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Exhibit 10.1
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CANDLEWOOD HOTEL COMPANY, INC.
Series A Cumulative Convertible Preferred Stock
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STOCK PURCHASE AGREEMENT
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Dated as of August 27, 1997
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TABLE OF CONTENTS
(NOT PART OF AGREEMENT)
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ARTICLE I DEFINITIONS 1
ARTICLE II ISSUE, PURCHASE AND SALE OF PREFERRED STOCK 4
ARTICLE III CONDITIONS OF CLOSING 5
ARTICLE IV CERTAIN COVENANTS 8
ARTICLE V REPRESENTATIONS, COVENANTS AND WARRANTIES 10
ARTICLE VI REPRESENTATIONS OF THE PURCHASERS 18
ARTICLE VII RESTRICTIONS ON TRANSFER 20
ARTICLE VIII MISCELLANEOUS 21
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT, dated as of August 27, 1997 (as the
same may be amended or modified from time to time, this "Agreement"), between
CANDLEWOOD HOTEL COMPANY, INC., a Delaware corporation (the "Company"), and the
Purchasers listed on Schedule I (each, a "Purchaser" and collectively, the
"Purchasers").
WITNESSETH:
WHEREAS, the Company desires to issue 65,000 shares of its Series A
Cumulative Convertible Preferred Stock, $.01 par value per share (the "Preferred
Stock");
WHEREAS, the Purchasers agreed to the material financial terms with
respect to the Preferred Stock on August 27, 1997 based on the provisions of a
term sheet agreed upon on that date; and
WHEREAS, the Company desires to sell the Preferred Stock to the
Purchasers, and the Purchasers desire, severally, to purchase the Preferred
Stock from the Company, on the financial terms of such term sheet, which terms
are as set forth herein, and subject to the conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements contained herein, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
For the purposes of this Agreement, the following terms shall have
the following respective meanings:
"Affiliate" shall mean, with respect to any Person, any person that,
directly or indirectly, controls, is controlled by or is under common control
with such Person. For the purposes of this definition, "control" (including,
with correlative meanings, the terms "controlled by" and "under common control
with"), as used with respect to any Person, shall mean the possession, directly
or indirectly, of the power to direct or cause the direction of the management
and policies of such Person, whether through the ownership of voting securities
or by contract or otherwise.
"Certificate of Designation" shall mean the Certificate of
Designation in the form set forth in Exhibit A with respect to the Preferred
Stock of the Company.
"Certificate of Incorporation" shall mean the Certificate of
Incorporation of the Company, as amended.
"Closing Date" shall mean collectively, the Initial Closing Date and
the Second
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Closing Date.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Commission" shall mean the Securities and Exchange Commission or
any other governmental authority at the time administering the Securities Act or
the Exchange Act.
"Common Stock" shall mean and include the Company's currently
authorized common stock, $.01 par value per share, as constituted on the date
hereof (but without regard to the amount thereof authorized).
"Company Personnel" shall have the meaning set forth in Paragraph
5.0.
"Conversion Price" shall have the meaning set forth in the
Certificate of Designation.
"Employee Plans" shall have the meaning set forth in paragraph
5.0.
"Environmental Law" shall have the meaning set forth in paragraph
5.P.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, or any similar or successor Federal statute, and the rules and
regulations of the Commission thereunder, all as the same shall be in effect at
the time.
"Hazardous Substances" shall have the meaning set forth in
paragraph 5.P.
"Initial Closing Date" shall mean September 23, 1997.
"Intellectual Property" shall have the meaning set forth in
paragraph 5I.
"Lien" shall mean any interest in property securing an obligation
owed to, or a claim by, a Person other than the owner of the property, whether
such interest is based on the common law, statute or contract, and including,
but not limited to, the security interest lien arising from a mortgage,
encumbrance, pledge, conditional sale or trust receipt or a lease, consignment
or bailment for security purposes. The term "Lien" shall include reservations,
exceptions, encroachments, easements, rights-of-way, covenants, conditions,
restrictions, leases and other title exceptions and encumbrances affecting real
property, except any such usual or normal reservations, exceptions,
encroachments, easements, rights-of-way, covenants, conditions, restrictions,
leases or other title exceptions or encumbrances affecting real property,
including encumbrances for taxes not yet due and payable, that are not
materially disruptive to the use of such property in the ordinary course of
business. For the purposes of this Agreement, the Company or a Subsidiary shall
be deemed to be the owner of any property which it has acquired or holds subject
to a conditional sale agreement, financing lease or other arrangement pursuant
to which title to the property has been retained by or vested in some other
Person for security purposes.
"Liquidation Amount" shall have the meaning set forth in the
Certificate of
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Designation.
"Litigation" shall have the meaning set forth in paragraph
3.C.(b).
"Market Price" shall have the meaning set forth in the Certificate
of Designation; provided that with respect to paragraph 4.E., the Market Price
shall be calculated without reference to the last sentence of the definition as
set forth in the Certificate of Designation.
"NASDAQ Letter" shall mean the letter from NASDAQ exempting the
issuance of the Second Purchased Shares from certain rules of NASDAQ.
"Officers Certificate" shall mean a certificate of the Company
signed by the President, Chief Executive Officer or Chief Financial Officer.
"Person" shall mean and include an individual, a corporation, a
limited liability company, an association, a partnership, a trust or estate, a
government or any department or agency thereof.
"Preferred Stock" shall have the meaning set forth in the first
WHEREAS clause.
"Purchaser(s)" shall have the meaning set forth in the preamble.
"Registration Rights Agreement" shall mean the Amended and Restated
Registration Rights Agreement among the Company and the parties thereto dated as
of September 22, 1997.
"Release" shall have the meaning set forth in paragraph 5.P.
"Restricted Action" shall have the meaning set forth in paragraph
7A hereof.
"Restricted Securities" shall mean at any time (i) the Common Stock
previously issued or, unless the context otherwise requires, issuable upon
conversion of the Preferred Stock, (ii) any Common Stock issued subsequent to
the conversion of any of the Preferred Stock as a dividend or other distribution
with respect to, or in exchange for or in replacement of, the Common Stock
issued upon such conversion, and (iii) any Common Stock otherwise issued with
respect to the Preferred Stock; provided, however, that immediately after and
throughout the period during which the restrictions on the transferability of
such Common Stock shall have ceased and terminated in accordance with Article
VII hereof, the same shall cease to be Restricted Securities. Where the context
so requires, "holders of Restricted Securities" shall include holders of shares
of Preferred Stock convertible into Restricted Securities.
"Second Closing Date" shall mean the later of (i) October 3, 1997
and (ii) the date two Business Days following the date each of the Purchasers
has received evidence of satisfaction of the conditions of the NASDAQ Letter.
"Securities Act" shall mean the Securities Act of 1933, as amended,
and any similar or successor Federal statute, and the rules and regulations of
the Commission thereunder,
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all as the same may be in effect at the time.
"Share Equivalents" of any Restricted Securities or the Preferred
Stock shall mean the number of shares of Common Stock included among such
Restricted Securities or that are issuable upon conversion of the Preferred
Stock.
"Significant Subsidiary" shall mean a Subsidiary which holds assets
with a value in excess of $10,000 or maintains employees.
"Stated Value" of the Preferred Stock shall be $1,000.00 per
share.
"Stockholders Agreement" shall mean the Stockholders Agreement,
substantially in the form of Exhibit B, with such changes therein as to which
the Purchasers may agree, among the Company, Doubletree Corporation, the Warren
D. Fix Family Partnership, Jack P. DeBoer and the Purchasers.
"Subsidiary" shall mean a corporation of which the Company owns,
directly or indirectly, more than 50% of the shares of capital stock and the
holders of which are ordinarily, in the absence of contingencies, entitled to
elect a majority of the directors.
"Taxes" means any federal, state, county, local or foreign taxes,
charges, fees, levies, or other assessments, including, without limitation, all
net income, gross income, sales and use, ad valorem, transfer, gains, profits,
excise, franchise, real and personal property, gross receipt, capital stock,
business and occupation, disability, employment, payroll, license estimated, or
withholding taxes or charges imposed by any governmental entity, and includes
any interest and penalties on or additions to any such taxes (and, in the case
of the Company and each of its Subsidiaries, Taxes for which the Company or any
Subsidiary thereof may be liable in its own right, or as the transferee of the
assets of, or as successor to, any other corporation, association, partnership,
joint venture, or other entity, or under Treasury Regulation Section 1.1502-6 or
any similar provision of state of local law).
