PROSPECTUS
2,088,319 Shares
Chartwell Leisure Inc.
Common Stock
(par value $.01 per share)
----------------------
Of the 2,088,319 shares (the "Shares") of common stock, par value $.01
per share ("Common Stock"), of Chartwell Leisure Inc. ("Chartwell" or the
"Company") offered hereby (the "Offering"), 658,929 shares are outstanding
shares of Common Stock that may be sold from time to time by Baron Asset Fund
("Baron" and a "Selling Stockholder"), 1,000,000 shares are outstanding shares
of Common Stock that may be sold from time to time after August 1, 1997 by funds
managed by affiliates of Brahman Management LLC and its affiliates
(collectively, "Brahman" and each, a "Selling Stockholder") and 429,390 shares
of Common Stock are shares that have been, or that may be, acquired by holders
of certain options to purchase shares of Common Stock (the "HFS Option Holders"
and each, a "Selling Stockholder" and together with Baron and Brahman, the
"Selling Stockholders") upon the exercise of options granted pursuant to HFS
Incorporated's 1992 Incentive Stock Option Plan (the "HFS Option Plan").
This Prospectus also relates to offers and resales by certain HFS
Option Holders who may be deemed to be affiliates of the Company (each, an
"Affiliate Selling Stockholder" and together, the "Affiliate Selling
Stockholders"), as that term is defined in Rule 405 under the Securities Act of
1933, as amended (the "Securities Act"), of shares of Common Stock that have
been, or that may be, acquired by those Affiliate Selling Stockholders upon the
exercise of their options under the HFS Option Plan. See "Selling Stockholders."
The Company has undertaken to register the Shares, all of which are,
or will be, owned beneficially and of record by the Selling Stockholders, under
the Securities Act pursuant to a registration statement to be declared effective
and to remain effective until the earlier of the distribution of the Shares has
been completed in accordance with the Plan of Distribution or the Selling
Stockholders notify the Company of their intent to rely exclusively on Rule 144
under the Securities Act. The Company will not receive any of the proceeds from
the sale of the Shares by the Selling Stockholders. The Company has agreed to
bear all expenses relating to this Offering, other than underwriting discounts
and commissions and any transfer taxes on the Shares being offered. The Company
has agreed to indemnify the Selling Stockholders against certain liabilities,
including liabilities under the Securities Act. See "Plan of Distribution."
The Shares may be offered by the Selling Stockholders from time to time
in transactions over one or more stock exchanges, in the over-the-counter
market, in negotiated transactions, or a combination of such methods of sale, at
fixed prices which may be changed, at market prices prevailing at the time of
sale, at prices related to prevailing market prices or at negotiated prices. The
Selling Stockholders may effect such transactions by selling the shares to or
through broker-dealers, and such broker-dealers may receive compensation in the
form of discounts, concessions or commissions from the Selling Stockholders
and/or the purchasers of the shares for whom such broker-dealers may act as
agent or to whom they sell as principal, or both (which compensation as to a
particular broker-dealer might be in excess of the customary commissions). To
the extent required, the specific shares to be sold, the names of the Selling
Stockholders, the public offering price, the name of such agent, dealer or
underwriter, and any applicable commission or discount with respect to a
particular offer will be set forth in an accompanying Prospectus Supplement. The
Selling Stockholders and any broker-dealers, agents or underwriters that
participate in the distribution of the Shares may be deemed to be "underwriters"
within the meaning of the Securities Act, and any commission received by them
and any profit on the resale of the Shares purchased by them may be deemed to be
underwriting commissions or discounts under the Securities Act. See "Plan of
Distribution."
The Common Stock is traded in the NASDAQ Market under the symbol "CHRT."
On May 14, 1997, the last sale reported for the Common Stock on the NASDAQ
National Market was $11 1/2 per share.
SEE "RISK FACTORS" BEGINNING ON PAGE 6 OF THIS PROSPECTUS FOR
INFORMATION THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A
CRIMINAL OFFENSE.
-----------------
The date of this Prospectus is May 15, 1997.
490837.2
<PAGE>
No dealer, salesman or any other person is authorized in connection
with the offering made hereby to give any information or to make any
representation not contained in or incorporated by reference in this Prospectus,
and, if given or made, such information or representation must not be relied
upon as having been authorized. This Prospectus does not constitute an offer to
sell or a solicitation of an offer to buy any security other than the Common
Stock offered hereby to any person in any jurisdiction in which it is unlawful
to make such an offer or solicitation to such person. Neither the delivery of
this Prospectus nor any sale made hereby shall under any circumstances imply
that the information contained herein is correct as of any date subsequent to
the date hereof.
No action has been or will be taken in any jurisdiction by the Company
that would permit an offering of Common Stock or possession or distribution of
this Prospectus in any jurisdiction where action for that purpose is required,
other than in the United States. Persons into whose possession this Prospectus
comes are required by the Company to inform themselves about and to observe any
restrictions as to the offering of the Shares and the distribution of this
Prospectus.
In this Prospectus references to "dollars" and "$" are to United States
dollars unless otherwise stated, and the terms "United States" and "U.S." mean
the United States of America, its states, its territories, its possessions and
all areas subject to jurisdiction.
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TABLE OF CONTENTS
Page
Additional Information......................................................3
Incorporation of Certain Information by Reference...........................3
Prospectus Summary..........................................................4
Risk Factors............................................................... 6
The Offering...............................................................11
Dividend Policy............................................................11
Description of Capital Stock...............................................12
Shares Eligible for Future Sale............................................14
Selling Stockholders.......................................................16
Plan of Distribution.......................................................17
Legal Matters..............................................................18
Experts....................................................................18
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CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR"
PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for certain forward-looking statements. The factors discussed under
"Risk Factors," among others, could cause actual results to differ materially
from those contained in forward-looking statements made in this Prospectus,
filings by the Company with the Securities and Exchange Commission (the
"Commission"), in the Company's press releases and in oral statements made by
authorized officers of the Company. When used in this Prospectus, the words
"estimate," "project," "anticipate," "expect," "intend," "believe," and similar
expressions are intended to identify forward-looking statements.
490837.2
<PAGE>
ADDITIONAL INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith, files reports, proxy statement and other information with
the Commission. Such reports, proxy statements and other information filed by
the Company can be inspected without charge at the office of the Commission at
the Public Reference Section located at 450 Fifth Street, N.W., Washington, D.C.
20549 and at the regional offices of the Commission located at Seven World Trade
Center, 13th Floor, New York, New York 10048 and 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511, and copies thereof may be obtained from the
Commission upon payment of the prescribed fees. The Commission also maintains a
site on the World Wide Web, the address of which is http://www.sec.gov., that
contains reports, proxy and information statements and other information
regarding issuers, such as the Company, that file electronically with the
Commission. Such reports, proxy statements and other information concerning the
Company can also be inspected at the office of the National Association of
Securities Dealers, 1735 K Street, N.W., Washington, D.C. 20006, which
supervises the NASDAQ National Market on which the Company's Common Stock is
traded.
The Company has filed with the Commission in Washington, D.C., a
Registration Statement on Form S-3 (of which this Prospectus is a part) under
the Securities Act of 1933, with respect to the Common Stock offered hereby.
