EXHIBIT 2.1
-----------
AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN
INTERSTATE HOTELS CORPORATION
AND
MERISTAR HOTELS & RESORTS, INC.
DATED AS OF MAY 1, 2002
TABLE OF CONTENTS
PAGE
ARTICLE I THE MERGER..........................................................2
Section 1.1 The Merger..............................................2
Section 1.2 Effective Time..........................................2
Section 1.3 Closing.................................................2
Section 1.4 Effects of the Merger...................................2
Section 1.5 The Certificate of Incorporation of the
Surviving Corporation...................................2
Section 1.6 The Bylaws of the Surviving Corporation.................3
Section 1.7 Directors of the Surviving Corporation..................3
Section 1.8 Executive Officers of the Surviving Corporation.........3
ARTICLE II EFFECT OF THE MERGER ON CAPITAL STOCK; EXCHANGE OF
CERTIFICATES............................3
Section 2.1 Conversion of Capital Stock.............................3
Section 2.2 Cancellation of MeriStar-Owned and
Subsidiary-Owned Stock..................................3
Section 2.3 Exchange Ratio..........................................3
Section 2.4 Exchange of Certificates................................4
Section 2.5 Appraisal Rights........................................7
Section 2.6 Adjustments to Prevent Dilution.........................7
Section 2.7 Withholding Rights......................................7
Section 2.8 Stock Options...........................................7
ARTICLE III REPRESENTATIONS AND WARRANTIES OF INTERSTATE...................8
Section 3.1 Organization and Qualification; Subsidiaries............8
Section 3.2 Charter and Bylaws......................................9
Section 3.3 Capitalization..........................................9
Section 3.4 Authority..............................................10
Section 3.5 No Conflicts...........................................11
Section 3.6 Required Filings and Consents..........................12
Section 3.7 Permits; Compliance with Law...........................12
Section 3.8 SEC Filings; Financial Statements......................13
Section 3.9 Absence of Certain Changes or Events...................14
Section 3.10 Employee Benefit Plans; Labor Matters..................15
i
Section 3.11 Contracts; Debt Instruments............................18
Section 3.12 Litigation.............................................19
Section 3.13 Environmental Matters..................................19
Section 3.14 Intellectual Property..................................20
Section 3.15 Taxes..................................................22
Section 3.16 Non-Competition Agreements.............................24
Section 3.17 Agreements with Regulatory Agencies....................25
Section 3.18 Opinion of Financial Advisor...........................25
Section 3.19 Brokers................................................25
Section 3.20 Certain Statutes.......................................26
Section 3.21 Information............................................26
Section 3.22 Vote Required..........................................26
Section 3.23 Properties.............................................26
Section 3.24 No Payments to Employees, Officers or Directors........29
Section 3.25 Potential Conflicts of Interest........................29
Section 3.26 Registration Rights....................................29
Section 3.27 Investment Company Act of 1940.........................30
Section 3.28 Rights Agreement.......................................30
Section 3.29 Interstate Management Agreements.......................30
Section 3.30 Laws Addressing Bribery and Corruption.................31
Section 3.31 Interstate Insurance Business..........................31
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF MERISTAR........................33
Section 4.1 Organization and Qualification; Subsidiaries...........33
Section 4.2 Certificate of Incorporation and Bylaws................34
Section 4.3 Capitalization.........................................34
Section 4.4 Authority..............................................35
Section 4.5 No Conflicts...........................................36
Section 4.6 Required Filings and Consents..........................36
Section 4.7 Permits; Compliance with Law...........................37
Section 4.8 SEC Filings; Financial Statements......................37
Section 4.9 Absence of Certain Changes or Events...................38
Section 4.10 Employee Benefit Plans; Labor Matters..................40
ii
Section 4.11 Contracts; Debt Instruments............................42
Section 4.12 Litigation.............................................43
Section 4.13 Environmental Matters..................................43
Section 4.14 Intellectual Property..................................44
Section 4.15 Taxes..................................................46
Section 4.16 Non-Competition Agreements.............................48
Section 4.17 Agreements with Regulatory Agencies....................48
Section 4.18 Opinion of Financial Advisor...........................48
Section 4.19 Brokers................................................49
Section 4.20 Certain Statutes.......................................49
Section 4.21 Information............................................49
Section 4.22 Vote Required..........................................49
Section 4.23 Properties.............................................50
Section 4.24 No Payments to Employees, Officers or Directors........52
Section 4.25 Potential Conflicts of Interest........................52
Section 4.26 Registration Rights....................................53
Section 4.27 Investment Company Act of 1940.........................53
Section 4.28 Rights Agreement.......................................53
Section 4.29 MeriStar Management Agreements.........................53
Section 4.30 Laws Addressing Bribery and Corruption.................54
Section 4.31 MeriStar Long-Term Apartment Rental Business...........54
ARTICLE V COVENANTS.....................................................55
Section 5.1 Conduct of Business of Interstate......................55
Section 5.2 Conduct of Business of MeriStar........................58
Section 5.3 Notification of Certain Matters........................61
Section 5.4 Proxy Statement........................................61
Section 5.5 Stockholders' Actions..................................64
Section 5.6 Access to Information; Confidentiality.................64
Section 5.7 No Solicitation by Interstate..........................65
Section 5.8 No Solicitation by MeriStar............................66
Section 5.9 Additional Agreements..................................68
iii
Section 5.10 Directors' and Officers' Indemnification
and Insurance..........................................69
Section 5.11 Affiliates.............................................70
Section 5.12 Reasonable Best Efforts................................70
Section 5.13 Consents; Filings; Further Action......................70
Section 5.14 Plan of Reorganization.................................72
Section 5.15 Public Announcements...................................72
Section 5.16 Stock Exchange Listings and De-Listings................72
Section 5.17 Takeover Statutes......................................72
Section 5.18 Dividends..............................................72
Section 5.19 Interstate Rights Agreement............................72
Section 5.20 MeriStar Rights Agreement..............................73
Section 5.21 NYSE Listing Criteria Compliance.......................73
Section 5.22 Rule 16b-3 Approvals...................................73
Section 5.23 Interim Transactions Committee.........................73
ARTICLE VI CONDITIONS....................................................73
Section 6.1 Conditions to Each Party's Obligation to
Effect the Merger......................................73
Section 6.2 Conditions to Obligations of MeriStar..................75
Section 6.3 Conditions to Obligations of Interstate................76
ARTICLE VII TERMINATION...................................................77
Section 7.1 Termination............................................77
Section 7.2 Effect of Termination..................................80
Section 7.3 Expenses and Fees Following Certain Termination Events.80
ARTICLE VIII MISCELLANEOUS.................................................81
Section 8.1 Certain Definitions....................................81
Section 8.2 Survival...............................................82
Section 8.3 Counterparts...........................................83
Section 8.4 GOVERNING LAW; WAIVER OF JURY TRIAL....................83
Section 8.5 Notices................................................83
Section 8.6 Entire Agreement.......................................84
Section 8.7 Binding Effect Benefits................................84
Section 8.8 Amendment..............................................85
Section 8.9 Waiver.................................................85
Section 8.10 Obligations of MeriStar and of Interstate..............85
iv
Section 8.11 Severability...........................................85
Section 8.12 Interpretation.........................................85
Section 8.13 Assignment.............................................86
Section 8.14 Specific Performance...................................86
v
TABLE OF DEFINED TERMS
1940 Act...........................................30
affiliate..........................................81
Agreement...........................................1
Articles of Merger..................................2
Blue Sky Laws......................................12
BridgeStreet Ordinary Course Leases................54
business day.......................................81
Bylaw Amendments....................................3
Certificate.........................................4
Certificate of Merger...............................2
CGLH Investor Agreement............................68
CGLH Limited Partnership Agreement.................69
CGLH Purchase Agreement............................68
CGLH Registration Rights Agreement.................68
Charter Amendments..................................2
Claims.............................................19
Closing.............................................2
Closing Date........................................2
Code................................................1
Commitment Letter..................................68
Confidentiality Agreement..........................65
Contracts..........................................11
control............................................81
controlled by......................................81
controlling........................................81
Copyright Office...................................61
DGCL................................................1
Effective Time......................................2
Encumbrance........................................12
Encumbrances.......................................12
Environmental Law..................................20
Environmental Permit...............................20
ERISA..............................................15
Exchange Act.......................................12
Exchange Agent......................................4
Exchange Fund.......................................4
Exchange Ratio......................................3
Expenses...........................................80
GAAP...............................................13
Governmental Entity................................12
Hazardous Substance................................20
HSR Act............................................12
including..........................................82
Indemnified Parties................................69
Intellectual Property..............................20
Interim Transactions Committee.....................73
Interstate..........................................1
Interstate Acquisition Proposal....................65
Interstate Benefit Plans...........................16
Interstate Board Recommendation....................62
Interstate Class A Common Stock.....................3
Interstate Class B Common Stock.....................3
Interstate Class C Common Stock.....................3
Interstate Common Stock.............................3
Interstate Convertible Notes........................9
Interstate Convertible Securities...................9
Interstate Disclosure Letter........................8
Interstate ERISA Group Member......................16
Interstate Filed SEC Reports.......................14
Interstate Financial Advisor.......................25
Interstate Franchise Agreements....................28
Interstate Insurance Contract......................31
Interstate Insurance Subsidiary....................31
Interstate Leases..................................27
Interstate Long-Term Debt..........................18
Interstate Managed Property........................29
Interstate Management Agreements...................30
vi
Interstate Option Plans............................10
Interstate Ordinary Course Leases..................27
Interstate Permits.................................12
Interstate Properties..............................26
Interstate Proposals...............................11
Interstate Regulatory Agreement....................25
Interstate Reinsurance Contracts...................31
Interstate Rights Agreement.........................3
Interstate Rights Plan Amendment...................30
Interstate SAP Financial Statements................31
Interstate SEC Reports.............................13
Interstate Series B Preferred Stock.................9
Interstate Space Leases............................28
Interstate Space Tenant............................28
Interstate Stock Options............................9
Interstate Stockholders Meeting....................61
Interstate Subsidiaries.............................8
Interstate Superior Proposal.......................66
Interstate Voting Agreement.........................1
IP Licenses........................................20
IRS................................................16
knowledge..........................................82
Law................................................82
Lien...............................................10
Liens..............................................10
Material Adverse Effect on Interstate..............82
Material Adverse Effect on MeriStar................82
Merger..............................................1
Merger Consideration................................4
MeriStar............................................1
MeriStar Acquisition Proposal......................67
MeriStar Benefit Plans.............................40
MeriStar Board Recommendation......................62
MeriStar Common Stock...............................7
MeriStar Disclosure Letter.........................33
MeriStar ERISA Group Member........................40
MeriStar Exchange Option............................7
MeriStar Filed SEC Reports.........................38
MeriStar Financial Advisor.........................48
MeriStar Franchise Agreements......................51
MeriStar Leases....................................51
MeriStar Long-Term Debt............................43
MeriStar Managed Property..........................52
MeriStar Management Agreements.....................53
MeriStar Option Plans..............................34
MeriStar Ordinary Course Leases....................51
MeriStar Permits...................................37
MeriStar Preferred Stock...........................34
MeriStar Properties................................50
MeriStar Proposals.................................35
MeriStar Regulatory Agreement......................48
MeriStar Rights.....................................4
MeriStar Rights Agreement...........................4
MeriStar Rights Plan Amendment.....................53
MeriStar SEC Reports...............................37
MeriStar Series A Preferred Stock...................4
MeriStar Space Lease...............................51
MeriStar Space Tenant..............................51
MeriStar Stock Options.............................34
MeriStar Stockholders Meeting......................61
MeriStar Subsidiaries..............................33
MeriStar Superior Proposal.........................67
MeriStar Voting Agreement...........................1
MGCL................................................1
National Priorities List...........................19
NYSE................................................6
NYSE Continued Listing Criteria....................73
OP Units...........................................34
person.............................................82
plan of reorganization.............................72
Principal Interstate Stockholders...................1
Principal MeriStar Managers.........................1
Principal MeriStar Stockholders.....................1
Proposed Intellectual Property Agreements..........21
Proxy Materials....................................62
Proxy Statement....................................62
PTO................................................61
Refinancing........................................68
Registration Statement.............................62
Registration Statement Effective Date..............62
Representatives....................................64
Requisite Interstate Vote..........................11
vii
Requisite MeriStar Vote............................35
Reserve Liabilities................................32
Rule 145 Affiliate Agreement.......................70
Rule 145 Affiliates................................70
SDAT................................................2
SEC................................................13
Secretary of State..................................2
Securities Act.....................................12
Software...........................................21
subsidiaries.......................................82
subsidiary.........................................82
Surviving Corporation...............................2
Surviving Corporation Common Stock..................3
Takeover Statute...................................26
Tax................................................22
Tax Returns........................................23
Taxes..............................................22
Technology.........................................21
Termination Date...................................77
under common control with..........................81
viii
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (this "AGREEMENT"), dated as of May 1,
2002, by and between INTERSTATE HOTELS CORPORATION, a Maryland corporation
("INTERSTATE"), and MERISTAR HOTELS & RESORTS, a Delaware corporation
("MERISTAR").
RECITALS
A. The respective Boards of Directors of MeriStar and Interstate have
each determined that the merger of Interstate with and into MeriStar on the
terms and subject to the conditions set forth in this Agreement, with MeriStar
as the surviving corporation (the "MERGER"), is advisable and that it is in the
best interest of their respective corporations and stockholders to combine the
respective businesses of MeriStar and Interstate, and consequently have approved
and adopted the Merger and this Agreement, in accordance with, as to MeriStar,
the General Corporation Law of the State of Delaware (the "DGCL") and, as to
Interstate, the Maryland General Corporation Law (the "MGCL").
B. Concurrently with the execution of this Agreement, (i) as a
condition to the willingness of Interstate to enter into this Agreement, the
executive officers and certain directors of MeriStar (the "PRINCIPAL MERISTAR
MANAGERS") and certain holders of MeriStar Common Stock (the "PRINCIPAL MERISTAR
STOCKHOLDERS") are entering into a voting agreement, dated the date hereof (the
"MERISTAR VOTING AGREEMENT"), which provides, among other things, that each
Principal MeriStar Manager and each Principal MeriStar Stockholder party thereto
will vote his or her shares of MeriStar Common Stock in favor of the MeriStar
Proposals at the MeriStar Stockholders Meeting; and (ii) as a condition to the
willingness of MeriStar to enter into this Agreement, certain holders of
Interstate Common Stock (the "PRINCIPAL INTERSTATE STOCKHOLDERS") are entering
into a voting agreement, dated the date hereof (the "INTERSTATE VOTING
AGREEMENT"), which provides, among other things, that (a) each Principal
Interstate Stockholder will vote his or her shares of Interstate Common Stock in
favor of the Interstate Proposals at the Interstate Stockholders Meeting, (b) a
portion of the Interstate Convertible Securities held by each Principal
Interstate Stockholder will be converted, on or immediately prior to the record
date for the Interstate Stockholders Meeting, in accordance with their terms
into shares of Interstate Common Stock, and (c) the holders of Interstate
Convertible Securities representing a majority of the combined (x) aggregate
principal amount of Interstate Convertible Notes outstanding and (y) aggregate
stated amount of the Interstate Series B Preferred Stock outstanding on the
record date for such vote of such holders, in each case, excluding Interstate
Convertible Securities held by Interstate or any of its executive officers, will
vote in favor of the Interstate Proposals.
C. For federal income tax purposes it is intended that the Merger shall
qualify as a reorganization under the provisions of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "CODE"), and the rules and
regulations promulgated under the Code.
D. Certain terms used in this Agreement have the meanings specified in
Section 8.1.
2
NOW, THEREFORE, in consideration of the mutual representations,
warranties and agreements contained herein, and for other good and valuable
consideration the receipt and sufficiency of which are hereby acknowledged, the
parties to this Agreement, intending to be legally bound by this Agreement,
agree as follows:
ARTICLE I THE MERGER
Section 1.1 THE MERGER. Upon the terms and subject to the conditions
set forth in this Agreement, at the Effective Time, in accordance with the DGCL
and the MGCL, Interstate shall be merged with and into MeriStar, and the
separate corporate existence of Interstate shall cease. MeriStar shall continue
as the surviving corporation (sometimes referred to as the "SURVIVING
CORPORATION") and shall be governed by the Laws of the State of Delaware, with
all the rights, privileges, immunities, powers and franchises and subject to all
the duties and liabilities of a corporation organized under the DGCL.
Section 1.2 EFFECTIVE TIME. As soon as practicable following the
Closing, MeriStar and Interstate shall cause (i) a Certificate of Merger (the
"CERTIFICATE OF MERGER") to be executed and filed with the Secretary of State of
the State of Delaware ("SECRETARY OF STATE") as provided in the DGCL and (ii)
Articles of Merger (the "ARTICLES OF MERGER") to be executed and filed with the
State Department of Assessments and Taxation of Maryland (the "SDAT") as
provided in the MGCL. The Merger shall become effective upon the later of (i)
the time that the Certificate of Merger has been duly filed with the Secretary
of State, (ii) the acceptance for record by the SDAT of the Articles of Merger,
or (iii) such other subsequent date as is agreed upon by the parties and set
forth in the Certificate of Merger and Articles of Merger and in accordance with
the DGCL and the MGCL (the "EFFECTIVE TIME").
Section 1.3 CLOSING. Subject to the satisfaction or waiver of all of
the conditions to closing contained in Article VI hereof, the closing of the
Merger (the "CLOSING") shall take place (a) at the offices of Paul, Weiss,
Rifkind, Wharton & Garrison, New York, New York at 10:00 A.M. on the second
business day after the day on which the last to be fulfilled or waived of such
conditions (other than those conditions that by their nature are to be satisfied
at the Closing, but subject to the fulfillment or waiver of those conditions) is
satisfied or waived in accordance with this Agreement or (b) at such other place
and time or on such other date as Interstate and MeriStar may agree in writing
(the "CLOSING DATE").
Section 1.4 EFFECTS OF THE MERGER. The Merger shall have the effects
set forth in the DGCL and the MGCL. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time, all the properties,
rights, privileges, powers and franchises of Interstate shall vest in the
Surviving Corporation, and all debts, liabilities and duties of Interstate shall
become the debts, liabilities and duties of the Surviving Corporation.
Section 1.5 THE CERTIFICATE OF INCORPORATION OF THE SURVIVING
CORPORATION. The certificate of incorporation of MeriStar immediately prior to
the Effective Time shall, from and after the Effective Time, be the certificate
of incorporation of the Surviving Corporation until duly amended as provided
therein or by applicable Law, except that the Certificate of Incorporation of
MeriStar shall be amended as set forth on Annex A attached hereto (the "CHARTER
AMENDMENTS").
3
Section 1.6 THE BYLAWS OF THE SURVIVING CORPORATION. The bylaws of
MeriStar immediately prior to the Effective Time shall, from and after the
Effective Time, be the bylaws of the Surviving Corporation until duly amended as
provided therein or by applicable Law, except that the Bylaws of MeriStar shall
be amended as set forth on Annex A attached hereto (the "BYLAW AMENDMENTS").
Section 1.7 DIRECTORS OF THE SURVIVING CORPORATION. The persons
specified on Annex B to this Agreement shall, from and after the Effective Time,
be the directors of the Surviving Corporation until their respective successors
have been duly elected or appointed and qualified or until their earlier death,
resignation or removal in accordance with the certificate of incorporation and
bylaws of the Surviving Corporation.
Section 1.8 EXECUTIVE OFFICERS OF THE SURVIVING CORPORATION. The
persons specified on Annex C to this Agreement shall, from and after the
Effective Time, be the executive officers of the Surviving Corporation until
their respective successors have been duly elected or appointed and qualified or
until their earlier death, resignation or removal in accordance with the
certificate of incorporation and bylaws of the Surviving Corporation.
ARTICLE II EFFECT OF THE MERGER ON CAPITAL
STOCK; EXCHANGE OF CERTIFICATES
Section 2.1 CONVERSION OF CAPITAL STOCK. At the Effective Time, by
virtue of the Merger and without any action on the part of Interstate or the
holders of the following securities:
Section 2.2 CANCELLATION OF MERISTAR-OWNED AND SUBSIDIARY-OWNED STOCK.
All shares of Interstate Common Stock that are owned by MeriStar or any MeriStar
Subsidiary or any Interstate Subsidiary and that are issued and outstanding
immediately prior to the Effective Time shall, by virtue of the Merger and
without any action on the part of the holder of any such shares, no longer be
outstanding, shall be canceled and retired without payment of any consideration
therefor and shall cease to exist.
Section 2.3 EXCHANGE RATIO.
(a) Each share of the Class A Common Stock, par value $0.01 per share,
of Interstate (the "INTERSTATE CLASS A COMMON STOCK"), the Class B Common Stock,
par value $0.01 per share, of Interstate (the "INTERSTATE CLASS B COMMON STOCK")
and the Class C Common Stock, par value $0.01 per share, of Interstate (the
"INTERSTATE CLASS C COMMON STOCK", and together with the Interstate Class A
Common Stock and the Interstate Class B Common Stock, the "INTERSTATE COMMON
STOCK"), including, in each case, any associated rights to purchase Interstate
Series A Preferred Stock, par value $0.01 per share (the "INTERSTATE SERIES A
PREFERRED STOCK") of Interstate, under the Shareholder Rights Agreement, dated
as of July 8, 1999 and amended on August 28, 2000 and May 1, 2002, between
Interstate and American Stock Transfer and Trust Company (as amended, the
"INTERSTATE RIGHTS AGREEMENT"), shall be converted into 4.6 shares (the
"EXCHANGE RATIO") of (i) common stock, par value $0.01 per share, of the
Surviving Corporation ("SURVIVING CORPORATION COMMON STOCK"), subject to
adjustment as provided in Section 2.4 hereof and subject to the payment of cash
in lieu of fractional shares of Surviving
4
Corporation Common Stock, if any, pursuant to Section 2.2(f) hereof and (ii) the
associated rights ("MERISTAR RIGHTS") to purchase Series A Junior Participating
Preferred Stock, par value $.01 per share (the "MERISTAR SERIES A PREFERRED
STOCK"), of MeriStar, under the Preferred Share Purchase Rights Agreement, dated
July 23, 1998 and amended on December 8, 2000 and May 1, 2002, between MeriStar
and Continental Stock Transfer Trust Company (as amended, the "MERISTAR RIGHTS
AGREEMENT") (the "MERGER Consideration");
(b) At the Effective Time, all Interstate Common Stock shall no longer
be outstanding, shall be canceled and retired and shall cease to exist, and each
instrument or certificate (a "CERTIFICATE") formerly representing any Interstate
Common Stock (other than shares of Interstate Common Stock owned by Interstate
or by MeriStar, any MeriStar Subsidiary or any Interstate Subsidiary) shall
thereafter represent only the right to receive the Merger Consideration and any
distribution or dividend thereon pursuant to Section 2.2(c), in each case,
without interest.
(c) At the Effective Time, each share of MeriStar Common Stock,
including the associated MeriStar Right, issued and outstanding immediately
prior to the Effective Time, shall remain issued and outstanding and shall
continue to represent one validly issued, fully paid and nonassessable share of
the Surviving Corporation Common Stock and one associated MeriStar Right.
(d) At the Effective Time, each of the Interstate Convertible
Securities issued and outstanding immediately prior to the Effective Time, shall
remain issued and outstanding and shall be deemed to be a convertible security
of the Surviving Corporation.
Section 2.4 EXCHANGE OF CERTIFICATES.
(a) EXCHANGE AGENT. As of the Effective Time, the Surviving Corporation
shall deposit with the transfer agent for shares of the Surviving Corporation
Common Stock, or with such other bank or trust company designated by the
Surviving Corporation prior to the Effective Time and reasonably acceptable to
Interstate (the "EXCHANGE AGENT"), for the benefit of the holders of
Certificates, for exchange in accordance with this Article II through the
Exchange Agent, certificates representing the number of shares of Surviving
Corporation Common Stock (such shares of Surviving Corporation Common Stock,
together with any dividends or distributions with respect thereto to which the
holders of Certificates may be entitled pursuant to Section 2.2(c) hereof being
hereinafter referred to as the "EXCHANGE FUND") issuable pursuant to Section
2.1(b) hereof in exchange for outstanding shares of Interstate Common Stock.
(b) EXCHANGE PROCEDURES. Promptly after the Effective Time, the
Surviving Corporation shall cause the Exchange Agent to mail to each holder of
record of a Certificate (other than MeriStar, any MeriStar Subsidiary or any
Interstate Subsidiary) (i) a letter of transmittal specifying that delivery
shall be effected, and that risk of loss and title to the Certificates shall
pass, only upon delivery of the Certificates (or affidavits of loss in lieu of
Certificates) to the Exchange Agent, in a form and with other customary
provisions reasonably specified by Interstate, and (ii) instructions for
surrendering the Certificates in exchange for (A) certificates representing
shares of Surviving Corporation Common Stock, (B) cash in lieu of fractional
shares and (C) any unpaid dividends and other distributions. Upon surrender of a
5
Certificate for cancellation to the Exchange Agent together with such letter of
transmittal, duly executed, the holder of that Certificate shall be entitled to
receive in exchange (1) a certificate representing that number of whole shares
of Surviving Corporation Common Stock that the holder is entitled to receive
under this Article II, (2) a check in the amount (after giving effect to any
required tax withholding) of (x) any cash in lieu of fractional shares plus (y)
any unpaid cash dividends and any other dividends or other distributions (other
than stock dividends) that such holder has the right to receive under the
provisions of this Article II, and the Certificate so surrendered shall
immediately be canceled. No interest will be paid or accrued on any amount
payable upon due surrender of the Certificates. In the event of a transfer of
ownership of Interstate Common Stock or any Interstate Convertible Securities
that is not registered in the transfer records of Interstate, a certificate
representing the proper number of shares of Surviving Corporation Common Stock,
together with a check for any cash to be paid upon the surrender of the
Certificate and any other dividends or distributions in respect of those shares,
may be issued or paid to such transferee if the Certificate formerly
representing such Interstate Common Stock or any Interstate Convertible
Securities is presented to the Exchange Agent, accompanied by all documents
required to evidence and effect the transfer and to evidence that any applicable
stock transfer taxes have been paid. If any certificate for shares of Surviving
Corporation Common Stock is to be issued in a name other than that in which the
surrendered Certificate is registered, it shall be a condition of such exchange
that the person requesting such exchange shall pay any transfer or other taxes
required by reason of the issuance of certificates for shares of Surviving
Corporation Common Stock in a name other than that of the registered holder of
the surrendered Certificate, or shall establish to the satisfaction of the
Surviving Corporation or the Exchange Agent that such tax has been paid or is
not applicable.
(c) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED INTERSTATE COMMON STOCK.
Whenever a dividend or other distribution is declared by MeriStar or the
Surviving Corporation in respect of MeriStar Common Stock or Surviving
Corporation Common Stock and the record date for that dividend or other
distribution is at or after the Effective Time, that declaration shall include
dividends or other distributions in respect of all shares issuable under this
Agreement. No dividends or other distributions in respect of Surviving
Corporation Common Stock shall be paid to any holder of any unsurrendered
Certificate until that Certificate is surrendered for exchange in accordance
with this Article II. Subject to the effect of applicable Laws, following
surrender of any such Certificate, there shall be issued or paid to the holder
of the certificates representing whole shares of Surviving Corporation Common
Stock issued in exchange therefor, without interest, (i) at the time of such
surrender, the dividends or other distributions with a record date after the
Effective Time and a payment date on or prior to the date of issuance of such
whole shares of Surviving Corporation Common Stock and not previously paid, and
(ii) at the appropriate payment date, the dividends or other distributions
payable with respect to such whole shares of Surviving Corporation Common Stock
with a record date after the Effective Time but with a payment date subsequent
to surrender. For purposes of dividends or other distributions in respect of
shares of Surviving Corporation Common Stock, all shares of Surviving
Corporation Common Stock to be issued pursuant to the Merger shall be deemed
issued and outstanding as of the Effective Time.
(d) NO FURTHER OWNERSHIP RIGHTS IN INTERSTATE COMMON STOCK. Each
Certificate shall be deemed at any time after the Effective Time to represent
only the right to
6
receive the Merger Consideration, as contemplated by this Section 2.2. All
shares of Surviving Corporation Common Stock, together with any cash paid under
Section 2.2(c) hereof or Section 2.2(f) hereof issued upon the surrender for or
exchange of Certificates in accordance with the terms of this Agreement, shall
be deemed to have been issued in full satisfaction of all rights pertaining to
the shares of Interstate Common Stock formerly represented by such Certificates.
(e) NO FURTHER TRANSFERS. After the Effective Time, the stock transfer
books of Interstate shall be closed, and there shall be no further registration
of transfers on the records of Interstate of the shares of Interstate Common
Stock that were outstanding immediately prior to the Effective Time.
(f) FRACTIONAL SHARES. No certificates or scrip representing fractional
shares of Surviving Corporation Common Stock shall be issued upon the surrender
for exchange of Certificates, and such fractional share interest shall not
entitle its owner to vote, to receive dividends or to any other rights of a
stockholder of the Surviving Corporation. Each holder of a fractional share
interest shall be paid an amount in cash equal to the product obtained by
multiplying (A) the fractional share interest to which such holder would
otherwise be entitled (after taking into account all shares of Interstate Common
Stock held at the Effective Time by such holder) by (B) the closing price for a
share of MeriStar Common Stock as reported on the New York Stock Exchange (the
"NYSE") Composite Tape as reported by the Dow Jones News Services on the first
trading day immediately preceding the date on which the Effective Time occurs.
As promptly as practicable after the determination of the amount of cash, if
any, to be paid to the holders of fractional share interests, the Exchange Agent
shall so notify MeriStar prior to the Effective Time, or the Surviving
Corporation after the Effective Time, and MeriStar or the Surviving Corporation,
as applicable, shall deposit such amounts with the Exchange Agent (and such
amount shall become part of the Exchange Fund) and cause the Exchange Agent to
forward payments to such holders in accordance with Sections 2.2(b) and (c)
hereof.
(g) TERMINATION OF EXCHANGE FUND. Any shares of Surviving Corporation
Common Stock and any portion of the Exchange Fund or of dividends or other
distributions with respect to Surviving Corporation Common Stock deposited by
the Surviving Corporation with the Exchange Agent (including the proceeds of any
investments of those funds) that remains unclaimed by the former stockholders of
Interstate 180 days after the Effective Time shall be paid to the Surviving
Corporation. Any former stockholders of Interstate who have not theretofore
complied with this Article II shall thereafter look only to the Surviving
Corporation for payment of their Merger Consideration and any dividends and
other distributions issuable or payable pursuant to Section 2.2(c) hereof upon
due surrender of their Certificates (or affidavits of loss in lieu of
Certificates), in each case, without any interest. Notwithstanding the
foregoing, none of the Surviving Corporation, the Exchange Agent or any other
person shall be liable to any former holder of shares of Interstate Common Stock
for any amount properly delivered to a public official under applicable
abandoned property, escheat or similar Laws. If any Certificates shall not have
been surrendered prior to five years after the Effective Time (or immediately
prior to such earlier date on which any Merger Consideration in respect of such
Certificate would otherwise escheat to or become the property of any
Governmental Entity), any amounts payable in respect of such Certificate shall,
to the extent permitted by applicable Law, become the property of the Surviving
Corporation, free and clear of all claims or interests of any person
7
previously entitled to those amounts.
(h) LOST CERTIFICATES. In the event any Certificate shall have been
lost, stolen or destroyed, upon the making of an affidavit of that fact by the
person claiming such Certificate to be lost, stolen or destroyed and the posting
by such person of a bond in the form customarily required by the Surviving
Corporation as indemnity against any claim that may be made against it with
respect to such Certificate, the Exchange Agent shall issue in exchange for such
lost, stolen or destroyed Certificate the shares of Surviving Corporation Common
Stock, any unpaid dividends or other distributions and any cash payment in lieu
of a fractional share in respect of that Certificate issuable or payable under
this Article II upon due surrender thereof and deliverable in respect of the
shares of Interstate Common Stock and associated Interstate Stockholder Rights
represented by such Certificate under this Agreement, in each case, without
interest.
Section 2.5 APPRAISAL RIGHTS. In accordance with Section 3-202(c) of
the MGCL, no appraisal rights shall be available to holders of shares of
Interstate Class A Common Stock in connection with the Merger. In accordance
with Section 3-202 of the MGCL, appraisal rights shall be available to the
holders of shares of Interstate Class B Common Stock and Interstate Series B
Preferred Stock in connection with the Merger.