"Tax Return" means a report, return or other information required to
be supplied to a governmental entity with respect to Taxes including, where
permitted or required, combined, unitary, group or consolidated returns for any
group of entities that includes the Company or any of its Subsidiaries.
ARTICLE II
ISSUE, PURCHASE AND SALE OF PREFERRED STOCK
2.A Authorization of Issue of Preferred Stock. The Company has
authorized the issue of 65,000 shares of its Preferred Stock, having the powers,
designations, preferences and relative rights and the qualifications,
limitations and restrictions set forth in the form of the Certificate of
Designation attached as Exhibit A hereto.
2.B Purchase and Sale of Preferred Stock. Subject to the terms and
conditions
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herein set forth, the Company hereby agrees to sell to the Purchasers and, the
Purchasers severally agree to purchase from the Company: (i) on the Initial
Closing Date, the number of shares of Preferred Stock set forth opposite their
names in the column entitled "Shares Purchased on the Initial Closing Date" on
Schedule I (the "Initial Purchased Shares") at a purchase price of $1,000.00 per
share and (ii) on the Second Closing Date, the number of shares of Preferred
Stock set forth opposite their names in the column entitled "Shares Purchased on
the Second Closing Date" on Schedule I (the "Second Purchased Shares") at a
purchase price of $1,000.00 per share. On the Initial Closing Date with respect
to the Initial Purchased Shares and on the Second Closing Date with respect to
the Second Purchased Shares, or at such other time and on such other date as the
Purchasers and the Company may agree, the Company will deliver to the Purchasers
at the offices of Dewey Ballantine, 1301 Avenue of the Americas, New York, New
York 10019, or at such other location as the Purchasers and the Company may
agree, one or more stock certificates, as each Purchaser may request, registered
in such Purchaser's name or otherwise as such Purchaser may direct, evidencing
such shares to be purchased by the Purchasers, against payment of the purchase
price thereof by wire transfer of immediately available funds to or upon the
order of the Company.
ARTICLE III
CONDITIONS OF CLOSING
3.A. Purchaser Closing Conditions for Initial Closing Date. Each
Purchaser's obligation to purchase and pay for the Initial Purchased Shares on
the Initial Closing Date is subject to the satisfaction, on or before the
Initial Closing Date, of the following conditions:
(a) Opinion of Company's Counsel. On the Initial Closing Date the
Purchasers shall have received from Latham & Watkins, who are acting as special
counsel to the Company in connection with this transaction, an opinion, dated
the Initial Closing Date, in form and substance reasonably satisfactory to the
Purchasers.
(b) Opinion of Purchaser's Counsel. On the Initial Closing Date the
Purchasers shall have received from Dewey Ballantine, who are acting as special
counsel to the Purchasers in connection with this transaction, an opinion, dated
the Initial Closing Date, in form and substance reasonably satisfactory to the
Purchasers.
(c) Opinion of Delaware Counsel. On the Initial Closing Date the
Purchasers shall have received from Richards, Layton & Finger, who are acting as
special counsel to the Company in connection with this transaction, an opinion,
dated the Initial Closing Date, with respect to the enforceability of the
Stockholders Agreement and the Registration Rights Agreement, in form and
substance reasonably satisfactory to the Purchasers.
(d) Stockholders Agreement. The Stockholders Agreement shall have
been entered into by the parties thereto.
(e) Registration Rights Agreement. The Purchasers shall have become
parties to the Registration Rights Agreement.
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(f) Board Designees. The Board of Directors of the Company shall
have been increased from seven to ten members, and one designee for each of
Olympus Growth Fund II, L.P., Desai Capital and Pecks Management shall have been
elected to the Board of Directors of the Company.
(g) Expenses. On the Initial Closing Date, the Company shall have
paid (i) the reasonable out-of-pocket expenses of Purchasers incurred in
connection with this Agreement and (ii) the reasonable fees and expenses of
Dewey Ballantine as special counsel to the Purchasers incurred in connection
with this Agreement.
(h) Representations and Warranties. The representations and
warranties contained in Article V hereof shall be true on and as of the Initial
Closing Date with the same effect as though made on and as of the Initial
Closing Date; and the Company shall have delivered to the Purchasers an
Officer's Certificate, dated the Initial Closing Date, to such effect.
(i) Certificate of Designation. The Certificate of Designation
relating to the terms and conditions of the Preferred Stock shall have been
approved by the Board of Directors of the Company and filed with the Secretary
of State of the State of Delaware and shall be in full force and effect.
(j) Purchase of Preferred Stock. The Purchasers severally shall have
purchased shares of Preferred Stock in the amounts set forth opposite their
names on Schedule I under the column "Shares Purchased on the Initial Closing
Date."
(k) Issuance of Capital Stock. Neither the Company nor any
Subsidiary shall have issued any shares of capital stock or securities
exercisable for or convertible into shares of capital stock, or granted any
additional stock appreciation rights or altered the terms of any stock
appreciation rights existing on the date hereof, in either case subsequent to
the date hereof and prior to the Initial Closing Date.
(l) Investment Approvals. All necessary consents and approvals for
the issuance of the Preferred Stock and the execution and delivery of this
Agreement and performance of the terms hereunder shall have been obtained.
(m) Order. No order, decree, judgment or injunction shall be in
effect which restrains, enjoins or prevents the consummation of the transactions
contemplated by this Agreement.
(n) NASDAQ Letter. Prior to the Initial Closing Date, the Company
shall have delivered to each Purchaser a copy of the NASDAQ Letter and copies of
all items listed in such letter which have been delivered to the NASDAQ, which
letter shall be in form and substance reasonably acceptable to the Purchasers.
(o) Proceedings. On or prior to the Initial Closing Date, all
corporate and other proceedings taken or to be taken in connection with the
transactions contemplated hereby and all documents incident thereto shall be
reasonably satisfactory in form and substance to the
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Purchasers and their special counsel, and the Purchasers and their special
counsel shall have received all such counterpart originals or certified or other
copies of such documents as they may reasonably request.
3.B. Company Closing Conditions for Initial Closing Date. The
Company's obligation to sell the Initial Purchased Shares on the Initial Closing
Date is subject to the satisfaction, on or before the Initial Closing Date, of
the following conditions:
(a) Receipt of Purchase Price. The Company shall have received
payment of the purchase price with respect to the Initial Purchased Shares
purchased hereunder.
(b) Certificate of Designation. The Certificate of Designation
relating to the terms and conditions of the Preferred Stock shall have been
approved by the Board of Directors of the Company and filed with the Secretary
of State of the State of Delaware and shall be in full force and effect.
(c) Representations and Warranties. The representations and
warranties contained in Article VI hereof shall be true and correct.
3.C. Purchaser Closing Conditions for Second Closing Date. Each
Purchaser's obligation to purchase and pay for the Second Purchased Shares on
the Second Closing Date is subject to the satisfaction, on or before the Second
Closing Date, of the following conditions:
(a) Purchase of Preferred Stock. The Purchasers shall have received
certificates representing the shares of Preferred Stock in the amounts set forth
opposite their names on Schedule I under the column "Shares Purchased on the
Second Closing Date."
(b) No Litigation; No Order. No action, suit or proceeding shall be
pending or, to the knowledge of the Company, threatened, which seeks to restrain
or prevent, or seeks changes in connection with, or seeks to require a vote of
shareholders in connection with, the consummation of the transactions
contemplated by this Agreement and no order (including, without limitation, a
temporary restraining order), decree, writ, judgment or injunction shall be in
effect which restrains, enjoins or prevents the consummation of the transactions
contemplated by this Agreement (collectively, "Litigation"), and the Company has
delivered an Officer's Certificate dated the Second Closing Date to such effect.
(c) NASDAQ Letter. The Company shall have delivered to each
Purchaser evidence reasonably satisfactory to the Purchasers that all conditions
in the NASDAQ Letter have been met.
3.D. Company Closing Condition for Second Closing Date. The
Company's obligation to sell Second Purchased Shares on the Second Closing Date
is subject to the satisfaction, on or before the Second Closing Date, of the
following condition:
(a) Receipt of Purchase Price. The Company shall have received
payment of the purchase price with respect to the Second Purchased Shares
purchased hereunder.