This Prospectus does not contain all the information set forth in the
Registration Statement and the exhibits and schedules thereto. Statements
contained in this Prospectus as to the contents of any contract or other
document referred to are not necessarily complete and in each instance reference
is made to the copy of such contract or other document filed as an exhibit to
the Registration Statement, each such statement being qualified in all respects
by such reference and the exhibits and schedules thereto. For further
information with respect to the Company and the Common Stock offered hereby,
reference is made to the Registration Statement and such exhibits and schedules.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents filed with the Commission are incorporated in
this Prospectus by reference:
(i) The Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996 (File No. 0-24794) filed with the
Commission on March 28, 1997; and
(ii) The Company's Current Report on Form 8-K/A filed with the
Commission on February 7, 1997, as amended by the Company's Current
Report on Form 8-K/A filed with the Commission on February 26, 1997.
(iii) The description of the Common Stock which is contained
under the headings "Description of Company Capital Stock" and "Purposes
and Effects of Certain Provisions of the Charter and Bylaws" in the
Company's Amendment No. 2 to General Form for Registration of
Securities on Form 10/A filed with the Commission on November 2, 1994.
All documents subsequently filed by the Company with the Commission
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to
the date hereof and, prior to the termination of the Offering, shall be deemed
incorporated by reference in this Prospectus and to be part of this Prospectus
from the date of the filing of such reports. The Company hereby undertakes to
provide without charge to each person to whom a copy of this Prospectus has been
delivered, on the written or oral request of any such person, a copy of any or
all of the information that has been incorporated by reference in this
Prospectus (not including exhibits to the information that is incorporated by
reference unless such exhibits are specifically incorporated by reference into
the information that this Prospectus incorporates). Requests for such copies
should be directed to Chartwell Leisure Inc., 605 Third Avenue, New York, New
York 10158 (telephone (212) 692-1400), Attention: Douglas H. Verner, Esq.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document that also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
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490837.2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY DOES NOT PURPORT TO BE COMPLETE AND IS QUALIFIED
IN ITS ENTIRETY BY THE MORE DETAILED INFORMATION AND THE FINANCIAL STATEMENTS
AND NOTES THERETO INCORPORATED BY REFERENCE IN THIS PROSPECTUS. EACH INVESTOR IS
URGED TO READ THIS PROSPECTUS IN ITS ENTIRETY PRIOR TO MAKING AN INVESTMENT IN
THE SHARES OF COMMON STOCK OFFERED HEREBY.
THE COMPANY
Chartwell Leisure Inc. owns, directly or with joint venture partners,
130 hotel properties in both the full-service and limited-service segments,
including approximately 11,410 guest rooms, located in 25 states and six
Canadian provinces. In the full-service segment, Chartwell operates 27 hotels
aggregating approximately 5,430 (of which 5,266 rooms represent Chartwell's
ownership interest) guest rooms that contributed 63% of Chartwell's gross room
revenues (including gross room revenues of unconsolidated joint ventures) during
the twelve-month period ended December 31, 1996 on a pro forma basis.
Chartwell's remaining 103 hotels, consisting of approximately 5,980 (of which
3,658 rooms represent Chartwell's ownership interest) rooms, operate in the
limited-service segment, principally under the Travelodge brand. Chartwell's
strategy is to be an opportunistic acquiror and developer of diversified hotel
properties that it believes provide the potential for cash flow and earnings
growth, principally through rebranding, repositioning, reimaging and
remarketing.
Chartwell was spun off from HFS Incorporated ("HFS") in 1994 and until
late 1995 was engaged in the business of investing in casino gaming facilities.
In December 1995, an investment group ("CL Associates") primarily consisting of
members of the Fisher Brothers family and a trust for the benefit of Gordon
Getty and members of his family acquired a 16.6% equity interest in Chartwell by
purchasing newly issued shares of its Common Stock. In connection with that
purchase, Richard L. Fisher, a member of the Fisher Brothers family, was elected
to Chartwell's Board of Directors and to the chairmanship of Chartwell's
executive committee. At the same time, Chartwell's Board of Directors decided to
redirect the focus of Chartwell's business from gaming to lodging and Chartwell
agreed to acquire full and partial interests in 115 Travelodge hotels (the
"Travelodge Acquisition"), consisting of approximately 8,000 guest rooms, from
Forte Hotels, Inc. ("Forte Hotels") for approximately $99.0 million (a cost of
approximately $13,000 per guest room after accounting for joint venture
interests and other assets acquired).
In connection with the closing of the Travelodge Acquisition in January
1996, Chartwell agreed in principle to issue four million shares of Common Stock
for an aggregate purchase price of $57 million (the "CL Associates/FSNL
Investment") to an expanded investment group consisting of CL Associates and a
limited liability company owned principally by a trust for the benefit of
Charles de Gunzburg ("FSNL"), Mr. Fisher was elected Chairman and Chief
Executive Officer of Chartwell, a new senior management team was assembled, and
Mr. Fisher and that new management team began to implement Chartwell's current
strategy. Since that time, Chartwell has (i) acquired 21 Travelodge hotels in
Canada (including a one-half interest in a joint venture) totalling
approximately 3,500 guest rooms, for approximately $77.0 million (a cost of
approximately $22,000 per guest room) (the "Canadian Acquisition"), (ii)
obtained the 30-year exclusive and perpetual, subject to certain conditions,
master franchise license for the Travelodge brand in Canada, (iii) obtained the
30-year exclusive master license for the Travelodge brand in Mexico, (iv) formed
a joint venture ("Chartwell de Mexico") with Grupo Piasa, S.A. de C.V., a
diversified Mexican real estate and development company ("Grupo Piasa"), for the
purpose of developing and operating Travelodge hotels throughout Mexico, and (v)
formed a strategic alliance with Hilton Inns, Inc. ("Hilton") in which Chartwell
will develop, own, manage and operate at least 20 Hilton Garden Inn hotels in
target markets nationwide under a franchise license. Chartwell has curtailed
future activities in the gaming industry and, during the twelve-month period
ended December 31, 1996, derived no operating revenues from gaming.
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490837.2
<PAGE>
BACKGROUND
The Company's original gaming business was conducted as a division of
HFS from August 1993 until September 1994, when the Company was formed as
National Gaming Corp., a Delaware corporation and a wholly owned subsidiary of
HFS created for the purpose of carrying on that 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"). In January 1996, the Company's name was changed to National
Lodging Corp., and on August 8, 1996, the Company's name became Chartwell
Leisure Inc. The Company's principal executive offices are located at 605 Third
Avenue, New York, New York 10158, and its telephone number is (212) 692-1400.
Unless the context otherwise requires, all references in this Prospectus to the
Company include the Company, its subsidiaries and their respective predecessors,
and references to "hotels" include both hotels and motels.
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490837.2
<PAGE>
RISK FACTORS
Prospective investors should consider carefully the following factors,
in addition to the other information contained in this Prospectus, before
purchasing the shares of Common Stock offered hereby.
Expansion Risks
The Company's strategy includes increasing the number of its hotels
through the acquisition and the redevelopment of existing hotels and development
of new hotels. The Company's ability to expand depends on a number of factors,
including the selection and availability of suitable locations at acceptable
prices, the hiring and training of sufficiently skilled management and personnel
and the availability of financing. There can be no assurance that financing, or
desirable locations for acquisitions or new development, will be available or,
if available, will be on terms acceptable to the Company.