Section 2.6 ADJUSTMENTS TO PREVENT DILUTION. In the event that prior to
the Effective Time there is a change in the number of shares of Interstate
Common Stock or shares of the common stock, par value $0.01 per share, of
MeriStar (the "MERISTAR COMMON STOCK") or securities convertible or exchangeable
into or exercisable for shares of Interstate Common Stock or shares of MeriStar
Common Stock issued and outstanding as a result of a distribution,
reclassification, stock split (including a reverse stock split), stock dividend
or distribution or other similar transaction (other than as contemplated by this
Agreement), the Exchange Ratio shall be equitably adjusted to eliminate the
effects of that event.
Section 2.7 WITHHOLDING RIGHTS. The Surviving Corporation shall be
entitled to deduct and withhold from any amounts otherwise payable pursuant to
this Agreement to any holder of a Certificate such amounts as it is required to
deduct and withhold with respect to the making of such payment under the Code,
or any provisions of applicable Law. To the extent that amounts are so withheld
by the Surviving Corporation, such withheld amounts shall be treated for
purposes of this Agreement as having been paid to the holder of a Certificate in
respect to which such deduction and withholding was made by the Surviving
Corporation.
Section 2.8 STOCK OPTIONS.
(a) Prior to the Effective Time, MeriStar and Interstate shall take all
such actions as may be necessary to cause each outstanding Interstate Stock
Option to be automatically assumed and converted at the Effective Time into an
option (a "MERISTAR EXCHANGE OPTION") to purchase that number of shares of
Surviving Corporation Common Stock equal to the number of shares of Interstate
Common Stock issuable immediately prior to the Effective Time upon exercise of
such Interstate Stock Option (without regard to actual restrictions on
exercisability) multiplied by the Exchange Ratio, with an exercise price equal
to the exercise price that was in
8
effect under such Interstate Stock Option immediately prior to the Effective
Time divided by the Exchange Ratio, and with such MeriStar Exchange Option being
otherwise subject to the same terms and conditions as the terms and conditions
of such Interstate Stock Option immediately before the Effective Time. It is the
intention of the parties that the options so assumed by the Surviving
Corporation qualify following the Effective Time as "incentive stock options,"
as defined in Section 422 of the Code, if and to the extent such options
qualified as incentive stock options prior to the Effective Time. In connection
with the granting of MeriStar Exchange Options, the Surviving Corporation shall
(i) reserve for issuance the aggregate number of shares of Surviving Corporation
Common Stock that will become subject to MeriStar Exchange Options pursuant to
this Section 2.6, (ii) from and after the Effective Time, upon exercise of
MeriStar Exchange Options, make available for issuance all shares of Surviving
Corporation Common Stock covered thereby, subject to the terms and conditions
applicable thereto, and (iii) within 10 business days following the Effective
Time, file a registration statement with the SEC on Form S-8 covering the
issuance of shares of Surviving Corporation Common Stock upon exercise of the
MeriStar Exchange Options.
(b) Each MeriStar Stock Option granted under the MeriStar Option Plan
that is outstanding (whether or not then exercisable) as of immediately prior to
the Effective Time and that has not been exercised or canceled prior thereto,
shall, at the Effective Time, survive the Merger, be deemed exercisable only for
shares of Surviving Corporation Common Stock and continue to have, and be
subject to, the same terms and conditions as set forth in the MeriStar Option
Plan, as amended, and any relevant option agreements (as in effect immediately
prior to the Effective Time) pursuant to which it was granted.
ARTICLE III REPRESENTATIONS AND WARRANTIES OF INTERSTATE
Interstate represents and warrants to MeriStar that:
Section 3.1 ORGANIZATION AND QUALIFICATION; SUBSIDIARIES.
(a) Each of Interstate and each subsidiary of Interstate (collectively,
the "INTERSTATE SUBSIDIARIES") (i) has been duly organized and is validly
existing and in good standing under the Laws of the jurisdiction of its
incorporation or organization, as the case may be, (ii) has the requisite power
and authority and all necessary governmental approvals to own, lease and operate
its properties and to carry on its business as it is now being conducted and
(iii) is duly qualified or licensed to do business, and is in good standing, in
each jurisdiction where the character of the properties owned, leased or
operated by it or the nature of its business makes such qualification or
licensing necessary, except for such failures to have such governmental
approvals or to be so qualified or licensed and in good standing that,
individually or in the aggregate, have not resulted and could not reasonably be
expected to result in a Material Adverse Effect on Interstate.
(b) Section 3.1(b) of the disclosure letter prepared by Interstate,
dated the date hereof and delivered by Interstate to MeriStar (the "INTERSTATE
DISCLOSURE LETTER"), sets forth a complete and accurate list of each Interstate
Subsidiary, together with its jurisdiction of incorporation or organization and
the ownership or other interest therein of Interstate and of each
9
other Interstate Subsidiary. Except as set forth in Section 3.1(b) of the
Interstate Disclosure Letter, neither Interstate nor any Interstate Subsidiary
holds any capital stock or other equity interest in any person other than the
Interstate Subsidiaries so listed.
(c) Section 3.1(c) of the Interstate Disclosure Letter sets forth a
list of all agreements and other instruments executed, relating to, with respect
to or in connection with (i) the issuance of the Interstate Series B Preferred
Stock and Interstate Convertible Notes, (ii) the formation or capitalization of
CGLH-IHC Fund I, L.P. and (iii) any investing or other activities of CGLH-IHC
Fund I, L.P.
Section 3.2 CHARTER AND BYLAWS. The copies of Interstate's charter and
bylaws, each as amended through the date of this Agreement that are exhibits to
Interstate's Annual Report on Form 10-K for the year ended December 31, 2001 or
incorporated by reference therein, are complete and correct copies of those
documents. Such charter and bylaws and all comparable organizational documents
of the Interstate Subsidiaries are in full force and effect. Interstate is not
in violation of any of the provisions of such charter or bylaws.
Section 3.3 CAPITALIZATION.
(a) The authorized capital stock of Interstate consists of 64,939,361
shares of common stock, $0.01 par value per share, of which 62,000,000 shares
are Interstate Class A Common Stock, 1,500,000 shares are Interstate Class B
Common Stock, and 1,439,361 shares are Interstate Class C Common Stock, and
10,000,000 shares of preferred stock, of which 70,000 shares are designated as
Interstate Series A Preferred Stock and 850,000 shares are designated as Series
B Convertible Preferred Stock, par value $.01 per share (the "INTERSTATE SERIES
B PREFERRED STOCK"). As of the close of business on the date one business day
prior to the date hereof, (i) 5,487,885 shares of Interstate Class A Common
Stock were issued and outstanding, all of which were duly authorized, validly
issued, fully paid and nonassessable, (ii) 242,555 shares of Interstate Class B
Common Stock were issued and outstanding, all of which were duly authorized,
validly issued, fully paid and nonassessable, (iii) no shares of Interstate
Class C Common Stock were issued and outstanding, (iv) no shares of Interstate
Series A Preferred Stock were issued and outstanding, (v) 725,000 shares of
Interstate Series B Preferred Stock were issued and outstanding, all of which
were duly authorized, validly issued, fully paid and nonassessable, (vi)
1,401,983 shares of Interstate Common Stock were reserved for issuance under the
Interstate Option Plans listed in Section 3.3 of the Interstate Disclosure
Letter in the amounts stated therein and (vii) $25,000,000 in aggregate
principal amount of 8.75% Subordinated Convertible Notes due 2007 of Interstate
(the "INTERSTATE CONVERTIBLE NOTES", and together with the Interstate Series B
Preferred Stock, the "INTERSTATE CONVERTIBLE SECURITIES") were outstanding.
Except as set forth above and except for shares of Class A Common Stock reserved
for issuance upon conversion of the Interstate Convertible Securities, as of the
close of business on the date one business day prior to the date hereof, no
shares of capital stock or other voting securities of Interstate were issued,
reserved for issuance or outstanding.
(b) As of the close of business on the date one business day prior to
the date hereof, an aggregate of 646,100 options to purchase shares of
Interstate Class A Common Stock (the "INTERSTATE STOCK OPTIONS") have been
granted by Interstate and are outstanding under the
10
Interstate option plans listed in Section 3.3(b) of the Interstate Disclosure
Letter (the "INTERSTATE OPTION PLANS"). Except as set forth in Section 3.3(a)
and except as pursuant to (i) the Interstate Option Plans, (ii) the Interstate
Stockholder Rights, (iii) the terms and conditions of the presently outstanding
Interstate Convertible Securities listed on Section 3.3 of the Interstate
Disclosure Letter, and (iv) the arrangements or agreements set forth in Section
3.3(b) of the Interstate Disclosure Letter, there are no existing (A) options,
warrants, calls, preemptive rights, subscriptions, stock appreciation rights or
other rights, convertible securities, agreements, arrangements or commitments of
any character obligating Interstate or any Interstate Subsidiary to issue,
transfer or sell any shares of capital stock or other equity interest in,
Interstate or any Interstate Subsidiary or securities convertible into or
exchangeable for such shares or equity interests, (B) contractual obligations of
Interstate or any Interstate Subsidiary to repurchase, redeem or otherwise
acquire any capital stock of Interstate or any Interstate Subsidiary, or (C)
voting trusts or similar agreements to which Interstate or any Interstate
Subsidiary is a party with respect to the voting of the capital stock of
Interstate or any Interstate Subsidiary. Section 3.3(b) of the Interstate
Disclosure Letter accurately and completely sets forth, as of the date of this
Agreement, (x) the persons to whom Interstate Stock Options have been granted,
(y) the exercise price for Interstate Stock Options held by each such person,
and (z) whether such Interstate Stock Options are subject to vesting and, if
subject to vesting, the dates on which each of those Interstate Stock Options
vest.
(c) No shares of Interstate Common Stock or Interstate Series B
Preferred Stock that have been issued are, and no shares of Interstate Common
Stock subject to issuance will be, upon issuance prior to the Effective Time (on
the terms and conditions specified in the instruments under which they are
issuable) subject to preemptive rights. All shares of Interstate Common Stock
subject to issuance will be, upon issuance, duly authorized, validly issued,
fully paid, and nonassesssable. Except as set forth in Section 3.3(c) of the
Interstate Disclosure Letter, (i) there are no outstanding contractual
obligations of Interstate or any Interstate Subsidiary to repurchase, redeem or
otherwise acquire any shares of Interstate Common Stock or any capital stock of
any Interstate Subsidiary; (ii) each outstanding share of capital stock of each
Interstate Subsidiary is duly authorized, validly issued, fully paid,
nonassessable and not subject to preemptive rights and each such share owned by
Interstate or a Interstate Subsidiary is free and clear of all security
interests, liens, claims, pledges, options, rights of first refusal, agreements,
limitations on the relevant owner's voting rights, charges, easements,
restrictions, covenants, conditions of record and other encumbrances of any
nature whatsoever (each a "LIEN" and collectively, "LIENS"); and (iii) there are
no outstanding material contractual obligations of Interstate or any Interstate
Subsidiary to provide funds to, or make any investment (in the form of a loan,
capital contribution or otherwise) in any person other than a Interstate
Subsidiary that is wholly owned by Interstate. Each outstanding share of capital
stock of each Interstate Subsidiary is duly authorized, validly issued, fully
paid, nonassessable and not subject to preemptive rights.
(d) There are no accrued and unpaid dividends in respect of the
Interstate Common Stock or the Interstate Convertible Securities.
Section 3.4 AUTHORITY.
(a) Interstate has all necessary corporate power and authority to
execute and
11
deliver this Agreement and, subject only to the adoption and approval of this
Agreement and the approval of the transactions contemplated hereby (the
"INTERSTATE PROPOSALS") by the affirmative vote of (i) the holders of 2/3 of the
outstanding shares of Interstate Common Stock and (ii) the holders of Interstate
Convertible Securities representing a majority of the combined (A) aggregate
principal amount of the Interstate Convertible Notes outstanding plus (B)
aggregate stated amount of the Interstate Series B Preferred Stock outstanding
on the record date for such vote of such holders in each case, excluding
Interstate Convertible Securities held by Interstate or any of its executive
officers (the "REQUISITE INTERSTATE VOTE"), to perform its obligations under
this Agreement and to consummate the Merger and the other transactions
contemplated by this Agreement to be consummated by Interstate. The execution
and delivery of this Agreement by Interstate and the consummation by Interstate
of such transactions have been duly and validly authorized by all necessary
corporate action and no other corporate proceedings on the part of Interstate or
any Interstate Subsidiary are necessary to authorize this Agreement or to
consummate such transactions other than the adoption and approval of the
Interstate Proposals by the Requisite Interstate Vote. This Agreement has been
duly authorized and validly executed and delivered by Interstate and constitutes
a legal, valid and binding obligation of Interstate, enforceable against
Interstate in accordance with its terms.
(b) The Board of Directors of Interstate (i) has unanimously approved
and adopted the Interstate Proposals and (ii) has declared that the Merger, this
Agreement and the transactions contemplated by this Agreement are advisable and
in the best interests of Interstate and the holders of Interstate Common Stock.
Section 3.5 NO CONFLICTS.
(a) Except as set forth in Section 3.5(a) of the Interstate Disclosure
Letter, the execution and delivery of this Agreement by Interstate do not, and
the performance of this Agreement by Interstate will not:
(i) conflict with or violate any provision of Interstate's charter
or bylaws or any comparable organizational documents of any Interstate
Subsidiary;
(ii) assuming that all consents, approvals, authorizations and
other actions set forth in Section 3.6 hereof have been obtained and all
filings, applications and obligations set forth in Section 3.6 hereof have been
made, conflict with or violate any Law applicable to Interstate or any
Interstate Subsidiary or by which any property or asset of Interstate or any
Interstate Subsidiary is or may be bound or affected, except for any such
conflicts or violations that, individually or in the aggregate, have not
resulted and could not reasonably be expected to result in a Material Adverse
Effect on Interstate; or
(iii) result in any breach of or constitute a default (or an event
which with notice or lapse of time or both would become a default) under, or
give to others any right of termination, amendment, acceleration or cancellation
of, or result in the creation of a Lien on any property or asset of Interstate
or any Interstate Subsidiary under any note, bond, mortgage, indenture,
contract, agreement, partnership or joint venture agreement, commitment, lease,
license, permit, franchise or other instrument or obligation (collectively,
"CONTRACTS") to which
12
Interstate or any Interstate Subsidiary is a party or by which any of them or
their assets or properties is or may be bound or affected, except for any such
breaches, defaults or other occurrences which, individually or in the aggregate,
have not resulted and could not reasonably be expected to result in a Material
Adverse Effect on Interstate.
(b) Section 3.5(b) of the Interstate Disclosure Letter sets forth a
correct and complete list of Contracts to which Interstate or any Interstate
Subsidiary is a party or by which any of them or their assets or properties is
or may be bound or affected under which consents or waivers are or may be
required prior to consummation of or as a result of the transactions
contemplated by this Agreement in order to avoid any breach of or constitute a
default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any right of termination, amendment,
acceleration or cancellation of any such Contract, or result in the creation of
a Lien or other liens, mortgages or deeds of trust, claims against title,
charges which are liens, security interests, encroachments, survey defects,
easements, covenants or other defects in or encumbrances on title (each, an
"ENCUMBRANCE" and collectively, "ENCUMBRANCES") on any property or asset of
Interstate or any Interstate Subsidiary, except for Contracts under which such
breach, default, termination, amendment, acceleration, cancellation, Lien or
Encumbrance could not, individually or in the aggregate, reasonably be expected
to have a Material Adverse Effect on Interstate.
Section 3.6 REQUIRED FILINGS AND CONSENTS. Except as set forth in
Section 3.6 of the Interstate Disclosure Letter, the execution and delivery of
this Agreement by Interstate do not, and the performance of this Agreement by
Interstate will not, require any consent, approval, authorization or permit of,
or filing with or notification to, any domestic or foreign national, federal,
state, provincial or local governmental, regulatory or administrative authority,
agency, commission, court, tribunal or arbitral body or self-regulated entity
(each, a "GOVERNMENTAL ENTITY"), except (i) for applicable requirements of the
Securities Act of 1933, as amended (together with the rules and regulations
promulgated thereunder, the "SECURITIES ACT"), applicable requirements of the
Securities Exchange Act of 1934, as amended (together with the rules and
regulations promulgated thereunder, the "EXCHANGE ACT"), applicable requirements
of state securities or "blue sky" laws ("BLUE SKY LAWS"), the rules and
regulations of NASDAQ, applicable requirements of Takeover Statutes, applicable
state environmental statutes, the pre-merger notification requirements of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules
and regulations promulgated thereunder (the "HSR Act"), (ii) for the filing of
the Certificate of Merger as required by the DGCL, (iii) for the filing of the
Articles of Merger with the SDAT, and (iv) where failure to obtain such
consents, approvals, authorizations or permits, or to make such filings or
notifications, individually or in the aggregate, have not resulted and could not
reasonably be expected to result in a Material Adverse Effect on Interstate.
Section 3.7 PERMITS; COMPLIANCE WITH LAW. Except as set forth in
Section 3.7 of the Interstate Disclosure Letter, each of Interstate and the
Interstate Subsidiaries is in possession of all franchises, grants,
authorizations, licenses, permits, easements, variances, exceptions, consents,
certificates, registrations, approvals and orders of any Governmental Entity
necessary for Interstate or any Interstate Subsidiary to own, lease and operate
its properties or to carry on its business as it is now being conducted
(collectively, the "INTERSTATE PERMITS"), except where the failure to have any
of the Interstate Permits, individually or in the aggregate, has not resulted
and
13
could not reasonably be expected to result in a Material Adverse Effect on
Interstate, and, as of the date of this Agreement, no suspension or cancellation
of any of the Interstate Permits is pending or, to the knowledge of Interstate,
threatened, except where the failure to have, or the suspension or cancellation
of, any of the Interstate Permits, individually or in the aggregate, has not
resulted and could not reasonably be expected to result in a Material Adverse
Effect on Interstate. Neither Interstate nor any Interstate Subsidiary has been
or is, in conflict with, or in default or violation of, (i) any Law applicable
to Interstate or any Interstate Subsidiary or by which any property or asset of
Interstate or any Interstate Subsidiary is or may be bound or affected or (ii)
any Interstate Permits, except for any such conflicts, defaults or violations
that, individually or in the aggregate, have not resulted and could not
reasonably be expected to result in a Material Adverse Effect on Interstate.
Section 3.8 SEC FILINGS; FINANCIAL STATEMENTS.
(a) Interstate has filed all forms, reports, schedules, statements and
other documents (including all exhibits, annexes, supplements and amendments to
such documents) required to be filed by it under the Exchange Act and the
Securities Act since June 18, 1999, through the date of this Agreement
(collectively, as amended and supplemented to date, the "INTERSTATE SEC
REPORTS") and Interstate has made available to MeriStar each Interstate SEC
Report filed with the United States Securities and Exchange Commission (the
"SEC"). The Interstate SEC Reports, including any financial statements or
schedules included or incorporated therein by reference, at the time they were
filed or, if amended, as so amended prior to the date hereof, and all forms,
reports, schedules, statements and other documents filed with the SEC after the
date of this Agreement and prior to the Effective Time, at the time they will be
filed, (i) complied in all material respects with the requirements of the
Exchange Act or the Securities Act or both, as the case may be, applicable to
those Interstate SEC Reports and (ii) did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated or
necessary in order to make the statements made in those Interstate SEC Reports,
in the light of the circumstances under which they were made, not misleading. No
Interstate Subsidiary is subject to the periodic reporting requirements of the
Exchange Act or is otherwise required to file any documents with the SEC or any
national securities exchange or quotation service or comparable Governmental
Entity.
(b) Each of the consolidated balance sheets included in or incorporated
by reference into the Interstate SEC Reports and in any form, report or document
filed after the date of this Agreement and prior to the Effective Time
(including in each case, the related notes and schedules) fairly presented in
all material respects, the consolidated financial position of Interstate as of
the dates set forth in those consolidated balance sheets in accordance with
United States generally accepted accounting principles ("GAAP"). Each of the
consolidated statements of income and of cash flows included in or incorporated
by reference into the Interstate SEC Reports and in any form, report or document
filed after the date of this Agreement and prior to the Effective Time
(including in each case, any related notes and schedules) fairly presented in
all material respects, the consolidated results of operations and cash flows, as
the case may be, of Interstate and the consolidated Interstate Subsidiaries for
the periods set forth in those consolidated statements of income and of cash
flows (subject, in the case of unaudited quarterly statements, to notes and
normal year-end audit adjustments that will not be material in amount or
14
effect), in each case in conformity with GAAP (except, in the case of unaudited
quarterly statements, as permitted by Form 10-Q of the SEC) consistently applied
throughout the periods indicated. All of such balance sheets and statements
complied as to form in all material respects with applicable accounting
requirements and with the published rules and regulations of the SEC with
respect thereto.
(c) Except as and to the extent set forth on the consolidated balance
sheet of Interstate and the consolidated Interstate Subsidiaries as of December
31, 2001 including the related notes, neither Interstate nor any Interstate
Subsidiary has any liabilities or obligations of any nature (whether accrued,
absolute, contingent or otherwise) that would be required to be reflected on a
balance sheet or in the related notes prepared in accordance with GAAP, except
for liabilities or obligations incurred in the ordinary course of business since
December 31, 2001 that, individually or in the aggregate, have not resulted and
could not reasonably be expected to result in a Material Adverse Effect on
Interstate.
(d) Except as disclosed in Section 3.8(d) of the Interstate Disclosure
Letter, or in the "Liquidity and Capital Resources" section of the "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
contained in Interstate's most recently filed Annual Report on Form 10-K or
Quarterly Report on Form 10-Q, neither Interstate nor any Interstate Subsidiary
has off-balance sheet arrangements with any entity to (i) provide financing,
liquidity, or market or credit risk support for Interstate or any Interstate
Subsidiary; (ii) engage in leasing, hedging, or research and development
services with Interstate or any Interstate Subsidiary; or (iii) expose
Interstate or any Interstate Subsidiary to any material liability that is not
reflected on the face of the associated financial statements.
Section 3.9 ABSENCE OF CERTAIN CHANGES OR EVENTS.
(a) Except as (i) set forth in Section 3.9(a) of the Interstate
Disclosure Letter, (ii) disclosed in the Interstate SEC Reports filed with the
SEC since December 31, 2001 and which have been filed and are publicly available
prior to the date of this Agreement ("INTERSTATE FILED SEC REPORTS") or (iii)
permitted after the date hereof by Section 5.1 hereof, since December 31, 2001,
(A) Interstate and the Interstate Subsidiaries have conducted their businesses
only in the ordinary course and in a manner consistent with past practice, (B)
there has not been any Material Adverse Effect on Interstate and (C) there has
not been:
(i) any damage, destruction or other casualty loss with respect to
any asset or property owned, leased, managed or otherwise used by Interstate or
any Interstate Subsidiary, whether or not covered by insurance, which damage,
destruction or loss, individually or in the aggregate, has resulted or could
reasonably be expected to result in a Material Adverse Effect on Interstate;
(ii) any material change by Interstate in its or any Interstate
Subsidiary's accounting methods, principles or practices except as a result of
changes in GAAP;
(iii) any declaration, setting aside or payment of any dividend or
distribution in respect of Interstate Common Stock or any redemption, purchase
or other
15
acquisition of any of Interstate's securities;
(iv) any increase in the compensation or benefits or establishment
of any bonus, insurance, severance, deferred compensation, pension, retirement,
profit sharing, stock option (including the granting of stock options, stock
appreciation rights, performance awards or restricted stock awards), stock
purchase or other employee benefit plan, or any other increase in the
compensation payable or to become payable to any executive officers of
Interstate or any Interstate Subsidiary except in the ordinary course of
business consistent with past practice or except as required by applicable Law;
(v) (A) any incurrence or assumption by Interstate or any
Interstate Subsidiary of any indebtedness for borrowed money or (B) any
guarantee, endorsement or other incurrence or assumption of material liability
(whether directly, contingently or otherwise) by Interstate or any Interstate
Subsidiary for the obligations of any other person (other than any wholly owned
Interstate Subsidiary), other than in the ordinary course of business consistent
with past practice and individually not in excess of $100,000;
(vi) any creation or assumption by Interstate or any Interstate
Subsidiary of any Lien on any material asset of Interstate or any Interstate
Subsidiary, other than in the ordinary course of business, consistent with past
practice;
(vii) any making of any loan, advance or capital contribution to
or investment in any person (including an employee or director of Interstate or
any Interstate Subsidiary) by Interstate or any Interstate Subsidiary (other
than to Interstate or any Interstate Subsidiary), other than in the ordinary
course of business, consistent with past practice and individually not in excess
of $50,000;
(viii) any contract or agreement entered into by Interstate or any
Interstate Subsidiary relating to any material acquisition or disposition of any
assets or business;
(ix) any modification, amendment, assignment or termination of or
relinquishment by Interstate or any Interstate Subsidiary of any rights under
any Contract (including any insurance policy naming it as a beneficiary or a
loss payable payee) that has resulted or could reasonably be expected to result
in, individually or in the aggregate, a Material Adverse Effect on Interstate
other than transactions, commitments, contracts or agreements in the ordinary
course of business consistent with past practice or those contemplated by this
Agreement; or
(x) any contract, license or other agreement entered into by
Interstate or any Interstate Subsidiary that contains (A) any "change of
control" provision that would be triggered by, (B) any provision that would
cause the termination or adverse modification of such contract as a result of,
or (C) any prohibition on transfer that would be violated or breached by, in
each case, the execution and delivery of this Agreement or the consummation of
the transactions contemplated hereby that has resulted or could reasonably be
expected to result in, individually or in the aggregate, a Material Adverse
Effect on Interstate.
16
Section 3.10 EMPLOYEE BENEFIT PLANS; LABOR MATTERS.
(a) Each employee benefit plan, program and arrangement, and each
employment, termination, severance or other employee benefit contract or
agreement, with respect to which Interstate, any of the Interstate Subsidiaries
or any other entity that is treated as a single employer with Interstate or any
of the Interstate Subsidiaries under Section 4001 of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), or Section 414 of the Code
(each, a "INTERSTATE ERISA GROUP MEMBER") has any obligation or which are
maintained, contributed to or sponsored by a Interstate ERISA Group Member for
the benefit of any current or former employee, officer or director of a
Interstate ERISA Group Member under which plan, program, arrangement, contract
or agreement total payments of more than $25,000 may be required to be made by a
Interstate ERISA Group Member (collectively, the "INTERSTATE BENEFIT PLANS") are
listed on Section 3.10(a) of the Interstate Disclosure Letter. Except for those
matters listed on Section 3.10(a) of the Interstate Disclosure Letter and such
matters as, individually or in the aggregate, have not and could not reasonably
be expected to result in a Material Adverse Effect on Interstate:
(i) each Interstate Benefit Plan and any related trust intended to
be qualified under Sections 401(a) and 501(a) of the Code has received a
favorable determination letter from the Internal Revenue Service (the "IRS")
that it is so qualified, and to the knowledge of Interstate, nothing has
occurred since the date of such letter that could materially adversely affect
the qualified status of such Interstate Benefit Plan or related trust;
(ii) each Interstate Benefit Plan has been operated in accordance
with its terms and the requirements of ERISA, the Code and other applicable Law,
and all reporting, filing and disclosure obligations imposed under ERISA, the
Code and other applicable Law have been satisfied with respect to each
Interstate Benefit Plan;
(iii) no Interstate ERISA Group Member has incurred any direct or
indirect liability arising out of a violation of Title I of ERISA or comparable
provisions of the Code, or under, arising out of or by operation of Title IV of
ERISA or comparable provisions of the Code, in connection with any Interstate
Benefit Plan or other retirement plan or arrangement, and to the knowledge of
Interstate, no fact or event exists that could reasonably be expected to give
rise to any such liability;
(iv) all contributions and/or insurance premium payments due and
payable on or before the date hereof in respect of each Interstate Benefit Plan
have been made in full and in proper form;
(v) no Interstate ERISA Group Member has ever sponsored or been
obligated to contribute to any "multiemployer plan" (as defined in Sections
3(37) and 4001(a)(3) of ERISA), "multiple employer plan" (as defined in Section
210 of ERISA and Section 413 of the Code) or "defined benefit plan" (as defined
in Section 3(35) of ERISA);
(vi) no Interstate ERISA Group Member would incur withdrawal
liability (within the meaning of Part 1 of Subtitle E of Title I of ERISA) if it
withdrew (within the
17
meaning of Part 1 of Subtitle E of Title I of ERISA) from each Interstate
Benefit Plan that is a "multiemployer plan" (as defined in Sections 3(37) and
4001(a)(3) of ERISA);
(vii) no Interstate Benefit Plan has or has incurred an
accumulated funding deficiency within the meaning of Section 302 of ERISA and
Section 412 of the Code, nor has any waiver of the minimum funding standards of
Section 302 of ERISA and Section 412 of the Code been requested of or granted by
the IRS with respect to any Interstate Benefit Plan, nor has any lien in favor
of any Interstate Benefit Plan arisen under Section 412(n) of the Code or
Section 302(f) of ERISA;
(viii) except as otherwise required under ERISA, the Code and
other applicable Law, no Interstate Benefit Plan currently or previously
maintained by Interstate or any of the Interstate Subsidiaries provides any
post-retirement health or life insurance benefits in the future;
(ix) no Interstate Benefit Plan is or at any time was funded
through a "welfare benefit fund" (as defined in Section 419(e) of the Code), and
no benefits under any Interstate Benefit Plan are or at any time have been
provided through a voluntary employees' beneficiary association (within the
meaning of Section 501(c)(9) of the Code) or a supplemental unemployment benefit
plan (within the meaning of Section 501(c)(17) of the Code);
(x) with respect to any insurance policy providing funding for
benefits under any Interstate Benefit Plan, there is no liability of Interstate
or any of the Interstate Subsidiaries in the nature of a retroactive rate
adjustment, loss sharing arrangement or other actual or contingent liability,
nor would there be any such liability if such insurance policy was terminated on
the date hereof;
(xi) there is no pending or, to the knowledge of Interstate,
threatened litigation, assessment, complaint, proceeding or investigation of any
kind in any court or from any Governmental Entity or other person with respect
to any Interstate Benefit Plan (other than routine claims for benefits), nor is
there, to the knowledge of Interstate, any basis for one;
(xii) the disallowance of a deduction under Section 162(m) of the
Code for employee remuneration will not apply to any amount paid or payable by
Interstate or any of the Interstate Subsidiaries under any Interstate Benefit
Plan; and
(xiii) neither the execution and delivery of this Agreement nor
the consummation of the transactions contemplated hereby will (A) result in the
payment of separation, severance, termination, "golden parachute" or
similar-type benefits to any person, (B) increase any benefits otherwise payable
under any Interstate Benefit Plan or otherwise, (C) result in any acceleration
of the time of payment or vesting of any benefits, (D) trigger a requirement for
funding or the acceleration of funding of any benefits or (E) commence a period
during which a subsequent termination of employment by an employee of Interstate
or any Interstate Subsidiary will entitle such employee to benefits in excess of
what would otherwise have been required in the absence of the transactions
contemplated hereby.
18
(b) Interstate has made available to MeriStar a complete and accurate
copy of each Interstate Benefit Plan (or a written summary in the case of an
unwritten Interstate Benefit Plan) and a complete and accurate copy of each
material document prepared in connection with each such Interstate Benefit Plan,
including without limitation, a copy of (i) each trust or other funding
arrangement, if any, (ii) each summary plan description and summary of material
modifications, if any, (iii) the most recently filed IRS Form 5500, if any, (iv)
the most recently received IRS determination letter, if any, and (v) the most
recently prepared actuarial report and financial statement, if any.
