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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(d)(4) OF THE
SECURITIES EXCHANGE ACT OF 1934
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RED ROOF INNS, INC.
(NAME OF SUBJECT COMPANY)
RED ROOF INNS, INC.
(NAME OF PERSON(S) FILING STATEMENT)
COMMON STOCK, PAR VALUE $.01 PER SHARE
(TITLE OF CLASS OF SECURITIES)
757005103
(CUSIP NUMBER OF CLASS OF SECURITIES)
ALAN L. TALLIS, ESQ.
EXECUTIVE VICE PRESIDENT, DEVELOPMENT,
GENERAL COUNSEL AND SECRETARY
RED ROOF INNS, INC.
4355 DAVIDSON ROAD
HILLIARD, OHIO 43026
(614) 876-3201
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE
NOTICE AND COMMUNICATION ON BEHALF OF THE PERSON(S) FILING STATEMENT).
WITH A COPY TO:
JEFFREY W. TINDELL, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
919 THIRD AVENUE
NEW YORK, NEW YORK 10022-3897
(212) 735-3000
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ITEM 1. SECURITY AND SUBJECT COMPANY.
The name of the subject company is Red Roof Inns, Inc., a Delaware
corporation (the "Company"), and the address of the principal executive offices
of the Company is 4355 Davidson Road, Hilliard, Ohio 43026. The title of the
class of equity securities to which this statement relates is the common stock,
par value $.01 per share (the "Shares"), of the Company.
ITEM 2. TENDER OFFER OF THE PURCHASER.
This statement relates to the tender offer by RRI Acquisition Corp., a
Delaware corporation ("Purchaser") that is an indirect, wholly owned subsidiary
of Accor S.A., a corporation organized under the laws of France ("Parent"),
disclosed in a Tender Offer Statement on Schedule 14D-1, dated July 16, 1999 (as
amended or supplemented from time to time, the "Schedule 14D-1"), to purchase
all of the issued and outstanding Shares, at a price of $22.75 per Share, or
such higher per Share consideration paid by Purchaser to stockholders who have
tendered Shares pursuant to the Offer, net to the seller in cash (the "Offer
Price"), upon the terms and subject to the conditions set forth in the Offer to
Purchase, dated July 16, 1999 (as amended or supplemented from time to time, the
"Offer to Purchase"), and the related Letter of Transmittal (which, together
with the Offer to Purchase, constitute the "Offer").
The Offer is being made pursuant to an Agreement and Plan of Merger, dated
as of July 10, 1999 (the "Merger Agreement"), by and among Parent, Purchaser and
the Company. The Merger Agreement provides, among other things, that as soon as
practicable after the satisfaction or waiver of the conditions set forth in the
Merger Agreement, in accordance with the relevant provisions of the Delaware
General Corporation Law, as amended (the "DGCL"), Purchaser will be merged with
and into the Company. Following consummation of the Merger (as defined below),
the Company will continue as the surviving corporation (the "Surviving
Corporation") and will be an indirect, wholly owned subsidiary of Parent. A copy
of the Merger Agreement is filed as Exhibit 2 hereto and is incorporated herein
by reference.
As set forth in the Schedule 14D-1, the principal executive offices of
Parent are located at Tour Maine Montparnasse, 33, avenue du Maine, Paris 75015,
France and the principal executive offices of Purchaser are located at c/o Motel
6, 14651 Dallas Parkway, Suite 500, Dallas, Texas 75240.
ITEM 3. IDENTITY AND BACKGROUND.
(a) The name and address of the Company, which is the person filing this
statement, are set forth in Item 1 above.
(b) Except as set forth in this Item 3(b), to the knowledge of the Company,
there are no material contracts, agreements, arrangements or understandings and
no actual or potential conflicts of interest between the Company or its
affiliates and (i) the Company's executive officers, directors or affiliates or
(ii) Parent or Purchaser or their respective executive officers, directors or
affiliates.
ARRANGEMENTS WITH PARENT, PURCHASER OR THEIR AFFILIATES
CONFIDENTIALITY AGREEMENT
The following is a summary of certain material provisions of the
Confidentiality Agreement, dated June 14, 1999, between the Company and Parent
(the "Confidentiality Agreement"). The Confidentiality Agreement extends and
supplements a previous confidentiality agreement, dated March 5, 1998, between
the Company and Parent which contains substantially similar terms. This summary
does not purport to be complete and is qualified in its entirety by reference to
the complete text of the Confidentiality Agreement, a copy of which is filed as
Exhibit 1 hereto and is incorporated herein by reference. Capitalized terms used
and not otherwise defined below shall have the meanings set forth in the
Confidentiality Agreement.
The Confidentiality Agreement contains customary provisions pursuant to
which, among other matters, Parent agreed to keep confidential all nonpublic,
confidential or proprietary information relating to the Company which is
furnished to it by the Company, subject to certain customary exceptions (the
"Confidential
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Information"), and to use the Confidential Information solely for the purpose of
evaluating a possible transaction involving the Company and Parent. Parent has
agreed in the Confidentiality Agreement that for a period of one year from the
date of the Confidentiality Agreement, neither it nor any of its affiliates
will, without the prior written consent of the Company or the Board of Directors
of the Company (the "Company Board"): (i) acquire, offer to acquire, or agree to
acquire, directly or indirectly, by purchase or otherwise, any voting securities
or direct or indirect rights to acquire any voting securities of the Company or
any subsidiary thereof or of any successor to or person in control of the
Company, or any assets of the Company or any subsidiary or division thereof, or
of any such successor or controlling person; (ii) make, or in any way
participate in, directly or indirectly, any "solicitation" of "proxies" (as such
terms are used in the rules of the Securities and Exchange Commission (the
"SEC")) to vote, or seek to advise or influence any person or entity with
respect to the voting of, any voting securities of the Company; (iii) make any
public announcement with respect to, or submit a proposal for, or offer of (with
or without conditions) any extraordinary transaction involving the Company or
its securities or assets; (iv) form, join or in any way participate in a "group"
(within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")), in connection with any of the foregoing; or
(v) request the Company or any of its representatives, directly or indirectly,
to amend or waive any provision of the foregoing. Additionally, Parent agreed
that, for a period of one year from the date of the Confidentiality Agreement,
it will not, directly or indirectly, actively solicit for employment or hire any
management employee of the Company or any of its subsidiaries with whom it had
contact or who became known to Parent in connection with its consideration of
the Transaction, except as a result of such individual contacting Parent on his
or her own initiative without any direct or indirect solicitation or
encouragement by Parent.
THE MERGER AGREEMENT
The following is a summary of certain material provisions of the Merger
Agreement. This summary does not purport to be complete and is qualified in its
entirety by reference to the complete text of the Merger Agreement, a copy of
which is filed as Exhibit 2 hereto and is incorporated herein by reference.
Capitalized terms used and not otherwise defined below shall have the meanings
set forth in the Merger Agreement.
The Offer. The Merger Agreement provides for commencement of the Offer as
promptly as practicable, but no later than the fifth business day from the
public announcement of the execution of the Merger Agreement. Purchaser shall,
on the terms and subject to the prior satisfaction or waiver (except that the
Minimum Condition (as defined below) may not be amended or waived to below 51%
of the total issued and outstanding Shares) of the conditions of the Offer,
accept for payment and pay for Shares validly tendered as soon as it is legally
permitted to do so under applicable law.
The Merger Agreement also provides that Purchaser cannot decrease the Offer
Price or the number of Shares sought, amend or waive the Minimum Condition to
below 51% of the total issued and outstanding Shares, amend any other condition
of the Offer or impose any additional conditions to the Offer without the prior
written consent of the Company; provided, however, that (i) subject to
applicable legal requirements, Parent may cause Purchaser to waive any condition
to the Offer (other than a waiver of the Minimum Condition to below 51% of the
total issued and outstanding Shares), in Parent's reasonable judgment, and (ii)
the Offer may be extended in connection with an increase in the consideration to
be paid pursuant to the Offer so as to comply with applicable rules and
regulations of the SEC.
Notwithstanding the foregoing, Purchaser has agreed to extend the Offer at
any time up to October 14, 1999, for one or more periods of not more than 10
business days each, if, at the initial expiration date of the Offer or any
extension thereof, any condition to the Offer is not satisfied or waived. In
addition, Purchaser may, in its sole discretion, extend the expiration date of
the Offer at any time up to December 14, 1999, for one or more periods of not
more than 10 business days each, if at October 14, 1999, (i) the applicable
waiting period under the HSR Act (as defined below) has not expired or been
terminated, (ii) the No Injunction Condition (as defined below) has not been
satisfied or waived, as long as Parent is using its best commercial efforts to
satisfy such condition or (iii) the Force Majeure Condition (as defined below)
has not been satisfied or waived. Notwithstanding the foregoing, Purchaser shall
be obligated to extend the Offer on written demand
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by the Company delivered on or prior to October 12, 1999, if on or prior to
October 8, 1999, Purchaser shall not have given to the Company written notice of
extension of the Offer pursuant to the preceding sentence.
Purchaser may also, in its sole discretion and without the consent of the
Company, extend the expiration date of the Offer for up to 20 additional
business days in the aggregate, in periods of no more than 5 business days each,
if all of the conditions to the Offer have been satisfied or waived but less
than 90% of the outstanding Shares have been validly tendered and not properly
withdrawn pursuant to the Offer. In addition, the Offer Price may be increased
and the Offer may be extended to the extent required by law in connection with
such increase, in each case without the consent of the Company.
Conditions to the Offer. The obligations of Purchaser to accept for
payment and pay for Shares tendered pursuant to the Offer is subject to the
condition that there be validly tendered and not withdrawn at least 18,400,000
Shares, which represents approximately 68.3% of the total Shares issued and
outstanding (the "Minimum Condition"). In addition, Purchaser is not required to
accept for payment or pay for any tendered Shares, and, subject to the
provisions of the Merger Agreement, may terminate the Offer, if (a) any
applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended (the "HSR Act"), has not expired or been terminated prior to
the expiration of the Offer, or (b) at any time on or after July 10, 1999 and
before expiration of the Offer, any of the following events shall occur and be
continuing:
(i) there shall be any statute, rule, regulation, judgment, order or
injunction promulgated, entered, enforced, enacted, issued or applicable to
the Offer or the Merger by any domestic or foreign federal or state
governmental regulatory or administrative agency, authority, court or
legislative body or commission which (A) prohibits, or imposes any material
limitations on, Parent's or Purchaser's ownership or operation of all or a
material portion of the Company's businesses or assets, (B) prohibits, or
makes illegal, the acceptance for payment, payment for or purchase of
Shares or the consummation of the Offer or the Merger, (C) restricts
Purchaser's ability, or renders Purchaser unable, to accept for payment,
pay for or purchase some or all of the Shares, or (D) imposes material
limitations on the ability of Purchaser or Parent effectively to exercise
full rights of ownership of the Shares, including, without limitation, the
right to vote the Shares purchased by it on all matters properly presented
to the Company's stockholders; provided, that Parent will have used all
reasonable efforts to cause any such judgment, order or injunction to be
vacated or lifted (collectively, the "No Injunction Condition");
(ii) there shall be any action or proceeding pending or instituted by
any domestic or foreign national or federal or state governmental
regulatory or administrative agency or authority: (A) which seeks to (1)
prohibit, or impose any material limitation on, Parent's or Purchaser's
ownership or operation of all or a material portion of the Company's
businesses or assets, (2) prohibit or make illegal the acceptance for
payment, payment for or purchase of Shares or the consummation of the Offer
or the Merger, (3) restrict the ability of Purchaser, or render Purchaser
unable, to accept for payment, pay for or purchase some or all the Shares
or (4) impose material limitations on the ability of Purchaser or Parent
effectively to exercise full rights of ownership of the Shares, including,
without limitation, the right to vote the Shares purchased by it on all
matters properly presented to the Company's stockholders; and (B) which
Parent shall have used all reasonable best efforts to cause to be
dismissed; and (C) which the Management Board or Supervisory Board of
Parent shall have determined, after consultation with legal counsel, would,
if adversely determined, have any of the results described in any of
clauses (A)(1) through (A)(4) of this clause (ii) if the relief sought were
to be obtained;
(iii) the representations and warranties of the Company set forth in
the Merger Agreement shall not be true and accurate in any respect,
disregarding for this purpose any standard of materiality contained in any
such representation or warranty, as of the date of consummation of the
Offer as though made on or as of such date, except, (A) for changes
specifically permitted by the Merger Agreement or (B)(1) those
representations and warranties that address matters only as of a particular
date which are true and accurate as of such date or (2) where the failure
of such representations and warranties to be true and correct, does not,
individually or in the aggregate, have a material adverse effect on the
Company and its subsidiaries, taken as a whole;
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(iv) the Company shall have breached or failed in any material respect
to perform or comply with any material obligation, agreement or covenant
required by the Merger Agreement to be performed or complied with by it
(including, without limitation, if the Company shall have entered into any
definitive agreement or any agreement in principle with any Person (other
than Parent, Purchaser or any affiliate thereof) with respect to an
Acquisition Proposal (as defined below) or similar business combination
with the Company);
(v) there shall have occurred (A) any general suspension of trading
in, or limitation on prices for, securities on the New York Stock Exchange,
the Nasdaq National Market System or the Paris Stock Exchange, which
suspension or limitation shall have continued for at least five New York
Stock Exchange trading days, (B) a declaration of a banking moratorium or
any suspension of payments in respect of banks in the United States or in
France or any limitation (whether or not mandatory) by Federal, state or
foreign authorities on the extension of credit by lending institutions,
which moratorium, suspension or limitation is reasonably likely to
materially affect the ability of Parent to pay for the Shares, (C) a
commencement of a war or armed hostilities or other national or
international calamity directly or indirectly involving the United States
or France and reasonably likely to have a material adverse effect on the
Company and its subsidiaries taken as a whole or materially and adversely
affect the consummation of the Offer, or (D) in the case of any occurrence
set forth in clauses (A), (B) and (C) above existing at the time of the
commencement of the Offer, a material acceleration or worsening thereof
(the "Force Majeure Condition"); or
(vi) the Merger Agreement shall have been terminated in accordance
with its terms;
which in the reasonable judgment of Parent or Purchaser, in any such case, and
regardless of the circumstances giving rise to such condition, makes it
inadvisable to proceed with the Offer or with such acceptance for payment or
payments.
As used in the Merger Agreement, any reference to any event, change or
effect having a material adverse effect on or with respect to any entity (or
group of entities taken as a whole) means such event, change or effect is
materially adverse to the consolidated financial condition, businesses or
results of operations of such entity (or, if used with respect to a group of
entities, of such group of entities taken as a whole); provided, however, that
the effects of changes that are generally applicable to (i) the hotel, motel or
travel industries, (ii) the United States or French economy or (iii) the United
States or French securities markets shall be excluded from such determination;
and provided, further, that the following shall also be excluded from such
determination: any adverse effect resulting, directly or indirectly, in whole or
in part, from (x) the execution of the Merger Agreement and the announcement of
the Merger Agreement and the transactions contemplated hereby, including, but
not limited to, any stockholder litigation brought or threatened against the
Company or any member of the Company Board in respect of the Merger Agreement,
the Offer or the Merger, and (y) any change in the market price of the Shares,
in and of itself.
The Merger. The Merger Agreement provides that, subject to the terms and
conditions thereof and the provisions of the DGCL, Purchaser shall be merged
with and into the Company (the "Merger"), with the Company continuing to be
governed by Delaware law as the Surviving Corporation and an indirect wholly
owned subsidiary of Parent. In the Merger, each issued and outstanding Share
(other than Shares owned by Parent, Purchaser or any other wholly owned
subsidiary of Parent, Shares owned by the Company as treasury stock, Shares
owned by any subsidiary of the Company or Shares held by stockholders who
properly exercise their appraisal rights under the DGCL) shall be converted into
the right to receive the Offer Price, without interest.
The Merger Agreement also provides that (i) the directors of Purchaser and
the officers of the Company, immediately prior to the effective time of the
Merger (the "Effective Time"), shall be the initial directors and officers,
respectively, of the Surviving Corporation, until their successors have been
duly elected, appointed or qualified or until their earlier death, resignation
or removal in accordance with the Surviving Corporation's Certificate of
Incorporation and By-laws, and (ii) the Certificate of Incorporation and By-laws
of Purchaser will be the Certificate of Incorporation and By-laws, respectively,
of the Surviving Corporation.
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Treatment of Options; Stock Purchase Plan. Pursuant to the Merger
Agreement, the Company shall take all actions necessary such that as of the date
of the consummation of the Offer, and contingent upon the consummation of the
Offer, each outstanding employee stock option to purchase Shares (in each case,
an "Option") granted under the Company's Amended and Restated 1994 Management
Equity Incentive Plan and the Company's 1995 Director Stock Option Plan
(collectively, the "Option Plans"), whether or not then exercisable or vested
shall be cancelled.
The Merger Agreement provides that the Company or Purchaser shall pay to
each holder of a cancelled Option, in consideration for the cancellation of such
Option, an amount in cash equal to the product of (i) the number of Shares
previously subject to such Option and (ii) the excess, if any, of the Offer
Price over the exercise price per Share of each such Option. The Merger
Agreement provides that all applicable withholding taxes attributable to the
payments made thereunder or to distributions contemplated thereby shall be
deducted from the amounts payable thereunder and all such taxes attributable to
the exercise or deemed exercise of Options shall be withheld.
Except as otherwise agreed to by the parties to the Merger Agreement and to
the extent permitted under the Option Plans, (i) the Option Plans shall
terminate as of the date of the consummation of the Offer and (ii) the Company
shall take all action necessary to ensure that following the date of the
consummation of the Offer no holder of Options shall have any right thereunder
to acquire any equity securities of the Company, or any direct or indirect
subsidiary of the Company. See "Arrangements with Executive Officers, Directors
or Affiliates of the Company -- Employee and Director Stock Options."
Pursuant to the Merger Agreement, the Company shall take all necessary or
appropriate actions so that (i) all outstanding rights shall be exercised for
all participants in the Amended and Restated 1996 Employee Stock Purchase Plan
in accordance with its terms and (ii) such plan is terminated in accordance with
its terms, the Internal Revenue Code of 1986, as amended (the "Code"), and other
applicable law.
Directors. The Merger Agreement provides that, promptly upon Purchaser's
purchase of and payment for Shares which represent at least a majority of the
outstanding Shares (on a fully diluted basis), Parent shall be entitled to
designate such number of directors, rounded up to the next whole number, on the
Company Board as shall give Parent, subject to compliance with Section 14(f) of
the Exchange Act and Rule 14f-1 promulgated thereunder, representation on the
Company Board equal to the product of the total number of directors on the
Company Board (giving effect to the directors elected pursuant to this sentence)
multiplied by the percentage that the aggregate number of Shares beneficially
owned by Parent, Purchaser and any of their affiliates bears to the total number
of Shares then outstanding. The Company shall, upon request of Parent or
Purchaser, use its reasonable best efforts to cause Parent's designees to be so
elected, including by increasing the size of the Company Board or by securing
the resignations of incumbent directors. Notwithstanding the foregoing, until
the Effective Time, the Company Board shall consist of at least two directors
who were directors of the Company on the date of the Merger Agreement; provided,
that, subsequent to the purchase of and payment for Shares pursuant to the
Offer, Parent shall always have its designees represent at least a majority of
the entire Company Board.
The Merger Agreement also provides that from and after the time, if any,
that Parent's designees constitute a majority of the Company Board, any
amendment to the Merger Agreement, termination of the Merger Agreement by the
Company, extension of time for performance of any of the obligations of Parent
or Purchaser, waiver of any condition or any of the Company's rights or remedies
under the Merger Agreement or any amendment to the Certificate of Incorporation
or By-laws of the Company may be effected only by the unanimous vote of the
entire Company Board.
Stockholders' Meeting. Pursuant to the Merger Agreement, the Company
shall, if required by applicable law in order to consummate the Merger, duly
call, give notice of, convene and hold a special meeting of its stockholders
(the "Special Meeting") as soon as practicable following the acceptance for
payment and purchase of Shares by Purchaser pursuant to the Offer for the
purpose of considering and taking action upon the approval of the Merger and the
approval and adoption of the Merger Agreement.
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The Merger Agreement also provides that the Company shall, if required by
applicable law in order to consummate the Merger, (i) prepare and file with the
SEC a preliminary proxy or information statement relating to the Merger and the
Merger Agreement and use its reasonable best efforts (A) to obtain and furnish
the information required by the SEC to be included in the Proxy Statement (as
defined below) and, after consultation with Parent, to respond promptly to any
comments made by the SEC with respect to the preliminary proxy or information
statement and cause a definitive proxy or information statement (the "Proxy
Statement") to be mailed to its stockholders and (B) to obtain the necessary
approvals of the Merger and the Merger Agreement by its stockholders, and (ii)
subject to the fiduciary obligations of the Company Board under applicable law
as advised by independent counsel, include in the Proxy Statement the
recommendation of the Company Board that stockholders of the Company vote in
favor of the approval of the Merger and approval and adoption of the Merger
Agreement. Parent agrees that it will vote, or cause to be voted, all of the
Shares owned by it, Purchaser or any of its other subsidiaries and affiliates in
favor of the approval of the Merger and approval and adoption of the Merger
Agreement. In the event that Parent, Purchaser or any other subsidiary of Parent
acquires at least 90% of the outstanding Shares pursuant to the Offer or
otherwise, each of the parties shall take all necessary and appropriate action
to cause the Merger to become effective as soon as practicable after such
acquisition, without a meeting of the Company's stockholders, in accordance with
Section 253 of the DGCL.
Representations and Warranties. The Merger Agreement contains customary
representations and warranties of the Company, Parent and Purchaser with respect
to, among other things, (i) organization, (ii) authority to execute and deliver
the Merger Agreement, (iii) no conflict with any agreement, governmental
authorization or charter document, (iv) required consents and approvals and (v)
accuracy of information to be supplied for inclusion in Schedule 14D-1 or
Schedule 14D-9.
In the Merger Agreement, the Company has also made certain representations
and warranties relating to, among other things, (i) capitalization, (ii)
accuracy of documents and reports filed with the SEC, including financial
statements, (iii) absence of undisclosed liabilities, litigation and material
adverse changes, (iv) employee benefit plans/ERISA, (v) compliance with
applicable laws, (vi) taxes, (vii) properties, (viii) environmental matters,
(ix) intellectual property, (x) material contracts, (ix) labor matters, (xii)
restrictions on business activities, (xiii) year 2000 compliance, (xiv) voting
requirements for the approval of the Merger and (xv) the receipt of fairness
opinions.
In the Merger Agreement, Parent and Purchaser have also made
representations and warranties relating to, among other things, (i) financing,
(ii) ownership of Shares and (iii) operations of Purchaser.
Interim Operations. The Company has agreed that, among other things,
between the date of the Merger Agreement and prior to the time Parent's
designees have been elected to, and constitute a majority of, the Company Board,
unless Parent otherwise agrees in writing and except as otherwise contemplated
by the Merger Agreement or as required by applicable laws or regulations of any
Governmental Entity, national stock exchange or over-the-counter market (a) the
business of the Company and its subsidiaries shall be conducted only in the
ordinary and usual course of business consistent with past practices and (b) the
Company shall not, directly or indirectly, (i) sell, transfer or pledge or agree
to sell, transfer or pledge any Shares or capital stock of any of its
subsidiaries beneficially owned by it, either directly or indirectly; (ii) amend
or cause to be amended its Certificate of Incorporation or By-laws or similar
organizational documents of any of its subsidiaries; (iii) split, combine or
reclassify the outstanding Shares or any outstanding capital stock of any of its
subsidiaries; or (iv) except as contemplated by the Merger Agreement, amend or
change the period, or permit any acceleration, amendment or change, of
exercisability of any Option granted under an Option Plan or authorize cash
payments in exchange for any Option.
In addition, under the Merger Agreement, neither the Company nor any of its
subsidiaries shall (i) declare, set aside or pay any dividend or other
distribution payable in cash, stock or property with respect to its capital
stock; (ii) issue, sell, pledge, dispose of or encumber any additional shares
of, or securities convertible into or exchangeable for, or options, warrants,
calls, commitments or rights of any kind to acquire, any shares of capital stock
of any class of the Company or its subsidiaries, other than Shares reserved for
issuance pursuant to the exercise of Options outstanding on the date of the
Merger Agreement; (iii) transfer,
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lease, license, sell, mortgage, pledge, dispose of or encumber any right to any
trademark, service mark or trade name owned by it or over which it has any right
whatsoever, including, without limitation, enter into any franchise agreements
(excluding transactions consummated or agreements made pursuant to commitments
existing prior to the date of the Merger Agreement and disclosed in writing to
Parent and Purchaser other than the construction projects in Revere,
Massachusetts or downtown Cleveland, Ohio); (iv) transfer, lease, license, sell,
mortgage, pledge, dispose of, purchase, acquire or encumber any (A) real
property (other than furniture, fixtures and equipment which shall be treated as
personal property), including, without limitation any motel or other lodging
facility or (B) any personal property having an aggregate fair market value of
$100,000 in a single transaction or a series of related transactions (excluding
for purposes of this clause (iv) transactions consummated or agreements made
pursuant to commitments existing prior to the date of the Merger Agreement and
disclosed in writing to Parent and Purchaser other than the construction
projects in Revere, Massachusetts or downtown Cleveland, Ohio); (v) incur or
modify any indebtedness or other liability; provided, however, the Company may
borrow money for use in the ordinary and usual course of business and; provided,
further, however, that neither the Company nor any of its subsidiaries shall
make any borrowing or incur any indebtedness or other liability that would cause
the Company's consolidated debt to exceed $502 million (excluding borrowings
made or indebtedness incurred solely to finance any fees and expenses relating
to the Transactions to be paid by the Company; provided, however, that the
Company shall have the right to cure any failure to comply with this clause (v)
by taking, no later than the Expiration Date, any action that is not otherwise
in violation of the provisions of the Merger Agreement (which action may
include, without limitation, additional capital contributions from one or more
of its stockholders without any further issuance of equity or other securities
to any such stockholder)); (vi) enter into any agreement for the management of
any motel or other lodging facility owned or leased by the Company or any of its
subsidiaries or management by any other Person of a motel or other lodging
facility owned by the Company or any of its subsidiaries; (vii) make any capital
expenditures in excess of $2.1 million during the Company's third fiscal quarter
and $1.6 million during the Company's fourth fiscal quarter of 1999; (viii)
redeem, purchase or otherwise acquire, directly or indirectly, any of its
capital stock; (ix) modify, amend or terminate any of its Significant Contracts
(as defined below) or waive, release or assign any rights or claims thereunder;
(x) permit any material insurance policy naming the Company or any of its
subsidiaries as a beneficiary or a loss payable payee to be cancelled or
terminated without notice to Parent; (xi)(A) assume, guarantee, endorse or
otherwise become liable or responsible (whether directly, contingently or
otherwise) for the material obligations of any other Person, (B) make any loans,
advances or capital contributions to, or investments in, or acquisitions of, any
other Person (other than to subsidiaries of the Company), or (C) enter into any
commitment or transaction with respect to any of the foregoing (including, but
not limited to, any borrowing, capital expenditure or purchase, sale or lease of
assets); (xii) change any of the accounting methods used by the Company unless
required by GAAP or applicable law; (xiii) adopt a plan of complete or partial
liquidation, dissolution, merger, consolidation, restructuring, recapitalization
or other reorganization of the Company or any of its subsidiaries (other than
the Merger); (xiv) take, or agree to commit to take, any action that would make
any representation or warranty of the Company contained in the Merger Agreement
inaccurate in any material respect at, or as of any time prior to, the Effective
Time (except for representations made as of a specific date); (xv) increase the
compensation payable or to become payable to its officers, directors or key
employees; (xvi) terminate any officer or other key employee, grant any
severance or termination pay to, or enter into any employment or severance
agreement with, any director or officer of the Company or any Subsidiary or
establish, enter into or terminate or amend any Benefit Plan; (xvii) fail to use
best efforts to preserve intact the business organizations, goodwill, rights,
licenses, permits and franchises of the Company and its subsidiaries and
maintain its existing relationships with customers, suppliers and other Persons
having business dealings with them; (xviii) fail to keep in full force and
effect adequate insurance coverages and maintain and keep its properties and
assets in good repair, working order and condition, normal wear and tear
excepted; and (xix) authorize or enter into an agreement to do any of the
foregoing.
Notwithstanding the foregoing, in the event that Purchaser shall extend the
Offer beyond October 14, 1999, except if such extension is made at the written
demand of the Company, the Company and its subsidiaries shall, during the period
of such extension, be permitted to (i) transfer, lease, license, sell, mortgage,
pledge, dispose of or encumber any right to any trademark, service mark or trade
name owned by it
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or over which it has any right whatsoever, including, without limitation, to
enter into any franchise agreements in the ordinary and usual course of business
consistent with past practices; (ii) transfer, lease, license, sell, mortgage,
pledge, dispose of, purchase, acquire or encumber any other assets, including,
without limitation any motel or other lodging facility in the ordinary and usual
course of business consistent with past practices; (iii) enter into any
agreement for the management of any motel or other lodging facility by the
Company or any of its subsidiaries or management by any other Person of a motel
or other lodging facility owned or leased by the Company or any of its
subsidiaries in the ordinary and usual course of business consistent with past
practices; and (iv) modify, amend or terminate any of its Significant Contracts
or waive, release or assign any rights or claims thereunder in the ordinary and
usual course of business consistent with past practices. Prior to taking any of
the foregoing actions, the Company, in each instance, shall consult with Parent
and Purchaser and, from time to time thereafter at the request of Purchaser or
Parent, shall keep them fully informed with respect to such action.
The term "Significant Contract" means any contract, agreement or
commitment, whether oral or written, to which the Company or any of its
subsidiaries is a party or by which any of them or any of their properties,
assets and rights of any kind whatsoever are bound, as each such contract or
commitment may have been amended, modified or supplemented, (i) which has a term
ending one year or more from the date of its execution and may not be terminated
by the Company in its sole and absolute discretion upon no more than 30 days'
notice without penalty or payment in an amount in excess of $1,000, (ii)
pursuant to which the Company or any Subsidiary expects to or is scheduled to
receive (assuming full performance pursuant to the terms thereof) revenue of, or
to pay (assuming full performance pursuant to the terms thereof), $200,000 or
more during the 12-month period following the date of the Merger Agreement, or
(iii) which has been or, as of the date of the Merger Agreement, would be
required to be, filed as an exhibit to any document required to be filed by the
Company pursuant to the Exchange Act.
No Solicitation. Pursuant to the Merger Agreement, the Company and its
subsidiaries have agreed not to (and to use their best efforts to cause their
respective officers, directors, employees and investment bankers, attorneys or
other agents retained or acting on behalf of the Company or its subsidiaries not
to), (i) initiate, solicit or encourage (including by way of furnishing
non-public information), directly or indirectly, any inquiries or the making of
any proposal that constitutes or is reasonably likely to lead to any Acquisition
Proposal; (ii) engage in negotiations or discussions with, or furnish any
information or data to any third party relating to an Acquisition Proposal; or
(iii) enter into any agreement with respect to or approve any Acquisition
Proposal; provided, however, that the Company and the Company Board and its
officers, employees, accountants, consultants, counsel, financing sources and
other representatives (A) may participate in discussions or negotiations
(including, as a part thereof, making any counterproposal) with or furnish
information to any third party making an unsolicited Acquisition Proposal (a
"Potential Acquiror") if the Company Board determines in good faith, based upon
advice of its outside legal counsel, that the failure to participate in such
discussions or negotiations or to furnish such information would be inconsistent
with the Company Board's fiduciary duties under applicable law and (B) may take
and disclose to its stockholders a position with respect to any tender or
exchange offer by a third party, or amend or withdraw such recommendation,
pursuant to the Rules 14d-9 and 14e-2 of the Exchange Act.
For purposes of the Merger Agreement, "Acquisition Proposal" means any
offer or proposal, whether in writing or otherwise, made by a third party to
acquire beneficial ownership (as defined under Rule 13(d) of the Exchange Act)
of all or a material portion of the assets of, or any material equity interest
in, the Company or its material subsidiaries pursuant to a merger, consolidation
or other business combination, recapitalization, sale of shares of capital
stock, sale of assets, tender offer or exchange offer or similar transaction
involving the Company or its material subsidiaries other than the transactions
contemplated by the Merger Agreement.
For purposes of the Merger Agreement, "Superior Proposal" means any
proposal to acquire, directly or indirectly, for consideration consisting of
cash or securities, more than a majority of the Shares then outstanding or all
or substantially all the assets of the Company, and otherwise on terms which the
Company Board determines in good faith to be more favorable to the Company and
its stockholders than the Offer and the Merger (based on advice of the Company's
financial advisor that the value of the consideration provided
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<PAGE> 10
for in such proposal is superior to the value of the consideration provided for
in the Offer and the Merger), for which financing, to the extent required, is
then committed.
The Merger Agreement also provides that except to the extent such action
would be inconsistent with the Company Board's fiduciary duties under applicable
law, as determined by the Company Board in good faith, based upon advice of its
outside legal counsel, the Company shall (i) promptly inform Parent in writing
of any provision of information, as described above, or of any Acquisition
Proposal and the identity of the recipient of such information and/or the
Potential Acquiror and the terms of such Acquisition Proposal and (ii) keep
Parent reasonably informed of the status of any such Acquisition Proposal. The
Company has agreed that any non-public information furnished to a Potential
Acquiror shall be limited to that non-public information that has been furnished
to Parent and Purchaser and shall be furnished pursuant to a confidentiality
agreement substantially similar to the confidentiality provisions of the
Confidentiality Agreement.
In the Merger Agreement, the Company has agreed that the Company Board
shall not (i) withdraw or modify, or propose to withdraw or modify, in a manner
adverse to Parent, its approval or recommendation of the Merger Agreement, the
Offer or the Merger or (ii) approve or recommend, or propose to approve or
recommend, any Acquisition Proposal unless, in each case, the Company Board
determines in good faith, after receiving written advice from its financial
advisor, that such Acquisition Proposal is a Superior Proposal and, based upon
advice of its outside legal counsel, that the failure to take such action would
be inconsistent with its fiduciary duties under applicable law. The Company
Board shall not authorize the Company to enter into any agreement with respect
to an Acquisition Proposal (even if it is a Superior Proposal).
Employee Matters. Under the terms of the Merger Agreement, Parent has
agreed to cause the Surviving Corporation to honor, in accordance with their
terms, and to make required payments when due under, all Benefit Plans
maintained or contributed to by the Company or any Subsidiary or to which the
Company or any Subsidiary is a party (including, but not limited to, employment,
incentive and severance agreements and arrangements), that are applicable with
respect to any employee, director or stockholder of the Company or any
Subsidiary (whether current, former or retired) or their beneficiaries;
provided, however, that the foregoing shall not preclude the Surviving
Corporation from amending or terminating any such Benefit Plan in accordance
with its terms. Parent, Purchaser and the Company each acknowledge that
consummation of the Offer shall constitute a "Change in Control" for purposes of
each Benefit Plan in which such concept is relevant, notwithstanding any
provision of any such Benefit Plan to the contrary.
Bonus Plans. Under the terms of the Merger Agreement, Parent has agreed to
cause the Surviving Corporation to pay to each participant in the 1999
Management Incentive Plan (the "MIP") on the date of the Merger Agreement, as
soon as practicable following December 31, 1999, an amount equal to (i) the
maximum amount payable to such participant pursuant to the MIP multiplied by
(ii) a fraction (A) the numerator of which is that number of days which have
elapsed during calendar year 1999 up to and including the consummation of the
Offer, plus 30 days (but in no event greater than the total number of days in
calendar year 1999) and (B) the denominator of which is the number of days in
calendar year 1999. See "Arrangements with Executive Officers, Directors or
Affiliates of the Company -- Employee and Director Stock Options."
In addition, Parent has agreed to cause the Surviving Corporation to
maintain in effect through December 31, 1999 each of the following Benefit
Plans: (i) Incentive Compensation Plan, (ii) Sales and Marketing Sales Incentive
Plan, (iii) Franchise Sales Commission, and (iv) Reservations Incentive Plan, in
each case, as such plan is in effect as of the date of the Merger Agreement.
Directors' and Officers' Insurance and Indemnification. The Merger
Agreement provides that:
(a) from and after the consummation of the Offer, Parent shall cause the
Surviving Corporation (which shall include providing any necessary funds to the
Surviving Corporation, if necessary) to, indemnify, defend and hold harmless any
person who is, has been, or will become, prior to the Effective Time, an officer
or director, employee or agent (the "Indemnified Party") of the Company and its
subsidiaries against all losses, claims, damages, liabilities, costs and
expenses (including attorneys' fees and expenses), judgments, fines, losses, and
amounts paid in settlement in connection with any actual or threatened action,
suit, claim,
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<PAGE> 11
proceeding or investigation (each a "Claim") to the extent that any such Claim
is based on, or arises out of, (i) the fact that such person is or was a
director, officer, employee or agent of the Company or any of its subsidiaries
or is or was serving at the request of the Company or any of its subsidiaries as
a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, or (ii) the Merger Agreement, or any
of the transactions contemplated thereby, in each case, to the extent that any
such Claim pertains to any matter or fact arising, existing, or occurring prior
to or at the Effective Time, regardless of whether such Claim is asserted or
claimed prior to, at or after the Effective Time, to the fullest extent
permitted under Delaware law or the Company's Certificate of Incorporation,
By-laws or indemnification agreements in effect as of the date of the Merger
Agreement, including provisions relating to advancement of expenses incurred in
the defense of any action or suit. In the event any Indemnified Party becomes
involved in any capacity in any Claim, then from and after consummation of the
Offer, Parent shall cause the Company (or the Surviving Corporation if after the
Effective Time) (which includes the provision of necessary funds to the
Surviving Corporation, if necessary) to periodically advance to such Indemnified
Party its legal and other expenses (including the cost of any investigation and
preparation incurred in connection therewith), subject to the provision by such
Indemnified Party of an undertaking to reimburse the amounts so advanced in the
event of a final non-appealable determination by a court of competent
jurisdiction that such Indemnified Party is not entitled thereto;
(b) all rights to indemnification and all limitations on liability existing
in favor of the Indemnified Party as provided under Delaware law, the Company's
Certificate of Incorporation, By-laws or indemnification agreements in effect as
of the date of the Merger Agreement shall survive the Merger and continue in
full force and effect, without any amendment thereto, for a period of six years
from the Effective Time; provided, that in the event any claims are asserted or
made within such six year period, all rights to indemnification in respect of
any such claims shall continue until disposition of any and all such claims;
provided, further, that any determination required to be made with respect to
whether an Indemnified Party's conduct complies with the standards set forth
under Delaware law, the Company's Certificate of Incorporation or By-laws or
such agreements, as the case may be, will be made by independent legal counsel
selected by the Indemnified Party and reasonably acceptable to Parent;
(c) in the event Parent or Purchaser or any of their successors or assigns
(i) consolidates with or merges into any other person and will 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, proper provision shall be
made so that the successors and assigns of Parent and Purchaser assume the
obligations set forth above; provided that, in the case of any assignment,
Parent and Purchaser shall remain liable for all of their respective
obligations; and
(d) Parent shall cause the Surviving Corporation (which shall include the
provision of necessary funds to the Surviving Corporation, if necessary) to
maintain the Company's existing directors' and officers' liability insurance
policy ("D&O Insurance") for a period of not less than six years after the
Effective Time (provided, that Parent may substitute therefor policies with
reputable and financially sound carriers of at least the coverage and amounts
containing terms which are no less advantageous to the insured parties) with
respect to claims arising from or related to facts or events that occurred at or
before the Effective Time; provided, however, that Parent shall not be obligated
to cause the Surviving Corporation to make annual premium payments for such
insurance to the extent such premiums exceed 200% of the annual premiums paid as
of the date hereof by the Company for such insurance (such 200% amount, the
"Maximum Premium"). If such insurance coverage cannot be obtained at all, or can
only be obtained at an annual premium in excess of the Maximum Premium, Parent
shall cause the Surviving Corporation (which shall include the provision of
necessary funds to the Surviving Corporation, if necessary) to maintain the most
advantageous policies of directors' and officers' insurance obtainable for an
annual premium equal to the Maximum Premium; provided further, if such insurance
coverage cannot be obtained at all, Parent shall purchase all available run-off
insurance policies with respect to pre-existing insurance in an amount that,
together with all other insurance purchased pursuant to the terms of the Merger
Agreement does not exceed the Maximum Premium.
Conditions to the Merger. The Merger Agreement provides that the
respective obligations of each party to effect the Merger are subject to the
satisfaction, on or prior to the Closing Date, of the following conditions:
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(a) if required by applicable law and the Company's Certificate of
Incorporation, the Merger Agreement will have been approved and adopted by the
requisite vote of the Company's stockholders in order to consummate the Merger;
(b) any waiting period applicable to the Merger under the HSR Act shall have
expired or been terminated; (c) no statute, rule, order, decree or regulation
shall have been enacted or promulgated by any foreign or domestic Governmental
Entity of competent jurisdiction which prohibits consummation of the Merger; (d)
all foreign and domestic governmental consents, orders and approvals required
for the consummation of the Merger and the transactions contemplated by the
Merger Agreement shall have been obtained and be in effect at the Effective Time
except for such consents the failure of which to obtain would not have a
material adverse effect on the Company and its subsidiaries, taken as a whole;
and (e) there will be no order or injunction of a foreign or United States
federal or state court or other Governmental Entity of competent jurisdiction in
effect precluding, restraining, enjoining or prohibiting consummation of the
Merger; and (d) Parent, Purchaser or their affiliates will have purchased Shares
pursuant to the Offer or the Tender and Voting Agreement; provided, that Parent
and Purchaser shall not be entitled to rely on the condition set forth in clause
(d) if Purchaser shall have failed to purchase Shares pursuant to the Offer as a
result of a breach of its obligations under the Merger Agreement.
Termination. The Merger Agreement provides that it may be terminated and
the Merger abandoned at any time prior to the Effective Time, whether before or
after stockholder approval thereof: (a) by the mutual consent of Parent and the
Company; (b) by either the Company or Parent (i) if any Governmental Entity or
court of competent jurisdiction shall have issued an order, decree, injunction
or ruling or taken any other action (which order, decree, injunction, ruling or
other action the parties to the Merger Agreement shall have used their
respective reasonable best efforts to lift), in each case permanently
restraining, enjoining or otherwise prohibiting the transactions contemplated by
the Merger Agreement and such order, decree, injunction, ruling or other action
shall have become final and non-appealable; provided, however, that the party
seeking to terminate the Merger Agreement shall have used all reasonable best
efforts to challenge such order, decree, injunction or ruling, (ii) if Parent or
Purchaser shall have terminated the Offer and any option granted in the Tender
and Voting Agreement has not been exercised and is not exercisable, provided,
however, that the right to terminate the Merger Agreement pursuant to this
provision shall not be available to any party whose failure to fulfill any
obligation under the Merger Agreement has been the cause of, or resulted in, the
failure of Purchaser to purchase Shares in the Offer, or (iii) if the Offer
shall not have been consummated prior to the Expiration Date as the same may be
extended from time to time in accordance with the Merger Agreement and any
option granted in the Tender and Voting Agreement has not been exercised and is
not exercisable; provided that the right to terminate the Merger Agreement
pursuant to this provision shall not be available to any party that has breached
in any material respect its obligations under the Merger Agreement in any manner
that has proximately contributed to the occurrence of the failure of the Offer
to be consummated; (c) by the Company (i) if Parent, Purchaser or any of their
affiliates shall have failed to commence the Offer on or prior to five business
days following the date of the initial public announcement of the Offer;
provided, however, that the Company may not terminate the Merger Agreement
pursuant to this provision if the Company is in material breach of the Merger
Agreement, or (ii) if, prior to the purchase of Shares pursuant to the Offer,
there shall be a material breach by either Parent or Purchaser of any of the
material covenants or agreements applicable to it contained in the Merger
Agreement that is not cured within 15 business days after Parent and Purchaser
receive written notice from the Company of the occurrence of such breach; or (d)
by Parent, if, due to an occurrence that if occurring after the commencement of
the Offer would result in a failure to satisfy any of the conditions to the
Offer, Parent, Purchaser, or any of their affiliates shall have failed to
commence the Offer on or prior to five business days following the date of the
initial public announcement of the Offer; provided, however, that Parent may not
terminate the Merger Agreement pursuant to this provision if Parent or Purchaser
is in material breach of the Merger Agreement.
Effect of Termination; Non-Recommendation Fee. In the event of the
termination of the Merger Agreement as provided above, the Merger Agreement
requires that written notice thereof will be promptly given to the other parties
specifying the provision of the Merger Agreement pursuant to which such
termination is being made and, thereafter, the Merger Agreement will become null
and void and there will be no liability on the part of Parent or the Company,
except for fraud or breach of the Merger Agreement. In the event that the
Company Board (i) withdraws or modifies or proposes to withdraw or modify, in
any manner
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adverse to Parent or Purchaser, its approval or recommendation of the Merger
Agreement, the Offer or the Merger or (ii) approves or recommends, or proposes
to approve or recommend any Acquisition Proposal, then the Company shall, on the
next succeeding business day, pay to Parent, by wire transfer of immediately
available funds to an account designated by Parent, an amount equal to $30
million.
TENDER AND VOTING AGREEMENT
Concurrently with the execution of the Merger Agreement, Purchaser, Parent,
and each of The Morgan Stanley Real Estate Fund, L.P., Morgan Stanley Real
Estate Investment Management, Inc. and Morgan Stanley Real Estate Co-Investment
Partnership II, L.P. (collectively, the "MS Entities") entered into a Tender and
Voting Agreement (the "Tender and Voting Agreement"), with respect to the 18.4
million Shares owned in the aggregate by the MS Entities. The following is a
summary of the material provisions of the Tender and Voting Agreement. This
summary does not purport to be complete and is qualified in its entirety by
reference to the complete text of the Tender and Voting Agreement, a copy of
which is filed as Exhibit 3 hereto and is incorporated herein by reference.
Capitalized terms used and not otherwise defined below shall have the meanings
set forth in the Tender and Voting Agreement.
Tender of Shares. Pursuant to the Tender and Voting Agreement, each MS
Entity has agreed to tender or cause the record owner thereof to tender,
pursuant to and in accordance with the terms of the Offer, and not withdraw, any
and all of its Shares (the "Owned Shares"). The Tender and Voting Agreement
provides that each MS Entity will receive, for all Owned Shares tendered by it
in the Offer and accepted for payment and purchased by Purchaser, a price for
each of its Owned Share equal to the Offer Price, but not any additional amounts
paid or payable to holders of Shares that do not participate in the Offer by
reason of rights of appraisal, rights of dissent or otherwise. Pursuant to the
Tender and Voting Agreement, Parent and Purchaser have agreed not to decrease
the price to be paid to the Company's stockholders in the Offer below $22.75 per
Share and each MS Entity has agreed to waive any rights of appraisal or rights
to dissent from the Merger that it may have. The Parent has also agreed that on
the date that the Owned Shares are accepted for payment and purchased by
Purchaser pursuant to the Offer, Parent or Purchaser, as the case may be, shall
make, or cause to be made by the Paying Agent, payment to each MS Entity of the
purchase price for all of the Owned Shares that are tendered by it and accepted
for payment and purchased by Purchaser, by wire transfer to such account as is
designated by such MS Entity in the letter of transmittal which accompanies the
tender of such Owned Shares.
Voting of Shares; Proxy. Pursuant to the Tender and Voting Agreement, each
MS Entity has agreed to vote (or cause to be voted) its Owned Shares and, in
connection therewith, has granted to Parent and certain employees of Parent
and/or its subsidiaries an irrevocable proxy to vote its Owned Shares in
connection with any meeting of the Company's stockholders, or in connection with
any written consent of the Company's stockholders, (i) in favor of the Merger,
the execution and delivery by the Company of the Merger Agreement and the
approval and adoption of the Merger and the terms thereof and each of the other
actions contemplated by the Merger Agreement and the Tender and Voting Agreement
and any actions required in furtherance thereof and (ii) against any action or
agreement that would impede, interfere with, or prevent the Offer or the Merger,
including any Acquisition Proposal (other than the Offer and the Merger). Such
irrevocable proxy shall terminate upon the termination of the Tender and Voting
Agreement.
Grant of Option. The Tender and Voting Agreement provides for the grant by
each MS Entity to Purchaser of an irrevocable option to purchase all of its
Owned Shares at a price per Share equal to the Offer Price. Under the Tender and
Voting Agreement, such option shall become exercisable, in whole, but not in
part, only if either of the following shall occur (each a "Triggering Event"):
(i) the Offer is terminated without Purchaser purchasing Shares thereunder
solely because the Minimum Condition has not been met, or (ii) the Offer is
consummated without that MS Entity having tendered all its Owned Shares in
accordance with the terms of the Tender and Voting Agreement. However, Purchaser
shall not be entitled to purchase Owned Shares pursuant to any option if
Purchaser shall have failed to purchase Shares pursuant to the Offer in breach
of its obligations under the Merger Agreement. Upon the purchase of the Owned
Shares of any MS Entity pursuant to the applicable option, Purchaser shall
complete the Merger in accordance with, and subject to the terms and conditions
set forth in, the Merger Agreement.
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Exercise of Option. Under the Tender and Voting Agreement, if Purchaser
wishes to exercise any option granted by an MS Entity, Purchaser shall send a
written notice (the "Exercise Notice") to such MS Entity stating that it wishes
to purchase such MS Entity's Owned Shares pursuant to such exercise and the
place, the date (not less than one nor more than 20 business days from the
Exercise Notice), and the time for closing of such purchase; provided, that no
Exercise Notice shall be valid unless contemporaneously therewith an Exercise
Notice is delivered to all other MS Entities with respect to all other options
that are then exercisable and which provides for a contemporaneous closing. An
Exercise Notice shall be delivered by Purchaser not later than 10 business days
after the occurrence of a Triggering Event, and, if such a notice is not
delivered by such date, the options shall terminate automatically and be of no
further force and effect. Purchaser is not obligated to deliver any Exercise
Notice and may allow the options to terminate without purchasing any Shares
thereunder; provided, however, that once Purchaser has delivered to an MS Entity
an Exercise Notice, subject to the terms and conditions set forth in the Tender
and Voting Agreement, Purchaser shall be bound to effect the purchase of the
relevant Owned Shares as described in such Exercise Notice.
Restrictions on Transfer of Shares and Solicitation. During the term of
the Tender and Voting Agreement, each MS Entity has agreed that it will not
directly or indirectly: (i) transfer to any Person any or all of its Owned
Shares; or (ii) grant any proxies or powers of attorney, deposit any of its
Owned Shares into a voting trust or enter into a voting agreement, understanding
or arrangement with respect to such Owned Shares. However, the Tender and Voting
Agreement does permit an MS Entity to transfer any or all of its Owned Shares to
an affiliate of such MS Entity which is or agrees to be bound by the Tender and
Voting Agreement; provided, that such transferring MS Entity shall continue to
remain liable for all of its obligations under the Tender and Voting Agreement.
No Solicitation. Under the Tender and Voting Agreement, each MS Entity has
also agreed, solely in its capacity as a stockholder of the Company, that it and
its subsidiaries or affiliates will not, directly or indirectly, (i) initiate,
solicit or encourage (including by way of furnishing non-public information) any
inquiries or the making of any proposal that constitutes or is reasonably likely
to lead to an Acquisition Proposal or (ii) engage in any negotiations or
discussions with, or furnish any information or data to, any third party
relating to an Acquisition Proposal. The MS Entities have agreed to promptly
inform Parent of the terms of any proposal, discussion, negotiation or inquiry
(and will disclose any written materials received by the MS Entities in
connection with such proposal, discussion, negotiation or inquiry) and the
identity of the party making such proposal or inquiry which the MS Entities may
receive in respect of any Acquisition Proposal. The MS Entities have also agreed
to promptly request each person that has heretofore received any non-public
information in connection with its consideration of an Acquisition Proposal to
return all such non-public information furnished to such person by or on behalf
of the MS Entities, the Company or any of the Company's subsidiaries.
Notwithstanding any provision in the Tender and Voting Agreement to the
contrary, any action taken by the Company or any member of the Company Board or
any affiliate of any MS Entity as a financial advisor to the Company in his or
its capacity as such in accordance with the terms of the Merger Agreement shall
be deemed not to violate the terms of the Tender and Voting Agreement.
Termination. The Tender and Voting Agreement, and all rights and
obligations of the parties thereunder, shall terminate upon the earlier of (i)
the date on which Purchaser shall have purchased and paid for all of the Owned
Shares of the MS Entities in accordance with the terms of the Offer or pursuant
to the exercise of the options granted by the MS Entities, (ii) the date on
which the options shall have expired in accordance with the Tender and Voting
Agreement, or (iii) the date on which the Merger Agreement is terminated in
accordance with its terms.
ARRANGEMENTS WITH EXECUTIVE OFFICERS, DIRECTORS OR AFFILIATES OF THE COMPANY
EMPLOYMENT AGREEMENTS
Cash Employment Agreement. The Company and Francis W. Cash entered into an
employment agreement dated as of June 26, 1995 for an initial term of two years.
Such agreement is renewed automatically thereafter for successive one-year
terms. Under his employment agreement, Mr. Cash is entitled to receive an
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annual salary of $400,000 and a bonus in accordance with the terms of the annual
cash bonus plan maintained by the Company. Both his salary and bonus may be
increased from time to time by the Company Board. In addition, if Mr. Cash's
employment is terminated for certain reasons, as set forth in his employment
agreement, Mr. Cash will be entitled to severance benefits. Such severance
benefits include the payment to Mr. Cash of his base salary for a period of 12
months if the Company elects not to renew his employment agreement and the
payment of his base salary for a period of 24 months if his employment is
terminated for certain other reasons set forth in his employment agreement.
Rea Employment Agreement. The Company and David L. Rea entered into an
employment agreement dated October 8, 1998. Under the employment agreement, Mr.
Rea is entitled to receive an annual salary of $200,000 and a maximum bonus of
up to 75% of his annual salary. In addition, if Mr. Rea's employment is
terminated without cause, he will be entitled to severance benefits. The
severance benefits include the payment to Mr. Rea of his base salary for a
maximum period of 12 months, a prorated portion of any bonus Mr. Rea earned,
group health insurance, life insurance and long-term disability coverage.
SEVERANCE AGREEMENTS
In January 1997, each of Francis W. Cash and Alan L. Tallis entered into
separate executive severance agreements with the Company, and, in October 1998,
David L. Rea entered into an executive severance agreement with the Company.
Each of these agreements contains substantially identical terms. Each agreement
is for a term of three years. Under these agreements, the Company must pay
severance benefits to Mr. Cash, Mr. Tallis or Mr. Rea, as the case may be, if
his employment is terminated as a result of a change in control of the Company,
as defined in the agreements, and the termination otherwise falls within the
scope of the agreements. The benefits to which Mr. Cash, Mr. Tallis or Mr. Rea,
as the case may be, shall be entitled if such an event occurs include a lump-sum
payment equal to three times his respective annual base salary then in effect.
In addition, Mr. Cash, Mr. Tallis or Mr. Rea, as the case may be, will be
entitled to a lump-sum payment equal to three times the highest bonus or
short-term incentive compensation paid to him in the year preceding the change
in control, unless this amount is less than three times the amount he could have
earned in the year in which the change in control occurred, in which case he
will be entitled to receive the higher amount.
EMPLOYEE AND DIRECTOR STOCK OPTIONS
The Company's Amended and Restated 1994 Management Equity Incentive Plan
(the "1994 Option Plan"), filed as Exhibit 16 hereto and incorporated herein by
reference is intended to promote the interests of the Company and its
stockholders by providing executive officers and other key employees of the
Company (including directors who are also employees of the Company) with
appropriate incentives and rewards to encourage them to enter into and continue
in the employ of the Company and to develop and maintain a proprietary interest
in the long term success of the Company.
Under the 1994 Option Plan, the Compensation Committee annually awards
options to purchase Shares to executive officers and key employees. The
president and chief executive officer determines and recommends to the
Compensation Committee the specific number of Shares underlying the options
granted to all plan participants other than himself. The Compensation Committee
determines the number of Shares underlying the options granted to the president
and chief executive officer. The number of options granted to an eligible
individual is determined based on the relative contribution or anticipated
contribution of such individual to the Company's overall performance. The
Compensation Committee also considers the total number of Shares underlying
options already held by these individuals at the time of the grant. Commencing
one year after the date of grant, each option becomes exercisable cumulatively
at the rate of 25 percent per year and will expire ten years from the date such
options were granted.
The Company's 1995 Director Stock Option Plan (the "Directors' Plan"),
filed as Exhibit 14 hereto and incorporated herein by reference, provides for
the granting of options to directors of the Company who are not employees or
officers of the Company or any subsidiary of the Company, and who are not
employees, officers, directors or advisory committee members of the Morgan
Stanley Real Estate Fund, L.P., or any affiliate
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thereof (each such individual, an "Eligible Director"). The purpose of the
Directors' Plan is to encourage such directors to acquire or increase a
proprietary interest in the Company, to further promote the interest of such
directors in the development and financial success of the Company and to assist
the Company in attracting and retaining highly qualified directors by providing
them with options to purchase Shares.
The Directors' Plan provides for administration by a committee of not less
than two directors of the Company appointed by the Company Board, to serve at
the discretion of the Company Board. The maximum aggregate number of Shares
reserved and available for grants of options under the Directors' Plan is 60,000
Shares, subject to adjustment as provided therein. Under the Directors' Plan, at
the time an individual first becomes an Eligible Director, such individual is
automatically granted an option to purchase 10,000 Shares, which option becomes
exercisable cumulatively at the rate of 20 percent per year, commencing one year
after the date of grant. In addition, immediately following each annual meeting
of the stockholders of the Company, each Eligible Director is automatically
granted an option to purchase 1,000 Shares, which option becomes fully
exercisable on the date granted. All options granted under the Directors' Plan
will expire ten years from the date such options were granted.
Upon consummation of the Offer, all outstanding options, whether granted
pursuant to the 1994 Option Plan or the Directors' Plan, will become fully
exercisable and vested. Each option shall be cancelled and the holder of the
option will receive an amount equal to the product of (A) the excess of $22.75
over the exercise price per Share of each such option and (B) the number of
Shares relating to such option.
1999 MANAGEMENT INCENTIVE PLAN
The purpose of the 1999 Management Incentive Plan is to provide incentive
compensation to officers and key employees who contribute to the achievement of
the Company's principal business objectives. Awards are based on a combination
of the Company's earnings per share and the participant's individual
performance. The 1999 Management Incentive Plan is administered by the
Compensation Committee. The complete text of the 1999 Management Incentive Plan
is filed as Exhibit 17 hereto and is incorporated herein by reference.
CHANGE IN CONTROL SEVERANCE PLAN
On July 10, 1999, the Board of Directors approved the terms of the Red Roof
Inns, Inc. Change in Control Severance Plan (the "Severance Plan"). The terms of
such plan are described below. When the Severance Plan is finalized, the Company
will file an amendment to the Schedule 14D-9 setting forth the principle terms
of the Severance Plan and shall file the plan document as an exhibit thereto.
Under the Severance Plan, severance benefits will be provided to certain active
employees whose employment is terminated other than for cause (to be defined in
the Severance Plan) or who terminate employment if the terms of their employment
after the Effective Time are not at least comparable to the terms of their
employment prior to the Closing, in either case, within two years following the
Closing. Those employees who are party to either a severance agreement or an
employment letter agreement with severance provisions will receive pay and
benefits as determined by such agreement. To the extent that any payment or
benefit under the Severance Plan differs from those provided in such agreement
(on an item-by-item basis), the employee will receive the greater of the
payments and/or benefits under the Severance Plan or the payments and/or
benefits under such agreement. Severance payments under the Severance Plan will
be based on years of service. Employees in salary grades 15 and above will
receive a minimum of 20 weeks of base pay, while employees in salary grades 12,
13 and 14 will receive a minimum of 16 weeks of base pay and employees in salary
grades 11 and below will receive a minimum of 8 weeks of base pay. In addition,
participants will receive a pro rata bonus, welfare benefit coverage,
outplacement services and reimbursement of legal fees incurred in any dispute
arising under the Severance Plan. The participant must sign a mutual release of
claims prior to receiving benefits under the Severance Plan.
INDEMNIFICATION
The Merger Agreement also provides for Parent to cause the Surviving
Corporation, which shall include the provision of necessary funds to the
Surviving Corporation, if necessary, to indemnify, among other persons,
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its officers and directors against liabilities arising out of, among other
things, (i) the fact that such person was a director or officer of the Company
or any of its subsidiaries or (ii) the Merger Agreement or any of the
transactions contemplated thereby, in each case, to the full extent permitted
under Delaware law or the Company's Certificate of Incorporation or By-laws or
the Company's existing indemnification agreements. Parent has also agreed in the
Merger Agreement that all rights to indemnification and all limitations on
liability provided to directors and officers in the Company's Certificate of
Incorporation and By-laws as in effect as of the date of the Merger Agreement
shall survive the Merger and shall continue in full force and effect, without
any amendment thereto, for a period of six years from the Effective Time.
Additionally, Parent has agreed that it shall cause the Surviving Corporation,
which shall include the provision of necessary funds to the Surviving
Corporation, if necessary, to maintain the Company's existing officers' and
directors' liability insurance policy for a period of not less than six years
after the Effective Time; provided, that Parent may substitute therefor policies
with reputable and financially sound carrier of at least the same coverage and
amounts containing terms which are no less advantageous to the insured parties
and; provided, further, that the aggregate premium for such insurance at any
time during such period shall not exceed 200% of the per annum rate of premiums
paid by the Company on the date of the Merger Agreement. See "The Merger
Agreement -- Directors' and Officers' Insurance and Indemnification."
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
(A) RECOMMENDATION OF THE COMPANY BOARD
The Company Board has unanimously approved the Merger Agreement, the Offer
and the Merger, and has determined that the Offer and the Merger are fair to,
and in the best interests of, the Company's stockholders, and unanimously
recommends that the Company's stockholders accept the Offer and tender their
Shares in the Offer.
A letter to the Company's stockholders communicating the Company Board's
recommendation is filed herewith as Exhibit 4, and is incorporated herein by
reference.
(B) BACKGROUND; REASONS FOR THE COMPANY BOARD'S RECOMMENDATION
BACKGROUND
Beginning in the middle of 1997, as a result of (i) changes in the real
estate capital markets, (ii) changes in the lodging sector in general, including
a trend toward consolidation, and (iii) the trading range of the Company's
common stock, the Company's management, in periodic consultation with the
Company's directors and the MS Entities, began to explore preliminarily various
possible strategic and financing alternatives to enhance long-term stockholder
value. These alternatives included, among others, changes in the Company's
growth plans and strategy, an increased emphasis on franchising, joint ventures,
acquisitions of other economy segment lodging chains, a sale of the Company as a
whole, a separation of all or part of the Company's owned real estate from its
management and franchising business, a leveraged recapitalization, a leveraged
buyout, a sale/leaseback of the Company's owned real estate and a common stock
repurchase program.
In November 1997, Parent met with the MS Entities at the offices of Morgan
Stanley & Co. Incorporated ("Morgan Stanley") in New York City to express its
interest in pursuing a transaction with the Company. The MS Entities informed
Parent that the Company was considering various alternatives to maximize
stockholder value and that one alternative under consideration would involve
separating the Company's management and franchising business from its real
estate operations. A discussion ensued concerning Parent's potential interest in
acquiring the management and franchising business from the Company and then
entering into lease agreements with the Company pursuant to which Parent would
lease the Company's owned inns. No specific proposals were made by either party
at that meeting, although the MS Entities and Parent continued to indicate a
willingness to have further discussions. On November 18, 1997, the MS Entities
sent a letter to Parent reiterating their interest in exploring such a
transaction and outlining for Parent what they believed to be some of the likely
benefits. In their letter, which did not propose any price for
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the management and franchising business, the MS Entities requested that Parent
provide it with an indication of what value range it would place on the
management and franchising business.
In January 1998, the Company engaged Morgan Stanley, an affiliate of the MS
Entities, to serve as its financial advisor and to assist it in analyzing the
various strategic alternatives referred to above. As part of this assignment,
the Company asked Morgan Stanley to identify parties who might have an interest
in pursuing a business combination with the Company. With the assistance of the
Company's management, Morgan Stanley identified and reviewed a list of leading
candidates, including Parent, that might be expected to have an interest in
engaging with the Company in one or more of the strategic transactions referred
to above. In addition to companies who were thought to have a potential interest
in pursuing a business combination with the Company in its current form, Morgan
Stanley also identified companies that were thought to have a potential interest
in either the Company's owned real estate and/or its management and franchising
business. After the development of the list, members of the Company's senior
management and/or Morgan Stanley had a number of informal discussions and
meetings with these parties (including several discussions that were initiated
by such parties) to assess the feasibility of the Company's strategic
alternatives and the potential level of interest of such parties in pursuing one
or more of these alternatives.
On January 13, 1998, the MS Entities received a letter from Parent in which
Parent expressed interest in the concept discussed in November 1997 between
Parent and the MS Entities and in the MS Entities' November 18, 1997 letter.
On February 20, 1998, representatives of Morgan Stanley and J.P. Morgan &
Co. Incorporated ("J.P. Morgan"), financial advisor to Parent, met to discuss
various issues relating to process and the structure of a transaction between
Parent and the Company. At such meeting, Morgan Stanley informed J.P. Morgan
that notwithstanding the previous conversations between the MS Entities and
Parent, the Company had a strong preference for a transaction that involved the
Company in its entirety and, accordingly, was seeking from Parent a valuation of
the Company in its entirety.
On March 5, 1998, a meeting was held in Paris, France among certain members
of the senior management of each of the Company, Parent and Morgan Stanley. No
specific proposals were made by either party at that meeting, although the
Company and Parent continued to indicate a willingness to have further
discussions to explore the possibility of a business combination or other
strategic transaction involving the Company and Parent.
In early March 1998, the Company and Parent entered into a confidentiality
agreement. On March 6, 1998, the Company provided Parent with a package of
non-public financial and operating information relating to the Company.
On March 27, 1998, the Company received a preliminary written proposal from
Parent. Such proposal contemplated that the Company would separate its real
estate holdings from its management and franchising business and, following such
separation, Parent would acquire the management and franchising business. The
proposal also contemplated that Parent or an affiliate thereof would then enter
into long-term leases with the Company to lease all of the Company's owned inns.
The Company promptly informed Parent that such proposal was not acceptable on
the basis that the price and other terms of Parent's proposal were inadequate.
The Company and Morgan Stanley reiterated that the Company was interested in a
valuation of the Company in its entirety and a transaction involving the Company
in its entirety.
Beginning in April and continuing through July 1998, Morgan Stanley
contacted a number of parties that might be expected to have an interest in
engaging in a business combination with the Company. Further, the Company
engaged tax and legal advisors to assist the Company in evaluating the merits
and feasibility of separating the Company's management and franchising business
from its real estate operations.
On April 2, 1998, Parent provided the Company with a revised written
proposal to acquire the Company in its entirety that valued the Company at
$20.00 per Share. The proposal was conditioned upon Parent's completion of due
diligence and provided that the proposal would remain outstanding until April
16, 1998.
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On April 9, 1998, Morgan Stanley met with Parent in Paris to discuss
Parent's most recent proposal. During such meeting, Morgan Stanley advised
Parent that its revised proposal was not acceptable because the Company believed
that there were strategic alternatives available to it that could generate
stockholder value in excess of the proposed $20.00 per Share.
On April 24, 1998, Morgan Stanley met with Parent and reiterated that,
while the Company was willing to consider a sale of its management and
franchising business, albeit on terms more attractive than those previously
proposed by Parent, the Company had a strong preference for a transaction that
involved the entire Company. Morgan Stanley advised Parent that the parties did
not share a common view on the Company's earnings potential and that the Company
believed that its projections justified a higher valuation.
On May 6, 1998, Morgan Stanley sent a letter to Parent to advise Parent
that none of Parent's proposals to date were attractive to the Company. Morgan
Stanley suggested that it might be productive for the Company, Parent and their
respective advisors to meet to review the Company's business plan and to develop
a more complete understanding of the Company's value and the potential synergies
that could be derived from combining the Company with Parent's Motel 6 business.
Over the next month, discussions between the Company's and Parent's
management and between Morgan Stanley and J.P. Morgan progressed through various
meetings and telephone calls during which Parent was provided with extensive
financial and operating information relating to the Company, including various
analyses prepared by Morgan Stanley relating to the Company's valuation.
On June 2 and 3, 1998, representatives of each of the Company, Parent,
Morgan Stanley and J.P. Morgan met at the Company's headquarters in Columbus,
Ohio. Members of the Company's senior management made presentations on various
elements of the Company's business and led tours of, among other things, a
typical inn, the headquarters facility, the reservations center and the MIS data
center.
In early July 1998, Parent verbally advised Morgan Stanley of its continued
interest in acquiring the Company at a price of approximately $20.00 per Share,
but potentially less. Morgan Stanley indicated to Parent that a price of $20.00
or less was not attractive to the Company. Following discussions among the
parties and their financial advisors, on July 12, 1998, Parent advised Morgan
Stanley that it was no longer interested in pursuing a business combination with
the Company at that time.
During the remainder of July 1998 through the middle of August 1998, the
Company continued to analyze, with the assistance of Morgan Stanley, various
alternatives for enhancing stockholder value including those referred to above.
On October 28, 1998, Parent informed Morgan Stanley that it might be
interested in reinitiating discussions concerning a business combination with
the Company. While Parent was invited to submit a proposal, no proposal was ever
received by the Company in response to such invitation.
From October 1998 through April 1999, Morgan Stanley contacted a number of
parties that might be expected to have an interest in engaging in a business
combination with the Company. Among those contacted were several parties that
Morgan Stanley had previously contacted during the April to July 1998 period.
After contacting such parties, members of the Company's senior management and/or
Morgan Stanley had a number of informal discussions and meetings with several of
these parties (including several discussions that were initiated by such
parties) to assess the feasibility of engaging in a business combination or
other transaction with such parties and the potential level of interest of such
parties in pursuing a transaction with the Company.
On February 10, 1999, J.P. Morgan, on behalf of Parent, contacted Morgan
Stanley to reopen discussions with the Company. During the following month,
there were several conversations between Morgan Stanley, Parent and J.P. Morgan.
Over the course of such conversations, Morgan Stanley indicated to Parent that
any proposal would have to value the Company at an amount in excess of $20.00
per Share and that, based on prior unsuccessful discussions, the Company and the
MS Entities were skeptical that any further discussions would be productive.
Parent requested that a meeting be arranged for April 6, 1999 with
representatives of
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each of Parent, the Company, J.P. Morgan, Morgan Stanley and the MS Entities.
Parent indicated that it would be prepared at such time to provide an all cash
proposal to acquire the Company.
On April 6, 1999, representatives of each of Parent, J.P. Morgan, Morgan
Stanley and the MS Entities met at the offices of Morgan Stanley in New York
City. While Parent informed the Company at such meeting that it was not ready to
provide a specific proposal, it indicated that the price therein would be
"within striking distance of" $20.00 per Share. Upon determining that such range
was approximately $20.00 per Share, Morgan Stanley reiterated to Parent that the
Company had no interest in a transaction at such level. Parent then requested an
additional two to three days to provide the Company with a specific proposal.
On April 7, 1999, the Company received a one page due diligence request
list from J.P. Morgan which also contained a number of questions for the Company
to respond to. The Company responded to such list on April 8, 1999 and provided
Parent with additional operating and financial data relating to the Company.