Acquisition Risks. Expansion by acquisition of hotels entails risks
that investments will fail to perform in accordance with expectations and that
the anticipated costs of renovation or conversion will prove inaccurate, as well
as general investment risks associated with any new real estate investment. In
connection with acquired properties, the Company will incur additional costs
relating to renovation and, if applicable, rebranding activities and operating
expenses, which could adversely affect the Company's financial performance.
Development Risks. Expansion by development of new hotels is subject to
a number of risks, including site acquisition cost and availability, risks of
construction delay, inclement weather and labor or material shortages or cost
overruns, risks that properties will not achieve anticipated 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.
Newly opened hotels generally begin with lower occupancy and room rates and
improve those rates over time.
Redevelopment Risks. The redevelopment of hotels involves risks
associated with construction and renovation of real property, including the
possibility of construction cost overruns and delays due to various factors
(including receipt of regulatory approvals, inclement weather and labor or
material shortages) and market or site determination after acquisition or
renovation. The operations at the hotels under redevelopment can be
substantially curtailed during portions of the redevelopment activity.
There can be no assurance that the Company's expansion strategy will be
implemented successfully. The Company's inability to successfully implement its
expansion plan would limit the Company's ability to increase its revenue base.
Furthermore, there can be no assurance that suitable hotel acquisition
candidates or development sites will be located, that hotel acquisitions can be
consummated successfully or that acquired or developed hotels can be operated
profitably or integrated successfully into the Company's operations.
Lodging Industry Risks
The lodging industry in general may be adversely affected by such
factors as changes in national and regional economic conditions (particularly in
geographic areas in which the Company has a high concentration of hotels),
changes in local market conditions, oversupply of hotel space or a reduction in
local demand for rooms and related services, competition in the hotel industry,
changes in interest rates, the availability of financing and other factors
relating to the operation of hotels.
Operating Risks. Operating factors affecting the Company and the
lodging industry generally include (i) competition from other hotels, motels and
recreational properties, (ii) demographic changes, (iii) the recurring need for
renovations, refurbishment and improvements of hotels and increased expenses
related to hotel security, (iv) restrictive changes in zoning and similar land
use laws and regulations, or in health, safety, disability and environmental
laws, rules and regulations, (v) changes in government regulations that
influence or determine wages, prices or construction costs, (vi) changes in the
characteristics of hotel locations, (vii) the inability to secure property and
liability insurance to fully protect against all losses or to obtain such
insurance at reasonable costs, (viii) changes in real estate tax rates and other
operating costs, (ix) changes or cancellations in local tourist, athletic or
cultural events, (x) changes in travel patterns that may be affected by
increases in transportation costs or gasoline prices, changes in airline
schedules and fares, strikes, weather patterns or relocation or construction of
highways, (xi) increases in operating expenses and litigation as a result of
injuries to guests, and (xii) changes in brand identity and
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490837.2
<PAGE>
reputation. Unexpected or adverse changes in any of the foregoing factors could
have a material adverse effect on the Company's business, assets, financial
condition or results of operations.
Cyclicality. The hotel industry is subject to periods of cyclical
growth and downturn. In the past, the hotel industry has experienced cyclical
downturns resulting from, among other things, overbuilding in the industry and
sluggish general economic conditions in the United States. There can be no
assurance that downturns or prolonged adverse conditions in the hotel industry,
in real estate or capital markets or in national or local economics will not
have a material adverse impact on the Company. In addition, the Company's hotels
are located throughout the United States and Canada, but the Company has a
geographic concentration of hotels in the State of California. As a result, the
Company's cash flow may be affected by economic conditions and demand for hotel
rooms within the State of California.
Seasonality. The hotel industry is seasonal in nature. Room occupancy
rates at the Company's hotels are affected by normally recurring seasonal
patterns and, in most locations in the United States and Canada, are higher in
the late spring through early fall months (May through October) than during the
balance of the year, with the lowest occupancy rates occurring in the first
quarter of the year. As a result, the Company expects to experience seasonal
lodging revenue patterns similar to the hotel industry with the summer months,
due to the increase in leisure travel, producing a higher revenue than in other
periods during the year.
Importance of Franchisor Relationships
Substantially all of the Company's hotels are operated under the
Travelodge brand name pursuant to franchise agreements with affiliates of HFS.
The Company expects that substantially all of the hotels that it acquires or
develops in the future will be operated under hotel brands franchised by major
hotel franchisors. While the Company believes that franchise arrangements offer
the Company competitive advantages over nonfranchised lodging properties, the
value of a brand name under which the Company's hotels operate and, as a result,
the Company's business as a whole, could be adversely affected by a number of
factors relating to the franchisor of that brand over which the Company has no
control. These risks include the general reputation of the brand and the success
of the franchisor's marketing efforts. In addition, pursuant to the terms of an
applicable franchise agreement, a franchisor can terminate the agreement if,
among other things, its quality standards are not maintained or if payments due
are not made in a timely fashion. If any of the franchise agreements were
terminated by the franchisor, the Company could explore entering into a
franchise agreement with another franchisor. There can be no assurance, however,
that a desirable replacement relationship would be available.
Risks Associated with International Operations
The Company has begun to expand its hotel operations in Mexico and
Canada. As a result, the Company's operations may be affected adversely as a
result of political changes or instability, general economic conditions, the
imposition of regulations relating to the ownership of hotel properties or real
estate or the franchising of hotel properties, the imposition of taxes, and
other charges on international business activities, in Mexico or Canada, and the
fluctuations in the value of the U.S. dollar against the Canadian dollar or the
Mexican peso, as the case may be, or restrictions on international currency
transactions.
Risks of New Management Team
The Company's senior management team, including the Chief Executive
Officer, the President, the Chief Operating Officer and the Chief Financial
Officer, have been appointed only recently and have had only a limited
opportunity to work as a management team. As a result, there can be no assurance
that the Company's management team will be successful in managing the operations
of the Company or be able to effectively implement the Company's business and
expansion strategy.
Reliance on Current Management
Although the Company's management team includes individuals with
substantial experience in operating, managing, developing and acquiring hotels
and real estate properties, the Company relies upon the services and expertise
of Richard L. Fisher, the Company's Chairman and Chief Executive Officer, and
Martin L. Edelman, a Director and the Company's President. The occurrence of any
event which would cause the Company to lose the services of either of Messrs.
Fisher or Edelman could have a material adverse effect on the Company. The
Company
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<PAGE>
has purchased $5 million key-man life insurance policies covering each of
Messrs. Fisher and Edelman. There is no assurance, however, that the Company
will continue to maintain such insurance policies in effect or that any proceeds
thereof would be sufficient to compensate the Company for the loss of services
of either of Messrs. Fisher or Edelman. In addition to the substantial amounts
of time that Messrs. Fisher and Edelman devote to the Company's business
activities, both Messrs. Fisher and Edelman engage in other business activities.
Neither Mr. Fisher nor Mr. Edelman has an employment agreement with the Company.
Relationship with HFS
In addition to the Company's relationship with HFS as the franchisor of
the Travelodge brand name under which substantially all of the Company's hotels
operate, $75 million of the Company's borrowings under its Credit Facility among
the Company, Chartwell Canada Corp., which is a subsidiary of the Company, the
Chase Manhattan Bank, as Administrative Agent, The Bank of Nova Scotia, as
Syndication Agent, and the Banks (as defined therein) from time to time parties
thereto (the "Credit Facility") are currently guaranteed by HFS. The amount and
availability of the Credit Facility could be adversely affected by adverse
changes in the financial condition of HFS.
