<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF
1934, AS AMENDED
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 (S) 240.14a-11(c) or (S) 240.14a-12
CHARTWELL LEISURE INC.
- -------------------------------------------------------------------------------
(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):
[_] No fee required
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
Common Stock, $.01 par value, of Chartwell Leisure Inc. ("Chartwell
Common Stock")
2) Aggregate number of securities to which transaction applies:
15,734,136 shares of Chartwell Common Stock
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):
$17.25
4) Proposed maximum aggregate value of transaction:
$271,413,846
Pursuant to Reg. (S) 240.0-11(c)(1) under the Exchange Act, a fee of
$54,306.92 has been paid herewith, which is equal to 1/50th of 1% of
$271,534,596 (the value to be transferred to security holders in the
transaction).
5) Total fee paid:
$54,306.92
[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>
CHARTWELL LEISURE INC.
10 ROCKEFELLER PLAZA, SUITE 1250
NEW YORK, NEW YORK 10020
February 9, 1998
Dear Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders
(together with any postponement or adjournment thereof, the "Special Meeting")
of Chartwell Leisure Inc. (the "Company") to be held on Monday, March 16, 1998
at 10:00 a.m., local time, at the offices of Battle Fowler LLP, 75 East 55th
Street, New York, New York. A Notice of the Special Meeting, a Proxy Statement
containing information about the matters to be acted upon at the Special
Meeting and a proxy card are enclosed.
At the Special Meeting, you will be asked to consider and vote upon a
proposal to approve and adopt the Agreement and Plan of Merger, dated as of
November 13, 1997, as amended (the "Merger Agreement"), by and between the
Company, Whitehall Street Real Estate Limited Partnership IX ("Parent"), and
CLI Properties Acquisition Corp., currently a subsidiary of Parent ("Sub"),
pursuant to which, among other things, Sub will merge with and into the
Company (the "Merger"). The surviving corporation after the Merger will be a
subsidiary of Parent. Pursuant to the Merger Agreement, each outstanding share
of common stock, par value $.01 per share, of the Company (the "Shares"),
other than Shares as to which dissenters' rights of appraisal have been duly
asserted and perfected under Delaware law and Shares owned by the Company or
by Parent, Sub or any other subsidiary of Parent (which will be canceled),
will be converted into the right to receive $17.25 per Share in cash, without
interest. The accompanying Proxy Statement provides a detailed description of
the proposed Merger, and a copy of the Merger Agreement is attached as Annex A
thereto. You are urged to read this material in its entirety and consider it
carefully.
The Board of Directors has fixed the close of business on February 4, 1998
as the record date for determining the holders of Shares entitled to notice
of, and to vote at, the Special Meeting (the "Record Date"). Only holders of
record of Shares at the close of business on the Record Date are entitled to
notice of, and to vote at, the Special Meeting.
THE BOARD OF DIRECTORS UNANIMOUSLY HAS DETERMINED THAT THE MERGER IS FAIR TO
AND IN THE BEST INTERESTS OF STOCKHOLDERS, HAS APPROVED THE MERGER AGREEMENT
AND RECOMMENDS THAT STOCKHOLDERS VOTE FOR APPROVAL AND ADOPTION OF THE MERGER
AGREEMENT. In determining to approve and recommend adoption of the Merger
Agreement, the Board of Directors carefully reviewed and considered the terms
and conditions of the proposed Merger, as well as a number of other factors.
In addition, the Board of Directors has received the opinions of Lehman
Brothers and Chase Securities Inc. as to the fairness, from a financial point
of view, of the consideration to be received by the holders of Shares pursuant
to the Merger. The full text of each of the opinions of Lehman Brothers and
Chase Securities Inc., each of which is dated November 13, 1997, and which
sets forth the assumptions made, matters considered and limits on review
undertaken, is attached as Annex B and Annex C, respectively, to the
accompanying Proxy Statement.
Approval and adoption of the Merger Agreement requires the affirmative vote
of the holders of a majority of the outstanding Shares entitled to vote
thereon.
I URGE YOU TO FILL IN, DATE AND SIGN THE ENCLOSED PROXY CARD AND PROMPTLY
RETURN IT IN THE ENCLOSED ENVELOPE SO THAT AS MANY SHARES AS POSSIBLE MAY BE
REPRESENTED AT THE SPECIAL MEETING. NO POSTAGE IS NEEDED IF THE PROXY CARD IS
MAILED IN THE UNITED STATES. PLEASE DO NOT SEND ANY STOCK CERTIFICATES WITH
THE ENCLOSED PROXY CARD.
<PAGE>
If you plan to attend the Special Meeting, please check the appropriate box
on your proxy card. You may attend the Special Meeting whether or not you have
previously returned your proxy card.
Sincerely,
/s/ RICHARD L. FISHER
Richard L. Fisher
Chairman of the Board of Directors
and Chief Executive Officer
<PAGE>
CHARTWELL LEISURE INC.
10 ROCKEFELLER PLAZA, SUITE 1250
NEW YORK, NEW YORK 10020
----------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
MONDAY, MARCH 16, 1998
----------------
To: The Stockholders of Chartwell Leisure Inc.
Notice is Hereby Given that a special meeting of stockholders of Chartwell
Leisure Inc. (the "Company") will be held on Monday, March 16, 1998 at 10:00
a.m. local time, at the offices of Battle Fowler LLP, 75 East 55th Street, New
York, New York (the "Special Meeting"), for the following purposes:
1. To consider and vote upon a proposal to approve and adopt the
Agreement and Plan of Merger, dated as of November 13, 1997, as amended
(the "Merger Agreement"), by and between the Company, Whitehall Street Real
Estate Limited Partnership IX, a Delaware limited partnership ("Parent"),
and CLI Properties Acquisition Corp., a Delaware corporation and currently
a subsidiary of Parent ("Sub"), pursuant to which:
a. Sub will be merged with and into the Company (the "Merger"); the
Company will be the surviving corporation in the Merger and will be a
subsidiary of Parent; and
b. At the effective time of the Merger (the "Effective Time"), each
outstanding share of common stock, $.01 par value per share, of the
Company (the "Shares"), other than Shares as to which dissenters'
rights of appraisal have been duly asserted and perfected under the
Delaware General Corporation Law (the "DGCL") and Shares owned by the
Company or by Parent, Sub or any other subsidiary of Parent (which will
be canceled), will be converted into the right to receive $17.25 per
Share in cash, without interest.
2. To transact such other business as may properly come before the
Special Meeting or any adjournment or postponement thereof.
Additional information relating to these matters is set forth in the
accompanying Proxy Statement which should be read carefully and in its
entirety.
THE BOARD OF DIRECTORS UNANIMOUSLY HAS DETERMINED THAT THE MERGER IS FAIR TO
AND IN THE BEST INTERESTS OF STOCKHOLDERS, HAS APPROVED THE MERGER AGREEMENT
AND RECOMMENDS THAT STOCKHOLDERS VOTE FOR APPROVAL AND ADOPTION OF THE MERGER
AGREEMENT.
If the Company's stockholders approve and adopt the Merger Agreement at the
Special Meeting and the Merger is consummated, from and after the Effective
Time and until their successors are duly elected or appointed and qualified in
accordance with applicable law, the directors and officers of Sub will become
the directors and officers of the Company, as the surviving corporation in the
Merger.
Only holders of record of Shares at the close of business on February 4,
1998 (the "Record Date") are entitled to notice of and to vote at the Special
Meeting or any adjournment or postponement thereof.
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 Special Meeting. You are
cordially invited to attend the Special Meeting in person. THE BOARD OF
DIRECTORS URGES YOU TO DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD PROMPTLY
IN THE POSTAGE PAID
<PAGE>
ENVELOPE. A reply envelope is enclosed for your convenience. Please do not send
any stock certificates with the enclosed proxy card. The return of the enclosed
proxy will not affect your right to vote if you attend the Special Meeting.
By order of the Board of Directors,
/s/ Douglas H. Verner
DOUGLAS H. VERNER
Secretary
Dated: February 9, 1998
IF YOU HAVE ANY QUESTIONS, OR NEED ASSISTANCE IN VOTING YOUR SHARES, PLEASE
CALL CHASEMELLON SHAREHOLDER SERVICES, WHICH IS ASSISTING US, TOLL-FREE AT
1-888-224-2745.
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Information contained in this Proxy Statement contains "forward-looking
statements" relating to, without limitation, future economic performance,
plans and objectives of management for future operations and projections of
revenue and other financial items, which can be identified by the use of
forward-looking terminology such as "may," "will," "should," "expect,"
"anticipate," "estimate" or "continue" or the negative thereof or other
variations thereon or comparable terminology. The cautionary statements set
forth in this Proxy Statement identify important factors with respect to such
forward-looking statements, including certain risks and uncertainties that
could cause actual results to differ materially from those in such forward-
looking statements.
Certain statements under the captions "SUMMARY" and "SPECIAL FACTORS--
Financial Advisors; Fairness Opinion" and elsewhere in this Proxy Statement
constitute "forward-looking statements." Such forward-looking statements
involve known and unknown risks and uncertainties which may cause the actual
results, performance and achievements of the Company, or industry results, to
be materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements.
<PAGE>
CHARTWELL LEISURE INC.
10 ROCKEFELLER PLAZA, SUITE 1250
NEW YORK, NEW YORK 10020
---------------
PROXY STATEMENT
---------------
INTRODUCTION
This Proxy Statement is being furnished to the stockholders of Chartwell
Leisure Inc., a Delaware corporation (the "Company"), in connection with the
solicitation of proxies by the Board of Directors of the Company (the "Board")
from the holders of shares of the common stock, par value $.01 per share, of
the Company (the "Shares") for use at a Special Meeting of Stockholders of the
Company to be held on Monday, March 16, 1998, at 10:00 a.m. local time, at the
offices of Battle Fowler LLP, 75 East 55th Street, New York, New York, and at
any adjournment or postponement thereof (the "Special Meeting"). This Proxy
Statement and the enclosed proxy card are first being mailed to holders of
Shares on or about February 9, 1998.
At the Special Meeting, holders of Shares on the Record Date (as defined
below) will be asked to consider and vote upon a proposal to approve and adopt
the Agreement and Plan of Merger, dated as of November 13, 1997, as amended
(the "Merger Agreement"), by and between the Company, Whitehall Street Real
Estate Limited Partnership IX, a Delaware limited partnership ("Parent"), and
CLI Properties Acquisition Corp., a Delaware corporation and currently a
subsidiary of Parent ("Sub"), pursuant to which, among other things, Sub will
merge with and into the Company (the "Merger"). The Company will be the
surviving corporation after the Merger (the "Surviving Corporation") and will
be a subsidiary of Parent. Pursuant to the Merger Agreement, each outstanding
Share, other than Shares as to which dissenters' rights of appraisal have been
duly asserted and perfected under the Delaware General Corporation Law (the
"DGCL") and shares held by the Company, Parent, Sub or any other subsidiary of
Parent (which will be canceled), will be converted into the right to receive
$17.25 in cash, without interest (the "Merger Consideration"). Accordingly,
the total amount of Merger Consideration, together with the amounts to be paid
to the holders of options to purchase Shares of the Company, to be paid by
Parent and Sub in the Merger will be approximately $271 million in cash. As of
February 5, 1998, the last trading day before the printing of this Proxy
Statement, the closing per Share price of the Company was $16 15/16. As a
result of the Merger, the Shares will no longer be publicly traded and Parent
will become the sole stockholder of the Surviving Corporation. Following the
Merger, persons who were stockholders of the Company immediately prior to the
Merger will no longer have an opportunity to continue their interests in the
Company as an ongoing corporation and therefore will not share in its future
earnings and potential growth. See "STOCKHOLDERS' RIGHTS OF APPRAISAL" and
"THE MERGER AGREEMENT--Merger Consideration; Conversion of Shares."
Only holders of record of Shares at the close of business on February 4,
1998, the record date for the Special Meeting (the "Record Date"), are
entitled to notice of, and to vote at, the Special Meeting. At the close of
business on the Record Date, 13,485,999 Shares were issued and outstanding,
which constituted the only issued and outstanding class of voting securities
of the Company.
Consummation of the Merger is conditioned upon, among other things, approval
and adoption of the Merger Agreement by the affirmative vote of the holders of
a majority of the issued and outstanding Shares entitled to vote thereon and
the receipt of certain other approvals and consents. Two of the Company's
principal stockholders, Chartwell Leisure Associates L.P. II ("CL Associates")
and FSNL LLC ("FSNL"), which collectively beneficially own 44.74% of the
outstanding Shares, are parties to an agreement with the Company which
requires such stockholders to vote their Shares for and against approval and
adoption of the Merger Agreement in the same proportion as the Shares held by
the other stockholders of the Company voted for and against approval of the
Merger. CL Associates is a limited partnership consisting of members of the
Fisher Brothers family and a trust for the benefit of Gordon Getty and members
of his family. Richard L. Fisher, Chairman and Chief Executive Officer of the
Company, Martin L. Edelman, President and a director of the Company, and Marc
E. Leland and Arnold Fisher, both of whom are directors of the Company, are
beneficial owners of CL Associates. FSNL is a limited liability company owned
principally by a trust for the benefit of Charles de Gunzberg. Guido Goldman,
a director of the Company, is a Manager and beneficial owner of FSNL and a
beneficiary of a trust that is a member of FSNL. See "SPECIAL FACTORS--
Interests of Certain Persons in the Merger; Potential Conflicts of Interest."
The Special Meeting may be postponed or adjourned from time to time until such
conditions are satisfied. There can be no assurance that the conditions to the
Merger will be satisfied or, where permissible, waived, or that the Merger
will be consummated. See "THE MERGER AGREEMENT--Conditions to Consummation of
the Merger" and "THE SPECIAL MEETING--Record Date, Voting Rights and Vote
Required."
---------------
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS
OR MERITS OF SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF
THE INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION
TO THE CONTRARY IS UNLAWFUL.
---------------
The date of this Proxy Statement is February 9, 1998.
<PAGE>
AVAILABLE 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 statements and other information with the
Securities and Exchange Commission (the "Commission"). Copies of such reports,
proxy statements and other information can be inspected and copied at the
public reference facilities of the Commission at its principal office at
Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549,
and at its regional offices at Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511, and at 7 World Trade Center, Suite 1300,
New York, New York 10048. Any interested party may obtain copies of such
material at prescribed rates from the Public Reference Section of the
Commission at its principal office at Judiciary Plaza, 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549. The Company files information
electronically with the Commission, and the Commission maintains a Web Site
that contains reports, proxy and information statements and other information
regarding registrants (including the Company) that file electronically with
the Commission. The address of the Commission's Web Site is
(http://www.sec.gov). Such reports, proxy statements and other information
concerning the Company can also be inspected at the offices 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 Shares are
traded.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED, OR INCORPORATED BY REFERENCE, IN
THIS PROXY STATEMENT IN CONNECTION WITH THE SOLICITATION OF PROXIES MADE
HEREBY, AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS SHOULD NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OTHER PERSON.
ALL INFORMATION CONTAINED IN THIS PROXY STATEMENT RELATING TO THE COMPANY HAS
BEEN SUPPLIED BY THE COMPANY, AND ALL INFORMATION CONTAINED IN THIS PROXY
STATEMENT RELATING TO PARENT AND SUB, EACH OF THEIR RESPECTIVE AFFILIATES AND
THE PLANS FOR THE SURVIVING CORPORATION FOLLOWING THE MERGER HAS BEEN SUPPLIED
BY PARENT. THE DELIVERY OF THIS PROXY STATEMENT SHALL NOT, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY, PARENT OR SUB SINCE THE DATE HEREOF OR THAT THE
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
i
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY.................................................................. 1
The Company............................................................ 1
Parent and Sub......................................................... 1
Failure to Consummate the Merger....................................... 1
The Special Meeting.................................................... 1
The Merger............................................................. 2
Interests of Certain Persons in the Merger; Potential Conflicts of
Interest.............................................................. 4
Stockholders' Rights of Appraisal...................................... 9
Market Prices and Dividends............................................ 9
Selected Consolidated Financial Data................................... 10
Certain Company Projections............................................ 13
THE SPECIAL MEETING...................................................... 15
Date, Time and Place; Purpose of the Special Meeting................... 15
Record Date, Voting Rights and Vote Required........................... 15
Proxies................................................................ 16
Stockholders' Rights of Appraisal...................................... 17
SPECIAL FACTORS.......................................................... 17
Background of the Merger............................................... 17
Recommendation of the Board; Fairness of the Merger.................... 22
Financial Advisors; Fairness Opinions.................................. 23
Purpose and Structure of the Merger.................................... 30
Certain Effects of the Merger.......................................... 30
Interests of Certain Persons in the Merger; Potential Conflicts of
Interest.............................................................. 31
Indemnification of Directors and Officers.............................. 38
Accounting Treatment of the Merger..................................... 38
Certain Federal Income Tax Consequences to Stockholders................ 38
SOURCE AND AMOUNT OF FUNDS............................................... 39
STOCKHOLDERS' RIGHTS OF APPRAISAL........................................ 39
THE MERGER AGREEMENT..................................................... 43
Effective Time......................................................... 43
Merger Consideration; Conversion of Shares............................. 43
Stock Options.......................................................... 43
Procedure for Payment.................................................. 43
Dissenting Shares...................................................... 45
Certain Representations and Warranties................................. 45
Conduct of Business Pending the Closing................................ 46
No Solicitation of Proposals........................................... 47
Directors' and Officers' Insurance and Indemnification................. 48
Certain Other Covenants................................................ 49
Conditions to Consummation of the Merger............................... 51
Termination............................................................ 54
REGULATORY MATTERS....................................................... 56
HSR Act................................................................ 56
Canadian Acts.......................................................... 56
Other Foreign Regulatory Matters....................................... 56
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
CERTAIN INFORMATION CONCERNING THE COMPANY............................... 56
The Company............................................................ 56
Directors and Executive Officers....................................... 57
Certain Relationships and Related Transactions with Directors and
Officers.............................................................. 59
CERTAIN INFORMATION CONCERNING PARENT AND SUB............................ 59
FEES AND EXPENSES........................................................ 59
MARKET PRICES AND DIVIDENDS.............................................. 60
Market Prices.......................................................... 60
Dividends.............................................................. 60
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT........... 60
Security Ownership of Certain Beneficial Owners........................ 60
OTHER BUSINESS........................................................... 63
INDEPENDENT ACCOUNTANTS.................................................. 63
STOCKHOLDER PROPOSALS FOR 1998 ANNUAL MEETING............................ 63
INCORPORATION BY REFERENCE............................................... 63
ANNEX A--Agreement and Plan of Merger, as amended
ANNEX B--Opinion of Lehman Brothers
ANNEX C--Opinion of Chase Securities Inc.
ANNEX D--Section 262 of the DGCL
</TABLE>
iii
<PAGE>
SUMMARY
The following is a summary of certain information contained elsewhere in this
Proxy Statement and is presented herein solely to furnish limited introductory
information regarding the proposed Merger and the parties thereto. This Summary
is not intended to be complete and is qualified in its entirety by the more
detailed information contained, or incorporated by reference, in this Proxy
Statement and the Annexes hereto, to which reference is made for a complete
statement of the matters discussed below. Stockholders are urged to read this
Proxy Statement, including the Annexes hereto, and the documents incorporated
herein by reference, in their entirety and to consider them with care. Unless
otherwise defined herein, capitalized terms used in this summary have the
respective meanings ascribed to them elsewhere in the Proxy Statement.
THE COMPANY
Chartwell Leisure Inc., a Delaware corporation (the "Company"), is a hotel
and motel owner, operator, developer and acquiror. The Company owns, directly
or with joint venture partners, 123 hotel properties in both the full-service
and limited-service segments, including approximately 10,900 guest rooms,
located in 25 states and six Canadian provinces. In the full-service segment,
the Company operates 29 hotels aggregating approximately 5,700 guest rooms. The
Company's remaining 94 hotels, consisting of approximately 5,200 rooms, operate
in the limited-service segment, principally under the Travelodge(R) brand. See
"CERTAIN INFORMATION CONCERNING THE COMPANY."
PARENT AND SUB
Parent is a Delaware limited partnership that engages in the business of
investing in debt and equity interests in real estate related assets and
businesses. WH Advisors, L.L.C. IX, a Delaware limited liability company ("WH
Advisors, L.L.C."), acts as the sole general partner of Parent, and Whitehall
IX/X, Inc., a Delaware corporation, acts as the managing member of WH Advisors,
L.L.C. Parent, Sub, WH Advisors, L.L.C. and Whitehall IX/X, Inc. are all
affiliates of The Goldman Sachs Group, L.P., a Delaware limited partnership
("GS Group"). See "CERTAIN INFORMATION CONCERNING PARENT AND SUB." Sub, a
Delaware corporation and currently a subsidiary of Parent, was incorporated on
November 12, 1997 for the purpose of acquiring the Company and has not engaged
in any business activity except in connection with the Merger. Parent intends
to enter into arrangements with affiliates of Westmont Hospitality Group, Inc.
(collectively, "Westmont") pursuant to which, among other things, Westmont
would acquire a minority interest in the Company. If such arrangements are
effected prior to the closing of the Merger, Westmont could acquire a direct
interest in Sub. Westmont is a hotel investment and management group active in
the United States, Canada and Europe which has a long-standing relationship
with, and has engaged in a number of hotel acquisitions in cooperation with,
members of the GS Group.
FAILURE TO CONSUMMATE THE MERGER
In the event that the Merger does not occur, the Company intends to use its
available cash, which totaled approximately $50 million as of December 31,
1997, to pay down its bank debt and/or pursue the development of certain of its
properties. In addition, the Company will also explore the possibility of
selling individual properties or groups of properties, although, at this time,
the Company has had no discussions with third parties concerning such sales. In
certain instances, if the Merger Agreement is terminated, the Company will pay
Parent certain fees. See "--The Merger--The Company's Right to Accept
Alternative Transactions;" "THE MERGER AGREEMENT--Termination."
THE SPECIAL MEETING
Date, Time and Place. The Special Meeting of stockholders of the Company will
be held on Monday, March 16, 1998 at 10:00 a.m., local time, at the offices of
Battle Fowler LLP, 75 East 55th Street, New York, New York and at any
adjournment or postponement thereof (the "Special Meeting").
1
<PAGE>
Purpose. At the Special Meeting, holders of common stock, par value $.01 per
share, of the Company (the "Shares") will be asked to consider and vote upon a
proposal to approve and adopt the Merger Agreement, pursuant to which, among
other things, Sub will merge with and into the Company. The Company will be the
surviving corporation in the Merger (the "Surviving Corporation") and will be a
subsidiary of Parent. See "THE SPECIAL MEETING--Date, Time and Place; Purpose
of the Special Meeting."
Record Date; Stockholders Entitled to Vote. Only holders of record of Shares
issued and outstanding at the close of business on February 4, 1998 (the
"Record Date"), are entitled to notice of, and to vote at, the Special Meeting.
At the close of business on the Record Date, 13,485,999 Shares were issued and
outstanding and were held by 124 holders of record, which constituted the only
issued and outstanding class of voting securities of the Company. See "THE
SPECIAL MEETING--Record Date, Voting Rights and Vote Required."
Quorum; Vote Required. The presence at the Special Meeting, either in person
or by proxy, of the holders of a majority of the Shares entitled to vote on the
Merger Agreement will constitute a quorum at the Special Meeting. Approval and
adoption of the Merger Agreement requires the affirmative vote of the holders
of a majority of the outstanding Shares entitled to vote thereon. Two of the
Company's principal stockholders, which collectively beneficially own 44.74% of
the outstanding Shares, are parties to an agreement with the Company which
requires such stockholders to vote their Shares for and against approval and
adoption of the Merger Agreement in the same proportion as the Shares held by
the other stockholders of the Company voted for and against approval of the
Merger. See "SPECIAL FACTORS--Interests of Certain Persons in the Merger;
Potential Conflicts of Interest" and "THE SPECIAL MEETING--Record Date, Voting
Rights and Vote Required."
Proxies. The enclosed proxy provides that each stockholder of the Company may
specify that his or her Shares be voted "for" or "against" approval and
adoption of the Merger Agreement or that the proxy holder be directed to
"abstain" from voting with respect thereto. If properly executed and returned
in time for the Special Meeting, the enclosed proxy will be voted in accordance
with the choice specified. If a properly executed proxy is returned, but no
choice is specified, the Shares will be voted FOR approval and adoption of the
Merger Agreement. Votes cast against the approval and adoption of the Merger
Agreement will not be voted in favor of any adjournment of the Special Meeting
for the purpose of additional solicitation of approval and adoption of the
Merger Agreement.
Any stockholder who executes and returns a proxy may revoke it at any time
before it is voted at the Special Meeting by (i) delivering to the Secretary of
the Company at the Company's principal offices before the Special Meeting an
instrument of revocation bearing a later date or time than the date or time of
the proxy being revoked; (ii) submitting a duly executed proxy bearing a later
date or time than the date or time of the proxy being revoked; or (iii) voting
in person at the Special Meeting. A stockholder's attendance at the Special
Meeting will not by itself revoke a proxy given by such stockholder. See "THE
SPECIAL MEETING--Proxies."
THE MERGER
General. Following approval and adoption of the Merger Agreement by the
stockholders of the Company and the satisfaction or waiver of certain other
conditions, Sub will merge with and into the Company, and the separate
corporate existence of Sub will cease. As a result of the Merger, the Surviving
Corporation will be a subsidiary of Parent. See "SPECIAL FACTORS--Certain
Effects of the Merger."
As a result of the Merger, each outstanding Share, other than Shares as to
which dissenters' rights of appraisal have been duly asserted and perfected
under the Delaware General Corporation Law (the "DGCL") or Shares held by the
Company or by Parent, Sub or any other subsidiary of Parent (which will be
canceled), will be converted into the right to receive $17.25 in cash, without
interest (the "Merger Consideration"), upon surrender of the certificate
formerly representing such Share. As a result of the Merger, the Shares will no
longer be publicly traded and Parent will become the sole stockholder of the
Surviving Corporation. Following the Merger, persons who were stockholders of
the Company immediately prior to the Merger will no longer have an opportunity
to continue their interests in the Company as an ongoing corporation and,
therefore, will not share in its future earnings and potential growth. See "THE
MERGER AGREEMENT--Procedure for Payment."
2
<PAGE>
Effective Time. The Merger will become effective when the Certificate of
Merger is filed with the Secretary of State of the State of Delaware or at such
later time as is specified in such Certificate (the "Effective Time"). It is
currently anticipated that such filing will be made on or as promptly as
practicable following the closing date under the Merger Agreement, which will
take place only after the satisfaction or waiver of all of the conditions set
forth in the Merger Agreement. Accordingly, there can be no assurance as to if
or when the Merger will be consummated. See "THE MERGER AGREEMENT--Effective
Time" and "THE MERGER AGREEMENT--Conditions to Consummation of the Merger."
Exchange of Shares. As soon as reasonably practicable after the Effective
Time, a paying agent selected by Parent ("Paying Agent") will mail to each
record holder of a stock certificate that immediately prior to the Effective
Time represented outstanding Shares, other than Shares as to which dissenters'
rights of appraisal have been duly asserted and perfected under the DGCL (the
"Certificates"), a form of letter of transmittal and instructions for use in
effecting the surrender of Certificates for payment pursuant to the Merger.
Stockholders should not surrender their Certificates together with their proxy
cards for the Special Meeting. Upon surrender to the Paying Agent of a
Certificate, together with such letter of transmittal, duly executed, and any
other required documents, and upon acceptance thereof by the Paying Agent, the
holder of such Certificate will be entitled to receive in exchange therefor
cash in the amount equal to the product of the number of Shares represented by
such Certificate multiplied by $17.25 less any withholding taxes and such
Certificate will then be cancelled. No interest will be paid or accrued on the
cash payable upon surrender of the Certificate. See "THE MERGER AGREEMENT--
Merger Consideration; Conversion of Shares."
The Company's Right to Accept Alternative Transactions. The Company has the
right to terminate the Merger Agreement under certain circumstances if it has
received a proposal for an Acquisition Transaction which the Board of Directors
of the Company (the "Board") determines represents a more favorable financial
alternative to the Company's stockholders than the Merger and that failure to
accept such proposal would be reasonably expected to be a breach of, or would
be inconsistent with, the Board's fiduciary duties under applicable law. An
"Acquisition Transaction" means, generally, a transaction involving any of the
following: (i) an acquisition of more than 10% of any class of equity
securities of the Company; (ii) a merger, consolidation, share exchange,
recapitalization, business combination or other similar transaction; (iii) a
sale or other disposition of assets (other than immaterial assets) of the
Company or any of its subsidiaries in a single transaction or series of related
transactions; or (iv) a tender offer or exchange offer for 25 percent or more
of the outstanding Shares of capital stock of the Company. Among other
requirements, the Company is required to pay Parent a fee of $8,145,000 before
the Company can terminate the Merger Agreement because of the receipt of such a
proposal. See "THE MERGER AGREEMENT--Termination." If within one year following
the date of such termination, any other Acquisition Transaction is consummated
by the Company, then the Company will pay to Parent, simultaneously with the
consummation of such other Acquisition Transaction, a fee equal to 3% of the
aggregate amount of the consideration paid to the Company or its stockholders,
as applicable, pursuant to such Acquisition Transaction.
Conditions to Consummation of the Merger. The obligations of the Company,
Parent and Sub to consummate the Merger are subject to a number of conditions,
including, among others, approval and adoption of the Merger Agreement by the
affirmative vote of the holders of a majority of the outstanding Shares
entitled to vote thereon. Two of the Company's principal stockholders, which
collectively beneficially own 44.74% of the outstanding Shares, are parties to
an agreement with the Company which requires such stockholders to vote their
Shares for and against approval and adoption of the Merger Agreement in the
same proportion as the number of Shares held by the other stockholders of the
Company voted for and against approval and adoption of the Merger. See "SPECIAL
FACTORS--Interests of Certain Persons in the Merger; Potential Conflicts of
Interest" and "THE SPECIAL MEETING--Record Date, Voting Rights and Vote
Required." For a more complete discussion of the conditions to the obligations
of the Company, Parent and Sub to consummate the Merger, see "THE MERGER
AGREEMENT--Conditions to Consummation of the Merger." There can be no assurance
that the conditions to the Merger will be satisfied or, where permissible,
waived, or that the Merger will be consummated.
3
<PAGE>
Background. For a description of the events leading to approval of the Merger
Agreement by the Board, see "SPECIAL FACTORS--Background of the Merger."
Recommendation of the Board. On November 13, 1997, the Board, pursuant to
action by written consent, unanimously authorized and approved the Merger
Agreement and the transactions contemplated thereby, determined that the Merger
is fair to and in the best interests of the stockholders of the Company and
determined to recommend to the stockholders that they vote for approval and
adoption of the Merger Agreement. See "SPECIAL FACTORS--Background of the
Merger." For a discussion of the factors the Board considered in arriving at
its determination that the Merger is fair to and in the best interests of the
stockholders of the Company, see "SPECIAL FACTORS--Recommendation of the Board;
Fairness of the Merger." THE BOARD RECOMMENDS THAT STOCKHOLDERS VOTE FOR
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
Opinion of Financial Advisors. The Company engaged Bear Stearns & Co. Inc.
("Bear Stearns"), Lehman Brothers Inc. ("Lehman Brothers") and Chase Securities
Inc. ("Chase") to act as its financial advisors to assist the Company in
considering strategic alternatives with respect to the Company. The fee payable
to Bear Stearns and Lehman Brothers upon consummation of the Merger will total
approximately $1.36 million each. The fee payable to Chase upon consummation of
the Merger will total approximately $679,000. At the November 11, 1997 meeting
of the Board, each of Chase and Lehman Brothers delivered their oral opinion
(which each subsequently confirmed in writing) as to the fairness, from a
financial point of view, of the consideration to be received by the holders of
Shares pursuant to the Merger. Lehman Brothers' analysis indicated ranges of
imputed values of the Company from a low of $10.87 to a high of $24.23 per
Share on a fully-diluted basis. Chase's analysis indicated ranges of imputed
values of the Company from a low of $15.37 to a high of $20.49 per Share on a
fully-diluted basis. The full text of the opinions of Lehman Brothers and
Chase, which set forth the assumptions made, matters considered and limits on
review undertaken, are attached hereto as Annex B and Annex C, respectively,
and are incorporated herein by reference. STOCKHOLDERS MAY READ SUCH OPINIONS
FOR A DISCUSSION OF ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE
REVIEWS UNDERTAKEN BY LEHMAN BROTHERS AND CHASE, IN RENDERING THEIR RESPECTIVE
OPINIONS. For a discussion of certain of the factors that Lehman Brothers and
Chase considered in reaching their respective opinions, see "SPECIAL FACTORS--
Financial Advisors; Fairness Opinions" and "SPECIAL FACTORS--Background of the
Merger."
Purpose and Structure of the Merger. The purpose of the Merger is for Parent
to acquire control of, and the entire equity interest in, the Company. Parent
and Westmont may enter into certain agreements by which Westmont would hold an
equity interest in the Company. Subsequent to the Merger, Parent intends for
the Company or its stockholder to take certain actions, including the transfer
of certain of their assets to related entities, and the election of the Company
or its stockholder to be treated as a real estate investment trust for federal
income tax purposes. See "SPECIAL FACTORS--Certain Effects of the Merger." The
acquisition of the Shares from the holders of such Shares is structured as a
cash merger in order to transfer ownership of the Company to Parent in one
transaction and to provide cash to the holders of such Shares. The Merger has
been structured as a merger of Sub with and into the Company, with the Company
to be the Surviving Corporation. As a result of the Merger, stockholders of the
Company will not have an opportunity to continue their equity interest in the
Company as an ongoing concern and therefore will not share in the future
earnings and potential growth of the Company, if any.
INTERESTS OF CERTAIN PERSONS IN THE MERGER; POTENTIAL CONFLICTS OF INTEREST
Certain members of the Company's management and the Board may be deemed to
have certain interests in the Merger that are in addition to their interests as
stockholders of the Company generally. The Board was aware of these interests
when it considered and approved the Merger Agreement. In the aggregate, the
directors and the executive officers of the Company will receive approximately
$11.6 million in benefits as a result of the Merger, exclusive of the receipt
of the Merger Consideration for their Shares. For a more detailed description
of all benefits to be received by the directors and executive officers of the
Company, see "SPECIAL FACTORS--Interests of Certain Persons in the Merger;
Potential Conflicts of Interest."
Stock Options. All options under the Company's 1994 Stock Option Plan (the
"Stock Option Plan"), including options which are not yet vested, will be
terminated immediately prior to the Effective Time, and the
4
<PAGE>
Company will pay to holders of options ("Options") under the Stock Option Plan
an amount equal to the excess, if any, of the Merger Consideration over the
exercise price of such Option, multiplied by the number of Shares subject to
such Option, without any interest thereon (the "Option Consideration"). For a
description of the outstanding Options held by the executive officers and
directors of the Company as of the Record Date, see "SPECIAL FACTORS--Interests
of Certain Persons in the Merger; Potential Conflicts of Interest--Stock
Options."
Sale of Mexican Joint Venture Interest. In July 1996, Chartwell Mexico Corp.,
a Delaware corporation and a subsidiary of the Company, entered into a joint
venture, Grupo Chartwell de Mexico, S.A. de C.V. (the "Mexican Joint Venture"),
with a subsidiary of Grupo Piasa, S.A. de C.V., a diversified Mexican real
estate and development company ("Grupo Piasa"), for the purpose of developing
and operating, or franchising others to operate, lodging facilities in Mexico.
The Mexican Joint Venture has one hotel nearing completion with 129 rooms,
representing approximately 1% of the Company's rooms and hotels. In addition,
it has started construction on a second hotel with 123 rooms which is expected
to result in the addition of approximately 1% of the Company's rooms and
hotels. The Mexican Joint Venture is a party to a master license agreement,
dated as of September 18, 1996 (the "Master License Agreement"), with
Travelodge Hotels, Inc. ("Travelodge"), a subsidiary of Cendant Corporation, a
Delaware corporation ("Cendant"). Cendant is the successor to HFS Incorporated
("HFS"). Pursuant to the Master Lease Agreement, Travelodge granted the Mexican
Joint Venture an exclusive 30-year license to franchise the Travelodge system
throughout Mexico. In addition, the Mexican Joint Venture has entered into a
memorandum of understanding with Hilton Hotels to develop certain Hilton Hotel
products in Mexico. The Mexican Joint Venture has not accounted for any of the
Company's revenue, and accounts for approximately 2% of the Company's assets as
measured by book value.
Grupo Piasa has the right to purchase the Company's interest in the Mexican
Joint Venture at its fair market value in the event of a "change of control" in
the Company. The Merger and the transactions contemplated by the Merger
Agreement constitute a "change of control" for purposes of Grupo Piasa's right
to purchase the Company's interest in the Mexican Joint Venture. Grupo Piasa
has informed the Company that, as a result of the Merger, Grupo Piasa will
exercise its right to acquire the Company's interest in the Mexican Joint
Venture unless the Fisher, Getty and/or de Gunzberg families (or at least the
Fisher family) and Martin L. Edelman acquire the Company's interest in the
Mexican Joint Venture. See "SPECIAL FACTORS--Background of the Merger." An
entity, Rio Grande Partners (the "Mexican JV Buyer"), to be formed by the
principals of CL Associates and FSNL has agreed to purchase the Company's
interest in the Mexican Joint Venture for a cash purchase price equal to 110%
of all amounts expended and accrued by the Company as of the Effective Time in
connection with or related to the Mexican Joint Venture and to indemnify the
Company for all liabilities and expenses related to the Mexican Joint Venture.
The Mexican JV Buyer will fund the purchase of the Company's interest in the
Mexican Joint Venture with capital contributions from the personal funds and
working capital of its equity owners. As of the date of the mailing of this
Proxy Statement, the purchase price for the Company's interest in the Mexican
Joint Venture would be $6,403,000, or approximately $0.475 per Share. The
Company expects that this amount will increase as a result of additional
expenditures and accruals by the Company in connection with the Mexican Joint
Venture prior to the Effective Time, although the Company cannot predict the
amount of that increase. The Merger Agreement does not permit the proceeds of
the sale of the Company's interest in the Mexican Joint Venture to be
distributed by the Company prior to the Effective Time. Those proceeds are one
of the assets of the Company on which Parent based its bid for the Company.
Changes in the purchase price of the Company's interest in the Mexican Joint
Venture will not affect the amount of the Merger Consideration received by the
Company's stockholders.
Pursuant to the Merger Agreement, Parent, Sub and the Company have agreed
that, as a condition of the obligations of Parent and Sub to effect the Merger,
the Company will sell its interest in the Mexican Joint Venture, and such sale
will be for a purchase price of not less than all amounts expended or accrued
by the Company and its subsidiaries in connection with or related to the
Mexican Joint Venture, which amount will in no event be less than $3,750,000
(the approximate amount expended and accrued by the Company as of the date of
the Merger Agreement), and the Company will have no further obligations or
liabilities with respect to its investment in the Mexican Joint Venture.
5
<PAGE>
The Board established a special committee (the "Special Committee"),
consisting of Rachel Robinson and Michael J. Kennedy, non-employee directors of
the Company who are not affiliated with CL Associates or FSNL, in order to
negotiate and oversee the proposed sale by the Company of the Company's
interest in the Mexican Joint Venture to the Mexican JV Buyer. The Special
Committee retained the law firm of Solovay Marshall & Edlin, P.C. ("Special
Counsel") to assist in the sale of the Mexican Joint Venture. Special Counsel
had previously represented special committees of the Board on various
transactions. Pursuant to the terms of the Amended and Restated Stock Purchase
Agreement, dated as of March 14, 1996 (the "Stock Purchase Agreement"), by and
among the Company, National Lodging Corp., CL Associates and FSNL, have agreed
that, for so long as CL Associates, FSNL and their affiliates continue to own,
in the aggregate, at least 20% of the outstanding Shares, CL Associates and
FSNL will not, and will not permit any of their affiliates 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 Board comprised of one or more non-employee directors (the
"Independent 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 arms' length transaction; and (ii) if
the Affiliate Transaction has a total value in excess of $10,000, the
Independent Committee has received a favorable fairness opinion from an
appropriate independent party relating to the transaction. In accordance with
the Stock Purchase Agreement, the Special Committee retained Chase and Lehman
Brothers to advise, and render fairness opinions to, the Special Committee with
respect to the sale of the Mexican Joint Venture. Rather than retain a separate
independent financial adviser, the Special Committee retained Chase and Lehman
Brothers because of the relatively small anticipated purchase price for the
sale of the Company's interest in the Mexican Joint Venture and their
familiarity with the Company. On January 21, 1998, the Special Committee (i)
determined that the sale of the Company's interest in the Mexican Joint Venture
to the Mexican JV Buyer 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
arms' length transaction, and (ii) received favorable fairness opinions from
Lehman Brothers and Chase to the effect that such transaction is fair to the
Company from a financial point of view. Stockholders are not being asked to
vote upon the sale of Company's interest in the Mexican Joint Venture.
Stockholder approval of the Merger Agreement will not constitute an explicit or
implicit approval of that transaction should there occur a subsequent challenge
to the fairness of that transaction to the Company despite approval of the
transaction by the Special Committee and the receipt of the Lehman Brothers and
Chase opinions. See "SPECIAL FACTORS--Background of the Merger" and "THE MERGER
AGREEMENT--Conditions to Consummation of the Merger--Parent and Sub."
Relationships with Cendant. Prior to November 22, 1994, the Company was a
wholly-owned subsidiary of HFS, a predecessor to Cendant. On November 22, 1994,
HFS distributed all of the Company's outstanding Shares to HFS' stockholders
(the "Distribution"). Messrs. Edelman, Holmes and Silverman are directors of
Cendant. Additionally, Mr. Edelman is a member of Cendant's Executive
Committee, Mr. Silverman is the Chairman of the board and Chief Executive
Officer of Cendant, and Mr. Holmes is Vice Chairman of Cendant. Due to such
commonality of management, certain conflicts of interest may exist with respect
to various matters related to the consummation of the Merger. As a result of
the Merger, Cendant will receive, in the aggregate, a total of $9,771,000 in
repayment of a development advance and a promissory note, as described below.
In addition, certain of the directors, officers and employees of Cendant,
including Messrs. Edelman, Holmes and Silverman, hold options to purchase
Shares, including options granted under the Stock Option Plan, and will receive
a total of $5,812,733 from the cancellation of those options in the Merger.
Cendant may receive compensation in consideration for the consent of
Travelodge, a subsidiary of Cendant (subject to Parent's approval) under the
Master License Agreement (the "Master License Agreement") for the Territory of
the Dominion of Canada by and between Travelodge and Chartwell Canada
Hospitality Corp., a Delaware corporation and an indirect subsidiary of the
Company ("Chartwell Canada") described below.
6
<PAGE>
Required Consent of Cendant as Condition to the Merger. The Merger
Agreement provides that the obligations of Parent and Sub to effect the
Merger are subject to the satisfaction or waiver on or prior to the Closing
Date of certain conditions. One of these conditions is that Parent and Sub
will have obtained the consent or waiver of Travelodge under the Master
License Agreement evidencing Travelodge's consent to the consummation of
the Merger or waiving any of Travelodge's rights, if any, under such
agreement relating to the consummation of the Merger, in form and substance
reasonably acceptable to Parent. See "THE MERGER AGREEMENT--Conditions to
Consummation of the Merger-- Parent and Sub."
Cendant Development Advance Agreement. The Company is a party to a
Development Advance Agreement, dated as of October 1996 (the "Development
Advance Agreement"), by and between the Company and HFS, pursuant to which
HFS made a $2.8 million development advance (the "Development Advance") to
the Company in December 1996. Pursuant to the Development Advance
Agreement, the Development Advance must be repaid by the Company, without
interest, on December 31, 2000, but the amount to be repaid will be reduced
to the extent that hotels acquired or constructed by the Company become
Cendant franchised hotels under franchise agreements of ten years or longer
using any Cendant brand other than Wingate Inn. The Development Advance
will be reduced on a dollar-for-dollar basis through December 31, 2000 for
each dollar in initial and recurring royalty fees payable to Cendant under
those new franchise agreements. As of the date of the mailing of this Proxy
Statement, the amount of the Development Advance has been reduced to an
amount equal to $2,771,000. The Development Advance Agreement is not, by
its terms, terminable as a result of the Merger. Cendant has, however, at
the request of the Company, consented to terminate the Development Advance
Agreement in consideration of the payment of all amounts due to Cendant at
the Effective Time.
Cendant Distribution Agreement. On November 22, 1994, HFS, pursuant to
the Distribution, distributed all of the Company's outstanding Shares to
HFS' stockholders. At the time of the Distribution, the Company and HFS
agreed to reserve for future issuance and to issue Shares to certain
persons (including certain current and former directors and executive
officers of the Company) in connection with the exercise of then-
outstanding options (the "Stapled Options") to purchase shares of HFS
common stock that were granted pursuant to HFS' 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 and without
the payment of any additional consideration, to receive one Share for every
ten shares of HFS common stock purchased upon such exercise, subject to
further adjustment in certain circumstances). For a description of the
outstanding Stapled Options held by executive officers and directors of the
Company as of the Record Date, see "SPECIAL FACTORS--Interests of Certain
Persons in the Merger; Potential Conflicts of Interest--Stock Options."
Immediately prior to the Effective Time, the Company will pay to holders of
Stapled Options an amount equal to the Merger Consideration multiplied by
the number of Shares subject to such Stapled Option, without any interest
thereon.
Unsecured Note. Cendant has loaned the Company $7,000,000 pursuant to an
Unsecured Note, dated as of November 20, 1996 (the "Note"). The Company has
promised to repay to Cendant the principal sum of $7,000,000 with interest
thereon commencing January 1, 1997. Interest on the principal balance is
due and payable semi-annually at 6%. Consecutive yearly installments of
$1,000,000 each are due and payable on January 1, 1999 and on the first day
of each January thereafter until the maturity date of the Note, on January
1, 2005. The Merger Agreement provides that the obligation of the Parent
and Sub to effect the Merger is subject to pre-payment of amounts
outstanding under the Note prior to the Effective Time.
Financing Agreement. Pursuant to a financing agreement (the "Financing
Agreement") entered into between the Company and Cendant, Cendant agreed to
extend up to $75 million in guarantees, security and other credit
enhancements ("Future Guarantees") to secure the Company's credit
facilities ("Future Facilities") until February 28, 2003. The terms and
conditions of each Future Facility and each Future Guaranty are required to
be reasonably satisfactory to Cendant. Pursuant to the Financing Agreement,
Cendant has guaranteed $75 million of the Company's $80 million Credit
Facility. The Financing
7
<PAGE>
Agreement requires the Company to pay Cendant an annual fee equal to $1.5
million. The Company is a party to a 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 certain other banks from time to time parties
thereof (the "Credit Facility"). The Merger Agreement provides that the
obligation of the Parent and Sub to effect the Merger is subject to the
termination of the Financing Agreement without the payment of any amounts
by the Company or any of its subsidiaries.
Relationships with Terrance E. Royer. Terrance E. Royer, Chief Operating
Officer of the Company, is an executive officer and beneficial owner of Royco
Hotels & Resorts Ltd., a corporation incorporated under the laws of Canada
("Royco"). Royco, the Company, Chartwell Canada, and Chartwell Lodging Inc., a
Delaware corporation and a wholly-owned subsidiary of the Company, are parties
to an Amended and Restated Management Services and Franchise Development
Agreement, as amended (the "MSFDA"), pursuant to which, among other things,
Royco agreed, on behalf of the parties to the MSFDA, to (i) develop new hotel
and resort management business for the parties to the MSFDA with respect to
certain Canadian hotels and resorts, (ii) develop, promote and service the
Travelodge and Thriftlodge franchise businesses for the Company in Canada under
the Master License Agreement and (iii) manage the Company's Canadian hotels and
provide ongoing management assistance for the Company's U.S. hotels.
