UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934 (Amendment No. 3)
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 Section 240.14a-12
JOHN Q. HAMMONS HOTELS, 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)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
Class A Common Stock, par value $0.01
(2) Aggregate number of securities to which transaction applies:
5,253,262 shares of Class A Common Stock and options to purchase
1,776,538 shares of Class A 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):
Pursuant to the Agreement and Plan of Merger, dated as of June
14, 2005, among JQH Acquisition LLC, JQH Merger Corporation and
John Q. Hammons Hotels, Inc., Class A Common Stock (other than
shares owned by parties to that agreement and shares owned by
stockholders who perfect their appraisal rights) will be
converted into the right to receive $24.00 per share in cash. All
outstanding stock options to purchase shares of Class A Common
Stock not exercised prior to the merger will terminate, but under
the merger agreement, John Q. Hammons Hotels, Inc. will pay each
holder of unexercised options a cash bonus payment equal to the
amount by which $24.00 per share exceeds the exercise price for
that option, multiplied by the number of shares of Class A Common
Stock issuable upon exercise of the option. The filing fee was
calculated based on the sum of (a) an aggregate cash payment of
$126,078,288 for the proposed merger consideration of $24.00 per
share for 5,253,262 outstanding shares of Class A Common Stock
and (b) an aggregate cash payment of $32,288,082 to holders of
outstanding options to acquire shares of Class A Common Stock.
The payment of the filing fee, calculated in accordance with Fee
Rate Advisory #6 For Fiscal Year 2005, equals $117.70 per million
of the aggregate amount calculated under the preceding sentence.
(4) Proposed maximum aggregate value of transaction:
$158,366,370
(5) Total fee paid:
$18,640.00
[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:
________________________
JOHN Q. HAMMONS HOTELS, INC.
300 JOHN Q. HAMMONS PARKWAY
SPRINGFIELD, MISSOURI 65806
(417) 864-4300
PROPOSED CASH MERGER -- YOUR VOTE IS VERY IMPORTANT
Dear Stockholder:
You are cordially invited to attend a special meeting of stockholders of
John Q. Hammons Hotels, Inc. (the "Company") on September 15, 2005, at 9:00
a.m., local time, at the University Plaza Hotel, 333 John Q. Hammons Parkway,
Springfield, Missouri. At the special meeting, you will be asked to consider and
vote upon a proposal to adopt the Agreement and Plan of Merger, dated as of June
14, 2005, among the Company, JQH Acquisition LLC and JQH Merger Corporation.
Under the merger agreement, JQH Merger Corporation, a wholly-owned subsidiary of
JQH Acquisition LLC, will be merged into the Company. Upon completion of the
merger, each outstanding share of our Class A Common Stock will convert into the
right to receive $24.00 in cash, and each share of our Class B Common Stock, all
of which is owned by Mr. John Q. Hammons, will remain outstanding as one share
of common stock of the Company, as the surviving corporation.
If the merger is completed, we will no longer be a publicly-traded company,
and you will no longer have an equity interest in, or participate in, any
potential future earnings and growth of, the Company. The merger agreement has
been entered into in connection with a series of transactions agreed to among
Mr. Hammons, JQH Acquisition LLC and their affiliates. These transactions
address a variety of ongoing arrangements between Mr. Hammons and the other
parties, including Mr. Hammons' continuing equity ownership in the business and
his ongoing, active leadership role in the Company.
The board of directors formed a special committee, composed of three
directors who are not officers or employees of the Company, and who are
independent of and have no economic interest in JQH Acquisition LLC or JQH
Merger Corporation. The board authorized the special committee to evaluate,
negotiate and make a recommendation to the board of directors regarding the
merger proposal and related transactions, including the terms of the merger
agreement.
The board of directors (except for Mr. Hammons, who recused himself from
deliberations), acting on the unanimous recommendation of the special committee,
unanimously approved the merger agreement and the merger. Because of his
involvement in the related transactions, Mr. Hammons recused himself from the
board discussion and vote on the merger agreement. THE BOARD OF DIRECTORS
RECOMMENDS THAT YOU VOTE FOR THE ADOPTION OF THE MERGER AGREEMENT.
The merger agreement must be adopted by the affirmative vote of (1) the
holders of a majority of the votes of the outstanding shares of Class A Common
Stock and Class B Common Stock, voting as one class, and (2) the holders of a
majority of the shares of Class A Common Stock voting on the merger agreement,
not held by Mr. Hammons and his affiliates. The special committee has the
authority to waive the second vote requirement.
Your vote is very important. Regardless of whether you plan to attend the
special meeting, it is important that your shares are represented at the special
meeting.
This solicitation for your proxy is being made by the Company on behalf of
its board of directors. On behalf of your board of directors, thank you for your
continued support.
Sincerely,
-s- Lou Weckstein
Lou Weckstein
President
August 24, 2005
JOHN Q. HAMMONS HOTELS, INC.
300 JOHN Q. HAMMONS PARKWAY
SPRINGFIELD, MISSOURI 65806
(417) 864-4300
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON SEPTEMBER 15, 2005
TO THE STOCKHOLDERS OF
JOHN Q. HAMMONS HOTELS, INC.
NOTICE IS HEREBY GIVEN that a special meeting of stockholders of John Q.
Hammons Hotels, Inc. (the "Company") will be held on Thursday, September 15,
2005, at 9:00 a.m., local time, at the University Plaza Hotel, 333 John Q.
Hammons Parkway, Springfield, Missouri for the following purposes:
- to consider and vote upon a proposal to adopt the Agreement and Plan of
Merger, dated as of June 14, 2005, by and among the Company, JQH
Acquisition LLC, and JQH Merger Corporation pursuant to which (1) JQH
Merger Corporation, a wholly-owned subsidiary of JQH Acquisition LLC,
will be merged into the Company, which will be the surviving corporation,
(2) each outstanding share of Class A Common Stock will be converted into
the right to receive $24.00 in cash, (3) each outstanding share of Class
B Common Stock will remain outstanding as one share of common stock of
the surviving corporation, and (4) outstanding options to purchase shares
of Class A Common Stock will be cancelled, and each option holder will
receive a cash bonus payment equal to the amount by which $24.00 exceeds
the exercise price of the option, multiplied by the number of shares of
Class A Common Stock underlying such option;
- to consider and vote upon any adjournment or postponement of the special
meeting to allow solicitation of additional proxies recommended by the
board of directors; and
- such other matters as may properly come before the special meeting.
The board of directors has fixed the close of business on August 5, 2005,
as the record date for the determination of stockholders entitled to notice of
and to vote at the special meeting. Only stockholders of record at the close of
business on that date will be entitled to notice of and to vote at the special
meeting or any adjournments or postponements thereof.
Sincerely,
-s- John Q. Hammons
John Q. Hammons
Chairman of the Board
Springfield, Missouri
August 24, 2005
NOTICE
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THE MERGER, PASSED UPON THE MERITS OR
FAIRNESS OF THE MERGER AGREEMENT OR THE TRANSACTIONS CONTEMPLATED THEREBY,
INCLUDING THE PROPOSED MERGER, OR PASSED UPON THE ADEQUACY OR ACCURACY OF THE
INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. THEREFORE, WHETHER OR
NOT YOU PLAN TO BE PRESENT IN PERSON AT THE SPECIAL MEETING, PLEASE COMPLETE,
DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT IN THE ENCLOSED ENVELOPE, WHICH
REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
JOHN Q. HAMMONS HOTELS, INC.
300 JOHN Q. HAMMONS PARKWAY
SPRINGFIELD, MISSOURI 65806
(417) 864-4300
PROXY STATEMENT
FOR
SPECIAL MEETING OF JOHN Q. HAMMONS HOTELS, INC. STOCKHOLDERS
TO BE HELD ON SEPTEMBER 15, 2005
SUMMARY TERM SHEET
This summary highlights selected information in this proxy statement and
contains summaries of the most material terms of the merger, but may not contain
all of the information that is important to you. You are urged to read this
entire proxy statement carefully, including the appendices. Where appropriate,
we have included page references parenthetically to direct you to more complete
descriptions of the topics presented in this summary.
SIGNIFICANT PARTIES (1)
- In this proxy statement, when we use the terms "Company," "we," "us,"
"our," and "ours," we mean John Q. Hammons Hotels, Inc., a Delaware
corporation, alone, or as the context may require, with (i) John Q.
Hammons Hotels, L.P., a Delaware limited partnership of which we are the
sole general partner, and (ii) Hammons, Inc., a Missouri corporation, as
predecessor general partner, collectively.
- When we use the term "Partnership" we mean John Q. Hammons Hotels, L.P.,
a Delaware limited partnership.
- When we use the term "JQH Stockholders," we mean (i) John Q. Hammons,
(ii) the Revocable Trust of John Q. Hammons, dated December 28, 1989, as
amended and restated, and (iii) Hammons, Inc.
- When we use the term "Acquisition," we mean JQH Acquisition LLC, when we
use the term "Merger Sub," we mean JQH Merger Corporation and when we use
the term "Eilian" or "Mr. Eilian," we mean Jonathan Eilian, the
controlling owner of Acquisition.
- When we use the term "unaffiliated stockholders," we mean our
stockholders other than the JQH Stockholders and their affiliates.
SPECIAL MEETING
- We are sending this proxy statement to our stockholders as part of the
solicitation of proxies by our board of directors for use at a special
meeting of stockholders. We are first mailing this proxy statement,
together with the enclosed proxy card, to stockholders on or about August
25, 2005.
- The special meeting of our stockholders will be held at 9:00 a.m. local
time on September 15, 2005, at the University Plaza Hotel, 333 John Q.
Hammons Parkway, Springfield, Missouri.
- You are being asked to consider and vote upon a proposal to adopt the
Agreement and Plan of Merger, dated as of June 14, 2005, by and among the
Company, Acquisition and Merger Sub. We refer to this agreement as the
"merger agreement." We have attached the merger agreement as Appendix A
to this proxy statement. We encourage you to read the merger agreement in
its entirety.
- The record date for shares entitled to vote is August 5, 2005. As of that
date, there were approximately 5,253,262 shares of our Class A Common
Stock outstanding, and 294,100 shares of our Class B Common Stock
outstanding.
- A quorum of stockholders is necessary to hold a valid meeting. The
presence in person or by proxy of a majority of the outstanding shares of
our common stock entitled to vote at the meeting constitutes a quorum.
Abstentions and broker "non-votes" count as present for establishing a
quorum. Shares held by us in our treasury do not count toward a quorum. A
broker non-vote occurs on an item when a broker is not permitted to vote
on that item without instruction from the beneficial owner of the shares
and no instruction is given.
- We will have a list of stockholders of record entitled to vote at the
special meeting available for inspection by any stockholder for any
purpose germane to the meeting during ordinary business hours for 10 days
prior to the meeting at our office at 300 John Q. Hammons Parkway, Suite
900, Springfield, Missouri 65806.
- Each share of Class A Common Stock has one vote and each share of Class B
Common Stock has 50 votes. Based on the number of annual reports
requested by banks and brokers, we estimate that we have approximately
878 beneficial owners of our Class A Common Stock. On the record date, we
had approximately 232 holders of record of the 5,253,262 shares of Class
A Common Stock outstanding. The JQH Stockholders own all 294,100 shares
of Class B Common Stock outstanding.
EFFECT OF THE MERGER ON THE COMPANY (2, 41, 45)
- If approved by stockholders, the merger agreement provides that, once the
other closing conditions in the merger agreement are met or waived,
Merger Sub will be merged into the Company.
- We will be the surviving corporation and will continue our corporate
existence, but after the merger, our shares will no longer be publicly
traded.
- Our continuing investors immediately following the consummation of the
merger will include only the JQH Stockholders, Acquisition, and their
affiliates.
- The merger will not be a taxable transaction for us or for Acquisition,
Merger Sub or Eilian.
EFFECT OF THE MERGER ON OUR STOCK (2, 41, 45)
- As part of the merger, each outstanding share of our Class A Common Stock
will be converted into the right to receive $24.00 in cash (other than
treasury shares and shares held by Acquisition or Merger Sub, which will
be cancelled, and other than shares as to which stockholders demand
appraisal rights).
- Each outstanding share of Class B Common Stock, all of which is owned by
the JQH Stockholders, will remain outstanding as one share of common
stock of the surviving corporation. Subsequently, the JQH Stockholders
will own 294,100 shares of our common stock (as the surviving
corporation). Acquisition will own the remaining shares of our common
stock.
- Payments to holders of our Class A Common Stock (including the JQH
Stockholders) will be taxable, generally as capital gain or loss in an
amount equal to the difference between the cash received and such
stockholder's tax basis. We describe these tax consequences in more
detail below under "Material Federal Income Tax Consequences."
- The JQH Stockholders will not be taxed on the Class B Common Stock that
they continue to hold after the merger as shares of common stock of the
surviving company.
TREATMENT OF OUTSTANDING STOCK OPTIONS (2, 42, 46)
- Each option to purchase shares of the Class A Common Stock that has not
been exercised by the time the merger is effective will be cancelled.
- We will pay each option holder a cash bonus payment equal to the amount
by which $24.00 exceeds the exercise price of the option, multiplied by
the number of shares of Class A Common Stock underlying the option.
- These payments generally will be taxable as ordinary income, and any
income tax or employment tax withholding required will be deducted from
the amount paid.
FINANCING OF THE MERGER (43, 49)
- In connection with the merger, Acquisition will cause approximately
$126,078,288 in cash to be paid to our stockholders (of which $6,458,400
will be paid to the JQH Stockholders and $119,619,888 will be paid to the
unaffiliated stockholders), and $32,288,082 in cash to be paid to holders
of stock options.
- Acquisition has received a commitment letter from Mr. Eilian, pursuant to
which he has committed to provide Acquisition with equity financing in
the aggregate amount of approximately $21 million, subject to
satisfaction of certain conditions. In addition, Acquisition has received
a commitment letter from iStar Financial Inc., or iStar, pursuant to
which iStar commits to provide Acquisition with up to $165 million of
acquisition debt financing, subject to the satisfaction of certain
conditions.
- The merger agreement does not contain a financing condition, although it
does contain a condition that no material adverse effect on the Company
shall have occurred before the merger. The merger agreement defines such
a material adverse effect to include a disruption of or adverse change in
the financial credit or real estate markets, or other change in general
economic conditions, or an outbreak or escalation of hostilities
involving the United States, the declaration by the United States of a
national emergency or war, or the occurrence of any act of terrorism and
any related action or reaction that has a material adverse effect on
Acquisition's ability to finance the transactions contemplated by the
merger agreement.
VOTING INFORMATION
- All holders of Class A Common Stock and Class B Common Stock at the close
of business on August 5, 2005, the record date for the special meeting,
may vote in person or by proxy at the special meeting.
- You have one vote for each share of Class A Common Stock that you owned
at the close of business on the record date. Mr. Hammons and his
affiliates, as the holders of Class B Common Stock, have 50 votes for
each such share owned at the close of business on the record date.
- You should mail your completed, dated and signed proxy card in the
enclosed return envelope, which requires no postage if mailed in the
United States, as soon as possible so that your shares can be voted at
the special meeting.
- If you properly execute and return the enclosed proxy in time to be voted
at the special meeting, your shares will be voted in accordance with your
instructions. Executed but unmarked proxies will be voted FOR adoption of
the merger agreement, and FOR the proposal to adjourn or postpone the
meeting. We do not know of any other matters that are to come before the
special meeting. If any other matters (not known a reasonable time before
the solicitation of your proxy) are properly brought before the special
meeting, the persons named in the proxy will vote the shares represented
by such proxy as determined by a majority of the board of directors.
- You may vote in person at the meeting or by proxy. We recommend you vote
by proxy even if you plan to attend the special meeting. You can always
change your vote at the meeting. Voting instructions are included on your
proxy card. You may vote by mail. If you properly give your proxy and
submit it to us in time to vote, one of the individuals named as your
proxy will vote your shares as you have directed. You may vote for or
against the proposals or abstain from voting.
- If you plan to attend the special meeting and wish to vote in person, we
will give you a ballot at the meeting. However, if your shares are held
in the name of your broker, bank or other nominee, you must
bring a proxy from the record holder, or an account statement or letter
from the nominee indicating that you are the beneficial owner of the
shares on August 5, 2005, the record date for voting.
- If your shares are held in street name by a broker, you will need to
provide your broker with instructions on how to vote your shares. Failure
to instruct your broker to vote your shares will have the same effect as
voting against adoption of the merger agreement in the case of the vote
of all stockholders but shares not voted by brokers will not have the
effect of a vote for or against adoption of the merger agreement in the
case of the vote of the unaffiliated stockholders.
- If you have instructed a broker to vote your shares, you must follow
directions received from your broker to change your instructions.
- Executed but unmarked proxies will be voted FOR adoption of the merger
agreement and FOR adjournment or postponement of the meeting to solicit
additional votes if the board of directors determines such postponement
or adjournment is advisable.
- The failure to return your proxy card or vote your shares in person at
the meeting will have the same effect as voting against adoption of the
merger agreement in the case of the vote of all stockholders and against
an adjournment or postponement, but will not have the effect of a vote
for or against the merger agreement in the case of the vote of the
unaffiliated stockholders.
- You may revoke and change your vote at any time before the vote at the
special meeting, even after you have mailed your signed proxy card. You
can do this in one of three ways:
- you can send a written notice to our secretary stating that you would
like to revoke your proxy;
- you can complete and submit a later-dated proxy in writing; or
- if you hold your shares of record in your name, you can attend the
special meeting and vote in person, which will automatically cancel any
previous proxies, or you may revoke your proxy in person.
- If you have received more than one set of materials, this means you own
shares of our stock that are registered under different names. For
example, you may own some shares directly as a stockholder of record and
other shares through a broker, or you may own shares through more than
one broker. In these situations, you will receive multiple sets of proxy
materials. To vote, you must complete, sign and return all of the proxy
cards or follow the instructions for any alternative voting procedures on
each of the proxy cards that you receive in order to vote all of the
shares you own. Each proxy card you receive comes with its own prepaid
return envelope; if you vote by mail, make sure you return each proxy
card in the return envelope that accompanies that proxy card.
- Before voting your shares, we encourage you to read this proxy statement
in its entirety, including its appendices, and carefully consider how the
merger affects you.
SOLICITATION OF PROXIES
- Our directors, officers and employees may assist in the solicitation of
proxies by mail, telephone, telegraph, facsimile and personal interview
without additional compensation. We also will request persons, firms and
companies holding shares in their names or in the name of their nominees,
which are beneficially owned by others, to send proxy materials to and
obtain proxies or voting instructions from such beneficial owners. We
will reimburse such persons for all reasonable expenses they incur.
ADJOURNMENTS
- Our bylaws provide that the holders of a majority of the voting shares
represented at a meeting of stockholders, whether or not a quorum is
present, may adjourn such meeting from time to time. If a quorum is
present or represented at such an adjourned meeting, any business may be
transacted which might have been transacted at the meeting as originally
noticed. If the adjournment is for more than
30 days, or if, after the adjournment, a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting must be given to
each stockholder entitled to vote at the meeting.
- If a quorum is not present at the special meeting, or if the board of
directors recommends an adjournment or postponement to permit further
solicitation of proxies, any such adjournment or postponement will
require the affirmative vote of a majority of the votes represented at
the special meeting, in person or by proxy.
STOCKHOLDER APPROVALS REQUIRED
- The merger will be completed only if the merger agreement is adopted by
the affirmative vote of:
- a majority of the votes (i.e., at least 9,979,132 votes) entitled to be
cast by the holders of all Common Stock (Class A and Class B)
outstanding on the record date, voting together as one class; and
- a majority of the votes (i.e., more than 50% of the votes) cast by the
unaffiliated stockholders (stockholders other than the JQH Stockholders
and their affiliates).
- Although the special committee has the authority under the merger
agreement to waive the requirement for a vote of the unaffiliated
stockholders, the special committee has no present intention of doing so,
and would only take such action if, after deliberations and after
consultation with its legal counsel, it determined that waiving the
requirement was in the unaffiliated stockholders' best interest. In that
event, we would issue a press release announcing the determination of the
special committee and file a Current Report on Form 8-K with the
Securities and Exchange Commission.
- Pursuant to a number of voting agreements with Acquisition (discussed
below), several unaffiliated stockholders, who report owning 1,147,723
shares of Class A Common Stock, and the JQH Stockholders, who own shares
representing approximately 14,974,100 votes, have agreed with Acquisition
to vote in favor of adoption of the merger agreement. If these voting
agreements are honored, approximately 16,121,823 votes will be cast in
favor of adopting the merger agreement, and the required vote by the
holders of all Common Stock voting together as one class will be
satisfied.
- On the record date, the unaffiliated stockholders held 4,984,162 shares
of Class A Common Stock. There is no minimum number of votes that must be
cast by the unaffiliated stockholders, but of the votes cast by the
unaffiliated stockholders, a majority (i.e., more than 50%) must be cast
in favor of adopting the merger agreement, unless the special committee
waives such requirement as described above.
- Abstentions and broker non-votes will be treated as shares that are
present and entitled to vote for purposes of determining a quorum at the
special meeting, and will have the effect of a vote against the merger
agreement in the vote of all stockholders, but will not be counted for
purposes of the vote of the unaffiliated stockholders.
VOTING AGREEMENTS (40, 59)
- As described above, several of our unaffiliated stockholders have agreed
with Acquisition to vote in favor of the merger and against any other
competitive proposal or other proposal that is inconsistent with or
detrimental to the expeditious consummation of the merger. Based upon the
information reported by Acquisition in its amended Schedule 13D filed
with the SEC on May 6, 2005, these unaffiliated stockholders owned
1,147,723 shares of Class A Common Stock. Such shares represent
approximately 23% of the Class A Common Stock held by unaffiliated
stockholders as of the record date, and approximately 5.7% of the total
votes eligible to be cast by all holders of Class A Common Stock and
Class B Common Stock voting as one class. We describe the agreement by
the JQH Stockholders to vote in favor of the merger under "Interests of
Certain Persons in the Merger -- Agreements Between Acquisition and
Certain Unaffiliated Stockholders."
- In addition, the JQH Stockholders have agreed with Acquisition to vote
all of their shares in favor of the merger and against any other
competing proposal. As of the record date, the JQH Stockholders owned
shares representing approximately 14,974,100 votes which represent
approximately 75% of the total votes eligible to be cast at the special
meeting. We describe the agreement by the JQH Stockholders to vote in
favor of the merger under "Transactions Related to the Merger
-- Transaction Agreement."
OUR PURPOSES AND REASONS FOR THE MERGER (4, 19, 22)
- We entered into the merger agreement for the following purposes and
reasons:
- To provide holders of our Class A Common Stock with an opportunity to
receive an immediate cash payment for their shares at a price we believe
is fair, above the historical trading levels;
- Mr. Hammons' indicated willingness to sell his interests in the Company
at this time, without which such a transaction would not have been
possible; and
- The structure of the merger enables Mr. Hammons to continue to acquire,
develop, and manage hotel properties, activities that our board of
directors did not believe were in the best interest of our unaffiliated
stockholders because of the length of time involved in recouping the
expenses of development.
EILIAN'S AND ACQUISITION'S AND MERGER SUB'S PURPOSES AND REASONS FOR THE MERGER
(4, 23)
- Mr. Eilian formed Acquisition and Merger Sub for the purpose of
consummating the merger. Mr. Eilian's experience in the hotel industry
led him to believe that an acquisition of a hotel company at this time
would be prudent. Since Mr. Hammons is willing to sell his interests in
the Company at this time, without which an acquisition of the Company
would not be possible, Mr. Eilian determined that the present time is the
appropriate time to effect the merger and the related transactions
described herein.
JQH STOCKHOLDERS' PURPOSES AND REASONS FOR THE MERGER (4, 24)
- The JQH Stockholders agreed to vote all of their shares in favor of the
merger and against any other competing proposal for the following
purposes and reasons:
- To provide the JQH Stockholders with an opportunity to receive an
immediate cash payment for their shares at a price we believe is fair,
above historical trading levels;
- To provide the JQH Stockholders with the liquidity necessary to enable
Mr. Hammons to continue to develop, acquire, and manage certain
hospitality properties while retaining an interest in the Partnership;
and
- To free Mr. Hammons of the burden of managing a publicly held company.
DETERMINATION AND RECOMMENDATIONS OF THE SPECIAL COMMITTEE (19)
- A special committee of our board of directors, consisting of David C.
Sullivan, Donald H. Dempsey and James F. Moore, three members of our
board who are not employed by, or otherwise affiliated with, us, the JQH
Stockholders or Acquisition or their respective affiliates, was formed to
review, evaluate, negotiate and make recommendations to our board of
directors with respect to the merger on behalf of our unaffiliated
stockholders.
- Based on a number of factors, including the fairness and reasonableness
opinions received from Lehman Brothers, which acted as financial advisor
to the special committee, the special committee unanimously concluded
that the merger agreement and the transactions contemplated by the merger
agreement, including the merger and other transactions among the JQH
Stockholders, Acquisition and
their respective affiliates, are substantively and procedurally fair to
and in the best interests of the unaffiliated stockholders.
- The special committee recommended that our board of directors approve the
merger agreement and the transactions contemplated thereby and
recommended that our unaffiliated stockholders adopt the merger
agreement.
DETERMINATION, APPROVAL AND RECOMMENDATION OF OUR BOARD OF DIRECTORS (22)
- Except for Mr. Hammons, who recused himself from the board discussions
and voting on the merger agreement, the members of our board of directors
determined unanimously that the merger agreement and the related
transactions, including the merger, are substantively and procedurally
fair to, and in the best interests of the Company and the unaffiliated
stockholders. This determination was based on a number of factors,
including the opinions received from Lehman Brothers, the financial
advisor to the special committee, and the special committee's
recommendation to our board of directors.
- Our board of directors has unanimously approved and adopted the merger
agreement and unanimously recommends that you vote "FOR" the adoption of
the merger agreement.
DETERMINATION OF EILIAN, ACQUISITION AND MERGER SUB (23)
- Each of Eilian, Acquisition and Merger Sub believes that the merger is
substantively and procedurally fair to unaffiliated stockholders. Eilian
made such determination on behalf of Acquisition and Merger Sub. With
respect to the fairness of the merger to unaffiliated stockholders,
Eilian, Acquisition and Merger Sub have adopted the analyses and
conclusions of the Company's board of directors and its special
committee, based upon the reasonableness of those analyses and
conclusions and Eilian's knowledge and analysis of available information
regarding the Company as well as discussions with members of senior
management regarding our business, as well as the factors considered by,
and the findings of, the Company's board of directors and special
committee with respect to the fairness of the merger to our unaffiliated
stockholders.
DETERMINATION OF THE JQH STOCKHOLDERS (24)
- The JQH Stockholders have not performed, or engaged a financial advisor
to perform, any valuation or other analysis for the purposes of assessing
the fairness of the merger to the unaffiliated stockholders; however, JQH
Stockholders believe the merger is substantively and procedurally fair to
the unaffiliated stockholders. Mr. Hammons made this determination on
behalf of the other JQH Stockholders based primarily upon historical
market prices of the Class A Common Stock, his general knowledge of
hospitality property development costs and sales prices, his view of the
going concern value of the Company, and the prior negotiations with
Barcelo as discussed under "Special Factors -- Background of the Merger"
below. Certain factors such as current market prices for the Class A
Common Stock, net book value of the Company and liquidation value of the
Company were not considered by Mr. Hammons in this determination.
- The JQH Stockholders believe that the merger is procedurally fair in that
the special committee acted solely on behalf of the unaffiliated
stockholders for purposes of negotiating the terms of the merger
agreement on an arms-length basis. The JQH Stockholders note that Mr.
Hammons did not participate in the deliberations or vote on the merger
and that all of the other directors of our board voted in favor of the
merger agreement.
OPINIONS OF LEHMAN BROTHERS (26)
- The special committee retained Lehman Brothers to act as its financial
advisor in connection with the merger.
- As part of this engagement, Lehman Brothers provided its opinions that,
as of June 14, 2005, and based upon and subject to certain factors and
assumptions set forth in its opinions,
(i) the cash merger consideration of $24.00 per share offered to the
unaffiliated stockholders by Acquisition in the merger was fair from a
financial point of view to the unaffiliated stockholders, and
(ii) the allocation of the consideration between the JQH Stockholders, on
the one hand, and the unaffiliated stockholders, on the other hand,
was reasonable from the point of view of the unaffiliated
stockholders.
- Copies of the Lehman Brothers opinions are attached as Appendices B-1 and
B-2.
INTERESTS OF OUR DIRECTORS AND EXECUTIVE OFFICERS IN THE MERGER (39, 59)
- In considering the recommendations of the special committee and our board
of directors, you should be aware that we entered into the merger
agreement in connection with a series of transactions agreed to by Mr.
Hammons, Acquisition, and their respective affiliates, regarding a
variety of ongoing arrangements, including the JQH Stockholders'
continuing equity ownership in the business.
- The JQH Stockholders currently have a $25 million line of credit, and
will have an additional $250 million line of credit, available for the
development of hotels, secured by the JQH Stockholders' equity ownership
in the business and certain other collateral.
- The JQH Stockholders will convert their current interests in the
Partnership to preferred interests, and will receive a distribution of
the Chateau on the Lake Resort and Convention Center, as well as certain
management related assets.
- The JQH Stockholders will continue to provide management services for the
Company's hotels after the merger under a management agreement.
- Because each outstanding share of Class B Common Stock, all of which is
owned by the JQH Stockholders, will remain outstanding as one share of
common stock of the surviving corporation, the JQH Stockholders will
continue to own equity interests in the Company following the merger.
- Some other executive officers also have interests in the merger and the
related transactions that are in addition to, and different from, your
interest as a stockholder and that may present actual or potential
conflicts of interest. Such additional and different interests include
the following:
- Following the merger, it is expected that many of the members of our
current management will continue as management of a company to be formed
by Mr. Hammons to manage the Company's properties.
- Two of our executive officers have employment agreements with us that
provide severance packages which will be triggered by the merger.
- The merger agreement provides for indemnification and insurance
arrangements for our current and former directors and officers that will
continue for six years following the effective time of the merger.
- Our directors and executive officers will receive cash bonus payments of
$24.00 per share, less the per share exercise price, for their options
that are terminated in connection with the merger (less any applicable
withholding taxes).
- Like all our unaffiliated stockholders, members of management and our
board of directors, including Mr. Hammons, will receive $24.00 per share
in cash for each of their shares of Class A Common Stock.
- Both the special committee and the board of directors considered these
interests when making their decisions to approve the merger agreement.
PROCEDURE FOR RECEIVING MERGER CONSIDERATION (42)
- We have appointed Wachovia Bank, N.A. to act as paying and exchange agent
under the merger agreement, and Acquisition will deposit with the paying
agent cash to pay all of the merger consideration.
- Within three business days after the merger, the paying agent will mail a
letter of transmittal and instructions to you and the other stockholders,
which will tell you how to surrender your stock certificates in exchange
for the merger consideration. You will receive cash for your shares from
the paying agent after you comply with these instructions.
- If your shares of Class A Common Stock are held in "street name" by your
broker, you will receive instructions from your broker as to how to
effect the surrender of your "street name" shares and receive cash for
those shares.
- You should not return your stock certificates with the enclosed proxy
card, and you should not forward your stock certificates to the paying
agent without a letter of transmittal.
NO SOLICITATION OF TRANSACTIONS (48)
- The merger agreement contains restrictions on our ability to solicit or
engage in discussions or negotiations with a third party regarding
specified transactions involving the Company.
- Notwithstanding these restrictions, under certain circumstances, which
may require us to pay a termination fee to Acquisition and reimburse it
for its expenses incurred in connection with the merger agreement, as
described in greater detail below, our board of directors may respond to
an unsolicited written bona fide proposal or terminate the merger
agreement and enter into an agreement with respect to a superior
proposal.
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES (56)
- The merger will be treated as a taxable transaction to holders of our
Class A Common Stock for U.S. federal income tax purposes.
- A holder of Class A Common Stock will generally recognize gain or loss,
for U.S. federal income tax purposes, in an amount equal to the
difference between the amount of cash received by such holder in the
merger and such holder's tax basis in the stock surrendered in the
merger.
- Stockholders should consult their tax advisors as to the tax consequences
of the merger to them in light of their particular circumstances.
APPRAISAL RIGHTS (57)
- You are entitled to appraisal rights under Delaware law if you follow the
requirements specified in Section 262 of the Delaware General Corporation
Law, which we refer to as the "DGCL". We attach a copy of Section 262 of
the DGCL as Appendix C to this proxy statement.
CONDITIONS TO COMPLETING THE MERGER (50)
- Before completion of the merger and the other transactions contemplated
by the merger agreement, a number of closing conditions must be satisfied
or waived.
- These conditions include, among others, obtaining stockholder approvals,
obtaining any required governmental authorizations and the absence of any
law or governmental order prohibiting or enjoining the merger.
- If these and other conditions are not satisfied or waived, the merger
will not be completed, even if our stockholders adopt the merger
agreement.
EXPECTED COMPLETION OF THE MERGER (50)
- The parties are working to complete the merger as soon as practicable. If
our stockholders adopt the merger agreement and the other conditions to
the merger are satisfied or waived, the merger is expected to be
completed promptly after the special meeting. Because the merger is
subject to certain conditions, the exact timing of the merger cannot be
determined.
IF THE MERGER IS NOT COMPLETED (3, 52)
- If the merger is not completed, the board expects to continue to operate
the Company substantially as presently operated, but would reassess
strategic alternatives available to enhance stockholder value, including
the possibility of another sale of the Company.
- Failure to complete the merger, however, could have a negative impact on
the market price of our Class A Common Stock, as the price of those
shares may decline to the extent that the current market price reflects a
market assumption that the merger will be completed. We will be required
to pay significant costs incurred in connection with the merger, whether
or not the merger is completed. In addition, we may be obligated to pay
Acquisition its out-of-pocket expenses and/or a termination fee if the
merger is not completed for certain reasons, as discussed below.
FEES AND EXPENSES; TERMINATION FEES (53, 56)
- Generally, fees and expenses incurred in connection with the merger
agreement will be paid by the party incurring such fees and expenses.
- In specified circumstances, however, if the merger agreement is
terminated, we must reimburse Acquisition for its expenses incurred in
connection with the merger agreement. We may have to pay termination fees
to Acquisition if, among other things, we enter into another merger or
similar transaction. The maximum aggregate amount we must pay to
Acquisition for fees and for reimbursement of its expenses under any
circumstances is $20 million.
- In other specified circumstances, if the merger agreement is terminated
before the effective time of the merger, Acquisition may have to pay us a
$3 million fee, which is our exclusive remedy for losses we may suffer if
the merger is not completed.
ADDITIONAL INFORMATION (78)
- If you would like additional copies, without charge, of this proxy
statement or if you have questions about the merger agreement or the
merger, including the procedures for voting your shares, you should
contact The Proxy Advisory Group of Strategic Stock Surveillance, LLC,
which we refer to as the proxy solicitor.
- We have engaged the proxy solicitor to assist in the solicitation of
proxies and provide related advice and informational support, for a
services fee and the reimbursement of customary disbursements that are
not expected to exceed $10,000 in the aggregate. The extent to which
these proxy soliciting efforts will be necessary depends entirely upon
how promptly proxies are submitted. The proxy solicitor is a professional
soliciting organization, and you may reach them at the following address
and telephone number:
The Proxy Advisory Group of
Strategic Stock Surveillance, LLC
331 Madison Avenue -- 4th Floor
New York, NY 10017
Telephone: (212) 850-8151 or (866) 657-8728 (toll free)
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
----
SPECIAL FACTORS............................................. 1
THE PARTIES............................................... 1
CERTAIN EFFECTS OF THE MERGER............................. 2
BACKGROUND OF THE MERGER.................................. 4
REASONS FOR THE SPECIAL COMMITTEE'S RECOMMENDATION;
MATERIAL FACTORS CONSIDERED; PROCEDURAL SAFEGUARDS
EMPLOYED............................................... 19
REASONS FOR THE BOARD'S RECOMMENDATION; MATERIAL FACTORS
CONSIDERED; PROCEDURAL SAFEGUARDS EMPLOYED............. 23
POSITION OF EILIAN, ACQUISITION AND MERGER SUB............ 24
POSITION OF THE JQH STOCKHOLDERS AS TO THE FAIRNESS OF THE
MERGER................................................. 25
OPINIONS OF LEHMAN BROTHERS............................... 26
LEHMAN BROTHERS' ACTIVITIES AND ARRANGEMENTS WITH THE
COMPANY................................................ 38
INTERESTS OF CERTAIN PERSONS IN THE MERGER.................. 39
INTERESTS OF COMPANY DIRECTORS AND EXECUTIVE OFFICERS IN
THE MERGER............................................. 39
INTERESTS OF THE JQH STOCKHOLDERS......................... 39
INTERESTS OF COMPANY EXECUTIVE OFFICERS................... 39
INTERESTS OF COMPANY DIRECTORS............................ 40
AGREEMENTS BETWEEN ACQUISITION AND CERTAIN UNAFFILIATED
STOCKHOLDERS........................................... 40
THE MERGER.................................................. 41
EFFECTIVE TIME OF MERGER.................................. 41
STRUCTURE................................................. 41
TREATMENT OF STOCK AND OPTIONS............................ 41
SOURCE OF FUNDS, MERGER FINANCING......................... 43
LITIGATION CHALLENGING THE MERGER......................... 44
PROVISIONS FOR UNAFFILIATED STOCKHOLDERS.................. 45
THE MERGER AGREEMENT........................................ 45
GENERAL; THE MERGER....................................... 45
CERTIFICATE OF INCORPORATION; BYLAWS; DIRECTORS AND
OFFICERS............................................... 45
TREATMENT OF COMPANY STOCK IN THE MERGER.................. 45
TREATMENT OF MERGER SUB STOCK IN THE MERGER............... 45
TREATMENT OF COMPANY STOCK OPTIONS........................ 46
REPRESENTATION AND WARRANTIES............................. 46
COVENANTS OF THE COMPANY.................................. 47
ADDITIONAL COVENANTS OF THE PARTIES....................... 50
CONDITIONS TO THE COMPLETION OF THE MERGER................ 50
TERMINATION............................................... 52
TERMINATION FEES.......................................... 53
ESCROW AGREEMENTS......................................... 54
AMENDMENTS................................................ 55
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING
INFORMATION............................................... 55
ESTIMATED FEES AND EXPENSES OF THE MERGER................... 56
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES............... 56
CHARACTERIZATION OF THE MERGER............................ 57
INFORMATION REPORTING AND BACKUP WITHHOLDING.............. 57
</Table>
i
<Table>
<Caption>
PAGE
----
ANTICIPATED ACCOUNTING TREATMENT............................ 57
APPRAISAL RIGHTS............................................ 57
TRANSACTIONS RELATED TO THE MERGER.......................... 59
TRANSACTION AGREEMENT..................................... 60
SHORT-TERM LINE OF CREDIT................................. 60
BONUS PAYMENTS TO STOCK OPTION HOLDERS.................... 61
AMENDMENT OF EXISTING PARTNERSHIP AGREEMENT............... 61
REAL ESTATE SALE AND NON-COMPETE AGREEMENT................ 61
CHATEAU DISTRIBUTION AGREEMENT............................ 61
MANAGEMENT ASSETS AND OBLIGATIONS DISTRIBUTION
AGREEMENT.............................................. 61
THIRD AMENDED AND RESTATED PARTNERSHIP AGREEMENT.......... 62
REDEMPTION AGREEMENT...................................... 63
FOURTH AMENDED AND RESTATED PARTNERSHIP AGREEMENT......... 63
TAX INDEMNITY AGREEMENT................................... 63
SPONSOR ENTITY RIGHT OF FIRST REFUSAL..................... 63
JQH RIGHT OF FIRST REFUSAL................................ 64
NON-SOLICITATION AGREEMENT................................ 64
CORPORATE OVERHEAD FEE AGREEMENT.......................... 64
DEVELOPMENT RESTRICTION AGREEMENT......................... 64
LEASES TO SUBSIDIARIES.................................... 64
REVENUE SHARING AGREEMENT................................. 64
MANAGEMENT SERVICES AGREEMENT............................. 65
LONG-TERM LINE OF CREDIT AGREEMENT........................ 65
FUNDING AGREEMENT......................................... 66
ACQUISITION'S TENDER FOR PARTNERSHIP NOTES.................. 66
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT................................................ 67
SECURITY OWNERSHIP OF MANAGEMENT.......................... 67
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS........... 68
MARKET PRICE AND DIVIDEND INFORMATION....................... 73
TRANSACTIONS IN SHARES OF CLASS A COMMON STOCK BY CERTAIN
PERSONS................................................... 74
SELECTED HISTORICAL FINANCIAL INFORMATION................... 74
RATIO OF EARNINGS TO FIXED CHARGES.......................... 77
DATE FOR SUBMISSION OF STOCKHOLDER PROPOSALS................ 77
PROPOSAL TO APPROVE ADJOURNMENT OR POSTPONEMENT OF THE
SPECIAL MEETING........................................... 78
OTHER MATTERS............................................... 78
INCORPORATION BY REFERENCE.................................. 78
WHERE YOU CAN FIND ADDITIONAL INFORMATION................... 79
APPENDIX A AGREEMENT AND PLAN OF MERGER, DATED AS OF JUNE
14, 2005, AMONG JOHN Q. HAMMONS HOTELS, INC.,
JQH ACQUISITION LLC AND JQH MERGER
CORPORATION................................... A-1
APPENDIX B-1 OPINION OF LEHMAN BROTHERS DATED JUNE 14, 2005
WITH RESPECT TO THE FAIRNESS OF THE CASH
MERGER CONSIDERATION OF $24.00 PER SHARE...... B-1
APPENDIX B-2 OPINION OF LEHMAN BROTHERS DATED JUNE 14, 2005
WITH RESPECT TO THE ALLOCATION OF THE
CONSIDERATION................................. B-3
APPENDIX C SECTION 262 OF THE DELAWARE GENERAL
CORPORATION LAW............................... C-1
</Table>
ii
SPECIAL FACTORS
THE PARTIES
THE COMPANY
John Q. Hammons Hotels, Inc.
300 John Q. Hammons Parkway
Springfield, Missouri 65806
(417) 864-4300
We are a Delaware corporation that is a leading independent owner and
manager of upscale, full service hotels located primarily in secondary markets.
We own and manage forty-four (44) hotels located in twenty (20) states. We also
manage fifteen (15) additional hotels located in nine (9) states.
ACQUISITION AND EILIAN
JQH Acquisition LLC
Mr. Jonathan D. Eilian
Carnegie Hall Tower
152 West 57(th) Street, 56(th) Floor
New York, New York 10019
212-884-8800
Acquisition is a Delaware limited liability company formed to acquire the
outstanding Class A Common Stock through the merger of its wholly-owned
subsidiary Merger Sub into the Company. Eilian directly or indirectly owns all
of the equity interests of Acquisition.
MERGER SUB
Merger Sub is a Delaware corporation and a wholly-owned subsidiary of
Acquisition formed for the purpose of merging into the Company to facilitate the
acquisition of our outstanding Class A Common Stock by Acquisition. Merger Sub
shares the address and phone information of Acquisition.
MR. HAMMONS
John Q. Hammons
c/o John Q. Hammons Hotels, Inc.
300 John Q. Hammons Parkway
Springfield, Missouri 65806
(417) 864-4300
Mr. Hammons is our founder, chairman of the board and chief executive
officer, and our controlling stockholder through his ownership of all of our
Class B Common Stock, and 269,100 shares of our Class A Common Stock. Mr.
Hammons also beneficially owns all of the limited partnership units of our
Partnership, representing approximately 75% of the total outstanding Partnership
units. He also has a number of other relationships and arrangements with us and
our affiliates.
JQH STOCKHOLDERS
The JQH Stockholders are Mr. Hammons, the Revocable Trust of John Q.
Hammons, dated December 28, 1989, as amended and restated, a trust which he
formed and controls and to which we refer as the "JQH Trust", and Hammons, Inc.,
a Missouri corporation, whose sole stockholder is the JQH Trust. All of the JQH
Stockholders share Mr. Hammons' address and telephone number. Hammons, Inc. and
the JQH Trust own all of the limited partnership interests in the Partnership.
1
CERTAIN EFFECTS OF THE MERGER
EFFECTS ON OUTSTANDING COMPANY STOCK AND STOCK OPTIONS
If the merger is completed, each share of Class A Common Stock outstanding
immediately before the merger will be converted into the right to receive $24.00
in cash per share (other than treasury shares and shares held by Acquisition or
Merger Sub, which will be cancelled, and other than shares as to which
stockholders demand appraisal rights). Shares of Class A Common Stock will no
longer be outstanding after the merger.
If the merger occurs, each share of Class B Common Stock outstanding
immediately before the merger will remain outstanding as one share of common
stock of the Company, as the surviving corporation, with the rights set forth in
the certificate of incorporation of the surviving corporation.
If the merger occurs, each option to purchase shares of Class A Common
Stock outstanding immediately prior to the effective time of the merger, whether
or not exercisable, will be cancelled. Each option holder will receive a cash
bonus payment equal to the amount by which $24.00 exceeds the exercise price per
share of the option, multiplied by the number of shares of Class A Common Stock
underlying the option, less any income tax or employment tax.
EFFECT ON OWNERSHIP STRUCTURE OF THE COMPANY
Immediately after the merger, approximately 92% of our equity will be owned
by Acquisition, and approximately 8% of our equity will be owned by the JQH
Stockholders (current holders of our Class B Common Stock). Except for the JQH
Stockholders, no current stockholder will have any ownership interest in, or
will be a stockholder of, the Company. As a result, our unaffiliated
stockholders will no longer benefit from any increases in the Company's value,
nor will they bear the risk of any decreases in the Company's value. Following
the merger, Acquisition and the JQH Stockholders will directly benefit from any
increases in the value of the Company and also will bear the risk of any
decreases in the value of the Company.
EFFECTS ON LISTING, REGISTRATION AND STATUS OF COMMON STOCK
Our Class A Common Stock is currently registered as a class of equity
security with the Securities and Exchange Commission, or the SEC, under the
Securities Exchange Act of 1934, as amended, which we refer to as the "Exchange
Act." Registration of the Class A Common Stock under the Exchange Act may be
terminated upon application by the Company to the SEC if the common stock is not
listed on a national securities exchange or quoted on Nasdaq and there are fewer
than 300 record holders of the outstanding shares. Termination of registration
of the Class A Common Stock under the Exchange Act would substantially reduce
the information required to be furnished by the Company to stockholders and the
SEC, and would make certain provisions of the Exchange Act, such as the
short-swing trading provisions of Section 16(b) of the Exchange Act and the
requirement of furnishing a proxy statement in connection with a stockholders
meeting pursuant to Section 14(a) of the Exchange Act, no longer applicable to
the Company.
Following the merger, all shares of Class A Common Stock will be cancelled
and retired and shall cease to exist, and such shares will no longer be traded
on the American Stock Exchange.
OPERATIONS OF THE COMPANY FOLLOWING THE MERGER
Under the terms of the various agreements to be entered into by the JQH
Stockholders, Acquisition and their affiliates, after the merger, we will
exchange our general partner interest in the Partnership for a preferred
interest in a new entity, which new entity will replace us as the general
partner of the Partnership.
The merger will trigger the right of holders of the 8 7/8% First Mortgage
Notes issued by the Partnership to tender the notes at a specified price equal
to 101% of the principal balance, plus any accrued but unpaid interest. We
discuss a proposed tender offer for the bonds by Eilian's affiliates below under
"Acquisition's Tender for Partnership Notes."
2
EFFECTS ON THE COMPANY IF THE MERGER IS NOT COMPLETED
If we do not complete the merger for any reason, stockholders will not
receive any payment for their shares in connection with the merger. Instead, we
will remain an independent public company and our Class A Common Stock will
continue to be listed on the American Stock Exchange. If we do not complete the
merger, we expect to continue to operate the business in a similar manner as we
operate it today. Your shares will continue to be subject to the current risks
and opportunities, including the various factors we have described in our past
filings with the SEC, such as the nature of the lodging industry and general
industry, economic and market conditions. Our board of directors will continue
to evaluate and review our business operations, properties and capitalization,
and will make such changes as it deems appropriate, as well as continue to
review opportunities to maximize stockholder value. There can be no assurance,
however, that any other transaction acceptable to Mr. Hammons and the Company
will be offered. If the merger agreement is terminated under certain
circumstances, we will be obligated to reimburse Acquisition's expenses, and in
certain cases, pay termination fees, of up to $20 million in the aggregate.
BENEFITS AND DETRIMENTS OF THE MERGER TO THE SIGNIFICANT PARTIES
JQH Stockholders. At the time of the merger, the 269,100 shares of Class A
Common Stock owned by the JQH Stockholders will be converted into the right to
receive $6,458,400 in cash, and the JQH Stockholders will receive a cash bonus
payment of $5,898,750 for the cancellation of their 335,000 options to purchase
shares of Class A Common Stock.
Each share of Class B Common Stock outstanding immediately before the
merger, all of which are owned by the JQH Stockholders, will remain outstanding
as one share of common stock of the Company, as the surviving corporation, with
the rights set forth in the certificate of incorporation of the surviving
corporation, and the JQH Stockholders will directly benefit from any increases
in the value of the surviving corporation and also will bear the risk of any
decreases in the value of the surviving corporation.
In conjunction with the merger, the JQH Stockholders have entered into
agreements with Acquisition and Merger Sub and their affiliates that contemplate
a number of arrangements. As the result of those arrangements, the JQH
Stockholders have a $25 million line of credit, and will have an additional $250
million line of credit available for the development of hotels after the merger.
The JQH Stockholders will exchange their interests in the Partnership for
preferred interests, and will receive a distribution of the Chateau on the Lake
Resort and Convention Center, as well as certain management related assets. They
also will have the right to continue to manage the Company's hotels after the
merger under a management agreement with the Company. We describe these various
arrangements below under "Transactions Related to the Merger" beginning on Page
59.
Company. Termination of registration of the Class A Common Stock under the
Exchange Act would substantially reduce the information required to be furnished
by the Company to stockholders and the SEC, and would make certain provisions of
the Exchange Act, such as the short-swing trading provisions of Section 16(b) of
the Exchange Act and the requirement of furnishing a proxy statement in
connection with a stockholders meeting pursuant to Section 14(a) of the Exchange
Act, no longer applicable to the Company.
If the merger agreement is terminated under certain circumstances, the
Company will be obligated to reimburse Acquisition's expenses, and in certain
cases, pay termination fees, of up to $20 million in the aggregate.
Acquisition, Merger Sub and Eilian. If the merger is completed,
Acquisition and Eilian will directly benefit from any increases in the value of
the Company, as the surviving corporation, and also will bear the risk of any
decreases in the value of the surviving corporation.
Unaffiliated Stockholders. If the merger is completed, the 4,984,162
shares of Class A Common Stock owned by the unaffiliated stockholders will be
converted into the right to receive $119,619,888 in cash, and our unaffiliated
stockholders will no longer benefit from any increases in the Company's value,
nor will they bear the risk of any decreases in the Company's value.
3
BACKGROUND OF THE MERGER
In early 2004, we began to receive inquiries about whether or not we were
for sale. In response, we issued a press release on January 24, 2004, that the
Company was not presently seeking a sale. In March of 2004, Mr. Hammons notified
our board of directors that he had engaged in some discussions with third
parties regarding the sale of the Company or his interest in the Company. At
that time, there were no letters of intent or term sheets or other offers,
backed by credible financing, to purchase us or Mr. Hammons' interest in us. The
board of directors determined, however, that it was willing to consider any
proposals that might be submitted.
Barcelo Crestline Corporation ("Barcelo") contacted us in March of 2004
regarding its interest in purchasing the Company, and after initial discussions,
we and Barcelo entered into a confidentiality agreement on March 19, 2004,
pursuant to which we agreed to furnish access to certain information, properties
and personnel in exchange for Barcelo's agreement, among other things, not to
use (for purposes other than gathering information) or disclose our confidential
information.
In May of 2004, we implemented a process with Mr. Hammons to handle
inquiries, whether solicited or unsolicited, regarding the sale of Mr. Hammons'
interest in the Company. This process included:
- overseeing the use of our confidential information in connection with
such inquiries;
- receiving information from Mr. Hammons regarding any significant
developments relating to such inquiries, particularly receiving
reasonable notice from Mr. Hammons of his intention to execute a term
sheet, a letter of intent or any agreement regarding a disposition of his
interests in the Company;
- immediate notice of his executing any such term sheet, letter of intent
or agreement; and
- directing our chief financial officer to prepare a standard package of
financial information authorized by the chairman of our audit committee
to be disclosed to persons with whom Mr. Hammons or his representatives
wished to speak regarding the transfer of his interests in the Company
(after execution of a confidentiality agreement with us).
We stated in our quarterly report on Form 10-Q for the 2004 first fiscal
quarter, filed on May 14, 2004, that Mr. Hammons might examine alternatives with
respect to his interests in the Company, including both solicited and
unsolicited inquiries regarding his interests, and that if Mr. Hammons sought to
pursue a transaction affecting the Company, the board of directors would
evaluate the opportunity based on the best interests of all of the stockholders.
On October 15, 2004, the board of directors received a letter from Barcelo
offering to acquire all of the outstanding shares of Class A Common Stock owned
by unaffiliated stockholders for a cash purchase price of $13.00 per share.
Barcelo indicated in its proposal that it had entered into an agreement with Mr.
Hammons pursuant to which, among other things, Mr. Hammons had agreed to
exchange all of his equity interests in the Company and the Partnership for a
preferred interest in a newly formed subsidiary of Barcelo upon closing of the
proposed merger transaction. Barcelo issued a press release on October 18, 2004
announcing that it had entered into an agreement with Mr. Hammons and that it
had submitted a proposal to acquire all of the outstanding shares of Class A
Common Stock held by unaffiliated stockholders for $13.00 per share.
At an October 18, 2004 meeting, the board of directors considered the
proposed Barcelo agreement, and discussed the representation of the interests of
the unaffiliated stockholders. Because of the nature and structure of the
proposed transaction, and in particular, the fact that Mr. Hammons' interests in
the transaction were not identical to those of the unaffiliated stockholders,
the board resolved to form a special committee of independent directors to
evaluate and negotiate the terms of the transaction and make a recommendation to
the board of directors on the Barcelo proposal. The board initially appointed
Donald H. Dempsey, William J. Hart, John Lopez-Ona, James F. Moore and David C.
Sullivan, none of whom is an employee of the Company, to serve on the special
committee. The board empowered the special committee to evaluate and review, on
behalf of the unaffiliated stockholders, the proposed merger with Barcelo, and
to negotiate the terms of the proposed merger and recommend action to the full
board, on behalf of our
4
unaffiliated stockholders. The board also gave the special committee authority
to engage legal counsel and other advisors as it, in its sole discretion, deemed
necessary and appropriate, on terms it deemed reasonable.
At its initial meeting on October 20, 2004, the special committee, along
with its proposed legal advisors, discussed the purpose of the special committee
and the scope of authority that had been granted to it by the board of directors
in the resolutions establishing the special committee, namely to review,
evaluate and negotiate the price and terms of the potential transaction with
Barcelo on behalf of the unaffiliated stockholders, and to make a recommendation
to the board of directors regarding that transaction, which could include a
recommendation to reject the proposed transaction with Barcelo. The special
committee had not been authorized by the board of directors to conduct an
auction of the Company or to pursue other alternatives to the proposed Barcelo
transaction. The board of directors also had granted the special committee the
authority to retain, at our expense, independent legal and financial advisors.
At this meeting, the special committee members also discussed their respective
interests in the Company and relationships with Mr. Hammons and the other
interested parties in the proposed transactions. After the discussion, Mr. Hart
and Mr. Lopez-Ona then offered to withdraw from the special committee in light
of potential questions that could be raised as to their independence, based on
their relationships with the Company and Mr. Hammons they had each disclosed.
The remaining members of the special committee, Mr. Dempsey, Mr. Moore and Mr.
Sullivan, accepted the offer by Messrs. Hart and Lopez-Ona to withdraw, and
agreed that the interests disclosed by each of the remaining special committee
members should not impair their ability to act in an independent manner on the
special committee. The special committee then unanimously agreed to retain
Katten Muchin Rosenman LLP as its legal counsel and reviewed proposals from
several investment banking firms that had been submitted for the special
committee's consideration. There are no additional past or present relationships
between any of the parties and their affiliates and the members of the special
committee that may affect the independence of the special committee.
At its meeting on October 21, 2004, the special committee decided to retain
Lehman Brothers as its financial advisor, after concluding that Lehman Brothers
is a leading investment bank that has substantial experience in evaluating and
advising on transactions such as the Barcelo proposal, particularly in our
industry, and was the best qualified candidate to represent the interests of the
unaffiliated stockholders. The special committee then discussed several letters
that the Company and the special committee had received from unaffiliated
stockholders expressing disappointment with the Barcelo proposal of $13.00 per
share and a lawsuit that had been filed in Delaware regarding the proposed
transaction. The special committee then discussed that, after the public
announcement of the Barcelo proposal, Mr. Eilian had contacted members of the
special committee and its legal counsel. The special committee was advised that
Mr. Eilian had been in discussions at various times with Mr. Hammons regarding a
possible acquisition of the Company and/or Mr. Hammons' interest in the Company
since March 2004. In these conversations with special committee members and the
special committee legal counsel, Mr. Eilian indicated an interest in a
transaction with the Company and Mr. Hammons different in structure from the
proposed Barcelo transaction. Mr. Eilian indicated that Mr. Hammons had referred
him to the special committee if he felt that he could offer a proposal superior
to Barcelo's. Mr. Eilian initially proposed to invest capital in the Company,
leave the Company's shares in the hands of public investors, and engage in a
concurrent transaction with Mr. Hammons that would have provided Mr. Hammons
with some liquidity to continue his hotel development activities. The special
committee decided to direct its counsel to contact Mr. Eilian to inform him that
Lehman Brothers had been retained as the special committee's financial advisor
and to discuss the specifics of his proposed offer with Lehman Brothers.
At the October 25, 2004 meeting of the special committee, Barcelo
representatives outlined proposed terms and conditions of a merger, as well as
proposed related transactions with Mr. Hammons and his affiliates. At the outset
of the meeting, the special committee emphasized to the Barcelo representatives
that the special committee was not prepared to negotiate a transaction with
Barcelo at that point in time, pending Lehman Brothers' due diligence review of
our operations, but that the special committee members wanted to meet with the
Barcelo representatives in order to better understand the transactions that were
being contemplated between Barcelo and Mr. Hammons. The Barcelo representatives
then described their discussions with Mr. Hammons over the course of the
preceding six months and noted that Mr. Hammons
5
sought to engage in a transaction that would allow him to retain an interest in
the Partnership and that would also provide him with capital for development of
new hotel properties. Barcelo proposed that:
- Barcelo would own 95% of the common equity of its affiliate, BHH
Acquisition, LLC ("BHH") and Mr. Hammons would own 5% of the common
equity, along with a preferred interest that would be redeemable at some
point in the future;
- Barcelo would offer the unaffiliated stockholders $13.00 per share for
their shares of Class A Common Stock;
- Mr. Hammons' preferred interest in BHH would not accrue or receive any
dividends and would have a liquidation preference of $300 million paid,
under various circumstances, between years seven and thirteen after
closing;
- Mr. Hammons would receive a line of credit ranging from $100 million
initially to $250 million after three years after closing secured by his
preferred interest in BHH and his personal guaranty, to be used solely
for future hotel development;
- Mr. Hammons would fund his 5% common interest in BHH by rolling over a
number of shares of Class A Common Stock at a valuation of $13.00 per
share;
- Mr. Hammons' remaining shares would be cashed out at the same price as
the unaffiliated stockholders;
- Barcelo would have a right of first refusal on the sale of Mr. Hammons'
hotels; and
- the Chateau on the Lake Resort property in Branson, Missouri, would be
distributed to Mr. Hammons with an assumption of a portion of its debt
obligations.
The special committee conveyed to the Barcelo representatives the level of
disappointment that the special committee members had heard from various
unaffiliated stockholders with the purchase price that Barcelo had offered the
unaffiliated stockholders and the special committee's initial view that it did
not believe it would be able to support a transaction in which the unaffiliated
stockholders received $13.00 per share. The special committee determined,
however, that they were not prepared to negotiate the proposed merger price
without additional information and that Lehman Brothers, as financial advisor to
the special committee, should be afforded enough time to conduct its due
diligence review of the Company before meaningful negotiations regarding
valuation and the price per share could occur. The special committee members and
their advisors also discussed the need for establishing appropriate procedures
to ensure that the special committee was able to execute its duties and
responsibilities on behalf of the unaffiliated stockholders.
On October 26, 2004, we announced the formation of the special committee to
evaluate and review Barcelo's proposal to acquire all of the outstanding shares
of Class A Common Stock for $13.00 per share, to negotiate the terms of the
proposed transaction and to make a recommendation to the board of directors on
behalf of our unaffiliated stockholders.
We also announced that a complaint had been filed in the Court of Chancery
of the State of Delaware against us and members of the board of directors,
alleging, among other things, that the consideration offered by Barcelo was
inadequate and that the members of our board of directors had breached their
fiduciary duties in connection with the proposed transaction. The complaint,
which purported to be filed by a stockholder of the Company, included a request
for a declaration that the action be maintained as a class action and sought,
among other things, to enjoin us from consummating the proposed transaction with
Barcelo. We announced that we and our board of directors believed that the
complaint against us and them was without merit and intended to vigorously
contest the lawsuit. We stated our belief that the lawsuit was premature as the
Company had not reached any definitive agreement with Barcelo. We explained that
we were fully committed to ensuring that any transaction that occurred was the
product of a fair process that resulted in a fair price to the holders of Class
A Common Stock and we encouraged unaffiliated stockholders to allow us the
opportunity to respond to the Barcelo proposal in an appropriate and measured
manner.