Conflicts of Interest
Three members of the Company's Board of Directors also serve as
directors of HFS. 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, conflicts may
arise with respect to various agreements, such as franchise agreements, entered
into between the Company and HFS. It is anticipated that these conflicts of
interest, to the extent that they arise, will be resolved by disinterested
directors. The resolution of these conflicts of interests may, however, be more
difficult than would otherwise be the case due to the level of commonality
between the Company's and HFS' board of directors.
Risks Associated With Owning Real Estate
The Company's investments will be subject to varying degrees of risk
generally incident to the ownership of real estate. These risks include, among
others, changes in national, regional and local economic conditions, local real
estate market conditions, changes in interest rates and in the availability,
cost and terms of financing, the potential for uninsured casualty and other
losses, the impact of present or future environmental legislation and compliance
with environmental laws, the ongoing need for capital improvements, particularly
in older structures, civil unrest, acts of God, including earthquakes, flooding
and other natural disasters (which may result in uninsured losses), acts of war
and adverse changes in zoning laws and other regulations, many of which are
beyond the control of the Company. In addition, real estate investments are
relatively illiquid, which means that the ability of the Company to vary its
portfolio of hotels in response to changes in economic and other conditions may
be limited. If the Company must sell an investment, there can be no assurance
that the Company will be able to dispose of it in the time period it desires or
that the sale price of any investment will recoup or exceed the amount of the
Company's investment.
Risk of Expiration of Ground Leases
Approximately 55% of the Company's hotel rooms are located on property
covered by ground leases with unaffiliated third parties. Although the Company
intends to attempt to obtain renewals of the ground leases or the purchase of
the real property from the lessor when it considers renewal or purchase to be
advantageous, there can be no assurance that the Company will be able to do so.
The Company's failure to renew these ground leases or purchase the real property
from the lessor could adversely affect the Company's financial performance.
Competition
The hotel industry is highly competitive. The success of a hotel in its
market, in large part, is dependent upon its ability to compete in such areas as
reasonableness of room rates, quality of accommodations, service level and
convenience of location. The Company's hotels compete with existing hotel
facilities in their geographic markets, as well as future hotel facilities that
may be developed in proximity to the existing hotels. The Company's hotels
generally operate in areas that contain numerous competitors. The Company's
hotels compete with numerous other hotels, motels and other lodging
establishments in their market areas. Chains such as Days Inn and Howard
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490837.2
<PAGE>
Johnson, both of which are franchised by HFS, Comfort Inns, Fairfield Inns,
Hampton Inns, La Quinta, Motel 6 and Red Roof Inns are direct competitors of the
Company's limited-service Travelodge brand hotels and Ramada, Holiday Inn and
Quality Inns are direct competitors of the Company's full-service hotels.
Demographic, geographic or other changes in one or more of the Company's markets
could impact the convenience or desirability of the sites of certain hotels,
which would adversely affect the operations of those hotels. There can be no
assurance that new or existing competitors will not significantly lower rates or
offer greater convenience, services or amenities or significantly expand or
improve facilities in a market in which the Company's hotels compete, thereby
adversely affecting the Company's operations. In addition, some of the Company's
competitors have a larger network of locations and greater resources than the
Company. These competitors may generally be able to accept more risk than the
Company can prudently manage, including risks with respect to the geographic
proximity of its investments. Competition may generally reduce the number of
suitable hotel acquisition opportunities offered to the Company and increase the
bargaining power of property owners seeking to sell, which could adversely
affect the Company's financial performance.
Control by Principal Stockholders
CL Associates and FSNL together beneficially own 6,033,065 shares of
the Company's Common Stock, representing approximately 45% of the outstanding
shares of Common Stock, and will have voting and investment power with respect
to such stock. Accordingly, CL Associates and FSNL have effective control,
subject to the terms of the Amended and Restated Stock Purchase Agreement, dated
as of March 14, 1996, by and among CL Associates, FSNL and the Company (the "CL
Associates/FSNL Stock Purchase Agreement"), over the election of Directors of
the Company and most corporate actions, as well as the outcome of most issues
submitted to the Company's stockholders. Certain conflicts of interest may arise
between CL Associates, FSNL and their affiliates and the Company. Such conflicts
could arise with respect to business dealings between CL Associates, FSNL and
their affiliates and the Company and other corporate matters. However, pursuant
to the CL Associates/FSNL Stock Purchase Agreement, CL Associates and FSNL have
agreed to certain limitations on their activities and certain limits on the
exercise of their control over the Company.
Shares Eligible for Future Sale
As of May 14, 1997, the Company had outstanding 13,404,931 shares of
Common Stock. Upon the exercise by the HFS Option Holders of the remaining
357,705 options outstanding as of May 14, 1997 under the HFS Option Plan, the
Company will have outstanding an aggregate of approximately 13,762,636 shares of
Common Stock, assuming no exercise of outstanding options granted pursuant to
the Company's 1994 Stock Option Plan (the "Chartwell Option Plan"). Upon the
consummation of the Offering, of the 2,088,319 shares of Common Stock offered
hereby, unless purchased by "affiliates" of the Company, as that term is defined
in Rule 144 under the Securities Act (which sales would be subject to certain
volume limitations and other restrictions described below), the 658,929 shares
of Common Stock purchased by Baron on March 6, 1997 at a price of $14.00 per
share, for a total investment of approximately $9.2 million (the "Baron Private
Placement"), will be freely transferable without restriction or further
registration under the Securities Act, the 1,000,000 shares of Common Stock
purchased by Brahman on January 31, 1997 at a price of $14.00 per share, for a
total investment of $14 million (the "Brahman Private Placement"), will be
freely transferable without restriction or further registration under the
Securities Act after August 1, 1997 and all of such shares of Common Stock
issued to the HFS Option Holders under the HFS Option Plan will be freely
transferable without restriction or further registration under the Securities
Act. In addition, of the 6,033,065 shares of Common Stock held by CL Associates
and FSNL, the 1,128,135 shares purchased by CL Associates and FSNL in the
Company's February/March 1997 offering (the "Rights Offering") to its existing
stockholders of transferable subscription rights (the "Rights") exercisable for
shares of common stock at $14.00 per share are currently eligible for resale in
the public market, subject to certain volume and other restrictions under Rule
144, 904,930 of the shares of Common Stock held by CL Associates will be
eligible for resale in the public market, subject to certain volume and other
restrictions under Rule 144, in December 1997, and the remaining 4,000,000
shares of Common Stock held by CL Associates and FSNL will be eligible for
resale in the public market, subject to certain volume and other restrictions
under Rule 144, in August 1998, but the sale of those 4,000,000 shares in the
public market will not be permitted until August 1999 by the terms of the CL
Associates/FSNL Stock Purchase Agreement. See "Shares Eligible for Future Sale."
No prediction can be made as to the effect, if any, that future sales of shares,
or the availability of shares for future sales, will have on the market price of
the shares of Common Stock from time to time. The sale of substantial amounts of
shares of Common Stock, or the perception that such sales could occur, could
adversely affect prevailing market prices for the Common Stock. See "Shares
Eligible for Future Sale."