Additionally, Mr. Royer, through an affiliate of Mr. Royer, submitted a written
proposal to acquire the Canadian full-service and limited-service hotels and
U.S. limited-service hotels for a purchase price of $145 million ($9.22 per
Share), subject to a $5 million holdback to secure the Company's
representations, warranties, covenants and indemnities in the asset purchase
agreement. Another affiliate of Mr. Royer subsequently submitted an oral bid on
the day the Board approved the Merger Agreement to acquire the Company, but
that bid did not state a proposed acquisition price. See "SPECIAL FACTORS--
Background of the Merger" and "--Interests of Certain Persons in the Merger;
Potential Conflicts of Interest."
On July 1, 1997, Royco entered into an agreement with the Company, pursuant
to which the Company agreed to pay Royco, among other things, the sum of
$150,000 upon the completion of the sale of the Shares or the sale of the
Company's hotels managed by Royco.
Vote of CL Associates and FSNL. CL Associates and FSNL beneficially own
44.74% of the issued and outstanding Shares. See "SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT--Security Ownerhsip of Certain Beneficial
Owners."
Pursuant to the Stock Purchase Agreement, CL Associates and FSNL have agreed
that, if at any time prior to August 8, 1999, 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 Event"), and the Company submits the Triggering Event to a vote of
its stockholders, then each of CL Associates and FSNL will vote all of its
respective Shares entitled to vote on that matter in favor of and against the
Triggering Event in the same proportion as the numbers of Shares held by
stockholders of the Company other than CL Associates, FSNL and their affiliates
("Nonaffiliated Shares") voted in favor of and against the Triggering Event.
Therefore, with respect to the Merger, CL Associates and FSNL will vote their
respective Shares in the same proportion as the number of Shares held by
stockholders of the Company other than CL Associates, FSNL and their affiliates
("Nonaffiliated Shares") voted in favor of and against the Merger. The number
of Nonaffiliated Shares voted in favor of the Merger, plus the number of Shares
held by CL Associates and FSNL that are required to be voted in favor of the
Merger, must equal a majority of the Shares entitled to vote on the Merger in
order for the Merger Agreement to be approved and adopted.
Consulting and Employment Agreements. Parent and Sub intend to enter into a
one year consulting agreement with Mr. Edelman following the consummation of
the Merger, pursuant to which Mr. Edelman will provide certain consulting
services to Parent and Sub and will receive a consulting fee of up to $250,000.
The final terms and conditions of such consulting agreement have not yet been
negotiated. The Company is a party
8
<PAGE>
to an employment agreement with Kenneth J. Weber, Chief Financial Officer of
the Company, pursuant to which Mr. Weber receives an annual base salary of
$250,000, an annual bonus of $50,000 and an automobile allowance of $1,000 per
month expiring in March 1999. That agreement is not terminable as a result of
the Merger. No other directors or executive officers of the Company will serve
as consultants to or be employed by Parent or its subsidiaries after the
Effective Time.
For a discussion of these and other interests of certain persons in the
Merger, see "SPECIAL FACTORS--Interests of Certain Persons in the Merger;
Potential Conflicts of Interest."
Federal Income Tax Consequences. The receipt of cash by a stockholder
pursuant to the Merger or pursuant to the exercise of stockholders' rights of
appraisal will be a taxable event for such stockholder for federal income tax
purposes and may also be a taxable event under applicable local, state and
foreign tax laws. For a more complete description of certain federal income tax
consequences of the Merger, see "SPECIAL FACTORS--Certain Federal Income Tax
Consequences to Stockholders."
Source and Amount of Funds. Parent estimates that approximately $280 million
will be required, prior to the completion of the Merger, to (i) pay the
aggregate Merger Consideration, (ii) pay the holders of outstanding Options,
the Option Consideration, (iii) pay to holders of outstanding Stapled Options
an amount equal to the Merger Consideration multiplied by the number of Shares
subject to such Stapled Option, and (iv) pay the other expenses related to the
Merger.
Parent will obtain the necessary funds for the Merger from (i) capital
contributions from its limited partners (which contributions such limited
partners are contractually required to make at Parent's request) and (ii) a
loan from the GS Group and/or loans from other lenders. If arrangements with
Westmont are effected prior to the Merger, Westmont could contribute a portion
of such funds.
STOCKHOLDERS' RIGHTS OF APPRAISAL
Holders of Shares who do not vote in favor of the Merger and who perfect
their appraisal rights in accordance with Section 262 of the DGCL (such Shares
being referred to herein as the "Dissenting Shares") will be entitled to
receive, in lieu of the Merger Consideration, following a statutory appraisal
proceeding in the Delaware Court of Chancery, cash in the amount of the fair
value of their Shares (exclusive of any element of value arising from the
accomplishment or expectation of the Merger) as determined by the court in such
appraisal proceeding. For a summary of the procedures applicable to the
perfection of appraisal rights, see "STOCKHOLDERS' RIGHTS OF APPRAISAL" and
Annex D hereto. Because of the complexity of the procedures for exercising
these rights, stockholders who consider exercising such rights are urged to
seek the advice of counsel. Stockholders electing to exercise their appraisal
rights must not vote for the approval and
adoption of the Merger Agreement. If a stockholder returns a signed proxy but
does not specify a vote against the approval and adoption of the Merger
Agreement or a direction to abstain, the proxy will be voted FOR the approval
and adoption of the Merger Agreement, which will have the effect of waiving
that stockholder's appraisal rights. FAILURE TO TAKE ANY REQUIRED STEP ON A
TIMELY BASIS IN CONNECTION WITH THE EXERCISE OF APPRAISAL RIGHTS MAY RESULT IN
THE TERMINATION OR WAIVER OF SUCH RIGHTS. See "STOCKHOLDERS' RIGHTS OF
APPRAISAL" discussed herein. It is a condition to the obligations of Parent and
Sub to effect the Merger that the number of Dissenting Shares not exceed 5% of
the outstanding Shares. See "THE MERGER AGREEMENT--Conditions to Consummation
of the Merger--Parent and Sub."
MARKET PRICES AND DIVIDENDS
The principal market on which the Shares are traded is the Nasdaq National
Market ("NASDAQ") under the symbol "CHRT." The Shares began public trading on
the NASDAQ on November 14, 1994 under the
9
<PAGE>
symbol "NAGC." From January 1996 until August 8, 1996, the Shares traded under
the symbol "NALC" and since August 8, 1996, the Shares have traded under the
symbol "CHRT." On February 5, 1998, the last trading day before the printing of
this Proxy Statement, the high and low sales prices of the Shares were $16
15/16 and, $16 15/16, respectively. On November 13, 1997, the last trading day
before the public announcement of the execution of the Merger Agreement, the
high and low sales prices of the Shares were $15 7/8 and $15 7/8, respectively.
On June 30, 1997, the last full trading day prior to the public announcement
that the Company had hired Bear Stearns and Chase to assist the Company in
considering strategic alternatives, including a possible sale of the Company,
the high and low sales prices of the Shares were $13 1/2 and $13, respectively.
For information relating to market prices of and dividends on the Shares during
the current year and the past two years, see "MARKET PRICES AND DIVIDENDS"
discussed herein. STOCKHOLDERS ARE URGED TO OBTAIN A CURRENT MARKET QUOTATION
FOR THE SHARES.
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data of the
Company and its subsidiaries since inception for each of the four years ended
December 31, 1993, 1994, 1995 and 1996. The year-end data have been derived
from, should be read in conjunction with, and are qualified in their entirety
by, the audited consolidated financial statements of the Company, including the
notes thereto, for such periods. The data for the nine months ended September
30, 1997 and 1996 were derived from the Company's unaudited quarterly financial
statements, which in the opinion of the Company's management, reflect all
adjustments (only normal recurring adjustments) for a fair presentation of such
data. The data for the nine months ended September 30, 1997 and 1996 are not
necessarily indicative of results of operations for the entire year.
10
<PAGE>
CHARTWELL LEISURE INC. AND SUBSIDIARIES
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
----------------- -----------------------------------
1997 1996 1996 1995 1994 1993
------- -------- -------- -------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
REVENUE
Hotel Revenue.......... $91,881 $ 54,111 $ 80,278 $ -- $ -- $ --
Management fee and
other income.......... 4,036 2,942 2,957 -- -- --
Equity in earnings of
unconsolidated joint
ventures.............. 4,411 5,104 5,793 -- -- --
------- -------- -------- -------- ------- ------
Total revenue.......... 100,328 62,157 89,028 -- -- --
------- -------- -------- -------- ------- ------
OPERATING EXPENSES
Hotel operating
expense............... 34,898 22,451 33,768 -- -- --
General and
administrative........ 19,549 14,155 21,165 2,756 2,742 --
Marketing, franchise
and reservation fees.. 9,494 5,619 8,340 -- -- --
Maintenance and
property taxes........ 9,214 4,296 7,450 -- -- --
Rent................... 3,881 3,842 5,272 -- -- --
Depreciation and
amortization.......... 7,267 6,615 8,585 -- -- --
Minority interest...... 1,503 978 1,271 -- -- --
Office restructuring
charge................ 746 -- -- -- -- --
General and
administrative,
related party......... -- 1,147 1,522 1,747 176 581
Gaming development
costs................. -- -- -- 15,482 2,414 --
Provision for (recovery
of) losses on gaming
assets................ (250) 14,240 16,417 -- -- --
Costs of terminating
corporate services
agreement............. -- -- 9,500 -- -- --
------- -------- -------- -------- ------- ------
Total operating
expenses.............. 86,302 73,343 113,290 19,985 5,332 581
------- -------- -------- -------- ------- ------
OPERATING INCOME
(LOSS)................. 14,026 (11,186) (24,262) (19,985) (5,332) (581)
INTEREST INCOME
(EXPENSE)-NET.......... (2,553) (2,719) (4,093) 2,512 1,184 128
GAIN ON SALE OF
SECURITIES............. -- -- -- -- 1,044 --
GAIN ON SALE OF FIXED
ASSETS................. 309 -- -- -- -- --
------- -------- -------- -------- ------- ------
INCOME (LOSS) BEFORE
INCOME TAX EXPENSE AND
EXTRAORDINARY ITEM..... 11,782 (13,905) (28,355) (17,473) (3,104) (453)
INCOME TAX (EXPENSE)
BENEFIT................ (1,023) (213) (274) (709) 1,273 186
------- -------- -------- -------- ------- ------
INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM..... 10,759 (14,118) (28,629) (18,182) (1,831) (267)
EXTRAORDINARY LOSS ON
EARLY EXTINGUISHMENT OF
DEBT................... -- (1,477) (1,477) -- -- --
NET INCOME (LOSS)....... $10,759 $(15,595) $(30,106) $(18,182) $(1,831) $ (267)
======= ======== ======== ======== ======= ======
PER SHARE INFORMATION
Income (loss) before
extraordinary loss.... $ 0.82 $ (2.12) $ (3.84) $ (3.57) $ (0.37) $(0.05)
Extraordinary item..... -- (0.22) (0.20) -- -- --
------- -------- -------- -------- ------- ------
NET INCOME (LOSS)....... $ 0.82 $ (2.34) $ (4.04) $ (3.57) $ (0.37) $(0.05)
======= ======== ======== ======== ======= ======
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING..... 13,046 6,651 7,455 5,099 5,003 5,001
------- -------- -------- -------- ------- ------
</TABLE>
<TABLE>
<CAPTION>
AT
SEPTEMBER 30, AT DECEMBER 31,
--------------- ------------------------------
1997 1996 1996 1995 1994 1993
------- ------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Total Current Assets........... $70,637 $27,788 $30,643 $62,788 $55,840 $ 223
Total Assets................... 282,638 158,229 232,038 87,074 98,895 12,238
Total Current Liabilities...... 19,340 11,306 23,175 552 1,916 197
Total Long-Term Obligations.... 82,627 17,486 94,186 -- -- --
Total Liabilities and Minority
Interest...................... 106,726 32,401 120,820 552 1,916 197
Total Stockholders' Equity..... 175,912 125,828 111,218 86,522 96,979 12,041
Book Value Per Share........... $ 13.05 $ 13.29 $ 11.74 $ 15.87 $ 20.95 $ 2.66
</TABLE>
(See notes to financial data)
11
<PAGE>
NOTES TO SELECTED CONSOLIDATED FINANCIAL DATA
1. ACQUISITIONS AND SALES OF STOCK
Travelodge Acquisition. On January 23, 1996, the Company acquired the
outstanding common stock of Forte Hotels, Inc. ("FHI") for $98.8 million plus
expenses (the "Travelodge Acquisition"). In related transactions on January 23,
1996, prior to consummation of the Travelodge Acquisition, HFS and Motels of
America, Inc. acquired from FHI the Travelodge franchise system and 19 hotel
properties, respectively, for an aggregate purchase price of $71.6 million. The
principal assets of FHI acquired by the Company included 18 hotels and joint
venture interests in 97 other lodging facilities (twelve of which were
subsequently disposed). The Company financed approximately $60.4 million of the
purchase price with proceeds from a bank revolving credit facility and $38.4
million with existing cash.
The Travelodge Acquisition was accounted for by the purchase method. The
operating results of the acquired company are included in the consolidated
statements of operations from its acquisition date, January 23, 1996.
Canadian Acquisition. On October 1, 1996, the Company acquired (the "Canadian
Acquisition") from Capital Properties Limited Partnership ("CPLP") 20 hotels
and a one-half interest in an additional hotel, consisting of approximately
3,500 guest rooms, which hotels are located throughout Canada and franchised
under the "Travelodge" brand name. The Company paid approximately $70.0 million
to purchase substantially all of CPLP's existing bank debt and to pay certain
specified closing costs (including real estate taxes and transfer taxes), as
well as its assumption of liability for identified trade payables and property
specific bank debt, aggregating approximately $7.0 million. Also, the Company
may be required to make certain contingent payments to CPLP's constituent
partners following a preferred return to the Company. In connection with the
Canadian Acquisition on October 1, 1996, the Company borrowed $65.9 million
under its credit facility.
The Canadian Acquisition was accounted for by the purchase method. The
operating results of the acquired company are included in the consolidated
statements of operations from its acquisition date, October 1, 1996.
Sale of Stock. On August 8, 1996, the Company sold four million shares of the
Shares to CL Associates and FSNL for an aggregate purchase price of $57.0
million.
The following presents the unaudited pro forma consolidated results of
operations for the nine months ended September 30, 1996 as if all of the
transactions described above occurred on January 1, 1996, giving effect to the
sale of stock and financing costs associated with the Travelodge Acquisition
and Canadian Acquisition.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 1996
--------------------
(IN THOUSANDS EXCEPT
PER SHARE AMOUNTS)
<S> <C>
Revenue............................................... $92,283
Net loss.............................................. $(8,927)
Net loss per share.................................... $ (.90)
</TABLE>
The pro forma results are not necessarily indicative of the actual results of
operations that would have occurred had the transactions been consummated as
indicated.
12
<PAGE>
CERTAIN COMPANY PROJECTIONS
Prior to the execution of the Merger Agreement, in connection with Parent's
review of the Company, the Company provided representatives of Parent
information concerning projected 1997 revenues and EBITDA of the Company which
was prepared in July 1997, and which the Company, Parent and Purchaser believe
is not publicly available.
The information described below is presented on an unconsolidated basis and
does not reflect consolidated adjustments. Therefore, this information cannot
be meaningfully compared with the Company's historical consolidated financial
data.
CHARTWELL LEISURE INC.
PROJECTED FINANCIAL INFORMATION
PREPARED IN JULY 1997
<TABLE>
<CAPTION>
1997
FORECAST
----------
(IN
THOUSANDS)
<S> <C>
Revenue.......................................................... $135,301
EBITDA*.......................................................... 37,591**
</TABLE>
- --------
* Defined as earnings before interest expense, income tax expenses,
depreciation and amortization expenses. EBITDA does not reflect any
deduction for corporate overhead. EBITDA is a commonly used measure of
financial performance but is not calculated in the same manner by all
companies and should not be viewed as an accurate comparative measure.
** Does not include approximately $1.2 million of EBITDA contributed by
management fee income and other assets.
In November 1997, following the execution of the Merger Agreement, certain
employees of the Company provided representatives of Parent with preliminary
information concerning projected 1998 revenues and EBITDA of the Company and
with different projections of 1997 revenues and EBITDA which the Company,
Parent and Sub believe are not publicly available. The projections provided in
November 1997 were not prepared, reviewed or approved by the Company's senior
financial officers.
CHARTWELL LEISURE INC.
PROJECTED FINANCIAL INFORMATION
FURNISHED TO PARENT IN NOVEMBER 1997
<TABLE>
<CAPTION>
1997 FORECAST 1998 FORECAST
------------- -------------
(IN THOUSANDS)
<S> <C> <C>
Revenue.......................................... $132,931 $140,550
EBITDA*.......................................... 34,541 37,559
</TABLE>
- --------
13
<PAGE>
THE COMPANY DOES NOT AS A MATTER OF COURSE MAKE PUBLIC ANY PROJECTIONS AS TO
FUTURE PERFORMANCE OR EARNINGS, AND THE PROJECTIONS SET FORTH ABOVE ARE
INCLUDED IN THIS PROXY STATEMENT ONLY BECAUSE THE INFORMATION WAS MADE
AVAILABLE TO REPRESENTATIVES OF PARENT BY THE COMPANY. THE COMPANY HAS INFORMED
PARENT THAT THESE PROJECTED FINANCIAL PERFORMANCE WERE NOT PREPARED WITH A VIEW
TO PUBLIC DISCLOSURE OR COMPLIANCE WITH THE PUBLISHED GUIDELINES OF THE
COMMISSION OR THE GUIDELINES ESTABLISHED BY THE AMERICAN INSTITUTE OF CERTIFIED
PUBLIC ACCOUNTANTS REGARDING PROJECTIONS AND FORECASTS. THE COMPANY HAS ALSO
INFORMED PARENT THAT ITS INTERNAL FINANCIAL FORECASTS (UPON WHICH THE PROJECTED
FINANCIAL PERFORMANCE PROVIDED TO PARENT WERE BASED IN PART) ARE, IN GENERAL,
PREPARED SOLELY FOR INTERNAL USE AND CAPITAL BUDGETING AND OTHER MANAGEMENT
DECISION-MAKING PURPOSES AND ARE SUBJECTIVE IN MANY RESPECTS AND THUS
SUSCEPTIBLE TO VARIOUS INTERPRETATIONS AND PERIODIC REVISION BASED ON ACTUAL
EXPERIENCE AND BUSINESS DEVELOPMENTS. PROJECTED INFORMATION OF THIS TYPE IS
BASED ON ESTIMATES AND ASSUMPTIONS THAT ARE INHERENTLY SUBJECT TO SIGNIFICANT
ECONOMIC AND COMPETITIVE UNCERTAINTIES AND CONTINGENCIES, ALL OF WHICH ARE
DIFFICULT TO PREDICT AND MANY OF WHICH ARE BEYOND THE CONTROL OF THE COMPANY,
PARENT OR SUB OR THEIR RESPECTIVE FINANCIAL ADVISORS. MANY OF THE ASSUMPTIONS
UPON WHICH THE FOREGOING PROJECTED FINANCIAL PERFORMANCE WERE BASED, NONE OF
WHICH WERE APPROVED BY PARENT OR SUB, ARE DEPENDENT UPON ECONOMIC FORECASTING
(BOTH GENERAL AND SPECIFIC TO THE COMPANY'S BUSINESSES), WHICH IS INHERENTLY
UNCERTAIN AND SUBJECTIVE. NONE OF PARENT, SUB, THE COMPANY OR THEIR RESPECTIVE
FINANCIAL ADVISORS ASSUMES ANY RESPONSIBILITY FOR THE ULTIMATE OUTCOME OF ANY
OF SUCH PROJECTIONS. INCLUSION OF THE FOREGOING PROJECTIONS SHOULD NOT BE
REGARDED AS AN INDICATION THAT PARENT, SUB, THE COMPANY OR ANY OTHER PERSON WHO
RECEIVED SUCH INFORMATION CONSIDERS IT AN ACCURATE PREDICTION OF FUTURE EVENTS,
AND NEITHER SUB NOR PARENT HAS RELIED ON THEM AS SUCH. NONE OF PARENT, SUB OR
THE COMPANY, OR THEIR RESPECTIVE FINANCIAL ADVISORS, OR ANY OTHER PARTY,
INTENDS TO PUBLICLY UPDATE OR OTHERWISE PUBLICLY REVISE THE PROJECTIONS SET
FORTH ABOVE.
14
<PAGE>
THE SPECIAL MEETING
DATE, TIME AND PLACE; PURPOSE OF THE SPECIAL MEETING
This Proxy Statement is being furnished to the holders of Shares as of the
Record Date in connection with the solicitation of proxies by the Board for
use at the Special Meeting to be held on Monday, March 16, 1998 at 10:00 a.m.,
local time, at the offices of Battle Fowler LLP, 75 East 55th Street, New
York, New York, and at any adjournment or postponement thereof.
At the Special Meeting, holders of Shares as of the Record Date will be
asked to consider and vote upon a proposal to approve and adopt the Merger
Agreement, pursuant to which, among other things, Sub will merge with and into
the Company. The Company, as the Surviving Corporation, will be a subsidiary
of Parent. Pursuant to the Merger Agreement, each Share, other than Shares as
to which dissenters' rights of appraisal have been duly asserted and perfected
under the DGCL and Shares which are held by the Company or owned by Parent,
Sub or any other subsidiary of Parent (which will be canceled), will be
converted into the right to receive the Merger Consideration. As a result of
the Merger, stockholders of the Company will not have an opportunity to
continue their equity interest in the Company as an ongoing concern and
therefore will not share in the future earnings and growth of the Company, if
any. See "THE MERGER AGREEMENT--Procedure for Payment." The Company's
stockholders also will consider and vote upon such other matters as may
properly come before the Special Meeting.
THE BOARD UNANIMOUSLY HAS DETERMINED THAT THE MERGER IS FAIR TO AND IN THE
BEST INTERESTS OF STOCKHOLDERS, HAS APPROVED THE MERGER AGREEMENT AND
RECOMMENDS THAT STOCKHOLDERS VOTE FOR APPROVAL AND ADOPTION OF THE MERGER
AGREEMENT.
RECORD DATE, VOTING RIGHTS AND VOTE REQUIRED
The Board has fixed the close of business on February 4, 1998 as the Record
Date for the determination of holders of Shares entitled to notice of, and to
vote at, the Special Meeting. Only holders of record of Shares at the close of
business on the Record Date will be entitled to notice of, and to vote at, the
Special Meeting. At the close of business on the Record Date, 13,485,999
Shares were issued and outstanding and were held by approximately 124 holders
of record. The Shares are the only outstanding class of voting securities of
the Company, and each Share is entitled to one vote on each matter to be acted
upon or which may come before the Special Meeting. Votes may be cast at the
Special Meeting in person or by properly executed proxy. See "THE SPECIAL
MEETING--Proxies."
The presence at the Special Meeting, either in person or by proxy, of the
holders of a majority of the Shares entitled to vote on the Merger Agreement
is necessary to constitute a quorum to transact business at the Special
Meeting. Abstentions of Shares that are present at the Special Meeting and
broker non-votes (i.e., Shares held by brokers in street name that are not
entitled to a vote at the Special Meeting due to the absence of specific
instructions from the beneficial owners of such Shares) are counted for the
purpose of determining the presence of a quorum for the transaction of
business. If a quorum is not present at the Special Meeting, the stockholders
who are present and entitled to vote at the Special Meeting may, by majority
vote, adjourn the Special Meeting from time to time without notice or other
announcement until a quorum is present.
Approval and adoption of the Merger Agreement requires, pursuant to the by-
laws of the Company and applicable Delaware law, the affirmative vote of the
holders of a majority of the outstanding Shares entitled to vote thereon. Two
of the Company's principal stockholders, which collectively beneficially own
44.74% of the outstanding Shares, are parties to an agreement with the Company
which requires such stockholders to vote their Shares for and against approval
and adoption of the Merger Agreement in the same proportion as the Shares held
by the other stockholders of the Company voted for and against approval of the
Merger. See "SPECIAL FACTORS--Interests of Certain Persons in the Merger;
Potential Conflicts of Interest." In determining whether the Merger Agreement
has received the requisite number of votes under applicable Delaware law,
abstentions and broker non-votes will be counted and will have the same effect
as a vote against approval and
15
<PAGE>
adoption of the Merger Agreement. THE BOARD ENCOURAGES YOU TO VOTE FOR THE
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT BY SIGNING AND RETURNING THE
ENCLOSED PROXY OR ATTENDING THE SPECIAL MEETING.
PROXIES
This Proxy Statement is being furnished to holders of Shares as of the
Record Date in connection with the solicitation of proxies by the Board for
use at the Special Meeting. If a stockholder does not return a properly
executed proxy, and does not attend the Special Meeting, such stockholder's
Shares will not be voted, which will have the same effect as a vote against
approval and adoption of the Merger Agreement. If signed and returned, the
proxy will authorize the persons named as proxy to vote on the matters
referred to therein. Shares represented by properly executed proxies received
prior to or at the Special Meeting and not revoked will be voted in accordance
with the instructions indicated in such proxies. It is not expected that any
matter other than those referred to herein will be brought before the Special
Meeting; however, if other matters are properly presented, the persons named
as proxies will vote in accordance with their judgment with respect to such
matters. EXECUTED PROXIES THAT CONTAIN NO INSTRUCTIONS TO THE CONTRARY WILL BE
VOTED FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT. STOCKHOLDERS ARE
URGED TO MARK THE RELEVANT BOXES ON THE PROXY TO INDICATE HOW THEIR SHARES ARE
TO BE VOTED.
Any stockholder who executes and returns a proxy may revoke it at any time
before it is voted at the Special Meeting by (i) delivering to the Secretary
of the Company at the Company's principal offices before the Special Meeting
an instrument of revocation bearing a later date or time than the date or time
of the proxy being revoked; (ii) submitting a duly executed proxy bearing a
later date or time than the date or time of the proxy being revoked; or (iii)
voting in person at the Special Meeting. A stockholder's attendance at the
Special Meeting will not by itself revoke a proxy given by such stockholder.
The Special Meeting may be adjourned or postponed by the Company for any
reason. If a quorum is not obtained, or if fewer Shares are likely to be voted
in favor of approval and adoption of the Merger Agreement than the number
required for approval and adoption, the Special Meeting may be adjourned for
the purpose of obtaining additional proxies or votes. The Special Meeting may
also be adjourned or postponed in order to obtain necessary regulatory
approvals. Votes cast against the approval and adoption of the Merger
Agreement will not be voted in favor of any adjournment of the Special Meeting
for the purpose of additional solicitation of approval and adoption of the
Merger Agreement. At any subsequent reconvening of the Special Meeting, all
proxies will be voted in the same manner as such proxies would have been voted
at the original convening of the meeting (except for any proxies which
theretofore have been effectively revoked or withdrawn), notwithstanding that
they may have been effectively voted on the same or any other matter at a
previous meeting.
The cost of soliciting proxies will be borne by the Company. In addition to
soliciting proxies by mail, proxies may be solicited by the Company's
directors, officers and other employees by personal interview, telephone and
telegram. Such persons will receive no additional compensation for such
services. In addition, the Company has retained ChaseMellon Shareholder
Services to assist in soliciting proxies for a fee estimated at $5,500 plus
reimbursement of reasonable out-of-pocket expenses. The Company requests that
brokerage houses and other custodians, nominees and fiduciaries forward
solicitation materials to the beneficial owners of Shares held of record by
such persons and will reimburse such brokers and other fiduciaries for their
reasonable out-of-pocket expenses incurred when the solicitation materials are
forwarded.
STOCKHOLDERS SHOULD NOT FORWARD ANY STOCK CERTIFICATES WITH THEIR PROXY
CARDS. A TRANSMITTAL FORM WITH INSTRUCTIONS FOR THE SURRENDER OF STOCK
CERTIFICATES WILL BE MAILED TO STOCKHOLDERS SHORTLY AFTER THE EFFECTIVE TIME
(AS DEFINED BELOW) OF THE MERGER.
Exchange of Shares. As soon as reasonably practicable after the Effective
Time, a paying agent selected by Parent ("Paying Agent") will mail to each
record holder of a stock certificate that immediately prior to the Effective
Time represented outstanding Shares, other than Shares as to which dissenters'
rights of appraisal have been duly asserted and perfected under the DGCL (the
"Certificates"), a form of letter of transmittal and instructions for use in
effecting the surrender of Certificates for payment therefor. Stockholders
should not surrender their Certificates together with their proxy cards for
the Special Meeting. Upon surrender to the Paying
16
<PAGE>
Agent of a Certificate, together with such letter of transmittal, duly
executed, and any other required documents, and upon acceptance thereof by the
Paying Agent, the holder of such Certificate will be entitled to receive and
exchange therefor cash in the amount equal to the product of the number of
Shares represented by such Certificate multiplied by $17.25 less any
withholding taxes and such Certificate will then be canceled. No interest will
be paid or accrued on the cash payable upon surrender of the Certificate.
STOCKHOLDERS' RIGHTS OF APPRAISAL
Holders of Shares have the right to demand judicial appraisal of, and obtain
a cash payment for, the "fair value" of their Shares (exclusive of any element
of value arising from the accomplishment or expectation of the Merger),
pursuant to Section 262 of the DGCL. In order to exercise such rights, such
holders of Shares must not vote in favor of the Merger and must comply with
the procedural requirements of Section 262 of the DGCL. The full text of
Section 262 of the DGCL is attached hereto as Annex D, and any stockholder of
the Company desiring to exercise dissenters' rights of appraisal in connection
with the Merger should consult with legal counsel prior to taking any action
in order to ensure that the stockholder complies with the applicable statutory
provision. Failure to take any of the steps required under Section 262 of the
DGCL on a timely basis may result in the loss of appraisal rights. See
"STOCKHOLDERS' RIGHTS OF APPRAISAL" and Annex D hereto. It is a condition to
the obligations of Parent and Sub to effect the Merger that the number of
Dissenting Shares (as defined below) not exceed 5% of the outstanding Shares.
See "THE MERGER AGREEMENT--Conditions to Consummation of the Merger--Parent
and Sub."
SPECIAL FACTORS
BACKGROUND OF THE MERGER
Pursuant to an action by written consent, on November 13, 1997, the Board
unanimously determined that the Merger is fair to and in the best interests of
the stockholders of the Company, approved the Merger Agreement and the
transactions contemplated thereby, and determined to recommend to stockholders
that they vote for approval and adoption of the Merger Agreement. See "--
Recommendation of the Board; Fairness of the Merger," "--Interests of Certain
Persons in the Merger; Potential Conflicts of Interest" and "CERTAIN
INFORMATION CONCERNING PARENT AND SUB." The following discussion sets forth
certain information relating to the background of the Merger.
In late 1996 and early 1997, one of the Company's goals had been to grow its
business through acquisitions. Accordingly, in the first quarter of 1997, the
Company raised approximately $54.4 million pursuant to two equity private
placements and a rights offering to its stockholders. This capital, together
with the Company's lines of credit with its banking institutions, enabled the
Company to place a greater emphasis on the acquisition of underperforming
hotels or portfolios of hotels throughout North America. Although during this
time, the Company engaged in preliminary discussions with third-parties in
connection with the potential acquisition by the Company of hotels and
portfolios of hotels, the Company determined not to proceed with any such
potential acquisitions because, among other things, the Company believed such
potential acquisitions were highly priced and not in the best interests of the
stockholders of the Company.
In early June 1997, the Company engaged in preliminary discussions with Bear
Stearns to assist the Company in determining whether to explore strategic
alternatives. On June 16, 1997, the Company engaged Bear Stearns to present a
review of the Company's strategic alternatives. Also during June 1997, the
Company asked Chase to participate in that review because of Chase's prior
involvement with the Company and knowledge of the Company's assets and
operations.
At a June 30, 1997 meeting of the Board, Bear Stearns and Chase reviewed
with the Board, among other things, the strategic alternatives available to
the Company, including the possible conversion of the Company into a real
estate investment trust, taking no action at all, and the possible sale of the
Company. At that meeting, Bear Stearns observed, among other things, that the
Company traded at a discount to several comparable
17
<PAGE>
publicly traded companies and expressed its belief that the Company's stock
price did not fully reflect the underlying value of its assets or the
Company's future performance. Bear Stearns also expressed its belief that
several companies might be interested in acquiring the Company or selected
assets of the Company at aggregate values in excess of the then market price
of the Shares. At such meeting, Bear Stearns also reviewed a preliminary list
of possible candidates that might be interested in acquiring the Company or
certain of its assets should the Board decide to pursue the alternative of
selling the Company or certain of its assets. After hearing Bear Stearns'
presentation, the Board determined that the operating limitations in the real
estate investment trust structure were incompatible with the Company's
operating strategy. The Board then authorized Bear Stearns to make selected
inquiries of other companies to determine whether they were interested in
pursuing a potential business combination with the Company and, if so, to
solicit preliminary indications of interest in order to determine whether a
sale of the Company in part or in its entirety was a viable alternative. At
such meeting, the Company's Board directed its senior management to announce
publicly that the Company had decided to explore strategic alternatives
available to the Company, including the possible sale of the Company, and had
retained Bear Stearns and Chase to assist the Company in such endeavor. Mr.
Fisher and Marc E. Leland, who are representatives of CL Associates, and Guido
Goldman, who is a representative of FSNL, and each of whom is a director of
the Company, stated that CL Associates and FSNL would be supportive of a sale
at an appropriate price. At such meeting, neither the representative of CL
Associates nor the representative of FSNL indicated any intention or interest
with regard to a purchase of the Company or the Mexican Joint Venture. Such
authorization by the Board, however, provided that in light of Grupo Piasa's
right to purchase the Company's interest in the Mexican Joint Venture upon a
change of control of the Company, and because the Company did not want the
exercise of that right to result in renegotiation by bidders for the Company,
bids should be solicited for the Company both including and excluding the
Company's interest in the Mexican Joint Venture.
On June 30, 1997 the Company issued a press release stating that the Company
had hired Bear Stearns and Chase to assist the Company in considering
strategic alternatives, including the possible sale of the Company. Following
the issuance of the press release, Bear Stearns began to receive telephone
calls from interested parties. Bear Stearns also made calls to potentially
interested parties that had been identified to the Board at the meeting of
June 30, 1997. The Company also entered into an engagement letter with Bear
Stearns, dated June 30, 1997, pursuant to which Bear Stearns agreed to assist
the Company in its consideration of those strategic alternatives.
In August 1997, an employee of Bear Stearns who had been involved in the
strategic review of the Company and the efforts to market the Company accepted
a position with Lehman Brothers. To facilitate the continued dialogue with the
interested parties and in order to continue to receive the benefit of this
employee's work for the Company, the Company, Bear Stearns and Lehman Brothers
agreed that Lehman Brothers would continue the process initiated by Bear
Stearns and that Bear Stearns and Lehman Brothers each would be entitled to
half of the fees provided for in the June 30, 1997 Bear Stearns engagement
letter.
During the period from June 30 to September 25, 1997, Bear Stearns, Lehman
Brothers and Chase were in contact with approximately sixty companies or
groups (including Parent and Westmont on a joint basis) regarding the
feasibility of, and their interest in pursuing, a business combination with
the Company. During that same time period, Bear Stearns and Lehman Brothers
mailed to approximately forty such companies and groups (the "Preliminary
Companies") a letter which described the process which the Company intended to
conduct and also included a package of background materials regarding the
Company. Such materials also solicited separate proposals for the Company's
interest in the Mexican Joint Venture. Approximately fifteen companies
expressed to Bear Stearns and Lehman Brothers significant interest in
purchasing all or a portion of the Company, but none expressed an interest in
purchasing the Company's interest in the Mexican Joint Venture.
Each of the Preliminary Companies was directed to submit a written non-
binding indication of interest to Lehman Brothers, including, among other
things, the prices at which they might pursue a transaction, the form of
payment, whether or not such indication of interest would be subject to
financing, and the likely timing of the transaction. Five of the Preliminary
Companies and groups (including Parent and Westmont acting jointly) (the
"Interested Companies") submitted non-binding indications of interest to
Lehman Brothers, of which some (including an affiliate of Mr. Royer) expressed
a non-binding indication of interest to purchase only the Canadian
18
<PAGE>
assets and the limited-service United States hotels of the Company, of which
some expressed a non-binding indication of interest to purchase the entire
Company (excluding the Company's interest in the Mexican Joint Venture, but
including the cash realized from the sale of the Mexican Joint Venture), of
which one expressed a non-binding indication of interest to purchase only the
U.S. full-service hotels, and none of which expressed a non-binding indication
of interest to include the Company's interest in the Mexican Joint Venture in
a purchase. In addition to the joint bid submitted by Parent and Westmont (as
described below), the range of bids submitted by each of the other Interested
Companies varied because each of these bids proposed to purchase different
assets of the Company. Two of the Interested Companies proposed to purchase
all of the Company's interest in the Canadian full-service and limited-service
hotels and the U.S. limited-service hotels along with certain other assets
owned by the Company for an aggregate purchase price of $145 million. Another
Interested Company bid $150 million for 100% of the issued and outstanding
shares of Chartwell Lodging Inc., a wholly-owned subsidiary of the Company.
Finally, a fourth Interested Company bid $125 million for certain specified
assets of the Company.
At a September 25, 1997 meeting of the Board, the Board discussed the status
of the efforts to sell all or a portion of the Company. At such meeting, the
Board formalized the retention of Lehman Brothers. Mr. Fisher then reviewed
with the Board the results of those marketing efforts and the nature of the
indications of interest received from various parties. The Board discussed the
various types of transactions which had been discussed with those parties and
the tax and other consequences to the Company. Mr. Fisher stated that he
expected formal bids to be received shortly and would convene another Board
meeting to consider those bids when they were received.
From September 1997 to November 6, 1997, certain of the Interested Companies
conducted due diligence with respect to the Company. Each Interested Company
was provided with access to information, oral management presentations, legal
presentations and access to the facilities of the Company and its
subsidiaries.
There were two preliminary bids submitted during this period, one joint
proposal by Parent and Westmont, and one by another bidder. On November 5,
1997, Mr. Fisher authorized Lehman Brothers to notify Parent and Westmont, and
the other bidder (the "Final Bidding Companies"), that final and definitive
proposals to acquire the Company be submitted no later than 5:00 p.m., Eastern
Standard Time, on November 10, 1997. On November 10, 1997, the Company
received the final and definitive proposals from the Final Bidding Companies.
Both of the Final Bidding Companies submitted a bid to acquire the Company in
a merger transaction (excluding the Company's interest in the Mexican Joint
Venture but including the cash realized from the sale of the Company's
interest in the Mexican Joint Venture). Parent and Westmont jointly offered to
pay $17.00 per Share for all of the Company's outstanding Shares and Options.
Parent's and Westmont's offer was not subject to its ability to obtain
financing to consummate the proposed transaction. However, Parent's and
Westmont's offer was subject to certain material conditions requiring the
Company to take certain actions before it would consummate a transaction. The
other Final Bidding Company offered an aggregate of $265 million (equal to
approximately $16.83 per Share) to acquire the Company, but conditioned its
proposal upon obtaining the necessary financing to consummate the proposed
transaction. Such Final Bidding Company offered to deposit $10 million in
escrow upon the execution with the Company of a definitive agreement which
would be paid to the Company if the Final Bidding Party was unable to obtain
financing. In addition, that Final Bidding Company offered to deposit in
escrow an additional $5 million if it was unable to obtain a reasonably
satisfactory financing commitment within 30 days of the execution of a
definitive merger agreement.
On November 11, 1997, the Board met to discuss and review, with the advice
of Lehman Brothers, Bear Stearns and Chase, the bids submitted by the Final
Bidding Companies. Each of Lehman Brothers and Chase presented to the Board
its respective analysis of such bids, and delivered their respective oral
opinions that each of such bids was fair from a financial point of view to the
stockholders of the Company. The Board considered, among other things, the
expense that would be incurred by the Company in order to satisfy the
conditions proposed by each of the proposals submitted by the Final Bidding
Companies. The Board discussed the possibility that the Final Bidding
Companies could be induced to increase their bids and improve the terms of
their respective proposals by relaxing the conditions set forth therein, and
thereby eliminating some of the uncertainty of consummating a transaction with
Parent and Westmont. Following the Board's review and
19
<PAGE>
discussion of the two bids, the Board authorized Mr. Fisher to negotiate with
each of the two Final Bidding Companies the most favorable transaction to the
stockholders of the Company. Also at the November 11, 1997 Board meeting, the
Board established a special committee (the "Special Committee"), consisting of
Rachel Robinson and Michael J. Kennedy, non-employee directors of the Company,
in order to oversee and negotiate the proposed sale by the Company of its
interest in the Mexican Joint Venture.
After consulting with Lehman Brothers, Chase and Battle Fowler LLP, the
Company's legal counsel ("Battle Fowler"), Mr. Fisher notified each of the
Final Bidding Companies that neither of their bids would be accepted, and Mr.
Fisher asked each of the Final Bidding Companies to submit a new bid at a
higher price. On November 11, 1997, Parent and Westmont jointly submitted to
the Company a revised final and definitive proposal of $17.25 per Share, which
was subject to fewer conditions than their November 10, 1997 proposal. The
other Final Bidding Company did not submit another bid. The Company is unaware
of the reason or reasons that the Final Bidding Company did not submit a
further bid. On November 11, 1997, representatives of senior management of the
Company, Lehman Brothers, Chase and Battle Fowler met at Battle Fowler's
offices in New York City to commence negotiations of a definitive agreement
and plan of merger with Parent and its legal advisors, Paul, Weiss, Rifkind,
Wharton & Garrison. Such negotiations continued in person and by telephone on
a continuous basis through November 13, 1997.
On November 13, 1997, one of the Interested Companies (not one of the Final
Bidding Companies) submitted a written proposal to acquire all of the
outstanding stock of the Company (but did not specify whether such bid
included or excluded the purchase of the Mexican Joint Venture) at a purchase
price equal to $275 million (approximately one percent (1%) higher than the
aggregate consideration offered by Parent and Westmont in their final and
definitive joint proposal). Additionally, on November 13, 1997, an affiliate
of Mr. Royer submitted an oral bid to acquire the Company (which was not
accepted by the Company), but that bid did not state the consideration to be
received by the stockholders of the Company in that acquisition. Messrs.
Fisher and Edelman advised each member of the Board of these bids and
discussed with the Board members the fact that the Merger Agreement with
Parent was almost fully negotiated and that pursuing either or both proposals
might jeopardize the consummation of a transaction with Parent and Westmont,
and induce Parent to withdraw its proposal. Consequently, the Board determined
not to pursue these proposals.
On November 13, 1997, the Board, pursuant to an action by written consent,
unanimously authorized and approved the proposed Merger Agreement and the
transactions contemplated thereby, and authorized the execution and delivery
of the Merger Agreement in substantially the form attached to such written
consent (with such changes as management deemed appropriate in respect of
certain remaining issues which were not deemed material to the overall
transaction) and determined that the Merger Agreement be submitted to a vote
of the stockholders of the Company, and that the Board recommend that such
stockholders approve and adopt the Merger Agreement.
On November 13, 1997, each of Lehman Brothers and Chase delivered to Mr.
Fisher, for the Board, their respective written opinions, that the
consideration to be received by the stockholders of the Company pursuant to
the Merger was fair from a financial point of view.
Negotiations between members of senior management of the Company and its
legal advisors and representatives of Parent and their legal advisors to
finalize the remaining issues in the Merger Agreement continued through
November 13, 1997. On November 13, 1997, following the resolution of such open
issues, the Company, Parent and Sub executed and delivered the Merger
Agreement.
On November 13, 1997, the Special Committee had an initial meeting with
Chase and Lehman Brothers.
On November 14, 1997, the Company issued the following press release
announcing the execution of the Merger Agreement:
Whitehall to Acquire Chartwell Leisure for $17.25 per Share in Cash in a
Transaction Valued at $272 Million
20
<PAGE>
NEW YORK, Nov. 14 /PRNewswire/--Chartwell Leisure Inc. (Nasdaq: CHRT--
news) today announced that it has reached an agreement in which Whitehall
Street Real Estate Limited Partnership IX will acquire Chartwell for $17.25
per share in cash in a transaction valued at approximately $272 million.
Chartwell has 15,741,136 of fully diluted shares outstanding.
Whitehall, an affiliate of Goldman, Sachs & Co., is a $1.6 billion
discretionary real estate investment fund that invests in real estate
opportunities worldwide. The acquisition will be made in partnership with
Westmont Hospitality Group, Inc., a hotel investment and management
company.
The transaction, which was unanimously approved by Chartwell's Board of
Directors, is expected to close in the first quarter of 1998. The companies
signed a definitive merger agreement yesterday.
Richard L. Fisher, Chairman and Chief Executive Officer of Chartwell,
said: "Today's announcement marks the end of an extensive and careful
review of alternatives by Chartwell's Board of Directors, the goal of which
was to maximize shareholder value. The Board firmly believes that this
transaction provides Chartwell shareholders the best return on their
investment in our Company."
Completion of the transaction is subject to Chartwell shareholder
approval and customary closing conditions, including the expiration of the
applicable waiting period under the Hart-Scott-Rodino Act.
Chartwell was advised by Lehman Brothers, Bear, Stearns & Co. Inc. and
Chase Securities Inc. with regard to this transaction.
Chartwell Leisure is a hotel owner/operator and developer. Chartwell
Leisure owns, directly or with joint venture partners, 124 hotel properties
in both the full-service and limited-service segments, containing
approximately 11,100 guest rooms, located in 25 states and six Canadian
provinces.
On November 24, 1997, the Special Committee had a meeting with Special
Counsel. At this meeting, Special Counsel reviewed with the Special Committee
the Special Committee's fiduciary and other obligations, and the agreements
governing the Mexican Joint Venture, the Stock Purchase Agreement, the Merger
Agreement and communications between Grupo Piasa and the Company.
On November 25, 1997, the Special Committee had a meeting with Chase and
Lehman Brothers at which Chase and Lehman Brothers reported to the Special
Committee on each of their analyses and valuations of the Mexican Joint
Venture.
From November 25, 1997 through December 11, 1997, a member of the Special
Committee and representatives of the Special Committee had conversations and
negotiated with representatives of the Mexican JV Buyer concerning the form of
the transaction and the consideration to be paid to the Company by the Mexican
JV Buyer.
On November 25, 1997, Parent, Sub and Company executed an amendment to the
Merger Agreement relating to payments to be made by Parent to the Company
immediately prior to the Effective Time. See "THE MERGER AGREEMENT--Certain
Other Covenants--Parent Payment and Related Matters."
On December 11, 1997, a draft Stock Purchase Agreement (the "Draft JV
Purchase Agreement") was agreed to by representatives of the Special Committee
and the Mexican JV Buyer.
On January 20, 1998, the Special Committee had a meeting with Special
Counsel at which it reviewed the conversations and negotiations between the
Special Committee and the Mexican JV Buyer, the Draft JV Purchase Agreement, a
calculation of the current amount expended and accrued by the Company in
connection with the Mexican Joint Venture, the nature of the opinions to be
delivered by Chase and Lehman Brothers and proposed action to be taken by the
Special Committee, subject to the delivery of the opinions by Chase and Lehman
Brothers.
On January 21, 1998, the Special Committee had a meeting at which it (i)
determined that the sale of the Company's interest in the Mexican Joint
Venture to the Mexican JV Buyer is in the best interests of the Company
21
<PAGE>
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) received favorable
fairness opinions from Lehman Brothers and Chase to the effect that such
transaction is fair to the Company from a financial point of view.