Also, on or about April 10, 1999, J.P. Morgan delivered to Morgan Stanley a term
sheet outlining the potential structure, required internal approvals and due
diligence process being contemplated by Parent. No price was indicated in such
term sheet.
Throughout the month of April 1999, numerous conversations took place among
Morgan Stanley, J.P. Morgan and Parent. While Parent's Chairman indicated to
Morgan Stanley his desire to consummate a transaction with the Company, he
advised Morgan Stanley that Parent would need additional time to evaluate
further the situation and develop a specific proposal.
From the end of April through early May 1999, Morgan Stanley, in
consultation with the Company's senior management, began evaluating certain
recapitalization alternatives to enhance stockholder value, including an
enhanced stock repurchase program, a leveraged recapitalization and a leveraged
buyout. On May 6, 1999, at a regularly scheduled meeting of the Company Board,
Morgan Stanley updated the Company Board on the discussions with Parent and
certain other third parties as well as its review of various other strategic
alternatives, including those referred to in the preceding sentence. The
Company's senior management and Morgan Stanley advised the Company Board that,
in light of the Company's past history with Parent and the continuing delays by
Parent, it was unlikely that Parent would put forward an attractive proposal.
During May 1999, the Company entered into discussions with several other
third parties regarding a business combination. In the case of one of these
parties (the "Other Party"), the Company was provided with a preliminary
proposal. While such proposal was subject to numerous conditions, including,
among other things, due diligence, both the Company and the Other Party
expressed a willingness to continue discussions. Over the next month and a half,
Morgan Stanley and the Company provided the Other Party with selected financial
and operating data relating to the Company. During the course of such
discussions, which continued through the last week of negotiations with Parent,
the Company and Morgan Stanley determined that the price and terms of such
proposal were not as attractive as those being offered by Parent.
On June 1, 1999, Parent delivered to Morgan Stanley a letter addressed to
the Company and setting forth a proposal to acquire the Company. The proposal
contemplated that Parent would acquire all of the outstanding Shares for $21.00
per Share in cash. The proposal indicated that while it was subject to the
completion of certain confirmatory due diligence items, it was not contingent on
the receipt of any financing. The proposal contemplated that the MS Entities
would enter into a tender and voting agreement pursuant to which Parent would be
granted an option to purchase the MS Entities' Shares at the same price being
paid to the Company's other stockholders pursuant to the Offer and the Merger.
Parent indicated in its proposal that its tender offer for the Shares would be
conditioned upon a minimum of 90% of the outstanding Shares being tendered into
the Offer. The proposal was also conditioned upon final approval by Parent's
Supervisory Board. The proposal was made on the express condition that its
existence and all of its contents would remain strictly confidential and not be
disclosed to anyone other than senior members of the Company's management,
Morgan Stanley, the MS Entities and their respective advisors.
On June 7, 1999, Morgan Stanley and J.P. Morgan met to review Parent's most
recent proposal. Morgan Stanley informed J.P. Morgan that the proposed price of
$21.00 per Share was not attractive to the Company, as the Company believed it
could justify a higher valuation. Notwithstanding that there was still not an
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agreement on price, it was agreed that it would be productive for the parties to
begin drafting the necessary transaction documents and for Parent to continue
its due diligence review of the Company to determine if there were material
issues other than price that required resolution by the parties.
On June 14, 1999, the Company and Parent entered into a new confidentiality
agreement which was meant to confirm, extend and otherwise supplement the prior
confidentiality agreement, dated March 5, 1998, between the Company and Parent.
From June 22 through June 26, 1999, Parent and its advisors conducted additional
due diligence on the business, operations and financial performance of the
Company, including meetings near the Company's headquarters in Columbus, Ohio
with members of the Company's senior management, Morgan Stanley and the
Company's accountants, Deloitte & Touche LLP.
On June 17, 1999, J.P. Morgan distributed to the Company, Morgan Stanley
and the MS Entities initial drafts of each of the Merger Agreement and the
Tender and Voting Agreement, copies of which were then forwarded to the
Company's legal counsel and the MS Entities' legal counsel.
On July 1, 1999, J.P. Morgan informed Morgan Stanley that Parent, having
completed its due diligence review of the Company, was able to reconfirm its
offer of $21.00 per Share. On July 2, 1999, Morgan Stanley advised J.P. Morgan
that a price per Share of $21.00 was not acceptable to the Company.
On July 6, 1999, while the Company and Parent had not yet reached an
agreement on price, Morgan Stanley and the Company's legal counsel met with
Parent and its legal and financial advisors at Morgan Stanley's offices in New
York City, and commenced negotiations with respect to the terms of the Merger
Agreement and the Tender and Voting Agreement. Such negotiations continued until
the evening of July 10, 1999 when the parties agreed upon the forms of the
definitive agreements.
During the evening of July 6, 1999, the Company Board held a special
telephonic meeting. At such meeting, the Company Board was advised by Morgan
Stanley and the Company's legal counsel of the status of a possible transaction
with Parent. No decision was reached by the Company Board at this meeting, but
it was the consensus of the directors that the Company's management, Morgan
Stanley and the Company's legal counsel should continue to negotiate with Parent
and report back to the Company Board once the Company's management was prepared
to make a recommendation.
On July 8, 1999, Parent indicated to the Company and Morgan Stanley that,
subject to, among other things, the satisfaction of open issues relating to the
terms and conditions of the Merger Agreement and the Tender and Voting
Agreement, it would be willing to propose purchasing all of the Shares at a
price of $22.75 per Share in cash.
On the evening of July 10, 1999, the Company Board held a special meeting
in New York City to review, with the advice and assistance of the Company's
legal and financial advisors, the strategic, financial and legal considerations
concerning a possible transaction with Parent, and the final proposed terms and
conditions of the proposed Merger Agreement. At such meeting, each of Morgan
Stanley and CIBC World Markets Corp. ("CIBC World Markets") delivered to the
Company Board an oral opinion (which was subsequently confirmed by delivery of a
written opinion dated July 10, 1999) as to the fairness of the $22.75 per Share
cash consideration from a financial point of view, and the Company's legal
counsel reviewed with the Company Board the material terms and conditions of the
Merger Agreement. The Company Board was also informed by Morgan Stanley of the
discussions that Morgan Stanley had held with several other third parties,
including the Other Party, and that neither the proposal put forth by the Other
Party nor any of the discussions that Morgan Stanley had held with other third
parties were likely to lead to a transaction more attractive than the Offer and
the Merger. Following the Company Board's review of the final terms of the
Merger Agreement, the Company Board unanimously determined that the Merger
Agreement and the transactions contemplated thereby, including the Offer and the
Merger, are fair to, and in the best interests of, the Company's stockholders,
approved the Merger Agreement and the transactions contemplated thereby,
including the Offer and the Merger, authorized the execution and delivery of the
Merger Agreement, recommended that the Company's stockholders accept the Offer
and tender their Shares pursuant to the Offer, and recommended that the
Company's stockholders approve and adopt the Merger Agreement.
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Later on the evening of July 10, 1999, the Company and Parent executed and
delivered the Merger Agreement, and Parent, Purchaser and the MS Entities
executed and delivered the Tender and Voting Agreement.
On the morning of July 12, 1999, the Company and Parent issued a joint
press release announcing the execution of the Merger Agreement. A copy of this
press release is filed as Exhibit 6 to this Schedule 14D-9.
REASONS FOR THE TRANSACTION; FACTORS CONSIDERED BY THE COMPANY BOARD
In approving the Offer, the Merger, the Merger Agreement and the other
transactions contemplated thereby and recommending that all holders of Shares
accept the Offer and tender their Shares pursuant to the Offer, the Company
Board considered a number of factors including:
1. the presentations and views expressed by management of the Company
(at meetings of the Company Board held throughout the past two years)
regarding, among other things: (a) the financial condition, results of
operations, cash flows, business and prospects of the Company, including
the prospects of the Company if it remains independent; (b) the strategic
alternatives available to the Company; (c) the fact that in view of the
discussions held with various parties, currently and over the past few
years, management of the Company believed it was unlikely that any other
party would propose an acquisition or strategic business combination that,
taken as a whole, would be more favorable to the Company and its
stockholders than the Offer and the Merger; and (d) the recommendation of
the Merger by the management of the Company;
2. the historical market prices, price to earnings ratios, recent
trading activity and trading range of the Shares, including the fact that
the Offer Price represents (i) a premium of approximately 24% over the
$18.3125 closing price of the Shares on the NYSE on the last full trading
day preceding the public announcement of the execution of the Merger
Agreement, and (ii) a premium of approximately 27.5% over the 30-day
average trading price of $17.85 per Share;
3. the extensive arms-length negotiations between the Company and
Parent leading to the belief of the Company Board that $22.75 per Share
represented the highest price per Share that could be negotiated with
Parent;
4. the separate opinions of Morgan Stanley and CIBC World Markets,
each dated July 10, 1999, to the effect that, as of such date and based
upon and subject to certain matters stated in such opinions, the $22.75 per
Share cash consideration to be received in the Offer and the Merger by
holders of Shares (other than Parent and its affiliates) was fair, from a
financial point of view, to such holders. The full text of the written
opinions dated July 10, 1999 of Morgan Stanley and CIBC World Markets,
which set forth the assumptions made, matters considered and limitations on
the review undertaken, are attached hereto as Exhibits 4 and 5,
respectively, and are incorporated herein by reference. The opinions of
Morgan Stanley and CIBC World Markets are directed only to the fairness,
from a financial point of view, of the $22.75 per Share cash consideration
to be received in the Offer and the Merger by holders of Shares (other than
Parent and its affiliates) and are not intended to constitute, and do not
constitute, a recommendation as to whether any stockholder should tender
Shares pursuant to the Offer. Holders of Shares are urged to read such
opinions carefully in their entirety;
5. that the Merger Agreement provides for a prompt cash tender offer
for all Shares to be followed by a merger for the same consideration,
thereby enabling the Company's stockholders to obtain the benefits of the
transaction in exchange for their Shares at the earliest possible time;
6. that, although the Company Board has the ability under the Merger
Agreement to withdraw or modify its recommendation in the event of a
superior third party proposal, this possibility was viewed as remote in
light of (i) the $30 million non-recommendation fee that would be payable
to Parent, (ii) the fact that the Company does not have the ability to
terminate the Merger Agreement upon the occurrence of such an event, and
(iii) the MS Entities having committed to tender their Shares pursuant to
the Tender and Voting Agreement, which Shares represent in excess of a
majority of the outstanding Shares;
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7. the limited conditions to the Offer and the Merger, including that
neither the Offer or the Merger is subject to the receipt by Parent of any
financing;
8. that all of the Company's stockholders would generally be treated
the same, with all stockholders being able to participate in the Offer and
receive the same per Share consideration upon Purchaser's acceptance for
payment, and payment for, the Shares;
9. that, in the Merger Agreement, Parent has agreed to cause the
Surviving Corporation to honor, in accordance with their terms, and to make
required payments when due under all of the Company's employee benefit
plans and all employment, incentive and severance agreements and
arrangements with respect to employees, former employees or directors of
the Company;
10. the limited ability of Parent and Purchaser to terminate the Offer
or the Merger Agreement;
11. that, in the Merger Agreement, the Company has the ability to
cause Purchaser to extend the Offer up to December 14, 1999 if certain
conditions are not satisfied as of any Expiration Date, as extended;
12. the other provisions of the Merger Agreement, including the
parties' representations, warranties and covenants;
13. the consents and approvals required to consummate the Merger and
the favorable prospects for receiving all such consents and approvals;
14. the likelihood of the consummation of the transactions
contemplated by the Merger Agreement;
15. Parent's ability to consummate the Offer and the Merger on an
expedited basis;
16. that each of the MS Entities who collectively hold approximately
68.3% of the issued and outstanding Shares have indicated their willingness
to execute the Tender and Voting Agreement and thereby, among other things,
agree to (i) tender their Shares into the Offer, (ii) grant Parent their
irrevocable proxies to vote the Shares held by such stockholders in favor
of the approval of the Merger and the approval and adoption of the Merger
Agreement and against any action or agreement that would impede, interfere
with, or prevent the Offer or the Merger, including any Acquisition
Proposal (other than the Offer and the Merger), and (iii) grant Parent an
option to purchase their Shares in the event that such stockholders fail to
tender into the Offer;
17. that the Tender and Voting Agreement, once executed by the MS
Entities, would effectively preclude the possibility of accepting a higher
third party offer since the MS Entities own in excess of a majority of the
outstanding Shares;
18. the business reputation and capabilities of Parent and its
management, and Parent's financial strength, including its ability to
finance the Offer;
19. the current and anticipated status of the lodging industry in the
United States, and the economy segment in particular, including increasing
competition; and
20. economic conditions and developments in real estate markets which
have made it more difficult to purchase economy lodging properties at
prices acceptable to the Company.
The foregoing discussion of information and factors considered and given
weight by the Company Board is not intended to be exhaustive, but is believed to
include all of the material factors considered by the Company Board. In view of
the variety of factors considered in connection with its evaluation of the Offer
and the Merger, the Company Board did not find it practicable to, and did not,
quantify or otherwise assign relative weights to the specific factors considered
in reaching its determinations and recommendations. In addition, individual
members of the Company Board may have given different weights to different
factors.
In receiving the advice of Morgan Stanley and in approving the Merger and
the Merger Agreement and in determining whether to recommend that the Company's
stockholders (i) accept the Offer, (ii) tender their Shares pursuant to the
Offer, and (iii) approve the Merger and approve and adopt the Merger Agreement,
the
22
<PAGE> 24
Company Board was aware of and recognized the affiliated relationship with the
MS Entities, the largest beneficial holders of Shares. Accordingly, the Company
Board thought it appropriate to engage an independent financial advisor to
render a fairness opinion. See Item 5.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
MORGAN STANLEY & CO. INCORPORATED
Pursuant to the terms of a letter agreement, dated February 17, 1998, as
extended through January 30, 1999 and subsequently further extended through
December 30, 1999, and a letter agreement, dated June 30, 1999 (collectively,
"Morgan Stanley Letter Agreement"), the Company retained Morgan Stanley, in
part, to assist the Company as its financial advisor in connection with a
potential recapitalization merger, sale or other significant transaction
involving the Company (a "Transaction").
The Company has agreed to pay to Morgan Stanley a transaction fee (the
"Transaction Fee") calculated as a percentage of the Aggregate Value (as defined
below) of the Transaction. The "Aggregate Value" of the Transaction shall be
equal to the value of the consideration paid for the Company's common equity
(or, in the case of a sale of assets, the consideration paid for such assets),
plus the value of any direct or indirect debt, capital lease, and preferred
stock obligations of the Company assumed, retired, or defeased in connection
with the Transaction. The Aggregate Value of the Offer and the Merger is
approximately $1.1 billion. Accordingly the Transaction Fee payable to Morgan
Stanley pursuant to the Morgan Stanley Letter Agreement is $6.15 million. The
Transaction Fee is payable upon consummation of the Offer.
The Company has also agreed to reimburse Morgan Stanley for all reasonable
out-of-pocket expenses incurred by Morgan Stanley (including fees and
disbursements of counsel, and of other consultants and advisors retained by
Morgan Stanley) in connection with the matters contemplated by the Morgan
Stanley Letter Agreement, and to indemnify Morgan Stanley (and its officers,
directors, employees, controlling persons and agents) against certain
liabilities arising out of or in connection with Morgan Stanley's engagement.
Morgan Stanley has provided certain investment banking services to the
Company from time to time for which it has received customary compensation.
Morgan Stanley has also in the past provided financial advisory and financing
services to Parent unrelated to the Offer and the Merger and has received fees
for the rendering of such services. Morgan Stanley is an affiliate of the MS
Entities which own in the aggregate 18,400,000 Shares or approximately 68.3% of
the total issued and outstanding Shares and such affiliates have four of the
nine seats on the Company Board. In addition, Morgan Stanley may from time to
time effect transactions and hold positions in securities of the Company and
Parent.
CIBC WORLD MARKETS CORP.
Pursuant to the terms of a letter agreement, dated July 8, 1999, the
Company also retained CIBC World Markets to render an opinion to the Company
Board in connection with the Offer and the Merger. The Company has agreed to pay
CIBC World Markets for its services an aggregate fee of $475,000. The Company
also has agreed to indemnify CIBC World Markets and related parties against
certain liabilities, including liabilities under the federal securities laws,
arising out of its engagement. CIBC World Markets and its affiliates have in the
past provided investment banking and commercial services to the Company
unrelated to the Offer and the Merger, for which services CIBC World Markets and
its affiliates have received compensation. In the ordinary course of business,
CIBC World Markets and its affiliates may actively trade securities of the
Company, Parent and their affiliates for their own accounts and for the accounts
of customers and, accordingly, may at any time hold a long or short position in
such securities.
Neither the Company nor any person acting on its behalf has employed,
retained or compensated any person to make solicitations or recommendations to
the Company's stockholders with respect to the Offer or the Merger.
23
<PAGE> 25
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(a) Except as set forth on Schedule II hereto, no transactions in the
Shares have been effected during the past 60 days by the Company or, to the best
of the Company's knowledge, by any executive officer, director, affiliate or
subsidiary of the Company.
(b) To the best knowledge of the Company, all of its executive officers,
directors, affiliates and subsidiaries currently intend to tender pursuant to
the Offer all Shares held of record or beneficially owned by them (other than
Shares issuable upon exercise of stock options and Shares, if any, which if
tendered could cause such persons to incur liability under the provisions of
Section 16(b) of the Exchange Act, which Shares shall be exchanged in the
Merger).
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY.
(a) Except as set forth in this Schedule 14D-9, the Company is not engaged
in any negotiation in response to the Offer which relates to or would result in
(i) an extraordinary transaction, such as a merger or reorganization, involving
the Company or any subsidiary of the Company; (ii) a purchase, sale or transfer
of a material amount of assets by the Company or any subsidiary of the Company;
(iii) a tender offer for or other acquisition of securities by or of the
Company; or (iv) any material change in the present capitalization or dividend
policy of the Company.
(b) Except as described in Item 3(b) and Item 4 above (the provisions of
which are hereby incorporated by reference), there are no transactions, board
resolutions, agreements in principle or signed contracts in response to the
Offer which relate to or would result in one or more of the matters referred to
in paragraph (a) of this Item 7.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
SECTION 14(f) INFORMATION STATEMENT
The Information Statement attached as Schedule I hereto is being furnished
in connection with the possible designation by Parent, pursuant to the Merger
Agreement, of certain persons to be appointed to the Company Board other than at
a meeting of the Company's stockholders.
9 5/8% SENIOR NOTES DUE 2003
The Company is a party to an Indenture, dated as of December 17, 1993 (the
"Indenture"), by and between the Company and The Bank of New York, as Trustee
(the "Trustee"), which governs the Company's 9 5/8% Senior Notes due 2003 (the
"Notes"). The Indenture provides that the Company cannot consummate a merger
with or into any other Person (as defined in the Indenture) unless it complies
with the provisions of Section 5.01 thereof ("Section 5.01"). Among other
things, Section 5.01 provides that prior to such merger, the Company must
deliver to the Trustee (i) an Officers Certificate (as defined in the Indenture)
(attaching arithmetic computations to demonstrate compliance with clauses (iii)
(Consolidated Net Worth Test) and (iv) (Interest Coverage Ratio Test) of Section
5.01) and (ii) an Opinion of Counsel, in each case, stating that the merger and
such supplemental indenture complies with Section 5.01 and that all conditions
precedent provided for in the Indenture relating to such merger have been
complied with.
The Indenture also provides that upon the occurrence of a Change in Control
(as defined in the Indenture), which would include, among other things, the
consummation of the Offer and the exercise of the Option granted to Purchaser by
the MS Entities with respect to the Shares owned by the MS Entities, each holder
of the Notes shall have the right to require the repurchase of its Notes by the
Company in cash pursuant to the provisions of Section 4.11 of the Indenture
("Section 4.11") at a purchase price equal to 101% of the principal amount
thereof plus accrued interest (if any) to the date of purchase. Within 30 days
of the consummation of the Change in Control, the Company must mail a notice to
the Trustee and each holder stating, among other things, that a Change of
Control has occurred, that the Change of Control Offer (as defined in the
Indenture) is being made pursuant to Section 4.11 and that all Notes validly
tendered will be accepted for payment. The Change of Control offer must be made
in compliance with the provisions of
24
<PAGE> 26
Rule 14e-1 under the Exchange Act and any other securities laws and regulations
thereunder to the extent that such laws and regulations are applicable in the
event that a Change of Control occurs and the Company is required to repurchase
the Notes under Section 4.11.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
<TABLE>
<S> <C>
Exhibit 1 Confidentiality Agreement, dated June 14, 1999, between Red
Roof Inns, Inc. and Accor S.A.
Exhibit 2 Agreement and Plan of Merger, dated as of July 10, 1999, by
and among Accor S.A., RRI Acquisition Corp. and Red Roof
Inns, Inc.
Exhibit 3 Tender and Voting Agreement, dated as of July 10, 1999, by
and among Accor S.A., RRI Acquisition Corp., The Morgan
Stanley Real Estate Fund, L.P., Morgan Stanley Investment
Management, Inc. and Morgan Stanley Real Estate
Co-Investment Partnership II, L.P.
Exhibit 4 Letter to Stockholders from Francis W. Cash dated July 16,
1999*
Exhibit 5 Opinion of Morgan Stanley & Co. Incorporated dated July 10,
1999*
Exhibit 6 Opinion of CIBC World Markets Corp. dated July 10, 1999*
Exhibit 7 Joint Press Release issued by the Company and Parent on July
12, 1999
Exhibit 8 Employment Agreement, dated as of June 26, 1995, by and
between the Company and Francis W. Cash
Exhibit 9 Employment Agreement, dated as of October 8, 1998, by and
between the Company and David L. Rea
Exhibit 10 Agreement, dated January 30, 1997, by and between the
Company and Francis W. Cash
Exhibit 11 Agreement, dated January 30, 1997, by and between the
Company and Alan L. Tallis
Exhibit 12 Amended and Restated Agreement, dated October 7, 1998, by
and between the Company and David L. Rea
Exhibit 13 Nonqualified Defined Benefit Pension Agreement, dated
December 1997, between Red Roof Inns, Inc. and Francis W.
Cash
Exhibit 14 1995 Director Stock Option Plan
Exhibit 15 1996 Employee Stock Purchase Plan
Exhibit 16 Amended and Restated 1994 Management Equity Incentive Plan
Exhibit 17 1999 Management Incentive Compensation Plan
</TABLE>
- ------------------
* Copy attached to, or enclosed with, copies of this Schedule mailed to
stockholders.
25
<PAGE> 27
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
RED ROOF INNS, INC.
By: /s/ DAVID L. REA
------------------------------------
Name: David L. Rea
Title: Executive Vice President,
Chief Financial Officer
and Treasurer
Dated: July 16, 1999
26
<PAGE> 28
SCHEDULE I
INFORMATION STATEMENT PURSUANT TO
SECTION 14(F) OF THE SECURITIES
EXCHANGE ACT OF 1934 AND RULE 14F-1 THEREUNDER
GENERAL
This Information Statement is being mailed on or about July 16, 1999 as
part of the Solicitation/ Recommendation Statement on Schedule 14D-9 (the
"Schedule 14D-9") of Red Roof Inns, Inc., a Delaware corporation (the
"Company"), to the holders of record of shares of common stock, par value $.01
per share, of the Company (the "Shares"). You are receiving this Information
Statement in connection with the possible election of persons designated by
Parent (as defined below) to a majority of the seats on the Board of Directors
of the Company (the "Company Board").
On July 10, 1999, the Company, Accor S.A., a corporation organized under
the laws of France ("Parent"), and RRI Acquisition Corp., a Delaware corporation
and an indirect, wholly owned subsidiary of Parent ("Purchaser"), entered into
an Agreement and Plan of Merger (the "Merger Agreement"), pursuant to which (i)
Parent shall cause Purchaser to commence a tender offer (the "Offer") for all
outstanding Shares at a price of $22.75 per Share, net to the seller in cash,
and (ii) Purchaser shall be merged with and into the Company (the "Merger"). As
a result of the Offer and the Merger, the Company will become an indirect,
wholly-owned subsidiary of Parent.
The Merger Agreement provides that, promptly after the purchase of a
majority of the outstanding Shares pursuant to the Offer, Parent shall be
entitled to designate such number of directors (the "Parent Designees") to the
Company Board as will give Parent representation proportionate to its ownership
interest. The Merger Agreement requires the Company to take such action as
Parent may request to cause the Parent Designees to be elected to the Company
Board under the circumstances described therein. This Information Statement is
required by Section 14(f) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and Rule 14f-1 thereunder.
You are urged to read this Information Statement carefully. You are not,
however, required to take any action. Capitalized terms used and not otherwise
defined shall have the meaning set forth in the Schedule 14D-9.
The information contained in this Information Statement concerning Parent
and Purchaser has been furnished to the Company by Parent. The Company assumes
no responsibility for the accuracy or completeness of such information.
RIGHT TO DESIGNATE DIRECTORS; PARENT DESIGNEES
The Merger Agreement provides that, promptly upon the purchase of and
payment by Purchaser for Shares pursuant to the Offer which represent at least a
majority of the outstanding Shares (on a fully diluted basis), Parent will be
entitled to designate such number of directors, rounded up to the next whole
number, on the Company Board as shall give Parent, subject to compliance with
Section 14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder,
representation on the Company Board equal to the product of the total number of
directors on the Company Board (giving effect to the directors elected pursuant
to this sentence) multiplied by the percentage that the aggregate number of
Shares beneficially owned by Purchaser, Parent and any of their affiliates bears
to the total number of Shares then outstanding. The Company shall, upon the
request of Purchaser, use its reasonable best efforts to cause the Parent
Designees to be so elected, including, if necessary, increasing the size of the
Company Board or securing the resignations of incumbent directors.
Notwithstanding the foregoing, the Merger Agreement requires that, until the
Effective Time, the Company Board shall include at least two directors who were
members of the Company Board on the date that the Merger Agreement was executed.
I-1
<PAGE> 29
The following table sets forth certain information with respect to the
Parent Designees (including age as of the date hereof, current principal
occupation or employment and five-year employment history). Unless otherwise
noted, each individual is a citizen of the United States. Unless otherwise
noted, the business address of each designee is c/o Motel 6 G.P. Inc., 14651
Dallas Parkway, Suite 500, Dallas, Texas 75240.
<TABLE>
<CAPTION>
NAME OF PRINCIPAL OCCUPATION(S)
PARENT DESIGNEE AGE DURING PAST FIVE (5) YEARS
- --------------- --- ------------------------------------------------------
<S> <C> <C>
Georges Le Mener..................... 51 Chairman of the Board, President and Chief Executive
Officer of Purchaser since 1999. President and Chief
Executive Officer of Motel 6 G.P. Inc. ("Motel 6")
since January 1993. Director and treasurer of AHMA
Educational Institute. Mr. Le Mener is a citizen of
France.
Emmett J. Gossen, Jr. ............... 57 Executive Vice President-Corporate Affairs of
Purchaser since 1999. Executive Vice
President-Corporate Affairs of Motel 6 since July
1992.
Armand E. Sebban..................... 60 Director and Executive Vice President and Chief
Financial Officer of Purchaser since 1999. Executive
Vice President and Chief Financial Officer of Motel 6
since February 1993. Mr. Sebban is a citizen of
France.
Alan J. Rabinowitz................... 42 Senior Vice President-General Counsel and Secretary of
Purchaser since 1999. Senior Vice President-General
Counsel of Motel 6 since January 1997. Vice President
and Assistant General Counsel of Motel 6 from
September 1994 through December 1996. Assistant
General Counsel of Motel 6 from September 1993 to
September 1994.
Sven Boinet.......................... 46 Member of the Management Board of Parent in charge of
hotel activities since January 1997. Executive Vice
President of Parent since 1992. Director of Purchaser
since 1999. Director of Groupe Lucien Barriere since
1989. Mr. Boinet is a citizen of France. The business
address of Mr. Boinet is Tour Maine M33 avenue du
Maine, Paris 75015 France.
Benjamin Cohen....................... 60 Member of the Management Board of Parent since 1997.
Executive Vice President of Parent since 1992. Chief
Financial Officer from 1994 to 1997. Director of
Purchaser since 1999. Director of Tourism Asset
Holdings Ltd. Mr. Cohen is a citizen of France. The
business address of Mr. Cohen is Tour Maine M33 avenue
du Maine, Paris 75015 France.
</TABLE>
Parent has informed the Company that each of the individuals listed above
has consented to act as a director, if so designated. If necessary, Parent may
choose additional or other Parent Designees, subject to the requirements of Rule
14f-1.
Based solely on the information set forth in the Offer to Purchase, none of
the Parent Designees (i) is currently a director of, or holds any position with,
the Company, (ii) has a familial relationship with any directors or executive
officers of the Company, or (iii) to the best knowledge of Parent, beneficially
owns any securities (or any rights to acquire such securities) of the Company.
The Company has been advised by Parent that, to the best of Parent's knowledge,
none of the Parent Designees has been involved in any transactions with the
Company or any of its directors, officers, or affiliates which are required to
be disclosed pursuant to the rules and regulations of the Securities and
Exchange Commission (the "SEC"), except as may be disclosed herein.
I-2
<PAGE> 30
DIRECTORS OF THE COMPANY
The following table sets forth certain information with respect to the
current directors of the Company as of July 16, 1999. Unless otherwise noted,
each director is a citizen of the United States. Unless otherwise noted, the
business address of each director is c/o Red Roof Inns, Inc., 4355 Davidson
Road, Hilliard, Ohio 43026.
<TABLE>
<CAPTION>
DIRECTOR
OF THE
NAME OF DIRECTOR AND PRINCIPAL OCCUPATION(S) COMPANY
POSITION(S) WITH THE COMPANY AGE DURING PAST FIVE (5) YEARS SINCE
- ---------------------------- --- --------------------------------------------- --------
<S> <C> <C> <C>
Thomas E. Dobrowski.................. 55 Managing Director, Real Estate and 1994
Director Alternative Investments at General Motors
Investment Management Corporation since
December 1994. Director, Real Estate Natural
Resource Investments at General Motors
Investment Management Corporation from March
1992 to November 1994. Director of
Manufactured Home Communities, Inc. and
Capital Trust Inc. Trustee of Equity Office
Properties Trust. Serves on the advisory
committees and boards of several private real
estate investment entities.
John A. Henry, IV.................... 33 Joined Morgan Stanley & Co. Incorporated in 1998
Director 1988 and in December 1998 became Principal of
Morgan Stanley & Co. Incorporated and Morgan
Stanley Realty Incorporated. Chief Financial
Officer of Morgan Stanley Real Estate Funds
since 1998. Has held various positions at
Morgan Stanley & Co. Incorporated in
corporate finance, real estate investment
banking and real estate principal investing.
Francis W. Cash...................... 57 Chairman of the Board since June 1996. 1995
Chairman of the Board, President, Chief Executive Officer and
President, and Chief Director of the Company since July 1995.
Executive Officer President, Chief Operating Officer and
Director of NovaCare, Inc. from October 1992
to June 1995.
Edward D. Powers..................... 67 Chairman and Chief Executive Officer of 1996
Director Powers Holdings, Inc. since 1988. Powers
Holdings, Inc. has two divisions, Curtis
Electronics and Firebrick Engineers, Inc.
Director of ARM Financial Group, Inc., a
holding company for National Integrity
Insurance Company, since 1993.
Owen D. Thomas....................... 38 Joined Morgan Stanley & Co. Incorporated in 1996
Director 1987 and became a Managing Director of Morgan
Stanley & Co. Incorporated in December 1995.
President of Morgan Stanley Real Estate Funds
since 1997.
</TABLE>
I-3
<PAGE> 31
<TABLE>
<CAPTION>
DIRECTOR
OF THE
NAME OF DIRECTOR AND PRINCIPAL OCCUPATION(S) COMPANY
POSITION(S) WITH THE COMPANY AGE DURING PAST FIVE (5) YEARS SINCE
- ---------------------------- --- --------------------------------------------- --------
<S> <C> <C> <C>
Michael E. Foster.................... 50 Joined Morgan Stanley & Co. Incorporated in 1998
Director August 1994 as Director of Morgan Stanley
Real Estate Funds and became Principal of
Morgan Stanley & Co. Incorporated in December
1995. Served as a Consultant to American
Multi-Family Trust from January 1994 to
August 1994. Vice President of Goldman Sachs
& Co.'s Whitehall Fund's Asset Management
Group from June 1987 to December 1993. Member
of the National Association of Real Estate
Investment Trusts, the Urban Land Institute,
the International Council of Shopping Centers
and the Real Estate Board of New York.
William M. Lewis, Jr................. 43 Joined Morgan Stanley & Co. Incorporated in 1995
Director 1978. Co-Head of Worldwide Mergers,
Acquisitions and Restructuring Department and
Co-Head of Worldwide Real Estate Investment
Banking Department of Morgan Stanley Dean
Witter & Co. since 1997. Member of Investment
Banking Division Operating Committee and
Chairman of Morgan Stanley Real Estate Funds'
Investment Committee since 1997. Head of
Worldwide Real Estate Investment Banking of
Morgan Stanley Realty from 1993 to 1997.
Member of the Urban Land Institute, the
National Association of Real Estate
Investment Trusts and the International
Council of Shopping Centers.
Judith A. Rogala..................... 57 President of National Mobile Television since 1997
Director June 1999. President of Aramark Uniform
Services from July 1997 to May 1999.
Executive Vice President, Business Services
Division of Office Depot, Inc. from June 1994
to February 1997. President, Chief Executive
Officer and Director of EQ -- The
Environmental Quality Company, from August
1992 to May 1994. Director of Butler
Manufacturing Co. since April 1989.
</TABLE>
EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth certain information with respect to the
current executive officers of the Company as of July 16, 1999. Each of the
executive officers is a citizen of the United States.
<TABLE>
<CAPTION>
YEAR
STARTED
WITH THE
NAME AGE TITLE COMPANY
- ---- --- --------------------------------------------- --------
<S> <C> <C> <C>
Francis W. Cash...................... 57 Chairman, President and Chief Executive 1995
Officer
Alan L. Tallis....................... 53 Executive Vice President-Development, General 1994
Counsel and Secretary
David L. Rea......................... 38 Executive Vice President, Chief Financial 1996
Officer and Treasurer
</TABLE>
I-4
<PAGE> 32
Business Experience
Francis W. Cash joined the Company as President, Chief Executive Officer
and Director in July 1995 and became Chairman of the Board in June 1996. Mr.
Cash is responsible for the Company's day-to-day operations. From October 1992
to June 1995, Mr. Cash was President, Chief Operating Officer and Director of
NovaCare, Inc., a leading medical rehabilitation company. Mr. Cash was
responsible for NovaCare's day-to-day operations. From 1973 to 1992, Mr. Cash
held various executive positions at Marriott Corporation.
Alan L. Tallis joined the Company as Executive Vice President-Corporate
Development in March 1994 and became Executive Vice President-Development,
General Counsel and Secretary of the Company in October 1997. Mr. Tallis is
responsible for the Company's development, legal and franchising activities.
From 1992 to 1994, Mr. Tallis was a Managing Director of 22 Nelson Place
Associates. From 1980 to 1992, Mr. Tallis served in various management positions
with LaQuinta Inns, the last of which was Executive Vice President-Chief
Development Officer.
David L. Rea joined the Company as Vice President and Treasurer in
September 1996. In November 1997, Mr. Rea was promoted to Senior Vice President
and Treasurer. In October 1998, Mr. Rea became Executive Vice President, Chief
Financial Officer and Treasurer. Mr. Rea is responsible for all of the financial
functions of the Company. From April 1995 to August 1996, Mr. Rea was Vice
President, Finance at DeBartolo Properties Management, Inc. From 1986 to 1995,
Mr. Rea served in various management positions with T. Rowe Price Associates
serving most recently as Vice President responsible for public real estate and
private equity investments.
EXECUTIVE COMPENSATION
Summary Compensation Table. The following Summary Compensation Table sets
forth for the last three full fiscal years information as to the total
compensation received by the chief executive officer and each other executive
officer of the Company (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
----------------------------------------- ----------------
SECURITIES
UNDERLYING STOCK ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($)(1) OTHER($) OPTIONS($) COMPENSATION
- --------------------------- ---- --------- ----------- -------- ---------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Francis W. Cash....................... 1998 447,831 335,761 125,000 206,895(2)
Chairman of the Board, President 1997 426,500 362,525 1,671 100,000 53,317(2)
and Chief Executive Officer 1996 408,000 408,000 370,060(3) 193,800(4) 50,061(2)
Alan L. Tallis........................ 1998 238,000 118,758 -- 30,000 4,856(5)
Executive Vice
President-Development, 1997 199,654 146,300 6,500 20,000 4,285(5)
General Counsel and Secretary 1996 189,000 164,430 -- 22,000 --
David L. Rea(6)....................... 1998 165,985 84,899 -- 60,000 4,248(7)
Executive Vice President, 1997 -- -- -- --
Chief Financial Officer and
Treasurer 1996 -- -- -- --
David N. Chichester(8)................ 1998 341,250 -- -- 50,000 626,958(9)(10)
Former Executive Vice President 1997 325,000 207,188 24,199(3) 25,000 4,487(9)
and Chief Financial Officer 1996 284,160 355,000(11) 219,404(3) 120,000 --
</TABLE>
- ---------------
(1) The amount included in the "Bonus" column for each year includes amounts
earned during that year, whether or not such amount was paid in that year
or a subsequent year. The annual bonus plan was based upon the Company's
attaining certain specific (a) predetermined levels of earnings per share
and individual goals and objectives in 1998 and 1997 and (b) predetermined
levels of earnings per share in 1996. Attainment of such goals resulted in
payment of a percentage of each executive's base salary in the given year.
Francis W. Cash, who was eligible to receive a bonus payment, participated
in the determination of awards under the bonus plan. For 1998, the Company
paid on average, 72% of the maximum bonus available to each Named Executive
Officer (excluding David N. Chichester). For
I-5
<PAGE> 33
1997, the Company paid, on average, 85% of the maximum bonus available to
each Named Executive Officer. For 1996, the Company exceeded its pre-tax
net income and earnings per share targets, respectively, and accordingly
paid the maximum bonus available to each Named Executive Officer.
(2) The Company and Francis W. Cash are parties to a non-qualified defined
benefit pension agreement for the benefit of Mr. Cash. The Company
recognized $198,443, $45,892 and $43,753 of expenses in 1998, 1997 and
1996, respectively, related to such pension agreement. The Company
recognized $8,452, $7,425 and $6,308 of expenses in 1998, 1997 and 1996,
respectively, for the benefit of Mr. Cash for term life insurance.
(3) The Company reimbursed Francis W. Cash and David N. Chichester for certain
of their relocation expenses in accordance with their respective employment
agreements. The expenses reimbursed in 1997 for Mr. Chichester were
$23,699. Messrs. Cash and Chichester were reimbursed $361,306 and $208,128,
respectively, in 1996, related to their respective relocations.
(4) In August 1996, the Company offered participants in its stock option plan
the opportunity to exchange options held by them to purchase Shares at an
exercise price of $5.43 per Share for options to purchase 2.8 times as many
Shares at an exercise price of $13.50 per Share. Pursuant to this offer,
Francis W. Cash elected to exchange an option to purchase 51,000 Shares at
an exercise price of $5.43 for an option to purchase 142,800 Shares at an
exercise price of $13.50 per Share.
(5) The Company recognized $2,456 and $2,740 in 1998 and 1997, respectively,
for the benefit of Alan L. Tallis for term life insurance. Mr. Tallis
participated in the Company's 401(k) plan in 1998 and 1997 for which the
Company contributed $2,400 and $1,545, respectively, for the benefit of Mr.
Tallis. Mr. Tallis contributed $9,600 in 1998 and $6,180 in 1997, included
in salary as annual compensation, for his benefit under the 401(k) plan.
(6) David L. Rea was promoted to Executive Vice President, Chief Financial
Officer and Treasurer in October 1998. Prior to such promotion, Mr. Rea was
not an executive officer of the Company.
(7) The Company recognized $462 of expense in 1998 for the benefit of David L.
Rea for term life insurance. Mr. Rea participated in the Company's 401(k)
plan and the Company's deferred compensation plan in 1998 for which the
Company contributed $2,313 and $1,473, respectively, for the benefit of Mr.
Rea. Mr. Rea contributed $9,252 and $9,508, included in salary as annual
compensation, for his benefit under the 401(k) and deferred compensation
plan, respectively.
(8) David N. Chichester resigned as a Director and as Executive Vice President
and Chief Financial Officer effective October 6, 1998.
(9) The Company recognized $2,350 and $2,112 of expenses in 1998 and 1997,
respectively, for the benefit of David N. Chichester for term life
insurance. Mr. Chichester participated in the Company's 401(k) plan in 1998
and 1997 for which the Company contributed $2,388 and $2,375, respectively,
for the benefit of Mr. Chichester. Mr. Chichester contributed $9,550 in
1998 and $9,500 in 1997, included in salary as annual compensation, for his
benefit under the 401(k) plan.
(10) This amount includes $622,220 payable to, or on behalf of, David N.
Chichester pursuant to the terms of the severance agreement dated October
6, 1998 between the Company and Mr. Chichester. This severance agreement
expressly supersedes the severance benefit provisions of the employment
agreement dated February 5, 1995 between the Company and Mr. Chichester.
Under the severance agreement, the Company paid Mr. Chichester a lump sum
of $517,220 in satisfaction of all amounts owed or to be owed to Mr.
Chichester under the severance benefit provisions of Mr. Chichester's
employment agreement, including, without limitation, all salary, bonus,
accrued vacation time, relocation expense, travel expenses associated with
outplacement services, entitlements under any Company sponsored benefit
plan, including medical insurance, life insurance, disability insurance,
and dental in-surance, and other incidental expenses which may be due and
owing under the employment agreement. In addition, under the severance
agreement, the Company agreed to pay on behalf of Mr. Chichester up to
$105,000 for outplacement services.
(11) David N. Chichester received a bonus of $150,000 upon joining the Company
in 1996.
I-6
<PAGE> 34
Stock Option Plans. The Company's Amended and Restated 1994 Management
Equity Incentive Plan (the "1994 Option Plan") is intended to promote the
interests of the Company and its stockholders by providing executive officers
and other key employees of the Company (including directors who are also
employees of the Company) with appropriate incentives and rewards to encourage
them to enter into and continue in the employ of the Company and to acquire a
proprietary interest in the long term success of the Company.
Under the 1994 Option Plan, the Compensation Committee annually awards
options to purchase Shares to executive officers and key employees. The
president and chief executive officer determines and recommends to the
Compensation Committee the specific number of Shares underlying the options
granted to all plan participants other than himself. The Compensation Committee
determines the number of Shares underlying the options granted to the president
and chief executive officer. The number of options granted to an eligible
individual is determined based on the relative contribution or anticipated
contribution of such individual to the Company's overall performance. The
Compensation Committee also considers the total number of Shares underlying
options already held by these individuals at the time of the grant. Commencing
one year after the date of grant, each option becomes exercisable cumulatively
at the rate of 25 percent per year and will expire ten years from the date such
options were granted.
The Company's 1995 Director Stock Option Plan (the "Directors' Plan")
provides for the granting of options to directors of the Company who are not
employees or officers of the Company or any subsidiary of the Company, and who
are not employees, officers, directors or advisory committee members of the
Morgan Stanley Real Estate Fund, L.P., or any affiliate thereof (each such
individual, an "Eligible Director"). The purpose of the Directors' Plan is to
encourage such directors to acquire or increase a proprietary interest in the
Company, to further promote the interest of such directors in the development
and financial success of the Company and to assist the Company in attracting and
retaining highly qualified directors by providing them with options to purchase
Shares.
The Directors' Plan provides for administration by a committee of not less
than two directors of the Company appointed by the Company Board, to serve at
the discretion of the Company Board. The maximum aggregate number of Shares
reserved and available for grants of options under the Directors' Plan is 60,000
Shares, subject to adjustment as provided therein. Under the Directors' Plan, at
the time an individual first becomes an Eligible Director, such individual is
automatically granted an option to purchase 10,000 Shares, which option becomes
exercisable cumulatively at the rate of 20 percent per year, commencing one year
after the date of grant. In addition, immediately following each annual meeting
of the stockholders of the Company, each Eligible Director is automatically
granted an option to purchase 1,000 Shares, which option becomes fully
exercisable on the date granted. All options granted under the Directors' Plan
will expire ten years from the date such options were granted.
Upon consummation of the Offer, all outstanding options, whether granted
pursuant to the 1994 Option Plan or the Directors' Plan, will become fully
exercisable and vested. Each option will be cancelled and the holder of the
option will receive an amount equal to the product of (A) the excess of $22.75
over the exercise price per Share of each such option and (B) the number of
Shares relating to such option.
I-7
<PAGE> 35
OPTION GRANTS IN FISCAL YEAR 1998
Shown in the table below is information on stock options granted to the
Named Executive Officers to purchase Shares in fiscal year 1998.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF % OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OR OPTION TERM(1)
OPTIONS EMPLOYEES BASE PRICE EXPIRATION ----------------------
NAME GRANTED(1) IN FISCAL YEAR ($/SHARE) DATE 5% 10%
- ---- ---------- -------------- ----------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Francis W. Cash............. 125,000 16.1% 18.50 1/28/08 1,454,319 3,685,529
Alan L. Tallis.............. 30,000 3.9% 18.50 1/28/08 349,037 884,527
David L. Rea................ 25,000 3.2% 18.50 1/28/08 290,864 737,106
35,000 4.5% 15.56 10/8/08 342,580 868,137
David N. Chichester(2)...... 50,000 6.4% 18.50 1/28/08 581,728 1,474,212
</TABLE>
- ---------------
(1) Options for Shares vest in equal amounts over a four-year period, unless
otherwise noted. The vesting period will accelerate in the event of the sale
of the Company or a change in control of the Company.
(2) David N. Chichester resigned as a Director and as Executive Vice President
and Chief Financial Officer effective October 6, 1998. The options to
purchase 50,000 Shares granted to Mr. Chichester in 1998 were cancelled
effective with his resignation on October 6, 1998.
AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1998
AND STOCK OPTION VALUES AT END OF FISCAL YEAR 1998
The following table sets forth information with respect to the exercise of
stock options during fiscal year 1998 by the Named Executive Officers and also
sets forth the value of all in-the-money stock options held by such Named
Executive Officers as of January 2, 1999, the last day of fiscal year 1998.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT FISCAL YEAR END AT FISCAL YEAR END(1)
ACQUIRED VALUE ---------------------------- ----------------------------
NAME ON EXERCISE REALIZED $ EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Francis W. Cash......... -- -- 244,300 225,500 666,133 87,938
Alan L. Tallis.......... 30,000 393,975 74,000 56,000 390,710 22,750
David L. Rea............ -- -- 16,250 83,750 59,688 118,733
David N.
Chichester(2)......... 12,825 29,186 53,425 0 44,013 0
</TABLE>
- ---------------
(1) The value of the in-the-money options is based on the difference between the
exercise price of the options and the market value of the Shares as of
December 31, 1998 ($16.88), which was the last trading day prior to the end
of the Company's 1998 fiscal year. The Company operates on a 52-53 week
fiscal year, which ends on the Saturday nearest December 31st.
(2) David N. Chichester resigned as a Director and as Executive Vice President
and Chief Financial Officer effective October 6, 1998. Pursuant to the terms
of Mr. Chichester's severance agreement with the Company, all options held
by Mr. Chichester that were not exercisable on October 6, 1998 were
cancelled and all exercisable options expire on October 6, 2000.
COMPANY BOARD AND COMMITTEE MEETINGS
The Company Board held four meetings during 1998 and took action by
unanimous written consent three times. During 1998, all members of the Company
Board attended at least 75% of all meetings of the Company Board and of the
committees on which they served. The Company Board has held four meetings during
1999. The Company Board does not have a nominating committee. The full Company
Board selects the nominees for directors.
I-8
<PAGE> 36
The Company Board has an Audit Committee whose members are Edward D. Powers
and Judith A. Rogala. The Audit Committee is responsible for approving the
engagement of the Company's independent public accountants, reviewing with the
independent public accountants the plans and results of the audit engagement,
reviewing the scope and nature of the services provided by the independent
public accountants, reviewing the independence of the independent public
accountants, considering the range of audit and other fees of the independent
public accountants, reviewing the scope and function of the Company's internal
audit department and reviewing the adequacy of the Company's internal controls.
The Audit Committee met four times during 1998.
The Company Board has a Compensation Committee whose members are Owen D.
Thomas and William M. Lewis, Jr. The Compensation Committee oversees all aspects
of the Company's executive compensation policies and practices, including
administering the Company's annual cash bonus plan, stock option plan and stock
purchase plan, determining the compensation for the president and chief
executive officer and reviewing the recommendations of the president and chief
executive officer concerning annual compensation adjustments for the senior
executives reporting to the president and chief executive officer. The
Compensation Committee did not meet during 1998, but took action by unanimous
written consent 14 times.
COMPENSATION OF DIRECTORS
Employee directors receive no additional compensation for service on the
Company Board or its committees. Directors of the Company who are not employees
of the Company, Morgan Stanley Dean Witter & Co. and its affiliates or General
Motors Investment Management Corporation ("Outside Directors") receive an annual
retainer of $10,000 paid in quarterly installments of $2,500. The Outside
Directors also receive $2,000 for their attendance and participation at board
meetings; $500 for their attendance and participation at committee meetings when
such meetings are independent of Company Board meetings; and $500 for
participating in a telephonic meeting of the Company Board. In addition, upon
election to the Company Board, each Outside Director is granted an option to
purchase 10,000 Shares at an exercise price equal to the closing price of the
Shares on the day preceding the director's election to the Company Board.
Thereafter, each Outside Director is granted, on an annual basis, an option to
purchase 1,000 Shares of the Company at the market price on the date of the
grant.
CERTAIN TRANSACTIONS BETWEEN MANAGEMENT AND THE COMPANY AND ITS SUBSIDIARIES
Cash Employment Agreement. The Company and Francis W. Cash entered into an
employment agreement dated as of June 26, 1995 for an initial term of two years,
which is renewed automatically thereafter for successive one-year terms. Under
his employment agreement, Mr. Cash is entitled to receive an annual salary of
$400,000 and a bonus in accordance with the annual cash bonus plan maintained by
the Company. Both his salary and bonus may be increased from time to time by the
Company Board. In addition, if Mr. Cash's employment is terminated for certain
reasons set forth in the employment agreement, Mr. Cash will be entitled to
severance benefits. The severance benefits include the payment of Mr. Cash's
base salary for a period of 12 months if the Company elects not to renew his
employment agreement and the payment of his base salary for a period of 24
months if his employment is terminated for certain other reasons set forth in
the employment agreement.
Rea Employment Agreement. The Company and David L. Rea entered into an
employment agreement dated October 15, 1998. Under the terms of his employment
agreement, Mr. Rea is entitled to receive an annual salary of $200,000 and a
maximum bonus of up to 75% of his annual salary. In addition, if Mr. Rea's
employment is terminated without cause, he will be entitled to severance
benefits. The severance benefits include the payment of Mr. Rea's base salary
for a maximum period of 12 months, a prorated portion of any bonus Mr. Rea
earned, group health insurance, life insurance and long-term disability
coverage.
Severance Agreements
In January 1997, Francis W. Cash and Alan L. Tallis entered into separate
executive severance agreements with the Company, and in October 1998, David L.
Rea entered into an executive severance
I-9
<PAGE> 37
agreement with the Company. Each of these agreements contains substantially
identical terms. Each agreement is for a term of three years. Under these
agreements, the Company must pay severance benefits to Mr. Cash, Mr. Tallis or
Mr. Rea, as the case may be, if his employment is terminated as a result of a
change in control of the Company, as defined in the agreements, and the
termination otherwise falls within the scope of the agreements. The benefits to
which Mr. Cash, Mr. Tallis or Mr. Rea, as the case may be, shall be entitled if
such an event occurs include a lump-sum payment equal to three times his
respective annual base salary then in effect. In addition, Mr. Cash, Mr. Tallis
or Mr. Rea, as the case may be, will be entitled to a lump-sum payment equal to
three times the highest bonus or short-term incentive compensation paid to him
in the year preceding the change in control, unless this amount is less than
three times the amount he could have earned in the year in which the change in
control occurred, in which case he will be entitled to receive the higher
amount.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act requires the Company's executive officers
and directors and persons who own more than ten percent of the Shares to file
reports of ownership and changes in ownership with the Securities and Exchange
Commission (the "Commission"). Officers, directors and persons who own more than
ten percent of the Shares are required by regulations issued by the Commission
to furnish the Company with copies of all Section 16(a) forms that they have
filed. Based solely on a review of the copies of such forms, the Company
believes that during fiscal year 1998 its executive officers and directors and
persons who own more than ten percent of the Shares complied with all applicable
filing requirements of Section 16(a).
STOCK OWNERSHIP OF CERTAIN BENEFICIAL HOLDERS
The following table sets forth, as of July 16, 1999, the number and
percentage of the outstanding Shares held by each person who, to the knowledge
of the Company, beneficially owns more than five percent of the outstanding
Shares, by each of the Company's directors and Named Executive Officers and by
all of the directors, Named Executive Officers of the Company as a group. As of
July 16, 1999, there were 26,954,512 Shares issued and outstanding. Except as
set forth in the footnotes to the table, the stockholders have sole voting and
investment power over such Shares.
<TABLE>
<CAPTION>
NUMBER OF
SHARES PERCENTAGE
BENEFICIALLY OF CLASS
NAME OF BENEFICIAL OWNER OWNED(1) OUTSTANDING
- ------------------------ ------------- -----------
<S> <C> <C>
Francis W. Cash............................................. 314,400(1) 1.17%
David N. Chichester(2)...................................... 55,425(3) *
Thomas E. Dobrowski(4)...................................... 0 *
Michael E. Foster(4)........................................ 0 *
John A. Henry, IV(4)........................................ 0 *
William M. Lewis, Jr.(4).................................... 0 *
Edward D. Powers............................................ 18,000(5) *
David L. Rea................................................ 34,717(6) *
Judith A. Rogala............................................ 7,000(7) *
Alan L. Tallis.............................................. 92,754(8) *
Owen D. Thomas(4)........................................... 0 *
All directors, nominees and Named Executive Officers as a
group (11 persons)........................................ 522,296(9) 1.94%
Morgan Stanley Real Estate Fund, Inc.(10)................... 12,872,640(11) 47.76%
1585 Broadway
New York, New York 10036
Morgan Stanley Real Estate Investment Management,
Inc.(10).................................................. 5,527,360(12) 20.51%
1585 Broadway
New York, New York 10036
</TABLE>
I-10
<PAGE> 38
<TABLE>
<CAPTION>
NUMBER OF
SHARES PERCENTAGE
BENEFICIALLY OF CLASS
NAME OF BENEFICIAL OWNER OWNED(1) OUTSTANDING
- ------------------------ ------------- -----------
<S> <C> <C>
Longleaf Partners Realty Fund, a series of Longleaf Partners
Funds Trust(13)........................................... 2,153,400 7.99%
6410 Poplar Avenue, Suite 900
Memphis, Tennessee 38119
</TABLE>
- ---------------
* Less than one percent of the outstanding Shares.
(1) Includes 313,300 Shares underlying options currently exercisable or
exercisable within 60 days of July 16, 1999.
(2) David N. Chichester resigned as a Director and as Executive Vice President
and Chief Financial Officer effective October 6, 1998.
(3) Includes 53,425 Shares underlying options currently exercisable or
exercisable within 60 days of July 16, 1999.
(4) Thomas E. Dobrowski, Michael E. Foster, John A. Henry, IV, William M.
Lewis, Jr. and Owen D. Thomas, disclaim beneficial ownership of Shares
beneficially owned by Morgan Stanley Real Estate Fund, Inc. and Morgan
Stanley Real Estate Investment Management, Inc.
(5) Includes 9,000 Shares underlying options currently exercisable or
exercisable within 60 days of July 16, 1999.
(6) Includes 32,500 Shares underlying options currently exercisable or
exercisable within 60 days of July 16, 1999.
(7) Includes 7,000 Shares underlying options currently exercisable or
exercisable within 60 days of July 16, 1999.
(8) Includes 92,000 Shares underlying options currently exercisable or
exercisable within 60 days of July 16, 1999.
(9) Includes 507,225 Shares underlying options currently exercisable or
exercisable within 60 days of July 16, 1999 held by all of the directors,
nominees and Named Executive Officers as a group.
(10) Michael E. Foster, John A. Henry, IV, William M. Lewis, Jr. and Owen D.
Thomas, directors of the Company, are employed in various capacities by
Morgan Stanley Dean Witter & Co., Morgan Stanley Real Estate Fund, Inc.,
Morgan Stanley Real Estate Investment Management, Inc. or one or more of
their affiliated entities. Morgan Stanley Real Estate Fund, Inc. and Morgan
Stanley Real Estate Investment Management, Inc. disclaim beneficial
ownership of any Shares beneficially owned by these directors.
(11) Morgan Stanley Real Estate Fund, Inc. has voting control of the affairs of
MSREF I, L.L.C., the general partner of The Morgan Stanley Real Estate
Fund, L.P., the record owner of the 12,872,640 Shares shown above, and has
voting and investment power with respect to such Shares. Morgan Stanley
Real Estate Fund, Inc. is an indirect wholly-owned subsidiary of Morgan
Stanley Dean Witter & Co.
(12) Morgan Stanley Real Estate Investment Management, Inc. has voting control
of the affairs of MSREF I-Co, L.L.C., the general partner of Morgan Stanley
Real Estate Co-Investment Partnership II, L.P., the record owner of
4,625,760 Shares, is investment manager with respect to 901,600 Shares, and
has voting and investment power with respect to all such Shares. Morgan
Stanley Real Estate Investment Management, Inc. is a wholly owned
subsidiary of Morgan Stanley Dean Witter & Co.
(13) Based on information set forth in a Schedule 13G dated February 9, 1999,
which was filed by Southeastern Asset Management, Inc., investment advisor
to Longleaf Partners Realty Fund, a series of Longleaf Partners Funds
Trust, an open-end management investment company registered under the
Investment Company Act of 1940. Longleaf Partners Realty Fund and
Southeastern Asset Management, Inc. have shared voting and investment power
with respect to the 2,153,400 Shares shown above. Southeastern Asset
Management, Inc. and O. Mason Hawkins (Chairman and Chief Executive Officer
of Southeastern Asset Management, Inc.) disclaim beneficial ownership of
the Shares beneficially owned by Longleaf Partners Realty Fund.
I-11
<PAGE> 39
SCHEDULE II
CERTAIN TRANSACTIONS IN SHARES OF COMMON STOCK
OF THE COMPANY EFFECTED DURING THE PAST 60 DAYS
(a) The following table sets forth options granted by the Company during
the past 60 days:
<TABLE>
<CAPTION>
NUMBER OF
NAME OPTIONS GRANTED EXERCISE PRICE
- ---- --------------- --------------
<S> <C> <C>
Paul Ackerman........................................... 1,000 $ 17.75
William Blake........................................... 1,000 $ 17.75
Russell Bowers.......................................... 1,000 $ 17.75
Edward Powers*.......................................... 1,000 $17.625
Judith Rogala*.......................................... 1,000 $17.625
</TABLE>
(b) The following table sets forth Shares issued by the Company pursuant to
exercises of options during the past 60 days:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES ISSUED EXERCISE PRICE
- ---- ------------- --------------
<S> <C> <C>
John Campbell............................................. 33,000 $ 14.13
John Collins.............................................. 1,250 $15.125
John Collins.............................................. 1,650 $ 16.00
Ruth Ormsby............................................... 3,300 $ 14.13
Ruth Ormsby............................................... 2,250 $ 13.75
</TABLE>
(c) None of the MS Entities or their affiliates has engaged in any
transaction in Shares during the past 60 days. Notwithstanding the foregoing,
Morgan Stanley, Dean Witter & Co. and its affiliates may have voting and
dispositive power with respect to certain Shares held in asset management,
brokerage, proprietary trading and other accounts and may have engaged in
transactions with respect to such Shares during the past 60 days. Morgan
Stanley, Dean Witter & Co. and such affiliates disclaim beneficial ownership of
such Shares.
(d) On May 13, 1999, the Company expanded its existing share repurchase
program from 1 million to 2 million Shares. Since May 13, 1999, the Company has
not repurchased any Shares pursuant to the repurchase program.
- ---------------
* Directors
II-1
<PAGE> 1
Exhibit 1
June 14, 1999
Mr. Jean-Marc Espalioux
Chairman of the Management Board and CEO
Accor
Tour Maine Montparnasse 33 avenue du Maine
75755 Paris Cedex 15 France
CONFIDENTIALITY AGREEMENT
Dear Sirs:
In connection with your continued possible interest in a transaction (the
"Transaction") involving, Red Roof Inns, Inc. (the "Company") and in order to
confirm, extend and otherwise supplement our Letter Agreement dated March 5,
1998, you have requested that we or our representatives furnish you or your
representatives with certain information relating to the Company or the
Transaction. All such written information furnished on or after the date hereof
by us or our directors, officers, employees, affiliates, representatives
(including, without limitation, financial advisors, attorneys and accountants)
or agents (collectively, "our Representatives") to you or your directors,
officers, employees, affiliates (including Motel 6), representatives (including,
without limitation, financial advisors, attorneys and accountants) or agents or
your potential sources of financing for the Transaction (collectively, "your
Representatives") and all analyses, compilations, forecasts, studies or other
documents prepared by you or your Representatives in connection with your or
their review of, or your interest in, the Transaction which contain or reflect
any such information is hereinafter referred to as the "Information". The term
Information will not, however, include information which (i) is or becomes
publicly available other than as a result of a disclosure by you or your
Representatives or (ii) is or becomes available to you on a nonconfidential
basis from a source (other than us or our Representatives) which, to the best of
your knowledge after due inquiry, is not prohibited from disclosing such
information to you by a legal, contractual or fiduciary obligation to us.
Accordingly, you hereby agree that:
<PAGE> 2
1. You and your Representatives (i) will keep the Information confidential
and will not (except as required by applicable law, regulation or legal
process, and only after compliance with paragraph 3 below), without our
prior written consent, disclose any Information in any manner
whatsoever, (ii) will not use the information in any way detrimental to
the Company, and (iii) will not use any Information other than in
connection with the Transaction; provided, however, that you may reveal
the Information to your Representatives (a) who need to know the
Information for the purpose of evaluating the Transaction, (b) who are
informed by you of the confidential nature of the Information and (c)
who agree to act in accordance with the terms of this letter agreement.
You will cause your Representatives to observe the terms of this letter
agreement, and you will be responsible for any breach of this letter
agreement by any of your Representatives.
2. You and your Representatives will not (except as required by
applicable law, regulation or legal process, and only after compliance
with paragraph 3 below), without our prior written consent, disclose
to any person the fact the Information exists or has been made
available, that you are considering the Transaction or any other
transaction involving the Company, or that discussions or negotiations
are taking or have taken place concerning the Transaction or involving
the Company or any term, condition or other fact relating to the
Transaction or such discussions or negotiations, including, without
limitation, the status thereof. The Company and its Representatives
will not (except as required by applicable law, regulation or legal
process) disclose to any person the fact that discussions or
negotiations are taking place or have taken place with Accor
concerning the Transaction.
3. In the event that you or any of your Representatives are requested
pursuant to, or acquired by, applicable law, regulation or legal
process to disclose any of the Information, you will notify us promptly
so that we may seek a protective order or other appropriate remedy or,
in our sole discretion, waive compliance with the terms of this letter
agreement. In the event that no such protective order or other remedy
is obtained, or that the Company does not waive compliance with the
terms of this letter agreement, you will furnish only that portion of
the Information which you are advised by your counsel is legally
required and will exercise all reasonable efforts to obtain reliable
assurance that confidential treatment will be accorded the Information.
2
<PAGE> 3
4. If you determine not to proceed with the Transaction, you will promptly
inform our Representative, Morgan Stanley & Co. Incorporated ("Morgan
Stanley"), of that decision and, in that case, and at any time upon the
written request of the Company or any of our Representatives, you will
either (i) promptly destroy all copies of the written Information in your
or your Representatives' possession and confirm such destruction to us in
writing, or (ii) promptly deliver to the Company at your own expense all
copies of the written Information in your or your Representatives'
possession; except that you may retain, subject to your continuing
obligations under this letter agreement, written information that does not
contain or make reference to Information provided by the Company and was
developed by you and your representatives for purposes of your own
analysis and internal review.
5. You acknowledge that neither we, nor Morgan Stanley or its affiliates, nor
our other Representatives, nor any of our or their respective officers,
directors, employees, agents or controlling persons within the meaning of
Section 20 of the Securities and Exchange Act of 1934, as amended, makes
any express or implied representation or warranty as to the accuracy or
completeness of the Information, and you agree that no such person will
have any liability relating to the Information or for any errors therein
or omissions therefrom unless and to the extent provided for in an
executed definitive transaction agreement. You further agree that you are
not entitled to rely on the accuracy or completeness of the Information
and that you will be entitled to rely solely on such representations and
warranties as may be included in any definitive agreement with respect to
the Transaction, subject to such limitations and restrictions as may be
contained therein.
6. You are aware, and you will advise your Representatives who are informed
of the matters that are the subject of this letter agreement, of the
restrictions imposed by the United States securities laws on the purchase
or sale of securities by any person who has received material, non-public
information from the issuer of such securities and on the communication of
such information to any other person when it is reasonably foreseeable
that such other person is likely to purchase or sell such securities in
reliance upon such information.
7. As of the date of this letter agreement, Accor does not beneficially own
any securities entitled to be voted generally in the election of directors
of the Company or any direct or indirect options or other rights to
acquire any such
3
<PAGE> 4
securities. You agree that, for a period of one year from the date of this
letter agreement, neither you nor any of your affiliates will, without the
prior written consent of the Company or its Board of Directors: (i)
acquire, offer to acquire, or agree to acquire, directly or indirectly, by
purchase or otherwise, any voting securities or direct or indirect rights
to acquire any voting securities of the Company or any subsidiary thereof
or of any successor to or person in Control of the Company, or any assets
of the Company or any subsidiary or division thereof, or of any such
successor or controlling person; (ii) make, or in any way participate in,
directly or indirectly, any "solicitation" of "proxies" (as such terms are
used in the rules of the Securities Exchange Commission) to vote, or seek
to advise or influence any person or entity with respect to the voting of,
any voting securities of the Company; (iii) make any public announcement
with respect to, or submit a proposal for, or offer of (with or without
conditions) any extraordinary transaction involving the Company or its
securities or assets; (iv) form, join or in any way participate in a
"group" (as defined in Section 13(d)(3) of the Securities Exchange Act of
1934, as amended) in connection with any of the foregoing; or (v) request
the Company or any of our Representatives, directly or indirectly, to amend
or waive any provision of this paragraph. You will promptly advise the
Company of any inquiry or proposal made to you with respect to any of the
foregoing.
8. You agree that, for a period of one year from the date of this letter
agreement, you will not, directly or indirectly, actively solicit for
employment or hire any management employee of the Company or any of its
subsidiaries with whom you have had contact or who became known to you in
connection with your consideration of the Transaction; provided, however,
that the foregoing provision will not prevent you from employing any such
person who contacts you on his or her own initiative without any direct or
indirect solicitation by or encouragement from you.
9. You agree that all (i) communications regarding the Transaction, (ii)
requests for additional information, facility tours or management
meetings, and (iii) discussions or questions regarding procedures with
respect to the Transaction, will be first submitted or directed to Morgan
Stanley and not to the Company. You acknowledge and agree that (a) we and
our Representatives are free to conduct the process leading up to a
possible Transaction as we and our Representatives, in our sole
discretion, determine (including, without limitation, by negotiating with
any prospective buyer and entering into a prelimi-
4
<PAGE> 5
nary or definitive agreement without prior notice to you or any other
person), (b) we reserve the right, in our sole discretion, to change the
procedures relating to our consideration of the Transaction at any time
without prior notice to you or any other person, to reject any and all
proposals made by you or any of your Representatives with regard to the
Transaction, and to terminate discussions and negotiations with you at any
time and for any reason, and (c) unless and until a written definitive
agreement concerning the Transaction has been executed, neither we nor any
of our Representatives will have any liability to you with respect to the
Transaction, whether by virtue of this letter agreement, any other written
or oral expression with respect to the Transaction or otherwise.
10. You acknowledge that remedies at law may be inadequate to protect us
against any actual or threatened breach of this letter agreement by you or
by your Representatives, and, without prejudice to any other rights and
remedies otherwise available to us, you agree to the granting of injunctive
relief in our favor. In the event of litigation relating to this letter
agreement, if a court of competent jurisdiction determines in a final,
nonappealable order that this letter agreement has been breached by you or
by your Representatives, then you will reimburse the Company for its costs
and expenses (including, without limitation, legal fees and expenses)
incurred in connection with all such litigation.
11. You agree that no failure or delay by us in exercising any right, power or
privilege hereunder will operate as a waiver thereof, nor will any single
or partial exercise thereof preclude any other or further exercise thereof
or the exercise of any right, power or privilege hereunder.
12. This letter agreement will be governed by and construed in accordance with
the laws of the State of Ohio applicable to contracts between residents of
that State and executed in and to be performed in that State.
13. The confidentiality provisions contained in paragraphs 1(j) and 2 above
shall terminate on the earlier of the date of execution of a definitive
transaction agreement or two years from the date hereof.
14. This letter agreement contains the entire agreement between you and us
concerning confidentiality of the Information, and no modification of this
5
<PAGE> 6
letter agreement or waiver of the terms and conditions hereof will be
binding upon you or us, unless approved in writing by each of you and us.
Please confirm your agreement with the foregoing by signing and returning to
the undersigned the duplicate copy of this letter enclosed herewith.
Very truly yours,
Red Roof Inns, Inc.
By: /s/ FRANCIS W. CASH
---------------------------------
Name: Francis W. Cash
-------------------------------
Title: Chairman, President and
Chief Executive Officer
------------------------------
Accepted and Agreed as of the date
first written above:
- ----------------------------------
Accor
By: /s/ JEAN-MARC EPALLOUX
-------------------------------
Name: Jean-Marc Epalloux
-----------------------------
Title:
----------------------------
6
<PAGE> 1
Exhibit 2
AGREEMENT AND PLAN OF MERGER
by and among
ACCOR S.A.,
RRI ACQUISITION CORP.
and
RED ROOF INNS, INC.