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ARTICLE IV
CERTAIN COVENANTS
4.A. Financial Statements and Other Reports. After the Closing Date,
the Company agrees to send the following reports to each holder of Series A
Preferred Stock (except with respect to any Purchaser that sends written notice
to the Company indicating that it does not wish to receive any such reports):
(a) so long as the Company is subject to the requirements of, or otherwise
making filings pursuant to, Section 13 or 15(d) of the Exchange Act, within
three (3) days after the filing with the SEC, a copy of its Annual Report on
Form 10-K, its Quarterly Reports on Form 10-Q, any proxy statements and any
Current Reports on Form 8-K; (b) within one (1) day after release, copies of all
press releases issued by the Company or any of its subsidiaries; (c) promptly
upon receipt thereof, copies of reports, if any, submitted to the Company by
independent accountants in connection with each annual or interim audit of the
books of the Company made by such accountants; (d) promptly upon transmission
thereof to the Board of Directors, copies of any material information prepared
in addition to that described in paragraph 4A(a) or (b); (e) if requested in
writing by such Purchaser, within 30 days of the month to which such report
relates, monthly financial forecasts for each hotel owned or operated by the
Company; (f) such additional financial and other information as any Purchaser
may from time to time reasonably request, promptly after such request; (g) to
all holders of Series A Preferred Stock of record on the books of the Company's
transfer agent, all information sent to holders of the Common Stock; and (h) if
the Company is not subject to the requirements of, or otherwise making filings
pursuant to Section 13 or 15(d) of the Exchange Act, the Company will deliver to
each Purchaser until such Purchaser transfers, assigns or sells all of its
Preferred Stock: (1) as soon as practicable and in any event within 45 days
after the end of each fiscal quarter, the following information: consolidated
statements of income, stockholders' equity and cash flows of the Company and its
consolidated Subsidiaries for such fiscal period and for the period from the
beginning of the then current fiscal year to the end of such fiscal period and a
comparison of each such item to the then current budget, and a consolidated
balance sheet of the Company and its consolidated Subsidiaries as at the end of
such fiscal period, setting forth in each case in comparative form consolidated
figures for the corresponding periods in the preceding fiscal year, all in
reasonable detail, prepared in accordance with generally accepted accounting
principles consistently followed throughout the periods involved, certified as
to fair presentation by the principal financial officer of the Company and
accompanied by a written discussion of operations in summary form; and (2) as
soon as practicable and in any event within 90 days after the end of each fiscal
year of the Company, the following information: consolidated statements of
income, stockholders' equity and cash flows of the Company and its consolidated
Subsidiaries for such year, and a consolidated balance sheet of the Company and
its consolidated Subsidiaries as at the end of such year, setting forth in each
case in comparative form corresponding consolidated figures from the preceding
fiscal year and to the then current budget, prepared in accordance with
generally accepted accounting principles consistently followed throughout the
periods involved, and accompanied by an opinion of KMPG Peat Marwick, LLP, or
another firm among the six largest independent public accountants of recognized
national standing selected by the Company, or another firm of independent public
accountants of national standing mutually agreeable to the Company and
Purchasers holding a majority of the Share Equivalents, to the effect that the
consolidated financial statements have been prepared in accordance with
generally
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accepted accounting principles consistently applied (except for changes in
application in which such accountants concur and as are noted therein) and
present fairly the financial condition of the Company and its Subsidiaries and,
unless independent public accountants are not generally making statements
substantially to the following effect, that the examination of such accountants
in connection with such financial statements has been made in accordance with
generally accepted auditing standards and accordingly included such tests of the
accounting records and such other auditing procedures as were considered
necessary in the circumstances; and accompanied by a written discussion of
operations in summary form with respect to such fiscal year; provided, that any
reports referenced in (d), (e) and (f) above shall be provided only to the
original Purchasers who are institutions and who have entered into a
confidentiality agreement with the Company with respect to such reports, which
agreement shall include such reasonable terms as the Company and the Purchaser
shall agree, and provided, further, that the Company shall be obligated to
provide the reports referenced in (d), (e) and (f) above only to one Purchaser
for each group of Purchasers constituting Affiliates and any such right to
receive such materials shall not be transferable.
Each Purchaser is hereby authorized to deliver a copy of any
financial statement delivered to it pursuant to this paragraph 4A (other than
reports referenced in (d), (e) and (f) above) to any regulatory body having
jurisdiction over it which requests such information and the National
Association of Insurance Commissioners. Each Purchaser is further authorized to
request information from and to have access to, the Company's independent public
accountants, and the Company will request such accountants to make available to
any Purchaser such information as such Purchaser may reasonably request.
4.B. Inspection of Property. So long as any Purchaser shall hold any
Preferred Stock, the Company will permit any Person designated in writing by any
Purchaser to visit and inspect any of the properties of the Company and its
Subsidiaries and to discuss the affairs, finances and accounts of the Company
and its Subsidiaries, all upon reasonable notice, at such reasonable times
(subject to the bona fide schedule constraints of the relevant officers) and as
often as such Purchaser may reasonably request.
4.C. Corporate Existence, Licenses and Permits; Maintenance of
Properties. So long as the Purchasers shall hold in excess of 20% of the
Preferred Stock purchased pursuant hereto, the Company will at all times use
commercially reasonable efforts to do or cause to be done all things necessary
to maintain, preserve and renew its existence as a corporation organized under
the laws of a state of the United States of America, preserve and keep in force
and effect, and cause each of its Subsidiaries to apply for on a timely basis,
all licenses and permits necessary and material to the conduct of the business
of the Company and its consolidated Subsidiaries, taken as a whole, and to
maintain and keep, and cause each of its Subsidiaries to maintain and keep, its
and their respective properties in good repair, working order and condition
(except for normal wear and tear), and from time to time to make all needful and
proper repairs, renewals and replacements, including, without limitation, all
trade name and trademark registration renewals, in each case so that any
business material to the Company carried on in connection therewith may be
properly and advantageously conducted.
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4.D. Transactions with Affiliates. So long as the Purchasers shall
hold in excess of 20% of the Preferred Stock purchased pursuant hereto, the
Company shall not directly or indirectly enter into any transaction including,
without limitation, the purchase, sale, lease or exchange of any property or the
rendering of any service, with any Affiliate, except for transactions including
any investments, loans or advances by or to any Affiliates conducted in good
faith, on terms no less favorable to the Company than those that could be
obtained in a comparable arms-length transaction with a third-party (each an
"Affiliated Transaction"). In no event shall the Company (i) enter into an
Affiliated Transaction valued in excess of $200,000.00 or (ii) enter into an
Affiliated Transaction which, when added to the transaction value of all other
Affiliated Transactions, exceeds $500,000, without the approval of the Board of
Directors, including a majority of the disinterested Directors. Notwithstanding
the foregoing, any transactions approved by the Board of Directors prior to
August 27, 1997 and listed on Exhibit IV-D shall be deemed to be arms length
transactions for purposes hereof.
4.E. Options. The Company shall not issue any options, rights or
warrants to purchase Common Stock at a price less than 95 % of the Market Price
as of the date of the issuance of such options, rights or warrants.
4.F. Litigation. The Company covenants to use best efforts to
vigorously contest any Litigation and each Purchaser, severally, covenants to
use best efforts to cooperate with the Company in the Company's contest of any
such Litigation, provided, that such cooperation by each Purchaser shall not
require it to be in violation of any applicable law or regulation or require it
to retain counsel or to pay fees of any counsel associated with such Litigation
to bear any material expense, nor to agree to any settlement.
4.G. Securities Exchange. The Company shall use its best efforts to
maintain its listing with the NASDAQ or other national securities exchange,
including the AMEX, so long as it is subject to Section 13 or 15(d) of the
Exchange Act.
ARTICLE V
REPRESENTATIONS, COVENANTS AND WARRANTIES
The Company represents, covenants and warrants as of the Initial
Closing Date as follows:
5.A. Organization, Standing and Qualification of Company and
Subsidiaries; Corporate Authority. (a) The Company and each Significant
Subsidiary, if any, is a corporation or limited liability company duly organized
and existing in good standing under the laws of the jurisdiction of its
organization, and has the corporate or limited liability company power to own
its respective property and to carry on its respective business as now being
conducted, is duly qualified and in good standing as a foreign corporation or
limited liability company to do business in every jurisdiction where the
character of the properties owned or leased by it or the nature of any business
transacted by it makes such qualification necessary except where such
nonqualification or lack of good standing would not have a material adverse
effect on the business of the Company and its Significant Subsidiaries taken as
a whole. On the date hereof
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the Company has only those Subsidiaries listed on Exhibit V-A. The Company has
delivered to the Purchasers true, complete and correct copies of the Certificate
of Incorporation and its By-laws, as amended and in full force and effect on the
date hereof.