RECOMMENDATION OF THE BOARD; FAIRNESS OF THE MERGER
The Company. In reaching its determination that the Merger is fair to and in
the best interests of stockholders, the Board consulted with the Company's
management, Chase, Lehman Brothers and legal counsel. Set forth below are
factors that the Board considered to be most important in reaching this
determination and which support the Board's finding that the Merger is (i)
fair and (ii) in the best interests of the stockholders of the Company:
(i) the Merger was agreed to by the Board only after issuance by the
Company of a press release regarding its review of strategic alternatives,
significant publicity concerning the review by the Company of its strategic
alternatives and the possibility of the Company being sold, the passage of
a significant period of time between issuance of the press release and
approval of the Merger Agreement, and contact with a large number of
potential bidders over an extended period of time in a lengthy "auction"
process;
(ii) based on the advice of Chase, Lehman Brothers and Bear Stearns, the
"auction" process was conducted in a fair, equitable and evenhanded manner
and that third parties interested in a transaction with the Company were
afforded sufficient time and knowledge to submit a proposal had they wished
to do so. See "--Background of the Merger" and "--Financial Advisors;
Fairness Opinion";
(iii) a review of the possible alternatives to a sale of the Company in
its entirety, including the prospects of selling one or more of the
subsidiaries of the Company, conversion to a real estate investment trust,
a financial restructuring of the Company, continuing to operate the Company
pursuant to management's business plan, the prospects of the Company if it
remained independent, the value to the Company's stockholders of such
alternatives and the timing and likelihood of achieving additional value
from these alternatives, and the possibility that these alternatives might
not lead to a higher present value to stockholders than the value of $17.25
to be received by the holders of Shares in the Merger (see "--Background of
the Merger");
(iv) the sale of groups of assets of the Company, such as the sale of
only the Canadian assets and U.S. limited-service hotels or the U.S. full-
service hotels, as some preliminary bidders had proposed, would leave the
Company with significant tax liabilities;
(v) the presentations of each of Lehman Brothers and Chase, and their
respective opinions as to the fairness of the consideration to be received
by holders of Shares pursuant to the Merger Agreement as discussed in "--
Financial Advisors; Fairness Opinions"; and
(vi) CL Associates and FSNL, representing 44.74% of the issued and
outstanding Shares, each support the Merger.
Set forth below are factors that the Board considered, but which it believed
to be of lesser importance, in reaching this determination and which support
the Board's finding that the Merger is (i) fair and (ii) in the best interests
of the stockholders of the Company:
(i) the Board's review and analysis of the Company's business,
operations, financial condition, earnings and prospects, as well as the
economic and competitive environments facing the Company, including all of
which, as a whole, the Board believed supported its decision to pursue the
Merger;
(ii) the financial terms of the Merger, including the proposed structure
of the Merger involving an all cash purchase price and the absence of any
financing contingency;
(iii) the $17.25 per Share consideration to be paid in the Merger (A)
represents a premium for the Shares of approximately 8.6% over the closing
price of $15 7/8 per Share on November 13, 1997, the last trading day prior
to the public announcement of the execution of the Merger Agreement and (B)
the per Share consideration to be paid in the Merger represents a premium
of approximately 29% over the closing
22
<PAGE>
price of $13 3/8 per Share on June 30, 1997, the last trading day prior to
the public announcement that the Company was considering strategic
alternatives including a possible sale of the Company;
(iv) the Merger Agreement permits the Company to consider unsolicited
written proposals from non-affiliates (if required in the exercise of the
Board's fiduciary duties to the Company or its stockholders after
consultation and based upon the advice of outside legal counsel) to acquire
all or a part of the Company and permits the Company to furnish information
to and enter into discussions and negotiations with such parties and to
terminate the Merger Agreement, subject to certain conditions, including
the payment of significant fees and expenses to Parent and Sub (see "THE
MERGER AGREEMENT--Effective Time," "--No Solicitation of Proposals" and "--
Termination");
(v) pursuant to the Stock Purchase Agreement, each of CL Associates and
FSNL will vote all of its respective Shares in the same proportion as the
number of Shares held by stockholders of the Company other than CL
Associates, FSNL and their affiliates that are voted in favor of and
against the Merger;
(vi) an entity formed by certain or all of the principals of CL
Associates and FSNL proposed to purchase the Company's interest in the
Mexican Joint Venture; and
(vii) the Merger Agreement was approved unanimously by the Board.
Set forth below are certain other material factors that the Board considered
in reaching this determination and which weighed against the Board's support
of the Merger:
(i) certain members of the Company's management and Board have interests
in the Merger that are in addition to and not necessarily aligned with the
interests in the Merger of the holders of Shares generally;
(ii) the possibility that if the Merger were announced but not
consummated, the price of the Shares could decline significantly below the
current trading price (which reflects, in part, the premium to be paid in
the Merger to the holders of Shares);
(iii) the terms of the Merger Agreement that set forth the restrictions
on the conduct of the Company's business pending closing, conditions to
closing and the significant fees and expenses that would become payable in
the event of a termination of the Merger Agreement under certain
circumstances; and
(iv) following the Merger, the Company's stockholders will no longer be
able to participate in the potential growth of the Company.
The foregoing discussion of the information and factors considered by the
Board sets forth a list of material factors considered by the Board, but is
not intended to be exhaustive of all factors considered by the Board.
THE BOARD UNANIMOUSLY HAS DETERMINED THAT THE MERGER IS FAIR TO AND IN THE
BEST INTERESTS OF STOCKHOLDERS, HAS APPROVED THE MERGER AGREEMENT AND
RECOMMENDS THAT STOCKHOLDERS VOTE FOR APPROVAL AND ADOPTION OF THE MERGER
AGREEMENT.
Approval and adoption of the Merger Agreement requires the affirmative vote
of the holders of a majority of the outstanding Shares entitled to vote
thereon.
FINANCIAL ADVISORS; FAIRNESS OPINIONS
Opinion of Lehman Brothers
In September 1997, the Company engaged Lehman Brothers to act as its
financial advisor to assist in the Board's study of strategic alternatives
available to the Company. Prior to this time, the Company had retained Bear
Stearns and Chase for such purpose. Due to a personnel change whereby an
employee of Bear Stearns who had been principally responsible for the
strategic review of the Company and the efforts to market the Company moved to
Lehman Brothers, Lehman Brothers agreed with Bear Stearns and the Company that
Lehman Brothers would participate with Bear Stearns as financial advisor to
the Company and that Lehman Brothers would render
23
<PAGE>
the fairness opinion previously contemplated to be rendered to the Board by
Bear Stearns. Lehman Brothers acted as the Company's financial advisor in
soliciting indications of interest in and proposals for a potential business
combination with the Company and negotiating with interested parties,
including Parent and Sub. Lehman Brothers was also engaged to render its
opinion as to the fairness, from a financial point of view, to the
stockholders of the Company of the consideration to be received by the
stockholders of the Company in the Merger.
On November 11, 1997, in connection with the evaluation of the Merger
Agreement and the transactions contemplated thereby by the Board, Lehman
Brothers delivered its oral opinion, which opinion was subsequently confirmed
in writing, that, as of November 13, 1997, and subject to assumptions, factors
and limitations as described in that opinion, the consideration to be received
by the stockholders of the Company in the Merger was fair, from a financial
point of view, to the stockholders of the Company.
THE FULL TEXT OF THE WRITTEN OPINION OF LEHMAN BROTHERS IS ATTACHED AS ANNEX
B HERETO AND IS INCORPORATED HEREIN BY REFERENCE. STOCKHOLDERS MAY READ SUCH
OPINION FOR A DISCUSSION OF ASSUMPTIONS MADE, MATTERS CONSIDERED AND
LIMITATIONS ON THE REVIEW UNDERTAKEN BY LEHMAN BROTHERS IN RENDERING ITS
OPINION. THE SUMMARY OF THE OPINION OF LEHMAN BROTHERS SET FORTH HEREIN
DESCRIBES ALL MATERIAL ASPECTS OF THE OPINION BUT IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO THE FULL TEXT OF SUCH OPINION.
No limitations were imposed by the Company on the scope of Lehman Brothers's
investigation or the procedures to be followed by Lehman Brothers in rendering
its opinion. In arriving at its opinion, Lehman Brothers did not ascribe a
specific range of values to the Company, but made its determination as to the
fairness, from a financial point of view, of the consideration to be received
by the stockholders of the Company on the basis of the financial and
comparative analyses described below. Lehman Brothers' opinion is for the use
and benefit of the Board and was rendered to the Board in connection with its
consideration of the Merger Proposal and is not intended to be and does not
constitute a recommendation to any Stockholder as to how such Stockholder
should vote with respect to the Merger Proposal at the Special Meeting. Lehman
Brothers was not requested to opine as to, and its opinion does not in any
manner address, the Company's underlying business decision to proceed with or
effect the Merger.
In arriving at its opinion, Lehman Brothers reviewed and analyzed: (i) the
Merger Agreement and the terms of the Merger; (ii) publicly available
information concerning the Company which Lehman Brothers believed to be
relevant to its analysis; (iii) financial and operating information with
respect to the business, operations, properties and prospects of the Company
furnished to Lehman Brothers by the Company; (iv) a trading history of the
Shares from January 1, 1996 to the present and a comparison of that trading
history with those of other companies which Lehman Brothers deemed relevant;
(v) a comparison of the historical financial results and present financial
condition of the Company with those of other companies which Lehman Brothers
deemed relevant; (vi) an evaluation of the specific properties of the Company
with respect to the sale of such properties in an orderly liquidation of the
Company; and (vii) the results of efforts to solicit indications of interest
and proposals from third parties with respect to a purchase of all or a
portion of the businesses and/or properties of the Company.
In addition, Lehman Brothers had discussions with the management of the
Company concerning its business, operations, assets, properties, liabilities,
financial condition and prospects and undertook such other studies, analyses
and investigations as Lehman Brothers deemed appropriate.
In arriving at its opinion, Lehman Brothers assumed and relied upon the
accuracy and completeness of the financial and other information used by it in
arriving at its opinion without assuming any responsibility for independent
verification of such information and further relied upon the assurances of
management of the Company that they were not aware of any facts or
circumstances that would make such information inaccurate or misleading. With
respect to the financial projections of the Company for the remainder of
fiscal year 1997,
24
<PAGE>
upon advice of the Company, Lehman Brothers assumed that such projections were
reasonably prepared on a basis reflecting the best currently available
estimates and judgments of the management of the Company as to the future
financial performance of the Company during such period and that the Company
will perform substantially in accordance with such projections during such
period. However, in arriving at its opinion, Lehman Brothers was not provided
with and did not have any access to detailed financial projections of the
Company for any period subsequent to the Company's 1997 fiscal year. In
arriving at its opinion, Lehman Brothers conducted only a limited physical
inspection of certain of the properties and facilities of the Company and did
not make or obtain any evaluation or appraisals of the assets or liabilities
of the Company. Lehman Brothers' opinion was necessarily based upon market,
economic and other conditions as they existed on, and could be evaluated as
of, the date of its opinion.
In connection with its opinion, Lehman Brothers performed a variety of
financial and comparative analyses, as summarized below. The preparation of a
fairness opinion involves various determinations as to the most appropriate
and relevant methods of financial and comparative analysis and the application
of those methods to the particular circumstances and, therefore, such an
opinion is not readily susceptible to summary description. Furthermore, in
arriving at its opinion, Lehman Brothers did not attribute any particular
weight to any analysis and factor considered by it, but rather made
qualitative judgments as to the significance and relevance of each analysis
and factor. Accordingly, Lehman Brothers believes that its analyses must be
considered as a whole and that considering any portion of such analyses and
factors considered, without considering all analyses and factors considered,
could create a misleading or incomplete view of the process underlying its
opinion. In its analyses, Lehman Brothers made numerous assumptions with
respect to industry performance, general business and economic conditions, the
competitive environment in the markets in which the Company operates and other
matters. Many of these assumptions are beyond the control of the Company. Any
estimates contained in these analyses are not necessarily indicative of actual
values or predictive of future results or values, which may be significantly
more or less favorable than as set forth therein. In addition, analyses
relating to the value of businesses do not purport to be appraisals or to
reflect the prices at which businesses actually may be sold.
Analysis of Selected Relevant Publicly Traded Companies. Using publicly
available information, Lehman Brothers compared selected financial data of the
Company with similar data of selected publicly-traded hotel companies engaged
in businesses considered by Lehman Brothers to be relevant to those of the
Company. Specifically, Lehman Brothers included in its review Bristol Hotel
Company, CapStar Hotel Company, Red Roof Inns, Servico Inc. and John Q.
Hammons Hotels (the "Lehman Brothers Peer Group"). Lehman Brothers analyzed
the trading multiples of this group of comparable companies. Lehman Brothers
calculated, among other things, current market price per share (the "Market
Price") as a multiple of 1997 earnings per share ("EPS") for each of the
Lehman Brothers Peer Group. The 1997 EPS per share estimates were based upon
the median of publicly-available earnings estimates made by research analysts
as provided by First Call Investor Services. Lehman Brothers also calculated
total enterprise value based upon the market value of the equity ("Market
Capitalization") as a multiple of estimated 1997 earnings before interest and
taxes plus depreciation and amortization ("EBITDA") for each of the Lehman
Brothers Peer Group. Lehman Brothers calculated the following multiples of the
Lehman Peer Group: (i) a range of 13.1x to 28.5x with a mean of 20.7x for the
ratio of Market Price to 1997 estimated EPS; and (ii) a range of 6.7x to 13.9x
with a mean of 9.5x for the ratio of Market Price to 1997 estimated EBITDA.
Applying these multiples to the Company indicated an imputed value of the
Company of $10.87 to $24.23 per fully-diluted Share.
Because of the lack of a sufficient number of comparable companies and the
inherent differences in the businesses, operations and prospects of the
Company and the businesses, operations and prospects of the companies included
in the Lehman Brothers Peer Group, Lehman Brothers believed it was
inappropriate to, and therefore did not, rely solely on the quantitative
results of the analysis, and accordingly also made qualitative judgments
concerning differences between the financial and operating characteristics of
the Company and the companies in the Lehman Brothers Peer Group, which would
affect the public trading values of the Company and such comparable companies.
Real Estate Valuation Analysis. Lehman Brothers estimated the value of the
real estate assets owned by the Company, as well as the value of the non-real
estate franchise and management businesses owned by the
25
<PAGE>
Company. Lehman Brothers calculated values of the Company's assets generally
based on ranges of capitalization rates with 6.4% as the lowest capitalization
rate in any range and 19.0% as the highest rate in any range applied to
projected fiscal 1997 EBITDA for income producing properties, plus an
adjustment for the estimated value of non-income producing property. Such
capitalization rates used in this analysis were determined on the basis of
several assumptions regarding factors such as a relatively constant inflation
rate (between 2.0% and 4.0%), relatively stable interest rates (a yield
between 5.0% and 7.5% on the 30-year U.S. Treasury bond) and the inherent
business risks of the Company and the costs of equity capital (which vary
according to the different investment risks of such properties). This analysis
indicated an imputed equity value (defined as aggregate value minus net debt)
of the Company of $16.62 to $19.14 per fully-diluted share.
Lehman Brothers also noted that the Original Real Estate Valuation Analysis
presented by Bear Stearns to the Board in June 1997 established a range of
$17.22 to $19.63 per fully-diluted Share. See "SPECIAL FACTORS--Background of
the Merger."
Historical Stock Price Analysis; Premium Analysis. Lehman Brothers
considered various historical data concerning the history of the trading
prices for the Shares for the period from January 1, 1996 to November 12, 1997
(the last trading date prior to the execution of the Merger Agreement) and the
relationship between price movements of the Shares as compared to two
composite indices based upon the Lehman Brothers Hotel REIT Index (which is an
index of publicly traded hotel real estate investment trusts) and upon the
Lehman Brothers Peer Group for the same period. At November 10, 1997, the
closing Share price of the Company was $15.875. From January 1, 1996 to
November 10, 1997, the Shares under-performed both the Lehman Brothers Hotel
REIT Index and an index of the Lehman Brothers Peer Group. The weighted
average closing Share price for the period (which vary according to the
different investment risks of such properties) January 1, 1996 through
November 10, 1997, was $14.10.
Based on the closing price of $15.875 per Share on November 10, 1997 (the
last trading date prior to the execution of the Merger Agreement), the $17.25
per Share merger consideration represents an approximate 8.6% premium. Based
on the closing price of $13.375 per Share on June 30, 1997 (the last trading
day prior to the Company's announcement that it had retained Bear Stearns and
Chase to study strategic alternatives for the Company), the $17.25 per Share
merger consideration represents an approximate 29% premium. Based on the
average closing Share price for the period January 1, 1996 through November
12, 1997, the $17.25 per Share merger consideration represents an approximate
22% premium.
Lehman Brothers is an internationally recognized investment banking firm
and, as part of its investment banking activities, is regularly engaged in the
evaluation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, competitive bids, secondary
distributions of listed and unlisted securities, private placements and
valuations for corporate and other purposes. The Board selected Lehman
Brothers because of its personnel, expertise, reputation and familiarity with
the real estate and hotel industries.
Lehman Brothers has consented to the disclosure of and references to its
opinion in this Proxy Statement. As compensation for its services in
connection with the Merger, the Company has agreed to pay Lehman Brothers a
fee equal to $125,000 upon execution by the Company of a letter of intent,
agreement in principle or definitive agreement with respect to the Merger
(which represents 50% of the fee agreed to be paid by the Company to Bear
Stearns as described below) and a fee upon consummation of the Merger based on
the aggregate value of the consideration received by the stockholders of the
Company plus the aggregate principal amount of certain indebtedness for money
borrowed assumed by Parent in connection with the Merger, net of any cash
received by Parent to repay such debt. The fee payable to Lehman Brothers upon
consummation of the Merger is expected to total approximately $1.36 million.
In addition, the Company has agreed to indemnify Lehman Brothers for certain
liabilities that may arise out of its engagement by the Company and the
rendering of its opinion.
In the ordinary course of its business, Lehman Brothers may trade in the
Shares for its own account and for the accounts of its customers and,
accordingly, may at any time hold a long or short position in such securities.
26
<PAGE>
Opinion of Chase.
Pursuant to an engagement letter dated July 9, 1997, the Board formalized
its retention of Chase to act as its financial advisor in connection with the
consideration by the Company of various strategic and financial alternatives
available to it to maximize stockholder value, including the possible sale of
all or a portion of the Company. Chase is a nationally recognized firm and, as
a part of its investment banking activities, is regularly engaged in the
valuation of businesses and their securities in connection with merger
transactions and other types of acquisitions, private placements and
valuations for corporate and other purposes. The Company selected Chase as its
financial advisor on the basis of Chase's experience and expertise in
transactions similar to the Merger, its reputation in the lodging and
investment communities, and because Chase was familiar with the Company from
having previously served as an investment banker for the Company.
On November 11, 1997, Chase delivered its oral opinion, subsequently
confirmed in writing as of November 13, 1997, that the consideration to be
received by the stockholders of the Company pursuant to the Merger is fair to
such stockholders from a financial point of view. The amount of such
consideration was determined pursuant to negotiations between the Company and
Parent and Sub and not pursuant to recommendations of Chase. No limitations
were imposed by the Company on Chase with respect to the investigations made
or procedures followed in rendering its opinion.
THE FULL TEXT OF CHASE'S WRITTEN OPINION TO THE COMPANY IS ATTACHED HERETO
AS ANNEX C AND IS INCORPORATED HEREIN BY REFERENCE. THE FOLLOWING SUMMARY OF
CHASE'S OPINION DESCRIBES ALL MATERIAL ASPECTS OF THE OPINION BUT IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE OPINION. CHASE'S OPINION IS
DIRECTED TO THE BOARD AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY
STOCKHOLDER OF THE COMPANY AS TO HOW SUCH STOCKHOLDER SHOULD VOTE WITH RESPECT
TO THE MERGER.
In connection with its opinion, Chase, among other things: (i) reviewed
publicly available financial and other data with respect to the Company,
including the consolidated financial statements for recent years and interim
periods to September 30, 1997 and certain other relevant financial and
operating data relating to the Company made available to Chase from published
sources and from the internal records of the Company; (ii) reviewed the Merger
Agreement; (iii) reviewed certain publicly available information concerning
the trading of, and the trading market for, the Common Stock; (iv) compared
the Company from a financial point of view with certain other companies in the
lodging industry which Chase deemed to be relevant; (v) considered the
financial terms, to the extent publicly available, of selected recent business
combinations of companies in the lodging industry which Chase deemed to be
comparable, in whole or in part, to the Merger; (vi) reviewed and discussed
with the management of the Company certain information of a business and
financial nature regarding the Company, furnished to Chase by them, including
management forecasts of the Company and its portfolio of hotel properties for
1997, and historical financial information regarding the Company's hotel
properties; (vii) made inquiries regarding and discussed the Merger and the
Merger Agreement and other matters related thereto with the Company's counsel;
and (viii) performed such other analyses and examinations as Chase deemed
appropriate. The opinion provided by Chase is based on the value of the entire
Company, including the Mexican Joint Venture. An estimated value of $3.7
million (representing all capital contributed by the Company as of November 6,
1997 plus certain allocated corporate overhead expenses) was utilized as an
estimate of the cash proceeds which were expected to be received by the
Company in connection with the sale of the Mexican Joint Venture.
In connection with its review, Chase did not assume any obligation
independently to verify the foregoing information and relied on the 1997
forecasts prepared by the Company's management and provided to Chase. Chase
assumed for purposes of its opinion, with the consent of the Company, that the
1997 forecasts were reasonably prepared on the basis reflecting the best
available estimates and judgments of the Company's management at the time of
preparation as to the future financial performance of the Company. The Company
does not publicly disclose internal management forecasts of the type provided
to Chase by management in
27
<PAGE>
connection with Chase's review of the proposed Merger. Such forecasts were not
prepared with a view toward public disclosure. In addition, such forecasts
were based upon numerous variables and assumptions that are inherently
uncertain, including, without limitation, factors related to general economic
and competitive conditions. Accordingly, actual results could vary
significantly from those set forth in such forecasts. Chase has assumed no
liability for such forecast. Chase also assumed that there have been no
material changes in the Company's assets, financial condition, results of
operations, business or prospects since the date of its last financial
statements made available to Chase, except for such changes disclosed by
management of the Company to Chase prior to the date of Chase's opinion. Chase
relied on advice of counsel and independent accountants to the Company as to
all legal and financial reporting matters with respect to the Company, the
Merger and the Merger Agreement, including the status and financial reporting
of litigation involving the Company. Chase assumed that the Merger will be
consummated in a manner that complies in all respects with the applicable
provisions of the Exchange Act, and other applicable federal and state
statutes, rules and regulations. In addition, Chase did not assume
responsibility for making an independent evaluation, appraisal or
environmental inspection of any of the assets or liabilities (contingent or
otherwise) of the Company, nor was Chase furnished with any such appraisals.
Finally, Chase's opinion is based on economic, monetary, market and other
conditions as in effect on, and the information made available to Chase as of
the date of its opinion. Accordingly, although subsequent developments may
affect Chase's opinion, Chase did not assume any obligation to update, revise
or reaffirm its opinion.
Chase also assumed that the Merger will be consummated in accordance with
the terms described in the Merger Agreement, without any further amendments
thereto, and without waiver by the Company of any of the conditions to its
obligations thereunder.
Set forth below is a brief summary of the report presented by Chase to the
Board on November 11, 1997, in connection with its opinion.
Marketing Summary. The Company issued a press release on June 30, 1997,
stating that it had hired Bear Stearns and Chase to "help Chartwell consider
strategic alternatives, including a possible sale of the Company."
Subsequently, a comprehensive marketing effort on behalf of the Company was
conducted.
Comparable Company Analysis. Using public and other available information,
Chase calculated the trading multiples of estimated 1997 operating earnings
before interest, taxes, depreciation and amortization ("EBITDA") at which
comparable lodging companies were trading on November 8, 1997. The following
nine publicly traded lodging companies ("Chase Peer Group") were analyzed:
Bristol Hotel Company; Capstar Hotel Company; LaQuinta Inns, Inc.; Prime
Hospitality Corp.; Servico Inc.; Boykin Lodging Company; Equity Inns Inc.;
Innkeepers USA Trust and Winston Hotels Inc. Trading multiples for the Chase
Peer Group based on November 8, 1997 closing stock prices resulted in a range
of trading multiples from 9.0x to 13.4x estimated 1997 EBITDA. Chase evaluated
the comparability of the Company relative to the Chase Peer Group and deemed
certain public companies less comparable than others. Based on this analysis,
Chase computed an adjusted range of public company trading multiples of 9.25x
to 11.25x estimated 1997 EBITDA. Utilizing the Company's estimated 1997 EBITDA
of $26.8 million, Chase imputed a range of value based on the adjusted public
company trading multiples. Such analysis yielded a range of enterprise value
from $248 million to $301 million, and a range of equity value from $15.37 to
$18.77 per fully-diluted share. Equity value per Share for this purpose is
equal to enterprise value less net debt of $31.8 million plus option proceeds
divided by the 15.7 million Shares outstanding or subject to issuance.
Comparable Transactions Analysis. To the extent information was publicly
available, Chase reviewed the consideration paid in mergers and acquisitions
in which the target company was deemed comparable to the Company. The
following seven comparable transactions were reviewed (acquiror/target):
Sunstone Hotel Investors/Kahler Realty Corp.; Equity Inns/Hampton Inn Hotels;
Capstar Hotel/Highgate Portfolio; Tiger R/E Fund/Kahler Realty; Bristol
Hotel/Holiday Inns; Doubletree/Red Lion Hotels; and Accor/Motel 6. Chase
analyzed the consideration in such transactions as a multiple of the target
companies' operating earnings before interest, taxes, deprecation and
amortization ("EBITDA") for the latest twelve months ("LTM EBITDA").
28
<PAGE>
Such analysis yielded a range of LTM EBITDA multiples from 6.8x to 13.8x with
a mean and median of 10.9x and 11.5x LTM EBITDA, respectively. Chase
determined that certain transactions were less comparable and accordingly
adjusted the range of transaction multiples. This analysis yielded a range of
enterprise value from $261 million to $315 million, and equity value from
$16.22 to $19.62 per fully-diluted share. Equity value per Share for this
purpose is equal to enterprise value less net debt of $31.8 million plus
option proceeds divided by the 15.7 million Shares outstanding or subject to
issuance.
No publicly traded company or merger transaction used in the comparable
transactions analysis is identical to the Company or the Merger. Accordingly,
an analysis of the results of the foregoing is not mathematical; rather, it
involves complex considerations and judgments concerning differences in
financial and operating characteristics of the companies and other factors
that could affect the public trading value of the companies to which the
Company and the Merger are being compared.
Analysis by Property/Asset. Chase reviewed financial information which was
provided by the Company regarding fiscal year 1996 and 1997 estimated
operational performance of each of the 121 hotel properties owned (in whole or
in part) or managed by the Company and assigned an EBITDA multiple ranging
from 5.0x to 12.0x to each of the hotel properties in the portfolio. Chase
determined the range of EBITDA multiples which were applied to each of the
Company's hotel properties based on a review of lease terms, average daily
hotel rates and occupancy rates. After certain adjustments including net debt
of $31.8 million on September 30, 1997, estimated franchise and other
termination fees, sale proceeds from the Company's interest in the Mexican
Joint Venture and other assets, this analysis yielded an equity value of $212
million to $277 million, or $15.70 to $20.49 per share. Excluded from this
analysis were costs associated with liquidating the hotel portfolio. Equity
value per Share for this purpose is equal to enterprise value less net debt of
$31.8 million divided by 13.5 million primary Shares, excluding costs
associated with liquidating the portfolio and joint ventures.
In connection with its opinion, Chase performed procedures to reconfirm, as
necessary, certain of the analyses described above and reviewed the
assumptions on which such analyses were based and on the factors considered in
connection therewith.
While the foregoing summary describes all analyses and examinations that
Chase deems material to its opinion, it is not a comprehensive description of
all analyses and examinations actually conducted by Chase. The preparation of
a fairness opinion necessarily is not susceptible to partial analysis or
summary description. Chase believes that its analyses and the summary set
forth above must be considered as a whole and that selecting portions of its
analyses and of the factors considered, without considering all analyses and
factors, would create an incomplete view of the process underlying the
analyses set forth in its presentation to the Company. Accordingly, the ranges
of valuations resulting from any particular analysis described above should
not be taken to be Chase's view of the actual value of the Company.
In performing its analyses, Chase made numerous assumptions with respect to
industry performance, general business and economic conditions and other
matters, many of which are beyond the control of the Company. The analyses
performed by Chase are not necessarily indicative of the actual values or
actual future results, which may be significantly more or less favorable than
those suggested by such analyses. Such analyses were prepared solely as part
of Chase's analysis of the fairness, from a financial point of view, of the
Merger consideration to the Company's stockholders and were provided to the
Company in connection with the delivery of Chase's opinion. The analyses do
not purport to be appraisals or to reflect the prices at which a company might
actually be sold or the prices at which any securities may trade at any time
in the future. Chase used in its analyses various projections of future
performance prepared by the management of the Company. The projections are
based on numerous variables and assumptions which are inherently unpredictable
and must be considered not certain of occurrence as projected. Accordingly,
actual results could vary significantly from those set forth in such
projections.
As described above, Chase's opinion and presentation to the Company were
among the many factors taken into consideration by the Board in making its
determination to approve, and to recommend that its stockholders approve, the
Merger.
29
<PAGE>
Chase has consented to the disclosure of the references to its opinion in
this Proxy Statement. Pursuant to the engagement letter dated July 9, 1997,
the Company engaged Chase to act as its financial advisor in connection with
the consideration by the Company of various strategic and financial
alternatives available to it. As compensation for Chase's services, the
Company has agreed to pay Chase a fee equal to the lesser of $1 million or
0.25% of the Merger Consideration. The fee payable to Chase upon consummation
of the Merger is expected to total approximately $679,000. In addition, the
Company has agreed to indemnify Chase for certain liabilities that may arise
out of its engagement by the Company and the rendering of its opinion. Chase
Manhattan Bank, an affiliate of Chase, is the administrative agent for the
Company's credit facility which will be repaid at the Effective Time.
Engagement of Bear Stearns.
In connection with its engagement by the Company, Bear Stearns analyzed and
discussed with the Board strategic alternatives available to the Company,
including the possible sale to the Company, and assisted the Company in
identifying and contacting potential acquirors of all or a portion of the
Company's business. Bear Stearns was not requested to, and did not, render any
opinion to the Board with respect to the fairness of the Merger. As
compensation for Bear Stearns' analysis of strategic alternatives available to
the Company during June 1997 the Company paid Bear Stearns a fee of $100,000.
Pursuant to an engagement letter dated June 30, 1997, the Company agreed to
pay Bear Stearns a fee equal to $250,000 upon execution by the Company of a
letter of intent, agreement in principle or definitive agreement with respect
to the Merger (of which Bear Stearns, pursuant to its agreement with the
Company and Lehman Brothers to split Bear Stearns' fee with Lehman Brothers,
is entitled to $125,000), and a fee (the "Merger Fee") upon consummation of
the Merger based on the aggregate value of the consideration received by the
stockholders of the Company plus the aggregate principal amount of certain
indebtedness for money borrowed assumed by Parent in connection with the
Merger, net of any cash received by Parent to repay such debt. The $250,000
fee will be credited against the Merger Fee. Based on a price for the Shares
of $17.25 per Share, the fee payable to Bear Stearns upon consummation of the
Merger would total approximately $1.36 million. In addition, the Company has
agreed to indemnify Bear Stearns for certain liabilities that may arise out of
its engagement by the Company and the rendering of its opinion.
PURPOSE AND STRUCTURE OF THE MERGER
The purpose of the Merger is for Parent to acquire control of, and the
entire equity interest in, the Company. Parent and Westmont may enter into
certain agreements by which Westmont could acquire a direct interest in Sub
and thereby would hold an equity interest in the Company. See "--Certain
Effects of the Merger" The acquisition of the Shares from the holders of such
Shares is structured as a cash merger in order to transfer ownership of the
Shares to Parent in one transaction and to provide cash to the holders of such
Shares.
The Merger has been structured as a merger of Sub with and into the Company,
with the Company to be the Surviving Corporation, in order to provide
flexibility with respect to certain financial, operational and tax planning
considerations. After the Merger, the Surviving Corporation will be a
subsidiary of Parent.
For additional information concerning the purpose of the Merger, see "--
Background of the Merger," "--Recommendation of the Board; Fairness of the
Merger" and "--Interests of Certain Persons in the Merger; Potential Conflicts
of Interest" and "CERTAIN INFORMATION CONCERNING PARENT AND SUB."
CERTAIN EFFECTS OF THE MERGER
At the Effective Time, (i) Sub will merge with and into the Company and the
separate corporate existence of Sub will cease, (ii) the Surviving Corporation
will be a subsidiary of Parent, (iii) all the rights, privileges, immunities,
powers and franchises of the Company and Sub will vest in the Surviving
Corporation and (iv) all obligations, duties, debts and liabilities of the
Company and Sub will be the obligations, duties, debts and liabilities of the
Surviving Corporation. The Certificate of Incorporation of the Company will be
amended such that the Certificate of Incorporation of Sub in effect
immediately prior to the Effective Time will be the
30
<PAGE>
Certificate of Incorporation of the Surviving Corporation and the By-Laws of
Sub in effect immediately prior to the Effective Time will be the By-Laws of
the Surviving Corporation. Immediately after the Effective Time, the directors
and officers of Sub will be the directors of the Surviving Corporation.
Upon completion of the Merger, Parent intends to conduct a detailed review
of the Company and its assets, corporate structure, operations, properties,
policies, management and personnel and consider what, if any, changes would be
desirable in light of the circumstances which then exist. Such changes could
include changes in the Company's business, operations, policies, property
portfolio, corporate structure, management and personnel. Subsequent to the
Merger, Parent intends for the Company or its stockholder to take certain
actions, including the transfer of certain of their assets to related
entities, and the election of the Company or its stockholder to be treated as
a real estate investment trust for federal income tax purposes.
Parent presently intends to enter into management arrangements with Westmont
pursuant to which Westmont would manage the day-to-day operations of the
Company's facilities. In addition, it is contemplated that Westmont would
acquire a minority equity interest in the Company concurrently with or
following consummation of the Merger for the same cost per share paid by
Parent in the Merger.
Further, Parent is presently in discussions to sell up to an aggregate of
10% of its equity investment in the Company to Bridge Street Real Estate Fund
1998, L.P. ("Bridge Street") and Stone Street Real Estate Fund 1998, L.P.
("Stone Street") for the same cost per Share paid by Parent in the Merger, at
or following the consummation of the Merger. Bridge Street and Stone Street
are funds affiliated with Parent established to make investments for the
benefit of certain employees, country advisors, limited partners and managing
directors and their spouses of Goldman, Sachs & Co. and other operating
companies of GS Group.
In the future, Parent may seek to refinance any outstanding indebtedness of
the Company, enter into new financing arrangements and incur new debt, sell
equity in the Company, purchase new assets or sell some or all of the
Company's existing assets. Additionally, Parent is exploring the feasibility
of selling or contributing the Company's Canadian assets to an entity that
would be controlled by Parent and/or Westmont.
As a result of the Merger, the Shares will no longer be publicly traded and
Parent will become the sole stockholder of the Surviving Corporation.
Following the Merger, persons who were stockholders of the Company immediately
prior to the Merger will no longer have an opportunity to continue their
interests in the Company as an ongoing corporation and therefore will not
share in its future earnings and potential growth. Trading in the Shares on
NASDAQ will cease immediately following the Effective Time. At the Effective
Time, the Shares will be delisted from NASDAQ. Registration of the Shares
under the Exchange Act also will be terminated, as will the ongoing disclosure
requirements thereunder.
Stockholders who properly perfect their statutory appraisal rights under and
in accordance with Section 262 of the DGCL will have the right to seek
appraisal of their Shares. See "STOCKHOLDERS' RIGHTS OF APPRAISAL."
INTERESTS OF CERTAIN PERSONS IN THE MERGER; POTENTIAL CONFLICTS OF INTEREST
Certain members of the Company's management and the Board may be deemed to
have certain interests in the Merger that are in addition to their interests
as stockholders of the Company generally. The Board was aware of and discussed
these interests in connection with its consideration and approval of the
Merger Agreement. In considering the recommendation of the Board in respect of
the Merger Agreement and the transactions contemplated thereby, the
stockholders of the Company should be aware of these interests which may
present actual or potential conflicts of interest with respect to the Merger.
Stock Options. Pursuant to the Merger Agreement, the Company will (a)
terminate the Company's 1994 Stock Option Plan (the "Stock Option Plan")
immediately prior to the Effective Time without prejudice to the rights of the
holders of options (the "Options") awarded pursuant thereto and (b) except for
automatic grants of Options to directors under the Stock Option Plan, grant no
additional Options under the Stock Option Plan. The
31
<PAGE>
Company has obtained the consent of each holder of an Option (whether or not
then vested or exercisable) under the Stock Option Plan at the Effective Time
to the cancellation of such holder's Options (without regard to the exercise
price of such Option), to take effect immediately prior to the Effective Time.
Each such consent requires the Company to pay in respect of each Option an
amount equal to the excess, if any, of the Merger Consideration over the
exercise price of such Option, multiplied by the number of Shares subject to
such Option, without any interest thereon (the "Option Consideration").
Notwithstanding the foregoing, payment may be withheld in respect of any
Option until the consent of the holder thereof to its cancellation as
contemplated hereby is obtained. The surrender of an Option to the Company
will be deemed a release of any and all rights the holder had or may have had
in such Option, other than the right to receive the Option Consideration in
respect thereof.
The following presents the aggregate amounts of all benefits to be received
by insiders, including stay bonuses, contractual severance, moving
reimbursement, consulting arrangements and option profits exercisable as a
direct result of the Merger.
<TABLE>
<CAPTION>
STAY CONSULTING OPTION
BONUSES ARRANGEMENT PROFITS(A) TOTAL
-------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Martin Edelman................... $300,000(b) $250,000(c) $1,693,125 $2,243,125
Michael Kennedy.................. 118,125 118,125
Richard L. Fisher................ 2,485,625 2,485,625
Marc E. Leland................... 174,375 174,375
Douglas H. Verner(d)............. 430,625 430,625
Kenneth J. Weber(e).............. 475,000 475,000
Samuel Rosenberg................. 50,000 362,500 412,500
Rachel Robinson.................. 29,925 29,925
Guido Goldman.................... 29,925 29,925
Stephen Holmes................... 205,275 205,275
Henry Silverman.................. 4,136,981 4,136,981
Len Howell(d).................... 546,875 546,875
Adrian Werner(d)................. 265,000 265,000
Terrance Royer(f)................ 68,750 68,750
</TABLE>
- --------
(a) Includes currently vested and non-vested options (all options vest at the
Effective Time).
(b) Up to $300,000--to be decided by the Board.
(c) Approximate--final terms have not been agreed.
(d) In addition, the Company has notified Douglas H. Verner, Executive Vice
President, General Counsel and Secretary of the Company, Leonard Howell,
Jr., Vice President of Development, and Adrian Werner, Vice President of
Construction, that it will not renew the terms of their respective
employment agreements with the Company which terminate at the end of
February 1998. Accordingly, pursuant to such employment agreements, the
Company is obligated to pay to Messrs. Verner, Howell and Werner,
severance payments of $48,750, $37,500 and $37,500, respectively. The
Company is also obligated to reimburse Mr. Howell for moving expenses in
the amount of $10,000.
(e) In addition, Mr. Weber has an employment contract with the Company through
March 1999.
(f) Does not include any consideration to be received by Royco, of which Mr.
Royer is an executive officer and beneficial owner, if management
contracts covering Canadian properties owned by the Company are
terminated.
32
<PAGE>
As of the Record Date, executive officers and directors of the Company held
outstanding Options as follows:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER WEIGHTED AVERAGE VESTED NON-VESTED
OF OPTION NON- AVERAGE NON- OPTION OPTION TOTAL
NAME AND TITLE SHARES PRICE VESTED VESTED VESTED VESTED CONSIDERATION CONSIDERATION PROFIT
- -------------- --------- ------- ------- --------- --------- --------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Martin L. Edelman....... 15,000 $ 16.75 15,000 -- $ 7,500 $ 7,500
Martin L. Edelman....... 15,000 $ 9.875 10,000 5,000 73,750 $ 36,875 110,625
Martin L. Edelman....... 300,000 $ 13.25 100,000 200,000 400,000 800,000 118,125
Martin L. Edelman....... 150,000 $ 14.75 -- 150,000 -- 375,000 375,000
--------- ------- --------- ---------- ---------- -----------
480,000 125,000 355,000 13.40 13.84 $ 481,250 $1,211,875 $1,693,125
Michael J. Kennedy...... 15,000 $ 16.75 15,000 -- $ 7,500 -- $ 7,500
Michael J. Kennedy...... 15,000 $ 9.875 10,000 5,000 73,750 $ 36,875 $ 110,625
--------- ------- --------- ---------- ---------- -----------
30,000 25,000 5,000 14.00 9.88 $ 81,250 $ 36,875 $ 118,125
Richard L. Fisher....... 15,000 $ 9.875 10,000 5,000 $ 73,750 $ 36,875 $ 110,625
Richard L. Fisher....... 500,000 $ 13.25 166,667 333,333 666,668 1,333,332 $ 2,000,000
Richard L. Fisher....... 150,000 $ 14.75 -- 150,000 -- 375,000 $ 375,000
--------- ------- --------- ---------- ---------- -----------
665,000 176,667 488,333 13.06 13.68 $ 740,418 $1,745,207 $ 2,485,625
Marc E. Leland.......... 15,000 $ 9.875 10,000 5,000 $ 73,750 $ 36,875 $ 110,625
Marc E. Leland.......... 15,000 $ 13.00 5,000 10,000 21,250 42,500 $ 63,750
--------- ------- --------- ---------- ---------- -----------
30,000 15,000 15,000 10.92 11.96 $ 95,000 $ 79,375 $ 174,375
Douglas H. Verner....... 65,000 $10.625 21,667 43,333 10.63 10.63 $ 143,544 $ 287,081 $ 430,625
Kenneth J. Weber........ 100,000 $ 13.25 33,333 66,667 $ 133,332 $ 266,668 $ 400,000
Kenneth J. Weber........ 30,000 $ 14.75 -- 30,000 -- 75,000 $ 75,000
--------- ------- --------- ---------- ---------- -----------
130,000 33,333 96,667 13.25 13.72 $ 133,332 $ 341,668 $ 475,000
Samuel Rosenberg........ 75,000 $ 13.25 25,000 50,000 $ 100,000 $ 200,000 $ 300,000
Samuel Rosenberg........ 25,000 $ 14.75 -- 25,000 -- 62,500 $ 62,500
--------- ------- --------- ---------- ---------- -----------
100,000 25,000 75,000 13.25 13.75 $ 100,000 $ 262,500 $ 362,500
Rachel Robinson......... 15,000 $16.875 5,000 10,000 $ 1,875 $ 3,750 $ 5,625
Rachel Robinson......... 15,000 $ 15.63 -- 15,000 -- 24,300 $ 24,300
--------- ------- --------- ---------- ---------- -----------
30,000 5,000 25,000 16.88 16.13 $ 1,875 $ 28,050 $ 29,925
Guido Goldman........... 15,000 $16.875 5,000 10,000 $ 1,875 $ 3,750 $ 5,625
Guido Goldman........... 15,000 $ 15.63 -- 15,000 -- 24,300 $ 24,300
--------- ------- --------- ---------- ---------- -----------
30,000 5,000 25,000 16.88 16.13 $ 1,875 $ 28,050 $ 29,925
Terrance Royer.......... 25,000 $ 14.50 25,000 -- 14.50 0.00 $ 68,750 -- $ 68,750
Stephen Holmes.......... 11,900 $ 0.00 10,650 -- 0.00 0.00 $ 205,275 -- $ 205,275
Henry Silverman......... 239,825 $ 0.00 239,825 -- 0.00 0.00 $4,136,981 -- $ 4,136,981
--------- ------- --------- ---------- ---------- -----------
Total Options........... 1,836,725 708,392 1,128,333 $6,189,550 4,020,681 $10,210,231
========= ======= ========= ========== ========== ===========
</TABLE>
Sale of Mexican Joint Venture Interest. In July 1996, Chartwell Mexico
Corp., a Delaware corporation and a subsidiary of the Company, entered into a
joint venture, Grupo Chartwell de Mexico, S.A. de C.V. (the "Mexican Joint
Venture"), with a subsidiary of Grupo Piasa, S.A. de C.V., a diversified
Mexican real estate and development company ("Grupo Piasa"), for the purpose
of developing and operating, or franchising others to operate, lodging
facilities in Mexico under the Travelodge and Thriftlodge brand names. The
Mexican Joint Venture has one hotel nearing completion with 129 rooms,
representing approximately 1% of the Company's total number of rooms and
hotels. In addition, it has started construction on a second hotel with 123
rooms which is expected to result in the addition of approximately 1% to the
Company's total number of rooms and hotels. The Mexican Joint Venture is a
party to a master license agreement (the "Master License Agreement"), dated as
of September 18, 1996, with Travelodge Hotels, Inc. ("Travelodge"), a
subsidiary of Cendant, pursuant to which Travelodge granted the Mexican Joint
Venture an exclusive 30-year license to franchise the Travelodge system
throughout Mexico. In addition, the Mexican Joint Venture has entered into a
memorandum of understanding with Hilton Hotels to develop certain Hilton Hotel
products in Mexico. The Mexican Joint Venture has not accounted for any of the
Company's revenue and accounts for approximately 2% of the Company's assets as
measured by book value.
33
<PAGE>
As described in "SPECIAL FACTORS--Background of the Merger" the Board
offered to potential third-party bidders the opportunity to submit bids for
the Company both including and excluding the Mexican Joint Venture. The
Company did not receive any final and definitive proposals for the Company
that included the Mexican Joint Venture.
Grupo Piasa has the right to purchase the Company's interest in the Mexican
Joint Venture at its fair market value in the event of a "change of control"
in the Company. The Merger and the transactions contemplated by the Merger
Agreement constitute a "change of control" for purposes of Grupo Piasa's right
to purchase the Company's interest in the Mexican Joint Venture. Grupo Piasa
has informed the Company that, as a result of the Merger, Grupo Piasa will
exercise its right to acquire the Company's interest in the Mexican Joint
Venture unless the Fisher, Getty and/or de Gunzberg families (or at least the
Fisher family) and Martin L. Edelman acquire the Company's interest in the
Mexican Joint Venture.
No third-party bidder submitted a proposal which included the purchase of
the Mexican Joint Venture. An entity, Rio Grande Partners (the "Mexican JV
Buyer"), to be formed by the principals of Chartwell Leisure Associates L.P.