July 10, 1999
<PAGE> 2
TABLE OF CONTENTS
ARTICLE I
THE OFFER AND MERGER ...................................................... 1
Section 1.1 The Offer .................................................... 1
Section 1.2 Company Actions .............................................. 3
Section 1.3 Directors .................................................... 4
Section 1.4 The Merger ................................................... 5
Section 1.5 Effective Time ............................................... 5
Section 1.6 Closing ...................................................... 5
Section 1.7 Directors and Officers of the Surviving Corporation .......... 5
Section 1.8 Merger Without Meeting of Stockholders ....................... 5
Section 1.9 Stockholders' Meeting ........................................ 6
ARTICLE II
CONVERSION OF SECURITIES .................................................. 6
Section 2.1 Conversion of Capital Stock .................................. 6
Section 2.2 Exchange of Certificates ..................................... 7
Section 2.3 Dissenting Shares ............................................ 8
Section 2.4 Company Option Plans ......................................... 9
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY ............................. 9
Section 3.1 Organization ................................................. 9
Section 3.2 Capitalization ............................................... 10
Section 3.3 Authorization; Validity of Agreement; Company Action ......... 11
Section 3.4 Consents and Approvals; No Violations ........................ 12
Section 3.5 SEC Reports and Financial Statements ......................... 12
Section 3.6 No Undisclosed Liabilities ................................... 13
Section 3.7 Absence of Certain Changes ................................... 13
Section 3.8 Employee Benefit Plans; ERISA ................................ 13
Section 3.9 Litigation ................................................... 15
Section 3.10 No Default; Compliance with Applicable Laws ................. 15
Section 3.11 Taxes ....................................................... 16
Section 3.12 Property .................................................... 17
Section 3.13 Environmental Matters ....................................... 18
Section 3.14 Intellectual Property ....................................... 19
Section 3.15 Material Contracts .......................................... 20
Section 3.16 Labor Matters ............................................... 20
Section 3.17 Restrictions on Business Activities ......................... 21
Section 3.18 Year 2000 Compliance ........................................ 21
Section 3.19 Vote Required ............................................... 21
Section 3.20 Brokers ..................................................... 21
Section 3.21 Opinion of Financial Advisor ................................ 22
Section 3.22 Information in Proxy Statement; Schedule 14D-1 .............. 22
(i)
<PAGE> 3
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER .................... 22
Section 4.1 Organization ................................................. 22
Section 4.2 Authorization; Validity of Agreement; Necessary Action ....... 22
Section 4.3 Consents and Approvals; No Violations ........................ 23
Section 4.4 Information in Proxy Statement; Schedule 14D-9 ............... 23
Section 4.5 Financing .................................................... 23
Section 4.6 Share Ownership .............................................. 23
Section 4.7 Purchaser's Operations ....................................... 23
Section 4.8 Brokers or Finders ........................................... 23
ARTICLE V
COVENANTS ................................................................. 24
Section 5.1 Interim Operations of the Company ............................ 24
Section 5.2 Access to Information ........................................ 26
Section 5.3 Consents and Approvals ....................................... 26
Section 5.4 No Solicitation .............................................. 27
Section 5.5 Publicity .................................................... 28
Section 5.6 Notification of Certain Matters .............................. 28
Section 5.7 Directors' and Officers' Insurance and Indemnification ....... 29
Section 5.8 Further Assurances ........................................... 30
Section 5.9 Fees and Expenses ............................................ 30
Section 5.10 Employee Matters ............................................ 30
ARTICLE VI
CONDITIONS ................................................................ 31
Section 6.1 Conditions to Each Party's Obligation To Effect the Merger ... 31
ARTICLE VII
TERMINATION ............................................................... 32
Section 7.1 Termination .................................................. 32
Section 7.2 Effect of Termination ........................................ 33
Section 7.3 Payment of Non-Recommendation Fee ............................ 33
ARTICLE VIII
MISCELLANEOUS ............................................................. 34
Section 8.1 Amendment and Modification ................................... 34
Section 8.2 Nonsurvival of Representations and Warranties ................ 34
Section 8.3 Notices ...................................................... 34
Section 8.4 Counterparts ................................................. 36
Section 8.5 Entire Agreement; Third-Party Beneficiaries .................. 36
Section 8.6 Severability ................................................. 36
Section 8.7 Governing Law ................................................ 37
Section 8.8 Jurisdiction ................................................. 37
Section 8.9 Assignment ................................................... 38
(ii)
<PAGE> 4
Section 8.10 Waiver ....................................................... 38
Section 8.11 Headings ..................................................... 38
Section 8.12 Specific Performance ......................................... 38
Section 8.13 Obligations of Parent and the Company of Parent and the
Company ................................................... 38
Section 8.14 Limitations on Warranties .................................... 38
Section 8.15 Schedules .................................................... 39
Section 8.16 Interpretation ............................................... 39
Section 8.17 Execution .................................................... 39
(iii)
<PAGE> 5
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of July 10, 1999 (this
"Agreement"), by and among ACCOR S.A., a corporation organized under the laws of
France ("Parent"), RRI ACQUISITION CORP., a Delaware corporation and a wholly
owned subsidiary of Parent ("Purchaser"), and RED ROOF INNS, INC., a Delaware
corporation (the "Company").
WHEREAS, Parent and Purchaser have proposed acquiring all the
outstanding common stock, par value $.01 per share, of the Company, (the
"Shares" or "Company Common Stock") at a price of $22.75 per Share in cash;
WHEREAS, the Company, Parent and Purchaser desire to make
certain representations, warranties, covenants and agreements in connection with
the Offer and the Merger (as defined below);
WHEREAS, as a condition and inducement to Parent's and
Purchaser's entering into this Agreement and incurring the obligations set forth
herein, each of THE MORGAN STANLEY REAL ESTATE FUND, L.P., a Delaware limited
partnership, MORGAN STANLEY REAL ESTATE INVESTMENT MANAGEMENT, INC., a Delaware
corporation, MORGAN STANLEY REAL ESTATE CO-INVESTMENT PARTNERSHIP II, L.P., a
Delaware limited partnership (collectively, the "MS Entities"), concurrently
herewith is entering into a Tender and Voting Agreement (the "Tender
Agreement"), dated as of the date hereof, with Parent and Purchaser, pursuant to
which, among other things, each MS Entity is agreeing to tender its Shares in
the Offer and vote such Shares, all upon the terms and subject to the conditions
set forth in the Tender Agreement;
WHEREAS, the Boards of Directors of Parent, Purchaser 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
and Purchaser upon the terms and subject to the conditions set forth herein; and
NOW, THEREFORE, in consideration of the foregoing and the
respective representations, warranties, covenants and agreements set forth
herein, the parties hereto, intending to be legally bound hereby, agree as
follows:
ARTICLE I
THE OFFER AND MERGER
Section 1.1 The Offer. (a) Provided this Agreement shall not
have been terminated in accordance with Section 7.1, as promptly as practicable
(but in no event later than five business days after the public announcement of
the execution of this Agreement), Purchaser shall, and Parent shall cause
Purchaser to, commence (within the meaning of Rule 14d-2 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) an offer (the "Offer") to
purchase for cash any and all shares of the issued and outstanding Company
Common Stock at a price of $22.75 per Share, net to the seller in cash (such
price, or such higher price per Share as may be paid in the Offer, being
referred to herein as the "Offer Price"), subject to the conditions set forth in
Annex A hereto and subject to Section 2.2(e). The Company shall not tender
Shares held by it or by any of its subsidiaries pursuant to the Offer. The
initial expiration date to be set forth in the Offer shall be August 12, 1999
(as extended in accordance herewith, the "Expiration Date"), subject to
extension as provided below. Purchaser shall, on the terms and subject to the
prior satisfaction or waiver of the conditions of the Offer (except that the
Minimum Condition (as hereinafter defined) may not be amended or waived below
51% of the total issued and outstanding shares (other than treasury shares) of
Company Common Stock), accept for payment and pay for Shares
tendered as soon as it is legally permitted to do so under applicable law. The
obligations of Purchaser to consummate the Offer and to accept for payment and
to pay for any Shares validly tendered on or prior to the expiration of the
Offer and not withdrawn shall be subject only to there being validly tendered
and not
<PAGE> 6
withdrawn prior to the expiration of the Offer, not less than 18,400,000 shares
of Company Common Stock (the "Minimum Condition"), which shares represent 68.3%
of the total issued and outstanding shares (other than treasury shares) of
Company Common Stock on the date hereof, and the other conditions set forth in
Annex A hereto.
(b) The Offer shall be made by means of an offer to purchase
(the "Offer to Purchase") containing the terms set forth in this Agreement, the
Minimum Condition and the other conditions set forth in Annex A hereto.
Purchaser shall not amend or waive the Minimum Condition to be less than 51% of
the total issued and outstanding shares (other than treasury shares) of Company
Common Stock and shall not decrease the Offer Price or decrease the number of
Shares sought, amend the conditions to the Offer set forth in Annex A or impose
conditions to the Offer in addition to those set forth in Annex A, without the
prior written consent of the Company (such consent to be authorized by the Board
of Directors of the Company or a duly authorized committee thereof).
(c) Notwithstanding Section 1.1(b): (i) Purchaser shall be
entitled to and shall, and Parent agrees to cause Purchaser to, extend the Offer
(and defer the Expiration Date) for a period ending October 14, 1999, in one or
more periods of not more than 10 business days each, if at the initial
expiration date of the Offer, or any extension thereof, any condition to the
Offer is not satisfied or waived; and (ii) (A) Purchaser shall be entitled, but
shall be under no obligation, to extend the Offer (and to defer the Expiration
Date) further for an additional period ending December 14, 1999 (in one or more
periods of not more than 10 business days each) following an extension pursuant
to clause (i) of this sentence, if at the Expiration Date, as deferred pursuant
to clause (i) of this sentence to October 14, 1999: (x) the condition to the
Offer set forth in paragraph (ii) of Annex A has not been satisfied or waived;
(y) the condition to the Offer set forth in paragraph (iii)(a) of Annex A has
not been satisfied or waived (so long as Parent or Purchaser is using its best
commercial efforts to cause any such judgment, order or injunction to be vacated
or lifted); or (z) the condition to the Offer set forth in paragraph (iii)(e) of
Annex A has not been satisfied or waived; and (B) if Purchaser shall not have
sent the Company written notice of an extension pursuant to the preceding clause
(A) of this Section 1.1(c)(ii) on or before October 8, 1999, Purchaser shall be
obligated to extend the Offer as set forth in clause (A) of this Section
1.1(c)(ii) upon written demand of the Company delivered to Purchaser on or
before October 12, 1999; and (iii) at the Expiration Date, if all conditions to
the Offer have been satisfied or waived, and for so long as less than 90% of the
outstanding shares of Company Common Stock have been validly tendered and not
properly withdrawn pursuant to the Offer, Purchaser may, in its sole discretion
and without the consent of the Company, extend the Offer (and defer the
Expiration Date) for up to an additional 20 business days in the aggregate (in
periods of no more than five business days each). In addition, the Offer Price
may be increased and the Offer may be extended to the extent required by law in
connection with such increase without the consent of the Company. Any extension
of the Offer in accordance herewith shall defer the Expiration Date until the
latest date to which the Offer is so extended.
(d) In the event that the Offer is terminated by Purchaser, it
shall deliver to the Company a written statement setting forth the applicable
provision of Annex A of this Agreement pursuant to which it has elected to
terminate the Offer.
(e) As soon as practicable on the date the Offer is commenced,
Parent and Purchaser shall file with the United States Securities and Exchange
Commission (the "SEC") a Tender Offer Statement on Schedule 14D-1 with respect
to the Offer (together with all amendments and supplements thereto and including
the exhibits thereto, the "Schedule 14D-1"). The Schedule 14D-1 shall include,
as exhibits, the Offer to Purchase and a form of letter of transmittal
(collectively, together with any amendments and supplements thereto, the "Offer
Documents"). The Offer Documents shall comply in all material respects with the
provisions of applicable federal securities laws and, on the date filed with the
SEC and on the date first published, sent or given to the Company's
stockholders, shall not contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which they
were made, not misleading, except that no representation is made by Parent or
Purchaser with respect to information supplied by the Company for inclusion in
the Offer Documents. Each of Parent and Purchaser shall further take all steps
necessary to cause the Offer Documents to be filed with the SEC and to be
2
<PAGE> 7
disseminated to holders of Shares, in each case as and to the extent required by
applicable federal securities laws. Each of Parent and Purchaser, on the one
hand, and the Company, on the other hand, shall promptly correct any information
provided by it for use in the Offer Documents if and to the extent that it shall
have become false and misleading in any material respect and Purchaser further
shall take all steps necessary to cause the Offer Documents as so corrected to
be filed with the SEC and to be disseminated to holders of Shares, in each case
as and to the extent required by applicable federal securities laws. The Company
and its counsel shall be given an opportunity to review and comment upon the
Schedule 14D-1 (and shall provide any comments thereon as soon as practicable)
prior to the filing thereof with the SEC. In addition, Parent and Purchaser
shall provide the Company and its counsel in writing with any comments that
Parent, Purchaser or their counsel may receive from the SEC or its staff with
respect to the Offer Documents promptly after receipt of such comments and with
copies of any written responses and telephonic notification of any verbal
responses by Parent, Purchaser or their counsel.
(f) Parent shall provide or cause to be provided to Purchaser
all the funds necessary to purchase any shares of Company Common Stock that
Purchaser becomes obligated to purchase pursuant to the Offer.
Section 1.2 Company Actions.
(a) The Company hereby approves of and consents to the Offer
and represents that its Board of Directors, at a meeting duly called and held,
has (i) approved this Agreement and the transactions contemplated hereby,
including the Offer and the Merger (as defined in Section 1.4) (collectively,
the "Transactions"), determining that the Merger is advisable and that the terms
of the Offer and the Merger are fair to, and in the best interests of, the
Company's stockholders and recommending that the Company's stockholders accept
the Offer and approve and adopt the Merger and this Agreement and (ii) resolved
to recommend that the stockholders of the Company accept the Offer, tender their
Shares thereunder to Purchaser and approve and adopt this Agreement and the
Merger; provided that such recommendation may be withdrawn, modified or amended
as provided in Section 5.4(d) hereof. The Company represents that the
restrictions on "business combinations" contained in Section 203 of the Delaware
General Corporation Law, as amended (the "DGCL"), are inapplicable to the
transactions contemplated by this Agreement provided that such transactions are
consummated in accordance with the terms hereof. The Company hereby consents to
the inclusion in the Offer Documents of the recommendation of its Board of
Directors described in clause (ii) of the immediately preceding sentence, unless
and until such recommendation is withdrawn or modified, in a manner adverse to
Parent, in accordance with Section 5.4(d) hereof.
(b) Concurrently with the commencement of the Offer, the
Company shall file with the SEC a Solicitation/Recommendation Statement on
Schedule 14D-9 (together with all amendments and supplements thereto and
including the exhibits thereto, the "Schedule 14D-9") which shall, subject to
the fiduciary duties of the Company's directors under applicable law, as
determined by the Board of Directors after consultation with independent legal
counsel, and to the provisions of Section 5.4(d) hereof, contain the
recommendation referred to in clause (ii) of Section 1.2(a) hereof. The Schedule
14D-9 shall comply in all material respects with the provisions of applicable
federal securities laws and, on the date filed with the SEC and on the date
first published, sent or given to the Company's stockholders, shall not contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading, except that no representation is made by the Company with respect to
information supplied by Parent or Purchaser for inclusion in the Schedule 14D-9.
The Company further shall take all steps necessary to cause the Schedule 14D-9
to be filed with the SEC and to be disseminated to holders of Shares, in each
case as and to the extent required by applicable federal securities laws. Each
of the Company, on the one hand, and Parent and Purchaser, on the other hand,
shall promptly correct any information provided by it for use in the Schedule
14D-9 if and to the extent that it shall have become false and misleading in any
material respect and the Company further shall take all steps necessary to cause
the Schedule 14D-9 as so corrected to be filed with the SEC and to be
disseminated to holders of the Shares, in each case as and to the extent
required by applicable federal
3
<PAGE> 8
securities laws. Parent, Purchaser and their counsel shall be given an
opportunity to review and comment upon the Schedule 14D-9 (and shall provide any
comments thereon as soon as practicable) prior to the filing thereof with the
SEC. In addition, the Company shall provide Parent, Purchaser and their counsel
in writing with any comments the Company or its counsel may receive from the SEC
or its staff with respect to the Schedule 14D-9 promptly after receipt of such
comments and with copies of any written responses and telephonic notification of
any verbal responses by the Company or its counsel.
(c) In connection with the Offer, the Company shall promptly
furnish or cause to be furnished to Purchaser mailing labels, security position
listings and any available listing or computer file containing the names and
addresses of the record holders of the Shares as of a recent date, and shall
furnish Purchaser with such information and assistance as Purchaser or its
agents may reasonably request in communicating the Offer to the stockholders of
the Company. Except for such steps as are necessary to disseminate the Offer
Documents and subject to the requirements of applicable law, each of Parent and
Purchaser shall hold in confidence the information contained in any of such
labels and lists and the additional information referred to in the preceding
sentence, shall use such information only in connection with the Offer and
Merger, and, if this Agreement is terminated, shall upon request of the Company
deliver or cause to be delivered to the Company all copies of such information
then in its possession or the possession of its agents or representatives.
Section 1.3 Directors.
(a) Promptly upon the purchase of and payment for Shares by
Parent or any of its subsidiaries which represent at least a majority of the
outstanding shares of Company Common Stock (on a fully diluted basis), Parent
shall be entitled to designate such number of directors, rounded up to the next
whole number, on the Board of Directors of the Company as is equal to the
product of the total number of directors on such Board (giving effect to the
directors designated by Parent pursuant to this sentence) multiplied by the
percentage that the aggregate number of Shares beneficially owned by Purchaser,
Parent and any of their affiliates bears to the total number of shares of
Company Common Stock then outstanding. The Company shall, upon request of and as
specified by Purchaser or Parent, on the date of such request, increase the size
of its Board of Directors and/or secure the resignations of such number of its
incumbent directors as is necessary, consistent with the request of Purchaser or
Parent, to enable Parent's designees to be so elected to the Company's Board of
Directors, and shall take all actions necessary to cause Parent's designees to
be so elected or appointed. At such times, the Company will use its reasonable
best efforts to cause individuals designated by Parent to constitute the same
percentage as such individuals represent on the Company's Board of Directors,
each committee of the Board (other than any committee of the Board established
to take action under this Agreement), each board of directors of each Subsidiary
(as defined in Section 3.1) and each committee of each such board.
Notwithstanding the foregoing, until the Effective Time (as defined in Section
1.5 hereof), the Company shall retain as members of its Board of Directors at
least two directors who are directors of the Company on the date hereof (the
"Continuing Directors"); provided, however, that subsequent to the purchase of
and payment for Shares pursuant to the Offer, Parent shall always have its
designees represent at least a majority of the entire Board of Directors. The
Company's obligations under this Section 1.3(a) shall be subject to Section
14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder. Parent or
Purchaser shall supply the Company any information with respect to either of
them and their nominees, officers, directors and affiliates required by Section
14(f) and Rule 14f-1. Upon receipt of such information from Parent or Purchaser,
the Company shall include in the Schedule 14D-9 (as an annex or otherwise) the
information required by Section 14(f) and Rule 14f-1 as is necessary to enable
Parent's designees to be elected to the Company's Board of Directors.
(b) From and after the time, if any, that Parent's designees
constitute a majority of the Company's Board of Directors (the "Appointment
Date"), the unanimous vote of the entire Board of Directors of the Company is
required for the Company to: (i) amend or terminate this Agreement, (ii) extend
the time for performance of any of the obligations of Parent or Purchaser
hereunder, (iii) waive any condition or any of the Company's rights or remedies
hereunder, or (iv) amend the Company's certificate of incorporation or by-laws.
4
<PAGE> 9
Section 1.4 The Merger. Subject to the terms and conditions of this
Agreement and the provisions of the DGCL, at the Effective Time (as defined in
Section 1.5 hereof), the Company and Purchaser shall consummate a merger (the
"Merger") pursuant to which (a) Purchaser shall be merged with and into the
Company and the separate corporate existence of Purchaser shall thereupon cease,
(b) the Company shall be the successor or surviving corporation in the Merger
(the "Surviving Corporation") under the name "Red Roof Inns, Inc." and shall
continue to be governed by the laws of the State of Delaware, and (c) the
separate corporate existence of the Company with all its rights, privileges,
immunities, powers and franchises shall continue unaffected by the Merger.
Pursuant to the Merger, (x) the Certificate of Incorporation of Purchaser, as in
effect immediately prior to the Effective Time, shall be the Certificate of
Incorporation of the Surviving Corporation until thereafter amended as provided
by law and such Certificate of Incorporation, and (y) the By-laws of Purchaser,
as in effect immediately prior to the Effective Time, shall be the By-laws of
the Surviving Corporation until thereafter amended as provided by law, the
Certificate of Incorporation and such By-laws; provided, that Section 1 of the
Certificate of Incorporation of the Surviving Corporation shall be amended to
read in its entirety as follows: "The name of the Corporation is Red Roof Inns,
Inc." The Merger shall have the effects set forth in the DGCL.
Section 1.5 Effective Time. Parent, Purchaser and the Company shall
cause an appropriate Certificate of Merger or Certificate of Ownership and
Merger (the "Certificate of Merger") to be executed and filed on the date of the
Closing (as defined in Section 1.6) (or on such other date as Parent and the
Company may agree) with the Secretary of State of the State of Delaware (the
"Secretary of State") as provided in the DGCL. The Merger shall become effective
on the date on which the Certificate of Merger has been duly filed with the
Secretary of State or such other time as is agreed upon by the parties and
specified in the Certificate of Merger, and such time is hereinafter referred to
as the "Effective Time."
Section 1.6 Closing. The closing of the Merger (the "Closing") shall
take place at 10:00 a.m., New York City time, on a date to be specified by the
parties, which shall be as soon as practicable, but in no event later than the
third business day after satisfaction or waiver of all the conditions set forth
in Article VI hereof (the "Closing Date"), at the New York offices of Proskauer
Rose LLP, unless another date or place is agreed to in writing by the parties
hereto.
Section 1.7 Directors and Officers of the Surviving Corporation. The
directors of Purchaser and the officers of the Company immediately prior to the
Effective Time shall, from and after the Effective Time, be the directors and
officers, respectively, of the Surviving Corporation until their successors
shall have been duly elected or appointed or qualified or until their earlier
death, resignation or removal in accordance with the Surviving Corporation's
Certificate of Incorporation and By-laws.
Section 1.8 Merger Without Meeting of Stockholders. In the event that
Parent, Purchaser or any other Subsidiary of Parent, shall acquire at least 90
percent of the outstanding shares of Company Common Stock pursuant to the Offer
or otherwise, each of the parties hereto shall take all necessary and
appropriate action to cause the Merger to become effective as soon as
practicable after such acquisition, without a meeting of stockholders of the
Company, in accordance with Section 253 of the DGCL.
Section 1.9 Stockholders' Meeting. Notwithstanding Section 1.8 hereof:
(a) If required by applicable law in order to consummate the
Merger, the Company, acting through its Board of Directors, shall, in accordance
with applicable law:
(i) duly call, give notice of, convene and hold a
special meeting of its stockholders (the "Special Meeting") as soon as
practicable following the acceptance for payment and purchase of Shares
by Purchaser pursuant to the Offer for the purpose of considering and
taking action upon this Agreement;
(ii) prepare and file with the SEC a preliminary
proxy or information statement relating to the Merger and this
Agreement and use its reasonable best efforts (x) to obtain and furnish
the information required to be included by the SEC in the Proxy
Statement (as
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hereinafter defined) and, after consultation with Parent, to respond
promptly to any comments made by the SEC with respect to the
preliminary proxy or information statement and cause a definitive proxy
or information statement (the "Proxy Statement") to be mailed to its
stockholders and (y) to obtain the necessary approvals of the Merger
and this Agreement by its stockholders; and
(iii) subject to the fiduciary obligations of the
Board under applicable law as advised by independent counsel, include
in the Proxy Statement the recommendation of the Board that
stockholders of the Company vote in favor of the approval of the Merger
and the adoption of this Agreement.
(b) Parent shall provide the Company with the information
concerning Parent and Purchaser required to be included in the Proxy Statement.
Parent shall vote, or cause to be voted, all the Shares then owned by it,
Purchaser or any of its other subsidiaries and affiliates in favor of the
approval of the Merger and the approval and adoption of this Agreement.
ARTICLE II
CONVERSION OF SECURITIES
Section 2.1 Conversion of Capital Stock. As of the Effective Time, by
virtue of the Merger and without any action on the part of the holders of any
shares of Company Common Stock or common stock, par value $.01 per share, of
Purchaser (the "Purchaser Common Stock"):
(a) Purchaser Common Stock. Each issued and outstanding share
of the Purchaser Common Stock issued and outstanding immediately prior to the
Effective Time shall be converted into and become one validly issued, fully paid
and nonassessable share of common stock, $.01 par value per share, of the
Surviving Corporation.
(b) Cancellation of Treasury Stock and Parent-Owned Stock. All
shares of Company Common Stock that are owned by the Company as treasury stock,
all shares of Company Common Stock owned by any Subsidiary (as defined in
Section 3.1) of the Company and any shares of Company Common Stock owned by
Parent, Purchaser or any other wholly owned Subsidiary of Parent immediately
prior to the Effective Time shall be cancelled and retired and shall cease to
exist and no consideration shall be delivered in exchange therefor.
(c) Conversion of Shares. Each share of Company Common Stock
issued and outstanding immediately prior to the Effective Time (other than
Shares to be cancelled in accordance with Section 2.1(b) hereof and any shares
of Dissenting Common Stock (as defined in Section 2.3 hereof)), shall be
converted into the right to receive the Offer Price payable to the holder
thereof, without interest (the "Merger Consideration"), upon surrender of the
certificate formerly representing such share of Company Common Stock in the
manner provided in Section 2.2 hereof. All such shares of Company Common Stock,
when so converted, shall no longer be outstanding and shall automatically be
cancelled and retired and shall cease to exist, and each holder of a certificate
representing any such shares shall cease to have any rights with respect
thereto, except the right to receive the Merger Consideration therefor upon the
surrender of such certificate in accordance with Section 2.2 hereof, without
interest.
Section 2.2 Exchange of Certificates.
(a) Paying Agent. Prior to the Effective Time, Parent shall
designate a bank or trust company (the "Paying Agent") reasonably acceptable to
the Company to make the payments of the funds to which holders of shares of
Company Common Stock shall become entitled to pursuant to this Agreement upon
surrender of their Certificates (as hereinafter defined) pursuant to Section
2.2(b) hereof, and such amounts shall hereinafter be referred to as the
"Exchange Fund." The expenses of the Paying Agent shall not be paid from the
Exchange Fund but shall be paid directly by the Surviving Corporation.
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Prior to the Effective Time, Parent shall take all steps necessary to deposit or
cause to be deposited with the Paying Agent, in trust for the benefit of the
Company's stockholders, the aggregate Merger Consideration, in immediately
available funds, for timely payment thereunder. If the amount of the cash in the
Exchange Fund is insufficient to pay all of the amounts required to be paid
pursuant to this Agreement, Parent, from time to time after the Effective Time,
shall deposit in trust additional cash with the Paying Agent sufficient to make
all such payment. The Exchange Fund shall not be used for any purpose that is
not provided herein. The Paying Agent may invest, if so directed by Parent or
the Surviving Corporation, the Exchange Fund in obligations of the United States
government or any agency or instrumentality thereof, or in obligations that are
guaranteed or insured by the United States government or an agency or
instrumentality thereof. Any net profit resulting from, or interest or income
produced by, such investments shall be payable to Parent on demand.
(b) Exchange Procedures. As soon as practicable after the
Effective Time but in no event more than three business days thereafter, Parent
shall cause the Paying Agent to mail to each holder of record of a certificate
or certificates, which immediately prior to the Effective Time represented
outstanding shares of Company Common Stock (the "Certificates"), whose shares
were converted pursuant to Section 2.1 hereto into the right to receive the
Merger Consideration, (i) a letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the Certificates shall
pass, only upon delivery of the Certificates to the Paying Agent and shall be in
such form and have such other provisions as Parent and the Surviving Corporation
may reasonably specify) and (ii) instructions for use in effecting the surrender
of the Certificates in exchange for payment of the Merger Consideration. Upon
surrender of a Certificate for cancellation to the Paying Agent, together with
such letter of transmittal, duly executed, the holder of such Certificate shall
be entitled to receive in exchange therefor the Merger Consideration (subject to
subsection (e) below) for each share of Company Common Stock formerly
represented by such Certificate and the Certificate so surrendered shall
forthwith be cancelled. If payment of the Merger Consideration is to be made to
a Person other than the Person in whose name the surrendered Certificate is
registered, it shall be a condition of payment that the Certificate so
surrendered shall be properly endorsed or shall be otherwise in proper form for
transfer and that the Person requesting such payment shall have paid any
transfer and other taxes required by reason of the payment of the Merger
Consideration to a Person other than the registered holder of the Certificate
surrendered or shall have established to the satisfaction of the Surviving
Corporation that such tax either has been paid or is not applicable. For
purposes of this Agreement, the term "Person" shall mean an individual,
corporation, partnership, limited liability company, joint venture, association,
trust, estate, unincorporated organization or other entity. Until surrendered as
contemplated by this Section 2.2, each Certificate shall be deemed at any time
after the Effective Time to represent only the right to receive the Merger
Consideration in cash as contemplated by this Section 2.2.
(c) Transfer Books; No Further Ownership Rights in Company
Common Stock. At the Effective Time, the stock transfer books of the Company
shall be closed and thereafter there shall be no further registration of
transfers of shares of Company Common Stock on the records of the Company. From
and after the Effective Time, the holders of Certificates evidencing ownership
of shares of Company Common Stock outstanding immediately prior to the Effective
Time shall cease to have any rights with respect to such Shares, except as
otherwise provided for herein or by applicable law. If, after the Effective
Time, Certificates are presented to the Surviving Corporation for any reason,
they shall be cancelled and exchanged as provided in this Article II.
(d) Termination of Fund; No Liability. At any time following
one year after the Effective Time, the Surviving Corporation shall be entitled
to require the Paying Agent to deliver to it any funds (including any interest
received with respect thereto) which had been made available to the Paying Agent
and which have not been disbursed to holders of Certificates, and thereafter
such holders shall be entitled to look only to the Surviving Corporation
(subject to abandoned property, escheat or other similar laws) as general
creditors thereof with respect to the payment of any Merger Consideration that
may be payable upon surrender of any Certificates such stockholder holds, as
determined pursuant to this Agreement, without any interest thereon.
Notwithstanding the foregoing, neither the Surviving Corporation nor the Paying
Agent shall be liable to any holder of a Certificate for Merger Consideration
delivered to a public official pursuant to any applicable abandoned property,
escheat or similar law.
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(e) Withholding Taxes. Parent, Purchaser, the Surviving
Corporation and the Paying Agent shall be entitled to deduct and withhold from
the consideration otherwise payable to a holder of Shares pursuant to the Offer
or Merger such amounts as Parent, Purchaser, the Surviving Corporation or the
Paying Agent is required to deduct and withhold with respect to the making of
such payment under the Internal Revenue Code of 1986, as amended (the "Code"),
or any provision of state, local or foreign tax law, it being acknowledged that
Parent, Purchaser, the Surviving Corporation or the Paying Agent shall not
deduct or withhold from the consideration otherwise payable to any such holder
of Shares pursuant to the Offer or the Merger any amount with respect to which
such holder has timely delivered to Parent, Purchaser, the Surviving Corporation
or the Paying Agent, as the case may be, a properly executed Form 8709 in
accordance with applicable law. Any amounts so withheld shall be delivered to
the applicable taxing authority for the account of such holder of shares of
Company Common Stock from whom the amount was withheld. To the extent amounts
are so withheld by Parent, Purchaser, the Surviving Corporation or the Paying
Agent, the withheld 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
deduction and withholding was made.
Section 2.3 Dissenting Shares. Notwithstanding any provision of this
Agreement to the contrary, if and to the extent required by the DGCL, shares of
Company Common Stock which are issued and outstanding immediately prior to the
Effective Time and which are held by holders of such shares of Company Common
Stock who have properly exercised appraisal rights with respect thereto (the
"Dissenting Common Stock") in accordance with Section 262 of the DGCL, shall not
be exchangeable for the right to receive the Merger Consideration, and holders
of such shares of Dissenting Common Stock shall be entitled to receive payment
of the appraised value of such shares of Dissenting Common Stock in accordance
with the provisions of Section 262 of the DGCL unless and until such holders
fail to perfect or effectively withdraw or otherwise lose their rights to
appraisal and payment under the DGCL. If, after the Effective Time, any such
holder fails to perfect or effectively withdraws or loses such right, such
shares of Dissenting Common Stock shall thereupon be treated as if they had been
converted into and to have become exchangeable for, at the Effective Time, the
right to receive the Merger Consideration, without any interest thereon.
Notwithstanding anything to the contrary contained in this Section 2.3, if (i)
the Merger is rescinded or abandoned or (ii) the stockholders of the Company
revoke the authority to effect the Merger, then the right of any stockholder to
be paid the fair value of such stockholder's Dissenting Common Stock pursuant to
Section 262 of the DGCL shall cease. The Company shall give Parent prompt notice
of any demands received by the Company for appraisals of shares of Dissenting
Common Stock. The Company shall not, except as required by applicable law or
with the prior written consent of Parent, make any payment with respect to any
demands for appraisals or offer to settle or settle any such demands.
Section 2.4 Company Option Plans.
(a) Stock Options Plans. The Company shall take all actions
necessary to provide that, effective as of the date of the consummation of the
Offer, and contingent upon the consummation of the Offer, (i) each outstanding
employee stock option to purchase Shares ("Option") granted under the Company's
Amended and Restated 1994 Management Incentive Equity Plan (the "MEIP") and the
Company's 1995 Director Stock Option Plan (collectively, the "Option Plans"),
whether or not then exercisable or vested, shall be cancelled and (ii) in
consideration of such cancellation, the Company (or, at Parent's option, the
Purchaser) shall pay to such holders of Options an amount in respect thereof
equal to the product of (A) the excess, if any, of the Offer Price over the
exercise price of each such Option and (B) the number of Shares subject thereto
(such payment, if any, to be net of applicable withholding taxes); provided,
however, that such cancellation and payment shall occur at the Effective Time
with respect to any Option that is held by an individual who is subject to
Section 16 of the Exchange Act with respect to Company equity securities and who
consents, prior to the consummation of the Offer and in form reasonably
satisfactory to Parent, to the cancellation of such Option at the Effective
Time. As of the date of the consummation of the Offer, the Option Plans shall
terminate and all rights and obligations of the Company and the holder of any
Option under any provision of the Option Plans, any agreement entered into
thereunder or any other plan, program or arrangement providing for the issuance
or grant of any other interest in respect of the capital stock of the Company or
any Subsidiary of the
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Company shall be cancelled. The Company shall take all action necessary to
ensure that, after the time of the consummation of the Offer, no person shall
have any right under the Option Plans or any other plan, program or arrangement
with respect to equity securities of the Company, or any direct or indirect
Subsidiary of the Company.
(b) Stock Purchase Plan. Notwithstanding any other provision
of the Amended and Restated 1996 Employee Stock Purchase Plan (the "Stock
Purchase Plan"), the Company shall take all actions as are necessary or
appropriate so that all outstanding rights shall be exercised for all
participants in the Stock Purchase Plan in accordance with the terms of Section
8 thereof. Prior to the Effective Time, the Company shall take (or cause to be
taken) all actions as are necessary or appropriate to effectuate the termination
of the Stock Purchase Plan prior to the Effective Time in accordance with its
terms and the Code and other applicable law. The Company shall promptly deliver
to Parent prior to the Effective Time true and complete copies of all
documentation relating to or arising from the termination of the Stock Purchase
Plan.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Purchaser as follows:
Section 3.1 Organization.
(a) Each of the Company and its Subsidiaries (as defined in
this Section 3.1) is a corporation or other entity duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation or organization and has all requisite corporate or other power and
authority to own, lease and operate its properties and to carry on its business
as it is now being conducted, except where the failure to be so organized,
existing and in good standing or to have such power or authority would not have
a material adverse effect on the Company and its Subsidiaries taken as a whole.
As used in this Agreement, the word "Subsidiary" means, with respect to any
Person any other Person of which (i) the first Person or any of its other
Subsidiaries is a general partner (excluding partnerships in which the first
Person or any of its other Subsidiaries do not have at least 50% of the voting
interest) or (ii) at least 50% of the securities or other interests having by
their terms ordinary voting power to elect a majority of the Board of Directors
or others performing similar functions with respect to such other Person is
directly or indirectly owned or controlled by the first Person and/or by any one
or more of its Subsidiaries. As used in this Agreement, any reference to any
event, change or effect having a material adverse effect on or with respect to
any entity (or group of entities taken as a whole) means such event, change or
effect is materially adverse to the consolidated financial condition, businesses
or results of operations of such entity (or, if used with respect to a group of
entities, of such group of entities taken as a whole); provided, however, that
the effects of changes that are generally applicable to (i) the hotel, motel or
travel industries, (ii) the United States or French economy or (iii) the United
States or French securities markets shall be excluded from such determination;
and provided, further, that the following shall also be excluded from such
determination: any adverse effect resulting, directly or indirectly, in whole or
in part, from (x) the execution of this Agreement and the announcement of this
Agreement and the transactions contemplated hereby, including, but not limited
to, any stockholder litigation brought or threatened against the Company or any
member of the Board of Directors of the Company in respect of this Agreement,
the Offer or the Merger, and (y) any change in the market price of the Company
Common Stock, in and of itself. Notwithstanding anything to the contrary in this
Agreement: (A) clause (x) of the preceding sentence shall have no effect on and
is not intended to limit the conditions set forth on Annex A or Section 6.1, and
(B) clauses (i), (ii) and (iii) of the preceding sentence shall have no effect
on and are not intended to limit the conditions set forth on Annex A or Section
6.1 other than clause (iii)(c) set forth on Annex A. The Company and each of its
Subsidiaries is duly qualified or licensed to do business and in good standing
in each jurisdiction in which the property owned, leased or operated by it or
the nature of the business conducted by it makes such qualification or licensing
necessary, except where the failure to be so duly qualified or licensed and in
good standing would not in the aggregate have a material adverse effect on
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the Company and its Subsidiaries taken as a whole. Schedule 3.1(a) of the
Company's Disclosure Schedule dated the date hereof and delivered to Parent and
Purchaser herewith (the "Company Disclosure Schedule") sets forth a complete and
correct list of all the Company's Subsidiaries and their respective
jurisdictions of incorporation or organization. Except as set forth in Schedule
3.1(a), neither the Company nor any Subsidiary of the Company holds any interest
in a partnership or joint venture of any kind.
(b) Except as set forth in Schedule 3.1(b), the Company has
heretofore delivered to Parent a complete and correct copy of each of its
Certificate of Incorporation and By-laws, as currently in effect, and has
heretofore made available to Parent a complete and correct copy of the charter
and by-laws of each of its Subsidiaries, as currently in effect. In all material
respects, the minute books of the Company and the Subsidiaries of the Company
contain accurate records of all meetings and accurately reflect all other
actions taken by the stockholders, the boards of directors and all committees of
the boards of directors of the Company and the Subsidiaries of the Company.
Except as set forth on Schedule 3.1(b), complete and accurate copies of all such
minute books and of the stock register of the Company and each Subsidiary of the
Company have been made available by the Company to the Parent.
Section 3.2 Capitalization. (a) The authorized capital stock of the
Company consists of (i) 100,000,000 shares of Company Common Stock, and (ii)
10,000,000 shares of Preferred Stock, par value $.01 per share (the "Preferred
Stock"). As of the date hereof, (v) 26,951,712 shares of Company Common Stock
are issued and outstanding, (w) 4,060,000 shares of Company Common Stock are
reserved for issuance upon exercise of outstanding Options (whether or not
exercisable and granted under the Option Plans), (x) 300,000 shares of Company
Common Stock are reserved for issuance under the Stock Purchase Plan, (y) no
shares of Preferred Stock are issued and outstanding and (z) 1,637,160 shares of
Company Common Stock are held in the Company's treasury. All the outstanding
shares of the Company Common Stock are, and all shares which may be issued
pursuant to the exercise of outstanding Options when issued in accordance with
the respective terms thereof shall be, duly authorized, validly issued, fully
paid and non-assessable and free of preemptive rights. There are no bonds,
debentures, notes or other indebtedness having general voting rights (or
convertible into securities having such rights) ("Voting Debt") of the Company
or any of its Subsidiaries issued and outstanding. Except (a) as set forth
above,(b) for the transactions contemplated by this Agreement, as of the date
hereof, and (c) as set forth in Schedule 3.2(a), (i) there are no shares of
capital stock of the Company authorized, issued or outstanding, (ii) there are
no existing options, warrants, calls, pre-emptive rights, subscriptions or other
rights, agreements, arrangements or commitments of any character, relating to
the issued or unissued capital stock of the Company or any of its Subsidiaries,
obligating the Company or any of its Subsidiaries to issue, transfer or sell or
cause to be issued, transferred or sold any shares of capital stock or Voting
Debt of, or other equity interest in, the Company or any of its Subsidiaries or
securities convertible into or exchangeable for such shares or equity interests,
or obligating the Company or any of its Subsidiaries to grant, extend or enter
into any such option, warrant, call, subscription or other right, agreement,
arrangement or commitment, and (iii) there are no outstanding contractual
obligations of the Company or any of its Subsidiaries to repurchase, redeem or
otherwise acquire any Shares, or capital stock of the Company or any Subsidiary
or affiliate of the Company. The Company has provided Parent and Purchaser with
a true and complete list, as of the date hereof, of (i) all Options to purchase
Company Common Stock that have been granted by the Company, (ii) the holder of
each of the Options, (iii) the Option Plan under which each Option was issued,
(iv) the number of Options held by each such holder, (v) the exercise prices of
each such Option, (vi) the date of grant of such Option, (vii) the expiration
date of such Option, (viii) whether such Option has vested as of the date
hereof, and (ix) whether such Option is a non-qualified stock option or an
"incentive stock option" within the meaning of Section 422(b) of the Code. No
shares of restricted stock or other equity-based awards have been granted under
the Option Plans or otherwise.
(b) Except as set forth on Schedule 3.2(b) all the outstanding
shares of capital stock, partnership interests, membership interests or other
equity interests of or in each of the Subsidiaries are owned beneficially and of
record by the Company, directly or indirectly, free and clear of any security
interest, lien, claim, pledge, agreement, limitation on voting rights or other
encumbrance of
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any nature whatsoever, and all such shares or interests have been validly issued
and are fully paid, free of preemptive rights and, in the case of capital stock,
nonassessable.
(c) There are no voting trusts or other agreements or
understandings to which the Company or any of its Subsidiaries is a party with
respect to the voting of the capital stock or equity interests of or in the
Company or any of the Subsidiaries. None of the Company or its Subsidiaries is
required to redeem, repurchase or otherwise acquire shares of capital stock or
other equity interests of or in the Company, or any of its Subsidiaries,
respectively, as a result of the transactions contemplated by this Agreement.
Section 3.3 Authorization; Validity of Agreement; Company Action. (a)
The Company has full corporate power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby, subject to
obtaining the approval of holders of a majority of the Shares prior to the
consummation of the Merger in accordance with section 251 of the DGCL, if so
required. The execution, delivery and performance by the Company of this
Agreement, and the consummation by it of the transactions contemplated hereby,
have been duly authorized by its Board of Directors and, except for obtaining
the approval of its stockholders as contemplated by Section 1.9 hereof, no other
corporate action on the part of the Company is necessary to authorize the
execution and delivery by the Company of this Agreement and the consummation by
it of the transactions contemplated hereby. This Agreement has been duly
executed and delivered by the Company and, assuming due and valid authorization,
execution and delivery hereof by the other parties hereto, is a valid and
binding obligation of the Company enforceable against the Company in accordance
with its terms, except that (i) such enforcement may be subject to applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws, now or
hereafter in effect, affecting creditors' rights generally, and (ii) the remedy
of specific performance and injunctive and other forms of equitable relief may
be subject to equitable defenses and to the discretion of the court before which
any proceeding therefor may be brought.
(b) The Board of Directors of the Company has approved and
taken all corporate action required to be taken by the Board of Directors for
the consummation of the transactions contemplated by this Agreement.
Section 3.4 Consents and Approvals; No Violations. Except as set forth
on Schedule 3.4 and except for filings, permits, authorizations, consents and
approvals as may be required under, and other applicable requirements of, the
Exchange Act, the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR
Act") state or foreign laws relating to takeovers, state securities or blue sky
laws, foreign antitrust laws and the DGCL, neither the execution, delivery or
performance of this Agreement by the Company nor the consummation by the Company
of the transactions contemplated hereby nor compliance by the Company with any
of the provisions hereof shall (i) conflict with or result in any breach of any
provision of the certificate of incorporation or by-laws or similar
organizational documents of the Company or of any of its Subsidiaries, (ii)
require on the part of the Company any filing with, or permit, authorization,
consent or approval of, any court, arbitral tribunal, administrative agency or
commission or other governmental or other regulatory authority or agency (a
"Governmental Entity"), (iii) result in a material violation or breach of, or
constitute (with or without due notice or lapse of time or both) a default (or
give rise to any right of termination, cancellation or acceleration) under, any
of the terms, conditions or provisions of any note, bond, mortgage, indenture,
lease, license, contract, agreement or other instrument or obligation to which
the Company or any of its Subsidiaries is a party or by which any of them or any
of their properties or assets may be bound, (iv) violate any order, writ,
injunction, decree, statute, rule or regulation applicable to the Company, any
of its Subsidiaries or any of their properties or assets, (v) result in the
creation or imposition of any lien, claim, security interest or other
encumbrance on any of the assets of the Company or any of its Subsidiaries, or
(vi) result in the creation or imposition of any lien, claim, security interest
or other encumbrance on any Company Common Stock or any equity interest in any
Subsidiary, excluding from the foregoing clauses (ii), (iii), (iv) or (v) where
the failure to obtain such permits, authorizations, consents or approvals or to
make such filings, or the existence of such violations, breaches or defaults,
would not, individually or in the aggregate, have a material adverse effect on
the Company and its Subsidiaries taken as a whole, and which shall not
materially impair the ability of the Company to consummate the transactions
contemplated hereby.
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Section 3.5 SEC Reports and Financial Statements. Except as set forth
on Schedule 3.5, the Company has filed with the SEC all forms, reports,
schedules, statements and other documents required to be filed by it since
January 1, 1994 under the Exchange Act (as such documents have been amended
since the time of their filing, collectively, the "Company SEC Documents"). As
of their respective dates and, if amended, as of the date of the last such
amendment, the Company SEC Documents, including, without limitation, any
financial statements or schedules included therein; did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. None of the
Subsidiaries is required to file any forms, reports or other documents with the
SEC pursuant to Section 12 or 15 of the Exchange Act. The financial statements
of the Company (the "1998 Financial Statements") included in the Company's
Annual Report on Form 10-K for the fiscal year ended January 2, 1999 (including
the related notes thereto) (the "1998 Form 10-K") and in the quarterly report on
Form 10-Q for the first fiscal quarter occurring since the 1998 Form 10-K, have
been prepared from, and are in accordance with, the books and records of the
Company and its consolidated subsidiaries, comply in all material respects with
applicable accounting requirements and with the published rules and regulations
of the SEC with respect thereto, have been prepared in accordance with United
States generally accepted accounting principles ("GAAP") applied on a consistent
basis during the periods involved (except as may be indicated in the notes
thereto and subject, in the case of unaudited interim financial statements, to
normal year-end adjustments and to the absence of complete notes) and fairly
present the consolidated financial position and the consolidated results of
operations and cash flows of the Company and its consolidated subsidiaries as at
the dates thereof or for the periods presented therein. Except as disclosed in
the Company SEC Documents or on Schedule 3.5, the books and records of the
Company and its Subsidiaries have been, and are being, maintained, in all
material respects, in accordance with GAAP and any other applicable legal and
accounting requirements (subject to normal year-end audit adjustments and the
absence of notes).
Section 3.6 No Undisclosed Liabilities. Except (a) as disclosed in the
Company SEC Documents or on Schedule 3.6, (b) for liabilities and obligations
incurred in the ordinary course of business consistent with past practices since
January 2, 1999, and (c) for liabilities and obligations incurred in connection
with the consummation of the transactions contemplated hereby, neither the
Company nor any of its Subsidiaries has incurred any liabilities which would be
reasonably expected to have a material adverse effect on the Company and its
Subsidiaries taken as a whole.
Section 3.7 Absence of Certain Changes. Except as disclosed in the
Company SEC Documents or on Schedule 3.7, since January 2, 1999, the Company and
its Subsidiaries have conducted their respective businesses in the ordinary
course of business consistent with past practice and there has not been (i) as
of the date hereof, any change in the consolidated financial condition, business
or results of operations of the Company or the amount, character or ownership
interests of the Company's assets that resulted in or would be reasonably
expected to result in a material adverse effect on the Company and its
Subsidiaries, taken as a whole; (ii) any declaration, setting aside or payment
of any dividend or other distribution (whether in cash, stock or property) with
respect to the equity interests of the Company or of any of its Subsidiaries
(other than dividends and distributions by the Company's Subsidiaries to the
Company); (iii) any change by the Company or any of its Subsidiaries in
accounting principles or methods, except insofar as may be required by a change
in GAAP or applicable law; (iv) any split, combination or reclassification of
shares of the Company's capital stock; (v) any entry into any written employment
agreement with, or any increase in the rate or terms of compensation payable or
to become payable by the Company or any of its Subsidiaries to, any of their
respective directors, officers or key employees; or (vi) any increase in the
rate or terms (including, without limitation, any acceleration of the right to
receive payment) of any bonus, insurance, pension or other employee benefit
plan, payment or arrangement made to, for or with any such directors, officers
or key employees, except for increases occurring in the ordinary course of
business or as required by law.
Section 3.8 Employee Benefit Plans; ERISA.
(a) Schedule 3.8(a) contains a true and complete list of each
material deferred compensation, bonus, profit sharing, stock option, pension,
incentive compensation, and equity
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compensation plan; "welfare" plan, fund or program (within the meaning of
section 3(1) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")); "pension" plan, fund or program (within the meaning of section 3(2)
of ERISA); each employment, consulting, change in control, termination or
severance agreement; and each fringe benefit, insurance, welfare,
post-retirement, health, life, tuition refund, scholarship, relocation,
disability, accident, sick, vacation, commission, payroll practices, retention,
noncompetition, or any other material employee benefit plan, fund, program,
agreement or arrangement (whether written or unwritten, insured or
self-insured), in each case, that is or was sponsored, maintained or contributed
to or required to be contributed to by the Company, by any Subsidiary or by any
trade or business, whether or not incorporated (an "ERISA Affiliate"), that
together with the Company would be deemed a "single employer" within the meaning
of section 4001(b) of ERISA or Section 414(b), (c), (m) or (o) of the Code, or
to which the Company, any Subsidiary or an ERISA Affiliate is a party, for the
benefit of any employee, director or stockholder of the Company or any
Subsidiary (whether current, former or retired) or their beneficiaries or to
which the Company or any Subsidiary or any ERISA Affiliate has or could
reasonably be expected to have any liability (the "Benefit Plans").
(b) With respect to each Benefit Plan, the Company has made
available to Purchaser and Parent true and complete copies of the Benefit Plan
and any amendments thereto (or if the Benefit Plan is not a written Benefit
Plan, a description thereof), any related trust or other funding vehicle, any
reports, financial statements or summaries required under ERISA or the Code, the
most recent determination letter received from the Internal Revenue Service (the
"IRS") with respect to each Benefit Plan intended to qualify under section 401
of the Code and any material communication received by or furnished to the
Company, any Subsidiary or any ERISA Affiliate from the IRS or any other
governmental entity.
(c) No liability under Title IV or section 302 of ERISA has
been incurred by the Company, any Subsidiary or any ERISA Affiliate that has not
been satisfied in full, and no condition exists that presents a material risk to
the Company, any Subsidiary or any ERISA Affiliate of incurring any such
liability, other than liability for premiums due the Pension Benefit Guaranty
Corporation (the "PBGC") (which premiums have been paid when due). With regard
to the single employer plan (within the meaning of Section 4001(a)(15) of ERISA)
disclosed on Schedule 3.8(a) (the "Terminated Pension Plan"), the Company has
(i) taken all corporate actions necessary to terminate the Terminated Pension
Plan; (ii) received a favorable determination letter from the IRS approving the
qualified status of the Terminated Pension Plan upon its termination; (iii)
timely filed PBGC Forms 500 and Form 501, including all schedules and
attachments; (iv) timely filed the final Form 5500 with the IRS; and (v) taken
all other actions as are necessary or appropriate to effectuate the termination
of the Terminated Pension Plan in accordance with its terms and the Code, ERISA
and other applicable law. Neither the Company, any ERISA Affiliate, nor any of
their respective predecessors is liable for or will be liable for any liability
with respect to the Terminated Pension Plan.
(d) No Benefit Plan is a "multiemployer pension plan," as
defined in section 3(37) or 4001(a)(3) of ERISA, or Section 414(f) of the Code
(a "Multiemployer Plan") nor is any Benefit Plan a plan described in section
4063(a) of ERISA.
(e) Except as disclosed on Schedule 3.8, each Benefit Plan
intended to be "qualified" within the meaning of section 401(a) of the Code has
received a determination letter from the Internal Revenue Service to the effect
that it is so qualified and, to the knowledge of the Company, nothing has
occurred or is reasonably expected to occur through the Effective Time that
caused or could cause the loss of such qualification or exemption or the
imposition of any material penalty or material tax liability.
(f) Except as disclosed on Schedule 3.8(f), no Benefit Plan
provides medical, surgical, hospitalization, death or similar benefits (whether
or not insured) for employees or former employees of the Company or any
Subsidiary for periods extending beyond their retirement or other termination of
service, other than (i) coverage mandated by applicable law, or (ii) death
benefits under any "pension plan".
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(g) There are no pending or, to the knowledge of the Company,
threatened or anticipated claims by or on behalf of any Benefit Plan, by any
employee or beneficiary covered under any such Benefit Plan, or otherwise
involving any such Benefit Plan (other than routine claims for benefits).
(h) With respect to each of the Benefit Plans on Schedule
3.8(a): (i) all material payments required by any Benefit Plan, any collective
bargaining agreement or other agreement, or by law (including, without
limitation, all contributions, insurance premiums, or intercompany charges) with
respect to all periods through the date of the Effective Time shall have been
made prior to the Effective Time or provided for by the Company as applicable,
by full accruals (as if all targets required by such Benefit Plan had been or
will be met at maximum levels) on its financial statements; (ii) no "accumulated
funding deficiency" (within the meaning of section 302 of ERISA and section 412
of the Code) has been or could be reasonably expected to be incurred, whether or
not waived, and no excise or other taxes have been or could be reasonably
expected to be incurred or are due and owing with respect to the Benefit Plan
because of any failure to comply with the minimum funding standards of ERISA and
the Code; (iii) the Benefit Plan complies and has been maintained and operated
in all material respects in accordance with its terms and applicable law,
including, without limitation, ERISA and the Code; (iv) no "prohibited
transaction", within the meaning of section 4975 of the Code and section 406 of
ERISA that has resulted or could reasonably be expected to result in material
liability to the Company or any of its Subsidiaries, has occurred or is
reasonably expected to occur with respect to the Benefit Plan; (v) except as set
forth on Schedule 3.8(h)(v), no Benefit Plan is or is reasonably expected to be
under audit or, to the knowledge of the Company, investigation by the IRS, U.S.
Department of Labor, or any other government authority and no such completed
audit, if any, has resulted in the imposition of any Tax or penalty that has not
been paid; and (vi) with respect to each Benefit Plan that is funded mostly or
partially through an insurance policy, except as set forth on Schedule
3.8(h)(vi), neither the Company nor any Subsidiary has any liability in the
nature of retroactive rate adjustment, loss sharing arrangement or other actual
or contingent liability arising wholly or partially out of events occurring on
or before the Effective Time.
(i) Except as disclosed on Schedule 3.8(i)(i), the
consummation of the transactions contemplated by this Agreement will not give
rise to any liability for severance pay, unemployment compensation, termination
pay, or withdrawal liability, or accelerate the time of payment or vesting or
increase the amount of compensation or benefits due to any employee or director
of the Company or any Subsidiary (whether current, former, or retired) or their
beneficiaries solely by reason of such transactions by reason of a termination
of employment following such transactions. Except as previously disclosed in
writing by the Company to Parent, no amounts payable under any Benefit Plan will
fail to be deductible for federal income tax purposes by virtue of section 280G
or 162(m) of the Code. To the knowledge of the Company, none of the Company, any
Subsidiary or any officer or employee thereof, has made any promise or
commitment, whether legally binding or not, to create any additional plan,
agreement, or arrangement, or to modify or change any existing Benefit Plan. No
event, condition or circumstance exists that could reasonably be expected to
result in a material increase of the benefits provided under any Benefit Plan or
the expense of maintaining any Benefit Plan from the level of benefits or
expense incurred for the most recent fiscal year ended before the Effective
Time. No event, condition, or circumstance exists that would prevent the
amendment or termination of any Benefit Plan in accordance with its terms and
applicable law. Except as set forth on Schedule 3.8(i)(ii) or as reflected on
the 1998 Financial Statements, none of the Company, any Subsidiary or any ERISA
Affiliate has any unfunded liabilities pursuant to any Benefit Plan that is
intended to be an "employee pension benefit plan" within the meaning of Section
3(2) of ERISA and that is not intended to be qualified under Section 401(a) of
the Code.
Section 3.9 Litigation. Except as disclosed in the Company SEC
Documents or on Schedule 3.9, there is no suit, action or proceeding pending or,
to the knowledge of the Company, threatened against the Company, any of its
Subsidiaries or any of their respective assets which individually or in the
aggregate with all other such suits, actions or proceedings is reasonably likely
to have a material adverse effect on the Company and its Subsidiaries, taken as
a whole, or which, as of the date hereof, has had or is reasonably likely to
have individually or in the aggregate with all other such suits, actions or
proceedings a material adverse effect on the ability of the Company to
consummate the transactions contemplated by this Agreement.
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Section 3.10 No Default; Compliance with Applicable Laws. Except as set
forth on Schedule 3.10 hereto, the business of the Company and each of its
Subsidiaries is not in default or violation of any term, condition or provision
of (i) its respective certificates of incorporation or by-laws or similar
organizational documents, (ii) any contract, agreement or commitment, whether
oral or written, to which the Company or any of its Subsidiaries is a party or
by which any of them or any of their Company Assets is bound, as each such
contract or commitment may have been amended, modified or supplemented (x) which
has a term ending one year or more from the date of its execution and may not be
terminated by the Company in its sole and absolute discretion upon no more than
30 days' notice without penalty or payment in an amount in excess of $1,000, (y)
pursuant to which the Company or any Subsidiary expects to or is scheduled to
receive (assuming full performance pursuant to the terms thereof) revenue of, or
to pay (assuming full performance pursuant to the terms thereof), $200,000 or
more during the 12-month period following the date of this Agreement, or (z)
which has been or, as of the date of this Agreement, would be required to be,
filed as an exhibit to the Company SEC Documents (as defined in Section 3.5)
(which contracts, agreements and commitments are collectively referred to herein
as the "Significant Contracts") or (iii) any federal, state, local or foreign
statute, law, ordinance, rule, regulation, judgment, decree, order, concession,
grant, franchise, permit or license or other governmental authorization or
approval applicable to the Company or any of its Subsidiaries, excluding from
clauses (ii) or (iii) any defaults or violations which would not have a material
adverse effect on the Company and its Subsidiaries, taken as a whole, or which
become applicable solely as a result of the business or activities in which
Parent or Purchaser is or proposes to be engaged or as a result of any acts or
omissions by, or the status of any facts pertaining to, Parent or Purchaser.
Section 3.11 Taxes.
(a) The Company and its Tax Subsidiaries (as defined in
Section 3.11(h) have (i) duly filed (or there has been filed on their behalf)
with the appropriate governmental authorities (x) all federal income Tax Returns
(as defined in Section 3.11(h)) required to be filed by them on or prior to the
date hereof and (y) all other Tax Returns required to be filed by them on or
prior to the date hereof, other than such other Tax Returns the failure of which
to file would not have a material adverse effect on the Company and its Tax
Subsidiaries, taken as a whole, and such Tax Returns are true, correct and
complete in all material respects, and (ii) duly paid in full or made provision
in accordance with generally accepted accounting principles (or there has been
paid or provision has been made on their behalf) for the payment of all Taxes
(as defined in Section 3.11(h)) shown to be due on such Tax Returns.
(b) Except as set forth on Schedule 3.11(b), no federal, state
or local audits, actions, suits, proceedings, investigations, claims or
assessments are presently pending or proposed in writing with regard to any
Taxes or Tax Return of the Company or its Tax Subsidiaries.
(c) Except as set forth on Schedule 3.11(c), there are no
outstanding written consents to extend the statutory period of limitations
applicable to the assessment of any federal income Taxes or other material Taxes
or deficiencies against the Company or any of its Tax Subsidiaries, and no power
of attorney granted by either the Company or any of its Tax Subsidiaries with
respect to any Taxes is currently in force.
(d) Except as set forth on Schedule 3.11(d), neither the
Company nor any of its Tax Subsidiaries (i) is a party to any written agreement
or, to the knowledge of senior executives of the Company, any oral agreement
with any third party providing for the allocation or sharing of Taxes or (ii)
can have any liability or entitlement under any such agreement to which it
previously was a party.
(e) Except as set forth in Schedule 3.11(e), complete copies
of (i) consolidated federal income Tax Returns for the Company and its Tax
Subsidiaries and (ii) state and local income Tax and other Tax Returns of the
Company and its Tax Subsidiaries for each of the years ended 1996, 1997 and 1998
have heretofore been made available to Parent and Purchaser.
(f) Except as set forth in Schedule 3.11(f), (i) all material
amounts required to be collected or withheld by the Company and each of its Tax
Subsidiaries with respect to Taxes have been
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duly collected or withheld and any such amounts that are required to be remitted
to any taxing authority have been duly remitted, (ii) there are no Tax rulings,
requests for rulings, refund claims, closing agreements or changes of accounting
method relating to the Company or any of its Tax Subsidiaries that could
materially affect their liability for Taxes of the Company or its Tax
Subsidiaries due for any period after the Effective Time, (iii) there are no
excess loss accounts (as referred to in Treasury Regulations Section 1.1502-19)
exists with respect to any Tax Subsidiary of the Company, (iv) neither the
Company nor any of its Tax Subsidiaries has any deferred gain or loss arising
from deferred intercompany transactions (as referred to in Treasury Regulations
Section 1.1502-13), (v) neither the Company nor any Tax Subsidiary has filed a
consent under Section 341(f) of the Code or any comparable provisions of state
revenue statues, and (vi) none of the Company or its Tax Subsidiaries will be
required to include in a taxable period ending after the Effective Time taxable
income attributable to a prior taxable period that was not recognized in that
taxable period as a result of the installment method of accounting, the
completed contract method of accounting, the long-term contract method of
accounting, the cash method of accounting or Section 481 of the Code or
comparable provisions of state or local or foreign tax law;
(g) Neither the Company nor the Tax Subsidiaries were treated
as a member of a consolidated group for income Tax reporting purposes other than
the consolidated group of which the Company was the parent; and
(h) "Taxes" shall mean any and all taxes, charges, fees,
levies, customs, duties, imposts or other assessments, including, without
limitation, income, gross receipts, excise, real or personal property, sales,
withholding, social security, occupation, use, service, service use, license,
net worth, payroll, franchise, transfer and recording taxes, fees and charges,
ad valorem, value added, asset, license, transaction, capital, estimated,
employment, workers compensation, utility, severance, production, unemployment
compensation, premium, windfall profits and gains taxes imposed by the United
States Internal Revenue Service or any taxing authority (domestic or foreign),
including, without limitation, 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, penalties or
additional amounts attributable to, or imposed upon, or with respect to, any
such taxes, charges, fees, levies or other assessments. "Tax Return" shall mean
any report, return, document, declaration or other information or filing
required to be supplied to any taxing authority or jurisdiction (domestic or
foreign) with respect to Taxes. The term "Tax Subsidiaries" shall include all
Subsidiaries.
Section 3.12 Property. The Company has provided to Parent and Purchaser
a true and complete list (identifying the relevant owners, lessors and lessees)
of (i) all real property consisting of hotels, motels or other lodging
facilities, including, without limitation, any reservation centers and any
warehouse space, and company headquarters and (ii) any other real property that
is material to the Company and its Subsidiaries taken as a whole, in each case
that is owned or leased by the Company or any of its Subsidiaries. Each of the
Company and its Subsidiaries has good and marketable title to all properties,
assets and rights of any kind whatsoever (whether real, personal or mixed, and
whether tangible or intangible) owned by it (collectively, the "Company
Assets"), in each case free and clear of any mortgage, security interest, deed
of trust, claim, charge, title defect, lease, adverse interest or other lien,
encumbrance or interest (collectively, "Liens"), except (a) as shown on the
consolidated balance sheet of the Company and its Subsidiaries dated April 3,
1999 and the notes thereto, and the consolidated balance sheet of the Company
and its Subsidiaries dated as of January 2, 1999 and the notes thereto, each as
contained in the Company SEC Documents, (b) for any Liens incurred in connection
with the purchase of real property after January 2, 1999 and previously
disclosed to Purchaser (such Liens being limited to the real property so
acquired), (c) for any Lien arising by reason of (i) taxes, assessments or
governmental charges not yet delinquent or which are being contested in good
faith, (ii) deposits to secure public or statutory obligations in lieu of surety
or appeal bonds entered into in the ordinary course of business, and (iii)
operation of law in favor of carriers, warehousemen, landlords, mechanics,
materialmen, laborers, employees or suppliers, incurred in the ordinary course
of business for sums which are not yet delinquent or are being contested in good
faith by negotiations or by appropriate proceedings which suspend the collection
thereof, (d) for exceptions to a property's title discoverable from the public
record or a survey of such property, (e) for leases and subleases entered into
by the Company or any of its Subsidiaries in the
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ordinary course of business and previously disclosed to Purchaser, (f) for
zoning laws and other land use restrictions that do not materially impair the
present use of the property, or (g) as set forth on Schedule 3.12 hereto. The
exceptions contained in the foregoing clauses (a) through (g) are hereinafter
referred to as the "Permitted Liens." Except as otherwise disclosed by the
Company to Parent and Purchaser in writing on or prior to the date hereof, there
are no pending or, to the knowledge of the Company, threatened condemnation
proceedings against or affecting any Company Assets consisting of motel or
lodging facilities, and none of such Company Assets is subject to any commitment
or other arrangement for its sale to a third party outside the ordinary course
of business.
Section 3.13 Environmental Matters.
(a) Except (i) as set forth in Schedule 3.13 or (ii) as set
forth in the Company SEC Documents:
(i) neither the Company nor any Subsidiary has
received any written communication from any Person (including any
Governmental Entity) stating or alleging that the Company or any
Subsidiary is a potentially responsible party or is otherwise liable
under Environmental Law (as defined in Section 3.13(b)) with respect to
any actual or alleged environmental contamination which remains
unresolved or outstanding, other than any liabilities that,
individually or in the aggregate, would not be reasonably expected to
have a material adverse effect on the Company and its Subsidiaries
taken as a whole; and neither the Company nor any Subsidiary has
received any request for information from any Governmental Entity or
any other Person with respect to any actual or alleged environmental
contamination or non-compliance other than with respect to matters
that, individually or in the aggregate, would not be reasonably
expected to have a material adverse effect on the Company and its
Subsidiaries taken as a whole;
(ii) to the knowledge of the Company, all current and
past operations of the Company and its Subsidiaries, including any
operations at or from any property that is currently owned, leased or
operated by the Company or any of its Subsidiaries ("Real Property")
comply with and have at all times complied with all applicable
Environmental Laws in effect as of the date hereof, except where the
failure to be in compliance would not, individually or in the
aggregate, be reasonably expected to have a material adverse effect on
the Company or any of its Subsidiaries taken as a whole;
(iii) to the knowledge of the Company, excluding
asbestos, radon and lead-based Hazardous Substances, the Real Property
contains no Hazardous Substances in, on, over, at or under it, in
concentrations which would presently violate any applicable
Environmental Law in effect as of the date hereof or would be
reasonably likely to result in the imposition of Environmental
Liabilities on the Company, any of its Subsidiaries or the Real
Property under any applicable Environmental Law in effect as of the
date hereof, including any liability or obligation for the
investigation, corrective action, remediation or monitoring of
Hazardous Substances in, on, over, under, at or from the Real Property,
except with respect to violations or Environmental Liabilities that,
individually or in the aggregate, would not be reasonably expected to
have a material adverse effect on the Company and its Subsidiaries
taken as a whole; and
(iv) the Company and its Subsidiaries have been and
are in full compliance with the terms and conditions of all
Environmental Permits which are required under applicable Environmental
Laws, except where the failure to be in compliance would not,
individually or in the aggregate, have a material adverse effect on the
Company and its Subsidiaries taken as a whole.
(b) (i) For purposes of this Section 3.13, "Environmental
Laws" means all applicable foreign, state, federal and local laws and the
applicable common law, regulations and rules, ordinances, codes, judgments,
decrees and orders relating to health, safety, or the
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pollution, preservation or protection of the environment, including the release
of Hazardous Substances into the environment.
(ii) for the purposes of this Section 3.13,
"Environmental Permits" means the permits, licenses, authorizations and
approvals required or issued under any Environmental Law which are
necessary for the conduct of the Company's and its Subsidiaries'
businesses and for the operations on, in or at, the assets of the
Company and of its Subsidiaries and the Real Property;
(iii) for the purposes of this Section 3.13,
"Environmental Liabilities" means any claims, judgments, damages
(including punitive damages), losses, penalties, fines, liabilities,
encumbrances, liens, violations, costs and expenses (including
attorneys' and consultants' fees) of investigation, remediation,
monitoring or defense of any matter, which (A) are incurred as a result
of (1) the existence of Hazardous Substances in, on, over, under, at or
emanating from any Real Property, (2) the offsite transportation,
treatment, storage or disposal of Hazardous Substances generated by the
Company or any of its Subsidiaries, (3) the violation of or
non-compliance with any Environmental Laws or (B) arise under the
Environmental Laws; and
(iv) for the purposes of this Section 3.13,
"Hazardous Substances" means any petroleum, petroleum products,
petroleum-derived substances, radioactive materials, hazardous wastes,
polychlorinated biphenyls, lead-based paint, radon, urea formaldehyde,
asbestos or any materials containing asbestos, pesticides, and any
chemicals, materials or substances regulated under any Environmental
Law, or defined as or included in the definition of "hazardous
substances", "extremely hazardous substances", "hazardous materials",
"hazardous constituents", "toxic substances", "pollutants",
"contaminants", or any similar denomination intended to classify or
regulate such chemicals, materials or substances by reason of their
toxicity, carcinogenicity, ignitability, corrosivity or reactivity or
other characteristics under the Environmental Laws.
(c) The representations set forth in this Section 3.13 are the
sole and exclusive representations and warranties being made by the Company in
this Agreement with respect to environmental matters.
Section 3.14 Intellectual Property. The Company and its
Subsidiaries own all rights in, or possess adequate licenses or other valid
rights to use, all Intellectual Property (as hereinafter defined) used in the
conduct of their businesses in the manner in which they are presently being
conducted, except for such lack of or defects in ownership or possession as is
not, individually or in the aggregate, reasonably likely to have a material
adverse effect on the Company and its Subsidiaries taken as a whole. Neither the
Company nor any of its Subsidiaries has received any written notice that its
rights in its Intellectual Property have been declared unenforceable or
otherwise invalid by any court or Governmental Entity other than notices
relating to Intellectual Property whose loss would not, individually or in the
aggregate, be reasonably likely to have a material adverse effect on the Company
and its Subsidiaries taken as a whole. There is no existing infringement,
misuse, or misappropriation of any Intellectual Property by others that is,
individually or in the aggregate, reasonably likely to have a material adverse
effect on the Company and its Subsidiaries taken as a whole. Neither the Company
nor any of its Subsidiaries has received any written notice alleging that the
operation of its business or that of any of its Subsidiaries infringes in any
material respect upon the rights of others in any Intellectual Property other
than allegations that are not, individually or in the aggregate, reasonably
likely to have a material adverse effect on the Company and its Subsidiaries
taken as a whole. For purposes of this Agreement, "Intellectual Property" shall
mean: trademarks, service marks, brand names, certification marks, trade dress,
assumed names, trade names and other indications of origin, good will associated
with the foregoing and registrations in any extension, modification or renewal
of any such registration or application; inventions, discoveries and ideas,
whether patentable or not in any jurisdiction; patents, applications for patents
(including but not limited to divisions, continuations, continuations in part
and renewal applications), and any renewals, extensions or reissues thereof, in
any jurisdiction; nonpublic information, trade secrets and confidential
information and rights in any jurisdiction to limit the use or
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<PAGE> 23
disclosure thereof by any Person; writings and other works, whether
copyrightable or not in any jurisdiction, and any renewals or extensions
thereof; and any similar intellectual property or proprietary rights.