(b) The execution and delivery by the Company of this Agreement and
the Registration Rights Agreement and the performance by the Company of all
transactions and obligations contemplated hereby and thereby are within its
corporate authority. The execution, delivery and performance of this Agreement
and the Registration Rights Agreement and each other agreement contemplated by
the terms hereof, and the issuance of the Preferred Stock have been duly
authorized by all necessary corporate proceedings on the part of the Company.
Each of this Agreement and the Registration Rights Agreement constitutes the
legal, valid and binding obligation of the Company enforceable against the
Company in accordance with its terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium and similar laws affecting creditors'
rights and remedies generally. The Preferred Stock will, on or prior to the
Closing Date, be duly authorized and, when issued, will be fully paid and
nonassessable and subject to no preemptive rights. The shares of Common Stock
issuable upon the conversion of the Preferred Stock will, on or prior to the
Initial Closing Date, be duly authorized and reserved for issuance, will be
subject to no preemptive rights and, when issued upon such conversion, will be
validly issued, fully paid and nonassessable.
5.B. Financial Statements. The Company has furnished the Purchasers
with balance sheets of the Company as at December 31, 1996 and the related
statements of income, stockholders' equity and cash flows of the Company for the
fiscal year ended December 31, 1996, all certified by KPMG Peat Marwick, LLP
including in each case the related schedules and notes, and an unaudited balance
sheet of the Company as at March 31, 1997 and June 30, 1997 and statements of
income, stockholders' equity and cash flows of the Company for the period ended
on such date, prepared by the Company and certified by its principal financial
officer.
All such financial statements (including any related schedules
and/or notes) have been prepared in accordance with generally accepted
accounting principles consistently applied, except to the extent set forth in
the notes to such financial statements and except for the absence of footnotes
to the interim financial statements and except that the interim financial
statements are subject to adjustment made in the course of an audit that would
not in the aggregate be material, throughout the periods involved and to the
extent required by such principles show all liabilities, direct and contingent,
of the Company required to be shown thereon in accordance with generally
accepted accounting principles. The balance sheets and the related schedules and
notes fairly present the financial condition of the Company as at the respective
dates thereof and there are no undisclosed material liabilities since June 30,
1997, other than those incurred in the ordinary course; and the net income and
stockholders' equity statements and the related schedules and notes fairly
present the results of the operations of the Company for the respective periods
indicated.
There has been no material adverse change in the condition,
financial or other, of the Company and its Significant Subsidiaries, on a
consolidated basis, since June 30, 1997.
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5.C. Actions Pending. There is no action, suit, investigation or
proceeding pending or, to the knowledge of the Company, threatened against the
Company or any of its Significant Subsidiaries before any court, arbitrator or
administrative or governmental body that (i) seeks to enjoin or otherwise
prevent the issuance of the Preferred Stock or the consummation of the sale of
stock contemplated hereby or (ii) materially and adversely affects, or as to
which there is a reasonable possibility of an adverse decision that would
materially and adversely affect, either individually or collectively, the
business or condition of the Company and its consolidated Significant
Subsidiaries taken as a whole. Neither the Company nor any Significant
Subsidiary is in violation of any judgment, order, writ, injunction, decree,
rule or regulation of any court or governmental department, commission, board,
bureau, agency or instrumentality, the violation of which reasonably could be
expected to, either individually or collectively, materially and adversely
affect the business, property, assets or financial position of the Company and
its consolidated Significant Subsidiaries taken as a whole.
5.D. No Defaults. Neither the Company nor any of its Significant
Subsidiaries is in violation of, or in default under, nor has there been any
waiver given with respect to, any term or provision of any charter, by-law,
mortgage, indenture, agreement, instrument, statute, rule, regulation, judgment,
decree, order, writ, or injunction applicable to it, such that such violations
and defaults in the aggregate could reasonably be expected to result in any
material adverse change in the business, assets, condition (financial or
otherwise) or results of operations of the Company and its Significant
Subsidiaries taken as a whole, or materially adversely affect the ability of the
Company to perform in any material respect its obligations under this Agreement.
5.E. Taxes. The Company and each of its Significant Subsidiaries
have timely filed (or caused to be filed) all Tax Returns which are required to
be filed by (or with respect to) it on or before the date hereof and have paid
all Taxes due on or before the date hereof whether or not reflected on such
returns, including pursuant to any assessment received by the Company or any
Significant Subsidiary consolidated with the Company for Tax reporting purposes.
All such Tax Returns were true, correct and complete in all material respects.
None of such Tax Returns has been audited by the relevant taxing authority, and
no taxing authority has notified (or threatened) the Company or any Significant
Subsidiary, orally or in writing, that such taxing authority will or may audit
any such return. The Company and each of its Significant Subsidiaries have
complied with all requirements of the Code, the Treasury Regulations and any
state, local or foreign law relating to the payment and withholding of Taxes
relating to the Company or such Significant Subsidiary, and the Company, and
each Significant Subsidiary thereof, have, within the time and in the manner
prescribed by applicable law, paid over to the proper taxing authorities all
amounts required to be so withheld and paid over relating to the Company or such
Significant Subsidiary. The charges, accruals and reserves on the books of the
Company and its Significant Subsidiaries in respect of Taxes or other
governmental charges are adequate to cover any liability of the Company and each
Significant Subsidiary thereof for Taxes through the date hereof. There are no
liens for Taxes with respect to any asset of the Company or any Significant
Subsidiary thereof, except for liens with respect to Taxes that are not yet due
and payable. No taxing authority in a jurisdiction where the Company or any
Significant Subsidiary thereof, as the case may be, does not file tax returns
has made a claim, assertion or
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threat that the Company or any such Significant Subsidiary is or may be subject
to taxation in such jurisdiction.
5.F. Title, Liens. Except as set forth in Exhibit V-F, the Company
has, and each of its Significant Subsidiaries has, good and marketable title,
free and clear of all Liens, to its respective properties and assets reflected
in the consolidated balance sheet of the Company and its consolidated
Significant Subsidiaries as at June 30, 1997 (other than properties and assets
disposed of in the ordinary course of business).
5.G. Burdensome and Conflicting Agreements and Charter Provisions.
Neither the execution nor delivery of this Agreement and the Registration Rights
Agreement by the Company, nor the offering, issuance and sale of the Preferred
Stock by the Company, nor fulfillment of nor compliance with the terms and
provisions of this Agreement, the Registration Rights Agreement and of the
Preferred Stock by the Company, nor the issuance by the Company of shares of
Common Stock upon conversion of the Preferred Stock as provided in the
Certificate of Designation, will conflict with, or result in a breach of the
terms, conditions or provisions of, or constitute a default under, or result in
any violation of, or result in the creation of any Lien upon any of the
properties or assets of the Company or any Significant Subsidiary pursuant to,
or require any consent, approval or other action by any court or administrative
or governmental body or any other Person pursuant to the Certificate of
Incorporation or By-laws of the Company or any Significant Subsidiary, any award
of any arbitrator or any material agreement (including any agreement with
stockholders), instrument, order, judgment, decree, statute, law, rule or
regulation any of which are material to which the Company or any Significant
Subsidiary is subject, except for such approvals as may be required in
connection with fulfillment of, or compliance with, the Registration Rights
Agreements and the approvals identified on Exhibit V-G, which shall have been
obtained by the Closing Date.
5.H. Leases. The Company and each of its Significant Subsidiaries
enjoys peaceful and undisturbed possession of all leases material to the Company
or any of its Significant Subsidiaries and necessary for the operation of its
respective properties and assets, none of which contains any non-market,
unusually burdensome provisions which materially or adversely affects or impairs
the operation of such properties or assets. All such leases are valid and
subsisting and are in full force and effect.
5.I. Intellectual Property. (a) The Company exclusively owns or
possesses the requisite licenses or rights (on reasonable commercial terms) to
use all trades secrets, trademarks, service marks, service names, trade names,
copyrights and other intellectual property rights necessary to enable it to
conduct its business as now operated (and, except as set forth in Exhibit V-I
hereof, to the best of the Company's knowledge, as presently contemplated to be
operated in the future (collectively, the "Company IP")), and Exhibit V-I sets
forth a full and complete list of all such rights; there is no claim or action
by any person pertaining to, or proceeding pending, or to the Company's
knowledge threatened, which challenges the right of the Company or of a
Significant Subsidiary with respect to any Company IP; to the Company's
knowledge, the Company's or its Significant Subsidiaries' current and intended
products and services do not infringe on any licenses, trademarks, service
marks, service names, trade names, copyrights or
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other rights held by any Person; and the Company is unaware of any facts or
circumstances which might give rise to any of the foregoing.