II, a Delaware limited partnership ("CL Associates"), and FSNL LLC, a
Connecticut limited liability company ("FSNL"), beneficial owners of 44.74% of
the issued and outstanding Shares, will agree to purchase the Company's
interest in the Mexican Joint Venture for a cash purchase price equal to 110%
of all amounts expended and accrued by the Company as of the Effective Time
(an amount to be not less than $3,750,000) in connection with or related to
the Mexican Joint Venture and to indemnify the Company for all liabilities and
expenses related to the Mexican Joint Venture. The Mexican JV Buyer will fund
the purchase of the Company's interest in the Mexican Joint Venture with
capital contributions from the personal funds and working capital of its
equity owners. As of the date of the mailing of this Proxy Statement, the
purchase price for the Company's interest in the Mexican Joint Venture would
be $6,403,000, or approximately $0.475 per Share. The Company expects that
this amount will increase as a result of additional expenditures and accruals
by the Company in connection with the Mexican Joint Venture prior to the
Effective Time, although the Company cannot predict the amount of that
increase. CL Associates is a limited partnership consisting of members of the
Fisher Brothers' family and a trust for the benefit of Gordon Getty and
members of his family. Richard L. Fisher, Chairman and Chief Executive Officer
of the Company, Martin L. Edelman, President and director of the Company, Marc
E. Leland, a director of the Company, and Arnold Fisher, a director of the
Company, are beneficial owners of CL Associates. FSNL is a limited liability
company owned principally by a trust for the benefit of Charles de Gunzburg.
Guido Goldman, a director of the Company, is a Manager and beneficial owner of
FSNL and a beneficiary of a trust that is a member of FSNL.
Pursuant to the Merger Agreement, Parent, Sub and the Company have agreed
that, as a condition of the obligations of Parent and Sub to effect the
Merger, the Company will sell its interest in the Mexican Joint Venture, and
such sale will be for a purchase price of not less than all amounts expended
or accrued by the Company and its subsidiaries in connection with or related
to the Mexican Joint Venture, which amount will in no event be less than
$3,750,000 (the approximate amount expended and accrued by the Company as of
the date of the Merger Agreement), and the Company will have no further
obligations or liabilities with respect to its investment in the Mexican Joint
Venture.
Pursuant to the Amended and Restated Stock Purchase Agreement, dated as of
March 14, 1996 (the "Stock Purchase Agreement"), by and among the Company,
National Lodging Corp., CL Associates and FSNL, CL Associates and FSNL have
agreed that, for so long as CL Associates, FSNL and their affiliates continue
to own, in the aggregate, at least 20% of the outstanding Shares, CL
Associates and FSNL will not, and will not permit any of their affiliates 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 Board comprised of one or more non-employee
directors (the "Independent 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
34
<PAGE>
situation would agree to in an arms' length transaction; and (ii) if the
Affiliate Transaction has a total value in excess of $10,000, the Independent
Committee has received a favorable fairness opinion from an appropriate
independent party relating to the transaction.
Pursuant to the Stock Purchase Agreement, the Board has established the
Special Committee, consisting of Rachel Robinson and Michael J. Kennedy, non-
employee directors of the Company, who are not affiliated with CL Associates
or FSNL, in order to negotiate and oversee the proposed sale by the Company of
the Company's interest in the Mexican Joint Venture to the Mexican JV Buyer.
The Special Committee retained the law firm of Solovay Marshall & Edlin, P.C.
("Special Counsel") to assist in the sale of the Mexican Joint Venture.
Special Counsel had previously represented special committees of the Board on
various transactions. Pursuant to the terms of the Stock Purchase Agreement,
the Special Committee retained Chase and Lehman Brothers to advise, and render
fairness opinions to, the Special Committee with respect to the sale of the
Mexican Joint Venture. Rather than retain a separate independent financial
adviser, the Special Committee retained Chase and Lehman Brothers because of
the relatively small anticipated purchase price of the sale of the Mexican
Joint Venture and their familiarity with the Company. On January 21, 1998, the
Special Committee (i) determined that the sale of the Mexican Joint Venture to
the Mexican JV Buyer 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 arms' length transaction, and (ii) received fairness opinions from Lehman
Brothers and Chase relating to the sale of the Mexican Joint Venture to the
effect that such transaction is fair to the Company from a financial point of
view. Stockholders are not being asked to vote upon the sale of the Company's
interest in the Mexican Joint Venture. Stockholder approval of the Merger
Agreement will not constitute an explicit or implicit approval of that
transaction should there occur a subsequent challenge to the fairness of that
transaction to the Company despite approval of the transaction by the Special
Committee and receipt of the Lehman Brothers and Chase opinions. See "SPECIAL
FACTORS--Background of the Merger"; "THE MERGER AGREEMENT--Conditions to
Consummation of the Merger--Parent and Sub."
Relationships with Cendant. Prior to November 22, 1994, the Company was a
wholly-owned subsidiary of HFS, the predecessor to Cendant. On November 22,
1994, HFS distributed all of the Company's outstanding Shares to HFS'
stockholders (the "Distribution"). Messrs. Edelman, Holmes and Silverman are
directors of Cendant. Additionally, Mr. Edelman is a member of the Executive
Committee of Cendant, Mr. Silverman is Chairman of the Board and Chief
Executive Officer of Cendant, and Mr. Holmes is Vice Chairman of Cendant. Due
to such commonality of management, certain conflicts of interest may exist
with respect to various matters related to the consummation of the Merger. As
a result of the Merger, Cendant will receive, in the aggregate, a total of
$9,771,000 in repayment of a development advance and a promissory note, as
described below. In addition, certain of the directors, officers and employees
of Cendant hold options to purchase Shares, including Options granted under
the Stock Option Plan, and will receive a total of $5,812,733 from the
cancellation of those options in the Merger. Cendant may receive compensation
in consideration for the consent of Travelodge, a subsidiary of Cendant
(subject to Parent's approval) under the Master License Agreement (the "Master
License Agreement") for the Territory of the Dominion of Canada by and between
Travelodge and Chartwell Canada Hospitality Corp., a Delaware corporation and
an indirect subsidiary of the Company ("Chartwell Canada"), dated as of
September 30, 1996, as described below.
Required Consent of Cendant as Condition to the Merger. The Merger
Agreement provides that the obligations of Parent and Sub to effect the
Merger are subject to the satisfaction or waiver on or prior to the Closing
Date of certain conditions. One of these conditions is that Parent and Sub
will have obtained the consent or waiver of Travelodge under the Master
License Agreement evidencing Travelodge's consent to the consummation of
the Merger or waiving any of Travelodge's rights, if any, under such
agreement relating to the consummation of the Merger, in form and substance
reasonably acceptable to Parent. See "THE MERGER AGREEMENT--Conditions to
Consummation of the Merger--Parent and Sub."
Cendant Development Advance Agreement. The Company is a party to a
Development Advance Agreement, dated as of October 1996 (the "Development
Advance Agreement"), by and between the Company and HFS, pursuant to which
HFS made a $2.8 million development advance (the
35
<PAGE>
"Development Advance") to the Company in December 1996. Pursuant to the
Development Advance Agreement, the Development Advance must be repaid by
the Company, without interest, on December 31, 2000, but the amount to be
repaid will be reduced to the extent that hotels acquired or constructed by
the Company become Cendant franchised hotels under franchise agreements of
ten years or longer using any Cendant brand other than Wingate Inn. The
Development Advance will be reduced on a dollar-for-dollar basis through
December 31, 2000 for each dollar in initial and recurring royalty fees
payable to Cendant under those new franchise agreements. As of the date of
the mailing of this Proxy Statement, the amount of the Development Advance
has been reduced to an amount equal to $2,771,000. The Development Advance
Agreement is not, by its terms, terminable as a result of the Merger.
Cendant has, however, at the request of the Company, consented to terminate
the Development Advance Agreement in consideration of the payment of all
amounts due to Cendant at the Effective Time.
Cendant Distribution Agreement. On November 22, 1994, HFS, pursuant to
the Distribution, distributed all of the Company's outstanding Shares to
Cendant's stockholders. At the time of the Distribution, the Company and
HFS agreed to reserve for future issuance and to issue Shares to certain
persons (including certain current and former directors and executive
officers of the Company) in connection with the exercise of then-
outstanding options (the "Stapled Options") to purchase shares of HFS
common stock that were granted pursuant to Cendant'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 and without
the payment of any additional consideration, to receive one Share for every
ten shares of HFS common stock purchased upon such exercise, subject to
further adjustment in certain circumstances). For a description of the
outstanding Stapled Options held by executive officers and directors of the
Company as of the Record Date, see "SPECIAL FACTORS--Interests of Certain
Persons in the Merger; Potential Conflicts of Interest--Stock Options."
Immediately prior to the Effective Time, the Company will pay to holders of
Stapled Options an amount equal to the Merger Consideration multiplied by
the number of Shares subject to such Stapled Option, without any interest
thereon.
Unsecured Note. Cendant has loaned the Company $7,000,000 pursuant to an
Unsecured Note, dated as of November 20, 1996 (the "Note"). The Company has
promised to repay to Cendant the principal sum of $7,000,000 with interest
thereon commencing January 1, 1997. Interest on the principal balance is
due and payable semi-annually at 6%. Consecutive yearly installments of
$1,000,000 each are due and payable on January 1, 1999 and on the first day
of each January thereafter until the maturity date of the Note, on January
1, 2005. The Merger Agreement provides that prior to the Effective Time,
the Company will repay in full the outstanding amount of the Note. The
Merger Agreement provides that the obligation of the Parent and Sub to
effect the Merger is subject to pre-payment of amounts outstanding under
the Note prior to the Effective Time.
Financing Agreement. Pursuant to a financing agreement (the "Financing
Agreement") entered into between the Company and Cendant, Cendant agreed to
extend up to $75 million in guarantees, security and other credit
enhancements ("Future Guarantees") to secure the Company's credit
facilities ("Future Facilities") until February 28, 2003. The terms and
conditions of each Future Facility and each Future Guaranty are required to
be reasonably satisfactory to Cendant. Pursuant to the Financing Agreement,
Cendant has guaranteed $75 million of the Company's $80 million Credit
Facility. The Financing Agreement requires the Company to pay Cendant an
annual fee equal to $1.5 million. The Company is a party to a 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 certain other banks from time to
time parties thereof (the "Credit Facility"). The Merger Agreement provides
that the obligation of the Parent and Sub to effect the Merger is subject
to the termination of the Financing Agreement without the payment of any
amounts by the Company or any of its subsidiaries.
Relationships with Terrance E. Royer. Terrance E. Royer, Chief Operating
Officer of the Company, is an executive officer and beneficial owner of Royco
Hotels & Resorts Ltd., a corporation incorporated under the laws of Canada
("Royco"). Royco, the Company, Chartwell Canada, and Chartwell Lodging Inc., a
California
36
<PAGE>
corporation and a wholly-owned subsidiary of the Company, are parties to an
Amended and Restated Management Services and Franchise Development Agreement,
as amended (the "MSFDA"), pursuant to which, among other things, Royco agreed,
on behalf of the parties to the MSFDA, to (i) develop new hotel and resort
management business for the parties to the MSFDA with respect to certain
Canadian hotels and resorts; (ii) develop, promote and service the Travelodge
and Thriftlodge franchise business for the Company in Canada under the Master
License Agreement; and (iii) manage the Company's Canadian hotels and provide
ongoing management assistance for the Company's U.S. hotels. Additionally, Mr.
Royer, through an affiliate of Mr. Royer, submitted a written proposal to
acquire the Canadian full-service and limited service hotels and U.S. limited
service hotels for a purchase price of $145 million, subject to a $5 million
holdback to secure the Company's representations, warranties, covenants and
indemnities in the asset purchase agreement. Another affiliate of Mr. Royer
subsequently submitted an oral bid on the day the Board approved the Merger
Agreement to acquire the Company, but that bid did not state a proposed
acquisition price. See "SPECIAL FACTORS--Background of the Merger" and "--
Interests of Certain Persons in the Merger; Potential Conflicts of Interest."
On July 1, 1997, Royco entered into an agreement with the Company, pursuant
to which the Company agreed to pay Royco, among other things, the sum of
$150,000 upon the completion of the sale of the Shares or the sale of the
Company's hotels managed by Royco.
Vote of CL Associates and FSNL. CL Associates and FSNL beneficially own
44.74%, of the issued and outstanding Shares. See "SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT."
Pursuant to the Stock Purchase Agreement, CL Associates and FSNL have agreed
that, if at any time prior to August 8, 1999, 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 Event"), and the Company submits the Triggering Event to a vote of
its stockholders, then each of CL Associates and FSNL will vote all of its
respective Shares entitled to vote on that matter in favor of and against the
Triggering Event in the same proportion as the numbers of Shares held by
stockholders of the Company other than CL Associates, FSNL and their
affiliates ("Nonaffiliated Shares") voted in favor of and against the
Triggering Event.
Therefore, with respect to the Merger, CL Associates and FSNL will vote
their respective Shares in the same proportion as the number of Shares held by
stockholders of the Company other than CL Associates, FSNL and their
affiliates ("Nonaffiliated Shares") voted in favor of and against the Merger.
The number of Nonaffiliated Shares voted in favor of the Merger plus the same
number of Shares held by CL Associates and FSNL that are required to be voted
in favor of the Merger must equal a majority of the Shares entitled to vote on
the Merger in order for the Merger Agreement to be approved and adopted.
Consulting and Employment Agreements. Parent and Sub intend to enter into a
one year consulting agreement with Mr. Edelman following the consummation of
the Merger pursuant to which Mr. Edelman will provide certain consulting
services to Parent and Sub and will receive a consulting fee of up to
$250,000. The final terms and conditions of such consulting agreement have not
yet been negotiated. The Company is a party to an employment agreement with
Kenneth J. Weber, Chief Financial Officer of the Company, pursuant to which
Mr. Weber receives an annual base salary of $250,000, an annual bonus of
$50,000 and an automobile allowance of $1,000 per month, expiring in March
1999. That agreement is not terminable as a result of the Merger. No other
directors or executive officers of the Company will serve as consultants to or
be employed by Parent or its subsidiaries after the Effective Time.
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, including the Merger Agreement and the Merger, and has represented
the Company and certain affiliates of the Company in the past with respect to
various legal matters.
37
<PAGE>
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Pursuant to the Merger Agreement, Parent, Sub and the Company have agreed
that the certificate of incorporation and by-laws of the Surviving Corporation
contain the provisions with respect to indemnification set forth in the
certificate of incorporation and by-laws of the Company on the date of the
Merger Agreement, which provisions will not be amended, repealed or otherwise
modified for a period of six years after the Effective Time in any manner that
would adversely affect the rights thereunder of individuals who at any time
prior to the Effective Time were directors or officers of the Company in
respect of actions or omissions occurring at or prior to the Effective Time
(including, without limitation, the transactions contemplated by the Merger
Agreement), unless such modification is required by law.
The Company will, and from and after the Effective Time, Parent and the
Surviving Corporation will, indemnify, defend and hold harmless each person
who is, or has been at any time prior to the date of the Merger Agreement or
who becomes prior to the Effective Time, an officer or director of the Company
(the "Indemnified Parties") against all losses, claims, damages, costs,
expenses (including reasonable attorneys' fees and expenses), liabilities or
judgments or amounts that are paid in settlement with the approval of the
indemnifying party of or in connection with any threatened or actual claim,
action, suit, proceeding or investigation based on or arising out of the fact
that such person is or was a director or officer of the Company whether
pertaining to any matter existing or occurring at or prior to the Effective
Time and whether asserted or claimed prior to, or at or after, the Effective
Time ("Indemnified Liabilities"), including all Indemnified Liabilities based
on, or arising out of, or pertaining to the Merger Agreement or the
transactions contemplated thereby, in each case, to the full extent a
corporation is permitted under the DGCL to indemnify its own directors or
officers (and Parent and the Surviving Corporation, as the case may be, will
pay expenses in advance of the final disposition of any such action or
proceeding to each Indemnified Party to the full extent permitted by law,
subject to the receipt of an undertaking contemplated by Section 145(e) of the
DGCL to refund such advances if it is determined that the Indemnified Party
was not entitled thereto).
For a period of three years after the Effective Time, Parent will cause the
Surviving Corporation to maintain in effect the current policies of directors'
and officers' liability insurance maintained by the Company (provided that
Parent may substitute therefor policies of at least the same coverage and
amounts containing terms and conditions that are no less advantageous in any
material respect to the Indemnified Parties) with respect to matters arising
before the Effective Time; provided, that Parent will only be obligated to
maintain such insurance in such scope and amount as is available at annual
premiums during such period not in excess of 150% of the per annum rate of the
aggregate annual premium currently paid by the Company for such insurance on
the date of the Merger Agreement.
The obligations of the Company, Parent and the Surviving Corporation are
intended to be for the benefit of, and will be enforceable by, each
Indemnified Party, his or her heirs and his or her personal representatives
and will be binding on all successors and assigns of Parent, Sub, the Company
and the Surviving Corporation. See "THE MERGER AGREEMENT--Directors' and
Officers' Insurance and Indemnification."
ACCOUNTING TREATMENT OF THE MERGER
The Merger will be accounted for under the "purchase" method of accounting
in accordance with generally accepted accounting principles. Therefore, the
aggregate consideration paid by Sub in connection with the Merger will be
allocated to the Company's assets and liabilities based on their fair market
values, with any excess being treated as goodwill. The assets and liabilities
and results of operations of the Company will be consolidated into the assets
and liabilities and results of operations of Parent subsequent to the
Effective Time.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES TO STOCKHOLDERS
In general, under the Code, the receipt of cash by a stockholder pursuant to
the Merger or pursuant to the exercise of stockholders' rights of appraisal
will be a taxable event for such stockholder for federal income tax purposes
and may also be a taxable event under applicable local, state and foreign tax
laws. Generally, a
38
<PAGE>
stockholder will recognize gain or loss for federal income tax purposes equal
to the difference between (i) the amount of cash that he or she has received,
and (ii) the tax basis in the Shares surrendered in exchange therefor. Such
gain or loss will be capital gain or loss (if the Shares are held as a capital
asset). Such gain or loss must be calculated separately for each block of
Shares (e.g., Shares acquired at the same price in a single transaction) held
by the stockholder. Stockholders will not be entitled to use the installment
method to report any gain with respect to the exchange of the Shares because
the Shares are publicly traded.
The discussion of federal income tax consequences described in the preceding
paragraph includes the material tax consequences to the stockholders of the
Company, but does not discuss all aspects of federal income taxation that may
be relevant to a stockholder and may not apply to (i) Shares acquired upon
exercise of incentive stock options, non-qualified stock options or otherwise
as compensation; (ii) certain tax-exempt stockholders; (iii) stockholders that
are subject to special tax provisions, such as banks and insurance companies;
(iv) certain nonresident aliens and foreign corporations; and (v) stockholders
who do not hold the Shares as a capital asset within the meaning of Section
1221 of the Code.
A stockholder may be subject to information reporting and to backup
withholding at a rate of 31% of all amounts paid to the stockholder, unless
such stockholder provides proof of an applicable exemption or a correct
taxpayer identification number, and otherwise complies with applicable
requirements under the Code. THE DISCUSSION OF FEDERAL INCOME TAX CONSEQUENCES
SET FORTH ABOVE IS BASED ON EXISTING LAW AS OF THE DATE OF THIS PROXY
STATEMENT. EACH STOCKHOLDER IS URGED TO CONSULT HIS OR HER TAX ADVISOR TO
DETERMINE THE PARTICULAR TAX CONSEQUENCES TO HIM OR HER OF THE MERGER
(INCLUDING THE APPLICABILITY AND EFFECT OF STATE, LOCAL, FOREIGN AND OTHER TAX
LAWS).
SOURCE AND AMOUNT OF FUNDS
Parent estimates that approximately $280 million will be required, prior to
the completion of the Merger, to (i) pay the aggregate Merger Consideration,
(ii) pay the holders of outstanding Options, the Option Consideration, (iii)
pay to holders of outstanding Stapled Options an amount equal to the Merger
Consideration multiplied by the number of Shares subject to such Stapled
Option, and (iv) pay the other expenses related to the Merger.
Parent will obtain the necessary funds for the Merger from (i) capital
contributions from its limited partners (which contributions such limited
partners are contractually required to make at Parent's request) and (ii) a
loan from the GS Group and/or loans from other lenders. If arrangements with
Westmont are effected prior to the Merger, Westmont could contribute a portion
of such funds.
STOCKHOLDERS' RIGHTS OF APPRAISAL
Pursuant to Section 262 of the DGCL, any holder of Shares who does not wish
to accept the consideration to be paid pursuant to the Merger Agreement may
dissent from the Merger and elect to have the fair value of such stockholder's
Shares (the "Dissenting Shares") (exclusive of any element of value arising
from the accomplishment or expectation of the Merger) judicially determined
and paid to such stockholder in cash, together with a fair rate of interest,
if any, provided that such stockholder complies with the provisions of Section
262. The following discussion is not a complete statement of the law
pertaining to appraisal rights under Delaware law, and is qualified in its
entirety by the full text of Section 262, which is provided in its entirety as
Annex D to this Proxy Statement. All references in Section 262 and in this
summary to a "stockholder" are to the record holder of the Shares as to which
appraisal rights are asserted.
Under Section 262, where a proposed merger is to be submitted for approval
at a meeting of stockholders, the corporation must notify each of its
stockholders that appraisal rights are available, and must include in such
notice a copy of Section 262. This Proxy Statement constitutes such notice to
stockholders of the Company. Any stockholder who wishes to exercise such
appraisal rights or who wishes to preserve the right to do so should
39
<PAGE>
review carefully Annex D to this Proxy Statement because failure to comply
with the procedures specified in Section 262 timely and properly will result
in the loss of appraisal rights. Moreover, because of the complexity of the
procedures for exercising the right to seek appraisal of the Shares, the
Company believes that stockholders who consider exercising such rights should
seek the advice of counsel.
Any holder of Shares wishing to exercise the right to dissent from the
Merger and demand appraisal under Section 262 of the DGCL must satisfy each of
the following conditions:
(i) Such stockholder must deliver to the Company a written demand for
appraisal of such stockholder's shares before the vote on the Merger
Agreement at the Special Meeting. This written demand for appraisal must be
in addition to and separate from any proxy or vote against the Merger
Agreement; merely voting against, abstaining from voting or failing to vote
in favor of approval and adoption of the Merger Agreement will not
constitute a demand for appraisal within the meaning of Section 262.
(ii) Such stockholder must not vote for approval and adoption of the
Merger Agreement. A failure to vote will satisfy this requirement, but a
vote in favor of the Merger Agreement, by proxy or in person, or the return
of a signed proxy that does not specify a vote against approval and
adoption of the Merger Agreement or a direction to abstain in connection
with the proposal, will constitute a waiver of such stockholder's right of
appraisal and will nullify any previously filed written demand for
appraisal because, in the absence of express contrary instructions, such
Shares will be voted in favor of the proposal. Accordingly, a stockholder
who desires to perfect appraisal rights with respect to any of such
stockholder's Shares must, as one of the procedural steps involved in such
perfection, either (i) refrain from executing and returning the enclosed
proxy card and from voting in person in favor of the proposal to approve
the Merger Agreement, or (ii) check either the "Against" or the "Abstain"
box next to the Proposal on such card or vote in person against the
proposal or register in person an abstention with respect thereto.
(iii) Such stockholder must continuously hold such shares from the date
of making the demand through the Effective Time. Accordingly, a stockholder
who is the record holder of Shares on the date the written demand for
appraisal is made but who thereafter transfers such shares prior to the
Effective Time will lose any right to appraisal in respect of such Shares.
A demand for appraisal should be executed by or on behalf of the stockholder
of record, fully and correctly, as such stockholder's name appears on such
stock certificates, should specify the stockholder's name and mailing address,
the number of Shares owned and that such stockholder intends thereby to demand
appraisal of such stockholder's Shares. If the Shares are owned of record in a
fiduciary capacity, such as by a trustee, guardian or custodian, execution of
the demand should be made in that capacity, and if the Shares are owned of
record by more than one person as in a joint tenancy or tenancy in common, the
demand should be executed by or on behalf of all owners. An authorized agent,
including one or more joint owners, may execute a demand for appraisal on
behalf of a stockholder; however, the agent must identify the record owner or
owners and expressly disclose the fact that, in executing the demand, the
agent is acting as agent for such owner or owners. A record holder such as a
broker who holds Shares as nominee for several beneficial owners may exercise
appraisal rights with respect to the Shares held for one or more other
beneficial owners while not exercising such rights with respect to the Shares
held for one or more beneficial owners; in such case, the written demand
should set forth the number of Shares as to which appraisal is sought, and
where no number of Shares is expressly mentioned the demand will be presumed
to cover all Shares held in the name of the record owner. Stockholders who
hold their Shares in brokerage accounts or other nominee forms and who wish to
exercise appraisal rights are urged to consult with their brokers to determine
the appropriate procedures for the making of a demand for appraisal by such a
nominee.
A stockholder who elects to exercise appraisal rights should mail or deliver
a written demand to: Chartwell Leisure Inc., 10 Rockefeller Plaza, Suite 1250,
New York, New York 10020, Attention: Secretary.
Within ten days after the Effective Time, the Surviving Corporation must
give written notice that the Merger has become effective to each stockholder
who has complied with Section 262. Any stockholder who has complied with
Section 262 and is entitled to appraisal rights may, within 20 days after the
date of mailing such
40
<PAGE>
notice, demand in writing from the Surviving Corporation the appraisal of such
stockholder's Shares. Within 120 days after the Effective Time, but not
thereafter, either the Surviving Corporation or any stockholder who has
complied with the requirements of Section 262 may file a petition in the
Delaware Court of Chancery demanding a determination of the value of the
Shares held by all dissenting stockholders. Neither the Company nor Sub
presently intends to file such a petition, and stockholders seeking to
exercise appraisal rights should not assume that the Surviving Corporation
will file such a petition or that the Surviving Corporation will initiate any
negotiations with respect to the fair value of such Shares. Accordingly,
stockholders who desire to have their Shares appraised should initiate any
petitions necessary for the perfection of their appraisal rights within the
time periods and in the manner prescribed in Section 262. Inasmuch as the
Surviving Corporation has no obligation to file such a petition, the failure
of a stockholder to do so within the period specified could nullify such
stockholder's previous written demand for appraisal. In any event, at any time
within 60 days after the Effective Time (or at any time thereafter with the
written consent of the Surviving Corporation), any stockholder who has
demanded appraisal has the right to withdraw the demand and to accept payment
of the consideration provided in the Merger Agreement.
Pursuant to the Merger Agreement, the Company has agreed to give Sub prompt
notice of any demands for appraisal of Shares received by the Company, and,
prior to the Effective Time, (i) Sub will have the right to participate in all
negotiations and proceedings with respect to such demands and (ii) the Company
will not, except with the prior written consent of Sub, make any payment with
respect to, or offer to settle, any such demands. See "THE MERGER AGREEMENT--
Dissenting Shares."
Within 120 days after the Effective Time, any stockholder who has complied
with the provisions of Section 262 to that point in time will be entitled to
receive from the Surviving Corporation, upon written request, a statement
setting forth the aggregate number of Shares not voted in favor of the Merger
Agreement and with respect to which demands for appraisal have been received
and the aggregate number of holders of such shares. The Surviving Corporation
must mail such statement to the stockholder within 10 days of receipt of such
request.
If a petition for an appraisal is timely filed, after a hearing on such
petition the Delaware Chancery Court will determine which stockholders are
entitled to appraisal rights and will appraise the "fair value" of their
Shares, exclusive of any element of value arising from the accomplishment or
expectation of the Merger, together with a fair rate of interest, if any, to
be paid upon the amount determined to be the fair value. The costs of the
action may be determined by the Delaware Chancery Court and taxed upon the
parties as the Delaware Chancery Court deems equitable. Upon application of a
dissenting stockholder, the Delaware Chancery Court may also order that all or
a portion of the expenses incurred by any stockholder in connection with the
appraisal proceeding, including, without limitation, reasonable attorneys'
fees and the fees and expenses of experts, be charged pro rata against the
value of all of the Shares entitled to appraisal. STOCKHOLDERS CONSIDERING
SEEKING APPRAISAL SHOULD BE AWARE THAT THE FAIR VALUE OF THEIR SHARES AS
DETERMINED UNDER SECTION 262 COULD BE MORE THAN, THE SAME AS OR LESS THAN THE
CONSIDERATION THEY WOULD RECEIVE PURSUANT TO THE MERGER AGREEMENT IF THEY DID
NOT SEEK APPRAISAL OF THEIR SHARES AND THAT INVESTMENT BANKING OPINIONS ARE
NOT OPINIONS AS TO FAIR VALUE UNDER SECTION 262.
In determining fair value, the Delaware Chancery Court is to take into
account all relevant factors. In Weinberger v. UOP, Inc., the Delaware Supreme
Court discussed the factors that could be considered in determining fair value
in an appraisal proceeding, stating that "proof of value by any techniques or
methods which are generally considered acceptable in the financial community
and otherwise admissible in court" should be considered, and that "fair price
obviously requires consideration of all relevant factors involving the value
of a company." The Delaware Supreme Court stated that, in making this
determination of fair value, the court must consider market value, asset
value, dividends, earnings prospects, the nature of the enterprise and any
other facts which could be ascertained as of the date of the merger that throw
any light on future prospects of the merged corporation. In Weinberger, the
Delaware Supreme Court stated that "elements of future value, including the
nature of the enterprise, which are known or susceptible of proof as of the
date of the merger and not the product of speculation, may be considered."
Section 262 provides that fair value is to be "exclusive of any element of
value arising from the accomplishment or expectation of the merger."
41
<PAGE>
Any stockholder who has duly demanded an appraisal in compliance with
Section 262 will not, after the Effective Time, be entitled to vote the Shares
subject to such demand for any purpose or be entitled to the payment of
dividends or other distributions on those shares (except dividends or other
distributions payable to holders of record of Shares as of a record date prior
to the Effective Time).
At any time within 60 days after the Effective Time, any stockholder who has
demanded appraisal rights will have the right to withdraw such demand for
appraisal and to accept the terms offered in the Merger; after this period,
the stockholder may withdraw such demand for appraisal only with the consent
of the Surviving Corporation. If no petition for appraisal is filed with the
Delaware Chancery Court within 120 days after the Effective Time, or if such
stockholder has withdrawn such demand for appraisal as discussed in the
preceding sentence, such stockholder's rights to appraisal will cease, and all
holders of Shares will be entitled to receive the Merger Consideration. Any
stockholder may withdraw such stockholder's demand for appraisal by delivering
to the Surviving Corporation a written withdrawal of such stockholder's demand
for appraisal and acceptance of the Merger, except that (i) any such attempt
to withdraw made more than 60 days after the Effective Time will require
written approval of the Surviving Corporation and (ii) no appraisal proceeding
in the Delaware Chancery Court will be dismissed as to any stockholder without
the approval of the Delaware Chancery Court, and such approval may be
conditioned upon such terms as the Delaware Chancery Court deems just.
FAILURE TO COMPLY STRICTLY WITH THE PROCEDURES SET FORTH IN SECTION 262 OF
THE DGCL WILL RESULT IN THE LOSS OF A STOCKHOLDER'S STATUTORY APPRAISAL
RIGHTS. CONSEQUENTLY, ANY STOCKHOLDER WISHING TO EXERCISE APPRAISAL RIGHTS IS
URGED TO CONSULT LEGAL COUNSEL BEFORE ATTEMPTING TO EXERCISE SUCH RIGHTS.
42
<PAGE>
THE MERGER AGREEMENT
The following is a summary of the material provisions of the Merger
Agreement not summarized elsewhere in this Proxy Statement. The following
summary does not purport to be complete and is qualified in its entirety by
reference to the Merger Agreement, which is attached as Annex A to this Proxy
Statement and is incorporated herein by reference. References to sections
herein refer to the corresponding sections in the Merger Agreement.
Capitalized terms not otherwise defined in this Proxy Statement or in the
following summary have the respective meanings set forth in the Merger
Agreement.
EFFECTIVE TIME
The Merger will become effective, and the Effective Time will occur, upon
the filing of a Certificate of Merger with the Secretary of State of the State
of Delaware as required by the DGCL or at such later time as specified in such
certificate. Such filing will be made contemporaneously with or as promptly as
practicable following the closing date under the Merger Agreement, which will
take place as soon as practicable following the last to be satisfied or waived
of all of the conditions set forth in the Merger Agreement (other than the
delivery of certain bring-down certificates), or such other time as agreed to
in writing by the Company, Parent and Sub (the "Closing Date"). There can be
no assurance as to if or when the Merger will be consummated. If the Merger
has not been consummated on or prior to May 15, 1998, the Merger Agreement may
be terminated by either the Company or Parent, unless there has been a
material breach of its obligations under the Merger Agreement. See "--
Conditions to Consummation of the Merger" and "--Termination." (SECTIONS 1.1,
1.2, 1.3 AND 8.1)
MERGER CONSIDERATION; CONVERSION OF SHARES
At the Effective Time, each Share (other than Dissenting Shares and Shares
issued and outstanding immediately prior to the Effective Time held by the
Company, Parent, Sub or any other subsidiary of Parent) will be converted into
the right to receive the Merger Consideration. See "--Procedure for Payment."
All such Shares, when so converted, will no longer be outstanding and will
automatically be canceled and retired and will cease to exist, and each holder
of Shares will cease to have any rights with respect thereto (including,
without limitation, the right to vote), except the right to receive the Merger
Consideration, without interest, upon surrender of certificates representing
such Shares. (SECTION 3.1)
STOCK OPTIONS
Immediately prior to the Effective Time, the Company will (i) terminate the
Company's 1994 Stock Option Plan (the "Stock Option Plan") without prejudice
to the rights of the holders of options (the "Options") awarded pursuant
thereto and (ii) except for automatic grants of Options to directors of the
Company under the Stock Option Plan, grant no additional Options under the
Stock Option Plan. The Company will obtain the consent of each holder of an
Option (whether or not then exercisable) under the Stock Option Plan at the
Effective Time to the cancellation of such holder's Options (without regard to
the exercise price of such Option), to take effect immediately prior to the
Effective Time. Each such consent will require the Company to pay in respect
of each Option, an amount equal to the excess, if any, of the Merger
Consideration over the exercise price of such Option, multiplied by the number
of Shares subject to such Option, without any interest thereon (the "Option
Consideration"). Notwithstanding the foregoing, payment may be withheld in
respect of any Option until the consent of the holder thereof to its
cancellation as contemplated thereby is obtained. The surrender of an Option
to the Company will be deemed a release of any and all rights the holder had
or may have had in such Option, other than the right to receive the Option
Consideration in respect thereof. (SECTION 2.2)
PROCEDURE FOR PAYMENT
Prior to the Effective Time, Parent will deposit or cause to be deposited
with or for the account of the Paying Agent for the benefit of the
stockholders cash in an aggregate amount sufficient to pay the Merger
Consideration
43
<PAGE>
(hereinafter referred to as the "Payment Fund"). For purposes of determining
the Payment Fund, Parent will assume that no stockholder will perfect his
right to appraisal of his Shares. Promptly after the Effective Time but in no
event later than five business days after the Effective Time, Parent will mail
or cause the Paying Agent to mail to each holder of record a certificate or
certificates, which immediately prior to the Effective Time evidenced
outstanding Shares (the "Certificates"), a form of letter of transmittal
(which will specify that delivery will be effected, and risk of loss and title
to the Certificates will pass, only upon proper delivery of the Certificates
to the Paying Agent and will be in such form and have such other provisions as
Parent may reasonably specify) and instructions for use in effecting the
surrender of the Certificates in exchange for payment therefor. Upon surrender
of a Certificate for cancellation to the Paying Agent, together with such
letter of transmittal, duly executed and such other customary documents as may
be required pursuant to such instructions, the holder of such Certificate will
be entitled to receive in exchange therefor cash in an amount equal to the
product of (x) the number of Shares theretofore represented by such
Certificate and (y) the Merger Consideration, and, in either case, the
Certificate so surrendered will forthwith be canceled. No interest will be
paid or accrued on the Merger Consideration payable upon the surrender of any
Certificate. If payment is to be made to a person other than the person in
whose name the surrendered Certificate is registered, it will be a condition
of payment that the Certificate so surrendered will be promptly endorsed or
otherwise in proper form for transfer and that the person requesting such
payment will pay any transfer or other taxes required by reason of the payment
to a person other than the registered holder of the surrendered Certificate or
established to the satisfaction of Parent and the Surviving Corporation that
such tax has been paid or is not applicable.
STOCKHOLDERS SHOULD NOT FORWARD CERTIFICATES TO THE PAYING AGENT UNTIL THEY
HAVE RECEIVED TRANSMITTAL FORMS. STOCKHOLDERS SHOULD NOT RETURN CERTIFICATES
WITH THE ENCLOSED PROXY.
The Merger Consideration paid upon the surrender of Certificates in
accordance with the terms of the Merger Agreement will be deemed to have been
issued and paid in full satisfaction of all rights pertaining to the Shares
theretofore represented by such Certificates. At and after the Effective Time,
there will be no registration of transfers of Shares which were outstanding
immediately prior to the Effective Time on the stock transfer books of the
Surviving Corporation. If, after the Effective Time, Certificates are
presented to the Surviving Corporation for any reason, such Certificates will
be canceled and exchanged for cash as provided in the Merger Agreement. At the
close of business on the day of the Effective Time, the stock ledger of the
Company will be closed.
The Paying Agent will invest the Payment Fund, as directed by Parent, in (i)
direct obligations of the United States of America, (ii) obligations for which
the full faith and credit of the United States of America is pledged to
provide for the payment of principal and interest, (iii) commercial paper
rated the highest quality by either Moody's Investors Services, Inc. or
Standard & Poor's Corporation, or (iv) certificates of deposit, bank
repurchase agreements or bankers' acceptances of commercial banks with capital
exceeding $500 million; and any net earnings with respect to the Payment Fund
will be the property of and paid over to Parent as and when requested by
Parent; provided, however, that any Taxes payable with respect to the Payment
Fund will be the sole obligation and liability of Parent; provided, further
that any such investment or any such payment of earnings will not delay the
timely receipt by holders of Certificates of the Merger Consideration or
otherwise impair such holders' respective rights hereunder.
Any portion of the Payment Fund which remains undistributed to the holders
of Certificates for 365 days after the Effective Time will be delivered to
Parent, upon demand, and any holders of Certificates that have not theretofore
complied with the terms of the Merger Agreement will thereafter (subject to
the terms of the Merger Agreement, abandoned property, escheat and other
similar laws) look only to Parent, and only as general creditors thereof, for
payment of their claim for any Merger Consideration.
None of Parent, Sub, the Surviving Corporation or the Paying Agent will be
liable to any person in respect of any payments or distributions payable from
the Payment Fund delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law. If any Certificates will not have
been surrendered prior to
44
<PAGE>
the time which any Merger Consideration in respect of such Certificate would
otherwise escheat to or become the property of any governmental entity, any
amounts payable in respect of such certificate will, to the extent permitted
by applicable law, become the property of the Surviving Corporation, free and
clear of all claims or interest of any person previously entitled thereto.
Parent will be entitled to deduct and withhold from the consideration
otherwise payable pursuant to the Merger Agreement to any holder of Shares,
Options or Certificates such amounts as Parent is required to deduct and
withhold with respect to the making of such payment under the Internal Revenue
Code of 1986, as amended (the "Code"), or any provision of applicable state,
local or foreign tax law. To the extent that amounts are so withheld by
Parent, such withheld amounts will be treated for all purposes of the Merger
Agreement as having been paid to such holders in respect of which such
deduction and withholding was made by Parent. (SECTION 3.1)
DISSENTING SHARES
The Merger Agreement provides that Shares issued and outstanding immediately
prior to the Effective Time and held by a stockholder (if any) who has not
voted in favor of the Merger or consented thereto in writing and who has the
right to and has properly delivered a demand for appraisal in accordance with
Section 262 of the DGCL (or any successor provision) will not be converted
into the right to receive the Merger Consideration unless such holder fails to
perfect or otherwise loses such holder's right to such appraisal, if any. See
"STOCKHOLDERS' RIGHTS OF APPRAISAL." The Merger Agreement further provides
that, if after the Effective Time, any such stockholder fails to perfect or
loses any such right to appraisal, such Dissenting Shares will be treated as
if they had been converted as of the Effective Time into the right to receive
the Merger Consideration in accordance with terms of the Merger Agreement.
Notwithstanding anything to the contrary contained herein, if the Merger is
rescinded or abandoned, then the right of any holder to be paid the fair value
of such holder's Dissenting Shares will cease. The Company has agreed in the
Merger Agreement to give Parent prompt notice of any demands for appraisal
received by the Company and any withdrawal of such demands, and Parent will
have the right to participate in and direct all negotiations and proceedings
with respect to such demands. The Company will not, except with the prior
written consent of Parent, make any payment with respect to, or offer to
settle or settle, any such demands. (SECTION 2.1)
CERTAIN REPRESENTATIONS AND WARRANTIES
The Company. Pursuant to the Merger Agreement, the Company has made
representations and warranties to Parent and Sub regarding, among other
things, (i) the Company's organization, standing and power, (ii) the Company's
capital structure, (iii) the Company's authority and noncontravention, (iv)
certain filings with the SEC, (v) the accuracy of information contained in
this Proxy Statement and certain other SEC filings relating to the
transactions contemplated by the Merger Agreement, (vi) the absence of certain
changes or events and the absence of undisclosed material liabilities, (vii)
collective bargaining, employment agreements and labor matters, (viii)
employee benefits matters, (ix) taxes, (x) the required vote of the Company's
stockholders in connection with approval of the Merger Agreement and the
transactions contemplated thereby, (xi) the Company's compliance with
applicable laws, (xii) opinions of Lehman Brothers and Chase, (xiii) brokers,
(xiv) litigation, (xv) material contracts, (xvi) unlawful payments and
contributions, (xvii) real property, (xviii) the absence of an anti-takeover
plan and the inapplicability of state takeover statutes to the Merger and the
Merger Agreement, (xix) insurance, (xx) affiliate transactions and (xxi) the
disclosure schedules of the Merger Agreement. (SECTION 4.1)
Parent and Sub. Pursuant to the Merger Agreement, Parent and Sub have made
representations and warranties to the Company regarding, among other things,
(i) Parent's and Sub's organization, standing and power, (ii) Parent's and
Sub's authority and noncontravention, (iii) the accuracy of information
supplied by Parent and Sub, contained in this Proxy Statement and certain
other SEC filings relating to the transactions contemplated by the Merger
Agreement, (iv) the ownership structure and purpose of Sub and (v) brokers.
(SECTION 4.2)
45
<PAGE>
CONDUCT OF BUSINESS PENDING THE CLOSING
The Merger Agreement provides that, except as previously disclosed by the
Company in the disclosure schedules to the Merger Agreement to Parent and Sub,
or as expressly contemplated by the Merger Agreement, during the period from
the date of the Merger Agreement to the Effective Time, the Company will, and
will cause its Subsidiaries to, act and carry on their respective businesses
(including businesses conducted through the Company's joint ventures) in the
ordinary course of business consistent with past practice and use their
reasonable best efforts to preserve intact their current business
organizations (and the Company's joint ventures), keep available the services
of their current key officers and employees and preserve the goodwill of those
engaged in material business relationships with them, and to that end, without
limiting the generality of the foregoing, except as expressly contemplated by
the Merger Agreement, the Company will not, and, except as previously
disclosed by the Company in the disclosure schedules to the Merger Agreement
to Parent and Sub (subject, only where expressly stated therein, to the
consent of Parent), will not permit any of its Subsidiaries to, without the
prior written consent of Parent:
(a) (i) except for a direct or indirect wholly-owned Subsidiary of the
Company, declare, set aside or pay any dividends on, or make any other
distributions (whether in cash, stock or property) in respect of, any
outstanding capital stock, (ii) split, combine or reclassify any of its
outstanding capital stock or issue or authorize the issuance of any other
securities in respect of, in lieu of or in substitution for shares of its
outstanding capital stock, or (iii) purchase, redeem or otherwise acquire
any shares of outstanding capital stock or any rights, warrants or options
to acquire any such shares;
(b) issue, sell, grant, pledge or otherwise encumber any shares of its
capital stock, any other voting securities or any securities convertible
into or exchangeable for, or any rights, warrants or options to acquire,
any such shares, voting securities or convertible or exchangeable
securities, other than upon the exercise of Options outstanding on the date
of the Merger Agreement and except for automatic grants of options to
directors of the Company under the Stock Option Plan;
(c) amend its certificate of incorporation, bylaws or other comparable
charter or organizational documents;
(d) directly or indirectly acquire, make any investment in, or make any
capital contributions to, any person (other than any wholly-owned
Subsidiary) or except in the ordinary course of business consistent with
past practice, acquire, lease or agree to manage any assets or properties;
(e) directly or indirectly sell, lease, mortgage or otherwise encumber or
subject to any lien or otherwise dispose of any of its properties or assets
(including stock or other ownership interests in any properties or
Subsidiaries), other than in the ordinary course of business consistent
with past practice, except for the sale of (i) the stock of Chartwell
Mexico Corp. or (ii) the Company's interest in Grupo Chartwell de Mexico,
S.A. de C.V.;
(f) purchase or sell any real property or other material asset or enter
into any agreement to purchase or sell the same;
(g) modify the terms of, terminate or fail in any material respect to
comply with the terms of any lease, franchise agreement or joint venture
agreement, or enter into any new lease, franchise agreement or joint
venture agreement;
(h) undertake any material construction or alteration with respect to any
Asset;
(i) (i) incur any indebtedness for borrowed money or guarantee any such
indebtedness of another person, other than indebtedness owing to or
guarantees of indebtedness owing to the Company or any Subsidiary of the
Company, (ii) issue or sell any debt securities or warrants or other rights
to acquire debt securities or (iii) make any loans or advances to any other
person, other than to the Company or to any direct or indirect wholly-owned
Subsidiary of the Company and other than routine advances to employees
consistent with past practice, and except, in the case of clause (i), for
borrowings under existing credit facilities in the ordinary course of
business;
46
<PAGE>
(j) make any tax election or settle or compromise any income tax
liability of the Company or of any of its Subsidiaries. The Company will,
before filing or causing to be filed any tax return of the Company or any
of its Subsidiaries, consult with and obtain the approval of Parent and its
advisors as to the positions and elections that may be taken or made with
respect to such return;
(k) pay, discharge, settle or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction, (i) in the
ordinary course of business consistent with past practice or in accordance
with their terms, of liabilities reflected or reserved against in, or
contemplated by, the most recent consolidated financial statements (or the
notes thereto) of the Company included in the required reports, schedules,
forms, statements and other documents filed by the Company with the
Commission since January 1, 1996 filed and publicly available prior to the
date of this Merger Agreement or incurred since the date of such financial
statements in the ordinary course of business consistent with past practice
or (ii) the repayment of outstanding indebtedness under the Company's
existing credit facilities;
(l) grant or agree to grant to any employee any increase in wages or
bonus, severance, profit sharing, retirement, deferred compensation,
insurance or other compensation or benefits, or establish any new
compensation or benefit plans or arrangements, or amend or agree to amend
any of the Company's existing employee benefit plans, except for stay,
severance and other bonus payments, and as may be required under existing
agreements (including collective bargaining agreements) or normal,
regularly scheduled increases in nonofficer employees consistent with past
practices or as required by law such that all severance, bonus or stay
payments, together with severance payments will not exceed $1,000,000 in
the aggregate;
(m) other than in the ordinary course of business consistent with past
practice or as otherwise expressly permitted by the Merger Agreement, enter
into or amend any employment, consulting, severance or similar agreement;
(n) waive any claims or rights other than in the ordinary course of doing
business so long as such claims or rights do not either (i) have a value in
excess of $500,000 in the aggregate or (ii) are with respect to affiliates
of the Company;
(o) make any change in any method of accounting or accounting practice or
policy except as required by any changes in GAAP;
(p) incur, enter into, amend, modify or terminate any material
commitment, contract or agreement (including with respect to any management
agreements, leases, capital expenditures or purchases of assets);
(q) adopt a plan of complete or partial liquidation, dissolution, merger,
consolidation, restructuring, recapitalization or other reorganization or
any agreement relating to an Acquisition Transaction Proposal (as
hereinafter defined) (other than as expressly permitted by the Merger
Agreement);
(r) engage in any transaction with, or enter into any agreement,
arrangement, or understanding with, or amend, modify or terminate any
agreement, arrangement or understanding with, directly or indirectly, any
of the Company's affiliates, officers or directors, including, without
limitation, any transactions, agreements, arrangements or understandings
with any affiliate, officer or director or other person covered under Item
404 of Regulation S-K under the Securities Act that would be required to be
disclosed under such Item 404, other than pursuant to such agreements,
arrangements, or understandings existing on the date of the Merger
Agreement and as previously disclosed by the Company in the disclosure
schedules to the Merger Agreement to Parent and Sub, other than the sale of
the Mexican Joint Venture;
(s) close, shut down, or otherwise eliminate any of the Company's hotel
properties; or
(t) authorize any of, or commit or agree to take any of, the foregoing
actions. (Section 5.1)
NO SOLICITATION OF PROPOSALS
Unless the Merger Agreement is terminated in accordance with the terms
thereof, the Merger Agreement prohibits the Company, its Subsidiaries, any of
their respective officers, directors, employees, representatives, agents or
affiliates (including, without limitation, any investment banker, attorney or
accountant retained by the
47
<PAGE>
Company or any of its Subsidiaries), from, directly or indirectly, initiating,
soliciting or encouraging (including by way of furnishing non-public
information), or entering into, or maintaining or continuing discussions or
negotiating with any person in furtherance of, an Acquisition Transaction (as
defined below); provided, however, that nothing in the Merger Agreement will
prohibit the Board from furnishing information to, or entering into
discussions or negotiations with, any person (other than an affiliate of the
Company) that makes an unsolicited written proposal for an Acquisition
Transaction Proposal after the date hereof, if the Board, after consultation
with and based upon the advice of outside legal counsel, determines in good
faith that the failure to engage in such negotiations or discussions, or
disclose such non-public information, would be reasonably expected to be a
breach of, or would be inconsistent with, the fiduciary duties of the Board of
the Company under applicable law, and prior to taking such action, the Company
provides written notice to Parent within 24 hours of receipt of any such
proposal to the effect that it is taking such action (which notice will
identify the nature and material terms of the proposal and the person or
persons making the same). The Company will promptly deliver to Parent a copy
of any Acquisition Transaction Proposal and promptly notify Parent of any
indication that any person is considering making an Acquisition Transaction
Proposal or of any request for non-public information relating to the Company
or its Subsidiaries or for access to the properties, books or records of the
Company or any of its Subsidiaries, by any person that may be considering
making, or has made, an Acquisition Transaction Proposal and will keep Parent
fully and timely informed of the status of the same. For purposes of this
Proxy, "Acquisition Transaction" means a transaction involving any of the
following (other than the transactions contemplated by the Merger Agreement
with Parent or Sub) involving the Company or any of its Subsidiaries: (v) any
direct or indirect acquisition or purchase of more than 10% of any class of
equity securities of the Company; (w) any merger, consolidation, share
exchange, recapitalization, business combination or other similar transaction;
(x) any sale, lease, exchange, mortgage, pledge, transfer or other disposition
of any assets (other than immaterial assets) of the Company or any of its
Subsidiaries in a single transaction or series of related transactions; or (y)
any tender offer or exchange offer for 25 percent or more of the outstanding
shares of capital stock of the Company. An "Acquisition Transaction Proposal"
means any offer or proposal for, or any indication of interest in, an
Acquisition Transaction. This paragraph does not prohibit the Company from
taking and disclosing to its stockholders a position contemplated by Rules
14d-9 and 14e-2(a) promulgated under the Exchange Act or from making any
disclosure to the Company's stockholders or making such disclosure as, in each
case, may be required under applicable law; provided that the Company will not
withdraw or modify, or propose to withdraw or modify, its position with
respect to the Merger or approve or recommend, or propose to approve or
recommend, an Acquisition Transaction Proposal except as expressly permitted
above. The Company agrees not to, in connection with an Acquisition
Transaction Proposal, (x) furnish any information to any third party unless
such third party signs a confidentiality agreement no less favorable to the
Company than the confidentiality agreements signed by affiliates of Parent and
(y) release any third party from, or waive any provision of, any
confidentiality or standstill agreement to which the Company is a party,
unless the Board has determined in good faith, after consultation with and
based upon the advice of outside legal counsel, that failing to release such
third party or waive such provisions would be reasonably expected to be a
breach of, or would be inconsistent with, the fiduciary duties of the Board of
the Company under applicable law. (SECTION 6.7)
DIRECTORS' AND OFFICERS' INSURANCE AND INDEMNIFICATION
The Merger Agreement provides that the certificate of incorporation and by-
laws of the Surviving Corporation will contain the provisions with respect to
indemnification set forth in the certificate of incorporation and by-laws of
the Company on the date of the Merger Agreement, which provisions will not be
amended, repealed or otherwise modified for a period of six years after the
Effective Time in any manner that would adversely affect the rights thereunder
of individuals who at any time prior to the Effective Time were directors or
officers of the Company in respect of actions or omissions occurring at or
prior to the Effective Time (including, without limitation, the transactions
contemplated by the Merger Agreement), unless such modification is required by
law.
