<PAGE>
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for use of the Commission only (as permitted by Rule 14a-
6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
KAHLER REALTY CORPORATION
(Name of Registrant as Specified In Its Charter)
______________________________________________________________________________
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule 14a-
6(i)(3).
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies: Common
Stock, par value $0.10 per share ("Common Stock"), of Kahler Realty
Corporation.
(2) Aggregate number of securities to which transaction applies: 4,741,891
being the maximum number of shares of Common Stock to be acquired by
Tiger Real Estate Fund, L.P. in the transaction.
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined): The filing
fee of $16,122.43 is calculated in accordance with Rule 0-11(c)(1)
under the Exchange Act as one-fiftieth of one percent of the product of
4,741,891 shares of Common Stock to be acquired in the transaction and
the proposed cash payment per share of Common Stock of $17.00.
(4) Proposed maximum aggregate value of transaction: $80,612,147.
(5) Total fee paid: $16,122.43.
[X] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
___________________________________________________________________________
(2) Form, Schedule or Registration Statement No.:
___________________________________________________________________________
(3) Filing Party:
___________________________________________________________________________
(4) Date Filed:
___________________________________________________________________________
<PAGE>
KAHLER REALTY CORPORATION
July 25, 1996
Dear Kahler Realty Corporation Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders
(the "Special Meeting") of KAHLER REALTY CORPORATION (the "Company") to be held
on August 13, 1996, at 10:00 a.m., Central Daylight Time, at The Kahler Hotel,
20 Second Avenue SW, Viking Room, Rochester, Minnesota 55902. At the Special
Meeting, you will be asked to consider and vote upon a proposal to authorize and
adopt the Agreement and Plan of Merger, dated as of May 6, 1996 (the "Merger
Agreement"), among the Company, Tiger Real Estate Fund, L.P. (now known as
Tiger/Westbrook Real Estate Fund, L.P.) ("Tiger") and Tiger Real Estate
Acquisition Corp. (the "Merging Subsidiary").
Upon the terms and subject to the conditions of the Merger Agreement,
the Merging Subsidiary, a subsidiary of Tiger, will be merged with and into the
Company (the "Merger") with the Company continuing as the surviving corporation
under the name "Kahler Realty Corporation", and each share of common stock, par
value $.10 per share (the "Common Stock"), of the Company (other than shares (i)
held in the treasury of the Company, (ii) owned by Tiger or by the Merging
Subsidiary or (iii) held by shareholders who have not voted in favor of the
Merger and who have otherwise properly exercised their rights for appraisal of
such shares) will be converted into the right to receive $17.00 per share in
cash, without interest.
THE BOARD OF DIRECTORS (THE "BOARD") OF THE COMPANY HAS UNANIMOUSLY
APPROVED THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY,
INCLUDING THE MERGER, AND THE BOARD RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE
AUTHORIZATION AND ADOPTION OF THE MERGER AGREEMENT. The Board's approval and
recommendation were based on a number of factors described in the accompanying
Proxy Statement (the "Proxy Statement"), including the opinion of Montgomery
Securities ("Montgomery Securities"), the financial advisor to the Company
engaged by the Board, that the consideration to be received by shareholders of
the Company pursuant to the Merger is fair, from a financial point of view, to
such shareholders as of May 6, 1996 and as of the date of the Proxy Statement.
The opinion of Montgomery Securities dated the date of the Proxy Statement is
included as Annex B to the Proxy Statement.
PLEASE READ THE PROXY STATEMENT, WHICH PROVIDES YOU WITH A DESCRIPTION
OF THE TERMS OF THE MERGER AND CERTAIN OTHER INFORMATION, BEFORE CASTING YOUR
VOTE. A conformed copy of the Merger Agreement is included as Annex A to the
Proxy Statement.
Whether or not you plan to attend the Special Meeting in person and
regardless of the number of shares of Common Stock you own, you should complete,
sign, date and return the enclosed proxy card promptly in the accompanying
prepaid envelope. You may, of course, attend the Special Meeting and vote in
person, even if you have previously returned your proxy card. A failure to vote
will have the same effect as a vote against the Merger. YOU ARE URGED,
THEREFORE, TO SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD PROMPTLY.
PLEASE DO NOT SEND IN ANY STOCK CERTIFICATES AT THIS TIME. IF THE
MERGER BECOMES EFFECTIVE, YOU WILL BE SENT INSTRUCTIONS REGARDING THE SURRENDER
OF YOUR STOCK CERTIFICATES IN EXCHANGE FOR THE $17 PER SHARE CASH CONSIDERATION.
Sincerely,
/s/ Harold W. Milner
_______________________________________
Harold W. Milner
President and Chief Executive Officer
<PAGE>
KAHLER REALTY CORPORATION
_________________________________________________________
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON AUGUST 13, 1996
_________________________________________________________
To the Shareholders of Kahler Realty Corporation:
Notice is hereby given that a Special Meeting of Shareholders of
KAHLER REALTY CORPORATION (the "Company") will be held on August 13, 1996, at
10:00 a.m., Central Daylight Time, at The Kahler Hotel, 20 Second Avenue SW,
Viking Room, Rochester, Minnesota 55902, for the following purposes:
(a) To consider and vote upon a proposal to authorize and adopt
the Agreement and Plan of Merger, dated as of May 6, 1996 (the "Merger
Agreement"), among the Company, Tiger Real Estate Fund, L.P. (now known as
Tiger/Westbrook Real Estate Fund, L.P.) ("Tiger") and Tiger Real Estate
Acquisition Corp. (the "Merging Subsidiary"), pursuant to which, among
other things: (i) the Merging Subsidiary, a subsidiary of Tiger, will be
merged with and into the Company (the "Merger") with the Company continuing
as the surviving corporation under the name "Kahler Realty Corporation";
and (ii) each share of common stock, par value $.10 per share (the "Common
Stock"), of the Company (other than shares held in the treasury of the
Company, owned by Tiger or by the Merging Subsidiary, or held by
shareholders who have not voted in favor of the Merger and who have
otherwise properly exercised their rights for appraisal of such shares in
accordance with Sections 302A.471 and 302A.473 of the Business Corporation
Act of the State of Minnesota (the "MBCA")), will be converted into the
right to receive $17.00 per share in cash, without interest.
(b) To transact such other business as may properly come before
the Special Meeting, including any and all adjournments and postponements
thereof.
A conformed copy of the Merger Agreement appears as Annex A to, and is
described in, the accompanying Proxy Statement (the "Proxy Statement").
THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY APPROVED THE
MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE MERGER
AND RECOMMENDS THAT THE SHAREHOLDERS OF THE COMPANY VOTE FOR THE AUTHORIZATION
AND ADOPTION OF THE MERGER AGREEMENT.
Only holders of record of shares of Common Stock as of the close of
business on July 1, 1996 (the "Record Date") are entitled to notice of and to
vote at the Special Meeting and any and all adjournments and postponements
thereof. Under Section 302A.613 of the MBCA, the affirmative vote of at least a
majority of the outstanding shares of Common Stock entitled to vote is required
to adopt the Merger Agreement.
Under the MBCA, shareholders of the Company have the right to dissent
from the Merger and demand appraisal rights for their shares of Common Stock,
provided that the Merger is consummated and such shareholders comply with the
requirements of Sections 302A.471 and 302A.473 of the MBCA. See "THE MERGER--
Appraisal Rights of Dissenting Shareholders" in the Proxy Statement for a
description of the rights of dissenting shareholders and a discussion of the
procedures which must be followed by dissenting shareholders of the Company to
obtain appraisal of their shares of Common Stock.
/s/ Michael J. Quinn
_______________________________________
Michael J. Quinn
Senior Vice President, Secretary and
General Counsel
Rochester, Minnesota
July 25, 1996
<PAGE>
KAHLER REALTY CORPORATION
20 Second Avenue SW
Rochester, Minnesota 55902
-----------------
PROXY STATEMENT
-----------------
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD AUGUST 13, 1996
This proxy statement ("Proxy Statement") is being furnished to the
shareholders of Kahler Realty Corporation (the "Company") in connection with the
solicitation of proxies by the Board of Directors (the "Board") of the Company
for use at a Special Meeting of Shareholders to be held on August 13, 1996, at
10:00 a.m., Central Daylight Time, at The Kahler Hotel, 20 Second Avenue SW,
Viking Room, Rochester, Minnesota, 55902, and at any and all adjournments and
postponements thereof (the "Special Meeting").
At the Special Meeting, you will be asked to consider and vote upon a
proposal to authorize and adopt the Agreement and Plan of Merger, dated as of
May 6, 1996 (the "Merger Agreement"), among the Company, Tiger Real Estate Fund,
L.P. (now known as Tiger/Westbrook Real Estate Fund, L.P.) ("Tiger") and Tiger
Real Estate Acquisition Corp. (the "Merging Subsidiary").
Upon the terms and subject to the conditions of the Merger Agreement,
the Merging Subsidiary, a subsidiary of Tiger, will be merged with and into the
Company (the "Merger") with the Company continuing as the surviving corporation
(the "Surviving Corporation") under the name "Kahler Realty Corporation", and
each share of common stock, par value $.10 per share (the "Common Stock"), of
the Company (other than shares (i) held in the treasury of the Company, (ii)
owned by Tiger or by the Merging Subsidiary or (iii) held by shareholders who
have not voted in favor of the Merger and who have otherwise properly exercised
their rights for appraisal of such shares in accordance with Sections 302A.471
and 302A.473 of the Business Corporation Act of the State of Minnesota (the
"MBCA")), will be converted into the right to receive $17.00 per share in cash,
without interest. Copies of Sections 302A.471 and 302A.473 of the MBCA are
included as Annex C to this Proxy Statement.
A conformed copy of the Merger Agreement is included as Annex A
hereto. The summaries of the portions of the Merger Agreement set forth in this
Proxy Statement do not purport to be complete and are subject to, and are
qualified in their entirety by reference to, the text of the Merger Agreement.
THE BOARD HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE MERGER, AND THE BOARD
RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE AUTHORIZATION AND ADOPTION OF THE
MERGER AGREEMENT. The Board's approval and recommendation were based on a number
of factors described in this Proxy Statement, including the opinion of
Montgomery Securities ("Montgomery Securities"), the financial advisor to the
Company engaged by the Board, that the consideration to be received by the
shareholders of the Company pursuant to the Merger is fair, from a financial
point of view, to such shareholders as of May 6, 1996 and as of the date of this
Proxy Statement. The opinion of Montgomery Securities dated the date of this
Proxy Statement is included as Annex B to this Proxy Statement.
<PAGE>
Under Section 302A.613 of the MBCA, the affirmative vote of at least a
majority of the outstanding shares of Common Stock entitled to vote is required
to adopt the Merger Agreement. Only holders of record of shares of Common Stock
at the close of business on July 1, 1996 (the "Record Date") are entitled to
notice of and to vote at the Special Meeting and any and all adjournments and
postponements thereof. Pursuant to voting agreements, Mayo Foundation and
Milner Associates have agreed with Tiger to vote approximately 19.9% of the
outstanding shares of Common Stock in favor of the authorization and adoption of
the Merger Agreement. See "THE SPECIAL MEETING--Voting Agreements." Conformed
copies of the voting agreements are included as Annexes D and E hereto. The
summaries of the portions of the voting agreements set forth in this Proxy
Statement do not purport to be complete and are subject to, and are qualified in
their entirety by reference to, the texts of the voting agreements.
This Proxy Statement is first being mailed to the Company's
shareholders on or about July 25, 1996.
____________________________
The date of this Proxy Statement is July 25, 1996.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY........................................................... 1
THE SPECIAL MEETING............................................... 11
Date; Time; Place; Purpose; Record Date...................... 11
Votes Required............................................... 11
Terms of the Voting Agreements............................... 11
Revocation and Use of Proxies; Solicitation.................. 12
THE COMPANIES..................................................... 13
Kahler Realty Corporation.................................... 13
Tiger/Westbrook Real Estate Fund, L.P........................ 14
Tiger Real Estate Acquisition Corp........................... 14
THE MERGER........................................................ 14
Structure of the Merger...................................... 14
Background of the Transaction................................ 15
Reasons for the Merger; Recommendation of the Board.......... 19
Certain Projections.......................................... 20
Opinion of Financial Advisor................................. 22
Interests of Certain Persons in the Merger................... 26
Mayo Foundation; Non-Competition Agreement................... 29
Effective Time of the Merger................................. 30
Payment for Shares of Common Stock........................... 30
Certain Other Effects of the Merger.......................... 31
Regulatory and Third Party Approvals......................... 31
Accounting Treatment......................................... 31
Terms of the Merger.......................................... 32
Source and Amount of Funds................................... 39
Certain Tax Consequences of the Merger....................... 39
Appraisal Rights of Dissenting Shareholders.................. 39
MARKET PRICES; DIVIDENDS.......................................... 42
SELECTED FINANCIAL AND OPERATING DATA OF THE COMPANY (UNAUDITED).. 43
STOCK OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS....... 45
INDEPENDENT PUBLIC ACCOUNTANTS.................................... 46
INCORPORATION BY REFERENCE........................................ 46
OTHER MATTERS..................................................... 46
</TABLE>
ANNEXES:
ANNEX A Agreement and Plan of Merger
ANNEX B Fairness Opinion of Montgomery Securities
ANNEX C Sections 302A.471 and 302A.473 of the Business Corporation Act of
the State of Minnesota
ANNEX D Voting Agreement Between Tiger Real Estate Acquisition Corp. and
Milner Associates
ANNEX E Voting Agreement Between Tiger Real Estate Acquisition Corp. and
Mayo Foundation
<PAGE>
SUMMARY
The following is a brief summary of certain information contained
elsewhere in this Proxy Statement. This Summary does not purport to be complete
and should be read in conjunction with, and is qualified in its entirety by
reference to, the more detailed information appearing elsewhere or incorporated
by reference in this Proxy Statement and the Annexes hereto. Shareholders are
urged to read this Proxy Statement, including such Annexes, in its entirety.
THE SPECIAL MEETING
DATE; TIME; PLACE; PURPOSE; RECORD DATE
The Special Meeting will be held on August 13, 1996, at 10:00 a.m.,
Central Daylight Time, at The Kahler Hotel, 20 Second Avenue SW, Viking Room,
Rochester, Minnesota, 55902. At the Special Meeting, shareholders of the
Company will be asked to consider and vote upon a proposal to authorize and
adopt the Merger Agreement. The Board has fixed the close of business on July 1,
1996 as the Record Date for the determination of shareholders entitled to notice
of and to vote at the Special Meeting. See "THE SPECIAL MEETING--Date; Time;
Place; Purpose; Record Date."
VOTES REQUIRED
The affirmative vote of the holders of a majority of the shares of
Common Stock outstanding on the Record Date is required for the approval of the
Merger Agreement. Only shareholders of record at the close of business on the
Record Date are entitled to notice of and to vote at the Special Meeting or any
and all adjournments and postponements thereof. As of the Record Date,
4,348,141 shares of Common Stock, were issued and outstanding, of which
1,113,234 shares (approximately 25.6% of the outstanding shares of Common Stock)
were beneficially owned by Mayo Foundation and 832,630 shares (approximately
18.7% of the outstanding shares of Common Stock) were beneficially owned by
directors and executive officers of the Company and their affiliates. See
"STOCK OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS". Each share of
Common Stock issued and outstanding on the Record Date entitles the holder
thereof to one vote on each proposal presented at the Special Meeting.
Mayo Foundation and all of such directors and executive officers of
the Company and their affiliates have indicated to the Company that they intend
to vote all such shares in favor of approval of the Merger Agreement. In
addition, Mayo Foundation and Milner Associates (an affiliate of Harold W.
Milner, President and Chief Executive Officer of the Company) have entered into
voting agreements (the "Voting Agreements") with Merging Subsidiary pursuant to
which such shareholders have agreed to vote approximately 19.9% of the
outstanding shares of Common Stock in favor of the Merger. See "THE SPECIAL
MEETING--Votes Required" and "--Terms of the Voting Agreements" and Annexes D
and E.
TERMS OF THE VOTING AGREEMENTS
Pursuant to their Voting Agreements with Merging Subsidiary, Milner
Associates and Mayo Foundation agreed to vote an aggregate of approximately
19.9% of the outstanding shares of Common Stock (a) in favor of the Merger, the
Merger Agreement and any transactions contemplated thereunder, and (b) against
any matter that could result in the breach of the Merger Agreement or the non-
fulfillment of any of the conditions of the Company's obligations under the
Merger Agreement. See "THE SPECIAL MEETING--Voting Agreements" and Annexes D and
E.
<PAGE>
THE COMPANIES
KAHLER REALTY CORPORATION
Founded in 1917, the Company is a publicly-held real estate company
primarily engaged in the business of owning, developing and managing hotels.
The Company owns or manages 23 hotels throughout the United States, focusing
primarily on markets in Rochester, Minnesota and in the intermountain region of
Utah, Idaho, Montana and Arizona. The Company also owns Textile Care Services,
a laundry service that serves southeastern Minnesota and the Salt Lake City
area, as well as a wholesale and retail formal wear supplier in the midwestern
and western states. The mailing address of the Company's principal executive
offices is 20 Second Avenue SW, Rochester, Minnesota, 55902. See "THE
COMPANIES--Kahler Realty Corporation."
TIGER/WESTBROOK REAL ESTATE FUND, L.P.
Tiger is a private real estate investment fund that invests in a wide
array of real estate related assets and companies. To date, Tiger has completed
22 investments comprised of over 130 properties in 20 States with an estimated
portfolio value of over $1.0 billion. Tiger's principal executive offices are
located at 101 Park Avenue, 47th Floor, New York, New York 10178. See "THE
COMPANIES--Tiger/Westbrook Real Estate Fund, L.P."
TIGER REAL ESTATE ACQUISITION CORP.
The Merging Subsidiary is a corporation recently organized by Tiger
for the purpose of effecting the Merger. It has no material assets and has not
engaged in any activities except in connection with the Merger Agreement and the
transactions contemplated thereby. The mailing address of the Merging
Subsidiary's principal executive offices is 101 Park Avenue, 47th Floor, New
York, New York 10178. See "THE COMPANIES--Tiger Real Estate Acquisition Corp."
THE MERGER
STRUCTURE OF THE MERGER
Upon the terms and subject to the conditions of the Merger Agreement,
the Merging Subsidiary will be merged with and into the Company, with the
Company continuing as the Surviving Corporation under the name "Kahler Realty
Corporation". In the Merger, each share of Common Stock (other than shares (i)
held in the treasury of the Company, (ii) owned by Tiger or by the Merging
Subsidiary or (iii) held by shareholders who have not voted in favor of the
Merger and who have otherwise properly exercised their rights for appraisal of
such shares in accordance with Sections 302A.471 and 302A.473 of the MBCA) will
be converted into the right to receive $17.00 per share in cash, without
interest. See "THE MERGER--Terms of the Merger--Structure of the Merger."
BACKGROUND OF THE TRANSACTION
Since the late 1980's, the Company has pursued a growth strategy
pursuant to which the Company has sought to make opportunistic acquisitions of
hotels throughout the United States, with particular emphasis on the
intermountain region of Utah, Idaho, Montana and Arizona. The Company's growth
strategy also includes the expansion and renovation of the Company's existing
hotels.
2
<PAGE>
While the Company has been able to expand from the ownership of six
hotels in 1985 to the ownership or management of 23 hotels today, the ability of
the Company to expand at a more significant rate and to fully realize the
opportunities that it believes are available has been limited by the Company's
significant leverage and its limited access to the capital markets. Throughout
1994 and much of 1995, the Company attempted to lessen its leverage and to
access the capital markets by restructuring into a real estate investment trust.
The attempt was not successful and the proposed restructuring was not effected.
After determining that it was unlikely that the Company's proposed
restructuring could be completed in 1995 and after a company that operates
hotels expressed an interest in pursuing a possible business combination with
the Company, on November 24, 1995 the Company issued a press release announcing
that it had retained Montgomery Securities as financial advisor to assist the
Board in evaluating potential strategic alternatives available to enhance
shareholder value. As part of such evaluation, third party proposals were
solicited for an acquisition of the Company or certain portions of its business.
The Board held a special meeting on April 17, 1996 to review those third party
proposals that had been received as well as other strategic alternatives
available to the Company. At such meeting, the Company's legal and financial
advisors reviewed the terms of such third party proposals and the Company's
financial advisors also analyzed other possible strategic alternatives,
including again pursuing a real estate investment trust offering, seeking to
obtain additional equity or debt financing under the Company's current corporate
structure, implementing a stock repurchase program, and maintaining the
Company's current corporate and financial structure. At such meeting, the Board
concluded that a fully financed all cash merger proposal received from Tiger was
the most attractive third party proposal and authorized the Company's management
and financial and legal advisors to commence negotiations with Tiger. The Board
also instructed the Company's management and financial advisors to further
analyze the Company's prospects if it maintained its current corporate and
financial structure.
After extensive negotiations between the Company and Tiger between
April 18 and May 6, 1996 (including a special meeting of the Board at which the
negotiations were reviewed and the prospects of the Company if it rejected the
Tiger offer discussed), a special meeting of the Board was held on May 6, 1996
at which the Company's legal advisers reviewed the terms of the proposed merger
agreement and voting agreements and Montgomery Securities rendered its opinion
that the consideration to be received by the shareholders of the Company was
fair to such holders from a financial point of view as of that date. The Board
then unanimously approved the Merger Agreement and the Merger. The Merger
Agreement and the Merger were also unanimously approved by a special committee
of the Board consisting of all non-management directors of the Company (Messrs.
Herrell, Huntsman, Lucas, McIlrath and Sheffert; collectively, the "Non-
Management Directors") to ensure that Tiger and the Merging Subsidiary would not
be deemed "interested shareholders" under the MBCA and thereby prohibit the
Company from engaging in a business combination with either Tiger or the Merging
Subsidiary for four years. On May 7, 1996, the Merger Agreement and the Voting
Agreements were executed. See "THE MERGER--Background of the Transaction."
REASONS FOR THE MERGER; RECOMMENDATION OF THE BOARD
The Board, at a special meeting held on May 6, 1996, unanimously
approved the Merger Agreement and the transactions contemplated thereby,
including the Merger. The Board has determined that the Merger Agreement is in
the best interests of the shareholders of the Company and recommends that the
shareholders vote FOR the authorization and adoption of the Merger Agreement and
the Merger. For a discussion of the factors considered by the Board in reaching
its recommendation and determination, see "THE MERGER--Reasons for the Merger;
Recommendation of the Board" and "--Opinion of Financial Advisor."
3
<PAGE>
OPINIONS OF FINANCIAL ADVISOR
On May 6, 1996, Montgomery Securities delivered its oral opinion,
subsequently confirmed in writing as of such date and as of the date of this
Proxy Statement, to the Board to the effect that the consideration to be
received by the shareholders of the Company pursuant to the Merger is fair to
such shareholders from a financial point of view as of such dates. The full
text of Montgomery Securities' opinion dated the date of this Proxy Statement,
including the procedures followed, the matters considered and the assumptions
made by Montgomery Securities, is included as Annex B to this Proxy Statement.
For a description of such opinion, see "THE MERGER--Opinion of Financial
Advisor."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
General. In considering the recommendation of the Board with respect
to the Merger, shareholders should be aware that certain members of the Board
and of management of the Company have certain interests which may present them
with potential conflicts of interest in connection with the Merger. See "THE
MERGER--Interests of Certain Persons in the Merger."
Options. Pursuant to the terms of the Merger Agreement, the options
("Options") received by Company employees (including certain executive officers)
and Directors under stock plans of the Company will, at the Effective Time (as
defined below), be fully exercisable and the holder of each Option will be
entitled to receive with respect to each share of Common Stock subject to such
Option, an amount in cash equal to the excess of $17 over the exercise price for
such share of Common Stock payable upon exercise of such Option. See "THE
MERGER--Interests of Certain Persons in the Merger--Options."
Termination Protection Agreements. The Merger will constitute a
change in control under termination agreements with five executive officers of
the Company (Harold W. Milner, Kevin L. Molloy, Michael R. Hinckley, Steven R.
Stenhaug and Michael J. Quinn) so that if any such employee is terminated by the
Company without cause (as defined in the termination agreements) or by the
employee for good reason (as defined in the termination agreements) within two
years following the Merger, then such employee will be entitled to receive from
the Company certain severance benefits. See "THE MERGER--Interests of Certain
Persons in the Merger--Termination Protection Agreements."
MAYO FOUNDATION; NON-COMPETITION AGREEMENT
Mayo Foundation owns the Mayo Clinic, an internationally renowned
medical clinic in the Rochester, Minnesota area. The level of demand created by
the Mayo Clinic is such that the results of operations of the Company's
Rochester hotels are dependent upon the continued attractiveness of the Mayo
Clinic to patients and medical conferences. Mayo Foundation also beneficially
owned, as of the Record Date, 1,113,234 shares of Common Stock representing
approximately 25.6% of the Common Stock.
As a condition to entering into the Merger Agreement, Tiger required
that Mayo Foundation enter into a non-competition agreement with Tiger.
Concurrently with the execution of the Merger Agreement, Mayo Foundation entered
into a non-competition agreement, dated as of May 6, 1996 (the "Non-Competition
Agreement"), with Tiger, in which Mayo Foundation agrees that, if the Merger is
completed, for a period of seven years after the Effective Time, it and its
affiliates will refrain from taking certain actions relating to the ownership,
financing or operation of hotels or the employment of certain Company employees,
in each case in the Rochester, Minnesota Metropolitan Statistical Area (the
"Geographic Area"). See "THE MERGER--Non-Competition Agreement."
4
<PAGE>
EFFECTIVE TIME OF THE MERGER; PAYMENT FOR SHARES OF COMMON STOCK
The Merger will become effective at the date and time that the
articles of merger ("Articles of Merger") are duly filed with the Secretary of
State of the State of Minnesota in accordance with the MBCA or at such later
time as may be specified in the Articles of Merger (the "Effective Time"). So
long as the Merger Agreement shall not have been terminated, the filing of the
Articles of Merger will be made as soon as practicable after all conditions set
forth in the Merger Agreement have been satisfied or waived. See "THE MERGER--
Effective Time of the Merger."
Detailed instructions with regard to the surrender of certificates,
together with a letter of transmittal, will be forwarded to holders of
certificates formerly evidencing shares of Common Stock promptly, but in no
event later than two business days, following the Effective Time, by ChaseMellon
Shareholder Services, L.L.C. (the "Paying Agent"). Payment will be made to such
former holders of Common Stock as promptly as practicable following receipt by
the Paying Agent of certificates for their Common Stock and other required
documents. No interest will be paid or accrued on the cash payable upon the
surrender of certificates. SHAREHOLDERS SHOULD NOT SEND ANY STOCK CERTIFICATES
AT THIS TIME. See "THE MERGER--Payment for Shares of Common Stock."
REGULATORY AND THIRD PARTY APPROVALS
The Merger may not be consummated unless certain information has been
furnished to the Antitrust Division of the Department of Justice (the "DOJ") and
the Federal Trade Commission (the "FTC") pursuant to the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), and the
applicable waiting period in connection with such information has expired or
been earlier terminated. The Company received early termination of the waiting
period applicable to the Merger on June 24, 1996. In addition, the obligations
of Tiger and Merging Subsidiary to effect the Merger are subject to the receipt
of certain governmental approvals and third party consents. See "THE MERGER--
Regulatory and Third Party Approvals--HSR Act", "--Other Governmental Approvals"
and "--Third Party Contractual Consents".
ACCOUNTING TREATMENT
The Merger will be accounted for as a "purchase," for accounting and
financial reporting purposes. See "THE MERGER--Accounting Treatment."
TERMS OF THE MERGER
Conditions to Consummation of the Merger. The obligations of the
Company, Tiger and the Merging Subsidiary to effect the Merger are subject to
the fulfillment, at or prior to the closing of the transactions pursuant to the
Merger Agreement (the "Closing"), of the following conditions: (a) the approval
and adoption of the Merger Agreement at the Special Meeting by the affirmative
vote of the holders of a majority of the outstanding shares of Common Stock
entitled to vote; (b) the filing of the Articles of Merger with and the
acceptance of the same by the Secretary of State of the State of Minnesota and
the expiration of all applicable waiting periods under the HSR Act; (c) the
absence of any temporary restraining order, injunction or other legal restraint
or prohibition preventing the consummation of the Merger or any pending action
or proceeding by any governmental entity seeking the same, the absence of any
pending action or proceeding by any governmental entity seeking material damages
in connection with the Merger or any action taken, or any statute, rule,
regulation or order enacted, entered, enforced or deemed applicable to, the
Merger which makes the consummation of the Merger illegal; and (d) the opinion
of Montgomery Securities addressed to the Board, to the effect that the
consideration to be received in the Merger is fair to the Company's
shareholders, shall not have been withdrawn.
5
<PAGE>
In addition, the obligations of Tiger and the Merging Subsidiary to
effect the Merger are subject to the fulfillment, at or prior to the Closing, of
certain other conditions, any one or more of which may be waived by Tiger,
including: (a) the accuracy in all material respects of the representations and
warranties of the Company set forth in the Merger Agreement; (b) the performance
by the Company in all material respects of all material obligations required to
be performed by it under the Merger Agreement on or prior to the date of the
Closing (the "Closing Date"); (c) the receipt of certain third party contractual
consents on terms reasonably satisfactory to Tiger and the receipt by Tiger of
all consents, approvals, licenses and permits of governmental entities necessary
to enable Tiger to operate the Company's Properties (as defined in the Merger
Agreement) immediately following the Effective Time substantially in the same
manner as operated on May 6, 1996; and (d) the absence since May 6, 1996 of any
material adverse change in the business, Properties, assets, results of
operations or financial condition of the Company and its Subsidiaries (as
defined in the Merger Agreement) taken as a whole.
The obligation of the Company to effect the Merger is also subject to
the fulfillment at or prior to the Closing of certain other conditions,
including: (a) the accuracy in all material respects of the representations and
warranties of Tiger and the Merging Subsidiary set forth in the Merger
Agreement; and (b) the performance by Tiger and the Merging Subsidiary in all
material respects of all material obligations required to be performed by them
under the Merger Agreement at or prior to the Closing Date. See "THE MERGER--
Terms of the Merger--Conditions to Consummation of the Merger."
No Solicitation and Related Matters. Pursuant to the Merger
Agreement, the Company has agreed that it will not, nor will it authorize or
permit any of its Subsidiaries or, to the extent within its control, the
entities in which the Company directly or indirectly holds an equity interest,
but less than that required to constitute a Subsidiary (the "Investment
Entities"), or any of their respective officers, directors, employees or other
representatives retained by them to, solicit or initiate, or encourage, or take
any other action to facilitate or encourage, the submission of inquiries or the
making of a Takeover Proposal (as defined below in "THE MERGER--Terms of the
Merger--No Solicitation and Related Matters"), or enter into or continue
discussions or negotiate with any person in furtherance of such inquiries or to
obtain a Takeover Proposal, provided, that following receipt of an unsolicited
Takeover Proposal that the Company reasonably anticipates could lead to a
Superior Proposal (as defined below in "THE MERGER--Terms of the Merger--No
Solicitation and Related Matters"), the Company may, subject to execution of a
confidentiality agreement, provide information to the party making such Takeover
Proposal and participate in discussions or negotiations concerning such a
Takeover Proposal following notice to Tiger.
The Company has also agreed that the Board will not (i) withdraw or
modify, or propose to withdraw or modify, in a manner adverse to Tiger or the
Merging Subsidiary, the approval or recommendation by the Board of the Merger
Agreement or the Merger, (ii) approve or recommend, or propose to approve or
recommend, any Takeover Proposal or (iii) enter into any agreement with respect
to any Takeover Proposal. Notwithstanding the foregoing, in the event the Board
receives a Superior Proposal, the Board may withdraw or modify its approval or
recommendation of the Merger Agreement or the Merger, approve or recommend any
such Superior Proposal, enter into an agreement with respect to such Superior
Proposal or terminate the Merger Agreement, in each case at any time after the
fifth business day following notice to Tiger. The Board may also withdraw or
modify its approval or recommendation of the Merger Agreement or the Merger and
terminate the Merger Agreement if Montgomery Securities' fairness opinion is
withdrawn. If the Company proposes to take any of the foregoing actions, it
shall concurrently with entering into such agreement pay, or cause to be paid,
to Tiger or the Merging Subsidiary (as Tiger shall designate) all documented
out-of-pocket expenses payable to non-affiliates and incurred by Tiger and the
Purchaser in connection with the Merger Agreement and the transactions
contemplated thereby to the date of such action, up to $1,250,000 (the "Expense
Reimbursement") and in the event that the Company shall enter into any agreement
relating to a Takeover Proposal, such agreement shall provide for the payment to
Tiger of a $5,000,000 termination fee (the
6
<PAGE>
"Termination Fee"), upon the consummation of the transaction contemplated by the
agreement, provided that if, prior to the receipt of a Takeover Proposal, the
Company proposes to take any of the foregoing actions as provided in the second
preceding sentence, it shall concurrently pay to Tiger or the Merging Subsidiary
the Expense Reimbursement and the Termination Fee.
Pursuant to the Voting Agreement between Milner Associates and Merging
Subsidiary, Milner Associates agreed to be bound by and to comply with the no
solicitation obligations of the Company described above. See "THE MERGER--Terms
of the Merger--No Solicitation and Related Matters."
Termination; Fees and Expenses. The Merger Agreement may be
terminated and abandoned at any time prior to the Effective Time, whether before
or after approval by the shareholders of the Company: (a) by unanimous written
consent of Tiger, the Merging Subsidiary and the Company; (b) by Tiger, upon a
breach of any representation, warranty, covenant or agreement on the part of the
Company set forth in the Merger Agreement, or if any such representation or
warranty of the Company is or becomes untrue, in each case such that the
conditions to the obligations of Tiger and the Merging Subsidiary with respect
to the accuracy of the representations and warranties of the Company and the
performance of the material obligations of the Company could not be satisfied;
(c) by the Company, upon a breach of any representation, warranty, covenant or
agreement contained in the Merger Agreement on the part of Tiger, or if any such
representation or warranty of Tiger is or becomes untrue, in each case such that
the conditions to the obligations of the Company with respect to the accuracy of
the representations and warranties of Tiger and the Merging Subsidiary and the
performance of the material obligations of Tiger and the Merging Subsidiary
could not be satisfied; (d) by either Tiger or the Company, if any permanent
injunction or action by any governmental entity preventing the consummation of
the Merger shall have become final and nonappealable; (e) by either Tiger or the
Company if the Merger has not been consummated on or prior to October 6, 1996;
(f) by either Tiger or the Company, if the approval by the shareholders of the
Company of the Merger Agreement and the Merger has not been obtained by reason
of the failure to obtain the required vote at a duly called meeting of
shareholders or an adjournment of such a meeting; (g) by Tiger, if (i) following
the receipt of a Takeover Proposal, the Board or any committee thereof shall
have withdrawn or modified (or resolved to withdraw or modify) its approval or
recommendation of the Merger Agreement or the Merger in any manner which is
adverse to Tiger or the Merging Subsidiary; or (ii) the Board has approved or
recommended (or resolved to approve or recommend) to the shareholders of the
Company a Superior Proposal; and (h) by the Company (in accordance with the
provisions of the Merger Agreement relating to Takeover Proposals and Superior
Proposals) if the Board receives a Takeover Proposal that, in the exercise of
its fiduciary obligations (as determined in good faith by the Board based on the
advice of outside counsel), it determines to be a Superior Proposal (and after
notice to Tiger) or if Montgomery Securities withdraws its fairness opinion.
See "THE MERGER--Terms of the Merger--Termination."
Unless the Merger Agreement is terminated by the Company, and Tiger or
the Merging Subsidiary shall have failed to perform in any material respects its
obligations under the Merger Agreement, (x) if the Merger Agreement is
terminated under clauses (b), (f) (but only if a Takeover Proposal has been
received by the Company prior to the vote or the Board has withdrawn or
adversely modified its approval or recommendation of the Merger), (g) or (h) of
the preceding paragraph, or (y) if at any time within one year following the
termination of the Merger Agreement, any person or "group" (within the meaning
of Section 13(d)(3) of the Exchange Act (other than Tiger or any of its
affiliates)) shall have acquired, directly or indirectly, the Company, all or
substantially all its Properties or assets or more than 50% of the shares of
Common Stock then outstanding; or if the Company enters into an agreement with
respect to a Superior Proposal prior to the one year anniversary of the
termination of the Merger Agreement, the Company shall pay upon demand Tiger or
the Merging Subsidiary for all documented out-of-pocket fees and expenses
payable to non-Affiliates incurred by Tiger and the Merging Subsidiary in
connection with the Merger Agreement and the transactions contemplated thereby
to the date of such event, up to a maximum reimbursement obligation
7
<PAGE>
of $1,250,000. The Company shall pay to Tiger an additional fee of $5,000,000
upon demand if (i) (A) it is required to reimburse Tiger or the Merging
Subsidiary for its fees and expenses (as set forth in clause (x) above, except
in the case of a termination by Tiger described in clause (b) of the preceding
paragraph, (B) the Company shall have entered into an agreement with respect to
a Superior Proposal within one year after such termination and (C) the
transactions contemplated by such agreement shall have been consummated or (ii)
it is required to pay Tiger or the Merging Subsidiary the Expense Reimbursement
as a result of a person or "group" having acquired the Company, all or
substantially all its Properties or assets or more than 50% of the shares of the
Common Stock then outstanding or the Company having entered into an agreement
with respect to a Superior Proposal within one year following the termination of
the Merger Agreement, as set forth in clause (y) above. Except as set forth
above, each party to the Merger Agreement agreed to bear its own expenses in
connection with the Merger Agreement and the transactions contemplated thereby.
See "THE MERGER--Terms of the Merger--Fees and Expenses."
CERTAIN TAX CONSEQUENCES OF THE MERGER
The receipt of cash for the Common Stock pursuant to the Merger or
pursuant to the exercise of appraisal rights under the MBCA will be a taxable
transaction for United States federal income tax purposes and may also be a
taxable transaction for state, local, foreign and other tax purposes. SECURITY
HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE PARTICULAR TAX
CONSEQUENCES TO THEM OF THE MERGER. See "THE MERGER--Certain Tax Consequences of
the Merger."
DISSENTERS' APPRAISAL RIGHTS
Under the MBCA, if the Merger is effected, holders of shares of Common
Stock who have not voted in favor of the Merger and who have otherwise properly
exercised their rights for appraisal of such shares under the MBCA will be
entitled to dissenters' rights of appraisal in connection with the Merger. See
"THE MERGER--Appraisal Rights of Dissenting Shareholders" and Annex C to this
Proxy Statement.
MARKET PRICES
The Common Stock is listed on the NASDAQ National Market System
("NASDAQ"). As of November 22, 1995, the last full trading day prior to the
press release by the Company announcing that it had retained Montgomery
Securities to assist the Board in evaluating strategic alternatives to enhance
shareholder value, including a possible sale of all or a part of the Company,
the high and low sales prices of the Common Stock, as reported to the NASDAQ,
were $10.125 and $10.00, respectively and the closing sales price was $10.125.
As of May 6, 1996, the last full trading day prior to the announcement by the
Company of the execution of the Merger Agreement, the high, low and closing
sales prices of the Common Stock, as reported to the NASDAQ, were each $15.50.
SHAREHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR THE COMMON STOCK.
8
<PAGE>
SUMMARY SELECTED FINANCIAL AND OPERATING DATA OF THE COMPANY (UNAUDITED)
The following table presents summary historical financial data for the
Company. The data should be read in conjunction with the historical Consolidated
Financial Statements and Notes thereto of the Company which are incorporated by
reference elsewhere in this Proxy Statement. The interim unaudited information
for the three months ended March 31, 1996 and April 2, 1995 reflect, in the
opinion of management of the Company, all adjustments necessary for a fair
presentation of results for such periods and all such adjustments are of a
normal recurring nature. The results of operations for such interim periods are
not necessarily indicative of the results of operations for any other interim
periods or for the year as a whole. See "SELECTED FINANCIAL AND OPERATING DATA
OF THE COMPANY (UNAUDITED)."
<TABLE>
<CAPTION>
Fiscal Year (1) First Three Months (1)
---------------------------------------------------------------- ----------------------
1991 1992 1993 1994 1995 1995 1996
--------- --------- --------- --------- --------- --------- ---------
(dollars in thousands, except per share and Hotel Operating Data)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues
Revenue of owned operations......... $ 64,652 $ 74,014 $ 96,979 $ 109,910 $ 121,772 $ 29,367 $ 31,535
Other properties managed and/or
partially owned................... 31,506 29,237 17,910 17,490 18,113 4,109 4,519
--------- --------- --------- --------- ---------- -------- --------
Total revenues.................. $ 96,158 $ 103,251 $ 114,889 $ 127,400 $ 139,885 $ 33,476 $ 36,054
========= ========= ========= ========= ========== ======== ========
Revenue of Owned Operations
Lodging............................. $ 51,021 $ 58,408 $ 80,505 $ 93,243 $ 105,356 $ 26,643 $ 28,629
Formal wear, laundry & other........ 13,193 14,182 15,277 15,894 15,912 2,686 2,795
Interest income..................... 438 1,424 1,197 773 504 38 111
--------- --------- --------- --------- ---------- -------- --------
Total revenue of owned operations.. 64,652 74,014 96,979 109,910 121,772 29,367 31,535
--------- --------- --------- --------- ---------- -------- --------
Operating Costs and Expenses
Lodging............................. 38,458 45,053 60,974 70,797 79,318 19,753 21,145
Formal wear, laundry & other........ 10,772 12,092 12,621 13,487 12,801 3,177 3,214
Corporate expenses.................. 2,827 3,225 3,272 3,257 3,901 1,055 1,056
Depreciation and amortization....... 5,740 6,492 7,904 8,477 8,919 2,036 2,233
Non-recurring charges (2)........... -- 2,758(2) -- 1,811(2) 526(2) -- --
--------- --------- --------- --------- ---------- -------- --------
Total operating costs and expenses. 57,797 69,620 84,771 97,829 105,465 26,021 27,648
--------- --------- --------- --------- ---------- -------- --------
Gross Operating Profit............... 6,855 4,394 12,208 12,081 16,307 3,346 3,887
Interest expense................... (6,764) (7,303) (9,362) (11,207) (13,115) (3,050) (3,062)
Equity earnings (loss) of
affiliates....................... (2,326) (688) 27 193 533 154 115
Gain (loss) on sale of assets...... 3,005 (693) 6 20 (11) 1 --
---------- --------- --------- --------- ---------- -------- --------
Income (Loss) From
Operations Before
Income Taxes....................... 770 (4,290) 2,879 1,087 3,714 451 940
Provision (credit) for
income taxes..................... 247 (300) 875 323 697 140 294
---------- --------- --------- --------- ---------- -------- --------
Income (loss) before
extraordinary item and
changes in accounting
principle........................ 523 (3,990) 2,004 764 3,017 311 646
Extraordinary item net of
income taxes..................... 173 2,517 -- -- -- -- --
Cumulative effect of
change in accounting for
nonpension post-
retirement benefits.............. -- (250) -- -- -- -- --
--------- --------- --------- --------- ---------- -------- --------
Net Income (Loss).................... $ 696 $ (1,723) $ 2,004 $ 764 $ 3,017 $ 311 $ 646
========= ========= ========= ========= ========== ======== ========
Income (loss) per share (3)........ $ 0.13 $ (0.59) $ 0.46 $ 0.14 $ 0.69 $ 0.07 $ 0.15
========= ========= ========= ========= ========== ======== ========
Other Financial Data:
EBITDA (4)......................... $ 10,269 $ 11,398 $ 20,139 $ 20,751 $ 25,759 $ 5,536 $ 6,235
Cash flows from:
Operations (5)................... $ 7,686 $ 4,427(5) $ 10,249 $ 9,434(5) $ 13,271(5) $ 4,116 $ 3,424
Investing activities............. (19,729) (9,797) (14,685) (13,256) (16,234) (1,702) (3,445)
Financing activities............. 12,024 5,975 4,617 3,948 2,776 (1,263) 2,083
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
Fiscal Year (1) First Three Months (1)
------------------------------------------------------------------ ----------------------
1991 1992 1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- ----------- --------- ---------
(dollars in thousands, except per share and Hotel Operating Data)
<S> <C> <C> <C> <C> <C> <C> <C>
Hotel Operating Data (owned
or managed):
Number of hotels--end of
period...................... 14 16 18 20 22 20 22
Number of rooms--end of
period...................... 3,374 3,699 4,103 4,382 4,647 4,385 4,647
Room nights available.......... 1,214,729 1,314,976 1,406,488 1,560,874 1,669,835 405,975 430,938
Occupancy...................... 60.9% 61.9% 63.9% 65.1% 65.9% 64.6% 62.9%
ADR (6)........................ $ 61.71 $ 61.36 $ 63.31 $ 63.75 $ 65.48 $ 69.88 $ 74.41
REVPAR (6)..................... $ 37.56 $ 38.01 $ 40.48 $ 41.53 $ 43.13 $ 45.16 $ 46.82
Balance Sheet Data:
Investment in real estate
(before accumulated
depreciation)................ $ 122,659 $ 156,583 $ 196,873 $ 205,028 $ 217,702 $206,688 $220,566
Net investment in real estate.. 81,259 110,202 142,743 150,747 156,584 150,472 157,322
Total assets................... 114,170 132,392 162,406 169,069 178,367 170,392 182,994
Total mortgage debt............ 81,334 93,710 123,985 125,126 129,754 123,804 133,575
Stockholders' equity........... 16,586 14,867 16,366 21,271 24,173 21,504 24,984
Cash Dividends Declared
Per Common Share: -- -- .04 .08 .13 .03 .04
Book Value Per Share: 5.06 4.42 4.78 5.10 5.63 5.14 5.76
</TABLE>
- ----------------
(1) The Company's fiscal year ends on the Sunday closest to December 31 in each
year. Accordingly, the table presents selected financial and operating data
as of the end of and for each of the five fiscal years and for the three
months ended April 2, 1995 and March 31, 1996.