(c) Except as set forth in Section 3.10(c) of the Interstate Disclosure
Letter, (i) there are no leased employees within the meaning of Section 414(n)
of the Code who perform services for any Interstate ERISA Group Member and (ii)
neither Interstate nor any of the Interstate Subsidiaries is a party to, or is
bound by, any collective bargaining agreement, contract or other agreement or
understanding with a labor union or other labor union organization. Interstate
has made available true, correct and complete copies of all such agreements to
MeriStar. Except as set forth in Section 3.10(c) of the Interstate Disclosure
Letter and except as individually or in the aggregate, has not resulted and
could not reasonably be expected to result, in a Material Adverse Effect on
Interstate, (A) currently there are no organizational campaigns, petitions or
other unionization activities seeking recognition of a collective bargaining
unit which could affect Interstate or any Interstate Subsidiary; (B) there are
no controversies, strikes, slowdowns or work stoppages pending or, to the
knowledge of Interstate, after due inquiry, threatened between Interstate or any
of the Interstate Subsidiaries and any of their respective employees, and
neither Interstate nor any of the Interstate Subsidiaries has experienced any
such controversy, strike, slowdown or work stoppage within the past three years;
(C) neither Interstate nor any of the Interstate Subsidiaries has breached or
otherwise failed to comply with the provisions of any collective bargaining or
union contract and there are no grievances outstanding against Interstate or any
Interstate Subsidiary under any such agreement or contract; and (D) there are no
unfair labor practice complaints pending against Interstate or any of the
Interstate Subsidiaries before the National Labor Relations Board or any other
Governmental Entity or any current union representation questions involving
employees of Interstate or any of the Interstate Subsidiaries.
Section 3.11 CONTRACTS; DEBT INSTRUMENTS. Except for the Contracts set
forth in Section 3.11 of the Interstate Disclosure Letter, true, correct and
complete copies of which have been made available to MeriStar, there is no
Contract that is material to the business, financial condition or results of
operations of Interstate and the Interstate Subsidiaries taken as a whole. Each
of the Contracts to which Interstate or any Interstate Subsidiary is a party or
by which it or any of its properties or assets is or may be bound or affected,
constitutes a valid and legally binding obligation of Interstate or such
Interstate Subsidiary and, to the knowledge of Interstate, of the other parties
thereto, enforceable in accordance with its terms, and is in full force and
effect, except to the extent the failure to be so valid, binding or enforceable,
individually or in the aggregate, has not and could not reasonably be expected
to result in a Material Adverse Effect on Interstate. Except as set forth in
Section 3.11 of the Interstate Disclosure Letter, neither Interstate nor any
Interstate Subsidiary, nor to Interstate's knowledge, any other person, is in
violation of or in default under (nor does there exist any condition which with
the passage of time or the giving of notice would cause such a violation of or
default under) any Contract to which Interstate or
19
any Interstate Subsidiary is a party or by which it or any of its properties or
assets is or may be bound or affected, except for violations or defaults that,
individually or in the aggregate, have not resulted and could not reasonably be
expected to result in a Material Adverse Effect on Interstate. Section 3.11 of
the Interstate Disclosure Letter sets forth, with respect to all long-term debt
of Interstate and the Interstate Subsidiaries (the "INTERSTATE LONG-TERM DEBT"),
(i) the agreement under which such debt was incurred, (ii) the borrowers of such
debt, (iii) the principal amounts drawn under such agreement, (iv) the
weighted-average interest rate applicable to such debt and (vi) any other
material changes to such debt since December 31, 2001.
Section 3.12 LITIGATION. Except as set forth in Section 3.12 of the
Interstate Disclosure Letter, and except as specifically described in Item 3 of
Interstate's Annual Report on Form 10-K for the year ended December 31, 2001, as
amended on April 19, 2002, there are no suits, claims, actions, proceedings or
investigations (collectively, "CLAIMS") that are uninsured (in whole or in
part), pending or, to the knowledge of Interstate, threatened against Interstate
or any Interstate Subsidiary before any Governmental Entity that, if adversely
determined, individually or in the aggregate, have resulted or could reasonably
be expected to result in a Material Adverse Effect on Interstate. Neither
Interstate nor any Interstate Subsidiary is subject to any outstanding orders,
writs, injunctions or decrees which, individually or in the aggregate, have
resulted or could reasonably be expected to result in a Material Adverse Effect
on Interstate.
Section 3.13 ENVIRONMENTAL MATTERS. Except (i) as has not, individually
or in the aggregate, resulted and could not, individually or in the aggregate,
reasonably be expected to result in a Material Adverse Effect on Interstate,
(ii) as set forth in Section 3.13 of the Interstate Disclosure Letter, or (iii)
as disclosed in Interstate Filed SEC Reports:
(a) Interstate and the Interstate Subsidiaries (i) are in compliance
with all applicable Environmental Laws, (ii) hold all necessary Environmental
Permits under those Environmental Laws and (iii) are in compliance with their
respective Environmental Permits;
(b) none of Interstate, any Interstate Subsidiary, and their respective
predecessors has received any request for information or been notified in
writing that it is a potentially responsible party, under CERCLA or any similar
law of any state, locality, or any other jurisdiction;
(c) none of Interstate, any Interstate Subsidiary and their respective
predecessors has entered into or agreed to any consent decree or order or is
subject to any outstanding judgment, decree or judicial order relating to
compliance with Environmental Laws, Environmental Permits or the investigation,
sampling, monitoring, treatment, remediation, removal or cleanup of Hazardous
Substances with any Governmental Entity and, to the knowledge of Interstate, no
investigation, litigation or other proceeding is pending or threatened with
respect thereto; and, to the knowledge of Interstate, no condition exists on any
property currently or formerly operated by Interstate or any Interstate
Subsidiary that is reasonably likely to lead to such investigation, litigation
or proceeding;
(d) none of the real property currently or formerly owned or leased by
Interstate or any Interstate Subsidiary is listed or, to the knowledge of
Interstate, proposed for
20
listing on the "National Priorities List" under CERCLA or CERCLIS (as defined in
CERCLA), as updated through the date of this Agreement, or any similar list of
sites in the United States or any other jurisdiction requiring investigation or
cleanup; and
(e) MeriStar has been provided access to all reports in Interstate's
possession or control assessing the environmental condition of Interstate's
current and former owned properties, which reports are listed in Section 3.13(e)
of the Interstate Disclosure Letter; and
(f) For purposes of this Agreement:
(i) "ENVIRONMENTAL LAW" shall mean any environmental or health and
safety-related law, regulation, rule, ordinance, by-law, order, or determination
of any Governmental Entity or judicial authority at the federal, state, or local
level, whether existing as of the date hereof, previously enforced, or
subsequently enacted;
(ii) "ENVIRONMENTAL PERMIT" shall mean any permit, license,
approval, consent, or authorization issued by a federal, state, or local
Governmental Entity pursuant to an Environmental Law;
(iii) "HAZARDOUS SUBSTANCE" means any element, compound, substance
or material of any nature whatsoever (including, without limitation, any
product) that is listed, classified or regulated pursuant to any Environmental
Law or the subject of regulatory action by any Governmental Entity pursuant to
any Environmental Law, including, without limitation, any petroleum product,
by-product or additive, asbestos-containing material, polychlorinated biphenyl,
radioactive materials, volatile organic compound, or hazardous air pollutant.
Section 3.14 INTELLECTUAL PROPERTY.
(a) DISCLOSURE.
(i) Section 3.14(a)(i) of the Interstate Disclosure Letter sets
forth all United States and foreign: (A) patents and patent applications, (B)
trademarks, trade names, brand names and corporate names, and all service marks,
registrations and applications thereof, (C) Internet domain name registrations
and applications and (D) copyright registrations and applications owned or
licensed by Interstate or the Interstate Subsidiaries, in each case described in
clauses (A) through (D), that are material to the business and operations of
Interstate or the Interstate Subsidiaries as presently conducted, specifying as
to each item, as applicable: (1) the nature of the item, including the title;
(2) the owner of the item; (3) the jurisdictions in which the item is issued or
registered or in which an application for issuance or registration has been
filed; and (4) the issuance, registration or application numbers and dates.
(ii) Section 3.14(a)(ii) of the Interstate Disclosure Letter sets
forth all material licenses, sublicenses, and other agreements or permissions
("IP LICENSES") under which Interstate or any of the Interstate Subsidiaries is
a licensor or licensee or otherwise is authorized to use or practice any
Intellectual Property except for hotel franchise agreements pursuant to which
Interstate or any Interstate Subsidiary, as hotel manager or as lessee, is
granted the right to use the intellectual property of the franchisor. Except as
set forth in Section 3.14(a)(ii) of the
21
Interstate Disclosure Letter, no person has a right to receive a royalty or
similar payment in respect of any Intellectual Property used by Interstate or
the Interstate Subsidiaries, whether pursuant to any contractual arrangements
entered into by Interstate or any Interstate Subsidiary or otherwise. For
purposes of this Agreement, "INTELLECTUAL PROPERTY" means all of the following
as they exist in all jurisdictions throughout the world, in each case, to the
extent owned by, licensed to, or otherwise used by Interstate or the Interstate
Subsidiaries or MeriStar or the MeriStar Subsidiaries, as applicable: (A)
patents, patent applications, and other patent rights (including any divisions,
continuations, continuations-in-part, substitutions, or reissues thereof,
whether or not patents are issued on any such applications and whether or not
any such applications are modified, withdrawn, or resubmitted); (B) trademarks,
service marks, trade dress, trade names, brand names, designs, logos, or
corporate names, whether registered or unregistered, and all registrations and
applications for registration thereof; (C) copyrights, including all renewals
and extensions, copyright registrations and applications for registration, and
non-registered copyrights; (D) trade secrets, concepts, ideas, designs,
research, processes, procedures, techniques, methods, know-how, data, mask
works, discoveries, inventions, modifications, extensions, improvements, and
other proprietary rights (whether or not patentable or subject to copyright,
mask work, or trade secret protection) (collectively, "TECHNOLOGY"); (E)
computer software programs, including all source code, object code, and
documentation related thereto (the "Software") and (F) Internet addresses,
domain names, web sites, web pages and similar rights and items.
(iii) Section 3.14(a)(iii) of the Interstate Disclosure Letter
sets forth and describes the status, as of the date of this Agreement, of any
material agreements involving Intellectual Property currently in negotiation or
proposed ("PROPOSED INTELLECTUAL PROPERTY AGREEMENTS") by Interstate or the
Interstate Subsidiaries.
(b) OWNERSHIP. Except as set forth in Section 3.14(b) of the Interstate
Disclosure Letter, Interstate or the Interstate Subsidiaries exclusively own the
entire right, title and interest to (or otherwise have the right to use pursuant
to a valid license, sublicense or other agreement), free and clear of all Liens,
and have the unrestricted right to use, sell or license (subject to any such
license terms, as applicable) all Intellectual Property, and have the right to
bring actions for infringement of all of their owned Intellectual Property,
except, with respect to any of the above, where the failures to so own or have
such rights, individually or in the aggregate, have not resulted and could not
reasonably be expected to result in a Material Adverse Effect on Interstate.
(c) CLAIMS. Except as set forth in Section 3.14(c) of the Interstate
Disclosure Letter, neither Interstate nor any of the Interstate Subsidiaries has
been, during the three years preceding the date of this Agreement, a party to
any Claim, nor, to the knowledge of Interstate, is any Claim threatened, that
challenges the validity, enforceability, ownership, or right to use, sell, or
license any of its Intellectual Property, except for Claims that, individually
or in the aggregate, have not resulted and could not reasonably be expected to
result in a Material Adverse Effect on Interstate. To the knowledge of
Interstate, no third party is infringing upon or otherwise violating any
Intellectual Property of Interstate or any of the Interstate Subsidiaries,
except for infringements or violations that, individually or in the aggregate,
have not resulted and could not reasonably be expected to result in a Material
Adverse Effect on Interstate. To the knowledge of
22
Interstate, none of the Intellectual Property owned, licensed or used by it or
any Interstate Subsidiary infringes upon or otherwise violates any intellectual
property rights of others.
(d) ADMINISTRATION AND ENFORCEMENT. Interstate and the Interstate
Subsidiaries have taken all necessary and desirable actions to maintain and
protect each item of Intellectual Property owned by Interstate or any Interstate
Subsidiary, except for failures to take such actions that, individually or in
the aggregate, have not resulted and could not reasonably be expected to result
in a Material Adverse Effect on Interstate. To the knowledge of Interstate, all
of the Intellectual Property rights of Interstate and the Interstate
Subsidiaries are valid and enforceable.
(e) PROTECTION OF TRADE SECRETS AND TECHNOLOGY. Without limiting the
generality of Section 3.14(d) hereof, Interstate and the Interstate Subsidiaries
have taken all reasonable precautions to protect the secrecy, confidentiality,
and value of their trade secrets and the proprietary nature and value of their
Technology and other Intellectual Property, except for failures to take such
precautions that, individually or in the aggregate, have not resulted and could
not reasonably be expected to result in a Material Adverse Effect on Interstate.
(f) EFFECT OF TRANSACTION. Neither Interstate nor any of the Interstate
Subsidiaries is, nor, as a result of the execution and delivery of this
Agreement or its performance of its obligations hereunder, will be, in violation
of any agreement relating to any Intellectual Property, except for violations
that, individually or in the aggregate, could not reasonably be expected to
result in a Material Adverse Effect on Interstate. After the completion of the
transactions contemplated by this Agreement, Interstate and the Interstate
Subsidiaries will continue to own all right, title, and interest in and to or
have a license to use all their Intellectual Property on identical terms and
conditions as Interstate and the Interstate Subsidiaries enjoyed immediately
prior to such transactions, except for failures to own or have available for use
that, individually or in the aggregate, have not resulted and could not
reasonably be expected to result in a Material Adverse Effect on Interstate.
Section 3.15 TAXES. Except as set forth in Section 3.15 of the
Interstate Disclosure Letter and except as has not had and could not reasonably
be expected to have, individually or in the aggregate, a Material Adverse Effect
on Interstate:
(a) Interstate and each Interstate Subsidiary has timely filed or
caused to be filed all Tax Returns required to be filed by or with respect to
it, its operations and assets, and has paid or caused to be paid or, in respect
of Taxes not yet due, has accrued, all Taxes shown thereon as owing. All Tax
Returns filed by Interstate or any Interstate Subsidiary were prepared in
compliance with all applicable Laws and regulations and were true, complete, and
correct in all respects as of the date on which they were filed or as
subsequently amended to the date hereof. Complete copies of federal, state,
local, and foreign Tax Returns of Interstate and each Interstate Subsidiary for
each of the years ended 2000 and 1999 have heretofore been delivered or made
available to MeriStar. Prior to the date hereof, Interstate has provided to
MeriStar copies of all revenue agents' reports and other written assertions of
deficiencies or other liabilities for Taxes of Interstate and each Interstate
Subsidiary with respect to past periods for which the applicable statute of
limitations has not expired. As used in this Agreement, (i) "TAX" or "TAXES"
shall mean all taxes of any kind, charges, fees, customs, duties, imposts,
levies or other
23
assessments, including, without limitation, all net income, gross receipts, ad
valorem, value added, transfer, gains, franchise, profits, inventory, net worth,
capital stock, asset, sales, use, license, estimated withholding, payroll,
transaction, capital, employment, social security, workers compensation,
unemployment, excise, any interest and any penalties, additions to tax or
additional amounts, imposed by any taxing authority (domestic or foreign) and
shall include any transferee liability in respect of Taxes; and (ii) "TAX
RETURNS" shall mean all returns, reports, or similar statements required to be
filed with respect to any Tax (including any attached schedules), including,
without limitation, information returns, claims for refund, amended returns, or
declarations of estimated Tax.
(b) Interstate and each Interstate Subsidiary has timely paid or caused
to be paid all Taxes for which a notice of, or assessment or demand for, payment
has been received or which are otherwise due and payable with respect to
Interstate or any Interstate Subsidiary, its operations and assets, except for
Taxes that are being contested in good faith by appropriate proceedings (all of
which are disclosed on Section 3.15(b) of the Interstate Disclosure Letter) and
for payment of which Taxes adequate reserves will have been set up as of the
Closing Date.
(c) Interstate and each of the Interstate Subsidiaries has complied
with all applicable Laws, rules, and regulations relating to the withholding of
Taxes and has timely collected or withheld and paid over to the proper
governmental authorities all amounts shown to be owing or withheld on its Tax
Returns and paid over for all prior periods under all applicable Laws.
(d) There are no outstanding agreements, waivers, or arrangements
extending the statutory period of limitations for the assessment or collection
of Taxes with respect to any Tax Return that relates to Interstate or any
Interstate Subsidiary, which waivers or extensions currently are in effect, and
no request for any such waiver or extension is currently pending.
(e) There are no Tax rulings, request for rulings, or closing
agreements relating specifically to Interstate or any Interstate Subsidiary
which could affect its liability for Taxes for any period after the Closing
Date.
(f) No action, suit, proceeding, investigation, audit, claim, or
assessment is presently pending or to the knowledge of Interstate, proposed with
regard to any Taxes that relate to Interstate or any Interstate Subsidiary for
which Interstate or any Interstate Subsidiary would or could be liable. None of
Interstate or any Interstate Subsidiary has received a request from any taxing
authority for information with respect to Taxes of Interstate or the Interstate
Subsidiaries. Neither Interstate nor any Interstate Subsidiary has any knowledge
of any fact or condition that, if known to any taxing authority having
jurisdiction, would likely result in the issuance of a notice of proposed
deficiency or similar notice of intention to assess Taxes against Interstate or
the Interstate Subsidiaries, and no issue has arisen in any examination of
Interstate or the Interstate Subsidiaries by any taxing authority that if raised
with respect to any other period not so examined would result in a material
deficiency for any other period not so examined, if upheld.
(g) Neither Interstate nor any of the Interstate Subsidiaries (i) has
agreed to or is required to make any adjustment pursuant to Section 481 of the
Code (or any predecessor or
24
similar provision of other Laws or regulations) by reason of a change in
accounting method or otherwise; (ii) has knowledge that any taxing authority has
proposed any such adjustment or change which proposal is currently pending; or
(iii) has an application pending with any taxing authority requesting permission
for any change in accounting methods that relates to its business and
operations.
(h) Neither Interstate nor any Interstate Subsidiary (i) is a party to,
is bound by, or has any obligation under, any Tax sharing agreement or similar
contract, (ii) has any current or potential contractual obligation to indemnify
any other person with respect to Taxes, or (iii) has any obligation to make
distributions in respect of Taxes.
(i) No Taxes are delinquent or constitute a lien (other than with
respect to Taxes which are not yet due and payable) against Interstate or any
Interstate Subsidiary, except with respect to Taxes being contested in good
faith by appropriate proceedings (all of which are disclosed on Section 3.15(i)
of the Interstate Disclosure Letter) and for payment of which Taxes adequate
reserves have been established.
(j) There is no contract, agreement, plan, or arrangement covering any
person that, individually or collectively, could give rise to the payment of any
amount that would not be deductible by Interstate or any Interstate Subsidiary
by reason of Section 280G of the Code.
(k) The unused "net operating losses" (as defined in Section 172 of the
Code) of Interstate and each Interstate Subsidiary as reflected on the
applicable Tax Returns, and the years in which all such net operating losses
arose and will expire are set forth on Section 3.15(k) of the Interstate
Disclosure Letter.
(l) To the knowledge of Interstate, no property of Interstate or any
Interstate Subsidiary is "tax-exempt use property" within the meaning of Section
168 of the Code.
(m) Neither Interstate nor, to the knowledge of Interstate, any of its
affiliates has taken or agreed to take any action, nor is Interstate aware of
any agreement, plan or other circumstance, that would prevent the Merger from
constituting a transaction qualifying as a reorganization under Section 368(a)
of the Code.
(n) Neither Interstate nor any Interstate Subsidiary has been either a
distributing or controlled corporation within the meaning of Section 355 of the
Code within the two years preceding the date of this Agreement.
Section 3.16 NON-COMPETITION AGREEMENTS.
(a) Section 3.16(a) of the Interstate Disclosure Letter sets forth a
complete and accurate list of any Contract to which Interstate or any Interstate
Subsidiary is a party which purports to restrict or prohibit Interstate or any
Interstate Subsidiary collectively from, directly or indirectly, engaging in any
business currently engaged in by Interstate, any Interstate Subsidiary or any
other persons affiliated with Interstate. Except as set forth in Section 3.16(a)
of the Interstate Disclosure Letter or as has not had and could not reasonably
be expected to have, individually or in the aggregate, a Material Adverse Effect
on Interstate, neither Interstate nor any
25
Interstate Subsidiary is a party to any Contract which purports to restrict or
prohibit Interstate or any Interstate Subsidiary collectively from, directly or
indirectly, engaging in any business currently engaged in by Interstate, any
Interstate Subsidiary or any other persons affiliated with Interstate and none
of Interstate's officers, directors or key employees is a party to any agreement
which, by virtue of such person's relationship with Interstate, restricts
Interstate or any Interstate Subsidiary or affiliate of either of them from,
directly or indirectly, engaging in any of the businesses described above.
(b) Assuming the completeness and accuracy of the list of names and
addresses of the properties contained in Section 4.29(a) of the MeriStar
Disclosure Letter, Section 3.16(b) of the Interstate Disclosure Letter sets
forth a complete and accurate list of each management agreement, franchise
agreement or other agreement to which Interstate or any Interstate Subsidiary is
a party that contains any restrictions on engaging in any business (or the
geographical scope of such business) currently engaged in by Interstate, any
Interstate Subsidiary, any other persons affiliated with Interstate or by
MeriStar, any MeriStar Subsidiary or any other persons affiliated with MeriStar,
in each case, that would be breached or violated or that would result in the
restriction or termination of such management agreement as a result of the
execution, delivery or performance of this agreement or the consummation of the
transactions contemplated hereby.
Section 3.17 AGREEMENTS WITH REGULATORY AGENCIES. Except as set forth
in Section 3.17 of the Interstate Disclosure Letter, neither Interstate nor any
Interstate Subsidiary is subject to any cease-and-desist or other order issued
by, or is a party to any written agreement, consent agreement or memorandum of
understanding with, or is a party to any commitment letter or similar
undertaking to, or is subject to any order or directive by, or is a recipient of
any extraordinary supervisory letter from, or has adopted any board resolutions
at the request of (each, whether or not listed in Section 3.17 of the Interstate
Disclosure Letter, a "INTERSTATE REGULATORY AGREEMENT" ), any Governmental
Entity that restricts the conduct of its business, except for any Interstate
Regulatory Agreements that, individually or in the aggregate, have not resulted
and could not reasonably be expected to result in a Material Adverse Effect on
Interstate. Neither Interstate nor any Interstate Subsidiary has been advised by
any Governmental Entity that such Governmental Entity is considering issuing or
requesting any Interstate Regulatory Agreement, except for any such proposed
Interstate Regulatory Agreements that, individually or in the aggregate, could
not reasonably be expected to result in a Material Adverse Effect on Interstate.
Section 3.18 OPINION OF FINANCIAL ADVISOR. Merrill Lynch & Co. (the
"INTERSTATE FINANCIAL ADVISOR") has delivered to the Board of Directors of
Interstate its opinion to the effect that, as of the date of this Agreement, the
Transaction (as defined therein) is fair, from a financial point of view, to the
holders of Interstate Common Stock, other than the Investor, whether or not the
Merger is consummated, which opinion will be accompanied by an authorization to
include a copy of such opinion in the Proxy Materials. Interstate will deliver
to MeriStar a signed copy of the written opinion for informational purposes only
promptly after receipt by Interstate of such opinion.
Section 3.19 BROKERS. No broker, finder, investment banker or financial
advisor other than the
26
Interstate Financial Advisor is entitled to any brokerage, finder's or other
fee or commission in connection with the Merger or the other transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
Interstate or any of the Interstate Subsidiaries or their affiliates. Prior to
the date of this Agreement, Interstate has made available to MeriStar a complete
and correct copy of all agreements between Interstate or any of the Interstate
Subsidiaries or their affiliates and the Interstate Financial Advisor under
which the Interstate Financial Advisor would be entitled to any payment relating
to the Merger or such other transactions.
Section 3.20 CERTAIN STATUTES. The Board of Directors of Interstate has
taken or will take all appropriate and necessary actions to ensure that the
restrictions on business combinations in Sections 3-602 and 3-603 of the MGCL
will not have any effect on the Merger or the other transactions contemplated by
this Agreement. No "fair price," "moratorium," "control share acquisition" or
other similar state or federal anti-takeover statute or regulation (each a
"TAKEOVER STATUTE") is, as of the date of this Agreement, applicable to the
Merger or such other transactions.
Section 3.21 INFORMATION. None of the information to be supplied by
Interstate or any Interstate Subsidiary for inclusion or incorporation by
reference in the Proxy Statement or the Registration Statement will, in the case
of the Registration Statement, at the time it becomes effective and at the
Effective Time, contain any untrue statement of a material fact or omit to state
any material fact required to be stated in the Registration Statement or
necessary to make the statements in the Registration Statement not misleading in
light of the circumstances under which they were made, or, in the case of the
Proxy Statement or any amendments of or supplements to the Proxy Statement, at
the time of the mailing of the Proxy Statement and any amendments of or
supplements to the Proxy Statement and at the time of the Interstate
Stockholders Meeting and the MeriStar Stockholders Meeting, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated in the Proxy Statement or necessary in order to make the statements in
the Proxy Statement, in light of the circumstances under which they are made,
not misleading. The Proxy Statement (except for those portions of the Proxy
Statement that relate only to MeriStar or the MeriStar Subsidiaries or
affiliates of MeriStar) will comply as to form in all material respects with the
provisions of the Exchange Act.
Section 3.22 VOTE REQUIRED. The Requisite Interstate Vote is the only
vote of the holders of any class or series of Interstate's capital stock
necessary (under the rules and regulations of the NASDAQ, Interstate's charter
and bylaws, the MGCL, other applicable Law or otherwise) to approve this
Agreement, the Merger or the other transactions contemplated by this Agreement.
Section 3.23 PROPERTIES.
(a) Section 3.23(a)(i) of the Interstate Disclosure Letter sets forth a
complete and accurate list and the address or description of all real property
owned or leased by Interstate or any Interstate Subsidiary (collectively, and
including all buildings, structures and other improvements and fixtures located
on or under such land and all easements, rights and other appurtenances to such
land, the "INTERSTATE PROPERTIES"). (1) For those Interstate Properties to which
Interstate or a Interstate Subsidiary owns fee simple title, such owner owns
good, marketable and insurable fee simple title to such Interstate Property, and
(2) for those Interstate
27
Properties leased by Interstate or a Interstate Subsidiary, such lessee holds
valid leasehold title to such Interstate Property, which title is, in each case
described in clauses (1) and (2) of this sentence, free and clear of
Encumbrances, except for such mortgages set forth in Section 3.23(a)(ii) of the
Interstate Disclosure Letter or Encumbrances securing obligations disclosed in
the consolidated balance sheets included in or incorporated by reference into
the Interstate Filed SEC Reports, mechanics and materialmen's liens for amounts
incurred in the ordinary course of business and which are not yet due and
payable or are being contested in good faith and easements, rights of way,
restrictive covenants and other non-monetary Encumbrances, Interstate Ordinary
Course Leases and the Interstate Space Leases and Encumbrances for taxes not yet
due and payable or which are not being contested in good faith, which
individually, or in the aggregate, could not reasonably be expected to have a
Material Adverse Effect on Interstate.
(b) Except as set forth in Section 3.23(b) of the Interstate Disclosure
Letter, and except for matters which could not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect on
Interstate or to materially and adversely affect the use or occupancy (or, if
applicable, any proposed developments) of the Interstate Properties in a manner
which could reasonably be expected to have a Material Adverse Effect on
Interstate, Interstate has no knowledge that any currently required certificate,
permit or license (including building permits and certificates of occupancy)
from any Governmental Entity having jurisdiction over any Interstate Property
has not been obtained or is not in full force and effect or is subject to any
pending modification or cancellation.
(c) Section 3.23(c) of the Interstate Disclosure Letter sets forth a
complete and accurate list of all definitive agreements made or entered into by
Interstate or any Interstate Subsidiary as of the date hereof, (x) to sell,
mortgage, pledge or hypothecate the interest of Interstate or such Interstate
Subsidiary in any Interstate Property, which, individually or in the aggregate,
are material, or to otherwise enter into a material transaction in respect of
the ownership or financing of the interest of Interstate or such Interstate
Subsidiary in any Interstate Property or (y) to purchase real property to which
Interstate or any Interstate Subsidiary is a party.
(d) Except as set forth in Section 3.23(d) of the Interstate Disclosure
Letter, none of Interstate's or any Interstate Subsidiary's fee or leasehold
interests in any of the Interstate Properties is subject to any outstanding
purchase options, rights of first refusal, rights of first offer or similar
rights, other than such rights which could not reasonably be expected to have a
Material Adverse Effect on Interstate, nor has Interstate or any Interstate
Subsidiary entered into any outstanding contracts with others for the sale,
mortgage, pledge, hypothecation, assignment, sublease or lease of any material
portion of the Interstate Property or Interstate's or any Interstate
Subsidiary's interest therein or other transfer of all or any part of any
Interstate Property or Interstate's or any Interstate Subsidiary's interest
therein, except for (i) leases or subleases entered into in the ordinary course
of business for long-term stay rental units, newsstands, gift shops, restaurants
and other establishments customarily located in hotel properties, (ii) leases
and subleases of rooftops and other portions of the Interstate Properties for
telecommunications purposes and (iii) other leases, subleases and similar
agreements the existence of which could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect on Interstate
(collectively, "INTERSTATE ORDINARY COURSE LEASES").
28
(e) The leases underlying the leased Interstate Properties referenced
in Section 3.23(a)(i) of the Interstate Disclosure Letter (collectively, the
"INTERSTATE LEASES") are accurately set forth in Section 3.23(e) of the
Interstate Disclosure Letter. Each of the Interstate Leases is valid, binding
and in full force and effect as against Interstate or the Interstate
Subsidiaries and, to Interstate's knowledge, as against the other party thereto,
except to the extent the failure to be binding and in full force and effect
could not reasonably be expected to have a Material Adverse Effect on
Interstate. There does not exist under any of the Interstate Leases any default
or event of default by Interstate or any Interstate Subsidiary or, to the
knowledge of Interstate, any default or event of default of any other party,
and, to Interstate's knowledge, no event has occurred which, with notice or
lapse of time or both, would constitute such a default or event of default,
except as could not, individually or in the aggregate, be reasonably expected to
result in a Material Adverse Effect on Interstate.
(f) Section 3.23(f) to the Interstate Disclosure Letter sets forth a
list of the hotel franchise agreements (the "INTERSTATE FRANCHISE AGREEMENTS")
under which Interstate or any Interstate Subsidiary is a franchisee. Each of the
Interstate Franchise Agreements is valid, binding and in full force and effect
(except to the extent the failure to be binding and in full force and effect
could not, individually or in the aggregate, reasonably be expected to result in
a Material Adverse Effect on Interstate). There are no defaults under the
Interstate Franchise Agreements by Interstate or any Interstate Subsidiary or,
to the knowledge of Interstate, by any other party thereto, nor have any events
occurred which with the giving of notice or the passage of time or both would
constitute such a default or event of default thereunder, except as could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on Interstate.
(g) Section 3.23(g) of the Interstate Disclosure Letter sets forth all
material leases, subleases, licenses, time-share and other agreements, other
than Interstate Ordinary Course Leases (collectively, the "INTERSTATE SPACE
LEASES"), granting to any person or entity other than Interstate or any
Interstate Subsidiary any right to the possession, use, occupancy or enjoyment
of the Interstate Properties or any portion thereof. Each Interstate Space Lease
is valid, binding and in full force and effect, all rent and other sums and
charges payable by the tenant or occupant thereunder (a "INTERSTATE SPACE
TENANT") are current, no notice of default or termination under any Interstate
Space Lease is outstanding, no termination event or condition or uncured default
on the part of Interstate or any Interstate Subsidiary or, to the knowledge of
Interstate, the Interstate Space Tenant, exists under any Interstate Space
Lease, and no event has occurred and no condition exists that, with the giving
of notice or the lapse of time, or both, would constitute such a default or
termination event or condition, except where such default, termination,
termination event, condition or failure to be valid, binding and in full force
and effect, individually or in the aggregate, has not had and could not
reasonably be expected to have a Material Adverse Effect on Interstate.
(h) Each of Interstate and the Interstate Subsidiaries owns good and
valid title to or holds valid leasehold title to, as the case may be, all of its
material tangible personal property and assets (other than the Interstate
Properties) used in, held for use in or which are necessary for the conduct of
the business of Interstate as currently conducted, except where the failure to
hold good and valid title to such property and assets, individually or in the
aggregate,
29
has not had, and could not reasonably be expected to have a Material Adverse
Effect on Interstate.
(i) Interstate has not received notice of and, to the knowledge of
Interstate, there is no pending, threatened or contemplated condemnation
proceeding affecting the Interstate Property, any property with respect to which
Interstate or any Interstate Subsidiary is a party to a hotel management
agreement or participating lease ("INTERSTATE MANAGED PROPERTY"), or any part
thereof, nor any sale or other disposition of the Interstate Property,
Interstate Managed Property or any part thereof in lieu of condemnation. No
portion of the Interstate Property or the Interstate Managed Property has
suffered any material damage by fire or other casualty that has not heretofore
been completely repaired and restored, except as, individually or in the
aggregate, has not had and could not reasonably be expected to have a Material
Adverse Effect on Interstate.