The Company will, and from and after the Effective Time, Parent and the
Surviving Corporation will, indemnify, defend and hold harmless each person
who is now, or has been at any time prior to the date hereof or
48
<PAGE>
who becomes prior to the Effective Time, an officer or director of the Company
(the "Indemnified Parties") against all losses, claims, damages, costs,
expenses (including reasonable attorneys' fees and expenses), liabilities or
judgments or amounts that are paid in settlement with the approval of the
indemnifying party of or in connection with any threatened or actual claim,
action, suit, proceeding or investigation based on or arising out of the fact
that such person is or was a director or officer of the Company whether
pertaining to any matter existing or occurring at or prior to the Effective
Time and whether asserted or claimed prior to, or at or after, the Effective
Time ("Indemnified Liabilities"), including all Indemnified Liabilities based
on, or arising out of, or pertaining to the Merger Agreement or the
transactions contemplated hereby, in each case, to the full extent a
corporation is permitted under the DGCL to indemnify its own directors or
officers (and Parent and the Surviving Corporation, as the case may be, will
pay expenses in advance of the final disposition of any such action or
proceeding to each Indemnified Party to the full extent permitted by law,
subject to the receipt of an undertaking contemplated by Section 145(e) of the
DGCL to refund such advances if it is determined that the Indemnified Party
was not entitled thereto).
Without limiting the foregoing, the Merger Agreement provides that in the
event any such claim, action, suit, proceeding or investigation is brought
against any Indemnified Parties (whether arising before or after the Effective
Time), (i) the Indemnified Parties may retain counsel satisfactory to them and
the Company (or them and Parent and the Surviving Corporation after the
Effective Time) and the Company (or after the Effective Time, Parent and the
Surviving Corporation) will pay all fees and expenses of such counsel for the
Indemnified Parties promptly as statements therefor are received; and (ii) the
Company (or after the Effective Time, Parent and the Surviving Corporation)
will use all reasonable efforts to assist in the vigorous defense of any such
matter; provided that neither the Company, Parent nor the Surviving
Corporation will be liable for any settlement effected without its prior
written consent. Any Indemnified Party wishing to claim indemnification under
the Merger Agreement, upon learning of any such claim, action, suit,
proceeding or investigation, will notify the Company (or after the Effective
Time, Parent and the Surviving Corporation) (but the failure so to notify will
not relieve a party from any liability which it may have under the Merger
Agreement except to the extent such failure prejudices such party), and will
deliver to the Company (or after the Effective Time, Parent and the Surviving
Corporation) the undertaking contemplated by Section 145(e) of the DGCL. The
Indemnified Parties as a group may retain only one law firm to represent them
with respect to each such matter unless there is, under applicable standards
of professional conduct, a conflict on any significant issue between the
positions of any two or more Indemnified Parties. The Company, Parent and Sub
agree that all rights to indemnification, including provisions relating to
advances of expenses incurred in defense of any action or suit, existing in
favor of the Indemnified Parties with respect to matters occurring through the
Effective Time, will survive the Merger and continue in full force and effect
for a period of not less than six years from the Effective Time; provided,
however, that all rights to indemnification in respect of any Indemnified
Liabilities asserted or made within such period will continue until the
disposition of such Indemnified Liabilities.
For a period of three years after the Effective Time, Parent will cause the
Surviving Corporation to maintain in effect the current policies of directors'
and officers' liability insurance maintained by the Company (provided that
Parent may substitute therefor policies of at least the same coverage and
amounts containing terms and conditions that are no less advantageous in any
material respect to the Indemnified Parties) with respect to matters arising
before the Effective Time; provided, that Parent will only be obligated to
maintain such insurance in such scope and amount as is available at annual
premiums during such period not in excess of 150% of the per annum rate of the
aggregate annual premium currently paid by the Company for such insurance on
the date of the Merger Agreement.
The foregoing provisions are intended to be for the benefit of, and will be
enforceable by, each Indemnified Party, his or her heirs and his or her
personal representatives and will be binding on all successors and assigns of
Parent, Sub, the Company and the Surviving Corporation. (SECTION 6.5)
CERTAIN OTHER COVENANTS
Parent Payment and Related Matters. Notwithstanding anything in the Merger
Agreement to the contrary, at or prior to the Closing, the Company may make
any of the payments set forth under "sources and
49
<PAGE>
uses" in the written disclosure schedules previously delivered by the Company
to Parent and Sub. Immediately prior to the Effective Time (so long as the
conditions to Closing set forth in the Merger Agreement have been satisfied or
waived), Parent or Sub will deliver or cause to be delivered to the Company
cash, by wire transfer of immediately available funds, in an amount equal to
the amount of the then outstanding indebtedness owed under the Credit Facility
(as hereinafter defined) after giving effect to amounts, if any, paid to the
administration agent by or on behalf of Parent and Sub immediately prior to
the Effective Time in satisfaction of indebtedness owed under the Credit
Facility, but in no event more than the sum of (i) $25,976,000; plus (ii)
$3,200,000, but only if the sale of the real property located at 28 SouthWest
Freeway, Houston, Texas has not occurred; plus (iii) $1,800,000, but only if
the sale of the real property located at SWC 202 Freeway and 44th Street,
Phoenix, Arizona has not occurred; plus (iv) amounts expended by the Company
with respect to the extraordinary capital expenditures, or other extraordinary
expenditures, in each case, as previously disclosed by the Company in the
disclosure schedules to the Merger Agreement to Parent and Sub; plus (v)
$2,500,000.00, plus (vi) (to the extent it is a positive number) or minus the
absolute value of (to the extent it is a negative number), the Hedge Amount
(as defined below) minus cash on hand, if any, of the Company at the Effective
Time. In addition, at the Effective Time, Parent will, or will cause the
Surviving Corporation to pay the Option Consideration on behalf of the
Company. For purposes of the Merger Agreement, the term "Hedge Amount" means
the amount determined by subtracting (x) $64,392,867 from (y) the U.S. dollar
equivalent (determined immediately prior to the Effective Time) of 91 million
Canadian dollars (based on the most recent exchange rate appearing on Reuters
Screen page FWEC available immediately prior to the Effective Time). (SECTION
6.12)
Access to Information; Confidentiality. The Merger Agreement provides that
the Company will, and will cause each of its Subsidiaries to, afford to Parent
and to Parent's officers, employees, counsel, financial advisors and other
representatives reasonable access during normal business hours during the
period prior to the Effective Time to all its owned and leased properties
(including as required to perform any environmental studies or reviews of such
properties), books, contracts, commitments, tax returns, personnel and records
and, during such period, the Company will, and will cause each of its
Subsidiaries to, furnish as promptly as practicable to Parent, its counsel,
financial advisors and other representatives, such information concerning its
business, properties, financial condition, operations and personnel as Parent
may from time to time reasonably request. Any such access or investigation
will not affect the representations or warranties made by the Company
contained in the Merger Agreement. Except as required by law, Parent and the
Company will hold, and will cause their respective directors, officers,
partners, employees, accountants, counsel, financial advisors and other
representatives and affiliates to hold, any non-public information obtained
from the other party in confidence in accordance with the Confidentiality
Agreement, dated August 14, 1997, by and between the Company and Parent.
(SECTION 6.3)
Reasonable Best Efforts. Upon the terms and subject to the conditions and
other agreements set forth in the Merger Agreement, each of the parties
thereto agrees to use its reasonable best efforts to take, or cause to be
taken, all actions, and to do, or cause to be done, and to assist and
cooperate with the other parties in doing, all things necessary, proper or
advisable to consummate and make effective, in the most expeditious manner
practicable, the Merger and the other transactions contemplated by the Merger
Agreement, including the satisfaction of the respective conditions set forth
in the Merger Agreement; provided, however, that nothing in the Merger
Agreement will obligate the Company or its Subsidiaries to sell, transfer or
otherwise dispose of any of their respective assets to cause a termination of
the waiting period under the HSR Act or the Canadian Acts. (SECTION 6.4)
Consents, Approvals and Filings. The Company and Parent will make and cause
their respective Subsidiaries to make all necessary filings, as soon as
practicable, including, without limitation, those required under the HSR Act,
the Canadian Acts and the Exchange Act in order to facilitate prompt
consummation of the Merger and the other transactions contemplated by the
Merger Agreement. In addition, the Company and Parent will each use their
reasonable best efforts, and will cooperate fully with each other (i) to
comply as promptly as practicable with all governmental requirements
applicable to the Merger and the other transactions contemplated by the Merger
Agreement; (ii) to obtain as promptly as practicable all necessary permits,
orders or other consents of governmental entities and consents of all third
parties necessary for the consummation of the Merger and the
50
<PAGE>
other transactions contemplated by the Merger Agreement; and (iii) to cause a
termination of the waiting period under the HSR Act and Canadian Acts without
the entry by a court of competent jurisdiction of an order enjoining the
consummation of the transactions contemplated thereby at as early a date as
possible. Each of the Company and Parent will use reasonable efforts to
provide such information and communications to governmental entities as such
governmental entities may reasonably request.
Each of the parties thereto will provide to the other party copies of all
applications in advance of filing or submission of such applications to
governmental entities in connection with the Merger Agreement, and copies of
all correspondence with such governmental entities, and will keep all the
parties timely apprised of the status of the foregoing. (SECTION 6.8)
Public Announcements. The Merger Agreement also provides that Parent and
Sub, on the one hand, and the Company, on the other hand, will consult with
each other before issuing, and provide each other the opportunity to review
and comment upon, any press release, Commission filing or other public
statements with respect to the transactions contemplated by the Merger
Agreement, including the Merger, and will not issue any such press release or
make any such public statement prior to such consultation, except as may be
required by applicable law, court process or by obligations pursuant to any
listing agreement with any national securities exchange or automated quotation
system. (SECTION 6.6)
Name Changes. At or promptly after the Effective Time, the Merger Agreement
provides that Parent and Sub will change the name of the Company, and such
name will not contain the word or words "Chartwell" or "Chartwell Leisure," or
any derivative thereof and neither the Surviving Corporation nor any
Subsidiary may use any such name in any manner in the future. (SECTION 6.10)
Tax Filings. Pursuant to the Merger Agreement, Parent will be responsible
for preparing and will file all Tax Returns for taxable periods ending prior
to the Effective Date which are required to be filed by the Company and its
Subsidiaries after the Effective Date. (SECTION 6.13)
Investment Canada Act. The Merger Agreement provides that the Company agrees
that it will cause its Subsidiaries in Canada to cease to engage in any
publication, distribution, or sale of any books, magazines, periodicals or
newspapers in print or machine readable form, and will cease to engage in any
production, distribution, sale, exhibition or rental of any film recordings or
video recordings, not later than three (3) days prior to Closing. (SECTION
6.14)
CONDITIONS TO CONSUMMATION OF THE MERGER
The Company, Parent and Sub. The Merger Agreement provides that the
obligation of each party to the Merger Agreement to effect the Merger is
subject to the satisfaction or written waiver on or prior to the Closing Date
of the following conditions: (i) the Merger Agreement and the Merger will have
been approved and adopted by the affirmative vote of the requisite number of
stockholders of the Company, and in the manner as will be required pursuant to
the Company's certificate of incorporation, by-laws and the DGCL; (ii) no
statute, rule, regulation, temporary restraining order, preliminary or
permanent injunction or other order issued by any court of competent
jurisdiction or other legal restraint or prohibition preventing the
consummation of the Merger will be in effect; provided, however, that the
party invoking this condition will use its best efforts to have any such
temporary restraining order, injunction, order, restraint or prohibition
vacated; (iii) all material filings required to be made prior to the Effective
Time with, and all material consents, approvals, permits and authorizations
required to be obtained prior to the Effective Time from, governmental
entities, including, without limitation, those previously disclosed by the
Company in the disclosure schedules to the Merger Agreement to Parent and Sub,
in connection with the execution and delivery of the Merger Agreement and the
consummation of the transactions contemplated thereby by the Company, Parent
and Sub will have been made or obtained (as the case may be); and (iv) the
waiting periods (and any extension thereof) applicable to the Merger under the
HSR Act and the Canadian Acts (as hereinafter defined) will have been
terminated or will have otherwise expired. (SECTION 7.1)
51
<PAGE>
The Company. The obligation of the Company to effect the Merger is further
subject to the satisfaction or written waiver on or prior to the Closing Date
of the following conditions: (i) the representations and warranties of Parent
and Sub set forth in the Merger Agreement that are qualified as to materiality
or Parent Material Adverse Effect (as defined below) will be true and correct
and the representations and warranties of Parent and Sub set forth in the
Merger Agreement that are not so qualified will be true and correct in all
material respects, in each case as of the date of the Merger Agreement and as
of the Closing Date as though made on and as of the Closing Date. In addition,
all such representations and warranties will be true and correct as of the
date of the Merger Agreement and as though made on and as of the Closing Date,
except to the extent such representation or warranty speaks of an earlier date
(without regard to any qualifications for materiality or Parent Material
Adverse Effect) except to the extent that any such failure to be true and
correct (other than any such failure the effect of which is immaterial)
individually and in the aggregate with all such other failures would not have
a Parent Material Adverse Effect, and the Company will have received a
certificate signed on behalf of Parent by the General Partner of Parent to the
effect set forth in this paragraph; (ii) Parent and Sub will have performed in
all material respects all obligations required to be performed by them under
the Merger Agreement at or prior to the Closing Date, and the Company will
have received a certificate signed on behalf of Parent by the General Partner
of Parent to such effect; (iii) all indebtedness owed by the Company under the
Credit Facility will have been repaid in full, and such Credit Agreement,
dated August 28, 1996 (the "Credit Facility"), among the Company, Chartwell
Canada Corp., Various Banks, The Bank of Nova Scotia, as syndication agent,
and Chase Manhattan, as administration agent, will have been terminated; (iv)
the Company will have received from Parent the payments referenced above under
the heading "Parent Payment and Related Matters"; and (v) neither Lehman
Brothers nor Chase will have withdrawn, revoked, amended or modified its
fairness opinion in any material respect prior to the mailing by the Company
of this Proxy Statement to its stockholders. For purposes of the Merger
Agreement, "Parent Material Adverse Effect" means any change or effect that is
or is reasonably expected to be materially adverse to the condition (financial
or otherwise), business, assets or results of operations, of the Parent and
its Subsidiaries taken as a whole or adversely affects the ability of the
Parent to consummate the transactions contemplated by the Merger Agreement in
any material respect or materially impairs or delays the Parent's ability to
perform its obligations thereunder. (SECTION 7.3)
Parent and Sub. The obligations of Parent and Sub to effect the Merger are
further subject to the satisfaction or written waiver on or prior to the
Closing Date of the following conditions: (i) the representations and
warranties of the Company set forth in the Merger Agreement that are qualified
as to materiality or Company Material Adverse Effect (as defined below) will
be true and correct and the representations and warranties of the Company set
forth in the Merger Agreement that are not so qualified will be true and
correct in all material respects, in each case as of the date of the Merger
Agreement and as of the Closing Date as though made on and as of the Closing
Date, except to the extent such representations and warranties speak as of an
earlier date. For purposes of the Merger Agreement, "Company Material Adverse
Effect" means any event that has had or would reasonably be expected to have a
material adverse effect on the business, financial condition or results of
operations of the Company and its Subsidiaries taken as a whole, or any change
or effect that adversely, or is reasonably expected to adversely, affect the
ability of the Company to consummate the transactions contemplated by the
Merger Agreement in any material respect or materially impairs or delays the
Company's ability to perform its obligations thereunder; provided, that (i)
only for purposes of the Company's representations and warranties as to
compliance with applicable laws and real property; and (ii) with respect to
the conditions to the obligations of Parent and Sub to effect the Merger, as
to (a) the truth and correctness of the representations and warranties of the
Company set forth in the Merger Agreement and (B) there having not been, since
September 30, 1997, any changes or events which, individually or in the
aggregate, have had or reasonably would be expected to have a Company Material
Adverse Effect. Company Material Adverse Effect will also include a material
adverse effect with respect to (i) the assets and businesses of the Company
and its Subsidiaries located in Canada, taken as a whole, and (ii) the assets
and businesses of the Company and its Subsidiaries related to full service
properties located in the United States, taken as a whole.
In addition, (i) all such representations and warranties of the Company will
be true and correct as of the date hereof and as though made on and as of the
Closing Date, except to the extent such representation or
52
<PAGE>
warranty speaks of an earlier date (without regard to any qualifications for
materiality or Company Material Adverse Effect) except to the extent that any
such failure to be true and correct (other than any such failure the effect of
which is immaterial) individually and in the aggregate with all such other
failures would not have a Company Material Adverse Effect, and Parent will
have received a certificate signed on behalf of the Company by the chief
executive officer and the chief financial officer of the Company to the effect
set forth in this paragraph; (ii) the Company will have performed in all
material respects all obligations required to be performed by it under the
Merger Agreement at or prior to the Closing Date, and Parent will have
received a certificate signed on behalf of the Company by the chief executive
officer and the chief financial officer of the Company to such effect; (iii)
the number of Dissenting Shares will constitute no greater than 5% of the
total number of Shares outstanding immediately prior to the Effective Time;
(iv) the Company will have sold the Mexican Joint Venture for a purchase price
in cash of not less than all amounts expended or accrued by the Company and
its Subsidiaries in connection with or related to the Mexican Joint Venture,
which amount will in no event be less than $3,750,000, and the Company will
have no further obligations or liabilities with respect to its investment in
the Mexican Joint Venture; (v) except as previously disclosed by the Company
in the disclosure schedules to the Merger Agreement to Parent and Sub, at the
Effective Time after giving effect to (a) the payment by the Company of all
fees and expenses related to the transactions contemplated by the Merger
Agreement (including, without limitation, the payment of any real property
transfer taxes) and (b) the payments by Parent contemplated under the heading
"Parent Payment and Related Matters," and the application of such payment
proceeds by the Company as described therein, all outstanding indebtedness of
the Company and its Subsidiaries for borrowed money, capitalized lease
obligations and similar obligations, other than the amounts owed to the
Company or its Subsidiaries and amounts previously disclosed by the Company in
the disclosure schedules to the Merger Agreement to Parent and Sub, will, at
the Effective Time, have been repaid in full and all liens with respect to
such indebtedness will have been fully and effectively released and
discharged, in each case without the incurrence by the Company or any
Subsidiary or joint venture of the Company of any default or prepayment or
other penalty, cost or charge other than repayment of the principal amount of
such indebtedness together with accrued and unpaid interest thereon, and the
Company will have received a customary payoff letter from Chase Manhattan or
other authorized lender under the Credit Facility in respect of the
indebtedness under the Credit Facility; (vi) since September 30, 1997, there
will not have been any changes or events which, individually or in the
aggregate, have had or reasonably would be expected to have a Company Material
Adverse Effect; (vii) all consents of third parties previously disclosed by
the Company in the disclosure schedules to the Merger Agreement to Parent and
Sub will have been obtained, including the consent or waiver of Travelodge
Hotels, Inc., a subsidiary of Cendant ("Travelodge"), under the Master License
Agreement for the Territory of the Dominion of Canada by and between
Travelodge and Chartwell Canada Hospitality Corp., dated as of September 30,
1996, evidencing its consent to the consummation of the Merger or waiving any
Travelodge rights, if any, under such agreement relating to the consummation
of the Merger, in form and substance reasonably acceptable to Parent; (viii)
as of the Effective Time, the Second Amended and Restated Financing Agreement
between Cendant and the Company, dated as of July 24, 1996, will have been
terminated without the payment of any amounts by the Company or any of its
Subsidiaries therefor; (ix) all legal, investment banking, accounting,
advisory, consulting, and other third party professional, printing and
Commission fees and expenses incurred, paid or accrued by the Company and its
Subsidiaries in connection with the negotiation, execution and delivery of the
Merger Agreement and the other documents contemplated hereby (including
amounts payable to Bear Stearns, Chase and Lehman Brothers) will not exceed
$7,000,000; (x) the Agreement of Lease between Fisher 40th 3rd Company and
Hawaiian Realty, Inc., as landlord, and the Company, as tenant, dated February
29, 1996 (the "New York Office Lease") will have terminated without the
incurrence, payment or accrual by the Company and its Subsidiaries of any cash
costs or expenses other than rent through the later of December 31, 1997 or
the Effective Time on the terms set forth in the New York Office Lease; (xi)
the Parent will have no reasonable basis to believe that the aggregate
withdrawal liability of the Commonly Controlled Entities, if all Commonly
Controlled Entities were to withdraw from all Multiemployer Plans as of the
date hereof, would exceed $5,000,000; and (xii) the Company will have
obtained, and delivered copies thereof to Parent, the consents of holders of
Options. (SECTION 7.2)
53
<PAGE>
TERMINATION
The Merger Agreement may be terminated and the transactions contemplated
thereby may be abandoned at any time prior to the Effective Time,
notwithstanding approval thereof by the stockholders of the Company in any one
of the following circumstances:
(a) By the written mutual consent of Parent and the Company;
(b) By Parent or the Company, if, without any material breach by such
terminating party of its obligations under the Merger Agreement, the Merger
has not occurred on or before May 15, 1998;
(c) By Parent or the Company, if (x) any statute, rule or regulation has
been promulgated by any governmental entity prohibiting or restricting the
Merger or (y) any federal or state court of competent jurisdiction or other
governmental entity has issued an order, decree or ruling, or taken any
other action permanently restraining, enjoining or otherwise prohibiting
the Merger and such order, decree, ruling or other action has become final
and non-appealable provided that a party may not terminate the Merger
Agreement pursuant to this clause (iii) if it has not complied with its
obligations under the headings "--Reasonable Best Efforts" and "--Consents,
Approvals and Filings";
(d) By Parent or the Company if, upon a vote at a duly held Stockholders
Meeting or any adjournment thereof, any required approval of the
stockholders of the Company has not been obtained;
(e) By the Company, if it has received an Acquisition Transaction
Proposal (other than from an affiliate of the Company), and (A) the Board
determines (i) in its good faith judgment that such Acquisition Transaction
Proposal represents a more favorable financial alternative to the Company's
stockholders than the Merger and (ii) after consultation with and based
upon the advice of outside legal counsel, determines in good faith that
failure to accept such Acquisition Transaction Proposal would be reasonably
expected to be a breach of, or would be inconsistent with, the Board's
fiduciary duties under applicable law, (B) the Company has complied with
its obligations set forth under the heading "--No Solicitation Proposals"
and has indicated in the notice delivered pursuant thereto that the Company
intends to terminate the Merger Agreement, such notice having been received
by Parent at least two (2) business days prior to any such termination and
(C) during such two (2) business day-period the Company, together with its
financial and legal advisors, will have considered any adjustment in the
terms and conditions of the transactions contemplated hereby, including an
increase in the Merger Consideration, that Parent may propose; provided
that such termination pursuant to this clause (v) will not be effective
until the Company has made payment of the $8,145,000 termination fee
required by the Merger Agreement;
(f) By Parent, if the Board of the Company has (A) withdrawn, modified or
amended in any adverse respect its approval or recommendation of the Merger
Agreement, the Merger or the transactions contemplated hereby, (B) failed
to include in this Proxy Statement such recommendation, (C) endorsed or
recommended to its stockholders an Acquisition Transaction Proposal, (D)
resolved to do any of the foregoing or (E) if the Company has received a
written Acquisition Transaction Proposal and has not rejected such
Acquisition Transaction Proposal within ten (10) business days of its
receipt thereof;
(g) By Parent or the Company, if (A) the other party has failed to comply
in any material respect with any of the covenants and agreements (or in any
respect with regard to covenants and agreements qualified by materiality)
contained in the Merger Agreement to be complied with or performed by such
party at or prior to such date of termination, and such failure continues
for ten (10) business days after the actual receipt by such party of a
written notice from the other party setting forth in detail the nature of
such failure, or (B) a representation or warranty of the other party
contained in the Merger Agreement will be untrue in any material respect or
a representation or warranty qualified as to materiality or Company
Material Adverse Effect or Parent Material Adverse Effect, as the case may
be, will be untrue in any respect; and
(h) By Parent, if any of the conditions to the obligations of Parent and
Sub to effect the Merger set forth in the Merger Agreement has become
incapable of being fulfilled and has not been waived by Parent, or by the
Company if any of the conditions to the obligations of the Company to
effect the Merger set forth in the Merger Agreement has become incapable of
being fulfilled and has not been waived by the Company.
54
<PAGE>
If the Merger Agreement or the transactions contemplated thereby are
terminated:
(i) By the Company, if it will have received an Acquisition
Transaction Proposal (other than from an affiliate of the Company), and
(A) the Company's Board determines (x) in its good faith judgment that
such Acquisition Transaction Proposal represents a more favorable
financial alternative to the Company's stockholders than the Merger and
(y) after consultation with and based upon the advice of outside legal
counsel, in good faith that failure to accept such Acquisition
Transaction Proposal would be reasonably expected to be a breach of, or
would be inconsistent with, the Board's fiduciary duties under
applicable law, (B) the Company will have complied with its obligations
set forth under the heading "--No Solicitation; Acquisition Transaction
Proposals" in the Merger Agreement and have indicated in the notice
delivered pursuant thereto that the Company intends to terminate this
Agreement pursuant to this paragraph, such notice having been received
by Parent at least two (2) business days prior to any such termination
and (C) during such two (2) business-day period the Company, together
with its financial and legal advisors, will have considered any
adjustment in the terms and conditions of the transactions contemplated
by the Merger Agreement, including an increase in the Merger
Consideration, that Parent may propose; provided that such termination
pursuant to this paragraph will not be effective until the Company has
made payment of the full fee required by the Merger Agreement;
(ii) By Parent, if the Board of the Company will have (A) withdrawn,
modified or amended in any adverse respect its approval or
recommendation of the Merger Agreement, the Merger or the transactions
contemplated thereby, (B) failed to include in the Proxy Statement such
recommendation, (C) endorsed or recommended to its stockholders an
Acquisition Transaction Proposal, (D) resolved to do any of the
foregoing or (E) if the Company will have received a written
Acquisition Transaction Proposal and will not have rejected such
Acquisition Transaction Proposal within ten (10) business days of its
receipt thereof; or
(iii) By Parent or the Company if (x), at the time of the Meeting, an
Acquisition Transaction Proposal will have been pending or an
Acquisition Transaction Proposal will have been previously announced,
and (y), upon a vote of the stockholders at the Meeting or any
adjournment thereof, any required approval of the stockholders of the
Company with respect to the Merger will not have been obtained;
then, (x) in the case of a termination of the Merger Agreement pursuant to
clause (i) or (ii) above, the Company will pay Parent concurrently with
such termination a fee of $8,145,000 (the "Fee"), which amount will be
payable in immediately available funds, (y) in the case of a termination of
the Merger Agreement as contemplated by clause (iii) above if within one
year following the date of such termination of the Merger Agreement the
applicable pending or previously announced Acquisition Transaction Proposal
is consummated by the Company, then the Company will pay the Fee to Parent
simultaneously with the consummation of such Acquisition Transaction
Proposal or (z) in the case of a termination of the Merger Agreement as
contemplated by clause (iii) above, if within one year following the date
of such termination of the Merger Agreement any other Acquisition
Transaction Proposal is consummated by the Company, then the Company will
pay to Parent, simultaneously with the consummation of such other
Acquisition Transaction Proposal, a fee equal to 3% of the aggregate amount
of the consideration paid to the Company or its stockholders, as
applicable, pursuant to such Acquisition Transaction Proposal. Following
any payment of the Fee, the Company will have no further liability or
obligation to Parent or Sub.
If the Company does not consummate the Merger on or prior to May 15, 1998
solely as a result of the failure of the closing condition in the Merger
Agreement that neither Chase nor Lehman Brothers will have withdrawn, revoked,
amended or modified its fairness opinion in any material respect prior to the
mailing by the Company of this definitive Proxy Statement to its stockholders,
then the Company will promptly pay to Parent a fee of $4,073,000, which amount
will be payable in immediately available funds. (ARTICLE VIII)
55
<PAGE>
REGULATORY MATTERS
Certain federal, state and foreign regulatory requirements must be complied
with before the Merger is consummated. The Company and Parent are not aware of
any other governmental consents or approvals that are required prior to the
parties' consummation of the Merger other than those described below. It is
presently contemplated that if such additional governmental consents and
approvals are required, such consents and approvals will be sought. There can
be no assurance, however, that any such additional consents or approvals will
be obtained.
HSR ACT
The Merger is not subject to the requirements of the HSR Act and the rules
and regulations thereunder, which provide that certain acquisition
transactions may not be consummated until certain information has been
furnished to the Antitrust Division of the Department of Justice and the
Federal Trade Commission and until certain waiting periods have been
terminated or have expired.
CANADIAN ACTS
Pursuant to the Investment Canada Act, Parent is required to file a
notification with respect to the transaction with the Canadian Department of
Industry within thirty days following the Effective Time. This notification
requirement is a statutory reporting requirement only and does not impose any
further obligations or restrictions with respect to the Merger, the Merger
Agreement, or the transactions contemplated thereby.
OTHER FOREIGN REGULATORY MATTERS
The Company, directly or through subsidiaries, owns properties and conducts
business operations in the United States, Canada and Mexico. In connection
with the Merger, the laws of certain of these foreign countries, in addition
to the Canadian Acts described above, may require the filing of information or
documents with governmental authorities therein. The Company, Parent and Sub
intend to comply with all relevant filing requirements of these jurisdictions.
Parent and the Company do not expect that such foreign government approvals
and notifications will affect the timing of or the ability to effect the
consummation of the Merger; however, there can be no assurances with respect
thereto.
CERTAIN INFORMATION CONCERNING THE COMPANY
THE COMPANY
The Company is a hotel and motel owner, operator, developer and acquiror.
The Company owns, directly or with joint venture partners, 123 hotel
properties in both the full-service and limited-service segments, including
approximately 10,900 guest rooms, located in 25 states and six Canadian
provinces. In the full-service segment, the Company operates 29 hotels
aggregating approximately 5,700 guest rooms. The Company's remaining 94
hotels, consisting of approximately 5,200 rooms, operate in the limited-
service segment, principally under the Travelodge(R) brand.
Additional information concerning the Company and its subsidiaries is
contained in its Annual Report on Form 10-K for the year ended December 31,
1996, its Quarterly Reports on Form 10-Q for the periods ended March 30, 1997,
June 30, 1997 and September 30, 1997, its Proxy Statement dated March 28, 1997
in connection with the annual meeting of the Company's stockholders held on
May 1, 1997, its Current Reports on Form 8-K filed on July 2, 1997 and Forms
8-K/A, dated February 7, 1997 and February 26, 1997, and its other public
filings. See "AVAILABLE INFORMATION" and "INCORPORATION BY REFERENCE."
56
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS
Set forth below are the name, age, business address, present principal
occupation or employment and five-year employment history of each director and
executive officer of the Company. Unless otherwise indicated, the business
address of each person listed below is Chartwell Leisure Inc., 605 Third
Avenue, New York, New York 10158. Each named person is a citizen of the United
States.
Directors.
RICHARD L. FISHER, age 56, has been 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
principal of Fisher Brothers, one of the largest owners of commercial real
estate in New York City. Mr. Fisher is a limited partner in CL Associates, the
President, a director and a stockholder in the general partner of CL
Associates and a partner in various affiliates of CL Associates. 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, the Board of Lincoln
Center for the Performing Arts and the National Advisory Board of The Chase
Manhattan Bank. Arnold Fisher and Richard L. Fisher are first cousins.
MARTIN L. EDELMAN, age 56, 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 the Company from December 1995 until March
1996. He has also been a director of Cendant and a member of its Executive
Committee since November 1993. Mr. Edelman has been of counsel to Battle
Fowler LLP, a New York City law firm that provides services to the Company,
since January 1994 and was a partner of that firm from 1972 through 1993. Mr.
Edelman also serves as director of Avis Rent a Car, Inc. and Capital Trust.
Mr. Edelman has also served as a consultant to the Fisher Brothers family, an
affiliate of CL Associates since January 1995. Mr. Edelman is also a founding
member of the Board of Directors of the Jackie Robinson Foundation.
HENRY R. SILVERMAN, age 57, has been a Director of the Company since
September 1994. Currently, he is the President and Chief Executive Officer of
Cendant. He was Chairman of the Board, Chairman of the Executive Committee and
Chief Executive Officer of HFS, a predecessor of Cendant, from May 1990 until
December 1997 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 The Blackstone Group ("Blackstone"), a New York
investment banking firm, having held such position from February 1990 to
December 1991.
STEPHEN P. HOLMES, age 41, has been a Director of the Company since November
1994. Mr. Holmes was Vice Chairman of Cendant from 1996 to December 1997, a
Director of Cendant since June 1994 and was Executive Vice President and Chief
Financial Officer of Cendant from July 1992 to July 1996 and was Executive
Vice President, Chief Financial Officer and Treasurer of the Company from
November 1994 until February 1996. Mr. Holmes was a director of AMRE, Inc., a
home remodeling and improvement company. AMRE, Inc. filed for reorganization
under Chapter 11 of the U.S. Bankruptcy Code in 1996. Mr. Holmes was employed
by Blackstone from February 1990 through September 1991 as a Vice President
and Managing Director.
MICHAEL J. KENNEDY, age 60, 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 also serves as a director of Avis Rent a
Car, Inc.
RACHEL ROBINSON, age 75, has been a Director of the Company since August 8,
1996. Ms. Robinson has been the Chairperson of the Jackie Robinson Foundation,
a charitable foundation that creates and administers scholarships for minority
youth, since 1973.
MARC E. 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 CL Corp., the general partner
of CL Associates, and a general partner in FGT, L.P., which is a limited
partner of CL Associates. Mr. Leland was the Assistant Secretary
57
<PAGE>
of the Treasury for International Affairs from 1981 to 1984. Mr. Leland is a
director of Noble Drilling Corporation, a company that provides contract
drilling services for the oil and gas industry worldwide.
DR. GUIDO GOLDMAN, age 60, has been a Director of the Company since August
8, 1996. Dr. Goldman is a Manager of FSNL and a trustee of a trust and the
beneficiary of another trust, both of which are members of 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. See "SPECIAL
FACTORS--Interests of Certain Persons in the Merger; Potential Conflicts of
Interests."
ARNOLD FISHER, age 64, has been a Director at the Company since March 20,
1997. 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 principal of
Fisher Brothers, and has been a principal since prior to 1990. Mr. Fisher is a
partner in CL Associates, a stockholder in the general partner of CL
Associates, and a partner in various affiliates of CL Associates. Arnold
Fisher and Richard L. Fisher are first cousins.
Executive Officers. The following table sets forth certain information
regarding the executive officers of the Company currently in office:
<TABLE>
<CAPTION>
NAME OFFICE OR POSITIONS HELD
---- ------------------------
<S> <C>
Richard L. Fisher.............. Chairman of the Board and Chief Executive
Officer
Martin L. Edelman.............. Director and President
Terrance E. Royer.............. Chief Operating Officer
Kenneth J. Weber............... Chief Financial Officer
Douglas H. Verner.............. Executive Vice President, General Counsel and
Secretary
Samuel Rosenberg............... Treasurer and Comptroller
</TABLE>
For biographical information about Messrs. Fisher and Edelman, see "--
Directors."
TERRANCE E. ROYER, age 49, is currently the Chief Operating Officer of the
Company and has held such office since March 1997. Mr. Royer is also currently
the President and Chief Executive Officer of Royco Hotels & Resorts Ltd., a
Calgary based hotel management and franchise company. Mr. Royer has held such
office since 1992. In 1972 Mr. Royer co-founded The Relax Group of Companies,
and was associated with such company until 1992. The Relax Group of Companies
consisted of over 41 companies which were involved in the hospitality industry
in North America. Mr. Royer is a member of the Advisory Committee of the
Calgary Economic Development Authority and is a founding member of the
Advisory Council for the Canadian Tourism Research Institute, which is
affiliated with the Conference Board of Canada.
KENNETH J. WEBER, age 51, 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. From January 1987 until September 1992 he was the Senior
Vice President and Chief Accounting Officer of Red Lion Hotels, a company
engaged in the ownership and management of hotels. From 1973 to 1986, Mr.
Weber held various positions in the hospitality industry. Mr. Weber currently
serves on the Financial Officer Board of the American Hotel and Motel
Association.
DOUGLAS H. VERNER, age 43, is currently the Executive Vice President,
General Counsel and Secretary of the Company and has held such offices 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.
58
<PAGE>
SAMUEL ROSENBERG, age 39, is currently the Treasurer and Comptroller for the
Company and has held such office since March 1996. From October 1986 until
March 1996, Mr. Rosenberg was employed by Fisher Brothers and from 1992 until
March 1996, Mr. Rosenberg was the Comptroller of Fisher Brothers.
Each of the named executive officers has, since the formation of the Company
in November 1994, served in a managerial or executive capacity with the
Company or its affiliates, except for Mr. Royer who commenced his employment
with the Company as Chief Operating Officer in February 1997.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS WITH DIRECTORS AND OFFICERS
Except as set forth below or as provided under "SPECIAL FACTORS--Interests
of Certain Persons in the Merger; Potential Conflicts of Interest", since
January 1, 1997, the Company's executive officers and directors were not
indebted to, and did not have significant business relations with, the
Company.
Until December 15, 1997, the Company leased approximately 18,700 square feet
of office space located at 605 Third Avenue, New York, New York for a period
of ten years from an affiliate of CL Associates and an unaffiliated third
party. Under this lease, the Company was 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 Company terminated its lease with such affiliate of
CL Associates and such other unaffiliated third party, effective December 15,
1997. No termination fees were required to be paid by the Company in
connection therewith.
CERTAIN INFORMATION CONCERNING PARENT AND SUB
Parent is a Delaware limited partnership that engages in the business of
investing in debt and equity interests in real estate related assets and
businesses. WH Advisors, L.L.C. acts as the sole general partner of Parent,
and Whitehall IX/X, Inc. acts as the managing member of WH Advisors, L.L.C.
Parent, Sub, WH Advisors, L.L.C. and Whitehall IX/X, Inc. are all affiliates
of GS Group.
Whitehall IX/X, Inc. is a subsidiary of GS Group. GS Group is a holding
partnership that (directly and indirectly through subsidiaries or affiliated
companies or both) is a leading international investment banking organization
in the business of buying and selling securities, both foreign and domestic,
and in making investments on behalf of its partners. The Goldman Sachs
Corporation, a Delaware corporation ("GS Corp."), is the sole general partner
of GS Group. The principal address and telephone number of Parent, Sub,
Whitehall IX/X, Inc., GS Group and GS Corp. are 85 Broad Street, New York, New
York 10004 and (212) 902-1000.
Except as described in this Proxy Statement, since the formation of the
Company, there have been no contacts, negotiations or transactions between
Sub, Parent or, to the best knowledge of Sub, any of its affiliates, on the
one hand, and the Company or its affiliates, on the other hand, concerning a
merger, consolidation or acquisition, a tender offer or other acquisition of
securities, an election of directors, or a sale or other transfer of a
material amount of assets.
FEES AND EXPENSES
Except as provided in the Merger Agreement, whether or not the Merger will
be consummated, each of Parent, Sub and the Company will pay its own expenses
incident to preparing for, entering into and carrying out the Merger Agreement
and the consummation of the transactions contemplated thereby, other than (i)
the expenses incurred in connection with printing and mailing proxy materials
to stockholders, which will be paid by the Company and (ii) real property
transfer taxes, which will be paid by the Company. See "THE MERGER AGREEMENT--
Termination."
59
<PAGE>
MARKET PRICES AND DIVIDENDS
MARKET PRICES
The principal market on which the Shares are traded is NASDAQ under the
ticker symbol "CHRT." The Shares commenced trading on NASDAQ on November 14,
1994 under the symbol "NAGC." From January 1996 until August 8, 1996, the
Shares traded under the symbol "NALC" and, since August 8, 1996, have traded
under the symbol "CHRT." On February 5, 1998, the last trading day before the
printing of this Proxy Statement, the high and low sales prices of the Shares
were $16 15/16 and $16 15/16, respectively. On November 13, 1997, the last
trading day before the public announcement of the execution of the Merger
Agreement, the high and low sales prices of the Common Stock were $15 7/8 and
$15 7/8, respectively. On June 30, 1997, the last trading day prior to the
public announcement that the Company had hired Bear Stearns & Co. Inc. and
Chase to assist the Company in considering strategic alternatives, including
the possible sale of the Company, the high and low sales prices of the Shares
were $13 1/2 and $13, respectively. STOCKHOLDERS ARE URGED TO OBTAIN A CURRENT
MARKET QUOTATION FOR THE SHARES.
The following table sets forth, for the calendar quarters indicated, the
high and low sales prices per Share as reported by NASDAQ:
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
1995
First Quarter.............................................. $14 1/4 $ 8 1/4
Second Quarter............................................. 11 8
Third Quarter.............................................. 10 1/2 7 1/8
Fourth Quarter............................................. 12 1/2 8 1/2
1996
First Quarter.............................................. $14 $10 1/2
Second Quarter............................................. 17 1/2 13
Third Quarter.............................................. 18 1/2 12 7/8
Fourth Quarter............................................. 17 3/4 11 1/2
1997
First Quarter.............................................. $17 1/4 $11 7/8
Second Quarter............................................. 14 1/4 11
Third Quarter.............................................. 16 3/4 14 1/2
Fourth Quarter............................................. 17 1/4 15 1/8
1998
First Quarter (through February 5, 1998)................... $17 1/8 $16 5/8
</TABLE>
DIVIDENDS
The Company has never paid any dividends on the Shares. See "SUMMARY--
Selected Consolidated Financial Data." The Company has agreed in the Merger
Agreement that, subject to certain exceptions, it will not declare, set aside,
or pay any dividend on, or make any other distributions (whether in cash,
stock or property) with respect to the Shares. See "THE MERGER AGREEMENT--
Conduct of Business Pending the Closing."
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The information set forth in the following table is furnished as of February
5, 1998, 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
60
<PAGE>
of the Company) is based on a review of statements filed with the Securities
and Exchange Commission (the "Commission") pursuant to Sections 13(d), 13(f)
and 13(g) of the Exchange Act with respect to the Shares. As of February 5,
1998, there were 13,485,999 Shares issued and outstanding.