(2) Non-recurring charges for fiscal 1992, 1994 and 1995 reflect (i) a charge
of $2.8 million in 1992 consisting of a $1.2 million non-cash writedown of
a hotel property and a $1.6 million charge to settle a lawsuit concerning
the Sheraton San Marcos Golf Resort and Conference Center, and (ii) $1.8
million and $526,000 of expenses in 1994 and 1995, respectively, related to
the REIT Offering.
(3) Income per share in 1991 is computed on a primary and fully diluted share
basis using the weighted average number of outstanding shares of Common
Stock and Common Stock equivalents of 3,274,000. For 1992, loss per share
is computed on a primary share basis using only the weighted average number
of outstanding shares of Common Stock aggregating 3,341,000. Common Stock
equivalents are excluded since the effect is antidilutive. For 1993, 1994
and 1995, income per share is computed on a primary and fully diluted share
basis using the weighted average number of outstanding shares of Common
Stock and Common Stock equivalents (arising from employee stock plans,
deferred stock compensation and a warrant) aggregating 3,743,000, 3,956,000
and 4,355,000, respectively.
(4) "EBITDA" means income (loss) from operations before income taxes, excluding
gains or losses on sale of assets, non-cash writedowns of real estate
property, interest expense, depreciation and amortization. EBITDA does not
represent cash generated from operating activities in accordance with
generally accepted accounting principles ("GAAP"), is not to be considered
as an alternative to net income or any other GAAP measurements as a measure
of operating performance and is not necessarily indicative of cash
available to fund all cash needs. Management believes that EBITDA is a
useful measure of cash flow because it indicates the cash flow available to
spend on capital additions to maintain the Company's assets, to service
existing debt or to use at the Company's discretion for other purposes.
(5) Cash flow from operations for fiscal 1992, 1994 and 1995 reflects non-
recurring charges of $1.6 million, $1.8 million and $526,000, respectively.
Prior to consideration of such expenses, cash flow from operations would
have been $6.0 million for 1992, $11.2 million for 1994 and $13.8 million
for 1995. The $1.6 million charge in 1992 relates to the settlement of a
lawsuit, and the 1994 and 1995 charges represent costs incurred in
connection with the REIT Offering.
(6) "ADR" means average daily room revenue per occupied room, while "REVPAR"
means average daily room revenue per available room.
10
<PAGE>
THE SPECIAL MEETING
Date; Time; Place; Purpose; Record Date
The Special Meeting will be held on August 13, 1996, at 10:00 a.m.,
Central Daylight Time, at The Kahler Hotel, 20 Second Avenue SW, Viking Room,
Rochester, Minnesota, 55902.
The purpose of the Special Meeting is to consider and vote upon a
proposal to authorize and adopt the Merger Agreement, dated as of May 6, 1996,
among the Company, Tiger and the Merging Subsidiary. As a result of the Merger,
all shareholders (other than Tiger) will cease to have an equity interest in, or
possess any rights as shareholders of, the Company. See "THE MERGER--Terms of
the Merger."
The Board has fixed the close of business on July 1, 1996 as the
Record Date for the determination of shareholders entitled to notice of and to
vote at the Special Meeting. Holders of Common Stock are entitled to one vote at
the Special Meeting for each share of Common Stock held of record at the Record
Date.
Shareholders have the right to dissent from the Merger Agreement and,
subject to certain conditions provided under the MBCA, to receive payment for
the fair value of their shares of Common Stock. See "THE MERGER--Appraisal
Rights of Dissenting Shareholders" and Annex C to this Proxy Statement.
Votes Required
The presence, in person or represented by proxy, of the holders of a
majority of the shares of Common Stock entitled to vote at the Special Meeting
is necessary to constitute a quorum at the Special Meeting. The affirmative vote
of the holders of a majority of the shares of Common Stock outstanding on the
Record Date is required to authorize and adopt the Merger Agreement. Only
shareholders of record at the close of business on the Record Date are entitled
to notice of and to vote at the Special Meeting or any and all adjournments and
postponements thereof. As of the Record Date, 4,348,141 shares of Common Stock,
were issued and outstanding and entitled to vote at the Special Meeting. Each
share of Common Stock issued and outstanding on the Record Date will entitle the
holder thereof to one vote on each proposal presented at the Special Meeting.
Shares of Common Stock represented at the Special Meeting by a properly
executed, dated and returned proxy will be treated as present at the Special
Meeting for purposes of determining a quorum, without regard to whether the
proxy is marked as casting a vote or abstaining.
As of the Record Date, 4,348,141 shares of Common Stock, were issued
and outstanding, of which 1,113,234 shares (approximately 25.6% of the
outstanding shares of Common Stock) were beneficially owned by Mayo Foundation
and 832,630 shares (approximately 18.7% of the outstanding shares of Common
Stock) were beneficially owned by directors and executive officers of the
Company and their affiliates. See "STOCK OWNERSHIP OF MANAGEMENT AND CERTAIN
BENEFICIAL OWNERS". Mayo Foundation and all of such directors and executive
officers of the Company and their affiliates have indicated to the Company that
they intend to vote all such shares in favor of approval of the Merger
Agreement.
Terms of the Voting Agreements
The following is a summary of certain provisions of the Voting
Agreements, conformed copies of which are included as Annexes D and E to this
Proxy Statement. Such summary is qualified in its entirety by reference to the
Voting Agreements.
Pursuant to the Voting Agreements, Milner Associates (an affiliate of
Harold W. Milner, President and Chief Executive Officer of the Company) has
agreed to vote all 492,407 shares of Common Stock owned by Milner Associates,
and Mayo Foundation agreed to vote 370,000 of the 1,113,234 shares of Common
Stock it owns, (a) in favor of the Merger, the Merger Agreement and any
transactions contemplated thereunder, and
11
<PAGE>
(b) against any proposal, action or agreement that would result in the breach of
any covenant, representation, warranty or any other obligation or agreement of
the Company under the Merger Agreement or that could result in the non-
fulfillment of any of the conditions of the Company's obligations under the
Merger Agreement (collectively, the "Voting Commitments"). However, neither
Milner Associates nor Mayo Foundation has any obligations under their respective
Voting Agreements if the Merger Agreement is amended to (i) change the form of
the merger consideration or (ii) reduce the merger consideration below $17.00
per share; Milner Associates' Voting Agreement obligations are also voided if
the Merger Agreement is amended to change the treatment of options to purchase
shares of Common Stock. The Voting Agreements cover an aggregate of
approximately 19.9% of the outstanding shares of Common Stock.
The Voting Agreements each also provide that in the event Milner
Associates or Mayo Foundation does not comply with their respective Voting
Commitments and until termination of the Merger Agreement, Merging Subsidiary
shall irrevocably be appointed such non-complying party's attorney and proxy,
with full power of substitution, to vote the shares of Common Stock subject to
such non-complying party's Voting Agreement, and to otherwise act at any meeting
of shareholders of the Company or consent in lieu of any such meeting or
otherwise, on matters concerning such non-complying party's Voting Commitments.
Under the Voting Agreements, Milner Associates and Mayo Foundation
have each covenanted not to sell, transfer, tender, assign, hypothecate or
otherwise dispose of, grant a proxy or power of attorney with respect to, create
or permit to exist any lien, option, right of first refusal, agreement,
limitation on its voting rights or other encumbrance of any nature whatsoever
with respect to, the shares of Common Stock subject to the Voting Agreements,
or, directly or indirectly, initiate, solicit or encourage any person to take
actions which could reasonably be expected to lead to the occurrence of any of
the foregoing. Furthermore, Milner Associates agreed to be bound by and to
comply with the non-solicitation obligations of the Company set forth in the
Merger Agreement. See "THE MERGER--Terms of the Merger--No Solicitation and
Related Matters."
The Voting Agreement with Mayo Foundation is limited to 370,000 of the
1,113,234 shares of Common Stock owned by Mayo Foundation in order to limit the
aggregate number of shares of Common Stock subject to the Voting Agreements to
less than 20% of the outstanding shares of Common Stock. Because the shares of
Common Stock subject to the Voting Agreements may be deemed to be beneficially
owned by Tiger for purposes of Minnesota's Control Share Acquisition Act, the
provisions of such Act would have been triggered (and, in general, the aggregate
voting power of the shares subject to the Voting Agreements would have been
limited to 20% of the aggregate voting power of all outstanding shares of Common
Stock) had the Voting Agreement with the Mayo Foundation been applicable to all
shares of Common Stock owned by the Mayo Foundation. While the Mayo Foundation
does not have any agreement, arrangement or understanding with Tiger or the
Company with respect to the voting of the shares of Common Stock owned by Mayo
Foundation that are not subject to the Voting Agreement, Mayo Foundation has
informed the Company that it intends to vote all such shares in favor of the
approval and authorization of the Merger Agreement.
Revocation and Use of Proxies; Solicitation
Proxies relating to shares held in the name of a broker for
customer(s) who are the beneficial owner(s) of such shares that are properly
executed and returned by brokers will be counted as shares present for purposes
of determining the presence of a quorum, but will not be treated as shares
having voted at the Special Meeting as to the Merger Agreement and the Merger if
authority to vote is withheld by the broker (a "broker non-vote"). Abstentions
will be recorded as such by the Inspectors of Election for the Special Meeting.
In light of the treatment of abstentions and broker non-votes and the fact that
the affirmative votes required to authorize and adopt the Merger Agreement and
the Merger are stated percentages of the total number of outstanding shares of
Common Stock on the Record Date, abstentions and broker non-votes (as well as
any other failure to vote shares of Common Stock) will have the same effect as
votes against the authorization and adoption of the Merger Agreement and the
Merger.
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SHAREHOLDERS WHO FAIL TO PROPERLY EXECUTE AND RETURN A PROXY CARD OR
OTHERWISE FAIL TO VOTE THEIR SHARES OF COMMON STOCK AT THE SPECIAL MEETING WILL
IN EFFECT BE VOTING AGAINST THE AUTHORIZATION AND ADOPTION OF THE MERGER
AGREEMENT AND THE MERGER.
Shares of Common Stock which are represented by properly executed,
dated and returned proxies, unless such proxies shall have previously been
properly revoked, will be voted in accordance with the instructions indicated in
such proxies. If no contrary instructions are indicated, such shares will be
voted FOR authorization and adoption of the Merger Agreement and in the
discretion of the proxy holder as to any other matter which may properly come
before the Special Meeting. Any other matter which may properly come before the
Special Meeting at which a quorum is present for such purpose requires the
affirmative vote of at least a majority of the shares of Common Stock present,
in person or by proxy. A shareholder who has given a proxy may revoke it at any
time prior to its exercise at the Special Meeting by delivering a written notice
of revocation of the proxy being revoked, or by submission of a properly
executed proxy bearing a later date than the proxy being revoked, to the
Secretary of the Company at 20 Second Avenue SW, Rochester, Minnesota, 55902, or
by voting the Common Stock covered thereby in person at the Special Meeting.
In addition to soliciting proxies by mail, officers and employees of
the Company, without receiving additional compensation therefor, may solicit
proxies personally or by telephone, telegram or other forms of wire or facsimile
communication. The Company has also retained MacKenzie Partners, Inc. as its
proxy solicitor in connection with the Special Meeting. The fee for such
services will be not more than approximately $4,000 plus out-of-pocket expenses.
Any questions or requests for assistance regarding proxies and related materials
may be directed to MacKenzie Partners, Inc. by telephone at 1-800-322-2885. The
Company will bear the cost of the Special Meeting and of soliciting proxies
therefor, including the reasonable expenses incurred by brokerage houses,
custodians, nominees and fiduciaries in forwarding proxy material to the
beneficial owners of shares of Common Stock.
THE COMPANIES
KAHLER REALTY CORPORATION
General. Founded in 1917, the Company is a publicly-held real estate
company primarily engaged in the business of owning, developing and managing
hotels. The Company owns or manages 23 hotels throughout the United States,
focusing primarily on markets in Rochester, Minnesota and in the intermountain
region of Utah, Idaho, Montana and Arizona. The Company also owns Textile Care
Services, a laundry service that serves southeastern Minnesota and the Salt Lake
City area, as well as Anderson's Formal Wear, a wholesale and retail formal wear
supplier in the midwestern and western states.
The Company's executive offices are located at 20 Second Avenue
Southwest, Rochester, Minnesota 55902 and its telephone number is (507) 285-
2700. The approximate number of employees of the Company as of December 31, 1995
was 3,400.
Lodging. The Company is primarily engaged in the business of owning,
developing and managing hotels. As of the date hereof, the Company owned or
managed 23 hotels in 11 states which had a total of 4755 guest rooms. Kahler has
multiple hotels in its two primary markets: (i) Rochester, Minnesota and (ii)
the intermountain region of Utah, Idaho, Montana and Arizona, as well as other
hotels located throughout the United States. In Rochester, Minnesota, the
Company owns four hotels with 1,325 rooms, the largest number of rooms under
common management in the area. The Company owns or manages 11 hotels with 2,389
rooms in Utah, Idaho, Montana and Arizona. The five hotels located in the
Greater Salt Lake City area have 1,295 rooms, the largest number of rooms under
common management in that area. The Company also operates two hotels with
conference centers located in Morgantown, West Virginia and Fort Worth, Texas.
In addition, the Company owns or manages six other hotels in Michigan,
Wisconsin, West Virginia, Illinois, Minnesota and
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Iowa. Eleven hotels are operated under Sheraton, Hilton, Holiday Inn, Best
Western, Quality Inn and Knights Inn franchises and licenses, with the balance
being operated without any franchise or other affiliation.
Formal Wear. Anderson's Formal Wear ("Anderson's") is a wholesale and
retail distributor of men's formal wear. It operates wholesale distribution
centers in Rochester, Minnesota; Denver, Colorado; Kansas City, Kansas and
Dallas, Texas. From these centers, the formal wear is distributed to retail
outlets throughout the Midwest and Western United States. Anderson's operates 39
retail outlets in Colorado, Iowa, Kansas, Minnesota, Missouri, Nevada, North
Dakota, South Dakota, Texas, Oklahoma and Wisconsin. Purchases of tuxedos and
related accessories come from a number of different manufacturers. These tuxedos
are stored in the four distribution centers and rented at wholesale cost per
affair to more than 1,500 unaffiliated retail dealers.
Textile Care Services. Textile Care Services provides commercial and
institutional laundry and dry cleaning services, as well as providing linen and
uniform rental and dust control services. Textile Care Services provides
cleaning and rental services to the Company's lodging facilities and to medical,
institutional and commercial businesses (including the Mayo Clinic) in
Rochester, Minnesota and Salt Lake City, Utah.
TIGER/WESTBROOK REAL ESTATE FUND, L.P.
Tiger is an approximately $784 million real estate investment fund.
Tiger's investors include 28 institutions comprised mainly of public and private
pension funds, endowments and foundations. Tiger has completed 22 investments
comprised of over 130 properties in 20 states with an estimated portfolio value
in excess of $1 billion. Tiger invests in a broad range of real estate related
assets, portfolios and companies. Its investments include hotels, office,
retail and industrial properties, apartment complexes, residential lot
developments, resorts, golf course properties, marina facilities and debt
securities. The sole general partner of Tiger is Tiger/Westbrook Real Estate
Partners Management, L.L.C. ("TREPM"). The sole managing member of TREPM is
Westbrook Real Estate Fund I, L.L.C ("WREF"). Since its inception, the managing
members of WREF have been Paul D. Kazilionis and William H. Walton III. Tiger's
principal executive offices are located at 101 Park Avenue, 47th Floor, New
York, New York 10178, and its telephone number is (212) 984-2500.
TIGER REAL ESTATE ACQUISITION CORP.
The Merging Subsidiary is a corporation recently organized by Tiger
for the purpose of effecting the Merger. It has no material assets and has not
engaged in any activities except in connection with the Merger Agreement and the
transactions contemplated thereby. The principal executive offices of the
Merging Subsidiary are located at 101 Park Avenue, 47th floor, New York, New
York 10178, and its telephone number is (212) 984-2500.
THE MERGER
STRUCTURE OF THE MERGER
If the Merger Agreement is authorized and adopted by the shareholders
in accordance with the MBCA, and the other conditions contained in the Merger
Agreement are satisfied or waived, the Merging Subsidiary will be merged with
and into the Company, with the Company continuing as the Surviving Corporation
under the name "Kahler Realty Corporation". Upon the terms and subject to the
conditions of the Merger Agreement, each share of the Common Stock (other than
shares (i) held in the treasury of the Company, (ii) owned by Tiger or by the
Merging Subsidiary or (iii) held by shareholders who have not voted in favor of
the Merger and who have otherwise properly exercised their rights for appraisal
of such shares in accordance with Sections 302A.471 and 302A.473 of the MBCA)
will be converted into the right to receive $17 per share in cash, without
interest. The Merger shall have the effects set forth in Section 302A.641 of the
MBCA.
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BACKGROUND OF THE TRANSACTION
Since the late 1980's, the Company has pursued a growth strategy
pursuant to which the Company has sought to make opportunistic acquisitions of
hotels throughout the United States, with particular emphasis on the
intermountain region of Utah, Idaho, Montana and Arizona. The Company's growth
strategy also includes the expansion and renovation of the Company's existing
hotels.
While the Company has been able to expand from the ownership of six
hotels in 1985 to the ownership or management of 23 hotels today, the ability of
the Company to expand at a more significant rate and to fully realize the
opportunities that it believes are available has been limited by the Company's
significant leverage (as of March 31, 1996, the Company's consolidated
indebtedness as a percentage of its total capitalization was 85%) and the
Company's limited access to the capital markets. As a result of these
considerations, in August 1994 the Board approved a series of related
transactions (the "REIT Restructuring") pursuant to which, among other things,
the Company's hotel management operations and non-hotel businesses (the
"Management Business") would be separated from the Company's hotel ownership and
hotel development business (the "Ownership and Development Business"), the
Management Business would be spun-off to the Company's shareholders, the Company
(consisting entirely of the Ownership and Development Business) would be
converted to a real estate investment trust ("REIT") for federal income tax
purposes and the Company would raise approximately $91.2 million (net of
underwriting discounts and offering expenses) through a public offering of the
Company's common stock (the "REIT Offering"). The Company intended to use
approximately $88.8 million of the net proceeds from the REIT Offering to repay
outstanding indebtedness of the Company. The Board believed that the REIT
Restructuring would provide the Company with greater access to the capital
markets and that such access combined with the Company's decreased leverage
would provide the Company with greater financing flexibility to pursue its
growth strategy.
On October 10, 1994, the shareholders of the Company approved the REIT
Restructuring. On October 14, 1994, however, the Company was forced to postpone
the REIT Restructuring after the underwriters for the REIT Offering informed the
Company that they were not prepared to proceed with such offering due to adverse
market conditions. In the Spring of 1995, market conditions improved.
Accordingly, in June, 1995 the Company decided that it would seek to complete
the REIT Offering in the fourth quarter of 1995. The Company intended to raise
approximately $108.4 million (net of underwriting discounts and offering
expenses) in the recommenced REIT offering and use approximately $106.2 million
of the net proceeds from such recommenced REIT offering to repay outstanding
indebtedness of the Company.
In October 1995, the Company was informed by the lead underwriter for
the REIT Offering that it was unlikely that such offering could be completed in
1995 due to adverse conditions in the public market for REIT equity securities,
principally a large number of REIT equity offerings and a lack of investor
interest in the Company. In late October 1995, a company that operates hotels
called the Chairman of the Company and expressed an interest in pursuing a
possible business combination with the Company. Following receipt of such call,
the Company retained Simpson Thacher & Bartlett, as special legal counsel, to
assist the Company in evaluating its strategic alternatives. The Company also
determined to retain an investment banking firm to assist the Company in
evaluating such alternatives.
On November 6, 1995, the Company received a letter from the hotel
operator referred to above requesting that such party be permitted to
immediately commence a due diligence review of the Company. The Company declined
such proposal and stated that after the Company had retained a financial advisor
and the Board had fully reviewed the situation, a representative of the Company
would contact such hotel operator if appropriate.
On November 24, 1995, the Company issued a press release announcing
that it had retained Montgomery Securities as financial advisor to assist the
Board in exploring the potential strategic alternatives available to enhance
shareholder value, including the possibilities of continuing to pursue the REIT
Offering,
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pursuing a sale of all or part of the Company's assets or continuing to operate
the Company in its present corporate form.
Thereafter, with the assistance of its legal and financial advisors,
the Board evaluated the following strategic alternatives for the Company: (i)
soliciting third party proposals for an acquisition of the Company or its
Ownership and Development Business, (ii) pursuing a REIT offering, (iii) seeking
additional equity or debt financing under the Company's current corporate
structure, (iv) implementing a stock repurchase program and (v) maintaining the
Company's current corporate and financial structure. As part of such evaluation,
third party proposals were solicited for an acquisition of the Company or its
Ownership and Development Business. During December 1995, January 1996 and
February 1996, 28 parties contacted, or were contacted by, Montgomery Securities
or the Company, or both, including the hotel operator that contacted the Company
in late October 1995. During such period, 19 interested parties entered into
confidentiality agreements with the Company and received confidential
information regarding the Company in order to assist each such party in making a
preliminary proposal to the Company.
In response to a request from Montgomery Securities for preliminary
proposals, on or prior to February 12, 1996 five preliminary proposals to
acquire the entire Company were received as well as one preliminary proposal for
a sale-leaseback financing involving twelve of the Company's properties. Four
of the parties submitting such preliminary proposals (including the party
proposing a sale-leaseback transaction) were invited to conduct full due
diligence reviews of the Company, including site visits and meetings with senior
management of the Company, in anticipation of submitting final proposals. On
March 4, 1996 the Company received an additional preliminary proposal to acquire
all of the Company and the party making such proposal was subsequently provided
the opportunity to conduct a full due diligence review of the Company. In
addition, in March 1996 the Company was contacted by an individual purporting to
represent an investor group that was interested in pursuing a possible
acquisition of the Company. Following the execution of a confidentiality
agreement, such individual was permitted to conduct a due diligence review of
the Company. All interested parties were requested to submit definitive
proposals to the Company on or prior to April 16, 1996.
In response to the Company's instructions, on or prior to April 16,
1996, the Company received four proposals: two definitive proposals to acquire
all of the outstanding Common Stock in merger transactions; one preliminary non-
binding proposal to acquire one-third of the outstanding Common Stock while
simultaneously combining the Company's operations with that of the acquiror; and
a proposed letter of intent contemplating a sale-leaseback transaction involving
twelve of the Company's properties. The Company also received a letter
purporting to be on behalf of the investor group referenced above that contained
a proposal to acquire all of the Company in a cash merger transaction but did
not identify the members of the investor group or contain any information
regarding the source of financing for the transaction. After the Company
informed the party that submitted such letter that its proposal would not be
considered bona fide unless appropriate information regarding its financing was
made available, such party repeatedly refused to provide any such information or
any evidence that it could finance an acquisition of the Company and the Board
concluded that the proposal was not bona fide.
On April 17, 1996, the Board held a special meeting to review each of
the third party proposals as well as the other strategic alternatives that were
being evaluated. At such meeting, the Company's legal advisors and Montgomery
Securities reviewed the process by which third party proposals had been
solicited, the terms of each of the third party proposals and Montgomery
Securities also analyzed such other strategic alternatives.
Tiger's proposal was a definitive offer to acquire all of the
outstanding shares of Common Stock of the Company for cash consideration in the
range of $16.50 to $17.50 per share of Common Stock, with price subject to the
results of additional due diligence. The Board looked favorably upon the
following terms of Tiger's proposal: the offer was for all outstanding shares of
Common Stock for a cash purchase price in excess of the Company's current and
historical market price and the prices specified in the other bona fide
acquisition proposals that were received; Tiger had available all necessary
financing for the transaction; and Tiger's
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proposed acquisition structure was a merger that would require fewer third party
consents and other structural contingencies than the other bona fide acquisition
proposals received by the Company. The Board also believed, however, that the
Tiger offer contained numerous issues that would need to be resolved if the
Company were to pursue the proposed transaction. The most significant of such
issues were the specific price per share of Common Stock that Tiger would pay,
the scope of the Company's representations and warranties, the ability of Tiger
to terminate the transaction if the results of Tiger's continuing due diligence
were not satisfactory, and the terms of the non-solicitation, expense
reimbursement and termination fee provisions.
The Board determined to reject a merger proposal by a company that
operates hotels. Such proposal consisted of the acquisition of all of the
outstanding shares of Common Stock for consideration consisting of a combination
of $3.80 per share of Common Stock in cash and stock of the acquiror with a
purported value of $10.20 per share of Common Stock. The Board found this offer
to be less attractive than the Tiger offer primarily because the proposed
purchase price per share of Common Stock was significantly lower than the bottom
of Tiger's price range.
A preliminary, non-binding acquisition proposal by a private
owner/operator of hotels was also rejected by the Board. Such proposal consisted
of (i) the acquiror purchasing one-third of the outstanding Common Stock for
$15.50 per share in cash or, at the election of the shareholders of the Company
selling their shares, stock of the acquiror, (ii) voting control of the Company
being transferred to the acquiror and (iii) all of the hotel assets and
operations of the Company being transferred to the acquiror in exchange for a
23.6% equity interest in the acquiror. The proposal valued such continuing
equity interest at $15.50 per share of Common Stock. The Board concluded that
such proposal was less attractive than the Tiger proposal because (l) the
purported value per share of Common Stock was less than Tiger's price range, (2)
the acquiror would gain control of the Company and its assets by purchasing only
one-third of the outstanding Common Stock, (3) the value of the Common Stock
retained by the Company's shareholders was believed to be extremely uncertain in
light of the lack of any market valuation of the acquiror, the proposed holding
company and control structure and Montgomery Securities' view that the liquidity
of the Common Stock would likely decrease following the transaction and (4) the
proposal constituted a non-binding outline of terms and, in light of the complex
structure proposed and certain legal issues relating thereto, the Board believed
there was significant uncertainty as to whether the Company and the potential
acquiror would agree on definitive terms.
The Board also determined to not pursue a preliminary proposal by a
financing entity to enter into a sale-leaseback transaction involving twelve of
the Company's hotel properties. Such transaction would also have included the
grant by the Company to such financing entity of a right of first refusal over
any sale of the other hotel interests owned by the Company. The analyses of
Montgomery Securities and the Company's management indicated that all of the
proceeds from such transaction would be required to be used to repay outstanding
debt encumbering the properties to be sold and to finance certain fees and
reserve payments relating to the transaction. Montgomery Securities also
believed that such a transaction would not increase the equity value of the
Company. The Board determined not to pursue such transaction principally
because such transaction would not provide any net proceeds to facilitate the
Company's expansion, such a sale of a majority of the Company's hotel assets
would not facilitate future debt financings and Montgomery Securities' belief
that the transaction would not increase the equity value of the Company, and
therefore that the Company's ability to expand through equity financings would
not be enhanced.
Following the Board's review of the various third party proposals,
Montgomery Securities reviewed the potential strategic alternatives that could
possibly be pursued by the Company. During such review the members of the Board
asked questions of Montgomery Securities and discussed their own analyses of the
various alternatives.
Montgomery Securities discussed the potential advantages that could be
realized by the Company if it were able to successfully complete a REIT offering
on the terms previously attempted by the Company. Such advantages included a
capital structure with significantly more equity that would likely increase the
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Company's ability to obtain additional financing to finance its growth strategy,
and increased liquidity for shareholders because of a larger public float for
the Common Stock. Montgomery Securities believed, however, that the Company was
not likely to successfully complete a REIT financing in the current market
environment.
Montgomery Securities then reviewed the possibility of raising
additional equity or debt financing under the Company's existing structure in
order to finance the Company's growth strategy. Montgomery Securities indicated
that in light of (a) the Company's relatively high leverage and cost of capital,
lack of shareholder liquidity and heterogeneous asset mix, (b) the geographic
concentration of the Company's hotels and (c) the potential negative impact of
such a transaction on the Company's earnings per share and stock price, it was
very uncertain whether the Company could complete any significant equity or debt
financing on attractive terms in the current market environment. Montgomery
Securities also reviewed the possibility of implementing a stock repurchase
program. Montgomery Securities indicated that because of the Company's capital
constraints, it believed any such program would have to be fairly modest and
would therefore have relatively little impact on earnings per share or the
Company's stock price.
Finally, Montgomery Securities discussed the alternative of the
Company maintaining its current corporate and financial structure. Montgomery
Securities believed that due to market concerns regarding the factors described
under (a) and (b) above, and the resulting constraints on the ability of the
Company to expand rapidly, a decision by the Company to retain the status quo
could cause a significant decline in the Company's stock price in the short term
with uncertain prospects for the Company's shareholders in the long term.
At its April, 17, 1996 special meeting, the Board concluded that the
fully financed offer received from Tiger was the most attractive third party
proposal. The Board also concluded that, based upon the Company's prior
experience and the analyses of Montgomery Securities, it was very uncertain
whether the REIT Offering or any other significant financing could be completed
on attractive terms in the near term. The Board believed that by decreasing the
Company's financial resources, a stock repurchase program would not address the
underlying problem that was inhibiting the Company's growth and would therefore
not benefit the Company's shareholders. As a result, the Board authorized the
Company's management and legal and financial advisors to commence negotiations
with Tiger. In light of the significant issues that remained to be resolved with
Tiger, the Board also instructed the Company's management and financial advisors
to further review the Company's prospects if the Company maintained its current
corporate and financial structure.
During the period from April 18, 1996 through April 23, 1996,
representatives of the Company and Tiger engaged in negotiations over the terms
of Tiger's proposed transaction. During such period, Tiger also conducted
additional due diligence investigations of the Company.
At a special meeting of the Board on April 24, 1996, Montgomery
Securities, the Company's legal advisors and management reviewed the status of
the negotiations with Tiger. In addition, the Company's management and
Montgomery Securities discussed the prospects of the Company if it rejected the
Tiger proposal and maintained its current corporate and financial structure. The
Company's management reviewed the historical growth of the Company and
management's belief that, under the Company's current corporate and financial
structure, the Company could continue such growth into the future. Management
also reviewed its most recent financial projections for the Company (See "THE
MERGER--Certain Projections"). Montgomery Securities reviewed its analysis from
the April 17, 1996 Board meeting, indicated that such analysis remained
unchanged, and repeated its view that the prospects for the Company's equity
value were uncertain in light of the factors identified above. At the April 24,
1996 meeting, the Board authorized management, Montgomery Securities and the
Company's legal advisors to continue the negotiations with Tiger.
From April 26, 1996 through May 6, 1996, representatives of Tiger and
the Company continued to negotiate the terms of Tiger's proposed transaction and
Tiger continued its due diligence review of the Company. The negotiations
generated satisfactory agreement on the following terms: (i) a price of $17.00,
(ii)
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the inclusion of exceptions in many of the Company's representations and
warranties for matters not having a material adverse effect on the business,
assets, results of operations or financial condition of the Company and its
Subsidiaries taken as a whole or on the ability of the Company to perform its
obligations under the Merger Agreement, (iii) the absence of any right of Tiger
to terminate the Merger Agreement based on the results of its due diligence
(other than the general ability to terminate if the Company's representations
and warranties are materially untrue or that the Company cannot perform its
obligations in all material respects, and (iv) the Company, following receipt of
a takeover proposal that, in the exercise of its fiduciary obligations, it
determines to be a superior proposal may terminate the Merger Agreement and
enter into an agreement regarding the superior proposal upon payment of a
$5,000,000 termination fee and certain expenses of Tiger up to $1,250,000.
At a special meeting of the Board on May 6, 1996 the Company's legal
advisors reviewed the terms of the proposed merger agreement with Tiger and the
voting agreements to be entered into by Tiger with Mayo Foundation and Milner
Associates. Montgomery Securities reviewed its financial analyses of the
proposed transaction and rendered its opinion that the consideration to be
received by the shareholders of the Company was fair to such holders from a
financial point of view as of that date. The Board then unanimously determined
that the Merger Agreement was in the best interest of the Company and
unanimously approved the Merger Agreement. The Merger Agreement and the Voting
Agreements were also unanimously approved by a special committee of the Board
consisting of all Non-Management Directors for purposes of Section 302 A.673 of
the MBCA to ensure that Tiger and the Merging Subsidiary would not be deemed
"interested shareholders" under such Section (and thereby prohibit the Company
from engaging in a business combination with Tiger or Merging Subsidiary for
four years) due to the execution of the Voting Agreements.
During the night of May 6, 1996, the Merger Agreement was finalized and
on May 7, 1996, the Merger Agreement and the Voting Agreements were executed.
REASONS FOR THE MERGER; RECOMMENDATION OF THE BOARD
The Board, at a special meeting held on May 6, 1996, unanimously
approved the Merger Agreement and the transactions contemplated thereby,
including the Merger. THE BOARD HAS DETERMINED THAT THE MERGER AGREEMENT IS IN
THE BEST INTERESTS OF THE SHAREHOLDERS OF THE COMPANY AND RECOMMENDS THAT THE
COMPANY'S SHAREHOLDERS VOTE FOR THE AUTHORIZATION AND ADOPTION OF THE MERGER
AGREEMENT. Certain members of the Board and of management of the Company have
certain interests which may present them with potential conflicts of interest in
connection with the Merger. See "THE MERGER--Interests of Certain Persons in the
Merger."
The Board's decision to approve and recommend the Merger Agreement was
the product of the Board's lengthy evaluation process described under "THE
MERGER--Reasons for the Merger". This process involved (a) the implementation of
a controlled auction process by Montgomery Securities to generate the highest,
bona fide, third party acquisition proposals for the Company and review of such
third party proposals by the Board with the assistance of its legal and
financial advisors, (b) a presentation to the Board by Montgomery Securities on
the strategic alternatives available to the Board: namely (i) a sale of the
Company through the controlled auction process, (ii) financing alternatives
(including a REIT Offering, debt or equity financing or a stock repurchase
program) and (iii) the maintenance of the corporate and financial structure of
the Company and (c) several special meetings of the Board in which the Board
considered the various third party proposals and strategic alternatives and,
with the assistance of its financial and legal advisers, took action. (See "The
Merger--Background of the Transaction")
In determining to approve and recommend the Merger Agreement, the Board
considered a number of factors, including the following: (i) the Board's belief
that the Company's high leverage and limited access to the capital markets
prevent the Company from fully realizing its growth strategy and that it is
unlikely that the Company could successfully address such problem in an
appropriate time frame (see "The
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Merger--Background of the Transaction"); (ii) the results of the Board's review
of potential strategic alternatives to maximize shareholder value and the
Board's belief that the Merger presents the best opportunity to achieve such
objective (see "The Merger--Background of the Transaction"); (iii) the
presentations of Montgomery Securities at numerous meetings of the Board and the
opinion of Montgomery Securities that the consideration to be received by the
Company's shareholders pursuant to the Merger Agreement is fair, from a
financial point of view, to the Company's shareholders as of May 6, 1996 (see
"The Merger--Opinion of Financial Advisor" and "--Background of the
Transaction"); (iv) the fact that the $17 per share price in the Merger
represents a premium of approximately 68% over the closing sales price of
$10.125 per share for the Common Stock as reported on the NASDAQ Stock Market on
November 22, 1995, the last full trading day prior to the announcement by the
Company that it had retained Montgomery Securities as financial advisor to
assist the Board in evaluating strategic alternatives, including a possible sale
of all or a part of the Company, and a premium of approximately 10% over the
closing sales price of $15.50 per share for the Common Stock as reported on the
NASDAQ Stock Market on May 6, 1996, the last full trading day prior to the
announcement of the execution of the Merger Agreement (See "MARKET PRICES;
DIVIDENDS"); (v) that the execution of the Merger Agreement followed the
solicitation of offers for an acquisition of the Company in a controlled auction
process; (vi) information with respect to the financial condition, results of
operations, business and prospects of the Company, including the prospects of
the Company if it were to remain independent, and current industry, economic and
market conditions; (vii) the terms and conditions of the Merger Agreement,
including the fact that the Merger Agreement does not include a financing
condition to the obligations of Tiger and the Merging Subsidiary to consummate
the Merger; (viii) that the Merger Agreement permits the Company to terminate
the Merger Agreement or take certain other actions relating to an unsolicited
Takeover Proposal if the Board, in the exercise of its fiduciary obligations (as
determined in good faith by the Board based on the advice of outside counsel),
determines that such Takeover Proposal is a Superior Proposal, pays Tiger's out-
of-pocket expenses and, under certain circumstances, a $5,000,000 termination
fee (see "THE MERGER--Terms of the Merger--No Solicitation and Related Matters"
and "--Fees and Expenses"); and (ix) the terms of the Voting Agreements,
including the commitment of Mayo Foundation and Milner Associates to vote in
favor of the Merger Agreement an aggregate of approximately 19.9% of the
outstanding shares of Common Stock (see "The Special Meeting--Voting Agreements"
and Annexes D and E).
The foregoing discussion of factors considered and given weight by the
Board is not intended to be exhaustive. In view of the variety of factors
considered in connection with its evaluation of the Merger, the Board did not
find it practicable to and did not quantify or otherwise assign relative weights
to the specific factors considered in reaching its determination. In addition,
individual members of the Board may have given different weights to different
factors.
CERTAIN PROJECTIONS
Set forth below is a summary of the projections for fiscal years 1996
and 1997 prepared by the Company on April 15, 1996 (the "Company Projections")
on the basis of the then most recent information concerning the Company and
reflecting the Company's business models on a consolidated basis for the period
covered, on the assumption that the Company would continue its current corporate
and financial structure (and not consummate the Merger). The Company Projections
represented the best estimate of the Company, for which the Company believed it
had a reasonable basis on April 15, 1996, based on a variety of assumptions that
the Company believed were reasonable as of such date, including those described
below.
The Company Projections with respect to revenues, revenues of owned
operations, operating costs and expenses, depreciation and amortization, gross
operating profit, interest expense, equity in earnings of affiliates, income
from operations before income taxes, provision for income taxes, net income and
net income per common share were prepared by the Company's management in a
manner intended to be consistent with the Company's historical financial
statements. The Company Projections, however, were not prepared with a view to
public disclosure or in compliance with published guidelines of the SEC
regarding projections or the guidelines established by the American Institute of
Certified Public Accountants for preparation and
20
<PAGE>
presentation of financial forecasts. In addition, the Company Projections have
not been audited, compiled or otherwise examined by KPMG Peat Marwick LLP, the
Company's independent accountants, or by any other independent accountants.
The Company Projections set forth below include inherently forward-
looking statements and, like all forward-looking statements, involve risks and
uncertainties, including those noted in this paragraph. The Company Projections,
while presented with numerical specificity, are based upon a variety of
assumptions that involve subjective judgments with respect to, among other
things, future economic, competitive and regulatory conditions, financial market
conditions, industry developments, construction schedules and future business
decisions, all of which are difficult or impossible to predict accurately and
many of which are beyond the control of the Company. Therefore, there can be no
assurance that the Company Projections set forth below will prove to be reliable
estimates of probable future performance. It is likely that actual results will
vary materially from these estimates. In light of the uncertainties inherent in
projections of any kind, the inclusion of the Company Projections herein should
not be regarded as a representation by any party that the estimated results will
be realized. There can be no assurances in this regard. In addition, the
management of the Company is not aware of any securities analyst who regularly
follows the Company or of any current published estimates by securities analysts
with which the Company Projections may be compared.
The Company does not as a matter of course regularly make public
forecasts or projections as to future performance. The summary of the Company
Projections provided below is provided because such Company Projections were
provided to Tiger and the 1996 Company Projections were relied upon by
Montgomery Securities in the preparation of its opinions concerning the
fairness, from a financial point of view, of the consideration to be paid
pursuant to the Merger (See "THE MERGER--Opinion of Financial Advisor" below).
The Company Projections summarized below reflect three-months actual
and nine-months projected for fiscal year 1996 and twelve-months projected for
fiscal year 1997. Material assumptions on which the Company Projections
presented below are based include the following:
1. A prime rate of interest for 1996 and 1997 of 8.25%.
2. Budgeted construction costs for 1996 of $1,818,000 for the
expansion of the Boise Park Suite Hotel in Boise, Idaho, and the
inclusion of the expansion (increasing available rooms at the
hotel from 130 rooms to 238 rooms) in operations beginning April
1, 1996.
3. Budgeted construction costs for 1996 of $10,857,000 for the
addition of 96 rooms and a conference center to the Provo Park
Hotel in Provo, Utah, and the inclusion of the expansion in
operations of the Company beginning January 1, 1997.
4. Budgeted construction costs for 1996 of $8,141,000 for the
construction of the Residence Inn in Provo, Utah, and the
inclusion of the new hotel in operations of the Company beginning
January 1, 1997.
5. The inclusion of the Best Western Colonial Park Hotel in Helena,
Montana (acquired on April 1, 1996 for $9,280,000) in operations
of the Company beginning April 1, 1996.
6. For purposes of determining Net Income Per Common Share, a
weighted average of 4,450,000 shares of Common Stock outstanding
in 1996 and 4,550,000 shares of Common Stock outstanding in 1997.
21
<PAGE>
KAHLER REALTY CORPORATION SELECTED PROJECTION DATA
(April 15, 1996 -- Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
1996 1997
------------ ----------
<S> <C> <C>
REVENUES.................................... 155,482 172,356
REVENUES OF OWNED OPERATIONS................ 134,327 148,555
OPERATING COSTS AND EXPENSES (1)............ 115,278 126,924
GROSS OPERATING PROFIT...................... 19,049 21,631
INTEREST EXPENSE............................ (12,773) (11,768)
EQUITY IN EARNINGS OF AFFILIATES............ 489 406
INCOME FROM OPERATIONS BEFORE INCOME TAXES.. 6,765 10,269
PROVISION FOR INCOME TAXES.................. 2,097 3,491
NET INCOME.................................. 4,668 6,778
NET INCOME PER COMMON SHARE................. $ 1.05 $ 1.49
====================================================================
</TABLE>
(1) Operating Costs and Expenses includes depreciation and amortization of
10,047 for 1996 and 10,507 for 1997.
OPINION OF FINANCIAL ADVISOR
Pursuant to an engagement letter dated November 21, 1995, the Board
retained Montgomery Securities to act as its financial advisor in connection
with the consideration by the Company of various strategic and financial
alternatives available to it to maximize shareholder value, including the
possible sale of all or a portion of the Company. Montgomery Securities is a
nationally recognized firm and, as part of its investment banking activities, is
regularly engaged in the valuation of businesses and their securities in
connection with merger transactions and other types of acquisitions, negotiated
underwritings, secondary distributions of listed and unlisted securities,
private placements and valuations for corporate and other purposes. The Company
selected Montgomery Securities as its financial advisor on the basis of
Montgomery Securities' experience and expertise in transactions similar to the
Merger, and its reputation in the lodging and investment communities.