Section 3.15 Material Contracts. The Company has filed as an exhibit to
its Annual Report on Form 10-K or another Company SEC Document all contracts to
which the Company or any of its Subsidiaries is a party or by which any of their
respective properties or assets may be bound that are or would be required to be
filed in an exhibit to an Annual Report on Form 10-K filed by it with the SEC as
of the date of this Agreement (collectively, the "Material Contracts"). Each of
the Material Contracts is valid and enforceable against the Company or its
Subsidiaries and/or their respective assets, as applicable, in accordance with
its terms, except that such enforcement may be subject to applicable bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium or other similar
laws of general applicability, now or hereafter in effect, affecting creditors'
rights, and the remedy of specific performance and injunctive and other forms of
equitable relief may be subject to equitable defenses and to the discretion of
the court before which any proceeding therefor may be brought. Neither the
Company nor any of its Subsidiaries, as the case may be, nor, to the knowledge
of the Company's executive officers, any other party, is in breach of or in
default under any Material Contract, and no event has occurred that with the
lapse of time or the giving of notice or both would constitute a default
thereunder by the Company or any of its Subsidiaries or, to the knowledge of the
Company's executive officers, any other Party, except for any such
unenforceability, default or event which, individually or in the aggregate, is
not reasonably likely to have a material adverse effect on the Company and its
Subsidiaries taken as a whole. No party to any Material Contract has given
notice to the Company of or made a claim against the Company with respect to any
breach or default thereunder, in any such case in which such breach or default,
individually or in the aggregate, is reasonably likely to have a material
adverse effect on the Company and its Subsidiaries taken as a whole.
Section 3.16 Labor Matters. Except as set forth on Schedule 3.16, there
are no controversies pending or, to the knowledge of the Company, threatened
between the Company or any of its Subsidiaries and any of their respective
employees, which controversies are reasonably likely to have a material adverse
effect on the Company and its Subsidiaries taken as a whole. Neither the Company
nor any of its Subsidiaries is involved in or threatened with any material labor
dispute, grievance or litigation or investigation by a governmental agency
relating to wages, labor, safety or discrimination matters involving any person
employed by the Company or any of its Subsidiaries, including, without
limitation, charges of unfair labor practices or discrimination complaints
except for any such dispute, grievance, litigation or investigation that would
not be reasonably likely to have a material adverse effect on the Company and
its Subsidiaries taken as a whole. Neither the Company nor any of its
Subsidiaries has engaged in any unfair labor practices within the meaning of the
National Labor Relations Act or similar such legislation of foreign
jurisdictions in a manner that would be reasonably likely to have a material
adverse effect on the Company and its Subsidiaries taken as a whole. Except as
set forth in Schedule 3.16, neither the Company nor any of its Subsidiaries is
presently a party to, or bound by, any collective bargaining agreement or union
contract with respect to any persons employed by the Company or any of its
Subsidiaries, and no collective bargaining agreement is being negotiated by the
Company or any of its Subsidiaries. Neither the Company nor any of its
Subsidiaries has any knowledge of any current or pending strikes, slowdowns,
work stoppages or lockouts, or threats thereof, by or with respect to any
employees of the Company or any of its Subsidiaries, and there have been no such
strikes, slowdowns, work stoppages or lockouts within the past three years. The
Company and each of its Subsidiaries is in compliance in all material respects
with all laws, regulations and orders relating to wages, the Occupational Safety
and Health Act, workers' compensation and the Worker Adjustment and Retraining
Notification Act or similar such legislation of foreign jurisdictions, except
where the failure to be in compliance would not have a material adverse effect
on the Company and its Subsidiaries taken as a whole.
Section 3.17 Restrictions on Business Activities. Except as set forth
on Schedule 3.17, there is no material agreement, judgment, injunction, order or
decree binding upon the Company or any of its Subsidiaries which has the effect
of prohibiting or impairing any material business operations of the Company or
any of its Subsidiaries.
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Section 3.18 Year 2000 Compliance. Except as set forth in the Company
SEC Documents, to the knowledge of the Company, the computer systems of the
Company and its Subsidiaries are Year 2000 Compliant or will be Year 2000
Compliant by December 31, 1999, except where the failure to be Year 2000
Compliant would not have a material adverse effect on the Company and its
Subsidiaries taken as a whole. The computer systems of the Company and its
Subsidiaries have the ability to interface properly and will continue to
interface properly with internal and external applications and systems of third
parties with which the Company and its Subsidiaries exchange data electronically
whether or not they are Year 2000 Compliant, except where the failure to so
interface would not have a material adverse effect on the Company and its
Subsidiaries taken as a whole. The Company has provided Parent and Purchaser
with access to true, complete and accurate descriptions in reasonable detail of
remedial or other work performed to date in order to ensure Year 2000 Compliance
by the Company and its Subsidiaries and a description in reasonable detail of
the balance of the work to be performed to ensure Year 2000 Compliance by the
Company and its Subsidiaries. In addition, the Company has provided Parent and
Purchaser with access to true, complete and accurate copies of materials
provided to it by third-party vendors with respect to remedial or other work
performed to date in order to ensure Year 2000 Compliance by the Company and its
Subsidiaries.
The term "Year 2000 Compliant" as used herein means that the computer
systems (i) are capable of recognizing, processing, managing, representing,
interpreting and manipulating correctly date related data for dates earlier and
later than January 1, 2000, including calculating, comparing, sorting, storing,
tagging and sequencing, without resulting in or causing logical or mathematical
errors or inconsistencies in any user-interface functionalities or otherwise,
including data input and retrieval, data storage, data fields, calculations,
reports, processing or any other input or output; (ii) have the ability to
provide date recognition for any data element without limitation (including
date-related data represented without a century designation, date-related data
whose year is represented by only two digits and date fields assigned special
values); (iii) have the ability to function automatically into and beyond the
year 2000 without human intervention and without any change in operations
associated with the advent of the year 2000; (iv) have the ability to interpret
data, dates and time correctly into and beyond the year 2000; (v) have the
ability not to produce noncompliance in existing information, nor otherwise
corrupt such data into and beyond the year 2000; (vi) have the ability to
process correctly after January 1, 2000 data containing dates before that date;
and (vii) have the ability to recognize all "leap years," including February 29,
2000.
Section 3.19 Vote Required. The affirmative vote of the holders of the
number of Shares of Company Common Stock entitled to be cast, consisting of a
majority of the total voting power of all Shares of Company Common Stock
outstanding, approving this Agreement, is the only vote of the holders of any
series or class of common stock required to approve and adopt the plan of merger
in this Agreement and to approve the Merger.
Section 3.20 Brokers. No agent, broker, finder, investment banker or
financial advisor or other firm or Person is or shall be entitled to any
brokerage or finder's fee or any other commission or similar fee in connection
with the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of the Company or any of its Subsidiaries or affiliates,
except that the Company has retained Morgan Stanley Dean Witter & Co. and CIBC
World Markets Corp. as its financial advisors in connection with the
transactions contemplated by this Agreement, and whose fees shall, subject to
Section 5.9, be paid by the Company in accordance with the Company's agreement,
as in effect on the date hereof, with such firms.
Section 3.21 Opinion of Financial Advisor. Each of Morgan Stanley Dean
Witter & Co. and CIBC World Markets Corp., financial advisors to the Company,
has advised the Company's Board of Directors that, in its opinion, as of the
date of such opinion, the consideration to be received by the holders of the
Company Common Stock (other than Parent and its affiliates) in the Offer and the
Merger, taken together, is fair, from a financial point of view, to such
stockholders.
Section 3.22 Information in Proxy Statement; Schedule 14D-1. None of
the information supplied by the Company for inclusion or incorporation by
reference in the Proxy Statement (if any) or the
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Schedule 14D-1 shall, at the date mailed to stockholders and at the time of the
meeting of stockholders (if any) to be held in connection with the Merger,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER
Parent and Purchaser jointly and severally represent and warrant to the
Company as follows:
Section 4.1 Organization. Each of Parent and Purchaser is a corporation
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and has all requisite corporate or other power
and authority to own, lease and operate its properties and to carry on its
business as now being conducted, except where the failure to be so organized,
existing and in good standing or to have such power or authority would not have
a material adverse effect on Parent and its Subsidiaries taken as a whole.
Parent and each of its Subsidiaries is duly qualified or licensed to do business
and in good standing in each jurisdiction in which the property owned, leased or
operated by it or the nature of the business conducted by it makes such
qualification or licensing necessary, except where the failure to be so duly
qualified or licensed and in good standing would not, in the aggregate, have a
material adverse effect on Parent and its Subsidiaries, taken as a whole.
Section 4.2 Authorization; Validity of Agreement; Necessary Action.
Each of Parent and Purchaser has full corporate power and authority to execute
and deliver this Agreement and to consummate the transactions contemplated
hereby. The execution, delivery and performance by Parent and Purchaser of this
Agreement, and the consummation by them of the transactions contemplated hereby,
have been duly authorized by the Management Board and/or Supervisory Board of
Parent and the Board of Directors of Purchaser and no other corporate action on
the part of Parent and Purchaser is necessary to authorize the execution and
delivery by Parent and Purchaser of this Agreement and the consummation by them
of the transactions contemplated hereby. This Agreement has been duly executed
and delivered by Parent and Purchaser, as the case may be, and, assuming due and
valid authorization, execution and delivery hereof by the Company, is a valid
and binding obligation of each of Parent and Purchaser, as the case may be,
enforceable against them in accordance with its respective terms, except that
(i) such enforcement may be subject to applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws, now or hereafter in effect,
affecting creditors' rights generally, and (ii) the remedy of specific
performance and injunctive and other forms of equitable relief may be subject to
equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought.
Section 4.3 Consents and Approvals; No Violations. Except for filings,
permits, authorizations, consents and approvals as may be required under, and
other applicable requirements of, the Exchange Act, the HSR Act, state or
foreign laws relating to takeovers, state securities or blue sky laws, the DGCL,
foreign antitrust laws or the laws of other states in which Parent or Purchaser
is qualified to do or is doing business, neither the execution, delivery or
performance of this Agreement by Parent and Purchaser nor the consummation by
Parent and Purchaser of the transactions contemplated hereby nor compliance by
Parent and Purchaser with any of the provisions hereof shall (i) conflict with
or result in any breach of any provision of the respective certificate of
incorporation or by-laws or similar organizational documents of Parent or
Purchaser, (ii) require on the part of Parent or Purchaser any filing with, or
permit, authorization, consent or approval of, any Governmental Entity, (iii)
result in a violation or breach of, or constitute (with or without due notice or
lapse of time or both) a default (or give rise to any right of termination,
cancellation or acceleration) under, any of the terms, conditions or provisions
of any note, bond, mortgage, indenture, lease, license, contract, agreement or
other instrument or obligation to which Parent or Purchaser is a party or by
which any of them or any of their properties or assets may be bound, except for
such violations, breaches and defaults (or rights of termination, cancellation
or acceleration) as
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to which requisite waivers or consents have been obtained, or (iv) violate any
order, writ, injunction, decree, statute, rule or regulation applicable to
Parent or Purchaser or any of their properties or assets, excluding from the
foregoing clauses (ii), (iii) or (iv) where the failure to obtain such permits,
authorizations, consents or approvals or to make such filings, or the existence
of such violations, breaches or defaults, would not, individually or in the
aggregate, have a material adverse effect on Parent and Purchaser taken as a
whole and shall not materially impair the ability of Parent or Purchaser to
consummate the transactions contemplated hereby.
Section 4.4 Information in Proxy Statement; Schedule 14D-9. None of the
information supplied by Parent or Purchaser for inclusion or incorporation by
reference in the Proxy Statement or the Schedule 14D-9 shall, at the date mailed
to stockholders and at the time of the meeting of stockholders (if any) to be
held in connection with the Merger, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they are made, not misleading.
Section 4.5 Financing. Parent and Purchaser have sufficient funds
available (through cash on hand and existing credit arrangements or otherwise)
to purchase all the Shares outstanding on a fully diluted basis and to repay all
outstanding indebtedness of the Company and its Subsidiaries that may become due
in connection with the transactions contemplated hereby and to pay all fees and
expenses related to the transactions contemplated by this Agreement that are
required to be paid by it hereunder.
Section 4.6 Share Ownership. None of Parent, Purchaser or any of their
respective "affiliates" or "associates" (as those terms are defined under Rule
12b-2 under the Exchange Act) beneficially own any Shares.
Section 4.7 Purchaser's Operations. Purchaser was formed solely for the
purpose of engaging in the transactions contemplated hereby and has not engaged
in any business activities or conducted any operations other than in connection
with the transactions contemplated hereby.
Section 4.8 Brokers or Finders. Parent represents, as to itself, its
Subsidiaries and its affiliates, that no agent, broker, investment banker,
financial advisor or other firm or Person is or shall be entitled to any
brokers' or finders' fee or any other commission or similar fee in connection
with any of the transactions contemplated by this Agreement, except J.P. Morgan
& Co. Incorporated, whose fees and expenses shall be paid or caused to be paid
by Parent.
ARTICLE V
COVENANTS
Section 5.1 Interim Operations of the Company.
(a) The Company covenants and agrees that, except (w) as
contemplated by this Agreement, (x) as disclosed in Schedule 5.1, (y) as agreed
in writing by Parent or Purchaser, after the date hereof, and prior to the
Appointment Date, or (z) as required by applicable laws or regulations of any
Governmental Entity, national stock exchange or over-the-counter market, the
business of the Company and its Subsidiaries shall be conducted only in the
ordinary and usual course of business consistent with past practices, subject to
the following:
(i) the Company shall not, directly or indirectly,
(1) sell, transfer or pledge or agree to sell, transfer or pledge any
Company Common Stock or any capital stock or other securities of the
Company or capital stock or any other securities of any of its
Subsidiaries beneficially owned by it, either directly or indirectly;
(2) amend or cause to be amended its Certificate of Incorporation or
By-laws or similar organizational documents of any of its Subsidiaries;
or (3) split, combine or reclassify the
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outstanding Company Common Stock or any outstanding capital stock of
any of the Subsidiaries of the Company;
(ii) neither the Company nor any of its Subsidiaries
shall: (1) declare, set aside or pay any dividend or other distribution
payable in cash, stock or property with respect to its capital stock;
(2) issue, sell, pledge, dispose of or encumber any additional shares
of, or securities convertible into or exchangeable for, or options,
warrants, calls, commitments or rights of any kind to acquire, any
shares of capital stock of any class of the Company or its
Subsidiaries, other than shares of Company Common Stock reserved for
issuances pursuant to the exercise of Options outstanding on the date
hereof; (3) transfer, lease, license, sell, mortgage, pledge, dispose
of or encumber any right to any trademark, service mark or trade name
owned by it or over which it has any right whatsoever, including,
without limitation, enter into any franchise agreements (excluding
transactions consummated or agreements made pursuant to commitments
existing prior to the date hereof and disclosed in writing to Parent
and Purchaser other than the construction projects in Revere,
Massachusetts or downtown Cleveland, Ohio); (4) transfer, lease,
license, sell, mortgage, pledge, dispose of, purchase, acquire or
encumber any (A) real property (other than furniture, fixtures and
equipment which shall be treated as set in clause (B) of this Section
5.1(a)(ii)(4)), including, without limitation any motel or other
lodging facility or (B) any personal property having an aggregate fair
market value of $100,000 in a single transaction or a series of related
transactions (excluding for purposes of this clause (4) transactions
consummated or agreements made pursuant to commitments existing prior
to the date hereof and disclosed in writing to Parent and Purchaser
other than the construction projects in Revere, Massachusetts or
downtown Cleveland, Ohio); (5) incur or modify any indebtedness or
other liability, provided however, that the Company may borrow money
for use in the ordinary and usual course of business, provided further,
however, that, neither the Company nor any of its Subsidiaries shall
make any borrowing or incur any indebtedness or other liability that
would cause the Company's consolidated debt to exceed $502.0 million
(excluding borrowings made or indebtedness incurred solely to finance
payments required to be made by the Company pursuant to Section 5.9);
provided, however, that the Company shall have the right to cure any
failure to comply with this Section 5.1(a)(ii)(5) by taking, no later
than the Expiration Date, any action that is not otherwise in violation
of the provisions of this Agreement (which action may include, without
limitation, additional capital contributions from one or more of its
stockholders without any further issuance of equity or other securities
to any such stockholder); (6) enter into any agreement for the
management of any motel or other lodging facility by the Company or any
of its Subsidiaries or management by any other Person of a motel or
other lodging facility owned or leased by the Company or any of its
Subsidiaries; (7) make any capital expenditures in excess of $2.1
million during the Company's third fiscal quarter and $1.6
million during the Company's fourth fiscal quarter of 1999; or (8)
redeem, purchase or otherwise acquire directly or indirectly any of its
capital stock;
(iii) neither the Company nor any of its Subsidiaries
shall modify, amend or terminate any of its Significant Contracts or
waive, release or assign any rights or claims thereunder;
(iv) neither the Company nor any of its Subsidiaries
shall permit any material insurance policy naming it as a beneficiary
or a loss payable payee to be cancelled or terminated without notice to
Parent;
(v) neither the Company nor any of its Subsidiaries
shall: (1) assume, guarantee, endorse or otherwise become liable or
responsible (whether directly, contingently or otherwise) for the
obligations of any other Person; (2) make any loans, advances or
capital contributions to, or investments in, or acquisitions of, any
other Person (other than to Subsidiaries of the Company); or (3) enter
into any commitment or transaction with respect to any of the foregoing
(including, but not limited to, any borrowing, capital expenditure or
purchase, sale or lease of assets);
(vi) neither the Company nor any of its Subsidiaries
shall change any of the accounting methods used by it unless required
by GAAP or applicable law;
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(vii) neither the Company nor any of its Subsidiaries
shall adopt a plan of complete or partial liquidation, dissolution,
merger, consolidation, restructuring, recapitalization or other
reorganization of the Company or any of its Subsidiaries (other than
the Merger);
(viii) neither the Company nor any of its
Subsidiaries shall take, or agree to commit to take, any action that
would make any representation or warranty of the Company contained
herein inaccurate in any material respect at, or as of any time prior
to, the Effective Time (except for representations made as of a
specific date);
(ix) except as required under Section 2.4, the
Company shall not amend or change the period (or permit any
acceleration, amendment or change) of exercisability of Options granted
under any Option Plan or authorize cash payments in exchange for any
Options;
(x) neither the Company nor any Subsidiary shall
increase the compensation payable or to become payable to its officers,
directors or key employees;
(xi) neither the Company nor any of its Subsidiaries
shall terminate any officer or other key employee, grant any severance
or termination pay to, or enter into any employment or severance
agreement with, any director or officer of the Company or any
Subsidiary or establish, adopt, enter into or terminate or amend any
Benefit Plan;
(xii) neither the Company nor any of its Subsidiaries
shall fail to use best efforts to preserve intact the business
organizations, goodwill, rights, licenses, permits and franchises of
the Company and its Subsidiaries and maintain its existing
relationships with customers, suppliers and other Persons having
business dealings with them;
(xiii) neither the Company nor any of its
Subsidiaries shall fail to keep in full force and effect adequate
insurance overages and maintain and keep its properties and assets in
good repair, working order and condition, normal wear and tear
excepted; and
(xiv) neither the Company nor any of its Subsidiaries
shall authorize or enter into an agreement to do any of the foregoing.
(b) In the event that Purchaser shall extend the Offer in
accordance with clause (ii)(A) of Section 1.1(c) and not in the event that
Purchaser shall extend the Offer at the written demand of the Company in
accordance with clause (ii)(B) of Section 1.1(c):
(i) Notwithstanding the provisions of Section
5.1(a)(ii)(3), the Company and its Subsidiaries shall, during the
period of such extension, be permitted to transfer, lease, license,
sell, mortgage, pledge, dispose of or encumber any right to any
trademark, service mark or trade name owned by it or over which it has
any right whatsoever, including, without limitation, to enter into any
franchise agreements in the ordinary and usual course of business
consistent with past practices;
(ii) Notwithstanding the provisions of Section
5.1(a)(ii)(4), the Company and its Subsidiaries shall, during the
period of such extension, be permitted to transfer, lease, license,
sell, mortgage, pledge, dispose of, purchase, acquire or encumber any
other assets, including, without limitation any motel or other lodging
facility in the ordinary and usual course of business consistent with
past practices;
(iii) Notwithstanding the provisions of Section
5.1(a)(ii)(6), the Company and its Subsidiaries shall, during the
period of such extension, be permitted to enter into any agreement for
the management of any motel or other lodging facility by the Company or
any of its Subsidiaries or management by any other Person of a motel or
other lodging facility owned or leased by the Company or any of its
Subsidiaries in the ordinary and usual course of business consistent
with past practices;
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(iv) Notwithstanding the provisions of Section
5.1(a)(iii), the Company and its Subsidiaries shall, during the period
of such extension, be permitted to modify, amend or terminate any of
its Significant Contracts or waive, release or assign any rights or
claims thereunder in the ordinary and usual course of business
consistent with past practices; and
(v) Prior to taking any of the actions permitted
pursuant to Sections 5.1(b)(i) through 5.1(b)(iv), the Company shall,
in each instance, consult with Parent or Purchaser and, from time to
time thereafter at the request of Purchaser or Parent, shall keep them
fully informed with respect to that action.
Section 5.2 Access to Information.
(a) Upon reasonable notice and during normal business hours,
the Company shall (and shall cause each of its Subsidiaries to) afford to the
officers, employees, accountants, consultants, counsel, financing sources and
other representatives (collectively, "Representatives") of Parent, access to all
its properties, employees, books, contracts, commitments and records (including
tax returns), and the Company shall (and shall cause each of its Subsidiaries
to) furnish promptly to Parent, at the sole expense of Parent (i) a copy of each
report, schedule, registration statement and other document filed or received by
it during such period pursuant to the requirements of federal securities laws
and (ii) all other information concerning its business, properties and personnel
as Parent may reasonably request; provided, however, that nothing herein shall
require either the Company or any of its Subsidiaries to disclose any
information to Parent or its Representatives if such disclosure would be in
violation of applicable laws or regulations of any Governmental Entity.
(b) Parent shall hold any such information which is nonpublic
in confidence in accordance with the provisions of the Confidentiality Agreement
between the Company and Parent, dated March 5, 1998, as confirmed, supplemented
and extended by the letter agreement between Parent and the Company dated June
14, 1999 (the "Confidentiality Agreement").
Section 5.3 Consents and Approvals. Each of the Company, Parent and
Purchaser shall take all actions necessary to comply promptly with all legal
requirements which may be imposed on it with respect to this Agreement and the
transactions contemplated hereby (which actions shall include, without
limitation, promptly furnishing all information required under the HSR Act and
in connection with approvals of or filings with any other Governmental Entity)
and shall promptly cooperate with and furnish information to each other in
connection with any such requirements imposed upon any of them or any of their
Subsidiaries in connection with this Agreement and the transactions contemplated
hereby. Each of the Company, Parent and Purchaser shall, and shall cause its
Subsidiaries to, take all actions necessary to obtain (and shall cooperate with
each other in obtaining) any consent, authorization, order or approval of, or
any exemption by, any Governmental Entity or other public or private third party
required to be obtained or made by Parent, Purchaser, the Company or any of
their Subsidiaries in connection with the Merger or the taking of any action
contemplated or by this Agreement. Without limiting the foregoing, the Company,
Parent and Purchaser shall file as soon as practicable notifications under the
HSR Act and respond as promptly as practicable to any inquiries received from
the Federal Trade Commission and the Antitrust Division of the Department of
Justice for additional information or documentation and respond as promptly as
practicable to all inquiries and requests received from any State Attorney
General or other Governmental Entity in connection with antitrust matters.
Concurrently with the filing of notifications under the HSR Act or as soon
thereafter as practicable, the Company and Parent shall each request early
termination of the HSR Act waiting period. In addition, no party hereto shall
take any action after the date hereof that would reasonably be expected to
materially delay the obtaining of, or result in not obtaining, any permission,
approval or consent from any Governmental Entity necessary to be obtained prior
to Closing.
Section 5.4 No Solicitation.
(a) The Company and its Subsidiaries shall not, and shall use
their best efforts to cause their respective officers, directors, employees and
investment bankers, attorneys or other agents
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retained by or acting on behalf of the Company or any of its Subsidiaries not
to, (i) initiate, solicit or encourage (including by way of furnishing
non-public information), directly or indirectly, any inquiries or the making of
any proposal that constitutes or is reasonably likely to lead to any Acquisition
Proposal (as defined in Section 5.4(e) hereof), (ii) except as permitted below,
engage in negotiations or discussions with, or furnish any information or data
to any third party relating to an Acquisition Proposal, or (iii) enter into any
agreement with respect to any Acquisition Proposal or approve any Acquisition
Proposal. The Company will also promptly request each Person that has heretofore
executed a confidentiality agreement in connection with its consideration of an
Acquisition Proposal to return or destroy all non-public information furnished
to such Person by or on behalf of the Company or any of its Subsidiaries.
(b) Notwithstanding anything to the contrary contained in this
Agreement, the Company and its Board of Directors and its Representatives (i)
may participate in discussions or negotiations (including, as a part thereof,
making any counterproposal) with or furnish information to any third party
making an unsolicited Acquisition Proposal (a "Potential Acquiror") if the Board
determines in good faith, based upon advice of its outside legal counsel, that
the failure to participate in such discussions or negotiations or to furnish
such information would be inconsistent with the Board's fiduciary duties under
applicable law, and (ii) shall be permitted to take and disclose to the
Company's stockholders a position with respect to any tender or exchange offer
by a third party, or amend or withdraw such position, pursuant to Rules 14d-9
and 14e-2 of the Exchange Act.
(c) Any non-public information furnished to a Potential
Acquiror shall be limited to that non-public information that has been furnished
to Parent and its Representatives and shall be furnished pursuant to a
confidentiality agreement substantially similar to the confidentiality
provisions of the Confidentiality Agreement. In the event that the Company shall
determine to provide any information as described above, or shall receive any
Acquisition Proposal, it shall promptly inform Parent in writing as to the fact
that information is to be provided and shall furnish to Parent the identity of
the recipient of such information and the Potential Acquiror and the terms of
such Acquisition Proposal, except to the extent that the Board determines in
good faith, based upon advice of its outside legal counsel, that any such action
described in this sentence would be inconsistent with the Board's fiduciary
duties under applicable law. The Company shall keep Parent reasonably informed
of the status of any such Acquisition Proposal except to the extent that the
Board determines in good faith, based upon advice of its outside legal counsel,
that any such action would be inconsistent with the Board's fiduciary duties
under applicable law.
(d) The Board of Directors of the Company shall not (i)
withdraw or modify or propose to withdraw or modify, in any manner adverse to
Parent, the approval or recommendation of such Board of Directors of this
Agreement, the Offer or the Merger or (ii) approve or recommend, or propose to
approve or recommend, any Acquisition Proposal; provided that, the Company's
Board of Directors may withdraw or modify or propose to withdraw or modify its
recommendation of this Agreement, the Offer or the Merger or recommend or
propose to recommend an Acquisition Proposal if, in each case, the Board
determines in good faith, after receiving written advice from its financial
advisor, that such Acquisition Proposal is a Superior Proposal and determines in
good faith, based upon advice of its outside legal counsel, that it would be
inconsistent not to do so in order to comply with its fiduciary duties to the
Company's stockholders under applicable law. The Company shall provide
reasonable notice to Parent to the effect that it is taking such action. The
Board of Directors of the Company shall not authorize the Company to enter into
any agreement with respect to an Acquisition Proposal (even if it is a Superior
Proposal).
(e) For purposes of this Agreement, "Acquisition Proposal"
shall mean any offer or proposal, whether in writing or otherwise, made by a
third party to acquire beneficial ownership (as defined under Rule 13(d) of the
Exchange Act) of all or a material portion of the assets of, or any material
equity interest in, the Company or its material Subsidiaries pursuant to a
merger, consolidation or other business combination, recapitalization, sale of
shares of capital stock, sale of assets, tender offer or exchange offer or
similar transaction involving the Company or its material Subsidiaries (other
than the transactions contemplated by this Agreement).
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(f) The term "Superior Proposal" means any proposal to
acquire, directly or indirectly, for consideration consisting of cash or
securities, more than a majority of the Shares then outstanding or all or
substantially all the assets of the Company, and otherwise on terms which the
Board of Directors of the Company determines in good faith to be more favorable
to the Company and its stockholders than the Offer and the Merger (based on
written advice of the Company's financial advisor that the value of the
consideration provided for in such proposal is superior to the value of the
consideration provided for in the Offer and the Merger), for which financing, to
the extent required, is then committed.
Section 5.5 Publicity. The initial press release with respect to the
execution of this Agreement shall be a joint press release reasonably acceptable
to Parent and the Company. Thereafter, until the earlier of the Appointment Date
or the date on which this Agreement is terminated in accordance with its terms,
neither the Company, Parent nor any of their respective affiliates shall issue
or cause the publication of any press release with respect to the Merger, this
Agreement or the other transactions contemplated hereby without notifying the
other party, except as may be required by law or by any listing agreement with a
national securities exchange.
Section 5.6 Notification of Certain Matters. The Company shall give
prompt notice to Parent and Parent shall give prompt notice to the Company, of
(i) the occurrence, or non-occurrence of any event the occurrence, or
non-occurrence of which would cause any representation or warranty contained in
this Agreement to be untrue or inaccurate in any respect at or prior to the
Appointment Date, (ii) any material failure of the Company or Parent, as the
case may be, to comply with or satisfy any covenant or agreement to be complied
with or satisfied by it hereunder, and (iii) the occurrence or failure to occur
of an event or condition that would cause any condition to the consummation of
the Offer or the Merger not to be satisfied; provided, however, that the
delivery of any notice pursuant to this Section 5.6 shall not limit or otherwise
affect the remedies available hereunder to the party receiving such notice.
Section 5.7 Directors' and Officers' Insurance and Indemnification. (a)
From and after the consummation of the Offer, Parent shall cause the Surviving
Corporation (which, for purposes of this Section 5.7, shall include the
provision of necessary funds to the Surviving Corporation, if necessary) to
indemnify, defend and hold harmless any person who is now, or has been at any
time prior to the date hereof, or who becomes prior to the Effective Time, an
officer, director, employee or agent (the "Indemnified Party") of the Company or
any of its Subsidiaries against all losses, claims, damages, liabilities, costs
and expenses (including attorneys' fees and expenses), judgments, fines, losses,
and amounts paid in settlement in connection with any actual or threatened
action, suit, claim, proceeding or investigation (each a "Claim") to the extent
that any such Claim is based on, or arises out of, (i) the fact that such person
is or was a director, officer, employee or agent of the Company or any of its
Subsidiaries or is or was serving at the request of the Company or any of its
Subsidiaries as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, or (ii) this Agreement,
or any of the transactions contemplated hereby, in each case to the extent that
any such Claim pertains to any matter or fact arising, existing, or occurring
prior to or at the Effective Time, regardless of whether such Claim is asserted
or claimed prior to, at or after the Effective Time, to the full extent
permitted under Delaware law or the Company's Certificate of Incorporation,
By-laws or indemnification agreements in effect at the date hereof, including
provisions relating to advancement of expenses incurred in the defense of any
action or suit. Without limiting the foregoing, in the event any Indemnified
Party becomes involved in any capacity in any Claim of the type described above,
then from and after consummation of the Offer, Parent shall cause the Company
(or the Surviving Corporation if after the Effective Time) (which, for purposes
of this Section 5.7, shall include the provision of necessary funds to the
Surviving Corporation, if necessary) to periodically advance to such Indemnified
Party its legal and other expenses (including the cost of any investigation and
preparation incurred in connection therewith), subject to the provision by such
Indemnified Party of an undertaking to reimburse the amounts so advanced in the
event of a final non-appealable determination by a court of competent
jurisdiction that such Indemnified Party is not entitled thereto.
(b) All rights to indemnification and all limitations of
liability existing in favor of the Indemnified Party as provided under Delaware
law or the Company's Certificate of Incorporation, By-laws
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or indemnification agreements in effect at the date hereof shall survive the
Merger and shall continue in full force and effect, without any amendment
thereto, for a period of six years from the Effective Time; provided, however,
that in the event any Claim or Claims are asserted or made within such six year
period, all rights to indemnification in respect of any such Claim or Claims
shall continue until disposition of any and all such Claims; provided further,
however, that any determination required to be made with respect to whether an
Indemnified Party's conduct complies with the standards set forth under Delaware
law, the Company's Certificate of Incorporation or By-laws or such agreements,
as the case may be, shall be made by independent legal counsel selected by the
Indemnified Party and reasonably acceptable to Parent; and provided further,
however, that nothing in this Section 5.7 shall impair any rights or obligations
of any present or former directors or officers of the Company.
(c) In the event Parent or Purchaser or any of their
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
its properties and assets to any person, then, and in each such case, to the
extent necessary to effectuate the purposes of this Section 5.7, proper
provision shall be made so that the successors and assigns of Parent and
Purchaser assume the obligations set forth in this Section 5.7; provided that,
in the case of any such assignment by Parent or Purchaser, Parent and Purchaser
shall remain liable for all of their respective obligations under this
Agreement.
(d) For a period of six years after the Effective Time, Parent
shall cause the Surviving Corporation (which, for purposes of this Section
5.7(d), shall include the provision of necessary funds to the Surviving
Corporation, if necessary) to maintain in effect the current policies of
directors' and officers' liability insurance maintained by the Company (provided
that Parent may substitute therefor policies with reputable and financially
sound carriers of at least the same coverage and amounts containing terms and
conditions which are no less advantageous to the insured parties) with respect
to claims arising from or related to facts or events that occurred at or before
the Effective Time; provided, however, that Parent shall not be obligated to
cause the Surviving Corporation to make annual premium payments for such
insurance to the extent such premiums exceed 200% of the annual premiums paid as
of the date hereof by the Company for such insurance (such 200% amount, the
"Maximum Premium"). If such insurance coverage cannot be obtained at all, or can
only be obtained at an annual premium in excess of the Maximum Premium, Parent
shall cause the Surviving Corporation (which, for purposes of this Section
5.7(d), shall include the provision of necessary funds to the Surviving
Corporation, if necessary) to maintain the most advantageous policies of
directors' and officers' insurance obtainable for an annual premium equal to the
Maximum Premium; provided further, if such insurance coverage cannot be obtained
at all, Parent shall purchase all available run-off insurance policies with
respect to pre-existing insurance in an amount that, together with all other
insurance purchased pursuant to this Section 5.7(d), does not exceed the Maximum
Premium. The Company represents to Parent that the current annualized premium on
current policies of directors' and officers' liability insurance maintained by
the Company is no more than $200,000.
Section 5.8 Further Assurances. Subject to the terms and conditions
herein provided, each of the parties hereto agrees to use their respective
reasonable best efforts to take, or cause to be taken, all action, and to do, or
cause to be done, all things necessary, proper or advisable under applicable
laws and regulations to consummate and make effective the transactions
contemplated by this Agreement. If at any time after the Closing Date any
further action is necessary or desirable to carry out the purposes of this
Agreement, the parties hereto shall use their respective reasonable efforts to
take or cause to be taken all such necessary action, including, without
limitation, the execution and delivery of such further instruments and documents
as may be reasonably requested by the other party for such purposes or otherwise
to consummate and make effective the transactions contemplated hereby.
Section 5.9 Fees and Expenses. All costs and expenses incurred in
connection with this Agreement and the transactions contemplated hereby shall be
paid by the party incurring such expenses. The Company agrees that all legal,
accounting, advisory, investment banking, brokerage and agency fees and expenses
that have been or will be incurred by it in connection with this Agreement and
the transactions contemplated hereby shall not, in the aggregate, exceed
$8,000,000, and that all such fees
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and expenses shall be documented in reasonable detail. The Company has provided
Parent and Purchaser with a reasonable estimate of all such fees and expenses as
of the date hereof.
Section 5.10 Employee Matters.
(a) Prior to the Effective Time, the Company shall take all
such steps as may be required to cause the transactions contemplated by Section
2.4 and any other dispositions of Company equity securities (including
derivative securities) in connection with this Agreement or the transactions
contemplated hereby by each individual who is a director or officer of the
Company, to be exempt under Rule 16b-3 promulgated under the Exchange Act, such
steps to be taken in accordance with the interpretive letter dated January 12,
1999, issued by the Securities and Exchange Commission to Skadden, Arps, Slate,
Meagher & Flom LLP.
(b) Parent shall cause the Surviving Corporation to treat
service with the Company and any Subsidiary prior to the Effective Time by each
employee of the Company and any Subsidiary in the same manner as service with
the Parent or its Subsidiaries is treated for eligibility and vesting purposes
(and excluding benefit accrual purposes, including, without limitation, benefit
service under any defined benefit pension plan) under any benefit plan of Parent
or its Subsidiaries in which any such employee is eligible to participate
following the Effective Time; provided, however that nothing in this Section
5.10(b) shall obligate Parent or the Surviving Corporation to (i) make any
particular benefit plan or benefit available to any such employee, (ii) continue
any particular benefit plan or benefit or (iii) refrain from terminating or
amending any particular benefit plan or benefit.
(c) Parent agrees to cause the Surviving Corporation to honor,
in accordance with their terms, and to make required payments when due under,
all Benefit Plans maintained or contributed to by the Company or any Subsidiary
or to which the Company or any Subsidiary is a party (including but not limited
to employment, incentive and severance agreements and arrangements), that are
applicable with respect to any employee, director or stockholder of the Company
or any Subsidiary (whether current, former or retired) or their beneficiaries;
provided, however, that the foregoing shall not preclude the Surviving
Corporation from amending or terminating any such Benefit Plan in accordance
with its terms. Parent, Purchaser and the Company each acknowledge that
consummation of the Offer shall constitute a "Change in Control" for purposes of
each Benefit Plan in which such concept is relevant, notwithstanding any
provision of any such Benefit Plan to the contrary.
(d) With respect to any welfare plans in which employees of
the Company and its Subsidiaries are eligible to participate after the Effective
Time, Parent shall, and shall cause the Surviving Corporation to (i) waive all
limitations as to preexisting conditions exclusions and waiting periods with
respect to participation and coverage requirements applicable to such employees
and (ii) provide each such employee with credit for any co-payments and
deductibles paid prior to the Effective Time in satisfying any applicable
deductible or out-of-pocket requirements under any such plan.
(e) As soon as practicable following December 31, 1999 Parent
shall or shall cause the Surviving Corporation to pay to each person who is a
participant in the Company's 1999 Management Incentive Plan (the "MIP") as of
the date hereof a cash lump sum payment equal to the amounts set forth opposite
their respective names on Schedule 5.10(e) prorated as set forth in the next
sentence and otherwise in accordance with the MIP. Each such amount shall be
prorated by multiplying it by a fraction, (i) the numerator of which is (A) the
number of days that have elapsed during calendar 1999 up to and including the
consummation of the Offer plus (B) thirty (but in no event shall the numerator
be greater than the total number of days during calendar 1999) and (ii) the
denominator of which is the total number of days in calendar 1999. Parent shall
or shall cause the Surviving Corporation to maintain in effect through December
31, 1999 each other Benefit Plan (other than the MIP) that is not subject to
ERISA and is an annual bonus plan listed on Schedule 5.10(e), in each case as
such Benefit Plan is in effect on the date hereof.
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ARTICLE VI
CONDITIONS
Section 6.1 Conditions to Each Party's Obligation To Effect the Merger.
The respective obligation of each party to effect the Merger shall be subject to
the satisfaction on or prior to the Closing Date of each of the following
conditions:
(a) Stockholder Approval. This Agreement shall have been
approved and adopted by the requisite vote of the holders of Company Common
Stock, if required by applicable law and the Certificate of Incorporation, in
order to consummate the Merger;
(b) HSR Act. Any waiting period applicable to the Merger under
the HSR Act shall have expired or been terminated;
(c) Statutes. No statute, rule, order, decree or regulation
shall have been enacted or promulgated by any foreign or domestic Governmental
Entity of competent jurisdiction which prohibits the consummation of the Merger;
(d) Consents. All foreign or domestic governmental consents,
orders and approvals required for the consummation of the Merger and the
transactions contemplated hereby shall have been obtained and shall be in effect
at the Effective Time, except for such consents the failure of which to obtain
would not have a material adverse effect on the Company and its Subsidiaries
taken as a whole;
(e) Injunctions. There shall be no order or injunction of a
foreign or United States federal or state court or other Governmental Entity of
competent jurisdiction in effect precluding, restraining, enjoining or
prohibiting consummation of the Merger; and
(f) Purchase of Shares in Offer. Parent, Purchaser or their
affiliates shall have accepted for payment and paid for shares of Company Common
Stock pursuant to the Offer or the Tender Agreement, except that Parent and
Purchaser shall not be entitled to rely on this condition if Purchaser shall
have failed to purchase Shares pursuant to the Offer in breach of its
obligations under this Agreement.
ARTICLE VII
TERMINATION
Section 7.1 Termination. Anything herein or elsewhere to the contrary
notwithstanding, this Agreement may be terminated and the Merger contemplated
herein may be abandoned at any time prior to the Effective Time, whether before
or after stockholder approval thereof:
(a) By the mutual consent of the Management Board of Parent
and/or the Supervisory Board of Parent, on the one hand, and the Board of
Directors of the Company, on the other.
(b) By either of the Board of Directors of the Company, on the
one hand, or the Management Board and/or the Supervisory Board of Parent, on the
other:
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(i) if any Governmental Entity or court of competent
jurisdiction shall have issued an order, decree, injunction or ruling
or taken any other action (which order, decree, injunction, ruling or
other action the parties hereto shall use their respective reasonable
best efforts to lift), in each case permanently restraining, enjoining
or otherwise prohibiting the transactions contemplated by this
Agreement and such order, decree, injunction, ruling or other action
shall have become final and non-appealable; provided, however, that the
party seeking to terminate this Agreement shall have used all
reasonable best efforts to challenge such order, decree, injunction or
ruling;
(ii) if Parent or Purchaser shall have terminated the
Offer and any option granted in the Tender Agreement has not been
exercised and is not exercisable, provided, however, that the right to
terminate this Agreement under this Section 7.1(b) shall not be
available to any party whose failure to fulfill any obligation under
this Agreement has been the cause of, or resulted in, the failure of
Purchaser to purchase Shares in the Offer; or
(iii) if the Offer shall not have been consummated
prior to the Expiration Date as the same may be extended from time to
time in accordance with Section 1.1(c) and any option granted in the
Tender Agreement has not been exercised and is not exercisable;
provided that the right to terminate this Agreement under this Section
7.1(b)(iii) shall not be available to any party that has breached in
any material respect its obligations under this Agreement in any manner
that has proximately contributed to the occurrence of the failure of
the Offer to be consummated.
(c) By the Board of Directors of the Company,
(i) if Parent, Purchaser or any of their affiliates
shall have failed to commence the Offer on or prior to five business
days following the date of the initial public announcement of the
Offer; provided, however, that the Company may not terminate this
Agreement pursuant to this Section 7.1(c)(i) if the Company is in
material breach of this Agreement; or
(ii) if, prior to the purchase of shares of Company
Common Stock pursuant to the Offer, there shall be a material breach by
either Parent or Purchaser of any of the material covenants or
agreements applicable to it contained in this Agreement that is not
cured within 15 business days after Parent and Purchaser receive
written notice from the Company of the occurrence of such breach.
(d) By the Management Board and/or the Supervisory Board of
Parent, if, due to an occurrence that if occurring after the commencement of the
Offer would result in a failure to satisfy any of the conditions set forth in
Annex A hereto, Parent, Purchaser, or any of their affiliates shall have failed
to commence the Offer on or prior to five business days following the date of
the initial public announcement of the Offer; provided, however, that Parent may
not terminate this Agreement pursuant to this Section 7.1(d)(i) if Parent or
Purchaser is in material breach of this Agreement.
Section 7.2 Effect of Termination. In the event of the termination of
this Agreement as provided in Section 7.1, written notice thereof shall
forthwith be given to the other party or parties specifying the provision hereof
pursuant to which such termination is made, and this Agreement (other than this
Section 7.2 and Sections 3.20, 4.8, 5.2(b) and 7.3) shall forthwith become null
and void, and there shall be no liability on the part of the Parent or the
Company or any of their respective Representatives, except nothing in this
Section 7.2 shall relieve any party of liability for fraud or for breach of this
Agreement (other than a breach of this Agreement arising solely out of the
inaccuracy of a representation or warranty made by the Company that was accurate
when made on the date hereof and which inaccuracy was not caused by the
intentional actions or omissions by the Company).
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Section 7.3 Payment of Non-Recommendation Fee.
(a) In the event that the Board of Directors of the Company
shall, in accordance with Section 5.4(d), (i) withdraw or modify or propose to
withdraw or modify, in any manner adverse to Parent or Purchaser, the approval
or recommendation of such Board of Directors of this Agreement, the Offer or the
Merger or (ii) approve or recommend, or propose to approve or recommend, any
Acquisition Proposal, then the Company shall, on the next succeeding business
day, pay to Parent by wire transfer of immediately available funds to an account
designated by Parent an amount equal to $30,000,000 (the "Non-Recommendation
Fee").
(b) The Company acknowledges that the agreements contained in
this Section 7.3 are an integral part of the transactions contemplated by this
Agreement, and that, without these agreements, Parent would not enter into this
Agreement; accordingly, if the Company fails to promptly pay any amount due
pursuant to and in accordance with this Section 7.3, and, in order to obtain
such payment, the other party commences a suit which results in a judgment
against the Company for the Non-Recommendation Fee set forth in this Section
7.3, the Company shall also pay to Parent its out-of-pocket costs and expenses
incurred in connection with such litigation.
ARTICLE VIII
MISCELLANEOUS
Section 8.1 Amendment and Modification. Subject to applicable law, this
Agreement may be amended, modified and supplemented in any and all respects,
whether before or after any vote of the stockholders of the Company contemplated
hereby, by written agreement of the parties hereto (which in the case of the
Company shall require approval of its Board of Directors and include approvals
as contemplated in Section 1.3(b)), at any time prior to the Closing Date with
respect to any of the terms contained herein; provided, however, that after the
approval of this Agreement by the stockholders of the Company, no such
amendment, modification or supplement shall reduce or change the Merger
Consideration.
Section 8.2 Nonsurvival of Representations and Warranties. None of the
representations and warranties in this Agreement or in any schedule, instrument
or other document delivered pursuant to this Agreement shall survive the
Effective Time or, in the case of the Company, shall survive the acceptance for
payment of, and payment for, the shares of Company Common Stock pursuant to the
Offer. This Section 8.2 shall not limit any covenant or agreement of the parties
which by its terms contemplates performance after the Effective Time.
Section 8.3 Notices. All notices (which term shall include any other
communications) required or permitted to be given under this Agreement or in
connection with the matters contemplated by this Agreement shall be in writing
and shall be deemed to have been duly given to the intended party (i) when
personally delivered, (ii) upon receipt if sent by reputable overnight courier
service or (iii) when successfully transmitted by telecopier without
interruption (with a confirming copy of such transmission sent within one
business day by reputable overnight courier service) to the party for whom
intended, provided that any notice received by telecopy or otherwise at the
addressee's location on any business day after 5:00 p.m. (addressee's local
time) shall be deemed to have been received at 9:00 a.m. (addressee's local
time) on the next business day. Any party to this Agreement may notify any other
party of any changes to the address or any of the other details specified in
this paragraph, provided that such notification shall only be effective on the
date specified in such notice or five (5) business days after the
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notice is given, whichever is later. All notices required to be given under this
Agreement shall be sent to the party using the addresses or telecopy numbers
specified below:
(a) if to Parent or Purchaser, to:
Accor S.A.
Tour Maine Montparnasse
33, avenue du Maine
Paris 75015
France
Attention: Secretaire General
Telephone No.: 33-1-45-38-87-32
Telecopy No.: 33-1-45-38-87-30
- and -
Motel 6
14651 Dallas Parkway
Suite 500
Dallas, Texas 75240
Attention: Chief Financial Officer
Telephone No.: 1-972-702-6843
Telecopy No.: 1-972-702-6909
- and -
Attention: General Counsel
Telephone No.: 1-972-702-6961
Telecopy No.: 1-972-702-5995
with a copy to:
Proskauer Rose LLP
1585 Broadway
New York, New York 10036-8299
Attention: Jeffrey A. Horwitz, Esq.
Telephone No.: 1-212-969-3229
Telecopy No.: 1-212-969-2900
(b) if to the Company, to:
Red Roof Inns, Inc.
4355 Davidson Road
Hilliard, Ohio 43026-2491
Attention: David L. Rea, Executive Vice President,
Chief Financial Officer and Treasurer
Telephone No.: 1-614-876-3210
Telecopy No.: 1-614-876-0544
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- and -
Attention: Office of the General Counsel
Telephone No.: 1-614-876-3200
Telecopy No.: 1-614-876-0544
with copies to:
Skadden, Arps, Slate, Meagher
& Flom LLP
919 Third Avenue
New York, New York 10022
Telephone No.: 1-212-735-3000
Telecopy No.: 1-212-735-2000
Attention: Jeffrey W. Tindell, Esq.
- and -
Davis Polk & Wardwell
450 Lexington Avenue
New York, NY 10017
Attention: Thomas Patrick Dore, Jr., Esq.
Telephone No.: 1-212-450-4136
Telecopy No.: 1-212-450-4800
Section 8.4 Counterparts. This Agreement may be executed in
two or more counterparts, all of which shall be considered one and the same
agreement and shall become effective when two or more counterparts have been
signed by each of the parties and delivered to the other parties, it being
understood that all parties need not sign the same counterpart.
Section 8.5 Entire Agreement; Third-Party Beneficiaries. This
Agreement, the Company Disclosure Schedule, the Tender Agreement and the
Confidentiality Agreement (including the documents and the instruments referred
to herein and therein): (a) constitutes the entire agreement and supersedes all
prior agreements; understandings, representations and warranties, both written
and oral, among the parties with respect to the subject matter hereof, and (b)
except as provided in Sections 1.3, 2.1, 2.2, 2.4 and 5.7, are not intended to
confer upon any Person other than the parties hereto any rights or remedies
hereunder. References herein to this Agreement shall for all purposes be deemed
to include references to the Company Disclosure Schedule.
Section 8.6 Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
authority to be invalid, void, unenforceable or against its regulatory policy,
the application of such provision to other Persons or circumstances shall not be
affected by such invalidity or unenforceability, nor shall such invalidity or
unenforceability affect the validity or enforceability of such provision, or the
application thereof, in any other jurisdiction, and 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,
provided that the commercial objective of this Agreement is not frustrated
thereby.
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Section 8.7 Governing Law. This Agreement shall be governed
and construed in accordance with the laws of the State of Delaware without
giving effect to the principles of conflicts of law thereof or of any other
jurisdiction.
Section 8.8 Jurisdiction.
(a) Any legal action or proceeding with respect to
this Agreement or any matters arising out of or in connection with this
Agreement or otherwise, and any action for enforcement of any judgment in
respect thereof shall be brought exclusively in the courts of the State of New
York or of the United States of America for the Southern District of New York,
the Court of Chancery of Delaware or the courts of the United States of America
for the District of Delaware and, by execution and delivery of this Agreement,
the Company, Parent and Purchaser each hereby accepts for itself and in respect
of its property, generally and unconditionally, the exclusive jurisdiction of
the aforesaid courts and appellate courts thereof. The Company, Parent and
Purchaser irrevocably consent to service of process out of any of the
aforementioned courts in any such action or proceeding by the mailing of copies
thereof by registered or certified mail, postage prepaid, or by recognized
international express carrier or delivery service, to the Company, Parent or
Purchaser at their respective addresses referred to in Section 8.3 hereof.
(b) Each of Parent and Purchaser hereby designates CT
Corporation as its respective agent for service of process in the State of New
York and RL&F Service Corp. as its agent for the service of process in the State
of Delaware, in each case solely with respect to any dispute or controversy
arising out of this Agreement only, and service upon Parent or Purchaser for
such purposes shall be deemed to be effective upon service of either CT
Corporation or RL&F Service Corp., as applicable, as aforesaid or of its
successor designated in accordance with the following sentence in the
appropriate State. Parent or Purchaser may designate another corporate agent or
law firm reasonably acceptable to the Company and located in the Borough of
Manhattan, in the City of New York, or in the County of Newcastle in the State
of Delaware, as applicable, as successor agent for service of process upon 30
days' prior written notice to the Company. Parent further covenants and agrees
to execute, upon the Company's request, such documents and agreements as are
reasonably necessary to confirm such designations.
(c) The Company, Parent and Purchaser each hereby
irrevocably waives any objection which it may now or hereafter have to the
laying of venue of any of the aforesaid actions or proceedings arising out of or
in connection with this Agreement or otherwise brought in the courts referred to
above and hereby further irrevocably waives and agrees, to the extent permitted
by applicable law, not to plead or claim in any such court , by way of motion,
as a defense, counterclaim or otherwise, in any action or proceeding with
respect to this Agreement, (a) any claim that it is not personally subject to
the jurisdiction of the above-named courts, (b) that it or its property is
exempt or immune from jurisdiction of any such court or from any legal process
commenced in such courts (whether through service of notice, attachment before
judgment, attachment in aid of execution of judgment, execution of judgment or
otherwise), (c) that the proceeding in any such court is brought in an
inconvenient forum, (d) that the venue of such proceeding is improper or (e)
that this Agreement, or the subject matter hereof, may not be enforced in or by
such court. Nothing herein shall affect the right of any party hereto to serve
process in any other manner permitted by law.
Section 8.9 Assignment. Neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by any of the
parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other parties, except that Purchaser may assign, in its
sole discretion, any or all its rights, interests and obligations hereunder to
Parent or to any direct or indirect
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wholly owned Subsidiary of Parent; provided that, in the case of any such
assignment by Purchaser, Purchaser shall remain liable for all of its
obligations under this Agreement. Subject to the preceding sentence, this
Agreement shall be binding upon, inure to the benefit of and be enforceable by
the parties and their respective successors and permitted assigns.
Section 8.10 Waiver. Any waiver of compliance with any
obligation, covenant, agreement, provision or condition of this Agreement or
consent pursuant to this Agreement shall not be effective unless evidenced by an
instrument in writing executed by the party to be charged. Any waiver of
compliance with any such obligation, covenant, agreement, provision or condition
of this Agreement shall not operate as a waiver of, or estoppel with respect to,
any subsequent or other non-compliance.
Section 8.11 Headings. The table of contents and the
descriptive headings used herein are inserted for convenience of reference only
and are not intended to be part of or to affect the meaning or interpretation of
this Agreement. "Include," "includes," and "including" shall be deemed to be
followed by "without limitation" whether or not they are in fact followed by
such words or words of like import.
Section 8.12 Specific Performance. Each of the parties hereto
acknowledges and agrees that in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached, each non-breaching party would be irreparably and
immediately harmed and could not be made whole by monetary damages. Accordingly,
it is agreed that the parties hereto (a) shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to compel specific
performance of this Agreement in any proceeding instituted in the courts of the
State of New York or the United States of America for the Southern District of
New York or in the Court of Chancery in and for New Castle County in the State
of Delaware or the courts of the United States of America for the District of
Delaware (or, if any such court lacks subject matter jurisdiction, any
appropriate state or federal court in the State of New York or the State of
Delaware), this being in addition to any other remedy to which they are entitled
at law or in equity, and (b) will waive, in any proceeding for specific
performance, the defense of adequacy of a remedy at law. Each of the parties
further agrees to waive any requirement for the securing or posting of any bond
or other security in connection with any proceeding for specific performance.
Section 8.13 Obligations of Parent and the Company of Parent
and the Company. Whenever this Agreement requires a Subsidiary of Parent to take
any action, such requirement shall be deemed to include an undertaking on the
part of Parent to cause such Subsidiary to take such action. Whenever this
Agreement requires a Subsidiary of the Company to take any action, such
requirement shall be deemed to include an undertaking on the part of the Company
to cause such Subsidiary to take such action.
Section 8.14 Limitations on Warranties.
(a) Except for the representations and warranties
contained in Article III of this Agreement, the Company makes no other express
or implied representation or warranty to Parent or Purchaser. Parent and
Purchaser acknowledge that, in entering into this Agreement, it has not relied
on any representations or warranties of the Company other than the
representations and warranties of the Company set forth in Article III of this
Agreement.
(b) Except for the representations and warranties
contained in Article IV of this Agreement, Parent and Purchaser make no other
express or implied representation or warranty to the Company. The Company
acknowledges that, in entering into this Agreement, it has not relied on any
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representations or warranties of Parent and Purchaser other than the
representations and warranties of Parent and Purchaser set forth in Article IV
of this Agreement.
Section 8.15 Schedules. The Company Disclosure Schedule shall
be construed with and as an integral part of this Agreement to the same extent
as if the same had been set forth verbatim herein. Any matter disclosed pursuant
to the Company Disclosure Schedule shall not be deemed to be an admission or
representation as to the materiality of the item so disclosed.
Section 8.16 Interpretation. The words "hereof," "herein" and
"herewith" and words of similar import shall, unless otherwise stated, be
construed to refer to this Agreement as a whole and not to any particular
provision of this Agreement, and article, section, paragraph, exhibit and
schedule references are to the articles, sections, paragraphs, exhibits and
schedules of this Agreement unless otherwise specified. All terms defined in
this Agreement shall have the defined meanings contained herein when used in any
certificate or other document made or delivered pursuant hereto unless otherwise
defined therein. The definitions contained in this Agreement are applicable to
the singular as well as the plural forms of such terms and to the masculine as
well as to the gender and neuter genders of such term. Any agreement, instrument
or statute defined or referred to herein or in any agreement or instrument that
is referred to herein means such agreement, instrument or statute as from time
to time amended, modified or supplemented, including (in the case of agreements
and instruments) by waiver or consent and (in the case of statutes) by
succession of comparable successor statutes and all attachments thereto and
instruments incorporated therein. References to a Person are also to its
permitted successors and assigns. All references to "$" and "dollars" herein
shall be deemed to refer to the U.S. dollar. The term "business day" shall mean
any day other than Saturday, Sunday or any other day on which banks in New York
City, New York or Paris, France are required to or permitted to be closed.
Section 8.17 Execution. This Agreement may be executed by
facsimile signatures and such signature shall be deemed binding for all purposes
hereof, without delivery of an original signature being thereafter required.
[END OF TEXT]
37
<PAGE> 42
[EXECUTION PAGE]
IN WITNESS WHEREOF, Parent, Purchaser and the Company have
caused this Agreement to be signed by their respective officers thereunto duly
authorized as of the date first written above.
ACCOR S.A.
By: /s/ ANDRE MARTINEZ
-----------------------------
Name: Andre Martinez
Title: Authorized Signatory
By: /s/ PIERRE TODOROV
-----------------------------
Name: Pierre Todorov
Title: Authorized Signatory
RRI ACQUISITION CORP.
By: /s/ ARMAND SEBBAN
-----------------------------
Name: Armand Sebban
Title: Executive Vice President
and Chief Financial Officer
RED ROOF INNS, INC.
By: /s/ FRANCIS W. CASH
-----------------------------
Name: Francis Cash
Title: Chairman, President and
Chief Executive Officer
<PAGE> 43
ANNEX A
CONDITIONS TO THE OFFER
Notwithstanding any other provision of the Offer (subject to
the provisions of the Agreement), Purchaser shall not be required to accept for
payment or, subject to any applicable rules and regulations of the SEC,
including Rule 14e-1(c) under the Exchange Act (relating to Purchaser's
obligation to pay for or return tendered Shares promptly after termination or
withdrawal of the Offer), pay for, and may delay the acceptance for payment of
or, subject to the restriction referred to above, the payment for, any tendered
Shares, and may terminate the Offer and not accept for payment any tendered
shares if:
(i) there shall not have been validly tendered and not
withdrawn prior to the expiration of the Offer at least 18,400,000 shares of
Company Common Stock (the "Minimum Condition"), which represent at least 68.3%
of the total issued and outstanding shares (other than treasury shares) of
Company Common Stock on the date hereof,
(ii) any applicable waiting period under the HSR Act has not
expired or terminated prior to the expiration of the Offer, or
(iii) at any time on or after the date of the Agreement, and
before the expiration of the Offer, any of the following events shall occur and
be continuing:
(a) there shall be any statute, rule, regulation,
judgment, order or injunction promulgated, entered, enforced, enacted,
issued or applicable to the Offer or the Merger by any domestic or
foreign federal or state governmental regulatory or administrative
agency or authority or court or legislative body or commission which
(1) prohibits, or imposes any material limitations on, Parent's or
Purchaser's ownership or operation of all or a material portion of the
Company's businesses or assets, (2) prohibits, or makes illegal the
acceptance for payment, payment for or purchase of Shares or the
consummation of the Offer or the Merger, (3) restricts the ability of
Purchaser, or renders Purchaser unable, to accept for payment, pay for
or purchase some or all the Shares, or (4) imposes material limitations
on the ability of Purchaser or Parent effectively to exercise full
rights of ownership of the Shares, including, without limitation, the
right to vote the Shares purchased by it on all matters properly
presented to the Company's stockholders, provided, however, that Parent
shall have used its reasonable best efforts to cause any such judgment,
order or injunction to be vacated or lifted;
(b) there shall be any action or proceeding pending
or instituted by any domestic or foreign national or federal
governmental regulatory or administrative agency or authority, or by
any U.S. state governmental regulatory or administrative agency or
authority, which: (A) (1) seeks to prohibit, or impose any material
limitation on, Parent's or Purchaser's ownership or operation of all or
a material portion of the Company's businesses or assets, (2) seeks to
prohibit or make illegal the acceptance for payment, payment for or
purchase of Shares or the consummation of the Offer or the Merger, (3)
seeks to restrict the ability of Purchaser, or render Purchaser unable,
to accept for payment, pay for or purchase some or all the Shares or
(4) seeks to impose material limitations on the ability of Purchaser or
Parent effectively to exercise full rights of ownership of the Shares,
including, without limitation, the right to vote the Shares purchased
by it on all matters properly presented to the Company's stockholders;
and (B) Parent shall have used all reasonable best efforts to cause to
be dismissed; and (C) the Management Board or Supervisory Board of
Parent shall have determined, after consultation with legal counsel,
would, if adversely
A-1
<PAGE> 44
determined, have any of the results described in any of clauses (A)(1)
through (A)(4) of this paragraph (b) if the relief sought were to be
obtained;
(c) the representations and warranties of the Company
set forth in the Agreement shall not be true and correct in any
respect, disregarding for this purpose any standard of materiality
contained in any such representation or warranty, as of the date of
consummation of the Offer as though made on or as of such date, except
(i) for changes specifically permitted by the Agreement or (ii) (A)
those representations and warranties that address matters only as of a
particular date which are true and correct as of such date or (B) where
the failure of such representations and warranties to be true and
correct, do not, individually or in the aggregate, have a material
adverse effect on the Company and its Subsidiaries, taken as a whole;
or
(d) the Company shall have breached or failed in any
material respect to perform or comply with any material obligation,
agreement or covenant required by the Agreement to be performed or
complied with by it (including, without limitation, if the Company
shall have entered into any definitive agreement or any agreement in
principle with any Person (other than Parent, Purchaser or any
affiliate thereof) with respect to an Acquisition Proposal or similar
business combination with the Company);
(e) there shall have occurred (i) any general
suspension of trading in, or limitation on prices for, securities on
the New York Stock Exchange, the Nasdaq National Market System or the
Paris Stock Exchange, which suspension or limitation shall have
continued for at least five New York Stock Exchange trading days, (ii)
a declaration of a banking moratorium or any suspension of payments in
respect of banks in the United States or in France or any limitation
(whether or not mandatory) by Federal, state or foreign authorities on
the extension of credit by lending institutions, which moratorium,
suspension, or limitation is reasonably likely to materially affect the
ability of Parent to pay for the Shares, (iii) a commencement of a war
or armed hostilities or other national or international calamity
directly or indirectly involving the United States or France and
reasonably likely to have a material adverse effect on the Company and
its Subsidiaries taken as a whole or materially and adversely affect
the consummation of the Offer, or (iv) in the case of clauses (i), (ii)
and (iii) above existing at the time of the commencement of the Offer,
a material acceleration or worsening thereof;
(f) the Agreement shall have been terminated in
accordance with its terms which in the reasonable judgment of Parent or
Purchaser, in any such case, and regardless of the circumstances giving
rise to such condition, makes it inadvisable to proceed with the Offer
or with such acceptance for payment or payments.
The foregoing conditions are for the sole benefit of Purchaser
and Parent and, subject to the Agreement, may be asserted by either of them or
may be waived by Parent or Purchaser, in whole or in part at any time and from
time to time in the sole discretion of Parent or Purchaser, provided that the
Minimum Condition may not be waived to be less than 51% of the total issued and
outstanding shares (other than treasury shares) of Company Common Stock.
A-2
<PAGE> 1
Exhibit 3
TENDER AND VOTING AGREEMENT
THIS TENDER AND VOTING AGREEMENT dated as of July 10, 1999
(this "AGREEMENT") is by and among ACCOR SA, a corporation organized under the
laws of France ("PARENT"), RRI ACQUISITION CORP., a Delaware corporation and a
wholly owned subsidiary of Parent ("PURCHASER"), and the persons listed on Annex
A hereto (collectively, the "MS ENTITIES").
W I T N E S S E T H:
WHEREAS, simultaneously with the execution of this Agreement,
Parent, Purchaser and Red Roof Inns, Inc., a Delaware corporation (the
"COMPANY"), have entered into an Agreement and Plan of Merger (as amended from
time to time, the "MERGER AGREEMENT"), pursuant to which Purchaser has agreed,
among other things, to commence a cash tender offer (as such tender offer may
hereafter be amended from time to time, the "OFFER") to purchase any and all
shares of common stock, par value $0.01 per share, of the Company (the "COMPANY
COMMON STOCK");
WHEREAS, as an inducement and a condition to its entering into
the Merger Agreement and incurring the obligations set forth therein, including
the Offer and the Merger, Parent has required that the MS Entities enter into
this Agreement;
NOW, THEREFORE, in consideration of the foregoing and the
mutual promises, representations, warranties, covenants and agreements contained
herein and in the Merger Agreement, the parties hereto, intending to be legally
bound hereby, agree as follows:
1. Certain Definitions. Capitalized terms used and not defined herein have the
respective meanings ascribed to them in the Merger Agreement. In addition, for
purposes of this Agreement:
"AFFILIATE" means, with respect to any specified Person, any Person
that directly, or indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with, the Person specified. For
purposes of this Agreement, with respect to any MS Entity, "AFFILIATE" shall not
include the Company and the Persons that directly, or indirectly through one or
more intermediaries, are controlled by the Company.
"ENCUMBRANCES" shall mean any and all liens, charges, security
interests, options, claims, mortgages, pledges, proxies, voting trusts or
agreements, obligations, understandings or arrangements or other restrictions of
any nature whatsoever.
"OWNED SHARES" means, with respect to each MS Entity, the shares of
Company Common Stock set forth opposite such MS Entity's name on Annex A to this
Agreement, together with any other shares of Company Common Stock acquired by
that MS Entity after the date hereof.
"PERSON" means an individual, corporation, partnership, limited
liability company, joint venture, association, trust, estate, unincorporated
organization or other entity.
"REPRESENTATIVE" means, with respect to any Person, such Person's
officers, directors, partners, shareholders, members, employees, and other
agents and representatives (including any investment banker, financial advisor,
agent, representative or expert retained by or acting on behalf of such Person
or its subsidiaries).
"TRANSFER" means, with respect to a security, the sale, transfer,
pledge, hypothecation, encumbrance, assignment or disposition of such security
or the Beneficial Ownership thereof, the offer to make such a sale, transfer or
other disposition, and each option, agreement, arrangement or understanding,
whether or not in writing, to effect any of the foregoing. As a verb, "TRANSFER"
shall have a correlative meaning.
<PAGE> 2
2. Representations and Warranties of the MS Entities. Each MS Entity hereby
represents and warrants, but as to itself only, to Parent and Purchaser as
follows:
(a) Upon the consummation of the Offer or exercise of the Option (as
defined in Section 6 hereof), Purchaser will acquire good and marketable title
to such MS Entity's Owned Shares, free and clear of all Encumbrances, except for
any Encumbrance arising (i) under the Securities Act of 1933, as amended, or any
applicable state securities laws or (ii) solely as a result of the conduct of
Purchaser. Annex A accurately sets forth the number of shares of Company Common
Stock owned by such MS Entity as of the date of this Agreement.
(b) Such MS Entity is a corporation, limited liability company or
partnership (as specified on Annex A hereto) duly organized and validly existing
under the laws of its jurisdiction of organization, is in good standing under
the laws of its jurisdiction of organization, and has the corporate, company or
partnership (as the case may be) power and authority to execute and deliver this
Agreement and perform its obligations hereunder. The execution, delivery and
performance by such MS Entity of this Agreement and the consummation by it of
the transactions contemplated hereby have, to the extent required, been duly and
validly authorized by its Board of Directors, Manager(s) and General Partner(s)
(as the case may be) of such MS Entity and no other corporate, company or
partnership (as the case may be) proceedings on its part are necessary to
authorize the execution, delivery or performance by it of this Agreement or the
consummation by it of the transactions contemplated hereby.
(c) This Agreement has been duly and validly executed and delivered by
such MS Entity and constitutes a valid and binding agreement of it and any
person for whom it is acting as a nominee, enforceable against them in
accordance with its terms except (i) to the extent limited by applicable
bankruptcy, insolvency or similar laws affecting creditors rights and (ii) the
remedy of specific performance and injunctive and other forms of equitable
relief may be subject to equitable defenses and to the discretion of the court
before which any proceeding therefor may be brought.
(d) None of the execution and delivery of this Agreement by such MS
Entity, the consummation by it of the transactions contemplated hereby or
compliance by it with any of the provisions hereof shall (i) conflict with or
result in a breach of any provision of its certificate of incorporation,
by-laws, limited liability company agreement, partnership agreement or similar
organizational documents, (ii) result in a violation or breach of, or constitute
(with or without notice or lapse of time or both) a default (or give rise to any
third party right of termination, cancellation, material modification or
acceleration) under any of the terms, conditions or provisions of any note, loan
agreement, bond, mortgage, indenture, license, contract, commitment,
arrangement, understanding, agreement or other instrument or obligation of any
kind to which it is a party or by which any of its properties or assets
(including the Owned Shares) may be bound, (iii) require on its part any filing
with, or permit, authorization, consent or approval of, any Governmental Entity,
other than any filing required to be made under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR ACT"), or (iv) violate any order,
writ, injunction, decree, judgment, statute, rule or regulation applicable to it
or any of its properties or assets, excluding from clauses (ii) through (iv)
such violations, breaches, defaults or failure to make any filing or to obtain
any permit, authorization, consent or approval which would not, individually or
in the aggregate, have a material adverse effect on it, and which will not
materially impair the its ability to consummate the transactions contemplated
hereby.