(b) Except as set forth in Exhibit V-I, no proceedings or claims in
which the Company alleges that any Person is infringing upon, or otherwise
violating, any Company IP are pending, and none have been served by, instituted
or asserted by the Company, nor are any proceedings threatened alleging any such
violation or infringement.
(c) To the extent determined appropriate by the Company, the Company
has taken and will take all commercially reasonable actions which are necessary
or advisable in order to fully protect the Company IP, and the Company will take
all actions which are necessary or advisable in order to acquire intellectual
property rights, in each case in a manner consistent with prudent commercial
practice in the hotel business.
5.J. Offering of Preferred Stock. Neither the Company, Donaldson,
Lufkin & Jenrette nor Schroder & Co., Inc. (the only agents authorized to act on
the Company's behalf) has, directly or indirectly, offered the Preferred Stock
or any similar security of the Company for sale to, or solicited any offers to
buy the Preferred Stock or any similar security of the Company from, or
otherwise approached or negotiated with respect thereto with, more than 101
Persons including the Purchasers (all of which Persons are "accredited
investors" within the meaning of Regulation D promulgated under the Securities
Act), and neither the Company nor any agent acting on the Company's behalf has
taken or will take any action which would subject the issuance or sale of the
Preferred Stock to the provisions of Section 5 of the Securities Act. The
Company has filed all notices, or satisfied all registration or qualification
requirements of any state securities or Blue Sky law of any applicable
jurisdiction.
5.K. Broker's or Finder's Commissions. Other than the fee payable to
Donaldson, Lufkin & Jenrette and Schroder & Co., Inc. (which will be paid by the
Company) no broker's or finder's or placement fee or commission will be payable
with respect to the issuance of the Preferred Stock or the sale of stock
contemplated hereby as a result of any act or omission by the Company, and the
Company will hold the Purchasers harmless from any claim, demand or liability
for broker's or finder's or placement fees or commissions alleged to have been
incurred in connection with the issuance of the Preferred Stock or such sale of
stock.
5.L. Application of Proceeds. The net proceeds of the sale of the
Preferred Stock will be used by the Company to finance the Company's hotel
development strategy and for general corporate purposes, including the
repayment, under certain circumstances, of outstanding debt.
5.M. Disclosure. Neither this Agreement nor any other document,
certificate or statement prepared by or on behalf of the Company by its
authorized representatives or agents and furnished to or made available to the
Purchasers in writing by or on behalf of the Company by its authorized
representatives or agents in connection herewith, together with publicly
available information, including that filed with the Commission, considered
together, contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements contained herein and
therein, in the light of the circumstances under which made,
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not misleading.
5.N. Capital Stock. Upon the Initial Closing Date, the Company will
have authorized 100,000,000 shares of Common Stock and 5,000,000 shares of
preferred stock and will have issued 9,025,000 issued and outstanding shares of
Common Stock, 25,000 shares of Preferred Stock convertible into 2,631,578 shares
of Common Stock (calculated based on a Conversion Price of $9.50 per share and
subject to adjustment as provided in the Certificate of Designation) and options
for 554,350 shares of Common Stock. All of such outstanding shares have been
validly issued and are fully paid and nonassessable. The Company has also
authorized but has not issued options exercisable for 345,650 shares of Common
Stock. The Company has reserved such number of shares of Common Stock for
issuance pursuant to such instruments or agreements as are set forth in Exhibit
V-N.
Except as otherwise stated in this paragraph or in Exhibit V-N and
except for shares reserved for issuance in connection with this Agreement, the
Company has not granted or issued, or agreed to grant or issue, any options,
warrants or similar rights to acquire or receive any of the authorized but
unissued shares of its capital stock of any class or any securities convertible
into shares of its capital stock of any class or any stock appreciation rights.
Except as described above, the Company has not and will not have taken any
action after the date immediately preceding the date hereof and prior to the
Closing Date which, had the provisions of Exhibit A been in effect on and after
such date and to and including the Closing Date, would have required an
adjustment in the Conversion Price in accordance with the provisions of Exhibit
A.
5.O. ERISA. (a) Exhibit V-O sets forth each plan, agreement,
arrangement or commitment which is an employment or consulting agreement,
executive or incentive compensation plan, bonus plan, deferred compensation
agreement, employee pension, profit sharing, savings or retirement plan,
employee stock option or stock purchase plan, group life, health, or accident
insurance or other employee benefit plan, agreement, arrangement or commitment,
including, without limitation, any severance, holiday, vacation, Christmas or
other bonus plans (including, but not limited to, "employee benefit plans", as
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA")), maintained by the Company for any present or former
employees, officers or directors of the Company ("Company Personnel") or with
respect to which the Company has liability or makes or has an obligation to make
contributions ("Employee Plans").
(b) The Company has provided the Purchasers with access to (i)
copies of all Employee Plans or, in the case of an unwritten plan, a written
description thereof, (ii) copies of any annual, financial or actuarial reports
and Internal Revenue Service determination letters relating to such Employee
Plans and (iii) copies of all summary plan descriptions (whether or not required
to be furnished under ERISA) and employee communications relating to such
Employee Plans which materially modify an existing summary plan description and
distributed to Company Personnel, in each case under this subsection (iii),
existing or in effect during or within the past five years.
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(c) Except as set forth on Exhibit V-O, no Employee Plan entitles
Company Personnel to (x) any pension benefit that is unfunded or (y) any pension
or other benefit to be paid after termination of employment other than required
by Section 601 of ERISA or pursuant to plans intending to be qualified under
Section 401(a) of the Code and listed on the Exhibit V-P, and no other benefits
whatsoever are payable to any Company Personnel after termination of employment
(including retiree medical and death benefits).
(d) Each Employee Plan that is an employee welfare benefit plan
under Section 3(1) of ERISA is either (x) funded through an insurance company
contract and is not a "welfare benefit fund" within the meaning of Section 419
of the Code or (y) is unfunded.
(e) Each Employee Plan by its terms and operation is in compliance
in all material respects with all applicable laws (including, but not limited
to, ERISA, the Code and the Age Discrimination in Employment Act of 1967, as
amended).
(f) There are no actions, suits or claims pending or threatened
against any Employee Plan or administrator or fiduciary of any such Employee
Plan (other than routine noncontested claims for benefits) nor, to Company's
knowledge, does any set of circumstances exist which may reasonably give rise to
such a claim. As to each Employee Plan for which an annual report is required to
be filed under ERISA or the Code, all such filings, including schedules, have
been made on a timely basis and with respect to the most recent report regarding
each such Employee Plan liabilities do not exceed assets, and no material
adverse change has occurred with respect to the financial materials covered
thereby.
(g) Neither the Company nor any entity that is or was at any time
treated as a single employer with the Company under Section 414(b), (c), (m) or
(o) of the Code has at any time (x) maintained, contributed to or been required
to contribute to any plan under which more than one employer makes contributions
(within the meaning of Section 4064(a) of ERISA) or any plan that is a
multiemployer plan, (y) incurred or expects to incur any liability to the
Pension Benefit Guaranty Corporation or otherwise under Title IV of ERISA or (z)
incurred or expects to incur liability in connection with an "accumulated
funding deficiency" within the meaning of Section 412 of the Code whether or not
waived.
(h) Each Employee Plan intended to be qualified under Section 401(a)
of the Code and, if applicable, Section 401(k) of the Code has received a
favorable determination letter from the Internal Revenue Service stating that
such Employee Plan is qualified under Section 401(a) and , if applicable,
Section 401(k) of the Code and the related trust is exempt from tax under
Section 501(a) and, to the knowledge of the Company, nothing has occurred since
the date of such letter to cause the letter to be no longer valid or effective.
(i) Neither the Company nor, to the best knowledge of the Company,
any other person, including any fiduciary, has engaged in any "prohibited
transaction" (as defined in Section 4975 of the Code or Section 406 of ERISA),
which could subject any of the Employee Plans (or their trusts), the Company, or
any person who the Company has an obligation to indemnify, to any tax or penalty
imposed under Section 4975 of the Code or Section 502 of ERISA. No "reportable
event" (as such term is defined in Section 4043 of ERISA) for which the
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notice requirement has not been waived by the Pension Benefit Guaranty
Corporation has occurred or is expected to occur with respect to any Employee
Plan and the Company will provide any Purchaser notice of any reportable events.