On May 6, 1996, Montgomery Securities delivered its oral opinion,
subsequently confirmed in writing as of such date and as of the date of this
Proxy Statement, that the consideration to be received by the shareholders of
the Company pursuant to the Merger is fair to such shareholders, from a
financial point of view, as of such dates. The amount of such consideration was
determined pursuant to negotiations between the Company and Tiger and not
pursuant to recommendations of Montgomery Securities. No limitations were
imposed by the Company on Montgomery Securities with respect to the
investigations made or procedures followed in rendering its opinion.
THE FULL TEXT OF MONTGOMERY SECURITIES' WRITTEN OPINION TO THE COMPANY
DATED THE DATE OF THIS PROXY STATEMENT IS ATTACHED HERETO AS ANNEX B AND IS
INCORPORATED HEREIN BY REFERENCE. THE FOLLOWING SUMMARY OF MONTGOMERY
SECURITIES' OPINION IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT
OF THE OPINION. MONTGOMERY SECURITIES' OPINION IS DIRECTED TO THE BOARD AND DOES
NOT CONSTITUTE A RECOMMENDATION TO ANY SHAREHOLDER OF THE COMPANY AS TO HOW SUCH
SHAREHOLDER SHOULD VOTE WITH RESPECT TO THE MERGER.
In connection with its opinion, Montgomery Securities, among other things:
(i) reviewed publicly available financial and other data with respect to the
Company, including the consolidated financial statements for recent years and
interim periods to March 31, 1996 and certain other relevant financial and
operating data relating to the Company made available to Montgomery Securities
from published sources and from the internal records of the Company; (ii)
reviewed the Merger Agreement; (iii) reviewed certain publicly available
information concerning the trading of, and the trading market for, the Common
Stock; (iv) compared the
22
<PAGE>
Company from a financial point of view with certain other companies in the
lodging industry which Montgomery Securities deemed to be relevant; (v)
considered the financial terms, to the extent publicly available, of selected
recent business combinations of companies in the lodging industry which
Montgomery Securities deemed to be comparable, in whole or in part, to the
Merger; (vi) reviewed and discussed with representatives of the management of
the Company certain information of a business and financial nature regarding the
Company, furnished to Montgomery Securities by them, including financial
forecasts and related assumptions of the Company and its individual properties
for 1996, which forecasts are summarized above under "THE MERGER--Certain
Projections", and historical financial information regarding the Company's
individual properties; (vii) made inquiries regarding and discussed the Merger
and the Merger Agreement and other matters related thereto with the Company's
counsel; and (viii) performed such other analyses and examinations as Montgomery
Securities deemed appropriate.
In connection with its review, Montgomery Securities did not assume any
obligation independently to verify the foregoing information and relied on its
being accurate and complete in all material respects. With respect to the
financial forecasts for the Company provided to Montgomery Securities by the
Company's management, Montgomery Securities assumed for purposes of its opinion,
with the consent of the Company, that the 1996 forecasts have been reasonably
prepared on bases reflecting the best available estimates and judgments of the
Company's management at the time of preparation as to the future financial
performance of the Company and that they provide a reasonable basis upon which
Montgomery Securities can form its opinion. Although the Company prepared and
provided to Montgomery Securities financial forecasts for 1997, Montgomery
Securities did not rely on such forecasts for purposes of rendering its opinion.
The Company does not publicly disclose internal management forecasts of the type
provided to Montgomery Securities by its management in connection with
Montgomery Securities' review of the Merger. Such forecasts were not prepared
with a view toward public disclosure. In addition, such forecasts were based
upon numerous variables and assumptions that are inherently uncertain,
including, without limitation, factors related to general economic and
competitive conditions (See "THE MERGER--Certain Projections"). Accordingly,
actual results could vary significantly from those set forth in such forecasts.
Montgomery Securities has assumed no liability for such forecasts. Montgomery
Securities also assumed that there have been no material changes in the
Company's assets, financial condition, results of operations, business or
prospects since the date of its last financial statements made available to
Montgomery Securities, except for such changes disclosed by management of the
Company to Montgomery Securities prior to the date of Montgomery Securities'
opinion. Montgomery Securities relied on advice of counsel and independent
accountants to the Company as to all legal and financial reporting matters with
respect to the Company, the Merger and the Merger Agreement, including the legal
status and financial reporting of litigation involving the Company. Montgomery
Securities assumed that the Merger will be consummated in a manner that complies
in all respects with the applicable provisions of the Securities Exchange Act of
1934 and all other applicable federal and state statutes, rules and regulations.
In addition, Montgomery Securities did not assume responsibility for making an
independent evaluation, appraisal or engineering inspection of any of the assets
or liabilities (contingent or otherwise) of the Company, nor was Montgomery
Securities furnished with any such appraisals (other than an architectural and
engineering report prepared by a third party in 1994 in connection with the
Company's proposed Real Estate Investment Trust offering). Finally, Montgomery
Securities' opinion is based on economic, monetary and market and other
conditions as in effect on, and the information made available to Montgomery
Securities as of, the date of its opinion. Accordingly, although subsequent
developments may affect Montgomery Securities' opinion, Montgomery Securities
did not assume any obligation to update, revise or reaffirm its opinion.
Montgomery Securities also assumed, with the Company's consent, that the
Merger will be consummated in accordance with the terms described in the Merger
Agreement, without any further amendments thereto, and without waiver by the
Company of any of the conditions to its obligations thereunder.
Set forth below is a brief summary of the report presented by Montgomery
Securities to the Board on May 6, 1996 in connection with its opinion.
23
<PAGE>
Market Test and Comparable Transactions Analysis. Montgomery Securities
conducted a market test by circulating a confidential offering memorandum to
nineteen potential acquirors of the Company. Of those nineteen entities, four
submitted final bids to acquire the Company (which bids are described above
under "THE MERGER--Background of the Transaction"), including Tiger's bid to
acquire the Company pursuant to the Merger at a price of $17.00 per share. The
Company also received a letter purporting to be on behalf of an investor group
that contained a proposal to acquire all of the Company in a cash merger
transaction at a price per share that was higher than Tiger's bid. However, the
Board, in consultation with its legal and financial advisors, determined that
the higher bid was not bona fide (see "The MERGER--Background of the
Transaction.") Montgomery Securities also reviewed the consideration paid in the
following acquisitions of lodging companies that have been announced since 1993
(acquiror/target); FelCor Suite Hotels/Crown Sterling Suites; Harvey Hotel
Company/United Inns, Inc.; and Morgan Stanley Real Estate Fund, L.P./Red Roof
Inns, Inc. Montgomery Securities analyzed the consideration in such transactions
as a multiple of the target companies' earnings before interest, taxes,
depreciation and amortization for the latest twelve months ("LTM EBITDA"). Such
analysis yielded mean and median multiplies of 8.3x and 8.7x, and high and low
multiples of 11.2x and 6.6x, LTM EBITDA. Montgomery Securities then applied the
foregoing multiples to the Company's LTM EBITDA ($26.3 million, excluding non-
recurring charges), and subtracted the Company's net debt as of March 31, 1996
($135.3 million). This analysis indicated an imputed equity value of the Company
of between $83.0 million and $93.5 million, or between $19.13 and $21.56 per
share.
Comparable Company Analysis. Using public and other available information,
Montgomery Securities calculated the multiples of LTM EBITDA and estimated 1996
EBITDA and net income at which the following thirteen publicly traded lodging
companies were trading on May 1, 1996; Bristol Hotel Company; Extended Stay
America; Hilton Hotels Corp.; John Q. Hammons Hotels, Inc.; LaQuinta Inns, Inc.;
Marcus Corp.; Prime Hospitality Corp.; Red Lion Hotels, Inc.; Red Roof Inns,
Inc.; Servico Inc.; ShoLodge, Inc.; Studio Plus Hotels, Inc.; and Supertel
Hospitality, Inc. The May 1, 1996 stock prices of the above companies reflected
the following ranges of multiples: 6.4x to 22.3x LTM EBITDA; 5.8x to 13.5x
estimated 1996 EBITDA; and 11.7x to 37.2x estimated 1996 net income. Based upon
its evaluation of the Company compared to such companies, Montgomery Securities
calculated an imputed equity value (defined as aggregate value minus net debt)
of the Company using the following multiples: 7.0x to 8.0x the Company's LTM
EBITDA ($26.3 million excluding non-recurring charges); 6.0x to 7.0x the
Company's 1996 estimated EBITDA ($29.6 million); and 12.0x to 15.0x the
Company's 1996 estimated net income ($4.6 million). This analysis indicated an
imputed equity value of the Company of between $42.2 million and $74.9 million,
or between $9.74 and $17.27 per share.
Premiums Paid Analysis. Montgomery Securities reviewed the consideration
paid in eighty five completed acquisitions of between $100 and $250 million that
have occurred since 1995 where more than 50% of the public target was acquired.
Montgomery Securities calculated the premiums paid in those transactions over
the applicable stock price of the target company one day, one week and four
weeks prior to the announcement of the acquisition offer, and then calculated
the mean of those premiums (which were 28.7%, 32.9% and 38.5%, respectively).
Montgomery Securities then applied the mean premiums so derived to the Company's
closing stock prices on November 22, 1995 ($10.13), November 16, 1995 ($10.50)
and October 24, 1995 ($13.13), which were, respectively, the trading days one
day, one week and four weeks prior to the announcement by the Company that it
had retained Montgomery Securities as its financial advisor to consider
strategic and financial alternatives. This analysis indicated an imputed equity
value of the Company of between $56.5 million and $78.8 million, or between
$13.03 and $18.17 per share.
No other company or transaction used in the comparable transactions
analysis or the premiums paid analysis as a comparison is identical to the
Company or the Merger. Accordingly, an analysis of the results of the foregoing
is not mathematical; rather, it involves complex considerations and judgments
concerning differences in financial and operating characteristics of the
companies and other factors that could affect the public trading value of the
companies to which the Company and the Merger are being compared.
24
<PAGE>
Capitalization Rate Valuation Analysis. Montgomery Securities reviewed
financial information provided to it by the Company regarding the individual
1995 performance of each of the 23 hotels owned (in whole or in part) or managed
by the Company, its textile care, food service and formal wear businesses, and
assigned an assumed capitalization rate to each of those hotels and businesses
and calculated the weighted average of those capitalization rates (which was
12.2%). Based on that financial information, Montgomery Securities calculated
the aggregate free cash flows generated by the 23 hotels and the three
businesses in 1995, subtracted the Company's net debt at March 31, 1996 and
further reduced the resulting total by approximately $20.5 million to account
for working capital and other balance sheet items that are attributable to
corporate overhead rather than to the operation of any particular properties.
This analysis indicated an imputed equity value of the Company of $70.6 million
or $14.88 per share.
In connection with its opinion dated the date of this Proxy Statement,
Montgomery Securities performed procedures to reconfirm, as necessary, certain
of the analyses described above and reviewed the assumptions on which such
analyses were based and the factors considered in connection therewith.
While the foregoing summary describes all analyses and examinations that
Montgomery Securities deems material to its opinion, it is not a comprehensive
description of all analyses and examinations actually conducted by Montgomery
Securities. The preparation of a fairness opinion necessarily is not susceptible
to partial analysis or summary description. Montgomery Securities believes that
its analyses and the summary set forth above must be considered as a whole and
that selecting portions of its analyses and of the factors considered, without
considering all analyses and factors, would create an incomplete view of the
process underlying the analyses set forth in its presentation to the Company.
Accordingly, the ranges of valuations resulting from any particular analysis
described above should not be taken to be Montgomery Securities' view of the
actual value of the Company.
In performing its analyses, Montgomery Securities made numerous assumptions
with respect to industry performance, general business and economic conditions
and other matters, many of which are beyond the control of the Company. The
analyses performed by Montgomery Securities are not necessarily indicative of
actual values or actual future results, which may be significantly more or less
favorable than those suggested by such analyses. Such analyses were prepared
solely as part of Montgomery Securities' analysis of the fairness of the Merger
to the Company's shareholders and were provided to the Company in connection
with the delivery of Montgomery Securities' opinion. The analyses do not purport
to be appraisals or to reflect the prices at which a company might actually be
sold or the prices at which any securities may trade at any time in the future.
Montgomery Securities used in its analyses various projections of future
performance prepared by the management of the Company. The projections are based
on numerous variables and assumptions which are inherently unpredictable and
must be considered not certain of occurrence as projected. Accordingly, actual
results could vary significantly from those set forth in such projections.
As described above, Montgomery Securities' opinion and presentation to the
Company were among the many factors taken into consideration by the Board in
making its determination to approve, and to recommend that its shareholders
approve, the Merger.
Pursuant to a letter agreement dated November 21, 1995 (the "Engagement
Letter"), the Company engaged Montgomery Securities to act as its financial
advisor in connection with the consideration by the Company of various strategic
and financial alternatives available to it. Upon execution of the Engagement
Letter, the Company agreed to pay Montgomery Securities a retainer of $100,000.
In addition, if the Merger is effected the Engagement Letter provides for the
Company to pay Montgomery Securities a fee equal to approximately .79167% of the
total consideration paid to the shareholders of the Company in the Merger plus
the long-term debt and notes payable of the Company at the Effective Time, less
a reduction of up to $50,000 based on fees payable by the Company to a specified
third party in connection with the Merger. The $100,000 fee discussed above will
be credited against the fee payable to Montgomery Securities if the Merger is
effected. The fee is not conditioned on the outcome of Montgomery Securities'
opinion or whether or not such opinion
25
<PAGE>
was deemed to be favorable for any party's purposes. The Company will be
obligated to pay that fee contingent upon the consummation of the Merger.
Accordingly, the payment of a substantial majority of Montgomery Securities'
total fee is subject to the consummation of the Merger. The Board was aware of
this fee structure and took it into account in considering Montgomery
Securities' opinion and in approving the Merger Agreement and the transactions
contemplated thereby. The Engagement Letter also calls for the Company to
reimburse Montgomery Securities for its reasonable out-of-pocket expenses.
Pursuant to a separate letter agreement, the Company has agreed to indemnify
Montgomery Securities, its affiliates, and their respective partners, directors,
officers, agents, consultants, employees and controlling persons against certain
liabilities, including liabilities under the federal securities laws, relating
to or arising out of Montgomery Securities' engagement. Montgomery Securities
and its affiliates may maintain business relationships with the Company and its
affiliates.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
General. In considering the recommendation of the Board with respect to the
Merger, shareholders should be aware that the members of the Board and certain
members of management of the Company at the time of the approval of the Merger
Agreement and the Merger had, and currently have, certain interests which may
present them with potential conflicts of interest in connection with the Merger.
The members of the Board were aware of these potential conflicts and considered
them along with the other matters described under "THE MERGER--Reasons for the
Merger; Recommendation of the Board."
Options; Stock Plans. Company employees (including certain executive
officers) and the Directors have received Options to acquire Common Stock
pursuant to the Kahler Corporation Amended and Restated 1987 Stock Option Plan,
the Amended and Restated Kahler Corporation Stock Option Plan for Non-Employee
Directors, the Kahler Corporation Amended and Restated 1982 Incentive Stock
Option Plan, the Kahler Realty Corporation 1994 Stock Option Plan, and the
Kahler Realty Corporation 1994 Non-Employee Directors Stock Option Plan (the
"Stock Plans"), certain of which Options are currently vested and thus
exercisable in full. Pursuant to the Merger Agreement, at the Effective Time
each outstanding Option not then otherwise vested will vest and become fully
exercisable, each outstanding Option (whether or not vested) will be cancelled,
and the holder of each Option will be entitled to receive with respect to each
share of Common Stock subject to such Option, an amount in cash equal to the
excess of $17.00 over the exercise price for such share of Common Stock payable
upon exercise of such Option. In accordance with the Merger Agreement, the Stock
Plans shall terminate as of the Effective Time. The following table specifies
the number of Options held by directors and executive officers of the Company,
and the amount of the payment each individual will receive as a result of the
vesting of then unvested Options at the Effective Time as a result of the
Merger:
<TABLE>
<CAPTION>
OUTSTANDING AMOUNT OF
NAME OPTIONS PAYMENT
- ---- ----------- ----------
<S> <C> <C>
Harold W. Milner........................ 22,500 $168,094
Kevin L. Molloy......................... 17,300 75,675
Michael R. Hinckley..................... 10,600 69,488
Steven R. Stenhaug...................... 22,250 69,625
Michael J. Quinn........................ 13,100 68,013
John H. Herrell......................... 12,000 16,500
A. Blaine Huntsman...................... 8,000 16,500
Donald L. Lucas......................... 12,000 16,500
Donald C. McIlrath, M.D................. 16,000 16,500
Mark W. Sheffert........................ 32,200 16,500
</TABLE>
The above dollar amounts do not include payments for those shares of Common
Stock that could currently be purchased pursuant to currently vested but
unexercised Options (as those Options could be currently exercised
26
<PAGE>
in full and are not vested by the Merger), nor payments related to the Merger
for shares of Common Stock currently owned by such directors and executive
officers.
Termination Protection Agreements. In March 1996, the Board approved,
and the Company entered into, Termination Agreements with five executive
employees (Harold W. Milner, Kevin L. Molloy, Michael R. Hinckley, Steven R.
Stenhaug and Michael J. Quinn). Under the Termination Agreements, if the
employment of the employee is terminated by the Company without cause (as
defined below) or by the employee for good reason (as defined below) within two
years following a Change in Control (as defined below) of the Company (which the
Merger would constitute), then the employee will be entitled to receive from the
Company certain severance benefits which include a lump sum equal to (i) his
highest annual base salary within the three-year period prior to his termination
of employment plus (ii) the higher of (A) fifty percent of such highest annual
base salary, or (B) his highest annual bonus within such three-year period. The
Termination Agreements also provide that following a Change in Control, the
employee will be entitled to receive (a) continued welfare benefits until the
earlier of three years or commencement of equivalent benefits with a new
employer, (b) indemnification from the Company for expenses incurred in
connection with service to the Company, and (c) outplacement assistance
services.
The benefits payable under the Termination Agreements are conditional
and dependent on a number of variables. Therefore, the amounts which could be
payable to eligible executives are not precisely determinable. However, based
upon current levels of base pay and bonus, the Company estimates that the lump
sum amounts that would be payable under the Termination Agreements to Messrs.
Milner, Molloy, Hinckley, Stenhaug and Quinn, if paid currently, would be
approximately $432,600, $301,075, $241,025, $157,500 and $134,400, respectively.
Under the terms of the Termination Agreements, the following terms
have the following meanings:
"Cause" means termination upon: (i) the willful and continued
failure by the employee to perform substantially his duties with the
Company (other than any such failure resulting from his disability or
incapacity due to physical or mental illness) after a demand for
substantial performance is delivered to him by the chairman of the
board or president of the Company which specifically identifies the
manner in which such executive believes that such employee has not
substantially performed his duties; or (ii) the employee's conviction
of willfully engaging in illegal conduct constituting a felony or
gross misdemeanor under federal or Minnesota law which is materially
and demonstrably injurious to the Company. For purposes of this
definition, no act, or failure to act, on the employee's part shall be
considered "willful" unless done, or omitted to be done, by the
employee in bad faith and without reasonable belief that his action or
omission was in, or not opposed to, the best interests of the Company.
Any act, or failure to act, based upon authority given pursuant to a
resolution duly adopted by the Board or based upon the advice of
counsel for the Company shall be conclusively presumed to be done, or
omitted to be done, by the employee in good faith and in the best
interests of the Company. It is also expressly understood that the
employee's attention to matters not directly related to the business
of the Company shall not provide a basis for termination for Cause so
long as the Board has not expressly disapproved in writing of the
employee's engagement in such activities. Notwithstanding the
foregoing, the employee shall not be deemed to have been terminated
for Cause unless and until there shall have been delivered to him a
copy of a resolution duly adopted by the affirmative vote of not less
than three-quarters (3/4) of the entire membership of the Board at a
meeting of the Board called and held for the purpose (after reasonable
notice to the employee and an opportunity for the employee, together
with his counsel, to be heard before the Board), finding that in the
good faith opinion of the Board the employee was guilty of the conduct
set forth above in clause (i) or (ii) of this definition and
specifying the particulars thereof in detail.
"Change in Control" is deemed to have occurred if (i) a
tender offer shall be made and consummated for the ownership of 30% or
more of the outstanding voting securities of the Company,
27
<PAGE>
(ii) the Company shall be merged or consolidated with another corporation
and as a result of such merger or consolidation less than 75% of the
outstanding voting securities of the surviving or resulting corporation
shall be owned in the aggregate by the former shareholders of the Company,
other than affiliates (within the meaning of the Exchange Act) of any party
to such merger or consolidation, as the same shall have existed immediately
prior to such merger or consolidation, (iii) the Company shall sell
substantially all of its assets to another corporation which is not a
wholly owned subsidiary of the Company, (iv) a person, within the meaning
of Section 3(a)(9) or of Section 13(d)(3) (as in effect on the date of the
relevant Termination Agreement) of the Exchange Act, shall acquire 30% or
more of the outstanding voting securities of the Company (whether directly,
indirectly, beneficially or of record) (for purposes hereof, ownership of
voting securities shall take into account and shall include ownership as
determined by applying the provisions of Rule 13d-3(d)(1)(i) (as in effect
on the date of the relevant Termination Agreement) pursuant to the Exchange
Act), or (v) individuals who constitute the Board on the date of the
relevant Termination Agreement (the "Incumbent Board") cease for any reason
to constitute at least a majority thereof, provided that any person
becoming a director subsequent to the date of the relevant Termination
Agreement, whose election, or nomination for election by the Company's
stockholders, was approved by a vote of at least three-quarters (3/4) of
the directors comprising the Incumbent Board (either by a specific vote or
by approval of the proxy statement of the Company in which such person is
named as a nominee for director, without objection to such nomination)
shall be, for purposes of this clause (v), considered as though such person
were a member of the Incumbent Board. Notwithstanding anything in the
foregoing to the contrary, no Change in Control of the Company shall be
deemed to have occurred for purposes of the relevant Termination Agreement
by virtue of any transaction which results in: (vi) the employee, or a
group of Persons (as defined in the Termination Agreements) which includes
the employee, acquiring, directly or indirectly more than fifty percent
(50%) of the combined voting power of the Company's Voting Securities (as
defined in the Termination Agreements), or (vii) the employee becoming
immediately employed by a Person which leases and/or manages substantially
all of the assets of the Company, providing that the terms of such
employment do not constitute "Good Reason" termination neither when such
employment commences nor at any time during the then remaining term of this
Agreement.
"Good Reason" means termination based on:
(i) an adverse change in the employee's status or position(s) as an
executive officer of the Company as in effect immediately prior to the
Change in Control of the Company, including, without limitation, any
adverse change in the employee's status or position(s) as a result of a
material diminution in the employee's duties or responsibilities (other
than, if applicable, any such change directly attributable to the fact that
the Company is no longer publicly owned) or the assignment to the employee
of any duties or responsibilities which, in the employee's reasonable
judgment, are inconsistent with such status or positions(s), or any removal
of the employee from or any failure to reappoint or reelect the employee to
such position(s) (except in connection with the termination of his
employment for Cause, Disability or Retirement (each as defined in the
Termination Agreements) or as a result of the employee's death or by the
employee other than for Good Reason);
(ii) a reduction by the Company in the employee's rate of
compensation (or an adverse change in the form or timing of the payment
thereof) as in effect immediately prior to the Change in Control of the
Company;
(iii) the failure by the Company to continue in effect any Plan (as
defined in the Termination Agreements) in which the employee is
participating at the time of the Change in Control of the Company (or Plans
providing the employee with at least substantially similar benefits) other
than as a result of the normal expiration of any such Plan in accordance
with its terms as in effect at the time of the Change in Control of the
Company, or the taking of any action, or the failure to act,
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by the Company which would adversely affect the employee's continued
participation in any of such Plans on at least as favorable a basis to the
employee as is the case on the date of the Change in Control of the Company
or which would materially reduce the employee's benefits in the future
under any of such Plans or deprive the employee of any material benefit
enjoyed by the employee at the time of the Change in Control in the
Company;
(iv) the Company's requiring the employee to be based anywhere other
than the environs of the municipality where the employee's office is
located immediately prior to the Change in Control of the Company, except
for required travel on the Company's business, and then only to the extent
substantially consistent with the business travel obligations which the
employee undertook on behalf of the Company prior to the Change in Control
of the Company;
(v) the failure by the Company to obtain from any Successor (as
defined in the Termination Agreements) the assent to the relevant
Termination Agreement;
(vi) any purported termination by the Company of the employee's
employment which is not properly affected pursuant to a Notice of
Termination (as defined in the Termination Agreements) and pursuant to any
other requirements of the Termination Agreement. For purposes of the
relevant Termination Agreement, no such purported termination shall be
effective; or
(vii) any refusal by the Company to continue to allow the employee to
attend to matters or engage in activities not directly related to the
business of the Company which, prior to the Change in Control of the
Company, the employee was not expressly prohibited in writing by the Board
from attending to or engaging in.
Indemnification and Insurance. Pursuant to the Merger Agreement, the
By-Laws of the Surviving Corporation shall contain provisions no less favorable
with respect to indemnification of officers and directors of the Company than
are set forth in the By-Laws of the Company, which provisions shall not be
amended, repealed or otherwise modified for a period of six years from the
Effective Time in any manner that would adversely affect the rights thereunder
of individuals who at the Effective Time were current or former directors,
officers, agents, or employees of the Company or otherwise entitled to
indemnification pursuant to the Company's By-Laws. The Surviving Corporation
shall cause any entity to which it shall transfer all or substantially all of
the Company's operations to assume the indemnification obligations of the
Surviving Corporation under the By-Laws for the remainder of such six year
period.
The Surviving Corporation shall cause to be maintained in effect for
six years from the Effective Time the current policies of the directors' and
officers' liability insurance maintained by the Company (provided that the
Surviving Corporation may substitute in the place of such current policies,
other policies of at least the same coverage containing terms and conditions
which are not materially less advantageous) with respect to matters occurring
prior to the Effective Time to the extent available; provided, however, that in
no event shall the Surviving Corporation be required to expend more than an
amount per year equal to 150% of current annual premiums paid by the Company to
maintain or procure insurance coverage pursuant to the Merger Agreement.
MAYO FOUNDATION; NON-COMPETITION AGREEMENT
Mayo Foundation owns the Mayo Clinic, an internationally renowned
medical clinic in the Rochester, Minnesota area. As a result of its operations,
the Mayo Clinic generates a strong demand for hotel accommodations (including
accommodations at the Company's four hotels in the Rochester area). The
Company's Rochester hotels are connected to the Mayo Clinic facilities by
skywalk and pedestrian subways. The level of demand created by the Mayo Clinic
is such that the results of operations of the Company's Rochester hotels are
dependent upon the continued attractiveness of the Mayo Clinic to patients and
medical
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conferences. In addition to lodging, the Company regularly furnishes laundry,
hospitality and food services to the Mayo Foundation and its affiliates at
competitive prices and purchases, at competitive prices, steam, electricity,
water and related services from Franklin Heating Station, a Mayo Foundation
affiliate. Mayo Foundation also beneficially owned, as of the Record Date,
1,113,234 shares of Common Stock representing approximately 25.6% of the Common
Stock.
As a condition to entering into the Merger Agreement, Tiger required
that Mayo Foundation enter into a non-competition agreement with Tiger. In light
of such condition, Kahler requested that Mayo Foundation enter into a non-
competition agreement with Tiger. Mayo Foundation expressed a willingness to
enter into such agreement and negotiated an agreement with Tiger independently
from the Company.
Concurrently with the execution of the Merger Agreement, Mayo
Foundation entered into the Non-Competition Agreement with Tiger in which Mayo
Foundation agreed, that if the Merger is completed, for a period of seven years
following the Effective Time neither it nor any of its affiliates will, directly
or indirectly, as owner, partner, manager, agent, consultant or otherwise: (i)
own, lease, control, operate, manage or finance any hotel in the Geographic
Area, (ii) provide financial incentives for the use of, or subsidies to, any
hotel in the Geographic Area (other than the hotels currently owned by the
Company therein), (iii) cooperate with the promotional activities of any hotel
in the Geographic Area (unless Tiger is provided substantially the same
opportunities for cooperation for the hotels owned by the Company in the
Geographic Area); or (iv) solicit, encourage, or engage in any activity to
induce any executive officer or division or hotel manager of the Company whose
principal office is in the Geographic Area to terminate their employment, or to
become employed by the Mayo Foundation or any of its affiliates.
EFFECTIVE TIME OF THE MERGER
The Effective Time will occur at the date and time that the Articles
of Merger are duly filed with the Secretary of State of the State of Minnesota
in accordance with the MBCA or at such later time as may be specified in the
Articles of Merger so filed. So long as the Merger Agreement shall not have been
terminated, the filing of the Articles of Merger will be made as soon as
practicable after all conditions set forth in the Merger Agreement have been
satisfied or waived. See "THE MERGER--Terms of the Merger--Conditions to
Consummation of the Merger."
PAYMENT FOR SHARES OF COMMON STOCK
As a result of the Merger, holders of certificates formerly evidencing
shares of Common Stock will cease to have any equity interest in the Company and
such certificates shall represent only the right to receive, upon surrender to
the Paying Agent, $17.00 in cash multiplied by the number of shares of Common
Stock evidenced by such certificates. After consummation of the Merger, all
certificates formerly evidencing shares of Common Stock (other than shares (i)
held in the treasury of the Company, (ii) owned by the Merging Subsidiary and
(iii) held by shareholders who have not voted in favor of the Merger and who
have otherwise properly exercised their rights for appraisal of such shares in
accordance with Sections 302A.471 and 302A.473 of the MBCA) will be required to
be surrendered to the Paying Agent in order to receive the cash price of $17.00
per share of Common Stock to which holders thereof will be entitled as a result
of the Merger. No interest will be paid or accrued on the cash payable upon the
surrender of such certificates. After the Effective Time, the Surviving
Corporation shall retain the obligation to pay to holders Common Stock any
dividends or distributions with respect to such Common Stock with a record date
prior to the Effective Time, declared by the Company in accordance with the
terms of the Merger Agreement or prior to the date of the Merger Agreement, and
which remain unpaid at the Effective Time. Detailed instructions with regard to
the surrender of certificates, together with a letter of transmittal, will be
forwarded to former holders of shares of Common Stock by the Paying Agent
promptly, but in no event later than two business days, following the Effective
Time. Holders of shares of Common Stock should not submit their certificates to
the Paying Agent until they have received such materials. Upon surrender of
certificates and other required documents to the Paying Agent,
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the Paying Agent will distribute by bank check the cash price of $17.00 per
share for each share represented by such certificates to the holder thereof.
SHAREHOLDERS SHOULD NOT SEND ANY STOCK CERTIFICATES AT THIS TIME.
CERTAIN OTHER EFFECTS OF THE MERGER
If the Merger is consummated, the Company's shareholders will not have
an opportunity to continue their equity interest in the Company as an ongoing
corporation and therefore will not share in future earnings, if any, and growth
of the Company. If the Merger is consummated, public trading of the Common Stock
will cease, the Common Stock will cease to be quoted on the NASDAQ, and the
registration of the Common Stock under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), will be terminated. As a result, the Surviving
Corporation will be relieved of the duty to file informational reports under the
Exchange Act, such as proxy statements, and its officers, directors and more
than 10% shareholders will be relieved of the reporting requirements under, and
the "short-swing" profit recapture provisions of, Section 16 of the Exchange
Act.
For information concerning the income tax consequences of the Merger,
see "THE MERGER--Certain Tax Consequences of the Merger."
REGULATORY AND THIRD PARTY APPROVALS
HSR Act. The HSR Act provides that certain acquisition transactions
(including the Merger) may not be consummated unless certain information has
been furnished to the Antitrust Division of the DOJ and the FTC and the
applicable waiting period in connection with such information has expired or
been earlier terminated. The required information was furnished by the Company
and Tiger on June 13, 1996, and the Company received early termination of the
waiting period applicable to the Merger on June 24, 1996.
Other Governmental Approvals. The consummation of the Merger will
result in certain local governmental authorities having the right to terminate
or revoke certain local licenses or other rights possessed by individual hotels
that are owned or operated by the Company and its Subsidiaries, including
licenses to serve alcoholic beverages at certain of such hotels. The obligations
of Tiger and Merging Subsidiary to effect the Merger are subject to the receipt
by Tiger of all consents, approvals, licenses and permits of governmental
entities necessary for Tiger to operate the Company's hotel properties
immediately following the Effective Time in substantially the same manner as
operated on May 6, 1996. See "THE MERGER--Terms of the Merger--Conditions to
Consummation of the Merger". Tiger and the Company are in the process of seeking
all such governmental actions. There is no assurance, however, that all such
required governmental consents, approvals, licenses and permits will be
obtained.
Third Party Contractual Consents. The consummation of the Merger will
result in each of Hilton Inns, Inc., Holiday Inns, Inc., Marriott International,
Inc., Choice Hotels International, Inc. and Best Western International, Inc.
having the right to terminate the agreements under which the Company operates
certain hotels under such parties' brand names. The obligations of Tiger and
Merging Subsidiary to effect the Merger are subject to each of the foregoing
parties consenting to the transaction on terms that are reasonably satisfactory
to Tiger. See "THE MERGER--Terms of the Merger--Conditions to the Merger". Tiger
and the Company are in the process of seeking all such third party consents.
There is no assurance, however, that all such consents will be obtained.
ACCOUNTING TREATMENT
The Merger will be accounted for as a "purchase," as such term is used
under generally accepted accounting principles, for accounting and financial
reporting purposes. Accordingly, a determination of the fair
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value of the Company's assets and liabilities will be made in order to allocate
the purchase price to the assets acquired and the liabilities assumed.
TERMS OF THE MERGER
The following is a summary of certain provisions of the Merger
Agreement, a conformed copy of which is included as Annex A to this Proxy
Statement. Such summary is qualified in its entirety by reference to the Merger
Agreement.
General. The Merger Agreement sets forth the terms and conditions upon
and subject to which the Merger is to be effected. If the Merger Agreement is
authorized and adopted by the shareholders in accordance with the MBCA, and the
other conditions contained in the Merger Agreement are satisfied or waived, the
Merging Subsidiary will be merged with and into the Company, with the Company
continuing as the Surviving Corporation under the name "Kahler Realty
Corporation". Upon the terms and subject to the conditions of the Merger
Agreement: each share of the Common Stock (other than shares (i) held in the
treasury of the Company, (ii) owned by Parent or by the Merging Subsidiary and
(iii) held by shareholders who have not voted in favor of the Merger and who
have otherwise properly exercised their rights for appraisal of such shares in
accordance with Sections 302A.471 and 302A.473 of the MBCA) will be converted
into the right to receive $17 per share in cash, without interest.
Conditions to Consummation of the Merger. Under the Merger Agreement,
the obligations of the Company, Tiger and the Merging Subsidiary to effect the
Merger are subject to the fulfillment, at or prior to the Closing, of the
following conditions: (a) the approval and adoption of the Merger Agreement by
the affirmative vote of the holders of a majority of the outstanding shares of
Common Stock entitled to vote; (b) the filing of the Articles of Merger with and
the acceptance of the same by the Secretary of State of the State of Minnesota,
and the expiration of all applicable waiting periods under the HSR Act (see "The
Merger--Regulatory and Third Party Approvals--HSR Act"); (c) no temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal restraint or prohibition
preventing the consummation of the Merger shall be in effect, no action or
proceeding shall have been commenced by any governmental entity seeking any
injunction, restraining order or other order which seeks to prohibit
consummation of the Merger, no action or proceeding shall have been commenced by
any governmental entity seeking material damages in connection with the Merger
shall be pending and there shall not be any action taken, or any statute, rule,
regulation or order enacted, entered, enforced or deemed applicable to, the
Merger, which makes the consummation of the Merger illegal; and (d) the opinion
of Montgomery Securities addressed to the Board, to the effect that the
consideration to be received in the Merger is fair to the Company's
shareholders, shall not have been withdrawn (see "The Merger--Opinion of
Financial Advisor").
In addition, the obligations of Tiger and the Merging Subsidiary to
effect the Merger are subject to the fulfillment at or prior to the Closing of
certain other conditions, any one or more of which may be waived by Tiger,
including: (a) the accuracy in all material respects of the representations and
warranties of the Company set forth in the Merger Agreement and the receipt by
Tiger of an officers' certificate of the Company to such effect; (b) the
performance by the Company in all material respects of all material obligations
required to be performed by it under the Merger Agreement on or prior to the
Closing Date and the receipt by Tiger of an officers' certificate of the Company
to such effect; (c) the receipt of certain third party contractual consents on
terms reasonably satisfactory to Tiger (see "The Merger--Regulatory and Third
Party Approvals--Third Party Contractual Consents") and the receipt by Tiger of
all consents, approvals, licenses and permits of governmental entities necessary
to enable Tiger to operate the Company's Properties immediately following the
Effective Time substantially in the same manner as operated on May 6, 1996 (see
"The Merger--Regulatory and Third Party Approvals--Other Regulatory Approvals");
and (c) the absence since May 6, 1996 of any material adverse change in the
business, Properties, assets, results of operations or financial condition of
the Company and its Subsidiaries taken as a whole and the absence since May 6,
1996 of any
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development which, taken together with all other developments in the aggregate,
would reasonably be expected to result in such material adverse change.
Under the Merger Agreement, the obligation of the Company to effect
the Merger is also subject to the fulfillment at or prior to the Closing of
certain other conditions, any one or more of which may be waived by the Company,
including: (a) the accuracy in all material respects of the representations and
warranties of Tiger and the Merging Subsidiary set forth in the Merger Agreement
and the receipt by the Company of a certificate of Tiger to such effect; and (b)
the performance by Tiger and the Merging Subsidiary in all material respects of
all material obligations required to be performed by them under the Merger
Agreement at or prior to the Closing Date and the receipt by the Company of a
certificate of Tiger to such effect.
Representations and Warranties. The Merger Agreement includes
representations and warranties by the Company as to, among other things: (i)
organization, valid existence, good standing, corporate or partnership power and
qualification of the Company, its Subsidiaries and Investment Entities; (ii)
capital structure of the Company, its Subsidiaries and its Investment Entities
and certain partnership matters; (iii) the authorization, execution, delivery
and enforceability of the Merger Agreement, and the Merger's noncontravention of
any charter or by-law provision or any joint venture or partnership agreement of
the Company, its Subsidiaries and Investment Entities; (iv) regulatory approvals
required for the execution, delivery and performance of the Merger Agreement and
the consummation of the Merger by the Company; (v) compliance as to form and the
accuracy of information contained in documents filed by the Company with the
Securities and Exchange Commission ("SEC"); (vi) the accuracy of certain
financial statements of the Company and their compliance with applicable
accounting requirements and with generally accepted accounting principles; (vii)
compliance as to form and the accuracy of information contained in this Proxy
Statement; (viii) except as disclosed, the absence of material transactions
between the Company and its affiliates, directors and executive officers; and
(ix) certain brokers' and advisors' fees and expenses.
Except for such matters that would not singly or in the aggregate (x)
materially adversely affect the ability of the Company to perform its
obligations under the Merger Agreement or (y) reasonably be expected to result
in a material adverse effect on the business, assets, results of operations or
financial condition of the Company and its Subsidiaries taken as a whole, the
Merger Agreement also includes additional representations and warranties by the
Company as to, among other things: (i) except as disclosed and subject to
certain qualifications, the absence of conflicts between (a) the execution,
delivery and performance of the Merger Agreement and (b) the governmental
regulations applicable to, and contractual obligations of, the Company, its
Subsidiaries and Investment Entities; (ii) except as disclosed, the absence of
material undisclosed liabilities; (iii) except as disclosed, the absence of
certain changes or events affecting the Company, its Subsidiaries and Investment
Entities since December 31, 1995; (iv) except as disclosed, the Company's (and
its Subsidiaries' and Investment Entities') possession of material licenses and
permits and compliance with laws and the absence of governmental investigations
with respect to such entities; (v) the disclosure of the material contracts
("Material Contracts") of the Company, its Subsidiaries and its Investment
Entities and the absence of defaults thereunder; (vi) compliance in all material
respects with the terms of Permitted Liens (as defined in the Merger Agreement)
applicable to the Company, its Subsidiaries (and to the knowledge of the
Company, its Investment Entities and Properties); (vii) except as disclosed, the
absence of any litigation; (viii) certain employee benefits matters, including,
among other things, compliance with laws, the absence of contributions to
multiemployer plans, the absence of pending actions, retiree benefit
obligations, pension plan underfunding matters, the absence of excess parachute
payments, and union, labor law and insurance matters; (ix) certain tax matters,
including timely payment of taxes and the absence of tax deficiencies, tax liens
and excess parachute payments; (x) certain environmental matters, including
compliance with laws, licenses and permits, the absence of releases of hazardous
materials, the absence of environmental claims, and underground storage tank and
asbestos matters; (xi) certain real and personal property matters, including
marketable title, the absence of liens (other than Permitted Liens), the absence
of assessments, quiet possession, material property damage, structural and
utility matters, zoning and encumbrances; and (xii) certain insurance matters.
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The Merger Agreement also includes representations and warranties by
Tiger and the Merging Subsidiary as to, among other things, (i) organization,
valid existence, good standing and corporate or partnership power of Tiger and
the Merging Subsidiary; (ii) the authorization, execution, delivery and
enforceability of the Merger Agreement; (iii) the absence of conflicts between
(a) the execution, delivery and performance of the Merger Agreement and (b) the
Partnership Agreement of Tiger, the Articles of incorporation or By-Laws of the
Merging Subsidiary, or governmental regulations applicable to, and contractual
obligations of, Tiger or Merging Subsidiary; (iv) regulatory approvals required
for the execution, delivery and performance of the Merger Agreement and the
consummation of the Merger by Tiger and the Merging Subsidiary; (v) the accuracy
of information supplied by Tiger or the Merging Subsidiary in connection with
this Proxy Statement; (vi) certain brokers' and advisors' fees and expenses and
(vii) the availability to Tiger and Merging Subsidiary of all funds necessary to
consummate the transactions contemplated by the Merger Agreement.