(j) Interstate has made available to MeriStar or its representatives
copies of the Interstate Leases and the Interstate Space Leases that are true,
correct and complete in all material respects.
(k) Neither Interstate nor any of the Interstate Subsidiaries is
engaged in any real estate development projects except as set forth in Section
3.23(k) of the Interstate Disclosure Letter.
Section 3.24 NO PAYMENTS TO EMPLOYEES, OFFICERS OR DIRECTORS. Except as
set forth in Section 3.24 of the Interstate Disclosure Letter, there are no cash
or non-cash payments that will become payable to any employee, officer or
director of Interstate or any Interstate Subsidiary as a result of the Merger or
the transactions contemplated by this Agreement. Except as otherwise provided
for in this Agreement or as set forth in Section 3.24 of the Interstate
Disclosure Letter, there is no employment or severance contract or other
agreement requiring payments, cancellation of indebtedness or other obligation,
to be made as a result of the consummation of any of the transactions
contemplated by this Agreement, with respect to any employee, officer or
director of Interstate or any Interstate Subsidiary.
Section 3.25 POTENTIAL CONFLICTS OF INTEREST. Except as set forth in
Section 3.25 of the Interstate Disclosure Letter or in the Interstate SEC
Reports, to the knowledge of Interstate, no officer, director or affiliate of
Interstate or any Interstate Subsidiary, and no relative or spouse of any such
officer, director or affiliate: (a) owns, directly or indirectly, any interest
in (excepting less than 1% stock holdings for investment purposes in securities
of publicly held and traded companies), or is an officer, director, employee or
consultant of, any person that is, or is engaged in business as, a competitor,
lessor, lessee, supplier, distributor, sales agent or customer of, or lender to
or borrower from, Interstate or any of the Interstate Subsidiaries; (b) owns,
directly or indirectly, in whole or in part, any material tangible or intangible
property that Interstate or any of the Interstate Subsidiaries uses in the
ordinary conduct of its business; or (c) has any cause of action or other claim
whatsoever against, or owes any amount to, Interstate or any of the Interstate
Subsidiaries, except for claims in the ordinary course of business such as for
accrued vacation pay, accrued benefits under Interstate Benefit Plans, and
similar matters and agreements arising in the ordinary course of business.
30
Section 3.26 REGISTRATION RIGHTS. Except as set forth in Section 3.26
of the Interstate Disclosure Letter, no person has any right to require the
registration of any shares of Interstate Common Stock or any other securities of
Interstate or any Interstate Subsidiary.
Section 3.27 INVESTMENT COMPANY ACT OF 1940. Neither Interstate nor any
of the Interstate Subsidiaries is, or at the Effective Time will be, required to
be registered under the Investment Company Act of 1940 (the "1940 ACT").
Section 3.28 RIGHTS AGREEMENT. The Interstate Rights Agreement has been
amended (the "INTERSTATE RIGHTS PLAN AMENDMENT") to (i) render the Interstate
Rights Agreement inapplicable to the Merger and the other transactions
contemplated by this Agreement and (ii) provide that (y) neither MeriStar nor
any MeriStar Affiliate is deemed an Acquiring Person (as defined in the
Interstate Rights Agreement) under the Interstate Rights Agreement and (z) a
Stock Acquisition Date, Distribution Date or Triggering Event (in each case as
defined in the Interstate Rights Agreement) does not occur, solely by reason or
as a result of the approval, execution or delivery of this Agreement, the
consummation of the Merger, or the consummation of the other transactions
contemplated by this Agreement. A copy of the Interstate Rights Plan Amendment
is set forth in Section 3.28 of the Interstate Disclosure Letter.
Section 3.29 INTERSTATE MANAGEMENT AGREEMENTS.
(a) Section 3.29(a) of the Interstate Disclosure Letter sets forth a
complete and accurate list of all of the hotel management agreements or
participating leases to which Interstate or any Interstate Subsidiary is a party
(the "INTERSTATE MANAGEMENT Agreements"), along with the amount of the fees
received under each such Interstate Management Agreement during the fiscal year
ended December 31, 2001 and the name and address of each of the properties to
which each such Interstate Management Agreement relates.
(b) Section 3.29(b) of the Interstate Disclosure Letter sets forth a
complete and accurate list of each Interstate Management Agreement under which
any portion of the "base fees" payable under such Interstate Management
Agreement may be (i) recovered from Interstate or any Interstate Subsidiary by
the party paying such fees or (ii) required to be repaid by Interstate or any
Interstate Subsidiary, in each case, along with the maximum amount of such
potential recovery or repayment.
(c) Section 3.29(c) of the Interstate Disclosure Letter sets forth a
complete and accurate list of each Interstate Management Agreement under which
(i) the owner of the managed hotel, to the knowledge of Interstate, has overtly
threatened action adverse to Interstate or any Interstate Subsidiary because of
noncompliance with performance standards under such Interstate Management
Agreement or, (ii) Interstate or any Interstate Subsidiary has received a notice
of termination or where events, conditions or circumstances exist which are
reasonably likely to result in termination.
(d) Other than as set forth in Section 3.29(d) of the Interstate
Disclosure Letter, there are no understandings, written or otherwise, with
respect to any Interstate Management Agreement or Interstate Equity Investment,
that would require Interstate or any
31
Interstate Subsidiary to make any additional investments in or loans to any
person other than Interstate or any Interstate Subsidiary.
(e) Section 3.29(e) of the Interstate Disclosure Letter sets forth
balance sheet, income statement and cash flow data for Interstate's operations
in Russia for the years ended December 31, 2001, 2000 and 1999. Other than as
described in Section 3.29(e) of the Interstate Disclosure Letter, to the
knowledge of Interstate, there is no material restriction on the ability of
Interstate to repatriate its earnings from its operations in Russia.
Section 3.30 LAWS ADDRESSING BRIBERY AND CORRUPTION. Interstate and
each of the Interstate Subsidiaries has complied with the provisions of The
Foreign Corrupt Practices Act of 1977, as amended or other Laws addressing
bribery and corruption. Without limiting the foregoing sentence, neither
Interstate nor any of the Interstate Subsidiaries has made, offered to make or
authorized the making of any improper payment or other improper contribution of
value, directly or indirectly, to any officer, employee or representative of a
government or instrumentality thereof or of any public international
organization or made any other illegal payment.
Section 3.31 INTERSTATE INSURANCE BUSINESS.
(a) Each Interstate Subsidiary that is an insurance company (each, a
"INTERSTATE INSURANCE SUBSIDIARY") is listed in Section 3.31(a) of the
Interstate Disclosure Letter.
(b) Interstate has previously provided to MeriStar copies of audited
annual and unaudited quarterly convention statements (the "INTERSTATE SAP
FINANCIAL STATEMENTS") as filed with the domiciliary state insurance departments
of each Interstate Insurance Subsidiary as of and for the years ended December
31, 2001, 2000 and 1999, prepared in compliance with GAAP. Each of the
Interstate SAP Financial Statements fairly presents in all material respects the
results of operations of the applicable Interstate Insurance Subsidiary for the
period therein set forth, in each case in accordance with SAP. The schedules
included in the Interstate SAP Financial Statements, when considered in relation
to the basic statutory financial statements included therein, present fairly in
all material respects the information shown therein. Except as set forth in
Section 3.31(b) of the Interstate Disclosure Letter, when filed, each of the
Interstate SAP Financial Statements was correct in all material respects when
filed and did not omit to state any material facts required to be stated or
necessary in order to make the Interstate SAP Financial Statements not
misleading.
(c) Each outstanding insurance contract (each, a "INTERSTATE INSURANCE
CONTRACT") issued, reinsured or underwritten by a Interstate Insurance
Subsidiary is listed in Section 3.31(c) of the Interstate Disclosure Letter,
together with the maximum amount payable by Interstate or any of the Interstate
Subsidiaries thereunder. All outstanding reinsurance, coinsurance and other
similar contracts ("INTERSTATE REINSURANCE CONTRACTS") with respect to such
Interstate Insurance Contracts are listed in Section 3.31(c) of the Interstate
Disclosure Letter. All Interstate Insurance Contracts and Interstate Reinsurance
Contracts are, to the extent required under applicable Laws, on forms approved
by the insurance regulatory authority of the jurisdiction where issued or filed
and have not been objected to by such authority within the period provided for
objection and have been filed or registered as required with all other
32
applicable Governmental Entities.
(d) All benefits payable with respect to each Interstate Insurance
Contract by a Interstate Insurance Subsidiary or, to the knowledge of
Interstate, by any other person that is a party to or bound by such Interstate
Insurance Contract, have in all material respects been paid in accordance with
the terms of such Interstate Insurance Contract. All benefits payable with
respect to each Interstate Reinsurance Contract, have in all material respects
been paid in accordance with the terms of such Interstate Reinsurance Contract.
(e) All Interstate Insurance Contracts and Interstate Reinsurance
Contracts have been marketed and sold in compliance with all applicable Laws,
except as could not reasonably be expected to result in a Material Adverse
Effect on Interstate.
(f) No Interstate Insurance Subsidiary has received any written, or to
the knowledge of Interstate, oral information that would cause it to believe
that the financial condition of any other party to any Interstate Insurance
Contract or Interstate Reinsurance Contract is so impaired as to be reasonably
likely to result in a default by such party under such contract.
(g) The loss runs for the years ended December 31, 2001, 2000 and 1999,
which have previously been provided by Interstate to MeriStar in writing, are
true, correct and complete in all material respects.
(h) Except as set forth in Section 3.31(h) of the Interstate Disclosure
Letter, all reserves and other liabilities with respect to insurance and for
claims and benefits incurred but not reported ("RESERVE LIABILITIES") as
established or reflected in the Interstate SAP Financial Statements (i) were
determined in accordance with generally accepted actuarial standards
consistently applied, (ii) are fairly stated in accordance with sound actuarial
principles, (iii) are based on actuarial assumptions that are in accordance with
those called for by the relevant Interstate Insurance Contract and the related
Interstate Reinsurance Contract and (iv) meet in all material respects the
requirements of all applicable insurance Laws. Adequate provision for such
Reserve Liabilities has been made (under generally accepted actuarial principles
consistently applied) to cover the total amount of all reasonably anticipated
matured and unmatured benefits, dividends, claims and other liabilities of the
Interstate Insurance Subsidiaries under all Interstate Insurance Contracts and
Interstate Reinsurance Contracts (including, without limitation, any liability
arising under or as a result of any reinsurance, coinsurance or other similar
contract) on the date of such Interstate SAP Financial Statement based on then
current information that forms a reasonable basis for such determination. Each
of the Interstate Insurance Subsidiaries owns assets that qualify as legal
reserve assets under applicable insurance Laws in an amount at least equal to
all of such Interstate Insurance Subsidiary's Reserve Liabilities.
(i) Except as set forth in Section 3.31(i) of the Interstate Disclosure
Letter, adequate provision has been made for all estimated losses, settlements,
costs and expenses from pending suits, actions and proceedings contemplated by
the Interstate SAP Financial Statements.
(j) Interstate has previously delivered to MeriStar true and complete
lists as of
33
December 31, 2001 of all assets held in the investment portfolios of the
Interstate Insurance Subsidiaries. None of the investments included in such
investment portfolios is in default with respect to the payment of principal,
interest or dividends thereon or is materially impaired. All such investments
comply with all applicable Laws. Each Interstate Insurance Subsidiary owns
assets which qualify as admitted assets under applicable state insurance Laws in
an amount at least equal to the sum of all of its insurance reserves and minimum
statutory capital and surplus reflected on the latest Interstate SAP Financial
Statements.
(k) Each of the Interstate Insurance Subsidiaries has filed all
reports, statements, documents, registrations, filings or submissions required
to be filed by it with any applicable Governmental Entity, which filings conform
in all material respects to any applicable Laws, except where the failure to so
file or conform could not, individually or in the aggregate, be reasonably
expected to have a Material Adverse Effect on Interstate.
(l) Section 3.31(l) of the Interstate Disclosure Letter sets forth a
true, correct and complete listing of all securities deposited with state
insurance departments and other regulatory authorities, which deposits have been
completed in accordance with the Schedule of Deposits set forth in each
Interstate Insurance Subsidiary's December 31, 2001 annual statement.
(m) Except as set forth in Section 3.31(m) of the Interstate Disclosure
Letter, there are no pending (or to the knowledge of Interstate, threatened)
disputes, claims, suits, arbitrations or other actions with third parties
relating to, in connection with or arising from premiums or other amounts
payable to a Interstate Insurance Subsidiary or benefits or other amounts
payable by a Interstate Insurance Subsidiary under the Interstate Insurance
Contracts or Interstate Reinsurance Contracts.
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF MERISTAR
MeriStar represents and warrants to Interstate that:
Section 4.1 ORGANIZATION AND QUALIFICATION; SUBSIDIARIES.
(a) Each of MeriStar and each subsidiary of MeriStar (collectively, the
"MERISTAR SUBSIDIARIES") (i) has been duly organized and is validly existing and
in good standing under the laws of the jurisdiction of its incorporation or
organization, as the case may be, (ii) has the requisite power and authority and
all necessary governmental approvals to own, lease and operate its properties
and to carry on its business as it is now being conducted and (iii) is duly
qualified or licensed to do business, and is in good standing, in each
jurisdiction where the character of the properties owned, leased or operated by
it or the nature of its business makes such qualification or licensing
necessary, except for such failures to have such governmental approvals or to be
so qualified or licensed and in good standing that, individually or in the
aggregate, have not resulted and could not reasonably be expected to result in a
Material Adverse Effect on MeriStar.
(b) Section 4.1(b) of the disclosure letter prepared by MeriStar, dated
the date hereof and delivered by MeriStar to Interstate (the "MERISTAR
DISCLOSURE LETTER") sets forth a
34
complete and accurate list of each MeriStar Subsidiary, together with its
jurisdiction of incorporation or organization and the ownership or other
interest therein of MeriStar and of each other MeriStar Subsidiary. Except as
set forth in Section 4.1(b) of the MeriStar Disclosure Letter, neither MeriStar
nor any MeriStar Subsidiary holds any capital stock or other equity interest in
any person other than the MeriStar Subsidiaries so listed.
(c) Section 4.1(c) of the MeriStar Disclosure Letter sets forth a list
of all agreements defining the rights of holders of units in MeriStar H&R
Operating Company.
Section 4.2 CERTIFICATE OF INCORPORATION AND BYLAWS. The copies of
MeriStar's certificate of incorporation and bylaws, each as amended through the
date of this Agreement that are exhibits to MeriStar's Annual Report on Form
10-K for the year ended December 31, 2001 or incorporated by reference therein
are complete and correct copies of those documents. Such certificate of
incorporation and bylaws and all comparable organizational documents of the
MeriStar Subsidiaries are in full force and effect. MeriStar is not in violation
of any of the provisions of such certificate of incorporation or bylaws.
Section 4.3 CAPITALIZATION.
(a) The authorized capital stock of MeriStar consists of (i)
100,000,000 shares of MeriStar Common Stock and (ii) 10,000,000 shares of
Preferred Stock, par value $0.01 per share (the "MERISTAR PREFERRED STOCK"), of
which 500,000 shares have been designated as MeriStar Series A Preferred Stock.
As of the close of business on the date one business day prior to the date
hereof, (i) 37,188,574 shares of MeriStar Common Stock were issued and
outstanding, all of which were duly authorized, validly issued, fully paid,
nonassessable and not subject to preemptive rights, (ii) no shares of MeriStar
Common Stock were held in the treasury of MeriStar or by the MeriStar
Subsidiaries; (iii) 4,816,726 shares of MeriStar Common Stock were reserved for
issuance upon exercise of outstanding MeriStar Stock Options; (iv) 2,209,173
shares of MeriStar Common Stock were reserved for issuance upon the redemption
of units ("OP UNITS") of limited partnership interest in MeriStar H&R Operating
Company, L.P.; and (v) no shares of MeriStar Preferred Stock were issued or
outstanding. Except as set forth above, as of the close of business on the date
one business day prior to the date hereof, no shares of capital stock or other
voting securities of MeriStar were issued, reserved for issuance or outstanding.
(b) As of the close of business on the date one business day prior to
the date hereof, an aggregate of 4,816,726 options to purchase shares of
MeriStar Common Stock ("MERISTAR STOCK OPTIONS") have been granted by MeriStar
and are outstanding under the MeriStar Incentive Plan and the MeriStar
Non-Employee Directors' Incentive Plan (collectively, the "MERISTAR OPTION
PLANS"). Except as set forth in Section 4.3(a) and except as pursuant to (i) the
MeriStar Option Plans, (ii) the MeriStar Rights and (iii) the agreements or
arrangements set forth in Section 4.3(b) of the MeriStar Disclosure Letter,
there are no existing (A) options, warrants, calls, preemptive rights,
subscriptions, stock appreciation rights or other rights, convertible
securities, agreements, arrangements or commitments of any character obligating
MeriStar or any MeriStar Subsidiary to issue, transfer or sell any shares of
capital stock or other equity interest in, MeriStar or any MeriStar Subsidiary
or securities convertible into or exchangeable for such shares or equity
interests, (B) contractual obligations of MeriStar or any
35
MeriStar Subsidiary to repurchase, redeem or otherwise acquire any capital stock
of MeriStar or any MeriStar Subsidiary, or (C) voting trusts or similar
agreements to which MeriStar or any MeriStar Subsidiary is a party with respect
to the voting of capital stock of MeriStar or any MeriStar Subsidiary. Section
4.3(b) of the MeriStar Disclosure Letter accurately and completely sets forth,
as of the date of this Agreement, (x) the persons to whom MeriStar Stock Options
have been granted, (y) the exercise price for MeriStar Stock Options held by
each such person and (z) whether such MeriStar Stock Options are subject to
vesting and, if subject to vesting, the dates on which each of those MeriStar
Stock Options vest.
(c) No shares of MeriStar Common Stock that have been issued are and no
shares of MeriStar Common Stock subject to issuance will be, upon issuance prior
to the Effective Time on the terms and conditions specified in the instruments
under which they are issuable subject to preemptive rights. All shares of
MeriStar Common Stock subject to issuance will be, upon issuance, duly
authorized, validly issued, fully paid, and nonassessable. Except as set forth
in Section 4.3(c) of the MeriStar Disclosure Letter, (i) there are no
outstanding contractual obligations of MeriStar or any MeriStar Subsidiary to
repurchase, redeem or otherwise acquire any shares of MeriStar Common Stock or
any capital stock of any MeriStar Subsidiary; (ii) each outstanding share of
capital stock of each MeriStar Subsidiary is duly authorized, validly issued,
fully paid, nonassessable and not subject to preemptive rights and each such
share owned by MeriStar or a MeriStar Subsidiary is free and clear of all Liens;
and (iii) there are no outstanding material contractual obligations of MeriStar
or any MeriStar Subsidiary to provide funds to, or make any investment (in the
form a loan, capital contribution or otherwise) in, any person other than a
MeriStar Subsidiary that is wholly owned by MeriStar. Each outstanding share of
capital stock of each MeriStar Subsidiary is duly authorized, validly issued,
fully paid, nonassessable and not subject to preemptive rights.
(d) There are no accrued and unpaid dividends in respect of the
MeriStar Common Stock.
Section 4.4 AUTHORITY.
(a) MeriStar has all necessary corporate power and authority to execute
and deliver this Agreement and, subject only to the adoption and approval of
this Agreement and the approval of the transactions contemplated hereby, the
issuance of MeriStar Common Stock to be issued in the Merger, the Charter
Amendments and the Bylaw Amendments (collectively, the "MERISTAR PROPOSALS") by
the affirmative vote of a majority of the outstanding shares of MeriStar Common
Stock (the "REQUISITE MERISTAR VOTE"), to perform its obligations under this
Agreement and to consummate the Merger and the other transactions contemplated
by this Agreement to be consummated by MeriStar. The execution and delivery of
this Agreement by MeriStar and the consummation by MeriStar of such transactions
have been duly and validly authorized by all necessary corporate action and no
other corporate proceedings on the part of MeriStar or any MeriStar Subsidiary
are necessary to authorize this Agreement or to consummate such transactions
other than the adoption and approval of the MeriStar Proposals by the Requisite
MeriStar Vote. This Agreement has been duly authorized and validly executed and
delivered by MeriStar and constitutes a legal, valid and binding obligation of
MeriStar, enforceable against MeriStar in accordance with its terms.
36
(b) The Board of Directors of MeriStar (i) has unanimously approved and
adopted the MeriStar Proposals and (ii) has declared that the Merger, this
Agreement and the transactions contemplated by this Agreement are advisable and
in the best interests of MeriStar and the holders of MeriStar Common Stock.
Section 4.5 NO CONFLICTS.
(a) Except as set forth in Section 4.5(a) of the MeriStar Disclosure
Letter, the execution and delivery of this Agreement by MeriStar do not, and the
performance of this Agreement by MeriStar will not:
(i) conflict with or violate any provision of MeriStar's
certificate of incorporation or bylaws or any comparable organizational
documents of any MeriStar Subsidiary;
(ii) assuming that all consents, approvals, authorizations and
other actions set forth in Section 4.6 hereof have been obtained and all
filings, applications and obligations set forth in Section 4.6 hereof have been
made, conflict with or violate any Law applicable to MeriStar or any MeriStar
Subsidiary or by which any property or asset of MeriStar or any MeriStar
Subsidiary is or may be bound or affected, except for any such conflicts or
violations that, individually or in the aggregate, have not resulted and could
not reasonably be expected to result in a Material Adverse Effect on MeriStar;
or
(iii) result in any breach of or constitute a default (or an event
which with notice or lapse of time or both would become a default) under, or
give to others any right of termination, amendment, acceleration or cancellation
of, or result in the creation of a Lien on any property or asset of MeriStar or
any MeriStar Subsidiary under any Contract to which MeriStar or any MeriStar
Subsidiary is a party or by which any of them or their assets or properties is
or may be bound or affected, except for any such breaches, defaults or other
occurrences which, individually or in the aggregate, have not resulted and could
not reasonably be expected to result in a Material Adverse Effect on MeriStar.
(b) Section 4.5(b) of the MeriStar Disclosure Letter sets forth a
correct and complete list of Contracts to which MeriStar or any MeriStar
Subsidiary is a party or by which any of them or their assets or properties is
or may be bound or affected under which consents or waivers are or may be
required prior to consummation of or as a result of the transactions
contemplated by this Agreement in order to avoid any breach of or constitute a
default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any right of termination, amendment,
acceleration or cancellation of any such Contract, or result in the creation of
a Lien or other Encumbrance on any property or asset of MeriStar or any MeriStar
Subsidiary, except for Contracts under which such breach, default, termination,
amendment, acceleration, cancellation, Lien or Encumbrance could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on MeriStar.
Section 4.6 REQUIRED FILINGS AND CONSENTS. Except as set forth in
Section 4.6 of the MeriStar Disclosure Letter, the execution and delivery of
this Agreement by MeriStar do not, and the
37
performance of this Agreement by MeriStar will not, require any consent,
approval, authorization or permit of, or filing with or notification to, any
Governmental Entity, except (i) for applicable requirements of the Securities
Act, applicable requirements of the Exchange Act, applicable requirements of
Blue Sky Laws, the rules and regulations of NYSE, applicable requirements of
Takeover Statutes, applicable state environmental statutes, the pre-merger
notification requirements of the HSR Act, (ii) for the filing of the Certificate
of Merger as required by the DGCL, (iii) for the filing of the Articles of
Merger with the SDAT, and (iv) where failure to obtain such consents, approvals,
authorizations or permits, or to make such filings or notifications,
individually or in the aggregate, have not resulted and could not reasonably be
expected to result in a Material Adverse Effect on MeriStar.
Section 4.7 PERMITS; COMPLIANCE WITH LAW. Except as set forth in
Section 4.7 of the MeriStar Disclosure Letter, each of MeriStar and the MeriStar
Subsidiaries is in possession of all franchises, grants, authorizations,
licenses, permits, easements, variances, exceptions, consents, certificates,
registrations, approvals and orders of any Governmental Entity necessary for
MeriStar or any other MeriStar Subsidiary to own, lease and operate its
properties or to carry on its business as it is now being conducted
(collectively, the "MERISTAR PERMITS"), except where the failure to have any of
the MeriStar Permits, individually or in the aggregate, has not resulted and
could not reasonably be expected to result in a Material Adverse Effect on
MeriStar, and, as of the date of this Agreement, no suspension or cancellation
of any of the MeriStar Permits is pending or, to the knowledge of MeriStar,
threatened, except where the failure to have, or the suspension or cancellation
of, any of the MeriStar Permits, individually or in the aggregate, has not
resulted and could not reasonably be expected to result in a Material Adverse
Effect on MeriStar. Neither MeriStar nor any MeriStar Subsidiary has been or is,
in conflict with, or in default or violation of, (i) any Law applicable to
MeriStar or any MeriStar Subsidiary or by which any property or asset of
MeriStar or any MeriStar Subsidiary is or may be bound or affected or (ii) any
MeriStar Permits, except for any such conflicts, defaults or violations that,
individually or in the aggregate, have not resulted and could not reasonably be
expected to result in a Material Adverse Effect on MeriStar.
Section 4.8 SEC FILINGS; FINANCIAL STATEMENTS.
(a) MeriStar has filed all forms, reports, schedules, statements and
other documents (including all exhibits, annexes, supplements and amendments to
such documents) required to be filed by it under the Exchange Act and the
Securities Act since August 3, 1998 through the date of this Agreement
(collectively, as amended and supplemented to date, the "MERISTAR SEC REPORTS")
and MeriStar has made available to Interstate each MeriStar SEC Report filed
with the SEC. The MeriStar SEC Reports, including any financial statements or
schedules included or incorporated therein by reference, at the time they were
filed, or, if amended, as so amended prior to the date hereof, and all forms,
reports, schedules, statements and other documents filed with the SEC after the
date of this Agreement and prior to the Effective Time, at the time they will be
filed, (i) complied in all material respects with the requirements of the
Exchange Act or the Securities Act or both, as the case may be, applicable to
those MeriStar SEC Reports and (ii) did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated or
necessary in order to make the statements made in those MeriStar SEC Reports, in
the light of the circumstances under which they were
38
made, not misleading. No MeriStar Subsidiary is subject to the periodic
reporting requirements of the Exchange Act or is otherwise required to file any
documents with the SEC or any national securities exchange or quotation service
or comparable Governmental Entity.
(b) Each of the consolidated balance sheets included in or incorporated
by reference into the MeriStar SEC Reports and in any form, report or document
filed after the date of this Agreement and prior to the Effective Time
(including in each case, the related notes and schedules) fairly presented in
all material respects, the consolidated financial position of MeriStar as of the
dates set forth in those consolidated balance sheets in accordance with GAAP.
Each of the consolidated statements of income and of cash flows included in or
incorporated by reference into the MeriStar SEC Reports and in any form, report
or document filed after the date of this Agreement and prior to the Effective
Time (including in each case, any related notes and schedules) fairly presented
in all material respects, the consolidated results of operations and cash flows,
as the case may be, of MeriStar and the consolidated MeriStar Subsidiaries for
the periods set forth in those consolidated statements of income and of cash
flows (subject, in the case of unaudited quarterly statements, to notes and
normal year-end audit adjustments that will not be material in amount or
effect), in each case in conformity with GAAP (except, in the case of unaudited
quarterly statements, as permitted by Form 10-Q of the SEC) consistently applied
throughout the periods indicated. All of such balance sheets and statements
complied as to form in all material respects with applicable accounting
requirements and with the published rules and regulations of the SEC with
respect thereto.
(c) Except as and to the extent set forth on the consolidated balance
sheet of MeriStar and the consolidated MeriStar Subsidiaries as of December 31,
2001 including the related notes, neither MeriStar nor any MeriStar Subsidiary
has any liabilities or obligations of any nature (whether accrued, absolute,
contingent or otherwise) that would be required to be reflected on a balance
sheet or in the related notes prepared in accordance with GAAP, except for
liabilities or obligations incurred in the ordinary course of business since
December 31, 2001 that, individually or in the aggregate, have not resulted and
could not reasonably be expected to result in a Material Adverse Effect on
MeriStar.
(d) Except as disclosed in Section 4.8(d) of the MeriStar Disclosure
Letter, or in the "Liquidity and Capital Resources" section of the "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
contained in MeriStar's most recently filed Annual Report on Form 10-K or
Quarterly Report on Form 10-Q, neither MeriStar nor any MeriStar Subsidiary has
off-balance sheet arrangements with any entity to (i) provide financing,
liquidity, or market or credit risk support for MeriStar or any MeriStar
Subsidiary; (ii) engage in leasing, hedging, or research and development
services with MeriStar or any MeriStar Subsidiary; or (iii) expose MeriStar or
any MeriStar Subsidiary to any material liability that is not reflected on the
face of the associated financial statements.
Section 4.9 ABSENCE OF CERTAIN CHANGES OR EVENTS.
(a) Except as (i) set forth in Section 4.9(a) of the MeriStar
Disclosure Letter, (ii) disclosed in the MeriStar SEC Reports filed with the SEC
since December 31, 2001 and which have been filed and are publicly available
prior to the date of this Agreement (the
39
"MERISTAR FILED SEC REPORTS") or (iii) permitted after the date hereof by
Section 5.2 hereof, since December 31, 2001, (A) MeriStar and the MeriStar
Subsidiaries have conducted their businesses only in the ordinary course and in
a manner consistent with past practice, (B) there has not been any Material
Adverse Effect on MeriStar and (C) there has not been:
(i) any damage, destruction or other casualty loss with respect to
any asset or property owned, leased, managed or otherwise used by MeriStar or
any MeriStar Subsidiary, whether or not covered by insurance, which damage,
destruction or loss, individually or in the aggregate, has resulted or could
reasonably be expected to result in a Material Adverse Effect on MeriStar;
(ii) any material change by MeriStar in its or any MeriStar
Subsidiary's accounting methods, principles or practices except as a result of
changes in GAAP;
(iii) any declaration, setting aside or payment of any dividend or
distribution in respect of MeriStar Common Stock or any redemption, purchase or
other acquisition of any of MeriStar's securities;
(iv) any increase in the compensation or benefits or establishment
of any bonus, insurance, severance, deferred compensation, pension, retirement,
profit sharing, stock option (including the granting of stock options, stock
appreciation rights, performance awards or restricted stock awards), stock
purchase or other employee benefit plan, or any other increase in the
compensation payable or to become payable to any executive officers of MeriStar
or any MeriStar Subsidiary except in the ordinary course of business consistent
with past practice or except as required by applicable Law;
(v) (A) any incurrence or assumption by MeriStar or any MeriStar
Subsidiary of any indebtedness for borrowed money or (B) any guarantee,
endorsement or other incurrence or assumption of material liability (whether
directly, contingently or otherwise) by MeriStar or any MeriStar Subsidiary for
the obligations of any other person (other than any wholly owned MeriStar
Subsidiary), other than in the ordinary course of business consistent with past
practice and individually not in excess of $100,000;
(vi) any creation or assumption by MeriStar or any MeriStar
Subsidiary of any Lien on any material asset of MeriStar or any MeriStar
Subsidiary, other than in the ordinary course of business, consistent with past
practice;
(vii) any making of any loan, advance or capital contribution to
or investment in any person (including an employee or director of MeriStar or
any MeriStar Subsidiary) by MeriStar or any MeriStar Subsidiary (other than to
MeriStar or any MeriStar Subsidiary), other than in the ordinary course of
business, consistent with past practice and individually not in excess of
$50,000;
(viii) any contract or agreement entered into by MeriStar or any
MeriStar Subsidiary relating to any material acquisition or disposition of any
assets or business;
(ix) any modification, amendment, assignment or termination of or
40
relinquishment by MeriStar or any MeriStar Subsidiary of any rights under any
Contract (including any insurance policy naming it as a beneficiary or a loss
payable payee) that has resulted or could reasonably be expected to result in,
individually or in the aggregate, a Material Adverse Effect on MeriStar other
than transactions, commitments, contracts or agreements in the ordinary course
of business consistent with past practice or those contemplated by this
Agreement; or
(x) any contract, license or other agreement entered into by
MeriStar or any MeriStar Subsidiary that contains (A) any "change of control"
provision that would be triggered by, (B) any provision that would cause the
termination or adverse modification of such contract as a result of or (C) any
prohibition on transfer that would be violated or breached by, in each case, the
execution and delivery of this Agreement or the consummation of the transactions
contemplated hereby that has resulted or could reasonably be expected to result
in, individually or in the aggregate, a Material Adverse Effect on MeriStar.