(j) Except as set forth on Exhibit V-O, the events contemplated by
this Agreement (either alone or together with any other event) will not (w)
entitle any Company Personnel to severance pay, unemployment compensation, or
other similar payments under any Employee Plan or law, (x) accelerate the time
of payment or vesting or increase the amount of benefits due under any Employee
Plan or compensation to any Company Personnel, (y) result in any payments
(including parachute payments) under any Employee Plan or law becoming due to
any Company Personnel, or (z) terminate or modify or give a third party a right
to terminate or modify the provisions or terms of any Employee Plan.
5.P. Environmental. (a) Except as set forth on Exhibit V-P, the
Company and the Subsidiaries comply, and the Company, the Subsidiaries and their
respective predecessors at all times during their existence have complied, with
all applicable Environmental Laws (as defined below).
(b) There is not now pending or, to the knowledge of the Company or
any Significant Subsidiary, threatened, any action, claim, proceeding or
investigation, nor has the Company, any Significant Subsidiary, or any of their
respective predecessors received any notice, claim, demand letter or request for
information at any time, alleging that the Company, any Significant Subsidiary,
or any of their respective predecessors may be in violation of, or liable under,
any Environmental Law, nor does there exist any basis for any such action,
claim, proceeding or investigation.
(c) There are no Hazardous Substances (as defined below) located on
any of the properties currently or formerly owned or operated by the Company,
the Significant Subsidiaries or any of their respective predecessors (including
soil, groundwater and surface features and buildings and structures thereon)
(the "Properties"), and none of the Properties contain, or has contained, any
underground improvements, including , but not limited to, treatment or storage
tanks, sumps, water, gas or oil wells, or associated piping.
(d) The Company and each Significant Subsidiary does not have any
contingent liability in connection with a Release (as defined below) or
threatened Release of any Hazardous Substance at any location.
(e) To the knowledge of the Company and each Significant Subsidiary,
there are no present or past Environmental Conditions (as defined below) in any
way related to the Company, any Significant Subsidiary, or any of their
respective predecessors which have, or may have, individually or in the
aggregate, a material adverse effect with respect to any Property or the
business or condition of the Company or the Significant Subsidiaries, taken as a
whole.
(f) As used herein, "Environmental Law" means any federal, state,
local or foreign law, regulation, order, decree, judgment, opinion, common law
or binding equitable principle or agency requirement relating to pollution,
contamination, wastes, hazardous material
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or the protection of the environment, human health or safety.
(g) As used herein, "Hazardous Substance" means any substance that
is listed, classified under or regulated by any governmental authority pursuant
to any Environmental Law, including, without limitation, any petroleum product
or by-product, asbestos-containing material, lead-containing paint or plumbing,
polychlorinated biphenyls, radioactive material or radon.
(h) As used herein, "Release" means any release, spill, emission,
leaking, pumping, injection, deposit, discharge, dispersal, leaching or
migrating into the indoor or outdoor environment of any Hazardous Substance.
(i) As used herein, "Environmental Condition" means the Release or
threatened Release of any Hazardous Substance upon, under, in or about any of
the Properties, or any other circumstance involving any Property or the Company,
any Subsidiary, or any of their respective predecessors that could be expected
to result in any claim, liability, costs or losses, or any restriction on the
ownership, use or transfer of any Property pursuant to any Environmental Law.
5.Q. Insurance. The Company maintains and/or is covered by valid
policies of workers' compensation insurance and of insurance with respect to its
properties and business. The Company currently maintains in full force insurance
covering the respective risks of the Company and its Significant Subsidiaries of
such types and in such amounts, with such deductibles and with such insurance
companies as are customary for other companies engaged in similar lines of
business.
ARTICLE VI
REPRESENTATIONS OF THE PURCHASERS
Each Purchaser represents and warrants as to itself only as follows:
6.A. Investment Purpose. Purchaser is purchasing the Preferred Stock
for Purchaser's own account for investment only and not with a view toward or in
connection with the public sale or distribution thereof. Purchaser will not
resell the Preferred Stock or Restricted Securities except pursuant to sales
that are exempt from the registration requirements of the Securities Act and all
applicable state securities laws, and/or sales registered under the Securities
Act and all applicable state securities laws. Purchaser understands that
Purchaser may bear the economic risk of this investment indefinitely, unless the
Restricted Securities are registered pursuant to the Securities Act and any
applicable state securities laws or an exemption from such registration is
available, and that the Company has no present intention of registering any
Restricted Securities other than as contemplated by the Registration Rights
Agreement.
6.B. Accredited Investor Status. Purchaser or its ultimate parent is
an "accredited investor" as that term is defined in Rule 501(a) of Regulation D
promulgated under the Securities Act. By reason of its business and financial
experience, sophistication and knowledge, Purchaser is capable of evaluating the
risks and merits of the investment made pursuant to this Agreement.
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6.C. Authorization; Enforcement. This Agreement and the Registration
Rights Agreement have been duly and validly authorized, executed and delivered
on behalf of Purchaser and are valid and binding agreements of Purchaser
enforceable in accordance with their terms.
6.D. Group. As of the date hereof, Purchaser has not formed or
agreed to form nor, as of the Closing Date, does Purchaser intend to form, with
the other Purchasers or other holders of the Company's securities a group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) for the
purpose of effecting a "Change of Control" as defined in the Certificate of
Designation.
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ARTICLE VII
RESTRICTIONS ON TRANSFER
7A. Applicability of Restrictions. In addition to any restrictions
contained in this Agreement, any Restricted Securities or the Company's
Certificate of Incorporation, the provisions of this Article VII shall apply to:
(a) the transfer of any share of Preferred Stock and (b) the transfer of any
Restricted Security (each such transfer being herein called a "Restricted
Action"); provided, however, that the transfer of any share of Preferred Stock
or any Restricted Security to a partner, shareholder, equity holder or officer
of any holder of Preferred Stock or Restricted Security or to an entity
controlled by or under common control with the transferor shall not be a
Restricted Action. The holder of any Preferred Stock or Restricted Security, by
its acceptance thereof, agrees that, unless otherwise permitted hereunder, it
will not take any Restricted Action prior to the delivery to the Company, if
requested, of the opinion of counsel referred to in, and to the effect described
in, clause (iii) of paragraph 7C, or until registration of the Restricted
Securities under the Securities Act has become effective.
7B. Restrictive Legends. Each share of Preferred Stock and
certificate for Restricted Securities and each share of Preferred Stock and
certificate issued upon the transfer or exchange of any such Preferred Stock or
certificate for Restricted Securities (except as otherwise permitted by this
Article VII), shall bear a legend in substantially the following form:
The securities represented by this certificate have not
been registered under the Securities Act of 1933, as amended, and
neither the securities nor any interest therein may be sold,
transferred, pledged or otherwise disposed of in the absence of such
registration or an exemption under such Act and the rules and
regulations thereunder. The transfer of such securities is subject
to the restrictions set forth in Article VII of that certain Stock
Purchase Agreement, dated as of August 27, 1997 between Candlewood
Hotel Company, Inc. and certain Purchasers, copies of which are
available for inspection at the offices of Candlewood Hotel Company,
Inc., and such securities may be transferred only in compliance with
the terms and conditions of said Article VII of said Stock Purchase
Agreement.