Conduct of Business of the Company. The Company has agreed that,
except as contemplated by the Merger Agreement, during the period from May 6,
1996 to the Effective Time, the Company shall, and shall cause its Subsidiaries
and, to the extent within its control, its Investment Entities to, (i) act and
carry on their respective businesses in the ordinary course of business and, to
the extent consistent therewith, use reasonable efforts, to preserve intact
their current business organizations, keep available the services of their
current key officers and employees and preserve the goodwill of those engaged in
material business relationships with them, (ii) maintain and keep their
Properties and equipment in good repair, working order and condition, consistent
with current condition, except for ordinary wear and tear, (iii) use their best
efforts to keep in full force and effect insurance comparable in amount and
scope of coverage to that now maintained by each of them, and (iv) perform in
all material respects all of its obligations under all contracts and commitments
applicable to its business or Properties (including, without limitation, under
Material Contracts), subject to the Company's right to enter into comparable
substitute arrangements, consistent with past practice, on terms generally no
less favorable to the Company than those in effect on May 6, 1996. Without
limiting the generality of the foregoing, the Company has agreed that during
such period, except as expressly contemplated by the Merger Agreement, the
Company shall not, and shall not permit any of its Subsidiaries or, to the
extent within the Company's control, its Investment Entities to, without the
prior consent of Tiger: (1) declare, set aside or pay any dividends on, or make
any other distributions in respect of, any of its outstanding Ownership
Interests (as defined in the Merger Agreement), other than (A) dividends and
distributions to the Company or any of its wholly owned Subsidiaries, (B)
regular quarterly cash dividends not in excess of $.04 per share of Common Stock
(with usual record and payment dates and in accordance with the Company's
present dividend policy) and scheduled distributions by non-wholly owned
Subsidiaries and Investment Entities; (2) split, combine or reclassify any of
its outstanding Ownership Interests or issue or authorize the issuance of any
other securities in respect of, in lieu of or in substitution for shares of its
outstanding Ownership Interests; or (3) subject to certain limited exceptions,
purchase, redeem or otherwise acquire any outstanding Ownership Interests, or
any rights, warrants or options to acquire any such Ownership Interests; (ii)
except for limited exceptions set forth in the Merger Agreement, authorize for
issuance, issue, deliver, sell (or agree or commit to do the foregoing), pledge
or otherwise encumber any shares of its Ownership Interests, any other voting
securities, or any securities convertible, exchangeable or exercisable into, or
any rights, warrants or options to acquire, any of the foregoing or other
equivalents or, subject to contractual obligations, not consent to the admission
of any new partners to any partnerships in which any of the Company's
Subsidiaries or Investment Entities is a partner; (iii) except to the extent
required under existing Company Plans (as defined in the Merger Agreement) as in
effect on the date of the Merger Agreement and except for certain specified
exceptions, (A) increase or accelerate the compensation or fringe benefits of
any of its directors, officers or employees, or (B) grant any severance or
termination pay not currently required to be paid under any Company Plans as in
effect on May 6, 1996, or (C) enter into any employment agreement with any
present or former director or officer or senior employee, or other than in the
ordinary course of business consistent with past practice and terminable without
severance or other termination payment on 30 days' notice or less, any other
employee of the Company, any of its Subsidiaries or its Investment Entities, or
(D) establish, adopt, enter into or amend or terminate any Company Plan or other
plan, agreement, trust, fund, policy or arrangement for the benefit of any
current or former directors, officers or employees of the Company, its
Subsidiaries or its Investment Entities;
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(iv) amend its or their Articles of Incorporation, By-Laws, partnership
agreement or other comparable charter or organizational documents or alter
through merger, liquidation, reorganization, restructuring or in any other
fashion the entity structure or ownership of any of the Company's Subsidiaries
and, to the extent within the control of the Company, its Investment Entities;
(v) except as disclosed, acquire or agree to acquire (A) by merging or
consolidation with, or by purchasing a substantial portion of the stock, assets
or properties of, any business or any corporation, partnership, joint venture,
association or other business organization or division thereof; or (B) any
material assets or properties (except purchases of inventory and services in the
ordinary course of business consistent with past practice and capital
expenditures permitted by (viii) below); (vi) sell, lease, license, mortgage or
otherwise encumber or subject to any Lien (as defined in the Merger Agreement)
or otherwise dispose of any of its Properties or assets, except (A) sales (x) in
the ordinary course of business consistent with past practice or (y) in
connection with the replacement of capital assets made in the ordinary course of
business consistent with past practice, (B) leases of retail space in hotels in
the ordinary course of business consistent with past practice and (C) as
disclosed; (vii) amend, supplement or modify any Material Contract, except in
the ordinary course of business, or relinquish, forgive or cancel any material
debt or claim or waive any rights of material value; (viii) except as disclosed
and except for certain emergency repairs, make any capital expenditure or
commitment to make any such expenditure (except in accordance with the Company's
capital expenditures budget) or defer making any budgeted capital expenditure,
in each case in excess of $100,000 and $500,000 in the aggregate; (ix) subject
to certain exceptions, (A) incur or prepay any indebtedness for borrowed money
or guarantee any such indebtedness of another person, issue or sell any debt
securities or warrants or other rights to acquire any debt securities of the
Company or any of its Subsidiaries or its Investment Entities, guarantee any
debt securities of another person, enter into any "keep well" or other agreement
to maintain any financial condition of another person or enter into any
arrangement having the economic effect of any of the foregoing, except for
short-term borrowings incurred in the ordinary course of business consistent
with past practice, which borrowings shall not in the aggregate exceed
$7,000,000 outstanding at any particular time, or (B), make any loans, advances
or capital contributions to, or investments in, any other person; (x) change any
accounting principle, method or practice used by it or change the classification
of assets, recognition of income or expenses or the depreciation or amortization
policies or rates theretofore applied, unless required by the SEC or the
Financial Accounting Standards Board; (x) make any material tax election or
settle or compromise any income tax liability in excess of $500,000 in the
aggregate or defer the payment of any material taxes that come due; (xii) enter
into any contract which would require the consent (including the waiver of any
right of first refusal or similar right) of a third party to the consummation of
the transactions contemplated by the Merger Agreement other than renewals or
replacements of existing working capital lines of credit on terms no less
favorable to the Company than the terms of such existing lines of credit; or
(xiii) authorize any of, or commit or agree to take any of, the foregoing
actions.
Articles of Incorporation; By-Laws; Directors and Officers.
Immediately after the Effective Time, the Articles of Incorporation and the By-
Laws of the Merging Subsidiary shall be the Articles of Incorporation of the
Surviving Corporation, except that Article I of the Articles of Incorporation of
the Surviving Corporation shall read in its entirety as follows: "The name of
this corporation is Kahler Realty Corporation." Immediately after the Effective
Time, the directors of the Merging Subsidiary immediately prior to the Effective
Time shall be the initial directors of the Surviving Corporation, each to hold
office in accordance with the Articles of Incorporation and By-Laws of the
Surviving Corporation and applicable law and the officers of the Company
immediately prior to the Effective Time shall be the initial officers of the
Surviving Corporation, in each case until their respective successors are duly
elected or appointed, as the case may be, and qualified in accordance with the
Articles of Incorporation and By-Laws of the Surviving Corporation and
applicable law.
No Solicitation and Related Matters. Pursuant to the Merger Agreement,
the Company has agreed that it will not, nor will it authorize or permit any of
its Subsidiaries or, to the extent within its control, Investment Entities, or
any of their respective officers, directors or employees or any investment
banker, financial advisor, attorney, accountant or other representative retained
by them to, solicit or initiate, or encourage, or take any other action to
facilitate or encourage (including by way of furnishing any information or
having discussions concerning the business, Properties or assets of the Company
or any of its Subsidiaries or Investment Entities),
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the submission of inquiries or the making of any proposal which constitutes, or
may reasonably be expected to lead to, any acquisition or purchase of a
substantial amount of the Properties or assets of the Company or any of its
Subsidiaries, or of over a 10% equity interest in, the Company or any tender
offer or exchange offer that if consummated would result in any Person
beneficially owning 10% or more of the equity securities of the Company, or any
merger, consolidation, business combination, sale of substantially all
Properties and/or assets, recapitalization, liquidation, dissolution or similar
transaction involving the Company or any other transaction the consummation of
which would reasonably be expected to impede, interfere with, prevent or
materially delay the consummation of the Merger or materially dilute the
benefits to Tiger of the transactions contemplated by the Merger Agreement, or
any agreement to, or public announcement by the Company or any other person of a
proposal, plan or intention to do any of the foregoing (a "Takeover Proposal")
or enter into or maintain or continue discussions or negotiate with any person
in furtherance of such inquiries or to obtain a Takeover Proposal; provided,
however, that the foregoing shall not prohibit the Company and its advisers,
following receipt of an unsolicited Takeover Proposal that it reasonably
anticipates could lead to a Superior Proposal (as defined below) to provide
information to the person making such Takeover Proposal (subject to the
execution of a confidentiality agreement) and participate in discussions or
negotiations concerning such Takeover Proposal following delivery of a Notice of
Superior Proposal (as defined below). The Company has also agreed that neither
the Board nor any committee thereof will (i) withdraw or modify, or propose to
withdraw or modify, in a manner adverse to Tiger or the Merging Subsidiary, the
approval or recommendation by the Board or any such committee of the Merger
Agreement or the Merger, (ii) approve or recommend, or propose to approve or
recommend, any Takeover Proposal or (iii) enter into any agreement with respect
to any Takeover Proposal. Notwithstanding the foregoing, in the event the Board
receives a Takeover Proposal that, in the exercise of its fiduciary obligations
(as determined in good faith by the Board based on the advice of outside
counsel), it determines to be a bona fide Takeover Proposal with fully committed
financing without material contingencies (other than customary conditions) to
acquire, directly or indirectly, for consideration consisting of cash and/or
marketable securities, more than 50% of the shares of Common stock then
outstanding or all or substantially all the Properties and/or assets of the
Company, and otherwise on terms which the Board determines in its good faith
reasonable judgment (based on the advice of a financial advisor of nationally
recognized reputation) to be more favorable to the Company's shareholders than
the Merger (a "Superior Proposal"), the Board may withdraw or modify its
approval or recommendation of the Merger Agreement or the Merger, approve or
recommend any such Superior Proposal, enter into an agreement with respect to
such Superior Proposal or terminate the Merger Agreement, in each case at any
time after the fifth business day following Tiger's receipt of written notice (a
"Notice of Superior Proposal") advising Tiger that the Board has received a
Superior Proposal, specifying the material terms and conditions of such Superior
Proposal and identifying the person making such Superior Proposal. The Board
may also withdraw or modify its approval or recommendation of the Merger
Agreement or the Merger and terminate the Merger Agreement if Montgomery
Securities' fairness opinion is withdrawn. If the Company proposes to take any
of the actions described in the two preceding sentences with respect to any
Takeover Proposal, it shall concurrently with entering into such agreement pay,
or cause to be paid, to Tiger or the Merging Subsidiary (as Tiger shall
designate) the Expense Reimbursement, and in the event that the Company shall
enter into any agreement relating to a Takeover Proposal, such agreement shall
provide for the payment to Tiger of the Termination Fee, upon the consummation
of the transaction contemplated by the agreement, provided that if, prior to the
receipt of a Takeover Proposal, the Company proposes to take any of the
foregoing actions as provided in the second preceding sentence, it shall
concurrently with taking any of such actions pay, or cause to be paid to Tiger
or the Merging Subsidiary (as Tiger shall designate) the Expense Reimbursement
and pay or cause to be paid to the Merging Subsidiary the Termination Fee. None
of the above provisions shall prohibit accurate disclosure by the Company in any
document required to be filed with the SEC. In addition, the Company has agreed
in the Merger Agreement to promptly advise Tiger orally and in writing of any
Takeover Proposal, or any inquiry with respect to or which could lead to any
Takeover Proposal, the material terms and conditions of such Takeover Proposal
or inquiry, and the identity of the person making any Takeover Proposal or
inquiry. The Company has also agreed to keep Tiger fully informed of the status
and details of any such request, Takeover Proposal or inquiry.
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<PAGE>
Pursuant to the Voting Agreement between Milner Associates and Merging
Subsidiary, Milner Associates agreed to be bound by and to comply with the no
solicitation obligations of the Company described above.
Employment and Severance Arrangements. Pursuant to the Merger Agreement,
during the period commencing at the Effective Time and ending on the one-year
anniversary of the Effective Time, Tiger agrees that the employees of the
Company or its Subsidiaries who continue employment with the Surviving
Corporation and its subsidiaries ("Transferred Employees") (other than those
employees covered by a collective bargaining agreement) will continue to be
provided with employee benefits which in the aggregate are substantially
comparable to such currently provided by the Company and its Subsidiaries to
such employees. Subject to the foregoing, nothing in the Merger Agreement shall
prevent the amendment or termination of any plan, program or arrangement.
Transferred Employees covered by collective bargaining agreements shall be
provided with such benefits as shall be required under the terms of any
applicable collective bargaining agreement.
Tiger shall cause the Surviving Corporation to promptly pay or provide when
due all compensation and benefits earned or accrued through or prior to the
Effective Time as provided pursuant to the terms of any compensation
arrangements, employment agreements and employee or director pension or welfare
benefit plans, programs and policies in existence as of May 6, 1996 for all
employees (and former employees) and directors (and former directors) of the
Company and scheduled in the Merger Agreement. Tiger shall cause the Surviving
Corporation to pay promptly or provide when due all compensation and benefits
required to be paid pursuant to the terms of any individual agreement with any
current or former employee or director in effect and disclosed on a schedule to
the Merger Agreement. Nothing in the Merger Agreement requires the continued
employment of any person or prevents Tiger and/or the Surviving Corporation from
taking any action or refraining from taking any action which the Company could
take or refrain from taking prior to the Effective Time.
Tiger shall cause the Surviving Corporation to be responsible for any
medical, life insurance, disability and other welfare plan expenses and benefits
with respect to claims incurred by Transferred Employees and their covered
dependents on or after the Effective Time. For purposes of this paragraph, a
claim is deemed incurred when the event which is the subject of the claim
occurs; in the case of long-term disability benefits, when the disability
occurs; and, in the case of a hospital stay, when the employee first enters the
hospital.
With respect to any welfare benefit plans (as defined in section 3(1) of
Employee Retirement Income Security Act of 1974, as amended ("ERISA"))
maintained by Tiger or the Surviving Corporation for the benefit of Transferred
Employees on and after the Effective Time, Tiger shall use its best efforts to
(i) cause there to be waived any preexisting condition limitations and (ii) give
effect, in determining any deductible and maximum out-of-pocket limitations, to
claims incurred and amounts paid by, and amounts reimbursed to, such Transferred
Employees with respect to similar plans maintained by the Company for their
benefit immediately prior to the Effective Time.
With respect to any pension benefit plans (as defined in section 3(2) of
ERISA) maintained by Tiger or the Surviving Corporation for the benefit of
Transferred Employees on and after the Effective Time, Tiger shall provide the
Transferred Employees with past service credit solely for vesting and
participation purposes for their service prior to the Effective Time with the
Company and/or its Subsidiaries.
With respect to any accrued but unused vacation time to which any
Transferred Employee is entitled pursuant to the vacation policy applicable to
that employee immediately prior to the Effective Time (the "Vacation Policy"),
Tiger shall cause the Surviving Corporation to allow such employee to use such
accrued vacation; provided, however, that if Tiger deems it necessary to
disallow such employee from taking such accrued vacation, Tiger shall cause the
Surviving Corporation to be liable for and pay in cash to each such Employee an
amount equal to such vacation time in accordance with terms of the Vacation
Policy.
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Other Employee Benefit Matters. For a description of the treatment of
Options in the Merger under the Company's Options, see "THE MERGER--Interests of
Certain Persons in the Merger--Options." For a description of the terms of the
Merger Agreement related to indemnification of officers and directors and
directors' and officers' liability insurance, see "THE MERGER--Interests of
Certain Persons in the Merger--Indemnification and Insurance."
Termination. The Merger Agreement may be terminated and the Merger
abandoned at any time prior to the Effective Time, before or after the approval
by the shareholders of the Company: (a) by unanimous written consent of Tiger,
the Merging Subsidiary and the Company; (b) by Tiger, upon a breach of any
representation, warranty, covenant or agreement on the part of the Company set
forth in the Merger Agreement, or if any such representation or warranty of the
Company is or becomes untrue, in each case such that the conditions to the
obligations of Tiger and the Merging Subsidiary with respect to the accuracy of
the representations and warranties of the Company and the performance of the
material obligations of the Company (see "THE MERGER--Terms of the Merger--
Conditions to Consummation of the Merger"), could not be satisfied; (c) by the
Company, upon a breach of any representation, warranty, covenant or agreement
contained in the Merger Agreement on the part of Tiger, or if any such
representation or warranty of Tiger is or becomes untrue, in each case such that
the conditions to the obligations of the Company with respect to the accuracy of
the representations and warranties of Tiger and the Merging Subsidiary and the
performance of the material obligations of Tiger and the Merging Subsidiary (see
"THE MERGER--Terms of the Merger--Conditions to Consummation of the Merger"),
could not be satisfied; (d) by either Tiger or the Company, if any permanent
injunction or action by any governmental entity preventing the consummation of
the Merger shall have become final and unappealable; (e) by either Tiger or the
Company if the Merger has not been consummated on or prior to October 6, 1996;
(f) by either Tiger or the Company, if the approval by the shareholders of the
Company of the Merger Agreement and the Merger has not been obtained by reason
of the failure to obtain the required vote at a duly called meeting of
shareholders or an adjournment of such a meeting; (g) by Tiger, if (i) following
the receipt of a Takeover Proposal, the Board or any committee thereof shall
have withdrawn or modified (or resolved to withdraw or modify) its approval or
recommendation of the Merger Agreement or the Merger in any manner which is
adverse to Tiger or the Merging Subsidiary; or (ii) the Board has approved or
recommended (or resolved to approve or recommend) to the shareholders of the
Company a Superior Proposal; and (h) by the Company if the Board receives a
Takeover Proposal that, in the exercise of its fiduciary obligations (as
determined in good faith by the Board based on the advice of outside counsel) it
determines to be a Superior Proposal (and after notice to Tiger) or if
Montgomery Securities withdraws its fairness opinions.
Fees and Expenses. Unless the Merger Agreement is terminated by the
Company, and Tiger or the Merging Subsidiary shall have failed to perform in any
material respects its obligations under the Merger Agreement, (x) if the Merger
Agreement is terminated under clauses (b), (f) (but only if a Takeover Proposal
has been received by the Company prior to the vote or the Board has withdrawn or
adversely modified its approval or recommendation of the Merger), (g) or (h) of
the preceding paragraph, or (y) if at any time within one year following the
termination of the Merger Agreement, any person or "group" (within the meaning
of Section 13(d)(3) of the Exchange Act (other than Tiger or any of its
affiliates)) shall have acquired, directly or indirectly, the Company, all or
substantially all its Properties or assets or more than 50% of the shares of
Common Stock then outstanding; or if the Company enters into an agreement with
respect to a Superior Proposal prior to the one year anniversary of the
termination of the Merger Agreement, the Company shall reimburse upon demand
Tiger or the Merging Subsidiary for all documented out-of-pocket fees and
expenses payable to non-affiliates incurred by Tiger and the Merging Subsidiary
in connection with the Merger Agreement and the transactions contemplated
thereby to the date of such event, up to a maximum reimbursement obligation of
$1,250,000. The Company shall pay to Tiger an additional fee of $5,000,000 upon
demand if (i)(A) it is required to reimburse Tiger or the Merging Subsidiary for
its fees and expenses (as set forth in clause (x) above, but other than a
termination by Tiger described in clause (b) of the preceding paragraph), (B)
the Company shall have entered into an agreement with respect to a Superior
Proposal within one year after such termination and (C) the transactions
contemplated by such agreement shall have been
38
<PAGE>
consummated or (ii) it is required to reimburse Tiger or the Merging Subsidiary
for their fees and expenses as a result of a person or "group" having acquired
the Company, all or substantially all its Properties or assets or more than 50%
of the shares of the Common Stock then outstanding or the Company having entered
into an agreement with respect to a Superior Proposal within one year following
the termination of the Merger Agreement, as set forth in clause (y) above.
Except as described above, each party to the Merger Agreement agreed to bear its
own expenses in connection with the Merger Agreement and the transactions
contemplated thereby.
Amendments. Subject to the provisions of the MBCA, the Merger Agreement
may be amended by written agreement of the Company, Tiger and the Merging
Subsidiary prior to the Effective Time; provided, however, that if the Merger
Agreement is approved by the shareholders of the Company, no amendment shall be
made, without the approval of such shareholders, which reduces the amount or
changes the type of consideration into which each share of Common Stock shall be
converted upon consummation of the Merger or adversely affects the rights of the
Company's shareholders under the Merger Agreement.
SOURCE AND AMOUNT OF FUNDS
Tiger shall pay or cause to be paid approximately $82 million to make
payment of the amounts required under the Merger Agreement in respect of the
shares of Common Stock and to pay certain fees and expenses related to the
Merger. Such payment shall be funded through certain financing sources
available to Tiger, including drawing down funds from investors or borrowings
under existing lines of credit. Tiger may also utilize third-party financing to
fund such payments as well as to refinance portions of the Company's existing
indebtedness. However, the Merger Agreement does not contain a financing
condition and, therefore, the obligation of Tiger and the Merging Subsidiary to
effect the Merger is not subject to obtaining financing from the sources
identified above or otherwise.
CERTAIN TAX CONSEQUENCES OF THE MERGER
The receipt of cash for shares of Common Stock in the Merger or pursuant to
the exercise of dissenters' appraisal rights will be a taxable transaction for
federal income tax purposes and may also be a taxable transaction under
applicable state, local, foreign or other tax laws. Generally, a shareholder
will recognize gain or loss for such purposes equal to the difference between
the cash received and such shareholder's tax basis for the shares of Common
Stock such shareholder sells in the Merger. For federal income tax purposes,
any such gain or loss will be a capital gain or loss if the shares of Common
Stock are held as a capital asset, and a long-term capital gain or loss if the
shareholder's holding period is more than one year as of the Effective Time.
There are limitations on the deductibility of capital losses.
The summary of tax consequences set forth above is for general information
only. The tax treatment of each shareholder will depend in part upon such
holder's particular situation. Special tax consequences not described herein may
be applicable to particular classes of taxpayers, such as financial
institutions, broker-dealers, tax-exempt organizations, persons who are not
citizens or residents of the United States, shareholders who acquired the shares
of Common Stock through the exercise of an employee stock option or otherwise as
compensation, and persons who received payments in respect of options to acquire
shares of Common Stock. All shareholders should consult their own tax advisors
as to the particular tax consequences of the Merger to them, including the
applicability and effect of any state, local and foreign laws.
APPRAISAL RIGHTS OF DISSENTING SHAREHOLDERS
As described in more detail below, a shareholder who wishes to exercise
dissenters' rights in connection with the Merger must file with the Company
before the vote at the Special Meeting to approve the Merger Agreement a written
notice of intent to demand the fair value of the shares of Common Stock owned
39
<PAGE>
by the shareholder and such shareholder must not vote his shares in favor of the
Merger. If the Merger Agreement is approved by the shareholders of the Company,
the Company shall send to all shareholders who have complied with the foregoing
requirements a notice containing, among other things, the address to which a
demand for payment and certificates of certificated shares must be sent in order
to obtain payment and the date by which they must be received. A shareholder's
vote for the proposal to approve the Merger Agreement will constitute a waiver
of such shareholder's dissenters' rights. A vote against the proposal to adopt
the Merger Agreement, alone, will not satisfy the notice requirements under the
MBCA.
Record Holders of shares of Common Stock on the Record Date are entitled to
appraisal rights under Sections 302A.471 and 302A.473 of the MBCA in connection
with the Merger. The following discussion is not a complete statement of the law
pertaining to dissenters' rights under the MBCA and is qualified in its entirety
by reference to the full text of Sections 302A.471 and 302A.473 which are
reprinted in their entirety as Annex C to this Proxy Statement. Except as set
forth herein and in Annex C, holders of shares of Common Stock will not be
entitled to dissenters' rights in connection with the Merger.
Section 302A.471 of the MBCA provides that a shareholder of a corporation
may dissent from, and obtain payment for the fair value of the shareholder's
shares, if such corporation is a party to a merger (unless such corporation is
the surviving corporation of the merger and such shareholder had no right to
vote thereon). However, Section 302A.471 explicitly provides that shareholders
who have a right to obtain payment thereunder do not have a right at law or in
equity to have such a merger set aside or rescinded, except when the merger is
fraudulent with regard to the complaining shareholder or the corporation.
Under Section 302A.471, a beneficial owner of shares who is not the
shareholder may assert dissenters' rights with respect to shares held on behalf
of the beneficial owner, and shall be treated as a dissenting shareholder, if
the beneficial owner submits a written consent of the shareholder to the
corporation at the time of or before the assertion of dissenters' rights.
Shareholders must assert dissenters' rights as to all of the shares registered
in his or her name, unless the shareholder dissents with respect to all the
shares that are beneficially owned by another person but registered in the name
of the shareholder and discloses the name and address of each beneficial owner
on whose behalf the shareholder dissents.
Section 302A.473 establishes the procedures for asserting dissenters'
rights under the MBCA. Section 302A.473 requires a corporation calling a
shareholder meeting for the purpose of voting on a merger to which it is a party
to inform each shareholder in its notice of the meeting of the right to dissent
and to include a copy of Sections 302A.471 and 302A.473 and a brief description
of the procedure to be followed under such Sections in such notice. This proxy
statement serves as the notice of the Special Meeting for purposes of voting on
the Merger and this description of dissenters' rights, and the copies of
Sections 302A.471 and 302A.473 included as Annex C are provided to comply with
Section 302A.473 of the MBCA.
Where a proposed action subject to dissenters' rights must be approved by
shareholders of the corporation (e.g. the Merger), a shareholder who wishes to
exercise dissenters' rights must file with the corporation before the vote on
such proposed action a written notice of intent to demand the fair value of the
shares owned by the shareholder and must not vote the shares in favor of such
proposed action.
After approval by the board and shareholders of a proposed action subject
to dissenters' rights that requires shareholder approval (e.g. the Merger),
Section 302A.473 requires the corporation to send to all shareholders who have
complied with the procedures described in the previous paragraph a notice that
contains (a) the address to which a demand for payment and certificates of
certificated shares must be sent in order to obtain payment and the date by
which they must be received, (b) any restrictions on transfer of uncertificated
shares that will apply after the demand for payment is received, (c) a form to
be used to certify the date on which the shareholder, or the beneficial owner on
whose behalf the shareholder dissents, acquired the shares or an interest in
them and to demand payment and (d) copies to Sections 302A.471 and 302A.473 and
a brief description of the procedures to be followed under those sections.
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<PAGE>
In order to exercise dissenters' rights and to receive the fair value of
their shares, a dissenting shareholder must demand payment and deposit
certificated shares or comply with any restrictions on transfer of
uncertificated shares within 30 days after the notice described in the preceding
paragraph was given. However, the dissenter retains all other rights of a
shareholder until the proposed action (e.g. the Merger) takes effect.
After the later of (a) the date the corporate action subject to dissenters'
rights takes effect or (b) the date the corporation receives a valid demand for
payment, the corporation is required to remit to each dissenting shareholder who
has complied with the procedures described above the amount the corporation
estimates to be the fair value of the shares, plus interest commencing five days
after the effective date of such corporate action up to and including the date
of payment. The payment must be accompanied by (i) the corporation's closing
balance sheet and statement of income for a fiscal year ending not more than 16
months before the effective date of the corporate action, together with its
latest available interim financial statements, (ii) the corporation's estimate
of the fair value of the shares and a brief description of the method used to
reach the estimate and (iii) copies of Sections 302A.471 and 302A.473 and a
brief description of the procedure to be followed to demand supplemental
payment.
However, no payment need be made by the corporation to persons who were not
shareholders on the date the action dissented from was first announced to the
public (May 7, 1996 in the case of the Merger) or who are dissenting on behalf
of a person who was not a beneficial owner on that date. If such a dissenter
has complied with the procedures described above, the corporation shall forward
to such dissenter the materials described in the preceding paragraph, a
statement of the reason for withholding payment, and an offer to pay to such
dissenter the corporation's estimate of the fair value of the shares if the
dissenter agrees to accept that amount in full satisfaction. Such a dissenter
will be entitled to only the amount offered unless such a dissenter makes a
demand for supplemental payment as described below.
If the corporation fails to remit payment within 60 days of the deposit of
certificates or the imposition of transfer restrictions on uncertificated
shares, it is required to return all deposited certificates and cancel all
transfer restrictions (although the notice described above with regard to
deposit requirements and transfer restrictions may be given again by the
corporation at a later time).
Dissenting shareholders who believe that the amount paid or offered to be
paid by the corporation as described above is less than the fair value of the
shares plus interest may give written notice to the corporation of the
dissenters' own estimate of the fair value of the shares, plus interest, within
30 days after the corporation mails its payment/offer to pay, and demand payment
of the difference. Dissenting shareholders who do not give such written notice
and demand are entitled only to the amount paid/offered to be paid by the
corporation.
Within 60 days of receipt of the demand described in the preceding
paragraph, the corporation shall either (a) pay to the dissenter the amount
demanded or agreed to by the dissenter after discussion with the corporation or
(b) file a petition in court in the county in which the registered office of the
corporation is located (or in the case of a surviving foreign corporation to a
merger, where the registered office of the domestic corporation party to the
action was located) requesting that the court determine the fair value of the
shares, plus interest. The court may appoint appraisers, with powers and
authorities the court deems proper, to receive evidence on and recommend the
amount of the fair value of the shares. The court shall determine whether the
shareholders in question have fully complied with the requirements of Section
302A.473, and shall determine the fair value of the shares, taking into account
any and all factors the court finds relevant, computed by any method or
combination of methods that the court, in its discretion, sees fit to use,
whether or not used by the corporation or by a dissenter.
The fair value of the shares as determined by the court is binding on all
shareholders, wherever located, and a dissenter is entitled to judgment for the
amount by which the fair value of the shares as
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determined by the court, plus interest, exceeds the amount, if any, paid as
described above. However, dissenting shareholders are not liable for any
amounts paid by the corporation which exceed the fair value of the shares as
determined by the court, plus interest.
The court shall determine the costs and expenses of the proceeding
described in the second preceding paragraph, including the reasonable expenses
and compensation of any appraisers appointed by the court, and shall assess
those costs and expenses against the corporation, except that it may assess part
or all of those costs and expenses against a dissenter whose action in demanding
supplemental payment is found to be arbitrary, vexatious, or not in good faith.
Fees and expenses of experts or attorneys may also be assessed against the
corporation if it has failed to comply substantially with Section 302A.473 or
against any person who has acted arbitrarily, vexatiously, or not in good faith
in bringing the proceeding. Such fees and expenses may be awarded to a party
injured by those actions. In addition, the court may award, in its discretion,
fees and expenses to an attorney for the dissenters out of the amount awarded to
the dissenters, if any.
Failure to follow the steps required by Section 302a.473 of the MBCA for
perfecting dissenters' rights may result in the loss of such rights.
The foregoing is a summary of certain of the provisions of Sections
302A.471 and 302A.473 of the MBCA and is qualified in its entirety by the
reference to the full text of such Sections, copies of which are included as
Annex C to this Proxy Statement.
MARKET PRICES; DIVIDENDS
The Common Stock is listed on the NASDAQ. As of November 22, 1995, the last
full trading day prior to the press release by the Company announcing that it
had retained Montgomery Securities to assist the Board in evaluating strategic
alternatives to enhance shareholder value, including a possible sale of all or a
part of the Company, the high and low sales prices of the Common Stock, as
reported to the NASDAQ, were $10.125 and $10.00, respectively and the closing
sales price was $10.125. As of May 6, 1996, the last full trading day prior to
the announcement by the Company of the execution of the Merger Agreement, the
high, low and closing sales prices of the Common Stock, as reported to the
NASDAQ, were each $15.50. Stockholders are urged to obtain current market
quotations for the Common Stock.
The Company has paid regular, quarterly dividends since the second quarter
of 1993. Under the Merger Agreement, the Company has agreed not to pay
dividends on the Common Stock prior to the Effective Time other than regular
quarterly cash dividends not in excess of $0.04 per share of Common Stock (with
usual record and payment dates and in accordance with the Company's present
dividend policy).
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SELECTED FINANCIAL AND OPERATING DATA OF THE COMPANY (UNAUDITED)
The following table presents selected historical financial data for the
Company. The data should be read in conjunction with the financial information
contained in the historical Consolidated Financial Statements and Notes thereto
of the Company which are incorporated by reference elsewhere in this Proxy
Statement. The interim unaudited information for the three months ended March
31, 1996 and April 2, 1995 reflect, in the opinion of management of the Company,
all adjustments necessary for a fair presentation of results for such periods
and all such adjustments are of a normal recurring nature. The results of
operations of such interim periods are not necessarily indicative of the results
of operations for any other interim periods or for the year as a whole.
<TABLE>
<CAPTION>
FISCAL YEAR (1) FIRST THREE MONTHS (1)
--------------------------------------------------------------- ---------------------
1991 1992 1993 1994 1995 1995 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND HOTEL OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES $ 64,652 $ 74,014 $ 96,979 $ 109,910 $ 121,772 $ 29,367 $ 31,535
Revenue of owned operations.........
Other properties managed and/or 31,506 29,237 17,910 17,490 18,113 4,109 4,519
partially owned.................... --------- --------- --------- --------- ---------- -------- --------
Total revenues.................... $ 96,158 $ 103,251 $ 114,889 $ 127,400 $ 139,885 $ 33,476 $ 36,054
========= ========= ========= ========= ========== ======== ========
REVENUE OF OWNED OPERATIONS $ 51,021 $ 58,408 $ 80,505 $ 93,243 $ 105,356 $ 26,643 $ 28,629
Lodging.............................
Formal wear, laundry & other........ 13,193 14,182 15,277 15,894 15,912 2,686 2,795
Interest income..................... 438 1,424 1,197 773 504 38 111
--------- --------- --------- --------- ---------- -------- --------
Total revenue of owned operations. 64,652 74,014 96,979 109,910 121,772 29,367 31,535
--------- --------- --------- --------- ---------- -------- --------
OPERATING COSTS AND EXPENSES 38,458 45,053 60,974 70,797 79,318 19,753 21,145
Lodging.............................
Formal wear, laundry & other........ 10,772 12,092 12,621 13,487 12,801 3,177 3,214
Corporate expenses.................. 2,827 3,225 3,272 3,257 3,901 1,055 1,056
Depreciation and amortization....... 5,740 6,492 7,904 8,477 8,919 2,036 2,233
Non-recurring charges (2)........... -- 2,758(2) -- 1,811(2) 526(2) -- --
--------- --------- --------- --------- ---------- -------- --------
Total operating costs and expenses 57,797 69,620 84,771 97,829 105,465 26,021 27,648
--------- --------- --------- --------- ---------- -------- --------
GROSS OPERATING PROFIT............... 6,855 4,394 12,208 12,081 16,307 3,346 3,887
Interest expense.................... (6,764) (7,303) (9,362) (11,207) (13,115) (3,050) (3,062)
Equity earnings (loss) of
affiliates........................ (2,326) (688) 27 193 533 154 115
Gain (loss) on sale of assets....... 3,005 (693) 6 20 (11) 1 --
--------- --------- --------- --------- ---------- -------- --------
INCOME (LOSS) FROM OPERATIONS
BEFORE INCOME TAXES................. 770 (4,290) 2,879 1,087 3,714 451 940
Provision (credit) for income taxes 247 (300) 875 323 697 140 294
--------- --------- --------- --------- ---------- -------- --------
Income (loss) before extraordinary
item and changes in accounting
principle......................... 523 (3,990) 2,004 764 3,017 311 646
Extraordinary item net of income
taxes.............................. 173 2,517 -- -- -- -- --
Cumulative effect of change in -- (250) -- -- -- -- --
accounting for nonpension post- --------- --------- --------- --------- ---------- -------- --------
retirement benefits
NET INCOME (LOSS).................... $ 696 $ (1,723) $ 2,004 $ 764 $ 3,017 $ 311 $ 646
========= ========= ========= ========= ========== ======== ========
Income (loss) per share (3)......... $ $0.13 $ (0.59) $ 0.46 $ 0.14 $ 0.69 $ $0.07 $ 0.15
========= ========= ========= ========= ========== ======== ========
OTHER FINANCIAL DATA: $ 10,269 $ 11,398 $ 20,139 $ 20,751 $ 25,759 $ 5,536 $ 6,235
EBITDA (4)..........................
Cash flows from:
Operations (5).................... $ 7,686 $ 4,427(5) $ 10,249 $ 9,434(5) $ 13,271(5) $ 4,116 $ 3,424
Investing activities.............. (19,729) (9,797) (14,685) (13,256) (16,234) (1,702) (3,445)
Financing activities............... 12,024 5,975 4,617 3,948 2,776 (1,263) 2,083
</TABLE>
43
<PAGE>
<TABLE>
<CAPTION>
Fiscal Year (1) First Three Months (1)
------------------------------------------------------------ ----------------------
1991 1992 1993 1994 1995 1995 1996
-------- -------- -------- -------- -------- ---------- ----------
(dollars in thousands, except per share and Hotel Operating Data)
<S> <C> <C> <C> <C> <C> <C> <C>
HOTEL OPERATING DATA (OWNED 14 16 18 20 22 20 22
OR MANAGED):
Number of hotels--end of
period........................
Number of rooms--end of 3,374 3,699 4,103 4,382 4,647 4,385 4,647
period........................
Room nights available.......... 1,214,729 1,314,976 1,406,488 1,560,874 1,669,835 405,975 430,938
Occupancy...................... 60.9% 61.9% 63.9% 65.1% 65.9% 64.6% 62.9%
ADR (6)....................... $ 61.71 $ 61.36 $ 63.31 $ 63.75 $ 65.48 $ 69.88 $ 74.41
REVPAR (6)..................... $ 37.56 $ 38.01 $ 40.48 $ 41.53 $ 43.13 $ 45.16 $ 46.82
BALANCE SHEET DATA:
Investment in real estate
(before accumulated
depreciation)................. $ 122,659 $ 156,583 $ 196,873 $ 205,028 $ 217,702 $206,688 $220,566
Net investment in real estate... 81,259 110,202 142,743 150,747 156,584 150,472 157,322
Total assets.................... 114,170 132,392 162,406 169,069 178,367 170,392 182,994
Total mortgage debt............. 81,334 93,710 123,985 125,126 129,754 123,804 133,575
Stockholders' equity............ 16,586 14,867 16,366 21,271 24,173 21,504 24,984
CASH DIVIDENDS DECLARED -- -- .04 .08 .13 .03 .04
PER COMMON SHARE:
BOOK VALUE PER SHARE: 5.06 4.42 4.78 5.10 5.63 5.14 5.76
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The Company's fiscal year ends on the Sunday closest to December 31 in each
year. Accordingly, the table presents selected financial and operating data
as of the end of and for each of the five fiscal years and for the three
months ended April 2, 1995 and March 31, 1996.
(2) Non-recurring charges for fiscal 1992, 1994 and 1995 reflect (i) a charge of
$2.8 million in 1992 consisting of a $1.2 million non-cash writedown of a
hotel property and a $1.6 million charge to settle a lawsuit concerning the
Sheraton San Marcos Golf Resort and Conference Center, and (ii) $1.8 million
and $526,000 of expenses in 1994 and 1995, respectively, related to the REIT
Offering.
(3) Income per share in 1991 is computed on a primary and fully diluted share
basis using the weighted average number of outstanding shares of Common
Stock and Common Stock equivalents of 3,274,000. For 1992, loss per share is
computed on a primary share basis using only the weighted average number of
outstanding shares of Common Stock aggregating 3,341,000. Common Stock
equivalents are excluded since the effect is antidilutive. For 1993, 1994
and 1995, income per share is computed on a primary and fully diluted share
basis using the weighted average number of outstanding shares of Common
Stock and Common Stock equivalents (arising from employee stock plans,
deferred stock compensation and a warrant) aggregating 3,743,000, 3,956,000
and 4,355,000, respectively.
(4) EBITDA means income (loss) from operations before income taxes, excluding
gains or losses on sale of assets, non-cash writedowns of real estate
property, interest expense, depreciation and amortization. EBITDA does not
represent cash generated from operating activities in accordance with GAAP,
is not to be considered as an alternative to net income or any other GAAP
measurements as a measure of operating performance and is not necessarily
indicative of cash available to fund all cash needs. Management believes
that EBITDA is a useful measure of cash flow because it indicates the cash
flow available to spend on capital additions to maintain the Company's
assets, to service existing debt or to use at the Company's discretion for
other purposes.
(5) Cash flow from operations for fiscal 1992, 1994 and 1995 reflects non-
recurring charges of $1.6 million, $1.8 million and $526,000, respectively.
Prior to consideration of such expenses, cash flow from operations would
have been $6.0 million for 1992, $11.2 million for 1994 and $13.8 million
for 1995. The $1.6 million charge in 1992 relates to the settlement of a
lawsuit, and the 1994 and 1995 charges represent costs incurred in
connection with the REIT Offering.
(6) "ADR" means average daily room revenue per occupied room, while "REVPAR"
means average daily room revenue per available room.
44
<PAGE>
STOCK OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
Set forth below is certain information, to the Company's knowledge, as of
the Record Date, regarding beneficial ownership of Common Stock by (i) each
person who beneficially owns more than 5% of the Common Stock, (ii) each
director and certain executive officers of the Company and (iii) all directors
and executive officers of the Company as a group. To the Company's knowledge,
each person holds sole voting and/or investment power over the shares shown
unless otherwise indicated.
<TABLE>
<CAPTION>
AMOUNT
AND NATURE OF PERCENT OF
NAME ADDRESS OWNERSHIP(1)(2) CLASS
- ------------------------------------------- --------------------------- --------------- ----------
<S> <C> <C> <C>
Mayo Foundation 200 SW 1st Street 1,113,234 25.6%
Rochester, Minnesota 55902
Harold W. Milner N/A 493,657(3) 11.4%
John H. Herrell N/A 35,398(4) *
A. Blaine Huntsman N/A 34,571 *
Donald L. Lucas N/A 36,318 *
Donald C. McIlrath, M.D. N/A 26,000 *
Mark W. Sheffert N/A 31,781 *
Michael R. Hinckley N/A 26,600 *
Kevin L. Molloy N/A 22,078 *
Steven R. Stenhaug N/A 18,807 *
All executive officers and directors as a group 832,630 18.7%
(17 persons)
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
* Less than one percent.
(1) Includes shares held by wives or minor children.
(2) Includes the following shares which could be acquired within 60 days upon
exercise of options: Mr. Milner, 1,250 shares; Mr. Huntsman, 4,000 shares;
Mr. Herrell, 8,000 shares; Mr. Hinckley, 0 shares; Mr. Lucas, 8,000 shares;
Dr. McIIrath, 12,000 shares; Mr. Molloy, 9,100 shares; Mr. Sheffert, 28,200
shares; Mr. Stenhaug, 11,625 shares and all directors and executive officers
as a group, 108,750 shares.
(3) 492,407 of these shares are held by Milner Associates, a family partnership
of which Mr. Milner is a general partner. As a general partner, Mr. Milner
has power both to vote and dispose of the 492,407 shares. In addition,
includes 1,250 shares Mr. Milner may acquire upon exercise of options
exercisable within 60 days.
(4) The share ownership shown above for Mr. Herrell, who is an officer, director
or employee of the Mayo Foundation or its affiliates, does not include
shares owned by Mayo Foundation, although Mr. Herrell may be deemed to share
voting power with respect to the shares owned by the Mayo Foundation.
45
<PAGE>
INDEPENDENT PUBLIC ACCOUNTANTS
KPMG Peat Marwick LLP, independent auditors, audited and reported on the
consolidated financial statements of the Company and its subsidiaries for its
fiscal year ended December 31, 1995. Such financial statements have been
incorporated by reference in this Proxy Statement in reliance upon such report.
A representative of KPMG Peat Marwick LLP is expected to be present at the
Special Meeting, will have an opportunity to make a statement if such
representative so desires and will be available to respond to appropriate
questions.
INCORPORATION BY REFERENCE
The following documents filed by the Company with the SEC are incorporated
herein by reference:
1. Amendment No. 1 on Form 10-K/A to the Annual Report on Form 10-K for
the year ended December 31, 1995, as amended, a copy of which
amendment is attached hereto.
2. Quarterly Report on Form 10-Q for the quarter ended March 31, 1996, a
copy of which is attached hereto.
All documents subsequently filed by the Company pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date of this Proxy Statement
and prior to the date of the Special Meeting shall be deemed to be incorporated
by reference into this Proxy Statement and to be a part hereof from the date of
filing of such documents.
A copy of any and all information that has been incorporated herein by
reference (without exhibits, unless such exhibits are specifically incorporated
by reference into the information incorporated by reference herein) that are not
delivered herewith will be provided, without charge, to each person, including
each beneficial owner, to whom a copy of this Proxy Statement is delivered, upon
written or oral request of such person and by first class mail or other equally
prompt means within one business day of receipt of request. Requests should be
directed to Kahler Realty Corporation, 20 Second Avenue SW, Rochester,
Minnesota, 55902, attention: Office of the Secretary, telephone number 507-285-
2710.
OTHER MATTERS
The Board does not intend to bring any other matters before the Special
Meeting and does not know of any other matters that may be brought before the
Special Meeting by others. If any other matter should come before the Special
Meeting, the persons named in the enclosed proxy will have discretionary
authority to vote the shares of Common Stock thereby represented in accordance
with their best judgment.
46
<PAGE>
If the Merger is not consummated, the Company will hold its 1997 Annual
Meeting of the shareholders of the Company in accordance with the Company's By-
laws and the MBCA. Shareholder proposals intended to be presented at the 1997
Annual Meeting of the shareholders must have been received by the Company not
later than December 1, 1996 for inclusion in the proxy materials for the 1997
Annual Meeting.
By Order of the Board of Directors
/s/ Michael J. Quinn
____________________________________
Michael J. Quinn
Secretary
Rochester, Minnesota
July 25, 1996
47
<PAGE>
KAHLER REALTY CORPORATION
ANNEXES TO PROXY STATEMENT
A. AGREEMENT AND PLAN OF MERGER
B. FAIRNESS OPINION OF MONTGOMERY SECURITIES
C. SECTIONS 302A.471 AND 302A.473 OF THE BUSINESS CORPORATION ACT
OF THE STATE OF MINNESOTA
D. VOTING AGREEMENT BETWEEN TIGER REAL ESTATE ACQUISITION CORP. AND
MILNER ASSOCIATES
E. VOTING AGREEMENT BETWEEN TIGER REAL ESTATE ACQUISITION CORP. AND
MAYO FOUNDATION
<PAGE>
Annex A
Conformed Copy
____________________________________________
AGREEMENT AND PLAN OF MERGER
AMONG
TIGER REAL ESTATE FUND, L.P.