6
On October 27, 2004, the special committee was informed that conversations
between Barcelo and Mr. Hammons continued regarding reworking the proposed
agreement or terminating that agreement and submitting a new agreement to the
special committee for its consideration and recommendation to the board of
directors. The special committee and its advisors discussed whether the
authority granted to the special committee by the board of directors was broad
enough to consider any such request as well as to properly explore the
expression of interest from Mr. Eilian. The special committee then discussed the
various steps that had been taken on behalf of the Company to respond to the
lawsuit that had been brought in Delaware and communications received from other
unaffiliated stockholders regarding the proposed Barcelo transaction.
On November 1, 2004, Barcelo informed the special committee by letter that
its prior agreement with Mr. Hammons had been terminated, but that it remained
interested in purchasing the Class A Common Stock. In that letter, however,
Barcelo also reaffirmed its proposal to the special committee to acquire all of
the outstanding shares of Class A Common Stock at a cash price of $13.00 per
share, and proposed a new form of agreement it sought to enter into with respect
to the proposed transactions with Mr. Hammons, upon approval by the board of
directors. On November 2, 2004, Mr. Hammons notified the special committee by
letter of his interest in entering into the proposed agreement with Barcelo upon
approval by the board of directors.
At its November 3, 2004 meeting, the special committee discussed the
letters it received from Barcelo and Mr. Hammons, as well as the status of the
stockholder litigation and the Company's responses to communication received
from certain unaffiliated stockholders regarding the Barcelo proposal. The
special committee and its advisors then discussed the next steps to ensure a
fair process in which other parties that may have an interest in pursuing a
transaction with Mr. Hammons are afforded an opportunity to gain access to
information comparable to that made available to Barcelo. The members of the
special committee then discussed attempting to negotiate the price being offered
to the unaffiliated stockholders, and decided to advise Barcelo that the special
committee did not intend to respond to Barcelo's revised proposal until Lehman
Brothers had completed its financial review of the Company. The special
committee next discussed the scope of the special committee's authority under
the existing board resolutions and whether this authority needed to be expanded
in light of the request from Barcelo to enter into the proposed agreement with
Mr. Hammons detailed in Barcelo's November 1, 2004 letter. The special committee
members agreed that it was appropriate for them to have such authority to help
assure that a transaction was the result of a fair process. In the course of
discussing the process for reviewing the Barcelo proposal and any other proposed
transactions, the special committee also discussed requiring Mr. Hammons to
waive his super-voting rights or otherwise require some level of approval by the
unaffiliated stockholders, which the special committee concluded was an
appropriate topic for consideration as they considered the terms of the revised
Barcelo proposal.
At this same meeting, the special committee was also informed by its legal
counsel and financial advisors of further discussions earlier that day with Mr.
Eilian. The special committee received a letter from Mr. Eilian, dated October
28, 2004, describing his interest in pursuing a possible transaction with the
Company. After further discussion regarding the prospect of an alternative
proposal being submitted, the special committee asked its legal counsel to
prepare a resolution for recommendation to the board of directors seeking
broader authority to consider, on behalf of the unaffiliated stockholders,
Barcelo's proposed agreement with Mr. Hammons as well as inquiries from other
interested parties and to prepare a set of procedural guidelines to govern the
process by which the special committee would evaluate such proposals to ensure a
fair price to the unaffiliated stockholders. Finally, the special committee and
its legal advisors discussed expanding the scope of the special committee's
engagement of Lehman Brothers to include, in addition to an evaluation of the
fairness, from a financial perspective, of the price per share offered to
unaffiliated stockholders, an evaluation of the reasonableness of the allocation
of value in any proposed transaction between Mr. Hammons, on the one hand, and
the unaffiliated stockholders, on the other hand.
At its November 9, 2004 meeting, the special committee agreed to recommend
to the board of directors that the special committee be granted expanded
authority to respond to and act on behalf of the board of directors with respect
to requests from additional interested parties, and requests for approval of
transactions such as the revised Barcelo master agreement with Mr. Hammons. The
special committee members also
7
discussed the importance of these expanded powers to ensure that any transaction
not only results in a fair price to the unaffiliated stockholders, but is the
result of a fair process. In addition, the special committee agreed to broaden
the scope of its engagement with Lehman Brothers, to include not only an
evaluation of the fairness of the price per share, from a financial point of
view, offered to the unaffiliated stockholders, but also an evaluation of the
reasonableness of the allocation of value, from the point of view of the
unaffiliated stockholders, between the unaffiliated stockholders and the JQH
Stockholders. This expanded scope of work was set forth in a proposed engagement
letter from Lehman Brothers dated October 26, 2004. The special committee also
considered Mr. Eilian's continuing interest in the Company, and agreed that as
part of a fair process it would be helpful to meet with Mr. Eilian to discuss
his interest in pursuing a transaction with Mr. Hammons and the Company, and
separately to meet with a group of unaffiliated stockholders calling themselves
"JQH Shareholders for Fair Play" and representatives of the Jolly Roger Funds,
the plaintiffs in the suit filed in the Delaware Court of Chancery, to hear
their respective views.
On November 15 and 16, 2004, the special committee met to discuss and adopt
the procedural guidelines proposed by the special committee's legal counsel that
would govern the process by which the special committee would review and
consider the Barcelo proposal as well as any other viable alternatives submitted
to the special committee by other interested parties. The special committee and
its advisors also discussed the implications of Mr. Hammons' controlling
interest and whether to require that any transaction be subject to the approval
by a majority of the unaffiliated stockholders or some other level of
disinterested stockholder approval. The special committee members considered
that it had not been delegated the authority, nor did it possess the ability or
legal duty, to broadly market the Company for sale in light of Mr. Hammons'
controlling interest which gives him, in effect, the ability to reject any
transaction, and that Mr. Hammons' interest in pursuing any transaction would be
influenced, not only by its economic terms, but also by its tax implications
personal to him, which would likely be very different than the tax implications
to the unaffiliated stockholders. The special committee decided that its goal in
this process would be to pursue the best price reasonably available to
unaffiliated stockholders in any transaction that the special committee is
authorized to consider and that, if the special committee concludes that it is
not in the best interests of the unaffiliated stockholders to engage in a
particular transaction, or that the price offered to the unaffiliated
stockholders in any such transaction is not fair, from a financial perspective,
to the unaffiliated stockholders, the special committee will have a duty to
recommend against such a transaction to the board of directors. The special
committee members stated their belief that the special committee's authority to
negotiate any such transaction on behalf of unaffiliated stockholders and the
special committee's right to reject a transaction will help ensure the only
transaction that will occur with the special committee's recommendation will be
one that results from a fair process and results in a fair price to the
unaffiliated stockholders. The special committee also noted that as part of
these procedural guidelines the special committee would reserve the right to
impose any conditions on its approval of a transaction between any qualified
party and Mr. Hammons as it deems necessary or appropriate in the best interests
of the unaffiliated stockholders, which might include requiring any qualified
party to agree not to engage in a "business combination," as defined under
Section 203 of the DGCL, with the Company nor to enter into, or amend, any
agreement with the JQH Stockholders without first receiving the special
committee's consent to do so, or to acknowledge that the special committee does
not intend to recommend to the board of directors any definitive agreement
between such qualified party and the Company that limits the board's ability to
exercise its fiduciary duties with respect to the subject proposal or any other
proposal. After a lengthy discussion regarding the procedural guidelines and the
process, the special committee members unanimously agreed to proceed on the
basis outlined in the procedural guidelines and directed special committee
counsel to communicate these procedural guidelines to the Company, Mr. Hammons'
counsel and counsel for Barcelo.
The procedural guidelines adopted by the special committee were designed to
help ensure that any transaction that occurred with respect to the Company was
at a fair price to the unaffiliated stockholders and was the result of a fair
process in which, among other things:
- unaffiliated stockholders and other bona fide interested parties were
provided a reasonable opportunity to communicate their views to the
special committee with respect to any transaction properly considered by
the special committee;
8
- all interested parties willing to explore a transaction were afforded a
level playing field, from the Company's perspective, on which to pursue a
transaction in terms of timing, access to information from the Company
and other reasonable conditions to completion, subject only to legitimate
business and competitive constraints; and
- the special committee and its advisors were fully informed as to the
value, merits and probability of closing any transaction that there was a
reasonable basis for believing could be consummated.
On November 16, 2004, the board of directors expanded the authority of the
special committee to review, evaluate and negotiate, on behalf of the
unaffiliated stockholders, the terms of the transaction as proposed by Barcelo
in its revised proposal with Mr. Hammons, and authorized the special committee
to respond to, and act on behalf of the board of directors with respect to, any
requests from other interested parties, including without limitation, requests
for information regarding the Company and requests for approval of transactions
such as that in the revised Barcelo master agreement with Mr. Hammons. Such
expanded authority for the special committee also included the authority to
impose such other conditions on any such approval that the special committee
determines are necessary or appropriate to ensure a fair process for reviewing,
evaluating and negotiating the terms of any merger transaction involving the
unaffiliated stockholders.
On November 18, 2004, the special committee met with Mr. Eilian, another
experienced hotel executive recruited by Mr. Eilian to assist him, and
representatives of two potential financing sources, iStar and GIC Real Estate,
Inc. At the outset of that meeting, counsel for the special committee provided
an overview to Mr. Eilian and his associates of the procedural guidelines that
the special committee intended to follow in order to ensure that any transaction
that occurred resulted from a fair process and in a fair price to the
unaffiliated stockholders. Mr. Eilian then presented information regarding his
experience in the real estate and hospitality industry and the background and
experience of the other participants, as well as information regarding the
potential financing sources. Mr. Eilian also presented an overview of the
discussions that he had with Mr. Hammons at various times since March 2004. Mr.
Eilian shared with the special committee some of his analysis with respect to
the Company, the lodging industry and potential opportunities for growth. Mr.
Eilian discussed with the special committee the roles he envisioned for the
Company and its affiliates and the degree to which he and his group had
committed to provide financing for such a transaction at that point.
At that same meeting, the special committee also met separately with three
of our unaffiliated stockholders, Jamie Clark, Scott Asen and Gifford Combs, who
had formed JQH Shareholders for Fair Play, to discuss their concerns regarding
the Barcelo proposal. The special committee was notified that a fourth
stockholder had joined the group earlier that day bringing its collective
holdings to approximately 21% of the outstanding Class A Common Stock. Counsel
for the special committee informed the members of this group of the special
committee's commitment to conducting a fair process and ensuring that any
transaction that occurred was at a fair price to the unaffiliated stockholders,
including the members of the JQH Stockholders for Fair Play, and then outlined
the procedural guidelines that the special committee intended to use to achieve
that goal. The group then expressed its concerns regarding the Barcelo proposal,
including the absence of disclosure of the terms of the proposed agreement
between Barcelo and the JQH Stockholders, the price per share offered, the need
for a neutralized vote in the form of an approval by a majority of the
unaffiliated stockholders, and an equitable allocation of value among all
stockholders, including Mr. Hammons. The special committee also met with the
legal counsel and the financial advisor to the Jolly Roger Funds, which owned a
total of 175,000 shares of Class A Common Stock, to provide them an opportunity
to express their concerns regarding the Barcelo proposal. The funds' financial
advisor presented an assessment of the value of the Company and its assets as
well as an evaluation of the proposed transaction with Barcelo. Counsel for the
Jolly Roger Funds outlined their concerns with the transaction and their desire
that the special committee ensure that any transaction be the result of a fair
process, including the vote of a majority of the unaffiliated stockholders, and
also expressed concerns regarding the lack of public disclosure about the terms
of the proposed transaction between Barcelo and the JQH Stockholders. As with
the other groups that the special committee had met with that day, the special
committee's counsel reviewed for the counsel for the Jolly Roger Funds the
special committee's commitment to conducting a fair process to ensure that any
transaction that occurs is at a fair price to unaffiliated stockholders,
including the Jolly Roger Funds.
9
On November 19, 2004, JD Holdings, LLC, of which Mr. Eilian is the managing
member ("JDH"), entered into a confidentiality agreement with us. Among other
things, JDH agreed that it would not enter into any agreement, arrangement or
understanding with Mr. Hammons relating to us that was not subject to the
approval of our board of directors or an authorized committee of our board of
directors.
At meetings held on November 23 and 29, 2004, the special committee
discussed the possibility of rejecting the revised agreement proposed to be
entered into between Mr. Hammons and Barcelo, and Barcelo's related revised
merger proposal, while continuing to entertain viable offers that were
reasonably likely to result in a transaction that would be fair, in terms of
both price and process, to the unaffiliated stockholders. The special committee
unanimously agreed to continue to defer any action with respect to Barcelo until
after Lehman Brothers presented the preliminary results of its financial review.
On November 30, 2004, the special committee met to discuss a call that
special committee member Mr. Sullivan had received from Mr. Hammons in which Mr.
Hammons said he would not do a deal with Mr. Eilian under any circumstances. The
special committee members discussed this development in conjunction with Mr.
Eilian's pending diligence requests.
At a special committee meeting on December 6, 2004, the special committee
and its counsel reviewed the process that the special committee had undertaken
in evaluating the Barcelo proposal and considering viable alternatives.
Specifically, the special committee members then reviewed the steps that had
been taken to ensure that, in addition to acting independently, they had created
and maintained a level playing field for all interested parties. The special
committee then discussed the steps that had been taken to expand the scope of
their authority and the opportunity that had been afforded to various parties to
meet with the special committee, noting that throughout this process the special
committee had reserved the right to reject any transaction that it did not
believe was fair to the unaffiliated stockholders. The special committee members
also concluded that each of Barcelo and Mr. Eilian had been afforded reasonable
access to information, management, the Company's properties and the Company's
and special committee's advisors and that no other viable alternatives had
emerged.
Lehman Brothers then presented its preliminary evaluation of the revised
Barcelo proposal and its assessment of the Company's valuation. Lehman Brothers
provided an overview of our historical operating results, our current balance
sheet and implied enterprise value and our historical stock price performance on
a comparative basis to our peers. Lehman Brothers presented an overview of
management projections provided by the Company. Lehman Brothers then provided
preliminary going concern valuation methodologies including a comparable company
analysis and discounted cash flow analysis and preliminary sale valuation
methodologies including a comparable transaction analysis, a leveraged buyout
analysis, and a premiums paid analysis. The various preliminary valuation
methodologies noted above and the implied equity value per share ranges derived
from these methodologies are included in the following table. Lehman Brothers
made qualitative judgments as to the significance and relevance of each analysis
and did not attempt to combine these analyses into one composite valuation
range, nor did Lehman Brothers assign any particular absolute or relative
quantitative weight to any of the analyses or other factors considered. In
arriving at these preliminary valuation ranges, Lehman Brothers assumed and
relied upon the accuracy and completeness of the financial and other information
and projections without assuming any responsibility for independent verification
of such information. Lehman Brothers did not conduct a physical inspection of
the properties and facilities of the Company and did not make or obtain any
evaluations or appraisals of the assets or liabilities of the Company.
10
The analyses were necessarily based upon market, economic and other conditions
as they existed on, and could be evaluated as of, the date of such analyses.
<Table>
<Caption>
IMPLIED EQUITY
VALUATION METHODOLOGY VALUE RANGE(1)
--------------------- ----------------
Comparable Company Analysis................................. $17.05 - $22.68
Comparable Transaction Analysis............................. $18.25 - $23.69
Discounted Cash Flow Analysis............................... $17.00 - $21.00
Leveraged Buyout Analysis................................... $14.00 - $17.00
Premiums Paid............................................... $13.66 - $16.36
Premiums Paid -- Cash Minority Squeeze-Out Transactions..... $14.25 - $16.07
</Table>
- ---------------
(1) Per share of Class A Common Stock.
After reviewing the various methodologies used, Lehman Brothers noted that,
based on its preliminary analysis, the $13.00 per share price offered by Barcelo
was below a range of fair values, from a financial point of view, to the
unaffiliated stockholders. The special committee also discussed with Lehman
Brothers evaluating the benefits of the proposed transaction to Mr. Hammons
compared to the price offered to the unaffiliated stockholders, from the point
of view of the unaffiliated stockholders. The special committee then returned to
a discussion of the scope of the authority that had been granted to them by the
board of directors and their fiduciary duties as committee members, particularly
in light of the ranges stated in the Lehman Brothers analysis.
The special committee then met with Mr. Hammons regarding the progress of
discussions with Mr. Eilian and with Barcelo. Mr. Hammons indicated that the
transaction with Barcelo was further along, and that there were a number of
issues, including significant tax issues, to be addressed with respect to the
proposal made by Mr. Eilian. Mr. Hammons expressed reservations about the
Company remaining publicly held under Mr. Eilian's proposal.
The special committee then reviewed a proposal received on December 5,
2004, from JDH and iStar to form a new company to acquire a controlling interest
in the Company through a tender offer to unaffiliated stockholders at a price to
be determined, but in no event to be less than the total present value of
compensation to Mr. Hammons on a fully-diluted per share equivalent basis, as
determined by Lehman Brothers. In addition, at our election, the new company
would purchase, at the tender price, additional shares of Class A Common Stock,
up to an amount equal to 19.9% of the then current outstanding shares of such
stock. Mr. Hammons, JDH, iStar and other investors would form a company to
acquire from Mr. Hammons the Partnership's limited partnership interests and the
Class B Common Stock in the Company. Mr. Hammons would receive preferred
interests in the new company equal to $400 million, to be liquidated no earlier
than after seven years (but with earlier taxable distributions of $25 million
after year five). Mr. Hammons also would have received an interim line of credit
in the amount of $25 million, and a ten year line of credit funded by the new
limited liability company ranging from $100 million to $250 million.
The special committee compared the JDH proposal with the Barcelo proposal
from the point of view of the unaffiliated stockholders and discussed the due
diligence and negotiations conducted by JDH over the prior weeks, as well as the
due diligence review and negotiations by Barcelo to date, including Barcelo's
indication of its willingness to increase its offer price. The special committee
unanimously agreed to advise Barcelo that the special committee could not
support a transaction at $13.00 per share, and to recommend to the board of
directors that it reject the revised Barcelo master agreement with Mr. Hammons,
but also agreed to advise Barcelo that the special committee was prepared to
continue negotiations.
At its regular meeting held on December 7, 2004, the special committee
informed the board of directors of the JDH proposal, and that the special
committee had determined that Barcelo's proposed $13.00 per share was not a fair
price for the shares of Class A Common Stock owned by the unaffiliated
stockholders. The special committee presented the differences between the
revised Barcelo proposal and the JDH and iStar proposal and indicated, at the
present time, it believed the JDH and iStar proposal to be the better proposal,
11
subject to due diligence issues. The special committee also informed the board
of directors that it had instructed Lehman Brothers to continue to meet with
Barcelo and with JDH to work on the structural portion of a proposed deal, and
that the special committee planned to make a recommendation to the board of
directors before the end of 2004.
Later that day, we issued a press release announcing that the special
committee would not support the Barcelo proposal based on the offered price of
$13.00 per share and on deficiencies in the proposed agreement with Mr. Hammons.
We indicated that we were still open to negotiations with Barcelo but that we
had also received a proposal which would not require unaffiliated stockholders
to sell their shares. We announced that the special committee had established a
process to provide a reasonable opportunity for interested parties to present
bona fide offers to the special committee and that the only transaction that
would occur with the special committee's recommendation would be one that was
the result of a fair process with a fair price to the unaffiliated stockholders.
On December 14, 2004, Barcelo entered into an amended and restated
confidentiality agreement with us. This agreement modified our earlier
confidentiality agreement with Barcelo to conform to the procedural guidelines
established by the special committee, including the requirement that any
agreement, arrangement or understanding between Barcelo and Mr. Hammons relating
to any equity interest in the Company, or a subsidiary, would first require the
approval of the special committee.
At its December 16, 2004 meeting, the special committee was informed that
Barcelo remained interested in pursuing a transaction and that a future proposal
would include a higher per share price for the shares of Class A Common Stock
held by the unaffiliated stockholders. Barcelo stated that it would be looking
for a meaningful exclusivity period and a termination fee if it were to proceed
with the transaction. The special committee also discussed communications with
Mr. Eilian in which he indicated that he was prepared to modify his offer to
include a private placement in which JDH or an affiliated entity would invest in
the Company at $24.00 per share, followed by a tender offer to acquire the
outstanding shares of Class A Common Stock held by the public at a price to be
agreed upon. The special committee discussed how such a transaction might
compare to the cash-out merger proposed by Barcelo. After reviewing the degree
to which each of the two interested parties had conducted due diligence and had
the opportunity to negotiate with Mr. Hammons, the special committee directed
its financial and legal advisors to prepare a counter-proposal to that submitted
by Mr. Eilian to narrow some of the conditions, and more clearly spell out the
economic terms to the unaffiliated stockholders, and to encourage Barcelo to
provide the special committee with its best price for the unaffiliated
stockholders.
Also at the same meeting, the special committee discussed a request by
Lehman Brothers to increase its fee, because the original engagement
contemplated advice with respect to a single transaction (the offer from
Barcelo). Lehman Brothers was now being asked to provide services with respect
to two possible transactions. The special committee discussed the expanded role
that Lehman Brothers would play as well as the increased time commitment it
would involve, and unanimously agreed to increase Lehman Brothers' fee by
$500,000, with the increased amount payable only upon the closing of a
transaction.
At a December 23, 2004 special committee meeting, Lehman Brothers outlined
a new revised proposal received from Barcelo on December 22, 2004. Barcelo
increased its offer to purchase the shares of unaffiliated stockholders to
$20.00 per share, but continued to insist that the transaction be subject to a
simple majority vote of all stockholders, including Mr. Hammons' shares. Under
the revised proposal, Mr. Hammons would receive redeemable preferred stock in
the surviving corporation as part of the transaction and, based on Lehman
Brothers' preliminary analysis, the per share consideration to be received by
Mr. Hammons under the new revised Barcelo proposal would be significantly less,
on a pre-tax basis, than what was being offered to the unaffiliated
stockholders. Under the new revised proposal, Barcelo also sought exclusivity
through January 31, 2005, but no breakup fee or expense reimbursement.
The special committee also discussed a new JDH proposal. The new
transaction proposed by JDH included a newly formed entity that would make a
tender offer to the unaffiliated stockholders for up to 100% of their Class A
Common Stock, at a price equal to the greater of $20.50 per share or the price
per share proposed by any bona fide third party written offer delivered to the
Company prior to this meeting. In addition,
12
this newly formed entity would make a significant cash investment in the Company
at a price per share equal to the tender offer price plus $5.00. This JDH
proposal contemplated the tender offer only if requested by the special
committee and, provided that if no such tender offer was requested, the number
of shares purchased in the private placement would be doubled. This proposal
also contemplated a public offering of shares of Class A Common Stock following
the closing of the tender offer and private placement. This proposal also
contemplated the redemption of up to 35% of outstanding mortgage notes issued by
the Partnership, assuming the transaction occurred by May 15, 2005 and
additional covenants that we would remain a reporting company and satisfy
applicable exchange listing requirements. The special committee noted that,
while the transaction might afford some benefits to unaffiliated stockholders
who would prefer to remain investors, it was not as straightforward as previous
proposals, with additional execution risk as a result. It also was not clear
that Mr. Hammons would be willing to participate in a transaction in which we
remained public. Lehman Brothers noted that it believed that JDH's proposal also
would represent a value to Mr. Hammons, on a pre-tax basis, below that being
offered to the unaffiliated stockholders. JDH also sought an exclusivity period
until January 31, 2005.
At the same meeting, the special committee was informed that a
broker-dealer contacted a member of the special committee and a representative
of Lehman Brothers about a possible transaction on behalf of another potential
bidder, a publicly-traded company. Lehman Brothers pointed out that this
potential bidder would need to raise significant capital to be able to pursue
any such transaction, as it then owned a small number of hotels and that any
such transaction would involve significant strategic and financial risks. For
these reasons, and because the special committee believed that Mr. Hammons did
not have an interest in pursuing a transaction with that party because of the
party's apparent lack of sufficient financial resources, the special committee
agreed that this did not appear to be an inquiry worth pursuing on behalf of the
unaffiliated stockholders at that point in time.
The special committee discussed the merits of the most recent proposals
from Barcelo and JDH at length, including the differences between the
transactions being offered to Mr. Hammons and the reasonableness of the
allocation, from the point of view of the unaffiliated stockholders, of the
consideration to be provided to Mr. Hammons, on the one hand, and the
unaffiliated stockholders, on the other hand. The special committee also
discussed the merits of a tender offer versus a cash-out merger, the degree to
which the alternatives might influence their view as to whether a vote of
unaffiliated stockholders might be appropriate in connection with a merger
transaction and the effect an agreement to negotiate exclusively might have on
the interest of other parties. The special committee directed Lehman Brothers to
communicate with each of the interested parties to attempt to address weaknesses
in their respective offers and to communicate to Barcelo that the special
committee was not prepared to support a transaction without the majority vote of
the unaffiliated stockholders unless the offer was $22.00 per share. The special
committee also directed its advisors to communicate to Mr. Eilian that until
definitive agreements were reached with the Company and with Mr. Hammons, the
special committee would be unwilling to support any termination fee or
reimbursement of expenses. The special committee directed its advisors to
communicate to each of the parties that they should be prepared to submit their
final proposals by December 28, 2004.
At its December 28, 2004 meeting, the special committee considered revised
proposals from each of Barcelo and JDH. With respect to the JDH proposal, Lehman
Brothers described negotiations with Mr. Eilian regarding a possible expense
reimbursement, JDH's willingness to offer a cash-out merger if necessary and the
need for Mr. Eilian to demonstrate Mr. Hammons' support for the transaction with
JDH. The special committee also considered the fact that Mr. Hammons had
reiterated his preference that the surviving company be privately held and that,
at this point in time, he was more comfortable moving forward with Barcelo. The
special committee members concluded that, at this point, the Barcelo proposal
appeared to be more complete and fully negotiated and to stand a better chance
of being completed.
Barcelo's revised proposal included two alternatives: (1) $20.00 per share
for each share of Class A Common Stock if a majority vote of unaffiliated
stockholders was required; or (2) $21.00 per share if the only stockholder vote
required was a majority of the holders of the Class A and Class B Common Stock
voting as a single class. The special committee then discussed whether the
benefits of a neutralized vote by a majority of the unaffiliated stockholders
would outweigh the extra dollar per share offered as an alternative by Barcelo.
13
The discussion then turned to whether the authority granted to the special
committee was broad enough to allow it to require a majority vote of the
unaffiliated stockholders as a condition to it making a recommendation in
support of the proposed offer by Barcelo. The special committee concluded that
it did have the authority to require such a neutralized vote. The special
committee agreed that the Barcelo proposal appeared to be more complete and
fully negotiated and stood a far greater chance of being consummated, but that
the proposed consideration to unaffiliated stockholders of $20.00 per share was
unacceptable. The special committee's advisers contacted Barcelo after the
meeting to convey the special committee's position.
At a December 29, 2004 meeting, the special committee was informed that
Barcelo was willing to increase its offer to $21.00 per share with a majority
vote of unaffiliated stockholders on the transaction, and the special committee
agreed that, in light of the preliminary analysis provided by Lehman Brothers,
this offer appeared to represent a fair price, from a financial point of view,
to the unaffiliated stockholders. Lehman Brothers presented to the special
committee an update of its preliminary analysis from its prior presentation on
December 6, 2004. Lehman Brothers provided preliminary going concern valuation
methodologies including a comparable company analysis and discounted cash flow
analysis and preliminary sale valuation methodologies including a comparable
transaction analysis, a leveraged buyout analysis, and a premiums paid analysis.
The various preliminary valuation methodologies noted above and the implied
equity value per share ranges derived from these methodologies are included in
the following table. Lehman Brothers made qualitative judgments as to the
significance and relevance of each analysis and did not attempt to combine these
analyses into one composite valuation range, nor did Lehman Brothers assign any
particular absolute or relative quantitative weight to any of the analyses or
other factors considered. In arriving at these preliminary valuation ranges,
Lehman Brothers assumed and relied upon the accuracy and completeness of the
financial and other information and projections without assuming any
responsibility for independent verification of such information. Lehman Brothers
did not conduct a physical inspection of the properties and facilities of the
Company and did not make or obtain any evaluations or appraisals of the assets
or liabilities of the Company. The analyses were necessarily based upon market,
economic and other conditions as they existed on, and could be evaluated as of,
the date of such analyses.
<Table>
<Caption>
IMPLIED EQUITY
VALUATION METHODOLOGY VALUE RANGE(1)
- --------------------- ----------------
Comparable Company Analysis................................. $19.57 - $24.96
Comparable Transaction Analysis............................. $18.01 - $23.24
Discounted Cash Flow Analysis............................... $17.00 - $21.00
Leveraged Buyout Analysis................................... $14.00 - $17.00
Premiums Paid............................................... $13.66 - $16.36
Premiums Paid -- Cash Minority Squeeze-Out Transactions..... $14.25 - $16.07
</Table>
- ---------------
(1) Per share of Class A Common Stock.
Lehman Brothers gave its preliminary conclusion that the offer of $21.00
per share to the holders of Class A Common Stock represented a fair price, from
a financial point of view, to the unaffiliated stockholders and that the
allocation of consideration between the unaffiliated stockholders, on the one
hand, and the JQH Stockholders, on the other hand, was reasonable from the point
of view of the unaffiliated stockholders.
The special committee unanimously recommended to the board of directors
that it grant Barcelo the exclusive right to negotiate its proposed transaction
with the Company, based on: (1) the consideration of alternative transactions;
and (2) the opinions of the special committee's financial advisor, Lehman
Brothers, as to (a) the fairness from a financial point of view to the
unaffiliated stockholders of the consideration to be received for their shares
of Class A Common Stock pursuant to the Barcelo proposal, and (b) the
reasonableness of the allocation of consideration, from the point of view of the
unaffiliated stockholders, between the JQH Stockholders, on the one hand, and
the unaffiliated stockholders, on the other hand.
At a special meeting of the board of directors held later that day, the
board was informed of the two proposals, and that the special committee had a
number of issues with the JDH proposal and had asked Lehman Brothers to
negotiate with the parties to clear up points of concern. The special committee
14
recommended to the board of directors that it agree to negotiate exclusively
with Barcelo through January 31, 2005 in light of Barcelo's increased offer to
acquire our Class A Common Stock from $13.00 per share to $21.00 per share and
its agreement to a majority vote by unaffiliated stockholders, if requested by
the special committee. The special committee indicated it believed the Barcelo
proposal represented a fair price to the unaffiliated stockholders that had
resulted from a fair process conducted by the special committee.
Lehman Brothers presented to the board of directors a verbal opinion that
the consideration to be received by the unaffiliated stockholders for their
shares of Class A Common Stock pursuant to the Barcelo offer was fair from a
financial point of view, and an opinion that the allocation of the consideration
between the JQH Stockholders, on the one hand, and the unaffiliated
stockholders, on the other hand, was reasonable from the point of view of the
unaffiliated stockholders. The board of directors accepted the special
committee's recommendation and agreed to execute the revised proposal letter
from Barcelo, granting Barcelo exclusivity through January 31, 2005.
We issued a press release that evening announcing that we had agreed to
negotiate exclusively with Barcelo through January 31, 2005 with regard to a
possible merger transaction, and that Mr. Hammons also had agreed to negotiate
exclusively with Barcelo through that date.
At meetings on January 27 and 28, 2005, the special committee was informed
that Mr. Hammons had expressed reluctance to continue to pursue the Barcelo
transaction based primarily on his concerns regarding the certainty that the
proposed line of credit to him would remain available for a sufficient period of
time. The special committee also was informed that Barcelo believed that it
could alleviate Mr. Hammons' concerns regarding the line of credit.
At a January 31, 2005 meeting, the special committee was informed that, in
a meeting earlier in the day among Barcelo, Mr. Hammons, the Company's general
counsel, and Mr. Hammons' legal counsel, the parties discussed the equity that
Barcelo would commit to the new venture, the three-year guaranty that Barcelo
would provide for a $175 million line of credit to Mr. Hammons, and the
assertion that Barcelo was prepared to move forward but was looking to extend
the exclusivity period until February 7, 2005. Mr. Hammons indicated that he was
unwilling to extend the exclusivity period with Barcelo.
The special committee also considered a letter it had received that morning
from an investor group led by Mr. Eilian proposing to acquire our Class A Common
Stock through a merger transaction in which the unaffiliated stockholders of our
Class A Common Stock would receive $24.00 per share. This proposal was
accompanied by a letter asserting that the offer was not contingent on
third-party financing and that Mr. Eilian had entered into agreements with
certain unaffiliated stockholders holding approximately 25% of the outstanding
Class A Common Stock, in which such unaffiliated stockholders agreed to support
this proposal. Mr. Eilian had received a letter from iStar in January 2005,
indicating iStar's support of the proposal and its expectations (subject to its
formal board approval) that iStar, together with Mr. Eilian, would provide the
capital necessary to complete the transactions contemplated in the proposal.
The special committee discussed the status of the two pending proposals and
the likelihood of completing a transaction with either group. Members of the
special committee noted that they were not comfortable extending the exclusivity
period with Barcelo in light of Mr. Eilian's new offer, and agreed to recommend
to the board of directors that the exclusivity period with Barcelo be allowed to
lapse, but to reaffirm the special committee's authority to negotiate, on behalf
of the unaffiliated stockholders, the terms of any transaction that might arise
with Barcelo, Mr. Eilian, or any other viable alternative.
At a January 31, 2005 special meeting of the board of directors, Mr.
Hammons indicated that, after extensive meetings earlier in the day with
representatives of Barcelo, he was unable to reach an agreement to proceed with
merger negotiations with Barcelo and that he did not want to renew the
exclusivity period with Barcelo. The special committee informed the board of
directors that it had received a proposal from Mr. Eilian to negotiate a
transaction with Mr. Hammons that would take the Company private with an offer
to unaffiliated stockholders of $24.00 per share. The board of directors
determined to keep the special committee in place. The board of directors
reaffirmed the special committee's authority to act on behalf of the
unaffiliated stockholders, with respect to any further proposal by Barcelo, the
Mr. Eilian proposal and any
15
other viable alternative. In doing so, the board of directors also relied upon
Mr. Hammons' indication that he intended to continue to pursue a possible
transaction.
On February 1, 2005, we issued a press release announcing the expiration of
our prior agreement to negotiate exclusively with Barcelo and the expiration of
Mr. Hammons' agreement to negotiate exclusively with Barcelo. We also announced
that the board of directors had reaffirmed the authority of the special
committee to negotiate viable proposals.
At meetings on February 2 and 3, 2005, the special committee considered a
proposed agreement between Acquisition and the Company for a period of
exclusivity through February 28, 2005 in connection with Acquisition's proposal
to acquire the unaffiliated stockholders' Class A Common Stock for $24.00 per
share, and, on February 3, 2005, the special committee unanimously recommended
that the board of directors authorize the Company to enter into the proposed
exclusivity agreement.
At a February 3, 2005 meeting of the board of directors, the special
committee recommended that we grant exclusivity to Acquisition through February
28, 2005. Mr. Hammons informed the board of directors that he had met with Mr.
Eilian and other representatives of Acquisition and that he also intended to
negotiate exclusively with Acquisition through February 28, 2005. The board of
directors also was advised that Lehman Brothers had received an inquiry from
another potential bidder indicating interest in the Company, but that the group
did not make an offer or otherwise pursue due diligence or negotiations. After
discussion, the board concluded that because this group did not come forward
soon after the exclusivity with Barcelo had expired, among other factors, the
board of directors did not view this potential bidder as a serious candidate,
and would not pursue a transaction with it. The board of directors agreed to
proceed to negotiate a potential transaction with Acquisition, as outlined by
Mr. Hammons and the special committee, and authorized the Company to enter into
an exclusivity agreement through February 28, 2005 with Acquisition.
On February 4, 2005, we announced in a press release that we and Mr.
Hammons had agreed to negotiate exclusively through February 28, 2005 with
Acquisition with respect to a possible merger transaction. We stated that the
proposal contemplated a merger transaction in which the Class A Common Stock
held by the unaffiliated stockholders would be purchased for a cash price of
$24.00 per share. Our announcement noted that, according to filings made with
the SEC, some of the unaffiliated stockholders had entered into an agreement
with Acquisition under which such unaffiliated stockholders agreed, under
certain circumstances, to vote their shares in favor of Acquisition's proposal
and against any other proposals that were inconsistent with, or detrimental to,
Acquisition's proposal.
In a Schedule 13D filed with the SEC on February 9, 2005, Acquisition
stated that it had entered into an agreement with each of James M. Clark, Jr.,
R. Scott Asen, Gifford Combs, Stephen J. Clearman and Raffles Associates, L.P.,
all stockholders of the Company, that provided that those stockholders had
agreed to support Acquisition's offer to acquire the Class A Common Stock for
$24.00 per share. We describe these agreements below under "Interests of Certain
Persons in the Merger -- Agreements Between Acquisition and Certain Unaffiliated
Stockholders."
Mr. Hammons and Acquisition continued their discussions, and on February
24, 2005, the special committee met for the purpose of considering Acquisition's
request to extend the term of the exclusivity agreements. The special committee
recommended that we enter into a proposed amendment to the exclusivity agreement
with Acquisition and approved the proposed amendment to the exclusivity
agreement between Mr. Hammons and Acquisition.
At a February 25, 2005 special meeting of the board of directors, the
special committee informed the board that it believed that the parties had
accomplished a great deal during the period of exclusivity but that the deal was
complex and that it would take more time to fully document the transaction. On
the special committee's recommendation, the board of directors agreed to extend
the exclusivity period with Acquisition through March 10, 2005, and we issued a
press release announcing the extension.
Representatives of the various parties continued negotiations with respect
to the terms of the proposed merger and related transactions. On March 8, 2005,
Acquisition requested an extension of its exclusivity agreements with Mr.
Hammons and the Company to allow for continued negotiations. At a special
committee
16
meeting that day, the special committee's legal counsel provided an update on
the progress of negotiations, stating that the complexity of the transaction and
the number of issues justified the request for the extension. After considering
the time frame necessary for the parties to complete the merger negotiations,
the special committee recommended board approval of the extension.
At its March 8, 2005 meeting, the board of directors agreed to extend the
exclusivity period through April 30, 2005, and we issued a press release
announcing the further extension of the exclusivity period with Acquisition.
At its March 28 and 31, 2005 meetings, the special committee received
updates from its legal and financial advisors on the status of negotiations with
Acquisition, as well as the status of negotiations between Acquisition and Mr.
Hammons. One issue in the proposed merger agreement that the special committee
discussed was the ability of Acquisition to waive the requirement of approval of
the merger by a majority vote of the unaffiliated stockholders. The special
committee reaffirmed its position on this issue and directed its advisors to
communicate to Mr. Eilian and his advisors that the special committee would not
agree to permit this voting requirement to be waived by Acquisition. Throughout
April of 2005, representatives of the various parties continued negotiating the
terms of the proposed merger and related transactions.
At meetings on April 28 and 29, 2005, the special committee received
updates from its legal and financial advisors on the status of negotiations, and
discussed a further extension of Acquisition's exclusivity agreements. The
special committee reviewed information regarding Acquisition's agreements with
various stockholder groups (reflected in Acquisition's Schedule 13D filing with
the SEC), set to expire on April 30, 2005, but which Acquisition could
unilaterally extend through October 31, 2005, as long as it continued to engage
in good faith, bona fide negotiations. The special committee recommended that
the board of directors authorize extensions to the exclusivity agreements until
May 24, 2005. Later that day, at a meeting of the board of directors, the board
agreed to extend the exclusivity period, and we issued a press release
announcing the extension.
At its May 4, 2005 meeting, the special committee considered a request by
Mr. Eilian, citing the length of time during which negotiations were taking
place, that we agree to reimburse Acquisition for its expenses incurred after
May 1, 2005, if Acquisition continued to negotiate in good faith but was unable
to complete a transaction with Mr. Hammons. The special committee discussed Mr.
Eilian's request, but determined not to recommend approval to the board of
directors.
At its May 19, 2005 meeting, the special committee reviewed the progress of
negotiations and the process by which documents for proposed transactions would
be submitted to the special committee for its review.
On May 24, 2005, the special committee reviewed a proposed form of
transaction agreement to be entered into by Mr. Hammons and Acquisition and
their respective affiliates. Although the Company was not a party to this
agreement, Mr. Eilian previously had agreed that any such agreement with Mr.
Hammons would require the prior approval of the special committee. The special
committee discussed the manner in which the proposed transaction agreement
addressed the exclusive dealings between the parties, the ability of either to
terminate negotiations if definitive documents had not been agreed upon by June
2, 2005, and the feasibility of completion of the agreements by that date. The
special committee also reviewed a letter agreement presented by Acquisition
reconfirming Acquisition's merger proposal, including the proposed price of
$24.00 per share for all shares of Class A Common Stock held by the unaffiliated
stockholders.
The special committee determined, after considering the advice of its legal
and financial advisors, that it was in the best interests of the unaffiliated
stockholders to allow Mr. Hammons and Acquisition additional time to complete
the merger-related transaction documents contemplated by the transaction
agreement. The special committee also (1) reaffirmed its intention to recommend
that the board of directors recommend the merger proposed by Acquisition for
approval by a majority of the votes cast by the unaffiliated stockholders, (2)
recommended that the board of directors authorize the Company to enter into the
letter agreement with Acquisition, and (3) approved the transaction agreement
between Mr. Hammons and Acquisition.
On May 25, 2005, we announced that the special committee had approved a
transaction agreement between Acquisition and Mr. Hammons. The Company was not a
party to the transaction agreement, which
17
contemplated various arrangements proposed to be entered into between the
parties in connection with Acquisition's proposed acquisition of our Class A
Common Stock held by the unaffiliated stockholders. Either Acquisition or Mr.
Hammons could terminate the agreement if, on or before June 2, 2005, the parties
had not signed definitive agreements for each of the arrangements described in
the transaction agreement. We also announced that our board of directors had
allowed the parties until the earlier of June 30, 2005 or the termination of the
transaction agreement to finalize these agreements. Representatives of the
parties continued negotiating the terms of the proposed merger and related
transactions.
At its June 3, 2005 meeting, the special committee was informed that the
proposed transaction agreement among Mr. Hammons and Acquisition and their
affiliates, with its accompanying agreements, appeared to be in nearly final
form. The special committee's counsel had received the latest draft of the
proposed merger agreement, and Acquisition had tendered a form of amended and
restated transaction agreement and forms of the other agreements with Mr.
Hammons for the special committee's approval. In the letter, Acquisition stated
that it was prepared to enter into these agreements with Mr. Hammons and certain
related entities. Acquisition confirmed that it would not terminate the
transaction agreement with Mr. Hammons before June 14, 2005 and reaffirmed its
previous proposal to purchase all of the outstanding shares of Class A Common
Stock held by the unaffiliated stockholders at a cash purchase price of $24.00
per share.
Mr. Hammons submitted a letter to the special committee stating that he was
prepared to enter into the proposed agreements tendered by Acquisition and
iStar, and that he would not terminate the transaction agreement with
Acquisition prior to June 14, 2005.
The special committee considered the process that would be undertaken by
its legal and financial advisors in response to these submissions and determined
to proceed as follows:
- the special committee's counsel would review the proposed agreements and
prepare a summary of the salient economic terms of each of those
agreements and the merger agreement to provide the special committee with
a better understanding of the overall transaction between Acquisition and
Mr. Hammons;
- this summary, along with copies of the merger agreement and each of the
proposed agreements, would be transmitted to the special committee
members for their review;
- the special committee's financial advisor would review the merger
agreement, the proposed agreements with Mr. Hammons, and the special
committee counsel's summary in connection with preparing its opinion on
the fairness, from a financial perspective, of the proposed merger
consideration to the unaffiliated stockholders and its opinion on the
reasonableness of the allocation of the merger consideration between the
unaffiliated stockholders, on the one hand, and the JQH Stockholders, on
the other hand; and
- the special committee would meet on June 14, 2005 to review and consider
the proposed merger agreement and the amended and restated transaction
agreement and make a recommendation to the board of directors with
respect to these agreements.
On June 3, 2005, we issued a press release in which we announced the
receipt of the letters from Acquisition and Mr. Hammons requesting approval of
several agreements among Acquisition, iStar and Mr. Hammons. We also stated the
special committee was scheduled to meet on June 14, 2005 to respond to the
request from Acquisition and to make a recommendation to the board of directors
with respect to the proposed merger at a meeting of the board of directors
scheduled later that day.
On June 14, 2005, the special committee met with its counsel, Company
counsel and representatives of Lehman Brothers to consider the merger agreement
and the proposed transactions with Mr. Hammons. Counsel for the special
committee reviewed in detail the terms of the merger agreement and the proposed
transactions between Acquisition and its affiliates and the JQH Stockholders and
their affiliates. Counsel for the special committee also reviewed the process
the special committee had conducted in accordance with the guidelines adopted in
November 2004 in an effort to ensure that any transaction it approved resulted
from a fair process and in a fair price to the unaffiliated stockholders. Lehman
Brothers provided a presentation on its
18
analysis and methodology in reaching its determination that the consideration to
be received by the unaffiliated stockholders is fair, from a financial point of
view, to such holders, and that from a financial point of view and from the
point of view of the unaffiliated stockholders, the allocation of the
consideration offered by Acquisition to the JQH Stockholders and their
affiliates on the one hand, and the unaffiliated stockholders, on the other
hand, is reasonable.
The special committee, after considering the presentations by its counsel
and Lehman Brothers, and after further discussion of the merits of the proposed
transactions, approved the agreements among Mr. Hammons, Acquisition and iStar,
subject to the condition that those parties and their affiliates not enter into
further or amended agreements or understandings prior to the merger without
receiving the prior approval of the special committee. The special committee
also approved the form of merger agreement and recommended that the board of
directors approve the merger agreement and recommend that the unaffiliated
stockholders adopt the merger agreement.
The board of directors met immediately following the special committee
meeting. Mr. Hammons expressed his support for the proposed merger agreement and
the various agreements with Acquisition and iStar. He then recused himself from
the remainder of the meeting. The remaining board members met with counsel for
the special committee, Company counsel and representatives of Lehman Brothers.
Counsel for the special committee reviewed the board's fiduciary duties under
Delaware law, and summarized the terms of the merger agreement and related
transaction agreements. The representatives of Lehman Brothers reviewed its
financial analysis with respect to the proposed merger, and delivered its
opinions that that the consideration to be received by the unaffiliated
stockholders is fair, from a financial point of view, to such holders, and that
from a financial point of view and from the point of view of the unaffiliated
stockholders, the allocation of the consideration offered by Acquisition to the
JQH Stockholders, on the one hand, and the unaffiliated stockholders, on the
other hand, is reasonable. The members of the board of directors (other than Mr.
Hammons) unanimously approved the merger agreement, the merger and the other
transaction documents.
The parties executed the merger agreement and the transaction agreement,
and, on June 15, 2005, we announced the merger.
REASONS FOR THE SPECIAL COMMITTEE'S RECOMMENDATION; MATERIAL FACTORS CONSIDERED;
PROCEDURAL SAFEGUARDS EMPLOYED
The special committee was formed to consider and protect the interests of
the unaffiliated stockholders. The special committee recommended that we enter
into the merger agreement to provide unaffiliated stockholders an opportunity to
receive an immediate cash payment for their shares at a fair price,
significantly above the historical trading levels of the Company's stock. Prior
to the events described above, Mr. Hammons had not indicated to the board of
directors a desire or willingness to sell his interests in the Company. Because
of Mr. Hammons' majority equity ownership of the Partnership and his voting
control of the Company, a transaction could not have been structured without his
participation and support.
At its June 14, 2005 meeting, the special committee, which is composed
solely of independent directors, unanimously approved the merger agreement and
the various agreements to be executed by the JQH Stockholders and Acquisition
and their respective affiliates, and determined that the terms and conditions of
the merger and other transactions contemplated by the merger agreement are the
result of a fair process and represent a fair price to the unaffiliated
stockholders. In addition, the special committee recommended that the board of
directors (1) approve the merger agreement and (2) recommend that the
unaffiliated stockholders adopt the merger agreement.
MATERIAL FACTORS CONSIDERED
In reaching its conclusions, the special committee considered several
material factors. Most importantly, the special committee considered the
analyses of Lehman Brothers and in particular the opinions of Lehman Brothers
rendered at the request of the special committee on behalf of the unaffiliated
stockholders. Lehman Brothers provided its opinions that, as of June 14, 2005,
and based upon and subject to certain factors and
19
assumptions set forth in its opinions, (i) the cash merger consideration of
$24.00 per share consideration offered to the unaffiliated stockholders by
Acquisition in the merger is fair from a financial point of view, and (ii) the
allocation of the consideration between the JQH Stockholders, on the one hand,
and the unaffiliated stockholders, on the other hand, is reasonable. The full
text of the written opinions of Lehman Brothers, dated June 14, 2005, which set
forth certain assumptions made, procedures followed, matters considered and
limitations on the review undertaken in connection with the opinions, are
attached as Appendices B-1 and B-2 to this proxy statement and are incorporated
herein by reference.
In its review of the analyses performed by Lehman Brothers, the special
committee considered that Lehman Brothers is a leading investment bank that has
substantial experience in evaluating and advising on transactions of this kind,
particularly in our industry, and that the special committee had retained Lehman
Brothers after having interviewed several other investment banking firms and
deciding that Lehman Brothers was best qualified to represent the interests of
the unaffiliated stockholders. The special committee then considered all of the
analyses prepared by Lehman Brothers as a whole, and did not weigh any analysis
separately or consider any individual analysis to be determinative. The special
committee reviewed the revised financial projections, historical financial
statements and other historical financial and operating data provided to Lehman
Brothers by our management, and found Lehman Brother's reliance upon this
information to be reasonable. The special committee noted that Lehman Brothers
relied on our officers and employees as to the accuracy and completeness of this
information, and did not independently review or audit the projections and other
financial information for accuracy and completeness but instead relied upon the
preparation of these statements and data by our officers and employees whom the
special committee reasonably believed to be reliable and competent in matters
related to the preparation of such information.
The special committee noted that the Lehman Brothers analyses also included
a comparison of the current market price of the Company's stock to the proposed
acquisition price of $24.00 per share in cash and, in particular, of how the
current market price compared to the historical market prices of the Company's
stock, both before and after the announcement of the $13.00 per share offer from
Barcelo in October 2004, as well as a comparison to the performance of the
stocks of other publicly-held lodging companies over the same time period. The
special committee recognized that certain other valuation metrics were not
applicable to the present transaction and, thus, were not considered by Lehman
Brothers in its analysis and the rendering of its opinions. In particular, given
the nature of the sizable depreciation charges associated with the Company's
hotel properties, the net book value of the Company was not considered, although
the special committee was aware that the proposed merger consideration was
clearly in excess of the stockholders' equity reflected on the Company's balance
sheet. Instead, Lehman Brothers conducted an extensive analysis of the Company's
enterprise value as a multiple of revenue and earnings before interest, taxes,
depreciation and amortization ("EBITDA"), as well as a comparison of industry
specific valuation tools such as the rate of growth of revenue per available
room ("RevPAR"). Lehman Brothers did not perform a liquidation analysis to
determine the value of the Company were it to be liquidated and the Company's
assets were sold piecemeal. Such an analysis was not considered necessary as Mr.
Hammons had indicated no willingness to engage in a liquidation or asset sale
transaction due to adverse tax implications to Mr. Hammons. The general industry
view is that liquidation value for hotels typically is significantly less than
their actual going concern value. Members of the special committee and the board
of directors are knowledgeable regarding the industry and were aware of this
general belief. For these reasons, the special committee did not believe that
the time and expense of an appraisal of each hotel property necessary to
determine liquidation value were appropriate or necessary. Further, as the
Company had not tendered or repurchased any of its stock in the past two years,
the special committee could not consider this as a factor in its determination
of the fairness of the proposed merger consideration.
The special committee also noted that, as early as May 2004, the Company
had publicly disclosed that Mr. Hammons might examine alternatives with respect
to his interests in the Company, the Barcelo proposal had been publicly
announced in October 2004 and the Eilian proposal had been publicly announced in
February 2005. The special committee concluded that anyone who might be
interested in pursuing a viable alternative with the Company and Mr. Hammons had
been afforded ample opportunity to do so. Furthermore, the special committee
considered that the highest competing offer that had been made for the
acquisition of
20
the stock held by the unaffiliated stockholders, other than by Acquisition in
this proposed merger, was by Barcelo at $21.00 per share. However, despite
having had an exclusive period of time in which to negotiate the definitive
terms of the various agreements between Barcelo and the JQH Stockholders,
Barcelo was unable to reach a deal that Mr. Hammons would support. Consequently,
the proposed merger consideration of $24.00 per share in cash was not only
materially higher than the highest offer made by Barcelo, but was also the only
transaction that is supported by Mr. Hammons and, thus, can be consummated.
The special committee also noted that $24.00 per share price offered by
Acquisition fell either above or within the range of high and low per share
valuations calculated by Lehman Brothers in each of its valuation methods.
The special committee also considered a variety of risks and other
potentially negative factors concerning the merger. These factors include the
following:
- the possibility that Acquisition will be unable to obtain the financing
necessary to complete the merger, and the resulting effects on us and our
unaffiliated stockholders;
- the cash consideration to be received by our unaffiliated stockholders
will be taxable to them;
- following the merger, the unaffiliated stockholders will cease to
participate in any future earnings growth of the Company or benefit from
any increase in the value of the Company;
- the interests that certain of our executive officers may have with
respect to the merger that are different from, or in addition to, their
interests as stockholders generally; and
- that if the merger does not close, we will have (1) expended extensive
efforts attempting to complete the transaction, (2) experienced
significant distraction from our work during the pendency of the
transaction and (3) incurred substantial transaction costs that could
negatively impact our operating results.
The special committee determined that the loss of opportunity to
participate in any future earnings growth of the Company was adequately
reflected in the merger consideration of $24.00 per share in cash. The special
committee also considered the fact that the unaffiliated stockholders, upon
completion of the merger, will not be exposed to the disadvantages of relatively
illiquid stock and the outlined compliance costs associated with public company
reporting obligations.
The foregoing discussion includes the material factors considered by the
special committee in reaching its conclusions and recommendations but is not
meant to be exhaustive. In view of the variety of factors considered in reaching
its determination, the special committee did not find it practicable to, and did
not, quantify or otherwise assign relative weights to the specific factors
considered in reaching its conclusions and recommendations. In addition,
individual members of the special committee may have given different weights to
different factors. The determination of the special committee was made after
consideration of all of the factors together.
Procedural Safeguards Employed
In reaching its conclusions to recommend adoption of the merger agreement
by the board of directors and the unaffiliated stockholders, the special
committee also considered the procedural safeguards that it had employed in
furtherance of the interests of the unaffiliated stockholders. First, the
special committee considered the fact that the merger agreement and the merger
are the result of extensive negotiations between Acquisition and its legal
advisors, on the one hand, and the Company through the special committee and its
independent financial and legal advisors, on the other hand. The special
committee engaged both independent legal and financial advisors to assist in the
negotiation process, and the negotiation process took place over several months.
Furthermore, the special committee considered the comparative terms of the
Barcelo proposal, which itself was the result of an extensive negotiation
process, but which was also at a materially lower price for the unaffiliated
stockholders and was a transaction that Mr. Hammons was not willing to pursue
further.
21
Based on these negotiations with Acquisition, the analyses of Lehman
Brothers and the lack of any superior alternative acquisition proposals, in
addition to the other procedural safeguards described below, the special
committee unanimously determined that the $24.00 per share price was a fair
price that was the result of a fair process conducted by the special committee.
The special committee believes that the terms of the merger agreement, including
the parties' representations, warranties and covenants, and the conditions to
their respective obligations, are reasonable in the context of the transactions.
The special committee believes that sufficient procedural safeguards were
and are present to ensure the fairness of the merger and to permit the special
committee to represent effectively the interests of the unaffiliated
stockholders including:
- the composition of the special committee, consisting solely of directors
who are not our employees, and who have no financial interest in the
proposed merger different from our unaffiliated stockholders generally;
- the ability of the special committee to terminate the merger agreement if
a superior proposal is received from a third party and not matched by
Acquisition;
- the fact that the special committee retained and received advice from its
own legal counsel and financial advisor in evaluating, negotiating and
recommending the terms of the merger agreement;
- the fact that the merger must be approved by a majority of the
unaffiliated stockholders voting on the merger agreement, unless
otherwise waived by the special committee; and
- the special committee's extensive negotiations and deliberations in
evaluating the merger and the merger consideration.
The special committee, as noted above, is composed solely of independent
directors. The special committee members were informed by the special
committee's counsel of their fiduciary duties to both the Company and the
unaffiliated stockholders, and took action to retain independent legal and
financial advice in connection with their consideration of the fairness of the
merger. The special committee also adopted guidelines that it used to govern the
process by which the special committee reviewed and considered the Barcelo
proposal and the proposal submitted to the special committee by Acquisition.
These guidelines were designed to help ensure a level playing field and that any
transaction that occurred would be at a fair price for the Company's
unaffiliated stockholders and would be the result of a fair process. The special
committee determined that its members would be able to fulfill their fiduciary
duties to the unaffiliated stockholders by virtue of their careful consideration
of the terms of the transaction. To date, the special committee has met 34
times.
The special committee also considered that the merger requires the approval
of a majority of the unaffiliated stockholders voting on the merger (unless
waived by the special committee) to provide further protection to the
unaffiliated stockholders. The special committee noted that this approval by a
majority of the unaffiliated stockholders voting on the merger was not required
under the DGCL or by the relevant case law under the DGCL. However, the special
committee felt strongly that this additional procedural safeguard should be
employed and this voting requirement was a condition for which the special
committee negotiated vigorously. Notwithstanding that, the special committee did
determine in the course of negotiations with Acquisition over this provision
that it was a reasonable compromise to Acquisition's reluctance to include this
voting condition that only the votes of those unaffiliated stockholders who
participated, either in person or by proxy at the special meeting of the
Company's stockholders called to consider adoption of the merger agreement, be
considered, and that this compromise did not vitiate this additional procedural
safeguard that the special committee had chosen to employ to protect the
interests of the unaffiliated stockholders since any unaffiliated stockholders
who object to the terms of the transaction will have been afforded the
opportunity to express their objection to the merger.
22
REASONS FOR THE BOARD'S RECOMMENDATION; MATERIAL FACTORS CONSIDERED; PROCEDURAL
SAFEGUARDS EMPLOYED
Our board of directors consists of eight directors, three of whom served on
the special committee. Mr. Hammons recused himself from the June 14, 2005
meeting of the board of directors and thus did not participate in the board's
deliberations or vote on the merger agreement. In reporting to our board of
directors regarding its determination and recommendation, the special committee
advised the other members of our board of directors of the process the special
committee undertook and the guidelines that it followed in the course of
reaching its determination to approve the merger agreement and the transactions
involving the JQH Stockholders.
Prior to the events described above as leading up to the merger agreement,
Mr. Hammons had not indicated a desire or willingness to sell his interests in
the Company. Until Mr. Hammons began preliminary discussions with potential
acquirors about a possible transaction, our board of directors had not been
contacted regarding a possible sale of the Company, and did not believe a
transaction for the unaffiliated stockholders at a fair price was feasible
without Mr. Hammons' involvement and approval.
At its June 14, 2005 meeting, the board of directors considered all of the
material factors that the special committee considered, as discussed above. In
view of the wide variety of factors considered in connection with our board's
evaluation and approval of the merger agreement and the complexity of those
matters, the board of directors did not find it useful or practical to, and did
not, quantify or otherwise assign relative or specific weights to the specific
factors considered in reaching its determination. In addition, individual
members of the board of directors may have assigned different weights to
different factors. The board of directors determined, however, that overall, the
positive consequences of the merger to us and the unaffiliated stockholders
outweighed the negative factors and risks of the merger.
The members of our board of directors, other than Mr. Hammons who had
recused himself, based upon the determination and recommendation of the special
committee, unanimously determined that the terms of the merger agreement and the
merger are advisable and in the best interests of the unaffiliated stockholders
and that the merger agreement and the merger are substantively and procedurally
fair to the unaffiliated stockholders. The board of directors determined that
the appointment of the special committee of independent directors to act on
behalf of the unaffiliated stockholders, the process engaged in by the special
committee, and the other procedural safeguards described above assured the
unaffiliated stockholders that the proposed transaction was at a fair price for
the Company's stock owned by the unaffiliated stockholders and was the result of
a fair process.
In considering the procedural fairness to the unaffiliated stockholders,
the board of directors noted that the merger agreement went beyond the
stockholder vote requirement under Delaware law (i.e., the vote of a majority of
the outstanding shares entitled to vote) to require the approval of a majority
of the unaffiliated stockholders voting on the merger agreement (unless waived
by the special committee after determining that such waiver is in the best
interests of the unaffiliated stockholders). In this regard, the board of
directors considered that the special committee of independent directors, acting
on a fully-informed basis with the assistance of independent financial and legal
advisors, had served as a procedural safeguard that had resulted in a fair
process. However, the board of directors also determined that the additional
requirement of approval of the merger by a majority of the unaffiliated
stockholders voting at the special meeting, as recommended by the special
committee, would provide an additional level of integrity to the process. The
board of directors, acting on the recommendation of the special committee,
concluded that this requirement was preferable to a requirement for approval by
a majority of the unaffiliated stockholders (whether or not voting), since the
latter structure would effectively treat the failure to vote as a vote against
the transaction. At the same time, the board of directors recognized that
unforeseen circumstances might arise that could threaten or adversely affect the
completion of the merger. In such unforeseen circumstances, the board of
directors felt it would be appropriate to preserve for the special committee the
ability, as fiduciaries on behalf of the unaffiliated stockholders, to respond
to such circumstances by waiving the requirement of approval of a majority of
the unaffiliated stockholders voting at the special meeting if the special
committee, in the exercise of its fiduciary obligations, believed that doing so
would be in the best interests of the unaffiliated stockholders. The board of
23
directors concluded that, since any such waiver of this additional voting
requirement would not occur unless the special committee determined that the
waiver was in the best interests of the unaffiliated stockholders, it would not
alter the procedural fairness of the merger to the unaffiliated stockholders.