(e) Except as set forth on Schedule 2(e) to this Agreement, such MS
Entity is the record and beneficial owner, has sole voting power, sole power of
disposition and sole power to agree to all of the matters set forth in this
Agreement, in each case with respect to its Owned Shares, subject to applicable
securities laws and the terms of this Agreement.
3. Representations and Warranties of Parent and Purchaser. Parent and Purchaser
hereby represent and warrant, jointly and severally, to the MS Entities as
follows:
2
<PAGE> 3
(a) Each of Parent and Purchaser is a corporation duly organized and
validly existing under the laws of its jurisdiction of incorporation, and each
of them is in good standing under the laws of its jurisdiction of incorporation.
Parent and Purchaser have the corporate power and authority to execute and
deliver this Agreement and perform their respective obligations hereunder. The
execution and delivery by Parent and Purchaser of this Agreement and the
performance by Parent and Purchaser of their respective obligations hereunder
have been duly and validly authorized by the Management Board and/or the
Supervisory Board of Parent and the Board of Directors and Purchaser and no
other corporate proceedings on the part of Parent or Purchaser are necessary to
authorize the execution, delivery or performance of this Agreement by Parent and
Purchaser or the consummation of the transactions contemplated hereby by Parent
and Purchaser.
(b) This Agreement has been duly and validly executed and delivered by
Parent and Purchaser and constitutes a valid and binding agreement of each of
Parent and Purchaser, enforceable against each of them in accordance with its
terms except (i) to the extent limited by applicable bankruptcy, insolvency or
similar laws affecting creditors rights and (ii) the remedy of specific
performance and injunctive and other forms of equitable relief may be subject to
equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought.
(c) None of the execution and delivery of this Agreement by Parent or
Purchaser, the consummation by Parent or Purchaser of the transactions
contemplated hereby or compliance by Parent or Purchaser with any of the
provisions hereof shall (i) conflict with or result in any breach of the
certificate of incorporation or by-laws of Parent or Purchaser, or (ii) result
in a violation or breach of, or constitute (with or without notice or lapse of
time or both) a default (or give rise to any third party right of termination,
cancellation, material modification or acceleration) under any of the terms,
conditions or provisions of any note, loan agreement, bond, mortgage, indenture,
license, contract, commitment, arrangement, understanding, agreement or other
instrument or obligation of any kind to which Parent or Purchaser is a party or
by which Parent or Purchaser or any of their respective properties or assets may
be bound, (iii) require on the part of Parent or the Purchaser any filing with,
or permit, authorization, consent or approval of, any Governmental Entity, other
than any filing required to be made under the HSR Act, or (iv) violate any
order, writ, injunction, decree, judgment, statute, rule or regulation
applicable to Parent or Purchaser or any of their respective properties or
assets, excluding from clauses (ii) through (iv) such violations, breaches,
defaults or failure to make any filing or to obtain any permit, authorization,
consent or approval which would not, individually or in the aggregate, have a
material adverse effect on Parent or Purchaser, and which will not materially
impair the ability of Parent or Purchaser to consummate the transactions
contemplated hereby.
4. Tender of Shares. Each MS Entity shall tender or cause the record owner
thereof to tender, pursuant to and in accordance with the terms of the Offer,
and shall not withdraw, any and all of its Owned Shares. The parties agree that
each MS Entity will, for all Owned Shares tendered by it in the Offer and
accepted for payment and purchased by Purchaser, receive a price for each of its
Owned Shares equal to $22.75, or such higher per share consideration paid to
other stockholders who have tendered shares of Company Common Stock into the
Offer which have been accepted for payment and purchased by Purchaser in the
Offer (the "OFFER PRICE"), but not any additional amounts paid or payable to
holders of Company Common Stock that do not participate in the Offer by reason
of rights of appraisal, rights of dissent or otherwise. Parent and Purchaser
agree (a) not to decrease the price to be paid to the Company's stockholders in
the Offer or the Merger below $22.75 per Share, and that (b) on the date that
the Owned Shares are accepted for payment and purchased by Purchaser pursuant to
the Offer, Purchaser or Parent, as the case may be, shall make, or cause to be
made by the Paying Agent, payment by wire transfer to each MS Entity of the
purchase price for all its Owned Shares that are tendered by it and accepted for
payment and purchased by Purchaser to such account as is designated by such MS
Entity in the letter of transmittal which accompanies the tender of the Owned
Shares.
5. Voting of Owned Shares; Proxy. (a) During the period commencing on the date
hereof and continuing until the earlier of (x) the consummation of the Offer and
(y) the termination of this Agreement (such period being referred to as the
"VOTING PERIOD"), at any meeting (whether annual or special, and
3
<PAGE> 4
whether or not an adjourned or postponed meeting) of the Company's stockholders,
however called, or in connection with any written consent of the Company's
stockholders, subject to the absence of a preliminary or permanent injunction or
other requirement under applicable law by any United States federal, state or
foreign court barring such action, each MS Entity shall vote (or cause to be
voted) all of its Owned Shares: (i) in favor of the Merger, the execution and
delivery by the Company of the Merger Agreement and the approval and adoption of
the Merger and the terms thereof and each of the other actions contemplated by
the Merger Agreement and this Agreement and any actions required in furtherance
thereof and hereof; and (ii) against any action or agreement that would impede,
interfere with, or prevent the Offer or the Merger, including any Acquisition
Proposal (other than the Offer and the Merger). No MS Entity shall enter into
any agreement, arrangement or understanding with any Person the effect of which
would be inconsistent or violative of the provisions and agreements contained in
this Section 5.
(b) By its execution hereof and in order to secure its obligations
under this Agreement, during the period commencing on the date hereof, each MS
Entity irrevocably grants to, and appoints, Parent and Benjamin Cohen, Pierre
Todorov, Armand Sebban and Emmett J.Gossen, Jr., or any of them, in their
respective capacities as employees of Parent and/or its Subsidiaries, and any
individual who shall hereafter succeed to either of their respective positions
at Parent and/or such Subsidiary, and each of them individually, as its true and
lawful proxy and attorney-in-fact (with full power of substitution), for and in
the name, place and stead of it, to vote the Owned Shares or grant a consent or
approval in respect of the Owned Shares (i) in favor of the Merger, the
execution and delivery by the Company of the Merger Agreement and the approval
and adoption of the Merger and the terms thereof and each of the other actions
contemplated by the Merger Agreement and this Agreement and any actions required
in furtherance thereof and hereof; and (ii) against any action or agreement that
would impede, interfere with, or prevent the Offer or the Merger, including
against any Acquisition Proposal other than the Offer and the Merger (the
irrevocable proxy granted by each MS Entity under this Section 5(b) being its
"IRREVOCABLE PROXY").
(c) Each MS Entity understands and acknowledges that Parent is entering
into the Merger Agreement in reliance upon its execution and delivery of its
Irrevocable Proxy. Each MS Entity hereby affirms that its Irrevocable Proxy is
given in connection with the execution of this Agreement and the Merger
Agreement, and further affirms that its Irrevocable Proxy is coupled with an
interest in this Agreement and may under no circumstances be revoked until the
termination of this Agreement in accordance with Section 15 at which point its
Irrevocable Proxy shall be automatically revoked. Each MS Entity hereby ratifies
and confirms all that its Irrevocable Proxy may lawfully do or cause to be done
by virtue hereof. The Irrevocable Proxy of each MS Entity is executed and
intended to be irrevocable in accordance with the provisions of Section 212(e)
of the Delaware General Corporation Law.
6. Option. (a) Each MS Entity hereby grants Purchaser an irrevocable option (the
irrevocable option granted by each MS Entity under this Section 6(a) being its
"OPTION") to purchase all its Owned Shares at a price per share equal to the
Offer Price (the "OPTION PRICE"). The Option granted by each MS Entity shall
become exercisable, in whole but not in part, only if either of the following
occur (each a "TRIGGERING EVENT"):
(i) the Offer is terminated without the Purchaser purchasing
Shares thereunder solely because the Minimum Condition has not been met; or
(ii) the Offer is consummated without that MS Entity having
tendered all its Owned Shares in accordance with Section 4.
(b) Notwithstanding any provision of this Agreement to the contrary, it
is understood that Purchaser shall not be entitled to purchase the Shares
pursuant to any Option if Purchaser shall have failed to purchase Shares
pursuant to the Offer in breach of its obligations under the Merger Agreement.
Upon the purchase of the Owned Shares of any MS Entity pursuant to the
applicable Option, Purchaser shall, unless the Company shall have breached its
obligations pursuant to the last sentence of Section
4
<PAGE> 5
5.4(d) of the Merger Agreement, complete the Merger in accordance with, and
subject to the terms and conditions set forth in, the Merger Agreement.
7. Exercise of Options.
(a) Subject to the conditions set forth in Section 9 hereof, the
Options may be exercised by Purchaser in accordance with the terms in this
Section 7 and the other provisions of this Agreement. In the event Purchaser
wishes to exercise any Option granted by the MS Entities under Section 6,
Purchaser shall send a written notice (the "EXERCISE NOTICE") to such MS Entity
stating that it wishes to purchase such MS Entity's Owned Shares pursuant to
such exercise and the place, the date (not less than one nor more than 20
business days from the Exercise Notice), and the time for closing of such
purchase; provided, that such time and place may be earlier than one day after
the Exercise Notice if reasonably practicable; provided, further, that no
Exercise Notice shall be valid unless contemporaneously therewith an Exercise
Notice is delivered to all other MS Entities with respect to all other Options
that are then exercisable which provides for a contemporaneous closing. An
Exercise Notice may be delivered by Purchaser not later than 10 business days
after the occurrence of a Trigger Event, and, if such a Notice is not delivered
by such date, the Options shall terminate automatically and be of no further
force and effect. The closing of a purchase of Owned Shares upon the exercise of
any Option (a "CLOSING") shall take place at the place, on the date and at the
time designated by Purchase in its Exercise Notice; provided that if, at the
date of the Closing herein provided for, the conditions set forth in Section 9
shall not have been satisfied (or waived by the applicable MS Entity) or the
conditions set forth in Section 10 shall not have been satisfied (or waived by
Purchaser), Purchaser may, by written notice to the applicable MS Entity,
postpone the Closing until a date that is no later than five business days after
such conditions are satisfied (or so waived). If the Closing does not occur by
such date, the Options shall terminate and be of no further force or effect.
(b) Purchaser shall not be under any obligation to deliver any Exercise
Notice and may allow the Options to terminate without purchasing any Owned
Shares hereunder; provided, however, that once Purchaser has delivered to an MS
Entity an Exercise Notice, subject to the terms and conditions set forth in this
Agreement, Purchaser shall be bound to effect the purchase of the relevant Owned
Shares as described in such Exercise Notice.
8. Closing. At the Closing, (a) the relevant MS Entity shall deliver to
Purchaser a certificate or certificates, duly endorsed or accompanied by stock
powers duly executed in blank (collectively, the "CERTIFICATES") representing
(or cause to be made book entry delivery to an account designated by Purchaser
in the Exercise Notice of) such Owned Shares, and (b) Purchaser shall deliver to
the MS Entity a certified or bank cashier's check or checks payable to or upon
the order of the MS Entity in an amount equal to (i) the number of Owned Shares
being purchased from such MS Entity at such Closing multiplied by (ii) the Offer
Price.
9. Conditions to the MS Entity's Obligations. The obligation of an MS Entity to
sell Owned Shares pursuant to an exercise of an Option at any Closing is subject
to the following conditions:
(a) The representations and warranties of Purchaser contained in
Section 3 shall be true and correct in all material respects on the date
thereof.
(b) All waiting periods under the HSR Act applicable to the exercise of
the applicable Option shall have expired or been terminated.
(c) There shall be no preliminary or permanent injunction or other
order, decree or ruling issued by a Governmental Entity or court of competent
jurisdiction, nor any statute, rule, regulation or order promulgated or enacted
by any Governmental Entity, prohibiting the exercise of the applicable Option.
(d) Purchaser shall have purchased all the Owned Shares of all the MS
Entities.
5
<PAGE> 6
10. Conditions to Purchaser's Obligations. The obligation of Purchaser to
purchase Owned Shares pursuant to an exercise of an Option at any Closing is
subject to the following conditions:
(a) The representations and warranties of the MS Entities contained in
Section 2 shall be true and correct in all material respects on the date
thereof.
(b) After giving effect to the Closing, Purchaser shall have purchased
at least 18,400,000 shares of Company Common Stock in the aggregate, which
18,400,000 shares represent at least 68.3% of the total issued and outstanding
shares (other than treasury shares) of Company Common Stock on the date hereof
(and no less than 51% of such Shares on the date of the Closing), from the MS
Entities.
(c) any applicable waiting period under the HSR Act has expired or
terminated.
(d) at any time on or after the occurrence of a Trigger Event and
before the Closing,
(i) there shall not be any statute, rule, regulation,
judgment, order or injunction promulgated, entered, enforced, enacted,
issued or applicable to the Options or the Merger by any domestic or
foreign federal or state governmental regulatory or administrative
agency or authority or court or legislative body or commission which
(1) prohibits, or imposes any material limitations on, Parent's or
Purchaser's ownership or operation of all or a material portion of the
Company's businesses or assets, (2) prohibits, or makes illegal the
acceptance for payment, payment for or purchase of the Shares or the
Owned Shares or the consummation of the Options or the Merger, (3)
restricts the ability of Purchaser, or renders Purchaser unable, to
accept for payment, pay for or purchase some or all the Shares or the
Owned Shares, or (4) imposes material limitations on the ability of
Purchaser or Parent effectively to exercise full rights of ownership of
the Shares or the Owned Shares, including, without limitation, the
right to vote the Shares to be purchased by it on all matters properly
presented to the Company's stockholders, provided, however, that Parent
shall have used its reasonable best efforts to cause any such judgment,
order or injunction to be vacated or lifted;
(ii) there shall not be any action or proceeding pending or
instituted by any domestic or foreign national or federal governmental
regulatory or administrative agency or authority, or by any U.S. state
governmental regulatory or administrative agency or authority, which:
(A) (1) seeks to prohibit, or impose any material limitation on,
Parent's or Purchaser's ownership or operation of all or a material
portion of the Company's businesses or assets, (2) seeks to prohibit or
make illegal the acceptance for payment, payment for or purchase of
Shares or the consummation of the Options or the Merger, (3) seeks to
restrict the ability of Purchaser, or render Purchaser unable, to
accept for payment, pay for or purchase some or all the Shares or the
Owned Shares or (4) seeks to impose material limitations on the ability
of Purchaser or Parent effectively to exercise full rights of ownership
of the Shares or the Owned Shares, including, without limitation, the
right to vote the Shares or the Owned Shares purchased or to be
purchased by it on all matters properly presented to the Company's
stockholders; and (B) Parent shall have used all reasonable best
efforts to cause to be dismissed; and (C) the Management Board or
Supervisory Board of Parent shall have determined, after consultation
with legal counsel, would, if adversely determined, have any of the
results described in any of clauses (A)(1) through (A)(4) of this
paragraph (ii) if the relief sought were to be obtained;
(iii) the representations and warranties of the Company set
forth in the Merger Agreement shall be true and correct in any respect,
disregarding for this purpose any standard of materiality contained in
any such representation or warranty, as of the date of consummation of
the Options as though made on or as of such date, except (i) for
changes specifically permitted by the Merger Agreement or (ii) (A)
those representations and warranties that address matters only as of a
particular date which are true and correct as of such date or (B) where
the failure of such representations and warranties to be true and
correct, do not, individually or in the
6
<PAGE> 7
aggregate, have a material adverse effect on the Company and its
Subsidiaries, taken as a whole; or
(iv) the Company shall not have breached or failed in any
material respect to perform or comply with any material obligation,
agreement or covenant required by the Merger Agreement to be performed
or complied with by it (including, without limitation, if the Company
shall have entered into any definitive agreement or any agreement in
principle with any Person (other than Parent, Purchaser or any
affiliate thereof) with respect to an Acquisition Proposal or similar
business combination with the Company); or
(v) there shall not have occurred (1) any general suspension
of trading in, or limitation on prices for, securities on the New York
Stock Exchange, the Nasdaq National Market System or the Paris Stock
Exchange, which suspension or limitation shall have continued for at
least five New York Stock Exchange trading days, (2) a declaration of a
banking moratorium or any suspension of payments in respect of banks in
the United States or in France or any limitation (whether or not
mandatory) by Federal, state or foreign authorities on the extension of
credit by lending institutions, which moratorium, suspension, or
limitation is reasonably likely to materially affect the ability of
Parent to pay for the Shares or the Owned Shares, (3) a commencement of
a war or armed hostilities or other national or international calamity
directly or indirectly involving the United States or France and
reasonably likely to have a material adverse effect on the Company and
its Subsidiaries taken as a whole or materially and adversely affect
the consummation of the Options or the Merger, or (4) in the case of
clauses (1), (2) and (3) above existing at the time of the giving of
the Exercise Notice, a material acceleration or worsening thereof.
11. Restrictions on Transfer, Other Proxies; No Solicitation.
(a) Except as provided in Sections 4, 5 or 6 hereof, no MS Entity
shall, until the termination of this Agreement, pursuant to Section 15, directly
or indirectly: (i) Transfer to any Person any or all of its Owned Shares; or
(ii) grant any proxies or powers of attorney, deposit any of its Owned Shares
into a voting trust or enter into a voting agreement, understanding or
arrangement with respect to such Owned Shares. Nothing contained herein shall
prevent any MS Entity from transferring any or all of its Owned Shares to an
Affiliate of such MS Entity which is or agrees to be bound by this Agreement;
provided that such MS Entity shall continue to remain liable for all its
obligations under this Agreement.
(b) Each MS Entity hereby agrees, solely in its capacity as a
stockholder of the Company, that it and its subsidiaries or Affiliates shall
not, and such MS Entity shall cause its Representatives not to, directly or
indirectly, (i) initiate, solicit or encourage (including by way of furnishing
non-public information) any inquiries or the making of any proposal that
constitutes or is reasonably likely to lead to an Acquisition Proposal or (ii)
engage in any negotiations or discussions with, or furnish any information or
data, to, any third party relating to an Acquisition Proposal. The MS Entities
will promptly inform Parent of the terms of any proposal, discussion,
negotiation or inquiry (and will disclose any written materials received by the
MS Entities in connection with such proposal, discussion, negotiation or
inquiry) and the identity of the party making such proposal or inquiry which the
MS Entities may receive in respect of any Acquisition Proposal. The MS Entities
will also promptly request each Person that has heretofore received any
non-public information in connection with its consideration of an Acquisition
Proposal to return all such non-public information furnished to such person by
or on behalf of the MS Entities, the Company or any of the Company's
Subsidiaries. Any action taken by the Company or any member of the Board of
Directors of the Company or any Affiliate of any MS Entity as a financial
advisor to the Company in his or its capacity as such in accordance with the
terms of the Merger Agreement shall be deemed not to violate this Section 11(b).
12. Stop Transfer. No MS Entity shall request that the Company register the
transfer (book-entry or otherwise) of any certificate or uncertificated interest
representing any of its Owned Shares, unless such transfer is made in compliance
with this Agreement.
7
<PAGE> 8
13. Further Assurances. From time to time, at the other party's request and
without further consideration, each party hereto shall execute and deliver such
additional documents and take all such further lawful action as may be necessary
or appropriate to consummate and make effective, in the most expeditious manner
practicable, the transactions contemplated by this Agreement.
14. Waiver of Appraisal Rights. Each MS Entity hereby waives any rights of
appraisal or rights to dissent from the Merger that it may have.
15. Termination. This Agreement, and all rights and obligations of the parties
hereunder, shall terminate upon the earlier of (a) the date upon which Purchaser
shall have purchased and paid for all of the Owned Shares of the MS Entities in
accordance with the terms of the Offer or pursuant to this exercise of the
Options granted by the MS Entities, (b) the date on which the Options have
expired in accordance with this Agreement, or (c) the date upon which the Merger
Agreement is terminated in accordance with its terms.
16. Miscellaneous.
(a) This Agreement constitutes the entire agreement among the parties
with respect to the subject matter hereof and supersede all prior agreements;
understandings, representations and warranties, both written and oral, between
the parties with respect to the subject matter hereof.
(b) Each of the MS Entities agrees that this Agreement and the
respective rights and obligations of the MS Entities hereunder shall attach to
all Owned Shares.
(c) Without limiting Sections 3.20 and 5.9 of the Merger Agreement, all
costs and expenses incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such
expenses.
(d) This Agreement and all of the provisions hereof shall be binding
upon and inure to the benefit of the parties and their respective successors,
personal or legal representatives, executors, administrators, heirs,
distributees, devisees, legatees and permitted assigns, but neither this
Agreement nor any of the rights, interests or obligations hereunder shall be
assigned by either party (whether by operation of law or otherwise) without the
prior written consent of the other party; provided, that Parent and Purchaser
may assign their rights and obligations hereunder to any assignee of such
parties' rights and obligations under the Merger Agreement or to any other
Subsidiary of Parent; provided that, in the case of any such assignment by
Parent or Purchaser, Parent or Purchaser, as the case may be, shall remain
liable for all of its obligations under this Agreement. Except for the last
sentence of Section 6 hereof, which is intended to benefit the Company's
stockholders, nothing in this Agreement, express or implied, is intended to or
shall confer upon any other Person any rights, benefits or remedies of any
nature whatsoever under or by reason of this Agreement.
(e) This Agreement may not be amended, changed, supplemented, or
otherwise modified or terminated, except upon the execution and delivery of a
written agreement executed by each of the parties hereto. The parties may waive
compliance by the other parties hereto with any representation, agreement or
condition otherwise required to be complied with by such other party hereunder,
but any such waiver shall be effective only if in writing executed by the
waiving party.
(f) All notices (which term shall include any other communications)
required or permitted to be given under this Agreement or in connection with the
matters contemplated by this Agreement shall be in writing and shall be deemed
to have been duly given to the intended party (i) when personally delivered,
(ii) upon receipt if sent by reputable overnight courier service or (iii) when
successfully transmitted by telecopier without interruption (with a confirming
copy of such transmission sent within one business day by reputable overnight
courier service) to the party for whom intended, provided that any notice
received by telecopy or otherwise at the addressee's location on any business
day after 5:00 p.m. (addressee's local time) shall be deemed to have been
received at 9:00 a.m. (addressee's local
8
<PAGE> 9
time) on the next business day. Any party to this Agreement may notify any other
party of any changes to the address or any of the other details specified in
this paragraph, provided that such notification shall only be effective on the
date specified in such notice or five (5) business days after the notice is
given, whichever is later. All notices required to be given under this Agreement
shall be sent to the party using the addresses or telecopy numbers specified
below:
If to Parent or Purchaser,
to it at: c/o Accor S.A.
Tour Maine Montparnasse
33, avenue du Maine
Paris 75015
France
Attention: Secretaire General
Telephone No.: 33-1-45-38-87-32
Telecopy No.: 33-1-45-38-87-30
- and -
c/o Motel 6
14651 Dallas Parkway
Suite 500
Dallas, Texas 75240
Attention: Chief Financial Officer
Telephone No.: 1-972-702-6843
Telecopy No.: 1-972-702-6909
- and -
Attention: General Counsel
Telephone No.: 1-972-702-6961
Telecopy No.: 1-972-702-5995
with a copy to: Proskauer Rose LLP
1585 Broadway
New York, New York 10036-8299
Attention: Jeffrey A. Horwitz, Esq.
Telephone No.: 1-212-969-3229
Telecopy No.: 1-212-969-2900
If to any MS Entity: c/o Morgan Stanley Dean Witter & Co.
1585 Broadway
New York, New York 10036
Attention: John A. Henry
Telephone No.: 1-212- 761-7767
Telecopy No.: 1-212-761-0285
with a copies to: Davis Polk & Wardwell
450 Lexington Avenue
New York, NY 10017
Attention: Thomas Patrick Dore, Jr., Esq.
Telephone No.: 1-212-450-4136
Telecopy No.: 1-212-450-4800
- and-
9
<PAGE> 10
Red Roof Inns, Inc.
4355 Davidson Road
Hilliard, OH 43026-2491
Attention: David L. Rea, Executive Vice President
Chief Financial Officer and Treasurer
Telephone No.: 1-614-876-3210
Telecopy No.: 1-614-876-0544
-and-
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
Attention: Jeffrey W. Tindell, Esq.
Telephone No.: 1-212-735-3380
Telecopy No.: 1-212-735-2000
(g) Any provision of this Agreement which is prohibited or unenforceable
in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent
of such prohibition or unenforceability without affecting the validity or
enforceability of the remaining provisions hereof. Any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable, provided the commercial objective of this
Agreement is not frustrated.
(h) Each of the parties hereto acknowledges and agrees that in the event
that any of the provisions of this Agreement were not performed in accordance
with their specific terms or were otherwise breached, each non-breaching party
would be irreparably and immediately harmed and could not be made whole by
monetary damages. Accordingly, it is agreed that the parties hereto (a) shall be
entitled to an injunction or injunctions to prevent breaches of this Agreement
and to compel specific performance of this Agreement in any proceeding
instituted in the courts of the State of New York or the United States of
America for the Southern District of New York or in the Court of Chancery in and
for New Castle County in the State of Delaware or the courts of the United
States of America for the District of Delaware (or, if any such court lacks
subject matter jurisdiction, any appropriate state or federal court in the State
of New York or the State of Delaware), this being in addition to any other
remedy to which they are entitled at law or in equity, and (b) will waive, in
any proceeding for specific performance, the defense of adequacy of a remedy at
law. Each of the parties further agrees to waive any requirement for the
securing or posting of any bond or other security in connection with any
proceeding for specific performance.
(i) All rights, powers and remedies provided under this Agreement or
otherwise available in respect hereof at law or in equity shall be cumulative
and not alternative, and the exercise of any thereof by any party shall not
preclude the simultaneous or later exercise of any other such right, power or
remedy by such party. The failure of any party hereto to exercise any right,
power or remedy provided under this Agreement or otherwise available in respect
hereof at law or in equity, or to insist upon compliance by any other party
hereto with its obligations hereunder, and any custom or practice of the parties
at variance with the terms hereof, shall not constitute a waiver by such party
of its right to exercise any such or other right, power or remedy or to demand
such compliance.
(j) Notwithstanding anything herein to the contrary, nothing set forth
herein shall in any way restrict any person, including any officer, partner,
director or employee of the MS Entities, in the exercise of his or her fiduciary
duties as a director of the Company.
(k) This Agreement shall be governed and construed in accordance with
the laws of the State of Delaware without giving effect to the principles of
conflicts of law thereof or of any other jurisdiction.
10
<PAGE> 11
(l) The descriptive headings used herein are inserted for convenience of
reference only and are not intended to be part of or to affect the meaning or
interpretation of this Agreement. "INCLUDE," "INCLUDES," and "INCLUDING" shall
be deemed to be followed by "without limitation" whether or not they are in fact
followed by such words or words of like import. The words "HEREOF," "HEREIN" and
"HEREWITH" and words of similar import shall, unless otherwise stated, be
construed to refer to this Agreement as a whole and not to any particular
provision of this Agreement, and article, section, paragraph, exhibit and
schedule references are to the articles, sections, paragraphs, exhibits and
schedules of this Agreement unless otherwise specified. All terms defined in
this Agreement shall have the defined meanings contained herein when used in any
certificate or other document made or delivered pursuant hereto unless otherwise
defined therein. The definitions contained in this Agreement are applicable to
the singular as well as the plural forms of such terms and to the masculine as
well as to the gender and neuter genders of such term. The term "BUSINESS DAY"
shall mean any day other than Saturday, Sunday or any other day on which banks
in New York City, New York or Paris, France are required to or permitted to be
closed.
(m) This Agreement may be executed in counterparts, each of which shall
be deemed to be an original, but all of which, taken together, shall constitute
one and the same instrument. This Agreement may be executed by facsimile
signatures and such signature shall be deemed binding for all purposes hereof,
without delivery of an original signature being thereafter required.
(n) Any legal action or proceeding with respect to this Agreement or any
matters arising out of or in connection with this Agreement or otherwise, and
any action for enforcement of any judgment in respect thereof shall be brought
exclusively in the courts of the State of New York or of the United States of
America for the Southern District of New York, the Court of Chancery of Delaware
or the courts of the United States of America for the District of Delaware and,
by execution and delivery of this Agreement, each of the MS Entities, Parent and
Purchaser each hereby accept for itself and in respect of its property,
generally and unconditionally, the exclusive jurisdiction of the aforesaid
courts and appellate courts thereof. Each of the MS Entities, Parent and
Purchaser irrevocably consents to service of process out of any of the
aforementioned courts in any such action or proceeding by the mailing of copies
thereof by registered or certified mail, postage prepaid, or by recognized
international express carrier or delivery service, to any MS Entity at the
address referred to in Section 16(f) or, in the case of Parent or Purchaser, as
provided in Section 16(o).
(o) Each of Parent and Purchaser hereby designates CT Corporation as its
respective agent for service of process in the State of New York and RL&F
Service Corp. as its agent for the service of process in the State of Delaware,
in each case solely with respect to any dispute or controversy arising out of
this Agreement only, and service upon Parent or Purchaser for such purposes
shall be deemed to be effective upon service of either CT Corporation or RL&F
Service Corp., as applicable, as aforesaid or of its successor designated in
accordance with the following sentence in the appropriate State. Parent or
Purchaser may designate another corporate agent or law firm reasonably
acceptable to the MS Entities and located in the Borough of Manhattan, in the
City of New York, or in the County of Newcastle in the State of Delaware, as
applicable, as successor agent for service of process upon 30 days' prior
written notice to the MS Entities. Parent further covenants and agrees to
execute, upon the MS Entities' request, such documents and agreements as are
reasonably necessary to confirm such designations.
(p) Each of the MS Entities, Parent and Purchaser each hereby
irrevocably waives any objection which it may now or hereafter have to the
laying of venue of any of the aforesaid actions or
11
<PAGE> 12
proceedings arising out of or in connection with this Agreement or otherwise
brought in the courts referred to above and hereby further irrevocably waives
and agrees, to the extent permitted by applicable law, not to plead or claim in
any such court, by way of motion, as a defense, counterclaim or otherwise, in
any action or proceeding with respect to this Agreement, (a) any claim that it
is not personally subject to the jurisdiction of the above-named courts, (b)
that it or its property is exempt or immune from jurisdiction of any such court
or from any legal process commenced in such courts (whether through service of
notice, attachment before judgment, attachment in aid of execution of judgment,
execution of judgment or otherwise), (c) that the proceeding in any such court
is brought in an inconvenient forum, (d) that the venue of such proceeding is
improper or (e) that this Agreement, or the subject matter hereof, may not be
enforced in or by such court. Nothing herein shall affect the right of any party
hereto to serve process in any other manner permitted by law.
(q) Wherever this Agreement requires Purchaser to take any action, such
requirement shall be deemed to include an undertaking on the part of Parent to
cause Purchaser to cause such action.
[END OF TEXT; EXECUTION PAGE FOLLOWS]
12
<PAGE> 13
[EXECUTION PAGE]
IN WITNESS WHEREOF, Parent, Purchaser and the MS Entities have
caused this Agreement to be duly executed as of the day and year first above
written.
ACCOR SA
By: /s/ ANDRE MARTINEZ
---------------------------------
Name: Andre Martinez
Title: Authorized Signatory
By: /s/ PIERRE TODOROV
---------------------------------
Name: Pierre Todorov
Title: Authorized Signatory
RRI ACQUISITION CORP.
By: /s/ ARMAND SEBBAN
---------------------------------
Name: Armand Sebban
Title: Executive Vice President
and Chief Financial Officer
THE MORGAN STANLEY REAL ESTATE FUND, L.P.
By: /s/ JOHN HENRY
---------------------------------
Name: John Henry
Title: Vice President
MORGAN STANLEY REAL ESTATE INVESTMENT
MANAGEMENT, INC., as nominee
By: /s/ JOHN HENRY
---------------------------------
Name: John Henry
Title: Vice President
MORGAN STANLEY REAL ESTATE CO-INVESTMENT
PARTNERSHIP II, L.P.
By: /s/ JOHN HENRY
---------------------------------
Name: John Henry
Title: Vice President
<PAGE> 14
ANNEX A
MS Entities and their Owned Shares
<TABLE>
<CAPTION>
MS ENTITY OWNED SHARES
- --------- ------------
<S> <C>
THE MORGAN STANLEY REAL ESTATE FUND, L.P., a 12,872,640 shares of Company Common Stock
Delaware limited partnership
MORGAN STANLEY REAL ESTATE INVESTMENT 901,600 shares of Company Common Stock
MANAGEMENT, INC., a Delaware corporation, as
nominee
MORGAN STANLEY REAL ESTATE CO-INVESTMENT 4,625,760 shares of Company Common Stock
PARTNERSHIP II, L.P., a Delaware limited
partnership
</TABLE>
A-1
<PAGE> 1
EXHIBIT 4
[RED ROOF INNS LOGO]
July 16, 1999
To the Stockholders of
Red Roof Inns, Inc.
We are pleased to inform you that on July 10, 1999, Red Roof Inns, Inc.
(the "Company") entered into an Agreement and Plan of Merger (the"Merger
Agreement") with Accor S.A. ("Parent") and RRI Acquisition Corp., its indirect
wholly owned subsidiary ("Purchaser"), pursuant to which Purchaser has today
commenced a tender offer (the "Offer") to purchase all of the outstanding shares
of common stock, par value $.01 per share (the "Shares"), of the Company for
$22.75 per Share in cash. Under the terms of the Merger Agreement, following the
Offer, Purchaser will be merged with and into the Company (the "Merger" and,
together with the Offer, the "Transaction") and all Shares not purchased in the
Offer (other than Shares held by Parent, Purchaser or the Company, or Shares
held by dissenting stockholders) will be converted into the right to receive
$22.75 per Share in cash.
Your Board of Directors has unanimously approved the Merger Agreement, the
Offer and the Merger and has determined that the Offer and the Merger are fair
to and in the best interests of the Company's stockholders. The Board
unanimously recommends that the Company's stockholders accept the Offer and
tender their Shares in the Offer.
In arriving at its recommendation, the Board of Directors gave careful
consideration to a number of factors described in the attached Schedule 14D-9
that is being filed today with the Securities and Exchange Commission. The Board
has received separate written opinions, each dated July 10, 1999, from Morgan
Stanley & Co. Incorporated and CIBC World Markets Corp. to the effect that, as
of the date of such opinions and based upon and subject to the matters stated
therein, the $22.75 per Share cash consideration to be received in the
Transaction by the holders of Shares (other than Parent and its affiliates) was
fair, from a financial point of view, to such holders.
In addition to the attached Schedule 14D-9 relating to the Offer, also
enclosed is the Offer to Purchase, dated July 16, 1999, of Purchaser, together
with related materials, including a Letter of Transmittal to be used for
tendering your Shares. These documents set forth the terms and conditions of the
Offer and the Merger and provide instructions as to how to tender your Shares.
We urge you to read the enclosed materials carefully.
Sincerely,
[FRANCIS W. CASH SIGNATURE]
Francis W. Cash
Chairman of the Board,
President and Chief Executive Officer
Red Roof Inns, Inc. -- 4355 Davidson Road -- Hilliard, Ohio 43026-2491 --
(614) 876-3200
<PAGE> 1
Exhibit 5
[LETTERHEAD OF MORGAN STANLEY & CO. INCORPORATED]
July 10, 1999
Board of Directors
Red Roof Inns, Inc.
4355 Davidson, Road
Hilliard, OH 430269-2491
Members of the Board:
We understand that Red Roof Inns (the "Company"), Accor, S.A. ("Buyer") and RRI
Acquisition Corp., a wholly owned subsidiary of Accor ("Acquisition Sub"),
propose to enter into an Agreement and Plan of Merger dated July 10, 1999 (the
"Merger Agreement"), which provides, among other things, for (i) the
commencement by Acquisition Sub of a tender offer (the "Tender Offer") for all
outstanding shares of common stock, par value $.01 per share, of the Company
(the "Common Stock") for $22.75 per share net to the seller in cash, and (ii)
the subsequent merger (the "Merger") of Acquisition Sub with and into the
Company. Pursuant to the Merger, the Company will become a wholly owned
subsidiary of Buyer and each outstanding share of Common stock other than shares
held in treasury or held by Buyer or any affiliate of Buyer or as to which
dissenters' rights have been perfected, will be converted into the right to
receive $22.75 per share in cash. We note that pursuant to the Tender and Voting
Agreement dated July 10, 1999 (the "Tender Agreement") between the Morgan
Stanley Real Estate Fund, L.P., Morgan Stanley Co-Investment Partnership II,
L.P., and Morgan Stanley Investment Management, Inc. (collectively, the "MSREF
Entities") and Buyer, the MSREF Entities have agreed to tender all of their 18.4
million owned shares, or approximately 68.3% of the outstanding shares of Common
Stock in the Tender Offer. The terms and conditions of the Tender Offer and the
Merger are more fully set forth in the Tender Agreement and Merger Agreement.
You have asked for our opinion as to whether the consideration to be received by
the holders of shares of Common Stock pursuant to the Merger Agreement is fair
from a financial point of view to such holders.
<PAGE> 2
For purposes of the opinion set forth herein, we have:
(i) reviewed certain publicly available financial statements and other
information of the Company;
(ii) reviewed certain internal financial statements and other financial and
operating data concerning the Company prepared by the management of the
Company;
(iii) analyzed certain financial projections prepared by the management of the
Company;
(iv) discussed the past and current operations and financial condition and the
prospects of the Company with senior executives of the Company;
(v) reviewed the reported prices and trading activity for the Common Stock;
(vi) compared the financial performance of the Company and the prices and
trading activity of the Common Stock with that of certain other
comparable publicly-traded companies and their securities;
(vii) reviewed the financial terms, to the extent publicly available, of
certain comparable acquisition transactions;
(viii) participated in discussions and negotiations among representatives of the
Company and Buyer (and certain other parties during the term of our
engagement as the Company's financial advisor) and their financial and
legal advisors;
(ix) reviewed the Merger Agreement and Tender Agreement and certain related
documents; and
(x) performed such other analyses and considered such other factors as we
have deemed appropriate.
We have assumed and relied upon without independent verification the accuracy
and completeness of the information reviewed by us for the purposes of this
opinion. With respect to the financial projections, we have assumed that they
have been reasonably prepared on bases reflecting the best currently available
estimates and judgments of the future financial performance of the Company. We
have assumed that the Merger will be consummated in accordance with the terms
set forth in the Merger Agreement. We
<PAGE> 3
have not made any independent valuation or appraisal of the assets or
liabilities of the Company, nor have we been furnished with any such
appraisals. Our opinion is necessarily based on financial, economic, market and
other conditions as in effect on, and the information made available to us as
of, the date hereof.
We have acted as financial advisor to the Board of Directors of the Company in
connection with this transaction and will receive a fee for our services.
Additionally, Morgan Stanley & Co., Incorporated is affiliated with the MSREF
Entities, which is a majority shareholder of the Company, with control of five
of eight board seats. Since January 1998, we have provided financial advisory
services to the Company, but have not, as of the date hereof, received any fees
for our services.
Based upon and subject to the foregoing, we are of the opinion on the date
hereof that the consideration to be received by the holders of shares of
Common Stock pursuant to the Merger Agreement is fair from a financial point of
view to such holders.
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
By: /s/ MAHMOUD MAMDANI
--------------------------------
Mahmoud Mamdani
Managing Director
<PAGE> 1
Exhibit 6
[LETTERHEAD OF CIBC WORLD MARKETS CORP.]
July 10, 1999
The Board of Directors
Red Roof Inns, Inc.
4355 Davidson Road
Hilliard, Ohio 43026
Members of the Board:
You have asked CIBC World Markets Corp. ("CIBC World Markets") to render a
written opinion ("Opinion") to the Board of Directors as to the fairness, from a
financial point of view, to the holders of the common stock of Red Roof Inns,
Inc. ("Red Roof") of the consideration to be received pursuant to the Agreement
and Plan of Merger, dated as of July 10, 1999 (the "Merger Agreement"), by and
among Accor S.A. ("Accor"), RRI Acquisition Corp., a wholly owned subsidiary of
Accor ("Sub"), and Red Roof. The Merger Agreement provides for, among other
things, (i) the commencement by Sub of a tender offer to purchase all
outstanding shares of the common stock, par value $0.01 per share, of Red Roof
(the "Red Roof Common Stock" and, such tender offer, the "Tender Offer") at a
purchase price of $22.75 per share, net to the seller in cash (the "Cash
Consideration") and (ii) subsequent to the Tender Offer, the merger of Sub with
and into Red Roof (the "Merger" and, together with the Tender Offer, the
"Transaction") pursuant to which each outstanding share of Red Roof Common Stock
not previously tendered will be converted into the right to receive the Cash
Consideration.
In arriving at our Opinion, we:
(a) reviewed the Merger Agreement and certain related documents;
(b) reviewed audited financial statements of Red Roof for the fiscal years
ended December 28, 1996, January 3, 1998 and January 2, 1999;
(c) reviewed unaudited financial statements of Red Roof for the fiscal
quarter ended April 3, 1999;
(d) reviewed financial projections of Red Roof prepared by the management
of Red Roof;
(e) reviewed the historical market prices and trading volume for Red Roof
Common Stock;
(f) held discussions with the senior management of Red Roof with respect to
the business and prospects for future growth of Red Roof;
<PAGE> 2
The Board of Directors
Red Roof Inns, Inc.
July 10, 1999
Page 2
(g) reviewed and analyzed certain publicly available financial data for
certain companies we deemed comparable to Red Roof;
(h) performed a discounted cash flow analysis of Red Roof using certain
assumptions of future performance provided to and discussed with us by
the management of Red Roof;
(i) reviewed and analyzed certain publicly available information for
transactions that we deemed comparable to the Transaction;
(j) reviewed public information concerning Red Roof; and
(k) performed such other analyses, reviewed such other information and
considered such other factors as we deemed appropriate.
In rendering our Opinion, we relied upon and assumed, without independent
verification or investigation, the accuracy and completeness of all of the
financial and other information provided to or discussed with us by Red Roof and
their employees, representatives and affiliates. With respect to forecasts of
the future financial condition and operating results of Red Roof provided to or
discussed with us, we assumed, at the direction of the management of Red Roof,
without independent verification or investigation, that such forecasts were
reasonably prepared on bases reflecting the best available information,
estimates and judgments of the management of Red Roof. We have neither made nor
obtained any independent evaluations or appraisals of the assets or the
liabilities (contingent or otherwise) of Red Roof or such other affiliated
entities. We are not expressing any opinion as to the underlying valuation,
future performance or long-term viability of Red Roof, or the price at which Red
Roof Common Stock will trade subsequent to announcement of the Transaction. In
connection with our engagement, we were not requested to, and we did not,
solicit third party indications of interest with respect to the acquisition of
all or a part of Red Roof, nor were we requested to, and we did not, participate
in the negotiation or structuring of the Transaction. Our Opinion is necessarily
based on the information available to us and general economic, financial and
stock market conditions and circumstances as they exist and can be evaluated by
us on the date hereof. It should be understood that, although subsequent
developments may affect this Opinion, we do not have any obligation to update,
revise or reaffirm the Opinion.
As part of our investment banking business, we are regularly engaged in
valuations of businesses and securities in connection with acquisitions and
mergers, underwritings, secondary distributions of securities, private
placements and valuations for other purposes.
We have acted as financial advisor to the Board of Directors solely in
connection with the rendering of this Opinion and will receive a fee for our
services, a significant portion of which is payable upon the delivery of this
Opinion. We have in the past provided financial services to Red Roof unrelated
to the proposed Transaction, for which services we have received compensation.
In the ordinary course of business, CIBC World Markets and its affiliates may
actively trade securities of Red Roof, Accor and their affiliates for their own
account and for the accounts of customers and, accordingly, may at any time hold
a long or short position in such securities.
2
<PAGE> 3
The Board of Directors
Red Roof Inns, Inc.
July 10, 1999
Page 3
Based upon and subject to the foregoing, it is our opinion that, as of the date
hereof, the Cash Consideration to be received by the holders of Red Roof Common
Stock (other than Accor and its affiliates) in the Transaction is fair from a
financial point of view to such holders. This Opinion is for the use of the
Board of Directors of Red Roof, and does not constitute a recommendation to any
stockholder as to whether such stockholder should tender shares of Red Roof
Common Stock in the Tender Offer or how such stockholder should vote on any
matters relating to the proposed Transaction.
Very truly yours,
/s/ CIBC World Markets Corp.
-----------------------------------
CIBC WORLD MARKETS CORP.
3
<PAGE> 1
Exhibit 7
PRESS RELEASE
RED ROOF INNS, INC. TO BE ACQUIRED BY
ACCOR S.A.
ACCOR EXPANDS ITS WORLDWIDE
LEADERSHIP IN THE ECONOMY LODGING SEGMENT
AND ITS PRESENCE IN THE U.S. MARKET
Paris, France and Columbus, Ohio, USA
12 July 1999
Accor S.A. and Red Roof Inns, Inc. today jointly announced that Accor plans to
launch a tender offer to acquire all outstanding shares of economy lodging
company Red Roof Inns, Inc. at a price of $22.75 per share. The total value of
the transaction, including assumption of debt, is slightly more than $1.1
billion.
Accor has received a commitment from the Morgan Stanley Real Estate Fund L.P.
and certain of its co-investors, the majority shareholders of the Company, to
tender their combined 68.3% stake at the offer price. The offer price of $22.75
represents a premium of 27.5% over the 30-day average trading price of $17.85
per share. Red Roof's revenues for 1998 amounted to $375.3 million, and EBITDA
was $146.5 million. The transaction value represents a multiple of approximately
7.6 times 1998 EBITDA. The acquisition is expected to be immediately accretive
to Accor.
With a network of 322 hotels (37,005 rooms, of which 29,907 are owned and the
remainder franchised) primarily located in the Midwest, the East and in the
South, Red Roof Inns enjoys high customer awareness and an outstanding brand
image in the economy lodging market.
Motel 6 and Red Roof Inns complement each other particularly well, as is the
case for the Formule 1 and Etap Hotel chains in Europe. The two brands
complement each other in terms of geography (West and East), product mix (Budget
and Econ omy) and clientele (leisure and business).
To supplement the renewed image and performance of Motel 6 in recent years,
Accor plans to rapidly optimize the operations of Motel 6 and Red Roof Inns
through realization of synergies and acceleration of the development and
franchising pro gram. Motel 6 and Red Roof Inns will both become part of a newly
formed group, Accor Economy Lodging.
Jean-Marc Espalioux, Chairman of the Management Board and CEO of Accor stated,
"The acquisition of Red Roof fits with one of the key elements of Accor's global
<PAGE> 2
strategy, the strengthening of Accor's worldwide leadership in the economy hotel
sector. The economy sector is promising in both developed and emerging nations,
is highly profitable, and is less sensitive to economic cycles than other hotel
sectors. With its unparalleled expertise, Accor will now operate 2,098 economy
sector properties worldwide with 207,686 rooms under the brands Formule 1, Etap
Hotel, Ibis, Motel 6, Studio 6 and Red Roof Inns, and reinforce its leading
position on all continents."
"This is a great opportunity for Red Roof Inns and offers our shareholders the
value that is representative of our company's strengths - - our people, our
service, and our brand," said Francis W. "Butch" Cash, Chairman of the Board,
President and Chief Executive Officer of Red Roof Inns. "The synergy created by
joining the Accor family will allow Red Roof Inns to expand our strong brand
positioning within a global marketplace."
Through Motel 6, Accor is already a leader in the U.S. budget and economy
lodging sector. With the addition of the Red Roof Inns portfolio to the 790
Motel 6 proper ties (85,375 rooms), Accor will operate more than 120,00 rooms in
this sector in the United States.
In the United States, the world's largest hotel market, Accor also operates
through its upscale Novotel chain and growing luxury Sofitel chain, in business
travel through its 50% interest in Carlson Wagonlit Travel and in corporate
services through Child Care.
With the Red Roof acquisition, the portion of revenues generated in the United
States will increase from 17% to 22%.
Accor, a leader worldwide in travel, tourism and business services, is active in
140 coun tries with 130,000 associates, through its four major complementary
activities: hotels (3,084 hotels, 340,782 rooms after addition of Red Roof);
travel agencies through Carlson Wagonlit Travel; car rental with Europcar and
corporate services with Accor Corporate Services.
The financial advisor for Accor was J.P. Morgan & Co. and for Red Roof Inns was
Morgan Stanley Dean Witter. The legal advisor for Accor was Proskauer Rose LLP
and for Red Roof Inns was Skadden, Arps, Slate, Meagher and Flom LLP.
<PAGE> 3
Accor Contacts
Jacques Charbit Marie-Claire Camus
Tel: 33 1 45 38 87 53 Tel: 33 1 45 38 84 85
Red Roof Inns Contacts
Gail B. Whitcomb Lisa K. Klinger
Media Inquiries Analyst Inquiries
614-876-3276 614-876-3227
<PAGE> 1
Exhibit 8
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") dated as of June 26, 1995, is
entered between Red Roof Inns, Inc. (the "Company") and Francis W. Cash (the
"Executive").
WHEREAS, the Company and the Executive wish to enter into an employment
agreement whereby the Executive will be employed by the Company in accordance
with the terms and conditions stated below;
NOW, THEREFORE, the parties hereby agree as follows:
ARTICLE I
Employment, Duties and Responsibilities
1.01. Employment. The Executive shall serve as the President and Chief
Executive Officer of the Company. The Company will also use its best efforts to
assure the Executive's election to the Board of Directors of the Company. The
Executive hereby accepts such employment. The Executive agrees to devote
substantially all of his time and efforts to promoting the interests of the
Company.
1.02. Duties and Responsibilities. Subject to the supervision of and
direction by the Board of Directors of the Company, the Executive shall (a)
perform such duties as are similar in nature to those duties and services
customarily associated with the position of President and Chief Executive
Officer, and (b) be responsible, together with other senior executives of the
Company, for the implementation of the operating plan and budget of the Company.
The selection and retention of senior management personnel shall be approved by
the Board of Directors (or a committee thereof) of the Company.
1.03. Base of Operation. The Executive's principal base of operation for
the performance of his duties and responsibilities under this Agreement shall be
the offices of the Company in Hilliard, Ohio, provided that the Executive shall
perform such duties and responsibilities not involving a permanent transfer of
his base of operation outside of Hilliard, Ohio, at such other places as shall
from time to time be reasonably necessary to fulfill his obligations hereunder.
<PAGE> 2
ARTICLE II
Term
2.01. Term. (a) The term of this Agreement (the "Term") shall
commence on July 1, 1995 and shall continue for a period of two years from the
commencement date hereof. The Term and this Agreement will be renewed
automatically thereafter for successive one-year terms unless 6 months notice
of non-renewal is given by either party to the other.
(b) The Executive represents and warrants to the Company that to the best
of his knowledge, neither the execution and delivery of this Agreement nor the
performance of his duties hereunder violates or will violate the provisions of
any other agreement to which he is a party or by which he is bound.
ARTICLE III
Compensation and Expenses
3.01. Salary and Benefits. As compensation and consideration for
the performance by the Executive of his obligations under this Agreement, the
Executive shall be entitled to the following (subject, in each case, to the
provisions of Article V hereof):
(a) The Company shall pay the Executive a base salary during 1995,
payable in accordance with the ordinary payment procedures of the Company and
subject to such withholdings and other ordinary employee deductions as may be
required by law, at the rate of $400,000 per annum. The total base salary paid
to the Executive for 1995 shall be $200,000. The base salary to be paid the
Executive during the Term for years after 1995 shall be reviewed by the Company
on an annual basis, but in no event shall such base salary be reduced, during
the Term, to a rate less than $400,000 per annum.
(b) The Executive shall participate during the Term in the annual cash
bonus plan maintained by the Company, subject to the terms and provisions of
such plan. For 1995, the Company shall pay the Executive an end-of-year bonus
of no less than $100,000, payable in accordance with the ordinary payment
procedures of the Company and subject to such withholdings and other ordinary
employee deductions as may be required by law.
(c) From July 1, 1995, until September 30, 1995, the Company shall either
(i) assume or (ii) reimburse the Executive for the cost of obtaining continued
coverage
2
<PAGE> 3
under, the life insurance and long-term disability plans under which the
Executive was covered while employed by Nova Care, Inc. Unless the Executive
provides the Company with a written election to the contrary on or prior to
September 15, 1995, the obligations of the Company set forth in the first
sentence of this clause (c) shall continue throughout the Term, and the
Executive shall not participate in the life insurance and long-term disability
plans otherwise maintained by the Company. If, on or prior to September 15,
1995, the Executive so elects by written notice provided to the Company, the
obligations of the Company set forth in the first sentence of this clause (c)
shall terminate as of October 1, 1995, and from that date forward, during the
Term, the Executive shall participate in such life insurance and long-term
disability plans as may be maintained from time to time during the Term by the
Company for the benefit of the employees of the Company, to the extent and in
such manner available to other executive officers of the Company and subject to
the terms and provisions of such plans and programs.
(d) The Executive shall participate during the Term in such pension,
health and major medical insurance plans, and in such other employee benefit
plans and programs (other than the annual cash bonus plan, described in
paragraph (b) above, and the Company's life insurance and long-term disability
plans, described in paragraph (c) above), as may be maintained from time to
time during the Term by the Company for the benefit of the employees of the
Company, in each case to the extent and in such manner available to other
executive officers of the Company and subject to the terms and provisions of
such plans or programs.
(e) The Executive shall be entitled to an annual paid vacation period
(but not necessarily consecutive vacation weeks) during the Term, in accordance
with the Company's employee benefit policies, but in no event less than four
weeks per year. For 1995, the paid vacation period to which the Executive is
entitled shall be two weeks.
3.02. Expenses. The Company will reimburse the Executive for reasonable
business-related expenses incurred by him in connection with the performance of
his duties hereunder during the Term including (a) business calls and monthly
service charges on the Executive's personal mobile telephone and (b) a monthly
allowance in the amount of $727 for the Executive's business use of his
personal automobile, subject, however, to the Company's policies relating to
business-related expenses as in effect from time to time during the Term. The
Company will reimburse the Executive, in accordance with the Company's
relocation policy, for all
3
<PAGE> 4
reasonable and normal costs related to relocating his permanent residence from
Villanova, Pennsylvania, to Hilliard, Ohio.
3.03. Management Stock Option Plan. The Executive shall participate
during the Term in the Company's Management Stock Option Plan (the "Option
Plan"). As soon as practicable after commencement of the Term, the Company will
award the Executive options to purchase 51,000 shares of the Company's common
stock at a price per share of $5.43, and options to purchase 51,000 shares of
the Company's common stock at a price per share of $14.13. It is currently the
Company's intention to award the Executive as of January 1, 1996, options (the
"1996 Options") to purchase 51,000 shares of the Company's common stock at a
price equal to the per-share equity value of the Company as of December 31,
1995, and to award the Executive as of January 1, 1997, options (the "1997
Options") to purchase 51,000 shares of the Company's common stock at a price
equal to the per-share equity value of the Company as of December 31, 1996. The
per-share equity value of the Company shall be determined in accordance with the
terms of the Option Plan. With respect to the 1996 and 1997 Options, the Company
reserves the right to modify the number of options granted to the Executive. The
award and exercise of all the options described in this Section 3.03 shall be
subject to the terms of the Option Plan, including the vesting requirements set
forth in that Plan. A copy of the Option Plan is attached.
3.04 Supplemental Retirement Plan. The Company agrees to institute a
supplemental retirement plan for the Executive that, together with the qualified
retirement plans maintained by the Company, will provide the Executive with an
annual retirement benefit equal to approximately 30% of the Executive's average
base salary (excluding bonus) for the three years of his employment with the
Company during which such base salary is highest. It is understood that this
plan will be finalized as soon as practicable after commencement of the Term.
3.05 Continuing Health, Life and Disability Insurance. Following the
termination of the Executive's employment (i) by the Company for other than
Cause, as hereinafter defined, (ii) by the Executive for Good Reason, as
hereinafter defined, or (iii) by reason of disability under Section 5.03 hereof,
the Company shall continue to provide the Executive such Company-provided (a)
group health insurance, (b) life insurance, and (c) long-term disability
coverage as are in affect with respect to the Executive at the time of such
termination until the earlier of (I) the termination of the Severance Period, as
hereinafter defined, or (II) the date on which the Executive obtains other
employment.
4
<PAGE> 5
ARTICLE IV
Exclusivity, Etc.
4.01. Exclusivity. The Executive agrees to perform his duties,
responsibilities and obligations hereunder efficiently and to the best of his
ability. The Executive agrees that he will devote substantially all of his
working time, care and attention and best efforts to such duties,
responsibilities and obligations throughout the Term. The foregoing shall not
be interpreted to prohibit the Executive from serving as director or trustee
of one or more corporations or foundations (either for-profit or
not-for-profit) other than the Company. The Executive also agrees that he will
not engage in any other business activities, pursued for gain, profit or other
pecuniary advantage, that, subject to Section 4.04 hereof, are competitive with
the activities of the Company. The Executive agrees that all of his activities
as an employee of the Company shall be in conformity with all present and
future policies, rules and regulations and directions of the Company not
inconsistent with this Agreement.
4.02. Other Business Ventures. The Executive agrees that, so long as he
is employed by the Company, he will not own, directly or indirectly, any
controlling or substantial stock or other beneficial interest in any business
enterprise which is engaged in, or competitive with, any business engaged in by
the Company. Notwithstanding the foregoing, the Executive may own, directly or
indirectly, up to 5% of the outstanding capital stock of any business having a
class of capital stock which is traded on any national stock exchange or in the
over-the-counter market.
4.03. Confidentiality. The Executive agrees that he will not, any time
during or after the Term, make use of or divulge to any other person, firm or
corporation any trade or business secret, process, method or means, or any other
confidential information concerning the business or policies of the Company,
which he may have learned in connection with his employment hereunder. For
purposes of this Agreement, a "trade of business secret, process, method or
means, or any other confidential information" shall mean and include written
information treated as confidential or as a trade secret by the Company. The
Executive's obligation under this Section 4.03 shall not apply to any
information which (a) is known publicly; (b) is in the public domain or
hereafter enters the public domain without the fault of the Executive; (c) is
known to the Executive prior to his receipt of such information from the
Company, as evidenced by written records of the Executive; or (d) is
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<PAGE> 6
hereafter disclosed to the Executive by a third party not under an obligation of
confidence to the Company. The Executive agrees not to remove from the premises
of the Company, except as an employee of the Company in pursuit of the business
of the Company or except as specifically permitted in writing by the Company,
any document or other object containing or reflecting any such confidential
information. The Executive recognizes that all such documents and objects,
whether developed by him or by someone else, will be the sole and exclusive
property of the Company. Upon termination of his employment hereunder, the
Executive shall forthwith deliver to the Company all such confidential
information, including without limitation all lists of lessees, customers,
correspondence, accounts, records and any other documents or property made or
held by him or under his control in relation to the business or affairs of the
Company, and no copy of any such confidential information shall be retained by
him. The provisions of this Section 4.03 shall survive any termination of this
Agreement pursuant to Article V.
4.04. Noncompetition. (a) Subject to Section 5.05(b), during the
period commencing on the date hereof and ending on the first anniversary of the
date on which the Executive's employment is terminated, whether before or after
the Term:
(i) the Executive shall not, on his own account, or as an employee,
consultant, independent contractor, partner, owner, officer, director or
stockholder, engage in, be connected with, have any interest in, or aid or
assist anyone else to engage in, be connected with, or have any interest in, a
Business, as such term is defined below, provided that the Executive may
purchase securities in any corporation whose securities are listed or traded on
a national securities exchange or in an over-the-counter securities market if
such purchases do not result in the Executive beneficially owning, directly or
indirectly, at any time 5% or more of the equity securities of any such
corporation; and
(ii) the Executive shall not, directly or indirectly, whether as an
employee, consultant, independent contractor, partner, joint venturer or
otherwise, (A) solicit or induce, or in any manner attempt to solicit or induce,
any person employed by, or as agent of, the Company to terminate such person's
employment or agency, as the case may be, with the Company or (B) divert, or
attempt to divert, any person, concern, or entity from doing business with the
Company (including entering into a lease), nor will he attempt to induce any
such person, concern or entity to
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<PAGE> 7
cease being a lessee, customer or supplier of the Company.
(b) For purposes of this Agreement, "BUSINESS" means the
development, acquisition, ownership, lease, use, operation or management of
hotel or motel properties, by any business entity which, either individually or
together with other members of its controlled group (defined under principles
similar to those set forth in Section 1563 of the Internal Revenue Code of
1986, as amended), derives at least five percent of its U.S. revenue from
business establishments that compete directly with business establishments of
the Company.
(c) If any provision contained in this Section 4.04 shall for any
reason be held invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any other
provisions of this section, but this section shall be construed as if such
invalid, illegal or unenforceable provision had never been contained herein. It
is the intention of the parties that if any of the restrictions or covenants
contained herein is held to cover a geographic area or to be for a length of
time which is not permitted by applicable law, or in any way construed to be
too broad or to any extent invalid, such provision shall not be construed to be
null, void and of no effect, but to the extent such provision would be valid or
enforceable under applicable law, a court of competent jurisdiction shall
construe and interpret or reform this Section 4.04 to provide for a covenant
having the maximum enforceable geographic area, time period and other
provisions (not greater than those contained herein) as shall be valid and
enforceable under such applicable law. The Executive acknowledges that the
Company would be irreparably harmed by any breach of this Section and that
there would be no adequate remedy at law or in damages to compensate the
Company for any such breach. The Executive agrees that the Company shall be
entitled to injunctive relief requiring specific performance by the Executive
of this Section 4.04, and the Executive consents to the entry thereof.
ARTICLE V
TERMINATION AND INDEMNIFICATION
5.01. Termination by the Company. The Company shall have the right
to terminate the Executive's employment at any time with or without "Cause".
For purposes of this Agreement, "CAUSE" shall mean:
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<PAGE> 8
(a) the willful and continued failure by the Executive to substantially
perform his duties with the Company on a full-time basis (other than any such
failure resulting from total or partial incapacity due to physical or mental
illness) within a reasonable cure period after a written demand for substantial
performance is delivered to the Executive by the Board of Directors of the
Company, which demand identifies the manner in which the Board of Directors
believes that he has not substantially performed such duties;
(b) the willful engaging by the Executive in conduct which is (i)
contrary to or inconsistent with the will of the Board of Directors of the
Company, as expressed in writing to the Executive by the Board of Directors, or
(ii) significantly injurious to the Company, monetarily or otherwise; after, in
either case, a written demand for cessation of such conduct is delivered to the
Executive by the Board of Directors of the Company, which demand specifically
identifies the manner the Board of Directors believes the Executive has engaged
in such conduct and, if applicable, the injury to the Company resulting
therefrom;
(c) the breach by the Executive of any of the covenants in this
Agreement;
(d) the commission by the Executive of a significant act of dishonesty,
deceit or breach of fiduciary duty in the performance of the Executive's duties
with the Company;
(e) the commission by the Executive of an act or acts constituting a
crime involving moral turpitude; or
(f) the Executive's use of illegal drugs, abuse of other controlled
substances or habitual intoxication.
For purposes of clauses (a) and (b) of this definition, no act, or failure to
act, on the part of the Executive shall be deemed to be willful unless
knowingly done, or omitted to be done, by the Executive not in good faith and
without a reasonable belief that such action or omission was in the best
interests of the Company. For purposes of clauses (c) through (f) of this
definition, "Cause" shall not be deemed to exist unless (i) the Board of
Directors has provided the Executive with written notice identifying the
Board's grounds for concluding that Cause exists, and (ii) the Executive shall
have had an opportunity to respond, at a meeting with a representative of the
Board, to the matters raised in such written notice.
5.02. Death. In the event the Executive dies during the Term, this
Agreement shall automatically
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<PAGE> 9
terminate, such termination to be effective on the date of the Executive's
death.
5.03. Disability. In the event that the Executive shall suffer a
disability which shall have prevented him from performing satisfactorily his
obligations hereunder for a period of at least 120 consecutive days, the
Company shall have the right to terminate this Agreement, such termination to
be effective upon the giving of notice thereof to the Executive in accordance
with Section 6.02 hereof.
5.04. Termination by the Executive for Good Reason. The Executive's
employment may be terminated during the Term by the Executive for Good Reason,
by giving to the Company 30 days advance written notice specifying the event
or circumstance which the Executive alleges constitutes Good Reason. Such
notice of resignation will take effect, if not revoked by the Executive, at
the conclusion of such thirty-day period. For purposes of this Agreement, the
following circumstances shall constitute "Good Reason," if not cured prior to
the expiration of such thirty-day period:
(a) the assignment to the Executive of duties that are materially
inconsistent with the Executive's position or with his authority, duties or
responsibilities as contemplated by Sections 1.01 and 1.02 of this Agreement,
or any other action by the Company or its successor which results in a
material diminution or material adverse change in such position, authority,
duties or responsibilities;
(b) any material breach by the Company or its successor of the
provisions of this Agreement;
(c) a relocation of the Executive's principal base of operation to
any location other than the one described in Section 1.03 hereof;
(d) a Change in Control, as defined herein, shall have occurred and
the Executive shall have provided the Company, within thirty days after such
Change in Control, the written notice of resignation described in the first
sentence of this Section 5.04. For this purpose, the term "Change in Control"
shall mean any transaction, or series of transactions, including, but not
limited to, any merger, consolidation, or reorganization, which has the result
of reducing the ownership of the Company by the shareholders who own all of the
issued and outstanding stock of the Company on July 1, 1995, to less than
twenty percent (20%) of all of the stock of the Company issued and outstanding
on such date. For purposes of determining ownership of stock before and after
such transaction, the constructive ownership rules of Section 318(a) of the
Internal Revenue
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Code of 1986, as amended, shall apply, and said rules are incorporated herein
by reference. In addition, for purposes of determining ownership of stock after
any such transaction, the shareholders of the Company's stock that was issued
and outstanding on July 1, 1995, shall be deemed to constructively own any
shares of the Company that are transferred, at any time after July 1, 1995, to
Morgan Stanley & Co., Incorporated ("Morgan Stanley"), any "Affiliate" of
Morgan Stanley (as defined in Section 2(a)(3) of the Investment Company Act of
1940), or any trust, fund, or other entity managed or otherwise controlled by
Morgan Stanley or any Affiliate of Morgan Stanley. A "Change in Control" shall
also mean any such transaction, or series of transactions, which has the effect
of transferring eighty percent (80%) or more of the Company's earning assets or
power, to any unrelated party or parties. Notwithstanding the foregoing, a
Change in Control shall not be deemed to have occurred as a result of any
initial public offering of the stock of the Company; or
(e) The Term shall have ended, due to the exercise by the Company of its
non-renewal right under Section 2.01(a).
5.05. Effect of Termination. (a) In the event of termination of the
Executive's employment, whether before or after the Term, by either party for
any reason, or by reason of the Executive's death or disability, the Company
shall pay to the Executive (or his beneficiary in the event of his death) any
base salary or other compensation earned but not paid to the Executive prior to
the effective date of such termination.
(b) In the event of termination of the Executive's employment, (i) by the
Company other than for Cause or (ii) by the Executive for Good Reason, the
Company shall continue to pay to the Executive, in addition to the amounts
described in Section 5.05(a) hereof, base salary, as in effect at the time of
such termination, for the Severance Period, as defined in Section 5.05(c), and
shall provide such other benefits as are provided for in Section 3.05 of this
Agreement. The salary required to be paid by the Company to the Executive
pursuant to this clause (b) shall be reduced by any compensation earned by the
Executive from other employment (including self-employment, but excluding
service as a director or trustee of a corporation or foundation) during the
Severance Period. Notwithstanding the preceding sentence, however, the
Executive shall have no affirmative duty to mitigate damages under this
Agreement by seeking or accepting other employment. For a period of six months
after termination of the Executive's employment under the circumstances
described in this clause (b), the Company shall provide the Executive with
access to such outplacement
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services as the Company provides for the benefit of its employees, and the use
of office space and reasonable office support facilities (including secretarial
assistance).
(c) For purposes of this Agreement, "SEVERANCE PERIOD" shall mean (i) in
the case of the Executive's death or disability, in accordance with Section
5.03, six months; (ii) in the case of termination by the Executive for Good
Reason because of non-renewal of the Term, in accordance with Section 5.04(e),
twelve months; and (iii) in the case of any other termination covered by
Section 5.05(b), 24 months.
5.06. Indemnification. The Company will indemnify the Executive to the
fullest extent that would be permitted by law (including a payment of expenses
in advance of final disposition of a proceeding) as in effect at the time of
the subject act or omission, or by the charter or by-laws of the Company as in
effect at such time, or by the terms of any indemnification agreement between
the Company and the Executive, whichever affords greatest protection to the
Executive, and the Executive shall be entitled to the protection of any
insurance policies the Company may elect to maintain generally for the benefit
of its officers or, during the Executive's service in such capacity, directors
(and to the extent the Company maintains such an insurance policy or policies,
in accordance with its or their terms to the maximum extent of the coverage
available for any company officer or director), against all costs, charges and
expenses whatsoever incurred or sustained by the Executive (including but not
limited to any judgment entered by a court of law) at the time such costs,
charges and expenses are incurred or sustained, in connection with any action,
suit or proceeding to which the Executive may be made a party by reason of his
being or having been an officer or employee of the Company, or serving as a
director, officer or employee of an affiliate of the Company, at the request of
the Company. The Executive's rights under this Section 5.06 shall continue
without time limit for so long as he may be subject to any such liability,
whether or not his term of employment may have ended.
ARTICLE VI
Miscellaneous
6.01. Benefit of Agreement; Assignment; Beneficiary. This Agreement shall
inure to the benefit of and be binding upon the Company and its successors and
assigns, including, without limitation, any corporation or person which may
acquire all or substantially all of the Company's assets or business, or with or
into which the
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<PAGE> 12
Company may be consolidated or merged. This Agreement shall also inure to the
benefit of, and be enforceable by, the Executive and his personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If the Executive should die while any amount would still
be payable to the Executive hereunder if he had continued to live, all such
amounts shall be paid in accordance with the terms of this Agreement to the
Executive's beneficiary, devisee, legatee or other designee, or if there is no
such designee, to the Executive's estate.
6.02 Notices. Any notice required or permitted hereunder shall be in
writing and shall be sufficiently given if personally delivered or if sent by
telegram or telex or by registered or certified mail, postage prepaid, with
return receipt requested, addressed:
(a) in the case of the Company, to Red Roof Inns, Inc., 4355 Davidson Road,
Hilliard, Ohio 43026, Attention: General Counsel, with a copy to The Morgan
Stanley Real Estate Fund L.P., 1251 Avenue of the Americas, 28th floor, New
York, New York 10020, Attention: Peter C. Krause, or to such other address
and/or to the attention of such other person as the Company shall designate by
written notice to the Executive; and
(b) in the case of the Executive, to Francis W. Cash at the address
appearing on the employment records of the Company, from time to time, with a
copy to Lankenau, Kovner & Kurtz, 1740 Broadway, New York, New York 10019,
Attention: Wayne Outten, or to such other address as the Executive shall
designate by written notice to the Company. Any notice given hereunder shall be
deemed to have been given at the time of receipt thereof by the person to whom
such notice is given.
6.03. Entire Agreement; Amendment. This Agreement contains the entire
agreement of the parties hereto with respect to the terms and conditions of the
Executive's employment during the Term and supersedes any and all prior
agreements and understandings, whether written or oral, between the parties
hereto with respect to compensation due for services rendered hereunder. This
Agreement may not be changed or modified except by an instrument in writing
signed by both of the parties hereto.