Section 4.10 EMPLOYEE BENEFIT PLANS; LABOR MATTERS.
(a) Each employee benefit plan, program and arrangement, and each
employment, termination, severance or other employee benefit contract or
agreement, with respect to which MeriStar, any of the MeriStar Subsidiaries or
any other entity that is treated as a single employer with MeriStar or any of
the MeriStar Subsidiaries under Section 4001 of ERISA or Section 414 of the Code
(each, a "MERISTAR ERISA GROUP MEMBER") has any obligation or which are
maintained, contributed to or sponsored by a MeriStar ERISA Group Member for the
benefit of any current or former employee, officer or director of a MeriStar
ERISA Group Member under which plan, program, arrangement, contract or agreement
total payments of more than $25,000 may be required to be made by a MeriStar
ERISA Group Member (collectively, the "MERISTAR BENEFIT PLANS") are listed on
Section 4.10(a) of the MeriStar Disclosure Letter. Except for those matters
listed on Section 4.10(a) of the MeriStar Disclosure Letter and such matters as,
individually or in the aggregate, have not and could not reasonably be expected
to result in a Material Adverse Effect on MeriStar:
(i) each MeriStar Benefit Plan and any related trust intended to
be qualified under Sections 401(a) and 501(a) of the Code has received a
favorable determination letter from the IRS that it is so qualified, and to the
knowledge of MeriStar, nothing has occurred since the date of such letter that
could materially adversely affect the qualified status of such MeriStar Benefit
Plan or related trust;
(ii) each MeriStar Benefit Plan has been operated in accordance
with its terms and the requirements of ERISA, the Code and other applicable Law,
and all reporting, filing and disclosure obligations imposed under ERISA, the
Code and other applicable Law have been satisfied with respect to each MeriStar
Benefit Plan;
(iii) no MeriStar ERISA Group Member has incurred any direct or
indirect liability arising out of a violation of Title I of ERISA or comparable
provisions of the Code, or under, arising out of or by operation of Title IV of
ERISA or comparable provisions of the Code, in connection with any MeriStar
Benefit Plan or other retirement plan or arrangement,
41
and to the knowledge of MeriStar, no fact or event exists that could reasonably
be expected to give rise to any such liability;
(iv) all contributions and/or insurance premium payments due and
payable on or before the date hereof in respect of each MeriStar Benefit Plan
have been made in full and in proper form;
(v) no MeriStar ERISA Group Member has ever sponsored or been
obligated to contribute to any "multiemployer plan" (as defined in Sections
3(37) and 4001(a)(3) of ERISA), "multiple employer plan" (as defined in Section
210 of ERISA and Section 413 of the Code) or "defined benefit plan" (as defined
in Section 3(35) of ERISA);
(vi) no MeriStar ERISA Group Member would incur withdrawal
liability (within the meaning of Part 1 of Subtitle E of Title I of ERISA) if it
withdrew (within the meaning of Part 1 of Subtitle E of Title I of ERISA) from
each MeriStar Benefit Plan that is a "multiemployer plan" (as defined in
Sections 3(37) and 4001(a)(3) of ERISA);
(vii) no MeriStar Benefit Plan has or has incurred an accumulated
funding deficiency within the meaning of Section 302 of ERISA and Section 412 of
the Code, nor has any waiver of the minimum funding standards of Section 302 of
ERISA and Section 412 of the Code been requested of or granted by the IRS with
respect to any MeriStar Benefit Plan, nor has any lien in favor of any MeriStar
Benefit Plan arisen under Section 412(n) of the Code or Section 302(f) of ERISA;
(viii) except as otherwise required under ERISA, the Code and
other applicable Law, no MeriStar Benefit Plan currently or previously
maintained by MeriStar or any of the MeriStar Subsidiaries provides any
post-retirement health or life insurance benefits in the future;
(ix) no MeriStar Benefit Plan is or at any time was funded through
a "welfare benefit fund" (as defined in Section 419(e) of the Code), and no
benefits under any MeriStar Benefit Plan are or at any time have been provided
through a voluntary employees' beneficiary association (within the meaning of
Section 501(c)(9) of the Code) or a supplemental unemployment benefit plan
(within the meaning of Section 501(c)(17) of the Code);
(x) with respect to any insurance policy providing funding for
benefits under any MeriStar Benefit Plan, there is no liability of MeriStar or
any of the MeriStar Subsidiaries in the nature of a retroactive rate adjustment,
loss sharing arrangement or other actual or contingent liability, nor would
there be any such liability if such insurance policy was terminated on the date
hereof;
(xi) there is no pending or, to the knowledge of MeriStar,
threatened litigation, assessment, complaint, proceeding or investigation of any
kind in any court or from any Governmental Entity or other person with respect
to any MeriStar Benefit Plan (other than routine claims for benefits), nor is
there, to the knowledge of MeriStar, any basis for one;
(xii) the disallowance of a deduction under Section 162(m) of the
Code
42
for employee remuneration will not apply to any amount paid or payable by
MeriStar or any of the MeriStar Subsidiaries under any MeriStar Benefit Plan;
and
(xiii) neither the execution and delivery of this Agreement nor
the consummation of the transactions contemplated hereby will (A) result in the
payment of separation, severance, termination, "golden parachute" or
similar-type benefits to any person, (B) increase any benefits otherwise payable
under any MeriStar Benefit Plan or otherwise, (C) result in any acceleration of
the time of payment or vesting of any benefits, (D) trigger a requirement for
funding or the acceleration of funding of any benefits or (E) commence a period
during which a subsequent termination of employment by an employee of MeriStar
or any MeriStar Subsidiary will entitle such employee to benefits in excess of
what would otherwise have been required in the absence of the transactions
contemplated hereby.
(b) MeriStar has made available to Interstate a complete and accurate
copy of each MeriStar Benefit Plan (or a written summary in the case of an
unwritten MeriStar Benefit Plan) and a complete and accurate copy of each
material document prepared in connection with each such MeriStar Benefit Plan,
including without limitation, a copy of (i) each trust or other funding
arrangement, if any, (ii) each summary plan description and summary of material
modifications, if any, (iii) the most recently filed IRS Form 5500, if any, (iv)
the most recently received IRS determination letter, if any, and (v) the most
recently prepared actuarial report and financial statement, if any.
(c) Except as set forth in Section 4.10(c) of the MeriStar Disclosure
Letter, (i) there are no leased employees within the meaning of Section 414(n)
of the Code who perform services for any MeriStar ERISA Group Member and (ii)
neither MeriStar nor any of the MeriStar Subsidiaries is a party to, or is bound
by, any collective bargaining agreement, contract or other agreement or
understanding with a labor union or other labor union organization. MeriStar has
made available true, correct and complete copies of all such agreements to
Interstate. Except as set forth in Section 4.10(c) of the MeriStar Disclosure
Letter and except as individually or in the aggregate, has not resulted and
could not reasonably be expected to result, in a Material Adverse Effect on
MeriStar, (A) currently there are no organizational campaigns, petitions or
other unionization activities seeking recognition of a collective bargaining
unit which could affect MeriStar or any MeriStar Subsidiary; (B) there are no
controversies, strikes, slowdowns or work stoppages pending or, to the knowledge
of MeriStar, after due inquiry, threatened between MeriStar or any of the
MeriStar Subsidiaries and any of their respective employees, and neither
MeriStar nor any of the MeriStar Subsidiaries has experienced any such
controversy, strike, slowdown or work stoppage within the past three years; (C)
neither MeriStar nor any of the MeriStar Subsidiaries has breached or otherwise
failed to comply with the provisions of any collective bargaining or union
contract and there are no grievances outstanding against MeriStar or any
MeriStar Subsidiary under any such agreement or contract; and (D) there are no
unfair labor practice complaints pending against MeriStar or any of the MeriStar
Subsidiaries before the National Labor Relations Board or any other Governmental
Entity or any current union representation questions involving employees of
MeriStar or any of the MeriStar Subsidiaries.
Section 4.11 CONTRACTS; DEBT INSTRUMENTS. Except for the Contracts set
forth in Section 4.11 of
43
the MeriStar Disclosure Letter, true, correct and complete copies of which have
been made available to Interstate, there is no Contract that is material to the
business, financial condition or results of operations of MeriStar and the
MeriStar Subsidiaries taken as a whole. Each of the Contracts to which MeriStar
or any MeriStar Subsidiary is a party or by which it or any of its properties or
assets is or may be bound or affected, constitutes a valid and legally binding
obligation of MeriStar or such MeriStar Subsidiary and, to the knowledge of
MeriStar, of the other parties thereto, enforceable in accordance with its
terms, and is in full force and effect, except to the extent the failure to be
so valid, binding or enforceable, individually or in the aggregate, has not and
could not reasonably be expected to result in a Material Adverse Effect on
MeriStar. Except as set forth in Section 4.11 of the MeriStar Disclosure Letter,
neither MeriStar nor any MeriStar Subsidiary, nor to MeriStar's knowledge, any
other person, is in violation of or in default under (nor does there exist any
condition which with the passage of time or the giving of notice would cause
such a violation of or default under) any Contract to which MeriStar or any
MeriStar Subsidiary is a party or by which it or any of its properties or assets
is or may be bound or affected, except for violations or defaults that,
individually or in the aggregate, have not resulted and could not reasonably be
expected to result in a Material Adverse Effect on MeriStar. Section 4.11 of the
MeriStar Disclosure Letter sets forth, with respect to all long-term debt of
MeriStar and the MeriStar Subsidiaries (the "MERISTAR LONG-TERM DEBT"), (i) the
agreement under which such debt was incurred, (ii) the borrowers of such debt,
(iii) the principal amounts drawn under such agreement, (iv) the
weighted-average interest rate applicable to such debt and (vi) any other
material changes to such debt since December 31, 2001.
Section 4.12 LITIGATION. Except as set forth in Section 4.12 of the
MeriStar Disclosure Letter, and except as specifically described in Item 3 of
MeriStar's Annual Report on Form 10-K for the fiscal year ended December 31,
2001, as amended on April 30, 2002, there are no Claims that are uninsured (in
whole or in part), pending or, to the knowledge of MeriStar, threatened against
MeriStar or any MeriStar Subsidiary before any Governmental Entity that, if
adversely determined, individually or in the aggregate, have resulted or could
reasonably be expected to result in a Material Adverse Effect on MeriStar.
Neither MeriStar nor any MeriStar Subsidiary is subject to any outstanding
orders, writs, injunctions or decrees which, individually or in the aggregate,
have resulted or could reasonably be expected to result in a Material Adverse
Effect on MeriStar.
Section 4.13 ENVIRONMENTAL MATTERS. Except (i) as has not, individually
or in the aggregate, resulted and could not, individually or in the aggregate,
reasonably be expected to result in a Material Adverse Effect on MeriStar, (ii)
as set forth in Section 4.13 of the MeriStar Disclosure Letter, or (iii) as
disclosed in MeriStar Filed SEC Reports:
(a) MeriStar and the MeriStar Subsidiaries (i) are in compliance with
all applicable Environmental Laws, (ii) hold all necessary Environmental Permits
under those Environmental Laws and (iii) are in compliance with their respective
Environmental Permits;
(b) none of MeriStar, any MeriStar Subsidiary, and their respective
predecessors has received any request for information or been notified in
writing that it is a potentially responsible party, under CERCLA or any similar
law of any state, locality, or any other jurisdiction;
44
(c) none of MeriStar, any MeriStar Subsidiary and their respective
predecessors has entered into or agreed to any consent decree or order or is
subject to any outstanding judgment, decree or judicial order relating to
compliance with Environmental Laws, Environmental Permits or the investigation,
sampling, monitoring, treatment, remediation, removal or cleanup of Hazardous
Substances with any Governmental Agency and, to the knowledge of MeriStar, no
investigation, litigation or other proceeding is pending or threatened with
respect thereto; and, to the knowledge of MeriStar, no condition exists on any
property currently or formerly operated by MeriStar or any MeriStar Subsidiary
that is reasonably likely to lead to such investigation, litigation or
proceeding;
(d) none of the real property currently or formerly owned or leased by
MeriStar or any MeriStar Subsidiary is listed or, to the knowledge of MeriStar,
proposed for listing on the "National Priorities List" under CERCLA or CERCLIS
(as defined in CERCLA), as updated through the date of this Agreement, or any
similar list of sites in the United States or any other jurisdiction requiring
investigation or cleanup; and
(e) Interstate has been provided access to all reports in MeriStar's
possession or control assessing the environmental condition of MeriStar's
current and former owned properties, which reports are listed in Section 4.13(e)
of the MeriStar Disclosure Letter.
Section 4.14 INTELLECTUAL PROPERTY.
(a) DISCLOSURE.
(i) Section 4.14(a)(i) of the MeriStar Disclosure Letter sets
forth all United States and foreign: (A) patents and patent applications, (B)
trademarks, trade names, brand names and corporate names, and all service marks,
registrations and applications thereof, (C) Internet domain name registrations
and applications and (D) copyright registrations and applications owned or
licensed by MeriStar or the MeriStar Subsidiaries, in each case described in
clauses (A) through (D), that are material to the business and operations of
MeriStar or the MeriStar Subsidiaries as presently conducted, specifying as to
each item, as applicable: (1) the nature of the item, including the title; (2)
the owner of the item; (3) the jurisdictions in which the item is issued or
registered or in which an application for issuance or registration has been
filed; and (4) the issuance, registration or application numbers and dates.
(ii) Section 4.14(a)(ii) of the MeriStar Disclosure Letter sets
forth all IP Licenses under which MeriStar or any of the MeriStar Subsidiaries
is a licensor or licensee or otherwise is authorized to use or practice any
Intellectual Property except for hotel franchise agreements pursuant to which
MeriStar or any MeriStar Subsidiary, as hotel manager or as lessee, is granted
the right to use the intellectual property of the franchisor. Except as set
forth in Section 4.14(a)(ii) of the MeriStar Disclosure Letter, no person has a
right to receive a royalty or similar payment in respect of any Intellectual
Property used by MeriStar or the MeriStar Subsidiaries, whether pursuant to any
contractual arrangements entered into by MeriStar or any MeriStar Subsidiary or
otherwise.
(iii) Section 4.14(a)(iii) of the MeriStar Disclosure Letter sets
forth and
45
describes the status, as of the date of this Agreement, of any Proposed
Intellectual Property Agreements by MeriStar or the MeriStar Subsidiaries.
(b) OWNERSHIP. Except as set forth in Section 4.14(b) of the MeriStar
Disclosure Letter, MeriStar or the MeriStar Subsidiaries exclusively own the
entire right, title and interest to (or otherwise have the right to use pursuant
to a valid license, sublicense or other agreement), free and clear of all Liens,
and have the unrestricted right to use, sell or license (subject to any such
license terms, as applicable) all Intellectual Property, and have the right to
bring actions for infringement of all of their owned Intellectual Property,
except, with respect to any of the above, where the failures to so own or have
such rights, individually or in the aggregate, have not resulted and could not
reasonably be expected to result in a Material Adverse Effect on MeriStar.
(c) CLAIMS. Except as set forth in Section 4.14(c) of the MeriStar
Disclosure Letter, neither MeriStar nor any of the MeriStar Subsidiaries has
been, during the three years preceding the date of this Agreement, a party to
any Claim, nor, to the knowledge of MeriStar, is any Claim threatened, that
challenges the validity, enforceability, ownership, or right to use, sell, or
license any of its Intellectual Property, except for Claims that, individually
or in the aggregate, have not resulted and could not reasonably be expected to
result in a Material Adverse Effect on MeriStar. To the knowledge of MeriStar,
no third party is infringing upon or otherwise violating any Intellectual
Property of MeriStar or any of the MeriStar Subsidiaries, except for
infringements or violations that, individually or in the aggregate, have not
resulted and could not reasonably be expected to result in a Material Adverse
Effect on MeriStar. To the knowledge of MeriStar, none of the Intellectual
Property owned, licensed or used by it or any MeriStar Subsidiary infringes upon
or otherwise violates any intellectual property rights of others.
(d) ADMINISTRATION AND ENFORCEMENT. MeriStar and the MeriStar
Subsidiaries have taken all necessary and desirable actions to maintain and
protect each item of Intellectual Property owned by MeriStar or any MeriStar
Subsidiary, except for failures to take such actions that, individually or in
the aggregate, have not resulted and could not reasonably be expected to result
in a Material Adverse Effect on MeriStar. To the knowledge of MeriStar, all of
the Intellectual Property rights of MeriStar and the MeriStar Subsidiaries are
valid and enforceable.
(e) PROTECTION OF TRADE SECRETS AND TECHNOLOGY. Without limiting the
generality of Section 4.14(d) hereof, MeriStar and the MeriStar Subsidiaries
have taken all reasonable precautions to protect the secrecy, confidentiality,
and value of their trade secrets and the proprietary nature and value of their
Technology and other Intellectual Property, except for failures to take such
precautions that, individually or in the aggregate, have not resulted and could
not reasonably be expected to result in a Material Adverse Effect on MeriStar.
(f) EFFECT OF TRANSACTION. Neither MeriStar nor any of the MeriStar
Subsidiaries is, nor, as a result of the execution and delivery of this
Agreement or its performance of its obligations hereunder, will be, in violation
of any agreement relating to any Intellectual Property, except for violations
that, individually or in the aggregate, could not reasonably be expected to
result in a Material Adverse Effect on MeriStar. After the completion of the
transactions contemplated by this Agreement, MeriStar and the MeriStar
Subsidiaries will
46
continue to own all right, title, and interest in and to or have a license to
use all their Intellectual Property on identical terms and conditions as
MeriStar and the MeriStar Subsidiaries enjoyed immediately prior to such
transactions, except for failures to own or have available for use that,
individually or in the aggregate, have not resulted and could not reasonably be
expected to result in a Material Adverse Effect on MeriStar.
Section 4.15 TAXES. Except as set forth in Section 4.15 of the MeriStar
Disclosure Letter and except as has not had and could not reasonably be expected
to have, individually or in the aggregate, a Material Adverse Effect on
MeriStar:
(a) MeriStar and each MeriStar Subsidiary has timely filed or caused to
be filed all Tax Returns required to be filed by or with respect to it, its
operations and assets, and has paid or caused to be paid all Taxes shown thereon
as owing. All Tax Returns filed by MeriStar or any MeriStar Subsidiary were
prepared in compliance with all applicable Laws and regulations and were true,
complete, and correct in all respects as of the date on which they were filed or
as subsequently amended to the date hereof. Complete copies of federal, state,
local, and foreign Tax Returns of MeriStar and each MeriStar Subsidiary for each
of the years ended 2000 and 1999 have heretofore been delivered or made
available to Interstate. Prior to the date hereof, MeriStar has provided to
Interstate copies of all revenue agents' reports and other written assertions of
deficiencies or other liabilities for Taxes of MeriStar and each MeriStar
Subsidiary with respect to past periods for which the applicable statute of
limitations has not expired.
(b) MeriStar and each MeriStar Subsidiary has timely paid or caused to
be paid all Taxes for which a notice of, or assessment or demand for, payment
has been received or which are otherwise due and payable with respect to
MeriStar or any MeriStar Subsidiary, its operations and assets, except for Taxes
that are being contested in good faith by appropriate proceedings (all of which
are disclosed on Section 4.15(b) of the MeriStar Disclosure Letter) and for
payment of which Taxes adequate reserves will have been set up as of the Closing
Date.
(c) MeriStar and each of the MeriStar Subsidiaries has complied with
all applicable Laws, rules, and regulations relating to the withholding of Taxes
and has timely collected or withheld and paid over to the proper governmental
authorities all amounts shown to be owing or withheld on its Tax Returns and
paid over for all prior periods under all applicable Laws.
(d) There are no outstanding agreements, waivers, or arrangements
extending the statutory period of limitations for the assessment or collection
of Taxes with respect to any Tax Return that relates to MeriStar or any MeriStar
Subsidiary, which waivers or extensions currently are in effect, and no request
for any such waiver or extension is currently pending.
(e) There are no Tax rulings, request for rulings, or closing
agreements relating specifically to MeriStar or any MeriStar Subsidiary which
could affect its liability for Taxes for any period after the Closing Date.
(f) No action, suit, proceeding, investigation, audit, claim, or
assessment is presently pending or to the knowledge of MeriStar, proposed with
regard to any Taxes that relate
47
to MeriStar or any MeriStar Subsidiary for which MeriStar or any MeriStar
Subsidiary would or could be liable. None of MeriStar or any MeriStar Subsidiary
has received a request from any taxing authority for information with respect to
Taxes of MeriStar or the MeriStar Subsidiaries. Neither MeriStar nor any
MeriStar Subsidiary has any knowledge of any fact or condition that, if known to
any taxing authority having jurisdiction, would likely result in the issuance of
a notice of proposed deficiency or similar notice of intention to assess Taxes
against MeriStar or the MeriStar Subsidiaries, and no issue has arisen in any
examination of MeriStar or the MeriStar Subsidiaries by any taxing authority
that if raised with respect to any other period not so examined would result in
a material deficiency for any other period not so examined, if upheld.
(g) Neither MeriStar nor any of the MeriStar Subsidiaries (i) has
agreed to or is required to make any adjustment pursuant to Section 481 of the
Code (or any predecessor or similar provision of other Laws or regulations) by
reason of a change in accounting method or otherwise; (ii) has knowledge that
any taxing authority has proposed any such adjustment or change which proposal
is currently pending; or (iii) has an application pending with any taxing
authority requesting permission for any change in accounting methods that
relates to its business and operations.
(h) Neither MeriStar nor any MeriStar Subsidiary (i) is a party to, is
bound by, or has any obligation under, any Tax sharing agreement or similar
contract, (ii) has any current or potential contractual obligation to indemnify
any other person with respect to Taxes, or (iii) has any obligation to make
distributions in respect of Taxes.
(i) No Taxes are delinquent or constitute a lien (other than with
respect to Taxes which are not yet due and payable) against MeriStar or any
MeriStar Subsidiary, except with respect to Taxes being contested in good faith
by appropriate proceedings (all of which are disclosed on Section 4.15(i) of the
MeriStar Disclosure Letter) and for payment of which Taxes adequate reserves
have been established.
(j) There is no contract, agreement, plan, or arrangement covering any
person that, individually or collectively, could give rise to the payment of any
amount that would not be deductible by MeriStar or any MeriStar Subsidiary by
reason of Section 280G of the Code.
(k) The unused "net operating losses" (as defined in Section 172 of the
Code) of MeriStar and each MeriStar Subsidiary as reflected in the applicable
Tax Returns, and the years in which all such net operating losses arose and will
expire are set forth on Section 4.15(k) of the MeriStar Disclosure Letter.
(l) To the knowledge of MeriStar, no property of MeriStar or any
MeriStar Subsidiary is "tax-exempt use property" within the meaning of Section
168 of the Code.
(m) Neither MeriStar nor, to the knowledge of MeriStar, any of its
affiliates has taken or agreed to take any action, nor is MeriStar aware of any
agreement, plan or other circumstance, that would prevent the Merger from
constituting a transaction qualifying as a reorganization under Section 368(a)
of the Code.
48
(n) Neither MeriStar nor any MeriStar Subsidiary has been either a
distributing or controlled corporation within the meaning of Section 355 of the
Code within the two years preceding the date of this Agreement.
Section 4.16 NON-COMPETITION AGREEMENTS.
(a) Section 4.16(a) of the MeriStar Disclosure Letter sets forth a
complete and accurate list of any Contract to which MeriStar or any MeriStar
Subsidiary is a party which purports to restrict or prohibit MeriStar or any
MeriStar Subsidiary collectively from, directly or indirectly, engaging in any
business currently engaged in by MeriStar, any MeriStar Subsidiary or any other
persons affiliated with MeriStar. Except as set forth in Section 4.16(a) of the
MeriStar Disclosure Letter or as has not had and could not reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect on
MeriStar, neither MeriStar nor any MeriStar Subsidiary is a party to any
Contract which purports to restrict or prohibit MeriStar or any MeriStar
Subsidiary collectively from, directly or indirectly, engaging in any business
currently engaged in by MeriStar, any MeriStar Subsidiary or any other persons
affiliated with MeriStar and none of MeriStar's officers, directors or key
employees is a party to any agreement which, by virtue of such person's
relationship with MeriStar, restricts MeriStar or any MeriStar Subsidiary or
affiliate of either of them from, directly or indirectly, engaging in any of the
businesses described above.
(b) Assuming the accuracy and completeness of the list of names and
addresses of the properties contained in Section 3.29(a) of the Interstate
Disclosure Letter, Section 4.16(b) of the MeriStar Disclosure Letter sets forth
a complete and accurate list of each management agreement, franchise agreement
or other agreement to which MeriStar or any MeriStar Subsidiary is a party that
contains any restriction on engaging in any business (or the geographical scope
of such business) currently engaged in by MeriStar, any MeriStar Subsidiary, any
other persons affiliated with MeriStar or by MeriStar, any MeriStar Subsidiary
or any other persons affiliated with MeriStar, in each case, that would be
breached or violated or that would result in the restriction or termination of
such management agreement as a result of the execution, delivery or performance
of this agreement or the consummation of the transactions contemplated hereby.
Section 4.17 AGREEMENTS WITH REGULATORY AGENCIES. Except as set forth
in Section 4.17 of the MeriStar Disclosure Letter, neither MeriStar nor any
MeriStar Subsidiary is subject to any cease-and-desist or other order issued by,
or is a party to any written agreement, consent agreement or memorandum of
understanding with, or is a party to any commitment letter or similar
undertaking to, or is subject to any order or directive by, or is a recipient of
any extraordinary supervisory letter from, or has adopted any board resolutions
at the request of (each, whether or not listed in Section 4.17 of the MeriStar
Disclosure Letter, a "MERISTAR REGULATORY AGREEMENT"), any Governmental Entity
that restricts the conduct of its business, except for any MeriStar Regulatory
Agreements that, individually or in the aggregate, have not resulted and could
not reasonably be expected to result in a Material Adverse Effect on MeriStar.
Neither MeriStar nor any MeriStar Subsidiary has been advised by any
Governmental Entity that such Governmental Entity is considering issuing or
requesting any MeriStar Regulatory Agreement, except for any such proposed
MeriStar Regulatory Agreements that, individually or in the aggregate, could not
49
reasonably be expected to result in a Material Adverse Effect on MeriStar.
Section 4.18 OPINION OF FINANCIAL ADVISOR. Salomon Smith Barney Inc.
(the "MERISTAR FINANCIAL ADVISOR") has delivered to the Board of Directors of
MeriStar its opinion to the effect that, as of the date of this Agreement, the
Exchange Ratio is fair, from a financial point of view, to MeriStar, which
opinion will be accompanied by an authorization to include a copy of such
opinion in the Proxy Materials. MeriStar will deliver to Interstate a signed
copy of the written opinion for informational purposes only promptly after
receipt by MeriStar of such opinion.
Section 4.19 BROKERS. No broker, finder, investment banker or financial
advisor other than the MeriStar Financial Advisor is entitled to any brokerage,
finder's or other fee or commission in connection with the Merger or the other
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of MeriStar or any of the MeriStar Subsidiaries or their affiliates.
Prior to the date of this Agreement, MeriStar has made available to Interstate a
complete and correct copy of all agreements between MeriStar or any of the other
MeriStar Subsidiaries or their affiliates and the MeriStar Financial Advisor
under which the MeriStar Financial Advisor would be entitled to any payment
relating to the Merger or such other transactions.
Section 4.20 CERTAIN STATUTES. The Board of Directors of MeriStar has
taken or will take all appropriate and necessary actions to ensure that the
restrictions on business combinations in Section 203 of the DGCL will not have
any effect on the Merger or the other transactions contemplated by this
Agreement. No Takeover Statute is, as of the date of this Agreement, applicable
to the Merger or such other transactions.
Section 4.21 INFORMATION. None of the information to be supplied by
MeriStar or any MeriStar Subsidiary for inclusion or incorporation by reference
in the Proxy Statement or the Registration Statement will, in the case of the
Registration Statement, at the time it becomes effective and at the Effective
Time, contain any untrue statement of a material fact or omit to state any
material fact required to be stated in the Registration Statement or necessary
to make the statements in the Registration Statement not misleading in light of
the circumstances under which they were made, or, in the case of the Proxy
Statement or any amendments of or supplements to the Proxy Statement, at the
time of the mailing of the Proxy Statement and any amendments of or supplements
to the Proxy Statement and at the time of the MeriStar Stockholders Meeting and
the MeriStar Stockholders Meeting, contain any untrue statement of a material
fact or omit to state any material fact required to be stated in the Proxy
Statement or necessary in order to make the statements in the Proxy Statement,
in light of the circumstances under which they are made, not misleading. The
Proxy Statement (except for those portions of the Proxy Statement that relate
only to Interstate or the Interstate Subsidiaries or affiliates of Interstate)
will comply as to form in all material respects with the provisions of the
Exchange Act.
Section 4.22 VOTE REQUIRED. The Requisite MeriStar Vote is the only
vote of the holders of any class or series of MeriStar's capital stock necessary
(under the rules and regulations of the NYSE, MeriStar's certificate of
incorporation and bylaws, the DGCL, other applicable Law or otherwise) to
approve this Agreement, the Merger or the other transactions contemplated by
this Agreement.
50
Section 4.23 PROPERTIES.
(a) Section 4.23(a)(i) of the MeriStar Disclosure Letter sets forth a
complete and accurate list and the address or description of all real property
owned or leased by MeriStar or any MeriStar Subsidiary, other than leases with a
duration of less than one year entered into in the ordinary course of business
by BridgeStreet Accommodations, Inc. (collectively, and including all buildings,
structures and other improvements and fixtures located on or under such land and
all easements, rights and other appurtenances to such land, the "MERISTAR
PROPERTIES"). (1) For those MeriStar Properties to which MeriStar or a MeriStar
Subsidiary owns fee simple title, such owner owns good, marketable and insurable
fee simple title to such MeriStar Property, and (2) for those MeriStar
Properties leased by MeriStar or a MeriStar Subsidiary, such lessee holds valid
leasehold title to such MeriStar Property, which title is, in each case
described in clauses (1) and (2) of this sentence, free and clear of
Encumbrances, except for such mortgages set forth in Section 4.23(a)(ii) of the
MeriStar Disclosure Letter or Encumbrances securing obligations disclosed in the
consolidated balance sheets included in or incorporated by reference into the
MeriStar Filed SEC Reports, mechanics and materialmen's Liens for amounts
incurred in the ordinary course of business and which are not yet due and
payable or are being contested in good faith and easements, rights of way,
restrictive covenants and other non-monetary Encumbrances, MeriStar Ordinary
Course Leases and the MeriStar Space Leases and Encumbrances for taxes not yet
due and payable or which are not being contested in good faith, which
individually, or in the aggregate, could not reasonably be expected to have a
Material Adverse Effect on MeriStar.
(b) Except as set forth in Section 4.23(b) of the MeriStar Disclosure
Letter, and except for matters which could not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect on MeriStar
or to materially and adversely affect the use or occupancy (or, if applicable,
any proposed developments) of the MeriStar Properties in a manner which could
reasonably be expected to have a Material Adverse Effect on MeriStar, MeriStar
has no knowledge that any currently required certificate, permit or license
(including building permits and certificates of occupancy) from any Governmental
Entity having jurisdiction over any MeriStar Property has not been obtained or
is not in full force and effect or is subject to any pending modification or
cancellation.
(c) Section 4.23(c) of the MeriStar Disclosure Letter sets forth a
complete and accurate list of all definitive agreements made or entered into by
MeriStar or any MeriStar Subsidiary as of the date hereof, (x) to sell,
mortgage, pledge or hypothecate the interest of MeriStar or such MeriStar
Subsidiary in any MeriStar Property, which, individually or in the aggregate,
are material, or to otherwise enter into a material transaction in respect of
the ownership or financing of the interest of MeriStar or such MeriStar
Subsidiary in any MeriStar Property or (y) to purchase real property to which
MeriStar or any MeriStar Subsidiary is a party.
(d) Except as set forth in Section 4.23(d) of the MeriStar Disclosure
Letter, none of MeriStar's or any MeriStar Subsidiary's fee or leasehold
interests in any of the MeriStar Properties is subject to any outstanding
purchase options, rights of first refusal, rights of first offer or similar
rights, other than such rights which could not reasonably be expected to have a
Material Adverse Effect on MeriStar, nor has MeriStar or any MeriStar Subsidiary
entered into
51
any outstanding contracts with others for the sale, mortgage, pledge,
hypothecation, assignment, sublease or lease of any material portion of the
MeriStar Property or MeriStar's or any MeriStar Subsidiary's interest therein or
other transfer of all or any part of any MeriStar Property or MeriStar's or any
MeriStar Subsidiary's interest therein, except for (i) leases or subleases
entered into in the ordinary course of business for long-term stay rental units,
newsstands, gift shops, restaurants and other establishments customarily located
in hotel properties, (ii) leases and subleases of rooftops and other portions of
the MeriStar Properties for telecommunications purposes and (iii) other leases,
subleases and similar agreements the existence of which could not, individually
or in the aggregate, reasonably be expected to have a Material Adverse Effect on
MeriStar (collectively, "MERISTAR ORDINARY COURSE LEASES").
(e) The leases underlying the leased MeriStar Properties referenced in
Section 4.23(a)(i) of the MeriStar Disclosure Letter (collectively, the
"MERISTAR LEASES") are accurately set forth in Section 4.23(e) of the MeriStar
Disclosure Letter. Each of the MeriStar Leases is valid, binding and in full
force and effect as against MeriStar or the MeriStar Subsidiaries and, to
MeriStar's knowledge, as against the other party thereto, except to the extent
the failure to be binding and in full force and effect could not reasonably be
expected to have a Material Adverse Effect on MeriStar. There does not exist
under any of the MeriStar Leases any default or event of default by MeriStar or
any MeriStar Subsidiary or, to the knowledge of MeriStar, any default or event
of default of any other party, and, to MeriStar's knowledge, no event has
occurred which, with notice or lapse of time or both, would constitute such a
default or event of default, except as could not, individually or in the
aggregate, be reasonably expected to result in a Material Adverse Effect on
MeriStar.
(f) Section 4.23(f) to the MeriStar Disclosure Letter sets forth a list
of the hotel franchise agreements (the "MERISTAR FRANCHISE AGREEMENTS") under
which MeriStar or a MeriStar Subsidiary is a franchisee. Each of the MeriStar
Franchise Agreements is valid, binding and in full force and effect (except to
the extent the failure to be binding and in full force and effect could not,
individually or in the aggregate, reasonably be expected to result in a Material
Adverse Effect on MeriStar). There are no defaults under the MeriStar Franchise
Agreements by MeriStar or a MeriStar Subsidiary or, to the knowledge of
MeriStar, by any other party thereto, nor have any events occurred which with
the giving of notice or the passage of time or both would constitute such a
default or event of default thereunder, except as could not, individually or in
the aggregate, reasonably be expected to have a Material Adverse Effect on
MeriStar.
(g) Section 4.23(g) of the MeriStar Disclosure Letter sets forth all
material leases, subleases, licenses, time-share and other agreements, other
than MeriStar Ordinary Course Leases (collectively, the "MERISTAR SPACE LEASE"),
granting to any person or entity other than MeriStar or any MeriStar Subsidiary
any right to the possession, use, occupancy or enjoyment of the MeriStar
Properties or any portion thereof. Each MeriStar Space Lease is valid, binding
and in full force and effect, all rent and other sums and charges payable by the
tenant or occupant thereunder (a "MERISTAR SPACE TENANT") are current, no notice
of default or termination under any MeriStar Space Lease is outstanding, no
termination event or condition or uncured default on the part of MeriStar or any
MeriStar Subsidiary or, to the knowledge of MeriStar, the MeriStar Space Tenant,
exists under any MeriStar Space Lease, and no event has occurred and no
condition exists that, with the giving of notice or the lapse of time, or both,
would constitute such
52
a default or termination event or condition, except where such default,
termination, termination event, condition or failure to be valid, binding and in
full force and effect, individually or in the aggregate, has not had and could
not reasonably be expected to have a Material Adverse Effect on MeriStar.
(h) Each of MeriStar and the MeriStar Subsidiaries owns good and valid
title to or holds valid leasehold title to, as the case may be, all of its
material tangible personal property and assets (other than the MeriStar
Properties) used in, held for use in or which are necessary for the conduct of
the business of MeriStar as currently conducted, except where the failure to
hold good and valid title to such property and assets, individually or in the
aggregate, has not had, and could not reasonably be expected to have a Material
Adverse Effect on MeriStar.
(i) MeriStar has not received notice of and, to the knowledge of
MeriStar, there is no pending, threatened or contemplated condemnation
proceeding affecting the MeriStar Property, any property with respect to which
MeriStar or any MeriStar Subsidiary is a party to a hotel management agreement
or participating lease ("MERISTAR MANAGED PROPERTY"), or any part thereof, nor
any sale or other disposition of the MeriStar Property, MeriStar Managed
Property or any part thereof in lieu of condemnation. No portion of the MeriStar
Property or MeriStar Managed Property has suffered any material damage by fire
or other casualty that has not heretofore been completely repaired and restored,
except as, individually or in the aggregate, has not had and could not
reasonably be expected to have a Material Adverse Effect on MeriStar.
(j) MeriStar has made available to Interstate or its representatives
copies of the MeriStar Leases and the MeriStar Space Leases that are true,
correct and complete in all material respects.
(k) Neither MeriStar nor any of the MeriStar Subsidiaries is engaged in
any real estate development projects except as set forth in Section 4.23(k) of
the MeriStar Disclosure Letter.
Section 4.24 NO PAYMENTS TO EMPLOYEES, OFFICERS OR DIRECTORS. Except as
set forth in Section 4.24 of the MeriStar Disclosure Letter, there are no cash
or non-cash payments that will become payable to any employee, officer or
director of MeriStar or any MeriStar Subsidiary as a result of the Merger or the
transactions contemplated by this Agreement. Except as otherwise provided for in
this Agreement or as set forth in Section 4.24 of the MeriStar Disclosure
Letter, there is no employment or severance contract or other agreement
requiring payments, cancellation of indebtedness or other obligation, to be made
as a result of the consummation of any of the transactions contemplated by this
Agreement, with respect to any employee, officer or director of MeriStar or any
MeriStar Subsidiary.
Section 4.25 POTENTIAL CONFLICTS OF INTEREST. Except as set forth in
Section 4.25 of the MeriStar Disclosure Letter or in the MeriStar SEC Reports,
to the knowledge of MeriStar, no officer, director or affiliate of MeriStar or
any MeriStar Subsidiary, and no relative or spouse of any such officer, director
or affiliate: (a) owns, directly or indirectly, any interest in (excepting less
than 1% stock holdings for investment purposes in securities of publicly held
and traded companies),
53
or is an officer, director, employee or consultant of, any person that is, or is
engaged in business as, a competitor, lessor, lessee, supplier, distributor,
sales agent or customer of, or lender to or borrower from, MeriStar or any of
the MeriStar Subsidiaries; (b) owns, directly or indirectly, in whole or in
part, any material tangible or intangible property that MeriStar or any of the
MeriStar Subsidiaries uses in the ordinary conduct of its business; or (c) has
any cause of action or other claim whatsoever against, or owes any amount to,
MeriStar or any of the MeriStar Subsidiaries, except for claims in the ordinary
course of business such as for accrued vacation pay, accrued benefits under
MeriStar Benefit Plans, and similar matters and agreements arising in the
ordinary course of business.
Section 4.26 REGISTRATION RIGHTS. Except as set forth in Section 4.26
of the MeriStar Disclosure Letter, no person has any right to require the
registration of any shares of MeriStar Common Stock or any other securities of
MeriStar or any MeriStar Subsidiary.
Section 4.27 INVESTMENT COMPANY ACT OF 1940. Neither MeriStar nor any
of the MeriStar Subsidiaries is, or at the Effective Time will be, required to
be registered under the 1940 Act.
Section 4.28 RIGHTS AGREEMENT. The MeriStar Rights Agreement has been
amended (the "MERISTAR RIGHTS PLAN AMENDMENT") to exempt from the definition of
Acquiring Person (as defined in the MeriStar Rights Agreement) Interstate
Stockholders that would otherwise be deemed Acquiring Persons as a result of the
execution and delivery of this Agreement or the receipt of the Merger
Consideration in the Merger. A copy of the MeriStar Rights Plan Amendment is set
forth in Section 4.28 of the MeriStar Disclosure Letter.
Section 4.29 MERISTAR MANAGEMENT AGREEMENTS.
(a) Section 4.29(a) of the MeriStar Disclosure Letter sets forth a
complete and accurate list of all of the hotel management agreements or
participating leases to which MeriStar or any MeriStar Subsidiary is a party
(the "MERISTAR MANAGEMENT AGREEMENTS"), along with the amount of the fees
received under each such MeriStar Management Agreement during the fiscal year
ended December 31, 2001 and the name and address of each of the properties to
which each such MeriStar Management Agreement relates.
(b) Section 4.29(b) of the MeriStar Disclosure Letter sets forth a
complete and accurate list of each MeriStar Management Agreement under which any
portion of the "base fees" payable under such MeriStar Management Agreement may
be (i) recovered from MeriStar or any MeriStar Subsidiary by the party paying
such fees or (ii) required to be repaid by MeriStar or any MeriStar Subsidiary,
in each case, along with the maximum amount of such potential recovery or
repayment.
(c) Section 4.29(c) of the MeriStar Disclosure Letter sets forth a
complete and accurate list of each MeriStar Management Agreement under which (i)
the owner of the managed hotel has, to the knowledge of MeriStar, overtly
threatened action adverse to MeriStar or any MeriStar Subsidiary because of
noncompliance with performance standards under such MeriStar Management
Agreement or, (ii) MeriStar or any MeriStar Subsidiary has received a notice of
termination or where events, conditions or circumstances exist which are
reasonably likely to
54
result in termination.
(d) Other than as set forth in Section 4.29(d) of the MeriStar
Disclosure Letter, there are no understandings, written or otherwise, with
respect to any MeriStar Management Agreement or MeriStar Equity Investment, that
would require MeriStar or any MeriStar Subsidiary to make any additional
investments in or loans to any person other than MeriStar or any MeriStar
Subsidiary.
Section 4.30 LAWS ADDRESSING BRIBERY AND CORRUPTION. MeriStar and each
of the MeriStar Subsidiaries has complied with the provisions of The Foreign
Corrupt Practices Act of 1977, as amended or other Laws addressing bribery and
corruption. Without limiting the foregoing sentence, neither MeriStar nor any of
the MeriStar Subsidiaries has made, offered to make or authorized the making of
any improper payment or other improper contribution of value, directly or
indirectly, to any officer, employee or representative of a government or
instrumentality thereof or of any public international organization or made any
other illegal payment.
Section 4.31 MERISTAR LONG-TERM APARTMENT RENTAL BUSINESS.
(a) BridgeStreet Accommodations, Inc. ("BRIDGESTREET") and each of its
subsidiaries are listed in Section 4.31(a) of the MeriStar Disclosure Letter.
(b) Section 4.31(b) of the MeriStar Disclosure Letter sets forth a
complete and accurate list of the addresses of all offices in which BridgeStreet
and each of its affiliates conducts business, along with (i) the number of
apartment units leased by BridgeStreet or such affiliate in the twelve month
period ended December 31, 2001 by each such office, and (ii) the amount of the
fees received by each such office during the fiscal year ended December 31,
2001.
(c) Section 4.31(c) of the MeriStar Disclosure Letter sets forth a
complete and accurate list of any broker or finder that was or is entitled to
any brokerage, finder's or other fee or commission in connection with the
conduct of the business of BridgeStreet and its affiliates based upon
arrangements made by or on behalf of BridgeStreet or such affiliate, along with
the amount of the fees paid or to be paid under each such arrangement, (i)
during the fiscal year ended December 31, 2001 and (ii) as of the most recent
month end prior to the date of this Agreement. Prior to the date of this
Agreement, MeriStar has made available to Interstate a complete and correct copy
of all agreements between BridgeStreet or any of its affiliates and any broker
or finder under which the broker or finder would be entitled to any payment.
(d) Each lease, sublease or similar agreement entered into by
BridgeStreet or any of its affiliates in the ordinary course of business for
long-term stay rental units (collectively, "BRIDGESTREET ORDINARY COURSE
LEASES") is valid, binding and in full force and effect as against BridgeStreet
or such affiliate and, to MeriStar's knowledge, as against the other party
thereto, except to the extent the failure to be binding and in full force and
effect could not reasonably be expected to have a Material Adverse Effect on
MeriStar. There does not exist under any of the BridgeStreet Ordinary Course
Leases any default or event of default by BridgeStreet or any of its affiliates
or, to MeriStar's knowledge, any default or event of default of any other party,
and, to MeriStar's knowledge, no event has occurred which, with notice or lapse
of time or both, would
55
constitute such a default or even of default, except, in each case, as would
not, individually or in the aggregate, be reasonably expected to result in a
Material Adverse Effect on MeriStar.
ARTICLE V COVENANTS
Section 5.1 CONDUCT OF BUSINESS OF INTERSTATE. During the period from
the date of this Agreement to the Effective Time, except as set forth in Section
5.1 of the Interstate Disclosure Letter or as is expressly contemplated by this
Agreement and the Interstate Voting Agreement, unless otherwise consented to in
writing by MeriStar or by the Interim Transaction Committee, as applicable: (a)
Interstate shall use its reasonable best efforts to, and shall cause each of the
Interstate Subsidiaries to use its reasonable best efforts to, conduct its
operations only in the ordinary course of business consistent with past practice
and, to the extent consistent therewith, with no less diligence and effort than
would be applied in the absence of this Agreement; and (b) Interstate shall use,
and shall cause each Interstate Subsidiary to use, its reasonable best efforts
to preserve intact the business organization of Interstate and each of the
Interstate Subsidiaries, to keep available the services of the present officers
and other key employees of Interstate and the Interstate Subsidiaries, and to
preserve the good will of customers, suppliers and all other persons having
business relationships with Interstate and the Interstate Subsidiaries. Without
limiting the generality of the foregoing, during such period, except as set
forth in Section 5.1 of the Interstate Disclosure Letter or as is expressly
contemplated by this Agreement, Interstate shall not, and shall not permit any
Interstate Subsidiary to, without the prior written consent of MeriStar until
the Interim Transaction Committee is formed pursuant to Section 5.23, and
thereafter without the prior written consent of the Interim Transaction
Committee, which consent (in either case) shall not be unreasonably withheld or
delayed:
(a) except as required by applicable Law, adopt any amendment to the
charter or bylaws of Interstate or the comparable organizational documents of
any Interstate Subsidiary;
(b) except for (i) issuances of capital stock of the Interstate
Subsidiaries to Interstate or a wholly owned Interstate Subsidiary or in any
circumstance of the type described in clause (e) below, (ii) issuances of
Interstate Common Stock, in accordance with the terms of the instruments
governing such issuance on the date hereof, (iii) issuances pursuant to the
exercise of Interstate Stock Options outstanding on the date hereof, (iv)
issuances pursuant to the exercise of rights presently existing under the terms
and conditions of the Interstate Convertible Securities, or (v) issuances
pursuant to the Interstate Stockholder Rights, issue, reissue, sell or pledge,
or authorize the issuance, reissuance, sale or pledge of (y) additional shares
of capital stock or other equity securities of any class, or securities
convertible into capital stock or other equity securities or any rights,
warrants or options to acquire any such convertible securities or capital stock
or other equity securities, or (z) any other securities in respect of, in lieu
of, or in substitution for, Interstate Common Stock outstanding on the date
hereof;
(c) declare, set aside, make or pay any dividend or other distribution
(whether in cash, securities or property or any combination thereof) in respect
of any class or series of its capital stock other than between Interstate and
any wholly owned Interstate Subsidiary;
(d) directly or indirectly, split, combine, subdivide, reclassify or
redeem,
56
retire, purchase or otherwise acquire, or propose to redeem, retire, purchase or
otherwise acquire, any shares of its capital stock, or any of its other
securities;
(e) except for increases in salary, wages and benefits of officers or
employees of Interstate or the Interstate Subsidiaries in accordance with past
practice or increases in salary, wages and benefits granted to officers and
employees of Interstate or the Interstate Subsidiaries in conjunction with new
hires, promotions or other changes in job status or increases in salary, wages
and benefits of employees of Interstate or the Interstate Subsidiaries pursuant
to existing employment agreements or collective bargaining agreements entered
into in the ordinary course of business, (i) increase the compensation or fringe
benefits payable or to become payable to its directors, officers or employees
(whether from Interstate or any Interstate Subsidiary), (ii) pay any benefit not
required by any existing plan or arrangement (including the granting of stock
options, stock appreciation rights, shares of restricted stock or performance
units) or grant any severance or termination pay to (except pursuant to existing
agreements, plans or policies), or enter into any employment or severance
agreement with, any director, officer or other employee of Interstate or any
Interstate Subsidiary, or (iii) establish, adopt, enter into, amend or take any
action to accelerate rights under any collective bargaining, bonus, profit
sharing, thrift, compensation, stock option, restricted stock, pension,
retirement, savings, welfare, deferred compensation, employment, termination,
severance or other employee benefit plan, agreement, trust, fund, policy or
arrangement for the benefit or welfare of any directors, officers or current or
former employees, except in each case to the extent required by applicable Law;
PROVIDED, HOWEVER, that nothing in this Agreement will be deemed to prohibit the
payment of benefits as they become payable;
(f) acquire, sell, lease, license, transfer, pledge, encumber, grant or
dispose of (whether by merger, consolidation, purchase, sale or otherwise) any
assets, including any Intellectual Property of Interstate or any Interstate
Subsidiary or any capital stock of the Interstate Subsidiaries (other than the
acquisition and sale of inventory or the disposition of used or excess equipment
and the purchase of raw materials, supplies and equipment, in each case in the
ordinary course of business consistent with past practice), that are material to
Interstate and the Interstate Subsidiaries, taken as a whole, or enter into any
material commitment or transaction outside the ordinary course of business,
other than transactions between a wholly owned Interstate Subsidiary and
Interstate or another wholly owned Interstate Subsidiary;
(g) (i) incur, assume or prepay any long-term indebtedness or incur or
assume any short-term indebtedness (including, in either case, by issuance of
debt securities), except that Interstate and the Interstate Subsidiaries may
incur, assume or prepay indebtedness in the ordinary course of business
consistent with past practice under existing lines of credit, (ii) assume,
guarantee, endorse or otherwise become liable or responsible (whether directly,
contingently or otherwise) for the obligations of any other person except in the
ordinary course of business consistent with past practice, (iii) make any loans,
advances or capital contributions to, or investments in, any other person except
in the ordinary course of business consistent with past practice and except for
loans, advances, capital contributions or investments between any wholly owned
Interstate Subsidiary and Interstate or another wholly owned Interstate
Subsidiary or (iv) make any loans or advances to any employee or director of
Interstate or any Interstate Subsidiary;
57
(h) terminate, cancel or request any material change in, or agree to
any material change in, any Contract, permit or license which is material to
Interstate and the Interstate Subsidiaries taken as a whole, or enter into any
Contract which would be material to Interstate and the Interstate Subsidiaries
taken as a whole, in either case other than in the ordinary course of business
consistent with past practice; or make or authorize any capital expenditure,
other than capital expenditures that are not, in the aggregate, for any fiscal
year, in excess of 10% of the capital expenditures provided for in Interstate's
budget for Interstate and the Interstate Subsidiaries taken as a whole for such
fiscal year (a copy of which budget has been provided to MeriStar);
(i) take any action with respect to accounting policies or procedures,
other than actions in the ordinary course of business and consistent with past
practice or as required pursuant to applicable Law or GAAP;
(j) waive, release, assign, settle or compromise any rights, claims or
litigation in excess of $100,000 per event other than in the ordinary course of
business consistent with past practice or as required by any Contract existing
on the date of this Agreement;
(k) pay, discharge or satisfy any claim, liability or obligation
(absolute, accrued, asserted or unasserted, contingent or otherwise) the
uninsured portion of which is in excess of $100,000 per event other than in the
ordinary course of business consistent with past practice or as required by any
Contract existing on the date of this Agreement;
(l) enter into any agreement or arrangement that materially limits or
otherwise restricts Interstate or any Interstate Subsidiary or any successor
thereto, or that would, after the Effective Time, limit or restrict the
Surviving Corporation and its affiliates or any successor thereto, from engaging
or competing in any line of business or in any geographic area, other than in
the ordinary course of business consistent with past practice;
(m) make any material Tax election or settle or compromise any material
federal, state, local or foreign Tax deficiency;
(n) enter into or amend the material terms of any hotel management
agreements or participating leases;
(o) act or knowingly omit to act (or permit any licensee or sublicensee
to do or omit to do any act) as a result of which any material Intellectual
Property may become invalidated, abandoned or dedicated to the public domain;
(p) except for changes required by applicable Law, GAAP or the National
Association of Insurance Commssioners, make any material change in (i) any
crediting, underwriting, actuarial, dividend, investment, financial reporting,
marketing or accounting practice or policy followed by any Interstate Insurance
Subsidiary or in any assumption underlying any such practice or policy, (ii) any
method of calculating bad debt, contingencies or other reserve for financial
reporting or any other accounting purposes (including, without limitation, any
practice, policy, assumption or method relating to or affecting the
determination
58
of insurance in force, premium or investment income, Reserve Liabilities or
operating ratios with respect to expenses, losses or lapses);
(q) except for actions taken in the ordinary course of business in
accordance with past practice with respect to insurance policies in force, make
any material amendment of or fail to perform all of its obligations under, or
waive any right under, or terminate any Contract that involves or would
reasonably be expected to involve the annual expenditure or receipt by any
Interstate Insurance Subsidiaries (or group thereof) of more than $50,000;
(r) materially amend or terminate any Interstate Reinsurance Contract
or any trust agreement or security agreement related thereto or enter into as
ceding or assuming issuer any reinsurance, coinsurance or other similar contract
or any trust agreement or security agreement related thereto; or
(s) authorize or enter into any formal or informal written or other
agreement or otherwise make any commitment to do any of the foregoing.
Section 5.2 CONDUCT OF BUSINESS OF MERISTAR. During the period from the
date of this Agreement to the Effective Time, except as set forth in Section 5.2
of the MeriStar Disclosure Letter or as is expressly contemplated by this
Agreement and the MeriStar Voting Agreement, unless otherwise consented to in
writing by Interstate or by the Interim Transaction Committee, as applicable:
(a) MeriStar shall use its reasonable best efforts to, and shall cause each of
the MeriStar Subsidiaries to use its reasonable best efforts to, conduct its
operations only in the ordinary course of business consistent with past practice
and, to the extent consistent therewith, with no less diligence and effort then
would be applied in the absence of this Agreement; and (b) MeriStar shall use,
and shall cause each MeriStar Subsidiary to use, its reasonable best efforts to
preserve intact the business organization of MeriStar and each of the MeriStar
Subsidiaries, to keep available the services of the present officers and key
employees of MeriStar and the MeriStar Subsidiaries, and to preserve the good
will of customers, suppliers and all other persons having business relationships
with MeriStar and the MeriStar Subsidiaries. Without limiting the generality of
the foregoing, during such period except as set forth in Section 5.2 of the
MeriStar Disclosure Letter or as is expressly contemplated by this Agreement,
MeriStar shall not, and shall not permit any MeriStar Subsidiary to, without the
prior written consent of Interstate until the Interim Transaction Committee is
formed pursuant to Section 5.23, and thereafter without the prior written
consent of the Interim Transactions Committee, which consent (in either case)
shall not be unreasonably withheld or delayed:
(a) except as required by applicable Law, adopt any amendment to the
certificate of incorporation or bylaws of MeriStar or the comparable
organizational documents of any MeriStar Subsidiary;
(b) except for (i) issuances of capital stock of the MeriStar
Subsidiaries to MeriStar or a wholly owned MeriStar Subsidiary, or in any
circumstance of the type described in clause (e) below, (ii) issuances of
MeriStar Common Stock, in accordance with the terms of the instruments governing
such issuance on the date
59
hereof, (iii) issuances pursuant to the exercise of MeriStar Stock Options or
the MeriStar Employee Stock Purchase Plan outstanding on the date hereof, or
(iv) issuances pursuant to the exercise of the MeriStar Rights, issue, reissue,
sell or pledge, or authorize the issuance, reissuance, sale or pledge of (y)
additional shares of capital stock or other equity securities of any class, or
securities convertible into capital stock or other equity securities or any
rights, warrants or options to acquire any such convertible securities or
capital stock or other equity securities, or (z) any other securities in respect
of, in lieu of, or in substitution for, MeriStar Common Stock outstanding on the
date hereof;
(c) declare, set aside, make or pay any dividend or other distribution
(whether in cash, securities or property or any combination thereof) in respect
of any class or series of its capital stock other than between MeriStar and any
wholly owned MeriStar Subsidiary;
(d) directly or indirectly, split, combine, subdivide, reclassify or
redeem, retire, purchase or otherwise acquire, or propose to redeem, retire,
purchase or otherwise acquire, any shares of its capital stock, or any of its
other securities;
(e) except for increases in salary, wages and benefits of officers or
employees of MeriStar or the MeriStar Subsidiaries in accordance with past
practice or increases in salary, wages and benefits granted to officers and
employees of MeriStar or the MeriStar Subsidiaries in conjunction with new
hires, promotions or other changes in job status or increases in salary, wages
and benefits of employees of MeriStar or the MeriStar Subsidiaries pursuant to
existing employment agreements or collective bargaining agreements entered into
in the ordinary course of business, (i) increase the compensation or fringe
benefits payable or to become payable to its directors, officers or employees
(whether from MeriStar or any MeriStar Subsidiary), (ii) pay any benefit not
required by any existing plan or arrangement (including the granting of stock
options, stock appreciation rights, shares of restricted stock or performance
units) or grant any severance or termination pay to (except pursuant to existing
agreements, plans or policies), or enter into any employment or severance
agreement with, any director, officer or other employee of MeriStar or any
MeriStar Subsidiary, or (iii) establish, adopt, enter into, amend or take any
action to accelerate rights under any collective bargaining, bonus, profit
sharing, thrift, compensation, stock option, restricted stock, pension,
retirement, savings, welfare, deferred compensation, employment, termination,
severance or other employee benefit plan, agreement, trust, fund, policy or
arrangement for the benefit or welfare of any directors, officers or current or
former employees, except in each case to the extent required by applicable Law;
PROVIDED, HOWEVER, that nothing in this Agreement will be deemed to prohibit the
payment of benefits as they become payable;
(f) acquire, sell, lease, license, transfer, pledge, encumber, grant or
dispose of (whether by merger, consolidation, purchase, sale or otherwise) any
assets, including any Intellectual Property of MeriStar or any MeriStar
Subsidiary or any capital stock of the MeriStar Subsidiaries (other than the
acquisition and sale of inventory or the disposition of used or excess equipment
and the purchase of raw materials, supplies and equipment, in each case in the
ordinary course of business consistent with past practice), that are material to
MeriStar and the MeriStar Subsidiaries, taken as a whole, or enter into any
material commitment or transaction outside the ordinary course of business,
other than transactions between a wholly owned MeriStar Subsidiary and MeriStar
or another wholly owned MeriStar Subsidiary;
60
(g) (i) incur, assume or prepay any long-term indebtedness or incur or
assume any short-term indebtedness (including, in either case, by issuance of
debt securities), except that MeriStar and the MeriStar Subsidiaries may incur,
assume or prepay indebtedness in the ordinary course of business consistent with
past practice under existing lines of credit, (ii) assume, guarantee, endorse or
otherwise become liable or responsible (whether directly, contingently or
otherwise) for the obligations of any other person except in the ordinary course
of business consistent with past practice, (iii) make any loans, advances or
capital contributions to, or investments in, any other person except in the
ordinary course of business consistent with past practice and except for loans,
advances, capital contributions or investments between any wholly owned MeriStar
Subsidiary and MeriStar or another wholly owned MeriStar Subsidiary or (iv) make
any loans or advances to any employee or director of MeriStar or any MeriStar
Subsidiary;
(h) terminate, cancel or request any material change in, or agree to
any material change in, any Contract, permit or license which is material to
MeriStar and the MeriStar Subsidiaries taken as a whole, or enter into any
Contract which would be material to MeriStar and the MeriStar Subsidiaries taken
as a whole, in either case other than in the ordinary course of business
consistent with past practice; or make or authorize any capital expenditure,
other than capital expenditures that are not, in the aggregate, for any fiscal
year, in excess of 10% of the capital expenditures provided for in MeriStar's
budget for MeriStar and the MeriStar Subsidiaries taken as a whole for such
fiscal year (a copy of which budget has been provided to Interstate);
(i) take any action with respect to accounting policies or procedures,
other than actions in the ordinary course of business and consistent with past
practice or as required pursuant to applicable Law or GAAP;
(j) waive, release, assign, settle or compromise any rights, claims or
litigation in excess of $100,000 per event other than in the ordinary course of
business consistent with past practice or as required by any Contract existing
as of the date of this Agreement;
(k) pay, discharge or satisfy any claim, liability or obligation
(absolute, accrued, asserted or unasserted, contingent or otherwise) the
uninsured portion of which is in excess of $100,000 per event other than in the
ordinary course of business consistent with past practice or as required by any
Contract existing as of the date of this Agreement;
(l) enter into any agreement or arrangement that materially limits or
otherwise restricts MeriStar or any MeriStar Subsidiary or any successor
thereto, or that would, after the Effective Time, limit or restrict the
Surviving Corporation and its affiliates or any successor thereto, from engaging
or competing in any line of business or in any geographic area, other than in
the ordinary course of business consistent with past practice;
(m) make any material Tax election or settle or compromise any material
federal, state, local or foreign Tax deficiency;
(n) enter into or amend the material terms of any hotel management
61
agreements or participating leases;
(o) act or knowingly omit to act (or permit any licensee or sublicensee
to do or omit to do any act) as a result of which any material Intellectual
Property may become invalidated, abandoned or dedicated to the public domain;
(p) except for actions taken in the ordinary course of business in
accordance with past practice, make any material amendment of or fail to perform
all of its obligations under, or waive any right under, or terminate any
BridgeStreet Ordinary Course Lease that involves or would reasonably be expected
to involve, either individually or in the aggregate, the annual expenditure or
receipt by BridgeStreet or any of its affiliates of more than $50,000; or
(q) authorize or enter into any formal or informal written or other
agreement or otherwise make any commitment to do any of the foregoing.
Section 5.3 NOTIFICATION OF CERTAIN MATTERS. MeriStar and Interstate
shall promptly notify each other of (a) the occurrence or non-occurrence of any
fact or event which could reasonably be expected (i) to cause any representation
or warranty contained in this Agreement to be untrue or inaccurate in any
material respect at any time from the date of this Agreement to the Effective
Time, (ii) to cause any covenant, condition or agreement hereunder not to be
complied with or satisfied in all material respects or (iii) to result in, in
the case of MeriStar, a Material Adverse Effect on MeriStar or, in the case of
Interstate, a Material Adverse Effect on Interstate, (b) any failure of
Interstate or MeriStar, as the case may be, to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it
hereunder in any material respect; PROVIDED, HOWEVER, that no such notification
shall affect the representations, warranties or covenants of any party or the
conditions to the obligations of any party hereunder, (c) any notice or other
material communications from any Governmental Entity in connection with the
transactions contemplated by this Agreement, (d) the commencement of any suit,
action or proceeding that seeks to prevent, seeks damages in respect of, or
otherwise relates to the consummation of the transactions contemplated by this
Agreement, and (e) the receipt of notice of (i) any adverse determination or
development (including, without limitation, the institution of, or any adverse
determination or development in, any proceeding in the United States Patent and
Trademark Office (the "PTO") or the United States Copyright Office (the
"COPYRIGHT Office") or equivalent office in any foreign jurisdiction or any
court or tribunal), other than non-final determinations of the PTO or the
Copyright Office, regarding ownership of any material Intellectual Property or
the right to register the same or to keep, maintain and use the same and (ii)
any material infringement of any material Intellectual Property of which it
becomes aware.
Section 5.4 PROXY STATEMENT.
(a) As promptly as practicable after the execution of this Agreement,
MeriStar and Interstate shall jointly prepare and MeriStar shall file with the
SEC a single document that will constitute (i) the proxy statement of Interstate
relating to the meeting of Interstate's stockholders (the "INTERSTATE
STOCKHOLDERS MEETING") to be held to consider approval and adoption of the
Interstate Proposals, (ii) the proxy statement of MeriStar relating to the
meeting of MeriStar's stockholders (the "MERISTAR STOCKHOLDERS Meeting") to be
held to consider approval of
62
the MeriStar Proposals and (iii) the registration statement on Form S-4 of
MeriStar (together with all amendments thereto, the "REGISTRATION STATEMENT"),
in connection with the registration under the Securities Act of Surviving
Corporation Common Stock to be issued to the stockholders of Interstate in
connection with the Merger. Substantially contemporaneously with the filing of
the Proxy Statement with the SEC, copies of the Proxy Statement shall be
provided to the NYSE and the NASDAQ. MeriStar and Interstate shall each use its
reasonable best efforts to cause the Registration Statement to become effective
as promptly as practicable, and, prior to the effective date of the Registration
Statement (the "REGISTRATION STATEMENT EFFECTIVE DATE"), MeriStar shall take all
or any reasonable action required under any applicable Law in connection with
the issuance of Surviving Corporation Common Stock pursuant to the Merger. Each
of MeriStar and Interstate shall furnish all information concerning MeriStar or
Interstate as the other party may reasonably request in connection with such
actions and the preparation of the definitive proxy statement forming a part of
the Registration Statement (the "PROXY STATEMENT"). As promptly as practicable
after the Registration Statement Effective Date, the Proxy Statement and all
associated materials (collectively, the "PROXY Materials") will be mailed to the
stockholders of MeriStar and Interstate. MeriStar and Interstate shall cause the
Proxy Statement to comply as to form and substance in all material respects with
the applicable requirements of (i) the Securities Act, (ii) the Exchange Act,
including Sections 14(a) and 14(d) thereof, (iii) the rules and regulations of
the NYSE, (iv) the rules and regulations of the NASDAQ, (v) the DGCL and (vi)
the MGCL.
(b) (1) The Proxy Statement shall include the unanimous and
unconditional recommendation of the Board of Directors of Interstate to the
stockholders of Interstate that they vote in favor of the Interstate Proposals
(the "INTERSTATE BOARD RECOMMENDATION"); PROVIDED, HOWEVER, that the Board of
Directors of Interstate may, at any time prior to the Effective Time, withdraw,
modify or otherwise change any such recommendation pursuant to, but only in
compliance with, Section 5.7(b). In addition, the Proxy Statement will include a
copy of the written opinion of the Interstate Financial Advisor referred to in
Section 3.18.
(2) The Proxy Statement shall include the unanimous and
unconditional recommendation of the Board of Directors of MeriStar to the
stockholders of MeriStar that they vote in favor of the MeriStar Proposals (the
"MERISTAR BOARD RECOMMENDATION"); PROVIDED, HOWEVER, that the Board of Directors
of MeriStar may, at any time prior to the Effective Time, withdraw, modify or
otherwise change any such recommendation pursuant to but only in compliance
with, Section 5.8(b). In addition, the Proxy Statement will include a copy of
the written opinion of the MeriStar Financial Advisor referred to in Section
4.18.
(c) No amendment or supplement to the Proxy Statement shall be made
without the approval of each of MeriStar and Interstate, which approval shall
not be unreasonably withheld or delayed. Each of MeriStar and Interstate shall
advise the other, promptly after it receives notice thereof, of the time when
the Registration Statement has become effective or any supplement or amendment
has been filed, of the issuance of any stop order, of the suspension of the
qualification of the MeriStar Common Stock issuable as Surviving Corporation
Common Stock in connection with the Merger for offering or sale in any
63
jurisdiction, or of any request by the SEC, the NYSE or the NASDAQ for amendment
of the Proxy Statement or comments thereon and responses thereto or requests by
the SEC for additional information.
(d) The information supplied by Interstate for inclusion in the Proxy
Statement shall not, at (i) the time the Registration Statement is declared
effective, (ii) the time the Proxy Materials (or any amendment of or supplement
to the Proxy Materials) is first mailed to the stockholders of each of MeriStar
and Interstate, (iii) the time of Interstate Stockholders Meeting, and (iv) the
time of MeriStar Stockholders Meeting, contain any untrue statement of a
material fact or fail to state any material fact required to be stated in the
Proxy Statement or necessary in order to make the statements in the Proxy
Statement not misleading. If at any time prior to the Effective Time, any event
or circumstance relating to Interstate or any Interstate Subsidiary, or their
respective officers or directors, should be discovered by Interstate that, in
Interstate's reasonable judgment after the receipt of advice from its
independent legal counsel, should be set forth in an amendment or a supplement
to the Proxy Statement, Interstate shall promptly inform MeriStar. All documents
that Interstate is responsible for filing with the SEC in connection with the
transactions contemplated by this Agreement shall comply as to form and
substance in all material respects with the applicable requirements of the MGCL,
the Securities Act and the Exchange Act.
(e) The information supplied by MeriStar for inclusion in the Proxy
Statement shall not, at (i) the time the Registration Statement is declared
effective, (ii) the time the Proxy Materials (or any amendment of or supplement
to the Proxy Materials) are first mailed to the stockholders of each of MeriStar
and Interstate, (iii) the time of the Interstate Stockholders Meeting, and (iv)
the time of the MeriStar Stockholders Meeting, contain any untrue statement of a
material fact or fail to state any material fact required to be stated in the
Proxy Statement or necessary in order to make the statements in the Proxy
Statement not misleading. If, at any time prior to the Effective Time, any event
or circumstance relating to MeriStar or any MeriStar Subsidiary, or their
respective officers or directors, should be discovered by MeriStar that, in
MeriStar's reasonable judgment after the receipt of advice from its independent
legal counsel, should be set forth in an amendment or a supplement to the Proxy
Statement, MeriStar shall promptly inform Interstate. All documents that
MeriStar is responsible for filing with the SEC in connection with the
transactions contemplated by this Agreement shall comply as to form and
substance in all material aspects with the applicable requirements of the DGCL,
the Securities Act and the Exchange Act.
(f) Interstate and MeriStar shall each furnish to the other copies of
any forms, reports, schedules, statements and other documents required to be
filed by it under the Securities Act or the Exchange Act, which it files with
the SEC on or after the date hereof, and Interstate and MeriStar, as the case
may be, represents and warrants that, as of the respective dates thereof, such
reports 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 therein, in the light of the circumstances under which they
were made, not misleading. Any unaudited consolidated interim financial
statements included in such reports (including any related notes and schedules)
will fairly present, in all material respects, the financial position of
Interstate and its consolidated subsidiaries or MeriStar and its consolidated
subsidiaries, as the case may be, as of the dates
64
thereof and the results of operations and cash flows and other information
included therein for the periods set forth therein, in each case in accordance
with GAAP consistently applied during the periods involved (except as otherwise
disclosed in the notes thereto) and subject to normal year-end adjustments that
would not, individually or in the aggregate, be material in amount or effect.
Section 5.5 STOCKHOLDERS' ACTIONS.
(a) Interstate shall call and hold the Interstate Stockholders Meeting
as promptly as practicable after the Registration Statement Effective Date for
the purpose of voting upon the Interstate Proposals, and MeriStar and Interstate
shall cooperate with each other to cause the Interstate Stockholders Meeting to
be held as soon as practicable following the mailing of the Proxy Materials to
the stockholders of Interstate. Interstate shall use its reasonable best efforts
(through its agents or otherwise) to solicit from its stockholders proxies in
favor of the Interstate Proposals and shall take all other action necessary or
advisable to secure the Requisite Interstate Vote, except to the extent that
taking such actions would cause the Board of Directors to violate the duties of
the Board of Directors of Interstate under applicable Law, as determined in good
faith by a majority of the disinterested members thereof, having received advice
of outside counsel.
(b) MeriStar shall call and hold the MeriStar Stockholders Meeting as
promptly as practicable after the Registration Statement Effective Date for the
purpose of voting upon the MeriStar Proposals, and MeriStar and Interstate shall
cooperate with each other to cause the MeriStar Stockholders Meeting to be held
as soon as practicable following the mailing of the Proxy Materials to the
stockholders of MeriStar. MeriStar shall use its reasonable best efforts
(through its agents or otherwise) to solicit from its stockholders proxies in
favor of the MeriStar Proposals and shall take all other action necessary or
advisable to secure the Requisite MeriStar Vote, except to the extent that the
Board of Directors of MeriStar determines in good faith that doing so would
cause the Board of Directors of MeriStar to breach its fiduciary duties to
MeriStar's stockholders under applicable Law, after receipt of advice to such
effect from independent legal counsel.
(c) MeriStar and Interstate shall coordinate and cooperate with respect
to the timing of the Interstate Stockholders Meeting and the MeriStar
Stockholders Meeting and shall use their reasonable best efforts to hold such
meetings on the same day.
Section 5.6 ACCESS TO INFORMATION; CONFIDENTIALITY.
(a) Except as required under any confidentiality agreement or similar
agreement or arrangement to which MeriStar or Interstate or any of their
respective subsidiaries is a party or under applicable Law or the regulations or
requirements of any securities exchange or quotation service or other self
regulatory organization with whose rules the parties are required to comply,
from the date of this Agreement to the Effective Time, MeriStar and Interstate
shall (and shall cause their respective subsidiaries to): (i) provide to the
other (and its officers, directors, employees, accountants, consultants, legal
counsel, lenders, financial advisors, investment bankers, agents and other
representatives (collectively, "REPRESENTATIVES")) access, at
65
reasonable times upon prior notice, to the officers, employees, agents,
properties, offices and other facilities of the other and its subsidiaries and
to the books and records thereof; and (ii) furnish promptly such information
concerning the business, properties, Contracts, assets, liabilities, personnel
and other aspects of the other party and its subsidiaries as the other party or
its Representatives may reasonably request. No investigation conducted under
this Section 5.6 shall affect or be deemed to modify any representation or
warranty made in this Agreement.
(b) The parties shall comply with, and shall cause their respective
Representatives to comply with, all of their respective obligations under the
Confidentiality Agreement, dated June 13, 2001 (the "CONFIDENTIALITY
AGREEMENT"), between MeriStar and Interstate with respect to the information
disclosed under this Section 5.6, and this Section 5.6(b) shall survive the
termination of this Agreement.
Section 5.7 NO SOLICITATION BY INTERSTATE.
(a) Interstate shall not, nor shall it permit any of the Interstate
Subsidiaries to, nor shall it authorize or permit any Representative of
Interstate or any of the Interstate Subsidiaries to, (i) solicit, initiate, or
encourage the submission of any Interstate Acquisition Proposal (as defined
below), (ii) except to the extent permitted by paragraph (b), enter into any
agreement with respect to any Interstate Acquisition Proposal, or (iii)
participate in any discussions or negotiations regarding, or furnish to any
person any non-public information with respect to Interstate or the Interstate
Subsidiaries in connection with, or take any other action to facilitate any
inquiries or the making of any proposal that constitutes, or may reasonably be
expected to lead to, any Interstate Acquisition Proposal; PROVIDED, HOWEVER,
that prior to the Interstate Stockholders Meeting, the Board of Directors of
Interstate, to the extent required by its duties under applicable Law as
determined in good faith by a majority of the disinterested members thereof,
having received the advice of outside counsel, may, in response to unsolicited
requests therefor, participate in discussions or negotiations with, or furnish
information pursuant to an appropriate confidentiality agreement to, any person
or entity that makes or expresses a bona fide intention to make an unsolicited
Interstate Acquisition Proposal, provided that the Board of Directors of
Interstate first determines in good faith, based on the vote of a majority of
the disinterested members thereof, that such Person or entity has the ability
and financial resources to consummate a Interstate Superior Proposal (as
determined below). Without limiting the foregoing, it is understood that any
violation of the restrictions set forth in the preceding sentence by a
Representative of Interstate or of any of the Interstate Subsidiaries, whether
or not such person is purporting to act on behalf of Interstate, a Interstate
Subsidiary or otherwise, shall be deemed to be a breach of this paragraph by
Interstate. For all purposes of this Agreement, "INTERSTATE ACQUISITION
PROPOSAL" means any proposal other than a proposal by MeriStar or a MeriStar
Subsidiary, for a merger, consolidation, share exchange, business combination or
other similar transaction involving Interstate or any of its significant
subsidiaries or any proposal or offer (including, without limitation, any
proposal or offer to stockholders of Interstate), other than a proposal or offer
by MeriStar or a MeriStar Subsidiary, to acquire in any manner, directly or
indirectly, securities representing more than 30% of the outstanding voting
power of Interstate on the date hereof, or 30% or more of the consolidated
assets of Interstate. Interstate immediately shall cease and cause to be
terminated all existing discussions or negotiations with any persons conducted
heretofore with respect to, or that could reasonably be expected to lead to,
66
any Interstate Acquisition Proposal. Notwithstanding the foregoing, the Board of
Directors of Interstate may, after receipt of an unsolicited Interstate
Acquisition Proposal, request such information as may be necessary to determine
whether the Person or entity making such Interstate Acquisition Proposal has the
ability and financial resources to consummate a Interstate Superior Proposal.
(b) Neither the Board of Directors of Interstate nor any committee
thereof shall (i) withdraw, modify or otherwise change, or propose publicly to
withdraw, modify or otherwise change, in a manner adverse to MeriStar, the
Interstate Board Recommendation or (ii) approve or recommend, or propose to
approve or recommend, any Interstate Acquisition Proposal. Notwithstanding the
foregoing, the Board of Directors of Interstate, to the extent required by its
duties under applicable Law as determined in good faith by a majority of the
disinterested members thereof, having received the advice of outside counsel,
may approve or recommend (and, in connection therewith, withdraw or modify or
otherwise change the Interstate Board Recommendation) a Interstate Superior
Proposal (as defined below). For purposes of this Agreement, a "INTERSTATE
SUPERIOR PROPOSAL" means a bona fide written proposal made by a third party to
acquire Interstate pursuant to a tender or exchange offer, a merger, a share
exchange, a sale of all or substantially all of its assets or otherwise, in any
such case, on terms which a majority of the disinterested members of the Board
of Directors of Interstate determines in their good faith judgment (after
consultation with nationally-recognized independent financial advisors and after
taking into account all legal, financial, regulatory and other material aspects
of such proposal, the person making the proposal, the strategic benefits to be
derived from the Merger and the long-term prospects of MeriStar and the MeriStar
Subsidiaries) to be more favorable to Interstate and its stockholders than the
Merger and for which financing, to the extent required, is then fully committed
or which, in the good faith judgment of a majority of such disinterested members
(after consultation with independent financial advisors), is reasonably capable
of being obtained by such third party.
(c) Interstate shall promptly advise MeriStar orally and in writing of
any Interstate Acquisition Proposal or any inquiry with respect to or which
could reasonably be expected to lead to any Interstate Acquisition Proposal, the
material terms and conditions of such Interstate Acquisition Proposal or inquiry
and the identity of the person making any such Interstate Acquisition Proposal
or inquiry. Interstate shall keep MeriStar fully informed of the status and
details of any such Interstate Acquisition Proposal or inquiry. Interstate shall
give MeriStar at least three days' advance notice of any information to be
supplied to, and at least five days' advance notice of any agreement to be
entered into with, any person making a Interstate Acquisition Proposal.
(d) Nothing contained in this Section 5.7 will prohibit Interstate from
taking and disclosing to its stockholders a position contemplated by Rule
14e-2(a) promulgated under the Exchange Act or from making any disclosure to
Interstate's stockholders if the Board of Directors of Interstate determines
that such disclosure is necessary in order to comply with the Board of Directors
of Interstate's duties under applicable Law.
Section 5.8 NO SOLICITATION BY MERISTAR.
67
(a) MeriStar shall not, nor shall it permit any of the MeriStar
Subsidiaries to, nor shall it authorize or permit any Representative of MeriStar
or any of the MeriStar Subsidiaries to, (i) solicit, initiate, or encourage the
submission of, any MeriStar Acquisition Proposal (as defined below), (ii) except
to the extent permitted by paragraph (b), enter into any agreement with respect
to any MeriStar Acquisition Proposal, or (iii) participate in any discussions or
negotiations regarding, or furnish to any person any non-public information with
respect to MeriStar or the MeriStar Subsidiaries in connection with, or take any
other action to facilitate any inquiries or the making of any proposal that
constitutes, or may reasonably be expected to lead to, any MeriStar Acquisition
Proposal; PROVIDED, HOWEVER, that prior to the MeriStar Stockholders Meeting, to
the extent required by the duties of the Board of Directors of MeriStar under
applicable Law, as determined in good faith by a majority of the disinterested
members thereof after consultation with and receipt of advice from independent
legal counsel, MeriStar may, in response to unsolicited requests therefor,
participate in discussions or negotiations with, or furnish information pursuant
to an appropriate confidentiality agreement to, any person or entity that makes
or expresses a bona fide intention to make an unsolicited MeriStar Acquisition
Proposal, provided that the Board of Directors of MeriStar first determines in
good faith, based on the vote of a majority of the disinterested members
thereof, that such Person or entity has the ability and financial resources to
consummate a MeriStar Superior Proposal (as determined below). Without limiting
the foregoing, it is understood that any violation of the restrictions set forth
in the preceding sentence by a Representative of MeriStar or of any of the
MeriStar Subsidiaries, whether or not such person is purporting to act on behalf
of MeriStar, a MeriStar Subsidiary or otherwise, shall be deemed to be a breach
of this paragraph by MeriStar. For all purposes of this Agreement, "MERISTAR
ACQUISITION PROPOSAL" means any proposal other than a proposal by Interstate or
a Interstate Subsidiary, for a merger, consolidation, share exchange, business
combination or other similar transaction involving MeriStar or any of its
significant subsidiaries or any proposal or offer (including, without
limitation, any proposal or offer to stockholders of MeriStar), other than a
proposal or offer by Interstate or a Interstate Subsidiary, to acquire in any
manner, directly or indirectly, securities representing more than 30% of the
outstanding voting power of MeriStar on the date hereof, or 30% or more of the
consolidated assets of MeriStar. MeriStar immediately shall cease and cause to
be terminated all existing discussions or negotiations with any persons
conducted heretofore with respect to, or that could reasonably be expected to
lead to, any MeriStar Acquisition Proposal. Notwithstanding the foregoing, the
Board of Directors of MeriStar may, after receipt of an unsolicited MeriStar
Acquisition Proposal, request such information as may be necessary to determine
whether the Person or entity making such MeriStar Acquisition Proposal has the
ability and financial resources to consummate a MeriStar Superior Proposal.
(b) None of the Board of Directors of MeriStar nor any committee or
subcommittee thereof shall (i) withdraw, modify or otherwise change, or propose
publicly to withdraw, modify or otherwise change, in a manner adverse to
Interstate, the MeriStar Board Recommendation or (ii) approve or recommend, or
propose to approve or recommend, any MeriStar Acquisition Proposal.
Notwithstanding the foregoing, the Board of Directors of MeriStar, to the extent
required by the duties of the Board of Directors of MeriStar under applicable
Law, as determined in good faith by a majority of the disinterested members
thereof after consultation with and receipt of advice from independent legal
counsel, may approve or
68
recommend (and, in connection therewith, withdraw or modify or otherwise change
the MeriStar Board Recommendation) a MeriStar Superior Proposal (as defined
below). For purposes of this Agreement, a "MERISTAR SUPERIOR PROPOSAL" means a
bona fide written proposal made by a third party to acquire MeriStar pursuant to
a tender or exchange offer, a merger, a share exchange, a sale of all or
substantially all of its assets or otherwise, in any such case, on terms which a
majority of the disinterested members of the Board of Directors of MeriStar
determines in their good faith judgment (after consultation with
nationally-recognized independent financial advisors and after taking into
account all legal, financial, regulatory and other material aspects of such
proposal, the person making the proposal, the strategic benefits to be derived
from the Merger and the long-term prospects of Interstate and the Interstate
Subsidiaries) to be more favorable to MeriStar and its stockholders than the
Merger and for which financing, to the extent required, is then fully committed
or which, in the good faith judgment of a majority of such disinterested members
(after consultation with independent financial advisors), is reasonably capable
of being obtained by such third party.
(c) MeriStar shall promptly advise Interstate orally and in writing of
any MeriStar Acquisition Proposal or any inquiry with respect to or which could
reasonably be expected to lead to any MeriStar Acquisition Proposal, the
material terms and conditions of such MeriStar Acquisition Proposal or inquiry
and the identity of the person making any such MeriStar Acquisition Proposal or
inquiry. MeriStar shall keep Interstate fully informed of the status and details
of any such MeriStar Acquisition Proposal or inquiry. MeriStar shall give
Interstate at least three days' advance notice of any information to be supplied
to, and at least five days' advance notice of any agreement to be entered into
with, any person making a MeriStar Acquisition Proposal.
(d) Nothing contained in this Section 5.8 will prohibit MeriStar from
taking and disclosing to its stockholders a position contemplated by Rule
14e-2(a) promulgated under the Exchange Act or from making any disclosure to
MeriStar's stockholders if the Board of Directors of MeriStar determines that
such disclosure is necessary in order to comply with the Board of Directors of
MeriStar's duties under applicable Law.
Section 5.9 ADDITIONAL AGREEMENTS. Concurrently with, at or prior to
the signing of this Agreement:
(a) The MeriStar Voting Agreement, the Interstate Voting Agreement, and
the Conversion Incentive Agreement shall have been duly executed and delivered
by all parties thereto.
(b) A commitment for refinancing from senior lenders for a term of at
least three years following the Closing shall have been secured by MeriStar (the
"COMMITMENT LETTER") and all necessary consents from MeriStar's other lenders,
including the REIT, for such refinancing (the "REFINANCING") shall have been
obtained.
(c) The parties to (i) the Investor Agreement among Interstate, CGLH
Partners I LP and CGLH Partners II LP, dated as of August 31, 2000 (the "CGLH
INVESTOR AGREEMENT"), (ii) the Securities Purchase Agreement among Interstate,
CGLH Partners I LP and CGLH
69
Partners II LP, dated as of August 31, 2000 (the "CGLH PURCHASE AGREEMENT"); and
(iii) the Registration Rights Agreement, dated October 20, 2000, by and between
Interstate, CGLH Partners I LP and CGLH Partners II LP (the "CGLH REGISTRATION
RIGHTS AGREEMENT"), shall have agreed to terminate such agreements as of the
Effective Time.
(d) The parties to the Agreement of Limited Partnership of CGLH-IHC
Fund I, L.P., among Interstate, CGLH Partners III LP and CGLH Partners IV LP,
Interstate Investment Corporation and Interstate Property Partnership, L.P.
dated as of October 20, 2000 (the "CGLH LIMITED PARTNERSHIP AGREEMENT") shall
have agreed and acknowledged that (i) there are no limitations of any kind that
can be asserted by such parties with respect to the business activities of the
Surviving Corporation or any of its subsidiaries following the consummation of
the Merger, including, without limitation, investments in hotel or resort
properties or in entities that invest in hotel or resort properties; and (ii)
there is no limitation or restriction on the use of the proceeds by MeriStar or
any of its subsidiaries from the sale of the Interstate Series B Preferred Stock
and Interstate Convertible Notes following the consummation of the Merger.
(e) REIT shall have executed and provided, and, as appropriate, caused
its affiliates to execute and provide a letter agreement in the form attached
hereto as Schedule 5.9.
(f) The limited liability company agreement of Interstate Hotels, LLC
shall have been amended in the form attached hereto as Schedule 5.9(f).
Section 5.10 DIRECTORS' AND OFFICERS' INDEMNIFICATION AND INSURANCE.
(a) MeriStar agrees that all rights to indemnification now existing in
favor of any director, officer, employee or agent of Interstate and the
Interstate Subsidiaries (the "INDEMNIFIED PARTIES") as provided in their
respective corporate governance documents, in an agreement between an
Indemnified Party and Interstate or one of the Interstate Subsidiaries, or
otherwise, in each case as in effect on the date of this Agreement, shall
survive the Merger and shall continue in full force and effect for a period of
not less than six years after the Effective Time; provided that in the event any
claim or claims are asserted or made within such six-year period, all rights to
indemnification in respect of any such claim or claims shall continue until
final disposition of any and all such claims. The Surviving Corporation shall
indemnify all Indemnified Parties to the fullest extent permitted by applicable
Law with respect to all acts and omissions arising out of such individuals'
services as officers, directors, employees or agents of Interstate or any of the
Interstate Subsidiaries or as trustees or fiduciaries of any plan for the
benefit of employees, or otherwise on behalf of, Interstate or any of the
Interstate Subsidiaries, occurring prior to the Effective Time, including the
transactions contemplated by this Agreement. Without limiting the generality of
the foregoing, in the event any such Indemnified Party is or becomes involved in
any capacity in any action, proceeding or investigation in connection with any
matter, including the transactions contemplated by this Agreement, occurring at
or after the Effective Time, the Surviving Corporation shall pay as incurred
such Indemnified Party's legal and other expenses (including the cost of any
investigation and preparation) incurred in connection therewith.
(b) MeriStar agrees that, from and after the Effective Time, the
Surviving
70
Corporation shall maintain in effect for not less than six years from the
Effective Time the current policies of the directors' and officers' liability
insurance maintained by Interstate; provided that the Surviving Corporation may
substitute therefor policies of at least the same coverage containing terms and
conditions which are no less advantageous, taken as a whole, and provided that
such substitution shall not result in any gaps or lapses in coverage with
respect to matters occurring prior to the Effective Time; and provided, further,
that the Surviving Corporation shall not be required to pay an annual premium in
excess of 300% of the last annual premium paid by Interstate prior to the date
of this Agreement, and, if the Surviving Corporation is unable to obtain the
insurance required by this Section 5.10(b), it shall obtain as much comparable
insurance as possible for an annual premium equal to such maximum amount.
(c) The provisions of this Section 5.10 are intended to be for the
benefit of each Indemnified Party and his or her heirs and representatives.
Section 5.11 AFFILIATES. Prior to the later of (x) the 30th day after
the date of this Agreement and (y) the 15th day after the record date for the
Interstate Stockholders Meeting, (i) Interstate shall deliver to MeriStar a
letter identifying all persons who may be deemed to be affiliates of Interstate
under Rule 145 of the Securities Act as of the record date for the Interstate
Stockholders Meeting, including, without limitation, all of its directors and
executive officers; and (ii) Interstate shall advise the persons identified in
such letter ("RULE 145 AFFILIATES") of the resale restrictions imposed by
applicable securities Laws and shall use its reasonable best efforts to obtain
from each person identified in such letter a written agreement, substantially in
the form of Annex I to this Agreement (a "RULE 145 AFFILIATE AGREEMENT" ).
Notwithstanding anything to the contrary contained in this Agreement, the
Surviving Corporation shall be entitled to withhold, or to instruct the Exchange
Agent to withhold, certificates representing Surviving Corporation Common Stock
to be received by any such stockholder, until such time as MeriStar or the
Surviving Corporation has received a duly executed and delivered Rule 145
Affiliate Agreement from such Rule 145 Affiliate.
Section 5.12 REASONABLE BEST EFFORTS. Subject to the terms and
conditions provided in this Agreement and to applicable legal requirements, each
of the parties to this Agreement agrees to use its reasonable best efforts
consistent with the duties under applicable Laws of the Board of Directors of
such party to take, or cause to be taken, all actions, and to do, or cause to be
done, and to assist and cooperate with the other parties to this Agreement in
doing, as promptly as practicable, all things necessary, proper or advisable to
ensure that the conditions set forth in Article VI are satisfied and to
consummate and make effective the transactions contemplated by this Agreement.
If at any time after the Effective Time, any further action is necessary or
desirable to carry out the purposes of this Agreement, including without
limitation, the execution of additional instruments, the proper officers and
directors of each party to this Agreement shall take all such necessary action.
Nothing contained in this Agreement shall give MeriStar or Interstate, directly
or indirectly, rights to control or direct the other party's operations prior to
the Effective Time.
Section 5.13 CONSENTS; FILINGS; FURTHER ACTION.
(a) Without limiting the generality of Section 5.12 hereof, subject to
the terms
71
and conditions of this Agreement, each of the parties to this Agreement shall
use its reasonable best efforts to (i) obtain any consent, license, approval,
authorization or permit of, waiver by, or order of, make any filing with, and
provide any notification to, any Governmental Entity that is required to be
obtained or made by MeriStar or Interstate or any of their subsidiaries in
connection with the authorization, execution and delivery of this Agreement and
the consummation of the Merger and the other transactions contemplated by this
Agreement, (ii) make all necessary filings, and thereafter make any other
submissions either required or deemed appropriate by each of the parties, with
respect to this Agreement and the Merger and the other transactions contemplated
by this Agreement required under (A) the Securities Act, the Exchange Act and
any other applicable federal or Blue Sky Laws, (B) the HSR Act, (C) the DGCL,
(D) the MGCL, (E) any other applicable Law, (F) the rules and regulations of the
NYSE, and (G) the rules and regulations of the NASDAQ. The parties to this
Agreement shall cooperate and consult with each other in connection with the
making of all such filings, including by providing copies of all such documents
(other than any filings under the HSR Act) to the nonfiling party and its
advisors prior to filing, and none of the parties will file any such document if
any of the other parties shall have reasonably objected to the filing of such
document unless such filing is required by applicable Law. No party to this
Agreement shall consent to any voluntary extension of any statutory deadline or
waiting period or to any voluntary delay of the consummation of the Merger and
the other transactions contemplated by this Agreement at the behest of any
Governmental Entity without the consent and agreement of the other parties to
this Agreement, which consent shall not be unreasonably withheld or delayed.
(b) Without limiting the generality of Section 5.12 hereof, each party
to this Agreement shall promptly inform the others of any material communication
from the Federal Trade Commission, the Department of Justice or any other
domestic or foreign government or governmental or multinational authority
regarding any of the transactions contemplated by this Agreement. If any party
or any affiliate thereof receives a request for additional information or
documentary material from any such government or authority with respect to the
transactions contemplated by this Agreement, then such party shall endeavor in
good faith to make, or cause to be made, as soon as reasonably practicable, an
appropriate response in compliance with such request. Each party shall advise
the other parties promptly in respect of any understandings, undertakings or
agreements (oral or written) which such party proposes to make or enter into
with the Federal Trade Commission, the Department of Justice or any other
domestic or foreign government or governmental or multinational authority in
connection with the transactions contemplated by this Agreement. In furtherance
and not in limitation of the foregoing, each party shall use its reasonable best
efforts to resolve such objections, if any, as may be asserted with respect to
the transactions contemplated by this Agreement under any antitrust, competition
or trade regulatory Laws, rules or regulations of any domestic or foreign
government or governmental authority or any multinational authority.
Notwithstanding the foregoing, nothing in this Section 5.13 shall require, or be
construed to require, MeriStar or Interstate, in connection with the receipt of
any regulatory approval, to proffer to, or agree to (A) sell or hold separate
and agree to sell, divest or to discontinue or limit, before or after the
Effective Time, any assets, businesses, or interest in any assets or businesses
of MeriStar, Interstate or the Surviving Corporation or any of their respective
affiliates (or to consent to any sale, or agreement to sell, or discontinuance
or limitation by MeriStar or Interstate, as the case may be, of any of its
assets or
72
businesses) or (B) agree to any conditions relating to, or changes or
restriction in, the operations of any such asset or businesses which, in either
case, could reasonably be expected to result in a Material Adverse Effect on
MeriStar, a Material Adverse Effect on Interstate, a Material Adverse Effect on
the Surviving Corporation or to materially and adversely impact the economic or
business benefits to such party of the transactions contemplated by this
Agreement.
Section 5.14 PLAN OF REORGANIZATION. This Agreement is intended to
constitute a "PLAN OF REORGANIZATION" within the meaning of Section 1.368-2(g)
of the income tax regulations promulgated under the Code. From and after the
date of this Agreement and until the Effective Time, each party to this
Agreement shall use its reasonable best efforts to cause the Merger to qualify,
and shall not, without the prior written consent of the parties to this
Agreement, knowingly take any actions or cause any actions to be taken which
could prevent the Merger from qualifying, as a reorganization under the
provisions of Section 368(a) of the Code. Following the Effective Time, and
consistent with any such consent, none of the Surviving Corporation, or any of
its affiliates shall knowingly take any action or knowingly cause any action to
be taken which would cause the Merger to fail to so qualify as a reorganization
under Section 368(a) of the Code.
Section 5.15 PUBLIC ANNOUNCEMENTS. MeriStar and Interstate shall
consult with each other before issuing any press release or otherwise making any
public statements with respect to this Agreement or any of the transactions
contemplated by this Agreement and shall not issue any such press release or
make any such public statement prior to such consultation, except to the extent
required by applicable Law or the requirements of the NYSE or NASDAQ, in which
case the issuing party shall use its reasonable best efforts to consult with the
other parties before issuing any such release or making any such public
statement.