The board of directors recommends that you vote FOR the adoption of the
merger agreement. Except to the extent a recommendation is made in a person's
capacity as a director, none of our executive officers has made any
recommendation with respect to the merger or any other transaction contemplated
by the merger agreement.
POSITION OF EILIAN, ACQUISITION AND MERGER SUB
In this transaction, the merger agreement resulted from a vigorous arms'
length negotiation between Eilian, Acquisition, Merger Sub and their counsel on
one side, and the special committee and its counsel on the other side.
Nevertheless, under a potential interpretation of the rules governing "going
private" transactions, Eilian, Acquisition and Merger Sub may be deemed
affiliates of the Company and required to express their beliefs as to the
fairness of the merger to our unaffiliated stockholders. Each of Eilian,
Acquisition and Merger Sub is making the statements included in this sub-section
solely for the purposes of complying with the requirements of Rule 13e-3 and
related rules under the Exchange Act. Eilian, personally, and on behalf of each
of Acquisition and Merger Sub, believes that the merger is substantively and
procedurally fair to unaffiliated stockholders on the basis of the factors
described below.
Eilian, Acquisition and Merger Sub did not participate in the deliberations
of the board of directors regarding, or receive advice from the special
committee's legal or financial advisors as to, the fairness of the merger to
unaffiliated stockholders. Eilian did not undertake a formal evaluation of the
fairness of the merger or engage a financial advisor for such purposes. However,
Eilian personally and on behalf of Acquisition and Merger Sub has adopted the
analyses and conclusions of the Company's board of directors and its special
committee based upon the reasonableness of those analyses and conclusions and
Acquisition's and Merger Sub's knowledge and analysis of available information
regarding the Company as well as discussions with members of senior management
regarding our business, as well as the factors considered by, and the findings
of, the Company's board of directors and special committee with respect to the
fairness of the merger to our unaffiliated stockholders (see "Reasons for the
Special Committee's Recommendation; Material Factors Considered; Procedural
Safeguards Employed" and "Reasons for the Board's Recommendation; Material
Factors Considered; Procedural Safeguards Employed"). In considering the
procedural fairness to the unaffiliated stockholders, Mr. Eilian, personally and
on behalf of Acquisition and Merger Sub, noted, among the other factors
considered by, and the findings of, the Company's board of directors and special
committee, the procedural safeguards set forth in the merger agreement
including, without limitation, the requirement of approval of the merger by a
majority of the unaffiliated stockholders voting at the special meeting and the
ability of the special committee to waive such requirement if the special
committee believes that doing so would be in the best interests of the
unaffiliated stockholders.
Based on the foregoing, Eilian, Acquisition and Merger Sub believe that the
merger is substantively and procedurally fair to unaffiliated stockholders.
The foregoing discussion of the information and factors considered and
given weight by Eilian, Acquisition and Merger Sub in connection with the
fairness of the merger agreement and the merger is not intended to be
exhaustive, but is believed to include all material factors considered by
Eilian. Eilian did not find it practicable to, and did not, quantify or
otherwise attach relative weights to the foregoing factors in reaching a
position as to the fairness of the merger agreement and the merger. Eilian,
Acquisition and Merger Sub believe that these factors provide a reasonable basis
for their belief that the merger is substantively and procedurally fair to
unaffiliated stockholders. This belief should not, however, be construed as a
recommendation to any stockholder to vote to adopt the merger agreement.
Acquisition and Merger Sub do not make any recommendation as to how unaffiliated
stockholders should vote their shares relating to the merger or any related
transaction.
24
POSITION OF THE JQH STOCKHOLDERS AS TO THE FAIRNESS OF THE MERGER
The structure of the merger and related transactions provides the JQH
Stockholders with the liquidity necessary to enable Mr. Hammons to continue to
develop, acquire, and manage hospitality properties while retaining an interest
in the Partnership, and to free him of the burden of managing a publicly held
company. Completing the merger and related transactions at this time will allow
the JQH Stockholders to continue pursuing a number of development opportunities
that they otherwise would not have been able to pursue. The Company's board of
directors did not believe acquisition, development or management of additional
hospitality properties was in the best interest of the unaffiliated stockholders
because of the length of time involved in recouping the associated expenses. In
addition to negotiating a potential transaction with Barcelo, as discussed under
"Special Factors -- Background of the Merger," the JQH Stockholders also briefly
considered selling their interests in the Company and the Partnership in order
to achieve this objective, however such a transaction was determined to be
significantly less attractive. Following completion of the merger and related
transactions, the JQH Stockholders will no longer have an interest in the
Company, although Mr. Hammons will continue to participate in the Partnership
through his preferred interest. The ultimate structure resulting from the merger
and related transactions among the JQH Stockholders and Acquisition and its
affiliates will result in a significant change to Mr. Hammons' relationship with
the Partnership. While the tax impact to Mr. Hammons did not affect the timing
of the proposed merger transaction, the merger and related transactions were
structured to reduce the JQH Stockholders' ongoing risk in the operations of the
Partnership and to provide the JQH Stockholders with liquidity, without
triggering current recognition of taxable income. Payments to the JQH
Stockholders for the sale of their Class A Common Stock will be taxable as
long-term capital gain in an amount equal to the difference between the cash
received and the relevant tax basis. Any tax benefits the JQH Stockholders
derive from the ancillary agreements entered into with Acquisition and Merger
Sub and their affiliates are insignificant.
Under the rules governing going private transactions, the JQH Stockholders
are required to express their beliefs as to the substantive and procedural
fairness of the merger to unaffiliated stockholders. The JQH Stockholders are
making the statements included in this sub-section solely for the purposes of
complying with the requirements of Rule 13e-3 and related rules under the
Exchange Act. Mr. Hammons has made the determination discussed below on behalf
of the JQH Stockholders and believes that the merger is substantively and
procedurally fair to the unaffiliated stockholders on the basis of the factors
described below. Mr. Hammons formed and controls the JQH Trust. The sole
stockholder of Hammons, Inc. is the JQH Trust. The JQH Trust and Hammons, Inc.
own all of the limited partnership interests in the Partnership.
The JQH Stockholders have not performed, or engaged a financial advisor to
perform, any valuation or other analysis for the purposes of assessing the
fairness of the merger to the unaffiliated stockholders; however, the JQH
Stockholders believe the merger is substantively fair to the unaffiliated
stockholders. Mr. Hammons' fairness determination on behalf of the JQH
Stockholders was based upon the following factors: (1) the historical market
prices of the Class A Common Stock; (2) the going concern value of the Company;
(3) his working knowledge of hospitality property development costs and sales
prices; and (4) the prior negotiations with Barcelo. Mr. Hammons did not find it
practicable to, and did not, quantify or otherwise attach relative weights to
the foregoing factors in reaching a position as to the fairness of the merger
agreement and the merger.
Mr. Hammons is familiar with, and knowledgeable of, the historical market
prices of the Class A Common Stock, and therefore, believes that the cash merger
consideration of $24 per share is fair, from a financial point of view, to the
unaffiliated stockholders. Mr. Hammons also relied upon the going concern value
of the Company based upon his view of the profitability of the Company's ongoing
operations, and, although he did not determine a specific going concern value,
believes that the going concern value, on a per share basis for all shares of
the Company's outstanding common stock, is less than the per share consideration
to be received by the unaffiliated stockholders. Additionally, Mr. Hammons'
working knowledge of the hospitality property development costs and sales
prices, as well as his prior negotiations with Barcelo, as discussed in "Special
Factors -- Background of the Merger," factored into his determination as to the
fairness of the merger consideration to unaffiliated stockholders.
25
Mr. Hammons did not consider certain factors in his analysis and in the
rendering of his opinion. In particular, given the nature of the sizeable
depreciation charges associated with the Company's hotel properties, Mr. Hammons
did not consider the net book value of the Company. Mr. Hammons did not perform
a liquidation analysis to determine the value of the Company because of his
belief that liquidation value did not present a meaningful valuation for the
Company and its business; rather, it was the belief of Mr. Hammons that the
Company's value is derived from the cash flows generated from its continuing
operations, rather than from the value of its assets that might be realized in a
liquidation. In addition, due to recent publicity surrounding the merger
discussions and changes in stock price, Mr. Hammons did not consider the current
market prices. Further, as none of the JQH Stockholders had transactions in
shares of Class A Common Stock during the past two years, Mr. Hammons did not
consider this factor in his determination of the fairness of the proposed merger
consideration.
The JQH Stockholders believe that the merger is procedurally fair in that
the special committee acted solely on behalf of the unaffiliated stockholders
for purposes of negotiating the terms of the merger agreement on an arms' length
basis. In this regard, the JQH Stockholders note that the use of a special
committee of independent directors, with independent advisors, is a mechanism
recognized to facilitate the fairness of transactions of this type. The JQH
Stockholders also note that Mr. Hammons did not participate in the deliberations
or vote on the merger and that all of the other Company directors voted in favor
of the merger agreement.
The JQH Stockholders concluded that a requirement of a vote of the majority
of the unaffiliated stockholders voting on the merger was preferable to
requiring the vote of a majority of the shares held by all unaffiliated
stockholders because the second alternative would effectively have treated a
failure to vote as a vote against the merger. The JQH Stockholders recognize the
special committee's ability to waive the requirement of approval of a majority
of the unaffiliated stockholders if the special committee, in the exercise of
its fiduciary obligations, believes that doing so would be in the best interests
of the unaffiliated stockholders. The JQH Stockholders concluded that, since any
such waiver of this additional voting requirement would not occur unless the
special committee determined that the waiver was in the best interests of the
unaffiliated stockholders, it would not alter the procedural fairness of the
merger to the unaffiliated stockholders.
The JQH Stockholders believe that these factors provide a reasonable basis
for their belief that the merger is substantively and procedurally fair to the
unaffiliated stockholders. This belief should not, however, be construed as a
recommendation to any stockholder to vote to adopt the merger agreement.
OPINIONS OF LEHMAN BROTHERS
Pursuant to an engagement letter, dated October 26, 2004, the special
committee retained Lehman Brothers to act as its financial advisor in connection
with the merger. As part of this engagement letter, Lehman Brothers delivered
opinions to the special committee dated June 14, 2005 that, as of the date of
the opinions, the $24.00 per share cash merger consideration was fair, from a
financial point of view, to the unaffiliated stockholders and the allocation of
consideration between the unaffiliated stockholders, on the one hand, and the
JQH Stockholders, on the other hand, was reasonable from the point of view of
the unaffiliated stockholders. The following describes the background of the
special committee's engagement of Lehman Brothers and the opinions provided by
Lehman Brothers.
On October 26, 2004, the special committee retained the investment banking
firm of Lehman Brothers to provide financial advisory services in relation to
the special committee's review, evaluation and negotiation of a merger
transaction proposed by Barcelo. Lehman Brothers was selected after the special
committee had reviewed presentations and proposals made by several investment
banking candidates. In reaching its decision, the special committee considered
the merits of the various firms, the potential impact of prior relationships
with the Company, the proposed fees, and the firms' relative experience in the
lodging industry.
Several of the candidates, including Lehman Brothers, had prior
relationships with the Company. Lehman Brothers previously served as the
underwriter for our outstanding Series A and Series B first mortgage notes,
issued in connection with our 2002 bond offering. The special committee examined
Lehman Brothers' involvement in the 2002 bond offering and concluded that it
would not impair Lehman Brothers'
26
ability to act in an independent manner on behalf of the special committee. In
fact, the special committee concluded that we and the unaffiliated stockholders
would likely benefit from Lehman Brothers' familiarity with the Company. Lehman
Brothers and its affiliates have had no material relationship now or in the past
two years with the Company or any of its affiliates, and no such relationship is
contemplated. After initial considerations, the special committee narrowed the
candidates to Lehman Brothers and Smith Barney.
In further weighing these two financial advisor candidates, the special
committee considered the fact that, historically, Lehman Brothers had a very
positive business relationship with Company. The special committee agreed that
the historical treatment of the Company was not the primary issue upon which an
evaluation of the firm should be made, but determined that, with two
well-qualified firms to choose from, it was important to select a firm which
they were confident would be an advocate for our unaffiliated stockholders. The
special committee concluded that retaining a well-qualified firm that had
demonstrated a positive attitude toward the Company in the past would be
welcomed by our unaffiliated stockholders.
On June 14, 2005, as part of its role as financial advisor to the special
committee, Lehman Brothers rendered its oral fairness and reasonableness
opinions (subsequently confirmed in writing) to the special committee that as of
such date and, based upon and subject to certain matters stated therein, from a
financial point of view, (i) the cash consideration to be received by the
holders of the Class A Common Stock (other than the JQH Stockholders and their
affiliates) pursuant to the merger agreement is fair to such unaffiliated
stockholders, and (ii) the allocation of the consideration offered by
Acquisition in the proposed transaction between the JQH Stockholders, on the one
hand, and the unaffiliated stockholders, on the other hand, is reasonable from
the point of view of the unaffiliated stockholders.
THE FULL TEXT OF LEHMAN BROTHERS' WRITTEN FAIRNESS AND REASONABLENESS
OPINIONS, DATED JUNE 14, 2005, ARE ATTACHED AS APPENDICES B-1 AND B-2 TO THIS
PROXY STATEMENT. YOU SHOULD READ THE LEHMAN BROTHERS OPINIONS FOR A DISCUSSION
OF THE ASSUMPTIONS MADE, PROCEDURES FOLLOWED, FACTORS CONSIDERED AND LIMITATIONS
UPON THE REVIEW UNDERTAKEN BY LEHMAN BROTHERS IN RENDERING ITS OPINIONS.
Lehman Brothers' opinions were provided to the special committee in
connection with its evaluation of the proposed transactions and do not
constitute a recommendation to any stockholder as to how such stockholder should
vote or act with respect to any matters relating to the proposed transactions.
Lehman Brothers has consented to the inclusion of and references to its opinions
in this proxy statement.
The special committee imposed no limitations on the scope of Lehman
Brothers' investigation or the procedures to be followed by Lehman Brothers in
rendering its opinions, except that the special committee did not authorize
Lehman Brothers to solicit, and Lehman Brothers did not solicit, proposals from
third parties with respect to the purchase of the Company's business or Class A
Common Stock. The form and amount of the total consideration to be received by
the unaffiliated stockholders and the JQH Stockholders were determined through
negotiations among Acquisition, the special committee and the JQH Stockholders.
In arriving at its opinions, Lehman Brothers did not ascribe a single specific
range of value to the Company or to the assets and other interests of the JQH
Stockholders and their affiliates to be purchased by Acquisition under the
various related agreements, but rather made its determination as to the
fairness, from a financial point of view, of the consideration to be received by
the unaffiliated stockholders and as to the reasonableness of the allocation of
the total consideration, from a financial point of view and from the point of
view of the unaffiliated stockholders, as between the unaffiliated stockholders
and the JQH Stockholders and their affiliates on the basis of the multiple
financial and comparative analyses described below. Lehman Brothers' advisory
services and opinions were provided for the information and assistance of the
special committee in connection with its consideration of the merger. The Lehman
Brothers opinions are not intended to be and do not constitute a recommendation
to any holder as to whether such holder should vote for or against the merger.
Lehman Brothers was not requested to opine as to, and the Lehman Brothers
opinions do not address, the Company's underlying business decision to proceed
with or effect the merger.
In arriving at its fairness and reasonableness opinions, Lehman Brothers
reviewed and analyzed:
- the merger agreement and the transaction agreement and the principal
proposed terms of the proposed transactions as set forth therein and in
annexes and exhibits thereto;
27
- publicly available information concerning the Company and the JQH
Stockholders and their affiliates, including the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 2004, and the
Company's Quarterly Report on Form 10-Q for the quarter ended April 1,
2005;
- the Second Amended and Restated Agreement of Limited Partnership of John
Q. Hammons Hotels, L.P.;
- financial and operating information with respect to the business,
operations and prospects of the Company furnished by the Company,
including, without limitation, the projections described in "Discounted
Cash Flow Analysis" below, prepared by management of the Company,
including all material assumptions underlying the projections;
- the trading history of the Company's Class A Common Stock from the date
of the Company's initial public offering on November 16, 1994 to the date
of Lehman Brothers' opinions and a comparison of that trading history
with those of other companies that Lehman Brothers deemed relevant;
- a comparison of the historical financial results and present financial
condition of the Company with those of other companies that Lehman
Brothers deemed relevant;
- a comparison of the financial terms of the proposed transaction with the
financial terms of certain other transactions that Lehman Brothers deemed
relevant;
- the results of the efforts by the JQH Stockholders and their affiliates,
with the assistance of certain third party financial advisors, to solicit
indications of interest from interested parties with respect to a sale
of, or business combination with, the Company; and
- the financial terms of an alternative proposal received from another
potential buyer with respect to an acquisition of the Company.
In arriving at its reasonableness opinion, Lehman Brothers also considered:
- a comparison of the financial terms of the lines of credit to be provided
to Mr. Hammons by Acquisition with the financial terms of certain other
lines of credit we deemed relevant; and
- the actuarial assumptions regarding male death probability that underlie
the Social Security Administration's Period Life Table, updated November
19, 2004, as it pertained to Mr. Hammons.
In addition, Lehman Brothers had discussions with the management of the
Company concerning the businesses, operations, assets, financial conditions and
prospects of the Company and have undertaken such other studies, analyses and
investigations as Lehman Brothers deemed appropriate.
In arriving at its fairness and reasonableness opinions, Lehman Brothers
assumed and relied upon the accuracy and completeness of the financial and other
information used by Lehman Brothers without assuming any responsibility for
independent verification of such information and 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, upon advice of the Company,
Lehman Brothers 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
and that the Company will perform substantially in accordance with such
projections. In arriving at its fairness and reasonableness opinions, Lehman
Brothers did not conduct a physical inspection of the properties and facilities
of the Company and did not make or obtain any evaluations or appraisals of the
assets or liabilities of the Company. The Lehman Brothers opinions were
necessarily based upon market, economic and other conditions as they existed on,
and could be evaluated as of, the date of such opinions.
In connection with the preparation and delivery of its fairness and
reasonableness opinions, Lehman Brothers performed certain financial,
comparative and other analyses as described below. The preparation of a fairness
or reasonableness 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
28
circumstances, and therefore, such opinions are not readily susceptible to
summary description. Furthermore, in arriving at its fairness and reasonableness
opinions, Lehman Brothers did not attribute any particular weight to any
analysis or 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, without considering all
analyses and factors as a whole, could create a misleading or incomplete view of
the process underlying its opinions.
In arriving at its fairness and reasonableness opinions, Lehman Brothers
considered the fairness from a financial point of view of the consideration that
the unaffiliated stockholders are to receive in the merger. Lehman Brothers also
performed various financial analyses, described more fully below, to arrive at a
range of values for the interest of the JQH Stockholders and their affiliates in
the Company and compared those values to the consideration to be received by the
JQH Stockholders and their affiliates under the merger agreement and the
transaction agreement and related agreements. Lehman Brothers compared the
allocation of total consideration to be paid by Acquisition under the merger
agreement and the related transaction agreements as between the unaffiliated
stockholders, on the one hand, and the JQH Stockholders and their affiliates, on
the other hand, with the allocation of total consideration in certain other
transactions that Lehman Brothers believe are comparable. On the basis of the
foregoing analyses and other factors, Lehman Brothers concluded that the
allocation of the total consideration to be paid by Acquisition in the merger
and the related transactions as between the JQH Stockholders and their
affiliates, on the one hand, and the unaffiliated stockholders, on the other
hand, is reasonable, from a financial standpoint and from the point of view of
the unaffiliated stockholders, to the unaffiliated stockholders.
In its analyses, Lehman Brothers 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. Neither the
Company, Lehman Brothers nor any other person assumes responsibility if future
results are materially different from those discussed. Any estimates contained
in these analyses were 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 the
Company's assets do not purport to be appraisals or to reflect the prices at
which the Company's assets actually may be sold.
The following is a summary of the material financial analyses used by
Lehman Brothers in connection with providing its fairness and reasonableness
opinions to the special committee. Certain of the summaries of financial
analyses include information presented in tabular format. In order to fully
understand the financial analyses used by Lehman Brothers, the tables must be
read together with the text of each summary. The tables alone do not constitute
a complete description of the financial analyses. Rather, the analyses listed in
the tables and described below must be considered as a whole. Considering any
portion of such analyses and of the factors considered, without considering all
analyses and factors, could create a misleading or incomplete view of the
process underlying the Lehman Brothers' fairness and reasonableness opinions.
ANALYSES USED TO DERIVE THE VALUATION RANGES OF THE COMPANY'S CLASS A COMMON
STOCK
In determining the ranges of value of the Company's Class A Common Stock
held by unaffiliated stockholders, Lehman Brothers used methodologies assuming
the Company would (1) continue to operate as a "going concern", or (2) be sold
as a result of a conventional marketing process, under non-hostile
circumstances. Going concern valuation methodologies included comparable company
analysis and discounted cash flow analysis. The sale valuation methodologies
utilized a comparable transaction analysis, leveraged buyout analysis, and
premiums paid analyses. Each of these methodologies was used to generate a
reference equity value range on a per share basis. In such analyses where an
aggregate dollar figure was calculated, the equity value range (in aggregate
dollars) was divided by the number of fully diluted shares of the Company that
are outstanding to derive an equity value per share range. The number of
outstanding fully diluted shares was calculated on the basis of outstanding
shares of Class A Common Stock and the dilutive effect of (i) outstanding
options to purchase Class A Common Stock and (ii) full conversion of all the
Class B Common Stock of the JQH Stockholders and their affiliates to Class A
Common Stock and full redemption of all the limited partnership units of the JQH
Stockholders and their affiliates in the Partnership for Class A
29
Common Stock. All of the equity value per share ranges were derived using the
various valuation methodologies described above support Lehman Brothers'
fairness opinion.
The various valuation methodologies noted above and the implied equity
value per share ranges derived from these methodologies are included in the
following table. This table should be read together with the more detailed
descriptions set forth below. In particular, in applying the various valuation
methodologies to the particular businesses, operations and prospects of the
Company, and the particular circumstances of the merger, Lehman Brothers made
qualitative judgments as to the significance and relevance of each analysis. In
addition, Lehman Brothers 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. Accordingly, the methodologies and
the implied equity value per share ranges derived from these methodologies set
forth in the table must be considered as a whole and in the context of the
narrative description of the financial analyses, including the assumptions
underlying these analyses. Considering the implied equity value per share ranges
set forth in the table without considering the full narrative description of the
financial analyses, including the assumptions underlying these analyses, could
create a misleading or incomplete view of the process underlying, and
conclusions represented by, Lehman Brothers' fairness and reasonableness
opinions.
<Table>
<Caption>
IMPLIED EQUITY
VALUATION METHODOLOGY VALUE RANGE (1)
- --------------------- ---------------
Comparable Company Analysis................................. $20.28 - $25.69
Comparable Transaction Analysis............................. $22.75 - $27.86
Discounted Cash Flow Analysis............................... $20.00 - $24.00
Leveraged Buyout Analysis................................... $16.00 - $20.00
Premiums Paid............................................... $14.31 - $15.13
Premiums Paid--Cash Minority Squeeze-Out Transactions....... $14.17 - $15.92
</Table>
- ---------------
(1) Per share of Class A Common Stock.
Lehman Brothers did not attempt to combine these six analyses into one
composite valuation range, nor did Lehman Brothers assign any particular
absolute or relative quantitative weight to any of the analyses or other factors
considered. To the contrary, Lehman Brothers arrived at its opinion by
considering these analyses and such other factors as a whole and making
qualitative judgments as to the significance and relevance of the various
analyses and factors in light of one another. Lehman Brothers believes that its
analyses must be considered as a whole and that considering any single analysis,
without considering all analyses, could create a misleading or incomplete view
of the process underlying, and conclusions represented by, Lehman Brothers'
fairness opinion.
Each of Lehman Brothers' analyses is described in more detail below.
COMPARABLE COMPANY ANALYSIS
In order to assess how the public market values shares of similar publicly
traded companies, Lehman Brothers reviewed and compared specific financial and
operating data relating to the Company with selected companies that Lehman
Brothers deemed generally comparable to the Company. Lehman Brothers considered
a number of criteria in selecting a universe of public lodging companies which
it deemed to be generally comparable to the Company. Lehman Brothers' primary
selection criteria used to select comparable companies included business model
(owners of third party branded hotels), company size (enterprise values between
approximately $500 million and $3.0 billion), asset type (owners of
predominantly upscale, upper upscale and midscale full service hotels with
revenue per available room levels comparable to the Company), asset geography
(strong presence in secondary markets and smaller cities with lower
concentrations in major urban or resort markets) and availability of public
financial information with sufficient detail to accurately evaluate and compare
financial performance and public market valuations. Lehman Brothers did not
exclude any public lodging companies which it deemed met a majority of the
criteria outlined above from its
30
comparable public company analysis. These companies comprised a universe of six
lodging companies (the "Lodging Peer Group").
No company used in this analysis is directly comparable to the Company in
terms of a number of important factors such as asset location, asset type,
business model, size, corporate structure, dividend yield or tax situation. The
Lodging Peer Group consists of:
- FelCor Lodging Trust, Inc.
- MeriStar Hospitality Corp.
- Sunstone Hotel Investors, Inc.
- Equity Inns, Inc.
- Lodgian, Inc.
- Winston Hotels, Inc.
Using publicly available information, Lehman Brothers calculated and
analyzed the ratio of each company's enterprise value to EBITDA. The enterprise
value of each company was obtained by adding its short- and long-term debt to
the sum of the market value of its common equity, the value of any preferred
equity (at liquidation value), the book value of any minority interest, and
subtracting its cash and cash equivalents. As of June 10, 2005, the Lodging Peer
Group range of the ratio of enterprise value to projected 2005 EBITDA was 10.4x
to 11.9x.
Using publicly available information, Lehman Brothers calculated and
analyzed the most recent quarterly RevPAR growth rate for the Lodging Peer Group
and the Company. As of June 10, 2005, the Lodging Peer Group range of most
recent RevPAR growth rates was 4.3% to 11.1%, compared to 2.3% for the Company.
In addition, the projected 2005 EBITDA margins of the Lodging Peer Group remain
significantly below historical levels, with variances ranging from 3.1% to 5.6%
(as compared with actual 2000 EBITDA margins). However, the Company's projected
2005 EBITDA margin is only 0.9% lower than its actual 2000 EBITDA margin.
Based upon the Company's recent RevPAR growth and less potential for margin
improvement, Lehman Brothers believes the appropriate valuation multiple for the
Company is lower than the public valuation multiples for the Lodging Peer Group.
The comparable company valuation methodology yielded an implied equity value
range for the Company's Class A Common Stock of $20.28 to $25.69, based upon a
multiple range of 9.0x and 10.0x projected 2005 EBITDA. Lehman Brothers noted
that the $24.00 per share offered in the merger falls within this range.
However, because of the inherent differences between the business,
operations, financial conditions and prospects of the Company and the business,
operations, financial conditions and prospects of the Lodging Peer Group, Lehman
Brothers believed that it was inappropriate to, and therefore did not, rely
solely on the quantitative results of the comparable company analysis and
accordingly also made qualitative judgments concerning differences between the
financial and operating characteristics and prospects of the Company and the
Lodging Peer Group that would affect the public trading values of each.
COMPARABLE TRANSACTION ANALYSIS
Lehman Brothers conducted a comparable transaction analysis to assess how
other transactions were valued within the lodging sector. Lehman Brothers
reviewed certain publicly available information related to these transactions to
calculate the mean and median multiples of the last twelve months' ("LTM")
EBITDA. Lehman Brothers considered a number of criteria in selecting
transactions involving companies in the lodging industry which Lehman Brothers
deemed generally comparable to the Company and the merger. Lehman Brothers'
primary selection criteria used to select comparable transactions included
business model (companies with significant owned real estate and lower
contributions from franchise or management operations), company size (enterprise
values between approximately $200 million and $3.0 billion), asset geography
(strong presence in secondary markets and smaller cities with lower
concentrations in major urban or resort
31
markets) and availability of public financial information with sufficient detail
to accurately evaluate and compare financial performance and transaction
valuations. Lehman Brothers did not exclude any transactions which it deemed met
a majority of the criteria outlined above from its comparable transaction
analysis. Lehman Brothers selected and analyzed the following nine transactions
(the "Comparable Transactions") within the lodging sector which were announced
from April 1999 to March 2005:
<Table>
<Caption>
ACQUIRER TARGET
- -------- ------
Ashford Hospitality Trust, Inc. ......... Portfolio of 21 Hotels from affiliates of
the Fisher Brothers, the Gordon Getty
Trust and George Soros
The Blackstone Group..................... Prime Hospitality Corp.
La Quinta Corporation.................... Limited Service Lodging Division of the
Marcus Corporation
The Blackstone Group..................... Extended Stay America, Inc.
CNL Hospitality Properties, Inc. ........ RFS Hotel Investors, Inc.
InTown Suites Management, Inc. .......... Suburban Lodges of America, Inc.
The Blackstone Group..................... Homestead Village, Inc.
Accor S.A. .............................. Red Roof Inns, Inc.
SHP Acquisition, LLC..................... Sunstone Hotel Investors Inc.
</Table>
The LTM EBITDA multiples for the Comparable Transactions ranged from 8.3x
to 13.8x, with a mean of 10.6x and a median of 10.4x. Based on these comparable
transactions, Lehman Brothers selected a range of LTM EBITDA multiples of 10.0x
and 11.0x, implying an equity value per share range for the Company's Class A
Common Stock of $22.75 to $27.86. Lehman Brothers noted that the $24.00 per
share offered in the merger falls within this range.
However, because the market conditions, rationale and circumstances
surrounding each of the transactions analyzed were specific to each transaction
and because of the inherent differences between the businesses, operations,
financial condition and prospects of the Company, on the one hand, and the
business, operations, financial condition and prospects of the companies
included in the Comparable Transactions on the other hand, Lehman Brothers
believed that 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 characteristics of these
transactions and the merger that would affect the acquisition values of the
Company and such acquired companies.
DISCOUNTED CASH FLOW ANALYSIS
As part of its analysis, Lehman Brothers prepared a discounted cash flow
model utilizing financial operating projections prepared by the management of
the Company. In its discounted cash flow analysis, Lehman Brothers utilized a
weighted average cost of capital range of 8.5% to 9.5% and a terminal valuation
range of 8.5x to 9.5x 2010 EBITDA. Lehman Brothers based its weighted average
cost of capital estimates on a calculation of the Company's cost of equity
capital calculated utilizing the capital asset pricing model, estimates for the
current market rate for the Company's debt and a target capital structure with
between 60% to 80% debt to capital ratio. Lehman Brothers estimated a range of
terminal value multiples based on the historical EBITDA trading multiple range
of the Company. These selected terminal value multiples implied perpetuity
growth rates ranging from 1.8% to 3.5%.
32
The financial operating projections based on the Company management's best
estimates as of June 9, 2005, reflected these assumptions:
- net sales of $456.8 million for 2005, which included 2.3% RevPAR growth,
an average daily rate of $103.95 and occupancy rate of 66.5%;
- increases in RevPAR to $72.26, $75.20, $78.04, $80.50, and $83.02 in
2006, 2007, 2008, 2009, and 2010, respectively;
- increases in average daily rate to $106.96, $109.85, $112.71, $115.34,
and $118.05 in 2006, 2007, 2008 2009, and 2010, respectively;
- increases in occupancy to 67.6%, 68.5%, 69.2%, 69.8%, and 70.3% in 2006,
2007, 2008, 2009, and 2010, respectively;
- increases in net sales of 6.0%, 4.0%, 3.6%, 3.5%, 3.1%, and 3.1% in 2005,
2006, 2007, 2008 2009, and 2010, respectively;
- target EBITDA margins of 27.6%, 27.8%, 28.1%, 28.4%, 28.7%, and 28.9% in
2005, 2006, 2007, 2008, 2009 and 2010, respectively;
- an operational tax rate of approximately 34 percent each year; and
- capital expenditures of $43.5, $30.0, $30.9, $31.8, $32.8 and $33.8
million in 2005, 2006, 2007, 2008, 2009 and 2010, respectively.
The discounted cash flow valuation methodology yielded implied equity value
ranges for the Company's Class A Common Stock of $20.00 to $24.00. Lehman
Brothers noted that the $24.00 per share offered in the merger falls within this
range.
LEVERAGED BUYOUT ANALYSIS
Lehman Brothers performed a second discounted cash flow analysis for the
Company assuming a purchase of the Company by a private buyer in a leveraged
buyout. Lehman Brothers utilized the financial projections provided by the
management of the Company in performing its leveraged buyout analysis. Lehman
Brothers calculated cash flows through 2009, defined as EBITDA less capital
expenditures. Then, to arrive at cash flows to equity, Lehman Brothers
subtracted from unlevered free cash flows an interest expense calculated
assuming the cost of new debt at 6.5%. Transaction costs of $62.9 million were
also assumed, which includes an estimated cost to tender for the Company's
public bonds.
In conducting this analysis, Lehman Brothers assumed terminal EBITDA
multiples of 8.5x, 9.0x and 9.5x and assumed that acquisition financing could be
obtained in the high yield market and bank finance markets in an amount not in
excess of 7.0x estimated LTM EBITDA. Lehman Brothers assumed that a minimum
internal rate of return ranging from the high teens to mid twenties on equity
invested during a five-year period would be required by a financial acquirer.
The leveraged buyout valuation methodology yielded an implied equity value
per share range for the Company's Class A Common Stock of $16.00 to $20.00.
Lehman Brothers noted that the $24.00 per share offered in the merger falls
above this range.
PREMIUMS PAID ANALYSIS
Lehman Brothers conducted a comparable transactions analysis to assess how
similar transactions were valued. Lehman Brothers reviewed certain publicly
available information related to comparable transactions to calculate the amount
of the premiums paid by acquirers to the acquired companies' stockholders.
Lehman Brothers selected and analyzed the following corporate level transactions
(the "Comparable Transactions --
33
Premiums Paid") which were valued between $1.0 billion and $1.5 billion and
announced over the last twelve months.
<Table>
<Caption>
ACQUIRER TARGET
- -------- ------
UPS................................................... Overnite Corp.
3M Corp. ............................................. Cuno Inc.
Shire Pharmaceuticals Group PLC....................... Transkaryotic Therapies Inc.
Goldner Hawn Johnson.................................. ShopKo Stores Inc.
Centro Watt America REIT III.......................... Kramont Realty Trust
Investor Group........................................ Sola International Inc.
GE Infrastructure..................................... Ionics Inc.
Movie Gallery Inc. ................................... Hollywood Entertainment Corp.
Valero LP............................................. Kaneb Services LLC
Blackstone Real Estate................................ Boca Resorts Inc.
Constellation Brands Inc. ............................ Robert Mondavi Corp.
Cendant Corp. ........................................ Orbitz Inc.
PL Retail LLC......................................... Price Legacy Corp.
Marquee Holdings Inc. ................................ AMC Entertainment Inc.
</Table>
For each of the transactions included in the previous table, Lehman
Brothers calculated the premiums paid by the acquirer by comparing the per share
purchase price in each transaction to the historical stock price of the acquired
company as of one day, one week and one calendar month prior to the announcement
date. The premiums paid valuation methodology yielded an implied equity value
per share range for the Company's Class A Common Stock of $14.31 to $15.13,
based upon the range of premiums of 26.5% to 38.1% applied to the closing stock
price on the trading day prior to the October 18, 2004 public announcement by
Barcelo of its offer. Lehman Brothers noted that the $24.00 per share offered in
the merger falls above this range.
Because the market conditions, rationale and circumstances surrounding each
of the transactions analyzed were specific to each transaction and because of
the inherent differences between the businesses, operations, financial condition
and prospects of the Company and the acquired businesses analyzed, Lehman
Brothers believed that 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 characteristics of
these transactions and the merger that would affect the acquisition values of
the Company and such acquired companies.
34
PREMIUMS PAID ANALYSIS -- CASH MINORITY SQUEEZE-OUT TRANSACTIONS
Lehman Brothers conducted a comparable transaction analysis to assess how
similar transactions were valued in a minority squeeze-out setting. Lehman
Brothers reviewed certain publicly available information related to comparable
transactions to calculate the amount of the premiums paid by acquirers of
minority interests. Lehman Brothers selected and analyzed the following
corporate level transactions with a minimum acquired equity value of $100
million. This analysis included completed or pending transactions since 1998
where an acquirer owned over 50% of the target before the transaction.
<Table>
<Caption>
ACQUIRER TARGET
- -------- ------
France Telecom SA.............................. Equant NV
Danisco A/S.................................... Genencor International Inc.
Telecom Italia S.p.A. ......................... Telecom Italia Mobile S.p.A.
Cox Enterprises Inc. .......................... Cox Communications
ICN Pharmaceuticals, Inc. ..................... Ribapharm Inc.
Samuel J. Heyman............................... International Specialty Products
Lennar Corp. .................................. Fortress Group Inc.
Sabre Holdings Corp. .......................... Travelocity.com Inc.
Toronto-Dominion Bank.......................... TD Waterhouse Group Inc.
Electronic Data Systems Corp. ................. Unigraphics Solutions Inc.
Westfield America Trust........................ Westfield America
Credit Suisse First Boston..................... CSFBdirect
News Corp. Ltd. ............................... BHC Communications Inc.
Enron Corp. ................................... Azurix Corp.
Ford Motor Co. ................................ Hertz Corp.
Phoenix Home Life Mutual....................... Phoenix Investment Partners
Telecom Corp. of New Zealand................... AAPT Ltd.
BP Amoco PLC................................... Vastar Resources Inc.
Peter B. Cherry................................ Cherry Corp.
Hartford Financial Services Group Inc. ........ Hartford Life Inc.
Alcoa Inc. .................................... Howmet International
Security Capital Group Inc. ................... Homestead Village Inc.
Thermo Instrument Systems Inc. ................ Thermo BioAnalysis Corp.
Citigroup Inc. ................................ Travelers Property Casualty Corp.
Boise Cascade Corp. ........................... Boise Cascade Office Products Corp.
Israel Chemicals Ltd. ......................... Dead Sea Works
Elyo........................................... Trigen Energy Corp.
Vivendi SA..................................... Aqua Alliance Inc.
McDermott International Inc. .................. J Ray McDermott SA
Viacom Inc. ................................... Spelling Entertainment Group Inc.
Tech Data Corp. ............................... Computer 2000 AG
Allmerica Financial Corp. ..................... Citizens Corp.
</Table>
For each of the transactions included in the previous table, Lehman
Brothers calculated the premiums paid by the acquirer by comparing the per share
purchase price in each transaction to the historical stock price of the acquired
company as of one day, seven days, thirty days and ninety days prior to the
announcement date. The premiums paid valuation methodology yielded an implied
equity value per share range for the Company's Class A Common Stock of $14.17 to
$15.92, based upon the range of premiums of 25.3% to 40.7% applied to the
closing stock price on the trading day prior to the October 18, 2004 public
announcement by
35
Barcelo of its offer. Lehman Brothers noted that the $24.00 per share offered in
the merger falls above this range.
Because the market conditions, rationale and circumstances surrounding each
of the transactions analyzed were specific to each transaction and because of
the inherent differences between the businesses, operations, financial
conditions and prospects of the Company and the acquired businesses analyzed,
Lehman Brothers believed that 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 characteristics of
these transactions and the merger that would affect the acquisition values of
the Company and such acquired companies.
HISTORICAL STOCK PRICE TRADING ANALYSIS
In rendering its opinion, Lehman Brothers also reviewed and considered
other factors, including a review of the Class A Common Stock price data. Lehman
Brothers reviewed the closing prices for the Class A Common Stock since the
Company's initial public offering on November 16, 1994 through October 15, 2004.
Lehman Brothers noted that the trading range for the Class A Common Stock during
this period was between $3.19 and $16.50 per share. Lehman Brothers also
reviewed the closing prices for the Class A Common Stock for the 52-week period
ended October 15, 2004, one trading day prior to the first public announcement
of Barcelo's initial acquisition proposal. Lehman Brothers noted that the
trading range for the Class A Common Stock during this period was between $6.50
and $11.45 per share.
ANALYSES USED TO DERIVE THE REASONABLENESS OF THE ALLOCATION OF THE
CONSIDERATION
In determining the reasonableness of the allocation of the consideration,
from the point of view of the unaffiliated stockholders, between the JQH
Stockholders, on the one hand, and the unaffiliated stockholders, on the other
hand, Lehman Brothers compared the ratio of the aggregate consideration provided
to the JQH Stockholders relative to the aggregate consideration provided to the
unaffiliated stockholders with the ratio of the fully diluted economic interest
of the JQH Stockholders in the Company relative to the unaffiliated
stockholders' fully diluted economic interest in the Company. Lehman Brothers
also compared the ratio of the aggregate consideration provided to the JQH
Stockholders relative to the aggregate consideration provided to the
unaffiliated stockholders with the ratio of the voting interest of the JQH
Stockholders in the Company to the unaffiliated stockholders' voting interest in
the Company.
In analyzing the financial consideration provided to the JQH Stockholders,
Lehman Brothers reviewed the terms and conditions of the transactions set forth
in the Amended and Restated Transaction Agreement, dated June 14, 2005, by and
among John Q. Hammons, Revocable Trust of John Q. Hammons, Hammons, Inc., JD
Holdings, LLC and Acquisition and the exhibits and schedules, referred to as the
"transaction agreement." Based on representations and warranties in the merger
agreement and other assurances provided, Lehman Brothers understood, and had
assumed, that these agreements are all of the agreements, commitments and
understandings between the JQH Stockholders and their affiliates, on the one
hand, and Acquisition and its affiliates, on the other hand, and that there have
been and will be no material modifications to these documents and no other
agreements or arrangements between them.
A number of the terms in the transaction agreements may either add to or
subtract from the net value realized by the JQH Stockholders in the
transactions. In addition, a number of these terms have a quantifiable value
from a financial point of view; however, certain other terms presently do not
have a quantifiable value from a financial point of view. Lehman Brothers
considered both the quantifiable and non-quantifiable terms in its determination
of the reasonableness of the allocation.
36
QUANTIFIABLE TERMS
Given that the quantifiable terms of the transaction agreements contain
provisions whose value is dependent on the survival of Mr. Hammons, who is 86
years old, Lehman Brothers examined the consideration value provide to the JQH
Stockholders under three scenarios:
- a scenario assuming the immediate demise of Mr. Hammons upon closing;
- a scenario assuming Mr. Hammons lives beyond the term of the transaction
agreements; and
- a probability weighted scenario, based on mortality rates provided by the
U.S. Social Security Administration's Period Life Table (updated November
2004).
Under each of these three scenarios, Lehman Brothers analyzed the value of
the following quantifiable terms of the transactions:
- the present value of the $335 million preferred interest to the JQH
Stockholders using a discount rate range of 6.0% to 8.0%;
- the after-tax interest expense savings on the line-of-credit to be
provided to Mr. Hammons versus the estimated financial terms of certain
other lines-of-credit at market interest rates ranging from London
InterBank Offered Rate ("LIBOR") plus 400 basis points to LIBOR plus 600
basis points;
- the value of the 269,100 shares of Class A Common Stock owned by the JQH
Stockholders;
- the value of the 335,000 Class A Common Stock options owned by the JQH
Stockholders;
- the estimated equity value of the Chateau Lake Hotel;
- the estimated value of Mr. Hammons' management company distribution; and
- the estimated value of the JQH Stockholders' equity interests in the
surviving corporation.
The implied valuation of the interest of the JQH Stockholders based upon
these scenarios yields a total range of $201 million to $248 million, or $11.95
to $14.74 per share.
At the midpoint of the above valuation range, the allocation of the
aggregate consideration provided to the JQH Stockholders relative to the
aggregate consideration provided to the unaffiliated stockholders is 60.6% to
the JQH Stockholders and 39.4% to the unaffiliated stockholders. Lehman Brothers
compared that allocation with the 72.5% fully diluted economic interest of the
JQH Stockholders in the Company relative to the unaffiliated stockholders' 27.5%
fully diluted economic interest in the Company. Lehman Brothers also compared
the allocation with the 70.4% voting interest of the JQH Stockholders in the
Company relative to the unaffiliated stockholders' 29.6% voting interest in the
Company. Lehman Brothers noted that the allocation of the consideration is
within a reasonable range, from a financial point of view and from the point of
view of the unaffiliated stockholders, relative to the economic and voting
interests of the JQH Stockholders, on the one hand, and the unaffiliated
stockholders, on the other hand.
NON-QUANTIFIABLE TERMS AND REASONABLENESS OF ALLOCATION CONSIDERATION
Lehman Brothers considered and made inquiries regarding these certain
non-quantifiable terms and had no information to believe the net effect of these
terms would be material to the valuation of the consideration, from a financial
point of view and from the point of view of the unaffiliated stockholders, to
the JQH Stockholders or to an assessment of the reasonableness of that
consideration relative to the consideration being paid for the unaffiliated
stockholders. The non-quantifiable terms of the transaction agreements include,
among other things, tax indemnity, rights of first refusal for both the JQH
Stockholders and Acquisition, non-competition agreements, and the availability
of a line-of-credit provided to the JQH Stockholders in the context of the
proposed transaction relative to an "arms-length" line-of-credit.
37
SUMMARY OF LEHMAN BROTHERS PRESENTATIONS TO THE SPECIAL COMMITTEE
Lehman Brothers presented preliminary valuation analysis to the special
committee on December 6, 2004 and December 29, 2004. Subsequent to the December
6, 2004 presentation, the Company issued a press release announcing that the
special committee would not support the Barcelo proposal based on the then
offered price of $13.00 per share. Subsequent to the December 29, 2004
presentation and in light of Barcelo's increased offer from $13.00 per share to
$21.00 per share, the special committee recommended to the board of directors
that it grant Barcelo the exclusive right to negotiate its proposed transaction
with the Company.
As described in more detail above, Lehman Brothers presented its fairness
and reasonableness opinions to the special committee on June 14, 2005.
For each of the three presentations made by Lehman Brothers to the special
committee, Lehman Brothers utilized similar going concern valuation
methodologies. As market conditions changed, Lehman Brothers updated the
analysis under each valuation methodology. A comparison of the implied equity
value per share ranges derived from these methodologies in each of the three
presentations is included in the following table.
<Table>
<Caption>
IMPLIED EQUITY VALUE RANGE(1)
---------------------------------------------------
DECEMBER 6, DECEMBER 29, JUNE 14,
2004 2004 2005
--------------- --------------- ---------------
VALUATION METHODOLOGY PRESENTATION PRESENTATION PRESENTATION
- --------------------- --------------- --------------- ---------------
Comparable Company Analysis.................. $17.05 - $22.68 $19.57 - $24.96 $20.28 - $25.69
Comparable Transaction Analysis.............. $18.25 - $23.69 $18.01 - $23.24 $22.75 - $27.86
Discounted Cash Flow Analysis................ $17.00 - $21.00 $17.00 - $21.00 $20.00 - $24.00
Leveraged Buyout Analysis.................... $14.00 - $17.00 $14.00 - $17.00 $16.00 - $20.00
Premiums Paid................................ $13.66 - $16.36 $13.66 - $16.36 $14.31 - $15.13
Premiums Paid -- Cash Minority Squeeze-Out $14.25 - $16.07 $14.25 - $16.07 $14.17 - $15.92
Transactions...............................
</Table>
- ---------------
(1) Per share of Class A Common Stock.
LEHMAN BROTHERS' ACTIVITIES AND ARRANGEMENTS WITH THE COMPANY
Lehman Brothers is an internationally recognized investment banking firm
and, as part of its investment banking activities, is regularly engaged in the
valuation 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 special committee selected
Lehman Brothers because of its expertise and reputation and because its
investment banking professionals have substantial experience in transactions
comparable to the merger.
In the ordinary course of its business, Lehman Brothers may actively trade
in the debt or equity securities of the Company 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.
Pursuant to a letter agreement, the Company agreed to pay Lehman Brothers
an opinion fee equal to $1,000,000 which was payable upon earlier of (i) Lehman
Brothers' delivery of its initial opinion to the special committee, (ii) January
31, 2005, or (iii) following the public announcement by a potential acquirer of
a tender offer for the Company, provided that Lehman Brothers is prepared to
deliver its final written analysis of the offer or its initial opinion. The
Company also agreed to pay Lehman Brothers an additional fee of $500,000 payable
upon the consummation of a transaction, provided that an opinion has been
delivered to the special committee in connection with such transaction. In
addition, Lehman Brothers' engagement letter entitles it to reimbursement of its
expenses and to indemnification by the Company for certain liabilities that may
arise out of Lehman Brothers' engagement and its rendering of the fairness and
reasonableness opinions.
38
INTERESTS OF CERTAIN PERSONS IN THE MERGER
INTERESTS OF COMPANY DIRECTORS AND EXECUTIVE OFFICERS IN THE MERGER
In considering the recommendation of the board of directors with respect to
the merger agreement, you should be aware that certain of our executive officers
and directors have interests in the transactions contemplated by the merger
agreement that may be different from, or in addition to, the interests of our
unaffiliated stockholders generally. Our board of directors was aware of these
interests and considered them, among other matters, in making its
recommendations.
INTERESTS OF THE JQH STOCKHOLDERS
Mr. Hammons, our founder, chairman of the board and chief executive
officer, and his affiliates have entered into agreements with Acquisition and
Merger Sub and their affiliates that contemplate a number of arrangements, some
of which have begun and others that will take place at the time of or after the
merger, including the following:
- Acquisition has secured an interim $25 million line of credit from iStar
to Mr. Hammons and the JQH Trust from June 14, 2005 through the effective
date of the merger;
- After the merger, Acquisition will provide a $275 million line of credit,
backed by iStar and secured by the JQH Stockholders' equity ownership in
the business and certain other collateral, to a to-be-formed entity owned
by Mr. Hammons and the JQH Trust to finance his ongoing hotel development
business;
- After the recapitalization of the Partnership, the JQH Stockholders will
hold all of a class of preferred interests in the Partnership;
- The Chateau on the Lake Resort and Convention Center and certain
management related assets will be distributed to the JQH Trust in
redemption of a portion of its partnership interest in the Partnership;
and
- An entity to be formed by the JQH Stockholders will provide management
services to the surviving corporation after the merger.
The various arrangements between the JQH Stockholders and Acquisition and
its affiliates are discussed in more detail below in the Section entitled
"Transactions Related to the Merger" beginning on Page 59.
INTERESTS OF COMPANY EXECUTIVE OFFICERS
SEVERANCE OR CHANGE IN CONTROL PAYMENTS.
Debra M. Shantz and Paul E. Muellner each have an employment agreement with
us that provides that, in the event there is a change-in-control of the Company,
such officer may terminate the agreement, and we will pay him or her 12 times
his or her monthly salary and an amount equal to his or her bonus for the prior
fiscal year.
EMPLOYMENT AFTER THE MERGER
Following the merger, our executive officers will be employed by an
affiliate that Mr. Hammons will form to manage and develop hotel properties,
including the Company's hotels, and to carry out the various agreements and
transactions related to the merger.
STOCK OPTIONS
At the time of the merger, all stock options for shares of Class A Common
Stock, whether or not vested, held by our directors, officers and employees
under our equity compensation plans will be cancelled. In exchange for any
rights associated with those options, each holder of a stock option will receive
a cash bonus payment equal to the product of (1) the excess, if any, of $24.00
over the applicable per share exercise price of
39
such option, and (2) the number of shares subject to the cancelled option (less
any applicable withholding taxes).
Based on options outstanding as of August 5, 2005, the payment by the
Company related to unexercised options held by executive officers will be
approximately $12,849,000.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Pursuant to the merger agreement, Acquisition and the surviving corporation
will provide indemnification, for six years from the effective time of the
merger, to any officer or director of the Company or any of its subsidiaries
equivalent to the indemnification and advancement of expenses provided for in
our certificate of incorporation. For six years after the merger, Acquisition
and the surviving corporation will also, to the fullest extent not prohibited by
applicable law, indemnify and hold harmless those persons against all reasonable
expenses, losses or amounts paid in settlement in respect of any threatened,
pending or completed claim or proceeding arising out of the fact that he or she
is or was a director or officer, or arising out of acts or omissions occurring
before the merger, including actions related to the approval of the merger
agreement and the merger.
The merger agreement also requires us to maintain a "tail" policy under our
existing directors and officers liability insurance policy for six years after
the merger.
In the event of any consolidation, merger or transfer of all or
substantially all of the assets of Acquisition or the surviving corporation,
Acquisition and the surviving corporation will be required to make proper
provision so that any successor of Acquisition or the surviving corporation will
assume these indemnification obligations.
INTERESTS OF COMPANY DIRECTORS
COMPENSATION OF MEMBERS OF SPECIAL COMMITTEE
Each member of the special committee received as consideration for his
service on the special committee payments of $1,000 per meeting. Receipt of such
payments was not contingent on the special committee's approval of the merger
agreement. Members of the special committee also received their regular
compensation as non-employee members of the board of directors.
STOCK OPTIONS
As noted above, at the time of the merger, all stock options for shares of
Class A Common Stock, whether or not vested, held by our directors, officers and
employees under our equity compensation plans will be cancelled. In exchange for
any rights associated with those options, each holder of a stock option will
receive a cash bonus payment equal to the product of (1) the excess, if any, of
$24.00 over the applicable per share exercise price of such option, and (2) the
number of shares subject to the cancelled option (less any applicable
withholding taxes). Based on options outstanding as of August 5, 2005, the
payment by the Company related to unexercised options held by directors will be
approximately $6,322,125.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
As discussed above, Acquisition and the surviving corporation will provide
certain indemnification and related protections to officers and directors
equivalent to protections currently provided to those individuals.
AGREEMENTS BETWEEN ACQUISITION AND CERTAIN UNAFFILIATED STOCKHOLDERS
On January 31, 2005, Acquisition entered into Stockholders Agreements with
certain of our unaffiliated stockholders in which those unaffiliated
stockholders agreed to support an offer by Acquisition to purchase our shares of
Class A Common Stock at a price of not less than $24.00 per share, if
Acquisition made such an offer. Those Stockholders Agreements were later
extended through the earlier of the closing of the merger or October 31, 2005.
The unaffiliated stockholders signing the agreements also agreed to support and
vote in
40
favor of Acquisition's proposal and against any other competitive proposal or
other proposal that is inconsistent with or detrimental to the consummation of
Acquisition's proposal. Acquisition agreed that, in the event any of the
unaffiliated stockholders signing the Stockholders Agreement sell (or are
eligible to sell) shares of our common stock under an offer made during the term
of the Stockholders Agreements at a price above $24.00 per share, each of those
unaffiliated stockholders will pay Acquisition an amount equal to 20% of such
stockholder's sale price (or available sale price) above $24.00 per share.
THE MERGER
This section of the proxy statement describes significant aspects of the
proposed merger. Although we believe that the description covers the material
terms of the merger, this summary may not contain all of the information that is
important to you. You are encouraged to carefully read this entire proxy
statement and the other documents we refer you to for a more complete
understanding of the merger. In addition, we incorporate important business and
financial information into this proxy statement by reference. You may obtain the
information incorporated by reference into this proxy statement without charge
by following the instructions in this section entitled "Where You Can Find
Additional Information" that begins on Page 78 of this proxy statement.
EFFECTIVE TIME OF MERGER
If the merger agreement is adopted by the requisite votes of stockholders
and the other conditions to the merger are satisfied, or waived to the extent
permitted pursuant to the merger agreement, the merger will become effective at
the time the certificate of merger is filed with the Delaware Secretary of State
or at such later time as the parties agree and specify in the certificate of
merger. If stockholders adopt the merger agreement, the parties intend to
complete the merger as soon as practicable thereafter. The closing will take
place on the date on which the last of the conditions to the closing set forth
in the merger agreement have been satisfied or waived or such other date as the
parties to the merger agreement agree upon. Because the merger is subject to
certain conditions, the exact timing of the merger cannot be determined.
We or Acquisition may terminate the merger agreement before it is effective
under specified circumstances, before or after adoption of the merger agreement
by stockholders. We describe additional details on the termination of the merger
agreement in "The Merger Agreement - Termination" below.
STRUCTURE
At the time of the merger, Merger Sub will merge into the Company. The
Company will continue to exist after the merger as the surviving corporation and
will be a subsidiary of Acquisition, and will hold all of the property, rights,
privileges, powers and franchises of the Company and of Merger Sub, as well as
all of the debts, liabilities, obligations, restrictions, disabilities and
duties of the Company and of Merger Sub. Following the merger, our Class A
Common Stock will be delisted from the American Stock Exchange, deregistered
under the Exchange Act and will no longer be publicly traded.
TREATMENT OF STOCK AND OPTIONS
CLASS A COMMON STOCK
At the effective time of the merger, each share of our Class A Common Stock
issued and outstanding immediately prior to the effective time of the merger
will automatically be cancelled and will cease to exist and will be converted
into the right to receive $24.00 in cash, without interest, other than treasury
shares or shares of Class A Common Stock held by Acquisition, Merger Sub or us,
and shares of Class A Common Stock as to which our stockholders demand appraisal
rights in compliance with Delaware law.
CLASS B COMMON STOCK
At the effective time of the merger, each share of our Class B Common Stock
issued and outstanding immediately prior to the effective time of the merger
will remain outstanding as one share of common stock of
41
the surviving corporation with the rights set forth in the Certificate of
Incorporation of the surviving corporation, as amended at the effective time of
the merger.
COMPANY STOCK OPTIONS
At the effective time of the merger, all stock options exercisable into
shares of our Class A Common Stock, whether or not vested, will be cancelled. In
exchange for any rights associated with those options, each holder of a stock
option will receive a cash bonus payment equal to the product of (1) the excess,
if any, of $24.00 over the applicable per share exercise price of such option,
and (2) the number of shares subject to the cancelled option (less any
applicable withholding taxes). We have agreed to take all actions necessary
prior to the effective time of the merger to cause all stock options to be
terminated prior to the effective time of the merger.
NO FURTHER OWNERSHIP RIGHTS
After the effective time of the merger, each of our outstanding
certificates representing shares of our Class A Common Stock, other than shares
held by stockholders who exercise appraisal rights, will represent only the
right to receive the merger consideration, and each of our outstanding
certificates representing shares of our Class B Common Stock will represent only
the right to receive shares of common stock of the surviving corporation. The
merger consideration paid upon surrender of each certificate representing shares
of Class A Common Stock will be paid in full satisfaction of all rights
pertaining to the shares of our Class A Common Stock represented by that
certificate.
We have appointed Wachovia Bank, N.A., to act as paying and exchange agent
under the merger agreement, and will deposit with the paying agent cash in an
amount necessary to pay all of the merger consideration (i.e., $24.00 for each
share of Class A Common Stock outstanding immediately prior to the effective
time of the merger).
Within three business days after the effective time of the merger, the
paying agent will mail a letter of transmittal and instructions to you and the
other unaffiliated stockholders which will tell you how to surrender your stock
certificates in exchange for the merger consideration. You should not return
your stock certificates with the enclosed proxy and you should not send your
stock certificates to the paying agent without a letter of transmittal.
The paying agent will pay your merger consideration after you have (i)
surrendered your certificates to the paying agent, together with such letter of
transmittal and (ii) provided to the paying agent any other items specified by
the letter of transmittal. If you do not comply with these requirements within
180 days after the merger, the portion of the merger consideration held by the
paying agent will be delivered to Acquisition upon its request, and you must
thereafter look solely to Acquisition for merger consideration payable upon due
surrender of your certificates. Interest will not be paid or accrue on cash
payments of merger consideration. The paying agent is entitled to reduce the
amount of any merger consideration paid to you by any applicable deductions and
withholding taxes.
YOU SHOULD NOT RETURN YOUR STOCK CERTIFICATES WITH THE ENCLOSED PROXY CARD
AND YOU SHOULD NOT FORWARD YOUR STOCK CERTIFICATES TO THE PAYING AGENT WITHOUT A
LETTER OF TRANSMITTAL.
You will not be entitled to receive the merger consideration until you
surrender your Class A Common Stock certificate or certificates to the paying
agent, together with a duly completed and executed letter of transmittal and any
other documents the paying agent may reasonably require. The merger
consideration may be paid to a person other than the person in whose name the
corresponding stock certificate is registered if the stock certificate is
properly endorsed or is otherwise in the proper form for transfer. In addition,
the person requesting payment must either pay any applicable stock transfer
taxes or establish to the reasonable satisfaction of the paying agent that such
stock transfer taxes have been paid or are not applicable.
Neither Acquisition nor the Company will be liable to any holder or former
holder of Class A Common Stock or to any other person with respect to any
portion of the merger consideration (or dividends or
42
distributions with respect thereto), or for any cash amounts, properly delivered
to any public official pursuant to any applicable abandoned property law,
escheat law or similar law.
If any certificate has been lost, stolen or destroyed, the person claiming
such certificate to be lost, stolen or destroyed may provide an affidavit and
deliver a bond, in such reasonable amount as Acquisition may require as
indemnity against any claim that may be made against the paying agent,
Acquisition or the Company with respect to such certificate, prior to the paying
agent issuing the merger consideration in exchange for such lost, stolen or
destroyed certificate.
At the effective time of the merger, we will close our stock transfer
books. After that time, if you present Class A Common Stock certificates to us,
we will exchange them for cash as described in this section.
After the merger, you will cease to have any rights as a stockholder of the
Company, other than the right to surrender your certificate in exchange for
payment of the merger consideration or to exercise your appraisal rights under
the DGCL.
SOURCE OF FUNDS, MERGER FINANCING
The total amount of funds necessary to complete the merger and the related
transactions is anticipated to be approximately $180,428,010, consisting of
- approximately $158,366,370 to pay our Class A Common Stock holders and
option holders the amounts due to them under the merger agreement,
assuming no exercise of appraisal rights, and
- approximately $22,061,640 to pay fees and expenses in connection with the
merger, the financing arrangements and the various financing transactions
with the JQH Stockholders.