6.04. Waiver. The waiver by either party of a breach of any provision of
this Agreement shall not operate or be construed as a continuing waiver or as a
consent to or waiver of any subsequent breach hereof.
6.05. Headings. The article and section headings herein are for convenience
of reference only, do not
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<PAGE> 13
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.
6.06. Governing Law. This Agreement shall be governed by, and construed
and interpreted in accordance with, the internal laws of the State of Ohio
without reference to the principles of conflict of laws.
6.07. Agreement to Take Actions. Each party hereto shall execute and
deliver such documents, certificates, agreements and other instruments, and
shall take such other actions, as may be reasonably necessary or desirable in
order to perform his or its obligations under this Agreement or to effectuate
the purposes hereof.
6.08. Arbitration. Except for disputes with respect to Article IV
hereof, any dispute between the parties hereto respecting the meaning and intent
of this Agreement or any of its terms and provisions shall be submitted to
arbitration in Hilliard, Ohio, in accordance with the Commercial Rules of the
American Arbitration Association then in effect, and the arbitration
determination resulting from any such submission shall be final and binding upon
the parties hereto. The arbitrator shall have the authority, but not the
obligation, to award reasonable attorney's fees to the prevailing party in any
dispute subject to this Section 6.08. Judgment upon any arbitration award may be
entered in any court of competent jurisdiction.
6.09. Survivorship. The respective rights and obligations of the parties
hereunder shall survive any termination of this Agreement to the extent
necessary to the intended preservation of such rights and obligations.
6.10. Severability. The invalidity or unenforceability of any provision
or provisions of this Agreement shall not affect the validity or enforceability
of any other provision or provisions of this Agreement, which shall remain in
full force and effect.
6.11. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
6.12. Corporate Authorization. The Company hereby represents that the
execution, delivery and performance by the Company of this Agreement are within
the corporate powers of the Company, and that the Chairman of its Board of
Directors has the requisite authority to bind the Company hereby.
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<PAGE> 14
IN WITNESS WHEREOF, each of the parties hereto has duly executed this
Agreement as of the date first above written.
RED ROOF INNS, INC.
By: /s/ PETER C. KRAUSE
----------------------------------
Name: Peter C. Krause
Title: Chairman of the
Board of Directors
EXECUTIVE
/s/ FRANCIS W. CASH
---------------------------------------
Francis W. Cash
14
<PAGE> 1
Exhibit 9
[RED ROOF INNS LOGO]
October 8, 1998
David L. Rea
6330 Angeles Drive
Dublin, OH 43016
Dear David,
This letter will confirm the terms of our agreement with respect to your
promotion to the position of Executive Vice President, Chief Financial Officer
and Treasurer of Red Roof Inns, Inc. ("RRI").
1. EFFECTIVE DATE. The effective date of this promotion is Tuesday,
October 6, 1998.
2. SALARY. Your new salary will be $200,000 a year.
3. PERFORMANCE APPRAISAL AND SALARY REVIEW. You will receive a
performance appraisal with the potential of a salary adjustment
effective January 1, 1999.
4. MANAGEMENT INCENTIVE COMPENSATION PLAN. In your new position, you will
be eligible for a maximum bonus of 75% of annual salary. Any bonus
earned in 1998 will be prorated (with 75% based on a maximum potential
of 60% of annual salary and 25% based on a maximum potential of 75%).
5. STOCK OPTIONS. You will be granted options to purchase 35,000 shares
of RRI common stock, $.01 par value ("Common Stock"), exercisable at
yesterday's closing price ($15.563).
6. CAR ALLOWANCE. Your car allowance will be increased to $600.00 per
month.
7. EXECUTIVE SEVERANCE AGREEMENT ("PARACHUTE" AGREEMENT). You will
receive a new parachute agreement which will increase severance
benefits to three times annual base salary, three times the highest
bonus, and 36 months of health benefits. Your new parachute also
includes a "Relocation" paragraph which provides for the Company to
purchase your house under specified circumstances (copy attached).
8. SEVERANCE. In the event your employment is terminated without "cause",
you will be entitled to continuous payment of your base salary then in
effect until you secure other employment up to a maximum period of
twelve (12) months from the date of termination. Any termination for
cause shall follow the definition of "cause" and the procedures for
termination as set forth in section (2) of your Executive Severance
Agreement. You will also be entitled to continue to receive (during
the severance period) such company-provided group health insurance,
life insurance and long-term disability coverage as are in effect at
the time of termination; in addition, you will receive a prorated
portion of any bonus you would have earned, and it will be paid when
bonuses for that year are paid to others in the Management Incentive
Compensation Plan. The Company will also provide you with outplacement
services for a period of up to twelve (12) months from the date of
termination.
Red Roof Inns, Inc. * 4355 Davidson Road * Hilliard, Ohio 43026-2491 *
(614) 876-3200
<PAGE> 2
David L. Rea
October 8, 1998
Page 2
9. OTHER RIGHTS AND BENEFITS. This letter agreement shall not affect
adversely any rights which you may have pursuant to any other
agreement, employment contract, policy, plan, program, or arrangement
of the Company, including but not limited to the provisions of your
original August 16, 1996 Employment Letter.
Your promotion is well-deserved, David, and I am looking forward to working with
you in your new, expanded role.
Sincerely,
Francis W. Cash
Chairman, President &
Chief Executive Officer
FWC/dj
Attachment
AGREED AND ACCEPTED: /s/ DAVID L. REA
_______________________________________
David L. Rea
DATE: _______________________________________
<PAGE> 1
Exhibit 10
AGREEMENT
This Amended and Restated Agreement is entered into this 30th day of
January, 1997, by and between RED ROOF INNS, INC., a Delaware corporation, with
principal offices located at 4355 Davidson Road, Hilliard, Ohio (the "Company")
and FRANCIS W. CASH, (the "Executive").
RECITALS
A. Executive is a senior executive of Company who is expected to make
major contributions to the profitability, growth, and financial strength of the
Company.
B. The Company recognizes that upon a threatened change in control
Executive may have concerns about Executive's employment status and
responsibilities, and the Company desires to provide Executive some assurances
as to the continuation of Executive's employment status and responsibilities in
the event of a change in control.
C. The Company desires to assure itself of both present and future
continuity of management in the event of a change in control and desires to
establish certain minimum compensation rights of its key senior executive
officers, including the Executive, applicable in the event of a change in
control.
D. The Company desires to assure that, should it receive an offer
involving a possible change in control, Executive would be in a secure position
to consider such offer and negotiate on behalf of the Company and its
shareholders as objectively as possible, and to this end, the Company desires to
protect Executive from any direct or implied threat to Executive's financial
well-being under such circumstances.
COVENANTS
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, the parties agree as follows:
1. DEFINITIONS. As used herein, the following terms shall have the
following meanings:
(a) Change in Control. "Change in Control" shall mean
(i) any transaction, or series of transactions, including,
but not limited to any merger, consolidation, or reorganization,
which results when any "person" as defined in Section 3(a)(9) of
the Exchange Act and as used in Sections 13(d) and 14(d) thereof,
including a "group" as defined in Section 13(d) of the Exchange
Act, but excluding the Company, any subsidiary of the Company,
and any employee benefit plan sponsored or maintained by the
Company or any subsidiary of the
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<PAGE> 2
Company (including any trustee of such plan acting as trustee),
and excluding the Morgan Stanley Real Estate Fund, L.P. and its
affiliates (as defined in Rule 12b-2 under the Exchange Act),
directly or indirectly, becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act) of securities of
the Company representing 20% or more of the combined voting power
of the Company's then outstanding securities;
(ii) when, during any period of 24 consecutive months the
individuals who, at the beginning of such period, constitute the
Board (the "Incumbent Directors") cease for any reason other than
death to constitute at least a majority of the Board; provided,
however, that a director who was not a director at the beginning
of such 24-month period shall be deemed to have satisfied such
24-month requirement (and be an Incumbent Director) if such
director was elected by, or on the recommendation of or with the
approval of; at least two-thirds of the directors who then
qualified as Incumbent Directors either actually (because they
were directors at the beginning of such 24-month period) or by
prior operation of this Section; or
(iii) when the stockholders of the Company approve a plan of
complete liquidation of the Company; or an agreement for the sale
or disposition of substantially all the Company's assets; or a
merger, consolidation, or reorganization of the Company in which
stockholders of the Company immediately prior to the transaction
own less than 65% of the combined voting power of the surviving
entity.
(b) "Annual Base Salary" shall mean the Executive's current base
annual salary plus any future increases to Executive's base annual
compensation, but in no event less than the Executive's annual base
salary in effect on the date of this Agreement.
(c) "Termination Date" shall mean the date on which Executive's
employment with the Company is terminated.
2. TERMINATION BY COMPANY. Following a Change in Control, the
Executive's employment may be terminated by Company ("Company Termination
Event") and the Executive shall not be entitled to the severance benefits
provided under Section 4, provided that Executive's termination occurs as a
result of one or more of the following events:
(a) The Executive's death;
(b) The Executive's disability, provided Executive actually
begins to receive disability benefits pursuant to the long-term
disability plan in effect for senior executives of the Company
immediately prior to the Change in Control; or
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<PAGE> 3
(c) For "Cause, " which for purposes of this Agreement shall mean
that, prior to any termination pursuant to Section 3(b) hereof, the
Executive shall have committed: (i) an act of fraud, embezzlement,
theft, or any other act constituting a felony, involving moral
turpitude or causing material harm, financial or otherwise, to the
Company; or (ii) a demonstrably intentional and deliberate act or
failure to act (other than as a result of incapacity due to physical
or mental illness) which is committed in bad faith by the Executive,
which causes or can be expected to cause material financial injury to
the Company.
For purposes of this Agreement, no act, or failure to act, on the part
of the Executive shall be deemed "intentional" if it was due primarily to an
error in judgment or negligence, but shall be deemed "intentional" only if done,
or omitted to be done, by the Executive not in good faith and without reasonable
belief that Executive's action or omission was in, or not opposed to, the best
interest of the Company. Notwithstanding the foregoing, the Executive shall not
be deemed to have been terminated for "Cause" hereunder unless and until there
shall have been delivered to the Executive a copy of a resolution duly adopted
by the affirmative vote of not less than three-quarters of the Board then in
office at a meeting of the Board of Directors called and held for such purpose
(after reasonable notice to the Executive and an opportunity for the Executive,
together with Executive's counsel, to be heard before the Board), finding that,
in the good faith opinion of the Board, the Executive had committed an act set
forth above in this Section 2(c) and specifying the particulars thereof in
detail. Nothing herein shall limit the right of the Executive or Executive's
beneficiaries to contest the validity or propriety of any such determination.
3. EXECUTIVE TERMINATION EVENT. If at any time during the
two-year period commencing on the date of a Change in Control, the
Company or Executive terminates Executive's employment following the
occurrence of one or more of the following events ("Executive
Termination Event"), Executive shall be entitled to the severance
benefits provided in Section 4 below:
(a) Any termination by the Company of Executive's employment
during such two-year period for any reason other than for Cause, as a
result of Executive's death, or by reason of the Executive's
disability and the actual receipt of disability benefits in accordance
with Section 2(b) hereof; or
(b) Termination by the Executive of Executive's employment with
the Company at any time within two years after the Change in Control
upon the occurrence of any of the following events:
(i) The Company's failure to elect, re-elect, or otherwise
maintain the Executive in the office or position in the Company
which the Executive held immediately prior to a Change in
Control, or the removal of the Executive as a Director of the
Company (or any successor thereto) if the Executive was a
Director of the Company immediately prior to the Change in
Control;
Page 3 of 12
<PAGE> 4
(ii) A significant, adverse change (increase or decrease) in
the nature or scope of the authorities, powers, functions,
responsibilities, or duties attached to the position with the
Company which the Executive held immediately prior to the Change
in Control, or a reduction in the aggregate of the Executive's
base pay or annual incentive bonus opportunity (and relative
level of goal achievement) in which the Executive participated
immediately prior to the Change in Control, or the termination of
the Executive's right to any employee benefits to which Executive
was entitled immediately prior to the Change in Control, or a
reduction in scope or value of such benefits, without prior
written consent of the Executive, any of which is not remedied
within 10 calendar days after receipt by the Company of a written
notice from the Executive of such change, reduction, or
termination, as the case may be;
(iii) A determination by the Executive made in good faith
that, as a result of a Change in Control, there has been a
significant change in the scope of the business or other
activities for which the Executive was responsible immediately
prior to the Change in Control, or that Executive has been
rendered substantially unable to carry out, has been
substantially hindered in the performance of, or has suffered a
substantial increase or reduction in, any of the authorities,
powers, functions, responsibilities, or duties attached to the
position held by the Executive immediately prior to the Change in
Control, which situation is not remedied within 10 calendar days
after receipt by the Company of a written notice from the
Executive of such good faith determination;
(iv) The liquidation, dissolution, merger, consolidation, or
reorganization of the Company or transfer of all or a significant
portion of its business and/or assets;
(v) The Company shall relocate its principal executive
offices, or require the Executive to have Executive's principal
location of work changed, to any location which is in excess of
50 miles from the location thereof immediately prior to the
Change in Control, or the Company shall require the Executive to
travel away from Executive's office in the course of discharging
Executive's responsibilities or duties hereunder significantly
more (in terms of either consecutive days or aggregate days in
any calendar year) than was required of him prior to the Change
in Control without, in either case, Executive's prior written
consent; or
(vi) Without limiting the generality or effect of the
foregoing, any material breach of this Agreement by the Company
or any successor thereto.
4. SEVERANCE BENEFITS. In the event Executive's employment is
terminated within two years of the date of a Change in Control as a
result of an Executive Termination Event, Executive shall be entitled
to the benefits set forth below. All amounts payable under this
Section 4(a), (b), and (c) shall be paid to Executive in one lump sum
within 10 days after Executive's termination of employment.
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<PAGE> 5
(a) The Company shall pay to Executive an amount equal to three
times Executive's Annual Base Salary in effect for the year in which
Executive's termination of employment occurs. Executive shall also be
entitled to receive three times the highest bonus or short-term
incentive compensation paid to Executive during the fiscal year
preceding the Change in Control or, if higher, three times the maximum
amount for which Executive has an opportunity to earn in the fiscal
year of Executive's termination (excluding any amounts paid to
Executive under the Company's equity-based, long-term incentive plan
or any other phantom stock or stock rights plan subsequently
established by the Company).
(b) The Company shall pay Executive Executive's full base salary
through Executive's Termination Date. The Company shall also pay
Executive an amount equal to the pro rata amount of the maximum target
bonus award available to Executive under the bonus plan during the
year of termination, based on the number of days of the year elapsed
prior to the Termination Date.
(c) For the 36 months following Executive's termination of
employment, the Company shall arrange to provide the Executive with
health benefits (medical, dental, disability and life) substantially
similar to those which the Executive was receiving or entitled to
receive immediately prior to the Termination Date. If and to the
extent that such benefits shall not or cannot be paid or provided
under any policy, plan, program, or arrangement of the Company solely
due to the fact that the Executive is no longer an officer or employee
of the Company, then the Company shall itself pay or provide
reimbursement to the Executive, Executive's dependents and
beneficiaries, the cost of such health benefits. Such health benefits
shall be discontinued prior to the end of the specified continuation
period if the Executive receives comparable coverage from a subsequent
employer.
(d) The Company will provide out-placement assistance from a
service selected by Executive for a period of one year from the
Termination Date. All associated costs will be paid by the Company, up
to a maximum of 30% of Executive's annual rate of base pay in effect
at the time of Executive's termination.
(e) If Executive has relocated to work with the Company during
the three years immediately preceding the date of this Agreement,
Executive may elect, within 120 days following the Termination Date,
to have the Company purchase Executive's house at its then current
market value (which shall be established by taking the average of
three appraisals from real estate firms, one selected by the
Executive, one selected by the Company, and one selected by the two
selected firms with the Company paying the costs of the appraisals).
Such purchase shall occur on a date specified by Executive, but in any
event within six months following Executives' election to have the
house purchased by the Company.
Page 5 of 12
<PAGE> 6
5. OTHER RIGHTS. A termination of the Executive's employment by the
Company pursuant to Section 2 or 3(a) hereof, or by the Executive pursuant to
Section 3(b) hereof, shall not affect adversely any rights which the Executive
may have pursuant to any agreement, employment contract, policy, plan, program,
or arrangement of the Company providing employee benefits, which rights shall be
governed by the terms of such employee benefit plan.
6. LONG-TERM INCENTIVES. Upon the occurrence of a Change in Control,
Executive shall become immediately and automatically vested (with no director
discretion exercised) in all equity-based, long-term incentives (including stock
options and restricted stock) and all accrued pension benefits held as of the
date of the Change in Control. To the extent legally necessary the Company can
provide these benefits on a tax non-qualified basis. For any cash-based,
long-term incentive vehicles, Executive shall become immediately vested and
receive an immediate cashout of the vehicles upon the occurrence of a Change of
Control, equal to a pro rata target award thereunder (or, if greater, the actual
award earned to date) based upon the number of days actually employed during the
performance period. Such provisions will be included in all future long-term
incentive award agreements.
7. NO SET-OFF. There shall be no set-off or counterclaim against, or
delay in, any payment of severance benefits by the Company to Executive provided
for in this Agreement with respect to any claim against or debt or obligation of
Executive, whether arising hereunder or otherwise except for health benefits as
provided in Section 4(c).
8. NO MITIGATION OBLIGATION. Executive's benefits hereunder shall be
payable to Executive as severance pay in consideration of Executive's past
services and of Executive's continued services from the date hereof. The Company
hereby acknowledges that it will be difficult, and may be impossible, for the
Executive to find reasonably comparable employment following the Termination
Date. Accordingly, the parties hereto expressly agree that the payment of the
severance benefits by the Company to the Executive in accordance with the terms
of this Agreement will be liquidated damages, and that the Executive shall not
be required to mitigate the amount of any payment provided for in this Agreement
by seeking other employment or otherwise, nor shall any profits, income,
earnings, or other benefits from any source whatever create any mitigation,
offset, reduction, or any other obligation on the part of the Executive
hereunder or otherwise except for health benefits as provided in Section 4 (c).
9. TAX CONSIDERATIONS. Notwithstanding anything herein to the
contrary, in the event any payments to Executive hereunder are determined by the
Company to be subject to the tax imposed by Section 4999 of the Code or any
similar federal or state excise tax, FICA tax, or any interest or penalties are
incurred by the Executive with respect to such excise tax (such excise tax,
together with any such interest or penalties are hereinafter collectively
referred to as the "Excise Tax"), Company shall pay to Executive at the time
specified in Section 4 (a) above, an additional amount (the "Gross-Up Payment")
such that after the payment by Executive of all federal, state, or local income
taxes, Excise Taxes, FICA taxes, or other taxes (including any interest or
penalties imposed with respect thereto) imposed upon the receipt of the Gross-Up
Payment, Executive retains an amount of the Gross-Up Payment equal to the Excise
Tax imposed on the severance payments provided herein.
Page 6 of 12
<PAGE> 7
(a) For purposes of determining whether any payments to Executive
hereunder will be subject to the Excise Tax and the amount of such
Excise Tax:
(i) any other payments or benefits received or to be
received by Executive in connection with a Change in Control or
the termination of employment (whether pursuant to the terms of
this Agreement or of any other plan, arrangement, or agreement
with Company) shall be treated as "parachute payments" within the
meaning of Section 280G(b)(2) of the Code, and all "excess
parachute payments" within the meaning of Section 280G(b)(l)
shall be treated as subject to the Excise Tax, unless in the
opinion of tax counsel selected by Company and acceptable to
Executive, other payments or benefits (in whole or in part) do
not constitute parachute payments under Section 280G of the Code,
or such excess parachute payments (in whole or in part) represent
reasonable compensation for services actually rendered within the
meaning of Section 280G(b)(4) of the Code;
(ii) the amount of the severance payments which shall be
treated as subject to the Excise Tax shall be equal to the amount
of excess parachute payments within the meaning of Sections
280G(b)(l) and (4) (after applying clause (a), above); and
(iii) the parachute value of any non-cash benefits or any
deferred payment or benefit shall be determined by Company in
accordance with the principles of Sections 280G(d)(3) and (4) of
the Code.
(b) If the Excise Tax is subsequently determined to be less than
the amount taken into account hereunder at the time of termination of
employment, Executive shall repay to Company, at the time the
reduction in Excise Tax is finally determined, the portion of the
Gross-Up Payment attributable to such reduction. If the Excise Tax is
determined to exceed the amount taken into account hereunder at the
time of termination of employment, Company shall make an additional
Gross-Up Payment to Executive in respect of such excess at the time
the amount of such excess is finally determined. The Executive shall
notify the Company in writing of any claim by the Internal Revenue
Service that, if successful, would require the payment by the Company
of the Gross-Up Payment. Such notification shall be given as soon as
practicable but no later that ten business days after the Executive is
informed in writing of such claim and shall apprise the Company of the
nature of such claim and the date on which such claim is requested to
be paid. The Executive shall not pay such claim prior to the
expiration of the 30 calendar day period following the date on which
it gives such notice to the Company (or such shorter period ending on
the date that any payment of taxes with respect to such claim is due).
If the Company notifies the Executive in writing prior to the
expiration of such period that it desires to contest such claim, the
Executive shall:
(i) give the Company any information reasonably requested by
the Company relating to such claim;
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<PAGE> 8
(ii) take such action in connection with contesting such
claim as the Company shall reasonably request in writing from
time to time, including, without limitation, accepting legal
representation with respect to such claim by an attorney
reasonably selected by the Company;
(iii) cooperate with the Company in good faith in order to
effectively contest such claim; and
(iv) permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay directly all
costs and expenses (including legal and accounting fees and additional
interest and penalties) incurred in connection with such contest and
shall indemnify and hold the Executive harmless, on an after-tax
basis, for any Excise Tax, FICA tax, or income tax (including interest
and penalties with respect thereto) imposed as a result of such
representation and payment of costs and expenses. Without limitation
on the foregoing provisions of this Section, the Company shall control
all proceedings taken in connection with such contest and, at its sole
option, may pursue or forego any and all administrative appeals,
proceedings, hearings, and conferences with the taxing authority in
respect of such claim and may, at its sole option, either direct the
Executive to pay the tax claimed and sue for a refund or contest the
claim in any permissible manner, and the Executive agrees to prosecute
such contest to a determination before any administrative tribunal, in
a court of initial jurisdiction, and in one or more appellate courts,
as the Company shall determine; provided, however, that if the Company
directs the Executive to pay such claim and sue for a refund, the
Company shall advance the amount of such payment to the Executive, on
an interest-free basis, and shall indemnify and hold the Executive
harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with
respect to such advance or with respect to any imputed income with
respect to such advance; and further provided that any extension of
the statute of limitations relating to payment of taxes for the
taxable year of the Executive with respect to which such contested
amount is claimed to be due is limited solely to such contested
amount. Furthermore, the Company's control of the contest shall be
limited to issues with respect to which a Gross-Up Payment would be
payable hereunder and the Executive shall be entitled to settle or
contest as the case may be, any other issue raised by the Internal
Revenue Service or any other taxing authority.
If any such claim referred to in this Section is made by the
Internal Revenue Service and the Company does not request the
Executive to contest the claim within the 30 calendar day period
following notice of the claim, the Company shall pay to the Executive
the amount of any Gross-Up Payment owed to the Executive, but not
previously paid pursuant to Section 9(b), immediately upon the
expiration of such 30 calendar day period. If any such claim is made
by the Internal Revenue Service and the Company requests the Executive
to contest such claim, but does not advance the amount of such claim
to the Executive for purposes of such contest, the Company shall pay
to the Executive the amount of any Gross-Up Payment owed to the
Executive, but not
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<PAGE> 9
previously paid under the provisions of Section 9(b), within 5
business days of a Final Determination of the liability of the
Executive for such Excise Tax. For purposes of this Agreement, a
"Final Determination" shall be deemed to occur with respect to a claim
when (i) there is a decision, judgment, decree, or other order by any
court of competent jurisdiction, which decision, judgment, decree, or
other order has become final, i.e., all allowable appeals pursuant to
this Section have been exhausted by either party to the action, (ii)
there is a closing agreement made under Section 7121 of the Code, or
(iii) the time for instituting a claim for refund has expired, or if a
claim was filed, the time for instituting suit with respect thereto
has expired.
If, after the receipt by the Executive of an amount advanced by
the Company pursuant to this Section, the Executive becomes entitled
to receive any refund with respect to such claim, the Executive shall
(subject to the Company's complying with the requirements of this
Section) promptly pay to the Company the amount of such refund
(together with any interest paid or credited thereon after taxes
applicable thereto). If, after the receipt by the Executive of an
amount advanced by the Company pursuant to this Section, a
determination is made by the Internal Revenue Service that the
Executive is not entitled to any refund with respect to such claim and
the Company does not notify the Executive in writing of its intent to
contest such denial of refund prior to the expiration of 30 calendar
days after such determination, then such advance shall be forgiven and
shall not be required to be repaid and the amount of such advance
shall offset, to the extent thereof, the amount of Gross-Up Payment
required to be paid.
10. ENFORCEMENT COSTS. Company is aware that, upon the occurrence of a
Change in Control, the Board of Directors or a shareholder of the Company, or
the Company's successor in interest, may then cause or attempt to cause Company
to refuse to comply with its obligations under this Agreement, or may cause or
attempt to cause Company to institute, or may institute litigation seeking to
have this Agreement declared unenforceable, or may take, or attempt to take,
other action to deny Executive the benefits intended under this Agreement. In
these circumstances, the purpose of this Agreement could be frustrated. It is
the intent of Company that Executive not be required to incur the expenses
associated with the enforcement of Executive's rights under this Agreement by
litigation or other legal action, nor be bound to negotiate any settlement of
Executive's rights hereunder under threat of incurring such expenses because the
cost and expense thereof would substantially detract from the benefits intended
to be extended to Executive hereunder. Accordingly, if following a Change in
Control it should appear to Executive that Company has failed to comply with any
of its obligations under this Agreement or in the event that Company or any
other person takes any action to declare this Agreement void or unenforceable,
or institutes any litigation or other legal action designed to deny, diminish,
or to recover from Executive the benefits intended to be provided to Executive
hereunder, Company irrevocably authorizes Executive from time to time to retain
legal counsel of Executive's choice at the expense of Company to represent
Executive in connection with the initiation or defense of any litigation or
other legal action, whether by or against Company or any director, officer,
stockholder, or other person affiliated with Company. The reasonable fees and
expenses of counsel selected from time to time by Executive as provided herein
shall be paid or reimbursed to Executive by Company on a regular, periodic basis
upon presentation by Executive of a statement or statements prepared by
Executive's counsel in accordance with its customary
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<PAGE> 10
practices. In any action involving this Agreement, Executive shall be entitled
to prejudgment interest on any amounts found to be due Executive as of the date
such amounts would have been payable to Executive pursuant to this Agreement at
an annual rate of interest equal to the lesser of 10% or the prime commercial
rate in effect at The Huntington National Bank in Columbus, Ohio from time to
time during the pre-judgment period.
11. ARBITRATION. Without limiting the application of Section 10 above,
the Company and Executive hereby agree that certain issues and/or disagreements
arising in connection with this Agreement shall be settled by arbitration.
Accordingly, in the event the Company or Executive believes that the other party
has violated any provision of this Agreement, including but not limited to any
action by the Company which Executive believes would entitle Executive to
terminate Executive's employment with severance benefits in accordance with
Section 3(b) hereof, the party alleging such violation shall notify the other
party in writing of such alleged violation. In the event the party receiving
such violation notice disagrees with the position taken by the other party in
such written notice, the recipient of the violation notice may, within 20 days
of receipt of such written notice, notify the other party, in writing, that it
has elected to submit such disagreement to arbitration. Arbitration of such
dispute shall be settled in Columbus, Ohio, in accordance with the then
applicable rules of the American Arbitration Association. The Company shall bear
all costs associated with such arbitration. In the event the party receiving a
violation notice does not elect to submit any issue or disagreement to
arbitration within 10 days of its receipt of the written violation notice, such
party will be deemed to have accepted the position taken in such written notice.
Notwithstanding anything herein to the contrary, neither the Company nor the
Executive shall be required to arbitrate the basis of any involuntary
termination of Executive's employment with the Company by the Company or its
successor.
12. EMPLOYMENT RIGHTS. Nothing expressed or implied in this Agreement
shall create any right or duty on the part of the Company or the Executive to
have the Executive remain in the employment of the Company prior to any Change
in Control, provided, however, that any termination of employment or the removal
of the Executive from the office or position in the Company that such Executive
presently holds following the commencement of active negotiations with a third
party (which negotiations are evidenced by the delivery of evaluation material)
that ultimately results in a Change in Control shall be deemed to be a
termination or removal of the Executive after a Change in Control for purposes
of this Agreement. Notwithstanding the foregoing, a termination of employment or
removal of the Executive following the termination of active negotiations with
any third party shall not be deemed a termination after a Change in Control for
purposes of this Agreement.
13. TERM. This Agreement shall terminate on January 31, 2000, unless a
Change in Control shall have occurred prior to such date; provided, however,
upon the passage of one year from the date hereof and each year thereafter this
Agreement shall automatically be renewed for an additional year unless the
Company or the Executive has notified in writing the other sixty calendar days
prior to the passage of the year that the Agreement is not to be automatically
renewed. Upon such notice, this Agreement will not be renewed for the additional
year and will expire at the end of the three-year term then in process.
Regardless of the term remaining on this Agreement determined as provided above,
upon the occurrence of a Change of Control of the Company this Agreement shall
not terminate or expire until two years from the date of such Change of Control.
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<PAGE> 11
14. WITHHOLDING OF TAXES. The Company may withhold from any amounts
payable under this Agreement all federal, state, city or other taxes as shall be
required pursuant to any law or government regulation or ruling.
15. SUCCESSORS AND BINDING AGREEMENT.
(a) The Company shall require any successor (whether direct or
indirect, by purchase, merger, consolidation, reorganization, or
otherwise) to all or substantially all of the business and/or assets
of the Company, by agreement in form and substance satisfactory to the
Executive, expressly to assume and agree to perform this Agreement in
the same manner and to the same extent the Company would be required
to perform if no such succession had taken place. This Agreement shall
be binding upon and inure to the benefit of the Company and any
successor to the Company, including without limitation any persons
acquiring directly or indirectly all or substantially all of the
business and/or assets of the Company whether by purchase, merger,
consolidation, reorganization, or otherwise (and such successor shall
thereafter be deemed the "Company" for the purposes of this
Agreement), but shall not otherwise be assignable, transferable, or
delegable by the Company.
(b) This Agreement shall inure to the benefit of and be
enforceable by the Executive's personal or legal representatives,
executors, administrators, successors, heirs, distributees, or
legatees.
(c) This Agreement is personal in nature and neither of the
parties hereto shall, without the consent of the other, assign,
transfer, or delegate this Agreement or any rights or obligations
hereunder except as expressly provided in Section 13(a) hereof.
Without limiting the generality of the foregoing, the Executive's
right to receive payments hereunder shall not be assignable,
transferable, or delegable, whether by pledge, creation of a security
interest, or otherwise, other than by a transfer by Executive's will
or by the laws of descent and distribution and, in the event of any
attempted assignment or transfer contrary to this Section 12(c), the
Company shall have no liability to pay any amount so attempted to be
assigned, transferred, or delegated.
(d) The Company and the Executive recognize that each party will
have no adequate remedy at law for breach by the other of any of the
agreements contained herein and, in the event of any such breach, the
Company and the Executive hereby agree and consent that the other
shall be entitled to a decree of specific performance, mandamus or
other appropriate remedy to enforce performance of this Agreement.
16. NOTICE. For all purposes of this Agreement, all communications
including without limitation notices, consents, requests, or approvals, provided
for herein, shall be in writing and shall be deemed to have been duly given when
delivered or five business days after having been mailed by United States
registered or certified mail, return receipt requested, postage prepaid,
addressed to the Company (to the attention of the President of the Company) at
its
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<PAGE> 12
principal executive office and to the Executive at Executive's principal
residence, or to such other address as any party may have furnished to the other
in writing and in accordance herewith, except that notices of change of address
shall be effective only upon receipt.
17. GOVERNING LAW. The validity, interpretation, construction, and
performance of this Agreement shall be governed by the laws of the State of
Ohio, without giving effect to the principles of conflict of laws of such State.
18. VALIDITY. If any provision of this Agreement or the application of
any provision hereof to any person or circumstances is held invalid,
unenforceable, or otherwise illegal, the remainder of this Agreement and the
application of such provision to any other person or circumstances shall not be
affected, and the provision so held to be invalid, unenforceable, or otherwise
illegal shall be reformed to the extent (and only to the extent) necessary to
make it enforceable, valid, and legal.
19. MISCELLANEOUS. No provisions of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing signed by the Executive and the Company. No waiver by either party
hereto at any time of any breach by the other party hereto or compliance with
any condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time. No agreements or representations,
oral or otherwise, expressed or implied with respect to the subject matter
hereof have been made by either party which are not set forth expressly in this
Agreement. In the event the terms and conditions of this Agreement conflict with
those of any other agreement, this Agreement shall prevail.
To the extend that Executive receives payment under this Agreement
relating to the termination of Executive's employment, the Executive will not
receive payment under any other agreement with the Company regarding such
termination.
IN WITNESS WHEREOF, the Executive and Company have executed this
Agreement on the day and year first above written.
EXECUTIVE RED ROOF INNS, INC.
By: /s/ FRANCIS W. CASH By: /s/ DAVID N. CHICHESTER
---------------------------- ----------------------------
FRANCIS W. CASH DAVID N. CHICHESTER
Chairman, President, and Executive Vice President and
Chief Executive Officer Chief Financial Officer
<PAGE> 1
Exhibit 11
AGREEMENT
This Amended and Restated Agreement is entered into this 30th day of
January, 1997, by and between RED ROOF INNS, INC., a Delaware corporation, with
principal offices located at 4355 Davidson Road, Hilliard, Ohio (the "Company")
and ALAN L. TALLIS, (the "Executive").
RECITALS
A. Executive is a senior executive of Company who is expected to make
major contributions to the profitability, growth, and financial strength of the
Company.
B. The Company recognizes that upon a threatened change in control
Executive may have concerns about Executive's employment status and
responsibilities, and the Company desires to provide Executive some assurances
as to the continuation of Executive's employment status and responsibilities in
the event of a change in control.
C. The Company desires to assure itself of both present and future
continuity of management in the event of a change in control and desires to
establish certain minimum compensation rights of its key senior executive
officers, including the Executive, applicable in the event of a change in
control.
D. The Company desires to assure that, should it receive an offer
involving a possible change in control, Executive would be in a secure position
to consider such offer and negotiate on behalf of the Company and its
shareholders as objectively as possible, and to this end, the Company desires to
protect Executive from any direct or implied threat to Executive's financial
well-being under such circumstances.
COVENANTS
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, the parties agree as follows:
1. DEFINITIONS. As used herein, the following terms shall have the
following meanings:
(a) Change in Control. "Change in Control" shall mean
(i) any transaction, or series of transactions, including,
but not limited to any merger, consolidation, or reorganization,
which results when any "person" as defined in Section 3(a)(9) of
the Exchange Act and as used in Sections 13(d) and 14(d) thereof,
including a "group" as defined in Section 13(d) of the Exchange
Act, but excluding the Company, any subsidiary of the Company,
and any employee benefit plan sponsored or maintained by the
Company or any subsidiary of the
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<PAGE> 2
Company (including any trustee of such plan acting as trustee),
and excluding the Morgan Stanley Real Estate Fund, L.P. and its
affiliates (as defined in Rule 12b-2 under the Exchange Act),
directly or indirectly, becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act) of securities of
the Company representing 20% or more of the combined voting power
of the Company's then outstanding securities;
(ii) when, during any period of 24 consecutive months the
individuals who, at the beginning of such period, constitute the
Board (the "Incumbent Directors") cease for any reason other than
death to constitute at least a majority of the Board; provided,
however, that a director who was not a director at the beginning
of such 24-month period shall be deemed to have satisfied such
24-month requirement (and be an Incumbent Director) if such
director was elected by, or on the recommendation of or with the
approval of; at least two-thirds of the directors who then
qualified as Incumbent Directors either actually (because they
were directors at the beginning of such 24-month period) or by
prior operation of this Section; or
(iii) when the stockholders of the Company approve a plan of
complete liquidation of the Company; or an agreement for the sale
or disposition of substantially all the Company's assets; or a
merger, consolidation, or reorganization of the Company in which
stockholders of the Company immediately prior to the transaction
own less than 65% of the combined voting power of the surviving
entity.
(b) "Annual Base Salary" shall mean the Executive's current base
annual salary plus any future increases to Executive's base annual
compensation, but in no event less than the Executive's annual base
salary in effect on the date of this Agreement.
(c) "Termination Date" shall mean the date on which Executive's
employment with the Company is terminated.
2. TERMINATION BY COMPANY. Following a Change in Control, the
Executive's employment may be terminated by Company ("Company Termination
Event") and the Executive shall not be entitled to the severance benefits
provided under Section 4, provided that Executive's termination occurs as a
result of one or more of the following events:
(a) The Executive's death;
(b) The Executive's disability, provided Executive actually
begins to receive disability benefits pursuant to the long-term
disability plan in effect for senior executives of the Company
immediately prior to the Change in Control; or
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<PAGE> 3
(c) For "Cause," which for purposes of this Agreement shall mean
that, prior to any termination pursuant to Section 3(b) hereof, the
Executive shall have committed: (i) an act of fraud, embezzlement,
theft, or any other act constituting a felony, involving moral
turpitude or causing material harm, financial or otherwise, to the
Company; or (ii) a demonstrably intentional and deliberate act or
failure to act (other than as a result of incapacity due to physical
or mental illness) which is committed in bad faith by the Executive,
which causes or can be expected to cause material financial injury to
the Company.
For purposes of this Agreement, no act, or failure to act, on the part
of the Executive shall be deemed "intentional" if it was due primarily to an
error in judgment or negligence, but shall be deemed "intentional" only if done,
or omitted to be done, by the Executive not in good faith and without reasonable
belief that Executive's action or omission was in, or not opposed to, the best
interest of the Company. Notwithstanding the foregoing, the Executive shall not
be deemed to have been terminated for "Cause" hereunder unless and until there
shall have been delivered to the Executive a copy of a resolution duly adopted
by the affirmative vote of not less than three-quarters of the Board then in
office at a meeting of the Board of Directors called and held for such purpose
(after reasonable notice to the Executive and an opportunity for the Executive,
together with Executive's counsel, to be heard before the Board), finding that,
in the good faith opinion of the Board, the Executive had committed an act set
forth above in this Section 2(c) and specifying the particulars thereof in
detail. Nothing herein shall limit the right of the Executive or Executive's
beneficiaries to contest the validity or propriety of any such determination.
3. EXECUTIVE TERMINATION EVENT. If at any time during the two-year
period commencing on the date of a Change in Control, the Company or Executive
terminates Executive's employment following the occurrence of one or more of the
following events ("Executive Termination Event"), Executive shall be entitled to
the severance benefits provided in Section 4 below:
(a) Any termination by the Company of Executive's employment
during such two-year period for any reason other than for Cause, as a
result of Executive's death, or by reason of the Executive's
disability and the actual receipt of disability benefits in accordance
with Section 2(b) hereof; or
(b) Termination by the Executive of Executive's employment with
the Company at any time within two years after the Change in Control
upon the occurrence of any of the following events:
(i) The Company's failure to elect, re-elect, or otherwise
maintain the Executive in the office or position in the Company
which the Executive held immediately prior to a Change in
Control, or the removal of the Executive as a Director of the
Company (or any successor thereto) if the Executive was a
Director of the Company immediately prior to the Change in
Control;
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<PAGE> 4
(ii) A significant, adverse change (increase or decrease) in
the nature or scope of the authorities, powers, functions,
responsibilities, or duties attached to the position with the
Company which the Executive held immediately prior to the Change
in Control, or a reduction in the aggregate of the Executive's
base pay or annual incentive bonus opportunity (and relative
level of goal achievement) in which the Executive participated
immediately prior to the Change in Control, or the termination of
the Executive's right to any employee benefits to which Executive
was entitled immediately prior to the Change in Control, or a
reduction in scope or value of such benefits, without prior
written consent of the Executive, any of which is not remedied
within 10 calendar days after receipt by the Company of a written
notice from the Executive of such change, reduction, or
termination, as the case may be;
(iii) A determination by the Executive made in good faith
that, as a result of a Change in Control, there has been a
significant change in the scope of the business or other
activities for which the Executive was responsible immediately
prior to the Change in Control, or that Executive has been
rendered substantially unable to carry out, has been
substantially hindered in the performance of, or has suffered a
substantial increase or reduction in, any of the authorities,
powers, functions, responsibilities, or duties attached to the
position held by the Executive immediately prior to the Change in
Control, which situation is not remedied within 10 calendar days
after receipt by the Company of a written notice from the
Executive of such good faith determination;
(iv) The liquidation, dissolution, merger, consolidation, or
reorganization of the Company or transfer of all or a significant
portion of its business and/or assets;
(v) The Company shall relocate its principal executive
offices, or require the Executive to have Executive's principal
location of work changed, to any location which is in excess of
50 miles from the location thereof immediately prior to the
Change in Control, or the Company shall require the Executive to
travel away from Executive's office in the course of discharging
Executive's responsibilities or duties hereunder significantly
more (in terms of either consecutive days or aggregate days in
any calendar year) than was required of him prior to the Change
in Control without, in either case, Executive's prior written
consent; or
(vi) Without limiting the generality or effect of the
foregoing, any material breach of this Agreement by the Company
or any successor thereto.
4. SEVERANCE BENEFITS. In the event Executive's employment is
terminated within two years of the date of a Change in Control as a result of an
Executive Termination Event, Executive shall be entitled to the benefits set
forth below. All amounts payable under this Section 4(a), (b), and (c) shall be
paid to Executive in one lump sum within 10 days after Executive's termination
of employment.
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<PAGE> 5
(a) The Company shall pay to Executive an amount equal to three
times Executive's Annual Base Salary in effect for the year in which
Executive's termination of employment occurs. Executive shall also be
entitled to receive three times the highest bonus or short-term
incentive compensation paid to Executive during the fiscal year
preceding the Change in Control or, if higher, three times the maximum
amount for which Executive has an opportunity to earn in the fiscal
year of Executive's termination (excluding any amounts paid to
Executive under the Company's equity-based, long-term incentive plan
or any other phantom stock or stock rights plan subsequently
established by the Company).
(b) The Company shall pay Executive Executive's full base salary
through Executive's Termination Date. The Company shall also pay
Executive an amount equal to the pro rata amount of the maximum target
bonus award available to Executive under the bonus plan during the
year of termination, based on the number of days of the year elapsed
prior to the Termination Date.
(c) For the 36 months following Executive's termination of
employment, the Company shall arrange to provide the Executive with
health benefits (medical, dental, disability and life) substantially
similar to those which the Executive was receiving or entitled to
receive immediately prior to the Termination Date. If and to the
extent that such benefits shall not or cannot be paid or provided
under any policy, plan, program, or arrangement of the Company solely
due to the fact that the Executive is no longer an officer or employee
of the Company, then the Company shall itself pay or provide
reimbursement to the Executive, Executive's dependents and
beneficiaries, the cost of such health benefits. Such health benefits
shall be discontinued prior to the end of the specified continuation
period if the Executive receives comparable coverage from a subsequent
employer.
(d) The Company will provide out-placement assistance from a
service selected by Executive for a period of one year from the
Termination Date. All associated costs will be paid by the Company, up
to a maximum of 30% of Executive's annual rate of base pay in effect
at the time of Executive's termination.
(e) If Executive has relocated to work with the Company during
the three years immediately preceding the date of this Agreement,
Executive may elect, within 120 days following the Termination Date,
to have the Company purchase Executive's house at its then current
market value (which shall be established by taking the average of
three appraisals from real estate firms, one selected by the
Executive, one selected by the Company, and one selected by the two
selected firms with the Company paying the costs of the appraisals).
Such purchase shall occur on a date specified by Executive, but in any
event within six months following Executives' election to have the
house purchased by the Company.
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<PAGE> 6
5. OTHER RIGHTS. A termination of the Executive's employment by the
Company pursuant to Section 2 or 3(a) hereof, or by the Executive pursuant to
Section 3(b) hereof, shall not affect adversely any rights which the Executive
may have pursuant to any agreement, employment contract, policy, plan, program,
or arrangement of the Company providing employee benefits, which rights shall be
governed by the terms of such employee benefit plan.
6. LONG-TERM INCENTIVES. Upon the occurrence of a Change in Control,
Executive shall become immediately and automatically vested (with no director
discretion exercised) in all equity-based, long-term incentives (including stock
options and restricted stock) and all accrued pension benefits held as of the
date of the Change in Control. To the extent legally necessary the Company can
provide these benefits on a tax non-qualified basis. For any cash-based,
long-term incentive vehicles, Executive shall become immediately vested and
receive an immediate cashout of the vehicles upon the occurrence of a Change of
Control, equal to a pro rata target award thereunder (or, if greater, the actual
award earned to date) based upon the number of days actually employed during the
performance period. Such provisions will be included in all future long-term
incentive award agreements.
7. NO SET-OFF. There shall be no set-off or counterclaim against, or
delay in, any payment of severance benefits by the Company to Executive provided
for in this Agreement with respect to any claim against or debt or obligation of
Executive, whether arising hereunder or otherwise except for health benefits as
provided in Section 4(c).
8. NO MITIGATION OBLIGATION. Executive's benefits hereunder shall be
payable to Executive as severance pay in consideration of Executive's past
services and of Executive's continued services from the date hereof. The Company
hereby acknowledges that it will be difficult, and may be impossible, for the
Executive to find reasonably comparable employment following the Termination
Date. Accordingly, the parties hereto expressly agree that the payment of the
severance benefits by the Company to the Executive in accordance with the terms
of this Agreement will be liquidated damages, and that the Executive shall not
be required to mitigate the amount of any payment provided for in this Agreement
by seeking other employment or otherwise, nor shall any profits, income,
earnings, or other benefits from any source whatever create any mitigation,
offset, reduction, or any other obligation on the part of the Executive
hereunder or otherwise except for health benefits as provided in Section 4 (c).
9. TAX CONSIDERATIONS. Notwithstanding anything herein to the
contrary, in the event any payments to Executive hereunder are determined by the
Company to be subject to the tax imposed by Section 4999 of the Code or any
similar federal or state excise tax, FICA tax, or any interest or penalties are
incurred by the Executive with respect to such excise tax (such excise tax,
together with any such interest or penalties are hereinafter collectively
referred to as the "Excise Tax"), Company shall pay to Executive at the time
specified in Section 4 (a) above, an additional amount (the "Gross-Up Payment")
such that after the payment by Executive of all federal, state, or local income
taxes, Excise Taxes, FICA taxes, or other taxes (including any interest or
penalties imposed with respect thereto) imposed upon the receipt of the Gross-Up
Payment, Executive retains an amount of the Gross-Up Payment equal to the Excise
Tax imposed on the severance payments provided herein.
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<PAGE> 7
(a) For purposes of determining whether any payments to Executive
hereunder will be subject to the Excise Tax and the amount of such
Excise Tax:
(i) any other payments or benefits received or to be
received by Executive in connection with a Change in Control or
the termination of employment (whether pursuant to the terms of
this Agreement or of any other plan, arrangement, or agreement
with Company) shall be treated as "parachute payments" within the
meaning of Section 280G(b)(2) of the Code, and all "excess
parachute payments" within the meaning of Section 280G(b)(l)
shall be treated as subject to the Excise Tax, unless in the
opinion of tax counsel selected by Company and acceptable to
Executive, other payments or benefits (in whole or in part) do
not constitute parachute payments under Section 280G of the Code,
or such excess parachute payments (in whole or in part) represent
reasonable compensation for services actually rendered within the
meaning of Section 280G(b)(4) of the Code;
(ii) the amount of the severance payments which shall be
treated as subject to the Excise Tax shall be equal to the amount
of excess parachute payments within the meaning of Sections
280G(b)(l) and (4) (after applying clause (a), above); and
(iii) the parachute value of any non-cash benefits or any
deferred payment or benefit shall be determined by Company in
accordance with the principles of Sections 280G(d)(3) and (4) of
the Code.
(b) If the Excise Tax is subsequently determined to be less than
the amount taken into account hereunder at the time of termination of
employment, Executive shall repay to Company, at the time the
reduction in Excise Tax is finally determined, the portion of the
Gross-Up Payment attributable to such reduction. If the Excise Tax is
determined to exceed the amount taken into account hereunder at the
time of termination of employment, Company shall make an additional
Gross-Up Payment to Executive in respect of such excess at the time
the amount of such excess is finally determined. The Executive shall
notify the Company in writing of any claim by the Internal Revenue
Service that, if successful, would require the payment by the Company
of the Gross-Up Payment. Such notification shall be given as soon as
practicable but no later that ten business days after the Executive is
informed in writing of such claim and shall apprise the Company of the
nature of such claim and the date on which such claim is requested to
be paid. The Executive shall not pay such claim prior to the
expiration of the 30 calendar day period following the date on which
it gives such notice to the Company (or such shorter period ending on
the date that any payment of taxes with respect to such claim is due).
If the Company notifies the Executive in writing prior to the
expiration of such period that it desires to contest such claim, the
Executive shall:
(i) give the Company any information reasonably requested by
the Company relating to such claim;
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<PAGE> 8
(ii) take such action in connection with contesting such
claim as the Company shall reasonably request in writing from
time to time, including, without limitation, accepting legal
representation with respect to such claim by an attorney
reasonably selected by the Company;
(iii) cooperate with the Company in good faith in order to
effectively contest such claim; and
(iv) permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay directly all
costs and expenses (including legal and accounting fees and additional
interest and penalties) incurred in connection with such contest and
shall indemnify and hold the Executive harmless, on an after-tax basis,
for any Excise Tax, FICA tax, or income tax (including interest and
penalties with respect thereto) imposed as a result of such
representation and payment of costs and expenses. Without limitation on
the foregoing provisions of this Section, the Company shall control all
proceedings taken in connection with such contest and, at its sole
option, may pursue or forego any and all administrative appeals,
proceedings, hearings, and conferences with the taxing authority in
respect of such claim and may, at its sole option, either direct the
Executive to pay the tax claimed and sue for a refund or contest the
claim in any permissible manner, and the Executive agrees to prosecute
such contest to a determination before any administrative tribunal, in
a court of initial jurisdiction, and in one or more appellate courts,
as the Company shall determine; provided, however, that if the Company
directs the Executive to pay such claim and sue for a refund, the
Company shall advance the amount of such payment to the Executive, on
an interest-free basis, and shall indemnify and hold the Executive
harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with
respect to such advance or with respect to any imputed income with
respect to such advance; and further provided that any extension of the
statute of limitations relating to payment of taxes for the taxable
year of the Executive with respect to which such contested amount is
claimed to be due is limited solely to such contested amount.
Furthermore, the Company's control of the contest shall be limited to
issues with respect to which a Gross-Up Payment would be payable
hereunder and the Executive shall be entitled to settle or contest as
the case may be, any other issue raised by the Internal Revenue Service
or any other taxing authority.
If any such claim referred to in this Section is made by the
Internal Revenue Service and the Company does not request the Executive
to contest the claim within the 30 calendar day period following notice
of the claim, the Company shall pay to the Executive the amount of any
Gross-Up Payment owed to the Executive, but not previously paid
pursuant to Section 9(b), immediately upon the expiration of such 30
calendar day period. If any such claim is made by the Internal Revenue
Service and the Company requests the Executive to contest such claim,
but does not advance the amount of such claim to the Executive for
purposes of such contest, the Company shall pay to the Executive the
amount of any Gross-Up Payment owed to the Executive, but not
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<PAGE> 9
previously paid under the provisions of Section 9(b), within 5 business
days of a Final Determination of the liability of the Executive for
such Excise Tax. For purposes of this Agreement, a "Final
Determination" shall be deemed to occur with respect to a claim when
(i) there is a decision, judgment, decree, or other order by any court
of competent jurisdiction, which decision, judgment, decree, or other
order has become final, i.e., all allowable appeals pursuant to this
Section have been exhausted by either party to the action, (ii) there
is a closing agreement made under Section 7121 of the Code, or (iii)
the time for instituting a claim for refund has expired, or if a claim
was filed, the time for instituting suit with respect thereto has
expired.
If, after the receipt by the Executive of an amount advanced
by the Company pursuant to this Section, the Executive becomes entitled
to receive any refund with respect to such claim, the Executive shall
(subject to the Company's complying with the requirements of this
Section) promptly pay to the Company the amount of such refund
(together with any interest paid or credited thereon after taxes
applicable thereto). If, after the receipt by the Executive of an
amount advanced by the Company pursuant to this Section, a
determination is made by the Internal Revenue Service that the
Executive is not entitled to any refund with respect to such claim and
the Company does not notify the Executive in writing of its intent to
contest such denial of refund prior to the expiration of 30 calendar
days after such determination, then such advance shall be forgiven and
shall not be required to be repaid and the amount of such advance shall
offset, to the extent thereof, the amount of Gross-Up Payment required
to be paid.
10. ENFORCEMENT COSTS. Company is aware that, upon the occurrence of a
Change in Control, the Board of Directors or a shareholder of the Company, or
the Company's successor in interest, may then cause or attempt to cause Company
to refuse to comply with its obligations under this Agreement, or may cause or
attempt to cause Company to institute, or may institute litigation seeking to
have this Agreement declared unenforceable, or may take, or attempt to take,
other action to deny Executive the benefits intended under this Agreement. In
these circumstances, the purpose of this Agreement could be frustrated. It is
the intent of Company that Executive not be required to incur the expenses
associated with the enforcement of Executive's rights under this Agreement by
litigation or other legal action, nor be bound to negotiate any settlement of
Executive's rights hereunder under threat of incurring such expenses because the
cost and expense thereof would substantially detract from the benefits intended
to be extended to Executive hereunder. Accordingly, if following a Change in
Control it should appear to Executive that Company has failed to comply with any
of its obligations under this Agreement or in the event that Company or any
other person takes any action to declare this Agreement void or unenforceable,
or institutes any litigation or other legal action designed to deny, diminish,
or to recover from Executive the benefits intended to be provided to Executive
hereunder, Company irrevocably authorizes Executive from time to time to retain
legal counsel of Executive's choice at the expense of Company to represent
Executive in connection with the initiation or defense of any litigation or
other legal action, whether by or against Company or any director, officer,
stockholder, or other person affiliated with Company. The reasonable fees and
expenses of counsel selected from time to time by Executive as provided herein
shall be paid or reimbursed to Executive by Company on a regular, periodic basis
upon presentation by Executive of a statement or statements prepared by
Executive's counsel in accordance with its customary
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<PAGE> 10
practices. In any action involving this Agreement, Executive shall be entitled
to prejudgment interest on any amounts found to be due Executive as of the date
such amounts would have been payable to Executive pursuant to this Agreement at
an annual rate of interest equal to the lesser of 10% or the prime commercial
rate in effect at The Huntington National Bank in Columbus, Ohio from time to
time during the pre-judgment period.
11. ARBITRATION. Without limiting the application of Section 10 above,
the Company and Executive hereby agree that certain issues and/or disagreements
arising in connection with this Agreement shall be settled by arbitration.
Accordingly, in the event the Company or Executive believes that the other party
has violated any provision of this Agreement, including but not limited to any
action by the Company which Executive believes would entitle Executive to
terminate Executive's employment with severance benefits in accordance with
Section 3(b) hereof, the party alleging such violation shall notify the other
party in writing of such alleged violation. In the event the party receiving
such violation notice disagrees with the position taken by the other party in
such written notice, the recipient of the violation notice may, within 20 days
of receipt of such written notice, notify the other party, in writing, that it
has elected to submit such disagreement to arbitration. Arbitration of such
dispute shall be settled in Columbus, Ohio, in accordance with the then
applicable rules of the American Arbitration Association. The Company shall bear
all costs associated with such arbitration. In the event the party receiving a
violation notice does not elect to submit any issue or disagreement to
arbitration within 10 days of its receipt of the written violation notice, such
party will be deemed to have accepted the position taken in such written notice.
Notwithstanding anything herein to the contrary, neither the Company nor the
Executive shall be required to arbitrate the basis of any involuntary
termination of Executive's employment with the Company by the Company or its
successor.
12. EMPLOYMENT RIGHTS. Nothing expressed or implied in this Agreement
shall create any right or duty on the part of the Company or the Executive to
have the Executive remain in the employment of the Company prior to any Change
in Control, provided, however, that any termination of employment or the removal
of the Executive from the office or position in the Company that such Executive
presently holds following the commencement of active negotiations with a third
party (which negotiations are evidenced by the delivery of evaluation material)
that ultimately results in a Change in Control shall be deemed to be a
termination or removal of the Executive after a Change in Control for purposes
of this Agreement. Notwithstanding the foregoing, a termination of employment or
removal of the Executive following the termination of active negotiations with
any third party shall not be deemed a termination after a Change in Control for
purposes of this Agreement.
13. TERM. This Agreement shall terminate on January 31, 2000, unless a
Change in Control shall have occurred prior to such date; provided, however,
upon the passage of one year from the date hereof and each year thereafter this
Agreement shall automatically be renewed for an additional year unless the
Company or the Executive has notified in writing the other sixty calendar days
prior to the passage of the year that the Agreement is not to be automatically
renewed. Upon such notice, this Agreement will not be renewed for the additional
year and will expire at the end of the three-year term then in process.
Regardless of the term remaining on this Agreement determined as provided above,
upon the occurrence of a Change of Control of the Company this Agreement shall
not terminate or expire until two years from the date of such Change of Control.
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<PAGE> 11
14. WITHHOLDING OF TAXES. The Company may withhold from any amounts
payable under this Agreement all federal, state, city or other taxes as shall be
required pursuant to any law or government regulation or ruling.
15. SUCCESSORS AND BINDING AGREEMENT.
(a) The Company shall require any successor (whether direct or
indirect, by purchase, merger, consolidation, reorganization, or
otherwise) to all or substantially all of the business and/or assets
of the Company, by agreement in form and substance satisfactory to the
Executive, expressly to assume and agree to perform this Agreement in
the same manner and to the same extent the Company would be required
to perform if no such succession had taken place. This Agreement shall
be binding upon and inure to the benefit of the Company and any
successor to the Company, including without limitation any persons
acquiring directly or indirectly all or substantially all of the
business and/or assets of the Company whether by purchase, merger,
consolidation, reorganization, or otherwise (and such successor shall
thereafter be deemed the "Company" for the purposes of this
Agreement), but shall not otherwise be assignable, transferable, or
delegable by the Company.
(b) This Agreement shall inure to the benefit of and be
enforceable by the Executive's personal or legal representatives,
executors, administrators, successors, heirs, distributees, or
legatees.
(c) This Agreement is personal in nature and neither of the
parties hereto shall, without the consent of the other, assign,
transfer, or delegate this Agreement or any rights or obligations
hereunder except as expressly provided in Section 13(a) hereof.
Without limiting the generality of the foregoing, the Executive's
right to receive payments hereunder shall not be assignable,
transferable, or delegable, whether by pledge, creation of a security
interest, or otherwise, other than by a transfer by Executive's will
or by the laws of descent and distribution and, in the event of any
attempted assignment or transfer contrary to this Section 12(c), the
Company shall have no liability to pay any amount so attempted to be
assigned, transferred, or delegated.
(d) The Company and the Executive recognize that each party will
have no adequate remedy at law for breach by the other of any of the
agreements contained herein and, in the event of any such breach, the
Company and the Executive hereby agree and consent that the other
shall be entitled to a decree of specific performance, mandamus or
other appropriate remedy to enforce performance of this Agreement.
16. NOTICE. For all purposes of this Agreement, all communications
including without limitation notices, consents, requests, or approvals, provided
for herein, shall be in writing and shall be deemed to have been duly given when
delivered or five business days after having been mailed by United States
registered or certified mail, return receipt requested, postage prepaid,
addressed to the Company (to the attention of the President of the Company) at
its
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<PAGE> 12
principal executive office and to the Executive at Executive's principal
residence, or to such other address as any party may have furnished to the other
in writing and in accordance herewith, except that notices of change of address
shall be effective only upon receipt.
17. GOVERNING LAW. The validity, interpretation, construction, and
performance of this Agreement shall be governed by the laws of the State of
Ohio, without giving effect to the principles of conflict of laws of such State.
18. VALIDITY. If any provision of this Agreement or the application of
any provision hereof to any person or circumstances is held invalid,
unenforceable, or otherwise illegal, the remainder of this Agreement and the
application of such provision to any other person or circumstances shall not be
affected, and the provision so held to be invalid, unenforceable, or otherwise
illegal shall be reformed to the extent (and only to the extent) necessary to
make it enforceable, valid, and legal.
19. MISCELLANEOUS. No provisions of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing signed by the Executive and the Company. No waiver by either party
hereto at any time of any breach by the other party hereto or compliance with
any condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time. No agreements or representations,
oral or otherwise, expressed or implied with respect to the subject matter
hereof have been made by either party which are not set forth expressly in this
Agreement. In the event the terms and conditions of this Agreement conflict with
those of any other agreement, this Agreement shall prevail.
To the extend that Executive receives payment under this Agreement
relating to the termination of Executive's employment, the Executive will not
receive payment under any other agreement with the Company regarding such
termination.
IN WITNESS WHEREOF, the Executive and Company have executed this
Agreement on the day and year first above written.
EXECUTIVE RED ROOF INNS, INC.
By: /s/ ALAN L. TALLIS By: /s/ FRANCIS W. CASH
------------------------- ------------------------
ALAN L. TALLIS FRANCIS W. CASH
Executive Vice President, Chairman, President, and
Development Chief Executive Officer
<PAGE> 1
Exhibit 12
AMENDED AND RESTATED
AGREEMENT
This Amended and Restated Agreement is entered into this 7th day of
October, 1998, by and between RED ROOF INNS, INC., a Delaware corporation, with
principal offices located at 4355 Davidson Road, Hilliard, Ohio (the "Company")
and DAVID L. REA, (the "Executive").
RECITALS
A. Company and Executive have entered into an Agreement as of March 3,
1998 to provide Executive certain severance benefits associated with a change in
control of ownership in the Company. The Company has promoted Executive, and as
a result of such promotion, desires to make certain changes and modification to
the Agreement.
B. Executive is a senior executive of Company who is expected to make
major contributions to the profitability, growth, and financial strength of the
Company.
C. The Company recognizes that upon a threatened change in control
Executive may have concerns about Executive's employment status and
responsibilities, and the Company desires to provide Executive some assurances
as to the continuation of Executive's employment status and responsibilities in
the event of a change in control.
D. The Company desires to assure itself of both present and future
continuity of management in the event of a change in control and desires to
establish certain minimum compensation rights of its key senior executive
officers, including the Executive, applicable in the event of a change in
control.
E. The Company desires to assure that, should it receive an offer
involving a possible change in control, Executive would be in a secure position
to consider such offer and negotiate on behalf of the Company and its
shareholders as objectively as possible, and to this end, the Company desires to
protect Executive from any direct or implied threat to Executive's financial
well-being under such circumstances.
Page 1 of 13
<PAGE> 2
COVENANTS
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, the parties agree as follows:
1. DEFINITIONS. As used herein, the following terms shall have the
following meanings:
(a) Change in Control. "Change in Control" shall mean
(i) any transaction, or series of transactions,
including, but not limited to any merger, consolidation, or
reorganization, which results when any "person" as defined in
Section 3(a)(9) of the Exchange Act and as used in Sections
13(d) and 14(d) thereof, including a "group" as defined in
Section 13(d) of the Exchange Act, but excluding the Company,
any subsidiary of the Company, and any employee benefit plan
sponsored or maintained by the Company or any subsidiary of
the Company (including any trustee of such plan acting as
trustee), and excluding the Morgan Stanley Real Estate Fund,
L.P. and its affiliates (as defined in Rule 12b-2 under the
Exchange Act), directly or indirectly, becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act) of
securities of the Company representing 20% or more of the
combined voting power of the Company's then outstanding
securities;
(ii) when, during any period of 24 consecutive months
the individuals who, at the beginning of such period,
constitute the Board (the "Incumbent Directors") cease for any
reason other than death to constitute at least a majority of
the Board; provided, however, that a director who was not a
director at the beginning of such 24-month period shall be
deemed to have satisfied such 24-month requirement (and be an
Incumbent Director) if such director was elected by, or on the
recommendation of or with the approval of; at least two-thirds
of the directors who then qualified as Incumbent Directors
either actually (because they were directors at the beginning
of such 24-month period) or by prior operation of this
Section; or
(iii) when the stockholders of the Company approve a
plan of complete liquidation of the Company; or an agreement
for the sale or disposition of substantially all the Company's
assets; or a merger, consolidation, or reorganization of the
Company in which stockholders of the Company immediately prior
to the transaction own less than 65% of the combined voting
power of the surviving entity.
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<PAGE> 3
(b) "Annual Base Salary" shall mean the Executive's current
base annual salary plus any future increases to Executive's base annual
compensation, but in no event less than the Executive's annual base
salary in effect on the date of this Agreement.
(c) "Termination Date" shall mean the date on which
Executive's employment with the Company is terminated.
2. TERMINATION BY COMPANY. Following a Change in Control, the
Executive's employment may be terminated by Company ("Company Termination
Event") and the Executive shall not be entitled to the severance benefits
provided under Section 4, provided that Executive's termination occurs as a
result of one or more of the following events:
(a) The Executive's death;
(b) The Executive's disability, provided Executive actually
begins to receive disability benefits pursuant to the long-term
disability plan in effect for senior executives of the Company
immediately prior to the Change in Control; or
(c) For "Cause," which for purposes of this Agreement shall
mean that, prior to any termination pursuant to Section 3(b) hereof,
the Executive shall have committed: (i) an act of fraud, embezzlement,
theft, or any other act constituting a felony, involving moral
turpitude or causing material harm, financial or otherwise, to the
Company; or (ii) a demonstrably intentional and deliberate act or
failure to act (other than as a result of incapacity due to physical or
mental illness) which is committed in bad faith by the Executive, which
causes or can be expected to cause material financial injury to the
Company.
For purposes of this Agreement, no act, or failure to act, on the part
of the Executive shall be deemed "intentional" if it was due primarily to an
error in judgment or negligence, but shall be deemed "intentional" only if done,
or omitted to be done, by the Executive not in good faith and without reasonable
belief that Executive's action or omission was in, or not opposed to, the best
interest of the Company. Notwithstanding the foregoing, the Executive shall not
be deemed to have been terminated for "Cause" hereunder unless and until there
shall have been delivered to the Executive a copy of a resolution duly adopted
by the affirmative vote of not less than three-quarters of the Board then in
office at a meeting of the Board of Directors called and held for such purpose
(after reasonable notice to the Executive and an opportunity for the Executive,
together with Executive's counsel, to be heard before the Board), finding that,
in the good faith opinion of the Board, the Executive had committed an act set
forth above in this Section 2(c) and specifying the particulars thereof in
detail. Nothing herein shall limit the right of the Executive or Executive's
beneficiaries to contest the validity or propriety of any such determination.
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<PAGE> 4
3. EXECUTIVE TERMINATION EVENT. If at any time during the two-year
period commencing on the date of a Change in Control, the Company or Executive
terminates Executive's employment following the occurrence of one or more of the
following events ("Executive Termination Event"), Executive shall be entitled to
the severance benefits provided in Section 4 below:
(a) Any termination by the Company of Executive's employment
during such two-year period for any reason other than for Cause, as a
result of Executive's death, or by reason of the Executive's disability
and the actual receipt of disability benefits in accordance with
Section 2(b) hereof; or
(b) Termination by the Executive of Executive's employment
with the Company at any time within two years after the Change in
Control upon the occurrence of any of the following events:
(i) The Company's failure to elect, re-elect, or
otherwise maintain the Executive in the office or position in
the Company which the Executive held immediately prior to a
Change in Control, or the removal of the Executive as a
Director of the Company (or any successor thereto) if the
Executive was a Director of the Company immediately prior to
the Change in Control;
(ii) A significant, adverse change (increase or
decrease) in the nature or scope of the authorities, powers,
functions, responsibilities, or duties attached to the
position with the Company which the Executive held immediately
prior to the Change in Control, or a reduction in the
aggregate of the Executive's base pay or annual incentive
bonus opportunity (and relative level of goal achievement) in
which the Executive participated immediately prior to the
Change in Control, or the termination of the Executive's right
to any employee benefits to which Executive was entitled
immediately prior to the Change in Control, or a reduction in
scope or value of such benefits, without prior written consent
of the Executive, any of which is not remedied within 10
calendar days after receipt by the Company of a written notice
from the Executive of such change, reduction, or termination,
as the case may be;
(iii) A determination by the Executive made in good
faith that, as a result of a Change in Control, there has been
a significant change in the scope of the business or other
activities for which the Executive was responsible immediately
prior to the Change in Control, or that Executive has been
rendered substantially unable to carry out, has been
substantially hindered in the performance of, or has suffered
a substantial increase or reduction in, any of the
authorities, powers, functions, responsibilities, or duties
attached to the position held by the Executive immediately
prior to the Change in Control, which situation is not
remedied within 10 calendar days after receipt by the Company
of a written notice from the Executive of such good faith
determination;
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<PAGE> 5
(iv) The liquidation, dissolution, merger,
consolidation, or reorganization of the Company or transfer of
all or a significant portion of its business and/or assets;
(v) The Company shall relocate its principal
executive offices, or require the Executive to have
Executive's principal location of work changed, to any
location which is in excess of 50 miles from the location
thereof immediately prior to the Change in Control, or the
Company shall require the Executive to travel away from
Executive's office in the course of discharging Executive's
responsibilities or duties hereunder significantly more (in
terms of either consecutive days or aggregate days in any
calendar year) than was required of him prior to the Change in
Control without, in either case, Executive's prior written
consent; or
(vi) Without limiting the generality or effect of the
foregoing, any material breach of this Agreement by the
Company or any successor thereto.
4. SEVERANCE BENEFITS. In the event Executive's employment is
terminated within two years of the date of a Change in Control as a result of an
Executive Termination Event, Executive shall be entitled to the benefits set
forth below. All amounts payable under this Section 4(a), (b), and (c) shall be
paid to Executive in one lump sum within 10 days after Executive's termination
of employment.
(a) The Company shall pay to Executive an amount equal to
three times Executive's Annual Base Salary in effect for the year in
which Executive's termination of employment occurs. Executive shall
also be entitled to receive three times the highest bonus or short-term
incentive compensation paid to Executive during the fiscal year
preceding the Change in Control or, if higher, three times the maximum
amount for which Executive has an opportunity to earn in the fiscal
year of Executive's termination (excluding any amounts paid to
Executive under the Company's equity-based, long-term incentive plan or
any other phantom stock or stock rights plan subsequently established
by the Company).
(b) The Company shall pay Executive Executive's full base
salary through Executive's Termination Date. The Company shall also pay
Executive an amount equal to the pro rata amount of the maximum target
bonus award available to Executive under the bonus plan during the year
of termination, based on the number of days of the year elapsed prior
to the Termination Date.