-9-
490837.2
<PAGE>
Regulatory Risks
The lodging industry is subject to numerous federal, state and local
government regulations, including building and zoning requirements. Also, the
Company is subject to laws governing its relationship with employees, including
minimum wage requirements, overtime, working conditions and work permit
requirements. An increase in the minimum wage rate, employee benefit costs or
other costs associated with employees, could adversely affect the Company. Under
the Americans with Disabilities Act of 1990 (the "ADA"), all public
accommodations are required to meet certain federal requirements related to
access and use by disabled persons. Although the Company has taken actions to
comply with the ADA, no assurance can be given that a material ADA claim will
not be asserted against the Company. These and other initiatives could adversely
affect the Company, as well as the lodging industry in general. The Company is
also subject to dramshop statutes or equivalent common law in some jurisdictions
that give an injured person the right to recover damages from any establishment
that wrongfully served alcoholic beverages to an intoxicated person who causes
the injury. The Company believes that its insurance coverage with respect to any
such liquor liability is adequate. The Company has hotels that are subject to
alcohol sales regulations and/or dramshop statutes in Canada and the following
states: California, Florida, Georgia, New Jersey, New York, Oregon, Pennsylvania
and Texas.
Dividend Policy
The Company has never paid any dividends on the Common Stock and does
not anticipate paying dividends on the Common Stock in the foreseeable future.
In addition, the Company's Credit Facility prohibits the payment of dividends on
the Common Stock. See "Dividend Policy."
Environmental Matters
Various United States Federal, state and local, Canadian and Mexican
laws and regulations impose liability on present and former real property owners
and operators for the cost of cleaning up or removing contamination caused by
hazardous or toxic materials. Under certain of these laws and regulations,
liability may be imposed without regard to fault or legality of the original
actions, and may be joint and several with other responsible parties.
Consequently, the Company could be responsible for payment of the full amount of
the liability, whether or not any other responsible party is also liable. The
presence of contamination at, adjacent to or near, a property also can affect
the valuation of that property or the ability of the owner to sell, lease or
obtain financing for the property and may in certain circumstances form the
basis for liability to third persons for personal injury or other damages. Some
of the Company's hotels are located on or near properties, such as gasoline
stations, on which activities have been conducted which have or may have
released petroleum products or other hazardous substances into the soil or
groundwater. The Company is aware of solid contamination, which the Company
believes was caused by unrelated third parties, at several of its hotel sites in
the United States and Canada. The Company has not received any notices of
liability in connection with such contamination. Based on its present knowledge,
the Company does not believe that environmental matters are likely to have a
material adverse effect on the Company's business, assets, financial condition
or results of operations. However, due to the absence of complete information,
possible future changes in laws and regulations, possible future changes in the
condition of the Company's properties, and other factors, no assurance can be
given that environmental matters will not have a material adverse effect on the
Company's business, assets, financial condition or results of operations.
Divestiture and Loss of Voting Rights
Because the Company was formerly engaged in investing in casino gaming
activities, the Company's certificate of incorporation includes provisions that
may have the effect of permitting the Company to redeem or require a stockholder
of the Company to divest its shares of Common Stock or forfeit its voting rights
in certain circumstances where such stockholder's ownership of Common Stock wold
adversely affect the Company's ability to secure requisite gaming-related
approvals or comply with certain other governmental requirements. These
provisions may be waived with the consent of the Company's Board of Directors.
See "Description of Capital Stock."
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490837.2
<PAGE>
THE OFFERING
This Prospectus relates to the Offering by the Selling Stockholders of
2,088,319 shares of Common Stock.
Common Stock offered by the Selling Stockholders.............. 2,088,319 shares
Use of proceeds..................... The Shares are being offered hereby solely
for the accounts of the Selling
Stockholders pursuant to certain
investment and other agreements. The
Company will not receive any of the
proceeds from the sale of the Shares by
the Selling Stockholders.
NASDAQ National Market symbol....... CHRT
DIVIDEND POLICY
The Company has never paid any dividends on the Common Stock, other than the
dividend of the Rights in the Company's Rights Offering which closed on March
13, 1997. The Company expects to retain its earnings for the development and
expansion of its business and the repayment of indebtedness and does not
anticipate paying dividends on the Common Stock in the foreseeable future. Any
future dividend policy will be determined by the Company's Board of Directors,
and the payment of any dividend in the future will be based upon conditions then
existing, including the Company's earnings, financial condition and capital
requirements, as well as such economic and other factors as the Board of
Directors may deem relevant at the time. In addition, the Company's Credit
Facility prohibits the payment of dividends on the Common Stock.
-11-
490837.2
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following description summarizes certain information regarding the
capital stock of the Company. This information does not purport to be complete
and is subject in all respect to the applicable provisions of the Delaware
General Corporation Law, as amended (the "DGCL"), the Company's Restated
Certificate of Incorporation (the "Certificate of Incorporation") and the
Company's Amended and Restated Bylaws (the "Bylaws").
The authorized capital stock of the Company consists of 100,000,000 shares
of Common Stock, $0.01 par value per share, and 10,000,000 shares of Preferred
Stock, $1.00 par value per share. As of May 14, 1997, 13,404,931 shares of
Common Stock are outstanding and held of record by approximately 138 persons.
The Company has no shares of Preferred Stock issued and outstanding, nor will
any shares of Preferred Stock be issued and outstanding upon consummation of the
Offering.
Common Stock
Each share of Common Stock entitles the holder thereof to one vote on all
matters submitted to a vote of stockholders, including the election of
directors. There is no cumulative voting in the election of directors;
consequently, the holders of a majority of the outstanding shares of Common
Stock can elect all of the directors then standing for election.
Holders of Common Stock are entitled to receive such dividends, if any, as
may be declared from time to time by the Board of Directors out of funds legally
available therefor. See "Dividend Policy." Holders of Common Stock have no
conversion, redemption or preemptive rights to subscribe to any securities of
the Company. All outstanding shares of Common Stock are, and the shares to be
sold in the Offering by the HFS Option Holders when issued and paid for will be,
validly issued, fully paid and nonassessable. In the event of any liquidation,
dissolution or winding up of the affairs of the Company, holders of Common Stock
will be entitled to share ratably in the assets of the Company remaining after
provision for payment of liabilities to creditors. The rights, preferences and
privileges of holders of Common Stock are subject to the rights of the holders
of any shares of preferred stock that the Company may issue in the future.
Preferred Stock
The Certificate of Incorporation authorizes the Board of Directors to create
and issue one or more series of Preferred Stock and determine the rights and
preferences of each series, to the extent permitted by the Certificate of
Incorporation and applicable law. Among other rights, the Board of Directors may
determine with respect to any such series of preferred stock (i) the designation
of such series; (ii) the rate and time of, and conditions and preferences with
respect to, dividends, and whether such dividends are cumulative; (iii) the
voting rights, if any, of shares of such series; (iv) the price, timing and
conditions regarding the redemption of shares of such series and whether a
sinking fund should be established for such series; (v) the rights and
preferences of shares of such series in the event of voluntary or involuntary
dissolution, liquidation or winding up of the affairs of the Company; and (vi)
the right, if any, to convert or exchange shares of such series into or for
stock or securities of any other series or class. Except for any difference so
provided by the Board of Directors, the shares of all series of Preferred Stock
will rank on a parity with respect to the payment of dividends and to the
distribution of assets of liquidation.
The provisions of any such series of preferred stock could have an adverse
effect on the earnings of the Company available for dividends on the Common
Stock and for other corporate purposes and on amounts distributable to the
holders of Common Stock if the Company were liquidated. Such provisions may also
include restrictions on the ability of the Company to pay dividends on,
repurchase or redeem shares of Common Stock or other series of preferred stock.
Divestiture and Loss of Voting Rights
The Certificate of Incorporation contains a provision (the "Gaming
Provision") that provides that except as otherwise approved by the Company's
Board of Directors, no stockholder who is a "Disqualified Stockholder" would be
entitled to vote, directly or indirectly, any shares of the Company's capital
stock beneficially owned by such stockholder on any matter. A "Disqualified
Stockholder" is defined as any stockholder who (i) owns beneficially five
percent or more of the outstanding capital stock of the Company and has not
fully cooperated with the Company and/or any regulatory gaming authority with
respect to providing information or complying with other similar
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490837.2
<PAGE>
requests, (ii) is required by any gaming authority to be qualified with respect
to any of the Company's or its subsidiaries' gaming licenses or authorizations
(collectively, the "Gaming Licenses") and who has neither been qualified by nor
obtained a waiver of qualification from each gaming authority requiring such
qualification (a "Waiver") in a timely manner, (iii) has been found unsuitable
or disqualified by any gaming authority with respect to any Gaming Licenses, if
such finding has not been reversed, vacated or superseded or (iv) is not a
United States citizen (as defined under the Shipping Act or the Merchant Marine
Act) and who acquires beneficial ownership of shares of the Company's capital
stock, which when aggregated with all other shares of the Company's capital
stock that are owned by non-U.S. citizens, represents more than 25% of the
Company's outstanding capital stock (such shares of capital stock in excess of
25% of the Company's outstanding capital stock being the "Disqualifying Excess
Shares"). Shares of the Company's capital stock held by a Disqualified
Stockholder should not be considered as outstanding stock entitled to vote for
any purpose.
In addition, under the Gaming Provision, the Company has the right, upon
written notice, to require that a Disqualified Stockholder that holds
"Publicly-traded Securities" dispose of any and all (of the Disqualifying Excess
Shares in the case of a Disqualified Stockholder described in (iv) above) of the
Company's Publicly-traded Securities held by such Disqualified Stockholder.
"Publicly-traded Securities" are defined as any securities that are listed or
admitted to trading on any national securities exchange or are quoted on the
NASDAQ.
The Company also has the right, at its option, to call for redemption any or
all of the shares (or the Disqualifying Excess Shares in the case of a
Disqualified Stockholder described in (iv) above) of the Company's capital stock
beneficially owned by a Disqualified Stockholder. Generally, the "Redemption
Price" paid to the Disqualified Stockholder for each share of capital stock, in
the case of exchange-listed or NASDAQ-quoted stock, would be equal to the
average closing price of such shares for the 20-day period preceding the date of
the notice of redemption, and if the stock were not listed or quoted, then the
Redemption Price would be the fair market value as determined by the Company's
Board of Directors. The Company has the right to pay the Redemption Price to the
Disqualified Stockholder in cash, property or rights, including securities of
the Company, as the Board of Directors might determine. If, on the date set for
redemption, a holder failed to deliver the certificates for the shares to be
redeemed properly endorsed for transfer, the payment to be delivered by the
Company would be set aside to be delivered to the holder, without interest, upon
surrender of the certificates. Unsurrendered certificates would no longer
represent outstanding shares, the right to receive further dividends with
respect to those shares would cease, and all rights of the person holding those
shares would cease, except for the right to receive the payment that had been
set aside with respect to those shares.
Classified Directors
The Certificate of Incorporation provides that the number of directors shall
not be less than three nor more than 15 and, within such limits and subject to
the rights of holders of any class or series of preferred stock, the number may
be fixed from time to time by the Board of Directors of the Company. The
Certificate of Incorporation provides that directors shall be divided into three
classes, designated Class I, Class II and Class III, each class consisting, as
nearly as may be possible, of one-third of the total number of directors
constituting the entire Board of Directors. Each director serves for a term
ending on the date of the third annual meeting of stockholders next following
the annual meeting at which such director was elected, provided that directors
originally designated as Class I, Class II and Class II, directors,
respectively, serve for a term ending on the date of the first, second and third
annual meeting, respectively, following the effective date of the Certificate of
Incorporation.
With a classified Board of Directors, at least two annual meetings of
stockholders, instead of one, are generally required to effect a change in a
majority of the Board of Directors. As a result, a classified Board of Directors
may discourage proxy contests for the election of directors or purchases of a
substantial block of the Common Stock because it limits the ability to obtain
control of the Board of Directors of the Company in a relatively short period of
time. The classification provisions could also have the effect of discouraging a
third party from making a tender offer or otherwise attempting to obtain control
of the Company. In addition, because under Delaware law a director serving on a
classified Board of Directors may be removed only for cause, a classified Board
of Directors would delay stockholders who do not agree with the policies of the
Board of Directors from replacing a majority of the Board of Directors for two
years, unless it could be demonstrated that the directors should be removed for
cause and the requisite vote of stockholders were obtained. Such a delay may
help ensure that the Board of Directors of the Company, if confronted by a
person conducting a proxy contest or pursuing an extraordinary corporate
transaction, will have sufficient time to review the proposal and appropriate
alternatives to the proposal and to act in what it
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490837.2
<PAGE>
believes is the best interests of the Company and its stockholders. Approval of
the Board of Directors as well as an 80% stockholder vote is required to amend
the director classification provisions of the Certificate of Incorporation.
Special Meetings of Stockholders; Action by Written Consent; Advance Notice
Provisions
The Certificate of Incorporation and Bylaws provide that special meetings of
stockholders of the Company may only be called by the Board of Directors or the
Chairman of the Board of the Company. The Certificate of Incorporation also
requires that stockholder action be taken at a meeting of stockholders and
prohibits stockholder action by written consent. The Bylaws provide that
stockholder nominations of directors and stockholder proposals to conduct
business at a stockholder' meeting must be given in advance of the meeting
within the time period and in the manner provided for in the Bylaws. Approval of
the Board of Directors as well as an 80% stockholder vote would be required to
amend any of the foregoing provisions.