TIGER REAL ESTATE ACQUISITION CORP.
AND
KAHLER REALTY CORPORATION
DATED AS OF MAY 6, 1996
____________________________________________
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
ARTICLE I
THE MERGER
<S> <C> <C>
SECTION 1.1 The Merger....................................................2
SECTION 1.2 Closing.......................................................3
SECTION 1.3 Effective Time of the Merger..................................3
SECTION 1.4 Effects of the Merger.........................................4
SECTION 1.5 Articles of Incorporation; By-Laws............................4
SECTION 1.6 Directors and Officers........................................5
SECTION 1.7 Stockholders' Meeting.........................................5
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS;
EXCHANGE OF CERTIFICATES
SECTION 2.1 Effect on Capital Stock.......................................6
(a) Common Stock of the Purchaser........................................6
(b) Cancellation of Subsidiary or Parent-Owned Company Common Stock......6
(c) Conversion of Company Common Stock...................................7
(d) Shares of Dissenting Holders.........................................7
SECTION 2.2 Exchange of Certificates......................................9
(a) Paying Agent.........................................................9
(b) Exchange Procedures..................................................9
(c) Letter of Transmittal...............................................10
(d) No Further Ownership Rights in Company Common Stock.................11
(e) Termination of Payment Fund.........................................11
(f) No Liability........................................................11
(g) Investment of Payment Fund..........................................12
SECTION 2.3 Treatment of Employee Options................................13
</TABLE>
-i-
<PAGE>
ARTICLE III
<TABLE>
<CAPTION>
REPRESENTATIONS AND WARRANTIES
<S> <C> <C>
SECTION 3.1 A. Representations and Warranties of the Company................14
(a) Organization and Qualification; Subsidiaries.........................14
(b) Capitalization.......................................................15
(c) Company Action.......................................................18
(d) Authority Relative to Agreement......................................20
(e) Regulatory Approvals.................................................20
(f) SEC Filings; Financial Statements....................................22
(g) Proxy Statement......................................................22
(h) Transactions with Affiliates.........................................22
(i) Opinion of Financial Advisor.........................................22
(j) Brokers; Estimated Fees..............................................23
(k) Mayo.................................................................23
(l) No Conflicts.........................................................23
(m) Undisclosed Liabilities..............................................24
(n) Absence of Certain Changes or Events.................................24
(o) Compliance with Laws.................................................27
(p) Agreements...........................................................28
(q) Permitted Liens......................................................33
(r) Absence of Litigation................................................33
(s) Employee Matters.....................................................34
(t) Tax Matters..........................................................38
(u) Environmental Matters................................................41
(v) Properties...........................................................43
(w) Insurance............................................................46
SECTION 3.2 Representations and Warranties of the Parent and the Purchaser..47
(a) Corporate Organization...............................................47
(b) Authority Relative to Agreements.....................................47
(c) No Conflict; Required Filings and Consents...........................48
(d) Information Supplied.................................................49
(e) Financing............................................................49
(f) Brokers..............................................................49
</TABLE>
-ii-
<PAGE>
ARTICLE IV
<TABLE>
<CAPTION>
CONDUCT OF BUSINESS PENDING THE MERGER; OTHER COVENANTS
<S> <C> <C>
SECTION 4.1 Conduct of Business of the Company Pending the Merger...........50
SECTION 4.2 Conduct of Business of the Purchaser............................56
SECTION 4.3 Preparation of Proxy Statement..................................56
SECTION 4.4 Access to Information; Confidentiality..........................57
SECTION 4.5 No Solicitation.................................................59
SECTION 4.6 Employee Benefits Matters.......................................63
SECTION 4.7 Directors' and Officers' Indemnification and Insurance..........66
SECTION 4.8 Further Action; Best Efforts....................................66
SECTION 4.9 Public Announcements............................................67
SECTION 4.10 Taxes...........................................................68
SECTION 4.11 Conveyance Taxes................................................68
ARTICLE V
CONDITIONS OF MERGER
SECTION 5.1 Conditions to Obligation of Each Party to Effect the Merger.....68
(a) Stockholder Approval.................................................69
(b) Other Approvals......................................................69
(c) No Injunctions or Restraints; Illegality.............................69
(d) Opinion of Financial Advisor.........................................70
SECTION 5.2 Conditions to Obligations of Parent and Purchaser...............70
(a) Representations and Warranties.......................................70
(b) Performance of Obligations of the Company............................70
(c) Required Consent; Governmental Approvals.............................71
(d) No Material Adverse Change...........................................71
SECTION 5.3 Conditions to Obligations of the Company........................72
(a) Representations and Warranties.......................................72
(b) Performance of Obligations of the Parent and the Purchaser...........72
</TABLE>
-iii-
<PAGE>
ARTICLE VI
<TABLE>
<CAPTION>
TERMINATION, AMENDMENT AND WAIVER
<S> <C> <C>
SECTION 6.1 Termination.....................................................72
SECTION 6.2 Effect of Termination...........................................74
SECTION 6.3 Fees and Expenses...............................................74
SECTION 6.4 Amendment.......................................................76
SECTION 6.5 Waiver..........................................................76
SECTION 6.6 Procedure for Termination, Amendment, Extension or Waiver.......77
ARTICLE VII
GENERAL PROVISIONS
SECTION 7.1 Non-Survival of Representations, Warranties and Agreements......77
SECTION 7.2 Notices.........................................................77
SECTION 7.3 Certain Definitions.............................................79
SECTION 7.4 Severability....................................................92
SECTION 7.5 Entire Agreement; Assignment....................................92
SECTION 7.6 Parties in Interest.............................................92
SECTION 7.7 Governing Law...................................................93
SECTION 7.8 Interpretation..................................................93
SECTION 7.9 Counterparts....................................................93
</TABLE>
-iv-
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of May 6, 1996 (this
"Agreement"), among Tiger Real Estate Fund, L.P., a Delaware limited partnership
(the "Parent"), Tiger Real Estate Acquisition Corp., a Minnesota corporation and
a subsidiary of the Parent (the "Purchaser"), and KAHLER REALTY CORPORATION, a
Minnesota corporation (the "Company").
WHEREAS, the Boards of Directors of the Company and the Purchaser have
approved, and deem it advisable and in the best interests of their respective
stockholders to consummate, the business combination transaction provided for
herein in which the Purchaser will merge with and into the Company (the
"Merger");
WHEREAS, the Parent, the Purchaser and the Company desire to make
certain representations, warranties, covenants and agreements in connection with
the Merger and also to prescribe various conditions to the Merger;
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, mutual covenants and agreements herein contained,
and intending to be legally bound hereby, the Parent, the Purchaser and the
Company agree as follows:
ARTICLE I
THE MERGER
SECTION 1.1 The Merger. Upon the terms and subject to the
conditions set forth in this Agreement, and in accordance with the Business
Corporation Act of the State of
-2-
<PAGE>
Minnesota (the "MBCA"), at the Effective Time (as defined in Section 1.3 below),
the Purchaser shall be merged with and into the Company. At the Effective Time,
the separate corporate existence of the Purchaser shall cease, and the Company
shall continue as the surviving corporation of the Merger (the "Surviving
Corporation") and shall continue under the name "Kahler Realty Corporation."
SECTION 1.2 Closing. Unless this Agreement shall have been
terminated and the transactions herein contemplated shall have been abandoned
pursuant to Section 6.1, and subject to the satisfaction or waiver of the
conditions set forth in Article V, the closing of the Merger (the "Closing")
will take place as promptly as practicable (and in any event within two business
days) following satisfaction or waiver of the conditions set forth in Article V
(the "Closing Date"), at the offices of Schulte Roth & Zabel, 900 Third Avenue,
New York, New York, unless another date, time or place is agreed to in writing
by the parties hereto.
SECTION 1.3 Effective Time of the Merger. As soon as practicable
after the satisfaction or waiver of the conditions set forth in Article V,
provided that this Agreement shall not have been terminated as provided in
Section 6.1, the parties hereto shall cause the Merger to be consummated by
filing articles of merger (the "Articles of Merger") with the Secretary of State
of the State of Minnesota, in such form as required by, and executed in
accordance with the relevant provisions of, the MBCA (the date and time of the
filing of the Articles of Merger with the Secretary of State of the State of
Minnesota (or such later time as is specified in the Articles of Merger) being
the "Effective Time").
SECTION 1.4 Effects of the Merger. The Merger shall have the
effects set forth in Section 302A.641 of the MBCA. Without limiting the
generality of the foregoing, and subject
-3-
<PAGE>
thereto, at the Effective Time all the rights, privileges, immunities, and
franchises of the Company and the Purchaser shall vest in the Surviving
Corporation, and all the duties and liabilities of the Company and the Purchaser
shall become the duties and liabilities of the Surviving Corporation. The
Surviving Corporation may, at any time after the Effective Time, take any action
(including, without limitation, executing and delivering any document) in the
name and on behalf of the Company or the Purchaser in order to carry out and
effectuate the transactions contemplated in this Agreement.
SECTION 1.5 Articles of Incorporation; By-Laws.
(a) The Articles of Incorporation of the Purchaser shall be the
Articles of Incorporation of the Surviving Corporation immediately after the
Effective Time, except that Article I of the Articles of Incorporation of the
Surviving Corporation shall read in its entirety as follows: "The name of this
corporation is Kahler Realty Corporation." A form of the Articles of
Incorporation of the Surviving Corporation is attached hereto as Exhibit A.
(b) Immediately after the Effective Time and without any further
action on the part of the Company and the Purchaser, the By-Laws of the
Purchaser shall be the By-Laws of the Surviving Corporation and thereafter may
be amended or repealed in accordance with their terms or the Articles of
Incorporation of the Surviving Corporation and as provided by law.
SECTION 1.6 Directors and Officers. Immediately after the Effective
Time, and without any action on the part of the Company and the Purchaser, the
directors of the Purchaser immediately prior to the Effective Time shall be the
initial directors of the Surviving Corporation, each to hold office in
accordance with the Articles of Incorporation and By-Laws of the Surviving
Corporation and applicable law, and the officers of the Company immediately
-4-
<PAGE>
prior to the Effective Time shall be the initial officers of the Surviving
Corporation, in each case until their respective successors are duly elected or
appointed, as the case may be, and qualified in accordance with the Articles of
Incorporation and By-Laws of the Surviving Corporation and applicable law.
SECTION 1.7 Stockholders' Meeting. The Company will take all action
necessary in accordance with and subject to applicable law and its Articles of
Incorporation and By-Laws to convene a meeting of its stockholders (the
"Stockholders' Meeting") as soon as practicable after the date of this Agreement
to consider and vote upon the adoption and authorization of this Agreement and
the approval of the Merger. Subject to the fiduciary duties of the Board of
Directors of the Company, the Company shall (a) prepare, file with the SEC and
send to its stockholders a Proxy Statement (as hereinafter defined), which shall
include the recommendation of its Board of Directors that holders of Company
Common Stock (as hereinafter defined) adopt and authorize this Agreement and the
Merger and (b) use their reasonable best efforts to obtain the adoption and
authorization of this Agreement and the Merger by the stockholders of the
Company, including without limitation, timely mailing a notice complying with
the MBCA and describing the Merger and the other transactions contemplated
hereby and containing a recommendation of the Board of Directors of the Company
that the holders of Company Common Stock entitled to vote thereon approve this
Agreement and the Merger.
-5-
<PAGE>
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES
SECTION 2.1 Effect on Capital Stock. At the Effective Time, by
virtue of the Merger and without any action on the part of the holders of any
shares of common stock, par value $.10 per share, of the Company (the "Company
Common Stock"), or holders of any shares of capital stock of the Purchaser:
(a) Common Stock of the Purchaser. Each share of Common Stock, par
value $1.00 per share, of the Purchaser issued and outstanding immediately prior
to the Effective Time shall be converted into one validly issued, fully paid and
nonassessable share of Common Stock, par value $.10 per share, of the Surviving
Corporation, which shall be all of the issued and outstanding capital stock of
the Surviving Corporation.
(b) Cancellation of Subsidiary or Parent-Owned Company Common Stock.
Each share of Company Common Stock that is owned by any Subsidiary of the
Company, each share of Company Common Stock that is held by the Company as
treasury stock and each share of Company Common Stock that is owned by the
Parent, the Purchaser or any other Subsidiary of the Parent shall automatically
be canceled and retired and shall cease to exist, and no stock of the Parent or
other consideration shall be delivered or deliverable in exchange therefor.
(c) Conversion of Company Common Stock. Except as otherwise provided
herein and subject to Section 2.1(d) , each share of Company Common Stock issued
and outstanding immediately prior to the Effective Time (other than shares to be
canceled in accordance with Section 2.1(b)) shall be converted into the right to
receive $17.00, payable to the holder thereof, without interest (the "Merger
Consideration"), upon surrender of the certificate
-6-
<PAGE>
formerly representing such share of Company Common Stock in the manner provided
in Section 2.2; provided, that if, after the date of this Agreement, the issued
and outstanding shares of Company Common Stock shall have been changed into a
different number of shares or a different class by reason of any stock dividend,
subdivision, reclassification, recapitalization, split, combination or exchange
of shares, the Merger Consideration shall be correspondingly adjusted to reflect
such change. All such shares of Company Common Stock, when so converted, shall
no longer be outstanding and shall automatically be canceled and retired and
shall cease to exist, and each holder of a certificate previously 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
certificates in accordance with Section 2.2, without interest.
(d) Shares of Dissenting Holders. Notwithstanding anything in this
Agreement to the contrary, shares of Company Common Stock issued and outstanding
immediately prior to the Effective Time held by holders (if any) who have not
voted in favor of the Merger, who have filed (or given a consent to another
beneficial owner of Company Common Stock to file) a written notice of intent to
demand the fair value of their shares of Company Common Stock and who have
demanded (or given a consent to another beneficial owner of Company Common Stock
to demand) payment with respect thereto in accordance with Section 302A.473 of
the MBCA and who shall not have withdrawn such demand or otherwise have
forfeited appraisal rights (the "Dissenting Shares") shall not be converted as
described in Section 2. 1(c) , but holders of such shares shall be entitled to
receive payment of the fair value of such shares in accordance with the
provisions of such Section 302A.473, except that all
-7-
<PAGE>
Dissenting Shares held by stockholders who shall have failed to perfect or who
effectively shall have withdrawn or lost their right to appraisal of Company
Common Stock under such Section 302A.473 shall thereupon be deemed to have
converted into and to represent the right to receive, without any interest
thereon, Merger Consideration upon surrender, in the manner provided in Section
2.1 of the certificate or certificates that formerly evidenced such Dissenting
Shares. The Company shall give the Parent (i) prompt notice of any written
notice of intent to demand fair value of any shares, any demands for payment and
any other instruments served pursuant to the MBCA and received by the Company
relating to stockholders' dissenters' rights and any withdrawals of such notices
and other instruments received by the Company and (ii) the opportunity to direct
all negotiations and proceedings with respect to demands for payment under the
MBCA. Except as required by Section 302A.473 of the MBCA, the Company shall not,
except with the prior written consent of the Parent, voluntarily make any
payment with respect to any demands for payment with respect to Dissenting
Shares, offer to settle or settle any such demands.
SECTION 2.2 Exchange of Certificates.
(a) Paying Agent. As of the Effective Time, the Parent shall
deposit, or shall cause to be deposited, with or for the account of a bank or
trust company (the "Paying Agent"), designated by the Parent and reasonably
satisfactory to the Company, for the benefit of the holders of shares of Company
Common Stock, cash in an aggregate amount (such amount being hereinafter
referred to as the "Payment Fund") equal to the product of (A) the number of
shares of Company Common Stock outstanding immediately prior to the Effective
Time (other than
-8-
<PAGE>
shares held by Parent, Purchaser or the Company, or any Subsidiary thereof, and
shares known at the Effective Time to be Dissenting Shares) and (B) the per
share Merger Consideration.
(b) Exchange Procedures. As soon as practicable after the Effective
Time, each holder of an outstanding certificate or certificates which prior
thereto represented shares of Company Common Stock shall, upon surrender of such
certificate or certificates to the Paying Agent and acceptance thereof by the
Paying Agent, be entitled to the amount of cash which the aggregate number of
shares of Company Common Stock previously represented by such certificate or
certificates so surrendered shall have been converted into the right to receive
pursuant to Section 2.1(c) of this Agreement, and such shares of Company Common
Stock represented by the certificate so surrendered shall forthwith be canceled.
The Paying Agent shall accept such certificates upon compliance with such
reasonable terms and conditions as the Paying Agent may impose to effect an
orderly exchange thereof in accordance with normal exchange practices. If the
consideration (or any portion thereof) to be paid in the Merger is to be
delivered to any Person other than the Person in whose name the certificate
representing shares of Company Common Stock surrendered in exchange therefor is
registered, it shall be a condition to such exchange that the certificate so
surrendered shall be properly endorsed or otherwise be in proper form for
transfer and that the Person requesting such exchange shall pay to the Paying
Agent any transfer or other taxes required by reason of the payment of such
consideration to a Person other than the registered holder of the certificate
surrendered, or shall establish to the satisfaction of the Paying Agent that
such tax has been paid or is not applicable. After the Effective Time, there
shall be no further transfer on the records of the Company or its transfer agent
of certificates representing shares of Company Common Stock, and if such
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certificates are presented to the Surviving Corporation for transfer, they shall
be canceled against delivery of cash as hereinabove provided. Until surrendered
as contemplated by this Section 2.2(b), each certificate representing shares of
Company Common Stock (other than certificates representing Dissenting Shares or
shares held by Parent, Purchaser or the Company, or any Subsidiary thereof),
shall be deemed at any time after the Effective Time to represent only the right
to receive upon such surrender the Merger Consideration in cash multiplied by
the number of shares of Company Common Stock evidenced by such certificate, as
contemplated by Section 2.1. No interest will be paid or will accrue on any cash
payable as Merger Consideration.
(c) Letter of Transmittal. Promptly after the Effective Time, but in
no event later than two business days after the Effective Time, the Surviving
Corporation shall require the Paying Agent to mail to each record holder of
certificates that immediately prior to the Effective Time represented shares of
Company Common Stock which have been converted pursuant to Section 2.1, a form
of letter of transmittal and instructions for use in surrendering such
certificates and receiving the consideration to which such holder shall be
entitled therefor pursuant to Section 2.1.
(d) No Further Ownership Rights in Company Common Stock. All cash
paid upon the surrender for exchange of certificates representing shares of
Company Common Stock in accordance with the terms of this Article II shall be
deemed to have been paid in full satisfaction of all rights pertaining to the
shares of Company Common Stock theretofore represented by such certificates,
subject, however, to the Surviving Corporation's obligation to pay any dividends
or make any other distributions with a record date prior to the Effective Time
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which may have been declared by the Company on such shares of Company Common
Stock in accordance with the terms of this Agreement or prior to the date of
this Agreement and which remain unpaid at the Effective Time.
(e) Termination of Payment Fund. Any portion of the Payment Fund
which remains undistributed to the holders of the certificates representing
shares of Company Common Stock for one year after the Effective Time shall be
delivered to Parent, upon demand, and any holders of shares of Company Common
Stock who have not theretofore complied with this Article II shall thereafter
look only to Parent and only as general creditors thereof for payment of their
claim for any cash payable in respect of such certificates to which such holders
may be entitled.
(f) No Liability. None of Parent, Purchaser, the Surviving
Corporation or the Paying Agent shall be liable to any Person in respect of any
cash payable from the Payment Fund delivered to a public official pursuant to
any applicable abandoned property, escheat or similar law. If any certificates
representing shares of Company Common Stock shall not have been surrendered
prior to five years after the Effective Time (or immediately prior to such
earlier date on which any cash in respect of such certificate would otherwise
escheat to or become the property of any Governmental Entity (as defined in
Section 3. 1(e)), any such cash payable in respect of such certificate shall, to
the extent permitted by applicable law, become the property of the Surviving
Corporation, free and clear of all claims or interest of any Person previously
entitled thereto.
(g) Investment of Payment Fund. The Paying Agent shall invest the
Payment Fund, as directed by Parent, in (i) direct obligations of the United
States of America, (ii)
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obligations for which the full faith and credit of the United States of America
is pledged to provide for the payment of principal and interest or (iii)
commercial paper rated the highest quality by both Moody's Investors Services,
Inc. and Standard & Poor' s Corporation, and any net earnings with respect
thereto shall be paid to Parent as and when requested by Parent; provided that
any such investment or any such payment of earnings shall not delay the receipt
by holders of shares of Company Common Stock of the Merger Consideration or
otherwise impair such holders' respective rights hereunder. In the event the
Payment Fund shall realize a loss on any such investment, Parent shall promptly
thereafter deposit in such Payment Fund on behalf of the Surviving Corporation
cash in an amount sufficient to enable such Payment Fund to satisfy all
remaining obligations originally contemplated to be paid out of such Payment
Fund.
SECTION 2.3 Treatment of Employee Options.
(a) Prior to the Effective Time, the Board of Directors of the
Company (or, if appropriate, any committee thereof) shall adopt appropriate
resolutions and take all other actions necessary, including, if desirable,
obtaining Consents from the optionees, to provide for the automatic vesting and
conversion and cancellation, effective at the Effective Time, of the outstanding
stock options (the "Options") heretofore granted (whether vested or unvested)
under the Kahler Corporation Amended and Restated 1987 Stock Option Plan, the
Amended and Restated Kahler Corporation Stock Option Plan for Non-Employee
Directors, the Kahler Corporation Amended and Restated 1982 Incentive Stock
Option Plan, the Kahler Realty Corporation 1994 Stock Option Plan, and the
Kahler Realty Corporation 1994 Non-Employee Directors Stock Option Plan (the
"Stock Plans").
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(b) The Company shall pay, as of the Effective Time, to each holder
of an outstanding Option (who consents to the cancellation of all of his or her
Options) for each share of Company Common Stock subject to an Option an amount
in cash equal to the excess, if any, of the Merger Consideration over the per
share exercise price of such Option. For purposes of this Section 2.3, such
amount, multiplied by the number of shares subject to each Option, shall in the
aggregate for all Options constitute the "Cash Payment." The Cash Payment shall
be reduced by any applicable withholding taxes or other amounts required by law
to be paid or withheld by the Company, and each Option will be canceled. The
Cash Payment shall be made as soon as practicable, but in no event later than
ten days following the Effective Time. Notwithstanding the foregoing, with
respect to any Person subject to Section 16(a) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), any Cash Payment shall be made as soon as
practicable after the first date payment can be made without liability for such
Person under Section 16(b) of the Exchange Act. No interest will be paid or will
accrue on any Cash Payment.
(c) As provided herein, the Stock Plans and the outstanding Options
shall terminate as of the Effective Time. The Company will take all necessary
steps to ensure that none of the Parent, the Surviving Corporation or any of
their respective Subsidiaries is or will be bound by any Options, other options,
warrants, rights or agreements which would entitle any Person, other than the
Parent or its Affiliates, to own any capital stock of the Surviving Corporation
or to receive any payment in respect thereof after the Effective Time.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1.A. Representations and Warranties of the Company. The
Company hereby represents and warrants to the Parent and the Purchaser as
follows:
(a) Organization and Qualification; Subsidiaries. The Company, each
of its Subsidiaries and its Investment Entities (as defined below) is a Person
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its formation and has the requisite corporate or partnership
power and authority to own, lease and operate its Properties and assets and to
carry on its business as it is now being conducted. The Company, each of its
Subsidiaries and its Investment Entities is duly qualified or licensed as a
foreign corporation or partnership to do business, and is in good standing, in
each jurisdiction where the character of the Properties and assets owned, leased
or operated by it or the nature of its activities makes such qualification or
licensing necessary, except for such failures to be so duly qualified or
licensed and in good standing which would not reasonably be expected to have a
Company Material Adverse Effect. The Company has heretofore made available to
the Parent a true, correct and complete copy of the Articles of Incorporation
and the By-Laws of the Company and either the partnership or joint venture
agreement or the Articles of Incorporation and the By-Laws of each Subsidiary
and of each Investment Entity of the Company, as applicable, each as amended to
date and as currently in effect.
(b) Capitalization. (i) The authorized capital stock of the Company
consists of 70,000,000 shares of Company Common Stock and 10,000,000 shares of
Preferred Stock, $.10 par value per share ("Company Preferred Stock"). As of May
2, 1996, (i) (A) 4,343,291
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shares of Company Common Stock were issued and outstanding, all of which were
validly issued, fully paid and nonassessable and were issued free of preemptive
rights and (B) an aggregate of 398,600 shares of Company Common Stock were
reserved for issuance and issuable upon or otherwise deliverable in connection
with the exercise of outstanding Options or other rights to acquire shares of
Company Common Stock issued pursuant to the Stock Plans. All shares of Company
Common Stock reserved for issuance as aforesaid, upon issuance on the terms and
conditions specified in the instruments pursuant to which they are issuable,
shall be duly authorized, validly issued, fully paid and nonassessable and free
of preemptive rights. As of the date hereof, no shares of Company Preferred
Stock are issued and outstanding. Schedule 3.1(b)(i) provides a list of the
Subsidiaries of the Company and other entities in which the Company holds,
directly or indirectly, an equity interest (those entities in which the Company
has an equity interest but do not constitute Subsidiaries, hereinafter, the
"Investment Entities"), and, as to each such Subsidiary which is not wholly
owned by the Company and each Investment Entity the identity and percent record
ownership of third parties as of the date hereof, the percentage of capital
stock or other equity interests owned by the Company, directly or indirectly, in
such Subsidiaries or Investment Entities and the percentage of capital stock or
other equity interests owned by Affiliates of the Company. Except as set forth
in Schedule 3.1(b)(i) hereto, each of the outstanding shares of capital stock of
each of the Company's corporate Subsidiaries and Investment Entities directly or
indirectly owned by the Company is duly authorized, validly issued, fully paid
and nonassessable. Except as set forth in Schedule 3.1(b)(i), the Company does
not own, directly or indirectly, less than a 50% equity interest in any Person.
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(ii) Except as set forth in this Section 3.1(b), as reflected on
Schedule 3.1(b)(ii) and for shares of Company Common Stock issued pursuant to
the exercise of Options outstanding on May 2, 1996 in accordance with their
terms, there are outstanding (w) no shares of capital stock or other voting
securities of the Company or any of its Subsidiaries or Investment Entities, (x)
no securities of the Company or any of its Subsidiaries or Investment Entities
convertible into or exchangeable or exercisable for shares of capital stock or
voting securities of the Company or any of its Subsidiaries or Investment
Entities, (y) no options, warrants or other rights, agreements, arrangements or
commitments pursuant to which the Company or any of its Subsidiaries or
Investment Entities is obligated to issue, any capital stock, voting securities
or securities convertible into or exchangeable or exercisable for capital stock
of or voting securities of the Company or any of its Subsidiaries or its
Investment Entities, and (z) except pursuant to Material Contracts disclosed to
Parent on or prior to the date hereof, no equity equivalents or other similar
rights, options or warrants, or other rights, agreements, arrangements or
commitments pursuant to which the Company or any of its Subsidiaries or
Investment Entities is obligated to issue any such equity equivalents or such
interests (collectively referred to for purposes of this Section 3.1(b) as
"Company Securities"). Except as set forth above, or as set forth on Schedule
3.1(b)(ii) hereto, there are no outstanding obligations of the Company or any of
its Subsidiaries or, to the knowledge of the Company, Investment Entities to
repurchase, redeem or otherwise acquire any Company Securities and no
subscriptions, agreements or other commitments of any character pursuant to
which the Company or any of its Subsidiaries or, to the knowledge of the
Company, its Investment Entities is or may become obligated to issue Company
Securities or evidencing the right to subscribe for Company Securities. As of
the date
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hereof, the Board of Directors has suspended The Kahler Realty Corporation
Employee Stock Purchase Plan, and has suspended the stock portion of the 1994
Retainer Stock Payment Plan for Non-Employee Directors. Neither the Company nor
any of its Subsidiaries or Investment Entities has any authorized or outstanding
bonds, debentures, notes or other indebtedness the holders of which have the
right to vote (or convertible or exchangeable into or exercisable for securities
having the right to vote) with the stockholders of the Company or any of its
Subsidiaries or Investment Entities on any matter, except for debt owed by one
of the Company's Subsidiaries or Investment Entities to the Company or a wholly
owned Subsidiary thereof.
(iii) Each of the Company's Subsidiaries and its Investment Entities
which is a partnership (each a "Partnership") is and has been from its inception
(A) a "partnership" within the meaning of Sections 761 and 7701(a)(2) of the
Code and (B) subject to the provisions of Subchapter K of the Code for federal
income tax purposes. Schedule 3.1(b)(iii) sets forth a true, correct and
complete list of each partnership agreement, joint venture agreement and similar
agreement (together with all supplements, amendments and modifications thereto)
with respect to each Partnership. Except as set forth in Schedule 3.1(b)(iii)
hereto, (x) each partnership interest of the Partnerships exists in accordance
with applicable law and such Partnership's partnership agreement, and neither
the Company nor any of its Subsidiaries or, to the knowledge of the Company, any
of its Investment Entities is in default of any of its material obligations
under such partnership agreement and (y) there are no unsatisfied capital calls
applicable to the Company or any of its Subsidiaries that in the aggregate
exceed $250,000.
(c) Company Action. An independent committee of the Company's Board
of Directors, at a meeting duly called and held on May 6, 1996, has unanimously
approved (i) the
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entry by the Purchaser into voting agreements with Milner Associates and the
Mayo Foundation (the "Voting Agreements") and the consummation of the
transactions contemplated thereby and (ii) the entry by the Parent and the
Purchaser into this Agreement and the consummation of the transactions
contemplated hereby. Such approval includes and constitutes approval of the
Voting Agreements, this Agreement and the consummation of the respective
transactions contemplated thereby for purposes of Section 302A.673 of the MBCA.
The Company's Board of Directors, at a meeting duly called and held on May 6,
1996, has unanimously (i) determined that this Agreement and the transactions
contemplated hereby, including the Merger, are fair to and in the best interests
of the holders of the shares of Company Common Stock, (ii) resolved to recommend
that the holders of shares of Company Common Stock approve and adopt this
Agreement and the Merger and (iii) approved this Agreement and the transactions
contemplated hereby. The Company further represents and warrants that in
connection with the actions taken pursuant to clauses (i) and (ii) above the
Board resolved to arrange for this Agreement and the transactions contemplated
hereby, including the Merger, to be presented for approval by the Company's
stockholders.
(d) Authority Relative to Agreement. The Company has all necessary
corporate power and authority to execute and deliver this Agreement, to perform
its obligations under this Agreement and to consummate the transactions
contemplated hereby. The execution, delivery and performance of this Agreement
by the Company and the consummation by the Company of the transactions
contemplated hereby have been duly authorized by the Board of Directors of the
Company and no other corporate proceedings on the part of the Company are
necessary to authorize this Agreement and the consummation by the Company of
such
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transactions, other than the approval and adoption of the Merger and this
Agreement by the holders of a majority of the outstanding shares of Company
Common Stock entitled to vote. This Agreement has been validly executed and
delivered by the Company and, assuming the due authorization, execution and
delivery hereof by the other parties hereto, constitutes a legal, valid and
binding obligation of the Company, enforceable against the Company in accordance
with its terms. The execution, delivery and performance of this Agreement by the
Company do not and will not conflict with or violate the Articles of
Incorporation or By-Laws of the Company or any partnership or joint venture
agreement or Articles of Incorporation or By-Laws, as the case may be, of any of
the Company's Subsidiaries or any of its Investment Entities.
(e) Regulatory Approvals. The execution, delivery and performance of
this Agreement by the Company and the consummation of the transactions
contemplated hereby by the Company do not and will not require any consent,
approval, authorization or permit of, action by, filing with or notification to,
any Governmental Entity except for: (A) the filing with the SEC of a Proxy
Statement in definitive form relating to the Stockholders' Meeting and of other
reports required to be filed pursuant to the Exchange Act; (B) applicable
filings pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act") and the expiration or termination of all applicable
waiting periods thereunder; (C) the filing and recordation of appropriate merger
or other documents as required by the MBCA; (D) compliance with the statutory
provisions and regulations relating to real property transfer gains taxes and
real property transfer taxes; (E) applicable reporting and notification
requirements of the NASDAQ Stock Market; (F) such other consents, approvals,
authorizations, filings or notices as are set forth in Schedule 3.1(e) hereto
and (G) such consents, approvals, authorizations, permits, actions,
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filings or notifications which the failure to make or obtain would not singly or
in the aggregate reasonably be expected to have a Company Material Adverse
Effect.
(f) SEC Filings; Financial Statements. (i) The Company has filed all
forms, reports, statements and other documents required to be filed with the
Securities and Exchange Commission (the "SEC") since January 1, 1993
(collectively, the "SEC Reports"). Except as set forth on Schedule 3.1(f), the
SEC Reports, including all the SEC Reports filed after the date of this
Agreement and prior to the Effective Time, were or will be in compliance in all
material respects with the applicable requirements of the Securities Act or the
Exchange Act, as applicable, each as in effect on the date so filed. Except as
set forth on Schedule 3.1(f), none of the SEC Reports filed by the Company,
including all the SEC Reports filed after the date of this Agreement and prior
to the Effective Time, contained, or will contain when filed, any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
(ii) Except as set forth on Schedule 3.1(f), the consolidated
financial statements of the Company for each of the three fiscal years ended
December 31, 1993, 1994 and 1995 included in SEC Reports comply, and the
financial statements included in all SEC Reports filed after the date of this
Agreement and prior to the Effective Time will comply, as to form in all
material respects with applicable accounting requirements and with the published
rules and regulations of the SEC with respect thereto, have been or will be
prepared in accordance with GAAP (except as may be indicated in the notes
thereto) and do or will fairly present the consolidated financial position of
the Company and its consolidated Subsidiaries at the
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respective dates thereof and the consolidated results of their operations and
changes in cash flows for the periods indicated.
(iii) The consolidating financial statements of each of the Company's
Subsidiaries and Investment Entities previously provided to the Parent have been
prepared in good faith and were used by the Company as the basis for the
preparation of the Company's audited financial statements for the three fiscal
years ended December 31, 1995.
(iv) All elements of the Improvements (other than the elements and
systems referred to in Section 3.1(v)(vii) for which there is a representation
and warranty therein) are in good operating condition, normal wear and tear
excepted, and in a good state of repair and maintenance except where the failure
to be in such condition or state shall not singly or in the aggregate have a
Company Material Adverse Effect.
(g) Proxy Statement. The Proxy Statement (or any amendment thereof or
supplement thereto) shall comply in all material respects with applicable
federal securities laws and, at the date of mailing to stockholders of the
Company and at the time of the Stockholders' Meeting to be held in connection
with the Merger, will not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading, except that no representation is made by
the Company with respect to statements made therein based on information
supplied by the Parent or the Purchaser in writing for inclusion in the Proxy
Statement.
(h) Transactions with Affiliates. Other than matters referred to in
Schedule 3.1(h) and transactions between any of the Company and its Subsidiaries
and Investment
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Entities, and except as disclosed in the SEC Reports, there are none, and for
the past three years there have not been any, material contracts, agreements or
transactions between the Company, any of its Subsidiaries or its Investment
Entities, and any Affiliates, directors or executive officers of the Company.
(i) Opinion of Financial Advisor. On the date hereof, the Company has
received the opinion of Montgomery Securities to the effect that the Merger
Consideration is fair to the stockholders of the Company from a financial point
of view.
(j) Brokers; Estimated Fees. Except as disclosed on Schedule 3.1(j),
no broker, finder or investment banker is entitled to any brokerage, finder's or
other fee or commission in connection with the transactions contemplated by this
Agreement based upon arrangements made by and on behalf of the Company. A
schedule setting forth the aggregate estimated out-of-pocket fees and expenses
incurred and to be incurred by the Company in connection with this Agreement and
the transactions contemplated hereby (including the fees of the Company's legal
counsel but excluding the costs of any Required Consents) has been delivered by
the Company on the date hereof.
(k) Mayo. The Company and the Mayo Foundation have each executed and
delivered the amendment, attached hereto as Exhibit B, to the Agreement, dated
as of February 1, 1989, between the Company and the Mayo Foundation.
Section 3.1B Additional Representations and Warranties of the
Company. The Company represents and warrants that, except for such matters that
would not singly or in the aggregate (x) materially adversely affect the ability
of the Company to perform its obligations hereunder and (y) reasonably be
expected to result in a Company Material Adverse Effect:
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(l) No Conflicts. (i) Except as disclosed on Schedule 3.1(l) (i),
the execution, delivery and performance of this Agreement by the Company do not
and will not: (A) assuming that all consents, approvals and authorizations
contemplated by Section 3.1(e) have been obtained and all filings described in
Section 3.1(e) have been made, conflict with or violate any Governmental
Regulation applicable to the Company or any of its Subsidiaries or Investment
Entities or by which its or any of their respective Properties or assets are
bound; or (B) assuming that all consents, approvals and authorizations
contemplated by Section 3.1(e) have been obtained and all filings described in
Section 3.1(e) have been made, result in any breach or violation of or
constitute a default under, or give rise to any right of first refusal,
termination, amendment, acceleration or cancellation of, result in a loss or
reduction of rights under, or result in the creation of a Lien on any of the
Properties or assets of the Company or any of its Subsidiaries or Investment
Entities pursuant to, any note, bond, mortgage, indenture, contract, agreement,
lease, license, permit, franchise or other instrument or obligation to which the
Company or any of its Subsidiaries or, to the knowledge of the Company, any of
its Investment Entities is a party or by which the Company or any of its
Subsidiaries or, to the knowledge of the Company, any of its Investment Entities
or its or any of their respective material Properties or assets are bound or are
subject.
(m) Undisclosed Liabilities. Except as set forth on Schedule 3.1(m)
and except as and to the extent disclosed in the consolidated balance sheet of
the Company as at December 31, 1995 previously furnished the Parent, there are
no liabilities, whether absolute, accrued, contingent or otherwise, of the
Company or any of its Subsidiaries, that would be required to be reflected on,
or reserved against, in a consolidated balance sheet of the Company
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in accordance with GAAP, except for (i) liabilities which, singly or in the
aggregate, are immaterial in amount or nature, and (ii) liabilities incurred
subsequent to the date of such financial statement by the Company, its
Subsidiaries or its Investment Entities in the ordinary course of business
consistent with past practice.
(n) Absence of Certain Changes or Events. Except as disclosed prior
to the date hereof in the SEC Reports or on Schedule 3.1(n), since December 31,
1995, the Company each of its Subsidiaries and, to the knowledge of the Company,
each of its Investment Entities has conducted its business only in the ordinary
course, consistent with past practice and except as disclosed prior to the date
hereof in the SEC Reports or on Schedule 3.1(n), since December 31, 1995, there
has not been prior to the date hereof, (x) any adverse change in the business,
results of operations or financial condition of the Company and its Subsidiaries
taken as a whole or, to the knowledge of the Company, its Investment Entities
taken as a whole with the Company and its Subsidiaries, nor has there been any
development which, taken together with all other developments in the aggregate,
would reasonably be expected to result in such an adverse change, nor to the
knowledge of the Company is any such adverse change or development threatened,
(y) any change in any accounting principle, method or practice used by it or any
change in the classification of assets, recognition of income or expenses or the
depreciation or amortization policies or rates therefore applied (unless
required by the SEC or the Financial Accounting Standards Board ("FASB")), or
(z) except in the ordinary course of business consistent with past practice and
within levels anticipated in the 1996 Budget, any actual or, to the knowledge of
the Company, threatened, damage, destruction, loss, conversion, condemnation or
taking by eminent domain related to any material asset or Property of the
Company, its
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Subsidiaries or, to the knowledge of the Company, its Investment Entities
(including each of the Property Owners), nor are any proceedings pending with
respect to the same. In addition, except as disclosed on Schedule 3.1(n) or in
the SEC Reports, from December 31, 1995 to the date hereof, neither the Company
nor any of its Subsidiaries or Investment Entities has (A) issued, sold or
delivered or agreed to issue, sell or deliver any additional shares of their
capital stock (except for the issuance of Company Common Stock pursuant to the
exercise of Options in accordance with their terms or pursuant to the
compensation elections of the directors of the Company under Company Plans in
effect on the date hereof), partnership, joint venture or other equity interests
(collectively, "Ownership Interests"), or any options, warrants or rights to
acquire any Ownership Interests, or securities convertible into or exchangeable
for Ownership Interests, other than to the Company or its wholly owned
Subsidiaries, (B) acquired or disposed of any material assets or material
Properties or agreed to manage or operate any material asset or material
Property, or entered into any agreement or other arrangement for any such
acquisition, disposition, management or operation, except in each case in the
ordinary course of business consistent with past practice, (C) declared, made,
paid or set apart any sum for any dividend or other distribution to its
shareholders, partners or co-venturers (other than the Company and its wholly
owned Subsidiaries), or purchased or redeemed any of its Ownership Interests or
reclassified any of its Ownership Interests, (D) except as required under
existing Company Plans, increased or accelerated the wages, salaries,
compensation, pension or other benefits payable to any employee, or granted any
severance or termination pay, except to employees who are not executive officers
or directors in accordance with its past business practice, or entered into any
employment agreement with any officer or salaried employee which is not
terminable by the
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employer, without cause and without severance or termination payments, upon
notice of 30 days or less, or established, adopted, entered into or amended or
terminated any Company Plan or other Material Contract listed on Schedule
3.1(p)(i)(B), (E) relinquished, forgiven or canceled any material debts or
claims (except with respect to transient hotel guests in the ordinary course of
business consistent with past practice) or waived any rights of material value,
(F) suffered any strike or other material labor trouble, (G) made or prepaid any
material investment, loan or other extension of credit (other than working
capital borrowings) or entered into any commitment or agreement to make or
prepay any material investments, loans or extensions of credit (other than
working capital borrowings) to any entity, other than a wholly owned Subsidiary
of the Company, (H) issued any indemnity, guaranty, "keep well" agreement or
similar assurances of performance for any other entity, other than a wholly
owned Subsidiary, with respect to which the contingent liability exceeds
$100,000 per agreement, (I) except as reflected on Schedule 3.1(b)(iii), amended
its organizational documents or altered, through merger, liquidation,
reorganization, restructuring or any other fashion the entity structure or the
Company's direct or indirect Ownership Interests in such entity, (J) except as
reflected on Schedule 3.1(p), amended, supplemented or modified any Material
Contract or entered into any material transaction, in each case other than in
the ordinary course of business consistent with past practice; or (K) made any
material Tax elections, settled or compromised any material income Tax
liabilities or deferred the payment of any material Taxes that came due.
(o) Compliance with Laws.
(i) Except as set forth on Schedule 3.1(o)(i) the Company, each of its
Subsidiaries and, to the knowledge of the Company, each of its Investment
Entities hold all
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material Licenses and Permits necessary for the lawful conduct of their
respective businesses and the operation and management of the Properties as
currently conducted. All such Licenses and Permits are valid and in full force
and effect.
(ii) The Company, each of its Subsidiaries and, to the knowledge of
the Company, each of its Investment Entities are in compliance in all material
respects with the terms of their respective Licenses and Permits, and each of
the Properties is being operated, leased, managed and used in accordance in all
material respects with the Licenses and Permits.
(iii) The Company, each of its Subsidiaries and, to the knowledge of
the Company, each of its Investment Entities are in compliance in all material
respects with all Government Regulations, excluding the Americans with
Disabilities Act (the "ADA").
(iv) Except as set forth on Schedule 3.1(o), as of the date of this
Agreement, to the knowledge of the Company, no investigation, review, inquiry or
proceeding by any Governmental Entity is pending or threatened with respect to
any material matter as to which the Company, any of its Subsidiaries or any of
its Investment Entities is a party or subject.
(v) Except as set forth on Schedule 3.1(o)(v), as of the date of this
Agreement, neither the Company nor any Subsidiary nor, to the Company's
knowledge, any Investment Entity, has received any written notice from any
Governmental Authority with respect to compliance with the ADA. The Company has
in effect an ADA compliance program for the Company, its Subsidiaries and the
Investment Entities. The Company, its Subsidiaries and the Investment Entities
have taken all commercially reasonable actions to comply with the ADA.
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(p) Agreements.