These funds are anticipated to come from the following sources:
- up to approximately $21 million of equity financing to be provided
primarily by Mr. Eilian to Acquisition, evidenced by a commitment letter
from Mr. Eilian dated June 23, 2005;
- up to $165 million acquisition debt facility provided by iStar to
Acquisition, evidenced by a commitment letter from iStar to Acquisition
dated June 14, 2005; and
- the Company's excess cash on hand (which may be used only to pay certain
expenses).
The commitment letter from Mr. Eilian terminates on the earlier of the
consummation of the merger or the termination of the merger agreement and
requires that all conditions to the closing of the merger in the merger
agreement be satisfied.
The iStar commitment letter imposes certain terms and conditions on the
acquisition debt facility from iStar to Acquisition (in an amount up to $165
million) including:
- Mr. Eilian must contribute to Acquisition up to approximately $25 million
in cash equity; to the extent that the aggregate cash costs of the merger
and related transactions are less than $190 million, Mr. Eilian will
contribute 13.15% of such costs and the amount of the acquisition debt
facility will be 86.85% of such costs;
- all proceeds of the acquisition debt facility, along with cash to be
contributed by Mr. Eilian, must be used to finance the acquisition of the
Class A Common Stock, payments related to stock options and transaction
costs, including the origination fee with respect to iStar's lines of
credit to Acquisition and, indirectly, the JQH Stockholders;
- the acquisition debt facility will run for six months after the merger,
except the portion representing an advance for the payment of the
origination fees which will have a five-year term;
- an origination fee of 10% of the amount of the acquisition debt facility
based on the amount of the acquisition debt facility minus the amount of
the origination fee on both the JQH Stockholders' long-term line of
credit and this acquisition debt facility;
43
- interest will be 10% per year, accruing monthly;
- iStar will receive an ongoing participation or equity interest, so long
as Acquisition or Mr. Eilian or any of their respective affiliates own a
direct or indirect interest in the Partnership or the assets owned by the
Partnership, in the amount of 10% of all distributions from or with
respect to the Partnership or consideration from the sale, transfer or
other conveyance of the Partnership or its assets received by Mr. Eilian
and/or his affiliates in excess of a return of his contribution to
Acquisition plus a yield of 10% per year, compounded monthly, on the
outstanding amount of such contribution from time to time;
- as collateral, iStar will receive a senior perfected security interest in
all of Acquisition's and our equity in the ultimate general partner of
the Partnership;
- iStar will have the right to provide to Acquisition, Mr. Eilian and the
Partnership any third-party financing incurred in connection with (i) the
acquisition of any hotel or other properties, (ii) any refinancings, and
(iii) the exercise of any right of first refusal by Mr. Eilian or his
affiliates with regard to any properties owned by the JQH Stockholders or
their affiliates; and
- in the event that Mr. Eilian, Acquisition or any of their affiliates
closes any one or more other transactions substantially similar to the
merger and the related transactions, and Acquisition does not close on
this acquisition debt facility, iStar will be paid a termination fee in
the amount of 10% of the amount of this acquisition debt facility,
payable upon closing of such other transactions, and iStar will be
granted the participation or equity interest discussed above.
In addition to the financing of the merger, the JQH Stockholders executed a
separate short-term line of credit with iStar, providing Mr. Hammons and JQH
Trust with a $25 million line of credit available until the earlier of one year
or the closing of the merger. iStar's commitment letter for up to $165 million
of funding for the merger also provides for a $275 million line of credit to an
affiliate to be formed by the JQH Stockholders identified as "Project Holdco,"
through back-to-back credit agreements between iStar and a limited liability
company affiliated with Acquisition and controlled by Mr. Eilian (referred to as
"Lendco"). Under those credit agreements, Lendco will provide the $275 million
line of credit to Project Holdco, with Lendco's obligation to loan those funds
backed by iStar. We describe these arrangements with the JQH Stockholders in
more detail in "Transactions Related to the Merger" beginning on Page 59.
LITIGATION CHALLENGING THE MERGER
Two class action lawsuits were filed against us in the fall of 2004 in the
Court of Chancery of the State of Delaware in and for New Castle County:
- Jolly Roger Fund L.P. and Jolly Roger Offshore Fund, Ltd. vs. John Q.
Hammons Hotels Inc., et al, filed October 19, 2004, and
- Garco Investments LLP v. John Q. Hammons Hotels, Inc., et al., filed
October 20, 2004.
Both actions originally sought injunctive relief to prevent any merger
transaction and asserted that the original price offered to the unaffiliated
stockholders was not equivalent to the "sweetheart deal" offered to Mr. Hammons.
These lawsuits have been consolidated into one action and the complaint has been
amended to seek compensation, attorney fees and costs of the action for
plaintiffs' efforts because they allegedly added value for the unaffiliated
stockholders as evidenced by the fact the proposed stock acquisition price has
risen from the initial $13.00 a share to the current proposal of $24.00 per
share. On May 6, 2005, we filed a motion to dismiss.
Two of the plaintiffs in these actions have commenced an additional action
pursuant to 8 Delaware Code Section 220 seeking to obtain our documents
concerning the negotiations between the special committee and Acquisition and
concerning negotiations between Mr. Hammons and Acquisition. At the present
time, we are in discussions with the plaintiffs' counsel to determine whether
this matter may be resolved by allowing plaintiffs' counsel to review certain of
our documents, the substance of which we discuss in this proxy statement.
44
PROVISIONS FOR UNAFFILIATED STOCKHOLDERS
At this time, we have not made any provision to grant unaffiliated
stockholders access to our files or to obtain counsel or appraisal services at
our expense, although we may make some such arrangements in connection with
pending litigation.
THE MERGER AGREEMENT
THIS SECTION OF THE PROXY STATEMENT SUMMARIZES THE MATERIAL PROVISIONS OF
THE MERGER AGREEMENT, A COPY OF WHICH IS ATTACHED AS APPENDIX A TO THIS PROXY
STATEMENT AND IS INCORPORATED INTO THIS PROXY STATEMENT BY REFERENCE. WE
ENCOURAGE YOU TO READ THE MERGER AGREEMENT CAREFULLY AND IN ITS ENTIRETY.
GENERAL; THE MERGER
At the effective time of the merger, upon the terms and subject to the
conditions of the merger agreement and the DGCL, Merger Sub will be merged into
the Company, the separate corporate existence of Merger Sub will cease and the
Company will continue as the surviving corporation, wholly-owned by Acquisition
and the JQH Stockholders.
CERTIFICATE OF INCORPORATION; BYLAWS; DIRECTORS AND OFFICERS
At the effective time of the merger, our certificate of incorporation will
be amended to read as the certificate of incorporation attached as Exhibit 2.2
to the merger agreement. The bylaws of Merger Sub, as in effect immediately
before the effective time of the merger, will be the bylaws of the Company as
the surviving corporation, until amended.
The directors of Merger Sub at the effective time of the merger will be the
initial directors of the surviving corporation and the officers of Merger Sub at
the effective time of the merger will be the initial officers of the surviving
corporation.
TREATMENT OF COMPANY STOCK IN THE MERGER
At the time of the merger, without any additional action on the part of
Acquisition, Merger Sub, the Company or any stockholder:
- each issued and outstanding share of Class A Common Stock will be
converted into the right to receive $24.00 in cash, without interest
(other than shares as to which our stockholders demand appraisal rights
in compliance with the DGCL, and other than treasury shares or shares
held by Acquisition or Merger Sub, which will be cancelled);
- each issued and outstanding share of Class B Common Stock will remain
outstanding as one share of common stock, par value $0.01 per share, of
the surviving corporation with the rights set forth in the certificate of
incorporation of the surviving corporation; and
- each share of Class A Common Stock, if any, held by Acquisition or Merger
Sub will be retired and cancelled and cease to exist, and no payment of
merger consideration will be made with respect to such share.
At the effective time of the merger, all shares of Class A Common Stock
will no longer be outstanding and shall be cancelled, retired and will cease to
exist. Each certificate previously representing any such shares shall thereafter
represent only the right to receive the cash consideration described above.
TREATMENT OF MERGER SUB STOCK IN THE MERGER
Each share of common stock of Merger Sub issued and outstanding at the
effective time of the merger will be converted into one validly issued, fully
paid and nonassessable share of common stock, par value $0.01 per share, of the
surviving corporation.
45
TREATMENT OF COMPANY STOCK OPTIONS
The merger agreement and the terms of the various stock option plans
provide that as of the effective time of the merger, each option to purchase
shares of Class A Common Stock whether or not vested will be cancelled. Each
option holder will cease to have any rights with respect thereto, although
option holders will receive a cash bonus equal to the product of (i) the amount
by which $24.00 exceeds the applicable per share exercise price of such option,
and (ii) the number of shares subject to the cancelled option (less any
applicable withholding taxes).
REPRESENTATION AND WARRANTIES
We have made customary representations and warranties to Acquisition and
Merger Sub, which will not survive the effective time of the merger, with
respect to, among other matters:
- due organization, valid existence and good standing;
- our subsidiaries;
- requisite corporate power and authorization to enter into, and the
enforceability of, the merger agreement;
- the absence of conflicts with our organizational documents or resolutions
of our board of directors, or with certain laws, governmental
authorizations and contracts;
- capital structure;
- our SEC filings, including our financial statements;
- title to material properties;
- accounts receivable;
- equipment, real property and leases;
- our intellectual property;
- our undisclosed liabilities;
- tax matters;
- employee benefits we offer;
- our compliance with laws;
- environmental matters;
- litigation matters;
- absence of certain material changes or events since December 31, 2004;
- contracts and debt instruments;
- insurance;
- labor and employment matters;
- interests of officers and directors;
- stockholder rights plans and antitakeover laws;
- certain payments;
- fairness and reasonableness opinions of Lehman Brothers and
recommendation of our board of directors;
- broker fees;
46
- this proxy statement and our related Schedule 13E-3 filing with the SEC;
and
- an escrow for $8 million for the possible payment of certain fees and
expenses resulting from the termination of the merger agreement under
certain circumstances.
Acquisition and Merger Sub have also made customary representations and
warranties to us which will not survive the effective time of the merger, with
respect to, among other matters:
- their corporate existence, power and authority;
- absence of conflicts with law, organizational documents, contracts and
permits;
- information supplied by them for inclusion in this proxy statement or our
related Schedule 13E-3;
- undisclosed agreements or arrangements with the JQH Stockholders and
their affiliates;
- financing;
- an escrow for $3 million for the possible payment of certain fees
resulting from the termination of the merger agreement under certain
circumstances; and
- the correctness, validity and enforceability of the agreements with the
JQH Stockholders and their affiliates.
COVENANTS OF THE COMPANY
We have undertaken certain obligations under the merger agreement including
the covenants described below.
CONDUCT OF BUSINESS PENDING THE MERGER
We and our subsidiaries must, between the date of the merger agreement and
the effective time of the merger:
- conduct our respective businesses only in the ordinary and usual course
consistent with past practice;
- use reasonable efforts to preserve our business organizations and
goodwill and keep available the services of our officers and maintain our
relationships with third parties;
- maintain our insurance coverage;
- notify Acquisition of any notice from any person alleging consent of such
person is required in connection with the merger; and
- notify Acquisition of any legal proceeding commenced or threatened
against us.
The merger agreement also provides specific covenants relating to certain
of our activities from the date of the merger agreement until the effective time
of the merger. These covenants provide that neither we nor any of our
subsidiaries will, without the prior written consent of Acquisition, subject to
certain exceptions:
- amend our certificate of incorporation or bylaws or become party to any
business combination;
- amend, classify or re-classify any unissued shares of stock or modify any
debt security;
- issue, sell, pledge, or encumber any of our capital stock or securities
convertible into any such securities;
- grant any options or other rights to acquire equity securities or
securities convertible into equity securities;
- declare, set aside or pay any dividend or other distribution in respect
of our capital stock;
- redeem, purchase or otherwise acquire any of our capital stock or other
securities;
- acquire a substantial interest in any business;
47
- form any subsidiary;
- enter into, change or terminate any lease or sublease;
- sell, mortgage, encumber or otherwise dispose of any of our real
properties or other assets other than in the ordinary course of business
consistent with past practice;
- make any loans, advances or capital contributions to any other person;
- pay or discharge any material claims, liabilities or obligations other
than in the ordinary course of business consistent with past practice;
- make payments on our existing debt other than scheduled interest and
principal, or incur any other debt;
- enter into or terminate any material contract or agreement, other than in
the ordinary course of business;
- increase certain compensation, award or pay any bonus or enter into or
amend certain employment, severance or other arrangement with our
officers, directors or employees;
- hire certain employees, promote employees, or engage consultants;
- effectuate a plant closing or mass layoff under the Worker Adjustment and
Retraining Notification Act;
- make or change a material tax election, change a material tax accounting
period or settle or surrender any material tax claim; or
- change or terminate any contract or waive, release or assign any rights
or claims thereunder;
- acquire, lease or license any right or other asset other than in the
ordinary course of business;
- change any personnel policies in any material respect, or any method of
accounting or accounting policies in any respect except as may be
required;
- adopt or enter into any collective bargaining agreement or other labor
union contract or terminate the employment of any employee that has an
employment, severance or similar agreement or arrangement providing for
the payment of any severance in excess of amounts generally provided to
employees;
- commence any legal proceeding;
- make any material expenditure in connection with any advertising or
marketing, or adopt, renew, terminate, change or increase the liability
or other material obligations under any operating standards, loyalty
programs or amenity packages, other than in the ordinary course of
business consistent with past practice;
- make any expenditure at identified real property.
NO SOLICITATION OF OTHER OFFERS
The merger agreement provides that we will not, and will not authorize or
permit our subsidiaries and our respective officers, directors, attorneys,
accountants, advisors, representatives and agents (collectively referred to as
"representatives" in this section of this proxy statement), to directly or
indirectly:
- solicit, initiate, encourage, induce or facilitate the making, submission
or announcement of any acquisition proposal (as defined below);
- furnish any non-public information in connection with or in response to
an acquisition proposal;
- engage in discussions or negotiations with respect to an acquisition
proposal;
- approve or recommend any acquisition proposal; or
48
- enter into any letter of intent or similar document relating to any
acquisition proposal or acquisition transaction (as defined below).
Prior to the adoption of the merger agreement by the stockholders, however,
we may enter into discussions or negotiations with, or disclose non-public
information to, any third party that has made a superior proposal, but only if:
- neither we nor our representatives violate the restrictions set forth
immediately above;
- our board of directors has concluded in good faith, after consultation
with outside legal counsel, that the failure to take any such action
would be inconsistent with the fiduciary duties of our board to our
unaffiliated stockholders under applicable law;
- prior to entering into discussions with or furnishing any such non-public
information to a third party, we provide the proposal and identify the
third party to Acquisition; and
- such third party has entered into a confidentiality agreement with us on
customary terms.
The merger agreement further provides that we must promptly advise
Acquisition of our receipt of any acquisition proposal, any inquiry or request
that the special committee reasonably believes likely to lead to an acquisition
proposal, or a request for non-public information, and that we must keep
Acquisition informed with respect to the status of these matters.
As used in this proxy statement and in the merger agreement, the following
terms have the meanings set forth below:
- An "acquisition proposal" means any offer, proposal, inquiry or
indication of interest (other than an offer, proposal, inquiry or
indication of interest by Acquisition) contemplating or otherwise
relating to any acquisition transaction.
- An "acquisition transaction" means any transaction or series of
transactions involving any (i) reorganization, dissolution, liquidation
or recapitalization of the Company or its subsidiaries, (ii) merger,
consolidation, share exchange, business combination, issuance of
securities, acquisition of securities, tender offer, exchange offer or
other similar acquisition of the Company or its subsidiaries, (iii) sale,
lease, exchange, transfer, license, acquisition or disposition of any
material amount of the assets of the Company or its subsidiaries, (iv)
direct or indirect acquisition or purchase of any shares of capital
stock, partnership interests or other equity interests of the Company or
its subsidiaries beneficially owned by Mr. Hammons and any of his
affiliates, including, without limitation, the JQH Trust, (v) similar
transaction or business combination involving the Company or its
subsidiaries or any of their respective businesses, shares of capital
stock, partnership interests, other equity interests or assets or (vi)
other transaction, the consummation of which would prevent, impede or
delay the consummation of the transactions contemplated in the merger
agreement or related transaction agreements.
- A "superior proposal" means an unsolicited, bona fide written offer made
by a third party for an acquisition transaction on terms that our board
of directors determines to be more favorable to the Company's
unaffiliated stockholders than the merger contemplated by the merger
agreement.
FINANCING
The merger agreement provides that we will provide assistance to
Acquisition in arranging financing when reasonably requested by Acquisition in
connection with the transactions contemplated by the merger agreement. This
includes payment of certain reasonable and necessary costs and expenses, of up
to $1 million, in connection with any efforts to refinance existing debt after
the effective time of the merger.
AGREEMENTS AMONG ACQUISITION, MERGER SUB, THE JQH STOCKHOLDERS AND THEIR
AFFILIATES
The merger agreement provides that Acquisition, Merger Sub and their
affiliates will not enter into any agreements, arrangements or understandings
with any of the JQH Stockholders or their affiliates before the
49
merger, or amend, modify or otherwise alter any of the agreements without the
prior approval of the special committee.
ADDITIONAL COVENANTS OF THE PARTIES
In addition to our covenants described above, the parties have also
undertaken certain additional obligations and responsibilities under the merger
agreement including the covenants described below:
- we will prepare and file this proxy statement and a Schedule 13E-3 with
the SEC and the parties will notify one another, and work together to
respond to, any comments from the SEC;
- we will take all action necessary to call, give notice of and hold a
meeting of stockholders to vote on the merger agreement;
- we and Acquisition will take all appropriate action, and do all things
necessary, proper or advisable to complete the merger and the
transactions contemplated by the merger agreement;
- we and Acquisition will make all necessary filings under applicable laws;
- we and Acquisition will obtain any governmental and third party consents
and approvals necessary for consummation of the merger;
- any employee who continues employment with Acquisition, the surviving
corporation or any subsidiary after the merger begins participating in
certain employee benefit plans, each such employee will be credited with
periods of service with us before the merger for purposes of
participation, vesting and benefits levels;
- for six years after the effective time of the merger, Acquisition and the
surviving corporation will indemnify past and present directors and
officers of the Company or any of its subsidiaries against all losses in
connection with any event arising out of their positions as such officers
or directors;
- except as otherwise prohibited by applicable law, Acquisition and the
Company will consult with each other before issuing any press release or
otherwise making any public statement with respect to the merger or any
related transaction;
- we will use reasonable efforts to obtain and deliver to Acquisition the
resignation of each of our officers and directors and those of our
subsidiaries requested by Acquisition (as of the effective time of the
merger);
- we will be reimbursed by Mr. Hammons for, and receive from Mr. Hammons a
waiver and release relating to, all expenditures made before the
effective time of the merger with respect to the refinancing of the real
property known as Chateau on the Lake Resort and Convention Center
located in Branson, Missouri; and
- after the effective time of the merger, the surviving corporation will
reimburse Acquisition and Merger Sub for all of their expenses incurred
in connection with the merger and the related transactions.
CONDITIONS TO THE COMPLETION OF THE MERGER
CONDITIONS PRECEDENT TO OBLIGATIONS OF EACH PARTY
The obligation of each party to the merger agreement to effect the merger
is subject first to the satisfaction of the following conditions:
- the merger agreement shall have been duly adopted by a majority of the
votes of Class A and Class B Common Stock outstanding, voting as one
class, and a majority of the shares voted by unaffiliated stockholders.
(As discussed above, although it has no present intention of doing so,
the special committee may waive the second vote requirement);
- the waiting period applicable to the consummation of the merger under any
applicable law shall have expired or been terminated; and
50
- no judicial order or governmental action preventing the consummation of
the merger, and no legal requirement enacted, adopted or deemed
applicable to the merger that makes consummation of the merger illegal,
will be in effect.
CONDITIONS PRECEDENT TO OBLIGATIONS OF ACQUISITION AND MERGER SUB
The obligations of Acquisition and Merger Sub to effect the merger are
subject first to the satisfaction of certain conditions, including the
following:
- our representations and warranties in the merger agreement shall be true
and correct as of the date of the merger agreement and as of the
effective time of the merger, as though made at such time, except to the
extent expressly made as of an earlier date (in which case, such will be
true and correct as of such date), and except where the failure of such
representations and warranties to be true and correct would not
reasonably be expected to have a material adverse effect on the Company;
- we shall have complied with or performed in all material respects all of
our obligations under the merger agreement required to be performed as of
or prior to the closing of the merger;
- since the date of the merger agreement, there shall not have occurred any
material adverse effect on the Company or its subsidiaries, and no event
shall have occurred or circumstance shall exist that, in combination with
any other events or circumstances, is reasonably likely to have such a
material adverse effect;
- all necessary consents shall have been obtained, made or given and shall
be in full force and effect;
- there shall not be any pending legal proceeding instituted or threatened
by a governmental body (a) challenging or seeking to restrain or prohibit
the consummation of the merger or certain related transactions; (b)
relating to the merger and seeking to obtain from Acquisition or its
subsidiaries any damages material to Acquisition; (c) seeking to prohibit
or limit in any material respect, after the effective time of the merger,
Acquisition's rights with respect to the stock of the surviving
corporation or its subsidiaries; (d) which would materially and adversely
affect the right of the surviving corporation to own the assets or
operate the business of the Company and its subsidiaries; (e) seeking to
compel Acquisition or the Company or any of their subsidiaries to dispose
of or hold separate any material assets, as a result of the merger or
certain related transactions; or (f) which would have a material adverse
effect on the Company and its subsidiaries or Acquisition;
- the transactions described under "Transactions Related to the Merger"
will have closed contemporaneously with the closing of the merger, except
for the transactions to be consummated following the effective time of
the merger which are reasonably expected to be so consummated;
- certain existing management agreements to which we or our subsidiaries is
a party will have been terminated;
- we will have performed all of our obligations with respect to providing
certain notice to the holders of our stock options;
- certain liens will have been released and we will have delivered to
Acquisition certain real estate documents, none of which will be violated
by the transactions contemplated by the merger agreement; and
- we will have placed $8 million in escrow for the purpose of paying fees
and expenses to Acquisition related to the termination of the merger
agreement under certain circumstances.
51
CONDITIONS PRECEDENT TO OBLIGATION OF THE COMPANY
Our obligation to effect the merger is subject to the satisfaction of
certain conditions, including the following:
- the representations and warranties of Acquisition and Merger Sub
contained in the merger agreement shall be true and correct as of the
date of the merger agreement and as of the effective time of the merger,
as though made at such time, except to the extent expressly made as of an
earlier date (in which case, such will be true and correct as of such
date), and except where the failure of such representations and
warranties to be true and correct would not reasonably be expected to
have a material adverse effect on Acquisition or its subsidiaries;
- Acquisition and Merger Sub shall have complied with or performed in all
material respects all of their obligations under the merger agreement
required to be performed as of or prior to the closing of the merger;
- there will not be any pending legal proceeding instituted or threatened
by a governmental body seeking a remedy against any officers or directors
of the Company or its subsidiaries in connection with a legal proceeding
challenging or seeking to restrain or prohibit the consummation of the
merger or certain related transactions; and
- Acquisition will have placed $3 million in escrow securing Acquisition's
obligations to pay certain amounts to us pursuant to certain events of
termination specified in the merger agreement.
TERMINATION
The merger agreement may be terminated prior to the effective time of the
merger by any of the following methods:
- by mutual written consent of Acquisition and us;
- by either Acquisition or us if the merger has not been consummated by (i)
December 31, 2005 or (ii) February 28, 2006 if, on December 31, 2005,
there is a pending or threatened legal proceeding instituted by a
governmental body challenging or seeking to restrain or prohibit the
consummation of the merger, subject to further extensions under certain
circumstances described in the merger agreement;
- by either Acquisition or us if a court of competent jurisdiction or other
governmental body has taken final action permanently prohibiting the
merger;
- by either Acquisition or us if the merger agreement is not adopted by
stockholders at the special meeting, provided that the parties to the
merger agreement have performed their obligations under the merger
agreement;
- by Acquisition at any time prior to the adoption of the merger agreement
by stockholders if a "triggering event" occurs, including the following
events:
- failure of our board of directors to continue to support the merger;
- endorsement by our board of directors of an acquisition proposal (as
defined above); or
- our solicitation or failure to notify Acquisition of an acquisition
proposal (as defined above), our failure to cease discussions with any
person that relate to an acquisition proposal, or our failure to obtain
a confidentiality agreement no less favorable to us than our
confidentiality agreement with Acquisition from any person which
proposes the competing acquisition proposal;
- by us at any time before stockholder adoption of the merger agreement if
our board of directors has authorized us to enter into an acquisition
transaction, in accordance with and as permitted under the merger
agreement, and Acquisition does not match the offer;
52
- by Acquisition if any of our representations and warranties in the merger
agreement are not accurate, or become inaccurate to a certain extent, or
if we breach our covenants contained in the merger agreement and do not
cure such breaches;
- by us if any of Acquisition's representations and warranties as provided
in the merger agreement are not accurate, or become inaccurate to a
certain extent, or if Acquisition breaches the covenants contained in the
merger agreement and it does not cure such breaches;
- by us if Acquisition has not timely delivered to us a letter of
commitment from a financing source with respect to funds to be paid by
Acquisition for the merger;
- by either Acquisition or us if Mr. Hammons dies and the agreements with
him and Acquisition have been terminated prior to consummation other than
by reason of a voluntary termination by Acquisition; or
- by either Acquisition or us if the transaction agreement (as defined
below) has been terminated for Mr. Hammons' incapacity.
TERMINATION FEES
Fees incurred in connection with the merger agreement and related
transactions generally will be paid by the party incurring such fees, whether or
not the merger is consummated. If the merger does not occur, the merger
agreement provides for certain exceptions, and, under certain circumstances,
also provides that one party must pay termination fees to the other party.
The maximum aggregate amount we must pay to Acquisition for fees and for
reimbursement of its expenses under any circumstances is $20 million. The
following table summarizes the events that trigger payment of expenses and/or
termination fees.
<Table>
<Caption>
EVENT PAYMENT
- ----- -------
The merger agreement is not adopted by the We pay Acquisition's expenses (up to $8
required votes of our stockholders million). If we have not received another
acquisition proposal from another party or
have received another acquisition proposal
and rejected it, we pay a $4 million
termination fee to Acquisition.
If we have received another acquisition
proposal and have not rejected it, or within
18 months we announce an acquisition proposal
with the party that made the original
acquisition proposal, we pay a $15 million
termination fee (less the $4 million payment,
if any).
The total of the expenses and termination
fees we pay to Acquisition will not exceed
$20 million.
Certain "triggering events" described above We pay Acquisition's expenses (up to $8
occur million) plus a termination fee of $15
million (but not to exceed $20 million in the
aggregate).
Uncured inaccuracy/breach of any of our We pay Acquisition's expenses (up to $8
representations and warranties or covenants million).
The merger has not been consummated by We pay Acquisition's expenses (up to $8
December 31, 2005 (as that date may be million).
extended under the merger agreement) and we
receive an acquisition proposal from a third If we have received another acquisition
party proposal and have not rejected it, or within
18 months, we announce an acquisition
proposal with the party that made the
original acquisition proposal, we pay a $15
million termination fee.
</Table>
53
<Table>
<Caption>
EVENT PAYMENT
- ----- -------
The total of the expenses and termination fee
we pay to Acquisition will not exceed $20
million.
Mr. Hammons dies and his estate terminates We pay Acquisition's expenses (up to $8
the transaction agreement with Acquisition million) plus a $4 million termination fee
and its affiliates plus, if within 18 months of the date of
termination of the merger agreement we
announce another acquisition proposal, an
additional $11 million termination fee at the
later closing (but not to exceed $20 million
in the aggregate).
The JQH Stockholders fail to close on the Acquisition gets an automatic extension of
various agreements with Acquisition and its the December 31, 2005 deadline until the
affiliates, and Acquisition is prepared to earliest of (i) 6 months, (ii) the date
close Acquisition stops pursuing remedies against
the JQH Stockholders, and (iii) Acquisition
no longer has the financial ability to close
the merger. After that time, we can terminate
and, if we announce another acquisition
proposal, we will pay Acquisition its
expenses (up to $8 million).
If, within 18 months of the date of
termination of the merger agreement we
announce another acquisition proposal, then
we pay an additional $11 million termination
fee at the later closing (but not to exceed
$20 million in the aggregate).
Mr. Hammons is incapacitated and the We pay Acquisition its expenses (up to $8
Transaction Agreement with Acquisition is million) plus, if within 18 months of the
terminated date of termination of the merger agreement
we announce another acquisition proposal, we
pay an additional $11 million termination fee
at the later closing.
Our board of directors has authorized us to We pay Acquisition's expenses (up to $8
enter into an acquisition transaction, as million) plus a termination fee of $15
permitted under the merger agreement, and million (but not to exceed $20 million in the
Acquisition does not match the offer aggregate).
Uncured inaccuracy/breach of Acquisition's Acquisition pays us $3 million.
representations and warranties or covenants
or failure of Acquisition to timely deliver
to us a letter of commitment
</Table>
Our right to receive a $3 million termination fee from Acquisition applies only
when the merger agreement is terminated for specific reasons described in the
chart above, and is our exclusive remedy for losses we may suffer if the merger
does not close.
ESCROW AGREEMENTS
As contemplated by the merger agreement, we entered into two separate
escrow agreements, each with Acquisition, Merger Sub, and Wells Fargo Bank,
National Association, as the escrow agent.
Acquisition deposited $3 million under one escrow agreement to secure its
obligations to make payments in the event that the merger is not consummated
under those circumstances discussed above. If the merger is consummated, the
escrow funds will be released to Acquisition. If the merger agreement is
terminated under those certain circumstances discussed above, the escrow funds
will be disbursed to us and the earnings on the escrow funds will be released to
Acquisition.
To secure our obligations to pay certain amounts under the merger
agreement, we deposited $8 million into a separate escrow account. If the merger
is consummated, an amount equal to fees and expenses paid by Acquisition in
connection with the merger agreement and related transactions will be released
to Acquisition,
54
and the remainder, if any, will be released to us. If the merger agreement is
terminated under certain circumstances discussed above, an amount equal to the
fees and expenses paid by Acquisition in relation to the merger agreement and
related transactions will be disbursed to Acquisition with the remainder, if
any, to be released to us.
AMENDMENTS
The merger agreement may be amended only with the consent of all parties,
but after stockholders adopt the merger agreement, no amendment or waiver may be
made which by law requires further stockholder approval without obtaining such
approval.
CAUTIONARY STATEMENT CONCERNING
FORWARD-LOOKING INFORMATION
This proxy statement contains forward-looking statements that are based on
our expectations, estimates, assumptions and beliefs about our business and the
merger, taking into account information currently available to us. These
forward-looking statements generally can be identified by the use of words such
as "may," "expect," "intend," "estimate," "anticipate," "plan," "believe," or
"continue" or the negative of these terms or similar terminology.
Forward-looking statements include the information in this proxy statement
regarding:
- future economic performance;
- conditions to the merger;
- the timetable for the merger; and
- plans of management, the JQH Stockholders, Acquisition or other parties.
Although we believe that the expectations reflected in these
forward-looking statements are reasonable, we can give no assurance that these
expectations will prove to be correct. All such forward-looking statements are
subject to certain risks and uncertainties that could cause actual results to
differ materially from those contemplated by the relevant forward-looking
statement. In addition to other factors and matters contained or incorporated in
this document, we believe the following factors could cause actual results to
differ materially from those implied in forward-looking statements:
- the possibility that the merger may adversely affect our results of
operations, whether or not we complete the merger;
- the possibility that the merger may not be completed in a timely manner
or at all, which may adversely affect our business;
- the timing of, and legal regulatory and other conditions associated with,
the completion of the merger;
- uncertainties relating to general economic conditions, and cyclical
industry and business conditions;
- intensified competitive pressures in the markets in which we compete;
- other mergers, restructurings or changes in ownership in the lodging
industry;
- increasing competition in the overall lodging industry in areas such as
access, location, quality of accommodations and room rate structures;
- uncertainty as to the balance between supply of and demand for hotel
rooms and accommodations;
- uncertainty as to the level of rates and occupancy that can be achieved
by our properties;
- uncertainty as to changes in travel patterns;
- the loss of key employees; and
- volatile and unpredictable developments, including storms and
catastrophes, such as acts of terrorism and war.
55
All subsequent written or oral forward-looking statements attributable to
us or persons acting on our behalf are expressly qualified in their entirety by
these cautionary statements. The forward-looking statements are made only as of
the date of this proxy statement, and we do not undertake any obligation to
release publicly any revisions to such forward-looking statements to reflect
events or circumstances after the date hereof or to reflect the occurrence of
unanticipated events. In the event of any material change in any of the
information previously disclosed, however, we will, where relevant and if
required by applicable law, (i) update such information through a supplement to
this proxy statement and (ii) amend the Schedule 13E-3 filed in connection with
the merger, in each case, to the extent necessary.
Information in this proxy statement concerning Acquisition, Merger Sub, the
JQH Stockholders and their respective affiliates has been supplied by those
parties and we have not independently verified that information.
ESTIMATED FEES AND EXPENSES OF THE MERGER
Whether or not the merger is completed, in general, all out-of-pocket
expenses incurred by the parties will be borne solely by the party incurring the
expense (except as discussed above). If the merger agreement is terminated, we
will, in certain circumstances, be responsible for certain fees and expenses of
Acquisition. We describe these provisions in more detail under the section "The
Merger Agreement -- Termination Fees" beginning on Page 53.
Fees and expenses we have incurred or estimate we will incur in connection
with the merger are as follows:
<Table>
Financial advisor fees and expenses......................... $ 1,505,000
Financing fees and expenses................................. $16,750,000
Legal, accounting and other professional fees............... $ 3,730,000
SEC filing fees............................................. $ 18,640
Proxy solicitation, printing and mailing costs.............. $ 55,000
-----------
Total....................................................... $22,061,640
</Table>
These expenses will not reduce the merger consideration to be received by
our unaffiliated stockholders.
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES
The following discussion of the material U.S. federal income tax
consequences of the merger to holders of Class A Common Stock is based on the
Internal Revenue Code of 1986, as amended (the "tax code"), the related Treasury
Regulations, and judicial and administrative rulings and decisions in effect on
the date hereof. These authorities may change at any time, possibly
retroactively, and any such change could affect the continuing validity of this
discussion. No ruling from the Internal Revenue Service (the "IRS") has been
requested with respect to the U.S. federal income tax consequences described and
accordingly, there can be no assurance that the IRS will agree with this
discussion. This discussion does not address any tax consequences arising under
the laws of any state, locality or foreign jurisdiction, and accordingly, is not
a comprehensive description of all of the tax consequences that may be relevant
to any particular stockholder.
This discussion assumes that holders hold their shares of Class A Common
Stock as capital assets and does not address the tax consequences relevant to a
particular stockholder subject to special treatment under U.S. federal income
tax law, including but not limited to:
- foreign persons;
- financial institutions;
- tax-exempt organizations;
- insurance companies;
56
- traders in securities that elect mark-to-market;
- dealer in securities or foreign currencies;
- persons who received their stock of the Company through the exercise of
employee stock options or otherwise as compensation;
- persons who hold shares of our stock as part of a hedge, straddle or
conversation transaction; and
- persons who exercise their appraisal rights in compliance with Delaware
law.
CHARACTERIZATION OF THE MERGER
For U.S. federal income tax purposes, the merger of Merger Sub into the
Company will be treated as a taxable transaction to holders of our Class A
Common Stock but will not be treated as a taxable transaction to the Company.
A stockholder will recognize capital gain or loss equal to the difference
between the amount of cash received in the merger and such stockholder's
adjusted tax basis in such stock. Such gain or loss will be long-term capital
gain or loss if at the time of the merger the stockholder had a holding period
in the stock of more than one year. Gain or loss must be determined separately
for each block of stock (i.e., stock acquired at the same cost in a single
transaction).
INFORMATION REPORTING AND BACKUP WITHHOLDING
Certain noncorporate holders of our stock may be subject to information
reporting and backup withholding at applicable rates (currently 28%), on cash
payments received in the merger. Backup withholding will not apply, however, to
a holder who furnishes a correct taxpayer identification number and certifies
that the holder is not subject to backup withholding on IRS Form W-9 or a
substantially similar form or is otherwise exempt from backup withholding. If a
holder does not provide its correct taxpayer identification number or fails to
provide the certification described above, the IRS may impose a penalty on the
holder, and amounts received by the holder pursuant to the merger may be subject
to backup withholding. Amounts withheld, if any, are generally not an additional
tax and may be refunded or credited against the holder's U.S. federal income tax
liability, provided that the holder furnishes the required information to the
IRS.
ALTHOUGH THE FOREGOING ARE THE MATERIAL U.S. FEDERAL INCOME TAX
CONSEQUENCES GENERALLY APPLICABLE TO THE MERGER, THE DISCUSSION DOES NOT ADDRESS
EVERY U.S. FEDERAL INCOME TAX ISSUE WHICH MAY BE APPLICABLE TO A PARTICULAR
STOCKHOLDER. YOU ARE ENCOURAGED TO CONSULT YOUR OWN TAX ADVISOR TO DETERMINE THE
TAX CONSEQUENCES TO YOU, IN LIGHT OF YOUR PARTICULAR CIRCUMSTANCES, OF THE
DISPOSITION OF STOCK IN THE MERGER.
ANTICIPATED ACCOUNTING TREATMENT
The merger is intended to be accounted for by Acquisition as a purchase
under generally accepted accounting principles in the United States of America.
Accordingly, it is expected that Acquisition's basis in our assets and
liabilities will be adjusted to fair market value upon completion of the merger,
including the establishment of additional goodwill.
APPRAISAL RIGHTS
Under Delaware law, you are entitled to appraisal rights in connection with
the merger.
If the merger is consummated, stockholders who have not voted in favor of
or consented to the merger who follow the procedures set forth in the DGCL and
described below within the appropriate time periods will be entitled to have
their shares of stock appraised by a court and to receive the "fair value" of
such shares in cash as determined by the Delaware Court of Chancery, together
with a fair rate of interest, if any, as
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determined by the court, in lieu of the consideration that such stockholder
would otherwise be entitled to receive pursuant to the merger agreement. These
rights are known as appraisal rights.
The discussion below is a summary regarding your appraisal rights under
Section 262 of the DGCL, attached to this proxy statement as Appendix C. If you
intend to exercise appraisal rights, you should carefully review Appendix C.
Failure to follow precisely any of the statutory procedures set forth in
Appendix C may result in a termination or waiver of these rights. This proxy
statement constitutes notice to stockholders concerning the availability of
appraisal rights under the DGCL.
If you wish to exercise appraisal rights in connection with the merger, you
must not vote in favor of the merger agreement, must continually be the holder
of record of such shares through the effective time of the merger and must meet
the conditions described below.
Stockholders who desire to exercise their appraisal rights must satisfy all
of the conditions of Section 262 of the DGCL. A written demand for appraisal of
shares must be filed with the Company before the special meeting on September
15, 2005. This written demand for appraisal of shares must be in addition to and
separate from a vote against the merger. Stockholders electing to exercise their
appraisal rights must not vote for the merger, but any proxy or vote against the
merger, abstention from voting or failure to vote on the merger will not in and
of itself constitute a demand for appraisal within the meaning of the DGCL.
You must execute a demand for appraisal, fully and correctly, as your name
appears on your stock certificate. If the shares are owned of record in a
fiduciary capacity, such as by a trustee, guardian or custodian, this demand
must be executed by or for the fiduciary. If the shares are owned by or for more
than one person, as in a joint tenancy or tenancy in common, such demand must be
executed by or for all joint owners. An authorized agent, including an agent for
two or more joint owners, may execute the demand for appraisal for a stockholder
of record; however, the agent must identify the record owner and expressly
disclose the fact that, in exercising the demand, he is acting as agent for the
record owner. A person having a beneficial interest in stock held of record in
the name of another person, such as a broker or nominee, must act promptly to
cause the record holder to follow the steps summarized below and in a timely
manner to perfect whatever appraisal rights the beneficial owners may have.
A stockholder who elects to exercise appraisal rights should mail or
deliver the written demand to us at our address at 300 John Q. Hammons Parkway,
Springfield, Missouri 65806, Attention: Secretary. The written demand for
appraisal should specify the stockholder's name and mailing address, and that
the stockholder is demanding appraisal of his or her stock. Within ten days
after the effective time of the merger, we must provide notice of the effective
time of the merger to all stockholders who have complied with Section 262 of the
DGCL and have not voted in favor of the merger.
Within 120 days after the effective time of the merger, any stockholder who
has satisfied the requirements of the DGCL may deliver a written demand for a
statement listing the aggregate number of shares not voted in favor of the
merger and with respect to which demands for appraisal have been received and
the aggregate number of holders of such shares.
Within 120 days after the effective time of the merger (but not
thereafter), either the Company or any stockholder who has complied with the
required conditions of the DGCL and who is otherwise entitled to appraisal
rights may file a petition in the Delaware Court of Chancery demanding a
determination of the fair value of the stockholder's shares. We have no present
intention to file such a petition if a demand for appraisal is made.
Upon the filing of any petition by a stockholder in accordance with the
DGCL, service of a copy must be made upon the Company, which must, within 20
days after 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 Company.
If a petition is filed by the Company, the petition must be accompanied by the
verified list. The Register in Chancery, if so ordered by the court, will give
notice of the time and place fixed for the hearing of such petition by
registered or certified mail to the Company and to the stockholders shown on the
list at the addresses therein stated, and notice will also be given by
publishing a
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notice at least one 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 must be approved by the court, and the costs will be borne by the
Company.
If a petition for an appraisal is filed in a timely fashion, after a
hearing on the petition, the court will determine which stockholders are
entitled to appraisal rights and will appraise the shares owned by these
stockholders, determining the fair value of such 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.
Stockholders considering seeking appraisal of their shares should note that
the fair value of their shares determined under the DGCL could be more, the same
as or less than the consideration they would receive under the merger agreement
if they did not seek appraisal of their shares. The costs of the appraisal
proceeding may be determined by the court and taxed against the parties as the
court deems equitable under the circumstances. Upon application of a dissenting
stockholder, the court may order that all or a portion of the expenses incurred
by a dissenting stockholder in connection with the appraisal proceeding,
including reasonable attorneys' fees and the fees and expenses of experts, be
charged pro rata against the value of all shares entitled to appraisal. In the
absence of a determination or assessment, each party bears his, her or its own
expenses.
Any stockholder who has duly demanded appraisal in compliance with the DGCL
will not, after the effective time of the merger, be entitled to vote for any
purpose the shares subject to demand or to receive payment of dividends or other
distributions on such shares, except for dividends or distributions payable to
stockholders of record at a date prior to the effective time of the merger.
At any time within 60 days after the effective date of the merger, any
stockholder will have the right to withdraw his demand for appraisal and accept
the terms offered in the merger agreement. After this period, a stockholder may
withdraw his demand for appraisal and receive payment for his shares as provided
in the merger agreement only with the consent of the Company and Acquisition. If
no petition for appraisal is filed with the court within 120 days after the
effective time of the merger, stockholders' rights to appraisal (if available)
will cease. Since we have no obligation to file such a petition, any stockholder
who desires a petition to be filed is advised to file it on a timely basis. No
petition timely filed in the court demanding appraisal may be dismissed as to
any stockholder without the approval of the court, which approval may be
conditioned upon such terms as the court deems just.
FAILURE BY ANY STOCKHOLDER TO COMPLY WITH THE PROCEDURES DESCRIBED ABOVE
AND SET FORTH IN APPENDIX C TO THIS PROXY STATEMENT MAY RESULT IN TERMINATION OF
THE STOCKHOLDER'S APPRAISAL RIGHTS.
TRANSACTIONS RELATED TO THE MERGER
This section of the proxy statement summarizes arrangements and various
agreements contemplated among the JQH Stockholders and Acquisition and their
affiliates in connection with the merger. When we refer to the Company in this
section, we mean the Company as the surviving corporation in the merger. We and
the other parties to the merger agreement entered into the merger agreement
based upon the understanding that these arrangements and related transactions
would occur. Many of these transactions are to be consummated for the benefit
and to the advantage, both direct and indirect, of Mr. Hammons and his
affiliates. Both the special committee and the board of directors considered the
terms of these related transactions in making their recommendations in favor of
the merger. Copies of the entire agreements described below are filed as
exhibits to our Current Report on Form 8-K, filed with the SEC on June 20, 2005,
and incorporated by reference into this proxy statement.
The parties to these agreements have agreed, pursuant to the Transaction
Agreement described below, to enter into additional agreements immediately
following the consummation of the merger. We describe those additional
agreements below. Acquisition has advised us, however, that it has proposed
amendments to certain of these agreements in order to facilitate its proposed
refinancing of a portion of the Partnership's indebtedness after the closing
described under "Acquisition's Tender for Partnership Notes" below. Any such
amendments
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will require the agreement of the JQH Stockholders and, to the extent they are
executed prior to the consummation of the merger, the special committee.
Descriptions of the proposed amendments are included in the descriptions of the
applicable agreements below.
TRANSACTION AGREEMENT
On June 14, 2005, the JQH Stockholders, Acquisition and JDH entered into an
Amended and Restated Transaction Agreement, which we refer to as the
"Transaction Agreement," to set forth the general structure of these related
transactions. Under the Transaction Agreement, the parties agree to consummate,
immediately after the merger, a number of related transactions, each of which is
conditioned upon the occurrence of the others. The Transaction Agreement
describes each of these related transactions and, where applicable, the
agreements governing such related transactions (the "other transaction
agreements"). In addition, under the Transaction Agreement, JDH and Acquisition
can seek specific performance if the JQH Stockholders fail to consummate the
Transaction Agreement or the other transaction agreements.
In addition to agreeing to consummate a number of related transactions, the
parties to the Transaction Agreement agreed to the following provisions:
Support of the Merger. The JQH Stockholders agreed to vote in favor of the
merger and perform under the other transaction agreements and, without regard to
any recommendations by us, to vote against any competing proposal or other
action or agreement that would prevent or hinder the completion of the merger
and the related transactions.
No Sale of Equity Interests. The JQH Stockholders agreed not to transfer
their equity interests in us or any of our affiliated companies, grant proxies
or enter into any voting agreements with respect to their equity interests,
deposit any equity interest into a voting trust, convert or allow conversion of
their shares of Class B Common Stock into Class A Common Stock, or cause to be
declared or paid any dividends or distributions with respect to their equity
interests of the Company or the Partnership.
No Solicitation. The JQH Stockholders agreed to discontinue any
solicitation or discussions begun before entering into the Transaction
Agreement, to not commence any solicitation or discussion with any person, and
to not authorize or approve of, any proposed or potential transaction other than
the merger and related transactions.
Indenture Compliance Plan. The parties set forth generally their
understanding of the actions necessary to comply with the terms and conditions
of the Indenture, dated as of May 21, 2002, among the Partnership, John Q.
Hammons Hotels Finance Corporation III and Wachovia Bank, National Association,
as trustee, relating to the First Mortgage Notes due 2012. Acquisition has
advised us that the Indenture Compliance Plan should be modified to reflect the
proposed offer to purchase the notes described under "Acquisition's Tender for
Partnership Notes."
Acquisition has advised us that it proposes that the Transaction Agreement
be amended in connection with its proposed refinancing of the Partnership's
mortgage indebtedness to provide that, following the closing, four new entities
(the "Finance Entities") will be formed by the Partnership and Hotels Two (as
defined below), which in turn will form four additional new entities (the "TRS
Entities"). Acquisition proposes that certain hotel properties will be
transferred to the Finance Entities following the closing. The Finance Entities
are expected to be the borrowers under the first mortgage loans described under
"Acquisition's Tender for Partnership Notes" below.
SHORT-TERM LINE OF CREDIT
As of June 14, 2005, Mr. Hammons and JQH Trust executed a short-term line
of credit with iStar, providing Mr. Hammons and the JQH Trust a $25 million line
of credit until the first to occur of (i) one year, (ii) the closing of the
merger. The line of credit is recourse to Mr. Hammons and JQH Trust.
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BONUS PAYMENTS TO STOCK OPTION HOLDERS
Acquisition will provide funds to us to make the bonus payments to holders
of our stock options. As described above, all outstanding stock options will
terminate at the time of the merger. Each former holder of a terminated option
will receive a cash bonus payment for his or her unexercised options (whether or
not vested) equal to (i) the excess of $24.00 over the exercise price per share
provided for in such stock option, multiplied by (ii) the number of shares of
Class A Common Stock subject to such stock option (less applicable tax
withholding amounts).
AMENDMENT OF EXISTING PARTNERSHIP AGREEMENT
Immediately after the merger, the Company, as general partner, and JQH
Trust and Hammons, Inc., as limited partners, will amend the Second Amended and
Restated Agreement of Limited Partnership of the Partnership by adopting
Amendment No. 4. As a result of the merger, the Partnership will be entitled to
Federal income tax deductions related to $11.7 million of the amounts paid as
bonuses to the holders of stock options for shares of the Class A Common Stock
discussed above, and with the remainder of the deduction allocated to the
general partner. Pursuant to this Amendment No. 4, the partnership agreement
will be amended to allocate such Federal income tax deductions as follows: 68.6%
to JQH Trust, 6.8% to Hammons, Inc., and 24.6% to the Company.
REAL ESTATE SALE AND NON-COMPETE AGREEMENT
Pursuant to an agreement among John Q. Hammons Hotels Two, L.P. ("Hotels
Two"), JQH Trust and Mr. Hammons, Hotels Two will sell JQH Trust an undeveloped
parcel of property located in Omaha, Nebraska for a price based on its fair
market value at the time the option is exercised (unless the fair market value
exceeds $2 million, in which case JQH Trust can elect not to purchase the
property), and Hotels Two will grant JQH Trust an exclusive option to purchase
an undeveloped parcel of property located in Cary, North Carolina for a price
based on its fair market value as determined at the time of exercise of the
option. This option may be exercised within one (1) year from the date of
closing of the sale of the Omaha parcel on the effective date of the merger. In
addition, Mr. Hammons and JQH Trust also agree that they will not develop on
either the Omaha parcel or the Cary parcel any hotel, motel, "condo" hotel,
rental time-share or nightly rental hospitality project, until such time as
events specified in this agreement occur.
CHATEAU DISTRIBUTION AGREEMENT
Acquisition, Merger Sub, Atrium Hotels, LLC, a Delaware limited liability
company whose sole member is Acquisition ("Atrium"), the Partnership, JQH Trust,
Hotels Two and Chateau Lake, LLC, a Delaware limited liability company ("Chateau
Lake") will enter into the Chateau Distribution Agreement. Currently, Hotels Two
owns 100% of the limited liability company interests in Chateau Lake, and
Chateau Lake is the owner of the Chateau on the Lake Resort, which is encumbered
by a secured loan from Bear Stearns Commercial Mortgage Inc. Under the Chateau
Distribution Agreement, in consideration for (a) the transfer of all of the
limited liability company interests in Chateau Lake by Hotels Two to JQH Trust,
and (b) the distribution of certain assets and related liabilities by us and the
Partnership to JQH Hotels Management, LLC, an entity to be formed by the JQH
Stockholders ("JQHHM") pursuant to the Management Assets and Obligations
Distribution Agreement discussed below, JQH Trust will transfer a portion
(determined by an agreed-upon formula) of its limited partnership interests in
the Partnership to the Partnership for cancellation. In addition, JQH Trust will
assume Chateau Lake's existing debt obligations. Shortly after the closing of
the merger, if Chateau Lake's then current liabilities exceed its then current
assets, Acquisition will pay the difference to JQH Trust; however, if Chateau
Lake's then current assets exceed its then current liabilities, JQH Trust will
pay the difference to Acquisition.
MANAGEMENT ASSETS AND OBLIGATIONS DISTRIBUTION AGREEMENT
Acquisition, the Company, the Partnership and JQHHM will enter into the
Management Assets and Obligations Distribution Agreement. In conjunction with
the transfer of all of the limited liability company
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interests in Chateau Lake by the Partnership to JQH Trust (in accordance with
the Chateau Distribution Agreement discussed above), we will distribute certain
assets to the Partnership, and the Partnership will distribute to JQHHM certain
assets and contracts and related liabilities used in the provision of hotel
management services for hotel properties and associated banquet and convention
facilities owned, leased and/or managed by Acquisition, the Company, the
Partnership and their affiliates. Under no circumstances will assets be
distributed with a fair market value (net of associated liabilities), that, when
taken together with the fair market value of the distribution made under the
Chateau Distribution Agreement, exceeds $19.99 million. In addition, immediately
following the merger, Acquisition, the Company, and the Partnership will
terminate the employment of all active employees as of the effective time of the
merger. JQHHM has agreed to offer employment to all employees of the Company and
the Partnership on the same terms and conditions as prior to the merger.
THIRD AMENDED AND RESTATED PARTNERSHIP AGREEMENT
Upon the distributions contemplated by the Chateau Distribution Agreement
and the Management Assets and Obligations Distribution Agreement, the Company,
as general partner, and JQH Trust and Hammons, Inc., as limited partners, will
adopt the Third Amended and Restated Agreement of Limited Partnership to
recapitalize the Partnership. The interests of JQH Trust and Hammons, Inc. in
the Partnership will be converted to a preferred interest in the Partnership. In
addition, a portion of our general partner interest in the Partnership will be
converted into a $7 million preferred interest in the Partnership with the same
rights as the preferred interest distributed to JQH Trust and Hammons, Inc. At
this point, Mr. Hammons (by way of his control of JQH Trust and Hammons, Inc.)
will have a preferred interest in the Partnership with a capital account equal
to a liquidation preference of $328 million, and we will have a common interest
in the Partnership and a preferred interest in the Partnership with a capital
account of $7 million.
The Third Amended and Restated Agreement of Limited Partnership will
include the following additional provisions:
- we, as general partner, cannot create or issue certain obligations of and
interests in the Partnership without the consent of JQH Trust and
Hammons, Inc., as limited partners;
- in connection with the event of a default or certain deficiencies under
the indenture relating to the First Mortgage Notes due 2012, Mr. Hammons
or Hammons, Inc. will be obligated to make a capital contribution of up
to $180 million to the Partnership, and Hammons, Inc. will be obligated
to make a capital contribution of up to $15 million to the Partnership to
be used to pay for or cure such defaults or deficiencies;
- we will have the right to cause the Partnership to make certain cash
distributions subject to satisfaction of certain net worth thresholds;
- the Partnership is required to make distributions to JQH Trust or
Hammons, Inc. if they incur certain income tax obligations as the result
of certain dispositions of certain hotel properties not covered by the
Tax Indemnity Agreement described below;
- prior to liquidation of the Partnership, certain allocations will be made
to holders of preferred units, and after notice of liquidation has been
given, certain additional gain and loss allocations will be made to
certain holders of preferred units and to holders of common units;
- during certain periods of time, JQH Trust and Hammons, Inc. will have the
right to require the liquidation of the Partnership;
- upon the death of Mr. Hammons, the Partnership will have the right to
redeem all of the outstanding preferred units for an amount determined
under the agreement after a certain time period has elapsed; and
- under certain conditions, JQH Trust will have the right to require the
Partnership to purchase a certain portion of its preferred units.
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REDEMPTION AGREEMENT
JQH Trust owns 294,100 shares of Class B Common Stock that, as part of the
merger, will remain outstanding as shares of common stock of the Company. Under
the Redemption Agreement between the Company and JQH Trust, the Company will
redeem these shares of common stock for $7 million in preferred interests in the
Partnership. Upon redemption, JQH Trust may request that the Partnership make an
election under the tax code which would be beneficial to JQH Trust with respect
to the basis of the preferred interests received in such exchange. At this
point, Mr. Hammons (by way of his control of JQH Trust and Hammons, Inc.) will
have a capital account in the Partnership equal to $335 million.
FOURTH AMENDED AND RESTATED PARTNERSHIP AGREEMENT
The Company will exchange its general partner interest in the Partnership
for a preferred interest in Atrium. Thereafter, we, as general partner, and JQH
Trust and Hammons, Inc., as limited partners, will adopt the Fourth Amended and
Restated Agreement of Limited Partnership whereby the Partnership will be
renamed "Atrium Hotels, L.P." (subject to any restrictions under the Indenture
governing the notes issued by the Partnership and any related security
agreements) and Atrium will replace us as general partner of the Partnership.
Acquisition has advised us that it proposes that the Fourth Amended and
Restated Partnership Agreement be amended to permit transfers and leases of our
hotel properties to entities owned entirely by the Partnership and Hotels Two
collectively.
TAX INDEMNITY AGREEMENT
The Partnership and Hotels Two currently own 36 properties; the income tax
burden from a sale of these properties during Mr. Hammons' lifetime may fall
disproportionately on Mr. Hammons. Pursuant to the Tax Indemnity Agreement, the
Partnership will indemnify the JQH Stockholders from the assumed tax burden
resulting from a sale of any of these properties during Mr. Hammons' lifetime,
and will agree to refrain from any voluntary sale of the properties unless the
Partnership's net worth after any such tax indemnity payment would be greater
than $425 million. In addition, the JQH Stockholders will receive thirty days
advance notice of any contemplated or possible refinancing of $195 million of
the Partnership's 8 7/8% First Mortgage Notes due 2012 or approximately $250
million of other debt, to enable them to determine whether they desire to
continue, reduce or eliminate their guarantee of or any contributory obligation
with respect to any such refinancing.
SPONSOR ENTITY RIGHT OF FIRST REFUSAL
Pursuant to the Sponsor Entity Right of First Refusal Agreement to be
entered into by Mr. Hammons, JQH Trust, twelve entities controlled by Mr.
Hammons (which own certain hotels controlled by Mr. Hammons), and JDH, JDH will
receive a right of first refusal to purchase any of the hotels owned by, or
subsequently acquired or developed, by the JQH Stockholders or any of their
affiliates if an agreement to sell the hotel has been executed. To the extent
that a partial interest in any such hotel is being sold, JDH will have the right
to purchase the entire hotel for a price calculated in proportion to the
purchase price of the third-party buyer for such partial interest. The right of
first refusal continues until all of the hotels owned by Mr. Hammons or his
affiliates have been sold, but in the event of an uncured material funding
default by Lendco or iStar under the Long-Term Line of Credit Agreement
(discussed below), Mr. Hammons will have the right to suspend the right of first
refusal. Upon Mr. Hammons' death, subject to this right of first refusal, JQH
Trust will sell for cash all of the hotels within the later of (a) two years
after his death, and (b) full redemption of the Hammons preferred units in the
Partnership. Finally, Mr. Hammons and his controlled companies agree not to
transfer, by means of gift or donation to a charitable organization, any of Mr.
Hammons' hotels, other than the Chateau on the Lake Resort; and any subsequent
sale of the Chateau on the Lake Resort for consideration will be subject to this
right of first refusal.
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JQH RIGHT OF FIRST REFUSAL
The Partnership, Hotels Two, Mr. Hammons and JQH Trust will enter into the
JQH Right of First Refusal Agreement under which Mr. Hammons will receive a
right of first refusal on the purchase or lease of certain hotels owned by the
Partnership and Hotels Two, if an agreement to sell that hotel has been signed.
The right of first refusal continues until the earlier of full redemption or
permitted disposition by Mr. Hammons and his affiliates of their preferred
interest in the Partnership, or Mr. Hammons' death. In the event of an uncured
material default by the borrower under the Long-Term Line of Credit Agreement,
this right of first refusal may be suspended. Acquisition has proposed that the
JQH Right of First Refusal Agreement be amended to add the Finance Entities as
parties.
NON-SOLICITATION AGREEMENT
Acquisition, Atrium, the Partnership, the Company, Mr. Hammons, JQH Trust
and JQHHM will enter into the Non-Solicitation Agreement. As noted above, JQHHM
has agreed to hire all employees of the Company and the Partnership. Under this
Non-Solicitation Agreement, JQHHM receives certain non-solicitation protections
from the other parties with respect to these management-level employees. This
agreement expires on the earlier of the disposition of all of the preferred
interests in the Partnership held by the JQH Stockholders, or Mr. Hammons'
death.
CORPORATE OVERHEAD FEE AGREEMENT
Under this agreement between the Partnership and Acquisition, Acquisition
will provide, on a non-exclusive basis, certain financial services, strategic
planning, management consulting and other management services for which the
Partnership will pay an annual fee of $1 million. The engagement expires on
completion of a liquidation of the Partnership.
DEVELOPMENT RESTRICTION AGREEMENT
The Partnership, Hotels Two, a wholly-owned subsidiary to be formed by the
Partnership, Mr. Eilian, Mr. Hammons, JQH Trust, and their affiliates which
develop hotels, including Atrium, will enter into the Development Restriction
Agreement under which the parties agree to procedures governing the development
and construction of any new hotel that could affect any of their respective
existing or new hotels. At the option of the owner of an existing hotel, an
impact study will be performed as to any existing hotel, excluding four hotels
currently under development by Mr. Hammons and his affiliates, to determine the
effect of a new hotel being built in the market area of any pre-existing hotel.
To the extent that the negative impact would be 2% or greater of annual gross
revenues on such pre-existing hotel, the relevant parties will enter into a
joint venture with respect to the new facility, or the new hotel will not be
built. This Development Restriction Agreement will continue until the earlier of
Mr. Hammons' death or the liquidation of all of the preferred interests in the
Partnership held by the JQH Stockholders.
LEASES TO SUBSIDIARIES
The Partnership will form one or more subsidiaries (collectively "Tenant")
to lease all hotel properties from the Partnership and Hotels Two, on an "as is"
basis pursuant to a lease agreement agreed to by the parties. The Tenant will
also lease on the same basis or otherwise acquire the furniture, fixtures and
equipment related to the operation of such properties. The Tenant will be
required to elect with iStar to be a "taxable REIT subsidiary" with respect to
iStar. Acquisition has advised us that it proposes that the agreements be
amended to provide that the Finance Entities and the TRS Entities will enter
into similar lease agreements.