Liability of Directors; Indemnification
The Company's Certificate of Incorporation contains a provision that
eliminates the personal liability of a director to the Company and its
stockholders for breaches of fiduciary duty as a director to the fullest extent
permitted by the DGCL. Under Delaware law, however, this provision does not
eliminate or limit the personal liability of a director (i) for any breach of
such director's duty of loyalty to the Company or its stockholders, (ii) for
acts or omissions not in good faith or that involve intentional misconduct or a
knowing violation of law, (iii) under the DGCL statutory provision making
directors personally liable, under a negligence standard, for unlawful payment
of dividends or unlawful stock repurchase or redemptions, or (iv) for any
transaction from which the director derived an improper personal benefit. This
provision offers persons who serve on the Board of Directors of the Company
protection against awards of monetary damages resulting from breaches of their
duty of care (except as indicated above), including grossly negligent business
decisions made in connection with takeover proposals for the Company. As a
result of this provision, the ability of the Company or a stockholder thereof to
successfully prosecute an action against a director for a breach of his duty of
care has been limited. However, the provision does not affect the availability
of equitable remedies such as an injunction or rescission based upon a
director's breach of his duty of care. Insofar as indemnification for
liabilities arising under the Securities Act may be permitted to directors,
officers and controlling persons of the Company, in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
The Certificate of Incorporation also provides that each person (and the
heirs, executors or administrators of such person) who was or is a party or is
threatened to be made a party to, or is involved in any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that such person is or was a director or
officer of the Company or is or was serving at the request of the Company as a
director or officer of another corporation, partnership, joint venture, trust or
other enterprise, shall be indemnified and held harmless by the Company to the
fullest extent permitted by the DGCL. Under the DGCL and the Bylaws, the right
to indemnification includes the right to be paid by the Company the expenses
incurred in defending in any such proceeding in advance of its final disposition
to the fullest extent permitted by the DGCL. The Certificate of Incorporation
provides further that, by action of the Board of Directors, the Company may
provide indemnification to such officers, employees and agents of the Company to
the extent that, in the determination of the Board of Directors, indemnification
is appropriate and authorized under the DGCL.
SHARES ELIGIBLE FOR FUTURE SALE
As of May 14, 1997, the Company had outstanding 13,404,931 shares of Common
Stock. Upon the exercise by the HFS Option Holders of the remaining 357,705
options outstanding as of May 14, 1997 under the HFS Option Plan, the Company
will have outstanding an aggregate of approximately 13,762,636 shares of Common
Stock, assuming no exercise of outstanding options granted pursuant to the
Chartwell Option Plan. Upon the consummation of the Offering, of the 2,088,319
shares of Common Stock offered hereby, unless purchased by "affiliates" of the
Company, as that term is defined in Rule 144 under the Securities Act (which
sales would be subject to certain volume limitations and other restrictions
described below), the 658,929 shares of Common Stock purchased by Baron in the
Baron Private Placement will be freely transferable without restriction or
further registration under the Securities Act, the 1,000,000 shares of Common
Stock purchased by Brahman in the Brahman Private Placement will be freely
transferable without restriction or further registration under the Securities
Act after August 1, 1997 and all of such shares of Common Stock issued to the
HFS Option Holders under the HFS Option Plan will be freely transferable without
restriction or further registration under the Securities Act. In addition, of
the 6,033,065 shares
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490837.2
<PAGE>
of Common Stock owned by CL Associates and FSNL, the 1,128,135 shares purchased
by CL Associates and FSNL in the Rights Offering are currently eligible for
resale in the public market, subject to certain volume and other restrictions
under Rule 144, 904,930 of the shares of Common Stock held by CL Associates will
be eligible for resale in the public market, subject to certain volume and other
restrictions under Rule 144, in December 1997, and the remaining 4,000,000
shares of Common Stock held by them will be eligible for resale in the public
market, subject to certain volume and other restrictions under Rule 144 in
August 1998, but the sale of those 4,000,000 shares in the public market will be
not permitted until August 1999 by the terms of the CL Associates/FSNL Stock
Purchase Agreement.
In general, under Rule 144 as currently in effect, a person, including a
person who may be deemed an "affiliate" of the Company, who has held restricted
shares for two years may sell such shares, subject to certain volume limitations
and other restrictions, without registering them under the Securities Act. Rule
144 generally also permits sales of restricted shares, without any volume
limitations, by a person who has not been an "affiliate" of the Company for at
least three months preceding the sale of such shares and who has held those
restricted shares for at least three years. Pursuant to the terms of a
registration rights agreement, each of CL Associates or FSNL (or its assignee)
will be entitled to certain demand registration rights with respect to shares of
Common Stock held by them. In addition to these demand registration rights, each
of CL Associates and FSNL (or its assignees) will be, subject to certain
limitations, entitled to register shares of Common Stock in connection with
future registration statements prepared by the Company to register its equity
securities.
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490837.2
<PAGE>
SELLING STOCKHOLDERS
This Prospectus relates to the offer and sale by Baron and Brahman of up to
658,929 and 1,000,000 shares of Common Stock, respectively, which shares were
acquired by Baron in the Baron Private Placement and by Brahman in the Brahman
Private Placement.
This Prospectus also relates to the offer and sale by the HFS Option
Holders, including the Affiliate Selling Stockholders, of up to 429,390 shares
of Common Stock which have been, or may be, acquired by the HFS Option Holders
in accordance with the HFS Option Plan. At the time of the Distribution, the
Company agreed to reserve for future issuance and to issue up to 433,290 shares
of Common Stock to the HFS Option Holders in connection with the exercise of
then outstanding options to purchase shares of HFS common stock which were
granted pursuant to the HFS Option Plan (such options were adjusted, as of the
effective date of the Distribution and as a result of the Distribution, so that
the holders of such options would be entitled, upon exercise thereof, to receive
one share of Common Stock for every ten shares of HFS common stock purchased
upon such exercise, subject to further adjustment in certain circumstances).
The table below sets forth certain information regarding the beneficial
ownership of the Shares by each Selling Stockholder prior to the Offering and
adjusted to give effect to the sale of all of the Shares offered hereby. The
Shares are being registered to permit public secondary trading of the Shares and
the Selling Stockholders may offer the Shares for sale from time to time. See
"Plan of Distribution."
<TABLE>
<CAPTION>
Number of
Number of Shares to be Number of
Shares of Percentage Offered for the Shares to be Percentage to
Common Stock Beneficially Account of the Owned after be Beneficially
Beneficially Owned Before Selling this Owned after
Name Owned (1) Offering Stockholder Offering this Offering
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Baron Asset Fund.......................... 783,000 5.84% 658,929 124,071 *
Quota Fund N.V. - "Brahman" .............. 167,900 1.25% 167,900 0 *
Brahman Partners II, L.P.................. 224,100 1.67% 224,100 0 *
B-Y Partners, L.P......................... 262,700 1.96% 262,700 0 *
Brahman Institutional Partners, L.P....... 253,400 1.89% 253,400 0 *
Brahman Partners II Offshore, Ltd......... 91,900 * 91,900 0 *
Steven J. Belmonte........................ 4,300 * 4,300 0 *
James E. Buckman.......................... 12,320 * 12,320 0 *
Gregory D. Casserly....................... 10,900 * 10,900 0 *
Scott E. Forbes........................... 3,400 * 3,200 200 *
Stephen P. Holmes(2)...................... 24,200 * 24,000 200 *
Jeanne M. Murphy.......................... 3,270 * 3,200 70 *
Douglas L. Patterson...................... 3,860 * 3,860 0 *
Eric E. Pfeffer........................... 4,400 * 4,400 0 *
John J. Russell........................... 4,050 * 4,050 0 *
Henry R. Silverman(3)..................... 283,372 2.08% 278,200 5,172 *
Richard A. Smith.......................... 8,000 * 8,000 0 *
John D. Snodgrass......................... 72,960 * 72,960 0 *
</TABLE>
- ---------------
* Less than 1%.
(1) The information contained in this table reflects "beneficial" ownership of
the Common Stock within the meaning of Rule 13d- 3 under the Exchange Act.
On May 14, 1997, the Company had 13,404,931 shares of Common Stock
outstanding. Beneficial ownership information reflected in the table above
includes shares issuable upon the exercise of outstanding stock options
granted under the HFS Option Plan.