7C. Notice of Proposed Transfer; Opinion of Counsel; Certain
Restrictions. Each holder of any shares of Preferred Stock or of any Restricted
Securities, by its acceptance thereof, agrees that, except as otherwise
expressly provided below in this paragraph 7C, prior to the taking of any
Restricted Action, such holder will give written notice to the Company of such
holder's intention to take such Restricted Action and to comply in all other
respects with this paragraph 7C. Each such notice (i) shall describe the manner
and circumstances of the proposed Restricted Action in sufficient detail to
enable counsel to render the opinion referred to below, (ii) shall designate
counsel for the holder giving such notice (who may be house counsel for such
holder) and (iii) if requested by the Company, shall be promptly followed by an
opinion of such counsel to the effect that the proposed Restricted Action may be
effected without registration under the Securities Act or any applicable state
securities or Blue Sky laws governing such
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Restricted Action or any shares of Preferred Stock or Restricted Securities
involved in, or issuable upon conversion of any shares of Preferred Stock
involved in, such Restricted Action. The Company will promptly effect any
transfer of any shares of Preferred Stock or Restricted Securities involved in
such Restricted Action and either deliver new shares of Preferred Stock or
certificates for Restricted Securities bearing (or not bearing, if in the
opinion of such counsel such legend is no longer required to insure compliance
with the Securities Act) the legend set forth in paragraph 7B, or both, as the
case may be; provided, however, that (x) each such transferee shall represent in
writing that it is acquiring such Preferred Stock or Restricted Security for
investment and not with a view to the distribution thereof (subject, however, to
any requirement of law that the disposition thereof shall at all times be within
the control of such transferee) and (y) each such transferee shall agree in
writing to be bound by all the restrictions on transfer of such shares of
Preferred Stock or Restricted Securities contained in this Article VII. The
Company will pay the reasonable fees and disbursements of counsel (other than
house counsel) for any holder of shares of Preferred Stock or Restricted
Securities in connection with any opinion requested and rendered pursuant to
this paragraph 7C.
7D. Termination of Restrictions. All restrictions imposed by this
Article VII upon the transferability of Preferred Stock or Restricted Securities
shall cease and terminate as to any particular shares of Preferred Stock or
Restricted Securities, (a) when the offer and sale of such securities shall have
been effectively registered under the Securities Act and such securities
disposed of in accordance with the registration statement covering such
securities, or (b) when, in the reasonable opinion of counsel for the holder
thereof or counsel for the Company, such restrictions are no longer required in
order to insure compliance with the Securities Act. Whenever such restrictions
shall terminate as to any shares of Preferred Stock or Restricted Securities,
the holder thereof shall be entitled to receive from the Company without expense
a new certificate or certificates representing such securities not bearing the
legend set forth in paragraph 7B hereof.
ARTICLE VIII
MISCELLANEOUS
8.A Dividend Payments. The Company agrees that, so long as any
Purchaser shall hold any Preferred Stock, the Company will make payments with
respect thereto pursuant to the terms of the Certificate of Designation by wire
transfer of immediately available funds for credit to such Purchaser's account
set forth on Schedule I, or such other account in the United States of America
as such Purchaser may designate in writing, notwithstanding any contrary
provision herein or in any share of Preferred Stock with respect to the place of
payment. The Company agrees to afford the benefits of this paragraph to any
permitted transferee of any Preferred Stock purchased by any Purchaser
hereunder.
8.B Expenses. The Company agrees to pay, and save the Purchasers
harmless against liability for the payment of, all reasonable out-of-pocket
expenses arising in connection with (i) the negotiation and execution of this
Agreement and the issuance of the Preferred Stock, including all taxes
(including any intangible personal property tax, together in each case with
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interest and penalties, if any, and also including any filing fees payable to
any governmental authority, and any income tax payable by any Purchaser in
respect of any reimbursement for any such tax or fee) which may be payable in
respect of the execution and delivery of this Agreement or the issuance,
delivery or acquisition (but not the holding, ownership or transfer) of any
Preferred Stock issued under or pursuant to this Agreement or any Common Stock
issuable upon conversion of any such Preferred Stock, (ii) the reasonable fees
and expenses of Purchasers' special counsel in connection with this Agreement,
any subsequent modification thereof or consent thereunder (including any
proposed modification or consent, whether or not finalized) and (iii) the cost
and expenses, including reasonable attorney's fees, incurred by the Purchasers
in enforcing any of their rights hereunder, including, without limitation, costs
and expenses incurred in any bankruptcy case. The obligations of the Company
under this paragraph shall survive transfer by any Purchaser and payment or
conversion of any Preferred Stock and transfer by any Purchaser of any Common
Stock issuable upon the conversion of any shares thereof.
8.C Consent to Amendments. This Agreement may be amended, and the
Company may take any action herein prohibited, or omit to perform any act herein
required to be performed by it, if the Company shall obtain the written consent
to such amendment, action or omission to act given by the holder or holders of
at least 66-2/3% of the shares of Preferred Stock at the time outstanding,
except that, without the written consent of the holder or holders of all the
Preferred Stock at the time outstanding, no amendment to this Agreement shall
affect the time or amount of any required payments, or adversely affect the
conversion rights or preference rights, or reduce the percentage of the
aggregate number of shares of the Preferred Stock required with respect to any
consent or amendment. Any consideration given to any holder to obtain his
consent under this Agreement or the Registration Rights Agreement or with
respect to the Preferred Stock shall be given pro rata to all holders of shares
of Preferred Stock whether or not they give consent. Each holder of any shares
of Preferred Stock at the time or thereafter outstanding (or of shares of Common
Stock entitled to any rights hereunder) shall be bound by any consent authorized
by this paragraph, whether or not such shares of Preferred Stock shall have been
marked to indicate such consent, but any shares of Preferred Stock issued
thereafter may bear a notation referring to any such consent. No course of
dealing between the Company and the holder of any shares of Preferred Stock nor
any delay in exercising any rights hereunder or under any shares of Preferred
Stock shall operate as a waiver of any rights of any holder of such shares of
Preferred Stock. As used herein, the term "this Agreement" and references
thereto shall mean this Agreement as it may from time to time be amended or
supplemented.
8.D Notices to Subsequent Holder. Except as otherwise provided
herein, if any shares of Preferred Stock shall have been transferred to another
holder and such holder shall have designated in writing the address to which
communications with respect to such shares of Preferred Stock shall be mailed,
all notices, certificates, requests, statements and other documents required to
be delivered to the Purchaser by any provision hereof shall also be delivered to
each such holder.
8.E Survival of Representations, Warranties and Indemnities. All
representations and warranties contained herein or made in writing by the
Company in connection herewith shall survive the execution and delivery of this
Agreement and of the
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Preferred Stock, regardless of any investigation made by any Purchaser or on
such Purchaser's behalf.
8.F Successors and Assigns. Except as otherwise provided herein, all
covenants and agreements contained in this Agreement by or on behalf of any of
the parties hereto shall bind and inure to the benefit of the respective
successors and assigns of the parties hereto whether so expressed or not.
8.G Notices. All notices and other communications provided for or
given or made hereunder shall be effective upon receipt if delivered by hand or
if delivered by first class mail, registered mail, return receipt requested or
overnight courier and, if to a Purchaser, at the address set forth on Schedule
I, and if to the Company, at Candlewood Hotel Company, Lakepoint Office Park,
9342 East Central, Wichita, Kansas 67206, Attention: Chief Financial Officer, or
to such other address with respect to any party as such party shall notify the
other in writing.
8.H Accounting Terms. Unless otherwise set forth herein, all
accounting terms and provisions in this Agreement shall be construed to be as
determined in accordance with generally accepted accounting principles in the
United States then in effect.
8.I Satisfaction Requirement. If any agreement, certificate or other
writing, or any action taken or to be taken, is by the terms of this Agreement
required to be satisfactory to the Purchasers, the determination of such
satisfaction shall be made by the Purchasers in their reasonable judgment
exercised in good faith.
8.J Governing Law. This Agreement shall be construed and enforced in
accordance with, and the rights of the parties shall be governed by, the laws of
the State of New York. This Agreement may not be changed orally, but (subject to
the provisions of paragraph 8C) only by an agreement in writing signed by the
party against whom enforcement is sought.
8.K Headings; Table of Contents. The descriptive headings of the
several paragraphs of this Agreement and the table of contents are inserted for
convenience only and do not constitute a part of this Agreement.
8.L Counterparts. This Agreement may be executed simultaneously in
two or more counterparts, all of which shall be deemed but one and the same
instrument and each of which shall be deemed an original, and it shall not be
necessary in making proof of this Agreement to produce or account for more than
one such counterpart.
8.M Non Business Days. If the date for making any payment or the last
date for performance of any act or the exercising of any right, as provided in
this Agreement, shall not be a business day, such payment may be made or act
performed or right exercised on the next succeeding business day, with the same
force and effect as if done on the nominal date provided in this Agreement.
8.N Further Assurances. The Company shall from time to time and at
all times
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hereafter make, do, execute or cause or procure to be made, done and executed
such further acts, deeds, conveyances, consents and assurances, without further
consideration, which may reasonably be required to effect the transactions
contemplated by this Agreement.
8.O Integration. This Agreement, together with the exhibits hereto,
the Stockholders Agreement and the Registration Rights Agreement embody the
entire agreement by and among the parties hereto with respect to the matters set
forth herein and supersede any and all previous agreements, whether oral or
written on the same subject matter.