(i) Schedule 3.1(p) and Schedules 3.1(s)(i) through 3.1(s)(xi)
together set forth a true, correct and complete list of all of the executory
contracts and other agreements (together with all supplements, amendments and
modifications thereto) in each of the following categories to which the Company
or any of its Subsidiaries or, to the knowledge of the Company, any of its
Investment Entities is a party or by or to which their respective assets,
Properties or businesses are bound or subject as of the date hereof (the
"Material Contracts"):
(A) except as set forth in Partnership Agreements, Franchise
Agreements and Ground Leases previously disclosed to Parent, (x) any
agreement, preferential rights or options or rights of first refusal
in each case relating to the acquisition by the Company, any of its
Subsidiaries or, to the knowledge of the Company, its Investment
Entities, of any operating business, material amount of assets,
properties or the capital stock of any other Person or relating to the
disposition of the capital stock of the Company, any of its
Subsidiaries or, to the knowledge of the Company, its Investment
Entities, or a material amount of its or their assets or Properties
(including grants of any preferential rights or options or right of
first refusal with respect thereto) and (y) any agreement for the sale
or exchange of assets that provides for payments in excess of $100,000
per annum or $250,000 in the aggregate per agreement;
(B) all Company Plans (as defined in Section 3.1(s)) for the
benefit of, or relating to, any employee, director, former employee,
former
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director or retiree of the Company, any of the Company's Subsidiaries
or any of its Investment Entities;
(C) all employment, consulting, severance, or any similar
agreement, arrangement or contract related to employment or personal
services with Persons who are not officers, directors or employees of
the Company or ERISA Affiliates having a remaining term of one year or
more, not terminable by the Company or any Subsidiary without penalty
on 90 days or less notice and involving payments in excess of $50,000.
(D) all collective bargaining or similar agreements with any
labor union;
(E) all contracts or agreements to indemnify any officers or
directors of the Company, its Subsidiaries or, to the knowledge of the
Company, its Investment Entities;
(F) except for Partnership Agreements and agreements listed
on Schedule 3.1(p)(E), all agreements of surety, guarantee,
reimbursement, indemnity, "keep well" or agreements to advance funds,
letters of credit, bid bond, temporary performance bond or
indemnification or similar assurances of performance with respect to
which the Company or any of its Subsidiaries or, to the knowledge of
the Company, any of its Investment Entities, is the obligor or
beneficiary, with respect to which the contingent liability exceeds
$100,000 (excluding any such arrangement between the Company and its
wholly owned Subsidiaries);
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(G) except for documents relating to indebtedness not
exceeding $200,000 in any single instrument and $1,000,000 for all
such instruments, all indentures, loan agreements, promissory notes,
agreements pledging, mortgaging or otherwise granting a security
interest in collateral or guarantees under which the Company or any of
its Subsidiaries or, to the knowledge of the Company, its Investment
Entities has outstanding indebtedness (including Existing
Indebtedness), obligations or liabilities, contingent or otherwise,
for borrowed money or under which any Person (including the Company,
any of its Subsidiaries or, to the knowledge of the Company, any of
its Investment Entities) has outstanding indebtedness, obligations or
liabilities, contingent or otherwise, for borrowed money with the
Company, any of its Subsidiaries or, to the knowledge of the Company,
any of its Investment Entities (set forth on Schedule 3.1(p)(G) is a
list of the Existing Indebtedness, maturity date and interest rate
with respect to each Existing Loan, and specifying if such Existing
Loan is not recourse);
(H) excluding group reservations for transient hotel guests,
all material Property Contracts and, to the knowledge of the Company,
all proposed material Property Contracts being negotiated;
(I) all Ground Leases and material Space Leases (including a
schedule of the current annual rent and term for such material Space
Leases);
(J) all commitments to make capital expenditures, capital
additions or capital improvements (including, without limitation,
tenant
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improvements) not reflected in the Capital Expenditure Budget,
involving an expenditure in excess of $100,000 and capital
expenditures exceeding $500,000 in the aggregate;
(K) other than as set forth on Scheduled 3.1(l), all
agreements providing for additional or accelerated payments or other
consideration or altering the respective rights of the parties thereto
on account of the transactions contemplated hereby;
(L) all agreements (other than Franchise Agreements,
Partnership Agreements, REAs and Ground Leases) which limit in any
material respect the right of the Company or any of its Subsidiaries
or, to the knowledge of the Company, any of its Investment Entities to
engage in any business (including without limitation, the ownership,
operation or sale of hotels); and
(M) any agreements or contracts (of the types not covered by
clauses (A) through (L) above and except for Permitted Liens), which
are material to the business, operations, Properties, assets or
results of operations of the Company and its Subsidiaries taken as a
whole and which are not terminable by the Company without penalty on
90 days' notice or less.
(ii) The Company has made available to the Parent true, correct and
complete copies of the Material Contracts. Except for modifications as set
forth on Schedule 3.1(p)(i), each of the Material Contracts is valid and
binding, in full force and effect and unmodified. Except as set forth on
Schedule 3.1(p)(ii), neither the Company nor any of its Subsidiaries or, to the
knowledge of the Company, its Investment Entities: (x) is in material
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breach or default under any Material Contract; (y) has received any written
notice of default, acceleration, cancellation or termination (or any other
written notice with like or similar effect) under any Material Contract; or (z)
has any knowledge of any default or fact which would, to the knowledge of the
Company, with the giving of notice or passage of time or both, constitute a
material default by the Company, its Subsidiaries or its Investment Entities
under any Material Contract, and the Company has no knowledge that any other
party to any Material Contract is in material breach or default thereof. Neither
the consummation of the transactions contemplated by this Agreement nor any
subsequent sale or transfer of any Property may give rise to, or result in the
exercise of, any right of first refusal or option exercisable by any Person
(other than the Company or its Subsidiaries) with respect to all or any portion
of any Property pursuant to the terms of any of the Permitted Liens or Material
Contracts listed on Schedule 3.1(p)(i)(A) hereof..
(q) Permitted Liens. The Company, the Subsidiaries and, to the
knowledge of the Company, each of its Investment Entities and each Property is
in compliance in all material respects with the terms of Permitted Liens
applicable to it. Except as set forth on Schedule 3.1(v)(iii), none of the
Permitted Liens (excluding any of the Ground Leases and any mortgages or deeds
of trust) requires the Company, its Subsidiaries or any of its Investment
Entities to make any material special or non-recurring payment so long as there
is no default under such Permitted Lien.
(r) Absence of Litigation. Except as disclosed on Schedule 3.1(r), in
the SEC Reports or the financial statements or the notes thereto delivered to
the Parent pursuant to Sections 3.1(f)(iii), as of the date hereof, there are no
suits, claims, actions, proceedings or investigations pending or, to the
knowledge of the Company, threatened against the Company or
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any of its Subsidiaries or, to the knowledge of the Company, any of its
Investment Entities or any Properties or rights of the Company or any of its
Subsidiaries or, to the knowledge of the Company, any of its Investment
Entities, before any court, arbitrator or administrative, governmental or
regulatory authority or body, domestic or foreign, other than ordinary course
claims of the type insured against (subject to self-insured retentions and
deductibles) by the Company, its Subsidiaries and, to the knowledge of the
Company, its Investment Entities. Except as set forth on Schedule 3.1(r),
neither the Company nor any of its Subsidiaries or, to the knowledge of the
Company, any of its Investment Entities nor any of their respective Properties
is or are subject to any material order, writ, judgment, injunction, decree,
determination or award that remains unsatisfied or in effect.
(s) Employee Matters. (i) Schedule 3.1(s) (i) lists each "employee
benefit plan" (within the meaning of section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")), and any other bonus, stock
option, stock purchase, stock appreciation right, incentive, deferred
compensation, supplemental retirement, severance and other similar material
fringe or employee benefit plans, programs, policies or arrangements, any
employment, consulting, indemnification or executive compensation agreements for
the benefit of, or relating to, any employee, former employee or retiree of the
Company or any trade or business under common control with the Company (an
"ERISA Affiliate") within the meaning of Section 414 of the Code, and written
descriptions of any oral arrangements or agreements with respect to the
foregoing, currently maintained or maintained within the last three years by the
Company or any ERISA Affiliate or under which the Company or any ERISA Affiliate
has any liability in respect of current or former employees (collectively
referred to as the "Company
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Plans"). True, correct and complete copies of the following have been made
available to the Parent: (A) all Company Plans and any trust agreement related
thereto; (B) the most recent annual report (Form 5500 Series) with respect to
each Company Plan; (C) the most recent summary plan description (as described in
section 102(a)(1) of ERISA); and (D) the most recent actuarial report (based on
information accurately reported by the Company or any Subsidiary of the Company)
which reflects the funded status and contribution requirements of each Title IV
Plan (as defined in Section 3.1(s)(viii) below)). The annual reports (Form 5500
Series) with respect to each Company Plan have been properly filed, including
the payment in full of any late fees, interest and penalties, if, and to the
extent, applicable.
(ii) Each Company Plan has been administered, and is in compliance, in
all material respects with ERISA, the Code, the terms of such Company Plan and
all laws, rules and regulations applicable thereto.
(iii) No "prohibited transaction" (as such term is used in section 406
of ERISA or section 4975 of the Code) has heretofore occurred with respect to
the assets of any Company Plan.
(iv) Neither the Company nor any ERISA Affiliate contributes to, or
was required within the preceding six years to contribute to, any "multiemployer
plan" (within the meaning of section 3(37) of ERISA).
(v) Each Company Plan which is intended to be qualified within the
meaning of Section 401(a) of the Code has received a favorable determination
letter from the Internal Revenue Service ("IRS") as to its qualification and
since the date of such favorable
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determination letter, to the Company's knowledge, neither it nor any ERISA
Affiliate has taken or failed to take any action which would be reasonably
likely to disqualify such Company Plan.
(vi) There are no pending actions which have been asserted in writing
or instituted (other than in respect of benefits due in the ordinary course)
against the assets of any of the Company Plans or against the Company or any
ERISA Affiliate or any fiduciary of the Company Plans with respect to the
Company Plans.
(vii) Except as required by section 4980B of the Code or as set forth
on Schedule 3.1(s)(vii), no Company Plan or other arrangement provides medical
or death benefits (whether or not insured) with respect to current or former
employees of the Company or any ERISA Affiliate beyond their retirement or other
termination of employment. Any continuation coverage provided under any Company
Plans which are welfare benefit plans (within the meaning of section 3(1) of
ERISA) complies with section 4980B of the Code and is at the expense of the
participant or beneficiary.
(viii) Schedule 3.1(s)(viii) sets forth each Company Plan (other than
a multiemployer plan) that is subject to Title IV of ERISA (a "Title IV Plan").
Except as set forth on Schedule 3.1(s)(viii), no accumulated funding deficiency
or unpaid required installments within the meaning of section 412 of the Code
exists, nor has there been issued a waiver or variance of the minimum funding
standards imposed by the Code with respect to any Title IV Plan, nor has any
lien been created under section 302(f) of ERISA or security been required under
section 307 of ERISA, nor are any excise taxes due or hereafter to become due
under section 4971 or 4972 of the Code with respect to the funding of any such
plan for any plan year or other fiscal period ending on or before the Effective
Time. With respect to each Title IV Plan,
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(a) there has not occurred any reportable event within the meaning of section
4043(c) of ERISA or the regulations thereunder (other than events as to which
the 30-day notice requirement has been waived), and (b) there exists no ground
upon which the Pension Benefit Guaranty Corporation ("PBGC") would reasonably be
expected to demand termination of any Title IV Plan or appoint itself or its
nominee as trustee thereunder. The PBGC has not instituted or threatened in
writing a proceeding to terminate any Title IV Plan. All PBGC premiums due on or
before the date hereof with respect to any Title IV Plan have been paid in full,
including late fees, interest and penalties, if and to the extent applicable.
There has been no material adverse change in the assets, liabilities or
financial position of each Title IV Plan since the date of the most recent
actuarial report. The Company does not intend that a principal purpose for
engaging in the transactions contemplated hereby is for the evasion of liability
under Title IV of ERISA.
(ix) Except as set forth on Schedule 3.1(s)(ix) (which sets forth the
respective amounts of money, property or other consideration which would
reasonably be expected to be paid or transferred), no Company Plan or agreement,
program, policy or other arrangement by or to which the Company or any ERISA
Affiliate is a party, is bound or is otherwise liable, by its terms or in effect
would reasonably be expected to require any payment or transfer of money,
property or other consideration on account of or in connection with the sale,
lease, exchange or transfer of either any shares of stock or any of the assets
of the Company or any ERISA Affiliate (whether or not any such payment would
constitute a "parachute payment" or "excess parachute payment" within the
meaning of Section 280G of the Code).
(x) As of the date hereof, the Company and its Subsidiaries have
approximately 3,750 employees in the aggregate, and no demand for recognition
made by any
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labor organization is pending with respect to any such employees. Schedule
3.1(s)(xi) sets forth a list of all collective bargaining agreements to which
the Company is a party as of the date hereof and any pending grievances
thereunder. The Company and its Subsidiaries have not at any time during the
last two years (a) had, nor is there now threatened, a material strike,
picketing, work stoppage, work slowdown, lockout or other labor trouble or
dispute or grievance under any collective bargaining agreement or (b) engaged in
any unfair labor practice or discriminated on the basis of age or other
discrimination prohibited by applicable law in their employment conditions or
practices. There are no representation petitions, unfair labor practice or age
discrimination charges or complaints, or other charges or complaints alleging
illegal discriminatory practices by the Company or its Subsidiaries, pending or
threatened before the National Labor Relations Board or any other governmental
body. The Company and its Subsidiaries have not incurred any liability or
obligation under the Worker Adjustment and Retraining Notification Act or
similar state laws, which remains unpaid or unsatisfied.
(xi) All insurance premiums required to be paid with respect to
Company Plans as of the Effective Time have been or will be paid prior thereto
and adequate reserves have been provided for on the Company's balance sheet for
any premiums (or portions thereof) attributable to service on or prior to the
Effective Time.
(t) Tax Matters. (i) Except as disclosed in Schedule 3.1(t) , the Company
and each of its Subsidiaries and, to the knowledge of the Company, each of its
Investment Entities, and any consolidated, combined, unitary or aggregate group
for Tax (as hereinafter defined) purposes of which the Company or any of its
Subsidiaries and Investment Entities is or has been a member has timely filed
all Tax Returns (as hereinafter defined) required to be filed
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by it, has paid all Taxes required to be paid whether or not shown to be due
prior to the date any fine or penalty would be assessed thereon or has provided
adequate reserves in its financial statements for any Taxes that have not been
paid, whether or not shown as being due on any returns.
(ii) Except as disclosed in Schedule 3.1(t), (i) no deficiency for any
Taxes has been proposed, asserted or assessed against the Company or its
Subsidiaries and, to the knowledge of the Company, its Investment Entities that
has not been resolved and paid in full, (ii) there are no waivers or comparable
consents regarding the application of the statute of limitations with respect to
any material Taxes or Tax Returns of the Company or any of its Subsidiaries and,
to the knowledge of the Company, its Investment Entities and (iii) there are no
present or proposed audits, examinations, administrative proceedings or court
proceedings with respect to any Taxes or Tax Returns of the Company or its
Subsidiaries and, to the knowledge of the Company, its Investment Entities.
(iii) Except as disclosed in Schedule 3.1(t), none of the Company or
any of its Subsidiaries and, to the Company's knowledge, Investment Entities is
a party to or liable under any material agreement (other than Permitted Liens)
for the allocation, payment or sharing of Taxes.
(iv) There are no material Liens for Taxes upon the Properties or
assets of the Company or any of its Subsidiaries and, and to the Company's
knowledge, Investment Entities except for liens for Taxes not yet due and
payable.
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(v) The Company and its Subsidiaries had aggregate accumulated
earnings and profits for federal income tax purposes of not more than
$18,000,000 as of December 31, 1995.
(vi) Schedule 3.1(t) indicates (i) the approximate basis (net of
depreciation and other adjustments) of (x) the total assets of the Company and
its Subsidiaries and (y) each Property (including associated Personal Property)
set forth on Schedule 3.1(t), in each case as indicated on the consolidated
financial statements of the Company for the fiscal year ended December 31, 1995
and (ii) the approximate basis (net of depreciation and other adjustments) of
(x) the total assets of the Company and its Subsidiaries and (y) each such
Property, in each case for federal income tax purposes as of December 31, 1995.
(vii) As of December 31, 1995, except as disclosed in Schedule 3.1(t),
with respect to each hotel Property owned by the Company and its Subsidiaries
and Investment Entities, the aggregate adjusted federal income tax basis of the
personal property in or relating to each hotel was less than 15% of the adjusted
federal income tax basis of both the real and personal property comprising such
hotel determined for purposes of Code Section 856(d)(1)(C).
(viii) None of the Company or any of its Subsidiaries or, to the
knowledge of the Company, any of its Investment Entities is party to any
agreement, contract, plan or arrangement that (i) would result, by reason of any
of the transactions contemplated herein, separately or in the aggregate, in the
payment of any "excess parachute payments" by the Company or any of its
Subsidiaries and Investment Entities within the meaning of Section 280G of the
Code or (ii) provides for any compensation or other payments to any employee
with respect to which a deduction would be reduced or disallowed pursuant to
Code Section 162(m).
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(ix) None of the Company or any of its Subsidiaries and Investment
Entities has made any written or oral commitment to pay any tax bonuses to any
employee pursuant to any plan, agreement, contract or arrangement with their
employees.
(x) As used herein, "Taxes" shall mean any federal, state, local or
foreign taxes of any kind, including but not limited to those on or measured by
or referred to as income, gross receipts, sales, use, ad valorem, franchise,
profits, license, withholding, payroll, employment, excise, severance, stamp,
occupation, premium, value added, property or windfall profits taxes, customs,
duties or similar fees, assessments or charges of any kind whatsoever, together
with any interest and any penalties, additions to tax or additional amounts
imposed by any governmental entity, domestic or foreign. As used herein, "Tax
Return" shall mean any return, report or statement required to be filed with any
governmental entity with respect to Taxes.
(u) Environmental Matters. Except as set forth in Schedule 3.1(u) and
except for such Environmental Liabilities to the Company, its Subsidiaries and
Investment Entities as shall not reasonably be expected to exceed $20,000 in any
single instance (provided that the Environmental Liabilities for all such
instances do not exceed $150,000 in the aggregate):
(i) The operations of the Properties, the Company, its Subsidiaries
and, to the knowledge of the Company, its Investment Entities are in compliance
with applicable Environmental Laws;
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(ii) The Company, its Subsidiaries and its Investment Entities and the
Properties are in compliance with the terms of their Licenses and Permits
required under applicable Environmental Laws;
(iii) There has been no Release at any parcel of Real Property, or to
the knowledge of the Company, at any disposal or treatment facility which
received Hazardous Materials generated by the Company, its Subsidiaries, its
Investment Entities or the Properties, or any predecessor in interest;
(iv) (A) No Environmental Claims have been asserted or are pending
against the Company or any of its Subsidiaries or their Properties or, to the
knowledge of the Company, any Investment Entity or any of its Properties or, to
the knowledge of the Company, any predecessor in interest of any of them, other
than any Environmental Claim which is immaterial in nature or amount, (B)
neither the Company, its Subsidiaries, nor to the knowledge of the Company, any
of its Investment Entities has knowledge or notice of any threatened
Environmental Claim against the Company, its Subsidiaries, its Investment
Entities or the Properties, or any predecessor in interest and (C) no remedial
obligation has been imposed on the Company, any of its Subsidiaries or any of
their Properties and, to the knowledge of the Company, any of its Investment
Entities or any of its Properties under any applicable Environmental Law, other
than any remedial obligation which is immaterial in nature or amount;
(v) To the knowledge of the Company, no Environmental Claims have been
asserted against any facilities that have received Hazardous Materials generated
by the Company, its Subsidiaries, its Investment Entities or the Properties, or
any predecessor in interest;
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(vi) Schedule 3.1(u)(vi) hereto sets forth (a) the general location of
any underground storage tanks located at any of the Properties, (b) to the
knowledge of the Company, the general location of any asbestos located at any of
the Properties and (c) the estimated cost of any Remedial Action required under
applicable Environmental Laws with respect to any such matters. The asbestos
(other than "Category II" (as defined in 40 CFR 61.141) non-friable asbestos as
to which no representation is made in this sentence) that is located at the
Properties and is not disclosed on Schedule 3.1(u)(vi), (x) does not require any
Remedial Action under applicable Environmental Law and (y) does not materially
adversely affect the operations or the marketability of the relevant Property
where such asbestos is located;
(vii) None of the Properties contains any Hazardous Materials except
in substantial compliance with applicable Environmental Laws;
(viii) None of the Properties are now being or have ever been used,
nor has any property or asset previously owned by the Company or one of its
Subsidiaries or its Investment Entities ever been used for any activities
involving, directly or indirectly, the use, handling, generation, treatment,
storage, transportation, removal, remediation, Release or disposal of any
Hazardous Materials except in compliance with applicable Environmental Laws.
(v) Properties.
(i) Each Property Owner (a true, correct and complete list of which is
set forth on Schedules 3.1(v)(i) and (ii)) has (A) good and marketable fee
simple title to the Real Property owned by such Property Owner, free and clear
of all Liens other than the Permitted Liens applicable to it, and (B) good and
marketable leasehold title to the Real Property leased by such Property Owner,
free and clear of all Liens other than the Permitted Liens applicable to it.
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(ii) except as set forth on Schedule 3.1(v)(iii), neither the Company
nor any Property Owner has knowledge of, nor has it received any notice of, any
material non-recurring or special taxes or assessments or any planned public
improvements that may result in a material non-recurring or special tax or
assessment with respect to the Company, its Subsidiaries, its Investment
Entities or the Properties.
(iii) The Company, its Subsidiaries or its Investment Entities has
(A) good title to all of the material Personal Property owned by such Person,
free and clear of all Liens other than Permitted Liens applicable to it and (B)
a valid leasehold interest to all material Personal Property leased by such
Person, free and clear of all Liens other than Permitted Liens applicable to it.
Each parcel of Real Property which is a hotel contains all levels of Personal
Property and inventories of supplies necessary to operate such hotel in the
ordinary course of business, consistent with past practice.
(iv) The lessee under each Ground Lease and under each Space Lease
(where the Company, or any of its Subsidiaries or its Investment Entities is
lessee) is in peaceful and quiet possession of the Property demised thereunder.
(v) Neither the Company, nor any of its Subsidiaries or any of its
Investment Entities has knowledge of any change or proposed change in the route,
grade or width of, or otherwise affecting, any street, creek or road adjacent to
or serving any parcel of Real Property. Within the period of eighteen (18)
months prior to the date hereof, no portion of any of the Properties has
suffered any material damage or had its operation curtailed in any material
respect by fire, flood or other casualty which has not heretofore been repaired
and restored to its
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original or better condition and paid or provided for, all in accordance with
all applicable Governmental Regulations.
(vi) All utilities required for the operation of each parcel of Real
Property either enter such Real Property through adjoining streets, or they pass
through adjoining land, do so in accordance with valid public easements or
irrevocable private easements, and all of said utilities are installed and
operating.
(vii) The structural elements of the Improvements, the mechanical
systems (including, without limitation, all heating, ventilating, air
conditioning, plumbing, electrical, utility and sprinkler systems) in the
Improvements, the elevators and the utility systems servicing the Improvements
and the roofs located at the Improvements (excluding in all events decorative
fixtures and furniture as to which no representation is made in this clause
(vii)) are in good condition, normal wear and tear excepted. The condition of
such elements and systems (including the absence of any material latent defects)
is such that the cost of capital improvements (including major repairs or
replacements which would be capitalized in accordance with GAAP) required to be
made with respect to such elements and systems during the years 1996, 1997 and
1998 would reasonably be expected to not exceed the amounts set forth on
Schedule 3.1(v)(vii) hereof for such year.
(viii) The present zoning (including, by means of special variances
of record) of each parcel of Real Property permits the current use thereof
(excluding isolated instances of non-compliance which are immaterial in nature).
Neither the Company, its Subsidiaries, nor, to the knowledge of the Company, any
of the Investment Entities, has
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knowledge of any fact, proceeding or threatened action or proceeding which could
materially adversely affect the present zoning of any parcel of Real Property.
(ix) There are no (A) unrecorded easements which are not shown on the
Surveys, (B) strips or gores with respect to or affecting any parcel of Real
Property (or portion thereof) which cause any related parcels of Land to be non-
contiguous or (C) encroachments either by the Improvements on any property owned
by others or by any improvement owned by others on any parcel of the Real
Property (other than encroachments which are immaterial in nature). Each parcel
of Real Property has a right to access to and from such parcel of Real Property.
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(x) Schedule 3.1(v)(x) is a true, correct and complete list of all
Title Insurance Policies, each of which is in full force and effect.
(w) Insurance. Schedule 3.1(w) contains an accurate and complete list
of all policies of insurance (other than Title Insurance Policies), including
the amounts thereof and all deductibles, maintained by the Company, each of its
Subsidiaries and, to the knowledge of the Company, its Investment Entities with
respect to its business, employees, Properties and assets. To the knowledge of
the Company, each such policy is in full force and effect and, assuming
consummation of the transactions contemplated hereby, is free from any right of
termination on the part of the insurance carriers (and no notice of cancellation
of any such policy has been received by the Company or the relevant Subsidiary
or Investment Entity). Except as set forth on Schedule 3.1(w), there are no
outstanding requirements or recommendations by any insurance company that issued
a policy with respect to any of the Properties and assets of the Company, any of
its Subsidiaries or its Investment Entities or by any Board of Fire Underwriters
or other body exercising similar functions or by any Governmental Entity
requiring or recommending any material repairs or other material work to be done
on or with respect to any of the Properties and assets of the Company, any of
its Subsidiaries or, to the knowledge of the Company, its Investment Entities or
requiring or recommending any material equipment or facilities to be installed
on or in connection with any of the Properties or assets of the Company, any of
its Subsidiaries or, to the knowledge of the Company, its Investment Entities.
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SECTION 3.2 Representations and Warranties of the Parent and the
Purchaser. The Parent and the Purchaser hereby, jointly and severally,
represent and warrant to the Company as follows:
(a) Corporate Organization. The Parent is a limited partnership duly
organized and validly existing under the laws of the state of its formation, and
the Purchaser is a corporation duly organized, validly existing and in good
standing under the laws of the state of its incorporation and each has the
requisite power or authority for such entity to own, lease and operate its
properties and to carry on its business as it is now being conducted, except
where the failure to have such power and authority would not reasonably be
expected to have a Parent Material Adverse Effect.
(b) Authority Relative to Agreements. Each of the Parent and the
Purchaser has all necessary power and authority for such entity to execute and
deliver this Agreement, to perform its obligations hereunder and to consummate
the transactions contemplated hereby. The execution, delivery and performance
of this Agreement by each of the Parent and the Purchaser, and the consummation
by each of the Parent and the Purchaser of the transactions contemplated hereby,
have been duly authorized by all necessary corporate or other action on the part
of the Parent and the Purchaser, and no other corporate or other proceedings on
the part of the Parent and the Purchaser are necessary to authorize this
Agreement and the consummation by the Parent and the Purchaser of such
transactions. This Agreement has been duly executed and delivered by each of
the Parent and the Purchaser and, assuming due authorization, execution and
delivery by the other parties hereto, constitutes a legal, valid and binding
obligation of each of the Parent and
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the Purchaser, enforceable against each of the Parent and the Purchaser in
accordance with its terms.
(c) No Conflict; Required Filings and Consents. (i) The execution,
delivery and performance of this Agreement by the Parent and the Purchaser do
not and will not: (A) conflict with or violate the Partnership Agreement of the
Parent or the Articles of Incorporation or By-Laws of the Purchaser, (B)
assuming that all consents, approvals and authorizations contemplated by
subsection (ii) below have been obtained and all filings described in such
subsection have been made, conflict with or violate any Governmental Regulation
applicable to the Parent, the Purchaser or any of their respective Subsidiaries
or by which any of them or their respective properties are bound or (C) assuming
that all consents, approvals and authorizations contemplated by subsection (ii)
below have had been obtained and all filings described in such clause have been
made, result in any breach or violation of or constitute a default, or give rise
to any right of termination, amendment, acceleration or cancellation of, or
result in the creation of a Lien or encumbrance on any of the property or assets
of the Parent, the Purchaser or any of their respective Subsidiaries pursuant
to, any note, bond, mortgage, indenture, contract, agreement, lease, license,
permit, franchise or other instrument or obligation to which the Parent, the
Purchaser or any of their respective Subsidiaries is a party or by which the
Parent, the Purchaser or any of their respective Subsidiaries or any of their
respective properties are bound.
(ii) The execution, delivery and performance of this Agreement by the
Parent and the Purchaser and the consummation of the transactions contemplated
hereby by the Parent and the Purchaser do not and will not require any consent,
approval, authorization or permit of, action by, filing with or notification to,
any Governmental Entity, except for: (A) applicable
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filings pursuant to the HSR Act and the expiration or termination of all
applicable waiting periods thereunder, (B) the filing and recordation of
appropriate merger or other documents as required by the MBCA, (C) compliance
with the statutory provisions and regulations relating to any Real Property
transfer gains tax or Real Property transfer tax, and (D) such other consents,
approvals, authorizations, permits, actions, filings or notifications the
failure of which to make or obtain would not reasonably be expected to have a
Parent Material Adverse Effect.
(d) Information Supplied. None of the information supplied or to be
supplied by the Parent or the Purchaser for inclusion or incorporation by
reference in the Proxy Statement, at the date of mailing to stockholders and at
the time of the Stockholders' Meeting, will contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(e) Financing. The Parent and the Purchaser have available (through
existing credit arrangements or otherwise) all funds necessary to consummate the
transactions contemplated by this Agreement.
(f) Brokers. No broker, finder or investment banker is entitled to
any brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by and
on behalf of the Parent or the Purchaser.
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ARTICLE IV
CONDUCT OF BUSINESS PENDING THE MERGER; OTHER COVENANTS
SECTION 4.1 Conduct of Business of the Company Pending the Merger.
Except as contemplated by this Agreement, during the period from the date of
this Agreement to the Effective Time, the Company shall, and shall cause its
Subsidiaries and, to the extent within its control, its Investment Entities to,
(i) act and carry on their respective businesses in the ordinary course of
business and, to the extent consistent therewith, use reasonable efforts, to
preserve intact their current business organizations, keep available the
services of their current key officers and employees and preserve the goodwill
of those engaged in material business relationships with them, (ii) maintain and
keep their Properties and equipment in good repair, working order and condition,
consistent with current condition, except for ordinary wear and tear, (iii) use
their best efforts to keep in full force and effect insurance comparable in
amount and scope of coverage to that now maintained by each of them, and (iv)
perform in all material respects all of its obligations under all contracts and
commitments applicable to its business or Properties (including, without
limitation, under Material Contracts), (subject to the Company's right to enter
into comparable substitute arrangements, consistent with past practice, on terms
generally no less favorable to the Company than those in effect on the date
hereof). Without limiting the generality of the foregoing, during the period
from the date of this Agreement to the Effective Time, except as expressly
contemplated by this Agreement, the Company shall not, and shall not permit any
of its Subsidiaries or, to the extent within its control, its Investment
Entities to, without the prior consent of Parent:
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(a) (i) declare, set aside or pay any dividends on, or make any other
distributions in respect of, any of its outstanding Ownership Interests, other
than (A) dividends and distributions to the Company or any of its wholly owned
Subsidiaries, (B) regular quarterly cash dividends not in excess of $.04 per
share of Company Common Stock (with usual record and payment dates and in
accordance with the Company's present dividend policy) and distributions by non-
wholly owned Subsidiaries and Investment Entities in accordance with Schedule
4.1(a), (ii) split, combine or reclassify any of its outstanding Ownership
Interests or issue or authorize the issuance of any other securities in respect
of, in lieu of or in substitution for shares of its outstanding Ownership
Interests or (iii) purchase, redeem or otherwise acquire any outstanding
Ownership Interests of the Company or any of its Subsidiaries or its Investment
Entities, or any rights, warrants or options to acquire any such Ownership
Interests except, in the case of clause (iii), for (A) the acquisition by the
Company of the capital stock of its wholly owned Subsidiaries or (B) the
transactions contemplated by Section 2.3(b) hereof;
(b) except as expressly set forth on Schedule 4.1(b) and except for
the issuance of Company Common Stock pursuant to the exercise of Options
outstanding on the date hereof in accordance with their terms or pursuant to the
previously made compensation elections of the directors of the Company under
Company Plans in effect on the date hereof, authorize for issuance, issue,
deliver, sell or agree or commit to issue, sell or deliver (whether through the
issuance or granting of options, warrants, commitments, subscriptions, rights to
purchase or otherwise, including pursuant to any debenture or note issued to the
Mayo Foundation), pledge or otherwise encumber any shares of its Ownership
Interests, any other voting securities or any securities convertible,
exchangeable or exercisable into, or any rights, warrants or options to
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acquire, any such Ownership Interests, voting securities or other equity
equivalents (including without limitation stock appreciation rights) (other than
(i) sales of capital stock of any wholly owned Subsidiary of the Company to the
Company or another wholly owned Subsidiary of the Company, or (ii) upon the
exercise of Options outstanding on the date of this Agreement in accordance with
their terms) or, subject to contractual obligations, not consent to the
admission of any new partners to any Partnerships;
(c) except to the extent required under existing Company Plans as in
effect on the date of this Agreement, (i) increase or accelerate the
compensation or fringe benefits of any of its directors, officers or employees,
except for increases in salary or wages of employees of the Company or its
Subsidiaries who are not directors or officers of the Company or its
Subsidiaries in the ordinary course of business in accordance with past
practice, or (ii) grant any severance or termination pay not currently required
to be paid under any Company Plans as in effect on the date hereof, or (iii)
enter into any employment agreement with any present or former director or
officer or senior employee, or, other than in the ordinary course of business
consistent with past practice and terminable without severance or other
termination payment on 30 days' notice or less, any other employee of the
Company, any of its Subsidiaries or its Investment Entities, or (iv) establish,
adopt, enter into or amend or terminate any Company Plan or other plan,
agreement, trust, fund, policy or arrangement for the benefit of any current or
former directors, officers or employees of the Company, its Subsidiaries or its
Investment Entities, provided that the collective bargaining agreements for
employees at Copper King Inn Hotel and the salaries and benefits provided
thereunder may be amended, modified, extended or replaced as the result
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of good faith negotiations relating to the expiration of the terms of the
current agreements in June of 1996;
(d) amend its or their Articles of Incorporation, By-Laws, partnership
agreement or other comparable charter or organizational documents or alter
through merger, liquidation, reorganization, restructuring or in any other
fashion the entity structure or ownership of any of the Company's Subsidiaries
and, to the extent within the control of the Company, its Investment Entities;
(e) except as set forth on Schedule 4.1(e), acquire or agree to
acquire (i) by merging or consolidating with, or by purchasing a substantial
portion of the stock, assets or properties of, (including through the exercise
of any right of first refusal or the exercise of any option to purchase or
convert), or by any other manner, any business or any corporation, partnership,
joint venture, association or other business organization or division thereof;
or (ii) any material assets or properties (except purchases of inventory and
services in the ordinary course of business consistent with past practice and
capital expenditures permitted by (h) below);
(f) sell, lease, license, mortgage or otherwise encumber or subject to
any Lien or otherwise dispose of any of its Properties or assets, except (i)
sales (A) in the ordinary course of business consistent with past practice or
(B) in connection with the replacement of capital assets made in the ordinary
course of business consistent with past practice, (ii) leases of retail space in
Properties which are hotels in the ordinary course of business consistent with
past practice and (iii) as disclosed on Schedule 4.1(f);
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(g) amend, supplement or modify any Material Contract, except in the
ordinary course of business (including as contemplated in the proviso to clause
(c) above), or relinquish, forgive or cancel any material debt or claim or waive
any rights of material value;
(h) except as set forth in Schedule 4.1(h), make any capital
expenditure or commitment to make any such expenditure (except in accordance
with the Capital Expenditures Budget) or defer making any budgeted capital
expenditure, in each case in excess of $100,000 and $500,000 in the aggregate;
provided that following notice to, and to the extent circumstances permit,
consultation with Parent, the Company shall be permitted to make capital
expenditures not contemplated by the Capital Expenditure Budget to make
emergency repairs;
(i) (i) except as set forth on Schedule 4.1(i) hereto, incur or prepay
any indebtedness for borrowed money or guarantee any such indebtedness of
another Person (other than guarantees by the Company in favor of any of its
wholly owned Subsidiaries or by any of its Subsidiaries in favor of the
Company), issue or sell any debt securities or warrants or other rights to
acquire any debt securities of the Company or any of its Subsidiaries or its
Investment Entities, guarantee any debt securities of another Person, enter into
any "keep well" or other agreement to maintain any financial condition of
another Person or enter into any arrangement having the economic effect of any
of the foregoing, except for short-term borrowings incurred in the ordinary
course of business consistent with past practice, which borrowings shall not in
the aggregate exceed $7,000,000 outstanding at any particular time, (provided
that the foregoing shall not restrict the Company or any of its Subsidiaries or
Investment Entities from renewing or replacing existing working capital lines
provided that no such lines shall provide for any penalties for the prepayment
or termination of the same (other than customary LIBOR breakage
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costs) or (ii), except pursuant to partnership agreements previously disclosed
to Parent and except pursuant to capital calls of Investment Entities not
controlled by the Company or its Subsidiaries, make any loans, advances or
capital contributions to, or investments in, any other Person, other than to the
Company or any wholly owned Subsidiary of the Company, and other routine
advances to employees (which advances shall not exceed $10,000 in the aggregate
at any one time outstanding);
(j) change any accounting principle, method or practice used by it or
any change in the classification of assets, recognition of income or expenses or
the depreciation or amortization policies or rates theretofore applied, unless
required by the SEC or the FASB;
(k) make any material Tax election or settle or compromise any income
Tax liability in excess of $500,000, in the aggregate or defer the payment of
any material Taxes that come due;
(l) enter into any contract, including but not limited to mortgages
and security agreements, which would require the consent (including the waiver
of any right of first refusal or similar right) of the third party to the
consummation of the transactions contemplated hereby other than renewals or
replacements of existing working capital lines of credit on terms no less
favorable to the Company than the terms of such existing lines of credit;
(m) authorize any of, or commit or agree to take any of, the foregoing
actions.
To the extent any of the Company, its Subsidiaries or its Investment
Entities has done anything in contravention of the acts required or proscribed,
as applicable, in this Section 4.1 without the prior written consent of the
Parent, the Company will promptly inform the Parent, by telephone (with
confirmation of details in writing) of such action in contravention.
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SECTION 4.2 Conduct of Business of the Purchaser. The Purchaser has
not engaged, and during the period from the date of this Agreement to the
Effective Time, the Purchaser shall not engage, in any activities of any nature
except as provided in, or in connection with the transactions contemplated by,
this Agreement.
SECTION 4.3 Preparation of Proxy Statement.
(a) The Company shall promptly (and in any event within 30 days of the
date hereof) file or cause to be filed with the SEC a preliminary Proxy
Statement relating to the Merger and this Agreement. In connection therewith,
the Parent and the Purchaser will fully cooperate with the Company and its
counsel in the preparation by the Company of the Proxy Statement and in
obtaining the stockholder approvals sought thereunder. The Company shall
respond as promptly as practicable to any comments of the SEC on the preliminary
Proxy Statement, and cause the Proxy Statement, and any amendment or supplement
thereto, to be mailed to the Company's stockholders at the earliest practicable
time. The Company will notify Parent as promptly as practicable of the receipt
of any comments from the SEC or its staff and of any request by the SEC or its
staff for amendments or supplements to the Proxy Statement or for additional
information and will supply Parent with copies of all correspondence between the
Company or any of its representatives, on the one hand, and the SEC or its
staff, on the other hand, with respect to the Proxy Statement or the Merger. If
at any time prior to the Effective Time any event shall occur which should be
set forth in an amendment of, or a supplement to, the Proxy Statement, the
Company will promptly advise Parent and Purchaser, such an amendment or
supplement to be mailed to the Company's stockholders within five business days
after the same is cleared by the SEC (or as promptly as practicable thereafter).
The Company, Parent and Purchaser each agree to correct any
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information provided by such party for use in the Proxy Statement which shall
have become false or misleading. Prior to the filing or distribution of the
Proxy Statement and any amendments or supplements thereto, Parent and its
counsel shall be given an opportunity to review and comment upon such documents.
(b) As used in this Agreement, "Proxy Statement" shall mean a
collective reference to the letter to stockholders, notice of meeting, proxy
statement and form of proxy (including any amendments or supplements thereto and
any schedules required to be filed with the SEC in connection therewith) to be
distributed to stockholders of the Company in connection with the Merger.
SECTION 4.4 Access to Information; Confidentiality.
(a) From the date hereof to the Effective Time, the Company shall, and
shall cause its Subsidiaries and, to the extent within its control or
possession, its Investment Entities to, afford the officers, employees, auditors
and other agents (including engineers and environmental consultants) of the
Parent, full and free access at all reasonable times to its officers, employees,
Properties, offices, plants and other facilities and to its contracts,
commitments, books and records, and shall furnish the Parent and such other
Persons all such documents and such financial, operating and other data and
information regarding the Company, its Subsidiaries and, to the extent within
its control or possession, its Investment Entities as the Parent, through its
officers, employees or agents may from time to time reasonably request in order
to conduct such due diligence review of the Company, its Subsidiaries and its
Investment Entities and their business, assets or Properties as Parent and
Purchaser shall determine to be necessary or appropriate. Without limiting the
foregoing, (i) from time to time, at the request of
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Parent, the Company will cause the officers of the Company, its Subsidiaries and
its Investment Entities to keep the officers of the Parent informed as to the
affairs of such entities and to arrange for meetings with the management of each
such entity from time to time upon the Parent's request, and (ii) the Parent
shall have the right to conduct, at its own cost and expense, environmental site
assessments of each of the Properties by one or more independent engineering or
environmental site assessment firms (which assessments may include the taking
and testing of samples). Such due diligence and assessments shall be conducted
with a view to their completion as promptly as practicable. The Company shall
fully cooperate and shall cause its Subsidiaries and, to the extent within its
control, its Investment Entities to fully cooperate, with such due diligence
review. Within ten days following the date hereof, the Company shall deliver to
the Parent true, correct and complete copies of all material environmental
reports, studies, investigations or correspondence regarding any Environmental
Liabilities of the Company, its Subsidiaries, its Investment Entities and their
respective Properties or any environmental conditions at any of the Properties
which are in possession of the Company, its Subsidiaries or Investment Entities,
their agents, representatives or consultants. Any environmental or engineering
assessments by the Parent will be conducted in a manner that does not cause any
meaningful interruption to the business or operations of any of the Properties
and by a licensed engineering firm with not less than $3,000,000 of errors and
omission insurance coverage (subject to customary deductibles). Parent shall
indemnify and hold the Company, its Subsidiaries and its Investment Entities
harmless against, and agrees to promptly reimburse such Persons for, any losses,
costs, penalties, injuries or damages to any of their respective assets or to
any third parties resulting from the conduct (but not the results) of the
environmental and
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engineering assessments. Nothing in this Section 4.4 shall obligate the Company
to disclose any information relating to (i) other bids to the Company submitted
prior to the date hereof, (ii) the sales process conducted by the Company or
(iii) any strategic alternatives considered by the Company.
(b) Each of the Parent and the Purchaser will hold, and will cause
their Affiliates and the directors, officers, employees, agents, advisors
(including attorneys, accountants and financial advisors of Parent, the
Purchaser and their Affiliates), prospective bank or institutional lenders or
representatives of such agents, advisors, prospective bank or institutional
lenders, to hold in confidence, all documents and information concerning the
Company, its Subsidiaries, its Investment Entities and any other Person in which
any of the Company's Subsidiaries or Investment Entities has an ownership
interest furnished to any such Person in connection with the transactions
contemplated in this Agreement, to the extent required by, and in accordance
with, the provisions of the letter dated January 8, 1996 between Parent and
Montgomery Securities on behalf of the Company (the "Confidentiality
Agreement"). Parent and Purchaser acknowledge that they are Affiliates of Tiger
Real Estate Partners, LLC.
SECTION 4.5 No Solicitation. (a) The Company shall not, nor shall
the Company authorize or permit any of its Subsidiaries or, to the extent within
its control, Investment Entities to, nor shall it authorize or permit any of
their respective officers, directors or employees or any investment banker,
financial advisor, attorney, accountant or other representative retained by them
to, solicit or initiate, or encourage, or take any other action to facilitate or
encourage (including by way of furnishing any information or having discussions
concerning the business, Properties or assets of the Company or any of its
Subsidiaries or
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Investment Entities), the submission of inquiries or the making of any proposal
which constitutes, or may reasonably be expected to lead to, any Takeover
Proposal (as defined below), or enter into or maintain or continue discussions
or negotiate with any Person in furtherance of such inquiries or to obtain a
Takeover Proposal; provided, however, that the foregoing shall not prohibit the
Company and its advisors, following receipt of an unsolicited Takeover Proposal
that it reasonably anticipates could lead to a Superior Proposal to provide
information to the Person making such Takeover Proposal (subject to execution of
a confidentiality agreement substantially on the same terms as the
Confidentiality Agreement) and participate in discussions or negotiations
concerning such Takeover Proposal following delivery of the notice required by
Section 4.5(c) regarding such Takeover Proposal, in each case to the extent the
Board of Directors shall have concluded in good faith on the basis of advice
from outside counsel that such action is required for the Board of Directors to
comply with its fiduciary duties under applicable law. Without limiting the
foregoing, it is understood that any violation of the restrictions set forth in
the preceding sentence by any executive officer of the Company or any of its
Subsidiaries or any investment banker, attorney or other advisor or
representative of the Company or any of its Subsidiaries, whether or not such
person is purporting to act on behalf of the Company or any of its Subsidiaries
or otherwise, shall be deemed to be a breach of this Section 4.5(a) by the
Company. As used herein, the term "Takeover Proposal" means (x) any acquisition
or purchase of a substantial amount of the Properties or assets of the Company
or any of its Subsidiaries, or of over a 10% equity interest in, the Company or
any tender offer or exchange offer that if consummated would result in any
Person beneficially owning 10% or more of the equity securities of the Company,
or any merger, consolidation, business combination, sale
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of substantially all Properties and/or assets, recapitalization, liquidation,
dissolution or similar transaction involving the Company (other than the
transactions contemplated hereby) or any other transaction the consummation of
which would reasonably be expected to impede, interfere with, prevent or
materially delay the consummation of the Merger or materially dilute the
benefits to Parent of the transactions contemplated hereby, or any agreement to,
or public announcement by the Company or any other person of a proposal, plan or
intention to do any of the foregoing. The Company will immediately cease and
cause to be terminated any existing activities, discussions or negotiations with
any parties conducted heretofore with respect to any of the foregoing.
(b) Neither the Board of Directors of the Company nor any committee
thereof shall (i) withdraw or modify, or propose to withdraw or modify, in a
manner adverse to Parent or Purchaser, the approval or recommendation by such
Board of Directors or any such committee of this Agreement or the Merger, (ii)
approve or recommend, or propose to approve or recommend, any Takeover Proposal
or (iii) enter into any agreement with respect to any Takeover Proposal.
Notwithstanding the foregoing, in the event the Board of Directors of the
Company receives a Takeover Proposal that, in the exercise of its fiduciary
obligations (as determined in good faith by the Board of Directors based on the
advice of outside counsel), it determines to be a Superior Proposal (as
hereinafter defined), the Board of Directors may (subject to the following
sentences) withdraw or modify its approval or recommendation of this Agreement
or the Merger, approve or recommend any such Superior Proposal, enter into an
agreement with respect to such Superior Proposal or terminate this Agreement, in
each case at any time after the fifth business day following Parent's receipt of
written notice (a "Notice of Superior Proposal") advising Parent
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that the Board of Directors has received a Superior Proposal, specifying the
material terms and conditions of such Superior Proposal and identifying the
person making such Superior Proposal. The Board of Directors of the Company may
also withdraw or modify its approval or recommendation of this Agreement or the
Merger and terminate this Agreement if Montgomery Securities' fairness opinion
shall have been withdrawn. If the Company proposes to take any of the foregoing
actions with respect to any Takeover Proposal, it shall concurrently with
entering into such agreement pay, or cause to be paid, to Parent or Purchaser
(as Parent shall designate) the Expense Reimbursement (as hereinafter defined)
and in the event that the Company shall enter into any agreement relating to a
Takeover Proposal, such agreement shall provide for the payment to Purchaser of
the Termination Fee (as hereinafter defined), upon the consummation of the
transaction contemplated by the agreement, provided that if, prior to the
receipt of a Takeover Proposal, the Company proposes to take any of the
foregoing actions as provided in the immediately preceding sentence, it shall
concurrently with taking any of such actions pay, or cause to be paid to the
Parent or Purchaser (as Parent shall designate) the Expense Reimbursement and
pay or cause to be paid to Purchaser the Termination Fee. For purposes of this
Agreement, a "Superior Proposal" means any bona fide Takeover Proposal with
fully committed financing without material contingencies (other than customary
conditions) to acquire, directly or indirectly, for consideration consisting of
cash and/or marketable securities, more than 50% of the shares of Company Common
Stock then outstanding or all or substantially all the Properties and/or assets
of the Company, and otherwise on terms which the Board of Directors of the
Company determines in its good faith reasonable judgment (based on the advice of
a financial advisor of nationally recognized reputation) to be more favorable to
the Company's stockholders than the
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Merger. This Section 4.5 shall not prohibit accurate disclosure by the Company
in any document that is required to be filed with the SEC.
(c) In addition to the obligations of the Company set forth in
paragraph (b), the Company shall promptly advise Parent orally and in writing of
any Takeover Proposal, or any inquiry with respect to or which could lead to any
Takeover Proposal, the material terms and conditions of such Takeover Proposal
or inquiry, and the identity of the person making any such Takeover Proposal or
inquiry. The Company will keep Parent fully informed of the status and details
of any such request, Takeover Proposal or inquiry.
(d) Notwithstanding anything contained in this Agreement to the
contrary, actions by the Board of Directors of the Company that is taken in
accordance with this Section 4.5 shall not constitute a breach of this Agreement
by the Company.
SECTION 4.6 Employee Benefits Matters.
(a) The Parent agrees that, during the period commencing at the
Effective Time and ending on the one-year anniversary of the Effective Time, the
Transferred Employees (as hereinafter defined) of the Company and its
Subsidiaries (other than those employees covered by a collective bargaining
agreement) will continue to be provided with employee benefits which in the
aggregate are substantially comparable to those currently provided by the
Company and its Subsidiaries to such employees. Subject to the foregoing,
nothing herein shall prevent the amendment or termination of any plan, program
or arrangement. Transferred Employees covered by collective bargaining
agreements shall be provided with such benefits as shall be required under the
terms of any applicable collective bargaining agreement.
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(b) The Parent shall cause the Surviving Corporation to promptly pay
or provide when due all compensation and benefits earned or accrued through or
prior to the Effective Time as provided pursuant to the terms of any
compensation arrangements, employment agreements and employee or director
pension or welfare benefit plans, programs and policies in existence as of the
date hereof for all employees (and former employees) and directors (and former
directors) of the Company and listed on any Schedule to this Agreement. The
Parent shall cause the Surviving Corporation to pay promptly or provide when due
all compensation and benefits required to be paid pursuant to the terms of any
individual agreement with any current or former employee or director in effect
and listed on Schedule 4.6(b)(ii) to this Agreement. Nothing in this Agreement
shall require the continued employment of any Person or prevent the Parent
and/or the Surviving Corporation from taking any action or refraining from
taking any action which the Company could take or refrain from taking prior to
the Effective Time.
(c) The Parent shall cause the Surviving Corporation to be responsible
for any medical, life insurance, disability and other welfare plan expenses and
benefits with respect to claims incurred by employees of the Company or its
Subsidiaries who continue employment with the Surviving Corporation and its
Subsidiaries ("Transferred Employees") and their covered dependents on or after
the Effective Time. For purposes of this paragraph, a claim is deemed incurred
when the event which is the subject of the claim occurs; in the case of long-
term disability benefits, when the disability occurs; and, in the case of a
hospital stay, when the employee first enters the hospital.
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(d) With respect to any welfare benefit plans (as defined in section
3(l) of ERISA) maintained by the Parent or the Surviving Corporation for the
benefit of Transferred Employees on and after the Effective Time, the Parent
shall use its best efforts to (i) cause there to be waived any pre-existing
condition limitations and (ii) give effect, in determining any deductible and
maximum out-of-pocket limitations, to claims incurred and amounts paid by, and
amounts reimbursed to, such Transferred Employees with respect to similar plans
maintained by the Company for their benefit immediately prior to the Effective
Time.
(e) With respect to any pension benefit plans (as defined in section
3(2) of ERISA) maintained by the Parent or the Surviving Corporation for the
benefit of Transferred Employees on and after the Effective Time, the Parent
shall provide the Transferred Employees with past service credit solely for
vesting and participation purposes for their service prior to the Effective Time
with the Company and/or its Subsidiaries.
(f) With respect to any accrued but unused vacation time to which any
Transferred Employee is entitled pursuant to the vacation policy applicable to
such Employee immediately prior to the Effective Time (the "Vacation Policy"),
the Parent shall cause the Surviving Corporation to allow such Employee to use
such accrued vacation; provided, however, that if the Parent deems it necessary
to disallow such employee from taking such accrued vacation, the Parent shall
cause the Surviving Corporation to be liable for and pay in cash to each such
Employee an amount equal to such vacation time in accordance with terms of the
Vacation Policy.
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SECTION 4.7 Directors' and Officers' Indemnification and Insurance.
(a) The By-Laws of the Surviving Corporation shall contain provisions
no less favorable with respect to indemnification than are set forth in the By-
Laws of the Company, which provisions shall not be amended, repealed or
otherwise modified for a period of six years from the Effective Time in any
manner that would adversely affect the rights thereunder of individuals who at
the Effective Time were current or former directors, officers, agents, or
employees of the Company or otherwise entitled to indemnification pursuant to
the Company's By-Laws. The Surviving Corporation shall cause any entity to
which it shall transfer all or substantially all of the Company's operations to
assume the indemnification obligations of the Surviving Corporation under the
By-Laws for the remainder of such six-year period..
(b) The Surviving Corporation shall cause to be maintained in effect
for six years from the Effective Time the current policies of the directors' and
officers' liability insurance maintained by the Company (provided that the
Surviving Corporation may substitute therefor policies of at least the same
coverage containing terms and conditions which are not materially less
advantageous) with respect to matters occurring prior to the Effective Time to
the extent available; provided, however, that in no event shall the Surviving
Corporation be required to expend more than an amount per year equal to 150% of
current annual premiums paid by the Company to maintain or procure insurance
coverage pursuant hereto.
SECTION 4.8 Further Action; Best Efforts. Upon the terms and
subject to the conditions hereof, each of the parties hereto shall use its
reasonable best efforts to take, or cause to be taken, all appropriate action,
and to do or cause to be done, all things necessary, proper or advisable under
applicable laws and regulations to facilitate to satisfaction and make effective
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each condition to the consummation of the transactions, including without
limitation the Merger, contemplated by this Agreement, including but not
limited to (i) cooperating in the preparation and filing of the Proxy Statement,
any required filings under the HSR Act, and any amendments to any thereof, (ii)
using its reasonable best efforts to make all required regulatory filings and
applications and to obtain all Licenses and Permits, consents, waivers of rights
of first refusal and similar rights, approvals, authorizations, qualifications
and orders of Governmental Entities and parties to contracts with the Company,
its Subsidiaries and the Investment Entities as are necessary for the
consummation of the transactions contemplated by this Agreement, or to permit
such Licenses and Permits, consents, waivers of rights of first refusal and
similar rights, approvals, authorizations, qualifications, orders and contracts
to continue in effect without modification after the Effective Time and (iii)
subject to its contractual obligations hereunder and the other terms and
conditions of this Agreement, using its reasonable best efforts to cause each of
its representations and warranties set forth herein to be true, correct and
complete in all material respects as at the Closing Date as if made on such
date. In addition, the Company shall cause senior management of the Company and
its Subsidiaries and, to the extent within its control, of its Investment
Entities to cooperate in good faith with representatives of the Parent in
identifying transition issues and formulating plans and strategies to address
any such issues.
SECTION 4.9 Public Announcements. The Parent and the Purchaser, on
the one hand, and the Company, on the other hand, shall consult with each other
before issuing any press release or otherwise making any public statements with
respect to the Merger, shall provide each other the opportunity to review and
comment upon, any such press release or public statement, and shall not issue
any such press release or make any such public statement prior to such
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consultation, except as may be required by law or any listing agreement with any
securities exchange on which its securities are listed. The parties agree that
the initial press release to be issued with respect to the Merger shall be in
the form heretofore agreed to by the parties.
SECTION 4.10 Taxes. Any liability with respect to taxes specified
in Section 4.11 hereof that are incurred in connection with the Merger shall be
borne by the Company and expressly shall not be a liability of the stockholders
of the Company.
SECTION 4.11 Conveyance Taxes. The Parent, the Purchaser and the
Company shall cooperate in the preparation, execution and filing of all returns,
questionnaires, applications, or other documents regarding any real property
transfer gains, sales, use, transfer, value added, stock transfer and stamp
taxes, any transfer, recording, registration and other fees, and any similar
taxes that become payable in connection with the transactions contemplated
hereby that are required or permitted to be filed on or before the Effective
Time.
ARTICLE V
CONDITIONS OF MERGER
SECTION 5.1 Conditions to Obligation of Each Party to Effect the
Merger. The respective obligations of each party to effect the Merger shall be
subject to the satisfaction at or prior to the Effective Time of the following
conditions:
(a) Stockholder Approval. This Agreement shall have been approved and
adopted by the affirmative vote of the holders of a majority of the outstanding
shares of Company Common Stock entitled to vote thereon.
(b) Other Approvals. All consents, approvals, authorizations or
permits of, actions by, or filings with or notifications to, and all expirations
of waiting periods imposed by,
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any Governmental Entity listed on Schedule 5.1(b) shall have been filed,
occurred or been obtained and shall be in full force and effect.
(c) No Injunctions or Restraints; Illegality. No temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal restraint or prohibition
preventing the consummation of the Merger shall be in effect, no action or
proceeding shall have been commenced by any Governmental Entity seeking any
injunction, restraining order or other order which seeks to prohibit
consummation of the Merger, and no action or proceeding shall have been
commenced by any Governmental Entity seeking material damages in connection with
the Merger shall be pending; provided, however, that the parties invoking this
condition shall use reasonable efforts to have any such action, proceeding,
order or injunction vacated. There shall not be any action taken, or any
statute, rule, regulation or order enacted, entered, enforced or deemed
applicable to. the Merger, which makes the consummation of the Merger illegal.
(d) Opinion of Financial Advisor. The opinion of Montgomery
Securities addressed to the Board of Directors of the Company, to the effect
that the consideration to be received in the Merger is fair to the Company's
stockholders, shall not have been withdrawn.
SECTION 5.2 Conditions to Obligations of Parent and Purchaser. The
obligations of the Parent and the Purchaser to effect the Merger are further
subject to the satisfaction of the following conditions prior to the Effective
Time unless waived by the Parent and the Purchaser:
(a) Representations and Warranties. (i) The representations and
warranties of the Company set forth in Section 3.1A this Agreement shall be
true, correct and complete in all
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material respects as of the date of this Agreement and as of the Closing Date as
though made on and as of the Closing Date and the representations and warranties
of the Company set forth in Section 3.1B of this Agreement shall be true,
correct and complete as of the date of this Agreement and as of the Closing Date
as though made on and as of the Closing Date, except in each case (x) that those
representations and warranties which address matters only as of a particular
date shall remain true, correct and complete as of that date and (y) as
otherwise contemplated by this Agreement, and (ii) the Parent shall have
received a certificate signed on behalf of the Company by the chief executive
officer and the chief financial officer of the Company to such effect.
(b) Performance of Obligations of the Company. The Company shall have
performed in all material respects all material obligations, required to be
performed by it under this Agreement at or prior to the Closing Date, and the
Parent shall have received a certificate signed on behalf of the Company by the
chief executive officer and the chief financial officer of the Company to such
effect.
(c) Required Consents; Governmental Approvals. (i) All Required
Consents shall have been obtained on terms reasonably satisfactory to Parent and
shall be in full force and effect, and (ii) Parent shall have received all
consents, approvals, Licenses and Permits of Governmental Entities so as to
enable it to operate the Properties immediately following the Effective Time
substantially in the same manner as operated on the date hereof; provided, that
with respect to Licenses and Permits or other governmental consents or approvals
that can be obtained only after consummation of the Merger, such consents,
approvals, Licenses or Permits shall not be a condition precedent if Parent
shall have not received advice from its counsel, after
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due inquiry of the appropriate regulatory agency or from the appropriate
regulatory agency to the effect that there is a substantial possibility that
such Licenses and Permits will not be obtained promptly following such
consummation.
(d) No Material Adverse Change. Since the date hereof, there shall
have been no material adverse change in the business, Properties, assets,
results of operations or financial condition of the Company and its Subsidiaries
taken as a whole, nor shall there have been any development which, taken
together with all other developments in the aggregate, would reasonably be
expected to result in such a material adverse change, nor shall any such change
or development be threatened.
SECTION 5.3 Conditions to Obligations of the Company. The
obligation of the Company to effect the Merger is subject to the satisfaction of
the following unless waived by the Company:
(a) Representations and Warranties. The representations and
warranties of the Parent and the Purchaser set forth in this Agreement shall be
true, correct and complete in all material respects as of the date of this
Agreement and (except to the extent such representations and warranties speak as
of an earlier date) as of the Closing Date as though made on and as of the
Closing Date, except as otherwise contemplated by this Agreement, and the
Company shall have received a certificate signed on behalf of the Parent by the
managing member of the Parent to such effect.
(b) Performance of Obligations of the Parent and the Purchaser. The
Parent and the Purchaser shall have performed in all material respects all
material obligations required to be performed by them under this Agreement at or
prior to the Closing Date, and the Company
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shall have received a certificate signed on behalf of the Parent by the managing
member of the Parent to such effect.
ARTICLE VI
TERMINATION, AMENDMENT AND WAIVER
SECTION 6.1 Termination. This Agreement may be terminated and the
Merger contemplated hereby may be abandoned at any time prior to the Effective
Time, notwithstanding approval thereof by the stockholders of the Company:
(a) by mutual written consent of the Parent, the Purchaser and the
Company; or
(b) by the Parent, upon a breach of any representation, warranty,
covenant or agreement on the part of the Company set forth in this Agreement, or
if any such representation or warranty of the Company shall have been or become
untrue, in each case such that the conditions set forth in Section 5.2(a) or
Section 5.2(b), as the case may be, would be incapable of being satisfied
(following notice and failure to cure within 20 days of such notice);
(c) by the Company, upon a breach of any representation, warranty,
covenant or agreement on the part of the Parent set forth in this Agreement, or
if any such representation or warranty of the Parent shall have been or become
untrue, in each case such that the conditions set forth in Section 5.3(a) or
Section 5.3(b), as the case may be, would be incapable of being satisfied
(following notice and failure to cure within 20 days of such notice);
(d) by either the Parent or the Company, if any permanent injunction
or action by any Governmental Entity preventing the consummation of the Merger
shall have become final and nonappealable;
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(e) by either the Parent or the Company if the Merger shall not have
been consummated on or prior to October 6, 1996;
(f) by either the Parent or the Company, if the approval of the
stockholders of the Company of this Agreement and the Merger required for the
consummation of the Merger shall not have been obtained by reason of the failure
to obtain the required vote at a duly held meeting of stockholders or at any
adjournment thereof;
(g) by the Parent, if (i) following the receipt of a Takeover
Proposal, the Board of Directors of the Company or any committee thereof shall
have withdrawn or modified its approval or recommendation of this Agreement or
the Merger in any manner which is adverse to the Parent or the Purchaser or
shall have resolved to do the foregoing; or (ii) the Board of Directors of the
Company shall have approved or have recommended to the stockholders of the
Company a Superior Proposal or shall have resolved to do the foregoing; and
(h) by the Company in accordance with Section 4.5.
SECTION 6.2 Effect of Termination. In the event of the termination
of this Agreement pursuant to Section 6.1, this Agreement shall forthwith become
void and there shall be no liability on the part of any party hereto except as
set forth in Section 6.3, Section 4.4(b), Section 7.1 and the penultimate
sentence in Section 4.4(a); provided, however, that nothing herein shall relieve
any party from liability for any willful and material breach hereof.
SECTION 6.3 Fees and Expenses.
(a) (i) Unless this Agreement is terminated by the Company and
Parent or Purchaser shall have failed to perform in any material respects its
obligations under this Agreement, (x) if this Agreement is terminated pursuant
to Section 6.1(b), Section 6.1(f) (but
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only if a Takeover Proposal has been received prior to such vote or, prior to
the receipt of a Takeover Proposal, the Board of Directors has withdrawn or
modified, or proposed to withdraw or modify, in a manner adverse to Parent or
Purchaser, the approval or recommendation of this Agreement and the Merger),
Section 6.1(g) or Section 6.1(h), or (y) if at any time on or after the date of
this Agreement until one year following the termination of this Agreement, any
person or "group" (within the meaning of Section 13(d)(3) of the Exchange Act
(other than Parent or any of its affiliates) shall have acquired, directly or
indirectly, the Company, all or substantially all its Properties or assets or
more than 50% of the shares of Company Common Stock then outstanding or (ii) if
the Company enters into any agreement with respect to any Superior Proposal
prior to the one-year anniversary of the termination of this Agreement (each
such event described in clauses (x) and (y) of this Section 6.3(a)(i) being
hereinafter referred to as a "Triggering Event"), the Company shall reimburse
upon demand, Parent or Purchaser (as determined in their discretion) for all
documented out-of-pocket expenses payable to non-Affiliates (the "Expense
Reimbursement") incurred by the Parent and the Purchaser in connection with this
Agreement and the transactions contemplated hereby to the date of the applicable
Triggering Event (collectively, the "Documented Expenses"), up to a maximum
reimbursement obligation of $1,250,000. The Documented Expenses shall be
certified in reasonable detail by a managing director of the Parent prior to the
payment to be made by the Company hereunder. The Expense Reimbursement shall be
paid in same day funds. In the event this Agreement is terminated pursuant to
Section 6.1(b), at the request of the Company, Parent will deliver to the
Company copies of all written environmental and engineering reports and title
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reports and surveys prepared by Parent's or Purchaser's consultants, other than
any such reports and surveys (or analyses) prepared by Parent's counsel.
(b) The Company shall pay, or cause to be paid, to Purchaser an
additional fee of $5,000,000 (the "Termination Fee"), in same day funds (i) upon
demand if (A) the Expense Reimbursement becomes payable pursuant to clause
(a)(i)(x) above (other than in the event of a termination of this Agreement
pursuant to Section 6.1(b)), (B) the Company shall have entered into any
agreement with respect to a Superior Proposal within one year after such
termination, and (C) the transactions contemplated by such agreement shall have
been consummated, or (ii) upon demand, in the event the Expense Reimbursement
shall have become payable pursuant to clause (a)(i)(y) above.
(c) Except as specifically provided in this Section 6.3, each party
shall bear its own expenses in connection with this Agreement and the
transactions contemplated hereby.
SECTION 6.4 Amendment. Subject to the applicable provisions of the
MBCA, this Agreement may be amended by the parties hereto by written agreement
executed and delivered by duly authorized officers of the respective parties at
any time prior to the Effective Time; provided, however, that, after approval of
the Merger by the stockholders of the Company, no amendment shall be made which
reduces the amount or changes the type of consideration into which each share of
Company Stock shall be converted upon consummation of the Merger or adversely
affects the rights of the Company's stockholders hereunder without approval of
such stockholders. This Agreement may not be amended except by an instrument in
writing signed by the parties hereto.
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SECTION 6.5 Waiver. At any time prior to the Effective Time, any
party hereto may (a) extend the time for the performance of any of the
obligations or other acts of the other parties hereto, (b) waive any
inaccuracies in the representations and warranties contained herein or in any
document delivered pursuant hereto or (c) waive compliance with any of the
agreements or conditions contained herein. Any such extension or waiver shall
be valid only if set forth in an instrument in writing signed by the party or
parties to be bound thereby. The failure of any party to this Agreement to
assert any of its rights under this Agreement or otherwise shall not constitute
a waiver of such rights.
SECTION 6.6 Procedure for Termination, Amendment, Extension or
Waiver. A termination of this Agreement pursuant to Section 6.1, an amendment
of this Agreement pursuant to Section 6.4 or an extension or waiver pursuant to
Section 6.5 shall, in order to be effective, require in the case of the Company,
action by its Board of Directors or the duly authorized designee of its Board of
Directors.
ARTICLE VII
GENERAL PROVISIONS
SECTION 7.1 Non-Survival of Representations, Warranties and
Agreements. The representations, warranties and pre-Closing agreements in this
Agreement shall terminate at the earlier of the Effective Time or the
termination of this Agreement pursuant to Section 6.1, except that those set
forth in Section 4.4(b), Section 6.3 and this Article VII shall survive
termination indefinitely (in accordance with the terms of such provisions).
SECTION 7.2 Notices. All notices, requests, claims, demands and
other communications hereunder shall be in writing and shall be given (and shall
be deemed to have
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been duly given upon receipt) by delivery in Person, by cable, telecopy,
telegram or telex or by registered or certified mail (postage prepaid, return
receipt requested) to the respective parties at the following addresses (or at
such other address for a party as shall be specified by like notice):
if to the Parent or the Purchaser:
c/o Tiger Real Estate Partners, L.L.C.
101 Park Avenue, 47th Floor
New York, New York 10178
Attn: Jonathan H. Paul
with a copy to:
Schulte Roth & Zabel
900 Third Avenue
New York, New York 10022
Attn: Stuart D. Freedman
if to the Company:
Kahler Realty Corporation
20 Second Avenue SW
Rochester, Minnesota 55902
Attn: Harold W. Milner, Chief Executive Officer
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017-3954
Attn: Richard I. Beattie
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SECTION 7.3 Certain Definitions.
(a) For purposes of this Agreement, the term:
"Affiliate" of a specified Person means a Person that directly, or
indirectly through one or more intermediaries, controls, is controlled by, or is
under common control with, such specified Person.
"Beneficial Owner" with respect to any shares of Company Common Stock
means a Person who shall be deemed to be the beneficial owner of such shares of
Company Common Stock (i) which such Person or any of its Affiliates or
associates beneficially owns, directly or indirectly, (ii) which such Person or
any of its Affiliates or associates (as such term is defined in Rule 12b-2 of
the Exchange Act) has, directly or indirectly, (A) the right to acquire (whether
such right is exercisable immediately or subject only to the passage of time) ,
pursuant to any agreement, arrangement or understanding or upon the exercise of
consideration rights, exchange rights, warrants or options, or otherwise, or (B)
the right to vote pursuant to any agreement, arrangement or understanding or
(iii) which are beneficially owned, directly or indirectly, by any other Persons
with whom such Person or any of its Affiliates or Person with whom such Person
or any of its Affiliates or associates has any agreement, arrangement or
understanding for the purpose of acquiring, holding, voting or disposing of any
shares.
"Capital Expenditures Budget" means the Company's capital expenditures
budget, dated May 6, 1996, delivered by the Company to Parent on the date
hereof.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company Material Adverse Effect" means a material adverse effect on
the business, assets, results of operations or financial condition of the
Company and its Subsidiaries,
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taken as a whole, or on the ability of the Company to perform its obligations
hereunder, or with respect to the representations and warranties set forth in
Section 3.1B(t)(v), (vi) or (vii), on the after-tax proceeds that would result
from the sale of one or more Properties or on the ability to elect REIT status
for the Company for a taxable year beginning on or prior to January 1, 1997.
"Construction Contract" means any construction contract, architect's
and/or engineer's agreement, construction management contract, design contract,
subcontract, and other similar type of agreement, together with all supplements,
amendments, modifications, general conditions, change orders and addenda thereto
entered into by or on behalf of any Property Owner (as hereinafter defined) or
tenant under any Space Lease (where the Company, its Subsidiaries or its
Investment Entity is such tenant under any Space Lease), or its predecessors-in-
interest, in connection with the construction, rehabilitation or renovation of
any of the Properties or any part thereof or the installation of any
Improvements on any of the Properties or any part thereof and which in each
instance provides for the payment of $150,000 or more or provides for payment on
a "cost plus" basis.
"Control" (including the terms "controlled by" and "under common
control with") means the possession, directly or indirectly or as trustee or
executor, of the power to direct or cause the direction of the management
policies of a Person, whether through the ownership of stock, as trustee or
executor, by contract or credit arrangement or otherwise.
"Environmental Claims" refers to any complaint, summons, citation,
notice, directive, order, claim, litigation, investigation, judicial or
administrative proceeding, judgment, letter or other communication from any
Governmental Entity or any third party involving violations of Environmental
Laws or Releases of Hazardous Materials from (i) any assets,
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Properties or businesses of the Company, its Subsidiaries or its Investment
Entities, or any predecessor in interest; (ii) from adjoining Properties or
businesses; or (iii) from or onto any facilities which received Hazardous
Materials generated by the Company, its Subsidiaries or its Investment Entities,
or any predecessor in interest.
"Environmental Laws" includes the Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA"), 42 U.S.C. 9601 et seq., as
amended; the Resource Conservation and Recovery Act ("RCRA"), 42 U.S.C. 6901 et
seq., as amended; the Clean Air Act ("CAA"), 42 U.S.C. 7401 et seq., as amended;
the Clean Water Act ("CWA"), 33 U.S.C. 1251 et seq., as amended; the
Occupational Safety and Health Act ("OSHA"), 29 U.S.C. 655 et seq., and any
other federal, state, local or municipal laws, statutes, regulations, rules or
ordinances imposing liability or establishing standards of or requirements for
conduct for protection of the environment, which standards or requirements are
now in effect or are currently scheduled to become effective in the future.
"Environmental Liabilities" means any monetary obligations, losses,
liabilities (including strict liability), damages, punitive damages,
consequential damages, treble damages, costs and expenses (including all
reasonable out-of-pocket fees, disbursements and expenses of counsel, out-of-
pocket expert and consulting fees and out-of-pocket costs for environmental site
assessments, remedial investigation and feasibility studies), fines, penalties,
sanctions and interest incurred as a result of any Environmental Claim filed by
any Governmental Entity or any third party which relate to any violations of
Environmental Laws, Remedial Actions, Releases or threatened Releases of
Hazardous Materials from or onto (i) any property presently or formerly owned by
the Borrower or any of its Subsidiaries or a predecessor in interest, or (ii)
any facility
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which received Hazardous Materials generated by the Borrower or any of its
Subsidiaries or a predecessor in interest.
"Existing Indebtedness" means, with respect to each Existing Loan, the
indebtedness borrowed thereunder (including all unpaid principal and accrued
interest and all other penalties, charges, and other amounts due and payable
under each such Existing Loan as of March 31, 1996).
"Existing Loan" means the loans set forth on Schedule 3.1(p)(i)(G).
"Expansion Property" means the Real Property designated on Schedule
3.1(v)(iii).
"Franchise Agreements" means the Franchise Agreements listed on
Schedule 3.1(p)(i)(H) under the heading "Franchise Agreements", together with
all supplements, amendments and modifications thereto.
"GAAP" shall mean the generally accepted accounting principles set
forth in the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as may be approved by a significant segment of
the accounting profession in the United States, in each case applied on a basis
consistent with the manner in which the audited financial statements for the
fiscal year of the Company ended December 31, 1995 were prepared.
"Governmental Entity" means the United States of America, any state or
local government, any political subdivision of either, any agency, department,
commission, board, bureau or instrumentality of any of them, or any quasi-public
agency established by any of the
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foregoing including, without limitation, any insurance rating organization or
board of fire underwriters which exercises jurisdiction over the Premises.
"Governmental Regulations" means any laws, orders, judgments, decrees,
ordinances, rules, requirements, resolutions, and regulations, now or
hereinafter existing, (including, without limitation, those relating to land
use, subdivision, zoning, environmental, hazardous substances, employment
practices, occupational health and safety, water and building and fire codes) of
any Governmental Entity.
"Ground Lease" means each of the leases, together with all
supplements, amendments and modifications thereto, listed on Schedule 3.1(p)(I)
under the heading "Ground Lease".
"Hazardous Materials" means any chemical, material or substance
defined as or included in the definition of "hazardous substances", "hazardous
wastes", "Hazardous Materials", "regulated substances", "extremely hazardous
waste", "restricted hazardous waste", "toxic substances", "contaminants",
"pollutants", "medical waste", "biohazardous or infectious waste", "solid
waste", "special waste", or words of similar import under any applicable
Environmental Law. Without limiting the generality of the foregoing, the term
"Hazardous Materials" shall include, to the extent such materials are regulated
by any Environmental Law (a) any oil, flammable substances, explosives,
radioactive materials, hazardous wastes, chemicals, or substances, or toxic
wastes; (b) asbestos in any form; (c) urea formaldehyde foam insulation; (d)
transformers or other equipment which contain polychlorinated biphenyls; and (e)
Radon gas.
"Improvements" means all buildings, improvements, structures and
fixtures located on the Land or any part thereof.
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"Intangible Personal Property" means all Intangible Personal Property
owned or possessed by any Property Owner and used in connection with the
ownership, operation, leasing, occupancy or maintenance of any of the
Properties, including, without limitation, (a) such Property Owner's right to
use any tradenames, (b) the Licenses and Permits, (c) any escrow accounts, (d)
all rights, privileges and appurtenances pertaining to any of the Properties,
including, without limitation, air-rights, development rights and utility
rights, (e) general intangibles, (f) all books, plans and records of the
Company, its Subsidiaries and each Property Owner, and (g) any unpaid award for
taking by condemnation or any damage to the Land by reason of a change of grade
or location of or access to any street or highway.
"Knowledge" means, with respect to a Person, the actual knowledge,
after having made reasonable inquiry of (x) any of its executive officers or
directors, (y) any of the executive officers or directors of any Subsidiary or
Investment Entity, if any, of such Person and (z) in the case of the Company,
any general manager of any Property.
"Land" means, collectively, each parcel of Real Property shown on the
Survey for such parcel of Real Property and denoted thereon as being owned or
leased by the applicable Property Owner.
"Leasehold Estates" means, collectively, each Leasehold Estate created
pursuant to a Ground Lease with respect to a parcel of Land related thereto.
"Licenses and Permits" means, collectively, all licenses (including,
without limitation, liquor licenses and casino licenses), permits,
authorizations, certificates of occupancy, approvals, dedications, subdivision
approvals and entitlements issued, approved or granted by any Governmental
Entity or otherwise in connection with any of the Properties; and all licenses,
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consents, easements, rights of way and approvals required from private parties
to make use of the existing utilities and to insure vehicular and pedestrian
ingress and egress to any of the Properties.
"Liens" means any mortgage, deed of trust, pledge, security interest,
financing statement, encumbrance, lien, judgment, segregation, charge or deposit
arrangement or other arrangement having the practical effect of any of the
foregoing and shall include the interest of a vendor or lessor under any
conditional sale agreement, capitalized lease or other title retention
agreement.
"Management Contracts" means the management contracts listed on
Schedule 3.1(p)(i)(G), together with all supplements, amendments and
modifications thereto.
"1996 Budget" means the Company's budget for calendar year 1996
delivered by the Company to Parent on the date hereof.
"Parent Material Adverse Effect" means a material adverse effect on
(i) the business, properties, assets, results of operations or financial
condition of the Parent and its Subsidiaries, taken as a whole, or (ii) on the
ability of the Parent to perform its obligations hereunder.
"Permitted Liens" means, subject to the terms and conditions of the
second sentence of this definition, (a) liens, levies and assessments (it being
understood that in the case of levies and assessments, such matters are
recurring and generally reflected in the Company's financial statements) for
current taxes, sewer charges, water charges or common charges of any condominium
association, in all cases, not yet due and payable, (b) rights of (x) tenants or
persons in possession as listed on Schedule 3.1(p)(I), and (y) tenants or
persons in possession
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pursuant to immaterial Space Leases, (c) the matters and items listed on
Schedule 3.1(v)(i) and (ii), (d) the matters and items shown on the Surveys,
which Surveys have been made available to the Parent prior to the date hereof,
(e) matters that would be disclosed by an accurate survey of the Land done after
the date of the respective Surveys, (f) as to Personal Property, liens of
carriers and warehousemen incurred in the ordinary course of business for sums
not yet due and liens arising under the loan documents described on Schedule
3.1(p)(F) and (G), (g) as to Personal Property liens incurred or deposits made
in the ordinary course of business in connection with workers compensation,
unemployment insurance and other types of social security, or to secure the
performance of tenders, statutory obligations, surety and appeal bonds, bids,
leases, performance and return-of-money bonds and similar obligations (exclusive
of obligations for the payment of borrowed money), (h) easements, covenants and
restrictions placed of record subsequent to the date of the Title Reports
described on Schedule 3.1(v)(i) and (ii), (i) matters placed of record
subsequent to the date of the Title Reports described on Schedule 3.1(v)(ii)
affecting the title of any owner of the Land covered by the Ground Leases,
provided that such matter is subject and subordinate in all respects to the
applicable Ground Lease. Notwithstanding the foregoing, (I) a matter or item
described above in clauses (d), (e) or (h) or marked with a single asterisk on
Schedule 3.1(v)(i) and (ii) (collectively, the "Excludable Liens") shall not be
a "Permitted Lien" (x) if any such Excludable Lien (A) (excluding the terms of
any of the Ground Leases and any mortgages or deeds of trust or other collateral
loan document) provides for a condition or right of reverter or other provision
for forfeiture under which the fee or leasehold title, as the case may be, or
the possessory rights of the Company, any of its Subsidiaries or its Investment
Entities can be cut off, subordinated or otherwise disturbed as a
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<PAGE>
result of (w) a presently existing default thereunder, (x) notice or the passage
of time or both (excluding in the case of default or violation thereunder
subsequent to the Effective Date), (y) the consummation of the transactions
contemplated by this Agreement or (z) the current use of the Real Property, (B)
is violated by the existence of the existing Improvements, (C) prohibits or
impairs in any material respect the present use and enjoyment of the Real
Property, (D) prohibits or impairs in any material respect the right to
construct the improvements which are to be constructed on Expansion Property in
accordance with the plans previously disclosed to the Parent or the proposed use
and enjoyment of any Expansion Property in accordance with the plans previously
disclosed to the Parent or (E) causes the representations and warranties set
forth in Section 3.1(v)(ix) to be untrue, and (y) if a reputable national title
insurance company shall not be ready, willing and able to issue affirmative
title insurance (without additional cost or premium) insuring against the
matters described in clauses (A), (B), (C) and (D) above, as applicable, with
respect to any such Excludable Lien, and (II) a matter or item marked with two
asterisks in Schedule 3.1(v)(i) and (ii) shall not be a "Permitted Lien" if such
matter or item is violated by the existence of the Existing Improvements or
prohibits or impairs in any material respect the present use and enjoyment of
the Real Property.
"Person" means an individual, corporation, partnership, association,
trust, unincorporated organization, other entity or group (as defined in Section
13(d)(3) of the Exchange Act) .
"Personal Property" means, collectively, the Tangible Personal
Property, the Intangible Personal Property and the Reservation System.
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<PAGE>
"Properties" or "Property" means the Real Property, any premises
demised to the Company or any of its Subsidiaries or its Investment Entities
under any Space Lease and the Personal Property.
"Property Contracts" means, collectively, Construction Contracts,
Service Contracts, the Franchise Agreements and the Management Contracts
relating to any of the Properties.
"Property Owner" means the owners or tenants, as the case may be (as
set forth on Schedule 3.1(v)(i)) and (ii) hereto, of each parcel of Real
Property.
"Real Property" means the Land, the Expansion Property, the Leasehold
Estates and the Improvements.
"Release" means any spilling, leaking, pumping, emitting, emptying,
discharging, injecting, escaping, leaching, migrating, dumping, or disposing of
Hazardous Materials (including the abandonment or discarding of barrels,
containers or other closed receptacles containing Hazardous Materials) into the
environment.
"Remedial Action" means all actions taken to (i) clean up, remove,
remediate, contain, treat, monitor, assess, evaluate or in any other way address
Hazardous Materials in the indoor or outdoor environment; (ii) prevent or
minimize a Release or threatened Release of Hazardous Materials so they do not
migrate or endanger or threaten to endanger public health or welfare or the
indoor or outdoor environment; (iii) perform pre-remedial studies and
investigations and post-remedial operation and maintenance activities; or (iv)
any other remedial, removal or investigatory actions authorized by 42 U.S.C.
9601 et seq.
"Required Consents" means the consents set forth on Schedule 7.3(a).
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<PAGE>
"Reservation System" means each Property Owner's reservation terminal
and reservation system equipment and software, if any.
"Service Contract" means any service agreement, brokerage commission
agreement, maintenance contract, contract for the purchase or delivery of
services, materials, goods, inventory or supplies, cleaning contracts, equipment
rental agreements, equipment leases or leases of Personal Property (other than
the Franchise Agreements and the Management Agreements), together with all
supplements, amendments and modifications thereto, relating to any of the
Properties or any part thereof; provided, however, the term "Service Contract"
shall not include any Service Contract which (i) provides for the payment of
$100,000 per annum or $250,000 in the aggregate or less, or (ii) is terminable
without penalty on 90 days' or less prior written notice.
"Space Leases" means all material leases, licenses, subleases, rental
agreements or occupancy agreements, together with all supplements, amendments
and modification thereto, entered into by the Company or its Subsidiaries or
Investment Entities.
"Subsidiary" or "Subsidiaries" of the Company, the Surviving
Corporation, the Parent or any other Person means any corporation, partnership,
joint venture or other legal entity of which the Company, the Surviving
Corporation, the Parent or such other Person, as the case may be (either alone
or through or together with any other Subsidiary), owns, directly or indirectly,
50% or more of the stock or other equity interests the holder of which is
generally entitled to vote for the election of the board of directors or other
governing body of such corporation or other legal entity.
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<PAGE>
"Surveys" means the Surveys, plats, plot plans and floor plans listed
on Schedule 3.1(v)(i) and (ii) hereto.
"Tangible Personal Property" means the items of tangible personal
property consisting of all furniture, furnishings, fixtures, equipment,
machinery and other Personal Property of every kind and nature located on or
used or useful in the operation of any of the Properties, including, without
limitation, as lessee with respect to any such Tangible Personal Property.
"Title Insurance Policies" means any title insurance policy insuring
title (either fee simple or leasehold) vested in the Company or one of its
Subsidiaries or Investment Entities, as the case may be.
"Title Reports" means the title reports, title commitments and title
opinions listed under the heading "Title Reports" on Schedule 3.1(v)(i) and
(ii).
(b) The following terms shall have the meaning specified in the
indicated Section of this Agreement:
Term......................... Section Effective Time............... 1.3
ERISA........................ 3.1
Agreement.................... Recitals ERISA Affiliate.............. 3.1
Articles of Merger........... 1.3 Exchange Act................. 2.3
Business Combination......... 4.5 Expense Reimbursement........ 4.5
Cash Payment................. 2.3 FASB......................... 3.1
Closing...................... 1.2 Fee Properties............... 3.1
Closing Date................. 1.2 HSR Act...................... 3.1
Company...................... Recitals IRS.......................... 3.1
Company Common Stock......... 2.1 Material Contracts........... 3.1
Company Plans................ 3.1 Leasehold Properties......... 3.1
Company Preferred Stock...... 3.1 Lease........................ 3.1
Company Securities........... 3.1 Investment Entities.......... 3.1
Dissenting Shares............ 2.1 MBCA......................... 1.1
Documented Expenses.......... 6.3 Merger....................... Recitals
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Merger Consideration......... 2.1 Securities Act............... 3.1
Notice of Superior Proposal.. 4.5 Surviving Corporation........ 1.1
Options...................... 2.3 Stockholders' Meeting........ 1.7
Ownership Interests.......... 3.1 Stock Plans.................. 2.3
Parent....................... Recitals Superior Proposal............ 4.5
Partnership.................. 3.1 Takeover Proposal............ 4.5
Paying Agent................. 2.2 Taxes........................ 3.1
Payment Fund................. 2.2 Tax Return................... 3.1
PBGC......................... 3.1 Termination Fee.............. 4.5
Proxy Statement.............. 3.1 Title IV Plan................ 3.1
Purchaser.................... Recitals Transferred Employees........ 4.6
SEC.......................... 3.1 Triggering Event............. 6.3
SEC Reports.................. 3.1 Vacation Policy.............. 4.6
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<PAGE>
SECTION 7.4 Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law,
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner to the end
that the transactions contemplated hereby are fulfilled to the fullest extent
possible.
SECTION 7.5 Entire Agreement; Assignment. This Agreement
constitutes the entire agreement among the parties with respect to the subject
matter hereof and supersedes all prior agreements and undertakings, both written
and oral, among the parties, or any of them, with respect to the subject matter
hereof. This Agreement shall not be assigned by operation of law or otherwise,
except that the Parent and the Purchaser may assign all or any of their
respective rights and obligations hereunder to any direct or indirect wholly
owned Subsidiary or Subsidiaries of the Parent, provided that no such assignment
shall relieve the assigning party of it s obligations hereunder if such assignee
does not perform such obligations.
SECTION 7.6 Parties in Interest. This Agreement shall be binding
upon and inure solely to the benefit of each party hereto, and 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.
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<PAGE>
SECTION 7.7 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York (except to the
extent specifically covered by the MBCA as provided herein), regardless of the
laws that might otherwise govern under applicable principles of conflicts of
laws thereof.
SECTION 7.8 Interpretation. When a reference is made in this
Agreement to a Section or Schedule, such reference shall be to a Section of, or
a Schedule to, this Agreement unless otherwise indicated. The table of contents
and headings contained in this Agreement are for reference purposes only and
shall not affect in any way the meaning or interpretation of this Agreement.
SECTION 7.9 Counterparts. This Agreement may be executed in one or
more counterparts, and by the different parties hereto in separate counterparts,
each of which when executed shall be deemed to be an original but all of which
taken together shall constitute one and the same agreement.
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<PAGE>
IN WITNESS WHEREOF, the Parent, the Purchaser and the Company have
caused this Agreement, as amended and restated, to be executed by their
respective officers thereunto duly authorized, all as of the date written above.
TIGER REAL ESTATE FUND, L.P.
By: Tiger Real Estate Partners
Management, L.L.C., its
general partner
By: Tiger Real Estate Partners,
L.L.C., its managing member
By: /s/ Paul D. Kazilionis
------------------------------
Name: Paul D. Kazilionis
Title: Managing Principal
TIGER REAL ESTATE ACQUISITION CORP.
By: /s/ Paul D. Kazilionis
-------------------------
Name: Paul D. Kazilionis
Title:
By: /s/ Patrick Fox
-------------------------
Name: Patrick Fox
Title: Secretary
KAHLER REALTY CORPORATION
By: /s/ Harold W. Milner
--------------------------
Name: Harold W. Milner
Title: President
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<PAGE>
EXHIBIT A
---------
ARTICLES OF INCORPORATION
OF
KAHLER REALTY CORPORATION
ARTICLE I: The name of the corporation is Kahler Realty Corporation
(the "Corporation").
ARTICLE II: The street address of the initial registered office of
the Corporation in the State of Minnesota is c/o Corporation Service
Company, Multifoods Tower, 33 South Sixth Street, Minneapolis, Minnesota
55402. Such initial registered office is located in the County of
Hennepin. The name of the initial registered agent of the Corporation at
such address is Corporation Service Company.
ARTICLE III: The Corporation shall have authority to issue One
Thousand (1,000) shares of Common Stock, par value One Dollar ($1.00) per
share.
ARTICLE IV: The name and address of the incorporator are Stuart
Freedman, 900 Third Avenue, New York, New York 10022.
ARTICLE V: The purpose of the Corporation is to engage in any
lawful act or activity for which corporations may be organized under the
MBCA.
ARTICLE VI: No shareholder entitled to vote in the election of
directors of the Corporation shall be entitled the right to cumulative
voting in any such election.
ARTICLE VII: No holder of the shares of any class of the Corporation
shall be entitled to preemptive rights.
ARTICLE VIII: Any action required or permitted to be taken at a
meeting of the Board of Directors of the Corporation, other than an action
requiring shareholder approval, may be taken by written action signed by
the number of directors that would be required to take the same action at a
meeting of the Board of Directors at which all directors were present.
ARTICLE IX: The Corporation shall, to the fullest extent permitted by
the MBCA, as the same may be amended and supplemented from time to time,
indemnify any and all persons whom it shall have power to indemnify under
the MBCA. The Corporation may also indemnify such persons, pursuant to
agreement or resolution of shareholders or directors, from and against any
and all of the expenses, liabilities or other
<PAGE>
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matters referred to in or covered by the MBCA. The indemnification provided
for herein shall not be deemed exclusive of any other rights to which any
person may be entitled under any Bylaw, resolution of shareholders or
directors, agreement or otherwise, as permitted by the MBCA, as to action,
or as to failure to act, in any capacity in which such person served at the
request of the Corporation.
ARTICLE X: The personal liability of the directors of the Corporation
to the Corporation and to its shareholders is eliminated to the fullest
extent permitted by Section 302A.251 of the MBCA, as the same may be
amended and supplemented from time to time.
<PAGE>
Exhibit B
---------
KAHLER REALTY CORPORATION
20 Second Avenue, S.W.
Rochester, Minnesota 55902
May 6, 1996
Mayo Foundation
200 First Street S.W.
Rochester, Minnesota 55905
Ladies and Gentleman:
The purpose of this letter is to confirm our agreement to terminate
that certain Cross-Option Agreement, dated as of February 1, 1989 (the
"Agreement"), between Mayo Foundation, a Minnesota corporation (the
"Foundation") and Kahler Realty Corporation, a Minnesota corporation ("Kahler").
Kahler intends to engage in a business combination transaction with
Tiger Real Estate Fund, L.P., a Delaware limited partnership ("Parent") and
Tiger Realty Acquisition Corp., a Minnesota corporation and a wholly owned
subsidiary of Parent ("Purchaser"), pursuant to which Purchaser will: i) acquire
all of the issued and outstanding capital stock of Kahler and ii) merge with and
into Kahler (together, the "Merger").
Pursuant to Section 3.3. of the Agreement, it is anticipated that the
Agreement will terminate retroactively upon consummation of the Merger. The
purpose of this letter is to confirm and document that termination.
Accordingly, in consideration of the foregoing and for other good and
valuable consideration, the sufficiency of which is hereby acknowledged, Kahler
and the Foundation hereby agree as follows:
1. Termination of the Agreement. The Agreement is hereby terminated,
effective as of the effective date of the Merger, from and after which neither
Kahler nor the Foundation shall have any rights, liabilities or obligations
thereunder.
2. Miscellaneous. This letter agreement may not be amended or
modified except by an instrument in writing signed by the parties hereto. This
letter agreement may be executed in one or more counterparts, each of which
shall be deemed an original but all of which taken together will constitute one
and the same instrument. This letter agreement will terminate in the event that
the Merger Agreement is terminated in accordance with its terms.
<PAGE>
2
If you are in agreement with the foregoing, please execute both
enclosed copies of this letter agreement in the space provided and return one
fully executed copy to Kahler at the following address: 20 Second Avenue, S.W.,
Rochester, Minnesota 55902, attention: Harold W. Milner, President and Chief
Executive Officer.
Very truly yours,
KAHLER REALTY CORPORATION
By: _________________________
Harold W. Milner
President and Chief
Executive Officer
ACCEPTED AND AGREED AS OF THIS
6TH DAY OF MAY, 1996
MAYO FOUNDATION
By: _________________________
Name:
Title:
<PAGE>
Description of Schedules
------------------------
Schedule 3.1(b) Capitalization
Schedule 3.1(e) Regulatory Approvals
Schedule 3.1(f) SEC Filings; Financial Statements
Schedule 3.1(h) Transactions with Affiliates
Schedule 3.1(j) Brokers
Schedule 3.1(l) No Conflicts
Schedule 3.1(m) Undisclosed Liabilities
Schedule 3.1(n) Absence of Certain Changes or Events
Schedule 3.1(o) Compliance with Laws
Schedule 3.1(p) Agreements
Schedule 3.1(r) Absence of Litigation
Schedule 3.1(s) Employee Matters
Schedule 3.1(t) Tax Matters
Schedule 3.1(u) Environmental Matters
Schedule 3.1(v) Properties
Schedule 3.1(w) Insurance
Schedule 4.1(a) Conduct of Business: Dividends and Distributions
Schedule 4.1(b) Conduct of Business: Ownership Interests
Schedule 4.1(e) Conduct of Business: Planned Acquisitions
Schedule 4.1(f) Conduct of Business: Planned Dispositions
Schedule 4.1(i) Conduct of Business: Planned Debt
Schedule 4.6(b) Employee Agreements
Schedule 5.1(b) Conditions of Merger: Governmental Approvals
Schedule 7.3(a) Required Consents
<PAGE>
Annex B
[LETTERHEAD OF MONTGOMERY SECURITIES]
[MONTGOMERY SECURITIES LOGO]
July 25, 1996
Board of Directors
Kahler Realty Corporation
20 Second Avenue, S.W.
Rochester, MN 55902
Gentlemen:
We understand that Kahler Realty Corporation, a Minnesota corporation
("Seller"), Tiger/Westbrook Real Estate Fund, L.P., a Delaware limited
partnership (the "Partnership"), and Tiger Realty Acquisition Corp., a Minnesota
corporation and a wholly-owned subsidiary of the Partnership ("Buyer"), have
entered into an Agreement and Plan of Merger dated May 6, 1996 (the "Merger
Agreement"), pursuant to which Buyer will be merged with and into Seller, which
will be the surviving entity (the "Merger"). Pursuant to the Merger, as more
fully described in the Merger Agreement provided to us by Seller and as further
described to us by management of Seller, we understand that each outstanding
share of the common stock, $.10 par value per share, of Seller ("Seller Common
Stock") will be converted into the right to receive $17.00 cash (the
"Consideration"). The terms and conditions of the Merger are set forth in more
detail in the Merger Agreement.
You have asked for our opinion as investment bankers as to whether the
Consideration to be received by the shareholders of Seller pursuant to the
Merger is fair to such shareholders from a financial point of view, as of the
date hereof.
In connection with our opinion, we have, among other things: (i) reviewed
certain publicly available financial and other data with respect to Seller,
including the consolidated financial statements for recent years and interim
periods to March 31, 1996 and certain other relevant financial and operating
data relating to Seller made available to us from published sources and from the
internal records of Seller; (ii) reviewed the Merger Agreement; (iii) reviewed
certain publicly available information concerning the trading of, and the
trading market for, Seller Common Stock; (iv) compared Seller from a financial
point of view with certain other companies in the lodging industry which we
deemed to be relevant; (v) considered the financial terms, to the extent
publicly available, of selected recent business combinations of companies in the
lodging industry which we deemed to be comparable, in whole or in part, to the
Merger; (vi) reviewed and
<PAGE>
Board of Directors
Kahler Realty Corporation
July 25, 1996
Page 2
discussed with representatives of the management of Seller certain information
of a business and financial nature regarding Seller, furnished to us by them,
including financial forecasts and related assumptions of Seller; (vii) made
inquiries regarding and discussed the Merger and the Merger Agreement and other
matters related thereto with Seller's counsel; and (viii) performed such other
analyses and examinations as we have deemed appropriate.
In connection with our review, we have not assumed any obligation
independently to verify the foregoing information and have relied on its being
accurate and complete in all material respects. With respect to the financial
forecasts for Seller provided to us by Seller's management, upon such
management's advice and with your consent we have assumed for purposes of our
opinion that the forecasts have been reasonably prepared on bases reflecting the
best available estimates and judgments of Seller's management at the time of
preparation as to the future financial performance of Seller and that they
provide a reasonable basis upon which we can form our opinion. We have also
assumed that there have been no material changes in Seller's assets, financial
condition, results of operations, business or prospects since the date of
Seller's last financial statements made available to us, other than those
changes that have been disclosed by management of Seller to us. We have relied
on advice of counsel and independent accountants to Seller as to all legal and
financial reporting matters with respect to Seller, the Merger and the Merger
Agreement, including the legal status and financial reporting of litigation
involving Seller. We have assumed that the Merger will be consummated in a
manner that complies in all respects with the applicable provisions of the
Securities Exchange Act of 1934 and all other applicable federal and state
statutes, rules and regulations. In addition, we have not assumed
responsibility for making an independent evaluation, appraisal or engineering
inspection of any of the assets or liabilities (contingent or otherwise) of
Seller, nor have we been furnished with any such appraisals (other than an
architectural and engineering report prepared in 1994 in connection with
Seller's Real Estate Investment Trust offering and prepared by a third party).
Finally, our opinion is based on economic, monetary and market and other
conditions as in effect on, and the information made available to us as of, the
date hereof. Accordingly, although subsequent developments may affect this
opinion, we have not assumed any obligation to update, revise or reaffirm this
opinion.
We have further assumed with your consent that the Merger will be
consummated in accordance with the terms described in the Merger Agreement,
without any further amendments thereto, and without waiver by Seller of any of
the conditions to its obligations thereunder.
We have acted as financial advisor to Seller in connection with the Merger
and will receive a fee for our services, including rendering this opinion, a
significant portion of which is contingent upon the consummation of the Merger.
Based upon the foregoing and in reliance thereon, it is our opinion as
investment bankers that the Consideration to be received by the shareholders of
Seller pursuant to the Merger is fair to such shareholders from a financial
point of view, as of the date hereof.
<PAGE>
Board of Directors
Kahler Realty Corporation
July 25, 1996
Page 3
This opinion is directed to the Board of Directors of Seller in its
consideration of the Merger and is not a recommendation to any shareholder as to
how such shareholder should vote with respect to the Merger. This opinion may
not be used or referred to by Seller, or quoted or disclosed to any person in
any manner, without our prior written consent, which consent is hereby given to
the inclusion of this opinion in any proxy statement filed with the Securities
and Exchange Commission in connection with the Merger.
Very truly yours,
MONTGOMERY SECURITIES
<PAGE>
Annex C
MINNESOTA STATUTES ANNOTATED
CORPORATIONS
CHAPTER 302A, BUSINESS CORPORATIONS
SHARES; SHAREHOLDERS
302A.471. Rights of dissenting shareholders
Subdivision 1. Actions creating rights. A shareholder of a corporation may
dissent from, and obtain payment for the fair value of the shareholder's shares
in the event of, any of the following corporate actions:
(a) An amendment of the articles that materially and adversely affects the
rights or preferences of the shares of the dissenting shareholder in that it:
(1) alters or abolishes a preferential right of the shares;
(2) creates, alters, or abolishes a right in respect of the redemption of the
shares, including a provision respecting a sinking fund for the redemption or
repurchase of the shares;
(3) alters or abolishes a preemptive right of the holder of the shares to
acquire shares, securities other than shares, or rights to purchase shares or
securities other than shares;
(4) excludes or limits the right of a shareholder to vote on a matter, or to
cumulate votes, except as the right may be excluded or limited through the
authorization or issuance of securities of an existing or new class or series
with similar or different voting rights; except that an amendment to the
articles of an issuing public corporation that provides that section 302A.671
does not apply to a control share acquisition does not give rise to the right
to obtain payment under this section;
(b) A sale, lease, transfer, or other disposition of all or substantially all
of the property and assets of the corporation, but not including a transaction
permitted without shareholder approval in section 302A.661, subdivision 1, or
a disposition in dissolution described in section 302A.725, subdivision 2, or
a disposition pursuant to an order of a court, or a disposition for cash on
terms requiring that all or substantially all of the net proceeds of
disposition be distributed to the shareholders in accordance with their
respective interests within one year after the date of disposition;
(c) A plan of merger, whether under this chapter or under chapter 322B, to
which the corporation is a party, except as provided in subdivision 3;
(d) A plan of exchange, whether under this chapter or under chapter 322B, to
which the corporation is a party as the corporation whose shares will be
acquired by the acquiring corporation, if the shares of the shareholder are
entitled to be voted on the plan; or
(e) Any other corporate action taken pursuant to a shareholder vote with
respect to which the articles, the bylaws, or a resolution approved by the board
directs that dissenting shareholders may obtain payment for their shares.
Subd. 2. Beneficial owners. (a) A shareholder shall not assert dissenters'
rights as to less than all of the shares registered in the name of the
shareholder, unless the shareholder dissents with respect to all the shares
<PAGE>
that are beneficially owned by another person but registered in the name of the
shareholder and discloses the name and address of each beneficial owner on whose
behalf the shareholder dissents. In that event, the rights of the dissenter
shall be determined as if the shares as to which the shareholder has dissented
and the other shares were registered in the names of different shareholders.
(b) The beneficial owner of shares who is not the shareholder may assert
dissenters' rights with respect to shares held on behalf of the beneficial
owner, and shall be treated as a dissenting shareholder under the terms of this
section and section 302A.473, if the beneficial owner submits to the corporation
at the time of or before the assertion of the rights a written consent of the
shareholder.
Subd. 3. Rights not to apply. Unless the articles, the bylaws, or a
resolution approved by the board otherwise provide, the right to obtain payment
under this section does not apply to a shareholder of the surviving corporation
in a merger, if the shares of the shareholder are not entitled to be voted on
the merger.
Subd. 4. Other rights. The shareholders of a corporation who have a right
under this section to obtain payment for their shares do not have a right at law
or in equity to have a corporate action described in subdivision 1 set aside
or rescinded, except when the corporate action is fraudulent with regard to the
complaining shareholder or the corporation.
<PAGE>
MINNESOTA STATUTES ANNOTATED
CORPORATIONS
CHAPTER 302A, BUSINESS CORPORATIONS
SHARES; SHAREHOLDERS
302A.473. Procedures for asserting dissenters' rights
Subdivision 1. Definitions. (a) For purposes of this section, the terms
defined in this subdivision have the meanings given them.
(b) "Corporation" means the issuer of the shares held by a dissenter before
the corporate action referred to in section 302A.471, subdivision 1 or the
successor by merger of that issuer.
(c) "Fair value of the shares" means the value of the shares of a corporation
immediately before the effective date of the corporate action referred to in
section 302A.471, subdivision 1.
(d) "Interest" means interest commencing five days after the effective date
of the corporate action referred to in section 302A.471, subdivision 1, up to
and including the date of payment, calculated at the rate provided in section
549.09 for interest on verdicts and judgments.
Subd. 2. Notice of action. If a corporation calls a shareholder meeting at
which any action described in section 302A.471, subdivision 1 is to be voted
upon, the notice of the meeting shall inform each shareholder of the right to
dissent and shall include a copy of section 302A.471 and this section and a
brief description of the procedure to be followed under these sections.
Subd. 3. Notice of dissent. If the proposed action must be approved by the
shareholders, a shareholder who wishes to exercise dissenters' rights must file
with the corporation before the vote on the proposed action a written notice of
intent to demand the fair value of the shares owned by the shareholder and must
not vote the shares in favor of the proposed action.
Subd. 4. Notice of procedure; deposit of shares. (a) After the proposed
action has been approved by the board and, if necessary, the shareholders, the
corporation shall send to all shareholders who have complied with subdivision 3
and to all shareholders entitled to dissent if no shareholder vote was required,
a notice that contains:
(1) The address to which a demand for payment and certificates of
certificated shares must be sent in order to obtain payment and the date by
which they must be received;
(2) Any restrictions on transfer of uncertificated shares that will apply
after the demand for payment is received;
(3) A form to be used to certify the date on which the shareholder, or the
beneficial owner on whose behalf the shareholder dissents, acquired the shares
or an interest in them and to demand payment; and
(4) A copy of section 302A.471 and this section and a brief description of
the procedures to be followed under these sections.
(a) In order to receive the fair value of the shares, a dissenting
shareholder must demand payment and deposit certificated shares or comply with
any
<PAGE>
restrictions on transfer of uncertificated shares within 30 days after the
notice required by paragraph (a) was given, but the dissenter retains all other
rights of a shareholder until the proposed action takes effect.
Subd. 5. Payment; return of shares. (a) After the corporate action takes
effect, or after the corporation receives a valid demand for payment, whichever
is later, the corporation shall remit to each dissenting shareholder who has
complied with subdivisions 3 and 4 the amount the corporation estimates to be
the fair value of the shares, plus interest, accompanied by:
(1) The corporation's closing balance sheet and statement of income for a
fiscal year ending not more than 16 months before the effective date of the
corporate action, together with the latest available interim financial
statements;
(2) An estimate by the corporation of the fair value of the shares and a
brief description of the method used to reach the estimate; and
(3) A copy of section 302A.471 and this section, and a brief description
of the procedure to be followed in demanding supplemental payment.
(b) The corporation may withhold the remittance described in paragraph (a)
from a person who was not a shareholder on the date the action dissented from
was first announced to the public or who is dissenting on behalf of a person who
was not a beneficial owner on that date. If the dissenter has complied with
subdivisions 3 and 4, the corporation shall forward to the dissenter the
materials described in paragraph (a), a statement of the reason for withholding
the remittance, and an offer to pay to the dissenter the amount listed in the
materials if the dissenter agrees to accept that amount in full satisfaction.
The dissenter may decline the offer and demand payment under subdivision 6.
Failure to do so entitles the dissenter only to the amount offered. If the
dissenter makes demand, subdivisions 7 and 8 apply.
(c) If the corporation fails to remit payment within 60 days of the
deposit of certificates or the imposition of transfer restrictions on
uncertificated shares, it shall return all deposited certificates and cancel all
transfer restrictions. However, the corporation may again give notice under
subdivision 4 and require deposit or restrict transfer at a later time.
Subd. 6. Supplemental payment; demand. If a dissenter believes that the
amount remitted under subdivision 5 is less than the fair value of the shares
plus interest, the dissenter may give written notice to the corporation of the
dissenter's own estimate of fair value of the shares, plus interest, within 30
days after the corporation mails the remittance under subdivision 5, and demand
payment of the difference. Otherwise, a dissenter is entitled only to the amount
remitted by the corporation.
Subd. 7. Petition; determination. If the corporation receives a demand
under subdivision 6, it shall, within 60 days after receiving the demand, either
pay to the dissenter the amount demanded or agreed to by the dissenter after
discussion with the corporation or file in court a petition requesting that the
court determine the fair value of the shares, plus interest. The petition shall
be filed in the county in which the registered office of the corporation is
located, except that a surviving foreign corporation that receives a demand
relating to the shares of a constituent domestic corporation shall file the
petition in the county in this state in which the last registered office of the
constituent corporation was located. The petition shall name as parties all
<PAGE>
dissenters who have demanded payment under subdivision 6 and who have not
reached agreement with the corporation. The corporation shall, after filing the
petition, serve all parties with a summons and copy of the petition under the
rules of civil procedure. Nonresidents of this state may be served by registered
or certified mail or by publication as provided by law. Except as otherwise
provided, the rules of civil procedure apply to this proceeding. The
jurisdiction of the court is plenary and exclusive. The court may appoint
appraisers, with powers and authorities the court deems proper, to receive
evidence on and recommend the amount of the fair value of the shares. The court
shall determine whether the shareholder or shareholders in question have fully
complied with the requirements of this section, and shall determine the fair
value of the shares, taking into account any and all factors the court finds
relevant, computed by any method or combination of methods that the court, in
its discretion, sees fit to use, whether or not used by the corporation or by a
dissenter. The fair value of the shares as determined by the court is binding on
all shareholders, wherever located. A dissenter is entitled to judgment in cash
for the amount by which the fair value of the shares as determined by the court,
plus interest, exceeds the amount, if any, remitted under subdivision 5, but
shall not be liable to the corporation for the amount, if any, by which the
amount, if any, remitted to the dissenter under subdivision 5 exceeds the fair
value of the shares as determined by the court, plus interest.
Subd. 8. Costs; fees; expenses. (a) The court shall determine the costs
and expenses of a proceeding under subdivision 7, including the reasonable
expenses and compensation of any appraisers appointed by the court, and shall
assess those costs and expenses against the corporation, except that the court
may assess part or all of those costs and expenses against a dissenter whose
action in demanding payment under subdivision 6 is found to be arbitrary,
vexatious, or not in good faith.
(b) If the court finds that the corporation has failed to comply
substantially with this section, the court may assess all fees and expenses of
any experts or attorneys as the court deems equitable. These fees and expenses
may also be assessed against a person who has acted arbitrarily, vexatiously, or
not in good faith in bringing the proceeding, and may be awarded to a party
injured by those actions.
(c) The court may award, in its discretion, fees and expenses to an
attorney for the dissenters out of the amount awarded to the dissenters, if any.
<PAGE>
Conformed Copy
Annex D
VOTING AGREEMENT
VOTING AGREEMENT, dated as May 6, 1996 (this "Agreement"), by MILNER
ASSOCIATES, a Utah Limited Partnership, (the "Stockholder") with TIGER REAL
ESTATE ACQUISITION CORP., a Minnesota corporation ("Purchaser").
WHEREAS, Purchaser and its parent, TIGER REAL ESTATE FUND, L.P., a
Delaware limited partnership ("Parent"), propose to enter into an Agreement and
Plan of Merger, dated as of the date hereof (the "Merger Agreement"), with
KAHLER REALTY CORPORATION, a Minnesota corporation (the "Company"), which
provides, among other things, that the Company will merge with Purchaser
pursuant to the merger contemplated by the Merger Agreement (the "Merger");
WHEREAS, as of the date hereof, the Stockholder owns 492,407 shares of
common stock, par value $.10 per share, of the Company ("Company Common Stock");
and
WHEREAS, as a condition to the willingness of Parent and Purchaser to
enter into the Merger Agreement, Purchaser has required that the Stockholder
agree, and in order to induce Parent and Purchaser to enter into the Merger
Agreement, the Stockholder has agreed, to enter into this Agreement with respect
to all the shares of Company Common Stock now owned and which may hereafter be
acquired by the Stockholder (the "Shares").
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements contained herein, and intending to be legally bound
hereby, the parties hereto hereby agree as follows:
ARTICLE I
PROXY OF THE STOCKHOLDER
------------------------
SECTION 1.01 Voting Agreement. The Stockholder hereby agrees that,
during the time this Agreement is in effect, at any meeting of the stockholders
of the Company, however called, and in any action by consent of the shareholders
of the Company, the Stockholder shall vote the Shares: (a) in favor of the
Merger, the Merger Agreement (subject to the proviso below, as amended from time
to time) and any of the transactions contemplated by the Merger Agreement; and
(b) against any proposal for any recapitalization, merger, sale of assets or
other business combination between the Company and any person or entity (other
than the Merger) or any other action or agreement that would result in a breach
of any covenant, representation or warranty or any other obligation or agreement
of the Company under the Merger Agreement or which could result in any of the
conditions to the Company's obligations under the Merger Agreement not being
fulfilled, provided that the Stockholder shall have no obligations hereunder in
the event that the Merger Agreement is amended to (i) change the form of the
Merger Consideration, (ii) reduce the Merger Consideration below $17.00 per
share or (iii)
<PAGE>
change the treatment of Options. The Stockholder acknowledges receipt and review
of a copy of the Merger Agreement.
SECTION 1.02 Irrevocable Proxy. In the event the Stockholder shall
fail to comply with the provisions of Section 1.01 hereof as determined by
Purchaser in its sole discretion, the Stockholder agrees that such failure shall
result, without any further action by the Stockholder, in the irrevocable
appointment of Purchaser, until termination of the Merger Agreement, as his
attorney and proxy pursuant to the provisions of Section 302A.449 of the
Minnesota Business Corporation Act, with full power of substitution, to vote,
and otherwise act (by written consent or otherwise) with respect to the Shares
which Stockholder is entitled to vote at any meeting of stockholders of the
Company (whether annual or special and whether or not an adjourned or postponed
meeting) or consent in lieu of any such meeting or otherwise, on the matters and
in the manner specified in Section 1.01 hereof. THIS PROXY AND POWER OF
ATTORNEY IS IRREVOCABLE AND COUPLED WITH AN INTEREST. The Stockholder hereby
revokes all other proxies and powers of attorney with respect to the Shares
which he may have heretofore appointed or granted, and no subsequent proxy or
power of attorney shall be given or written consent executed (and if given or
executed, shall not be effective) by the Stockholder with respect thereto. All
authority herein conferred or agreed to be conferred shall survive the death or
incapacity of the Stockholder and any obligation of the Stockholder under this
Agreement shall be binding upon the heirs, personal representatives, successors
and assigns of the Stockholder.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER
-------------------------------------------------
The Stockholder hereby represents and warrants to Purchaser as
follows:
SECTION 2.01 Authority Relative to This Agreement. The Stockholder
has all necessary power and authority to execute and deliver this Agreement, to
perform his obligations hereunder and to consummate the transactions
contemplated hereby. This Agreement has been duly executed and delivered by the
Stockholder and constitutes a legal, valid and binding obligation of the
Stockholder, enforceable against the Stockholder in accordance with its terms.
SECTION 2.02 No Conflict. (a) The execution and delivery of this
Agreement by the Stockholder do not, and the performance of this Agreement by
the Stockholder shall not, (i), to the Stockholder's knowledge, conflict with or
violate any Governmental Regulations (as such term is defined in the Merger
Agreement) applicable to the Stockholder or by which the Shares are bound or
affected or (ii) result in any breach of or constitute a default (or an event
that with notice or lapse of time or both would become a default) under, or give
to others any rights of termination, amendment, acceleration or cancellation of,
or result in the creation of a lien or encumbrance on any of the Shares pursuant
to, any, partnership agreement, note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise, or other
-2-
<PAGE>
instrument or obligation to which the Stockholder is a party or by which the
Stockholder or the Shares are bound or affected.
(b) To the Stockholder's knowledge, the execution and delivery of this
Agreement by the Stockholder do not, and the performance of this Agreement by
the Stockholder shall not, require any consent, approval authorization or permit
of, or filing with or notification to, any Governmental Entity (as such term is
defined in the Merger Agreement) except for applicable requirements, if any, of
the Securities Exchange Act of 1934, as amended, or the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended.
SECTION 2.03 Title to the Shares. As of the date hereof, the
Stockholder is the record and beneficial owner of 492,407 shares of Company
Common Stock, which are all the securities of the Company owned, either of
record or beneficially, by the Stockholder. Except as set forth in a Schedule
to the Merger Agreement, the Stockholder owns all the Shares free and clear of
all Liens, options, rights of first refusal, agreements, limitations on the
Stockholder's voting rights and other encumbrances or any nature whatsoever.
Except as provided in this Agreement, the Stockholder has not appointed or
granted any proxy, which appointment or grant is still effective, with respect
to the Shares or Other Securities.
ARTICLE III
COVENANTS OF THE STOCKHOLDER
----------------------------
SECTION 3.01 No Disposition or Encumbrance of Shares. The
Stockholder hereby covenants and agrees that, except as contemplated by this
Agreement, the Stockholder shall not, and shall not offer or agree to, sell,
transfer, tender, assign, hypothecate or otherwise dispose of, grant a proxy or
power of attorney with respect to, create or permit to exist any Lien (as
defined in the Merger Agreement), option, right of first refusal, agreement,
limitation on the Stockholder's voting rights or other encumbrance of any nature
whatsoever with respect to, the Shares or, directly or indirectly, initiate,
solicit or encourage any person to take actions which could reasonably be
expected to lead to the occurrence of any of the foregoing.
SECTION 3.02 No Solicitation of Transactions. The Stockholder hereby
agrees to be bound by and to comply with obligations of the Company set forth in
Section 4.5 of the Merger Agreement as if such obligations were set forth in
their entirety in this Section 3.02 as obligations of the Stockholder.
-3-
<PAGE>
ARTICLE IV
MISCELLANEOUS
-------------
SECTION 4.01 Termination. This Agreement (except for Article IV of
this Agreement) shall terminate upon the termination of the Merger Agreement in
accordance with its terms. Article IV of this Agreement shall survive
termination of this Agreement.
SECTION 4.02 Further Assurances. The Stockholder and Purchaser will
execute and deliver all such further documents and instruments and take all such
further action as may be necessary in order to consummate the transactions
contemplated hereby.
SECTION 4.03 Specific Performance. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement was
not performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or in equity.
SECTION 4.04 Entire Agreement. This Agreement constitutes the entire
agreement between Purchaser and the Stockholder with respect to the subject
matter hereof and supersedes all prior agreements and understandings, both
written and oral, between Purchaser and the Stockholder with respect to the
subject matter hereof.
SECTION 4.05 Amendment. This Agreement may not be amended except by
an instrument in writing signed by the parties hereto.
SECTION 4.06 Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law,
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of this Agreement is not affected in any manner materially adverse to
any party. Upon such determination that any term or other provision is invalid,
illegal or incapable or being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in a mutually acceptable manner in order that the
terms of this Agreement remain as originally contemplated to the fullest extent
possible.
SECTION 4.07 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York applicable to
contracts executed in and to be performed in that State, regardless of the laws
that might otherwise govern under applicable principles of conflicts of laws
thereof. All actions and proceedings arising out of or relating to this
Agreement shall be heard and determined in any New York state or federal court.
SECTION 4.08 Definitions. Capitalized terms not otherwise defined
herein are used as defined in the Merger Agreement.
-4-
<PAGE>
IN WITNESS WHEREOF, the Stockholder has duly executed this Agreement.
Dated: May 6, 1996
MILNER ASSOCIATES, L.P.
/s/ Harold W. Milner
By: ______________________________
Harold W. Milner
General Partner
Agreed and accepted
as of May 6, 1996
TIGER REAL ESTATE FUND, L.P.
By: Tiger Real Estate Partners
Management, L.L.C., its general
partner
By: Tiger Real Estate Partners,
L.L.C., its managing member
/s/ Paul D. Kazilionis
By:____________________________
Name: Paul D. Kazilionis
Title: Managing Principal
TIGER REAL ESTATE ACQUISITION CORP.
/s/ Paul D. Kazilionis
By: _______________________________
Name: Paul D. Kazilionis
Title:
/s/ Patrick Fox
By: _______________________________
Name: Patrick Fox
Title: Secretary
-5-
<PAGE>
Conformed Copy
Annex E
VOTING AGREEMENT
VOTING AGREEMENT, dated as of May 6, 1996 (this "Agreement"), by MAYO
FOUNDATION (the "Stockholder") with TIGER REAL ESTATE ACQUISITION CORP., a
Minnesota corporation ("Purchaser").
WHEREAS, Purchaser and its parent, TIGER REAL ESTATE FUND, L.P., a
Delaware limited partnership ("Parent"), propose to enter into an Agreement and
Plan of Merger, dated as of the date hereof (the "Merger Agreement"), with
KAHLER REALTY CORPORATION, a Minnesota corporation (the "Company"), which
provides, among other things, that the Company will merge with Purchaser
pursuant to the merger contemplated by the Merger Agreement (the "Merger");
WHEREAS, as of the date hereof, the Stockholder owns 1,113,234 shares
of common stock, par value $.10 per share, of the Company ("Company Common
Stock") representing 25.6% of the outstanding shares of the Company Common
Stock; and
WHEREAS, as a condition to the willingness of Parent and Purchaser to
enter into the Merger Agreement, Purchaser has required that the Stockholder
agree, and in order to induce Parent and Purchaser to enter into the Merger
Agreement, the Stockholder has agreed, to enter into this Agreement with respect
to 370,000 shares of Company Common Stock now owned by the Stockholder (the
"Subject Shares"), representing 8.5% of the outstanding shares of the Company
Common Stock.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements contained herein, and intending to be legally bound
hereby, the parties hereto hereby agree as follows:
ARTICLE I
PROXY OF THE STOCKHOLDER
------------------------
SECTION 1.01 Voting Agreement. The Stockholder hereby agrees that,
during the time this Agreement is in effect, at any meeting of the shareholders
of the Company, however called, and in any action by consent of the shareholders
of the Company, the Stockholder shall vote the Subject Shares: (a) in favor of
the Merger, the Merger Agreement (as amended from time to time) and any of the
transactions contemplated by the Merger Agreement; and (b) against any proposal
for any recapitalization, merger, sale of assets or other business combination
between the Company and any person or entity (other than the Merger) or any
other action or agreement that would result in a breach of any covenant,
representation or warranty or any other obligation or agreement of the Company
under the Merger Agreement or which could result in any of the conditions to the
Company's obligations under the Merger Agreement not being fulfilled; provided
that the Stockholder shall have no obligations hereunder
<PAGE>
in the event the Merger Agreement is amended to (i) change the form of the
Merger Consideration or (ii) reduce the Merger Consideration below $17.00 per
share. The Stockholder acknowledges receipt and review of a copy of the Merger
Agreement.
SECTION 1.02 Irrevocable Proxy. In the event the Stockholder shall
fail to comply with the provisions of Section 1.01 hereof as determined by
Purchaser in its sole discretion, the Stockholder agrees that such failure shall
result, without any further action by the Stockholder, in the irrevocable
appointment of Purchaser, until termination of the Merger Agreement, as its
attorney and proxy pursuant to the provisions of Section 302A.449 of the
Minnesota Business Corporation Act, with full power of substitution, to vote,
and otherwise act (by written consent or otherwise) with respect to the Subject
Shares which Stockholder is entitled to vote at any meeting of stockholders of
the Company (whether annual or special and whether or not an adjourned or
postponed meeting) or consent in lieu of any such meeting or otherwise, on the
matters and in the manner specified in Section 1.01 hereof. THIS PROXY AND
POWER OF ATTORNEY IS IRREVOCABLE AND COUPLED WITH AN INTEREST. The Stockholder
hereby revokes all other proxies and powers of attorney with respect to the
Subject Shares which it may have heretofore appointed or granted, and no
subsequent proxy or power of attorney shall be given or written consent executed
(and if given or executed, shall not be effective) by the Stockholder with
respect thereto. All authority herein conferred or agreed to be conferred shall
survive the termination of existence of the Stockholder and any obligation of
the Stockholder under this Agreement shall be binding upon the successors and
assigns of the Stockholder
SECTION 1.03. Limitation to Subject Shares. Nothing herein shall be
deemed to create, whether by express provision or impliedly, any agreement,
arrangement, relationship or understanding, with respect to the voting, the
power to direct the voting, the disposition, or the power to direct the
disposition of any shares of Company Common Stock owned by the Stockholder other
than the Subject Shares.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER
-------------------------------------------------
The Stockholder hereby represents and warrants to Purchaser as
follows:
SECTION 2.01 Authority Relative to This Agreement. The Stockholder
has all necessary power and authority to execute and deliver this Agreement, to
perform its obligations hereunder and to consummate the transactions
contemplated hereby. This Agreement has been duly executed and delivered by the
Stockholder and constitutes a legal, valid and binding obligation of the
Stockholder, enforceable against the Stockholder in accordance with its terms.
SECTION 2.02 No Conflict. (a) The execution and delivery of this
Agreement by the Stockholder do not, and the performance of this Agreement by
the Stockholder
-2-
<PAGE>
shall not, (i) conflict with or violate any Governmental Regulations (as such
term is defined in the Merger Agreement) applicable to the Stockholder or by
which the Subject Shares are bound or affected or (ii) result in any breach of
or constitute a default (or an event that with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, or result in the creation of a lien
or encumbrance on any of the Subject Shares pursuant to, any note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise, or
other instrument or obligation to which the Stockholder is a party or by which
the Stockholder or the Subject Shares are bound or affected.
(b) The execution and delivery of this Agreement by the Stockholder do
not, and the performance of this Agreement by the Stockholder shall not, require
any consent, approval authorization or permit of, or filing with or notification
to, any Governmental Entity (as such term is defined in the Merger Agreement)
except for applicable requirements, if any, of the Securities Exchange Act of
1934, as amended, or the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended.
SECTION 2.03 Title to the Shares. As of the date hereof, the
Stockholder is the record and beneficial owner of 1,113,234 shares of Company
Common Stock, which are all the securities of the Company owned, either of
record or beneficially, by the Stockholder. Except as set forth in a Schedule
to the Merger Agreement, the Stockholder owns such shares of Company Common
Stock free and clear of all Liens, options, rights of first refusal, agreements,
limitations on the Stockholder's voting rights and other encumbrances or any
nature whatsoever. Except as provided in this Agreement with respect to the
Subject Shares, the Stockholder has not appointed or granted any proxy, which
appointment or grant is still effective, with respect to any shares of Company
Common Stock owned by it.
ARTICLE III
COVENANTS OF THE STOCKHOLDER
----------------------------
SECTION 3.01 No Disposition or Encumbrance of Shares. (a) The
Stockholder hereby covenants and agrees that, except as contemplated by this
Agreement, the Stockholder shall not, and shall not offer or agree to, sell,
transfer, tender, assign, hypothecate or otherwise dispose of, grant a proxy or
power of attorney with respect to, create or permit to exist any Lien (as
defined in the Merger Agreement), option, right of first refusal, agreement,
limitation on the Stockholder's voting rights or other encumbrance of any nature
whatsoever with respect to, the Subject Shares or, directly or indirectly,
initiate, solicit or encourage any person to take actions which could reasonably
be expected to lead to the occurrence of any of the foregoing.
-3-
<PAGE>
ARTICLE IV
MISCELLANEOUS
-------------
SECTION 4.01 Termination. This Agreement (except for Article IV of
this Agreement) shall terminate upon the termination of the Merger Agreement in
accordance with its terms. Article IV of this Agreement shall survive
termination of this Agreement.
SECTION 4.02 Further Assurances. The Stockholder and Purchaser will
execute and deliver all such further documents and instruments and take all such
further action as may be necessary in order to consummate the transactions
contemplated hereby.
SECTION 4.03 Specific Performance. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement was
not performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or in equity.
SECTION 4.04 Entire Agreement. This Agreement constitutes the entire
agreement between Purchaser and the Stockholder with respect to the subject
matter hereof and supersedes all prior agreements and understandings, both
written and oral, between Purchaser and the Stockholder with respect to the
subject matter hereof.
SECTION 4.05 Amendment. This Agreement may not be amended except by
an instrument in writing signed by the parties hereto.
SECTION 4.06 Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law,
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of this Agreement is not affected in any manner materially adverse to
any party. Upon such determination that any term or other provision is invalid,
illegal or incapable or being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in a mutually acceptable manner in order that the
terms of this Agreement remain as originally contemplated to the fullest extent
possible.
SECTION 4.07 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York applicable to
contracts executed in and to be performed in that State, regardless of the laws
that might otherwise govern under applicable principles of conflicts of laws
thereof. All actions and proceedings arising out of or relating to this
Agreement shall be heard and determined in any New York state or federal court.
-4-
<PAGE>
IN WITNESS WHEREOF, the Stockholder has duly executed this Agreement.
Dated: May 6, 1996
MAYO FOUNDATION
/s/ R. Waller
By: __________________________
Name: R. Waller
Title: President
Agreed and accepted
as of May 6, 1996
TIGER REAL ESTATE ACQUISITION CORP.
/s/ Paul D. Kazilionis
By: _______________________________
Name: Paul D. Kazilionis
Title:
/s/ Patrick Fox
By: _______________________________
Name: Patrick Fox
Title: Secretary
-5-
<PAGE>
PROXY
KAHLER REALTY CORPORATION
SPECIAL MEETING OF STOCKHOLDERS - AUGUST 13, 1996 AT 10:00 A.M. CENTRAL TIME.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder of Kahler Realty Corporation (the "Company") hereby
appoints Harold W. Milner and Mark W. Sheffert, or either of them, the attorneys
and proxies for the undersigned (each with power of substitution and with all
powers the undersigned would possess if personally present) to vote at the
Special Meeting of Stockholders of the Company to be held at 10:00 a.m. Central
Time on August 13, 1996, and at any adjournment or postponement thereof (the
"Special Meeting"), all the shares of Common Stock of the Company which the
undersigned is entitled to vote on the following proposal (more fully described
in the Proxy Statement for the Special Meeting) in the manner specified on the
reverse hereof, and on any other business that may properly come before the
Meeting at the discretion of the named proxies.
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Please date and sign this proxy and indicate how your stock is to be voted
below. UNLESS YOU SPECIFICALLY DIRECT OTHERWISE, THE SHARES REPRESENTED BY THIS
PROXY WILL BE VOTED "FOR" THE FOLLOWING PROPOSAL.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
(1) Approval and adoption of the Agreement and Plan of Merger, dated as of
May 6, 1996, relating to the merger of Tiger Real Estate Acquisition Corp.
with and into the Company.
For Against Abstain
[_] [_] [_]
NOTE: Your signature should appear as your name appears hereon. When share
are held by joint tenants, both should sign. When signing as attorney,
executor, administrator, trustee or guardian, please give full title as
such. If a corporation, please sign in full corporate name by the President
or other authorized officer. If a partnership, please sign in partnership
name by authorized person.
Please sign, date and return the proxy card promptly using the enclosed
envelope.
Dated: _________________________, 1996
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Signature
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(Signature if held jointly)