Section 5.16 STOCK EXCHANGE LISTINGS AND DE-LISTINGS. MeriStar shall
use its reasonable best efforts to cause the shares of Surviving Corporation
Common Stock to be issued in the Merger to be approved for listing on the NYSE
subject to official notice of issuance, prior to the Effective Time. The parties
shall use their reasonable best efforts to cause the Surviving Corporation to
cause the Interstate Class A Common Stock to be de-listed from the NASDAQ and
the Interstate Common Stock to be de-registered under the Exchange Act as soon
as practicable following the Effective Time.
Section 5.17 TAKEOVER STATUTES. If any Takeover Statute is or may
become applicable to the Merger or the other transactions contemplated by this
Agreement, each of MeriStar and Interstate and its respective board of directors
shall grant such approvals and take such other actions as are necessary so that
such transactions may be consummated as promptly as practicable on the terms
contemplated by this Agreement and otherwise act to eliminate or minimize the
effects of such statute or regulation on such transactions.
Section 5.18 DIVIDENDS. Interstate and MeriStar shall coordinate with
each other with respect to the declaration, setting of record dates and payment
dates of dividends on Interstate Common Stock and MeriStar Common Stock and
Surviving Corporation Common Stock so that holders of Interstate Common Stock do
not receive dividends on Interstate Common Stock and the Surviving Corporation
Common Stock received in the Merger in respect of any calendar quarter
73
or fail to receive a dividend on either Interstate Common Stock or the Surviving
Corporation Common Stock received in the Merger in respect of any calendar
quarter and so that holders of MeriStar Common Stock do not receive dividends
more than one time in respect of any calendar quarter.
Section 5.19 INTERSTATE RIGHTS AGREEMENT. Without the prior written
consent of MeriStar, the Board of Directors of Interstate shall not (a) amend
the Interstate Rights Agreement or (b) take any action with respect to, or make
any determination under, the Interstate Rights Agreement, including a redemption
of the Interstate Stockholder Rights.
Section 5.20 MERISTAR RIGHTS AGREEMENT. Without the prior written
consent of Interstate, the Board of Directors of MeriStar shall not (a) amend
the MeriStar Rights Agreement or (b) take any action with respect to, or make
any determination under, the MeriStar Rights Agreement, including a redemption
of the MeriStar Rights.
Section 5.21 NYSE LISTING CRITERIA COMPLIANCE.
(a) Prior to the Effective Time, MeriStar may take such actions as may
be reasonably required in order to maintain compliance with the continued
listing criteria contained in Paragraph 802 of the New York Stock Exchange
Listed Company Manual (the "NYSE CONTINUED LISTING CRITERIA") with the prior
written consent of Interstate, such consent not to be unreasonably withheld or
delayed; PROVIDED, HOWEVER, that MeriStar shall be permitted to engage in a
reverse split of the MeriStar Common Stock or combination of the MeriStar Common
Stock in order to comply with the NYSE Continued Listing Criteria without the
consent of Interstate, so long as appropriate adjustments to the Exchange Ratio
are made pursuant to Section 2.1(c) hereof.
(b) MeriStar may also include, as a proposal to be voted upon at the
MeriStar Stockholders Meeting, a proposal to amend its certificate of
incorporation under Section 242(a)(3) of the DGCL in order to effect, as of
immediately following the Effective Time, a reverse split of the Surviving
Corporation Common Stock or combination of the Surviving Corporation Common
Stock in order to comply with the NYSE Continued Listing Criteria.
Section 5.22 RULE 16B-3 APPROVALS. The Board of Directors or
Compensation Committee of each of Interstate and MeriStar shall grant all
approvals and take all other actions required pursuant to Rules 16b-3(d) and
16b-3(e) under the Exchange Act to cause the disposition in the Merger of shares
of Interstate Common Stock and the acquisition in the Merger of shares of
Surviving Corporation Common Stock, and the conversion of Interstate Stock
Options into MeriStar Exchange Options, to be exempt from the provisions of
Section 16(b) of the Exchange Act.
Section 5.23 INTERIM TRANSACTIONS COMMITTEE. Immediately following
satisfaction of the condition listed in Section 6.1(c), MeriStar and Interstate
shall constitute and establish a committee, which will evaluate and consider any
proposed action or transaction of the type referred to in Section 5.1 or 5.2 of
this Agreement (the "INTERIM TRANSACTIONS COMMITTEE"). The
74
Interim Transactions Committee shall consist of the individuals listed on Annex
C hereto. The Interim Transactions Committee shall act only by unanimous consent
of the members thereof. The Interim Transactions Committee shall be abolished at
the Effective Time.
ARTICLE VI CONDITIONS
Section 6.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER.
The respective obligation of each party to effect the Merger and consummate the
other transactions contemplated by this Agreement to be consummated on the
Closing Date is subject to the satisfaction or waiver at or prior to the
Effective Time of each of the following conditions; provided, however, that a
party may not assert that it is not obligated to effect the Merger and
consummate the other transactions contemplated by this Agreement based on a
failure to fulfill the conditions listed in this Section 6.1 if such failure is
caused primarily by the actions or omissions of such party or its affiliates:
(a) STOCKHOLDER APPROVAL. (i) The Interstate Proposals shall have been
duly approved by the Requisite Interstate Vote; and (ii) the MeriStar Proposals
shall have been duly approved by the Requisite MeriStar Vote.
(b) LISTING. The shares of Surviving Corporation Common Stock issuable
to Interstate's stockholders pursuant to this Agreement shall have been
authorized for listing on the NYSE, subject to official notice of issuance.
(c) HSR. The waiting period applicable to the consummation of the
Merger under the HSR Act shall have expired or been earlier terminated.
(d) CONSENTS. All consents, approvals, authorizations and permits of,
filings with, and notifications to any Governmental Entity required to be
obtained or made in order to permit the consummation of the Merger and the other
transactions contemplated by this Agreement shall have been obtained or made,
free of any condition that could reasonably be expected to result in a Material
Adverse Effect on MeriStar, a Material Adverse Effect on Interstate or a
Material Adverse Effect on the Surviving Corporation.
(e) INJUNCTIONS. No court or Governmental Entity of competent
jurisdiction shall have enacted, issued, promulgated, enforced or entered any
Law, order, injunction or decree (whether temporary, preliminary or permanent)
that is in effect and restrains, enjoins or otherwise prohibits consummation of
the Merger or the other transactions contemplated by this Agreement or that,
individually or in the aggregate with all other such Laws, orders, injunctions
or decrees, could reasonably be expected to result in a Material Adverse Effect
on MeriStar, a Material Adverse Effect on Interstate or a Material Adverse
Effect on the Surviving Corporation.
(f) REGISTRATION STATEMENT. The Registration Statement shall have
become effective under the Securities Act. No stop order suspending the
effectiveness of the Registration Statement shall have been issued, and no
proceedings for that purpose shall have been initiated or be threatened by the
SEC.
(g) LOAN AGREEMENT. A definitive agreement providing for the
Refinancing
75
on substantially the terms and conditions set forth in the Commitment Letter
shall be in full force and effect and all conditions to the initial funding
thereunder shall have been satisfied or waived by the parties thereto.
(h) CONVERSION OF INTERSTATE CONVERTIBLE SECURITIES. The Principal
Interstate Stockholders shall have converted the Interstate Convertible
Securities into Interstate Common Stock in accordance with the Interstate Voting
Agreement.
(i) DIRECTOR RESIGNATIONS. MeriStar shall have caused the resignation
of all directors prior to the Effective Time who are not persons specified on
ANNEX A in accordance with the certificate of incorporation and bylaws of
MeriStar.
Section 6.2 CONDITIONS TO OBLIGATIONS OF MERISTAR. The obligations of
MeriStar to effect the Merger and consummate the other transactions contemplated
by this Agreement to be consummated on the Closing Date are also subject to the
satisfaction or waiver by MeriStar at or prior to the Effective Time of the
following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of Interstate set forth in this Agreement that are qualified as to materiality
or Material Adverse Effect shall be true and correct, and the representations
and warranties of Interstate set forth in this Agreement that are not so
qualified shall be true and correct in all material respects, in each case as of
the date of this Agreement and as of the Closing Date, as though made on and as
of the Closing Date, except to the extent the representation or warranty is
expressly limited by its terms to another date, and MeriStar shall have received
a certificate (which certificate may be qualified by knowledge to the same
extent as the representations and warranties of Interstate contained in this
Agreement are so qualified) signed on behalf of Interstate by an executive
officer of Interstate to such effect.
(b) PERFORMANCE OF OBLIGATIONS OF INTERSTATE. Interstate shall have
performed in all material respects all obligations required to be performed by
it under this Agreement at or prior to the Closing Date, and MeriStar shall have
received a certificate signed on behalf of Interstate by an executive officer of
Interstate to such effect.
(c) MATERIAL ADVERSE EFFECT. Since the date of this Agreement, there
shall have been no Material Adverse Effect on Interstate, and MeriStar shall
have received a certificate of an executive officer of Interstate to such
effect.
(d) CONSENTS UNDER AGREEMENTS. Interstate shall have obtained the
consent, authorization, approval, permit or waiver of, made any filing with, and
provided any notification to each person that is not a Governmental Entity and
is a party to an agreement with Interstate whose consent, approval or waiver
shall be required in order to consummate the transactions contemplated by this
Agreement and that does not otherwise have a right to terminate such agreement
with Interstate on less than 90 days prior written notice without payment of a
fee in connection therewith, except those for which the failure to obtain such
consent, approval or waiver, individually or in the aggregate, could not
reasonably be expected to result in a Material Adverse Effect on Interstate, and
no such consent, authorization, approval, permit or waiver,
76
shall have been withdrawn.
(e) TAX OPINION. MeriStar shall have received the opinion of Paul,
Weiss, Rifkind, Wharton & Garrison, counsel to MeriStar, dated on or about the
date that is two business days prior to the date the Proxy Statement is first
mailed to MeriStar Stockholders, and subsequently, on the Closing Date, in form
and substance reasonably satisfactory to MeriStar, to the effect that, on the
basis of the facts, representations and assumptions set forth or referred to in
such opinion, the Merger will be treated for federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Code, and that
MeriStar and Interstate will be a party to that reorganization within the
meaning of Section 368(b) of the Code, which opinion shall not have been
withdrawn or modified in any material respect. The issuance of such opinion
shall be conditioned on the receipt of tax representation letters from each of
MeriStar and Interstate, which letters shall be in such form and substance as
may reasonably be required by Paul, Weiss, Rifkind, Wharton & Garrison and
Arnold & Porter. Each such tax representation letter shall be dated on or before
the date of such opinion and shall not have been withdrawn or modified in any
material respect as of the date of such opinion. Each of Paul, Weiss, Rifkind,
Wharton & Garrison and Arnold & Porter shall, in rendering its opinion, be
entitled to rely on the facts, representations and assumptions contained in such
letters.
(f) TERMINATION OF EXISTING INVESTOR AGREEMENTS. The CGLH Investor
Agreement, the CGLH Purchase Agreement and the CGLH Registration Rights
Agreement shall have been terminated as described in Section 5.9(c).
Section 6.3 CONDITIONS TO OBLIGATIONS OF INTERSTATE. The obligations of
Interstate to effect the Merger and consummate the other transactions
contemplated by this Agreement to be consummated on the Closing Date are also
subject to the satisfaction or waiver by Interstate at or prior to the Effective
Time of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of MeriStar set forth in this Agreement that are qualified as to materiality or
Material Adverse Effect shall be true and correct, and the representations and
warranties of MeriStar set forth in this Agreement that are not so qualified
shall be true and correct in all material respects, in each case as of the date
of this Agreement and as of the Closing Date, as though made on and as of the
Closing Date, except to the extent the representation or warranty is expressly
limited by its terms to another date, and Interstate shall have received a
certificate (which certificate may be qualified by knowledge to the same extent
as the representations and warranties of MeriStar contained in this Agreement
are so qualified) signed on behalf of MeriStar by an executive officer of
MeriStar to such effect.
(b) PERFORMANCE OF OBLIGATIONS OF MERISTAR. MeriStar shall have
performed in all material respects all obligations required to be performed by
it under this Agreement at or prior to the Closing Date, and Interstate shall
have received a certificate signed by an executive officer of MeriStar on behalf
of MeriStar to such effect.
(c) MATERIAL ADVERSE EFFECT. Since the date of this Agreement, there
shall have been no Material Adverse Effect on MeriStar, and Interstate shall
have received a certificate
77
of an executive officer of MeriStar to such effect.
(d) CONSENTS UNDER AGREEMENTS. MeriStar shall have obtained the
consent, authorization, approval, permit or waiver of, made any filing with, and
provided any notification to each person that is not Governmental Entity and is
a party to an agreement with MeriStar whose consent, approval or waiver shall be
required in order to consummate the transactions contemplated by this Agreement
and that does not otherwise have a right to terminate such agreement with
MeriStar on less than 90 days prior written notice without payment of a fee in
connection therewith, except those for which the failure to obtain such consent,
approval or waiver, individually or in the aggregate, could not reasonably be
expected to result in a Material Adverse Effect on Interstate, and no such
consent, authorization, approval, permit or waiver shall have been withdrawn.
(e) TAX OPINION. Interstate shall have received the opinion of Arnold &
Porter, counsel to Interstate, dated on or about the date that is two business
days prior to the date the Proxy Statement is first mailed to Interstate
Stockholders, and subsequently, on the Closing Date, in form and substance
reasonably satisfactory to Interstate, to the effect that, on the basis of the
facts, representations and assumptions set forth or referred to in such opinion,
the Merger will be treated for federal income tax purposes as a reorganization
within the meaning of Section 368(a) of the Code, and that MeriStar and
Interstate will be a party to that reorganization within the meaning of Section
368(b) of the Code which opinion shall not have been withdrawn or modified in
any material respect. The issuance of such opinion shall be conditioned on the
receipt of tax representation letters from each of MeriStar and Interstate,
which letters shall be in such form and substance as may reasonably be required
by Paul, Weiss, Rifkind, Wharton & Garrison and Arnold & Porter. Each such tax
representation letter shall be dated on or before the date of such opinion and
shall not have been withdrawn or modified in any material respect as of the date
of such opinion. Each of Paul, Weiss, Rifkind, Wharton & Garrison and Arnold &
Porter shall, in rendering its opinion, be entitled to rely on the facts,
representations and assumptions contained in such letters.
(f) REIT AGREEMENT. The REIT shall not have revoked its agreement or
taken any other action that could, in whole or in part, affect the continued
satisfaction of Section 5.9(e).
(g) REGISTRATION RIGHTS. MeriStar and certain of the Principal
Interstate Stockholders shall have entered into a Registration Rights Agreement
providing such stockholders with registration rights in respect of any shares of
Surviving Corporation Common Stock which they own following the consummation of
the Merger, which are substantially similar to the rights granted pursuant to
the Registration Rights Agreement between Interstate and CGLH Partners I LP and
CGLH Partners II LP, dated as of October 20, 2000.
ARTICLE VII TERMINATION
Section 7.1 TERMINATION. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time, notwithstanding
any requisite approval and adoption of this Agreement, as follows:
78
(a) by mutual written consent of MeriStar (duly authorized by its Board
of Directors) and Interstate (duly authorized by its Board of Directors);
(b) by either MeriStar or Interstate, if the Effective Time shall not
have occurred on or before October 31, 2002; (the "TERMINATION DATE") PROVIDED,
HOWEVER, that (i) the right to terminate this Agreement under this Section
7.1(b) shall not be available to the party whose breach of any representation or
warranty or failure to fulfill any obligation under this Agreement shall have
been the cause of, or resulted in, the failure of the Effective Time to occur on
or before such date; (ii) if the applicable federal antitrust authority seeks an
order, injunction or decree with respect to the legality of the Merger under
applicable antitrust Laws, the Termination Date may be extended prior to the
termination of this Agreement by written notice of either MeriStar or Interstate
to the other to the date that is 30 days following the date on which a ruling
with respect to such an order, injunction or decree is entered by a trial court
or administrative body; and (iii) if such order, injunction or decree has been
entered, which has the effect of enjoining the consummation of the Merger and
any party to this Agreement shall have commenced an appeal thereof, the
Termination Date may be extended prior to the termination of this Agreement by
written notice of either MeriStar or Interstate to the other to the date which
is 30 days following the issuance of a decision by the applicable appeals court
with respect to such an appeal; provided, further, that, notwithstanding
anything to the contrary in this Section 7.1(b), in no event shall this
Agreement be extended beyond December 31 2002;
(c) by either MeriStar or Interstate, if any order, injunction or
decree preventing the consummation of the Merger shall have been entered by any
court of competent jurisdiction or Governmental Entity and shall have become
final and nonappealable;
(d) by either MeriStar or Interstate, if (i)(x) the Interstate
Proposals fail to receive the Requisite Interstate Vote at the Interstate
Stockholders Meeting or any adjournment or postponement thereof or (y) the
Interstate Stockholders Meeting is not held at least five days prior to the
Termination Date or (ii)(x) the MeriStar Proposals fail to receive the Requisite
MeriStar Vote at the MeriStar Stockholders Meeting or any adjournment or
postponement thereof or (y) the MeriStar Stockholders Meeting is not held at
least five days prior to the Termination Date;
(e) by MeriStar, if Interstate has breached any representations or
warranties of Interstate set forth in this Agreement that are qualified as to
materiality or Material Adverse Effect, or materially breached any
representations or warranties of Interstate set forth in this Agreement that are
not so qualified (provided, however, that no representation or warranty shall be
deemed to be breached due to any event or occurrence occurring subsequent to the
date hereof), or failed to perform in any material respect any of the
obligations of Interstate set forth in this Agreement and, if such breach or
failure is curable by Interstate, such breach or failure continues for more than
30 days (or in the case of a breach of Section 5.7, two Business Days) after
written notification from MeriStar to Interstate of MeriStar's intention to
terminate;
(f) by Interstate, if MeriStar has breached any representations and
warranties of MeriStar set forth in this Agreement that are qualified as to
materiality or Material Adverse Effect, or materially breached any
representations or warranties of MeriStar set forth in this
79
Agreement that are not so qualified (provided, however, that no representation
or warranty shall be deemed to be breached due to any event or occurrence
occurring subsequent to the date hereof), or failed to perform in any material
respect any of the obligations of MeriStar set forth in this Agreement and, if
such breach or failure is curable by MeriStar, such breach or failure continues
for more than 30 days (or in the case of a breach of Section 5.8, two Business
Days) after written notification from Interstate to MeriStar of Interstate's
intention to terminate;
(g) by MeriStar, if (i) the Board of Directors of Interstate withdraws,
modifies or changes the Interstate Board Recommendation in a manner adverse to
MeriStar or has resolved to do so, (ii) the Board of Directors of Interstate
shall have recommended to the stockholders of Interstate a Interstate
Acquisition Proposal or shall have resolved to do so or (iii) a tender offer or
exchange offer for any outstanding shares of capital stock of Interstate is
commenced, other than any such offer commenced prior to the date of this
Agreement, and the Board of Directors of Interstate fails, within 10 days after
the commencement of such offer or such greater period as is permitted under
applicable Law, to recommend against acceptance of such tender offer or exchange
offer by its stockholders (including by taking no position with respect to the
acceptance of such tender offer or exchange offer by its stockholders), or (iv)
the Board of Directors of Interstate modifies or changes its recommendation with
respect to any existing tender offer or exchange offer for any outstanding
shares of capital stock of Interstate in a manner adverse to MeriStar or has
resolved to do so;
(h) by Interstate, if (i) the Board of Directors of MeriStar withdraws,
modifies or changes the MeriStar Board Recommendation in a manner adverse to
Interstate or shall have resolved to do so, (ii) the Board of Directors of
MeriStar shall have recommended to the stockholders of MeriStar a MeriStar
Acquisition Proposal or shall have resolved to do so, or (iii) a tender offer or
exchange offer for any outstanding shares of capital stock of MeriStar is
commenced, and the Board of Directors of MeriStar fails, within 10 business days
after the commencement of such offer or such greater period as is permitted
under applicable Law, to recommend against acceptance of such tender offer or
exchange offer by its stockholders (including by taking no position with respect
to the acceptance of such tender offer or exchange offer by its stockholders);
(i) by MeriStar, if, prior to the MeriStar Stockholders Meeting, the
Board of Directors of MeriStar shall have withdrawn or modified in accordance
with Section 5.8 in any manner adverse to Interstate the MeriStar Board
Recommendation in connection with, or approved or recommended, any MeriStar
Superior Proposal; PROVIDED, HOWEVER , that MeriStar may not terminate this
Agreement pursuant to this Section 7.1(i) until three business days have elapsed
following delivery to Interstate of written notice of such determination of
MeriStar (which written notice will inform Interstate of the material terms and
conditions of the MeriStar Superior Proposal); provided, further, however, that
such termination under this Section 7.1(i) shall not be effective until MeriStar
has made payment to Interstate of the amounts required to be paid pursuant to
Section 7.3(c); or
(j) by Interstate, if, prior to the Interstate Stockholders Meeting,
the Board of Directors of Interstate shall have withdrawn or modified in
accordance with Section 5.7 in any manner adverse to MeriStar the Interstate
Board Recommendation in connection with, or
80
approved or recommended, any Interstate Superior Proposal; PROVIDED, HOWEVER,
that Interstate may not terminate this Agreement pursuant to this Section 7.1(j)
until three business days have elapsed following delivery to MeriStar of written
notice of such determination of Interstate (which written notice will inform
MeriStar of the material terms and conditions of the Interstate Superior
Proposal); provided, further, however, that such termination under this Section
7.1(j) shall not be effective until Interstate has made payment to MeriStar of
the amounts required to be paid pursuant to Section 7.3(b).
(k) by Interstate, if, at any time prior to the Closing there shall
have been a Material Adverse Effect on MeriStar and, if such Material Adverse
Effect on MeriStar is curable by MeriStar, such Material Adverse Effect on
MeriStar continues for more than 30 days after written notification from
Interstate to MeriStar of Interstate's intention to terminate;
(l) by MeriStar, if, at any time prior to the Closing there shall have
been a Material Adverse Effect on Interstate and, if such Material Adverse
Effect on Interstate is curable by Interstate, such Material Adverse Effect on
Interstate continues for more than 30 days after written notification from
MeriStar to Interstate of MeriStar's intention to terminate;
Section 7.2 EFFECT OF TERMINATION. Except as provided in this Section
7.2, Section 7.3 and Section 5.6(b), in the event of termination of this
Agreement pursuant to Section 7.1, this Agreement shall forthwith become void,
there shall be no liability under this Agreement on the part of MeriStar and any
MeriStar Subsidiaries, or Interstate and any Interstate Subsidiaries or any of
their respective Representatives, and all rights and obligations of each party
to this Agreement shall cease; PROVIDED, HOWEVER, that nothing in this Agreement
shall relieve any party from liability for the willful breach of any of its
representations and warranties or the breach of any of its covenants or
agreements set forth in this Agreement.
Section 7.3 EXPENSES AND FEES FOLLOWING CERTAIN TERMINATION EVENTS.
(a) EXPENSES. Except as otherwise provided in Sections 7.3(b) and (c),
whether or not the Merger is consummated, all Expenses incurred in connection
with this Agreement, the Merger and the other transactions contemplated by this
Agreement shall be paid by the party incurring such Expense, except that
Expenses incurred for the SEC filing fees for the Proxy Statement and
Registration Statement, the printing and mailing of the Proxy Materials
commitment fees payable to lenders, and the filing fee under the HSR Act shall
be shared equally by MeriStar and Interstate. For purposes of this Agreement,
"EXPENSES" consist of all reasonable out-of-pocket expenses (including all fees
and expenses of counsel, accountants, investment bankers, lenders, experts and
consultants to a party to this Agreement and its affiliates) incurred by a party
or on its behalf in connection with or related to the authorization,
preparation, negotiation, execution and performance of this Agreement, the
preparation, printing, filing and mailing of the Proxy Statement or the Proxy
Materials, the solicitation of stockholder approvals and all other matters
related to the closing of the transactions contemplated by this Agreement.
(b) FEES AND EXPENSES PAYABLE BY INTERSTATE.
(i) If this Agreement is terminated pursuant to Section 7.1(d)(i),
(e),
81
(g) or (j), then Interstate shall, upon such termination, pay as directed by
MeriStar (1) a fee equal to $2,000,000, plus (2) the reimbursement of all of
MeriStar's documented Expenses up to a maximum reimbursable amount of $500,000.
(ii) Payment of any amounts under this Section 7.3(b) shall be
made by wire transfer of immediately available funds to a bank account
designated in writing by MeriStar.
(c) FEES AND EXPENSES PAYABLE BY MERISTAR.
(i) If this Agreement is terminated pursuant to Section
7.1(d)(ii), (f), (h) or (i), then MeriStar shall, upon such termination, pay as
directed by Interstate (1) a fee equal to $2,000,000, plus (2) the reimbursement
of all of Interstate's documented Expenses up to a maximum reimbursable amount
of $500,000.
(ii) Payment of any amounts under this Section 7.3(c) shall be
made by wire transfer of immediately available funds to a bank account
designated in writing by Interstate.
(d) Interstate acknowledges that the agreements contained in this
Section 7.3 are an integral part of the transactions contemplated by this
Agreement, and that, without these agreements, MeriStar would not enter into
this Agreement; accordingly, if Interstate fails to pay promptly amounts due
pursuant to Section 7.3(b), and, in order to obtain such payment, MeriStar
commences a suit which results in a judgment against Interstate for all or a
portion of such amounts, Interstate shall pay to MeriStar the reasonable
out-of-pocket expenses (including all fees and expenses of counsel, accountants,
investment bankers, lenders, experts and consultants to MeriStar and MeriStar's
affiliates) of MeriStar in connection with such suit, together with interest on
the amounts payable to MeriStar at the prime rate of Citibank, N.A., in effect
on the date such payment was required to be made.
(e) MeriStar acknowledges that the agreements contained in this Section
7.3 are an integral part of the transactions contemplated by this Agreement, and
that, without these agreements, Interstate would not enter into this Agreement;
accordingly, if MeriStar fails to pay promptly the amounts due pursuant to
Section 7.3(c), and, in order to obtain such payment, Interstate commences a
suit which results in a judgment against MeriStar for all or a portion of such
amounts, MeriStar shall pay to Interstate the reasonable out-of-pocket expenses
(including all fees and expenses of counsel, accountants, investment bankers,
lenders, experts and consultants to Interstate and Interstate's affiliates) of
Interstate in connection with such suit, together with interest on the amounts
payable to Interstate at the prime rate of Citibank, N.A., in effect on the date
such payment was required to be made.
(f) This Section 7.3 shall survive the termination of this Agreement.
ARTICLE VIII MISCELLANEOUS
Section 8.1 CERTAIN DEFINITIONS. For purposes of this Agreement:
(a) The term "AFFILIATE," as applied to any person, means any other
person
82
directly or indirectly controlling, controlled by, or under common control with,
that person. For the purposes of this definition, "CONTROL" (including, with
correlative meanings, the terms "CONTROLLING," "CONTROLLED BY" and "UNDER COMMON
CONTROL WITH"), as applied to any person, means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of that person, whether through the ownership of voting securities, by
contract or otherwise. For the avoidance of doubt, for purposes of this
Agreement, REIT, MeriStar and the MeriStar Subsidiaries shall not be deemed to
be affiliates of Interstate or the Interstate Subsidiaries, and Interstate and
the Interstate Subsidiaries will not be deemed to be affiliates of REIT,
MeriStar or the MeriStar Subsidiaries.
(b) The term "BUSINESS DAY" means any day, other than Saturday, Sunday
or a federal holiday, and shall consist of the time period from 12:01 a.m.
through 12:00 midnight Eastern time. In computing any time period under this
Agreement, the date of the event which begins the running of such time period
shall be included except that if such event occurs on other than a business day
such period shall begin to run on and shall include the first business day
thereafter.
(c) The term "INCLUDING" means, unless the context clearly requires
otherwise, including but not limited to the things or matters named or listed
after that term.
(d) The term "KNOWLEDGE," (i) as applied to Interstate means the actual
knowledge of the persons listed in Section 8.1(d) of the Interstate Disclosure
Letter and (ii) as applied to MeriStar means the actual knowledge of the persons
listed in Section 8.1(d) of the MeriStar Disclosure Letter.
(e) The term "LAW" means any foreign or domestic law, statute,
ordinance, rule, regulation, order, judgment or decree.
(f) The term "MATERIAL ADVERSE EFFECT ON INTERSTATE" means any change
in or effect on the business, assets, properties, results of operations or
financial condition of Interstate or any Interstate Subsidiary that is
materially adverse to Interstate and the Interstate Subsidiaries, taken as a
whole, or that could reasonably be expected to materially impair the ability of
Interstate to perform its obligations under this Agreement or to consummate the
Merger and the other transactions contemplated by this Agreement.
(g) The term "MATERIAL ADVERSE EFFECT ON MERISTAR" means any change in
or effect on the business, assets, properties, results of operations or
financial condition of MeriStar or any MeriStar Subsidiary that is materially
adverse to MeriStar and the MeriStar Subsidiaries, taken as a whole, or that
could reasonably be expected to materially impair the ability of MeriStar to
perform its obligations under this Agreement or to consummate the Merger and the
other transactions contemplated by this Agreement.
(h) The term "MATERIAL ADVERSE EFFECT ON THE SURVIVING CORPORATION"
means any change in or effect on the business, assets, properties, results of
operations or financial conditions of the Surviving Corporation or any of its
subsidiaries, that is materially adverse to the Surviving Corporation and its
subsidiaries, taken as a whole.
83
(i) The term "PERSON" shall include individuals, corporations, limited
and general partnerships, trusts, limited liability companies, associations,
joint ventures, Governmental Entities and other entities and groups (which term
shall include a "group" as such term is defined in Section 13(d)(3) of the
Exchange Act).
(j) The term "SUBSIDIARY" or "SUBSIDIARIES" means, with respect to
MeriStar, Interstate or any other person, any entity of which MeriStar,
Interstate or such other person, as the case may be (either alone or through or
together with any other subsidiary), owns, directly or indirectly, stock or
other equity interests the holders of which are generally entitled to more than
50% of the vote for the election of the board of directors or other governing
body of such corporation or other legal entity.
Section 8.2 SURVIVAL. The representations and warranties in this
Agreement and in any certificate delivered under this Agreement shall not
survive the Effective Time. Each party agrees that, except for the
representations and warranties contained in this Agreement, the Confidentiality
Agreement, the Interstate Disclosure Letter and the MeriStar Disclosure Letter,
no party to this Agreement has made any other representations and warranties,
and each party disclaims any other representations and warranties, made by
itself or any of its officers, directors, employees, agents, financial and legal
advisors or other Representatives with respect to the execution and delivery of
this Agreement or the transactions contemplated by this Agreement,
notwithstanding the delivery or disclosure to any other party or any party's
representatives of any documentation or other information with respect to any
one or more of the foregoing.
Section 8.3 COUNTERPARTS. This Agreement and any amendments hereto may
be executed in any number of counterparts, each such counterpart being deemed to
be an original instrument, and all such counterparts shall together constitute
the same agreement.
Section 8.4 GOVERNING LAW; WAIVER OF JURY TRIAL.
(a) THIS AGREEMENT SHALL BE DEEMED TO BE MADE IN AND IN ALL RESPECTS
SHALL BE INTERPRETED, CONSTRUED AND GOVERNED BY AND IN ACCORDANCE WITH THE LAW
OF THE STATE OF DELAWARE WITHOUT REGARD TO CONFLICT OF LAW PRINCIPLES.
(b) Each party acknowledges and agrees that any controversy which may
arise under this Agreement is likely to involve complicated and difficult
issues, and therefore each such party hereby irrevocably and unconditionally
waives any right such party may have to a trial by jury in respect of any
litigation directly or indirectly arising out of or relating to this Agreement,
or the transactions contemplated by this Agreement. Each party certifies and
acknowledges that (i) 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 the foregoing waiver, (ii) each such party
understands and has considered the implications of this waiver, (iii) each such
party makes this waiver voluntarily, and (iv) each such party has been induced
to enter into this Agreement by, among other things, the mutual waivers and
certifications in this Section 8.4(b).
84
Section 8.5 NOTICES. Any notice, request, instruction or other document
to be given hereunder by any party to the others shall be in writing and
delivered personally or sent by registered or certified mail, postage prepaid,
or by facsimile:
If to MeriStar:
MeriStar Hotels & