SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant[X]
Filed by a Party other than the Registrant[ ]
Check the appropriate box:
[ ] 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 ss. 240.14a-11(c) or ss. 240.14a-12
............................NATIONAL LODGING CORP..............................
(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), 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).
[ ] 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:
......................................................................
2) Aggregate number of securities to which transaction applies:
......................................................................
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):
......................................................................
4) Proposed maximum aggregate value of transaction:
......................................................................
5) Total fee paid:
......................................................................
[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>
NATIONAL LODGING CORP.
605 Third Avenue
New York, New York 10158
Notice of Annual Meeting of Stockholders
August 8, 1996
NOTICE IS HEREBY GIVEN that the annual meeting of stockholders of
National Lodging Corp., formerly known as National Gaming Corp. (the
"Company"), will be held on Thursday, August 8, 1996, at 10:00 a.m. local time
at the Rockefeller Center Club, 30 Rockefeller Center Plaza, New York, New York
(the "Meeting"), for the following purposes:
1. To approve the issuance and sale to Chartwell Leisure
Associates L.P. II and FSNL LLC of an aggregate of 4 million
shares of the Company's Common Stock at a price per share of
$14.25;
2. To approve the filing of a Certificate of Amendment to the
Company's Certificate of Incorporation which will provide for
the change of the Company's name from National Lodging Corp.
to Chartwell Leisure Inc.;
3. To elect three Class II directors for a term expiring in 1999
or until their successors are duly elected and qualified; and
4. To transact such other business as may properly come before
the Meeting or any adjournment or postponement thereof.
The Board of Directors has fixed the close of business on June 14,
1996, as the record date for the Meeting. Only stockholders of record at that
time are entitled to notice of, and to vote at, the Meeting and any adjournment
or postponement thereof. A list of stockholders entitled to vote at the Meeting
will be available for examination 10 days before the Meeting during ordinary
business hours at the offices of the Company.
The enclosed proxy is solicited by the Board of Directors of the
Company. Reference is made to the attached Proxy Statement for further
information with respect to the business to be transacted at the Meeting. The
Board of Directors urges you to date, sign and return the enclosed proxy
promptly. A reply envelope is enclosed for your convenience. You are cordially
invited to attend the Meeting in person. The return of the enclosed proxy will
not affect your right to vote if you attend the Meeting in person.
By Order of the Board of Directors
DOUGLAS H. VERNER
Secretary
Dated: July 11, 1996
<PAGE>
NATIONAL LODGING CORP.
605 Third Avenue
New York, New York 10158
-------------------
PROXY STATEMENT
-------------------
Annual Meeting of Stockholders to
be held on Thursday, August 8, 1996
-------------------
This Proxy Statement is furnished in connection with the solicitation
of proxies by the Board of Directors of National Lodging Corp., a Delaware
corporation formerly known as National Gaming Corp. (the "Company"), to be used
at the 1996 Annual Meeting of Stockholders, and any adjournment or postponement
thereof (the "Meeting"), to be held on the date, at the time and place, and for
the purposes set forth in the foregoing notice. This Proxy Statement, the
accompanying notice and the enclosed proxy card are first being mailed to
stockholders on or about July 11, 1996.
The Board of Directors does not intend to bring any matter before the
Meeting except as specifically indicated in the notice, nor does the Board of
Directors know of any matters which anyone else proposes to present for action
at the Meeting. However, if any other matters properly come before the Meeting,
the persons named in the enclosed proxy, or their duly constituted substitutes
acting at the Meeting, will be authorized to vote or otherwise act thereon in
accordance with their judgment on such matters.
Shares of the Company's Common Stock, par value $.01 per share (the
"Common Stock"), represented by proxies received by the Company, where the
stockholder has specified his or her choice with respect to the proposals
described in this Proxy Statement (including the election of directors), will
be voted in accordance with the specifications so made. In the absence of such
specifications, the shares will be voted "For" the approval of the issuance and
sale to Chartwell Leisure Associates L.P. II ("Chartwell") and FSNL LLC
("FSNL") of an aggregate of 4 million shares of the Company's Common Stock at a
price of $14.25 per share (the "Investment"); "For" the approval of the filing
of a Certificate of Amendment to the Company's Certificate of Incorporation
which will provide for the change of the Company's name from National Lodging
Corp. to Chartwell Leisure Inc. (the "Certificate of Amendment") and will be
filed only if the closing of the Investment occurs; and "For" the election of
the three nominees for the Board of Directors. Abstentions will be counted as
present in determining whether a quorum exists, but will have the same effect
as a vote against a proposal (other than with respect to the proposal relating
to the election of Directors). Shares held by nominees that are present but not
voted on a proposal because the nominees did not have discretionary voting
power and were not instructed by the beneficial owner ("broker non-votes") will
be counted as present in determining whether a quorum exists, but will be
disregarded in determining whether the proposal relating to the Investment has
been approved. The proposal relating to the filing of a Certificate of
Amendment to the Company's Certificate of Incorporation requires the approval
of the holders of a majority of the total shares of the Company's Common Stock
outstanding as of the Record Date (as hereinafter defined). Therefore, broker
non-votes will have the same effect as a vote against that proposal.
Any proxy may be revoked at any time prior to its exercise by
notifying the Secretary in writing, by delivering a duly executed proxy bearing
a later date or by attending the Meeting and voting in person.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C>
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF........................................................ 4
Voting and Solicitation....................................................................... 4
Vote Required................................................................................. 4
Security Ownership of Certain Beneficial Owners and Management................................ 4
APPROVAL OF THE INVESTMENT (Proposal 1)................................................................ 8
Overview...................................................................................... 8
Risk Factors.................................................................................. 9
Background of and Reasons for the Proposal; Board of Directors' Recommendation................ 10
Opinion of the Company's Financial Advisor.................................................... 16
PROJECTED FINANCIAL INFORMATION........................................................................ 22
Use of Proceeds............................................................................... 23
Additional Information Concerning the Purchasers.............................................. 23
Stock Purchase Agreement...................................................................... 24
Registration Rights Agreement................................................................. 26
Interests of Certain Persons in the Investment................................................ 27
APPROVAL OF THE CERTIFICATE OF AMENDMENT (Proposal 2).................................................. 29
ELECTION OF DIRECTORS (Proposal 3)..................................................................... 29
Information Regarding the Nominees and Directors.............................................. 30
Committees, Meetings; Compensation of the Board of Directors; Vote Required for Election of
Directors..................................................................................... 32
EXECUTIVE OFFICERS..................................................................................... 34
EXECUTIVE COMPENSATION................................................................................. 35
Summary Compensation Table.................................................................... 35
Option Exercises and Year-End Option Value Table.............................................. 36
Compensation Committee Report on Executive Compensation in 1995............................... 36
Compensation Committee Interlocks and Insider Participation................................... 37
Performance Graph............................................................................. 38
Employment Contracts and Termination, Severance and Change of Control Arrangements............ 39
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS......................................................... 39
Relationships with HFS........................................................................ 39
Relationships with Chartwell and FSNL......................................................... 42
Relationships with Mr. Edelman................................................................ 44
Relationships with Mr. Stone.................................................................. 44
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT...................................................... 45
ATTENDANCE OF AUDITORS AT THE MEETING.................................................................. 45
STOCKHOLDER PROPOSALS.................................................................................. 45
APPRAISAL RIGHTS....................................................................................... 46
INCORPORATION OF DOCUMENTS BY REFERENCE................................................................ 46
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C>
ADDITIONAL INFORMATION................................................................................. 46
EXHIBIT A AMENDED AND RESTATED STOCK PURCHASE
AGREEMENT, DATED AS OF MARCH 14, 1996, AMONG
NATIONAL LODGING CORP., CHARTWELL LEISURE
ASSOCIATES L.P. II AND FSNL LLC..........................................................A-1
EXHIBIT B FORM OF REGISTRATION RIGHTS AGREEMENT AMONG
NATIONAL LODGING CORP., CHARTWELL LEISURE
ASSOCIATES L.P. II AND FSNL LLC..........................................................B-1
EXHIBIT C OPINION OF MERRILL LYNCH, PIERCE, FENNER
& SMITH INCORPORATED.....................................................................C-1
EXHIBIT D FORM OF CERTIFICATE OF AMENDMENT OF
CERTIFICATE OF INCORPORATION OF NATIONAL
LODGING CORP.............................................................................D-1
ENCLOSURES: National Lodging Corp. 1995 Annual Report
National Lodging Corp. Amendment on Form 8-K/A to Current Report on Form 8-K
dated January 23, 1996, as filed with the Commission on July 9, 1996
National Lodging Corp. Quarterly Report on Form 10-Q for the quarter ended March 31,
1996
</TABLE>
3
<PAGE>
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
Voting and Solicitation
Only holders of record of the Company's Common Stock at the close of
business on June 14, 1996 (the "Record Date") are entitled to notice of, and to
vote at, the Meeting. On that date, the Company had outstanding 5,452,320
shares of Common Stock.
The presence, in person or by proxy, of the holders of a majority of
the issued and outstanding shares of Common Stock entitled to vote at the
Meeting will constitute a quorum. Abstentions will be counted as present in
determining whether a quorum exists, but will have the same effect as a vote
against a proposal (other than with respect to the proposal relating to the
election of Directors). Shares held by nominees that are present but not voted
on a proposal because the nominees did not have discretionary voting power and
were not instructed by the beneficial owner ("broker non-votes") will be
counted as present in determining whether a quorum exists, but will be
disregarded in determining whether the proposal relating to the Investment has
been approved. The proposal relating to the filing of the Certificate of
Amendment to the Company's Certificate of Incorporation requires the approval
of the holders of a majority of the total shares of the Company's Common Stock
outstanding as of the Record Date. Therefore, broker non-votes will have the
same effect as a vote against that proposal. On all matters voted upon at the
Meeting and any adjournment or postponement thereof, the holders of the Common
Stock vote together as a single class, with each record holder of Common Stock
entitled to one vote per share.
The accompanying form of proxy is being solicited on behalf of the
Board of Directors of the Company. The expenses of solicitation of proxies for
the Meeting will be paid by the Company. In addition to the mailing of the
proxy material, such solicitation may be made in person or by telephone by
directors, officers and employees of the Company, who will receive no
additional compensation therefor. The Company has retained Chase Mellon
Shareholder Services to assist with the solicitation at an estimated cost of
$5,000 plus reimbursement of out-of-pocket expenses. Upon request, the Company
will reimburse brokers, dealers, banks and trustees, or their nominees, for
reasonable expenses incurred by them in forwarding material to beneficial
owners of shares of Common Stock of the Company.
Vote Required
Directors shall be elected by a plurality of the votes cast in the
election of directors. Approval of the proposal relating to the Investment
requires the affirmative vote of the holders of a majority of the shares of
Common Stock present at the Meeting, in person or by proxy, and entitled to
vote. Approval of the proposal relating to the Certificate of Amendment
requires the affirmative vote of the holders of a majority of the total shares
of Common Stock outstanding as of the Record Date.
Chartwell has agreed to vote the shares of Common Stock which it owns
in favor of and against the proposal to approve the Investment in the same
proportions as votes are cast in favor of and against that proposal by
stockholders of the Company other than Chartwell, FSNL and their affiliates.
Security Ownership of Certain Beneficial Owners and Management
The information set forth in the following table is furnished as of
June 1, 1996, and as adjusted as of that date to give effect to the Investment,
with respect to any person (including any "group," as that term is used in
Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) who is known to the Company to be the beneficial owner of more
than 5% of any class of the Company's voting securities, and as to those shares
of the Company's equity securities beneficially owned by each of its directors
and nominees for director, certain of its executive officers, and all of its
executive officers and directors as a group. Such information (other than with
respect to directors and officers of the Company) is based on a review of
statements filed with the
4
<PAGE>
Securities and Exchange Commission (the "Commission") pursuant to Sections
13(d), 13(f), and 13(g) of the Exchange Act with respect to the Company's
Common Stock. As of June 1, 1996, there were 5,452,320 shares of Common Stock
outstanding.
<TABLE>
<CAPTION>
Amount and
Nature of
Beneficial Percent of
Ownership Class
----------------------------- ---------------------------
Before After Before After
Investment Investment Investment Investment
---------- ---------- ---------- ----------
Name
- ----
<S> <C> <C> <C> <C>
Principal Stockholders
Chartwell Leisure Associates L.P. II (1) 904,930 4,904,930 16.60% 51.89% (2)
222 Purchase Street, Suite 303
Rye, New York 10580
FSNL LLC (3) 0 1,052,631 * 11.14%
157 Church Street, 19th Floor
New Haven, Connecticut 06510
Fir Tree Inc. d/b/a Fir Tree Partners (4) 397,100 397,100 7.28% 4.20%
1211 Avenue of the Americas, 29th Floor
New York, New York 10036
The Kaufmann Fund, Inc.(5) 602,500 602,500 11.05% 6.37%
140 East 45th Street, 43rd Floor
New York, New York 10017
Directors, Nominees and Executive Officers
Richard L. Fisher (6) 906,930 4,906,930 16.63% 51.91%
Henry R. Silverman (7) 227,732 227,732 4.01% 2.35%
Robert S. Kingsley (8) 0 0 * *
Stephen P. Holmes (9) 19,400 19,400 * *
Martin L. Edelman (10) 48,437 189,910 * 2.01%
Michael J. Kennedy (11) 5,000 5,000 * *
Robert F. Smith (12) 6,000 31,000 * *
Roger J. Stone (13) 5,000 5,000 ** *
Marc E. Leland (14) 904,930 4,904,930 16.60% 51.89%
James E. Buckman (15) 10,740 10,740 * *
Rachel Robinson 0 0 * *
Dr. Guido Goldman (16) 0 1,052,631 * 11.14%
Executive Officers and Directors 1,180,802 5,205,802 20.63% 53.40%
as a Group (15 persons) (17)
</TABLE>
- ---------------
*less than 1%
5
<PAGE>
(1) Chartwell has sole power to vote and dispose of the 904,930 shares
reflected in the table as owned by it before consummation of the
Investment and will have the sole power to vote and dispose of the
3,852,299 shares owned by it after consummation of the Investment.
Pursuant to a stockholders agreement dated as of February 14, 1996,
between Chartwell and FSNL (the "Stockholders' Agreement"), which will
become effective upon the Closing (as hereinafter defined) of the
Investment, FSNL and Chartwell have agreed to elect certain nominees
as Directors and FSNL has agreed to vote its shares of Common Stock at
all meetings of stockholders of the Company and in any written consent
in the manner directed by Chartwell. Therefore, Chartwell and FSNL
will share voting and dispositive power with respect to the 1,052,631
shares reflected in the table as owned by FSNL after consummation of
the Investment, and the number of shares reflected in the table as
owned by Chartwell after consummation of the Investment includes both
the shares to be owned of record by Chartwell and the shares to be
owned of record by FSNL after consummation of the Investment. See
"Certain Relationships and Related Transactions -- Relationships with
Chartwell and FSNL." Messrs. Fisher, Leland and Edelman are beneficial
owners of Chartwell.
(2) The 3,852,299 shares to be owned of record by Chartwell after
consummation of the Investment will represent approximately 40.76% of
the outstanding shares of Common Stock.
(3) Pursuant to the Stockholders' Agreement, FSNL and Chartwell will share
voting and dispositive power with respect to these shares. Dr. Goldman
is a beneficial owner of FSNL.
(4) Based upon information contained in a Schedule 13D dated November 22,
1995, filed by Fir Tree Inc., doing business as Fir Tree Partners, on
behalf of itself and the other reporting persons named therein, such
persons beneficially own 397,100 shares of Common Stock. According to
the Schedule 13D, such persons have sole voting power and dispositive
power over such shares.
(5) Based upon information contained in a Schedule 13G dated February 15,
1996, filed by The Kaufmann Fund, Inc., a registered investment
company, such entity beneficially owns 602,500 shares of Common Stock.
The Kaufmann Fund, Inc. has sole voting and dispositive power over
such shares.
(6) Includes all shares owned by Chartwell and FSNL (see note 1 above),
and 2,000 shares owned by Fisher Brothers Financial and Development
Company ("FBFDC"). Mr. Fisher is the President and one of the two
directors of Chartwell Leisure Corp. II ("Chartwell Corp."), the
general partner of Chartwell, and, accordingly, may be deemed to own
beneficially all shares owned beneficially by Chartwell. Mr. Fisher is
also a limited partner of Chartwell. FBFDC is a New York limited
partnership of which Mr. Fisher is both a general and limited partner.
Mr. Fisher disclaims beneficial ownership of the shares of Common
Stock owned by Chartwell and FBFDC other than 88,098 and 373,993
shares representing 9.70% of the shares owned of record by Chartwell
and 16% of the shares owned by FBFDC before and after the Investment,
respectively. Mr. Fisher owns, in the aggregate, a 9.70% beneficial
interest in Chartwell and a 16% interest in FBFDC.
(7) Includes 222,560 shares of Common Stock issuable upon the exercise of
options granted under the 1992 Stock Option Plan of HFS Incorporated,
the former parent of the Company ("HFS"), which options are currently
exercisable, and 5,172 shares of Common Stock in two retirement plans
whose sole beneficiary is Mr. Silverman. Mr. Silverman was granted
options to purchase 300,000 shares of Common Stock on November 22,
1994 under the Company's 1994 Stock Option Plan. Such options were
cancelled as of February 1, 1996.
(8) Mr. Kingsley was granted options to purchase 100,000 shares of Common
Stock on November 22, 1994, under the Company's 1994 Stock Option
Plan. Such options were cancelled as of February 1, 1996.
(9) Includes 19,200 shares issuable upon the exercise of options granted
under HFS's 1992 Stock Option Plan, which options are currently
exercisable or exercisable within 60 days. Mr. Holmes was granted
options to purchase 60,000 shares on November 22, 1994 under the
Company's 1994 Stock Option Plan. Such options were cancelled as of
February 1, 1996.
(10) Includes 5,000 shares issuable upon the exercise of options granted
under the Company's 1994 Stock Option Plan, which options are
currently exercisable, or exercisable within 60 days. Amounts shown
before and after the
6
<PAGE>
Investment include 43,437 shares, and 184,910 shares, respectively,
representing 4.8% of the shares owned of record by Chartwell. Mr.
Edelman owns, in the aggregate, a 4.8% beneficial interest in
Chartwell.
(11) Includes 5,000 shares issuable upon the exercise of options granted
under the Company's 1994 Stock Option Plan, which options are
currently exercisable or exercisable within 60 days.
(12) Includes (a) 5,000 shares issuable upon the exercise of options
granted under the Company's 1994 Stock Option Plan, which options are
currently exercisable or exercisable within 60 days, and (b) 500
shares held in the name of the Smith Family Foundation, of which Mr.
Smith is President. Mr. Smith disclaims beneficial ownership of the
500 shares held in the name of the Smith Family Foundation. Shares
reflected in the table as owned by Mr. Smith after consummation of the
Investment include 25,000 shares issuable upon the exercise of options
granted under the Company's 1994 Stock Option Plan, which options are
not currently exercisable or exercisable within 60 days, but will
become exercisable upon consummation of the Investment. See "Approval
of the Investment -- Interests of Certain Persons in the Investment."
(13) Represents 5,000 shares issuable upon the exercise of options granted
under the Company's 1994 Stock Option Plan, which options are
currently exercisable or exercisable within 60 days.
(14) Represents the shares of Common Stock beneficially owned by Chartwell.
Mr. Leland is the Vice President and one of the two directors of
Chartwell Corp. and, accordingly, may be deemed to own beneficially
all shares owned beneficially by Chartwell. Mr. Leland is also a
beneficial owner of Chartwell. Mr. Leland disclaims beneficial
ownership of the shares of Common Stock owned by Chartwell other than
28,668 and 122,040 shares, representing approximately 3.17% of the
shares owned of record by Chartwell before and after the Investment,
respectively. Mr. Leland owns an 8% general partnership interest in
FGT L.P. which, in turn, owns a 39.6% limited partnership interest in
Chartwell.
(15) Includes 9,240 shares issuable upon the exercise of options granted
under HFS's 1992 Stock Option Plan, which options are currently
exercisable or exercisable within 60 days. Mr. Buckman was granted
options to purchase 60,000 shares on November 22, 1994 under the
Company's 1994 Stock Option Plan. Such options were cancelled as of
February 1, 1996.
(16) Represents the shares of Common Stock held by FSNL. Dr. Goldman is a
Manager and beneficial owner of FSNL and a beneficiary of a trust
which is a member in FSNL. Dr. Goldman disclaims beneficial ownership
of the shares of Common Stock owned by FSNL.
(17) Includes 271,000 shares, in the aggregate, of Common Stock purchasable
by officers and directors pursuant to options granted under HFS's 1992
Stock Option Plan or the Company's 1994 Stock Option Plan, which
options are currently exercisable or exercisable within 60 days, and,
upon consummation of the Investment, also includes the 25,000 shares
issuable upon exercise of the options described above in footnote 12,
all of which will then become exercisable.
7
<PAGE>
APPROVAL OF THE INVESTMENT
(Proposal 1)
CERTAIN ASPECTS OF THIS PROPOSAL ARE SUMMARIZED BELOW. THIS SUMMARY
DOES NOT PURPORT TO BE COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO THE COMPLETE TEXT OF THE AMENDED AND RESTATED STOCK PURCHASE AGREEMENT AND
THE FORM OF REGISTRATION RIGHTS AGREEMENT, ATTACHED TO THIS PROXY STATEMENT AS
EXHIBITS A AND B. STOCKHOLDERS ARE URGED TO READ THE EXHIBITS TO THIS PROXY
STATEMENT IN THEIR ENTIRETY.
Overview
The stockholders are requested at the Meeting to approve the issuance
and sale of an aggregate of 4 million shares of Common Stock (the "Shares"), of
which 2,947,369 shares will be issued and sold to Chartwell, and 1,052,631
shares will be issued and sold to FSNL (Chartwell and FSNL are each referred to
as a "Purchaser," and collectively as the "Purchasers") for an aggregate
purchase price of $57 million, or $14.25 per share (the "Investment"). The
shares sold to Chartwell and FSNL will, upon issuance, represent approximately
31.2% and 11.1%, respectively (42.3% in the aggregate) of the outstanding
shares of Common Stock. When such shares are added to the shares of Common
Stock owned by Chartwell as of the date hereof, Chartwell and FSNL together
will hold approximately 52% of the outstanding shares of Common Stock. The
Investment will be governed by the Amended and Restated Stock Purchase
Agreement, dated as of March 14, 1996 (the "Stock Purchase Agreement"), by and
among the Company and the Purchasers, and will be subject to certain
conditions, including the stockholder approval requested herein. See "Stock
Purchase Agreement."
The Investment is intended to raise funds to finance the Company's
proposed acquisition of hotels in Canada operated under the "Travelodge"
franchise (the "Canadian Acquisition") and, if the Canadian Acquisition is not
consummated, to prepay its existing bank indebtedness, to facilitate the
Company's continuing expansion into the lodging industry and for other
purposes. The Company expects to accomplish the Canadian Acquisition by paying
approximately C$94 million to purchase substantially all of CPLP's existing
bank debt and to pay certain specified closing costs (including real estate
taxes), and by assuming liability for certain trade payables and property-
specific bank debt, aggregating approximately C$10 million. Of the C$94 million
payment, approximately half is expected to be financed with proceeds from the
Investment, and half is expected to be financed by borrowings under a line of
credit which the Company expects to obtain from The Chase Manhattan Bank, N.A.
See "Use of Proceeds." The Investment will increase the number of shares of
outstanding Common Stock by approximately 73% and significantly dilute the
ownership interests and proportionate voting power of the existing holders of
Common Stock. See "Risk Factors."
The Company is seeking stockholder approval of the Investment pursuant
to the designation criteria for continued inclusion of the Company's Common
Stock in the National Market System of the National Association of Securities
Dealers, Inc. Automated Quotation System ("NASDAQ"). Specifically, the NASDAQ
rules require an issuer that has securities listed on NASDAQ to seek
stockholder approval of any issuance of securities that will result in a change
of control of the issuer. As of the date hereof, Chartwell owns of record
904,930 shares of Common Stock, representing approximately 16.6% of the
outstanding shares of Common Stock. Upon consummation of the Investment,
Chartwell and FSNL (which presently does not own shares of Common Stock)
together will hold approximately 52% of the outstanding shares of Common Stock.
8
<PAGE>
Risk Factors
While the Board of Directors recommends approval of the Investment and
is of the opinion that the Investment proposal is fair to, and in the best
interests of, the Company and its stockholders, the Company's stockholders
should consider the following possible effects in evaluating the Investment.
Control by Purchasers. Upon completion of the Investment, the
Purchasers will beneficially own, in the aggregate, 4,904,930, or approximately
52%, of the outstanding shares of the Company's Common Stock. As a result, the
Purchasers together will have obtained the ability to control, subject to the
terms of the Stock Purchase Agreement, the election of Directors of the Company
and most corporate actions, as well as the outcome of any issue that is
submitted to the Company's stockholders, other than amendments to the Company's
bylaws, which require the affirmative vote of at least 80% of the Company's
outstanding voting stock.
No Control Premium. The Investment will result in the aggregation of
control of the Company in the Purchasers. To the extent that the purchase price
paid by the Purchasers for the Shares includes value associated with the
transfer of control of the Company, the present stockholders of the Company
will not directly receive any portion of that control premium.
Impact of Control by Purchasers on Market Price. The shares of Common
Stock are currently publicly traded. The market price of the shares of Common
Stock may be affected by the Purchasers becoming the controlling stockholders
as a result of the consummation of the Investment.
Anti-Takeover Effect. The Purchasers' majority ownership of the
Company's outstanding shares of Common Stock upon completion of the Investment
will have the effect of precluding the acquisition of the Company by a third
party without the Purchasers' consent.
Potential Conflicts of Interest. Upon completion of the Investment,
the Purchasers will beneficially own approximately 52% of the outstanding
number of shares of Common Stock and accordingly, will have control of the
Board of Directors and the businesses and affairs of the Company. Such control
will continue as long as the Purchasers own a majority of the outstanding
shares of Common Stock, and effective control could persist even at somewhat
lower ownership levels. Certain conflicts of interest may arise between the
Purchasers and their affiliates (the "Purchaser Parties") and the Company. Such
conflicts could arise with respect to business dealings between the Purchaser
Parties and the Company and other corporate matters. However, pursuant to the
Stock Purchase Agreement, the Purchasers have agreed to certain limitations on
their activities and certain limits on the exercise of their control over the
Company after the Closing. See "Certain Relationships and Related Transactions
- -- Relationships with Chartwell and FSNL -- Stock Purchase Agreement."
Dilution. The Investment will increase the number of shares of
outstanding Common Stock by approximately 73% and significantly dilute the
ownership interests and proportionate voting power of the existing holders of
Common Stock. The Investment would have changed the Company's 1995 loss per
share on a pro forma basis, after giving effect to the Investment and the
Travelodge Acquisition, from ($3.57) to ($2.34) per share, and on a pro forma
basis, giving effect to the Investment, the Travelodge Acquisition and the
Canadian Acquisition, from ($3.57) to ($1.79) per share.
Loss Carryforwards. The Investment is expected to result in a change
in ownership of the Company under Section 382 of the Internal Revenue Code of
1986, as amended (the "Code") for purposes of limitations on the use of the
Company's net operating loss and capital loss carryforwards ("Loss
Carryforwards"). As of December 31, 1995, the Company had approximately $17.5
million of Loss Carryforwards for Federal income tax purposes. As a result of
the ownership change, the amount of the Company's annual taxable income which
may be offset by Loss Carryforwards generally will be limited to an amount
determined by multiplying the value of the Company (not including the
Investment) by the "long-term tax exempt rate," published monthly by the
Treasury Department. For
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this purpose, the value of the Company, based on the number of shares
outstanding (5,452,320) and the closing price of the Company's common stock
($14.75) on June 5, 1996, is approximately $80.4 million and the long-term tax
exempt rate, as of June 1996, is 5.78%. Accordingly, the change in control is
expected to result in a limitation on the amount of Loss Carryforwards that may
be used to offset the taxable income of the Company, if any, in an amount equal
to approximately $4.6 million per year. The actual amount of this limitation
may vary, depending upon the actual data used in the foregoing calculations,
which will be made as of the effective date of the change in the Company's
ownership. In addition to this limitation, if the Company does not continue its
business enterprise at all times during the two-year period beginning on the
date of the Closing, the amount of Loss Carryforwards that may be used to
offset taxable income will be, subject to certain exceptions, reduced to zero.
Although the Company anticipates that it will satisfy this requirement, there
can be no assurance that it will be able to do so. The Loss Carryforwards that
consist of capital losses will be available to be used only to the extent that
the Company recognizes capital gains.
Background of and Reasons for the Proposal; Board of Directors' Recommendation
The Company was formed in September 1994 as a wholly owned subsidiary
of HFS Incorporated, a Delaware corporation ("HFS"), for the purpose of
acquiring the assets of, and assuming the liabilities associated with, HFS's
casino development business. In November 1994, the Company became an
independent public company when HFS distributed all of the outstanding shares
of the Company's Common Stock to the stockholders of HFS (the "Distribution").
From November 1994 through the third quarter of 1995, the Company engaged
exclusively in the acquisition, development, operation and ownership of casino
gaming facilities.
At the time of the Distribution, the Company held investments in
several gaming assets and intended to expand principally by making investments
in gaming facilities, using the financing commitment agreed to by HFS at the
time of the Distribution under the Financing Agreement (as described below
under the caption "Certain Relationships and Related Transactions --
Relationships with HFS -- Financing Agreement") (the "Financing Agreement") or
other borrowings. Beginning in the spring of 1995, the Company began to
encounter difficulties in accomplishing its expansion goals.
In April 1995, the Company and Boomtown, Inc. ("Boomtown"), a Reno,
Nevada-based operator of four casinos, terminated a proposed agreement and plan
of merger and reorganization pursuant to which the Company would have been
merged into Boomtown, with stockholders of the Company receiving shares of
Boomtown common stock. In connection with this merger, HFS proposed to purchase
approximately $100 million of preferred stock of Boomtown, the proceeds of
which would have been used by Boomtown to invest in additional gaming
facilities in Nevada, Iowa and Indiana. However, the Company was advised that
holders of a substantial portion of the outstanding shares of Boomtown common
stock expressed dissatisfaction with the proposed merger and the issuance of
this preferred stock to HFS, and HFS terminated the financing. The Boomtown
stockholders indicated their intentions to vote against (i) the proposed
issuance of the preferred stock to HFS because of the financial terms of the
issuance and their belief that Boomtown did not have a demonstrated need for
the financing, particularly in light of Boomtown's failure to obtain a gaming
license in Iowa and its decision to delay a development project in Kansas City,
and (ii) the merger with the Company because of their belief that the issuance
of Boomtown shares to the Company's stockholders would result in too much
dilution to Boomtown stockholders. For the six months ended June 30, 1995, the
Company expensed approximately $1.4 million of professional fees and other
expenses incurred, primarily in the first quarter of 1995, in connection with
the proposed merger.
In connection with the Distribution, the Company acquired
approximately 2% of the stock of Century Casinos, Inc. ("Century") and became
obligated to make a further $15 million equity investment in, and arrange $55
million of financing for, a joint venture with Century to develop a riverboat
casino in Switzerland County, Indiana, in exchange for a 75% interest in that
joint venture. The State of Indiana had announced its intention to grant only
one license to operate a riverboat casino in that area, and in June 1995, the
State of Indiana selected one of the joint venture's competitors to receive
that gaming license. Century had experienced similar failures to obtain gaming
licenses in other jurisdictions, and its stock price had decreased
significantly since HFS's initial investment
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prior to the Distribution. For the foregoing reasons, the Company determined
that its investments in Century and the joint venture were permanently
impaired, and recorded a $1.0 million loss on those investments in the second
quarter of 1995.
In June 1995, the Company's proposed acquisition of Par-a-Dice Gaming
Corp. ("Par-a-Dice") was delayed because of requirements imposed by the
Illinois Gaming Board that certain proposed financial terms between the Company
and HFS relating to the financing of the acquisition, be restructured. To
address the concerns of the Illinois Gaming Board, the Company and HFS agreed
to modify those terms. In July 1995, the Illinois Gaming Board denied the
Company's application to complete the acquisition of Par-a-Dice, expressing
concern over the leveraged capital structure proposed to be used to finance the
acquisition. In September 1995, the Pennsylvania legislature declined to
propose a voter referendum to approve casino gaming facilities in that state.
As a result, the Company's plans to develop casino gaming facilities in
Pittsburgh and Erie, Pennsylvania were halted, and the Company expensed $1.9
million of costs associated with the Par-a-Dice investment, including
professional fees and deferred loan costs, primarily in the second quarter of
1995.
As a result of the Company's inability to consummate the Boomtown,
Century, Par-a-Dice and Pennsylvania casino projects, the Company had
recognized aggregate write-downs of $13.4 million through September 30, 1995.
During the first nine months of 1995, state legislation permitting casino
facilities failed to be adopted at the rate anticipated by the Company's Board
at the time of the Distribution. In addition, the Company's experiences,
particularly in Indiana and Illinois, indicated to the Company's Board that the
Company's proposals to develop casino facilities were being met with regulatory
disfavor. During October 1995, the Company's Board of Directors concluded that
the gaming industry offered limited opportunities for future growth of the
Company. In particular, the Board concluded that the Company would face
difficulty in obtaining regulatory approvals required to pursue its strategy of
making highly leveraged acquisitions of gaming facilities, which the Company
had intended to implement using the financing commitment provided by HFS under
the Financing Agreement. On November 9, 1995, the Company announced that its
Board of Directors had determined that its future endeavors would be outside of
the gaming industry, and the Company's management and Board of Directors began
to consider the various alternatives to the gaming industry discussed below, in
order to enhance stockholder value.
The Company's Board of Directors considered liquidation of the
Company, recognizing that at September 30, 1995 the Company held approximately
$43 million in cash and cash equivalents. The Company's management recommended
against liquidation to the Board, and the Board determined not to liquidate the
Company, for the following reasons. First, due to what was perceived as a
general decline in the gaming industry at that time, the Company's management
believed, and its Board of Directors concurred, that any sales of the Company's
gaming assets would have to be made at significant discounts. Second,
management anticipated that the Company would, by the end of 1996, have
substantial Loss Carryforwards which could be used to shelter the Company's
future income from taxation, but which would be lost in a liquidation. See
"Risk Factors -- Loss Carryforwards." Third, the financing commitment provided
by HFS under the Financing Agreement would facilitate the Company's ability to
obtain financing for growth of the Company's business, but would terminate in a
liquidation. Fourth, the Company was obligated under its Corporate Services
Agreement with HFS to pay HFS a minimum fee of $1.5 million annually until the
year 2019. See "Certain Relationships and Related Transactions -- Relationships
with HFS." The Company's management believed that, if the Company were
liquidated, HFS would have had a claim against the Company for payment of these
amounts, which would have significantly reduced the assets available for
distribution to shareholders. Finally, liquidation of certain assets of the
Company would have required consents from various third parties with whom the
Company had casino development ventures. The Company's ability to obtain those
consents was uncertain.
In November 1995, the Company's Chief Executive Officer, Henry R.
Silverman, and its Chief Financial Officer, Stephen P. Holmes, conducted
informal discussions with investment bankers regarding a potential sale of the
Company. The Company was advised that, based on its lack of operating assets,
potential buyers of the Company would view its sale as a liquidation and,
consequently, the probable sale price that could be realized would not include
any going-concern value for the Company's business. In addition, the Company
recognized that the
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financing commitment provided by HFS under the Financing Agreement would
terminate upon a sale of the Company. The Company's management also believed
that, if the Company were sold, a buyer would be unwilling to assume the
Company's obligations under the Corporate Services Agreement with HFS described
above, and HFS would have had a claim against the Company for payments under
that agreement. In order to retain the value of HFS's financing commitment, to
avoid any potential claim by HFS under the Corporate Services Agreement, and to
preserve for its stockholders the Company's value as a going concern, the
Company rejected any potential sale.
During November 1995, the Company's Board of Directors considered
whether the Company should enter into certain aspects of the real estate
business, such as the provision of real estate management and advisory services
or the acquisition of portfolios of distressed real estate properties. The
Company was subsequently unable to reach agreement with respect to any such
transaction on terms that it deemed to be acceptable.
In November 1995, the Company's management, in consultation with
members of the Company's Board of Directors, began to explore whether the
lodging industry offered an appropriate opportunity for the Company to redirect
its business. Management began to explore this strategy because it recognized
that a number of the Company's Board members were also directors of HFS, a
leading lodging industry franchisor and the former parent of the Company, which
does not itself engage in the ownership and operation of lodging industry
properties. Because of their backgrounds with HFS, these directors perceived
that the ownership and operation of hotel and motel properties offered an
attractive opportunity for investment. Additionally, the Company's management
believed that the ownership and operation of lodging industry properties was a
business permitting ease of entry, in part because acquisitions are not subject
to regulatory approval, and was a business that the Company could enter into
quickly.
Also in November 1995, HFS was approached by Forte USA, Inc., the
indirect owner of the Travelodge hotel system in the United States, concerning
the possible purchase of the entire Travelodge hotel system, including both the
Travelodge franchise system and the Travelodge properties located in the United
States. Although HFS was interested in purchasing the Travelodge franchise
system, it was not interested in acquiring the Travelodge properties because
HFS is not in the business of owning lodging properties. In an attempt to
arrange a transaction that would allow Forte USA, Inc. to sell the entire U.S.
Travelodge hotel system, HFS approached Motels of America, Inc. ("MOA") and
affiliates of Chartwell (the "Chartwell Parties") to inquire whether MOA or the
Chartwell Parties would be interested in acquiring the Travelodge hotel and
motel properties in connection with a purchase by HFS of the Travelodge
franchise system. MOA and certain of the Chartwell Parties are among the
largest franchisees of HFS in terms of numbers of franchised properties. Both
MOA and the Chartwell Parties expressed interest in engaging in such a
transaction. The Chartwell Parties were, however, aware of the Company's
interest in entering the lodging business and informed Mr. Silverman, as the
chief executive officer of both HFS and the Company, that they would also be
interested in investing in the Company as a result of its new business focus.
During late November and early December, Richard L. Fisher, in his
capacity as the President of Chartwell Leisure Corp. II, the general partner of
Chartwell ("Chartwell Corp."), and Martin L. Edelman, in his capacity as a
stockholder of Chartwell Corp., held discussions with Henry R. Silverman, in
his capacity as the Chief Executive Officer of the Company, concerning the
possibility of a significant investment by the Chartwell Parties in the
Company's equity securities, debt securities, or both. The Company believed
that an investment by Chartwell would allow the Company access to the lodging
industry expertise and potential access to the capital resources of the
Chartwell Parties, although the Chartwell Parties are not obligated to make any
further investments in the Company. Chartwell has informed the Company that as
of January 1, 1996 the Chartwell Parties owned controlling interests in and
operated 67 hotels, and held mortgages on 55 other hotels. See "Additional
Information Concerning the Purchasers." In addition, the Board of Directors
believed that Chartwell's investment would significantly strengthen the
Company's liquidity, increase the Company's borrowing capacity and further
facilitate the Company's entry into the lodging business.
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<PAGE>
On December 15, 1995, the Company's Board approved management's
recommendation that the Company enter the lodging industry, and approved the
acquisition from Forte USA, Inc. of all of the outstanding shares of common
stock of Forte Hotels Inc. ("Forte Hotels"), the principal assets of which
consisted of fee and leasehold interests in 18 hotel and motel properties and
joint venture interests in 97 additional motels (the "Travelodge Acquisition").
Also on December 15, 1995, the Board approved the sale to Chartwell of 904,930
newly issued shares of the Company's Common Stock, representing approximately
16.6% of the Company's Common Stock outstanding after giving effect to the
issuance, for a total purchase price of $8,483,719, or $9.375 per share (the
"Initial Chartwell Investment"). The purchase price was equal to the closing
price of the Company's Common Stock on December 15, 1995, and was arrived at
through arms' length negotiations between the Company and Chartwell. In
connection with the Initial Chartwell Investment, Mr. Fisher and Marc E.
Leland, one of the directors of Chartwell Corp., were elected to the Company's
Board of Directors and Mr. Fisher was elected Chairman of its executive
committee. There was no agreement at that time concerning any further
investment by Chartwell in the Company. On December 20, 1995, the Company
closed the Initial Chartwell Investment and announced its agreement to enter
into the Travelodge acquisition.
In its decision to cause the Company to enter the lodging industry and
to consummate the Travelodge Acquisition, the Company's Board considered that
both decisions would benefit HFS to the extent that the Company's hotel and
motel properties became franchisees of HFS, and that the Board members and
officers of the Company who were also directors and officers of HFS may have
had a conflict of interest in recommending this change in the Company's
business direction. See "Certain Relationships and Related Transactions --
Relationships with HFS." However, because of this potential benefit to HFS and
its general familiarity with the lodging business, HFS agreed to expand the
purposes for which the Company could utilize the financing commitment provided
by HFS under the Financing Agreement from gaming acquisitions to lodging
industry acquisitions.
The Company completed the Travelodge Acquisition on January 23, 1996,
paying approximately $98 million, net of working capital adjustments and
including expenses. The acquired properties are located throughout the United
States, and substantially all of the hotels and motels operate under the names
"Travelodge" or "Thriftlodge." The Company financed $60 million of the purchase
price with proceeds from the Company's credit facility with Chemical Bank and
Bankers Trust Company (the "Bankers Trust Facility") and $38 million with
existing cash. The Company also paid approximately $2 million as an advisory
fee to HFS, the Company's former parent, for advisory services rendered to the
Company by HFS in connection with the transaction. See "Certain Relationships
and Related Transactions -- Relationships with HFS -- Travelodge Acquisition."
Immediately prior to the Company's purchase of the outstanding shares of common
stock of Forte Hotels, MOA purchased directly from Forte Hotels 19 Travelodge
properties for approximately $32 million.
Concurrently with the Company's purchase of all of the outstanding
shares of common stock of Forte Hotels, HFS acquired for approximately $39
million from Forte Hotels and Forte USA, Inc., the indirect parent of Forte
USA, Inc., the "Travelodge" and "Thriftlodge" franchise systems and the related
trademarks and tradenames in North America, which HFS has licensed to the
Company under separately negotiated franchise agreements. These franchise
agreements have scheduled terms of 20 years, but may be terminated by the
Company prior to their scheduled expiration upon the payment of liquidated
damages by the Company. See "Certain Relationships and Related Transactions --
Relationships with HFS -- Travelodge Acquisition."
Following the Initial Chartwell Investment, in early January 1996, the
Company and Chartwell, together with FSNL, held discussions concerning the
possibility of a further investment by Chartwell and FSNL in the Company. The
Company's management determined that it would be prudent to raise additional
capital through the issuance of additional shares of Common Stock to Chartwell,
its largest shareholder at that time, and FSNL in order to further facilitate
the Company's expansion into the lodging industry. In particular, the Company
was considering the acquisition of certain additional hotel properties and
interests operating under the "Travelodge" franchise in Canada, and the
investment by Chartwell and FSNL would generate proceeds that, together with
other proposed financing, would enable the Company to consummate that
acquisition. Chartwell and FSNL expressed interest in acquiring additional
shares of the Company's Common Stock such that, together with the shares
acquired by
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<PAGE>
Chartwell in the Initial Chartwell Investment, Chartwell and FSNL together
would own at least a majority of the outstanding shares of the Company's Common
Stock. The Board recognized that the acquisition of a majority of the Company's
Common Stock by Chartwell and FSNL would constitute a change in control of the
Company, and considered the interests of the Company's minority stockholders.
See "Risk Factors." The Board believed that the acquisition of control by
Chartwell and FSNL would be in the best interests of the Company and its
stockholders because of Chartwell's expertise in the lodging industry as well
as the financial strength of the owners of Chartwell and FSNL. On January 24,
1996, the Company announced an agreement in principle with Chartwell and FSNL
to make the Investment, and on March 12, 1996, the Company announced that it
had reached an agreement in principle to acquire a controlling interest in 20
hotels and a controlling interest in a 50% joint venture interest in an
additional hotel, all of which are located in Canada and operate under the
"Travelodge" franchise (the "Canadian Acquisition"). The closing of the
Canadian Acquisition is subject to approval of the limited partners in CPLP,
among other conditions.
In early January 1996, Mr. Silverman and Mr. Holmes, on behalf of the
Company, and Mr. Fisher and Mr. Edelman, on behalf of the Chartwell, conducted
initial negotiations regarding the purchase price per share to be paid by
Chartwell in the Investment. Messrs. Fisher and Edelman, on behalf of
Chartwell, initially proposed to pay $13.00 per share. After arms' length
negotiations between the parties, and after the Company's consultation with its
financial advisor, Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill
Lynch"), the parties agreed to the $14.25 purchase price per share. While
Merrill Lynch neither made any recommendations nor expressed any opinion to the
Company at such time regarding the proposed price to be received by the Company
in the Investment, Merrill Lynch subsequently delivered its written opinion to
the Board of Directors to the effect that the proposed Investment is fair to
the Company and its stockholders (other than the Purchasers) from a financial
point of view. See "Opinion of the Company's Financial Advisor."
In addition to the Initial Chartwell Investment and the Investment,
the Company, HFS, Chartwell, FSNL and certain of their affiliates have certain
relationships and have engaged in transactions with one another, including the
following: HFS is a party to certain agreements with the Company pursuant to
which HFS receives various fees, including a $1.14 million fee if the closing
of the Investment occurs; HFS and an affiliate of Chartwell have various
interests in a family entertainment center located in Vicksburg, Mississippi;
an affiliate of Chartwell is a major franchisee of HFS; and the Company leases
its principal executive offices from an affiliate of Chartwell and an
unaffiliated third party. See "Additional Information Concerning the
Purchasers," "Interests of Certain Persons in the Investment" and "Certain
Relationships and Related Transactions."
The Board of Directors has reviewed and considered the terms and
conditions of the Investment, and voted to approve the Investment and
recommends that stockholders vote in favor of the Investment. Messrs. Edelman,
Leland and Fisher did not participate in the discussions of the Board of
Directors concerning the Investment or in that vote, and Mr. Kennedy abstained
from voting. In recommending stockholder approval of the Investment, the Board
of Directors considered a number of factors, including:
(a) the terms of the Stock Purchase Agreement, including: (i)
the fact that the Investment is conditioned upon its approval by the
Company's stockholders at the Meeting; (ii) Chartwell's agreement to
vote its shares of Common Stock in favor of and against the Investment
(and certain other asset sales, mergers, liquidations and similar
events) in the same proportions as votes are cast in favor of and
against the Investment (and such other transactions) by stockholders
of the Company other than Chartwell, FSNL and their affiliates; (iii)
the agreement by Chartwell to elect and maintain a specified number of
Independent Directors (as defined below under the caption "Stock
Purchase Agreement -- Independent Directors") on the Company's Board
of Directors; (iv) the fact that transfers of the Company's securities
by Chartwell or FSNL are subject to the restrictions set forth
therein; (v) the agreement by Chartwell and FSNL not to cause the
Company to enter into transactions with affiliates that are not on
arms' length terms and, in certain circumstances, for which the
Company has not received a favorable fairness opinion; (vi) the fact
that Chartwell, FSNL and their affiliates are precluded from acquiring
more than 55% of the Common Stock of the Company outstanding at any
time unless they offer to acquire such stock from
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<PAGE>
existing holders and the purchase is approved by an Independent Board
Committee (as defined below under the caption "Stock Purchase
Agreement -- Affiliate Transactions") that has received a fairness
opinion relating to the acquisition; (vii) the agreement by Chartwell
and FSNL not to compete with the Company in the acquisition of certain
hotel properties; and (viii) the Company's ability to disclose
information to third parties and terminate the Stock Purchase
Agreement if the Investment is not approved by its stockholders, in
each case without penalty (for a more detailed description of the
foregoing terms, see the discussion below under the caption "Stock
Purchase Agreement");
(b) the fact that the $14.25 purchase price per share in the
Investment represented approximately a 25% premium over the market
price per share of the Company's Common Stock, based upon the average
closing stock prices during the 30-day period preceding the Company's
announcement of the Investment, and approximately a 34% premium over
the price per share at the close of business on the day before the
announcement;
(c) the positive effect on the market price of the Company's
Common Stock of the Company's announcement of its agreement in
principle with Chartwell and FSNL to make the Investment, despite the
dilutive effect of the Investment, the limitations that will result on
the Company's use of its Loss Carryforwards, and any potentially
adverse impact on the Company's stockholders resulting from the
acquisition by Chartwell and FSNL of a controlling interest in the
Company (see "Risk Factors");
(d) the fact that the Investment will increase stockholders
equity in the Company of $86.5 million as of December 31, 1995 by
approximately $57 million, or approximately 65.9%, facilitating the
Company's abilities to raise capital in the future and to continue to
pursue its new business strategy of engaging in further significant
acquisitions and investments, such as the Canadian Acquisition, and
making capital expenditures for the development and improvement of
acquired properties;
(e) the opinion of Merrill Lynch dated as of February 12,
1996, to the effect that the Investment is fair to the Company and its
stockholders (other than the Purchasers) from a financial point of
view (see "Opinion of the Company's Financial Advisor");
(f) the Board's familiarity with the expertise of Chartwell's
management in owning and operating hotels, based upon the experiences
of certain of the Company's directors, in their capacities as
directors of HFS, with various Chartwell Parties, in their capacity as
one of HFS's largest hotel franchisees, notwithstanding the interests
of certain officers, directors and principals of the Company, HFS and
Chartwell in the Investment (see "Interests of Certain Persons in the
Investment" and "Certain Relationships and Related Transactions");
(g) the ability of Chartwell and FSNL to make a sizeable cash
investment in the Company that is not conditioned on the ability of
Chartwell or FSNL to borrow the funds to make that investment, and the
interest of Chartwell and FSNL in a strategic alliance with the
Company for the purpose of investing in lodging industry ventures; and
(h) the fact that the change of control resulting from the
Investment would have entitled certain present and former officers and
directors of the Company to accelerated vesting of their stock
options, together with the fact that all of those officers and
directors (except Mr. Smith, who is expected to resign from the Board
at the time of the Closing, and whose options will be subject to
accelerated vesting) have agreed either to relinquish their options or
to waive their acceleration rights.
Based upon its consideration of all of the foregoing factors, the
Company's Board of Directors has determined that the Investment is consistent
with, and in furtherance of, the Company's long-term business strategy to
continue its expansion in the lodging industry, and that the Investment is fair
to, and in the best interests of, the Company's stockholders.
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Opinion of the Company's Financial Advisor
On February 12, 1996, Merrill Lynch delivered its written opinion (the
"Merrill Lynch Opinion") to the Board of Directors to the effect that, as of
such date, and based upon the assumptions made, matters considered and limits
of review, as set forth in such opinion, the proposed Investment is fair to the
Company and its stockholders (other than the Purchasers) from a financial point
of view.
A copy of the Merrill Lynch Opinion, which sets forth the assumptions
made, matters considered and certain limitations on the scope of review
undertaken by Merrill Lynch, is attached as Exhibit C to this Proxy Statement.
Company stockholders are urged to read such opinion in its entirety. The
Merrill Lynch Opinion is directed only to the fairness of the proposed
Investment to the Company and its stockholders (other than the Purchasers) from
a financial point of view and does not constitute a recommendation to any
Company stockholder as to how such stockholder should vote at the Meeting. The
summary of the Merrill Lynch Opinion set forth in this Proxy Statement is
qualified in its entirety by reference to the full text of the Merrill Lynch
Opinion attached as Exhibit C hereto.
In arriving at the Merrill Lynch Opinion, Merrill Lynch, among other
things, (i) reviewed the Company's Annual Report, Form 10-K and related
financial information for the fiscal year ended December 31, 1994, and the
Company's Forms 10-Q and the related unaudited financial information for the
quarterly periods ending March 31, 1995, June 30, 1995 and September 30, 1995;
(ii) reviewed certain information, including financial forecasts, relating to
the business, earnings, cash flow, assets and prospects of the Company,
furnished to Merrill Lynch by the Company; (iii) conducted discussions with
members of senior management of the Company concerning its business and
prospects, including senior management's belief that proceeds received by the
Company from the proposed Investment can be productively employed by the
Company; (iv) conducted discussions with members of senior management of
Chartwell concerning its business, results of operations, strategic objectives
and possible opportunities in the hospitality industry that might be realized
by the Company following the proposed Investment; (v) with respect to the
Company's acquisition of all of the outstanding shares of common stock of Forte
Hotels, reviewed certain information, including financial statements and
financial forecasts furnished to Merrill Lynch by the Company, relating to the
business, earnings, cash flow, assets, acquisition and prospects of Forte
Hotels and conducted discussions with members of the senior management of Forte
Hotels concerning its business and prospects; (vi) reviewed the historical
market prices and trading activity for the Company's Common Stock and compared
them with those of certain publicly traded companies which Merrill Lynch deemed
to be reasonably similar to the Company; (vii) compared the results of
operations (as adjusted for the acquisition of Forte Hotels) of the Company
with those of certain companies which Merrill Lynch deemed to be reasonably
similar to the Company; (viii) compared the proposed financial terms of the
transactions contemplated by the Stock Purchase Agreement with the financial
terms of certain other transactions which Merrill Lynch deemed to be relevant;
(ix) reviewed the documents related to, and financial data set forth in,
Merrill Lynch's opinion letter to the Board of Directors dated January 11, 1996
relating to the Travelodge Acquisition; (x) reviewed a draft of the Stock
Purchase Agreement, dated February 9, 1996, furnished to Merrill Lynch by the
Company; and (xi) reviewed such other financial studies and analyses and
performed such other investigations and took into account such other matters as
Merrill Lynch deemed necessary, including an assessment of general economic,
market and monetary conditions.
In preparing the Merrill Lynch Opinion, Merrill Lynch relied on the
accuracy and completeness of all information supplied or otherwise made
available to it by the Purchasers and the Company, and did not independently
verify such information or undertake an independent appraisal of the assets of
the Company. Merrill Lynch also assumed that the financial forecasts furnished
to it by the Company were reasonably prepared and reflected the best currently
available estimates and judgment of the Company's management as to the expected
future financial performance of the Company. The Merrill Lynch Opinion is based
upon general economic, market, financial and other conditions as they existed
and could be evaluated as of February 12, 1996.
In connection with the preparation of the Merrill Lynch Opinion,
Merrill Lynch was not authorized by the Company or its Board of Directors to
solicit, nor did it solicit, third-party indications of interest for the
acquisition
16
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of all or any part of the Company or any alternative financing arrangements to
the arrangements contemplated by the Stock Purchase Agreement. In addition, the
Board of Directors did not request that Merrill Lynch express an opinion, and
Merrill Lynch expressed no opinion, as to the Company's decision to raise
capital at this time.
The following is a summary of the material financial and comparative
analyses performed by Merrill Lynch in arriving at the Merrill Lynch Opinion.
Stock Trading History. Merrill Lynch reviewed the performance of the
per share market price and trading volume of the Company's Common Stock from
November 28, 1994 (the date the Company was spun-off from HFS) until February
9, 1996 (the last trading day before Merrill Lynch's presentation to the
Company's Board of Directors). Merrill Lynch noted that the purchase price of
$14.25 per share pursuant to the Investment represented a 21% premium over the
$11.75 closing price per share of the Company's Common Stock on February 9,
1996, a 34% premium over the $10.63 closing price per share of the Company's
Common Stock on January 23, 1996 (the last trading day before the announcement
by the Company of its decision to pursue the Investment), and a 25% premium
over the $11.40 average closing price per share of the Company's Common Stock
for the 30-day period immediately prior to the announcement by the Company of
its decision to pursue the Investment.
Discounted Cash Flow Analysis. Merrill Lynch performed a discounted
cash flow analysis ("DCF") of the Company on a stand-alone basis without giving
effect to the Investment using the Company's management projections for the
years 1996-2000. The DCF was calculated assuming discount rates ranging from
10% to 13%, and was comprised of the sum of the present value of (i) the
projected unlevered free cash flows for the years 1996- 2000, and (ii) the year
2000 terminal values based upon a range of multiples from approximately 8.5x to
10.5x projected year 2000 earnings before interest, taxes, depreciation and
amortization ("EBITDA") less normalized expenditures for furniture, fixtures
and equipment ("FF&E") for the Company excluding the joint venture properties,
and a range of multiples from approximately 5.5x to 7.5x projected year 2000
EBITDA less FF&E for the joint venture properties. For the purposes of such
analysis, a thirty percent (30%) discount was applied to the valuation of the
joint venture properties to reflect the Company's lack of a control position in
the majority of the joint ventures (the "JV Minority Discount"). After
subtracting from the results net debt, adding the estimated present value of
the Company's net operating loss carryforwards ("NOLs"), and adding the face
value of certain notes receivable from joint ventures, franchisees, and other
miscellaneous sources, the estimated present value of non-operating assets and
the estimated present value of loans to the Pittsburgh Urban Redevelopment
Authority and the Rainbow Casino Corporation (collectively, the "Receivables
and Other Assets"), Merrill Lynch arrived at estimated ranges of value for the
equity of the Company. The NOL value was estimated by calculating the present
value of the projected annual tax shields related to the utilization of the NOL
assuming a tax rate of 38.5% and discount rates ranging from 12% to 15%. The
value of the non-operating assets was estimated assuming a liquidation value of
$4.9 million in the year 2000 and discount rates ranging from 14% to 17%. At a
15% discount rate, such non-operating assets were valued at $2.4 million. The
value of the loan to the Pittsburgh Urban Redevelopment Authority was estimated
at $9.0 million assuming an 8% discount rate and the value of the loan to the
Rainbow Casino Corporation was estimated at $5.5 million assuming a discount
rate of 15%. The face value of the notes receivable was $6.0 million. Utilizing
this methodology, the implied value of the Company's Common Stock was estimated
at between approximately $11.00 and $15.50 per share.
Publicly Traded Comparable Company Analysis. Using publicly available
information, Merrill Lynch compared certain financial and operating information
for the Company with the corresponding financial and operating information for
a group of publicly traded companies that Merrill Lynch deemed to be similar in
certain respects to the Company. The companies included in the comparable
company analysis (the "Comparable Companies") were Host Marriott Corporation,
John Q. Hammons Hotels, Inc. ("JQH"), La Quinta Inns, Inc., Prime Hospitality
Corporation, Red Lion Hotels, Inc., Servico, Inc. and Studio Plus Hotels, Inc.
Merrill Lynch derived implied equity values of the Company's Common
Stock on a stand-alone basis without giving effect to the Investment by
selecting certain multiples from the Comparable Companies, including
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multiples of firm value (defined as the equity value plus net debt) to research
analysts' 1996 estimated EBITDA and equity value to research analysts' 1996
estimated net income, and applied such multiples to the Company's projected
1996 EBITDA and net income, respectively. The relevant multiples for EBITDA
ranged from approximately 7.5x to 8.0x and for net income ranged from
approximately 12.0x to 16.5x. For purposes of such analysis, a JV Minority
Discount of thirty percent (30%) was applied and an adjustment of $4.0 million
was made for projected deferred capital expenditures. Multiples were adjusted
to reflect the short term nature of the ground leases for the Company's
properties relative to those of the Comparable Companies. After subtracting
from the results derived under the EBITDA approach the net debt, and in both
the EBITDA and net income approaches adding the estimated value of the
Receivables and Other Assets determined as described above, Merrill Lynch
arrived at estimated ranges of value for the equity of the Company. Utilizing
this methodology, the implied value of the Company's Common Stock was estimated
at between approximately $12.50 and $17.50 per share. However, the high end of
this value range was calculated based on the Company's projected 1996 net
income, which reflected no income tax expense as a result of the NOL. When the
Company's projected 1996 net income was calculated to reflect an effective tax
rate of 38.5%, and the value of the NOL was calculated separately on a present
value basis, the implied value of the Company's Common Stock was estimated at
between approximately $13.50 and $14.00 per share. In this approach, JQH, which
currently has a low effective tax rate, was excluded from the group of
comparable companies.
Comparable Acquisition Transaction Analysis. Using publicly available
information, Merrill Lynch compared certain financial information for the
Company with corresponding financial information from six selected transactions
announced since 1989 involving the acquisition of or investment in lodging
companies (the "Acquisition Comparables"). The Acquisition Comparables and the
dates the transactions were announced were as follows: an investor group's
acquisition of Westin Hotel Co. (November 1994); Kingdom Investments Inc.'s
investment in Four Seasons Hotels Inc. (September 1994); Morgan Stanley & Co.'s
acquisition of Red Roof Inns Inc. (November 1993); HFS Incorporated's
acquisition of Super 8 Motels, Inc. (February 1993); HFS Incorporated's
acquisition of the franchise system of Days Inns of America (May 1991); and
Bass plc's acquisition of Holiday Inns Inc. (August 1989). Merrill Lynch
derived an implied value of the Company's Common Stock on a stand-alone basis
without giving effect to the Investment by selecting the multiples of
transaction value (defined as the aggregate consideration offered for the
equity plus liquidation value of preferred stock plus minority interests and
net debt) to trailing 12 month EBITDA from the Acquisition Comparables and
applying such multiples to the Company's 1995 EBITDA. The relevant multiples
for EBITDA ranged from approximately 6.5x to 8.5x. For purposes of such
analysis, a JV Minority Discount of thirty percent (30%) was applied. For the
purpose of such analysis, no adjustment was made for deferred capital
expenditures, as such methodology was based on trailing results which did not
reflect the expected benefits of such capital expenditures. Multiples were
adjusted to reflect the short term nature of the ground leases for the
Company's properties relative to those of the acquired lodging companies
comprising the Acquisition Comparables.
After subtracting from the results net debt and adding the estimated
value of the Receivables and Other Assets determined as described above,
Merrill Lynch arrived at estimated ranges of value for the equity of the
Company. Utilizing this methodology, the implied value of the Company's Common
Stock was estimated at between approximately $7.00 and $12.00 per share.
Pro Forma Accretion/Dilution Analysis. Merrill Lynch analyzed certain
pro forma effects resulting from the Investment, including the potential
accretive or dilutive impact to earnings per share of the Company's Common
Stock. Using projected forecasts for the years 1996 through 2000 provided by
the management of the Company, Merrill Lynch compared the projected earnings
per share of the Company's Common Stock on a stand-alone basis (assuming the
Investment does not occur) to the earnings per share of the Company's Common
Stock assuming that the Investment occurred January 1, 1996 and the Company
invested the proceeds at an assumed annual return on equity of 15%. Two other
scenarios were analyzed in which it was assumed that the Investment occurred
January 1, 1996 but the Company did not invest the proceeds and on January 1,
1997, (i) the Company uses the proceeds to repay its outstanding indebtedness
as at January 1, 1997, or (ii) the Company uses the proceeds to repurchase
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<PAGE>
outstanding Common Stock as at January 1, 1997 at an assumed price of $11.75
per share (the closing price per share of the Company's Common Stock on
February 9, 1996). Because of the impact of the Company's NOL on after-tax
earnings, the potential accretive or dilutive impact to earnings per share of
the Company's Common Stock was analyzed on both a pre-tax and an after-tax
basis.
Assuming that the Company invested proceeds from the Investment and
obtained a 15% annual return on equity, this analysis indicated that (i) on a
pre-tax basis, the Investment would be accretive to the projected earnings per
share of the Company in the amounts of approximately 32% in 1996, 14% in 1997,
9% in 1998, 8% in 1999 and 7% in 2000, and (ii) on an after-tax basis, the
Investment would be dilutive to the projected earnings per share of the Company
in the amounts of approximately 5% in 1996 and 19% in 1997 and would be
accretive thereafter in the amounts of 10% in 1998, 23% in 1999 and 9% in 2000.
Assuming that the proceeds from the Investment were used to repay the Company's
indebtedness as at January 1, 1997, this analysis indicated that the Investment
would be dilutive to the projected earnings per share of the Company (i) on a
pre-tax basis in the amounts of approximately 18% in 1996, 22% in 1997, 25% in
1998, 25% in 1999 and 25% in 2000, and (ii) on an after-tax basis in the
amounts of approximately 35% in 1996, 41% in 1997, 20% in 1998, 11% in 1999 and
24% in 2000. Assuming that the proceeds from the Investment were used to
repurchase outstanding Common Stock of the Company as at January 1, 1997 at an
assumed price of $11.75 per share (which was the closing price per share of the
Company's Common Stock on February 9, 1996), this analysis indicated that (i)
on a pre-tax basis, the Investment would be dilutive to the projected earnings
per share of the Company in the amount of approximately 18% in 1996 and would
be accretive thereafter in the amounts of approximately 15% in 1997, 14% in
1998, 15% in 1999 and 16% in 2000, and (ii) on an after-tax basis, the
Investment would be dilutive to the projected earnings per share of the Company
in the amounts of approximately 35% in 1996 and 8% in 1997 and would be
accretive thereafter in the amounts of approximately 28% in 1998, 44% in 1999
and 19% in 2000.
Merrill Lynch also performed a "necessary break-even" analysis to
estimate the annual return on equity that would be required from the proceeds
of the Investment in order that the Investment be neither accretive nor
dilutive to the pre-tax and after-tax earnings per share of the Company's
Common Stock projected by management. This analysis indicated that the return
on equity needed to "break even" after the Investment on a pre-tax basis would
be 8.6% in 1996, 11.4% in 1997, 12.4% in 1998, 12.5% in 1999 and 12.7% in 2000,
and the return on equity needed to "break even" after the Investment on an
after-tax basis would be 16.5% in 1996, 23.4% in 1997, 11.7% in 1998, 8.3% in
1999 and 12.4% in 2000.
The matters considered by Merrill Lynch in arriving at the Merrill
Lynch Opinion are based on numerous macroeconomic, operating and financial
assumptions with respect to industry performance, general business and economic
conditions and other matters, many of which are beyond the control of the
Company, and involve the application of complex methodologies and educated
judgment. Any estimates incorporated in the analyses performed by Merrill Lynch
are not necessarily indicative of actual past or future results or values,
which may be significantly more or less favorable than such estimates.
Estimated values do not purport to be appraisals and do not necessarily reflect
the prices at which businesses or companies may be sold in the future, and such
estimates are inherently subject to uncertainty. The Merrill Lynch Opinion does
not present a discussion of the relative merits of the Investment as compared
to any other business plan or opportunity that might be presented to the
Company, or the effect of any other arrangement in which the Company might
engage.
The summary set forth above does not purport to be a complete
description of the analyses performed by Merrill Lynch in arriving at the
Merrill Lynch Opinion. The preparation of a fairness opinion is a complex
process not necessarily susceptible to partial or summary description. Merrill
Lynch believes that its analyses must be considered as a whole and that
selecting portions of its analyses and of the factors considered by it, without
considering all such factors and analyses, could create a misleading view of
the process underlying its analyses set forth in the Merrill Lynch Opinion. No
public company utilized as a comparison is identical to the Company, and none
of the acquisition comparables or other acquisitions utilized as a comparison
is identical to the Investment. Accordingly, an analysis of publicly traded
comparable companies and acquisition comparables is not mathematical; rather,
it involves complex considerations and judgments concerning differences in
financial and operating
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<PAGE>
characteristics of the comparable companies and other factors that could affect
the public trading value of the comparable companies or company to which they
are being compared.
The Board of Directors selected Merrill Lynch to render a fairness
opinion because Merrill Lynch is an internationally recognized investment
banking firm with substantial expertise in the lodging industry and in
transactions similar to the proposed Investment and because it is familiar with
the Company and its business. Merrill Lynch has from time to time rendered
investment banking, financial advisory and other services to the Company
(including without limitation financial advisory services in connection with
the Travelodge Acquisition) for which it has received customary compensation.
Merrill Lynch has also provided, and continues to provide, financial advisory
and financing services to HFS, from which the Company was spun off in 1994, and
has received fees for the rendering of such services. As part of its investment
banking business, Merrill Lynch is continually engaged in the valuation of
businesses and their securities.
Pursuant to the terms of an engagement letter dated January 21, 1996,
the Company has agreed to pay Merrill Lynch a fee of $400,000 for Merrill
Lynch's services in rendering the Merrill Lynch Opinion. The Company has also
agreed to reimburse Merrill Lynch for its reasonable out-of-pocket expenses and
to indemnify Merrill Lynch and certain related persons against certain
liabilities in connection with its engagement, including certain liabilities
under the federal securities laws.
In the ordinary course of Merrill Lynch's business, Merrill Lynch may
actively trade the securities of the Company for its own account and for the
account of its customers and, accordingly, may at any time hold a long or short
position in such securities.
Certain Projected Financial Information. The following projections
were prepared by the Company's management in January 1996, and were furnished
to Merrill Lynch in connection with Merrill Lynch's analysis of the proposed
Investment and the preparation of a fairness opinion to the Company's Board of
Directors as to whether or not the proposed Investment is fair to the Company
and its stockholders from a financial point of view. Only members of the
Company's management and Board of Directors at that time, excluding persons
affiliated with either of the Purchasers, and Merrill Lynch received the
projections; they were not made available to either of the Purchasers or any
members of the Company's management or Board of Directors affiliated with
either of the Purchasers. The Company's management believed that the
projections were prepared on a reasonable basis and reflected its best
estimates and judgment as to the Company's expected future performance in light
of the information available to it and its understanding of the Company's
business strategies and practices at the time the projections were prepared. In
voting to approve, and recommend shareholder approval of, the Investment, the
Company's Board of Directors relied on the judgment of the Company's former
management as to the reasonableness of the projections. In preparing the
Merrill Lynch Opinion, Merrill Lynch assumed that the financial forecasts
furnished to it by the Company were reasonably prepared and reflected the best
currently available estimates and judgment of the Company's management as to
the expected future financial performance of the Company. Merrill Lynch relied
on the accuracy and completeness of all information supplied or otherwise made
available to it, including but not limited to the projections, and did not
independently verify such information. The Company is not aware of any
forecasts of the Company's future performance prepared by financial analysts.
These projections were prepared in January 1996, based upon a number
of estimates and assumptions made by the Company's management at that time. All
of the members of the Company's current senior management assumed their
positions during the first quarter of 1996, subsequent to the preparation of
the projections. See "Executive Officers." The Company's current management
was, accordingly, not involved in the preparation, analysis or evaluation of
the projections or any of the assumptions or estimates upon which the
projections were based and is not utilizing them as a measure of performance in
the management of the Company's business. Such estimates are inherently subject
to significant business, economic and competitive uncertainties and
contingencies, many of which are beyond the Company's control, and upon
assumptions with respect to future business strategies and practices that are
subject to change. The
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projections and actual results will vary, and those variations may be material.
BASED UPON THE COMPANY'S PERFORMANCE SINCE JANUARY 1996, THE COMPANY'S CURRENT
MANAGEMENT BELIEVES THAT THE PROJECTIONS WILL NOT BE REALIZED DURING 1996, AND
EXPRESSES NO OPINION AS TO THE ACCURACY OR VALIDITY OF THE PROJECTIONS IN
SUBSEQUENT YEARS
OR THE ASSUMPTIONS UPON WHICH THEY WERE BASED.
The following material assumptions were used by the Company's former
management in preparing the projections:
1. Room revenue per average room growth rates of approximately
8% in 1996, 11% in 1997 and 3% annually thereafter for hotel
properties which are wholly-owned by the Company;
2. Room revenue per average room growth rates of approximately
3% annually during the five-year projected period for hotel
properties owned by joint ventures;
3. No change in the number of rooms during the five-year
projected period;
4. No change in food, beverage and other revenue as a percentage
of room revenue during the five- year projected period;
5. Annual growth rate in retail arcade revenue of approximately
3%;
6. Net operating expenses, expressed as a percentage of total
revenue, of 90% in 1996, 89% in 1997, 90% in 1998 and 1999,
and 91% in 2000;
7. Net operating expenses, expressed as a percentage of total
revenue for joint venture hotel properties, of 79% in 1996
and 1997 and 78% thereafter;
8. Interest expense and related costs based on the terms of the
Bankers Trust Facility, and assuming the use of substantially
all excess cash flow to repay that indebtedness;
9. The income tax provision was calculated based on statutory
income tax rates, less utilization of income tax loss
carryforwards;
10. Capital expenditures for hotel properties which are
wholly-owned by the Company of approximately $8.6 million in
1996, and between $1 and $3 million annually thereafter; and
11. Capital expenditures for joint venture hotel properties of
between approximately $4 million and $5 million annually
during the five-year projected period.
12. With respect to the Company's gaming business: (i) all
principal and interest amounts due to the Company under the
loans to the Pittsburgh Urban Redevelopment Authority and the
Rainbow Casino Corporation will be paid in full when due; and
(ii) no revenue will be received and no expenses will be
payable with respect to any of the Company's other gaming
investments.
The projections were not prepared with a view to public disclosure or
compliance with guidelines established by the Commission or the American
Institute of Certified Public Accountants. The Company did not engage any
independent auditors or accountants to examine, compile or otherwise become
involved with the preparation of the projections.
The projections are included in this Proxy Statement solely because
they were provided to Merrill Lynch in connection with the preparation of the
Merrill Lynch Opinion, and the projections should not be
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<PAGE>
relied upon for any purpose other than to assist in an understanding of the
analysis on which that opinion was based. The inclusion of the projections
herein should not be regarded as a representation by the Company or any other
person that the projections will be achieved. The Company does not intend to
update or otherwise revise the projections to reflect circumstances existing
after the date when made or to reflect the occurrence of future events, even in
the event that any or all of projections are shown to be inaccurate. Investors
are cautioned not to place any reliance on the projections in making investment
decisions with respect to the Company's securities.
PROJECTED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Projected Fiscal Year Ended December 31,
--------------------------------------------------------------------------------
1996 1997 1998 1999 2000
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Total Revenues $61.0 $67.3 $69.6 $71.6 $73.6
EBITDA (1) 8.8 10.5 10.9 11.1 11.2
Joint Venture Income 5.6 5.9 6.2 6.4 6.6
Net Income 6.5 8.9 7.0 6.5 6.8
Earnings Per Share (2) $1.20 $1.63 $1.28 $1.19 $1.24
</TABLE>
- ----------------
(1) Projected earnings before interest, taxes, depreciation and amortization.
(2) Based on 5.452 million shares outstanding.
The inclusion of the Company's projected EBITDA in the foregoing table
should not be construed as an alternative to net income or any other measure of
performance under generally accepted accounting principles as an indicator of
the Company's performance, or to cash flows generated by operating, investing
and financing activities as an indicator of cash flows or a measure of
liquidity. The Company's former management believed that projected EBITDA was a
measure of projected operating income before deducting depreciation and
amortization that was frequently used in valuing business and, accordingly,
included projected EBITDA in the projections delivered to Merrill Lynch.
As indicated above, the Company's current management believes that the
projections will not be realized during 1996, and expresses no opinion as to
the accuracy or validity of the projections in subsequent years or the
assumptions upon which they were based. Among the important factors that the
Company believes are likely to cause the projections to differ materially from
the actual results are: (i) the consummation of the Canadian Acquisition, which
is contingent upon approval by the limited partners of CPLP, among other
conditions, and which was not anticipated at the time the projections were
prepared; and (ii) the consummation of the Mexican Joint Venture (as defined
below under the caption "Certain Relationships and Related Transactions --
Relationships with HFS -- Proposed Mexican Joint Venture"), which was not
anticipated at the time the projections were prepared. In addition, the Company
believes that the following events would be likely to cause the projections to
differ materially from the actual results, if such events were to occur: (iii)
unexpected or adverse changes that could have a material adverse effect on the
Company and the lodging industry generally, especially the historically
cyclical nature of the hotel industry and a renewed cyclical downturn in the
hotel industry resulting from, among other things, over-building and sluggish
national economic conditions; (iv) adverse changes in the reputation or
popularity of the brands under which the Company's hotels are franchised; and
(v) adverse effects on the Company's ability to carry out its current business
strategy of expansion through the acquisition and development of additional
hotel properties, which depends upon such factors as the selection and
availability of suitable locations at acceptable prices and the suitability of
local construction costs; the hiring and training of sufficiently skilled
management and personnel; the availability of financing; risks that investments
will fail to perform in accordance with expectations; general investment risks
associated with new real estate investments; and lower occupancy and room rates
generally associated with newly opened hotels; risks that properties will not
achieve anticipated
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occupancy levels or sustain expected room rate levels and commencement risks
such as receipt of zoning, occupancy and other required governmental permits
and authorizations, which in each case could adversely affect the Company's
financial performance. IN ASSESSING THE PROJECTIONS, READERS ARE URGED TO READ
CAREFULLY ALL OF THE FOREGOING CAUTIONARY STATEMENTS. INVESTORS ARE CAUTIONED
NOT TO PLACE ANY RELIANCE ON THE PROJECTIONS IN MAKING INVESTMENT DECISIONS
WITH RESPECT TO THE COMPANY'S SECURITIES.
Use of Proceeds
The Investment will generate $57 million of gross proceeds. The
Company expects to use the net proceeds of the Investment, together with
additional borrowings, to make the Canadian Acquisition. If the Canadian
Acquisition is not consummated, the Company expects to use the net proceeds of
the Investment to prepay its indebtedness under the Bankers Trust Facility, to
pursue additional acquisitions and investments in the lodging industry and for
working capital and general corporate purposes. The Company's indebtedness
under the Bankers Trust Facility was incurred on January 23, 1996 in connection
with the Travelodge Acquisition, matures in 2002 and, with respect to revolving
loans, bears interest at variable rates depending upon whether the revolving
loan is a Base Rate Loan or a Eurodollar Loan (as such terms are defined in the
Bankers Trust Facility). With respect to each Base Rate Loan, the annual
interest rate is equal to the highest of (A) 0.5% plus the Adjusted Certificate
of Deposit Rate, (B) 0.5% plus the Federal Funds Rate, or (C) the Prime Lending
Rate of Bankers Trust Company. With respect to Eurodollar Loans, the annual
interest rate is equal to the Applicable Margin (which is within a range of
0.4% to 0.75% based on outstanding indebtedness) plus the Eurodollar Rate. The
Company cannot at this time determine the portion of the balance of such net
proceeds that will be used for each such purpose. The Company is currently
negotiating to obtain a line of credit from The Chase Manhattan Bank, N.A.
which it expects to use, in part, to refinance its indebtedness under the
Bankers Trust Facility. The Company expects to close that refinancing in
connection with the closing of the Canadian Acquisition.
Additional Information Concerning the Purchasers
Chartwell is a Delaware limited partnership that was formed on
December 13, 1995, and has not engaged in any business since its creation other
than that incident to its organization and its investment in the Company. The
general partner of Chartwell is Chartwell Corp., a Delaware corporation, formed
for the purpose of acting as the general partner of Chartwell. The limited
partners of Chartwell are Larry Fisher, M. Anthony Fisher, Richard L. Fisher,
Arnold Fisher, Emily Landau, Kenneth Fisher, Steven Fisher and Zachary Fisher
(collectively, the "Fisher Partners"), FGT, L.P. and Martin L. Edelman. The
stockholders of Chartwell Corp. are the Fisher Partners, Martin L. Edelman and
Gordon P. Getty. Messrs. Fisher and Edelman own, directly and through Chartwell
Corp., beneficial interests equal to 9.7% and 4.8%, respectively, in Chartwell.
FGT, L.P. is a Delaware limited partnership of which Mr. Leland is a general
partner. Mr. Leland owns, indirectly through FGT, L.P., a 3.17% beneficial
interest in Chartwell. See "Interests of Certain Persons in the Investment" and
"Certain Relationships and Related Transactions -- Relationships with Chartwell
and FSNL."
FSNL is a Connecticut limited liability company that was formed on
January 18, 1996 and has not engaged in any business since its creation other
than that incident to its organization and its proposed investment in the
Company. The Ruby Trust, a trust formed under the laws of Connecticut (the
"Ruby Trust"), owns a majority of the membership interests in FSNL; its
principal beneficiary is Charles de Gunzburg. See "Interests of Certain Persons
in the Investment" and "Certain Relationships and Related Transactions --
Relationships with Chartwell and FSNL."
Chartwell has informed the Company that it obtained the funds used to
acquire the 904,930 shares of Common Stock which it acquired in the Initial
Chartwell Investment from capital contributions by its partners. Chartwell and
FSNL have informed the Company that they expect to obtain the funds to be used
to purchase the Shares from capital contributions by their respective partners
and members.
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<PAGE>
Chartwell, FSNL, the Company, HFS and certain of their affiliates have
certain relationships and have engaged in transactions with one another. HFS
and an affiliate of Chartwell have various interests in a family entertainment
center located in Vicksburg, Mississippi, and an affiliate of Chartwell is a
major franchisee of HFS. The Company leases its principal executive offices
from an affiliate of Chartwell and an unaffiliated third party. HFS is a party
to certain agreements with the Company pursuant to which HFS receives various
fees, including a $1.14 million fee if the closing of the Investment occurs.
See "Certain Relationships and Related Transactions."
Stock Purchase Agreement
The Investment is proposed to be made pursuant to an Amended and
Restated Stock Purchase Agreement, dated as of March 14, 1996, among the
Company, Chartwell and FSNL (the "Stock Purchase Agreement") and a related
registration rights agreement (the "Registration Rights Agreement") to be
entered into among the Company, Chartwell and FSNL at the time of the closing
of the Investment (the "Closing"). Pursuant to the Stock Purchase Agreement,
the Company has agreed to issue and sell the Shares to the Purchasers at a
price per share equal to $14.25. Accordingly, the aggregate gross proceeds of
the sale will be $57 million. Of the 4,000,000 Shares proposed to be issued,
Chartwell will acquire 2,947,369 Shares for an aggregate purchase price of
$42,000,008 and FSNL will acquire 1,052,631 Shares for an aggregate purchase
price of $14,999,992. The Shares are of the same class of common stock as the
outstanding Common Stock and are not entitled to any preemptive rights.
The obligations of the Company and the Purchasers to close the
Investment are subject to the satisfaction or waiver of certain conditions,
including: (i) the approval of the Investment by the Company's stockholders at
the Meeting; (ii) the listing of the Shares on NASDAQ; and (iii) the
resignations of all of the members of the Company's Board of Directors other
than Messrs. Edelman, Fisher, Holmes, Kennedy, Leland, Silverman and Stone.
Chartwell has agreed to vote at the Meeting the shares of Common Stock which it
owns in favor of and against the proposal to approve the Investment in the same
proportions as votes are cast at the Meeting in favor of and against that
proposal by stockholders of the Company other than Chartwell, FSNL and their
affiliates.
The Company or either of the Purchasers may terminate the Stock
Purchase Agreement if the Closing does not occur prior to September 30, 1996,
unless the Closing has not occurred as a result of (i) the failure of the party
seeking to terminate to fulfill any of its obligations under the Stock Purchase
Agreement, or (ii) if the party seeking to terminate is Chartwell, from the
actions of Messrs. Fisher, Leland or Edelman, as Chartwell's nominees on the
Company's Board of Directors, whether such actions are taken in their
respective capacities as directors or as officers of the Company.
The Stock Purchase Agreement does not contain any provision that would
prevent the Company from disclosing any information to third parties, including
any information relating to the Company. In addition, in the event that the
Investment is not approved by the Company's stockholders, the Company will have
no continuing obligations under the Stock Purchase Agreement and the Company
may terminate the Stock Purchase Agreement at any time.
Pursuant to the Stock Purchase Agreement, the Purchasers have agreed
to certain restrictions on their activities after the Closing, as described
below. These restrictions will only become applicable if the Closing of the
Investment occurs. Chartwell is currently subject to different restrictions on
its ability to transfer the 904,930 shares of Common Stock which it acquired in
the Initial Chartwell Investment. See "Certain Relationships and Related
Transactions -- Relationships with Chartwell and FSNL."
Independent Directors. Each of the Purchasers has agreed to vote its
shares of Common Stock (including the Shares) and to use its best efforts to
elect and maintain as independent directors on the Company's Board of Directors
at least two individuals who are not employees, officers, directors or
affiliates of the Purchasers, do not have any beneficial ownership interest in
the Purchasers or any of their affiliates (other than the Company) and are
otherwise disinterested directors ("Independent Directors"). If as a result of
any sale or other transfer of shares of
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Common Stock by the Purchasers, the aggregate number of shares of Common Stock
held by the Purchasers is reduced below 35% of the total number of shares of
Common Stock then outstanding, the Purchasers are required to cause a
sufficient number of their representatives on the Company's Board of Directors
to resign so that the percentage of directorships held by Independent Directors
after that event is equal to the percentage of shares of Common Stock owned by
stockholders other than the Purchasers (the "Required Percentage"); and the
Purchasers are required to cause any of their remaining representatives on the
Board of Directors to vote in favor of filling the resulting vacancies with
Independent Directors. Thereafter, the Purchasers are required to vote their
shares of Common Stock to cause the percentage of Independent Directors to be
no less than the Required Percentage.
Restrictions on Transfers of the Shares. Each of the Purchasers has
agreed that none of the Shares will be sold, pledged or otherwise transferred,
directly or indirectly, by it except (A) in connection with a merger or
consolidation of the Company in which all holders of Common Stock receive the
same consideration and which is (i) approved by a majority of the Independent
Directors, and (ii) is subject to the voting requirements described below under
the caption "Voting On Mergers, Liquidations and Sales of Assets"; (B) after
three years from the Closing, in a bona fide underwritten public offering
pursuant to an effective registration under the Securities Act of 1933, as
amended (the "Securities Act"); (C) in a sale, pledge or other transfer (a
"Transfer") by either Chartwell or FSNL after three years from the Closing, if
after giving effect to that Transfer the aggregate number of shares of Common
Stock held by the Purchaser Parties is equal to or greater than 35% of the
total number of shares of Common Stock then outstanding and that Transfer is
approved by a majority of the Independent Directors; (D) in a Transfer by FSNL
of any of the shares it acquires as part of the Investment after six years from
the Closing, if after giving effect to that Transfer the aggregate number of
shares of Common Stock held by the Purchaser Parties is equal to or greater
than 35% of the total number of shares of Common Stock then outstanding, and
that Transfer is made in a transaction satisfying the manner of sale
requirements for a "brokers' transaction" under Rule 144 under the Securities
Act, whether or not that sale is made pursuant to Rule 144 (a "Brokers'
Transaction"); (E) in a Transfer by FSNL of any of the shares it acquires as
part of the Investment after six years from the Closing at a time when the
aggregate number of shares of Common Stock held by the Purchaser Parties is
already less than 35% of the total number of shares of Common Stock then
outstanding, if that Transfer is approved by a majority of the Independent
Directors and is made in a Brokers' Transaction; (F) in a Transfer by Chartwell
after six years from the Closing at a time when Chartwell owns less than 5% of
the total number of shares of Common Stock then outstanding and has no
representatives serving on the Board of Directors of the Company, if that
Transfer is made in a Brokers' Transaction; and (G) sales or other transfers
between the Purchasers.
Affiliate Transactions. The Purchasers have agreed that, for so long
as the Purchaser Parties continue to own, in the aggregate, at least 20% of the
outstanding shares of Common Stock of the Company, the Purchasers will not, and
will not permit any Purchaser Party to, enter into any transaction or series of
related transactions, or grant or consent to, or otherwise permit, any
amendment to, supplement of or waiver under, any agreement or contract, with
the Company or any of its subsidiaries (any of the foregoing, an "Affiliate
Transaction") unless: (i) it has been determined by a committee of the
Company's Board of Directors comprised of one or more Independent Directors
(the "Independent Board Committee") that the Affiliate Transaction is in the
best interests of the Company and is on fair and reasonable terms, no less
favorable to the Company than terms that the Company and a non-affiliated
person in a similar situation would agree to in an arm's length transaction;
and (ii) if the Affiliate Transaction has a total value in excess of $10,000,
the Independent Board Committee has received a favorable fairness opinion from
an appropriate, independent party relating to the transaction. These
arrangements do not, however, limit the reasonable compensation the Company may
pay to its officers and directors, or restrict the existing arrangement between
the Company and Chartwell relating to the family entertainment center located
in Vicksburg, Mississippi, which predated the Stock Purchase Agreement. See
"Certain Relationships and Related Transactions -- Relationships with Chartwell
and FSNL -- Vicksburg Facility."
Voting on Mergers, Liquidations and Sales of Assets. The Purchasers
have agreed that, if at any time within three years after the Closing, the
Company proposes to sell all or substantially all of its assets, to merge or
consolidate with any other entity, or to cause the liquidation or dissolution
of the Company (each, a "Triggering
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Event"), and the Company submits the Triggering Event to a vote of its
stockholders, then each of the Purchasers will vote all of its respective
shares of Common Stock entitled to vote on that matter in favor of and against
the Triggering Event in the same proportion as the numbers of shares of Common
Stock held by stockholders of the Company other than the Purchasers and their
affiliates ("Nonaffiliated Shares") voted in favor of and against the
Triggering Event bear to the total number of Nonaffiliated Shares voted on such
Triggering Event. If any party commences a proxy contest or tender offer
relating to the Triggering Event in any manner, however, these voting
requirements will not apply, and each of the Purchasers will be entitled to
vote all of its shares of Common Stock in favor of or against the Triggering
Event, in its sole discretion.
Purchasers' Purchase of Additional Shares. The Purchasers have agreed
that no Purchaser Party will purchase or otherwise acquire any additional
shares of Common Stock or any securities exercisable for or convertible into
Common Stock (other than options granted under a stock option plan of the
Company having customary terms and constituting reasonable compensation
("Excluded Stock Options") and shares of Common Stock issued on the exercise of
Excluded Stock Options) (the "Acquired Stock"), from any person or entity
(other than the Company or any other Purchaser Party) if the Acquired Stock
would, when aggregated with all of the other shares of Common Stock owned by
all Purchaser Parties (other than shares acquired, or subject to issuance, on
the exercise of Excluded Stock Options), and assuming the exercise or
conversion of the Acquired Stock into Common Stock, if applicable, result in
the ownership by all Purchaser Parties of shares of Common Stock representing
in excess of 55% of the then-outstanding shares of Common Stock of the Company
on a fully-diluted basis, assuming the exercise or conversion of all other
outstanding securities of the Company exercisable for or convertible into
Common Stock, unless: (i) the Purchaser Party offers to purchase the Acquired
Stock from all of the holders thereof in compliance with all applicable
securities and other laws, rules and regulations, (ii) the purchase is approved
by the Independent Board Committee, and (iii) the Independent Board Committee
has received a favorable fairness opinion from an appropriate, independent
party relating to the purchase. The Purchasers have also agreed that no
Purchaser Party will purchase or otherwise acquire any Acquired Stock from the
Company, unless: (i) the purchase is approved by the Independent Board
Committee, and (ii) the Independent Board Committee has received a favorable
fairness opinion from an appropriate, independent party with respect to the
purchase.
Restriction on Other Hotel Properties. The Purchasers have agreed
that, for so long as the Purchaser Parties continue to own, in the aggregate,
at least 20% of the outstanding shares of Common Stock of the Company or have
any representatives serving on the Company's Board of Directors, no Purchaser
Party shall acquire any interest in an existing hotel property or properties
(including by foreclosure on any mortgage acquired on or after January 1,
1996), or any interest in a hotel property or properties that are under
development or in any property which the Purchaser Party intends to develop as
a hotel property. These restrictions will not apply to acquisitions by any of
the Purchaser Parties of hotels under development by affiliates of Chartwell on
the date of the Stock Purchase Agreement, redevelopment of hotels owned by
affiliates of Chartwell on January 1, 1996, or acquisitions of hotels on which
affiliates of Chartwell had liens on January 1, 1996.
Registration Rights Agreement
Chartwell and the Company are currently parties to a registration
rights agreement entered into in connection with the Initial Chartwell
Investment. See "Certain Relationships and Related Transactions --
Relationships With Chartwell and FSNL." If the Closing occurs, that
registration rights agreement will terminate and the Company and the Purchasers
will enter into the Registration Rights Agreement. Pursuant to the Registration
Rights Agreement, each Purchaser (or its assignee) (the "Initiating Holder")
will have the right at any time to make a written request for registration (a
"Demand Registration Statement") under the Securities Act, for the resale by
such Holder of all or part of such Holder's Registrable Securities (defined
below). Chartwell or its assignees will have the right to request two Demand
Registration Statements and FSNL or its assignees will have the right to
request one Demand Registration Statement, provided, however, that neither
Chartwell nor any of its assignees will have the right to request a Demand
Registration Statement with respect to less than 5% of the number of shares of
Common Stock outstanding at the time of the request. For purposes of the
Registration Rights Agreement, the term
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"Registrable Securities" means (i) the Shares and the 904,930 shares purchased
by Chartwell in the Initial Chartwell Investment, and (ii) any other securities
issued in exchange for, upon conversion of, as a dividend on or otherwise in
respect of any such securities, and the term "Holder" means each Purchaser and
any assignee of a Purchaser who becomes a party to the Registration Rights
Agreement. The Company will pay all registration expenses in connection with a
Demand Registration Statement, whether or not it becomes effective. However, if
a Demand Registration Statement could have become effective but does not become
effective as a result of any act or omission on the part of one or more
Holders, such Holders will be required to pay such registration expenses. After
the receipt of a request for a Demand Registration Statement, the Company must
give written notice of the request to all other Holders of Registrable
Securities and use its best efforts to register for resale the Registrable
Securities of the Initiating Holder and any other Holder that provides the
Company with a written request for inclusion in such registration. The Company
may postpone for a reasonable time not to exceed 120 days the filing or
effectiveness of any Demand Registration Statement if the Board of Directors
determines in good faith that the filing of the Demand Registration Statement
would be detrimental to the Company.
In addition, if the Company proposes to register any of its securities
for its own account or the account of any of its stockholders (other than
certain registrations including a registration relating solely to an employee
benefit plan and certain exchanges of securities with stockholders), the
Holders have the right (the "Incidental Registration Right"), upon a timely
request, to have the resale of their Registrable Securities covered by the
registration. If, in either a Demand Registration Statement or a registration
statement filed in connection with the exercise of an Incidental Registration
Right, the shares of Common Stock to be registered are to be distributed by
means of an underwritten offering, the underwriter may limit the number of
shares of Common Stock to be registered if in its judgment marketing factors
require such a cutback.
Interests of Certain Persons in the Investment
Certain of the Company's current directors and nominees for director
may be deemed to have an interest in the Investment. As a condition to the
Closing of the Investment, all of the Company's current directors other than
Messrs. Edelman, Fisher, Holmes, Kennedy, Leland, Silverman and Stone are
required to resign. Thereafter, the remaining members of the Board of Directors
are expected, subject to their fiduciary duties, to fill the vacancies on the
Board with Dr. Goldman and Rachel Robinson. Messrs. Fisher, Edelman and Leland
are all direct or indirect partners in Chartwell, and Messrs. Fisher and
Edelman are stockholders in Chartwell Corp. and have interests in the
Investment by virtue of their respective interests in Chartwell. Dr. Goldman is
a Manager of FSNL, a trustee of the Ruby Trust and a beneficiary of a trust
which is a member in FSNL. Accordingly, Dr. Goldman has an interest in the
Investment by virtue of his interest in FSNL. HFS will receive an advisory fee
of $1.14 million upon the closing of the Investment. Upon consummation of the
Investment, options to purchase 10,000 shares of the Company's Common Stock at
a purchase price of $16.75 per share and 15,000 shares at $9.875 per share,
granted under the Company's 1994 Stock Option Plan, all of which are held by
Mr. Smith, will immediately vest pursuant to the terms of the Plan. In
addition, there are numerous relationships among the Chartwell Parties, HFS and
the Company. See "Certain Relationships and Related Transactions" for a
description of those relationships.
Mr. Fisher's business address is 299 Park Avenue, New York, New York
10171. For information concerning the number of shares of the Company's Common
Stock beneficially owned by Mr. Fisher, see "Voting Securities and Principal
Holders Thereof -- Security Ownership of Certain Beneficial Owners and
Management." Mr. Fisher has not sold any shares of the Company's Common Stock
within the past two years.
Mr. Edelman's business address is 75 East 55th Street, New York, New
York 10022. For information concerning the number of shares of the Company's
Common Stock beneficially owned by Mr. Edelman, see "Voting Securities and
Principal Holders Thereof -- Security Ownership of Certain Beneficial Owners
and Management." Mr. Edelman has not sold any shares of the Company's Common
Stock within the past two years. The Company currently retains and has in the
past retained Battle Fowler LLP, a law firm in which Mr. Edelman is of counsel,
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for legal work. The Company expects to continue to utilize that firm after the
Closing. See "Certain Relationships and Related Transactions -- Relationships
with Mr. Edelman."
Mr. Leland's business address is Suite 1700, 1001 19th Street North,
Arlington, Virginia 22209. For information concerning the number of shares of
the Company's Common Stock beneficially owned by Mr. Leland, see "Voting
Securities and Principal Holders Thereof -- Security Ownership of Certain
Beneficial Owners and Management." Mr. Leland has not sold any shares of the
Company's Common Stock within the past two years.
Dr. Goldman's business address is c/o First Spring Corporation, 499
Park Avenue, 26th Floor, New York, New York 10022. For information concerning
the number of shares of the Company's Common Stock beneficially owned by Dr.
Goldman, see "Voting Securities and Principal Holders Thereof -- Security
Ownership of Certain Beneficial Owners and Management." Dr. Goldman has not
sold any shares of the Company's Common Stock within the past two years.
Ms. Robinson's business address is c/o Jackie Robinson Foundation, 3
West 35th Street, New York, New York 10001. For information concerning the
number of shares of the Company's Common Stock beneficially owned by Ms.
Robinson, see "Voting Securities and Principal Holders Thereof -- Security
Ownership of Certain Beneficial Owners and Management." Ms. Robinson has not
sold any shares of the Company's Common Stock within the past two years.
The Board of Directors was aware of these interests and considered
them, among other factors, in approving the Investment and making its
recommendation to stockholders.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE
FOR APPROVAL OF THE INVESTMENT.
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APPROVAL OF THE CERTIFICATE OF AMENDMENT
(Proposal 2)
The stockholders are requested at the Meeting to approve the
Certificate of Amendment, substantially in the form attached to this Proxy
Statement as Exhibit D. The Certificate of Amendment provides for the change of
the Company's name from National Lodging Corp. to Chartwell Leisure Inc. The
purpose of the proposed change of the Company's name is to provide the Company
with a more distinctive name so as to afford the Company greater name
recognition in the lodging industry. The proposed name change will require the
Company to make various filings and take other administrative actions to
reflect that change, none of which are expected to result in material expense
to the Company.
The Certificate of Amendment will be filed with the Secretary of State
of the State of Delaware only after the Closing of the Investment. Therefore,
unless Proposal 1 receives the minimum required number of votes in favor of
approval and the Closing occurs, this Proposal 2 will not be effected or
implemented.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE FOR APPROVAL OF THE
CERTIFICATE OF AMENDMENT
ELECTION OF DIRECTORS
(Proposal 3)
The Board of Directors has nominated Messrs. Holmes, Buckman and
Kennedy as the three candidates to be elected at the Meeting for a three-year
term ending in 1999.
Each nominee has consented to being named in the Proxy Statement and
to serve if elected. If prior to the Meeting any nominee should become
unavailable to serve, the shares of Common Stock represented by a properly
executed and returned proxy will be voted for such additional person as shall
be designated by the Board of Directors, unless the Board should determine to
reduce the number of directors pursuant to the Certificate of Incorporation of
the Company (the "Charter") and the Company's Bylaws (the "Bylaws").
At the time of the Initial Chartwell Investment, Messrs. Fisher and
Leland, as nominees of Chartwell, were appointed as Directors. See "Approval of
the Investment -- Background of and Reasons for the Proposal; Board of
Directors' Recommendations" and "Certain Relationships and Related Transactions
- -- Relationships With Chartwell and FSNL -- Initial Stock Purchase Agreement."
In connection with the Company's announcement of its agreement in principle
relating to the Investment, Mr. Kingsley resigned as a Director of the Company.
Messrs. Buckman and Smith are expected to resign at the time of the Closing.
The Directors expect, subject to the exercise of their fiduciary duty, that (i)
Ms. Robinson will be appointed as a Class II Director with a term ending in
1999 to fill the vacancy on the Board of Directors resulting from Mr. Buckman's
resignation, and (ii) Dr. Goldman will be appointed as a Class I Director with
a term ending in 1998 to fill the vacancy on the Board of Directors resulting
from Mr. Smith's resignation.
Certain information regarding each nominee and each director
continuing in office is set forth below, including such individual's age as of
May 1, 1996 and principal occupation, a brief description of his or her
business experience during the last five years and other directorships
currently held.
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Information Regarding the Nominees and Directors
Nominees for Election for a Term Expiring in 1999
James E. Buckman
Stephen P. Holmes
Michael J. Kennedy
Mr. Buckman, age 51, has been a Director of the Company since November
22, 1994. Mr. Buckman is expected to resign at the time of the Closing. He has
been Executive Vice President, General Counsel and Assistant Secretary of HFS
since February 1992, a director of HFS since June 1994 and was Executive Vice
President, General Counsel and Secretary of the Company from November 1994
until January 1996. Mr. Buckman was a partner with Troutman, Sanders,
Lockersman & Ashmore, an Atlanta, Georgia law firm, from January 1990 to
February 1992. He was Executive Vice President and General Counsel of Buckhead
America Corporation ("Buckhead"), the former owner of the Days Inns hotel
franchise system, from April 1985 to November 1989. Mr. Buckman was an officer
of Buckhead within two years of the time Buckhead filed for reorganization
under Chapter 11 of the U.S. Bankruptcy Code. Buckhead, which was formerly
known as Days Inns of America, Inc., is not affiliated with or otherwise
related to the Company.
Mr. Holmes, age 39, has been a Director of the Company since September
1994. He has been Executive Vice President and Chief Financial Officer of HFS
since July 1990, a Director of HFS since June 1994 and was Executive Vice
President, Chief Financial Officer and Treasurer of the Company from November
1994 until February 1996. Mr. Holmes is also currently a director of AMRE,
Inc., a home remodeling and improvement company. He was employed by The
Blackstone Group ("Blackstone"), a New York investment banking firm, from
February 1990 through September 1991 as a Vice President and a Managing
Director.
Mr. Kennedy, age 59, has been a Director of the Company since November
22, 1994. Mr. Kennedy has been an attorney with his own law firm in New York
City since 1976. Mr. Kennedy was retained as an attorney by a Chartwell Party
in the past.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION
OF MESSRS. BUCKMAN, HOLMES AND KENNEDY AS CLASS II DIRECTORS.
Incumbent Directors Continuing in Office for a Term Expiring in 1997
Henry R. Silverman
Martin L. Edelman
Marc E. Leland
Mr. Silverman, age 55, has been a Director of the Company since
September 1994. He has been Chairman of the Board and Chief Executive Officer
of HFS since May 1990 and was the Chairman of the Board and Chief Executive
Officer of the Company from November 1994 until January 24, 1996. Mr. Silverman
is a former General Partner of Blackstone, having held such position from
February 1990 to December 1991. He was Senior Vice President, Business
Development of Reliance Group Holdings, Inc., an insurance, consulting and
information services company, from 1982 to 1990 and President and Chief
Executive Officer of Reliance Capital Group, Inc. from November 1983 until
February 1990. Mr. Silverman served as President and Chief Executive Officer of
Telemundo Group, Inc., a Spanish language television network, from 1986 to
1990. Mr. Silverman was Chairman and Chief Executive Officer of Buckhead from
September 1984 until November 1989. Mr. Silverman was an officer of Buckhead
within two years of the time Buckhead filed for reorganization under Chapter 11
of the U.S. Bankruptcy Code.
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Mr. Edelman, age 54, has been a Director of the Company since November
22, 1994 and President of the Company since January 24, 1996. Mr. Edelman was
the Vice Chairman of the Board of Directors of the Company from December 1995
until March 1996. He has also been a director of HFS since November 1993. Mr.
Edelman has been of counsel to Battle Fowler LLP, a New York City law firm,
since January 1994 and was a partner with that firm from 1972 through 1993. See
"Certain Relationships and Related Transactions" for a description of certain
arrangements between the Company and Mr. Edelman. Mr. Edelman also serves as a
director of Presidio Capital Corp. Mr. Edelman is a limited partner in
Chartwell and a stockholder in Chartwell Corp. Mr. Edelman is a consultant to
and partner in various Chartwell Parties.
Mr. Leland, age 58, has been a Director of the Company since December
20, 1995. Mr. Leland has been President of Marc E. Leland & Associates, engaged
in financial consulting and private investment activities, since 1984. Mr.
Leland is a Vice President and director of Chartwell Corp. and a general
partner in FGT, L.P., which is a limited partner of Chartwell. Mr. Leland was
appointed as a Director as a nominee of Chartwell pursuant to the agreement
governing the Initial Chartwell Investment. Mr. Leland is a director of Noble
Drilling Corporation, a company that provides contract drilling services for
the oil and gas industry worldwide. He is also a partner in Chartwell and in
various Chartwell Parties. See "Certain Relationships and Related
Transactions."
Incumbent Directors Continuing in Office for a Term Expiring in 1998
Robert F. Smith
Roger J. Stone, Jr.
Richard L. Fisher
Mr. Smith, age 63, has been a Director of the Company since November
22, 1994. Mr. Smith is expected to resign at the time of the Closing. He has
been a Director of HFS since February 1993. Mr. Smith is the retired Chairman
and Chief Executive Officer of American Express Bank, Ltd. ("AEBL"). He joined
AEBL's parent, the American Express Company, in 1981 as Corporate Treasurer,
before moving to AEBL and serving as Vice Chairman and Co-Chief Operating
Officer and then President prior to becoming CEO. Mr. Smith is currently a
partner in Car Component Technologies, Inc., an automobile parts remanufacturer
located in Bedford, New Hampshire.
Mr. Stone, age 43, has been a Director of the Company since November
22, 1994. He has been a Director of HFS since June 1994. Mr. Stone is currently
a partner at Davis, Manafort and Stone, a Washington, D.C. public affairs firm
formed in 1995. From 1981 through 1995, Mr. Stone was a partner at Black,
Manafort, Stone & Kelly, a Washington, D.C. based public affairs firm. Mr.
Stone has served on the Executive Committee of the Republican National
Committee and was appointed to the Amtrak Commuter Services Board by President
Ronald Reagan. Mr. Stone is a Director of the Pietro Food Corporation of Buena,
New Jersey. See "Certain Relationships and Transactions" for a description of
certain arrangements between the Company and Mr. Stone.
Mr. Fisher, age 55, has been the Chairman of the Board and Chief
Executive Officer of the Company since January 24, 1996, and a Director of the
Company since December 20, 1995. Mr. Fisher has been self- employed, engaged in
private investment activities, financial management and real estate ownership
and development, among other businesses, since prior to 1990. Mr. Fisher is a
limited partner in Chartwell and is the President, a director and a stockholder
in Chartwell Corp. Mr. Fisher is also a partner in various Chartwell Parties.
Mr. Fisher was appointed as a Director as a nominee of Chartwell pursuant to
the agreement governing the Initial Chartwell Investment. Mr. Fisher is also a
member of the Board of Trustees of the University of Pennsylvania and the
Horace Mann School located in Riverdale, New York. See "Certain Relationships
and Related Transactions."
Additional Nominees
At the time of the Closing, the Company anticipates that Messrs.
Buckman and Smith will resign as Directors of the Company and that the
following individuals will be elected to the Company's Board of Directors:
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Dr. Guido Goldman, age 58, is currently a Manager of FSNL, a trustee
of the Ruby Trust and the beneficiary of a trust which is a member in FSNL. Dr.
Goldman has been Chairman of the Board and President of First Spring
Corporation, engaged in private asset management since 1985, and Director of
the Program for the Study of Germany and Europe at the Minda de Gunzburg Center
for European Studies of Harvard University since 1989 and the Director of the
Minda de Gunzburg Center for European Studies from 1969 to 1994. Dr. Goldman is
expected to be named as a Director with a term expiring in 1998. Pursuant to
Stockholders Agreement between Chartwell and FSNL, Dr. Goldman will be the
nominee of FSNL for election as a Director. See "Certain Relationships and
Related Transactions -- Relationships with Chartwell and FSNL."
Rachel Robinson, age 73, has been the Chairperson of the Jackie
Robinson Foundation, a charitable foundation which creates and administers
scholarships for minority youth, since 1973. Ms. Robinson is expected to be
named as a Director with a term expiring in 1999.
Committees, Meetings; Compensation of the Board of Directors; Vote Required for
Election of Directors
The Company anticipates that the composition of the membership of all
or some of the Board Committees and the arrangements for the compensation of
the Company's Directors will change if the Closing occurs.
The Board of Directors held nine meetings during 1995. All incumbent
directors attended at least 75% of the aggregate number of meetings of the
Board and committees of the Board on which they served. The Board has three
committees of the Board: the Executive, Audit and Compensation Committees, as
described below.
The Executive Committee is currently comprised of Mr. Fisher as
Chairman and Messrs. Silverman, Leland, Holmes, Buckman and Edelman. The
Executive Committee is authorized to exercise all the powers and authority of
the Board of Directors in the management of the business and affairs of the
Company except those powers reserved, by law or resolution, to the Board of
Directors. The Executive Committee did not meet in 1995.
The Audit Committee is currently comprised of Messrs. Smith and
Kennedy. The Audit Committee reviews and evaluates the Company's internal
accounting and auditing procedures; recommends to the Board of Directors the
firm to be appointed as independent accountants to audit the Company's
financial statements; reviews with management and the independent accountants
the Company's year-end operating results; reviews the scope and results of the
audit with the independent accountants; reviews with management the Company's
interim operating results; and reviews the non-audit services to be performed
by the firm of independent accountants and considers the effect of such
performance on the accountants' independence. The Audit Committee did not meet
in 1995.
The Compensation Committee is comprised of Messrs. Smith and Kennedy.
The Compensation Committee reviews compensation arrangements for executives,
reviews and makes recommendations to the Board of Directors regarding the
adoption or amendment of employee benefit plans, and administers the Company's
employee stock option plans. The Compensation Committee did not meet in 1995.
The Company has no standing nominating committee. Accordingly, the
Board of Directors nominates persons for election to the Board of Directors.
Stockholders may make nominations for the Board of Directors, provided that
such nominations are made in accordance with the provisions of the Bylaws. See
"Stockholder Proposals."
Currently, non-employee directors receive an annual retainer of
$20,000, plus $1,000 for chairing a committee and $500 for serving as a member
of a committee other than as chair. Non-employee directors are also paid $1,000
for each Board of Directors meeting attended and $500 for each committee
meeting attended. During 1995, non-employee directors received an annual
retainer of $30,000, plus $4,000 for chairing a committee and $2,000 for
serving as a member of a committee other than as chair. During that period,
non-employee directors were also paid $1,000 for each Board of Directors
meeting attended and $500 ($1,000 for committee chair) for each committee
meeting if held on the same day as a Board meeting and $1,000 ($2,000 for
committee chair) for each committee meeting attended on a day on which there
was no Board of Directors meeting. During 1995 and until
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March 12, 1996, non-employee directors who were also non-employee directors of
HFS were paid half of the amounts specified for that period. All non-employee
directors have been in the past, and continue to be, reimbursed for expenses
incurred in attending meetings of the Board of Directors and committees.
Members of the Board of Directors who are officers or employees of the
Company or any of its subsidiaries do not receive compensation or reimbursement
of expenses for serving in their capacity as directors. Because Messrs.
Buckman, Holmes and Silverman are no longer employees of the Company, they are
considered non-employee directors. However, Messrs. Buckman, Holmes and
Silverman have agreed to waive any compensation for their services as directors
of the Company for 1996.
During 1995, the Company (i) provided $100,000 of term life insurance
coverage for each non-employee director to the beneficiary designated by such
non-employee director and (ii) purchased joint life insurance contracts in the
amount of $1,000,000 for each director, and upon the death of such director,
the Company agreed to donate an aggregate of $1,000,000 to one or more
charitable organizations designated by such director from the proceeds of such
insurance policy. With the exception of such joint life insurance contracts,
members of the Board of Directors who were officers or employees of the Company
or any of its subsidiaries during 1995 did not receive compensation or
reimbursement of expenses for serving in such capacity.
Pursuant to the Company's 1994 Stock Option Plan, each non-employee
director is automatically granted certain stock options as follows: options
granted to directors who are not employees of the Company or a subsidiary of
the Company are subject to pre-determined rules and procedures such that
neither the Board of Directors nor the Compensation Committee has any
discretion in connection with the granting of such options. Options are granted
to non-employee directors based on a formula whereby current non-employee
directors have received an option to purchase 15,000 shares of Common Stock;
other non-employee directors, upon initial appointment or election to the Board
or Directors, will be granted an option to purchase 15,000 shares of Common
Stock; and each non-employee director will receive an additional option grant
for 15,000 shares of Common Stock on the first anniversary of the date of their
initial grant of options. Such options have an exercise price of not less than
100% of the fair market value on the date of grant and vest over a three year
period from the date of grant at the rate of 33-1/3% per year, and otherwise
have the same terms as all other options granted under the 1994 Stock Option
Plan.
Directors will be elected by a plurality of the votes cast in the
election of directors. Pursuant to applicable Delaware law, in tabulating the
vote for the election of directors, abstentions and broker non-votes will be
counted in determining the presence of a quorum, but will be disregarded and
will have no effect in determining the outcome of the vote if a quorum is
present.
33
<PAGE>
EXECUTIVE OFFICERS
The following table sets forth certain information regarding the
executive officers of the Company currently in office:
Name Office or Positions Held
---- ------------------------
Richard L. Fisher Chairman of the Board and Chief Executive
Officer
Martin L. Edelman Director and President
Kenneth J. Weber Chief Financial Officer
Carl Winston Executive Vice President -- Operations
Douglas H. Verner Executive Vice President, General Counsel
and Secretary
On January 24, 1996: (i) Henry R. Silverman resigned as Chairman and
Chief Executive Officer of the Company, (ii) Robert S. Kingsley resigned as
President and Chief Operating Officer of the Company, (iii) Richard L. Fisher
was elected Chairman of the Board and Chief Executive Officer of the Company
and (iv) Martin L. Edelman was elected President of the Company. John D.
Snodgrass resigned as Vice Chairman of the Company's Board in December 1995,
and resigned as a director on January 23, 1996. Mr. Buckman resigned as
Executive Vice President, General Counsel and Secretary as of January 23, 1996,
and Mr. Holmes resigned as Executive Vice President, Chief Financial Officer
and Treasurer as of March 1, 1996. Mr. Edelman resigned as Vice Chairman of the
Board as of March 12, 1996, and continues to serve as President and a Director
of the Company.
For biographical information about Messrs. Fisher and Edelman see
"Election of Directors."
Kenneth J. Weber, age 50, is currently the Chief Financial Officer of
the Company and has held such office since March 4, 1996. From September 1992
until February 1996, Mr. Weber was the Senior Vice President and Chief
Financial Officer of Omni Hotels, a company engaged in the ownership and
management of hotels. He was also the Senior Vice President and Chief
Accounting Officer of Red Lion Hotels, a company engaged in the ownership and
management of hotels, from January 1987 until September 1992. Mr. Weber
currently serves on the Advisory Board of the Protection Mutual Insurance
Company and on the Financial Officer Board of the American Hotel and Motel
Association.
Carl Winston, age 39, is currently the Executive Vice
President-Operations of the Company and has held such office since January 23,
1996. Mr. Winston was a Vice President of Forte Hotels from December 1990 until
January 1996.
Douglas H. Verner, age 42, is currently the Executive Vice President,
General Counsel and Secretary of the Company and has held such office since
January 23, 1996. Mr. Verner was the Senior Vice President, General Counsel and
Secretary of Forte Hotels from November 1984 until January 1996. He is also
Chairman of the Copyright Committee of the American Hotel and Motel
Association.
34
<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth for 1995 and 1994 the cash and noncash
compensation awarded to or earned by the Chief Executive Officer of the Company
and the other most highly compensated executive officers (together, the "Named
Executive Officers") of the Company in 1995:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE (1)(2)
----------------------
Long-Term
Compensation
Annual Compensation
----------------------
----------------------
Awards
---------------------------------------------------------------------------------------
Name and Principal Other
Position Annual Securities All Other
Compen- Restricted Underlying Compensation
Salary Bonus sation Stock Options/ ($)
Year ($) ($) ($) Awards SARs(#)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Henry R. Silverman (3) 1995 500,000 0 0 0
Chairman of the Board, 1994 41,667(4) 0 0 0 300,000(5) 299 (6)
Chief Executive Officer
Robert S. Kingsley (3) 1995 260,430 125,000 0 0 172,072(7)
President, Chief 1994 27,083(4) 0 0 0 100,000(5) 80(6)
Operating Officer
</TABLE>
- ---------------
(1) Because the Company first became subject to reporting requirements of
the Exchange Act in 1994, the Company is not subject to the Summary
Compensation Table disclosure requirements for 1993.
(2) Messrs. Silverman and Kingsley were the only executive officers of the
Company who received salary or bonus from the Company in 1995. John D.
Snodgrass, Stephen P. Holmes and James E. Buckman served as (i) Vice
Chairman of the Board, (ii) Executive Vice President, Chief Financial
Officer and Treasurer, and (iii) Executive Vice President, General
Counsel and Secretary, respectively, of the Company during 1995. Mr.
Snodgrass resigned in December 1995, Mr. Buckman resigned in January
1996, and Mr. Holmes resigned in March 1996. Although Messrs.
Snodgrass, Holmes and Buckman received their entire compensation as
officers of HFS, a portion of the Corporate Services Fee paid by the
Company to HFS represented the Company's payment to HFS for the
executive services to be performed by such persons as officers of the
Company pursuant to the Corporate Services Agreement. No set
allocations were established with respect to the amount of time that
such persons were expected to devote to the affairs of the Company and
HFS, respectively, nor were set allocations established with respect
to the portion of such persons' overall compensation from HFS that was
expected to be paid in respect of services performed for the Company
pursuant to the Corporate Services Agreement. It is not expected that
any such allocation would have resulted in annual compensation to any
of the above individuals in excess of $100,000 per year. See "Certain
Relationships And Related Transactions -- Relationships with HFS."
(3) On January 24, 1996, Mr. Silverman resigned as Chairman and Chief
Executive Officer of the Company and Mr. Kingsley resigned as
President and Chief Operating Officer of the Company.
(4) Represents salary paid to the named executive officer for the period
commencing on the Distribution Date (defined below) and ending on
December 31, 1995. Annualized salaries for Mr. Silverman and Mr.
Kingsley for 1994 were $500,000 and $250,000, respectively.
35
<PAGE>
(5) On November 22, 1994, Messrs. Silverman and Kingsley were granted
options to purchase 300,000 and 100,000 shares, respectively, under
the Company's 1994 Stock Option Plan. Such options were cancelled as
of February 1, 1996.
(6) This compensation consists of life insurance premiums paid by the
Company.
(7) This compensation consists of (i) relocation expenses incurred by Mr.
Kingsley and paid by the Company in the amount of $164,940, (ii)
insurance premiums paid by the Company for life insurance coverage in
the amount of $6,692, and (iii) Company contributions to the Company's
defined contribution salary reduction 401(K) plan qualified under
Section 401(a) of the Code.
There are presently no pension or retirement plans of the Company that
will cover any of the Named Executive Officers.
None of the Named Executive Officers were granted options during the
Company's 1995 fiscal year. The Company's option plans do not provide for stock
appreciation rights.
Option Exercises and Year-End Option Value Table
The following table summarizes the exercise of options by the named
executive officers during the last fiscal year and the value of options held by
such named executives as of the end of such fiscal year. The Company's option
plans do not provide for stock appreciation rights.
AGGREGATED OPTION/SAR EXERCISES IN LAST
FISCAL YEAR AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options/SARs
Options/SARs at FY-End (#) at FY-End ($)(2)
Shares Acquired
Name on Exercise (#) Value Realized Exercisable/Unexercisable (1) Exercisable/Unexercisable
($)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Henry R. Silverman 0 0 100,000/200,000 $0/$0
Robert S. Kingsley 0 0 33,333/66,667 $0/$0
</TABLE>
- ------------------------
(1) Messrs. Silverman and Kingsley were granted options to purchase
300,000 and 100,000 shares, respectively, under the Company's 1994
Stock Option Plan. Such options were cancelled as of February 1, 1996.
(2) Based upon the Common Stock's closing price in NASDAQ of $11.875 on
December 29, 1995 and the applicable exercise price.
Compensation Committee Report on Executive Compensation in 1995
Overall Policy. The Compensation Committee is responsible for
administering the Company's executive compensation policies and programs and
its aims have been to attract and retain the best possible executive talent, to
motivate these executives to achieve the goals inherent in the Company's
business strategy, and to link executive and stockholder interests through
equity-based compensation plans.
The key elements of the Company's executive compensation program
include base salary, annual bonus or commission, and stock options. Each
executive's compensation package is designed to condition a significant portion
of the executive's overall anticipated compensation on the Company's success in
achieving specified performance targets or on appreciation in the value of the
Common Stock or both.
36
<PAGE>
The following discussion relates to the compensation paid to executive
officers of the Company during 1995. In connection with the change in the
composition of the Board of Directors and related changes in the Compensation
Committee that will result if the Closing of the Investment occurs, the
Compensation Committee expects that the Company's compensation program for its
executive officers will change if the Closing occurs, although no new
compensation program has been proposed.
Base Salaries. Base salaries paid to the Named Executive Officers in
1995 were set forth in their respective employment agreements. The employment
agreements with the Named Executive Officers are described more fully under
"Employment Contracts and Termination, Severance and Change of Control
Arrangements." Those employment agreements have been terminated. Officers and
employees of the Company other than the Named Executive Officers received their
entire compensation in 1995 as officers or employees, as the case may be, of
HFS. A portion of the Corporate Services Fee paid by the Company to HFS
represented the Company's payment to HFS for the executive services performed
by such persons as officers of the Company pursuant to the Corporate Services
Agreement. No set allocations were established with respect to the amount of
time that such persons devoted to the affairs of the Company and HFS,
respectively, nor were set allocations established with respect to the portion
of such persons' overall compensation from HFS that was paid in respect of
services performed for the Company pursuant to the Corporate Services
Agreement.
Annual Bonus. Mr. Kingsley's annual bonus in 1995 was based upon the
terms of his negotiated employment agreement. See "Employment Contracts and
Termination, Severance and Change of Control Arrangements". Pursuant to his
employment agreement, Mr. Silverman was not entitled to a bonus. As stated
above, the Company intends to adopt an executive compensation plan under which
cash bonuses will be paid in amounts to be determined based on the achievement
of performance objectives established by the Compensation Committee. The
allocation of bonuses among participants under that plan will be determined by
the Compensation Committee and will depend on each participant's position and
individual performance.
Stock Options. Stock options are designed to align the interests of
executives with those of the stockholders, as the value realized by the
executives from the options will be limited by the appreciation of the stock
price over a number of years. No stock options were granted to any person
serving as an executive officer of the Company in 1995.
Deductibility of Compensation. Due to recent changes in tax law, the
deductibility for corporate tax purposes of compensation paid to individual
executive officers of the Company in excess of $1 million may be restricted.
However, where it is deemed necessary and in the best interests of the Company
in order to continue to attract and retain the best possible executive talent,
and to motivate such executives to achieve the goals inherent in the Company's
business strategy, the Compensation Committee will recommend, and the Company
is expected to pay, compensation to executive officers which may exceed the
limits of deductibility.
The Compensation Committee
Robert F. Smith Michael J. Kennedy
Compensation Committee Interlocks and Insider Participation
During 1995, the Compensation Committee of the Board of Directors
consisted of Mr. Robert F. Smith and Mr. Michael J. Kennedy. Neither Mr. Smith
nor Mr. Kennedy is or has ever been an officer or employee of the Company or
any of its subsidiaries.
37
<PAGE>
Performance Graph
Set forth below is a line graph comparing the percentage change in the
cumulative total return of the Common Stock, the Standard & Poor's SmallCap 600
Index and the Dow Jones Entertainment and Leisure-Casino Index for the period
from November 29, 1994 through December 31, 1995.
[Insert Graph]
- -------------------------
Assumes $100.00 invested on November 29, 1994 (the first day of trading in the
Common Stock) in the Common Stock, the Dow Jones Entertainment and
Leisure-Casino Index and the Standard & Poor's SmallCap 600 Index.
CUMULATIVE TOTAL RETURN
==========================================================================
11/94 12/94 12/95
- --------------------------------------------------------------------------
NATIONAL LODGING CORP. $100 $ 70 $ 69
- --------------------------------------------------------------------------
DOW JONES ENTERTAINMENT $100 $109 $145
& LEISURE - CASINO INDEX
- --------------------------------------------------------------------------
STANDARD & POOR'S SMALLCAP $100 $ 99 $128
600 INDEX
==========================================================================
38
<PAGE>
Employment Contracts and Termination, Severance and Change of Control
Arrangements
Each Named Executive Officer was employed by the Company pursuant to a
written employment agreement during 1995.
Mr. Silverman served as Chairman of the Board and Chief Executive
Officer of the Company until January 24, 1996 pursuant to a five-year
employment agreement which was terminated by mutual agreement as of January 24,
1996. The agreement provided for an annual base salary of at least $500,000
(subject to annual increase based on the consumer price index). Mr. Silverman
has agreed to waive any and all payments to which he would otherwise have been
entitled in connection with that termination.
Mr. Kingsley served as President and Chief Operating Officer of the
Company pursuant to an employment agreement between Mr. Kingsley and HFS, which
HFS transferred to the Company and the Company assumed pursuant to the
Distribution Agreement. The agreement was terminated as of January 24, 1996.
The agreement provided for an annual base salary of $250,000. Pursuant to the
agreement, Mr. Kingsley was paid a bonus of $125,000, for the initial year of
his employment. Upon termination of Mr. Kingsley's employment by the Company
during the term of his employment agreement other than for death, disability or
"cause", the employment agreement entitled Mr. Kingsley to receive a severance
payment in an amount equal to 100% of the annual base salary to which Mr.
Kingsley would be entitled under the agreement during the one year period
following the date of such termination. Generally, "cause" was defined in the
agreement as, among other things, (i) the willful failure by Mr. Kingsley
substantially to perform his duties under the agreement, (ii) any act of fraud,
misappropriation or similar conduct against the Company, (iii) conviction of a
felony, (iv) gross negligence by Mr. Kingsley in the performance of his duties,
(v) the determination by the Board that the employment of Mr. Kingsley would
preclude the granting of a gaming license or (vi) the willful breach by Mr.
Kingsley of a material provision of the agreement. In connection with Mr.
Kingsley's resignation from the Company, the Company has agreed to pay Mr.
Kingsley his base salary through December 31, 1996.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Relationships with HFS
Prior to November 22, 1994, the Company was a wholly-owned subsidiary
of HFS. On that date (the "Distribution Date"), HFS distributed all of the
Company's outstanding Common Stock to HFS's stockholders (the "Distribution").
In connection with the Distribution, HFS transferred the assets and liabilities
of its business of financing and developing casino gaming and entertainment
facilities (the "Casino Development Business") to the Company and made cash
capital contributions to the Company aggregating $50 million. As a result of
the Distribution, the Company became a publicly traded corporation and ceased
to be a subsidiary of HFS.
For purposes of (i) governing certain of the ongoing relationships
between HFS and the Company after the Distribution, (ii) providing mechanisms
for an orderly transition and (iii) providing HFS with a means of participating
in the economic benefits of future gaming projects, HFS and the Company entered
into each of the agreements described below. The following descriptions of the
original Distribution Agreement, Financing Agreement, Corporate Services
Agreement, Tax Sharing Agreement, Marketing Services Agreement, Advisory
Agreement and Facility Sublease are qualified in their entirety by reference to
the copies of such agreements filed with the Commission as exhibits to the
Company's Current Report on Form 8-K dated December 2, 1994.
Distribution Agreement. The Company and HFS entered into a Transfer
and Distribution Agreement dated as of November 22, 1994 (the "Distribution
Agreement") to provide for, among other things, the principal corporate
transactions required to effect the Distribution, the transfer to the Company
of the Casino Development Business, the allocation between HFS and the Company
of certain liabilities, the capital contributions made by HFS to the Company
and certain other agreements governing the relationship between HFS and the
Company.
39
<PAGE>
The Distribution Agreement also contains certain provisions relating
to employee compensation, benefits and labor matters and the treatment of
options to purchase HFS common stock held by employees of HFS that were
outstanding at the time of the Distribution. Among such provisions is an
agreement by the Company to reserve for future issuance and to issue up to
433,290 shares of Common Stock to certain persons (including certain current
and former directors and executive officers of the Company) in connection with
the exercise of then-outstanding options to purchase shares of HFS common stock
that were granted pursuant to HFS's 1992 Stock Option Plan (which options were
adjusted in connection with the Distribution so that the holders of such
options are entitled, upon exercise thereof, to receive one share of Common
Stock for every 20 shares of HFS common stock purchased upon such exercise,
subject to further adjustment in certain circumstances). As of March 1, 1996,
the Company had issued 18,280 of these shares of Common Stock in connection
with the exercise of HFS options. At the request of HFS, the Company will be
obligated to register the shares of Common Stock issuable in connection with
HFS's 1992 Stock Option Plan under the Securities Act of 1933. Similarly, the
Distribution Agreement provided for the Company to reserve for future issuance
and to issue up to 153,600 shares of Common Stock to Bryanston Group Inc.
("Bryanston") in connection with the exercise of certain rights to purchase
shares of HFS common stock under an Earnout Agreement between HFS and Bryanston
(the "Earnout Agreement"). As of September 22, 1995 all of the shares of Common
Stock to be issued in connection with the Earnout Agreement were issued and
repurchased by the Company.
Financing Agreement. Pursuant to an Interim Financing Agreement dated
as of November 22, 1994 (the "Financing Agreement"), HFS agreed to extend up to
$75 million in credit enhancements (e.g., guarantees) on behalf of the Company
as security for future bank credit facilities. The Financing Agreement was
amended and restated as of January 23, 1996 to provide for the issuance of the
Travelodge Guarantee (defined below). Pursuant to the Financing Agreement, HFS
guaranteed $75 million of the Company's $125 million revolving credit
obligation to certain banks, which the Company entered into in connection with
the Travelodge Acquisition (the "Travelodge Guarantee"). See "Other
Transactions -- Travelodge Acquisition." The Financing Agreement currently
requires the Company to pay HFS an annual fee equal to 2% of the obligations
guaranteed pursuant to the Travelodge Guarantee. Prior to the January 1996
amendment, the Company was obligated to pay HFS a fee equal to 2% of the $75
million commitment from HFS under the Financing Agreement. In 1995 the Company
paid HFS a fee of $1.5 million pursuant to the Financing Agreement.
Corporate Services Agreement. Pursuant to a Corporate Services
Agreement dated as of November 22, 1994 (the "Corporate Services Agreement"),
HFS provided to the Company certain general corporate support services,
including executive services (such as the services of Messrs. Holmes and
Buckman; see "Executive Officers"), accounting services, legal services,
treasury services, financial reporting and internal audit services, insurance
and risk management services, management information systems ("MIS") services
and employee benefits administration, which HFS had historically provided to
its casino development business. During 1995, the Company paid HFS a fee of
$1.5 million under the Corporate Services Agreement. The Corporate Services
Agreement has a term ending 25 years after the Distribution Date and is
terminable by HFS without penalty upon 90 days' written notice to the Company
or immediately upon a Change in Control of the Company (as defined in the
agreement). HFS has waived its right to terminate the agreement as a result of
the Change in Control resulting from the Investment. The Company generally may
not terminate the Corporate Services Agreement without HFS's consent. The
Corporate Services Agreement was amended as of January 24, 1996, to provide
that the services to be performed by HFS under the Corporate Services Agreement
will only include the following: (i) advisory services in connection with
business acquisitions, financings, and other transactions by the Company, and
(ii) through September 30, 1996, certain corporate and accounting services that
the Company requests HFS to perform and HFS agrees to perform. As amended,
under the Corporate Services Agreement the Company is required to pay HFS a
fixed annual fee of $1.5 million payable quarterly in advance.
Tax Sharing Agreement. The Tax Sharing and Indemnification Agreement
dated as of November 22, 1994 (the "Tax Sharing Agreement"), provides for the
respective obligations of HFS and the Company concerning various tax
liabilities. The Tax Sharing Agreement provides that (i) HFS shall pay, and
indemnify the Company if necessary for, all federal, state, local and foreign
income taxes relating to the Casino Development Business for any taxable period
ending on or before the Distribution Date and (ii) the Company shall pay, and
indemnify HFS if necessary for, all federal, state and local income taxes
attributable to the Casino Development Business for any taxable period
40
<PAGE>
ending after the Distribution Date or that arise as a result of or in
connection with the Distribution. Pursuant to the Tax Sharing Agreement, HFS is
also required to pay all other taxes attributable to periods prior to the
Distribution Date. The Tax Sharing Agreement further provides for cooperation
with respect to certain tax matters, the exchange of certain tax-related
information and the retention of records which may affect the income tax
liability of either party.
Marketing Services Agreement. Pursuant to a Gaming Related Marketing
Services Agreement dated as of November 22, 1994 and terminated on January 24,
1996 (the "Marketing Services Agreement"), an affiliate of HFS was obligated to
provide certain marketing services to gaming facilities in which the Company
had an interest through HFS's network of hotel franchises, reservation centers,
frequent traveller programs and other marketing resources. During 1995, this
affiliate did not provide the Company with any such services and the Company
did not make any payments to this affiliate under the Marketing Services
Agreement in 1995.
Advisory Agreement. Pursuant to a Gaming Related Advisory Services
Agreement dated as of November 22, 1994 and terminated on January 22, 1996 (the
"Advisory Agreement"), the Company retained HFS as its advisor in connection
with all gaming related acquisition, financing or development projects or
transactions (including corporate or other acquisitions, mergers,
consolidations, joint ventures and similar transactions) considered by the
Company. During 1995, the Company paid HFS $337,000 for advisory services
rendered to the Company pursuant to the Advisory Services Agreement. In
connection with the termination of the Advisory Agreement, the Company has
agreed to pay HFS $1.14 million if the Closing occurs. Since January 24, 1996,
HFS has agreed to provide advisory services pursuant to the Corporate Services
Agreement.
Facility Sublease. Pursuant to a sublease which commenced on the
Distribution Date and was terminated on March 1, 1996, the Company subleased
approximately 7,500 square feet of office space located at 339 Jefferson Road,
Parsippany, New Jersey 07054 from HFS at an annual rental of $130,000. During
1995, the Company paid HFS $130,000 pursuant to the Facility Sublease.
Travelodge Acquisition. On January 23, 1996 the Company completed the
Travelodge Acquisition. In connection with the Travelodge Acquisition, the
Company paid approximately $2 million as an advisory fee to HFS for advisory
services rendered to the Company by HFS in connection with that transaction.
Such advisory fee was not paid in connection with the Advisory Agreement.
Concurrently with the purchase, HFS acquired from Forte Hotels, Inc. and Forte
Plc, the indirect parent of Forte USA, Inc., for $39.3 million, the
"Travelodge" and "Thriftlodge" franchise systems and the related trademarks and
tradenames in North America, which HFS and one of its affiliates have licensed
to the Company under separately negotiated franchise agreements. The franchise
agreements covering the Travelodge and Thriftlodge properties that are wholly
owned by the Company are between the Company and HFS, and require monthly
payment by the Company of a royalty fee of 4% of the property's gross room
revenues plus a marketing fee also currently set at 4% of gross room revenues.
The marketing fee may be changed from time to time by HFS. These franchise
agreements have scheduled terms of 20 years, but may be terminated by the
Company prior to their scheduled expiration upon the payment of liquidated
damages by the Company. The foregoing description of the franchise agreements
with HFS is qualified in its entirety by reference to the form of franchise
agreement that was included as Exhibit A to the Agreement Among Purchasers
dated as of January 22, 1996, which was filed with the Commission as Exhibit
10.1 to the Company's Current Report on Form 8-K, dated January 23, 1996. The
Company has also entered into a franchise agreement (the "License Agreement")
with an affiliate of HFS, as franchisor, covering the Company's Travelodge and
Thriftlodge properties that are owned by joint ventures. Under the License
Agreement, the Company is required to pay a license fee equal to 4% of gross
room revenues multiplied by the Company's percentage interest in each of the
hotel properties owned by joint ventures in which the Company acquired an
interest, plus an additional amount, generally equal to 4.5% of gross room
revenues, for national marketing and reservation services provided by HFS. The
License Agreement has a term of twenty years but may be terminated by the
Company with respect to any particular joint venture prior to the scheduled
expiration. Also, if any particular joint venture is terminated, then the
franchisor may terminate the License Agreement with respect to the property
owned by that joint venture. In either case, the Company is required to pay
liquidated damages upon the early termination of the License Agreement with
respect to any individual joint venture. The amount of liquidated damages
payable by the Company upon termination of the franchise agreement covering any
wholly-owned or joint venture-owned property equals five times the amount of
the royalty fees payable
41
<PAGE>
in respect of that property during the 12 months most recently preceding the
termination, if the termination occurs before the end of the fourth year of the
franchise agreement. If the termination occurs thereafter, the amount of
liquidated damages scales down annually, reaching two times the amount of the
royalty fees payable in respect of that property during the 12 months most
recently preceding the termination if the termination occurs after the sixth
year of the franchise agreement. The foregoing description of the License
Agreement is qualified in its entirety by reference to the License Agreement,
which was filed with the Commission as Exhibit 10.49 to the Company's Annual
Report on Form 10-K/A on May 28, 1996.
Proposed Mexican Joint Venture. On June 17, 1996, the Company
announced that it has entered into a Memorandum of Understanding with Grupo
Piasa, a Mexican hotel company, to form a joint venture for the purpose of
developing and operating, or franchising others to operate, lodging facilities
in Mexico under the "Travelodge" and "Thriftlodge" tradenames (the "Mexican
Joint Venture"). The formation of the joint venture will be subject to certain
conditions, including documentation of a master franchise agreement with HFS,
pursuant to which the joint venture will be entitled to develop and operate, or
to franchise others to develop and operate, lodging facilities in Mexico under
the "Travelodge" and "Thriftlodge" names. Although the terms of the master
franchise agreement have not yet been finalized, the Company expects that they
will require the joint venture to pay to HFS or its affiliates certain fees,
including development fees, franchise fees, royalty fees based on gross room
revenues, and certain other customary fees, such as for travel agency,
marketing and consulting services.
Management Overlap and Conflicts of Interest. As indicated herein
under the captions "Election Of Directors" and "Executive Officers," certain of
the persons who were executive officers and directors of the Company since
January 1, 1995 and certain of its current directors also serve as directors
and/or executive officers of HFS. Each of these directors and executive
officers also owns certain options to purchase shares of the common stock of
HFS. Messrs. Buckman, Edelman, Holmes, Silverman, Smith and Stone are directors
of HFS. Although Messrs. Smith and Buckman are expected to resign from the
Board of Directors at the time of the Closing, Messrs. Edelman, Holmes, Stone
and Silverman are expected to continue as Directors of the Company and, if the
Closing does not occur, Messrs. Smith and Buckman are also expected to continue
as Directors. As a result, there is substantial overlap in the boards of
directors of the Company and HFS. Due to such commonality of management,
certain conflicts of interest may arise with respect to the administration of
the ongoing relationships between HFS and the Company. In particular, such
conflicts may arise with respect to the Financing Agreement, as amended, and
the various franchise agreements between the Company and HFS. It is anticipated
that these conflicts of interest, to the extent that they arise, will be
resolved by consultation with independent financial and legal advisors and
determinations made by disinterested directors. The resolution of such
disagreements and/or conflicts of interests will, however, be more difficult
than would otherwise be the case due to the level of commonality between the
Company's and HFS's management. Moreover, such disagreements and/or conflicts
of interest may be resolved in a manner that may appear to be more favorable to
HFS or the Company, as the case may be.
Relationships with Chartwell and FSNL
In addition to the Initial Chartwell Investment and the Investment,
the Company, Chartwell, FSNL and certain of their affiliates have engaged in
the transactions and have the relationships described below.
The Stock Purchase Agreement will require consent of an independent
committee of the Board of Directors for any transaction after the Closing
between the Purchaser Parties and the Company or any of its subsidiaries and,
under certain circumstances, the receipt of a fairness opinion. See "Approval
of the Investment -- Stock Purchase Agreement."
Initial Stock Purchase Agreement. In connection with the Initial
Chartwell Investment, Chartwell and the Company entered into a stock purchase
agreement dated as of December 20, 1995 (the "Initial Stock Purchase
Agreement"), pursuant to which Chartwell acquired 904,930, or approximately
16.6%, of the outstanding shares of Common Stock of the Company (the "16.6%
Block"). The Initial Stock Purchase Agreement provides that so long as
Chartwell remains a holder of 15% or more of the Company's shares of Common
Stock (a "15% Holder"), the Company will nominate as Directors two nominees
selected by Chartwell, and so long as Chartwell remains a holder of more than
10%, but less than 15%, of the Company's shares of Common Stock (a "10%
Holder"), the Company
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will nominate as a Director one nominee selected by Chartwell. If Chartwell
ceases to be either a 15% Holder or a 10% Holder, then the Company will no
longer be required to nominate as a Director any nominees selected by
Chartwell.
The Initial Stock Purchase Agreement also provides for certain
restrictions on the transfer of Chartwell's 16.6% Block, including prohibitions
on sales made other than pursuant to an effective registration statement under
the Securities Act or in "brokers' transactions" pursuant to Rule 144 of the
Securities Act. Chartwell is required to obtain the Company's consent prior to
the consummation of any proposed sale of its 16.6% Block, other than a sale
made pursuant to a registration statement or in a broker's transaction.
The terms of the Initial Stock Purchase Agreement remain in effect and
are not superseded by the Stock Purchase Agreement unless and until the Closing
occurs. Upon Closing, all of the covenants contained in the Initial Stock
Purchase Agreement will terminate.
Initial Registration Rights Agreement. Concurrently with entering into
the Initial Stock Purchase Agreement, Chartwell and the Company entered into a
registration rights agreement (the "Initial Registration Rights Agreement").
Pursuant to that agreement, if the Company has withheld its consent to a
proposed sale of Chartwell's 16% Block as contemplated in the Initial Stock
Purchase Agreement, Chartwell (or its assignee) will have the right to make a
written request for a demand registration under the Securities Act in order to
register all, but not less than all, of its 16% Block. In addition, under the
Initial Registration Rights Agreement, Chartwell has an incidental registration
right to have its securities included in registrations of securities made by
the Company for its own account or for the account of a stockholder. The
Initial Registration Rights Agreement will terminate upon the Closing.
Vicksburg Facility. In addition to the Initial Chartwell Investment
and the Investment proposed to be made by Chartwell and FSNL, Chartwell Leisure
Associates L.P., an affiliate of Chartwell and Messrs. Fisher, Edelman and
Leland ("Chartwell Leisure"), has entered into an agreement with Funtricity
Vicksburg Family Entertainment Park, Inc., a wholly-owned subsidiary of Six
Flags Theme Parks, Inc., to develop a family entertainment center in Vicksburg,
Mississippi (the "Vicksburg Facility") on land which is ground leased by
Chartwell Leisure from affiliates of Rainbow Casino Corporation (collectively,
"Rainbow"). As an inducement to Chartwell Leisure to provide financing for the
Vicksburg Facility, commencing May 1, 1995, the opening date of the Vicksburg
Facility, the Company and Chartwell Leisure share principal and interest
payments on a loan to Rainbow, with Chartwell Leisure's share ranging from 14%
to 27%, of such payments, adjusted annually. Similarly, HFS and Chartwell
Leisure share marketing fees from Rainbow with Chartwell Leisure's share
ranging from 20% to 27% of such payments, adjusted annually. Chartwell Leisure
has agreed to share with HFS 50% of the net cash flow payable to Chartwell
Leisure in respect of the Vicksburg Facility and HFS has agreed to share such
amounts pro rata with the Company based on the relative amounts paid by HFS and
the Company, respectively, to Chartwell Leisure each year.
Chartwell Hotels. Chartwell Hotels Associates, a Delaware general
partnership, and Chartwell Hotels II Associates, a Delaware general
partnership, which are both affiliates of Chartwell and Messrs. Edelman, Fisher
and Leland (collectively, "Chartwell Hotels"), and their affiliate Chequers
Investment Associates, have acquired certain hotels and mortgages secured by
hotels from the Resolution Trust Corporation. In two transactions with
Chartwell Hotels, entered into in November 1992 and May 1993, and each amended
in December 1994, which have resulted in and will result in the addition of
hotels to HFS's franchise systems, HFS has advanced approximately $10 million,
and has agreed to advance up to an additional $4 million if certain additional
property conversions and other requirements are met, in return for Chartwell
Hotels' agreement to franchise the properties with one of HFS's brands. Subject
to the exceptions described below, all hotels owned by Chartwell Hotels will
pay royalties once they become part of HFS's franchise systems, and a portion
of these royalties will be credited toward the recovery of HFS's $10 million
advance. With the consent of HFS, Chartwell Hotels may elect not to operate a
hotel as a franchised hotel, provided that it pays HFS a percentage of gross
room sales in lieu of royalties (the "Non-Franchised Property Fee"). In
addition, in the event that the improvement costs required to upgrade any
Chartwell Hotels property so that such property meets HFS's franchise
requirements exceed a threshold amount, the property will not be required to be
operated under an HFS brand but Chartwell Hotels will be required to pay HFS a
certain fee in connection with such property (the "Unimproved Property Fee").
The entire amount of any Unimproved Property Fees and Non- Franchised Property
Fees will be credited toward the recovery of HFS's $10 million advance. Each
advance is
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required to be fully recovered over a maximum five-year period following the
advance. In addition, as individual properties convert to HFS brands, HFS will
make additional advances to the franchisee of such properties to fund costs
incurred in connection with the conversion. Those advances are required to be
repaid with interest by the franchisee over a three year period and that
repayment has been guaranteed by Chartwell Hotels.
Chartwell Hotels Associates and HFS are also parties to a letter
agreement dated January 1, 1994 terminating an agreement dated November 17,
1992 whereby HFS had agreed to provide certain consulting services to Chartwell
Hotels Associates. Under the termination letter dated January 1, 1994,
Chartwell Hotels Associates agreed to pay HFS a fee of $2 million, payable over
five years, in full consideration of the termination of those consulting
arrangements.
Stockholders' Agreement. In connection with the proposed Investment,
Chartwell and FSNL have entered into a stockholders' agreement which will
become effective only upon the Closing of the Investment (the "Stockholders'
Agreement"). The Stockholders' Agreement provides that Chartwell and FSNL will
vote their shares of Common Stock to elect as a Director of the Company one
nominee selected by FSNL and any number of nominees selected by Chartwell, and
that FSNL will vote its shares of Common Stock at all meetings of stockholders
of the Company and in any written consent in the manner directed by Chartwell.
The Stockholders' Agreement also provides for certain restrictions on the
transfer of their shares of Common Stock and on future acquisitions of shares
of Common Stock by Chartwell and FSNL. Upon the Stockholders' Agreement
becoming effective, for a period of six years, FSNL will be prohibited from
transferring its shares to persons other than Chartwell and certain other
permitted transferees identified in the Stockholders' Agreement. Additionally,
under the Stockholders' Agreement, FSNL is afforded certain "tag-along" rights
exercisable by it upon a sale of shares by Chartwell or upon a request by
Chartwell of a Demand Registration Statement pursuant to the Registration
Rights Agreement. Chartwell may sell its shares to FSNL and certain other
permitted transferees identified in the Stockholders' Agreement and to third
parties, provided that Chartwell allows for FSNL to "tag-along" in the event of
sale to any third party. Chartwell may also require FSNL to sell its shares to
a third party offering to purchase all of Chartwell's and FSNL's shares of
Common Stock.
Third Avenue Lease. In March 1996, the Company entered into a lease
with an affiliate of Chartwell and an unaffiliated third party, as landlords,
pursuant to which the Company has leased approximately 18,700 square feet of
office space located at 605 Third Avenue, New York, New York for a period of
ten years. Under this lease, the Company is obligated to pay approximately
$542,000 per year for each of the first five years, and approximately $600,000
per year for each of the last five years, of the term of the lease for the use
of such office space. The terms of this lease are, in the opinion of the
Company, substantially similar to the market terms that would be available from
a third party for a similar property.
Relationships with Mr. Edelman
Mr. Edelman is of counsel to Battle Fowler LLP, a New York City law
firm that is representing the Company in various matters relating to the
Investment and has represented the Company, HFS and certain Chartwell Parties
in the past with respect to various legal matters. That firm has represented
the Company in connection with two of its open and operating casino gaming
ventures. The Company expects to continue to utilize that firm after the
Closing. In addition, Mr. Edelman was retained as a consultant to the Company
in connection with the development of the Company's proposed casino projects in
Pittsburgh and Erie, Pennsylvania, for the period from March 1994 through June
1995. During such period, Mr. Edelman was paid a fee of approximately $5,000
per month for providing such consulting services. That consulting agreement was
terminated in January 1996.
Relationships with Mr. Stone
Mr. Stone is currently a director of the Company. In December 1993,
Mr. Stone was a partner in the Washington, D.C. public-affairs firm of Black,
Manafort, Stone & Kelly. At that time, HFS engaged that firm to pursue gaming
opportunities at the direction of the Company. The engagement letter was
assigned by HFS to the Company in connection with the Distribution. The
engagement agreement provided for payment by the Company of a monthly fee of
$20,000 plus reasonable and necessary expenses. Such agreement was amended to
provide for
44
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a monthly fee of $10,000 plus expenses, commencing in February 1995. This
agreement expired by its terms in June 1995.
HFS also entered into an agreement dated March 22, 1994 with Mr. Stone
for consulting services relating to the identification and development of
opportunities for the Company to participate in gaming facilities. The
consulting agreement was assigned by HFS to the Company in connection with the
Distribution. Pursuant to the consulting agreement, Mr. Stone is to receive a
consulting fee of 0.5% of the total cost of development of a gaming facility in
respect of which Mr. Stone has rendered material services to the Company and
was instrumental in causing the completion of the facility, plus one percent to
five percent (to be mutually determined by the Company and Mr. Stone through
negotiations on a transaction-by-transaction basis) of the proceeds to the
Company from such facility after the Company receives a return of its
investment. This agreement with Mr. Stone does not have a stated duration and
is terminable by the Company upon notice to Mr. Stone. The Company did not pay
Mr. Stone any fees under this agreement during 1995. Because the Company has
decided to pursue investments in the lodging industry, the Company does not
expect to have any future payment obligations to Mr. Stone under this
agreement.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act requires the Company's officers and
directors, and persons who own more than 10% of a registered class of the
Company's equity securities ("10% stockholders"), to file reports of ownership
and changes in ownership on Forms 3, 4 and 5 with the Securities and Exchange
Commission and NASDAQ. Officers, directors and 10% stockholders are required to
furnish the Company with copies of all Forms 3, 4 and 5 they file.
Based solely on the Company's review of the copies of such forms it
has received and written representations from certain reporting persons that
they were not required to file Forms 5 for a specified fiscal year, the Company
believes that all of its officers, directors and 10% Stockholders complied with
all filing requirements applicable to them with respect to transactions during
1995.
ATTENDANCE OF AUDITORS AT THE MEETING.
Representatives of Deloitte & Touche LLP, the Company's auditors, are
expected to be present at the Meeting and will have the opportunity to make a
statement if they choose to do so and will be available to respond to
appropriate questions of stockholders.
If the Investment is approved, the Company expects that the
composition of the Board of Directors will change (see "Election of
Directors"). In light of the anticipated changes in the Board of Directors, the
Company believes that it is appropriate for the new Board of Directors to
choose the Company's auditors for the remaining portion of fiscal year 1996.
Therefore, the stockholders of the Company are not being asked to ratify the
appointment of auditors at the Meeting.
STOCKHOLDER PROPOSALS
Any proposal of a stockholder intended to be presented at the
Company's 1997 Annual Meeting of stockholders must be received by the Company
for inclusion in the proxy statement and form of proxy for that meeting no
later than March 13, 1997.
The Company's Bylaws require that, for business, other than that
specified in the notice of the meeting or by the Board of Directors, to be
properly brought before an Annual Meeting by a stockholder, a stockholder's
notice to the Secretary must be delivered to or mailed and received at the
principal executive offices of the Company not less than 60 nor more than 90
days prior to the anniversary date of the previous Annual Meeting of
stockholders; provided, however, that if the Annual Meeting is called for a
date that is not within 30 days before or after the
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anniversary date, the stockholder notice must be received by the Company not
later than 10 days after the day on which the notice for the Annual Meeting is
mailed or public disclosure of the date of the Annual Meeting, whichever occurs
first. The stockholder notice to the Secretary must set forth certain
information regarding the business proposed to be brought before the Annual
Meeting, the name and address of the stockholder proposing such business and
certain other required information. Stockholder notices of proposed business
for the 1996 Annual Meeting must be received by the Company within 10 days
after the date of the Notice accompanying this Proxy Statement. Similarly,
provisions of the Company's Bylaws provide that stockholder nominations for the
Board of Directors require a notice to the Company within the same time periods
required for stockholder proposals. The notice must provide certain information
regarding the person nominated for election as a director, the stockholder
proposing the nomination and certain other required information.
APPRAISAL RIGHTS
The Company's stockholders are not entitled to dissenters' rights of
appraisal in connection with the Proposals covered by this Proxy Statement,
including the Investment Proposal.
INCORPORATION OF DOCUMENTS BY REFERENCE
This Proxy Statement incorporates by reference the financial
statements, supplementary financial information and management's discussion and
analysis of financial condition and results of operations regarding the Company
included in the Company's 1995 Annual Report to Shareholders, which includes
the Company's Amendment on Form 10-K/A to its Annual Report on Form 10-K for
the fiscal year ended December 31, 1995, as filed with the Commission on July
3, 1996 (the "1995 Form 10-K") and contains financial statements and other
information concerning the operations of the Company. This Proxy Statement also
incorporates by reference the information and financial statements included in
the Company's Amendment on Form 8-K/A to its Current Report on Form 8-K, dated
January 23, 1996 as filed with the Commission on July 9, 1996 (the "January
1996 8-K"), and the Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1996 (the "First Quarter 10-Q").
Any statement contained in a document incorporated by reference in
this Proxy Statement will be deemed to be modified or superseded for purposes
of this Proxy Statement to the extent that a statement contained in this Proxy
Statement or in any other subsequently filed document which is also
incorporated by reference in this Proxy Statement modifies or supersedes such
statement. Any statements so modified or superseded will not be deemed, except
as modified or superseded, to constitute a part of this Proxy Statement.
ADDITIONAL INFORMATION
The Company's 1995 Annual Report to Shareholders, which includes the
1995 Form 10-K, the January 1996 8-K, which contains financial information for
the Travelodge Acquisition and the Canadian Acquisition, and the First Quarter
10-Q, are enclosed with this Proxy Statement, but are not to be regarded as
proxy soliciting materials. The exhibits to the 1995 Form 10-K, January 1996
8-K and First Quarter 10-Q have not been enclosed with this Proxy Statement.
Upon written or oral request, the Company will provide, without charge to each
shareholder of the Company, copies of such exhibits, as filed with the
Commission. Stockholders should address all such requests to: Secretary,
National Lodging Corp., 605 Third Avenue, 23rd Floor, New York, New York 10158,
telephone number (212) 692-1400, facsimile number (212) 867-5475.
By Order of the Board of Directors
DOUGLAS H. VERNER
Secretary
Dated: July 11, 1996
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NATIONAL LODGING CORP.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF NATIONAL LODGING CORP. FOR
THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON THURSDAY, AUGUST 8, 1996
The undersigned, as a holder of common stock, $.01 par value (the "Common
Stock"), of National Lodging Corp. (the "Company"), hereby appoints Douglas H.
Verner and Samuel Rosenberg, and each of them, with full power of substitution,
to vote all shares of Common Stock for which the undersigned is entitled to vote
through the execution of a proxy with respect to the Annual Meeting of
Stockholders of the Company to be held at the Rockefeller Center Club, 30
Rockefeller Center Plaza, New York, New York on Thursday, August 8, 1996 at
10:00 a.m. local time, or any and all adjournments or postponements thereof, and
authorizes and instructs said proxies to vote in the manner directed below:
The implementation of Proposal 2 is conditioned upon approval of Proposal
1. Therefore, unless Proposal 1 receives the minimum required number of votes
in favor of approval, Proposal 2 will not be effected or implemented.
You may revoke this proxy at any time by forwarding to the Company a
subsequently dated proxy received by the Company prior to the Annual Meeting.
Returned proxy cards will be voted (1) as specified on the matters listed
on the reverse side; (2) in accordance with the Board of Directors'
recommendations where no specification is made, and (3) in accordance with the
judgement of the proxies on any matters that may properly come before the
meeting. Please mark your choice like this: /X/
<PAGE>
Please mark
your votes as
indicated in
this example /X/
The Board of Directors Recommends Votes "For" Each of the Following:
1. On the proposal to approve the issuance and sale to Chartwell Leisure
Associates L.P. II and FSNL LLC of an aggregate of 4 million shares of the
Company's Common Stock at a price per share of $14.25:
For Against Abstain
/ / / / / /
2. On the proposal to approve the filing of the Certificate of Amendment to the
Company's Certificate of Incorporation which is described in and annexed to the
accompanying Proxy Statement and which will provide for the change of the
Company's name from National Lodging Corp. to Chartwell Leisure Inc.:
For Against Abstain
/ / / / / /
3. Election of Directors
Nominees: James E. Buckman, Stephen P. Holmes, Michael J. Kennedy
For Withheld For, except vote withheld for the following nominee(s)
/ / / /
----------------------------------------------------------
4. In their discretion, the proxies are authorized to vote upon such other
matters as may properly come before the meeting, or any adjournment or
postponement thereof.
Print and sign your name below exactly as it appears hereon and date this card.
When signing as attorney, executor, administrator, trustee or guardian, please
give full title, as such. Joint owners should each sign. If a corporation,
please sign in full corporate name by president or authorized officer. If a
partnership, please sign in partnership name by authorized person.
Dated: , 1996
-----------------------------------------------
- -----------------------------------------------------------
Signature (title, if any)
- -----------------------------------------------------------
Signature, if held jointly
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY IN THE ENCLOSED POSTAGE-PAID
ENVELOPE TODAY.
EXHIBIT A
AMENDED AND RESTATED STOCK PURCHASE AGREEMENT
THIS AMENDED AND RESTATED STOCK PURCHASE AGREEMENT (the
"Agreement") dated as of March 14, 1996, amends and restates the Stock Purchase
Agreement dated as of February 14, 1996 (the "Original Agreement"), by and
among Chartwell Leisure Associates L.P. II, a Delaware limited partnership
("Chartwell"), with its principal executive offices at 55 Hillside Road, Rye,
New York 10580, FSNL LLC, a Connecticut limited liability company ("FSNL" and,
together with Chartwell, the "Buyers"), with its principal executive offices at
157 Church Street, New Haven, Connecticut 06510, and National Lodging Corp., a
Delaware corporation ("Seller"), with its principal executive offices at 605
Third Avenue, New York, New York 10158.
Preliminary Statement
Chartwell is the owner of 904,930 shares of Seller's common stock,
par value $0.01 per share ("Common Stock"), which it purchased pursuant to a
Stock Purchase Agreement, dated as December 20, 1995 (the "1995 Purchase
Agreement").
Pursuant to the Original Agreement, Seller agreed to issue, sell,
transfer, assign, convey and deliver 2,947,369 shares of Common Stock (the
"Chartwell Shares") to Chartwell and 1,052,631 shares of Common Stock (the
"FSNL Shares" and, together with the Chartwell Shares, the "Shares") to FSNL,
and Chartwell agreed to purchase, acquire and accept the Chartwell Shares, and
FSNL agreed to purchase, acquire and accept the FSNL Shares, from Seller, upon
the terms and conditions of the Original Agreement. The parties hereto now wish
to amend certain provisions of the Original Agreement. Accordingly, the parties
hereto, intending to be legally bound, hereby agree to amend and restate the
Original Agreement in its entirety as follows:
1. Purchase and Sale.
(a) Subject to the terms and conditions of this Agreement and in
reliance upon the representations, warranties and covenants of Buyers contained
herein, at the Closing (as defined in Section 1(c) of this Agreement) Seller
shall sell, transfer, assign and convey the Chartwell Shares to Chartwell, and
the FSNL Shares to FSNL, for a purchase price of $14.25 per share (the
"Purchase Price") payable as provided in Section 1(b) of this Agreement, and
shall deliver at the Closing to Chartwell a stock certificate or certificates
(the "Chartwell Certificates") registered in Chartwell's name representing all
of the Chartwell Shares and to FSNL a stock certificate or certificates (the
"FSNL Certificates") registered in FSNL's name representing all of the FSNL
Shares, in each case free and clear of any claim, security interest, lien and
encumbrance whatsoever (collectively, "Liens") with respect thereto and without
any restrictive legend other than with respect to applicable securities laws
and subject to the terms and conditions of this Agreement. In reliance upon the
representations, warranties and covenants of Seller contained herein, at the
Closing Chartwell shall purchase, acquire and accept the Chartwell Shares, and
FSNL shall purchase, acquire and accept the FSNL Shares, from Seller for the
Purchase Price payable as provided in Section 1(b) of this Agreement. Seller
shall also deliver to each of
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Chartwell and FSNL at the Closing the opinion of Seller's counsel, Skadden Arps
Slate Meagher & Flom, substantially to the effect set forth in Exhibit 1(a)(i)
hereto and otherwise in form and substance reasonably acceptable to the Buyers
(the "Opinion of Seller's Counsel") and a registration rights agreement
relating to the Shares (the "Registration Rights Agreement"), in the form
attached as Exhibit 1(a)(ii) hereto. In addition, at the Closing, Chartwell
shall deliver to Seller the opinion of Chartwell's counsel, Battle Fowler LLP,
substantially to the effect set forth in Exhibit 1(a)(iii) hereto and otherwise
in form and substance reasonably acceptable to the Seller (the "Opinion of
Chartwell's Counsel"), and FSNL shall deliver to Seller the opinion of FSNL's
counsel, Bergman, Horowitz & Reynolds, P.C., substantially to the effect set
forth in Exhibit 1(a)(iv) hereto and otherwise in form and substance reasonably
acceptable to the Seller (the "Opinion of FSNL's Counsel").
(b) The Purchase Price shall be paid by each of Chartwell and FSNL
at the Closing by wire transfer in immediately available funds in accordance
with the instructions provided to Chartwell and FSNL by Seller no less than two
business days prior to Closing by wire transfer of immediately available funds
to the account indicated by Seller in such instructions.
(c) The closing of the purchase and sale of the Shares (the
"Closing") shall take place at the offices of Battle Fowler LLP, 75 East 55th
Street, New York, New York as soon as practicable after the last of the
conditions set forth in Sections 6 and 7 of this Agreement shall have been
satisfied or waived, but in no event later then the fifth business day
thereafter, or at such other time and place as Chartwell, FSNL and Seller shall
mutually agree. The date on which the Closing occurs is referred to herein as
the "Closing Date".
2. Representations and Warranties of Seller. Seller hereby
represents and warrants to each of the Buyers as follows:
(a) Seller is a corporation duly organized, validly existing and in
good standing under the laws of Delaware. Seller is duly qualified to do
business and is in good standing as a foreign corporation under the laws of all
jurisdictions where the nature of its properties or business so requires and
where a failure to be in good standing as a foreign corporation would have a
material adverse effect on its assets or business.
(b) Subject to (i) the filings required under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), and the
termination or expiration of the waiting period thereunder, and (ii) approval
by the stockholders of Seller of the issuance of the Shares by Seller: (1)
Seller has the full power and authority to enter into this Agreement and the
Registration Rights Agreement, to issue and sell the Chartwell Shares to
Chartwell and the FSNL Shares to FSNL, and to consummate the transactions
described herein and therein, (2) the execution, delivery and performance of
this Agreement and the Registration Rights Agreement by Seller have been duly
authorized by all necessary action on the part of Seller, (3) the execution,
delivery and performance of this Agreement and the Registration Rights
Agreement by Seller will not conflict with or result in a breach or default
under Seller's organizational documents, or under any law, rule, regulation,
judgment, order or decree to which Seller is subject, and (4) the execution,
delivery and performance of this Agreement and the Registration Rights
Agreement by
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Seller will not conflict with or result in a breach or default (or give rise to
any right to termination, cancellation, payment or acceleration or any other
right) under any agreement or instrument to which Seller is a party or by which
any of its properties may be bound, other than the Credit Agreement, dated as
of January 23, 1996, among Seller, various banks, Chemical Bank, as
documentation agent, and Bankers Trust Company, as administrative agent, and
other agreements and instruments entered into by Seller thereunder, and under
Seller's stock option plans and related agreements, about which Seller makes no
representation. This Agreement and the Registration Rights Agreement constitute
the legal, valid and binding obligations of Seller, enforceable in accordance
with their terms.
(c) Other than: (1) filings required under the HSR Act and the
termination or expiration of the waiting period thereunder, (2) the filing of
the Seller's Proxy Statement, as contemplated by Section 4(b) of this
Agreement, and (3) filings required under gaming laws of the States of Arizona
and Mississippi, no action, consent or approval of, or registration or filing
with, or any other action by any governmental agency, bureau, commission, court
or authority is required in connection with the execution, delivery and
performance by Seller of this Agreement or the Registration Rights Agreement.
(d) The Shares are duly authorized, and when issued in accordance
with the terms of this Agreement, will be validly issued, fully paid and
non-assessable. The Shares will not be issued in violation of the preemptive
rights or other rights of any person. The Certificates will be in due and
proper form and comply with applicable legal requirements.
(e) By the issuance and transfer of the Shares hereunder at the
Closing, Seller will convey good title to the Shares free and clear of any
Liens of any kind and of any rights or claims (contractual or otherwise) in
favor of any other person. No consent of any person, other than approval of the
stockholders of Seller as contemplated by Section 7(e) of this Agreement, is
required for the execution, delivery and performance of this Agreement or the
Registration Rights Agreement by Seller or for the sale and transfer of the
Shares which has not been obtained.
(f) The Seller's authorized capital stock consists of 100,000,000
shares of Common Stock, of which 5,452,320 shares are issued and outstanding.
No options, warrants, conversion or other rights, agreements or commitments of
any kind obligating the Seller, contingently or otherwise, to issue or sell any
shares of its capital stock of any class or any securities convertible into or
exchangeable for any such shares are outstanding, other than options granted
under Seller's 1994 Stock Option Plan and 1992 Stock Option Plans of HFS
Incorporated (collectively, the "Option Plans").
(g) None of the reports or registration statements filed since
January 1, 1995 by Seller with the Securities and Exchange Commission (the
"Commission") under the Securities Exchange Act of 1934, as amended (the "1934
Act"), at the time they were filed contained any untrue statement of a material
fact or omitted to state a material fact necessary in order to make the
statements made therein, in light of the circumstances in which they were made,
not misleading. From January 1, 1995 to date, Seller has timely filed all
reports it is required to file under the 1934 Act.
A-3
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(h) Since September 30, 1995, there has not been any material
adverse change in the Seller's condition (financial or otherwise), assets,
liabilities or results of operations, other than as disclosed in any of
Seller's publicly available filings with the Securities and Exchange
Commission.
(i) There is no pending litigation or, to the knowledge of Seller,
any governmental investigation or threatened litigation which is reasonably
likely to have a material adverse effect on the Seller, other than as disclosed
in any of Seller's publicly available filings with the Securities and Exchange
Commission.
3. Representations and Warranties of Chartwell. Chartwell hereby
represents and warrants to Seller as follows:
(a) Chartwell is a limited partnership duly organized, validly
existing and in good standing under the laws of Delaware. Chartwell is duly
qualified to do business and is in good standing as a foreign limited
partnership under the laws of all jurisdictions where the nature of its
properties or business so requires and where a failure to be in good standing
as a foreign limited partnership would have a material adverse effect on its
assets or business.
(b) Subject to the filings required under the HSR Act and the
termination or expiration of the waiting period thereunder: (1) Chartwell has
the full power and authority to enter into this Agreement and the Registration
Rights Agreement, and to consummate the transactions described herein and
therein, (2) the execution, delivery and performance of this Agreement and the
Registration Rights Agreement by Chartwell have been duly authorized by all
necessary action on the part of Chartwell, (3) the execution, delivery and
performance of this Agreement and the Registration Rights Agreement by
Chartwell will not conflict with or result in a breach or default under
Chartwell's organizational documents, or under any law, rule, regulation,
judgment, order or decree to which Chartwell is subject, and (4) the execution,
delivery and performance of this Agreement and the Registration Rights
Agreement by Chartwell will not conflict with or result in a breach or default
(or give rise to any right to termination, cancellation, payment or
acceleration or any other right) under any agreement or instrument to which
Chartwell is a party or by which any of its properties may be bound. This
Agreement and the Registration Rights Agreement constitute the legal, valid and
binding obligations of Chartwell, enforceable in accordance with their terms.
(c) Other than filings required under the HSR Act, and the
termination or expiration of the waiting period thereunder, no action, consent
or approval of, or registration or filing with, or any other action by any
governmental agency, bureau, commission, court or authority is required in
connection with the execution, delivery and performance by Chartwell of this
Agreement or the Registration Rights Agreement.
(d) Chartwell is an "accredited investor" as that term is defined
in Rule 501(a)(8) under the Securities Act of 1933, as amended (the "1933 Act")
and it is purchasing the Shares for its own account (and not for the account of
others), for investment and not with a view to the distribution thereof.
A-4
<PAGE>
4. Representations and Warranties of FSNL. FSNL hereby represents
and warrants to Seller as follows:
(a) FSNL is a limited liability company duly organized, validly
existing and in good standing under the laws of Connecticut. FSNL is duly
qualified to do business and is in good standing as a foreign limited liability
company under the laws of all jurisdictions where the nature of its properties
or business so requires and where a failure to be in good standing as a foreign
limited liability company would have a material adverse effect on its assets or
business.
(b) (1) FSNL has the full power and authority to enter into this
Agreement and the Registration Rights Agreement, and to consummate the
transactions described herein and therein, (2) the execution, delivery and
performance of this Agreement and the Registration Rights Agreement by FSNL
have been duly authorized by all necessary action on the part of FSNL, (3) the
execution, delivery and performance of this Agreement and the Registration
Rights Agreement by FSNL will not conflict with or result in a breach or
default under FSNL's organizational documents, or under any law, rule,
regulation, judgment, order or decree to which FSNL is subject, and (4) the
execution, delivery and performance of this Agreement and the Registration
Rights Agreement by FSNL will not conflict with or result in a breach or
default (or give rise to any right to termination, cancellation, payment or
acceleration or any other right) under any agreement or instrument to which
FSNL is a party or by which any of its properties may be bound. This Agreement
and the Registration Rights Agreement constitute the legal, valid and binding
obligations of FSNL, enforceable in accordance with their terms.
(c) No action, consent or approval of, or registration or filing
with, or any other action by any governmental agency, bureau, commission, court
or authority is required in connection with the execution, delivery and
performance by FSNL of this Agreement or the Registration Rights Agreement.
(d) FSNL is an "accredited investor" as that term is defined in
Rule 501(a)(8) under the 1933 Act and it is purchasing the Shares for its own
account (and not for the account of others), for investment and not with a view
to the distribution thereof.
5. Preclosing Covenants.
(a) Prior to the Closing or earlier termination of this Agreement,
Seller shall not (i) make any change in or amendment to its Certificate of
Incorporation or ByLaws other than to change the name of the Seller; or (ii)
declare, pay or make any dividend or other distribution or payment with respect
to, or split, redeem or reclassify, any shares of its capital stock, or issue
any shares of its capital stock or options or other rights to acquire shares of
its capital stock or securities convertible into shares of its capital stock,
other than the issuance of any shares of Common Stock pursuant to options under
the Option Plans and other than the issuance of options under the Options
Plans.
(b) (i) Seller shall promptly prepare and file with the Commission
under the 1934 Act a proxy statement and appropriate proxy materials and
amendments (collectively, the "Proxy Statement") complying with the 1934
Act and applicable
A-5
<PAGE>
rules and regulations of the Commission for use in soliciting proxies of
the stockholders of Seller in connection with the Annual Meeting of the
stockholders of Seller contemplated by Section 5(c) of this Agreement,
and shall use its best efforts to revise the Proxy Statement to respond
to any comments made by the Commission concerning the Proxy Statement.
(ii) Seller shall promptly thereafter distribute the Proxy
Statement to its stockholders. The Proxy Statement shall be mailed to
stockholders of Seller in accordance with section 222 of the Delaware
General Corporation Law and applicable rules of the National Association
of Securities Dealers, Inc. ("NASD"). Subject to the fiduciary duties of
the Board of Directors of Seller, the Proxy Statement shall contain the
recommendation of the Board of Directors of Seller that the stockholders
of Seller vote in favor of the issuance of the Shares pursuant to this
Agreement.
(iii) Seller shall notify the Buyers of the receipt of any comments
from the Commission and any requests by the Commission for changes to the
Proxy Statement or for additional information, and shall promptly supply
the Buyers with copies of all correspondence between the Seller or its
representatives and the Commission with respect thereto.
(c) Seller shall take all action necessary to convene an annual
meeting of its stockholders (the "Annual Meeting") as promptly as practicable
at which stockholders of the Company will be asked to vote upon a proposal to
approve the issuance of the Shares pursuant to this Agreement (the "Proposal").
The Board of Directors of the Seller shall use its best efforts, subject to its
fiduciary duties, to cause to be solicited proxies from the holders of Common
Stock to be voted at the Annual Meeting in favor of the Proposal and to take
all other actions necessary or advisable to secure that vote of stockholders of
Seller.
(d) Chartwell agrees to vote its shares of Common Stock entitled to
vote at the Annual Meeting in favor of and against the Proposal in the same
proportion as the numbers of shares of Common Stock ("Nonaffiliated Shares")
held by stockholders of Seller other than the Buyers and their affiliates, as
that term is defined in Rule 405 under the 1933 Act ("Affiliates") voted at the
Annual Meeting in favor of and against the Proposal bears to the total number
of Nonaffiliated Shares voted at the Annual Meeting (treating shares which
abstain as not having voted).
(e) Seller shall use its reasonable best efforts to cause the
Shares to be listed on the National Association of Securities Dealers, Inc.
Automated Quotation System, National Market System ("Nasdaq").
(f) Seller and Chartwell shall, as soon as practicable, file
Notification and Report Forms under the HSR Act with the Federal Trade
Commission and the Antitrust Division of the Department of Justice and shall
use their best efforts to respond as promptly as practicable to all inquiries
and requests for additional information or documentation received from the
Federal Trade Commission or the Antitrust Division.
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<PAGE>
(g) Subject to the terms and conditions hereof, and to the
fiduciary duties of the Board of Directors of Seller, each of the Seller,
Chartwell and FSNL shall cooperate, provide one another with all information
required, and use their respective best efforts to take, or cause to be taken,
all appropriate action, and to make, or cause to be made, all filings
necessary, including filings of the Proxy Statement, proper or advisable under
applicable laws to consummate and make effective the transactions contemplated
by this Agreement, and to fulfill the conditions set forth in Sections 6 and 7
of this Agreement.
(h) Each of Seller, Chartwell and FSNL shall refrain from taking
any actions which would cause its respective representations and warranties
contained in this Agreement to become untrue.
6. Conditions Precedent to Buyers' Obligations. The obligations of
the Buyers under this Agreement are subject to the satisfaction, at or prior to
Closing, of each of the following conditions (any of which may be waived in
writing in whole or in part by both of the Buyers, acting together):
(a) The representations and warranties of Seller in this Agreement
shall be true and correct at and as of the Closing with the same effect as
though such representations and warranties were made at and as of the Closing
Date; provided, however, that the representations and warranties in Section
2(f) of this Agreement shall not be deemed to be untrue or incorrect as of the
Closing as a result of the issuance of additional shares of Common Stock upon
the exercise of options granted under any of the Option Plans or as a result of
the grant of additional options under Seller's 1994 Stock Option Plan.
(b) Seller shall have complied in all material respect with its
covenants under this Agreement.
(c) The issuance of the Shares as provided in this Agreement shall
have been approved by the requisite vote of stockholders of the Seller
prescribed by (i) section 216 of the Delaware General Corporation Law, (ii) the
organizational documents of Seller, and (ii) Schedule D to the By-Laws of NASD.
(d) The waiting period (and any extensions thereof) under the HSR
Act applicable to the issuance and purchase of the Shares shall have expired or
been terminated.
(e) The Shares shall have been listed for quotation in Nasdaq.
(f) The Company shall have received the resignations of all of the
members of its Board of Directors other than Martin L. Edelman, Richard L.
Fisher, Stephen P. Holmes, Michael J. Kennedy, Marc E. Leland, Henry R.
Silverman and Roger J. Stone.
(g) No preliminary or permanent injunction or other order, decree
or ruling issued by any court of competent jurisdiction or by any governmental
or regulatory agency, body or authority shall be in effect at the time of
Closing that would prevent the consummation of the transactions contemplated by
this Agreement.
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<PAGE>
(h) Seller shall have delivered to each of the Buyers a
certificate, dated the Closing Date and in form and substance satisfactory to
the Buyers, of Seller's Chief Executive Officer or of Seller's Executive Vice
President and Chief Financial Officer stating that the conditions specified in
Sections 6(a) through 6(e) of this Agreement have been fulfilled.
(i) Buyers shall have received the Opinion of Seller's Counsel.
(j) Seller shall have delivered the Chartwell Certificates to
Chartwell and the FSNL Certificates to FSNL.
(k) Seller shall have executed and delivered the Registration
Rights Agreement.
7. Conditions Precedent to Seller's Obligations. The obligations of
Seller under this Agreement are subject to the satisfaction, at or prior to
Closing, of each of the following conditions (any of which may be waived in
writing in whole or in part by Seller):
(a) The representations and warranties of Chartwell in Section 3 of
this Agreement shall be true and correct at and as of the Closing with the same
effect as though such representations and warranties were made at and as of the
Closing Date.
(b) The representations and warranties of FSNL in Section 4 of this
Agreement shall be true and correct at and as of the Closing with the same
effect as though such representations and warranties were made at and as of the
Closing Date.
(c) Chartwell shall have complied in all material respect with its
covenants under this Agreement.
(d) FSNL shall have complied in all material respect with its
covenants under this Agreement.
(e) The issuance of the Shares as provided in this Agreement shall
have been approved by the requisite vote of stockholders of the Seller
prescribed by (i) section 216 of the Delaware General Corporation Law, (ii) the
organizational documents of Seller, and (ii) Schedule D to the By-Laws of the
NASD.
(f) The waiting period (and any extensions thereof) under the HSR
Act applicable to the issuance and purchase of the Shares shall have expired or
been terminated.
(g) The Shares shall have been listed for quotation in Nasdaq.
(h) No preliminary or permanent injunction or other order, decree
or ruling issued by any court of competent jurisdiction or by any governmental
or regulatory agency, body or authority shall be in effect at the time of
Closing that would prevent the consummation of the transactions contemplated by
this Agreement.
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<PAGE>
(i) Chartwell shall have delivered to Seller a certificate, dated
the Closing Date and in form and substance satisfactory to Seller, of the
President or a Vice President of Chartwell's general partner stating that the
conditions specified in Sections 7(a), (c) and (f) of this Agreement have been
fulfilled.
(j) FSNL shall have delivered to Seller a certificate, dated the
Closing Date and in form and substance satisfactory to Seller, of a Manager of
FSNL stating that the conditions specified in Sections 7(b) and (d) of this
Agreement have been fulfilled.
(k) Each of the Buyers shall have executed and delivered the
Registration Rights Agreement.
(l) Seller shall have received the Opinion of Chartwell's Counsel
and the Opinion of FSNL's Counsel.
(m) Seller shall have received payment of the Purchase Price from
each of the Buyers.
8. Survival of Representations. All representations and warranties
of Buyers and Seller, other than the Seller's representations and warranties in
Sections 2(g), (h) and (i), shall survive the Closing of this transaction. The
Seller's representations and warranties in Sections 2(g), (h) and (i) shall
terminate as of the Closing Date.
9. Termination. This Agreement may be terminated at any time, but
not later than the Closing Date, as follows:
(a) By mutual agreement of the Buyers and Seller to terminate this
Agreement;
(b) By either of the Buyers or Seller if the stockholders of the
Company do not approve the Proposal at the Annual Meeting;
(c) By either of the Buyers or Seller if the Closing shall not have
occurred on or prior to September 30, 1996, unless such delay has resulted from
a breach by such party of any of its representations or warranties, from the
failure of such party to fulfill any of its obligations under this Agreement
or, if the party proposing to terminate is Chartwell, from the actions of
Chartwell's nominees to Seller's Board of Directors or any beneficial owner of
Chartwell serving on Seller's Board of Directors, whether those actions are
taken in their respective capacities as directors or as officers of Seller.
10. Post-Closing Covenants. Without the consent of holders of a
majority of the Nonaffiliated Shares or except as expressly set forth below,
from and after the Closing, each of the Buyers agrees that:
(a) None of the Shares will be sold, pledged or otherwise
transferred, directly or indirectly, by it except:
A-9
<PAGE>
(i) after three years from the Closing Date, in a bona fide
underwritten public offering pursuant to an effective registration under the
1933 Act;
(ii) in connection with a merger or consolidation of the Seller
which is approved by a majority of the Independent Directors (as defined in
Section 10(g)) and in which all holders of Common Stock receive the same
consideration;
(iii) in a sale, pledge or other transfer (a "Transfer") by either
Chartwell or FSNL after three years from the Closing Date, if after giving
effect to that Transfer the aggregate number of shares of Common Stock held by
the Buyer Parties is equal to or greater than 35% of the total number of shares
of Common Stock then outstanding and that Transfer is approved by a majority of
the Independent Directors;
(iv) in a Transfer by FSNL of any of the FSNL Shares after six
years from the Closing Date, if after giving effect to that Transfer the
aggregate number of shares of Common Stock held by the Buyer Parties is equal
to or greater than 35% of the total number of shares of Common Stock then
outstanding, and that Transfer is made in a Brokers' Transaction (as that term
is defined in paragraph (g) of Rule 144 under the 1933 Act ("Rule 144"))
satisfying the manner of sale requirements for a "brokers' transaction" under
paragraph (f) of Rule 144, whether or not that sale is made pursuant to Rule
144 (a "Brokers' Transaction");
(v) in a Transfer by FSNL of any of the FSNL Shares after six
years from the Closing Date at a time when the aggregate number of shares of
Common Stock held by the Buyer Parties is already less than 35% of the total
number of shares of Common Stock then outstanding, if that Transfer is approved
by a majority of the Independent Directors and is made in a Brokers'
Transaction;
(vi) in a Transfer by Chartwell after six years from the Closing
Date at a time when Chartwell owns less than 5% of the total number of shares
of Common Stock then outstanding and has no representatives serving on the
Board of Directors of Seller, if that Transfer is made in a Brokers'
Transaction; or
(vii) sales or other transfers between the Buyers.
(b) If as a result of any sale or other transfer of shares by the
Buyers, the aggregate number of shares of Common Stock held by the Buyers is
reduced below 35% of the total number of shares of Common Stock then
outstanding (a "Board Shifting Event"), the Buyers shall cause such number of
their representatives on the Board of Directors of Seller to resign so that the
percentage of directorships held by Independent Directors after the Board
Shifting Event shall be equal to the percentage of shares of Common Stock then
owned by shareholders other than the Buyers (the "Required Percentage"); and
the Buyers shall cause any of their remaining representatives on the Board of
Directors, to vote in favor of filling the resulting vacancies with Independent
Directors.
(c) For so long as Chartwell, FSNL or any of their respective
Affiliates (collectively, the "Buyer Parties" and each, a "Buyer Party")
continue to own, in the
A-10
<PAGE>
aggregate, at least twenty percent (20%) of the outstanding shares of Common
Stock of Seller, the Buyers shall not, and shall not permit any Buyer Party to,
enter into any transaction or series of related transactions, or grant or
consent to, or otherwise permit, any amendment to, supplement of or waiver
under, any agreement or contract, with Seller or any of its subsidiaries (any
of the foregoing, an "Affiliate Transaction") unless: (i) it has been
determined by a committee of the Seller's Board of Directors comprised of one
or more individuals who are Independent Directors (the "Independent Board
Committee") that such Affiliate Transaction is in the best interests of the
Seller and is on fair and reasonable terms, no less favorable to Seller than
terms that the Seller and a non-affiliated person in a similar situation would
agree to in an arm's length transaction; and (ii) if such Affiliate Transaction
has a total value in excess of $10,000, the Independent Board Committee has
received a favorable fairness opinion from an appropriate, independent party
with respect to such Affiliate Transaction. Notwithstanding the foregoing, the
Seller may pay reasonable and customary compensation and benefits to its
officers and directors and may engage in the transactions described on Schedule
10(c).
(d) In the event that, at any time within three years after the
Closing, the Seller proposes to sell all or substantially all of its assets, to
merge or consolidate with any other entity or to cause the liquidation or
dissolution of Seller (each, a "Triggering Event"), and Seller submits the
Triggering Event to a vote of its stockholders (whether at a meeting or by
written consent in lieu of a meeting), then each of the Buyers hereby agrees to
vote all of its shares of Common Stock entitled to vote on such matter in favor
of and against such Triggering Event in the same proportion as the numbers of
Nonaffiliated Shares voted in favor of and against such Triggering Event bear
to the total number of Nonaffiliated Shares voted on such Triggering Event
(treating Nonaffiliated Shares which abstain as not having voted); provided,
however, that if any party shall commence a proxy contest or tender offer
relating to the Triggering Event in any manner, then the foregoing provision
shall not apply, and each of the Buyers shall be entitled to vote all of its
shares of Common Stock in favor of or against the Triggering Event, in its sole
discretion.
(e) No Buyer Party shall purchase or otherwise acquire (in any
manner, including by way of merger or otherwise) any additional shares of
Common Stock, or any securities exercisable for or convertible into Common
Stock (other than options granted under a stock option plan of the Company
having customary terms and constituting reasonable compensation ("Excluded
Stock Options") and shares of Common Stock issued on the exercise of Excluded
Stock Options) (the "Acquired Stock"), from
(i) any person or entity (other than Seller pursuant to clause (ii)
below or any other Buyer) if such Acquired Stock would, when aggregated with
all of the other shares of Common Stock owned by all Buyer Parties (other than
shares acquired, or subject to issuance, on the exercise of Excluded Stock
Options), and assuming the exercise or conversion of such Acquired Stock into
Common Stock, if applicable, result in the ownership by all Buyer Parties of
shares of Common Stock representing in excess of fifty-five percent (55%) of
then-outstanding shares of Common Stock of Seller on a fully-diluted basis,
assuming the exercise or conversion of all other outstanding securities of
Seller exercisable for or convertible into Common Stock, unless: (x) such Buyer
Party offers to purchase all of such Acquired Stock and Common Stock from all
of the holders thereof in compliance with all applicable securities and other
laws, rules and regulations, (y) such
A-11
<PAGE>
purchase is approved by the Independent Board Committee, and (z) the
Independent Board Committee has received a favorable fairness opinion from an
appropriate, independent party with respect to such purchase; or
(ii) the Seller, unless: (x) such purchase is approved by the
Independent Board Committee, and (y) the Independent Board Committee has
received a favorable fairness opinion from an appropriate, independent party
with respect to such purchase
(f) For so long as the Buyer Parties either continue to own in the
aggregate at least twenty percent (20%) of the outstanding Common Stock of
Seller or have any representatives serving on the Board of Directors of Seller,
no Buyer Party shall acquire any interest in an existing hotel property or
properties (including by foreclosure on any mortgage acquired on or after
January 1, 1996), or any interest in a hotel property or properties that are
under development or in any property which the Buyer Party intends to develop
as a hotel property, other than as listed on Schedule 10(f).
(g) Each of FSNL and Chartwell hereby agrees to vote its shares of
Common Stock (including the Shares) and to use its best efforts to elect and
maintain as independent directors on the Seller's Board of Directors at least
the following number of individuals who are not employees, officers, directors
or Affiliates of Chartwell, FSNL or the Seller, do not have any beneficial
ownership interest in Chartwell, FSNL or any of their Affiliates (other than
the Seller) and are otherwise disinterested directors (the "Independent
Directors"):
(i) prior to a Board Shifting Event, two individuals;
(ii) after a Board Shifting Event, a number of individuals
sufficient to cause the percentage of Independent Directors on the Board of
Directors to be no less than the Required Percentage.
11. Termination of 1995 Purchase Agreement Provisions. Section 4 of
the 1995 Purchase Agreement shall be terminated and of no further force or
effect as of the Closing Date.
12. Further Agreements. Each party agrees to cooperate with the
other, and to execute and deliver, or cause to be executed and delivered, all
such other instruments and to take all such other actions as it may be
reasonably requested to take, from time to time, in order to effectuate the
provisions and purpose of this Agreement.
13. Binding Effect; Assignment. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective
successors and permitted assigns and shall also inure to the benefit of the
stockholders of Seller. This Agreement may not be assigned by any party without
the written consent of the other parties.
14. Amendment and Modification. This Agreement may not be amended,
modified, supplemented or changed in any respect by, and only by, a writing
duly executed by Seller and each Buyer.
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<PAGE>
15. Other Provisions.
(a) Notice. Any notice or other communication required or permitted
to be given hereunder shall be in writing and shall be effective (a) upon hand
delivery or delivery by facsimile at the address or number designated below (if
delivered on a business day during normal business hours where such notice is
to be received), or the first business day following such delivery (if
delivered other than on a business day during normal business hours where such
notice is to be received) or (b) on the second business day following the date
of mailing by overnight courier service, fully prepaid, addressed to such
address, or upon actual receipt of such mailing, whichever shall first occur.
The addresses for such communications shall be:
If to the Seller, to it at:
National Lodging Corp.
605 Third Avenue
New York, New York 10158
Attention: General Counsel
Facsimile No. 212-867-4644
with a copy to:
Skadden, Arps, Slate,
Meagher & Flom
919 Third Avenue
New York, NY 10022
Attention: David Fox, Esq.
Facsimile No.: (212) 735-3635
If to Chartwell, to it at:
Chartwell Leisure Associates L.P. II
55 Hillside Road
Rye, New York 10580
Facsimile No. 914-967-4640
with a copy to:
Battle Fowler LLP
75 East 55th Street
New York, New York 10022
Attn: John N. Turitzin, Esq.
Facsimile No. 212-856-7814
and
FGT, L.P.
c/o Marc E. Leland & Associates
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<PAGE>
Potomac Tower, Suite 1700
1001 19th Street North
Arlington, Virginia 22209
Facsimile No. 703-351-9008
If to FSNL, to it at:
FSNL LLC
c/o Bergman, Horowitz & Reynolds
157 Church Street
19th Floor
New Haven, Connecticut 06510
Attn: Kenneth N. Musen, Esq.
Facsimile No. 203-785-8127
with a copy to:
Bernstein, Shur, Sawyer
& Nelson
P.O. Box 9729
100 Middle Street
Portland, ME 04104-5029
Attn: Leonard Nelson, Esq.
Facsimile No. 207-774-1127
Any party hereto may from time to time change its address for
notices under this Section by giving at least 10 days' notice of such changes
to the other party hereto.
(b) Counterparts. This Agreement shall be executed in one or more
counterparts, each of which shall be deemed an original and all of which taken
together shall constitute one instrument.
(c) Law Governing; Consent to Jurisdiction; Representation. This
Agreement shall be construed in accordance with the laws of the State of New
York applicable to agreements made and to be performed therein. Each of the
parties hereto consents to the jurisdiction of the federal and state courts
located in the State of New York in connection with any claim or controversy
arising out of or connected with this Agreement. Service of process in any such
proceeding may be made upon each of the parties hereto at the address of such
party as set forth in this Agreement. Each party hereto represents that it has
been represented by counsel in connection with, and has had the opportunity to
review, this Agreement. Each party further represents that the terms hereof
shall not be construed in favor of or against any other party by reason of the
preparation hereof.
(d) Expenses. The parties shall bear their respective expenses
incurred in connection with this Agreement and consummation of the transactions
described herein.
[END OF TEXT]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
NATIONAL LODGING CORP.
By: /s/ Douglas H. Verner
---------------------------------------------
Name: Douglas H. Verner
Title: General Counsel, Secretary
CHARTWELL LEISURE ASSOCIATES L.P. II
By: Chartwell Leisure Corp. II,
General Partner
By: /s/ Marc E. Leland
---------------------------------------
Name: Marc E. Leland
Title: Vice President
FSNL LLC
By: /s/ Leonard M. Nelson
---------------------------------------------
Name: Leonard M. Nelson
Title: Manager
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<PAGE>
Schedule 10(c)
1. Transactions relating to arrangements, as in effect on the date of the
Original Agreement, between Seller and Affiliates of Chartwell relating
to the family entertainment center located in Vicksburg, Mississippi as
described in Seller's 1995 proxy statement.
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<PAGE>
Schedule 10(f)
Excluded Hotel Properties
1. The hotel properties currently under development by Chartwell or its
Affiliates at the following locations:
(a) Reston, Virginia, at the junction of Dulles Access Toll Road
and Route 28;
(b) Santa Fe, New Mexico, corner of Richard's Avenue and Cerrilos
Road;
(c) Houston, Texas, the Galleria area;
(d) Austin, Texas, Round Rock area;
(e) Dallas/Ft. Worth, Texas, Dallas Airport.
2. Redevelopment of any of the following hotels listed on attachment (i) to
this Schedule, all of which were owned by Affiliates of Chartwell on
January 1, 1996.
3. Acquisition of any of the hotels listed on attachment (ii) to this
Schedule, on all of which various Affiliates of Chartwell had liens on
January 1, 1996.
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<PAGE>
Attachment (i)
<TABLE>
<CAPTION>
==================================================================================================================
Hotel Name Street Address City State
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. Ramada Limited Gulf Shores 610 West Beach Blvd. Gulf Shores AL
- ------------------------------------------------------------------------------------------------------------------
2. Days Inn Turnan's Corner 55501-10 Service Road Mobile AL
- ------------------------------------------------------------------------------------------------------------------
3. Days Inn Airport 3550 Airport Blvd. Mobile AL
- ------------------------------------------------------------------------------------------------------------------
4. Days Inn 2025 Zelda Road Montgomery AL
- ------------------------------------------------------------------------------------------------------------------
5. The Fayetteville Inn 1000 Highway 71 South Fayetteville AR
- ------------------------------------------------------------------------------------------------------------------
6. Conestoga Hotel 1240 South Walnut Street Anaheim CA
- ------------------------------------------------------------------------------------------------------------------
7. Newark Hilton 39900 Balentine Drive Fremont CA
- ------------------------------------------------------------------------------------------------------------------
8. Holiday Inn Select Beverly Hills 1150 South Beverly Drive Los Angeles CA
- ------------------------------------------------------------------------------------------------------------------
9. Holiday Inn Airport 4040 Quebec Street Denver CO
- ------------------------------------------------------------------------------------------------------------------
10. Days Inn 3506 1st Street West Braderion FL
- ------------------------------------------------------------------------------------------------------------------
11. Lake Park Inn 1025 North Federal Highway Lake Park FL
- ------------------------------------------------------------------------------------------------------------------
12. Super 8 Motel 1255 Hypoluxo Road Lanlana FL
- ------------------------------------------------------------------------------------------------------------------
13. Howard Johnson Plaza - Hotel 3835 McCoy Road Orlando FL
- ------------------------------------------------------------------------------------------------------------------
14. Embassy Suites PGA 4350 PGA Boulevard Palm Beach Gardens FL
- ------------------------------------------------------------------------------------------------------------------
15. Days Inn 710 North Palafox Street Pensacola FL
- ------------------------------------------------------------------------------------------------------------------
16. Days Inn Singer Island 2700 Ocean Drive Riviera Beach FL
- ------------------------------------------------------------------------------------------------------------------
17. St. Petersburg Hilton 333 1st Street South St. Petersburg FL
- ------------------------------------------------------------------------------------------------------------------
18. Ramada Inn 2725 Watson Boulevard Warner-Robins GA
- ------------------------------------------------------------------------------------------------------------------
19. Holiday Inn 909 Middle Road Bottendorf IA
- ------------------------------------------------------------------------------------------------------------------
20. Chicago Midway Airport Hotel 5400 S. Cicero Avenue Chicago IL
- ------------------------------------------------------------------------------------------------------------------
21. Holiday Inn 1550 Floselle Road Schaumburg IL
- ------------------------------------------------------------------------------------------------------------------
22. Indianapolis Ramada Plaza 31 West Ohio Street Indianapolis IN
</TABLE>
A-18
<PAGE>
<TABLE>
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
23. Indianapolis Ramada Hotel 2500 South High School Road Indianapolis IN
- ------------------------------------------------------------------------------------------------------------------
24. Hutchinson Ramada Plaza 1400 North Lorraine Hutchinson KS
- ------------------------------------------------------------------------------------------------------------------
25. Ramada Inn 40 North Main Street Falmouth MA
- ------------------------------------------------------------------------------------------------------------------
26. Harbor View Resort 213 ocean Street Hyannis MA
- ------------------------------------------------------------------------------------------------------------------
27. Ramada Inn Regency 1127 Route 132 Hyannis MA
- ------------------------------------------------------------------------------------------------------------------
28. Sheraton Milford Hotel 11 Beaver Street Milford MA
- ------------------------------------------------------------------------------------------------------------------
29. Ramada Inn South Shore 929 Hingham Street Rockland MA
- ------------------------------------------------------------------------------------------------------------------
30. Gull Wing Suites 822 Main Street, Route 20 South Yarmouth MA
- ------------------------------------------------------------------------------------------------------------------
31. Flagship Motor Inn 343 Main Street, Route 28 West Yarmouth MA
- ------------------------------------------------------------------------------------------------------------------
32. Ramada Hotel Woburn 15 Middlesex Canal Park Road Woburn MA
- ------------------------------------------------------------------------------------------------------------------
33. Howard Johnson Hotel 1 Mack Road Woburn MA
- ------------------------------------------------------------------------------------------------------------------
34. Historic Inns of Annapolis 16 Church Street Annapolis MD
- ------------------------------------------------------------------------------------------------------------------
35. Days Inn 591 Revel Highway Annapolis MD
- ------------------------------------------------------------------------------------------------------------------
36. Days Inn 310 E. Potomac Street Williamsport MD
- ------------------------------------------------------------------------------------------------------------------
37. Days Inn Brooklyn Center 1501 Freeway Blvd. Brooklyn Center MN
- ------------------------------------------------------------------------------------------------------------------
38. Ramada Plaza Hotel Minneapolis West 12201 Ridgedale Drive Minnetonka MN
- ------------------------------------------------------------------------------------------------------------------
39. Ramada Limited of Blue Springs 1110 North Highway 7 Blue Springs MO
- ------------------------------------------------------------------------------------------------------------------
40. Ramada Limited Downtown 1111 East Broadway Columbia MO
- ------------------------------------------------------------------------------------------------------------------
41. Days Inn North Carolina Hwy 321 Blowing Rock NC
- ------------------------------------------------------------------------------------------------------------------
42. Days Inn 501 Regional Road South Greensboro NC
- ------------------------------------------------------------------------------------------------------------------
43. Days Inn 3030 North Roberts Avenue Lumberton NC
- ------------------------------------------------------------------------------------------------------------------
44. Ramada Hotel Conwall - 80 7007 Grover Street Omaha NE
- ------------------------------------------------------------------------------------------------------------------
45. Ramada Hotel 36 Valley Road Clark NJ
</TABLE>
A-19
<PAGE>
<TABLE>
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
46. Howard Johnson Plaza 129 Pehle Avenue Saddle Brook NJ
- ------------------------------------------------------------------------------------------------------------------
47. Ho-Jo Inn 699 Old Front Street Binghamton NY
- ------------------------------------------------------------------------------------------------------------------
48. Howard Johnson Bed N Breakfast 450 Moreland Street Commack NY
- ------------------------------------------------------------------------------------------------------------------
49. Howard Johnson Lodge 551 Route 211 East Middletown NY
- ------------------------------------------------------------------------------------------------------------------
50. Howard Johnson Motor Lodge 120 Jericho Turnpike Westbury NY
- ------------------------------------------------------------------------------------------------------------------
51. Residence Inn 6161 Trust Drive Toledo OH
- ------------------------------------------------------------------------------------------------------------------
52. Howard Johnson Lodge Route 315 at I-81 Pillslon PA
- ------------------------------------------------------------------------------------------------------------------
53. Days Inn 839 Congaree Road Greenville SC
- ------------------------------------------------------------------------------------------------------------------
54. Days Inn Central 601 South Ocean Boulevard Myrtle Beach SC
- ------------------------------------------------------------------------------------------------------------------
55. Ramada Inn West 68011 - 40 West Amarillo TX
- ------------------------------------------------------------------------------------------------------------------
56. Ramada Inn East 25011 - 40 East Amarillo TX
- ------------------------------------------------------------------------------------------------------------------
57. Howard Johnson Hotel 1945 North Expressway 77/83 Brownsville TX
- ------------------------------------------------------------------------------------------------------------------
58. Residence Inn Dallas North Corral 13636 Goldmark Drive Dallas TX
- ------------------------------------------------------------------------------------------------------------------
59. Fort Worth Radisson Downtown 815 Main Street Fort Worth TX
- ------------------------------------------------------------------------------------------------------------------
60. Days Inn 1900 West Tyler Avenue Harrigan TX
- ------------------------------------------------------------------------------------------------------------------
61. Nassau Bay ____ 3000 NASA Road One Nassau Bay TX
- ------------------------------------------------------------------------------------------------------------------
62. Days Inn I-81 and Roanoke Road Christianburg VA
- ------------------------------------------------------------------------------------------------------------------
63. Days Inn 535 Orange Avenue Roanoke VA
- ------------------------------------------------------------------------------------------------------------------
64. Days Inn Route 2, Box 414 Staunton VA
- ------------------------------------------------------------------------------------------------------------------
65. Days Inn Motel 902 Richmond Road Williamsburg VA
- ------------------------------------------------------------------------------------------------------------------
66. Ramada Inn Seminary Plaza 4641 Kenmoro Avenue Alexandria VA
- ------------------------------------------------------------------------------------------------------------------
67. Days Inn 110 East 2nd Street Superior WS
==================================================================================================================
</TABLE>
A-20
<PAGE>
Attachment (ii)
<TABLE>
<CAPTION>
==================================================================================================================
Hotel Name Street Address City State
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. Hampton Inn 2731 US Hwy 280 Mountain Brook AL
- ------------------------------------------------------------------------------------------------------------------
2. Holiday Inn I-59 and McFarland Boulevard Tuscaloosa AL
- ------------------------------------------------------------------------------------------------------------------
3. Best Western Inn 210 North Blake Street Pine Bluff AR
- ------------------------------------------------------------------------------------------------------------------
4. Ramada Inn 20-17 S. Highway 92 Sierra Vista AZ
- ------------------------------------------------------------------------------------------------------------------
5. Hampton Inn 5440 Kearny Mesa San Diego CA
- ------------------------------------------------------------------------------------------------------------------
6. Tradewinds Best Western Motor Inn 2141 North Parkway Drive Fresno CA
- ------------------------------------------------------------------------------------------------------------------
7. Whitehall Inn 726 Sutter Street San Francisco CA
- ------------------------------------------------------------------------------------------------------------------
8. Sonoma Valley Inn 550 Second Street West Sonoma CA
- ------------------------------------------------------------------------------------------------------------------
9. Guest Quarters Hotel 2500 Pennsylvania Avenue Washington DC
- ------------------------------------------------------------------------------------------------------------------
10. Holiday Inn Coral Gables 2051 LeJoune Road Coral Gables FL
- ------------------------------------------------------------------------------------------------------------------
11. Days Inn 1595 West Oakland Park Blvd. Ft. Lauderdale FL
- ------------------------------------------------------------------------------------------------------------------
12. Treasure Coast Inn 7025 Okoechobee Road Ft. Pierce FL
- ------------------------------------------------------------------------------------------------------------------
13. University Centre Hotel 1535 S.W. Archor Road Gainesville FL
- ------------------------------------------------------------------------------------------------------------------
14. Heritage Inn Suites 8605 Southeast Federal Highway Hobo Sound FL
- ------------------------------------------------------------------------------------------------------------------
15. North Redington Beach Hilton 17120 Gulf Boulevard North North Redington Beach FL
- ------------------------------------------------------------------------------------------------------------------
16. Plant City Econolodge 301 South Frontage Road Plant City FL
- ------------------------------------------------------------------------------------------------------------------
17. Red Carpet Inn Interstate 95 & State 16 St. Augustine FL
- ------------------------------------------------------------------------------------------------------------------
18. Days Inn 2901 East Busch Blvd. Tampa FL
- ------------------------------------------------------------------------------------------------------------------
19. Days Inn Northlake 2158 Ranchwood Drive Atlanta GA
- ------------------------------------------------------------------------------------------------------------------
20. Days Inn 1948 Day Drive Duluth GA
- ------------------------------------------------------------------------------------------------------------------
21. Holiday Inn 200 South Beachview Drive Jekyll Island GA
- ------------------------------------------------------------------------------------------------------------------
22. Holiday Inn Midtown 7100 Abercorn Extention Savannah GA
</TABLE>
A-21
<PAGE>
<TABLE>
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
23. Holiday Inn South I-95 & Georgia Highway 204 Savannah GA
- ------------------------------------------------------------------------------------------------------------------
24. Days Inn 2700 Curtis Drive Smyrna GA
- ------------------------------------------------------------------------------------------------------------------
25. Hampton Inn 3400 Northlake Parkway Tucker GA
- ------------------------------------------------------------------------------------------------------------------
26. University Inn 316 South Duff Avenue Ames IA
- ------------------------------------------------------------------------------------------------------------------
27. Ramada Hotel 401 Delaplain Road Georgetown KY
- ------------------------------------------------------------------------------------------------------------------
28. Ramada Hotel Highway 44 at I-65 Shephardville KY
- ------------------------------------------------------------------------------------------------------------------
29. Heritage House 259 Main Street Hyannis MA
- ------------------------------------------------------------------------------------------------------------------
30. Ambassador Motor Inn 1314 Main Street, Route 28 South Yarmouth MA
- ------------------------------------------------------------------------------------------------------------------
31. Holiday Inn 4 Highwood Drive Tewksbury MA
- ------------------------------------------------------------------------------------------------------------------
32. Howard Johnson 102 60th Street Ocean City MD
- ------------------------------------------------------------------------------------------------------------------
33. Hampton Inn 7745 Lyndale Avenue Richfield MN
- ------------------------------------------------------------------------------------------------------------------
34. Bellon Inn 107 County Line Road Bellon MO
- ------------------------------------------------------------------------------------------------------------------
35. Meadows Inn 525 East Bonanza Road Las Vegas NV
- ------------------------------------------------------------------------------------------------------------------
36. Continental Motel 139 - 143 South Illinois Ave. Atlantic City NJ
- ------------------------------------------------------------------------------------------------------------------
37. Inn of The Dove 1409 Black Horse Pike Cardiff NJ
- ------------------------------------------------------------------------------------------------------------------
38. Embassy Suites Hotel 121 Centennial Avenue Piscataway NJ
- ------------------------------------------------------------------------------------------------------------------
39. Sheraton University Inn 801 University Avenue Syracuse NY
- ------------------------------------------------------------------------------------------------------------------
40. Days Inn Akron West 5 Park Center Boulevard Wadsworth OH
- ------------------------------------------------------------------------------------------------------------------
41. Ramada Inn 1500 MacArthur Road Whitehall PA
- ------------------------------------------------------------------------------------------------------------------
42. Genettl Motor Lodge Route 309 at 32nd Street Haxlo Township PA
- ------------------------------------------------------------------------------------------------------------------
43. Days Inn Pittsburgh Airport 1170 Thorn Run Road Moon Township PA
- ------------------------------------------------------------------------------------------------------------------
44. The Woodlands 1073 Highway 315 Wilkes-Barre PA
- ------------------------------------------------------------------------------------------------------------------
45. Hampton Inn 1063 Highway 315 Wilkes-Barre PA
</TABLE>
A-22
<PAGE>
<TABLE>
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
46. Ocean Dunes 74th Avenue North Myrtle Beach SC
- ------------------------------------------------------------------------------------------------------------------
47. Hampton Inn Hotel 2230 Old Fort Parkway Murphreesboro TN
- ------------------------------------------------------------------------------------------------------------------
48. Austin Red Lion Hotel 61211-35 North Austin TX
- ------------------------------------------------------------------------------------------------------------------
49. The Holiday Inn-Brownwood 515 East Commerce Street Brownwood TX
- ------------------------------------------------------------------------------------------------------------------
50. Econolodge Motel 6800 Lee Highway (Route 29) Falls Church VA
- ------------------------------------------------------------------------------------------------------------------
51. Sleep Inn Motel 4045 Electric Road Roanoke VA
- ------------------------------------------------------------------------------------------------------------------
52. Holiday Inn Route 50 & I-81 Winchester VA
- ------------------------------------------------------------------------------------------------------------------
53. Holiday Inn Gateway 6007 U.S. Route 60 East Huntington WV
==================================================================================================================
</TABLE>
A-23
<PAGE>
Attachment (iii)
<TABLE>
<CAPTION>
==================================================================================================================
Hotel Name Street Address City State
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. Hotel Californian 405 Taylor San Francisco CA
- ------------------------------------------------------------------------------------------------------------------
2. Holiday Inn La Concha 430 Duval Street Key West FL
- ------------------------------------------------------------------------------------------------------------------
3. Ramada Inn 285 Commerce Drive Fort Washington PA
==================================================================================================================
</TABLE>
A-24
EXHIBIT B
FORM OF REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT, dated as of __________ __, 1996,
between Chartwell Leisure Associates L.P. II, a limited partnership formed
under the laws of Delaware ("Chartwell") and FSNL LLC, a limited liability
company formed under the laws of Connecticut ("FSNL") (FSNL and Chartwell, each
a "Buyer," and collectively, the "Buyers") and National Lodging Corp., a
Delaware corporation (the "Company").