REVENUE SHARING AGREEMENT
JQHHM, the Partnership, Hotels Two and certain other entities will enter
into a Revenue Sharing Agreement. Under that agreement, Mr. Hammons and his
affiliates will pay the Partnership (i) two percent (2%) of the revenues of any
hotels not subject to the Indenture and of any future hotels developed by Mr.
Hammons and his affiliates, and (ii) the amounts of management fees payable to
the Partnership under
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the existing management agreements for eight hotels subject to the Indenture. In
addition, after the merger, JQHHM will manage the hotel properties leased to the
Tenant, pursuant to a management agreement agreed to by the parties (as
discussed below in "Management Services Agreement"), and existing and future
hotels owned by Mr. Hammons and his affiliates. Under the Revenue Sharing
Agreement, the Partnership will pay JQHHM any amount by which JQHHM's management
fee payable under the Management Services Agreement (based on its actual
operating costs for all properties it manages) exceeds what the Tenant would
have to pay under an arms-length management agreement. The term of the Revenue
Sharing Agreement will run concurrently with the Management Services Agreement.
The obligation of Mr. Hammons and his affiliates to make revenue sharing
payments terminates (i) if the Management Services Agreement is terminated by
the Tenant, (ii) if the Partnership defaults in its obligation to pay the
preferred redemption price or to liquidate the Partnership and distribute the
liquidation proceeds or (iii) if the preferred redemption price is paid in full
or the proceeds of liquidation of the Partnership have been fully distributed.
MANAGEMENT SERVICES AGREEMENT
Under a Management Services Agreement between the Tenant and JQHHM, the
Tenant will appoint JQHHM as its exclusive manager to manage and operate the
hotel properties and associated convention and banquet facilities leased to the
Tenant from the Partnership and Hotels Two. The Tenant will pay as a management
fee the actual operating costs incurred by JQHHM for managing all of the hotels,
including hotels owned by Mr. Hammons and his affiliates, including an annual
salary of $200,000 plus benefits to Mr. Hammons. However, the Tenant will not be
obligated to pay any fee in excess of the amount for which the Tenant could
receive comparable management services for the hotel properties it leases in an
arms-length transaction. The Management Services Agreement expires on the
earlier of the redemption of the Hammons Preferred Units or liquidation of the
Partnership, and may be terminated as to individual hotels or in its entirety
under certain other circumstances described in the Agreement. Acquisition has
proposed that the Management Services Agreement be amended to add the TRS
Entities as parties.
LONG-TERM LINE OF CREDIT AGREEMENT
Project Holdco will enter into a Long-Term Line of Credit Agreement with
Lendco for the extension of credit to Project Holdco in the form of a revolving
loan of up to $275 million, the proceeds of which may be used to repay the $25
million short term line of credit discussed above, to fund new hotel development
activities, or to pay interest on the Long-Term Line of Credit. Terms of the
Long-Term Line of Credit Agreement include the following items:
- on a cumulative basis, Project Holdco may borrow an aggregate amount not
to exceed at any time $75 million during the first year, $175 million
during the second year, $225 million during the third year, $250 million
during the fourth year, and $275 million thereafter.
- conditions to the extension of this line of credit include, among other
things, the following:
- the $25 million short-term line of credit extended by iStar to Mr.
Hammons and JQH Trust must have been paid, or it will be paid from the
funds of the initial loan made under this long term line of credit;
- the merger must have been consummated; and
- as collateral, the JQH Stockholders must pledge all of the preferred
interests in the Partnership and ownership interests in various other
entities (including in entities developing new hotels and in the Chateau
on the Lake Resort);
- conditions to the extension of individual loans under the Long-Term Line
of Credit Agreement include, among other things, the following:
- the number of hotel projects undertaken by Mr. Hammons, JQH Trust or
subsidiaries of Project Holdco is limited and additional hotel projects
must be approved by Lendco; and
65
- with limited exceptions, loans for land acquisition must be repaid
within 24 months if development has not begun;
- upon an event of default (as defined in the agreement) by Project Holdco,
Lendco may declare all obligations of Project Holdco immediately due and
payable, and may terminate all of Lendco's obligations under this
agreement.
iStar has provided a commitment letter to Lendco to fund the Long-Term Line
of Credit from iStar to Lendco describing the terms and conditions of the iStar
credit, including the following items:
- up to $275 million may be drawn in amounts subject to applicable
restrictions and limitations and at such times as Project Holdco may make
draws, as discussed below;
- certain obligations of Lendco will be guaranteed by Acquisition, subject
to certain limitations;
- the term of this line of credit will be concurrent with the line of
credit extended by Lendco to Project Holdco, although Mr. Hammons has
requested that the term of this line of credit be extended to 15.5 years;
- all interest payments payable to Lendco from Project Holdco will be used
by Lendco to pay interest on Lendco's line of credit from iStar;
- Acquisition will be obligated to make distributions of cash to Lendco
sufficient to pay the excess of the interest owed by Lendco to iStar over
the interest owed by Project Holdco to Lendco, if any;
- there will be an origination fee of 1.0% of the total maximum amount of
the line of credit to Lendco;
- upon default, the regular interest rate described above will be increased
by 5.0% in the event that a default under the line of credit extended to
Lendco is a result of a default under the line of credit extended by
Lendco to Project Holdco; and
- as collateral, Lendco will assign to iStar all of its rights and
interests in the line of credit extended to Project Holdco, including the
collateral pledged therefor, as discussed below.
FUNDING AGREEMENT
The Funding Agreement between Lendco, Project Holdco and iStar provides
that, for administrative and security purposes, all disbursements under the
Long-Term Line of Credit Agreement will be made directly by iStar to Project
Holdco and all payments by Project Holdco will be made directly to iStar. iStar
will have the right to unilaterally enforce all of Lendco's rights and remedies
under, and to delegate the servicing of, the Long-Term Line of Credit Agreement.
In addition, should Lendco fail to satisfy its funding obligations under the
Long-Term Line of Credit Agreement without a default by Project Holdco, iStar
will fund amounts due to Project Holdco.
ACQUISITION'S TENDER FOR PARTNERSHIP NOTES
Acquisition may refinance some or all of the Company's mortgage
indebtedness after closing. Acquisition has informed us that, at or near the
date of this proxy statement, Acquisition intends to cause the Partnership or an
affiliate of Acquisition to make an offer to purchase all of the $499 million in
principal amount of the Series B 8 7/8% First Mortgage Notes due 2012 of the
Partnership and John Q. Hammons Hotels Finance Corporation III. The offer to
purchase will be made at a premium to the principal amount of the First Mortgage
Notes, which premium has not yet been determined. The consummation of the tender
offer for the First Mortgage Notes would be subject to a number of conditions,
including the closing of the merger, receipt of certain consents, the execution
of a supplemental indenture effectuating the amendments, the participation of
the holders of a sufficient amount of the First Mortgage Notes, and the receipt
of the financing described below. There can be no assurance that such conditions
will be satisfied.
Acquisition has obtained a commitment from Goldman Sachs Mortgage Company
(the "Lender"), pursuant to which, subject to the conditions set forth in the
commitment letter (including, without limitation,
66
the consummation of the merger), the Lender agreed to provide first mortgage
loans in an aggregate principal amount of up to $685 million to the Finance
Entities. Such mortgage loans will be secured by up to 34 properties owned
directly or indirectly by the Finance Entities. The loans will have a 10-year
term and will bear interest at a rate per annum equal to (i) the mid market
10-year swap rate at closing or rate lock, if a rate lock agreement is entered
into, plus (ii) 0.77%. The net proceeds of such mortgage loans, after the costs
and expenses of completing the financing (including any note purchase premium),
will be used by the Partnership to complete the purchase of the Notes and
otherwise satisfy its obligations thereunder. All or a portion of the remaining
proceeds, if any, would be used for a number of other purposes, including,
without limitation, to refinance certain other mortgages, to make certain
capital expenditures as required under franchise agreements, to meet working
capital needs, and to pay certain transaction costs and expenses.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth certain information as of July 15, 2005,
with respect to our Class A Common Stock and Class B Common Stock owned by (1)
each director, (2) the named executive officers listed in the Summary
Compensation Table provided in our Form 10-K for fiscal year 2004 and (3) all of
our directors and executive officers as a group. In accordance with the rules
promulgated by the SEC, such ownership includes shares presently owned, as well
as shares that the named person has the right to acquire within 60 days of July
15, 2005, including shares that the named person has the right to acquire
through the exercise of any option.
The number of shares of Class A Common Stock shown in the table gives
effect to the conversion of all 294,100 shares of Class B Common Stock into an
equal number of shares of Class A Common Stock and also gives effect to the
redemption of all 16,043,900 limited partnership units of the Partnership for
shares of Class A Common Stock on a one-for-one basis.
Except as indicated in the footnotes, all shares set forth in the table are
owned directly, and the indicated person has sole voting and investment power
with respect to all shares shown as beneficially owned by such person. THE
NUMBERS OF SHARES SET FORTH IN THE TABLE BELOW REFER TO BENEFICIAL OWNERSHIP AND
ARE NOT INDICATIVE OF THE VOTING POWER WITH RESPECT TO SUCH SHARES.
<Table>
<Caption>
SHARES OF CLASS A COMMON STOCK SHARES OF CLASS B COMMON STOCK
------------------------------- ------------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER(A) NUMBER OF SHARES PERCENTAGE NUMBER OF SHARES PERCENTAGE
- --------------------------------------- ---------------- ---------- ---------------- ----------
John Q. Hammons....................... 16,924,600(b) 78.4% 294,100 100%
Jacqueline A. Dowdy................... 104,212(c) *
Donald H. Dempsey..................... 45,465(d) *
Daniel L. Earley...................... 47,000(e) *
William J. Hart....................... 56,545(e) *
John E. Lopez-Ona..................... 62,645(e) *
Debra M. Shantz....................... 108,000(g) *
James F. Moore........................ 57,345(e) *
Paul E. Muellner...................... 52,500(f) *
David C. Sullivan..................... 57,045(e) *
Louis Weckstein....................... 85,700(h) *
All executive officers and directors, 17,601,057(b)(c) 81.5% 294,100 100%
as a group (11) persons............. (d)(e)(f)(g)(h)
</Table>
- ---------------
* Less than 1%
(a) The address of each of our executive officers and directors is 300 John Q.
Hammons Parkway, Suite 900, Springfield, Missouri 65806.
67
(b) Includes 269,100 outstanding shares of Class A Common Stock. Also includes
294,100 shares of Class B Common Stock which, prior to the merger, are
convertible into Class A Common Stock on a share-for-share basis at any
time and which, prior to the merger, may be automatically converted into
Class A Common Stock upon the occurrence of certain events. Prior to
conversion of the Class B Common Stock and without giving effect to the
redemption of the limited partnership units, the Class B Common Stock
(which has 50 votes per share) represents 73.7% of the combined voting
power of both classes of our outstanding common stock. Also includes
16,043,900 limited partnership units of the Partnership redeemable prior to
the merger, at our sole option, by payment of the then cash equivalent of
such limited partnership units or by the issuance of shares of Class A
Common Stock on a one-for-one basis, including limited partnership units
owned for Mr. Hammons' benefit through Hammons, Inc., of which the John Q.
Hammons Revocable Trust dated December 28, 1989, as amended and restated,
is the sole stockholder. Also includes exercisable options to purchase
317,500 shares. According to a Schedule 13D filed with the SEC and dated
April 12, 2005, as amended by Amendment No. 1 to Schedule 13D filed with
the SEC and dated July 22, 2005, JQH Trust has shared voting and sole
dispositive power as to 16,607,100 shares; Mr. Hammons has shared voting
and sole dispositive power as to 16,942,100 shares; and Hammons, Inc. has
shared voting and sole dispositive power as to 1,446,194 shares. According
to the Schedule 13D, by virtue of the Transaction Agreement: the JQH
Stockholders in the aggregate may be deemed to share voting power with
Acquisition with respect to 16,942,100 shares; JQH Trust may be deemed to
share voting power with Acquisition with respect to 16,607,100 shares; Mr.
Hammons may be deemed to share voting power with Acquisition with respect
to 16,942,100 shares; and Hammons, Inc. may be deemed to share voting power
with Acquisition with respect to 1,446,194 shares.
(c) Includes approximately 1,712 shares allocated to 401(k) Plan account as of
the end of 2004, and exercisable options to purchase 72,500 shares.
(d) Includes exercisable options to purchase 35,000 shares.
(e) Includes exercisable options to purchase 45,000 shares.
(f) Exercisable options.
(g) Includes exercisable options to purchase 107,500 shares.
(h) Includes exercisable options to purchase 85,000 shares.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
We list below information, as of August 5, 2005, with respect to each
person we believe to be the beneficial owner of more than 5% of our outstanding
Class A Common Stock, other than the JQH Stockholders. This information is based
solely on beneficial ownership information contained in the most recent Schedule
13D or 13G filed on behalf of such person with the SEC. The percentages shown
are based on the outstanding shares of Class A Common Stock as of August 5, 2005
(and do not give effect to the conversion of any of the 294,100 shares of Class
B Common Stock into an equal number of shares of Class A Common Stock or to the
redemption of any of the 16,043,900 limited partnership units for shares of
Class A Common Stock).
<Table>
<Caption>
AMOUNT AND NATURE PERCENT OF CLASS A
OF BENEFICIAL COMMON STOCK
NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP OUTSTANDING
- ------------------------------------ ----------------- ---------------------
James M. Clark, Jr. .................................... 1,017,923(a)(e)(f) 19.4%
350 Park Avenue,
New York, NY 10022
First Manhattan Co. .................................... 605,319(b) 11.5%
437 Madison Avenue
New York, NY 10022
Pirate Capital LLC...................................... 475,100(c) 9%
200 Connecticut Avenue
4(th) Floor
Norwalk, CT 06854
</Table>
68
<Table>
<Caption>
AMOUNT AND NATURE PERCENT OF CLASS A
OF BENEFICIAL COMMON STOCK
NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP OUTSTANDING
- ------------------------------------ ----------------- ---------------------
Thomas R. Hudson, Jr. .................................. 475,100(c) 9%
200 Connecticut Avenue
4th Floor
Norwalk, CT 06854
Gabrielle Katz Hudson................................... 475,100(c) 9%
200 Connecticut Avenue
4th Floor
Norwalk, CT 06854
R. Scott Asen........................................... 1,017,923(d)(e) 19.4%
Asen and Co.
224 East 49(th) Street
New York, NY 10017
JQH Shareholders for Fair Play.......................... 1,017,923(e)(f) 19.4%
c/o James M. Clark, Jr.
350 Park Avenue
New York, NY 10022
Jonathan D. Eilian...................................... 1,734,323(e)(f) 33%
152 West 57th Street, 56(th) Floor
New York, NY 10019
JQH Acquisition LLC..................................... 1,734,323(e)(f) 33%
152 West 57(th) Street, 56(th) Floor
New York, NY 10019
Washburne Capital Management, LLC....................... 346,100(g) 6.6%
230 Park Avenue
Suite 925
New York, NY 10169
Severn River Capital Management, LLC.................... 294,400(h) 5.6%
Eight Greenwich Office Park
Greenwich, CT 06831
Severn River Master Fund, Ltd. ......................... 294,400(h) 5.6%
c/o GlobeOp Financial Services (Cayman) Ltd.
P.O. Box 10201 APO
Walker House, Mary Street
George Town, Grand Cayman, Cayman Islands
British West Indies
S. Scott Roth........................................... 294,400(h) 5.6%
c/o Severn River Capital Management, LLC
Eight Greenwich Office Park
Greenwich, CT 06831
Mercury Real Estate Advisors LLC........................ 269,400(i) 5.1%
100 Field Point Road
Greenwich, CT 06830
David R. Jarvis......................................... 269,400(i) 5.1%
100 Field Point Road
Greenwich, CT 06830
Malcolm F. MacLean IV................................... 269,400(i) 5.1%
100 Field Point Road
Greenwich, CT 06830
</Table>
69
<Table>
<Caption>
AMOUNT AND NATURE PERCENT OF CLASS A
OF BENEFICIAL COMMON STOCK
NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP OUTSTANDING
- ------------------------------------ ----------------- ---------------------
Stephen J. Clearman..................................... 1,017,923(e)(j) 19.4%
c/o Kinderhook Partners, LP
1 Executive Drive, Suite 160
Fort Lee, NJ 07024
Gifford Combs........................................... 1,017,923(e)(k) 19.4%
Dalton Investments, LLC
12424 Wilshire Blvd., Suite 1130
Los Angeles, CA 90025
</Table>
- ---------------
(a) Based on a Schedule 13D dated March 25, 1998 (filed with the SEC on April
7, 1998), as amended by Amendment No. 1 to Schedule 13D dated April 15,
1998 (filed with the SEC on April 16, 1998), Amendment No. 2 to Schedule
13D dated June 1, 1999 (filed with the SEC on the same day), and Amendment
No. 3 to Schedule 13D dated October 28, 2004 (filed with the SEC on the
same date). According to the Schedule 13D, Mr. Clark has sole voting power
as to 507,815 shares, sole dispositive power as to 507,185 shares and
shared voting and dispositive power as to 30,400 shares (held in family
trust, owned by spouse and held in a charitable foundation). The filing was
also made on behalf of Susanna L. Porter. Ms. Porter has sole voting and
dispositive power as to 7,500 shares and shared voting and dispositive
power as to 500 shares (held in a custodial account for a non-related minor
for which Ms. Porter has custodial powers). Mr. Clark is a member of the
group JQH Shareholders for Fair Play, the members of which together have
filed a Schedule 13D, dated October 26, 2004, as amended (as discussed in
note (e) below), which provides that the members of this group, in the
aggregate, may be deemed to beneficially own, directly and indirectly,
1,017,923 shares (which include the 538,215 shares beneficially owned by
Mr. Clark). We included this aggregate number (1,017,923 shares) in the
table above, but were not able to reconcile this number with the
information provided in the Schedule 13D, dated October 26, 2004, as
amended, with respect to the shares reported as beneficially owned by each
of the reporting persons in such Schedule 13D, including Mr. Clark.
(b) Based on a Schedule 13G, as amended, dated February 8, 2005 (filed with the
SEC on the same date). According to the Schedule 13G First Manhattan Co.
("FMC") has sole voting and dispositive power as to 7,200 shares, shared
voting power as to 580,169 shares and shared dispositive power as to
598,119 shares. According to the Schedule 13G, as amended, 54,885 shares
are owned by family members of Senior Managing Directors of FMC. FMC
disclaims dispositive power as to 9,200 of such shares and beneficial
ownership as to 45,685 of such shares.
(c) Based on a Schedule 13D, as amended, dated January 7, 2005 (filed with the
SEC on January 10, 2005). According to the Schedule 13D, by virtue of its
position as general partner of Jolly Roger Fund LP and an agreement between
it and the sole owner of Mint Master Fund, Ltd., Pirate Capital LLC has
sole power to vote or direct the voting, and to dispose or direct the
disposition of, the 475,100 shares owned by Jolly Roger Fund LP and Mint
Master Fund Ltd. By virtue of an agreement between it and Jolly Roger
Offshore Fund, Ltd. Pirate Capital LLC has sole disposition power with
respect to all of the shares owned by Jolly Roger Offshore Fund Ltd. By
virtue of his position as sole Managing Director of Jolly Roger Offshore
Fund Ltd, Thomas R. Hudson Jr. has sole voting power with respect to the
Shares owned by Jolly Roger Offshore Fund Ltd. By virtue of their shared
control of Pirate Capital LLC, each of Thomas R. Hudson Jr. and Gabrielle
Katz Hudson is deemed to have shared voting power and shared disposition
power with respect to all Shares as to which Pirate Capital, LLC has voting
power or disposition power. Based on the foregoing, Pirate Capital LLC has
sole voting power with respect to 171,900 of the Shares and sole
disposition power with respect to 475,100 of the Shares; Thomas R. Hudson
Jr. has sole voting power with respect to 303,200 of the Shares and shared
voting power with respect to 171,900 of the Shares and shared disposition
power with respect to 475,100 of the Shares; and Gabrielle Katz Hudson has
shared voting power with respect to 171,900 of the Shares and shared
disposition power with respect to 475,100 of the Shares.
70
(d) Based on a Schedule 13D dated October 27, 2004 (filed with the SEC on the
same date). According to the Schedule 13D, Mr. Asen has sole voting and
dispositive power as to 228,508 shares and shared voting and dispositive
power as to 30,000 shares. Mr. Asen disclaims beneficial ownership as to
30,000 shares (which consist of shares held in and owned by certain managed
accounts managed by Asen and Co.). In the Schedule 13D, Mr. Asen reports
that he is the beneficial owner of 5.3% of Class A Common Stock
outstanding, based on 4,886,175 shares outstanding pursuant to our
Quarterly Report on Form 10-Q for the quarterly period ended July 2, 2004.
Mr. Asen is a member of the group JQH Shareholders for Fair Play, the
members of which together have filed a Schedule 13D, dated October 26,
2004, as amended (as discussed in note (e) below), which provides that the
members of this group, in the aggregate, may be deemed to beneficially own,
directly and indirectly, 1,017,923 shares (which includes the 258,508
shares beneficially owned by Mr. Asen). We included this aggregate number
(1,017,923 shares) in the table above, but were not able to reconcile this
number with the information provided in the Schedule 13D, dated October 26,
2004, as amended, with respect to the shares reported as beneficially owned
by each of the reporting persons in such Schedule 13D, including Mr. Asen.
(e) Based on a Schedule 13D dated October 26, 2004 (filed with the SEC on the
same date), as amended by Amendment No. 1 to Schedule 13D dated November
17, 2004 (filed with the SEC on November 18, 2004), Amendment No. 2 to
Schedule 13D dated February 2, 2005 (filed with the SEC on the same date),
and Amendment No. 3 to Schedule 13D dated May 2, 2005 (filed with the SEC
on May 4, 2005, and further revised by Amendment No. 3 to Schedule 13D
dated May 12, 2005 (filed with the SEC on May 13, 2005)). According to the
Schedule 13D, the group JQH Shareholders for Fair Play consists of James M.
Clark, Jr., R. Scott Asen, Gifford Combs and Stephen J. Clearman (described
as the "reporting persons"). This group may be deemed to beneficially own,
directly and indirectly, 982,923 shares, consisting of (i) 538,215 shares
beneficially owned by Mr. Clark as described in note (a), above, (ii)
258,508 shares beneficially owned by Mr. Asen as described in note (d),
above, (iii) 60,000 shares beneficially owned by Mr. Clearman as described
in note (j), below, and (iv) 126,200 shares beneficially owned by Mr. Combs
as described in note (k), below. In the Schedule 13D, as amended, the
reporting persons report that, in the aggregate, they may be deemed to
beneficially own, directly and indirectly, 1,017,923 shares. We included
this aggregate number (1,017,923 shares) in the table above, but were not
able to reconcile this number with the information provided in the Schedule
13D, as amended, with respect to the shares reported as beneficially owned
by each of the reporting persons in that Schedule 13D. The members of JQH
Shareholders for Fair Play have entered into a Stockholders Agreement with
Acquisition which provides that the members of JQH Shareholders for Fair
Play will support an offer by Acquisition to purchase all or any and all of
the shares of the Company (see note (f) below).
(f) Based on a Schedule 13D dated February 9, 2005 (filed with the SEC on the
same date) as amended by Amendment No. 1 to Schedule 13D dated March 1,
2005 (filed with the SEC on the same day), Amendment No. 2 to Schedule 13D
dated March 14, 2005 (filed with the SEC on the same day), Amendment No. 3
to Schedule 13D dated May 6, 2005 (filed with the SEC on the same day),
Amendment No. 4 to Schedule 13D dated June 7, 2005 (filed with the SEC on
the same day), and Amendment No. 5 to Schedule 13D dated June 27, 2005
(filed with the SEC on June 28, 2005). According to the Schedule 13D,
Acquisition has shared voting power as to 18,089,823 shares based on a
Transaction Agreement with the JQH Stockholders, and based on Stockholders
Agreements between Acquisition and members of the group JQH Shareholders
for Fair Play (including James M. Clark, Jr., R. Scott Asen, Gifford Combs,
and Stephen J. Clearman) and between Acquisition and Raffles Associates,
L.P., a stockholder of the Company. Pursuant to the Transaction Agreement,
the JQH Stockholders agreed to vote all of their shares of Class A Common
Stock and Class B Common Stock and all of the limited partnership interests
they hold in the Partnership in favor of the merger and related
transactions, and against any competing proposal. According to the Schedule
13D, Acquisition may be deemed to share voting power with: JQH Trust with
respect to 15,570,343 shares beneficially owned by the JQH Trust; with
Hammons, Inc. with respect to 1,036,757 shares beneficially owned by
Hammons, Inc.; and with Mr. Hammons with respect to 335,000 shares
(including options for 17,500 shares not currently exercisable)
beneficially owned by Mr. Hammons. As stated in the introductory paragraph
to
71
the table above, the information in the table does not give effect to the
conversion of the 294,100 shares of Class B Common Stock (beneficially
owned by the JQH Trust) into an equal number of shares of Class A Common
Stock or to the redemption of any of the 16,043,900 limited partnership
units for shares of Class A Common Stock. Therefore, the aggregate number
of shares deemed to be beneficially owned by Acquisition shown in the table
above is the aggregate number of shares that Acquisition may be deemed to
beneficially own, less the 17,500 shares subject to options not yet
exercisable, 294,100 shares of Class B Common Stock and 16,043,900 limited
partnership units owned by the JQH Trust. Each of the stockholder parties
to the Stockholders Agreements agreed to support an offer by Acquisition to
purchase any or all of the shares of the Company. According to the Schedule
13D, as amended, Acquisition may be deemed to have shared voting power as
to 538,215 shares with Mr. Clark, shared voting power as to 258,508 shares
with Mr. Asen, shared voting power as to 161,200 shares with Mr. Combs,
shared voting power as to 60,000 shares with Mr. Clearman and shared voting
power as to 129,800 shares with Raffles Associates, L.P. None of
Acquisition, Merger Sub or Mr. Eilian owns of record any shares of our
common stock.
(g) Based on a Schedule 13G dated March 11, 2005 (filed with the SEC on the
same date). According to the Schedule 13G, Washburne Capital Management,
LLC ("Washburne") has sole voting power as to 96,908 shares and sole
dispositive power as to 346,100 shares. Washburne serves as investment
manager to certain funds and separate accounts ("Funds"). In its role as an
investment manager, Washburne possesses the investment and/or voting power
over shares owned by the Funds, and may be deemed to be the beneficial
owner of shares held by the Funds. All shares reported in the Schedule 13G
are owned by the Funds, and Washburne disclaims ownership of such shares.
(h) Based on a Schedule 13G dated March 10, 2005 (filed with the SEC on the
same date). According to the Schedule 13G, Severn River Capital Management,
LLC has shared voting power as to 294,400 shares and shared dispositive
power as to 294,400 shares. The filing is also made on behalf of Severn
River Master Fund, Ltd. and S. Scott Roth, each of which has shared voting
power as to 294,400 shares and shared dispositive power as to 294,400
shares. Each of Severn River Capital Management, LLC, Severn River Master
Fund, Ltd. and S. Scott Roth disclaim beneficial ownership of the shares
reported in the Schedule 13G except to the extent of their pecuniary
interest therein.
(i) Based on a Schedule 13G dated June 16, 2005 (filed with the SEC on the same
date). According to the Schedule 13G, each of Mercury Real Estate Advisors
LLC, David R. Jarvis and Malcolm F. MacLean IV has sole voting power as to
269,400 shares and has sole dispositive power as to 269,400 shares. The
filing is made jointly among Mercury Real Estate Advisors LLC, Mr. Jarvis
and Mr. MacLean. Mercury Real Estate Advisors LLC is a Delaware limited
liability company and registered investment adviser and made this filing
with respect to the shares of Company common stock held by Mercury Special
Situations Fund LP, Mercury Special Situations Offshore Fund, Ltd.,
Silvercrest Real Estate Fund, Silvercrest Real Estate Fund (International),
Mercury Real Estate Securities Fund LP, Mercury Real Estate Securities
Offshore Fund, Ltd. and Silvercreek SAV LLC, of which funds Mercury Real
Estate Advisors LLC is the investment adviser. Mercury Real Estate Advisors
LLC has investment discretion with respect to the shares of Company common
stock held by these funds. Messrs. Jarvis and MacLean are Managing Members
of Mercury Real Estate Advisors LLC, with respect to the shares of Company
common stock held by these funds. Pursuant to a joint filing agreement,
Mercury Real Estate Advisors LLC, Mr. Jarvis and Mr. MacLean have agreed to
file a single statement on Schedule 13G (and any amendments thereto) on
behalf of each of them, and further agreed to file such joint filing
agreement as an exhibit to the Schedule 13G.
(j) Based on a Schedule 13D dated October 26, 2004 (filed with the SEC on the
same date), as amended by Amendment No. 1 to Schedule 13D dated November
17, 2004 (filed with the SEC on November 18, 2004), Amendment No. 2 to
Schedule 13D dated February 2, 2005 (filed with the SEC on the same date),
and Amendment No. 3 to Schedule 13D dated May 2, 2005 (filed with the SEC
on May 4, 2005, and further revised by Amendment No. 3 to Schedule 13D
dated May 12, 2005 (filed with the SEC on May 13, 2005)). According to the
Schedule 13D, Mr. Clearman has shared voting and shared dispositive power
as to 60,000 shares in his position as managing member of Kinderhook GP,
LLC, which is the general partner of Kinderhook Partners, LP, which
directly beneficially owns the 60,000 shares.
72
Mr. Clearman is a member of the group JQH Shareholders for Fair Play, the
members of which filed the Schedule 13D together (as discussed in note (e)
above). The Schedule 13D provides that the members of this group, in the
aggregate, may be deemed to beneficially own, directly and indirectly,
1,017,923 shares (which includes the 60,000 shares beneficially owned by
Mr. Clearman). We included the aggregate number (1,017,923 shares) in the
table above, but were not able to reconcile this number with the
information provided in the Schedule 13D, as amended, with respect to the
shares reported as beneficially owned by each of the reporting persons in
that Schedule 13D, including Mr. Clearman.
(k) Based on a Schedule 13D dated October 26, 2004 (filed with the SEC on the
same date), as amended by Amendment No. 1 to Schedule 13D dated November
17, 2004 (filed with the SEC on November 18, 2004), Amendment No. 2 to
Schedule 13D dated February 2, 2005 (filed with the SEC on the same date),
and Amendment No. 3 to Schedule 13D dated May 2, 2005 (filed with the SEC
on May 4, 2005, and further revised by Amendment No. 3 to Schedule 13D
dated May 12, 2005 (filed with the SEC on May 13, 2005)). According to the
Schedule 13D, Mr. Combs has sole voting and sole dispositive power as to
116,200 shares in his position as managing director of Dalton Investments,
LLC, which has investment authority to act on behalf of Pacific and General
Investments, Inc., which beneficially owns 116,200 shares, and Mr. Combs
has shared voting and shared dispositive power as to 10,000 shares in his
position as a member of the board of directors of Kings Bay Investment
Company Ltd., which owns 10,000 shares. Mr. Combs is a member of the group
JQH Shareholders for Fair Play, the members of which filed the Schedule 13D
together (as discussed in note (e) above). The Schedule 13D provides that
the members of this group, in the aggregate, may be deemed to beneficially
own, directly and indirectly, 1,017,923 shares (which includes the 126,200
shares beneficially owned by Mr. Combs). We included the aggregate number
(1,017,923 shares) in the table above, but were not able to reconcile this
number with the information provided in the Schedule 13D, as amended, with
respect to the shares reported as beneficially owned by each of the
reporting persons in that Schedule 13D, including Mr. Combs.
MARKET PRICE AND DIVIDEND INFORMATION
The following table sets forth the high and low sale prices for our Class A
Common Stock as reported on the American Stock Exchange for the fiscal periods
indicated.
<Table>
<Caption>
STOCK PRICE PER SHARE
---------------------
HIGH LOW
-------- --------
2005
First Quarter............................................... $23.40 $19.90
Second Quarter.............................................. $23.67 $21.11
Third Quarter (through August 18, 2005)..................... $23.74 $23.53
2004
First Quarter............................................... $ 9.90 $ 7.02
Second Quarter.............................................. $ 9.71 $ 8.91
Third Quarter............................................... $11.45 $ 9.55
Fourth Quarter.............................................. $20.25 $10.88
2003
First Quarter............................................... $ 5.80 $ 4.84
Second Quarter.............................................. $ 6.18 $ 4.60
Third Quarter............................................... $ 6.95 $ 5.67
Fourth Quarter.............................................. $ 7.15 $ 6.50
</Table>
We have never paid cash dividends on our capital stock; if the merger does
not occur, we do not intend to pay cash dividends in the future, as we intend to
continue to use earnings to fund the continued growth of our operations and the
repayment of debt.
73
TRANSACTIONS IN SHARES OF CLASS A COMMON STOCK BY CERTAIN PERSONS
There were no transactions in shares of Class A Common Stock during the
past 60 days by the Company, the JQH Stockholders, Acquisition, Merger Sub or
any of their respective subsidiaries, directors, executive officers, controlling
persons or affiliates. None of such persons had transactions in shares of Class
A Common Stock during the past two years, except that, in accordance with the
terms of our 1999 Non-Employee Director Stock and Stock Option Plan, on May 12,
2004, each non-employee director received shares of Class A Common Stock with a
fair market value of $10,000 and stock options to acquire 10,000 shares of Class
A Common Stock for an exercise price of $9.20 per share, vesting in four equal
annual installments, beginning on May 12, 2005.
SELECTED HISTORICAL FINANCIAL INFORMATION
The following table sets forth selected historical consolidated financial
data as of and for each of our last two fiscal years. No separate financial
information is provided for Acquisition or Merger Sub because each of those
organizations is a special purpose entity formed in connection with the merger
and has no independent operations. No pro forma data giving effect to the merger
have been provided because we do not believe that such information is material
to stockholders evaluating the proposed merger and merger agreement because the
proposed merger consideration is all cash and if the merger is completed, our
unaffiliated stockholders will not retain a continuing equity interest in the
Company.
The selected historical data set forth below has been derived from and
should be read in conjunction with our consolidated financial statements,
accompanying notes and other financial information included in our annual report
on Form 10-K for the year ended December 31, 2004, and the quarterly report on
Form 10-Q for the six months ended July 1, 2005, which are incorporated herein
by reference. The unaudited consolidated financial statements reflect, in the
opinion of management, all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the results of operations and
financial condition for those periods.
SELECTED CONSOLIDATED FINANCIAL INFORMATION
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
----------------------------- -----------------------------------
JULY 1, 2005 JULY 2, 2004 DECEMBER 31, 2004 JANUARY 2, 2004
------------- ------------- ----------------- ---------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
REVENUES:
Rooms(a)............................... $ 142,335 $ 135,827 $ 266,800 $ 256,564
Food and beverage...................... 58,986 56,751 112,389 108,315
Meeting room rental, related party
management fee and other(b).......... 27,583 26,588 51,591 48,596
---------- ---------- ---------- ----------
Total revenues....................... 228,904 219,166 430,780 413,475
---------- ---------- ---------- ----------
OPERATING EXPENSES:
Direct operating costs and expenses:
Rooms................................ 35,001 33,088 66,712 64,096
Food and beverage.................... 44,574 42,710 84,178 82,524
Other................................ 922 1,133 2,145 2,584
General, administrative, sales, and
management service expenses(d,e)..... 72,112 70,678 139,902 130,980
Repairs and maintenance................ 9,725 9,212 18,193 17,430
Asset impairment(f).................... -- -- -- 9,700
Depreciation and amortization.......... 23,575 23,125 49,519 49,783
---------- ---------- ---------- ----------
Total operating expenses............. 185,909 179,946 360,649 357,097
---------- ---------- ---------- ----------
</Table>
74
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
----------------------------- -----------------------------------
JULY 1, 2005 JULY 2, 2004 DECEMBER 31, 2004 JANUARY 2, 2004
------------- ------------- ----------------- ---------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
INCOME FROM OPERATIONS................. 42,995 39,220 70,131 56,378
OTHER INCOME (EXPENSE):
Other income........................... 785 276 193 175
Interest expense and amortization of
deferred financing fees, net of
interest income...................... 32,470 33,255 65,498 67,522
Extinguishment of debt costs(g)........ (234) -- 144 774
---------- ---------- ---------- ----------
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE MINORITY INTEREST
AND PROVISION FOR INCOME TAXES....... 11,076 6,241 4,682 (11,743)
Minority interest in (income) losses of
partnership.......................... (5,153) -- -- 5,859
---------- ---------- ---------- ----------
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE PROVISION FOR
INCOME TAXES......................... 5,923 6,241 4,682 (5,884)
Provision for income taxes(h).......... (99) (111) (177) (150)
---------- ---------- ---------- ----------
INCOME (LOSS) FROM CONTINUING
OPERATIONS........................... 5,824 6,130 4,505 (6,034)
Income (loss) from discontinued
operations, net of minority
interest(i).......................... 2,721 (4,403) (5,150) (1,027)
---------- ---------- ---------- ----------
NET INCOME (LOSS) ALLOCABLE TO THE
COMPANY.............................. $ 8,545 $ 1,727 $ (645) $ (7,061)
========== ========== ========== ==========
BASIC EARNINGS (LOSS) PER SHARE:
Continuing operations................ $ 1.06 $ 1.20 $ 0.87 $ (1.19)
Discontinued operations.............. 0.50 (0.86) (0.99) (0.20)
========== ========== ========== ==========
Net income (loss) allocable to the
Company......................... $ 1.56 $ 0.34 $ (0.12) $ (1.39)
========== ========== ========== ==========
DILUTED EARNINGS (LOSS) PER SHARE
Continuing operations................ $ 0.86 $ 1.04 $ 0.87 $ (1.19)
Discontinued operations.............. 0.40 (0.75) (0.99) (0.20)
---------- ---------- ---------- ----------
Net earnings allocable to
Company......................... $ 1.26 $ 0.29 $ (0.12) $ (1.39)
========== ========== ========== ==========
DILUTED WEIGHTED AVERAGE SHARES
OUTSTANDING.......................... 5,485,765 5,127,195 5,173,705 5,092,829
BOOK VALUE PER SHARE:(J)............... $ 1.48 $ -- $ -- $ --
</Table>
75
<Table>
<Caption>
JULY 1, 2005 JULY 2, 2004 DECEMBER 31, 2004 JANUARY 2, 2004
------------- ------------- ----------------- ---------------
BALANCE SHEET DATA:
Total Assets........................... $814,158 $821,680 $816,499 $822,183
Total debt, including current
portion.............................. 743,926 777,106 765,204 781,072
Minority interest of holders of the
Partnership units.................... 4,691 -- -- --
Refundable equity...................... 975 -- 655 --
Equity (deficit)....................... 8,945 (376) (1,525) (2,462)
</Table>
- ---------------
(a) Includes revenues derived from rooms from continuing operations.
(b) Includes meeting room rental, related party management fees for providing
management services to the hotels owned by Mr. Hammons and other from
continuing operations.
(c) Includes expenses incurred in connection with rooms, food and beverage and
telephones from continuing operations.
(d) Includes expenses incurred in connection with franchise fees,
administrative, marketing and advertising, utilities, insurance, property
taxes, rent and other from continuing operations.
(e) Includes expenses incurred providing management services to the hotels
owned by Mr. Hammons.
(f) We recognized impairment charges of $9.7 million related to our World Golf
Village Hotel during 2003. The resulting impairment reserve was based on
fair market values derived from independent third party valuations.
(g) We adopted a new accounting pronouncement in 2003 which requires the loss
on extinguishment of debt that was classified as an extraordinary item in
prior periods to be reclassified to other expenses.
(h) We have been taxed as a C corporation on our portion of the Partnership's
earnings.
(i) We sold two properties during 2004 and one during January 2005. The
operating results of the three sold properties have been reclassified to
discontinued operations.
(j) Total stockholders' equity of $8,945 at July 1, 2005, divided by the
6,042,000 Class A Common shares issued for this period. There was a
stockholders' deficit for the six months ended July 2, 2004 and the years
ended December 31, 2004, and January 2, 2004.
76
RATIO OF EARNINGS TO FIXED CHARGES
(000'S OMITTED)
In computing the ratio of earnings to fixed charges, earnings have been
based on income from operations before income taxes and fixed charges (exclusive
of interest capitalized) and fixed charges consist of interest and amortization
of deferred financing fees (including amounts capitalized) and the estimated
interest portion of rents (deemed to be one-third of rental expense).
<Table>
<Caption>
YEAR ENDED
SIX MONTHS ENDED -----------------------------------
JULY 1, 2005 DECEMBER 31, 2004 JANUARY 2, 2004
---------------- ----------------- ---------------
HISTORICAL EARNINGS:
Income (loss) from continuing
operations before minority
interest and provision for income
taxes............................. $11,076 $ 4,682 $(11,743)
Add:
Interest, amortization or deferred
financing fees and other fixed
charges (excluding capitalized
interest, net of interest
income)(a)........................ 33,323 67,115 68,989
------- ------- --------
Historical earnings............... 43,399 71,797 57,246
======= ======= ========
FIXED CHARGES:
Interest expense and amortization of
deferred financing fees, net of
interest income................... 31,615 65,498 67,522
Interest capitalized................. -- -- --
Interest element of rentals.......... 708 1,617 1,467
------- ------- --------
32,323 67,115 68,989
======= ======= ========
RATIO OF EARNINGS TO FIXED CHARGES..... 1.34 1.07 N/A
======= ======= ========
Fixed charges in excess of earnings.... N/A N/A 11,743
</Table>
DATE FOR SUBMISSION OF STOCKHOLDER PROPOSALS
If the merger is completed, there will be no public participation in any
future meetings of our stockholders. If the merger is not completed before
December 20, 2005, we plan to hold our 2005 annual meeting on that date. In
order for a stockholder proposal to be considered for inclusion in our Proxy
Statement for the 2005 annual meeting, under SEC rules, we must receive the
written proposal at our principal executive offices a reasonable time before we
begin to print and mail our proxy materials for that meeting (which we estimate
to be in late November of 2005). Such proposals also must comply with other SEC
regulations regarding the inclusion of stockholder proposals in
Company-sponsored proxy materials. Similarly, under our Bylaws, in order for a
stockholder proposal to be raised from the floor during the 2005 annual meeting,
we must receive written notice no later than August 25, 2005, and the proposal
must contain the information required under our Bylaws.
You may contact our Corporate Secretary at our headquarters for a copy of
the relevant Bylaw provisions regarding the requirements for making stockholder
proposals.
77
PROPOSAL TO APPROVE ADJOURNMENT OR POSTPONEMENT OF THE
SPECIAL MEETING
We are submitting a proposal for consideration at the special meeting to
grant our board of directors discretionary authority to adjourn or postpone the
special meeting in order to solicit additional votes if there are not sufficient
votes of unaffiliated stockholders to adopt the merger agreement at the time of
the special meeting. Even though a quorum may be present at the special meeting,
it is possible that we may not have received sufficient votes of the
unaffiliated stockholders to adopt the merger agreement. In that event, the
board of directors would need to consider whether to adjourn or postpone the
special meeting in order to solicit additional proxies. This proposal relates
only to an adjournment or postponement of the special meeting for purposes of
soliciting additional proxies to obtain the requisite stockholder approval to
adopt the merger agreement.
Any such adjournment will require the affirmative vote of a majority of the
votes represented at the meeting in person or by proxy. Only shares that are
voted "FOR" or "AGAINST" the proposal will be counted towards the vote
requirement. Thus, shares represented at the meeting that are marked "ABSTAIN,"
and broker non-votes, if any, will not be counted towards the vote requirement.
If you do not complete and return a proxy card and do not vote in person, there
will be no effect on the outcome of the vote.
If a quorum is present, the persons named as proxies will vote those
proxies which they are entitled to vote FOR the proposal in favor of such an
adjournment and will vote those proxies required to be voted AGAINST the
proposal against any such adjournment.
Our board of directors recommends that you vote "FOR" the adjournment and
postponement proposal so that proxies may be used for that purpose, should the
board of directors determine that it is advisable to adjourn for the purpose of
soliciting additional votes of unaffiliated stockholders to adopt the merger
agreement.
OTHER MATTERS
As of the date of this proxy statement, we do not expect any other matters
to be presented for action at the special meeting. If you grant a proxy, the
persons named as proxy holders will have the discretion to vote your shares on
any additional matters (not known a reasonable time before the solicitation of
your proxy) properly presented for a vote at the meeting. If any other matters
not known a reasonable time before the solicitation of your proxy are properly
brought before the meeting, the persons named in the accompanying proxy will
vote such proxy in accordance with the determination of a majority of the board
of directors.
INCORPORATION BY REFERENCE
The SEC allows us to "incorporate by reference" information into this proxy
statement. This means that we can disclose important information by referring to
another document filed separately with the SEC. The information incorporated by
reference is considered to be part of this proxy statement. We incorporate by
reference into this proxy statement the following documents that we filed under
the Exchange Act:
- our annual report on Form 10-K for the year ended December 31, 2004;
- our quarterly reports on Form 10-Q for the quarterly periods ended April
1, 2005, and July 1, 2005; and
- our current reports on Form 8-K dated February 15, 2005; May 11, 2005;
June 15, 2005 and June 20, 2005.
We also incorporate by reference into this proxy statement all reports we
file with the SEC after the date of this proxy statement, but before the date of
the special meeting, under Sections 13(a), 13(c), 14 or 15(d) of the Exchange
Act.
78
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. In addition, because the merger is a going private
transaction, we have filed a Transaction Statement on Schedule 13E-3 with
respect to the merger. The Schedule 13E-3, the exhibits to the Schedule 13E-3
and these reports, proxy statements and other information contain additional
information about us and will be made available for inspection and copying at
our executive offices during regular business hours by any stockholder or a
representative of a stockholder as so designated in writing.
We make available on our website (www.jqhhotels.com) under "Investor
Relations -- SEC Filings" our annual reports on Form 10-K, quarterly reports on
10-Q, current reports on 8-K and amendments to those reports as soon as
reasonably practicable after we file such material with the SEC.
Company stockholders may also read and copy the Schedule 13E-3 and any
reports, statements and other information filed by the Company at the SEC public
reference room at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. Please
call the SEC at 1-800-SEC-0330 for further information on the operation of the
public reference rooms. Our filings with the SEC are also available to the
public from commercial document retrieval services and at the website maintained
by the SEC located at: www.sec.gov.
We will provide without charge to each person to whom a copy of this proxy
statement has been delivered, upon request, by first class mail or other equally
prompt means, within one business day of receipt of such report, a copy of any
or all of the documents incorporated by reference into this proxy statement,
other than the exhibits to these documents, unless the exhibits are specifically
incorporated by reference into the information that this proxy statement
incorporates. Requests for copies should be directed to: John Q. Hammons Hotels,
Inc., 300 John Q. Hammons Parkway, Springfield, Missouri 65806, Attention:
General Counsel (telephone number 417-864-4300)
STOCKHOLDERS SHOULD NOT RELY ON INFORMATION THAT IS NOT CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROXY STATEMENT. WE HAVE NOT AUTHORIZED ANYONE
TO PROVIDE INFORMATION THAT IS DIFFERENT FROM THAT CONTAINED IN THIS PROXY
STATEMENT. THIS PROXY STATEMENT IS DATED AUGUST 24, 2005. NO ASSUMPTION SHOULD
BE MADE THAT THE INFORMATION CONTAINED IN THIS PROXY STATEMENT IS ACCURATE AS OF
ANY DATE OTHER THAN THAT DATE, AND THE MAILING OF THIS PROXY STATEMENT WILL NOT
CREATE ANY IMPLICATION TO THE CONTRARY. NOTWITHSTANDING THE FOREGOING, IN THE
EVENT OF ANY MATERIAL CHANGE IN ANY OF THE INFORMATION PREVIOUSLY DISCLOSED, WE
WILL, WHERE RELEVANT AND IF REQUIRED BY APPLICABLE LAW, (I) UPDATE SUCH
INFORMATION THROUGH A SUPPLEMENT TO THIS PROXY STATEMENT AND (II) AMEND THE
TRANSACTION STATEMENT ON SCHEDULE 13E-3 FILED IN CONNECTION WITH THE MERGER, IN
EACH CASE, TO THE EXTENT NECESSARY.
79
APPENDIX A
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
JQH ACQUISITION LLC,
JQH MERGER CORPORATION
AND
JOHN Q. HAMMONS HOTELS, INC.
DATED AS OF JUNE 14, 2005
- --------------------------------------------------------------------------------
A-1
TABLE OF CONTENTS
<Table>
SECTION 1. Definitions................................................. A-5
SECTION 2. The Merger.................................................. A-13
2.1 General..................................................... A-13
2.2 Certificate of Incorporation................................ A-14
2.3 By-Laws..................................................... A-14
2.4 Directors and Officers...................................... A-14
2.5 Effect on Company Capital Stock............................. A-14
2.6 Company Stock Options....................................... A-15
2.7 Adjustment of the Merger Consideration...................... A-15
2.8 Exchange Procedures; Stock Transfer Books................... A-15
2.9 Further Assurances.......................................... A-17
SECTION 3. Representations and Warranties of the Company............... A-17
3.1 Organization and Good Standing.............................. A-17
3.2 Authority; No Conflict...................................... A-17
3.3 Capitalization.............................................. A-18
3.4 SEC Reports................................................. A-19
3.5 Financial Statements........................................ A-20
3.6 Property; Sufficiency of Assets............................. A-21
3.7 Receivables................................................. A-21
3.8 Equipment; Real Property; Leaseholds........................ A-21
3.9 Intellectual Property....................................... A-23
3.10 No Undisclosed Liabilities.................................. A-23
3.11 Taxes....................................................... A-23
3.12 Employee Benefits........................................... A-25
3.13 Compliance with Legal Requirements; Governmental
Authorizations.............................................. A-27
3.14 Environmental Matters....................................... A-27
3.15 Legal Proceedings........................................... A-29
3.16 Absence of Certain Changes and Events....................... A-29
3.17 Contracts; No Defaults...................................... A-30
3.18 Insurance................................................... A-32
3.19 Labor Matters............................................... A-32
3.20 Interests of Officers and Directors......................... A-33
3.21 Rights Plan; State Antitakeover Laws; DGCL.................. A-33
3.22 Certain Payments............................................ A-33
3.23 Opinion of Financial Advisor................................ A-33
3.24 Brokers..................................................... A-33
3.25 Board Recommendation........................................ A-34
3.26 Proxy Statement and Schedule 13E-3.......................... A-34
3.27 Expense Amount Escrow Agreement............................. A-34
SECTION 4. Representations and Warranties of Parent and Merger Sub..... A-34
4.1 Organization and Good Standing.............................. A-34
4.2 Authority; No Conflict...................................... A-34
4.3 Information Supplied for Proxy Statement and Schedule
13E-3....................................................... A-35
</Table>
A-2
<Table>
4.4 No Undisclosed Agreements or Arrangements with any Hammons
Affiliate................................................... A-35
4.5 Fee Amount Escrow Agreement................................. A-35
4.6 Financing................................................... A-35
4.7 Hammons Agreements.......................................... A-36
SECTION 5. Certain Pre-Closing Covenants............................... A-36
5.1 Access and Investigation.................................... A-36
5.2 Operation of the Business; Certain Notices; Tax Returns..... A-37
5.3 No Solicitation............................................. A-40
5.4 Financing................................................... A-41
5.5 Company Stock Options....................................... A-41
5.6 Mailing Notice.............................................. A-41
5.7 Agreements Among Parent, Merger Sub and Hammons
Affiliates.................................................. A-41
SECTION 6. Additional Covenants of the Parties......................... A-42
6.1 Proxy Statement; Schedule 13E-3............................. A-42
6.2 Company Stockholders' Meeting............................... A-42
6.3 Regulatory Approvals; Consents.............................. A-43
6.4 Employee Benefits........................................... A-44
6.5 Indemnification of Officers and Directors................... A-44
6.6 Disclosure.................................................. A-45
6.7 Resignation of Officers and Directors....................... A-45
6.8 Waiver and Release.......................................... A-45
6.9 Expense Reimbursement....................................... A-45
6.10 Financing................................................... A-45
SECTION 7. Conditions Precedent to Obligations of Each Party........... A-46
7.1 Stockholder Approval........................................ A-46
7.2 HSR Act..................................................... A-46
7.3 No Restraints............................................... A-46
SECTION 8. Conditions Precedent to Obligations of Parent and Merger
Sub......................................................... A-46
8.1 Accuracy of Representations................................. A-46
8.2 Performance of Covenants.................................... A-46
8.3 No Material Adverse Effect.................................. A-46
8.4 Consents.................................................... A-46
8.5 Agreements and Documents.................................... A-46
8.6 No Litigation............................................... A-46
8.7 Hammons Transactions........................................ A-47
8.8 Management Agreements....................................... A-47
8.9 Management Documents........................................ A-47
8.10 Company Stock Options....................................... A-47
8.11 Real Estate Documents....................................... A-47
8.12 Expense Amount.............................................. A-47
SECTION 9. Conditions Precedent to Obligation of the Company........... A-47
9.1 Accuracy of Representations................................. A-47
9.2 Performance of Covenants.................................... A-48
9.3 Agreements and Documents.................................... A-48
</Table>
A-3
<Table>
9.4 No Litigation............................................... A-48
9.5 Fee Amount.................................................. A-48
SECTION 10. Termination................................................. A-48
10.1 Termination................................................. A-48
10.2 Effect of Termination....................................... A-50
10.3 Expenses; Termination Fees.................................. A-50
SECTION 11. Miscellaneous Provisions.................................... A-52
11.1 Amendment................................................... A-52
11.2 Waiver...................................................... A-52
11.3 No Survival................................................. A-52
11.4 Entire Agreement............................................ A-52
11.5 Execution of Agreement; Counterparts; Electronic
Signatures.................................................. A-52
11.6 Governing Law............................................... A-53
11.7 Jurisdiction; Service of Process............................ A-53
11.8 WAIVER OF JURY TRIAL........................................ A-53
11.9 Schedules................................................... A-53
11.10 Assignments and Successors.................................. A-53
11.11 No Third Party Rights....................................... A-53
11.12 Notices..................................................... A-54
11.13 Cooperation................................................. A-55
11.14 Legal Representation of the Parties......................... A-55
11.15 Headings.................................................... A-55
11.16 Remedies; Specific Performance.............................. A-55
11.17 Severability................................................ A-55
11.18 Time of Essence............................................. A-55
</Table>
A-4
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (this "Agreement") is made and entered
into as of June 14, 2005, by and among JQH Acquisition LLC, a Delaware limited
liability company ("Parent"), JQH Merger Corporation, a Delaware corporation and
a wholly-owned subsidiary of Parent ("Merger Sub"), and John Q. Hammons Hotels,
Inc., a Delaware corporation (the "Company").
RECITALS
Parent, Merger Sub and the Company intend to effect a merger (the "Merger")
of Merger Sub with and into the Company in accordance with this Agreement and
the General Corporation Law of the State of Delaware (the "DGCL"). Upon
consummation of the Merger, Merger Sub will cease to exist, and the Company will
become a wholly-owned subsidiary of Parent.
The respective boards of directors of Parent, Merger Sub and the Company
have declared the advisability of and approved this Agreement and approved the
Merger.
The board of directors of the Company (the "Board"), based on the unanimous
recommendation of a special committee (the "Special Committee") of the Board
formed for the purpose of evaluating and negotiating the transactions
contemplated hereby on behalf of the holders of the Company Class A Common Stock
(as defined below) (other than the Hammons Affiliates, as defined below) and
making a recommendation to the Board with respect thereto, has approved and
deemed it advisable and in the best interests of the Company's stockholders to
consummate the Merger upon the terms and subject to the conditions set forth
herein.
Concurrently with the execution and delivery of this Agreement, Parent and
Merger Sub have entered into certain agreements with the Hammons Affiliates
providing for the Hammons Transactions (as defined below).
AGREEMENT
The parties to this Agreement, intending to be legally bound, agree as
follows:
SECTION 1. Definitions. For purposes of this Agreement, the following
terms and variations thereof have the meanings specified or referred to in this
Section 1:
"Acquired Corporation" refers to each of the Company and each Subsidiary of
the Company, and "Acquired Corporations" means the Company and the Subsidiaries
of the Company, collectively.
"Acquisition Proposal" means any offer, proposal, inquiry or indication of
interest (other than an offer, proposal, inquiry or indication of interest by
Parent) contemplating or otherwise relating to any Acquisition Transaction.
"Acquisition Transaction" means any transaction or series of transactions
involving any (i) reorganization, dissolution, liquidation or recapitalization
of any of the Acquired Corporations, (ii) merger, consolidation, share exchange,
business combination, issuance of securities, acquisition of securities, tender
offer, exchange offer or other similar acquisition of any of the Acquired
Corporations, (iii) sale, lease, exchange, transfer, license, acquisition or
disposition of any material amount of the assets of any of the Acquired
Corporations, (iv) direct or indirect acquisition or purchase of any shares of
capital stock, partnership interests or other equity interests of any Acquired
Corporation beneficially owned by any Hammons Affiliate, (v) similar transaction
or business combination involving any Acquired Corporation or any of their
respective businesses, shares of capital stock, partnership interests, other
equity interests or assets or (vi) other transaction, the consummation of which
would prevent, impede or delay the consummation of the Contemplated Transactions
or the Hammons Transactions.
"Affiliate" means, as to any specified Person, (i) any trust, shareholder,
equity owner, officer or director of such Person and their family members or
(ii) any other Person which, directly or indirectly, through one or
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more intermediaries, controls, is controlled by, employed by or is under common
control with, the specified Person. For the purposes of this definition,
"control" means the possession of the power to direct or cause the direction of
the management and policies of such Person, whether through the ownership of
voting securities, by Contract or otherwise.
"Agreement" has the meaning set forth in the opening paragraph of this
Agreement.
"Balance Sheet" has the meaning set forth in Section 3.5.
"Board" has the meaning set forth in the recitals to this Agreement.
"CERCLA" means the United States Comprehensive Environmental Response,
Compensation, and Liability Act, 42 U.S.C. Section 9601 et seq., as amended.
"Certificate" has the meaning set forth in Section 2.5(d).
"Certificate of Merger" has the meaning set forth in Section 2.1(b).
"Certifications" has the meaning set forth in Section 3.4.
"Cleanup" has the meaning ascribed to it in clause (c) of the definition of
the term Environmental Health and Safety Liability.
"Closing" has the meaning set forth in Section 2.1(b).
"Closing Date" has the meaning set forth in Section 2.1(b).
"Code" means the Internal Revenue Code of 1986, as amended.
"Commitment Letter" means a written commitment or commitments containing
conditions to closing that are no less favorable to the Company than the
conditions to Closing set forth in this Agreement, from a financing source or
sources to provide, in the aggregate, at least $160 million to Parent for the
purpose of consummating the transactions contemplated by this Agreement.
"Company" has the meaning set forth in the opening paragraph of this
Agreement.
"Company Board Recommendation" has the meaning set forth in Section 6.2(b).
"Company Capital Stock" means the Company Class A Common Stock and the
Company Class B Common Stock.
"Company Class A Common Stock" means the class A common stock, par value
$0.01 per share, of the Company.
"Company Class B Common Stock" means the class B common stock, par value
$0.01 per share, of the Company.
"Company Preferred Stock" means the preferred stock, par value $0.01 per
share, of the Company.
"Company SEC Reports" has the meaning set forth in Section 3.4.
"Company Stock Option" means each outstanding option to purchase shares of
Company Class A Common Stock under any Company Plan.
"Company Stockholders' Meeting" has the meaning set forth in Section
6.2(a).
"Company Triggering Event" means (i) (x) the failure of the Board of the
Company to recommend that the Company's stockholders vote to adopt this
Agreement, or (y) the withdrawal or modification of the Company Board
Recommendation in a manner adverse to Parent, or (z) the Board of the Company or
the Company, in any written material filed with the SEC, mailed to Company
stockholders or otherwise made publicly available, or in any stockholder or
analyst call, press conference or similar public forum, shall have made any
statements which can reasonably be interpreted to indicate that the Board of the
Company does not believe that the Merger is in the best interests of the
Company's stockholders; (ii) the Company shall have failed to include in the
Proxy Statement the Company Board Recommendation or a statement to the effect
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that the Board of the Company has determined and believes that the Merger is in
the best interests of the Company's stockholders; (iii) the Board of the Company
fails to reaffirm, without qualification, the Company Board Recommendation
following the Company's receipt of an Acquisition Proposal, or fails to publicly
state, without qualification, that the Merger is in the best interests of the
Company's stockholders following a public statement by a Person questioning the
advisability of the Merger for Company stockholders, within ten calendar days
after Parent reasonably requests in writing that such action be taken; (iv) the
Board of the Company shall have approved, endorsed or recommended any
Acquisition Proposal; (v) the Company shall have failed to comply with Section
5.3(a) or 5.3(b); (vi) a tender or exchange offer relating to securities of the
Company shall have been commenced by someone other than Parent or its Affiliates
and the Company shall not have sent to its securityholders, within ten business
days after the commencement of such tender or exchange offer, a statement
disclosing that the Board recommends rejection of such tender or exchange offer;
or (vii) any of the Acquired Corporations or any Representative of any of the
Acquired Corporations shall have breached Section 5.3 and such breach results
in, or is a significant contributing factor to the occurrence of, a Company
Triggering Event. Notwithstanding the foregoing, no event or action otherwise
within the scope of clause (i), (ii) or (iii) shall be deemed to be a Company
Triggering Event if, at the time of such event or action (x) any representation
or warranty of Parent or Merger Sub in this Agreement (tested as if made on and
as of such time) shall be inaccurate in any material respect, (y) Parent or
Merger Sub shall be in breach in any material respect of any of their respective
covenants, agreements or obligations under this Agreement or (z) this Agreement
is subject to termination by the Company pursuant to Section 10.1(i).
"Confidentiality Agreement" means the Confidentiality Agreement, dated as
of November 19, 2004, between JD Holdings, LLC and the Company.
"Consent" means any approval, consent, ratification, permission, waiver or
authorization (including any Governmental Authorization).
"Contemplated Transactions" has the meaning set forth in Section 3.2(a).
"Continuing Employees" has the meaning set forth in Section 6.4.
"Contract" means any written, oral or other agreement, contract,
subcontract, lease, understanding, instrument, note, option, warranty, purchase
order, license, sublicense, insurance policy, benefit plan or legally binding
commitment or undertaking of any nature.
"Covered Parties" has the meaning set forth in Section 6.5(a).
"Debt" means, as to any Person, at a particular time, (i) indebtedness for
borrowed money or for the deferred purchase price of property (which shall not
include accounts payable incurred in the ordinary course of business) in respect
of which such Person is liable, contingently or otherwise, as obligor, guarantor
or otherwise, or in respect of which such Person otherwise assures a creditor
against loss, (ii) obligations under leases which shall have been or should be,
in accordance with GAAP, recorded as capital leases in respect of which
obligations such Person is liable, contingently or otherwise, as obligor,
guarantor or otherwise, or in respect of which obligations such Person assures a
creditor against loss, (iii) obligations of such Person to purchase or
repurchase accounts receivable, chattel paper or other payment rights sold or
assigned by such Person, (iv) indebtedness or obligations of such Person under
or with respect to letters of credit, notes, bonds or other debt instruments and
(v) all obligations of such Person under any interest rate swap, cap or collar
agreement or other similar agreement or arrangement designed to alter the risks
of that Person arising from fluctuations in interest rates, in each case whether
contingent or matured.
"Dissenting Shares" has the meaning set forth in Section 2.5(f).
"DGCL" has the meaning set forth in the recitals to this Agreement.
"EDGAR" has the meaning set forth in Section 3.4.
"Effective Time" has the meaning set forth in Section 2.1(b).
"Encumbrance" means any lien, pledge, hypothecation, charge, mortgage,
easement, security interest, encumbrance, claim, infringement, interference,
option, right of first refusal, preemptive right, community
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property interest or restriction of any nature (including any restriction on the
voting of any security, any restriction on the transfer of any security or other
asset, any restriction on the receipt of any income derived from any asset, any
restriction on the use of any asset and any restriction on the possession,
exercise or transfer of any other attribute of ownership of any asset).
"Environment" means soil, land surface or subsurface strata, surface waters
(including navigable waters, ocean waters, streams, ponds, drainage basins and
wetlands), groundwaters, drinking water supply, stream sediments, ambient air,
plant and animal life and any other environmental medium or natural resource.
"Environmental Health and Safety Liabilities" means any cost, damages,
expense, liability, obligation or other responsibility arising from or under
Environmental Law or Occupational Safety and Health Law and consisting of or
relating to:
(a) any environmental, health or safety matters or conditions
(including on-site or off-site contamination, occupational safety and
health and regulation of chemical substances or products);
(b) fines, penalties, judgments, awards, settlements, legal or
administrative Legal Proceedings, damages, losses, claims, demands and
response, investigative, remedial or inspection costs and expenses arising
under Environmental Law or Occupational Safety and Health Law;
(c) financial responsibility under Environmental Law or Occupational
Safety and Health Law for cleanup costs or corrective action, including any
investigation, cleanup, removal, containment or other remediation or
response actions ("Cleanup") required by applicable Environmental Law or
Occupational Safety and Health Law (whether or not such Cleanup has been
required or requested by any Governmental Body or any other Person) and for
any natural resource damages; or
(d) any other compliance, corrective, investigative, or remedial
measures required under Environmental Law or Occupational Safety and Health
Law.
The terms "removal," "remedial" and "response action" include the types of
activities covered by CERCLA.
"Environmental Law" means any Legal Requirement that requires or relates
to:
(a) advising appropriate authorities, employees and the public of
intended or actual releases of pollutants or hazardous substances or
materials, violations of discharge limits or other prohibitions and of the
commencements of activities, such as resource extraction or construction,
that could have significant impact on the Environment;
(b) preventing or reducing to acceptable levels the release of
pollutants or hazardous substances or materials into the Environment;
(c) reducing the quantities, preventing the release or minimizing the
hazardous characteristics of wastes;
(d) assuring that products are designed, formulated, packaged, and
used so that they do not present unreasonable risks to human health or the
Environment when used or disposed of;
(e) protecting natural resources, species or ecological amenities;
(f) reducing to acceptable levels the risks inherent in the
transportation of hazardous substances, pollutants, oil or other
potentially harmful substances;
(g) cleaning up pollutants that have been released into the
Environment, preventing the threat of any such release, or paying the costs
of such clean up or prevention; or
(h) making responsible parties pay private parties, or groups of them,
for damages done to their health or the Environment, or permitting
self-appointed representatives of the public interest to recover for
injuries done to public assets.
"ERISA" has the meaning set forth in Section 3.12(c).
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"ERISA Affiliate" means, with respect to any entity, trade or business, any
other entity, trade or business that is a member of a group described in Section
414(b), (c), (m) or (o) of the Code or Section 4001(b)(1) of ERISA that includes
the first entity, trade or business, or that is a member of the same "controlled
group" as the first entity, trade or business pursuant to Section 4001(a)(14) of
ERISA.
"Escrow Agent" has the meaning set forth in Section 4.5.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder.
"Exchange Fund" has the meaning set forth in Section 2.8(a).
"Expense Amount" has the meaning set forth in Section 3.27.
"Expense Amount Escrow Account" has the meaning set forth in Section 3.27.
"Expense Amount Escrow Agreement" has the meaning set forth in Section
3.27.
"Extended Outside Date" has the meaning set forth in Section 10.1(b).
"Facilities" means any real property, including, without limitation, the
Properties, leaseholds or other interests currently or formerly owned in fee
simple or pursuant to a ground leasehold interest or operated by any Acquired
Corporation, together with any buildings, plants, structures or equipment
located thereon, including, but not limited to, hotels, parking lots and
structures, convention centers, meeting facilities, restaurant, bar and lounge
facilities, and all furnishings, fixtures and equipment located therein or
thereon.
"Fee Amount" has the meaning set forth in Section 4.5.
"Fee Amount Escrow Account" has the meaning set forth in Section 4.5.
"Fee Amount Escrow Agreement" has the meaning set forth in Section 4.5.
"Filed Company SEC Reports" has the meaning set forth in Section 3.4.
"Franchise Agreements" has the meaning set forth in Section 3.8(h).
"GAAP" means the generally accepted accounting principles in the United
States of America.
"Governmental Authorization" means any: (a) permit, license, certificate,
franchise, permission, variance, clearance, registration, qualification or
authorization issued, granted, given or otherwise made available by or under the
authority of any Governmental Body or pursuant to any Legal Requirement; or (b)
right under any Contract with any Governmental Body.
"Governmental Body" means any: (a) nation, state, commonwealth, province,
territory, county, municipality, district or other jurisdiction of any nature;
(b) federal, state, local, municipal, foreign or other government; or (c)
governmental or quasi-governmental authority of any nature (including any
governmental division, department, agency, commission, instrumentality,
official, organization, unit, body or other Person and any court or other
tribunal).
"Ground Leased Properties" has the meaning set forth in Section 3.8(b).
"Ground Leases" has the meaning set forth in Section 3.8(b).
"Hammons Affiliate" means Mr. John Q. Hammons and any Affiliate thereof,
including, without limitation, the Revocable Trust of John Q. Hammons dated
December 28, 1989, as amended and restated.
"Hammons Agreements" has the meaning set forth in Section 4.7(a).
"Hammons Transactions" means the transactions contemplated by the
agreements set forth on Schedule 1.
"Hazardous Activity" means the distribution, generation, handling,
importing, management, manufacturing, processing, production, refinement,
release, storage, transfer, transportation, treatment or use (including any
withdrawal or other use of groundwater) of Hazardous Materials in, on, under,
about or from the Facilities
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or any part thereof into the Environment, and any other act, business, operation
or thing relating to Hazardous Materials that increases the danger, or risk of
danger, or poses an unreasonable risk of harm, to persons or property on or off
the Facilities, or would reasonably be likely to adversely affect the value of
the Facilities or the Acquired Corporations.
"Hazardous Materials" means any waste or other substance that is listed,
defined, designated, or classified as, or otherwise determined to be, hazardous,
radioactive, or toxic, or a pollutant or contaminant, under or pursuant to any
Environmental Law, and specifically including petroleum and all derivatives
thereof or synthetic substitutes therefor and asbestos or asbestos-containing
materials.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended.
"Indemnification Event" has the meaning set forth in Section 6.5(a).
"Initial Expiration Date" has the meaning set forth in Section 10.1(b).
"Intellectual Property Rights" has the meaning set forth in Section 3.9.
"knowledge": An individual will be deemed to have "knowledge" of a
particular fact or other matter if such individual is actually aware of such
fact or other matter, after reasonable investigation.
A Person (other than an individual) will be deemed to have "knowledge" of a
particular fact or other matter if any individual who is serving as a director
or officer of such Person (or in any substantially similar capacity) is actually
aware of such fact or other matter, after reasonable investigation.
"Legal Proceeding" means any action, suit, litigation, arbitration,
proceeding (including any civil, criminal, administrative, investigative or
appellate proceeding), hearing, inquiry, audit, examination or investigation
commenced, brought, conducted or heard by or before, or otherwise involving, any
court or other Governmental Body or any arbitrator or arbitration panel.
"Legal Requirement" means any federal, state, local, municipal, foreign or
other law, statute, constitution, principle of common law, resolution,
ordinance, code, edict, decree, rule, regulation, ruling or requirement issued,
enacted, adopted, promulgated, implemented or otherwise put into effect by or
under the authority of any Governmental Body (or under the authority of The
American Stock Exchange or any other stock exchange, if applicable).
"Mailing Notice" has the meaning set forth in Section 5.6.
"Management Agreements" has the meaning set forth in Section 3.8(i).
"Material Adverse Effect": An event, violation, inaccuracy, circumstance or
other matter will be deemed to have a "Material Adverse Effect" on the Acquired
Corporations if such event, violation, inaccuracy, circumstance or other matter
has had or could reasonably be expected to have a material adverse effect on (i)
the business, condition, capitalization, assets, liabilities, operations or
financial performance of the Acquired Corporations taken as a whole, (ii) the
ability of the Company to consummate the Merger or any of the Contemplated
Transactions or Hammons Transactions or to perform any of its obligations under
this Agreement or (iii) Parent's ability, after the Effective Time, to vote,
receive dividends with respect to or otherwise exercise ownership rights with
respect to the stock of the Surviving Corporation. A "Material Adverse Effect"
on the Acquired Corporations, taken together as a whole, will also be deemed to
have occurred if there is a disruption of or adverse change in the financial
credit or real estate markets, or other change in general economic conditions,
or an outbreak or escalation of hostilities involving the United States, the
declaration by the United States of a national emergency or war, or the
occurrence of any act of terrorism and any action or reaction thereto that has a
material adverse effect on Parent's ability to finance the transactions
contemplated by this Agreement, but without regard to the cost of, or conditions
that may be imposed on, such financing. An event, violation, inaccuracy,
circumstance or other matter will be deemed to have a "Material Adverse Effect"
on Parent if such event, violation, inaccuracy, circumstance or other matter has
had or would reasonably be expected to have a material adverse effect on (i) the
business, condition, capitalization, assets, liabilities, operations or
financial performance of Parent and its Subsidiaries taken as a whole, or (ii)
the ability of Parent to consummate the Merger or any of the Contemplated
Transactions or
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Hammons Transactions or to perform any of its obligations under this Agreement.
For purposes of clarification, no circumstance, event, violation, inaccuracy,
occurrence, change, effect or other matter attributable to any of the following
shall be deemed in itself, or in any combination, to constitute, and none of the
following shall be taken into account in determining whether there has been or
will be, a Material Adverse Effect on the Acquired Corporations: (a) the
negotiation, execution, announcement, performance, pendency or consummation of
any of the transactions contemplated by this Agreement or any of the other
agreements contemplated by this Agreement or the Hammons Transactions, or (b)
compliance with the terms of, or the taking of any action required by, this
Agreement or any of the other agreements contemplated by this Agreement or the
Hammons Transactions.
"Material Contract" has the meaning set forth in Section 3.17(a).
"Merger" has the meaning set forth in the recitals to this Agreement.
"Merger Consideration" has the meaning set forth in Section 2.5(d).
"Merger Sub" has the meaning set forth in the opening paragraph of this
Agreement.
"Minimum Required Vote" has the meaning set forth in Section 3.2(a).
"Minority Approval" has the meaning set forth in Section 3.2(a).
"Multiemployer Plan" has the meaning set forth in Section 3.12(h).
"New Plans" has the meaning set forth in Section 6.4.
"Occupational Safety and Health Law" means any Legal Requirement designed
to provide safe and healthful working conditions and to reduce occupational
safety and health hazards and designed to provide safe and healthful working
conditions.
"Off-Balance Sheet Arrangement" means with respect to any Person, any
securitization transaction to which that Person or its Subsidiaries is party and
any other transaction, agreement or other contractual arrangement to which an
entity unconsolidated with that Person is a party, under which that Person or
its Subsidiaries, whether or not a party to the arrangement has, or in the
future may have: (a) any obligation under a direct or indirect guarantee or
similar arrangement; (b) a retained or contingent interest in assets transferred
to an unconsolidated entity or similar arrangement; (c) derivatives to the
extent that the fair value thereof is not fully reflected as a liability or
asset in the financial statements; or (d) any obligation or liability, including
a contingent obligation or liability, to the extent that it is not fully
reflected in the financial statements (excluding the footnotes thereto) (for
this purpose, obligations or liabilities that are not fully reflected in the
financial statements (excluding the footnotes thereto) include, without
limitation: obligations that are not classified as a liability according to
GAAP; contingent liabilities as to which, as of the date of the financial
statements, it is not probable that a loss has been incurred or, if probable, is
not reasonably estimable; or liabilities as to which the amount recognized in
the financial statements is less than the reasonably possible maximum exposure
to loss under the obligation as of the date of the financial statements, but
exclude contingent liabilities arising out of litigation, arbitration or
regulatory actions (not otherwise related to off-balance sheet arrangements)).
"Option Consideration" has the meaning set forth in Section 2.6(a).
"Option Holder Notice" has the meaning set forth in Section 2.6.
"Options" has the meaning set forth in Section 3.3.
"Organizational Documents" has the meaning set forth in Section 3.1(b).
"Owned Real Properties" has the meaning set forth in Section 3.8(b).
"Parent" has the meaning set forth in the opening paragraph of this
Agreement.
"Parent Affiliates" has the meaning set forth in Section 4.7(b).
"Parent Expenses" has the meaning set forth in Section 10.3(a)(ii).
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"Paying Agent" has the meaning set forth in Section 2.8(a).
"Permitted Encumbrances" means (i) Encumbrances identified on Schedule 1.1,
(ii) Encumbrances for Taxes, assessments, governmental charges or levies or
mechanics' and other statutory liens which are not material in amount relative
to the property affected or which are not yet delinquent or are being contested
in good faith and by appropriate proceedings in respect thereof or for which an
appropriate reserve has been established in accordance with GAAP and (iii)
restrictions on transfer generally arising under federal and state securities
laws.
"Person" means any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, labor union or other entity
or Governmental Body.
"Plans" has the meaning set forth in Section 3.12(a).
"Pre-Closing Period" has the meaning set forth in Section 5.1.
"Properties" has the meaning set forth in Section 3.8(b).
"Proxy Statement" has the meaning set forth in Section 3.26.
"Qualified Plans" has the meaning set forth in Section 3.12(d).
"Replacement Commitment Letter" has the meaning set forth in Section 6.10.
"Representatives" means officers, directors, agents, attorneys,
accountants, advisors and representatives.
"Required Company Stockholder Vote" has the meaning set forth in Section
3.2(a).
"Schedule 13E-3" has the meaning set forth in Section 3.26.
"SEC" means the United States Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"Space Leases" has the meaning set forth in Section 3.8(c).
"Special Committee" has the meaning set forth in the recitals to this
Agreement.
"Subsidiary" means, with respect to any Person, any corporation, limited
liability company, partnership, association or other business entity of which
(i) if a corporation, a majority of the total voting power of shares of stock
entitled (without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by that Person or one or more of the other
Subsidiaries of that Person or a combination thereof or (ii) if a limited
liability company, partnership, association or other business entity (other than
a corporation), (x) a majority of the partnership or other similar ownership
interests thereof is at the time owned or controlled, directly or indirectly, by
that Person or one or more Subsidiaries of that Person or a combination thereof,
and for this purpose, a Person or Persons own a majority ownership interest in
such a business entity (other than a corporation) if such Person or Persons
shall be allocated a majority of such business entity's gains or losses or (y)
that Person shall be or control any managing director or general partner of such
business entity (other than a corporation). The term "Subsidiary" shall include
all Subsidiaries of such Subsidiary, and, when used with respect to the Company,
shall include John Q. Hammons Hotels, L.P.
"Superior Proposal" means an unsolicited, bona fide written offer made by a
third party for an Acquisition Transaction involving the Company on terms that
the Board of the Company determines, in its good faith judgment, after
consultation with an independent financial advisor of nationally recognized
reputation, to be more favorable to the Company's stockholders than the terms of
the Merger and is reasonably capable of being consummated; provided, however,
that any such offer shall not be deemed to be a "Superior Proposal" if any
financing required to consummate the transaction contemplated by such offer is
not reasonably likely to be obtained.
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"Surviving Corporation" has the meaning set forth in Section 2.1(a).
"Tax" means (i) any tax (including any income tax, franchise tax, capital
gains tax, gross receipts tax, value-added tax, surtax, excise tax, ad valorem
tax, transfer tax, stamp tax, sales tax, use tax, property tax, business tax,
withholding tax or payroll tax), levy, assessment, tariff, duty (including any
customs duty), (ii) any related charge or amount (including any fine, penalty or
interest), imposed, assessed or collected by or under the authority of any
Taxing Authority and (iii) any liability pursuant to any statute or agreement
for an amount described in (i) or (ii) above owed by another party.
"Tax Return" means any return (including any information return), report,
statement, estimate, schedule, notice, notification, form, election, certificate
or other document filed with, or required to be filed with, any Taxing Authority
in connection with the determination, assessment, collection or payment of any
Tax or in connection with the administration, implementation or enforcement of
or compliance with any Legal Requirement relating to any Tax.
"Taxing Authority" means a Governmental Body responsible for the
imposition, administration or collection of any Tax.
"Title Policies" has the meaning set forth in Section 3.8(f).
"Transaction Agreement" means the Amended and Restated Transaction
Agreement, dated as of the date hereof, among JD Holdings, LLC, Parent, Mr. John
Q. Hammons, John Q. Hammons, as Trustee of the Revocable Trust of John Q.
Hammons, dated December 28, 1989, as amended and restated, and Hammons, Inc.
"Treasury Regulations" means the income tax regulations promulgated under
the Code, as such regulations may be amended from time to time. References to
specific provisions of the Treasury Regulations shall be deemed to include the
corresponding provisions of succeeding provisions of the Treasury Regulations.
"USRPHC" has the meaning set forth in Section 3.11(t).
SECTION 2. The Merger.
2.1 General.
(a) Upon the terms and subject to the conditions of this Agreement and in
accordance with the DGCL, at the Effective Time, (i) Merger Sub shall be merged
with and into the Company, (ii) the separate corporate existence of Merger Sub
shall cease and (iii) the Company shall be the surviving corporation (the
"Surviving Corporation") and shall continue its corporate existence under the
laws of the State of Delaware.
(b) The Merger shall become effective at the time of filing of a
certificate of merger substantially in the form of Exhibit 2.1(b) attached
hereto (the "Certificate of Merger"), with the Secretary of State of the State
of Delaware in accordance with the provisions of Section 251 of the DGCL, or at
such later date as the parties may mutually agree (the "Effective Time").
Subject to the terms and conditions of this Agreement, the Company and the
Merger Sub shall duly execute and file the Certificate of Merger with the
Secretary of State of the State of Delaware at the time of the closing of the
Merger (the "Closing"). The Closing shall take place at the offices of Kaye
Scholer LLP, 425 Park Avenue, New York, New York 10022, on the date on which the
last of the conditions set forth in Sections 7, 8 and 9 have been satisfied or
waived or such other date as the parties hereto may mutually agree upon (the
"Closing Date").
(c) At the Effective Time, the effects of the Merger shall be as provided
in the applicable provisions of the DGCL. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time, all the property, rights,
privileges, powers and franchises of the Company and the Merger Sub shall vest
in the Surviving Corporation, and all debts, liabilities, obligations,
restrictions, disabilities and duties of the Company and Merger Sub shall become
the debts, liabilities, obligations, restrictions, disabilities and duties of
the Surviving Corporation.
(d) On the Closing Date, the Escrow Agent shall release the Fee Amount to
Parent. On the Closing Date, the Escrow Agent shall release (i) to Parent, from
the Expense Amount Escrow Account, an aggregate
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amount equal to the Parent Expenses, and (ii) the excess of the Expense Amount
over such aggregate amount of the Parent Expenses to the Surviving Corporation.
2.2 Certificate of Incorporation. At the Effective Time, the Certificate
of Incorporation of the Company, as in effect immediately prior to the Effective
Time, shall be amended as set forth in Exhibit 2.2 and, as so amended, shall be
the Certificate of Incorporation of the Surviving Corporation until thereafter
amended as provided therein or by applicable law.
2.3 By-Laws. The by-laws of Merger Sub, as in effect immediately prior to
the Effective Time, shall be the by-laws of the Surviving Corporation until
thereafter amended as provided therein or by applicable law.
2.4 Directors and Officers. From and after the Effective Time, (a) the
directors of Merger Sub at the Effective Time shall be the directors of the
Surviving Corporation, each to hold office in accordance with the Certificate of
Incorporation and by-laws of the Surviving Corporation, and (b) the officers of
Merger Sub at the Effective Time shall be the initial officers of the Surviving
Corporation, in each case, until their respective successors are duly elected or
appointed and qualified.
2.5 Effect on Company Capital Stock. At the Effective Time, by virtue of
the Merger and without any further action on the part of Parent, Merger Sub, the
Company or any stockholder of the Company:
(a) each issued and outstanding share of common stock, par value $0.01
per share, of Merger Sub shall be converted into one validly issued, fully
paid and nonassessable share of common stock, par value $0.01 per share, of
the Surviving Corporation;
(b) each share of Company Capital Stock then held by the Company or
any wholly-owned Subsidiary of the Company (or held in the Company's
treasury) shall be canceled and retired and shall cease to exist, and no
consideration shall be delivered in exchange therefor;
(c) each share of Company Capital Stock then held by Parent or Merger
Sub shall be canceled and retired and shall cease to exist, and no
consideration shall be delivered in exchange therefor;
(d) subject to the provisions of Section 2.8, each share of Company
Class A Common Stock issued and outstanding immediately prior to the
Effective Time (other than shares of Company Class A Common Stock canceled
and retired in accordance with Sections 2.5(b) and (c) and any Dissenting
Shares) shall be converted into the right to receive $24.00 in cash per
share, without interest (the "Merger Consideration"). As of the Effective
Time, each share of Company Class A Common Stock shall no longer be
outstanding and shall automatically be canceled and retired, and each
holder of record of a certificate representing any such shares (a
"Certificate") shall cease to have any rights with respect thereto, other
than the right to receive the Merger Consideration, in accordance with
Section 2.8;
(e) each share of Company Class B Common Stock issued and outstanding
immediately prior to the Effective Time (other than shares of Company Class
B Common Stock canceled and retired in accordance with Sections 2.5(b) and
(c) and any Dissenting Shares) shall remain outstanding as one share of
common stock, par value $0.01 per share, of the Surviving Corporation with
the rights set forth in the Certificate of Incorporation of the Surviving
Corporation, as amended pursuant to Section 2.2;
(f) Notwithstanding any provision of this Agreement to the contrary,
if required by the DGCL, but only to the extent required thereby, shares of
Company Capital Stock that are issued and outstanding immediately prior to
the Effective Time and that are held by holders of such shares of Company
Capital Stock who have properly exercised appraisal rights with respect
thereto in accordance with Section 262 of the DGCL (the "Dissenting
Shares") will not be converted into the right to receive the Merger
Consideration, and the holders of such Dissenting Shares will be entitled
to receive payment of the appraised value of such shares of Company Capital
Stock in accordance with the provisions of such Section 262 of the DGCL
unless and until such holders fail to perfect or effectively withdraw or
lose their rights to appraisal and payment under the DGCL. If, after the
Effective Time, any such holder fails to perfect or effectively withdraws
or loses such right, such shares of Company Capital Stock will thereupon be
treated as if they had been converted into and become exchangeable for, at
the Effective Time, the right to receive the Merger Consideration, without
any interest thereon. The Company shall (i) give
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Parent prompt notice of any demands received by the Company for appraisals
of shares of Company Capital Stock and (ii) consult with and keep Parent
informed, on an on-going basis, regarding the status and negotiation of
such demands. The Company shall not make any payment or settlement offer,
or agree to or effect any settlement, prior to the Effective Time with
respect to any such demand unless Parent shall have consented in writing to
such payment or settlement offer, which consent shall not be unreasonably
withheld.
2.6 Company Stock Options. Not later than the earlier of the time at
which the Company gives notice of the transactions contemplated hereby to its
stockholders and the date that is 30 days prior to the Effective Time, the
Company shall notify each holder of a Company Stock Option, in writing, of the
transactions contemplated hereby in accordance with each Company Plan (the
"Option Holder Notice"). Such Option Holder Notice shall (a) apprise the holders
of outstanding Company Stock Options of their ability to exercise the Company
Stock Options in accordance with the applicable Company Plan prior to the
Effective Time, (b) disclose that, if not exercised, such Company Stock Options
will terminate at the Effective Time and (c) disclose that if any Company Stock
Options are not exercised prior to the Effective Time and terminate as
contemplated in clause (b), the holders of such Company Stock Options will be
entitled to receive the Option Consideration (as defined below) in respect of
such Company Stock Options. As of the Effective Time, each outstanding Company
Stock Option shall be terminated by virtue of the Merger and each holder of a
Company Stock Option shall cease to have any rights with respect thereto, other
than the right to receive, in respect of each such terminated Company Stock
Option, a special bonus per Company Stock Option (without interest and subject
to the deduction and withholding of such amounts as the Surviving Corporation is
required to deduct and withhold with respect to the making of such payment under
the Code, or any provision of state, local or foreign tax law) in cash equal to
$24 minus the exercise price for such Company Stock Option (the "Option
Consideration"). Payment of the Option Consideration to each of the holders of
Company Stock Options entitled thereto shall be made by the Surviving
Corporation, subject to the terms and conditions of this Agreement, as soon as
practicable after the Effective Time. Any amounts withheld and paid over to the
appropriate taxing authority by the Surviving Corporation will be treated for
all purposes of this Agreement as having been paid to the holder of the Company
Stock Option in respect of whom such deduction and withholding was made. The
Company shall take all actions required under each Company Plan under which such
Company Stock Options were granted to cause such Company Plan and all Company
Stock Options granted thereunder to terminate at the Effective Time.
2.7 Adjustment of the Merger Consideration. In the event that, prior to
the Effective Date, any stock split, combination, reclassification or stock
dividend with respect to the Company Capital Stock, any change or conversion of
Company Capital Stock into other securities or any other dividend or
distribution with respect to the Company Capital Stock (other than regular
quarterly dividends) should occur or, if a record date with respect to any of
the foregoing should occur, appropriate and proportionate adjustments shall be
made to the Merger Consideration, and thereafter all references to the Merger
Consideration shall be deemed to be to the Merger Consideration as so adjusted.
2.8 Exchange Procedures; Stock Transfer Books.
(a) Prior to the Effective Time, Parent shall appoint a bank or trust
company reasonably acceptable to the Company to act as paying and exchange agent
hereunder (the "Paying Agent"). Prior to the Effective Time, Parent shall
deposit with the Paying Agent cash in an amount necessary to pay all of the
Merger Consideration. Such amount shall hereinafter be referred to as the
"Exchange Fund."
(b) As soon as reasonably practicable (and in no event more than three
business days) after the Effective Time, the Paying Agent shall send to each
Person who was, at the Effective Time, a holder of record of Certificates (i) a
letter of transmittal in customary form and containing such provisions as Parent
may reasonably specify (including (A) a provision confirming that delivery of
Certificates shall be effected, and risk of loss and title to Certificates shall
pass, only upon delivery of such Certificates to the Paying Agent, and (B) a
form of certification by the Person executing such letter of transmittal to the
effect that either (1) such Person is not "foreign" for purposes of Sections 897
and 1445 of the Code or (2) such Person has not owned, directly or indirectly,
more than 5% of the outstanding Company Capital Stock at any time during the
five
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years preceding the Effective Time), and (ii) instructions for use in effecting
the surrender of Certificates in exchange for the Merger Consideration. Upon
surrender of a Certificate to the Paying Agent, together with a duly executed
letter of transmittal and such other documents as may be reasonably required by
the Paying Agent or Parent, (A) the holder of such Certificate shall be entitled
to receive in exchange therefor the applicable Merger Consideration, and (B) the
Certificates so surrendered shall be canceled. Until surrendered as contemplated
by this Section 2.8, each Certificate shall be deemed, from and after the
Effective Time, to represent only the right to receive the Merger Consideration
as contemplated by this Section 2. If any Certificate shall have been lost,
stolen or destroyed, Parent may, in its discretion and as a condition precedent
to the payment of any portion of the Merger Consideration, require the owner of
such lost, stolen or destroyed Certificate to provide an appropriate affidavit
and to deliver a bond (in such sum as Parent may reasonably direct) as indemnity
against any claims that may be made against the Paying Agent, Parent or the
Surviving Corporation with respect to such Certificate.
(c) If any Merger Consideration is to be paid to any Person other than the
registered holder of the Certificate surrendered in exchange therefor, it shall
be a condition to such exchange that such surrendered Certificate shall be
properly endorsed and otherwise in proper form for transfer and such Person
either (i) shall pay to the Paying Agent any transfer or other taxes required as
a result of the distribution of such cash payment to such Person, or (ii) shall
establish to the reasonable satisfaction of the Paying Agent that such tax has
been paid or is not applicable. Parent or the Paying Agent shall be entitled to
deduct and withhold from the consideration otherwise payable pursuant to this
Agreement to any holder of shares of Company Class A Common Stock such amounts
as Parent or the Paying Agent is required to deduct and withhold with respect to
the making of such payment under the Code, or any provision of state, local or
foreign tax law. To the extent that amounts are so withheld by Parent or the
Paying Agent, such withheld amounts shall be treated for all purposes of this
Agreement as having been paid to the holder of the shares of Company Class A
Common Stock in respect of which such deduction and withholding was made by
Parent or the Paying Agent. All amounts in respect of taxes received or withheld
by Parent shall be disposed of by Parent in accordance with the Code or such
state, local or foreign tax law, as applicable.
(d) As of the Effective Time, all shares of Company Class A Common Stock
(other than shares of Company Class A Common Stock to be canceled and retired in
accordance with Sections 2.5(b) and (c) and any Dissenting Shares) issued and
outstanding immediately prior to the Effective Time shall cease to be
outstanding and shall automatically be canceled and retired and shall cease to
exist, and each holder of any such shares shall cease to have any rights with
respect thereto, except the right to receive the Merger Consideration upon
surrender of the Certificate representing such shares in accordance with this
Section 2.8. The Merger Consideration paid upon the surrender of Certificates in
accordance with the terms of this Section 2.8 shall be deemed to have been
delivered (and paid) in full satisfaction of all rights pertaining to the
Company Class A Common Stock previously represented by such Certificates.
(e) At the Effective Time, the stock transfer books of the Company shall be
closed and thereafter there shall be no further registration of transfers of
shares of the Company's capital stock on the records of the Company.
(f) The Paying Agent shall invest any cash included in the Exchange Fund in
liquid debt securities rated AA or higher by at least two nationally-recognized
rating agencies; provided, that no such investment or loss thereon shall affect
the amounts payable to the Company's stockholders pursuant to this Section 2.
Any interest and other income resulting from such investments shall promptly be
paid to Parent.
(g) Any portion of the Exchange Fund that remains undistributed to holders
of Certificates as of the date 180 days after the Effective Time shall be
delivered to Parent upon demand, and any holders of Certificates who have not
theretofore surrendered their Certificates in accordance with this Section 2.8
shall thereafter look only to Parent for satisfaction of their claims for any
portion of the Merger Consideration.
(h) Neither Parent nor the Surviving Corporation shall be liable to any
holder or former holder of Company Class A Common Stock or to any other Person
with respect to any portion of the Merger Consideration (or dividends or
distributions with respect thereto), or for any cash amounts, properly delivered
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to any public official pursuant to any applicable abandoned property law,
escheat law or similar Legal Requirement.
2.9 Further Assurances. If at any time after the Effective Time, the
Surviving Corporation shall consider or be advised that any deeds, bills of
sale, assignments or assurances or any other acts or things are necessary,
desirable or proper (a) to vest, perfect or confirm, of record or otherwise, in
the Surviving Corporation its right, title or interest in, to or under any of
the rights, privileges, powers, franchises, properties or assets of either the
Company or Merger Sub, or (b) otherwise to carry out the purposes of this
Agreement, the Surviving Corporation and its proper officers and directors or
their designees shall be authorized to execute and deliver, in the name and on
behalf of either the Company or Merger Sub, all such deeds, bills of sale,
assignments and assurances and do, in the name and on behalf of the Company or
Merger Sub, all such other acts and things necessary, desirable or proper to
vest, perfect or confirm its right, title or interest in, to or under any of the
rights, privileges, powers, franchises, properties or assets of the Company or
Merger Sub, as applicable, and otherwise to carry out the purposes of this
Agreement.
SECTION 3. Representations and Warranties of the Company. The Company
represents and warrants to Parent and Merger Sub as follows:
3.1 Organization and Good Standing.
(a) Each Acquired Corporation is duly organized, validly existing and
in good standing under the laws of its jurisdiction of incorporation, with
all requisite corporate power and authority to conduct its business as now
being conducted, to own or use the respective properties and assets that it
purports to own or use, and to perform all of its obligations under all
Material Contracts to which it is a party. Each Acquired Corporation is
duly qualified to do business as a foreign corporation and is in good
standing under the laws of each state or other jurisdiction in which either
the ownership or use of the properties owned or used by it, or the nature
of the activities conducted by it, requires such qualification, except
where the failure to be so qualified would not be reasonably likely to,
individually or in the aggregate, have a Material Adverse Effect on the
Acquired Corporations.
(b) Schedule 3.1(b) lists all Acquired Corporations and indicates as
to each its jurisdiction of organization and, except in the case of the
Company, its stockholders. The Company has delivered to Parent copies of
the certificate or articles of incorporation, by-laws and other
organizational documents (collectively, "Organizational Documents") of each
of the Acquired Corporations, as currently in effect.
(c) The Company has delivered to Parent copies of the charters of each
committee of the Company's Board and any code of conduct or similar policy
adopted by the Company.
3.2 Authority; No Conflict.
(a) The Company has all necessary corporate power and authority to
execute and deliver this Agreement and the other agreements referred to in
this Agreement to which it is a party, to perform its obligations hereunder
and thereunder and to consummate the Merger and the other transactions that
it is required to consummate hereby and thereby (the "Contemplated
Transactions"). The execution and delivery of this Agreement by the Company
and the consummation by the Company of the Contemplated Transactions have
been duly and validly authorized by all necessary corporate action and no
other corporate proceedings on the part of the Company are necessary to
authorize this Agreement or to consummate the Contemplated Transactions
(other than, with respect to the Merger, the approval and adoption of this
Agreement by the holders of a majority of the then outstanding shares of
Company Capital Stock (the "Minimum Required Vote") and, unless waived by
the Special Committee pursuant to Section 7.1, holders of a majority of the
Company Class A Common Stock not held by a Hammons Affiliate who vote with
respect to the matter (the "Minority Approval" and, collectively with the
Minimum Required Vote, the "Required Company Stockholder Vote")) and the
filing of appropriate merger documents as required by the DGCL). The Board
of the Company has approved this Agreement, declared it to be advisable and
resolved to recommend to stockholders of the Company that they vote in
favor of the adoption of this Agreement in accordance with the DGCL. This
Agreement has been duly
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and validly executed and delivered by the Company and constitutes the
legal, valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms.
(b) Except as set forth in Schedule 3.2(b), neither the execution and
delivery of this Agreement nor the consummation of any of the Contemplated
Transactions do or will, directly or indirectly (with or without notice or
lapse of time or both), (i) contravene, conflict with, or result in a
violation of (A) any provision of the Organizational Documents of any of
the Acquired Corporations, or (B) any resolution adopted by the Board or
the stockholders of any of the Acquired Corporations; (ii) contravene,
conflict with or result in a violation of, or give any Governmental Body or
other Person the right to exercise any remedy or obtain any relief under,
any Legal Requirement or any order, writ, injunction or decree to which any
of the Acquired Corporations, or any of the assets owned or used by any of
the Acquired Corporations, is or may be subject; (iii) contravene, conflict
with or result in a violation of any of the terms or requirements of, or
give any Governmental Body the right to revoke, withdraw, suspend, cancel,
terminate or modify, any Governmental Authorization that is held by any of
the Acquired Corporations, or that otherwise relates to the business of, or
any of the assets owned or used by, any of the Acquired Corporations; (iv)
cause any of the Acquired Corporations to become subject to, or to become
liable for the payment of, any Tax; (v) cause any of the assets owned by
any of the Acquired Corporations to be reassessed or revalued by any Taxing
Authority or other Governmental Body; (vi) contravene, conflict with or
result in a violation or breach of any provision of, or give any Person the
right to declare a default or exercise any remedy under, or to accelerate
the maturity or performance of, or to cancel, terminate or modify, any
Material Contract; (vii) require a Consent from any Person; or (viii)
result in the imposition or creation of any Encumbrance upon or with
respect to any of the assets owned or used by any of the Acquired
Corporations, except, in the case of clauses (ii), (iii), (iv), (v), (vi),
(vii) and (viii), for any such contraventions, conflicts, violations,
breaches, defaults or other occurrences that would not prevent or
materially delay consummation of the Merger or have a Material Adverse
Effect on the Acquired Corporations.
(c) The execution and delivery of this Agreement by the Company does
not, and the performance of this Agreement and the consummation of the
Contemplated Transactions by the Company will not, require any Consent of,
or filing with or notification to, any Governmental Body, except (i) for
(A) applicable requirements, if any, of the Exchange Act, the Securities
Act and state securities or "blue sky" laws, (B) the pre-merger
notification requirements of the HSR Act and (C) filing of a certificate of
merger as required by the DGCL and appropriate corresponding documents with
the appropriate authorities in other states in which the Company is
qualified as a foreign corporation to transact business and (ii) where
failure to obtain such Consents, or to make such filings or notifications,
would not prevent or delay consummation of the Merger or otherwise have a
Material Adverse Effect on the Acquired Corporations.
3.3 Capitalization. The authorized capital stock of the Company
consists of 40,000,000 shares of Company Class A Common Stock, 1,000,000
shares of Company Class B Common Stock and 2,000,000 shares of Company
Preferred Stock. As of the date hereof: (a) 5,245,212 shares of Company
Class A Common Stock are issued and outstanding, all of which are duly
authorized, validly issued, fully paid and nonassessable; (b) 294,100
shares of Company Class B Common Stock are issued and outstanding, all of
which are duly authorized, validly issued, fully paid and nonassessable;
(c) no shares of Company Preferred Stock are issued and outstanding; (d)
1,754,588 shares of Company Class A Common Stock are reserved for issuance
upon the exercise of outstanding Company Stock Options granted to the
Company's officers, directors and employees pursuant to the Plans; (e) no
shares of Company Class A Common Stock are reserved for issuance upon the
exercise of outstanding warrants; 796,788 shares of Company Class A Common
Stock and no shares of Company Class B Common Stock are held in the
treasury of the Company; and (f) 1,852,213 shares of Company Class A Common
Stock are reserved for issuance under the Plans. The foregoing
representation and warranty and each other representation and warranty of
the Company related to the Company Class B Common Stock assume that no
shares of Company Class B Common Stock have been, or will be, prior to the
Effective Time, converted into shares of Company Class A Common Stock.
There are no bonds, debentures, notes or
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other Debt or, other than the capital stock and options described in this
Section 3.3, securities 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 stockholders of the Company may vote. Schedule 3.3
sets forth the ownership of the capital stock or other equity interests of
each Acquired Corporation other than the Company that is not wholly owned,
directly or indirectly, by the Company. Except as set forth in the
preceding sentences of this Section 3.3 or in Schedule 3.3, as of the date
hereof, no shares of capital stock or other voting securities of the
Company are issued, reserved for issuance or outstanding and no shares of
capital stock or other voting securities of the Company will be issued or
become outstanding after the date hereof other than upon exercise of the
Company Stock Options outstanding as of the date hereof. No warrants
related to securities of the Company are outstanding. Except as set forth
in this Section 3.3 or in Schedule 3.3, there are no options, stock
appreciation rights, warrants or other rights, Contracts, arrangements or
commitments of any character (collectively, "Options") relating to the
issued or unissued capital stock of any of the Acquired Corporations, or
obligating any of the Acquired Corporations to issue, grant or sell any
shares of capital stock of, or other equity interests in, or securities
convertible into equity interests in, the Company or any of its
Subsidiaries. Since December 31, 2004, the Company has not issued any
shares of its capital stock or Options in respect thereof, except (x) upon
the conversion of the securities or the exercise of the options referred to
above and (y) with respect to issuances of shares of capital stock pursuant
to the Company's 1999 Non-Employee Director Stock and Stock Option Plan, as
set forth on Schedule 3.3. The Company has delivered to Parent, with
respect to each Option granted by any Acquired Corporation, as of the date
of this Agreement, information regarding the identity of the grantee, the
number of Options subject to the grant, the exercise/conversion price and
expiration date and, if applicable, the stock option plan under which it
was issued. All shares of Company Capital Stock subject to issuance as
described above will, upon issuance on the terms and conditions specified
in the instruments pursuant to which they are issuable, be duly authorized,
validly issued, fully paid and nonassessable. The provisions of Section
2.6(a) are effective and do not conflict with the Company Plans and, as of
the Effective Time, all outstanding Company Stock Options will be
terminated by virtue of the Merger and each holder of a Company Stock
Option shall cease to have any rights with respect thereto, other than the
right to receive, in respect of each such terminated Company Stock Option,
the Option Consideration. Except as set forth in Schedule 3.3, none of the
Acquired Corporations has any Contract or other obligation to repurchase,
redeem or otherwise acquire any shares of Company Capital Stock or other
stock of the Company or any capital stock of any of the Company's
Subsidiaries, or to make any investment (in the form of a loan, capital
contribution or otherwise) in any of the Company's Subsidiaries or any
other Person. Each outstanding share of capital stock of each of the
Company's Subsidiaries is duly authorized, validly issued, fully paid and
nonassessable and each such share owned by any of the Acquired Corporations
is free and clear of all Encumbrances other than Permitted Encumbrances.
None of the outstanding equity securities or other securities of any of the
Acquired Corporations was issued in violation of the Securities Act or any
other Legal Requirement. Except as set forth on Schedule 3.3, none of the
Acquired Corporations owns, or has any Contract or other obligation to
acquire, any equity securities or other securities of any Person (other
than Subsidiaries of the Company) or any direct or indirect equity or
ownership interest in any other business. Except as set forth on Schedule
3.3, none of the Acquired Corporations is or has ever been a general
partner of any general or limited partnership.
3.4 SEC Reports. The Acquired Companies have on a timely basis filed
all forms, reports and documents required to be filed by them with the SEC
since January 1, 2003. Schedule 3.4 lists, and the Company has, except to
the extent available in full without redaction on the SEC's website through
the Electronic Data Gathering, Analysis and Retrieval System ("EDGAR") two
days prior to the date of this Agreement, delivered to Parent copies in the
form filed with the SEC of, all of the following: (i) the Acquired
Corporations' Annual Reports on Form 10-K for each fiscal year of the
Acquired Corporations beginning since January 1, 2003, (ii) their Quarterly
Reports on Form 10-Q for each of the first three fiscal quarters in each of
the fiscal years of the Acquired Corporations referred to in clause (i)
above, (iii) all proxy statements relating to the Company's meetings of
stockholders (whether annual or special) held, and all information
statements relating to stockholder consents, since the beginning of the
first fiscal
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year referred to in clause (i) above, (iv) the Acquired Corporations'
Current Reports on Form 8-K filed since the beginning of the first fiscal
year referred to in clause (i) above, (v) all other forms, reports,
registration statements and other documents (other than preliminary
materials if the corresponding definitive materials have been provided to
Parent pursuant to this Section 3.4) filed by the Acquired Corporations
with the SEC since the beginning of the first fiscal year referred to in
clause (i) above (the forms, reports, registration statements and other
documents referred to in clauses (i), (ii), (iii), (iv) and (v) above,
whether or not available through EDGAR, are, collectively, the "Company SEC
Reports" and, to the extent available in full without redaction on the
SEC's website through EDGAR two days prior to the date of this Agreement,
are, collectively, the "Filed Company SEC Reports"), (vi) all
certifications and statements required by (x) the SEC's Order dated June
27, 2002 pursuant to Section 21(a)(1) of the Exchange Act (File No. 4-460),
(y) Rule 13a-14 or 15d-14 under the Exchange Act, or (z) 18 U.S.C. Section
1350 (Section 906 of the Sarbanes-Oxley Act of 2002) with respect to any
report referred to in clause (i) or (ii) above (collectively, the
"Certifications"), and (vii) all comment letters received by the Acquired
Corporations from the Staff of the SEC since January 1, 2003 and all
responses to such comment letters by or on behalf of the Acquired
Corporations. The Company SEC Reports (x) were or will be prepared in all
material respects in accordance with the requirements of the Securities Act
and the Exchange Act, as the case may be, and the rules and regulations
thereunder and (y) did not at the time they were filed with the SEC, or
will not at the time they are filed with the SEC, contain any untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary in order to make the statements made
therein, in the light of the circumstances under which they were made, not
misleading. The Certifications are each true and correct. Except as set
forth on Schedule 3.4, no Subsidiary of the Company is or has been required
to file any form, report, registration statement or other document with the
SEC. The Acquired Corporations maintain disclosure controls and procedures
required by Rule 13a-15 or 15d-15 under the Exchange Act; such controls and
procedures are designed to ensure that all material information concerning
the Acquired Corporations is made known on a timely basis to the
individuals responsible for the preparation of the Company's filings with
the SEC and other public disclosure documents. The Company has delivered to
Parent copies of all written descriptions of, and all policies, manuals and
other documents promulgating, such disclosure controls and procedures. The
Company is in compliance with the applicable listing rules of The American
Stock Exchange and has not since January 1, 2003 received any notice from
The American Stock Exchange asserting any non-compliance with such rules.
To the Company's knowledge, each director and executive officer of the
Company has filed with the SEC on a timely basis all statements required by
Section 16(a) of the Exchange Act and the rules and regulations thereunder
since January 1, 2003. As used in this Section 2.4, the term "file" shall
be broadly construed to include any manner in which a document or
information is furnished, supplied or otherwise made available to the SEC
(regardless of whether public or confidential).
3.5 Financial Statements. The financial statements and notes
contained or incorporated by reference in the Company SEC Reports fairly
present the financial condition and the results of operations, changes in
stockholders' equity and cash flow of the Acquired Corporations as at the
respective dates of and for the periods referred to in such financial
statements; all of such statements and notes have been prepared in
accordance with GAAP and Regulation S-X of the SEC, subject, in the case of
interim financial statements, to normal recurring year-end adjustments (the
effect of which will not, individually or in the aggregate, be materially
adverse) and the omission of notes to the extent permitted by Regulation
S-X of the SEC (that, if presented, would not differ materially from notes
to the financial statements included in the most recent Annual Report on
Form 10-K included in the Filed Company SEC Reports (the consolidated
balance sheet included in such Annual Report is the "Balance Sheet")); the
financial statements referred to in this Section 3.5 reflect the consistent
application of such accounting principles throughout the periods involved,
except as disclosed in the notes to such financial statements. No financial
statements of any Person other than the Acquired Corporations are required
by GAAP to be included in the consolidated financial statements of the
Company. Schedule 3.5 contains a description of all non-audit services
performed by the Company's auditors for the Acquired Corporations since the
beginning of the immediately preceding fiscal year of the Company and the
fees paid for such
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services; all such non-audit services were approved as required by Section
202 of the Sarbanes-Oxley Act of 2002. The Acquired Corporations maintain a
system of internal accounting controls sufficient to provide reasonable
assurance that (i) transactions are executed in accordance with
management's general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with GAAP and to maintain asset accountability, (iii) access to
assets is permitted only in accordance with management's general or
specific authorization and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate
action is taken with respect to any differences. Schedule 3.5 lists, and
the Company has delivered to Parent copies of, the documents creating or
governing all of the Acquired Corporations' Off-Balance Sheet Arrangements.
The corporate records and minute books of the Acquired Corporations have
been maintained in accordance with all applicable Legal Requirements and
are complete and accurate in all material respects. Financial books and
records and accounts of the Acquired Corporations used in preparation of
the Acquired Corporations' financial statements: (x) have been maintained
in accordance with good business practices on a basis consistent with prior
years, (y) are stated in reasonable detail and reflect the transactions of
the Acquired Corporations in all material respects and (z) reflect the
basis for the Company's consolidated financial statements in all material
respects.
3.6 Property; Sufficiency of Assets. The Acquired Corporations have
good and valid title to all property material to the business of the
Acquired Corporations and reflected in the latest audited financial
statements included in the Filed Company SEC Reports as being owned by the
Acquired Corporations or acquired after the date thereof (except for hotels
sold as disclosed in subsequent Filed Company SEC Reports and property sold
or otherwise disposed of in the ordinary course of business since the date
thereof), free and clear of all Encumbrances except Permitted Encumbrances.
3.7 Receivables. All existing accounts receivable of the Acquired
Corporations represent valid obligations of customers of the Acquired
Corporations arising from bona fide transactions entered into in the
ordinary course of business.
3.8 Equipment; Real Property; Leaseholds.
(a) To the knowledge of the Company, all material items of equipment
and other tangible assets owned by or leased to the Acquired Corporations
are adequate for the uses to which they are being put, are in good and safe
condition and repair (ordinary wear and tear excepted) and are adequate for
the conduct of the business of the Acquired Corporations in the manner in
which such business is currently being conducted.
(b) Schedule 3.8(b) lists each parcel of real property currently owned
by any Acquired Corporation and sets forth the Acquired Corporation owning
such properties (collectively, the "Owned Real Properties"). Schedule
3.8(b) lists each parcel of real property currently ground leased by any
Acquired Corporation (collectively, the "Ground Leased Properties" and,
together with the Owned Real Properties, the "Properties"), and sets forth
the Acquired Corporation holding such leasehold interest, with the name of
the lessor and the date of the lease, any subleases and assignments, any
guarantees given and each amendment to any of the foregoing (collectively,
the "Ground Leases"). The Acquired Corporation set forth on Schedule 3.8(b)
owns fee simple title to the Owned Real Properties and the Acquired
Corporation set forth on Schedule 3.8(b) owns leasehold title to the Ground
Leased Properties, in each case, free and clear of all Encumbrances, except
for Permitted Encumbrances. None of the Properties is subject to any decree
or order of any Governmental Body to be sold nor is being condemned,
expropriated or otherwise taken by any public authority with or without
payment of compensation therefor, nor, to the knowledge of the Company, has
any such condemnation, expropriation or taking been proposed. No Acquired
Corporation has violated in any material respect any covenants, conditions
or restrictions affecting any Properties.
(c) Schedule 3.8(c) lists each real property lease or sublease (other
than the Ground Leases) to which any Acquired Corporation is a party or
subject, as either a tenant, landlord, lessee, lessor, sublandlord or
subtenant, and sets forth the Acquired Corporation holding such interest,
the name of the other party or parties thereto and the date and term of the
lease, any sublease or assignment, any guaranty
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given or leasing commissions remaining payable by any Acquired Corporation
in connection therewith and each amendment to any of the foregoing
(collectively, the "Space Leases").
(d) Each of the Ground Leases and the Space Leases is valid, binding
and in full force and effect as against the Acquired Corporations and, to
the Company's knowledge, as against the other parties thereto. No Acquired
Corporation has received notice under any of the Ground Leases or the Space
Leases of any default, and, to the Company's knowledge, no event has
occurred which, with notice or lapse of time or both, would constitute a
material default by any Acquired Corporation thereunder.
(e) Except as set forth on Schedule 3.8(e), the improvements on the
Properties (including, but not limited to, the mechanical systems,
plumbing, electrical, wiring, appliances, fixtures, heating, air
conditioning and ventilating equipment, elevators, boilers, equipment,
roofs, structural members and furnaces) are in good operating repair and
condition, ordinary wear and tear excepted, and there are no material
patent or latent defects or adverse physical conditions materially and
adversely affecting any of the Properties or any such improvements.
(f) No Acquired Corporation has received any written notice and is not
otherwise aware that valid policies of title insurance or title commitments
for which premiums have been paid (collectively, the "Title Policies")
insuring the Acquired Corporations' fee simple or leasehold title to the
Properties owned or ground leased by any Acquired Corporation are not in
full force and effect. No claim has been made by any Acquired Corporation
against any Title Policies within the last ten years.
(g) There are no Properties under construction as of the date hereof.
(h) Schedule 3.8(h) lists each parcel of real property in respect of
which an Acquired Corporation has the right, pursuant to a franchise,
license, satellite agreement, franchise development agreement, area
development agreement, development incentive agreement or other Contract
(together with any amendment, guarantees and any ancillary documents and
agreements related thereto, the "Franchise Agreements") to utilize a brand
name or other rights of a hotel chain or system from any Person. Schedule
3.8(h) also identifies the applicable brand of such property and the
Franchise Agreement related thereto. Each Franchise Agreement is valid,
binding and in full force and effect as against the Acquired Corporations
and, to the Company's knowledge, as against the other parties thereto. No
Acquired Corporation has received or delivered written notice under any of
the Franchise Agreements of any material default including, without
limitation, any failure to meet any inspection under any Franchise
Agreement and, to the Company's knowledge, no event has occurred which,
with notice or lapse of time or both, would constitute a material default
by any Acquired Corporation or the other party thereto. Except as set forth
on Schedule 3.8(h), there are no required repairs for any Property, whether
pursuant to a property improvement plan or any other renovation plan
necessary or required to bring any Property into compliance with applicable
standards.
(i) Schedule 3.8(i) lists each management agreement relating to any
parcel of real property to which any Acquired Corporation is a party (the
"Management Agreements"). Each Management Agreement is valid, binding and
in full force and effect as against the Acquired Corporations and as
against the other parties thereto. No Acquired Corporation has received or
delivered written notice under any of the Management Agreements of any
default and, to the Company's knowledge, no event has occurred which, with
notice or lapse of time or both, would constitute a material default by any
Acquired Corporation or the other parties thereto.
(j) Schedule 3.8(j) lists each parcel of real property or leasehold
interest in any ground lease conveyed, transferred, assigned or otherwise
disposed of by any Acquired Corporation since January 1, 2003.
(k) Except as set forth on Schedule 3.8(k), the Acquired Corporations
own all furniture, fixtures, equipment, operating supplies and other
personal property necessary for the operation of each Property, free and
clear of all Encumbrances except Permitted Encumbrances.
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(l) None of the Properties, nor any portion thereof, is located within
any designated historical district or area in which the permitted uses of
land located therein are restricted by Legal Requirements other than those
specified under local generally applicable ordinances.
(m) To the Company's knowledge, all utilities required for the
operation of each of the Properties either enters the Properties through
adjoining public streets or roads, or if they pass through adjoining land,
they do so in accordance with valid public easements or irrevocable private
easements, and all of said utilities are installed and operating and all
installation and connection charges therefor have been paid in full.
(n) No commitments have been made by any Acquired Corporation to any
Governmental Body, utility company, school board, church or other religious
body or any homeowners' association or any other Person relating to any of
the Properties which would impose an obligation upon Parent to make any
contribution or dedication of a material amount of money or land or to
construct, install or maintain, at a material cost to the Acquired
Corporations, any improvements of a public or private nature on or off the
real estate comprising any of the Properties.
3.9 Intellectual Property.
(a) The Acquired Corporations own, or are validly licensed or
otherwise have the right to use, all patents, patent rights, inventions,
discoveries, ideas, processes, formulae, designs, models, industrial
designs, know-how, confidential information, proprietary information,
trademarks, trade secrets, trade names, service marks, brand names, trade
dress, slogans, logos, domain names, copyrights, writing and other
copyrightable works and works in progress, databases, website content,
registrations and application for registration of any of the foregoing;
renewals, extensions, continuations, divisionals, reexaminations or
reissues or equivalents or counterparts of any of the foregoing in any
jurisdiction throughout the world, computer programs, goodwill and other
proprietary intellectual property rights (the "Intellectual Property
Rights"), in each case, which are material to the conduct of the business
of the Acquired Corporations as currently conducted. Schedule 3.9 sets
forth a listing of each Intellectual Property Right held by the Acquired
Corporations, in each case, which is material to the conduct of the
business of the Acquired Corporations as currently conducted.
(b) To the Company's knowledge, the conduct by the Acquired
Corporations of their respective businesses has not and does not infringe
upon, misappropriate or conflict with any Intellectual Property Right of
any Person, and there are no pending or, to the Company's knowledge,
threatened claims alleging that any Acquired Corporation infringes,
misappropriates or conflicts in any material respect to the Intellectual
Property Rights of any Person.
3.10 No Undisclosed Liabilities. Except as set forth on Schedule
3.10, the Acquired Corporations have no liabilities or obligations of any
nature (whether absolute, accrued, contingent, choate or inchoate or
otherwise), except for liabilities or obligations adequately reflected or
reserved against in the Balance Sheet in accordance with GAAP, consistently
applied, or disclosed in the notes thereto, current liabilities incurred
since the date of the Balance Sheet in the ordinary course of business,
consistent with past practices, and contingent or inchoate liabilities that
would not reasonably be likely to, individually or in the aggregate, have a
Material Adverse Effect on the Acquired Corporations.
3.11 Taxes.
(a) Timely Filing of Tax Returns. The Acquired Corporations have
filed or caused to be filed all material Tax Returns that are or were
required to be filed by or with respect to any of them, either separately
or as a member of a group of corporations, pursuant to applicable Legal
Requirements. All material Tax Returns filed by (or that include on a
consolidated basis) any of the Acquired Corporations were in all respects
true, complete and correct in all material respects and filed on a timely
basis. To the extent required in connection with the filing of any Tax
Return or under any other Legal Requirement, including Treasury Regulation
Section 1.6662-6(d)(3), the Acquired Corporations have materially satisfied
any contemporaneous documentation requirements. No Taxing Authority in any
jurisdiction in
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which any Acquired Corporation does not file Tax Returns has asserted in
writing that such Acquired Corporation is, or may be, subject to any Tax
(or required to file any Tax Return) in that jurisdiction.
(b) Payment of Taxes. The Acquired Corporations have, within the time
and in the manner prescribed by any applicable Legal Requirement, paid all
material Taxes that are due and payable.
(c) Withholding Taxes. Each of the Acquired Corporations has complied
with all material applicable Legal Requirements relating to the withholding
of Taxes (including withholding and reporting requirements under Code
Sections 1441 through 1464, 3401 through 3406, 6041 and 6049 and similar
provisions under any other applicable Legal Requirement) and has, within
the times and in the manner prescribed by any applicable Legal Requirement,
paid over such withheld amounts to the proper Taxing Authorities.
(d) Audits. No Tax Return of any of the Acquired Corporations is
under audit or examination by any Taxing Authority, no written or, to the
Company's knowledge, unwritten notice of such an audit or examination has
been received by any of the Acquired Corporations, the Acquired
Corporations have no knowledge of any threatened audits, investigations or
claims for or relating to Taxes, and, to the Company's knowledge, there are
no material matters under discussion with any Taxing Authority with respect
to Taxes of any of the Acquired Corporations (excluding any discussion in
which the identity of the taxpayer has not been revealed to the Taxing
Authority). No material issues relating to Taxes were raised in writing by
the relevant Taxing Authority during any presently pending audit or
examination, and no material issues relating to Taxes were raised in
writing by the relevant Taxing Authority in any completed audit or
examination that can reasonably be expected to recur in a later taxable
period. The Company has made available to Parent copies of all examiner's
or auditor's reports, notices of any material proposed adjustments or
similar commissions received by any of the Acquired Corporations from any
Taxing Authority. The United States federal income Tax Returns of the
Acquired Corporations have never been audited by the Internal Revenue
Service.
(e) Tax Reserves. To the Company's knowledge, there exists no
material proposed assessment of Taxes against any of the Acquired
Corporations except as disclosed in Schedule 3.11(e). The financial
statements contained in the Company's most recently Filed Company SEC
Reports reflect an adequate reserve for all Taxes payable by the Company
for all taxable periods and portions thereof through the date of the most
recent balance sheet included in such financial statements.
(f) Tax Sharing Agreements. The Company has made available to Parent
copies of any Tax sharing agreement, Tax allocation agreement, Tax
indemnity obligation or, to the Company's knowledge, any similar material
written or unwritten agreement or arrangement with respect to Taxes to
which any of the Acquired Corporations is a party or by which any of the
Acquired Corporations is bound.
(g) Waiver of Statutes of Limitations. None of the Acquired
Corporations has executed any outstanding waivers or comparable consents
regarding the application of the statute of limitations with respect to a
material amount of Taxes or any material Tax Return.
(h) Powers of Attorney. No power of attorney currently in force has
been granted by any of the Acquired Corporations concerning a material
amount of Taxes or any material Tax Return.
(i) Tax Rulings. Except as disclosed on Schedule 3.11(i), (i) none of
the Acquired Corporations has received or been the subject of a material
Tax Ruling (as defined below) or a request for a material Tax Ruling, and
(ii) none of the Acquired Corporations has entered into a material Closing
Agreement (as defined below) with any Taxing Authority that would have a
continuing effect after the Closing Date. "Tax Ruling" means a written
ruling of a Taxing Authority relating to Taxes. "Closing Agreement" means a
written and legally binding agreement with a Taxing Authority relating to
Taxes (including any advance pricing agreement).
(j) Availability of Tax Returns. The Company has made available to
Parent copies of all material Tax Returns, and any amendments thereto,
filed by or on behalf of, or which include, any of the Acquired
Corporations, for all taxable periods ending on or after January 1, 2003
and prior to the Closing Date.
A-24
(k) Availability of Books and Records. The Acquired Corporations have
maintained all information, workpapers, schedules or any other
documentation necessary for filing any required material Tax Return that
has not been filed for any tax year that includes any period prior to or
including the Closing Date.
(l) Opinions of Counsel. The Company has made available to Parent
copies of all material memoranda and material written opinions of Tax
counsel, whether inside or outside Tax counsel, and other Tax advisors,
which have been received by any of the Acquired Corporations with respect
to material matters relating to Taxes within the last three taxable years.
(m) Section 481 Adjustments. None of the Acquired Corporations is
required to include in income any material amount in any taxable period
ending after the Closing Date pursuant to an adjustment required under Code
Section 481 by reason of a voluntary change in accounting method initiated
by any of the Acquired Corporations, and the Internal Revenue Service has
not proposed any such change in accounting method.
(n) Net Operating Loss Carryovers and Tax Credit Carryovers. As of
January 1, 2004, the Acquired Corporations, in the aggregate, had net
operating loss carryovers available to offset United States federal income
of not less than $42,000,000. Except as a result of the Contemplated
Transactions, none of the Acquired Corporations has experienced an
ownership change within the meaning of Sections 382 and 383 of the Code
after January 1, 1995. None of the Acquired Corporations is subject to the
separate return limitation year provisions of Treasury Regulation Section
1.1502.
(o) Section 338 Election. No election under Section 338 has been made
by or with respect to any of the Acquired Corporations or any of their
respective assets or properties within the last three taxable years.
(p) Intercompany Transactions. None of the Acquired Corporations has
engaged in any transactions with Affiliates which would require the
recognition of income by any of the Acquired Corporations with respect to
such transaction for any period ending on or after the Closing Date.
(q) Section 280(G). None of the Acquired Corporations is a party to
any agreement, contract or arrangement that could result, separately or in
the aggregate, in the payment of an "excess parachute payment" within the
meaning of Section 280G of the Code.
(r) Section 355. None of the Acquired Corporations has constituted
either a "distributing corporation" or a "controlled corporation" in a
distribution of stock intended to qualify for tax-free treatment under
Section 355 of the Code (i) at any time during the two-year period ending
immediately prior to the date of this Agreement or (ii) that could
otherwise constitute part of a "plan" or "series of related transactions"
(within the meaning of Section 355(e) of the Code) in conjunction with the
Contemplated Transactions.
(s) Other Interests. None of the Acquired Corporations owns an
interest in any (i) domestic international sales corporation, (ii) foreign
sales corporation or (iii) passive foreign investment company.
(t) USRPHC. The Company is not a "United States real property holding
corporation" ("USRPHC") within the meaning of Section 897 of the Code and
was not a USRPHC on any "determination date" (as defined in Section
1.897-2(c) of the Treasury Regulations under the Code) that occurred in the
five-year period preceding the Closing.
(u) Section 1504. None of the Acquired Corporations has been a member
of an affiliated group of corporations within the meaning of Section 1504
of the Code, other than an affiliated group of which the Company is the
common parent corporation for purposes of Section 1504 of the Code.
3.12 Employee Benefits.
(a) Schedule 3.12 lists, and the Company has made available to Parent
a copy of (or if there is no written document, a written summary of), all
employee benefit plans, programs, policies, practices and other
arrangements currently providing benefits to any current or former
employee, officer or director of
A-25
any of the Acquired Corporations or beneficiary or dependent thereof,
whether or not written, and whether covering one person or more than one
person, sponsored or maintained by any such Acquired Corporation or to
which any such Acquired Corporation contributes or is obligated to
contribute ("Plans"). Without limiting the generality of the foregoing, the
term "Plans" includes all employee welfare benefit plans within the meaning
of Section 3(1) of ERISA, all employee pension benefit plans within the
meaning of Section 3(2) of ERISA, and all other employee bonus, incentive,
deferred compensation, stock purchase, stock option, severance, change of
control and material fringe benefit plans, programs or agreements, and the
related option agreements of the Company.
(b) Except as required under this Agreement or set forth in Schedule
3.12(b), since January 1, 2003, there has not been (i) any adoption or
material amendment by any of the Acquired Corporations of any Plans
(whether or not legally binding) or any employment agreement providing
compensation or benefits to any current or former employee, officer,
director or independent contractor of the Company or any of its
Subsidiaries or any beneficiary thereof, or entered into, maintained or
contributed to, as the case may be, by any of the Acquired Corporations
which would provide for a modification of benefits or consideration due
thereunder which would exceed $1,000,000 in the aggregate under all Plans
(excluding any employment agreements or amendments thereto listed in
Schedule 3.12(b)), or (ii) any adoption of, or amendment to, or change in
employee participation or coverage under, any Plan which would, in either
case, increase materially the expense of maintaining such Plan above the
level of the expense incurred in respect thereof for the fiscal year ended
on January 1, 2003. Except as expressly contemplated hereby, neither the
execution and delivery of this Agreement nor the consummation of the
Contemplated Transactions will (either alone or in conjunction with any
other event) result in, cause the accelerated vesting or delivery of, or
increase the amount or value of, any payment or benefit to any employee of
the Acquired Corporations.
(c) With respect to each Plan, the Company has delivered or otherwise
made available to Parent a copy of: (i) each writing constituting a part of
such Plan, including all plan documents, benefit schedules, trust
agreements and insurance contracts and other funding vehicles; (ii) the
three most recent Annual Reports (Form 5500 Series) and accompanying
schedules, if any; (iii) the current summary plan description and any
material modifications thereto, if any; (iv) the most recent annual
financial report, if any; (v) the most recent actuarial report, if any; and
(vi) the most recent determination letter from the Internal Revenue
Service, if any.
(d) Schedule 3.12(d) identifies each Plan that is intended to be a
"qualified plan" within the meaning of Section 401(a) of the Code
("Qualified Plans"). The Internal Revenue Service has issued a favorable
determination letter with respect to each Qualified Plan that has not been
revoked, and, to the knowledge of the Company, there are no existing
circumstances nor any events that have occurred that could adversely affect
the qualified status of any Qualified Plan or the related trust.
(e) All contributions required to be made to any Plan by applicable
Legal Requirements or by any plan document or other contractual
undertaking, and all premiums due or payable with respect to insurance
policies funding any Plan, for any period through the date hereof have been
made or paid in full or, to the extent not required to be made or paid on
or before the date hereof, have been fully reflected on the financial
statements contained in the Company SEC Reports to the extent required by
GAAP.
(f) The Company has complied, and is now in compliance, in all
material respects with all provisions of ERISA, the Code and all Legal
Requirements applicable to the Plans. There is not now, nor do any
circumstances exist that, to the Company's knowledge, would reasonably be
expected to give rise to, any requirement for the posting of security with
respect to a Plan or the imposition of any Encumbrance on the assets of the
Company under ERISA or the Code. No prohibited transaction has occurred
with respect to any Plan which could result in material liability to the
Company.
(g) The Company does not now maintain, and has at no time maintained,
(i) a Plan that is subject to Title IV or Section 302 of ERISA or Section
412 or 4971 of the Code, (ii) a "multiemployer pension plan", as defined in
Section 3(37) of ERISA (a "Multiemployer Plan") or (iii) a funded welfare
benefit plan as defined in Section 419 of the Code.
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(h) All group health plans maintained by the Company or any ERISA
Affiliate have been operated in material compliance with the requirements
of Section 4980B of the Code and Part 6 of Subtitle B of Title I of ERISA,
the provisions of law enacted by the Health Insurance Portability and
Accountability Act of 1996, and any similar law.
(i) Schedule 3.12(i) identifies any liability for life, health,
medical or other welfare benefits to former employees or beneficiaries or
dependents thereof, except for health continuation coverage as required by
Section 4980B of the Code, Part 6 of Subtitle B of Title I of ERISA or
other applicable Legal Requirement and at no expense to any Acquired
Corporation.
(j) To the Company's knowledge, no labor organization or group of
employees of the Acquired Corporations 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 to be brought or filed, with the National
Labor Relations Board or any other labor relations tribunal or authority.
Each of the Acquired Corporations has complied and will comply with the
Worker Adjustment and Retraining Notification Act and all Legal
Requirements relating to the employment of all personnel, including, but
not limited to, employment discrimination.
(k) There are no material pending or, to the Company's knowledge,
threatened claims (other than claims for benefits in the ordinary course),
lawsuits or arbitrations which have been asserted or instituted against the
Plans, any fiduciaries thereof with respect to their duties to the Plans or
the assets of any of the trusts under any of the Plans which could
reasonably be expected to result in any material liability of any Acquired
Corporation.
(l) Schedule 3.12(l) contains an accurate and complete list as of the
date of this Agreement of all material loans and advances made by any of
the Acquired Corporations to any employee, director, consultant or
independent contract, other than routine travel and expense advances made
to employees in the ordinary course of business. The Acquired Corporations
have not, since July 30, 2002, extended or maintained credit, arranged for
the extension of credit, or renewed an extension of credit, in the form of
a personal loan to or for any director or executive officer (or equivalent
thereof) of the Company. Schedule 3.12(o) identifies any extension of
credit maintained by the Acquired Corporations to which the second sentence
of Section 13(k)(1) of the Exchange Act applies.
3.13 Compliance with Legal Requirements; Governmental
Authorizations. The Acquired Corporations are, and since January 1, 2003
have been, in compliance in all material respects with each Legal
Requirement that is or was applicable to any of them or to the conduct or
operation of their business or the ownership or use of any of their assets,
including, without limitation, liquor licenses and restaurant permits or
licenses, and no event has occurred or circumstance exists that (with or
without notice or lapse of time or both) (i) may constitute or result in a
violation by any of the Acquired Corporations of, or a failure on the part
of any of the Acquired Corporations to comply with, any Legal Requirement,
or (ii) may give rise to any obligation on the part of any of the Acquired
Corporations to undertake, or to bear all or any portion of the cost of,
any remedial action of any nature. Since January 1, 2003, none of the
Acquired Corporations has received, at any time, any notice or other
communication (whether oral or written) from any Governmental Body or any
other Person regarding (x) any actual, alleged, possible or potential
violation of, or failure to comply with, any Legal Requirement, or (y) any
actual, alleged, possible or potential obligation on the part of any of the
Acquired Corporations to undertake, or to bear all or any portion of the
cost of, any remedial action of any nature.
3.14 Environmental Matters.
(a) Each Acquired Corporation is, and at all times has been, in
material compliance with, and has not been and is not in material violation
of or have any material liability under, any Environmental Law. No Acquired
Corporation or any other Person for whose conduct they are or may be held
to be responsible has received any actual or threatened order, notice, or
other communication from (i) any Governmental Body or private citizen
acting in the public interest, or (ii) the current or prior owner or
operator of any Facilities, of any actual or potential material violation
or failure to comply with any
A-27
Environmental Law, or of any actual or threatened obligation to undertake
or bear material costs for any Environmental, Health and Safety Liabilities
with respect to any of the Facilities or any other properties or assets
(whether real, personal, or mixed) in which any Acquired Corporation had
had an interest and for which any Acquired Corporation may be held
responsible, or with respect to any property or Facility at or to which
Hazardous Materials were generated, manufactured, refined, transferred,
imported, used, or processed by any Acquired Corporation, or any other
Person for whose conduct they are or may be held responsible, or from which
Hazardous Materials have been transported, treated, stored, handled,
transferred, disposed of, recycled, or received.
(b) There are no pending or, to the knowledge of the Company,
threatened claims, Encumbrances, or other restrictions of any nature,
resulting from any material Environmental, Health and Safety Liabilities or
arising under or pursuant to any Environmental Law, with respect to or
affecting any of the Facilities or any other properties or assets (whether
real, personal, or mixed) in which any Acquired Corporation had had an
interest and for which any Acquired Corporation may be held responsible.
(c) No Acquired Corporation has any basis to expect, nor has any of
them or any other Person for whose conduct they are or may be held
responsible, received, any written or, to the Company's knowledge, other
material citation, directive, inquiry, notice, order, summons, warning or
other communication that relates to Hazardous Activities or Hazardous
Materials, or any alleged, actual or potential material violation or
failure to comply with any Environmental Law, or of any alleged, actual or
potential obligation to undertake or bear material costs for any
Environmental, Health and Safety Liabilities with respect to any of the
Facilities or any other properties or assets (whether real, personal, or
mixed) in which any Acquired Corporation had an interest and for which any
Acquired Corporation may be held responsible, or with respect to any
property or facility to which Hazardous Materials generated, manufactured,
refined, transferred, imported, used or processed by any Acquired
Corporation, or any other Person for whose conduct they are or may be held
responsible, have been transported, treated, stored, handled, transferred,
disposed of, recycled or received.
(d) No Acquired Corporation, or any other Person for whose conduct
they are or may be held responsible, has any material Environmental, Health
and Safety Liabilities with respect to the Facilities or with respect to
any other properties and assets (whether real, personal, or mixed) in which
any Acquired Corporation (or any predecessor) has or had an interest, or,
to the knowledge of the Company, at any property geologically or
hydrologically adjoining the Facilities.
(e) There are no Hazardous Materials present on or in the Environment
at the Facilities or, which originated at the Facility when any Acquired
Corporation owned or operated such Facility and were transported to an
off-site location, or are, to the knowledge of the Company, now at any
geologically or hydrologically adjoining property, including any Hazardous
Materials contained in barrels, above or underground storage tanks,
landfills, land deposits, dumps, equipment (whether moveable or fixed) or
other containers, either temporary or permanent, and deposited or located
in land, water, sumps or any other part of the Facilities or such adjoining
property, or incorporated into any structure therein or thereon in a
condition, volume or concentration reasonably likely to result in a
material Environmental Health and Safety Liability. No Acquired
Corporation, any other Person for whose conduct they are or may be held
responsible, or to the knowledge of the Company, any other Person, has
permitted or conducted or is aware of, any Hazardous Activity conducted
with respect to the Facilities or any other properties or assets (whether
real, personal, or mixed) in which any Acquired Corporation has or had an
interest except for instances which would not be reasonably likely to
result in a material Environmental Health and Safety Liability.
(f) There has been no release or, to the knowledge of the Company,
threat of release, by any Person of any Hazardous Materials at or from the
Facilities or at any other locations where any Hazardous Materials were
generated, used, manufactured, refined, transferred, disposed of, produced,
imported, used or processed from or by the Facilities, or from or by any
other properties and assets (whether real, personal, or mixed) in which any
Acquired Corporation has or had an interest, or to the knowledge of the
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Company, any geologically or hydrologically adjoining property, except for
releases that are not reasonably likely to result in a material
Environmental Health and Safety Liability.
(g) The Company has delivered to Parent copies and results of any
reports, studies, analyses, tests, correspondence or monitoring possessed
or initiated by any Acquired Corporation pertaining to Hazardous Materials
or Hazardous Activities in, on, or under the Facilities, or concerning
compliance by any Acquired Corporation, or any other Person for whose
conduct they are or may be held responsible, with Environmental Laws.
3.15 Legal Proceedings.
(a) Except as set forth in Schedule 3.15(a), there is no pending Legal
Proceeding (i) that has been commenced by or against any of the Acquired
Corporations or that otherwise relates to or may affect the business of, or
any of the assets owned or used by, any of the Acquired Corporations,
except for such Legal Proceedings as are normally incident to the business
carried on by the Acquired Corporations and would not reasonably be likely
to, individually or in the aggregate, result in a Material Adverse Effect
on the Acquired Corporations, (ii) that challenges, or that may have the
effect of preventing, delaying, making illegal or otherwise interfering
with, any of the Contemplated Transactions or (iii) against any director or
officer of any of the Acquired Corporations pursuant to Section 8A or 20(b)
of the Securities Act or Section 21(d) or 21C of the Exchange Act.
(b) To the knowledge of the Company, (i) no Legal Proceeding that if
pending would be required to be disclosed under Section 3.15(a) has been
threatened, and (ii) no event has occurred or circumstance exists that
would reasonably be likely to give rise to or serve as a basis for the
commencement of any such Legal Proceeding.
(c) No Acquired Corporation is subject to any outstanding order, writ,
injunction or decree which has had or is likely to have a Material Adverse
Effect on the Acquired Corporations.
3.16 Absence of Certain Changes and Events. Except as set forth in
Schedule 3.16, since the date of the Balance Sheet, (a) the Acquired
Corporations have conducted their businesses only in the ordinary course of
business consistent with past practice and there has not been any Material
Adverse Effect on the Acquired Corporations, and (b) no event has occurred
or circumstance exists that could reasonably be expected, individually or
in the aggregate, to result in a Material Adverse Effect on the Acquired
Corporations, and there has not been:
(a) any material loss, damage or destruction to, or any interruption
in the use of, any of the assets of any of the Acquired Corporations
(whether or not covered by insurance);
(b) (i) any declaration, accrual, set aside or payment of any dividend
or any other distribution in respect of any shares of capital stock of any
Acquired Corporation, or (ii) any repurchase, redemption or other
acquisition by any Acquired Corporation of any shares of capital stock or
other securities;
(c) assuming no shares of Company Class B Common Stock have been
converted into shares of Company Class A Common Stock, any sale, issuance
or grant, or authorization of the issuance of, (i) any capital stock or
other security of any Acquired Corporation (except for Company Class A
Common Stock issued upon the valid exercise of outstanding Company Stock
Options), (ii) any option, warrant or right to acquire any capital stock or
any other security of any Acquired Corporation (except for Company Stock
Options) or (iii) any instrument convertible into or exchangeable for any
capital stock or other security of any Acquired Corporation;
(d) any amendment or waiver of any of the rights of any Acquired
Corporation under, or acceleration of vesting under, (i) any provision of
any of the Company's stock option plans, (ii) any provision of any Contract
evidencing any outstanding Company Stock Option (other than pursuant to the
Option Termination Agreements), or (iii) any restricted stock purchase
agreement;
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(e) any amendment to any Organizational Document of any of the
Acquired Corporations, any merger, consolidation, share exchange, business
combination, recapitalization, reclassification of shares, stock split,
reverse stock split or similar transaction involving any Acquired
Corporation;
(f) any receipt by the Acquired Corporations of any Acquisition
Proposal;
(g) any creation of any Subsidiary of an Acquired Corporation or
acquisition by any Acquired Corporation of any equity interest or other
interest in any other Person;
(h) any capital expenditure by any Acquired Corporation which, when
added to all other capital expenditures made on behalf of the Acquired
Corporations since the date of the Balance Sheet, exceeds $30,000,000 in
the aggregate;
(i) except in the ordinary course of business and consistent with past
practice, any action by the Acquired Corporations to (i) enter into or
cause any of the assets owned or used by it to become bound by any Material
Contract, or (ii) amend or terminate, or waive any material right or remedy
under, any Material Contract;
(j) any (i) acquisition, lease or license by any Acquired Corporation
of any right or other asset from any other Person, (ii) sale or other
disposal or lease or license by any Acquired Corporation of any right or
other asset to any other Person or (iii) waiver or relinquishment by any
Acquired Corporation of any right, except for rights or other assets
acquired, leased, licensed or disposed of in the ordinary course of
business and consistent with past practices;
(k) any write-off as uncollectible, or establishment of any
extraordinary reserve with respect to, any material account receivable or
other Debt of an Acquired Corporation;
(l) any pledge of any assets of, or sufferance of any of the assets
of, an Acquired Corporation to become subject to any Encumbrance, except
for pledges of immaterial assets made in the ordinary course of business
and consistent with past practices;
(m) any (i) loan by an Acquired Corporation to any Person, (ii)
guarantee by an Acquired Corporation of any Debt, (iii) payments made in
respect of Debt of any Acquired Corporation other than scheduled interest
and amortization payments, if any, required to be made under the agreements
evidencing Debt of the Acquired Companies or (iv) acceleration or
prepayment of any portion of any Debt;
(n) any (i) adoption, establishment, entry into or amendment by an
Acquired Corporation of any Plan or (ii) payment of any bonus or any profit
sharing or similar payment to, or material increase in the amount of the
wages, salary, commissions, fringe benefits or other compensation or
remuneration payable to, any of the directors, officers or employees of any
Acquired Corporation;
(o) any change of the methods of accounting or accounting policies of
any Acquired Corporation in any material respect, except as may be required
by the SEC, applicable law or GAAP;
(p) any material Tax election by any Acquired Corporation;
(q) any commencement or settlement of any material Legal Proceeding by
any Acquired Corporation; or
(r) any agreement or commitment to take any of the actions referred to
in clauses (c) through (q) above.
3.17 Contracts; No Defaults.
(a) Schedule 3.17(a) lists, and, except to the extent filed in full
without redaction as an exhibit to a Filed Company SEC Report, the Company
has delivered to Parent copies of, each of the following
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instruments and documents to which any Acquired Corporation is a party
(including any amendment to any of the foregoing):
(i) described in paragraphs (b)(3), (b)(4), (b)(9) or (b)(10) of
Item 601 of Regulation S-K of the SEC;
(ii) with any director or officer or Affiliate of the Company;
(iii) evidencing, governing or relating to Debt or any guarantee by
any Acquired Corporation of Debt of any other Person in excess of
$500,000;
(iv) not entered into in the ordinary course of business that
involves expenditures or receipts in excess of $200,000;
(v) that in any way purports to restrict the business activity of
any Acquired Corporation or any of their Affiliates or to limit the
freedom of any Acquired Corporation or any of their Affiliates to engage
in any line of business or to compete with any Person or in any
geographic area or to hire or retain any Person;
(vi) relating to the acquisition, transfer, development, sharing or
license of any Intellectual Property Rights that are material to the
conduct of the business of any of the Acquired Corporations (except for
any Contract pursuant to which any Intellectual Property Right is
licensed to the Acquired Corporations under any third-party software
license generally available to the public);
(vii) providing for indemnification of any officer, director,
employee or agent;
(viii) (A) relating to the acquisition, issuance, voting,
registration, sale or transfer of any securities, (B) providing any
Person with any preemptive right, right of participation, right of
maintenance or any similar right with respect to any securities or (C)
providing any of the Acquired Corporations with any right of first
refusal with respect to, or right to repurchase or redeem, any
securities, except for Contracts evidencing Company Stock Options;
(ix) providing for or relating to any guaranty, any warranty or any
indemnity or similar obligation;
(x) relating to any currency hedging;
(xi) (A) imposing any confidentiality obligation on any of the
Acquired Corporations or any other Person, or (B) containing
"standstill" or similar provisions;
(xii) (A) to which any Governmental Body is a party or under which
any Governmental Body has any rights or obligations, or (B) directly or
indirectly benefiting any Governmental Body, except for those
instruments or documents entered into by the Acquired Corporations in
the ordinary course of their respective businesses, the absence of
which, individually or in the aggregate, would not have a Material
Adverse Effect on the Acquired Corporations;
(xiii) requiring that any of the Acquired Corporations give any
notice or provide any information to any Person prior to considering or
accepting any Acquisition Proposal or similar proposal, or prior to
entering into any discussions, agreement, arrangement or understanding
relating to any Acquisition Transaction or similar transaction;
(xiv) contemplating or involving the payment or delivery of cash or
other consideration in an amount or having a value in excess of $200,000
in the aggregate, or contemplating or involving the performance of
services having a value in excess of $200,000 in the aggregate;
(xv) relating to collective bargaining or other agreement or
understanding with a labor union or labor organization;
(xvi) that could reasonably be expected to have a Material Adverse
Effect on the Acquired Corporations;
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(xvii) relating to the future sale or exchange of, or option to
sell or exchange, any real property, or to the purchase or exchange of,
or option to purchase or exchange, any real property, including, without
limitation, current title policies, title reports, environmental
reports, insurance policies, surveys and engineering and maintenance
reports;
(xviii) relating to the future development or construction of, or
additions or expansions to, any real property, including, without
limitation, final plans and specifications, architects agreements,
construction contracts and current operating manuals, other than
Contracts for ordinary repair and maintenance;
(xix) relating to the operations of the Properties, including,
without limitation, the Franchise Agreements, all material advertising
and marketing agreements, credit card agreements and the Management
Agreements;
(xx) any other Contract, if a breach of such Contract could
reasonably be expected to have a Material Adverse Effect on the Acquired
Corporations.
Each of the foregoing is a "Material Contract."
(b) Each Material Contract is valid and in full force and effect, and
is enforceable in accordance with its terms.
(c) Except as set forth in Schedule 3.17(c): (i) none of the Acquired
Corporations has violated or breached, in any material respect, or
committed any material default under, any Material Contract; and, to the
knowledge of the Company, no other Person has violated or breached, in any
material respect, or committed any material default under, any Material
Contract; (ii) to the knowledge of the Company, no event has occurred, and
no circumstance or condition exists, that (with or without notice or lapse
of time) will or would reasonably be likely to, (A) result in a material
violation or breach of any of the provisions of any Material Contract, (B)
give any Person the right to declare a default or exercise any remedy under
any Material Contract, (C) give any Person the right to receive or require
a rebate, chargeback, penalty or change in delivery schedule under any
Material Contract, (D) give any Person the right to accelerate the maturity
or performance of any Material Contract or (E) give any Person the right to
cancel, terminate or modify any Material Contract; and (iii) none of the
Acquired Corporations has received any written notice of any actual or
alleged violation or breach of, or default under, any Material Contract.
3.18 Insurance. Schedule 3.18 sets forth a list of each material
insurance policy maintained by the Acquired Corporations. All such policies
are in full force and effect, all premiums due thereon have been paid, and
the Acquired Corporations have complied in all material respects with the
provisions of such policies and, except as set forth in Schedule 3.18, will
remain in full force and effect after consummation of the Contemplated
Transactions. The Acquired Corporations have not been advised of any
defense to coverage in connection with any claim to coverage asserted or
noticed by the Acquired Corporations under or in connection with any of
their extant insurance policies. The Acquired Corporations have not
received any written notice from or on behalf of any insurance carrier
issuing policies or binders relating to or covering any of the Acquired
Corporations that there will be a cancellation or non-renewal of existing
policies or binders, or that alteration of any equipment or any
improvements to real estate occupied by or leased to or by the Acquired
Corporations, purchase of additional equipment, or material modification of
any of the methods of doing business, will be required.
3.19 Labor Matters. Except as set forth in Schedule 3.19: (a) none
of the Acquired Corporations is a party to, or bound by, any collective
bargaining agreement, contract or other agreement or understanding with a
labor union or labor organization; nor is any application for certification
with respect to a union-organizing campaign outstanding; nor has any
request for recognition by a labor union or labor organization been made to
any of the Acquired Corporations; (b) none of the Acquired Corporations is
the subject of any Legal Proceeding asserting that any of the Acquired
Corporations has committed an unfair labor practice or seeking to compel it
to bargain with any labor organization as to wages or conditions of
employment; (c) there is no strike, work stoppage or other labor dispute
involving any of the Acquired Corporations pending or, to the Company's
knowledge, threatened; (d) no complaint, charge or
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Legal Proceeding by or before any Governmental Body brought by or on behalf
of any employee, prospective employee, former employee, retiree, labor
organization or other representative of its employees is pending or
threatened against any of the Acquired Corporations; (e) no grievance is
pending or, to the Company's knowledge, threatened against any of the
Acquired Corporations; and (f) none of the Acquired Corporations is a party
to, or otherwise bound by, any consent decree with, or citation by, any
Governmental Body relating to employees or employment practices. Except as
set forth in Schedule 3.19, there are no grants or subsidies from any
Governmental Body to any Acquired Corporation related to employment,
employee training and/or employment practices that are subject to any
repayment obligation on the part of any Acquired Corporation.
3.20 Interests of Officers and Directors. Except as set forth in
Schedule 3.20 or disclosed in the Filed Company SEC Reports and other than
the normal rights of a stockholder and rights under the Plans and the
Company Stock Options, none of the officers or directors of any of the
Acquired Corporations has any interest in any property, real or personal,
tangible or intangible, used in the business of the Acquired Corporations
or in any supplier, distributor or customer of the Acquired Corporations
(but excluding ownership of publicly-traded securities), or any
relationship, contract, agreement, arrangement or understanding with the
Acquired Corporations that would be required to be disclosed in a Company
SEC Report.
3.21 Rights Plan; State Antitakeover Laws; DGCL. The Company has not
entered into, and its Board has not adopted or authorized the adoption of,
a stockholder rights plan or similar arrangement. Other than Section 203 of
the DGCL, no state takeover statute or similar statute or regulation of the
State of Delaware (and, to the knowledge of the Company, of any other state
or jurisdiction) applies or purports to apply to this Agreement or the
Contemplated Transactions and no provision of the certificate of
incorporation, by-laws or other Organizational Documents of the Company or
any of its Subsidiaries or the terms of any plan or agreement of the
Company would, directly or indirectly, restrict or impair the ability of
Parent to vote, or otherwise to exercise the rights of a stockholder with
respect to, securities of the Company and its Subsidiaries that may be
acquired or controlled by Parent or permit any stockholder to acquire
securities of the Company or of Parent or any of their respective
Subsidiaries on a basis not available to Parent in the event that Parent
were to acquire securities of the Company. The Company has taken all
appropriate actions so that the restrictions on business combinations
contained in Section 203 of the DGCL will not apply to Parent or Merger Sub
with respect to or as a result of any of the Contemplated Transactions.
3.22 Certain Payments. Since January 1, 2003, none of the Company or
any of its Subsidiaries, nor any director, officer, designated agent or
employee of the Company or any of its Subsidiaries, or to the Company's
knowledge, any other Person acting for or on behalf of the Company or any
of its Subsidiaries, has directly or indirectly (a) made any contribution,
gift, bribe, rebate, payoff, influence payment, kickback or other payment
to any Person, private or public, regardless of form, whether in money,
property or services (i) to obtain favorable treatment in securing
business, (ii) to pay for favorable treatment for business secured or (iii)
to obtain special concessions or for special concessions already obtained,
for or in respect of the Company or any of its Subsidiaries, in each case
which is in violation of any Legal Requirement or order or decree of any
Governmental Body or (b) established or maintained any fund or asset that
is required by the Exchange Act to be recorded in the books and records of
the Company which has not been so recorded.
3.23 Opinion of Financial Advisor. The Special Committee has
received the opinion of Lehman Brothers (a copy of whose engagement letter
has been provided to Parent) dated June 14, 2005, to the effect that, as of
such date, the consideration to be received by the stockholders of the
Company's Class A Common Stock (other than the Hammons Affiliates) pursuant
to the Merger is fair to such stockholders from a financial point of view.
A copy of that opinion has been delivered to Parent.
3.24 Brokers. No broker, finder, investment banker or other Person
is entitled to any brokerage, finder's or other fee or commission in
connection with the Merger and the Contemplated Transactions based upon
arrangements made by or on behalf of any Acquired Corporation. The Company
has
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heretofore furnished to Parent a copy of all Material Contracts between the
Company and Lehman Brothers Inc. pursuant to which such firm would be
entitled to any payment relating to the Contemplated Transactions.
3.25 Board Recommendation. The Board of the Company, at a meeting
duly called and held, has by vote of all of the directors then in office
(other than Mr. John Q. Hammons, who abstained) (a) determined that this
Agreement and the Contemplated Transactions, including the Merger, are
advisable and are fair to and in the best interests of the stockholders of
the Company, and (b) resolved to recommend that the holders of shares of
capital stock of the Company adopt this Agreement.
3.26 Proxy Statement and Schedule 13E-3. The definitive proxy
statement of the Company (the "Proxy Statement") and the Transaction
Statement on Schedule 13E-3 (the "Schedule 13E-3") to be filed with the SEC
in connection with the Contemplated Transactions, including, without
limitation, the Merger, and any amendments or supplements thereto will,
when filed, comply in all material respects with the applicable
requirements of the Exchange Act. At the time of the filing of the Proxy
Statement and the Schedule 13E-3, at the time the Proxy Statement or any
amendment or supplement thereto is first mailed to stockholders of the
Company, at the time such stockholders vote on the adoption of this
Agreement and approval of the Merger, and at the Effective Time, the Proxy
Statement and the Schedule 13E-3, as supplemented or amended, if
applicable, will not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary
in order to make the statements made therein, in light of the circumstances
under which they were made, not misleading.
3.27 Expense Amount Escrow Agreement. Within two business days of
the date hereof, the Company will have deposited $8 million (the "Expense
Amount") in escrow (the "Expense Amount Escrow Account") with the Escrow
Agent, pursuant to an Escrow Agreement, dated as of the date hereof, among
the Company, Parent and the Escrow Agent (the "Escrow Amount Escrow
Agreement").
SECTION 4. Representations and Warranties of Parent and Merger
Sub. Parent and Merger Sub represent and warrant to the Company as follows:
4.1 Organization and Good Standing. Parent and each of its
Subsidiaries is duly organized, validly existing and in good standing under
the laws of its jurisdiction of incorporation, with all requisite corporate
or limited liability company, as the case may be, power and authority to
conduct its business as now being conducted, to own or use the respective
properties and assets that it purports to own or use, and to perform all of
its obligations under material Contracts to which Parent or any of its
Subsidiaries is party or by which Parent or any of its Subsidiaries or any
of their respective assets are bound. Parent and each of its Subsidiaries
are duly qualified to do business as foreign corporations or limited
liability companies, as the case may be, and are in good standing under the
laws of each state or other jurisdiction in which either the ownership or
use of the properties owned or used by them, or the nature of the
activities conducted by them, requires such qualification, except where the
failure to be so qualified would not be reasonably likely to, individually
or in the aggregate, adversely affect Parent and its Subsidiaries, taken as
a whole, in any material respect.
4.2 Authority; No Conflict.
(a) Parent has all necessary limited liability company power and
authority to execute and deliver this Agreement and the other agreements
referred to in this Agreement, to perform its obligations hereunder and
thereunder and to consummate the Contemplated Transactions. The execution
and delivery of this Agreement by Parent and the consummation by Parent of
the Contemplated Transactions have been duly and validly authorized by all
necessary limited liability company and member action and no other limited
liability company or member proceedings on the part of Parent or its
members are necessary to authorize this Agreement or to consummate the
Contemplated Transactions (other than, with respect to the Merger, the
filing of appropriate merger documents as required by the DGCL). This
Agreement has been duly and validly executed and delivered by Parent and
constitutes the legal, valid and binding obligation of Parent, enforceable
against Parent in accordance with its terms.
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(b) Neither the execution and delivery of this Agreement nor the
consummation of any of the Contemplated Transactions do or will, directly
or indirectly (with or without notice or lapse of time or both), (i)
contravene, conflict with, or result in a violation of (A) any provision of
the Organizational Documents of Parent or any of its Subsidiaries, or (B)
any resolution adopted by manager or the members of Parent or any of its
Subsidiaries; (ii) contravene, conflict with or result in a violation of,
or give any Governmental Body or other Person the right to exercise any
remedy or obtain any relief under, any Legal Requirement or any order,
writ, injunction or decree to which Parent or any of its Subsidiaries, or
any of the assets owned or used by Parent or any of its Subsidiaries, is or
may be subject; (iii) contravene, conflict with or result in a violation of
any of the terms or requirements of, or give any Governmental Body the
right to revoke, withdraw, suspend, cancel, terminate or modify, any
Governmental Authorization that is held by Parent or any of its
Subsidiaries, or that otherwise relates to the business of, or any of the
assets owned or used by, Parent or any of its Subsidiaries; (iv) cause
Parent or any of its Subsidiaries to become subject to, or to become liable
for the payment of, any Tax; (v) cause any of the assets owned by Parent or
any of its Subsidiaries to be reassessed or revalued by any Taxing
Authority or other Governmental Body; (vi) contravene, conflict with or
result in a violation or breach of any provision of, or give any Person the
right to declare a default or exercise any remedy under, or to accelerate
the maturity or performance of, or to cancel, terminate or modify, any
Contract to which Parent or any of its Subsidiaries is party or by which
Parent or any of its Subsidiaries or any of their respective assets are
bound; (vii) require a Consent from any Person; or (viii) result in the
imposition or creation of any Encumbrance upon or with respect to any of
the assets owned or used by Parent or any of its Subsidiaries, except, in
the case of clauses (ii), (iii), (iv), (v), (vi), (vii) and (viii), for any
such contraventions, conflicts, violations, breaches, defaults or other
occurrences that would not prevent or materially delay consummation of the
Merger or otherwise prevent Parent from performing any of its obligations
under this Agreement, and could not reasonably be expected to, individually
or in the aggregate, adversely affect Parent and its Subsidiaries, taken as
a whole, in any material respect.
4.3 Information Supplied for Proxy Statement and Schedule
13E-3. None of the information included in the Proxy Statement and
Schedule 13E-3 will, as of the date the Proxy Statement is mailed to the
Company's stockholders, 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; provided, that the foregoing
representation and warranty is only made to the extent that such untrue
statement or alleged untrue statement or omission or alleged omission was
made in the Proxy Statement or the Schedule 13E-3 in reliance upon and in
conformity with written information furnished to the Company by or on
behalf of Parent expressly for use therein.
4.4 No Undisclosed Agreements or Arrangements with any Hammons
Affiliate. Neither Parent nor Merger Sub, nor any of their respective
Affiliates, has entered into, or will enter into at any time prior to the
Effective Time, any agreement, arrangement or understanding with any
Hammons Affiliate for the acquisition of, or relating to, any equity
interest in the Company, or any equity interest in any Company Subsidiary
or providing for any payment or benefit to any Hammons Affiliate, other
than the Hammons Agreements or as expressly provided for in, or
contemplated by, the Transaction Agreement as of the date hereof. Parent is
not a party to any other undisclosed agreements with any Hammons
Affiliates.
4.5 Fee Amount Escrow Agreement. Within two business days of the
date hereof, Parent will have deposited $3 million (the "Fee Amount") in
escrow (the "Fee Amount Escrow Account") with Wells Fargo, National
Association, as escrow agent (the "Escrow Agent"), pursuant to an Escrow
Agreement, dated as of the date hereof, among the Company, Parent and the
Escrow Agent (the "Fee Amount Escrow Agreement").
4.6 Financing. At the Effective Time, Parent will have sufficient
funds, in cash, to pay the Merger Consideration, Option Consideration and
any other amounts payable by Parent under this Agreement, together with all
fees and expenses of Parent incurred in connection with the transactions
contemplated by this Agreement, and to effect the transactions contemplated
by this Agreement.
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4.7 Hammons Agreements.
(a) Parent has delivered to the Special Committee true and correct
copies of the Transaction Agreement, together with the Exhibits thereto
(none of which has been executed as of the date hereof), each of which is
set forth on Schedule 1, pertaining to the Hammons Transactions (the
"Hammons Agreements") (including any amendment to any of the Hammons
Agreements). As of the date hereof, there are not, and as of the Closing
Date, there will not be, any agreements, commitments or understandings,
whether written or oral, among the Parent Affiliates (as defined below), on
the one hand, and any of the Hammons Affiliates, on the other hand, other
than (i) the Hammons Agreements listed on Schedule 1, and (ii) any
amendments, modifications or alterations to any of the Hammons Agreements
that have been consented to by the Special Committee pursuant to Section
5.7.
(b) The Transaction Agreement is valid and in full force and effect,
and is enforceable against Parent, Merger Sub and their respective
Affiliates (collectively, the "Parent Affiliates") (to the extent a party
thereto) in accordance with its terms.
(c) Except as set forth in Schedule 4.7(c): (i) none of the Parent
Affiliates has violated or breached, in any material respect, or is in
material default under, the Transaction Agreement; and, to the knowledge of
Parent and Merger Sub, no other Person has violated or breached, in any
material respect, or is in material default under, the Transaction
Agreement; (ii) to the knowledge of Parent and Merger Sub, no event has
occurred that (with or without notice or lapse of time) will or would
reasonably be likely to permit any Hammons Affiliate to terminate the
Transaction Agreement; and (iii) none of the Parent Affiliates has received
any written notice of any actual or alleged violation or breach of, or
default under, the Transaction Agreement.
SECTION 5. Certain Pre-Closing Covenants
5.1 Access and Investigation. During the period from the date of this
Agreement through the Effective Time (the "Pre-Closing Period"), the Company
shall, and shall cause the respective Representatives of the Acquired
Corporations to: (i) provide Parent and Parent's Representatives with reasonable
access to the Acquired Corporations' Representatives, personnel and assets and
to all existing books, records, Tax Returns, work papers and other documents,
and with such additional financial, operating and other data and information
regarding the Acquired Corporations, including the Company's officers
responsible for the preparation of the financial statements, internal controls
and disclosure controls and procedures of the Acquired Corporations; (ii)
provide Parent and Parent's Representatives with reasonable access to the
Properties for purposes of (A) environmental and engineering inspections of the
Properties, (B) review of any leases, expenses, correspondence, management
reports, engineering and environmental assessments, records and other current
and historical information relating to the Properties and (C) interviewing
managers, staff and employees of the Properties; and (iii) cause its officers to
confer regularly with Parent concerning the status of the Company's business, in
each case as Parent may reasonably request with reasonable notice. Without
limiting the generality of the foregoing, during the Pre-Closing Period, the
Company shall promptly provide Parent with copies of: (A) all material operating
and financial reports prepared by the Company and its Subsidiaries for the
Company's senior management, including copies of the unaudited monthly
consolidated financial statements; (B) any written materials or communications
sent by or on behalf of the Company to its stockholders; (C) any material
notice, report or other document sent by or on behalf of any of the Acquired
Corporations to any party to any Material Contract or sent to any of the
Acquired Corporations by any party to any Material Contract; (D) any notice,
report or other document filed with or sent to any Governmental Body in
connection with the Merger or any of the other Contemplated Transactions; and
(E) any notice, report or other document received by any of the Acquired
Corporations from any Governmental Body. Without limiting the generality of the
foregoing, during the period from the date of this Agreement through the
Effective Time, Parent shall be permitted to perform environmental reviews
(including subsurface testing) of the properties of the Acquired Corporations.
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5.2 Operation of the Business; Certain Notices; Tax Returns.
(a) During the Pre-Closing Period, except as permitted by this Agreement,
as required for the consummation of the Hammons Transactions, as set forth in
Schedule 5.2(a) or as consented to in writing by Parent: (i) the Company shall
ensure that each of the Acquired Corporations conducts its business and
operations only (A) in the ordinary course of business and in accordance with
past practices and (B) in compliance in all material respects with all
applicable Legal Requirements and the requirements of all Material Contracts
(which for purposes of this Section shall include any Contract that would be a
Material Contract if existing on the date of this Agreement); (ii) the Company
shall use all reasonable efforts to ensure that each of the Acquired
Corporations preserves intact its current business organization, keeps available
the services of its current officers and key employees and maintains its
relations and goodwill with all suppliers, customers, landlords, creditors,
licensors, licensees, employees and other Persons having business relationships
with the respective Acquired Corporations that are material to their business as
presently conducted; (iii) the Company keep in full force all insurance policies
referred to in Section 3.18; and (iv) the Company shall promptly notify Parent
of (A) any notice from any Person, or other communication or information of
which the Company has knowledge, alleging that the Consent of such Person is or
may be required in connection with the Contemplated Transactions, and (B) any
Legal Proceeding commenced or threatened in writing against, relating to or
involving or otherwise affecting any of the Acquired Corporations.
(b) During the Pre-Closing Period, except as set forth in Schedule 5.2(b)
or as consented to in writing by Parent, the Company shall not (without the
prior written consent of Parent, which Parent may withhold in its sole
discretion), and shall not permit any of the other Acquired Corporations to:
(i) declare, accrue, set aside or pay any dividend or make any other
distribution in respect of any shares of capital stock or other equity or
voting securities, split, combine or reclassify any of its capital stock or
other equity or voting securities, or issue or authorize the issuance of
any other securities in respect of, in lieu of or in substitution for
shares of its capital stock or other equity or voting securities, or
repurchase, redeem or otherwise reacquire any shares of capital stock or
other securities of any Acquired Corporation or any options, warrants,
calls or rights to acquire any such shares or other securities (including
any Company Stock Options (other than pursuant to the Option Termination
Agreements) or shares of restricted stock except pursuant to forfeiture
conditions of such restricted stock), or take any action that would result
in any amendment, modification or change of any term of any debt security
of any Acquired Corporation;
(ii) issue, deliver, sell, pledge or otherwise encumber any shares of
its capital stock, any other equity or voting interests or any securities
convertible into, or exchangeable for, or any options, warrants, calls or
rights to acquire or receive, any such shares, interests or securities or
any stock appreciation rights, phantom stock awards or other rights that
are linked in any way to the price of the Company Capital Stock or the
value of the Company or any part thereof;
(iii) amend or permit the adoption of any amendment to its certificate
of incorporation or by-laws or other Organizational Documents, or effect or
become a party to any merger, consolidation, share exchange, business
combination, recapitalization, reclassification of shares, stock split,
reverse stock split or similar transaction;
(iv) acquire by merger or consolidation, or by purchasing all or a
substantial portion of the assets of, or by purchasing all or a substantial
equity or voting interest in, or by any other manner, any business of any
Person;
(v) form any Subsidiary;
(vi) enter into any lease or sublease of real property (whether as a
lessor, sublessor, lessee or sublessee) or change, terminate or fail to
exercise any right to renew any lease or sublease of real property;
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(vii) sell, grant a license in, mortgage or otherwise encumber or
subject to any Encumbrance or otherwise dispose of any of its real
properties, hotels or other properties or assets other than the sale of
inventory and the granting of licenses in the ordinary course of business
consistent with past practices;
(viii) make any payments in respect of their Debt other than scheduled
interest and amortization payments, if any, required to be made under the
agreements evidencing Debt of the Acquired Corporations or repurchase,
accelerate, prepay or incur any Debt or guarantee any Debt of another
Person or issue or sell any debt securities or options, warrants, calls or
other rights to acquire any debt securities of any Acquired Corporation,
guarantee any debt securities of another Person, enter into any "keep well"
or other agreement to maintain any financial statement condition of another
Person or enter into any arrangement having the economic effect of any of
the foregoing;
(ix) make any loans, advances or capital contributions to, or
investments in, any other Person, other than the Company or any direct or
indirect wholly-owned Subsidiary of the Company;
(x) other than in the ordinary course of business, enter into or
become bound by any Material Contract, or amend or terminate, or waive or
exercise any material right or remedy under, any Material Contract;
(xi) change or terminate any Contract to which any Acquired
Corporation is a party, or waive, release or assign any rights or claims
thereunder, in each case in a manner materially adverse to the Acquired
Corporations taken as a whole;
(xii) acquire, lease or license any right or other asset from any
other Person or sell or otherwise dispose of, or lease or license, any
right or other asset to any other Person (except in each case for assets
acquired, leased, licensed or disposed of by the Company in the ordinary
course of business and consistent with past practices), or waive or
relinquish any material right, other than in the ordinary course of
business;
(xiii) hire any new employee with an annual base salary in excess of
$100,000, promote any employee except in order to fill a position vacated
after the date of this Agreement, or engage any consultant or independent
contractor for a period exceeding 30 days unless such engagement may be
cancelled without penalty upon not more than 30 days' notice;
(xiv) increase in any manner the compensation or benefits of, or pay
any bonus to, any employee, officer, director or independent contractor of
any Acquired Corporation, except for increases in the ordinary course of
business consistent with past practices in base compensation for any
employee;
(xv) change any of its personnel policies in any material respect, or
any of its methods of accounting or accounting policies in any respect
except as may be required by GAAP or any Legal Requirement;
(xvi) except as required by any applicable Legal Requirement, adopt or
enter into any collective bargaining agreement or other labor union
Contract applicable to the employees of any Acquired Corporation, or take
action to terminate the employment of any employee of any Acquired
Corporation that has an employment, severance or similar agreement or
arrangement with any Acquired Corporation providing for the payment of any
severance in excess of amounts generally provided to employees of such
Acquired Corporation;
(xvii) make or change any material Tax election, change any material
annual Tax accounting period, adopt or change any material method of Tax
accounting, file any amended Tax Return, enter into any closing agreement,
settle any material Tax claim or assessment (other than real estate
assessment settlements negotiated in the ordinary course of business),
surrender any right to claim a material Tax refund, consent to the
extension or waiver of the limitations period applicable to any material
Tax claim or assessment;
(xviii) (a) pay, discharge, settle or satisfy any material claims
(including claims of stockholders and any stockholder litigation relating
to this Agreement, the Merger or any other Contemplated Transaction or
otherwise), liabilities or obligations (whether absolute, accrued, asserted
or unasserted, contingent or
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otherwise), other than the payment, discharge or satisfaction in the
ordinary course of business or as required by their terms as in effect on
the date of this Agreement of claims, liabilities or obligations reflected
or reserved against in the Balance Sheet (or the notes thereto) or incurred
since the date of the Balance Sheet in the ordinary course of business, (b)
waive, release, grant or transfer any right of material value other than in
the ordinary course of business or (c) commence any Legal Proceeding;
(xix) make any material expenditure in connection with any advertising
or marketing, or adopt, renew, terminate, change or increase the liability
or other material obligations of any Acquired Corporation under any
operating standards, loyalty programs or amenity packages, other than in
the ordinary course of business consistent with past practice;
(xx) make any expenditure at the real property known as Chateau on the
Lake Resort and Convention Center, located at 415 North State Highway 265,
Branson, Taney County, Missouri;
(xxi) effectuate a "plant closing" or "mass layoff," as those terms
are defined in the Worker Adjustment and Retraining Notification Act;
(xxii) take any action or omit to take any action that would
reasonably be likely to cause the representations or warranties set forth
in Section 3 not to be true at the Closing, such that the condition set
forth in Section 8.1 would not be satisfied at the Closing;
(xxiii) agree or commit to take any of the actions described in this
Section 5.2(b).
(c) During the Pre-Closing Period, the Company shall promptly notify Parent
in writing of: (i) the discovery by the Company of any event, condition, fact or
circumstance that occurred or existed on or prior to the date of this Agreement
and that caused or constitutes a material inaccuracy in any representation or
warranty made by the Company in this Agreement; (ii) any material breach of any
covenant or obligation of the Company; (iii) any Legal Proceeding pending
against or with respect to the Acquired Corporations in respect of any Tax
matter; (iv) any event, condition, fact or circumstance that would make the
timely satisfaction of any of the conditions set forth in Section 7 or 8
impossible or unlikely or that has had or is reasonably likely to have a
Material Adverse Effect on the Acquired Corporations; and (v) (A) any notice or
other communication from any Person alleging that the Consent of such Person is
or may be required in connection with the Contemplated Transactions and (B) any
Legal Proceeding or material claim threatened, commenced or asserted against or
with respect to any of the Acquired Corporations or the Contemplated
Transactions. In addition, on each three-month anniversary of the date hereof
until the earlier of the date on which this Agreement is terminated in
accordance with its terms and the Effective Time, the Company shall notify
Parent in writing of any event, condition, fact or circumstance that has
occurred, arisen or existed after the date of this Agreement but prior to such
date that would cause or constitute a material inaccuracy in any representation
or warranty made by the Company in this Agreement if (A) such representation or
warranty had been made as of the time of the occurrence, existence or discovery
of such event, condition, fact or circumstance, or (B) such event, condition,
fact or circumstance had occurred, arisen or existed on or prior to the date of
this Agreement; provided, however, that to the extent any such event, condition,
fact or circumstance had or is reasonably likely to have a Material Adverse
Effect on the Acquired Corporations, taken as a whole, the Company shall notify
Parent promptly in writing of any such event, condition, fact or circumstances.
No notification given to Parent pursuant to this Section 5.2(c) shall limit or
otherwise affect any of the representations, warranties, covenants or
obligations of any party contained in this Agreement.
(d) The Company agrees that all Tax Returns with respect to the Company and
each other Acquired Corporation that are not required to be filed on or before
the date hereof, to the extent required to be filed on or before the Closing
Date, (i) will be filed when due in accordance with all applicable Legal
Requirements, and (ii) as of the time of filing, will be true, complete and
correct in all material respects. The Company and each other Acquired
Corporation will pay all Taxes shown as due on such Tax Returns and all other
Taxes which the Company or any other Acquired Corporation is required to pay on
or before the Closing Date (other than Taxes it is contesting in good faith).
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5.3 No Solicitation.
(a) The Company shall not directly or indirectly, and shall not authorize
or permit any of the other Acquired Corporations or any Representative of any of
the Acquired Corporations directly or indirectly to, (i) solicit, initiate,
encourage, induce or facilitate the making, submission or announcement of any
Acquisition Proposal or take any action that could reasonably be expected to
lead to an Acquisition Proposal, (ii) furnish any nonpublic information
regarding any of the Acquired Corporations to any Person in connection with or
in response to an Acquisition Proposal or an inquiry or indication of interest
that could reasonably be expected to lead to an Acquisition Proposal, (iii)
engage in discussions or negotiations with any Person with respect to any
Acquisition Proposal, (iv) approve, endorse or recommend any Acquisition
Proposal or (v) enter into any letter of intent or similar document or any
Contract contemplating or otherwise relating to any Acquisition Transaction;
provided, however, that prior to the adoption of this Agreement by the Required
Company Stockholder Vote, or, if the Minority Approval requirement is waived by
the Special Committee, the Minimum Required Vote, this Agreement (including this
Section 5.3(a)) shall not prohibit the Company from furnishing nonpublic
information regarding the Acquired Corporations to, or entering into or
conducting discussions or negotiations with, any Person in response to a
Superior Proposal that is submitted to the Company by such Person (and not
withdrawn) if (1) neither the Company nor any Representative of any of the
Acquired Corporations shall have violated any of the restrictions set forth in
this Section 5.3 in any respect that results in, or is a significant
contributing factor to the occurrence of, such Superior Proposal, (2) the Board
of the Company concludes in good faith, after consultation with the Company's
outside legal counsel, that failure to take such action would be inconsistent
with the fiduciary obligations of the Board of the Company to the Company's
stockholders under applicable Legal Requirements, (3) at least two business days
prior to furnishing any such nonpublic information to, or entering into
discussions with, such Person, the Company gives Parent written notice of the
identity of such Person and of the Company's intention to furnish nonpublic
information to, or enter into discussions with, such Person, and the Company
receives from such Person an executed confidentiality agreement containing
customary limitations on the use and disclosure of all nonpublic written and
oral information furnished to such Person by or on behalf of the Company and
customary "standstill" provisions (it being understood and agreed that use and
disclosure limitations and "standstill" provisions that are at least as
favorable to the Company as those contained in the Confidentiality Agreement
shall satisfy the requirements of this clause), and (4) at least two business
days prior to furnishing any such nonpublic information to such Person, the
Company furnishes such nonpublic information to Parent (to the extent such
nonpublic information has not been previously furnished by the Company to
Parent). Without limiting the generality of the foregoing, the Company
acknowledges and agrees that any violation of or the taking of any action
inconsistent with any of the restrictions set forth in the preceding sentence by
any Representative of any of the Acquired Corporations, whether or not such
Representative is purporting to act on behalf of any of the Acquired
Corporations, shall be deemed to constitute a breach of this Section 5.3 by the
Company.
(b) The Company shall promptly (and in no event later than 24 hours after
receipt of any (i) Acquisition Proposal, (ii) inquiry or indication of interest
that the Special Committee believes (or should, in the exercise of good faith,
believe) is likely to lead to an Acquisition Proposal or (iii) request for
nonpublic information), advise Parent orally and in writing of any such
Acquisition Proposal, any such inquiry or indication of interest that the
Special Committee believes (or should, in the exercise of good faith, believe),
is likely to lead to an Acquisition Proposal, or any such request for nonpublic
information relating to any of the Acquired Corporations (including the identity
of the Person making or submitting such Acquisition Proposal, inquiry,
indication of interest or request, and the terms thereof) that is made or
submitted by any Person during the Pre-Closing Period. The Company shall keep
Parent fully informed with respect to the status of any such Acquisition
Proposal, inquiry, indication of interest or request and any modification or
proposed modification thereto.
(c) The Company shall immediately cease any existing discussions with any
Person that relate to any Acquisition Proposal.
(d) The Company agrees not to release or permit the release of any Person
from, or to waive or permit the waiver of any provision of, any confidentiality,
"standstill" or similar agreement to which any of the
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Acquired Corporations is a party, and will use its commercially reasonable
efforts to enforce or cause to be enforced each such agreement at the request of
Parent. The Company also will promptly request each Person that has executed,
within 18 months prior to the date of this Agreement, a confidentiality
agreement in connection with its consideration of a possible Acquisition
Transaction or equity investment to return all confidential information
heretofore furnished to such Person by or on behalf of any of the Acquired
Corporations.
5.4 Financing. The Company shall provide such assistance as Parent shall
reasonably request in connection with Parent's efforts to arrange financing for
the transactions contemplated hereby (including, without limitation, reasonable
and necessary costs and expenses, not to exceed $1,000,000 in the aggregate, to
obtain environmental surveys, Phase I reports and similar analyses in accordance
with the budget set forth on Schedule 5.4, to the extent such costs and expenses
are incurred in connection with any efforts by Parent to refinance existing Debt
of the Acquired Corporations after the Effective Time), including, without
limitation, facilitating customary due diligence, arranging for senior officers
of the Company to meet with prospective lenders, negotiating with and obtaining
from the Company's landlords, lessors and franchisors such estoppel
certificates, waivers and other consents as may be requested by Parent's
lenders, and providing reliance letters for customary legal opinions of the
Company's attorneys; provided, that the Company shall not be required to pay any
commitment or similar fees. If the Company expends any funds prior to Closing at
Parent's request in connection with the performance of its obligations under
this Section 5.4, Parent will reimburse the Company for the documented amount of
such funds if this Agreement is terminated prior to the Closing, subject to
Section 11.16.
5.5 Company Stock Options. No later than the earlier of the time at which
the Company gives notice of the transactions contemplated hereby to its
stockholders and the date that is 30 days prior to the Effective Time, the
Company shall deliver the Option Holder Notice. The Company shall provide Parent
with a copy of the Option Holder Notice prior to its delivery to the holders of
Company Stock Options, and will consider in good faith comments provided by
Parent regarding the Option Holder Notice, which shall be in form and substance
reasonably acceptable to Parent. The Company shall take all actions required
under each Plan under which Company Stock Options were granted to cause such
Plan and all Company Stock Options granted thereunder to terminate at the
Effective Time.
5.6 Mailing Notice. Not later than 10 days prior to the date on which the
Company intends to mail the Proxy Statement to its stockholders (if Parent has
not previously delivered the Commitment Letter or Replacement Commitment Letter,
as the case may be, to the Company), which Proxy Statement is contemplated to
include the Company Board Recommendation or a statement to the effect that the
Board of the Company has determined and believes that the Merger is in the best
interests of the Company's stockholders, the Company may provide written notice
of such intention (the "Mailing Notice") to Parent, which Mailing Notice, if
given, shall constitute a covenant of the Company to commence mailing such Proxy
Statement to its stockholders on or about the date specified in the Mailing
Notice, which date shall be not more than five business days following the date
on which Parent delivers the Commitment Letter to the Company. Parent shall
deliver to the Company the Commitment Letter or Replacement Commitment Letter,
if applicable, not later than seven days following the date on which Parent
receives the Mailing Notice. Notwithstanding the foregoing, if the Company
reasonably believes the Proxy Statement is, in all material respects, in
definitive form but for information to be provided by, or regarding, Parent,
then the Company may notify Parent of such deficiency and its intent to commence
mailing of the Proxy Statement once it receives the requisite information from
Parent, in which case, such notice shall constitute a "Mailing Notice" for
purposes of this Agreement.
5.7 Agreements Among Parent, Merger Sub and Hammons Affiliates. Parent
and Merger Sub will not enter into any agreements, arrangements or
understandings with any of the Hammons Affiliates during the Pre-Closing Period,
nor amend, modify or otherwise alter any of the Hammons Agreements, in each case
without the prior approval of the Special Committee, which approval will not be
withheld unless, in the reasonable opinion of the Special Committee, after
consultation with the Special Committee's outside legal counsel, the Special
Committee concludes that failing to withhold such approval would be inconsistent
with the fiduciary obligations of the Special Committee under applicable Legal
Requirements.
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SECTION 6. Additional Covenants of the Parties.
6.1 Proxy Statement; Schedule 13E-3.
(a) As soon as practicable following the date of this Agreement, the
Company shall prepare and file with the SEC the Proxy Statement with respect to
the Company Stockholders' Meeting. The Company will use its reasonable best
efforts to cause the Proxy Statement to be mailed to the Company's stockholders
as promptly as practicable after the Proxy Statement is cleared by the SEC. The
Company shall provide Parent with a copy of the preliminary Proxy Statement and
all modifications thereto prior to filing or delivery to the SEC and will
consult with Parent in connection therewith and consider in good faith comments
provided by Parent regarding the Proxy Statement. The Company will inform
Parent, promptly after it receives notice thereof, of any request by the SEC for
the amendment of the Proxy Statement or comments thereon and responses thereto
or requests by the SEC for additional information, and will furnish to Parent
copies of all correspondence between the Company or any of its representatives,
on the one hand, and the SEC or its staff, on the other hand, with respect to
the Proxy Statement, the Merger or any other filings in connection herewith or
therewith and will consult with Parent in connection therewith. If at any time
prior to the Effective Time any information relating to the Company or Parent,
or any of their respective Affiliates, officers or directors, should be
discovered by the Company or Parent which should be set forth in an amendment or
supplement to the Proxy Statement, so that any of such document would not
include any misstatement of a material fact or omit to state any material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, the party that discovers such information
shall promptly notify the other parties hereto and an appropriate amendment or
supplement describing such information shall be promptly filed with the SEC and,
to the extent required by law, disseminated to the stockholders of the Company.
(b) As soon as practicable following the date of this Agreement, the
Company shall prepare and file with the SEC the Schedule 13E-3. Each of Parent
and the Company will inform the other promptly after it receives notice of any
request by the SEC for any amendment of the Schedule 13E-3 or comments thereon
and responses thereto or requests by the SEC for additional information, and
will furnish to the other copies of such request, comments or responses. If at
any time prior to the Effective Time, any information relating to the Company,
Parent or any of their respective Affiliates should be discovered by the Company
or Parent which should be set forth in an amendment or supplement to the
Schedule 13E-3, so that the Schedule 13E-3 would not include any misstatement of
a material fact or omit to state any material fact necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, the party that discovers such information shall promptly notify
the other parties hereto and an appropriate amendment or supplement describing
such information shall be promptly filed by the Company with the SEC and, to the
extent required by law, disseminated to the stockholders of the Company.
6.2 Company Stockholders' Meeting.
(a) The Company shall take all action necessary under all applicable Legal
Requirements to call, give notice of and hold a meeting of the holders of
capital stock of the Company to vote on a proposal to adopt this Agreement (the
"Company Stockholders' Meeting") and shall submit such proposal to such holders
at the Company Stockholders' Meeting. The Company (in consultation with Parent)
shall set a record date for Persons entitled to notice of, and to vote at, the
Company Stockholders' Meeting. The Company Stockholders' Meeting shall be held
(on a date selected by the Company in consultation with Parent) as promptly as
practicable. The Company shall ensure that all proxies solicited in connection
with the Company Stockholders' Meeting are solicited in compliance with all
applicable Legal Requirements.
(b) Subject to Section 6.2(c): (i) the Proxy Statement shall include a
statement to the effect that the Board of the Company recommends that the
Company's stockholders vote to adopt this Agreement at the Company Stockholders'
Meeting (such recommendation of the Company's Board that the Company's
stockholders vote to adopt this Agreement being referred to as the "Company
Board Recommendation"); and (ii) the Company Board Recommendation shall not be
withdrawn or modified in a manner adverse to Parent, and no resolution by the
Board of the Company or any committee thereof to withdraw or modify the Company
Board Recommendation in a manner adverse to Parent shall be adopted or proposed.
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(c) Notwithstanding anything to the contrary contained in Section 6.2(b),
at any time prior to the adoption of this Agreement by the Required Company
Stockholder Vote or, if the Minority Approval requirement is waived by the
Special Committee, the Minimum Required Vote, the Company Board Recommendation
may be withdrawn or modified in a manner adverse to Parent if: (i) an
Acquisition Proposal is made to the Company and is not withdrawn; (ii) the
Company provides Parent with at least five business days prior notice of any
meeting of the Company's Board at which such Board will consider and determine
whether such Acquisition Proposal is a Superior Proposal; (iii) the Company's
Board determines in good faith (based upon a written opinion of an independent
financial adviser of nationally recognized reputation) that such Acquisition
Proposal constitutes a Superior Proposal; (iv) the Company's Board determines in
good faith, after having taken into account the advice of the Company's outside
legal counsel, that, in light of such Superior Proposal, the withdrawal or
modification of the Company Board Recommendation is required in order for the
Company's Board to comply with its fiduciary obligations to the Company's
stockholders under applicable law; and (v) neither the Company nor any of its
Representatives shall have violated any of the restrictions set forth in Section
5.3 which violation results in, or is a significant contributing factor to the
occurrence of, an Acquisition Proposal being made to the Company.
6.3 Regulatory Approvals; Consents.
(a) Subject to Sections 6.3(c) and (d), Parent and the Company shall use
all reasonable efforts to take, or cause to be taken, all actions necessary to
consummate the Merger and make effective the other Contemplated Transactions.
Without limiting the generality of the foregoing, but subject to Sections 6.3(c)
and (d), Parent and the Company (i) shall make all filings (if any) and give all
notices (if any) required to be made and given by such party in connection with
the Merger and the other Contemplated Transactions and shall submit promptly any
additional information requested in connection with such filings and notices,
(ii) shall use all reasonable efforts to obtain each Consent (if any) required
to be obtained (pursuant to any applicable Legal Requirement or Contract, or
otherwise) by such party in connection with the Merger or any of the other
Contemplated Transactions and (iii) shall use all reasonable efforts to oppose
or lift any restraint, injunction or other legal bar to the Merger. Each of the
Company and Parent shall promptly deliver to the other a copy of each such
filing made, each such notice given and each such Consent obtained during the
Pre-Closing Period.
(b) Without limiting the generality of Section 6.3(a), the Company and
Parent shall, promptly after the date of this Agreement, prepare and file the
notifications required under the HSR Act and any applicable foreign antitrust
laws or regulations in connection with the Merger. The Company and Parent shall
respond as promptly as practicable to any inquiries or requests received from
any Governmental Body in connection with antitrust laws or related matters. Each
of the Company and Parent shall (1) give the other party prompt notice of the
commencement or threat of commencement of any Legal Proceeding by or before any
Governmental Body with respect to the Merger or any of the other Contemplated
Transactions, (2) keep the other party informed as to the status of any such
Legal Proceeding or threat and (3) promptly inform the other party of any
communication concerning antitrust laws to or from any Governmental Body
regarding the Merger. Except as may be prohibited by any Governmental Body or by
any Legal Requirement, the Company and Parent will consult and cooperate with
one another, and will consider in good faith the views of one another, in
connection with any analysis, appearance, presentation, memorandum, brief,
argument, opinion or proposal made or submitted in connection with any Legal
Proceeding under or relating to the HSR Act or any other antitrust law. Subject
to the foregoing, Parent shall be principally responsible for and in control of
the process of dealing with any Governmental Body concerning the effect of
applicable antitrust laws on the Contemplated Transactions. In addition, except
as may be prohibited by any Governmental Body or by any Legal Requirement, in
connection with any Legal Proceeding under or relating to the HSR Act or any
other foreign, federal or state antitrust law or fair trade law or any other
similar Legal Proceeding, each of the Company and Parent will permit authorized
Representatives of the other to be present at each meeting or conference
relating to any such Legal Proceeding and to have access to and be consulted in
connection with any document, opinion or proposal made or submitted to any
Governmental Body in connection with any such Legal Proceeding.
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(c) Notwithstanding anything to the contrary contained in this Agreement,
Parent shall not have any obligation under this Agreement: (i) to dispose,
transfer or hold separate, or cause any of its Subsidiaries to dispose, transfer
or hold separate any assets or operations, or to commit or to cause any of the
Acquired Corporations to dispose of any assets; (ii) to discontinue or cause any
of its Subsidiaries to discontinue offering any product or service, or to commit
to cause any of the Acquired Corporations to discontinue offering any product or
service; (iii) to make or cause any of its Subsidiaries to make any commitment
(to any Governmental Body or otherwise) regarding its future operations or the
future operations of any of the Acquired Corporations.
(d) The Company shall use its best efforts to obtain the Consents and
waivers required to satisfy Parent's and Merger Sub's condition to Closing set
forth in Section 8.4.
6.4 Employee Benefits. If any employee of the Acquired Corporations who
continue employment with Parent, the Surviving Corporation or any Subsidiary
thereof following the Effective Time (the "Continuing Employees") begin
participating in any employee benefit plan (within the meaning of Section 3(3)
of ERISA maintained by Parent or any Subsidiary thereof (the "New Plans")), each
such Continuing Employee shall be credited under any such New Plan with his or
her periods of service with the Company before the Closing for purposes of
participation, vesting and benefits levels where length of service is relevant
to benefit levels, but not for benefit accrual under any plan or any accrual
that would result in any duplication of benefits.
6.5 Indemnification of Officers and Directors.
(a) From the Effective Time through the sixth anniversary of the date on
which the Effective Time occurs, each of Parent and the Surviving Corporation
shall, jointly and severally, indemnify and hold harmless, to the fullest extent
not prohibited by applicable law, each person who was or is or becomes, or is
threatened to be made, a party to or witness or other participant in, or was or
is or becomes obligated to furnish or furnishes documents in response to a
subpoena or otherwise in connection with any threatened, pending or completed
claim, action, suit, proceeding, arbitration or alternative dispute resolution
mechanism, investigation, inquiry, administrative hearing, appeal or any other
actual, threatened or completed proceeding, whether brought in the right of a
Covered Party (as defined below) or otherwise and whether of a civil (including
intentional or unintentional tort claims), criminal, administrative, arbitrative
or investigative nature (each, an "Indemnification Event") by reason of the fact
that such person is now, or has been at any time prior to the date hereof, or
who becomes prior to the Effective Time, a director or officer of the Company or
any of its Subsidiaries (the "Covered Parties"), from (x) any and all direct and
indirect fees and costs, retainers, court costs, transcript costs, fees of
experts, witness fees, travel expenses, duplicating, printing and binding costs,
telephone charges, postage and delivery service fees and all other disbursements
or expenses of any type or nature whatsoever reasonably incurred by a Covered
Party (including reasonable attorneys' fees), and (y) any and all losses,
claims, damages, liabilities, judgments, fines, penalties, settlement payments,
awards and amounts of any type whatsoever incurred by such Covered Party in
connection with or arising from any Indemnification Event arising out of or
pertaining to the fact that the Covered Party is or was an officer or director
of the Company or any of its Subsidiaries (including the taking of any action or
the failure to take any action as a director or officer of any Acquired
Corporation in connection with the Contemplated Transactions), whether asserted
or claimed prior to, at or after the Effective Time. Each Covered Party will be
entitled, subject to applicable Legal Requirements, to advancement of expenses
incurred in the defense of or other participation in any such claim, action,
suit, proceeding or investigation from each of Parent and the Surviving
Corporation within ten business days of receipt by Parent or the Surviving
Corporation from the Covered Party of a request therefor; provided, that any
person to whom expenses are advanced provides an undertaking, to the extent
required by the DGCL, to repay such advances if it is ultimately determined that
such person is not entitled to indemnification.
(b) The Organizational Documents of the Surviving Corporation shall
contain, and Parent shall cause the Organizational Documents of the Surviving
Corporation to so contain, provisions no less favorable to the Covered Parties
with respect to indemnification, advancement of expenses and exculpation of
present and former directors and officers of the Company and its Subsidiaries
than are presently set forth in the Organizational Documents of the Company and
its Subsidiaries.
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(c) In the event that Parent or the Surviving Corporation or any of its
successors or assigns (i) consolidates with or merges into any other Person and
shall not be the continuing or surviving corporation or entity of such
consolidation or merger or (ii) transfers or conveys all or substantially all of
its stock, properties or assets to any Person, then, and in each such case,
proper provision shall be made so that the successors or assigns of Parent or
the Surviving Corporation, as the case may be, shall succeed to the obligations
set forth in this Section 6.5.
(d) The Company has purchased a "tail" policy under the Company's existing
directors' and officers' liability insurance policy. Until the sixth anniversary
of the Effective Time, Parent shall cause the Company (i) to maintain such
"tail" policy in full force and effect, (ii) not to amend or otherwise modify
such "tail" coverage or take any action that would result in the cancellation,
termination, amendment or modification of such "tail" policy and (ii) to
continue to honor its obligations under such "tail" coverage.
6.6 Disclosure. Except as otherwise may be required by Legal Requirements
or by stock exchange rule, regulation or listing agreement, Parent and the
Company shall consult with each other before issuing any press release or
otherwise making any public statement with respect to the Merger or any of the
other Contemplated Transactions or the Hammons Transactions. Without limiting
the generality of the foregoing, neither Parent nor the Company shall, and shall
not permit any of its Representatives to, make any disclosure regarding the
Merger or any of the other Contemplated Transactions unless (a) the other shall
have approved such disclosure or (b) such party shall have determined in good
faith, after taking into account the advice of its outside legal counsel, that
such disclosure is required by applicable Legal Requirements.
6.7 Resignation of Officers and Directors. The Company shall use all
reasonable efforts to obtain and deliver to Parent prior to the Closing (to be
effective as of the Effective Time) the resignation of each officer and director
of each of the Acquired Corporations whose resignation shall have been requested
by Parent not less than ten business days before the Closing Date.
6.8 Waiver and Release. The Company shall have (a) been reimbursed by Mr.
John Q. Hammons for, and (b) received from Mr. John Q. Hammons a waiver and
release of the Company and its Affiliates relating to, all expenditures,
including, without limitation, refinancing fees and expenses, made prior to the
Effective Time on the real property known as Chateau on the Lake Resort and
Convention Center, located at 415 North State Highway 265, Branson, Taney
County, Missouri.
6.9 Expense Reimbursement. Following the Effective Time, the aggregate
amount of the Parent Expenses shall be paid through a distribution of the
Expense Amount from the Expense Amount Escrow Account.
6.10 Financing. Parent shall use commercially reasonable efforts to
satisfy the requirements of the Commitment Letter that are within its control
and to obtain the funding contemplated by the Commitment Letter on the terms
contained therein. If the Commitment Letter is terminated prior to the Effective
Time or the funding contemplated thereby shall not otherwise be available at the
Effective Time, Parent shall use its best efforts consistent with prudent
business judgment to find alternative financing and enter into a written
commitment or commitments reflecting such alternative financing (the
"Replacement Commitment Letter") in form and substance that is not less
favorable in any material respect to Parent, Merger Sub and the Acquired
Corporations (from and after the Effective Time) to that provided in the
Commitment Letter and otherwise reasonably acceptable to the Company, which
Replacement Commitment Letter shall be delivered to the Company and the Special
Committee promptly following execution by the parties thereto. Parent shall
promptly disclose to the Company and the Special Committee any amendment,
termination or cancellation of the Commitment Letter or Replacement Commitment
Letter or any information known to Parent that makes it reasonably likely that
the financing set forth in the Commitment Letter or Replacement Commitment
Letter will not be obtained.
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SECTION 7. Conditions Precedent to Obligations of Each Party. The
obligation of each party to effect the Merger and otherwise consummate the
Contemplated Transactions is subject to the satisfaction, as of or prior to the
Closing, of each of the following conditions:
7.1 Stockholder Approval. This Agreement shall have been duly
adopted, and the Merger shall have been duly approved, by the Required
Company Stockholder Vote; provided, that notwithstanding the foregoing, the
Special Committee may waive the requirement for the Minority Approval, in
which case the only condition precedent to the obligations of each of the
parties to effect the Merger and consummate the Contemplated Transactions
required by this Section 7.1 will be that this Agreement shall have been
duly adopted, and the Merger shall have been duly approved, by the Minimum
Required Vote.
7.2 HSR Act. The waiting period applicable to the consummation of
the Merger under the HSR Act shall have expired or been terminated.
7.3 No Restraints. No temporary restraining order, preliminary or
permanent injunction or other order preventing the consummation of the
Merger shall have been issued by any court of competent jurisdiction or any
other Governmental Body and shall remain in effect, and there shall not be
any Legal Requirement enacted, adopted or deemed applicable to the Merger
that makes consummation of the Merger illegal or otherwise prohibits
consummation of the Merger.
SECTION 8. Conditions Precedent to Obligations of Parent and Merger
Sub. The obligations of Parent and Merger Sub to effect the Merger and
otherwise consummate the Contemplated Transactions are subject to the
satisfaction, as of or prior to the Closing of each of the following conditions:
8.1 Accuracy of Representations. The representations and warranties
of the Company set forth in this Agreement shall be true and correct in all
material respects as of the date of this Agreement and as of the Closing
Date as though made at such time, except (a) to the extent that any such
representation or warranty relates to any earlier date (in which case such
representation or warranty shall be true and correct as of such date) and
(b) where the failure of such representations and warranties to be true and
correct would not reasonably be expected to have a Material Adverse Effect
on the Acquired Corporations, without giving effect to any investigation by
Parent of, updating or supplements by the Company to, or knowledge of
Parent with respect to, the information contained in the Schedules attached
hereto.
8.2 Performance of Covenants. Each of the covenants and obligations
that the Company is required to comply with or to perform as of or prior to
the Closing shall have been complied with or performed in all material
respects.
8.3 No Material Adverse Effect. Since the date of this Agreement,
there shall not have occurred any Material Adverse Effect on the Acquired
Corporations, taken together as a whole, and no event shall have occurred
or circumstance shall exist as of the Closing that, in combination with any
other events or circumstances as of the Closing, is reasonably likely to
have a Material Adverse Effect on the Acquired Corporations, taken together
as a whole.
8.4 Consents. The Consents set forth on Schedule 8.4 shall have been
obtained, made or given and shall be in full force and effect.
8.5 Agreements and Documents. There shall have been delivered to
Parent a certificate, dated as of the Closing Date, executed on behalf of
the Company by an executive officer of the Company, confirming that the
conditions set forth in Sections 8.1, 8.2, 8.3 and 8.4 have been duly
satisfied.
8.6 No Litigation. There shall not be any pending Legal Proceeding
instituted by a Governmental Body, or any Legal Proceeding threatened by a
Governmental Body: (a) challenging or seeking to restrain or prohibit the
consummation of the Merger or any of the other Contemplated Transactions;
(b) relating to the Merger and seeking to obtain from Parent or any of its
Subsidiaries any damages that, if adversely determined, would reasonably be
likely to be material to Parent; (c) seeking to prohibit or limit in any
material respect Parent's ability, after the Effective Time, to vote,
receive dividends with
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respect to or otherwise exercise ownership rights with respect to the stock
of the Surviving Corporation or its Subsidiaries; (d) which would
materially and adversely affect the right of the Surviving Corporation to
own the assets or operate the business of the Acquired Corporations; (e)
seeking to compel Parent or the Company or any Subsidiary of Parent or the
Company to dispose of or hold separate any material assets, as a result of
the Merger or any of the other Contemplated Transactions; or (f) which, if
adversely determined, would reasonably be likely to have a Material Adverse
Effect on the Acquired Corporations or Parent.
8.7 Hammons Transactions. The Hammons Transactions shall have closed
contemporaneously with the Closing, except for components of the Hammons
Transactions that are to be consummated following the Effective Time, as to
which no substantial reason shall exist that would cause a reasonable
person to conclude that such transactions will not be so consummated.
8.8 Management Agreements. The Management Agreements set forth on
Schedule 8.8 shall have been terminated and shall have no further force or
effect.
8.9 Management Documents. All books, records, bills, invoices, lease
files, credit reports and other documents relating to the ownership and
operation of the business of the Acquired Corporations, including, without
limitation, all "as built" plans, shall be in the possession of the
Acquired Corporations on the Closing Date.
8.10 Company Stock Options. The Company shall have performed in all
respects its obligations under Section 5.5.
8.11 Real Estate Documents.
(a) The Company shall have delivered to Parent evidence of
satisfaction in full of, and Encumbrance releases with respect to, all Debt
of the Acquired Corporations set forth in Schedule 8.11(a).
(b) The Company shall have delivered to Parent the documents set forth
in Schedule 8.11(b). The consummation of the Contemplated Transactions
shall not contravene, conflict with or result in a violation or breach of
any provision of, or give any Person the right to declare a default or
exercise any remedy under, or to accelerate the maturity or performance of,
or to cancel, terminate or modify, any document set forth in Schedule
8.11(b) except for any such contraventions, conflicts, breaches, defaults
or other occurrences that would not prevent or materially delay
consummation of the Merger or have a Material Adverse Effect on the
Acquired Corporations.
8.12 Expense Amount. The Company shall have delivered the Expense
Amount to the Escrow Agent to be held in the Expense Amount Escrow Account
pursuant to the Expense Amount Escrow Agreement.
SECTION 9. Conditions Precedent to Obligation of the Company. The
obligation of the Company to effect the Merger and otherwise consummate the
Contemplated Transactions is subject to the satisfaction, as of or prior to the
Closing, of each of the following conditions:
9.1 Accuracy of Representations. The representations and warranties
of Parent and Merger Sub set forth in this Agreement (other than to the
extent the representations and warranties in Section 4.7 (x) relate to any
breach, violation or default of any of the Hammons Agreements by any
Hammons Affiliate or (y) are not true and correct as a result of any
modification to the Hammons Agreements consented to by the Special
Committee pursuant to Section 5.7) shall be true and correct in all
material respects as of the date of this Agreement and as of the Closing
Date as though made at such time, except (a) to the extent that any such
representation or warranty relates to any earlier date (in which case such
representation or warranty shall be true and correct as of such date) and
(b) where the failure of such representations and warranties to be true and
correct would not reasonable be expected to, individually or in the
aggregate, adversely affect Parent and its Subsidiaries, taken as a whole,
in any material respect, without giving effect to any investigation of,
updating or supplements to, or knowledge with respect to, the information
contained in the Schedules attached hereto.
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9.2 Performance of Covenants. Each of the covenants and obligations
that Parent and Merger Sub are required to comply with or to perform as of
or prior to the Closing shall have been complied with or performed in all
material respects.
9.3 Agreements and Documents. There shall have been delivered to the
Company a certificate, dated as of the Closing Date, executed on behalf of
Parent by an executive officer of Parent, confirming that the conditions
set forth in Sections 9.1 and 9.2 have been duly satisfied.
9.4 No Litigation. There shall not be any pending Legal Proceeding
instituted by a Governmental Body, or any Legal Proceeding threatened by a
Governmental Body, seeking a remedy against any officers or directors of an
Acquired Corporation in connection with a Legal Proceeding challenging or
seeking to restrain or prohibit the consummation of the Merger or any of
the other Contemplated Transactions.
9.5 Fee Amount. Parent shall have delivered the Fee Amount to the
Escrow Agent to be held in the Fee Amount Escrow Account pursuant to the
Fee Amount Escrow Agreement.
SECTION 10. Termination.
10.1 Termination. This Agreement may be terminated prior to the Effective
Time (whether before or after adoption of this Agreement by the Company's
stockholders, unless otherwise set forth below):
(a) by mutual written consent of Parent and the Company;
(b) by either Parent or the Company by notice to the other if the
Merger shall not have been consummated by (i) December 31, 2005, or (ii)
February 28, 2006 if, on December 31, 2005, there is a pending Legal
Proceeding instituted by a Governmental Body, or any Legal Proceeding
threatened by a Governmental Body, challenging or seeking to restrain or
prohibit the consummation of the Merger or any of the other Contemplated
Transactions, but each other condition set forth in Sections 7, 8 and 9
(other than such conditions that by their nature are to be satisfied on the
Closing Date) shall have been satisfied (the later of the dates set forth
in clauses (i) and (ii) is referred to herein as the "Initial Expiration
Date"); provided, however, that if, as of the Initial Expiration Date, (w)
each of the conditions set forth in Sections 7, 8 and 9 (other than such
conditions that by their nature are to be satisfied on the Closing Date)
shall have been satisfied other than the condition specified in Section 8.7
(the "Hammons Transactions Condition"), (x) the Hammons Transactions
Condition has not been satisfied for a reason other than a failure of any
party other than a Hammons Affiliate to perform under the Hammons
Agreements, (y) the Commitment Letter or the Replacement Commitment Letter,
if applicable, has not been terminated and (z) the Parent Affiliates are
attempting to cause the Hammons Transactions Condition to be satisfied in a
timely manner by pursuing in good faith a Legal Proceeding seeking to
enforce the Hammons Agreements, then neither Parent nor the Company may
terminate this Agreement pursuant to this Section 10.1(b) until the
earliest of (in each case, the "Extended Outside Date"): (1) the six month
anniversary of the Initial Expiration Date, (2) 60 days following any
termination of the Commitment Letter or the Replacement Commitment Letter,
if applicable, if either the Commitment Letter or the Replacement
Commitment Letter, if applicable, has been terminated and the Parent
Affiliates have not provided a Replacement Commitment Letter within 60 days
after such termination and (3) the date on which the Parent Affiliates
cease to pursue in good faith a Legal Proceeding seeking to enforce the
Hammons Agreements; notwithstanding anything to the contrary set forth
herein, no party may terminate the Merger Agreement pursuant to this
Section 10.1(b) if the failure to consummate the Merger results from a
failure on the part of the party seeking to terminate this Agreement to
perform any material obligation required to be performed by such party as
of or prior to the proposed date of termination;
(c) by either Parent or the Company by notice to the other if a court
of competent jurisdiction or other Governmental Body shall have issued a
final and nonappealable order, decree or ruling, or shall have taken any
other action, having the effect of permanently restraining, enjoining or
otherwise prohibiting the Merger;
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(d) by either Parent or the Company by notice to the other if (i) the
Company Stockholders' Meeting (including any adjournments and postponements
thereof) shall have been held and completed and the Company's stockholders
shall have voted on a proposal to adopt this Agreement, and (ii) (A) this
Agreement shall not have been adopted at such meeting (and shall not have
been adopted at any adjournment or postponement thereof) by the Required
Company Stockholder Vote unless the Special Committee has waived the
requirement for the Minority Approval, or (B) this Agreement shall not have
been adopted at such meeting (and shall not have been adopted at any
adjournment or postponement thereof) by the Minimum Required Vote;
provided, however, that a party shall not be permitted to terminate this
Agreement pursuant to this Section 10.1(d) if the failure to obtain such
stockholder approval is attributable to a failure on the part of such party
to perform any material obligation required to be performed by such party
as of or prior to the proposed date of termination;
(e) by Parent by notice to the Company (at any time prior to the
adoption of this Agreement by the Required Company Stockholder Vote or, if
the Minority Approval requirement is waived by the Special Committee, the
Minimum Required Vote) if a Company Triggering Event shall have occurred;
(f) by the Company by notice to Parent (at any time prior to the
adoption of this Agreement by the Required Company Stockholder Vote or, if
the Minority Approval requirement is waived by the Special Committee, the
Minimum Required Vote) if (i) the Company has complied with Section 5.3,
except that any non-compliance with Section 5.3 shall not be considered for
purposes of this Section 10.1(f) to the extent that it has not resulted in,
or been a significant contributing factor to the occurrence of, the
Company's termination of this Agreement pursuant to this Section 10.1(f);
(ii) the Board of the Company shall have authorized the Company, subject to
complying with the terms of this Agreement, to enter into a written
agreement for a transaction that constitutes a Superior Proposal and the
Company shall have notified Parent in writing that it intends to enter into
such an agreement, attaching the most current version of such agreement to
such notice; and (iii) Parent does not make, within 72 hours after
receiving the Company's written notice of its intention to enter into a
binding agreement for a Superior Proposal, an offer from Parent that the
Board of the Company, in its good faith judgment, after consultation with
its financial and legal advisors, determines is at least as favorable to
the holders of the Company Class A Common Stock as the Superior Proposal;
provided, that during such 72-hour period, the Company shall negotiate in
good faith with Parent (to the extent Parent wishes to negotiate) to enable
Parent to make such an offer; provided, however, that any such purported
termination pursuant to this Section 10.1(f) shall be void and of no force
or effect unless the Company, prior to the time of, and as a condition to
the effectiveness of, such termination pays to Parent the amounts required
pursuant to Section 10.3;
(g) by Parent by notice to the Company (i) if any of the Company's
representations and warranties shall have been inaccurate as of the date of
this Agreement, such that the condition set forth in Section 8.1 would not
be satisfied, or (ii) if any of the Company's representations and
warranties become inaccurate as of a date subsequent to the date of this
Agreement (as if made on such subsequent date), such that the condition set
forth in Section 8.1 would not be satisfied, or (iii) any of the Company's
covenants contained in this Agreement shall have been breached, such that
the condition set forth in Section 8.2 would not be satisfied, and in each
case, the inaccuracy or breach shall not have been cured within 30 days
after notice by Parent to the Company pursuant to this Section 10.1(g);
(h) by the Company by notice to Parent (i) if any of Parent's
representations and warranties shall have been inaccurate as of the date of
this Agreement, such that the condition set forth in Section 9.1 would not
be satisfied, or (ii) if any of Parent's representations and warranties
shall have become inaccurate as of a date subsequent to the date of this
Agreement (as if made on such subsequent date), such that the condition set
forth in Section 9.1 would not be satisfied, or (iii) if any of Parent's
covenants contained in this Agreement shall have been breached such that
the condition set forth in Section 9.2 would not be satisfied, and in each
case, the inaccuracy or breach shall not have been cured within 30 days
after notice by the Company to Parent pursuant to this Section 10.1(h);
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(i) by the Company, if Parent has not delivered the Commitment Letter
or the Replacement Commitment Letter, if applicable, to the Company by the
later of (i) 60 days following the date of this Agreement, and (ii) seven
days following Parent's receipt of the Mailing Notice; provided that the
Company is not then in breach of any of its covenants, agreements or
obligations under this Agreement in any material respect;
(j) by either Parent or the Company if Mr. John Q. Hammons has died
and the Transaction Agreement has been terminated prior to the consummation
of the Hammons Transactions other than by reason of a voluntary termination
of the Transaction Agreement by the Parent Affiliates (if this Agreement is
terminated at a time at which it may be terminated under either Section
10.1(b) or this Section 10.1(j), it shall be deemed to have been terminated
under this Section 10.1(j)); or
(k) by either Parent or the Company if the Transaction Agreement shall
have been terminated by any of the Hammons Affiliates pursuant to Section
6.1(a)(iii) of the Transaction Agreement as in effect on the date hereof,
other than upon the death of Mr. John Q. Hammons.
10.2 Effect of Termination. In the event of the termination of this
Agreement as provided in Section 10.1, this Agreement shall be of no further
force or effect; provided, however, that (i) this Section 10.2, Section 10.3 and
Section 11 shall survive the termination of this Agreement and shall remain in
full force and effect and (ii) the termination of this Agreement shall not
relieve any party from any liability for any material inaccuracy in or breach of
any representation or warranty or any material breach of any covenant or other
provision contained in this Agreement.
10.3 Expenses; Termination Fees.
(a) Except as set forth in this Section 10.3, all fees and expenses
incurred in connection with this Agreement and the Contemplated Transactions
shall be paid by the party incurring such expenses, whether or not the Merger is
consummated; provided, however, that:
(i) Parent and the Company shall share equally all fees and expenses,
other than attorneys' fees, incurred in connection with the filing by the
parties hereto of the premerger notification and report forms relating to
the Merger under the HSR Act and the filing of any notice or other document
under any applicable foreign antitrust law or regulation.
(ii) if this Agreement is terminated by (A) Parent or the Company
pursuant to Section 10.1(d), Section 10.1(j) or Section 10.1(k), (B) Parent
pursuant to Section 10.1(e) or Section 10.1(g), (C) the Company pursuant to
Section 10.1(f), (D) the Company after the Extended Outside Date pursuant
to Section 10.1(b) (unless the Extended Outside Date means a date earlier
than the six month anniversary of the Initial Expiration Date), or (E)
Parent or the Company pursuant to Section 10.1(b) if, following the date of
this Agreement and, in the case of this clause (E), at or prior to the time
of the termination of this Agreement, an Acquisition Proposal shall have
been disclosed, announced, commenced, submitted or made, then the Company
shall pay to Parent, subject to the limitations set forth in Section
10.3(g), an amount equal to the lesser of (x) $8,000,000 and (y) the
aggregate amount of the fees and expenses (including all attorneys' fees,
accountants' fees, financial advisory fees, investment banking fees,
incremental overhead expenses, costs and expenses related to interest rate
hedges, filing fees and printing and mailing expenses) that have been paid
or that become payable by or on behalf of Parent in connection with the
preparation, negotiation and enforcement of this Agreement and otherwise in
connection with the Contemplated Transactions or its consideration of the
Contemplated Transactions (the "Parent Expenses"). The Company shall
deliver, within two business days following the date on which notice of
termination is given, instructions to the Escrow Agent to pay any fee
payable to Parent by the Company pursuant to this Section 10.3(a)(ii)
through a distribution of the Expense Amount to Parent from the Expense
Amount Escrow Account. The excess of the Expense Escrow Amount over the
aggregate amount of the Parent Expenses shall be distributed by the Escrow
Agent to the Company from the Expense Amount Escrow Account promptly
following the distribution to Parent of the Parent Expenses from the
Expense Amount Escrow Account pursuant to the preceding sentence.
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(b) In addition to any amounts payable to Parent pursuant to Section
10.3(a), and subject to the limitations set forth in Section 10.3(g), the
Company shall pay to Parent an amount equal to $4,000,000 if this Agreement is
terminated as follows:
(i) by Parent or the Company pursuant to Section 10.1(d) if, following
the date of this Agreement and at or prior to the time of the termination
of this Agreement, an Acquisition Proposal (x) shall not have been
disclosed, announced, commenced, submitted or made, or (y) shall have been
disclosed, announced, commenced, submitted or made and the Company has
rejected such Acquisition Proposal; or
(ii) by Parent or the Company pursuant to Section 10.1(j).
(c) In addition to any amounts payable to Parent pursuant to Section
10.3(a), the Company shall pay to Parent an amount equal to $15,000,000, but in
each case, minus any amount paid to Parent pursuant to Section 10.3(b), and
subject to the limitations set forth in Section 10.3(g), if this Agreement is
terminated as follows:
(i) by Parent pursuant to Section 10.1(e) or by the Company pursuant
to Section 10.1(f);
(ii) by Parent or the Company pursuant to Section 10.1(b) or pursuant
to Section 10.1(d) if, following the date of this Agreement and at or prior
to the time of the termination of this Agreement, an Acquisition Proposal
shall have been disclosed, announced, commenced, submitted or made, and (x)
the Company has rejected such Acquisition Proposal and, within 18 months of
the date of termination of this Agreement, the Company consummates or
enters into an agreement to consummate or otherwise approves, accepts or
publicly announces an Acquisition Transaction with the party that made such
rejected Acquisition Proposal (or any of its Affiliates), or (y) the
Company shall not have rejected such Acquisition Proposal;
(iii) by (x) the Company after the Extended Outside Date pursuant to
Section 10.1(b) (unless the Extended Outside Date means a date earlier than
the six month anniversary of the Initial Expiration Date), or (y) Parent or
the Company pursuant to Section 10.1(j) or Section 10.1(k) if, in any such
case, within 18 months of the date of termination of this Agreement, the
Company consummates or enters into an agreement to consummate or otherwise
approves, accepts or publicly announces an Acquisition Transaction.
(d) If this Agreement is terminated by the Company pursuant to Section
10.1(h) or Section 10.1(i), then the Fee Amount shall be distributed to the
Company from the Fee Amount Escrow Account. If this Agreement is terminated for
any reason other than by the Company pursuant to Section 10.1(h) or Section
10.1(i), then the Fee Amount shall be distributed to Parent from the Fee Amount
Escrow Account. The Fee Amount shall secure all of Parent's payment obligations
pursuant to this Section 10.3. The maximum aggregate liability of Parent under
this Section 10.3, or under any other circumstances if the Merger does not
occur, shall be equal to the Fee Amount.
(e) Any fee payable pursuant to this Section 10.3 pursuant to a termination
of this Agreement by the Company shall be paid prior to the time of, and as a
condition to the effectiveness of, such termination (including, without
limitation, any amount to be distributed to Parent from the Expense Amount
Escrow Account pursuant to Section 10.3(a)(ii)); provided, that any fee payable
pursuant to Section 10.3(c)(ii) or Section 10.3(c)(iii) shall be made prior to
and as a condition to the consummation of the applicable Acquisition
Transaction. Parent shall deliver, within two business days following the date
on which notice of termination is given, instructions to the Escrow Agent to pay
any fee payable to the Company by Parent pursuant to this Section 10.3 through a
distribution of the Fee Amount to the Company from the Fee Amount Escrow
Account.
(f) The Company acknowledges that the agreements contained in this Section
10.3 are an integral part of the Contemplated Transactions and that, without
these agreements, Parent would not enter into this Agreement. Accordingly, if
the Company fails promptly to pay any amount due pursuant to this Section 10.3,
and, in order to obtain such payment, Parent commences a suit which results in a
judgment against the Company for any fee set forth in this Section 10.3, the
Company shall pay to Parent its costs and expenses
A-51
(including reasonable attorneys' fees and expenses) in connection with such
suit, together with interest on the amount of the fee at the prime rate of
interest as most recently reported in The Wall Street Journal as of the date
such payment was required to be made.
(g) The maximum aggregate amount payable by the Company to Parent pursuant
to this Section 10.3, or under any other circumstances if the Merger does not
occur, shall not exceed $20,000,000. Notwithstanding anything to the contrary
set forth herein, Parent agrees that, at any time prior to the delivery of the
Commitment Letter or the Replacement Commitment Letter to the Company, any
payment obligations of the Company to Parent pursuant to this Section 10.3, or
under any other circumstances if the Merger does not occur, shall not exceed in
the aggregate $3,000,000.
SECTION 11. Miscellaneous Provisions.
11.1 Amendment. This Agreement may be amended only by an instrument in
writing signed by the Company, Merger Sub and Parent at any time (whether before
or after adoption of this Agreement by the stockholders of the Company);
provided, however, that (i) each amendment shall have been duly authorized by
the respective Boards of Directors of the Company and Merger Sub and (ii) after
adoption of this Agreement by the Company's stockholders, no amendment shall be
made which by law requires further approval of the stockholders of the Company
without the further approval of such stockholders.
11.2 Waiver.
(a) Neither any failure nor any delay by any party in exercising any right,
power or privilege under this Agreement or any of the documents referred to in
this Agreement will operate as a waiver of such right, power or privilege and no
single or partial exercise of any such right, power or privilege will preclude
any other or further exercise of such right, power or privilege or the exercise
of any other right, power or privilege. To the maximum extent permitted by
applicable law, (i) no claim or right arising out of this Agreement or any of
the documents referred to in this Agreement can be discharged by one party, in
whole or in part, by a waiver or renunciation of the claim or right unless in
writing signed by the other party; (ii) no waiver that may be given by a party
will be applicable except in the specific instance for which it is given; and
(iii) no notice to or demand on one party will be deemed to be a waiver of any
obligation of that party or of the right of the party giving such notice or
demand to take further action without notice or demand as provided in this
Agreement or the documents referred to in this Agreement.
(b) At any time prior to the Effective Time, Parent (with respect to the
Company) and the Company (with respect to Parent and Merger Sub), may, to the
extent legally allowed, (i) extend the time for the performance of any of the
obligations or other acts of such party to this Agreement, (ii) waive any
inaccuracies in the representation and warranties contained in this Agreement or
any document delivered pursuant to this Agreement and (iii) waive compliance
with any covenants, obligations or conditions contained in this Agreement. Any
agreement on the part of a party to this Agreement to any such extension or
waiver shall be valid only if set forth in a written instrument signed on behalf
of such party.
11.3 No Survival. None of the representations and warranties, or any
covenant to be performed prior to the Effective Time, contained in this
Agreement shall survive the Effective Time.
11.4 Entire Agreement.
(a) This Agreement (including the documents relating to the Merger referred
to in this Agreement) and the Confidentiality Agreement constitute the entire
agreement among the parties to this Agreement with respect to the subject matter
hereof and thereof and supersede all other prior agreements and understandings,
both written and oral, among or between any of the parties with respect thereto.
(b) If there is any conflict between the provisions of this Agreement and
the Confidentiality Agreement, the provisions of this Agreement shall supersede
the provisions of the Confidentiality Agreement.
11.5 Execution of Agreement; Counterparts; Electronic Signatures.
(a) This Agreement may be executed in several counterparts, each of which
shall be deemed an original and all of which shall constitute one and the same
instrument, and shall become effective when counterparts
A-52
have been signed by each of the parties and delivered to the other parties; it
being understood that all parties need not sign the same counterpart.
(b) Notwithstanding the Electronic Signatures in Global and National
Commerce Act (15 U.S.C. Sec. 7001 et seq.), the Uniform Electronic Transactions
Act, or any other Legal Requirement relating to or enabling the creation,
execution, delivery or recordation of any contract or signature by electronic
means, and notwithstanding any course of conduct engaged in by the parties, no
party shall be deemed to have executed this Agreement or any other document
contemplated by this Agreement (including any amendment or other change thereto)
unless and until such party shall have executed this Agreement or such document
on paper by a handwritten original signature or any other symbol executed or
adopted by a party with current intention to authenticate this Agreement or such
other document contemplated.
11.6 Governing Law. This Agreement will be governed by the laws of the
State of Delaware, without regard to conflicts of laws principles.
11.7 Jurisdiction; Service of Process. Any action or proceeding seeking
to enforce any provision of, or based on any right arising out of, this
Agreement shall be brought against any of the parties only in the Courts of the
State of Delaware or, if it has or can acquire jurisdiction, in the United
States District Court for the District of Delaware, and each of the parties
consents to the exclusive jurisdiction of such courts (and of the appropriate
appellate courts) in any such action or proceeding and waives any objection to
venue laid therein. Process in any action or proceeding referred to in the
preceding sentence may be served on any party anywhere in the world.
11.8 WAIVER OF JURY TRIAL. EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY
CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE
COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE IT HEREBY IRREVOCABLY AND
UNCONDITIONALLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF
ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS
AGREEMENT AND ANY OF THE AGREEMENTS DELIVERED IN CONNECTION HEREWITH OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. EACH PARTY CERTIFIES AND
ACKNOWLEDGES THAT (A) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY
HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE
EVENT OF LITIGATION, SEEK TO ENFORCE SUCH WAIVERS, (B) IT UNDERSTANDS AND HAS
CONSIDERED THE IMPLICATIONS OF SUCH WAIVERS, (C) IT MAKES SUCH WAIVERS
VOLUNTARILY AND (D) IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG
OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 11.8.
11.9 Schedules.
(a) The information disclosed in any numbered or lettered Schedule shall be
deemed to relate to and to qualify only the particular representation or
warranty set forth in the corresponding numbered or lettered section, and shall
not be deemed to relate to or to qualify any other representation or warranty
unless the relevance of such disclosure is reasonably apparent or manifest from
the face of the applicable Schedule.
(b) If there is any inconsistency between the statements in this Agreement
and those in the Schedules (other than an exception set forth as such in the
Schedules), the statements in this Agreement will control.
11.10 Assignments and Successors. This Agreement shall be binding upon,
and shall be enforceable by and inure solely to the benefit of, the parties
hereto and their respective successors and assigns; provided, however, that
neither this Agreement nor any of the Company's rights hereunder may be assigned
by the Company without the prior written consent of Parent. Any attempted
assignment of this Agreement or of any such rights by the Company without such
consent shall be void and of no effect.
11.11 No Third Party Rights. Nothing in this Agreement, express or
implied, is intended to or shall confer upon any Person (other than the parties
hereto) any right, benefit or remedy of any nature whatsoever
A-53
under or by reason of this Agreement; provided, however, that after the
Effective Time, the Covered Parties shall be third party beneficiaries of, and
entitled to enforce, Section 6.5.
11.12 Notices. All notices, Consents, waivers and other communications
required or permitted by this Agreement shall be in writing and shall be deemed
given to a party when (a) delivered to the appropriate address by hand or by
nationally recognized overnight courier service (costs prepaid); or (b) sent by
facsimile or e-mail with confirmation of transmission by the transmitting
equipment confirmed with a copy delivered as provided in clause (a), in each
case to the following addresses, facsimile numbers or e-mail addresses and
marked to the attention of the person (by name or title) designated below (or to
such other address, facsimile number, e-mail address or person as a party may
designate by notice to the other parties), provided, that any communication
delivered or sent on a day that is not a business day or after 5:00 p.m. (local
time) on a business day shall be deemed to have been delivered or sent on the
next following business day; provided further, that the immediately preceding
proviso shall not apply to any notification provisions herein set forth in terms
of hours, which notifications shall be deemed to have been delivered or sent
when actually delivered or sent:
Company (before the Closing):
John Q. Hammons Hotels, Inc.
300 John Q. Hammons Parkway, Suite 900
Springfield, Missouri 65806
Attention: Debra M. Shantz
Fax No.: (417) 865-3503
Confirmation No.: (417) 873-3586
with a copy to:
Husch & Eppenberger, LLC
190 Carondelet Plaza, Suite 600
St. Louis, Missouri 63105
Attention: Mary Anne O'Connell
Fax No.: (314) 480-1505
Confirmation No.: (314) 480-1715
and a copy to:
Katten Muchin Rosenman LLP
525 West Monroe
Chicago, Illinois 60661
Attention: Jeffrey R. Patt, Esq.
Fax No.: (312) 577-8864
Confirmation No.: (312) 902-5604
Parent and Merger Sub:
JQH Acquisition LLC
Carnegie Hall Tower
152 West 57th Street, 56th Floor
New York, New York 10019
Attention: Jonathan D. Eilian
Fax No.: (212) 884-8753
Confirmation No.: (212) 884-8827
A-54
with a copy to:
Kaye Scholer LLC
Three First National Plaza
41st Floor
70 West Madison Street
Chicago, Illinois 60602-4231
Attention: Gary R. Silverman, Esq.
Fax No.: (212) 583-2530
Confirmation No.: (312) 583-2330
11.13 Cooperation. Subject to the terms and conditions of this Agreement,
the Company agrees to cooperate fully with Parent and to execute and deliver
such further documents, certificates, agreements and instruments and to take
such other actions as may be reasonably requested by Parent to evidence or
reflect the transactions contemplated by this Agreement and to carry out the
intent and purposes of this Agreement.
11.14 Legal Representation of the Parties. This Agreement was negotiated
by the parties with the benefit of legal representation and any rule of
construction or interpretation otherwise requiring this Agreement to be
construed or interpreted against any party shall not apply to any construction
or interpretation hereof.
11.15 Headings. The headings contained in this Agreement are for the
convenience of reference only, shall not be deemed to be a part of this
Agreement and shall not be referred to in connection with the construction or
interpretation of this Agreement.
11.16 Remedies; Specific Performance.
(a) Without limiting the right to receive any payment it may be entitled to
receive under Section 10.3, the Company agrees that, to the extent it incurs
losses or damages in connection with this Agreement, the maximum aggregate
liability of Parent and Merger Sub for such losses or damages shall be limited
to the Fee Amount and the Company shall proceed solely against the Fee Amount
Escrow Account in respect of such losses or damages, and in no event shall the
Company seek to recover any money damages from Parent, Merger Sub or their
respective Representatives and Affiliates in connection therewith. Any amount
payable by Parent pursuant to Section 10.3 shall be made by the Escrow Agent
from the Fee Amount Escrow Account, and the Company shall be entitled to recover
solely from the Fee Amount Escrow Account in respect of any such amount.
(b) The parties hereto agree that irreparable damages would occur in the
event any provision of this Agreement were not performed by the Company in
accordance with the terms hereof and that, prior to the termination of this
Agreement pursuant to Section 10.1, Parent and Merger Sub shall be entitled to
specific performance of the terms hereof and other temporary, preliminary or
permanent equitable relief (and no bond or other security shall be required in
connection therewith), in addition to any other remedy at law or equity. The
parties acknowledge that the Company shall not be entitled to an injunction or
injunctions to prevent breaches of this Agreement by Parent or Merger Sub or to
enforce specifically the terms and provisions of this Agreement or to obtain any
other equitable relief, and that the Company's sole and exclusive remedy with
respect to any such breach shall be the remedy set forth in Section 11.16(a) and
10.3(a)(iv).
11.17 Severability. If any provision of this Agreement is held invalid or
unenforceable by any court of competent jurisdiction, the other provisions of
this Agreement will remain in full force and effect. Any provision of this
Agreement held invalid or unenforceable only in part or degree will remain in
full force and effect to the extent not held invalid or unenforceable.
11.18 Time of Essence. With regard to all dates and time periods set
forth or referred to in this Agreement, time is of the essence.
A-55
* * * *
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
as of the date first above written.
JQH ACQUISITION LLC
By: /s/ Jonathan D. Eilian
------------------------------------
Name: Jonathan D. Eilian
Title: Managing Member
JQH MERGER CORPORATION
By: /s/ Jonathan D. Eilian
------------------------------------
Name: Jonathan D. Eilian
Title: President
JOHN Q. HAMMONS HOTELS, INC.
By: /s/ Paul Muellner
------------------------------------
Name: Paul Muellner
Title: Chief Financial Officer
A-56
APPENDIX B-1
(LEHMAN BROTHERS)
June 14, 2005
Special Committee of the Board of Directors
John Q. Hammons Hotels, Inc.
300 John Q. Hammons Parkway
Springfield, MO 65806
Members of the Special Committee:
We understand that John Q. Hammons Hotels, Inc., a Delaware limited
liability company (the "Company"), and JQH Acquisition, LLC, a Delaware limited
liability company ("JQH Acquisition"), intend to enter into a transaction (the
"Proposed Transaction") pursuant to which, among other events, 100% of the
Company's Class A common stock, including those shares owned by John Q. Hammons
and his affiliates ("the JQH Stockholders"), would be converted into the right
to receive $24.00 in cash (the "Merger Consideration") and each outstanding
option to acquire shares of Company Class A common stock and each outstanding
warrant to acquire shares of Company capital stock would be cancelled in
exchange for a cash amount equal to the excess, if any, of the aggregate Merger
Consideration payable with respect to the shares subject to such option or
warrant over the aggregate exercise price of such option or warrant. We further
understand that, contemporaneously with the execution of a definitive agreement
with respect to the Proposed Transaction, the JQH Stockholders, which
beneficially own approximately 76% of the outstanding Class A common stock of
the Company (giving effect to the full conversion of all the JQH Stockholders'
Class B common stock and redemption of all the JQH Stockholders' LP units),
would enter into separate agreements with JQH Acquisition pursuant to which,
among other things, the JQH Stockholders would exchange all of their Class B
common stock in the Company and substantially all of their partnership interests
in John Q. Hammons Hotels, LP in exchange for Preferred Interests to be issued
by a newly established entity, which would also provide the JQH Stockholders
with rights to a line of credit (the "Hammons Transactions"). The terms and
conditions of the Proposed Transaction are set forth in more detail in an
Agreement and Plan of Merger, dated as of June 14, 2005, by and among JQH
Acquisition, JQH Merger Corporation, a Delaware corporation ("Merger Sub"), and
the Company (the "Merger Agreement"). The terms and conditions of the Hammons
Transactions are set forth in more detail in an Amended and Restated Transaction
Agreement, dated June 14, 2005, by and among John Q. Hammons, Revocable Trust of
John Q. Hammons, Hammons, Inc., JD Holdings, LLC and JQH Acquisition and the
exhibits and schedules thereto (the "Hammons Transactions Agreement").
We have been requested by the Special Committee of the Board of Directors
of the Company to render our opinion with respect to the fairness, from a
financial point of view, to the holders of the Company's Class A common stock
(other than the JQH Stockholders) of the consideration offered to such
shareholders by JQH Acquisition 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 Merger
Agreement and the Hammons Transaction Agreement and the principal proposed terms
of the Proposed Transaction and the Hammons Transactions as set forth therein
and in annexes and exhibits thereto, (2) publicly available information
concerning the Company and the JQH Stockholders that we believe to be relevant
to our analysis, including the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 2004, the Company's Quarterly Report on Form 10-Q
for the quarter ended April 1, 2005, and the Second Amended and Restated
Agreement of Limited Partnership of John Q. Hammons Hotels, LP, (3) financial
and operating information with respect to the business, operations and prospects
of the Company furnished to us by the Company, including, without limitation,
certain projections of future financial performance of the Company prepared by
B-1
management of the Company, (4) the trading history of the Company's common stock
from the date of the Company's initial public offering on November 16, 1994 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) a comparison of the financial terms of
the Proposed Transaction with the financial terms of certain other transactions
that we deemed relevant, (7) the results of the efforts by the JQH Stockholders,
with the assistance of certain third party financial advisors, to solicit
indications of interest from interested parties with respect to a sale of, or
business combination with, the Company, and (8) the financial terms of an
alternative proposal received from another potential buyer with respect to an
acquisition of the Company. In addition, we have had discussions with the
management of the Company concerning the businesses, operations, assets,
financial conditions and prospects of the Company 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, 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 and that the Company will perform
substantially in accordance with such projections. In arriving at our opinion,
we have not conducted a 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. In addition, you have not authorized us to
solicit, and we have not solicited, any indications of interest from any third
party with respect to the purchase of all or part of the Company's business. 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.
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 holders of the Company's Class A common stock (other than the
JQH Stockholders) in the Proposed Transaction is fair to such holders.
We have acted as financial advisor to the Special Committee of the Board of
Directors of the Company in connection with the Proposed Transaction and will
receive a fee for our services, a portion of which is contingent upon
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. We also have performed investment banking services for the Company in
the past and have received customary fees for such services. In the ordinary
course of our business, we may actively trade in the debt and 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 has been provided at the request and for the use and benefit
of the Special Committee of the Board of Directors of the Company and is
rendered to the Special Committee of the Board of Directors in connection with
its consideration of the Proposed Transaction.
Very truly yours,
LEHMAN BROTHERS
By: /s/ SCOTT W. MOHR
------------------------------------
Managing Director
B-2
APPENDIX B-2
(LEHMAN BROTHERS)
June 14, 2005
Special Committee of the Board of Directors
John Q. Hammons Hotels, Inc.
300 John Q. Hammons Parkway
Springfield, MO 65806
Members of the Special Committee:
We understand that John Q. Hammons Hotels, Inc., a Delaware limited
liability company (the "Company"), and JQH Acquisition, LLC, a Delaware limited
liability company ("JQH Acquisition"), intend to enter into a transaction (the
"Proposed Transaction") pursuant to which, among other events, 100% of the
Company's Class A common stock, including those shares owned by John Q. Hammons
and his affiliates ("the JQH Stockholders"; the holders of the Company's Class A
common stock other than the JQH Stockholders, the "Unaffiliated Stockholders")
would be converted into the right to receive $24.00 in cash (the "Merger
Consideration") and each outstanding option to acquire shares of Company Class A
common stock and each outstanding warrant to acquire shares of Company capital
stock would be cancelled in exchange for a cash amount equal to the excess, if
any, of the aggregate Merger Consideration payable with respect to the shares
subject to such option or warrant over the aggregate exercise price of such
option or warrant. We further understand that, contemporaneously with the
execution of a definitive agreement with respect to the Proposed Transaction,
the JQH Stockholders, which beneficially own approximately 76% of the
outstanding Class A common stock of the Company (giving effect to the full
conversion of all the JQH Stockholders' Class B common stock and redemption of
all the JQH Stockholders' LP units), would enter into separate agreements with
JQH Acquisition pursuant to which, among other things, the JQH Stockholders
would exchange all of their Class B common stock in the Company and
substantially all of their partnership interests in John Q. Hammons Hotels, LP
in exchange for Preferred Interests to be issued by a newly established entity,
which would also provide the JQH Stockholders with rights to a line of credit
(the "Hammons Transactions"). The terms and conditions of the Proposed
Transaction are set forth in more detail in an Agreement and Plan of Merger,
dated as of June 14, 2005, by and among JQH Acquisition, JQH Merger Corporation,
a Delaware corporation ("Merger Sub"), and the Company (the "Merger Agreement").
The terms and conditions of the Hammons Transactions are set forth in more
detail in an Amended and Restated Transaction Agreement, dated June 14, 2005, by
and among John Q. Hammons, Revocable Trust of John Q. Hammons, Hammons, Inc., JD
Holdings, LLC and JQH Acquisition and the exhibits and schedules thereto (the
"Hammons Transactions Agreement").
We have been requested by the Special Committee of the Board of Directors
of the Company to render our opinion with respect to the reasonableness, from a
financial point of view and from the point of view of the Unaffiliated
Stockholders, of the allocation between the JQH Stockholders, on the one hand,
and the Unaffiliated Stockholders, on the other hand, of the consideration to be
offered by JQH Acquisition 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 Merger
Agreement and the Hammons Transaction Agreement and the principal proposed terms
of the Proposed Transaction and the Hammons Transactions as set forth therein
and in annexes and exhibits thereto, (2) publicly available information
concerning the Company and the JQH Stockholders that we believe to be relevant
to our analysis, including the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 2004, the Company's Quarterly Report on Form 10-Q
for the quarter ended April 1, 2005, and the Second Amended and Restated
Agreement of Limited Partnership of John Q. Hammons Hotels, LP, (3) financial
and operating information with respect to the business, operations and prospects
of the Company furnished to us by the Company,
B-3
including, without limitation, certain projections of future financial
performance of the Company prepared by management of the Company, (4) the
trading history of the Company's common stock from the date of the Company's
initial public offering on November 16, 1994 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) a
comparison of the financial terms of the Proposed Transaction with the financial
terms of certain other transactions that we deemed relevant, (7) a comparison of
the financials terms of the line of credit to be provided to Mr. Hammons by
NewCo with the financial terms of certain other lines of credit we deemed
relevant, (8) the actuarial assumptions regarding male death probability that
underlie the Social Security Administration's Period Life Table, updated
November 19, 2004, (9) the results of the efforts by the JQH Stockholders, with
the assistance of certain third party financial advisors, to solicit indications
of interest from interested parties with respect to a sale of, or business
combination with, the Company, and (10) the financial terms of an alternative
proposal received from another potential buyer with respect to an acquisition of
the Company. In addition, we have had discussions with the management of the
Company concerning the businesses, operations, assets, financial conditions and
prospects of the Company 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, 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 and that the Company will perform
substantially in accordance with such projections. In arriving at our opinion,
we have not conducted a 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. In addition, you have not authorized us to
solicit, and we have not solicited, any indications of interest from any third
party with respect to the purchase of all or part of the Company's business. 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.
Based upon and subject to the foregoing, we are of the opinion as of the
date hereof that, from a financial point of view and from the point of view of
the Unaffiliated Stockholders, the allocation of the consideration offered by
JQH Acquisition in the Proposed Transaction between the JQH Stockholders, on the
one hand, and the Unaffiliated Stockholders, on the other hand, is reasonable to
the Unaffiliated Stockholders.
We have acted as financial advisor to the Special Committee of the Board of
Directors of the Company in connection with the Proposed Transaction and will
receive a fee for our services, a portion of which is contingent upon
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. We also have performed investment banking services for the Company in
the past and have received customary fees for such services. In the ordinary
course of our business, we may actively trade in the debt and 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 has been provided at the request and for the use and benefit
of the Special Committee of the Board of Directors of the Company and is
rendered to the Special Committee of the Board of Directors in connection with
its consideration of the Proposed Transaction.
Very truly yours,
LEHMAN BROTHERS
By: /s/ SCOTT W. MOHR
------------------------------------
Managing Director
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APPENDIX C
DELAWARE CODE
TITLE 8. CORPORATIONS
CHAPTER 1. GENERAL CORPORATION LAW
SUBCHAPTER IX. MERGER, CONSOLIDATION OR CONVERSION
SEC. 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 sec. 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 sec. 251 (other than a merger effected pursuant to
sec. 251(g) of this title), sec. 252, sec. 254, sec. 257, sec. 258, sec. 263 or
sec. 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 sec. 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
sec.sec. 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.
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(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under sec. 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
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:
(1) 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 subsection (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 such
stockholder's shares shall deliver to the corporation, before the taking of
the vote on the merger or consolidation, a written demand for appraisal of
such stockholder'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 stockholder's
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 sec. 228
or sec. 253 of this title, then either a constituent corporation before the
effective date of the merger or consolidation or the surviving or resulting
corporation within 10 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. 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
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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.
(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 such stockholder's 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 such stockholder's 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
such stockholder's certificates of stock to the Register in Chancery, if such is
required, may participate fully in all proceedings until it is finally
determined that such stockholder 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
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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 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 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 such stockholder's
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.
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JOHN Q. HAMMONS HOTELS, INC.
THIS PROXY IS SOLICITED ON BEHALF
OF THE BOARD OF DIRECTORS
The undersigned stockholder of John Q. Hammons Hotels, Inc. hereby appoints
David C. Sullivan, Donald H. Dempsey and James F. Moore, or any of them, as
proxies to cast all votes which the undersigned stockholder is entitled to cast
at the special meeting of stockholders to be held on September 15, 2005, at
9:00 a.m., local time, at the University Plaza Hotel, 333 John Q. Hammons
Parkway, Springfield, Missouri, and at any adjournments or postponements
thereof, upon the following matters. The undersigned stockholder hereby revokes
any proxy or proxies heretofore given.
This proxy will be voted as directed by the undersigned stockholder. UNLESS
CONTRARY DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED FOR ADOPTION OF THE MERGER
AGREEMENT, FOR ANY ADJOURNMENT OR POSTPONEMENT OF THE SPECIAL MEETING, AND IN
ACCORDANCE WITH THE DETERMINATION OF A MAJORITY OF THE BOARD OF DIRECTORS AS TO
OTHER MATTERS. The undersigned stockholder may revoke this proxy at any time
before it is voted by delivering to the Secretary of the Company either a
written revocation of the proxy or a duly executed proxy bearing a later date,
or by appearing at the special meeting and voting in person. The undersigned
stockholder hereby acknowledges receipt of the Notice of Special Meeting and
Proxy Statement.
(continued and to be signed and dated on reverse side)
[X] Please mark your votes as indicated in this example:
1. Adoption of the merger agreement
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
2. To adjourn or postpone the meeting, if the board of directors
determines such postponement or adjournment is advisable, for the
purpose of soliciting additional votes in favor of the merger
agreement:
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. At their discretion, the proxies, or either of them, are authorized to
vote upon such other business (not known a reasonable time before the
solicitation of my proxy) as may properly come before the meeting,
or any adjournments or postponements thereof.
If you receive more than one proxy card, please sign and return ALL cards in the
accompanying envelope.
Date: _______________________________________________________
_____________________________________________________________
Signature of Stockholder or Authorized Representative
Please date and sign exactly as your name appears hereon. Each executor,
administrator, trustee, guardian, attorney-in-fact and other fiduciary should
sign and indicate his or her full title. Only one signature is required in the
case of stock ownership in the name of two or more persons, but all should sign
if possible.