<TABLE>
<CAPTION>
NUMBER OF
SHARES
BENEFICIALLY PERCENT
OWNED OF CLASS
------------ --------
<S> <C> <C>
Chartwell Leisure Associates L.P. II(1)................. 6,033,064 44.74%
222 Purchase Street, Suite 303
Rye, New York 10580
FSNL LLC(2)............................................. 6,033,064 44.74%
157 Church Street, 19th Floor
New Haven, Connecticut 06510
DIRECTORS AND EXECUTIVE OFFICERS
Richard L. Fisher(3).................................... 6,378,858 47.30%
Henry R. Silverman(4)................................... 283,372 2.10%
Stephen P. Holmes(5).................................... 24,200 *
Martin L. Edelman(6).................................... 452,440 3.35%
Michael J. Kennedy(7)................................... 25,000 *
Marc E. Leland(8)....................................... 6,048,064 44.85%
Dr. Guido Goldman(9).................................... 1,299,737 9.64%
Rachel Robinson(10)..................................... 5,000 *
Arnold Fisher(11)....................................... 142,150 1.05%
Kenneth J. Weber(12).................................... 66,667 *
Douglas H. Verner(13)................................... 43,333 *
Samuel Rosenberg(14).................................... 25,000 *
Terrance E. Royer(15)................................... 25,000 *
All Executive Officers and Directors as a Group (13
persons)(16)........................................... 7,065,582 52.89%
</TABLE>
- --------
* less than 1%
(1) CL Associates is a limited partnership consisting of members of the Fisher
Brothers family and a trust for the benefit of Gordon Getty and members of
his family. Of the 6,033,064 Shares reflected in the table as beneficially
owned by it, CL Associates has sole power to vote and dispose of 4,738,328
Shares. Pursuant to the Stockholders' Agreement (as hereinafter defined),
FSNL and CL Associates have agreed to elect certain nominees as Directors
and FSNL has agreed to vote its Shares at all meetings of stockholders of
the Company and any written consent in the manner directed by CL
Associates. Therefore, CL Associates and FSNL are deemed to share voting
and dispositive power with respect to the 6,033,064 Shares reflected in
the table as owned by FSNL. The number of Shares reflected in the table
owned by each of CL Associates and FSNL includes both the Shares that are
owned of record by CL Associates and the Shares that are owned of record
by FSNL. See "SPECIAL FACTORS--Interests of Certain Persons in the Merger;
Potential Conflicts of Interests." Richard L. Fisher, Arnold Fisher, Marc
Leland and Martin L. Edelman are beneficial owners of CL Associates.
(2) FSNL is a limited liability company owned principally by a trust for the
benefit of Charles de Gunzburg. Pursuant to the Stockholders' Agreement,
FSNL and CL Associates share voting and dispositive power with respect to
these Shares. Dr. Goldman is a beneficial owner of FSNL.
(3) Includes 343,334 Shares issuable upon the exercise of options granted
under the Stock Option Plan, which options are currently exercisable, or
exercisable within 60 days. Also includes all shares owned by CL
Associates, and 2,460 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 ("CL Corp."), the general
partner of CL Associates, and, accordingly, may be deemed to own
beneficially all Shares owned
61
<PAGE>
beneficially by CL Associates. Mr. Fisher is also a limited partner of CL
Associates. 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 owned by CL Associates and FBFDC other than
459,618 Shares representing 9.70% of the Shares owned of record by CL
Associates and 394 Shares representing 16% of the Shares owned by FBFDC.
Mr. Fisher owns, in the aggregate, a 9.70% beneficial interest in CL
Associates and a 16% interest in FBFDC.
(4) Includes 239,825 Shares issuable upon the exercise of options granted
under HFS' 1992 Stock Option Plan, which options are currently
exercisable, and 5,172 Shares in two retirement plans whose sole
beneficiary is Mr. Silverman.
(5) Includes 11,900 Shares issuable upon the exercise of options granted
under HFS' 1992 Stock Option Plan, which options are currently
exercisable or exercisable within 60 days.
(6) Includes 225,000 shares issuable upon the exercise of options granted
under the Stock Option Plan, which options are currently exercisable, or
exercisable within 60 days. Amounts shown include 227,440 shares
representing 4.8% of the shares owned of record by CL Associates. Mr.
Edelman owns, in the aggregate, a 4.8% beneficial interest in CL
Associates.
(7) Includes 25,000 Shares issuable upon the exercise of options granted
under the Stock Option Plan, which options are currently exercisable.
(8) Includes 15,000 Shares issuable upon the exercise of options granted
under the Plan, which options are currently exercisable. Also represents
the Shares beneficially owned by CL Associates. Mr. Leland is the Vice
President and one of the two directors of CL Corp. and, accordingly, may
be deemed to own beneficially all Shares owned beneficially by CL
Associates. Mr. Leland is also beneficial owner of CL Associates. Mr.
Leland disclaims beneficial ownership of the Shares owned by CL
Associates other than 150,110 Shares, representing approximately 3.17% of
the Shares owned of record by CL Associates. Mr. Leland owns an 8%
general partnership interest in FGT L.P., which, in turn, owns a 39.6%
limited partnership interest in CL Associates.
(9) Represents the Shares held by FSNL. Dr. Goldman is a Manager and
beneficial owner of FSNL and a beneficiary of a trust that is a member in
FSNL. Dr. Goldman disclaims beneficial ownership of the Shares owned by
FSNL. Includes 5,000 Shares issuable upon the exercise of options granted
under the Plan, which options are currently exercisable.
(10) Includes 5,000 Shares issuable upon the exercise of options granted under
the Stock Option Plan, which options are currently exercisable.
(11) Includes 142,150 Shares representing 3.0% of the Shares owned of record
by CL Associates. Mr. Arnold Fisher owns, in the aggregate, a 3.0%
beneficial interest in CL Associates.
(12) Includes 66,667 Shares issuable upon the exercise of options granted
under the Stock Option Plan, which options are currently exercisable or
exercisable within 60 days.
(13) Includes 43,333 Shares issuable upon the exercise of options granted
under the Stock Option Plan, which options are currently exercisable or
exercisable within 60 days.
(14) Includes 25,000 Shares issuable upon the exercise of options granted
under the Stock Option Plan, which options are currently exercisable.
(15) Includes 25,000 Shares issuable upon the exercise of options granted
under the Stock Option Plan, which options are currently exercisable.
(16) Includes 1,030,058 Shares, in the aggregate, purchasable by executive
officers and Directors pursuant to options granted under HFS' 1992 Stock
Option Plan or the Stock Option Plan, which options are currently
exercisable or exercisable within 60 days.
62
<PAGE>
OTHER BUSINESS
Management knows of no business which will be presented for consideration
other than the matters described in the Notice of Special Meeting. If other
matters are presented, it is the intention of the persons designated as
Proxies to vote in accordance with their judgment on such matters.
INDEPENDENT ACCOUNTANTS
The consolidated financial statements of the Company incorporated by
reference from the Company's 1996 10-K have been audited by Deloitte & Touche
LLP, independent accountants. Representatives of Deloitte & Touche LLP are
expected to be present at the Special Meeting. These representatives will have
an opportunity to make a statement if they so desire and will be available to
respond to appropriate questions.
STOCKHOLDER PROPOSALS FOR 1998 ANNUAL MEETING
Proposals of stockholders intended to be presented at the Company's 1998
Annual Meeting, in the event that the Merger has not been consummated prior
thereto, should have been received by the Secretary of the Company by November
28, 1997. Proposals received after that date may be excluded from the
Company's proxy materials.
INCORPORATION BY REFERENCE
This Proxy Statement incorporates certain documents by reference which are
not presented herein or delivered herewith. These documents (other than
exhibits to such documents unless such exhibits are specifically incorporated
herein by reference) are available to any person, including any beneficial
owner, to whom this Proxy Statement is delivered, without charge, on written
or oral request directed to: Secretary, Chartwell Leisure Inc., 10 Rockefeller
Plaza, Suite 1250, New York, New York 10020, or by calling (212) 957-6622, or
via facsimile at (212) 957-6705. In order to ensure timely delivery of the
documents, requests should be received by Monday, March 9, 1998. Copies of
documents so requested will be sent by first class mail, postage pre-paid.
The following documents, previously filed with the Commission (File No. 0-
24794) by the Company pursuant to the Exchange Act, are incorporated by
reference in this Proxy Statement:
(1) The Company's Annual Report on Form 10-K for the year ended December
31, 1996;
(2) The Company's Quarterly Report on Form 10-Q for the period ended
September 30, 1997;
(3) The Company's Quarterly Report on Form 10-Q for the period ended June
30, 1997;
(4) The Company's Quarterly Report on Form 10-Q for the period ended
March 31, 1997; and
(5) The Company's Current Reports on Form 8-K filed on July 2, 1997, and
Forms 8-K/A filed on February 7, 1997 and February 26, 1997.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Proxy Statement and prior to
the date of the Special Meeting shall be deemed to be incorporated by
reference in this Proxy Statement and to be a part hereof from the respective
dates of filing of such documents. Any statement contained herein or in a
document incorporated or deemed to be incorporated by reference herein shall
be deemed to be modified or superseded for purposes of this Proxy Statement to
the extent that a statement contained in any subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of
this Proxy Statement.
63
<PAGE>
ANNEX A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER, AS AMENDED
DATED AS OF NOVEMBER 13, 1997
BY AND BETWEEN
CHARTWELL LEISURE INC.
WHITEHALL STREET REAL ESTATE LIMITED PARTNERSHIP IX
AND
CLI PROPERTIES ACQUISITION CORP.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I THE MERGER.................................................. A-1
SECTION 1.1 The Merger................................................ A-1
SECTION 1.2 Closing................................................... A-1
SECTION 1.3 Effective Time............................................ A-1
SECTION 1.4 Effects of the Merger..................................... A-1
SECTION 1.5 Certificate of Incorporation; By-laws..................... A-1
SECTION 1.6 Directors; Officers....................................... A-2
ARTICLE II EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT
CORPORATIONS................................................ A-2
SECTION 2.1 Effect on Capital Stock................................... A-2
SECTION 2.2 Stock Options............................................. A-2
SECTION 2.3 Adjustments............................................... A-3
ARTICLE III PAYMENT FOR SHARES.......................................... A-3
SECTION 3.1 Payment For Shares........................................ A-3
ARTICLE IV REPRESENTATIONS AND WARRANTIES.............................. A-4
SECTION 4.1 Representations and Warranties of the Company............. A-4
SECTION 4.2 Representations and Warranties of Parent and Sub.......... A-16
ARTICLE V COVENANTS................................................... A-17
SECTION 5.1 Conduct of Business of the Company Prior to the Merger.... A-17
SECTION 5.2 Other Actions............................................. A-19
ARTICLE VI ADDITIONAL AGREEMENTS....................................... A-19
SECTION 6.1 Preparation of the Proxy Statement........................ A-19
SECTION 6.2 Stockholders Meeting...................................... A-20
SECTION 6.3 Access to Information: Confidentiality.................... A-20
SECTION 6.4 Reasonable Best Efforts................................... A-20
SECTION 6.5 Indemnification; Directors' and Officers' Insurance....... A-20
SECTION 6.6 Public Announcements...................................... A-22
SECTION 6.7 No Solicitation; Acquisition Transaction Proposals........ A-22
SECTION 6.8 Consents, Approvals and Filings........................... A-22
SECTION 6.9 Board Action Relating to Stock Option Plans............... A-23
SECTION 6.10 Name Changes............................................. A-23
SECTION 6.11 Notices of Certain Events................................ A-23
SECTION 6.12 Parent Payment and Related Matters....................... A-23
SECTION 6.13 Tax Filings.............................................. A-24
SECTION 6.14 Investment Canada Act.................................... A-24
ARTICLE VII CONDITIONS PRECEDENT........................................ A-24
SECTION 7.1 Conditions to Each Party's Obligation to Effect the
Merger.................................................... A-24
SECTION 7.2 Conditions to Obligations of Parent and Sub............... A-24
SECTION 7.3 Conditions to Obligations of the Company.................. A-26
ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER.......................... A-26
SECTION 8.1 Termination............................................... A-26
SECTION 8.2 Effect of Termination..................................... A-28
SECTION 8.3 Amendment................................................. A-28
SECTION 8.4 Extension; Waiver......................................... A-28
SECTION 8.5 Procedure for Termination, Amendment, Extension or
Waiver.................................................... A-28
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE IX GENERAL PROVISIONS............................................ A-29
SECTION 9.1 Nonsurvival of Representations and Warranties............... A-29
SECTION 9.2 Fees and Expenses........................................... A-29
SECTION 9.3 Definitions................................................. A-29
SECTION 9.4 Notices..................................................... A-30
SECTION 9.5 Interpretation.............................................. A-30
SECTION 9.6 Counterparts................................................ A-30
SECTION 9.7 Entire Agreement; Third-Party Beneficiaries................. A-30
SECTION 9.8 Governing Law............................................... A-31
SECTION 9.9 Assignment.................................................. A-31
SECTION 9.10 Enforcement................................................ A-31
SECTION 9.11 Severability............................................... A-31
</TABLE>
ii
<PAGE>
Agreement and Plan of Merger (the "Agreement"), dated as of November 13,
1997, by and between Whitehall Street Real Estate Limited Partnership IX, a
Delaware limited partnership ("Parent"), CLI Properties Acquisition Corp., a
Delaware corporation and wholly-owned subsidiary of Parent ("Sub"), and
Chartwell Leisure Inc., a Delaware corporation (the "Company"). Certain
capitalized terms used in this Agreement are defined in Section 9.3 hereof.
W I T N E S S E T H:
Whereas, the respective Boards of Directors of the Company and Sub and the
General Partner of Parent have determined that it would be advisable and in
the best interests of the respective stockholders of the Company and Sub and
the partners of Parent, respectively, for the Company to merge with Sub
pursuant and subject to the terms and conditions set forth in this Agreement
(the "Merger");
Whereas, Parent, Sub and the Company desire to make certain representations,
warranties, covenants and agreements in connection with the Merger and also to
prescribe various conditions to the Merger.
Now, Therefore, in consideration of the representations, warranties,
covenants and agreements contained in this Agreement, the parties hereto
hereby agree as follows:
ARTICLE I
The Merger
Section 1.1 The Merger. Upon the terms and subject to the conditions set
forth in this Agreement, and in accordance with the Delaware General
Corporation Law (the "DGCL"), the Merger shall be effected and Sub shall be
merged with and into the Company at the Effective Time (as defined in Section
1.3), the separate existence of Sub shall cease and the Company shall continue
as the surviving corporation in the Merger. The surviving corporation of the
Merger shall be herein referred to as the "Surviving Corporation."
Section 1.2 Closing. Unless this Agreement shall have been terminated and
the transactions herein contemplated shall have been abandoned pursuant to
Section 8.1, and subject to the satisfaction or waiver of the conditions set
forth in Article VII, the closing of the Merger (the "Closing") will take
place as soon as practicable following the last to be satisfied or waived of
the conditions set forth in Article VII (other than the delivery of
certificates referred to in Sections 7.2(a) and (b) and Sections 7.3(a) and
(b) hereof) in accordance with this Agreement (the "Closing Date"), at the
offices of Battle Fowler LLP, 75 East 55th Street, New York, New York, unless
another date, time or place is agreed to in writing by the parties hereto.
Section 1.3 Effective Time. Contemporaneously with or as promptly as
practicable after the Closing, Sub will file with the Secretary of State of
the State of Delaware (the "Delaware Secretary of State") a certificate of
merger or other appropriate documents, executed in accordance with the
relevant provisions of the DGCL, and make all other filings or recordings
required under the DGCL in connection with the Merger. The Merger shall become
effective upon the filing of the certificate of merger with the Delaware
Secretary of State, or at such later time as is specified in the certificate
of merger (the "Effective Time").
Section 1.4 Effects of the Merger. The Merger shall have the effects set
forth in this Agreement and in the applicable provisions of the DGCL. Without
limiting the generality of the foregoing, and subject thereto, at the
Effective Time, all the properties, rights, privileges, powers and franchises
of the Company and Sub shall vest in the Surviving Corporation, and all debts,
liabilities and duties of the Company and Sub shall become the debts,
liabilities and duties of the Surviving Corporation.
Section 1.5 Certificate of Incorporation; By-laws. At the Effective Time,
Sub's certificate of incorporation shall be the certificate of incorporation
of the Surviving Corporation and shall be amended so that
A-1
<PAGE>
the name of the Surviving Corporation shall not be inconsistent with the
provisions of Section 6.10 hereof. At the Effective Time, the by-laws of Sub
as in effect at the Effective Time shall, from and after the Effective Time,
be the by-laws of the Surviving Corporation until thereafter changed or
amended as provided therein or by applicable law.
Section 1.6 Directors; Officers. At the Effective Time, (a) the directors of
Sub shall be the directors of the Surviving Corporation, and (b) the officers
of Sub shall be the officers of the Surviving Corporation, until the earlier
of their resignation or removal or until their respective successors are duly
elected and qualified, as the case may be.
ARTICLE II
Effect of the Merger on the Capital Stock of the Constituent Corporations
Section 2.1 Effect on Capital Stock. As of the Effective Time, by virtue of
the Merger and without any action on the part of Parent, Sub, the Company or
any holder of (i) any shares of capital stock of the Company or (ii) any
shares of capital stock of Sub:
(a) Common Stock of Sub. Each share of common stock of Sub issued and
outstanding immediately prior to the Effective Time shall, at the Effective
Time, by virtue of the Merger and without any action on the part of the
holder thereof, be converted into and become one validly issued, fully paid
and nonassessable share of common stock, $.01 par value per share, of the
Surviving Corporation.
(b) Cancellation of Treasury Shares and Parent-Owned Shares. Each share
of common stock, par value $.01 per share (the "Shares"), of the Company
issued and outstanding immediately prior to the Effective Time that is
owned by the Company or by Parent, Sub or any other Subsidiary (as defined
in Section 9.3 hereof) of Parent shall automatically be canceled and
retired and shall cease to exist, and no cash or other consideration shall
be delivered or deliverable in exchange therefor.
(c) Conversion of Shares. Each Share issued and outstanding immediately
prior to the Effective Time (other than Shares to be canceled in accordance
with Section 2.1(b) hereof and other than Dissenting Shares (as defined and
described below)) shall be converted into the right to receive $17.25 per
Share in cash, without interest (the "Merger Consideration").
(d) Dissenting Shares. Notwithstanding anything in this Agreement to the
contrary, Shares issued and outstanding immediately prior to the Effective
Time held by a holder (if any) who has not voted in favor of the Merger or
consented thereto in writing and who has the right to demand, and who
properly demands, an appraisal of such Shares in accordance with Section
262 of the DGCL (or any successor provision) ("Dissenting Shares") shall
not be converted into a right to receive the Merger Consideration unless
such holder fails to perfect or otherwise loses such holder's right to such
appraisal, if any. If, after the Effective Time, such holder fails to
perfect or loses any such right to appraisal, each such Share of such
holder shall be treated as a Share that had been converted as of the
Effective Time into the right to receive Merger Consideration in accordance
with Section 2.1(c) hereof. Notwithstanding anything to the contrary
contained herein, if the Merger is rescinded or abandoned, then the right
of any holder to be paid the fair value of such holder's Dissenting Shares
shall cease. The Company shall give prompt notice to Parent of any demands
received by the Company for appraisal of Shares and any withdrawal of such
demands, and Parent shall have the right to participate in and direct all
negotiations and proceedings with respect to such demands. The Company
shall not, except with the prior written consent of Parent, make any
payment with respect to, or settle or offer to settle, any such demands.
Section 2.2 Stock Options. The Company shall (a) terminate the Company's
1994 Stock Option Plan (the "Stock Option Plan") immediately prior to the
Effective Time without prejudice to the rights of the holders of options (the
"Options") awarded pursuant thereto and (b) except as permitted in Section
5.1(ii) hereof, grant no additional Options under the Stock Option Plan. The
Company shall obtain the consent of each holder of an Option (whether or not
then exercisable) under the Stock Option Plan at the Effective Time to the
cancellation
A-2
<PAGE>
of such holder's Options (without regard to the exercise price of such
Option), to take effect immediately prior to the Effective Time. Each such
consent shall require the Company to pay in respect of each Option, an amount
equal to the excess, if any, of the Merger Consideration over the exercise
price of such Option, multiplied by the number of Shares subject to such
Option, without any interest thereon (the "Option Consideration").
Notwithstanding the foregoing, payment may be withheld in respect of any
Option until the consent of the holder thereof to its cancellation as
contemplated hereby is obtained. The surrender of an Option to the Company
shall be deemed a release of any and all rights the holder had or may have had
in such Option, other than the right to receive the Option Consideration in
respect thereof.
Section 2.3 Adjustments. If at any time during the period between the date
of this Agreement and the Effective Time, any change in the outstanding Shares
shall occur, including by reason of any reclassification, recapitalization,
stock dividend, stock split, or combination, exchange or readjustment of
Shares, or any stock dividend thereof, the Merger Consideration shall be
appropriately adjusted.
ARTICLE III
Payment for Shares
Section 3.1 Payment For Shares. (a) Payment Fund. Prior to the Effective
Time, Parent shall deposit, or shall cause to be deposited, with or for the
account of The Chase Manhattan Bank, New York ("Chase"), or another commercial
bank reasonably satisfactory to each of Parent and the Company (the "Paying
Agent"), for the benefit of the holders of Shares, cash in an aggregate amount
sufficient to pay the aggregate Merger Consideration (hereinafter collectively
referred to as the "Payment Fund"). For purposes of determining the Merger
Consideration to be so paid, Parent shall assume no holder of Shares will
perfect his right to appraisal of his Shares.
(b) Letter of Transmittal: Surrender of Certificates. Promptly after the
Effective Time, but in no event later than five business days after the
Effective Time, Parent shall mail, or cause the Paying Agent to mail to each
holder of record (other than the Company or any of its Subsidiaries or Parent,
Sub or any of their Subsidiaries) of a certificate or certificates which,
immediately prior to the Effective Time, evidenced outstanding Shares (the
"Certificates"), (i) a form of letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the Certificates
shall pass, only upon proper delivery of the Certificates to the Paying Agent,
and shall be in such form and have such other provisions as Parent may
reasonably specify) and (ii) instructions for use in effecting the surrender
of the Certificates in exchange for payment therefor. Upon surrender of a
Certificate for cancellation to the Paying Agent together with such letter of
transmittal, duly executed, and such other customary documents as may be
required pursuant to such instructions, the holder of such Certificate shall
be entitled to receive in respect thereof cash in an amount equal to the
product of (x) the number of Shares theretofore represented by such
Certificate and (y) the Merger Consideration, and, in either case, the
Certificate so surrendered shall forthwith be canceled. No interest shall be
paid or accrued on the Merger Consideration payable upon the surrender of any
Certificate. If payment is to be made to a person other than the person in
whose name the surrendered Certificate is registered, it shall be a condition
of payment that the Certificate so surrendered shall be promptly endorsed or
otherwise in proper form for transfer and that the person requesting such
payment shall pay any transfer or other taxes required by reason of the
payment to a person other than the registered holder of the surrendered
Certificate or established to the satisfaction of Parent and the Surviving
Corporation that such tax has been paid or is not applicable.
(c) Cancellation and Retirement of Shares; No Further Rights. As of the
Effective Time, all Shares (other than Shares to be canceled in accordance
with Section 2.1(b) or Dissenting Shares) issued and outstanding immediately
prior to the Effective Time, shall no longer be outstanding and shall
automatically be canceled and retired and shall cease to exist, and each
holder of Shares shall cease to have any rights with respect thereto
(including, without limitation, the right to vote), except the right to
receive the Merger Consideration, without interest, upon surrender of the
Certificate representing such Shares in accordance with this Article III, and
until
A-3
<PAGE>
so surrendered, each such Certificate shall represent for all purposes only
the right, subject to Section 2.1(d) hereof, to receive the Merger
Consideration. The Merger Consideration paid upon the surrender of
Certificates in accordance with the terms of this Article III shall be deemed
to have been issued and paid in full satisfaction of all rights pertaining to
the Shares theretofore represented by such Certificates. At and after the
Effective Time, there shall be no registration of transfers of Shares which
were outstanding immediately prior to the Effective Time on the stock transfer
books of the Surviving Corporation. If, after the Effective Time, Certificates
are presented to the Surviving Corporation for any reason, such Certificates
shall be canceled and exchanged for cash as provided in Article I hereof. At
the close of business on the day of the Effective Time, the stock ledger of
the Company shall be closed.
(d) Investment of Payment Fund. The Paying Agent shall invest the Payment
Fund, as directed by Parent, in (i) direct obligations of the United States of
America, (ii) obligations for which the full faith and credit of the United
States of America is pledged to provide for the payment of principal and
interest, (iii) commercial paper rated the highest quality by either Moody's
Investors Services, Inc. or Standard & Poor's Corporation, or (iv)
certificates of deposit, bank repurchase agreements or bankers' acceptances of
commercial banks with capital exceeding $500 million; and any net earnings
with respect to the Payment Fund shall be the property of and paid over to
Parent as and when requested by Parent; provided, however, that any Taxes (as
defined in Section 4.1(i) hereof) payable with respect to the Payment Fund
shall be the sole obligation and liability of Parent; provided, further that
any such investment or any such payment of earnings shall not delay the timely
receipt by holders of Certificates of the Merger Consideration or otherwise
impair such holders' respective rights hereunder.
(e) Termination of Payment Fund. Any portion of the Payment Fund which
remains undistributed to the holders of Certificates for 365 days after the
Effective Time shall be delivered to Parent, upon demand, and any holders of
Certificates that have not theretofore complied with this Article III shall
thereafter (subject to the terms of this Agreement, abandoned property,
escheat and other similar laws) look only to Parent, and only as general
creditors thereof, for payment of their claim for any Merger Consideration.
(f) No Liability. None of Parent, Sub, the Surviving Corporation or the
Paying Agent shall be liable to any person in respect of any payments or
distributions payable from the Payment Fund delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law. If any
Certificates shall not have been surrendered prior to the time which any
Merger Consideration in respect of such Certificate would otherwise escheat to
or become the property of any Governmental Entity (as defined in Section
4.1(c) hereof), any amounts payable in respect of such certificate shall, to
the extent permitted by applicable law, become the property of the Surviving
Corporation, free and clear of all claims or interest of any person previously
entitled thereto.
(g) Withholding Rights. Parent shall be entitled to deduct and withhold from
the consideration otherwise payable pursuant to this Agreement to any holder
of Shares, Options or Certificates such amounts as Parent is required to
deduct and withhold with respect to the making of such payment under the
Internal Revenue Code of 1986, as amended (the "Code"), or any provision of
applicable state, local or foreign tax law. To the extent that amounts are so
withheld by Parent, such withheld amounts shall be treated for all purposes of
this Agreement as having been paid to such holders in respect of which such
deduction and withholding was made by Parent.
ARTICLE IV
Representations and Warranties
Section 4.1 Representations and Warranties of the Company. The Company
represents and warrants to Parent and Sub as follows:
(a) Organization, Standing and Power. Each of the Company and each
Subsidiary of the Company that is a corporation (a "Subsidiary
Corporation") is duly organized, validly existing and in good standing
under the laws of the jurisdiction in which it is incorporated and has the
requisite corporate power and
A-4
<PAGE>
authority to carry on its business as now being conducted. Each Subsidiary
of the Company that is a limited partnership is validly existing and in
good standing as a limited partnership under the laws of its state of
organization and has the requisite limited partnership power and authority
to carry on its business as now being conducted. Each of the Company, each
Subsidiary Corporation and Subsidiary of the Company that is a limited
partnership is duly qualified or licensed to do business and is in good
standing in each jurisdiction in which the nature of its business or the
ownership or leasing of its properties makes such qualification or
licensing necessary, other than in such jurisdictions where the failure to
be so qualified or licensed (individually or in the aggregate) would not
have a Company Material Adverse Effect. For purposes of this Agreement, the
term "Company Material Adverse Effect" means any Material Adverse Effect
with respect to the Company and its Subsidiaries, taken as a whole, or any
change or effect that adversely, or is reasonably expected to adversely,
affect the ability of the Company to consummate the transactions
contemplated by this Agreement in any material respect or materially
impairs or delays the Company's ability to perform its obligations
hereunder; provided, that only for purposes of Sections 4.1(k) and 4.1(q)
hereof and Sections 7.2(a) and 7.2(f) but only insofar as such Sections
relate to Sections 4.1(k) and 4.1(q) hereof. "Company Material Adverse
Effect" shall also include a Material Adverse Effect with respect to (i)
the assets and businesses of the Company and its Subsidiaries located in
Canada, taken as a whole, and (ii) the assets and businesses of the Company
and its Subsidiaries related to full service properties located in the
United States, taken as a whole. The Company has made available to Parent
complete and correct copies of the certificate of incorporation and by-laws
of the Company, as amended to the date of this Agreement. Section 4.1(a) of
the Disclosure Schedule sets forth a true, complete and correct list of all
Subsidiaries of the Company.
(b) Capital Structure. (i) The authorized capital stock of the Company
consists of (i) 100,000,000 Shares and (ii) 10,000,000 shares of preferred
stock, $1.00 par value per share. At the close of business on November 12,
1997: (i) 13,482,249 Shares were issued and outstanding, (ii) 2,258,887
Shares were reserved for issuance pursuant to the Stock Option Plan and
those certain option agreements with respect to HFS Holdings, Inc. (which
option agreements are described in Section 4.1(b) of the Disclosure
Schedule), (iii) no Shares were held by the Company in its treasury and
(iv) no shares of preferred stock were issued and outstanding. All
outstanding shares of capital stock of the Company have been duly
authorized and validly issued, and are fully paid and nonassessable and not
subject to preemptive or similar rights. No bonds debentures, notes or
other indebtedness of the Company or any Subsidiary of the Company having
the right to vote (or convertible into, or exchangeable for, securities
having the right to vote) on any matters on which the stockholders of the
Company or any Subsidiary of the Company may vote are issued or
outstanding. Except as disclosed in Section 4.1(b) of the Disclosure
Schedule, all the outstanding shares of capital stock of each Subsidiary
Corporation have been validly issued and are fully paid and nonassessable
and are owned by the Company, by one or more wholly owned Subsidiaries of
the Company or by the Company and one or more such wholly owned
Subsidiaries, free and clear of Liens. Except as set forth above or in
Section 4.1(b) of the Disclosure Schedule, and except for this Agreement,
neither the Company nor any Subsidiary of the Company has or, at or after
the Effective Time will have, any outstanding option, warrant, call,
subscription or other right, agreement or commitment which either (i)
obligates the Company or any such Subsidiary to issue, sell or transfer,
repurchase, redeem or otherwise acquire or vote any shares of the capital
stock of the Company or any shares of capital stock or other equity
interests, as applicable, of such Subsidiary, (ii) restricts the voting,
disposition or transfer of shares of capital stock of the Company, or the
capital stock or other equity interests of any Subsidiary of the Company.
There are no outstanding stock appreciation rights or similar derivative
securities or rights of the Company or any of its Subsidiaries. The Company
has made available to Parent complete and correct copies of the Stock
Option Plan and all forms of Options issued pursuant to the Stock Option
Plan, including all amendments thereto. Section 4.1(b) of the Disclosure
Schedule includes a complete and correct list setting forth as of the date
hereof, (i) the number of Options outstanding, (ii) the dates on which such
Options were granted and (iii) the exercise price of each outstanding
Option.
(ii) Set forth in Section 4.1(b) of the Disclosure Schedule is a true,
complete and correct list of all joint ventures in which the Company or any
of its Subsidiaries has an equity interest ("Joint Ventures"). Such
A-5
<PAGE>
Section identifies the nature and percentage ownership interest in such
entities owned by the Company or its Subsidiary, as the case may be. Except
as set forth in Section 4.1(b) of the Disclosure Schedule, no such Joint
Venture is indebted to the Company or any Subsidiary in an amount in excess
of $50,000 (or in excess of $2,500,000 in the aggregate for all Joint
Ventures). The execution and delivery of this Agreement do not, and the
consummation of the transactions contemplated by this Agreement and
compliance with the provisions hereof will not, conflict with, result in a
breach of or default (with or without notice or lapse of time, or both)
under, or give rise to a right of first refusal, termination, cancellation
or acceleration of any obligation (including to pay any sum of money) or
loss of benefit under any joint venture agreement, except to the extent any
of the foregoing would not have, singly or in the aggregate, a Company
Material Adverse Effect. In addition, the Company, directly or indirectly
through a Subsidiary, beneficially owns a 3.37% equity interest in Capital
Properties Limited Partnership, a limited partnership formed under the laws
of the Province of Ontario ("CPLP").
(c) Authority; Noncontravention. The Company has the requisite corporate
power and authority to enter into this Agreement and, subject to the
approval of its stockholders as set forth in Section 6.2 hereof with
respect to the consummation of the Merger, to consummate the transactions
contemplated by this Agreement. The execution and delivery of this
Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of the Company, subject, in the case of the
Merger, to the approval of its stockholders as set forth in Section 6.2
hereof. This Agreement has been duly executed and delivered by the Company
and, assuming this Agreement constitutes the valid and binding agreement of
Parent and Sub, constitutes a valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, subject to
applicable bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and similar laws affecting creditors' rights and remedies and to
general principles of equity (regardless of whether enforceability is
considered in a proceeding at law or in equity). Except as disclosed in
Section 4.1(c) of the Disclosure Schedule, the execution and delivery of
this Agreement do not, and the consummation of the transactions
contemplated by this Agreement and compliance with the provisions hereof
will not, (i) conflict with any of the provisions of the certificate of
incorporation or by-laws of the Company or the comparable governing
documents of any Subsidiary of the Company, (ii) subject to the
governmental filings and other matters referred to in the following
sentence, conflict with, result in a breach of or default (with or without
notice or lapse of time, or both) under, or give rise to a right of first
refusal, termination, cancellation or acceleration of any obligation
(including to pay any sum of money) or loss of a benefit under, or require
the consent of any person under, any indenture or other agreement, permit,
concession, ground lease, franchise, license or similar instrument or
undertaking to which the Company or any of its Subsidiaries is a party or
by which the Company or any of its Subsidiaries or any of their assets is
bound, result in the creation or imposition of a material Lien or other
restriction or encumbrance on any material asset of the Company or any
Subsidiary, which, singly or in the aggregate, would have a Company
Material Adverse Effect, or (iii) subject to the governmental filings and
other matters referred to in the following sentence, violate any domestic
or foreign law, rule or regulation or any order, writ, judgment,
injunction, decree, determination or award currently in effect except for
such violations, which, singly or in the aggregate, would only have an
immaterial effect. No consent, approval or authorization of, or declaration
or filing with, or notice to, any domestic or foreign governmental agency
or regulatory authority (a "Governmental Entity") or any third party which
has not been received or made, is required by or with respect to the
Company or any of its Subsidiaries in connection with the execution and
delivery of this Agreement by the Company or the consummation by the
Company of the transactions contemplated hereby, except for (i) the filing
of premerger notification and report forms under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), with
respect to the Merger, (ii) the filings with the appropriate Governmental
Entities in Canada under the Competition Act and Investment Canada Act
(together, the "Canadian Acts"), with respect to the Merger and the
transactions contemplated hereby, (iii) the filing with the SEC of (x) a
proxy statement relating to the approval by the stockholders of the Company
of this Agreement (such proxy statement, as amended or supplemented from
time to time, the "Proxy Statement"), and (y) such reports under the
Exchange Act as may be required in connection with this
A-6
<PAGE>
Agreement and the transactions contemplated by this Agreement, (iv) the
filing of the certificate of merger with the Delaware Secretary of State,
(v) such other consents, approvals, authorizations, filings or notices as
are set forth in Section 4.1(c) of the Disclosure Schedule and (vi)
consents, approvals authorizations, declarations, filings and notices that,
if not obtained or made, will not, individually or in the aggregate, result
in a Company Material Adverse Effect.
(d) SEC Documents. (i) The Company has filed all required reports,
schedules, forms, statements and other documents with the Securities and
Exchange Commission (the "SEC") since January 1, 1996 (such reports,
schedules, forms, statements and other documents are hereinafter referred
to as the "SEC Documents"); (ii) as of their respective dates, the SEC
Documents complied in all material respects with the requirements of the
Securities Act of 1933, as amended (the "Securities Act"), or the Exchange
Act, as the case may be, and the rules and regulations of the SEC
promulgated thereunder applicable to such SEC Documents, and none of the
SEC Documents as of such dates contained any untrue statements of a
material fact or omitted to state a material fact required to be stated
therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading; and (iii) the
consolidated financial statements of the Company included in the SEC
Documents and the draft Quarterly Report on Form 10-Q for the period ended
September 30, 1997 set forth as Section 4.1(d) of the Disclosure Schedule
(the "Draft September 30 10-Q") comply as to form in all material respects
with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto, were prepared in all material
respects in accordance with applicable laws, including the Exchange Act,
and generally accepted accounting principals ("GAAP") (except, in the case
of unaudited statements, as permitted by Form 10-Q of the SEC or Rule 10-01
of Regulation S-X) applied on a consistent basis during the periods
involved (except as may otherwise be indicated in the notes thereto) and
fairly present, in all material respects, the consolidated financial
position of the Company and its consolidated Subsidiaries as of the dates
thereof and the consolidated results of their operations and cash flows for
the periods then ended (subject, in the case of unaudited quarterly
statements, to normal year-end audit adjustments). For purposes of this
Agreement, the Draft September 30 10-Q shall be deemed an SEC Document and
a Filed SEC Document.
(e) Information Supplied. The Proxy Statement will not, at the time it is
filed with the SEC, at any time that it is amended or supplemented, at the
time the Proxy Statement is mailed to the Company's stockholders and at the
time of the Stockholders Meeting referred to in Section 6.2 hereof, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading. The Proxy Statement will comply as to form in all material
respects with the requirements of the Exchange Act and the rules and
regulations thereunder. Notwithstanding the foregoing, no representation or
warranty is made by the Company with respect to statements made or
incorporated by reference therein based on information supplied by or on
behalf of Parent or Sub specifically for inclusion or incorporation by
reference in such documents.
(f) Absence of Certain Changes or Events; No Undisclosed Material
Liabilities. (i) Except as disclosed in the SEC Documents filed and
publicly available prior to the date of this Agreement (the "Filed SEC
Documents") or in Section 4.1(f) of the Disclosure Schedule, since the date
of the most recent audited financial statements included in the Filed SEC
Documents, the Company and its Subsidiaries have conducted their business
only in the ordinary course, and there has not been (A) any change,
destruction, damage, loss or event which has had or could reasonably be
expected to have, individually or in the aggregate, a Company Material
Adverse Effect; (B) any declaration, setting aside or payment of any
dividend or other distribution in respect of shares of the Company's
capital stock, or any repurchase, redemption or other acquisition by the
Company or its Subsidiaries of any shares of their respective capital stock
or equity interests, as applicable; (C) any increase in the rate or terms
of compensation payable or to become payable by the Company or its
Subsidiaries to their directors, officers or key employees, except
increases occurring in the ordinary course of business consistent with past
practices or was required under any employment, severance or termination
agreements disclosed in Sections 4.1(g) or 4.1(o) of the Disclosure
Schedule; (D) any entry into, or increase in the rate or terms of, any
bonus, insurance, severance,
A-7
<PAGE>
pension or other employee or retiree benefit plan, payment or arrangement
made to, for or with any such directors, officers or employees, except
increases occurring in the ordinary course of business consistent with past
practices or as was required under employment agreements or employee or
director benefit plans disclosed in Sections 4.1(g), 4.1(h) or 4.1(o) of
the Disclosure Schedule; (E) any entry into any agreement, commitment or
transaction by the Company or any of its Subsidiaries, or waiver,
termination, amendment or modification to any agreement, commitment or
transaction, which is material to the Company and its Subsidiaries taken as
a whole; (F) any material labor dispute involving the employees of the
Company or its Subsidiaries; (G) any change by the Company in accounting
methods, principles or practices except as required or permitted by GAAP;
(H) any write-off or write-down of, or any determination to write-off or
write-down, any asset of the Company or any of its Subsidiaries or any
portion thereof which write-off, write-down, or determination exceeds
$750,000 in the aggregate; (I) any split, combination or reclassification
of any of the Company's capital stock or issuance or authorization relating
to the issuance of any other securities in respect of, in lieu of or in
substitution for shares of the Company's capital stock; (J) any amendment
of any material term of any outstanding security of the Company or any of
its Subsidiaries; (K) any loans, advances or capital contributions to or
investments in, any other person in existence on the date hereof made by
the Company, in each case, in excess of $50,000 (or in excess of $2,500,000
in the aggregate), other than to any direct or indirect wholly-owned
Subsidiary and other than travel and entertainment advances to employees of
the Company in the ordinary course of business consistent with past
practices; (L) any sale or transfer by the Company of any of the assets of
the Company (other than sales or transfers of immaterial assets in the
ordinary course of business), cancellation of any material debts or claims
or waiver of any material rights by the Company; or (M) any agreements by
the Company to (1) do any of the things described in the preceding clauses
(A) through (L) other than as expressly contemplated or provided for herein
or (2) take, whether in writing or otherwise, any action which, if taken
prior to the date of this Agreement, would have made any representation or
warranty of the Company in this Agreement untrue or incorrect in any
material respect.
(ii) Without limiting the foregoing, except (i) as set forth in the most
recent financial statements included in the Filed SEC Documents, (ii) for
liabilities and obligations incurred in the ordinary course of business
consistent with past practice since the date of such financial statements
and (iii) as set forth on Schedule 4.1(f) of the Disclosure Schedule,
neither the Company nor any of its Subsidiaries has any liabilities or
obligations of any material nature that would be required by GAAP to be set
forth on a consolidated balance sheet of the Company and its consolidated
Subsidiaries or in the notes thereto. Except as set forth in Section 4.1(f)
of the Disclosure Schedule, there are no liabilities of the Company or any
Subsidiary of any kind whatsoever, whether accrued, contingent, absolute,
whether due or to become due, determined, determinable or otherwise, that
would have a Company Material Adverse Effect, other than (A) liabilities
reflected on the Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1997, the Draft September 30 10-Q, and the Company's Annual
Report on Form 10-K for the year ended December 31, 1996 and (B)
liabilities under this Agreement or disclosed in the Disclosure Schedule.
(g) Collective Bargaining, Employment Agreements and Labor
Matters. (i) Except as disclosed in the Filed SEC Documents or in Section
4.1(g) of the Disclosure Schedule, since the date of the most recent
audited financial statements included in the Filed SEC Documents, there has
not been any adoption or amendment or any agreement to adopt or amend in
any material respect by the Company or any of its Subsidiaries any
collective bargaining agreement. Except as disclosed in the Filed SEC
Documents or in Section 4.1(g) of the Disclosure Schedule, there exists no
employment, collective bargaining, labor consulting, severance, termination
or indemnification agreements, arrangements or understandings between the
Company or any of its Subsidiaries and any current or former employee,
officer or director of the Company or any of its Subsidiaries. Section
4.1(g) of the Disclosure Schedule sets forth a true, complete and correct
list of all amounts that will become payable to any current or former
employee, officer, director or consultant of the Company or any Subsidiary
or affiliate of the Company, as a result, directly or indirectly, of the
Company's entering into this Agreement or the consummation of the Merger,
which obligation arises from any agreement, plan, arrangement or
understanding in effect on the date hereof with any such persons
("Severance Payments"). Except for the Options and the option agreements
with respect
A-8
<PAGE>
to HFS Holdings, Inc. described on Section 4.1(g) of the Disclosure
Schedule, the Severance Payments, including the severance, bonus or stay
payments permitted under Section 5.1(xii), do not exceed $1,000,000 in the
aggregate.
(ii) Except as set forth in Section 4.1(g) of the Disclosure Schedule, no
employees of the Company or any of its Subsidiaries are represented by any
labor organization and no labor organization or group of employees of the
Company or any of its Subsidiaries has made a pending demand for
recognition or certification, and there are no representation or
certification proceedings or petitions seeking a representation proceeding
presently pending or threatened in writing to be brought or filed with the
National Labor Relations Board or any other labor relations tribunal or
authority.
(iii) Except as set forth on Section 4.1(g) of the Disclosure Schedule,
there are no (A) unfair labor practice charges, grievances or complaints
pending or, to the knowledge of the Company, threatened by or on behalf of
any employee or group of employees of the Company or any of its
Subsidiaries which, if resolved against the Company or any of its
Subsidiaries, as the case may be, would cause a Company Material Adverse
Effect, or (B) complaints, charges or claims against the Company or any of
its Subsidiaries pending, or, to the knowledge of the Company, threatened
to be brought or filed, with any Governmental Entity or arbitrator based
on, arising out of, in connection with, or otherwise relating to the
employment or termination of employment of any individual by the Company or
any of its Subsidiaries which, if resolved against the Company or any of
its Subsidiaries, as the case may be, would cause a Company Material
Adverse Effect.
(h) Benefit Plans. (i) Each "employee pension benefit plan" (as defined
in Section 3(2) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA") other than a multiemployer plan) (hereinafter a "Pension
Plan"), each "employee welfare benefit plan" (as defined in Section 3(1) of
ERISA) (hereinafter a "Welfare Plan"), and each other material plan,
arrangement, policy or payroll practice (written or oral) including but not
limited to stock option, stock purchase, incentive compensation, deferred
compensation, equity-based compensation, severance, change of control,
vacation pay, company awards, salary continuation for disability, sick
leave, insurance, bonus or other incentive or employee benefit plan or
arrangement other than a Pension Plan or Welfare Plan, in each case,
maintained or contributed to, or required to be maintained or contributed
to, by the Company and/or its Subsidiaries for the benefit of any present
or former officers, employees, agents, directors or independent contractors
of the Company or any of its Subsidiaries or with respect to which the
Company and/or its Subsidiaries has any liability (all the foregoing being
herein collectively called "Benefit Plans") shall be given to or made
available to Parent as soon as practical following the date hereof. Section
4.1(h) of the Disclosure Schedule sets forth a correct and complete list of
all Benefit Plans.
(ii) Except as disclosed in the Filed SEC Documents or in Section 4.1(h)
of the Disclosure Schedule:
(a) none of the Company or any other person or any trade or business
(whether or not incorporated) that together with the Company is treated
as a single employer under Section 414(b), (c), (m) or (o) of the Code
(each a "Commonly Controlled Entity") has incurred any material
liability to, or with respect to, any Pension Plan covered by Title IV
of ERISA (other than for contributions not yet due) or to the Pension
Benefit Guaranty Corporation (the "PBGC") (other than for the payment
of premiums not yet due, in each case, which remain unpaid);
(b) no Commonly Controlled Entity is, or has been during the
preceding six years, required to contribute to any "multiemployer plan"
(as defined in Section 4001(a)(3) of ERISA ("Multiemployer Plan") or
(y) has withdrawn from any Multiemployer Plan. The Company will request
within twelve business days of the date hereof from each Multiemployer
Plan an estimate of the withdrawal liability that would be assessed if
the Company and all Commonly Controlled Entities withdrew from the Plan
and will disclose any response to any such request to Parent within ten
days of receipt thereof by the Company, but in all events prior to the
Effective Time;
(c) nothing done or omitted to be done and no transaction or holding
of any asset under or in connection with any Benefit Plan has or will
make the Company or any of its Subsidiaries or any officer
A-9
<PAGE>
or director of the Company or any of its Subsidiaries subject to any
material liability under Title I of ERISA or liable for any material
tax pursuant to Section 4975, 4976 or 4980 of the Code;
(d) each Benefit Plan which is intended to be qualified under Section
401(a) of the Code is so qualified and has been so qualified during the
period from its adoption to date, and each trust forming a part thereof
is exempt from tax pursuant to Section 501(a) of the Code, and nothing
has occurred with respect to the operation of any such Plan which could
cause the loss of such qualification or exemption or the imposition of
any material liability, penalty or tax under ERISA or the Code;
(e) none of the Benefit Plans promises or provides retiree medical or
life insurance benefits to any person, except as may be required by
law;
(f) neither the Company nor any of its Subsidiaries has an obligation
to adopt any new benefit plan or, except as required by law, the
amendment of an existing Benefit Plan;
(g) each Benefit Plan has been operated in all material respects in
accordance with its terms and the requirements of all applicable law;
(h) each of the Company and its Subsidiaries and ERISA Affiliates
which maintains a "benefit plan" within the meaning of Section
5000(b)(1) of the Code has complied in all material respects with the
notice and continuation requirements of Section 4980B of the Code,
COBRA and the regulations thereunder;
(i) neither the execution or delivery of this Agreement nor the
consummation of the transactions contemplated hereby will result in (A)
any payment or increase in any benefits becoming due under any Benefit
Plan or any compensation arrangement or (B) the acceleration of the
time of payment or vesting of any such benefits; and
(j) each Pension Plan which is subject to Title IV of ERISA has no
unfunded benefit liability, as determined pursuant to PBGC funding
assumptions.
(i) Taxes. Except as set forth in Section 4.1(i) of the Disclosure Schedule:
(a) The Company, and each affiliated (within the meaning of Section
1504 of the Code), combined or unitary group of which the Company is a
member, has timely filed (including extensions permitted by law) all
federal, state, local, foreign, income and franchise tax returns and
all other material Tax Returns (as defined below) required to be filed
by them. All such Tax Returns are true and correct in all material
respects. Except to the extent adequately reserved for in accordance
with GAAP, all material Taxes due and payable by the Company and its
Subsidiaries (except with respect to Joint Ventures that own or lease
Minor Assets, only to the knowledge of the Company) have been timely
paid in full. The most recent consolidated financial statements
contained in the Filed SEC Documents reflect an adequate reserve in
accordance with GAAP for all Taxes payable by the Company and its
Subsidiaries for all taxable periods and portions thereof through the
date of such financial statements.
(b) No material deficiencies for any Taxes (as defined below) have
been proposed, asserted or assessed against the Company or any of its
Subsidiaries (except with respect to Joint Ventures that own or lease
Minor Assets, only to the knowledge of the Company) that have not been
fully paid or adequately provided for in the appropriate financial
statements of the Company and its Subsidiaries (except with respect to
Joint Ventures that own or lease Minor Assets, only to the knowledge of
the Company).
(c) There are no material liens or encumbrances for Taxes on any of
the assets of the Company or its Subsidiaries (except with respect to
Joint Ventures that own or lease Minor Assets, only to the knowledge of
the Company) (other than for current Taxes not yet due and payable).
(d) The Company has complied in all material respects with all
applicable laws, rules and regulations relating to the payment and
withholding of Taxes.
(e) None of the Company or its Subsidiaries (except with respect to
Joint Ventures that own or lease Minor Assets, only to the knowledge of
the Company) is a party to any tax allocation agreement, tax sharing
agreement, tax indemnity agreement or similar agreement, arrangement or
practice with
A-10
<PAGE>
respect to Taxes (including any advance pricing agreement, closing
agreement, private letter ruling or other agreement relating to Taxes
with any taxing authority).
(f) No audits or other administrative or court proceedings are
presently pending with regard to any Taxes or Tax Returns of the
Company or its Subsidiaries (except with respect to Joint Ventures that
own or lease Minor Assets, only to the knowledge of the Company) and
neither the Company nor any of its Subsidiaries (except with respect to
Joint Ventures that own or lease Minor Assets, only to the knowledge of
the Company) has received a written notice of any pending audit or
proceeding with respect to Taxes except for such audits or proceedings
with potential liabilities for more than $5,000 individually or $25,000
in the aggregate; provided, however, that the Company shall deliver to
Parent any such notice received after the date hereof and prior to the
Effective Time as soon as practicable (but in no event later than ten
days) after receipt by the Company of such notice. No material issues
relating to Taxes have been raised in writing by any Governmental
Entity during any presently pending audit, or other administrative
proceeding; provided, however, in the event that the Company shall
receive any written notice from a Governmental Entity relating to Taxes
after the date hereof prior to the Effective Date, the Company shall
deliver to Parent as soon as practicable, but in no event later than
ten (10) days, a copy of such notice.
(g) Neither the Company nor any of its Subsidiaries (except with
respect to Joint Ventures that own or lease Minor Assets, only to the
knowledge of the Company) has agreed to make any material adjustment
under Section 481(a) of the Code.
(h) No property owned by the Company or any of its Subsidiaries
(except with respect to Joint Ventures that own or lease Minor Assets,
only to the knowledge of the Company) is (i) property required to be
treated as being owned by another person pursuant to the provisions of
Section 168(f)(8) of the Internal Revenue Code of 1954, as amended and
in effect immediately prior to the enactment of the Tax Reform Act of
1986; (ii) "tax exempt use property" within the meaning of Section
168(h) of the Code; or (iii) "tax exempt bond financed property" within
the meaning of Section 168(g) of the Code.
(i) Since the date of the most recent financial statements included
in the Filed SEC Documents, the Company and each of its Subsidiaries
(except with respect to Joint Ventures that own or lease Minor Assets,
only to the knowledge of the Company) has made sufficient accrual for
Taxes in accordance with GAAP with respect to periods for which Tax
Returns have not been filed.
(j) There are no outstanding agreements, waivers or arrangements
extending the statutory period of limitations applicable to any claim
for, or the period for the collection or assessment of, Taxes due from
the Company or any Subsidiary (except with respect to Joint Ventures
that own or lease Minor Assets, only to the knowledge of the Company)
of the Company for any taxable period.
(k) There is no contract, agreement, plan or arrangement covering any
person that, individually or collectively, could give rise to the
payment of any amount that would not be deductible by the Company or
any Subsidiary (except with respect to Joint Ventures that own or lease
Minor Assets, only to the knowledge of the Company) of the Company by
reason of Section 280G of the Code in excess of $20,000 individually
and $100,000 in the aggregate.
(l) Section 4.1(i) of the Disclosure Schedule sets forth as of
December 31, 1996 and projected as of December 31, 1997 the adjusted
basis for federal income tax purposes of the Assets of the Company and
its Subsidiaries and any long-term debt in excess of $500,000 held by
the Company or any of its Subsidiaries (except with respect to Joint
Ventures that own or lease Minor Assets, only to the knowledge of the
Company) described therein. Section 4.1(i) of the Disclosure Schedule
also sets forth as of December 31, 1996 the tax basis capital accounts
for the Joint Ventures and their respective percentage interests and
the tax basis of such Subsidiary Corporation.
(m) For purpose of this Agreement, (A) the terms "Tax" or "Taxes"
shall mean all taxes, charges, fees, imposts, levies or other
assessments, including, without limitation, all net income, gross
receipts, capital, sales, use, ad valorem, value added, transfer,
franchise, profits, inventory, capital stock, license, withholding,
payroll, employment, social security, unemployment, excise, severance,
A-11
<PAGE>
stamp, occupation, property (other than real property taxes not yet due
and payable) and estimated taxes, customs duties, fees, assessments and
charges of any kind whatsoever, together with any interest and any
penalties, fines, additions to tax or additional amounts imposed by any
taxing authority (domestic or foreign) and shall include any transferee
liability in respect of Taxes, any liability in respect of Taxes
imposed by contract, tax sharing agreement, tax indemnity agreement or
any similar agreement and (B) the term "Tax Return" shall mean any
report, return, document, declaration or any other information or
filing required to be supplied to any taxing authority or jurisdiction
(foreign or domestic) with respect to Taxes, including, without
limitation, information returns, any document with respect to or
accompanying payments or estimated Taxes, or with respect to or
accompanying requests for the extension of time in which to file any
such report, return document, declaration or other information.
(j) Voting Requirements. The affirmative vote of a majority of the votes
cast by the holders of the issued and outstanding Shares entitled to vote
thereon at the Stockholders Meeting described in Section 6.2 hereof with
respect to the approval of the Merger is the only vote of the holders of any
class or series of the Company's capital stock or other securities necessary
to approve this Agreement, the Merger and the other transactions contemplated
by this Agreement.
(k) Compliance with Applicable Laws. Each of the Company and its
Subsidiaries has and after giving effect to the transactions contemplated
hereby will have in effect all federal, state, local and foreign governmental
approvals, authorizations, certificates, filings, franchises, licenses,
notices, permits and rights ("Permits," including, without limitation, Permits
required under Hazardous Substances Laws (as defined in Section 4.1(q)(xi)
hereof)) necessary for it to own, lease or operate its properties and assets
and to carry on its business as now conducted, and to the knowledge of the
Company there has occurred no default under any such Permit, except for the
lack of Permits and for defaults under Permits which lack or default
individually or in the aggregate would not have a Company Material Adverse
Effect. Except as set forth in Section 4.1(k) of the Disclosure Schedule, to
the Company's knowledge the Company and its Subsidiaries are in compliance
with, and have no liability or obligation under, all applicable statutes,
laws, ordinances, rules, orders and regulations of any Governmental Entity,
including any liability or obligation to undertake any remedial action under
Hazardous Substances Laws, except for instances of non-compliance, liabilities
or obligations, which individually or in the aggregate would only have an
immaterial effect.
(l) Opinion of Financial Advisor. The Company has received the opinions of
Lehman Brothers and Chase Securities Inc., dated the date hereof (a true and
complete copy of each of which has been delivered to Parent), to the effect
that, as of such date, the consideration to be received in the Merger by the
Company's stockholders is fair to the Company's stockholders from a financial
point of view, and, as of the date hereof, such opinions have not been
withdrawn or modified.
(m) Brokers. No broker, investment banker, financial advisor or other
person, other than Lehman Brothers, Chase Securities and Bear Stearns & Co.,
the fees and expenses of which will be paid by the Company, is entitled to any
broker's, finder's, financial advisor's or other similar fee or commission in
connection with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of the Company.
(n) Litigation, etc. As of the date hereof, except as set forth in the Filed
SEC Documents or as disclosed in Section 4.1(n) of the Disclosure Schedule,
(i) there is no suit, claim, action or proceeding (at law or in equity)
pending or, to the knowledge of the Company, threatened against the Company or
any of its Subsidiaries (including, without limitation, any product liability
claims) before any court or governmental or regulatory authority or body, and
(ii) neither the Company nor any of its Subsidiaries is subject to any
outstanding order, writ, judgement, injunction, order, decree or arbitration
order that, in any such case described in clauses (i) and (ii), (A) could
reasonably be expected to have, individually or in the aggregate, a Company
Material Adverse Effect or (B) involves an allegation of criminal misconduct
or a violation of the Racketeer and Influenced Corrupt Practices Act, as
amended. As of the date hereof, there are no suits, actions, claims or
proceedings pending or, to the Company's knowledge, threatened, seeking to
prevent, hinder, modify or challenge the transactions contemplated by this
Agreement.
A-12
<PAGE>
(o) Material Contracts. (A) There have been made available to the Parent,
its affiliates and their representatives true and complete copies of all of
the following contracts to which the Company or any of its Subsidiaries is a
party or by which any of them is bound (collectively, the "Material
Contracts"): (i) contracts with any current or former officer or director of
the Company or any of its Subsidiaries; (ii) contracts for the sale of any
real property or other material assets of the Company or any of its
Subsidiaries or for the purchase of real property or other material assets
other than in the ordinary course of business or for the grant to any person
of any preferential rights to purchase any of its material assets; (iii)
contracts containing covenants of the Company or any of its Subsidiaries not
to compete in any line of business or with any person in any geographical
area; (iv) indentures, credit agreements, mortgages, promissory notes, and all
contracts relating to the borrowing of money; (v) contracts, agreements or
arrangements with any affiliate of the Company or any of its Subsidiaries,
(vi) joint venture agreements to which the Company or any of its Subsidiaries
are a party, and (vii) all other agreements which would be required to be
filed as an exhibit to a Form 10-K of the Company as of the date of this
Agreement. Section 4.1(o) of the Disclosure Schedule identifies all Material
Contracts and except as set forth in such Section of the Disclosure Schedule,
all of the Material Contracts are in full force and effect. Except as set
forth on Section 4.1(o) of the Disclosure Schedule, neither the Company nor
any Subsidiary is in default in any material respect under any Material
Contract nor, to the knowledge of the Company, is any other party to any
Material Contract in default thereunder in any material respect except for
those that individually or in the aggregate would not have a Company Material
Adverse Effect. Except as set forth in Section 4.1(c) of the Disclosure
Schedule, the execution and delivery of this Agreement do not, and the
consummation of the transactions contemplated by this Agreement and compliance
with the provisions hereof will not, conflict with, result in a breach of or
default (with or without notice or lapse of time, or both) under, or give rise
to a right of first refusal, termination, cancellation or acceleration of any
obligation (including to pay any sum of money) or loss of benefit under any
Material Contract. With respect to any Major Assets (as defined in Section
4.1(q) hereof) currently being developed, Section 4.1(o) of the Disclosure
Schedule sets forth a list of all plans and specifications for such Major
Assets and any construction contract entered into by the Company or its
Subsidiaries. No third party (other than (i) Royco Resorts & Hotels Ltd.
("Royco") with respect solely to the Assets (as defined in Section 4.1(q)
hereof) or (ii) certain joint venture partners with respect to the relevant
joint venture Assets) has any agreement with the Company or any Subsidiary to
manage any of the Assets.
(B) Section 4.1(o) of the Disclosure Schedule sets forth a complete and
correct list of all material agreements and contracts by and between the
Company or its Subsidiaries, on the one hand, and any of Royco, CPLP or any of
their respective affiliates (including Terrance G. Royer, Randy B. Royer,
Peter P. Sikora and Gregory Royer), on the other hand, with respect to the
performance of management services, the conduct of any franchising or sub-
franchising business or the development of hotels or motels, in each case on
behalf of, in cooperation with, or for the benefit of the Company or any
Subsidiary, and true, complete and correct copies of such agreements and
contracts have been made available to Parent.
(p) Unlawful Payments and Contributions. To the knowledge of the Company,
neither the Company, any Significant Subsidiary nor any of their respective
directors, officers or any of their respective employees or agents has (i)
used any Company or Company Subsidiary funds for any unlawful contribution,
endorsement, gift, entertainment or other unlawful expense relating to
political activity; (ii) made any direct or indirect unlawful payment to any
foreign or domestic government official or employee; (iii) violated or is in
violation of any provision of the Foreign Corrupt Practices Act of 1977, as
amended; or (iv) made any bribe, rebate, payoff, influence payment, kickback
or other unlawful payment to any person.
(q) Real Property. Section 4.1(q) of the Disclosure Schedule sets forth, as
of the date of this Agreement (A) all real property owned by the Company and
its Subsidiaries, singly or in common or joint venture with each other or
other entities or individuals (the "Owned Real Property"), and (B) all real
property that the Company and its Subsidiaries has leased or subleased among
themselves or from a third party, singly or in common or joint venture with
each other or with other entities or individuals (the "Leased Real Property"
and, together with the Owned Real Property, the "Assets" and each an "Asset").
The representations and warranties in this Section 4.1(q) shall only be as to
the knowledge of the Company when referring to Assets which are not
A-13
<PAGE>
Major Assets (as such term is defined on Section 4.1(q) of the Disclosure
Schedule), such Assets are herein referred to as "Minor Assets".
(i) Except as set forth in Section 4.1(q)(i) of the Disclosure Schedule,
there are no contracts of sale which have been executed by the Company or
any Subsidiary of the Company that grants the right to any party to
purchase any Asset, or any part thereof.
(ii) There are no security deposits, advance rent payments for more than
sixty (60) days or other deposits made by any tenants of any Retail Lease
(as defined below), other than the security deposits and advance rent
payments described in Section 4.1(q)(iii) of the Disclosure Schedule.
(iii) All retail leases in effect at the Major Assets ("Retail Leases")
and all ground leases (pertaining to Leased Real Property) and amendments
thereto are set forth in Section 4.1(q)(iii) of the Disclosure Schedule
(each such Retail Lease or ground lease, individually, a "Lease", and
collectively, the "Leases"). Except with respect to the Non-Core Assets (as
defined in Schedule 4.1(q)) the Company has made available to Parent or its
representative true, correct and complete copies of all Leases. The Leases
are in full force and effect, and the Company has no knowledge of any event
which, with the passage of time or giving of notice, or both, would cause
the Company or any tenant or landlord of any Lease to be in default of its
Lease. No commissions or finders fees are due with regard to any Lease. Set
forth in Section 4.1(q)(iii) of the Disclosure Schedule, are rent rolls
showing all Leases and the information set forth therein is true, correct
and complete in all material respects. At Parent's request, the Company
shall send estoppel certificates ("Estoppel Certificates") in a form
reasonably approved by Parent and the Company to those ground lessors
reasonably requested by Parent. The Company shall have available for review
by Parent proof of first-class mailing of the Estoppel Certificates and at
the request of Parent shall place one telephone call to each recipient of
an Estoppel Certificate, if necessary, in order to obtain such Estoppel
Certificate. The parties hereto agree that the obtaining of the Estoppel
Certificates is not a condition to Closing.
(iv) The Company has no knowledge of any action or proceeding
contemplated, instituted, threatened or pending for eminent domain or for
condemnation of all or any part of any Asset.
(v) Except as set forth in Section 4.1(q)(v) of the Disclosure Schedule,
no assessments for public improvements have been made against any Asset
which is due and payable.
(vi) There are no outstanding commitments made by the Company or any
Subsidiary of the Company to any governmental authority, utility company,
association or to any other organization, group or individual, relating to
any Asset, which will impose an obligation upon the Company or any
Subsidiary of the Company or its successors or assigns to make any
contributions or dedications of land, or to construct, install or maintain
any improvements of a public or private nature on or in respect of any
Asset.
(vii) Except as set forth on Section 4.1(q)(vii) of the Disclosure
Schedule, the Company has no written notice from any Governmental Entity or
insurance company of any material violations of any laws, statutes,
ordinances, orders, regulations affecting any Asset or any part of any
Asset.
(viii) Except as disclosed on the financial statements of the Company or
on Section 4.1(q)(viii) of the Disclosure Schedule, the Company has no
knowledge of any mechanics' or materialmen's Liens against any Asset.
(ix) As of the date of this Agreement, each of the Company or one of the
Subsidiaries or Joint Ventures has fee title to its interest in the
applicable Owned Real Property or a leasehold interest in the applicable
Leased Real Property as provided in the applicable Lease, in each case,
free and clear of all Liens, encumbrances and defects, except for (A)
Liens, encumbrances, defects, exceptions, easements, rights of way,
restrictions, covenants, claims or other similar charges listed or
identified in the title report, commitment or title opinions referenced on
Section 4.1(q)(ix) of the Disclosure Schedule with respect to the
applicable Assets, which do not, individually or in the aggregate, have a
Material Adverse Effect on the use or operation of the Assets as a hotel or
motel consistent with the current use thereof, (B) Liens, encumbrances,
defects, easements, rights of way, restrictions, covenants, claims or other
similar charges (other than material monetary Liens, except those
obligations or Liens in respect of which are disclosed in
A-14
<PAGE>
the financial statements of the Company or its Subsidiaries, as the case
may be, or set forth in Section 4.1(q)(ix) of the Disclosure Schedule),
whether or not of record, which do not, individually or in the aggregate,
have a Material Adverse Effect on the use or operation of the Assets as a
hotel or motel consistent with the current use thereof, (C) taxes or
assessments, special or otherwise, not due and payable or being contested
in good faith, (D) aboriginal title or Native American claims, and other
standard exceptions which would be contained in an ALTA Form extended
coverage owner's policy of title insurance and not removable by endorsement
or premium under the laws of the state in which the applicable Asset is
located, (E) rights of parties in possession, as tenants only, under the
Retail Leases or any party claiming through or under such tenants, (F) any
state of facts, rights, interests or claims which could be ascertained by
an inspection of the Minor Assets, the existence of which does not
materially interfere with the continued use of the Minor Assets consistent
with their current use and (G) any discrepancies, conflicts or boundary
lines, shortages in area, encroachments, or any other facts which an
accurate survey would disclose, the existence of which does not materially
interfere with the continued use of the Assets consistent with the current
use thereof. The Company and the Subsidiaries of the Company have no
written notice of any breach or violation of any material term, covenant,
condition or restriction constituting one or more of the encumbrances
recorded or otherwise binding against the Assets.
(x) Except as expressly set forth herein, the Parent and Sub shall
acquire the above-described beneficial interests in the Assets in its "AS
IS" condition at the Closing Date, subject to all latent and patent defects
(whether physical, financial or legal, including title defects), based
solely on Parent's and Sub's own inspection, analysis and evaluation of the
Assets and not in reliance on any records or other information obtained
from the Company or on the Company's behalf. Each of Parent and Sub
acknowledges that, except for those expressly set forth herein, it is not
relying on any statement or representation that has been made or that in
the future may be made by the Company or any of the Company's employees,
agents, attorneys or representatives concerning the condition of the
property (whether relating to physical conditions, operation performance,
title, or legal matters).
(xi) Except as set forth on Section 4.1(q)(xi) of the Disclosure Schedule
and in the environmental reports of the Company which were made available
to Parent and are described in the Disclosure Schedule (the "Environmental
Reports"), the Company has not received any written notice from any
Governmental Entity that there exists any violation of any Hazardous
Substances Law (as hereinafter defined). Except as set forth in the
Environmental Reports, the Company has no knowledge (i) of any Hazardous
Substances (as hereinafter defined) present on, under or about any Asset,
and to the Company's knowledge no discharge, spillage, uncontrolled loss,
seepage or filtration of Hazardous Substances has occurred on, under or
about any Asset, (ii) that any of the Assets violates, or has at any time
violated, any Hazardous Substance Laws, and to the Company's knowledge,
(iii) there is no condition on any Asset for which the Company has an
obligation to undertake any remedial action pursuant to Hazardous Substance
Laws. For purposes hereof, "Hazardous Substances" means, without limitation
(1) those substances included within definitions of any one or more of the
terms "Hazardous Substance," and "Hazardous Waste," "Toxic Substance" and
"Hazardous Material" in the Comprehensive Environmental Response
Compensation and Liability Act, as amended, 42 U.S.C. (S) 90,601, et seq.
("CERCLA"), the Resource Conservation and Recovery Act, as amended, 42
U.S.C. (S) 6901, et seq. ("RCRA"), the Toxic Substances Control Act, as
amended, 15 U.S.C. (S) 2601, et seq., the Hazardous Materials
Transportation Act, as amended, 49 U.S.C. (S) 1801 et seq., the
Occupational Safety and Health Act, 29 U.S.C. (S) 651, et seq. (insofar as
it relates to employee health and safety in relation to exposure to
Hazardous Substances) and any other local, state, federal or foreign laws
or regulations related to the protection of public health or the
environment (collectively, "Hazardous Substances Laws"); (2) such other
substances, materials or wastes as are or become regulated under, or as are
classified as hazardous or toxic under Hazardous Substance Laws; and (3)
any materials, wastes or substances that can be defined as (A) petroleum
products or wastes; (B) asbestos; (C) polychlorinated biphenyl; (D)
flammable or explosive; or (E) radioactive.
(xii) No portions of the books, records or files of the Company have
been, nor will they be, deliberately disposed of, purged, shredded or
otherwise destroyed, except in the ordinary course of business.
A-15
<PAGE>
(r) Anti-takeover Plan; State Takeover Statutes. Neither the Company nor any
Subsidiary has in effect any plan, scheme, device or arrangement, commonly or
colloquially known as a "poison pill" or "anti-takeover" plan or any similar
plan, scheme, device or arrangement. The Board of Directors of the Company has
approved the Merger and this Agreement and has agreed (unless otherwise
required in accordance with the fiduciary duties of the Board of Directors
under applicable law as advised by outside legal counsel to the Company) to
recommend that holders of Shares vote their shares in favor of the Merger;
such approval is sufficient to render inapplicable to the Merger and this
Agreement and the transactions contemplated by this Agreement the provisions
of Section 203 of the DGCL. To the knowledge of the Company, no other state
takeover statute or similar statute or regulation applies or purports to apply
to the Merger, this Agreement or any of the transactions contemplated by this
Agreement.
(s) Insurance. The Company maintains, and has maintained, without
interruption, during its existence, policies or binders of insurance covering
such risk and events, including personal injury, property damages and general
liabilities in amounts the Company reasonably believes adequate for its
business and operations, and except as set forth in Section 4.1(s) of the
Disclosure Schedule, such policies shall not terminate as a result of the
consummation of the transactions contemplated hereby.
(t) Affiliate Transactions. Except to the extent disclosed in Section 4.1(t)
of the Disclosure Schedule, there are no transactions, agreements,
arrangements or understandings between the Company or its Subsidiaries, on the
one hand, and the Company's affiliates (other than wholly-owned Subsidiaries
of the Company), on the other hand ("Affiliate Agreements"). Since December
31, 1996 no payments have been made to any affiliate of the Company other than
as specifically required by the Affiliate Agreements, no payments will be made
in connection with this Agreement (except as provided for herein) and, after
consummation of the Merger, neither the Company nor any of its Subsidiaries
shall have any obligations or liabilities to any affiliate or officer or
director of any of the Company or any of its Subsidiaries other than pursuant
to Sections 2.2 and 6.5 hereof.
(u) Disclosure Schedule. Items disclosed in any one Section of the
Disclosure Schedule are deemed to be disclosed in such other Sections of the
Disclosure Schedule as is necessary for purposes of the completeness and
accuracy of the related representation or warrants, but only to the extent it
is readily apparent from the description of the particular item or disclosure
that such item or disclosure would be applicable to any other such Section of
the Disclosure Schedule.
Section 4.2 Representations and Warranties of Parent and Sub. Parent and Sub
represent and warrant to the Company as follows:
(a) Organization, Standing and Corporate Power. Parent is a limited
partnership duly organized, validly existing and in good standing under the
laws of the State of Delaware, and Sub is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of
Delaware, and each of them has all requisite partnership or corporate power
and authority to own, lease and operate its properties and to carry on its
business substantially as now conducted, except where the failure to do so
would not have, individually or in the aggregate, a Parent Material Adverse
Effect. For purposes hereof, the term "Parent Material Adverse Effect"
means any change or effect that is or is reasonably expected to be
materially adverse to the condition (financial or otherwise), business,
assets or results of operations, of the Parent and its Subsidiaries taken
as a whole or adversely effects the ability of the Parent to consummate the
transactions contemplated by this Agreement in any material respect or
materially impairs or delays the Parent's ability to perform its
obligations hereunder.
(b) Authority Noncontravention. The execution, delivery and performance
by each of Parent and Sub of this Agreement and the consummation of the
Merger by Sub are within the partnership or corporate powers and authority,
as the case may be, of each of Parent and Sub and have been duly authorized
by all necessary partnership or corporate action, as the case may be, on
the part of each of Parent and Sub. Each of Parent, as sole stockholder of
Sub, and the Board of Directors of Sub has approved the Merger and no
further corporate or stockholder action is required on the part of Sub in
connection with the consummation of the Merger other than the filing of a
certificate of merger as contemplated by this Agreement. This
A-16
<PAGE>
Agreement has been duly executed and delivered by each of Parent and Sub
and, assuming this Agreement constitutes the valid and binding agreement of
the Company, constitutes a valid and binding obligation of each of Parent
and Sub, enforceable against each such party in accordance with its terms,
subject to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar laws affecting creditors' rights and
remedies and to general principles of equity. The execution and delivery of
this Agreement do not, and the consummation of the transactions
contemplated by this Agreement and compliance with the provisions of this
Agreement, will not (i) conflict with any of the provisions of the limited
partnership agreement of Parent or the certificate of incorporation or by-
laws of Sub, (ii) subject to the governmental filings and other matters
referred to in the following sentence, conflict with, result in a breach of
or default (with or without notice or lapse of time, or both) under, or
give rise to a right of termination, cancellation or acceleration of any
obligation or loss of a material benefit under, or require the consent of
any person under, any indenture, or other material agreement, permit,
concession, franchise, license or similar instrument or undertaking to
which Parent or Sub is a party or by which Parent or Sub or any of their
assets is bound or affected, or (iii) subject to the governmental filings
and other matters referred to in the following sentence, contravene any
law, rule or regulation, or any order, writ, judgment, injunction, decree,
determination or award binding on or applicable to Parent or Sub and
currently in effect, which, in the case of clauses (ii) and (iii) above,
singly or in the aggregate, would have a Parent Material Adverse Effect. No
consent, approval or authorization of, or declaration or filing with, or
notice to, any Governmental Entity which has not been received or made is
required by or with respect to Parent or Sub in connection with the
execution and delivery of this Agreement by Parent or Sub or the
consummation by Parent or Sub, as the case may be, of any of the
transactions contemplated by this Agreement, except for (i) the filing of
premerger notification and report forms under the HSR Act with respect to
the Merger, (ii) the filings with appropriate Government Entities in Canada
under the Canadian Acts with respect to the Merger and the transaction
contemplated hereby, (iii) the filing with the SEC of the Proxy Statement
and such other reports under the Exchange Act as may be required in
connection with this Agreement and the transactions contemplated hereby,
(iv) the filing of the certificate of merger with the Delaware Secretary of
State, and (v) such other consents, approvals, authorizations, filings or
notices as are set forth in Section 4.2(b) of the Disclosure Schedule.
(c) Information Supplied. None of the information supplied or to be
supplied by Parent or Sub specifically for inclusion or incorporation by
reference in the Proxy Statement will, at the date it is filed with the
SEC, at any date on which it is amended or supplemented, the date it is
first mailed to the Company's stockholders and at the time of the
Stockholders Meeting described in Section 6.2, contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading.
(d) Sub. As of the date hereof, Parent owns all of the outstanding
capital stock of Sub. As of the Effective Time, Parent will own a majority
of the outstanding capital stock of Sub. Sub was formed by Parent solely
for the purpose of engaging in the transactions contemplated by this
Agreement. Except as contemplated by this Agreement, Sub has not engaged,
directly or through any Subsidiary, in any business activities of any type
or kind whatsoever.
(e) No Brokers. No broker, investment banker, financial advisor or other
person is entitled to any broker's, finder's, financial advisor's or other
similar fee or commission in connection with the transactions contemplated
by this Agreement based upon arrangements made by or on behalf of Parent.
ARTICLE V
Covenants
Section 5.1 Conduct of Business of the Company Prior to the Merger. Except
as set forth in Section 5.1 of the Disclosure Schedule or as expressly
contemplated by this Agreement, during the period from the date of this
Agreement to the Effective Time, the Company shall, and shall cause its
Subsidiaries to, act and carry on
A-17
<PAGE>
their respective businesses (including businesses conducted through Joint
Ventures) in the ordinary course of business consistent with past practice and
use their reasonable best efforts to preserve intact their current business
organizations (and Joint Ventures), keep available the services of their
current key officers and employees and preserve the goodwill of those engaged
in material business relationships with them, and to that end, without
limiting the generality of the foregoing, except as expressly contemplated by
this Agreement, the Company shall not, and, except as set forth in Section 5.1
of the Disclosure Schedule (subject, only where expressly stated therein, to
the consent of Parent), shall not permit any of its Subsidiaries to, without
the prior written consent of Parent:
(i)(x) except for a direct or indirect wholly owned Subsidiary, declare,
set aside or pay any dividends on, or make any other distributions (whether
in cash, stock or property) in respect of, any outstanding capital stock,
(y) split, combine or reclassify any of its outstanding capital stock or
issue or authorize the issuance of any other securities in respect of, in
lieu of or in substitution for shares of its outstanding capital stock, or
(z) purchase, redeem or otherwise acquire any shares of outstanding capital
stock or any rights, warrants or options to acquire any such shares;
(ii) issue, sell, grant, pledge or otherwise encumber any shares of its
capital stock, any other voting securities or any securities convertible
into or exchangeable for, or any rights, warrants or options to acquire,
any such shares, voting securities or convertible or exchangeable
securities, other than upon the exercise of Options outstanding on the date
of this Agreement and except for automatic grants of options to directors
of the Company under the Stock Option Plan;
(iii) amend its certificate of incorporation, bylaws or other comparable
charter or organizational documents;
(iv) directly or indirectly acquire, make any investment in, or make any
capital contributions to, any person (other than any wholly-owned
Subsidiary) or except in the ordinary course of business consistent with
past practice, acquire, lease or agree to manage any assets or properties;
(v) directly or indirectly sell, lease, mortgage or otherwise encumber or
subject to any Lien or otherwise dispose of any of its properties or assets
(including stock or other ownership interests in any properties or
Subsidiaries), other than in the ordinary course of business consistent
with past practice, except for the sale of (i) the stock of Chartwell
Mexico Corp. or (ii) the Company's interest in Grupo Chartwell de Mexico,
S.A. de C.V. (collectively, the "Mexican Joint Venture") as contemplated by
Section 7.2(d) hereof;
(vi) purchase or sell any real property or other material asset or enter
into any agreement to purchase or sell the same;
(vii) modify the terms of, terminate or fail in any material respect to
comply with the terms of any Lease, franchise agreement or joint venture
agreement, or enter into any new Lease, franchise agreement or joint
venture agreement;
(viii) undertake any material construction or alteration with respect to
any Asset;
(ix)(x) incur any indebtedness for borrowed money or guarantee any such
indebtedness of another person, other than indebtedness owing to or
guarantees of indebtedness owing to the Company or any Subsidiary of the
Company, (y) issue or sell any debt securities or warrants or other rights
to acquire debt securities or (z) make any loans or advances to any other
person, other than to the Company or to any direct or indirect wholly-owned
Subsidiary of the Company and other than routine advances to employees
consistent with past practice, and except, in the case of clause (x), for
borrowings under existing credit facilities in the ordinary course of
business;
(x) make any tax election or settle or compromise any income tax
liability of the Company or of any of its Subsidiaries. The Company shall,
before filing or causing to be filed any tax return of the Company or any
of its Subsidiaries, consult with and obtain the approval of Parent and its
advisors as to the positions and elections that may be taken or made with
respect to such return;
(xi) pay, discharge, settle or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction, (i) in the
ordinary
A-18
<PAGE>
course of business consistent with past practice or in accordance with
their terms, of liabilities reflected or reserved against in, or
contemplated by, the most recent consolidated financial statements (or the
notes thereto) of the Company included in the Filed SEC Documents or
incurred since the date of such financial statements in the ordinary course
of business consistent with past practice or (ii) the repayment of
outstanding indebtedness under the Company's existing credit facilities;
(xii) grant or agree to grant to any employee any increase in wages or
bonus, severance, profit sharing, retirement, deferred compensation,
insurance or other compensation or benefits, or establish any new
compensation or benefit plans or arrangements, or amend or agree to amend
any existing Employee Benefit Plans, except for stay, severance and other
bonus payments, and as may be required under existing agreements (including
collective bargaining agreements) or normal, regularly scheduled increases
in nonofficer employees consistent with past practices or as required by
law such that all severance, bonus or stay payments, together with the
Severance Payments, shall not exceed $1,000,000 in the aggregate;
(xiii) other than in the ordinary course of business consistent with past
practice or as otherwise expressly permitted by this Agreement, enter into
or amend any employment, consulting, severance or similar agreement;
(xiv) waive any claims or rights other than in the ordinary course of
doing business so long as such claims or rights do not either (a) have a
value in excess of $500,000 in the aggregate or (b) are with respect to
affiliates of the Company;
(xv) make any change in any method of accounting or accounting practice
or policy except as required by any changes in GAAP;
(xvi) incur, enter into, amend, modify or terminate any material
commitment, contract or agreement (including with respect to any management
agreements, leases, capital expenditures or purchases of assets);
(xvii) adopt a plan of complete or partial liquidation, dissolution,
merger, consolidation, restructuring, recapitalization or other
reorganization or any agreement relating to an Acquisition Transaction
Proposal (as hereinafter defined) (other than as expressly permitted by
this Agreement);
(xviii) engage in any transaction with, or enter into any agreement,
arrangement, or understanding with, or amend, modify or terminate any
agreement, arrangement or understanding with, directly or indirectly, any
of the Company's affiliates, officers or directors, including, without
limitation, any transactions, agreements, arrangements or understandings
with any affiliate, officer or director or other person covered under Item
404 of Regulation S-K under the Securities Act that would be required to be
disclosed under such Item 404, other than pursuant to such agreements,
arrangements, or understandings existing on the date of this Agreement and
set forth in Section 5.1 (xviii) of the Disclosure Schedule other than the
sale of the Mexican Joint Venture as contemplated by Section 7.2(d) hereof;
(xix) close, shut down, or otherwise eliminate any of the Company's hotel
properties; or
(xx) authorize any of, or commit or agree to take any of, the foregoing
actions.
Section 5.2 Other Actions. The Company shall not, and shall not permit any
of its Subsidiaries to, take any action that would, or that could reasonably
be expected to, result in (i) any of the representations and warranties set
forth in Section 4.1 of this Agreement that are qualified as to materiality
becoming untrue, (ii) any of such representations and warranties that are not
so qualified becoming untrue in any material respect, or (iii) any of the
conditions of the Merger set forth in Article VII not being satisfied.
ARTICLE VI
Additional Agreements
Section 6.1 Preparation of the Proxy Statement. (a) As soon as practicable
after the date hereof, the Company shall, in consultation with Parent and Sub,
prepare and file with the SEC a preliminary proxy statement (the "Preliminary
Proxy Statement") relating to the Merger and the transactions contemplated by
this Agreement
A-19
<PAGE>
in accordance with the Exchange Act and the rules and regulations under the
Exchange Act. The Company, Parent and Sub shall cooperate with each other in
the preparation of the Preliminary Proxy Statement. The Company shall use all
reasonable efforts to respond promptly to any comments made by the SEC with
respect to the Preliminary Proxy Statement, and to cause the Proxy Statement
to be mailed to the Company's stockholders at the earliest practicable date.
The Company agrees to afford Parent and its counsel a reasonable opportunity
to (i) review and comment upon the Preliminary Proxy Statement prior to its
being filed with the SEC and to provide Parent and its counsel with copies of
any comments the Company or its counsel may receive from the SEC or its staff
with respect thereto promptly after the receipt of such comments and (ii)
review and comment upon the Proxy Statement prior to its being mailed to the
Company's stockholders. If the Board of Directors of the Company withdraws,
modifies or amends in any adverse respect its approval or recommendation of
this Agreement, the Merger and the transactions contemplated hereby in
accordance with Section 6.7 hereof, the Company may delay the filing or
mailing, as the case may be, of the Preliminary Proxy Statement and the Proxy
Statement.
Section 6.2 Stockholders Meeting. The Company shall take all action
necessary, in accordance with the DGCL, the Exchange Act and other applicable
law, the rules of the Nasdaq National Market, Inc. ("Nasdaq"), and its
certificate of incorporation and bylaws, to convene a special meeting of its
stockholders (the "Stockholders Meeting"), for the purpose of considering and
voting upon this Agreement and the transactions contemplated hereby, including
the Merger. Subject to Section 6.7 hereof, the Board of Directors of the
Company shall recommend that the holders of the Shares vote in favor of and
approve this Agreement and the Merger at the Stockholders Meeting.
Section 6.3 Access to Information: Confidentiality. The Company shall, and
shall cause each of its Subsidiaries to, afford to Parent and to Parent's
officers, employees, counsel, financial advisors and other representatives
reasonable access during normal business hours during the period prior to the
Effective Time to all its owned and leased properties (including as required
to perform any environmental studies or reviews of such properties), books,
contracts, commitments, tax returns, personnel and records and, during such
period, the Company shall, and shall cause each of its Subsidiaries to,
furnish as promptly as practicable to Parent, its counsel, financial advisors
and other representatives, such information concerning its business,
properties, financial condition, operations and personnel as Parent may from
time to time reasonably request. Any such access or investigation shall not
affect the representations or warranties made by the Company contained in this
Agreement. Except as required by law, Parent and the Company will hold, and
will cause their respective directors, officers, partners, employees,
accountants, counsel, financial advisors and other representatives and
affiliates to hold, any non-public information obtained from the other party
in confidence in accordance with the Confidentiality Agreement, dated August
14, 1997, by and between the Company and Parent.
Section 6.4 Reasonable Best Efforts. Upon the terms and subject to the
conditions and other agreements set forth in this Agreement, each of the
parties agrees to use its reasonable best efforts to take, or cause to be
taken, all actions, and to do, or cause to be done, and to assist and
cooperate with the other parties in doing, all things necessary, proper or
advisable to consummate and make effective, in the most expeditious manner
practicable, the Merger and the other transactions contemplated by this
Agreement, including the satisfaction of the respective conditions set forth
in Article VII; provided, however, that nothing in this Agreement shall
obligate the Company or its Subsidiaries to sell, transfer or otherwise
dispose of any of their respective assets to cause a termination of the
waiting period under the HSR Act or the Canadian Acts.
Section 6.5 Indemnification; Directors' and Officers' Insurance. (a) The
certificate of incorporation and by-laws of the Surviving Corporation shall
contain the provisions with respect to indemnification set forth in the
certificate of incorporation and by-laws of the Company on the date of this
Agreement, which provisions shall not be amended, repealed or otherwise
modified for a period of six years after the Effective Time in any manner that
would adversely affect the rights thereunder of individuals who at any time
prior to the Effective Time were directors or officers of the Company in
respect of actions or omissions occurring at or prior to the Effective Time
(including, without limitation, the transactions contemplated by this
Agreement), unless such modification is required by law.
A-20
<PAGE>
(b) The Company shall, and from and after the Effective Time, Parent and the
Surviving Corporation shall, indemnify, defend and hold harmless each person
who is now, or has been at any time prior to the date hereof or who becomes
prior to the Effective Time, an officer or director of the Company (the
"Indemnified Parties") against all losses, claims, damages, costs, expenses
(including reasonable attorneys' fees and expenses), liabilities or judgments
or amounts that are paid in settlement with the approval of the indemnifying
party of or in connection with any threatened or actual claim, action, suit,
proceeding or investigation based on or arising out of the fact that such
person is or was a director or officer of the Company whether pertaining to
any matter existing or occurring at or prior to the Effective Time and whether
asserted or claimed prior to, or at or after, the Effective Time ("Indemnified
Liabilities"), including all Indemnified Liabilities based on, or arising out
of, or pertaining to this Agreement or the transactions contemplated hereby,
in each case, to the full extent a corporation is permitted under the DGCL to
indemnify its own directors or officers (and Parent and the Surviving
Corporation, as the case may be, will pay expenses in advance of the final
disposition of any such action or proceeding to each Indemnified Party to the
full extent permitted by law, subject to the receipt of an undertaking
contemplated by Section 145(e) of the DGCL to refund such advances if it is
determined that the Indemnified Party was not entitled thereto).
(c) Without limiting the foregoing, in the event any such claim, action,
suit, proceeding or investigation is brought against any Indemnified Parties
(whether arising before or after the Effective Time), (i) the Indemnified
Parties may retain counsel satisfactory to them and the Company (or them and
Parent and the Surviving Corporation after the Effective Time) and the Company
(or after the Effective Time, Parent and the Surviving Corporation) shall pay
all fees and expenses of such counsel for the Indemnified Parties promptly as
statements therefor are received; and (ii) the Company (or after the Effective
Time, Parent and the Surviving Corporation) shall use all reasonable efforts
to assist in the vigorous defense of any such matter, provided that neither
the Company, Parent nor the Surviving Corporation shall be liable for any
settlement effected without its prior written consent. Any Indemnified Party
wishing to claim indemnification under this Section 6.5, upon learning of any
such claim, action, suit, proceeding or investigation, shall notify the
Company (or after the Effective Time, Parent and the Surviving Corporation)
(but the failure so to notify shall not relieve a party from any liability
which it may have under this Section 6.5 except to the extent such failure
prejudices such party), and shall deliver to the Company (or after the
Effective Time, Parent and the Surviving Corporation) the undertaking
contemplated by Section 145(e) of the DGCL. The Indemnified Parties as a group
may retain only one law firm to represent them with respect to each such
matter unless there is, under applicable standards of professional conduct, a
conflict on any significant issue between the positions of any two or more
Indemnified Parties. The Company, Parent and Sub agree that all rights to
indemnification, including provisions relating to advances of expenses
incurred in defense of any action or suit, existing in favor of the
Indemnified Parties with respect to matters occurring through the Effective
Time, shall survive the Merger and shall continue in full force and effect for
a period of not less than six years from the Effective Time; provided,
however, that all rights to indemnification in respect of any Indemnified
Liabilities asserted or made within such period shall continue until the
disposition of such Indemnified Liabilities.
(d) For a period of three years after the Effective Time, Parent shall cause
the Surviving Corporation to maintain in effect the current policies of
directors' and officers' liability insurance maintained by the Company
(provided that Parent may substitute therefor policies of at least the same
coverage and amounts containing terms and conditions that are no less
advantageous in any material respect to the Indemnified Parties) with respect
to matters arising before the Effective Time; provided, that Parent shall only
be obligated to maintain such insurance in such scope and amount as is
available at annual premiums during such period not in excess of 150% of the
per annum rate of the aggregate annual premium currently paid by the Company
for such insurance on the date of this Agreement.
(e) The provisions of this Section 6.5 are intended to be for the benefit
of, and shall be enforceable by, each Indemnified Party, his or her heirs and
his or her personal representatives and shall be binding on all successors and
assigns of Parent, Sub, the Company and the Surviving Corporation.
A-21
<PAGE>
Section 6.6 Public Announcements. Parent and Sub, on the one hand, and the
Company, on the other hand, will consult with each other before issuing, and
provide each other the opportunity to review and comment upon, any press
release, SEC filing or other public statements with respect to the
transactions contemplated by this Agreement, including the Merger, and shall
not issue any such press release or make any such public statement prior to
such consultation, except as may be required by applicable law, court process
or by obligations pursuant to any listing agreement with any national
securities exchange or automated quotation system.
Section 6.7 No Solicitation; Acquisition Transaction Proposals. Unless this
Agreement is terminated in accordance with the terms hereof, neither the
Company, its Subsidiaries nor any of their respective officers, directors,
employees, representatives, agents or affiliates (including, without
limitation, any investment banker, attorney or accountant retained by the
Company or any of its Subsidiaries), shall, directly or indirectly, initiate,
solicit or encourage (including by way of furnishing non-public information),
or enter into, or maintain or continue discussions or negotiate with any
person in furtherance of, an Acquisition Transaction (as defined below);
provided, however, that nothing in this Agreement shall prohibit the Board of
Directors of the Company from furnishing information to, or entering into
discussions or negotiations with, any person (other than an affiliate of the
Company) that makes an unsolicited written proposal for an Acquisition
Transaction Proposal after the date hereof, if the Board of Directors of the
Company, after consultation with and based upon the advice of outside legal
counsel, determines in good faith that the failure to engage in such
negotiations or discussions, or disclose such non-public information, would be
reasonably expected to be a breach of, or would be inconsistent with, the
Board of Directors' of the Company fiduciary duties under applicable law, and
prior to taking such action, the Company provides written notice to Parent
within 24 hours of receipt of any such proposal to the effect that it is
taking such action (which notice shall identify the nature and material terms
of the proposal and the person or persons making the same). The Company shall
promptly deliver to Parent a copy of any Acquisition Transaction Proposal and
promptly notify Parent of any indication that any person is considering making
an Acquisition Transaction Proposal or of any request for non-public
information relating to the Company or its Subsidiaries or for access to the
properties, books or records of the Company or any of its Subsidiaries, by any
person that may be considering making, or has made, an Acquisition Transaction
Proposal and shall keep Parent fully and timely informed of the status of the
same. For purposes of this Agreement, "Acquisition Transaction" means a
transaction involving any of the following (other than the transactions
contemplated by this Agreement with Parent or Sub) involving the Company or
any of its Subsidiaries: (v) any direct or indirect acquisition or purchase of
more than 10% of any class of equity securities of the Company; (w) any
merger, consolidation, share exchange, recapitalization, business combination
or other similar transaction; (x) any sale, lease, exchange, mortgage, pledge,
transfer or other disposition of any assets (other than immaterial assets) of
the Company or any of its Subsidiaries in a single transaction or series of
related transactions; or (y) any tender offer or exchange offer for 25 percent
or more of the outstanding shares of capital stock of the Company. An
"Acquisition Transaction Proposal" means any offer or proposal for, or any
indication of interest in, an Acquisition Transaction. Nothing contained in
this Section 6.7 shall prohibit the Company from taking and disclosing to its
stockholders a position contemplated by Rules 14d-9 and 14e-2(a) promulgated
under the Exchange Act or from making any disclosure to the Company's
stockholders or making such disclosure as, in each case, may be required under
applicable law; provided that the Company shall not withdraw or modify, or
propose to withdraw or modify, its position with respect to the Merger or
approve or recommend, or propose to approve or recommend, an Acquisition
Transaction Proposal except as expressly permitted above. The Company agrees
not to, in connection with an Acquisition Transaction Proposal, (x) furnish
any information to any third party unless such third party signs a
confidentiality agreement no less favorable to the Company than the
confidentiality agreements signed by affiliates of Parent and (y) release any
third party from, or waive any provision of, any confidentiality or standstill
agreement to which the Company is a party, unless the Board of Directors of
the Company shall have determined in good faith, after consultation with and
based upon the advice of outside legal counsel, that failing to release such
third party or waive such provisions would be reasonably expected to be a
breach of, or would be inconsistent with, the fiduciary duties of the Board of
Directors of the Company under applicable law.
Section 6.8 Consents, Approvals and Filings. (a) The Company and Parent will
make and cause their respective Subsidiaries to make all necessary filings, as
soon as practicable, including, without limitation, those
A-22
<PAGE>
required under the HSR Act, the Canadian Acts and the Exchange Act in order to
facilitate prompt consummation of the Merger and the other transactions
contemplated by this Agreement. In addition, the Company and Parent will each
use their reasonable best efforts, and will cooperate fully with each other
(i) to comply as promptly as practicable with all governmental requirements
applicable to the Merger and the other transactions contemplated by this
Agreement; (ii) to obtain as promptly as practicable all necessary permits,
orders or other consents of Governmental Entities and consents of all third
parties necessary for the consummation of the Merger and the other
transactions contemplated by this Agreement; and (iii) to cause a termination
of the waiting period under the HSR Act and Canadian Acts without the entry by
a court of competent jurisdiction of an order enjoining the consummation of
the transactions contemplated hereby at as early a date as possible. Each of
the Company and Parent shall use reasonable efforts to provide such
information and communications to Governmental Entities as such Governmental
Entities may reasonably request.
(b) Each of the parties shall provide to the other party copies of all
applications in advance of filing or submission of such applications to
Governmental Entities in connection with this Agreement, and copies of all
correspondence with such Governmental Entities, and shall keep all the parties
timely apprised of the status of the foregoing.
Section 6.9 Board Action Relating to Stock Option Plans. As soon as
practicable following the date of this Agreement, the Board of Directors of
the Company (or, if appropriate, any committee administering a Stock Option
Plan) shall adopt such resolutions or take such actions as may be permitted
and required to adjust the terms of all outstanding Options in accordance with
Section 2.2 and shall make such other changes to the Stock Option Plan as it
deems permitted and appropriate to give effect to the Merger (subject to the
approval of Parent, which shall not be unreasonably withheld).
Section 6.10 Name Changes. At or promptly after the Effective Time, Parent
and Sub shall change the name of the Company, and such name shall not contain
the word or words "Chartwell" or "Chartwell Leisure," or any derivative
thereof and neither the Surviving Corporation nor any Subsidiary may use any
such name in any manner in the future.
Section 6.11 Notices of Certain Events. (a) The Company shall as promptly as
reasonably practicable notify Parent of: (i) any notice or other communication
from any person alleging that the consent of such person (or another person)
is or may be required in connection with the transactions contemplated by this
Agreement; (ii) any notice or other communication from any Governmental Entity
in connection with the transactions contemplated by this Agreement; (iii) any
actions, suits, claims, investigations or proceedings commenced or, to the
best of the Company's knowledge, threatened against, relating to or involving
or otherwise affecting the Company or any of its Subsidiaries that, if pending
on the date of this Agreement, would have been required to have been disclosed
pursuant to Section 4.1(n) or which relate to the consummation of the
transactions contemplated by this Agreement; and (iv) any fact or occurrence
between the date of this Agreement and the Effective Time of which it becomes
aware which makes any of its representations contained in this Agreement
untrue or causes any material breach of its obligations under this Agreement.
(b) Each of Parent and Sub shall as promptly as reasonably practicable
notify the Company of: (i) any notice or other communication from any person
alleging that the consent of such person (or other person) is or may be
required in connection with the transactions contemplated by this Agreement,
(ii) any notice or other communication from any Governmental Entity in
connection with the transactions contemplated by this Agreement; and (iii) any
fact or occurrence between the date of this Agreement and the Effective Time
of which it becomes aware which makes any of its representations contained in
this Agreement untrue or causes any material breach of its obligations under
this Agreement.
Section 6.12 Parent Payment and Related Matters. The information set forth
in Section 6.12 of the Disclosure Schedule was prepared by the Company in good
faith and is a reasonable estimate of the information set forth therein.
Notwithstanding anything in this Agreement to the contrary, at or prior to the
Closing, the Company may make any of the payments set forth under "sources and
uses" in Section 6.12 of the Disclosure
A-23
<PAGE>
Schedule. Immediately prior to the Effective Time (so long as the conditions
to Closing set forth in Article VII shall have been satisfied or waived),
Parent or Sub shall deliver or cause to be delivered to the Company cash, by
wire transfer of immediately available funds, in an amount equal to the amount
of the then outstanding indebtedness owed under the Credit Agreement, dated
August 28, 1996 among the Company, Chartwell Canada Corp., Various Banks, The
Bank of Nova Scotia, as syndication agent, and Chase, as administration agent
(as amended to date, the "Credit Facility"), after giving effects to amounts,
if any, paid to the administration agent by or on behalf of Parent or Sub
immediately prior to the Effective Time in satisfaction of indebtedness owed
under the Credit Facility, but in no event more than the sum of (i)
$25,976,000; plus (ii) $3,200,000, but only if the sale of the real property
located at 28 SouthWest Freeway, Houston, Texas has not occurred; plus (iii)
$1,800,000, but only if the sale of the real property located at SWC 202
Freeway and 44th Street, Phoenix, Arizona has not occurred; plus (iv) amounts
expended by the Company with respect to the extraordinary capital
expenditures, or other extraordinary expenditures, in each case, described in
Section 5.1 of the Disclosure Schedule; plus (v) $2,500,000.00, (vi) plus (to
the extent it is a positive number) or minus the absolute value of (to the
extent it is a negative number), the Hedge Amount (as defined below); minus
cash on hand, if any, of the Company at the Effective Time. In addition, at
the Effective Time, Parent shall, or shall cause the Surviving Corporation to
pay the Option Consideration on behalf of the Company, as contemplated by
Section 2.2 hereof. For purposes of the foregoing, the term "Hedge Amount"
shall mean the amount determined by subtracting (x) $64,392,867 from (y) the
US dollar equivalent (determined immediately prior to the Effective Time) of
91 million Canadian dollars.
Section 6.13 Tax Filings. Parent shall be responsible for preparing and
shall file all Tax Returns for taxable periods ending prior to the Effective
Date which are required to be filed by the Company and its Subsidiaries after
the Effective Date.
Section 6.14 Investment Canada Act. The Company agrees that it shall cause
its Subsidiaries in Canada to cease to engage in any publication,
distribution, or sale of any books, magazines, periodicals or newspapers in
print or machine readable form, and shall cease to engage in any production,
distribution, sale, exhibition or rental of any film recordings or video
recordings, not later than three (3) days prior to Closing.
ARTICLE VII
Conditions Precedent
Section 7.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligation of each party to effect the Merger is subject to the
satisfaction or written waiver on or prior to the Closing Date of the
following conditions:
(a) Stockholder Approval. This Agreement and the Merger shall have been
approved and adopted by the affirmative vote of the requisite number of
stockholders of the Company, and in the manner as shall be required
pursuant to the Company's certificate of incorporation, by-laws and the
DGCL.
(b) No Injunctions or Restraints. No statute, rule, regulation, temporary
restraining order, preliminary or permanent injunction or other order
issued by any court of competent jurisdiction or other legal restraint or
prohibition preventing the consummation of the Merger shall be in effect,
provided, however, that the party invoking this condition shall use its
best efforts to have any such temporary restraining order, injunction,
order, restraint or prohibition vacated.
(c) Governmental and Regulatory Consents. All material filings required
to be made prior to the Effective Time with, and all material consents,
approvals, permits and authorizations required to be obtained prior to the
Effective Time from, Governmental Entities, including, without limitation,
those set forth in Section 4.1(c) of the Disclosure Schedule, in connection
with the execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby by the Company, Parent and Sub will
have been made or obtained (as the case may be).
(d) HSR Act and Canadian Acts. The waiting periods (and any extension
thereof) applicable to the Merger under the HSR Act and the Canadian Acts
shall have been terminated or shall have otherwise expired.
A-24
<PAGE>
Section 7.2 Conditions to Obligations of Parent and Sub. The obligations of
Parent and Sub to effect the Merger are further subject to the satisfaction or
written waiver on or prior to the Closing Date of the following conditions:
(a) Representations and Warranties. The representations and warranties of
the Company set forth in Section 4.1 that are qualified as to materiality
or Company Material Adverse Effect shall be true and correct and the
representations and warranties of the Company set forth in Section 4.1 that
are not so qualified shall be true and correct in all material respects, in
each case as of the date of this Agreement and as of the Closing Date as
though made on and as of the Closing Date, except to the extent such
representations and warranties speak as of an earlier date. In addition,
all such representations and warranties shall be true and correct as of the
date hereof and as though made on and as of the Closing Date, except to the
extent such representation or warranty speaks of an earlier date (without
regard to any qualifications for materiality or Company Material Adverse
Effect) except to the extent that any such failure to be true and correct
(other than any such failure the effect of which is immaterial)
individually and in the aggregate with all such other failures would not
have a Company Material Adverse Effect, and Parent shall have received a
certificate signed on behalf of the Company by the chief executive officer
and the chief financial officer of the Company to the effect set forth in
this paragraph.
(b) Performance of Obligations of the Company. The Company shall have
performed in all material respects all obligations required to be performed
by it under this Agreement at or prior to the Closing Date, and Parent
shall have received a certificate signed on behalf of the Company by the
chief executive officer and the chief financial officer of the Company to
such effect.
(c) Dissenting Shares. The number of Dissenting Common Shares shall
constitute no greater than 5% of the total number of Shares outstanding
immediately prior to the Effective Time.
(d) Sale of Mexican Joint Venture. The Company shall have sold the
Mexican Joint Venture for a purchase price in cash of not less than all
amounts expended or accrued by the Company and its Subsidiaries in
connection with or related to the Mexican Joint Venture, which amount shall
in no event be less than $3,750,000, and the Company shall have no further
obligations or liabilities with respect to its investment in the Mexican
Joint Venture.
(e) No Outstanding Indebtedness. Except as disclosed in Section 7.2(e) of
the Disclosure Schedule, at the Effective Time after giving effect to (i)
the payment by the Company of all fees and expenses related to the
transactions contemplated by this Agreement (including, without limitation,
the payment of any real property transfer taxes) and (ii) the payments by
Parent contemplated by Section 6.12 hereof and the application of such
payment proceeds by the Company as described therein, all outstanding
indebtedness of the Company and its Subsidiaries for borrowed money,
capitalized lease obligations and similar obligations, other than the
amounts owed to the Company or its wholly owned Subsidiaries and amounts
permitted to be incurred under Section 5.1 of the Disclosure Schedule,
shall, at the Effective Time, have been repaid in full and all Liens with
respect to such indebtedness shall have been fully and effectively released
and discharged, in each case without the incurrence by the Company or any
Subsidiary or Joint Venture of any default or prepayment or other penalty,
cost or charge other than repayment of the principal amount of such
indebtedness together with accrued and unpaid interest thereon, and the
Company shall have received a customary payoff letter from Chase or other
authorized lender under the Credit Facility in respect of the indebtedness
under the Credit Facility.
(f) No Company Material Adverse Effect. Since September 30, 1997, there
shall not have been any changes or events which, individually or in the
aggregate, have had or reasonably would be expected to have a Company
Material Adverse Effect.
(g) Consents. All consents of third parties disclosed in Section 4.1(c)
of the Disclosure Schedule shall have been obtained, including the consent
or waiver of Travelodge Hotels, Inc. ("Travelodge") under the Master
License Agreement for the Territory of the Dominion of Canada by and
between Travelodge and Chartwell Canada Hospitality Corp., dated as of
September 30, 1996, evidencing its consent to the consummation of the
Merger or waiving any Travelodge rights, if any, under such agreement
relating to the consummation of the Merger, in form and substance
reasonably acceptable to Parent.
A-25
<PAGE>
(h) As of the Effective Time, the Second Amended and Restated Financing
Agreement between HFS Incorporated and the Company, dated as of July 24,
1996, shall have been terminated without the payment of any amounts by the
Company or any of its Subsidiaries therefor.
(i) All legal, investment banking, accounting, advisory, consulting, and
other third party professional, printing and SEC fees and expenses
incurred, paid or accrued by the Company and its Subsidiaries in connection
with the negotiation, execution and delivery of this Agreement and the
other documents contemplated hereby (including amounts payable to Bear,
Stearns & Co. Inc., Chase Securities Inc. and Lehman Brothers) shall not
exceed $7,000,000.
(j) The Agreement of Lease between Fisher 40th 3rd Company and Hawaiian
Realty, Inc., as landlord, and the Company, as tenant, dated February 29,
1996 (the "New York Office Lease") shall have terminated without the
incurrence, payment or accrual by the Company and its Subsidiaries of any
cash costs or expenses other than rent through the later of December 31,
1997 or the Effective Time on the terms set forth in the New York Office
Lease.
(k) Multiemployer Plans. The Parent shall have no reasonable basis to
believe that the aggregate withdrawal liability of the Commonly Controlled
Entities, if all Commonly Controlled Entities were to withdraw from all
Multiemployer Plans as of the date hereof, would exceed $5,000,000.
(l) The Company shall have obtained, and delivered copies thereof to
Parent, of the consents of holders of Options as contemplated by Section
2.2 hereof.
Section 7.3 Conditions to Obligations of the Company. The obligation of the
Company to effect the Merger is further subject to the satisfaction or written
waiver on or prior to the Closing Date of the following conditions:
(a) Representations and Warranties. The representations and warranties of
Parent and Sub set forth in Section 4.2 that are qualified as to
materiality or Parent Material Adverse Effect shall be true and correct and
the representations and warranties of Parent and Sub set forth in Section
4.2 that are not so qualified shall be true and correct in all material
respects, in each case as of the date of this Agreement and as of the
Closing Date as though made on and as of the Closing Date. In addition, all
such representations and warranties shall be true and correct as of the
date hereof and as though made on and as of the Closing Date, except to the
extent such representation or warranty speaks of an earlier date (without
regard to any qualifications for materiality or Parent Material Adverse
Effect) except to the extent that any such failure to be true and correct
(other than any such failure the effect of which is immaterial)
individually and in the aggregate with all such other failures would not
have a Parent Material Adverse Effect, and the Company shall have received
a certificate signed on behalf of Parent by the General Partner of Parent
to the effect set forth in this paragraph.
(b) Performance of Obligations of Parent and Sub. Parent and Sub shall
have performed in all material respects all obligations required to be
performed by them under this Agreement at or prior to the Closing Date, and
the Company shall have received a certificate signed on behalf of Parent by
the General Partner of Parent to such effect.
(c) All indebtedness owed by the Company under the Credit Facility shall
have been repaid in full, and such Credit Facility shall have been
terminated.
(d) The Company shall have received from Parent the payments referenced
in Section 6.12.
(e) None of the financial advisors described in Section 4.1(l) shall have
withdrawn, revoked, amended or modified its fairness opinion in any
material respect prior to the mailing by the Company of the definitive
Proxy Statement to its stockholders.
ARTICLE VIII
Termination, Amendment and Waiver
Section 8.1 Termination. (a) This Agreement may be terminated and the
transactions contemplated hereby may be abandoned at any time prior to the
Effective Time, notwithstanding approval thereof by the stockholders of the
Company, in any one of the following circumstances:
A-26
<PAGE>
(i) By mutual written consent of Parent and the Company.
(ii) By Parent or the Company, if, without any material breach by such
terminating party of its obligations under this Agreement, the Merger shall
not have occurred on or before May 15, 1998.
(iii) By Parent or the Company, if (x) any statute, rule or regulation
shall have been promulgated by any Governmental Entity prohibiting or
restricting the Merger or (y) any federal or state court of competent
jurisdiction or other Governmental Entity shall have issued an order,
decree or ruling, or taken any other action permanently restraining,
enjoining or otherwise prohibiting the Merger and such order, decree,
ruling or other action shall have become final and non-appealable provided
that a party may not terminate this Agreement pursuant to this clause (iii)
if it has not complied with its obligations under Sections 6.4 and 6.8.
(iv) By Parent or the Company if, upon a vote at a duly held Stockholders
Meeting or any adjournment thereof, any required approval of the
stockholders of the Company shall not have been obtained.
(v) By the Company, if it shall have received an Acquisition Transaction
Proposal (other than from an affiliate of the Company), and (A) the
Company's Board of Directors determines (i) in its good faith judgment that
such Acquisition Transaction Proposal represents a more favorable financial
alternative to the Company's stockholders than the Merger and (ii), after
consultation with and based upon the advice of outside legal counsel,
determines in good faith that failure to accept such Acquisition
Transaction Proposal would be reasonably expected to be a breach of, or
would be inconsistent with, the Board of Directors' fiduciary duties under
applicable law, (B) the Company shall have complied with its obligations in
Section 6.7 hereof and have indicated in the notice delivered pursuant
thereto that the Company intends to terminate this Agreement pursuant to
this Section 8.1(a)(v), such notice having been received by Parent at least
two (2) business days prior to any such termination and (C) during such two
(2) business day-period the Company, together with its financial and legal
advisors, shall have considered any adjustment in the terms and conditions
of the transactions contemplated hereby, including an increase in the
Merger Consideration, that Parent may propose; provided that such
termination pursuant to this clause (v) shall not be effective until the
Company has made payment of the full fee required by Section 8.1(b) hereof.
(vi) By Parent, if the Board of Directors of the Company shall have (A)
withdrawn, modified or amended in any adverse respect its approval or
recommendation of this Agreement, the Merger or the transactions
contemplated hereby, (B) failed to include in the Proxy Statement such
recommendation, (C) endorsed or recommended to its stockholders an
Acquisition Transaction Proposal, (D) resolved to do any of the foregoing
or (E) if the Company shall have received a written Acquisition Transaction
Proposal and shall not have rejected such Acquisition Transaction Proposal
within ten (10) business days of its receipt thereof.
(vii) By Parent or the Company, if (A) the other party shall have failed
to comply in any material respect with any of the covenants and agreements
(or in any respect with regard to covenants and agreements qualified by
materiality) contained in this Agreement to be complied with or performed
by such party at or prior to such date of termination, and such failure
continues for ten (10) business days after the actual receipt by such party
of a written notice from the other party setting forth in detail the nature
of such failure, or (B) a representation or warranty of the other party
contained in this Agreement shall be untrue in any material respect or a
representation or warranty qualified as to materiality or Company Material
Adverse Effect or Parent Material Adverse Effect, as the case may be, shall
be untrue in any respect.
(viii) By Parent, if any of the conditions set forth in Section 7.2
hereof shall have become incapable of being fulfilled and shall not have
been waived by Parent, or by the Company if any of the conditions set forth
in Section 7.3 hereof shall have become incapable of being fulfilled and
shall not have been waived by the Company.
(b) If this Agreement or the transactions contemplated hereby are terminated
pursuant to:
(A) Section 8.1(a)(v),
(B) Section 8.1(a)(vi), or
A-27
<PAGE>
(C) Section 8.1(a)(iv) if, at the time of the Stockholders Meeting, there
is pending an Acquisition Transaction Proposal or an Acquisition
Transaction Proposal shall have been previously announced,
then, (x) in the case of a termination of this Agreement pursuant to clause
(A) or (B) above, the Company shall pay Parent concurrently with such
termination a fee of $8,145,000 (the "Fee"), which amount shall be payable in
immediately available funds, (y) in the case of a termination as contemplated
by clause (C) above if within one year following the date of such termination
the applicable pending or previously announced Acquisition Transaction
Proposal is consummated by the Company, then the Company shall pay the Fee to
Parent simultaneously with the consummation of such Acquisition Transaction
Proposal or (z) in the case of a termination as contemplated by clause (C)
above, if within one year following the date of such termination any other
Acquisition Transaction Proposal is consummated by the Company, then the
Company shall pay to Parent, simultaneously with the consummation of such
other Acquisition Transaction Proposal, a fee equal to 3% of the aggregate
amount of the consideration paid to the Company or its stockholders, as
applicable, pursuant to such Acquisition Transaction Proposal. Following any
payment of the Fee described herein, the Company shall have no further
liability or obligation to Parent or Sub. Following any payment of the Fee in
any such event, the Company shall have no further liability or obligation to
Parent or Sub.
(c) If the Company does not consummate the Merger on or prior to May 15,
1998 solely as a result of the failure of the closing condition set forth in
Section 7.3(e) hereof, then the Company shall promptly pay to Parent a fee of
$4,073,000, which amount shall be payable in immediately available funds.
Section 8.2 Effect of Termination. In the event of the termination and
abandonment of this Agreement pursuant to Section 8.1(a) hereof, this
Agreement (except for the provisions of the last two sentences of Section 6.3,
and Sections 6.6, this Section 8.2, Article IX and paragraphs (b) and (c) of
Section 8.1 hereof) shall forthwith become void and have no effect, without
any liability on the part of any party hereto or its directors, officers or
stockholders; provided, however, that nothing in this Section 8.2 shall
relieve any party to this Agreement of liability for any willful or
intentional breach of this Agreement.
Section 8.3 Amendment. Subject to the applicable provisions of the DGCL, at
any time prior to the Effective Time, the parties hereto may modify or amend
this Agreement, by written agreement executed and delivered by duly authorized
officers of the respective parties; provided, however, that after approval of
the Merger by the stockholders of the Company, no amendment shall be made
which would reduce the amount or change the type of consideration into which
each Share shall be converted upon consummation of the Merger. This Agreement
may not be amended except by an instrument in writing signed on behalf of each
of the parties.
Section 8.4 Extension; Waiver. At any time prior to the Effective Time, the
parties may (a) extend the time for the performance of any of the obligations
or other acts of the other parties, (b) waive any inaccuracies in the
representations and warranties of the other parties contained in this
Agreement or in any document delivered pursuant to this Agreement or (c)
subject to Section 8.3, waive compliance with any of the agreements or
conditions of the other parties contained in this Agreement. Any agreement on
the part of a party to any such extension or waiver shall be valid only if set
forth in an instrument in writing signed on behalf of such party. The failure
of any party to this Agreement to assert any of its rights under this
Agreement or otherwise shall not constitute a waiver of such rights.
Section 8.5 Procedure for Termination, Amendment, Extension or Waiver. A
termination of this Agreement pursuant to Section 8.1 hereof, an amendment of
this Agreement pursuant to Section 8.3 hereof or an extension or waiver
pursuant to Section 8.4 hereof shall, in order to be effective, require in the
case of Parent, action by its General Partner, and in the case of Sub or the
Company, action by its Board of Directors or the duly authorized committee or
designee of its Board of Directors.
A-28
<PAGE>
ARTICLE IX
General Provisions
Section 9.1 Nonsurvival of Representations and Warranties. None of the
representations and warranties in this Agreement or in any instrument
delivered pursuant to this Agreement shall survive the Effective Time. This
Section 9.1 shall not limit any covenant or agreement of the parties which by
its terms contemplates performance after the Effective Time.
Section 9.2 Fees and Expenses. Except as provided otherwise in paragraphs
(b) and (c) of Section 8.1, whether or not the Merger shall be consummated,
each party hereto shall pay its own expenses incident to preparing for,
entering into and carrying out this Agreement and the consummation of the
transactions contemplated hereby, other than (i) the expenses incurred in
connection with printing and mailing proxy materials to stockholders, which
shall be paid by the Company and (ii) real property transfer taxes, which
shall be paid by the Company.
Section 9.3 Definitions. For purposes of this Agreement:
(a) an "affiliate" of any person means another person that directly or
indirectly, through one or more intermediaries, controls, is controlled by,
or is under common control with, such first person;
(b) "business day" means any day other than Saturday, Sunday or any other
day on which banks in the City of New York are required or permitted to
close;
(c) "knowledge" means, with respect to the Company, the actual knowledge
of any of Richard L. Fisher, Martin L. Edelman, Samuel Rosenberg, Douglas
Verner, Kenneth Weber and Adrian Werner.
(d) "Liens" means, collectively, all material pledges, claims, liens,
charges, mortgages, conditional sale or title retention agreements,
hypothecations, collateral assignments, security interests, easements and
other encumbrances of any kind or nature whatsoever;
(e) a "Material Adverse Effect" with respect to any person means an event
that has had or would reasonably be expected to have a material adverse
effect on the business, financial condition or results of operations of
such person and its Subsidiaries taken as a whole;
(f) a "person" means an individual, corporation, partnership, joint
venture, association, trust, unincorporated organization or other entity;
and
(g) a "Subsidiary" of any person means any other person of which (A) the
first mentioned person or any Subsidiary thereof is a general partner, (B)
voting power to elect a majority of the board of directors or others
performing similar functions with respect to such other person is held by
the first mentioned person and/or by any one or more of its Subsidiaries,
or (C) at least 50% of the equity interests of such other person is,
directly or indirectly, owned or controlled by such first mentioned person
and/or by any one or more of its Subsidiaries, excluding the Mexican Joint
Venture.
A-29
<PAGE>
Section 9.4 Notices. All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be deemed
given if delivered personally or sent by overnight courier (providing proof of
delivery) to the parties at the following addresses (or at such other address
for a party as shall be specified by like notice):
(i) if to Parent or Sub, to
c/o Whitehall Street Real Estate Limited Partnership
85 Broad Street
New York, New York 10004
Attention: Michael Klingher
Telecopy: (212) 357-5505
with a copy (which shall not constitute notice) to each of:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019
Attention: Robert B. Schumer, Esq.
Telecopy: (212) 757-3990
and
Mayor, Day, Caldwell & Keeton, LLP
700 Louisiana
Houston, Texas 77002
Attention: Geoffrey K. Walker, Esq.
Telecopy: (713) 225-7047
(ii) if to the Company, to
605 Third Avenue
New York, New York 10158
Attention: Richard L. Fisher,
Chairman and Chief Executive Officer
Telecopy: (212) 867-4644
with a copy (which shall not constitute notice) to:
Battle Fowler LLP
75 East 55th Street
New York, New York 10022
Attention: John N. Turitzin, Esq.
Telecopy: (212) 339-9150
Section 9.5 Interpretation. When a reference is made in this Agreement to a
Section or Schedule, such reference shall be to a Section of, or a Schedule
to, this Agreement unless otherwise indicated. The table of contents and
headings contained in this Agreement are for reference purposes only and shall
not affect in any way the meaning or interpretation of this Agreement.
Whenever the words "include", "includes" or "including" are used in this
Agreement, they shall be deemed to be followed by the words "without
limitation".
Section 9.6 Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each
of the parties and delivered to the other parties.
Section 9.7 Entire Agreement; Third-Party Beneficiaries. This Agreement
constitutes the entire agreement, and supersedes all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter of this Agreement. This Agreement is not intended to confer
upon any person (including, without limitation, any employees of the Company),
other than the parties hereto and the third party beneficiaries referred to in
the following sentence, any rights or remedies. The parties hereto expressly
intend
A-30
<PAGE>
the provisions of Section 6.5 (solely in respect of officers and directors of
the Company and its Subsidiaries) to confer a benefit upon and be enforceable
by, as third party beneficiaries of this Agreement, the third persons referred
to in, or intended to be benefitted by, such provisions.
Section 9.8 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware, regardless of
the laws that might otherwise govern under applicable principles of conflicts
of laws thereof.
Section 9.9 Assignment. Neither this Agreement nor any of the rights,
interests or obligations under this Agreement shall be assigned, in whole or
in part, by operation of law or otherwise by any of the parties without the
prior written consent of the other parties, and any such assignment that is
not consented to shall be null and void, except that Parent and/or Sub may
assign this Agreement to any affiliate of Parent without the prior consent of
the Company; provided that Parent shall remain liable for all of its
obligations under this Agreement. Subject to the preceding sentence, this
Agreement will be binding upon, inure to the benefit of, and be enforceable
by, the parties and their respective successors and assigns.
Section 9.10 Enforcement. The parties agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached.
It is accordingly agreed that the parties shall be entitled to an injunction
or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions of this Agreement in any court of the
United States located in the State of Delaware, this being in addition to any
other remedy to which they are entitled at law or in equity.
Section 9.11 Severability. Whenever possible, each provision or portion of
any provision of this Agreement will be interpreted in such manner as to be
effective and valid under applicable law but if any provision or portion of
any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, so long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner materially adverse to any
party, such invalidity, illegality or unenforceability will not affect any
other provision or portion of any provision in such jurisdiction, and this
Agreement will be reformed, construed and enforced in such jurisdiction as if
such invalid, illegal or unenforceable provision or portion of any provision
had never been contained herein.
[signature page follows]
A-31
<PAGE>
In Witness Whereof, Parent, Sub and the Company have caused this Agreement
to be signed by their respective officers thereunto duly authorized, all as of
the date first written above.
Chartwell Leisure Inc.
/s/ Richard L. Fisher
By: _________________________________
Name: Richard L. Fisher
Title: Chairman of the Board of
Directors and Chief Executive
Officer
Whitehall Street Real Estate Limited
Partnership IX
By: WH Advisors, L.L.C. IX,
its general partner
By: Whitehall IX/X, Inc.,
its managing member
/s/ Michael Klingher
By: _________________________
Name: Michael Klingher
Title: Vice President
CLI Properties Acquisition Corp.
/s/ Michael Klingher
By: _________________________________
Name: Michael Klingher
Title: Vice President
A-32
<PAGE>
ANNEX B
November 13, 1997
Board of Directors
Chartwell Leisure Inc.
605 Third Avenue, 23rd Floor
New York, New York 10158
Members of the Board:
We understand that Chartwell Leisure Inc. (the "Company") proposes to enter
into an agreement with Whitehall Street Real Estate Limited Partnership IX
("Whitehall") and its wholly owned subsidiary CLI Properties Acquisition Corp.
("Sub"), pursuant to which Sub will be merged with and into the Company, and
each outstanding share of common stock of the Company will be converted into
the right to receive $17.25 in cash (the "Proposed Transaction"). The terms
and conditions of the Proposed Transaction are set forth in more detail in the
Agreement and Plan of Merger dated as of November 13, 1997 by and between the
Company, Whitehall and Sub (the "Agreement").
We have been requested by the Board of Directors of the Company to render
our opinion with respect to the fairness, from a financial point of view, to
the Company's stockholders of the consideration to be received by such
stockholders in the Proposed Transaction. We have not been requested to opine
as to, and our opinion does not in any manner address, the Company's
underlying business decision to proceed with or effect the Proposed
Transaction.
In arriving at our opinion, we reviewed and analyzed: (1) the Agreement and
the specific terms of the Proposed Transaction, (2) publicly available
information concerning the Company that we believe to be relevant to our
analysis, (3) financial and operating information with respect to the
business, operations, properties and prospects of the Company furnished by us
by the Company, (4) a trading history of the Company's common stock from
January 1, 1996 to the present and a comparison of that trading history with
those of other companies that we deemed relevant, (5) a comparison of the
historical financial results and present financial condition of the Company
with those of other companies that we deemed relevant, (6) an evaluation of
the specific properties of the Company with respect to the sale of such
properties in an orderly liquidation of the Company, and (7) the results of
efforts to solicit indications of interest and proposals from third parties
with respect to a purchase of all or a portion of the businesses and/or
properties of the Company. In addition, we have had discussions with the
management of the Company concerning its business, operations, assets,
properties, financial condition and prospects and have undertaken such other
studies, analyses and investigations as we deemed appropriate.
In arriving at our opinion, we have assumed and relied upon the accuracy and
completeness of the financial and other information used by us without
assuming any responsibility for independent verification of such information
and have further relied upon the assurances of management of the Company that
they are not aware of any facts or circumstances that would make such
information inaccurate or misleading. With respect to the financial
projections of the Company for the remainder of fiscal year 1997, upon advice
of the Company we have assumed that such projections have been reasonably
prepared on a basis reflecting the best currently available estimates and
judgments of the management of the Company as to the future financial
performance of the Company during such period and that the Company will
perform substantially in accordance with such projections during such period.
However, in arriving at our opinion, we were not provided with and did not
have any access to financial projections of the Company for any period
subsequent to its 1997 fiscal year. In arriving at our opinion, we have
conducted only a limited physical inspection of the properties and facilities
of the Company and have not made or obtained any evaluations or appraisals of
the assets or liabilities of the Company. Our opinion necessarily is based
upon market, economic and other conditions as they exist on, and can be
evaluated as of, the date of this letter.
B-1
<PAGE>
Based upon and subject to the foregoing, we are of the opinion as of the
date hereof that, from a financial point of view, the consideration to be
received by the Company's stockholders in the Proposed Transaction is fair to
such stockholders.
We have acted as financial advisor to the Company in connection with the
Proposed Transaction and will receive a fee for our services which is
contingent upon the consummation of the Proposed Transaction. In addition, the
Company has agreed to indemnify us for certain liabilities that may arise out
of the rendering of this opinion. In the ordinary course of our business, we
may trade in the equity securities of the Company for our own account and for
the accounts of our customers and, accordingly, may at any time hold a long or
short position in such securities.
This opinion is for the use and benefit of the Board of Directors of the
Company in connection with their consideration of the Proposed Transaction.
This opinion is not intended to be and does not constitute a recommendation to
any stockholder of the Company as to how such stockholder should vote with
respect to the Proposed Transaction.
Very truly yours,
Lehman Brothers
Robert Heller
By: _________________________________
Managing Director
B-2
<PAGE>
ANNEX C
November 13, 1997
The Board of Directors
Chartwell Leisure Inc.
605 Third Avenue
New York, New York 10158
Members of the Board of Directors:
You have informed us that Whitehall Street Real Estate Limited Partnership
IX, a Delaware limited partnership ("Parent"), CLI Properties Acquisition
Corp., a wholly owned subsidiary of Parent ("Sub"), and Chartwell Leisure Inc.
(the "Company") propose to enter into an Agreement and Plan of Merger dated as
of November 13, 1997 (the "Merger Agreement"), which provides, among other
things, for the merger of Sub with and into the Company (the "Merger")
pursuant to which each outstanding share of the Company's Common Stock, par
value $0.01 per share (collectively, the "Shares"), will be converted into the
right to receive $17.25 per share in cash (the "Consideration").
You have requested that we render our opinion as to the fairness, from a
financial point of view, to the holders of Shares of the Consideration to be
received by such holders in the Merger.
In arriving at the opinion set forth below, we have, among other things:
(a) received a draft of the Merger Agreement in the form provided to us
and have assumed that the final form of such agreement will not vary in any
regard that is material to our analysis;
(b) reviewed certain publicly available business and financial
information that we deemed relevant relating to the Company and the
industry in which it operates;
(c) reviewed certain internal non-public financial and operating data
provided to us by or on behalf of the management of the Company relating to
the Company, including management forecasts of the operating results of the
Company and its portfolio of properties for the fiscal year ending December
31, 1997 (the "December 31 Operating Statistics");
(d) discussed with members of the Company's senior management the
Company's operations, historical financial statements and future prospects,
as well as such other matters as we deemed necessary or appropriate;
(e) compared the financial and operating performance of the Company with
publicly available information concerning certain other companies we deemed
comparable and reviewed the relevant historical stock prices and trading
volumes of the Shares and certain publicly traded securities of such other
companies;
(f) reviewed, to the extent publicly available, the financial terms of
certain recent business combinations and acquisition transactions we deemed
reasonably comparable to the Merger and otherwise relevant to our inquiry;
(g) considered various discussions with third parties with respect to
such third parties' potential interest in the acquisition of all or part of
the Company; and
(h) made such other analyses and examinations as we have deemed necessary
or appropriate.
We have assumed and relied upon, without assuming any responsibility for
verification, the accuracy and completeness of all of the financial and other
information provided to, discussed with, or reviewed by or for us, or publicly
available for purposes of this opinion, and have further relied upon the
assurances of management of the Company that they are not aware of any facts
that would make such information inaccurate or misleading. We have neither
made or obtained any independent evaluations or appraisals of the assets or
liabilities of the
C-1
<PAGE>
Company, nor conducted a physical inspection of the properties and facilities
of the Company. We have assumed that the December 31 Operating Statistics
prepared by the Company have been reasonably prepared on bases reflecting the
best currently available estimates and judgements of the management of the
Company as to the financial performance of the Company for such period. We
express no view as to the December 31 Operating statistics or the assumptions
on which they were based. We understand that no financial forecasts or
projections for the Company other than the December 31 Operating Statistics
have been prepared by the Company. We have not, and have not been asked to,
prepare or review financial forecasts or projections for the Company, other
than our review of the December 31 Operating Statistics.
For purposes of rendering our opinion we have assumed, in all respects
material to our analysis, that the representations and warranties of each
party contained in the Merger Agreement are true and correct, that each party
will perform all of the covenants and agreements required to be performed by
it under the Merger Agreement and that all conditions to the consummation of
the Merger will be satisfied without waiver thereof. We have also assumed that
all material governmental, regulatory or other consents and approvals will be
obtained and that in the course of obtaining any necessary governmental,
regulatory or other consents and approvals, or any amendments, modifications
or waivers to any documents to which either the Company or Parent is a party,
as contemplated by the Merger Agreement, no restrictions will be imposed or
amendments, modifications or waivers made that would have any material adverse
effect on the contemplated benefits to the Company of the Merger.
Our opinion herein is necessarily based on market economic and other
conditions as they exist and can be evaluated on the date of this letter. Our
opinion is limited to the fairness, from a financial point of view, to the
holders of Shares of the Consideration to be received by such holders in the
Merger. Our opinion does not address the relative merits of the proposed
Merger as compared to any alternative business strategies that might exist for
the Company or the effect of any other transactions in which the Company might
engage. This opinion does not constitute a recommendation to any holder of
Shares as to how such holder of Shares should vote with respect to the Merger.
Chase Securities Inc., as part of its financial advisory business, is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions and valuations for estate, corporate
and other purposes. We have acted as financial advisor to the Company in
connection with the Merger and will receive a fee for our services, including
for rendering this opinion, payment of which is contingent on the consummation
of the Merger. In addition, the Company has agreed to indemnify us for certain
liabilities arising out of our engagement. As we have previously advised you,
The Chase Manhattan Corporation and its affiliates, including Chase Securities
Inc., in the ordinary course of business, have, from time to time, provided,
and in the future may continue to provide, commercial and investment banking
services to Parent and the Company, including serving as agent bank under the
Company's existing credit facilities and providing banking services to
affiliates of Parent. In the ordinary course of business, we or our affiliates
may trade in the debt and equity securities of the Company for our own
accounts and for the accounts of our customers and, accordingly, may at any
time hold a long or short position in such securities.
Based upon and subject to the foregoing, we are of the opinion as of the
date hereof, that the Consideration to be received by the holders of Shares in
the Merger is fair, from a financial point of view, to such holders.
This opinion is for the use and benefit of the Board of Directors of the
Company in its evaluation of the Merger and shall not be used for any other
purpose without the prior written consent of Chase Securities, Inc.
Very truly yours,
Chase Securities Inc.
C-2
<PAGE>
ANNEX D
262 APPRAISAL RIGHTS.--(a) Any stockholder of a corporation of this State
who holds shares of stock on the date of the making of a demand pursuant to
subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation,
who has otherwise complied with subsection (d) of this section and who has
neither voted in favor of the merger or consolidation nor consented thereto in
writing pursuant to (S)228 of this title shall be entitled to an appraisal by
the Court of Chancery of the fair value of the stockholder's shares of stock
under the circumstances described in subsections (b) and (c) of this section.
As used in this section, the word "stockholder" means a holder of record of
stock in a stock corporation and also a member of record of a nonstock
corporation; the words "stock" and "share" mean and include what is ordinarily
meant by those words and also membership or membership interest of a member of
a nonstock corporation; and the words "depository receipt" mean a receipt or
other instrument issued by a depository representing an interest in one or
more shares, or fractions thereof, solely of stock of a corporation, which
stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to
be effected pursuant to (S)251 (other than a merger effected pursuant to
(S)251(g) of this title), (S)252, (S)254, (S)257, (S)258, (S)263 or (S)264 of
this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock,
or depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsection (f) of (S)251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
(S)(S)251, 252, 254, 257, 258, 263 and 264 of this title to accept for such
stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect
thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock (or depository receipts in
respect thereof) or depository receipts at the effective date of the
merger or consolidation will be either listed on a national securities
exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under (S)253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
D-1
<PAGE>
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets
of the corporation. If the certificate of incorporation contains such a
provision, the procedures of this section, including those set forth in
subsections (d) and (e) of this section, shall apply as nearly as is
practicable.
(d) Appraisal rights shall be perfected as follows:
(l) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for
such meeting with respect to shares for which appraisal rights are
available pursuant to subsections (b) or (c) hereof that appraisal rights
are available for any or all of the shares of the constituent corporations,
and shall include in such notice a copy of this section. Each stockholder
electing to demand the appraisal of his shares shall deliver to the
corporation, before the taking of the vote on the merger or consolidation,
a written demand for appraisal of his shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of his shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder electing to
take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to (S)228 or
(S)253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy of
this section; provided that, if the notice is given on or after the
effective date of the merger or consolidation, such notice shall be given
by the surviving or resulting corporation to all such holders of any class
or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective
date of the merger or consolidation, shall, also notify such stockholders
of the effective date of the merger or consolidation. Any stockholder
entitled to appraisal rights may, within 20 days after the date of mailing
of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders
of any class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with
this subsection. An affidavit of the secretary or assistant secretary or of
the transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of fraud, be
prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each
constituent corporation may fix, in advance, a record date that shall be
not more than 10 days prior to the date the notice is given, provided, that
if the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no record
date is fixed and the notice is given prior to the effective date, the
record date shall be the close of business on the day next preceding the
day on which the notice is given.
D-2
<PAGE>
(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied
with subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger
or consolidation, any stockholder shall have the right to withdraw his demand
for appraisal and to accept the terms offered upon the merger or
consolidation. Within 120 days after the effective date of the merger or
consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which
demands for appraisal have been received and the aggregate number of holders
of such shares. Such written statement shall be mailed to the stockholder
within 10 days after his written request for such a statement is received by
the surviving or resulting corporation or within 10 days after expiration of
the period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the
addresses therein stated. Such notice shall also be given by 1 or more
publications at least 1 week before the day of the hearing, in a newspaper of
general circulation published in the City of Wilmington, Delaware or such
publication as the Court deems advisable. The forms of the notices by mail and
by publication shall be approved by the Court, and the costs thereof shall be
borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled
to appraisal rights. The Court may require the stockholders who have demanded
an appraisal for their shares and who hold stock represented by certificates
to submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as
to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger
or consolidation, together with a fair rate of interest, if any, to be paid
upon the amount determined to be the fair value. In determining such fair
value, the Court shall take into account all relevant factors. In determining
the fair rate of interest, the Court may consider all relevant factors,
including the rate of interest which the surviving or resulting corporation
would have had to pay to borrow money during the pendency of the proceeding.
Upon application by the surviving or resulting corporation or by any
stockholder entitled to participate in the appraisal proceeding, the Court
may, in its discretion, permit discovery or other pretrial proceedings and may
proceed to trial upon the appraisal prior to the final determination of the
stockholder entitled to an appraisal. Any stockholder whose name appears on
the list filed by the surviving or resulting corporation pursuant to
subsection (f) of this section and who has submitted his certificates of stock
to the Register in Chancery, if such is required, may participate fully in all
proceedings until it is finally determined that he is not entitled to
appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to
the stockholders entitled thereto. Interest may be simple or compound, as the
Court may direct. Payment shall be so made to each such stockholder, in the
case of holders of uncertificated stock forthwith, and the case of holders of
shares represented by certificates upon the surrender to the corporation of
the certificates representing such stock. The Court's decree may be enforced
as other decrees in the Court of
D-3
<PAGE>
Chancery may be enforced, whether such surviving or resulting corporation be a
corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection
(d) of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation);
provided, however, that if no petition for an appraisal shall be filed within
the time provided in subsection (e) of this section, or if such stockholder
shall deliver to the surviving or resulting corporation a written withdrawal
of his demand for an appraisal and an acceptance of the merger or
consolidation, either within 60 days after the effective date of the merger or
consolidation as provided in subsection (e) of this section or thereafter with
the written approval of the corporation, then the right of such stockholder to
an appraisal shall cease. Notwithstanding the foregoing, no appraisal
proceeding in the court of Chancery shall be dismissed as to any stockholder
without the approval of the Court, and such approval may be conditioned upon
such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented to
the merger or consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation. (Last amended by Ch. 120, L.
'97, eff. 7-1-97).
D-4
<PAGE>
PROXY
CHARTWELL LEISURE INC.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF CHARTWELL LEISURE INC. FOR
A SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON MONDAY, MARCH 16, 1998.
The undersigned, as a holder of common stock, $.01 par value (the "Common
Stock"), of Chartwell Leisure Inc. (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 Special Meeting of
Stockholders of the Company to be held on Monday, March 16, 1998 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 on the reverse side.
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
-- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --
FOLD AND DETACH HERE
<PAGE>
Please mark your
votes as indicated [X]
in this example
THE BOARD OF DIRECTORS RECOMMENDS YOU VOTE "FOR" FOR THE FOLLOWING:
1. On the proposal to approve and adopt the Agreement and Plan of Merger, dated
as of November 13, 1997, as amended, by and between the Company, Whitehall
Street Real Estate Limited Partnership IX, a Delaware limited partnership
("Parent"), and CLI Properties Acquisition Corp., a Delaware corporation and
currently a subsidiary of Parent ("Sub"), pursuant to which:
a. Sub will be merged with and into the Company (the "Merger"); the Company
will be the surviving corporation in the Merger and will be a subsidiary
of Parent; and
b. At the effective time of the Merger (the "Effective Time"), each
outstanding share of common stock, $.01 par value per share, of the
Company (the "Shares"), other than Shares as to which dissenters' rights
of appraisal have been duly asserted and perfected under the Delaware
General Corporation Law and Shares owned by the Company or by Parent, Sub
or any other subsidiary of Parent (which will be cancelled), will be
converted into the right to receive $17.25 per Share in cash, without
interest.
FOR AGAINST ABSTAIN
[_] [_] [_]
2. 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.
You may revoke this proxy at any time by
forwarding to the Company a subsequently dated
proxy received by the Company prior to the
Special Meeting.
Returned proxy cards will be voted (1) as
specified on the matters listed above: (2) in
accordance with the Board of Directors'
recommendations where no specification is made;
and (3) in accordance with the judgment of the
proxies on any other matters that may properly
come before the meeting.
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 as full corporate name by president
or authorized officer. If a partnership, please
sign in partnership name by authorized person.
Signature Signature Date
-------------------- ----------------------- ----------
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY IN THE ENCLOSED POSTAGE-PAID
ENVELOPE TODAY.
-- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --
FOLD AND DETACH HERE