WHEREAS, Chartwell and the Company entered into a Registration Rights
Agreement, dated December 20, 1995 (the "1995 Registration Rights Agreement");
WHEREAS, prior to the date of this Agreement, Chartwell owned of
record 904,930 shares (the "Prior Chartwell Shares") of the Company's common
stock, par value $.01 per share (the "Common Stock"), representing
approximately 16.6% of the outstanding shares of Common Stock of the Company;
WHEREAS, the Company and the Buyers have entered into an Amended and
Restated Stock Purchase Agreement, dated as of March 14, 1996 (the "Purchase
Agreement"), pursuant to which (i) the Company is selling to Chartwell, and
Chartwell is purchasing from the Company 2,947,369 shares of Common Stock (the
"New Chartwell Shares"), and (ii) the Company is selling to FSNL, and FSNL is
purchasing from the Company 1,052,631 shares of Common Stock (the "FSNL
Shares," and together with the Prior Chartwell Shares and the New Chartwell
Shares, the "Shares");
WHEREAS, the Buyers are requiring the Company to enter into this
Agreement in connection with the Purchase Agreement and as a condition to the
purchase of the New Chartwell Shares and the FSNL Shares by Chartwell and FSNL,
respectively;
WHEREAS, the Board of Directors of the Company has authorized the
officers of the Company to execute and deliver this Agreement in the name and
on behalf of the Company;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained, the parties to this Agreement hereby agree as
follows:
1. Definitions. As used in this Agreement, the following terms shall
have the following meanings:
(a) The terms "Securities", "Registrable Securities" and "Restricted
Securities" mean each of the following securities: (i) the Shares, and (ii) any
other securities issued in exchange for, upon conversion of, as a dividend on
or otherwise in respect of any of such securities. The term "Holder" shall mean
and include each Buyer, and any assignee who becomes a party to this Agreement
as provided in Section 8, in each case in its capacity as a holder of
Securities. For purposes of this Agreement, the Company may deem and treat the
registered holder of a Registrable Security as the Holder
B-1
376976.1
<PAGE>
and absolute owner thereof, and the Company shall not be affected by any notice
to the contrary. "Securities Act" shall mean the Securities Act of 1933, as
amended. "SEC" and "Commission" shall mean the Securities and Exchange
Commission. The term "Affiliate" shall have the meaning specified in Rule 405
under the Securities Act.
(b) Restricted Securities. For the purposes of this Agreement,
Securities will cease to be Restricted Securities upon the earliest to occur of
the time when (i) a registration statement covering such Restricted Securities
has been declared effective and they have been disposed of pursuant to such
effective registration statement, (ii) they are distributed pursuant to Rule
144 (or any similar provision then in force) under the Securities Act, and
(iii) they may be sold pursuant to paragraph (k) of Rule 144 (or any similar
provision then in force) under the Securities Act.
(c) Registrable Securities. As to any particular Registrable
Securities, such Securities will cease to be Registrable Securities when they
cease to be Restricted Securities.
2. Demand Registration. (a) At any time following three years from
the Closing Date (as this term is defined in the Purchase Agreement) and
subject to compliance with Section 10(a) of the Purchase Agreement, a Holder or
Holders of Registrable Securities shall have the right to make a written
request for registration under the Act pursuant to this Section 2 (a "Demand
Registration Statement") of all or part of the Registrable Securities held by
such Holder, upon which the Company shall use its best efforts to cause to be
filed and declared effective as soon as reasonably practicable a registration
statement, on such appropriate form as the Company in its discretion shall
determine, providing for the sale of all or part of such Registrable Securities
by such Holder. Chartwell or any assignee of Chartwell shall have the right to
request two Demand Registration Statements and FSNL or any assignee of FSNL
shall have the right to request one Demand Registration Statement, provided
that neither Chartwell nor any assignee of Chartwell shall have the right to
request a Demand Registration Statement with respect to less than 5% of the
number of shares of Common Stock outstanding at the time of the request. The
Company agrees to use its reasonable efforts to keep any such registration
statement continuously effective and usable for resale of Registrable
Securities for the period referred to in Section 4(a)(ii) hereof, provided that
the Company shall not be required to effect more than three (3) Demand
Registration Statements under this Section 2. Such request will specify the
aggregate number of the Registrable Securities proposed to be registered and
sold and will also specify the intended method of disposition thereof. Within
ten days after receipt of such request, the Company shall give written notice
of such registration request to all other Holders and shall include in such
registration all Registrable Securities with respect to which the Company has
received written requests for inclusion therein within fifteen business days
after the date that notice by the Company is deemed to have been given pursuant
to Section 5. Such request shall also specify the aggregate number of shares of
Registrable Securities to be registered and sold and the intended method of
disposition thereof. The Holder or Holders originally requesting a Demand
Registration Statement or on whose behalf a Demand Registration Statement is
requested are hereinafter referred to as the "Initiating Holder."
B-2
376976.1
<PAGE>
(b) A registration statement will not count as a Demand Registration
Statement until it has become effective; provided, however, that if a
registration statement does not become effective solely by reason of any act or
omission on the part of the Initiating Holder, such registration statement
shall nevertheless count as a Demand Registration Statement. In any
registration statement initiated as a Demand Registration Statement, the
Company will pay all Registration Expenses (as hereinafter defined), to the
extent provided below in Section 4(f), in connection with such registration
statement, whether or not it becomes effective; provided, that if a Demand
Registration Statement could have become effective but does not by reason of
any act or omission on the part of one or more Holders, such Holders shall pay
the Registration Expenses.
(c) If the Initiating Holder so elects, the offering of such
Registrable Securities pursuant to such Demand Registration Statements shall be
in the form of an underwritten offering. In such event, if the managing
underwriter or underwriters of such offering advises the Company in writing
that, in its opinion, the aggregate amount of securities requested to be
included in such offering is sufficiently large to materially and adversely
affect the distribution of such securities, the Company will include in such
registration statements the aggregate amount of securities which in the opinion
of such managing underwriter or underwriters can be sold without any such
material adverse effect, and such amount of securities shall be allocated in
the following order: (i) first, to the Initiating Holder; (ii) second, pro rata
among the other Holders on the basis of the number of Registrable Securities
requested to be included in each such registration statement by their Holders;
and (iii) third, pro rata among any other security holders that the Company has
permitted to participate in each such registration statement. Any such pro rata
allocations shall be made on the basis of the number of securities requested to
be included in each such registration statement by their holders.
(d) The Company may postpone for a reasonable period of time, not to
exceed 120 days, the filing or the effectiveness of any Demand Registration
Statement so long as the Board of Directors of the Company in good faith
determines that (A) such registration might have as adverse effect on any plan
or proposal by the Company with respect to any financing, acquisition,
recapitalization, reorganization or other material transaction, or (B) the
Company is in possession of material non-public information which would be
required to be disclosed in that Demand Registration Statement and that the
Company has a bona fide business purpose for preserving as confidential.
(e) If the Initiating Holder desires to sell Registrable Securities
which are the subject of a Demand Registration Statement in an underwritten
offering, such Holder shall have the right to select any nationally recognized
investment banking firm(s) to administer the offering, subject to the approval
of the Company, which approval will not be unreasonably withheld, and the
Company shall enter into underwriting agreements with the underwriter(s) of
such offering, which agreements shall contain such representations and
warranties by the Company, and such other terms, conditions and indemnities as
are at the time customarily contained in underwriting agreements for similar
offerings.
(f) If the Company has elected to include any securities of the
Company in a Demand Registration Statement, the Company shall have the right,
with the approval of a majority of the holders of Registrable Securities that
have requested to be included in such
B-3
376976.1
<PAGE>
Demand Registration Statement, which approval shall not be unreasonably
withheld, to select the managing underwriter.
(g) The Company shall not be obligated to file a Demand Registration
Statement under Section 2(a) within a period of 12 months after the effective
date of any registration statement in which the Holders have participated
relating to any registration on Form S-1 or any similar long-form registration
or within a period of 9 months after the effective date of any registration
statement in which the Holders have participated relating to any registration
on Form S-2 or S-3 or any similar short form registration.
3. Incidental Registration. Subject to the other terms and conditions
set forth in this Section 3, if, at any time following three years from the
Closing Date of the Purchase Agreement, the Company proposes to register any
shares of Common Stock (the "Initially Proposed Shares") under the Securities
Act for sale for cash, whether or not for its own account, pursuant to an
underwritten offering (other than (i) a registration statement on Form S-4 or
S-8 or successor forms thereto or a registration on any other form which does
not include substantially the same information as would be required to be
included in a registration statement covering the Registrable Securities; or
(ii) a registration statement filed in connection with an exchange offer or an
offering of securities solely to the Company's existing stockholders or its
employees), the Company will give written notice no less than twenty days prior
to such filing to the Holders of its intention to effect such registration
(such notice to specify, among other things, the proposed offering price, the
kind and number of securities proposed to be registered and the distribution
arrangements, including identification of the managing underwriter), and the
Holders shall be, subject to compliance with Section 10(c) of the Purchase
Agreement, entitled to include in such registration statements, as a part of
such underwritten offering, such number of Shares (the "Holder Shares") to be
sold for the account of the Holders (on the same terms and conditions as the
Initially Proposed Shares) as shall be specified in a request in writing
delivered to the Company within 10 days after the date upon which the Company
gave the aforementioned notice.
The Company's obligations to include Holder Shares in a registration
statement pursuant to this Section 3 is subject to each of the following
limitations, conditions and qualifications:
(i) If, at any time after giving written notice of its intention
to effect a registration of any of its shares of Common Stock prior to the
effective date of any registration statement filed in connection with such
registration, the Company shall determine for any reason not to register
such shares, the Company may, at its election, give written notice of such
determination to the Holders and thereupon it shall be relieved of its
obligation to use any efforts to register any Holder Shares in connection
with such aborted registration.
(ii) If the managing underwriter of a proposed public offering
advises the Company in writing that, in its opinion, the aggregate amount
of securities requested to be included in such offering is sufficiently
large to materially and adversely affect the distribution of such
securities, the number of Registrable Securities and other securities
proposed to be included in the offering for the
B-4
376976.1
<PAGE>
account of any other security holders that the Company has permitted to
participate in such offering (other than any such security holders
exercising demand registration rights) will be reduced pro rata to an
amount which in the opinion of such managing underwriter or underwriters
can be sold without any such material adverse effect. Any such pro rata
reduction shall be made on the basis of the number of securities requested
to be included in such registration by their holders. If, as a result of
the cutback provisions of the preceding sentence, the Holders are not
entitled to include all of the Holder Shares in such registration, such
Holders may elect to withdraw their request to include Holder Shares in
such registration (a "Withdrawal Election").
(iii) If such registration involves an underwritten offering,
all holders of Registrable Securities requesting to be included in the
Company's registration must sell their Registrable Securities to the
underwrites selected by the Company on the same terms and conditions as
apply to the Company.
(iv) In connection with any underwritten offering with respect
to which holders of Registrable Securities shall have requested
registration pursuant to this Section 3 and in which the Company is
registering the sale of shares for its own account, the Company shall have
the right to select the managing underwriting with respect to the
offering.
Except as provided in this Section 3, if the Company shall so request
in writing, each Holder agrees not to effect any public or private sale or
distribution of any Registrable Securities during the 60-day period prior to
and during the 90-day period beginning on, the closing date of any underwritten
public offering of shares of Common Stock whether or not the Holder has
incidental registration rights with respect to such offerings.
4. Registration Procedures. (a) Whenever the Company is required to
use all reasonable efforts to effect the registration of any Registrable
Securities under the Securities Act pursuant to the terms and conditions of
Section 2(a) or 3 (such Registrable Securities being hereinafter referred to as
"Subject Shares"), the Company will use all reasonable efforts to effect the
registration and sale of the Subject Shares in accordance with the intended
method of disposition thereof. Without limiting the generality of the
foregoing, the Company will as soon as practicable:
(i) in connection with a request pursuant to Section 2, prepare
and file with the Commission a registration statement with respect to the
Subject Shares and use all reasonable efforts to cause such registration
statement to become effective as promptly as practicable thereafter;
(ii) in connection with a registration pursuant to Section 2,
prepare and file with the Commission such amendments and supplements to
such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement
effective for a period of not less than 90 days or such shorter period
which will terminate when all of the Subject Shares covered by such
registration statement have been sold (but not before the
B-5
376976.1
<PAGE>
expiration of the applicable period referred to in Section 4(3) of the Act
and Rule 174 thereunder), and comply with the provisions of the Act with
respect to the disposition of all securities covered by such registration
statement during such period in accordance with the intended methods of
disposition by the sellers thereof set forth in such registration
statement;
(iii) furnish the Holders covered by such registration
statement, without charge, such number of conformed copies of such
registration statement and of each such amendment and supplement thereto
(in each case including all exhibits), such number of copies of the
prospectus included in such registration statement (including such
preliminary prospectus), such documents incorporated by reference in such
registration statement or prospectus, and such other documents, as the
Holders may reasonably request;
(iv) use all reasonable efforts to register or qualify the
Subject Shares covered by such registration statement under the securities
or blue sky laws of such jurisdictions as the managing underwriter(s)
shall reasonably recommend, and do any and all other acts and things which
may be reasonably necessary or advisable to enable the Holders to
consummate the disposition in such jurisdictions of the Subject Shares
covered by such registration statement, except that the Company shall not
for any such purpose be required to (A) qualify generally to do business
as a foreign corporation in any jurisdiction wherein it is not so
qualified, (B) subject itself to taxation in any jurisdiction wherein it
is not so subject, or (C) consent to general service of process in any
such jurisdiction or otherwise take action that would subject it to the
general jurisdiction of the courts of any jurisdiction in which it is not
so subject;
(v) otherwise use its reasonable efforts to comply with all
applicable rules and regulations of the SEC and to cause the Subject
Shares covered by such registration statement to be registered with or
approved by such other governmental agencies or authorities as may be
necessary to enable the seller or sellers thereof or the underwriter or
underwriters, if any, to consummate the disposition of such Subject
Shares;
(vi) if such Securities are no longer Restricted Securities,
furnish, at the Company's expense, unlegended certificates representing
ownership of the securities being sold in such denominations as shall be
requested and instruct the transfer agent to release any stop transfer
orders with respect to the Subject Shares being sold;
(vii) notify each Holder, at any time when a prospectus relating
to the Subject Shares is required to be delivered under the Securities
Act, of the happening of any event as a result of which the prospectus
included in such Registration Statement contains any untrue statement of a
material fact or omits to state a material fact necessary to make the
statements therein (in the case of the prospectus or any preliminary
prospectus, in light of the circumstances under which they were made) not
misleading, and the Company will, as promptly as practicable thereafter,
prepare and file with the SEC and furnish a supplement or amendment to
B-6
376976.1
<PAGE>
such prospectus so that, as thereafter delivered to the purchasers of
Subject Shares such prospectus will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading;
(viii) enter into customary agreements (including an
underwriting agreement in customary form in the case of an underwritten
offering); make such representations and warranties to the sellers and
underwriters as in form and substance and scope are customarily made by
issuers to underwriters in underwritten offerings;
(ix) make available for inspection by the Holders, any
underwriter or agent participating in any disposition pursuant to such
registration statement, and any attorney, accountant or other similar
professional advisor retained by any such holders or underwriter
(collectively, the "Inspectors"), all pertinent financial and other
records, pertinent corporate documents and properties of the Company
(collectively, the "Records"), as shall be reasonably necessary to enable
them to exercise their due diligence responsibility, and cause the
Company's officers, directors and employees to supply all information
reasonably requested by any such Inspector in connection with such
Registration Statement. The Holders agree that Records and other
information which the Company determines, in good faith, to be
confidential and of which determination the Inspectors are so notified
shall not be disclosed by the Inspectors unless (i) the disclosure of such
Records is necessary to avoid or correct a misstatement or omission in the
Registration Statement, (ii) the release of such Records is ordered
pursuant to a subpoena, court order or regulatory or agency request or
(iii) the information in such Records has been generally disseminated to
the public. Each Holder agrees that it will, upon learning that disclosure
of such Record is sought in a court of competent jurisdiction or by a
governmental agency, give notice to the Company and allow the Company, at
the Company's expense, to undertake appropriate action to prevent
disclosure of the Records deemed confidential;
(x) make available to its security holders earnings statements,
which need not be audited, satisfying the provisions of Section 11(a) of
the Securities Act no later than 90 days after the end of the 12-month
period beginning with the first month of the Company's first quarter
commencing after the effective date of the Registration Statement, which
earnings statements shall cover said 12- month period;
(xi) make every reasonable effort to prevent the issuance of any
stop order suspending the effectiveness of the registration statement or
of any order preventing or suspending the effectiveness of such
registration statement at the earliest possible moment;
(xii) cooperate with the Holders and the managing underwriter or
underwriters, if any, or any other interested party (including any
interested broker-dealer) in making any filings or submission required to
be made, and the furnishing
B-7
376976.1
<PAGE>
of all appropriate information in connection therewith, with the National
Association of Securities Dealers, Inc. ("NASD");
(xiii) cause its subsidiaries to take action necessary to effect
the registration of the Subject Shares contemplated hereby, including
filing any required financial information; and
(xiv) effect the listing of the Subject Shares on the National
Association of Securities Dealers Automated Quotation System, National
Market System or such other national securities exchange on which shares
of the Company's Common Stock shall then be listed.
(b) The Holders shall provide (in writing and signed by the Holders
and stated to be specifically for use in the related registration statement,
preliminary prospectus, prospectus or other document incident thereto) all such
information and materials and take all such action as may be required in order
to permit the Company to comply with all applicable requirements of the SEC and
any applicable state securities laws and to obtain any desired acceleration of
the effective date of any registration statement prepared and filed by the
Company pursuant to this Agreement.
(c) The Holders shall, if requested by the Company or the managing
underwriter(s) in connection with any proposed registration and distribution
pursuant to this Agreement, (i) agree to sell the Subject Shares on the basis
provided in any underwriting arrangements entered into in connection therewith
and (ii) complete and execute all questionnaires, powers of attorney,
indemnities, underwriting agreements and other documents customary in similar
offerings.
(d) If a registration pursuant to Section 2 or 3 involves an
underwritten offering, each Holder of Registrable Securities agrees, whether or
not such Holders' Registrable Securities are included in such registration, not
to effect any sale or distribution, including any sale pursuant to Rule 144
under the Securities Act, of any Registrable Securities, or of any security
convertible into or exchangeable of exercisable for any Registrable Securities
(other than as part of such underwritten offering), without the consent of the
managing underwriter, during a period commencing seven calendar days before and
ending 180 calendar days (or such lesser number as the managing underwriter
shall designate) after the effective date of the registration.
(e) Each Holder of Subject Shares agrees that, upon receipt of any
notice from the Company of the happening of any event of the kind described in
Section 4(a)(vii) hereof, that Holder will forthwith discontinue disposition of
Subject Shares pursuant to the registration statement covering such Subject
Shares until that Holder's receipt of the copies of the supplemented or amended
prospectus contemplated by Section 4(a)(vii) hereof, and, if so directed by the
Company, that Holder will deliver to the Company (at the Company's expense) all
copies, other than permanent file copies then in that Holder's possession, of
the prospectus covering such Subject Shares current at the time of receipt of
such notice. In the event the Company shall give any such notice, the Company
shall extend the period during which such registration statement shall be
maintained effective pursuant to this Agreement (including the period referred
to in Sections 2(a) and 4(a)(ii)) by
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the number of days during the period from and including the date of the giving
of such notice pursuant to Section 4(a)(vii) hereof to and including the date
when each seller of Subject Shares covered by such registration statement shall
have received the copies of the supplemented or amended prospectus contemplated
by Section 4(a)(vii) hereof.
(f) It is understood that in any underwritten offering in addition to
any shares of Common Stock (the "initial shares") the underwriters have
committed to purchase, the underwriting agreement may grant the underwriters an
option to purchase up to a number of additional authorized but unissued shares
of Common Stock (the "option shares") equal to 15% of the initial shares (or
such other maximum amount as the NASD may then permit), solely to cover
over-allotments. If the offering is being registered under a Demand
Registration Statement, shares of Common Stock proposed to be sold by the
Company and the other sellers shall be allocated between initial shares and
option shares as agreed or, in the absence of agreement, pursuant to Section
2(c). If the offering is not being registered under a Demand Registration
Statement, shares of Common Stock proposed to be sold by the Company and the
other sellers shall be allocated between initial shares and option shares as
agreed or, in the absence of agreement, first among security holders exercising
demand registration rights and the Company as agreed between those security
holders and the Company and then pro rata among other holders of securities
that the Company has permitted to participate in the offering, with that pro
ration based upon the number of securities requested to be included in the
offering by those holders.
(g) In connection with any sale of Subject Shares that are registered
pursuant to this Agreement, the Company and the Holders shall enter into an
agreement providing for indemnification of the Holders by the Company, and
indemnification of the Company by the Holders, on terms reasonable and
customary for such agreements at that time.
5. Notices. Any notice or other communication required or permitted
to be given hereunder shall be in writing and shall be effective (a) upon hand
delivery or delivery by facsimile at the address or number designated below (if
delivered on a business day during normal business hours where such notice is
to be received), or the first business day following such delivery (if
delivered other than on a business day during normal business hours where such
notice is to be received) or (b) on the fifth business day following the date
of mailing by express courier service, fully prepaid, addressed to such
address, or upon actual receipt of such mailing, whichever shall first occur.
The addresses for such communications shall be:
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<PAGE>
If to the Seller, to it at:
National Lodging Corp.
339 Jefferson Road
Parsippany, New Jersey 07054-0278
Attention: General Counsel
Facsimile No. 201-428-5269
with a copy to:
Skadden Arps Slate Meagher & Flom
919 Third Avenue
New York, New York 10022
Attention: David Fox, Esq.
Facsimile No. 212-735-3635
If to Chartwell, to it at:
Chartwell Leisure Associates L.P. II
55 Hillside Road
Rye, New York 10580
Facsimile No. 212-856-7808
with a copy to:
Battle Fowler LLP
75 East 55th Street
New York, New York 10022
Attention: John N. Turitzin, Esq.
Facsimile No. 212-856-7814
and
FGT, L.P.
c/o Marc E. Leland & Associates
Potomac Tower, Suite 1700
1001 19th Street North
Arlington, Virginia 22209
Facsimile No. 703-351-9008
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<PAGE>
If to FSNL, to it at:
FSNL LLC
c/o Bergman, Horowitz & Reynolds
157 Church Street
19th Floor
New Haven, Connecticut 06510
Attn: Kenneth N. Musen, Esq.
Facsimile No. 203-785-8127
with a copy to:
Bernstein, Shur, Sawyer
& Nelson
P.O. Box 9729
100 Middle Street
Portland, ME 04104-5029
Attn: Leonard Nelson, Esq.
Facsimile No. 207-774-1127
If to any other Holder, to such name at such address as that
Holder shall have indicated in a written notice delivered to the
other parties to this Agreement.
Any party hereto may from time to time change its address for notices
under this Section 5 by giving at least 10 days' notice of such changes to the
other parties hereto.
6. Waivers. No waiver by any party of any default with respect to any
provision, condition or requirement hereof shall be deemed to be a continuing
waiver in the future thereof or a waiver of any other provision, condition or
requirement hereof; nor shall any delay or omission of any party to exercise
any right hereunder in any manner impair the exercise of any such right
accruing to it thereafter.
7. Headings. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.
8. Successors and Assigns; Amendments. This Agreement shall be
binding upon and inure to the benefit of the parties and their successors and
assigns, provided that this Agreement may be assigned by Buyer only to a single
assignee in connection with the transfer of all, but not less than all, of the
Registrable Securities to that transferee. This Agreement may not be amended
except by a written instrument executed by the parties hereto.
9. No Third Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
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<PAGE>
10. Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the internal laws of the State of New York
without regard to the principles of conflicts of laws.
11. Remedies. Each Holder, in addition to being entitled to exercise
all rights granted by law, including recovery of damages, will be entitled to
specific performance of its rights under this Agreement.
12. Severability. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstances, is held
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect and of
the remaining provisions contained herein shall not be in any way impaired
thereby.
13. Entire Agreement. This Agreement is intended by the parties as a
final expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect
of the subject matter contained herein and therein. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein and therein. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter.
14. Termination of the 1995 Registration Rights Agreement. The 1995
Registration Rights Agreement shall be terminated and of no further force or
effect as of the execution date of this Agreement.
15. Attorneys' Fees. In any action or proceeding brought to enforce
any provision of this Agreement or where any provision hereof or thereof is
validly asserted as a defense, the successful party shall be entitled to
recover reasonable attorneys' fees in addition to any other available remedy.
16. Execution. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other party, it being understood that both parties need not
sign the same counterpart.
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376976.1
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective authorized officers as of the date hereof.
NATIONAL LODGING CORP.
By:_________________________________
Name:
Title:
CHARTWELL LEISURE ASSOCIATES L.P. II
By: Chartwell Leisure Corp. II,
General Partner
By:_________________________
Name:
Title:
FSNL LLC
By:_________________________________
Name:
Title:
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376976.1
EXHIBIT C
Investment Banking
Corporate and Instituional
Client Group
MERRYLL LYNCH World Financial Center
North Tower
New York, New York 10281-1330
February 12, 1996
Board of Directors
National Lodging Corporation
339 Jefferson Road
Parsippany, New Jersey 07054
Gentlemen:
National Lodging Corporation (the "Company") and Chartwell Leisure
Associates L.P. II ("Chartwell") and FSNL LLC ("FSNL") (Chartwell and FSNL
together, the "Acquiror") propose to enter into a stock purchase agreement (the
"Agreement") pursuant to which, subject to approval by the Company's
shareholders, the Acquiror will purchase (the "Purchase Transaction") 4.0
million shares of the Company's common stock, par value $.01 per share (the
"Shares"), at $14.25 per share. The Purchase Transaction would, if consummated,
give the Acquiror ownership of approximately 52% of the Company's currently
outstanding Shares. The Purchase Transaction is expected to be effected in the
second quarter of 1996.
You have asked us whether, in our opinion, the proposed Purchase
Transaction is fair to the Company and its shareholders (other than the
Acquiror) from a financial point of view.
In arriving at the opinion set forth below, we have, among other
things:
(1) Reviewed the Company's Annual Report, Form 10-K and related
financial information for the fiscal year ended December 31,
1994 and the Company's Forms 10-Q and the related unaudited
financial information for the quarterly periods ending March
31, 1995, June 30, 1995 and September 30, 1995;
(2) Reviewed certain information, including financial forecasts,
relating to the business, earnings, cash flow, assets and
prospects of the Company, furnished to us by the Company;
(3) Conducted discussions with members of senior management of
the Company concerning its business and prospects, including
senior management's belief that proceeds received by the
Company from the Purchase Transaction can be productively
employed by the Company;
C/M 11752.0003 384170.1
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(4) Conducted discussions with members of senior management of
Chartwell concerning its business, results of operations,
strategic objectives and possible opportunities in the
hospitality industry that might be realized by the Company
following the Purchase Transaction;
(5) With respect to the Company's acquisition of all the
outstanding shares of common stock of Forte Hotels, Inc.
("FHI"), reviewed certain information, including financial
statements and financial forecasts furnished to us by the
Company, relating to the business, earnings, cash flow,
assets, acquisition and prospects of FHI and conducted
discussions with members of the senior management of FHI
concerning its business and prospects;
(6) Reviewed the historical market prices and trading activity
for the Shares and compared them with those of certain
publicly traded companies which are deemed to be reasonably
similar to the Company;
(7) Compared the results of operations (as adjusted for the
acquisition of FHI) of the Company with those of certain
companies which we deemed to be reasonably similar to the
Company;
(8) Compared the proposed financial terms of the transactions
contemplated by the Agreement with the financial terms of
certain other transactions which we deemed to be relevant;
(9) Reviewed the documents related to, and financial data set
forth in, our opinion letter to you dated January 11, 1996;
(10) Reviewed a draft of the Agreement dated February 9, 1996
furnished to us by the Company; and
(11) Reviewed such other financial studies and analyses and
performed such other investigations and taken into account
such other matters as we deemed necessary, including an
assessment of general economic, market and monetary
conditions.
In preparing our opinion, we have relied on the accuracy and
completeness of all information supplied or otherwise made available to us by
the Acquiror and the Company, and we have not independently verified such
information or undertaken an independent appraisal of the assets of the
Company. With respect to the financial forecasts furnished by the Company, we
have assumed that they have been reasonably prepared and reflect the best
currently available estimates and judgement of the Company's management as to
the expected future financial performance of the Company. Our opinion is based
upon market, economic, financial and other conditions as they exist and can be
evaluated as of the date hereof.
We have assumed that the definitive Agreement will not materially
differ from the draft of the Agreement dated February 9, 1996 furnished to us
by the Company.
In connection with the preparation of this opinion, we have not been
authorized by the Company or the Board of Directors to solicit, nor have we
solicited, third-party indications of interest
C/M 11752.0003 384170.1
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<PAGE>
for the acquisition of all or any part of the Company or any alternative
financing arrangements to the arrangements contemplated by the Agreement. In
addition, you have not requested that we express an opinion, and we express no
opinion, as to the Company's decision to raise capital at this time.
We have, in the past, provided financial advisory and financing
services to the Company and to HFS Incorporated (previously known as
Hospitality Franchise Systems, Inc.), from which the Company was spun off in
1994, and have received fees for the rendering of such services.
On the basis of, and subject to the foregoing, we are of the opinion
that, as of the date hereof, the proposed Purchase Transaction is fair to the
Company and its shareholders (other than the Acquiror) from a financial point
of view.
Very truly yours,
MERRILL LYNCH, PIERCE, FENNER &
SMITH INCORPORATED
C/M 11752.0003 384170.1
C-3
EXHIBIT D
FORM OF
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
NATIONAL LODGING CORP.
Adopted in accordance with the provisions
of Section 242 of the General Corporation
Law of the State of Delaware
The undersigned, Martin L. Edelman, the President of National
Lodging Corp., a corporation existing under the laws of the State of Delaware
(the "Corporation"), does hereby certify as follows:
FIRST: The name of the Corporation (hereinafter called the
"Corporation") is National Lodging Corp.
SECOND: The Certificate of Incorporation of the Corporation has
been amended by striking out the whole of Article FIRST thereof as it now
exists and inserting in lieu and instead thereof a new Article FIRST reading as
follows:
"FIRST: The name of the corporation is
Chartwell Leisure Inc. (hereinafter called the
"Corporation")."
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376978.2
<PAGE>
THIRD: Such amendment has been duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, the undersigned has signed this certificate
this day of ____________, 1996.
By:
_______________________________
Martin L. Edelman, President
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376978.2
