired Shares received pursuant to
the Merger Agreement pursuant to an effective registration statement under the
Securities Act or another available exemption from the Securities Act
registration requirements.
This Joint Proxy Statement/Prospectus does not cover any resales of Paired
Shares to Affiliates of The Meditrust Companies (or either of them) or La
Quinta pursuant to the Merger Agreement. However, Gary L. Mead and Thomas M.
Taylor & Co. and certain other entities and individuals associated with the
Bass family (collectively, the "Principal Shareholders"), who may be deemed to
be Affiliates, have entered into a shareholders agreement with The Meditrust
Companies and La Quinta. Pursuant to the shareholders agreement, Mr. Mead and
the Principal Shareholders have agreed to further restrictions on the
disposition of Paired Shares received by Mr. Mead and the Principal
Shareholders in the Merger beyond those provided for in Rule 144 and Rule 145.
See "The Merger Agreement -- Certain Shareholder Arrangements -- Shareholders
Agreement." The Principal Shareholders have been granted resale registration
rights in connection with the shareholders agreement. Upon effectiveness of a
registration statement covering resales of the Paired Shares by these
shareholders, they will have the ability, subject to other legal requirements
and restrictions, to sell their Paired Shares as freely as other La Quinta
shareholders. See "The Merger Agreement-- Certain Shareholder
Arrangements -- Registration Rights Agreement."
Stock Exchange Listing of Paired Shares; Delisting and Deregistration of La
Quinta Common Stock
It is a condition to the Merger that the Paired Shares to be issued in the
Merger (including the Operating Company common stock) be authorized for listing
on the NYSE. La Quinta common stock is currently listed on the NYSE under the
symbol "LQI." Upon consummation of the Merger, La Quinta common stock will be
delisted from the NYSE and deregistered under the Exchange Act. See
"Comparative Per Share Market Price and Dividend Information."
Dividends
The Meditrust Companies expect to declare regularly scheduled dividends on
the Paired Shares, including those dividends necessary for Meditrust to
maintain its status as a REIT. The current annualized rate of dividends on the
Paired Shares is $2.43 (without giving effect to the earnings and profits
distribution). It is expected that The Meditrust Companies will continue to pay
similar quarterly dividends, including dividends required to maintain
Meditrust's status as a REIT, after the effective time of the Merger, subject
to approval and declaration by the respective Boards of Directors of The
Meditrust Companies. See "Comparative Per Share Market Price and Dividend
Information."
La Quinta expects to continue to declare regularly scheduled dividends on
the La Quinta common stock until the effective time of the Merger. The current
annualized rate of dividends on the La Quinta common stock is $.07. Dividends
on La Quinta common stock will end at the effective time of the Merger when the
separate corporate existence of La Quinta will terminate. See "Comparative Per
Share Market Price and Dividend Information."
Meditrust also expects to declare the earnings and profits distribution,
immediately prior to the Merger, in order to distribute earnings and profits
accumulated through the date of the Merger as necessary to preserve its REIT
status. La Quinta shareholders who receive Paired Shares in the Merger will
need to hold them until the record date of the distribution in order to receive
the distribution. The Merger Agreement provides that the record date for the
distribution must occur between fifteen and forty-five days following
completion of the Merger. La Quinta shareholders who sell or otherwise dispose
of Paired Shares received in the Merger before the record date will not receive
the distribution. See "What La Quinta Shareholders Will Receive in the
Transaction."
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Pending Litigation Regarding the Merger
In January 1998, two lawsuits purporting to be class actions were filed in
the District Court of Bexar County, Texas on behalf of shareholders of La
Quinta against La Quinta, certain directors and officers of La Quinta, and
Meditrust (collectively, the "Defendants"). The lawsuits are captioned Robbins
v. Razzouk, et al., No. 98CI-00192, and Brody v. Razzouk, et al., No.
98CI-00456 (the "Actions"). The complaints in the Actions allege, among other
things, that Defendants (other than Meditrust) have breached their fiduciary
duties to shareholders by agreeing in the Merger Agreement to merger
consideration which is "grossly inadequate," by failing to solicit competing
bids or to provide a "market check," by failing to conduct a full and thorough
investigation, and by failing to make adequate public disclosure regarding the
transaction. The independence of the directors of La Quinta is also questioned.
The complaints allege that Meditrust aided and abetted the alleged breaches of
duty by the other Defendants. The complaints in the Actions seek, among other
things, (i) a declaration that Defendants have breached their fiduciary duties
to members of the alleged class, (ii) a declaration that the proposed
transaction is a legal nullity, (iii) an order preliminarily and permanently
enjoining consummation of the proposed transaction, (iv) if the proposed
transaction is consummated, an order to rescind it, (vi) the award of
compensatory damages, and (v) the award of costs, disbursements and attorneys'
fees.
Financing
The Meditrust Companies are exploring various alternative means by which
to most effectively finance the earnings and profits distribution and the cash
consideration to be paid in the Merger pursuant to cash elections made by La
Quinta shareholders. Such financing may consist of public or private offerings
of equity or debt, or a combination thereof.
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<PAGE>
THE MERGER AGREEMENT
This description of the Merger Agreement is not complete. We refer you to
the copy of the Merger Agreement attached to this Joint Proxy
Statement/Prospectus as Annex A. We urge all shareholders of Meditrust,
Operating Company and La Quinta to read the entire Merger Agreement for a
complete description of the terms and conditions of the Merger.
General
The Merger Agreement provides for the merger of La Quinta with and into
Meditrust. At the time of the Merger, the separate corporate existence of La
Quinta will cease and Meditrust will be the surviving corporation. The Merger
will be effective after all conditions in the Merger Agreement are met,
including receipt of shareholder approval, and after merger documents are filed
with the Texas and Delaware Secretaries of State and a certificate of merger
has been issued by the Texas Secretary of State (the "Effective Time"). We
currently expect that the Merger will be effective within two business days
after receipt of the requisite shareholder approvals.
Distribution of Earnings and Profits
La Quinta has operated as a taxable corporation for federal income tax
purposes since its incorporation. As such, La Quinta generates taxable income
and, in some situations, losses. To the extent La Quinta's taxable income in
any given year is not distributed to its shareholders, it becomes accumulated
earnings and profits. Accumulated earnings and profits are periodically reduced
by losses and distributions or dividends to a company's shareholders in excess
of the company's current taxable income.
Immediately prior to the Effective Time, Meditrust will declare a
distribution payable on its common stock in an amount which Meditrust
determines is necessary to disburse undistributed accumulated and current
earnings and profits in order to preserve its REIT status. La Quinta estimated
that it had, as of September 30, 1997, no more than $325 million of accumulated
earnings and profits. However, the actual amount of La Quinta's earnings and
profits may change prior to the time at which Meditrust announces the amount of
the distribution. The amount of La Quinta's earnings and profits at the time of
the Merger could be affected by a number of factors, including, without
limitation: the earnings and profits generated by La Quinta prior to the Merger
(which would increase the number); the cash settlement of employee stock
options and other compensation expenses provided for in the Merger Agreement
(which would decrease the number); and a possible sale of certain assets of La
Quinta pursuant to the Merger Agreement (which would increase the number).
Other adjustments may occur prior to the Merger.
The record date for the earnings and profits distribution will be between
the fifteenth and the forty-fifth day following the Effective Time. Former La
Quinta shareholders who receive Paired Shares and who hold Paired Shares until
the record date of the distribution will be entitled to receive the
distribution. The distribution will be paid within fifteen days following the
record date. In the event a La Quinta shareholder who receives Paired Shares in
connection with the Merger sells or otherwise disposes of these shares prior to
the record date for the distribution, he or she will not receive the
distribution.
Subscription Agreement
Before the Effective Time, The Meditrust Companies and La Quinta will
enter into a subscription agreement. Pursuant to the subscription agreement,
immediately prior to the consummation of the Merger, La Quinta (or Meditrust,
at Meditrust's option) will pay Operating Company for a number of shares of
Operating Company common stock equal to the number of shares of Meditrust
common stock to be issued to La Quinta shareholders in the Merger.
Transaction Consideration
In the Merger, La Quinta shareholders may receive Paired Shares or may
elect to receive cash (subject to limitations on the total amount of cash to be
paid in the Merger). The stock consideration will be payable in Paired Shares
under an exchange ratio determined based on the average closing price of the
Paired Shares for 20 randomly determined trading days in a 30 trading day
period ending the eighth trading day prior to La Quinta's meeting (the "Meeting
Date Price").
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Determination of the Exchange Ratio. In the Merger, La Quinta shareholders
who do not elect to receive cash consideration in the Merger will receive
Paired Shares in an amount, based on the Meeting Date Price, equal to the
difference between $26.00 and the distribution to be received per La Quinta
share exchanged for Paired Shares in the Merger, so long as the Meeting Date
Price is between $34.20 and $41.80. La Quinta shareholders who receive Paired
Shares in the Merger will also receive the distribution so long as they hold
the Paired Shares on the record date for the distribution. The distribution is
expected to be declared immediately prior to the Merger. Shareholders of record
of the Paired Shares on the record date for the distribution, which will be a
date to be determined by Meditrust between the fifteenth and the forty-fifth
day following the Merger, will receive the distribution within fifteen days of
the record date.
If the Meeting Date Price is greater than or equal to $41.80 but less than
or equal to $45.60, the exchange ratio for each share of La Quinta common stock
exchanged into Paired Shares will be 0.6220, reduced by the amount of the
distribution to be received per La Quinta share exchanged for Paired Shares in
the Merger (resulting in total consideration based on the Meeting Date Price
ranging from $26.00 to $28.36 per share of La Quinta common stock, including
the distribution, as the Meeting Date Price increases from $41.80 to $45.60).
If the Meeting Date Price is greater than $45.60, then each La Quinta share
will be entitled to receive $28.36 in total consideration based on the Meeting
Date Price, comprised of Paired Shares and the distribution.
If the Meeting Date Price is less than $34.20 but greater than or equal to
$30.40, the exchange ratio for each share of La Quinta common stock exchanged
into Paired Shares in the Merger will be 0.7602, reduced by the amount of the
distribution to be received per La Quinta share exchanged for Paired Shares in
the Merger (resulting in total consideration based on the Meeting Date Price
ranging from $26.00 to $23.11 per share of La Quinta common stock, including
the distribution, as the Meeting Date Price decreases from $34.20 to $30.40).
If the Meeting Date Price is below $30.40 (or $23.11 in total consideration per
La Quinta share exchanged for Paired Shares in the Merger), La Quinta will have
the right to terminate the Merger Agreement under certain circumstances,
subject to a "top-up" right exercisable by Meditrust which is designed to
return total consideration per La Quinta share based on the Meeting Date Price
to $23.11 inclusive of the distribution. If the Meeting Date Price is below
$28.50 (or $21.69 in total consideration per La Quinta share exchanged for
Paired Shares in the Merger), La Quinta will have the unilateral right to
terminate the Merger Agreement. In any event, unless the Merger Agreement has
been terminated, La Quinta shareholders may vote to approve and adopt the
Merger Agreement and the merger.
Cash Election. All La Quinta shareholders will have the right to elect
cash consideration for their shares of La Quinta common stock. The Merger
Agreement provides that La Quinta shareholders electing to receive cash will
receive, subject to the maximum cash limitations, $26.00 per exchanged share of
La Quinta common stock. The aggregate amount of cash payable to La Quinta
shareholders in the Merger plus that portion of the distribution to be paid
with respect to Paired Shares issued to La Quinta shareholders in the Merger is
limited to approximately $521 million (representing approximately 24% to 28% of
the total transaction consideration depending on the Meeting Date Price). In
the event that the amount to be paid to former La Quinta shareholders both
pursuant to cash elections in the Merger and pursuant to the distribution
exceeds approximately $521 million, the cash merger consideration in excess of
the distribution received by former La Quinta shareholders will be distributed
pro rata among those shares submitted for cash election and all other La Quinta
shares will receive Paired Shares in the Merger. The maximum cash amount
limitation of approximately $521 million is not subject to adjustment based on
the Meeting Date Price. Gary L. Mead, Thomas M. Taylor & Co. and entities and
individuals associated with certain members of the Bass family beneficially
holding approximately 29% of the outstanding shares of La Quinta common stock
have agreed, at The Meditrust Companies' request, pursuant to a shareholders
agreement, to elect to receive cash consideration for all of their shares of La
Quinta common stock. These shareholders have also agreed, pursuant to the
shareholders agreement, to vote in favor of the Merger.
Illustration of Meeting Date Price and Exchange Ratio. Based on (a) an
assumed aggregate distribution to all Meditrust shareholders in an amount equal
to $325 million (see below), (b) an assumption that the number of La Quinta
shares and Paired Shares outstanding on the date of this Joint Proxy
Statement/Prospectus remains constant through the record date of the
distribution, and (c) an assumption that maximum cash elections are made in the
Merger, the table set forth below indicates at various illustrative Meeting
Date Prices: (i) the "Adjusted E&P Distribution", which is the amount of the
distribution that would be payable to a holder of one share of La Quinta common
stock who holds the Paired Shares received in the Merger through the record
date of the distribution, (ii) the "Exchange Ratio," which
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is the number of Paired Shares which each La Quinta share not electing to
receive cash consideration and each La Quinta share electing cash but not
eligible to receive cash as a result of the "Maximum Cash Shares" limitation
will be exchanged for, (iii) the "Stock Consideration," which is the number of
Paired Shares to be received upon conversion of one share of La Quinta common
stock, times the Meeting Date Price, (iv) the Adjusted E&P Distribution plus
the Stock Consideration, and (v) the "Maximum Cash Shares," which is the
maximum number of shares of La Quinta common stock which may elect to receive
the $26.00 cash merger consideration.
All of the assumptions relied upon in creating the table set forth below
are being used solely for illustrative purposes. No assurances can be given
that all or any of these assumptions will prove to be accurate at or prior to
the closing of the Merger. There is a high degree of uncertainty associated
with each assumption. For example, it was assumed in creating the table that
the earnings and profits distribution will equal $325 million in aggregate
value. This assumption is based solely on Section 3.01(o)(vi) of the Merger
Agreement in which La Quinta represents that it "estimates that as of September
30, 1997 the accumulated and current earnings and profit ("E&P") of La Quinta
(as determined for federal income tax purposes) was not in excess of $325
million." There are a number of factors that could either reduce or increase
this estimate between the representation date of September 30, 1997 and the
date on which The Meditrust Companies announce the amount of the distribution.
These factors include, without limitation, earnings and profit generated by the
operations of La Quinta between the representation date and the Merger (which
would increase the number); the cash settlement of employee stock options and
other compensation expenses of La Quinta called for in the Merger Agreement
(which would decrease the number); and the possible sale, or other taxable
transfer, at a gain of certain assets by La Quinta prior to the Merger as
contemplated by Section 5.15 of the Merger Agreement (which would increase the
number). Other adjustments may also occur prior to the Merger which cannot be
contemplated at this time. In addition, accountants for La Quinta and The
Meditrust Companies are currently reviewing calculations of La Quinta's
accumulated and current earnings and profits for tax purposes and no assurances
can be given that this analysis will not result in further adjustments.
Accordingly, it is essential that investors not rely on any given assumption
prior to the time at which results are actually determined and announced,
including, without limitation, the assumption regarding the amount of the
distribution of $325 million. Finally, it should be noted that it is currently
the intention of The Meditrust Companies and La Quinta to minimize the amount
of the distribution.
<TABLE>
<CAPTION>
Stock
Meeting Adjusted Consideration Maximum
Date Exchange Stock E&P Plus Adjusted Cash
Price(1) Ratio Consideration(2) Distribution(3) E&P Distribution(3) Shares(4)
- --------------- ---------- ------------------ ----------------- --------------------- -------------
<S> <C> <C> <C> <C> <C>
$45.60 0.5884 $ 26.83 $ 1.53 $ 28.36 16,445,910
$41.80 0.5854 $ 24.47 $ 1.53 $ 26.00 16,459,164
$38.00 0.6414 $ 24.37 $ 1.63 $ 26.00 16,211,332
$34.20 0.7093 $ 24.26 $ 1.74 $ 26.00 15,926,487
$30.40 0.7032 $ 21.38 $ 1.73 $ 23.11(5) 15,951,262
$28.50 0.7032 $ 19.94 $ 1.73 $ 21.69(6) 15,951,262
</TABLE>
- ----------
(1) Meeting Date Price represents the average closing price of a paired share
for 20 randomly selected trading days in a 30 trading day period ending
the eighth trading day prior to the La Quinta shareholders meeting.
(2) Stock Consideration is stated based on the applicable Meeting Date Price.
(3) Based on an assumed accumulated and current earnings and profits of La
Quinta of $325 million, which amount is being used only for illustrative
purposes.
(4) Maximum number of La Quinta shares entitled to receive $26.00 in cash
merger consideration.
(5) In the event that the total consideration is less than $23.11, La Quinta
may have the right to terminate the Merger Agreement, as discussed above.
(6) In the event that the total consideration is less than $21.67, La Quinta
will have the right to terminate the Merger Agreement, as discussed above.
Cash Election Procedure
A cash election form is being mailed to holders of record of La Quinta
common stock at the same time as this Joint Proxy Statement/Prospectus. For an
election to receive the cash consideration (a "Cash Election") to be effective,
holders of La Quinta common stock must properly complete a cash election form.
The cash election form, together
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with certificates ("Certificates") representing all shares of La Quinta common
stock as to which a Cash Election has been made, duly endorsed in blank or
otherwise in form acceptable for transfer on the books of La Quinta (or an
appropriate guarantee of delivery as set forth in such form of election), must
be received by the exchange agent, BankBoston, N.A. (the "Exchange Agent"), at
the address listed on the form of election, and not withdrawn, by 5:00 p.m.,
Boston time, on May , 1998.
A Cash Election may be revoked by a La Quinta shareholder only by written
notice received by the Exchange Agent prior to 5:00 p.m., Boston time, on May
, 1998. In addition, all Cash Elections will automatically be revoked if the
Exchange Agent is notified by Meditrust and La Quinta that the Merger has been
abandoned. If a Cash Election is revoked, the La Quinta Certificate(s) (or
guarantees of delivery, as appropriate) to which such form of election relates
will be promptly returned to the shareholder who submitted it or them to the
Exchange Agent.
Exchange of La Quinta Certificates
The Exchange Agent will exchange certificates representing La Quinta
common stock for certificates representing Paired Shares. As of the Effective
Time, The Meditrust Companies will deposit with the Exchange Agent certificates
representing the Paired Shares issuable in connection with the Merger for
shares of La Quinta common stock. The Meditrust Companies will also deposit
with the Exchange Agent, the cash payable pursuant to cash elections made by La
Quinta shareholders which, together with the La Quinta shareholders' portion of
the distribution, cannot exceed the maximum cash consideration. As soon as
reasonably practicable after the Effective Time, the Exchange Agent will mail
to each La Quinta shareholder entitled to receive Paired Shares a letter of
transmittal for use in the exchange and instructions explaining how to
surrender certificates to the Exchange Agent. Holders of La Quinta common stock
who surrender their certificates to the Exchange Agent, together with a
properly executed letter of transmittal and any other required documentation,
will receive certificates representing the number of Paired Shares to which
they are entitled. No fractional shares will be issued. Shareholders entitled
to fractional shares will instead receive cash from sales of these combined
fractional shares in the market.
Until their certificates are surrendered, holders of unexchanged shares of
La Quinta common stock will not be entitled to receive any dividends or
distributions payable by The Meditrust Companies after the Effective Time. Upon
surrender of the certificates, and subject to applicable laws, accumulated
dividends, distributions and cash in lieu of any fractional shares will be
payable without interest. La Quinta shareholders may surrender certificates to
the Exchange Agent until six months after the Effective Time, and to Meditrust
thereafter.
La Quinta Stock Option Plans
At the Effective Time, each outstanding option (the "Options") to purchase
La Quinta common stock under each of La Quinta's Amended and Restated 1984
Stock Option Plan, the 1997 Equity Participation Plan, as amended and the
Non-Qualified Stock Option Plan of Gary L. Mead (collectively, the "La Quinta
Plans"), and each outstanding stock appreciation right, share of restricted
stock or other award (collectively, "Awards") will become fully vested and
exercisable.
Holders of Options will be entitled, at their election, to have any or all
of their Options assumed by Meditrust or canceled or repurchased. All Options
that are assumed will have the same terms and conditions as are set forth in
the applicable La Quinta Plan and related option or grant agreement (as in
effect immediately prior to the Effective Time) under which the assumed options
were issued. All Options that are not assumed will be canceled or repurchased.
In consideration of the cancellation or repurchase, La Quinta will, immediately
prior to the Effective Time, pay for each Option an amount equal to the product
of (i) the positive difference between (A) $26.00 and (B) the exercise price of
such Option, multiplied by (ii) the number of shares of La Quinta common stock
subject to such Option (net of applicable withholding taxes).
At any time before the Effective Time, each Option that will not be
assumed, canceled, or repurchased may be exercised in accordance with the terms
of the applicable La Quinta Plan, provided, however, that La Quinta, unless
contractually obligated to do so, may not (i) allow a cashless exercise of any
Option, or (ii) accept a note or other instrument evidencing debt in exchange
for the exercise price of such Option. In addition, Meditrust has agreed to
certain employee benefit matters and arrangements as described below under
"-- Covenants -- Employee Benefit Matters" and above under "The
Merger -- Interests of Certain Persons in the Merger."
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Representations and Warranties
The Merger Agreement contains substantially reciprocal representations and
warranties, subject to identified exceptions, made by The Meditrust Companies
and La Quinta relating to, among other things: (i) due organization, corporate
power and good standing; (ii) ownership of subsidiaries; (iii) capital
structure; (iv) corporate authority to enter into the Merger Agreement, and
noncontravention of certain organization documents, material agreements or
governmental orders; (v) reports and other documents filed with the Securities
and Exchange Commission (the "SEC"); (vi) the accuracy of the information
contained in the documents and undisclosed liabilities; (vii) absence of
certain changes or events; (viii) litigation; (ix) compliance with laws; (x)
tax matters; (xi) employee benefit plans; (xii) real property; (xiii) labor
matters; (xiv) environmental matters; (xv) intellectual property; and (xvi) in
the case of Meditrust, its REIT status.
Covenants
Conduct of Business by La Quinta Pending the Merger. From January 3, 1998
(the date of execution of the Merger Agreement) until the Effective Time, La
Quinta and its significant subsidiaries are required to conduct their business,
with certain exceptions, in all material respects in the ordinary course
consistent with past practice and in compliance in all material respects with
applicable laws. La Quinta has agreed, and will cause its significant
subsidiaries to agree, to use all reasonable efforts to preserve their current
business organizations, keep available the services of their current officers
and other key employees and preserve their business relationships so that their
goodwill and ongoing businesses will be unimpaired at the Effective Time.
La Quinta agrees that it will not, and it will not permit its subsidiaries
to: (i) declare, set aside or pay any dividends on, or make any other
distributions in respect of, any of its capital stock (other than normal
quarterly dividends and certain other dividends and distributions); (ii) split,
combine or reclassify any of its capital stock or issue or authorize the
issuance of any other securities in respect of, in lieu of or in substitution
for shares of its capital stock; (iii) purchase, redeem or otherwise acquire
any shares of La Quinta capital stock, capital stock or other securities of its
subsidiaries or any rights, warrants or options to acquire those or other
securities (other than pursuant to Awards outstanding as of the date of the
Merger Agreement); or (iv) issue, deliver, sell, pledge or otherwise encumber,
any shares of its capital stock or any other voting securities or any
securities convertible into, or any rights, warrants or options to acquire the
same (other than pursuant to Awards outstanding as of the date hereof).
La Quinta agrees that it will not, and it will not permit its subsidiaries
to: (i) amend its articles of incorporation, by-laws or other organizational
documents; (ii) make any change to its accounting methods, principles or
practices, except as may be required by generally accepted accounting
principles; or (iii) enter into any franchise agreement with respect to any
real property or any agreement under which La Quinta or any of its subsidiaries
would provide hotel management services (without the prior consent of Meditrust
which will not be unreasonably withheld or delayed).
La Quinta agrees that it will not, and it will not permit its subsidiaries
to: (i) except as required by law or as contemplated in the Merger Agreement,
enter into, adopt or materially amend or terminate any La Quinta employee
benefit plan or any other agreement, plan or policy or materially change any
actuarial or other assumptions used to calculate funding obligations of any La
Quinta pension plans, or change the manner in which contributions to any La
Quinta pension plans are made or the basis on which the contributions are
determined; (ii) except as contemplated in the Merger Agreement, enter into or
amend any employment agreement with, or increase the compensation of, or pay
any benefit or amount not required by a plan or arrangement to, any director,
officer or other employee of La Quinta or any of its subsidiaries earning more
than $100,000 per annum.
La Quinta agrees that it will not, and it will not permit its subsidiaries
to: (i) acquire any assets (including acquisitions of undeveloped land) of, or
acquire any corporation, limited liability company, partnership, joint venture,
association or other business organization or division thereof (subject to
specific exceptions); (ii) sell, lease, license, mortgage or otherwise encumber
or subject to any lien or otherwise dispose of any of its properties or assets,
other than in the ordinary course of business (subject to certain exceptions);
(iii) incur any indebtedness for borrowed money or guarantee any indebtedness
of another person, issue or sell any debt securities or warrants or other
rights to acquire any debt securities of La Quinta or any of its subsidiaries,
guarantee any debt securities of another person, enter into any "keep well" or
other agreement to maintain any financial statement condition of another person
or enter into any arrangement having the economic effect of any of the
foregoing (including any amendments of existing credit and financing
arrangements) (subject to certain exceptions), issue notes or other debt
instruments under any indenture to
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which La Quinta or any subsidiary is a party prior to the Effective Time; (iv)
make any loans, advances or capital contributions to, or investments in, any
other person, other than to La Quinta or any of its subsidiaries or to officers
and employees of La Quinta or any of its subsidiaries for travel, business,
relocation or similar costs and expenses in the ordinary course of business or
(v) incur additional debt, unless necessary to satisfy La Quinta's obligations
under the subscription agreement and the debt is incurred immediately prior to
the time for satisfying the obligation (subject to certain exceptions). La
Quinta will, however, be permitted to: (A) incur additional borrowings, and/or
increase amounts available under La Quinta's existing $325 million and $75
million credit facilities, (B) incur additional short-term debt obligations,
and (C) incur additional medium term debt obligations consistent with La
Quinta's past practice with respect to medium term note issuances. In addition,
La Quinta agrees that it will not permit its subsidiaries to make or agree to
make any capital expenditure or capital expenditures, excluding land purchases,
other than in accordance with the capital budgets previously furnished to The
Meditrust Companies, provided that the amount of such capital expenditures may
exceed budgeted amounts by not more than, as to any specifically budgeted
matter, 10% or, as to all such capital expenditures, 5% in the aggregate, or as
permitted by the Merger Agreement.
La Quinta agrees that it will not, and it will not permit its subsidiaries
to: (i) settle any shareholder derivative or class action claims arising out of
or in connection with any of the transactions contemplated by the Merger
Agreement; (ii) voluntarily take any action that could reasonably be expected
to result in any of its representations and warranties set forth in the Merger
Agreement becoming untrue in any material respect (or becoming untrue with
respect to its representations and warranties which are qualified as to
materiality) or any of the conditions to the Merger set forth in Article VII of
the Merger Agreement not being satisfied; or (iii) authorize, or commit or
agree to take, any of the foregoing actions.
Conduct of Business by Meditrust Pending the Merger. From January 3, 1998
(the date of execution of the Merger Agreement) until the Effective Time, The
Meditrust Companies and their significant subsidiaries are required to conduct
their business, with certain exceptions, in all material respects in the
ordinary course consistent with past practice and in compliance with applicable
laws. They are also required to use all reasonable efforts to preserve intact
their current business organization, to keep available the services of their
current officers and other key employees and preserve their business
relationships with persons having business dealings with them so that their
goodwill and ongoing businesses will be unimpaired at the Effective Time;
provided, however, that The Meditrust Companies and their respective
subsidiaries may engage in any acquisition, merger, exchange offer, equity or
debt financing or other similar corporate transaction unless prohibited by the
Merger Agreement.
The Meditrust Companies agree that they will not, and they will not permit
their respective subsidiaries to: (i) declare, set aside or pay any dividends
on, or make any other distributions in respect of, any of its capital stock
(subject to certain exceptions), (ii) split, combine or reclassify any of their
capital stock or issue or authorize the issuance of any other securities in
respect of, in lieu of or in substitution for shares of their capital stock, or
(iii) purchase or offer to purchase any capital stock of either of The
Meditrust Companies (subject to certain exceptions); (iv) incur or guarantee
any indebtedness, issue or sell any debt securities or warrants or other rights
to acquire any debt securities or enter into any arrangement having the
economic effect of any of the foregoing, such that the consolidated
indebtedness of Meditrust and Operating Company, would cause Meditrust's debt
to market capitalization ratio to exceed an amount equal to 50%; (v) directly,
or indirectly enter into any agreement, or participate in active negotiations
with any third party, relating to any tender or exchange offer, merger,
consolidation, sale of all or substantially all of the capital stock or assets
of either of The Meditrust Companies or other form of business transaction the
reasonably foreseeable effect of which would be (A) to delay the Effective Time
beyond July 31, 1998 or to prevent the Effective Time from occurring, or (B)
result in the Merger not being treated as a tax-free reorganization for federal
income tax purposes; (vi) take any action or fail to take any action which
could reasonably be expected to terminate Meditrust's status as a REIT; (vii)
voluntarily take any action that could reasonably be expected to result in any
of its representations and warranties set forth in the Merger Agreement
becoming untrue in any material respect (or becoming untrue with respect to its
representations and warranties which are qualified as to materiality) or any of
the conditions to the Merger set forth on Article VII of the Merger Agreement
not being satisfied; or (viii) authorize, or commit or agree to take, any of
the foregoing actions.
No Solicitation. La Quinta has agreed in the Merger Agreement that it will
not, nor will it permit any of its subsidiaries to, nor will it authorize or
permit any officer, director or employee of or any investment banker, attorney,
accountant, agent or other advisor or representative of La Quinta or any of its
subsidiaries to (i) solicit, initiate, or encourage the submission of, any La
Quinta takeover proposal; (ii) except as described below, enter into any
agreement
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with respect to any La Quinta takeover proposal or (iii) participate in any
discussions or negotiations regarding, or furnish to any person any information
with respect to, or take any other action to facilitate any inquiries or the
making of any proposal that constitutes, or may reasonably be expected to lead
to, any La Quinta takeover proposal; provided, however, that prior to the La
Quinta Meeting, to the extent required by the fiduciary obligations of the
Board of Directors of La Quinta, La Quinta may, in response to unsolicited
requests therefor, participate in discussions or negotiations with, or furnish
information pursuant to an appropriate confidentiality agreement to, any
person. The term "La Quinta takeover proposal" means any proposal, other than a
proposal by The Meditrust Companies, for a merger, consolidation, share
exchange, business combination or other similar transaction involving La Quinta
or any of its significant subsidiaries or any proposal or offer, other than a
proposal or offer by The Meditrust Companies, to acquire in any manner,
directly or indirectly, more than a 10% equity interest in any voting
securities of, or a substantial portion of the assets of, La Quinta or any of
its significant subsidiaries.
Neither the Board of Directors nor any committee of La Quinta's Board of
Directors shall (i) withdraw or modify, or propose publicly to withdraw or
modify, in a manner adverse to The Meditrust Companies, the approval or
recommendation by La Quinta's Board of Directors or any committee of the Merger
Agreement or the Merger or (ii) approve or recommend, or propose to approve or
recommend, any La Quinta takeover proposal. However, the Board of Directors of
La Quinta, to the extent required by its fiduciary obligations and subject to
certain conditions, may approve or recommend (and in connection, therewith,
withdraw or modify its approval or recommendation of the Merger) a bona fide
written proposal from a third party to acquire La Quinta which La Quinta's
Board of Directors determines in its good faith judgment to be more favorable
to La Quinta and its shareholders than the Merger and for which financing, to
the extent required, is then fully committed or which is reasonably capable of
being financed by the third party. La Quinta will promptly advise Meditrust
orally and in writing of any La Quinta takeover proposal or any inquiry with
respect to or which could reasonably be expected to lead to any La Quinta
takeover proposal.
Necessary Filings and Cooperation. The Merger Agreement provides that each
of The Meditrust Companies and La Quinta and their respective subsidiaries (i)
will prepare and file all necessary filings with respect to the Merger
Agreement and the transactions contemplated thereby, including filings with the
SEC and pursuant to the HSR Act; (ii) will use all reasonable efforts to take
all actions to do and to assist and cooperate with the other parties in doing
all things necessary to consummate and make effective the Merger and the other
transactions contemplated by the Merger Agreement including (A) obtaining all
necessary actions, waivers, consents and approvals and making all necessary
registrations and filings, and (B) defending any lawsuits, injunctions or other
legal proceedings challenging the Merger or the Merger Agreement and (iii)
subject to certain conditions, La Quinta will cooperate with, and use its
reasonable best efforts to obtain for the benefit of, The Meditrust Companies
any consents, waivers, approvals or agreements necessary to preserve
Meditrust's status as a REIT.
Employee Benefit Matters. The Merger Agreement provides that The Meditrust
Companies will honor all obligations under existing La Quinta benefits plans
and arrangements in effect immediately prior to the Effective Time and will,
for not less than one year following the Effective Time; (i) maintain
compensation and employee benefit plans and arrangements for employees of La
Quinta and its subsidiaries that are in the aggregate on terms no less
favorable than terms provided by the La Quinta plans and arrangements as in
effect on the date of the Merger Agreement; and (ii) provide severance pay and
benefits according to the terms of the Merger Agreement. Prior to the effective
time, Operating Company shall offer to enter into an employment agreement with
Mr. Ezzat S. Coutry, La Quinta's executive vice president and chief operating
officer. Nothing in the Merger Agreement grants to any employee any rights of
continuing employment or any other enforceable rights. In addition, Meditrust
has agreed to certain employee benefits matters and arrangements as described
under "-- La Quinta Stock Option Plans" and "The Merger -- Interests of Certain
Persons in the Merger."
Indemnification. The Merger Agreement provides with respect to matters
occurring on or prior to the Effective Time, that Meditrust will, for a period
not less than six years from the Effective Time, (i) assume all rights to
indemnification and, to the extent applicable, exculpation from liabilities for
acts or omissions, existing in favor of the current or former directors or
officers of La Quinta or each of its subsidiaries as provided in their
respective certificates of incorporation or bylaws (or comparable
organizational documents) and existing indemnity contracts and (ii) maintain in
effect one or more policies of directors' and officers' liability insurance
that provide coverage for the current directors and officers of La Quinta that
is substantially similar to current policies maintained by La Quinta and its
subsidiaries; provided, however, that Meditrust will only be required to
provide the maximum coverage that will be available at a cost not to exceed
150% of annual premium currently paid by La Quinta and its subsidiaries for
such insurance.
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From and after the effective time, any officers and directors of La Quinta
who become officers or directors of any subsidiary of Meditrust or Operating
Company will be entitled to the same indemnity rights and protections
(including under officers' and directors' liability insurance) as are afforded
to officers and directors of The Meditrust Companies or their respective
subsidiaries.
Certain Other Covenants. The Merger Agreement contains certain other
covenants of the parties including, but not limited to: (i) the preparation and
distribution of this Joint Proxy Statement/Prospectus; (ii) The Meditrust
Companies and La Quinta holding their respective shareholder meetings and
recommending that their respective shareholders approve and adopt the Merger
Agreement and the issuance of Paired Shares, as applicable; (iii) using
reasonable efforts to announce the final amount of the Distribution and the
final exchange ratio at least six trading days before the La Quinta Meeting;
(iv) identifying affiliates and delivery of affiliate letters; (v) retiring La
Quinta's senior subordinated notes; (vi) requesting the IRS private letter
ruling contemplated by the Merger Agreement; (vii) cooperation in issuing
public announcements; (viii) qualifying the Merger as a reorganization under
Section 368 of the Code; (ix) access to information; (x) confidentiality; (xi)
The Meditrust Companies entering into a registration rights agreement; and
(xii) listing the Paired Shares on the NYSE.
Conditions to Consummate the Merger
Conditions to Each Party's Obligation To Consummate the Merger. The
obligations of each party to consummate the Merger are subject to the
satisfaction or waiver of certain conditions, including: (i) obtaining the
approval of the La Quinta, Meditrust and Operating Company shareholders; (ii)
the absence of injunctions or legal restraints preventing the consummation of
the Merger; (iii) expiration or earlier termination of the applicable waiting
period under the HSR Act; (iv) the registration statement on Form S-4 shall
have become effective under the Securities Act and shall not be the subject of
any stop order or proceedings seeking a stop order; (v) the delivery of
opinions (A) to The Meditrust Companies and La Quinta to the effect that the
Merger should be treated for federal income tax purposes as a reorganization
within the meaning of Section 368(a) of the Code and that Meditrust and La
Quinta will each be a party to the reorganization within the meaning of Section
368(b) of the Code and (B) to La Quinta regarding Meditrust's REIT status; (vi)
the Paired Shares issuable to La Quinta's shareholders pursuant to the Merger
Agreement and under the La Quinta Plans shall have been approved for listing on
the NYSE; and (vii) there shall not have been any federal legislative or
regulatory change that would cause Meditrust to cease to qualify (either
immediately before or immediately after the consummation of the Merger) as a
paired share REIT for federal income tax purposes.
Conditions to the Obligations of Meditrust and Operating Company. The
obligations of Meditrust and Operating Company to consummate the Merger are
further subject to satisfaction or waiver of the following conditions: (i) each
of the representations and warranties of La Quinta in the Merger Agreement that
are qualified as to materiality will be true and correct, and each of the
representations and warranties of La Quinta in the Merger Agreement that are
not so qualified will be true and correct in all material respects, in each
case as of the closing date (except for representations and warranties made as
of a specified date which will be true and correct in all material respects
(except for those qualified as to materiality, which shall be true and correct)
as of such specified date); (ii) La Quinta will have performed in all material
respects all obligations required to be performed by it under the Merger
Agreement at or prior to the closing date, and Meditrust will have received a
certificate signed on behalf of La Quinta by the chief executive officer and
the chief financial officer of La Quinta to that effect; (iii) at any time
after the date of the Merger Agreement, there will not have occurred any event
which, individually or when considered with any other such event, could
reasonably be expected to result in a material adverse effect on La Quinta;
(iv) Meditrust will have received certain letters from La Quinta affiliates;
(v) La Quinta will have received to Meditrust's reasonable satisfaction certain
consents to the consummation of the Merger the absence of which, individually
or in the aggregate, would have a material adverse effect on La Quinta or,
following consummation of the merger, a material adverse effect on The
Meditrust Companies, as a result of a failure to obtain the consent (subject to
certain exceptions); (vi) La Quinta and Meditrust will have obtained the report
of the earnings and profits calculation from KPMG; and (vii) the shareholders
who are parties to the shareholders agreement will have complied in all
material respects with their respective obligations under the shareholders
agreement.
Conditions to the Obligation of La Quinta. The obligation of La Quinta to
consummate the Merger is further subject to satisfaction or waiver of the
following conditions: (i) each of the representations and warranties of The
Meditrust Companies in the Merger Agreement that are qualified as to
materiality shall be true and correct, and each
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of the representations and warranties of The Meditrust Companies in the Merger
Agreement that are not so qualified will be true and correct in all material
respects (except for representations and warranties made as of a specified date
which will be true and correct in all material respects (except for those
qualified as to materiality, which shall be true and correct) as of such
specified date); (ii) Meditrust and Operating Company will have performed in
all material respects all obligations required to be performed by them under
the Merger Agreement at or prior to the closing date, including, without
limitation, the declaration of the Distribution, and La Quinta will have
received a certificate signed on behalf of Meditrust by the president and the
chief financial officer of Meditrust to such effect; and (iii) at any time
after the date of the Merger Agreement there will not have occurred any event
which, individually or when considered with any other such event, could
reasonably be expected to result in a material adverse effect on The Meditrust
Companies.
Termination; Fees and Expenses
The Merger Agreement may be terminated at any time prior to the Effective
Time, whether before or after approval by the La Quinta shareholders or The
Meditrust Companies shareholders: (i) by mutual written consent of Meditrust
and La Quinta; (ii) by either Meditrust or La Quinta: (A) if the Merger has not
been consummated by July 31, 1998, so long as the terminating party did not
fail to perform any of its obligations under the Merger Agreement resulting in
the failure of the Merger to be consummated by that time, (B) if the approval
of the La Quinta shareholders is not obtained at the La Quinta Meeting or at
any adjournment or postponement thereof, (C) if the approval of The Meditrust
Companies share-holders is not obtained at the Meditrust Meeting and Operating
Company Meeting or at any adjournment or postponement thereof, or (D) if any
governmental entity has issued a final, nonappealable restraint or other
action, permanently enjoining, restraining or otherwise prohibiting the
consummation of the Merger or any of the other transactions contemplated by the
Merger Agreement; (iii) by Meditrust, if the La Quinta Board of Directors or
any committee thereof has (A) withdrawn, modified or amended in a manner
adverse to Meditrust its approval or recommendation of the Merger or the Merger
Agreement, (B) failed to include the recommendation in this Joint Proxy
Statement/Prospectus, (C) approved or recommended, or proposed publicly to
approve or recommend, any La Quinta takeover proposal other than the Merger, or
(D) caused La Quinta to enter into a La Quinta acquisition agreement; (iv) by
La Quinta, if The Meditrust Companies Boards of Directors or any committee of
either of them have (A) withdrawn, modified or amended in a manner adverse to
La Quinta its approval or recommendation of the Merger or the Merger Agreement,
or (B) failed to include such recommendation in this Joint Proxy
Statement/Prospectus; (v) by La Quinta, if Meditrust or Operating Company have
breached or failed to perform in any material respect any of its
representations, warranties or covenants under the Merger Agreement, and the
breach or failure to perform cannot be or has not been cured within 30 days
after written notice to Meditrust and Operating Company of such breach
(provided that La Quinta is not then in material breach of any representation,
warranty, covenant or other agreement contained in the Merger Agreement that
cannot or has not been cured within 30 days after giving notice to La Quinta of
such breach); (vi) by La Quinta if it approves a superior proposal, provided
that La Quinta has complied with the covenant of the Merger Agreement
prohibiting certain solicitations; (vii) by La Quinta if (A) the Meeting Date
Price is less than $30.40 (subject to Meditrust's right to adjust the exchange
ratio which, if exercised, will rescind La Quinta's notice of termination) or
(B) the Meeting Date Price is less than $28.50; and (viii) by Meditrust, if La
Quinta has breached or failed to perform in any material respect any of its
representations, warranties or covenants under the Merger Agreement, and the
breach or failure to perform cannot be or has not been cured within 30 days
after the giving of written notice to La Quinta of such breach (provided that
neither Meditrust nor Operating Company is then in material breach of any
representation, warranty, covenant or other agreement contained in the Merger
Agreement that cannot or has not been cured within 30 days after giving notice
to Meditrust of such breach).
The Merger Agreement provides that La Quinta will pay a $75 million dollar
termination fee to Meditrust if the Merger is terminated by (x) Meditrust
pursuant to clause (ii)(A), (ii)(B) or (iii) of the preceding paragraph or (y)
by La Quinta pursuant to clause (vii) of the preceding paragraph. Meditrust may
only receive that amount of the termination fee which does not interfere with
or cause it to lose its REIT status. The remaining portion will be held in
escrow for fifteen years and, to the extent permitted under the Code, will be
distributed to Meditrust or, if not so distributed, will be returned to La
Quinta at the end of the fifteen year period. Meditrust will pay a $75 million
dollar termination fee to La Quinta in the event the Merger is terminated by La
Quinta pursuant to clause (iv) of the preceding paragraph.
Other Fees and Expenses. Except as otherwise set forth in the Merger
Agreement, all fees and expenses incurred in connection with the Merger, the
Merger Agreement and the related transactions will be paid by the party
incurring the fees or expenses, whether or not the Merger is consummated,
except that each of Meditrust and La Quinta will
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pay one-half of the costs and expenses incurred in connection with the
preparing, filing, printing and mailing of this Joint Proxy
Statement/Prospectus (including SEC filing fees).
Amendment; Waiver
The Merger Agreement may be amended in writing by the parties at any time
before or after approval by the La Quinta shareholders or The Meditrust
Companies shareholders; provided, however, that, after any such approval, there
may not be made any amendment that by applicable law requires further approval
by the shareholders of La Quinta, Meditrust or Operating Company without the
further approval of such shareholders.
At any time prior to the Effective Time, a party may in writing (a) extend
the time for the performance of any of the obligations or other acts of the
other parties, (b) waive any inaccuracies in the representations and warranties
of the other parties contained in the Merger Agreement or in any document
delivered pursuant to the Merger Agreement, or (c) waive compliance by the
other party with any of the agreements or conditions contained in the Merger
Agreement (subject to the proviso in the paragraph above).
Certain Shareholder Arrangements
Shareholders Agreement. In connection with the Merger Agreement, The
Meditrust Companies entered into a shareholders agreement, a copy of which is
attached as Annex D hereto, with the Principal Shareholders and Mr. Mead. Under
the shareholders agreement, the Principal Shareholders and Mr. Mead granted
Meditrust, (i) an irrevocable proxy to, among other things, vote their shares
in favor of the Merger and against any competing transaction during the proxy
term, and (ii) an option to purchase the shares held by the Principal
Shareholders and Mr. Mead in the event that Meditrust believes in good faith
that the exercise of the option is necessary to avoid certain unfavorable tax
events or a violation of Meditrust's certificate of incorporation. These
shareholders have also agreed not to sell any of their shares of La Quinta
during the proxy term. If the Merger Agreement is terminated, the voting
provisions of the shareholders agreement will remain in effect with respect to
10% of the outstanding shares for 12 months after the termination of the Merger
Agreement. The shareholders agreement contains certain restrictions governing
the purchase and sale of Paired Shares received by Mr. Mead and the Principal
Shareholders in the Merger. These restrictions, among other things, prohibit
the disposition of Paired Shares during the first 90 calendar days following
the Effective Time, and, after such time period, open market sales by Mr. Mead,
the Principal Shareholders and their respective Affiliates shall not exceed 1.3
million, 2.0 million, 2.0 million, 2.5 million and 2.5 million Paired Shares,
respectively, in any of the 90-day periods which begins on the 91st, 181st,
271st, 361st and 451st day, respectively, after the Effective Time, subject to
additional limitations and exceptions. On March 23, 1998, Mr. Mead and the
Principal Shareholders reached an agreement-in-principle with The Meditrust
Companies to amend the shareholders agreement. The agreement-in-principle
provides that these shareholders may elect to receive paired shares in exchange
for their La Quinta shares, are no longer obligated to make the maximum cash
election and that certain entities and individuals associated with the Bass
family may own up to 9.25% of the Paired Shares. In addition, it is expected
that Thomas M. Taylor, La Quinta's Chairman of the Board and a Principal
Shareholder will join the Boards of Directors of The Meditrust Companies.
Registration Rights Agreement. In connection with the Merger Agreement,
The Meditrust Companies and La Quinta entered into a registration rights
agreement with the Principal Shareholders and Mr. Mead. Under the registration
rights agreement, The Meditrust Companies have agreed, subject to certain
limitations and under certain conditions, to give the Principal Shareholders
and Mr. Mead certain registration rights. The Meditrust Companies have agreed
to file a shelf registration statement with the SEC to register the Paired
Shares issuable to the Principal Shareholders and Mr. Mead in the Merger within
sixty days after the Effective Time and to have such registration statement be
declared effective within ninety days after the Effective Time.
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THE COMPANIES
The Meditrust Companies
General. Meditrust is a REIT incorporated in the State of Delaware which
(taking into account the activities of Meditrust's Predecessor) has
historically invested primarily in health care related real property. Meditrust
also invests in other entities outside of the United States which make similar
health care related real property investments. In addition to its health care
related real property investments, Meditrust also owns Santa Anita Park in
California.
Operating Company is a Delaware corporation which currently operates the
thoroughbred horse racing business at Santa Anita Park.
In addition to the acquisition of La Quinta, on January 11, 1998,
Meditrust entered into a definitive agreement to acquire Cobblestone, one of
the nation's leading golf course owners and operators. Operating Company will
operate Cobblestone golf courses and related facilities. A more complete
discussion of the Cobblestone acquisition is set forth in "-- Recent
Developments" below.
Meditrust and Operating Company have an organizational structure called a
"paired share structure" such that the shares of capital stock of both
companies trade and are transferable as a single unit. The paired share
structure allows the shareholders of The Meditrust Companies to enjoy the
economic benefits of owning both a company that owns and leases real estate and
a company that operates a business that uses the real estate. This structure
generally permits the combined companies to reduce the amount of payments to
third parties who traditionally would operate, for a fee, the business
conducted on the REIT's real estate, because the operating company whose shares
are paired with those of the REIT is permitted to operate the business and
receive the operating and management fees that would otherwise be paid to third
parties.
The ownership of the paired share structure by the shareholders of
Meditrust's Predecessor began on November 5, 1997 when Meditrust's Predecessor
and the predecessor to Meditrust Operating Company merged with and into Santa
Anita Realty Enterprises, Inc. and Santa Anita Operating Company, respectively
(the "Santa Anita Mergers"). Upon consummation of the Santa Anita Mergers,
Santa Anita Realty changed its name to "Meditrust Corporation" and Santa Anita
Operating changed its name to "Meditrust Operating Company."
Indebtedness. As of April 22, 1998, The Meditrust Companies had combined
total outstanding indebtedness of approximately $ billion. Substantially all
of The Meditrust Companies' combined debt bears interest at variable rates.
Address. Meditrust's principal executive offices are located at 197 First
Avenue, Suite 300, Needham, Massachusetts 02194, and the telephone number is
(781) 433-6000. Operating Company's principal executive offices are located at
197 First Avenue, Suite 100, Needham, Massachusetts 02194, and the telephone
number is (781) 453-8062.
La Quinta
General. La Quinta is a Texas corporation which is a fully integrated
lodging company that focuses on the ownership, operation and development of its
two hotel products: (i) La Quinta Inns, a chain positioned in the mid-priced
segment of the lodging industry and (ii) La Quinta Inns & Suites, a new concept
positioned at the upper end of the mid-priced segment of the lodging industry.
As of April 22, 1998, La Quinta owned, and operated 270 hotels, containing a
total of approximately 35,000 rooms located in 28 states, concentrated in the
western and southern regions of the United States. Substantially all of these
rooms are operated under La Quinta's own La Quinta[RegTM] Inns or La
Quinta[RegTM] Inns & Suites brand names. Further, La Quinta owns substantially
all of the real estate on which its hotels are operated.
Address. La Quinta's principal executive offices are located at 112 E.
Pecan Street, San Antonio, Texas, 78205 and the telephone number is (210)
302-6000.
Surviving Companies
General. Immediately prior to the Merger, La Quinta's real estate assets
and its brand names will be separated from its other assets. La Quinta's other
assets will be sold to Operating Company, and La Quinta, with its real estate
assets and its brand names, will be merged with and into Meditrust.
Alternatively, if Meditrust has obtained a favorable private letter ruling from
the IRS, on the Independent Contractor Issue (as defined in the Merger
Agreement) or if
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Goodwin, Procter & Hoar LLP, special counsel to Meditrust, has provided and
Meditrust has accepted a favorable legal opinion on this issue, in lieu of the
asset sale to Operating Company, Meditrust may contribute certain of such
assets to a subsidiary in which Meditrust owns non-voting common stock and
Operating Company owns the common stock. After the Merger, The Meditrust
Companies will own, operate or manage a diverse portfolio of real estate
properties, operations and interests, including the following:
Health Care Related:
[bullet] Investments in more than 500 geographically dispersed health care
related facilities operated by a diverse group of nearly 20 operators.
[bullet] Diverse portfolio of health care related properties including long-term
care, retirement and assisted living facilities, rehabilitation
hospitals and medical office buildings.
Entertainment:
[bullet] Upon completing the Cobblestone acquisition, a portfolio of 30
facilities with 34 golf courses in major golf markets in Arizona,
California, Florida, Georgia, Texas and Virginia.
[bullet] Santa Anita Park and related properties.
Lodging:
[bullet] Approximately 35,000 rooms, excluding rooms in facilities currently
under development by La Quinta.
[bullet] Recognized brand names in the mid-priced segment including La
Quinta[RegTM] Inns and La Quinta[RegTM] Inns & Suites.
Business Strategy. Set forth below is a discussion of The Meditrust
Companies' strategy for near-term growth. The Meditrust Companies believe that
this strategy offers unique synergies for The Meditrust Companies and its
existing and future properties and operations. In addition to the Merger, The
Meditrust Companies have recently entered into agreements to acquire
Cobblestone, parent of one of the nation's leading developers and operators of
golf courses and related facilities and I.R.I. Upon consummation of the
acquisition of Cobblestone and the completion of the final stages of the
acquisition of I.R.I., as well as the further implementation of The Meditrust
Companies' growth and diversification strategy, The Meditrust Companies will
own, operate and manage a diverse portfolio of real estate properties,
operations and interests, including the following:
Health Care Related:
[bullet] Investments in more than 500 geographically dispersed health care
related facilities operated by a diverse group of nearly 20 operators.
[bullet] A diverse portfolio of health care related properties, including
long-term care, retirement and assisted living facilities,
rehabilitation hospitals and medical office buildings.
[bullet] Investments in in-patient and out-patient health care facilities.
Entertainment:
[bullet] Ownership of 30 golf related facilities with 34 golf courses in major
golf markets in Arizona, California, Florida, Georgia, Texas and
Virginia.
[bullet] Santa Anita Park, one of the nation's premier thoroughbred horse racing
facilities.
[bullet] Approximately 85 acres of land at the Santa Anita facility which The
Meditrust Companies intend to improve in order to begin generating
funds from operations with this property. Current proposals to improve
this land include an entertainment center, a health club and/or a
medical office building.
Lodging:
[bullet] Approximately 35,000 rooms, excluding rooms in facilities currently
under development by La Quinta. Many of these existing rooms have
recently undergone substantial refurbishment, which will limit
near-term capital expenditures on these rooms.
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[bullet] Recognized brand names in the mid-priced segment, including La
Quinta[RegTM] Inns and La Quinta[RegTM] Inns & Suites.
[bullet] Properties which will be available for operation and marketing as time
sharing, or interval vacation ownership, facilities.
The primary business objective of The Meditrust Companies is to maximize
the long-term total return to their shareholders. This objective is predicated
on the following two factors:
[bullet] Positive Spread Investment. Management will seek to maximize
shareholder value through positive spread investment opportunities
which provide an accretive cash flow return. Through its paired share
structure, The Meditrust Companies will be able to acquire operating
companies and assets thereby reducing economic "leakage." The Meditrust
Companies will utilize their sound capital structure to facilitate the
acquisition of growth oriented companies.
[bullet] Quality of Management. The Meditrust Companies will seek to employ a
strong management team available for each line of business which is
acquired, properly motivating each team and providing them with
appropriate financial and capital resources. For example, The Meditrust
Companies' acquisitions of Cobblestone and La Quinta bring with them a
group of seasoned professionals in the golf and lodging industries,
respectively.
The key elements of The Meditrust Companies diversification strategy are the
following:
Continue to Expand Core Sale/Leaseback and Mortgage Financing
Portfolio. The Meditrust Companies intend to expand their portfolio of
investments in the health care industry by continuing to expand The Meditrust
Companies traditional core business of providing financing to operators of real
estate intensive businesses primarily in the health care industry. The
Meditrust Companies currently manage a portfolio of more than $2.8 billion in
income-producing, health care-related facilities, including nursing homes,
assisted living facilities, medical office buildings and other health
care-related facilities. The Meditrust Companies intend to continue to expand
and diversify this portfolio through (i) additional acquisitions in their
current geographic base, (ii) providing financing to additional operators and
to other sectors of the health care related industry and (iii) increasing the
number of health care facilities in their portfolio.
Over its 12-year history, The Meditrust Companies have developed, and
currently maintain, strong relationships with the operators to whom they
provide capital. The Meditrust Companies intend to continue to build and expand
those relationships by providing additional capital to existing and new
operators. The Meditrust Companies historical ability to provide mortgage and
sale/leaseback financing both for operating facilities and for the development
of new facilities has provided them with a competitive advantage in expanding
their core financing business. The Meditrust Companies intend to continue their
practice of structuring transactions to accommodate the unique characteristics
of the operators and their facilities, a practice which The Meditrust Companies
believe has made them an attractive source of financing for operators of health
care related facilities.
Make Strategic Acquisitions of Operating Companies in the Health Care
Sector. The Meditrust Companies' management has significant experience
investing in the health care industry and has developed expertise in key areas,
including knowledge of reimbursement systems and extensive perspective on the
fundamental changes that affect the ways in which health care is delivered. As
a paired share REIT, The Meditrust Companies are able to pursue a wide variety
of strategic acquisitions, including acquisitions of operating companies. The
Meditrust Companies will focus primarily on traditional health care related
real estate such as nursing homes, assisted living facilities and medical
office buildings. The Meditrust Companies also intend to pursue opportunities
to acquire ancillary health care providers such as magnetic resonance imaging
centers and other ancillary modalities.
In evaluating potential strategic acquisitions, The Meditrust Companies
expect to consider such factors as: (i) historical performance of the
acquisition candidate; (ii) the long-term outlook of the sector in which the
candidate operates in terms of sustainable profitability and growth prospects;
(iii) the extent to which such an acquisition candidate complements The
Meditrust Companies' portfolio of then existing investments and business
relationships; (iv) the cost of such an acquisition relative to its expected
contribution to the consolidated earnings and funds from operations of The
Meditrust Companies; and (v) The Meditrust Companies' confidence that an
appropriate management team or partnership structure will be in place to
effectively manage the acquired operations.
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Develop and Make Strategic Acquisitions of Senior Living Communities. The
Meditrust Companies intend to embark on a program of owning, developing,
operating and managing senior living communities, which will include nursing
homes, assisted living facilities and active adult living communities. In the
case of nursing homes and assisted living facilities, The Meditrust Companies
intend to offer fully integrated self-contained senior living communities with
a continuum of care that will enable residents to age in place. In the case of
active adult living communities, The Meditrust Companies anticipate addressing
the needs of senior adults by developing properties that offer residents
recreational opportunities as well as serving their medical needs.
The Meditrust Companies believe their continuing care communities will
emerge as a preferred alternative for meeting the growing demands of the
elderly as they do age in place. Continuing care communities require large
capital infusions and companies, such as The Meditrust Companies, that have
access to such capital have a competitive advantage in financing the
development, operation and marketing of these continuing care communities. The
Meditrust Com- panies believe that the stability of future senior housing
demand for this sector will be less dependent on economic and business cycles
than many other industries due to the growing demand of an aging population and
the fact that many people will gravitate towards integrated communities. The
industry is need driven rather than discretionary.
Make Strategic Acquisitions of Golf and Other Entertainment
Facilities. The Meditrust Companies also intend to pursue acquisition and
development opportunities in entertainment focused properties, such as golf
courses, which in some cases will complement their senior living communities or
lodging properties. The Meditrust Companies have purchased five golf courses
from I.R.I., an owner, operator and developer of quality golf course
facilities, and have agreed to acquire Cobblestone, one of the leading owners
and operators of golf course facilities in the United States. Cobblestone,
including the I.R.I. golf courses, will operate 30 golf related facilities with
34 golf courses in major golf markets in Arizona, California, Florida, Georgia,
Texas and Virginia.
The Meditrust Companies intend to acquire and develop golf courses and
golf course related properties through a three prong approach. First, The
Meditrust Companies will acquire and develop free standing golf course
facilities. These facilities will be expected to contribute to The Meditrust
Companies' funds from operations. Second, The Meditrust Companies will acquire
golf course related properties with additional land available for future
development of residential living communities. The Meditrust Companies believe
that there will be certain synergies inherent in integrating a senior living
community with recreational opportunities, which may include golf courses and
related golf services. Third, The Meditrust Companies will review opportunities
to integrate golf with hospitality properties, such as hotel, time share and
interval ownership properties.
The Meditrust Companies intend to commit up to one billion dollars to the
development and acquisition of golf related properties as they seek to offer
residents of their communities and guests of their hospitality facilities
additional ancillary services, while also pursuing a business that is intended
to contribute on a stand-alone basis to the Companies' funds from operations.
Make Strategic Acquisitions of Operating Companies in the Lodging
Sector. As a paired share REIT, The Meditrust Companies are currently able to
pursue a wider range of strategic acquisitions in the lodging industry than
traditional REITs. The lodging industry is particularly well suited to the
paired share structure as it is both real estate and operationally intensive.
Lodging REITs have historically owned the real estate upon which hotels are
operated but have been required to pay third parties to operate and manage
their hotels. Currently, as a paired-share REIT, The Meditrust Companies are
permitted to both own the real estate and operate the hotel business.
La Quinta is an example of one of the types of lodging companies that fit
particularly well into the paired share structure as it both owns and operates
its hotels. In this regard, The Meditrust Companies intend to further develop
and grow the La Quinta[RegTM] brand name. This growth will include the further
development of the current La Quinta[RegTM] Suites & Inns product, as well as
the introduction of an upscale version of this product. The Meditrust Companies
also intend to add a resorts product to its portfolio as a set of destination
properties.
The Meditrust Companies intend to continue to identify and evaluate
appropriate acquisition candidates with an objective of acquiring, if and when
available, lodging businesses that are appropriate for the paired share
structure currently available to The Meditrust Companies. The Meditrust
Companies also intend to acquire real estate assets that would fit
appropriately in a traditional REIT operating in the lodging industry.
The Meditrust Companies intend to integrate their lodging facilities with
other assets, including golf course facilities and senior living communities.
The Meditrust Companies believe that the ability to offer hotel guests added
ancillary services will provide a competitive advantage as the lodging industry
continues to consolidate.
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The Meditrust Companies also intend to pursue development, ownership,
operation and management opportunities in the time share, or interval
ownership, industry within their hospitality operations.
Maximize the Value of the Santa Anita Horse Racing and Real Estate
Assets. The Meditrust Companies anticipate continuing the historical commitment
to high quality thoroughbred horse racing at Santa Anita Park, as well as
maintaining the Park's leadership in the horse racing industry. The Meditrust
Companies also will seek to maximize the value of the approximately 85 acres of
underutilized land at Santa Anita Park. The Meditrust Companies are currently
considering several proposals to develop this land, including an entertainment
center, a medical office building and a health club.
There is no assurance that The Meditrust Companies will be able to meet
any or all of these objectives. In addition, The Meditrust Companies'
acquisition candidates and joint venture partners may include companies in
which Abraham D. Gosman, the Chairman of the Board of The Meditrust Companies,
has an interest. Any such acquisitions or joint ventures would be subject to
the approval of the disinterested directors of The Meditrust Companies.
Depending upon the circumstances surrounding a particular transaction, The
Meditrust Companies may also obtain a fairness opinion from an investment
banking firm.
Operations Following the Merger. Assuming receipt of shareholder approval
of the proposals related to the Merger set forth in this Joint Proxy
Statement/Prospectus, La Quinta will merge with and into Meditrust and the
companies will continue their combined operations within the paired share
structure. Following the Merger, the lodging facilities that are owned by La
Quinta or its subsidiaries will be owned by Meditrust or its subsidiaries and
will be leased by Meditrust to Operating Company. Following the Merger, it is
contemplated that all of these lodging facilities will be managed by corporate
subsidiaries controlled by Operating Company.
Surviving Companies Indebtedness. Following completion of the Merger and
the Cobblestone acquisition, The Meditrust Companies will have approximately
$3.14 billion of pro forma combined total indebtedness, as compared to
historical indebtedness of The Meditrust Companies, without giving effect to
the Merger or the Cobblestone acquisition, of approximately $1.38 billion. The
pro forma ratio of combined indebtedness to total market capitalization of The
Meditrust Companies, assuming an aggregate pro forma combined total
indebtedness of approximately $3.14 billion, will be approximately %. The
calculation of this ratio is based upon the $ closing price for the
Paired Shares on the NYSE on April 22, 1998. The Meditrust Companies may issue
additional equity securities in an attempt to lower their debt to market
capitalization ratio, although no assurance can be given with respect to the
ability of The Meditrust Companies to issue additional equity securities on
terms acceptable to them, if at all.
Liquidity and Financial Resources. As of April 15, 1998, The Meditrust
Companies' gross real estate investments totaled approximately $ billion,
consisting of 282 long-term care facilities, 172 retirement and assisted living
facilities, 28 medical office buildings, 26 rehabilitation hospitals, six
alcohol and substance abuse treatment facilities and psychiatric hospitals, one
acute care hospital campus, one racetrack, a 50% interest in a fashion mall and
land held for development. As of April 15, 1998, The Meditrust Companies'
outstanding commitments for additional financing totaled approximately $
million for the completion of 13 medical office buildings, eight long-term care
facilities and 38 assisted living facilities currently under construction and
additions to existing facilities in the portfolio.
Executive Officers and Directors. The executive officers and directors of
The Meditrust Companies following the Merger will be the current executive
officers and directors of Meditrust and Operating Company, respectively.
However it is currently contemplated that the existing officers of La Quinta,
other than Gary L. Mead, La Quinta's current president and chief executive
officer, will become officers of the La Quinta business unit of Operating
Company.
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The following persons, who are currently directors of The Meditrust
Companies, will continue to serve in such capacity following the completion of
the Merger:
<TABLE>
<CAPTION>
Name Age Corporation(s) Term Expires
- ---------------------- ----- ----------------------------- -------------
<S> <C> <C> <C>
Abraham D. Gosman 69 Meditrust Corporation and 2000
Meditrust Operating Company 2000
Donald J. Amaral 45 Meditrust Corporation and 1999
Meditrust Operating Company 1999
William C. Baker 64 Meditrust Operating Company 2000
David F. Benson 48 Meditrust Corporation and 1998
Meditrust Operating Company 1998
James P. Conn 60 Meditrust Corporation 1999
John C. Cushman, III 57 Meditrust Corporation 2000
Edward W. Brooke 78 Meditrust Corporation and 2000
Meditrust Operating Company 2000
C. Gerald Goldsmith 69 Meditrust Corporation and 2000
Meditrust Operating Company 2000
J. Terrence Lanni 55 Meditrust Operating Company 1999
Philip L. Lowe 80 Meditrust Corporation and 1998
Meditrust Operating Company 1998
Thomas J. Magovern 55 Meditrust Corporation and 1998
Meditrust Operating Company 1998
Gerald Tsai, Jr. 69 Meditrust Corporation and 1999
Meditrust Operating Company 1999
</TABLE>
Abraham D. Gosman is the Chairman of the Boards of Directors of The
Meditrust Companies and Chief Executive Officer of Meditrust Operating Company.
Mr. Gosman has been the Chairman of the Boards of Directors of The Meditrust
Companies since November 1997. Prior to such time, Mr. Gosman was Chairman of
Meditrust's Predecessor from its organization in 1985 through the completion of
the Santa Anita Mergers and became Chief Executive Officer of Meditrust's
Predecessor in February 1991. Mr. Gosman is also the Chairman of the Board,
Chief Executive Officer and President of PhyMatrix Corp., a publicly traded
physician practice management company which renders managerial and
administrative services to a variety of specialized medical care and treatment
providers. Additionally, Mr. Gosman is Chairman of the Board of CareMatrix
Corporation, a publicly traded company which provides a full range of quality
senior residential services in assisted living settings. Mr. Gosman was the
Chief Executive Officer of The Mediplex Group, Inc. ("Mediplex"), an operator
and developer of health care facilities, from its inception in 1983 until 1988
and from 1990 until June 1994, when Mediplex was acquired by Sun Healthcare
Group, Inc. Mr. Gosman has been in the health care and development business for
more than 30 years.
Donald J. Amaral has been a Director of The Meditrust Companies since
October 1997. Mr. Amaral has served as director, President and Chief Executive
Officer of Corum HealthCare Corp. since October 13, 1995. Previously, he was
President and Chief Operating Officer of OrNda Healthcorp from April 1994 to
August 1995, and served in various executive positions with Summit Health Ltd.
from October 1989 to April 1994, including President and Chief Executive
Officer between October 1991 and April 1994. Summit was merged into OrNda in
April 1994. Prior to joining Summit, Mr. Amaral was President and Chief
Operating Officer of Mediplex from 1986 until October 1989. Mr. Amaral is also
a member of the Board of Directors of Summit Care Corporation.
William C. Baker has been a Director of Meditrust Operating Company since
November 1997. Prior to such date, he served as Chairman of the Board of Santa
Anita Realty Enterprises, Inc., and Chairman of the Board and Chief Executive
Officer of Santa Anita Operating Company from August 1996 through the
completion of the Santa Anita Mergers and as a Director from 1991 through the
completion of the Santa Anita Mergers. Mr. Baker was Chief Executive Officer of
Santa Anita Realty Enterprises from April l996 to August 1996. Mr. Baker was
the President of Red Robin International, Inc. (restaurant company) from 1993
to 1995, a private investor from 1988 to 1992 and Chairman
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of the Board and Chief Executive Officer of Del Taco, Inc. (restaurant
franchise) from 1976 to 1988. He has also served as Chairman of the Board of
Coast Newport Properties (real estate brokers) since 1991. Mr. Baker is a
Director of Callaway Golf Company (golf equipment) and Public Storage, Inc.
(REIT).
David F. Benson has been a Director of The Meditrust Companies since
November 1997. Mr. Benson has been President and Treasurer of Meditrust
Corporation since November 1997. Prior to such time, Mr. Benson served as a
Trustee and President of Meditrust's Predecessor from September 1991 and
Treasurer from October 1996, in each case through the completion of the Santa
Anita Mergers. Mr. Benson also served as Treasurer of Meditrust from January
1986 to May 1992. He was Treasurer of Mediplex from January 1986 through June
1987. He was previously associated with Coopers & Lybrand L.L.P., independent
accountants, from 1979 to 1985. Mr. Benson is a trustee of Mid-Atlantic Realty
Trust and a member of the Board of Directors of Harborside Healthcare
Corporation and Nursing Home Properties, Plc.
Edward W. Brooke has been a Director of The Meditrust Companies since
November 1997. Prior to such date, he served as a Trustee of Meditrust's
Predecessor from 1985 through the completion of the Santa Anita Mergers. Mr.
Brooke was a partner of O'Connor & Hannan, a Washington, D.C. law firm, from
1979 until January 1997. From 1979 until October 1990 he was Of Counsel to
Csaplar & Bok, a Boston law firm. He was United States Senator from
Massachusetts from January 1967 to January 1979 and the Massachusetts Attorney
General from 1963 to 1967.
James P. Conn has been a Director of Meditrust Corporation since November
1997. Prior to such date, he served as a Director of Santa Anita Realty
Enterprises, Inc. and Santa Anita Operating Company from 1995 through the
completion of the Santa Anita Mergers. Mr. Conn has been the Managing Director
and Chief Investment Officer of Financial Security Assurance, Inc. (insurance)
since 1992. He was also the President and Chief Executive Officer of Bay
Meadows Operating Company (horse racing) from 1988 to 1992. Mr. Conn is a
Trustee of Gabelli Equity Trust and Gabelli Global Multimedia Trust (investment
companies).
John C. Cushman, III has been a Director of Meditrust Corporation since
November 1997. Prior to such date, he served as a director of Santa Anita
Realty Enterprises, Inc. and Santa Anita Operating Company from 1996 through
the completion of the Santa Anita Mergers. Mr. Cushman has been the President
and Chief Executive Officer of Cushman Realty Corporation since 1978. He is a
Director of National Golf Properties, Inc. (golf course owner).
C. Gerald Goldsmith has been a Director of The Meditrust Companies since
November 1997. Prior to such date, he served as a Trustee of Meditrust's
Predecessor from August 1997 through the completion of the Santa Anita Mergers.
Mr. Goldsmith was Chairman and President of I.C.D., a New York Stock Exchange
listed company from 1972 to 1976, and since then he has been an independent
investor and financial advisor. He currently serves as a director of Nine West
Group, Inc., Palm Beach National Bank & Trust Company, American Banknote
Corporation and Innkeepers USA Trust. He also serves as Chairman of the Board
of Intercoastal Health Foundation.
J. Terrence Lanni has been a Director of Meditrust Operating Company since
November 1997. Prior to such date, he served as Director of Santa Anita Realty
Enterprises, Inc. and Santa Anita Operating Company from 1995 through the
completion of the Santa Anita Mergers. He has been the Chairman and Chief
Executive Officer of MGM Grand Inc. (hotel/casino) since 1995. He was the
President and Chief Operating Officer of Caesars World Inc. (hotel/casino) from
1981 to 1995.
Philip L. Lowe has been a Director of The Meditrust Companies since
November 1997. Prior to such date, he served as a Trustee of Meditrust's
Predecessor from 1987 through the completion of the Santa Anita Mergers. Mr.
Lowe has been a principal of Philip L. Lowe and Associates, a consulting firm,
and its predecessors for more than five years and until March 1997 had been a
director of Analog Devices, Inc. for 17 years.
Thomas J. Magovern has been a Director of The Meditrust Companies since
November 1997. Prior to such date, he served as a Trustee of Meditrust's
Predecessor from 1985 through the completion of the Santa Anita Mergers. Mr.
Magovern has been a Regional Vice President, Real Estate Asset Management of
Summit Bank (successor to United Jersey Bank), a New Jersey banking
institution, since November 1995. He was a principal of Nationwide Financial
Corp., a real estate consulting firm from September 1993 to October 1995. Mr.
Magovern was Executive Vice President of Northeast Savings, F.A. from January
1991 until February 1993. Prior to that time he had been Senior Vice President
of City Savings Bank, F.S.B. from April 1989 until January 1991 and a Vice
President of that bank for more than five years.
Gerald Tsai, Jr. has been a Director of The Meditrust Companies since
November 1997. Prior to such date, he served as a Trustee of Meditrust's
Predecessor from 1992 through the completion of the Santa Anita Mergers.
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Mr. Tsai, the Chairman, Chief Executive Officer and President of Delta Life
Corporation, an annuity company, since February 1993. Mr. Tsai retired in 1991
as Chairman of the Executive Committee of the Board of Directors of Primerica
Corporation, a diversified financial services company, which position he held
since December 1988. From January 1987 to December 1988, Mr. Tsai was Chairman,
and from April 1986 to December 1988, he was Chief Executive Officer of
Primerica Corporation. He is a director of Rite Aid Corporation, Sequa
Corporation, Triarc Companies, Inc., Proffitt's, Inc. and Zenith National
Insurance Corp. Mr. Tsai is also a Trustee of Boston University and New York
University Medical Center.
Recent Developments
Modification to Shareholders Agreement. On March 23, 1998, certain
shareholders of La Quinta holding approximately 29% of the outstanding shares
of La Quinta common stock and The Meditrust Companies reached an
agreement-in-principle to amend the shareholders agreement. The parties have
agreed that these shareholders, including Gary L. Mead, Thomas M. Taylor & Co.
and certain other entities and individuals associated with the Bass family, may
elect to receive Paired Shares in exchange for their La Quinta shares, are no
longer obligated to make the maximum cash election and that the Bass group may
own up to 9.25% of the Paired Shares of The Meditrust Companies. Thomas M.
Taylor, the chairman and a principal shareholder of La Quinta, is expected to
join the Boards of Directors of The Meditrust Companies.
Cobblestone Registration Statement. On March 17, 1998, The Meditrust
Companies filed a Registration Statement on Form S-3 to register 7.62 million
Paired Shares in connection with the pending Cobblestone merger. The Paired
Shares are to be issued to Cobblestone shareholders, who will then have the
ability to resell them following the Cobblestone acquisition, subject to
certain legal and contractual limitations.
I.R.I. Acquisition. In March 1998, The Meditrust Companies purchased five
golf courses in Texas from I.R.I. for $41 million in cash. The I.R.I.
transaction provides The Meditrust Companies with a group of quality private,
semi-private and daily fee golf courses. After completion of the Cobblestone
acquisition, Cobblestone will operate these golf courses. For The Meditrust
Companies, the I.R.I. golf courses will provide The Meditrust Companies and
their operator, Cobblestone, with an expanded presence in the Dallas/Ft. Worth
area.
Equity Placement. On February 26, 1998, The Meditrust Companies entered
into two transactions with Merrill Lynch International, a UK-based
broker/dealer subsidiary of Merrill Lynch. Pursuant to the terms of a stock
purchase agreement, Merrill Lynch International agreed to purchase 8,500,000
shares of Series A Stock from The Meditrust Companies at a purchase price of
$32.625 per share. The Series A Stock which was issued on February 27, 1998, is
initially non-voting and will convert into voting Paired Shares on the earlier
of (a) the business day following the date on which shareholders of The
Meditrust Companies have approved the Merger or (b) the date of any termination
of the Merger Agreement. Additionally, pursuant to the stock purchase
agreement, Merrill Lynch International is prohibited from disposing of these
Paired Shares during the period in which the Meeting Date Price is determined.
Pursuant to the terms of a purchase price adjustment agreement, The Meditrust
Companies will, within one year from the date of the purchase of the Series A
Stock, adjust the original purchase price per share based on a decrease in
market price of the Paired Shares at the time of the adjustment, by receiving
Paired Shares or cash from Merrill Lynch International or by issuing additional
Paired Shares to Merrill Lynch International. See "The Merger -- Opinion of La
Quinta Financial Advisor."
Acquisition of Cobblestone. On January 11, 1998, The Meditrust Companies
and Cobblestone entered into an agreement and plan of merger, referred to as
the "Cobblestone Merger Agreement." Pursuant to the Cobblestone Merger
Agreement, The Meditrust Companies will acquire all of the outstanding common
stock of Cobblestone in exchange for Paired Shares. The Meditrust Companies
have the option to acquire all of the outstanding preferred stock of
Cobblestone for either Paired Shares or cash. The aggregate value of the merger
consideration is approximately $241 million. In addition, approximately $154
million in Cobblestone debt and associated costs will be refinanced or assumed
as a condition of closing. The Cobblestone merger is expected to close early in
the second quarter of 1998.
Cobblestone is one of the leading owners and operators of golf courses in
the U.S. It has 25 golf facilities with 29 golf courses in major golf markets
in Arizona, California, Florida, Georgia, Texas and Virginia. The portfolio
includes eleven private country clubs, six semi-private clubs and eight daily
fee golf courses.
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FEDERAL INCOME TAX CONSIDERATIONS
The following is a general summary of the material United States federal
income tax consequences of the Merger to Meditrust, Operating Company and La
Quinta and their respective U.S. shareholders (as defined below in "-- Federal
Income Taxation of Holders of Paired Shares -- Taxation of Taxable U.S.
Shareholders") as well as certain other tax considerations for U.S. holders of
Paired Shares. The following discussion is based upon current provisions of the
Code, existing, temporary and final regulations thereunder and current
administrative rulings and court decisions, all of which are subject to change,
possibly on a retroactive basis. No attempt has been made to comment on all
United States federal income tax consequences of the Merger that may be
relevant to shareholders of Meditrust, Operating Company and La Quinta. The tax
discussion set forth below is included for general information only. It is not
intended to be, nor should it be construed to be, legal or tax advice to a
particular shareholder of Meditrust, Operating Company or La Quinta.
THE FOLLOWING DISCUSSION MAY NOT APPLY TO PARTICULAR CATEGORIES OF HOLDERS
OF SHARES OF MEDITRUST COMMON STOCK, OPERATING COMPANY COMMON STOCK OR LA
QUINTA COMMON STOCK SUBJECT TO SPECIAL TREATMENT UNDER THE CODE, SUCH AS
INSURANCE COMPANIES, FINANCIAL INSTITUTIONS, BROKER-DEALERS, TAX-EXEMPT
ORGANIZATIONS, NON-U.S. SHAREHOLDERS AND HOLDERS WHOSE SHARES WERE ACQUIRED
PURSUANT TO THE EXERCISE OF AN EMPLOYEE STOCK OPTION OR OTHERWISE AS
COMPENSATION. SHAREHOLDERS OF MEDITRUST, OPERATING COMPANY AND LA QUINTA ARE
URGED TO CONSULT THEIR TAX ADVISORS TO DETERMINE THE SPECIFIC TAX CONSEQUENCES
OF THE MERGER, INCLUDING ANY STATE, LOCAL OR OTHER TAX CONSEQUENCES OF THE
MERGER, OR OF ANY POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
Tax Consequences of the Merger
It is a condition to the consummation of the Merger that Goodwin, Procter
& Hoar LLP, counsel for Meditrust, and Latham & Watkins, counsel for La Quinta,
deliver an opinion to Meditrust and La Quinta, respectively, substantially to
the effect that, on the basis of facts, representations and assumptions set
forth in such opinion, the Merger should be treated for United States federal
income tax purposes as a reorganization within the meaning of Section 368(a) of
the Code. Assuming the Merger is so treated, no gain or loss will be recognized
by La Quinta as a result of the Merger. Shareholders of La Quinta will
recognize gain, but not loss, on the exchange of shares of La Quinta common
stock for Paired Shares and/or cash pursuant to the Merger in an amount equal
to the lesser of (a) the fair market value of the Operating Company common
stock that they receive as of the Effective Time, plus the amount of cash
received in connection with the Merger (pursuant to a Cash Election or in lieu
of fractional shares of Operating Company common stock) (such value and cash
received by a shareholder is referred to herein as the shareholder's "boot") or
(b) the amount by which the fair market value of the Paired Shares that they
receive as of the Effective Time, plus the amount of cash received in
connection with the Merger pursuant to a Cash Election or in lieu of fractional
Paired Shares, exceeds the shareholder's adjusted tax basis in the La Quinta
common stock exchanged therefor. Any such gain will be characterized as capital
gain (assuming the La Quinta common stock exchanged was a capital asset in the
hands of the shareholder) unless the boot received has the effect of the
distribution of a dividend, in which case the gain would be treated as a
dividend to the extent of the shareholder's ratable share of La Quinta's
undistributed earnings and profits (see below). Operating Company's estimate of
the value of a share of Operating Company common stock is discussed below. No
gain or loss will be recognized by Meditrust as a result of the Merger. Neither
Operating Company, which is not a constituent corporation in the Merger, nor
the shareholders of Meditrust and Operating Company will recognize gain or loss
as a result of the Merger.
Following the Merger, Meditrust may, but is not obligated to, transfer all
of La Quinta's assets and liabilities to an operating partnership, the
("Operating Partnership") (the "Drop-Down"). The Operating Partnership may
subsequently transfer some of the former La Quinta assets to one or more
corporations in which the Operating Partnership holds stock. Immediately
following the Drop-Down, Meditrust will own in excess of 80% of the interests
in the Operating Partnership and will be the sole general partner with full
managerial authority over the affairs and operations of the Operating
Partnership.
Subsequent to the execution of the Merger Agreement on January 3, 1998,
the IRS issued final regulations (the "Final Regulations") addressing asset
transfers following mergers intended to constitute "reorganizations" under
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provisions of the Code. Asset transfers such as the Drop-Down are covered by
the Final Regulations, which generally provide that such asset transfers will
not disqualify transactions otherwise qualifying as reorganizations.
The Final Regulations have a prospective effective date and are applicable
only to transactions occurring on or after January 28, 1998, except that the
Final Regulations do not apply to transactions occurring pursuant to a written
agreement which is (subject to customary conditions) binding on such date (such
as the Merger Agreement). Accordingly, the Final Regulations are not, by their
terms, applicable to the Merger. The Treasury Decision promulgating the Final
Regulations states, however, that no inference should be drawn from the Final
Regulations as to whether transactions not subject to the Final Regulations
otherwise qualify as reorganizations. In addition, the Final Regulations
provide that in determining whether certain asset transfers such as the
Drop-Down would prevent a transaction from qualifying as a reorganization,
other relevant provisions of law must be considered, including the
"step-transaction" doctrine. In general, under the step transaction doctrine,
and under appropriate circumstances, purportedly separate and independent
"steps" may be considered together for purposes of analyzing the federal income
tax consequences of a transaction.
It is not clear whether the Drop-Down would be considered under relevant
step transaction rules in determining whether the Merger qualifies as a
reorganization because Meditrust is not obligated to transfer some or all of
the La Quinta assets to the Operating Partnership and because the Merger and
the Drop-Down have independent legal and business significance for the future
operation of the business of Meditrust.
Even assuming that the Merger and the Drop-Down were considered part of
the same transaction, however, counsel for Meditrust and La Quinta are of the
opinion that the prospective effective date of the Final Regulations should not
prevent the Merger from qualifying as a reorganization. The Final Regulations
represent a fundamental change of positions previously taken by the IRS in
various informal pronouncements to the effect that a post-merger transfer of
assets to a partnership in which the surviving corporation in the merger was a
partner could prevent the merger from qualifying as a reorganization. While the
Final Regulations are prospective, counsel to Meditrust and La Quinta believe
that the Final Regulations, which are interpretive rather than legislative,
correctly interpret the relevant provisions of law which were in effect prior
to the effective date of the Final Regulations and remain unchanged after the
Final Regulations and further believe that a court would not reach a contrary
conclusion under existing statutory and judicial authorities. Accordingly,
counsel to Meditrust and La Quinta are of the opinion that the Merger should
qualify as a reorganization under the applicable provisions of the Code.
However, an opinion of counsel is not binding on the IRS, and no ruling from
the IRS regarding the Drop-Down has been sought. Accordingly, there is no
assurance that the IRS will not take a position contrary to one or more
positions reflected in such opinion or that such opinion will be upheld by the
courts if challenged by the IRS.
Each of the opinions of Goodwin, Procter & Hoar LLP and Latham & Watkins
will be based, in part, upon a representation by the management of La Quinta to
the effect that, to the best knowledge of La Quinta's management, there is no
plan or intention on the part of the shareholders of La Quinta to dispose of a
number of Paired Shares received in the Merger that would reduce the aggregate
value of the Meditrust common stock held by La Quinta shareholders to less than
50% of the value of the La Quinta common stock as of the Effective Time, and
upon counsel's assumption to the effect that such representation was correct as
if made without such "best knowledge" qualification.
In general, the determination as to whether the gain recognized by a La
Quinta shareholder in the Merger will be treated as capital gain or dividend
income depends upon whether and to what extent the transactions related to the
Merger will be deemed to reduce the shareholder's percentage stock ownership of
Meditrust following the Merger. For purposes of that determination, the
shareholder is treated as if he or she first exchanged all of his or her shares
of La Quinta common stock solely for Meditrust common stock and then Meditrust
immediately redeemed (the "deemed redemption") a portion of such Meditrust
common stock in exchange for the boot the shareholder actually received. If,
under Section 302 of the Code, the deemed redemption is "not essentially
equivalent to a dividend" with respect to the shareholder, then any gain
recognized by the shareholder in the transaction will be capital gain. In
general, in order for the deemed redemption to be "not essentially equivalent
to a dividend," the deemed redemption must result in a "meaningful reduction"
in the shareholder's deemed percentage stock ownership of Meditrust following
the Merger. In general, that determination requires a comparison of (i) the
percentage of the outstanding stock of Meditrust the shareholder owned or is
considered to have owned immediately before the deemed redemption and (ii) the
percentage of the outstanding stock of Meditrust the shareholder owns
immediately after the deemed redemption. Stock owned for this purpose includes
stock actually owned as well as stock treated as being
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owned under the constructive ownership rules of Section 318 of the Code. The
Internal Revenue Service ("IRS") has indicated in a published ruling that, in
the case of a small minority holder of a publicly held corporation who
exercises no control over corporate affairs, a reduction in the holder's
proportionate interest in the corporation from .0001118% to .0001081% would
constitute a meaningful reduction. In addition, the deemed redemption will not
be essentially equivalent to a dividend if it is "substantially
disproportionate." The deemed redemption will be "substantially
disproportionate" with respect to a La Quinta shareholder if the percentage of
the outstanding voting stock of Meditrust (following the Merger and the deemed
redemption) actually owned by the shareholder and constructively owned by the
shareholder under the constructive ownership rules of Section 318 of the Code
(treating the Meditrust common stock acquired by Meditrust in the deemed
redemption as not outstanding) is less than 80% of the percentage of the
outstanding voting stock of Meditrust actually and constructively owned by the
shareholder following the Merger but immediately before the deemed redemption
(treating the Meditrust common stock acquired by Meditrust in the deemed
redemption as outstanding).
In applying the foregoing tests, under the attribution rules of Section
318 of the Code, a shareholder is deemed to own (i) stock owned and, in some
cases, constructively owned by certain family members, by certain estates and
trusts of which the shareholder is a beneficiary, and by certain affiliated
entities, and (ii) stock subject to an option actually or constructively owned
by the shareholder or such other persons. As these rules are complex,
shareholders that believe they may be subject to these rules should consult
their tax advisors.
La Quinta shareholders should be aware that the Taxpayer Relief Act of
1997 (the "Relief Act") recently modified the capital gain rates applicable to
individuals, trusts and estates. See "-- Federal Income Taxation of Holders of
Paired Shares -- Taxation of Taxable U.S. Shareholders."
The aggregate tax basis of the shares of Meditrust common stock received
by a La Quinta shareholder in the Merger (including any fractional shares of
Meditrust common stock for which cash is received) will be the same as the
aggregate tax basis of his or her shares of La Quinta common stock exchanged
therefor, increased by any gain recognized in the transaction (whether as
capital gain or dividend income), and decreased by (i) the fair market value of
the Operating Company common stock received and (ii) any cash received in
connection with the Merger pursuant to a Cash Election or in lieu of fractional
shares of Operating Company common stock. Assuming the Merger is treated as a
reorganization within the meaning of Section 368(a) of the Code, the holding
period for shares of Meditrust common stock received by a shareholder will
include the period that such shares of La Quinta common stock were held by the
holder, provided such shares were held as a capital asset at the Effective
Time.
If a La Quinta shareholder has differing bases and/or holding periods in
respect of his or her shares of La Quinta common stock, he or she should
consult his or her tax advisor prior to the exchange with regard to computing
his or her gain with respect to particular blocks of La Quinta common stock and
identifying the particular bases and/or holding periods of the particular
shares of Meditrust common stock he or she receives in the exchange.
The aggregate tax basis of the shares of Operating Company common stock
received by a La Quinta shareholder in the Merger will be equal to the fair
market value of the Operating Company common stock as of the Effective Time.
The holding period for shares of Operating Company common stock received by a
shareholder will begin on the day after the Effective Time.
Cash received in lieu of fractional shares of Meditrust common stock will
be treated as received in redemption for such fractional interest, and gain or
loss will be recognized, measured by the difference between the amount of cash
received and the portion of the basis of the shares of Meditrust common stock
allocable to such fractional shares. Such gain or loss will constitute capital
gain or loss from the sale of stock if the shareholder holds his or her La
Quinta common stock as a capital asset at the Effective Time.
Under the terms of the pairing agreement, The Meditrust Companies are
obligated to agree on the relative values of a share of Meditrust common stock
and a share of Operating Company common stock that comprise a Paired Share. As
of the date of the mailing of this Joint Proxy Statement/Prospectus, the
companies have determined that the value of a share of Operating Company common
stock should have a value not to exceed 5% of the value of a Paired Share.
There can be no assurance, however, that the IRS will agree with such valuation
or that these relative values will not have changed by the Effective Time. See
"Description of Capital Stock of The Meditrust Companies -- The Pairing."
The by-laws of The Meditrust Companies provide that if the Board of
Directors of either of The Meditrust Companies at any time determines in good
faith that direct or indirect ownership of shares of stock of Meditrust has or
may become
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concentrated to an extent which would cause Meditrust to fail to qualify or be
disqualified as a REIT by virtue of the requirements of the Code which
generally preclude five or fewer individuals from owning more than 50% in value
of the equity of a REIT (with look-through rules applicable to corporations and
most other non-individual shareholders) and which require a REIT to have at
least 100 shareholders, The Meditrust Companies may repurchase shares
(including Paired Shares) from any shareholder or refuse to recognize a
purported transfer of shares (including Paired Shares) to the extent necessary
to maintain the qualification of Meditrust as a REIT. Similarly, the by-laws of
each of The Meditrust Companies also provide that if the Board of Directors of
either of The Meditrust Companies at any time determines in good faith that
direct or indirect ownership of shares of stock of Meditrust or Operating
Company has or may become concentrated to an extent which would cause Meditrust
to own constructively 10% or more of a lessee (for example, if a shareholder of
The Meditrust Companies owns 10% or more of the outstanding Paired Shares), The
Meditrust Companies may repurchase shares (including Paired Shares) from any
shareholder or refuse to recognize a purported transfer of shares (including
Paired Shares) to the extent necessary in order to avoid such constructive
ownership. See "Description of Capital Stock of The Meditrust Companies."
Although not entirely free from doubt, any such repurchases from former La
Quinta shareholders in connection with or immediately following the Merger
likely would be treated as "boot" in the same manner as cash received in the
Merger pursuant to a cash election for purposes of the foregoing rules.
The conclusion above that La Quinta should not recognize gain or loss as a
result of the Merger assumes that Meditrust makes an election pursuant to IRS
Notice 88-19 with respect to the Merger and that the availability or nature of
such election is not modified as proposed in the Clinton Administration's
fiscal year 1999 budget proposal. Meditrust will make the election pursuant to
IRS Notice 88-19 if such election is available. If Meditrust failed to make the
election (or it were no longer available) La Quinta would recognize gain on the
Merger notwithstanding that the Merger qualifies as a "reorganization" within
the meaning of Section 368(a) of the Code. Such gain would be measured by the
difference between the fair market value of La Quinta properties and their
adjusted tax basis and would become an obligation of Meditrust by operation of
law pursuant to the Merger.
Distribution of Earnings and Profits
To maintain its qualification as a REIT, following the Merger, Meditrust
will be required to distribute the current and accumulated earnings and profits
of La Quinta (as determined for federal income tax purposes). The distribution
will be taken into account by Meditrust's taxable U.S. shareholders as ordinary
income to the extent it is made out of Meditrust's current or accumulated
earnings and profits, and will not be eligible for the dividends received
deduction generally available for corporations. See "-- Federal Income Taxation
of Holders of Paired Shares."
La Quinta has agreed that, at the closing date, La Quinta will deliver to
Meditrust a report prepared by KPMG of the accumulated and current earnings and
profits of La Quinta (as determined for federal income tax purposes) as of the
most recent date through which earnings and profits are ascertainable as well
as a reasonable estimate of any earnings and profits from such most recent date
through the closing date, and that Coopers & Lybrand LLP shall review and
approve in the exercise of its reasonable judgment the report and workpapers of
KPMG. La Quinta further has provided a report of the earnings and profits
calculation through December 31, 1996 from KPMG.
REIT Qualification
General. If certain detailed conditions imposed by the provisions of the
Code are met, entities such as Meditrust that invest primarily in real estate
and that otherwise would be treated for federal income tax purposes as
corporations generally are not taxed at the corporate level on their "real
estate investment trust taxable income" that is currently distributed to
shareholders. This treatment substantially eliminates the "double taxation" on
earnings (i.e., at both the corporate and shareholder levels) that ordinarily
results from the use of corporations.
Prior to the consummation of the Merger, Meditrust has been and will
continue to be operated in a manner intended to allow it to qualify as a REIT.
Meditrust intends to operate following the Merger in a manner so that Meditrust
will continue to qualify as a REIT. If Meditrust fails to qualify as a REIT in
any taxable year, Meditrust will be subject to federal income taxation as if it
were a domestic corporation, and Meditrust's shareholders will be taxed in the
same manner as shareholders of ordinary corporations. In this event, Meditrust
could be subject to potentially significant tax liabilities, and the amount of
cash available for distribution to shareholders would be reduced and possibly
eliminated. Unless entitled to relief under certain Code provisions, and
subject to the discussion below regarding Section
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269B(a)(3) of the Code, Meditrust also would be disqualified from re-electing
REIT status for the four taxable years following the year during which
qualification was lost. Failure of Meditrust's Predecessor to have qualified as
a REIT also could disqualify Meditrust as a REIT and/or subject Meditrust to
significant tax liabilities.
Meditrust's qualification and taxation as a REIT following the Merger will
depend upon Meditrust's continuing ability to meet, through actual operating
results, the income and asset requirements, distribution levels, diversity of
stock ownership and other requirements for qualification as a REIT under the
Code. Counsel has not reviewed and will not review Meditrust's compliance with
these tests on a continuing basis. Moreover, qualification as a REIT involves
the application of highly technical and complex Code provisions for which there
are only limited judicial or administrative interpretations and the
determination of various factual matters and circumstances not entirely within
Meditrust's control. The complexity of these provisions is greater in the case
of a REIT that owns real estate and leases it to a corporation with which its
stock is paired. Accordingly, no assurance can be given that Meditrust will
satisfy such tests on a continuing basis following the Merger. See "Risk
Factors -- REIT Tax Risks."
In connection with the mailing of this Joint Proxy Statement/Prospectus,
Goodwin, Procter & Hoar LLP has rendered an opinion to the effect that (i)
Meditrust has since November 5, 1997 been and is a REIT for federal income tax
purposes and (ii) Meditrust's proposed method of operation, including the
consummation of the transactions contemplated by the Merger Agreement, will
allow Meditrust to continue to qualify as a REIT for federal income tax
purposes. The opinion of Goodwin, Procter & Hoar LLP has been filed as an
exhibit to the Registration Statement, of which this Joint Proxy
Statement/Prospectus is a part. This opinion is based on representations from
Meditrust regarding Meditrust's Predecessor and Meditrust's compliance with the
requirements for REIT qualification, and it will not be binding on the IRS.
Each of Meditrust's Predecessor and Meditrust's qualification as a REIT depends
on its having met or meeting, as the case may be, through actual operating
results, the various requirements for qualification as a REIT under the Code.
Counsel has not verified and will not verify the companies' compliance with
those tests. Accordingly, no assurance can be given that the IRS will not
challenge the status of Meditrust as a REIT prior to the Merger or the status
of Meditrust as a REIT following the Merger.
In rendering its opinion regarding REIT qualification, Goodwin, Procter &
Hoar LLP has relied upon the representations of Meditrust that it will
distribute, with respect to the taxable year in which the Merger closes, all
earnings and profits inherited from La Quinta. If the IRS were to determine
that La Quinta's actual earnings and profits exceeded the amount distributed,
Meditrust would be disqualified as a REIT.
Paired Shares. Section 269B(a)(3) of the Code provides that if the shares
of a REIT and a non-REIT are paired, then the REIT and the non-REIT shall be
treated as one entity for purposes of determining whether either company
qualifies as a REIT. If Section 269B(a)(3) applied to Meditrust and Operating
Company, then Meditrust would not be eligible to be taxed as a REIT. Section
269B(a)(3) does not apply, however, if the shares of the REIT and the non-REIT
were paired on June 30, 1983 and the REIT was taxable as a REIT on June 30,
1983. As a result of this "grandfathering" rule, Section 269B(a)(3) did not
apply to Santa Anita Realty for periods prior to the merger of Meditrust's
Predecessor into Santa Anita Realty, and, by its terms, this "grandfathering"
rule continued to apply to Meditrust after that merger and will continue to
apply to Meditrust after the merger of La Quinta with and into Meditrust
because for corporate law and federal income tax purposes The Meditrust
Companies are a continuation of The Santa Anita Companies. There are, however,
no judicial or administrative authorities interpreting this "grandfathering"
rule in the context of a merger or otherwise, and this interpretation, as well
as the opinion of Goodwin, Procter & Hoar LLP regarding Meditrust's
qualification as a REIT, is based solely on the literal language of the
statute. Moreover, if for any reason Santa Anita Realty failed to qualify as a
REIT in 1983, the benefit of the "grandfathering" rule would not be available
to Meditrust, and Meditrust would not qualify as a REIT for any taxable year.
See "Risk Factors -- REIT Tax Risks -- Dependence on Qualification as a REIT."
Potential Reallocation of Income. Due to the paired share structure,
Meditrust and Operating Company and their respective subsidiary entities are
and will be controlled by the same interests. As a result, the IRS could,
pursuant to Section 482 of the Code, seek to distribute, apportion or allocate
gross income, deductions, credits or allowances between or among them if it
determines that such distribution, apportionment or allocation is necessary in
order to prevent evasion of taxes or to clearly reflect income. Meditrust and
Operating Company believe that all material transactions between them, and
among them and/or their subsidiary entities, have been and will be negotiated
and structured with the intention of achieving an arm's-length result. If true,
the potential application of Section 482 of the Code
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should not have a material effect on Meditrust or Operating Company. There can
be no assurance, however, that the IRS will not challenge the terms of such
transactions, or that such challenge would not be successful.
Built-In Gain Tax. If Meditrust recognizes gain on the disposition of an
asset acquired from La Quinta during the ten-year period beginning at the
Effective Time, then to the extent of the asset's "built-in gain" (i.e., the
excess of the fair market value of such asset at the Effective Time over its
then tax basis), Meditrust will be subject to tax on such gain at the highest
regular corporate rate applicable, pursuant to Treasury Regulations not yet
promulgated. Meditrust would have to distribute 95% of the excess of the amount
of recognized built-in gain over the amount of tax paid in order to maintain
its qualification as a REIT. The foregoing assumes that Meditrust makes an
election pursuant to IRS Notice 88-19 with respect to the Merger and that the
availability or nature of such election is not modified as proposed in the
Clinton Administration's fiscal year 1999 budget proposal. Meditrust will make
the election pursuant to IRS Notice 88-19 if such election is available. See
"-- Tax Consequences of the Merger."
Effects of Compliance with REIT Requirements
Operating income derived from health care related properties, hotels, golf
courses or a racetrack does not constitute qualifying income under the REIT
requirements. Accordingly, all of Meditrust's health care related properties,
other than properties held by taxable entities in which Meditrust does not hold
voting control, have been leased to Operating Company and other lessees, and
Meditrust will continue to lease such properties after the Merger, as well as
any hotels acquired in the Merger. Similarly, Meditrust has subleased the land
underlying Santa Anita Park and leased the related improvements to Operating
Company. Rent derived from such leases will be qualifying income under the REIT
requirements, provided several requirements are satisfied. Among other
requirements, a lease may not have the effect of giving Meditrust a share of
the net income of the lessee, and the amount of personal property leased under
the lease must not exceed a defined, low level. Meditrust also may not provide
services, other than customary services and de minimis non-customary services,
to the lessees or their subtenants. In addition, the leases must also qualify
as "true" leases for federal income tax purposes (as opposed to service
contracts, joint ventures or other types of arrangements). There are, however,
no controlling Treasury Regulations, published rulings, or judicial decisions
that discuss whether leases similar to the leases constitute "true" leases.
Therefore, there can be no complete assurance that the IRS will not
successfully assert a contrary position.
Payments under a lease will not constitute qualifying income for purposes
of the REIT requirements if Meditrust owns, directly or indirectly, 10% or more
of the ownership interests in the relevant lessee. Constructive ownership rules
apply, such that, for instance, Meditrust is deemed to own the assets of
shareholders who own 10% or more in value of the stock of Meditrust. The
by-laws are therefore designed to prevent a shareholder of Meditrust from
owning Meditrust stock or Operating Company stock that would cause Meditrust to
own, actually or constructively, 10% or more of the ownership interests in a
lessee (including Operating Company). Thus, Meditrust should never own,
actually or constructively, 10% or more of a lessee solely because of a
Meditrust shareholder's ownership of Paired Shares. However, because the
relevant constructive ownership rules are broad and it is not possible to
monitor continually direct and indirect transfers of Paired Shares, and because
the by-laws provisions referred to above may not be effective, no absolute
assurance can be given that such transfers, or other events of which Meditrust
has no knowledge, will not cause Meditrust to own constructively 10% or more of
one or more lessees at some future date.
In addition to the considerations discussed above, the REIT requirements
will impose a number of other restrictions on the operations of Meditrust. For
example, net income from sales of property sold to customers in the ordinary
course of business (other than inventory acquired by reason of certain
foreclosures) is subject to a 100% tax unless eligible for a certain safe
harbor. Minimum distribution requirements also generally require Meditrust to
distribute each year at least 95% of its taxable income for the year (excluding
any net capital gain). In addition, certain asset tests limit Meditrust's
ability to acquire non-real estate assets.
Non-Deductibility of Parachute Payment
It is anticipated that certain members of La Quinta management will
receive "parachute payments" in connection with the Merger that exceed the
limits determined by Section 280G of the Code. The "excess" parachute payments
are not deductible by La Quinta (or its successor employer). It is estimated
that excess parachute payments will aggregate approximately $8.0 million.
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Taxation of Operating Company; Non-Controlled Subsidiaries
As a "C" corporation under the Code, Operating Company will be subject to
United States federal income tax on its taxable income at corporate rates.
Certain other corporate subsidiaries of Meditrust also will be subject to
federal income tax.
Federal Income Taxation of Holders of Paired Shares
Separate Taxation. Notwithstanding that Paired Shares may only be
transferred as a unit, holders of Paired Shares will be treated for U.S.
federal income tax purposes as holding equal numbers of shares of Meditrust
common stock and of Operating Company common stock. The tax treatment of
distributions to shareholders and of any gain or loss upon sale or other
disposition of the Paired Shares (as well as the amount of gain or loss) must
therefore be determined separately with respect to each share of Meditrust
common stock and each share of Operating Company common stock contained within
each Paired Share. The tax basis and holding period for each share of Meditrust
common stock and each share of Operating Company common stock also must be
determined separately. See "-- Tax Consequences of the Merger." Upon a taxable
sale of a Paired Share, the amount realized should be allocated between
Meditrust common stock and the Operating Company common stock based on their
then-relative values.
Taxation of Taxable U.S. Shareholders. As used herein, the term "U.S.
Shareholder" means a holder of Paired Shares that for United States federal
income tax purposes (A) is (i) a citizen or resident of the United States, (ii)
a corporation, partnership, or other entity created or organized in or under
the laws of the United States or any political subdivision thereof, (iii) an
estate, the income of which is subject to United States federal income taxation
regardless of its source or (iv) a trust, if a court within the United States
is able to exercise primary supervision over the administration of the trust
and one or more United States persons have the authority to control all
substantial decisions of the trust and (B) is not an entity that has a special
status under the Code (such as a tax-exempt organization or a dealer in
securities).
As long as Meditrust qualifies as a REIT, distributions made to
Meditrust's taxable U.S. Shareholders out of current or accumulated earnings
and profits (and not designated as capital gain dividends) will be taken into
account by such U.S. Shareholders as ordinary income and will not be eligible
for the dividends received deduction generally available to corporations. For
purposes of determining whether distributions on the Meditrust common stock are
out of current or accumulated earnings and profits, the earnings and profits of
Meditrust will be allocated first to Meditrust's outstanding preferred stock
(if any) and then allocated to the Meditrust common stock. Distributions that
are designated as capital gain dividends will be taxed as capital gains (to the
extent they do not exceed Meditrust's actual net capital gain for the taxable
year) without regard to the period for which the shareholder has held his or
her Meditrust common stock. However, corporate shareholders may be required to
treat up to 20% of certain capital gain dividends as ordinary income.
Distributions in excess of current and accumulated earnings and profits will
not be taxable to a shareholder to the extent that they do not exceed the
adjusted basis of the shareholder's Meditrust common stock, but rather will
reduce the adjusted basis of such stock. To the extent that such distributions
in excess of current and accumulated earnings and profits exceed the adjusted
basis of a shareholder's Meditrust common stock, such distributions will be
taxable as gain realized from the sale of such shares. Any distribution
declared by Meditrust in October, November or December of any year and payable
to a shareholder of record on a specified date in any such month shall be
treated as both paid by Meditrust and received by the shareholder on December
31 of such year, provided that the distribution is actually paid by Meditrust
during January of the following calendar year.
Distributions from Operating Company up to the amount of Operating
Company's current or accumulated earnings and profits (less any earnings and
profits allocable to distributions on any preferred stock of Operating Company)
will be taken into account by U.S. Shareholders as ordinary income and
generally will be eligible for the dividends-received deduction for
corporations (subject to certain limitations). Distributions in excess of
Operating Company's current and accumulated earnings and profits will not be
taxable to a holder to the extent that they do not exceed the adjusted basis of
the holder's Operating Company common stock, but rather will reduce the
adjusted basis of such Operating Company common stock. To the extent that such
distributions exceed the adjusted basis of a holder's Operating Company common
stock, such distributions will be taxable as gain realized from the sale of
such shares.
Meditrust may elect to retain all or a portion of its net long-term
capital gains recognized during a taxable year (the "Retained Gains") and pay a
corporate-level income tax on such Retained Gains. Corporations are currently
subject
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to a maximum 35% tax on recognized capital gains. If Meditrust so elects for a
taxable year, a shareholder owning shares of Meditrust stock on December 31st
of a taxable year in which Meditrust has Retained Gains would be required to
include in income as long-term capital gains his or her proportionate share of
such portion of Meditrust's Retained Gains as Meditrust may designate (the
"Designated Retained Gains"). The amount of any corporate-level tax paid by
Meditrust in respect of such Designated Retained Gains (the "Company Tax")
would be treated as having been paid by the shareholders owning shares of
Meditrust stock on December 31st of the taxable year, and each such shareholder
would receive a credit for his or her proportionate share of the Company Tax. A
shareholder's basis in his or her shares of Meditrust stock would increase by
the excess of such shareholder's proportionate share of the Designated Retained
Gains over the shareholder's share of the Company Tax.
Taxable distributions from Meditrust or Operating Company and gain or loss
from the disposition of shares of Meditrust common stock and Operating Company
common stock will not be treated as passive activity income and, therefore,
shareholders generally will not be able to apply any passive activity losses
(such as losses from certain types of limited partnerships in which the
shareholder is a limited partner) against such income. In addition, taxable
distributions from Meditrust and Operating Company generally will be treated as
investment income for purposes of the investment interest deduction
limitations. Capital gain dividends from Meditrust, capital gains (other than
short-term capital gains) from the disposition of Paired Shares and actual or
deemed distributions from either company treated as such, including capital
gains (other than short-term capital gains) recognized on account of nontaxable
distributions in excess of a shareholder's basis and any deemed capital gain
dividends to a Meditrust shareholder on account of Designated Retained Gains of
Meditrust, will be treated as investment income for purposes of the investment
interest deduction limitation only if and to the extent the shareholder so
elects, in which case such capital gain dividends and capital gains will be
taxed at ordinary income rates to the extent of such election. Shareholders may
not include in their individual tax returns any net operating losses or capital
losses of Meditrust or of Operating Company.
The Taxpayer Relief Act of 1997 (the "Relief Act") alters the taxation of
certain long-term capital gain income. Under the Relief Act, individuals,
trusts and estates that hold certain investments for more than 18 months may be
taxed at a maximum rate of 20% on the sale or exchange of those investments.
Individuals, trusts and estates that hold certain assets for more than one year
but not more than 18 months may be taxed at a maximum rate of 28% on the sale
or exchange of those investments. The Relief Act also provides a maximum rate
of 25% for "unrecaptured section 1250 gain" for individuals, trusts and
estates, special rules for "qualified 5-year gain," as well as other changes to
prior law. The Relief Act allows the IRS to prescribe regulations on how the
Relief Act's new capital gain rates will apply to sales of assets by, and sales
of interests in, "pass-through entities," which include REITs such as
Meditrust. Pursuant to this grant of regulatory authority, the IRS has
announced that it will issue temporary regulations providing that a REIT such
as Meditrust may designate a capital gain dividend as a 20% rate gain
distribution, an unrecaptured section 1250 gain distribution, or a 28% rate
gain distribution. If no such designation is made regarding a capital gain
dividend, it is a 28% rate gain distribution. In general, a REIT determines the
maximum amounts which may be designated in each class of capital gain dividends
as if the REIT were an individual whose ordinary income is subject to a
marginal rate of at least 28 percent. Similar rules apply in the case of
Designated Retained Gains. Meditrust will notify shareholders after the close
of its taxable year as to the portions of the distributions attributable to
that year that constitute ordinary income, return of capital, and capital gain
(and, with respect to capital gain dividends, the portions constituting 20%
rate gain distributions, unrecaptured section 1250 gain distributions, and 28%
rate gain distributions), as well as the amounts of any Designated Retained
Gains (including the amounts thereof constituting 20% rate gain, unrecaptured
section 1250 gain, and 28% rate gain) and related Company Tax. Operating
Company will notify shareholders after the close of its taxable year as to the
portions of the distributions from Operating Company attributable to that year
that constitute ordinary income and return of capital.
Taxation of Shareholders on the Disposition of Paired Shares. On the sale
or other taxable disposition of Paired Shares, gain or loss generally will be
recognized by the shareholder in an amount equal to the difference between (i)
the amount of cash and fair market value of any property received on such sale,
and (ii) the shareholder's adjusted basis in the Paired Shares. In general and
subject to the discussion above regarding the Relief Act, and assuming the
taxpayer has the same holding period for the Meditrust common stock and
Operating Company common stock that comprise his or her Paired Shares, any gain
or loss realized upon a taxable disposition of Paired Shares by a shareholder
who is not a dealer in securities will be treated as long-term capital gain or
loss if the Paired Shares have been held for more than one year and otherwise
as short-term capital gain or loss. As discussed above, however, existing La
Quinta shareholders who receive Paired Shares in the Merger will have different
holding periods with respect to their shares
81
<PAGE>
of Meditrust common stock and their Operating Company common stock that
comprise their Paired Shares. Accordingly, the portion of the gain or loss
recognized on the disposition of Paired Shares attributable to Meditrust common
stock or Operating Company common stock may not have the same character for
federal income tax purposes. In addition, any loss upon a sale or exchange of
Meditrust common stock by a shareholder who has held such stock for six months
or less (after applying certain holding period rules) will be treated as a
long-term capital loss to the extent of distributions from Meditrust or
undistributed capital gains required to be treated by such shareholder as
long-term capital gain. All or a portion of any loss realized upon a taxable
disposition of Paired Shares may be disallowed if other Paired Share are
purchased within 30 days before or after the disposition.
Information Reporting Requirements and Backup Withholding. Meditrust and
Operating Company will each report to their U.S. Shareholders and the IRS the
amount of distributions paid during each calendar year and the amount of tax
withheld, if any. Under the backup withholding rules, a shareholder may be
subject to backup withholding at the rate of 31% with respect to distributions
paid unless such holder (i) is a corporation or comes within certain other
exempt categories and, when required, demonstrates this fact, or (ii) provides
a taxpayer identification number, certifies as to no loss of exemption from
backup withholding and otherwise complies with the applicable requirements of
the backup withholding rules. A shareholder who does not provide Meditrust and
Operating Company with his, her or its correct taxpayer identification number
also may be subject to penalties imposed by the IRS. Any amount paid as backup
withholding will be creditable against the shareholder's income tax liability.
In addition, Meditrust may be required to withhold a portion of capital gain
distributions to any shareholders who fail to certify their non-foreign status
to Meditrust.
Taxation of Tax-Exempt Shareholders. Tax-exempt entities, including
qualified employee pension and profit sharing trusts and individual retirement
accounts ("Exempt Organizations"), generally are exempt from federal income
taxation. They are, however, subject to taxation on their unrelated business
taxable income ("UBTI"). While many investments in real estate generate UBTI,
amounts distributed by Meditrust to Exempt Organizations generally should not
constitute UBTI, nor should dividends paid by Operating Company generally
constitute UBTI. However, if an Exempt Organization finances its acquisition of
Paired Shares with debt, a portion of its income from Meditrust and Operating
Company will constitute UBTI pursuant to the "debt-financed property" rules. In
addition, under some circumstances certain pension plans (including section
401(k) plans but not, for example, individual retirement accounts) that own
more than 10 percent (by value) of Meditrust's outstanding capital stock,
including Paired Shares, could be subject to tax on a portion of their
dividends from Meditrust even if their Meditrust shares are held for investment
and are not treated as acquired with borrowed funds. Furthermore, social clubs,
voluntary employee benefit associations, supplemental unemployment benefit
trusts, and qualified group legal services plans that are exempt from taxation
under paragraphs (7), (9), (17), and (20), respectively, of Code section 501(c)
are subject to different UBTI rules, which generally will require them to
characterize distributions from Meditrust and Operating Company as UBTI.
82
<PAGE>
PRINCIPAL AND MANAGEMENT SHAREHOLDERS OF THE MEDITRUST COMPANIES
The following table sets forth, as of January 31, 1998, except as
otherwise noted, the number of Paired Shares beneficially owned, directly or
indirectly, by the chief executive officer and each of the four most highly
compensated executive officers of The Meditrust Companies, each director and
all current directors and executive officers of The Meditrust Companies as a
group. To the knowledge of The Meditrust Companies, no person owns 5% or more
of the Paired Shares as of January 31, 1998.
<TABLE>
<CAPTION>
Shares Subject Shares Beneficially Owned as a
Shares to Options Percentage of Shares
Beneficially Exercisable Outstanding
Owned as of Within 60 days of ------------------------------
Name of Beneficial Owner January 31, 1998 (1) January 31, 1998 Pre-Merger Post-Merger (2)
- --------------------------------------- -------------------- ---------------- ----------- -----------------
<S> <C> <C> <C> <C>
Directors and Executive Officers:
Abraham D. Gosman ..................... 1,222,404(3) 277,994 1.4% %
Donald J. Amaral ...................... 0 0 * *
William C. Baker ...................... 281,400 0 * *
David F. Benson ....................... 109,187(4) 90,968 * *
Edward W. Brooke ...................... 165,817(5) 72,096 * *
James P. Conn ......................... 2,300 0 * *
John C. Cushman, III .................. 156,100 0 * *
C. Gerald Goldsmith ................... 0 0 * *
J. Terrence Lanni ..................... 10,000 0 * *
Philip L. Lowe ........................ 75,700 72,096 * *
Thomas J. Magovern .................... 56,775 48,064 * *
Gerald Tsai, Jr ....................... 57,677 48,064 * *
Michael S. Benjamin ................... 44,856 32,043 * *
Michael F. Bushee ..................... 46,507 32,043 * *
Laurie T. Gerber ...................... 1,360 0 * *
All Directors and executive officers of
The Meditrust Companies as a group 2,230,083(6) 673,368 2.5%
</TABLE>
- ----------
* Less than 1%.
(1) Unless otherwise indicated, the number of Paired Shares stated as being
owned beneficially includes (i) Paired Shares beneficially owned by
spouses, minor children and/or other relatives in which the director or
officer may share voting power and (ii) any of Paired Shares listed as
being subject to options exercisable within 60 days of January 31, 1998.
(2) Assumes Paired Shares are issued in the Merger, which amount is being
used solely for illustrative purposes. See "The Merger Agreement --
Transaction Consideration."
(3) Includes 194,659 Paired Shares owned by A.M.A. Financial Corporation, of
which Mr. Gosman is President and a 98% shareholder.
(4) Does not include 120 Paired Shares owned by Mr. Benson's children, as to
which Paired Shares Mr. Benson disclaims any beneficial interest.
(5) Does not include 1,201 Paired Shares owned by Mr. Brooke's wife, 2,763
Paired Shares owned of record by Mr. Brooke as custodian for his son and
1,321 Paired Shares owned of record by Mr. Brooke as trustee for his
grandchildren, as to which Paired Shares Mr. Brooke disclaims any
beneficial interest.
(6) Does not include an aggregate of 5,405 Paired Shares owned by or for
parents, spouses or children, as to which Paired Shares the directors or
officers disclaim any beneficial interest.
83
<PAGE>
PRINCIPAL AND MANAGEMENT SHAREHOLDERS OF LA QUINTA
The following table sets forth, as of January 31, 1998, except as
otherwise noted, the number of shares of common stock of La Quinta beneficially
owned directly or indirectly, by (i) each person who, to the knowledge of La
Quinta, beneficially owns more than 5% of the common stock of La Quinta, and
(ii) the chief executive officer and each of the four most highly compensated
executive officers of La Quinta, each director and all current directors and
executive officers of La Quinta as a group.
<TABLE>
<CAPTION>
Shares Beneficially Owned as a
Shares of Common Stock Percentage of Shares Outstanding
Beneficially Owned ----------------------------------
Name of Beneficial Owner as of January 31, 1998 Pre-Merger Post-Merger (1)
- ------------------------------------------ ------------------------ ------------ ----------------
<S> <C> <C> <C>
5% Shareholders:
Thomas M. Taylor & Co. ................... 3,461,280 4.5% %
Portfolio C Investors, L.P. .............. 3,223,700 4.2%
Thomas M. Taylor ......................... 151,875(2) *
Sid R. Bass, Inc. ........................ 4,147,957 5.4%
Lee M. Bass, Inc. ........................ 4,147,957 5.4%
The Bass Management Trust ................ 1,190,622(3) 1.5%
The Airlie Group, L.P. ................... 487,500 *
Annie R. Bass Grandson's Trust
for Lee M. Bass ......................... 806,305 1.0%
Annie R. Bass Grandson's Trust
for Sid. R. Bass ........................ 806,305 1.0%
Panther City Investment Co. .............. 3,101,466(4) 4.0%
Thomas W. Briggs ......................... 25,312 *
Michael N. Christodolou .................. 15,187 *
W. Forrest Tempel ........................ 5,062 *
William P. Hallman, Jr. .................. 253,125(5) *
Peter Sterling Trusts .................... 12,655 *
Peter Sterling ........................... 491,060(6) *
Cotham Family Partners, L.P. ............. 7,500 *
(as a Group) -----------
c/o W. Robert Cotham 22,334,868(7) 29.0%
2600 First City Bank Tower
Fort Worth, Texas 76102
Gary L. Mead ............................. 4,556,876(8) 5.6%
c/o La Quinta Inns, Inc.
112 East Pecan Street
San Antonio, Texas 78205
Directors and Executive Officers(9):
William H. Cunningham .................... 121,500(10) *
William Razzouk .......................... 22,781(11) *
Kenneth T. Stevens ....................... 45,567(12) *
Ezzat S. Coutry .......................... 125,000(13) *
Stephen B. Hickey ........................ 150,000(14) *
John F. Schmutz .......................... 173,499(15) *
Steven T. Schultz ........................ 286,749(16) *
All directors and executive officers of La
Quinta as a group (10 persons) ........... 13,297,387(17) 16.1%
</TABLE>
- ----------
* Less than one percent (1%)
84
<PAGE>
(1) Assumes Paired Shares are issued in the Merger, which amount is
being used solely for illustrative purposes. See "The Merger Agreement --
Transaction Consideration."
(2) Mr. Taylor beneficially owns 151,875 shares which he presently has the
right to acquire under La Quinta's 1984 Stock Option Plan. In addition,
Mr. Taylor may be deemed to beneficially own the shares beneficially
owned by Thomas M. Taylor & Co., Portfolio C Investors, L.P. and The
Airlie Group, L.P. The aggregate of all of such shares which Mr. Taylor
may be deemed to beneficially own is 7,324,355.
(3) Perry R. Bass, solely in his capacities as sole trustee and as one of two
trustees, has sole voting and dispositive power with respect to the
1,190,622 shares owned by The Bass Management Trust.
(4) Panther City Investment Co., solely in its capacity as Trustee, has sole
voting and dispositive power with respect to 1,550,733 shares owned by
The Hyatt Anne Bass Successor Trust and has sole voting and dispositive
power with respect to the 1,550,733 shares owned by The Samantha Sims
Bass Successor Trust.
(5) A Schedule 13D amendment, dated as of January 3, 1998, provided to La
Quinta reflects that William P. Hallman, Jr., because of his position as
the trustee, also has "sole voting power" and "sole dispositive power"
with respect to the following trusts listed in the table above: (i) Annie
R. Bass Grandson's Trust for Sid R. Bass with respect to 806,305 shares,
(ii) Annie R. Bass Grandson's Trust for Lee M. Bass with respect to
806,305 shares, (iii) Peter Sterling Trusts with respect to 12,655 shares
and (iv) Matthew Kingston Cotham 1996 Trust, which is the sole general
partner of Cotham Family Partners, L.P., with respect to 7,500 shares.
(6) Mr. Sterling beneficially owns 151,875 shares which he presently has the
right to acquire under La Quinta's 1984 Stock Option Plan.
(7) Thomas M. Taylor, Sid R. Bass, Lee M. Bass and other investors, including
the persons named above, have filed a Schedule 13D amendment, dated as of
January 3, 1998, with the SEC. The persons making the Schedule 13D filing
have stated that neither the fact of such filing nor anything contained
therein shall be deemed an admission by them that a "group" exists within
the meaning of Section 13(d)(3) of the Exchange Act.
(8) Mr. Mead has "sole voting power" and "sole dispositive power" with
respect to (i) 303,750 shares which he beneficially owns, (ii) 3,290,625
shares which he presently has the right to acquire pursuant to a
non-qualified stock option agreement dated March 3, 1992 (the "Mead Stock
Option Agreement") and (iii) 962,501 shares which he presently has the
right to acquire under La Quinta's 1984 Stock Option Plan. Shares
acquirable pursuant to stock options include options exercisable within
60 days after January 31, 1998. Excluded from this table are the unvested
portion of stock options granted in 1996 and 1997.
(9) Shares held by Mr. Mead, Mr. Sterling and Mr. Taylor, are listed under
the heading "5% Shareholders."
(10) The shares shown as beneficially owned by Dr. Cunningham represent
121,500 shares which he presently has the right to acquire under La
Quinta's 1984 Stock Option Plan. It does not include 30,375 shares he
will have the right to acquire on May 23, 1998 under La Quinta's 1997
Equity Participation Plan.
(11) The shares shown as beneficially owned by Mr. Razzouk represent 22,781
shares which he presently has the right to acquire under La Quinta's 1984
Stock Option Plan. It does not include 30,375 shares which he will have
the right to acquire on May 23, 1998 under La Quinta's 1997 Equity
Participation Plan.
(12) The shares shown as beneficially owned by Mr. Stevens include 45,567
shares which he presently has the right to acquire under La Quinta's 1984
Stock Option Plan. It does not include 30,375 shares which he will have
the right to acquire on May 23, 1998 under La Quinta's 1997 Equity
Participation Plan.
(13) The shares shown beneficially owned by Mr. Coutry, Executive Vice
President-Chief Operating Officer of La Quinta reflect 125,000 shares
which he presently has the right to acquire under La Quinta's 1984 Stock
Option Plan. Excluded from this table are the unvested portion of stock
options granted in 1996 and 1997.
(14) The shares shown beneficially owned by Mr. Hickey, Senior Vice
President-Marketing of La Quinta reflect 150,000 shares which he
presently has the right to acquire under La Quinta's 1984 Stock Option
Plan. Excluded from this table are the unvested portion of stock options
granted in 1995 and 1997.
85
<PAGE>
(15) The shares shown beneficially owned by Mr. Schmutz, Vice
President-General Counsel of La Quinta reflect 173,499 shares which he
presently has the right to acquire under La Quinta's 1984 Stock Option
Plan. Excluded from this table are the unvested portion of stock options
granted in 1996 and 1997.
(16) The shares shown beneficially owned by Mr. Schultz, Senior Vice
President-Development of La Quinta reflect 286,749 shares which he
presently has the right to acquire under La Quinta's 1984 Stock Option
Plan. Excluded from this table are the unvested portion of stock options
granted in 1996 and 1997.
(17) The holdings shown for all directors and executive officers as a group
include 5,481,967 shares which the directors and executive officers have
the right to acquire under La Quinta's 1984 Stock Option Plan, 1997
Equity Participation Plan and the Mead Stock Option Agreement
(collectively, the "La Quinta Plans") and shares acquirable pursuant to
stock options, which are exercisable within 60 days after January 31,
1998.
The information reflected for certain beneficial owners listed under the
heading "5% Shareholders" is based on statements and reports filed with the SEC
and furnished to La Quinta by such holders. No independent investigation
concerning the accuracy thereof has been made by La Quinta. As of January
31,1998, all directors and executive officers as a group beneficially owned a
total of 7,815,420 shares (10.1%) of La Quinta's outstanding common stock,
excluding the 5,481,967 shares referred to in note (17) above which certain
directors and executive officers have the right to acquire under the La Quinta
Plans.
86
<PAGE>
COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND INFORMATION
The Paired Shares are listed on the NYSE under the ticker symbol "MT."
Following the Merger, the Paired Shares will continue to be listed on the NYSE
and traded under the symbol "MT."
La Quinta's common stock is listed on the NYSE under the ticker symbol
"LQI." Following the Merger, La Quinta's common stock will be delisted from the
NYSE.
The following table sets forth, for the fiscal quarters indicated (i) the
range of high and low sale prices of La Quinta's common stock and the Paired
Shares on the NYSE and (ii) the amount of cash dividends declared per share:
<TABLE>
<CAPTION>
La Quinta Common Stock (1) The Meditrust Companies Shares (2)(3)
----------------------------------- --------------------------------------
Market Price Cash Market Price Cash
--------------------- Dividends ------------------------- Dividends
High Low Declared High Low Declared
----------- ------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
1995
1st Quarter ......... $19-3/8 13-1/8 $0.0167 $ 26.74 $ 24.55 $ .5555
2nd Quarter ......... 20-1/8 16-7/8 0.0167 28.40 24.13 .5597
3rd Quarter ......... 20-1/2 17-1/2 0.0167 29.54 27.15 .5638
4th Quarter ......... 19-5/8 16-3/8 0.0167 29.54 26.01 .5680
1996
1st Quarter ......... 19-3/4 15-5/8 0.0167 30.48 27.67 .5721
2nd Quarter ......... 24 17-5/8 0.0167 28.61 26.42 .5763
3rd Quarter ......... 23-5/8 16-3/8 0.0175 29.44 27.57 .5805
4th Quarter ......... 21-7/8 17-3/4 0.0175 33.29 28.71 .5846
1997
1st Quarter ......... 23 16-5/8 0.0175 33.81 30.48 .5888
2nd Quarter ......... 24-3/8 20-1/8 0.0175 33.19 29.54 .5929
3rd Quarter ......... 23-9/16 19-7/8 0.0175 34.54 31.21 .5971
4th Quarter ......... 23-15/16 17-1/8 0.0175
Oct. 1, 1997 to Nov. 4, 1997 (2) $ 36.98 $ 34.59 .6013
Nov. 5, 1997 to Dec. 31, 1997 (2) $ 39.00 $ 35.75
1998
1st Quarter .6063
2nd Quarter through
April 22 ..........
</TABLE>
- ----------
(1) Amounts adjusted to reflect four 3-for-2 stock splits since 1993.
(2) The information presented in this table under the heading "The Meditrust
Companies Shares" for periods prior to November 5, 1997 consists of
information pertaining to shares of common stock of Meditrust's
Predecessor. The information presented in this table under the heading "The
Meditrust Companies Shares" for periods on and after November 5, 1997
(following completion of the Santa Anita Mergers) consists of the Paired
Shares of Meditrust Corporation and Meditrust Operating Company. Amounts
presented are adjusted to reflect the effect of the exchange of shares upon
the completion of the mergers with The Santa Anita Companies on November 5,
1997.
(3) On January 2, 1998, the last full trading day prior to the public
announcement of the proposed Merger, the closing price of Paired Shares was
$36.375 per Paired Share; the closing price of the La Quinta shares was
$201/4 per share. On April 22, 1998, the most recent practicable date prior
to the printing of this Joint Proxy Statement/ Prospectus, the closing
price of the Paired Shares was $ per Paired Share and the closing price of
La Quinta shares was $ per share. Shareholders are urged to obtain current
market quotations prior to making any decisions with respect to the Merger.
87
<PAGE>
As of April 22, 1998, there were holders of record of The Meditrust
Companies Paired Shares and holders of record of La Quinta common stock.
The Meditrust Companies expect to declare regularly scheduled dividends on
the Paired Shares, including those dividends necessary for Meditrust to
maintain its status as a REIT. The current annualized rate of dividends on the
Paired Shares is $2.43 (without giving effect to the distribution). We expect
that The Meditrust Companies will continue to pay similar quarterly dividends,
including dividends required to maintain Meditrust's status as a REIT, after
the effective time of the Merger, subject to approval and declaration by the
respective Boards of Directors of The Meditrust Companies.
88
<PAGE>
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
On January 3, 1998, La Quinta, Meditrust and Operating Company entered
into the Merger Agreement, pursuant to which La Quinta will merge with and into
Meditrust with Meditrust being the surviving corporation. As a result of the
Merger, Meditrust will acquire all of the assets and liabilities of La Quinta
and will assume approximately $900 million of La Quinta's existing
indebtedness.
In addition, on January 11, 1998, The Meditrust Companies and Cobblestone
entered into the Cobblestone Merger Agreement, pursuant to which Cobblestone
will merge with and into Meditrust (the "Cobblestone Merger" and, together with
the Merger, the "La Quinta/Cobblestone Mergers"). Cobblestone is a privately
held company and one of the leading owners/operators of golf courses in the
United States. Cobblestone has a portfolio of 25 facilities with 29 courses in
major golf markets in Arizona, California, Florida, Georgia, Texas and
Virginia.
Under the terms of the Cobblestone Merger Agreement, The Meditrust
Companies will acquire all of the outstanding common stock of Cobblestone for
Paired Shares and all of the outstanding preferred stock of Cobblestone for
either Paired Shares or, at The Meditrust Companies' option, cash, with an
aggregate value of aproximately $241 million. The number of Paired Shares to be
issued in the Cobblestone Merger is expected to be 7,531,000 shares using
$32.00 as the assumed Paired Share stock price, subject to adjustment in the
manner described in the Cobblestone Merger Agreement. In addition,
approximately $154 million of Cobblestone debt and associated costs will be
refinanced or assumed as a condition of the closing. The Cobblestone Merger is
subject to customary closing conditions.
The Pro Forma Financial Statements have been adjusted for the purchase
method of accounting whereby the hotels, golf resorts and related improvements
and other assets and liabilities owned by La Quinta and Cobblestone are
adjusted to estimated fair market value. The fair market value of the assets
and liabilities of La Quinta and Cobblestone have been determined based upon
preliminary estimates and are subject to change as additional information is
obtained. Management does not anticipate that the preliminary allocation of
purchase costs based upon the estimated fair market value of the assets and
liabilities of La Quinta and Cobblestone will materially change; however, the
allocation of purchase costs are subject to final determination based upon
estimates and other evaluations of fair market value as of the close of the
transactions. Therefore, the allocations reflected in the following unaudited
Pro Forma Financial Statements may differ from the amounts ultimately
determined.
The following unaudited Pro Forma Condensed Statements of Operations
presented assume the La Quinta/Cobblestone Mergers had been consummated on terms
set forth in the respective merger agreement at the beginning of the period
presented. The results of the operations of The Santa Anita Companies for
periods prior to the Santa Anita Merger, which occurred on November 5, 1997, are
not included in the unaudited Pro Forma Condensed Statement of Operations
because such results are not significant. In addition, the unaudited Pro Forma
Condensed Combined Balance Sheet presented assumes the La Quinta/Cobblestone
Mergers had occurred on December 31, 1997.
The Pro Forma Financial Statements have also been adjusted for the
issuance of 8,500,000 shares of Series A Non-Voting Convertible Common Stock by
The Meditrust Companies on February 27, 1998. The estimated aggregate proceeds
is $272 million, net of transaction costs. The net proceeds of this transaction
will be used to finance certain costs associated with the La Quinta/Cobblestone
Mergers.
Separate Pro Forma Condensed Consolidated Statements of Operations for the
year ended December 31, 1997 are presented for both Meditrust and Operating
Company as they are legally separate registrants. In addition, a Pro Forma
Condensed Consolidated Statement of Operations for the year ended December 31,
1997 is presented to show the impact of the La Quinta/Cobblestone Mergers on
The Meditrust Companies taken as a whole.
The following unaudited Pro Forma Condensed Statements of Operations for
the year ended December 31, 1997 of The Meditrust Companies, Meditrust and
Operating Company are derived from historical financial information and pro
forma information based in part upon the Combined and Separate Statements of
Operations of The Meditrust Companies, filed on The Meditrust Companies' Form
10-K for the year ended December 31, 1997, and in part upon the Combined
Statements of Operations of La Quinta filed on Form 10-K for the year ended
December 31, 1997 and the Consolidated Statements of Operations of Cobblestone
Holdings, Inc. filed on Form 10-K for the year ended September 30, 1997. The
following unaudited Pro Forma Condensed Combined Balance Sheet is based in part
upon The Meditrust Companies Combined and Separate Balance Sheets as of
December 31, 1997 and should be read in conjunction with the La Quinta and
Cobblestone financial statements as of December 31, 1997 and September 30,
89
<PAGE>
1997, respectively. In management's opinion, all material adjustments necessary
to reflect the effects of the La Quinta/ Cobblestone Mergers have been made.
The following unaudited Pro Forma Condensed Statements of Operations are
not necessarily indicative of what the actual results of The Meditrust
Companies would have been assuming such transactions had been completed as of
the beginning of the period presented, nor do they purport to represent the
results for future periods.
The following unaudited Pro Forma Condensed Combined Balance Sheet is not
necessarily indicative of what the actual financial position would have been
assuming that the La Quinta/Cobblestone Mergers had been completed as of
December 31, 1997, nor does it purport to represent the future financial
position of The Meditrust Companies.
90
<PAGE>
THE MEDITRUST COMPANIES PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF DECEMBER 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
The Meditrust
Companies La Quinta Cobblestone
(Historical) (A) (Historical) (B) (Historical) (C)
------------------ ------------------ ------------------
<S> <C> <C> <C>
(In thousands)
ASSETS
Real estate investments .................. $2,935,772 $1,449,215 $ 156,229
Cash and cash equivalents ................ 43,732 2,110 3,519
Trade, notes and other receivables ....... 29,439 15,909 9,141
Deferred charges, prepaid expenses,
inventory and other assets .............. 120,055 24,977 9,770
Deferred income taxes .................... -- 9,813 --
Intangible assets ........................ -- -- 3,611
Goodwill ................................. 194,893 -- --
---------- ---------- ---------
Total assets ........................... $3,323,891 $1,502,024 $ 182,270
========== ========== =========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Debt ..................................... $1,377,438 $ 901,685 $ 129,565
Accounts payable, accrued expenses
and other liabilities ................... 120,213 126,893 15,549
Deferred income taxes .................... 501 38,253 4,184
Minority interest ........................ -- 2,667 337
---------- ---------- ---------
Total liabilities ...................... 1,498,152 1,069,498 149,635
---------- ---------- ---------
Redeemable preferred stock ............... -- -- 42,241
Shareholders' equity:
Series A Non-Voting Convertible
Common Stock ............................ -- -- --
Common stock ............................. 17,626 8,501 17
Additional paid-in-capital ............... 2,001,086 249,612 5,389
Unearned officer's compensation .......... -- (1,016) --
Retained earnings (loss) ................. -- 270,462 (15,012)
Distributions in excess of net income..... (192,973) -- --
Treasury stock, at cost .................. -- (95,033) --
---------- ---------- ---------
Total shareholders' equity ............. 1,825,739 432,526 (9,606)
---------- ---------- ---------
Total liabilities and shareholders'
equity ................................ $3,323,891 $1,502,024 $ 182,270
========== ========== =========
<CAPTION>
La Quinta Cobblestone Total
Pro Forma Pro Forma Other Pro Forma Pro Forma
Adjustments (D) Adjustments (AA) Adjustments Adjustments
------------------- -------------------- ------------------------ --------------
<S> <C> <C> <C> <C>
(In thousands)
ASSETS
Real estate investments .................. $ 1,083,632(E) $ 73,628(BB) $ -- $1,157,260
Cash and cash equivalents ................ -- -- -- --
Trade, notes and other receivables ....... 42,000 (F) -- -- 42,000
Deferred charges, prepaid expenses,
inventory and other assets .............. (5,047)(G) -- -- (5,047)
Deferred income taxes .................... (9,813)(H) -- -- (9,813)
Intangible assets ........................ 112,543 (I) 7,389 (CC) -- 119,932
Goodwill ................................. 425,269 (J) 168,164 (DD) -- 593,433
------------ ------------ ------------ ----------
Total assets ........................... $ 1,648,584 $ 249,181 $ -- $1,897,765
============ ============ ============ ==========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Debt ..................................... $ 955,440(K) $ 45,000(EE) $ (272,000)(AAA) $ 728,440
Accounts payable, accrued expenses
and other liabilities ................... -- -- -- --
Deferred income taxes .................... (38,253)(H) (4,184)(FF) -- (42,437)
Minority interest ........................ -- -- -- --
------------ ------------ ------------ ----------
Total liabilities ...................... 917,187 40,816 (272,000) 686,003
------------ ------------ ------------ ----------
Redeemable preferred stock ............... -- (42,241)(GG) -- (42,241)
Shareholders' equity:
Series A Non-Voting Convertible
Common Stock ............................ -- -- 1,700 (AAA) 1,700
Common stock ............................. 140 (L) 1,489 (HH) -- 1,629
Additional paid-in-capital ............... 1,230,670 (M) 234,105 (II) 270,300 (AAA) 1,735,075
Unearned officer's compensation .......... 1,016 (N) -- -- 1,016
Retained earnings (loss) ................. (270,462)(O) 15,012 (JJ) -- (255,450)
Distributions in excess of net income..... (325,000)(P) -- -- (325,000)
Treasury stock, at cost .................. 95,033 (N) -- -- 95,033
------------ ------------ ------------ ----------
Total shareholders' equity ............. 731,397 250,606 272,000 1,254,003
------------ ------------ ------------ ----------
Total liabilities and shareholders'
equity ................................ $ 1,648,584 $ 249,181 $ -- $1,897,765
============ ============ ============ ==========
<CAPTION>
Total
Pro Forma
-------------
<S> <C>
(In thousands)
ASSETS
Real estate investments .................. $5,698,476
Cash and cash equivalents ................ 49,361
Trade, notes and other receivables ....... 96,489
Deferred charges, prepaid expenses,
inventory and other assets .............. 149,755
Deferred income taxes .................... --
Intangible assets ........................ 123,543
Goodwill ................................. 788,326
----------
Total assets ........................... $6,905,950
==========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Debt ..................................... $3,137,128
Accounts payable, accrued expenses
and other liabilities ................... 262,655
Deferred income taxes .................... 501
Minority interest ........................ 3,004
----------
Total liabilities ...................... 3,403,288
----------
Redeemable preferred stock ............... --
Shareholders' equity:
Series A Non-Voting Convertible
Common Stock ............................ 1,700
Common stock ............................. 27,773
Additional paid-in-capital ............... 3,991,162
Unearned officer's compensation .......... --
Retained earnings (loss) ................. --
Distributions in excess of net income..... (517,973)
Treasury stock, at cost .................. --
----------
Total shareholders' equity ............. 3,502,662
----------
Total liabilities and shareholders'
equity ................................ $6,905,950
==========
</TABLE>
See accompanying notes to the unaudited pro forma condensed combined balance
sheet.
91
<PAGE>
The Meditrust Companies Notes to Pro Forma Condensed Combined Balance Sheet as
of December 31, 1997
(In Thousands, Except Per Share Amounts)
(Unaudited)
(A) Represents the historical combined balance sheet of Meditrust and Operating
Company as of December 31, 1997.
(B) Represents the historical balance sheet of La Quinta as of December 31,
1997.
(C) Represents the historical balance sheet of Cobblestone as of September 30,
1997.
Adjustments for the La Quinta Transaction:
(D) Represents adjustments to record the Merger between Meditrust and La
Quinta. The Merger will be accounted for using the purchase method of
accounting, based upon the estimated purchase price of $3,021,048 assuming a
Meeting Date Price of $32.00 per Paired Share, as follows:
<TABLE>
<S> <C>
Issuance of 43,205 Paired Shares of The Meditrust Companies, and cash of $414,440 in
exchange for 77,137 shares of La Quinta common stock (see Note M) ........................ $1,903,363
Assumption of mortgage debt and other liabilities ........................................ 901,685
Merger costs (see calculation below) ..................................................... 216,000
----------
$3,021,048
==========
</TABLE>
The following is a calculation of the estimated fees and other expenses related
to the Merger:
<TABLE>
<S> <C>
Buyout of options and restricted stock (8,339 common stock options and 25 shares of
restricted stock) ........................................................................ $132,000
Employment, retention and non-compete agreements ......................................... 12,000
Severance agreements ..................................................................... 7,000
Adjustment of pension plan liability to fair value ....................................... 5,000
Estimated call premium for retirement of $120,000 La Quinta 9.25% Senior Subordinated
Notes,
plus interest on defeasance of debt ..................................................... 10,000
Estimated loan costs in connection with increasing the availability under The Meditrust
Companies' Revolving Credit Facility .................................................... 5,000
Advisory fees ............................................................................ 34,000
Legal and accounting fees ................................................................ 6,000
Other, including printing and filing costs ............................................... 5,000
--------
$216,000
========
</TABLE>
(E) Represents adjustments for the purchase method of accounting whereby the
investment in La Quinta hotel properties is adjusted to its estimated fair
market value, as follows:
<TABLE>
<S> <C>
Purchase price (see Note D) .................................................. $3,021,048
Less: pre-Merger historical basis of La Quinta real estate ................... 1,449,215
Allocation of pro forma basis of La Quinta net assets acquired as follows:
Intangible assets ............................................................ 112,543
Goodwill ..................................................................... 425,269
Other assets ................................................................. 79,949
Other liabilities ............................................................ (129,560)
----------
Subtotal .................................................................... 1,937,416
----------
Step-up to record fair value of La Quinta's real estate investments .......... $1,083,632
==========
</TABLE>
(F) Represents adjustment for the purchase method of accounting to record a
receivable associated with the tax benefit provided from the realization of a
preacquisition net operating loss carry back resulting from the buyout of La
Quinta stock options and restricted stock.
92
<PAGE>
The Meditrust Companies Notes to Pro Forma Condensed Combined Balance Sheet as
of December 31, 1997
(In Thousands, Except Per Share Amounts)
(Unaudited)
(G) Represents adjustments for the purchase method of accounting to write off
deferred costs of $10,047 and record $5,000 of deferred loan costs expected to
be incurred in connection with increasing the availability under The Meditrust
Companies' Revolving Credit Facility.
(H) Represents adjustments for the purchase method of accounting to write off
the deferred tax assets and liabilities of La Quinta.
(I) Represents adjustments for the purchase method of accounting whereby the
tradename, assembled work force and customer reservation system of La Quinta
are adjusted to their estimated fair market values.
(J) Represents purchase consideration in excess of the fair market value of the
net assets of La Quinta.
(K) Represents additional borrowings assumed to be incurred in connection with
the Merger as follows:
<TABLE>
<S> <C>
Cash consideration for La Quinta shares .................................. $414,440
Assumed current and accumulated earnings and profits distribution ........ 325,000
Merger costs (see calculation above) ..................................... 216,000
--------
Total additional borrowings .............................................. $955,440
========
</TABLE>
(L) Represents adjustments to record the exchange of La Quinta common stock for
Paired Shares of The Meditrust Companies. Pursuant to the Merger Agreement, La
Quinta shareholders may elect to receive either (i) $26.00 cash per share of La
Quinta common stock; or (ii) Paired Shares, for which the Exchange Ratio, as
defined in the La Quinta Merger Agreement, is based upon the Meeting Date Price
of a Paired Share of The Meditrust Companies. For purposes of these statements,
the Meeting Date Price is assumed to be $32.00 and the earnings and profits
distribution is assumed to be $325,000. At December 31, 1997, there were 77,137
shares of La Quinta common stock outstanding. Assuming approximately 15,940
outstanding shares of La Quinta are exchanged for cash, the remaining 61,197
shares will be exchanged for 43,205 Paired Shares of The Meditrust Companies.
The change in common stock is summarized as follows:
<TABLE>
<S> <C>
Paired Shares issued in connection with the Merger ......... 43,205
Par value of each Paired Share ............................. $ 0.20
--------
Increase in common stock ................................... 8,641
Less: La Quinta historical common stock .................... (8,501)
--------
Adjustment to common stock ................................. $ 140
========
</TABLE>
(M) Represents adjustments to eliminate La Quinta's historical additional
paid-in-capital and record equity based upon the number of Paired Shares issued
in connection with the Merger as follows:
<TABLE>
<S> <C>
Consideration for La Quinta outstanding shares (61,197 shares of La Quinta common stock
for $24.33 per share in Paired Shares and earnings and profits distribution; 15,940 shares
for $26.00 cash per share) ............................................................... $1,903,363
Less: 15,940 shares of La Quinta common stock to be exchanged for cash ................... (414,440)
----------
Remaining consideration .................................................................. 1,488,923
Book value of La Quinta's additional paid-in-capital ..................................... (249,612)
Increase in common stock ................................................................. (8,641)
Adjustment to additional paid-in-capital ................................................. $1,230,670
==========
</TABLE>
(N) Represents adjustments to eliminate unearned officer's compensation and
treasury stock of La Quinta of $1,016 and $95,033, respectively.
(O) Represents adjustment to eliminate La Quinta's historical retained earnings
of $270,462.
93
<PAGE>
The Meditrust Companies Notes to Pro Forma Condensed Combined Balance Sheet as
of December 31, 1997
(In Thousands, Except Per Share Amounts)
(Unaudited)
(P) Represents adjustment to record the distribution of current and accumulated
earnings and profits, which is assumed to be $325,000, to the shareholders of
The Meditrust Companies after consummation of the Merger. The estimated
earnings and profits distribution has been presented as if the transaction had
been consummated based on the terms and assumptions set forth in the Merger
Agreement. For a discussion of the assumed amount of the earnings and profits
distribution, see "The Merger Agreement--Transaction Consideration."
Adjustments for the Cobblestone Transaction
(AA) Represents adjustments to record the merger between Meditrust and
Cobblestone. The merger will be accounted for using the purchase method of
accounting, based upon the estimated purchase price of $241,000, assuming an
exchange price of $32.00 per Paired Share of The Meditrust Companies, as
follows:
<TABLE>
<S> <C>
Issuance of 7,530 Paired Shares of The Meditrust Companies in exchange for 5,220
redeemable preferred shares at $8.25 per share and 1,722 common shares at
$114.94 per share ...................................................................... $241,000
Assumption of mortgage debt and other liabilities ........................................ 129,565
Merger costs (see calculation below) ..................................................... 45,000
--------
$415,565
========
</TABLE>
The following is a calculation of the estimated fees and other expenses related
to the Cobblestone Merger:
<TABLE>
<S> <C>
Buyout of stock options (113 options at an average strike price of $15.80) ....... $13,000
Estimated cash required for tender premium to retire outstanding Cobblestone debt 15,000
Employment and severance costs ................................................... 3,000
Advisory fees .................................................................... 10,000
Legal and accounting fees ........................................................ 3,000
Other, including printing and filing costs ....................................... 1,000
-------
$45,000
=======
</TABLE>
(BB) Represents adjustments for the purchase method of accounting whereby the
investment in Cobblestone golf properties is adjusted to its estimated fair
market value, as follows:
<TABLE>
<S> <C>
Purchase price of Cobblestone (see Note AA) ........................... $415,565
Less: pre-merger basis of Cobblestone real estate investments ......... 156,229
</TABLE>
Allocation of pro forma basis of Cobblestone to net assets acquired, as
follows:
<TABLE>
<S> <C>
Intangible assets .................................................... 11,000
Goodwill ............................................................. 168,164
Other assets ......................................................... 22,430
Other liabilities .................................................... (15,886)
-------
Subtotal ............................................................ 341,937
-------
Step-up to record fair value of Cobblestone's real estate investments $ 73,628
=========
</TABLE>
(CC) Represents adjustments for the purchase method of accounting to write off
certain intangible assets of Cobblestone of $3,611 and record the tradename,
assembled work force and other intangible assets of $11,000 acquired in the
Cobblestone Merger at their estimated fair market values.
(DD) Represents purchase consideration in excess of the fair market value of
the net assets of Cobblestone.
(EE) Represents additional borrowings assumed to be incurred in connection with
the Cobblestone Merger as follows:
<TABLE>
<S> <C>
Merger costs -- (see calculation above) ......... $45,000
=======
</TABLE>
94
<PAGE>
The Meditrust Companies Notes to Pro Forma Condensed Combined Balance Sheet as
of December 31, 1997
(In Thousands, Except Per Share Amounts)
(Unaudited)
(FF) Represents adjustment for the purchase method of accounting to write off
the deferred tax liability of Cobblestone.
(GG) Represents the exchange of 5,220 shares of redeemable preferred stock of
Cobblestone with a historical value of $42,241 for 1,346 Paired Shares of The
Meditrust Companies based on a redemption price of $8.25 per redeemable
preferred share and an assumed exchange price of $32.00 per Paired Share of The
Meditrust Companies.
(HH) Represents adjustments to record the exchange of redeemable preferred
stock and common stock of Cobblestone for Paired Shares. Pursuant to the
Cobblestone Merger Agreement, each share of outstanding Cobblestone common
stock will be converted into the right to receive Paired Shares based on the
Exchange Ratio, as defined in the Cobblestone Merger Agreement, and each share
of outstanding Cobblestone redeemable preferred stock will be converted into
$8.25 per share payable in cash, or Paired Shares. At the balance sheet date,
The Meditrust Companies will exchange 7,530 Paired Shares for 5,220 and 1,722
shares of redeemable preferred stock and common stock of Cobblestone,
respectively, based upon an assumed exchange price of $32.00.
The increase in common stock is summarized as follows:
<TABLE>
<S> <C>
Paired Shares issued in connection with the Cobblestone Merger ......... 7,531
Par value of each Paired Share ......................................... $ 0.20
------
Increase in common stock ............................................... 1,506
Less: Cobblestone's historical common stock ............................ (17)
------
Adjustment to common stock ............................................. $1,489
======
</TABLE>
(II) Represents adjustments to eliminate Cobblestone's historical additional
paid-in capital and record equity based upon the number of Paired Shares issued
in the Cobblestone Merger as follows:
<TABLE>
<S> <C>
Purchase consideration for outstanding shares of Cobblestone redeemable preferred stock
and common stock (5,220 redeemable preferred shares at $8.25 per share and 1,722 common
shares at $114.94 per share) ............................................................. $241,000
Book value of Cobblestone's additional paid-in-capital ................................... (5,389)
Increase in common stock ................................................................. (1,506)
--------
Adjustment to additional paid-in-capital ................................................. $234,105
========
</TABLE>
(JJ) Represents the adjustment to eliminate Cobblestone's historical retained
loss of $15,012.
Other Pro Forma Adjustments:
(AAA) Represents the issuance of 8,500 shares of Series A Non-Voting
Convertible Common Stock of The Meditrust Companies in a Forward Equity
Transaction, net of transaction costs, the proceeds of which will be used to
finance certain costs associated with the La Quinta/Cobblestone Mergers, and to
finance ongoing investments for healthcare financing transactions. For purposes
of these statements, the issuance price is assumed to be $32.625 per share and
each share has an effective dividend rate of LIBOR plus 75 basis points.
95
<PAGE>
THE MEDITRUST COMPANIES PRO FORMA CONDENSED COMBINED
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
The
Operating Meditrust
Meditrust Company Eliminating Companies
Pro Forma (A) Pro Forma (B) Entries Pro Forma
--------------- --------------- ------------------- ------------
<S> <C> <C> <C> <C>
(In thousands, except per share amounts)
Revenue:
Rental ............................................. $ 137,868 $ -- $ -- $137,868
Rent from Operating Company ........................ 280,270 -- (280,270)(C) --
Interest ........................................... 151,315 -- (193)(D) 151,122
Horse racing revenue ............................... -- 5,228 -- 5,228
Hotel revenue ...................................... -- 494,494 -- 494,494
Restaurant rent, food & beverage revenue ........... -- 21,158 -- 21,158
Golf club revenue .................................. -- 65,515 -- 65,515
Other .............................................. -- 3,480 -- 3,480
--------- -------- ----------- --------
Total revenue ..................................... 569,453 589,875 (280,463) 878,865
Expenses:
Interest expense ................................... 200,052 209 (193)(D) 200,068
Amortization of goodwill ........................... 31,536 135 -- 31,671
Depreciation, amortization & asset
retirements ...................................... 142,642 6,438 -- 149,080
General and administrative ......................... 10,111 22,413 -- 32,524
Rental expense due to Meditrust .................... -- 280,270 (280,270)(C) --
Horse racing operations ............................ -- 4,263 -- 4,263
Hotel and restaurant operations .................... -- 220,769 -- 220,769
Golf club operations ............................... -- 55,952 -- 55,952
Property operations ................................ 26,786 -- -- 26,786
Net gain on property transactions .................. -- (8,808) -- (8,808)
Partners' equity in earnings ....................... -- 860 -- 860
--------- -------- ----------- --------
Total expenses .................................... 411,127 582,501 (280,463) 713,165
--------- -------- ----------- --------
Income before income taxes .......................... 158,326 7,374 -- 165,700
Income tax provision ................................ -- 2,802 -- 2,802
--------- -------- ----------- --------
Income before extraordinary items ................... 158,326 4,572 -- 162,898
--------- -------- ----------- --------
Income allocated to Series A Non-Voting
Convertible Common Stock ......................... 17,590 -- -- 17,590
--------- -------- ----------- --------
Income available for Paired Common Shares ........... $ 140,736 $ 4,572 $ -- $145,308
========= ======== =========== ========
Basic earnings per share ............................ $ 1.11 $ 0.04 $ 1.15
Basic weighted average shares outstanding ........... 127,002 126,805 126,805
Diluted earnings per share .......................... $ 1.10 $ 0.04 $ 1.14
Diluted weighted average shares outstanding ......... 127,456 126,805 127,259
</TABLE>
See accompanying notes to the unaudited pro forma condensed combined statement
of operations.
96
<PAGE>
The Meditrust Companies Notes to Pro Forma Condensed Combined Statement of
Operations
for the Year Ended December 31, 1997
(In Thousands, Except Per Share Amounts)
(Unaudited)
(A) Represents the pro forma results of operations of Meditrust for the year
ended December 31, 1997 as adjusted for the Merger and the Cobblestone Merger.
(B) Represents the pro forma results of operations of Operating Company for the
year ended December 31, 1997 as adjusted for the Merger and the Cobblestone
Merger.
(C) Represents the elimination of rental income and expense related to the race
track, hotels and golf course properties leased by Operating Company from
Meditrust.
(D) Represents the elimination of interest income and expense related to the
operating note between Meditrust and Operating Company.
97
<PAGE>
MEDITRUST CORPORATION PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
La Quinta
Meditrust Merger
Historical (A) Adjustments (B)
---------------- -----------------
<S> <C> <C>
(In thousands, except per share amounts)
Revenue:
Rental ................................... $ 137,868 $ --
Rent from Operating Company .............. 740 258,010 (D)
Interest ................................. 151,315 --
--------- -----------
Total revenue ........................... 289,923 258,010
Expenses:
Interest expense ......................... 87,412 119,540 (E)
Amortization of goodwill ................. 2,214 20,914 (G)
Depreciation and amortization ............ 26,954 107,383 (H)
General and administrative ............... 10,111 --
Property operations ...................... 220 23,732 (I)
--------- -----------
Total expenses .......................... 126,911 271,569
--------- -----------
Income before extraordinary items ......... 163,012 (13,559)
--------- -----------
Income allocated to Series A
Non-Voting Convertible
Common Stock ........................... -- --
--------- -----------
Income available for Paired
Common Shares .......................... $ 163,012 $ (13,559)
========= ===========
Basic earnings per share .................. $ 2.14
Basic weighted average shares
outstanding ............................ 76,267
Diluted earnings per share ................ $ 2.12
Diluted weighted average shares
outstanding .............................. 76,721
<CAPTION>
Cobblestone Other
Merger Pro Forma Meditrust
Adjustments (C) Adjustments Pro Forma
----------------- -------------------- -------------
<S> <C> <C> <C>
(In thousands, except per share amounts)
Revenue:
Rental ................................... $ -- $ -- $ 137,868
Rent from Operating Company .............. 21,520 (D) -- 280,270
Interest ................................. -- -- 151,315
---------- ------------ ---------
Total revenue ........................... 21,520 -- 569,453
Expenses:
Interest expense ......................... 13,500 (F) (20,400) (J) 200,052
Amortization of goodwill ................. 8,408 (G) -- 31,536
Depreciation and amortization ............ 8,305 (H) -- 142,642
General and administrative ............... -- -- 10,111
Property operations ...................... 2,834 (I) -- 26,786
---------- ------------ ---------
Total expenses .......................... 33,047 (20,400) 411,127
---------- ------------ ---------
Income before extraordinary items ......... (11,527) 20,400 158,326
---------- ------------ ---------
Income allocated to Series A
Non-Voting Convertible
Common Stock ........................... -- 17,590 (K) 17,590
---------- ------------ ---------
Income available for Paired
Common Shares .......................... $ (11,527) $ 2,810 $ 140,736
========== ============ =========
Basic earnings per share .................. $ 1.11
Basic weighted average shares
outstanding ............................ 127,002
Diluted earnings per share ................ $ 1.10
Diluted weighted average shares
outstanding .............................. 127,456
</TABLE>
See accompanying notes to the unaudited pro forma condensed consolidated
statement of operations.
.
98
<PAGE>
Meditrust Corporation Notes to Pro Forma Condensed Consolidated Statement of
Operations
for the Year Ended December 31, 1997
(In Thousands, Except Per Share Amounts)
(Unaudited)
(A) Represents the historical statement of operations of Meditrust for the year
ended December 31, 1997.
(B) Represents adjustments to Meditrust's results of operations assuming the
Merger had occurred as of January 1, 1997.
(C) Represents adjustments to Meditrust's results of operations assuming the
Cobblestone Merger had occurred as of January 1, 1997.
(D) Represents the pro forma lease revenue from Operating Company to Meditrust
for the use of assets that Meditrust will have ownership of subsequent to the
La Quinta/Cobblestone Mergers. The respective lease revenue is calculated based
upon the historical revenue and expenses of the assets for the period
presented.
(E) Represents adjustments to historical interest expense of Meditrust based on
the Merger as follows:
<TABLE>
<S> <C>
Reclassification of historical interest expense from Operating Company ................ $ 49,186
Adjustment to reflect the increase in interest expense as a result of additional
borrowings of $955,440 at an assumed rate of 7.5% partially offset by the effect
of refinancing the existing La Quinta $120,000 9.25% Senior Subordinated Notes from
an effective rate of 9.58% to 7.5% ................................................... 69,354
Amortization of additional deferred loan costs ........................................ 1,000
--------
Adjustment to interest expense ........................................................ $119,540
========
</TABLE>
(F) Represents adjustments to historical interest expense of Meditrust based on
the Cobblestone Merger as follows:
<TABLE>
<S> <C>
Reclassification of historical interest expense from Operating Company ................ $ 15,273
Adjustment to reflect the net decrease in interest expense as a result of
additional borrowings of $45,000 and refinancing the existing debt at 7.5% .......... (1,773)
--------
Adjustment to interest expense ........................................................ $ 13,500
========
</TABLE>
(G) Represents adjustments to reflect amortization of goodwill of $20,914 and
$8,408 pertaining to the mergers with La Quinta and Cobblestone, respectively.
Goodwill represents purchase consideration in excess of the fair market value
of the net assets of La Quinta and Cobblestone. Amortization of goodwill is
computed using the straight line method over a 20 year estimated useful life.
(H) Represents adjustment to increase depreciation of real estate and
personalty and amortization of intangible assets acquired. Depreciation is
computed using the straight line method and is based upon the estimated useful
lives of 30 years for buildings and improvements, 20 years for land
improvements and 5 to 7 years for personal property. Amortization of the
tradename asset is computed using the straight line method over a 20 year
estimated life. Intangible assets for the assembled work force and customer
reservation system are amortized on a straight line basis over a 3 year
estimated life. These estimates are based upon management's knowledge of the
properties and the hotel and golf course industries in general.
(I) Represents adjustment to reclassify property tax and insurance expenses
related to the ownership of real estate assets from Operating Company to
Meditrust Corporation.
(J) Represents adjustments to interest expense based upon the reduction in
additional borrowings assumed to be incurred in connection with the La
Quinta/Cobblestone Mergers, effected through the receipt of approximately
$272,000 from the issuance of 8,500 shares of Series A Non-Voting Convertible
Common Stock in a Forward Equity Transaction.
Interest expense on additional borrowings under The Meditrust Companies'
Revolving Credit Facility assumes an average interest rate of 7.5%. An increase
of 25 basis points in the interest rate on this variable rate debt would
increase pro forma interest expense by $2,121, decrease net income to $138,728
and decrease basic earnings per share by $0.02 based upon 138,728 basic weighted
average common shares outstanding.
(K) Represents the adjustments to record dividends allocable to the holders of
Series A Non-Voting Convertible Common Stock, assuming a dividend rate of LIBOR
plus 75 basis points.
99
<PAGE>
MEDITRUST OPERATING COMPANY PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Operating
Company La Quinta Cobblestone
(Historical)(A) (Historical)(B) (Historical)(C)
----------------- ----------------- -----------------
<S> <C> <C> <C>
(In thousands, except per share amounts)
Revenue:
Horse racing revenue ...................... $ 5,228 $ -- $ --
Hotel revenue ............................. -- 494,494 --
Restaurant rent, food & beverage
revenue .................................. -- 8,075 13,083
Golf club revenue ......................... -- -- 65,515
Other ..................................... 137 -- 3,343
------- -------- --------
Total revenue ............................ 5,365 502,569 81,941
Expenses:
Interest expense .......................... 209 49,186 15,273
Amortization of goodwill .................. 135 -- --
Depreciation, amortization & asset
retirements .............................. 171 60,817 8,909
General and administrative ................ 447 18,524 4,030
Rent expense due to Meditrust ............. 740 -- --
Horse racing operations ................... 4,263 -- --
Hotel operations .......................... -- 244,501 --
Golf club operations ...................... -- -- 58,786
Net gain on property transactions ......... -- (8,808) --
Partners' equity in earnings .............. -- 860 --
------- -------- --------
Total expenses ........................... 5,965 365,080 86,998
------- -------- --------
(Loss) income before income taxes .......... (600) 137,489 (5,057)
Income tax provision ....................... -- 50,185 49
------- -------- --------
(Loss) income before extraordinary
items .................................... $ (600) $ 87,304 $ (5,106)
======= ======== ========
Basic earnings per share ................... $ (0.01)
Basic weighted average shares
outstanding ............................... 76,070
Diluted earnings per share ................. $ (0.01)
Diluted weighted average shares
outstanding ............................... 76,070
<CAPTION>
La Quinta Cobblestone Total Operating
Pro Forma Pro Forma Pro Forma Company
Adjustments(D) Adjustments(E) Adjustments Pro Forma
------------------ ------------------ ------------- -----------
<S> <C> <C> <C> <C>
(In thousands, except per share amounts)
Revenue:
Horse racing revenue ...................... $ -- $ -- $ -- $ 5,228
Hotel revenue ............................. -- -- -- 494,494
Restaurant rent, food & beverage
revenue .................................. -- -- -- 21,158
Golf club revenue ......................... -- -- -- 65,515
Other ..................................... -- -- -- 3,480
----------- ----------- ---------- ---------
Total revenue ............................ -- -- -- 589,875
Expenses:
Interest expense .......................... (49,186)(F) (15,273)(F) (64,459) 209
Amortization of goodwill .................. -- -- -- 135
Depreciation, amortization & asset
retirements .............................. (58,592)(F) (4,867)(F) (63,459) 6,438
General and administrative ................ -- (588)(I) (588) 22,413
Rent expense due to Meditrust ............. 258,010 (G) 21,520 (G) 279,530 280,270
Horse racing operations ................... -- -- -- 4,263
Hotel operations .......................... (23,732)(F) -- (23,732) 220,769
Golf club operations ...................... -- (2,834)(F) (2,834) 55,952
Net gain on property transactions ......... -- -- -- (8,808)
Partners' equity in earnings .............. -- -- -- 860
----------- ----------- ---------- ---------
Total expenses ........................... 126,500 (2,042) 124,458 582,501
----------- ----------- ---------- ---------
(Loss) income before income taxes .......... (126,500) 2,042 (124,458) 7,374
Income tax provision ....................... (47,432)(H) -- (47,432) 2,802
----------- ----------- ---------- ---------
(Loss) income before extraordinary
items .................................... $ (79,068) $ 2,042 $ (77,026) $ 4,572
=========== =========== ========== =========
Basic earnings per share ................... $ 0.04
Basic weighted average shares
outstanding ............................... 126,805
Diluted earnings per share ................. $ 0.04
Diluted weighted average shares
outstanding ............................... 126,805
</TABLE>
See accompanying notes to the unaudited pro forma condensed consolidated
statement of operations.
100
<PAGE>
Meditrust Operating Company Notes to Pro Forma Condensed Consolidated Statement
of Operations
For the Year Ended December 31, 1997
(In Thousands, Except Per Share Amounts)
(Unaudited)
(A) Represents the historical statement of operations of Operating Company for
the period ended December 31, 1997.
(B) Represents the historical statement of operations of La Quinta for the year
ended December 31, 1997.
(C) Represents the historical statement of operations of Cobblestone for the
year ended September 30, 1997.
(D) Represents adjustments to Operating Company's results of operations
assuming the Merger had occurred as of January 1, 1997.
(E) Represents adjustments to Operating Company's results of operations
assuming the Cobblestone Merger had occurred as of January 1, 1997.
(F) Represents the adjustment to reclassify interest, depreciation and
amortization, property taxes and insurance expenses related to the ownership of
real estate assets from Operating Company to Meditrust.
(G) Represents the pro forma lease expense of Operating Company for the use of
assets that Meditrust will have ownership of subsequent to the La
Quinta/Cobblestone mergers. The respective lease expense is calculated based
upon the historical revenue and expenses of the assets for the periods
presented.
(H) Represents the adjustment to La Quinta's income tax provisions necessitated
by the impact to taxable income from the effects of the Merger.
(I) Represents the adjustment to eliminate semi-annual investment banking and
service fees to an affiliate of the majority shareholder of Cobblestone.
101
<PAGE>
THE MEDITRUST COMPANIES SELECTED FINANCIAL DATA
(in thousands, except per share amounts)
The following table presents selected financial information with respect
to The Meditrust Companies for the five years ended December 31, 1997. This
financial information has been derived from audited financial statements
included or incorporated by reference from The Meditrust Companies' Form 10-K
for the fiscal years ended December 31, 1993 through December 31, 1997 and
should be read in conjunction with such financial statements and the
accompanying footnotes. See "Where You Can Find More Information."
<TABLE>
<CAPTION>
For the Year Ended December 31,
---------------------------------------------------------------------
1997 1996 1995 1994 1993
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue ............................................. $ 294,355 $ 254,024 $ 209,369 $ 172,993 $ 150,375
Expenses:
Interest expense ................................... 87,428 64,216 64,163 67,479 62,193
Depreciation and amortization ...................... 27,125 23,207 18,176 17,171 16,277
General and administrative expenses ................ 10,558 8,625 7,058 7,883 8,269
Other operating expenses ........................... 6,832 -- -- -- --
--------- --------- --------- --------- ---------
Total expenses ...................................... 131,943 96,048 89,397 92,533 86,739
--------- --------- --------- --------- ---------
Net income before extraordinary item ................ 162,412 157,976 119,972 80,460 63,636
Loss on prepayment of debt .......................... -- -- 33,454 -- --
--------- --------- --------- --------- ---------
Net income .......................................... $ 162,412 $ 157,976 $ 86,518 $ 80,460 $ 63,636
========= ========= ========= ========= =========
PER SHARE DATA:
Basic earnings per Paired Common Share
Net income before extraordinary items ............... $ 2.14 $ 2.21 $ 2.10 $ 2.28 $ 2.03
Loss on prepayment of debt .......................... -- -- 0.59 -- --
--------- --------- --------- --------- ---------
Basic earnings per Paired Common Share .............. $ 2.14 $ 2.21 $ 1.51 $ 2.28 $ 2.03
========= ========= ========= ========= =========
Diluted earnings per Paired Common Share
Net income before extraordinary items ............... $ 2.12 $ 2.20 $ 2.09 $ 1.89 $ 1.68
Loss on prepayment of debt .......................... -- -- 0.58 -- --
--------- --------- --------- --------- ---------
Diluted earnings per Paired Common Share ............ $ 2.12 $ 2.20 $ 1.51 $ 1.89 $ 1.68
========= ========= ========= ========= =========
Distributions paid .................................. $ 2.38 $ 2.31 $ 2.25 $ 2.18 $ 2.11
Book value .......................................... $ 20.72 $ 22.57 $ 20.75 $ 19.44 $ 17.84
Basic weighted average shares outstanding ........... 76,070 71,445 57,151 35,314 31,310
Diluted weighted average shares outstanding ......... 76,524 71,751 57,457 42,564 37,840
CASH FLOW DATA:
Cash provided by operating activities ............... $ 184,412 $ 188,551 $ 149,997 $ 100,819 $ 79,291
Cash used in investing activities ................... 571,325 437,150 310,135 284,996 208,649
Cash provided by financing activities ............... 387,919 247,077 164,449 207,808 120,806
</TABLE>
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------------------
1997 1996 1995 1994 1993
------------- ------------- ------------- ------------- -------------
(in thousands)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Real estate investments, net ......... $2,935,772 $2,188,078 $1,777,798 $1,484,229 $1,214,308
Total assets ......................... $3,323,891 $2,316,875 $1,891,852 $1,595,130 $1,310,401
Indebtedness, net .................... $1,377,438 $ 858,760 $ 762,291 $ 765,752 $ 658,245
Total liabilities .................... $1,498,152 $ 931,934 $ 830,097 $ 824,983 $ 724,606
Total shareholders' equity ........... $1,825,739 $1,384,941 $1,061,755 $ 770,147 $ 585,795
</TABLE>
102
<PAGE>
LA QUINTA SELECTED FINANCIAL DATA
(in thousands, except per share amounts and hotel statistics)
The following table sets forth certain combined financial information of
La Quinta, its wholly-owned subsidiaries, its combined unincorporated
partnerships and joint ventures and is qualified in its entirety by, and should
be read in conjunction with, "Management's Discussion and Analysis of Financial
Condition and Results of Operations" incorporated by reference into this Joint
Proxy Statement/Prospectus, the combined financial statements and the notes
thereto incorporated by reference into this Joint Proxy Statement/Prospectus
and other financial, pro forma and statistical information included or
incorporated by reference in this Joint Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------------------------------
1997 1996 1995 1994 1993
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Total revenues ..................................... $ 502,569 $ 443,059 $ 413,919 $ 362,242 $ 271,850
Operating income (1) ............................... 178,727 139,690 132,663 110,757 75,367
Net earnings available to shareholders (2) ......... 87,266 60,195 4,293 37,815 20,301
Basic earnings per share available to
shareholders (3) ................................. $ 1.13 $ 0.77 $ 0.06 $ 0.55 $ 0.30
Basic weighted average number of shares
outstanding ...................................... 77,426 77,736 74,360 68,914 68,105
Diluted earnings per share available to
shareholders (3) ................................. $ 1.09 $ 0.74 $ 0.06 $ 0.52 $ 0.29
Diluted weighted average number of shares
outstanding ...................................... 80,160 80,961 77,991 72,983 71,212
Number of hotels (4) ............................... 267 248 237 226 220
Occupancy percentage ............................... 69.4 % 68.9 % 70.8 % 70.1 % 65.1 %
Average daily room rate ............................ $ 56.83 $ 53.83 $ 51.07 $ 47.65 $ 46.36
BALANCE SHEET DATA
Total assets ....................................... $1,502,024 $1,199,800 $964,115 $845,781 $749,495
Total shareholders' equity ......................... 432,526 365,576 331,713 189,231 149,057
Current installments of long-term debt ............. 29,400 33,299 13,322 39,976 22,491
Long-term debt, excluding current
installments ..................................... 872,285 659,369 518,416 448,258 414,004
Partners' capital .................................. $ 2,667 $ 3,293 $ 6,309 $ 92,099 $ 85,976
</TABLE>
- ----------------
1) Operating income includes a provision for premature retirement of assets
related to the La Quinta's Gold Medal[RegTM] rooms program of
approximately $18,076 and $12,630 in 1996 and 1995, respectively.
Operating income in 1993 includes a charge of approximately $4,407 to
record compensation expense related to certain performance stock options.
2) Net earnings available to shareholders in 1995 includes a non-recurring,
non-cash charge of approximately $46,304 related to the conversion of
partner's interest into common stock.
3) Basic earnings per share reflects the earnings available to each share of
common stock outstanding during the reporting period. Diluted earnings per
share reflects the earnings available to each share of common stock
outstanding during the reporting period and to each share that would have
been outstanding assuming the issuance of common shares for all dilutive
potential common shares outstanding during the reporting period. All
earnings per share disclosures have been restated to give effect to La
Quinta's stock splits effected in the form of stock dividends.
4) As of December 31, 1997, La Quinta owned and operated 265 hotels through
wholly-owned subsidiaries and partnerships, one hotel through an
unincorporated partnership and one hotel through an unincorporated joint
venture.
103
<PAGE>
DESCRIPTION OF CAPITAL STOCK OF THE MEDITRUST COMPANIES
Authorized Capital Stock
Each of The Meditrust Companies' authorized capital stock consists of
270,000,000 shares of common stock, par value $.10 per share, 30,000,000 shares
of series common stock, par value $.10 per share, 10,000,000 shares of which
have been designated as Series A Stock and 6,000,000 shares of preferred stock,
par value $.10 per share. The Board of Directors of each company is authorized,
without further shareholder approval, to issue the preferred stock from time to
time in one or more series, and to determine the provisions applicable to each
series, including the number of shares, dividend rights, dividend rate,
conversion rights, voting rights, rights and terms of redemption (including
sinking fund provisions), redemption price or prices, and liquidation
preferences. Such preferred shares may be subject to the pairing agreement
described below.
The Meditrust Companies Paired Shares are traded on the NYSE under the
ticker symbol "MT." As of April 22, 1998 there were issued and outstanding
shares of Meditrust common stock, shares of Operating
Company common stock and 8,500,000 shares of Series A Stock. No shares of
preferred stock were issued and outstanding.
Common Stock
Subject to provisions of law and the preferences of any series of
preferred stock which may be issued, holders of the Paired Shares are entitled
to receive dividends at times and in amounts as are declared from time to time
by The Meditrust Board of Directors or the Operating Company Board of Directors
out of funds legally available for dividends. To maintain eligibility as a
REIT, Meditrust must in general distribute to its shareholders at least 95% of
its "real estate investment trust taxable income" before deduction of dividends
paid (less any net long-term capital gain and certain other adjustments). See
"Federal Income Tax Consideration -- Effects of Compliance with REIT
Requirements."
Holders of Paired Shares are entitled to one vote for each share held on
each matter submitted to a shareholder vote. Except as otherwise provided by
law, or by the certificates of incorporation or by resolutions of the Board of
Directors providing for the issuance of any series of preferred stock, the
holders of the Paired Shares of common stock of each company have sole voting
power.
Series Common Stock
Series common stock may be issued from time to time in one or more series.
The Boards of Directors of The Meditrust Companies are authorized to fix or
alter the dividend rights, dividend rate, conversion rights, voting rights,
rights and terms of redemption (including sinking fund provisions), the
redemption price or prices, and the liquidation preferences of any wholly
unissued series of series common stock and the number of shares constituting
any such series and the designation thereof, or all or any of them.
Series A Non-Voting Convertible Common Stock
Meditrust and Operating Company have each designated 10,000,000 shares of
series common stock as Series A Stock. The holders of Series A Stock shall have
the same rights and privileges as the holders of common stock including
dividend and liquidation rights except that they have no right to vote. The
Series A Stock will convert into common stock on the earlier of (i) the next
business day after Meditrust and Operating Company shareholders approve the
Merger or (ii) termination of the Merger Agreement. The Series A Stock is
subject to the pairing agreement, as amended, between Meditrust and Operating
Company.
Preferred Stock
Each of the Meditrust Board of Directors and the Operating Company Board
of Directors is authorized to issue shares of preferred stock in one or more
series, to establish the number of shares in each series and to fix the
designation, powers, preferences and rights of each such series and the
qualifications, limitations or restrictions thereof. Because each of the
Meditrust board and the Operating Company board has the power to establish the
preferences and rights of each class or series of preferred stock, each such
board may afford the shareholders of any series or class of preferred stock
preferences, powers and rights, voting or otherwise, senior to the rights of
holders of shares of Meditrust common
104
<PAGE>
stock or Operating Company common stock, respectively. The issuance of shares
of preferred stock could have the effect of delaying or preventing a change in
control of The Meditrust Companies. See "Comparison of Shareholder
Rights -- Anti-Takeover Provisions of The Meditrust Companies -- Shareholder
Rights Plan."
Rights Agreement
Meditrust has distributed to each holder of Meditrust common stock, and
has authorized, with respect to each additional share of Meditrust common stock
that shall become outstanding between the date of such distribution and the
earliest of the distribution date, the expiration date or the date, if any, on
which rights may be redeemed, the distribution of one right for each share of
Meditrust common stock. Each right entitles the registered holder to purchase
from Meditrust, initially, one one-hundredth of a share of junior participating
preferred stock at a price of $100, subject to adjustment. The description and
terms of the rights are set forth in a rights agreement among Meditrust,
Operating Company and State Street Bank and Trust Company, as rights agent,
dated as of June 15, 1989.
Junior preferred stock purchasable upon exercise of the rights will be
entitled to dividends of 100 times the dividends per share declared on
Meditrust common stock and, in the event of liquidation, will be entitled to a
minimum preferential liquidating distribution of $100 per share and an
aggregate liquidating distribution per share of 100 times the distribution made
with respect to each share of Meditrust common stock. Each share of the junior
participating preferred stock is entitled to 100 votes on all matters submitted
to a vote of shareholders. The junior participating preferred stock will vote
together with Meditrust common stock and in the event of any merger,
consolidation or other transaction in which Meditrust common stock is
exchanged, each share of junior participating preferred stock will be entitled
to receive 100 times the amount received per share of Meditrust common stock.
Because of the voting, dividend and liquidation rights of the junior
participating preferred stock, the value when issued of the one one-hundredth
interest in a share of junior participating preferred stock purchasable upon
exercise of each right should approximate the value of one share of Meditrust
common stock.
Until the earlier to occur of: (i) 10 business days following a public
announcement that an acquiring person has acquired beneficial ownership of 10%
or more of Meditrust's general voting power other than pursuant to a qualified
offer (as defined below), the date of such public announcement being called the
"stock acquisition date," or (ii) 10 business days (or such later date as may
be determined by action of the Board of Directors) following the commencement
of, or announcement of an intention to make, a tender offer or exchange offer
the consummation of which would result in the beneficial ownership by a person
or group of 10% or more of Meditrust's general voting power (the date of such
earlier occurrence being called the "distribution date"), the rights will be
evidenced by the certificates representing Meditrust common stock and will be
transferred with and only with Meditrust common stock. The surrender for
transfer of any certificate for Meditrust common stock will also constitute the
transfer of the rights associated with the Meditrust common stock represented
by such certificate. As soon as practicable following the distribution date,
separate certificates evidencing the rights will be mailed to holders of record
of Meditrust common stock as of the close of business on the distribution date
and such separate right certificates alone will evidence the rights.
The rights are not exercisable until the distribution date. The rights
will expire on August 31, 1999 unless the expiration date is extended or unless
the rights are earlier redeemed or exchanged by Meditrust, as described below.
The purchase price payable, the number of shares or other securities or
property issuable upon exercise of the rights, and the number of outstanding
rights, are subject to adjustment from time to time to prevent dilution (i) in
the event of a stock dividend on, or a subdivision, combination or
reclassification of, junior participating preferred stock, (ii) upon the grant
to holders of Meditrust common stock or junior participating preferred stock of
certain rights or warrants to subscribe for Meditrust common stock or junior
participating preferred stock at a price, or securities convertible into
Meditrust common stock or junior participating preferred stock with a
conversion price, less than the then current per share market price, or (iii)
upon the distribution to holders of Meditrust common stock or junior
participating preferred stock of evidences of indebtedness or assets (excluding
regular periodic cash dividends paid out of earnings or retained earnings or
dividends payable on Meditrust common stock) or of subscription rights or
warrants (other than those referred to above).
A qualified offer is a tender offer or exchange offer for all outstanding
Meditrust common stock which is determined by a majority of the independent
directors to be adequate and otherwise in the best interests of Meditrust and
its shareholders.
If any person becomes an acquiring person other than by a purchase
pursuant to a qualified offer, each holder of a right, other than rights
beneficially owned by the acquiring person (which will not be entitled to the
benefit of
105
<PAGE>
such adjustment), will thereafter have the right to receive upon exercise that
number of shares of Meditrust common stock or Meditrust common stock
equivalents having a market value of two times the exercise price of the right.
Such an adjustment will also be made in the event that (i) an acquiring person
merges with or otherwise consolidates or combines with Meditrust in a
transaction in which Meditrust is the surviving corporation, (ii) an acquiring
person engages in one or more self-dealing transactions specified in the rights
agreement, or (iii) during such time as there is an acquiring person, an event
specified in the rights agreement occurs which results in the acquiring
person's ownership interest in Meditrust being increased by more than 1%.
In the event that, at any time after an acquiring person has become such,
Meditrust is acquired in a merger or other business combination transaction
(other than a merger which follows a qualified offer at the same or a higher
price) or 50% or more of its consolidated assets or earning power are sold,
each holder of a right (other than an acquiring person) will thereafter have
the right to receive, upon the exercise thereof at the then current exercise
price of the right, that number of shares of common stock of the acquiring
company which at the time of such transaction will have a market value of two
times the exercise price of the right.
At any time after an acquiring person has become such, the Meditrust Board
of Directors may exchange the rights (other than rights owned by such person or
group), in whole or in part, at an exchange ratio of one share of Meditrust
common stock per right (subject to adjustment).
The rights agreement provides that, during such time as the pairing
agreement shall remain in effect, Operating Company will issue, on a share for
share basis, Operating Company common stock or, as the case may be, Operating
Company junior participating preferred stock to each person receiving Meditrust
common stock or junior participating preferred stock upon exercise of or in
exchange for one or more rights.
With certain exceptions, no adjustments in the purchase price will be
required until cumulative adjustments require an adjustment of at least 1% in
such purchase price. No fractional shares will be issued and, in lieu thereof,
an adjustment in cash will be made based on the market price of Meditrust
common stock or junior participating preferred stock, as the case may be, on
the last trading day prior to the date of exercise.
Up to and including the tenth business day after a stock acquisition date,
the Meditrust Board of Directors may redeem the rights in whole, but not in
part, at a price of $.001 per right. The redemption of the rights may be made
effective at such time on such basis and with such conditions as the Board of
Directors in its sole discretion may establish. Immediately upon any redemption
of the rights, the right to exercise the rights will terminate and the only
right of the holders of rights will be to receive $.001 per right.
The terms of the rights may be amended by the Meditrust Board of Directors
without the consent of the holders of the rights at any time prior to the
distribution date. Thereafter the rights may be amended to make changes which
do not adversely affect the interests of the holders of the rights, or which
shorten or lengthen time periods, subject to certain limitations set forth in
the rights agreement.
Until a right is exercised, the holder thereof, as such, will have no
rights as a Meditrust shareholder, including, without limitation, the right to
vote or to receive dividends. See "Comparison of Shareholder
Rights -- Anti-Takeover Provisions of The Meditrust Companies -- Shareholder
Rights Plan."
The Pairing
Pursuant to a pairing agreement by and between Meditrust and Operating
Company, dated as of December 20, 1979, as amended, the shares of capital stock
of Meditrust and Operating Company are transferable and tradeable only in
combination as units, each unit consisting of one share of Meditrust stock and
one share of Operating Company stock. These restrictions on the transfer of
shares of Meditrust stock and Operating Company stock are imposed by The
Meditrust Companies' By-laws. The pairing is evidenced by "back-to-back" stock
certificates; that is, certificates evidencing shares of Operating Company
stock are printed on the reverse side of certificates evidencing shares of
Meditrust stock. The certificates bear a legend referring to the restrictions
on transfer imposed by The Meditrust Companies' By-laws. To permit proper
allocation of the consideration received in connection with the sale of Paired
Shares, the pairing agreement provides that Meditrust and Operating Company
shall, as decided from time to time but not less than once a year, jointly make
arrangements to determine the relative value of the stock of each company.
106
<PAGE>
Restrictions on Transfers
Under the Code, Meditrust may not own, directly or indirectly, after
application of the attribution rules of the Code, 10% or more of the
outstanding shares of Operating Company common stock, if Meditrust is to
qualify as a REIT. Moreover, Meditrust common stock must be held by 100 or more
shareholders and 50% or more of the Meditrust common stock may not be held by
or for five or fewer individuals. The by-laws of The Meditrust Companies
provide that if a shareholder obtained or obtains any ownership interest which
is not in conformity with the requirements of the Code pertaining to a REIT,
the Board of Directors of Meditrust or Operating Company may call for the
purchase from such shareholder of such number of shares sufficient to reduce
his or her holdings to conform to the requirements of the Code. The purchase
price for the shares called for purchase shall be equal to the fair market
value of such shares as reflected in the closing price for such shares on the
principal stock exchange on which such shares are listed, or if such shares are
not listed, then the last bid quotation for shares of such stock as of the
close of business on the date fixed by the relevant Board of Directors for such
purchase. In addition, any transfer of shares which would cause a shareholder
to own, as determined under the provisions of the Code, such an amount of the
outstanding voting power or total number of outstanding shares as would cause
Meditrust not to be in conformance with the requirements of the Code shall be
void; or, if such provision is determined to be invalid, the transferee of such
shares shall be deemed to have acted as agent on behalf of Meditrust or
Operating Company, as applicable in acquiring such shares and to hold such
shares on behalf of Meditrust or Operating Company, as applicable. See "Federal
Income Tax Considerations -- Effects of Compliance with REIT Requirements."
Registrar and Transfer Agent
The Meditrust Companies' Registrar and Transfer Agent is BankBoston, N.A.
COMPARISON OF SHAREHOLDER RIGHTS
General
La Quinta is incorporated under the laws of the State of Texas and The
Meditrust Companies are incorporated under the laws of the State of Delaware.
If the Merger is consummated, the holders of La Quinta common stock, whose
rights as shareholders are currently governed by the Texas Business Corporation
Act (the "TBCA") and the La Quinta amended and restated articles of
incorporation ("La Quinta's Articles ") and the amended and restated by-laws (
"La Quinta's By-laws"), will, at the Effective Time, become holders of Paired
Shares. As holders of Paired Shares their rights will be governed by the
Delaware General Corporation Law (the "DGCL") and The Meditrust Companies'
amended and restated certificates of incorporation (the "Meditrust Companies'
Certificates of Incorporation") and amended and restated by-laws (the
"Meditrust Companies' By-laws").
Summarized below are the material differences between the rights of
holders of La Quinta common stock and the rights of holders of Paired Shares.
The summary is not a complete statement of the rights of holders of Paired
Shares under the DGCL, The Meditrust Companies' Certificates of Incorporation
and Meditrust Companies' By-laws or a comprehensive comparison with the rights
of the holders of La Quinta common stock under the TBCA, La Quinta's Articles
and La Quinta's By-laws, or a complete description of the specific provisions
referred to herein. This summary contains a list of the material differences
but is not an exhaustive list or a detailed description of the provisions
discussed and is qualified in its entirety by reference to the DGCL and the
governing corporate instruments of The Meditrust Companies, and to the TBCA and
the governing corporate instruments of La Quinta. The holders of The Meditrust
Companies and La Quinta common stock should refer to those documents. Copies of
the governing corporate instruments of The Meditrust Companies and La Quinta
are available, without charge, by following the instructions listed under
"Where You Can Find More Information."
Authorized Capital Stock
La Quinta. La Quinta's authorized capital stock consists of 200,000,000
shares of common stock, par value $.10 per share.
The Meditrust Companies. Each of The Meditrust Companies' authorized
capital stock consists of 270,000,000 shares of common stock, par value $.10
per share, 30,000,000 shares of series common stock, par value $.10 per share,
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of which 10,000,000 shares have been designated as "Series A Non-Voting
Convertible Common Stock," and 6,000,000 shares of preferred stock, par value
$.10 per share. As of April 22, 1998 there were no shares of preferred stock
outstanding.
Shareholder Voting
La Quinta. Each share of La Quinta's common stock entitles the shareholder
to one vote per share on each matter submitted to shareholders, including the
election of directors. Under the TBCA and La Quinta's By-laws, shareholder
approval for most matters requires the affirmative vote of a majority of shares
entitled to vote on, and which vote or abstain with respect to a matter, at a
shareholder meeting at which a quorum is present. However, the TBCA requires
that amendments to a corporation's articles of incorporation, mergers,
combinations and sales or all or substantially all of the assets outside the
usual and regular course of business or the dissolution of the corporation be
approved by a higher percentage of the outstanding shares entitled to vote.
Directors are elected by a plurality of votes cast in person or by proxy by the
holders of shares entitled to vote in the election of directors at a
shareholder meeting at which a quorum is present. Cumulative voting for
directors is not allowed under La Quinta's Articles.
The Meditrust Companies. Each Paired Share entitles the holder to one vote
per share on each matter submitted to the respective company's shareholders.
Directors are elected by a plurality of shares voting in person or by proxy and
entitled to vote at a shareholder meeting at which a quorum is present.
Cumulative voting for directors is not allowed. Under the DGCL and The
Meditrust Companies' By-laws, shareholder approval for most matters requires
the affirmative vote of a majority of the shares present and entitled to vote,
represented in person or by proxy, at a meeting at which a quorum is present.
The DGCL requires a higher vote for sales or leases of all or substantially all
of a corporation's assets, mergers, consolidations and certain other
transactions (as set forth in the DGCL) between a corporation and an interested
shareholder (as defined in the DGCL).
Authorized but unissued classes or series shares of stock will entitle the
holder to the voting rights which are specified in the certificates of
designation establishing such shares.
Special Meetings of Shareholders
La Quinta. La Quinta's By-laws provide that a special meeting of the
shareholders may be called by either the Chairman of the Board, the Board of
Directors, the president or by the holders of at least 10% of the shares
outstanding and entitled to vote at such meeting.
The Meditrust Companies. The Meditrust Companies' By-laws provide that a
special meeting of the shareholders may be only called by the Boards of
Directors.
Directors
La Quinta. La Quinta's Articles provide that the number of directors is
six. These directors serve until the next annual meeting of shareholders, or
until their successors are elected and qualified. La Quinta's Articles do not
provide for a classified Board of Directors.
The Meditrust Companies. The Meditrust Companies' By-laws provide that the
number of directors constituting the Boards of Directors is ten, or that a
different number may be established by resolution of the Boards of Directors.
Under the DGCL, a corporation's certificate of incorporation or by-laws may
provide that directors be elected in one, two or three classes whose terms
expire at different times, provided that no single term may exceed three years.
The Meditrust Companies' Boards of Directors are classified into three classes
of approximately equal size, with one class to be elected for a three-year term
at each annual meeting of the shareholders. This type of classified or
"staggered" board may have the effect of delaying a change in control of the
Meditrust Companies or the removal of the incumbent management.
Removal of Directors
La Quinta. La Quinta's By-laws provide that any director or directors may
be removed, but only for cause, by the affirmative vote of a majority of the
outstanding shares entitled to vote at a special meeting called expressly for
the purpose of removing a director.
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The Meditrust Companies. Pursuant to the DGCL, unless the certificate of
incorporation provides otherwise, if the board is classified as described
above, the directors may be removed only for cause by the holders of a majority
of the shares then entitled to vote at an election of directors. The Meditrust
Companies' Certificates of Incorporation and By-laws do not contain any
provision relating to the removal of directors.
Vacancies on the Board of Directors
La Quinta. La Quinta's By-laws provide that any vacancy occurring in the
Board of Directors or any directorship to be filled because of an increase in
the authorized number of directors may be filled by the affirmative vote of a
majority of the remaining directors, although less than a quorum. However,
under the TBCA, the director's power to fill vacancies due to an increase in
the authorized number of directors is limited to two directorships during any
period between consecutive annual meetings. Any director appointed to fill a
vacancy shall hold office for the unexpired term of his predecessor. Under La
Quinta's By-laws, any vacancy created by the removal of a director or directors
by a shareholder vote shall be filled by the shareholders at a special meeting,
which can be the same meeting at which the shareholders removed the
director(s).
The Meditrust Companies. The Meditrust Companies' By-laws provide that
vacancies in each Board of Directors may be filled by the majority vote of the
remaining members of that Board of Directors, although less than a quorum. Each
director elected to fill a vacancy shall hold office for the unexpired term of
his predecessor.
Amendment to Articles/Certificates of Incorporation
La Quinta. The TBCA provides that amendments to a corporation's articles
of incorporation must be adopted by the Board of Directors and approved by the
affirmative vote of two-thirds of the shares entitled to vote.
The Meditrust Companies. The DGCL provides that amendments to a
corporation's certificate of incorporation must be approved by the Board of
Directors and by the affirmative vote of the holders of at least a majority of
the outstanding shares entitled to vote. Currently, the amendment or repeal of
Article Tenth of The Meditrust Companies' Certificates of Incorporation (which
authorizes a classified board) requires an affirmative vote of 80% of all
issued and outstanding shares entitled to vote.
Amendment to By-laws
La Quinta. La Quinta's Articles provide that its By-laws may be amended or
repealed by the Board of Directors, LaQuinta's By-laws provide that the By-laws
may be amended or repealed by the Board of Directors at any meeting or by the
shareholders at any meeting.
The Meditrust Companies. Except for Section 7.5 of Meditrust's By-laws and
Section 6.5 of Operating Company's By-laws (relating to restrictions on stock
transfer and ownership to ensure compliance with the REIT provisions) which
require an 80% affirmative vote of outstanding shares entitled to vote, The
Meditrust Companies' By-laws may be amended, altered or repealed by the Boards
of Directors. Currently, The Meditrust Companies' By-laws may be altered,
amended or repealed by shareholders only by the affirmative vote of 80% of all
issued and outstanding shares entitled to vote.
Mergers and Other Fundamental Transactions
La Quinta. The TBCA requires that a merger, consolidation, sale of all or
substantially all of the assets outside the usual and regular course of
business or dissolution of a corporation be approved by the board of directors
and by the holders of at least two-thirds of the outstanding shares entitled to
vote. Under La Quinta's By-laws, in the case of a merger, the board of
directors may pass a resolution requiring shareholder approval of greater than
two-thirds affirmative vote of the outstanding shares entitled to vote.
Furthermore, subject to certain exceptions, the Texas Business Combination
Law places a three year moratorium on business combinations between
publicly-held companies and affiliated shareholders unless (i) the Board of
Directors approves the business combination or (ii) two-thirds of the
outstanding non-affiliated shares approve the business combination.
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The Meditrust Companies. Under the DGCL, transactions such as mergers,
consolidations, sales of substantially all of the assets or dissolution of a
corporation generally must be approved by the holders of at least a majority of
all outstanding shares entitled to vote, unless the certificate of
incorporation requires approval by a greater number of shares.
However, the ability of The Meditrust Companies to merge with or be
acquired by another corporation is limited by the DGCL. Under the DGCL, with
certain exceptions, a publicly-held corporation may not engage, in a business
combination with an interested shareholder (as defined below) for a period of
three years following the time of the transaction in which the person became an
interested shareholder. Subject to certain exceptions, the DGCL defines an
interested shareholder as a person who, together with affiliates and
associates, owns, or within three years did own, 15% or more of the
corporation's voting stock. The DGCL permits the corporation, by vote of the
holders of at least a majority of the shares entitled to vote, to adopt an
amendment to its certificate of incorporation or by-laws expressly electing not
to be governed by the provision restricting business combinations with
interested shareholders (The Meditrust Companies have not adopted such an
amendment).
Anti-Takeover Provisions of The Meditrust Companies
La Quinta. Neither La Quinta's Articles nor La Quinta's By-laws contain
any specific anti-takeover provisions.
The Meditrust Companies.
Business Combination Provisions. The Meditrust Companies' Certificates
of Incorporation restrict certain "business combinations" (as defined
below) with interested shareholders (the "Business Combination
Provisions"). An interested shareholder for the purposes of the Business
Combination Provision includes any person or entity who is, together with
its affiliates and associates, the beneficial owner of more than 10% of the
voting stock of the corporation. This Business Combination Provision
provides that business combinations with interested shareholders (without
regard to the length of time a shareholder has been an interested
shareholder) may not be consummated without:
(a) the affirmative vote of the holders of 80% of all issued and
outstanding shares entitled to vote in the election of directors;
(b) if less than 90% of the shares approve the business combination,
affirmative approval by a majority of the combined voting power of
the then outstanding shares entitled to vote held by persons who are
not interested shareholders.
The Business Combination Provision does not apply to business
combinations approved by a majority of the directors unaffiliated with the
interested shareholder and elected prior to such an interested shareholder
becoming an interested shareholder or if certain price and procedural
requirements are met. A "business combination" includes:
(a) a merger or consolidation;
(b) the sale or disposition of assets by either of The Meditrust
Companies having an aggregate fair market value of $5,000,000 or
more;
(c) the issuance of stock by either of The Meditrust Companies having a
fair market value of $5,000,000 or more;
(d) the adoption of a plan of liquidation or dissolution proposed by or
on behalf of an interested shareholder; and
(e) any merger, consolidation, reclassification or recapitalization which
increases the proportionate shareholdings of an interested
shareholder.
Shareholder Rights Plan. In addition, Meditrust adopted a shareholder
rights plan as of June 1989 (the "Rights Plan"). The Rights Plan operates
so that there is attached to each outstanding share of Meditrust common
stock one right which entitles the holder to purchase from Meditrust,
initially, one one-hundredth (1/100) of a share of junior participating
preferred stock having economic and voting rights equivalent to one share
of Meditrust common stock, at a price of $100, subject to adjustment. No
separate right certificates have been distributed.
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The Rights Plan becomes effective upon a person becoming an acquiring
person or the occurrence of certain other specified events involving the
acquiring person or upon a business combination involving an acquiring
person where Meditrust is not the surviving corporation. When effective,
each holder of a right, other than the acquiring person, would be entitled
to purchase shares of Meditrust common stock, or an acquiring corporation's
common stock, having a market value of two times the exercise price of the
right. Operating Company will issue, on a share-for-share basis, shares of
common stock or shares of Operating Company junior participating preferred
stock to each person receiving shares of Meditrust common stock or
preferred stock upon exercise or in exchange for one or more rights. At any
time after a person or group has become an acquiring person, The Meditrust
Companies Boards of Directors of may exchange the rights not owned by the
acquiring person, in whole or in part, at an exchange ratio of one share of
The Meditrust Companies' common stock per right, subject to adjustment. The
Meditrust Companies are entitled to redeem the rights in whole, but not in
part, at a price of $.001 per right prior to the earlier of the expiration
of the rights on August 31, 1999 or the close of business ten days after
the announcement that a person has become an Acquiring Person. See
"Description of Capital Stock of The Meditrust Companies -- Rights
Agreement."
The higher percentage of shareholder approval required for a business
combination with interested shareholders under the DGCL and The Meditrust
Companies' Certificates of Incorporation in combination with the Rights
Plan may make it more difficult for a person or entity to acquire control
of The Meditrust Companies.
Appraisal/Dissenter's Rights
La Quinta. Under the TBCA, shareholders who dissent from certain mergers
have the right to demand an appraisal of the fair value of their shares.
However, under the TBCA shareholders of publicly traded corporations have no
appraisal rights if they are not required to receive merger consideration other
than publicly traded stock of the surviving corporation and if they are not
treated differently than other shareholders of the same class of stock. Under
the terms of the Merger Agreement, La Quinta shareholders will not have any
appraisal rights.
The Meditrust Companies. Under the DGCL, no appraisal rights are granted
to shareholders who dissent from a sale, lease or exchange of all or
substantially all of the assets of a corporation. The DGCL further provides
that generally no appraisal rights are granted to shareholders who dissent from
a merger or consolidation for which a shareholder vote is required and the
shares of the class of stock voting are listed on a national securities
exchange or NASDAQ or held of record by more than 2,000 shareholders. However,
shareholders will have appraisal rights if they are required in connection with
the merger or consolidation to accept for their stock anything other than:
(a) stock of the corporation surviving or resulting from the merger or
consolidation;
(b) stock of any other corporation listed on a national securities exchange
or designated as a national market system security on an interdealer
quotation system by the NASD or held of record by more than 2,000
shareholders;
(c) cash in lieu of fractional shares; or
(d) any combination of (a), (b) and (c) above.
The shares of The Meditrust Companies are traded on a national securities
exchange, the NYSE.
Restrictions on Ownership
The Meditrust Companies' By-laws provide that if a shareholder obtains any
ownership interest which would cause Meditrust to fail to conform with the
requirements of the Code pertaining to a REIT, the Boards of Directors of The
Meditrust Companies may call for the purchase from that shareholder of the
number of shares sufficient to reduce his holdings to conform to the
requirements of the Code. Meditrust may refuse to register the transfer of
shares to any person whose acquisition of such shares would result in Meditrust
being unable to conform to the REIT requirements of the Code. If any
shareholder accumulates sufficient shares which may cause Meditrust to be
disqualified as a REIT, The Meditrust Companies will redeem that shareholder's
common stock so as to conform to the REIT requirements. For further information
see "Description of Capital Stock of The Meditrust Companies -- Restrictions on
Transfers."
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Indemnification of Directors and Officers
La Quinta. La Quinta's Articles, La Quinta's By-laws and indemnification
agreements entered into with its officers and directors indemnify directors and
officers to the maximum extent allowed by the TBCA. La Quinta must indemnify to
the maximum extent permitted by applicable law any director or officer (former
or present) who was, is, or is threatened to be made a named defendant or
respondent in any litigation or proceeding. In addition, the right to
indemnification conferred by La Quinta's By-laws does not restrict the power of
La Quinta to make any other type of indemnification permitted by law.
The Meditrust Companies. The Meditrust Companies' Certificates of
Incorporation and By-laws provide that The Meditrust Companies shall indemnify,
to the fullest extent permitted by law, any person made or threatened to be
made a party to an action or proceeding by reason of the fact that such person
is or was a director or officer of The Meditrust Companies, including for
breaches of fiduciary duty. The DGCL allows indemnification for expenses
(including attorneys' fees) incurred in the defense or settlement of a
derivative action (a suit brought on behalf of the corporation). However, with
respect to officers and directors, there must be a determination by a majority
vote of disinterested directors or a disinterested directors committee,
independent legal counsel or a majority vote of the shareholders that the
person seeking indemnification acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
corporation. No indemnification may be made with respect to any matter in which
the person seeking indemnification has been adjudged liable in the performance
of his duty to the corporation without court approval.
In non-derivative actions, the DGCL permits, in addition to
indemnification against expenses, indemnification against judgments, fines and
amounts paid in settlement, upon a determination made with respect to officers
and directors, in the manner described above, that the person seeking
indemnification acted in a manner he or she reasonably believed to be in or not
opposed to the best interests of the corporation and, with respect to any
criminal proceeding, that such person had no reasonable cause to believe his or
her conduct was unlawful.
OTHER MATTERS
As of the date of this Joint Proxy Statement/Prospectus, The Meditrust
Companies Boards of Directors know of no matters that will be presented for
consideration at the meetings other than as described in this Joint Proxy
Statement/Prospectus. If any other matters shall properly come before the
Meditrust Meeting or Operating Company Meeting and be voted upon, the enclosed
proxies will be deemed to confer discretionary authority on the individuals
named as proxies therein to vote the shares represented by such proxies as to
any such matters. The persons named as proxies intend to vote or not to vote in
accordance with the recommendation of the management of Meditrust or Operating
Company, as the case may be.
As of the date of this Joint Proxy Statement/Prospectus, the Board of
Directors of La Quinta knows of no matters that will be presented for
consideration at the meeting other than as described in this Joint Proxy
Statement/Prospectus. If any other matters shall properly come before the La
Quinta Meeting and be voted upon, the enclosed proxies will be deemed to confer
discretionary authority on the individuals named as proxies therein to vote the
shares represented by such proxies as to any such matters. The persons named as
proxies intend to vote or not to vote in accordance with the recommendation of
the management of La Quinta.
LEGAL MATTERS
The validity of the Paired Shares to be issued in connection with the
Merger will be passed upon by Goodwin, Procter & Hoar LLP, counsel to The
Meditrust Companies.
Goodwin, Procter & Hoar LLP, counsel for The Meditrust Companies, will
pass on certain federal income tax consequences of the Merger for The Meditrust
Companies and the shareholders of The Meditrust Companies and Latham & Watkins,
Los Angeles, California, counsel for La Quinta, will pass on certain federal
income tax consequences of the Merger for La Quinta.
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EXPERTS
The combined and consolidated financial statements of Meditrust Corporation
and Meditrust Operating Company and the consolidated financial statements of
Meditrust Corporation as of December 31, 1997 and 1996, and for the years ended
December 31, 1997, 1996 and 1995, and the consolidated financial statements of
Meditrust Operating Company as of December 31, 1997 and for the initial period
ended December 31, 1997 incorporated by reference in this registration
statement, to the extent and for the periods indicated in their report, have
been audited by Coopers & Lybrand L.L.P., independent accountants, and are
included herein in reliance upon the authority of such firm as experts in
accounting and auditing.
The combined financial statements of La Quinta, as of December 31, 1997
and 1996, and for each of the years in the three-year period ended December 31,
1997, have been incorporated in this Joint Proxy Statement/Prospectus by
reference from La Quinta's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997, in reliance upon the reports of KPMG Peat Marwick LLP,
independent certified public accountants, incorporated by reference herein, and
upon the authority of said firm as experts in accounting and auditing.
The consolidated financial statements of The Santa Anita Companies at
December 31, 1995 and 1996 and for each of the three years in the period ended
December 31, 1996 incorporated in this Joint Proxy Statement/Prospectus and
Registration Statement by reference to The Santa Anita Companies Form 10-K have
been audited by Ernst & Young LLP, independent accountants, as set forth in
their report thereon included therein and incorporated herein by reference. The
financial statements of Anita Associates and the consolidated financial
statements of H-T Associates, both incorporated by reference in this Joint
Proxy Statement/Prospectus and Registration Statement by reference to The Santa
Anita Companies Form 10-K, have been audited by KPMG Peat Marwick LLP,
independent accountants, as set forth in their reports thereon included therein
and incorporated herein by reference. The report of KPMG Peat Marwick LLP on
H-T Associates, dated February 10, 1997, contains an explanatory paragraph that
states that the partnership's primary subsidiary is in technical default on its
notes payable at December 31, 1996. As such, those notes were callable at the
lender's discretion. This technical default raised substantial doubt about the
partnership's ability to continue as a going concern. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty. See the financial statements of H-T Associates
incorporated by reference into The Santa Anita Companies Form 10-K. Such
financial statements are incorporated herein in reliance upon such reports
given upon the authority of such firms as experts in accounting and auditing.
FUTURE SHAREHOLDER PROPOSALS
Any Meditrust or Operating Company shareholder who intends to submit a
proposal for inclusion in the proxy materials for the 1998 annual meetings of
Meditrust or Operating Company must have submitted such proposal in writing to
the respective Secretary of Meditrust or Operating Company by November 8, 1997,
if the proposal is to be considered for inclusion in the Joint Proxy Statement
of Meditrust and Operating Company and the form of proxy relating to those
meetings. The Meditrust Companies' By-laws include advance notice and other
requirements regarding proposals for shareholder action at shareholders'
meetings other than those proposed by the Boards of Directors. A copy of the
By-laws of either Meditrust or Operating Company may be obtained by written
request addressed to the respective secretary at the address set forth in "The
Meetings -- The Meditrust and Operating Company Meetings."
La Quinta does not intend to hold an annual meeting of shareholders
because of the pending Merger. If the Merger is not consummated following the
satisfaction of all closing conditions, La Quinta will then promptly hold an
annual meeting of shareholders.
SEC rules set forth standards as to what shareholder proposals are
required to be included in a proxy statement for an annual meeting.
WHERE YOU CAN FIND MORE INFORMATION
The Meditrust Companies and La Quinta file annual, quarterly and special
reports, proxy statements and other information with the SEC. You may read and
copy any reports, statements or other information we file at the SEC's public
reference rooms in Washington, D.C., New York, New York and Chicago, Illinois.
Please call the SEC at 1-800-SEC-0330 for further information on the public
reference rooms. Our SEC filings are also available to the public from
commercial document retrieval services and at the web site maintained by the
SEC at a "http://www.sec.gov." The Meditrust Companies SEC filings are also
available through their website at "http://www.reit.com." or by contacting
their Investor Relations Departments at the addresses and phone numbers listed
below. La Quinta's SEC filings are also available by contacting its Investor
Relations Department at the address and phone number listed below.
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The Meditrust Companies have filed a Registration Statement on Form S-4 to
register with the SEC the Paired Shares to be issued to the shareholders of La
Quinta in the merger. This Joint Proxy Statement/Prospectus is a part of that
Registration Statement and constitutes a prospectus of The Meditrust Companies
in addition to being a proxy statement of The Meditrust Companies and La Quinta
for the shareholder meetings. As allowed by SEC rules, this Joint Proxy
Statement/Prospectus does not contain all the information you can find in the
Registration Statement or the exhibits to the Registration Statement.
The SEC allows us to "incorporate by reference" information into this
Joint Proxy Statement/Prospectus, which means that we can disclose important
information to you by referring you to another document filed separately with
the SEC. The information incorporated by reference is deemed to be part of this
Joint Proxy Statement/Prospectus, except for any information superseded by
information in this Joint Proxy Statement/Prospectus. This Joint Proxy
Statement/Prospectus incorporates by reference the documents set forth below
that we have previously filed with the SEC. These documents contain important
information about our companies and their finances.
<TABLE>
<S> <C>
Meditrust (File No. 1-09582) Period
- --------------------------------------------------------------- --------------------------------------------------
Year ended December 31, 1996
Annual Report on Form 10-K ................................
Quarterly Report on Form 10-Q ............................. Quarter ended March 31, 1997
Quarterly Report on Form 10-Q ............................. Quarter ended June 30, 1997
Current Reports on Form 8-K ............................... Event date January 31, 1997, event date April 13,
1997 and event date July 30, 1997
</TABLE>
<TABLE>
<CAPTION>
Meditrust and Operating Company (File Nos. 1-08131 and 1-08132) Period
- ----------------------------------------------------------------- -------------------------------------------------
<S> <C>
Joint Quarterly Report on Form 10-Q ......................... Quarter ended September 30, 1997
Joint Current Report on Form 8-K ............................ Event date November 5, 1997
Joint Current Reports on Form 8-K ........................... Event date January 3, 1998
Joint Current Report on Form 8-K ............................ Event date January 4, 1998
Joint Current Report on Form 8-K ............................ Event date January 11, 1998
Joint Current Report on Form 8-K ............................ Event date January 11, 1998
Joint Current Report on Form 8-K ............................ Event date February 24, 1998
Joint Current Report on Form 8-K ............................ Event date February 26, 1998
Santa Anita Realty Enterprises, Inc. and
Santa Anita Operating Company (File Nos. 1-08131 and 1-08132) Period
- ----------------------------------------------------------------- -------------------------------------------------
Joint Annual Report on Form 10-K, as amended by
amendments on Form 10-K/A ................................ Fiscal year ended December 31, 1996
Joint Quarterly Report on Form 10-Q ......................... Quarter ended March 31, 1997
Joint Quarterly Report on Form 10-Q ......................... Quarter ended June 30, 1997
Joint Current Reports on Form 8-K ........................... Event date January 7, 1997, event date April 13,
1997, and event date October 2, 1997
</TABLE>
<TABLE>
<CAPTION>
La Quinta SEC Filing (File No. 1-7790) Period
- ----------------------------------------------------------------- -----------------------------------------------
<S> <C>
Annual Report on Form 10-K .................................. Year ended December 31, 1997
</TABLE>
We are also incorporating by reference additional documents that we will
file with the SEC between the date of this Joint Proxy Statement/Prospectus and
the dates of the meetings of our shareholders.
The Meditrust Companies have supplied all information contained or
incorporated by reference in this Joint Proxy Statement/Prospectus relating to
The Meditrust Companies, and La Quinta has supplied all such information
relating to La Quinta.
If you are a shareholder, we may have sent you some of the documents
incorporated by reference, but you can obtain any of them through us or the
SEC. Documents incorporated by reference are available from us without charge,
excluding all exhibits unless we have specifically incorporated by reference an
exhibit in this Joint Proxy Statement/ Prospectus. Shareholders may obtain
documents incorporated by reference in this Joint Proxy Statement/Prospectus by
requesting them in writing or by telephone from the appropriate party at the
following address:
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Meditrust Corporation 197 First Avenue, Suite 300
Needham, MA 02194
Attn: Investor Relations
Tel: (781) 433-6000
Meditrust Operating Company
197 First Avenue, Suite 100
Needham, MA 02194
Attn: Investor Relations
Tel: (781) 453-8062
La Quinta Inns, Inc.
P. O. Box 2636
San Antonio, TX 78299-2636
Attn: Investor Relations
Tel: (210) 302-6000
If you would like to request documents from us, please do so by
, 1998 to receive them before the meetings.
You should rely only on the information contained or incorporated by
reference in this Joint Proxy Statement/Prospectus to vote on The Meditrust
Companies' proposals and the La Quinta merger proposal. We have not authorized
anyone to provide you with information that is different from what is contained
in this Joint Proxy Statement/Prospectus. This Joint Proxy Statement/Prospectus
is dated April , 1998. You should not assume that the information contained
in this Joint Proxy Statement/Prospectus is accurate as of any date other than
such date, and neither the mailing of this Joint Proxy Statement/Prospectus to
shareholders nor the issuance of Paired Shares in the Merger shall create any
implication to the contrary.
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ANNEX A
AGREEMENT AND PLAN OF MERGER
dated as of January 3, 1998
by and among
LA QUINTA INNS, INC.
a Texas corporation,
MEDITRUST CORPORATION
a Delaware corporation,
and
MEDITRUST OPERATING COMPANY
a Delaware corporation
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TABLE OF CONTENTS
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I. THE MERGER
1.01 The Merger .......................................................................... A-2
1.02 Closing ............................................................................. A-2
1.03 Effective Time ...................................................................... A-2
1.04 Effects of the Merger ............................................................... A-3
1.05 Certificate of Incorporation and Bylaws ............................................. A-3
1.06 Boards, Committees and Officers ..................................................... A-3
1.07 Subscription Agreement .............................................................. A-3
1.08 Subscribed Shares ................................................................... A-3
1.09 Reservation of Right to Revise Transaction .......................................... A-3
1.10 Distribution of Earnings and Profits ................................................ A-3
II. EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS;
EXCHANGE OF CERTIFICATES
2.01 Effect on Capital Stock ............................................................. A-4
2.02 Exchange of Certificates ............................................................ A-6
2.03 Company Stock Plans ................................................................. A-8
III. REPRESENTATIONS AND WARRANTIES
3.01 Representations and Warranties of the Company ....................................... A-9
3.02 Representations and Warranties of RECO and OPCO ..................................... A-17
IV. COVENANTS RELATING TO CONDUCT OF BUSINESS
4.01 Conduct of Business ................................................................. A-26
4.02 No Solicitation ..................................................................... A-29
4.03 The Company's Accumulated and Current Earnings and Profits .......................... A-30
V. ADDITIONAL COVENANTS
5.01 Preparation of the Form S-4 and the Joint Proxy Statement; Shareholders Meetings .... A-30
5.02 Access to Information; Confidentiality .............................................. A-31
5.03 Regulatory Filings .................................................................. A-31
5.04 Reasonable Efforts and Cooperation .................................................. A-32
5.05 Employee Benefit Matters ............................................................ A-32
5.06 Fees and Expenses ................................................................... A-33
5.07 Public Announcements ................................................................ A-35
5.08 Affiliates; Etc ..................................................................... A-35
5.09 Listing of Paired Shares. ........................................................... A-35
5.10 Shareholder Litigation .............................................................. A-35
5.11 Tax Treatment ....................................................................... A-35
5.12 Indemnification, Exculpation and Insurance .......................................... A-35
5.13 Ownership Restrictions .............................................................. A-36
5.14 Termination of Stock Purchase Plan .................................................. A-36
5.15 Private Letter Ruling ............................................................... A-36
5.16 Reorganization ...................................................................... A-37
5.17 Retirement of Debt .................................................................. A-37
5.18 Consents ............................................................................ A-37
VI. CONDITIONS PRECEDENT
6.01 Conditions to Each Party's Obligation To Effect the Merger .......................... A-37
6.02 Conditions to Obligations of RECO and OPCO .......................................... A-38
6.03 Conditions to Obligation of the Company ............................................. A-39
6.04 Frustration of Closing Conditions ................................................... A-39
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VII. TERMINATION, AMENDMENT AND WAIVER
7.01 Termination ........................................................................ A-39
7.02 Effect of Termination .............................................................. A-40
7.03 Amendment .......................................................................... A-40
7.04 Extension; Waiver .................................................................. A-40
7.05 Procedure for Termination, Amendment, Extension or Waiver .......................... A-40
VIII. GENERAL PROVISIONS
8.01 Nonsurvival of Representations and Warranties ................. .................... A-41
8.02 Notices ............................................................................ A-41
8.03 Certain Definitions ................................................................ A-41
8.04 Interpretation ..................................................................... A-42
8.05 Counterparts ....................................................................... A-42
8.06 Entire Agreement; No Third-Party Beneficiaries ..................................... A-42
8.07 Governing Law ...................................................................... A-42
8.08 Assignment ......................................................................... A-42
8.09 Enforcement ........................................................................ A-42
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INDEX OF DEFINED TERMS
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1984 Option Plan ............................ 2.03(a)
Adjusted E&P Distribution ................... 2.01(d)
Affected Employees .......................... 5.05(b)
Alternative Transaction ..................... 5.06(b)
Applicable Amount ........................... 2.03(d)
Articles of Merger .......................... 1.03
Assumed Option .............................. 2.03(c)
Awards ...................................... 2.03(a)
Benefit Plans ............................... 3.02(a)
Cash Consideration .......................... 2.01(c)
Certificate ................................. 2.01(b)
Closing ..................................... 1.02
Closing Date ................................ 1.02
Code ........................................ Preamble
Company ..................................... Preamble
Company Benefit Plans ....................... 3.01(p)
Company Common Stock ........................ Preamble
Company MAE ................................. 3.01(a)
Company/OPCO Subscription Agreement ......... 1.07
Company Properties .......................... 3.01(q)
Company SEC Documents ....................... 3.01(e)
Company Shareholder Approval ................ 3.01(i)
Company Shareholder Meeting ................. 5.01(b)
Company Stock Options ....................... 3.01(c)
Company Stock Plans ......................... 2.03(a)
Company Takeover Proposal ................... 4.02
Company Termination Fee ..................... 5.06(b)
Development Properties ...................... 4.01(a)
DGCL ........................................ 1.01
DOJ ......................................... 5.03(a)
E&P ......................................... 3.01(o)
E&P Distribution ............................ 1.10
Effective Time .............................. 1.03
Electing Share .............................. 2.01(c)
Election Deadline ........................... 2.10(e)
Encumbrances ................................ 3.01(q)
Environmental Laws .......................... 3.01(e)
Equity Participation Plan ................... 2.03(a)
ERISA ....................................... 3.01(p)
Escrow Agent ................................ 5.06(b)
Escrow Agreement ............................ 5.06(b)
Excess Shares ............................... 2.02(e)
Exchange Act ................................ 3.01
Exchange Agent .............................. 2.02(a)
Exchange Fund ............................... 2.02(a)
Exchange Ratio .............................. 2.01(d)
Form of Election ............................ 2.01(e)
Form S-4 .................................... .3.01(f)
Former Employees ............................ 5.05(c)
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FTC .......................................... 5.03(a)
Governmental Entity .......................... 3.01(d)
Hazardous Materials .......................... 3.01(v)
HSR Act ...................................... 3.01(d)
Incentive Plan Award ......................... 2.03(a)
Incurrence ................................... 4.01(b)
Intellectual Property Rights ................. 3.01 (w)
IRS .......................................... 3.01(o)
Joint Proxy Statement ........................ 3.01(d)
Law .......................................... 3.01(d)
Liens ........................................ 3.01(b)
Maximum Cash Consideration Per Share ......... 2.01(c)
Maximum Cash Shares .......................... 2.01(f)
Measurement Date ............................. 2.01(d)
Meeting Price Date ........................... 2.01(d)
Merger Consideration ......................... 2.01(d)
Merger ....................................... Preamble
Merrill Lynch ................................ 3.01(k)
Non-Electing Share ........................... 2.01(d)
NYSE ......................................... Preamble
OPCO ......................................... Preamble
OPCO Common Stock ............................ Preamble
OPCO Preferred Stock ......................... 3.02(c)
OPCO Series Stock ............................ 3.02(c)
Option ....................................... 2.03(a)
Order ........................................ 3.01(d)
Other Interests .............................. 3.01(r)
Paired Shares ................................ Preamble
Principle Shareholders ....................... Preamble
Private Transaction .......................... 5.06(b)
Property Restrictions ........................ 3.01(q)
REA Agreement ................................ 3.01(q)
RECO ......................................... Preamble
RECO Common Stock ............................ Preamble
RECO Companies ............................... Preamble
RECO Disclosure Schedules .................... 3.02
RECO Employee Stock Option ................... 3.02(c)
RECO MAE ..................................... .3.02(a)
RECO/OPCO Shareholder Meetings ............... 5.01(c)
RECO/OPCO Shareholder Approvals .............. 3.02(i)
RECO Owned Properties ........................ 3.02(v)
RECO Plans ................................... 5.05(a)
RECO Preferred Stock ......................... 3.02(c)
RECO SEC Documents ........................... 3.02(e)
RECO Series Stock ............................ 3.02(c)
RECO Stock Plans ............................. 3.02(c)
Regular RECO Quarterly Dividends ............. 3.02(g)
REIT Requirements ............................ 3.02 (a)
Representation Date .......................... 3.01(c)
Restricted Shares ............................ 2.03(a)
Salomon Smith Barney ......................... 3.02(j)
Santa Anita .................................. .3.02
SEC .......................................... 3.01(d)
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Securities Act .............................. 3.01(e)
Shareholders Agreement ...................... Preamble
Shares ...................................... 2.01
Shares Trust ................................ 2.02(e)
Significant Environmental Liability ......... 3.01(v)
Stock Consideration ......................... 2.01(d)
Subscribed Shares ........................... 1.07
Surviving Corporation ....................... 1.01
Taxes ....................................... 3.01(o)
TBCA ........................................ 1.01
Termination Notice .......................... 2.01(d)
Third Party ................................. 5.06(b)
Total Cash Consideration .................... 2.01(f)
Trading Day ................................. 2.01(d)
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of January 3, 1998, among La Quinta
Inns, Inc., a Texas corporation (the "Company"), Meditrust Corporation, a
Delaware corporation ("RECO"), and Meditrust Operating Company, a Delaware
corporation ("OPCO" and, together with RECO, the "RECO Companies").
RECITALS
A. The respective Boards of Directors of RECO, OPCO and the Company have
each determined that it is advisable and in the best interests of their
respective stockholders to consummate, and have therefore approved, the
business combination transaction provided for herein in which the Company would
merge with and into RECO, and wherein each issued and outstanding share of
Common Stock, par value $0.10 per share, of the Company ("Company Common
Stock") not owned directly or indirectly by RECO, OPCO or the Company will be
converted into the right to receive the Merger Consideration (as herein
defined) on the terms and subject to the conditions of this Agreement (the
"Merger");
B. The parties desire to make certain representations, warranties and
covenants in connection with the Merger and to prescribe various conditions to
the Merger;
C. For federal income tax purposes, it is intended that the Merger will
qualify as a reorganization under the provisions of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code");
D. Contemporaneously with the execution of this Agreement, the Company,
RECO and certain other Persons (such other Persons, collectively, the
"Principal Shareholders") have entered into a Shareholders Agreement (the
"Shareholders Agreement") pursuant to which the Principal Shareholders have
agreed, among other things, to refrain from taking certain actions and RECO,
OPCO and the Principal Shareholders have agreed, among other things, to take
certain actions on the terms and subject to the conditions set forth in the
Shareholders Agreement; and
E. The shares of common stock, par value $.10 per share, of RECO (the
"RECO Common Stock") and the shares of common stock, par value $.10 per share,
of OPCO (the "OPCO Common Stock") are paired and transferable and traded only
in combination as a single unit (the "Paired Shares") on the New York Stock
Exchange (the "NYSE").
NOW, THEREFORE, in consideration of the representations, warranties and
covenants contained in this Agreement, the parties agree as follows:
I. THE MERGER
1.01 The Merger. On the terms and subject to the conditions set forth in
this Agreement, and in accordance with the Texas Business Corporation Act (the
"TBCA") and the Delaware General Corporation Law (the "DGCL"), the Company will
be merged with and into RECO at the Effective Time. Following the Effective
Time (as defined below), RECO will be the surviving corporation in the Merger
(the "Surviving Corporation") and will succeed to and assume all the rights and
obligations of the Company in accordance with the TBCA and the DGCL.
1.02 Closing. The closing of the Merger (the "Closing") will take place at
10:00 a.m. on a date to be specified by the parties (the "Closing Date"), which
(subject to satisfaction or waiver of the conditions set forth in Article VI)
will be no later than the second business day after satisfaction or waiver of
the conditions set forth in Article VI, unless another time or date is agreed
to by the parties hereto. The Closing will be held at the offices of Goodwin,
Procter & Hoar LLP, Exchange Place, Boston, Massachusetts, unless another place
is agreed to in writing by the parties hereto.
1.03 Effective Time. Subject to the provisions of this Agreement, as soon
as practicable on or after the Closing Date, the parties will file articles or
a certificate of merger or other appropriate documents (the "Articles of
Merger") executed in accordance with the relevant provisions of the TBCA and
the DGCL and will make all other filings or recordings required under the TBCA
and the DGCL in order to effect the Merger. The Merger will become effective at
such time as the Articles of Merger have been duly filed with the Texas
Secretary of State and the Secretary of State of Delaware and the certificate
of merger has been issued by the Texas Secretary of State, or at such
subsequent date
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or time as RECO and the Company agree and specify in the Articles of Merger
(the time the Merger becomes effective being herein referred to as the
"Effective Time").
1.04 Effects of the Merger. The Merger will have the effects set forth in
Article 5.06 of the TBCA and Section 259 of the DGCL.
1.05 Certificate of Incorporation and Bylaws.
(a) The Certificate of Incorporation, as amended, of RECO in effect
immediately prior to the Effective Time will be the certificate of
incorporation of the Surviving Corporation until thereafter changed or amended
as provided therein or by Law (as herein defined).
(b) The Bylaws, as amended, of RECO in effect immediately prior to the
Effective Time will be the bylaws of the Surviving Corporation until thereafter
changed or amended as provided therein or by applicable Law.
1.06 Boards, Committees and Officers. The individuals serving as the
members of the Board of Directors, committees of the Board of Directors
(including chairmen thereof) and officers of RECO as of the Effective Time will
serve as such for the Surviving Corporation until the earlier of the
resignation or removal of any such individual or until their respective
successors are duly elected and qualified, as the case may be.
1.07 Subscription Agreement. Immediately prior to the Closing, the
Company, OPCO and RECO will enter into a contract in the form previously agreed
to or as such contract may be changed by the parties hereto (the "Company/ OPCO
Subscription Agreement") pursuant to which consistent with this Agreement the
Company will pay for, and OPCO will issue directly to the shareholders of the
Company as part of the consideration to be paid to such shareholders in the
Merger, a number of shares (the "Subscribed Shares") of OPCO Common Stock equal
to the number of shares of RECO Common Stock to be issued to shareholders of
the Company pursuant to the Merger; provided, however, that such Company/OPCO
Subscription Agreement may be amended or modified in whole or in part in
connection with any transaction contemplated by Section 1.09 or Section 5.15
hereof.
1.08 Subscribed Shares. The parties acknowledge and agree that the
Subscribed Shares will be issued in accordance with Sections 2.01(d) and (g) to
the shareholders of the Company in connection with the Merger and will be
paired with the RECO Common Stock issued in the Merger and that neither the
Company nor RECO will at any time become a stockholder of OPCO.
1.09 Reservation of Right to Revise Transaction. Notwithstanding anything
to the contrary contained in this Agreement, RECO and OPCO may, in their sole
discretion, but following a good faith consultation with the Company, at any
time prior to the Effective Time, revise the method of effecting the Merger,
which change may include the use of a merger subsidiary or other acquisition
vehicle; provided, however, that (i) any breach of this Agreement and any
inability of the Company to satisfy any condition to the Merger set forth in
Section 6.02 of this Agreement arising solely as a result of such revised
method of effecting the Merger shall not be deemed a breach or a failure of
such condition to the consummation of the Merger, (ii) notwithstanding such
revised method of effecting the Merger, RECO shall continue to remain liable
hereunder for the satisfaction of any of its obligations hereunder that have
been assigned pursuant to this Section 1.09, and (iii) such revised method of
effecting the Merger shall enable the Merger to continue to qualify as, or be
treated as part of, one or more tax-free reorganizations within the meaning of
Section 368(a) of the Code and the RECO Shares to be received by the Company
Shareholders shall be received without recognition of gain or loss; provided,
however, that the sale of any assets by the Company to OPCO, RECO or any of
their respective affiliates which would enable RECO and OPCO to maximize the
economic and tax advantages associated with the paired-share structure,
including without limitation the transactions contemplated by and effected
pursuant to Section 5.15 hereof, shall not be deemed to contravene clause (iii)
of this sentence. The parties hereto agree that they will execute, and will
cause their respective direct and indirect subsidiaries to execute, such
agreements and documents and such amendments to this Agreement and any related
documents as shall be appropriate in order to reflect such revised structure.
1.10 Distribution of Earnings and Profits. In the event that all
conditions precedent to the Closing set forth in Article VI have been
satisfied, the Closing shall occur and immediately prior to the Effective Time
RECO shall declare a dividend payable on its Common Stock (which dividend may
be declared contingent upon the consummation of the Merger) in such amount as
RECO determines is necessary as a result of the estimated undistributed
earnings
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and profits of the Company at the Effective Time (the amount of such declared
dividend per share of RECO Common Stock is hereinafter referred to as the "E&P
Distribution"). The record date for such E&P Distribution shall be no sooner
than fifteen (15) days and no later than forty-five (45) days after the
Effective Time and the payment date for such E&P Distribution shall be no later
than fifteen (15) days after such record date.
II. EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS;
EXCHANGE OF CERTIFICATES
2.01 Effect on Capital Stock. As of the Effective Time, by virtue of the
Merger and without any action on the part of the holder of any shares of
Company Common Stock outstanding immediately prior to the Effective Time
("Shares"):
(a) Cancellation of Treasury Stock and RECO-Owned Stock. Each Share
that is owned by the Company or by any wholly owned Subsidiary of the Company,
or by RECO or OPCO or any wholly owned Subsidiary of either of them, will
automatically be canceled and retired and will cease to exist, and no
consideration will be delivered in exchange therefor.
(b) Cancellation of Other Shares. Each Share, other than those
described in Section 2.01(a), will no longer be outstanding and will
automatically be canceled and retired and cease to exist and each holder of a
certificate representing any such Share (a "Certificate") will cease to have
any rights with respect thereto, except the right to receive the Merger
Consideration and any additional cash in lieu of fractional Paired Shares to be
issued or paid in consideration therefor upon surrender of such Certificate in
accordance with Section 2.02, without interest.
(c) Electing Shares. Subject to Sections 2.01(a), (f) and (g), each
Share with respect to which a Form of Election to receive cash has been
properly made and not revoked pursuant to Section 2.01(e) will, at the
Effective Time, be converted into, and the holder thereof will be entitled to
receive therefor, $26.00 in cash (the "Maximum Cash Consideration Per Share").
The cash consideration payable with respect to each Electing Share is
hereinafter referred to as the "Cash Consideration," and each Share with
respect to which an election to be converted into cash is duly made as herein
provided is herein referred to as an "Electing Share."
(d) Non-Electing Shares. Each Share other than (1) an Electing Share,
and (2) a Share canceled in accordance with Section 2.01(a), is herein referred
to as a "Non-Electing Share." Subject to Section 2.01(f), each Non-Electing
Share and each Electing Share described in Section 2.01(g)(ii) will at the
Effective Time be converted into the right to receive the number of Paired
Shares (the "Exchange Ratio") determined as follows:
(i) If the Meeting Date Price is greater than $45.60, then the
Exchange Ratio will equal the quotient of (a) $28.36 minus the Adjusted E&P
Distribution divided by (b) the Meeting Date Price.
(ii) If the Meeting Date Price is less than or equal to $45.60 but
greater than or equal to $41.80, then the Exchange Ratio will equal (a) .6220
minus (b) the quotient of the Adjusted E&P Distribution divided by the Meeting
Date Price.
(iii) If the Meeting Date Price is less than $41.80 but greater than
or equal to $34.20, then the Exchange Ratio will equal the quotient of (a)
$26.00 minus the Adjusted E&P Distribution divided by (b) the Meeting Date
Price.
(iv) If the Meeting Date Price is less than $34.20 but greater than
or equal to $30.40, then the Exchange Ratio will equal (a) .7602 minus (b) the
quotient of the Adjusted E&P Distribution divided by the Meeting Date Price.
(v) If the Meeting Date Price is less than $30.40, then the Company
will have the right to terminate this Agreement pursuant to Section 7.01(g) by
giving written notice (the "Termination Notice") of its election to do so to
RECO prior to 5:00 p.m., Boston time, on the second Trading Day after the
Measurement Date; provided, however, that the Termination Notice will be deemed
to be rescinded and will have no effect if, prior to 5:00 p.m., Boston time, on
the second Trading Day following the date of delivery by the Company to RECO of
such Termination Notice, RECO has given the Company written notice that it has
exercised its right to make the Exchange Ratio equal to (A) the quotient of
$23.11 divided by the Meeting Date Price minus (B) the quotient of the Adjusted
E&P Distribution divided by the Meeting Date Price. If this subparagraph (v)
applies, but the Company fails to give the Termination Notice by the
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time specified above, the Exchange Ratio will equal (a) .7602 minus (b) the
quotient of the Adjusted E&P Distribution divided by the Meeting Date Price.
(vi) Notwithstanding anything to the contrary contained in Section
2.01(d)(v) above, if the Meeting Date Price is less than $28.50, the Company
will have the right to terminate this Agreement pursuant to Section 7.01(g) by
giving Termination Notice of its election to do so to RECO prior to 5:00 p.m.,
Boston time, on the second Trading Day after the Measurement Date. If this
subparagraph (vi) applies, but the Company fails to give the Termination Notice
by the time specified above, the Exchange Ratio will equal (a) .7602 minus (b)
the quotient of the Adjusted E&P Distribution divided by the Meeting Date
Price.
In determining the Exchange Ratio as provided above, the final number will
be rounded to three decimal places, rounding up from .0005. In the event of any
stock dividend or other stock distribution or a subdivision, combination or
modification of RECO Common Stock or OPCO Common Stock with a record date after
the date hereof and prior to the Effective Time, the Exchange Ratio will be
equitably adjusted. For purposes of this Agreement, (a) the term "Meeting Date
Price" means the average per share closing price for a Paired Share as reported
on the NYSE Transactions Tape (as reported in the Wall Street Journal or, if
not reported thereby, by another authoritative source) for twenty (20) Trading
Days randomly selected by a neutral independent accounting firm appointed by
mutual agreement of the RECO Companies and the Company from the thirty (30)
consecutive Trading Day period ending on the Trading Day (the "Measurement
Date") immediately preceding the seventh Trading Day prior to the date on which
the meeting of the Company's shareholders pursuant to Section 5.01(b) hereof is
to be initially convened; (b) the term "Stock Consideration" means the
consideration described in the second sentence of this Section 2.01(d); (c) the
term "Merger Consideration" means the Cash Consideration and Stock
Consideration; (d) the term "Trading Day" means a day on which the NYSE is open
for trading; and (e) the term "Adjusted E&P Distribution" means the product of
the Exchange Ratio multiplied by the E&P Distribution.
(e) Form of Election. The Company will mail a form of election ("Form
of Election") to all holders of record of Shares as of the record date of the
Company Shareholder Meeting. In addition, the Company will use all reasonable
efforts to make the Form of Election and Joint Proxy Statement available to all
persons who become shareholders of the Company during the period between such
record date and the third Trading Day prior to the date of the initial
convening of the Company Shareholder Meeting. Any election to receive Cash
Consideration contemplated by Section 2.01(c) hereof shall have been properly
made only if the Exchange Agent has received at its designated office or
offices, by 5:00 p.m., Boston time, on the Trading Day which is seven trading
days prior to the date of the initial convening of the Company Shareholder
Meeting (such time is hereinafter referred to as the "Election Deadline"), a
Form of Election properly completed and accompanied by certificates
representing the Shares to which such Form of Election relates, duly endorsed
in blank or otherwise acceptable for transfer on the books of the Company (or
an appropriate guarantee of delivery), as set forth in such Form of Election.
An election to receive Cash Consideration may be revoked only by written notice
received by the Exchange Agent prior to the Election Deadline. In addition, all
elections to receive Cash Consideration will automatically be revoked if the
Exchange Agent is notified in writing by RECO and Company that the Merger has
been abandoned. If an election to receive Cash Consideration is so revoked, the
Certificates (or guarantees of delivery, as appropriate) for the Shares to
which such election to receive Cash Consideration relates will be promptly
returned to the person submitting the same to the Exchange Agent.
(f) Limitations on Cash Payments. Anything in this Article II to the
contrary notwithstanding, holders of Electing Shares will not be entitled to,
and RECO will not be obligated in implementing Section 2.01(c) to pay, the
Maximum Cash Consideration Per Share in respect of the number of Electing
Shares that exceeds the Maximum Cash Shares. "Maximum Cash Shares" shall mean
(A) the number of shares of Company Common Stock outstanding immediately prior
to the Effective Time multiplied by a percentage equal to the quotient of (i)
$6.75 minus the Company E&P Distribution, divided by (ii) $26.00, minus (B) the
number of shares, if any, that RECO elects to purchase from shareholders prior
to the Effective Time pursuant to the Shareholders Agreement. The amount of
cash equal to the Maximum Cash Consideration Per Share times the Maximum Cash
Shares is hereinafter referred to as the "Total Cash Consideration." The
"Company E&P Distribution" shall mean the quotient of (A) (i) the number of
shares of Company Common Stock outstanding immediately prior to the Effective
Time minus the Maximum Cash Shares, multiplied by (ii) the Adjusted E&P
Distribution, divided by (B) the number of shares of Company Common Stock
outstanding immediately prior to the Effective Time.
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(g) Proration of Electing Shares. In the event that the aggregate
number of Electing Shares exceeds the Maximum Cash Shares, all Electing Shares
will at the Effective Time be converted into the right to receive Merger
Consideration in the following manner:
(i) The number of Electing Shares covered by each Form of Election to
be converted into the right to receive the Cash Consideration will be
determined by multiplying the number of Electing Shares covered by such Form of
Election by a fraction, the numerator of which is the Maximum Cash Shares and
the denominator of which is the total number of Electing Shares, rounded down
to the nearest whole Share; and
(ii) Each Electing Share not converted into the right to receive the
Cash Consideration in accordance with Section 2.01(g)(i) will be converted into
the right to receive the Stock Consideration and no longer considered to be an
Electing Share.
2.02 Exchange of Certificates.
(a) Exchange Agent. Prior to the Effective Time, RECO and OPCO will
enter into an agreement with The First National Bank of Boston, N.A., the
Company's Transfer Agent, or such other bank or trust company as may be
designated by RECO, OPCO and the Company (the "Exchange Agent"), such agreement
to provide that as of the Effective Time (i) RECO will deposit, or will cause
to be deposited, with the Exchange Agent, for the benefit of the holders of
Shares, for exchange in accordance with this Article II, through the Exchange
Agent, a certificate representing the shares of RECO Common Stock issuable
pursuant to Section 2.01 in exchange for outstanding Shares, (ii) RECO will
deposit, or will cause to be deposited, with the Exchange Agent, for the
benefit of the holders of the Shares, for exchange in accordance with this
Article II, cash in the amount of the Total Cash Consideration, and
simultaneously, (iii) OPCO will deposit, or will cause to be deposited, with
the Exchange Agent, for exchange in accordance with this Article II, through
the Exchange Agent, a certificate representing the Subscribed Shares, to be
paired with the shares of RECO Common Stock described in clause (i) above. The
certificates for shares of RECO Common Stock and Subscribed Shares, together
with any dividends or distributions with respect thereto with a record date
after the Effective Time, any Excess Shares and any cash (including cash
proceeds from the sale of the Excess Shares) in lieu of any fractional Paired
Shares and Cash Consideration, are hereinafter referred to as the "Exchange
Fund."
(b) Exchange Procedures. As soon as reasonably practicable after the
Effective Time, the Exchange Agent will mail or otherwise make available to
each holder of record of a Certificate which immediately prior to the Effective
Time represented outstanding Shares converted into the right to receive the
Merger Consideration pursuant to Section 2.01: (i) a letter of transmittal
(which will specify that delivery will be effected, and risk of loss and title
to the Certificates will pass, only upon delivery of the Certificates to the
Exchange Agent and will be in such form and have such other provisions as RECO
may specify consistent with this Agreement) and (ii) instructions for effecting
the surrender of the Certificates in exchange for the Merger Consideration.
Upon surrender of a Certificate for cancellation to the Exchange Agent,
together with such letter of transmittal, duly executed, and such other
documents as may reasonably be required by the Exchange Agent, the holder of
such Certificate will be entitled to receive in exchange therefor the Merger
Consideration and cash, if any, which such holder has the right to receive
pursuant to the provisions of Sections 2.02(c) and (e), and the Certificate so
surrendered will forthwith be canceled. In the event of a transfer of ownership
of Shares which is not registered in the transfer records of the Company, the
Merger Consideration may be issued or paid to a Person other than the Person in
whose name the Certificate so surrendered is registered if such Certificate is
properly endorsed or otherwise in proper form for transfer and the Person
requesting such issuance or payment pays any transfer or other taxes required
by reason of the issuance or payment of the Merger Consideration to a Person
other than the registered holder of such Certificate or establishes to the
satisfaction of RECO that such tax has been paid or is not applicable. Until
surrendered as contemplated by this Section 2.02, each Certificate will be
deemed at any time after the Effective Time to represent only the right to
receive upon such surrender the Merger Consideration which the holder thereof
has the right to receive in respect of such Certificate in the Merger and cash,
if any, pursuant to the provisions of Section 2.02(c) and (e). No interest will
be paid or will accrue on any cash payable to holders of Certificates pursuant
to the provisions of this Article II, but all payments of cash, if any, which
holders have the right to receive pursuant to the provisions of this Article II
will be made in immediately available funds. Certificates surrendered for
exchange by any person who is an "affiliate" of the Company for purposes of
Rule 145, as such rule may be amended from time to time, under the Securities
Act, will not be exchanged until RECO has received an agreement substantially
in the form of Schedule 5.08(a) from such person.
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(c) Distributions with Respect to Unexchanged Shares. No dividends or
other distributions with respect to RECO Common Stock or OPCO Common Stock with
a record date after the Effective Time and no cash payment in lieu of
fractional shares will be paid pursuant to Section 2.02(e) to the holder of any
unsurrendered Certificate with respect to the Paired Shares represented
thereby, and all such dividends, other distributions and cash in lieu of
fractional Paired Shares will be paid by RECO or OPCO to the Exchange Agent
promptly after the Effective Time and will be included in the Exchange Fund, in
each case in accordance with this Article II. Subject to Section 2.02(f) and
2.02(g) hereof and to the effect of applicable escheat or similar Laws,
following surrender of any Certificate in accordance herewith there will be
paid to the holder of the certificates representing whole Paired Shares issued
in exchange therefor, without interest, (i) at the time of such surrender, the
amount of dividends or other distributions with a record date after the
Effective Time and which have been theretofore paid by RECO or OPCO with
respect to such whole Paired Shares and the amount of any cash payable in lieu
of fractional Paired Shares to which such holder is entitled pursuant to
Section 2.02(e) and (ii) at the appropriate payment date, the amount of
dividends or other distributions with a record date after the Effective Time
but prior to such surrender and with a payment date subsequent to such
surrender payable with respect to such whole Paired Shares.
(d) No Further Ownership Rights in Shares. All Paired Shares issued and
all cash paid upon the surrender for exchange of Certificates in accordance
with the terms of this Article II will be deemed to have been issued and paid
in full satisfaction of all rights pertaining to the Shares theretofore
represented by such Certificates. If, after the Effective Time, Certificates
are presented to RECO, the Surviving Corporation or the Exchange Agent for any
reason, they will be canceled and exchanged as provided in this Article II.
(e) No Fractional Shares.
(i) No certificates or scrip representing fractional Paired Shares
will be issued upon the surrender for exchange of Certificates, no dividend or
distribution of RECO will relate to such fractional share interests and such
fractional share interests will not entitle the owner thereof to vote or to any
rights of a shareholder of RECO.
(ii) As promptly as practicable following the Effective Time, the
Exchange Agent will determine the excess of (A) the number of whole Paired
Shares delivered to the Exchange Agent by RECO and OPCO pursuant to Section
2.02(a) over (B) the aggregate number of whole Paired Shares to be distributed
to holders of Shares pursuant to Section 2.02(b) (such excess being herein
called the "Excess Shares"). Subject to Section 2.02(e)(iv), following the
Effective Time, the Exchange Agent will sell the Excess Shares, all in the
manner provided in Section 2.02(e)(iii).
(iii) The sale of the Excess Shares by the Exchange Agent will be
executed on the NYSE through one or more member firms of the NYSE and will be
executed in round lots to the extent practicable. The Exchange Agent will use
all reasonable efforts to complete the sale of the Excess Shares as promptly
following the Effective Time as, in the Exchange Agent's sole judgment, is
practicable consistent with obtaining the best execution of such sales in light
of prevailing market conditions. Until the net proceeds of such sale or sales
have been distributed to the prior holders of Shares, the Exchange Agent will
hold such proceeds in trust for such holders entitled thereto (the "Shares
Trust"). The Surviving Corporation will pay out of the Shares Trust all
commissions, transfer taxes and other out-of-pocket transaction costs,
including the expenses and compensation of the Exchange Agent incurred in
connection with such sale of the Excess Shares. The Exchange Agent will
determine the portion of the Shares Trust to which each holder of Shares is
entitled, if any, by multiplying the amount of the aggregate net proceeds
comprising the Shares Trust by a fraction, the numerator of which is the amount
of the fractional share interest to which such holder of Shares is entitled
(after taking into account all Shares held at the Effective Time by such
holder) and the denominator of which is the aggregate amount of fractional
share interests to which all holders of Shares are entitled.
(iv) Notwithstanding the provisions of Section 2.02(e)(ii) and (iii),
RECO may elect at its option, exercised prior to the Effective Time, in lieu of
the issuance and sale of Excess Shares and the making of the payments
hereinabove contemplated, to cause to be paid to each holder of Shares an
amount in cash equal to the product obtained by multiplying (A) the fractional
share interest to which such holder (after taking into account all Shares held
at the Effective Time by such holder) would otherwise be entitled by (B) the
average closing price for a Paired Share as reported on the NYSE Transactions
Tape (as reported in the Wall Street Journal, or, if not reported thereby, any
other authoritative source) over the 20 consecutive Trading Day period ending
on the Measurement Date and, in such case, all references herein to the cash
proceeds of the sale of the Excess Shares and similar references will be deemed
to
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mean and refer to the payments calculated as set forth in this Section
2.02(e)(iv). In no event will RECO be required to cause such payment to be
funded prior to the Effective Time.
(v) As soon as practicable after the determination of the amount of
cash, if any, to be paid to holders of Shares with respect to any fractional
share interests, the Exchange Agent will make available such amounts to such
holders of Shares subject to and in accordance with the terms of Section
2.02(c).
(f) Termination of Exchange Fund. Any portion of the Exchange Fund
which remains undistributed to the holders of the Certificates for six months
after the Effective Time will be delivered to RECO and OPCO, in accordance with
RECO's instructions, upon demand, and any holders of the Certificates who have
not theretofore complied with this Article II shall thereafter submit their
unsurrendered Certificates to, and look only to, RECO as a general unsecured
creditor thereof for payment of their claim for Merger Consideration, any cash
in lieu of fractional Paired Shares and any dividends or distributions with
respect to Paired Shares, in each case, without interest thereon.
(g) No Liability. None of RECO, OPCO, the Company or the Exchange Agent
will be liable to any Person in respect of any Paired Shares (or dividends or
distributions with respect thereto) or cash from the Exchange Fund delivered to
a public official or any Governmental Entity (as herein defined) pursuant to
any applicable abandoned property, escheat or similar Law. If any Certificate
has not been surrendered prior to one year after the Effective Time (or
immediately prior to such earlier date on which any Merger Consideration, any
cash in lieu of fractional Paired Shares or any dividends or distributions
payable to the holder of such Certificate would otherwise escheat to or become
the property of any Governmental Entity), any such Merger Consideration, cash,
dividends or distributions in respect of such Certificate will become the
property of the Surviving Corporation, free and clear of all claims or interest
of any Person previously entitled thereto.
(h) Investment of Exchange Fund. The Exchange Agent will invest any
cash included in the Exchange Fund in one or more bank accounts or in
high-quality, short-term investments, as directed by RECO, on a daily basis.
Any interest and other income resulting from such investments will be paid to
RECO (or OPCO to the extent of OPCO's cash contributions, if any, to the
Exchange Fund).
(i) Lost Certificates. If any Certificate is lost, stolen or destroyed,
upon the making of an affidavit of that fact by the Person claiming such
Certificate to be lost, stolen or destroyed and, if required by the Surviving
Corporation, the posting by such Person of a bond in such reasonable amount as
the Surviving Corporation may direct as indemnity against any claim that may be
made against it with respect to such Certificate, the Exchange Agent will issue
in exchange for such lost, stolen or destroyed Certificate the Merger
Consideration and, if applicable, any cash in lieu of fractional shares, and
unpaid dividends and distributions on Paired Shares or deliverable in respect
thereof, pursuant to this Agreement.
(j) Exchange of Certificates for Cash Consideration. Without limiting
the generality or effect of any other provision hereof, the Exchange Agent will
have discretion to determine whether or not elections to receive Cash
Consideration have been properly made or revoked pursuant to this Article II
with respect to Shares and when elections and revocations were received by it.
If the Exchange Agent determines that any election to receive Cash
Consideration was not properly made with respect to Shares, absent manifest
error, such Shares will be treated by the Exchange Agent as, and for all
purposes of this Agreement will be deemed to be, Non-Electing Shares at the
Effective Time, and such Shares will be converted in the Merger into Stock
Consideration pursuant to Section 2.01(d). The Exchange Agent will also make
computations as to the allocation, proration and equitable adjustments
contemplated by this Article II and any such computation will be, absent
manifest error, conclusive and binding on the holders of Electing Shares
pursuant to this Article II. The Exchange Agent may, with the mutual agreement
of RECO and the Company, make such equitable changes in the procedures set
forth herein for the implementation of the cash elections provided for in this
Article II as it determines to be necessary or desirable to effect fully such
elections.
2.03 Company Stock Plans.
(a) The Company will take all actions necessary to provide that, upon
the Effective Time, (i) each outstanding option (each, an "Option") to purchase
Company Common Stock under the Company's Amended and Restated 1984 Stock Option
Plan (the "1984 Option Plan"), the Company's 1997 Equity Participation Plan, as
amended (the "Equity Participation Plan") or the Company's Non-Qualified Stock
Option Plan of Gary L. Mead (the "Non-Qualified Stock Option Plan" and,
together with the Equity Participation Plan and the 1984 Option Plan, the
"Company
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Stock Plans"), (ii) each outstanding stock appreciation right, performance
award or other award granted under the Company's Equity Participation Plan
(each, an "Incentive Plan Award"), and (iii) each outstanding share of
restricted Company Common Stock issued under the Company's Equity Participation
Plan ("Restricted Shares" and, together with Options and Incentive Plan Awards,
"Awards"), whether or not then exercisable or vested, all of which Awards are
listed in Section 2.03(a) of the Company Disclosure Schedule (as defined in
Section 3.01), will become fully exercisable and vested.
(b) As soon as practicable after the date hereof, the Company will
deliver to holders of Awards appropriate notices setting forth such holders'
rights pursuant to the respective Company Stock Plans, the agreements
evidencing the grants of such Awards and this Agreement. Holders of Options
identified on Section 2.03(b) of the Company Disclosure Schedule will be
entitled, at their election, to have any or all of their Options (i) assumed by
RECO pursuant to and in accordance with Section 2.03(c) or (ii) canceled or
repurchased pursuant to and in accordance with Section 2.03(d). All other
Options will be canceled or repurchased pursuant to and in accordance with
Section 2.03(d).
(c) At the Effective Time, the Company's obligations with respect to
each Option for which the holder thereof has elected pursuant to the second
sentence of Section 2.03(b) to be assumed by RECO (an "Assumed Option"), will
be assumed by RECO. The Assumed Options will continue to have, and be subject
to, the same terms and conditions as set forth in the Company Stock Plans (as
the case may be) and related option or other grant agreements (as in effect
immediately prior to the Effective Time) pursuant to which the Assumed Options
were issued, provided that (i) all references to the Company will be deemed to
be references to RECO, and all references to the Company Common Stock will be
deemed to be references to Paired Shares, (ii) each Assumed Option will be
exercisable for that number of whole Paired Shares equal to the product of the
number of shares of the Company Common Stock covered by the Assumed Option
immediately prior to the Effective Time multiplied by the Exchange Ratio and
rounded to the nearest whole number of Paired Shares, and (iii) the exercise
price per share of Paired Shares under each Assumed Option will be equal to the
exercise price per share of the Company Common Stock under the Assumed Option
immediately prior to the Effective Time divided by the Exchange Ratio, rounded
to the nearest cent. Pursuant to this Agreement and in accordance with the
Subscription Agreement, RECO will (A) reserve for issuance or hold the number
of Paired Shares that will become issuable upon the exercise of such Assumed
Options pursuant to this Section 2.03(c) and (B) promptly after the Effective
Time issue to each holder of an outstanding Assumed Option a document
evidencing the assumption by RECO of the Company's obligations with respect
thereto under this Section 2.03(c).
(d) Immediately prior to the Effective Time, each Option which is not
an Assumed Option will be canceled or repurchased, as appropriate, and in
consideration of such cancellation or repurchase, as the case may be, the
Company will pay to the holder of each such Option an amount in respect thereof
equal to the product of (i) the Applicable Amount, multiplied by (ii) the
number of shares of Company Common Stock subject thereto (such payment to be
net of applicable withholding taxes). The term "Applicable Amount" means the
excess of (1) $26.00 over (2) the exercise price of each such Option.
(e) At any time prior to the Effective Time, each Option that will not
be assumed, canceled, or repurchased may be exercised in accordance with the
terms of the Company Stock Plans (as the case may be), provided, however, that
the Company, unless contractually obligated to do so, shall not (i) allow a
cashless exercise of any such Option, or (ii) accept from the holder of any
such Option, a note or other instrument evidencing debt in exchange for the
exercise price of such Option.
III. REPRESENTATIONS AND WARRANTIES
3.01 Representations and Warranties of the Company. Except as set forth in
the Company SEC Documents (as herein defined) which have been filed with the
SEC subsequent to December 31, 1996 pursuant to the Securities Exchange Act of
1934, as amended (the "Exchange Act"), exclusive of any exhibits thereto and
information incorporated therein by reference, the Company represents and
warrants to RECO and OPCO as follows:
(a) Organization, Standing and Corporate Power. The Company and each of
its Significant Subsidiaries is a corporation or other legal entity duly
organized, validly existing and in good standing (with respect to jurisdictions
which recognize such concept) under the Laws of the jurisdiction in which it is
organized and has all the requisite corporate, partnership or limited liability
company power, as the case may be, and authority to own, operate, lease and
encumber its properties and carry on its business as now being conducted. The
Company and each of its
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Significant Subsidiaries is duly qualified or licensed to do business and is in
good standing (with respect to jurisdictions which recognize such concept) in
each jurisdiction in which the nature of its business or the ownership or
leasing of its properties makes such qualification or licensing necessary,
other than in such jurisdictions in which the failure to be so qualified or
licensed or to be in good standing individually or in the aggregate could not
be reasonably expected to have a material adverse effect on the business,
assets, prospects, financial condition or results of operations of the Company
and each of its Subsidiaries, taken as a whole, or on the ability of the
Company to perform any of its obligations under this Agreement (any such
effect, a "Company MAE"). The Company has delivered to RECO or its counsel
prior to the execution of this Agreement true, complete and correct copies of
its articles of incorporation and bylaws, as well as the organizational
documents and partnership and joint venture agreements of each of its
Subsidiaries, in each case as amended to date.
(b) Subsidiaries. Section 3.01(b) of the Company Disclosure Schedule
contains a list of all of the Significant Subsidiaries of the Company as of the
date hereof. Except as set forth on Section 3.01(b) of the Company Disclosure
Schedule, all of the outstanding shares of capital stock of, or other equity
interests in, each such Subsidiary have been validly issued and are fully paid
and nonassessable and are owned directly or indirectly by the Company, free and
clear of all pledges, claims, liens, charges, encumbrances and security
interests of any kind or nature whatsoever (collectively, "Liens").
(c) Capital Structure. The authorized capital stock of the Company
consists of 200 Million Shares. At the close of business on the last business
day immediately preceding the date hereof (the "Representation Date"), (i)
77,137,118 Shares were issued and outstanding, (ii) 8,030,820 Shares were held
by the Company in its treasury, and (iii) 11,967,960 Shares were reserved for
issuance pursuant to the Company Stock Plans. Except as set forth above, at the
close of business on the Representation Date, no shares of capital stock or
other voting securities of the Company were issued, reserved for issuance or
outstanding. At the close of business on the Representation Date, there were no
outstanding stock options, stock appreciation rights or rights (other than
employee stock option or other rights ("Company Stock Options") to purchase or
receive Company Common Stock granted under the Company Stock Plans) to receive
shares of Company Common Stock on a deferred basis granted under the Company
Stock Plans or otherwise. Section 3.01(c) of the Company Disclosure Schedule
sets forth a complete and correct list, as of the Representation Date, of the
number of shares of Company Common Stock subject to Company Stock Options. All
outstanding shares of capital stock of the Company are, and all shares which
may be issued will be, when issued, duly authorized, validly issued, fully paid
and nonassessable and are not subject to preemptive rights. As of the close of
business on the Representation Date, there were no bonds, debentures, notes,
other indebtedness or securities of the Company having the right to vote (or
convertible into, or exchangeable for, securities having the right to vote) on
any matters on which shareholders of the Company may vote. Except as set forth
above, as of the close of business on the Representation Date, there were no
outstanding securities, options, warrants, calls, rights, commitments,
agreements, arrangements or undertakings of any kind to which the Company or
any of its Subsidiaries is a party or by which any of them is bound obligating
the Company or any of its Subsidiaries to issue, deliver or sell, or cause to
be issued, delivered or sold, additional shares of capital stock or other
voting securities of the Company or of any of its Subsidiaries or obligating
the Company or any of its Subsidiaries to issue, grant, extend or enter into
any such security, option, warrant, call, right, commitment, agreement,
arrangement or undertaking. Except for agreements entered into with respect to
the Company Stock Plans and except as set forth on Section 3.01(c) of the
Company Disclosure Schedule, as of the close of business on the Representation
Date, there were no outstanding contractual obligations of the Company or any
of its Subsidiaries to issue, repurchase, redeem, exchange or otherwise
acquire, or to register (under the federal or any state securities laws) for
resale, any shares of capital stock of the Company or any of its Subsidiaries.
As of the close of business on the Representation Date, there were no
outstanding contractual obligations of the Company to vote or to dispose of any
shares of the capital stock of any of its Subsidiaries.
(d) Authority; Noncontravention. The Company has all requisite
corporate power and authority to enter into this Agreement and the Shareholders
Agreement, and, subject to the Company Shareholder Approval, to consummate the
Merger and to perform all of the Company's obligations under this Agreement and
the Shareholders Agreement. Prior to the date hereof, the Board of Directors of
the Company unanimously approved this Agreement, the Merger and the other
transactions contemplated by this Agreement to which the Company is or will be
a party as well as the Shareholders Agreement and the transactions contemplated
thereby and resolved to recommend that the holders of Company Common Stock
adopt this Agreement. The execution and delivery of this Agreement and the
Shareholders
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Agreement by the Company and the performance by the Company of its obligations
contemplated hereby and thereby have been duly authorized by all necessary
corporate action on the part of the Company, subject in the case of this
Agreement, to Company Shareholder Approval. Each of this Agreement and the
Shareholders Agreement has been duly executed and delivered by the Company and
constitutes the legal, valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms. Except as set forth in
Section 3.01(d) of the Company Disclosure Schedule and in Sections 1.09, 5.15
and 5.16 hereof, the execution and delivery of this Agreement and the
Shareholders Agreement does not, and the consummation of the transactions
contemplated hereby and thereby and compliance with the provisions hereof and
thereof will not, conflict with, breach or result in any violation of, or
default (with or without notice or lapse of time, or both) under, or give rise
to a right of termination, cancellation or acceleration of any obligation or
loss of a material benefit under, or result in the creation of any Lien upon
any of the properties or assets of the Company or any of its Subsidiaries
under, (i) assuming Company Shareholder Approval in the case of this Agreement,
the articles of incorporation or by-laws of the Company or the comparable
organizational documents of any of its Subsidiaries, (ii) any loan or credit
agreement, note, bond, mortgage, indenture, lease or other agreement,
instrument, permit, concession, franchise or license applicable to the Company
or any of its Subsidiaries or their respective properties or assets, or (iii)
subject to the governmental filings and other matters referred to in the
following sentence, any judgment, order or decree ("Order"), or statute, law,
ordinance, rule or regulation ("Law") applicable to the Company or any of its
Subsidiaries or their respective properties or assets, other than, in the case
of clauses (ii) and (iii), any such conflicts, breaches, violations, defaults,
rights, losses or Liens that individually or in the aggregate could not be
reasonably expected to have a Company MAE. No Order, consent, approval or
authorization of, or registration, declaration or filing with, any federal,
state, local or foreign government or any court, administrative or regulatory
agency or commission or other governmental authority, agency or instrumentality
(a "Governmental Entity") is required by or with respect to the Company or any
of its Subsidiaries in connection with the execution and delivery of this
Agreement by the Company or the consummation by the Company of the Merger or
the performance of all of the Company's obligations under this Agreement except
for (1) the filing of a premerger notification and report form by the Company
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR Act"); (2) the filing with the Securities and Exchange Commission (the
"SEC") of (A) a proxy statement relating to the Company Shareholder Meeting
(such proxy statement, together with the proxy statement relating to the
RECO/OPCO Shareholder Meetings, in each case as amended or supplemented from
time to time, the "Joint Proxy Statement") and (B) such reports under the
Exchange Act, as may be required in connection with this Agreement and the
transactions contemplated hereby; (3) the filing of Articles of Merger with the
Secretary of State of Texas and appropriate documents with the relevant
authorities of other states in which the Company is qualified to do business
and such filings with Governmental Entities to satisfy the applicable
requirements of state securities or "blue sky" laws; (4) the filing of a
Certificate of Merger with the Secretary of State of Delaware; and (5) such
consents, approvals, Orders, authorizations, registrations, declarations or
filings, the failure of which to be made or obtained, individually or in the
aggregate, could not reasonably be expected to have a Company MAE. The Company
does not maintain, nor is it party to, nor is it currently contemplating
adopting, a shareholder rights plan or similar arrangement customarily known as
a "poison pill."
(e) SEC Documents; Undisclosed Liabilities. The Company has timely
filed all required reports, schedules, forms, statements and other documents
with the SEC since December 31, 1996 (the "Company SEC Documents"). As of their
respective dates, the Company SEC Documents complied in all material respects
with the requirements of the Securities Act of 1933, as amended (the
"Securities Act"), or the Exchange Act, as the case may be, and the rules and
regulations of the SEC promulgated thereunder applicable to such Company SEC
Documents, and none of the Company SEC Documents when filed contained any
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. Except to the extent that information contained in any Company SEC
Document has been revised or superseded by a later Company Filed SEC Document,
as of the date hereof, none of the Company SEC Documents contains any untrue
statement of a material fact or omits to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading. The financial
statements of the Company included in the Company SEC Documents comply as to
form, as of their respective dates of filing with the SEC, in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto, have been prepared in accordance
with generally accepted accounting principles (except, in the case of unaudited
statements, as permitted
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by Form 10-Q of the SEC) applied on a consistent basis during the periods
involved (except as may be indicated in the notes thereto) and fairly present
in all material respects the consolidated financial position of the Company and
its consolidated Subsidiaries as of the dates thereof and the consolidated
results of their operations and cash flows for the periods then ended (subject,
in the case of unaudited statements, to year-end adjustments). Except (i) as
reflected in such financial statements or in the notes thereto, (ii) for
liabilities incurred in connection with this Agreement or the transactions
contemplated hereby, and (iii) for liabilities and obligations incurred since
September 30, 1997 in the ordinary course of business consistent with past
practice, neither the Company nor any of its Subsidiaries has any liabilities
or obligations of any nature (whether accrued, absolute, known or unknown,
asserted or unasserted, contingent or otherwise), including liabilities arising
under any Environmental Laws (as herein defined), which are required by
generally accepted accounting principles to be reflected in a consolidated
balance sheet of the Company and its consolidated Subsidiaries and which,
individually or in the aggregate, could reasonably be expected to have a
Company MAE.
(f) Information Supplied. None of the information supplied or to be
supplied by the Company specifically for inclusion or incorporation by
reference in (i) the registration statement on Form S-4 to be filed with the
SEC by RECO in connection with the issuance of RECO Common Stock in the Merger
(the "Form S-4"), at the time the Form S-4 is filed with the SEC or at the time
it becomes effective under the Securities Act, or (ii) the Joint Proxy
Statement, at the date it is first mailed to the Company's shareholders or at
the time of the Company Shareholder Meeting, will 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 light of the
circumstances under which they are made, not misleading. The Joint Proxy
Statement will comply as to form in all material respects with the requirements
of the Exchange Act and the rules and regulations thereunder, except that no
representation or warranty is made by the Company with respect to statements
made or incorporated by reference therein based on information supplied by RECO
specifically for inclusion or incorporation by reference in the Joint Proxy
Statement or contained in any RECO SEC Documents (as herein defined)
incorporated by reference in the Form S-4 or the Joint Proxy Statement.
(g) Absence of Certain Changes or Events. Except (i) as disclosed in
the Company SEC Documents filed and publicly available prior to the date of
this Agreement, (ii) for the transactions provided for herein or permitted by
Section 4.01(a), (iii) for liabilities incurred in connection with or as a
result of this Agreement, and (iv) as set forth on Section 3.01(g) of the
Company Disclosure Schedule, since September 30, 1997, the Company has
conducted its business only in the ordinary course, and there has not been (1)
any Company MAE, (2) any declaration, setting aside or payment of any dividend
or other distribution (whether in cash, stock or property) with respect to any
of the Company stock, (3) any split, combination or reclassification of any of
the Company's capital stock or any issuance or the authorization of any
issuance of any other securities in respect of, in lieu of or in substitution
for shares of the Company's capital stock, (4) any granting by the Company or
any of its Subsidiaries to any director, executive officer or other key
employee of the Company of any increase in compensation, (5) any granting by
the Company or any of its Subsidiaries to any such director, executive officer
or key employee of any increase in severance or termination pay, except as was
required under any employment, severance or termination agreements in effect as
of the date of the most recent financial statements included in the Company SEC
Documents, (6) any entry by the Company or any of its Subsidiaries into any
employment, severance or termination agreement with any such director,
executive officer or key employee, or (7) except insofar as may be required by
a change in generally accepted accounting principles, any change in accounting
methods, principles or practices by the Company. For purposes of this
Agreement, "key employee" means any employee (other than an employee whose
responsibilities relate principally to a single hotel) whose current salary and
targeted bonus exceeds $100,000 per annum. Section 3.01(g) of the Company
Disclosure Schedule contains a true and complete list of all agreements or
plans providing for termination or severance pay to any key employee.
(h) Litigation. Except as described in the Company SEC Documents filed
prior to the date hereof, there is no action, suit or proceeding, claim,
arbitration or investigation against the Company pending or, to the Company's
Knowledge, threatened, which, individually or in the aggregate, could
reasonably be expected to have a Company MAE.
(i) Voting Requirements. The affirmative vote of two-thirds of the
outstanding Shares entitled to vote thereon at the Company Shareholder Meeting,
which shall be a duly convened meeting at which a quorum was present and acting
throughout (the "Company Shareholder Approval"), to adopt this Agreement is the
only vote of the holders of any class or series of the Company's capital stock
necessary to approve and adopt this Agreement and the transactions contemplated
hereby.
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(j) State Takeover Statutes. The Company Board has approved this
Agreement, the Merger, the other transactions contemplated hereby and the
execution of the Shareholders Agreement. Such approval constitutes approval of
the Merger and the other transactions contemplated hereby by the Company Board
under, and the Company Board has taken all action necessary or advisable, so as
to render inoperative with respect to the Merger and the performance of the
Company's obligations contemplated by this Agreement and by the Shareholders
Agreement, the provisions of Article 13.03 of the TBCA. No other takeover
statutes, whether under the laws of Texas or otherwise, are applicable to the
Merger, this Agreement or the transactions contemplated hereby.
(k) Brokers. No broker, investment banker, financial advisor or other
Person, other than Merrill Lynch & Co. ("Merrill Lynch"), the fees and expenses
of which will be paid by the Company, is entitled to any broker's, finder's,
financial advisor's or other similar fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of the Company. The Company has furnished to RECO true and complete
copies of all agreements under which any such fees or expenses are payable and
all indemnification and other agreements related to the engagement of the
Persons to whom such fees are payable.
(l) Opinion of Financial Advisor. The Company has received the opinion
of Merrill Lynch to the effect that, as of the date thereof, the Consideration
(as defined in such opinion) to be received by the holders of Company Shares
pursuant to the Merger and the E&P Distribution is fair to the Company's
shareholders from a financial point of view.
(m) Ownership of Paired Shares. Neither the Company nor, to its
Knowledge, any of its subsidiaries, directors, or executive officers or other
affiliates beneficially owns (as such term is defined in Rule 13d-3 under the
Exchange Act) any Paired Shares.
(n) Compliance with Laws; Permits. Except as set forth in Section
3.01(n) of the Company Disclosure Schedule, neither the Company nor any of its
Subsidiaries is in violation of any Order or any Law applicable to the Company
or any of its Subsidiaries or any of their respective properties or assets,
except such violations as could not reasonably be expected to have a Company
MAE. Except as set forth in Section 3.01(n) of the Company Disclosure Schedule,
the Company and its Subsidiaries have obtained all material licenses, permits
and other authorizations and have taken all actions required by applicable Law
or governmental regulations in connection with their business as now or
previously conducted where the failure to obtain any such license, permit or
authorization or to take any such action, individually or in the aggregate,
could reasonably be expected to have a Company MAE. None of such licenses,
permits or authorizations shall be terminated or canceled as a result of the
consummation of the transactions contemplated by this Agreement, except for
those licenses, permits or authorizations the lack of which could not
reasonably be expected to have a Company MAE.
(o) Tax Matters. Except as, individually or in the aggregate, could not
be reasonably expected to have a Company MAE (other than with respect to
subsection (vi) below) and except as set forth in Section 3.01(o) of the
Company Disclosure Schedule:
(i) The Company and each of its Subsidiaries has paid or caused to be
paid all federal, state, local, foreign and other taxes, including without
limitation, income taxes, estimated taxes, alternative minimum taxes, excise
taxes, sales taxes, use taxes, value-added taxes, gross receipts taxes,
franchise taxes, capital stock taxes, employment and payroll-related taxes,
withholding taxes, stamp taxes, transfer taxes, windfall profit taxes,
environmental taxes and real and personal property taxes, whether or not
measured in whole or in part by net income, and all deficiencies, or other
additions to tax, interest, fines and penalties (collectively, "Taxes"),
required to be so paid prior to the date hereof and has made provision, in
accordance with generally accepted accounting principles, for all Taxes owed or
accrued through the date hereof;
(ii) The Company and each of its Subsidiaries has timely filed all
federal, state, local and foreign tax returns required to be filed by any of
them through the date hereof, and all such returns completely and accurately
set forth the amount of any Taxes relating to the applicable period;
(iii) Neither the Internal Revenue Service ("IRS") nor any other
governmental authority is now asserting by written notice to the Company or any
of its Subsidiaries or, to the Knowledge of the Company, threatening to assert
against the Company or any of its Subsidiaries any deficiency or claim for
additional Taxes. No written claim has been made since July 1, 1996 by a taxing
authority in a jurisdiction where the Company does not file reports and
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returns that the Company is or may be subject to taxation by that jurisdiction.
There are no security interests on any of the assets of the Company or any of
its Subsidiaries that arose in connection with any failure (or alleged failure)
to pay any Taxes. The Company has not since January 1, 1994 entered into a
closing agreement pursuant to Section 7121 of the Code;
(iv) The Company has not received written notice of any audit of any
tax return filed by the Company, and the Company has not been notified in
writing by any tax authority that any such audit is contemplated or pending.
Neither the Company nor any of its Subsidiaries has executed or filed with the
IRS or any other taxing authority any agreement now in effect extending the
period for assessment or collection of any income or other Taxes, and no
extension of time with respect to any date on which a tax return was or is to
be filed by the Company is in force. True, correct and complete copies of all
federal, state and local income or franchise tax returns filed by the Company
and each of the Company's Subsidiaries since January 1, 1994 and all
communications relating thereto since that date have been delivered to RECO or
made available to representatives of RECO;
(v) The Company and each of its Subsidiaries has withheld and paid
all taxes required to have been withheld and paid in connection with amounts
paid or owing to any employee, independent contractor, creditor, stockholder or
other party; and
(vi) The Company estimates that as of September 30, 1997, the
accumulated and current earnings and profits ("E&P") of the Company (as
determined for federal income tax purposes) was not in excess of $325 million.
(p) Employee Benefit Plans. With respect to all the employee benefit
plans, programs and arrangements maintained for the benefit of any current or
former employee, officer or director of the Company or any of its Subsidiaries
(the "Company Benefit Plans"), except for such matters as, individually or in
the aggregate, could not reasonably be expected to have a Company MAE, (a) each
Company Benefit Plan and any related trust intended to be qualified under
Sections 401(a) and 501(a) of the Code has received a favorable determination
letter from the IRS that it is so qualified and nothing has occurred since the
date of such letter that could reasonably be expected to materially adversely
affect the qualified status of such Company Benefit Plan or related trust, (b)
each Company Benefit Plan has been operated in all material respects in
accordance with the terms and requirements of applicable law and all required
returns and filings for each Company Benefit Plan have been timely made, (c)
neither the Company nor any of its Subsidiaries has incurred any direct or
indirect material liability under, arising out of or by operation of Title I or
Title IV of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), in connection with any Company Benefit Plan or other retirement plan
or arrangement, and no fact or event exists that could reasonably be expected
to give rise to any such material liability, (d) except as set forth on Section
3.01(p) of the Disclosure Schedule, all material contributions due and payable
on or before the date hereof in respect of each Company Benefit Plan have been
made in full and in proper form, (e) except as set forth on Section 3.01(p) of
the Disclosure Schedule, neither the Company nor any of its Subsidiaries have
ever sponsored or been obligated to contribute to any "multiemployer plan" (as
defined in Section 3(37) of ERISA), "multiple employer plan" (as defined in
Section 413 of the Code) or "defined benefit plan" (as defined in Section 3(35)
of ERISA), (f) except as set forth on Section 3.01(p) of the Disclosure
Schedule and, except as otherwise required under ERISA, the Code and applicable
state Laws, no Company Benefit Plan currently or previously maintained by the
Company or any of its Subsidiaries provides any post-retirement health or life
insurance benefits, and neither the Company nor any of its Subsidiaries
maintains any obligations to provide post-retirement health or life insurance
benefits in the future, (g) all material reporting and disclosure obligations
imposed under ERISA and the Code have been satisfied with respect to each
Company Benefit Plan, and (h) except as set forth on Section 3.01(p) of the
Disclosure Schedule, no benefit or amount payable or which may become payable
by the Company or any of its Subsidiaries pursuant to any Company Benefit Plan,
agreement or contract with any employee, shall constitute an "excess parachute
payment," within the meaning of Section 280G of the Code, which is or may be
subject to the imposition of any excise tax under Section 4999 of the Code or
which could not reasonably be expected to be deductible by reason of Section
280G of the Code.
(q) Properties. All of the real estate properties owned or leased by
the Company and each of its Subsidiaries as of the date hereof are listed in
Section 3.01(q) of the Company Disclosure Schedule. Each such property that is
leased by the Company or one of its Subsidiaries is designated as a leased
property in Section 3.01(q) of the Company Disclosure Schedule. The Company has
no direct or indirect ownership interest in any real property as of the date
hereof other than the properties owned by the Company and its Subsidiaries and
set forth in Sections 3.01(s)
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and 3.01(q) of the Company Disclosure Schedule. The Company and each of its
Subsidiaries own fee simple or leasehold title (each as indicated in Section
3.01(q) of the Company Disclosure Schedule) to each of the real properties
identified in Section 3.01(q) of the Company Disclosure Schedule (the "Company
Properties"), free and clear of liens, mortgages or deeds of trust, claims
against title, charges which are liens, security interests or other
encumbrances on title (collectively, "Encumbrances"), except for such
Encumbrances as, individually and in the aggregate, could not reasonably be
expected to have a Company MAE. Except for such of the following as,
individually and in the aggregate, could not reasonably be expected to have a
Company MAE, the Company Properties are not subject to any easements, rights of
way, covenants, conditions, restrictions or other written agreements, laws,
ordinances and regulations affecting building use or occupancy, or reservations
of an interest in title (collectively, "Property Restrictions"), except for (i)
Encumbrances and Property Restrictions, (ii) Property Restrictions imposed or
promulgated by Law or any governmental body or authority with respect to real
property, including zoning regulations, that do not and as a consequence of the
Merger will not adversely affect the current use of the property, materially
detract from the value of or materially interfere with the present use of the
property, (iii) Encumbrances and Property Restrictions disclosed on existing
title policies, commitments (and the documents listed as exceptions therein),
reports, certificates of title, title opinions or current surveys (in each case
copies of which title policies, commitments (and the documents listed as
exceptions therein), reports and surveys have been, or will be prior to the
Closing, delivered or made available to RECO), and (iv) mechanics', carriers',
supplier's, workmen's or repairmen's liens and other Encumbrances, Property
Restrictions and other limitations of any kind, if any, which, individually or
in the aggregate, are not material in amount, do not and as a consequence of
the Merger will not materially detract from the value of or materially
interfere with the present use of any of the Company Properties subject thereto
or affected thereby, and do not and as a consequence of the Merger will not
otherwise materially impair business operations conducted by the Company and
its Subsidiaries and which have arisen or been incurred only in the ordinary
course of business. Except for such of the following as, individually and in
the aggregate, could not reasonably be expected to have a Company MAE, valid
policies of title insurance have been issued insuring the Company's or its
applicable Subsidiary's fee simple (or leasehold to the extent disclosed in
Section 3.01(q) of the Company Disclosure Schedule) title to each of the
Company Properties in amounts at least equal to the purchase price thereof or,
if acquired through merger, the stipulated value thereof, and such policies
are, at the date hereof, in full force and effect and no claim has been made
against any such policy and the Company has no knowledge of any facts or
circumstances which would constitute the basis for such a claim. Except for
such of the following as, individually and in the aggregate, could not
reasonably be expected to have a Company MAE, (A) no certificate, permit or
license from any governmental authority having jurisdiction over any of the
Company Properties or any agreement, easement or other right which is necessary
to permit the lawful use and operation of the buildings and improvements on any
of the Company Properties as currently operated or which is necessary to permit
the lawful use and operation of all driveways, roads and other means of egress
and ingress to and from any of the Company Properties (a "REA Agreement") has
not been obtained and is not in full force and effect, and there is no pending
threat of modification or cancellation of any of same nor is the Company or any
of its Subsidiaries currently in default under any REA Agreement and the
Company Properties are in full compliance with all governmental permits,
licenses and certificates, except for such defaults which or where such
noncompliance could not reasonably be expected to have a Company MAE; (B) no
written notice of any violation of any federal, state or municipal law,
ordinance, order, regulation or requirement affecting any portion of any of the
Company Properties has been issued by any governmental authority; (C) there are
no material structural defects relating to any of the Company Properties; (D)
there is no Company Property whose building systems are not in working order in
any material respect; and (E) there is no physical damage to any Company
Property in excess of $750,000 for which there is no insurance in effect (other
than reasonable and customary deductibles) covering the full cost of the
restoration. Except for such of the following as, individually and in the
aggregate, could not reasonably be expected to have a Company MAE, the use and
occupancy of each of the Company Properties complies in all material respects
with all applicable codes and zoning laws and regulations, and the Company has
no knowledge of any pending or threatened proceeding or action that will in any
manner affect the size of, use of, improvements on, construction on, or access
to any of the Company Properties, with such exceptions as are not material and
do not interfere with the use made and proposed to be made of such Company
Properties. Except for such of the following as, individually and in the
aggregate, could not reasonably be expected to have a Company MAE, neither the
Company nor any of its Subsidiaries has received any written notice to the
effect that (x) any betterment assessments have been levied against, or any
condemnation or rezoning proceedings are pending or threatened with respect to
any of the Company Properties or (y) any zoning, building or similar law, code,
ordinance, order or regulation is or will be violated by the continued
maintenance, operation or use of any buildings or other improvements
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<PAGE>
on any of the Company Properties or by the continued maintenance, operation or
use of the parking areas. Except for such of the following as, individually and
in the aggregate, could not reasonably be expected to have a Company MAE,
following a casualty, each of the Company Properties could be reconstructed and
used for hotel purposes under applicable zoning laws and regulations, except
that in certain circumstances such reconstruction would have to comply with the
dimensional requirements of applicable zoning laws and regulations in effect at
the time of reconstruction. Except as otherwise could not reasonably be
expected to have a Company MAE, there are no outstanding abatement proceedings
or appeals with respect to the assessment of any Company Property for the
purpose of real property taxes, and there are no agreements with any
governmental authority with respect to such assessments or tax rates on any
Company Property. None of the Company Properties is subject to any contractual
restriction on the sale or other disposition thereof or on the financing or
release of financing thereon.
(r) Other Interests. Except for such Other Interests of the Company or
any of its Subsidiaries that, individually or in the aggregate, could not
reasonably be expected to have a Company MAE, neither the Company nor any of
its Subsidiaries owns directly or indirectly any interest or investment
(whether equity or debt) in any corporation, partnership, joint venture,
business, trust or other entity (other than investments in short-term
investment securities) (collectively "Other Interests").
(s) Related Party Transactions. The Company SEC Documents and/or the
Company Disclosure Schedule disclose all arrangements, agreements and contracts
entered into by the Company or any of its Subsidiaries (which are or will be in
effect as of or after the date of this Agreement) involving payments in excess
of $60,000 with any person who is an officer, director or affiliate of the
Company, any member of the immediate family, spouse, grandchild or, to the
Knowledge of the Company, any other relative of any of the foregoing or any
entity of which any of the foregoing is an Affiliate. Copies of all such
documents have previously been provided or made available to RECO and its
counsel.
(t) Labor Matters. Except as would not reasonably be expected to have a
Company MAE, neither the Company nor any of its Subsidiaries is a party to or
otherwise bound by any collective bargaining agreement, contract or other
agreement or understanding with a labor union or labor organization. Except as
would not reasonably be expected to have a Company MAE, as of the date hereof,
neither the Company nor any of its Subsidiaries are the subject of any material
proceeding asserting that the Company or any of its Subsidiaries has committed
an unfair labor practice or is seeking to compel it to bargain with any labor
union or labor organization nor, as of the date of this Agreement, is there
pending or, to the knowledge of the Company, threatened, any material labor
strike, dispute, walkout, work stoppage, slow-down or lockout involving the
Company or any of its Subsidiaries.
(u) Contracts and Commitments. Neither the Company, nor any of its
Subsidiaries, is a party to or bound by, and neither they nor any of their
properties or assets are bound or subject to, any contract or other agreement
(i) required to be disclosed in, or filed as an exhibit to, the Company SEC
Documents, or (ii) which will be required to be disclosed in or filed as an
exhibit to the Company's Form 10-K for the period ending December 31, 1997 (a
"Company Material Contract") that is not filed in the Company SEC Documents.
All Company Material Contracts are valid, existing, in full force and effect,
binding upon the Company or its Subsidiaries, as the case may be, in accordance
with their terms, and the Company and its Subsidiaries are not in default under
any of them, nor, to the best knowledge of the Company, is any other party to
any such contract or other agreement in default thereunder nor, to the best
knowledge of the Company, does any condition exist that with notice or lapse of
time or both would constitute a default thereunder.
(v) Environmental Matters. To the Knowledge of the Company, the Company
and its Subsidiaries are in compliance with all Environmental Laws (as defined
below), except for any noncompliance that, either singly or in the aggregate,
could not reasonably be expected to result in a Significant Environmental
Liability (as hereinafter defined). As used in this Agreement, "Environmental
Laws" shall mean all federal, state and local laws, rules, regulations,
ordinances and orders that purport to regulate the release of hazardous
substances or other materials into the environment, or impose requirements
relating to environmental protection or health and safety. The Company has
previously made available to RECO, or will provide to RECO within twenty days
from the date hereof, copies of all documents concerning any environmental or
health and safety matter adversely affecting the Company and copies of
environmental audits or risk assessments, site assessments, documentation
regarding off-site disposal of Hazardous Materials (as defined below), spill
control plans and material correspondence with any federal, state or local
govern-
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ment, court, administrative agency, commission, or other governmental
authority, domestic or foreign, regarding the foregoing. As used in this
Agreement, "Hazardous Materials" means any "hazardous waste" as defined in
either the United States Resource Conservation and Recovery Act or regulations
adopted pursuant to said act, any "hazardous substances" or "hazardous
materials" as defined in the United States Comprehensive Environmental
Response, Compensation and Liability Act and, to the extent not included in the
foregoing, any medical waste, oil or fractions thereof, pollutants or
contaminants regulated under any Environmental Laws. Except as set forth in
Section 3.01(v) of the Company Disclosure Schedule or disclosed in the Company
SEC Reports and except for any matter, which if the outcome were adverse, could
not reasonably be expected to result in a Significant Environmental Liability,
there is no administrative or judicial enforcement proceeding, pending or to
the Knowledge of the Company, threatened against the Company or Company
Subsidiary under any Environmental Law. Except as set forth in Section 3.01(v)
of its the Company Disclosure Schedule or disclosed in its SEC Reports and
except for any matter, which if the outcome were adverse, could not reasonably
be expected to result in a Significant Environmental Liability, neither the
Company nor any Company Subsidiary or, to the best Knowledge of the Company,
any legal predecessor of the Company or any Company Subsidiary, has received
any written notice that it is potentially responsible under any Environmental
Law for response costs, property damage, fines, penalties or natural resource
damages, as those terms are defined under the Environmental Laws, at any
location and, to the best knowledge of the Company, neither the Company nor any
Company Subsidiary has transported or disposed of, or allowed or arranged for
any third party to transport or dispose of, any waste containing Hazardous
Materials at any location included on the National Priorities List, as defined
under the Comprehensive Environmental Response, Compensation, and Liability
Act, or any location proposed for inclusion on that list or at any location on
any analogous state list. Except as set forth in Section 3.01(v) of its
Disclosure Schedule, and except for any matter, which if the outcome were
adverse, could not reasonably be expected to result in a Significant
Environmental Liability: (i) the Company has no knowledge of any release on the
real property owned or leased by the Company or any Company Subsidiary or
predecessor entity of Hazardous Materials in a manner that could reasonably be
expected to result in an order to perform a response action; (ii) to the best
knowledge of the Company, there is no hazardous waste treatment, storage or
disposal facility located at any of the real property owned or leased by the
Company or any Company Subsidiary; and (iii) to the best Knowledge of the
Company, no underground storage tank, landfill, surface impoundment,
underground injection well, friable asbestos or PCB's, as those terms are
defined under the Environmental Laws, are located at any of the real property
owned or leased by the Company or any Company Subsidiary other than in
compliance with applicable Environmental Laws.
"Significant Environmental Liability" shall mean a liability of the
Company or any of its Subsidiaries under any Environmental Law for response
costs, property damages, natural resource damages, fines and penalties as
defined under the Environmental Laws which, individually or in the aggregate,
is reasonably expected to exceed $200 million. The term "Significant
Environmental Liability" shall not include (i) any actual or potential threats
of liability under any Environmental Law with respect to a potential liability
identified solely due to the nature of the present or former use of any
property surrounding the property owned by the Company or its Subsidiaries so
long as the contamination is not on the Company's or such Subsidiary's
Property), (ii) any liability for remedial activity not required to be
performed pursuant to any Environmental Law, or (iii) any liability for which
the Responsible Party is reasonably likely to be a party other than the Company
or any of its Subsidiaries and for which such generator is a person who is a
financially viable party capable of implementing required remedial work.
(w) Intellectual Property. The Company and each of its Subsidiaries own
or has the right to use all trademarks, trade names, service marks, trade
secrets, copyrights and other proprietary intellectual property rights,
including without limitation the names "La Quinta Inns" and "La Quinta"
(collectively, the "Intellectual Property Rights") as are necessary in
connection with the business of the Company and its Subsidiaries, taken as a
whole, except (other than in the case of the names "La Quinta Inns" and "La
Quinta" where the failure to own or have the right to use such Intellectual
Property Rights could not reasonably be expected to have a Company MAE. Neither
the Company nor any of its Subsidiaries has infringed any Intellectual Property
Rights of a third party other than any infringements that, individually or in
the aggregate, could not reasonably be expected to have a Company MAE.
3.02 Representations and Warranties of RECO and OPCO. Except as disclosed
in the reports, schedules, forms, statements and other documents which have
been filed with the SEC on or before November 5, 1997 by Meditrust Corporation
prior to its merger with and into Santa Anita Enterprises, Inc. ("Santa Anita")
pursuant to the Exchange Act or in the RECO SEC Documents (as defined herein),
which have been filed with the SEC subsequent
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to December 31, 1996 pursuant to the Exchange Act, in each case, exclusive of
any exhibits thereto and information incorporated therein by reference, the
RECO Companies jointly and severally represent and warrant to the Company as
follows:
(a) Organization, Standing and Corporate Power. Each of the RECO
Companies and each of their respective Significant Subsidiaries is a
corporation or other legal entity duly organized, validly existing and in good
standing (with respect to jurisdictions which recognize such concept) under the
Laws of the jurisdiction in which it is organized and has all the requisite
corporate, partnership or limited liability company or other power, as the case
may be, and authority to own, operate, lease and encumber its properties and
carry on its business as now being conducted. The RECO Companies and each of
their respective Significant Subsidiaries are duly qualified or licensed to do
business and in good standing (with respect to jurisdictions which recognize
such concept) in each jurisdiction in which the nature of their respective
businesses or the ownership or leasing of their respective properties makes
such qualification or licensing necessary, other than in such jurisdictions in
which the failure to be so qualified or licensed or to be in good standing
individually or in the aggregate could not be reasonably expected to have a
material adverse effect on the business, assets, prospects, financial condition
or results of operations of the RECO Companies and their respective
Subsidiaries, taken as a whole, or on the ability of the RECO Companies to
perform any of their obligations under this Agreement (any such effect, a "RECO
MAE"). The RECO Companies have delivered to the Company prior to the execution
of this Agreement complete and correct copies of their respective articles of
incorporation and bylaws, in each case as amended to date and have made
available to the Company the articles of incorporation and bylaws (or
comparable organizational documents) of each of their respective Subsidiaries,
in each case as amended to date.
(b) Subsidiaries. Section 3.02(b) of the RECO Disclosure Schedule lists
all of the Significant Subsidiaries of the RECO Companies as of the date
hereof. Except as set forth on Section 3.02(b) of the Company Disclosure
Schedule, all of the outstanding shares of capital stock of, or other equity
interests in, each such Significant Subsidiary have been validly issued and are
fully paid and nonassessable and are owned directly or indirectly by the
Company, free and clear of all Liens.
(c) Capital Structure. The authorized capital stock of RECO consists of
306 million shares of capital stock including (i) 270 million shares of RECO
Common Stock, (ii) 6 million shares of preferred stock, par value $.10 per
share ("RECO Preferred Stock"), and (iii) 30 million shares of series common
stock, par value $.10 per share ("RECO Series Stock"). The authorized capital
stock of OPCO consists of 306 million shares of capital stock including (x) 270
million shares of OPCO Common Stock, (y) 6 million shares of preferred stock,
par value $.10 per share ("OPCO Preferred Stock"), and (z) 30 million shares of
series common stock, par value $.10 per share ("OPCO Series Stock"). At the
close of business on December 23, 1997, (i) 88,969,888 paired shares of RECO
Common Stock and OPCO Common Stock were issued and outstanding, (ii) no shares
of RECO Preferred Stock and no shares of OPCO Preferred Stock were issued and
outstanding, (iii) no shares of RECO Series Stock and no shares of OPCO Series
Stock were issued and outstanding, (iv) no shares of RECO Common Stock and no
shares of OPCO Common Stock were held by RECO or OPCO in their respective
treasuries; provided, however, that, OPCO currently holds approximately 1.3
million shares of RECO Common Stock, (v) 5% of the issued and outstanding
shares of RECO Common Stock and 5% of the issued and outstanding shares of OPCO
Common Stock plus an additional 3,522,877 Paired Shares of each were reserved
for issuance pursuant to equity plans filed as exhibits to or described in the
RECO SEC Documents (collectively, the "RECO Stock Plans"), and (vi) 3,350,746
shares of RECO Common Stock and 3,350,746 shares of OPCO Common Stock were
reserved for issuance upon the conversion of RECO's outstanding convertible
senior notes and convertible debentures described in Section 3.02(c) of the
RECO Disclosure Schedule. At the close of business on the Representation Date,
except as set forth above, there were no outstanding stock options, stock
appreciation rights or rights (other than employee stock options or other
rights ("RECO Employee Stock Options") to purchase or receive RECO and OPCO
Common Stock granted under the RECO Stock Plans) to receive shares of RECO
Common Stock on a deferred basis granted under the RECO Stock Plans or
otherwise. Section 3.02(c) of the RECO Disclosure Schedule sets forth a
complete and correct list, as of the Representation Date, except as set forth
above, of the number of Paired Shares subject to RECO Employee Stock Options.
All outstanding shares of capital stock of the RECO Companies are, and all
shares which may be issued, including shares to be issued pursuant to this
Agreement, will be, when issued, duly authorized, validly issued, fully paid
and nonassessable and not subject to preemptive rights. As of the close of
business on the Representation Date, there were no bonds, debentures, notes or
other indebtedness or securities of the RECO Companies having the right to vote
(or convertible into, or exchangeable for, securities
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having the right to vote) on any matters on which shareholders of RECO and OPCO
may vote. Except as set forth above, as of the close of business on the
Representation Date, there were no outstanding securities, options, warrants,
calls, rights, commitments, agreements, arrangements or undertakings of any
kind to which the RECO Companies or any of their respective Subsidiaries is a
party or by which any of them is bound obligating the RECO Companies or any of
their respective Subsidiaries to issue, deliver or sell, or cause to be issued,
delivered or sold, additional shares of capital stock or other voting
securities of the RECO Companies or of any of their respective Subsidiaries or
obligating the RECO Companies or any of their respective Subsidiaries to issue,
grant, extend or enter into any such security, option, warrant, call, right,
commitment, agreement, arrangement or undertaking. Except for agreements
entered into with respect to the RECO Stock Plans and except as set forth
above, as of the close of business on the Representation Date, and except as
could not reasonably be expected to be required to be disclosed pursuant to the
RECO SEC Documents, there were no outstanding contractual obligations of the
RECO Companies or any of their respective Subsidiaries to issue, repurchase,
redeem, exchange or otherwise acquire, or to register (under the federal or any
state securities laws) for resale, any shares of capital stock of the RECO
Companies or any of their respective Subsidiaries. As of the close of business
on the Representation Date, there were no outstanding contractual obligations
of the RECO Companies to vote or to dispose of any shares of the capital stock
of any of their respective Subsidiaries. The Company maintains a shareholder
rights plan.
(d) Authority; Noncontravention. RECO and OPCO have all requisite
corporate power and authority to enter into this Agreement and, subject to the
RECO/OPCO Shareholder Approvals, to consummate the Merger and to perform all of
their respective obligations under this Agreement. On or prior to the date
hereof, the Board of Directors of each of RECO and OPCO approved this Agreement
and the other transactions contemplated by this Agreement and resolved to
recommend that the holders of RECO/OPCO Common Stock adopt this Agreement, and
the Board of Directors of RECO has approved the Merger. The execution and
delivery of this Agreement by RECO and OPCO and the performance by RECO and
OPCO of their respective obligations contemplated by this Agreement have been
duly authorized by all necessary corporate action on the part of RECO and OPCO,
subject, in the case of the adoption of this Agreement, to RECO/OPCO
Shareholder Approvals as defined below. This Agreement has been duly executed
and delivered by RECO and OPCO and constitutes the legal, valid and binding
obligations of RECO and OPCO, enforceable against each of them in accordance
with its terms. Except as set forth in Section 3.02(d) of the RECO Disclosure
Schedule, the execution and delivery of this Agreement does not, and the
consummation of the transactions contemplated hereby and compliance with the
provisions hereof will not, conflict with, breach, or result in any violation
of, or default (with or without notice or lapse of time, or both) under, or
give rise to a right of termination, cancellation or acceleration of any
obligation or loss of a material benefit under, or result in the creation of
any Lien upon any of the properties or assets of the RECO Companies or any of
their respective Subsidiaries under, (i) assuming RECO/ OPCO Shareholder
Approvals, the articles of incorporation or bylaws of the RECO Companies or the
comparable organizational documents of any of their respective Subsidiaries,
(ii) any loan or credit agreement, note, bond, mortgage, indenture, lease or
other agreement, instrument, permit, concession, franchise or license
applicable to the RECO Companies or any of their respective Subsidiaries or
their respective properties or assets, or (iii) subject to the governmental
filings and other matters referred to in the following sentence, any Order or
Law applicable to the RECO Companies or any of their respective Subsidiaries or
their respective properties or assets, other than, in the case of clauses (ii)
and (iii), any such conflicts, breaches, violations, defaults, rights, losses
or Liens that individually or in the aggregate could not be reasonably expected
to have a RECO MAE. No Order, consent, approval or authorization of, or
registration, declaration or filing with, any Governmental Entity is required
by or with respect to the RECO or any of their respective Subsidiaries in
connection with the execution and delivery of this Agreement by RECO and OPCO
or the consummation by RECO and OPCO of the Merger or the performance of all of
their respective obligations under this Agreement, except for (1) the filing of
a premerger notification and report form by the RECO Companies under the HSR
Act; (2) the filing with the SEC of (A) the Joint Proxy Statement relating to
the RECO/OPCO Shareholder Meetings, (B) the Form S-4, and (C) such reports
under the Exchange Act as may be required in connection with this Agreement and
the transactions contemplated hereby; (3) the filing of Articles of Merger with
the Texas Secretary of State and appropriate documents with the relevant
authorities of other states in which the RECO Companies are qualified to do
business and such filings with Governmental Entities to satisfy the applicable
requirements of state securities or "blue sky" laws; (4) the filing of a
Certificate of Merger with the Secretary of State of Delaware; (5) such filings
with and approvals of the NYSE to permit the Paired Shares that are to be
issued in the Merger to be listed or quoted for trading thereon; (6) such other
filings and consents as may be required under any Environmental Law pertaining
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to any notification, disclosure or required approval necessitated by the Merger
or the transactions contemplated by this Agreement; and (7) such consents,
approvals, Orders, authorizations, registrations, declarations or filings, the
failure of which to be made or obtained, individually or in the aggregate,
could not reasonably be expected to have a RECO MAE.
(e) SEC Documents; Undisclosed Liabilities. RECO and OPCO have timely
filed all required reports, schedules, forms, statements and other documents
with the SEC since December 31, 1996 (the "RECO SEC Documents"). As of their
respective dates, the RECO SEC Documents complied in all material respects with
the requirements of the Securities Act or the Exchange Act, as the case may be,
and the rules and regulations of the SEC promulgated thereunder applicable to
such RECO SEC Documents, and none of the RECO SEC Documents when filed
contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. Except to the extent that information contained in any RECO SEC
Document has been revised or superseded by a later RECO SEC Document, as of the
date hereof none of the RECO SEC Documents contains any untrue statement of a
material fact or omits to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The financial
statements of RECO and OPCO included in the RECO SEC Documents comply as to
form, as of their respective dates of filing with the SEC, in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto, have been prepared in accordance
with generally accepted accounting principles (except, in the case of unaudited
statements, as permitted by Form 10-Q of the SEC) applied on a consistent basis
during the periods involved (except as may be indicated in the notes thereto)
and fairly present in all material respects the consolidated financial position
of RECO and OPCO and their respective consolidated Subsidiaries as of the dates
thereof and the consolidated results of their operations and cash flows for the
periods then ended (subject, in the case of unaudited statements, to normal
recurring year-end audit adjustments). Except (i) as reflected in such
financial statements or in the notes thereto, (ii) as contemplated hereunder,
(iii) for liabilities incurred in connection with this Agreement or the
transactions contemplated hereby (including without limitation financing
relating to the transactions contemplated hereby), and (iv) for liabilities and
obligations incurred since September 30, 1997 in the ordinary course of
business consistent with past practice, neither RECO, OPCO nor any Subsidiaries
has any liabilities or obligations of any nature (whether accrued, absolute,
known or unknown, asserted or unasserted, contingent or otherwise), including
liabilities arising under any Environmental Laws, which are required by
generally accepted accounting principles to be reflected in a consolidated
balance sheet of RECO and OPCO and their respective consolidated Subsidiaries
and which, individually or in the aggregate, could reasonably be expected to
have a RECO MAE.
(f) Information Supplied. None of the information supplied or to be
supplied by the RECO Companies specifically for inclusion or incorporation by
reference in (i) the Form S-4, at the time the Form S-4 is filed with the SEC
or at the time it becomes effective under the Securities Act or (ii) the Joint
Proxy Statement, at the date it is first mailed to the shareholders of RECO and
OPCO or at the time of the RECO/OPCO Shareholder Meetings will 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
light of the circumstances under which they are made, not misleading. The Joint
Proxy Statement and the Form S-4 will comply as to form in all material
respects with the requirements of the Exchange Act and the Securities Act,
respectively, and the rules and regulations thereunder, except that no
representation or warranty is made by RECO or OPCO with respect to statements
made or incorporated by reference therein based on information supplied by the
Company specifically for inclusion or incorporation by reference in the Joint
Proxy Statement or the Form S-4 or contained in any Company SEC Documents
incorporated by reference in the Joint Proxy Statement or the Form S-4.
(g) Absence of Certain Events. Except (i) as disclosed in the RECO SEC
Documents filed and publicly available prior to the date of this Agreement,
(ii) for the transactions provided for herein or permitted by Section 4.01(b),
and (iii) for liabilities incurred in connection with or as a result of this
Agreement, since September 30, 1997, there has not been (1) any RECO MAE, (2)
any declaration, setting aside or payment of any dividend or other distribution
(whether in cash, stock or property) with respect to any of RECO's or OPCO's
capital stock, other than regular quarterly cash dividends at the rate in
effect for the three quarters of 1997, as increased by the Board of Directors
of RECO and OPCO in the ordinary course ("Regular RECO Quarterly Dividends"),
(3) any split, combination or reclassification of any of RECO's or OPCO's
capital stock or any issuance or the authorization of any issuance of any other
securities
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in respect of, in lieu of or in substitution for shares of RECO's or OPCO's
capital stock, or (4) except insofar as may be required by a change in
generally accepted accounting principles, any change in accounting methods,
principles or practices by the RECO Companies.
(h) Litigation. Except as described in the RECO SEC Documents filed
prior to the date hereof, there is no action, suit or proceeding, claim,
arbitration or investigation against the RECO Companies pending or, to the RECO
Companies' Knowledge, threatened, which, individually or in the aggregate,
could reasonably be expected to have a RECO MAE.
(i) Voting Requirements. The affirmative vote of the holders of a
majority of the voting power of all outstanding shares of (x) RECO Common
Stock, voting as a single class, at the RECO Shareholder Meeting, which shall
be a duly convened meeting at which a quorum was present and acting throughout
(the "RECO Shareholder Approval"), to adopt this Agreement and (y) OPCO Common
Stock, voting as a single class, at the OPCO Shareholder Meeting, which shall
be a duly convened meeting at which a quorum was present and acting throughout
(the "OPCO Shareholder Approval" and together with the RECO Shareholder
Approval, the "RECO/OPCO Shareholder Approvals"), to approve the issuance of
OPCO Common Stock in connection with the Merger are the only votes of the
holders of any class or series of RECO's or OPCO's capital stock necessary to
approve and adopt this Agreement, the Subscription Agreement and the
transactions contemplated hereby and thereby.
(j) Brokers. No broker, investment banker, financial advisor or other
Person, other than Smith Barney Inc. and Salomon Brothers Inc. (collectively
doing business as, and hereinafter referred to as, "Salomon Smith Barney"), the
fees and expenses of which will be paid by the RECO Companies or, if the Merger
occurs, the Surviving Corporation is entitled to any broker's, finder's,
financial advisor's or other similar fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of the RECO Companies. RECO has furnished to the Company true and
complete copies of all agreements under which any such fees or expenses are
payable and all indemnification and other agreements related to the engagement
of the Persons to whom such fees are payable.
(k) Opinion of Financial Advisor. The Boards of Directors of the RECO
Companies have received the opinion of Salomon Smith Barney to the effect that,
as of the date of the Boards' approval of this Agreement, the Merger
Consideration is fair to the RECO Companies from a financial point of view.
(l) Ownership of Company Common Stock. RECO, OPCO and, to their
Knowledge, their respective Affiliates beneficially own (as such term is
defined in Rule 13d-3 under the Exchange Act) collectively less than one
percent (1%) of the capital stock of the Company. Except for this Agreement and
the Shareholders Agreement, neither RECO nor OPCO nor, to their knowledge, any
of their respective Affiliates is a party on the date hereof to any agreement,
arrangement or understanding for the purpose of acquiring, holding, voting or
disposing of shares of capital stock of the Company.
(m) Tax Matters. The RECO Companies have no plan or intention to take
any action that would cause the Merger not to qualify and continue to qualify
as a reorganization under Section 368(a) of the Code. The parties hereto agree
that the sale, if any, of the Company Management Assets to OPCO as provided in
Section 5.15 hereto shall not constitute a breach of this representation.
(n) REIT Status.
(i) RECO has been, for every year beginning with the taxable year
ending December 31, 1985, and will continue to be, organized and operated in
conformity with the requirements for RECO to qualify as a REIT under the Code
and the rules and regulations promulgated thereunder (the "REIT Requirements"),
and its proposed method of operation will enable it to continue to meet the
REIT Requirements.
(ii) Except as disclosed in the RECO Disclosure Schedule, RECO has
timely, completely and correctly filed all Federal, state and local tax returns
and reports required to be filed by it, and has timely paid or made adequate
provision for the payment of all taxes, if any, required to be paid with
respect thereto, except where the failure to file or pay is not reasonably
expected to have a RECO MAE. Except as set forth in the RECO Disclosure
Schedule, neither RECO nor any of its Significant Subsidiaries have been
audited or examined by the IRS or any state or local taxing authority and no
notice of any such audit has been received by RECO, nor has RECO extended any
applicable
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statute of limitations for the assessment or collections of tax. Except as
disclosed in the RECO Disclosure Schedule, no liens for taxes exist with
respect to any assets or properties of RECO or any of its Significant
Subsidiaries, except for statutory liens for taxes not yet due.
(iii) RECO has complied with all applicable laws, rules and
regulations relating to the payment and withholding of taxes (including without
limitations, withholding of taxes pursuant to Sections 1441, 1442, 3121 and
3402 of the Code or similar provisions under any federal, state or local laws,
domestic or foreign) and has, within the time and manner prescribed by law,
withheld from and paid over to the proper governmental authorities all amounts
required to be so withheld and paid over under applicable laws, except where
the failure to pay or withhold is not reasonably expected to have a RECO MAE.
(o) Other Interests. Except for such Other Interests of the RECO
Companies or any of their respective Subsidiaries that, individually or in the
aggregate, could not reasonably be expected to have a RECO MAE, neither the
RECO Companies nor any of their respective Subsidiaries owns directly or
indirectly Other Interests.
(p) Related Party Transactions. The RECO SEC Documents and/or in
Section 3.02(p) of the RECO Disclosure Schedule disclose all arrangements,
agreements and contracts entered into by the RECO Companies or any of their
respective Subsidiaries (which are or will be in effect as of or after the date
of this Agreement) involving payments in excess of $60,000 with any person who
is an officer, director or affiliate of the RECO Companies, any member of the
immediate family, spouse, grandchild or, to the knowledge of the RECO
Companies, any other relative of any of the foregoing or any entity of which
any of the foregoing is an Affiliate. Copies of all such documents have
previously been provided or made available, or will be made available, to the
Company and its counsel.
(q) Labor Matters. Except as would not reasonably be expected to have a
RECO MAE, neither the RECO Companies nor any of their respective Subsidiaries
is a party to or otherwise bound by any collective bargaining agreement,
contract or other agreement or understanding with a labor union or labor
organization. Except as would not reasonably be expected to have a RECO MAE, as
of the date hereof, neither the RECO Companies or any of their respective
Subsidiaries are the subject of any material proceeding asserting that the RECO
Companies or any of their respective Subsidiaries has committed an unfair labor
practice or is seeking to compel it to bargain with any labor union or labor
organization nor, as of the date of this Agreement, is there pending or, to the
knowledge of the RECO Companies, threatened, any material labor strike,
dispute, walkout, work stoppage, slow-down or lockout involving the RECO
Companies or any of their respective Subsidiaries.
(r) Contracts and Commitments. Except as disclosed in the RECO
Disclosure Schedule, neither the RECO Companies, nor any of their respective
Subsidiaries, is a party to or bound by, and neither they nor any of their
properties or assets are bound or subject to, any contract or other agreement
(i) required to be disclosed in, or filed as an exhibit to, the RECO SEC
Documents, or (ii) which will be required to be disclosed in or filed as an
exhibit to the RECO or OPCO Form 10-K for the period ending December 31, 1997
(a "RECO Material Contract") that is not filed in the RECO SEC Documents. All
RECO Material Contracts are valid, existing, in full force and effect, binding
upon the RECO Companies that are parties thereto or their respective
Subsidiaries, as the case may be, in accordance with their terms, and the RECO
Companies and their respective Subsidiaries are not in default under any of
them, nor, to the best knowledge of the RECO Companies, is any other party to
any such contract or other agreement in default thereunder nor, to the best
knowledge of the RECO Companies, does any condition exist that with notice or
lapse of time or both would constitute a default thereunder.
(s) Compliance with Laws; Permits. Neither the RECO Companies nor any
of their respective Subsidiaries is in violation of any Order or any Law
applicable to the RECO Companies or any of their respective Subsidiaries or any
of their respective properties or assets, except such violations as could not
reasonably be expected to have a RECO MAE. The RECO Companies and their
respective Subsidiaries have obtained all material licenses, permits and other
authorizations and have taken all actions required by applicable Law or
governmental regulations in connection with their business as now or previously
conducted where the failure to obtain any such license, permit or authorization
or to take any such action, individually or in the aggregate, could reasonably
be expected to have a RECO MAE. None of such licenses, permits or
authorizations shall be terminated or canceled as a result of the consummation
of the transactions contemplated by this Agreement, except for those licenses,
permits or authorizations the lack of which could not reasonably be expected to
have a RECO MAE.
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(t) Tax Matters. Except as, individually or in the aggregate, could not
be reasonably expected to have a RECO MAE and except as set forth on Section
3.02(t) of the RECO Disclosure Schedule:
(i) The RECO Companies and each of their respective Subsidiaries has
paid or caused to be paid all Taxes, required to be so paid prior to the date
hereof and has made provision, in accordance with generally accepted accounting
principles, for all Taxes owed or accrued through the date hereof;
(ii) The RECO Companies and each of their respective Subsidiaries has
timely filed all federal, state, local and foreign tax returns required to be
filed by any of them through the date hereof, and all such returns completely
and accurately set forth the amount of any Taxes relating to the applicable
period;
(iii) Neither the IRS nor any other governmental authority is now
asserting by written notice to the RECO Companies or any of their respective
Subsidiaries or, to the Knowledge of the RECO Companies, threatening to assert
against the RECO Companies or any of their respective Subsidiaries any
deficiency or claim for additional Taxes. No written claim has been made since
July 1, 1996 by a taxing authority in a jurisdiction where the RECO Companies
do not file reports and returns that the RECO Companies are or may be subject
to taxation by that jurisdiction. There are no security interests on any of the
assets of the RECO Companies or any of their respective Subsidiaries that arose
in connection with any failure (or alleged failure) to pay any Taxes. The RECO
Companies have not since January 1, 1994 entered into a closing agreement
pursuant to Section 7121 of the Code;
(iv) The RECO Companies have not received written notice of any audit
of any tax return filed by the RECO Companies, and the RECO Companies have not
been notified in writing by any tax authority that any such audit is
contemplated or pending. Neither the RECO Companies nor any of their
Subsidiaries has executed or filed with the IRS or any other taxing authority
any agreement now in effect extending the period for assessment or collection
of any income or other Taxes, and no extension of time with respect to any date
on which a tax return was or is to be filed by the RECO Companies is in force;
and
(v) The RECO Companies and each of their respective Subsidiaries has
withheld and paid all taxes required to have been withheld and paid in
connection with amounts paid or owing to any employee, independent contractor,
creditor, stockholder or other party.
(u) Employee Benefit Plans. With respect to all the employee benefit
plans, programs and arrangements maintained for the benefit of any current or
former employee, officer or director of the RECO Companies or any of their
respective Subsidiaries (the "RECO Benefit Plans"), except for such matters as,
individually or in the aggregate, could not reasonably be expected to have a
RECO MAE, (a) each RECO Benefit Plan and any related trust intended to be
qualified under Sections 401(a) and 501(a) of the Code has received or has
applied for a favorable determination letter from the IRS that it is so
qualified and nothing has occurred since the date of such letter that could
reasonably be expected to materially adversely affect the qualified status of
such RECO Benefit Plan or related trust, (b) each RECO Benefit Plan has been
operated in all material respects in accordance with the terms and requirements
of applicable law and all required returns and filings for each RECO Benefit
Plan have been timely made, (c) neither the RECO Companies nor any of their
respective Subsidiaries has incurred any direct or indirect material liability
under, arising out of or by operation of Title I or Title IV of ERISA in
connection with any RECO Benefit Plan or other retirement plan or arrangement,
and no fact or event exists that could reasonably be expected to give rise to
any such material liability, (d) except as set forth on Section 3.02(u) of the
RECO Disclosure Schedule, all material contributions due and payable on or
before the date hereof in respect of each RECO Benefit Plan have been made in
full and in proper form, (e) except as set forth on Section 3.02(u) of the RECO
Disclosure Schedule, neither the RECO Companies nor any of its Subsidiaries
have ever sponsored or been obligated to contribute to any "multiemployer plan"
(as defined in Section 3(37) of ERISA), "multiple employer plan" (as defined in
Section 413 of the Code) or "defined benefit plan" (as defined in Section 3(35)
of ERISA), (f) except as set forth on Section 3.02(u) of the RECO Disclosure
Schedule and except as otherwise required under ERISA, the Code or applicable
state Laws, no RECO Benefit Plan currently or previously maintained by the RECO
Companies or any of their respective Subsidiaries provides any post-retirement
health or life insurance benefits, and neither the RECO Companies nor any of
their respective Subsidiaries maintains any obligations to provide
post-retirement health or life insurance benefits in the future, (g) all
material reporting and disclosure obligations imposed under ERISA and the Code
have been satisfied with respect to each RECO Benefit Plan, and (h) except as
set forth on Section 3.02(u) of the RECO Disclosure Schedule, no benefit or
amount payable or which may become payable by RECO or any of its Subsidiaries
pursuant to any RECO Benefit Plan, agreement
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or contract with any employee, shall constitute an "excess parachute payment,"
within the meaning of Section 280G of the Code, which is or may be subject to
the imposition of any excise tax under Section 4999 of the Code or which could
not reasonably be expected to be deductible by reason of Section 280G of the
Code.
(v) Properties. All of the real estate properties owned by the RECO
Companies and each of their respective Subsidiaries as of the date hereof are
listed in Section 3.02(v) of the RECO Disclosure Schedule. The RECO Companies
have no direct or indirect ownership interest in any real property as of the
date hereof other than the properties owned by the Company and its Subsidiaries
and set forth in Section 3.02(v) of the RECO Disclosure Schedule. The RECO
Companies and each of their respective Subsidiaries own fee simple title to or
a long-term leasehold interest in each of the real properties identified in
Section 3.02(v) of the RECO Disclosure Schedule (the "RECO Owned Properties"),
free and clear of Encumbrances, except for such Encumbrances as, individually
and in the aggregate, could not reasonably be expected to have a RECO MAE.
Except for such of the following as, individually and in the aggregate, could
not reasonably be expected to have a RECO MAE, the RECO Owned Properties are
not subject to any Property Restrictions, except for (i) Encumbrances and
Property Restrictions, (ii) Property Restrictions imposed or promulgated by Law
or any governmental body or authority with respect to real property, including
zoning regulations, that do not and as a consequence of the Merger will not
adversely affect the current use of the property, materially detract from the
value of or materially interfere with the present use of the property, (iii)
Encumbrances and Property Restrictions disclosed on existing title policies,
commitments (and the documents listed as exceptions therein), reports,
certificates of title, title opinions or current surveys (in each case copies
of which title policies, commitments (and the documents listed as exceptions
therein), reports and surveys have been or will, prior to Closing, be delivered
or made available to RECO), and (iv) mechanics', carriers', supplier's,
workmen's or repairmen's liens and other Encumbrances, Property Restrictions
and other limitations of any kind, if any, which, individually or in the
aggregate, are not material in amount, do not and as a consequence of the
Merger will not materially detract from the value of or materially interfere
with the present use of any of the RECO Owned Properties subject thereto or
affected thereby, and do not and as a consequence of the Merger will not
otherwise materially impair business operations conducted by the RECO Companies
and its respective Subsidiaries and which have arisen or been incurred only in
the ordinary course of business. Except for such of the following as,
individually and in the aggregate, could not reasonably be expected to have a
RECO MAE, valid policies of title insurance have been issued insuring the RECO
Companies' or their respective applicable Subsidiary's fee simple title or
leasehold to each of the RECO Owned Properties in amounts at least equal to the
purchase price thereof or, if acquired through merger, the stipulated value
thereof, and such policies are, at the date hereof, in full force and effect
and no claim has been made against any such policy and the RECO Companies have
no knowledge of any facts or circumstances which would constitute the basis for
such a claim. Except for such of the following as, individually and in the
aggregate, could not reasonably be expected to have a RECO MAE, (A) no
certificate, permit or license from any governmental authority having
jurisdiction over any of the RECO Owned Properties or any agreement, easement
or other right which is necessary to permit the lawful use and operation of the
buildings and improvements on any of the RECO Owned Properties as currently
operated or which is necessary to permit the lawful use and operation of all
driveways, roads and other means of egress and ingress to and from any of the
RECO Owned Properties (a "REA Agreement") has not been obtained and is not in
full force and effect, and there is no pending threat of modification or
cancellation of any of same nor are the RECO Companies or any of their
respective Subsidiaries currently in default under any REA Agreement and the
RECO Owned Properties are in full compliance with all governmental permits,
licenses and certificates, except for such defaults which or where such
noncompliance could not reasonably be expected to have a RECO MAE; (B) no
written notice of any violation of any federal, state or municipal law,
ordinance, order, regulation or requirement affecting any portion of any of the
RECO Owned Properties has been issued by any governmental authority; (C) there
are no material structural defects relating to any of the RECO Owned
Properties; (D) there is no RECO Owned Property whose building systems are not
in working order in any material respect; and (E) there is no physical damage
to any Company Property in excess of $750,000 for which there is no insurance
in effect (other than reasonable and customary deductibles) covering the full
cost of the restoration. Except for such of the following as, individually and
in the aggregate, could not reasonably be expected to have a RECO MAE, the use
and occupancy of each of the RECO Owned Properties complies in all material
respects with all applicable codes and zoning laws and regulations, and the
RECO Companies have no knowledge of any pending or threatened proceeding or
action that will in any manner affect the size of, use of, improvements on,
construction on, or access to any of the RECO Companies Properties, with such
exceptions as are not material and do not interfere with the use made and
proposed to be made of such RECO Owned Properties. Except
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for such of the following as, individually and in the aggregate, could not
reasonably be expected to have a RECO MAE, neither the RECO Companies nor any
of their respective Subsidiaries has received any written notice to the effect
that (x) any betterment assessments have been levied against, or any
condemnation or rezoning proceedings are pending or threatened with respect to
any of the RECO Owned Properties or (y) any zoning, building or similar law,
code, ordinance, order or regulation is or will be violated by the continued
maintenance, operation or use of any buildings or other improvements on any of
the RECO Owned Properties or by the continued maintenance, operation or use of
the parking areas. Except as otherwise could not reasonably be expected to have
a RECO MAE, there are no outstanding abatement proceedings or appeals with
respect to the assessment of any RECO Owned Property for the purpose of real
property taxes, and there are no agreements with any governmental authority
with respect to such assessments or tax rates on any RECO Owned Property.
(w) Environmental Matters. To the Knowledge of the RECO Companies, the
RECO Companies and their respective Subsidiaries are in compliance with all
Environmental Laws (as defined below), except for any noncompliance that,
either singly or in the aggregate, could not reasonably be expected to result
in a RECO Significant Environmental Liability. The RECO Companies have
previously made available to the Company, or will provide, upon request, within
twenty days from the date hereof, copies of all documents concerning any
environmental or health and safety matter adversely affecting the RECO
Companies and copies of environmental audits or risk assessments, site
assessments, documentation regarding off-site disposal of Hazardous Materials,
spill control plans and material correspondence with any federal, state or
local government, court, administrative agency, commission, or other
governmental authority, domestic or foreign, regarding the foregoing. Except as
set forth in Section 3.02(w) of the RECO Disclosure Schedule or disclosed in
the RECO SEC Reports and except for any matter, which if the outcome were
adverse, could not reasonably be expected to result in a RECO Significant
Environmental Liability, there is no administrative or judicial enforcement
proceeding, pending or to the Knowledge of the RECO Companies, threatened
against the RECO Companies or any of their respective Subsidiaries under any
Environmental Law. Except as set forth in Section 3.02(w) of its the RECO
Disclosure Schedule or disclosed in the RECO SEC Reports and except for any
matter, which if the outcome were adverse, could not reasonably be expected to
result in a RECO Significant Environmental Liability, neither the RECO
Companies nor any of their respective Subsidiaries or, to the best Knowledge of
the RECO Companies, any legal predecessor of the RECO Companies or any of their
respective Subsidiaries, has received any written notice that it is potentially
responsible under any Environmental Law for response costs, property damage,
fines, penalties or natural resource damages, as those terms are defined under
the Environmental Laws, at any location and, to the best knowledge of the RECO
Companies, neither the RECO Companies nor any of their respective Subsidiaries
has transported or disposed of, or allowed or arranged for any third party to
transport or dispose of, any waste containing Hazardous Materials at any
location included on the National Priorities List, as defined under the
Comprehensive Environmental Response, Compensation, and Liability Act, or any
location proposed for inclusion on that list or at any location on any
analogous state list. Except as set forth in Section 3.02(w) of the RECO
Disclosure Schedule, and except for any matter, which if the outcome were
adverse, could not reasonably be expected to result in a RECO Significant
Environmental Liability, the RECO Companies have no Knowledge of any release on
the real property owned or leased by the RECO Companies or any of their
respective Subsidiaries or predecessor entity of Hazardous Materials in a
manner that could reasonably be expected to result in an order to perform a
response action or in material liability under the Environmental Laws and, to
the best knowledge of the RECO Companies, there is no hazardous waste
treatment, storage or disposal facility, and except for the following which, to
the best Knowledge of the RECO Companies, could not reasonably be expected to
result in a RECO Significant Environmental Liability based on its current
condition, underground storage tank, landfill, surface impoundment, underground
injection well, friable asbestos or PCB's, as those terms are defined under the
Environmental Laws, located at any of the real property owned or leased by the
RECO Companies or any of their respective Subsidiaries other than in compliance
with applicable Environmental Laws.
"RECO Significant Environmental Liability" shall mean a liability of
the RECO Companies or any of their respective Subsidiaries under any
Environmental Law for response costs, property damages, natural resource
damages, fines and penalties as defined under the Environmental Laws which,
individually or in the aggregate, is reasonably expected to exceed $200
million. The term "RECO Significant Environmental Liability" shall not include
(i) any actual or potential threats of liability under any Environmental Law
with respect to a potential liability identified solely due to the nature of
the present or former use of any property surrounding the property owned by the
RECO Companies or their respective Subsidiaries so long as the contamination is
not on the RECO Companies' or such Subsidiary's
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Property), (ii) any liability for remedial activity not required to be
performed pursuant to any Environmental Law, or (iii) any liability for which
the Responsible Party is reasonably likely to be a party other than the RECO
Companies or any of their respective Subsidiaries and for which such generator
is a person who is a financially viable party capable of implementing required
remedial work.
IV. COVENANTS RELATING TO CONDUCT OF BUSINESS
4.01 Conduct of Business.
(a) Conduct of Business by the Company. Except as contemplated by this
Section 4.01 and except as set forth in Section 4.01(a) of the Company
Disclosure Schedule, during the period from the date of this Agreement to the
Effective Time, the Company will, and will cause its Significant Subsidiaries
to, carry on their respective businesses in all material respects in the
ordinary course thereof in substantially the same manner as heretofore
conducted and in compliance in all material respects with all applicable Laws
and, to the extent consistent therewith, use all reasonable efforts to preserve
intact their current business organizations, use all reasonable efforts to keep
available the services of their current officers and other key employees and
preserve their relationships with those Persons having business dealings with
them to the end that their goodwill and ongoing businesses will be unimpaired
at the Effective Time. Except as set forth in Section 4.01(a) of the Company
Disclosure Schedule, without limiting the generality or effect of the
foregoing, during the period from the date of this Agreement to the Effective
Time, the Company will not, and will not permit any of its Subsidiaries to:
(i) other than (i) normal quarterly dividends of $.0175 per Share
payable by the Company to its shareholders, and (ii) dividends and
distributions (including liquidating distributions) by a direct or indirect
wholly owned Subsidiary of the Company to its parent, or by a Subsidiary that
is partially owned by the Company or any of its Subsidiaries, provided that the
Company or any such Subsidiary receives or is to receive its proportionate
share thereof, (A) declare, set aside or pay any dividends on, or make any
other distributions in respect of, any of its capital stock, (B) split, combine
or reclassify any of its capital stock or issue or authorize the issuance of
any other securities in respect of, in lieu of or in substitution for shares of
its capital stock, or (C) other than pursuant to Awards outstanding as of the
date hereof, purchase, redeem or otherwise acquire any shares of capital stock
of the Company or any of its Subsidiaries or any other securities thereof or
any rights, warrants or options to acquire any such shares or other securities;
(ii) other than pursuant to Awards outstanding as of the date hereof,
issue, deliver, sell, pledge or otherwise encumber any shares of its capital
stock, any other voting securities or any securities convertible into, or any
rights, warrants or options to acquire, any such shares, voting securities or
convertible securities;
(iii) amend its articles of incorporation, bylaws or other comparable
organizational documents;
(iv) except for (a) pending transactions disclosed in the Company SEC
Documents to be completed substantially in accordance with the budgets
contemplated for such transactions as of the date hereof, copies of which shall
have been provided to RECO on or prior to the date hereof, (b) the continued
development of forty-three properties currently under construction, a schedule
of which development is included on Schedule 4.01(a) of the Company Disclosure
Schedule (the "Development Properties"), (c) the purchase and development on
terms consistent with general market conditions of up to (I) twenty-one
additional properties for development as inns or suites that the Company
currently intends to approve, consistent with past practices, through June
1998, and (II) the purchase and conversion of three additional properties into
Company facilities through June 1998 (collectively, the "Future Development
Properties"), and (d) the purchase of equipment, supplies and similar items in
the ordinary course of business, after the date of this Agreement, acquire any
assets (including acquisitions of undeveloped land) of, or acquire by merging
or consolidating with, or by any other manner, any business or any corporation,
limited liability company, partnership, joint venture, association or other
business organization or division thereof; provided, however, that the Company
agrees to provide RECO and OPCO with periodic progress reports regarding the
Development Properties and the Future Development Properties and to provide
RECO and OPCO with such additional information regarding such properties as may
be reasonably requested;
(v) sell, lease, license, mortgage or otherwise encumber or subject
to any Lien or otherwise dispose of any of its properties or assets, other than
(i) in the ordinary course of business consistent with past practice, (ii)
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(A) in the case of any real property, in a transaction that is the subject of a
binding contract in existence on the date of this Agreement and disclosed in
Section 4.01(a)(v) of the Company Disclosure Schedule or (B) in the case of
personal property or intangible property, in a transaction that is not material
individually or in the aggregate;
(vi) (a) incur any indebtedness for borrowed money or guarantee any
such indebtedness of another Person, issue or sell any debt securities or
warrants or other rights to acquire any debt securities of the Company or any
of its Subsidiaries, guarantee any debt securities of another Person, enter
into any "keep well" or other agreement to maintain any financial statement
condition of another Person or enter into any arrangement having the economic
effect of any of the foregoing (including any amendments of existing credit and
financing arrangements), except for short-term borrowings incurred in the
ordinary course of business consistent with past practice and short-term
borrowings used to refinance existing debt as it matures, all of which debt
shall be on terms consistent with general market conditions and shall not carry
any prepayment penalty or prohibition on prepayments thereunder; provided,
however, that no further issuances of notes or other debt instruments under any
indenture to which the Company or any Subsidiary is a party, may be made prior
to the Effective Date; (b) make any loans, advances or capital contributions
to, or investments in, any other Person, other than to the Company or any
Subsidiary of the Company or to officers and employees of the Company or any of
its Subsidiaries for travel, business, relocation or similar costs and expenses
in the ordinary course of business or (c) incur additional debt, unless
necessary to satisfy the Company's obligations under the Subscription Agreement
and such debt is incurred immediately prior to the time for satisfying such
obligation; provided, however that, notwithstanding the foregoing, the Company
shall be permitted to: (I) incur additional borrowings under the Company's
existing $325 million and $75 million credit facilities, (II) increase the
amounts available and incur additional borrowings under such credit facilities
on terms consistent with general market conditions for such additional
borrowings, (III) incur additional short-term debt obligations, and (IV) incur
additional medium term debt obligations consistent with the Company's past
practice with respect to medium term note issuances, in each case (i) to fund
the activities related to the Development Properties and Future Development
Properties, (ii) to fund the payment of principal amortization on the debt set
forth in Section 4.01(a) of the Company Disclosure Schedule, (iii) to refinance
the Company's 9 1/4% Senior Subordinated Notes, (iv) to refinance the Company's
existing Prudential mortgages, and (v) to replace the Company's existing
Treasury locks; provided, however, in each case that all such debt shall be
pre-payable without penalty or additional cost at any time on or prior to the
Effective Time;
(vii) make or agree to make any capital expenditure or capital
expenditures, excluding land purchases, other than (A) in accordance with the
capital budgets previously furnished to the RECO Companies, provided that the
amount of such capital expenditures may exceed budgeted amounts by not more
than, as to any specifically budgeted matter, 10% or, as to all such capital
expenditures, 5% in the aggregate, or (B) as permitted by Section 4.01(a)(iv);
(viii) make any change to its accounting methods, principles or
practices, except as may be required by generally accepted accounting
principles;
(ix) except as required by Law or contemplated hereby, enter into,
adopt or amend in any material respect or terminate any Company employee
benefit plan or any other agreement, plan or policy involving the Company or
any of its Subsidiaries and one or more of their directors, officers or
employees, or materially change any actuarial or other assumptions used to
calculate funding obligations with respect to any Company pension plans, or
change the manner in which contributions to any Company pension plans are made
or the basis on which such contributions are determined;
(x) except as disclosed in Section 4.01(a) of the Company Disclosure
Schedule, increase the compensation of any director, officer or other employee
of the Company or any of its Subsidiaries earning more than $100,000 per annum
or enter into or amend any employment agreement with any such Person, or pay
any benefit or amount not required by a plan or arrangement as in effect on the
date of this Agreement to any such Person;
(xi) settle any shareholder derivative or class action claims arising
out of or in connection with any of the transactions contemplated by this
Agreement;
(xii) enter into any agreement with any franchisor or franchisee with
respect to any real property assets owned or leased by the Company or any of
its Subsidiaries or any third party, as the case may be, or any agreement under
which the Company or any of its Subsidiaries would provide hotel management
services, without the prior consent of RECO, which consent will not be
unreasonably withheld or delayed; or
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(xiii) authorize, or commit or agree to take, any of the foregoing
actions.
(b) Conduct of Business by RECO. Except as contemplated by this
Agreement and except as set forth in Section 4.01(b) of the RECO Disclosure
Schedule, during the period from the date of this Agreement to the Effective
Time, the RECO Companies will, and will cause their respective Significant
Subsidiaries to, carry on their respective businesses in all material respects
in the usual, regular and ordinary course in substantially the same manner as
heretofore conducted and in compliance in all material respects with all
applicable Laws and, to the extent consistent therewith, use all reasonable
efforts to preserve intact their current business organizations, use all
reasonable efforts to keep available the services of their current officers and
other key employees and preserve their relationships with those Persons having
business dealings with them to the end that their goodwill and ongoing
businesses will be unimpaired at the Effective Time; provided, however, that
the foregoing shall not restrict the ability of the RECO Companies and their
respective Subsidiaries to engage in any acquisition, merger, exchange offer,
equity or debt financing or other similar corporate transaction except to the
extent prohibited by Sections 4.01(b)(i), (ii), (iii), (iv) or (v) below.
Except as set forth in Section 4.01(b) of the RECO Disclosure Schedule, without
limiting the generality or effect of the foregoing, during the period from the
date of this Agreement to the Effective Time, the RECO Companies will not, and
will not permit any of their respective Subsidiaries to:
(i) other than (A) dividends and distributions (including liquidating
distributions) by a direct or indirect wholly owned Subsidiary of RECO or OPCO
to its parent, or by a Subsidiary that is partially owned by RECO or OPCO or
any of their respective Subsidiaries, provided that RECO, OPCO or any such
Subsidiary receives or is to receive its proportionate share thereof, (B)
dividends required in the reasonable judgment of RECO in order to preserve
RECO's status as a REIT or to avoid federal income or excise taxes on its
undistributed income, (C) Regular RECO Quarterly Dividends, and (D) special
dividends and distributions which the Board of Directors of each of RECO and
OPCO determines are in the best interests of the RECO Companies, their
shareholders and, assuming the consummation of the Merger, the Company's
shareholders, (1) declare, set aside or pay any dividends on, or make any other
distributions in respect of, any of its capital stock, (2) split, combine or
reclassify any of its capital stock or issue or authorize the issuance of any
other securities in respect of, in lieu of or in substitution for shares of its
capital stock, or (3) purchase or offer to purchase any capital stock of either
of the RECO Companies, other than purchases (w) made in the open market in
accordance with Regulation M under the Exchange Act, (x) in accordance with any
agreement filed or matter described in the RECO SEC Documents, (y) by either of
the RECO Companies of its capital stock held by the other RECO Company, and (z)
by either of the RECO Companies of newly issued common stock of the other RECO
Company for the purposes of pairing shares of RECO Common Stock and OPCO Common
Stock;
(ii) incur or guarantee any Indebtedness, issue or sell any debt
securities or warrants or other rights to acquire any debt securities or enter
into any arrangement having the economic effect of any of the foregoing (any
such event, an "Incurrence"), such that the consolidated Indebtedness of RECO
and OPCO, giving effect to such Incurrence, would cause RECO's Debt to Market
Capitalization Ratio to exceed an amount equal to 50%. For purposes of this
Section, "Indebtedness" means, with respect to any Person, all obligations of
such Person (including the current portion thereof) that would be required to
be reflected as indebtedness on a consolidated balance sheet for such Person
prepared in accordance with generally accepted accounting principles and
"RECO's Debt to Market Capitalization Ratio" means the total consolidated and
unconsolidated debt of the RECO Companies as a percentage of the market value
of outstanding shares of stock of the RECO Companies and all units of limited
partnership of all operating partnerships of which either of the RECO Companies
is the sole general partner plus total consolidated and unconsolidated debt;
(iii) directly, or indirectly through a Subsidiary, enter into any
agreement, or participate in active negotiations with any third party, relating
to any tender or exchange offer, merger, consolidation, sale of all or
substantially all of the capital stock or assets of RECO or OPCO or other form
of business transaction the reasonably foreseeable effect of which would be (A)
to delay the Effective Time beyond July 31, 1998 or to prevent the Effective
Time from occurring, or (B) result in the Merger not being treated as a
tax-free reorganization for federal income tax purposes;
(iv) take any action or fail to take any action which could
reasonably be expected to terminate RECO's status as a REIT; or
(v) authorize, or commit or agree to take, any of the foregoing
actions.
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(c) Other Actions. Except as required by Law, neither the Company
(except as permitted by Sections 1.09, 5.15 or 5.16), on the one hand, nor RECO
or OPCO, on the other hand, will, nor will they permit any of their respective
Subsidiaries to, voluntarily take any action that could reasonably be expected
to result in (i) any of the representations and warranties of such party set
forth in this Agreement that are qualified as to materiality becoming untrue,
(ii) any of such representations and warranties that are not so qualified
becoming untrue in any material respect, or (iii) any of the conditions to the
Merger set forth in Article VII not being satisfied.
(d) Advice of Changes. The Company and RECO will promptly advise the
other party orally and in writing of (i) any representation or warranty made by
it or, in the case of RECO, made by OPCO contained in this Agreement that is
qualified as to materiality becoming untrue or inaccurate in any respect or any
such representation or warranty that is not so qualified becoming untrue or
inaccurate in any material respect, (ii) the failure by it or, in the case of
RECO, the failure by OPCO to comply in any material respect with or satisfy in
any material respect any covenant, condition or agreement to be complied with
or satisfied by it under this Agreement, or (iii) any change or event having,
or which, insofar as can reasonably be foreseen, could reasonably be expected
to have a material adverse effect on such party or on the truth of their
respective representations and warranties or the ability of the conditions set
forth in Article VII to be satisfied; provided, however, that no such
notification will affect the representations, warranties, covenants or
agreements of the parties or the conditions to the obligations of the parties
under this Agreement.
4.02 No Solicitation.
(a) The Company shall not, nor shall it permit any of its Subsidiaries
to, nor shall it authorize or permit any officer, director or employee of or
any investment banker, attorney, accountant, agent or other advisor or
representative of the Company or any of its Subsidiaries to, (i) solicit,
initiate, or encourage the submission of, any Company Takeover Proposal, (ii)
except to the extent permitted by paragraph (b), enter into any agreement with
respect to any Company Takeover Proposal or (iii) participate in any
discussions or negotiations regarding, or furnish to any person any information
with respect to, or take any other action to facilitate any inquiries or the
making of any proposal that constitutes, or may reasonably be expected to lead
to, any Company Takeover Proposal; provided, however, that prior to the Company
Shareholder Meeting, to the extent required by the fiduciary obligations of the
Board of Directors of the Company, as determined in good faith by a majority of
the disinterested members thereof based on the advice of outside counsel, the
Company may, in response to unsolicited requests therefor, participate in
discussions or negotiations with, or furnish information pursuant to an
appropriate confidentiality agreement to, any person. Without limiting the
foregoing, it is understood that any violation of the restrictions set forth in
the preceding sentence by any officer, director or employee of or any
investment banker, attorney, accountant, agent or other advisor or
representative of the Company or any of its Subsidiaries, whether or not such
person is purporting to act on behalf of the Company or otherwise, shall be
deemed to be a breach of this, paragraph by the Company. For all purposes of
this Agreement, "Company Takeover Proposal" means any proposal, other than a
proposal by RECO or OPCO, for a merger, consolidation, share exchange, business
combination or other similar transaction involving the Company or any of its
Significant Subsidiaries or any proposal or offer (including, without
limitation, any proposal or offer to shareholders of the Company), other than a
proposal or offer by RECO or OPCO, to acquire in any manner, directly or
indirectly, more than a 10% equity interest in any voting securities of, or a
substantial portion of the assets of, the Company or any of its Significant
Subsidiaries. The Company immediately shall cease and cause to be terminated
all existing discussions or negotiations with any persons conducted heretofore
with respect to, or that could reasonably be expected to lead to, any Company
Takeover Proposal. As used herein, a "Significant Subsidiary" means any
Subsidiary that would constitute a "significant subsidiary" within the meaning
of Rule 1.02 of Regulation S-X of the SEC.
(b) Neither the Board of Directors of the Company nor any committee
thereof shall (i) withdraw or modify, or propose publicly to withdraw or
modify, in a manner adverse to RECO or OPCO, the approval or recommendation by
the Board of Directors of the Company or any such committee of this Agreement
or the Merger or (ii) approve or recommend, or propose to approve or recommend,
any Company Takeover Proposal. Notwithstanding the foregoing, the Board of
Directors of the Company, to the extent required by the fiduciary obligations
thereof, as determined in good faith by a majority of the disinterested members
thereof based on the advice of outside counsel, may approve or recommend (and,
in connection therewith, withdraw or modify its approval or recommendation of
this Agreement or the Merger) a superior proposal. For all purposes of this
Agreement, "superior proposal" means a bona fide written proposal made by a
third party to acquire the Company pursuant to a tender or exchange offer, a
merger, a share exchange, a sale of all or substantially all of its assets or
otherwise, in any such case, on terms which a majority
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of the disinterested members of the Board of Directors of the Company
determines in their good faith judgment (based on the advice of independent
financial advisors that the value of the consideration provided for in such
proposal exceeds the value of the consideration provided for in the Merger) to
be more favorable to the Company and its stockholders than the Merger and for
which financing, to the extent required, is then fully committed or which, in
the good faith judgment of a majority of such disinterested members (based on
the advice of independent financial advisors), is reasonably capable of being
financed by such third party.
(c) The Company shall promptly advise RECO orally and in writing of any
Company Takeover Proposal or any inquiry with respect to or which could
reasonably be expected to lead to any Company Takeover Proposal, the material
terms and conditions of such Company Takeover Proposal or inquiry and the
identity of the person making any such Company Takeover Proposal or inquiry.
The Company will keep RECO reasonably fully informed of the status and details
of any such Company Takeover Proposal or inquiry. The RECO Companies shall
waive any applicable confidentiality provisions to the extent necessary to
allow the Company solely to explain the terms of this transaction to persons
making Company Takeover Proposals.
(d) Nothing contained in this Section 4.02 will prohibit the Company
from taking and disclosing to its shareholders a position contemplated by Rule
14e-2(a) promulgated under the Exchange Act or from making any disclosure to
the Company's shareholders if the Company Board determines that such disclosure
is necessary in order to comply with the Company Board's fiduciary duties under
applicable Law; provided, however, that neither the Company nor the Company
Board nor any committee thereof may, except in accordance with Section 4.02(b),
withdraw or modify, or propose publicly to withdraw or modify, its position
with respect to this Agreement or the Merger or approve or recommend, or
propose publicly to approve or recommend, a Company Takeover Proposal.
4.03 The Company's Accumulated and Current Earnings and Profits. The
Company shall obtain a certification of the earnings and profits calculation
through December 31, 1996 from KPMG. The Company shall use its reasonable best
efforts to have KPMG provide such certification to the Company and to RECO no
later than February 28, 1998.
V. ADDITIONAL COVENANTS
5.01 Preparation of the Form S-4 and the Joint Proxy Statement;
Shareholders Meetings.
(a) As soon as practicable following the date of this Agreement, the
Company, RECO and OPCO will prepare and file with the SEC the Joint Proxy
Statement. RECO will prepare and file, not later than promptly after the Joint
Proxy Statement has been cleared by the SEC, with the SEC the Form S-4, in
which the Joint Proxy Statement will be included as a prospectus. Each of the
Company and RECO will use all reasonable efforts to have the Form S-4 declared
effective under the Securities Act as promptly as practicable after such
filing. The Company will use all reasonable efforts to cause the Joint Proxy
Statement to be mailed to the Company's shareholders, and RECO and OPCO will
use all reasonable efforts to cause the Joint Proxy Statement to be mailed to
RECO's and OPCO's shareholders, in each case as promptly as practicable after
the Form S-4 is declared effective under the Securities Act. RECO and OPCO will
also take any action (other than qualifying to do business in any jurisdiction
in which it is not now so qualified or to file a general consent to service of
process) required to be taken under any applicable state securities Laws in
connection with the issuance of Paired Shares in the Merger and under the
Company Stock Plans and RECO Stock Plans and the Company will furnish all
information concerning the Company and the holders of Company Common Stock as
may be reasonably requested in connection with any such action.
(b) Subject to its rights to terminate this Agreement pursuant to the
applicable provisions of Section 7.01, the Company will as soon as practicable
following the date of this Agreement, duly call, give notice of, convene and
hold a meeting of its shareholders (the "Company Shareholder Meeting") for the
purpose of obtaining the Company Shareholder Approval and, through the Company
Board, subject to the provisions of Section 4.02 recommend to Shareholders the
approval and adoption of this Agreement, the Merger and the other transactions
contemplated hereby. Without limiting the generality or effect of the foregoing
but subject to the Company's right to terminate this Agreement pursuant to
Section 4.02, the Company's obligations pursuant to the first sentence of this
Section 5.01(b) will not be affected by the commencement, public proposal,
public disclosure or communication to the Company of any Company Takeover
Proposal.
(c) Subject to its rights to terminate this Agreement under the
applicable provisions of Section 7.01, each of RECO and OPCO will, as soon as
practicable following the date of this Agreement, duly call, give notice of,
convene
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and hold a meeting of its shareholders (the "RECO/OPCO Shareholder Meetings")
for the purpose of obtaining the RECO/OPCO Shareholder Approvals and, through
RECO's Board of Directors, recommend that its shareholders approve the adoption
of this Agreement and through OPCO's Board of Directors, recommend that its
shareholders approve the issuance of Paired Shares pursuant to the Subscription
Agreement.
(d) RECO, OPCO and the Company will use reasonable efforts to hold the
RECO/OPCO Shareholder Meetings and the Company Shareholder Meeting on the same
date and as soon as practicable after the date hereof.
(e) RECO and OPCO will use their reasonable best efforts to publicly
announce the Adjusted E&P Distribution Amount and the final Exchange Ratio at
least six (6) Trading Days prior to the Company Shareholder Meeting.
5.02 Access to Information; Confidentiality. Each of the Company, RECO and
OPCO will, and will cause each of its respective Subsidiaries to, afford to the
other party and to the officers, employees, accountants, counsel, financial
advisors and other representatives of such other party, reasonable access
during normal business hours during the period prior to the Effective Time to
all their respective properties, books, contracts, commitments, personnel and
records and, during such period, each of the Company, RECO and OPCO will, and
will cause each of its respective Subsidiaries to, furnish promptly to the
other parties (a) a copy of each report, schedule, registration statement and
other document filed by it during such period pursuant to the requirements of
federal or state securities Laws and (b) all other information concerning its
business, financial condition, results of operations, properties and personnel
as such other parties may reasonably request. Subject to the requirements of
applicable Law, and except for such actions as are necessary to disseminate any
documents necessary to consummate the Merger, the parties will, and will
instruct each of their respective Affiliates, associates, partners, employees,
agents and advisors to, hold in confidence all such information as is
confidential or proprietary, will use such information only in connection with
the Merger and, if this Agreement is terminated in accordance with its terms,
will deliver promptly to the others (or destroy and certify to the other the
destruction of) all copies of such information (and any copies, compilations or
extracts thereof or based thereon) then in their possession or under their
control. Without limiting the generality of the foregoing, the Company will,
and will cause each of its respective Subsidiaries to, afford the RECO
Companies and their respective officers, employees, counsel and other advisors
and representatives with access to conduct such environmental investigations
and site assessments as the RECO Companies may deem necessary or desirable and
to otherwise assist in such environmental investigations and inquiries.
5.03 Regulatory Filings.
(a) Within 20 calendar days after the date hereof, RECO, OPCO and the
Company will make such filings, if any, as may be required by the HSR Act with
respect to the consummation of the transactions contemplated by this Agreement.
Thereafter, RECO, OPCO and the Company will file or cause to be filed as
promptly as practicable with the United States Federal Trade Commission (the
"FTC") and the United States Department of Justice (the "DOJ") supplemental
information, if any, which may be required or requested by the FTC or the DOJ
pursuant to the HSR Act. All filings referred to in this Section 5.03(a) will
comply in all material respects with the requirements of the respective Laws
pursuant to which they are made.
(b) Without limiting the generality or effect of Section 5.03(a), each
of the parties will (i) use their respective reasonable efforts to comply as
expeditiously as possible with all lawful requests of Governmental Entities for
additional information and documents pursuant to the HSR Act, if applicable,
(ii) not (A) extend any waiting period under the HSR Act or (B) enter into any
agreement with any Governmental Entity not to consummate the transactions
contemplated by this Agreement, except with the prior consent of each of the
other parties hereto, and (iii) cooperate with each other and use reasonable
efforts to prevent the entry of, and to cause the lifting or removal of any
temporary restraining order, preliminary injunction or other judicial or
administrative order which may be entered into in connection with the
transactions contemplated by this Agreement, including without limitation the
execution, delivery and performance by the appropriate entity of such
divestiture agreements or other actions, as the case may be, as may be
necessary to secure the expiration or termination of the applicable waiting
periods under the HSR Act or the removal, dissolution, stay or dismissal of any
temporary restraining order, preliminary injunction or other judicial or
administrative order which prevents the consummation of the transactions
contemplated hereby or requires as a condition thereto that all or any part of
the Business be held separate and, prior to or after the Closing, pursue the
underlying litigation or administrative proceeding diligently and in good
faith.
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5.04 Reasonable Efforts and Cooperation.
(a) Upon the terms and subject to the provisions set forth in this
Agreement, each of the parties will use all reasonable 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 Merger and the other transactions contemplated by this
Agreement, including without limitation, (i) obtaining all necessary actions or
nonactions, waivers, consents and approvals from Governmental Entities and
making all necessary registrations and filings (including filings with
Governmental Entities) and taking 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, (ii) obtaining, prior to the Effective Time, all consents,
approvals or waivers from third parties necessary to consummate the Merger,
(iii) defending any lawsuits or other legal proceedings, whether judicial or
administrative, challenging this Agreement or the consummation of the
transactions contemplated hereby, including seeking to have any adverse Order
entered by any court or other Governmental Entity vacated or reversed, and (iv)
executing and delivering any additional instruments necessary to consummate the
transactions contemplated by, and to fully carry out the purposes of, this
Agreement. In addition, and without limiting the generality of the foregoing:
(a) the Company will cooperate with RECO to ensure that RECO continues to
qualify as a REIT following the Effective Time, including by taking actions and
engaging in transactions reasonably requested by RECO if such actions or
transactions would have no material impact on the Company or adversely affect
its shareholders and (b) the Company will use its reasonable best efforts to
obtain for the benefit of RECO or OPCO, as the case may be, and to cooperate
with RECO and OPCO in obtaining, prior to the Effective Time, all consents,
approvals, waivers and agreements as may be necessary from third parties in
order to enable the RECO Companies to hold the Company's assets and to operate
its business in a manner which, in RECO's reasonable judgment, preserves RECO's
status as a REIT, maximizes the tax efficiencies associated with the RECO
Companies' paired share REIT structure, and enables the RECO Companies to
implement their respective long-term business strategies; provided, however,
that in connection with obtaining (or assisting RECO or OPCO in obtaining) any
such consent, approval, waiver or agreement, the Company will not be required
(1) to incur under this Agreement any out-of-pocket costs and expenses (except
for insignificant costs incident to compliance with this covenant) unless RECO
shall have first agreed in writing to cause the Company to be reimbursed
therefor, or (2) to enter into or amend any management or franchise agreement
or other contract or incur any liability in a manner that the Company
reasonably determines is adverse to it or its Subsidiaries. Nothing set forth
in this Section 5.04(a) will limit or affect actions permitted to be taken
pursuant to Section 4.01 or 4.02.
(b) Without limiting the generality or effect of any provision of
Sections 5.03, 5.04(a) or Article VI, if any Governmental Entity having
jurisdiction over any party issues or otherwise promulgates any injunction,
decree or similar order prior to the Closing which prohibits the consummation
of the transactions contemplated hereby, the parties will use their respective
reasonable efforts to have such injunction dissolved or otherwise eliminated as
promptly as possible and, prior to or after the Closing, to pursue the
underlying litigation diligently and in good faith.
(c) In connection with and without limiting the foregoing, the Company,
RECO and OPCO will (i) take all action available to them to ensure that no
state takeover statute or similar statute or regulation is or becomes
applicable to the Merger or any of the other transactions contemplated hereby,
and (ii) if any state takeover statute or similar statute or regulation becomes
applicable thereto, take all action available to them to ensure that the Merger
and such other transactions may be consummated as promptly as practicable on
the terms contemplated hereby and otherwise to minimize the effect of such
statute or regulation thereon.
5.05 Employee Benefit Matters.
(a) With respect to each RECO or OPCO "employee benefit plan," as
defined in Section 3(3) of ERISA, including plans or policies providing
severance benefits and vacation entitlement (collectively, the "RECO Plans"),
if the Effective Time occurs, service with the Company will be treated as
service with the RECO Companies for purposes of determining eligibility to
participate, vesting and entitlement to benefits (other than the accrual of
benefits under any defined benefit pension plan); provided, however, that such
service will not be recognized to the extent that such recognition would result
in a duplication of benefits. Such service also will apply for purposes of
satisfying any waiting periods, evidence of insurability requirements or the
application of any preexisting condition limitations under any RECO Plan.
Employees of the Company will be given credit under any RECO Plan in which they
are eligible to participate for amounts paid under a corresponding Company
benefit plan during the same period for purposes of
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applying deductibles, copayments and out-of-pocket maximums as though such
amounts had been paid in accordance with the terms and conditions of the RECO
Plans.
(b) For not less than one year following the Effective Time, the RECO
Companies shall maintain compensation and employee benefits plans and
arrangements for employees of the Company and its Subsidiaries ("Affected
Employees") that are, in the aggregate, no less favorable than as provided
under the compensation arrangements and Company Benefit Plans as in effect on
the date hereof. For not less than one year following the Effective Time, RECO
Companies shall provide severance pay and benefits pursuant to the summary of
severance pay benefits set forth on Section 5.05(b) of the Company Disclosure
Schedule. Notwithstanding the foregoing, the RECO Companies shall have the
right (i) following the Effective Time to transfer to one or more employee
benefit plans maintained by the RECO Companies any employee of the Company or
any Subsidiary who becomes an employee of the RECO Companies or the Surviving
Corporation and (ii) in the good faith exercise of its managerial discretion,
to terminate the employment of any employee. Nothing in this Agreement shall be
construed as granting to any employee any rights of continuing employment or
any other enforceable rights.
(c) RECO Companies shall honor all Company Benefit Plans and other
contractual commitments in effect immediately prior to the Effective Time
between the Company or its Subsidiaries and Affected Employees or former
employees of the Company or its Subsidiaries. Notwithstanding the foregoing,
the RECO Companies shall have the right following the Effective Date to
terminate any Company Benefit Plans, subject to their obligations to pay
benefits accrued to the date of such termination and to their obligation to
comply with Section 5.05(b). Without limiting the generality of the foregoing,
RECO Companies shall honor all severance benefit, vacation, holiday, sickness
and personal days accrued by Affected Employees and, to the extent applicable,
former employees of the Company and its Subsidiaries ("Former Employees") as of
the Effective Time.
(d) Prior to the Effective Time, RECO shall offer to enter into
employment agreements with Ezzat Coutry on the terms set forth on Section
5.05(d) of the Company Disclosure Schedule.
5.06 Fees and Expenses.
(a) Except as otherwise set forth in this Section 5.06, all fees and
expenses incurred in connection with the Merger, this Agreement and the
transactions contemplated thereby and hereby will be paid by the party
incurring such fees or expenses, whether or not the Merger is consummated,
except that each of RECO and the Company will bear and pay one-half of the
costs and expenses incurred in connection with the filing, printing and mailing
of the Joint Proxy Statement (including SEC filing fees).
(b) (i) In the event that this Agreement is terminated by the Company
pursuant to Section 7.01(f), the Company will deposit into escrow for the
benefit of RECO, by wire transfer of same day funds, an amount in cash equal to
seventy-five million dollars ($75,000,000) (the "Company Termination Fee") with
an escrow agent selected by RECO (the "Escrow Agent") and on such terms
(subject to Section 5.06(c)), as shall be agreed upon by RECO and the Escrow
Agent (the "Escrow Agreement").
(ii) In the event that (A) a Company Takeover Proposal is made
public, or any Person publicly announces an intention (whether or not
conditional) to make a Company Takeover Proposal, after the date of this
Agreement (and such proposal has not been withdrawn prior to the Company
Shareholder Meeting), and thereafter (x) this Agreement is terminated by either
RECO or the Company pursuant to Section 7.01(b)(i) or 7.01(b)(ii) and (y) prior
to the date that is 12 months after the date of such termination the Company
enters into a Company Acquisition Agreement or an Alternative Transaction (as
defined below) occurs, or (B) this Agreement is terminated by RECO pursuant to
Section 7.01(c), the Company will deposit with the Escrow Agent pursuant to the
Escrow Agreement for the benefit of RECO by wire transfer of same-day funds, an
amount in cash equal to the Company Termination Fee.
(iii) As used in this Agreement, (A) "Alternative Transaction" means:
(x) a transaction other than a Private Transaction pursuant to which any Third
Party (as defined below) acquires more than 25% of the shares of Company Common
Stock pursuant to a tender offer or exchange offer or otherwise, (y) a merger
or other business combination involving the Company or any of its Affiliates
pursuant to which any Third Party acquires more than 25% of the shares (after
giving effect to such business combination) of Company Common Stock or of the
entity surviving such merger or business combination, or (z) any other
transaction pursuant to which any Third Party acquires control of assets
(including for this purpose the equity securities of Subsidiaries of the
Company and the entity surviving
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any merger or business combination including any of them) of the Company having
a fair market value equal to more than 25% of the fair market value of all the
assets of the Company and its Subsidiaries, taken as a whole, immediately prior
to such transaction, (B) "Third Party" means any Person other than RECO, OPCO
or an Affiliate of either of them, and (C) "Private Transaction" means a single
privately negotiated sale (directly or indirectly) by a Company shareholder to
a Third Party of shares aggregating in excess of 25% of the shares of Company
Common Stock which shares were beneficially owned by such shareholder on the
date of this Agreement.
(iv) If any termination described in Section 5.06(b)(i) or Section
5.06(b)(ii)(B) occurs, the Company Termination Fee will be deposited
immediately prior to and as a condition to the effectiveness of such
termination. If any termination described in Section 5.06(b)(ii)(A) occurs, the
Company Termination Fee will thereafter be deposited immediately prior to the
first to occur of (A) the entry by the Company into a Company Acquisition
Agreement or (B) an Alternative Transaction (in either case within 12 months
after the date of such termination).
(v) The Company acknowledges that the agreements contained in this
Section 5.06(b) are an integral part of the transactions contemplated by this
Agreement, and that, without these agreements, RECO and OPCO would not enter
into this Agreement; accordingly, if the Company fails promptly to deposit the
amount due pursuant to this Section 5.06(b), and, in order to obtain such
payment, RECO or OPCO commences a suit which results in a judgment against the
Company for the fee set forth in this Section 5.06(b), the Company will pay to
RECO and OPCO their costs and expenses (including reasonable attorneys' fees
and expenses) in connection with such suit, together with interest on the
amount of the fee at the prime rate of Citibank N.A. in effect on the date such
payment was required to be made, provided that payment of such costs, expenses
and interest shall be subject to the limitations of Section 5.06(c) (determined
as if such expenses were included in the Company Termination Fee).
(c) In the event that the Company is obligated to deposit with the
Escrow Agent the Company Termination Fee as provided in Section 5.06(b), the
Escrow Agent will pay to RECO from the Company Termination Fee deposited into
escrow an amount equal to the lesser of (i) the Company Termination Fee and
(ii) the sum of (A) the maximum amount that can be paid to RECO without causing
RECO to fail to meet the requirements of Sections 856(c)(2) and (3) of the Code
determined as if the payment of such amount did not constitute income described
in Sections 856(c)(2)(A)-(H) or 856(c)(3)(A)-(i) of the Code ("Qualifying
Income"), as determined by RECO's certified public accountant, plus (B) in the
event RECO receives either (1) a letter from RECO's counsel indicating that
RECO has received a ruling from the IRS as described below or (2) an opinion
from RECO's counsel as described below, an amount equal to the Company
Termination Fee less the amount payable under clause (A) above. The Escrow
Agreement will provide that the Company Termination Fee in escrow or any
portion thereof shall not be released to RECO unless the Escrow Agent receives
any one or combination of the following: (x) a letter from RECO's certified
public accountants indicating the maximum amount that can be paid by the Escrow
Agent to RECO without causing RECO to fail to meet the requirements of Sections
856(c)(2) and (3) of the Code determined as if the payment of such amount did
not constitute Qualifying Income or a subsequent letter from RECO's accountants
revising that amount, in which case the Escrow Agent will release such amount
to RECO, or (y) a letter from RECO's counsel indicating that RECO received a
ruling from the IRS holding that the receipt by RECO of the Company Termination
Fee would either constitute Qualifying Income or would be excluded from gross
income within the meaning of Section 856(c)(2) and (3) of the Code (or
alternatively, RECO's legal counsel has rendered a legal opinion to RECO to the
effect that the receipt by RECO of the Company Termination Fee would either
constitute Qualifying Income or would be excluded from gross income within the
meaning of Sections 856(c)(2) and (3) of the Code), in which case the Escrow
Agent will release the remainder of the Company Termination Fee to RECO. The
Company agrees to amend this Section 5.06 at the request of RECO as may
reasonably be necessary (and without substantial additional cost or burden to
the Company) in order to (I) maximize the portion of the Company Termination
Fee that may be distributed to RECO hereunder without causing RECO to fail to
meet the requirements of Sections 856(c)(2) and (3) of the Code, (II) improve
RECO's chances of securing a favorable ruling described in this Section
5.06(c), or (III) assist RECO in obtaining a favorable legal opinion from its
counsel as described in this Section 5.06(c); provided that RECO's legal
counsel has rendered a legal opinion to RECO to the effect that such amendment
would not cause RECO to fail to meet the requirements of Section 856(c)(2) or
(3) of the Code. The Escrow Agreement will also provide that any portion of the
Company Termination Fee held in escrow for 15 years will be released by the
Escrow Agent to the Company. The Company will not bear any cost of or have
liability resulting from the Escrow Agreement.
(d) In the event that this Agreement is terminated by the Company
pursuant to Section 7.01(d), RECO will immediately pay the Company a fee equal
to seventy-five million dollars ($75,000,000) payable by wire transfer
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of same-day funds. RECO acknowledges that the agreements contained in this
Section 5.06(d) are an integral part of the transactions contemplated by this
Agreement, and that, without these agreements, the Company would not enter into
this Agreement; accordingly, if RECO fails promptly to pay the amount due
pursuant to this Section 5.06(d), and, in order to obtain such payment, the
Company commences a suit which results in a judgment against RECO or OPCO for
the fee set forth in this Section 5.06(d), RECO will pay to the Company its
costs and expenses (including reasonable attorneys' fees and expenses) in
connection with such suit, together with interest on the amount of the fee at
the prime rate of Citibank N.A. in effect on the date such payment was required
to be made.
5.07 Public Announcements. RECO and the Company will consult with each
other before issuing, and provide each other the opportunity to review, comment
upon and concur with, any press release or other written public statements with
respect to the transactions contemplated by this Agreement, and will not issue
any such press release or make any such public statement prior to such
consultation, except as either party may determine is required by applicable
Law, court process or by obligations pursuant to any listing agreement with any
national securities exchange. The parties agree that the initial press release
to be issued with respect to the transactions contemplated by this Agreement
will be in the form heretofore agreed to by the parties. Notwithstanding the
foregoing, each of the parties hereto shall be permitted to make press releases
in the ordinary course, including those which refer generally to the pendency
of the transaction. The parties further agree that (i) the Company shall not
participate in any formal presentations to rating agencies (e.g. Moody's), with
respect to this Agreement, the Subscription Agreement, the Shareholders'
Agreement or the transactions contemplated hereby and thereby without providing
the RECO Companies with (a) reasonable prior notice of such formal presentation
and (b) the opportunity, if desired, to participate in such formal
presentation, and (ii) the Company shall not distribute or make available any
written materials to any rating agencies with respect to this Agreement, the
Subscription Agreement, the Shareholders' Agreement or the transactions
contemplated hereby and thereby without the prior consent of RECO.
5.08 Affiliates; Etc.
(a) Prior to the Closing Date, the Company will deliver to RECO a
letter identifying all Persons who are, at the time this Agreement is submitted
for adoption by to the shareholders of the Company, "affiliates" of the Company
for purposes of Rule 145 under the Securities Act. The Company will use all
reasonable efforts to cause each such Person to deliver to RECO on or prior to
the Closing Date a written agreement substantially in the form attached as
Schedule 5.08(a) hereto.
(b) Registration Rights. Effective as of the Effective Time, RECO and
OPCO shall have entered into, or agreed to enter into, the Registration Rights
Agreements contemplated by the Shareholders Agreement.
5.09 Listing of Paired Shares. Each of RECO and OPCO will use all
reasonable efforts to cause the Paired Shares to be issued in the Merger and
under the Company Stock Plans to be approved prior to the Effective Time for
listing on the NYSE, subject to official notice of issuance.
5.10 Shareholder Litigation. Each of the Company, RECO and OPCO will give
the other the reasonable opportunity to participate in the defense of any
shareholder litigation against the Company, RECO or OPCO, as applicable, or
their respective directors or officers relating to the transactions
contemplated by this Agreement.
5.11 Tax Treatment. Each of RECO, the Company and OPCO will use reasonable
efforts to cause the Merger to qualify as a reorganization under the provisions
of Section 368 of the Code.
5.12 Indemnification, Exculpation and Insurance.
(a) All rights to indemnification and, to the extent applicable,
exculpation from liabilities for acts or omissions occurring at or prior to the
Effective Time existing in favor of the current or former directors or officers
of the Company or each of its Subsidiaries as provided in their respective
certificates of incorporation or bylaws (or comparable organizational
documents) and existing indemnity contracts will be assumed by RECO and RECO
will be directly responsible for such indemnification, without further action,
as of the Effective Time and will continue in full force and effect in
accordance with their respective terms for a period not less than six years
from the Effective Time. In addition, from and after the Effective Time,
directors and officers of the Company who become or remain directors or
officers (if any) of any Subsidiary thereof will be entitled (with respect to
acts or omissions occurring after the Effective Time) to the same indemnity
rights and protections (including those provided by directors' and officers'
liability
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insurance) as are afforded to directors and officers of RECO, OPCO or such
Subsidiary, as the case may be. Notwithstanding any other provision hereof, the
provisions of this Section 5.12 (i) are intended to be for the benefit of, and
will be enforceable by, each indemnified party, his or her heirs and his or her
legal representatives and (ii) are in addition to, and not in substitution for,
any other rights to indemnification or contribution that any such person may
have by contract or otherwise.
(b) RECO will maintain in effect for not less than six years after the
Effective Time one or more policies of directors' and officers' liability
insurance that provide coverage for the current directors and officers of the
Company that is substantially similar to that provided by the policies
maintained by or on behalf of the Company and its Subsidiaries on the date
hereof with respect to matters existing or occurring at or prior to the
Effective Time; provided, however, that if the aggregate annual premiums (which
premiums the Company represents and warrants to be approximately $315,000 in
the aggregate) for such insurance at any time during such period exceed 150% of
the per annum rate of premium currently paid by the Company and its
Subsidiaries for such insurance on the date of this Agreement, then RECO will
cause the Surviving Corporation to, and the Surviving Corporation will, provide
the maximum coverage that will then be available at an annual premium equal to
150% of such rate.
5.13 Ownership Restrictions. The Company will cooperate with RECO to
determine whether the issuance of Paired Shares pursuant to the Merger will
violate the provisions in RECO's or OPCO's Certificate of Incorporation, as
amended, or By-laws, as amended, restricting the amount of RECO Common Stock or
OPCO Common Stock, as the case may be, that may be held (directly, indirectly
or by attribution) by any Person.
5.14 Termination of Stock Purchase Plan. If required by RECO, the Company
will cause the Stock Option Plans to be terminated on or prior to the Closing
Date.
5.15 Private Letter Ruling. As soon as reasonably practicable after the
execution of this Agreement, RECO shall request from the IRS a private letter
ruling (the "Ruling") concerning the Independent Contractor Issue (as defined
below). For purposes hereof, the term "Independent Contractor Issue" shall mean
a conclusion by the IRS substantially to the effect that rental income received
by RECO or a RECO subsidiary from OPCO or an OPCO subsidiary with respect to
real estate owned or leased by RECO or a RECO Subsidiary (the "Owned Real
Estate") will constitute "rents from real property," as such term is defined in
Section 856(d) of the Code, even though a direct or indirect subsidiary of RECO
provides services to OPCO or an OPCO Subsidiary with respect to the Owned Real
Estate pursuant to management contracts. If either (A) the Ruling is obtained
prior to the Effective Time, or (B) RECO determines, in its sole discretion, to
accept a legal opinion of Goodwin, Procter & Hoar LLP regarding the Independent
Contractor Issue prior to the Effective Time, then the Company, RECO and OPCO
agree that the Merger and all related transactions contemplated by this
Agreement shall be effected, subject to the provisions of, and in the manner
set forth in, this Agreement, subject to such modifications as to which the
Company, RECO and OPCO may hereafter agree. If the Ruling is not obtained prior
to the Effective Time and RECO elects not to accept a legal opinion of Goodwin,
Procter & Hoar LLP, unless the Company, RECO and OPCO otherwise agree, (i) the
Company shall, immediately prior to the Effective Time, sell, transfer and
convey all assets of the Company used or to be used in the management of the
Owned Real Estate (the "Company Management Assets") to OPCO, (ii) at RECO's
election, and subject to satisfaction of the general requirements of Section
338 of the Code, such sale, transfer or conveyance shall be treated under
Section 338(h)(10) of the Code, and (iii) the Merger and all related
transactions contemplated by this Agreement shall be effected in the manner set
forth in this Agreement in all other respects; provided, however, that (x) any
inability of the Company to satisfy any condition to the Merger set forth in
Section 6.02 of this Agreement arising solely as a result of the foregoing
actions shall not be deemed a failure of such condition to the consummation of
the Merger, (y) notwithstanding the foregoing actions, RECO shall continue to
remain liable hereunder for the satisfaction of any of its obligations
hereunder, and (z) the foregoing actions shall enable the Merger to continue to
qualify as, or be treated as part of, one or more tax-free reorganizations
within the meaning of Section 368(a) of the Code with the exception of the sale
of any assets by the Company to OPCO, RECO or any of their respective
affiliates which would enable RECO and OPCO to maximize the economic and tax
advantages associated with the paired-share structure, including without
limitation the transactions contemplated by this Section 5.15 hereof. The
parties hereto agree that they will execute, and will cause their respective
direct and indirect subsidiaries to execute such agreements and documents and
such amendments to this Agreement and any related documents as shall be
appropriate in order to reflect such revised structure.
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5.16 Reorganization.
(a) From and after the date hereof and until the Effective Time, none
of the Company, OPCO or RECO or any of their respective Subsidiaries or other
affiliates shall knowingly take any action, or knowingly fail to take any
action, that would cause the Merger not to qualify as a reorganization within
the meaning of Section 368(a) of the Code.
(b) If and to the extent so requested by RECO, and subject to receipt
of the consents referred to in Section 5.16(b) of the Company Disclosure
Schedule, and subject to the Company's reasonable judgment that all other
conditions to the Closing have been, or will be, satisfied or waived, the
Company agrees that prior to the Closing Date, all direct or indirect
Subsidiaries of the Company holding "real estate assets" within the meaning of
Section 856 of the Code will be liquidated such that the Company holds all such
assets, except as otherwise provided on Section 5.16(b) of the Company
Disclosure Schedule; provided, however, that (i) any inability of the Company
to satisfy any condition to the Merger set forth in Section 6.02 of this
Agreement arising solely as a result of the foregoing actions shall not be
deemed a failure of such condition to the consummation of the Merger, (ii)
notwithstanding the foregoing actions, RECO shall continue to remain liable
hereunder for the satisfaction of any of its obligations hereunder, and (iii)
the foregoing actions shall enable the Merger to continue to qualify as, or be
treated as part of, one or more tax-free reorganizations within the meaning of
Section 368(a) of the Code with the exception of the sale of any assets by the
Company to OPCO, RECO or any of their respective affiliates which would enable
RECO and OPCO to maximize the economic and tax advantages associated with the
paired-share structure, including without limitation the transactions
contemplated by this Section 5.16 hereof. The parties hereto agree that they
will execute, and will cause their respective direct and indirect subsidiaries
to execute such agreements and documents and such amendments to this Agreement
and any related documents as shall be appropriate in order to reflect such
revised structure.
5.17 Retirement of Debt. Unless requested otherwise by RECO, the Company
shall use its best efforts to redeem the Company's 91/4% Senior Subordinated
Unsecured Notes, due 2003, with a principal balance of $120 million, which were
issued pursuant to the Indenture dated as of May 15, 1993 promptly following
the date during May 1998 on which such notes become redeemable by the Company.
5.18 Consents. The parties hereby agree that, with respect to obtaining
the consents and waivers required under the Company Material Agreements to
consummate the transactions contemplated by this Agreement, RECO shall have
control over the procedure by which and the terms on which such consents and
waivers are obtained.
VI. CONDITIONS PRECEDENT
6.01 Conditions to Each Party's Obligation To Effect the Merger. The
respective obligation of each party to effect the Merger and the other
transactions contemplated herein is subject to the satisfaction or waiver on or
prior to the Closing Date of the following conditions, any or all of which may
be waived, in whole or in part by the parties hereto, to the extent permitted
by applicable law:
(a) Shareholder Approval. Each of the Company Shareholder Approval and
the RECO/OPCO Shareholder Approvals shall have been obtained;
(b) No Injunctions or Restraints. No Order or Law enacted, entered,
promulgated, enforced or issued by any court of competent jurisdiction or other
Governmental Entity or other legal restraint or prohibition (collectively,
"Restraints") preventing the consummation of the Merger shall be in effect;
(c) HSR Act. Any waiting period under the HSR Act applicable to the
Merger shall have expired or been terminated;
(d) Form S-4. The Form S-4 shall have become effective under the
Securities Act and shall not be the subject of any stop order or proceedings
seeking a stop order;
(e) Tax Opinions.
(i) Goodwin, Procter & Hoar LLP, counsel to the RECO Companies, shall
have delivered to RECO, an opinion, and Latham & Watkins, counsel to the
Company, shall have so delivered to the Company such an opinion, dated as of
the Closing Date, to the effect that, based upon representations, assumptions
and conditions customary
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for transactions such as the Merger, the Merger should be treated for federal
income tax purposes as a reorganization within the meaning of Section 368(a) of
the Code and that RECO and the Company will each be a party to such
reorganization within the meaning of Section 368(b) of the Code.
(ii) On the Closing Date, the opinion of Goodwin, Procter & Hoar LLP,
counsel to the RECO Companies, shall have been delivered to the Company in form
and substance reasonably satisfactory to the Company stating that (i) RECO has
since November 5, 1997 been and is a "real estate investment trust" for federal
income tax purposes and (ii) RECO's proposed method of operation, including the
consummation of the transactions contemplated by this Agreement, will allow
RECO to continue to qualify as a "real estate investment trust" for federal
income tax purposes. In rendering such opinion, such counsel shall be entitled
to rely upon customary representations reasonably requested by such counsel and
made by the RECO Companies and appropriate assumptions, including, but not
limited to an assumption that the opinions of counsel of Meditrust Corporation
and Santa Anita, dated November 5, 1997, rendered to the RECO Companies (or
their predecessors) as to the qualification of RECO (and its predecessors) as a
"real estate investment trust" for federal income tax purposes for the period
of time through the effective time of the merger of Meditrust Corporation with
and into Santa Anita, effected November 5, 1997, are correct;
(f) Listing of Paired Shares. The Paired Shares issuable to the
Company's shareholders pursuant to this Agreement and under the Company Stock
Plans shall have been approved for listing on the NYSE, subject to official
notice of issuance; and
(g) Change in Tax Laws. There shall not have been any federal
legislative or regulatory change that would cause RECO to cease to qualify
(either immediately before or immediately after the consummation of the Merger)
as a paired-share "real estate investment trust" for federal income tax
purposes.
6.02 Conditions to Obligations of RECO and OPCO. The obligation of RECO
and OPCO to effect the Merger is further subject to satisfaction or waiver on
or prior to the Closing Date of the following conditions:
(a) Representations and Warranties. Each of the representations and
warranties of the Company in this Agreement, including without limitation in
Section 3.01 hereof, that are qualified as to materiality shall be true and
correct, and each of the representations and warranties of the Company in this
Agreement, including without limitation in Section 3.01 hereof, that are not so
qualified shall be true and correct in all material respects, in each case as
of the Closing Date as if made anew on such date, except for representations
and warranties made as of a specified date (which shall be true and correct in
all material respects (except for those qualified as to materiality, which
shall be true and correct) as of such specified date);
(b) Performance of Obligations of the Company. The Company shall have
performed in all material respects all obligations required to be performed by
it under this Agreement at or prior to the Closing Date, and RECO shall have
received a certificate signed on behalf of the Company by the chief executive
officer and the chief financial officer of the Company to such effect;
(c) No Company Material Adverse Effect. At any time after the date of
this Agreement there shall not have occurred any event which, individually or
when considered with any other such event, could reasonably be expected to
result in a Company MAE;
(d) Letters from Company Affiliates. RECO shall have received from each
person named in the letter referred to in Section 5.08(a) an executed copy of
an agreement substantially in the form of Schedule 5.08(a) hereto;
(e) Certain Consents. Except as otherwise set forth in Section 6.02(e)
of the Company Disclosure Schedule, the Company shall have received to RECO's
reasonable satisfaction any consent to the consummation of the Merger the
absence of which, individually or in the aggregate, would have a Company MAE
or, following consummation of the Merger, a RECO MAE, as a result of a failure
to so obtain any such consent; provided, however, that the Company shall not be
obligated to obtain the consents required to consummate any transaction (other
than the Merger) contemplated by Sections 1.09 or 5.15 hereof, provided,
further that the failure to obtain any consent set forth on Section 3.01(d) of
the Company Disclosure Schedule shall not be a condition to the consummation of
the Merger;
(f) E&P Certification. The Company and RECO shall have obtained the
certification of the earnings and profits calculation from KPMG as provided in
Section 4.03 in a form reasonably acceptable to RECO, and such
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certification shall have been revised by KPMG to include the earnings and
profits actually generated between the date of the original certification
pursuant to Section 4.03 and the most recent date through which the earnings
and profits are ascertainable as well as a reasonable estimate of any earnings
and profits from such most recent date through the Closing Date, and Coopers &
Lybrand LLP shall have reviewed and approved in the exercise of its reasonable
judgment the certification and workpapers of KPMG; and
(g) Compliance with Shareholders Agreement. The Principal Shareholders
shall have complied in all material respects with their obligations under the
Shareholders Agreement.
6.03 Conditions to Obligation of the Company. The obligation of the
Company to effect the Merger is further subject to satisfaction or waiver on or
prior to the Closing Date of the following conditions:
(a) Representations and Warranties. Each of the representations and
warranties of RECO and OPCO in this Agreement, including without limitation in
Section 3.02 hereof, that are qualified as to materiality shall be true and
correct, and each of the representations and warranties of the RECO Companies
in this Agreement, including without limitation in Section 3.02 hereof, that
are not so qualified shall be true and correct in all material respects, in
each case as of the Closing Date as if made anew on such date, except for
representations and warranties made as of a specified date (which shall be true
and correct in all material respects (except for those qualified as to
materiality, which shall be true and correct) as of such specified date);
(b) Performance of Obligations of RECO and OPCO. RECO and OPCO shall
have performed in all material respects all obligations required to be
performed by them under this Agreement at or prior to the Closing Date,
including, without limitation, the declaration of the E&P Distribution, and the
Company shall have received a certificate signed on behalf of RECO by the chief
executive officer and the chief financial officer of RECO to such effect; and
(c) No RECO Material Adverse Effect. At any time after the date of this
Agreement there shall not have occurred any event which, individually or when
considered with any other such event, could reasonably be expected to result in
a RECO MAE.
6.04 Frustration of Closing Conditions. Neither RECO nor the Company may
rely on the failure of any condition set forth in Section 6.01, 6.02 or 6.03,
as the case may be, to be satisfied if such failure was caused by such party's
failure to use reasonable efforts to commence or complete the Merger and the
other transactions contemplated by this Agreement, as required by and subject
to Section 6.03.
VII. TERMINATION, AMENDMENT AND WAIVER
7.01 Termination. This Agreement may be terminated at any time prior to
the Effective Time, whether before or after Company Shareholder Approval or
RECO/OPCO Shareholder Approvals:
(a) by mutual written consent of RECO and the Company;
(b) by either RECO or the Company:
(i) if the Merger has not been consummated by July 31, 1998;
provided, however, that the right to terminate this Agreement pursuant to this
Section 7.01(b)(i) will not be available to any party whose failure to perform
any of its obligations under this Agreement results in the failure of the
Merger to be consummated by such time;
(ii) if the Company Shareholder Approval shall not have been obtained
at a Company Shareholder Meeting duly convened therefor or at any adjournment
or postponement thereof;
(iii) if the RECO/OPCO Shareholder Approvals shall not have been
obtained at RECO/OPCO Shareholder Meetings duly convened therefor or at any
adjournment or postponement thereof; or
(iv) if any Governmental Entity shall have issued a Restraint or
taken any other action permanently enjoining, restraining or otherwise
prohibiting the consummation of the Merger or any of the other transactions
contemplated by this Agreement and such Restraint or other action shall have
become final and nonappealable;
(c) by RECO, if the Company Board or any committee thereof shall have
(i) withdrawn, modified or amended in a manner adverse to RECO its approval or
recommendation of the Merger or this Agreement, (ii) failed
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to include such recommendation in the Joint Proxy Statement, (iii) approved or
recommended, or proposed publicly to approve or recommend, any Company Takeover
Proposal other than the Merger, or (iv) caused the Company to enter into a
Company Acquisition Agreement;
(d) by the Company, if the RECO Board or the OPCO Board or any
committee of either of them thereof shall have (i) withdrawn, modified or
amended in a manner adverse to the Company its approval or recommendation of
the Merger or this Agreement, or (ii) failed to include such recommendation in
the Joint Proxy Statement;
(e) by the Company, if RECO or OPCO shall have breached or failed to
perform in any material respect any of its representations, warranties or
covenants required to be performed by them under this Agreement, which breach
or failure to perform cannot be or has not been cured within 30 days after the
giving of written notice to RECO and OPCO of such breach (provided that the
Company is not then in material breach of any representation, warranty,
covenant or other agreement contained in this Agreement that cannot or has not
been cured within 30 days after giving notice to the Company of such breach);
(f) by the Company in accordance with Section 4.02(b), provided that it
has complied with all provisions of Section 4.02;
(g) by the Company pursuant to 2.01(d)(v) or 2.01(d)(vi); and
(h) by RECO, if the Company shall have breached or failed to perform in
any material respect any of its representations, warranties or covenants
required to be performed by it under this Agreement, which breach or failure to
perform cannot be or has not been cured within 30 days after the giving of
written notice to the Company of such breach (provided that neither RECO nor
OPCO is then in material breach of any representation, warranty, covenant or
other agreement contained in this Agreement that cannot or has not been cured
within 30 days after giving notice to RECO of such breach).
7.02 Effect of Termination. In the event of termination of this Agreement
by either the Company or RECO as provided in Section 7.01, this Agreement,
other than the provisions of Section 3.01(k), Section 3.02(j), Section 5.02,
Section 5.06, this Section 7.02 and Article VIII, will forthwith become void
and have no effect, without any liability or obligation on the part of RECO,
the Company or OPCO, except to the extent that such termination results from
the willful and material breach by a party of any of its representations,
warranties, covenants or agreements set forth in this Agreement.
7.03 Amendment. This Agreement may be amended by the parties at any time
before or after the Company Shareholder Approval or the RECO/OPCO Shareholder
Approvals; provided, however, that, after any such approval, there may not be
made any amendment that by Law requires further approval by the shareholders of
the Company, RECO or OPCO without the further approval of such shareholders.
This Agreement may not be amended except by an instrument in writing signed on
behalf of each of the parties.
7.04 Extension; Waiver. At any time prior to the Effective Time, a party
may (a) extend the time for the performance of any of the obligations or other
acts of the other parties, (b) waive any inaccuracies in the representations
and warranties of the other parties contained in this Agreements or in any
document delivered pursuant to this Agreement, or (c) subject to the proviso of
Section 7.03, waive compliance by the other party with any of the agreements or
conditions contained in this Agreement. Any agreement on the part of a party to
any such extension or waiver will be valid only if set forth in an instrument
in writing signed on behalf of such party. The failure of any party to this
Agreement to assert any of its rights under this Agreement or otherwise will
not constitute a waiver of such rights.
7.05 Procedure for Termination, Amendment, Extension or Waiver. A
termination of this Agreement pursuant to Section 7.01, an amendment of this
Agreement pursuant to Section 7.03 or an extension or waiver pursuant to
Section 7.04 will, in order to be effective, require, in the case of RECO, OPCO
or the Company, action by its Board of Directors or a duly authorized committee
thereof.
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VIII. GENERAL PROVISIONS
8.01 Nonsurvival of Representations and Warranties. None of the
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement will survive the Effective Time. This Section 8.01
will not limit any covenant or agreement of the parties which by its terms
contemplates performance after the Effective Time.
8.02 Notices. All notices, requests, claims, demands and other
communications under this Agreement will be in writing and will be deemed given
if delivered personally or sent by overnight courier (providing proof of
delivery) to the parties at the following addresses (or at such other address
for a party as specified by like notice):
(a) if to RECO, to:
Meditrust Corporation
197 First Avenue
Needham, MA 02194
Attn: Chief Executive Officer
with copies to:
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, MA 02109
Attn: Gilbert G. Menna, P.C. and
David W. Watson, Esq.
(b) if to OPCO, to:
Meditrust Operating Company
197 First Avenue
Needham, MA 02194
Attn: Chief Executive Officer
with copies to:
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, MA 02109
Attn: Gilbert G. Menna, P.C. and
David W. Watson, Esq.
(c) if to the Company, to:
La Quinta Inns, Inc.
112 E. Pecan Street
San Antonio, TX 78299
Attn: Chief Executive Officer
with a copy to:
Latham & Watkins
633 West Fifth Street, Suite 4000
Los Angeles, California 90071
Attn: John M. Newell, Esq.
Edward Sonnenchein, Jr., Esq.
8.03 Certain Definitions. For purposes of this Agreement:
(a) An "Affiliate" of any Person means another Person that directly or
indirectly, through one or more intermediaries, controls, is controlled by, or
is under common control with, such first Person;
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(b) a "Subsidiary" of any Person means another Person, an amount of the
voting securities, other voting ownership or voting partnership interests of
which is sufficient to elect at least a majority of its Board of Directors or
other governing body (or, if there are no such voting interests, 50% or more of
the equity interests of which) is owned directly or indirectly by such first
Person. A "Significant Subsidiary" means any subsidiary of the Company or RECO,
as the case may be, that would constitute a "significant subsidiary" of such
party within the meaning of Rule 1-02 of Regulation S-X of the SEC;
(c) "Person" means an individual, corporation, partnership, limited
liability company, joint venture, association, trust, unincorporated
organization or other entity; and
(d) "Knowledge" of any Person which is not an individual means the
knowledge of any of such Person's executive officers (as listed in the last
proxy statement or registration statement of such Person filed with the SEC or,
if any such listed officer is no longer employed by such Person, the successor
to such officer's responsibilities) after reasonable inquiry.
8.04 Interpretation. When a reference is made in this Agreement to an
Article, Section, Annex or Exhibit, such reference will be to an Article or
Section of, or an Annex or Exhibit to, this Agreement unless otherwise
indicated. The table of contents and headings contained in this Agreement are
for reference purposes only and will not affect in any way the meaning or
interpretation of this Agreement. Whenever the words "include", "includes" or
"including" are used in this Agreement, they will be deemed to be followed by
the words "without limitation". The words "hereof", "herein" and "hereunder"
and words of similar import when used in this Agreement will refer to this
Agreement as a whole and not to any particular provision of this Agreement. All
terms used herein with initial capital letters have the meanings ascribed to
them herein and all terms defined in this Agreement will have such defined
meanings when used in any certificate or other document made or delivered
pursuant hereto unless otherwise defined therein. The definitions contained in
this Agreement are applicable to the singular as well as the plural forms of
such terms and to the masculine as well as to the feminine and neuter genders
of such term. Any agreement, instrument or statute defined or referred to
herein or in any agreement or instrument that is referred to herein means such
agreement, instrument or statute as from time to time amended, modified or
supplemented, including (in the case of agreements or instruments) by waiver or
consent and (in the case of statutes) by succession of comparable successor
statutes and references to all attachments thereto and instruments incorporated
therein. References to a Person are also to its permitted successors and
assigns.
8.05 Counterparts. This Agreement may be executed in one or more
counterparts, all of which will be considered one and the same agreement and
will become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties.
8.06 Entire Agreement; No Third-Party Beneficiaries. This Agreement
(including the documents and instruments referred to herein), and the
confidentiality agreements previously executed between the parties hereto (a)
constitute the entire agreement, and supersede all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter of this Agreement and (b) except for the provisions of Article
II and Section 5.12 are not intended to confer upon any Person other than the
parties any rights or remedies.
8.07 Governing Law. This Agreement will be governed by, and construed in
accordance with, the Laws of the State of Delaware regardless of the Laws that
might otherwise govern under applicable principles of conflict of Laws thereof.
8.08 Assignment. Neither this Agreement nor any of the rights, interests
or obligations under this Agreement may be assigned, in whole or in part, by
operation of law or otherwise by either of the parties hereto without the prior
written consent of the other party. Any assignment in violation of the
preceding sentence will be void. Subject to the preceding sentence, this
Agreement will be binding upon, inure to the benefit of, and be enforceable by,
the parties and their respective successors and assigns.
8.09 Enforcement. 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 will 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 of the District of Delaware or in
Delaware state court, this being in addition
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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 District of Delaware
or any Delaware 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 Delaware or a Delaware state court.
[Remainder of page intentionally left blank]
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<PAGE>
IN WITNESS WHEREOF, RECO, OPCO and the Company have caused this Agreement to be
signed by their respective officers thereunto duly authorized, all as of the
date first written above.
MEDITRUST CORPORATION
By: /s/ David F. Benson
----------------------------------
Name: David F. Benson
Title: President
MEDITRUST OPERATING COMPANY
By: /s/ Michael J. Bohnen
----------------------------------
Name: Michael J. Bohnen
Title: Secretary
LA QUINTA INNS, INC.
By: /s/ Gary L. Mead
----------------------------------
Name: Gary L. Mead
Title: President and Chief
Executive Officer
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ANNEX B
[Letterhead of Salomon Smith Barney]
January 3, 1998
The Boards of Directors
Meditrust Corporation
Meditrust Operating Company
197 First Avenue
Needham Heights, Massachusetts 02194
Members of the Board:
You have requested our opinion as to the fairness, from a financial point of
view, to Meditrust Corporation ("Meditrust") and Meditrust Operating Company
("Opco" and, together with Meditrust, the "Meditrust Companies") of the
consideration to be paid by the Meditrust Companies pursuant to the terms and
subject to the conditions set forth in the Agreement and Plan of Merger, dated
as of January 3, 1998 (the "Merger Agreement"), by and among La Quinta Inns,
Inc. ("La Quinta") and the Meditrust Companies. As more fully described in the
Merger Agreement, (i) La Quinta will be merged with and into Meditrust (the
"Merger") and (ii) each outstanding share of the common stock, par value $0.10
per share, of La Quinta (the "La Quinta Common Stock") will be converted into
the right to receive (A) at the election of the holder thereof and subject to
certain limitations and proration procedures specified in the Merger Agreement
(as to which we express no opinion), $26.00 in cash (the "Cash Consideration")
or (B) if no such election is made, that number of shares of the common stock,
par value $0.10 per share, of Meditrust (the "Meditrust Common Stock") and
shares of the common stock, par value $0.10 per share, of Opco (the "Opco
Common Stock"), which shares of Meditrust Common Stock and Opco Common Stock
are paired and transferable and traded only in combination as a single unit
(the "Paired Shares"), determined in accordance with a formula specified in the
Merger Agreement (the number of Paired Shares into which shares of La Quinta
Common Stock will be so converted in the Merger being referred to as the "Stock
Consideration" and, together with the Cash Consideration, as the "Merger
Consideration").
In arriving at our opinion, we reviewed the Merger Agreement and held
discussions with certain senior officers, directors and other representatives
and advisors of the Meditrust Companies and certain senior officers and other
representatives and advisors of La Quinta concerning the businesses, operations
and prospects of the Meditrust Companies and La Quinta. We examined certain
publicly available business and financial information relating to the Meditrust
Companies and La Quinta as well as certain financial forecasts and other
information and data for the Meditrust Companies and La Quinta which were
provided to or otherwise discussed with us by the respective managements of the
Meditrust Companies and La Quinta, including information relating to certain
strategic implications and operational benefits anticipated to result from the
Merger. We reviewed the financial terms of the Merger as set forth in the
Merger Agreement in relation to, among other things: current and historical
market prices and trading volumes of the Paired Shares and La Quinta Common
Stock; the historical and projected earnings and other operating data of the
Meditrust Companies and La Quinta; and the capitalization and financial
condition of the Meditrust Companies and La Quinta. We considered, to the
extent publicly available, the financial terms of other transactions recently
effected which we considered relevant in evaluating the Merger and analyzed
certain financial, stock market and other publicly available information
relating to the businesses of other companies whose operations we considered
relevant in evaluating those of the Meditrust Companies and La Quinta. We also
evaluated the potential pro forma financial impact of the Merger on the
Meditrust Companies. In addition to the foregoing, we conducted such other
analyses and examinations and considered such other financial, economic and
market criteria as we deemed appropriate in arriving at our opinion.
In rendering our opinion, we have assumed and relied, without independent
verification, upon the accuracy and completeness of all financial and other
information and data publicly available or furnished to or otherwise reviewed
by or discussed with us. With respect to financial forecasts and other
information and data provided to or otherwise reviewed by or discussed with us,
we have been advised by the managements of the Meditrust Companies and La
Quinta that such forecasts and other information and data were reasonably
prepared on bases reflecting the best currently available estimates and
judgments of the managements of the Meditrust Companies and La Quinta as to the
B-1
<PAGE>
The Boards of Directors Meditrust Corporation
Meditrust Operating Company
January 3, 1998
Page 2
future financial performance of the Meditrust Companies and La Quinta and the
strategic implications and operational benefits anticipated to result from the
Merger. We have assumed, with your consent, that the Merger will be treated as
a tax-free reorganization for federal income tax purposes and that the Merger
and the transactions contemplated thereby will not adversely affect the real
estate investment trust status of the combined entity resulting from the Merger
or the pairing of the Paired Shares. We are not expressing any opinion as to
what the value of the Paired Shares actually will be when issued to La Quinta
shareholders pursuant to the Merger or the price at which the Paired Shares
will trade subsequent to the Merger. We have not made or been provided with an
independent evaluation or appraisal of the assets or liabilities (contingent or
otherwise) of the Meditrust Companies or La Quinta nor have we made any
physical inspection of the properties or assets of the Meditrust Companies or
La Quinta. We were not requested to consider, and our opinion does not address,
the relative merits of the Merger as compared to any alternative business
strategies that might exist for the Meditrust Companies or the effect of any
other transaction in which the Meditrust Companies might engage. Our opinion is
necessarily based upon information available to us, and financial, stock market
and other conditions and circumstances existing and disclosed to us, as of the
date hereof.
Smith Barney Inc. and Salomon Brothers Inc (collectively doing business as
Salomon Smith Barney) have acted as financial advisors to the Meditrust
Companies in connection with the proposed Merger and will receive a fee for
such services, a significant portion of which is contingent upon the
consummation of the Merger. We also will receive a fee upon the delivery of
this opinion. In the ordinary course of our business, we and our affiliates may
actively trade or hold the securities of the Meditrust Companies and La Quinta
for our own account or for the account of our customers and, accordingly, may
at any time hold a long or short position in such securities. We have in the
past provided investment banking services to Meditrust and La Quinta unrelated
to the proposed Merger, for which services we have received and will receive
compensation. In addition, we and our affiliates (including Travelers Group
Inc. and its affiliates) may maintain relationships with the Meditrust
Companies and La Quinta.
Our advisory services and the opinion expressed herein are provided for the
information of the Board of Directors of the Meditrust Companies in their
evaluation of the proposed Merger, and our opinion is not intended to be and
does not constitute a recommendation to any stockholder as to how such
stockholder should vote on any matter relating to the proposed Merger. Our
opinion may not be published or otherwise used or referred to, nor shall any
public reference to Salomon Smith Barney be made, without our prior written
consent.
Based upon and subject to the foregoing, our experience as investment bankers,
our work as described above and other factors we deemed relevant, we are of the
opinion that, as of the date hereof, the Merger Consideration is fair, from a
financial point of view, to the Meditrust Companies.
Very truly yours,
SALOMON SMITH BARNEY
B-2
<PAGE>
ANNEX C
[Letterhead of Merrill Lynch]
January 2, 1998
Board of Directors
La Quinta Inns, Inc.
Weston Centre
112 East Pecan Street
San Antonio, TX 78299
Members of the Board of Directors:
La Quinta Inns, Inc. (the "Company"), Meditrust Corporation ("RECO") and
Meditrust Operating Co. ("OPCO" and, together with RECO, the "Acquiror"),
propose to enter into an Agreement and Plan of Merger (the "Agreement")
pursuant to which the Company will be merged with and into RECO in a
transaction (the "Merger") in which each issued and outstanding share of the
Company's common stock, par value $0.10 per share (the "Company Shares") not
owned directly or indirectly by RECO, OPCO or the Company, will be converted
into the right to receive the Merger Consideration (as defined in the
Agreement) and RECO stock which is issued as the Stock Consideration shall also
be entitled to receive the E&P Distribution (as defined in the Agreement,
together with the Merger Consideration, the "Consideration") on the terms and
subject to the conditions of the Agreement.
You have asked us whether, in our opinion, the Consideration to be
received by the holders of the Company Shares pursuant to the Merger and the
E&P Distribution is fair from a financial point of view to such holders.
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 and the Acquiror that we deemed to be relevant;
2. Reviewed certain information, including financial forecasts, relating
to the business, earnings, cash flow, assets, liabilities and prospects
of the Company, as well as the amount and timing of the cost savings and
related expenses and synergies expected to result from the Merger (the
'Expected Synergies'), furnished to us by the Company;
3. Reviewed certain information, including financial forecasts with
respect to fiscal year 1998, relating to the business, earnings, cash
flow, assets, liabilities and prospects of the Acquiror, furnished to us
by the Acquiror, and certain other information prepared by us and
reviewed by the Acquiror, including financial forecasts relating to the
business, operations and prospects of the Acquiror;
4. Conducted discussions with members of senior management of the Company
and the Acquiror concerning the matters described in clauses (1), (2)
and (3) above, as well as their respective businesses and prospects
before and after giving effect to the Merger and the Expected Synergies;
5. Reviewed the market prices and valuation multiples for the Company
Shares and the Acquiror Shares and compared them with those of certain
publicly traded companies that we deemed to be relevant;
6. Reviewed the results of operations of the Company and the Acquiror and
compared them with those of certain publicly traded companies that we
deemed to be relevant;
7. Compared the proposed financial terms of the Merger with the financial
terms of certain other transactions that we deemed to be relevant;
8. Participated in certain discussions and negotiations among
representatives of the Company and the Acquiror and their financial and
legal advisors;
9. Reviewed the potential pro forma impact of the Merger;
10. Reviewed a draft dated January 2, 1998 of the Agreement; and
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11. 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 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 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 the Acquiror 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
or the Acquiror. With respect to the financial forecast information and the
Expected Synergies furnished to or discussed with us by the Company or the
Acquiror, we have assumed that they have been reasonably prepared and reflect
the best currently available estimates and judgment of the Company's or the
Acquiror's management as to the expected future financial performance of the
Company or the Acquiror, as the case may be, and the Expected Synergies. We
have also assumed that the final form of the Agreement will be substantially
similar to the last draft 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 in the course of
obtaining the necessary regulatory or other consents or approvals (contractual
or otherwise) for the Merger, no restrictions, including any divestiture
requirements or amendments or modifications, will be imposed that will have a
material adverse effect on the contemplated benefits of the Merger. We have
also assumed that the Merger will not change the REIT status of the pro forma
entity.
We are acting as financial advisor to the Company in connection with the
Merger and will receive a fee from the Company for our services, a significant
portion of which is contingent upon the consummation of the Merger. 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 financing services to the Acquiror 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
Company Shares and other securities of the Company, as well as the Acquiror
Shares and other securities of the Acquiror, 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 for the use and benefit of the Board of Directors of the
Company. Our opinion does not address the merits of the underlying decision by
the Company to engage in the Merger and does not constitute a recommendation to
any shareholder of the Company as to how such shareholder should vote on the
proposed Merger or any matter related thereto.
We are not expressing any opinion herein as to the prices at which the
Company Shares or the Acquiror Shares will trade following the announcement or
consummation of the Merger.
On the basis of and subject to the foregoing, we are of the opinion that,
as of the date hereof, the Consideration to be received by the holders of the
Company Shares pursuant to the Merger and the E&P Distribution is fair from a
financial point of view to the holders of such shares.
Very truly yours,
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
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ANNEX D
SHAREHOLDERS AGREEMENT
This Shareholders Agreement, dated as of January 3, 1998 (this
"Agreement"), is among Meditrust Corporation, a Delaware corporation ("REIT"),
Meditrust Operating Company, a Delaware corporation ("OPCO"), the shareholders
of the Company named on the signature page hereto (individually, a
"Shareholder" and collectively, the "Shareholders") and, solely for purposes of
Section 3.6 hereof, La Quinta Inns, Inc., a Texas corporation (the "Company").
RECITALS:
A. As of the date hereof, each Shareholder owns the number of Shares of
Common Stock, par value $0.01 per share ("Company Stock"), of the Company set
forth on Exhibit A (such shares, and any shares of Common Stock hereafter
acquired by such Shareholders, are hereinafter referred to as the "Shares");
B. REIT, OPCO and the Company propose to enter into an Agreement and Plan
of Merger, dated as of the date hereof (as the same may be amended from time to
time, the "Merger Agreement"), which provides, on the terms and subject to the
conditions thereof, for the merger of the Company with and into REIT (the
"Merger"); and
C. As a condition to the willingness of REIT to enter into the Merger
Agreement, REIT has requested that the Shareholders agree, and, in order to
induce REIT to enter into the Merger Agreement, the Shareholders are willing to
agree, to grant REIT an irrevocable proxy to vote, or to otherwise cause to be
voted, the Shares pursuant to the terms and conditions hereof and to grant REIT
an option to purchase the Shares owned by Shareholders on the terms and
conditions contained herein.
NOW, THEREFORE, the parties hereto agree as follows:
I. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS
The Shareholders hereby represent and warrant to REIT and OPCO as follows:
1.1 Due Authority. The Shareholders have full power and authority to
execute and deliver this Agreement and to perform their obligations hereunder
and consummate the transactions contemplated hereby. This Agreement has been
duly executed and delivered by or on behalf of the Shareholders and, assuming
its due authorization, execution and delivery by REIT and OPCO, constitutes a
legal, valid and binding obligation of the Shareholders, enforceable against
them in accordance with their terms.
1.2 No Conflict; Consents. (a) The execution and delivery of this
Agreement by the Shareholders do not, and the performance by the Shareholders
of their obligations under this Agreement and the compliance by the
Shareholders with the provisions hereof do not and will not, (i) conflict with
or violate any law, statute, rule, regulation, order, writ, judgment or decree
applicable to any of the Shareholders or the Shares, (ii) conflict with or
violate the instruments under which any of the Shareholders were formed, (iii)
result in any breach of or constitute a default (or an event that with notice
or lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of, or result in
the creation of a lien or encumbrance on any of the Shares pursuant to, any
note, bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation to which any of the Shareholders is
a party or by which any of the Shareholders or any of the Shares are bound or
(iv) violate any order, writ, injunction, decree, judgment, order, statute,
rule or resolution applicable to any of the Shareholders or any of the Shares.
(b) The execution and delivery of this Agreement by the Shareholders do
not, and the performance of this Agreement by the Shareholders will not,
require any consent, approval, authorization or permit of, or filing with
(except for applicable requirements, if any, of the Securities Exchange Act of
1934, as amended (the "Exchange Act")) or notification to, any government or
regulatory authority by the Shareholders.
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(c) No other person or entity has or will have during the Proxy Term any
right directly or indirectly to vote or control or affect the voting of the
Shares.
1.3 Title to Shares. The Shareholders (a) are the record or beneficial
owners of the Shares as listed on Exhibit A free and clear of any proxy or
voting restriction other than pursuant to this Agreement and (b) have, and
during the Proxy Term will have, sole power of disposition with respect to the
Shares. Such Shares are the only Shares of the Company's stock owned of record
or beneficially by any of the Shareholders.
1.4 No Encumbrances. The Shares and the certificates representing the
Shares are now and at all times during the Proxy Term hereof will be held by
the Shareholders, or by a nominee or custodian for the benefit of the
Shareholders, free and clear of all proxies, voting trusts and voting
agreements, understandings or arrangements and free and clear of all liens,
claims, security interests and any other encumbrances whatsoever except any
such encumbrances or proxies arising under this Agreement and except as set
forth on Exhibit A.
1.5 Brokers. The Shareholders are not liable for, and will indemnify the
Company, REIT and OPCO against, any broker's, finder's, financial advisor's or
other similar fee or commission in connection with the transactions
contemplated hereby based upon arrangements made by or on behalf of any of the
Shareholders.
1.6 Tax Representations. (a) Neither the issuance of Paired Shares (as
such term is defined in the Merger Agreement) to the Shareholders in connection
with the Merger nor the other transactions contemplated by this Agreement will
cause any person to violate the restrictions on ownership and transfer
contained in the Certificate of Incorporation, as amended, of REIT or in the
By-laws, as amended, of REIT, copies of which have been provided to and
reviewed by the Shareholders and their counsel. The Shareholders will provide
to REIT such information as REIT may reasonably request so that REIT may
confirm the accuracy of this representation.
(b) No Shareholder has or will have at the Effective Date any present
plan, intention, or arrangement to sell or dispose of any of the Paired Shares
to be received in the Merger. For purposes of this Section 1.6, a sale or
disposition includes any "constructive sale" within the meaning of Section
1259(c)(1)(A)--(E) of the Internal Revenue Code of 1986, as amended (the
"Code").
II. REPRESENTATIONS AND WARRANTIES OF REIT AND OPCO
REIT and OPCO each hereby represent and warrant to the Shareholders as
follows:
2.1 Due Authority. Such party has full power, corporate or otherwise, and
authority to execute and deliver this Agreement and to perform its obligations
hereunder. This Agreement has been duly executed and delivered by or on behalf
of such party and, assuming its due authorization, execution and delivery by
the other parties hereto, constitutes a legal, valid and binding obligation of
such party, enforceable against such party in accordance with its terms.
2.2 No Conflict; Consents. (a) The execution and delivery of this
Agreement by such party do not, and the performance by such party of its
obligations contemplated by this Agreement and the compliance by such party
with any provisions hereof do not and will not, (i) conflict with or violate
any law, statute, rule, regulation, order, writ, judgment or decree applicable
to such party, (ii) conflict with or violate such party's charter or bylaws, or
(iii) result in any breach of or constitute a default (or an event that with
notice or lapse of time or both would become a default) under, or give to
others any rights of termination, amendment, acceleration or cancellation of,
any note, bond, mortgage, indenture, contract, agreement, lease, license,
permit, franchise or other instrument or obligation to which such party is a
party or by which such party is bound.
(b) The execution and delivery of this Agreement by such party do not,
and the performance of this Agreement by such party will not, require any
consent, approval, authorization or permit of, or filing with (except for
applicable requirements, if any, of the Exchange Act) or notification to, any
governmental or regulatory authority by such party.
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III. CERTAIN COVENANTS OF THE SHAREHOLDERS
The Shareholders hereby covenant and agree with REIT and OPCO as follows:
3.1 Transfer of Shares. During the Proxy Term the Shareholders will not
(a) sell, tender, transfer, encumber, pledge (except as set forth on Exhibit
A), assign or otherwise dispose of any of the Shares, (b) deposit the Shares
into a voting trust or enter into a voting agreement or arrangement with
respect to the Shares or grant any proxy or power of attorney with respect
thereto, (c) enter into any contract, option or other legally binding
undertaking providing for any transaction prohibited by (a) or (b) hereof, or
(d) take any action that would make any representation or warranty of the
Shareholders contained herein untrue or incorrect or have the effect of
preventing or disabling the Shareholders from performing any of the
Shareholders' obligations under this Agreement.
3.2 Proxy. (a) Each Shareholder, by this Agreement, hereby constitutes and
appoints REIT, with full power of substitution, during and for the Proxy Term,
as such Shareholder's true and lawful attorney and irrevocable proxy, for and
in such Shareholder's name, place and stead, to vote each of such Shares owned
by such Shareholder as Shareholder's proxy, at every meeting of the
shareholders of the Company or any adjournment thereof or in connection with
any written consent of the Company's shareholders, (i) in favor of the adoption
of the Merger Agreement and approval of the Merger and the other transactions
contemplated by the Merger Agreement, (ii) against (x) any Company Takeover
Proposal (which term as used in this Agreement shall have the meaning as
defined in the Merger Agreement), and any proposal for any action or agreement
that would result in a breach of any covenant, representation or warranty or
any other obligation or agreement of the Company under the Merger Agreement or
which is reasonably likely to result in any of the conditions of the Company's
obligations under the Merger Agreement not being fulfilled and (y) any change
in the directors of the Company, any change in the present capitalization of
the Company or any amendment to the Company's articles of organization or
bylaws, any other material change in the Company's corporate structure or
business, or any other action which in the case of each of the matters referred
to in this clause (y) could reasonably be expected to impede, interfere with,
delay, postpone or materially adversely affect the transactions contemplated by
the Merger Agreement or the likelihood of such transactions being consummated,
and (iii) in favor of any other matter necessary for consummation of the
transactions contemplated by the Merger Agreement which is considered at any
such meeting of shareholders or in such consent, and in connection therewith to
execute any documents which are necessary or appropriate in order to effectuate
the foregoing, including the ability for REIT or its nominees to vote such
Shares directly. Each Shareholder intends the foregoing proxy to be, and it
shall be, irrevocable and coupled with an interest during the Proxy Term and
hereby revokes any proxies previously granted by such Shareholder with respect
to the Shares to the extent inconsistent with the foregoing proxy.
(b) Each Shareholder hereby further agrees, with respect to any Shares
not voted pursuant to paragraph (a) above, including without limitation any
Shares owned beneficially but not of record by such Shareholder, that during
the Proxy Term, at every meeting of the shareholders of the Company or any
adjournment thereof or in connection with any written consent of the Company's
shareholders, such Shareholder shall vote (or cause to be voted) all Shares
whether or not owned of record or beneficially by such Shareholder except as
specifically requested in writing by REIT in advance, (i) in favor of the
adoption of the Merger Agreement and approval of the Merger and the other
transactions contemplated by the Merger Agreement, (ii) against (x) any Company
Takeover Proposal and any proposal for any action or agreement that would
result in a breach of any covenant, representation or warranty or any other
obligation or agreement of the Company under the Merger Agreement or which is
reasonably likely to result in any of the conditions of the Company's
obligations under the Merger Agreement not being fulfilled or (y) any change in
the directors of the Company, any change in the present capitalization of the
Company or any amendment to the Company's certificate of incorporation or
bylaws, any other material change in the Company's corporate structure or
business, or any other action which in the case of each of the matters referred
to in this clause (y) could reasonably be expected to, impede, interfere with,
delay, postpone or materially adversely affect the transactions contemplated by
the Merger Agreement or the likelihood of such transactions being consummated,
and (iii) in favor of any other matter necessary for consummation of the
transactions contemplated by the Merger Agreement which is considered at any
such meeting of shareholders or in such consent, and in connection therewith to
execute any documents which are necessary or appropriate in order to effectuate
the foregoing.
(c) For the purposes of this Agreement, "Proxy Term" means the period
from the date hereof until the earlier of (i) twelve (12) months after the
termination of the Merger Agreement (provided, however, that after the ter-
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mination of the Merger Agreement Sections 3.2(a) and 3.2(b) hereof shall apply
only to an aggregate number of Shares equal to ten percent of the number of
shares of the Company Stock outstanding from time to time, and the parties
hereto shall agree in writing which Shares shall no longer be subject to the
provisions of such Sections) and (ii) the Effective Time.
3.3 Further Assurances. During the Proxy Term, each Shareholder in its
capacity as a shareholder of the Company shall perform such further acts and
execute such further documents and instruments as REIT or OPCO may reasonably
request.
3.4. No Solicitation. During the Proxy Term each Shareholder individually
or in its capacity as a Shareholder of the Company shall not (i) solicit,
initiate or knowingly encourage the submission of, any inquiries, proposals or
offers from any person relating to a Company Takeover Proposal, (ii) enter into
any agreement with respect to any Company Takeover Proposal, or (iii) enter
into or participate in any discussions or negotiations regarding, or furnish to
any person any information with respect to, or take any other action to
knowingly facilitate any inquiries or the making of any proposal that
constitutes, or would reasonably be expected to lead to, any Company Takeover
Proposal.
3.5 Certain Events. Each Shareholder agrees that this Agreement and the
obligations hereunder will attach to the Shares and will be binding upon any
person or entity to which legal or beneficial ownership of the Shares may pass,
whether by operation of law or otherwise.
3.6 Stop Transfer. Each Shareholder agrees with, and covenants to, REIT
that the Shareholder will not request that the Company register the transfer
(book-entry or otherwise) or any certificate or uncertificated interest
representing any of the Shares. Each Shareholder and the Company further agree
that the Company shall instruct the transfer agent for its Common Stock to
refuse to permit the transfer of the Shares during the Proxy Term except as
permitted by the terms of this Agreement.
3.7 Agreement to Elect Cash. The Shareholders agree that prior to the
Election Deadline they will irrevocably elect to receive with respect to all of
the Shares, pursuant to and in accordance with the provisions of the Merger
Agreement, the maximum amount of cash permitted to be received pursuant to the
Merger Agreement for such Shares.
3.8 Cooperation. Each Shareholder agrees to cooperate with REIT after the
date hereof in determining and investigating whether there exist any
circumstances which could cause REIT to be "closely held" within the meaning of
Section 856(a) of the Code or to derive or accrue or be allocated any amount
that is treated as other than "rents from real property" by reason of Section
856(d)(2)(B) of the Code and without limiting the foregoing agrees to provide
to REIT as promptly as practical all relevant information and documents (or,
with respect to information and documents which such Shareholder does not have
or own, use commercially reasonable efforts to obtain and provide them to REIT
as promptly as practical) which REIT reasonably requests in connection with
such determination and investigation.
ARTICLE IV
STANDSTILL
(a) Each Shareholder hereby covenants and agrees that from and after the
Effective Time hereof neither such Shareholder nor any of the Affiliates will,
without the prior written consent of REIT specifically expressed in a vote
adopted after the Merger by the Board of Directors of REIT (the "Board"),
directly or indirectly, purchase or cause to be purchased or otherwise acquire
(other than pursuant to a stock split, stock dividend or similar transaction or
agree to acquire, or become or agree to become the beneficial owner of, any
additional equity securities, or any securities convertible into or exercisable
or exchangeable for any equity securities (collectively, "Stock") of REIT,
OPCO, or any of their subsidiaries. During the first 90 calendar days from and
after the date the Merger becomes effective (the "Effective Time"), each
Shareholder will not directly or indirectly sell, assign, transfer, pledge
(except that such Shareholder may pledge shares to a brokerage firm pursuant to
a margin account with customary terms) or otherwise dispose of, or enter into
any put or other contract, option or other arrangement or undertaking with
respect to the direct or indirect sale, assignment, transfer or other
disposition of, any common stock of REIT ("REIT Common Stock") or common stock
of OPCO ("OPCO Common Stock") to be received by such Shareholder in the Merger.
After
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such 90-day period, the Shareholders will have the benefit of the rights
granted pursuant to the Registration Rights Agreement to be executed by the
Shareholders, REIT and OPCO prior to the Effective Time (the "Registration
Rights Agreement"). Each Shareholder further agrees that after such 90-day
period neither it nor any Affiliates will, without the prior written consent of
the Board specifically expressed in a vote adopted by the Board, directly or
indirectly sell, assign, transfer, pledge (except that such Shareholder may
pledge shares to a brokerage firm pursuant to a margin account with customary
terms) or otherwise dispose of, or enter into any put or other contract, option
or other arrangement or undertaking with respect to the direct or indirect
sale, assignment, transfer or other disposition of, any shares of Stock, except
for (i) transfers made pursuant to the provisions of Section 4(b) below, (ii)
transfers to Affiliates, or to charitable remainder trusts, that agree in a
written agreement with REIT pursuant to which such Transferee agrees to be
bound by all of the terms and conditions of, and makes, as of a time
immediately prior to such transfer, each of the representations and warranties
contained in (applied to such Transferee as if such Affiliate were any
Shareholder for purposes thereof), this Agreement (provided that such
Shareholder shall remain liable under and bound by this Agreement, in its
entirety, with respect to all such transferred Stock, (iii) bona fide pledges
to financial institutions, such as commercial or investment banks,
broker/dealers, insurance companies and finance companies and resales thereof
by the pledgees thereof pursuant to the terms of the applicable pledge
agreements, (iv) gifts to charitable institutions, (v) transfers pursuant to a
publicly announced tender offer for any shares of Stock by any corporation,
entity, person or group (other than any Shareholder or the Affiliates) which
the Board has voted to recommend to holders of any such shares of Stock, (vi)
transfers effected pursuant to a registration statement filed pursuant to a
registration rights agreement with REIT or OPCO and any Shareholder or, after
the first anniversary of the Effective Time, pursuant to Rule 145(d)
promulgated under the Securities Act of 1933, as amended (the "Securities
Act"), and (vii) open market sales of not more than 1.0% of the outstanding
shares of REIT Common Stock or OPCO Common Stock in any ninety (90) day period
(calculated in the aggregate with respect to all sales by the Shareholders and
the Affiliates, other than sales made pursuant to any of clauses (i) through
(vi) of this Section 4(a)) effected in accordance with the "brokers'
transactions" restrictions of subsections (f) (excluding the last sentence
thereof) and (g) of Rule 144 promulgated under the Securities Act of 1933, as
amended; provided, however, that notwithstanding anything in this Section 4(a)
to the contrary, the Shareholders and their Affiliates shall not in the
aggregate sell (which for this purpose shall include the entering into any put
or other contract, option or other arrangement or undertaking with respect to
the direct or indirect sale, assignment, transfer or other disposition of
Stock), including any Stock sold pursuant to Section 3(b) hereof, more than
1,300,000, 2,000,000, 2,000,000, 2,500,000 and 2,500,000 shares of REIT Common
Stock or OPCO Common Stock (the "Quarterly Limits") in any of the ninety-day
periods which begin on the 91st, 181st, 271st, 361st and 451st day,
respectively, after the Effective Time and provided further, however, that if
in any such ninety-day period (a "Calculation Period") REIT or OPCO exercise
their rights under the provisions of Section 3 or Section 4 of the Registration
Rights Agreement to suspend or defer the Shareholders' rights to sell Stock for
a number of days in such period, then the Quarterly Limit for each succeeding
ninety-day period shall be increased by the excess, if any, of (A) the
Quarterly Limit for the Calculation Period multiplied by a fraction, the
numerator of which is such number of days and the denominator of which is
ninety, over (B) the aggregate number of shares of Stock sold by the
Shareholders and the Affiliates in each ninety day period after the Calculation
Period over the Quarterly Limit (prior to any adjustment) for such period. For
purposes of this Agreement, the "Affiliates" of any Shareholder shall mean any
person or entity who directly or indirectly controls, is controlled by, or is
under common control with any Shareholder, and "transfer" shall mean and
include any sale, assignment, gift, pledge, the imposition of any other
encumbrance or any other disposition or any agreement or obligation to do any
of the foregoing.
(b) If any Shareholder or any Affiliate desires to sell any shares of
Stock (a "Selling Stockholder") (other than pursuant to clauses (ii) through
(vii) of Section 4(a) hereof), the Shareholders will cause the following
requirements to be satisfied:
(i) The Selling Stockholder shall notify REIT in writing of the
proposed sale (the "Notice of Proposed Transfer"). The Notice of Proposed
Transfer shall identify and, to the extent known by the Selling Stockholder,
provide reasonable information concerning the background, business experience
and business affiliations of the proposed transferee (the "Transferee"), the
purchase price or other consideration, if any, the number of shares and type of
Stock to be transferred and the complete terms of the proposed transaction.
(ii) For a period of five (5) business days following the receipt of
the Notice of Proposed Transfer, REIT and/or any substitute designated by REIT
(REIT and/or such substitute designee is hereinafter sometimes called
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the "Buyer") shall have the option to purchase all, but not less than all, the
Stock specified in the Notice of Proposed Transfer at the price and upon the
terms set forth in the Notice of Proposed Transfer; provided, however, that if
the type of consideration that was to be paid was non-cash consideration, then
the amount payable by the Buyer for such Stock shall be determined by an
independent investment banker of national reputation chosen by mutual agreement
of REIT and such Selling Stockholder. In the event that Buyer elects to
purchase all, but not less than all, of the Stock specified in the Notice of
Proposed Transfer, it shall give written notice to the Selling Stockholder of
its election, in which case settlement for said Stock shall be made and the
Buyer shall purchase such Stock for such price, in cash within five (5)
business days after the date Buyer sends such notice. In the event that Buyer
elects not to purchase all of the Stock specified in the Notice of Proposed
Transfer, the Selling Stockholder may consummate the proposed transfer of said
Stock with the Transferee at any time during the following thirty (30) days.
(c) Each Shareholder hereby agrees that, from and after the Effective
Time and prior to the third anniversary of the Effective Time, neither such
Shareholder nor any of the Affiliates will, directly or indirectly, or will
solicit, request, advise, assist or encourage others, directly or indirectly,
to:
(a) form, join in or in any other way participate in a "partnership,
limited partnership, syndicate or other group" within the meaning of Section
13(d)(3) of the Exchange Act with respect to any Stock or deposit any Stock in
a voting trust or similar arrangement or subject any Stock to any voting
agreement or pooling arrangement, other than solely with one or more Affiliates
with respect to the Shares;
(b) solicit proxies or written consents of shareholders with respect
to Stock under any circumstances, or make, or in any way participate in, any
"solicitation" of any "proxy" to vote any shares of Stock, or become a
"participant" in any election contest with respect to REIT or OPCO (as such
terms are defined or used in Rules 14a-1 and 14a-11 under the Exchange Act);
(c) seek to call, or to request the call of, a special meeting of the
shareholders of REIT or OPCO or seek to make, or make, a shareholder proposal
at any meeting of the shareholders of REIT or OPCO;
(d) commence or announce any intention to commence any tender offer
for any Stock, or file with or send to the SEC a Schedule 13D or any amendments
thereto under the Exchange Act with respect to Stock, except (x) the Schedule
13D, if any, to be filed with the SEC in connection with the issuance to one or
more of the Shareholders of Paired Shares and Unpaired Shares pursuant to the
Merger Agreement (the "Current Schedule 13D"), and (y) any amendment to the
Current Schedule 13D to reflect changes to the disclosures set forth therein
and exhibits filed therewith, to the extent such changes result from actions
that are not prohibited by or inconsistent with this Agreement (such permitted
amendments and additional exhibits to the Current Schedule 13D being referred
to as the "Permitted Schedule 13D Amendments");
(e) make a proposal or bid with respect to, announce any intention or
desire to make, or publicly make or disclose, cause to be made or disclosed
publicly, facilitate the making public or public disclosure of, any proposal or
bid with respect to, the acquisition of any substantial portion of the assets
of REIT, OPCO or of the assets or stock of any of their respective subsidiaries
or of all or any portion of the outstanding Stock (except each Shareholder may
file Permitted Schedule 13D Amendments), or any merger, consolidation, other
business combination, restructuring, recapitalization, liquidation or other
extraordinary transaction involving REIT, OPCO or any of their respective
subsidiaries;
(f) otherwise act alone or in concert with others to seek to control
or influence in any manner the management, the Board or the Board of Directors
of OPCO (including the composition thereof) or the business, operations or
affairs of REIT or OPCO;
(g) take any action or form any intention which would require an
amendment to the Current Schedule 13D (other than amendments containing only
the Permitted Schedule 13D Amendments);
(h) arrange, or in any way participate in, any financing for any
transaction referred to in clauses (a) through (g) above inclusive; or
(i) make public, or cause or facilitate the making public (including
by disclosure to any journalist or other representative of the media) of, any
request, or otherwise seek (in any fashion that would require public dis-
D-6
<PAGE>
closure by REIT, OPCO, any of the Shareholders or Affiliates), to obtain any
waiver or amendment of any provision of this Agreement, or to take any action
restricted hereby.
Notwithstanding the foregoing, any Shareholder and the Affiliates, if
applicable, may make such filings with the SEC pursuant to Section 16(a) of the
Exchange Act to reflect changes in the beneficial ownership of any shares of
Stock owned by Shareholder or any Affiliate (to the extent such changes reflect
action taken by any Shareholder or such Affiliate which is not prohibited by
this Agreement).
Each Shareholder hereby covenants and agrees that such Shareholder will
promptly notify REIT when and if such Shareholder receives or learns of (i) any
oral or written request to such Shareholder or any of the Affiliates to
participate in any of the transactions or actions referred to in paragraphs (a)
through (i) above inclusive or (ii) any oral or written communication from or
by any person or entity (other than REIT or OPCO) with respect to any of the
transactions or actions referred to in paragraphs (a) through (i) above
inclusive, if such person or entity could reasonably be deemed to be capable of
effecting, participating in or materially assisting in such an action or
transaction (through one or more affiliates or otherwise) and such oral or
written communication was of a nature that could reasonably be deemed to
indicate a serious interest in effecting, participating in or materially
assisting in such an action or transaction.
ARTICLE V
OPTIONS TO PURCHASE SHARES
5.1 Grant of Options. Subject to the terms, provisions and conditions
contained in this Agreement, each Shareholder hereby grants to REIT and its
designees an option to purchase part or all of the Shares held by such
Shareholder at the Exercise Price (as hereinafter defined) per share (the
options granted hereby are referred to individually as an "Option" and
collectively as the "Options").
5.2 Exercisability of Options; Procedures for Exercise of Options.
(a) If the REIT believes in good faith that the receipt by one or more
of the Shareholders of Paired Shares pursuant to the Merger Agreement will or
may cause (X) such Shareholder or any other person to own, or be deemed to own
under the applicable attribution rules of Section 318 (as modified by Section
856(d)(5)) of the Code, immediately after the Merger Paired Shares of REIT
Common Stock and OPCO Common Stock in excess of the amounts or percentages of
the outstanding Paired Shares of REIT Common Stock and OPCO Common Stock
permitted to be owned thereby by REIT's Certificate of Incorporation or Bylaws,
both as amended through the Effective Time, or (Y) any amount derived or
received by, or allocated to, REIT to fail to qualify as "rents from real
property" by reason of Section 856(d)(2)(B) of the Code (such limitations set
forth in the foregoing clauses (X) and (Y) being referred to herein
collectively as the "Paired Ownership Limitations"), then REIT shall have the
right to exercise one or more of the Options in whole or in part in order to
reduce or eliminate any possibility that the issuance of Paired Shares in the
Merger will cause any of the Paired Ownership Limitations to be exceeded or
violated. In addition, REIT may exercise one or more of the Options if any
Shareholder does not comply with the provisions of Section 3.7 or of Section
3.8. If REIT chooses to exercise one or more of such Options in whole or in
part, it may do so only by sending a written notice to one or more of the
Shareholders from and after the Election Deadline and prior to the Effective
Time stating its intention to exercise such Option or Options, which notice
shall be sent to any such Shareholder c/o William P. Hallman, Suite 3200, Texas
Commerce Bank Tower, 201 Main Street, Fort Worth, Texas 76102 and shall include
a date and time at which the closing for any such exercise (the "Option
Closing") shall occur, such date to be not less than one business day and not
more than five business days after the giving of such notice. The sale and
delivery and the purchase and acceptance of the Shares being acquired shall
take place at the offices of Goodwin, Procter & Hoar LLP at Exchange Place,
Boston, Massachusetts, or such other place as shall be mutually agreed upon by
REIT and such Shareholder.
(b) At each Option Closing, REIT or its designee shall pay the Exercise
Price (as determined pursuant to Section 5.3 below) for each Share being
purchased in cash by a cashiers check or federal funds wire transfer to an
account designated by such Shareholder against delivery of any necessary or
appropriate stock certificates and duly executed instruments of transfer to
REIT or its designee.
D-7
<PAGE>
Each Shareholder represents and warrants to REIT and its designee that upon
payment of the applicable purchase price at each Option Closing, such
Shareholder shall have transferred to REIT or its designee the legal and
beneficial ownership of the Shares being sold at such Option Closing, free and
clear of any liens, encumbrances, charges, restrictions or other adverse
claims.
5.3 Exercise Price. The exercise price (the "Exercise Price") shall equal
the Maximum Cash Consideration Per Share, as such term is defined in the Merger
Agreement.
5.4 Escrow. Upon request by REIT, each Shareholder agrees to place the
Shares subject to the Options in escrow with a mutually agreeable escrow agent
until the termination of the Options.
5.5 Term of Options. The Options shall terminate on the earlier of (i) the
termination of the Merger Agreement and (ii) the Effective Time.
VI. MISCELLANEOUS; GENERAL PROVISIONS
6.1 Severability. If any term or other provision of this Agreement is
determined to be invalid, illegal or incapable of being enforced by any rule of
law or public policy, all other conditions and provisions of this Agreement
will nevertheless remain in full force and effect so long as the economic or
legal substance of the transactions contemplated hereby is not affected in any
manner materially adverse to any party. Upon such determination that any term
or other provision is invalid, illegal or incapable of being enforced, the
parties hereto will negotiate in good faith to modify this Agreement so as to
effect the original intent of the parties as closely as possible to the fullest
extent permitted by applicable law in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the extent possible.
6.2 Entire Agreement. This Agreement constitutes the entire agreement of
the parties and supersedes all prior agreements and undertakings, both written
and oral, between the parties with respect to the subject matter hereof.
6.3 Amendments. This Agreement may not be modified, amended, waived,
altered or supplemented, except upon the execution and delivery of a written
agreement executed by the parties hereof.
6.4 Assignment. This Agreement may not be assigned by operation of law or
otherwise.
6.5 Parties in Interest. This Agreement is binding upon, and shall inure
solely to the benefit of, each party hereto and nothing in this Agreement,
express or implied, is intended to or will confer upon any other person any
right, benefit or remedy of any nature whatsoever under or by reason of this
Agreement.
6.6 Specific Performance. The parties hereto agree that irreparable damage
would occur in the event any provision of this Agreement was not performed in
accordance with the terms hereof or was otherwise breached. It is accordingly
agreed that the parties will be entitled to specific relief hereunder
including, without limitation, an injunction or injunctions to prevent and
enjoin breaches of the provisions of this Agreement and to enforce specifically
the terms and provisions hereof, in any state or federal court in the State of
Delaware, in addition to any other remedy to which they may be entitled at law
or in equity. Any requirements for the securing or posting of any bond with
respect to any such remedy are hereby waived.
6.7 Governing Law; Jurisdiction and Venue. This Agreement shall be
governed by, and construed in accordance with, the internal laws of the State
of Delaware without regard to its rules of conflict of laws. The parties hereto
hereby irrevocably and unconditionally consent to and submit to the exclusive
jurisdiction of the Delaware Courts for any litigation arising out of or
relating to this Agreement and the transactions contemplated hereby (and agrees
not to commence any litigation relating thereto except in such courts), waives
any objection to the laying of venue of any such litigation in the Delaware
Courts and agrees not to plead or claim in any Delaware Court that such
litigation brought therein has been brought in any inconvenient forum.
6.8 Counterparts. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts,
each of which when executed will be deemed to be an original but all of which
taken together will constitute one and the same agreement.
D-8
<PAGE>
6.9 Directors and Officers. Notwithstanding anything herein to the
contrary, the covenants and agreements set forth herein shall not prevent any
Shareholder or its representatives or designees who are serving on the Board of
Directors of the Company or who are officers of the Company from taking any
action, subject to the applicable provisions of the Merger Agreement, in his or
her capacity as a director or officer of the Company.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
D-9
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
date first written above.
MEDITRUST CORPORATION
By: /s/ David F. Benson
--------------------------
Name: David F. Benson
Title: President
MEDITRUST OPERATING COMPANY
By: /s/ Michael J. Bohnen
---------------------------
Name: Michael J. Bohnen
Title: Secretary
LA QUINTA INNS, INC.
By: /s/ Gary L. Mead
---------------------------
Name: Gary L. Mead
Title: President and Chief Executive Officer
THOMAS M. TAYLOR & CO.
By: /s/ W.P. Hallman, Jr.
---------------------------
Name: W.P. Hallman, Jr.
Title: Vice President
SID R. BASS, INC.
By: /s/ W.P. Hallman, Jr.
-----------------------------
Name: W.P. Hallman, Jr.
Title: Vice President
LEE M. BASS, INC.
By: /s/ W.P. Hallman, Jr.
------------------------------
Name: W.P. Hallman, Jr.
Title: Vice President
THE BASS MANAGEMENT TRUST
By: /s/ Perry R. Bass
-------------------------------
Perry R. Bass, Trustee,
by W.P. Hallman, Attorney-in-fact
THE AIRLIE GROUP, L.P.
By: EBD, L.P., General Partner,
By: TMT-FW Inc.
By: /s/ W.P. Hallman, Jr.
---------------------------
W.P. Hallman, Jr.
Vice President
WILLIAM P. HALLMAN, JR.
/s/ William P. Hallman, Jr.
- ----------------------------------
William P. Hallman, Jr.
ANNIE R. BASS GRANDSON'S TRUST FOR
LEE M. BASS
By: /s/ William P. Hallman, Jr.
--------------------------
William P. Hallman, Jr., Trustee
ANNIE R. BASS GRANDSON'S TRUST FOR
SID R. BASS
By: /s/ William P. Hallman, Jr.
--------------------------
William P. Hallman, Jr., Trustee
PETER STERLING
/s/ Peter Sterling
- ----------------------------------
Peter Sterling
GARY L. MEAD
/s/ Gary L. Mead
- -----------------------------------
Gary L. Mead
D-10
<PAGE>
HYATT ANNE BASS SUCCESSOR TRUST By: Panther City Investment Co., Trustee
By: /s/ W.P. Hallman Jr.
---------------------
W.P. Hallman Jr.,
Vice President
SAMANTHA SIMS BASS SUCCESSOR TRUST
By: Panther City Investment Co., Trustee
By: /s/ W.P. Hallman Jr.
------------------------
W.P. Hallman Jr.,
Vice President
PORTFOLIO C INVESTORS, L.P.
By: Portfolio Associates, Inc.,
General Partner
By: /s/ W.P. Hallman Jr.
-------------------------
W.P. Hallman Jr.,
Vice President
D-11
<PAGE>
EXHIBIT A
<TABLE>
<CAPTION>
Number of Shares of
Number of Shares of Company Stock Owned
Company Stock Owned Beneficially But Not of
Name and Address of Shareholder of Record by Shareholder Record by Shareholder
- ------------------------------------------------ -------------------------- ------------------------
<S> <C> <C>
Thomas M. Taylor & Co. 0 3,461,280
Sid R. Bass, Inc. 0 4,147,957
Lee M. Bass, Inc. 0 4,147,957
The Bass Management Trust 0 1,190,622
The Airlie Group, L.P. 0 487,500
William P. Hallman, Jr. 0 253,125
Annie R. Bass Grandson's Trust for Lee M. Bass 0 806,305
Annie R. Bass Grandson's Trust for Sid R. Bass 0 806,305
Peter Sterling 0 339,185
Gary L. Mead 303,750 0
Hyatt M. Bass Successor Trust 0 1,550,733
Samantha Sims Bass Successor Trust 0 1,550,733
Portfolio C Investors, L.P. 0 3,223,700
</TABLE>
All of the above shares, except those owned by Gary L. Mead, are subject
to liens arising out of margin account borrowings with one or more brokerage
firms on customary terms.
D-12
<PAGE>
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
As permitted by Section 102 of the Delaware General Corporation Law (the
"DGCL"), both the Meditrust Certificate of Incorporation and the Operating
Company Certificate of Incorporation eliminate personal liability of its
respective directors to such company or its stockholders for monetary damages
for breach of fiduciary duty as a director, except for: (i) any breach of the
duty of loyalty to such company or its stockholders; (ii) acts or omissions not
in good faith or which involve intentional misconduct or knowing violations of
law; (iii) liability under Section 174 of the DGCL relating to certain unlawful
dividends and stock repurchases; or (iv) any transaction from which the
director derived an improper personal benefit.
As permitted by Section 145 of the DGCL, both Meditrust's By-laws and
Operating Company's By-laws provide for indemnification of directors and
officers (and permit the respective Boards of Directors to provide for
indemnification of employees and agents) of such Registrant against all costs,
charges, expenses, liabilities and losses (including attorneys' fees,
judgments, fines, ERISA excise taxes or penalties and other amounts paid in
settlement) actually and reasonably incurred by them in connection with any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, in which any such person was or is a
party or is threatened to be made a party, if such person acted in good faith
and in a manner such person reasonably believed to be in or not opposed to the
best interest of such Registrant and, with respect to any criminal action or
proceeding, if such person had no reasonable cause to believe his conduct was
unlawful. In the case of an action or suit by or in the right of a Registrant,
such a person may be indemnified only for expenses (including attorneys fees)
and may not be indemnified in respect of any claim, issue or matter as to which
he has been adjudged liable for negligence or misconduct in the performance of
his duty to the respective Registrant, unless and only to the extent the court
in which such action or suit was brought determines that such person is fairly
and reasonably entitled to indemnity for such expenses as such court may deem
proper. In each case, indemnification of an officer or director shall be made
only upon specific authorization of a majority of disinterested directors, by
written opinion of independent legal counsel or by the stockholders, unless the
officer, or director has been successful on the merits or otherwise in defense
of any such action or suit, in which case he shall be indemnified without such
authorization. Both Meditrust's By-laws and Operating Company's By-laws require
such Registrant to pay the expenses incurred by a director or officer in
defending or investigating a threatened or pending action, suit or proceeding
in advance of the final disposition of such action, suit or proceeding upon
receipt by such Registrant of an undertaking by or on behalf of such director
or officer to repay such amount if it is ultimately determined that he is not
entitled to indemnification and permit such Registrant to advance such expenses
to other employees and agents of such Registrant upon such terms and conditions
as are specified by the respective Registrant's Board of Directors. The
advancement of expenses, as well as indemnification, pursuant to each
Registrant's Bylaws is not exclusive of any other rights which those seeking
indemnification or advancement of expenses from such Registrant may have.
Individual indemnification agreements (the "Indemnification Agreements")
have been entered into by each of Meditrust and Operating Company with certain
of its respective directors and officers. The Indemnification Agreements
provide for indemnification to the fullest extent permitted by law and provide
contractual assurance to directors and officers that indemnity and advancement
of expenses will be available to them regardless of any amendment or revocation
of such Registrant's Bylaws.
Both Meditrust's By-laws and Operating Company's By-laws permit such
Registrant to purchase and maintain insurance on behalf of any director,
officer, employee or agent of such Registrant against liability asserted
against him or her in any such capacity, whether or not such Registrant would
have the power to indemnify him against such liability under the provisions of
the Bylaws. Both Meditrust and Operating Company maintain liability insurance
providing officers and directors with coverage with respect to certain
liabilities.
II-1
<PAGE>
Item 21. Exhibits and Financial Statement Schedule.
(a) The following exhibits are filed as part of this Registration Statement
or incorporated herein by reference:
<TABLE>
<CAPTION>
Exhibit
No. Title Method of Filing
- -------- ---------------------------------------------------- ------------------------------------------------------
<S> <C> <C>
2.1 Agreement and Plan of Merger, dated as of Incorporated by reference to Exhibit 10.1 to the
January 3, 1998 by and among La Quinta Inns, Inc., Joint Current Report on Form 8-K of Meditrust
Meditrust Corporation and Meditrust Operating Corporation and Meditrust Operating Company,
Company ............................................ event date January 3, 1998 (Included as Annex A
to this Joint Proxy Statement/Prospectus)
2.2 Agreement and Plan of Merger dated as of Incorporated by reference to Exhibit 2 to the
January 11, 1998, among Meditrust Corporation, Joint Current Report on Form 8-K of Meditrust
Meditrust Operating Company and Cobblestone Corporation and Meditrust Operating Company,
Holdings, Inc. ..................................... event date January 10, 1998
3.1 Certificate of Merger merging Meditrust with Incorporated by reference to Exhibit 3.1 to the Joint
and into Santa Anita Realty Enterprises, Inc. Registration Statement on Form S-3 of Meditrust
filed with the Secretary of State of Delaware on Corporation and Meditrust Operating Company
November 5, 1997 ................................... (File Nos. 333-40055 and 333-40055-1)
3.2 Restated Certificate of Incorporation of Meditrust
Corporation filed with the Secretary of State of
Delaware on March 2, 1998 .......................... Filed herewith
3.3 Certificate of Merger merging Meditrust Acquisition Incorporated by reference to Exhibit 3.3 to the Joint
Company with and into Santa Anita Operating Registration Statement on Form S-3 of Meditrust
Company filed with the Secretary of State of Corporation and Meditrust Operating Company
Delaware on November 5, 1997 ....................... (File Nos. 333-40055 and 333-40055-1)
3.4 Restated Certificate of Incorporation of Meditrust
Operating Company filed with the Secretary of State
of Delaware on March 2, 1998 ....................... Filed herewith
3.5 By-Laws of Meditrust Corporation, as amended and
restated ........................................... Filed herewith
3.6 By-Laws of Meditrust Operating Company, as
amended and restated ............................... Filed herewith
4.1 Pairing Agreement by and between Meditrust
Corporation (formerly known as Santa Anita Realty
Enterprises, Inc.) and Meditrust Operating Company Incorporated by reference to Exhibit 5 to Joint
(formerly known as Santa Anita Operating Registration Statement on Form 8-A of Santa Anita
Company), dated December 20, 1979 .................. Operating Company filed February 5, 1980
4.2 First Amendment to Pairing Agreement, by and Incorporated by reference to Exhibit 4.4 to Joint
between Meditrust Corporation and Meditrust Registration Statement on Form S-8 of Meditrust
Operating Company, dated November 6, 1997 .......... Corporation and Meditrust Operating Company (File
Nos. 333-39771 and 333-39771-01)
4.3 Second Amendment to Pairing Agreement, by and
between Meditrust Corporation and Meditrust
Operating Company, dated February 6, 1998 .......... Filed herewith
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Title Method of Filing
- -------- ---------------------------------------------------------- ----------------------------------------------------
<S> <C> <C>
4.4 Rights Agreement, dated June 15, 1989, among
Meditrust Corporation (formerly known as Santa
Anita Realty Enterprises, Inc.), Meditrust Operating Incorporated by reference to Exhibit 2.1 to Joint
Company (formerly known as Santa Anita Operating Registration Statement on Form 8-A of Santa Anita
Company), and Boston EquiServe, as Rights Agent .......... Realty Enterprises, Inc. filed June 19, 1989)
4.5 Appointment of Boston EquiServe as Rights Agent Incorporated by reference to Exhibit 4.6 to Joint
under the Rights Agreement, dated October 24, Registration Statement on Form S-8 of Meditrust
1997 ..................................................... Corporation and Meditrust Operating Company
(File Nos. 333-39771 and 333-39771-01)
4.6 Meditrust Corporation Amended and Restated 1995 Incorporated by reference to Exhibit 4.1 to Joint
Share Award Plan ......................................... Registration Statement on Form S-8 of Meditrust
Corporation and Meditrust Operating Company
(File Nos. 333-39771 and 333-39771-01)
4.7 Meditrust Operating Company Amended and Incorporated by reference to Exhibit 4.2 to Joint
Restated 1995 Share Award Plan ........................... Registration Statement on Form S-8 of Meditrust
Corporation and Meditrust Operating Company (File
Nos. 333-39771 and 333-39771-01)
4.8 Form of Indenture dated February 4, 1993 between Incorporated by reference to Exhibit 4.1 to the
Meditrust and Fleet National Bank, as trustee ............ Registration Statement on Form S-3 of Meditrust's
Predecessor, which was merged with and into Santa
Anita Realty Enterprises, Inc. on November 5, 1997
("Meditrust Predecessor) (File No. 33-55386)
4.9 Form of 7% Convertible Debenture due 1998 ................ Incorporated by reference to Exhibit 4.2 to the
Registration Statement on Form S-3 of Meditrust's
Predecessor (File No. 33-55386)
4.10 Form of Fiscal Agency Agreement dated February Incorporated by reference to Exhibit 4.5 to Form
4, 1993 between Meditrust and Fleet National Bank 10-K of Meditrust's Predecessor for the fiscal year
as fiscal agent .......................................... ended December 31, 1993
4.11 Form of Fiscal Agency Agreement dated November Incorporated by reference to Exhibit 4.7 to Form
15, 1993 between Meditrust and Fleet National 10-K of Meditrust's Predecessor for the fiscal year
Bank as fiscal agent ..................................... ended December 31, 1993
4.12 Form of 67/8% Convertible Debenture due 1998 ............. Incorporated by reference to Exhibit 4.8 to Form
10-K of Meditrust's Predecessor for the fiscal year
ended December 31, 1993
4.13 Form of Indenture dated April 23, 1992 between Incorporated by reference to Exhibit 4 to the
Meditrust and Fleet National Bank, as trustee ............ Registration Statement on Form S-3 of Meditrust's
Predecessor (File No. 33-45979)
4.14 Form of 9% Convertible Debenture due 2002 ................ Incorporated by reference to Exhibit 4 to the
Registration Statement on Form S-3 of Meditrust's
Predecessor (File No. 33-45979)
4.15 Form of Indenture dated March 9, 1994 between Incorporated by reference to Exhibit 4 to the
Meditrust and Shawmut Bank as Trustee .................... Registration Statement on Form S-3 of Meditrust's
Predecessor (File No. 33-50835)
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Title Method of Filing
- ---------- -------------------------------------------------------- --------------------------------------------------
<S> <C> <C>
4.16 Form of 7-1/2% Convertible Debenture due 2001 .......... Incorporated by reference to Exhibit 4 to the
Registration Statement on Form S-3 of Meditrust's
Predecessor (File No. 33-50835)
4.17 Form of Second Supplemental Indenture as of Incorporated by reference to Exhibit 4.1 to the
July 28, 1995 between Meditrust and Fleet National Current Report on Form 8-K of Meditrust's
Bank, as trustee ....................................... Predecessor dated July 27, 1995
4.18 Form of 8.54% Convertible Senior Note due Incorporated by reference to Exhibit 4.2 to the
July 1, 2000 ........................................... Current Report on Form 8-K of Meditrust's
Predecessor dated July 27, 1995
4.19 Form of 8.56% Convertible Senior Note due Incorporated by reference to Exhibit 4.3 to the
July 1, 2002 ........................................... Current Report on Form 8-K of Meditrust's
Predecessor dated July 27, 1995
4.20 Form of Distribution Agreement dated August 10,
1995 between Meditrust, Goldman, Sachs & Co. Incorporated by reference to Exhibit 1 to the
and other underwriters relating to $200,000,000 of Current Report on Form 8-K of Meditrust's
Medium-term Notes ...................................... Predecessor dated August 8, 1995
4.21 Form of Third Supplemental Indenture dated as Incorporated by reference to Exhibit 4.2 to the
of August 10, 1995 between Meditrust and Fleet Current Report on Form 8-K of Meditrust's
National Bank .......................................... Predecessor dated August 8, 1995
4.22 Form of Fixed Rate Senior Medium-term Note ............. Incorporated by reference to Exhibit 4.1 to the
Current Report on Form 8-K of Meditrust's
Predecessor dated August 8, 1995
4.23 Form of Floating Rate Senior Medium-term Note .......... Incorporated by reference to Exhibit 4.1 to the
Current Report on Form 8-K of Meditrust's
Predecessor dated August 8, 1995
4.24 Form of First Supplemental Indenture dated as Incorporated by reference to Exhibit 4.1 to the
of July 26, 1995 between Meditrust and Fleet Current Report on Form 8-K of Meditrust's
National Bank .......................................... Predecessor dated July 13, 1995
4.25 Form of 7.375% Note due July 15, 2000 .................. Incorporated by reference to Exhibit 4.1 to the
Current Report on Form 8-K of Meditrust's
Predecessor dated July 13, 1995
4.26 Form of 7.60% Note due July 15, 2001 ................... Incorporated by reference to Exhibit 4.1 to the
Current Report on Form 8-K of Meditrust's
Predecessor dated July 13, 1995
4.27 Specimen Copy of Stock Certificate for Shares of
Common Stock of Registrants ............................ To be filed by amendment
4.28 Purchase Agreement by and among Merrill Lynch
International, Meditrust Corporation and Meditrust
Operating Company, dated February 26, 1998 ............. Filed herewith
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Title Method of Filing
- ---------- ----------------------------------------------------- ---------------------------------------------------
<S> <C> <C>
4.29 Purchase Price Adjustment Mechanism Agreement
by and among Merrill Lynch International,
Meditrust Corporation and Meditrust Operating
Company, dated February 26, 1998 .................... Filed herewith
5.1 Opinion of Goodwin, Procter & Hoar LLP as to the
legality of the securities being offered by Meditrust
Corporation ......................................... To be filed by amendment
5.2 Opinion of Goodwin, Procter & Hoar LLP as to the
legality of the securities being offered by Meditrust
Operating Company ................................... To be filed by amendment
8.1 Opinion of Goodwin, Procter & Hoar LLP as to
certain tax matters ................................. To be filed by amendment
8.2 Opinion of Latham & Watkins as to certain tax
matters ............................................. To be filed by amendment
10.1 Note Agreement relating to first mortgage notes due Incorporated by reference to Exhibit 10.4 to the
December 1, 1997 .................................... Registration Statement on Form S-11 of Meditrust's
Predecessor (File No. 33-20557)
10.2 Amended and Restated Lease Agreement between Incorporated by reference to Exhibit 2.2 to the
Mediplex of Queens, Inc. and QPH, Inc., dated Form 8-K of Meditrust's Predecessor dated
December 30, 1986 ................................... January 13, 1987
10.3 Form of Lease for Carmel, New York and Scotia, Incorporated by reference to Exhibit 10.5 to the
New York facilities ................................. Registration Statement on Form S-11 of Meditrust
(File No. 33-7483)
10.4 Amended and Restated Revolving Credit Agreement Incorporated by reference to Exhibit 10.2 to Form
dated July 21, 1995 between the Company and Via 10-Q of Meditrust's Predecessor dated October 20,
Banque .............................................. 1995
10.5 Amended and Restated Revolving Credit Agreement
dated July 21, 1995 among the Company, various
financial institutions and Fleet Bank, National Incorporated by reference to Exhibit 10.1 to
Association and First Union National Bank of Form 10-Q of Meditrust's Predecessor dated
North Carolina, as Agents ........................... October 20, 1995
23.1 Consent of Coopers & Lybrand L.L.P. ................. Filed herewith
23.2 Consent of KPMG Peat Marwick ........................ Previously filed
23.3 Consent of Ernst & Young ............................ To be filed by amendment
23.4 Consent of Goodwin, Procter & Hoar LLP .............. To be filed by amendment
23.5 Consent of Latham & Watkins ......................... To be filed by amendment
23.6 Consent of Merrill Lynch, Pierce, Fenner & Smith
Incorporated ........................................ Previously filed
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Title Method of Filing
- ---------- ----------------------------------------------------- ----------------------------
<S> <C> <C>
24.1 Powers of Attorney .................................. Previously filed
99.1 Consent of Salomon Smith Barney ..................... Previously filed
99.2 Opinion of Salomon Smith Barney ..................... (Annex B to the Joint Proxy
Statement/Prospectus)
99.3 Opinion of Merrill Lynch, Pierce, Fenner & Smith
Incorporated as to the fairness of the transaction to (Annex C to the Joint Proxy
Shareholders of La Quinta Inns, Inc. ................ Statement/Prospectus)
99.4 Form of Meditrust Corporation Proxy ................. Previously filed
99.5 Form of Meditrust Operating Company Proxy ........... Previously filed
99.6 Form of La Quinta Proxy ............................. Previously filed
99.7 Form of Cash Election ............................... To be filed by amendment
</TABLE>
- ------------
(b) No financial statement schedules are required to be filed herewith
pursuant to Item 21 (b) of this Form.
(c) The Opinion of Salomon Smith Barney is included as Annex B to the
Joint Proxy Statement/ Prospectus included in this Registration Statement. The
Opinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated is included as
Annex C to the Joint Proxy Statement/Prospectus included in this Registration
Statement.
Item 22. Undertakings.
(a) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act
of 1934) that is incorporated by reference in the registration statement shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(b) (1) The undersigned registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through
use of a prospectus which is a part of this registration statement, by
any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be
deemed underwriters, in addition to the information called for by the
other items of the applicable form.
(2) The undersigned registrant undertakes that every prospectus: (i) that is
filed pursuant to paragraph (1) immediately preceding, or (ii) that
purports to meet the requirements of Section 10(a)(3) of the Act and is
used in connection with an offering of securities subject to Rule 415,
will be filed as a part of an amendment to the registration statement and
will not be used until such amendment is effective, and that, for purposes
of determining any liability under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial bonafide
offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will,
II-6
<PAGE>
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(d) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
(e) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the Town of
Needham, Commonwealth of Massachusetts, on March 27, 1998.
MEDITRUST CORPORATION
By: /s/ David F. Benson
-------------------------
David F. Benson,
President (Principal Executive
Officer),
Treasurer and Director
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------------------------- ------------------------------------------ ---------------
<S> <C> <C>
* Chairman of the Board of March 27, 1998
- ------------------------- Directors, Meditrust Corporation
Abraham D. Gosman
President (Principal Executive Officer), March 27, 1998
/s/ David F. Benson Treasurer and Director,
- ------------------------- Meditrust Corporation
David F. Benson
* Chief Financial Officer, Meditrust March 27, 1998
- ------------------------- Corporation (Principal Financial and
Laurie T. Gerber Accounting Officer)
* Director, Meditrust Corporation March 27, 1998
- -------------------------
Donald J. Amaral
* Director, Meditrust Corporation March 27, 1998
- -------------------------
Edward W. Brooke
* Director, Meditrust Corporation March 27, 1998
- -------------------------
James P. Conn
* Director, Meditrust Corporation March 27, 1998
- -------------------------
John C. Cushman, III
* Director, Meditrust Corporation March 27, 1998
- -------------------------
C. Gerald Goldsmith
* Director, Meditrust Corporation March 27, 1998
- -------------------------
Philip L. Lowe
* Director, Meditrust Corporation March 27, 1998
- -------------------------
Thomas J. Magovern
* Director, Meditrust Corporation March 27, 1998
- -------------------------
Gerald Tsai, Jr.
*By: /s/ David F. Benson
-----------------------
Attorney-in-Fact
</TABLE>
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the Town of
Needham, Commonwealth of Massachusetts, on March 27, 1998.
MEDITRUST OPERATING COMPANY
By: /s/ Abraham D. Gosman
-------------------------------
Abraham D. Gosman
Chairman of the Board,
Chief Executive Officer
(Principal Executive Officer) and
Treasurer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- -------------------------- ------------------------------------------- ---------------
<S> <C> <C>
/s/ Abraham D. Gosman Chairman of the Board of Directors, March 27, 1998
- ------------------------- Chief Executive Officer and Treasurer
Abraham D. Gosman Meditrust Operating Company, (Principal
Executive Officer, Principal Financial and
Accounting Officer)
* Director, Meditrust Operating Company March 27, 1998
- -------------------------
Donald J. Amaral
* Director, Meditrust Operating Company March 27, 1998
- -------------------------
William C. Baker
* Director, Meditrust Operating Company March 27, 1998
- -------------------------
David F. Benson
* Director, Meditrust Operating Company March 27, 1998
- -------------------------
Edward W. Brooke
* Director, Meditrust Operating Company March 27, 1998
- -------------------------
C. Gerald Goldsmith
* Director, Meditrust Operating Company March 27, 1998
- -------------------------
J. Terrance Lanni
* Director, Meditrust Operating Company March 27, 1998
- -------------------------
Philip L. Lowe
* Director, Meditrust Operating Company March 27, 1998
- -------------------------
Thomas J. Magovern
* Director, Meditrust Operating Company March 27, 1998
- -------------------------
Gerald Tsai, Jr.
*By: /s/ Abraham D. Gosman
- -------------------------
Attorney-in-Fact
</TABLE>
II-9
Exhibit 3.2
RESTATED CERTIFICATE OF INCORPORATION
OF
MEDITRUST CORPORATION
Meditrust Corporation, a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), filed its original certificate of incorporation in Delaware
under the name "Santa Anita Realty Enterprises, Inc." on August 23, 1979. This
Restated Certificate of Incorporation was duly adopted in accordance with the
provisions of Section 245(b) of the General Corporation Law of the State of
Delaware and only restates and integrates and does not further amend the
provisions of the Corporation's certificate of incorporation as theretofore
amended and supplemented, and there is no discrepancy between those provisions
and the provisions of this Restated Certificate of Incorporation except as
otherwise provided in Section 245(c) of the General Corporation Law of The State
of Delaware.
NOW, THEREFORE, the Certificate of Incorporation of the Corporation, as
restated herein, shall at the effective time of this Restated Certificate of
Incorporation read as follows:
FIRST. Name. The name of the Corporation is Meditrust Corporation.
SECOND. Registered Office. The address of its registered office in the
State of Delaware is 1013 Centre Road, in the City of Wilmington, County of
New Castle. The name of its registered agent at such address is Corporation
Service Company.
THIRD. Purposes. The nature of the business or purposes to be conducted or
promoted is:
To engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of Delaware and to do all things and
exercise all powers, rights and privileges which a business corporation may now
or hereafter be organized or authorized to do or to exercise under the laws of
the State of Delaware.
FOURTH. Capitalization.
SECTION 1. The total number of shares of all classes of stock which
the Corporation shall have authority to issue is 306,000,000, of which
270,000,000 shares of the par value of $.10 each are to be of a class designated
Common Stock, 6,000,000 shares of the par value of $.10 each are to be of a
class designated Preferred Stock and 30,000,000 shares of the par value of $.10
each are to be of a class designated Series Common Stock.
SECTION 2. The shares of Preferred Stock may be issued from time to
time in one or more series. The Board of Directors of the Corporation is hereby
authorized to fix or alter the dividend rights, dividend rate, conversion
rights, voting rights, rights and terms
1
<PAGE>
of redemption (including sinking fund provisions), the redemption price or
prices, and the liquidation preferences of any wholly unissued series of
Preferred Stock and the number of shares constituting any such series and the
designation thereof, or all or any of them.
SECTION 3. The shares of Series Common Stock may be issued from time
to time in one or more series. The Board of Directors of the Corporation is
hereby authorized to fix or alter the dividend rights, dividend rate, conversion
rights, voting rights, rights and terms of redemption (including sinking fund
provisions), the redemption price or prices, and the liquidation preferences of
any wholly unissued series of Series Common Stock and the number of shares
constituting any such series and the designation thereof, or all or any of them.
SECTION 4. (a) Each holder of Common Stock, as such, shall be entitled
to one vote for each share of Common Stock held of record by such holder on all
matters on which stockholders generally are entitled to vote.
(b) Except as otherwise required by law, holders of a
series of Preferred Stock or Series Common Stock, as such, shall be entitled
only to such voting rights, if any, as shall expressly be granted thereto by
this Certificate of Incorporation (including any Certificate of Designation
relating to such series).
(c) Subject to applicable law and the rights, if any, of
the holders of any outstanding series of Preferred Stock or Series Common Stock
or any class or series of stock having a preference over or the right to
participate with the Common Stock with respect to the payment of dividends,
dividends may be declared and paid on the Common Stock at such times and in such
amounts as the Board of Directors in its discretion shall determine.
(d) Upon the dissolution, liquidation or winding up of the
Corporation, subject to the rights, if any, of the holders of any outstanding
series of Preferred Stock or Series Common Stock or any class or series of stock
having a preference over or the right to participate with the Common Stock with
respect to the distribution of assets of the Corporation upon such dissolution,
liquidation or winding up of the Corporation, the holders of the Common Stock,
as such, shall be entitled to receive the assets of the Corporation available
for distribution to its stockholders ratably in proportion to the number of
shares held by them.
FIFTH. [DELETED].
SIXTH. By-laws. In furtherance and not in limitation of the powers
conferred by statute, the Board of Directors is expressly authorized, without
stockholder approval, to make, alter or repeal the by-laws of the Corporation.
2
<PAGE>
SEVENTH. Right to Amend Certificate of Incorporation. The Corporation
reserves the right to amend, alter, change or repeal any provision contained in
this certificate of incorporation, in the manner now or hereafter prescribed by
statute, and all rights conferred upon stockholders herein are granted subject
to this reservation.
EIGHTH. [DELETED].
NINTH:
Part 1. Vote Required for Certain Business Combinations
-------------------------------------------------------
1.1. Higher Vote for Certain Business Combinations. In addition to
any affirmative vote required by law or any other Article of this
Certificate of Incorporation, and except as otherwise expressly provided
in Part 2 of this Article Ninth:
(a) any merger or consolidation of the Corporation or any
Subsidiary with (i) any Interested Stockholder or (ii) any other
corporation (whether or not itself an Interested Stockholder) which
is, or after such merger or consolidation would be, an Affiliate or
Associate of an Interested Stockholder; or
(b) any sale, lease, exchange, mortgage, pledge, transfer or
other disposition (in one transaction or a series of transactions)
to or with any Interested Stockholder or any Affiliate or Associate
of any Interested Stockholder of any assets of the Corporation or
any Subsidiary having an aggregate Fair Market Value of $5,000,000
or more; or
(c) the issuance or transfer by the Corporation or any
Subsidiary (in one transaction or a series of transactions) of any
securities of the Corporation or any Subsidiary to any Interested
Stockholder or any Affiliate or Associate of any Interested
Stockholder in exchange for cash, securities or other property (or a
combination thereof) having an aggregate Fair Market Value of
$5,000,000 or more, other than the issuance of securities by the
Corporation or any Subsidiary upon the conversion of convertible
securities of the Corporation or any Subsidiary into stock of the
Corporation or any Subsidiary; or
(d) the adoption of any plan or proposal for the liquidation
or dissolution of the Corporation proposed by or on behalf of an
Interested Stockholder or any Affiliate or Associate of any
Interested Stockholder; or
(e) any reclassification of securities (including any reverse
stock split), or recapitalization of the Corporation, or any merger
or consolidation of
3
<PAGE>
the Corporation with any of its Subsidiaries or any other
transaction (whether or not with or into or otherwise involving an
Interested Stockholder) which has the effect, directly or
indirectly, of increasing the proportionate share of the outstanding
shares of any class of equity or convertible securities of the
Corporation or any Subsidiary which is directly or indirectly owned
by any Interested Stockholder or any Affiliate or Associate of any
Interested Stockholder;
shall require the affirmative vote of the holders of at least (a) 80% of
the combined voting power of the then outstanding shares of stock of all
classes and series of the Corporation entitled to vote in the election of
directors (the "Voting Stock"), and (b) a majority of the combined voting
power of the then outstanding shares of Voting Stock held by persons who
are Disinterested Stockholders, provided, however, that the majority vote
requirement of this clause (b) shall not be applicable if the Business
Combination is approved by the affirmative vote of the holders of not less
than 90% of combined voting power of the then outstanding shares of Voting
Stock. The foregoing affirmative vote requirements are hereinafter
referred to as the "Special Vote Requirement." The Special Vote
Requirement shall be applicable notwithstanding the fact that no vote may
be required, or that a lesser percentage may be specified, by law or in
any agreement with any national securities exchange or otherwise.
1.2. Definition of "Business Combination." The term "Business Combination"
as used in this Article Ninth shall mean any transaction which is referred to in
any one or more of clauses (a) through (e) of Section 1.1.
Part 2. When Special Vote Requirement Is Not Applicable
-------------------------------------------------------
The provisions of Part 1 of this Article Ninth shall not be applicable to
any particular Business Combination, and such Business Combination shall require
only such affirmative vote as is required by law and any other Article of this
Certificate of Incorporation, if all of the conditions specified in either of
the following Sections 2.1 and 2.2 are met:
2.1. Approval by Continuing Directors. The Business Combination shall have
been approved by a majority of the Continuing Directors.
2.2. Price and Procedural Requirements. All of the following conditions
shall have been met:
(a) The aggregate amount of the cash and the Fair Market Value, as
of the date of the consummation of the Business Combination, of
consideration other than cash to be received per share by holders of
Common Stock in such Business Combination shall be at least equal to the
higher of (i) the highest price paid for any share of Common Stock by any
person who is an Interested Stockholder within the
4
<PAGE>
two-year period immediately prior to the time of the first public
announcement of the proposed Business Combination (the "Announcement
Date") or in the transaction in which such person became an Interested
Stockholder, whichever price is the higher; or (ii) the Fair Market Value
per share of the Corporation's Common Stock on the Announcement Date or on
the date on which the Interested Stockholder became an Interested
Stockholder (the "Determination Date"), whichever is higher. The price
paid for any share of Common Stock shall be the amount of cash plus the
Fair Market Value of any other consideration to be received therefor,
determined at the time of payment thereof.
(b) The aggregate amount of the cash and the Fair Market Value, as
of the date of the consummation of the Business Combination, of
consideration other than cash to be received in such Business Combination
by holders of securities of the Corporation other than Common Stock shall
be at least equal to the higher of (i) if applicable, the highest
preferential amount to which the holders of such securities are entitled
in the event of any voluntary liquidation, dissolution or winding up of
the Corporation, (ii) the highest price paid for any of such securities by
any person who is an Interested Stockholder within the two-year period
immediately prior to the Announcement Date or in the transaction in which
such person became an Interested Stockholder, whichever price is higher,
(iii) the Fair Market Value of such securities on the Announcement Date or
the Determination Date, whichever is higher, or (iv) if such securities
are convertible into or exchangeable for shares of Common Stock, the
amount per share of such Common Stock determined pursuant to the foregoing
paragraph (a) reduced by any amount payable by the holders of such
securities in accordance with the terms of such securities, per share,
upon such conversion or exchange, multiplied by the total number of shares
of Common Stock into which or for which such securities are convertible or
exchangeable.
(c) The consideration to be received by holders of a particular
class of outstanding Voting Stock (including Common Stock) shall be in
cash or in the same forms the Interested Stockholder has previously paid
for shares of such class of Voting Stock. If the Interested Stockholder
has paid for shares of any class of Voting Stock with varying forms of
consideration, the form of consideration for such class of Voting Stock
shall be either cash or the form of consideration used to acquire the
largest number of shares of such class of Voting Stock previously acquired
by it.
(d) After such Interested Stockholder has become an Interested
Stockholder and prior to the consummation of such Business Combination:
(i) there shall have been (1) no reduction in the annual rate of dividends
paid on the Common Stock (except as necessary to reflect any subdivision
of the Common Stock), except as approved by a majority of the Continuing
Directors, and (2) an increase in such annual rate of dividends necessary
to reflect any reclassification (including any reverse stock split),
recapitalization, reorganization or any similar transaction which has the
effect of reducing the number of outstanding shares of the Common Stock,
5
<PAGE>
unless the failure so to increase such annual rate is approved by a
majority of the Continuing Directors; and (ii) such Interested Stockholder
shall have not become the beneficial owner of any additional shares of
Voting Stock except as part of the transaction which results in such
Interested Stockholder becoming an Interested Stockholder.
(e) After such Interested Stockholder has become an Interested
Stockholder, such Interested Stockholder shall not have received the
benefit, directly or indirectly (except proportionately as a stockholder),
of any loans, advances, guarantees, pledges or other financial assistance
or any tax credits or other tax advantages provided by the Corporation,
whether in anticipation of or in connection with such Business Combination
or otherwise.
(f) A proxy or information statement describing the proposed
Business Combination and complying with the requirements of the Securities
Exchange Act of 1934 and the rules and regulations thereunder (or any
subsequent provisions replacing such Act, rules or regulations) shall be
mailed to all stockholders of the Corporation at least 30 days prior to
the consummation of such Business Combination (whether or not such proxy
or information statement is required to be mailed pursuant to such Act or
subsequent provisions).
Part 3. Certain Definitions
---------------------------
For the purposes of this Article Ninth:
3.1. A "person" shall mean any individual, firm, corporation,
partnership, trust or other entity.
3.2. "Interested Stockholder" shall mean any person (other than the
Corporation or any Subsidiary) who or which:
(a) is the beneficial owner, directly or indirectly, of more
than 10% of the combined voting power of the then outstanding Voting
Stock; or
(b) is an Affiliate of the Corporation and at any time within
the two-year period immediately prior to the date in question was
the beneficial owner, directly or indirectly, of 10% or more of the
combined voting power of the then outstanding Voting Stock; or
(c) is an assignee of or has otherwise succeeded to any shares
of Voting Stock which were at any time within the two-year period
immediately prior to the date in question beneficially owned by any
Interested Stockholder, if such assignment or succession shall have
occurred in the course of a
6
<PAGE>
transaction or series of transactions not involving a public
offering within the meaning of the Securities Act of 1933.
3.3. A person shall be a "beneficial owner" of any Voting Stock:
(a) which such person or any of its Affiliates or Associates
beneficially owns, directly or indirectly; or
(b) which such person or any of its Affiliates or Associates
has (i) the right to acquire (whether such right is exercisable
immediately or only after the passage of time), pursuant to any
agreement, arrangement or understanding or upon the exercise of
conversion rights, exchange rights, warrants or options, or
otherwise, or (ii) the right to vote or to direct the vote pursuant
to any agreement, arrangement or understanding; or
(c) which are beneficially owned, directly or indirectly, by
any other person with which such person or any of its Affiliates has
any agreement, arrangement or understanding for the purpose of
acquiring, holding, voting or disposing of any shares of Voting
Stock.
3.4. For the purposes of determining whether a person is an Interested
Stockholder pursuant to Section 3.2, the number of shares of Voting Stock deemed
to be outstanding shall include shares deemed owned through application of
Section 3.3 but shall not include any other shares of Voting Stock which may be
issuable to other persons pursuant to any agreement, arrangement or
understanding, or upon exercise of conversion rights, warrants or options, or
otherwise.
3.5. "Affiliate" or "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under
the Securities Exchange Act of 1934, as in effect on January 1, 1984.
3.6. "Subsidiary" means any corporation of which more than a majority of
any class of equity security is owned, directly or indirectly, by the
Corporation; provided, however, that for purposes of the definition of
Interested Stockholder set forth in Section 3.2, the term "Subsidiary" shall
mean only a corporation of which a majority of each class of equity security is
owned by the Corporation, by a Subsidiary, or by the Corporation and one or more
Subsidiaries.
3.7. "Continuing Director" means any member of the Board of Directors of
the Corporation who is unaffiliated with, and not a nominee of, the Interested
Stockholder and was a member of the Board of Directors prior to the time that
the Interested Stockholder became an Interested Stockholder and any successor of
a Continuing Director who is unaffiliated with, and not a nominee of, the
Interested
7
<PAGE>
Stockholder and who is recommended to succeed a Continuing Director by a
majority of Continuing Directors then on the Board of Directors.
3.8. "Disinterested Stockholder" means a holder of Voting Stock who is not
an Interested Stockholder or an Affiliate or Associate of an Interested
Stockholder and whose shares are not deemed owned by an Interested Stockholder
through application of Section 3.3.
3.9. "Fair Market Value" means: (a) in the case of stock, the highest
closing sale price during the 30-day period immediately preceding the date in
question of a share of such stock on the Composite Tape for New York Stock
Exchange-Listed Stocks, or, if such stock is not quoted on the Composite Tape,
on the New York Stock Exchange, or, if such stock is not listed on such
Exchange, on the principal United States securities exchange registered under
the Securities Exchange Act of 1934 on which such stock is listed, or, if such
stock is not listed on any such exchange, the highest closing bid quotation with
respect to a share of such stock during the 30-day period preceding the date in
question on the National Association of Securities Dealers, Inc. Automated
Quotations System or any system then in use, or if no such quotations are
available, the Fair Market Value on the date in question of a share of such
stock as determined by a majority of the Continuing Directors in good faith; and
(b) in the case of stock of any class of securities not traded on any securities
exchange or in the over-the-counter market or in the case of property other than
cash or stock, the Fair Market Value of such securities or property on the date
in question as determined by a majority of the Continuing Directors in good
faith. If the stock is paired for purposes of trading with that of any other
corporation, the Fair Market Value of the paired stock shall be determined
pursuant to the pairing or other agreement which provides for the determination
of the relative values of the stock of the Corporation and the stock of such
other corporation, after determining the Fair Market Value of the paired stock
as set forth above.
3.10. In the event of any Business Combination in which the Corporation
survives, the phrase "consideration to be received" as used in Sections 2.2(a),
(b) and (c) shall include the shares of Common Stock and/or the shares of any
other class of outstanding Voting Stock retained by the holders of such shares.
Part 4. Directors' Duty to Determine Certain Facts
--------------------------------------------------
The majority of the Continuing Directors of the Corporation shall have the
power and duty to determine for the purpose of this Article Ninth, on the basis
of information known to them after reasonable inquiry, all facts necessary to
determine the applicability of the various provisions of this Article Ninth,
including (A) whether a person is an Interested Stockholder, (B) the number of
shares of Voting Stock beneficially owned by any person, (C) whether a person is
an Affiliate or Associate of another, (D) whether the requirements of Section
2.2 have been met with respect to any Business Combination, and (E) whether the
assets which
8
<PAGE>
are the subject of any Business Combination have, or the consideration to be
received for the issuance or transfer of securities by the Corporation or any
Subsidiary in any Business Combination has, an aggregate Fair Market Value of
$5,000,000 or more; and the good faith determination of a majority of the
Continuing Directors shall be conclusive and binding for all purposes of this
Article Ninth.
Part 5. No Effect on Fiduciary Obligations of Interested Stockholders
---------------------------------------------------------------------
Nothing contained in this Article Ninth shall be construed to relieve any
Interested Stockholder from any fiduciary obligation imposed by law.
Part 6. Amendment, Repeal, Inconsistent Provisions
--------------------------------------------------
Notwithstanding any other provisions of law or of this Certificate of
Incorporation or the by-laws of the Corporation which might otherwise permit a
lesser vote or no vote, but in addition to any affirmative vote of the holders
of any particular class or series of securities which may be required by law or
by this Certificate of Incorporation, any proposal to amend or repeal, or adopt
any provisions inconsistent with, this Article Ninth of this Certificate of
Incorporation shall require for approval the affirmative vote of at least (a)
80% of the combined voting power of the then outstanding Shares of Voting Stock
and (b) a majority of the combined voting power of the then outstanding shares
of Voting Stock held by persons who are Disinterested Stockholders, provided
that the majority vote requirement of this clause (b) shall not be applicable if
the proposal is approved by the affirmative vote of not less than 90% of the
combined voting power of the then outstanding shares of Voting Stock.
TENTH:
(a) The number of directors shall be as provided in the by-laws. The
Board of Directors shall be divided into three classes, designated Class I,
Class II and Class III, such classes to be as nearly equal in number as possible
and to have the number provided in the by-laws. At the annual meeting of
stockholders in 1986, Directors of Class I shall be elected to hold office for a
term expiring at the next succeeding annual meeting, directors of Class II shall
be elected to hold office for a term expiring at the second succeeding annual
meeting, and directors of Class III shall be elected to hold office for a term
expiring at the third succeeding annual meeting. Thereafter at each annual
meeting of stockholders, directors shall be chosen for a term of three years to
succeed those whose terms then expire and shall hold office until the third
following annual meeting of stockholders and until the election of their
respective successors. Any vacancy on the Board of Directors, whether arising
through death, resignation or removal of a director or through an increase in
the number of directors of any class, shall be filled by a majority vote of all
the remaining directors. The term of office of any director elected to fill such
a vacancy shall expire at the expiration of the term of office of directors of
the class in which the vacancy occurred. Notwithstanding any other provision of
this Article, and except as otherwise required by law, whenever the holders of
any one or more series of Preferred Stock or other securities of the
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Corporation shall have the right, voting separately as a class, to elect one or
more directors of the Corporation, the term of office, the filling of vacancies
and other features of such directorships shall be governed by the terms of this
Certificate of Incorporation applicable thereto, and unless the terms of this
Certificate of Incorporation expressly provide otherwise, such directorships
shall be in addition to the number of directors provided in the by-laws and such
directors shall not be classified pursuant to this Article.
(b) Any action required or permitted to be taken by holders of stock
of the Corporation must be taken at a meeting of such holders and may not be
taken by consent in writing. The by-laws of the Corporation may be amended by
the stockholders only by the affirmative vote of at least 80% of the voting
power of the Corporation. Notwithstanding any other provision of law or of this
Certificate of Incorporation or the by-laws of the Corporation which might
otherwise permit a lesser vote or no vote, but in addition to any affirmative
vote of the holders of any particular class or series of securities which may be
required by law or by this Certificate of Incorporation, any proposal to amend
or repeal, or adopt any provisions inconsistent with, this Article Tenth shall
require for approval the affirmative vote of at least 80% of the voting power of
the Corporation.
ELEVENTH:
The Board of Directors shall base the response of this Corporation to any
proposed Business Combination on the Board of Directors' evaluation of what is
in the best interest of this Corporation. In evaluating what is in the best
interest of this Corporation, the Board of Directors shall consider:
(a) The best interest of the shareholders. For this purpose, the Board
shall consider among other factors, not only the consideration offered in the
proposed Business Combination in relation to the then current market price of
this Corporation's stock, but also in relation to the then current value of this
Corporation in a freely negotiated transaction and in relation to the Board of
Directors' then estimate of the future value of this Corporation as an
independent entity; and
(b) Such other factors as the Board of Directors determines to be
relevant, including, among other factors, the social, legal and economic effects
on the communities in which this Corporation and its subsidiaries operate and
are located.
TWELFTH:
To the fullest extent permitted by the General Corporation Law of the
State of Delaware as the same exists or may hereafter be amended, a director of
the Corporation shall not be liable to the Corporation or its stockholders for
monetary damages for breach of fiduciary duty as director.
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Any repeal or modification of this Article shall not result in any
liability for a director with respect to any action or omission occurring prior
to such repeal or modification.
CERTIFICATE OF DESIGNATIONS
of
JUNIOR PARTICIPATING PREFERRED STOCK
The following resolution was adopted by the Board of Directors of the
Corporation as required by Section 151 of the General Corporation Law at a
meeting duly called and held on June 15, 1989:
RESOLVED, that pursuant to the authority granted to and vested in the
Board of Directors of the Corporation (hereinafter called the "Board of
Directors" or the "Board") in accordance with the provisions of the Certificate
of Incorporation, the Board of Directors hereby creates a series of preferred
stock (the "Preferred Stock"), of the Corporation and hereby states the
designation and number of shares, and fixes the relative rights, preferences,
and limitations thereof as follows:
Junior Participating Preferred Stock:
I. Designation and Amount
----------------------
The shares of such series shall be designated as "Junior Participating
Preferred Stock" (the "Junior Preferred Stock") and the number of shares
constituting the Junior Preferred Stock shall be 200,000. Such number of shares
may be increased or decreased by resolution of the Board of Directors; provided,
that no decrease shall reduce the number of shares of Junior Preferred Stock to
a number less than the number of shares then outstanding plus the number of
shares reserved for issuance upon the exercise of outstanding options, rights or
warrants or upon the conversion of any outstanding securities issued by the
Corporation convertible into Junior Preferred Stock.
II. Dividends and Distributions
---------------------------
(A) Subject to the rights of the holders of any shares of any series of
Preferred Stock (or any similar stock) ranking prior and superior to the Junior
Preferred Stock with respect to dividends, the holders of shares of Junior
Preferred Stock, in preference to the holders of Common Stock, par value $.10
per share (the "Common Stock"), of the Corporation, and of any other junior
stock, shall be entitled to receive, when, as and if declared by the Board of
Directors out of funds legally available for the purpose, quarterly dividends
payable in cash on the first day of March, June, September and December in each
year (each such date being referred to herein as a "Quarterly Dividend Payment
Date"), commencing on the first Quarterly Dividend Payment Date after the first
issuance of a share
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or fraction of a share of Junior Preferred Stock, in an amount per share
(rounded to the nearest cent) equal to the greater of (a) $1.00 or (b) subject
to the provision for adjustment hereinafter set forth, 100 times the aggregate
per share amount of all cash dividends, and 100 times the aggregate per share
amount (payable in kind) of all non-cash dividends or other distributions, other
than a dividend payable in shares of Common Stock or a subdivision of the
outstanding shares of Common Stock (by reclassification or otherwise), declared
on the Common Stock since the immediately preceding Quarterly Dividend Payment
Date or, with respect to the first Quarterly Dividend Payment Date, since the
first issuance of any share or fraction of a share of Junior Preferred Stock. In
the event the Corporation shall at any time declare or pay any dividend on the
Common Stock payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common Stock, then in each
such case the amount to which holders of shares of Junior Preferred Stock were
entitled immediately prior to such event under clause (b) of the preceding
sentence shall be adjusted by multiplying such amount by a fraction, the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
(B) The Corporation shall declare a dividend or distribution on the Junior
Preferred Stock as provided in paragraph (A) of this Section immediately after
it declares a dividend or distribution on the Common Stock (other than a
dividend payable in shares of Common Stock); provided that, in the event no
dividend or distribution shall have been declared on the Common Stock during the
period between any Quarterly Dividend Payment Date and the next subsequent
Quarterly Dividend Payment Date, a dividend of $1.00 per share on the Junior
Preferred Stock shall nevertheless be payable on such subsequent Quarterly
Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on outstanding
shares of Junior Preferred Stock from the Quarterly Dividend Payment Date next
preceding the date of issue of such shares, unless the date of issue of such
shares is prior to the record date for the first Quarterly Dividend Payment
Date, in which case dividends on such shares shall begin to accrue from the date
of issue of such shares, or unless the date of issue is a Quarterly Dividend
Payment Date or is a date after the record date for the determination of holders
of shares of Junior Preferred Stock entitled to receive a quarterly dividend and
before such Quarterly Dividend Payment Date, in either of which events such
dividends shall begin to accrue and be cumulative from such Quarterly Dividend
Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends
paid on the shares of Junior Preferred Stock in an amount less than the total
amount of such dividends at the time accrued and payable on such shares shall be
allocated pro rata on a share-by-share basis among all such shares at the time
outstanding. The Board of Directors may fix a record date for the determination
of holders of shares of Junior Preferred Stock entitled to receive payment of a
dividend or distribution declared thereon, which record date shall be not more
than 60 days prior to the date fixed for the payment thereof.
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III. Voting Rights
-------------
The holders of shares of Junior Preferred Stock shall have the following
voting rights:
(A) Subject to the provision for adjustment hereinafter set forth, each
share of Junior Preferred Stock shall entitle the holder thereof to 100 votes on
all matters submitted to a vote of the stockholders of the Corporation.
(B) Except as otherwise provided herein, in any other Certificate of
Designation creating a series of Preferred Stock or any similar stock, or by
law, the holders of shares of Junior Preferred Stock and the holders of shares
of Common Stock and any other capital stock of the Corporation having general
voting rights shall vote together as one class on all matters submitted to a
vote of stockholders of the Corporation.
(C) Except as set forth herein, in the Corporation's Certificate of
Incorporation or as otherwise provided by law, holders of Junior Preferred Stock
shall have no voting rights.
IV. Certain Restrictions
--------------------
(A) Whenever quarterly dividends or other dividends or distributions
payable on the Junior Preferred Stock as provided in Section II are in arrears,
thereafter and until all accrued and unpaid dividends and distributions, whether
or not declared, on shares of Junior Preferred Stock outstanding shall have been
paid in full, the Corporation shall not:
(i) declare or pay dividends, or make any other distributions, on
any shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Junior Preferred Stock;
(ii) declare or pay dividends, or make any other distributions, on
any shares of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Junior Preferred Stock,
except dividends paid ratably on the Junior Preferred Stock and all such
parity stock on which dividends are payable or in arrears in proportion to
the total amounts to which the holders of all such shares are then
entitled;
(iii) redeem or purchase or otherwise acquire for consideration
shares of any stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Junior Preferred Stock,
provided that the Corporation may at any time redeem, purchase or
otherwise acquire shares of any such junior stock in exchange for shares
of any stock of the Corporation ranking junior (either as to dividends or
upon dissolution, liquidation or winding up) to the Junior Preferred
Stock; or
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(iv) redeem or purchase or otherwise acquire for consideration any
shares of Junior Preferred Stock, or any shares of stock ranking on a
parity with the Junior Preferred Stock, except in accordance with a
purchase offer made in writing or by publication (as determined by the
Board of Directors) to all holders of such shares upon such terms as the
Board of Directors, after consideration of the respective annual dividend
rates and other relative rights and preferences of the respective series
and classes, shall determine in good faith will result in fair and
equitable treatment among the respective series or classes.
(B) The Corporation shall not permit any subsidiary of the Corporation to
purchase or otherwise acquire for consideration any shares of stock of the
Corporation unless the Corporation could, under paragraph (A) of this Section IV
purchase or otherwise acquire such shares at such time and in such manner.
V. Reacquired Shares
-----------------
Any shares of Junior Preferred Stock purchased or otherwise acquired by
the Corporation in any manner whatsoever shall be retired and cancelled promptly
after the acquisition thereof. All such shares shall upon their cancellation
become authorized but unissued shares of Preferred Stock and may be reissued as
part of a new series of Preferred Stock subject to the conditions and
restrictions on issuance set forth herein, in the Certificate of Incorporation,
in any other Certificate of Designations creating a series of Preferred Stock or
any similar stock or as otherwise required by law.
VI. Liquidation, Dissolution or Winding Up
--------------------------------------
Upon any liquidation, dissolution or winding up of the Corporation, no
distribution shall be made (1) to the holders of shares of stock ranking junior
(either as to dividends or upon liquidation, dissolution or winding up) to the
Junior Preferred Stock unless, prior thereto, the holders of shares of Junior
Preferred Stock shall have received $100 per share, plus an amount equal to
accrued and unpaid dividends and distributions thereon, whether or not declared,
to the date of such payment, provided that the holders of shares of Junior
Preferred Stock shall be entitled to receive an aggregate amount per share,
subject to the provision for adjustment hereinafter set forth, equal to 100
times the aggregate amount to be distributed per share to holders of shares of
Common Stock, or (2) to the holders of shares of stock ranking on a parity
(either as to dividends or upon liquidation, dissolution or winding up) with the
Junior Preferred Stock, except distributions made ratably on the Junior
Preferred Stock and all such parity stock in proportion to the total amounts to
which the holders of all such shares are entitled upon such liquidation,
dissolution or winding up. In the event the Corporation shall at any time
declare or pay any dividend on the Common Stock payable in shares of Common
Stock, or effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise than by
payment of a dividend in shares of Common Stock) into a greater or lesser number
of shares of Common Stock, then in each such case the aggregate amount to which
holders
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<PAGE>
of shares of Junior Preferred Stock were entitled immediately prior to such
event under the proviso in clause (1) of the preceding sentence shall be
adjusted by multiplying such amount by a fraction the numerator of which is the
number of shares of Common Stock outstanding immediately after such event and
the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
VII. Consolidation, Merger, etc.
---------------------------
In case the Corporation shall enter into any consolidation, merger,
combination or other transaction in which the shares of Common Stock are
exchanged for or changed into other stock or securities, cash and/or any other
property, then in any such case each share of Junior Preferred Stock shall at
the same time be similarly exchanged or changed into an amount per share,
subject to the provision for adjustment hereinafter set forth, equal to 100
times the aggregate amount of stock, securities, cash and/or any other property
(payable in kind), as the case may be, into which or for which each share of
Common Stock is changed or exchanged. In the event the Corporation shall at any
time declare or pay any dividend on the Common Stock payable in shares of Common
Stock, or effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise than by
payment of a dividend in shares of Common Stock) into a greater or lesser number
of shares of Common Stock, then in each such case the amount set forth in the
preceding sentence with respect to the exchange or change of shares of Junior
Preferred Stock shall be adjusted by multiplying such amount by a fraction, the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
VIII. Redemption
----------
The shares of Junior Preferred Stock shall not be redeemable.
IX. Rank
----
The Junior Preferred Stock shall rank, with respect to the payment of
dividends and the distribution of assets, junior to all series of any other
class of the Corporation's Preferred Stock.
X. Amendment
---------
The Certificate of Incorporation of the Corporation shall not be amended
in any manner which would alter or change the powers, preferences or special
rights of the Junior Preferred Stock so as to affect them adversely without the
affirmative vote of the holders of at least two-thirds of the outstanding shares
of Junior Preferred Stock, voting together as a single series.
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<PAGE>
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND
RIGHTS OF A SERIES OF STOCK
The following resolution was adopted by the Board of Directors of the
Corporation on January 23, 1998 as required by Section 151 of the General
Corporation Law:
RESOLVED, that pursuant to the authority vested in the Board of Directors
of the Corporation in accordance with the provisions of the Certificate of
Incorporation of the Corporation, as amended, a series of stock of the
Corporation known as Series A NonVoting Convertible Common Stock be, and it
hereby is, created, classified and authorized, and the issuance thereof is
provided for, and that the designation and number of shares, and relative
rights, preferences and limitations thereof, shall be as set forth in the form
appended hereto as Exhibit A.
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Exhibit A
---------
1. Designation and Amount. There shall be a series of undesignated Series
Common Stock of the Corporation designated as "Series A Non-Voting Convertible
Common Stock" and the number of shares constituting such series shall be ten
million (10,000,000). The number of shares designated as shares of Series A
Non-Voting Convertible Common Stock may be increased or decreased by the Board
of Directors without a vote of stockholders. Except as otherwise expressly
provided herein, all shares of Series A NonVoting Convertible Common Stock shall
be identical to shares of Common Stock (as defined in Article FOURTH of the
Certificate of Incorporation of the Corporation, as amended (the "Certificate of
Incorporation")) and shall entitle the holders thereof to the same rights and
privileges.
2. Voting. The holders of Series A Non-Voting Convertible Common Stock
shall not have any right to vote, except as required under applicable law and,
except as required by law, the holders of Common Stock and Series A Non-Voting
Convertible Common Stock shall vote together as a single class on all matters as
to which holders of Series A NonVoting Convertible Common Stock are entitled to
vote as set forth herein. Except as required by law or as set forth herein, the
holders of Series A Non-Voting Convertible Common Stock (to the extent permitted
by this Section 2), Common Stock (to the extent permitted by the Certificate of
Incorporation), Preferred Stock (to the extent permitted by the Certificate of
Incorporation) and Series Common Stock (to the extent permitted by the
Certificate of Incorporation) shall vote together as a single class on all
matters submitted to the stockholders for a vote.
3. Dividends. Subject to applicable law, the holders of Series A
Non-Voting Convertible Common Stock shall be entitled to receive such dividends
out of funds legally available therefor at such times and in such amounts as the
Board of Directors may determine in its sole discretion shall be paid with
respect to the Common Stock, with each share of Common Stock and each share of
Series A Non-Voting Convertible Common Stock sharing share-for-share in such
dividends (with each share of Series A Non-Voting Convertible Common Stock being
equal to the number of shares of Common Stock into which it would then be
convertible on the record date for such dividend) except that if dividends are
declared which are payable in shares of Common Stock or Series A NonVoting
Convertible Common Stock, dividends shall be declared which are payable at the
equivalent rate in both classes of stock and the dividends payable in shares of
Common Stock shall be payable to the holders of that class of stock and the
dividends payable in shares of Series A Non-Voting Convertible Common Stock
shall be payable to the holders of that class of stock.
4. Liquidation, Dissolution or Winding Up. Upon any liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary
(a "Liquidation Event"), after the payment or provision for payment of all debts
and liabilities of the Corporation and
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<PAGE>
all preferential amounts to which the holders of Preferred Stock or Series
Common Stock, if any, are entitled with respect to the distribution of assets in
liquidation, the holders of Series A Non-Voting Convertible Common Stock shall
be entitled to share ratably with the holders of Common Stock (with each share
of Series A Non-Voting Convertible Common Stock being equal to the number of
shares of Common Stock into which it would then be convertible on the effective
date of such Liquidation Event) in the remaining assets of the Corporation
available for distribution.
5. Conversion of Series A Non-Voting Convertible Common Stock.
(a) Automatic Conversion. Each share of Series A Non-Voting
Convertible Common Stock shall be automatically converted, without the payment
of any additional consideration, into fully paid and non-assessable shares of
Common Stock at the rate of one share of Common Stock for each share of Series A
Non-Voting Convertible Common Stock so converted (the "Series A Non-Voting
Conversion Rate") as of the date (the "Conversion Date") that is the earlier to
occur of (i) the next Business Day (as defined below) following the date on
which the shareholders of the Corporation and of Meditrust Operating Company
("Meditrust Operating") shall have approved the merger transaction (the
"Merger") among La Quinta Inns, Inc. ("La Quinta"), Meditrust Operating and the
Corporation, and (ii) the date of any termination of the Agreement and Plan of
Merger dated as of January 3, 1998 and among La Quinta, Meditrust Operating and
the Corporation relating to the Merger in accordance with the terms thereof. As
used herein, the term "Business Day" means any day other than Saturday, Sunday,
or any other day on which banking institutions in the States of Delaware or New
York are not open for business.
(b) Procedure for Conversion. As of the Conversion Date, all
outstanding shares of Series A Non-Voting Convertible Common Stock shall be
converted automatically without any further action by the holders of Series A
Non-Voting Convertible Common Stock and whether or not the certificates
representing such shares of Series A Non-Voting Convertible Common Stock are
surrendered to the Corporation or its transfer agent. On the Conversion Date,
all rights with respect to the Series A Non-Voting Convertible Common Stock so
converted shall terminate, except any of the rights of the holders thereof, in
accordance with the procedures herein, to receive certificates for the number of
shares of Common Stock into which such Series A Non-Voting Convertible Common
Stock has been converted. The Corporation shall not be obligated to issue
certificates evidencing the shares of Common Stock issuable on the Conversion
Date unless certificates evidencing such shares of the Series A Non-Voting
Convertible Common Stock being converted, duly assigned or endorsed for transfer
to the Corporation (or accompanied by duly executed stock powers relating
thereto), are surrendered at the principal executive office of the Corporation
(or the offices of the transfer agent for the Series A Non-Voting Convertible
Common Stock or such office or offices of an agent for conversion as may from
time to time be designated by notice to the holders of the Series A Non-Voting
Convertible Common Stock by the Corporation), together with written notice by
the holder of such Series A Non-Voting Convertible Common Stock stating the name
or names (with addresses) and denominations in which the certificate
18
<PAGE>
or certificates for Common Stock shall be issued and shall include instructions
for delivery thereof. Upon such surrender of a certificate representing Series A
Non-Voting Convertible Common Stock following its automatic conversion, the
Corporation shall issue and send by hand delivery, by courier or by first class
mail (postage prepaid) to the holder thereof or to such holder's designee, at
the address designated by such holder, a certificate or certificates for the
number of shares of Common Stock to which such holder shall be entitled upon
conversion. In the event that there shall have been surrendered a certificate or
certificates representing Series A Non-Voting Convertible Common Stock, only
part of which are to be converted, the Corporation shall issue and send to such
holder or such holder's designee, in the manner set forth in the preceding
sentence, a new certificate or certificates representing the number of shares of
Series A Non-Voting Convertible Common Stock which shall not have been
converted. If the certificate or certificates for Common Stock are to be issued
in a name other than the name of the registered holder of the Series A
Non-Voting Convertible Common Stock surrendered for conversion, the Corporation
shall not be obligated to issue or deliver any certificate unless and until the
holder of the Series A Non-Voting Convertible Common Stock surrendered has paid
to the Corporation the amount of any tax that may be payable in respect of any
transfer involved in such issuance or has established to the satisfaction of the
Corporation that such tax has been paid.
(c) Reservation of Stock Issuable Upon Conversion. The Corporation
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock solely for the purpose of effecting the conversion of the
shares of Series A Non-Voting Convertible Common Stock such number of its shares
of Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding shares of Series A Non-Voting Convertible Common
Stock.
6. Adjustments.
(a) Changes in Common Stock. In the event the Corporation shall (i)
pay a dividend in or make a distribution in shares of Common Stock, (ii)
subdivide its outstanding shares of Common Stock, (iii) combine its outstanding
shares of Common Stock into a smaller number of shares, or (iv) issue by
reclassification of its shares of Common Stock any shares of the Corporation,
the Series A Non-Voting Conversion Rate in effect immediately prior thereto
shall be adjusted so that the holder of a share of Series A Non-Voting
Convertible Common Stock thereafter surrendered for conversion shall be entitled
to receive the number of shares of Common Stock which it would have owned or
have been entitled to receive after the happening of any of the events described
above had such share of Series A Non-Voting Convertible Common Stock been
converted on or immediately prior to the record date for such dividend or the
effective date of such subdivision, combination or reclassification, as the case
may be.
(b) Changes in Series A Non-Voting Convertible Common Stock. In the
event that the Corporation shall (i) pay a dividend in or make a distribution in
shares of its Series A Non-Voting Convertible Common Stock, (ii) subdivide its
outstanding shares of
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Series A Non-Voting Convertible Common Stock, (iii) combine its outstanding
shares of Series A Non-Voting Convertible Common Stock into a smaller number of
shares, or (iv) issue by reclassification of its shares of Series A Non-Voting
Convertible Common Stock any shares of the Corporation, the Series A Non-Voting
Conversion Rate in effect immediately prior thereto shall be adjusted so that
the holder of a share of Series A NonVoting Convertible Common Stock thereafter
surrendered for conversion shall be entitled to receive the number of shares of
Common Stock which it would have owned or have been entitled to receive after
the happening of any of the events described above had such share of Series A
Non-Voting Convertible Common Stock been converted on or immediately prior to
the record date for such dividend or the effective date of such subdivision,
combination or reclassification, as the case may be.
(c) General. An adjustment made pursuant to this Section 6 shall
become effective immediately after the record date (in the case of a dividend or
distribution in shares of capital stock) and shall become effective immediately
after the effective date (in the case of a subdivision, combination or
reclassification). No adjustment in accordance with this Section 6 shall be
required unless such adjustment would require an increase or decrease in any
conversion rate of at least 0.1%; provided, however, that any adjustments which
by reason of this clause are not required to be made shall be carried forward
and taken into account in any subsequent adjustment.
7. Notices. In the event that the Corporation provides any notice, report
or statement to the holders of Common Stock or Series A Non-Voting Convertible
Common Stock (in their capacity as such), the Corporation shall at the same time
provide a copy of any such notice, report or statement to each record holder of
outstanding Series A NonVoting Convertible Common Stock.
8. Status of Acquired Shares. Shares of Series A Non-Voting Convertible
Common Stock acquired by the Corporation (upon conversion or otherwise) will be
restored to the status of authorized but unissued shares of undesignated Series
Common Stock.
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IN WITNESS WHEREOF, the President of the Corporation has hereunto set his
hand this 27th day of February, 1998.
By: /s/ David S. Benson
----------------------------
David F. Benson, President
ATTEST:
By: /s/ Michael S. Benjamin
------------------------------
Michael S. Benjamin, Secretary
21
Exhibit 3.4
RESTATED CERTIFICATE OF INCORPORATION
OF
MEDITRUST OPERATING COMPANY
Meditrust Operating Company, a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), filed its original certificate of incorporation in Delaware
under the name "Santa Anita Operating Company" on August 23, 1979. This Restated
Certificate of Incorporation was duly adopted in accordance with the provisions
of Section 245(b) of the General Corporation Law of the State of Delaware and
only restates and integrates and does not further amend the provisions of the
Corporation's certificate of incorporation as theretofore amended and
supplemented, and there is no discrepancy between those provisions and the
provisions of this Restated Certificate of Incorporation except as otherwise
provided in Section 245(c) of the General Corporation Law of The State of
Delaware.
NOW, THEREFORE, the Certificate of Incorporation of the Corporation, as
restated herein, shall at the effective time of this Restated Certificate of
Incorporation read as follows:
FIRST. Name. The name of the Corporation is Meditrust Operating Company.
SECOND. Registered Office. The address of its registered office in the
State of Delaware is 1013 Centre Road, in the City of Wilmington, County of
New Castle. The name of its registered agent at such address is Corporation
Service Company.
THIRD. Purposes. The nature of the business or purposes to be conducted or
promoted is:
To engage in any lawful act or activity for which corporations may
be organized under the General Corporation Law of Delaware and to do all
things and exercise all powers, rights and privileges which a business
corporation may now or hereafter be organized or authorized to do or to
exercise under the laws of the State of Delaware.
FOURTH. Capitalization.
SECTION 1. The total number of shares of all classes of stock which
the Corporation shall have authority to issue is 306,000,000, of which
270,000,000 shares of the par value of $.10 each are to be of a class designated
Common Stock, 6,000,000 shares of the par value of $.10 each are to be of a
class designated Preferred Stock and 30,000,000 shares of the par value of $.10
each are to be of a class designated Series Common Stock.
SECTION 2. The shares of Preferred Stock may be issued from time to
time in one or more series. The Board of Directors of the Corporation is hereby
authorized to fix or alter the dividend rights, dividend rate, conversion
rights, voting rights, rights and terms
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<PAGE>
of redemption (including sinking fund provisions), the redemption price or
prices, and the liquidation preferences of any wholly unissued series of
Preferred Stock and the number of shares constituting any such series and the
designation thereof, or all or any of them.
SECTION 3. The shares of Series Common Stock may be issued from time
to time in one or more series. The Board of Directors of the Corporation is
hereby authorized to fix or alter the dividend rights, dividend rate, conversion
rights, voting rights, rights and terms of redemption (including sinking fund
provisions), the redemption price or prices, and the liquidation preferences of
any wholly unissued series of Series Common Stock and the number of shares
constituting any such series and the designation thereof, or all or any of them.
SECTION 4. (a) Each holder of Common Stock, as such, shall be entitled
to one vote for each share of Common Stock held of record by such holder on all
matters on which stockholders generally are entitled to vote.
(b) Except as otherwise required by law, holders of a series of
Preferred Stock or Series Common Stock, as such, shall be entitled only to such
voting rights, if any, as shall expressly be granted thereto by this Certificate
of Incorporation (including any Certificate of Designation relating to such
series).
(c) Subject to applicable law and the rights, if any, of the holders
of any outstanding series of Preferred Stock or Series Common Stock or any class
or series of stock having a preference over or the right to participate with the
Common Stock with respect to the payment of dividends, dividends may be declared
and paid on the Common Stock at such times and in such amounts as the Board of
Directors in its discretion shall determine.
(d) Upon the dissolution, liquidation or winding up of the
Corporation, subject to the rights, if any, of the holders of any outstanding
series of Preferred Stock or Series Common Stock or any class or series of stock
having a preference over or the right to participate with the Common Stock with
respect to the distribution of assets of the Corporation upon such dissolution,
liquidation or winding up of the Corporation, the holders of the Common Stock,
as such, shall be entitled to receive the assets of the Corporation available
for distribution to its stockholders ratably in proportion to the number of
shares held by them.
FIFTH. [DELETED].
SIXTH. By-laws. In furtherance and not in limitation of the powers
conferred by statute, the Board of Directors is expressly authorized, without
stockholder approval, to make, alter or repeal the by-laws of the Corporation.
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SEVENTH. Right to Amend Certificate of Incorporation. The Corporation
reserves the right to amend, alter, change or repeal any provision contained in
this certificate of incorporation, in the manner now or hereafter prescribed by
statute, and all rights conferred upon stockholders herein are granted subject
to this reservation.
EIGHTH. [DELETED].
NINTH:
Part 1. Vote Required for Certain Business Combinations
-------------------------------------------------------
1.1. Higher Vote for Certain Business Combinations. In addition to
any affirmative vote required by law or any other Article of this
Certificate of Incorporation, and except as otherwise expressly provided
in Part 2 of this Article Ninth:
(a) any merger or consolidation of the Corporation or any
Subsidiary with (i) any Interested Stockholder or (ii) any other
corporation (whether or not itself an Interested Stockholder) which
is, or after such merger or consolidation would be, an Affiliate or
Associate of an Interested Stockholder; or
(b) any sale, lease, exchange, mortgage, pledge, transfer or
other disposition (in one transaction or a series of transactions)
to or with any Interested Stockholder or any Affiliate or Associate
of any Interested Stockholder of any assets of the Corporation or
any Subsidiary having an aggregate Fair Market Value of $5,000,000
or more; or
(c) the issuance or transfer by the Corporation or any
Subsidiary (in one transaction or a series of transactions) of any
securities of the Corporation or any Subsidiary to any Interested
Stockholder or any Affiliate or Associate of any Interested
Stockholder in exchange for cash, securities or other property (or a
combination thereof) having an aggregate Fair Market Value of
$5,000,000 or more, other than the issuance of securities by the
Corporation or any Subsidiary upon the conversion of convertible
securities of the Corporation or any Subsidiary into stock of the
Corporation or any Subsidiary; or
(d) the adoption of any plan or proposal for the liquidation
or dissolution of the Corporation proposed by or on behalf of an
Interested Stockholder or any Affiliate or Associate of any
Interested Stockholder; or
(e) any reclassification of securities (including any reverse
stock split), or recapitalization of the Corporation, or any merger
or consolidation of
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the Corporation with any of its Subsidiaries or any other
transaction (whether or not with or into or otherwise involving an
Interested Stockholder) which has the effect, directly or
indirectly, of increasing the proportionate share of the outstanding
shares of any class of equity or convertible securities of the
Corporation or any Subsidiary which is directly or indirectly owned
by any Interested Stockholder or any Affiliate or Associate of any
Interested Stockholder;
shall require the affirmative vote of the holders of at least (a) 80% of
the combined voting power of the then outstanding shares of stock of all
classes and series of the Corporation entitled to vote in the election of
directors (the "Voting Stock"), and (b) a majority of the combined voting
power of the then outstanding shares of Voting Stock held by persons who
are Disinterested Stockholders, provided, however, that the majority vote
requirement of this clause (b) shall not be applicable if the Business
Combination is approved by the affirmative vote of the holders of not less
than 90% of combined voting power of the then outstanding shares of Voting
Stock. The foregoing affirmative vote requirements are hereinafter
referred to as the "Special Vote Requirement." The Special Vote
Requirement shall be applicable notwithstanding the fact that no vote may
be required, or that a lesser percentage may be specified, by law or in
any agreement with any national securities exchange or otherwise.
1.2. Definition of "Business Combination." The term "Business Combination"
as used in this Article Ninth shall mean any transaction which is referred to in
any one or more of clauses (a) through (e) of Section 1.1.
Part 2. When Special Vote Requirement Is Not Applicable
- -------------------------------------------------------
The provisions of Part 1 of this Article Ninth shall not be applicable to
any particular Business Combination, and such Business Combination shall require
only such affirmative vote as is required by law and any other Article of this
Certificate of Incorporation, if all of the conditions specified in either of
the following Sections 2.1 and 2.2 are met:
2.1. Approval by Continuing Directors. The Business Combination shall have
been approved by a majority of the Continuing Directors.
2.2. Price and Procedural Requirements. All of the following conditions
shall have been met:
(a) The aggregate amount of the cash and the Fair Market Value, as
of the date of the consummation of the Business Combination, of
consideration other than cash to be received per share by holders of
Common Stock in such Business Combination shall be at least equal to the
higher of (i) the highest price paid for any share of Common Stock by any
person who is an Interested Stockholder within the
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two-year period immediately prior to the time of the first public
announcement of the proposed Business Combination (the "Announcement
Date") or in the transaction in which such person became an Interested
Stockholder, whichever price is the higher; or (ii) the Fair Market Value
per share of the Corporation's Common Stock on the Announcement Date or on
the date on which the Interested Stockholder became an Interested
Stockholder (the "Determination Date"), whichever is higher. The price
paid for any share of Common Stock shall be the amount of cash plus the
Fair Market Value of any other consideration to be received therefor,
determined at the time of payment thereof.
(b) The aggregate amount of the cash and the Fair Market Value, as
of the date of the consummation of the Business Combination, of
consideration other than cash to be received in such Business Combination
by holders of securities of the Corporation other than Common Stock shall
be at least equal to the higher of (i) if applicable, the highest
preferential amount to which the holders of such securities are entitled
in the event of any voluntary liquidation, dissolution or winding up of
the Corporation, (ii) the highest price paid for any of such securities by
any person who is an Interested Stockholder within the two-year period
immediately prior to the Announcement Date or in the transaction in which
such person became an Interested Stockholder, whichever price is higher,
(iii) the Fair Market Value of such securities on the Announcement Date or
the Determination Date, whichever is higher, or (iv) if such securities
are convertible into or exchangeable for shares of Common Stock, the
amount per share of such Common Stock determined pursuant to the foregoing
paragraph (a) reduced by any amount payable by the holders of such
securities in accordance with the terms of such securities, per share,
upon such conversion or exchange, multiplied by the total number of shares
of Common Stock into which or for which such securities are convertible or
exchangeable.
(c) The consideration to be received by holders of a particular
class of outstanding Voting Stock (including Common Stock) shall be in
cash or in the same forms the Interested Stockholder has previously paid
for shares of such class of Voting Stock. If the Interested Stockholder
has paid for shares of any class of Voting Stock with varying forms of
consideration, the form of consideration for such class of Voting Stock
shall be either cash or the form of consideration used to acquire the
largest number of shares of such class of Voting Stock previously acquired
by it.
(d) After such Interested Stockholder has become an Interested
Stockholder and prior to the consummation of such Business Combination:
(i) there shall have been (1) no reduction in the annual rate of dividends
paid on the Common Stock (except as necessary to reflect any subdivision
of the Common Stock), except as approved by a majority of the Continuing
Directors, and (2) an increase in such annual rate of dividends necessary
to reflect any reclassification (including any reverse stock split),
recapitalization, reorganization or any similar transaction which has the
effect of reducing the number of outstanding shares of the Common Stock,
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unless the failure so to increase such annual rate is approved by a
majority of the Continuing Directors; and (ii) such Interested Stockholder
shall have not become the beneficial owner of any additional shares of
Voting Stock except as part of the transaction which results in such
Interested Stockholder becoming an Interested Stockholder.
(e) After such Interested Stockholder has become an Interested
Stockholder, such Interested Stockholder shall not have received the
benefit, directly or indirectly (except proportionately as a stockholder),
of any loans, advances, guarantees, pledges or other financial assistance
or any tax credits or other tax advantages provided by the Corporation,
whether in anticipation of or in connection with such Business Combination
or otherwise.
(f) A proxy or information statement describing the proposed
Business Combination and complying with the requirements of the Securities
Exchange Act of 1934 and the rules and regulations thereunder (or any
subsequent provisions replacing such Act, rules or regulations) shall be
mailed to all stockholders of the Corporation at least 30 days prior to
the consummation of such Business Combination (whether or not such proxy
or information statement is required to be mailed pursuant to such Act or
subsequent provisions).
Part 3. Certain Definitions
---------------------------
For the purposes of this Article Ninth:
3.1. A "person" shall mean any individual, firm, corporation,
partnership, trust or other entity.
3.2. "Interested Stockholder" shall mean any person (other than the
Corporation or any Subsidiary) who or which:
(a) is the beneficial owner, directly or indirectly, of more
than 10% of the combined voting power of the then outstanding Voting
Stock; or
(b) is an Affiliate of the Corporation and at any time within
the two-year period immediately prior to the date in question was
the beneficial owner, directly or indirectly, of 10% or more of the
combined voting power of the then outstanding Voting Stock; or
(c) is an assignee of or has otherwise succeeded to any shares
of Voting Stock which were at any time within the two-year period
immediately prior to the date in question beneficially owned by any
Interested Stockholder, if such assignment or succession shall have
occurred in the course of a
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transaction or series of transactions not involving a public offering
within the meaning of the Securities Act of 1933.
3.3. A person shall be a "beneficial owner" of any Voting Stock:
(a) which such person or any of its Affiliates or Associates
beneficially owns, directly or indirectly; or
(b) which such person or any of its Affiliates or Associates
has (i) the right to acquire (whether such right is exercisable
immediately or only after the passage of time), pursuant to any
agreement, arrangement or understanding or upon the exercise of
conversion rights, exchange rights, warrants or options, or
otherwise, or (ii) the right to vote or to direct the vote pursuant
to any agreement, arrangement or understanding; or
(c) which are beneficially owned, directly or indirectly, by
any other person with which such person or any of its Affiliates has
any agreement, arrangement or understanding for the purpose of
acquiring, holding, voting or disposing of any shares of Voting
Stock.
3.4. For the purposes of determining whether a person is an
Interested Stockholder pursuant to Section 3.2, the number of shares of
Voting Stock deemed to be outstanding shall include shares deemed owned
through application of Section 3.3 but shall not include any other shares
of Voting Stock which may be issuable to other persons pursuant to any
agreement, arrangement or understanding, or upon exercise of conversion
rights, warrants or options, or otherwise.
3.5. "Affiliate" or "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations
under the Securities Exchange Act of 1934, as in effect on January 1,
1984.
3.6. "Subsidiary" means any corporation of which more than a
majority of any class of equity security is owned, directly or indirectly,
by the Corporation; provided, however, that for purposes of the definition
of Interested Stockholder set forth in Section 3.2, the term "Subsidiary"
shall mean only a corporation of which a majority of each class of equity
security is owned by the Corporation, by a Subsidiary, or by the
Corporation and one or more Subsidiaries.
3.7. "Continuing Director" means any member of the Board of
Directors of the Corporation who is unaffiliated with, and not a nominee
of, the Interested Stockholder and was a member of the Board of Directors
prior to the time that the Interested Stockholder became an Interested
Stockholder and any successor of a Continuing Director who is unaffiliated
with, and not a nominee of, the Interested
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Stockholder and who is recommended to succeed a Continuing Director by a
majority of Continuing Directors then on the Board of Directors.
3.8. "Disinterested Stockholder" means a holder of Voting Stock who
is not an Interested Stockholder or an Affiliate or Associate of an
Interested Stockholder and whose shares are not deemed owned by an
Interested Stockholder through application of Section 3.3.
3.9. "Fair Market Value" means: (a) in the case of stock, the
highest closing sale price during the 30-day period immediately preceding
the date in question of a share of such stock on the Composite Tape for
New York Stock Exchange-Listed Stocks, or, if such stock is not quoted on
the Composite Tape, on the New York Stock Exchange, or, if such stock is
not listed on such Exchange, on the principal United States securities
exchange registered under the Securities Exchange Act of 1934 on which
such stock is listed, or, if such stock is not listed on any such
exchange, the highest closing bid quotation with respect to a share of
such stock during the 30-day period preceding the date in question on the
National Association of Securities Dealers, Inc. Automated Quotations
System or any system then in use, or if no such quotations are available,
the Fair Market Value on the date in question of a share of such stock as
determined by a majority of the Continuing Directors in good faith; and
(b) in the case of stock of any class of securities not traded on any
securities exchange or in the over-the-counter market or in the case of
property other than cash or stock, the Fair Market Value of such
securities or property on the date in question as determined by a majority
of the Continuing Directors in good faith. If the stock is paired for
purposes of trading with that of any other corporation, the Fair Market
Value of the paired stock shall be determined pursuant to the pairing or
other agreement which provides for the determination of the relative
values of the stock of the Corporation and the stock of such other
corporation, after determining the Fair Market Value of the paired stock
as set forth above.
3.10. In the event of any Business Combination in which the
Corporation survives, the phrase "consideration to be received" as used in
Sections 2.2(a), (b) and (c) shall include the shares of Common Stock
and/or the shares of any other class of outstanding Voting Stock retained
by the holders of such shares.
Part 4. Directors' Duty to Determine Certain Facts
--------------------------------------------------
The majority of the Continuing Directors of the Corporation shall have the
power and duty to determine for the purpose of this Article Ninth, on the basis
of information known to them after reasonable inquiry, all facts necessary to
determine the applicability of the various provisions of this Article Ninth,
including (A) whether a person is an Interested Stockholder, (B) the number of
shares of Voting Stock beneficially owned by any person, (C) whether a person is
an Affiliate or Associate of another, (D) whether the requirements of Section
2.2 have been met with respect to any Business Combination, and (E) whether the
assets which
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are the subject of any Business Combination have, or the consideration to be
received for the issuance or transfer of securities by the Corporation or any
Subsidiary in any Business Combination has, an aggregate Fair Market Value of
$5,000,000 or more; and the good faith determination of a majority of the
Continuing Directors shall be conclusive and binding for all purposes of this
Article Ninth.
Part 5. No Effect on Fiduciary Obligations of Interested Stockholders
- ---------------------------------------------------------------------
Nothing contained in this Article Ninth shall be construed to relieve any
Interested Stockholder from any fiduciary obligation imposed by law.
Part 6. Amendment, Repeal, Inconsistent Provisions
- --------------------------------------------------
Notwithstanding any other provisions of law or of this Certificate of
Incorporation or the by-laws of the Corporation which might otherwise permit a
lesser vote or no vote, but in addition to any affirmative vote of the holders
of any particular class or series of securities which may be required by law or
by this Certificate of Incorporation, any proposal to amend or repeal, or adopt
any provisions inconsistent with, this Article Ninth of this Certificate of
Incorporation shall require for approval the affirmative vote of at least (a)
80% of the combined voting power of the then outstanding Shares of Voting Stock
and (b) a majority of the combined voting power of the then outstanding shares
of Voting Stock held by persons who are Disinterested Stockholders, provided
that the majority vote requirement of this clause (b) shall not be applicable if
the proposal is approved by the affirmative vote of not less than 90% of the
combined voting power of the then outstanding shares of Voting Stock.
TENTH:
(a) The number of directors shall be as provided in the by-laws. The
Board of Directors shall be divided into three classes, designated Class I,
Class II and Class III, such classes to be as nearly equal in number as possible
and to have the number provided in the by-laws. At the annual meeting of
stockholders in 1986, Directors of Class I shall be elected to hold office for a
term expiring at the next succeeding annual meeting, directors of Class II shall
be elected to hold office for a term expiring at the second succeeding annual
meeting, and directors of Class III shall be elected to hold office for a term
expiring at the third succeeding annual meeting. Thereafter at each annual
meeting of stockholders, directors shall be chosen for a term of three years to
succeed those whose terms then expire and shall hold office until the third
following annual meeting of stockholders and until the election of their
respective successors. Any vacancy on the Board of Directors, whether arising
through death, resignation or removal of a director or through an increase in
the number of directors of any class, shall be filled by a majority vote of all
the remaining directors. The term of office of any director elected to fill such
a vacancy shall expire at the expiration of the term of office of directors of
the class in which the vacancy occurred. Notwithstanding any other provision of
this Article, and except as otherwise required by law, whenever the holders of
any one or more series of Preferred Stock or other securities of the
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Corporation shall have the right, voting separately as a class, to elect one or
more directors of the Corporation, the term of office, the filling of vacancies
and other features of such directorships shall be governed by the terms of this
Certificate of Incorporation applicable thereto, and unless the terms of this
Certificate of Incorporation expressly provide otherwise, such directorships
shall be in addition to the number of directors provided in the by-laws and such
directors shall not be classified pursuant to this Article.
(b) Any action required or permitted to be taken by holders of stock
of the Corporation must be taken at a meeting of such holders and may not be
taken by consent in writing. The by-laws of the Corporation may be amended by
the stockholders only by the affirmative vote of at least 80% of the voting
power of the Corporation. Notwithstanding any other provision of law or of this
Certificate of Incorporation or the by-laws of the Corporation which might
otherwise permit a lesser vote or no vote, but in addition to any affirmative
vote of the holders of any particular class or series of securities which may be
required by law or by this Certificate of Incorporation, any proposal to amend
or repeal, or adopt any provisions inconsistent with, this Article Tenth shall
require for approval the affirmative vote of at least 80% of the voting power of
the Corporation.
ELEVENTH:
The Board of Directors shall base the response of this Corporation to any
proposed Business Combination on the Board of Directors' evaluation of what is
in the best interest of this Corporation. In evaluating what is in the best
interest of this Corporation, the Board of Directors shall consider:
(a) The best interest of the shareholders. For this purpose, the Board
shall consider among other factors, not only the consideration offered in the
proposed Business Combination in relation to the then current market price of
this Corporation's stock, but also in relation to the then current value of this
Corporation in a freely negotiated transaction and in relation to the Board of
Directors' then estimate of the future value of this Corporation as an
independent entity; and
(b) Such other factors as the Board of Directors determines to be
relevant, including, among other factors, the social, legal and economic effects
on the communities in which this Corporation and its subsidiaries operate and
are located.
TWELFTH:
To the fullest extent permitted by the General Corporation Law of the
State of Delaware as the same exists or may hereafter be amended, a director of
the Corporation shall not be liable to the Corporation or its stockholders for
monetary damages for breach of fiduciary duty as director.
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Any repeal or modification of this Article shall not result in any
liability for a director with respect to any action or omission occurring prior
to such repeal or modification.
CERTIFICATE OF DESIGNATIONS
of
JUNIOR PARTICIPATING PREFERRED STOCK
The following resolution was adopted by the Board of Directors of the
Corporation as required by Section 151 of the General Corporation Law at a
meeting duly called and held on June 15, 1989:
RESOLVED, that pursuant to the authority granted to and vested in the
Board of Directors of the Corporation (hereinafter called the "Board of
Directors" or the "Board") in accordance with the provisions of the Certificate
of Incorporation, the Board of Directors hereby creates a series of preferred
stock (the "Preferred Stock"), of the Corporation and hereby states the
designation and number of shares, and fixes the relative rights, preferences,
and limitations thereof as follows:
Junior Participating Preferred Stock:
I. Designation and Amount
The shares of such series shall be designated as "Junior Participating
Preferred Stock" (the "Junior Preferred Stock") and the number of shares
constituting the Junior Preferred Stock shall be 200,000. Such number of shares
may be increased or decreased by resolution of the Board of Directors; provided,
that no decrease shall reduce the number of shares of Junior Preferred Stock to
a number less than the number of shares then outstanding plus the number of
shares reserved for issuance upon the exercise of outstanding options, rights or
warrants or upon the conversion of any outstanding securities issued by the
Corporation convertible into Junior Preferred Stock.
II. Dividends and Distributions
(A) Subject to the rights of the holders of any shares of any series of
Preferred Stock (or any similar stock) ranking prior and superior to the Junior
Preferred Stock with respect to dividends, the holders of shares of Junior
Preferred Stock, in preference to the holders of Common Stock, par value $.10
per share (the "Common Stock"), of the Corporation, and of any other junior
stock, shall be entitled to receive, when, as and if declared by the Board of
Directors out of funds legally available for the purpose, quarterly dividends
payable in cash on the first day of March, June, September and December in each
year (each such date being referred to herein as a "Quarterly Dividend Payment
Date"), commencing on the first Quarterly Dividend Payment Date after the first
issuance of a share
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or fraction of a share of Junior Preferred Stock, in an amount per share
(rounded to the nearest cent) equal to the greater of (a) $1.00 or (b) subject
to the provision for adjustment hereinafter set forth, 100 times the aggregate
per share amount of all cash dividends, and 100 times the aggregate per share
amount (payable in kind) of all non-cash dividends or other distributions, other
than a dividend payable in shares of Common Stock or a subdivision of the
outstanding shares of Common Stock (by reclassification or otherwise), declared
on the Common Stock since the immediately preceding Quarterly Dividend Payment
Date or, with respect to the first Quarterly Dividend Payment Date, since the
first issuance of any share or fraction of a share of Junior Preferred Stock. In
the event the Corporation shall at any time declare or pay any dividend on the
Common Stock payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common Stock, then in each
such case the amount to which holders of shares of Junior Preferred Stock were
entitled immediately prior to such event under clause (b) of the preceding
sentence shall be adjusted by multiplying such amount by a fraction, the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
(B) The Corporation shall declare a dividend or distribution on the Junior
Preferred Stock as provided in paragraph (A) of this Section immediately after
it declares a dividend or distribution on the Common Stock (other than a
dividend payable in shares of Common Stock); provided that, in the event no
dividend or distribution shall have been declared on the Common Stock during the
period between any Quarterly Dividend Payment Date and the next subsequent
Quarterly Dividend Payment Date, a dividend of $1.00 per share on the Junior
Preferred Stock shall nevertheless be payable on such subsequent Quarterly
Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on outstanding
shares of Junior Preferred Stock from the Quarterly Dividend Payment Date next
preceding the date of issue of such shares, unless the date of issue of such
shares is prior to the record date for the first Quarterly Dividend Payment
Date, in which case dividends on such shares shall begin to accrue from the date
of issue of such shares, or unless the date of issue is a Quarterly Dividend
Payment Date or is a date after the record date for the determination of holders
of shares of Junior Preferred Stock entitled to receive a quarterly dividend and
before such Quarterly Dividend Payment Date, in either of which events such
dividends shall begin to accrue and be cumulative from such Quarterly Dividend
Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends
paid on the shares of Junior Preferred Stock in an amount less than the total
amount of such dividends at the time accrued and payable on such shares shall be
allocated pro rata on a share-by-share basis among all such shares at the time
outstanding. The Board of Directors may fix a record date for the determination
of holders of shares of Junior Preferred Stock entitled to receive payment of a
dividend or distribution declared thereon, which record date shall be not more
than 60 days prior to the date fixed for the payment thereof.
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III. Voting Rights
The holders of shares of Junior Preferred Stock shall have the following
voting rights:
(A) Subject to the provision for adjustment hereinafter set forth, each
share of Junior Preferred Stock shall entitle the holder thereof to 100 votes on
all matters submitted to a vote of the stockholders of the Corporation.
(B) Except as otherwise provided herein, in any other Certificate of
Designation creating a series of Preferred Stock or any similar stock, or by
law, the holders of shares of Junior Preferred Stock and the holders of shares
of Common Stock and any other capital stock of the Corporation having general
voting rights shall vote together as one class on all matters submitted to a
vote of stockholders of the Corporation.
(C) Except as set forth herein, in the Corporation's Certificate of
Incorporation or as otherwise provided by law, holders of Junior Preferred Stock
shall have no voting rights.
IV. Certain Restrictions
(A) Whenever quarterly dividends or other dividends or distributions
payable on the Junior Preferred Stock as provided in Section II are in arrears,
thereafter and until all accrued and unpaid dividends and distributions, whether
or not declared, on shares of Junior Preferred Stock outstanding shall have been
paid in full, the Corporation shall not:
(i) declare or pay dividends, or make any other distributions, on
any shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Junior Preferred Stock;
(ii) declare or pay dividends, or make any other distributions, on
any shares of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Junior Preferred Stock,
except dividends paid ratably on the Junior Preferred Stock and all such
parity stock on which dividends are payable or in arrears in proportion to
the total amounts to which the holders of all such shares are then
entitled;
(iii) redeem or purchase or otherwise acquire for consideration
shares of any stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Junior Preferred Stock,
provided that the Corporation may at any time redeem, purchase or
otherwise acquire shares of any such junior stock in exchange for shares
of any stock of the Corporation ranking junior (either as to dividends or
upon dissolution, liquidation or winding up) to the Junior Preferred
Stock; or
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(iv) redeem or purchase or otherwise acquire for consideration any
shares of Junior Preferred Stock, or any shares of stock ranking on a
parity with the Junior Preferred Stock, except in accordance with a
purchase offer made in writing or by publication (as determined by the
Board of Directors) to all holders of such shares upon such terms as the
Board of Directors, after consideration of the respective annual dividend
rates and other relative rights and preferences of the respective series
and classes, shall determine in good faith will result in fair and
equitable treatment among the respective series or classes.
(B) The Corporation shall not permit any subsidiary of the Corporation to
purchase or otherwise acquire for consideration any shares of stock of the
Corporation unless the Corporation could, under paragraph (A) of this Section IV
purchase or otherwise acquire such shares at such time and in such manner.
V. Reacquired Shares
Any shares of Junior Preferred Stock purchased or otherwise acquired by
the Corporation in any manner whatsoever shall be retired and cancelled promptly
after the acquisition thereof. All such shares shall upon their cancellation
become authorized but unissued shares of Preferred Stock and may be reissued as
part of a new series of Preferred Stock subject to the conditions and
restrictions on issuance set forth herein, in the Certificate of Incorporation,
in any other Certificate of Designations creating a series of Preferred Stock or
any similar stock or as otherwise required by law.
VI. Liquidation, Dissolution or Winding Up
Upon any liquidation, dissolution or winding up of the Corporation, no
distribution shall be made (1) to the holders of shares of stock ranking junior
(either as to dividends or upon liquidation, dissolution or winding up) to the
Junior Preferred Stock unless, prior thereto, the holders of shares of Junior
Preferred Stock shall have received $100 per share, plus an amount equal to
accrued and unpaid dividends and distributions thereon, whether or not declared,
to the date of such payment, provided that the holders of shares of Junior
Preferred Stock shall be entitled to receive an aggregate amount per share,
subject to the provision for adjustment hereinafter set forth, equal to 100
times the aggregate amount to be distributed per share to holders of shares of
Common Stock, or (2) to the holders of shares of stock ranking on a parity
(either as to dividends or upon liquidation, dissolution or winding up) with the
Junior Preferred Stock, except distributions made ratably on the Junior
Preferred Stock and all such parity stock in proportion to the total amounts to
which the holders of all such shares are entitled upon such liquidation,
dissolution or winding up. In the event the Corporation shall at any time
declare or pay any dividend on the Common Stock payable in shares of Common
Stock, or effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise than by
payment of a dividend in shares of Common Stock) into a greater or lesser number
of shares of Common Stock, then in each such case the aggregate amount to which
holders
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of shares of Junior Preferred Stock were entitled immediately prior to such
event under the proviso in clause (1) of the preceding sentence shall be
adjusted by multiplying such amount by a fraction the numerator of which is the
number of shares of Common Stock outstanding immediately after such event and
the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
VII. Consolidation, Merger, etc.
In case the Corporation shall enter into any consolidation, merger,
combination or other transaction in which the shares of Common Stock are
exchanged for or changed into other stock or securities, cash and/or any other
property, then in any such case each share of Junior Preferred Stock shall at
the same time be similarly exchanged or changed into an amount per share,
subject to the provision for adjustment hereinafter set forth, equal to 100
times the aggregate amount of stock, securities, cash and/or any other property
(payable in kind), as the case may be, into which or for which each share of
Common Stock is changed or exchanged. In the event the Corporation shall at any
time declare or pay any dividend on the Common Stock payable in shares of Common
Stock, or effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise than by
payment of a dividend in shares of Common Stock) into a greater or lesser number
of shares of Common Stock, then in each such case the amount set forth in the
preceding sentence with respect to the exchange or change of shares of Junior
Preferred Stock shall be adjusted by multiplying such amount by a fraction, the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
VIII. Redemption
The shares of Junior Preferred Stock shall not be redeemable.
IX. Rank
The Junior Preferred Stock shall rank, with respect to the payment of
dividends and the distribution of assets, junior to all series of any other
class of the Corporation's Preferred Stock.
X. Amendment
The Certificate of Incorporation of the Corporation shall not be amended
in any manner which would alter or change the powers, preferences or special
rights of the Junior Preferred Stock so as to affect them adversely without the
affirmative vote of the holders of at least two-thirds of the outstanding shares
of Junior Preferred Stock, voting together as a single series.
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CERTIFICATE OF DESIGNATIONS, PREFERENCES AND
RIGHTS OF A SERIES OF STOCK
The following resolution was adopted by the Board of Directors of the
Corporation on January 23, 1998 as required by Section 151 of the General
Corporation Law:
RESOLVED, that pursuant to the authority vested in the Board of Directors
of the Corporation in accordance with the provisions of the Certificate of
Incorporation of the Corporation, as amended, a series of stock of the
Corporation known as Series A NonVoting Convertible Common Stock be, and it
hereby is, created, classified and authorized, and the issuance thereof is
provided for, and that the designation and number of shares, and relative
rights, preferences and limitations thereof, shall be as set forth in the form
appended hereto as Exhibit A.
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Exhibit A
---------
1. Designation and Amount. There shall be a series of undesignated Series
Common Stock of the Corporation designated as "Series A Non-Voting Convertible
Common Stock" and the number of shares constituting such series shall be ten
million (10,000,000). The number of shares designated as shares of Series A
Non-Voting Convertible Common Stock may be increased or decreased by the Board
of Directors without a vote of stockholders. Except as otherwise expressly
provided herein, all shares of Series A NonVoting Convertible Common Stock shall
be identical to shares of Common Stock (as defined in Article FOURTH of the
Certificate of Incorporation of the Corporation, as amended (the "Certificate of
Incorporation")) and shall entitle the holders thereof to the same rights and
privileges.
2. Voting. The holders of Series A Non-Voting Convertible Common Stock
shall not have any right to vote, except as required under applicable law and,
except as required by law, the holders of Common Stock and Series A Non-Voting
Convertible Common Stock shall vote together as a single class on all matters as
to which holders of Series A NonVoting Convertible Common Stock are entitled to
vote as set forth herein. Except as required by law or as set forth herein, the
holders of Series A Non-Voting Convertible Common Stock (to the extent permitted
by this Section 2), Common Stock (to the extent permitted by the Certificate of
Incorporation), Preferred Stock (to the extent permitted by the Certificate of
Incorporation) and Series Common Stock (to the extent permitted by the
Certificate of Incorporation) shall vote together as a single class on all
matters submitted to the stockholders for a vote.
3. Dividends. Subject to applicable law, the holders of Series A
Non-Voting Convertible Common Stock shall be entitled to receive such dividends
out of funds legally available therefor at such times and in such amounts as the
Board of Directors may determine in its sole discretion shall be paid with
respect to the Common Stock, with each share of Common Stock and each share of
Series A Non-Voting Convertible Common Stock sharing share-for-share in such
dividends (with each share of Series A Non-Voting Convertible Common Stock being
equal to the number of shares of Common Stock into which it would then be
convertible on the record date for such dividend) except that if dividends are
declared which are payable in shares of Common Stock or Series A NonVoting
Convertible Common Stock, dividends shall be declared which are payable at the
equivalent rate in both classes of stock and the dividends payable in shares of
Common Stock shall be payable to the holders of that class of stock and the
dividends payable in shares of Series A Non-Voting Convertible Common Stock
shall be payable to the holders of that class of stock.
4. Liquidation, Dissolution or Winding Up. Upon any liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary
(a "Liquidation Event"), after the payment or provision for payment of all debts
and liabilities of the Corporation and
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all preferential amounts to which the holders of Preferred Stock or Series
Common Stock, if any, are entitled with respect to the distribution of assets in
liquidation, the holders of Series A Non-Voting Convertible Common Stock shall
be entitled to share ratably with the holders of Common Stock (with each share
of Series A Non-Voting Convertible Common Stock being equal to the number of
shares of Common Stock into which it would then be convertible on the effective
date of such Liquidation Event) in the remaining assets of the Corporation
available for distribution.
5. Conversion of Series A Non-Voting Convertible Common Stock.
(a) Automatic Conversion. Each share of Series A Non-Voting
Convertible Common Stock shall be automatically converted, without the payment
of any additional consideration, into fully paid and non-assessable shares of
Common Stock at the rate of one share of Common Stock for each share of Series A
Non-Voting Convertible Common Stock so converted (the "Series A Non-Voting
Conversion Rate") as of the date (the "Conversion Date") that is the earlier to
occur of (i) the next Business Day (as defined below) following the date on
which the shareholders of the Corporation and of Meditrust Corporation
("Meditrust Corporation") shall have approved the merger transaction (the
"Merger") among La Quinta Inns, Inc. ("La Quinta"), Meditrust Corporation and
the Corporation, and (ii) the date of any termination of the Agreement and Plan
of Merger dated as of January 3, 1998 and among La Quinta, Meditrust Corporation
and the Corporation relating to the Merger in accordance with the terms thereof.
As used herein, the term "Business Day" means any day other than Saturday,
Sunday, or any other day on which banking institutions in the States of Delaware
or New York are not open for business.
(b) Procedure for Conversion. As of the Conversion Date, all
outstanding shares of Series A Non-Voting Convertible Common Stock shall be
converted automatically without any further action by the holders of Series A
Non-Voting Convertible Common Stock and whether or not the certificates
representing such shares of Series A Non-Voting Convertible Common Stock are
surrendered to the Corporation or its transfer agent. On the Conversion Date,
all rights with respect to the Series A Non-Voting Convertible Common Stock so
converted shall terminate, except any of the rights of the holders thereof, in
accordance with the procedures herein, to receive certificates for the number of
shares of Common Stock into which such Series A Non-Voting Convertible Common
Stock has been converted. The Corporation shall not be obligated to issue
certificates evidencing the shares of Common Stock issuable on the Conversion
Date unless certificates evidencing such shares of the Series A Non-Voting
Convertible Common Stock being converted, duly assigned or endorsed for transfer
to the Corporation (or accompanied by duly executed stock powers relating
thereto), are surrendered at the principal executive office of the Corporation
(or the offices of the transfer agent for the Series A Non-Voting Convertible
Common Stock or such office or offices of an agent for conversion as may from
time to time be designated by notice to the holders of the Series A Non-Voting
Convertible Common Stock by the Corporation), together with written notice by
the holder of such Series A Non-Voting Convertible Common Stock stating the name
or names (with addresses) and denominations in which the certificate
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or certificates for Common Stock shall be issued and shall include instructions
for delivery thereof. Upon such surrender of a certificate representing Series A
Non-Voting Convertible Common Stock following its automatic conversion, the
Corporation shall issue and send by hand delivery, by courier or by first class
mail (postage prepaid) to the holder thereof or to such holder's designee, at
the address designated by such holder, a certificate or certificates for the
number of shares of Common Stock to which such holder shall be entitled upon
conversion. In the event that there shall have been surrendered a certificate or
certificates representing Series A Non-Voting Convertible Common Stock, only
part of which are to be converted, the Corporation shall issue and send to such
holder or such holder's designee, in the manner set forth in the preceding
sentence, a new certificate or certificates representing the number of shares of
Series A Non-Voting Convertible Common Stock which shall not have been
converted. If the certificate or certificates for Common Stock are to be issued
in a name other than the name of the registered holder of the Series A
Non-Voting Convertible Common Stock surrendered for conversion, the Corporation
shall not be obligated to issue or deliver any certificate unless and until the
holder of the Series A Non-Voting Convertible Common Stock surrendered has paid
to the Corporation the amount of any tax that may be payable in respect of any
transfer involved in such issuance or has established to the satisfaction of the
Corporation that such tax has been paid.
(c) Reservation of Stock Issuable Upon Conversion. The Corporation
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock solely for the purpose of effecting the conversion of the
shares of Series A Non-Voting Convertible Common Stock such number of its shares
of Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding shares of Series A Non-Voting Convertible Common
Stock.
6. Adjustments.
(a) Changes in Common Stock. In the event the Corporation shall (i)
pay a dividend in or make a distribution in shares of Common Stock, (ii)
subdivide its outstanding shares of Common Stock, (iii) combine its outstanding
shares of Common Stock into a smaller number of shares, or (iv) issue by
reclassification of its shares of Common Stock any shares of the Corporation,
the Series A Non-Voting Conversion Rate in effect immediately prior thereto
shall be adjusted so that the holder of a share of Series A NonVoting
Convertible Common Stock thereafter surrendered for conversion shall be entitled
to receive the number of shares of Common Stock which it would have owned or
have been entitled to receive after the happening of any of the events described
above had such share of Series A Non-Voting Convertible Common Stock been
converted on or immediately prior to the record date for such dividend or the
effective date of such subdivision, combination or reclassification, as the case
may be.
(b) Changes in Series A Non-Voting Convertible Common Stock. In the
event that the Corporation shall (i) pay a dividend in or make a distribution in
shares of its Series A Non-Voting Convertible Common Stock, (ii) subdivide its
outstanding shares of
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Series A Non-Voting Convertible Common Stock, (iii) combine its outstanding
shares of Series A Non-Voting Convertible Common Stock into a smaller number of
shares, or (iv) issue by reclassification of its shares of Series A Non-Voting
Convertible Common Stock any shares of the Corporation, the Series A Non-Voting
Conversion Rate in effect immediately prior thereto shall be adjusted so that
the holder of a share of Series A NonVoting Convertible Common Stock thereafter
surrendered for conversion shall be entitled to receive the number of shares of
Common Stock which it would have owned or have been entitled to receive after
the happening of any of the events described above had such share of Series A
Non-Voting Convertible Common Stock been converted on or immediately prior to
the record date for such dividend or the effective date of such subdivision,
combination or reclassification, as the case may be.
(c) General. An adjustment made pursuant to this Section 6 shall
become effective immediately after the record date (in the case of a dividend or
distribution in shares of capital stock) and shall become effective immediately
after the effective date (in the case of a subdivision, combination or
reclassification). No adjustment in accordance with this Section 6 shall be
required unless such adjustment would require an increase or decrease in any
conversion rate of at least 0.1%; provided, however, that any adjustments which
by reason of this clause are not required to be made shall be carried forward
and taken into account in any subsequent adjustment.
7. Notices. In the event that the Corporation provides any notice, report
or statement to the holders of Common Stock or Series A Non-Voting Convertible
Common Stock (in their capacity as such), the Corporation shall at the same time
provide a copy of any such notice, report or statement to each record holder of
outstanding Series A NonVoting Convertible Common Stock.
8. Status of Acquired Shares. Shares of Series A Non-Voting Convertible
Common Stock acquired by the Corporation (upon conversion or otherwise) will be
restored to the status of authorized but unissued shares of undesignated Series
Common Stock.
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IN WITNESS WHEREOF, the Chief Executive Officer of the Corporation has
hereunto set his hand this 27th day of February, 1998.
By: /s/ Abraham D. Gosman
-----------------------------
Abraham D. Gosman
Chief Executive Officer
ATTEST:
By: /s/ Michael J. Bohnen
---------------------------
Michael J. Bohnen
Secretary
21
Exhibit 3.5
BY-LAWS
OF
MEDITRUST CORPORATION
(a Delaware corporation)
(as amended and restated on February 27, 1998)
ARTICLE I
Offices
Section 1.1. Registered Office. The registered office shall be in the City
of Wilmington, County of New Castle, State of Delaware.
Section 1.2. Other Offices. The Corporation may also have offices at such
other places both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the Corporation may
require.
ARTICLE II
Business Purpose and Investment Policy
Section 2.1. Corporation Taxed as Real Estate Investment Trust. The
Corporation shall conduct its business in such a manner as to be qualified to be
taxed as a real estate investment trust under the Internal Revenue Code of 1986,
as heretofore or hereafter amended.
Section 2.2. Investment Policy. It is the general purpose of the
Corporation that the assets of the Corporation be invested principally in real
property and interests in real estate, including, without limitation, loans
secured by mortgages on real estate.
ARTICLE III
Meetings of Stockholders
Section 3.1. Place. All meetings of the stockholders for the election of
directors shall be held at such place either within or without the State of
Delaware as shall be designated from time to time by the Board of Directors and
stated in the notice of the meeting. Meetings of stockholders for any other
purpose may be held at such time or place, within or without the State of
Delaware, as shall be stated in the notice of the meeting or in a duly executed
waiver of notice thereof.
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Section 3.2. Annual Meetings. The annual meetings of stockholders shall be
held on the third Thursday in May of each year at 10 o'clock A.M. of said day;
provided, however, that should said day fall upon a legal holiday, then any such
annual meeting of stockholders shall be held at the same time and place on the
next day thereafter ensuing which is a full business day. At such meetings
directors shall be elected, reports of the affairs of the Corporation shall be
considered, and any other business may be transacted which is within the powers
of the stockholders. If for any annual meeting the Board of Directors shall fix
a different day or hour, such action shall be deemed an amendment of this
Section 3.2 effective until the adjournment of that annual meeting sine die.
Written notice of each annual meeting shall be given to each stockholder
entitled to vote, either personally or by mail or other means of written
communication, charges prepaid, addressed to such stockholder at his address
appearing on the books of the Corporation or given by him to the Corporation for
the purpose of notice. If a stockholder gives no address, notice shall be deemed
to have been given him if sent by mail or other means of written communication
addressed to the place where the principal office of the Corporation is
situated, or if published at least once in some newspaper of general circulation
in the county in which said office is located. All such notices shall be sent to
each stockholder entitled thereto not less than ten nor more than sixty days
before each annual meeting. Such notices shall specify the place, the day and
the hour of such meeting and shall state such other matters if any, as may be
expressly required by statute.
Section 3.3. Special Meetings. Special meetings of the stockholders, for
any purpose or purposes whatsoever, may be called at any time by the Board of
Directors. Except in special cases where other express provision is made by
statute, notice of such special meetings shall be given in the same manner as
for annual meetings of stockholders. Notices of any special meeting shall
specify, in addition to the place, day and hour of such meeting, the general
nature of the business to be transacted.
Section 3.4. Business To Be Brought Before Meetings. In order to be
properly brought before any meeting of stockholders held pursuant to this
Article III, business (including the election of directors) must be (a)
specified in the notice of meeting (or any supplement thereto) given by or at
the direction of the Board of Directors, (b) otherwise properly brought before
the meeting by or at the direction of the Board of Directors, or (c) otherwise
properly brought before the meeting by a stockholder. In order for any such
business to be properly brought before the meeting by a stockholder, the
stockholder must have given timely notice thereof in writing to the Secretary of
the Corporation. In order to be timely, a stockholder's notice must be received
at the principal executive offices of the Corporation not less than 60 days nor
more than 90 days prior to the meeting; provided, however, that in the event
that a meeting is called for a date other than that specified in the By-laws,
and less than 75 days' prior public disclosure of such date is given, notice by
the stockholder in order to be timely must be received by the Secretary of the
Corporation not later than the close of business on the fifteenth (15th)
calendar day following the day on which such public disclosure of the date of
the meeting was made. If a stockholder intends
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to nominate a candidate or candidates for director at any meeting of
stockholders, such stockholder's notice to the Secretary shall set forth the
name, age, address and principal occupation of each such nominee and the amount
and type of the Corporation's stock held by each such nominee, together with any
additional information reasonably necessary to determine the eligibility of each
such nominee and any information required to be disclosed in the solicitation of
proxies in respect of each such nominee by Schedule 14A, as amended from time to
time, or other applicable Rules and Regulations of the Securities and Exchange
Commission. The notice to the Secretary shall also set forth the name, address
and the amount and type of beneficial ownership of the Corporation's stock of
the stockholder intending to nominate the candidate or candidates identified in
the notice to the Secretary. Any stockholder desiring to bring any other
business before any annual meeting of stockholders shall set forth in such
stockholder's notice to the Secretary (i) a brief description of the business
desired to be brought before the annual meeting and the reasons for conducting
such business at the meeting, (ii) the name and record address of the
stockholder proposing such business, (iii) the class and number of shares of the
Corporation's stock that are beneficially owned by such stockholder, and (iv)
any material interest of such stockholder in such business. In order to be
properly brought before any special meeting of stockholders (other than any
special meeting held for the purpose of electing directors), business must be
specified in the notice of meeting (or any supplement thereto) given by or at
the direction of the Board of Directors.
Notwithstanding anything in the By-laws to the contrary, no business
(including the election of directors) shall be conducted at the meeting except
in accordance with the procedures set forth in this Section 3.4; provided
however, that nothing in this Section 3.4 shall preclude or be deemed or
construed to preclude discussion by any stockholder of any business properly
brought before the annual meeting of stockholders.
The Chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that business was not properly brought before the meeting
in accordance with the provisions of this Section 3.4, and if he should so
determine, he shall so declare to the meeting and any such business not properly
brought before the meeting shall not be transacted.
Section 3.5. List of Stockholders. The officer who has charge of the stock
ledger of the Corporation shall prepare and make, at least ten days before every
meeting of stockholders, a complete list of the stockholders entitled to vote at
the meeting, arranged in alphabetical order, and showing the address of each
stockholder. Such list shall be open to the examination of any stockholder, for
any purpose germane to the meeting, during ordinary business hours, for a period
of at least ten days prior to the meeting, either at a place within the city
where the meeting is to be held, which place shall be specified in the notice of
the meeting, or, if not so specified, at the place where the meeting is to be
held. The list shall also be produced and kept at the time and place of the
meeting during the whole time thereof, and may be inspected by any stockholder
who is present.
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Section 3.6. Quorum. The holders of a majority of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute. If, however,
such quorum shall not be present or represented at any meeting of stockholders,
the stockholders entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum shall be present or
represented. At such adjourned meeting at which a quorum shall be present or
represented any business may be transacted which might have been transacted at
the meeting as originally noticed. If the adjournment is for more than thirty
days or if after the adjournment a new record date is fixed for the adjourned
meeting, a notice of the adjourned meeting shall be given to each stockholder of
record entitled to vote at the meeting.
Section 3.7. Questions Before Meeting. When a quorum is present at any
meeting, the vote of the holders of a majority of the stock having voting power
present in person or represented by proxy and voting, provided that such
majority is at least a majority of the number of shares required to constitute a
quorum at such meeting, shall decide any question brought before such meeting
unless the question is one upon which by express provision of the statutes, of
these By-laws or of the Certificate of Incorporation, a different vote is
required, in which case such express provision shall govern and control the
decision of such question.
Section 3.8. Action Without Meeting. Any action required or permitted to
be taken by holders of stock of the Corporation must be taken at a meeting of
such holders and may not be taken by consent in writing.
Section 3.9. Waiver of Notice. Whenever notice is required to be given
under the Delaware Corporation Law or the Certificate of Incorporation or the
By-laws, a written waiver, signed by the person entitled to notice, whether
before or after the time stated therein, shall be deemed equivalent to notice.
Attendance of a person at a meeting shall constitute a waiver of notice of such
meeting, except when the person attends a meeting for the express purpose of
objecting at the beginning of the meeting to the transaction of any business
because the meeting is not lawfully called or convened. Neither the business to
be transacted at, nor the purpose of, any regular or special meeting of the
stockholders, directors, or members of a committee of directors need be
specified in any written waiver of notice unless so required by the Certificate
of Incorporation.
ARTICLE IV
Directors
Section 4.1. Size of Board. The Board of Directors shall consist of ten
members, or as many as shall be determined from time to time by resolution of
the Board, plus such
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additional number of directors as may from time to time be elected or appointed
in accordance with Section 4.3A hereof.
Section 4.2. Election of Directors. Except as provided in Section 4.3A
hereof, the directors shall be divided into three classes, designated Class I,
Class II, and Class III, such classes to be as nearly equal in number as
possible. Except as provided in Section 4.3A hereof, at each annual meeting of
stockholders, directors shall be chosen for a term of three years to succeed
those whose terms then expire and shall hold office until the third following
annual meeting of stockholders and until the election of their respective
successors. Directors need not be stockholders.
Section 4.3. Vacancies. Except as provided in Section 4.3A hereof,
vacancies and newly created directorships resulting from any increase in the
authorized number of directors may be filled by a majority of the directors then
in office, though less than a quorum, or by a sole remaining director, and the
directors so chosen shall hold office for the unexpired term of the vacant
directorship, or, in the case of any increase in the number of directors, as
designated by the directors then in office, consistent with the provisions of
Section 4.2. If there are no directors in office, then an election of directors
may be held in the manner provided by statute. Except as provided in Section
4.3A hereof, if, at the time of filling any vacancy or any newly created
directorship the directors then in office shall constitute less than a majority
of the whole Board (as constituted immediately prior to any such increase), the
Court of Chancery may, upon application of any stockholder or stockholders
holding at least ten percent of the total number of the shares at the time
outstanding having the right to vote for such directors, summarily order an
election to be held to fill any such vacancies or newly created directorships,
or to replace the directors chosen by the directors then in office.
No reduction of the authorized number of directors shall have the effect
of removing any director prior to the expiration of his term of office.
Section 4.3A Preferred Stock. Notwithstanding any other provisions of the
By-laws and except as otherwise required by law, whenever the holders of any one
or more series of Preferred Stock or other securities of the Corporation shall
have the right, voting separately as a class, to elect one or more directors of
the Corporation, the term of office, the filling of vacancies and other features
of such directorships shall be governed by the terms of the Certificate of
Incorporation applicable thereto, and unless the terms of the Certificate of
Incorporation expressly provide otherwise, such directorships shall be in
addition to the number of directors provided in these By-laws and such directors
shall not be classified pursuant to Article TENTH of the Certificate of
Incorporation.
Section 4.4. Powers. The business of the Corporation shall be managed by
its Board of Directors which may exercise all such powers of the Corporation and
do all such lawful acts and things as are not by statute or by the Certificate
of Incorporation or by these By-laws directed or required to be exercised or
done by the stockholders.
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Section 4.5. Meetings. The Board of Directors of the Corporation may hold
meetings, both regular and special, either within or without the State of
Delaware.
Section 4.6. First Meeting. The first meeting of each newly elected Board
of Directors shall be held immediately following the annual meeting of
stockholders at which such directors are elected and no notice of such meeting
shall be necessary to the newly elected directors in order legally to constitute
the meeting, provided a quorum shall be present; or the meeting may be held at
such time and place as shall be specified in a notice given as hereinafter
provided for special meetings of the Board of Directors, or as shall be
specified in a written waiver signed by all of the directors.
Section 4.7. Regular Meetings. Regular meetings of the Board may be held
without notice at such time and at such place as shall from time to time be
determined by the Board.
Section 4.8. Special Meetings. Special meetings of the Board may be called
by the Secretary at the request of the Chairman of the Board or President on two
business days' notice to each director, either personally or by mail, by
telegram or by telephone; special meetings shall be called by the President or
Secretary in like manner and on like notice on the written request of two
directors.
Section 4.9. Quorum. At all meetings of the Board a majority of the total
number of directors shall constitute a quorum for the transaction of business
and the act of a majority of the directors present at any meeting at which there
is a quorum shall be the act of the Board of Directors, except as may be
otherwise specifically provided by statute or by the Certificate of
Incorporation. If a quorum shall not be present at any meeting of the Board of
Directors, the directors present thereat may adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present.
Section 4.10. Conference Telephone. Unless otherwise restricted by the
Certificate of Incorporation or these By-laws, members of the Board of Directors
(or any, committee designated by the Board) may participate in a meeting of the
Board or committee by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other.
Section 4.11. Unanimous Consent. Unless otherwise restricted by the
Certificate of Incorporation or these By-laws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all members of the Board or committee, as the
case may be, consent thereto in writing, and the writing or writings are filed
with the minutes of proceedings of the Board or committee.
Section 4.12. Committees. The Board of Directors may designate one or more
committees, each committee to consist of one or more of the directors of the
Corporation. The Board may designate one or more directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of the committee. Any such
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committee, to the extent provided in the resolution of the Board of Directors,
or in these By-laws, shall have and may exercise all the powers and authority
of the Board of Directors in the management of the business and affairs of the
Corporation, and may authorize the seal of the Corporation to be affixed to all
papers which may require it; but no such committee shall have the power or
authority in reference to the following matters: (i) approving or adopting, or
recommending to the stockholders any action or matter expressly required by the
Delaware General Corporation Law to be submitted to stockholders for approval or
(ii) adopting, amending or repealing any bylaw of the Corporation. In the
absence or disqualification of any member of a committee, the member or members
thereof present at any meeting and not disqualified from voting, whether or not
such member or members constitute a quorum, may unanimously appoint another
member of the Board of Directors to act at the meeting in the place of any such
absent or disqualified member. The provisions of this Section 4.12 shall be
applicable with respect to all committees, regardless of when any such committee
was first established or when the members thereof were elected or appointed.
Section 4.13. Minutes. Each committee shall keep regular minutes of its
meetings and report the same to the Board of Directors when required.
Section 4.14. Fees and Compensation. Directors and members of committees
may receive such compensation, if any, for their services, and such
reimbursement for expenses, as may be fixed or determined by resolution of the
Board.
ARTICLE V
Notices
Section 5.1. Methods of Notice. Whenever, under the provisions of the Laws
of the State of Delaware or of the Certificate of Incorporation or of these
By-laws, notice is required to be given to any director or stockholder, it shall
not be construed to mean personal notice, but notice may be given in writing, by
mail, addressed to such director or stockholder, at his address as it appears on
the records of the Corporation, with postage thereon prepaid, and such notice
shall be deemed to be given at the time when the same shall be deposited in the
United States mail. Notice to directors may also be given by telegram or
telephone.
Section 5.2. Waiver. Whenever any notice is required to be given under the
provisions of the statutes or of the Certificates of Incorporation or of these
By-laws, a waiver thereof in writing, signed by the person or persons entitled
to said notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
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ARTICLE VI
Officers
Section 6.1. Officers. The Officers of the Corporation shall be a
President, a Vice President, a Secretary and a Treasurer. The Corporation may
also have, at the discretion of the Board of Directors, one or more additional
Vice Presidents, one or more Assistant Secretaries, one or more Assistant
Treasurers, and such other officers as may be appointed in accordance with the
provisions of Section 6.3 and Section 6.5 of this Article. The Board of
Directors may also choose, in its discretion, a Chairman of the Board and one or
more Vice Chairmen of the Board. One person may hold two or more offices.
Section 6.2. Election. The officers of the Corporation, except such
officers as may be appointed in accordance with the provisions of Section 6.3 or
Section 6.5 of this Article, shall be chosen annually by the Board of Directors,
and each shall hold his office until he shall resign or shall be removed or
otherwise disqualified to serve, or his successor shall be elected and
qualified.
Section 6.3. Subordinate Officers, etc. The Board of Directors may
appoint, and may empower the President to appoint, such other officers as the
business of the Corporation may require, each of whom shall hold office for such
period, have such authority and perform such duties as are provided in the
By-laws or as the Board of Directors may from time to time determine.
Section 6.4. Removal and Resignation. Any officer may be removed, either
with or without cause, by the Board of Directors, at any regular or special
meeting thereof, or, except in the case of an officer chosen by the Board of
Directors, by any officer upon whom such power of removal may be conferred by
the Board of Directors.
Any officer may resign at any time by giving written notice to the Board
of Directors or to the President, or to the Secretary of the Corporation. Any
such resignation shall take effect at the date of the receipt of such notice or
at any later tine specified therein; and, unless otherwise specified therein,
the acceptance of such resignation shall not be necessary to make it effective.
Section 6.5. Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification or any other cause shall be filled in the
manner prescribed in the By-laws for regular appointments to such office.
Section 6.6. Salaries. The salaries and other compensation of all officers
of the Corporation shall be fixed by the Board of Directors.
Section 6.7. Chairman of the Board. The Chairman of the Board shall, if
present, preside at all meetings of the Stockholders and Board of Directors, and
may be the Chief Executive Officer of the Corporation if the directors so elect.
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Section 6.7A. Vice Chairman of the Board. In the absence of the Chairman
of the Board, the Vice Chairman of the Board designated by the Board of
Directors shall preside at all meetings of the Board of Directors.
Section 6.8. President. The President shall be the Chief Executive Officer
of the Corporation unless the Chairman of the Board has been elected as Chief
Executive Officer, and shall, subject to the control of the Board of Directors
and the supervision of the Chairman of the Board, have general supervision,
direction and control of the business and officers of the Corporation. In the
absence of the Chairman of the Board and the Vice Chairman of the Board, or if
there be none, he shall preside at all meetings of the Stockholders and Board of
Directors. He shall be ex-officio a member of all the standing committees,
including the Executive Committee, if any, and shall have the general powers and
duties of management usually vested in the office of the president of a
corporation, and shall have such other powers and duties as may be prescribed by
the Board of Directors or the By-laws.
Section 6.9. Vice President. In the absence or disability of the
President, the Vice Presidents in order of their rank as fixed by the Board of
Directors or, if not ranked, the Vice President designated by the Board of
Directors, shall perform all the duties of the President, and when so acting
shall have all the powers of, and be subject to all the restrictions upon, the
President. The Vice Presidents shall have such other powers and perform such
other duties as from time to time may be prescribed for them respectively by the
Board of Directors or the By-laws.
Section 6.10. Secretary. The Secretary shall keep or cause to be kept, at
the principal office or such other place as the Board of Directors may order, a
book of minutes of all meetings of directors and stockholders, with the time and
place of holding, whether regular or special, and, if special, how authorized,
the notice thereof given, the names of those present at directors' meetings, the
number of shares present or represented at stockholders meetings, and the
proceedings thereof. The Secretary shall keep, or cause to be kept, at the
principal office or at the office of the Corporation's transfer agent, a share
register, or a duplicate share register, showing the names of the stockholders
and their addresses, the number and class of shares held by each, the number and
date of certificates issued for the same, and the number and date of
cancellation of every certificate surrendered for cancellation.
The Secretary shall give, or cause to be given, notice of all the meetings
of the stockholders and of the Board of Directors required by the By-laws or
by law to be given, and he shall keep the seal of the Corporation in safe
custody, and shall have such other powers and perform such other duties as may
be prescribed by the Board of Directors or by the By-laws.
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Section 6.11. Treasurer. The Treasurer shall keep and maintain, or cause
to be kept and maintained, adequate and correct accounts of the properties and
business transactions of the Corporation, including accounts of its assets,
liabilities, receipts, disbursements, gains, losses, capital, surplus and
shares. Any surplus, including earned surplus, paid-in surplus and surplus
arising from a reduction of stated capital, shall be classified according to
source and shown in a separate account. The books of account shall at all
reasonable times be open to inspection by any director.
The Treasurer shall deposit all moneys and other valuables in the name and
to the credit of the Corporation with such depositories as may be designated by
the Board of Directors. He shall disburse the funds of the Corporation as may be
ordered by the Board of Directors, shall render to the President and directors,
whenever they request it, an account of all of his transactions as Treasurer and
of the financial condition of the Corporation, and shall have such other powers
and perform such other duties as may be prescribed by the Board of Directors or
the By-laws.
ARTICLE VII
Stock and Stock Certificates
Section 7.1. Right to Certificate. Every holder of stock in the
Corporation shall be entitled to have a certificate, signed by or in the name of
the Corporation, by the Chairman of the Board of Directors or the President or a
Vice President, and by the Treasurer or an Assistant Treasurer, or the Secretary
or an Assistant Secretary of the Corporation, certifying the number of shares
owned by him in the Corporation.
Section 7.2. Statements Setting Forth Rights. If the Corporation shall be
authorized to issue more than one class of stock or more than one series of any
class, the designations, preferences and relative, participating, optional or
other special rights of each class of stock or series thereof and the
qualifications, limitations or restrictions of such preferences and rights shall
be set forth in full or summarized on the face or back of the certificate which
the Corporation shall issue to represent such class or series of stock, provided
that, except as otherwise provided in Section 202 of the Corporation Law of
Delaware, in lieu of the foregoing requirements, there may be set forth on the
face or back of the certificate which the Corporation shall issue to represent
such class or series of stock, a statement that the Corporation will furnish
without charge to each stockholder who so requests the designations, preferences
and relative, participating, optional or other special rights of each class of
stock or series thereof and the qualifications, limitations and restrictions of
such preferences and rights.
Section 7.3. Facsimile Signatures. Any of or all the signatures on the
certificate may be a facsimile. In case any officer, transfer agent, or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent, or registrar
before such certificate is issued, it may be issued by the
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Corporation with the same effect as if he were such officer, transfer agent, or
registrar at the date of issue.
Section 7.4. Lost Certificates. Except as hereinafter in this section
provided, no new certificate for shares shall be issued in lieu of an old one
unless the latter is surrendered and cancelled at the same time. The Board of
Directors may, however, in case any certificate for shares is lost, stolen,
mutilated or destroyed, authorize the issuance of a new certificate in lieu
thereof, upon such terms and conditions, including reasonable indemnification of
the Corporation, as the Board shall determine.
Section 7.5. Transfers of Stock.
(a) Subject to paragraphs (b), (c) and (d) of this Section 7.5, upon
surrender to any transfer agent of the Corporation of a certificate for shares
of the Corporation duly endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer, it shall be the duty of the
Corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate and record the transaction upon its books.
(b) Subject to the provisions of subparagraph (vi) of this paragraph (b),
beginning at the time that (A) the merger of Santa Anita Consolidated, Inc.
("Santa Anita") into the Corporation and (B) the payment by the Corporation of
the dividend in kind of the shares of Santa Anita Operating Company, a Delaware
corporation ("Operating Company"), shall have both occurred (hereinafter called
the "effective time of the restriction"), and continuing thereafter until such
time as the limitation on transfer provided for in the Pairing Agreement between
the Corporation and Operating Company shall be terminated in the manner therein
provided:
(i) The shares of common stock of the Corporation shall not be
transferable, and shall not be transferred on the books of the
Corporation, unless (1) a simultaneous transfer is made by the same
transferor to the same transferee, or (2) such transferor has previously
arranged with Operating Company for the transfer to the transferee, of a
like number of common shares of Operating Company and such shares are
paired with one another.
(ii) Except for certificates representing shares of common stock of
this Corporation referred to in subparagraph (vi) below, each certificate
evidencing ownership of shares of common stock of this Corporation
(including certificates issued by Santa Anita) issued and not cancelled
prior to the effective time of the restriction shall be deemed to evidence
a like number of shares of common stock of Operating Company.
(iii) Except for certificates representing common stock of this
Corporation referred to in subparagraph (vi) below, any registered holder
of a certificate evidencing ownership of shares of common stock of the
Corporation (including
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certificates issued by Santa Anita) issued prior to the effective time of
the restriction may, upon request and presentation of said certificate to
the Corporation's transfer agent, obtain in substitution therefor a
certificate or certificates registered in such holder's name evidencing
the same number of shares of common stock of the Corporation and a like
number of common shares of Operating Company.
(iv) A conspicuous legend shall be placed on the face of each
certificate evidencing ownership of shares of common stock of the
Corporation issued after the effective time of the restriction, referring
to the restrictions on transfer set forth in the Corporation's By-laws.
(v) For purposes of this paragraph (b) only, the terms "common
stock" and "common shares" shall include preferred stock which is
convertible into shares of common stock.
(vi) Notwithstanding the other provisions of this paragraph (b), any
stockholder whose ownership of Operating Company common stock at the
effective time of the restriction would be deemed, after application of
the attribution rules of the Internal Revenue Code of 1954 (the "Code"),
to result in the Corporation owning, directly or indirectly, more than
9.25% of the Operating Company common stock will not be subject to the
restrictions imposed by this paragraph (b) to the extent that such
ownership would cause the Corporation, directly or indirectly, to be
deemed to own, after application of the attribution rules of the Code,
more than 9.25% of the total number of the outstanding shares of Operating
Company, provided that (1) a sufficient amount of Operating Company common
stock (or the right to receive such common stock) which would otherwise be
paired with common stock of the Corporation is sold to a transferee so
that the Corporation, directly or indirectly, after application of the
attribution rules of the Code, will not own in excess of 9.25% of the
outstanding Operating Company common stock, (2) all holders of the
unpaired shares enter into an agreement, satisfactory to the Boards of
Directors of the Corporation, Operating Company and Santa Anita, providing
that such shares not be transferable by sale or any other means, without
arranging for such shares to be paired with an equal number of shares of
Operating Company, unless such sale is made to the Corporation or
Operating Company, and (3) such stockholder executes a waiver of any
claims he or she may have arising out of the close business relationship
between the Corporation and Operating Company and claims arising out of
conflicts of interest inherent in such business relationship. The other
provisions of this paragraph (b) shall apply to all shares of the
Corporation otherwise held by any stockholder unless they are specifically
exempted by this subparagraph (vi).
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(c) If the Board of Directors shall at any time and in good faith be
of the opinion that direct or indirect ownership of shares of either
common stock or preferred stock, or both, of the Corporation has or may
become concentrated to an extent which would cause this Corporation to
fail to qualify or be disqualified as a real estate investment trust by
virtue of Section 856(a)(5) and (6) of the Code, or similar provisions of
successor statutes, the Board of Directors shall have the power (i) by lot
or other means deemed equitable by them to call for purchase from any
stockholder of the Corporation such number of shares sufficient in the
opinion of the Board of Directors to maintain or bring the direct or
indirect ownership of shares of stock of the Corporation into conformity
with the requirements of said Section 856(a)(5) and (6) and (ii) to refuse
to register the transfer of shares of stock to any person whose
acquisition of such shares would, in the opinion of the Board of
Directors, result in the Corporation being unable to conform to the
requirements of said Section 856(a)(5) and (6). The purchase price for the
shares of stock purchased pursuant hereto shall be equal to the fair
market value of such shares as reflected in the closing price for such
shares on the principal stock exchange on which such shares are listed or,
if such shares are not listed, then the last bid quotation for shares of
stock as of the close of business on the date fixed by the Board of
Directors for such purchase or, if no quotation for the shares is
available, as determined in good faith by the Board of Directors. From and
after the date fixed for purchase by the Board of Directors, the holder of
any shares so called for purchase shall cease to be entitled to dividends,
voting rights and other benefits with respect to such shares, excepting
only the right to payment of the purchase price fixed as aforesaid. In
order to further assure that ownership of the shares of stock does not
become so concentrated, any transfer of shares that would prevent the
Corporation from continuing to be qualified as a real estate investment
trust by virtue of the application of Section 856(a)(5) and (6) of the
Code shall be void ab initio and the intended transferee of such shares
shall be deemed never to have had an interest therein. If the foregoing
provision is determined to be void or invalid by virtue of any legal
decision, statute, rule or regulation, then the transferee of such shares
shall be deemed to have acted as agent on behalf of the Corporation in
acquiring such shares and to hold such shares on behalf of the
Corporation. For purposes of determining whether the Corporation is in
compliance with Section 856(a)(5) and (6), Section 542(a)2) and Section
544 of the Code, or similar provisions of successor statutes, shall be
applied.
(d) In addition to the requirements of subparagraph (c) above, if
the Board of Directors shall at any time and in good faith be of the
opinion that direct or indirect ownership of shares of either common stock
or preferred stock, or both, of the Corporation has or may become
concentrated to an extent which would cause any rent to be paid to this
Corporation to fail to qualify or be disqualified as rent from real
property by virtue of Section 856(d)(2)(B) of the Code, or similar
provisions of successor statutes, the Board of Directors shall have the
power (i) by lot or other means deemed equitable by them to call for
purchase from any stockholder of the Corporation such number of shares
sufficient in the opinion of the Board of Directors to maintain or bring
the direct or indirect ownership of shares of stock of the Corporation
into conformity with the requirements of Section 856(d)(2)(B) and (ii) to
refuse to register the transfer of shares of stock to any person whose
acquisition of such shares would, in the opinion of the Board of
Directors, result in this
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Corporation being unable to conform to the requirements of said Section
856(d)(2)(B). The purchase price for the shares of stock purchased
pursuant hereto shall be equal to the fair market value of such shares as
reflected in the closing price for such shares on the principal stock
exchange on which such shares are listed, or if such shares are not
listed, then the last bid quotation for shares of stock, as of the close
of business on the date fixed by the Board of Directors for such purchase
or, if no quotation for the shares is available, as determined in good
faith by the Board of Directors. From and after the date fixed for
purchase by the Board of Directors, the holder of any shares so called for
purchase shall cease to be entitled to dividends, voting rights and other
benefits with respect to such shares, excepting only the right to payment
of the purchase price fixed as aforesaid. In order to further assure that
ownership of the shares of stock does not become so concentrated, any
transfer of shares that would prevent this Corporation from continuing to
be qualified as a real estate investment trust by virtue of the
application of Section 856(d)(2)(B) of the Code shall be void ab initio
and the intended transferee of such shares shall be deemed never to have
had an interest therein. If the foregoing provision is determined to be
void or invalid by virtue of any legal decision, statute, rule or
regulation, then the transferee of such shares shall be deemed to have
acted as agent on behalf of the Corporation in acquiring such shares and
to hold such shares on behalf of the Corporation. For purposes of
determining whether this Corporation is in compliance with Section
856(d)(2)(B), Section 856(d)(5) of the Code, or similar provisions of
successor statutes, shall be applied.
(e) The stockholders of the Corporation shall upon demand disclose
to the Board of Directors in writing such information with respect to
their direct and indirect ownership of the stock of the Corporation as the
Board of Directors deems necessary to determine whether the Corporation
satisfies the provisions of Section 856(a)(5) and (6) and 856(d) of the
Code and the regulations thereunder as the same shall be from time to time
amended, or to comply with the requirements of any other taxing authority.
Section 7.6. Form of Consideration. In purchasing such shares from any
shareholder in accordance with the foregoing provisions, the Corporation shall
pay consideration in the form of cash or, at the option of the Board of
Directors, in the form of subordinated indebtedness of the Corporation and, if
such shares are preferred stock, the Corporation shall also pay an amount equal
to accrued and, if dividends on such preferred stock are cumulative, accumulated
dividends thereon.
Section 7.7. Record Date. In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereto, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a record date,
which shall not be more than sixty nor less than ten days before the date of
such meeting, nor more than sixty days prior to any other action. A
determination of stockholders of record entitled to notice of or to vote at a
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meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting.
Section 7.8. Registered Stockholders. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and shall not be
bound to recognize any equitable or other claim to or interest in such share or
shares on the part of any other person, whether or not it shall have express or
other notice thereof, except as otherwise provided by the laws of Delaware.
Section 7.9. Transfer Agents and Registrars. The Board of Directors may
appoint one or more corporate transfer agents and registrars.
Section 7.10. Dividends. Dividends upon the capital stock of the
Corporation may be declared by the Board of Directors at any regular or special
meeting, pursuant to law. Dividends may be paid in cash, in property, or in
shares of the capital stock.
Section 7.11. Reserves. Before payment of any dividend, there may be set
aside out of any funds of the Corporation available for dividends such sum or
sums as the directors from time to time, in their absolute discretion, think
proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the Corporation, or
for such other purpose as the directors shall think conducive to the interest of
the Corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
ARTICLE VIII
Indemnification and Insurance
Section 8.1. Right to Indemnification. Each person who was or is a party
or is threatened to be made a party to or is involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she, or a person
of whom he or she is the legal representative, is or was a director or officer
of the Corporation or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to
employee benefit plans, whether the basis of such proceeding is alleged action
or inaction in an official capacity or in any other capacity while serving as a
director, officer, employee or agent, shall be indemnified and held harmless by
the Corporation to the fullest extent permitted by the laws of Delaware, as the
same exist or may hereafter be amended, against all costs, charges, expenses,
liabilities and losses (including attorneys' fees, judgments, fines, ERISA
excise taxes or penalties and amounts paid or to be paid in settlement)
reasonably incurred or suffered by such person in connection therewith, and such
indemnification shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the
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benefit of his or her heirs, executors and administrators; provided, however,
that, except as provided in Section 8.2 hereof, the Corporation shall indemnify
any such person seeking indemnification in connection with a proceeding (or part
thereof) initiated by such person only if such proceeding (or part thereof) was
authorized by the Board of Directors of the Corporation. The right to
indemnification conferred in this Article shall be a contract right and shall
include the right to be paid by the Corporation the expenses incurred in
defending any such proceeding in advance of its final disposition; provided,
however, that, if the Delaware General Corporation Law requires, the payment of
such expenses incurred by a director or officer in his or her capacity as a
director or officer (and not in any other capacity in which service was or is
rendered by such person while a director or officer, including, without
limitation, service to an employee benefit plan) in advance of the final
disposition of a proceeding, shall be made only upon delivery to the Corporation
of an undertaking, by or on behalf of such director or officer, to repay all
amounts so advanced if it shall ultimately be determined that such director or
officer is not entitled to be indemnified under this Section or otherwise. The
Corporation may, by action of its Board of Directors, provide indemnification to
employees and agents of the Corporation with the same scope and effect as the
foregoing indemnification of directors and officers.
Section 8.2. Right of Claimant to Bring Suit. If a claim under Section 8.1
of this Article is not paid in full by the Corporation within thirty days after
a written claim has been received by the Corporation, the claimant may at any
time thereafter bring suit against the Corporation to recover the unpaid amount
of the claim and, if successful in whole or in part, the claimant shall be
entitled to be paid also the expense of prosecuting such claim. It shall be a
defense to any such action (other than an action brought to enforce a claim for
expenses incurred in defending any proceeding in advance of its final
disposition where the required undertaking, if any is required, has been
tendered to the Corporation) that the claimant has failed to meet a standard of
conduct which makes it permissible under Delaware law for the Corporation to
indemnify the claimant for the amount claimed. Neither the failure of the
Corporation (including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is permissible in the circumstances
because he or she has met such standard of conduct, nor an actual determination
by the Corporation (including its Board of Directors, independent legal counsel,
or its stockholders) that the claimant has not met such standard of conduct,
shall be a defense to the action or create a presumption that the claimant has
failed to meet such standard of conduct.
Section 8.3. Non-Exclusivity of Rights. The right to indemnification and
the payment of expenses incurred in defending a proceeding in advance of its
final disposition conferred in this Article shall not be exclusive of any other
right which any person may have or hereafter acquire under any statute,
provision of the Certificate of Incorporation, by-law, agreement, vote of
stockholders or disinterested directors or otherwise.
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Section 8.4. Insurance. The Corporation may maintain insurance, at its
expense, to protect itself and any director, officer, employee or agent of the
Corporation or another corporation, partnership, joint venture, trust or other
enterprise against any such expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under Delaware law.
Section 8.5. Expenses as a Witness. To the extent that any director,
officer, employee or agent of the Corporation is by reason of such position, or
a position with another entity at the request of the Corporation, a witness in
any action, suit or proceeding, he or she shall be indemnified against all costs
and expenses actually and reasonably incurred by him or her or on his or her
behalf in connection therewith.
Section 8.6. Indemnity Agreements. The Corporation may enter into
agreements with any director, officer, employee or agent of the Corporation
providing for indemnification to the full extent permitted by Delaware law.
ARTICLE IX
General Provisions
Section 9.1. Annual Reports. Not later than one hundred twenty (120) days
after the close of each fiscal year of the Corporation, the Board of Directors
shall mail a report of the business and operation of the Corporation during such
fiscal year to the stockholders. The report shall be in such form and have such
content as the Board deems proper. This report shall include a balance sheet and
a statement of income and surplus and a statement of changes in financial
position of the Corporation. Such financial statements shall be accompanied by
the report of an independent certified public accountant thereon.
Section 9.2. Quarterly Reports. Within 90 days after the close of each of
the first three quarters of each fiscal year of the Corporation, the Board of
Directors shall send interim reports to the stockholders, having such form and
content as the Board of Directors deems proper.
Section 9.3. Fiscal Year. The fiscal year of the Corporation shall be
fixed by resolution of the Board of Directors.
Section 9.4. Seal. The corporate seal shall have inscribed thereon the
name of the Corporation, the year of its organization and the words "Corporate
Seal, Delaware". The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
Section 9.5. Checks, Drafts, etc. All checks, drafts or other orders for
payment of money, notes or other evidences of indebtedness, issued in the name
of or payable to the Corporation, shall be signed or endorsed by such person or
persons and in such manner as, from time to time, shall be determined by
resolution of the Board of Directors.
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Section 9.6. Representation of Shares of other Corporations. The President
or any Vice President and the Secretary or Assistant Secretary of this
Corporation are authorized to vote, represent and exercise on behalf of this
Corporation all rights incident to any and all shares of any other corporation
or corporations standing in the name of this Corporation. The authority herein
granted to said officers to vote or represent on behalf of this Corporation any
and all shares held by this Corporation in any other corporation or corporations
may be exercised either by such officers in person or by any other person
authorized so to do by proxy or power of attorney duly executed by said
officers.
Section 9.7. Employee Stock Purchase Plans. The Corporation may, upon
terms and conditions herein authorized, provide and carry out an employee stock
purchase plan or plans providing for the issue and sale, or for the granting of
options for the purchase, of its unissued shares, or of issued shares purchased
or to be purchased or acquired, to employees of the Corporation or of any
subsidiary or to a trustee on their behalf. Such plan may provide for such
consideration as may be fixed therein, for the payment of such shares in
installments or at one time and for aiding any such employees in paying for such
shares by compensation for services or by loans from the Corporation or
otherwise. Any such plan before becoming effective must be approved or
authorized by the Board of Directors of the Corporation.
Such plan may include, among other things, provisions determining or
providing for the determination by the Board of Directors, or any committee
thereof designated by the Board of Directors, of: (a) eligibility of employees
(including officers and directors) to participate therein, (b) the number and
class of shares which may be subscribed for or for which options may be granted
under the plan, (c) the time and method of payment therefor, (d) the price or
prices at which such shares shall be issued or sold, (e) whether or not title to
the shares shall be reserved to the Corporation until full payment therefor, (f)
the effect of the death of an employee participating in the plan or termination
of his employment, including whether there shall be any option or obligation on
the part of the Corporation to repurchase the shares thereupon, (g)
restrictions, if any, upon the transfer of the shares, and the time limits and
termination of the plan, (h) termination, continuation or adjustments of the
rights of participating employees upon the happening of specified contingencies,
including increase or decrease in the number of issued shares of the class
covered by the plan without receipt of consideration by the Corporation or any
exchange of shares of such class for stock or securities of another corporation
pursuant to a reorganization or merger, consolidation or dissolution of the
Corporation, (i) amendment, termination, interpretation and administration of
such plan by the Board of Directors or any committee thereof designated by the
Board of Directors, and (j) any other matters, not repugnant to law, as may be
included in the plan as approved or authorized by the Board of Directors or any
such committee.
Section 9.8 Certificate of Incorporation. As used herein, the term
"Certificate of Incorporation" shall include, without limitation, any
certificate of designations establishing the terms of any series of preferred
stock or series common stock of the Corporation.
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ARTICLE X
Amendments
Section 10.1. Power of Stockholders. New By-laws may be adopted or these
By-laws may be amended or repealed by the stockholders only by the affirmative
vote of at least 80% of the voting power of the Corporation, except as otherwise
provided by law. Any proposal to amend or repeal, or adopt any provisions
inconsistent with, Article Tenth of the Certificate of Incorporation shall
require for approval the affirmative vote of at least 80% of the voting power of
the Corporation.
Section 10.2. Power of Directors. Subject to the right of stockholders as
provided in Section 10.1 of this Article X to adopt, amend or repeal By-laws,
By-laws may be adopted, amended or repealed by the Board of Directors; provided,
however, that Section 7.5 of these By-laws may not be amended or repealed except
with approval of the holders of 80% of the outstanding common stock of the
Corporation.
19
Exhibit 3.6
BY-LAWS
OF
MEDITRUST OPERATING COMPANY
(a Delaware corporation)
(as amended and restated on February 27, 1998)
ARTICLE I
Offices
Section 1.1. Registered Office. The registered office shall be in the City
of Wilmington, County of New Castle, State of Delaware.
Section 1.2. Other Offices. The Corporation may also have offices at such
other places both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the Corporation may
require.
ARTICLE II
Meetings of Stockholders
Section 2.1. Place. All meetings of the stockholders for the election of
directors shall be held at such place either within or without the State of
Delaware as shall be designated from time to time by the Board of Directors and
stated in the notice of the meeting. Meetings of stockholders for any other
purpose may be held at such time or place, within or without the State of
Delaware, as shall be stated in the notice of the meeting or in a duly executed
waiver of notice thereof.
Section 2.2. Annual Meetings. The annual meetings of stockholders shall be
held on the third Thursday in May of each year at 10 o'clock A.M. of said day;
provided, however, that should said day fall upon a legal holiday, then any such
annual meeting of stockholders shall be held at the same time and place on the
next day thereafter ensuing which is a full business day. At such meetings
directors shall be elected, reports of the affairs of the Corporation shall be
considered, and any other business may be transacted which is within the powers
of the stockholders. If for any annual meeting the Board of Directors shall fix
a different day or hour, such action shall be deemed an amendment of this
Section 2.2 effective until the adjournment of that annual meeting sine die.
Written notice of each annual meeting shall be given to each stockholder
entitled to vote, either personally or by mail or other means of written
communication, charges prepaid, addressed to such stockholder at his address
appearing on the books of the Corporation or given by him to the Corporation for
the purpose of notice. If a stockholder gives no address,
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notice shall be deemed to have been given him if sent by mail or other means of
written communication addressed to the place where the principal office of the
Corporation is situated, or if published at least once in some newspaper of
general circulation in the county in which said office is located. All such
notices shall be sent to each stockholder entitled thereto not less than ten nor
more than sixty days before each annual meeting. Such notices shall specify the
place, the day and the hour of such meeting and shall state such other matters
if any, as may be expressly required by statute.
Section 2.3. Special Meetings. Special meetings of the stockholders, for
any purpose or purposes whatsoever, may be called at any time by the Board of
Directors. Except in special cases where other express provision is made by
statute, notice of such special meetings shall be given in the same manner as
for annual meetings of stockholders. Notices of any special meeting shall
specify, in addition to the place, day and hour of such meeting, the general
nature of the business to be transacted.
Section 2.4. Business To Be Brought Before Meeting. In order to be
properly brought before any meeting of stockholders held pursuant to this
Article II, business (including the election of directors) must be (a) specified
in the notice of meeting (or any supplement thereto) given by or at the
direction of the Board of Directors, (b) otherwise properly brought before the
meeting by or at the direction of the Board of Directors, or (c) otherwise
properly brought before the meeting by a stockholder. In order for any such
business to be properly brought before the meeting by a stockholder, the
stockholder must have given timely notice thereof in writing to the Secretary of
the Corporation. In order to be timely, a stockholder's notice must be received
at the principal executive offices of the Corporation not less than 60 days nor
more than 90 days prior to the meeting; provided, however, that in the event
that a meeting is called for a date other than that specified in the By-laws,
and less than 75 days' prior public disclosure of such date is given, notice by
the stockholder in order to be timely must be received by the Secretary of the
Corporation not later than the close of business on the fifteenth (15th)
calendar day following the day on which such public disclosure of the date of
the meeting was made. If a stockholder intends to nominate a candidate or
candidates for director at any meeting of stockholders, such stockholder's
notice to the Secretary shall set forth the name, age, address and principal
occupation of each such nominee and the amount and type of the Corporation's
stock held by each such nominee, together with any additional information
reasonably necessary to determine the eligibility of each such nominee and any
information required to be disclosed in the solicitation of proxies in respect
of each such nominee by Schedule 14A, as amended from time to time, or other
applicable Rules and Regulations of the Securities and Exchange commission. The
notice to the Secretary shall also set forth the name, address and the amount
and type of beneficial ownership of the Corporation's stock of the stockholder
intending to nominate the candidate or candidates identified in the notice to
the Secretary. Any stockholder desiring to bring any other business before any
annual meeting of stockholders shall set forth in such stockholder's notice to
the Secretary (i) a brief description of the business desired to be brought
before the annual meeting and the reasons for conducting such business at the
meeting, (ii) the name and record address of the stockholder
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proposing such business, (iii) the class and number of shares of the
Corporation's stock that are beneficially owned by such stockholder, and (iv)
any material interest of such stockholder in such business. In order to be
properly brought before any special meeting of stockholders (other than any
special meeting held for the purpose of electing directors), business must be
specified in the notice of meeting (or any supplement thereto) given by or at
the direction of the Board of Directors.
Notwithstanding anything in the By-laws to the contrary, no business
(including the election of directors) shall be conducted at the meeting except
in accordance with the procedures set forth in this Section 2.4; provided,
however, that nothing in this Section 2.4 shall preclude or be deemed or
construed to preclude discussion by any stockholder of any business properly
brought before the annual meeting of stockholders.
The Chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that business was not properly brought before the meeting
in accordance with the provisions of this Section 2.4, and if he should so
determine, he shall so declare to the meeting and any such business not properly
brought before the meeting shall not be transacted.
Section 2.5. List of Stockholders. The officer who has charge of the stock
ledger of the Corporation shall prepare and make, at least ten days before every
meeting of stockholders, a complete list of the stockholders entitled to vote at
the meeting, arranged in alphabetical order, and showing the address of each
stockholder. Such list shall be open to the examination of any stockholder, for
any purpose germane to the meeting, during ordinary business hours, for a period
of at least ten days prior to the meeting, either at a place within the city
where the meeting is to be held, which place shall be specified in the notice of
the meeting, or, if not so specified, at the place where the meeting is to be
held. The list shall also be produced and kept at the time and place of the
meeting during the whole time thereof, and may be inspected by any stockholder
who is present.
Section 2.6. Quorum. The holders of a majority of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute. If, however,
such quorum shall not be present or represented at any meeting of stockholders,
the stockholders entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum shall be present or
represented. At such adjourned meeting at which a quorum shall be present or
represented any business may be transacted which might have been transacted at
the meeting as originally noticed. If the adjournment is for more than thirty
days or if after the adjournment a new record date is fixed for the adjourned
meeting, a notice of the adjourned meeting shall be given to each stockholder of
record entitled to vote at the meeting.
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Section 2.7. Questions Before Meeting. When a quorum is present at any
meeting, the vote of the holders of a majority of the stock having voting power
present in person or represented by proxy and voting, provided that such
majority is at least a majority of the number of shares required to constitute a
quorum at such meeting, shall decide any question brought before such meeting
unless the question is one upon which by express provision of the statutes, of
these By-laws or of the Certificate of Incorporation, a different vote is
required, in which case such express provision shall govern and control the
decision of such question.
Section 2.8. Action Without Meeting. Any action required or permitted to
be taken by holders of stock of the Corporation must be taken at a meeting of
such holders and may not be taken by consent in writing.
Section 2.9. Waiver of Notice. Whenever notice is required to be given
under the Delaware Corporation Law or the Certificate of Incorporation or the
By-laws, a written waiver, signed by the person entitled to notice, whether
before or after the time stated therein, shall be deemed equivalent to notice.
Attendance of a person at a meeting shall constitute a waiver of notice of such
meeting, except when the person attends a meeting for the express purpose of
objecting at the beginning of the meeting to the transaction of any business
because the meeting is not lawfully called or convened. Neither the business to
be transacted at, nor the purpose of, any regular or special meeting of the
stockholders, directors, or members of a committee of directors need be
specified in any written waiver of notice unless so required by the Certificate
of Incorporation.
ARTICLE III
Directors
Section 3.1. Size of Board. The Board of Directors shall consist of ten
members, or as many as shall be determined from time to time by resolution of
the Board, plus such additional number of directors as may from time to time be
elected or appointed in accordance with Section 3.3A hereof.
Section 3.2. Election of Directors. Except as provided in Section 3.3A
hereof, the directors shall be divided into three classes, designated Class I,
Class II, and Class III, such classes to be as nearly equal in number as
possible. Except as provided in Section 3.3A hereof, at each annual meeting of
stockholders, directors shall be chosen for a term of three years to succeed
those whose terms then expire and shall hold office until the third following
annual meeting of stockholders and until the election of their respective
successors. Directors need not be stockholders.
Section 3.3. Vacancies. Except as provided in Section 3.3A hereof,
vacancies and newly created directorships resulting from any increase in the
authorized number of directors may be filled by a majority of the directors then
in office, though less than a quorum, or by a sole remaining director, and the
directors so chosen shall hold office for the unexpired term
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of the vacant directorship, or, in the case of any increase in the number of
directors, as designated by the directors then in office, consistent with the
provisions of Section 3.2. If there are no directors in office, then an election
of directors may be held in the manner provided by statute. Except as provided
in Section 3.3A hereof, if, at the time of filling any vacancy or any newly
created directorship, the directors then in office shall constitute less than a
majority of the whole Board (as constituted immediately prior to any such
increase), the Court of Chancery may, upon application of any stockholder or
stockholders holding at least ten percent of the total number of the shares at
the time outstanding having the right to vote for such directors, summarily
order an election to be held to fill any such vacancies or newly created
directorships, or to replace the directors chosen by the directors then in
office.
No reduction of the authorized number of directors shall have the effect
of removing any director prior to the expiration of his term of office.
Section 3.3A Preferred Stock. Notwithstanding any other provisions of the
By-laws and except as otherwise required by law, whenever the holders of any one
or more series of Preferred Stock or other securities of the Corporation shall
have the right, voting separately as a class, to elect one or more directors of
the Corporation, the term of office, the filling of vacancies and other features
of such directorships shall be governed by the terms of the Certificate of
Incorporation applicable thereto, and unless the terms of the Certificate of
Incorporation expressly provide otherwise, such directorships shall be in
addition to the number of directors provided in these By-laws and such directors
shall not be classified pursuant to Article TENTH of the Certificate of
Incorporation.
Section 3.4. Powers. The business of the Corporation shall be managed by
its Board of Directors which may exercise all such powers of the Corporation and
do all such lawful acts and things as are not by statute or by the Certificate
of Incorporation or by these By-laws directed or required to be exercised or
done by the stockholders.
Section 3.5. Meetings. The Board of Directors of the Corporation may hold
meetings, both regular and special, either within or without the State of
Delaware.
Section 3.6. First Meeting. The first meeting of each newly elected Board
of Directors shall be held immediately following the annual meeting of
stockholders at which such directors are elected and no notice of such meeting
shall be necessary to the newly elected directors in order legally to constitute
the meeting, provided a quorum shall be present; or the meeting may be held at
such time and place as shall be specified in a notice given as hereinafter
provided for special meetings of the Board of Directors, or as shall be
specified in a written waiver signed by all of the directors.
Section 3.7. Regular Meetings. Regular meetings of the Board may be held
without notice at such time and at such place as shall from time to time be
determined by the Board.
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Section 3.8. Special Meetings. Special meetings of the Board may be called
by the Secretary at the request of the Chairman of the Board or President on two
business days' notice to each director, either personally or by mail, by
telegram or by telephone; special meetings shall be called by the Chairman of
the Board or Secretary in like manner and on like notice on the written request
of two directors.
Section 3.9. Quorum. At all meetings of the Board a majority of the total
number of directors shall constitute a quorum for the transaction of business
and the act of a majority of the directors present at any meeting at which there
is a quorum shall be the act of the Board of Directors, except as may be
otherwise specifically provided by statute or by the Certificate of
Incorporation. If a quorum shall not be present at any meeting of the Board of
Directors, the directors present thereat may adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present.
Section 3.10. Conference Telephone. Unless otherwise restricted by the
Certificate of Incorporation or these By-laws, members of the Board of Directors
(or any committee designated by the Board) may participate in a meeting of the
Board or committee by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other.
Section 3.11. Unanimous Consent. Unless otherwise restricted by the
Certificate of Incorporation or these By-laws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all members of the Board or committee, as the
case may be, consent thereto in writing, and the writing or writings are filed
with the minutes of proceedings of the Board or committee.
Section 3.12. Committees. The Board of Directors may designate one or more
committees, each committee to consist of one or more of the directors of the
Corporation. The Board may designate one or more directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of the committee. Any such committee, to the extent provided in the
resolution of the Board of Directors, or in these By-laws, shall have and may
exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the Corporation, and may authorize the
seal of the Corporation to be affixed to all papers which may require it; but no
such committee shall have the power or authority in reference to the following
matters: (i) approving or adopting, or recommending to the stockholders any
action or matter expressly required by the Delaware General Corporation Law to
be submitted to stockholders for approval or (ii) adopting, amending or
repealing any bylaw of the Corporation. In the absence or disqualification of
any member of a committee, the member or members thereof present at any meeting
and not disqualified from voting, whether or not such member or members
constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of any such absent or disqualified
member. The provisions of this Section 3.12 shall be applicable with respect to
all committees, regardless of when any such committee was first established or
when the members thereof were elected or appointed.
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Section 3.13. Minutes. Each committee shall keep regular minutes of its
meetings and report the same to the Board of Directors when required.
Section 3.14. Fees and Compensation. Directors and members of committees
may receive such compensation, if any, for their services, and such
reimbursement for expenses, as may be fixed or determined by resolution of the
Board.
ARTICLE IV
Notices
Section 4.1. Methods of Notice. Whenever, under the provisions of the Laws
of the State of Delaware or of the Certificate of Incorporation or of these
By-laws, notice is required to be given to any director or stockholder, it shall
not be construed to mean personal notice, but notice may be given in writing, by
mail, addressed to such director or stockholder, at his address as it appears on
the records of the Corporation, with postage thereon prepaid, and such notice
shall be deemed to be given at the time when the same shall be deposited in the
United States mail. Notice to directors may also be given by telegram or
telephone.
Section 4.2. Waiver. Whenever any notice is required to be given under the
provisions of the statutes or of the Certificate of Incorporation or of these
By-laws, a waiver thereof in writing, signed by the person or persons entitled
to said notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
ARTICLE V
Officers
Section 5.1. Officers. The officers of the Corporation shall be a Chairman
of the Board, a Secretary and a Treasurer. The Corporation may also have, at the
discretion of the Board of Directors, a President, one or more Vice Presidents,
one or more Assistant Secretaries, one or more Assistant Treasurers, and such
other officers as may be appointed in accordance with the provisions of Section
5.3 and Section 5.5 of this Article. The Board of Directors may also choose, at
its discretion, one or more Vice Chairmen of the Board. One person may hold two
or more offices.
Section 5.2. Election. The officers of the Corporation, except such
officers as may be appointed in accordance with the provisions of Section 5.3 or
Section 5.5 of this Article, shall be chosen annually by the Board of Directors,
and each shall hold his office until he shall resign or shall be removed or
otherwise disqualified to serve, or his successor shall be elected and
qualified.
Section 5.3. Subordinate Officers, etc. The Board of Directors may
appoint, and may empower the Chairman of the Board to appoint, such other
officers as the business of the Corporation may require, each of whom shall hold
office for such period, have such
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authority and perform such duties as are provided in the By-laws or as the Board
of Directors may from time to time determine.
Section 5.4. Removal and Resignation. Any officer may be removed, either
with or without cause, by the Board of Directors, at any regular or special
meeting thereof, or, except in the case of an officer chosen by the Board of
Directors, by any officer upon whom such power of removal may be conferred by
the Board of Directors.
Any officer may resign at any time by giving written notice to the Board
of Directors or to the Chairman of the Board, or to the Secretary of the
Corporation. Any such resignation shall take effect at the date of the receipt
of such notice or at any later time specified therein; and, unless otherwise
specified therein, the acceptance of such resignation shall not be necessary to
make it effective.
Section 5.5. Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification or any other cause shall be filled in the
manner prescribed in the By-laws for regular appointments to such office.
Section 5.6. Salaries. The salaries and other compensation of all officers
of the Corporation shall be fixed by the Board of Directors.
Section 5.7. Chairman of the Board. The Chairman of the Board shall
preside at all meetings of the stockholders and all meetings of the Board of
Directors, and may be the Chief Executive Officer of the Corporation if the
directors so elect. He shall be an ex-officio member of all standing
committees, including the Executive Committee, if any, and shall have such other
powers and duties as may be prescribed by the Board of Directors or the By-laws.
Section 5.7A. Vice Chairman of the Board. In the absence of the Chairman
of the Board, the Vice Chairman of the Board designated by the Board of
Directors shall preside at meetings of the Board of Directors.
Section 5.8. President. The President shall be the Chief Executive Officer
of the Corporation unless the Chairman of the Board has been elected as Chief
Executive Officer, and shall, subject to the control of the Board of Directors
and the supervision of the Chairman of the Board, have general supervision,
direction and control of the Corporation. He shall be an ex-officio member of
all standing committees, including the Executive Committee, if any, shall have
the general powers and duties of management usually vested in the office of the
chief executive officer of a corporation, and shall have such other powers and
perform such other duties as from time to time may be prescribed for him by the
Board of Directors or the By-laws.
Section 5.9. Vice President. In the absence or disability of the Chairman
of the Board and the President, the Vice Presidents in order of their rank as
fixed by the Board of
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Directors or, if not ranked, the Vice President designated by the Board of
Directors, shall perform all the duties of the Chairman of the Board and the
President, and when so acting shall have all the powers of, and be subject to
all the restrictions upon, the Chairman of the Board and the President. The Vice
Presidents shall have such other powers and perform such other duties as from
time to time may be prescribed for them respectively by the Board of Directors
or the By-laws.
Section 5.10. Secretary. The Secretary shall keep or cause to be kept, at
the principal office or such other place as the Board of Directors may order, a
book of minutes of all meetings of directors and stockholders, with the time and
place of holding, whether regular or special, and, if special, how authorized,
the notice thereof given, the names of those present at directors' meetings,
the number of shares present or represented at stockholders' meetings, and the
proceedings thereof. The Secretary shall keep, or cause to be kept, at the
principal office or at the office of the Corporation's transfer agent, a share
register, or a duplicate share register, showing the names of the stockholders
and their addresses, the number and class of shares held by each, the number and
date of certificates issued for the same, and the number and date of
cancellation of every certificate surrendered for cancellation.
The Secretary shall give, or cause to be given, notice of all the meetings
of the stockholders and of the Board of Directors required by the By-laws or by
law to be given, and he shall keep the seal of the Corporation in safe custody,
and shall have such other powers and perform such other duties as may be
prescribed by the Board of Directors or by the By-laws.
Section 5.11. Treasurer. The Treasurer shall keep and maintain, or cause
to be kept and maintained, adequate and correct accounts of the properties and
business transactions of the Corporation, including accounts of its assets,
liabilities, receipts, disbursements, gains, losses, capital, surplus and
shares. Any surplus, including earned surplus, paid-in surplus and surplus
arising from a reduction of stated capital, shall be classified according to
source and shown in a separate account. The books of account shall at all
reasonable times be open to inspection by any director.
The Treasurer shall deposit all moneys and other valuables in the name and
to the credit of the Corporation with such depositories as may be designated by
the Board of Directors. He shall disburse the funds of the Corporation as may be
ordered by the Board of Directors, shall render to the Chairman of the Board and
directors, whenever they request it, an account of all of his transactions as
Treasurer and of the financial condition of the Corporation, and shall have such
other powers and perform such other duties as may be prescribed by the Board of
Directors or the By-laws.
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ARTICLE VI
Stock and Stock Certificates
Section 6.1. Right to Certificate. Every holder of stock in the
Corporation shall be entitled to have a certificate, signed by or in the name of
the Corporation, by the Chairman of the Board of Directors or the President or a
Vice President, and by the Treasurer or an Assistant Treasurer, or the Secretary
or an Assistant Secretary of the Corporation, certifying the number of shares
owned by him in the Corporation.
Section 6.2. Statements Setting Forth Rights. If the Corporation shall be
authorized to issue more than one class of stock or more than one series of any
class, the designations, preferences and relative, participating, optional or
other special rights of each class of stock or series thereof and the
qualifications, limitations or restrictions of such preferences and rights shall
be set forth in full or summarized on the face or back of the certificate which
the Corporation shall issue to represent such class or series of stock, provided
that, except as otherwise provided in Section 202 of the Corporation Law of
Delaware, in lieu of the foregoing requirements, there may be set forth on the
face or back of the certificate which the Corporation shall issue to represent
such class or series of stock, a statement that the Corporation will furnish
without charge to each stockholder who so requests the designations, preferences
and relative, participating, optional or other special rights of each class of
stock or series thereof and the qualifications, limitations and restrictions of
such preferences and rights.
Section 6.3 Facsimile Signatures. Any of or all the signatures on the
certificate may be a facsimile. In case any officer, transfer agent, or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent, or registrar
before such certificate is issued, it may be issued by the Corporation with the
same effect as if he were such officer, transfer agent, or registrar at the date
of issue.
Section 6.4. Lost Certificates. Except as hereinafter in this section
provided, no new certificate for shares shall be issued in lieu of an old one
unless the latter is surrendered and cancelled at the same time. The Board of
Directors may, however, in case any certificate for shares is lost, stolen,
mutilated or destroyed, authorize the issuance of a new certificate in lieu
thereof, upon such terms and conditions, including reasonable indemnification of
the Corporation, as the Board shall determine.
Section 6.5 Transfers of Stock.
(a) Subject to paragraphs (b), (c) and (d) of this Section 6.5, upon
surrender to any transfer agent of the Corporation of a certificate for shares
of the Corporation duly endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer, it shall be the duty of the
Corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate and record the transaction upon its books.
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(b) Beginning at the time that (A) the merger of Santa Anita Consolidated,
Inc. ("Santa Anita") into Santa Anita Realty Enterprises, Inc., a Delaware
corporation [now known as Meditrust Corporation] ("Realty"), and (B) the payment
by Realty of the dividend in kind of the shares of the Corporation (the
"Distribution") shall have both occurred (hereinafter called the "effective time
of the restriction"), and continuing thereafter until such time as the
limitation on transfer provided for in the Pairing Agreement between Realty and
the Corporation shall be terminated in the manner therein provided:
(i) The shares of common stock of the Corporation shall not be
transferable, and shall not be transferred on the books of the Corporation,
unless (1) a simultaneous transfer is made by the same transferor to the same
transferee, or (2) such transferor has previously arranged with Realty for the
transfer to the transferee, of a like number of shares of common stock of Realty
and such shares are paired with one another.
(ii) Except for certificates representing shares of common stock of
Realty referred to in subparagraph (vi) below, each certificate evidencing
ownership of shares of common stock of Realty (including certificates issued by
Santa Anita) issued and not cancelled prior to the effective time of the
restriction shall be deemed to evidence a like number of shares of common stock
of the Corporation.
(iii) Except for certificates representing common stock of Realty
referred to in subparagraph (vi) below, any registered holder of a certificate
evidencing ownership of shares of common stock of Realty (including certificates
issued by Santa Anita) issued prior to the effective time of the restriction
may, upon request and presentation of said certificate to the Corporation's
transfer agent, obtain in substitution therefor a certificate or certificates
registered in such holder's name evidencing the same number of common shares of
the Corporation and a like number of shares of common stock of Realty.
(iv) A conspicuous legend shall be placed on the face of each
certificate evidencing ownership of shares of common stock of the Corporation
issued after the effective time of the restrictions, referring to the
restrictions on transfer set forth in the Corporation's By-laws.
(v) For purposes of this paragraph (b) only, the terms "common stock"
and "common shares" shall include preferred stock which is convertible into
shares of common stock.
(vi) Notwithstanding the other provisions of this paragraph (b), any
stockholder whose ownership of the common stock of the Corporation at the
effective time of the restriction would be deemed, after application of the
attribution rules of the Internal Revenue Code of 1954 (the "Code"), to result
in Realty owning, directly or indirectly, more than 9.25% of the common stock of
the Corporation will not be subject to the restrictions imposed by this
paragraph (b) to the extent that such ownership would cause Realty, directly or
indirectly, to be deemed to own, after application of the attribution rules of
the Code,
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more than 9.25% of the total number of the outstanding shares of the
Corporation, provided that (1) a sufficient amount of the common stock of the
Corporation (or the right to receive such common stock) which would otherwise be
paired with stock of Realty is sold to third parties so that Realty, directly or
indirectly, after application of the attribution rules of the Code, will not own
in excess of 9.25% of the common stock of the Corporation, (2) all holders of
the unpaired shares enter into an agreement, satisfactory to the Boards of
Directors of Realty, the Corporation and Santa Anita, providing that such shares
not be transferable by sale or any other means, without arranging for such
shares to be paired with an equal number of shares of Realty, unless such sale
is made to the Corporation or Realty and (3) such stockholder and any transferee
of such stockholder executes a waiver of any claims he or she may have arising
out of the close business relationship between the Corporation and Realty and
claims arising out of conflicts of interest inherent in such business
relationship. The other provisions of this paragraph (b) shall apply to all
shares of the Corporation otherwise held by any stockholder unless they are
specifically exempted by this subparagraph (vi).
(c) If the Board of Directors shall at any time and in good faith be of
the opinion that direct or indirect ownership of shares of either common stock
or preferred stock, or both, of the Corporation has or may become concentrated
to an extent which would cause Realty to fail to qualify or be disqualified as a
real estate investment trust by virtue of Section 856(a)(5) and (6) of the Code,
or similar provisions of successor statutes, pertaining to the qualification of
Realty as a real estate investment trust, the Board of Directors shall have the
power (i) by lot or other means deemed equitable by them to call for purchase
from any stockholder of the Corporation such number of shares sufficient in the
opinion of the Board of Directors to maintain or bring the direct or indirect
ownership of shares of stock of the Corporation into conformity with the
requirements of said Section 856(a)(5) and (6) pertaining to Realty and (ii) to
refuse to register the transfer of shares of stock to any person whose
acquisition of such shares would, in the opinion of the Board of Directors,
result in Realty being unable to conform to the requirements of said Section 856
(a) (5) and (6). The purchase price for the shares of stock purchased pursuant
hereto shall be equal to the fair market value of such shares as reflected in
the closing price for such shares on the principal stock exchange on which such
shares are listed or, if such shares are not listed, then the last bid quotation
for shares of stock as of the close of business on the date fixed by the Board
of Directors for such purchase or, if no quotation for the shares is available,
as determined in good faith by the Board of Directors. From and after the date
fixed for purchase by the Board of Directors, the holder of any shares so called
for purchase shall cease to be entitled to dividends, voting rights and other
benefits with respect to such shares excepting only the right to payment of the
purchase price fixed as aforesaid. In order to further assure that ownership of
the shares of stock does not become so concentrated, any transfer of shares that
would prevent Realty from continuing to be qualified as a real estate investment
trust by virtue of the application of Section 856 (a)(5) and (6) of the Code
shall be void ab initio and the intended transferee of such shares shall be
deemed never to have had an interest therein. If the foregoing provision is
determined to be void or invalid by virtue of any legal decision, statute, rule
or regulation, then the transferee of such shares shall be deemed to have acted
as
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agent on behalf of the Corporation in acquiring such shares and to hold such
shares on behalf of the Corporation. For purposes of determining whether the
Corporation is in compliance with Section 856(a)(5) and (6), Section 542(a)(2)
and Section 544 of the Code, or similar provisions of successor statutes, shall
be applied.
(d) In addition to the requirements of subparagraph (c) above, if the
Board of Directors shall at any time and in good faith be of the opinion that.
direct or indirect ownership of shares of either common stock or preferred
stock, or both, of the Corporation has or may become concentrated to an extent
which would cause any rent to be paid to Realty to fail to qualify or be
disqualified as rent from real property by virtue of Section 856(d)(2)(B) of the
Code, or similar provisions of successor statutes, pertaining to the
qualification of Realty as a real estate investment trust, the Board of
Directors shall have the power (i) by lot or other means deemed equitable by
them to call for purchase from any stockholder of the Corporation such number of
shares sufficient in the opinion of the Board of Directors to maintain or bring
the direct or indirect ownership of shares of stock of the Corporation into
conformity with the requirements of Section 856(d)(2)(B) pertaining to Realty
and (ii) to refuse to register the transfer of shares of stock to any person
whose acquisition of such shares would, in the opinion of the Board of
Directors, result in Realty being unable to conform to the requirements of said
Section 856(d)(2)(B). The purchase price for the shares of stock purchased
pursuant hereto shall be equal to the fair market value of such shares as
reflected in the closing price for such shares on the principal stock exchange
on which such shares are listed, or if such shares are not listed, then the last
bid quotation for shares of stock, as of the close of business on the date fixed
by the Board of Directors for such purchase or, if no quotation for the shares
is available, as determined in good faith by the Board of Directors. From and
after the date fixed for purchase by the Board of Directors, the holders of any
shares so called for purchase shall cease to be entitled to dividends, voting
rights and other benefits with respect to such shares, excepting only the right
to payment of the purchase price fixed as aforesaid. In order to further assure
that ownership of the shares of stock does not become so concentrated, any
transfer of shares that would prevent Realty from continuing to be qualified as
a real estate investment trust by virtue of the application of Section
856(d)(2)(B) of the Code shall be void ab initio and the intended transferee of
such shares shall be deemed never to have had an interest therein. If the
foregoing provision is determined to be void or invalid by virtue of any legal
decision, statute, rule or regulation, then the transferee of such shares shall
be deemed to have acted as agent on behalf of the Corporation in acquiring such
shares and to hold such shares on behalf of the Corporation. For purposes of
determining whether this Corporation is in compliance with Section 856(d)(2)(B),
Section 856(d)(5) of the Code, or similar provisions of successor statutes,
shall be applied.
(e) The stockholders of the Corporation shall upon demand disclose to the
Board of Directors in writing such information with respect to their direct and
indirect ownership of the stock of the Corporation as the Board of Directors
deems necessary to determine whether Realty satisfies the provisions of Section
856(a)(5) and (6) and 856(d) of the Code and the
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<PAGE>
regulations thereunder as the same shall be from time to time amended, or to
comply with the requirements of any other taxing authority.
Section 6.6. Form of Consideration. In purchasing such shares from any
shareholder in accordance with the foregoing provisions, the Corporation shall
pay consideration in the form of cash or, at the option of the Board of
Directors, in the form of subordinated indebtedness of the Corporation and, if
such shares are preferred stock, the Corporation shall also pay an amount equal
to accrued and, if dividends on such preferred stock are cumulative, accumulated
dividends thereon.
Section 6.7. Record Date. In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereto, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a record date,
which shall not be more than sixty nor less than ten days before the date of
such meeting, nor more than sixty days prior to any other action. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting.
Section 6.8. Registered Stockholders. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and shall not be
bound to recognize any equitable or other claim to or interest in such share or
shares on the part of any other person, whether or not it shall have express or
other notice thereof, except as otherwise provided by the laws of Delaware.
Section 6.9. Transfer Agents and Registrars. The Board of Directors may
appoint one or more corporate transfer agents and registrars.
Section 6.10. Dividends. Dividends upon the capital stock of the
Corporation may be declared by the Board of Directors at any regular or special
meeting, pursuant to law. Dividends may be paid in cash, in property, or in
shares of the capital stock.
Section 6.11. Reserves. Before payment of any dividend, there may be set
aside out of any funds of the Corporation available for dividends such sum or
sums as the directors from time to time, in their absolute discretion, think
proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the Corporation, or
for such other purpose as the directors shall think conducive to the interest of
the Corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
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ARTICLE VII
Indemnification and Insurance
Section 7.1. Right to Indemnification. Each person who was or is a party
or is threatened to be made a party to or is involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she, or a person
of whom he or she is the legal representative, is or was a director or officer
of the Corporation or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to
employee benefit plans, whether the basis of such proceeding is alleged action
or inaction in an official capacity or in any other capacity while serving as a
director, officer, employee or agent, shall be indemnified and held harmless by
the Corporation to the fullest extent permitted by the laws of Delaware, as the
same exist or may hereafter be amended, against all costs, charges, expenses,
liabilities and losses (including attorneys' fees, judgments, fines, ERISA
excise taxes or penalties and amounts paid or to be paid in settlement)
reasonably incurred or suffered by such person in connection therewith, and such
indemnification shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of his or her heirs,
executors and administrators; provided, however, that, except as provided in
Section 7.2 hereof, the Corporation shall indemnify any such person seeking
indemnification in connection with a proceeding (or part thereof) initiated by
such person only if such proceeding (or part thereof) was authorized by the
Board of Directors of the Corporation. The right to indemnification conferred in
this Article shall be a contract right and shall include the right to be paid by
the Corporation the expenses incurred in defending any such proceeding in
advance of its final disposition; provided, however, that, if the Delaware
General Corporation Law requires, the payment of such expenses incurred by a
director or officer (and not in any other capacity in which service was or is
rendered by such person while a director or officer, including, without
limitation, service to an employee benefit plan) in advance of the final
disposition of a proceeding, shall be made only upon delivery to the Corporation
of an undertaking, by or on behalf of such director or officer, to repay all
amounts so advanced if it shall ultimately be determined that such director or
officer is not entitled to be indemnified under this Section or otherwise. The
Corporation may, by action of its Board of Directors, provide indemnification to
employees and agents of the Corporation with the same scope and effect as the
foregoing indemnification of directors and officers.
Section 7.2. Right of Claimant to Bring Suit. If a claim under Section 7.1
of this Article is not paid in full by the Corporation within thirty days after
a written claim has been received by the Corporation, the claimant may at any
time thereafter bring suit against the Corporation to recover the unpaid amount
of the claim and, if successful in whole or in part, the claimant shall be
entitled to be paid also the expense of prosecuting such claim. It shall be a
defense to any such action (other than an action brought to enforce a claim for
expenses incurred in defending any proceeding in advance of its final
disposition where the required undertaking, if any is required, has been
tendered to the Corporation) that the claimant has
15
<PAGE>
failed to meet a standard of conduct which makes it permissible under Delaware
law for the Corporation to indemnify the claimant for the amount claimed.
Neither the failure of the Corporation (including its Board of Directors,
independent legal counsel, or its stockholders) to have made a determination
prior to the commencement of such action that indemnification of the claimant is
permissible in the circumstances because he or she has met such standard of
conduct, nor an actual determination by the Corporation (including its Board of
Directors independent legal counsel, or its stockholders) that the claimant has
not met such standard of conduct, shall be a defense to the action or create a
presumption that the claimant has failed to meet such standard of conduct.
Section 7.3. Non-Exclusivity of Rights. The right to indemnification and
the payment of expenses incurred in defending a proceeding in advance of its
final disposition conferred in this Article shall not be exclusive of any other
right which any person may have or hereafter acquire under any statute,
provision of the Certificate of Incorporation, by-law, agreement, vote of
stockholders or disinterested directors or otherwise.
Section 7.4. Insurance. The Corporation may maintain insurance, at its
expense, to protect itself and any director, officer, employee or agent of the
Corporation or another corporation, partnership, joint venture, trust or other
enterprise against any such expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under Delaware law.
Section 7.5. Expenses as a Witness. To the extent that any director,
officer, employee or agent of the Corporation is by reason of such position, or
a position with another entity at the request of the Corporation, a witness in
any action, suit or proceeding, he or she shall be indemnified against all costs
and expenses actually and reasonably incurred by him or her or on his or her
behalf in connection therewith.
Section 7.6. Indemnity Agreements. The Corporation may enter into
agreements with any director, officer, employee or agent of the Corporation
providing for indemnification to the full extent permitted by Delaware law.
ARTICLE VIII
General Provisions
Section 8.1. Annual Reports. Not later than one hundred twenty (120) days
after the close of each fiscal year of the Corporation, the Board of Directors
shall mail a report of the business and operation of the Corporation during such
fiscal year to the stockholders. The report shall be in such form and have such
content as the Board deems proper. This report shall include a balance sheet and
a statement of income and surplus and a statement of changes in financial
position of the Corporation. Such financial statements shall be accompanied by
the report of an independent certified public accountant thereon.
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Section 8.2. Quarterly Reports. Within 90 days after the close of each of
the first three quarters of each fiscal year of the Corporation, the Board of
Directors shall send interim reports to the stockholders, having such form and
content as the Board of Directors deems proper.
Section 8.3. Fiscal Year. The fiscal year of the Corporation shall be
fixed by resolution of the Board of Directors.
Section 8.4. Seal. The corporate seal shall have inscribed thereon the
name of the Corporation, the year of its organization and the words "Corporate
Seal, Delaware". The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
Section 8.5. Checks, Drafts, etc. All checks, drafts or other orders for
payment of money, notes or other evidences of indebtedness, issued in the name
of or payable to the Corporation, shall be signed or endorsed by such person or
persons and in such manner as, from time to time, shall be determined by
resolution of the Board of Directors.
Section 8.6. Representation of Shares of other Corporations. The Chairman
of the Board, the President or any Vice President and the Secretary or Assistant
Secretary of this Corporation are authorized to vote, represent and exercise on
behalf of this Corporation all rights incident to any and all shares of any
other corporation or corporations standing in the name of this Corporation. The
authority herein granted to said officers to vote or represent on behalf of this
Corporation any and all shares held by this Corporation in any other corporation
or corporations may be exercised either by such officers in person or by any
other person authorized so to do by proxy or power of attorney duly executed by
said officers.
Section 8.7. Employee Stock Purchase Plans. The Corporation may, upon
terms and conditions herein authorized, provide and carry out an employee stock
purchase plan or plans providing for the issue and sale, or for the granting of
options for the purchase, of its unissued shares, or of issued shares purchased
or to be purchased or acquired, to employees of the Corporation or of any
subsidiary or to a trustee on their behalf. Such plan may provide for such
consideration as may be fixed therein, for the payment of such shares in
installments or at one time and for aiding any such employees in paying for such
shares by compensation for services or by loans from the Corporation or
otherwise. Any such plan before becoming effective must be approved or
authorized by the Board of Directors of the Corporation.
Such plan may include, among other things, provisions determining or
providing for the determination by the Board of Directors, or any committee
thereof designated by the Board of Directors, of: (a) eligibility of employees
(including officers and directors) to participate therein, (b) the number and
class of shares which may be subscribed for or for which, options may be granted
under the plan, (c) the time and method of payment therefor,
17
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(d) the price or prices at which such shares shall be issued or sold, (e)
whether or not title to the shares shall be reserved to the Corporation until
full payment therefor, (f) the effect of the death of an employee participating
in the plan or termination of his employment, including whether there shall be
any option or obligation on the part of the Corporation to repurchase the shares
thereupon, (g) restrictions, if any, upon the transfer of the shares, and the
time limits and termination of the plan, (h) termination, continuation or
adjustments of the rights of participating employees upon the happening of
specified contingencies, including increase or decrease in the number of issued
shares of the class covered by the plan without receipt of consideration by the
Corporation or any exchange of shares of such class for stock or securities of
another corporation pursuant to a reorganization or merger, consolidation or
dissolution of the Corporation, (i) amendment, termination, interpretation and
administration of such plan by the Board of Directors or any committee thereof
designated by the Board of Directors, and (j) any other matters, not repugnant
to law, as may be included in the plan as approved or authorized by the Board of
Directors or any such committee.
Section 8.8. Certificate of Incorporation. As used herein, the term
"Certificate of Incorporation" shall include, without limitation, any
certificate of designations establishing the terms of any series of preferred
stock or series common stock of the Corporation.
ARTICLE IX
Amendments
Section 9.1. Power of Stockholders. New By-laws may be adopted or these
By-laws may be amended or repealed by the stockholders only by the affirmative
vote of at least 80% of the voting power of the Corporation, except as otherwise
provided by law. Any proposal to amend or repeal, or adopt any provisions
inconsistent with, Article Tenth of the Certificate of Incorporation shall
require for approval the affirmative vote of at least 80% of the voting power of
the Corporation.
Section 9.2. Power of Directors. Subject to the right of stockholders as
provided in Section 9.1 of this Article IX to adopt, amend or repeal By-laws,
By-laws may be adopted, amended or repealed by the Board of Directors; provided,
however, that Section 6.5 of these By-laws may not be amended or repealed except
with the approval of the holders of 80% of the outstanding common stock of the
Corporation.
18
Exhibit 4.3
SECOND AMENDMENT TO PAIRING AGREEMENT
This Second Amendment ("Second Amendment") to the Pairing Agreement
dated as of December 20, 1979, as amended by the First Amendment to Pairing
Agreement dated as of November 6, 1997 by and between Meditrust Corporation
("REIT") and Meditrust Operating Company ("OPCO") (the "Pairing Agreement"), is
made as of February 6, 1998 by and between REIT and OPCO.
WHEREAS, REIT amended its Certificate of Incorporation on November 5,
1997 to authorize 30 million shares of undesignated Series Common Stock, par
value $.10 per share (the "REIT Series Common Stock");
WHEREAS, OPCO amended its Certificate of Incorporation on November 5,
1997 to authorize 30 million shares of undesignated Series Common Stock, par
value $.10 per share (the "OPCO Series Common Stock");
WHEREAS, the Board of Directors of each of REIT and OPCO has created,
classified and authorized a series of REIT Series Common Stock and OPCO Series
Common Stock, respectively, known as Series A Non-Voting Convertible Common
Stock ("REIT Series A Non-Voting Convertible Common Stock" and "OPCO Series A
Non-Voting Convertible Common Stock," respectively);
WHEREAS, the parties hereto desire to amend the Pairing Agreement to
provide that shares of REIT Series A Non-Voting Convertible Common Stock and
shares of OPCO Series A Non-Voting Convertible Common Stock, when issued, will
be paired in the same manner as, and be subject to the same conditions,
limitations, restrictions and requirements as the Realty Common Stock (as
defined in the Pairing Agreement) and Operating Company Common Shares (as
defined in the Pairing Agreement).
NOW, THEREFORE, in consideration of the mutual agreements contained in
the Pairing Agreement and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. Section 9 of the Pairing Agreement is hereby deleted in its entirety
and shall be replaced with the following:
"9. Preferred Stock and Series Common Stock. The terms "Realty Common
Stock" and "Operating Company Common Shares," as used in this Pairing Agreement,
shall include, respectively, any Preferred Stock or Series A Non-Voting
Convertible Common Stock of Realty or Operating Company which is convertible
into shares of common stock, to the end that such Preferred Stock or Series A
Non-Voting Convertible Common Stock, as the case may be, shall be paired in the
same manner as, and be subject to the same conditions, limitations, restrictions
and requirements as the Realty Common Stock and Operating Company Common Shares
under this Pairing Agreement.
<PAGE>
2. As amended by this Second Amendment, the Pairing Agreement is
ratified, confirmed and approved in all respects.
IN WITNESS WHEREOF, the parties have executed this Second Amendment as
of the day and year first above written.
MEDITRUST CORPORATION
By: /s/ Michael S. Benjamin
---------------------------------
Name: Michael S. Benjamin
Title: Senior Vice President
MEDITRUST OPERATING COMPANY
By: /s/ Michael J. Bohnen
---------------------------------
Name: Michael J. Bohnen
Title: Secretary
Exhibit 4.28
EXECUTION COPY
PURCHASE AGREEMENT
------------------
THIS PURCHASE AGREEMENT is made as of the 26th day of February, 1998, by
and among Meditrust Corporation (the "REIT"), a Delaware corporation, Meditrust
Operating Company, a Delaware Corporation (the "OPCO") (the REIT and the OPCO,
each a "Company" and together the "Companies"), Merrill Lynch International
("MLI"), and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as agent acting
for the account of MLI ("Merrill Lynch" and, collectively with MLI, the "Merrill
Lynch Parties").
IN CONSIDERATION of the mutual covenants contained in this Purchase
Agreement, the Companies and the Merrill Lynch Parties hereby agree as follows:
SECTION 1. Authorization of Sale of the Shares. Subject to the terms and
conditions of this Purchase Agreement, the REIT has authorized the sale to MLI
of 8,500,000 shares of Class A Non-Voting Convertible Common Stock, $.10 par
value per share, of the REIT (the "REIT Shares") and the OPCO has authorized the
sale to MLI of 8,500,000 shares of Class A Non-Voting Convertible Common Stock,
$.10 par value per share, of the OPCO (the "OPCO Shares"), which REIT Shares and
OPCO Shares are paired as a unit consisting of one (1) REIT Share and one (1)
OPCO Share (hereinafter each such paired unit is referred to as a "Paired Share"
and the Paired Shares referred to in this sentence are herein called the
"Purchase Shares")). The REIT Shares will be converted on the earlier of (i) the
next Business Day (as defined below) following the date on which the
shareholders of the Companies shall have approved the merger transaction among
La Quinta Inns, Inc. and the Companies and (ii) the date of any termination of
the related merger agreement (the "Conversion Date") into shares of common
stock, par value $0.10 per share, of the REIT ("Voting REIT Shares"), and the
OPCO Shares will be converted on the Conversion Date into shares of common
stock, par value $0.10 per share, of the OPCO ("Voting OPCO Shares"). Voting
REIT Shares and Voting OPCO Shares will be paired and traded as a unit
consisting of one (1) Voting REIT Share and one (1) Voting OPCO Share
(hereinafter each such paired unit is referred to as a "Voting Paired Share").
In addition, the REIT and the OPCO may issue to MLI additional Voting Paired
Shares in settlement of certain of their obligations under that certain Purchase
Price Adjustment Mechanism Agreement (the "Adjustment Agreement"), dated as of
February 26, 1998, between the REIT, the OPCO and MLI (the "Additional Shares").
The Companies and the Merrill Lynch Parties agree, to the extent relevant to
their respective business and commercial activities and in the absence of an
administrative determination or judicial ruling to the contrary, to treat for
United States federal income tax and financial accounting purposes payments and
deliveries made under the Adjustment Agreement as adjustments to the purchase
price paid for the Purchase Shares pursuant to Section 2 hereof. The Voting
Paired Shares and the Additional Shares are hereinafter collectively called the
"Shares". After the Conversion Date, references to "Paired Shares" in this
Agreement shall mean Voting Paired Shares that have been issued upon the
conversion of Paired Shares.
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SECTION 2. Agreement to Sell and Purchase the Purchase Shares. Subject to
the terms and conditions of this Purchase Agreement, on the Closing Date (as
defined in Section 3 hereof), the Companies will sell to MLI the Purchase Shares
for a per Paired Share purchase price equal to 98.00% of the Closing Price. The
"Closing Price" shall equal the closing price reported on the New York Stock
Exchange for a Voting Paired Share on February 19, 1998.
SECTION 3. Delivery of the Purchase Shares at the Closing.
3.1. Closing. The completion of the purchase and sale of the Purchase
Shares (the "Closing") shall occur as soon as practicable on or after the date
hereof on a business day to be agreed upon by the Companies and the Merrill
Lynch Parties, but in no event later than five business days after the execution
of this Purchase Agreement (hereinafter, the "Closing Date").
3.2. Conditions. At Closing, the Companies shall deliver to the Merrill
Lynch Parties one or more stock certificates registered in the name of MLI
representing the number of Purchase Shares set forth in Section 1 above.
The obligation of the Companies to complete the purchase and sale of the
Purchase Shares and deliver such stock certificate(s) to the Merrill Lynch
Parties at the Closing shall be subject to the following conditions, any one or
more of which may be waived by both of the Companies acting together: (i)
receipt by the Companies of Federal Funds (or other mutually agreed upon form of
payment) in the full amount of the purchase price for the Purchase Shares being
purchased hereunder, (ii) the accuracy in all material respects as of the
Closing Date, of the representations and warranties made by the Merrill Lynch
Parties herein and the fulfillment, in all material respects, of those
undertakings of the Merrill Lynch Parties to be fulfilled prior to the Closing,
(iii) execution and delivery of the Adjustment Agreement, (iv) receipt by the
Companies of a cross-receipt with respect to the Purchase Shares executed by
Merrill Lynch on behalf of MLI and (v) receipt by the Companies of a certificate
by an officer or authorized representative of Merrill Lynch to the effect that
the representations and warranties of the Merrill Lynch Parties set forth in
Section 5 hereof are true and correct as of the date of this Agreement and as of
the Closing Date.
The obligation of MLI to accept delivery of such stock certificate(s) and
to pay for the Purchase Shares evidenced thereby shall be subject to the
following conditions, any one or more of which may be waived by the Merrill
Lynch Parties: (i) the accuracy in all material respects, as of the Closing
Date, of the representations and warranties made by the Companies herein and the
fulfillment, in all material respects, of those undertakings of the Companies to
be fulfilled prior to the Closing, (ii) receipt by the Merrill Lynch Parties of
all opinions, letters and certificates to be delivered by the Companies pursuant
to this Purchase Agreement, (iii) execution and delivery of the Adjustment
Agreement, and (iv) receipt by the Merrill Lynch Parties of a cross-receipt with
respect to the purchase price for the Purchase Shares executed by the Companies.
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SECTION 4. Representations, Warranties and Covenants of the Companies.
Except as disclosed in the reports, schedules, forms, statements and other
documents which have been filed with the Commission (as defined below) on or
before November 5, 1997 by Meditrust Corporation on prior to its merger with and
into Santa Anita Enterprises, Inc. pursuant to the Exchange Act (as defined
below) or in the Companies' SEC Filings (as defined below), the REIT and the
OPCO, jointly and severally, hereby represent and warrant to the Merrill Lynch
Parties, and covenant with the Merrill Lynch Parties, as follows:
4.1. Organization and Qualification of the Companies. The REIT has been
duly organized and is validly existing as a corporation in good standing under
the laws of Delaware with power and authority to own and lease its properties
and to conduct its business as currently conducted. The REIT is duly qualified
as a corporation to transact business and is in good standing in each
jurisdiction in which such qualification is required, whether by reason of the
ownership or leasing or managing of property or the conduct of business, except
where the failure to so qualify would not have a material adverse effect on the
condition, financial or otherwise, or the earnings, assets, business affairs or
business prospects of the Companies and the Subsidiaries (as defined below) of
the Companies considered as one enterprise. The OPCO has been duly organized and
is validly existing as a corporation in good standing under the laws of Delaware
with corporate power and authority to own and lease its properties and to
conduct its business as currently conducted. The OPCO is duly qualified as a
foreign corporation to transact business and is in good standing in each
jurisdiction in which such qualification is required, whether by reason of the
ownership or leasing or managing of property or the conduct of business, except
where the failure to so qualify would not have a material adverse effect on the
condition, financial or otherwise, or the earnings, assets, business affairs or
business prospects of the Companies and the Subsidiaries considered as one
enterprise. Entities in which the Companies directly or indirectly have at least
a 50% ownership interest are herein referred to as the "Subsidiaries," and each
individually, as a "Subsidiary."
4.2. Organization and Qualification of Subsidiaries. Each of the
Subsidiaries has been duly organized and is validly existing as a corporation,
limited partnership, or limited liability company, as the case may be, in good
standing under the laws of its respective jurisdiction of organization, with
full power and authority to own, lease and operate its properties and to conduct
the business in which it currently is engaged. Each of the Subsidiaries is duly
qualified as a foreign corporation, limited partnership, or limited liability
company, as the case may be, to transact business and is in good standing in
each jurisdiction in which such qualification is required, whether by reason of
the ownership or leasing of property or the conduct of business, except where
the failure to so qualify would not have a material adverse effect on the
condition, financial or otherwise, or the earnings, assets, business affairs or
business prospects of the Companies and the Subsidiaries considered as one
enterprise. All of the issued and outstanding shares of capital stock of each of
the corporate Subsidiaries have been duly authorized and validly issued and are
fully paid and non-assessable. The ownership by the Companies or the
Subsidiaries of the shares of capital stock
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or limited partnership or equity interests, as the case may be, of each of the
Subsidiaries is as described in the Companies' SEC Filings.
4.3. Authorized Capital Stock. The REIT has 306,000,000 authorized shares
consisting of 270,000,000 REIT shares par value $0.10 per share, 6,000,000
shares of preferred stock, par value $0.10 per share, and 30,000,000 shares of
series common stock, par value $0.10 per share. The OPCO has 306,000,000
authorized shares, consisting of 270,000,000 OPCO shares, par value $0.10 per
share, 6,000,000 shares of preferred stock, par value $0.10 per share, and
30,000,000 shares of series common stock, par value $0.10 per share. As of
December 31, 1997, there were 88,127,925 Paired Shares outstanding, 4,331,396
REIT shares and 4,086,256 OPCO shares were reserved for issuance pursuant to
equity plans filed pursuant to the Companies' SEC Filings (as defined below).
The issued and outstanding Paired Shares of the Companies have been duly
authorized and validly issued, are fully paid and nonassessable, have been
issued in compliance with all federal and state securities laws, were not issued
in violation of or subject to any preemptive rights or other rights to subscribe
for or purchase securities, and conform to the description thereof in the
Companies' SEC Filings. Other than as described in the Companies' SEC Filings,
the REIT does not have outstanding any options to purchase, or other rights to
subscribe for or purchase, any securities or obligations convertible into, or
any contracts or commitments to issue or sell, shares of its capital stock or
any such options, rights, convertible securities or obligations. The description
of the REIT's stock, stock bonus and other stock plans or arrangements and the
options or other rights granted and exercised thereunder in the Companies' SEC
Filings accurately and fairly presents the information required to be shown with
respect to such plans, arrangements, options and rights.
4.4. Issuance, Sale and Delivery of the Shares. The Purchase Shares to be
sold by the Companies have been duly authorized for issuance and, when issued,
delivered and paid for in the manner set forth in this Purchase Agreement, will
be validly issued, fully paid and non-assessable. The Additional Shares have
been duly authorized and, if and when issued pursuant to the Adjustment
Agreement, will be validly issued, fully paid and non-assessable, Upon payment
of the purchase price and delivery of the Shares in accordance with this
Agreement, MLI will receive good, valid and marketable title to the Shares, free
and clear of all security interests, mortgages, pledges, liens, encumbrances and
claims. No approval of or authorization by the respective shareholders or boards
of directors of the Companies will be required for the issuance and/or sale of
the Shares to be sold by the Companies as contemplated herein or in the
Adjustment Agreement, except such as shall have been obtained on or before the
Closing Date. The issuance and/or sale of the Shares to the Merrill Lynch
Parties by the Companies pursuant to this Purchase Agreement or the Adjustment
Agreement (as the case may be), the compliance by the Companies with the other
provisions of this Purchase Agreement or the Adjustment Agreement and the
consummation of the other transactions contemplated hereby or thereby do not
require the consent, approval, authorization, registration or qualification of
or with any court, governmental authority or agency, except such as shall have
been obtained on or before the Closing Date or in connection with any Resale
Registration Statement filed with respect to any of the Shares.
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The Companies meet and will continue to meet the requirements for use of Form
S-3 under the Securities Act, and the rules and regulations of the U.S.
Securities and Exchange Commission (the "Commission") under the Securities Act
(the "1933 Act Regulations"). The Companies have filed and will file all
documents which they are required to file under the Securities Exchange Act of
1934, as amended (the "Exchange Act") and the rules and regulations promulgated
thereunder (the "1934 Act Regulations") within the time periods prescribed by
the Exchange Act and the 1934 Act Regulations since December 31, 1996 and all
such documents (collectively, together with the Companies' registration
statements filed under the Securities Act which have been declared effective
since November 5, 1997 and have not been withdrawn, the "Companies' SEC
Filings") comply and will comply in all material respects with the requirements
of the Exchange Act and the 1934 Act Regulations, as applicable, and none of
such documents, when so filed, contained or will contain any untrue statement of
a material fact or omitted or will omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. No Resale
Registration Statement filed in respect of any of the Shares, when so filed,
contained or will contain any untrue statement of a material fact or omitted or
will omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading.
4.5. Due Execution, Delivery and Performance by the Company. Each of the
Companies has full right, power and authority to enter into this Purchase
Agreement and the Adjustment Agreement and perform the transactions contemplated
hereby and thereby. This Purchase Agreement and the Adjustment Agreement have
been duly authorized, executed and delivered by the Companies. The execution and
delivery of the Purchase Agreement and the Adjustment Agreement by the Companies
and the consummation of the transactions and the performance of the obligations
herein and therein contemplated will not violate any provision of the
certificate of incorporation, bylaws, or other organizational documents of the
Companies, and will not conflict with, result in the breach or violation of, or
constitute, either by itself or upon notice or the passage of time or both, a
default under any material agreement, mortgage, deed of trust, credit agreement,
lease, franchise, license, indenture, note, permit or other instrument to which
either Company is a party or by which either Company or its respective
properties may be bound or affected, any statute or any authorization, judgment,
decree, order, rule or regulation of any court or any regulatory body,
administrative agency or other governmental body applicable to either Company or
any of its respective properties other than violations, conflicts, breaches or
defaults that individually or in the aggregate would not have a material adverse
effect on the condition, financial or otherwise, or on the earnings, assets,
business affairs or business prospects of the Companies and the Subsidiaries
considered as one enterprise. No consent, approval, authorization or other order
of any court, regulatory body, administrative agency or other governmental body
is required for the execution and delivery of this Purchase Agreement, the
Adjustment Agreement or the consummation of the transactions contemplated hereby
or thereby, except in connection with the filing of any Resale Registration
Statements pursuant to Section 7 below or for compliance with the blue sky laws
applicable to the offering of the Shares.
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4.6. Accountants. The Companies' independent certified public accountants,
who have expressed their opinion with respect to the Most Recent Financial
Statements (as defined below) are independent accountants as required by the
Securities Act and the 1933 Act Regulations.
4.7. No Defaults. Except as to defaults, violations and breaches which
individually or in the aggregate would not have a material adverse effect on the
condition, financial or otherwise, or the earnings, assets, business affairs or
business prospects of the Companies and the Subsidiaries considered as one
enterprise, none of the Companies nor any Subsidiary is in violation or default
of any provision of its declaration of trust, charter or bylaws, or other
organizational documents, and none of the aforementioned parties is in breach of
or default with respect to any provision of any agreement, judgment, decree,
order, mortgage, deed of trust, credit agreement, lease, franchise, license,
indenture, permit or other instrument to which it is a party or by which it or
any of its properties are bound.
4.8. No Actions. There is no action, suit or proceeding before or by any
court or governmental agency or body, domestic or foreign, now pending, or, to
the knowledge of the Companies, threatened against or affecting either Company
or any Subsidiary, any real property or improvements thereon owned or leased by
any of either Company or the Subsidiaries, including any property underlying
indebtedness held by the Companies (each, individually, a "Property" and
collectively, the "Properties"), or any officer of either Company or any of the
Subsidiaries that, if determined adversely to either Company or any Subsidiary,
any Property, including any property underlying indebtedness held by either
Company and any of the Subsidiaries, or any such officer or trust manager, would
reasonably be expected to (A) result in any material adverse change in the
condition, financial or otherwise, or in the earnings, assets, business affairs
or business prospects of the Companies and the Subsidiaries considered as one
enterprise or (B) materially and adversely affect the consummation of the
transactions contemplated by this Agreement or the Adjustment Agreement. There
is no pending legal or governmental proceeding to which either Company or any
Subsidiary is a party or of which any of their respective properties or assets
or any property, including any property underlying indebtedness held by either
Company or any of the Subsidiaries, is the subject, including ordinary routine
litigation incidental to the business, that is, considered in the aggregate,
material to the condition, financial or otherwise, or the earnings, assets,
business affairs or business prospects of the Companies and the Subsidiaries
considered as one enterprise.
4.9. Properties. (A) Each Company and the Subsidiaries, as the case may be,
has good and marketable title to all the properties and assets reflected as
owned by such entities in the Most Recent Financial Statements, and good and
marketable title to the improvements, if any, thereon and all other assets that
are required for the effective operation of such real property in the manner in
which they currently are operated; subject to no lien, mortgage, pledge, charge
or encumbrance of any king except (i) those, if any reflected in the Most Recent
Financial Statement, or (ii) those which would not have a material adverse
effect on the condition, financial or otherwise, or on the earnings, assets,
business affairs or
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business prospects of or with respect to the Companies and the Subsidiaries
considered as one enterprise, (B) the leases of any real property and buildings
held under lease by either Company or any Subsidiary are in full force and
effect, and such entity is not in default in respect of any of the terms or
provisions of such leases and such entity has not received notice of the
assertion of any claim by anyone adverse to such entity's rights as lessee under
such leases, or affecting or questioning such entity's right to the continued
possession or use of the real property and buildings held under such leases or
of a default under such leases, in each case with such exceptions as would not
have a material adverse impact on the condition, financial or otherwise, or on
the earnings, assets, business affairs or business prospects of or with respect
to the Companies and the Subsidiaries considered as one enterprise; (C) none of
the Companies or any of the Subsidiaries or any tenant of any of the Properties
is in default under any of the leases pursuant to which any of the Companies or
the Subsidiaries, as lessor, leases its Property (and neither of the Companies
knows of any event which, but for the passage of time or the giving of notice,
or both, would constitute a default under any of such leases) other than such
defaults that would not have a material adverse effect on the condition,
financial or otherwise, or on the earnings, assets, business affairs or business
prospects of or with respect to the Companies and the Subsidiaries considered as
one enterprise; (D) no person has an option or right of first refusal to
purchase all or part of any Property or any interest therein, other than such
options or rights of first refusal which would not have a material adverse
effect on the condition, financial or otherwise, or on the earnings, assets,
business affairs or business prospects of or with respect to the Companies and
the Subsidiaries, considered as one enterprise; (E) 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), except for such failures to comply that would not
individually or in the, aggregate have a material adverse impact on the
condition, financial or otherwise, or on the earnings, assets, business affairs
or business prospects of the Companies and the Subsidiaries considered as one
enterprise; and (F) neither the Companies has knowledge of any pending or
threatened condemnation proceedings, zoning change, or other proceeding or
action that will in any manner affect the size of, use of, improvements on,
construction on or access to the Properties, including any property underlying
indebtedness held by either Company or any of the Subsidiaries, except such
proceedings or actions that would not have a material adverse effect on the
condition, financial or otherwise, or on the earnings, assets, business affairs
or business prospects of the Companies and the Subsidiaries considered as one
enterprise.
4.10. REIT Qualification. The REIT qualified as a real estate investment
trust under the Internal Revenue Code of 1986, as amended (the Code"), with
respect to its taxable years ended December 31, 1995, December 31, 1996 and
December 31, 1997, and is organized in conformity with the requirements for
qualification as a real estate investment trust, and its manner of operation has
enabled it to meet the requirements for qualification as a real estate
investment trust as of the date hereof, and its proposed manner of operation
will enable it to meet the requirements for qualification as a real estate
investment trust in the future.
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4.11. No Material Change. Since the date of the Most Recent Financial
Statements, and except as otherwise disclosed in the Companies' SEC Filings as
of the Closing Date, (i) no material casualty loss or material condemnation or
other material adverse event with respect to any Property or any of the
Subsidiaries, has occurred that is material to the Companies and the
Subsidiaries considered as one enterprise; (ii) none of the Companies, or the
Subsidiaries is in default in the payment of principal or interest on any
outstanding debt obligations; (iii) there has not been any change in the capital
stock of either Company or the Subsidiaries (other than the sale of the Purchase
Shares hereunder or those reserved for issuance pursuant to the Adjustment
Agreement, issuances pursuant to the incentive compensation plans of the
Companies), or any increase in the indebtedness of either Company or the
Subsidiaries that is material to such entities, considered as one enterprise;
(iv) and except for regular quarterly dividends or distributions on the REIT
Shares or the OPCO Shares, there has been no dividend or distribution of any
kind declared, paid or made by either Company; and (v) there has not been any
material adverse change in the condition, financial or otherwise, or in the
earnings, assets, business affairs or business prospects of the Companies and
the Subsidiaries, considered as one enterprise, whether or not arising in the
ordinary course of business.
4.12. Intellectual Property. None of the Companies or the Subsidiaries is
required to own or possess trademarks, trade names, patent rights, copyrights,
licenses, approvals and governmental authorizations, which it does not already
own or possess to conduct its businesses as now conducted; and neither Company
has knowledge of any material infringement by it of trademark, trade name
rights, patent rights, copyrights, licenses, trade secrets or other similar
rights of others, and has not received any notice that any claim has been made
against the Companies regarding trademark, trade name, patent, copyright,
license, trade secrets or other infringement.
4.13. Compliance. Neither Company has been advised, or has reason to
believe, that either Company or any Subsidiary is not conducting business in
compliance with all applicable laws, rules and regulations of the jurisdictions
in which it is conducting business, except where failure to be so in compliance
would not materially adversely affect the condition, financial or otherwise, or
in the earnings, assets, business affairs or business prospects of the Companies
and the Subsidiaries, considered as one enterprise.
4.14. Taxes. The Companies and the Subsidiaries have filed all material
federal, state and foreign income and franchise tax returns which have been
required to be filed and has paid or accrued all taxes shown as due thereon
(except for those taxes which are being contested in good faith through
appropriate proceeding, for which adequate reserves have been established and as
to which the Merrill Lynch Parties have been notified in writing by the
Companies), and the Companies have no knowledge of any tax deficiency which has
been or might be asserted or threatened against the Companies and the
Subsidiaries which could materially adversely affect the business condition,
financial or otherwise, or in the earnings, assets, business affairs or business
prospects of the Companies and the Subsidiaries, considered as one enterprise.
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4.15. Transfer Taxes. On the Closing Date, all stock transfer or other
taxes, if any (other than income taxes) which are required to be paid in
connection with the sale and transfer of the Purchase Shares to be sold to MLI
hereunder will be, or will have been, fully paid or provided for by the
Companies and all laws imposing such taxes will be or will have been fully
complied with.
4.16. Investment Company. None of the Companies or any Subsidiary is
required to register as an "investment company" as such term is defined in the
Investment Company Act of 1940, as amended.
4.17. Additional Information. The Companies represent and warrant that the
information contained in the following documents, which the Companies have
furnished to the Merrill Lynch Parties, or will furnish or make available upon
request prior to the Closing, is true and correct in all material respects as of
their respective filing dates:
(a) Joint Annual Report on Form 10-K for the year ended December 31,
1996, which Joint Annual Report includes the Companies' most recently
available audited financial statements together with the report thereon of
the independent certified public accountants (the "Most Recent Financial
Statements"),
(b) Joint Quarterly Reports on Form 10-Q, as amended if applicable,
for the quarters ended Much 31, 1997, June 30, 1997 and September 30, 1997;
(c) the Companies' proxy statements on Form 14A relating to (i) the
most recent Annual Meetings of the REIT's Shareholders and the OPCO's
Shareholders and (ii) any Special Meetings of the REIT's Shareholders and
the OPCO's Shareholders which occurred during the 12 month period prior to
the date hereof or for which a meeting date has been fixed and a proxy
statement distributed;
(d) all other documents, if any, filed by or with respect to the REIT
and the OPCO with the Commission since January 1, 1997 pursuant to Section
13, 15(d) or 16(a) of the Exchange Act; and
(e) a covenant compliance certification stating that none of the REIT,
the OPCO or the Subsidiaries are in default under any of their respective
credit agreements or other financing arrangements.
4.18. Legal Opinion. At or prior to the Closing, counsel to the Companies
will deliver their legal opinions dated the Closing Date to the Merrill Lynch
Parties in substantially the form of Exhibit A hereto.
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4.19. ERISA. The Companies and the Subsidiaries are in compliance with all
applicable provisions of the Employee Retirement Income Security Act of 1974, as
amended and the rules and regulations promulgated thereunder ("ERISA"), except
for such failures to comply as would not singly or in the aggregate have a
material adverse effect on the condition, financial or otherwise, or on the
earnings, assets, business affairs or business prospects of or with respect to
the Companies and the Subsidiaries, considered as one enterprise. Neither a
Reportable Event (as defined under ERISA) nor a Prohibited Transaction (as
defined under ERISA) has occurred with respect to any Plan (as defined below) of
the Companies and/or their respective affiliates; no notice of intent to
terminate a Plan has been filed nor has any Plan been terminated within the past
five years; to the Companies' knowledge, no circumstance exists which
constitutes grounds under Section 402 of ERISA entitling the Pension Benefit
Guaranty Corporation ("PBGC") to institute proceedings to terminate, or appoint
a trustee to administer, a Plan, nor has the PBGC instituted any such
proceedings; the Companies and their affiliates have not completely or partially
withdrawn under Section 4201 or 4202 of ERISA from any Multiemployer Plan (as
defined therein); the Companies and their affiliates have met the minimum
funding requirements of Section 412 of the Code and Section 302 of ERISA with
respect to each Plan and there is no unfunded current liability (as defined
below) with respect to any Plan; the Companies and their affiliates have not
incurred any liability to the PBGC under ERISA (other than for the payment of
premiums under Section 4007 of ERISA); no part of the funds to be used by the
Companies in satisfaction of their obligations under this Purchase Agreement or
the Adjustment Agreement constitute "plan assets" of any "employee benefit plan"
within the meaning of ERISA or of any "plan" within the meaning of Section
4957(e)(I) of the Code, as interpreted by the Internal Revenue Service and the
U.S. Department of Labor in rules, regulations, releases and bulletins or as
interpreted under applicable case law. As used below, "Plan" means an "employee
benefit plan" or "plan" as described in Section 3(3) of ERISA; and "unfunded
current liability" has the meaning provided in Section 302(d)(8)(A) of ERISA.
4.20. Environmental Protection. Except as otherwise disclosed in the
Companies' SEC Filings and except for such exceptions as would not have a
material adverse impact on the condition, financial or otherwise, or on the
earnings, assets, business affairs or business prospects of the Companies and
the Subsidiaries considered as one enterprise, (A) each Property, including,
without limitation, the Environment (as defined below) associated with such
Property, is free of any Hazardous Substance (as defined below); (B) none of the
Companies or any Subsidiary has caused or suffered to occur any Release (as
defined below) of any Hazardous Substance into the Environment on, in, under or
from any Property, and to the Companies' knowledge, no condition exists on, in,
under or adjacent to any Property that is reasonably likely to result in the
incurrence of material liabilities or any material violations of any
Environmental Law (as defined below), give rise to the imposition of any Lien
(as defined below) under any Environmental Law, or cause or constitute a health,
safety or environmental hazard to any property, person or entity; (C) none of
the Companies or any Subsidiary intends to use their respective properties or
assets or any other real property for the purpose of handling, burying, storing,
retaining, refining, transporting, processing,
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manufacturing, generating, producing, spilling, seeping, leaking, escaping,
leaching, pumping, pouring, emitting, emptying, discharging, injecting, dumping,
transferring or otherwise disposing of or dealing with a Hazardous Substance,
except for materials utilized in the ordinary course of business of the
properties, provided such use would not, in the ordinary course of business,
give rise to liability under any Environmental Law; (D) none of the Companies or
any Subsidiary has received any notice of a claim under or pursuant to any
Environmental Law or under common law pertaining to Hazardous Substances on or
originating from any Property; (E) none of the Companies or any Subsidiary has
received any notice from any Governmental Authority (as defined below) claiming
any violation of any Environmental Law; (F) no Property is included or, to the
knowledge of the Companies, proposed for inclusion on the National Priorities
List issued pursuant to CERCLA (as defined below) by the United States
Environmental Protection Agency (the "EPA") or on the Comprehensive
Environmental Response, Compensation, and Liability Information System database
maintained by the EPA, and has not otherwise been identified by the EPA as a
potential CERCLA removal, remedial or response site or included or, to the
knowledge of the Companies, proposed for inclusion on, any similar list of
potentially contaminated sites pursuant to any other Environmental Law and (G)
to the Companies' knowledge, there are no underground storage tanks located on
or in any Property.
As used herein, "Hazardous Substance" shall include, without limitation,
any hazardous substance, hazardous waste, toxic substance, pollutant, solid
waste or similarly designated materials, including, without limitation, oil,
petroleum or any petroleum-derived substance or waste, asbestos or
asbestos-containing materials, PCBs, pesticides, explosives, radioactive
materials, dioxins, urea formaldehyde insulation or any constituent of any such
substance, pollutant or waste, including any such substance, pollutant or waste
identified or regulated under any Environmental Law (including, without
limitation, materials listed in the United States Department of Transportation
Optional Hazardous Material Table, 49 C.F.R. ss. 172.101, as the same may now or
hereafter be amended, or in the EPA's List of Hazardous Substances and
Reportable Quantities, 40 C.F.R. Part 302, as the same may now or hereafter be
amended); "Environment" shall mean any surface water, drinking water, ground
water, land surface, subsurface strata, river sediment, buildings, structures,
and ambient, workplace and indoor air; "Environmental Law" shall mean the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended (42 U.S.C. ss. 9601 et seq.) ("CERCLA"), the Resource Conservation and
Recovery Act of 1976, as amended (42 U.S.C. ss. 6901 et seq.), the Clean Air
Act, as amended (42 U.S.C. ss. 7401 et seq.), the Clean Water Act, as amended
(33 U.S.C. ss. 1251 et seq.), the Toxic Substances Control Act, as amended (15
U.S.C. ss. 2601 et seq.), the Occupational Safety and Health Act of 1970, as
amended (29 U.S.C. ss. 651 et seq.), the Hazardous Materials Transportation Act,
as amended (49 U.S.C. ss. 1801 et seq.), and all other federal, state and local
laws, ordinances, regulations, rules, orders, decisions and permits relating to
the protection of the environment or of human health from environmental effects;
"Governmental Authority" shall mean any federal, state or local governmental
office, agency or authority having the duty or authority to promulgate,
implement or enforce any Environmental Law; "Lien" shall mean with respect to
any Property, any mortgage, deed of trust, pledge, security interest, lion,
encumbrance, penalty,
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fine, charge, assessment, judgment or other liability in, on or affecting such
Property; and "Release" shall mean any spilling, leaking, pumping, pouring,
emitting, emptying, discharging, injecting, escaping, leaching, dumping,
emanating or disposing of any Hazardous Substance into the Environment,
including, without limitation, the abandonment or discard of barrels,
containers, tanks (including, without limitation, underground storage tanks) or
other receptacles containing or previously containing any Hazardous Substance or
any release, emission, discharge or similar term, as those terms are defined or
used in any Environmental Law.
4.21. Solvency. Immediately following (i) the execution of this Purchase
Agreement and the Adjustment Agreement, (ii) the purchase of the Purchase Shares
pursuant hereto and (iii) the completion of any other transaction contemplated
by this Purchase Agreement and the Adjustment Agreement, each of the Companies
will be solvent and able to pay its debts as they mature, will have capital
sufficient to carry on its business and all businesses in which it is to engage,
and will have assets which will have a present fair market valuation greater
than the amount of all of its liabilities. This Purchase Agreement and the
Adjustment Agreement have been executed and delivered by the Companies in good
faith and in exchange for reasonably equivalent value. Neither of the Companies
intends to incur debts beyond its ability to pay them as they become due. Each
of the Companies' assets and capital are now, and are expected in the future to
be, sufficient to pay the Companies' ongoing expenses as they are incurred and
to discharge all of the Companies' liabilities in the event that the business of
the Companies is required to be liquidated. The Companies have not entered into
this Purchase Agreement or the Adjustment Agreement or any transaction
contemplated hereby or thereby with an intent to hinder, delay or defraud
creditors of any persons or entity.
4.22. Certificate. At or prior to the Closing, each Company shall deliver
an officer's certificate to be dated the Closing Date in form and substance
satisfactory to the Merrill Lynch Parties to the effect that (i) the
representations and warranties of the Companies set forth in this Section 4 are
true and correct in all material respects as of the date of this Agreement and
as of the Closing Date, (ii) the Companies have complied in all material
respects with all the agreements and satisfied in all material respects all the
conditions on their respective part to be performed or satisfied on or prior to
such Closing Date, (iii) none of the issued shares of capital stock of each of
the Companies was issued in violation of any preemptive rights of any security
holder of the Companies, (iv) except as set forth on a scheduled attached to
such certificate, all of the issued and outstanding capital stock of each
Subsidiary is owned by the Companies, direction or through subsidiaries, free
and clear of any security interest, mortgage, pledge, lien, encumbrance, or
claim and (v) non of the outstanding shares of capital stock of any Subsidiary
was issued in violation of preemptive or other similar rights of any security
holder of such Subsidiary.
4.23. Financial Statements. The Most Recent Financial Statements (including
the notes thereto) present fairly in all material respects the financial
position of the respective entity or entities presented therein at the
respective dates indicated and the results of their
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operations for the respective periods specified, and except as otherwise stated
in the Most Recent Financial Statements, said financial statements have been
prepared in conformity with generally accepted accounting principles applied on
a consistent basis. The supporting schedules included in the Companies' SEC
Filings fairly present in all material respects the information required to be
stated therein. The financial information and data included in the Companies'
SEC Filings present fairly in all material respects the information included
therein and have been prepared on a basis consistent with that of the financial
statements included in the Companies' SEC Filings and the books and records of
the respective entities presented therein. The pro forma financial information
included in the Companies' SEC Filings has been prepared in accordance with the
applicable requirements of Rules 11-01 and 11-02 of Regulation S-X under the
Securities Act and other 1933 Act Regulations and American Institute of
Certified Public Accountants ("AICPA") guidelines with respect to pro forma
financial information and includes all adjustments necessary to present fairly
in all material respects the pro forma financial position of the respective
entity or entities presented therein at the respective dates indicated and the
results of their operations for the respective periods specified. Other than the
historical and pro forma financial statements (and schedule) included therein,
no other historical or pro forma financial statements (or schedules) are
required to be included in the Companies' SEC Filings. Except as reflected or
disclosed in the financial statements included in the Companies' SEC Filings,
none of the Companies or any of the Subsidiaries is subject to any material
indebtedness, obligation, or liability, contingent or otherwise.
4.24. Labor Disputes. No labor dispute with the employees of the Companies
Or any Subsidiary exists or, to the knowledge of the Companies is imminent.
4.25. Regulation M. None of the Companies, the Subsidiaries nor, to the
Companies' knowledge, any of their trust managers, directors, officers or
controlling persons, has taken or will take, directly or indirectly, any action
resulting in a material violation of Regulation M under the Exchange Act, or
designed to cause or result under the Exchange Act or otherwise in, or which has
constituted or which reasonably might be expected to constitute, the unlawful
stabilization or manipulation of the price of any security of either Company or
facilitation of the sale or resale of the Shares.
4.26. Regulation G. The Companies represent that the proceeds of the
Purchase Shares will not be used by the Companies, whether immediate, incidental
or ultimate, of buying or carrying a margin stock as such terms are defined in
Regulation G by the Board of Governors of the Federal Reserve System.
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SECTION 5. Representations, Warranties and Covenants of Merrill Lynch or
MLI.
5.1. Investment. The Merrill Lynch Parties represent and warrant to, and
covenants with, the Companies that: (i) the Merrill Lynch Parties are
knowledgeable, sophisticated and experienced in making, and is qualified to
make, decisions with respect to investments in shares presenting an investment
decision like that involved in the purchase of the Purchase Shares, including
investments in securities issued by the Companies; (ii) MLI is acquiring the
number of Purchase Shares set forth in Section 2 above in the ordinary course of
its business and for its own account for investment (as defined for purposes of
the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and the regulations
thereunder) only and with no present intention of distributing any of such
Purchase Shares or any arrangement or understanding with any other persons
regarding the distribution of such Purchase Shares, (iii) neither Merrill Lynch
Party will directly or indirectly, sell or otherwise dispose of (or solicit any
offers to purchase or otherwise acquire) any of the Purchase Shares except in
compliance with the Securities Act and any applicable state securities or blue
sky laws; (iv) each Merrill Lynch Party has completed or caused to be completed
the Registration Statement Questionnaire and the Stock Certificate
Questionnaire, both attached hereto as Appendix I, for use in preparation of the
Registration Statement and the answers thereto are true and correct as of the
date hereof and will be true and correct as of the effective date of the Resale
Registration Statement; (v) MLI has, in connection with its decision to purchase
the number of Purchase Shares set forth in Section 2 above, relied solely upon
the documents identified in Section 4.17, the information referred to in Section
7.7 and the representations and warranties of the Companies contained herein;
(vi) MLI has had access to such additional information, if any, concerning the
Companies as it has considered necessary in connection with their investment
decision to acquire the Purchase Shares; (vii) each of the Merrill Lynch Parties
is an "accredited investor" within the meaning of Rule 501(a)(1), (2), (3) or
(7) of Regulation D promulgated under the Securities Act; and (viii) the Merrill
Lynch Parties understand that until the appropriate Resale Registration
Statement has been declared effective by the Commission, the Shares will contain
a legend to the following effect:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933. THE SHARES HAVE BEEN
ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED OR
ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
FOR THESE SHARES UNDER THE SECURITIES ACT OF 1933 OR AN OPINION
OF THE COMPANIES' COUNSEL THAT REGISTRATION IS NOT REQUIRED UNDER
SAID ACT.
5.2. Resale. The Merrill Lynch Parties acknowledge and agree that they may
not effect any sales of the Shares until after the Conversion Date. The Merrill
Lynch Parties acknowledge and agree that in connection with any transfer of any
Shares they will provide to the transfer agent prompt notice of any Shares sold
Pursuant to a Resale Registration Statement or otherwise transferred in
compliance with applicable federal and state
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securities laws. The Merrill Lynch Parties acknowledge that there may
occasionally be times when, subject to the provisions of Section 7.2(a), the
Companies must suspend the right of the Merrill Lynch Parties to effect sales of
the Shares through the use of the Resale Prospectus (as defined below) forming a
part of a Resale Registration Statement until such time as an amendment to such
Resale Registration Statement has been filed by the Companies and declared
effective by the Commission, or until such time as the Companies have filed an
appropriate report with the Commission pursuant to the Exchange Act (each, a
"Black-out Period"); provided that no Black-out Period shall exceed 90
consecutive days. The Merrill Lynch Parties hereby covenant that they will not
effect sales of any Shares pursuant to said Resale Prospectus during the period
commencing at the time at which the Companies give the Merrill Lynch Parties
written notice (which such notice shall have been given by the Companies as
promptly as practicable) of the suspension of the use of said Resale Prospectus
and ending at the time the Companies give the Merrill Lynch Parties written
notice that the Merrill Lynch Parties may thereafter effect sales pursuant to
said Resale Prospectus. The Merrill Lynch Parties further covenant to notify the
Companies promptly of the sale of all of the Shares.
5.3. Due Execution, Delivery and Performance of this Agreement. The Merrill
Lynch Parties further represent and warrant to, and covenant with, the Companies
that (i) each Merrill Lynch Party has full right, power, authority and capacity
to enter into this Agreement and to perform its obligations hereunder and
consummate the transactions contemplated hereby and has taken all necessary
action to authorize the execution, delivery and performance of this Agreement,
and (ii) upon the execution and delivery of this Agreement, this Agreement shall
constitute a valid and binding obligation of the Merrill Lynch Parties
enforceable in accordance with its terms, except as enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting creditors' and contracting parties' rights generally and
except as enforceability may be subject to general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law) and except that the enforcement of the indemnification
agreements in Section 7.5 hereof may be limited by public policy.
5.4. Residence of Merrill Lynch. Merrill Lynch is organized in the State of
Delaware and has its principal place of business in the State of New York.
5.5. Certain Tax Considerations. MLI represents and warrants that it is
fully eligible for the benefits of the "Business Profits" or "Industrial and
Commercial Profits" provision, as the case may be, the "Interest" provision or
the "Other Income" provision (if any) of the 1975 United States-United Kingdom
Income Tax Treaty with respect to any payment described in such provisions and
received or to be received by it in connection with this Agreement and no such
payment is attributable to a trade or business carried on by it through a
permanent establishment in the United States.
SECTION 6. Survival of Representations, Warranties and Agreements.
Notwithstanding any investigation made by any party to this Purchase Agreement,
all
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covenants, agreements, representations and warranties made by the Companies and
the Merrill Lynch Parties herein shall survive the execution of this Purchase
Agreement, the Adjustment Agreement, the delivery to Merrill Lynch of the
Purchased Shares being purchased and the payment therefor and the consummation
of any other transactions contemplated hereby or thereby.
SECTION 7. Registration of the Shares; Compliance with the Securities Act.
7.1. Registration Procedures and Expenses. The Companies shall:
(a) prepare and file with the Commission a Resale Registration Statement
(as defined below) covering the resale by the Merrill Lynch Parties,
from time to time, of a number of Shares equal to the number of
Purchase Shares in any of the manners specified in the Adjustment
Agreement (the "Initial Resale Registration Statement") and use its
best efforts to obtain effectiveness of the Initial Resale
Registration Statement by the fifth Business Day (as defined in the
Adjustment Agreement) following the Conversion Date. If the total
number of Shares exceeds the number of Shares covered by the Initial
Resale Registration Statement, then the Companies shall promptly
prepare and file with the Commission such additional Resale
Registration Statement or Statements as shall be necessary to cover
the resale by the Merrill Lynch Parties of such excess Shares in the
same manner as contemplated by the Initial Registration Statement for
the Shares covered thereby (each, an "Additional Resale Registration
Statement"); provided that prior to issuing any such excess Shares to
the Merrill Lynch Parties, the Companies shall cause such Resale
Registration Statement to have become effective. For purposes of this
Purchase Agreement, "Resale Registration Statement" means the Initial
Resale Registration Statement, any Additional Resale Registration
Statement or any other registration statement under the Securities Act
on Form S-3 covering the resale by the Merrill Lynch Parties of up to
a specified number of Shares, filed and maintained continuously
effective by the Companies pursuant to the provisions of this Section
7, including the prospectus contained therein (the "Resale
Prospectus"), any amendments and supplements to such registration
statement, including all post-effective amendments thereto, and all
exhibits and all material incorporated by reference into such
registration statement;
(b) use its commercially reasonable best efforts to prevent the issuance
of any order suspending the effectiveness of such Resale
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Registration Statement or Resale Prospectus or suspending the
qualification (or exemption from qualification) of any of the Shares
in any jurisdiction;
(c) prepare and file with the Commission such amendments and supplements
to each Resale Registration Statement and the Resale Prospectus as may
be reasonably requested by the Merrill Lynch Parties in order to
accomplish the public resale or other disposition of any Shares in
accordance with the terms of the Adjustment Agreement, or as may be
necessary to keep such Resale Registration Statement effective until
the date on which either (i) the Shares covered thereby have been sold
by or on behalf of the Merrill Lynch Parties or (ii) the Merrill Lynch
Parties have advised the Companies that they no longer require that
such Resale Registration Statement remain effective;
(d) furnish to the Merrill Lynch Parties with respect to the Shares
registered under any Resale Registration Statement such reasonable
number of copies of Resale Prospectuses, including any supplements and
amendments thereto, in order to facilitate the public sale or other
disposition of all or any of the Shares by the Merrill Lynch Parties;
(e) in order to facilitate the public sale or other disposition of all or
any of the Shares by the Merrill Lynch Parties, furnish to the Merrill
Lynch Parties with respect to the Shares registered under any Resale
Registration Statement, in connection with any such public sale or
other disposition, an opinion of counsel to the Companies covering the
matters set forth on Exhibit B-1 and B-2 hereto and such other
documents as the Merrill Lynch Parties may reasonably request
(including a comfort letter from the Companies' independent certified
public accountants and a certificate of bring down of representations
and warranties in connection with sale of Shares under the Resale
Registration Statement) (collectively, the "Resale Closing Documents")
(i) upon the effectiveness of the Initial Resale Registration
Statement, (ii) quarterly beginning promptly after the Companies'
filing of the Joint Annual Report on Form 10-K for the fiscal year
ended December 31, 1997 in the case of any continuous offering of
Shares under any Resale Registration Statement, and (iii) in the event
the public sale or other disposition of the Shares is effected through
an underwritten offering or a block trade, as of the date of the
closing of any sale of such
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Shares or date of pricing with respect to the sale of such Shares, as
applicable upon prior notice from the Merrill Lynch Parties to the
Companies as to which date applies; provided, however, that the
Companies shall not be required to deliver any Resale Closing
Documents in the event that the aggregate offering price of any Shares
offered in an underwritten offering or a block trade is less than
$20,000,000, unless as of the date of any such underwritten offering
or block sale, the Companies have not made any previous delivery of
Resale Closing Documents to the Merrill Lynch Parties in connection
with any other public sale or other disposition of the Shares;
(f) use its best efforts to prevent the happening of any event that would
cause any such Resale Registration Statement to contain a material
misstatement or omission or to be not effective and continuously
useable for resale of the Shares during the period that such Resale
Registration Statement is required to be effective and useable;
(g) file documents required of the Companies for normal blue sky clearance
in states specified in writing by the Merrill Lynch Parties, provided,
however, that the Companies shall not be required to qualify to do
business or consent to service of process in any jurisdiction in which
it is not now so qualified or has not so consented;
(h) bear all expenses in connection with the procedures in paragraphs (a)
through (f) of this Section 7.1 and Section 7.2(a) and the
registration of the Shares pursuant to each Resale Registration
Statement, which expenses shall not include brokerage or underwriting
commissions and taxes of any kind (including without limitations,
transfer bonuses) with respect to any disposition, sale or transfer of
Shares sold by the Merrill Lynch Parties and for any legal, accounting
and other expenses incurred by the Merrill Lynch Parties which
expenses shall be borne by the Merrill Lynch Parties; and
(i) promptly file any necessary listing applications or amendments to
existing listing applications to cause any Shares registered under any
Resale Registration Statement to be listed or admitted to trading, on
or prior to the effectiveness of any Resale Registration Statement, on
the New York Stock Exchange or any national stock exchange or
automated quotation system on which the Paired Shares are then listed
or traded.
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7.2. Covenants in Connection With Registration.
(a) The Companies hereby covenant with the Merrill Lynch Parties that (i)
the Companies shall not file any Resale Registration Statement or Resale
Prospectus or any amendment or supplement thereto, unless a copy thereof shall
have been first submitted to the Merrill Lynch Parties and the Merrill Lynch
Parties did not object thereto in good faith (provided that if the Merrill Lynch
Parties do not object within two business days of receiving any such material,
there shall be deemed to have been no objection thereto); (ii) the Companies
shall immediately notify the Merrill Lynch Parties of the issuance by the
Commission of any stop order suspending the effectiveness of such Resale
Registration Statement or the initiation of any proceedings for such purpose;
(iii) the Companies shall make every reasonable effort to promptly obtain the
withdrawal of any order suspending the effectiveness of such Resale Registration
Statement at the earliest possible moment; (iv) the Companies shall immediately
notify the Merrill Lynch Parties of the receipt of any notification with respect
to the suspension of the qualification of the Shares for sale under the
securities or blue sky laws of any jurisdiction or the initiation of any
proceeding for such purpose; and (v) the Companies shall immediately notify the
Merrill Lynch Parties in writing of the happening of any event or the failure of
any event to occur or the existence of any fact or otherwise which results in
any Resale Registration Statement, any amendment or post-effective amendment
thereto, the Resale Prospectus, any prospectus supplement, or any document
incorporated therein by reference containing an untrue statement of a material
fact or omitting to state a material fact required to be, stated therein or
necessary to make the statements therein not misleading and promptly shall
prepare, file with the Commission and promptly furnish to the Merrill Lynch
Parties a reasonable number of copies of a supplement or post-effective
amendment to such Resale Registration Statement or the Resale Prospectus or any
document incorporated therein by reference or file any other required document
so that, as thereafter delivered to the purchasers of the Shares, the Resale
Prospectus will not contain an untrue statement of a material fact or omit to
state any material fact necessary to make the statements therein not misleading.
(b) The Merrill Lynch Parties shall cooperate with the Companies in
connection with the preparation of the Resale Registration Statement and shall
furnish to the Companies, in a timely manner, all information in their
possession or reasonably obtainable by them and necessary for inclusion in the
Resale Registration Statement (including, without limitation, information
relating to the ownership by each of them of Paired Shares and the plan of
distribution).
(c) The Merrill Lynch Parties shall notify the Companies at least two
business days prior to the earlier of the date on which they intend to commence
effecting any resales of Shares under a Resale Registration Statement or the
date of pricing with respect to the public sale or other disposition of any
Shares under a Resale Registration Statement effected through an underwritten
offering or block trade and if the Companies do not, within such two day period,
advise the Merrill Lynch Parties of the existence of any facts of the type
referred to in Section 7.2(a) above, then the Companies shall be deemed to have
certified and
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represented to the Merrill Lynch Parties that no such facts then exist and the
Merrill Lynch Parties may rely on such certificate and representations in making
such sales. The preceding sentence shall in no way limit the Companies'
obligations under Section 7.2(a) above.
(d) the Companies shall cooperate with the Merrill Lynch Parties to
facilitate the timely preparation mid delivery of certificates representing the
Shares to be sold under the Resale Registration Statements and not bearing any
restrictive legends and in such denominations and registered in such names as
the Merrill Lynch Parties may reasonably request at least one Business Day prior
to the closing of any sale of the Shares.
(e) If the Companies notify the Merrill Lynch Parties that the Companies
wish the Merrill Lynch Parties to effect an underwritten offering or block trade
of Shares, (i) the Merrill Lynch Parties shall have the right to select the
managing underwriters or the executing dealer, as the case may be, who shall be
subject to the approval of the Companies, which approval shall not be
unreasonably withheld (it being understood that Merrill Lynch is, in any event,
reasonably acceptable to the Companies for this purpose) and (ii) the Companies
shall (A) enter into written agreements (including underwriting agreements) as
are customary in underwritten offerings or block trades, as the case may be; (B)
obtain an opinion of counsel to the Companies and other entities reasonably
requested by the underwriters or the executing dealer, as the case may be, and
updates thereof (which may be in the form of a reliance letter) in form and
substance reasonably satisfactory to the managing underwriters or the executing
dealer, as the case may be, and the Merrill Lynch Parties addressed to the
underwriters or the executing dealer, as the case may be, and the Merrill Lynch
Parties covering the matters customarily covered in opinions requested in
underwritten offerings or block trades, as the case may be, and such other
matters as may be reasonably requested by such underwriters or the executing
dealer, as the case may be, and the Merrill Lynch Parties (it being agreed that
the matters to be covered by such opinion may be subject to customary
qualifications and exceptions); (C) obtain "cold comfort" letters and updates
thereof in form and substance reasonably satisfactory to the managing
underwriters or the executing dealer, as the case may be, and the Merrill Lynch
Parties from the independent certified public accountants of the Companies (and,
if necessary, other independent certified public accountants of any affiliate or
Subsidiary of either of the Companies or of any business acquired by the
Companies for which financial statements and financial data are, or are required
to be, included in the Resale Registration Statement) addressed to each of the
underwriters or the executing dealer, as the case may be, and, if permitted by
applicable accounting rules and statements, the Merrill Lynch Parties, such
letters to be in customary form and covering matters of the type customarily
covered in "cold comfort" letters in connection with underwritten offerings or
block trades, as the case may be, and such other matters as may be reasonably
requested by such underwriters or the executing dealer, as the case may be, in
accordance with Statement on Auditing Standards No. 72; (D) ensure that any
underwriting agreement contains indemnification provisions and procedures not
less favorable than that included herein (or such other provisions and
procedures acceptable to the Merrill Lynch Parties and the underwriters) with
respect to all parties to be indemnified pursuant to said section (including,
without limitation, the underwriters and the Merrill Lynch Parties); and (E)
deliver such other
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documents as are customarily delivered in connection with closing of
underwritten offerings or block trades, as the case may be.
(f) The Companies will make reasonably available for inspection by the
Merrill Lynch Parties, any underwriter, agent or broker-dealer participating in
any disposition of Shares such information and corporate documents as shall be
reasonably necessary to enable them to exercise any applicable due diligence
responsibilities for the purposes of applicable law, and cause the officers of
the Companies and their "significant subsidiaries" (as that term is defined in
Regulation S-X) to be available, upon request at least two business days in
advance, to respond to questions relevant to such due diligence inquiries.
(g) The parties hereby acknowledge and agree that the Companies may suspend
the right of the Merrill Lynch Parties to effect sales of the Paired Shares
through use of the prospectus forming a part of a Resale Registration Statement
for a period of 90 days (or fewer if the Merrill Lynch Parties are notified to
that effect by the Companies) in connection with a public offering or a sale
pursuant to Rule 144A under the Securities Act (an "Offering") of Paired Shares
(or shares of capital stock convertible into Paired Shares) by the Companies (a
"Suspension Period"); provided that (i) there shall be no more than three
Suspension Periods during any 12-month period, and (ii) the total number of days
of all Suspension Periods during any 12-month period shall not exceed 120. The
Merrill Lynch Parties hereby covenant that they will not sell any Paired Shares
pursuant to said prospectus during a Suspension Period which shall commence at
the time the Companies give the Merrill Lynch Parties written notice of such
Suspension Period; provided further, that no Suspension Period shall be
applicable or in any way restrict the Merrill Lynch Parties after the occurrence
of the Maturity Date or a Price Decline Termination Event. The ability of the
Companies to suspend the right of the Merrill Lynch Parties to effect sales of
the Paired Shares pursuant to Section 7.2(g) shall not be, construed to limit
the Companies' rights under Section 5.2.
7.3. Extension of Required Effectiveness. In the event that the Companies
shall give any notice required by Section 7.2(a)(v) hereof, the period during
which the Companies are required to keep such Resale Registration Statement
effective and useable shall be extended by the number of days during the period
from and including the date of the giving of such notice to and including the
date when the Merrill Lynch Parties are advised in writing by the Companies that
the use of the Resale Prospectus may be resumed.
7.4. Transfer of Shares After Registration. The Merrill Lynch Parties agree
that they will not effect any disposition of the Shares and MLI agrees that it
will not effect any disposition of its right to purchase the Shares that would
constitute a sale within the meaning of the Securities Act or pursuant to any
applicable state securities or blue sky laws expect as contemplated in each
Resale Registration Statement referred to in Section 7.1 or except pursuant to
any exemption from the registration requirements of the Securities Act
(including, without limitation, Rule 144 promulgated thereunder and any
successor thereto) and that it will promptly notify the Companies of any changes
in the information set forth in
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any such Resale Registration Statement regarding the Merrill Lynch Parties or
its plan of distribution.
7.5. Indemnification. For the purpose of this Section 7.5 only, the term
"Resale Registration Statement" shall include any final prospectus, exhibit,
supplement or amendment included in or relating to any Resale Registration
Statement referred to in Section 7.1.
(a) Indemnification by the Companies. Each of the Companies agrees, jointly
and severally, to indemnify and hold harmless the Merrill Lynch Parties and each
person, if any, who controls the Merrill Lynch Parties within the meaning of
Section 15 of the Securities Act, and any director, officer, employee or
affiliate thereof, as follows:
(i) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, arising out of any untrue statement or alleged
untrue statement of a material fact contained in any Resale Registration
Statement (or any amendment thereto), including the information deemed to
be part of any Resale Registration Statement pursuant to Rule 430A(b) of
the 1933 Act Regulations, if applicable, or the omission or alleged
omission therefrom of a material fact required to be stated therein or
necessary to make the statements therein not misleading or arising out of
any untrue statement or alleged untrue statement of a material fact
contained in any related Resale Prospectus or the omission or alleged
omission therefrom of a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; provided, however, that the Companies shall not be
required under this subsection (i) to indemnify the Merrill Lynch Parties
with respect to any loss, liability, claim, damage or expense to the extent
such loss, liability, claim, damage or expense arises out of any untrue
statement or omission or alleged untrue statement or omission made in
reliance upon and in conformity with written information furnished to the
Companies by the Merrill Lynch Parties specifically for inclusion in any
Resale Registration Statement or any related Resale Prospectus;
(ii) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation or of any investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim
whatsoever for which indemnification is provided under subsection (i)
above, if such settlement is effective with the written consent of the
Companies; and
(iii) against any and all expense whatsoever (including, without
limitation, the fees and other charges of counsel chosen by you) reasonably
incurred in investigating, preparing or defending against any litigation,
or any investigation or proceedings by any governmental agency or body,
commenced or threatened, or any claim whatsoever for which indemnification
is provided under subsection (i) above, to the extent that any such expense
is not paid under subsection (i) or (ii) above.
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(b) Indemnification by the Merrill Lynch Parties. The Merrill Lynch Patties
agree to indemnify and hold harmless the Companies, and each person, if any, who
controls the Companies within the meaning of Section 15 of the Securities Act,
and any trust manager, director, officer, employee or affiliate thereof, against
any and all loss, liability, claim, damage and expense described in the
indemnity contained in subsection (a) of this Section 7.5, as incurred, but only
with respect to untrue statements or omissions, or alleged untrue statements or
omissions, made in any Resale Registration Statement (or any amendment thereto)
or any related Resale Prospectus (or any amendment or supplement thereto) in
reliance upon and in conformity with written information furnished to the
Companies by the Merrill Lynch Patties specifically for inclusion in any Resale
Registration Statement or any related Resale Prospectus.
(c) Proceedings. Each indemnified party shall give notice as promptly as
reasonably practicable to each indemnifying party of any action commenced
against it in respect of which indemnity may be sought hereunder, but failure to
so notify an indemnifying party shall not relieve such indemnifying party from
any liability hereunder to the extent it is not materially prejudiced as a
result thereof and in any event shall not relive it from any liability which it
may have otherwise than on account of this indemnity agreement. An indemnifying
party may participate at its own expense in the defense of such action. If it so
elects within a reasonable time after receipt of such notice, an indemnifying
party, jointly with any other indemnifying parties receiving such notice, may
assume the defense of such action with counsel chosen by it and approved by the
indemnified parties defendant in such action, unless such indemnified parties
reasonably object to such assumption on the ground that the named parties to any
such action (including any impleaded parties) include both such indemnified
parties and an indemnifying party, and such indemnified parties reasonably
believe that there may be legal defenses available to them which are different
from or in addition to those available to such indemnifying party. If an
indemnifying party assumes the defense of such action, the indemnifying parties
shall not be liable for any fees and expenses of counsel for the indemnified
parties incurred thereafter in connection with such action. In no event shall
the indemnifying parties be liable for fees and expenses of more than one
counsel (in addition to any local counsel) separate from their own counsel for
all indemnified parties in connection with any one action or separate but
similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances. No indemnifying party shall, without the
prior written consent of the indemnified parties, settle or compromise or
consent to the entry of any judgment with respect to any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever in respect of which indemnification or
contribution could be sought under this Section 7.5 (whether or not the
indemnified parties are actual or potential parties thereto), unless such
settlement, compromise or consent (i) includes an unconditional release of each
indemnified party from all liability arising out of such litigation,
investigation, proceeding or claim and (ii) does not include a statement as to
or an admission of fault, culpability or a failure to act by or on behalf of any
indemnified party.
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If at any time an indemnified party shall have requested an indemnifying
party to reimburse the indemnified party for fees and expenses of counsel, such
indemnifying party agrees that it shall be liable for any settlement of the
nature contemplated by Section 7.5(a)(ii) effected without its written consent
if (i) such settlement is entered into more than 45 days after receipt by such
indemnifying party of the aforesaid request, (ii) such indemnifying party shall
have received notice of the terms of such settlement at least 30 days prior to
such settlement being entered into and (iii) such indemnifying party shall not
have reimbursed such indemnified party in accordance with such request prior to
the date of such settlement.
(d) Contribution. If the indemnification provided for in this Section 7.5 is
required by its terms but is for any reason held to be unavailable to or
otherwise insufficient to hold harmless an indemnified party under paragraph
(a), (b) or (c) of this Section 7.5 in respect of any losses, claims, damages,
liabilities or expenses referred to herein, then each applicable indemnifying
party shall contribute to the amount paid or payable by such indemnified party
as a result of any losses, claims, damages, liabilities or expenses referred to
herein, (i) in such proportion as is appropriate to reflect the relative
benefits received by the Companies and the Merrill Lynch Parties from the
purchase and sale of the Shares or (ii) if the allocation provided in clause (i)
is not permitted by applicable law, in such proportion or as is appropriate to
reflect not only the relative benefits referred to in clause (i) above but also
the relative fault of the Companies and the Merrill Lynch Parties in connection
with the statements or omissions or inaccuracies in the representations and
warranties in this Agreement which resulted in such losses, claims, damages,
liabilities or expenses, as well as any other relevant equitable considerations.
The respective relative benefits received by the Companies on the one hand and
the Merrill Lynch Parties on the other shall be deemed to be in the same
proportion as the amount paid by the Merrill Lynch Parties to the Companies
pursuant to this Agreement and the Adjustment Agreement and the net proceeds
retained by the Merrill Lynch Parties from the transactions contemplated by this
Agreement and the Adjustment Agreement. The relative fault of the Companies and
the Merrill Lynch Parties shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or the alleged omission to state a material fact or the inaccurate or
the alleged inaccurate representation and/or warranty relates to information
supplied by the Companies or by the Merrill Lynch Parties and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The amount paid or payable by a party as a
result of the losses, claims, damages, liabilities and expenses referred to
above shall be deemed to include, subject to the limitations set forth in
paragraph (c) of this Section 7.5 any reasonable legal or other fees or expenses
incurred by such party in connection with investigating or defending any action
or claim. The provisions set forth in paragraph (c) of this Section 7.5 with
resect to notice of commencement of any action shall apply if a claim for
contribution is to be made under this paragraph (c) provided, however, that no
additional notice shall be required with respect to any action for which notice
has been given under paragraph (c) for purposes of indemnification. The
Companies and the Merrill Lynch Parties agree that it would not be just and
equitable if contribution pursuant to this Section 7.5 were determined solely by
pro rata allocation or by any other method of allocation which does not take
account of the equitable
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considerations referred to in this paragraph (d). Notwithstanding the provisions
of this Section 7.5, the Merrill Lynch Parties shall not be required to
contribute any amount in excess of the amount by which the aggregate net
proceeds retained by the Merrill Lynch Parties from the transactions
contemplated hereby and by the Adjustment Agreement exceeds the amount of any
damages that the Merrill Lynch Parties has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation.
(e) Relationship Between the REIT and OPCO. The obligations set forth in
this Section 7.5 shall in no way limit the ability of the Companies to allocate
liability between themselves.
7.6. Information Available. So long as any Resale Registration Statement
covering the resale of any shares owned by the Merrill Lynch Parties is
effective, the Companies will furnish to the Merrill Lynch Parties:
(a) as soon as practicable after available, one copy of (i) their Joint
Annual Report to Shareholders, (ii) their Joint Annual Report on Form
10-K, (iii) their joint Quarterly Reports to Shareholders, (iv) their
joint quarterly reports on Form 10-Q, (v) a full copy of the
particular Resale Registration Statement covering the Shares (the
foregoing, in each case, excluding exhibits) and (iv) upon request,
any or all other filings made with the Commission by the Companies;
and
(b) upon the reasonable request of the Merrill Lynch Parties, a reasonable
number of copies of the Resale Prospectuses to supply to any other
party requiring such Resale Prospectuses;
and the Companies, upon the reasonable request of the Merrill Lynch Parties,
will meet with the Merrill Lynch Parties or a representative thereof at the
Companies' headquarters to discuss all information relevant for disclosure in
such Resale Registration Statement covering the Shares, subject to appropriate
confidentiality limitations.
7.7. Remedies. The Companies and the Merrill Lynch Parties acknowledge that
there would be no adequate remedy at law if the Companies fail to perform any of
their obligations under this Section 7, and accordingly agree that the Merrill
Lynch Parties, in addition to any other remedy to which it may be entitled at
law or in equity, shall be entitled to compel specific performance of the
obligations of the Companies under this Section 7, and the Companies hereby
waive the defense that a remedy at law would be adequate.
7.8. Notice Requirement. The REIT and the OPCO each covenants and agrees
that it will notify the Merrill Lynch Parties at any time it becomes aware that
as a
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result of a change in the REIT's and the OPCO's capital stock the Merrill Lynch
Parties beneficially hold more than 4.9% of the REIT's and the OPCO's Paired
Shares.
SECTION 8. Broker's Fee. Other than any fees payable under or in connection
with the Adjustment Agreement, each of the parties hereto represents that, on
the basis of any actions and agreements by it, there are no brokers or finders
entitled to compensation in connection with the sale or issuance of the Shares
to MLI.
SECTION 9. Notices. All notices, requests, consents and other
communications hereunder shall be in writing, shall be mailed by first-class
registered or certified mail, by telegram or telecopy or sent by nationally
recognized overnight express courier postage prepaid, and shall be deemed given
when so mailed or for telecopies, when transmitted and receipt confirmed, and
shall be delivered as addressed as follows:
(a) if to the Companies, to:
197 First Avenue, Suite 300
Needham Heights, Massachusetts 02194
Attention: Chief Financial Officer
with copies so mailed to:
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, MA 02109
Attention: Gilbert G. Menna, P.C.
or to such other person at such other place as the Companies shall
designate to Merrill Lynch in writing; and
(b) if to Merrill Lynch or MLI, to:
Merrill Lynch, Pierce, Fenner & Smith Incorporated
Merrill Lynch World Headquarters
North Tower
World Financial Center
New York, New York 10281-1305
Attention: David Moran
SECTION 10. Changes. This Agreement may not be modified or amended except
pursuant to an instrument in writing signed by the Companies and the Merrill
Lynch parties.
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SECTION 11. Headings. The headings of the various sections of this
Agreement have been inserted for convenience of reference only and shall not be
deemed to be part of this Agreement.
SECTION 12. Severability. In case any provision contained in this Agreement
should be invalid, illegal or unenforceable in any respect, the validity,
legality and enforceability of the remaining provisions contained herein shall
not in any way be affected or impaired thereby.
SECTION 13. Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon (i) the successors of the Merrill Lynch Parties
and (ii) any assignee or transferee of rights and obligations of the Merrill
Lynch Parties pursuant to the Adjustment Agreement or this Agreement. A
transferee of the Merrill Lynch Parties pursuant to the Adjustment Agreement or
this Agreement, and any successor, assignee, or transferee, shall be held
subject to all of the terms of this Agreement. Except as set forth in this
Section 13, neither the Companies nor the Merrill Lynch Parties may assign any
of their respective rights, or delegate any of their respective duties under
this Agreement.
SECTION 14. Governing Law; Jurisdiction. This Agreement shall be governed
by and construed in accordance with the laws of the State of New York without
regard to the conflicts of law principles thereof.
SECTION 15. Transfer to Affiliate. Notwithstanding anything herein to the
contrary, MLI may transfer the Purchase Shares to any affiliate of MLI, together
with all of MLI's rights hereunder, provided that (i) such affiliate shall be an
"accredited investor" within the meaning of Rule 501 (a)(1), (2), (3) or (7) of
Regulation D promulgated under the Securities Act, and (ii) such transfer shall
be consistent with the investment representations set forth at Section 5.1
hereto. In the event of such an assignment such affiliate shall in all respects
be substituted for MLI as a party hereto.
SECTION 16. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall constitute an original, but all of which, when
taken together, shall constitute but one instrument, and shall become effective
when one or more counterparts have been signed by each party hereto and
delivered to the other parties.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized representatives as of the day and year first
above written.
MEDITRUST CORPORATION
By: /s/ MICHAEL S. BENJAMIN
------------------------------
Name: Michael S. Benjamin, Esq.
Title: Senior Vice President
MEDITRUST OPERATING COMPANY
By: /s/ MICHAEL J. BOHNEN
------------------------------
Name: Michael J. Bohnen
Title: Secretary
MERRILL LYNCH INTERNATIONAL
By: /s/ STEPHEN GUNDERSON
------------------------------
Name: Stephen Gunderson
Title: Vice President
MERRILL LYNCH, PIERCE, FENNER &
SMITH INCORPORATED
By: /s/ GEORGE W. RHYNE
------------------------------
Name: George W. Rhyne
Title: Managing Director
Exhibit 4.29
PURCHASE PRICE ADJUSTMENT MECHANISM AGREEMENT
THIS PURCHASE PRICE ADJUSTMENT MECHANISM AGREEMENT is made as of the 26th
day of February, 1998, by and between Meditrust Corporation (the "REIT"),
Meditrust Operating Company ("OPCO," and together with the REIT, the
"Companies") and Merrill Lynch International ("MLI"), through its agent Merrill
Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S").
The purpose of this Purchase Price Adjustment Mechanism Agreement is to set
forth the terms and conditions of the purchase price adjustment transaction (the
"Transaction") entered into between MLI and the Companies.
IN CONSIDERATION of the mutual representations, warranties and covenants
herein contained, and on the terms and subject to the conditions herein set
forth, the Companies and MLI hereby agree as follows:
Section 1. Definitions.
As used in this Agreement, the following terms shall have the meanings set
forth below:
(a) Ability to Settle in Paired Share. As of the date hereof, the
Companies have not, and after the date hereof, the Companies will not,
enter into any obligation that would contractually prohibit the Companies
from delivering Paired Shares pursuant to Sections 3.2, 4.2 or 5 of this
Agreement.
(b) Adjustment Shares. 8,500,000 million Paired Shares, as may be
adjusted from time to time pursuant to Section 1(b), reduced by the number
of Settlement Shares that are the subject of Settlement pursuant to Section
3.1 or Section 4.1.
(c) Certain Adjustments to Reference Price or Number of Adjustment
Shares. In the event of:
(i) a subdivision, consolidation or reclassification of the Paired
Shares, or a free distribution or dividend of any Paired Shares to all
existing holders of Paired Shares by way of bonus, capitalization or
similar issue;
(ii) a distribution or dividend to all existing holders of Paired
Shares of (A) additional Paired Shares or (B) other share capital or
securities granting right to payment of dividends and/or the proceeds
of liquidation of the Companies equally or proportionally with such
payments to holders of Paired Shares, an adjustment shall thereupon be
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effected to the Reference Price and/or the Adjustment Shares at the
time of such event with the intent that following such adjustment, the
value of this Transaction is economically equivalent to the value
immediately prior to the occurrence of the event causing the
adjustment.
(d) Block Sale. any privately negotiated sales of the Paired Shares
involving at least a block of such security (as defined in Rule 10b-18
under the Exchange Act) that are not effected to or through a broker or
dealer.
(e) Business Day. Any day other than Saturday, Sunday, or any other
day on which banking institutions in the States of Delaware or New York are
not open for business.
(f) Calculation Agent. MLI, whose calculations and determinations
shall be made in a reasonable manner.
(g) Closing Price. The last sale price of the Paired Shares on the
Relevant Exchange on the relevant date.
(h) Commission. The Securities and Exchange Commission.
(i) Compounding Period. Means each period commencing on and including:
(i) in the case of the first Compounding Period, the Initial
Settlement Date and ending on but excluding the first Reset Date, and
(ii) for each period thereafter, a Reset Date and ending on (but
excluding) the next following Reset Date.
(j) Date of Effectiveness. Means the date a resale registration
statement covering any resales of the Purchase Shares is declared effective
under the Securities Act by the Commission.
(k) Distribution Amount. Means, on each Reset Date, an amount in U.S.
Dollars equal to:
(i) the sum of all cash distributions paid on a single Paired Share
during the relevant Compounding Period; plus
(ii) an amount representing interest that could have been earned on
such distributions at the USD LIBOR rate having a designated maturity
of 1 month, plus Spread, for the period from the date that such
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distributions would have been received by a holder of such number of
Paired Shares until such Reset Date.
(l) DRIP Distribution. Sales to any Distribution Reinvestment Plan now
or hereafter established by the Companies, or to any agent acting on behalf
of such Plan, for sale to participants in such Plan.
(m) Effective Date. February 26, 1998.
(n) Exchange Act. The Securities Exchange Act of 1934, as amended.
(o) Exchange Trading Day. Each day on which the Relevant Exchange is
open for trading.
(p) Execution Price. The Closing Price on the Effective Date.
(q) Gradual Market Distribution. An offering of the Paired Shares into
the existing trading market for outstanding shares of the same class at
other than a fixed price on or through facilities of a national securities
exchange or to or through a market maker otherwise than on an exchange.
(r) Initial Price. Means,
(i) for the Compounding period ending on the first Reset Date, in
amount in U.S. Dollars equal to $32.625, and
(ii) for each subsequent Reset Date, the Reference Price as calculated
on or adjusted as of the prior Reset Date.
(s) Initial Settlement Date. February 26, 1998.
(t) Interim Settlement Amount. With respect to a given Reset Date,
means the amount by which the Reference Amount minus $10,000,000 exceeds
the product of (x) the Closing Price and (y) the number of Adjustment
Shares.
(u) Interim Settlement Shares. The Interim Settlement Amount divided
by the Closing Price on such Reset Date.
(v) Maturity Date. February 26, 1999.
(w) Paired Shares. Units consisting of one share of common stock, $.10
par value per share, of the REIT and one share of common stock, par value
$.10 per share, of OPCO, which shares are paired and traded as a unit.
Prior to the Date of Effectiveness, references to "Paired Shares" shall
also include units consisting of one
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share of Class A Non-Voting Convertible Common Stock, $.10 par value per
share, of the REIT and one share of Class A Non-Voting Convertible Common
Stock, $.10 par value per share, of OPCO, which shares are paired and
traded as a unit.
(x) Relevant Exchange. Means, with respect to any Exchange Trading
Day, the, principal Stock Exchange on which the Paired Shares are traded on
that day.
(y) Reference Amount. On each Reset Date, the Reference Price
multiplied by the Adjustment Shares or Settlement Shares, as applicable.
(z) Reference Price. On each Reset Date, the Reference Price shall be
determined by:
(i) compounding the Initial Price for each Compounding Period at USD
LIBOR rate plus Spread for a designated maturity of 1 month
(Actual/360 day count fraction) to such Reset Date and
(ii) subtracting the Distribution Amount at that date.
(aa) Reset Date. Means, through the final Settlement Date, (i) the
last day of each three-month period, beginning on May 31, 1998 (provided,
that if such day is not a Business Day then the Reset Date shall be the
next Business Day) and (ii) as to any Settlement Shares, each Settlement
Date.
(ab) Securities Act. The Securities Act of 1933, as amended.
(ac) Settlement. Has the meaning set forth in Section 3.1 or Section
4.1, as applicable.
(ad) Settlement Amount. The net sales proceeds realized by or on
behalf of MLI for all sales of Paired Shares in connection with any
Settlement, calculated as follows:
(iii) if the manner of Settlement Sale pursuant to Section 3.1 or 4.1
is an Underwritten Secondary Offering, the Settlement Amount will
equal the gross proceeds realized, not of a negotiated underwriting
discount;
(iv) if the manner of Settlement Sale pursuant to Section 3.1 or 4.1
is a Block Sale, the Settlement Amount will equal the gross sales
proceeds realized, net of a negotiated underwriting discount;
(v) if the manner of Settlement Sale pursuant to Section 3.1 or 4.1 is
a Gradual Market Distribution, the Settlement Amount will equal the
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gross sales proceeds realized from sales to the market over the period
of the distribution, net of a resale spread of 50 basis points;
(vi) if the manner of Settlement Sale pursuant to Section 3.1 or 4.1
is a DRIP Distribution, the Settlement Amount will equal the gross
sales proceeds realized from sales to any Purchase Agent for a Company
Distribution Reinvestment Plan, net of a resale spread of 50 basis
points;
(ae) Settlement Date. The date on which, in accordance with standard
market practice, the Paired Shares are delivered and the funds received in
respect of any Settlement in accordance with Section 3.2 or Price Decline
Termination Event in accordance with Section 4.2.
(af) Settlement Restriction Period. The period from and including the
Effective Date to and including the earlier of the date of the closing of
the merger transaction between the Companies and La Quinta and the date of
any termination of the related merger agreement.
(ag) Settlement Shares. The number of Adjustment Shares subject to
Settlement.
(ah) Spread. 75 basis points, subject to adjustment pursuant to
Section 6.2.
(ai) Stock Exchange. Means the New York Stock Exchange, the American
Stock Exchange or NASDAQ.
(aj) Underwritten Secondary Offering. An underwritten fixed price
offering of the Paired Shares.
(ak) USD LIBOR. The London Inter Bank Offered Rate in respect of U.S.
Dollars for the designated maturity as quoted on Page 3750 on the Telerate
Service (or such other page as may replace Page 3750 on that service) as of
11:00 a.m., London time, on the date on which it is to be determined.
Section 2. Representations and Warranties.
The representations and warranties of the Companies in Section 4 of the
Purchase Agreement, dated as of February 26, 1998 (the "Purchase
Agreement"), among the Companies, MLI and MLPF&S are hereby incorporated by
reference herein, and the Companies hereby so represent and warrant to MLI.
The provisions of Section 6 of the Purchase Agreement shall also be
applicable to any Paired Shares delivered to MLI under this Agreement.
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Section 3. Settlement.
3.1 Settlement Sale.
On any Reset Date, on any Exchange Trading Date that is one month or two
months following a Reset Date (in which case, the related Settlement (as
defined below) will include standard market interest breakage fees) or on
any other Exchange Trading Date agreed by both parties, up to and including
the Maturity Date, after the end of the Settlement Restriction Period, the
Companies may give telephonic notice to MLI to settle, and MLI shall
settle, in a commercially reasonable manner (which may require sales over a
period of more than 1 day), all or a portion of the Adjustment Shares
("Settlement"), as specified by the Companies, through sale of not less
than the number of Paired Shares, the sale of which would result in a
Settlement Amount equal to 100% of the Reference Amount on the Settlement
Date, and not more than the number of Paired Shares the sale of which would
result in a Settlement Amount equal, to 105% of the Reference Amount on the
Settlement Date, in any of the manners set forth below, as selected by the
Companies:
(i) an Underwritten Secondary Offering (for which the Companies
shall provide at least 21 Business Days prior notice to MLI);
(ii) a Block Sale (for which the Companies shall provide at least
3 Business Days prior notice to MLI);
(iii) a Gradual Market Distribution (for which the Companies
shall provide at least 1 Business Days prior notice to MLI); or
(iv) a DRIP Distribution (for which the Companies shall provide
at least 1 Business Days prior notice to MLI).
If the Companies do not specify a manner of sale, a Gradual Market
Distribution shall be used. Settlement procedures shall begin as soon as
commercially practicable, as determined by MLI, after MLI receives notice
from the Companies and no later than the first Exchange Trading Day after
expiration of the notice period unless otherwise agreed by the Companies
and MLI. At such time as the Companies deliver notice pursuant to this
Section 3.1, the Companies may direct MLI to sell not less than the number
of Paired Shares equal to the number of Settlement Shares, and MLI shall
comply with such direction in a commercially reasonable manner.
3.2 Settlement.
(a) If, on the Settlement Date, the Settlement Amount is greater than
the Reference Amount, MLI will pay the Companies an amount in cash or
Paired Shares (valued at the Closing Price on the Settlement Date) equal to
the difference.
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(b) If the number of Paired Shares sold by MLI pursuant to Section 3.1
is greater than the number of Settlement Shares, the Companies shall
deliver to MLI, on the Settlement Date, a number of Paired Shares equal to
the difference. If the number of Paired Shares sold by MLI pursuant to
Section 3.1 is less than the number of Settlement Paired Shares, MLI shall
deliver to the Companies, on the Settlement Date, a number of Paired Shares
equal to the difference.
(c) In all events, MLI will pay to the Companies an amount equal to
all cash distributions payable to holders of the Paired Shares but not paid
prior to the Settlement Date, on a number of Paired Shares equal to the
Settlement Shares, on the Business Day after the relevant distribution
payment date declared by the Board of Directors of the REIT and OPCO.
(d) If MLI, in connection with any Settlement, receives net sales
proceeds, as calculated pursuant to the definition of Settlement Amount,
from the sale of Paired Shares prior to the applicable Settlement Date,
MLI, on the Settlement Date, shall pay the Companies an amount in cash
representing interest that could have been earned on such net sales
proceeds at the USD LIBOR rate having a designated maturity of 1 month,
plus Spread, for the period from the date that such net sales proceeds are
received by MLI until such Settlement Date.
Section 4. Price Decline Termination Event.
4.1 Price Decline Termination Event Sale.
If the Closing Price on any Exchange Trading Day after the end of the
Settlement Restriction Period falls below any Termination Price listed in
the following schedule ("Price Decline Termination Event"), MLI will, at
its discretion, in a commercially reasonable manner (which may require
sales over a period of more than 1 day) following notice to the Companies,
settle the percentage of the Adjustment Shares indicated in the table below
("Settlement") through sale of not less than the number of Paired Shares,
the sale of which would result in a Settlement Amount equal to 100% of the
Reference Amount on the Settlement Date, and not more than the number of
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Paired Shares, the sale of which would result in a Settlement Amount equal
to 105% of the Reference Amount on the Settlement Date, in any of the
manners specified in Section 3.1:
Percentage of Adjustment
Shares to be Settled Termination Price
-------------------- -----------------
25% $25.50
50% $23.50
75% $21.50
100% $19.50
Settlement procedures shall commence on the date specified by MLI.
4.2 Price Decline Termination Event Settlement.
(a) If, on the Settlement Date, the Settlement Amount is greater than
the Reference Amount, MLI will pay the Companies an amount in cash equal to
the difference,
(b) If the number of Paired Shares sold by MLI pursuant to Section 4.1
is greater than the number of Settlement Shares, the Companies shall
deliver to MLI, on the Settlement Date, a number of Paired Shares equal to
the difference. If the number of Paired Shares sold by MLI pursuant to
Section 4.1 is less than the number of Settlement Shares, MLI shall deliver
to the Companies, on the Settlement Date, a number of Paired Shares equal
to the difference.
(c) In all events, MLI will pay to the Companies an amount equal to
all cash distributions payable to holders of the Paired Shares but not paid
prior to the Settlement Date, on a number of Paired Shares equal to the
Settlement Shares, on the Business Day after the relevant distribution
payment date declared by the Boards of Directors of the REIT and OPCO,
(d) If MLI, in connection with any Settlement, receives net sales
proceeds, as calculated pursuant to the definition of Settlement Amount,
from the sale of Paired Shares prior to the applicable Settlement Date,
MLI, on the Settlement Date, shall pay the Companies an amount in cash
representing interest that could have been earned on such net sales
proceeds at the USD LIBOR rate having a designated maturity of 1
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month, plus Spread, for the period from the date that such net sales
proceeds are received by MLI until such Settlement Date.
Section 5. Interim Settlements.
Within 5 Business Days following each Reset Date, the Companies shall
deliver the Interim Settlement Amount in Interim Settlement Shares to MLI
or its agent for deposit in a collateral account in the name of the Company
at MLPF&S or a custodian or depository designated by MLPF&S. Interim
Settlement Shares delivered after the fifth Business Day following the
termination of the Settlement Restriction Period shall be the subject of a
registration statement covering any sale of such interim Settlement Shares
by MLPF&S that has been declared effective under the Securities Act by the
Commission (an "Effective Registration Statement") Interim Settlement
Shares shall be registered in the stock register of the Companies as
instructed by MLI and shall be held by MLPF&S or a custodian or depository
designated by MLPF&S. If the Companies is unable to deliver Interim
Settlement Shares in accordance with the preceding sentence, the Companies
shall deliver "restricted" Interim Settlement Shares that are the subject
of an Effective Registration Statement in an amount equal to the Interim
Settlement Amount. If the restricted Interim Settlement Shares are not the
subject of an Effective Registration Statement required by the preceding
sentence, the Companies shall deliver additional Interim Settlement Shares
equal to 50% of the Interim Settlement Amount. At such time as the Interim
Settlement Shares are the subject of an Effective Registration Statement,
the Companies may elect to have returned all additional Interim Settlement
Shares delivered pursuant to the preceding sentence. On any Reset Date, if
Interim Settlement Shares are held by MLI, MLI shall deliver to the
Companies within five (5) Business Days after such Reset Date, the amount
in Interim Settlement Shares by which the amount in Interim Settlement
Shares held by MLI (valued at the Closing Price on such Reset Date) plus
any cash amounts in the collateral account exceeds the Interim Settlement
Amount (or 150% of the Interim Settlement Amount, in the event that MLI
holds restricted Interim Settlement Shares that are not the subject of an
Effective Registration Statement). Distributions on the Interim Settlement
Shares will be deposited in the collateral account at MLPF&S or a custodian
or depositary designated by MLPF&S. The cash amounts in the collateral
account will earn interest at the USD LIBOR rate having a designated
maturity of 1 month plus Spread. Upon final Settlement, MLI shall
immediately release all claims to cash and Interim Settlement Shares held
in the collateral account (including interest earned thereon) and deliver
such amounts and all Interim Settlement Shares to the Companies.
Section 6. Certain Covenants and Other Provisions.
6.1 Par Value.
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MLI shall pay to the Companies $.10 par value per share for each share
comprising a Paired Share delivered to MLI pursuant to this Agreement.
6.2 Limitation on MLPF&S Ownership of Paired Shares.
MLPF&S will manage the settlement process in such a way as to ensure that
MLPF&S will not be the beneficial owner, or be deemed to be the beneficial
owner, at any given time of a number of Paired Shares that is greater than
9.25% of the Companies' outstanding Paired Shares.
6.3 Allocation of Payments by the MLI.
When making any payment to the Companies pursuant to this Agreement, MLI
shall allocate such payment between the REIT and OPCO in the manner
specified by the Companies.
6.4 Purchase Price Adjustment Treatment.
The Companies and the MLI agree, to the extent relevant to their respective
business and commercial activities and in the absence of an administrative
determination or judicial ruling to the contrary, to treat for United
States federal income tax and financial accounting purposes payments and
deliveries made under this Agreement as adjustments to the purchase price
paid for the Purchase Shares pursuant to Section 2 of the Purchase
Agreement.
6.5 Resale Registration Statement.
Any Paired Shares delivered by the Companies to MLI pursuant to this
Agreement shall be the subject of a resale registration statement that has
been declared effective under the Securities Act by the Commission (an
"Effective Resale Registration Statement"). In addition, if the Paired
Shares delivered to MLI pursuant to the Purchase Agreement (the "Purchase
Shares") are not the subject of an Effective Resale Registration Statement
by May 29, 1998, the Spread shall increase, retroactively effective
commencing on the Initial Settlement Date, to 200 basis points. At such
time as the Purchase Shares are the subject of an Effective Resale
Registration Statement, the Spread shall be reduced, from and after such
time, to 75 basis points. The Companies further agree that they will cause
any resale registration statement to remain in effect until the earliest of
the date on which (i) the Adjustment Share Amount plus all of the Interim
Settlement Shares have been sold by or on behalf of MLI, or (ii) MLI has
advised the Companies that it no longer requires that such registration be
effective. The provisions of Section 5.2 and Section 7.2 of the Purchase
Agreement shall be deemed to apply to any resale registration statement
filed by the Companies pursuant to this Agreement.
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6.6 Delivery of Paired Shares.
The Companies covenant and agree with MLI that Paired Shares delivered by
the Companies pursuant to settlement events in accordance herewith will be
duly authorized, validly issued, fully paid and nonassessable. The issuance
of such Paired Shares will not require the consent, approval,
authorization, registration, or qualification of any government authority,
except such as shall have been obtained on or before the delivery date to
MLI in connection with any registration statement filed with respect to any
Paired Shares.
6.7 Securities Law Compliance.
Each party agrees that it will comply, in connection with this Transaction
and all related or contemporaneous sales and purchases of the Companies'
Paired Shares, with the applicable provisions of the Securities Act, the
Exchange Act and the rules and regulations thereunder.
6.8 Regulatory Compliance.
Each party agrees that if the delivery of Paired Shares upon settlement is
subject to any restriction imposed by a regulatory authority, it shall not
be an event of default, and the parties will negotiate in good faith a
procedure to effect settlement of such shares in a manner which complies
with any relevant rules of such regulatory authority and which is
satisfactory in form and substance to their respective counsel, subject to
Section 6.2 of this Agreement and Section 7 of the Purchase Agreement. Each
party further agrees that any sale pursuant to Section 3.1 may be delayed
or postponed if, in MLPF&S's judgement, such delay or postponement is
necessary to comply with the requirements of applicable law or regulation.
6.9 Settlement Transfer.
All settlements shall occur through DTC or any other mutually acceptable
depository.
6.10 Trading Authorization.
The following individuals and/or any individual authorized in writing by
the respective Treasurers of the Companies are authorized by the Companies
to provide trading instructions to MLI with regard to this transaction.
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For the REIT:
-------------
David Benson
Laurie Gerber
Michael Benjamin
Michael Bushee
For OPCO:
---------
Abraham Gosman
Michael Bohnen
The address, telephone number and facsimile number of each of these
individuals is: c/o Meditrust Companies, 197 First Avenue, Needham,
Massachusetts 02194, telephone: (781) 433-6000, and facsimile: (781)
433-1290.
6.11 Specific Performance.
The parties acknowledge and agree that the failure of the Companies or MLI
to deliver Paired Shares in accordance with the provisions hereof would
result in damage to the other party that could not be adequately
compensated by a monetary award. The parties therefore agree that, if
either party fails to deliver Paired Shares in accordance with the
provisions hereof, the other party may, in addition to all other remedies,
seek an order of specific performance from a court of appropriate
jurisdiction.
6.12 Governing Law.
The Agreement will be governed by and construed in accordance with the laws
of the State of New York without reference to choice of law doctrine.
6.13 Confidentiality.
Subject to the other applicable subsections of this Section 6, to any
contrary requirement of law and to the right of each party to enforce its
rights hereunder in any legal action, each party shall keep strictly
confidential and shall cause its employees and agents to keep strictly
confidential the terms of this Agreement and any information relating to or
concerning the other party which it or any of its agents or employees may
acquire pursuant to, or in the course of performing its obligation under,
any provision of this Agreement.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized representatives as of the day and year first
above written.
MERRILL LYNCH INTERNATIONAL
By: /s/ STEPHEN GUNDERSON
-------------------------------
Name: Stephen Gunderson
Title: Vice President
MEDITRUST OPERATING COMPANY
By: /s/ MICHAEL J. BOHNEN
-------------------------------
Name: Michael J. Bohnen
Title: Secretary
MEDITRUST CORPORATION
By: /s/ MICHAEL S. BENJAMIN
-------------------------------
Name: Michael s. Benjamin, Esq.
Title: Senior Vice President
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in these registration
statements of Meditrust Corporation and Meditrust Operating Company on Form S-4
dated March 27, 1998 of our report dated January 30, 1998, except for Note 16
for which the date is February 26, 1998, on our audits of the financial
statements of The Meditrust Companies and Meditrust Corporation as of December
31, 1997 and 1996, and for the years ended December 31, 1997, 1996, and 1995,
and Meditrust Operating Company as of December 31, 1997 and for the initial
period ended December 31, 1997.
/s/ COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
March 27, 1998