(c) For the 36 months following Executive's termination of
employment, the Company shall arrange to provide the Executive with
health benefits (medical, dental, disability and life) substantially
similar to those which the Executive was receiving or entitled to
receive immediately prior to the Termination Date. If and to the extent
that such benefits shall not or cannot be paid or provided under any
policy, plan, program, or arrangement of the Company solely due to the
fact that the Executive is no longer an officer or employee of the
Company, then the Company shall itself pay or provide
Page 5 of 13
<PAGE> 6
reimbursement to the Executive, Executive's dependents and
beneficiaries, the cost of such health benefits. Such health benefits
shall be discontinued prior to the end of the specified continuation
period if the Executive receives comparable coverage from a subsequent
employer.
(d) The Company will provide out-placement assistance from a
service selected by Executive for a period of one year from the
Termination Date. All associated costs will be paid by the Company, up
to a maximum of 30% of Executive's annual rate of base pay in effect at
the time of Executive's termination.
(e) If Executive has relocated to work with the Company during
the three years immediately preceding the date of this Agreement,
Executive may elect, within 120 days following the Termination Date, to
have the Company purchase Executive's house at its then current market
value (which shall be established by taking the average of three
appraisals from real estate firms, one selected by the Executive, one
selected by the Company, and one selected by the two selected firms
with the Company paying the costs of the appraisals). Such purchase
shall occur on a date specified by Executive, but in any event within
six months following Executives' election to have the house purchased
by the Company.
5. OTHER RIGHTS. A termination of the Executive's employment by the
Company pursuant to Section 2 or 3(a) hereof, or by the Executive pursuant to
Section 3(b) hereof, shall not affect adversely any rights which the Executive
may have pursuant to any agreement, employment contract, policy, plan, program,
or arrangement of the Company providing employee benefits, which rights shall be
governed by the terms of such employee benefit plan.
6. LONG-TERM INCENTIVES. Upon the occurrence of a Change in Control,
Executive shall become immediately and automatically vested (with no director
discretion exercised) in all equity-based, long-term incentives (including stock
options and restricted stock) and all accrued pension benefits held as of the
date of the Change in Control. To the extent legally necessary the Company can
provide these benefits on a tax non-qualified basis. For any cash-based,
long-term incentive vehicles, Executive shall become immediately vested and
receive an immediate cashout of the vehicles upon the occurrence of a Change of
Control, equal to a pro rata target award thereunder (or, if greater, the actual
award earned to date) based upon the number of days actually employed during the
performance period. Such provisions will be included in all future long-term
incentive award agreements.
7. NO SET-OFF. There shall be no set-off or counterclaim against, or
delay in, any payment of severance benefits by the Company to Executive provided
for in this Agreement with respect to any claim against or debt or obligation of
Executive, whether arising hereunder or otherwise except for health benefits as
provided in Section 4(c).
8. NO MITIGATION OBLIGATION. Executive's benefits hereunder shall be
payable to Executive as severance pay in consideration of Executive's past
services and of Executive's continued services from the date hereof. The Company
hereby acknowledges that it will be difficult, and may be impossible, for the
Executive to find reasonably comparable employment
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<PAGE> 7
following the Termination Date. Accordingly, the parties hereto expressly agree
that the payment of the severance benefits by the Company to the Executive in
accordance with the terms of this Agreement will be liquidated damages, and that
the Executive shall not be required to mitigate the amount of any payment
provided for in this Agreement by seeking other employment or otherwise, nor
shall any profits, income, earnings, or other benefits from any source whatever
create any mitigation, offset, reduction, or any other obligation on the part of
the Executive hereunder or otherwise except for health benefits as provided in
Section 4 (c).
9. TAX CONSIDERATIONS. Notwithstanding anything herein to the contrary,
in the event any payments to Executive hereunder are determined by the Company
to be subject to the tax imposed by Section 4999 of the Code or any similar
federal or state excise tax, FICA tax, or any interest or penalties are incurred
by the Executive with respect to such excise tax (such excise tax, together with
any such interest or penalties art hereinafter collectively referred to as the
"Excise Tax"), Company shall pay to Executive at the time specified in Section 4
(a) above, an additional amount (the "Gross-Up Payment") such that after the
payment by Executive of all federal, state, or local income taxes, Excise Taxes,
FICA taxes, or other taxes (including any interest or penalties imposed with
respect thereto) imposed upon the receipt of the Gross-Up Payment, Executive
retains an amount of the Gross-Up Payment equal to the Excise Tax imposed on the
severance payments provided herein.
(a) For purposes of determining whether any payments to
Executive hereunder will be subject to the Excise Tax and the amount of
such Excise Tax:
(i) any other payments or benefits received or to be
received by Executive in connection with a Change in Control
or the termination of employment (whether pursuant to the
terms of this Agreement or of any other plan, arrangement, or
agreement with Company) shall be treated as "parachute
payments" within the meaning of Section 280G(b)(2) of the
Code, and all "excess parachute payments" within the meaning
of Section 280G(b)(l) shall be treated as subject to the
Excise Tax, unless in the opinion of tax counsel selected by
Company and acceptable to Executive, other payments or
benefits (in whole or in part) do not constitute parachute
payments under Section 280G of the Code, or such excess
parachute payments (in whole or in part) represent reasonable
compensation for services actually rendered within the meaning
of Section 280G(b)(4) of the Code;
(ii) the amount of the severance payments which shall
be treated as subject to the Excise Tax shall be equal to the
amount of excess parachute payments within the meaning of
Sections 280G(b)(l) and (4) (after applying clause (a),
above); and
(iii) the parachute value of any non-cash benefits or
any deferred payment or benefit shall be determined by Company
in accordance with the principles of Sections 280G(d)(3) and
(4) of the Code.
Page 7 of 13
<PAGE> 8
(b) If the Excise Tax is subsequently determined to be less
than the amount taken into account hereunder at the time of termination
of employment, Executive shall repay to Company, at the time the
reduction in Excise Tax is finally determined, the portion of the
Gross-Up Payment attributable to such reduction. If the Excise Tax is
determined to exceed the amount taken into account hereunder at the
time of termination of employment, Company shall make an additional
Gross-Up Payment to Executive in respect of such excess at the time the
amount of such excess is finally determined. The Executive shall notify
the Company in writing of any claim by the Internal Revenue Service
that, if successful, would require the payment by the Company of the
Gross-Up Payment. Such notification shall be given as soon as
practicable but no later that ten business days after the Executive is
informed in writing of such claim and shall apprise the Company of the
nature of such claim and the date on which such claim is requested to
be paid. The Executive shall not pay such claim prior to the expiration
of the 30 calendar day period following the date on which it gives such
notice to the Company (or such shorter period ending on the date that
any payment of taxes with respect to such claim is due). If the Company
notifies the Executive in writing prior to the expiration of such
period that it desires to contest such claim, the Executive shall:
(i) give the Company any information reasonably
requested by the Company relating to such claim;
(ii) take such action in connection with contesting
such claim as the Company shall reasonably request in writing
from time to time, including, without limitation, accepting
legal representation with respect to such claim by an attorney
reasonably selected by the Company;
(iii) cooperate with the Company in good faith in
order to effectively contest such claim; and
(iv) permit the Company to participate in any
proceedings relating to such claim;
provided, however, that the Company shall bear and pay directly all
costs and expenses (including legal and accounting fees and additional
interest and penalties) incurred in connection with such contest and
shall indemnify and hold the Executive harmless, on an after-tax basis,
for any Excise Tax, FICA tax, or income tax (including interest and
penalties with respect thereto) imposed as a result of such
representation and payment of costs and expenses. Without limitation on
the foregoing provisions of this Section, the Company shall control all
proceedings taken in connection with such contest and, at its sole
option, may pursue or forgo any and all administrative appeals,
proceedings, hearings, and conferences with the taxing authority in
respect of such claim and may, at its sole option, either direct the
Executive to pay the tax claimed and sue for a refund or contest the
claim in any permissible manner, and the Executive agrees to prosecute
such contest to a determination before any administrative tribunal, in
a court of initial jurisdiction, and in one or more appellate courts,
as the Company shall determine; provided, however, that if the Company
directs the Executive to pay such claim and sue
Page 8 of 13
<PAGE> 9
for a refund, the Company shall advance the amount of such payment to
the Executive, on an interest-free basis, and shall indemnify and hold
the Executive harmless, on an after-tax basis, from any Excise Tax or
income tax (including interest or penalties with respect thereto)
imposed with respect to such advance or with respect to any imputed
income with respect to such advance; and further provided that any
extension of the statute of limitations relating to payment of taxes
for the taxable year of the Executive with respect to which such
contested amount is claimed to be due is limited solely to such
contested amount. Furthermore, the Company's control of the contest
shall be limited to issues with respect to which a Gross-Up Payment
would be payable hereunder and the Executive shall be entitled to
settle or contest as the case may be, any other issue raised by the
Internal Revenue Service or any other taxing authority.
If any such claim referred to in this Section is made by the
Internal Revenue Service and the Company does not request the Executive
to contest the claim within the 30 calendar day period following notice
of the claim, the Company shall pay to the Executive the amount of any
Gross-Up Payment owed to the Executive, but not previously paid
pursuant to Section 9(b), immediately upon the expiration of such 30
calendar day period. If any such claim is made by the Internal Revenue
Service and the Company requests the Executive to contest such claim,
but does not advance the amount of such claim to the Executive for
purposes of such contest, the Company shall pay to the Executive the
amount of any Gross-Up Payment owed to the Executive, but not
previously paid under the provisions of Section 9(b), within 5 business
days of a Final Determination of the liability of the Executive for
such Excise Tax. For purposes of this Agreement, a "Final
Determination" shall be deemed to occur with respect to a claim when
(i) there is a decision, judgment, decree, or other order by any court
of competent jurisdiction, which decision, judgment, decree, or other
order has become final, i.e., all allowable appeals pursuant to this
Section have been exhausted by either party to the action, (ii) there
is a closing agreement made under Section 7121 of the Code, or (iii)
the time for instituting a claim for refund has expired, or if a claim
was filed, the time for instituting suit with respect thereto has
expired.
If, after the receipt by the Executive of an amount advanced
by the Company pursuant to this Section, the Executive becomes entitled
to receive any refund with respect to such claim, the Executive shall
(subject to the Company's complying with the requirements of this
Section) promptly pay to the Company the amount of such refund
(together with any interest paid or credited thereon after taxes
applicable thereto). If, after the receipt by the Executive of an
amount advanced by the Company pursuant to this Section, a
determination is made by the Internal Revenue Service that the
Executive is not entitled to any refund with respect to such claim and
the Company does not notify the Executive in writing of its intent to
contest such denial of refund prior to the expiration of 30 calendar
days after such determination, then such advance shall be forgiven and
shall not be required to be repaid and the amount of such advance shall
offset, to the extent thereof, the amount of Gross-Up Payment required
to be paid.
Page 9 of 13
<PAGE> 10
10. ENFORCEMENT COSTS. Company is aware that, upon the occurrence of a
Change in Control, the Board of Directors or a shareholder of the Company, or
the Company's successor in interest, may then cause or attempt to cause Company
to refuse to comply with its obligations under this Agreement, or may cause or
attempt to cause Company to institute, or may institute litigation seeking to
have this Agreement declared unenforceable, or may take, or attempt to take,
other action to deny Executive the benefits intended under this Agreement. In
these circumstances, the purpose of this Agreement could be frustrated. It is
the intent of Company that Executive not be required to incur the expenses
associated with the enforcement of Executive's rights under this Agreement by
litigation or other legal action, nor be bound to negotiate any settlement of
Executive's rights hereunder under threat of incurring such expenses because the
cost and expense thereof would substantially detract from the benefits intended
to be extended to Executive hereunder. Accordingly, if following a Change in
Control it should appear to Executive that Company has failed to comply with any
of its obligations under this Agreement or in the event that Company or any
other person takes any action to declare this Agreement void or unenforceable,
or institutes any litigation or other legal action designed to deny, diminish,
or to recover from Executive the benefits intended to be provided to Executive
hereunder, Company irrevocably authorizes Executive from time to time to retain
legal counsel of Executive's choice at the expense of Company to represent
Executive in connection with the initiation or defense of any litigation or
other legal action, whether by or against Company or any director, officer,
stockholder, or other person affiliated with Company. The reasonable fees and
expenses of counsel selected from time to time by Executive as provided herein
shall be paid or reimbursed to Executive by Company on a regular, periodic basis
upon presentation by Executive of a statement or statements prepared by
Executive's counsel in accordance with its customary practices. In any action
involving this Agreement, Executive shall be entitled to prejudgment interest on
any amounts found to be due Executive as of the date such amounts would have
been payable to Executive pursuant to this Agreement at an annual rate of
interest equal to the lesser of 10% or the prime commercial rate in effect at
The Huntington National Bank in Columbus, Ohio from time to time during the
pre-judgment period.
11. ARBITRATION. Without limiting the application of Section 10 above,
the Company and Executive hereby agree that certain issues and/or disagreements
arising in connection with this Agreement shall be settled by arbitration.
Accordingly, in the event the Company or Executive believes that the other party
has violated any provision of this Agreement, including but not limited to any
action by the Company which Executive believes would entitle Executive to
terminate Executive's employment with severance benefits in accordance with
Section 3(b) hereof, the party alleging such violation shall notify the other
party in writing of such alleged violation. In the event the party receiving
such violation notice disagrees with the position taken by the other party in
such written notice, the recipient of the violation notice may, within 20 days
of receipt of such written notice, notify the other party, in writing, that it
has elected to submit such disagreement to arbitration. Arbitration of such
dispute shall be settled in Columbus, Ohio, in accordance with the then
applicable rules of the American Arbitration Association. The Company shall bear
all costs associated with such arbitration. In the event the party receiving a
violation notice does not elect to submit any issue or disagreement to
arbitration within 10 days of its receipt of the written violation notice, such
party will be deemed to have accepted the position taken in such written notice.
Notwithstanding anything herein to the contrary, neither
Page 10 of 13
<PAGE> 11
the Company nor the Executive shall be required to arbitrate the basis of any
involuntary termination of Executive's employment with the Company by the
Company or its successor.
12. EMPLOYMENT RIGHTS. Nothing expressed or implied in this Agreement
shall create any right or duty on the part of the Company or the Executive to
have the Executive remain in the employment of the Company prior to any Change
in Control, provided, however, that any termination of employment or the removal
of the Executive from the office or position in the Company that such Executive
presently holds following the commencement of active negotiations with a third
party (which negotiations are evidenced by the delivery of evaluation material)
that ultimately results in a Change in Control shall be deemed to be a
termination or removal of the Executive after a Change in Control for purposes
of this Agreement. Notwithstanding the foregoing, a termination of employment or
removal of the Executive following the termination of active negotiations with
any third party shall not be deemed a termination after a Change in Control for
purposes of this Agreement.
13. TERM. This Agreement shall terminate on October 7, 2001, unless a
Change in Control shall have occurred prior to such date; provided, however,
upon the passage of one year from the date hereof and each year thereafter this
Agreement shall automatically be renewed for an additional year unless the
Company or the Executive has notified in writing the other sixty calendar days
prior to the passage of the year that the Agreement is not to be automatically
renewed. Upon such notice, this Agreement will not be renewed for the additional
year and will expire at the end of the three-year term then in process.
Regardless of the term remaining on this Agreement determined as provided above,
upon the occurrence of a Change of Control of the Company this Agreement shall
not terminate or expire until two years from the date of such Change of Control.
14. WITHHOLDING OF TAXES. The Company may withhold from any amounts
payable under this Agreement all federal, state, city or other taxes as shall be
required pursuant to any law or government regulation or ruling.
15. SUCCESSORS AND BINDING AGREEMENT.
(a) The Company shall require any successor (whether direct or
indirect, by purchase, merger, consolidation, reorganization, or
otherwise) to all or substantially all of the business and/or assets of
the Company, by agreement in form and substance satisfactory to the
Executive, expressly to assume and agree to perform this Agreement in
the same manner and to the same extent the Company would be required to
perform if no such succession had taken place. This Agreement shall be
binding upon and inure to the benefit of the Company and any successor
to the Company, including without limitation any persons acquiring
directly or indirectly all or substantially all of the business and/or
assets of the Company whether by purchase, merger, consolidation,
reorganization, or otherwise (and such successor shall thereafter be
deemed the "Company" for the purposes of this Agreement), but shall not
otherwise be assignable, transferable, or delegable by the Company.
Page 11 of 13
<PAGE> 12
(b) This Agreement shall inure to the benefit of and be
enforceable by the Executive's personal or legal representatives,
executors, administrators, successors, heirs, distributees, or
legatees.
(c) This Agreement is personal in nature and neither of the
parties hereto shall, without the consent of the other, assign,
transfer, or delegate this Agreement or any rights or obligations
hereunder except as expressly provided in Section 13(a) hereof. Without
limiting the generality of the foregoing, the Executive's right to
receive payments hereunder shall not be assignable, transferable, or
delegable, whether by pledge, creation of a security interest, or
otherwise, other than by a transfer by Executive's will or by the laws
of descent and distribution and, in the event of any attempted
assignment or transfer contrary to this Section 12(c), the Company
shall have no liability to pay any amount so attempted to be assigned,
transferred, or delegated.
(d) The Company and the Executive recognize that each party
will have no adequate remedy at law for breach by the other of any of
the agreements contained herein and, in the event of any such breach,
the Company and the Executive hereby agree and consent that the other
shall be entitled to a decree of specific performance, mandamus or
other appropriate remedy to enforce performance of this Agreement.
16. NOTICE. For all purposes of this Agreement, all communications
including without limitation notices, consents, requests, or approvals, provided
for herein, shall be in writing and shall be deemed to have been duly given when
delivered or five business days after having been mailed by United States
registered or certified mail, return receipt requested, postage prepaid,
addressed to the Company (to the attention of the President of the Company) at
its principal executive office and to the Executive at Executive's principal
residence, or to such other address as any party may have furnished to the other
in writing and in accordance herewith, except that notices of change of address
shall be effective only upon receipt.
17. GOVERNING LAW. The validity, interpretation, construction, and
performance of this Agreement shall be governed by the laws of the State of
Ohio, without giving effect to the principles of conflict of laws of such State.
18. VALIDITY. If any provision of this Agreement or the application of
any provision hereof to any person or circumstances is held invalid,
unenforceable, or otherwise illegal, the remainder of this Agreement and the
application of such provision to any other person or circumstances shall not be
affected, and the provision so held to be invalid, unenforceable, or otherwise
illegal shall be reformed to the extent (and only to the extent) necessary to
make it enforceable, valid, and legal.
19. MISCELLANEOUS. No provisions of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing signed by the Executive and the Company. No waiver by either party
hereto at any time of any breach by the other party hereto or compliance with
any condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time. No agreements or representations,
oral
Page 12 of 13
<PAGE> 13
or otherwise, expressed or implied with respect to the subject matter hereof
have been made by either party which are not set forth expressly in this
Agreement. In the event the terms and conditions of this Agreement conflict with
those of any other agreement, this Agreement shall prevail.
To the extend that Executive receives payment under this Agreement
relating to the termination of Executive's employment, the Executive will not
receive payment under any other agreement with the Company regarding such
termination.
THIS AGREEMENT IS AN AMENDED AND RESTATED AGREEMENT OF THE ORIGINAL
AGREEMENT AND SUPERSEDES THE ORIGINAL AGREEMENT IN ITS ENTIRETY.
IN WITNESS WHEREOF, the Executive and Company have executed this
Agreement on the day and year first above written.
EXECUTIVE RED ROOF INNS, INC.
By: /s/ DAVID L. REA By: /s/ FRANCIS W. CASH
------------------------------- -------------------------------
DAVID L. REA FRANCIS W. CASH
Executive Vice President, Chairman, President, and
Chief Financial Officer, and Chief Executive Officer
Treasurer
Page 13 of 13
<PAGE> 1
Exhibit 13
NONQUALIFIED DEFINED BENEFIT
PENSION AGREEMENT
Red Roof Inns, Inc.
December 1997
<PAGE> 2
CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE 1. ESTABLISHMENT AND PURPOSE...............................................................3
ARTICLE 2. DEFINITIONS.............................................................................3
ARTICLE 3. ADMINISTRATION..........................................................................5
ARTICLE 4. RETIREMENT BENEFITS.....................................................................6
ARTICLE 5. RABBI TRUST.............................................................................8
ARTICLE 6. AMENDMENT AND TERMINATION..............................................................10
ARTICLE 7. MISCELLANEOUS..........................................................................10
</TABLE>
2
<PAGE> 3
RED ROOF INNS, INC.
NONQUALIFIED DEFINED BENEFIT PENSION AGREEMENT
ARTICLE 1. ESTABLISHMENT AND PURPOSE
1.1 Establishment. Red Roof Inns, a Delaware corporation (the "Com-
pany"), hereby enters into a nonqualified defined benefit pension agreement (the
"Agreement") with Francis W. Cash (the "Executive"), pursuant to Section 3.04 of
the Executive's Employment Agreement.
1.2 Purpose. The purpose of this Agreement is to provide and detail the
pension benefits that have been promised the Executive in his Employment Agree-
ment.
ARTICLE 2. DEFINITIONS
Definitions. Whenever used herein, the following terms shall
have the respective meanings set forth below and, when intended, such terms
shall be capitalized.
(a) "Actuarial Equivalent" or "Actuarially Equivalent" shall
mean equality in value of the aggregate amounts expected
to be received under different forms of benefit payments.
In determining the amount of any actuarial equivalent
form of payment, the mortality table shall be the Unisex
Pension 1984 Mortality Table (20% Female) and the interest
rate shall be a rate of 8% per annum. Other required
actuarial assumptions shall be consistent with those used
under the Red Roof Inns, Inc. Retirement Plan (i.e., the
qualified pension plan).
(b) "Board" means the Board of Directors of the Company.
(c) "Change in Control of the Company" shall mean:
(i) Any transaction, or series of transactions,
including, but not limited to, any merger,
consolidation, or reorganization, which
results when any "person" as defined in
Section 3(a)(9) of the Exchange Act and as
used in Sections 13(d) and 14(d) thereof,
including a "group" as defined in Section
13(d) of the Exchange Act, but excluding the
Company, any subsidiary of the Com-
3
<PAGE> 4
pany, and any employee benefit plan
sponsored or maintained by the Company or
any subsidiary of the Company (including any
trustee of such plan acting as trustee), and
excluding the Morgan Stanley Real Estate
Fund, L.P. and its affiliates (as defined in
Rule 12b-2 under the Exchange Act), directly
or indirectly, becomes the "beneficial
owner" (as defined in Rule 13d-3 under the
Exchange Act) of securities of the Company
representing 20% or more of the combined
voting power of the Company's then
outstanding securities;
(ii) When, during any period of 24 consecutive
months the individuals who, at the beginning
of such period, constitute the Board (the
"Incumbent Directors") cease for any reason
other than death to constitute at least a
majority of the Board; provided, however,
that a director who was not a director at
the beginning of such 24-month period shall
be deemed to have satisfied such 24-month
requirement (and be an Incumbent Director)
if such director was elected by, or on the
recommendation of or with the approval of,
at least two-thirds of the directors who
then qualified as Incumbent Directors
either actually (became they were directors
at the beginning of such 24-month period) or
by prior operation of this Section; or
(iii) When the stockholders of the Company approve
a plan of complete liquidation of the
Company; or an agreement for the sale or
disposition of substantially all the
Company's assets; or a merger,
consolidation, or reorganization of the
Company in which stockholders of the Company
immediately prior to the transaction own
less than 65% of the combined voting power
of the surviving entity.
(d) "Code" means the Internal Revenue Code of 1986, as
amended.
(e) "Committee" means the Compensation Committee of the
Board, or any other committee designated by the Board
to administer the Agreement, pursuant to Section 3.1
herein.
4
<PAGE> 5
(f) "Company" means Red Roof Inns, Inc., or any successor
thereto as provided in Section 7.5 herein.
(g) "Compensation" shall mean the base compensation paid
to the Executive as salary during the calendar year,
excluding any bonuses or other special compensation,
and including any base compensation deferred under
qualified or nonqualified plans.
(h) "ERISA" means the Employee Retirement Income Security
Act of 1974, as amended from time to time, or any
successor act thereto.
(i) "Exchange Act" means the Securities Exchange Act of
1934, as amended from time to time, or any successor
act thereto.
(j) "Final Average Monthly Compensation" shall mean the
highest average monthly Compensation paid to the
Executive during any consecutive thirty-six (36)
months preceding the calendar month of the Executives
termination of employment, excluding those months in
which Compensation is reduced due to leave of
absence. If the Executive has fewer than thirty-six
(36) full calendar months of service, the Executive's
Average Monthly Compensation Shall be computed under
this Section on the basis of such period of service
with the Company.
(k) "Plan Year" means the consecutive twelve (12) month
period beginning each January 1 and ending December
31.
(l) "Retirement Benefit" means the benefits to which the
Executive is entitled under Article 4 herein.
ARTICLE 3. ADMINISTRATION
3.1 The Committee. The Agreement shall be administered by the
Compensation Committee of the Board, or by any other committee designated by the
Board to administer the Agreement. The Committee may delegate any or all of its
administrative responsibilities hereunder.
5
<PAGE> 6
3.2 Authority of the Committee. Subject to the provisions herein and
subject to ratification by the Board, the Committee shall have the full power to
construe and interpret the Agreement and any agreement or instrument entered
into hereunder, and to establish, amend, or waive rules and regulations for the
Agreement's administration. Further, the Committee shall have full power to
make any other determination which may be necessary or advisable for the
Agreement's administration.
3.3 Decisions Binding. All determinations and decisions made by the
Committee pursuant to the provisions of the Agreement, as ratified by the Board,
and all related orders or resolutions of the Board shall be final, conclusive,
and binding on all persons, including the Company, the Executive, and his estate
and beneficiaries.
ARTICLE 4. RETIREMENT BENEFITS
4.1 Benefit Amount. Upon the Executive's termination of employment for
any reason other than death the Executive shall be entitled to a monthly Retire-
ment Benefit for life in an amount equal to the excess (if any) of (a) over (b),
where (a) and (b) are defined as follows:
(a) Thirty percent (30%) of the Executive's Final Average
Monthly Compensation, and
(b) The single life monthly benefit that is the Actuarial
Equivalent (calculated on the date of employment
termination) of any amount due the Executive under
the Red Roof Inns, Inc. Retirement Plan.
The Executive shall be entitled to such monthly Retirement Benefit
commencing at the later of the Executive's employment termination or his
reaching age sixty (60).
4.2 Form of Retirement Benefits. The form of monthly Retirement Benefit
payments shall be a single life annuity for the life of the Executive. However,
subject to the approval of the Committee in its sole discretion, the Executive
may petition the Committee, prior to the later of the Executive's employment
termination or his reaching age sixty (60), to receive any other form of benefit
payment (which shall be computed as the Actuarial Equivalent of a single life
annuity for the life of the Executive).
6
<PAGE> 7
Notwithstanding the above, in full satisfaction of the Retirement
Benefit, in the event the Executive's employment is terminated for any reason
other than death within two (2) years immediately following a Change in Control,
the Executive shall receive, within ten (10) business days following such
termination, a lump sum cash payment equal to the Actuarial Equivalent of the
Retirement Benefits payable to the Executive as if the Executive had retired on
the date of termination. To the extent sufficient assets are contained in the
Rabbi Trust, this payment shall be made from the Trust, as further provided in
Section 5.4 herein. Otherwise, the payment shall be made from general assets of
the Company. The Executive may irrevocably elect to waive his right to receive a
payment of the Actuarial Equivalent of the Retirement Benefits in a lump sum
upon a termination of employment described in this paragraph by the Executive
making such waiver election prior to the end of the ten (10) business day period
after the Executive terminates employment. In such case, the Executive shall be
entitled to receive his Retirement Benefits when and as permitted under this
Agreement without regard to this paragraph. Any waiver of a right to receive a
lump-sum distribution pursuant to the foregoing sentences shall not be deemed a
waiver by the Executive of any future entitlement under any other provision of
this Agreement.
4.3 Preretirement Survivor Benefit. If the Executive dies prior to the
time the Executive's Retirement Benefits commence, the Executive's surviving
spouse shall be entitled to a Preretirement Survivor Benefit equal to a life
annuity for the life of the surviving spouse which is equal to the benefit the
surviving spouse would have received as a survivor annuity as if the Executive's
Retirement Benefits had commenced immediately prior thereto and the Executive
had chosen, and the Committee so approved, payment in the form of a Joint and
Survivor Annuity (as defined in the Red Roof Inns, Inc. Retirement Plan).
4.4 Commencement of Benefits. Except as provided in Section 4.2, the
benefits payable under this Article shall commence not later than ten (10)
business days following the later of the Executive's termination of employment
or the Executive attaining the age of sixty (60).
4.5 Tax Withholding. The Company shall have the right to require the
Executive to remit to the Company an amount sufficient to satisfy federal,
state, and local tax withholding requirements, or to deduct (in the case of
payments due directly from the Company) or require the Trustee to deduct (in the
case of payments due from the Trust) from all payments made pursuant to the
Agreement amounts sufficient to satisfy such withholding requirements.
7
<PAGE> 8
ARTICLE 5. RABBI TRUST
5.1 Establishment of a Rabbi Trust. As soon as administratively
practicable, the Company shall establish an irrevocable Rabbi Trust (which
shall be a grantor trust within the meaning of Code Sections 671-677) for the
benefit of the Executive and the Executive's beneficiaries, as appropriate. The
Rabbi Trust shall have an independent Trustee (such Trustee to have a fiduciary
duty to carry out the terms and conditions of this Agreement) as selected by the
Company, and shall contain restrictions as to the Company's ability to amend the
Trust or to cancel benefits previously funded thereunder.
5.2 Terms of the Rabbi Trust. Assets contained in the Rabbi Trust shall
at all times be specifically subject to the claims of the Company's general
creditors in the event of bankruptcy or insolvency; such terms shall be
specifically defined within the provisions of the Rabbi Trust, along with a
required procedure for notifying the Trustee of any such bankruptcy or
insolvency.
5.3 Funding of the Rabbi Trust. Within sixty (60) calendar days
following the end of each of the first ten (10) Plan Years, the Company shall
contribute cash or cash equivalents, to the Rabbi Trust for the benefit of the
Executive and the Executive's beneficiaries. The contribution amount shall be
equal to the excess (if any) of (a) over (b), where (a) and (b) are defined as
follows:
(a) The Actuarial Equivalent of benefits due (assuming
benefits begin at age sixty-five (65) unless the
Executive's employment has terminated prior thereto,
in which case benefits will be assumed to begin at
the later of age sixty (60) or the Executive's age
at employment termination), valued as of the end of
the most recent Plan Year, multiplied by a fraction,
the numerator of which is equal to the number of
full years following the Effective Date of the
Executive's Employment Agreement, and the denominator
of which is equal to ten (10); and
(b) The fair market value of assets already held in such
Trust as of the end of the most recent Plan Year.
Notwithstanding the above, within ten (10) business days following the
Executive's employment termination or a Change in Control of the Company, the
Company shall contribute cash, or cash equivalents, to the Rabbi Trust, for the
benefit of the Executive and the Executive's beneficiaries, as appropriate.
8
<PAGE> 9
Notwithstanding the preceding sentence, in the case of the Company or other
person or entity entering into a binding agreement with any "person" or "group"
as defined in Article 2(c)(i) for the acquisition of ownership by such "person"
or "group" of securities of the Company that would result, if consummated, in
the occurrence of a Change in Control of the Company described in Article
2(c)(i), or in the case of an election of directors that would, upon the
directors taking office, result in a Change in Control of the Company described
in Article 2(c)(ii), or in the case of the stockholders of the Company approving
a plan of liquidation, agreement for sale or disposition of assets, or merger,
consolidation, or reorganization that would result in a Change in Control of the
Company described in Article 2(c)(iii), then the due date for contribution to
the Rabbi Trust pursuant to the preceding sentence shall be not later than the
day prior to the date on which the acquisition of ownership in the case of a
Change in Control of the Company under Article 2(c)(i), new directorship in the
case of a Change in Control of the Company under Article 2(c)(ii), or
liquidation, sale, merger, consolidation, or reorganization in the case of a
Change in Control of the Company described in Article 2(c)(iii), becomes
effective. The amount of cash, or cash equivalents, to be contributed by the
Company to the Rabbi Trust shall be, at a minimum, equal to the Actuarial
Equivalent of benefits due (assuming benefits begin on the later of the
Executive attaining the age of sixty (60), on the date of the Executive's
employment termination, or on the date of the Change in Control), less the fair
market value of assets already held in such Trust as of the date of the Change
in Control.
5.4 Distributions from the Rabbi Trust. Following a Change in Control,
a lump-sum distribution shall be made from the Rabbi Trust directly to the
Executive upon the Executive's termination of employment to the extent required
by Section 4.2 herein.
To the extent any benefits provided under this Agreement are actually
paid from the Rabbi Trust, the Company shall have no further obligation with
respect thereto, but to the extent not so paid, such benefits shall remain the
obligation of, and shall be paid by the Company.
ARTICLE 6. AMENDMENT AND TERMINATION
This Agreement may be amended, modified, and/or terminated only with
the written consent of both the Committee and the Executive-
ARTICLE 7. MISCELLANEOUS
9
<PAGE> 10
7.1 Unfunded Agreement. This Agreement is intended to be an unfunded
plan maintained primarily to provide supplemental pension benefits for "a select
group of management or highly compensated employees," within the meaning of
Sections 201(2), 301(a)(3), and 401(a)(1) of ERISA, and therefore is further
intended to be exempt from the provisions of Parts 2, 3, and 4 of Title I of
ERISA.
7.2 Unsecured General Creditor. The Executive and the Executive's
beneficiaries, heirs, successors, and assigns shall have no secured legal or
equitable rights, interest, or claims in any property or assets of the Company,
nor shall they be beneficiaries of, or have any rights, claims, or interests in
any life insurance policies annuity contracts, or the proceeds therefrom owned
or which may be acquired by the Company. Except as provided in Article 5, such
policies, annuity contracts, or other assets of the Company shall not be held
under any trust for the benefit of the Executive, the Executive's
beneficiaries, heirs, successors or assigns, or held in any way as collateral
security for the fulfilling of the obligations of the Company under this
Agreement. Any and all of the Company's assets and policies shall be, and
remain, the general, unpledged, unrestricted assets of the Company. The
Company's obligation under this Agreement shall be that of an unfunded and
unsecured promise to pay money in the future.
7.3 Costs of the Agreement. All costs of implementing and administering
the Agreement, and all costs incurred in providing the benefits described
herein, including all costs associated with the Rabbi Trust, shall be borne by
the Company.
7.4 Nontransferability. The Executive's rights to benefits provided
hereunder may not be sold, transferred, assigned, or otherwise alienated or
hypothecated, other than by will or by the laws of descent and distribution. In
no event shall the Company make any payment under the Agreement to any assignee
or creditor of the Executive or to any assignee or creditor of the Executive's
beneficiaries.
7.5 Successors. All obligations of the Company under the Agreement
shall be binding upon and inure to the benefit of any successor to the Company,
whether the existence of such successor is the result of a direct or indirect
purchase, merger, consolidation, or otherwise, of all or substantially all of
the business and/or assets of the Company.
7.6 Severability. In the event any provision of the Agreement shall be
held illegal or invalid for any reason, the illegality or invalidity shall not
affect the remaining parts of the Agreement, and the Agreement shall be
construed and enforced as if the illegal or invalid provision had not been
included.
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<PAGE> 11
7.7 Applicable Law. To the extent not preempted by federal law, the
Agreement shall be governed by and construed in accordance with the laws of the
state of Ohio.
7.8 Claims Procedure. Any person claiming a benefit under this Agree
ment (a "Claimant") shall present the claim, in writing, to the Company and the
Company shall respond in writing. If the claim is denied, the written notice of
denial shall state, in a manner calculated to be understood by the Claimant:
(a) The specific reason or reasons for denial, with
specific references to this Agreement's provisions
on which the denial is based;
(b) A description of any additional material or
information necessary for the Claimant to perfect
his or her claim and an explanation of why such
material or information is necessary; and
(c) An explanation of this Agreement's claims review
procedure.
The written notice denying or granting the Claimant's claim shall be
provided to the Claimant within fifteen (15) days after the Company's receipt of
the claim, unless special circumstances require an extension of time for
processing the claim. If such an extension is required, written notice of the
extension shall be furnished by the Company to the Claimant within the initial
fifteen (15) day period and in no event shall such an extension exceed a period
of fifteen (15) days from the end of the initial fifteen (15) day period, Any
extension notice shall indicate the special circumstances requiring the
extension and the date on which the Company expects to render a decision on the
claim. Any claim not granted or denied within the period noted above shall be
deemed to have been denied.
Any Claimant whose claim is denied, or deemed to be denied under the
preceding sentence (or such Claimant's authorized representative), may, within
sixty (60) days after the claimant's receipt of notice of the denial, or after
the date of the deemed denial, request a review of the denial by notice given,
in writing, to the Company. Upon such a request for review, the claim shall be
reviewed by the Company (or its designated representative) which may, but shall
not be required to, grant the Claimant a hearing. In connection with the review,
the Claimant may have representation, may examine pertinent documents, and may
submit issues and comments in writing.
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<PAGE> 12
The decision on review normally shall be made within fifteen (15) days
of the Company's receipt of the request for review. If an extension of time is
required due to special circumstances, the Claimant shall be notified, in
writing, by the Company, and the time limit for the decision on review shall be
extended to thirty (30) days. The decision on review shall be in writing and
shall state, in a manner calculated to be understood by the Claimant, the
specific reasons for the decision and shall include references to the relevant
provisions of this Agreement on which the decision is based. The written
decision on review shall be given to the Claimant within the fifteen (15) day
(or, if applicable, the thirty (30) day) time limit discussed above. If the
decision on review is not communicated to the Claimant within the fifteen (15)
day (or, if applicable, the thirty (30) day) period discussed above, the claim
shall be deemed to have been denied upon review. All decisions on review shall
be final and binding with respect to all concerned parties.
ATTEST: Red Roof Inns, Inc.
By:
-------------------------------------
Its:
------------------------------------
Executive
----------------------------------------
Francis W. Cash
12
<PAGE> 1
Exhibit 14
RED ROOF INNS, INC.
1995 DIRECTORS' STOCK OPTION PLAN
Section 1. Purpose.
The purposes of the Red Roof Inns, Inc. 1995 Directors' Stock
Option Plan (the "Plan") are to encourage directors of Red Roof Inns, Inc. (the
"Company") who are not employees or officers of the Company or any subsidiary
of the Company, and who are not employees, officers, directors, or advisory
committee members of The Morgan Stanley Real Estate Fund, L.P. ("MSREF"), or
any affiliate of MSREF, to acquire or increase a proprietary interest in the
Company, to further promote and strengthen the interest of such directors in
the development and financial success of the Company, and to assist the Company
in attracting and retaining highly qualified directors by providing such
directors options to purchase shares of common stock, $0.01 par value, of the
Company (the "Shares").
Section 2. Administration of Plan.
The Plan shall be administered by a committee (the "Committee") of
not less than two directors of the Company appointed by the Company's Board of
Directors (the "Board"). The members of the Committee shall serve at the
pleasure of the Board, which may remove members from the Committee or appoint
new members to the Committee from time to time, and members of the Committee
may resign by written notice to the Chairman of the Board or the Secretary of
the Company. The Committee may adopt any rules it considers appropriate for the
conduct of its business or the administration of the Plan, make interpretations
of the Plan, and take any other actions it considers appropriate in connection
with the Plan, all in a manner consistent with the other provisions of the
Plan. The decisions of the Committee on matters within its jurisdiction under
the Plan shall be conclusive and binding.
Section 3. Shares Subject to the Plan.
The maximum aggregate number of Shares reserved and available for
grants of options under the Plan (the "Options") shall be 60,000 Shares. Such
Shares may be authorized but unissued Shares or issued Shares reacquired by the
Company and held as treasury Shares. If an Option granted under the Plan
expires or terminates without exercise, the Shares subject to such expired or
terminated Option shall again be available for other Options to be granted
under the Plan. The aggregate number of Shares allocated to the Plan shall be
subject to adjustment pursuant to Section 6.
<PAGE> 2
Section 4. Eligibility.
The persons eligible to receive Options under the Plan shall
include only individuals who are directors of the Company and who are not
employees or officers of the Company or any subsidiary of the Company, and who
are not employees, officers, directors, or advisory committee members of MSREF,
or any affiliate of MSREF (each such individual an "Eligible Director").
Section 5. Grant and Terms of Options.
At the time an individual first becomes an Eligible Director on or
after the effective date of the Plan, such Eligible Director automatically
shall be granted an Option to purchase 10,000 Shares (the "Initial Option"). In
addition, immediately following each annual meeting of the stockholders of the
Company held after the effective date of the Plan, each director of the Company
who is then an Eligible Director automatically shall be granted an Option to
purchase 1,000 Shares.
The Options shall be stock options not intended to qualify as
incentive stock options under Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code"). Each Option shall be evidenced by a written agreement
(an "Option Agreement"), and each Option Agreement shall be dated as of the
date on which the Option is granted, signed by an officer of the Company and
the Eligible Director to whom such Option is granted (Eligible Directors
granted Options hereunder, "Grantees"). All Option Agreements shall be
consistent with the Plan and shall be subject to the following terms and
conditions:
(a) Vesting. Each Option shall be exercisable only with respect to
the Shares subject to that Option which have become vested as
provided below.
(i) Initial Options. Each Initial Option shall become vested
with respect to a number of Shares equal to 20% of the
total number of Shares subject to that Initial Option on
each of the first five anniversaries of the date that
Initial Option is granted.
(ii) Other Options. All Options other than the Initial Options
shall be fully vested on the date granted.
(b) Exercise Price. The exercise or purchase price of Shares
subject to an Option shall be the fair market value of the
Shares on the last trading day prior to the date on which the
Option is granted. For purposes of this Plan, the fair market
value of the Shares shall mean, as of any given date, the (i)
last reported sale price on the New York Stock Exchange, (ii)
last reported sale price on the NASDAQ National Market System,
or (iii) mean between the high and low bid
2
<PAGE> 3
and ask prices, as reported by the National Association of Securities
Dealers, Inc., or (iii) last reported sale price on any other stock
exchange on which the Shares are listed, whichever is applicable.
(c) Maximum Term. Subject to Sections 5(f) and 9, the term of each Option
shall commence on the date of grant and shall terminate on the tenth
anniversary of such date.
(d) Method of Exercise. An Option may be exercised, in whole or in part, by
giving written notice to the Secretary of the Company stating the number
of Shares (which must be a whole number) to be purchased. Subject to
compliance with all other terms and conditions of the Plan and the Option
Agreement relating to such Option, the Company shall deliver, at the
specified time at the principal office of the Company, a certificate for
such Shares to the person entitled to receive such shares upon receipt of
payment of the full purchase price for such Shares: (i) by certified or
bank cashier's check or other form of payment acceptable to the Company,
(ii) by delivery of unrestricted Shares having a fair market value equal
to the total exercise price at the time of exercise, (iii) by delivery or
offset against Shares to be received upon exercise of the Option having a
fair market value equal to the total exercise price at the time of
exercise, or (iv) by a combination of the preceding methods.
(e) Transferability. No Option shall be transferable by a Grantee other than
by will or the laws of descent and distribution. During the lifetime of a
Grantee, an Option shall be exercisable (subject to any other applicable
restrictions on exercise) only by a Grantee for his or her own account or
by the Grantee's authorized legal representative if the Grantee is unable
to exercise the Option because of his or her disability. Upon the death of
a Grantee, an Option shall be exercisable (subject to any other applicable
restrictions on exercise) only by the executor or administrator of the
Grantee's estate.
(f) Termination of Option. Except as otherwise provided in Section 9, if a
Grantee ceases to be an Eligible Director for any reason, then all Options
or any unexercised portion of such Options which otherwise are exercisable
by such Grantee shall terminate unless such Options are exercised within
six months after the date such Grantee ceases to be an Eligible Director
(but in no event after expiration of the original term of any such
Option); provided, that if such Grantee ceases to be an Eligible Director
by reason of such Grantee's death, the six-month period shall instead be a
one-year period.
(g) Six-Month Holding Period. Shares purchased upon exercise of an Option may
not be sold before at least six months have elapsed from the date the
Option was granted.
3
<PAGE> 4
Section 6. Changes in Capital Structure.
If the Company (a) pays a stock dividend or makes a distribution in
Shares without receiving consideration in the form of money, services, or
property, (b) subdivides or splits its outstanding Shares into a greater number
of Shares, or (c) combines its outstanding Shares into a smaller number of
Shares, then the aggregate number of Shares reserved for issuance pursuant to
the Plan and the number and exercise price of Shares subject to the unexercised
portions of then-outstanding Options shall be adjusted so that, assuming that
Options had been previously granted for all of the Shares so reserved, the
Grantees would be entitled to receive for the same aggregate price that number
of Shares which they would have owned after the happening of any of the events
described above had they exercised all of such Options prior to the happening
of such event. An adjustment made pursuant to this paragraph shall become
effective immediately after the record date in the case of a dividend or other
distribution or the effective date in the case of a subdivision, split, or
combination.
If the Company reclassifies or changes the Shares (except for
splitting or combining, changing par value, changing from par value to no par
value, or changing from no par value to par value) or participates in a
consolidation or merger (other than a merger in which the Company is the
surviving corporation and which does not result in any reclassification or
change of the Shares except as stated above), the aggregate number of Shares
reserved for issuance pursuant to the Plan and the number and exercise price
of Shares subject to the unexercised portions of then-outstanding Options shall
be adjusted so that, assuming that Options had been previously granted for all
the Shares so reserved, the Grantees would be entitled to receive for the same
aggregate price that number and type of shares of capital stock which they
would have owned after the happening of any of the events described above had
they exercised all of such Options prior to the happening of such event.
No adjustment pursuant to this section shall be required unless
such adjustment would require an increase or decrease of at least 1% in the
number of Shares; provided that any adjustments which by reason of this
paragraph are not required to be made shall be carried forward and taken into
account in any subsequent adjustment. All calculations under this section shall
be made to the nearest cent or to the nearest full share, as the case may be.
Anything in this section to the contrary notwithstanding, the Company shall be
entitled to make such reductions in the exercise price, in addition to those
required by this section, as it, in its discretion, shall determine to be
advisable in order that any stock dividends, subdivisions or splits of shares,
distribution of rights to purchase shares or securities, or distribution of
securities convertible into or exchangeable for shares hereafter made by the
Company to its shareholders shall not be taxable.
Whenever an adjustment is made pursuant to the preceding provisions
of this section, the Company shall promptly prepare a notice of such adjustment
setting forth the terms and the effective date of such adjustment and shall
mail such notice of adjustment to the Grantees at their respective addresses
appearing on the records of the Company or at such other address as any
Grantees may from time to time designate in writing to the Company.
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<PAGE> 5
Section 7. Compliance with Securities Laws: Delivery of Shares.
No Option shall be exercisable and no Shares shall be delivered
under the Plan except in compliance with all applicable federal and state
securities laws and regulations. The Company may require each person acquiring
Shares pursuant to the exercise of an Option under the Plan (a) to represent
and warrant to and agree with the Company in writing that the participant is
acquiring the Shares without a view to distribution thereof, and (b) to make
such additional representations, warranties and agreements with respect to the
investment intent of such person or persons exercising the Option as the
Company may reasonably request.
All certificates for Shares or other securities delivered under the
Plan shall be subject to such stop-transfer orders and other restrictions as
the Company may deem advisable under the rules, regulations, and other
requirements of the Securities and Exchange Commission, any stock exchange upon
which the Shares are then listed, and any applicable federal or state
securities laws, and the Company may cause a legend or legends to be put on any
such certificates to make appropriate reference to such restrictions.
Section 8. Withholding Tax.
The Company, at its option, shall have the right to require any
person who is entitled to receive Shares pursuant to the exercise of an Option
to pay to the Company an amount equal to all taxes which the Company is
required to withhold with respect to such Shares or make arrangements
satisfactory to the Company regarding the payment of such taxes, or, in lieu
thereof, to retain, or sell without notice, a number of such Shares sufficient
to cover the amount required to be withheld. The obligations of the Company
under the Plan shall be conditional on such payment or other arrangements
acceptable to the Company.
Section 9. Termination for Cause.
Notwithstanding any provision to the contrary in the Plan or in any
Option Agreement, upon the discharge of any Grantee as a director of the
Company for cause, all unexercised Options granted to such Grantee shall
immediately lapse and be of no further force or effect.
Section 10. Change in Control.
(a) Accelerated Vesting. Notwithstanding the provisions of Section
5(a) to the contrary, if a Change in Control or a Potential
Change in Control (each as defined below) occurs, then all
Initial Options theretofore granted and not fully vested shall
thereupon become vested and exercisable in full and shall
remain so exercisable in accordance with their terms; provided
that no Initial Option which has previously been exercised or
otherwise terminated shall become exercisable.
5
<PAGE> 6
(b) Definition of Change in Control. For purposes of the Plan, a "Change in
Control" means the happening of any of the following:
(i) When any "person" as defined in Section 3(a)(9) of the Securities
Exchange Act of 1934 (the "Exchange Act") and as used in Sections
13(d) and 14(d) thereof, including a "group" as defined in Section
13(d) of the Exchange Act, but excluding the Company, any subsidiary
of the Company, and any employee benefit plan sponsored or maintained
by the Company or any subsidiary of the Company (including any
trustee of such plan acting as trustee), and excluding MSREF and its
affiliates, directly or indirectly, becomes the "beneficial owner"
(as defined in Rule 13d-3 under the Exchange Act, as amended from
time to time), of securities of the Company representing 20% or more
of the combined voting power of the Company's then outstanding
securities;
(ii) When, during any period of 24 consecutive months during the existence
of the Plan, the individuals who, at the beginning of such period,
constitute the Board (the "Incumbent Directors") cease for any reason
other than death to constitute at least a majority of the Board;
provided, however, that a director who was not a director at the
beginning of such 24-month period shall be deemed to have satisfied
such 24-month requirement (and be an Incumbent Director) if such
director was elected by, or on the recommendation of or with the
approval of, at least two-thirds of the directors who then qualified
as Incumbent Directors either actually (because they were directors
at the beginning of such 24-month period) or by prior operation of
this Section 10(b)(ii); or
(iii) The occurrence of a transaction requiring stockholder approval for
the acquisition of the Company by an entity other than the Company, a
subsidiary of the Company, or MSREF or any of its Affiliates through
purchase of assets, by merger or otherwise.
(c) Definition of Potential Change in Control. For purposes of the Plan, a
"Potential Change in Control" means the happening of any one of the
following:
(i) The approval by stockholders of an agreement by the Company, the
consummation of which would result in a Change in Control of the
Company as defined in Section 10(b); or
(ii) The acquisition of beneficial ownership, directly or indirectly, by
any entity, person or group (other than the Company, a subsidiary of
the Company, or any Company employee benefit plan (including any
trustee of such plan acting as such trustee), and other than MSREF
and its affiliates) of the Company representing 5% or more of the
combined
6
<PAGE> 7
voting power of the Company's outstanding securities and the adoption by
the Board of a resolution to the effect that a Potential Change in Control
of the Company has occurred for purposes of the Plan.
Section 11. Termination and Amendment of Plan.
The Board, without further action on the part of the shareholders of the
Company, may from time to time alter, amend, or suspend the Plan or may at any
time terminate the Plan, provided that: (a) no such action shall materially and
adversely affect any outstanding Options without the consent of the respective
Grantees of such Options; (b) except for the adjustments provided for in Section
6, no amendment may be made by Board action without stockholder approval if the
amendment would (i) materially increase the benefits accruing to participants
under the Plan, (ii) materially increase the number of Shares which may be
issued under the Plan, or (iii) materially modify the requirements as to
eligibility for participation in the Plan; and (c) amendments to the Plan
described in Rule 16b-3(c)(2)(ii)(B) promulgated under the Exchange Act shall
not be made more than once every six months, other than to comport with changes
in the Code, the Employee Retirement Income Security Act, or the rules
thereunder.
Section 12. No Enlargement of Rights.
The award of Options under the Plan to an Eligible Director shall not
confer any right to such director to continue as a director of the Company and
shall not restrict or interfere in any way with the rights of the stockholders
of the Company to terminate such directorship, with or without cause, at any
time (subject to any applicable provisions of the Company's certificate of
incorporation or by-laws).
Section 13. Rights as Stockholder.
No Grantee or his executor or administrator shall have any rights of a
stockholder in the Company with respect to the Shares covered by an Option
unless and until a certificate representing such Shares has been duly issued
and delivered to him or her under the Plan.
Section 14. Definitions of Subsidiary and Affiliate.
The term "subsidiary" means a subsidiary corporation as defined in
Section 424(f) of the Code. An "affiliate" of, or a person or entity
"affiliated" with, a specified person or entity, is a person or entity that
directly, or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, the person or entity specified.
Section 15. Government Regulations.
Notwithstanding any provisions of the Plan or any Option Agreement, the
Company's obligations under the Plan and any such Option Agreement shall be
subject to all applicable
7
<PAGE> 8
laws, rules and regulations and to such approvals as may be required by any
governmental or regulatory authorities.
Section 16. Governing Law.
The Plan and all Option Agreements shall be governed by and construed in
accordance with the laws of the State of Ohio except only to the extent that
the General Corporation Law of the State of Delaware is necessarily applicable
to the Company.
Section 17. Genders and Numbers.
When permitted by the context, each pronoun used in the Plan includes the
same pronoun in other genders and numbers, and each noun used in the Plan
includes the same noun in other numbers.
Section 18. Captions.
The captions of the various sections and paragraphs of the Plan are not
part of the context of the Plan, but are only labels to assist in locating
those sections, and shall be ignored in construing the Plan.
Section 19. Effective Date.
The Plan shall be effective October 5, 1995. The Plan shall be submitted
to the stockholders of the Company for approval as soon as practicable but in
any event not later than 12 months after the effective date of the Plan.
Notwithstanding anything to the contrary contained herein, no Options shall be
exercisable prior to such approval. If the Plan is not approved by the
stockholders of the Company within 12 months after the effective date of the
Plan, the Plan and all Options granted under the Plan shall become null and
void and have no further force or effect.
Section 20. Term of Plan.
No Option shall be granted pursuant to the Plan on or after the tenth
anniversary of the effective date of the Plan, but Options granted prior to
such tenth anniversary may extend beyond that date.
8
<PAGE> 9
DIRECTORS' STOCK OPTION AGREEMENT
Red Roof Inns, Inc., a Delaware corporation (the "Company"), has granted
to __________________ (the "Grantee") an option (the "Option") to purchase
___________ shares (the "Shares") of common stock of the Company for a purchase
price of $__________ a Share or a total purchase price of $__________ (the
"Option Price"). The Option has been granted pursuant to the Red Roof Inns,
Inc. 1995 Directors' Stock Option Plan, dated October 5, 1995 (the "Plan"), and
shall include and be subject to all provisions of the Plan, which are hereby
incorporated herein by reference, and shall be subject to the following
provisions of this agreement:
Section 1. Vesting. The Option shall be exercisable only with respect to
the Shares which have become vested from time to time under this agreement.
Unless the Option is an Initial Option (as defined in Section 5 of the Plan),
the Option shall be fully vested as of the date the Option is granted (set
forth at the end of this agreement). If the Option is an Initial Option, the
Option shall become vested with respect to the following percentage of the
total number of Shares subject to the Option (computed cumulatively and rounded
to the nearest whole number of Shares) on the following anniversaries,
respectively, of the date on which the Option was granted:
<TABLE>
<CAPTION>
Anniversary Cumulative Percentage
<S> <C>
First 20%
Second 40%
Third 60%
Fourth 80%
Fifth 100%
</TABLE>
The Option [is/is not] an Initial Option.
Section 2. Term. The Option shall expire on ______________________ [tenth
anniversary of the date of grant] if not previously exercised.
Section 3. Method of Exercise. At any time when the Option is exercisable
under the Plan and this agreement, and subject to any applicable restrictions
on exercise of the Option under the Plan or this agreement, the Option shall be
exercisable from time to time during the term of the Option by written notice
to the Secretary of the Company, which shall:
(a) State that the Option is being exercised by that notice;
specify the number of Shares with respect to which the Option is being
exercised, the name of each person in whose name any certificates for the
Shares should be registered, his address, and his social security number;
and specify a date and time during normal business hours for delivery of
the Shares, which shall be more than 10 and less than 20 business days
after the exercise of the Option;
<PAGE> 10
(b) Be signed by the person entitled to exercise the Option and,
if the Option is being exercised by anyone other than the Grantee, be
accompanied by proof satisfactory to counsel for the Company of the right
of such person to exercise the Option under the Plan and all applicable
laws and regulations; and
(c) Contain representations and agreements with respect to the
investment intention of such person in form and substance satisfactory to
counsel for the Company.
Section 4. Payment of Price. Upon exercise of the Option with respect to
any of the Shares, the Company shall deliver a certificate or certificates for
those Shares to the specified person or persons at the specified time at the
principal office of the Company upon receipt of payment of the full purchase
price for those Shares: (a) by certified or bank cashier's check or other form
of payment acceptable to the Company, (b) by delivery of unrestricted Shares
having a fair market value equal to the total exercise price at the time of
exercise, (c) by delivery or offset against Shares to be received upon exercise
of the Option having a fair market value equal to the total exercise price at
the time of exercise, or (d) in the discretion of the Company, by a combination
of the preceding methods.
Section 5. Transferability. The Option shall not be transferable by the
Grantee except by will or the laws of descent and distribution. During the
lifetime of the Grantee, the Option shall be exercisable (subject to any other
applicable restrictions on exercise) only by the Grantee for the Grantee's own
account or by the Grantee's authorized legal representative if the Grantee is
unable to exercise the Option because of his or her disability. Upon the death
of the Grantee, the Option shall be exercisable (subject to any other
applicable restrictions on exercise) only by the executor or administrator of
the Grantee's estate.
Section 6. Termination of Board Membership. If the Grantee ceases to be
an Eligible Director (as defined in Section 4 of the Plan) for any reason
(including without limitation the Grantee's death, disability, retirement,
resignation, removal, or any other reason) except the Grantee's removal for
cause, then the Option or any unexercised portion of the Option shall terminate
unless it is exercised within six months after the date the Grantee ceases to
be such an Eligible Director (but in no event after expiration of the original
term of the Option); provided that, if the Grantee ceases to be such an
Eligible Director by reason of the Grantee's death, the six-month period shall
instead be a one-year period. If the Grantee ceases to be such an Eligible
Director as a result of his removal for cause, the Option shall immediately
terminate.
Section 7. Restrictions. The Option and any Shares issued upon exercise
of the Option shall be subject to all restrictions in this agreement or in the
Plan, including without limitation the restrictions in Sections 7 and 8 of the
Plan. As a condition of any exercise of the Option, the Company may require the
Grantee or his successor to make any representation and warranty to comply with
any applicable law or regulation or to confirm any factual matters reasonably
requested by counsel for the Company.
2
<PAGE> 11
Section 8. Nonqualified Stock Option. The Option is not intended to
qualify as an incentive stock option under Section 422 of the Internal Revenue
Code of 1986, as amended.
Date of Grant: _____________, 19__ RED ROOF INNS, INC.
By _______________________________
Francis W. Cash, President
ACCEPTANCE OF AGREEMENT
The Grantee hereby: (a) acknowledges receiving a copy of the Plan, which
has either been previously delivered to the Grantee or is attached to this
agreement, and represents to the Company that he is familiar with all
provisions of the Plan; and (b) accepts this agreement and the Option granted
to him under this agreement subject to all provisions of the Plan and this
agreement.
_________________________________
Grantee's Signature
_________________________________
Grantee's Social Security Number
3
<PAGE> 1
Exhibit 15
RED ROOF INNS, INC.
1996 EMPLOYEE STOCK PURCHASE PLAN
Section 1. Purpose.
The purpose of the 1996 Employee Stock Purchase Plan (the "Plan") of Red
Roof Inns, Inc. (the "Company") is to provide Eligible Employees (as defined in
Section 4, below) with an opportunity to acquire or increase a proprietary
interest in the Company by applying payroll deductions or contributions to the
purchase of shares of the Company's common stock, par value $0.01 (the
"Shares"). The Plan is intended to meet the requirements of Section 423 of the
Internal Revenue Code of 1986, as amended (the "Code").
Section 2. Administration.
The Plan shall be administered by a committee (the "Committee") of not
less than two directors of the Company appointed by the Company's Board of
Directors (the "Board"); provided that no Eligible Employee shall be a member of
the Committee, and members of the Committee shall be "disinterested persons"
within the meaning of Rule 16b-3 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). The members of the Committee shall serve at the
pleasure of the Board, which may remove members from the Committee or appoint
new members to the Committee from time to time, and members of the Committee
may resign by written notice to the Chairman of the Board or the Secretary of
the Company. The Committee may adopt any rules it considers appropriate for the
conduct of its business or the administration of the Plan, make interpretations
of the Plan, and take any other actions it considers appropriate in connection
with the Plan, all in a manner consistent with the other provisions of the
Plan. The decisions of the Committee on matters within its jurisdiction under
the Plan shall be conclusive and binding.
Section 3. Shares Subject to the Plan.
The maximum aggregate number of Shares reserved and available for
purchase under the Plan is 100,000 Shares, which may be authorized but unissued
Shares or issued Shares reacquired by the Company and held as treasury Shares.
Such aggregate number of Shares shall be subject to adjustment under Section 15
of the Plan.
Section 4. Eligibility.
Any employee of the Company shall be eligible to participate in the Plan
(each such employee, an "Eligible Employee"). No employee of The Morgan Stanley
Real Estate Fund, L.P. ("MSREF"), or any of its affiliates (as defined in
Section 10(b)(i), below) other than the Company, or any parent or any
subsidiary of the Company, as defined in Section 424 of the Code, shall be an
Eligible Employee.
<PAGE> 2
Notwithstanding any other provision of this Plan to the contrary, no
person who is otherwise an Eligible Employee shall be permitted to purchase
Shares under the Plan to the extent that:
(a) it would cause such person to own stock (including stock
which would be owned if all outstanding options to purchase stock
owned by such person were exercised) possessing five percent or more
of the total combined voting power or value of all classes of stock
of the Company, its parent, or any of its subsidiaries, taking into
account the attribution rules of Section 424(d) of the Code; or
(b) it would cause such person to have rights to purchase stock
of the Company, its parent, and its subsidiaries under the Plan and
under all other "employee stock purchase plans" (as defined in
Section 423 of the Code) of the Company, its parent, and its
subsidiaries which accrue at a rate which exceeds $25,000 of fair
market value of such stock (determined at the time such right is
granted) for each calendar year in which such right is outstanding.
For purposes of this Section 4(b): (i) the right to purchase stock
accrues when the right (or any portion thereof) first becomes
exercisable during the calendar year; and (ii) the number of shares
of stock under one right may not be carried over to any other right.
Section 5. Participation.
In order to participate in the Plan during any Contribution Period
(defined below), an Eligible Employee must enroll in the Plan for that
Contribution Period by (a) completing an election to participate in the Plan
(an "Election") on a form provided by the Company, and (b) filing the Election
with the Company between January 2 and January 31, inclusive (except as
provided below), during the calendar year in which the Contribution Period
begins (each Eligible Employee who so files an Election, a "Participant");
provided that an Election shall be effective only if the Participant remains
continuously employed by the Company from the date of filing that Election
through January 31 of the Contribution Period for which the Election is being
filed, unless the reason for termination of the Participant's employment is
retirement (as defined in Section 12, below).
For purposes of the Plan, "Contribution Period" means any one-year
period after the effective date of this Plan beginning on February 1 and
continuing through the following January 31; provided that: (a) the first
Contribution Period under the Plan shall begin on the first day of the second
full calendar month following the date on which the Company completes an
initial public offering of Shares pursuant to a registration statement filed
under the Securities Act of 1933, as amended, and the Shares are listed on any
national securities exchange or over-the-counter market (the "IPO Date") and
shall continue through the following January 31; and (b) Elections for the
first Contribution Period under the Plan shall be effective only if filed
during the first full calendar month following the IPO Date.
<PAGE> 3
Section 6. Payroll Deductions and Contributions; One-Time Grace Period.
Each Participant shall (a) elect on his Election either to
authorize payroll deductions or make contributions from his Base Pay (defined
below), and (b) specify the percentage of his Base Pay to be deducted or
contributed. The percentage specified shall be a whole percent between one and
10 percent, inclusive, and a Participant may not during any Contribution Period
change the rate of payroll deduction or contribution elected for that
Contribution Period. Once a Participant elects either to authorize payroll
deductions or make contributions from his Base Pay, such election may not be
changed with respect to that Contribution Period. Deductions or contributions,
as the case may be, shall be made according to the Participant's Election for
each paycheck the Participant receives beginning with the Participant's first
paycheck on or after the first day of the Contribution Period and ending with
the Participant's last paycheck on or before the last day of the Contribution
Period. Deductions shall be made automatically by the Company. Contributions
shall be made in full by Participants who have so elected according to the
procedures established by the Committee from time to time; provided that each
such contribution shall be received by the Company not later than the end of
the pay period next following the pay period for which such contribution was to
be made. A deduction or contribution from a paycheck for a pay period which
overlaps Contribution Periods shall be credited in its entirety to the
Contribution Period in which the pay period ended. The Company shall maintain
an account (a "Plan Account") in the name of each Participant. At the close of
each pay period or upon receipt by the Company of a Participant's contribution,
as the case may be, the amount deducted or contributed from each Participant's
Base Pay shall be credited to the Plan Account maintained in such Participant's
name.
"Base Pay" means the regular compensation which a Participant is
entitled to receive and does not include overtime, bonuses, or other items
which are not considered to be regular compensation by the Committee.
Notwithstanding any provision of this Plan to the contrary, a
Participant who elects to make contributions instead of authorizing payroll
deductions may miss making his full contribution once during a Contribution
Period. If a Participant fails to make his full contribution, he shall have the
right to make up the deficiency within 30 days after the date upon which such
contribution was due; provided that a Participant who makes up such deficiency
shall nevertheless be deemed to have failed to make his full contribution for
purposes of the following sentence. Any Participant who fails to make his full
contribution more than once during a Contribution Period shall be deemed to
have elected to terminate his participation in the Plan for that Contribution
Period pursuant to Section 12, below.
Section 7. Purchase of Stock; Exercise Price.
Unless the Participant's participation in the Plan has been earlier
terminated pursuant to Section 12, below, each Participant's right to purchase
Shares under the Plan (a "Right") will be exercised automatically for him on
the last trading day of the Contribution Period according to
3
<PAGE> 4
the following procedure. The amount in each Participant's Plan Account at
the end of the Contribution Period shall be applied to the purchase of the
number of Shares which results when the amount in such Participant's Plan
Account is divided by the Exercise Price (defined below). If such number is not
a whole number, the number of Shares purchased in the name of the Participant
shall be the next lowest whole number, and the amount remaining in the
Participant's Plan Account shall be refunded to the Participant in cash. No
Right may be exercised after the last day of the applicable Contribution Period.
The Exercise Price for each Contribution Period shall be the lesser of 85
percent of the Fair Market Value of the Shares (defined below) on the last
trading day before the first day of the Contribution Period (which, for purposes
of the Plan, shall be deemed to be the date a Right is granted) or 85 percent of
the Fair Market Value of the Shares on the last trading day of the Contribution
Period (which, for purposes of the Plan, shall be deemed to be the date a Right
is exercised).
The Fair Market Value of the Shares as of any given date shall be the (i)
last reported sale price on the New York Stock Exchange, (ii) last reported sale
price on the NASDAQ National Market System, (iii) mean between the high and low
bid and ask prices, as reported by the National Association of Securities
Dealers, Inc., or (iv) last reported sale price on any other stock exchange on
which the Shares are listed, whichever is applicable.
Section 8. Maximum Number of Shares per Participant.
Notwithstanding any other provision of this Plan to the contrary, in no
event shall the number of Shares purchased for a Participant under the Plan for
any one Contribution Period exceed 1,000 Shares.
Section 9. Purchases Exceeding Individual and Aggregate Limits.
In the event that the number of Shares to be purchased for a Participant
for any Contribution Period exceeds the maximum specified in Section 8, above,
the maximum number of Shares permissible shall be purchased for the Participant,
and the amount remaining in the Participant's Plan Account shall be refunded to
the Participant in cash. In the event that the purchase of Shares for any one
Contribution Period would, if made, cause the total number of Shares purchased
under the Plan for all Contribution Periods to exceed the aggregate number of
Shares available under the Plan as set forth in Section 3, above, the number of
Shares remaining available under the Plan prior to the Contribution Period then
ending shall be allocated to the Participants for that Contribution Period in
proportion to the Participants' Plan Account balances, and any amounts remaining
in the Participants' Plan Accounts after such allocation shall be refunded to
the Participants in cash.
4
<PAGE> 5
Section 10. Automatic Exercise of Rights to Purchase Shares Upon Change in
Control.
(a) Impact of Event. Upon the occurrence of a Change in Control (defined
below) or a Potential Change in Control (defined below): (i) all Elections
shall become effective immediately, and all outstanding Rights shall be
exercised automatically for all Participants according to the provisions of
Section 7, above, provided that, for purposes of determining the Exercise Price
upon application of this Section 10, the last trading day of that Contribution
Period shall be deemed to be the last trading day before the Change in Control
or Potential Change in Control; and (ii) the Plan shall terminate as provided
in Section 13(b).
(b) Definition of Change in Control. For purposes of Section 10(a),
"Change in Control" means the happening of any of the following:
(i) When any "person" as defined in Section 3(a)(9) of the Exchange
Act and as used in Sections 13(d) and 14(d) thereof, including a "group"
as defined in Section 13(d) of the Exchange Act, but excluding the
Company, any subsidiary of the Company, and any employee benefit plan
sponsored or maintained by the Company or any subsidiary of the Company
(including any trustee of such plan acting as trustee), and excluding
MSREF and its affiliates (as defined in Rule 12b-2 under the Exchange
Act), directly or indirectly, becomes the "beneficial owner" (as defined
in Rule 13d-3 under the Exchange Act), of securities of the Company
representing 20% or more of the combined voting power of the Company's
then outstanding securities;
(ii) When, during any period of 24 consecutive months during the
existence of the Plan, the individuals who, at the beginning of such
period, constitute the Board (the "Incumbent Directors") cease for any
reason other than death to constitute at least a majority of the Board;
provided, however, that a director who was not a director at the beginning
of such 24-month period shall be deemed to have satisfied such 24-month
requirement (and be an Incumbent Director) if such director was elected
by, or on the recommendation of or with the approval of, at least
two-thirds of the directors who then qualified as Incumbent Directors
either actually (because they were directors at the beginning of such
24-month period) or by prior operation of this Section 10(b)(ii); or
(iii) The occurrence of a transaction requiring stockholder approval
for the acquisition of the Company by an entity other than the Company, a
subsidiary of the Company, or MSREF or any of its affiliates through
purchase of assets, by merger or otherwise.
(c) Definition of Potential Change in Control. For purposes of Section
10(a), "Potential Change in Control" means the happening of any one of the
following:
5
<PAGE> 6
(i) The approval by stockholders of an agreement by the Company,
the consummation of which would result in a Change in Control of the
Company as defined in Section 10(b); or
(ii) The acquisition of beneficial ownership, directly or
indirectly, by any entity, person or group (other than the Company, a
subsidiary of the Company, or any Company employee benefit plan
(including any trustee of such plan acting as such trustee), and other
than MSREF and its affiliates) of the Company representing five
percent or more of the combined voting power of the Company's
outstanding securities and the adoption by the Board of a resolution
to the effect that a Potential Change in Control of the Company has
occurred for purposes of the Plan.