(2) Mr. Holmes, who is the Vice Chairman of HFS, is a Director of the Company
and an Affiliate Selling Stockholder.
(3) Includes 5,172 shares of Common Stock in two retirement plans whose sole
beneficiary is Mr. Silverman. Mr. Silverman, who is the Chairman and Chief
Executive Officer of HFS, is a Director of the Company and an Affiliate
Selling Stockholder.
The names of any other Affiliate Selling Stockholders who may be deemed to
be affiliates of the Company, as defined in Rule 405 under the Securities Act,
and the shares of Common Stock beneficially owned by them, the shares of Common
Stock offered by them and the shares of Common Stock to be beneficially owned by
them after completion of any offering will be set forth in an accompanying
Prospectus Supplement.
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490837.2
<PAGE>
PLAN OF DISTRIBUTION
The Company will not receive any proceeds from this Offering. The shares of
Common Stock offered hereby may, upon compliance with applicable "Blue Sky"
laws, be sold by the Selling Stockholders from time to time in one or more
transactions on NASDAQ National Market or otherwise and at market prices and on
terms then prevailing or at prices related to such prevailing market prices, at
a fixed offering price (which may be changed at any time or from time to time),
at varying prices determined at the time of sale, or at negotiated prices. Such
prices will be determined by the Selling Stockholders or by agreement between
the Selling Stockholders and any underwriters or dealers and the criteria used
by them to establish prices are likely to include subjective factors.
The Shares may be sold in one or more of the following types of transaction:
(a) a block trade in which the broker or dealer so engaged will attempt to sell
the Shares as agent but may resell a portion of the block as principal to
facilitate the transaction; (b) purchases by a broker or dealer as principal and
resale by such broker or dealer for its account pursuant to this Prospectus; (c)
a distribution in accordance with the rules of NASDAQ National Market; and (d)
ordinary brokerage transactions and transactions in which the broker solicits
purchasers. In effecting sales, brokers or dealers engaged by the Selling
Stockholders may arrange for other brokers or dealers to participate. Brokers or
dealers may receive commissions or discounts from the Selling Stockholders in
amounts to be negotiated immediately prior to the sale. Such brokers or dealers
and any other participating brokers or dealers may be deemed to be
"underwriters" within the meaning of Section 2(11) of the Securities Act in
connection with such sales and any commissions received by them and any profit
on the resale of the shares may be deemed to be underwriting commissions or
discounts under the Securities Act. In addition, any of the Shares that qualify
for sale pursuant to Rule 144 may be sold under Rule 144 rather than pursuant to
this Prospectus. The Selling Stockholders will pay any transaction costs
associated with effecting any sales that occur.
Upon the Company being notified by a Selling Stockholder or several Selling
Stockholders that any material arrangement has been entered into with a
broker-dealer for the sale of Shares through a block trade, special offering,
exchange distribution or secondary distribution or purchases by a broker or a
dealer, a supplemental prospectus will be filed, if required, pursuant to Rule
424(c) under the Securities Act, disclosing (i) the name or names of such
Selling Stockholder or Selling Stockholders and of the participating
broker-dealer(s), (ii) the number of Shares involved, (iii) the price at which
such Shares were sold, (iv) the commissions paid or discounts or concessions
allowed to such broker-dealer(s), where applicable, (v) that such
broker-dealer(s) did not conduct any investigation to verify the information set
out or incorporated by reference in this prospectus and (vi) other facts
material to the transaction.
To comply with the applicable securities laws of certain states, the Shares
may only be sold through registered or licensed brokers or dealers in those
states. In addition, in certain states the Shares may not be offered or sold
unless they have been registered or qualified for sale in such states or an
exemption from such registration or qualification requirement is available and
is satisfied.
Pursuant to applicable rules and regulations under the Exchange Act, any
person engaged in the distribution of the Shares may not simultaneously bid for
or purchase securities of the same class for a period of two business days prior
to the commencement of such distribution. In addition and without limiting the
foregoing, the Selling Stockholders will be subject to applicable provisions of
the Exchange Act and the rules and regulations thereunder, including without
limitation Rules 10b-2, 10b-6 and 10b-7, in connection with transactions in the
Shares during the effectiveness of the Registration Statement that includes this
Prospectus. All the foregoing may affect the marketability of the Common Stock
and any market-making activities with respect to the Common Stock.
The Selling Stockholders are not restricted as to the price or prices at
which they may sell their shares. Sales of such shares may have an adverse
effect on the market price of the Common Stock. Moreover, the Selling
Stockholders are not restricted as to the number of shares that may be sold at
any time, and it is possible that a significant number of shares could be sold
at the same time, which may have an adverse effect on the market price of the
Common Stock.
The Company has undertaken to file and has declared effective the
Registration Statement that includes this Prospectus pursuant to Rule 415 under
the Securities Act. The Company has agreed to pay all fees and expenses incident
to the registration of the Shares covered by this Prospectus.
Brahman has agreed with the Company that, until August 1, 1997, it will not
sell, transfer or otherwise dispose of, directly or indirectly, the 1,000,000
shares of Common Stock that it purchased in the Brahman Private Placement
without the prior written consent of the Company.
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<PAGE>
Pursuant to the terms of Securities Purchase Agreement, dated January 31,
1997, between the Company and Brahman (the "Brahman Purchase Agreement") and the
Securities Purchase Agreement, dated March 6, 1997, between the Company and
Baron (the "Baron Purchase Agreement" and together with the Brahman Purchase
Agreement, the "Purchase Agreements"), the Company has agreed to pay all
expenses relating to this registration, other than underwriting discounts and
commissions and any transfer taxes on the Shares being offered. The Purchase
Agreements also provide for reciprocal indemnification between the Company, on
the one hand, and Brahman and Baron on the other hand, against certain
liabilities in connection with the Registration Statement of which this
Prospectus is a part, including liabilities under the Securities Act.
LEGAL MATTERS
The validity of the Common Stock has been passed upon for the Company by
Battle Fowler LLP, New York, New York. Martin L. Edelman, who is the President
and a Director of the Company, is also of counsel to Battle Fowler LLP.
EXPERTS
The consolidated financial statements of the Company as of December 31, 1996
and 1995 and each of the three years in the period ended December 31, 1996
incorporated by reference in this Prospectus have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their reports appearing therein,
and have been so included in reliance upon the reports of such firm given upon
their authority as experts in accounting and auditing. The consolidated
financial statements of Travelodge/Thriftlodge as of January 23, 1996 and for
the period February 1, 1995 to January 23, 1996 incorporated by reference in
this Prospectus and the registration statement have been audited by Deloitte &
Touche LLP, independent auditors, stated in their report appearing therein, and
have been so included in reliance upon the report of such firm given upon their
authority as experts in auditing and accounting. The consolidated financial
statements of Travelodge/Thriftlodge for the year ended January 31, 1995
incorporated by reference in this Prospectus have been so included in reliance
upon the report of Price Waterhouse LLP, independent accountants, given on the
authority of said firm as experts in accounting and auditing. The consolidated
financial statements of Capital Properties Limited Partnership as of September
30, 1996 and 1995 and each of the three years in the period ended September 30,
1996 incorporated by reference in this Prospectus and the related financial
statement schedules included therein have been audited by Deloitte & Touche,
independent auditors, as stated in their reports appearing therein, and have
been so included in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
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