8.P Termination. All of the provisions of this Agreement shall
terminate (i) with respect to each Purchaser upon the conversion, redemption or
liquidation of the Preferred Stock held by such Purchaser, unless the Agreement
specifies otherwise and (ii) with respect to all of the Purchasers upon the
purchase or conversion of the Preferred Stock by the Company pursuant to clause
(vi)(r) of the Certificate of Designation.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective officers thereunto duly authorized as of the day
and year first above written.
CANDLEWOOD HOTEL COMPANY, INC.
By /s/ JACK P. DeBOER
---------------------------------------
Name: Jack P. DeBoer
Title: Chief Executive Officer
OLYMPUS GROWTH FUND II, L.P.
By: OGP II, L.P., its General Partner
By: Conroy, L.L.C., its General
Partner
By /s/ JAMES A. CONROY
-----------------------------------
Name: James A. Conroy
Title: General Partner
OLYMPUS EXECUTIVE FUND, L.P.
By: OEF, L.P., its General Partner
By: Conroy, L.L.C., its General
Partner
By: /s/ JAMES A. CONROY
-----------------------------------
Name: James A. Conroy
Title: General Partner
28
MORGAN GUARANTY TRUST COMPANY OF NEW YORK,
AS TRUSTEE OF THE COMMINGLED PENSION TRUST
FUND (MULTI-MARKET SPECIAL INVESTMENT FUND
II) OF MORGAN GUARANTY TRUST COMPANY OF NEW
YORK
By /s/ RONALD G. HODGE, II
-----------------------------------------
Name: Ronald G. Hodge, II
Title: Vice President
MORGAN GUARANTY TRUST COMPANY OF NEW YORK,
AS TRUSTEE OF THE MULTI-MARKET SPECIAL
INVESTMENT TRUST FUND OF MORGAN GUARANTY
TRUST COMPANY OF NEW YORK
By /s/ RONALD G. HODGE, II
-----------------------------------------
Name: Ronald G. Hodge, II
Title: Vice President
MORGAN GUARANTY TRUST COMPANY OF NEW YORK,
AS INVESTMENT MANAGER AND AGENT FOR THE
ALFRED P. SLOAN FOUNDATION (MULTI-MARKET
ACCOUNT)
By /s/ RONALD G. HODGE, II
-----------------------------------------
Name: Ronald G. Hodge, II
Title: Vice President
CHASE VENTURE CAPITAL ASSOCIATES, L.P.
By: Chase Capital Partners, its General
Partner
By /s/ JAMES D. KALLMAN
-----------------------------------
Name: James D. Kallman
Title:
29
PRIVATE EQUITY
INVESTORS III, L.P.
By: Rohit M. Desai Associates III, LLC
General Partner
By: /s/ ROHIT M. DESAI
------------------------------------
Name: Rohit M. Desai
Title: Managing Member
EQUITY-LINKED INVESTORS-II
By: Rohit M. Desai Associates-II
General Partner
By: /s/ ROHIT M. DESAI
------------------------------------
Name: Rohit M. Desai
Title: Managing General Partner
LNR CANDLEWOOD HOLDINGS, INC.
By /s/ MARGARET A. JORDAN
------------------------------------------
Name: Margaret A. Jordan
Title: Treasurer
DELAWARE STATE EMPLOYEES' RETIREMENT FUNDS
By: Pecks Management Partners Ltd.
its Investment Advisor
By /s/ ROBERT J. CRESCI
------------------------------------
Name: Robert J. Cresci
Title: Managing Director
30
DECLARATION OF TRUST FOR THE DEFINED
BENEFIT PLAN OF ZENECA HOLDINGS INC.
By: Pecks Management Partners Ltd.
its Investment Advisor
By /s/ ROBERT J. CRESCI
------------------------------------------
Name: Robert J. Cresci
Title: Managing Director
DECLARATION OF TRUST FOR THE DEFINED
BENEFIT PLAN OF ICI AMERICAN HOLDINGS INC.
By: Pecks Management Partners Ltd.
its Investment Advisor
By /s/ ROBERT J. CRESCI
------------------------------------------
Name: Robert J. Cresci
Title: Managing Director
J.W. McCONNELL FAMILY TRUST
By: Pecks Management Partners Ltd.
its Investment Advisor
By /s/ ROBERT J. CRESCI
--------------------------------------
Name: Robert J. Cresci
Title: Managing Director
ADVANCE CAPITAL PARTNERS, L.P.
By: Advance Capital Associates, L.P.
By: Advance Capital Management, LLC
By /s/ ROBERT A. BERNSTEIN
------------------------------------
Name: Robert A. Bernstein
Title: Principal
31
ADVANCE CAPITAL OFFSHORE PARTNERS, L.P.
By: Advance Capital Offshore Associates,
LDC
By: Advance Capital Associates, L.P.
By: Advance Capital Management, LLC
By /s/ ROBERT A. BERNSTEIN
------------------------------------
Name: Robert A. Bernstein
Title: Principal
ALLIED CAPITAL CORPORATION
By /s/ G. CABEL WILLIAMS
------------------------------------------
Name: G. Cabel Williams
Title: Managing Director
ALLIED CAPITAL CORPORATION II
By /s/ G. CABEL WILLIAMS
------------------------------------------
Name: G. Cabel Williams
Title: Managing Director
THE FFJ 1997 NOMINEE TRUST
By /s/ SAMUEL T. BYRNE
------------------------------------------
Name: Samuel T. Byrne
Title: Trustee
32
THE MUTUAL LIFE INSURANCE COMPANY OF NEW
YORK
By /s/ SUZANNE S. WALTON
------------------------------------------
Name: Suzanne S. Walton
Title: Managing Director
HARBOR INVESTMENTS LTD.
By: Strong Capital Management, Inc.,
its Investment Advisor
By /s/ STEPHEN J. SHENKENBERG
------------------------------------
Name: Stephen J. Shenkenberg
Title: Vice President
STRONG SPECIAL INVESTMENT LIMITED
PARTNERSHIP
By: Strong Capital Management, Inc.
its General Partner
By /s/ STEPHEN J. SHENKENBERG
------------------------------------
Name: Stephen J. Shenkenberg
Title: Vice President
STRONG QUEST LIMITED PARTNERSHIP
By: Strong Capital Management, Inc.
its General Partner
By /s/ STEPHEN J. SHENKENBERG
------------------------------------
Name: Stephen J. Shenkenberg
Title: Vice President
33
/s/ WILLIAM J. ABRAMS
--------------------------------------------
William J. Abrams
/s/ JOSEPH P. ADAMS, JR.
--------------------------------------------
Joseph P. Adams, Jr.
/s/ ERIC ANDERSON
--------------------------------------------
Eric Anderson
/s/ ROBERT P. BRENNAN, JR.
--------------------------------------------
Robert P. Brennan, Jr.
/s/ ROBERT BRODY
--------------------------------------------
Robert Brody
/s/ VANESSA BURGESS
--------------------------------------------
Vanessa Burgess
/s/ CRAIG CALLEN
--------------------------------------------
Craig Callen
/s/ MICHAEL DANA
--------------------------------------------
Michael Dana
/s/ PETER DEEKS
--------------------------------------------
Peter Deeks
/s/ ROBERT E. DIEMAR, JR.
--------------------------------------------
Robert E. Diemar, Jr.
/s/ DAVID HURWITZ
--------------------------------------------
David Hurwitz
34
/s/ STEVE KANTOR
--------------------------------------------
Steve Kantor
/s/ LOUIS KLEVAN
--------------------------------------------
Louis Klevan
/s/ LARRY LAVINE
--------------------------------------------
Larry Lavine
/s/ DANIEL J. MACKELL
--------------------------------------------
Daniel J. Mackell
/s/ PATRICK MCMULLAN
--------------------------------------------
Patrick McMullan
/s/ ANDREW J. MCSPADDEN
--------------------------------------------
Andrew J. McSpadden
/s/ DAVID R. SMITH
--------------------------------------------
David R. Smith
/s/ PHIL TAGER
--------------------------------------------
Phil Tager
/s/ DOUGLAS M. WEILL
--------------------------------------------
Douglas M. Weill
/s/ JACK P. DEBOER
--------------------------------------------
Jack P. DeBoer
/s/ WARREN D. FIX
--------------------------------------------
Warren D. Fix