(d) Exceptions. Notwithstanding the foregoing, a change in control
shall not be deemed to be a Change in Control for purposes of the Plan if
the Board had approved such change prior to either (i) the commencement of
any of the events described in Section 10(b)(i), (ii) or (iii) or Section
10(c)(i), or (ii) the commencement by any person other than the Company of
a tender offer for Shares.
Section 11. Rights as Stockholder.
No Participant or his executor or administrator shall have any rights of a
stockholder in the Company with respect to the Shares covered by a Right unless
and until a certificate representing such Shares has been duly issued and
delivered to him pursuant to the Plan.
Section 12. Termination of Participation; Retirement.
A Participant will be refunded the amount in his Plan Account and his
participation in the Plan terminated if: (a) the Participant elects in writing
to terminate his participation and delivers such writing to the Company; (b) the
Participant ceases to be an Eligible Employee for any reason other than
retirement; (c) the Board terminates the Plan as provided in Section 13, below;
(d) the Participant fails more than once to make his full contribution as more
fully described in Section 6, above; or (e) the Participant dies.
Upon retirement a Participant shall have no further obligation nor will he
be permitted to make further contributions under the Plan. All amounts held in a
Participant's Plan Account upon his retirement shall be retained in his Plan
Account for the balance of the Contribution Period in which the Participant
retires and applied as set forth in Section 7, above.
For purposes of this Section 12, "retirement" shall mean either (i)
termination of employment at or beyond age 55 with at least 10 years of service
for the Company, its parent, or any of its subsidiaries, or (ii) termination of
employment as a result of total and permanent disability; provided that in order
for termination under (i) or (ii), above, to constitute "retirement," such
termination must occur not more than three months prior to the end of the
Contribution Period
6
<PAGE> 7
in which the termination occurs. For purposes of this Section 12, "total and
permanent disability" shall mean the Participant's permanent inability, as
certified by a competent medical authority designated by the Committee, to
engage in any occupation for which the Participant is reasonably qualified by
education, training, or experience.
The temporary disability or approved leave of absence of a
Participant shall not result in the termination of the Participant's
participation in the Plan for the Contribution Period in which such temporary
disability or approved leave of absence begins.
Section 13. Term and Termination of Plan.
The Plan shall be in effect for 10 consecutive Contribution
Periods beginning with the first Contribution Period as set forth in Section 5,
above; provided that the Plan (a) may be terminated at any time in the
discretion of and upon appropriate action by the Board, and (b) shall be
terminated (i) after the exercise of Rights pursuant to Section 10, above, and
(ii) at such time as the aggregate number of Shares subject to the Plan as set
forth in Section 3, above, including any adjustments made pursuant to Section
15, below, has been purchased.
Section 14. Amendment of Plan.
The Board may at any time, or from time to time, amend the Plan in
any respect; provided that without the approval of holders of stock entitled to
exercise a majority of the voting power of the Company no amendment may be made
(a) increasing the aggregate number of Shares which may be issued under the
Plan (other than an increase pursuant to Section 15, below); (b) decreasing the
Purchase Price (other than a decrease resulting from the operation of Section
15, below); (c) withdrawing the administration of the Plan from a Committee
consisting of persons not eligible to participate in the Plan; or (d) changing
the designation of subsidiaries eligible to participate in the Plan. Any
amendment requiring stockholder approval under this Section 14 shall be
submitted to the stockholders of the Company for approval as soon as
practicable after adoption of the amendment by the Board but in any event not
later than 12 months after the adoption of the amendment. If such amendment is
not approved by the stockholders of the Company within 12 months before or
after the adoption of the amendment by the Board, such amendment shall become
null and void and have no further force or effect.
Section 15. Changes in Capital Structure.
In the event that the Shares shall be changed into or exchanged
for a different number or kind of Shares or other securities of the Company or
of another corporation (whether by reason of merger, consolidation,
recapitalization, split-up, combination of shares, or otherwise), or the number
of Shares shall be increased through a stock split or the payment of a stock
dividend, then there shall be substituted for or added to each Share
theretofore reserved for sale under the Plan, the number and kind of Shares or
other securities into which each outstanding Share shall be so changed, or for
which each such Share shall be exchanged, or to which each such Share shall be
entitled, as the case may be.
7
<PAGE> 8
Section 16. Application of Funds.
All funds received or held by the Company under the Plan may be used for
any corporate purpose until applied to the purchase of Shares or refunded to
Participants or both. Plan Accounts for individual Participants will not be
segregated, nor will interest be paid thereon.
Section 17. Rights Not Transferable.
Rights under the Plan are not transferable by a Participant other than by
will or the laws of descent and distribution and are exercisable during the
Participant's lifetime only by the Participant. Any payment of cash or issuance
of Shares under the Plan may be made only to the Participant or, in the event of
the Participant's death, to the Participant's estate.
Section 18. Governmental Regulations; Securities Law Restrictions.
The Company's obligation to issue, sell, and deliver Shares under the Plan
is subject to the approval of any governmental authority required in connection
with the authorization, issuance, or sale of such Shares.
No Right shall be exercisable and no Shares shall be delivered under the
Plan except in compliance with all applicable federal and state securities laws
and regulations. The Company may require each person acquiring Shares pursuant
to the exercise of a Right to represent and warrant to and agree with the
Company in writing that the person is acquiring the Shares without a view to
distribution thereof and to make such additional representations, warranties and
agreements as the Company may reasonably request.
All certificates for Shares or other securities delivered under the Plan
shall be subject to such stop-transfer orders and other restrictions as the
Company may deem advisable under the rules, regulations, and other requirements
of the Securities and Exchange Commission, any stock exchange upon which the
Shares are then listed, and any applicable federal or state securities laws, and
the Company may cause a legend or legends to be put on any such certificates to
make appropriate reference to such restrictions or applicable restrictions under
the Plan.
Notwithstanding any provision of this Plan to the contrary:
(a) No payroll deductions or contributions shall take place and no
Shares may be purchased under this Plan until a registration
statement registering the Shares covered by this Plan under the
Securities Act of 1933, as amended (the "1933 Act"), has become
effective. Prior to the effectiveness of such registration
statement, Shares under this Plan may be offered to Eligible
Employees only pursuant to an exemption from the registration
requirements of the 1933 Act.
(b) No payroll deductions or contributions shall take place and no
Shares may be purchased under this Plan with respect to Eligible
Employees resident in any state
8
<PAGE> 9
unless the Shares under this Plan are exempt from registration
under the securities laws of such state, or the purchase is an
exempt transaction under the securities laws of such state or are
registered by description, qualification, coordination or otherwise
under the securities laws of such state.
(c) The following restrictions shall apply to Participants
who are officers (as defined in Section 240.16a-1 of the Code of
Federal Regulations ("CFR")) or directors of the Company:
(i) Such Participants may not sell any Shares purchased
on their behalf pursuant to this Plan for at least six months
after such Shares are purchased pursuant to the exercise of a
Right (i.e., at least six months after the date the Exercise
Price is fixed); and
(ii) Such Participants who cease participation in the
Plan or who revoke their authorization for payroll deductions
pursuant to Section 12 may not again participate in the Plan
or authorize any additional payroll deductions for at least
six months.
Section 19. Genders and Numbers.
When permitted by the context, each pronoun used in this document
includes the same pronoun in other genders and numbers, and each noun used in
this document includes the same noun in other genders.
Section 20. Effective Date.
The Plan shall be effective January 1, 1996. The Plan shall be
submitted to the stockholders of the Company for approval as soon as
practicable after its adoption by the Board but in any event not later than 12
months after its adoption by the Board. Notwithstanding anything to the
contrary contained herein, no rights to purchase Shares under the Plan shall be
exercisable prior to such approval. If the Plan is not approved by the
stockholders of the Company within 12 months before or after the adoption of
the Plan by the Board, the Plan and all Rights granted under the Plan shall
become null and void and have no further force or effect.
9
<PAGE> 10
DRAFT
January 10, 1997
AMENDMENT NO. 1
TO
RED ROOF INNS, INC.
1996 EMPLOYEE STOCK PURCHASE PLAN
The 1996 Employee Stock Purchase Plan (the "Plan") of Red Roof Inns, Inc.,
a Delaware corporation (the "Company"), is hereby amended pursuant to the
following provisions:
1. Definitions
For purposes of the Plan and this amendment, the following terms shall
have the meanings set forth below:
(a) "Cash Plan Account" shall mean the account maintained, for bookkeeping
purposes, by the Company on behalf of each Participant in which
amounts deducted from each Participant's Base Pay shall be credited.
The term "Plan Account" as used in the Plan shall hereafter refer to
the Cash Plan Account.
(b) "Stock Plan Account" shall mean the account maintained, for
bookkeeping purposes, by the Agent on behalf of each Participant in
which the number of Shares held on behalf of each Participant shall be
credited.
(c) "Participant" shall mean any person on whose behalf a Cash Plan
Account or a Stock Plan Account is maintained pursuant to the
provisions of the Plan.
All other capitalized terms used in this amendment which are not otherwise
defined herein shall have the respective meanings given such terms in the Plan.
2. Administration
Section 2 of the Plan is hereby amended by deleting the first sentence of
such section in its entirety and replacing it with the following sentence:
The Plan shall be administered by a committee (the "Committee") of not
less than two directors of the Company appointed by the Company's
Board of Directors (the "Board"); provided that no Eligible Employee
shall be a member of the Committee, and members of the Committee shall
be "non-employee directors" within the meaning of Rule 16b-3 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act").
Section 2 of the Plan is hereby amended by adding the following paragraph
to the end of such section:
The Board may, in its discretion at any time and from time to
time, disband the Committee and assume all duties and authority
under the Plan theretofore vested in the Committee; provided that,
<PAGE> 11
in such case: (a) no director who is eligible to participate in the
Plan shall be involved in the administration of the Plan; (b) the
Board may, in its discretion at any time, re-appoint the Committee to
administer the Plan pursuant to the foregoing provisions of this
Section 2; and (c) the term "Committee", as used in the Plan, shall
thereafter mean the Board or such new Committee, as the case may be.
3. Participation
Notwithstanding any language in Section 5 of the Plan to the contrary, on
and after the effective date of this amendment, in order to participate in the
Plan during any Contribution Period (defined below), an Eligible Employee must
enroll in the Plan for that Contribution Period by (a) completing an election
to participate in the Plan (an "Election") on a form provided by the Company,
and (b) filing the Election with the Company between the first business day of
January and the last Saturday of such month, inclusive (except as provided
below), during the calendar year in which the Contribution Period begins;
provided that an Election shall be effective only if the Participant remains
continuously employed by the Company from the date of filing that Election
through the last Saturday of January of the Contribution Period for which the
Election is being filed, unless the reason for termination of the Participant's
employment is retirement (as defined in Section 12 of the Plan).
On and after the effective date of this amendment, "Contribution Period"
shall mean the approximate one-year period beginning on the Sunday immediately
following the last Saturday of January of one year and continuing through the
last Saturday of January of the following year. Notwithstanding any language in
Section 5 of the Plan to the contrary, the first Contribution Period under the
Plan shall end on the last Saturday of January 1997.
4. Payroll Deductions
Section 6 of the Plan is hereby amended in its entirety to read as follows:
Each Participant shall (a) elect on his Election to authorize payroll
deductions from his Base Pay (defined below), and (b) specify the
percentage of his Base Pay to be deducted. The percentage specified shall
be a whole percent between one and 10 percent, inclusive, and a Participant
may not during any Contribution Period change the rate of payroll deduction
elected for that Contribution Period. Deductions shall be made according to
the Participant's Election for each paycheck the Participant receives
beginning with the Participant's first paycheck on or after the first day
of the Contribution Period and ending with the Participant's last paycheck
on or before the last day of the Contribution Period. Deductions shall be
made automatically by the Company. A deduction from a paycheck shall always
be credited in its entirety to the Contribution Period in which the
paycheck was received. On the date of each paycheck, the amount deducted
from each Participant's Base Pay shall be credited to the Cash Plan Account
maintained in such Participant's name.
"Base Pay" means the regular compensation which a Participant is
entitled to receive and does not include overtime, bonuses, or other items
which are not considered to be regular compensation by the Committee.
<PAGE> 12
5. Appointment of Agent; Agent's Powers and Duties
Bank One Trust Company, NA, Columbus, Ohio, is appointed to act as agent
of the Company and of the Participants under the Plan (the "Agent"). The Agent
accepts the agency created under the Plan and agrees to perform the obligations
imposed under the Plan as outlined in the separate agency agreement between the
parties, which agency agreement is incorporated herein by reference. The Agent
shall be accountable to the Participants for the Shares held in each
Participant's Stock Plan Accounts and for dividends received with respect
hereto.
The records of the Agent pertaining to the Plan shall be open to the
inspection of the Company at all reasonable times and may be audited from time
to time by any person or persons as the Company may specify in writing. The
Agent shall furnish the Company with whatever information relating to the
Stock Plan Accounts as the Company considers necessary.
The Agent shall receive from the Company reasonable quarterly
compensation as may be agreed upon from time to time between the Company and
the Agent.
The Agent may resign at any time as Agent of the Plan by giving 60 days
written notice in advance to the Company. The Company, by giving 60 days
written notice in advance to the Agent, may remove the Agent. In the event of
the resignation or removal of an Agent, the Company shall appoint a successor
Agent if it intends to continue the Plan. Each successor Agent shall succeed to
the title of the Agent vested in its predecessor by accepting in writing its
appointment as successor Agent and filing the acceptance with the former Agent
and the Company without the signing or filing of any further statement. The
resigning or removed Agent, upon receipt of acceptance in writing of the agency
by the successor Agent, shall execute all documents and do all acts necessary
to vest the title in any successor Agent. Each successor Agent shall have and
enjoy all of the powers conferred under the Plan upon its predecessor. No
successor Agent shall be personably liable for any act or failure to act of any
predecessor Agent. With the approval of the Company, a successor Agent, with
respect to the Plan, may accept the account rendered and the property delivered
to it by a predecessor Agent without incurring any liability or responsibility
for so doing.
6. Purchase and Sale of Shares
Notwithstanding any language in Section 7 of the Plan to the contrary, on
and after the effective date of this amendment, the purchase of Shares under
the Plan and the sale of such Shares through the Agent shall be as set forth in
this section.
The Company shall maintain a Cash Plan Account in the name of each
Participant, and the Agent shall maintain a Stock Plan Account in the name of
each Participant.
Unless the Participant's participation in the Plan has been earlier
terminated pursuant to Section 12 of the Plan, each Participant's right to
purchase Shares under the Plan (a "Right") will be exercised automatically for
such Participant on the last trading day of the Contribution Period according
to the following procedure. The amount of each Participant's Cash Plan Account
at the end of the Contribution Period shall be applied to the purchase of the
number of Shares which results when the amount in such Participant's Cash Plan
Account is divided by the Exercise Price (defined below). If such number is not
a whole number, the number of Shares purchased in the name of the Participant
shall be the next lowest whole number, and the amount remaining in the
Participant's Cash Plan Account shall be (i) refunded to the Participant in
cash if such Participant is not participating in the Plan during the succeeding
Contribution Period, or (ii) retained in such Participant's Cash Plan Account
if such Participant is participating in the Plan during the succeeding
Contribution Period. The number of Shares purchased pursuant to
<PAGE> 13
the foregoing shall be added to the number of Shares held in the Stock Plan
Account. No Right may be exercised after the last day of the applicable
Contribution Period.
As soon as practical following each purchase of Shares under this Plan,
the Agent shall report to each Participant the number of Shares purchased on
such Participant's behalf and the total number of Shares held on behalf of such
Participant in such Participant's Stock Plan Account. The Agent shall hold in
its name or in the name of its nominee all Shares purchased. No certificate
will be issued to a Participant for Shares in such Participant's Stock Plan
Account unless such Participant so requests in writing or unless participation
in the Plan is terminated. A Participant may request that a certificate for all
or part of the Shares credited to such Participant's Stock Plan Account be sent
to such Participant after the Shares have been purchased. All such requests
must be in writing to the person designated by the Company as plan
administrator (the "Plan Administrator"). In such case, a certificate or
certificates shall be delivered to the requesting Participant within a
commercially reasonable time period. No certificate for a fractional Share will
be issued.
Subject to the provisions of Section 18 of the Plan, a Participant may at
any time and without withdrawing from the Plan, by giving written notice to the
Plan Administrator, instruct the Plan Administrator to direct the Agent to sell
all or part of the Shares held on behalf of such Participant in such
Participant's Stock Plan Account (the "Sale Instructions"). Upon receipt of
Sale Instructions from a Participant, the Plan Administrator shall give notice
to the Agent directing the Agent to sell such number of Shares as indicated in
such Sale Instructions (the "Sale Notice"). The Agent shall, on the last
trading day of each month, sell that number of Shares which is equal to the
total number of Shares for which the Agent received Sale Notices from the Plan
Administrator during such month. All such Shares shall be sold in the
marketplace at the prevailing market price. Thereafter, within a reasonable
commercial period of time after such sale, the Agent shall transmit to each
Participant whose Shares were sold such Participant's pro rata share of the
gross proceeds of such sale. The Company shall be responsible to pay, and shall
pay when due, any and all bank service fees, brokerage charges, transfer taxes,
and other expenses incurred with respect to any such sales.
A Participant shall have the right to withdraw such Participant's Sale
Instructions to the Plan Administrator by giving subsequent written notice to
the Plan Administrator, which notice must be received by the Plan Administrator
no later than two business days prior to the last trading day of the month to
which the initial Sale Instructions were effective.
In order to be effective for any given month, any Sale Instructions from a
Participant to the Plan Administrator instructing the Plan Administrator to
direct the Agent to sell all or part of the Shares held on behalf of such
Participant must be received by the Plan Administrator no later than two
business days prior to the last trading day of such month. Any notice received
by the Plan Administrator after such time, unless subsequently withdrawn as set
forth above, shall be effective for the succeeding month.
7. Termination/Withdrawal of Participation; Termination of Employment;
Retirement
Section 12 of the Plan is hereby amended by deleting the first two
paragraphs of such section in their entirety and replacing them with the
following paragraphs:
A Participant shall receive a refund of the amount of funds held in
such Participant's Cash Plan Account and a stock certificate for the
number of Shares held in such Participant's Stock Plan Account if such
Participant ceases to be an Eligible Employee for any reason other
than retirement or death.
<PAGE> 14
A Participant shall receive a refund of the amount of funds held in
such Participant's Cash Plan Account if (i) such Participant elects in
writing to totally withdraw from participation in the Plan and
delivers such election to the Company, (ii) the Board terminates the
Plan as provided in Section 13 of the Plan, or (iii) such Participant
dies. In the event of the foregoing, such Participant shall have the
option of either receiving a stock certificate for the number of
Shares held in such Participant's Stock Plan Account or selling, as of
the end of the month for which the foregoing events occur, all of the
Shares held in such Participant's Stock Plan Account pursuant to
Paragraph 6 of this amendment. In addition, in the event of the
foregoing, the Participant's participation in the Plan shall be
terminated in all respects.
A Participant shall receive a refund of the amount of funds held in
such Participant's Cash Plan Account, but shall not otherwise receive
a stock certificate for the number of Shares held in such
Participant's Stock Plan Account, if such Participant elects in
writing to terminate such Participant's participation in the Plan for
the then-current Contribution Period and delivers such election to the
Company.
Upon retirement, a Participant shall have no further obligation nor
will such Participant be permitted to make further contributions under
the Plan. Upon retirement, a Participant shall have the right to
either receive a refund of the amount of funds held in such
Participant's Cash Plan Account or retain all such funds in such Cash
Plan Account for the balance of the Contribution Period, at which time
such funds shall be applied towards the purchase of Shares as set
forth in Section 7 of the Plan and Paragraph 6 of this amendment. A
retired Participant shall have the right to sell all of the Shares
held in such Participant's Stock Plan Account pursuant to Paragraph 6
of this amendment until his death or the termination of this Plan,
whichever occurs first.
The definition of "retirement" in Section 12 of the Plan is hereby amended
in its entirety to read as follows:
"Retirement" shall mean either (i) termination of employment at or beyond
age 55 with at least 10 years of service for the Company, its parent, or
any of its subsidiaries, or (ii) termination of employment as a result of
total and permanent disability.
8. Dividends and Other Distributions
Cash dividends and other cash distributions received by the Agent on
Shares held in its custody under the Plan shall be distributed and paid by the
Agent pro rata to the Participants in accordance with their interests in the
Shares with respect to which the dividends or distributions are paid or made,
and will be distributed to such Participants as soon as practical after the
receipt thereof by the Agent.
Dividends paid in Shares which are received by the Agent with respect to
Shares held in its custody under the Plan shall be allocated to the
Participants (rounded down to the nearest whole Share) in accordance with their
interests in the Shares with respect to which the dividends
<PAGE> 15
are paid. In the event cash is paid in lieu of the issuance of fractional
Shares, such cash shall be distributed by the Agent pro rata to the
Participants in accordance with their interests in the Shares with respect to
which the dividends are paid or made, and will be distributed to such
Participants as soon as practical after the receipt thereof by the Agent.
Property, other than Shares or cash, received by the Agent as a
distribution on Shares held in its custody under the Plan, shall be sold by the
Agent for the accounts of the Participants, and the Agent shall treat the
proceeds of such sale in the same manner as cash dividends received by the
Agent on Shares held in its custody under the Plan.
9. Voting of Shares
Shares held for a Participant in such Participant's Stock Plan Account
will be voted in accordance with the Participant's express written direction.
In the absence of any such direction, such Shares will not be voted.
10. Governmental Regulations; Securities Laws Restrictions
Section 18(c) of the Plan is hereby deleted in its entirety and not
replaced.
11. Effective Date; Construction
The effective date of this amendment is January 10, 1997, and this
amendment shall be deemed to be a part of the Plan as of such date. In the
event of any inconsistencies between the provisions of the Plan and this
amendment, the provisions of this amendment shall control. Except as modified
by this amendment, the Plan shall continue in full force and effective without
change.
<PAGE> 1
Exhibit 16
RED ROOF INNS, INC.
AMENDED AND RESTATED 1994 MANAGEMENT EQUITY INCENTIVE PLAN
Section 1. Purpose of Plan.
The purpose of this Amended and Restated 1994 Management Equity Incentive
Plan (the "Plan") of Red Roof Inns, Inc. (the "Company"), which amends and
restates the Company's Management Stock Option Plan dated December 29, 1994
(the "Original Plan"), is to advance the interests of the Company and its
stockholders by providing a means of attracting and retaining key employees for
the Company and its subsidiary corporations. In order to serve this purpose,
the Plan encourages and enables key employees to participate in the Company's
future prosperity and growth by providing them with incentives based on the
Company's performance, development, and financial success. These objectives
will be promoted by granting to key employees equity-based awards (the
"awards") in the form of: (a) Incentive Stock Options ("ISOs"), which are
intended to qualify under Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"); (b) stock options which are not intended so to qualify
("NQSOs") (ISOs and NQSOs are referred to together hereinafter as "Stock
Options"); (c) shares of the Company's common stock, $0.01 par value (the
"Shares"), which will be subject to certain conditions and restrictions
("Restricted Shares"); and (d) Performance Units, as described in Section 7,
below.
Section 2. Administration of Plan.
The Plan shall be administered by a committee (the "Committee") of not
less than two directors of the Company appointed by the Company's Board of
Directors (the "Board"); provided that members of the Committee shall be
"disinterested persons" within the meaning of Rule 16b-3 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). The members of the
Committee shall serve at the pleasure of the Board, which may remove members
from the Committee or appoint new members to the Committee from time to time,
and members of the Committee may resign by written notice to the Chairman of the
Board or the Secretary of the Company. The Committee shall have the power and
authority to: (a) select Eligible Employees (as defined in Section 3, below) as
recipients of awards (such recipients, "Participants"); (b) grant Stock Options,
Restricted Shares, or Performance Units, or any combination thereof; (c)
determine the number and type of awards to be granted; (d) determine the terms
and conditions, not inconsistent with the terms hereof, of any award, including
without limitation time and performance restrictions; (e) adopt, alter, and
repeal such administrative rules, guidelines, and practices governing the Plan
as it shall, from time to time, deem advisable; (f) interpret the terms and
provisions of the Plan and any award granted and any agreements relating
thereto; and (g) take any other actions the Committee considers appropriate in
connection with,
<PAGE> 2
and otherwise supervise the administration of, the Plan. All decisions made by
the Committee pursuant to the provisions hereof, including without limitation
decisions with respect to employees to be granted awards and the number and type
of awards, shall be made in the Committee's sole discretion and shall be final
and binding on all persons.
Section 3. Participants in Plan.
The persons eligible to receive awards under the Plan ("Eligible
Employees") shall include officers and other key employees of the Company or
one or more of its subsidiary corporations who, in the opinion of the
Committee, have responsibilities affecting the management, development, or
financial success of the Company or such subsidiary corporations.
Section 4. Shares Subject to Plan.
The maximum aggregate number of Shares which may be issued under the Plan
shall be 2,400,000 Shares; provided that in no event shall more than 10% of the
Shares authorized for issuance under the Plan be granted in the form of awards
other than Stock Options. The Shares which may be issued under the Plan may be
authorized but unissued Shares or issued Shares reacquired by the Company and
held as Treasury Shares. The maximum number of Shares with respect to which
Stock Options, Restricted Shares, and Performance Units may be granted to any
single Participant under the Plan during any single fiscal year of the Company
shall be 400,000.
If any Shares that have previously been the subject of a Stock Option
cease to be the subject of a Stock Option (other than by reason of exercise),
or if any Restricted Shares granted hereunder are forfeited by the holder, or
if any Stock Option or other award terminates without a payment being made to
the award recipient in the form of Shares, or if any Shares (whether or not
restricted) previously distributed under the Plan are returned to the Company
in connection with the exercise of an award (including without limitation in
payment of the exercise price or tax withholding), such Shares shall again be
available for distribution in connection with future awards under the Plan.
If the Company (a) pays a stock dividend or makes a distribution in Shares
without receiving consideration in the form of money, services, or property, (b)
subdivides or splits its outstanding Shares into a greater number of Shares, or
(c) combines its outstanding Shares into a smaller number of Shares, then the
aggregate number of Shares reserved for issuance pursuant to the Plan, the
limitation on the number of Shares available under the Plan (including without
limitation the limitations with respect to the maximum percentage of Shares
subject to awards other than Stock Options and the maximum number of Shares per
Participant per fiscal year), the number and exercise price of Shares subject to
the unexercised portions of then-outstanding Stock Options, the purchase price
(if any) for Restricted Shares, the financial Performance Goals (if any) of
Shares the subject of Performance Unit awards, and such other characteristics or
terms of awards under the Plan as the Committee shall deem appropriate, in its
sole discretion, shall be so adjusted so that, assuming that awards had been
previously granted for all of the Shares
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<PAGE> 3
so reserved, the Participants would be entitled to receive for the same
aggregate price that number of Shares or other property which they would have
owned after the happening of any of the events described above had they
exercised all of their rights under such awards prior to the happening of such
event. An adjustment made pursuant to this paragraph shall become effective
immediately after the record date in the case of a dividend or other
distribution or the effective date in the case of a subdivision, split, or
combination.
If the Company reclassifies or changes the Shares (except for splitting or
combining, changing par value, changing from par value to no par value, or
changing from no par value to par value) or participates in a consolidation or
merger (other than a merger in which the Company is the surviving corporation
and which does not result in any reclassification or change of the Shares
except as stated above), then the aggregate number of Shares available under
the Plan (including without limitation the limitations with respect to the
maximum percentage of Shares subject to awards other than Stock Options and the
maximum number of Shares per Participant per fiscal year), the number and
exercise price of Shares subject to the unexercised portions of
then-outstanding Stock Options, the purchase price (if any) for Restricted
Shares, the financial Performance Goals (if any) of Shares the subject of
Performance Unit awards, and such other characteristics or terms of awards
under the Plan as the Committee shall deem appropriate, in its sole discretion,
shall be adjusted so that, assuming that awards had been previously granted for
all the Shares so reserved, the Participants would be entitled to receive for
the same aggregate price that number and type of shares of capital stock or
other property which they would have owned after the happening of any of the
events described above had they exercised all of their rights under such awards
prior to the happening of such event.
No adjustment pursuant to this section shall be required unless such
adjustment would require an increase or decrease of at least 1% in the number
or price of Shares; provided that any adjustments which by reason of this
paragraph are not required to be made shall be carried forward and taken into
account in any subsequent adjustment. All calculations under this section shall
be made to the nearest cent or to the nearest full share, as the case may be.
Anything in this section to the contrary notwithstanding, but subject to the
provisions of Section 422 of the Code and Rule 16b-3 under the Exchange Act,
the Company shall be entitled to make such reductions in the exercise price, in
addition to those required by this section, as it, in its discretion, shall
determine to be advisable in order that any stock dividends, subdivisions or
splits of shares, distribution of rights to purchase shares or securities, or
distribution of securities convertible into or exchangeable for shares
hereafter made by the Company to its shareholders shall not be taxable.
Whenever an adjustment is made pursuant to the preceding provisions of
this section, the Company shall prepare a notice of such adjustment setting
forth the terms and the effective date of such adjustment and shall mail such
notice of adjustment to the Participants at their respective addresses
appearing on the records of the Company or at such other address as any
Participants may from time to time designate in writing to the Company.
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<PAGE> 4
Section 5. Grant of Awards.
ISOs, NQSOs, Restricted Shares, and Performance Units may be
granted alone or in addition to other awards granted under the Plan. Any awards
granted under the Plan shall be in such form as the Committee may from time to
time approve, consistent with the Plan, and the provisions of awards need not
be the same with respect to each Participant.
Any provision of the Plan to the contrary notwithstanding, without
the consent of the Participant(s) affected, no provision of the Plan relating
to ISOs shall be interpreted, amended, or altered, nor shall any discretion or
authority granted under the Plan be so exercised, so as to disqualify the Plan
under Section 422 of the Code or so as to disqualify any ISO under such Section
422.
Each award granted under the Plan shall be authorized by the
Committee and shall be evidenced by a written Stock Option Agreement,
Restricted Share Agreement, or Performance Unit Agreement, as the case may be
(collectively, "Award Agreements"), in form approved by the Committee from time
to time, which shall be dated as of the date on which the award is granted,
signed by an officer of the Company authorized by the Committee, and signed by
the Participant, and which shall describe the award and state that the award is
subject to all the terms and provisions of the Plan and such other terms and
provisions, not inconsistent with the Plan, as the Committee may approve. The
date on which the Committee approves the granting of an award shall be deemed
to be the date on which the award is granted for all purposes, unless the
Committee otherwise specifies in its approval. Nothing contained in the Plan or
any resolution adopted by the Committee or the Board shall constitute the
granting of an award under the Plan. The granting of an award under the Plan
shall take place only if and when an Award Agreement has been duly executed and
delivered by or on behalf of the Company and the Participant.
Section 6. Stock Options.
Stock Options granted under the Plan shall be subject to the
following terms and conditions and shall contain such additional terms and
conditions not inconsistent with the terms of the Plan as the Committee deems
appropriate. Each Stock Option grant shall be evidenced by a written Stock
Option Agreement, executed as set forth in Section 5, above, which shall be
consistent with the Plan, including without limitation the following provisions:
(a) Exercise Price.
The exercise price per Share issuable upon exercise of a Stock
Option shall be no less than the fair market value per Share on the
date the Stock Option is granted; provided that, if the Participant
at the time an ISO is granted owns stock possessing more than 10%
of the total combined voting power of all classes of stock of the
Company or any subsidiary, the exercise price per Share shall be at
least 110% of the fair market value of the Shares subject to the
ISO on the date of grant. For purposes of the Plan, the fair market
value of the Shares shall mean, as of any given date, the (i) last
reported
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<PAGE> 5
sale price on the New York Stock Exchange, (ii) last reported sale price on the
NASDAQ National Market System, (iii) mean between the high and low bid and ask
prices, as reported by the National Association of Securities Dealers, Inc., or
(iv) last reported sale price on any other stock exchange on which the Shares
are listed, whichever is applicable; provided that if none of the foregoing is
applicable, fair market value shall be determined by the Committee in good
faith.
(b) Vesting and Exercise of Options.
A Stock Option shall be exercisable only with respect to the Shares which
have become vested pursuant to the terms of that Stock Option. Each Stock
Option shall become vested with respect to Shares subject to that Stock Option
on such date or dates and on the basis of such other criteria, including
without limitation the performance of the Company, as the Committee may
determine, in its discretion, and as shall be specified in the applicable Stock
Option Agreement. The Committee shall have the authority, in its discretion, to
accelerate the time at which a Stock Option shall be exercisable whenever it
may determine that such action is appropriate by reason of changes in
applicable tax or other law or other changes in circumstances occurring after
the award of such Stock Option. Notwithstanding any provision of this Section 6
to the contrary, any Options (as defined in the Original Plan) granted under
the Original Plan which, as of the effective date of this Plan, are unexercised
and which have not expired or been terminated for any reason shall remain
subject to the terms and conditions, including without limitation vesting
provisions, of the Stock Option Agreements under which such Options were
granted.
(c) Term.
No Stock Option shall be exercisable after the expiration of 10 years from
the date on which that Stock Option is granted. With respect to ISOs, if the
Participant at the time the ISO is granted owns stock possessing more than 10%
of the total combined voting power of all classes of stock of the Company or any
subsidiary, the ISO shall not be exercisable after the expiration of five years
from the date on which the ISO is granted.
(d) Method of Exercise.
A Stock Option may be exercised, in whole or in part, by giving written
notice to the Secretary of the Company stating the number of Shares (which must
be a whole number) to be purchased. Subject to compliance with all other terms
and conditions of the Plan and the Stock Option Agreement relating to such
Stock Option, the Company shall deliver, at the specified time at the principal
office of the Company, a certificate for such Shares to the person entitled to
receive such Shares upon receipt of payment of the full purchase price for such
Shares by certified or bank cashier's check or other form of payment acceptable
to the Company, or, if approved by the Committee, by (i) delivery
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<PAGE> 6
of unrestricted Shares having a fair market value on the date of such delivery
equal to the total exercise price, (ii) delivery or offnet against Shares to be
received upon exercise of the Stock Option having a fair market value equal to
the total exercise price at the time of exercise, or (iii) a combination of the
preceding methods.
(e) Restrictions on Shares Subject to Stock Options.
Shares issued upon the exercise of any Stock Option may be made subject to
such transferability or other restrictions or conditions as the Committee may
determine, in its discretion, and as shall be set forth in the applicable Stock
Option Agreement.
(f) Reload Options.
The Committee may, effective as of the date of exercise by a Participant
of all or part of a Stock Option, grant to that Participant an additional Stock
Option (a "Reload Option") to purchase at fair market value as of the date of
exercise of the exercised Stock Option (the "Underlying Option") the number of
Shares used by the Participant (by delivery or offnet pursuant to Section 6(d),
above) is paying the purchase price for the Shares subject to the Underlying
Option or retained by the Company to cover withholding taxes pursuant to
Section 10 below; provided that (i) a Reload Option may only be granted during
the period the Participant is an employee of the Company or any subsidiary
corporation; (ii) a Reload Option may be exercised only between the date of its
grant and the date of expiration of the Underlying Option; and (iii) the Reload
Option shall be evidenced by a written Reload Option Agreement containing such
additional terms and provisions, not inconsistent with the Plan, as the
Committee shall approve, including without limitation a provision for the grant
of an additional Reload Option with respect to Shares used by the Participant
to pay for Shares, or retained by the Company for withholding taxes, upon the
exercise of all or part of the underlying Reload Option.
(g) Transferability.
Stock Options shall not be transferable by the Participant except with the
prior approval of the Committee and only in compliance with the restrictions
imposed under Section 16(b) of the Exchange Act. ISOs shall not be transferable
by the Participant other than by will or the laws of descent and distribution.
Any attempted transfer without Committee approval shall be null and void.
Unless Committee approval of the transfer shall have been obtained, all Stock
Options shall be exercisable during the Participant's lifetime only by the
Participant or the Participant's legal representative. Without limiting the
generality of the foregoing, the Committee may, in the manner established by
the Committee, provide for the irrevocable transfer, without payment of
consideration, of any Stock Option other than any ISO by a Participant to a
member of such Participant's family or to a trust or partnership whose
beneficiaries are members of the Participant's family. In such case, the Stock
Option shall be exercisable only by such transferee. For
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<PAGE> 7
purposes of this provision, a Participant's "family" shall include
the Participant's spouse, children, grandchildren, nieces, and
nephews.
(h) Termination of Employment by Reason of Death or Disability.
If a Participant's employment by the Company and its
subsidiary corporations terminates by reason of the Participant's
death or disability (as defined in Section 22(e)(3) of the Code
with respect to ISOs and, with respect to NQSOs, as defined by the
Committee in its discretion at the time of grant and set forth in
the Stock Option Agreement), then (i) unless otherwise determined
by the Committee within 60 days of such death or disability, to the
extent a Stock Option held by such Participant is not vested as of
the date of death or disability, such Stock Option shall
automatically terminate on such date; and (ii) to the extent a
Stock Option held by such Participant is vested (whether pursuant
to its terms, a determination of the Committee under the preceding
clause (i), or otherwise) as of the date of death or disability,
such Stock Option may thereafter be exercised by the Participant,
the legal representative of the Participant's estate, the legatee
of the Participant under the will of the Participant, or the
distributee of the Participant's estate, whichever is applicable,
for a period of one year (or such other period as the Committee may
specify at or after grant or death or disability) from the date of
death or disability or until the expiration of the stated term of
such Stock Option, whichever period is shorter.
(i) Termination of Employment by Reason of Retirement.
If a Participant's employment by the Company and its
subsidiary corporations terminates by reason of the Participant's
retirement, then each NQSO held by such Participant may thereafter
be exercised by the Participant according to its terms, including
without limitation for such period after such termination of
employment as shall be set forth in the applicable Stock Option
Agreement, and each ISO held by such Participant may thereafter be
exercised by the Participant for a period of 90 days from the date
of such termination of employment, or until the expiration of the
stated term of such ISO, whichever period is shorter. For purposes
of the Plan, retirement shall mean voluntary termination of
employment by a Participant from the Company and its subsidiary
corporations after attaining age 55 and having at least five years
of service with the Company or any of its subsidiary corporations.
(j) Other Termination of Employment.
If a Participant's employment by the Company and its
subsidiary corporations terminates for any reason other than death,
disability, or retirement, then (i) to the extent any Stock Option
held by such Participant is not vested as of the date of
termination, such Stock Option shall automatically terminate on
such date; and (ii) unless otherwise determined by the Committee at
or after grant or termination, to the extent any Stock Option held
by such Participant is vested as of the date of such termination,
such Stock
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<PAGE> 8
Option may thereafter be exercised for a period of 90 days from the
date of termination; provided that, upon the termination of the
Participant's employment by the Company or its subsidiary
corporations for Cause, any and all unexercised Stock Options
granted to such Participant shall immediately lapse and be of no
further force or effect. For purposes of the Plan, whether
termination of a Participant's employment by or service to the
Company or any of its subsidiary corporations is for "Cause" shall
be determined by the Committee in its sole discretion.
(k) Effect of Termination of Participant's Employment on
Transferee.
Except as otherwise permitted by the Committee in its sole
discretion, no Stock Option held by a transferee of a Participant
pursuant to the fifth sentence of Section 6(g), above, shall remain
exercisable for any period of time longer than would otherwise be
permitted under Sections 6(h), (i), and (j) without specification of
other periods by the Committee as provided therein.
(l) Section 422 Limitations.
The aggregate fair market value (determined as of the time of
grant) of the Shares with respect to which ISOs are exercisable for
the first time by the Participant during any calendar year under the
Plan and any other stock option plan of the Company and its
affiliates shall not exceed $100,000.
Section 7. Restricted Shares.
Restricted Shares awarded under the Plan shall be subject to the
following terms and conditions and shall contain such additional terms and
conditions not inconsistent with the terms of the Plan as the Committee deems
appropriate. Each Restricted Share grant shall be evidenced by a written
Restricted Share Agreement, executed as set forth in Section 5, above, which
shall be consistent with the Plan, including without limitation the following
provisions:
(a) Price.
The purchase price for Restricted Shares shall be any price set
by the Committee but may not be less than the par value of such
Restricted Shares. Payment in full of the purchase price, if any,
shall be made by certified or bank cashier's check or other form of
payment acceptable to the Company, or, if approved by the Committee,
by (i) delivery of unrestricted Shares having a fair market value on
the date of such delivery equal to the total purchase price, or (ii)
a combination of the preceding methods.
(b) Acceptance of Restricted Shares.
At the time the Restricted Shares are awarded, the Committee
may determine that such Shares shall, after vesting, be further
restricted as to transferability or be subject
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to repurchase by the Company or forfeiture upon occurrence of
certain events determined by the Committee, in its sole discretion,
and specified in the Restricted Share Agreement. Awards of
Restricted Shares must be accepted by the Participant within 30
days (or such other period as the Committee may specify at grant)
after the award date by executing the Restricted Share Agreement
and paying the price, if any, required under Section 7(a), above.
The Participant shall not have any rights with respect to the award
of Restricted Shares unless and until the Participant has executed
the Restricted Share Agreement, delivered a fully executed copy
thereof to the Company, and otherwise complied with the applicable
terms and conditions of the award.
(c) Share Restrictions.
Subject to the provisions of the Plan and the applicable
Restricted Share Agreement, during such period as may be set by the
Committee, in its discretion, and as shall be set forth in the
applicable Restricted Share Agreement (the "Restriction Period"),
the Participant shall not be permitted to sell, transfer, pledge,
assign, or otherwise encumber the Restricted Shares. Subject to the
limitations set forth in the first sentence of Section 4, above,
the Committee shall have the authority, in its sole discretion, to
accelerate the time at which any or all of the restrictions shall
lapse with respect to any Restricted Shares. Unless otherwise
determined by the Committee at or after grant or termination of the
Participant's employment, if the Participant's employment by the
Company and its subsidiary corporations terminates during the
Restriction Period, all Restricted Shares held by such Participant
and still subject to restriction shall be forfeited by the
Participant.
(d) Stock Certificate and Legends.
Upon payment in full of the purchase price, if any, each
Participant receiving a Restricted Share award shall be issued a
stock certificate with respect to the Restricted Shares awarded.
Such certificate shall be registered in the name of such
Participant. The Committee may require that the stock certificates
evidencing such Restricted Shares be held by the Company until the
restrictions thereon have lapsed, and that, as a condition of any
Restricted Share award, the Participant shall have delivered a
stock power, endorsed in black, relating to the Shares covered by
the award.
(e) Stockholder Rights.
Except as provided in this Section 7, the Participant shall
have, with respect to the Restricted Shares, all of the rights of a
stockholder of the Company, including without limitation the right
to vote the Restricted Shares and the right to receive any
dividends or other distributions with respect to the Restricted
Shares, but subject, however, to those restrictions placed on the
Restricted Shares under the Plan and as specified by the Committee
in the Restricted Share Agreement.
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(f) Expiration of Restriction Period.
Upon the expiration of the Restriction Period without prior
forfeiture of the Restricted Shares subject to such Restriction Period,
unrestricted stock certificates for such Shares shall be delivered to the
Participant.
Section 8. Performance Units.
The Committee may award Performance Units under the Plan. Each
Performance Unit shall be evidenced by a Performance Unit Agreement as provided
in Section 5, above, and shall represent the right of the Participant to
receive an amount equal to the value related to the Performance Units awarded,
such value to be determined in the manner established by the Committee at the
time of the award, including without limitation a value per Performance Unit
equal to the fair market value of a Share. Performance Units granted under the
Plan shall be subject to the following terms and conditions and shall contain
such additional terms and conditions not inconsistent with the terms of the
Plan as the Committee deems appropriate.
(a) Establishment of Performance Accounts.
At the time of award, the Company shall establish an account (the
"Performance Account") for each Participant awarded Performance Units.
Performance Units awarded to each Participant shall be credited to such
Participant's Performance Account.
(b) Performance Periods and Goals.
(i) The performance period for each award of Performance Units
shall be of such duration as the Committee shall establish at the time of
the award (the "Performance Period"). There may be more than one award in
existence at any one time, and Performance Periods may differ.
(ii) At the time of each award of Performance Units, the Committee
shall establish a range of performance goals (the "Performance Goals") to
be achieved during the Performance Period. The Performance Goals shall be
determined by the Committee using such measures of the performance of the
Company over the Performance Period as the Committee shall select,
including without limitation earnings, return on capital, or any
performance goal approved by the stockholders of the Company in accordance
with Section 162(m) of the Code. Performance Units awarded to Participants
will be earned as determined by the Committee with respect to the
attainment of the Performance Goals set for the Performance Period.
Attainment of the highest Performance Goal for the Performance Period will
earn 100% of the Performance Units awarded for the Performance Period;
failure to attain the lowest Performance Goal for the Performance Period
will earn none of the Performance Units awarded for the Performance
Period.
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(iii) Attainment of the Performance Goals will be calculated from
the consolidated financial statements of the Company but shall exclude (A)
the effects of changes in federal income tax rates, (B) the effects of
unusual, non-recurring, and extraordinary items as defined by Generally
Accepted Accounting Principles ("GAAP"), and (C) the cumulative effect of
changes in accounting principles in accordance with GAAP. The Performance
Goals may vary for different Performance Periods and need not be the same
for each Participant receiving an award for a Performance Period. The
Committee may, in its sole discretion, subject to the limitations of
Section 17, vary the terms and conditions of any Performance Unit award,
including without limitation the Performance Period and Performance Goals,
without stockholder approval, as applied to any recipient who is not a
"covered employee" with respect to the Company as defined in Section
162(m) of the Code. In the event applicable tax or securities laws change
to permit the Committee discretion to alter the governing performance
measures as they pertain to covered employees without obtaining
stockholder approval of such changes, the Committee shall have sole
discretion to make such changes without obtaining stockholder approval.
(c) Rights and Benefits During Performance Period.
The Committee may provide that amounts equivalent to interest at
such rates as the Committee may determine shall be payable with respect to
Performance Units. All amounts payable pursuant to this Section 8(c) shall
be credited for valuation purposes to the Participant's Performance
Account.
(d) Payment Respecting Performance Units.
(i) Performance Units shall be earned to the extent that the terms
and conditions of the Plan are met. Notwithstanding the foregoing,
Performance Units and any other amounts credited to the Participant's
Performance Account shall be payable to the Participant only when, if, and
to the extent that the Committee determines to make such payment.
(ii) Any payment determination with respect to each award of
Performance Units and the corresponding Performance Period shall be made
by the Committee during the first six months following the end of the
Performance Period. If such determination is not made during such
six-month period, all amounts credited to the Participant's Performance
Account with respect to that award and the corresponding Performance
Period shall become immediately in cash by the Company.
(iii) Payment for Performance Units and any related amounts
equivalent to interest may be made in a lump sum or in installments, in
cash, Shares, other awards, other property, or a combination thereof, and
may have such other terms as the Committee may determine.
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<PAGE> 12
(e) Termination of Employment.
If a Participant's employment by the Company and its subsidiary
corporations terminates before the end of any Performance Period
with the consent of the Committee, or upon the Participant's death,
retirement (as defined in Section 6(i), above), or disability (as
defined by the Committee in its discretion at the time of grant and
set forth in the Performance Unit Agreement), the Committee, taking
into consideration the performance of such Participant and the
performance of the Company over the Performance Period, may
authorize the payment to such Participant (or his legal
representative or designated beneficiary) of all or a portion of the
amount which would have been paid to him had his employment
continued to the end of the Performance Period. If the Participant's
employment by the Company and its subsidiary corporations terminates
for any other reason, all Performance Units and amounts credited to
the Participant's Performance Account shall be forfeited.
Section 9. Restriction on Exercise After Termination.
Notwithstanding any provision of this Plan to the contrary, no
unexercised right created under this Plan (an "Unexercised Right") and held by
a Participant on the date of termination of such Participant's employment by
the Company and its subsidiary corporations for any reason shall be exercisable
after such termination if, prior to such exercise, the Participant (a) takes
other employment or renders services to others without the written consent of
the Company, (b) violates any non-competition, confidentiality, conflict of
interest, or similar provision set forth in the Award Agreement pursuant to
which such Unexercised Right was awarded, or (c) otherwise conducts himself in
a manner adversely affecting the Company in the sole discretion of the
Committee.
Section 10. Withholding Tax.
The Company, at its option, shall have the right to require the
Participant or any other person receiving Shares, Restricted Shares, or
Performance Units to pay the Company the amount of any taxes which the Company
is required to withhold with respect to such Shares, Restricted Shares, or
Performance Units or, in lieu of such payment, to retain or sell without notice
a number of such Shares sufficient to cover the amount required to be so
withheld. The Company, at its option, shall have the right to deduct from all
dividends paid with respect to Shares and Restricted Shares the amount of any
taxes which the Company is required to withhold with respect to such dividend
payments. The Company, at its option, shall also have the right to require a
Participant to pay to the Company the amount of any taxes which the Company is
required to withhold with respect to the receipt by the Participant of Shares
pursuant to the exercise of a Stock Option, or, in lieu thereof, to retain, or
sell without notice, a number of Shares sufficient to cover the amount required
to be withheld. The obligations of the Company under the Plan shall be
conditional on such payment or other arrangements acceptable to the Company.
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<PAGE> 13
Section 11. Securities Law Restrictions.
No right under the Plan shall be exercisable and no Share shall be
delivered under the Plan except in compliance with all applicable federal and
state securities laws and regulations. The Company shall not be required to
deliver any Shares or other securities under the Plan prior to such
registration or other qualification of such Shares or other securities under
any state or federal law, rule, or regulation as the Committee shall determine
to be necessary or advisable.
The Committee may require each person acquiring Shares under the
Plan (a) to represent and warrant to and agree with the Company in writing that
such person is acquiring the Shares without a view to the distribution thereof,
and (b) to make such additional representations, warranties, and agreements
with respect to the investment intent of such person or persons as the
Committee may reasonably request. Any certificates for such Shares may include
any legend which the Committee deems appropriate to reflect any restrictions on
transfer.
All Shares or other securities delivered under the Plan shall be
subject to such stop transfer orders and other restrictions as the Committee
may deem advisable under the rules, regulations, and other requirements of the
Securities and Exchange Commission, any stock exchange upon which the Shares
are then listed, and any applicable federal or state securities law, and the
Committee may cause a legend or legends to be put on any certificates
evidencing such Shares to make appropriate reference to such restrictions.
Section 12. Change in Control.
(a) Accelerated Vesting and Company Purchase Orders.
Notwithstanding any provision of this Plan or any Award
Agreement to the contrary (unless such Award Agreement contains a
provision referring specifically to this Section 12 and stating that
this Section 12 shall not be applicable to the award evidenced by
such Award Agreement), if a Change in Control or a Potential Change
in Control (each as defined below) occurs, then:
(i) any and all Stock Options theretofore granted and not
fully vested shall thereupon become vested and
exercisable in full and shall remain so exercisable in
accordance with their terms, and the restrictions
applicable to any or all Restricted Shares and
Performance Units shall lapse and such Shares and awards
shall be fully vested; provided that no Stock Option or
other award right which has previously been exercised or
otherwise terminated shall become exercisable; and
(ii) the Company may, at its option, terminate any or all
unexercised Stock Options and portions thereof not more
than 30 days after such Change in Control or Potential
Change in Control; provided that the Company shall, upon
such termination and with respect to each Stock Option so
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terminated, pay to the Participant (or such Participant's transferee,
if applicable) theretofore holding such Stock Option cash in an amount
equal to the difference between the fair market value (as defined in
Section 6(a), above) of the Shares subject to the Stock Option at the
time the Company exercises its option under this Section 12(a)(ii) and
the exercise price of the Stock Option; and provided further that if
such fair market value is less than such exercise price, then the
Committee may, in its discretion, terminate such Stock Option without
any payment.
(b) Definition of Change in Control.
For purposes of the Plan, a "Change in Control" means the happening of any
of the following:
(i) When any "person" as defined in Section 3(a)(9) of the Exchange Act
and as used in Sections 13(d) and 14(d) thereof, including a "group"
as defined in Section 13(d) of the Exchange Act, but excluding the
Company, any subsidiary of the Company, and any employee benefit plan
sponsored or maintained by the Company or any subsidiary of the
Company (including any trustee of such plan acting as trustee), and
excluding The Morgan Stanley Real Estate Fund, L.P. ("MSREF") and its
affiliates (as defined in Rule 12b-2 under the Exchange Act),
directly or indirectly, becomes the "beneficial owner" (as defined in
Rule 13d-3 under the Exchange Act) of securities of the Company
representing 20% or more of the combined voting power of the
Company's then outstanding securities;
(ii) When, during any period of 24 consecutive months during the existence
of the Plan, the individuals who, at the beginning of such period,
constitute the Board (the "Incumbent Directors") cease for any
reason other than death to constitute at least a majority of the
Board; provided, however, that a director who was not a director at
the beginning of such 24-month period shall be deemed to have
satisfied such 24-month requirement (and be an Incumbent Director) if
such director was elected by, or on the recommendation of or with the
approval of, at least two-thirds of the directors who then qualified
as Incumbent Directors either actually (because they were directors
at the beginning of such 24-month period) or by prior operation of
this Section 12(b)(ii); or
(iii) The occurrence of a transaction requiring stockholder approval for
the acquisition of the Company by an entity other than the Company, a
subsidiary of the Company, or MSREF or any of its affiliates through
purchase of assets, by merger, or otherwise.
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Provided that a change in control shall not be deemed to be a Change
in Control for purposes of this Plan if the Board had approved such
change prior to either (A) the commencement of any event described
in Sections 12(b)(i), (ii), (iii), or 12(c)(i) of this Plan, or (B)
the commencement by any person other than the Company of a tender
offer for Shares.
(c) Definition of Potential Change in Control.
For purposes of the Plan, a "Potential Change in Control" means the
happening of any one of the following:
(i) The approval by the stockholders of the Company of an
agreement by the Company, the consummation of which would
result in a Change in Control of the Company as defined in
Section 12(b), above; or
(ii) The acquisition of beneficial ownership of the Company,
directly or indirectly, by any entity, person, or group (other
than the Company, a subsidiary of the Company, or any Company
employee benefit plan (including any trustee of such plan
acting as such trustee), and other than MSREF and its
affiliates) representing 5% or more of the combined voting
power of the Company's outstanding securities and the adoption
by the Board of a resolution to the effect that a Potential
Change in Control of the Company has occurred for purposes of
the Plan.
Section 13. No Enlargement of Employment Rights.
The adoption of this Plan and the grant of one or more awards to an
employee of the Company or any of its subsidiaries shall not confer any right
to the employee to continue in the employ of the Company or any such subsidiary
and shall not restrict or interfere in any way with the right of his employer
to terminate his employment at any time, with or without cause.
Section 14. Rights as Stockholder.
No Participant or his executor or administrator or other transferee shall
have any rights of a stockholder in the Company with respect to the Shares
covered by an award unless and until a certificate representing such Shares has
been duly issued and delivered to him under the Plan.
Section 15. Acceleration of Rights.
The Committee shall have the authority, in its discretion, to accelerate
the time at which a Stock Option or other award right shall be exercisable
whenever it may determine that such action is appropriate by reason of changes
in applicable tax or other laws or other changes in circumstances occurring
after the grant of the award.
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Section 16. Definition of Subsidiary.
The terms "subsidiary" and "subsidiary corporation" when used in
the Plan or any Award Agreement made pursuant to the Plan mean a subsidiary
corporation as defined in Section 424(f) of the Code.
Section 17. Interpretation, Amendment or Termination of Plan.
The interpretation by the Committee of any provision of the Plan or
of any Award Agreement executed pursuant to the grant of an award under the
Plan shall be final and conclusive upon all Participants or transferees under
the Plan. The Board, without further action on the part of the stockholders of
the Company, may from time to time alter, amend, or suspend the Plan or may at
any time terminate the Plan, provided that: (a) no such action shall materially
and adversely affect any outstanding Stock Option or other right under the Plan
without the consent of the holder of such Stock Option or other right; (b)
except for the adjustments provided for in Section 4, above, no amendment may
be made by Board action without stockholder approval if the amendment would (i)
materially increase the benefits accruing to Participants under the Plan, (ii)
materially increase the number of Shares which may be issued under the Plan,
(iii) materially modify the requirements as to eligibility for participation in
the Plan, or (iv) extend the maximum option period of Stock Options; and (c)
amendments to the Plan described in Rule 16b-3(c)(2)(ii)(B) promulgated under
the Exchange Act shall not be made more than once every six months, other than
to comport with changes in the Code, the Employee Retirement Income Security
Act, or the rules thereunder. Subject to the above provisions, the Board shall
have authority to amend the Plan to take into account changes in applicable tax
and securities laws and accounting rules, as well as other developments.
Section 13. Unfunded Status of the Plan.
The Plan is intended to constitute an "unfunded" plan for incentive
and deferred compensation. With respect to any payments or deliveries of Shares
not yet made by the Company to a Participant or transferee nothing contained
herein shall give any such Participant or transferee any rights that are
greater than those of a general creditor of the Company. The Committee may
authorize the creation of trusts or other arrangements to meet obligations
created under the Plan to deliver Shares or payments hereunder consistent with
the foregoing.
Section 19. Protection of Board and Committee.
No member of the Board or the Committee shall have any liability
for any determination or other action made or taken in good faith with respect
to the Plan or any Option granted under the Plan.
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Section 20. Government Regulations.
Notwithstanding any provision of the Plan or any Award Agreement executed
pursuant to the Plan, the Company's obligation under the Plan and such
Agreement shall be subject to all applicable laws, rules, and regulations and
to such approvals as may be required by any governmental or regulatory
agencies, including without limitation any stock exchange on which the
Company's Shares may then be listed.
Section 21. Governing Law.
The Plan shall be construed and governed by the laws of the State of Ohio
except only to the extent that the General Corporation Law of the State of
Delaware is necessarily applicable to the Company.
Section 22. Genders and Numbers.
When permitted by the context, each pronoun used in the Plan shall
include the same pronoun in other genders and numbers.
Section 23. Captions.
The captions of the various sections of the Plan are not part of the
context of the Plan, but are only labels to assist in locating those sections,
and shall be ignored in construing the Plan.
Section 24. Effective Date.
The Plan shall be effective December __, 1995. The Plan shall be
submitted to the stockholders of the Company for approval and ratification as
soon as practicable but in any event not later than 12 months after the adoption
of the Plan by the Board. If the Plan is not approved and ratified by the
stockholders of the Company within 12 months after the adoption of the Plan by
the Board, the Plan and all awards granted under the Plan shall become null and
void and have no further force or effect.
Section 25. Term of Plan.
No award shall be granted pursuant to the Plan on or after December 29,
2004, which represents the tenth anniversary of the effective date of the
Original Plan, but awards granted prior to such tenth anniversary may extend
beyond that date.
Section 26. Effect On Original Plan.
The Plan is an amendment and restatement of the Original Plan and
supersedes the Original Plan in its entirety; provided that (a) all Options
granted under the Original Plan shall
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continue in effect as NQSOs under the Plan, subject to the terms and conditions
of the Plan, and to the extent not inconsistent with the Plan, the written
agreements evidencing such Options, and (b) the term "Plan", as used in such
agreements, shall mean this Plan. In the event of any inconsistency between the
provisions of this Plan and such agreements, the provisions of this Plan shall
control.
Section 27. Private Company Provisions.
Notwithstanding any of the foregoing provisions of the Plan to the
contrary, unless and until such time as the Company has completed an initial
public offering for its common stock pursuant to a registration statement filed
under the Securities Act of 1933, as amended, the following provisions shall
apply:
(a) Restrictive Legend.
If one or more Stock Options or other rights under the Plan
are exercised pursuant to exemptions from the Federal and state
securities laws: (a) any Shares issued upon exercise of those Stock
Options or rights may not be sold or otherwise transferred, and the
Company shall not be required to transfer any such Shares, unless
they have been registered under the Federal and state securities
laws or a valid exemption from such registration is available; and
(b) the Company may cause each certificate evidencing the ownership
of any Shares issued upon exercise of those Stock Options or rights
to be imprinted with a legend in the following form:
The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended, or any
state securities law and may not be sold or otherwise
transferred without such registration unless a valid exemption
from such registration is available and the corporation has
received an opinion of, or satisfactory to, its counsel that
such transfer would not violate any Federal or state securities
law.
(b) Restriction on Transfers.
No Shares awarded under the Plan or issued upon exercise of a
Stock Option or other right under the Plan may be sold or otherwise
transferred while the holder of those Shares is an employee of the
Company or any subsidiary corporation.
(c) Purchase Option.
If any Participant ceases to be an employee of the Company and
its subsidiary corporations for any reason (including without
limitation his death, disability, retirement, resignation,
replacement, discharge, or any other reason), then the Company
shall have the exclusive right and option to purchase from such
Participant, the executor or
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administrator of his estate, or his other successor in interest, as the case
may be (for purposes of this subsection, the "Selling Stockholder"), any or all
of the Shares which may have been purchased by or awarded to the Participant
under the Plan (including without limitation any Shares purchased upon exercise
of a Stock Option or other right after termination of the Participant's
employment and any additional Shares which the Participant may have received as
a result of any stock splits, stock dividends, or similar sources as a result
of receiving Shares under the Plan).
In order to exercise its purchase option under this subsection, the
Company shall give written notice to the Selling Stockholder, stating that the
Company thereby exercises its option under this subsection, at any time after
termination of the Participant's employment. The purchase price for the Shares
under this subsection shall be equal to: (i) the fair market value of the total
stockholders' equity of the Company, as determined by an appraisal which shall
be made by an independent firm of certified public accountants selected by the
Board and which shall be approved by the Board, if such appraisal was so made
and approved not earlier than 15 months prior to the termination of the
Participant's employment or, if not, a new appraisal made by such an
independent firm and approved by the Board, plus or minus any increases or
decreases in the book value of the total stockholders' equity of the Company
from the effective date of such appraisal to the last day of the calendar month
of termination of the Participant's employment (whether such termination was
before or after the effective date of such appraisal), divided by (ii) the
total outstanding shares of common stock of the Company as of the last day of
that calendar month, calculated on a fully diluted basis under generally
accepted accounting principles. In the event of any disagreement between the
Selling Stockholder and the Company concerning calculation of the purchase
price for the Shares under this subsection, the calculation shall be made by
any independent firm of certified public accountants selected by the Board,
whose determination shall be final and conclusive on all interested parties.
All costs of any such appraisal shall be borne by the Company, and all costs of
any calculation of the purchase price by an independent firm of certified
public accountants to resolve any such disagreement shall be borne equally by
the Selling Stockholder and the Company.
If the Company exercises its option under this subsection, the purchase
and sale of the Shares shall be closed within 20 business days after
determination of the purchase price, at a time and place reasonably specified
by the Company. At the closing, the Selling Stockholder shall assign and
transfer the Shares to the Company free and clear of all encumbrances or other
claims, and the Company shall execute and deliver to the Selling Stockholder
the Company's promissory note: (i) dated as of the closing date, (ii) payable
to the order of the Selling Stockholder, (iii) in a principal amount equal to
the full purchase price, (iv) payable on or before the fourth anniversary of
the closing date, (v) with interest payable at maturity calculated on the unpaid
principal amount from the closing date to the payment date at a rate per annum
equal to the then-current yield-to-maturity on United States Treasury
securities of comparable maturity, as determined in good faith by the Company,
plus 100 basis points. The Company may elect, in its
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discretion, to pay all or any part of the purchase price by good and sufficient
check at the closing, in which event the Company's promissory note shall be
eliminated or reduced by that amount, as the case may be. The Company may
prepay its promissory note at any time without penalty.
(d) First-Refusal Options.
(i) If the holder of any Shares awarded under the Plan or issued upon
exercise of one or more Stock Options or rights under the Plan
desires to sell, and receives a bona fide written offer to buy, all
or any part of his Shares, for a price computed and payable in
dollars and such holder is not an employee of the company or any
subsidiary corporation, such holder may sell such Shares, but only
pursuant to the following provisions of this subsection. Such holder
shall obtain from the person or persons who propose to buy such
Shares (collectively, the "Buyer") a written offer to buy such
Shares (the "Offer") which shall include the following provisions:
(A) the number of Shares to be purchased, the price, the terms of
payment, and the other terms and conditions of the proposal; (B)
agreement by the Buyer that the Offer shall be irrevocable for a
specified period of time expiring not earlier than 20 business days
after the date that notice of the Offer is given to the Company; and
(C) the consideration received from such holder for the Buyer's
agreement that the Offer shall be irrevocable for the specified
period of time. At the time of obtaining the Offer, such holder
shall part with adequate consideration to bind the Buyer to his
agreement that the Offer shall be irrevocable for the specified
period of time.
(ii) Upon obtaining an Offer that such holder desires to accept, such
holder shall give written notice of the Offer and its acceptability
to the Company, enclosing a photocopy of the Offer, and shall make
the signed original of the Offer available to the Company for
examination upon request. The Company shall have the exclusive right
and option to purchase all, but only all, of the Shares described in
the Offer under whichever of the following three sets of price and
terms and conditions that it elects, in its discretion: (A) for the
purchase price and upon the other terms and conditions specified in
the Offer; or (B) for the purchase price and upon the other terms
and conditions which would be applicable under Section 27(b), above,
if the employment of such holder had terminated on the date when
such holder gave written notice of the Offer; or (C) for the
purchase price specified in the Offer and upon the other terms and
conditions which would be applicable under Section 27(b), above, if
the employment of such holder had terminated on the date when such
holder gave written notice of the Offer (including without
limitation execution and delivery of the Company's promissory note
meeting the requirements of Section 27(b), above).
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(iii) In order to exercise its purchase option under this subsection, the
Company shall give written notice to such holder, stating that the
Company thereby exercises its option under this subsection, at any
time not later than 10 business days after the Company receives the
written notice from such holder. If the Company exercises its option
under this subsection, the purchase and sale of such Shares shall be
closed, at a time and place reasonably specified by the Company,
within 20 business days after the later of: (A) the date when the
Company exercises its option under this subsection; or (B) the date
when the purchase price has been determined. In that event, the
terms for payment of the purchase price and the other terms and
conditions for purchase shall be not less favorable to the Company
than those specified in the Offer.
(iv) If the Company fails to exercise its purchase option under this
subsection, such holder may sell the Shares specified in the Offer
to the Buyer at the price and on the terms and conditions of the
Offer, subject to compliance with all other requirements in the
Plan. Upon completion of the sale of the Shares pursuant to the
preceding sentence, the Shares shall remain subject to all
requirements and restrictions of the Plan, including without
limitation the Company's option to purchase the Shares in the event
of any subsequent sale or other transfer, as described in this
Section 27(d).
Section 28. Savings Clause.
In case any one or more of the provisions of this Plan shall be held
invalid, illegal, or unenforceable in any respect, the validity, legality, and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby, and the invalid, illegal, or unenforceable provision shall be
deemed null and void; however, to the extent permissible by law, any provision
which could be deemed null and void shall first be construed, interpreted, or
revised retroactively to permit this Plan to be construed so as to foster the
intent of this Plan. This Plan is intended to comply in all respects with
applicable law and regulation, including Section 422 of the Code and, with
respect to persons subject to Section 16 of the Exchange Act ("Reporting
Persons"), Rule 16b-3 under the Exchange Act. In case any one or more of the
provisions of this Plan shall be held to violate or be unenforceable in any
respect under Section 422 or Rule 16b-3, then, to the extent permissible by
law, any provision which could be deemed to violate or be unenforceable under
Section 422 or Rule 16b-3 shall first be construed, interpreted, or revised
retroactively to permit the Plan to be in compliance with Section 422 and Rule
16b-3. Notwithstanding anything in this Plan to the contrary, the Committee, in
its sole discretion, may bifurcate the Plan so as to restrict, limit, or
condition the use of any provision of this Plan to Participants who are
Reporting Persons or covered employees as defined under Section 162(m) of the
Code without so restricting, limiting, or conditioning this Plan with respect
to other Participants.
-21-
<PAGE> 1
Exhibit 17
INCENTIVE COMPENSATION PLAN
FISCAL YEAR 1999
1. PURPOSE
The Purpose of the Red Roof Inns, Inc. ("Red Roof" or the "Company")
Incentive Compensation Plan (the "Plan") is to provide incentive
compensation to officers and key employees who contribute to the
achievement of the Company's principal business objectives.
2. COMMITTEE
The Plan shall be overseen by the Compensation Committee of the Board of
Directors (the "Committee"), whose members are not eligible to participate
in the Plan. The Committee shall be governed in accordance with the Bylaws
of the Company.
Subject to the provisions of the Plan, the Committee shall have full
authority to interpret the Plan, to amend and rescind rules and guidelines
relating to it and to make all determinations necessary or advisable for
its administration by senior management of the Company (the "Management").
3. ELIGIBILITY
Incentive compensation awards under the Plan may be granted to officers
and other employees of the Company. See attached Exhibits for fiscal year
1999 participants and percent payouts. The attached Exhibits may be
amended to include officers and other key employees who may be hired
during the year.
In making the selection and in determining the amount and form of any
award, Management shall consider the contribution of the employee to the
success of the Company, including such factors as (i) the employee's
position and level of responsibility, (ii) accomplishments and (iii) the
recommendation of the supervisor of the employee.
The receipt of an award shall not give any employee any right to continued
employment by the Company, and the right and power to dismiss any employee
<PAGE> 2
INCENTIVE COMPENSATION PLAN
FISCAL YEAR 1999
Page 2
is specifically reserved by the Company. In addition, the receipt of an
award with respect to any year shall not give any employee the right to
receive an award with respect to any subsequent year.
An employee who is included in the Plan must be employed by the Company
through December 31 of the Plan year to receive any payment.
Management may make an award to the surviving spouse or the estate of a
deceased employee who died during the fiscal year for which the award is
made.
4. AWARDS
Management shall determine, subject to the Committee's approval, (i) the
total amount available for awards, (ii) the amount, terms, form and time
of payment of each award and (iii) the employees to receive awards.
Under the Plan, Management, subject to Committee approval, may increase
the funds available to pay incentive compensation when the Company's
overall performance substantially exceeds expectations.
5. AWARDS METHODOLOGY
Awards for the executive(s) designated in Exhibit A and those participants
in Tiers A, B, and C (Exhibits B and C) will be made up of two parts
(listed below).
PART I. One part of the award potential is based on Earnings Per
Share ("EPS") and will be calculated based upon the audited
consolidated financial statements of the Company, but shall exclude
(a) the effects of unusual, non-recurring, and extraordinary items
and (b) the cumulative effect of changes in accounting principles in
accordance with GAAP. Exhibits A and C show the relationship between
EPS and the incentive/bonus payout.
<PAGE> 3
INCENTIVE COMPENSATION PLAN
FISCAL YEAR 1999
Page 3
PART II. The other portion of the award potential is discretionary
and will vary by position based on each individual's actual
performance in relation to his/her specific objectives as previously
agreed upon by the individual and his/her supervisor. To the extent
possible, these specific objectives should be designed to attain or
exceed Company targets in the following areas:
- Total revenue
- Meeting 1999 budget
- Revenue per available room (REVPAR) growth
- Income Before Fixed Expenses (IBFE) for Company inns
- Operating Income
- EBITDA
- Number of franchised hotels opened
- Number of executed franchise contracts
- Support to franchising
- Achieving other key business objectives
For those executives and key employees whose work has a direct,
measurable impact on earnings (e.g., franchising, reservations,
sales, operations, etc.), the awards formula will include one or
more of those specific measurable elements. The incentive for each
specific element will be based on the budget for that element as
shown in the 1999 business plan. Those incentive plans are included
in Exhibit D.
Awards for employees in Tier D will be based on the Company's overall
performance as measured by EPS and the individual's performance rating
(Exhibit E).
