<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of report (Date of earliest event reported): September 3, 1999
Hilton Hotels Corporation
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 1-3427 36-2058176
- --------------- ------------------------ --------------------
(State of (Commission File Number) (IRS Employer
Incorporation) Identification No.)
9336 Civic Center Drive
Beverly Hills, California 90210
---------------------------------------------------
(Address of principal executive offices) (Zip Code)
(310) 278-4321
----------------------------------------------------
(Registrant's telephone number, including area code)
<PAGE>
Item 5. Other Events
On September 7, 1999, Hilton Hotels Corporation announced that it had
entered into an Agreement and Plan of Merger dated as of September 3, 1999 with
Promus Hotel Corporation, pursuant to which Promus will merge into a
subsidiary of Hilton. In the merger, each share of common stock, $.01 par value,
of Promus will be converted into the right to receive either (i) $38.50 in cash,
without interest, or (ii) a number of shares of Hilton common stock, $2.50 par
value, equal to the Exchange Ratio, as defined in the Merger Agreement.
Fifty-five percent of the Promus shares will be converted into the cash
consideration while the remaining 45% will be converted into Hilton stock.
The Exchange Ratio is the number (rounded to the nearest ten-thousandth)
determined by dividing $38.50 by the Market Price of the Hilton common stock,
provided that the Exchange Ratio will not be greater than 3.2158 or less than
2.9096. The Merger Agreement provides that the Market Price per share of Hilton
common stock will be the average of the volume weighted average per share sales
price for twenty trading days selected by lot out of the thirty trading days
ending on the fifth trading day prior to the effective time of the merger. Under
certain circumstances set forth in the Merger Agreement, Hilton and Promus may
change the structure of the transaction to provide for the merger of Hilton's
acquisition subsidiary into Promus, or the creation of a new holding company
structure. The economic terms of the transaction would remain the same.
Consummation of the merger is subject to a number of conditions, including
Hilton and Promus stockholder approval.
Copies of Hilton's press release dated September 7, 1999 announcing the
merger and the Merger Agreement are attached to this Current Report on Form 8-K
as Exhibits 99.1 and 99.2, respectively, and are incorporated herein by
reference.
<PAGE>
Item 7. FINANCIAL STATEMENTS AND EXHIBITS.
7(c) EXHIBITS.
99.1 Press Release of Hilton Hotels Corporation and Promus Hotel
Corporation, dated September 7, 1999.
99.2 Agreement and Plan of Merger, dated as of September 3, 1999,
among Promus Hotel Corporation, Hilton Hotels Corporation and
Chicago Hilton, Inc.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: September 8, 1999 HILTON HOTELS CORPORATION
By: /s/ Thomas E. Gallagher
--------------------------------
Thomas E. Gallagher
Executive Vice President, Chief
Administrative Officer, General
Counsel and Secretary
<PAGE>
EXHIBIT INDEX
99.1 Press Release of Hilton Hotels Corporation and Promus Hotel
Corporation, dated September 7, 1999.
99.2 Agreement and Plan of Merger, dated as of September 3, 1999,
among Promus Hotel Corporation, Hilton Hotels Corporation and
Chicago Hilton, Inc.
<PAGE>
Contact: Marc Grossman - Hilton
(212) 872-7175 (9/7 only)
(310) 205-4030
Kathy Shepard - Hilton
(212) 872-7175 (9/7 only)
(310) 205-7676
Gregg Swearingen - Promus
(212) 872-7175 (9/7 only)
(901) 374-5468
HILTON, PROMUS ANNOUNCE MERGER AGREEMENT
-- $4 BILLION TRANSACTION TO CREATE ONE OF
WORLD'S LARGEST, MOST DIVERSE LODGING COMPANIES --
BEVERLY HILLS, CALIF., SEPTEMBER 7, 1999 -- Hilton Hotels Corporation
(NYSE:HLT), one of the world's premier owners and operators of hotel properties,
and Promus Hotel Corporation (NYSE:PRH), a leader in managing and franchising
highly regarded hotel brands, today announced a definitive merger agreement in
which Hilton will acquire the shares of Promus in a cash-and-stock transaction.
Per the terms of the merger agreement, Hilton will pay $38.50 per share in
cash for 55 percent of the Promus shares. The remaining 45 percent of Promus
shares will be exchanged for Hilton common stock (collar and exchange ratios
described below). Promus shareholders will have the right to elect to be paid
in cash or Hilton stock, subject to prorations to reflect the 55 percent cash,
45 percent stock ratios. Total consideration of the transaction, including
Promus debt, is approximately $4.0 billion. Upon completion, the merger will
create one of the world's largest and most diverse lodging companies and combine
under one entity the industry's premier brand names.
<PAGE>
The agreement, announced jointly by Stephen F. Bollenbach, president and
chief executive officer of Hilton Hotels Corporation and Norman P. Blake, Jr.,
chairman, president and chief executive officer of Promus Hotel Corporation, has
been approved by the Boards of Directors of both companies. Completion of the
merger is expected by year-end 1999. Approval of shareholders of both companies
is required. It is anticipated that the transaction will be tax-free to Promus
shareholders with respect to any Hilton stock received in the merger, but the
transaction is not conditioned on such tax-free treatment.
Under terms of the agreement, the stock portion of the transaction has a
+/- 5 percent "collar" centered around the average Hilton stock price for the
30 trading days ended September 3 ($12.60). Accordingly, in the event that
the average Hilton stock price during the measurement period prior to closing
is between $11.97 and $13.23, Promus shareholders who elect stock will
receive a number of Hilton shares equal to $38.50 divided by the average
Hilton stock price during the measurement period. In the event the average
Hilton stock price during a 30-day measurement period immediately prior to
closing is less than $11.97, Promus shareholders electing stock would receive
3.2158 shares of Hilton for each Promus share. If the average Hilton stock
price is greater than $13.23, the exchange ratio would be fixed at 2.9096
Hilton shares for each Promus share. Hilton has received a commitment from
Bank of America N.A., which has fully underwritten amounts sufficient to
complete the transaction, including related debt refinancings.
-more-
<PAGE>
The Hilton-Promus combination will have nearly 1,700 hotels, approximately
290,000 rooms and 85,000 employees, and (based on current analyst estimates and
including anticipated year one synergies) pro forma 2000 EBITDA of approximately
$1.3 billion. Hilton estimated that the merger will result in annual synergies
- -- operating efficiencies, cost savings and revenue enhancement opportunities --
in the $55 million range for the first year, and $90 million thereafter on a
run-rate basis. The transaction will be accounted for as a purchase. Based on
current analyst estimates, the transaction is expected to be moderately dilutive
to Hilton earnings in 2000 due to incremental depreciation and amortization
including goodwill. On a cash flow basis (less maintenance capital
expenditures), the transaction is expected to be immediately accretive to pro
forma cash earnings per share. At year-end 1999, the new company will have
approximately $5.4 billion of total pro forma debt (net of the Park Place
Entertainment allocated debt of $625 million).
Aided by the anticipated cost savings, increased revenues from management
and franchise fees, strategic development and expansion of the combined
company's brands and other synergies, Hilton said it expects to achieve annual
average EBITDA growth in excess of 10 percent, and diluted EPS growth in excess
of 20 percent over the next several years. As a result of the merger, the
percentage of Hilton's estimated pro forma 2000 EBITDA generated from
management, franchise and service fees is expected to more than double from
approximately 13 percent as a stand-alone company to approximately 30 percent.
-more-
<PAGE>
The new company will bring under one umbrella, and feature a
complementary portfolio of, many of the world's best known and most highly
regarded hotel brands, including Hilton, Embassy Suites, Hilton Garden Inn
hotels, Hampton Inn, Doubletree, Homewood Suites and Red Lion. It will
feature a significant presence in virtually every important industry
category, from the upscale, mid-priced and limited-service segments to
extended stay and vacation ownership.
Among the strategic initiatives and benefits envisioned through the merger:
-- Ability to include the Promus brands in Hilton's award-winning HHonors
frequent guest program, Hilton Reservations Worldwide, Hilton.com and
Hilton Direct.
-- Significant economies of scale in such areas as marketing, purchasing,
operations and technology.
-- Maintenance and growth of Doubletree as a complementary brand to
Hilton.
-- Blending both companies' extended-stay products.
-- Integration of both companies' superior information systems.
-- Concentration of regional operations centers to enhance management of
the expanded portfolio of owned and managed hotels.
Corporate headquarters will be in Beverly Hills, California, with a
significant operational presence being maintained in Memphis, Tennessee.
-more-
<PAGE>
"This exciting and strategically compelling combination, especially when
placed alongside our alliance with Hilton International, creates a global hotel
ownership, management and franchising powerhouse with the size, geographic
scope, management, respected brands and resources to be a leader in the
hospitality industry for decades to come -- a future that we are convinced will
bring enormous benefits to our respective shareholders, employees, customers,
hotel owners and franchisees," Bollenbach said.
"It is a transaction that immediately accomplishes our longstanding
objectives of acquiring outstanding hotel assets, leveraging our brands and
growing our franchising, management and timeshare businesses. The recognition,
esteem and operating performances of Promus' Embassy Suites, Hampton Inn,
Doubletree, Homewood Suites and Red Lion brands and the leadership position
these brands enjoy in their respective market segments will immediately enhance
and strengthen our existing vibrant and growing stream of management and
franchise revenues."
Mr. Bollenbach continued: "In an industry where size and scale are
important, we are maximizing our ability to achieve operating efficiencies and
moving forward with development and acquisition programs to grow the company and
create value for our shareholders and bring even more services and destinations
and choices to our customers. And in an industry where brand value cannot be
overstated, this combination brings together some of the most instantly
recognizable, complementary and esteemed brand names to be found anywhere."
"I am particularly pleased to be working on this transaction with Norm
Blake, who has been resolute in his desire to bring value to his shareholders,
hotel owners and employees, and I look forward to coordinating with him and his
team a smooth and effective transition."
<PAGE>
Mr. Blake said, "Hilton brings certain attributes which allow Promus to be
increasingly more competitive, namely 1) a 'flywheel' brand which provides broad
market awareness and consumer equity to complement the Promus brand portfolio;
2) a well established customer loyalty/frequency program to drive property level
revenues; 3) extensive distribution and global market access to broaden market
reach; 4) timesharing owner/operator expertise to augment Promus' established
market position; and 5) a strong national sales force to cross-sell brands and
drive group business."
"Combining these complementary strengths with Promus' strong brands and
proven franchising and hotel management capabilities created by Promus'
outstanding employees represents a significant benefit to all of our
stakeholders," he said.
The Hilton system currently includes some 275 owned, managed or franchised
hotels in North America with such famous properties as New York's
Waldorf=Astoria, Waikiki's Hilton Hawaiian Village and Chicago's Palmer House,
as well as the new mid-priced Hilton Garden Inn hotels, Hilton Residential
Suites extended-stay hotels and Hilton Grand Vacations timeshare facilities.
Promus Hotel Corporation is the franchisor/operator of the Doubletree
Hotels, Doubletree Guest Suites, Embassy Suites, Hampton Inn, Homewood Suites,
Hampton Inn & Suites, Doubletree Club, Red Lion Hotels, Embassy Vacation Resort
and Hampton Vacation Resort brands. The company also manages non-Promus branded
hotels and facilities in its University Hotel & Conference Center division. The
company franchises, operates or owns hotels throughout the United States and in
Canada, Mexico and Latin America. Promus is headquartered in Memphis, Tennessee
and has approximately 40,000 employees.
<PAGE>
When added to the hotels owned and/or operated by Hilton Group Plc -- the
U.K.-based company with which Hilton Hotels Corporation has a global strategic
alliance -- the new company's worldwide system will include approximately 1,900
hotels with approximately 350,000 rooms in 50 countries around the world.
Morgan Stanley Dean Witter and Donaldson, Lufkin & Jenrette Securities
Corporation served as investment advisors to Hilton, and Salomon Smith Barney
advised Promus.
THIS NEWS RELEASE CONTAINS FORWARD-LOOKING STATEMENTS WITH RESPECT TO THE
FINANCIAL CONDITION, RESULTS OF OPERATIONS AND BUSINESS OF HILTON AND PROMUS,
INCLUDING ESTIMATES AS TO ANTICIPATED REVENUES, EBITDA, COST SAVINGS AND TOTAL
SYNERGIES. THESE FORWARD LOOKING STATEMENTS ARE BASED ON PLANS, ESTIMATES AND
ASSUMPTIONS AND ARE SUBJECT TO RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL
RESULTS TO DIFFER MATERIALLY FROM THOSE INDICATED. AMONG THOSE RISKS AND
UNCERTAINTIES ARE THE ABILITY OF THE COMPANIES TO ACHIEVE INTEGRATION OF
OPERATING SYSTEMS, PERSONNEL AND FACILITIES AS QUICKLY AND EFFICIENTLY AS
PLANNED; GREATER THAN ANTICIPATED COSTS OF INTEGRATING THE TWO ORGANIZATIONS;
THE EFFECT OF "CHANGE-IN-CONTROL" CLAUSES IN CONTRACTS WHICH COULD LEAD TO
TERMINATION OR RENEGOTIATION AS THE RESULT OF THE TRANSACTIONS; AND THE ABILITY
OF THE COMPANIES TO RETAIN KEY PERSONNEL. OTHER FACTORS THAT MAY CAUSE ACTUAL
RESULTS TO DIFFER MATERIALLY FROM THOSE CONTEMPLATED INCLUDE CHANGES IN GENERAL
ECONOMIC CONDITIONS AND IN THE HOTEL AND TRAVEL INDUSTRIES, ADVERSE CHANGES IN
THE COSTS OF BORROWINGS, CHANGES IN REGULATORY REQUIREMENTS AND ACTIONS OF
COMPETITORS.
# # #
<PAGE>
AGREEMENT AND PLAN OF MERGER
dated as of
September 3, 1999
among
PROMUS HOTEL CORPORATION,
HILTON HOTELS CORPORATION
and
CHICAGO HILTON, INC.
<PAGE>
TABLE OF CONTENTS
<TABLE>
PAGE
----
<S> <C> <C>
ARTICLE 1 DEFINITIONS; INTERPRETATION
SECTION 1.01. DEFINITIONS..............................................1
SECTION 1.02. CERTAIN ACTIVITIES OF SUBSIDIARIES.......................6
ARTICLE 2 THE MERGER
SECTION 2.01. THE MERGER...............................................7
SECTION 2.02. CONVERSION OF SHARES.....................................9
SECTION 2.03. ELECTION OF CASH OR PARENT STOCK.........................9
SECTION 2.04. PRORATION...............................................11
SECTION 2.05. SURRENDER AND PAYMENT...................................13
SECTION 2.06. DISSENTING SHARES.......................................14
SECTION 2.07. STOCK OPTIONS...........................................15
SECTION 2.08. DEFERRED SHARES; GE WARRANTS; GE OPTIONS................15
SECTION 2.09. FRACTIONAL SHARES.......................................16
SECTION 2.10. WITHHOLDING RIGHTS......................................17
SECTION 2.11. LOST CERTIFICATES.......................................17
ARTICLE 3 THE SURVIVING CORPORATION
SECTION 3.01. CERTIFICATE OF INCORPORATION............................18
SECTION 3.02. BYLAWS..................................................18
SECTION 3.03. DIRECTORS AND OFFICERS..................................18
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF THE COMPANY
SECTION 4.01. CORPORATE EXISTENCE AND POWER...........................18
SECTION 4.02. CORPORATE AUTHORIZATION.................................19
SECTION 4.03. GOVERNMENTAL AUTHORIZATION..............................19
SECTION 4.04. NON-CONTRAVENTION.......................................19
SECTION 4.05. CAPITALIZATION..........................................20
SECTION 4.06. SUBSIDIARIES............................................21
</TABLE>
- -----------------------
(1) The Table of Contents is not a part of this Agreement.
i
<PAGE>
<TABLE>
<S> <C> <C>
SECTION 4.07. SEC FILINGS.............................................21
SECTION 4.08. FINANCIAL STATEMENTS....................................22
SECTION 4.09. DISCLOSURE DOCUMENTS....................................22
SECTION 4.10. ABSENCE OF CERTAIN CHANGES..............................23
SECTION 4.11. NO UNDISCLOSED MATERIAL LIABILITIES.....................24
SECTION 4.12. COMPLIANCE WITH LAWS....................................25
SECTION 4.13. LITIGATION..............................................25
SECTION 4.14. FINDERS' FEES...........................................25
SECTION 4.15. TAXES...................................................25
SECTION 4.16. EMPLOYEE BENEFIT PLANS..................................27
SECTION 4.17. ENVIRONMENTAL MATTERS...................................28
SECTION 4.18. ANTITAKEOVER STATUTES; RIGHTS AGREEMENT; DIRECTOR
VOTES...................................................29
SECTION 4.19. OPINION OF FINANCIAL ADVISOR............................29
SECTION 4.20. INSURANCE...............................................29
SECTION 4.21. INTELLECTUAL PROPERTY...................................29
SECTION 4.22. REAL PROPERTY...........................................30
SECTION 4.23. YEAR 2000 COMPLIANCE....................................30
SECTION 4.24. MANAGEMENT AND FRANCHISE AGREEMENTS.....................30
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF PARENT
SECTION 5.01. CORPORATE EXISTENCE AND POWER...........................31
SECTION 5.02. CORPORATE AUTHORIZATION.................................31
SECTION 5.03. GOVERNMENTAL AUTHORIZATION..............................32
SECTION 5.04. NON-CONTRAVENTION.......................................32
SECTION 5.05. CAPITALIZATION..........................................33
SECTION 5.06. SUBSIDIARIES............................................33
SECTION 5.07. SEC FILINGS.............................................34
SECTION 5.08. FINANCIAL STATEMENTS....................................35
SECTION 5.09. DISCLOSURE DOCUMENTS....................................35
SECTION 5.10. ABSENCE OF CERTAIN CHANGES..............................36
SECTION 5.11. NO UNDISCLOSED MATERIAL LIABILITIES.....................38
SECTION 5.12. COMPLIANCE WITH LAWS AND COURT ORDERS...................38
SECTION 5.13. LITIGATION..............................................38
SECTION 5.14. FINDERS' FEES...........................................38
SECTION 5.15. TAXES...................................................39
SECTION 5.16. EMPLOYEE BENEFIT PLANS..................................40
SECTION 5.17. ENVIRONMENTAL MATTERS...................................42
SECTION 5.18. FINANCING...............................................42
SECTION 5.19. ANTITAKEOVER STATUTES; RIGHTS AGREEMENT; DIRECTOR
VOTES...................................................43
SECTION 5.20. INSURANCE...............................................43
SECTION 5.21. INTELLECTUAL PROPERTY...................................43
SECTION 5.22. REAL PROPERTY...........................................44
SECTION 5.23. YEAR 2000 COMPLIANCE....................................44
SECTION 5.24. MANAGEMENT AND FRANCHISE AGREEMENTS.....................44
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C> <C>
SECTION 5.25. OPINION OF FINANCIAL ADVISOR............................45
ARTICLE 6 COVENANTS OF THE COMPANY
SECTION 6.01. CONDUCT OF THE COMPANY..................................45
SECTION 6.02. STOCKHOLDER MEETING; PROXY MATERIAL.....................48
SECTION 6.03. NO SOLICITATION; OTHER OFFERS...........................49
SECTION 6.04. AFFILIATES..............................................50
ARTICLE 7 COVENANTS OF PARENT
SECTION 7.01. CONDUCT OF PARENT.......................................51
SECTION 7.02. OBLIGATIONS OF MERGER SUBSIDIARY........................52
SECTION 7.03. VOTING OF SHARES........................................53
SECTION 7.04. DIRECTOR AND OFFICER LIABILITY .........................53
SECTION 7.05. EMPLOYEE MATTERS........................................54
SECTION 7.06. PARENT BOARD OF DIRECTORS...............................56
SECTION 7.07. PARENT STOCKHOLDER MEETING..............................56
SECTION 7.08. REGISTRATION STATEMENT..................................57
SECTION 7.09. STOCK EXCHANGE LISTING..................................57
SECTION 7.10. TAX-FREE NATURE OF DISTRIBUTION.........................57
SECTION 7.11. FINANCING AGREEMENTS....................................57
ARTICLE 8 COVENANTS OF PARENT AND THE COMPANY
SECTION 8.01. EFFORTS.................................................58
SECTION 8.02. CERTAIN FILINGS.........................................59
SECTION 8.03. PUBLIC ANNOUNCEMENTS....................................59
SECTION 8.04. FURTHER ASSURANCES......................................60
SECTION 8.05. ACCESS TO INFORMATION...................................60
SECTION 8.06. NOTICES OF CERTAIN EVENTS...............................60
SECTION 8.07. COOPERATION AS TO TAX MATTERS...........................61
SECTION 8.08. TRANSFER AND GAINS TAX..................................61
SECTION 8.09. AUDITORS' LETTERS.......................................61
SECTION 8.10. REGISTRATION RIGHTS AGREEMENT...........................61
ARTICLE 9 CONDITIONS TO THE MERGER
SECTION 9.01. CONDITIONS TO OBLIGATIONS OF EACH PARTY.................62
SECTION 9.02. CONDITIONS TO THE OBLIGATIONS OF PARENT AND MERGER
SUBSIDIARY..............................................62
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C> <C>
SECTION 9.03. CONDITIONS TO THE OBLIGATIONS OF THE COMPANY............63
ARTICLE 10 TERMINATION
SECTION 10.01. TERMINATION............................................64
SECTION 10.02. EFFECT OF TERMINATION..................................66
ARTICLE 11 MISCELLANEOUS
SECTION 11.01. NOTICES................................................67
SECTION 11.02. SURVIVAL OF REPRESENTATIONS AND WARRANTIES.............68
SECTION 11.03. AMENDMENTS; NO WAIVERS.................................68
SECTION 11.04. EXPENSES...............................................68
SECTION 11.05. SUCCESSORS AND ASSIGNS.................................70
SECTION 11.06. GOVERNING LAW..........................................70
SECTION 11.07. JURISDICTION...........................................70
SECTION 11.08. WAIVER OF JURY TRIAL...................................70
SECTION 11.09. COUNTERPARTS; EFFECTIVENESS............................70
SECTION 11.10. ENTIRE AGREEMENT.......................................70
SECTION 11.11. CAPTIONS...............................................71
SECTION 11.12. SEVERABILITY...........................................71
SECTION 11.13. SPECIFIC PERFORMANCE...................................71
</TABLE>
iv
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (the "AGREEMENT") dated as of September 3,
1999 among Promus Hotel Corporation, a Delaware corporation (the "COMPANY"),
Hilton Hotels Corporation, a Delaware corporation ("PARENT"), and Chicago
Hilton, Inc., a Delaware corporation and a wholly-owned subsidiary of Parent
("MERGER SUBSIDIARY").
WHEREAS, the respective Boards of Directors of Parent and the Company
have approved, and deem it advisable and in the best interests of their
respective stockholders to consummate, the acquisition of the Company by
Parent on the terms and conditions set forth herein.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS; INTERPRETATION
SECTION 1.01. DEFINITIONS. (a) The following terms, as used herein,
have the following meanings:
"ACQUISITION PROPOSAL" means any offer or proposal for a merger,
consolidation, share exchange, business combination, or other similar
transaction involving the Company or any of its Subsidiaries or any proposal
or offer to acquire, directly or indirectly, more than 20% of the voting
securities of the Company, or a substantial portion of the assets of the
Company and its Subsidiaries taken as a whole, other than the transactions
contemplated by this Agreement.
"AFFILIATE" means, with respect to any Person, any other Person directly
or indirectly controlling, controlled by, or under common control with such
Person; PROVIDED that, for purposes of this Agreement, Candlewood Hotel
Company, Inc. shall not be deemed an Affiliate of the Company.
"ALLIANCE COMPANY" means each of Hilton Reservations Worldwide, LLC,
Hilton Marketing Worldwide, LLC and Hilton HHonors Worldwide, LLC.
"CODE" means the Internal Revenue Code of 1986, as amended.
<PAGE>
"COMPANY BALANCE SHEET" means the consolidated balance sheet of the
Company as of December 31, 1998 and the footnotes thereto set forth in the
Company 10-K.
"COMPANY 10-K" means the Company's annual report on Form 10-K for the
fiscal year ended December 31, 1998.
"CONFIDENTIALITY AGREEMENT" means the Confidentiality Agreement dated as
of August 25, 1999 between the Company and Parent.
"DELAWARE LAW" means the General Corporation Law of the State of
Delaware.
"ENVIRONMENTAL LAWS" means any federal, state, local or foreign law
(including, without limitation, common law), treaty, judicial decision,
regulation, rule, judgment, order, decree, injunction, permit or governmental
restriction or requirement, relating to human health and safety, the
environment or to pollutants, contaminants, wastes or chemicals or any toxic,
radioactive, ignitable, corrosive, reactive or otherwise hazardous
substances, wastes or materials.
"ENVIRONMENTAL PERMITS" means, with respect to any Person, all permits,
licenses, franchises, certificates, approvals and other similar
authorizations of governmental authorities relating to or required by
Environmental Laws for the business of such Person or any of its Subsidiaries
as currently conducted.
"GE OPTIONS" means options to purchase an aggregate of 20,000 Shares
issued on June 30, 1994 to GE Investment Hotel Partners I, Limited
Partnership, and options to purchase an aggregate of 2,500 Shares issued to
Trustees of the General Electric Pension Trust, and in each case issued by a
predecessor of the Company and subsequently assumed by the Company.
"GE WARRANTS" means warrants to purchase an aggregate of 262,753 Shares
issued on November 8, 1996 to PT Investments Inc. by a predecessor of the
Company and subsequently assumed by the Company.
"HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976.
"LIEN" means, with respect to any property or asset, any mortgage, lien,
pledge, charge, security interest, encumbrance or other adverse claim of any
kind in respect of such property or asset. For purposes of this Agreement, a
Person shall be deemed to own subject to a Lien any property or asset that it
has acquired or holds subject to the interest of a vendor or lessor under any
conditional sale agreement, capital lease or other title retention agreement
relating to such property or asset.
2
<PAGE>
"MATERIAL ADVERSE EFFECT" means, with respect to any Person, a material
adverse effect on the condition (financial or otherwise), business, assets or
results of operations of such Person and its Subsidiaries, taken as a whole,
except any such effect resulting from: (i) changes in circumstances or
conditions affecting the hotel, motel or travel industries in general or
affecting any segment or region thereof in which such Person or its
Subsidiaries operates, (ii) changes in general economic or business
conditions in the United States or (iii) this Agreement or the transactions
contemplated hereby or the announcement hereof, including, but not limited
to, any stockholder litigation brought or threatened in respect of this
Agreement or the Merger. Accordingly, a "COMPANY MATERIAL ADVERSE EFFECT"
means a Material Adverse Effect on the Company and its Subsidiaries, taken as
a whole, and a "PARENT MATERIAL ADVERSE EFFECT" means a Material Adverse
Effect on Parent and its Subsidiaries, taken as a whole.
"1933 ACT" means the Securities Act of 1933.
"1934 ACT" means the Securities Exchange Act of 1934.
"PARENT BALANCE SHEET" means the consolidated balance sheet of Parent as
of December 31, 1998 and the footnotes thereto set forth in the Parent 10-K.
"PARENT NOTES" means any material indebtedness of Parent or PPEC for
which Parent is liable.
"PARENT STOCK" means the common stock, $2.50 par value, of Parent.
"PARENT 10-K" means Parent's annual report on Form 10-K for the fiscal
year ended December 31, 1998.
"PERSON" means an individual, corporation, partnership, limited
liability company, association, trust or other entity or organization,
including a government or political subdivision or an agency or
instrumentality thereof.
"RIGHTS" means the Series A Junior Participating Preferred Stock
Purchase Rights issued and issuable pursuant to the Rights Agreement dated as
of December 1, 1997 between the Company and First Union National Bank, as
amended (the "Rights Agreement").
"SEC" means the Securities and Exchange Commission.
"SHARES" means the shares of common stock, $.01 par value, of the
Company.
"SUBSIDIARY" means, with respect to any Person, any entity of which (i)
such Person or any other Subsidiary of such Person is a general partner
(excluding
3
<PAGE>
partnerships the general partnership interests of which held by such Person
or any Subsidiary of such Person do not have a majority of the economic
interests in such partnership) or (ii) securities or other ownership
interests having ordinary voting power to elect a majority of the board of
directors or other persons performing similar functions are at any time
directly or indirectly owned by such Person; PROVIDED that, for purposes of
this Agreement, Candlewood Hotel Company, Inc. shall not be deemed a
Subsidiary of the Company.
Any reference in this Agreement to a statute shall be to such statute,
as amended from time to time, and to the rules and regulations promulgated
thereunder.
(b) Each of the following terms is defined in the Section set forth
opposite such term:
<TABLE>
<CAPTION>
TERM SECTION
<S> <C>
Affected Employee................................................. 7.05(c)
Aggregate Shares.................................................. 2.04(a)
Alternative Double Merger Structure............................... 2.01(f)
Antitrust Law..................................................... 8.01(b)
Bank of America................................................... 5.18
Bank of New York Facility......................................... 5.18
Cash Consideration................................................ 2.02(c)
Cash Election..................................................... 2.03(a)
Cash Proration Factor............................................. 2.04(b)
cause............................................................. 7.05(f)
Certificates...................................................... 2.05
Commitment Letter................................................. 5.18
Common Shares Trust............................................... 2.09(b)
Company Designees................................................. 7.06
Company Disclosure Schedule....................................... Article 4
Company Employee Plans............................................ 4.16(a)
Company Merger Subsidiary......................................... 2.01(f)
Company SEC Documents............................................. 4.07
Company Securities................................................ 4.05
Company Stock Option.............................................. 2.07
Company Stockholder Meeting....................................... 6.02
Company Subsidiary Securities..................................... 4.06
Controlling Shareholder........................................... 5.15(i)
Credited Shares................................................... 2.08(a)
Directors Plan.................................................... 2.08(a)
Directors Program................................................. 2.08(a)
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
TERM SECTION
<S> <C>
Dissenting Shares................................................. 2.06
Distribution...................................................... 5.15(g)
DOJ............................................................... 8.01(b)
Effective Time.................................................... 2.01
Election.......................................................... 2.03(a)
Election Date..................................................... 2.03(b)
ERISA............................................................. 4.16(a)
ERISA Affiliate................................................... 4.16(a)
Excess Shares..................................................... 2.09(a)
Exchange Agent.................................................... 2.05
Exchange Ratio.................................................... 2.02(c)
Existing Registration Rights Agreement............................ 8.10
Existing Senior Credit Facility................................... 5.18
Financing Agreements.............................................. 7.11(a)
Form of Election.................................................. 2.03(a)
FTC............................................................... 8.01(b)
GAAP.............................................................. 4.08
Gains Taxes....................................................... 8.08
Guarantee of Delivery............................................. 2.03(b)
Indemnified Person................................................ 7.04
Joint Proxy Statement............................................. 5.09(a)
Market Price...................................................... 2.02(c)
Material Company Agreements....................................... 4.24
Material Parent Agreements........................................ 5.24
Maximum Cash Shares............................................... 2.04(a)
Merger............................................................ 2.01
Merger Consideration.............................................. 2.02(c)
Multiemployer Plan................................................ 4.16(b)
New Hilton........................................................ 2.01(f)
Non-Electing Share................................................ 2.04(b)
NYSE.............................................................. 2.02(c)
Outside Termination Date.......................................... 10.01(b)
Parent Disclosure Schedule........................................ Article 5
Parent Employee Plans............................................. 5.16(a)
Parent Merger Subsidiary.......................................... 2.01(f)
Parent Rights..................................................... 5.19(b)
Parent Rights Agreement........................................... 5.19(b)
Parent SEC Documents.............................................. 5.07
Parent Securities................................................. 5.05(b)
Parent Stockholder Meeting........................................ 7.07
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
TERM SECTION
<S> <C>
Parent Subsidiary Securities...................................... 5.06(b)
PPEC.............................................................. 5.15(g)
Registration Statement............................................ 5.09
Required Cash Amount.............................................. 5.18
Stock Consideration............................................... 2.02(c)
Stock Election.................................................... 2.03(a)
Stock Proration Factor............................................ 2.04(c)
Stock Transfer Taxes.............................................. 8.08
Superior Proposal................................................. 6.02
Surviving Corporation............................................. 2.01
Tax Return........................................................ 4.15
Taxes............................................................. 4.15
Total Consideration............................................... 2.01(e)
Total Stock Value................................................. 2.01(e)
</TABLE>
SECTION 1.02. CERTAIN ACTIVITIES OF SUBSIDIARIES. The parties hereto
acknowledge that certain Subsidiaries of the Company and of Parent
(including, for example, partnerships formed for the purpose of owning and/or
operating single hotel properties) have engaged, and may after the date
hereof engage, in the ordinary course of their or the Company's or Parent's
businesses, in the following activities:(a) the declaration, setting aside
and payment of dividends or other distributions and (b) the repurchase,
redemption or other acquisition of, or amendment to the existing terms of,
capital stock or other ownership interests of such Subsidiaries.
Notwithstanding anything else in this Agreement, the parties agree that any
such activity referred to in clause (a) or (b) by any such Subsidiary will
not constitute the breach of any representation and warranty of the Company
or Parent, as the case may be, made pursuant to this Agreement or the
violation of any covenant binding on the Company or Parent, as the case may
be, pursuant to this Agreement, so long as such activity is (i) in the
ordinary course of business consistent with past practice,(ii) on arm's
length terms and (iii) permitted or required pursuant to any agreement.
ARTICLE 2
THE MERGER
SECTION 2.01. THE MERGER. (a) Subject to Section 2.01(e) and Section
2.01(f), at the Effective Time, the Company shall be merged (the "MERGER")
with and into Merger Subsidiary in accordance with Delaware Law, whereupon
the separate existence of the Company shall cease, and Merger Subsidiary
shall be the surviving corporation (the "SURVIVING CORPORATION").
6
<PAGE>
(b) As soon as practicable after satisfaction or, to the extent
permitted hereunder, waiver of all conditions to the Merger, the Company and
Merger Subsidiary will file a certificate of merger with the Delaware
Secretary of State and make all other filings or recordings required by
Delaware Law in connection with the Merger. The Merger shall become effective
at such time (the "EFFECTIVE TIME") as the certificate of merger is duly
filed with the Delaware Secretary of State or at such later time as is
specified in the certificate of merger.
(c) From and after the Effective Time, the Surviving Corporation shall
possess all the rights, powers, privileges and franchises and be subject to
all of the obligations, liabilities, restrictions and disabilities of the
Company and Merger Subsidiary, all as provided under Delaware Law.
(d) The closing of the Merger shall take place (i) at the offices of
Davis Polk & Wardwell, 450 Lexington Avenue, New York, NY, as soon as
practicable, but in any event within three business days after the day on
which the last to be fulfilled or waived of the conditions set forth in
Article 9 (other than those conditions that by their nature are to be
fulfilled at the closing, but subject to the fulfillment or waiver of such
conditions) shall be fulfilled or waived in accordance with this Agreement or
(ii) at such other place and time or on such other date as the Company and
Parent may agree in writing.
(e) If (A) on the last trading day prior to the date upon which this
Agreement shall have been approved and adopted by the stockholders of the
Company in accordance with Delaware Law (or if the Effective Time does not
occur on such date, the date prior to the date upon which the Effective Time
occurs), the fair market value, based on the volume weighted average per
share sales price of the Parent Stock on that day on the NYSE, of all shares
of Parent Stock to be delivered in connection with the Merger (the "TOTAL
STOCK VALUE") is less than 40% of the sum of (i) the sum of the Maximum Cash
Shares and Dissenting Shares, multiplied by the Cash Consideration, (ii) the
amount of cash paid by Parent to acquire Shares within the two year period
prior to the date of the Merger and (iii) the Total Stock Value (such sum
being referred to as the "TOTAL CONSIDERATION") or (B) the conditions in
Sections 9.02(b) and 9.03(b) cannot be satisfied (assuming that the legally
required minimum percentage of stock consideration under the continuity of
interest test applicable pursuant to Treasury Regulations is 40%), then the
Merger contemplated by Section 2.01(a) shall be restructured such that Merger
Subsidiary shall be merged with and into the Company, and the Company shall
be the surviving corporation. In such event: all references to the term
"Merger" shall be deemed references to the merger contemplated by this
Section 2.01(e); all references to the term "Surviving Corporation" shall be
deemed references to the Company; all references to the term "Effective Time"
shall be deemed references to the time at which the certificate of merger is
duly filed with the Delaware Secretary of State or at such
7
<PAGE>
later time as is specified in the certificate of merger with respect to the
Merger as restructured in the manner contemplated by this Section 2.01(e);
and the conditions set forth in Sections 9.02(b) and 9.03(b) and the covenant
set forth in Section 8.07 shall thereafter cease to apply. The parties shall
cooperate and take all steps necessary to implement such alternative
structure.
(f) The parties agree that after the date hereof, if Parent and the
Company are satisfied in their sole discretion that consummation of the
Alternative Double Merger Structure (as defined below) will not result in any
material adverse consequences pursuant to the Parent Notes, the parties shall
use their best efforts to implement the Alternative Double Merger Structure
on the terms and conditions contained in this Merger Agreement (preserving
the economic and financial terms of this Agreement) with such modifications
to such terms and conditions as are required to implement such structure.
The "ALTERNATIVE DOUBLE MERGER STRUCTURE" means a structure whereby the
following shall occur: (i)Parent and the Company will form a corporation
under Delaware Law ("NEW HILTON") owned and controlled equally by Parent and
the Company;(ii) promptly following the incorporation of New Hilton, Parent
and the Company will cause New Hilton to form two wholly-owned subsidiaries
under Delaware Law ("PARENT MERGER SUBSIDIARY" and "COMPANY MERGER
SUBSIDIARY");(iii) Parent and the Company will cause New Hilton, Parent
Merger Subsidiary and Company Merger Subsidiary to become parties to this
Agreement and to execute and deliver all documents required by Delaware Law
to authorize and adopt this Agreement and (iv) at the Effective Time, (x)
Company Merger Subsidiary shall be merged with and into the Company in
accordance with Delaware Law, whereupon the separate existence of Company
Merger Subsidiary shall cease, and the Company shall be the surviving
corporation and (y) Parent Merger Subsidiary shall be merged with and into
Parent in accordance with Delaware Law, whereupon the separate existence of
Parent Merger Subsidiary shall cease, and Parent shall be the surviving
corporation.
SECTION 2.02. CONVERSION OF SHARES. At the Effective Time:
(a) Each Share held by the Company as treasury stock, held by any
Subsidiary of the Company, or owned by Parent or any of its Subsidiaries,
immediately prior to the Effective Time shall be canceled, and no payment
shall be made with respect thereto.
(b) Each share of common stock of Merger Subsidiary outstanding
immediately prior to the Effective Time shall be converted into and become
one share of common stock of the Surviving Corporation with the same rights,
powers and privileges as the shares so converted and shall constitute the
only outstanding shares of capital stock of the Surviving Corporation.
8
<PAGE>
(c) Except as otherwise provided in Section 2.02(a) or Section 2.06
and subject to Sections 2.03 and 2.04, each Share outstanding immediately
prior to the Effective Time, together with the associated Right, issued and
outstanding immediately prior to the Effective Time shall be converted into
the right to receive either (i) $38.50 in cash, without interest (the "CASH
CONSIDERATION"), or (ii) the number of shares of validly issued, fully paid
and non-assessable Parent Stock equal to the Exchange Ratio (the "STOCK
CONSIDERATION").
The "EXCHANGE RATIO" shall be a number (rounded to the nearest
ten-thousandth) determined by dividing $38.50 by the Market Price per share
of Parent Stock; PROVIDED, HOWEVER, that in no event shall the Exchange Ratio
be (x) greater than 3.2158 or (y) less than 2.9096. The "MARKET PRICE" per
share of Parent Stock shall be the average of the volume weighted average per
share sales price of Parent Stock on the New York Stock Exchange, Inc. (the
"NYSE") for twenty trading days selected by lot out of the thirty trading
days ending on and including the fifth trading day prior to the Effective
Time. The consideration provided for in this Section 2.02(c) is referred to
herein as the "MERGER CONSIDERATION".
SECTION 2.03. ELECTION OF CASH OR PARENT STOCK.
(a) Subject to Section 2.04, each holder of Shares (other than holders
of such shares that are to be canceled pursuant to Section 2.02(a)) shall be
entitled to elect to specify (i) the number of Shares which such holder
desires to have converted into the right to receive the Cash Consideration in
the Merger (a "CASH ELECTION") and (ii) the number of Shares which such
holder desires to have converted into the right to receive the Stock
Consideration in the Merger (a "STOCK ELECTION"); PROVIDED, HOWEVER, that
no holder of Dissenting Shares (as defined in Section 2.06) shall be entitled
to make an Election. A holder may also indicate that such record holder has
no preference as to the receipt of Cash Consideration, Stock Consideration or
a combination thereof with respect to such holder's Shares (a
"NON-ELECTION"). Any Cash Election, Stock Election or Non-Election shall be
referred to herein as an "ELECTION". All such Elections shall be made on a
form furnished by Parent for that purpose (a "FORM OF ELECTION") and
reasonably satisfactory to the Company. Holders of record of Shares who hold
such Shares as nominees, trustees or in other representative capacities may
submit multiple Forms of Election, PROVIDED that such nominee, trustee or
representative certifies that each such Form of Election covers all Shares
held for a particular beneficial owner.
(b) Elections shall be made by holders of Shares by delivering the
Form of Election to the Exchange Agent. To be effective, a Form of Election
must be properly completed, signed and submitted to the Exchange Agent by no
later than 5:00 p.m. (New York City time) on the business day preceding the
date of the
9
<PAGE>
Company Stockholder Meeting (the "ELECTION DATE"), and accompanied by (i) (x)
the Certificates representing the Shares as to which the election is being
made or (y) an appropriate guarantee of delivery of such Certificates as set
forth in such Form of Election from a firm which is a member of a registered
national securities exchange or of the National Association of Securities
Dealers, Inc. or a commercial bank or trust company having an office or
correspondent in the United States, PROVIDED such Certificates are in fact
delivered to the Exchange Agent within three NYSE trading days after the date
of execution of such guarantee of delivery (a "GUARANTEE OF DELIVERY") and
(ii)a properly completed and signed letter of transmittal. Failure to
deliver Certificates covered by any Guarantee of Delivery within three NYSE
trading days after the date of execution of such Guarantee of Delivery shall
be deemed to invalidate any otherwise properly made Cash Election or Stock
Election.
(c) The Exchange Agent will have the discretion to determine
whether Forms of Election have been properly completed, signed and submitted
or revoked and to disregard immaterial defects in Forms of Election. The
good faith decision of the Exchange Agent in such matters shall be conclusive
and binding; PROVIDED that the Exchange Agent may, in its discretion, seek
guidance from Parent and the Company in connection therewith. Neither Parent
nor the Company nor the Exchange Agent will be under any obligation to notify
any person of any defect in a Form of Election submitted to the Exchange
Agent. A Form of Election with respect to Dissenting Shares shall not be
valid. The Exchange Agent shall also make all computations contemplated by
Section 2.04 and all such computations shall be conclusive and binding on the
holders of Shares in the absence of manifest error. Any Form of Election may
be changed or revoked prior to the Election Date. In the event a Form of
Election is revoked prior to the Election Date, Parent shall, or shall cause
the Exchange Agent to, cause the Certificates representing the Shares covered
by such Form of Election to be promptly returned without charge to the Person
submitting the Form of Election upon written request to that effect from such
Person.
(d) For the purposes hereof, a holder of Shares who does not submit
a Form of Election which is received by the Exchange Agent prior to the
Election Date (including a holder who submits and then revokes his or her
Form of Election and does not resubmit a Form of Election which is timely
received by the Exchange Agent), or who submits a Form of Election without
the corresponding Certificates or a Guarantee of Delivery, shall be deemed to
have made a Non-Election. Holders of Dissenting Shares shall not be entitled
to make an Election and shall not be deemed to have made a Non-Election; the
rights of such holders of Dissenting Shares shall be determined in accordance
with Section 262 of Delaware Law and as provided in Section 2.06 hereof. If
any Form of Election is defective in any manner such that the Exchange Agent
cannot reasonably determine the election preference of the stockholder
submitting such Form of
10
<PAGE>
Election, the purported Cash Election or Stock Election set forth therein
shall be deemed to be of no force and effect and the stockholder making such
purported Cash Election or Stock Election shall, for purposes hereof, be
deemed to have made a Non-Election.
(e) A Form of Election and a letter of transmittal shall be
included with or mailed contemporaneously with each copy of the Joint Proxy
Statement mailed to the Company's stockholders in connection with the Company
Stockholder Meeting. Each of Parent and the Company shall use reasonable
best efforts to mail or otherwise make available the Form of Election and a
letter of transmittal to all persons who become record holders of Shares
during the period between the record date for the Company Stockholder Meeting
and the Election Date.
SECTION 2.04. PRORATION. The determination of whether Shares (other
than Shares that are to be canceled pursuant to Section 2.02(a)), and the
associated Rights, shall be converted in the Merger into the Stock
Consideration or the Cash Consideration shall be made as set forth in this
Section 2.04.
(a) As is more fully set forth below, the aggregate number of
Shares to be converted in the Merger into the right to receive the Cash
Consideration shall equal the Maximum Cash Shares. The "MAXIMUM CASH SHARES"
means 55% of the Aggregate Shares, less any Dissenting Shares. The
"AGGREGATE SHARES" means all Shares issued and outstanding immediately prior
to the Effective Time other than those Shares which are to be canceled in
accordance with Section 2.02(a).
(b) If Cash Elections are received for a number of Shares which is
more than the Maximum Cash Shares:
(i) each Share subject to a Non-Election (a "NON-ELECTING
SHARE") and each Share for which a Stock Election has been received (in
each case, together with the associated Right) shall be converted in the
Merger into the Stock Consideration; and
(ii) the Shares for which Cash Elections have been received
(and the associated Rights) shall be converted in the Merger into the
Cash Consideration and the Stock Consideration in the following manner:
For each Cash Election, the number of Shares covered by such Cash
Election that shall receive the Cash Consideration shall be the total
number of Shares covered by such Cash Election multiplied by the Cash
Proration Factor. The "CASH PRORATION FACTOR" means a fraction the
numerator of which shall be a number equal to the Maximum Cash Shares
and the denominator of which shall be the aggregate number of Shares
covered by all Cash Elections made by all holders of Shares. All Shares
covered by a
11
<PAGE>
Cash Election, other than that number converted into the right to receive
the Cash Consideration in accordance with this Section 2.04(b)(ii), shall
be converted into the right to receive the Stock Consideration.
(c) If Stock Elections are received for a number of Shares which is
more than 45% of the Aggregate Shares,
(i) each Non-Electing Share and each Share for which a Cash
Election has been received (in each case, together with the associated
Right) shall be converted in the Merger into the Cash Consideration; and
(ii) the Shares for which Stock Elections have been received
shall be converted in the Merger into the Stock Consideration and the
Cash Consideration in the following manner: For each Stock Election, the
number of Shares covered by such Stock Election that shall receive the
Stock Consideration shall be the total number of Shares covered by such
Stock Election multiplied by the Stock Proration Factor. The "STOCK
PRORATION FACTOR" means a fraction the numerator of which shall be a
number equal to 45% of the Aggregate Shares and the denominator of which
shall be the aggregate number of Shares covered by all Stock Elections
made by all holders of Shares. All Shares covered by a Stock Election,
other than that number converted into the right to receive the Stock
Consideration in accordance with this Section 2.04(c)(ii), shall be
converted into the right to receive the Cash Consideration.
(d) If Cash Elections are received for a number of Shares which is
equal to the Maximum Cash Shares, each Share covered by a Cash Election shall
be converted in the Merger into the Cash Consideration, and each Share
covered by a Stock Election and each Non-Electing Share shall be converted in
the Merger into the Stock Consideration.
(e) If Non-Electing Shares are not converted under either Section
2.04(b), Section 2.04(c) or 2.04(d), the Exchange Agent shall determine by
lot (or by such other method as is deemed reasonable by Parent and the
Company) which of such Non-Electing Shares shall be converted in the Merger
into the Cash Consideration; PROVIDED, HOWEVER, that such selection by lot
(or by such other method) will cease when the sum of the shares converted in
such manner, plus the number of Shares covered by all Cash Elections made by
the holders of Shares is equal to the Maximum Cash Shares. Each Non-Electing
Share not so converted into the Cash Consideration shall be converted in the
Merger into the Stock Consideration.
SECTION 2.05. SURRENDER AND PAYMENT. (a) Prior to the record date for the
Company Stockholder Meeting, Parent shall appoint an agent (the "EXCHANGE
12
<PAGE>
AGENT") reasonably acceptable to the Company for the purpose of exchanging
certificates representing Shares (the "CERTIFICATES") for the Merger
Consideration and for purposes of receiving Election Forms and determining,
in accordance with Sections 2.02, 2.03 and 2.04 the form of the Merger
Consideration to be received by each holder of Shares. At the Effective
Time, Parent will deposit with the Exchange Agent the Merger Consideration to
be paid in respect of the Shares. For the purpose of determining the Merger
Consideration to be made available, Parent shall assume that no holders of
Shares will perfect rights to appraisal of their Shares.
(b) Each holder of Shares that have been converted into the right
to receive the Merger Consideration will be entitled to receive, upon
surrender to the Exchange Agent of a Certificate, together with a properly
completed letter of transmittal, the Merger Consideration payable for each
Share represented by such Certificate. Until so surrendered, each such
Certificate shall represent after the Effective Time for all purposes only
the right to receive such Merger Consideration.
(c) If any portion of the Merger Consideration is to be paid to a
Person other than the Person in whose name the surrendered Certificate is
registered, it shall be a condition to such payment that the Certificate so
surrendered shall be properly endorsed or otherwise be in proper form for
transfer and that the Person requesting such payment shall pay to the
Exchange Agent any transfer or other taxes required as a result of such
payment to a Person other than the registered holder of such Certificate or
establish to the satisfaction of the Exchange Agent that such tax has been
paid or is not payable.
(d) After the Effective Time, there shall be no further
registration of transfers of Shares. If, after the Effective Time,
Certificates are presented to the Surviving Corporation, they shall be
canceled and exchanged for the Merger Consideration provided for, and in
accordance with the procedures set forth, in this Article.
(e) Any portion of the Merger Consideration made available to the
Exchange Agent pursuant to Section 2.05(a) (and any interest or other income
earned thereon) that remains unclaimed by the holders of Shares one year
after the Effective Time shall be returned to Parent, upon demand, and any
such holder who has not exchanged Shares for the Merger Consideration in
accordance with this Section prior to that time shall thereafter look only to
Parent for payment of the Merger Consideration in respect of such Shares
without any interest thereon. Notwithstanding the foregoing, Parent shall not
be liable to any holder of Shares for any amount paid to a public official
pursuant to applicable abandoned property, escheat or similar laws. Any
amounts remaining unclaimed by holders of Shares three years after the
Effective Time (or such earlier date immediately
13
<PAGE>
prior to such time when the amounts would otherwise escheat to or become
property of any governmental authority) shall become, to the extent permitted
by applicable law, the property of Parent free and clear of any claims or
interest of any Person previously entitled thereto.
(f) Any portion of the Merger Consideration made available to the
Exchange Agent pursuant to Section 2.05(a) to pay for Shares for which
appraisal rights have been perfected shall be returned to Parent, upon demand.
(g) No dividends or other distributions with respect to any Parent
Stock constituting part of the Merger Consideration shall be paid to the
holder of any unsurrendered Certificates until such Certificates are
surrendered as provided in this Section. Subject to the effect of applicable
laws, following such surrender, there shall be paid, without interest, to the
record holder of the Parent Stock issued in exchange therefor (i) at the time
of such surrender, all dividends and other distributions payable in respect
of such Parent Stock with a record date after the Effective Time and a
payment date on or prior to the date of such surrender and not previously
paid and (ii)at the appropriate payment date, the dividends or other
distributions payable with respect to such Parent Stock with a record date
after the Effective Time but with a payment date subsequent to such surrender.
SECTION 2.06. DISSENTING SHARES. Shares outstanding immediately prior
to the Effective Time and held by a holder who has not voted in favor of the
Merger or consented thereto in writing and who has demanded appraisal for
such Shares in accordance with Delaware Law ("DISSENTING SHARES") shall not
be converted into a right to receive the Merger Consideration, unless such
holder fails to perfect, withdraws or otherwise loses its right to appraisal.
If, after the Effective Time, such holder fails to perfect, withdraws or
loses its right to appraisal, such Shares shall be treated as if they had
been converted as of the Effective Time into a right to receive the Merger
Consideration and shall be deemed to have been subject to a Non-Election.
The Company shall give Parent prompt notice of any demands received by the
Company for appraisal of Shares. Except as required by applicable law or with
the prior written consent of Parent, the Company shall not make any payment
with respect to, or settle or offer to settle, any such demands.
SECTION 2.07. STOCK OPTIONS. (a) Each stock option to purchase Shares
outstanding under any employee or director stock option or compensation plan
or arrangement of the Company (a "COMPANY STOCK OPTION") shall be canceled,
and the Company shall pay the holder of such Company Stock Option at or
promptly after the Effective Time an amount in cash determined by multiplying
the excess, if any, of the Cash Consideration over the applicable exercise
price of such Company Stock Option by the number of Shares such holder could
have purchased
14
<PAGE>
(assuming full vesting of such option) had such holder exercised such option
in full immediately prior to the Effective Time.
(b) Parent, the Company and their Boards of Directors shall take
all steps necessary to cause the payments referred to in this Section 2.07 to
be exempt transactions pursuant to Rule 16b-3 promulgated by the Securities
and Exchange Commission.
SECTION 2.08. DEFERRED SHARES; GE WARRANTS; GE OPTIONS. (a) Each
participant in the Promus Hotel Corporation 1996 Non-Management Directors
Stock Incentive Plan (as amended, the "DIRECTORS PLAN") or the Independent
Director Equity Participation Program under The 1997 Equity Participation
Plan of Promus Hotel Corporation (the "DIRECTORS PROGRAM"), as applicable,
will be provided with a Form of Election and given the opportunity to make an
Election with respect to all Shares credited to such participant's account
under the Directors Plan or the Directors Program, whether or not previously
vested ("CREDITED SHARES"), at the same time and in the same manner as
holders of Shares are given the opportunity to make Elections. Upon
consummation of the Merger, each such participant shall have rights with
respect to such Credited Shares that are identical to those of a holder of
Shares who had made the same Election as that made by such participant.
(b) At the Effective Time, Parent shall assume all obligations
under the GE Warrants, and the holder of the GE Warrants thereafter shall
have the right to acquire, on the same pricing and payment terms and
conditions as are currently applicable under the GE Warrants, the same number
of shares of Parent Stock as the holder of the GE Warrants would have been
entitled to receive pursuant to the Merger had such holder exercised the GE
Warrants in full immediately prior to the Effective Time (rounded up to the
nearest whole number) and made a Stock Election in connection with the Merger
that was not subject to proration, at the price per share (rounded down to
the nearest whole cent) equal to (y) the aggregate exercise price for the
Shares purchasable pursuant to the GE Warrants immediately prior to the
Effective Time divided by (z) the number of full shares of Parent Stock
deemed purchasable pursuant to the GE Warrants in accordance with the
foregoing.
(c) At the Effective Time, Parent shall assume all obligations
under the GE Options, and each holder of the GE Options thereafter shall have
the right to acquire, on the same pricing and payment terms and conditions as
are currently applicable under the GE Options, the same number of shares of
Parent Stock as such holder of the GE Options would have been entitled to
receive pursuant to the Merger had such holder exercised the GE Options in
full immediately prior to the Effective Time (rounded up to the nearest whole
number) and made a Stock Election in connection with the Merger that was not
subject to proration, at the
15
<PAGE>
price per share (rounded down to the nearest whole cent) equal to (y) the
aggregate exercise price for the Shares purchasable pursuant to the GE
Options immediately prior to the Effective Time divided by (z) the number of
full shares of Parent Stock deemed purchasable pursuant to the GE Options in
accordance with the foregoing.
SECTION 2.09. FRACTIONAL SHARES. (a) No fractional shares of Parent
Stock shall be issued in the Merger, but in lieu thereof each holder of
Shares otherwise entitled to a fractional share of Parent Stock will be
entitled to receive, from the Exchange Agent in accordance with the
provisions of this Section 2.09, a cash payment in lieu of such fractional
shares of Parent Stock representing such holder's proportionate interest, if
any, in the proceeds from the sale by the Exchange Agent in one or more
transactions of the number of shares of Parent Stock delivered to the
Exchange Agent by Parent pursuant to Section 2.05(a) over the aggregate
number of whole shares of Parent Stock to be distributed to the holders of
the certificates representing Shares pursuant to Section 2.05(b) (such excess
being herein called the "EXCESS SHARES"). As soon as practicable after the
Effective Time, the Exchange Agent, as agent for the holders of the
certificates representing Shares, shall sell the Excess Shares at then
prevailing prices on the NYSE in the manner provided in the following
paragraph.
(b) The sale of the Excess Shares by the Exchange Agent, as agent
for the holders that would otherwise receive fractional shares, shall be
executed on the NYSE through one or more member firms of the NYSE and shall
be executed in round lots to the extent practicable. The compensation payable
to the Exchange Agent and the expenses incurred by the Exchange Agent, in
each case, in connection with such sale or sales of the Excess Shares, and
all related commissions, transfer taxes and other out-of-pocket transaction
costs, will be paid by the Surviving Corporation out of its own funds and
will not be paid directly or indirectly by Parent. Until the proceeds of
such sale or sales have been distributed to the holders of Shares, the
Exchange Agent shall hold such proceeds in trust for the holders of Shares
(the "COMMON SHARES TRUST"). The Exchange Agent shall determine the portion
of the Common Shares Trust to which each holder of Shares shall be entitled,
if any, by multiplying the amount of the aggregate proceeds comprising the
Common Shares Trust by a fraction, the numerator of which is the amount of
the fractional share interest to which such holder of Shares would otherwise
be entitled and the denominator of which is the aggregate amount of
fractional share interests to which all holders of Shares would otherwise be
entitled.
(c) As soon as practicable after the determination of the amount of
cash, if any, to be paid to holders of Shares in lieu of any fractional
shares of Parent Stock, the Exchange Agent shall make available such amounts
to such holders of Shares without interest.
16
<PAGE>
SECTION 2.10. WITHHOLDING RIGHTS. Each of the Surviving Corporation
and Parent shall be entitled to deduct and withhold from the consideration
otherwise payable to any Person pursuant to this Article such amounts as it
is required to deduct and withhold with respect to the making of such payment
under any provision of federal, state, local or foreign tax law. If the
Surviving Corporation or Parent, as the case may be, so withholds amounts,
such amounts shall be treated for all purposes of this Agreement as having
been paid to the holder of the Shares in respect of which the Surviving
Corporation or Parent, as the case may be, made such deduction and
withholding.
SECTION 2.11. LOST CERTIFICATES. If any Certificate shall have been
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 to be paid in respect of
the Shares represented by such Certificate, as contemplated by this Article.
ARTICLE 3
THE SURVIVING CORPORATION
SECTION 3.01. CERTIFICATE OF INCORPORATION. The certificate of
incorporation of Merger Subsidiary in effect at the Effective Time shall be
the certificate of incorporation of the Surviving Corporation until amended
in accordance with applicable law, PROVIDED that, at the Effective Time, such
certificate of incorporation shall be amended to provide that the name of the
Surviving Corporation shall be Promus Hotel Corporation.
SECTION 3.02. BYLAWS. The bylaws of Merger Subsidiary in effect at the
Effective Time shall be the bylaws of the Surviving Corporation until amended
in accordance with applicable law.
SECTION 3.03. DIRECTORS AND OFFICERS. From and after the Effective
Time, until successors are duly elected or appointed and qualified in
accordance with applicable law, (i) the directors of Merger Subsidiary at the
Effective Time shall be the directors of the Surviving Corporation and (ii)
the officers of the Company at the Effective Time shall be the officers of
the Surviving Corporation.
17
<PAGE>
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the corresponding sections or subsections of the
disclosure schedule delivered to Parent by the Company on or prior to the
date hereof (the "COMPANY DISCLOSURE SCHEDULE") or in the Company SEC
Documents, the Company represents and warrants to Parent that:
SECTION 4.01. CORPORATE EXISTENCE AND POWER. The Company is a
corporation duly incorporated, validly existing and in good standing under
the laws of the State of Delaware and has all corporate powers and all
governmental licenses, authorizations, permits, consents and approvals
required to carry on its business as now conducted, except for those
licenses, authorizations, permits, consents and approvals the absence of
which would not reasonably be expected to have, individually or in the
aggregate, a Company Material Adverse Effect. The Company is duly qualified
to do business as a foreign corporation and is in good standing in each
jurisdiction where such qualification is necessary, except for those
jurisdictions where failure to be so qualified would not reasonably be
expected to have, individually or in the aggregate, a Company Material
Adverse Effect. The Company has heretofore made available to Parent true and
complete copies of the certificate of incorporation and bylaws of the Company
as currently in effect.
SECTION 4.02. CORPORATE AUTHORIZATION. The execution, delivery and
performance by the Company of this Agreement and the consummation by the
Company of the transactions contemplated hereby are within the Company's
corporate powers and, except for the affirmative vote of the holders of a
majority of the outstanding Shares in connection with the consummation of the
Merger, have been duly authorized by all necessary corporate action on the
part of the Company. The affirmative vote of the holders of a majority of the
outstanding Shares is the only vote of the holders of any of the Company's
capital stock necessary in connection with the consummation of the Merger.
This Agreement constitutes a valid and binding agreement of the Company.
SECTION 4.03. GOVERNMENTAL AUTHORIZATION. The execution, delivery and
performance by the Company of this Agreement and the consummation by the
Company of the transactions contemplated hereby require no action by or in
respect of, or filing with, any governmental body, agency, official or
authority, domestic or foreign, other than (i) the filing of a certificate of
merger with respect to the Merger with the Delaware Secretary of State and
appropriate documents with the relevant authorities of other states in which
the Company is qualified to do business,(ii) compliance with any applicable
requirements of the HSR Act,(iii) compliance with any applicable requirements
of the 1933 Act, the 1934 Act
18
<PAGE>
and any other applicable securities or takeover laws, whether state or
foreign,(iv) such consents, approvals, orders, authorizations, permits,
filings or registrations of or with any governmental entity related to, or
arising out of, compliance with statutes, rules or regulations regulating the
consumption, sale or serving of alcoholic beverages and (v)any actions or
filings the absence of which would not be reasonably expected to have,
individually or in the aggregate, a Company Material Adverse Effect or
materially impair the ability of the Company to consummate the transactions
contemplated by this Agreement or delay the consummation of the transactions
contemplated by this Agreement beyond the Outside Termination Date.
SECTION 4.04. NON-CONTRAVENTION. The execution, delivery and
performance by the Company of this Agreement and the consummation by the
Company of the transactions contemplated hereby do not and will not (i)
contravene, conflict with, or result in any violation or breach of any
provision of the certificate of incorporation or bylaws of the Company, (ii)
assuming compliance with the matters referred to in Section 4.03, contravene,
conflict with, or result in a violation or breach of any provision of any
applicable law, regulation, judgment, injunction, order or decree, (iii)
except as to Material Company Agreements (which are addressed in Section
4.24), require any consent or other action by any Person under, constitute a
default under, or cause or permit the termination, cancellation, acceleration
or other change of any right or obligation or the loss of any benefit to
which the Company or any of its Subsidiaries is entitled under any provision
of any agreement or other instrument binding upon the Company or any of its
Subsidiaries or any license, franchise, permit, certificate, approval or
other similar authorization affecting, or relating in any way to, the assets
or business of the Company and its Subsidiaries or (iv) result in the
creation or imposition of any Lien on any asset of the Company or any of its
Subsidiaries, except for such contraventions, conflicts and violations
referred to in clause (ii) and for such failures to obtain any such consent
or other action, defaults, terminations, cancellations, accelerations,
changes, losses or Liens referred to in clauses (iii) and (iv) that would not
reasonably be expected to have, individually or in the aggregate, a Company
Material Adverse Effect.
SECTION 4.05. CAPITALIZATION. (a) The authorized capital stock of the
Company consists of 500,000,000 Shares and 10,000,000 shares of preferred
stock, par value $.01 per share (of which 5,000,000 shares are designated
Series A Junior Participating Preferred Stock). As of August 31, 1999, there
were outstanding:(i) 87,949,101 Shares (including 9,282,300 treasury Shares
and vested rights to 3,835 Shares pursuant to the Directors Plan);(ii) GE
Warrants to purchase an aggregate of 262,753 Shares (all of which were
exercisable);(iii) employee and director stock options to purchase an
aggregate of 11,173,389 Shares; (iv) GE Options to purchase an aggregate of
22,500 Shares (all of which were exercisable); and (v) no shares of preferred
stock. All shares of capital stock
19
<PAGE>
of the Company outstanding as of the date hereof have been duly authorized
and validly issued and are fully paid and nonassessable. All Shares issuable
upon exercise of outstanding options or warrants have been duly authorized
and, when issued, will have been validly issued and will be fully paid and
nonassessable.
(b) Except as set forth in this Section 4.05 and except for the
Rights, any Shares reserved for issuance pursuant to future grants of options
under stock option plans, and changes since August 31, 1999 resulting from
the exercise of employee stock options, director stock options, GE Options or
GE Warrants, there are outstanding (i) no shares of capital stock or voting
securities of the Company,(ii) no securities of the Company convertible into
or exchangeable for shares of capital stock or voting securities of the
Company or (iii) no options or other rights to acquire from the Company or
other obligations of the Company to issue, any capital stock, voting
securities or securities convertible into or exchangeable for capital stock
or voting securities of the Company (the items in clauses (i), (ii) and (iii)
being referred to collectively as the "COMPANY SECURITIES"). There are no
outstanding obligations of the Company or any of its Subsidiaries to
repurchase, redeem or otherwise acquire any of the Company Securities.
SECTION 4.06. SUBSIDIARIES. (a) Each material Subsidiary of the Company
is duly organized, validly existing and in good standing under the laws of
its jurisdiction of organization, has all powers and all governmental
licenses, authorizations, permits, consents and approvals required to carry
on its business as now conducted, except for those licenses, authorizations,
permits, consents and approvals the absence of which would not reasonably be
expected to have, individually or in the aggregate, a Company Material
Adverse Effect. Each such material Subsidiary is duly qualified to do
business and is in good standing in each jurisdiction where such
qualification is necessary, except for those jurisdictions where failure to
be so qualified would not reasonably be expected to have, individually or in
the aggregate, a Company Material Adverse Effect. All "significant
subsidiaries", as such term is defined in Section 1-02 of Regulation S-X
under the 1934 Act of the Company and their respective jurisdictions of
incorporation are identified in the Company 10-K.
(b) All of the outstanding capital stock of, or other voting
securities or ownership interests in, each material Subsidiary of the
Company, is owned by the Company, directly or indirectly, free and clear of
any Lien and free of any other limitation or restriction (including any
restriction on the right to vote, sell or otherwise dispose of such capital
stock or other voting securities or ownership interests). There are
outstanding (i) no securities of the Company or any of its Subsidiaries
convertible into or exchangeable for shares of capital stock or other voting
securities or ownership interests in any material Subsidiary of the Company
or (ii) no options or other rights to acquire from the Company or any of its
Subsidiaries, or other obligation of the Company or any of its Subsidiaries
to
20
<PAGE>
issue, any capital stock or other voting securities or ownership interests
in, or any securities convertible into or exchangeable for any capital stock
or other voting securities or ownership interests in, any material Subsidiary
of the Company (the items in clauses (i) and (ii) being referred to
collectively as the "COMPANY SUBSIDIARY SECURITIES"). There are no
outstanding obligations of the Company or any of its Subsidiaries to
repurchase, redeem or otherwise acquire any of the Company Subsidiary
Securities.
SECTION 4.07. SEC FILINGS. (a) The Company has made available to
Parent (i) the Company's annual reports on Form 10-K for its fiscal years
ended December 31, 1997 and 1998,(ii) its quarterly reports on Form 10-Q for
its fiscal quarters ended March 31, 1999 and June 30, 1999,(iii) its proxy or
information statements relating to meetings of, or actions taken without a
meeting by, the stockholders of the Company held since December 31, 1998, and
(iv) all of its other reports, statements, schedules and registration
statements filed with the SEC since December 31, 1998 (the documents referred
to in this Section 4.07(a), collectively, the "COMPANY SEC DOCUMENTS".)
(b) As of its filing date, each Company SEC Document complied as to
form in all material respects with the applicable requirements of the 1933
Act and the 1934 Act, as the case may be.
(c) As of its filing date, each Company SEC Document filed pursuant
to the 1934 Act did not contain any untrue statement of a material fact or
omit to state any material fact necessary in order to make the statements
made therein, in the light of the circumstances under which they were made,
not misleading.
(d) Each Company SEC Document that is a registration statement, as
amended or supplemented, if applicable, filed pursuant to the 1933 Act, as of
the date such statement or amendment became effective, did not contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading.
(e) None of the Company's Subsidiaries is required to file any forms,
reports or other documents with the SEC.
SECTION 4.08. FINANCIAL STATEMENTS. The audited consolidated financial
statements and unaudited consolidated interim financial statements of the
Company included in the annual reports on Form 10-K referred to in clause (i) of
Section 4.07(a) and the quarterly reports on Form 10-Q referred to in clause
(ii) of Section 4.07(a) complied as to form in all material respects with the
applicable published rules and regulations of the SEC with respect thereto, were
prepared in accordance with generally accepted accounting principles ("GAAP")
applied on a consistent basis throughout the periods involved (except as may be
indicated in
21
<PAGE>
the notes to such financial statements or, in the case of unaudited
statements, as permitted by Form 10-Q under the 1934 Act) and fairly present
the consolidated financial position of the Company and its consolidated
Subsidiaries as of the dates thereof and their consolidated results of
operations and cash flows for the periods then ended (subject to normal
year-end adjustments in the case of any unaudited interim financial
statements).
SECTION 4.09. DISCLOSURE DOCUMENTS. The information with respect to the
Company or any of its Subsidiaries that the Company furnishes to Parent
specifically for use in the Joint Proxy Statement or any amendment or
supplement thereto will not, at the time the Joint Proxy Statement or any
such supplement or amendment thereto is first mailed to the stockholders of
Parent and the Company or at the time of the Parent Stockholder Meeting and
the Company Stockholder Meeting, contain any untrue statement of a material
fact or omit to state a material fact necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. Such information will comply as to form in all material
respects with the applicable requirements of the 1933 Act. The information
with respect to the Company or any of its Subsidiaries that the Company
furnishes to Parent specifically for use in the Registration Statement or any
amendment or supplement thereto will not, at the time the Registration
Statement or any such amendment or supplement becomes effective under the
1933 Act, contain any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading.
SECTION 4.10. ABSENCE OF CERTAIN CHANGES. Since December 31, 1998, the
business of the Company and its Subsidiaries has been conducted in the
ordinary course consistent with past practices and there has not been:
(a) any events, occurrences, developments or state of circumstances
or facts that, individually or in the aggregate, have had or will have a
Company Material Adverse Effect;
(b) any declaration, setting aside or payment of any dividend or
other distribution with respect to any shares of capital stock of the
Company, or any repurchase, redemption or other acquisition by the Company or
any of its Subsidiaries of any outstanding shares of capital stock or other
securities of, or other ownership interests in, the Company or any of its
Subsidiaries;
(c) any amendment of any material term of any outstanding security
of the Company or any of its Subsidiaries;
(d) any incurrence, assumption or guarantee by the Company or any
of its Subsidiaries of any indebtedness for borrowed money other than in the
22
<PAGE>
ordinary course of business and in amounts and on terms consistent with past
practices;
(e) any creation or other incurrence by the Company or any of its
Subsidiaries of any Lien on any material asset other than in the ordinary
course of business consistent with past practices;
(f) any making of any material loan, advance or capital
contributions to or investment in any Person other than to the Company or any
of its direct or indirect wholly-owned Subsidiaries or in the ordinary course
of business consistent with past practices;
(g) any damage, destruction or other casualty loss (whether or not
covered by insurance) affecting the business or assets of the Company or any
of its Subsidiaries that has had or could reasonably be expected to have a
Company Material Adverse Effect;
(h) any transaction or commitment made, or any contract or
agreement entered into, by the Company or any of its Subsidiaries relating to
its assets or business (including the acquisition or disposition of any
assets) or any relinquishment by the Company or any of its Subsidiaries of
any contract or other right, in either case, material to the Company and its
Subsidiaries, taken as a whole, other than transactions and commitments in
the ordinary course of business consistent with past practices and those
contemplated by this Agreement;
(i) any change in any method of accounting, method of tax
accounting or accounting principles or practice by the Company or any of its
Subsidiaries, except for any such change which is not significant or which is
required by reason of a concurrent change in GAAP or Regulation S-X under the
1934 Act; or
(j) any (i) grant of any severance or termination pay to (or
amendment to any existing arrangement with) any director, officer or (to the
extent material in the aggregate) employee of the Company or any of its
Subsidiaries, except for any such grants made in connection with any
severance agreements described in Section 7.05(b),(ii) increase in benefits
payable under any existing severance or termination pay policies or
employment agreements, except for any such grants made in connection with any
severance agreements described in Section 7.05(b),(iii) any entering into of
any employment, deferred compensation or other similar agreement (or any
amendment to any such existing agreement) with any director, officer or
employee of the Company or any of its Subsidiaries, (iv) establishment,
adoption or amendment (except as required by applicable law) of any
collective bargaining, bonus, profit-sharing, thrift, pension, retirement,
deferred compensation, compensation, stock option, restricted stock or other
benefit plan or arrangement covering any director, officer or employee of the
Company or any
23
<PAGE>
of its Subsidiaries, except (A) the adoption of any severance agreement
described in Section 7.05(b), or (B) to the extent necessary or desirable to
effectuate the consolidation and amendment of the Company's benefit plans as
described in Section 7.05(c) of the Company Disclosure Schedule, or (v)
increase in compensation, bonus or other benefits payable to any director,
officer or employee of the Company or any of its subsidiaries, other than, in
the case of any of clauses (i) through (v), in the ordinary course of
business consistent with past practice or as required pursuant to an existing
agreement.
SECTION 4.11. NO UNDISCLOSED MATERIAL LIABILITIES. There are no
liabilities or obligations of the Company or any of its Subsidiaries of any
kind whatsoever, whether accrued, contingent, absolute, determined,
determinable or otherwise, other than:
(a) liabilities or obligations disclosed or provided for in the Company
Balance Sheet or in the notes thereto or in any of the Company SEC Documents
filed prior to the date hereof;
(b) liabilities or obligations that would not reasonably be expected to
have, individually or in the aggregate, a Company Material Adverse Effect; and
(c) liabilities or obligations under this Agreement or incurred in
connection with the transactions contemplated hereby.
SECTION 4.12. COMPLIANCE WITH LAWS. Neither the Company nor any of
its Subsidiaries is in violation of, or has since January 1, 1998 violated,
any applicable law, statute, ordinance, rule, regulation, judgment,
injunction, order or decree, except for violations that have not had and
would not reasonably be expected to have, individually or in the aggregate, a
Company Material Adverse Effect.
SECTION 4.13. LITIGATION. There is no action, suit, investigation or
proceeding pending, or, to the knowledge of the Company, threatened, against the
Company or any of its Subsidiaries or any of their respective properties, or
against any Company Employee Plan (as defined in Section 4.16), before any court
or arbitrator or before or by any governmental body, agency or official,
domestic or foreign, that, if determined or resolved adversely in accordance
with the plaintiff's demands, would reasonably be expected to have a Company
Material Adverse Effect.
SECTION 4.14. FINDERS' FEES. Except for Salomon Smith Barney Inc., a copy
of whose engagement agreement has been provided to Parent, there is no
investment banker, broker, finder or other intermediary that has been retained
by or is authorized to act on behalf of the Company or any of its Subsidiaries
who
24
<PAGE>
might be entitled to any fee or commission from the Company or any of its
Affiliates in connection with the transactions contemplated by this Agreement.
SECTION 4.15. TAXES. (a) The Company and each of its Subsidiaries has
timely filed (or has had timely filed on its behalf) or will timely file or
cause to be timely filed all material Tax Returns required by applicable law
to be filed by it prior to or as of the Effective Time, and all such material
Tax Returns are, or will be at the time of filing, true and complete in all
material respects.
(b) The Company and each of its Subsidiaries has paid (or has had
paid on its behalf) all material Taxes, whether individually or in the
aggregate, due with respect to any period ending prior to or as of the
Effective Time (other than Taxes which are being contested in good faith),
or, where payment is not yet due or is being contested in good faith, has
established (or has had established on its behalf and for its sole benefit
and recourse) or will establish or cause to be established in accordance with
GAAP on or before the Effective Time an adequate accrual for the payment of
such Taxes.
(c) The Company and its Subsidiaries have complied in all material
respects with all applicable laws, rules and regulations relating to the
payment and withholding of Taxes.
(d) No federal, state, local or foreign audits or administrative
proceedings are pending with regard to any material Taxes or Tax Return of
the Company or its Subsidiaries and none of them has received a written
notice of any proposed audit or proceeding.
(e) Neither the Company nor any of its Subsidiaries is or has been
a member of an affiliated group of corporations (within the meaning of
Section 1504(a)) filing a consolidated federal income tax return (or a group
of corporations filing a consolidated, combined or unitary income tax return
under comparable provisions of state, local, or foreign tax law) for any
taxable period, other than a group the common parent of which is the Company
or any Subsidiary of the Company.
(f) Neither the Company nor any of its Subsidiaries has any
obligation under any agreement or arrangement with any other person with
respect to material Taxes of such other person (including pursuant to
Treasury Regulation Section 1.1502-6 or comparable provisions of state,
local, or foreign tax law) including any liability for Taxes of any
predecessor entity.
(g) Since December 31, 1998, the Company has not made any payments,
and is not obligated to make any payments and is not a party to any agreement
that could obligate it to make any payments, that will not be fully
deductible
25
<PAGE>
under Sections 162(m) or 280G of the Code (or any similar provision of
foreign, state, or local law).
(h) The Company is not aware of any fact or circumstance as of the
date hereof which is reasonably likely to cause the Merger to fail to qualify
as a "reorganization" within the meaning of Section 368(a) of the Code,
PROVIDED that Merger Subsidiary is the surviving corporation in the Merger.
(i) "TAXES" shall mean any and all taxes, charges, fees, levies or
other assessments, including income, gross receipts, excise, real or personal
property, sales, withholding, social security, retirement, unemployment,
occupation, use, goods and services, service use, license, value added,
capital, net worth, payroll, profits, withholding, franchise, transfer and
recording taxes, fees and charges, and any other taxes, assessment or similar
charges imposed by the Internal Revenue Service or any taxing authority
(whether domestic or foreign including any state, county, local or foreign
government or any subdivision or taxing agency thereof (including a United
States possession)), whether computed on a separate, consolidated, unitary,
combined or any other basis; and such term shall include any interest whether
paid or received, fines, penalties or additional amounts attributable to, or
imposed upon, or with respect to, any such taxes, charges, fees, levies or
other assessments and shall include any transferee or secondary liability in
respect of any tax (whether imposed by law, contractual agreement or
otherwise). "TAX RETURN" shall mean any report, return, document,
declaration or other information or filing required to be supplied to any
taxing authority or jurisdiction (foreign or domestic) with respect to Taxes,
including information returns, any documents with respect to or accompanying
payments of estimated Taxes, or with respect to or accompanying requests for
the extension of time in which to file any such report, return, document,
declaration or other information.
SECTION 4.16. EMPLOYEE BENEFIT PLANS. (a) Section 4.16(a) of the
Company Disclosure Schedule contains a correct and complete list identifying
each "employee benefit plan", as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974 ("ERISA"), each written employment,
severance or similar contract, plan, arrangement or policy and each other
plan or arrangement providing for compensation, bonuses, profit-sharing,
stock option or other stock related rights or other forms of incentive or
deferred compensation, vacation benefits, insurance coverage (including any
self-insured arrangements), health or medical benefits, disability benefits,
workers' compensation, supplemental unemployment benefits, severance
benefits, change of control benefits and post-employment or retirement
benefits (including compensation, pension, health, medical or life insurance
benefits) which is maintained, administered or contributed to by the Company
or any ERISA Affiliate and covers any employee or former employee of the
Company or any of its Subsidiaries, or with respect to which the Company or
any of its Subsidiaries or
26
<PAGE>
ERISA Affiliates has any liability. Copies of such plans (and, if
applicable, related trust agreements, insurance policies and other funding
documents relating thereto, Internal Revenue Service determination letters,
most recent filings on Form 5500, actuarial valuations, financial statements,
and any correspondence with a government agency relating thereto) and all
amendments thereto and written interpretations thereof have been furnished,
or will be made available upon request, to Parent. Such plans are referred
to collectively herein as the "COMPANY EMPLOYEE PLANS". For purposes of this
Agreement, "ERISA AFFILIATE" of any Person means any other Person which,
together with such Person, would be treated as a single employer under
Section 414 of the Code.
(b) Except as may be required by a collective bargaining agreement
set forth in Section 4.16(a) of the Company Disclosure Schedule (or which may
be entered into after the date hereof), neither the Company nor any ERISA
Affiliate maintains, contributes to, has any obligation to contribute to, or
participates in, nor has within the past six years maintained, contributed
to, had an obligation to contribute to, or participated in any plan that
constitutes or constituted a defined benefit or money purchase pension plan,
as defined in Section 412 of the Code or ERISA, a "multiemployer plan," as
defined in Section 3(37) of ERISA (a "MULTIEMPLOYER PLAN"), a "multiple
employer plan," as defined in ERISA, or that is or was subject to Title IV of
ERISA.
(c) Each Company Employee Plan which is intended to be qualified
under Section 401(a) of the Code has received a favorable determination
letter from the Internal Revenue Service, and the Company knows of no fact or
circumstance giving rise to a material likelihood that the plan would not be
treated as so qualified by the Internal Revenue Service. Each Company
Employee Plan has been maintained in material compliance with its terms and
with the requirements prescribed by any and all statutes, orders, rules and
regulations, including but not limited to ERISA and the Code, which are
applicable to such Company Employee Plan. No material audit or investigation
by any governmental authority is pending or, to the knowledge of the Company,
threatened, regarding any Company Employee Plan.
(d) No Company Employee Plan provides for post-employment welfare
benefits of any kind, except as may be required by Section 4980B of the Code.
(e) With respect to the Company Employee Plans which are
Multiemployer Plans, (i) during the last six years neither the Company nor
any ERISA Affiliate thereof has incurred any complete or partial withdrawal,
withdrawal liability, or any other obligation or liability under Title IV of
ERISA (including Section 4212(c)) (other than contributions due in the normal
course); and (ii) no such Plan is in reorganization status, is insolvent, has
terminated, or suffered a mass withdrawal.
27
<PAGE>
SECTION 4.17. ENVIRONMENTAL MATTERS. Except as would not reasonably be
expected to have, individually or in the aggregate, a Company Material Adverse
Effect:
(i) no notice, notification, demand, request for information,
citation, summons or order has been received, no complaint has been
filed, no penalty has been assessed, and no investigation, action,
claim, suit, proceeding or review (or any basis therefor) is pending or,
to the knowledge of the Company, is threatened by any governmental
entity or other Person with respect to any matters relating to the
Company or any Subsidiary and relating to or arising out of any
Environmental Law;
(ii) the Company and its Subsidiaries are in compliance with all
applicable Environmental Laws and all Environmental Permits; and
(iii) there are no liabilities or obligations of the Company or any
of its Subsidiaries, whether accrued, contingent, absolute, determined,
determinable or otherwise arising under or relating to any Environmental
Law.
SECTION 4.18. ANTITAKEOVER STATUTES; RIGHTS AGREEMENT; DIRECTOR VOTES.
(a) The Company has taken all action necessary to exempt the Merger, this
Agreement and the transactions contemplated hereby from the provisions of
Section 203 of Delaware Law, any other applicable antitakeover or similar
statute or regulation and the business combination provisions of Article Ninth
of the Company's certificate of incorporation.
(b) The Board of Directors of the Company has resolved to, and the
Company promptly after the execution hereof will, take all action necessary
to render the rights issued pursuant to the terms of the Company's Rights
Agreement inapplicable to the Merger, this Agreement and the transactions
contemplated hereby.
(c) The Company has been advised that all of its directors who own
Shares intend to vote in favor of the Merger, PROVIDED that the Board of
Directors does not withdraw, modify or amend in a manner adverse to Parent
its recommendation to the Company's stockholders.
SECTION 4.19. OPINION OF FINANCIAL ADVISOR. The Company has received
the written opinion of Salomon Smith Barney Inc., financial advisor to the
Company, to the effect that, as of the date of this Agreement, the Merger
Consideration is fair to the Company's stockholders from a financial point of
view.
28
<PAGE>
SECTION 4.20. INSURANCE. All material insurance policies maintained by
the Company and its Subsidiaries are set forth in the Company Disclosure
Schedule.
SECTION 4.21. INTELLECTUAL PROPERTY. The Company owns, or is licensed
or otherwise possesses legally enforceable rights to use, all trademarks,
trade names, service marks, copyrights, and any applications for such
trademarks, trade names, service marks and copyrights, know-how, computer
software programs or applications and tangible or intangible proprietary
information or material that are necessary to conduct the business of the
Company as currently conducted, subject to such exceptions that, individually
and in the aggregate, would not be reasonably likely to have a Company
Material Adverse Effect. The Company has no knowledge of any assertion or
claim challenging the validity of any of such intellectual property that
would be reasonably likely to have a Company Material Adverse Effect.
SECTION 4.22. REAL PROPERTY. (a) Neither the Company nor any of its
Subsidiaries has received a notice of default or termination under any leases
for real property providing for the occupancy, in each case, of (i) a hotel
or (ii) other facilities in excess of 50,000 square feet except where the
existence of such notices, individually or in the aggregate, is not
reasonably likely to have a Company Material Adverse Effect.
(b) With respect to the real property that the Company and any of
its Subsidiaries own, the Company or one of its Subsidiaries has title
sufficient to conduct the business of the Company and its Subsidiaries as
currently conducted, except for such matters as would not reasonably be
expected to have, individually or in the aggregate, a Company Material
Adverse Effect.
SECTION 4.23. YEAR 2000 COMPLIANCE. The Company and its Subsidiaries
have (i) completed a review and assessment of all areas within the business
and operations of the Company and its Subsidiaries that could be adversely
affected by the "Year 2000 Problem" (that is, the risk that computer software
and systems used by the Company or any of its Subsidiaries may be unable to
recognize and perform properly date-sensitive functions involving certain
dates prior to, on, and any date after December 31, 1999) and (ii) developed
a plan and timeline for addressing the Year 2000 Problem on a timely basis,
which plan and timeline have been made available to Parent.
SECTION 4.24. MANAGEMENT AND FRANCHISE AGREEMENTS. The Company has made
available to Parent, or otherwise identified, all material management, license
and franchise agreements (or forms thereof) to which the Company or any of its
Subsidiaries is a party (collectively, the "MATERIAL COMPANY AGREEMENTS") that
contain material radius or non-competition restrictions which would prohibit
29
<PAGE>
Parent or its Subsidiaries (as determined immediately prior to the Effective
Time) from the ownership, operation or management of any of their respective
currently owned hotel properties or that require any consent or other action
by any Person for, or will be subject to default, termination or cancellation
because of, the transactions contemplated hereby, other than (x) those
agreements the loss of the net income from which, individually or in the
aggregate, would not have a Company Material Adverse Effect or (y) those
agreements the Company has the right or the ability to terminate and the loss
of net income from which, or any payment required to be made or otherwise
payable in connection therewith, individually or in the aggregate, would not
have a Company Material Adverse Effect. Neither the Company nor any of its
Subsidiaries has received as of the date hereof a notice of default or
termination under any Material Company Agreement, except where the existence
of such notices, individually or in the aggregate, is not reasonably likely
to have a Company Material Adverse Effect.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF PARENT
Except as set forth in the corresponding sections or subsections of the
disclosure schedule delivered to the Company by Parent on or prior to the
date hereof (the "PARENT DISCLOSURE SCHEDULE") or in the Parent SEC
Documents, Parent represents and warrants to the Company that:
SECTION 5.01. CORPORATE EXISTENCE AND POWER. Each of Parent and Merger
Subsidiary is a corporation duly incorporated, validly existing and in good
standing under the laws of its jurisdiction of incorporation and has all
corporate powers and all governmental licenses, authorizations, permits,
consents and approvals required to carry on its business as now conducted,
except for those licenses, authorizations, permits, consents and approvals
the absence of which would not reasonably be expected to have, individually
or in the aggregate, a Parent Material Adverse Effect. Parent is duly
qualified to do business as a foreign corporation and is in good standing in
each jurisdiction where such qualification is necessary, except for those
jurisdictions where failure to be so qualified would not reasonably be
expected to have, individually or in the aggregate, a Parent Material Adverse
Effect. Parent has heretofore made available to the Company true and
complete copies of the certificate of incorporation and bylaws of Parent and
Merger Subsidiary as currently in effect. Since the date of its
incorporation, Merger Subsidiary has not engaged in any activities other than
in connection with or as contemplated by this Agreement or in connection with
arranging any financing required to consummate the transactions contemplated
hereby.
30
<PAGE>
SECTION 5.02. CORPORATE AUTHORIZATION. The execution, delivery and
performance by Parent and Merger Subsidiary of this Agreement and the
consummation by Parent and Merger Subsidiary of the transactions contemplated
hereby are within the corporate powers of Parent and Merger Subsidiary and,
except for any required approval by the stockholders of Parent of the
issuance of shares of Parent Stock in connection with the Merger, have been
duly authorized by all necessary corporate action. The affirmative vote of
the holders of a majority of the outstanding shares of Parent Stock is the
only vote of the holders of any of Parent's capital stock necessary in
connection with consummation of the Merger. This Agreement constitutes a
valid and binding agreement of each of Parent and Merger Subsidiary.
SECTION 5.03. GOVERNMENTAL AUTHORIZATION. The execution, delivery and
performance by Parent and Merger Subsidiary of this Agreement and the
consummation by Parent and Merger Subsidiary of the transactions contemplated
hereby require no action by or in respect of, or filing with, any
governmental body, agency, official or authority, domestic or foreign, other
than (i) the filing of a certificate of merger with respect to the Merger
with the Delaware Secretary of State and appropriate documents with the
relevant authorities of other states in which Parent is qualified to do
business, (ii) compliance with any applicable requirements of the HSR Act,
(iii) compliance with any applicable requirements of the 1933 Act, the 1934
Act and any other applicable securities or takeover laws, whether state or
foreign, (iv) such consents, approvals, orders, authorizations, permits,
filings or registrations of or with any governmental entity related to, or
arising out of, compliance with statutes, rules or regulations regulating the
consumption, sale or serving of alcoholic beverages and (v) any actions or
filings the absence of which would not be reasonably expected to have,
individually or in the aggregate, a Parent Material Adverse Effect or
materially impair the ability of Parent to consummate the transactions
contemplated by this Agreement or delay the consummation of the transactions
contemplated by this Agreement beyond the Outside Termination Date.
SECTION 5.04. NON-CONTRAVENTION. The execution, delivery and
performance by Parent and Merger Subsidiary of this Agreement and the
consummation by Parent and Merger Subsidiary of the transactions contemplated
hereby do not and will not (i) contravene, conflict with, or result in any
violation or breach of any provision of the certificate of incorporation or
bylaws of Parent or Merger Subsidiary, (ii) assuming compliance with the
matters referred to in Section 5.03, contravene, conflict with, or result in
a violation or breach of any provision of any applicable law, regulation,
judgment, injunction, order or decree, (iii) except as to Material Parent
Agreements (which are addressed in Section 5.24), require any consent or
other action by any Person under, constitute a default under, or cause or
permit the termination, cancellation, acceleration or other change of any
right or obligation or the loss of any benefit to which Parent or any
31
<PAGE>
of its Subsidiaries or any Alliance Company is entitled under any provision
of any agreement or other instrument binding upon Parent or any of its
Subsidiaries or any Alliance Company or any license, franchise, permit,
certificate, approval or other similar authorization affecting, or relating
in any way to, the assets or business of Parent or any of its Subsidiaries or
any Alliance Company or (iv) result in the creation or imposition of any Lien
on any asset of Parent or any of its Subsidiaries or any Alliance Company,
except for such contraventions, conflicts and violations referred to in
clause (ii) and for such failures to obtain any such consent or other action,
defaults, terminations, cancellations, accelerations, changes, losses or
Liens referred to in clauses (iii) or (iv) that would not be reasonably
expected to have, individually or in the aggregate, a Parent Material Adverse
Effect.
SECTION 5.05. CAPITALIZATION. (a) The authorized capital stock of
Parent consists of 400,000,000 shares of Parent Stock and 24,832,700 shares
of preferred stock, par value $1.00 per share. As of September 3, 1999,
there were outstanding: (i) 254,976,661 shares of Parent Stock; (ii) employee
stock options to purchase an aggregate of 23,060,444 shares of Parent Stock
(of which options to purchase an aggregate of 9,462,987 shares of Parent
Stock were exercisable); and (iii) no shares of preferred stock. All shares
of capital stock of Parent outstanding as of the date hereof have been duly
authorized and validly issued and are fully paid and nonassessable. All
shares of Parent Stock issuable upon exercise of outstanding employee stock
options have been duly authorized and, when issued, will have been validly
issued and will be fully paid and nonassessable.
(b) Except as set forth in this Section 5.05 and except for the
Parent Rights, any Shares reserved for issuance pursuant to future grants of
options under stock plans, and changes since September 3, 1999 resulting from
the exercise of employee stock options, there are outstanding (i) no shares
of capital stock or voting securities of Parent,(ii) no securities of Parent
convertible into or exchangeable for shares of capital stock or voting
securities of Parent or (iii) no options or other rights to acquire from
Parent or other obligations of Parent to issue, any capital stock, voting
securities or securities convertible into or exchangeable for capital stock
or voting securities of Parent (the items in clauses (i), (ii) and (iii)
being referred to collectively as the "PARENT SECURITIES"). There are no
outstanding obligations of Parent or any of its Subsidiaries to repurchase,
redeem or otherwise acquire any of the Parent Securities.
(c) The shares of Parent Stock to be issued as part of the Merger
Consideration have been duly authorized and, when issued and delivered in
accordance with the terms of this Agreement, will have been validly issued
and will be fully paid and nonassessable and the issuance thereof is not
subject to any preemptive or other similar right.
32
<PAGE>
SECTION 5.06. SUBSIDIARIES. (a) Each material Subsidiary of Parent and
each Alliance Company is duly organized, validly existing and in good
standing under the laws of its jurisdiction of organization, has all powers
and all governmental licenses, authorizations, permits, consents and
approvals required to carry on its business as now conducted, except for
those licenses, authorizations, permits, consents and approvals the absence
of which would not reasonably be expected to have, individually or in the
aggregate, a Parent Material Adverse Effect. Each such material Subsidiary
and Alliance Company is duly qualified to do business and is in good standing
in each jurisdiction where such qualification is necessary, except for those
jurisdictions where failure to be so qualified would not reasonably be
expected to have, individually or in the aggregate, a Parent Material Adverse
Effect. All "significant subsidiaries," as such term is defined in Section
1-02 of Regulation S-X under the 1934 Act of Parent and their respective
jurisdictions of incorporation are identified in the Parent 10-K.
(b) All of the outstanding capital stock of, or other voting
securities or ownership interests in, each material Subsidiary of Parent, is
owned by Parent, directly or indirectly, free and clear of any Lien and free
of any other limitation or restriction (including any restriction on the
right to vote, sell or otherwise dispose of such capital stock or other
voting securities or ownership interests). There are outstanding (i) no
securities of Parent or any of its Subsidiaries convertible into or
exchangeable for shares of capital stock or other voting securities or
ownership interests in any material Subsidiary of Parent or (ii) no options
or other rights to acquire from Parent or any of its Subsidiaries, or other
obligation of Parent or any of its Subsidiaries to issue, any capital stock
or other voting securities or ownership interests in, or any securities
convertible into or exchangeable for any capital stock or other voting
securities or ownership interests in, any material Subsidiary of Parent (the
items in clauses (i) and (ii) being referred to collectively as the "PARENT
SUBSIDIARY SECURITIES"). There are no outstanding obligations of Parent or
any of its Subsidiaries to repurchase, redeem or otherwise acquire any of the
Parent Subsidiary Securities. Parent owns, directly or indirectly, a 50%
interest in each Alliance Company.
SECTION 5.07. SEC FILINGS. (a) Parent has made available to the
Company (i) Parent's annual reports on Form 10-K for its fiscal years ended
December 31, 1997 and 1998,(ii) its quarterly reports on Form 10-Q for its
fiscal quarters ended March 31, 1999 and June 30, 1999, (iii) its proxy or
information statements relating to meetings of, or actions taken without a
meeting by, the stockholders of Parent held since December 31, 1998, and (iv)
all of its other reports, statements, schedules and registration statements
filed with the SEC since December 31, 1998 (the documents referred to in this
Section 5.07(a), collectively, the "PARENT SEC DOCUMENTS").
33
<PAGE>
(b) As of its filing date, each Parent SEC Document complied as to
form in all material respects with the applicable requirements of the 1933
Act and the 1934 Act, as the case may be.
(c) As of its filing date, each Parent SEC Document filed pursuant
to the 1934 Act did not contain any untrue statement of a material fact or
omit to state any material fact necessary in order to make the statements
made therein, in the light of the circumstances under which they were made,
not misleading.
(d) Each Parent SEC Document that is a registration statement, as
amended or supplemented, if applicable, filed pursuant to the 1933 Act, as of
the date such statement or amendment became effective, did not contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading.
(e) None of Parent's Subsidiaries is required to file any forms,
reports or other documents with the SEC.
SECTION 5.08. FINANCIAL STATEMENTS. The audited consolidated financial
statements and unaudited consolidated interim financial statements of Parent
included in the annual reports on Form 10-K referred to in clause (i) of Section
5.07(a) and the quarterly reports on Form 10-Q referred to in clause (ii) of
Section 5.07(a) complied as to form in all material respect with the applicable
published rules and regulations of the SEC with respect thereto, were prepared
in accordance with GAAP applied on a consistent basis throughout the periods
involved (except as may be indicated in the notes to such financial statements
or, in the case of unaudited statements, as permitted by Form 10-Q under the
1934 Act) and fairly present the consolidated financial position of Parent and
its consolidated Subsidiaries as of the dates thereof and their consolidated
results of operations and cash flows for the periods then ended (subject to
normal year-end adjustments in the case of any unaudited interim financial
statements).
SECTION 5.09. DISCLOSURE DOCUMENTS.
(a) The Registration Statement on Form S-4 of Parent (the "REGISTRATION
STATEMENT") to be filed with the SEC with respect to the issuance of Parent
Stock in connection with the Merger and any amendments or supplements
thereto, when filed, will comply as to form in all material respects with the
applicable requirements of the 1933 Act. Neither the Registration Statement
nor any amendment or supplement thereto will at the time it becomes effective
under the 1933 Act contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading. The representations and warranties
contained in this Section 5.09(a) will not apply to statements or omissions
included in the
34
<PAGE>
Registration Statement based upon information furnished to Parent or Merger
Subsidiary by the Company specifically for use therein.
(b) Neither the joint proxy statement relating to the Parent
Stockholder Meeting and the Company Stockholder Meeting nor the related proxy
and notice of meeting, or soliciting material in connection therewith
(collectively, the "JOINT PROXY STATEMENT") nor any amendment or supplement
thereto, will, at the date the Joint Proxy Statement or any such amendment or
supplement is first mailed to stockholders of Parent and the Company or at
the time of the Parent Stockholder Meeting and the Company Stockholder
Meeting, contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. The Joint
Proxy Statement (except for information relating solely to the Company) shall
comply as to form in all material respects with the applicable requirements
of the 1933 Act. The representations and warranties contained in this
Section 5.09(b) will not apply to statements or omissions included in the
Joint Proxy Statement based upon information furnished to Parent or Merger
Subsidiary by the Company specifically for use therein.
SECTION 5.10. ABSENCE OF CERTAIN CHANGES. Since December 31, 1998, the
business of Parent and its Subsidiaries has been conducted in the ordinary
course consistent with past practices and there has not been:
(a) any events, occurrences, developments or state of circumstances
or facts that, individually or in the aggregate, have had or will have a
Parent Material Adverse Effect;
(b) as of the date of this Agreement, any declaration, setting
aside or payment of any dividend or other distribution with respect to any
shares of capital stock of Parent (other than the payment of regular
quarterly dividends not in excess of $0.02 per share of Parent Stock, or any
repurchase, redemption or other acquisition by Parent or any of its
Subsidiaries of any outstanding shares of capital stock or other securities
of, or other ownership interests in, Parent or any of its Subsidiaries;
(c) as of the date of this Agreement, any amendment of any material
term of any outstanding security of Parent or any of its Subsidiaries;
(d) as of the date of this Agreement, any incurrence, assumption or
guarantee by Parent or any of its Subsidiaries of any indebtedness for
borrowed money other than in the ordinary course of business and in amounts
and on terms consistent with past practices;
35
<PAGE>
(e) as of the date of this Agreement, any creation or
other incurrence by Parent or any of its Subsidiaries of any Lien on any
material asset other than in the ordinary course of business consistent with
past practices;
(f) as of the date of this Agreement, any making of any
material loan, advance or capital contributions to or investment in any
Person other than to Parent or any of its direct or indirect wholly-owned
Subsidiaries or in the ordinary course of business consistent with past
practices;
(g) any damage, destruction or other casualty loss
(whether or not covered by insurance) affecting the business or assets of
Parent or any of its Subsidiaries that has had or could reasonably be
expected to have a Parent Material Adverse Effect;
(h) as of the date of this Agreement, any transaction or
commitment made, or any contract or agreement entered into, by Parent or any
of its Subsidiaries relating to its assets or business (including the
acquisition or disposition of any assets) or any relinquishment by Parent or
any of its Subsidiaries of any contract or other right, in either case,
material to Parent and its Subsidiaries, taken as a whole, other than
transactions and commitments in the ordinary course of business consistent
with past practices and those contemplated by this Agreement;
(i) as of the date of this Agreement, any change in any
method of accounting, method of tax accounting or accounting principles or
practice by Parent or any of its Subsidiaries, except for any such change
which is not significant or which is required by reason of a concurrent
change in GAAP or Regulation S-X under the 1934 Act; or
(j) as of the date of this Agreement, any (i) grant of any
severance or termination pay to (or amendment to any existing arrangement
with) any director, officer or (to the extent material in the aggregate)
employee of Parent or any of its Subsidiaries,(ii) increase in benefits
payable under any existing severance or termination pay policies or
employment agreements,(iii) any entering into of any employment, deferred
compensation or other similar agreement (or any amendment to any such
existing agreement) with any director, officer or employee of Parent or any
of its Subsidiaries,(iv) establishment, adoption or amendment (except as
required by applicable law) of any collective bargaining, bonus,
profit-sharing, thrift, pension, retirement, deferred compensation,
compensation, stock option, restricted stock or other benefit plan or
arrangement covering any director, officer or employee of the Parent or any
of its Subsidiaries or (v) increase in compensation, bonus or other benefits
payable to any director, officer or employee of Parent or any of its
subsidiaries, other than, in the case of
36
<PAGE>
any of clauses (i) through (v), in the ordinary course of business consistent
with past practice.
SECTION 5.11. NO UNDISCLOSED MATERIAL LIABILITIES. There are no
liabilities or obligations of Parent or any of its Subsidiaries of any kind
whatsoever, whether accrued, contingent, absolute, determined, determinable
or otherwise, other than:
(a) liabilities or obligations disclosed or provided for
in the Parent Balance Sheet or in the notes thereto or in any of the Parent
SEC Documents filed prior to the date hereof;
(b) liabilities or obligations that would not reasonably
be expected to have, individually or in the aggregate, a Parent Material
Adverse Effect; and
(c) liabilities or obligations under this Agreement or
incurred in connection with the transactions contemplated hereby.
SECTION 5.12. COMPLIANCE WITH LAWS AND COURT ORDERS. Neither Parent nor
any of its Subsidiaries is in violation of, or has since January 1, 1998
violated, any applicable law, statute, ordinance, rule, regulation, judgment,
injunction, order or decree, except for violations that have not had and
would not reasonably be expected to have, individually or in the aggregate, a
Parent Material Adverse Effect.
SECTION 5.13. LITIGATION. There is no action, suit, investigation or
proceeding pending, or, to the knowledge of Parent, threatened, against
Parent or any of its Subsidiaries or any of their respective properties, or
against any Parent Employee Plan (as defined in Section 5.16), before any
court or arbitrator or before or by any governmental body, agency or
official, domestic or foreign, that, if determined or resolved adversely in
accordance with the plaintiff's demands, would reasonably be expected to have
a Parent Material Adverse Effect.
SECTION 5.14. FINDERS' FEES. Except for Morgan Stanley & Co.
Incorporated and Donaldson, Lufkin & Jenrette Securities Corporation, whose
fees will be paid by Parent, there is no investment banker, broker, finder or
other intermediary that has been retained by or is authorized to act on
behalf of Parent or any of its Subsidiaries who might be entitled to any fee
or commission from the Company or any of its Affiliates in connection with of
the transactions contemplated by this Agreement.
SECTION 5.15. TAXES. (a) Parent and each of its Subsidiaries has
timely filed (or has had timely filed on its behalf) or will timely file or
cause to be timely filed all material Tax Returns required by applicable law
to be filed by it prior to
37
<PAGE>
or as of the Effective Time, and all such material Tax Returns are, or will
be at the time of filing, true and complete in all material respects.
(b) Parent and each of its Subsidiaries has paid (or has
had paid on its behalf) all material Taxes, whether individually or in the
aggregate, due with respect to any period ending prior to or as of the
Effective Time (other than Taxes which are being contested in good faith),
or, where payment is not yet due or is being contested in good faith, has
established (or has had established on its behalf and for its sole benefit
and recourse) or will establish or cause to be established in accordance with
GAAP on or before the Effective Time an adequate accrual for the payment of
such Taxes.
(c) Parent and its Subsidiaries have complied in all
material respects with all applicable laws, rules and regulations relating to
the payment and withholding of Taxes.
(d) No federal, state, local or foreign audits or
administrative proceedings are pending with regard to any material Taxes or
Tax Return of Parent or its Subsidiaries and none of them has received a
written notice of any proposed audit or proceeding.
(e) Neither Parent nor any of its Subsidiaries is or has
been a member of an affiliated group of corporations (within the meaning of
Section 1504(a)) filing a consolidated federal income tax return (or a group
of corporations filing a consolidated, combined or unitary income tax return
under comparable provisions of state, local or foreign tax law) for any
taxable period, other than a group the common parent of which is Parent or
any Subsidiary of Parent.
(f) Neither Parent nor any of its Subsidiaries has any
obligation under any agreement or arrangement with any other person with
respect to material Taxes of such other person (including pursuant to
Treasury Regulation Section 1.1502-6 or comparable provisions of state, local
or foreign tax law) including any liability for Taxes of any predecessor
entity.
(g) Parent (i) is not aware of any fact or circumstance as
of the date hereof which is reasonably likely to cause the Merger to fail to
qualify as a "reorganization" within the meaning of Section 368(a) of the
Code, PROVIDED that Merger Subsidiary is the surviving corporation in the
Merger and (ii) is not aware of any fact or circumstance (including the
Merger), or combination thereof, which has caused or may cause the
distribution by Parent of Park Place Entertainment Corporation ("PPEC") on
December 31, 1998 (the "DISTRIBUTION") to fail to qualify as a tax-free
transaction under Section 355(a) and (c) of the Code.
38
<PAGE>
(h) The representations set forth in the private letter
ruling issued by the IRS to Parent dated December 10, 1998, and the
representations made by Parent in its request (and any supplements thereto)
for such private letter ruling, were true, correct and complete in all
respects at the date of the Distribution and are true, correct and complete
in all respects on the date hereof.
(i) At the time of the Distribution, neither Parent, PPEC,
nor any "Controlling Shareholder" (as defined below) of either corporation
anticipated, in light of (i) industry trends, (ii) any information known
regarding the intentions of the managements of corporations engaging in
businesses similar to those of Parent and PPEC, and (iii) the general
economic climate at the time of the distribution, that it was more likely
than not that one or more persons would acquire a 50-percent or greater
interest in Parent or PPEC within 2 years after the Distribution (or later
pursuant to an agreement, understanding, or arrangement existing at the time
of the Distribution or within 6 months thereafter) who would not have
acquired such interests if the Distribution had not occurred. For purposes
of this representation, "CONTROLLING SHAREHOLDER" means any stockholder of
(i) Parent who directly or indirectly together with related persons (as
described in Sections 267(b) and 707(b) of the Code) owned 5 percent or more
of any class of stock of Parent and who actively participated in the
management of Parent, or (ii) PPEC who immediately after the Distribution
directly or indirectly together with related persons (as described in
Sections 267(b) and 707(b) of the Code) owned 5 percent or more of any class
of stock of PPEC and who actively participated in the management of PPEC.
(j) The Parent Disclosure Schedule sets forth Parent's
federal income tax basis, at the time of the Distribution, in the shares of
PPEC distributed to its stockholders.
(k) Parent has received an opinion from Gibson, Dunn &
Crutcher LLP to the effect that the Merger pursuant to this Agreement will
not cause the Distribution to fail to qualify as a tax-free transaction under
Section 355(a) and (c) of the Code. In rendering such opinion Gibson, Dunn &
Crutcher LLP shall be entitled to rely upon certain documentation including
representations of officers and shareholders of Parent.
SECTION 5.16. EMPLOYEE BENEFIT PLANS. (a) Section 5.16 of the Parent
Disclosure Schedule contains a correct and complete list identifying each
"employee benefit plan," as defined in Section 3(3) of ERISA, each written
employment, severance or similar contract, plan, arrangement or policy and
each other plan or arrangement providing for compensation, bonuses,
profit-sharing, stock option or other stock related rights or other forms of
incentive or deferred compensation, vacation benefits, insurance coverage
(including any self-insured arrangements), health or medical benefits,
disability benefits, workers'
39
<PAGE>
compensation, supplemental unemployment benefits, severance benefits, change
of control benefits and post-employment or retirement benefits (including
compensation, pension, health, medical or life insurance benefits) which is
maintained, administered or contributed to by Parent or any ERISA Affiliate
and covers any employee or former employee of Parent or any of its
Subsidiaries, or with respect to which Parent or any of its Subsidiaries or
ERISA Affiliates has any liability. Copies of such plans (and, if
applicable, related trust agreements, insurance policies and other funding
documents relating thereto, Internal Revenue Service determination letters,
most recent filings on Form 5500, actuarial valuations, financial statements,
and any correspondence with a government agency relating thereto) and all
amendments thereto and written interpretations thereof have been furnished,
or will be made available upon request, to the Company. Such plans are
referred to collectively herein as the "PARENT EMPLOYEE PLANS".
(b) Except as may be required by a collective bargaining
agreement set forth in Section 5.16(a) of the Parent Disclosure Schedule,
neither Parent nor any ERISA Affiliate maintains, contributes to, has any
obligation to contribute to, or participates in, nor has within the past six
years maintained, contributed to, had an obligation to contribute to, or
participated in, any plan that constitutes or constituted a defined benefit
or money purchase pension plan, as defined in Section 412 of the Code or
ERISA, a Multiemployer Plan, a "multiple employer plan," as defined in ERISA,
or that is or was subject to Title IV of ERISA.
(c) Each Parent Employee Plan which is intended to be
qualified under Section 401(a) of the Code has received a favorable
determination letter from the Internal Revenue Service, and Parent knows of
no fact or circumstance giving rise to a material likelihood that the plan
would not be treated as so qualified by the Internal Revenue Service. Each
Parent Employee Plan has been maintained in material compliance with its
terms and with the requirements prescribed by any and all statutes, orders,
rules and regulations, including but not limited to ERISA and the Code, which
are applicable to such Parent Employee Plan. No material audit or
investigation by any governmental authority is pending or, to the knowledge
of Parent, threatened, regarding any Parent Employee Plan.
(d) No Parent Employee Plan provides for post-employment
welfare benefits of any kind, except as may be required by Section 4980B of
the Code.
(e) With respect to the Parent Employee Plans which are
Multiemployer Plans,(i) during the last six years neither Parent nor any
ERISA Affiliate thereof has incurred any complete or partial withdrawal,
withdrawal liability, or any other obligation or liability under Title IV of
ERISA (including Section 4212(c)) (other
40
<PAGE>
than contributions due in the normal course); and (ii) no such Plan is in
reorganization status, is insolvent, has terminated, or suffered a mass
withdrawal.
SECTION 5.17. ENVIRONMENTAL MATTERS. Except as would not reasonably be
expected to have, individually or in the aggregate, a Parent Material Adverse
Effect:
(i) no notice, notification, demand, request for information,
citation, summons or order has been received, no complaint has been
filed, no penalty has been assessed, and no investigation, action,
claim, suit, proceeding or review (or any basis therefor) is pending
or, to the knowledge of Parent, is threatened by any governmental
entity or other Person with respect to any matters relating to
Parent or any Subsidiary and relating to or arising out of any
Environmental Law;
(ii) the Parent and its Subsidiaries are in compliance with
all applicable Environmental Laws and all Environmental Permits; and
(iii) there are no liabilities or obligations of Parent or
any of its Subsidiaries, whether accrued, contingent, absolute,
determined, determinable or otherwise arising under or relating to
any Environmental Law.
SECTION 5.18. FINANCING. Parent has received and furnished a copy to the
Company of a commitment letter (including the Summary of Terms and Conditions
annexed thereto, the "COMMITMENT LETTER") with Bank of America, N.A. and Bank of
America Securities LLC (collectively, "BANK OF AMERICA") dated as of September
3, 1999. The funds which Bank of America has agreed, subject to the terms and
conditions of the Commitment Letter, to provide will be sufficient, when taken
together with funds available pursuant to (A) Parent's Existing Senior Credit
Facility (as defined in the Commitment Letter) (the "EXISTING SENIOR CREDIT
FACILITY"), as amended as contemplated by the Commitment Letter, and (B) other
funds available to Parent, to pay all cash amounts payable to Company
stockholders and optionholders in connection with the transactions contemplated
by this Agreement, to effect all necessary refinancing of existing indebtedness
of the Company and its Subsidiaries or of Parent and its Subsidiaries that is
required as a result of the transactions contemplated by this Agreement, and to
pay all related fees and expenses (such amount, the "REQUIRED CASH AMOUNT").
Pursuant to the Commitment Letter, Bank of America has also agreed to purchase
assignments of commitments and loans outstanding under the Existing Senior
Credit Facility to the extent, if any, necessary to enable Bank of America and
any other lenders under the Existing Senior Credit Facility that consent to such
amendment, to adopt any amendment, waiver or other modification necessary under
the Existing Senior Credit Facility
41
<PAGE>
to permit the consummation of the transactions contemplated by this Agreement
and all financings and refinancings required to consummate such transactions.
Parent knows of no facts or circumstances as of the date hereof that would
result in any of the conditions set forth in the Commitment Letter not being
satisfied.
SECTION 5.19. ANTITAKEOVER STATUTES; RIGHTS AGREEMENT; DIRECTOR VOTES.
(a) Parent has taken all action necessary to exempt the Merger, this
Agreement and the transactions contemplated hereby from the provisions of
Section 203 of Delaware Law, any other applicable antitakeover or similar
statute or regulation and the business combination provisions of Article IX
of Parent's certificate of incorporation.
(b) Under the terms of the Amended and Restated Rights
Agreement dated as of September 10, 1998 between Parent and ChaseMellon
Shareholder Services, L.L.C., as amended as of September 3, 1999 (the "PARENT
RIGHTS AGREEMENT"), neither the execution of this Agreement nor the
transactions contemplated hereby will cause a "Distribution Date" to occur or
otherwise cause the rights ("PARENT RIGHTS") issued pursuant to the Parent
Rights Agreement to become exercisable, and all such rights shall be
non-exercisable at the Effective Time.
(c) Parent has been advised that all of its directors who
own shares of Parent Stock intend to vote in favor of the Merger.
SECTION 5.20. INSURANCE. All material fire and casualty, general
liability, business interruption, product liability, and sprinkler and water
damage insurance policies maintained by Parent or any of its Subsidiaries are
with reputable insurance carriers, provide full and adequate coverage for all
normal risks incident to the business of Parent and its Subsidiaries and
their respective properties and assets, and are in character and amount
comparable to that carried by persons engaged in similar businesses and
subject to the same or similar perils or hazards, except for any such
failures to maintain insurance policies that, individually or in the
aggregate, are not reasonably likely to have a Parent Material Adverse Effect.
SECTION 5.21. INTELLECTUAL PROPERTY. Parent owns, or is licensed or
otherwise possesses legally enforceable rights to use, all trademarks, trade
names, service marks, copyrights, and any applications for such trademarks,
trade names, service marks and copyrights, know-how, computer software
programs or applications and tangible or intangible proprietary information
or material that are necessary to conduct the business of Parent as currently
conducted, subject to such exceptions that, individually and in the
aggregate, would not be reasonably likely to have a Parent Material Adverse
Effect. Parent has no knowledge of any assertion or claim challenging the
validity of any of such intellectual property that would be reasonably likely
to have a Parent Material Adverse Effect.
42
<PAGE>
SECTION 5.22. REAL PROPERTY. (a) Neither Parent nor any
of its Subsidiaries has received a notice of default or termination under any
leases for real property providing for the occupancy, in each case, of (i) a
hotel or (ii) other facilities in excess of 50,000 square feet except where
the existence of such notices, individually or in the aggregate, is not
reasonably likely to have a Parent Material Adverse Effect.
(b) With respect to the real property that Parent and any
of its Subsidiaries own, Parent or its Subsidiary has title sufficient to
conduct the business of Parent and its Subsidiaries as currently conducted,
except for such matters as would not reasonably be expected to have,
individually or in the aggregate, a Parent Material Adverse Effect.
SECTION 5.23. YEAR 2000 COMPLIANCE. Parent and its
Subsidiaries have (i) completed a review and assessment of all areas within
the business and operations of Parent and its Subsidiaries that could be
adversely affected by the "Year 2000 Problem" (that is, the risk that
computer software and systems used by Parent or any of its Subsidiaries may
be unable to recognize and perform properly date-sensitive functions
involving certain dates prior to, on, and any date after December 31, 1999)
and (ii) developed a plan and timeline for addressing the Year 2000 Problem
on a timely basis, which plan and timeline have been made available to the
Company.
SECTION 5.24. MANAGEMENT AND FRANCHISE AGREEMENTS.
Parent has made available to the Company, or otherwise identified, all
material management and franchise agreements (or forms thereof) to which
Parent or any of its Subsidiaries is a party (collectively, the "MATERIAL
PARENT AGREEMENTS") that contain material radius or non-competition
restrictions which would prohibit the Company or its Subsidiaries (as
determined immediately prior to the Effective Time) from the ownership,
operation or management of any of their respective currently owned hotel
properties or that require any consent or other action by any Person for, or
will be subject to default, termination or cancellation because of, the
transactions contemplated hereby, other than (x) those agreements the loss of
the net income from which, individually or in the aggregate, would not have a
Parent Material Adverse Effect or (y) those agreements Parent has the right
or the ability to terminate and the loss of net income from which, or any
payment required to be made or otherwise payable in connection therewith,
individually or in the aggregate, would not have a Parent Material Adverse
Effect. Neither Parent nor any of its Subsidiaries has received as of the
date hereof a notice of default or termination under any Material Parent
Agreement, except where the existence of such notices, individually or in the
aggregate, is not reasonably likely to have a Parent Material Adverse Effect.
43
<PAGE>
SECTION 5.25. OPINION OF FINANCIAL ADVISOR. Parent has
received the written opinions of Morgan Stanley & Co. Incorporated and
Donaldson, Lufkin & Jenrette Securities Corporation, financial advisors to
Parent, each to the effect that, as of the date of this Agreement, the Merger
Consideration is fair to Parent from a financial point of view.
ARTICLE 6
COVENANTS OF THE COMPANY
The Company agrees that:
Section 6.01. CONDUCT OF THE COMPANY. From the date
hereof until the Effective Time, the Company and its Subsidiaries shall
conduct their business in the ordinary course consistent with past practice
and shall use their reasonable best efforts to preserve intact their business
organizations and relationships with third parties. Without limiting the
generality of the foregoing, except with the prior written consent of Parent
or as contemplated by this Agreement or as set forth in the Company
Disclosure Schedule, from the date hereof until the Effective Time the
Company shall not, and shall not permit any of its Subsidiaries to:
(a) (i) declare, set aside or pay any dividends on, or make
any other actual, constructive or deemed distributions in respect of, any of
its capital stock, or otherwise make any payments to its stockholders in
their capacity as such (other than dividends and other distributions by
direct or indirect wholly owned Subsidiaries),(ii) other than in the case of
any direct or indirect wholly owned Subsidiary, 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 (iii) 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; PROVIDED that nothing in this Section 6.01(a)
shall prohibit the Company or any of its Subsidiaries from doing any of the
foregoing to the extent such action is otherwise permitted by this Section
6.01.
(b) issue, deliver, sell, pledge, dispose of or otherwise
encumber any Shares, or any other voting securities or equity equivalent or
any securities convertible into, or any rights, warrants or options to
acquire any such Shares, voting securities, equity equivalent or convertible
securities, other than (i) as permitted by Section 6.01(j),(ii) the issuance
of Shares (and associated rights) upon the exercise of the GE Warrants, the
GE Options or stock options pursuant to the Company's stock plans in
accordance with their current terms and the
44
<PAGE>
issuance of Credited Shares upon vesting thereof and (iii) the issuance of
Shares and options pursuant to the Directors Plan or the Directors Program;
(c) amend its Certificate of Incorporation or By-Laws or
other comparable organizational documents or amend any material terms of the
outstanding securities of the Company or its Subsidiaries;
(d) acquire or agree to acquire (i) by merging or
consolidating with, or by purchasing a substantial portion of the assets of
or equity in, or by any other manner, any business or any corporation,
partnership, association or other business organization or division thereof
or (ii) any assets that are, individually or in the aggregate, material to
the Company and its Subsidiaries taken as a whole, other than, in the case of
clauses (i) and (ii), (x) transactions that are in the ordinary course of
business consistent with past practice and not material to the Company and
its Subsidiaries taken as a whole and (y) the direct or indirect acquisition
of individual hotel properties or interests therein in accordance with Annex
C to the Company Disclosure Schedule;
(e) except as contemplated by (i) Annex C to the Company
Disclosure Schedule, (ii) Annex A (Funding Commitments) to the Company
Disclosure Schedule or (iii) in the ordinary course of business consistent
with past practice, make any loans, advances or capital contributions to, or
other investments in, any entity which, individually, is in excess of $10
million or, in the aggregate, are in excess of $20 million;
(f) sell, lease, license, mortgage or otherwise encumber
or subject to any Lien or otherwise dispose of, or agree to sell, lease,
license, mortgage or otherwise encumber or subject to any Lien or otherwise
dispose of, any of its assets, other than (x) transactions that are in the
ordinary course of business consistent with past practice and not material to
the Company and its Subsidiaries taken as a whole, (y) pursuant to agreements
existing on the date hereof or (z) sales of individual hotel properties not
to exceed $50 million in the aggregate;
(g) incur any indebtedness for borrowed money, guarantee
any such indebtedness, issue or sell any debt securities or warrants or other
rights to acquire any debt securities or guarantee any debt securities, other
than (i) indebtedness and guarantees as contemplated by Annex A (Funding
Commitments) or Annex C to the Company Disclosure Schedule, (ii) any other
such indebtedness, guarantee or issuance incurred in the ordinary course of
business consistent with past practice or incurred between the Company and
any of its wholly owned Subsidiaries or between any of such wholly owned
Subsidiaries and (iii) the annual renewal of the Company's existing 364-day
revolving credit agreement on substantially the same terms;
45
<PAGE>
(h) except as required under any collective bargaining
agreement (whether now or hereafter in effect) or under Section 2.07 or as
may be mutually agreed upon between Parent and the Company, enter into or
adopt any new, or amend any existing, severance plan, agreement or
arrangement or enter into any new or amend any existing Company Employee Plan
or employment or consulting agreement, other than as required by law, except
that the Company or its Subsidiaries may enter into (i) employment agreements
if such agreements (x) are no longer than one year in duration and (y)
provide for an annual base salary of less than $150,000, and (ii)consulting
agreements in the ordinary course of business that are terminable on no more
than 90 days' notice without penalty, and the Company or its Subsidiaries may
amend any Company Employee Plan or other plan, program, policy or arrangement
if such amendment will result in not more than a DE MINIMIS additional cost
to the Company or its Subsidiaries;
(i) except (i) as permitted under Section 6.01(h), (ii)as
described in Section 7.05(c) of the Company Disclosure Schedule or (iii) to
the extent required by written employment agreements existing on the date of
this Agreement, increase the compensation payable or to become payable to its
officers or employees, except for increases in the ordinary course of
business consistent with past practice in salaries or wages of employees of
the Company or any of its Subsidiaries;
(j) grant or award any stock options, restricted stock,
performance shares, stock appreciation rights or other equity-based incentive
awards, other than an award agreed to in good faith by Parent which (i) is
made to a management employee or non-employee director who would be eligible
to receive such award under the terms of the Company Employee Plans as
applied consistently with past practice and (ii) is made on terms
substantially the same as the terms of awards previously awarded under such
plan (except that the vesting of such award shall not be subject to
acceleration by virtue of consummation of the Merger);
(k) change (i) its method of accounting or accounting
practices in any material respect except as required by changes in GAAP or
(ii) its fiscal year;
(l) except (i) as disclosed in Annex A (Funding
Commitments) to the Company Disclosure Schedule, (ii) as disclosed in Annex C
to the Company Disclosure Schedule, or (iii) for maintenance and casualty
capital expenditures in the ordinary course of business consistent with past
practice, make or agree or make any new capital expenditure or expenditures
which, individually, is in excess of $5,000,000 or, in the aggregate, are in
excess of $10,000,000;
46
<PAGE>
(m) settle or compromise any federal, state, local or
foreign tax liability to the extent the amount paid pursuant to such
settlement or compromise would exceed $5,000,000;
(n) except as required by law, prepare or file any Tax
Return inconsistent with past practice or, on any such Tax Return, take any
position, make any election, or adopt any method that is inconsistent with
positions taken, elections made or methods used in preparing or filing
similar Tax Returns in prior periods;
(o) engage in any transaction with any Affiliate (other
than any Subsidiary), director or officer of Parent, except as contemplated
by this Agreement or on an arms' length basis and in the ordinary course of
business;
(p) amend the Rights Agreement or redeem or render
inapplicable the Rights to facilitate the acquisition by any Person of more
than 15% of the outstanding Shares, except in connection with the
transactions contemplated by this Agreement or a Superior Proposal
recommended by the Board of Directors of the Company in accordance with
Section 6.02(b); or
(q) authorize, recommend, propose or announce an intention
to do any of the foregoing, or enter into any contract, agreement, commitment
or arrangement to do any of the foregoing.
SECTION 6.02. STOCKHOLDER MEETING; PROXY MATERIAL. (a)
The Company shall cause a meeting of its stockholders (the "COMPANY
STOCKHOLDER MEETING") to be duly called and held as soon as reasonably
practicable for the purpose of voting on the approval and adoption of this
Agreement and the Merger. In connection with such meeting, the Company will
(i) promptly prepare and file with the SEC, use its reasonable best efforts
to have cleared by the SEC and thereafter mail to its stockholders as
promptly as practicable the Joint Proxy Statement and all other proxy
materials for such meeting, (ii) use its reasonable best efforts to obtain
the necessary approvals by its stockholders of this Agreement and the
transactions contemplated hereby and (iii) otherwise comply with all legal
requirements applicable to such meeting.
(b) The Board of Directors of the Company shall recommend
approval and adoption of this Agreement and the Merger by the Company's
stockholders; PROVIDED that (A) the Board of Directors of the Company shall
be permitted to withdraw, or modify in a manner adverse to Parent, its
recommendation to its stockholders, but only if (i) the Company has complied
with the terms of Section 6.03, (ii) the Company has received an unsolicited
Acquisition Proposal which the Board of Directors of the Company determines
in good faith would, if consummated, constitute a Superior Proposal, (iii)
the Board of Directors
47
<PAGE>
determines in good faith, on the basis of advice of outside legal counsel,
that it must take such action to comply with its fiduciary duties under
applicable law; (iv) the Company shall have delivered to Parent a prior
written notice advising Parent that it intends to take such action; and (v)
the Company concurrently terminates this Agreement pursuant to Section
10.01(d)(i) and pays the termination fee contemplated by Section 11.04(b);
and (B) to the extent applicable the Board of Directors of the Company shall
be permitted to comply with Rule 14d-9 and Rule 14e-2 under the 1934 Act with
respect to any Acquisition Proposal. For purposes of this Agreement,
"SUPERIOR PROPOSAL" means a bona fide written Acquisition Proposal which the
Board of Directors of the Company concludes in good faith (after consultation
with its financial advisors and legal counsel), taking into account all
legal, financial, regulatory and other aspects of the proposal including the
nature and sufficiency of financing for such proposal and the Person making
the proposal, (i) would, if consummated, result in a transaction that is more
favorable to the Company's stockholders (in their capacities as stockholders)
from a financial point of view, than the transactions contemplated by this
Agreement and (ii) is reasonably likely to be completed (provided that for
purposes of this definition the term Acquisition Proposal shall have the
meaning assigned to such term in Section 1.01 except that the references to
"20%" in the definition of "Acquisition Proposal" shall be deemed to be a
reference to "50%"). Nothing in this Section 6.02(b) shall permit the
Company to terminate this Agreement except as specifically provided in
Article 10.
SECTION 6.03. NO SOLICITATION; OTHER OFFERS. (a) From
the date hereof until the termination hereof, the Company will not, and will
cause its Subsidiaries and will use reasonable best efforts to cause the
officers, directors, employees, investment bankers, attorneys, accountants,
consultants or other agents or advisors of the Company and its Subsidiaries
not to, directly or indirectly, (i) take any action to solicit or initiate
the submission of any Acquisition Proposal or (ii) engage in discussions or
negotiations with, or disclose any nonpublic information relating to the
Company or any of its Subsidiaries to, any Person who, to the knowledge of
the Company, is considering making, or has made, an Acquisition Proposal;
PROVIDED that the Company may negotiate or otherwise engage in discussions
with, and furnish nonpublic information to, any Person in response to an
unsolicited Acquisition Proposal if (w) the Company has complied with the
terms of Section 6.03(b), (x) the Board of Directors of the Company
determines in good faith that, based on the terms and conditions contained in
such Acquisition Proposal, such Acquisition Proposal could reasonably be
expected to constitute a Superior Proposal, (y) prior to providing any
information or data to any Person in connection with an Acquisition Proposal,
such Person executes a confidentiality agreement with terms substantially
similar to those contained in the Confidentiality Agreement (except as to the
standstill provisions, PROVIDED that if the Company so enters into any such
confidentiality agreement without standstill provisions substantially similar
to those in the Confidentiality Agreement, then
48
<PAGE>
Parent shall to the extent of such difference be relieved of compliance with
the Confidentiality Agreement's standstill obligations) and (z) the Company
shall have delivered to Parent a prior written notice advising Parent that it
intends to take such action.
(b) The Company will notify Parent promptly after receipt
by the Company of any Acquisition Proposal or any request for nonpublic
information relating to the Company or any of its Subsidiaries by any Person
who, to the knowledge of the Company, is making, or has made, an Acquisition
Proposal. The Company shall provide such notice orally and in writing and
shall identify the Person making, and the terms and conditions of, any such
Acquisition Proposal, indication or request. The Company shall keep Parent
informed of the status and details of any such Acquisition Proposal,
indication or request. The Company shall, and shall cause its Subsidiaries
and use reasonable best efforts to cause the directors, employees and other
agents of the Company and its Subsidiaries to, cease immediately and cause to
be terminated all activities, discussions and negotiations, if any, with any
Persons conducted prior to the date hereof with respect to any Acquisition
Proposal.
SECTION 6.04. AFFILIATES. Prior to the Effective Time,
the Company shall cause to be delivered to Parent a letter identifying, to
the best of the Company's knowledge, all Persons who may be deemed
"affiliates" of the Company under Rule 145 of the 1933 Act. The Company
shall use its reasonable best efforts to cause each Person who is so
identified as an affiliate to deliver to Parent on or prior to the Effective
Time a letter substantially in the form of Exhibit A to this Agreement.
ARTICLE 7
COVENANTS OF PARENT
Parent agrees that:
SECTION 7.01. CONDUCT OF PARENT. From the date hereof
until the Effective Time, Parent and its Subsidiaries shall conduct their
business in the ordinary course consistent with past practice and shall use
their reasonable best efforts to preserve intact their business organizations
and relationships with third parties. Without limiting the generality of the
foregoing, except with the prior written consent of the Company or as
contemplated by this Agreement, from the date hereof until the Effective Time
Parent shall not, and shall not permit any of its Subsidiaries to:
49
<PAGE>
(a) amend Parent's certificate of incorporation or by-laws
(PROVIDED that Parent shall be permitted to make such amendments to its
by-laws as are not inconsistent with the rights and obligations of the
parties under this Agreement and as would not delay consummation of the
transactions contemplated by this Agreement);
(b) amend any material terms of the outstanding securities
of Parent or its Subsidiaries;
(c) split, combine, subdivide or reclassify any shares of
Parent Stock or declare, set aside or pay any dividend or other distribution
(whether in cash, stock or property or any combination thereof) in respect of
Parent Stock, except for (i) regular quarterly cash dividends not exceeding
$0.02 per share, (ii) regular dividends on any future series of preferred
stock pursuant to the terms of such securities, or (iii) dividends paid by a
Subsidiary of Parent to Parent or any Subsidiary of Parent that is, directly
or indirectly, wholly owned by Parent;
(d) take any action that would or would reasonably be
expected to impair the ability of the Company, Parent or Merger Subsidiary to
consummate the transactions contemplated by this Agreement or otherwise
prevent or materially delay the consummation of the transactions contemplated
by this Agreement;
(e) change (i) its methods of accounting or accounting
practices in any material respect except as required by concurrent changes in
U.S. GAAP or by law or (ii) its fiscal year;
(f) enter into or acquire any new line of business that
(i) is material to Parent and its Subsidiaries taken as a whole and (ii) is
not strategically related to the current business or operations of Parent and
its Subsidiaries;
(g) incur indebtedness (other than pursuant to the
Financing Agreements) outside of the ordinary course or for acquisitions
unless such incurrence is not reasonably likely (assuming the consummation of
the transactions contemplated hereby) to result in the rating accorded
Parent's senior debt by Moody's Investor's Services and Standard & Poor's
Rating Services to be non-investment grade;
(h) engage in any (i) merger, consolidation, share
exchange, business combination, reorganization, recapitalization or other
similar transaction unless the stockholders of Parent prior to such
transaction own, directly or indirectly, a majority of the equity interests
in the surviving or resulting corporation and Parent has received an opinion
from Gibson, Dunn & Crutcher LLP, reasonably satisfactory to Company, to the
effect that such transaction will not adversely
50
<PAGE>
affect its ability to deliver the opinion described in Section 9.03(c), (ii)
transaction as a result of which any third party acquires, directly or
indirectly, an equity interest for less than the then market value of Parent
stock (other than pursuant to any existing employee compensation plan), or
representing greater than in the aggregate 15% of the voting securities of
Parent or any Subsidiary of Parent unless Parent has received an opinion from
Gibson, Dunn & Crutcher LLP, reasonably satisfactory to the Company, to the
effect that such transaction will not adversely affect its ability to deliver
the opinion described in Section 9.03(c) or (iii) sale, lease, mortgage or
disposition of, or creation of any Lien upon, any of the properties or assets
of Parent and its Subsidiaries, other than transactions in this ordinary
course of business or transactions not exceeding $100 million in the
aggregate;
(i) engage in any transaction with any Affiliate (other
than any Subsidiary or any Alliance Company), director or officer of Parent,
except on an arms' length basis and in the ordinary course of business;
(j) acquire, directly or indirectly, any Shares except
pursuant to the Merger; or
(k) agree or commit to do any of the foregoing.
SECTION 7.02. OBLIGATIONS OF MERGER SUBSIDIARY. Parent
will take all action necessary to cause Merger Subsidiary to perform its
obligations under this Agreement and to consummate the Merger on the terms
and conditions set forth in this Agreement.
SECTION 7.03. VOTING OF SHARES. Parent agrees to vote
all Shares beneficially owned by it in favor of adoption of this Agreement at
the Company Stockholder Meeting.
SECTION 7.04. DIRECTOR AND OFFICER LIABILITY. Parent
shall cause the Surviving Corporation, and the Surviving Corporation hereby
agrees, to do the following:
(a) For six years after the Effective Time, the Surviving
Corporation shall indemnify and hold harmless each present and former officer
and director of the Company and of any Subsidiary of the Company (each, an
"INDEMNIFIED PERSON") in respect of acts or omissions occurring at or prior
to the Effective Time to the fullest extent permitted by Delaware Law or any
other applicable laws or provided under the Company's certificate of
incorporation and bylaws in effect on the date hereof; PROVIDED that such
indemnification shall be subject to any limitation imposed from time to time
under applicable law.
51
<PAGE>
(b) The Surviving Corporation shall pay all expenses,
including reasonable fees and expenses of counsel, that an Indemnified Person
may incur in enforcing the indemnity and other obligations provided for in
this Section 7.04. The Indemnified Person shall be entitled to control the
defense of any action, suit, investigation or proceeding with counsel of its
own choosing reasonably acceptable to the Surviving Corporation and the
Surviving Corporation shall cooperate in the defense thereof; PROVIDED that
the Surviving Corporation shall not be liable for the fees of more than one
counsel for all Indemnified Persons, other than local counsel, unless a
conflict of interest shall be caused thereby, and PROVIDED FURTHER that the
Surviving Corporation shall not be liable for any settlement effected without
its written consent (which consent shall not be unreasonably withheld).
(c) For six years after the Effective Time, the Surviving
Corporation shall provide officers' and directors' liability insurance in
respect of acts or omissions occurring prior to the Effective Time covering
each such Indemnified Person currently covered by the Company's officers' and
directors' liability insurance policy on terms with respect to coverage and
amount no less favorable than those of such policy in effect on the date
hereof; PROVIDED if the aggregate annual premiums for such insurance at any
time during such period shall exceed 200% of the per annum rate of premium
paid by the Company and its Subsidiaries as of the date hereof for such
insurance, then Parent shall, or shall cause its Subsidiaries to, provide
only such coverage as shall then be available at an annual premium equal to
200% of such rate.
(d) If Parent, the Surviving Corporation or any of its
successors or assigns (i) consolidates with or merges into any other Person
and shall not be the continuing or surviving corporation or entity of such
consolidation or merger, or (ii) transfers or conveys all or substantially
all of its properties and assets to any Person, then, and in each such case,
to the extent necessary, proper provision shall be made so that the
successors and assigns of Parent or the Surviving Corporation, as the case
may be, shall assume the obligations set forth in this Section 7.04.
(e) The rights of each Indemnified Person under this
Section 7.04 shall be in addition to any rights to indemnification,
exculpation from liabilities for acts or omissions or other rights such
Person may have under the certificate of incorporation or bylaws of the
Company or any of its Subsidiaries, or under Delaware Law or any other
applicable laws or under any agreements or other arrangements with the
Company or its Subsidiaries. These rights shall survive consummation of the
Merger and are intended to benefit, and shall be enforceable by, each
Indemnified Person.
(f) The obligations of the Surviving Corporation under
this Section 7.04 shall be joint and several obligations of Parent and the
Surviving Corporation.
52
<PAGE>
SECTION 7.05. EMPLOYEE MATTERS. (a) EXISTING EMPLOYMENT
AND SEVERANCE AGREEMENTS. From and after the Effective Time Parent shall, or
shall cause the Surviving Corporation to, without further action, assume and
honor the obligations of the Company and its Subsidiaries under the terms of
each written employment and severance agreement in effect immediately prior
to the Effective Time between the Company or any of its Subsidiaries and any
employee or former employee thereof.
(b) SEVERANCE AGREEMENTS. Parent shall, or shall cause
the Surviving Corporation to, honor all obligations under all severance
agreements and arrangements referred to in Sections 7.05(b)(i) and
7.05(b)(ii) of the Company Disclosure Schedule.
(c) EMPLOYEE BENEFIT LEVELS. For one year after the
Effective Time, Parent shall, or shall cause the Surviving Corporation to
provide employees of the Company or its Subsidiaries immediately prior to the
Effective Time ("AFFECTED EMPLOYEES") with benefits substantially comparable,
in the aggregate, to the benefits available to Affected Employees immediately
prior to the Effective Time (taking into account, whether or not implemented
as of the Effective Time, the changes to the Company's benefit plans
described in Section 7.05(c) of the Company Disclosure Schedule). In
addition to the foregoing requirement, on and after the first anniversary of
the Effective Time, Parent shall, or shall cause the Surviving Corporation
to, provide Affected Employees with benefits substantially comparable, in the
aggregate, to the benefits provided similarly situated employees of Parent or
its Affiliates. In addition, Parent shall, or shall cause the Surviving
Corporation to, maintain in effect during the period from the Effective Time
until the first anniversary of the Effective Time for the benefit of Affected
Employees the severance plans, policies and practices of the Company and its
Subsidiaries applicable to Affected Employees as in effect immediately prior
to the Effective Time.
(d) HONORING ACCRUED AND VESTED BENEFITS. Parent shall,
or shall cause the Surviving Corporation to, honor all accrued, vested
benefits under all compensation and benefit plans, policies, practices and
arrangements of the Company or its Subsidiaries in existence immediately
prior to the Effective Time. Without limiting the generality of the
foregoing, Parent shall, or shall cause the Surviving Corporation to, honor
all unused vacation, holiday, sickness and personal days accrued by Affected
Employees under the policies and practices of the Company and its
Subsidiaries.
(e) SERVICE CREDIT. In the event of any change in the
welfare benefits provided to an Affected Employee under any plan, Parent
shall, or shall cause the Surviving Corporation to,(i) waive all limitations
as to preexisting conditions,
53
<PAGE>
exclusions and waiting periods with respect to participation and coverage
requirements applicable to the Affected Employee under such plan (except to
the extent that such conditions, exclusions or waiting periods would apply
under the Company or Subsidiary's then existing plans absent any change in
such welfare plan coverage) and (ii) provide each Affected Employee with
credit for any co-payments and deductibles paid prior to any such change in
coverage in satisfying any applicable deductible or out-of-pocket
requirements under such new or changed plan. Parent shall, or shall cause
the Surviving Corporation to, provide each Affected Employee with credit for
all service with the Company and its Affiliates under each employee benefit
plan, policy, program or arrangement in which such Affected Employee is
eligible to participate, except to the extent that it would result in a
duplication of benefits with respect to the same period of services.
However, neither Parent nor the Surviving Corporation shall be required to
provide past service credit for benefit accrual purposes (other than under
any vacation, sick pay or severance plan), unless such past service credit is
given to other similarly situated employees.
(f) ANNUAL BONUSES. On or prior to March 15, 2000, without
duplicating any benefits under any severance, termination or employment
agreement, Parent shall, or shall cause the Surviving Corporation to, pay to
each Affected Employee then employed by Parent, the Surviving Corporation or
any of their respective Affiliates who currently participates in the
Company's bonus plans, and each such Affected Employee whose employment was
involuntarily terminated without "cause" by Parent, the Surviving Corporation
or any of their respective Affiliates after the Effective Time but prior to
March 15, 2000, a cash bonus equal to the amount to which such Affected
Employee would have been entitled under the terms of such plans, PROVIDED
that the performance measures used to determine whether an Affected Employee
is eligible for such bonus shall be adjusted to exclude extraordinary
expenses arising from the transactions contemplated by the Agreement. In the
event an Affected Employee whose employment is terminated in 1999 is entitled
to a bonus pursuant to this Section 7.05(f), such bonus shall be pro rated to
reflect the portion of calendar 1999 elapsed between January 1, 1999 and the
date of such employee's termination. A termination will be deemed to be
involuntary and without "cause" if the Affected Employee is terminated in a
manner that entitles such person to severance benefits under the Tier I or
Tier II Severance Agreement or Tier III or Tier IV severance or similar
arrangement or agreement for which he or she is eligible, or the Affected
Employee terminates his or her employment after (i) a material reduction in
the level of such Affected Employee's compensation and benefits, taken in the
aggregate;(ii) an assignment of duties substantially different from his or
her current duties and incompatible with such Affected Employee's education,
training and experience;(iii) a relocation of such Affected Employee's
principal workplace by more than 50 miles; or (iv) the occurrence of any
event, fact or circumstance entitling such
54
<PAGE>
Affected Employee to receive severance benefits under any severance or
employment agreement.
Without limiting the generality of the immediately
preceding paragraph, Parent shall not, and shall cause the Surviving
Corporation not to, adversely modify, impair or diminish the ability of any
Affected Employee to attain such Affected Employee's full bonus opportunity
for 1999 afforded by any relevant bonus plan in effect as of the Effective
Time.
(g) Nothing in this Agreement shall be construed to
restrict the ability of Parent and its Subsidiaries to make hiring, promotion
or termination decisions after the Effective Time or to prevent changes in
compensation or benefits as may result due to changes in title, position or
responsibility.
SECTION 7.06. PARENT BOARD OF DIRECTORS. Prior to the
Effective Time, the Board of Directors of Parent shall take all action
necessary to appoint 2 persons, selected by Parent, who are currently
directors of the Company (the "COMPANY DESIGNEES") to the Board of Directors
of Parent as of the Effective Time.
SECTION 7.07. PARENT STOCKHOLDER MEETING. Parent shall
cause a meeting of its stockholders (the "PARENT STOCKHOLDER MEETING") to be
duly called and held as soon as reasonably practicable for the purpose of
voting on the approval and adoption of this Agreement and the Merger, and, at
such stockholder meeting, the Board of Directors of Parent shall recommend
approval and adoption by Parent's stockholders of this Agreement and the
Merger and shall not withdraw such recommendation. In connection with such
meeting, Parent will (i) promptly prepare and file with the SEC, will use its
reasonable best efforts to have cleared by the SEC and will thereafter mail
to its stockholders as promptly as practicable the Joint Proxy Statement and
all other proxy materials for such meeting, (ii) use its reasonable best
efforts to obtain the necessary approvals by its stockholders of this
Agreement and the transactions contemplated hereby and (iii) otherwise comply
with all legal requirements applicable to such meeting.
SECTION 7.08. REGISTRATION STATEMENT. Parent shall
promptly prepare and file with the SEC under the 1933 Act the Registration
Statement, and shall use its reasonable best efforts to cause the
Registration Statement to be declared effective by the SEC as promptly as
practicable. Parent shall promptly take any action required to be taken
under foreign or state securities or Blue Sky laws in connection with the
issuance of Parent Stock in the Merger and upon the exercise of Parent Stock
Options.
SECTION 7.09. STOCK EXCHANGE LISTING. Parent shall use
its reasonable best efforts to cause the shares of Parent Stock to be issued
in connection with the
55
<PAGE>
Merger to be listed on the NYSE and the Pacific Stock Exchange, subject to
official notice of issuance.
SECTION 7.10. TAX-FREE NATURE OF DISTRIBUTION. Parent
will not take any action or fail to take any action which in the opinion of
Gibson, Dunn & Crutcher LLP or other nationally recognized tax counsel
selected by Parent may cause the Distribution to fail to be qualified as a
tax-free transaction under Section 355(a) and (c) of the Code.
SECTION 7.11. FINANCING AGREEMENTS. (a) Parent shall use
its best efforts to obtain financing in an amount at least equal to the
Required Cash Amount, including by (i) executing before December 2, 1999 (or
such later date as agreed by Bank of America) definitive agreements for the
New Senior Credit Facilities (as defined in the Commitment Letter)
contemplated by the Commitment Letter and (ii) executing as promptly as
practicable any necessary amendments, waivers or other modifications to the
Existing Senior Credit Facility. The Commitment Letter, the definitive
agreements for the New Senior Credit Facilities and the Existing Senior
Credit Facility, as so amended, modified or waived (along with any other
document pursuant to which Parent obtains financing of all or a portion of
the Required Cash Amount) are referred to herein collectively as the
"FINANCING AGREEMENTS". The Company will be afforded a reasonable
opportunity to review and comment on the representations and warranties
contained in the Financing Agreements and no such representation or warranty,
insofar as it relates to facts and circumstances relating to the Company and
its Subsidiaries, shall be included therein that the Company shall have
advised Parent is incorrect or inaccurate. Parent shall use its reasonable
best efforts to ensure that the representations and warranties contained in
the Financing Agreements shall be consistent with the Commitment Letter.
(b) Without limiting the generality of the foregoing, in
the event that at any time funds are not or have not been made available
under the Financing Agreements so as to enable Parent to proceed with the
Closing in a timely manner, Parent shall (i) use its best efforts to obtain
alternative funding in an amount at least equal to the Required Cash Amount
on terms and conditions materially comparable to those provided in such
Financing Agreements or otherwise on terms reasonably acceptable to Parent
and (ii) shall continue to use its reasonable best efforts to take, or cause
to be taken, all actions and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate the transactions contemplated by this Agreement.
(c) Parent shall take all actions necessary to enforce any
or all of its rights, and comply with all of its obligations under the
Financing Agreements, except to the extent consented to by the Company in
writing.
56
<PAGE>
ARTICLE 8
Covenants of Parent and the Company
The parties hereto agree that:
SECTION 8.01. EFFORTS. (a) Subject to the terms and
conditions of this Agreement, Company and Parent will use their reasonable
best efforts to take, or cause to be taken, all actions and to do, or cause
to be done, all things necessary, proper or advisable under applicable laws
and regulations to consummate the transactions contemplated by this
Agreement. Each of Parent and Company agrees to make an appropriate filing
of a Notification and Report Form pursuant to the HSR Act with respect to the
transactions contemplated hereby as promptly as practicable and in any event
within ten business days of the date hereof and to supply as promptly as
practicable any additional information and documentary material that may be
requested pursuant to the HSR Act and to take all other actions necessary to
cause the expiration or termination of the applicable waiting periods under
the HSR Act as soon as practicable.
(b) In connection with the efforts referenced in Section
8.01(a) to obtain all requisite approvals and authorizations for the
transactions contemplated by this Agreement under the HSR Act or any other
Antitrust Law, each of Parent and Company shall use its reasonable best
efforts to (i) cooperate in all respects with the other in connection with
any filing or submission and in connection with any investigation or other
inquiry, including any proceeding initiated by a private party,(ii) keep the
other party informed in all material respects of any material communication
received by such party from, or given by such party to, the Federal Trade
Commission (the "FTC"), the Antitrust Division of the Department of Justice
(the "DOJ") or any other governmental authority and of any material
communication received or given in connection with any proceeding by a
private party, in each case regarding any of the transactions contemplated
hereby and (iii) permit the other party to review any material communication
given by it to, and consult with each other in advance of any meeting or
conference with, the FTC, the DOJ or any such other governmental authority
or, in connection with any proceeding by a private party, with any other
Person. For purposes of this Agreement, "ANTITRUST LAW" means the Sherman
Act, as amended, the Clayton Act, as amended, the HSR Act, the Federal Trade
Commission Act, as amended, and all other federal, state and foreign, if any,
statutes, rules, regulations, orders, decrees, administrative and judicial
doctrines and other laws that are designed or intended to prohibit, restrict
or regulate actions having the purpose or effect of monopolization or
restraint of trade or lessening of competition through merger or acquisition.
57
<PAGE>
SECTION 8.02. CERTAIN FILINGS. The Company and Parent
shall cooperate with one another (i) in connection with the preparation of
the Joint Proxy Statement and the Registration Statement, (ii) in determining
whether any action by or in respect of, or filing with, any governmental
body, agency, official, or authority is required, or any actions, consents,
approvals or waivers are required to be obtained from parties to any material
contracts, in connection with the consummation of the transactions
contemplated by this Agreement and (iii) in taking such actions or making any
such filings, furnishing information required in connection therewith or with
the Joint Proxy Statement or the Registration Statement and seeking timely to
obtain any such actions, consents, approvals or waivers.
SECTION 8.03. PUBLIC ANNOUNCEMENTS. Parent and the
Company will consult with each other before issuing any press release or
making any public statement with respect to this Agreement or the
transactions contemplated hereby and, except as may be required by applicable
law or any listing agreement with any national securities exchange, will not
issue any such press release or make any such public statement prior to such
consultation.
SECTION 8.04. FURTHER ASSURANCES. At and after the
Effective Time, the officers and directors of the Surviving Corporation will
be authorized to execute and deliver, in the name and on behalf of the
Company or Merger Subsidiary, any deeds, bills of sale, assignments or
assurances and to take and do, in the name and on behalf of the Company or
Merger Subsidiary, any other actions and things to vest, perfect or confirm
of record or otherwise in the Surviving Corporation any and all right, title
and interest in, to and under any of the rights, properties or assets of the
Company acquired or to be acquired by the Surviving Corporation as a result
of, or in connection with, the Merger.
SECTION 8.05. ACCESS TO INFORMATION. From the date
hereof until the Effective Time and subject to applicable law and the
Confidentiality Agreement, the Company and Parent shall (i) give to the other
party, its counsel, financial advisors, auditors and other authorized
representatives reasonable access to the offices, properties, books and
records of such party, (ii)furnish to the other party, its counsel, financial
advisors, auditors and other authorized representatives such financial and
operating data and other information as such Persons may reasonably request
and (iii) instruct its employees, counsel, financial advisors, auditors and
other authorized representatives to cooperate with the other party in its
investigation. Any investigation pursuant to this Section shall be conducted
in such manner as not to interfere unreasonably with the conduct of the
business of the other party. Unless otherwise required by law, each of
Company and Parent will hold, and will cause its respective officers,
employees, counsel, financial advisors, auditors and other authorized
representatives to hold, any nonpublic
58
<PAGE>
information obtained in any such investigation in confidence in accordance
with the Confidentiality Agreement. No information or knowledge obtained in
any investigation pursuant to this Section shall affect or be deemed to
modify any representation or warranty made by any party hereunder.
SECTION 8.06. NOTICES OF CERTAIN EVENTS. Each of the
Company and Parent shall promptly notify the other of:
(a) any notice or other communication from any Person
alleging that the consent of such Person is or may be required in connection
with the transactions contemplated by this Agreement;
(b) any notice or other communication from any
governmental or regulatory agency or authority in connection with the
transactions contemplated by this Agreement; and
(c) any actions, suits, claims, investigations or
proceedings commenced or, to its knowledge, threatened against, relating to
or involving or otherwise affecting the Company, Parent or any of their
Subsidiaries that, if pending on the date of this Agreement, would have been
required to have been disclosed pursuant to Section 4.12, 4.13, 5.12 or 5.13,
as the case may be, or that relate to the consummation of the transactions
contemplated by this Agreement.
SECTION 8.07. COOPERATION AS TO TAX MATTERS. Each of the
Company and Parent will (a) not take any action that is reasonably likely to
cause the Merger to fail to qualify as a "reorganization" within the meaning
of Section 368 of the Code, and (b) use its reasonable best efforts
(including the provision of customary representations) to permit counsel to
render the opinions described in Section 9.02(b) and Section 9.03(b).
Neither Parent nor the Company shall take or cause to be taken any action
which would cause to be untrue (or fail to take or cause not to be taken any
action which would cause to be untrue) any of the representations set forth
in certificates delivered to such counsel.
SECTION 8.08. TRANSFER AND GAINS TAX. Parent will pay
any federal, state, local, foreign or provincial tax which is attributable to
the transfer of the beneficial ownership of the Company's or its
Subsidiaries' real property, if any (collectively, the "GAINS TAXES"), any
penalties or interest with respect to the Gains Taxes, payable in connection
with the consummation of the Merger, (except as otherwise provided in Section
2.10) any federal, state, local, foreign or provincial tax which is
attributable to the transfer of Shares or Parent Stock pursuant to the terms
of this Agreement (collectively, "STOCK TRANSFER TAXES") and any penalties or
interest with respect to any such Stock Transfer Taxes. Parent and the
Company agree to cooperate with the other in the filing of any returns with
respect to the Gains Taxes, including supplying in a timely manner a
59
<PAGE>
complete list of all real property interests held by the Company and its
Subsidiaries and any information with respect to such property that is
reasonably necessary to complete such returns. The portion of the
consideration allocable to the real property of the Company and its
Subsidiaries shall be agreed to between Parent and the Company. The
stockholders of the Company shall be deemed to have agreed to be bound by the
allocation established pursuant to this Section 8.08 in the preparation of
any return with respect to the Gains Taxes.
SECTION 8.09. AUDITORS' LETTERS. Parent and the Company
each shall use all reasonable best efforts to cause to be delivered to the
other party and such other party's directors a letter of its independent
auditors, dated the date on which the Registration Statement shall become
effective, and addressed to the other party and such other party's directors,
in form and substance customary for "comfort" letters delivered by
independent public accountants in connection with registration statements
similar to the Registration Statement.
SECTION 8.10. REGISTRATION RIGHTS AGREEMENT. At the
Effective Time, Parent will enter into a Registration Rights Agreement
identical to the Registration Rights Agreement dated as of December 19, 1997
by and among the Company, GE Investment Hotel Partners I, Limited
Partnership, GE Investment Management Incorporated, Trustees of General
Electric Pension Trust, MetPark Funding, Inc., The Ueberroth Family Trust,
The Ueberroth Investment Trust, Mr. Richard Ferris, Ridge Partners, L.P. and
Red Lion (the "EXISTING REGISTRATION RIGHTS AGREEMENT"), pursuant to which
Parent will provide registration rights to the parties to the Existing
Registration Rights Agreement with respect to all shares of Parent Stock
issued in the Merger in respect of Shares covered by the Existing
Registration Rights Agreement.
ARTICLE 9
CONDITIONS TO THE MERGER
SECTION 9.01. CONDITIONS TO OBLIGATIONS OF EACH PARTY.
The obligations of the Company, Parent and Merger Subsidiary to consummate
the Merger are subject to the satisfaction of the following conditions:
(a) this Agreement shall have been approved and adopted by
the stockholders of the Company in accordance with Delaware Law;
(b) this Agreement shall have been approved by the
stockholders of Parent;
60
<PAGE>
(c) any applicable waiting period under the HSR Act
relating to the Merger shall have expired or been terminated;
(d) no provision of any applicable law or regulation and
no judgment, injunction, order or decree shall prohibit the consummation of
the Merger;
(e) the Registration Statement shall have been declared
effective under the 1933 Act and no stop order suspending the effectiveness
of the Registration Statement shall be in effect and no proceedings for such
purpose shall be pending before or threatened by the SEC; and
(f) the shares of Parent Stock to be issued in the Merger
shall have been approved for listing on the NYSE, subject to official notice
of issuance.
SECTION 9.02. CONDITIONS TO THE OBLIGATIONS OF PARENT AND
MERGER SUBSIDIARY. The obligations of Parent and Merger Subsidiary to
consummate the Merger are subject to the satisfaction of the following
further conditions:
(a) (i)the Company shall have performed in all material
respects all of its obligations hereunder required to be performed by it at
or prior to the Effective Time,(ii) the representations and warranties of the
Company contained in this Agreement and in any certificate or other writing
delivered by the Company pursuant hereto, disregarding all qualifications and
exceptions contained therein relating to materiality or Material Adverse
Effect or any similar standard or qualification, shall be true in all
material respects at and as of the Effective Time as if made at and as of
such time (or, if given as of a specific date, at and as of such date) with
only such exceptions as would not reasonably be expected to have,
individually or in the aggregate, a Company Material Adverse Effect and (iii)
Parent shall have received a certificate signed by an executive of the
Company to the foregoing effect;
(b) Parent shall have received an opinion of Gibson, Dunn
& Crutcher LLP in form and substance reasonably satisfactory to Parent, on
the basis of certain facts, representations and assumptions set forth in such
opinion, dated the Effective Time, to the effect that the Merger will be
treated for federal income tax purposes as a reorganization qualifying under
the provision of Section 368(a) of the Code and that each of Parent, Merger
Subsidiary and the Company will be a party to the reorganization within the
meaning of Section 368(a) of the Code. In rendering such opinion, such
counsel shall be entitled to rely upon certain representations of officers
of Parent and the Company; and
(c) funds at least equal to the Required Cash Amount shall
be available to Parent; PROVIDED that this condition shall be deemed
satisfied (and Parent and Merger Subsidiary shall be obligated to consummate
the Merger) in the event that
61
<PAGE>
Parent is in material breach of Sections 5.18 or 7.11 of this Agreement or
any representation, warranty, covenant or agreement of Parent or any of its
Affiliates contained in, or any material failure by Parent or any of its
Affiliates to take any action necessary under, any of the Financing
Agreements (other than any such breaches of representations or warranties in
the Financing Agreements attributable solely to facts and circumstances
relating to the Company and its Subsidiaries).
SECTION 9.03. CONDITIONS TO THE OBLIGATIONS OF THE
COMPANY. The obligations of the Company to consummate the Merger are subject
to the satisfaction of the following further conditions:
(a) (i)each of Parent and Merger Subsidiary shall have
performed in all material respects all of its obligations hereunder required
to be performed by it at or prior to the Effective Time,(ii) the
representations and warranties of Parent and Merger Subsidiary contained in
this Agreement and in any certificate or other writing delivered by Parent or
Merger Subsidiary pursuant hereto, disregarding all qualifications and
exceptions contained therein relating to materiality or Material Adverse
Effect or any similar standard or qualification, shall be true in all
material respects at and as of the Effective Time as if made at and as of
such time (or, if given as of a specific date, at and as of such date) with
only such exceptions as would not reasonably be expected to have,
individually or in the aggregate, a Parent Material Adverse Effect and (iii)
the Company shall have received a certificate signed by an executive officer
of Parent to the foregoing effect; and
(b) The Company shall have received an opinion of Davis
Polk & Wardwell in form and substance reasonably satisfactory to the Company,
on the basis of certain facts, representations and assumptions set forth in
such opinion, dated the Effective Time, to the effect that the Merger will be
treated for federal income tax purposes as a reorganization qualifying under
the provisions of Section 368(a) of the Code and that each of Parent, Merger
Subsidiary and the Company will be a party to the reorganization within the
meaning of Section 368(b) of the Code. In rendering such opinion, such
counsel shall be entitled to rely upon certain representations of officers of
Parent and the Company.
(c) Parent shall have received an opinion of Gibson, Dunn
& Crutcher LLP dated the Effective Time confirming its opinion referred to in
Section 5.15(k) of this Agreement.
ARTICLE 10
TERMINATION
62
<PAGE>
SECTION 10.01. TERMINATION. This Agreement may be
terminated and the Merger may be abandoned at any time prior to the Effective
Time (notwithstanding any approval of this Agreement by the stockholders of
the Company or Parent):
(a) by mutual written agreement of the Company and Parent;
(b) by either the Company or Parent, if:
(i) the Merger has not been consummated on or before
the Outside Termination Date. The "OUTSIDE TERMINATION
DATE" shall mean March 31, 2000; PROVIDED however that if
by such date the condition set forth in Section 9.02(c)
has not been satisfied solely because the lenders under
the Financing Agreements have declined to provide funds
thereunder because of a material adverse change in or
material disruption of conditions in the financial,
banking or capital markets related to the "Year 2000
Problem" (that is, the risk that computer software and
systems may be unable to recognize and perform
date-sensitive functions involving certain dates prior to,
on, and any date after December 31, 1999) and such change
or disruption of conditions is continuing, then "Outside
Termination Date" shall mean April 30, 2000; PROVIDED
further that the right to terminate this Agreement
pursuant to this Section 10.01(b)(i) shall not be
available to any party whose breach of any provision of
this Agreement results in the failure of the Merger to be
consummated by such time;
(ii) there shall be any law or regulation that makes
consummation of the Merger illegal or otherwise prohibited
or any judgment, injunction, order or decree of any court
or governmental body having competent jurisdiction
enjoining Company or Parent from consummating the Merger
is entered and such judgment, injunction, judgment or
order shall have become final and nonappealable; PROVIDED
that the right to terminate this Agreement pursuant to
this Section 10.01(b)(ii) shall not be available to any
party whose breach of any provision of this Agreement
results in the application of any such law or regulation
to the Merger or the imposition of any such judgment,
injunction, order or decree;
(iii) this Agreement shall not have been approved and
adopted in accordance with Delaware Law by the Company's
stockholders at the Company Stockholder Meeting (or any
adjournment thereof); or
63
<PAGE>
(iv) this Agreement shall not have been approved by
Parent's stockholders at the Parent Stockholder Meeting
(or any adjournment thereof);
(c) by Parent, if
(i) any Person or "group" (as defined in Section
13(d)(3) of the 1934 Act), other than Parent or any of its
Affiliates, shall have acquired beneficial ownership of
more than 50% of the Shares;
(ii) (A) the Board of Directors of the Company shall
have failed to recommend or withdrawn, or modified in a
manner adverse to Parent, its approval or recommendation
of this Agreement or the Merger and shall have approved or
recommended a Superior Proposal, or (B) the Company shall
have entered into, or publicly announced its intention to
enter into, a definitive agreement or an agreement in
principle with respect to a Superior Proposal; or
(d) by the Company, if
(i) the Board of Directors of the Company shall
approve a Superior Proposal or shall withdraw, or modify
in a manner adverse to Parent, its recommendation of this
Agreement or the Merger to its stockholders, provided
however that (A) the Company shall have complied with
Section 6.02(b) and Section 6.03,(B) the Company shall
have given Parent five business days written prior notice
of its intention to terminate the Agreement, attaching a
description of all material terms and conditions of the
Superior Proposal to such notice,(C) Parent does not make
prior to such termination of this Agreement a definitive,
binding offer to make adjustments to this Agreement which
the Board of Directors of the Company determines would
enable the Company to proceed with its recommendation to
its stockholders of the transactions contemplated hereby
as amended by such proposed adjustments, and (D) the
Company prior to such termination pursuant to this clause
(d)(i) pays to Parent in immediately available funds the
fee required to be paid pursuant to Section 11.04(b). The
Company agrees to notify Parent promptly if its intention
to enter into a written agreement referred to in its
notification shall change at any time after giving such
notification; or
(ii) if the Board of Directors of Parent shall have
failed to recommend or withdrawn or modified or changed in
a manner adverse to the Company its approval and
recommendation of this Agreement or the Merger.
64
<PAGE>
The party desiring to terminate this Agreement pursuant to
this Section 10.01 (other than pursuant to Section 10.01(a)) shall give
notice of such termination to the other party.
SECTION 10.02. EFFECT OF TERMINATION. If this Agreement
is terminated pursuant to Section 10.01, this Agreement shall become void and
of no effect with no liability on the part of any party (or any stockholder,
director, officer, employee, agent, consultant or representative of such
party) to the other party hereto; PROVIDED that, if such termination shall
result from the willful (i) failure of either party to fulfill a condition to
the performance of the obligations of the other party,(ii) failure of either
party to perform a covenant hereof or (iii) breach by either party hereto of
any representation or warranty or agreement contained herein, such party
shall be fully liable for any and all liabilities and damages incurred or
suffered by the other party as a result of such failure or breach. The
provisions of Sections 11.04, 11.06, 11.07 and 11.08 shall survive any
termination hereof pursuant to Section 10.01.
ARTICLE 11
MISCELLANEOUS
SECTION 11.01. NOTICES. All notices, requests and other
communications to any party hereunder shall be in writing (including
facsimile transmission) and shall be given,
if to Parent or Merger Subsidiary, to:
9336 Civic Center Drive
Beverly Hills, California 90210
Fax: (310) 205-7677
Attention: Thomas E. Gallagher, General Counsel
with a copy to:
Gibson, Dunn & Crutcher LLP
333 South Grand Avenue
Los Angeles, California 90071
Fax: (213) 229-7520
Attention: Andrew Bogen
if to the Company, to:
755 Crossover Lane
Memphis, Tennessee 38117
Fax: (910) 374-6533
65
<PAGE>
Attention: Jay Huber, General Counsel
with a copy to:
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Fax: (212) 450-4800
Attention: Joseph Rinaldi
or such other address or facsimile number as such party may hereafter specify
for the purpose by notice to the other parties hereto. All such notices,
requests and other communications shall be deemed received on the date of
receipt by the recipient thereof if received prior to 5 p.m. in the place of
receipt and such day is a business day in the place of receipt. Otherwise,
any such notice, request or communication shall be deemed not to have been
received until the next succeeding business day in the place of receipt.
SECTION 11.02. SURVIVAL OF REPRESENTATIONS AND
WARRANTIES. The representations and warranties and agreements contained
herein and in any certificate or other writing delivered pursuant hereto
shall not survive the Effective Time or the termination of this Agreement,
except for the agreements set forth in Sections 7.04 and 7.05 (which shall
survive the Effective Time) and Sections 10.02, 11.04, 11.06, 11.07 and 11.08.
SECTION 11.03. AMENDMENTS; NO WAIVERS. (a) Any provision
of this Agreement may be amended or waived prior to the Effective Time if,
but only if, such amendment or waiver is in writing and is signed, in the
case of an amendment, by each party to this Agreement or, in the case of a
waiver, by each party against whom the waiver is to be effective; PROVIDED
that, after the adoption of this Agreement by the stockholders of the Company
and without their further approval, no such amendment or waiver shall reduce
the amount or change the kind of consideration to be received in exchange for
the Shares.
(b) No failure or delay by any party in exercising any
right, power or privilege hereunder shall operate as a waiver thereof nor
shall any single or partial exercise thereof preclude any other or further
exercise thereof or the exercise of any other right, power or privilege. The
rights and remedies herein provided shall be cumulative and not exclusive of
any rights or remedies provided by law.
SECTION 11.04. EXPENSES. (a) Except as otherwise
provided in this Section, all costs and expenses incurred in connection with
this Agreement shall be paid by the party incurring such cost or expense.
66
<PAGE>
(b) The Company agrees to pay Parent a fee in immediately
available funds equal to $75 million promptly, but in no event later than two
business days, after the termination of this Agreement
(1) by Parent pursuant to Section 10.01(c)(ii),
(2) by Company pursuant to Section 10.01(d)(i),
(3) if (A) Parent shall terminate this Agreement pursuant
to Section 10.01(b)(i),(B) at any time after the date of this Agreement and
at or before the time of the event giving rise to such termination there
shall exist an Acquisition Proposal,(C) following the existence of such
Acquisition Proposal and prior to any such termination, the Company shall
have intentionally breached (and not cured after notice thereof) any of its
material covenants or agreements set forth in this Agreement in any material
respect and (D) within 12 months of any such termination of this Agreement,
the Company shall enter into a definitive agreement with any third party with
respect to an Acquisition Proposal or an Acquisition Proposal is consummated;
(4) if (A) Parent shall terminate this Agreement pursuant
to Section 10.01(b)(iii), (B) any Person or "group" other than Parent or any
of its Affiliates acquires beneficial ownership of more than 25% of the
Shares and (C) within 12 months of any such termination of this Agreement,
the Company shall enter into a definitive agreement with such Person or group
with respect to an Acquisition Proposal;
(5) if (A) Parent shall terminate this Agreement pursuant
to Section 10.01(b)(iii), (B) at or before the time of the event giving rise
to such termination there shall exist an Acquisition Proposal and (C) within
12 months of any such termination of this Agreement, the Company shall enter
into a definitive agreement with any third party with respect to an
Acquisition Proposal or an Acquisition Proposal is consummated; or
(6) if Parent shall terminate this Agreement pursuant to
Section 10.01(c)(i).
(c) Parent agrees to pay the Company a fee in immediately
available funds equal to $150 million promptly, but in no event later than
two business days, after the termination of this Agreement pursuant to
Section 10.01(b)(i) if: (i) prior to the Outside Termination Date funds at
least equal to the Required Cash Amount have not been made available to
Parent pursuant to the Financing Agreements, (ii) the conditions set forth in
Sections 9.01(a) (except if the Company has delayed or postponed its
stockholder meeting pending notification from Parent that the condition
referred to in Section 9.02(c) has been or is reasonably likely to be
satisfied or has been waived), 9.01(c), 9.01(d), 9.01(e) (except if
effectiveness of the Registration Statement has been delayed or postponed
pending notification from Parent that the condition referred to in Section
9.02(c) has been or is
67
<PAGE>
reasonably likely to be satisfied or has been waived) and 9.02(a) are
satisfied as of the Outside Termination Date (in the case of Section 9.02(a),
as if the reference to the Effective Time therein were to the Outside
Termination Date) and (iii) the unavailability of such funds was not due to a
breach of any representation and warranty in the Financing Agreements
attributable solely to facts and circumstances relating to the Company and
its Subsidiaries (PROVIDED that this clause (iii) shall not apply if the
Company had previously advised Parent, as contemplated in Section 7.11, that
the representation or warranty in question was incorrect or inaccurate).
SECTION 11.05. SUCCESSORS AND ASSIGNS. The provisions of
this Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns, PROVIDED that no party
may assign, delegate or otherwise transfer any of its rights or obligations
under this Agreement without the consent of each other party hereto.
SECTION 11.06. GOVERNING LAW. This Agreement shall be
governed by and construed in accordance with the law of the State of
Delaware, without regard to the conflicts of law rules of such state.
SECTION 11.07. JURISDICTION. Any suit, action or
proceeding seeking to enforce any provision of, or based on any matter
arising out of or in connection with, this Agreement or the transactions
contemplated hereby shall be brought in any federal court located in the
State of Delaware or any Delaware state court, and each of the parties hereby
consents to the exclusive jurisdiction of such courts (and of the appropriate
appellate courts therefrom) in any such suit, action or proceeding and
irrevocably waives, to the fullest extent permitted by law, any objection
that it may now or hereafter have to the laying of the venue of any such
suit, action or proceeding in any such court or that any such suit, action or
proceeding brought in any such court has been brought in an inconvenient
form. Process in any such suit, action or proceeding may be served on any
party anywhere in the world, whether within or without the jurisdiction of
any such court. Without limiting the foregoing, each party agrees that
service of process on such party as provided in Section 11.01 shall be deemed
effective service of process on such party.
SECTION 11.08. WAIVER OF JURY TRIAL. EACH OF THE PARTIES
HERETO HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY
LEGAL PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY.
68
<PAGE>
SECTION 11.09. COUNTERPARTS; EFFECTIVENESS. This
Agreement may be signed in any number of counterparts, each of which shall be
an original, with the same effect as if the signatures thereto and hereto
were upon the same instrument. This Agreement shall become effective when
each party hereto shall have received counterparts hereof signed by all of
the other parties hereto. Except as provided in Section 7.04, no provision
of this Agreement is intended to confer any rights, benefits, remedies,
obligations or liabilities hereunder upon any Person other than the parties
hereto and their respective successors and assigns.
SECTION 11.10. ENTIRE AGREEMENT. This Agreement and the
Confidentiality Agreement constitute the entire agreement between the parties
with respect to the subject matter of this Agreement and supersede all prior
agreements and understandings, both oral and written, between the parties
with respect to the subject matter hereof and thereof.
SECTION 11.11. CAPTIONS. The captions herein are included
for convenience of reference only and shall be ignored in the construction or
interpretation hereof.
SECTION 11.12. SEVERABILITY. If any term, provision,
covenant or restriction of this Agreement is held by a court of competent
jurisdiction or other authority to be invalid, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions of this
Agreement shall remain in full force and effect and shall in no way be
affected, impaired or invalidated. Upon such a determination, the parties
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in an acceptable manner
in order that the transactions contemplated hereby be consummated as
originally contemplated to the fullest extent possible.
SECTION 11.13. SPECIFIC PERFORMANCE. The parties hereto
agree that irreparable damage would occur if any provision of this Agreement
were not performed in accordance with the terms hereof and that the parties
shall be entitled to an injunction or injunctions to prevent breaches of this
Agreement or to enforce specifically the performance of the terms and
provisions hereof in any federal court located in the State of Delaware or
any Delaware state court, in addition to any other remedy to which they are
entitled at law or in equity.
69
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed by their respective authorized officers as of the day and
year first above written.
PROMUS HOTEL CORPORATION
By: /s/ Norman P. Blake, Jr.
---------------------------------------
Name: Norman P. Blake, Jr.
Title: Chairman of the Board,
President and Chief Executive Officer
HILTON HOTELS CORPORATION
By: /s/ Stephen F. Bollenbach
---------------------------------------
Name: Stephen F. Bollenbach
Title: President and Chief Executive Officer
CHICAGO HILTON, INC.
By: /s/ Stephen F. Bollenbach
---------------------------------------
Name: Stephen F. Bollenbach
Title: President and Chief Executive Officer
70
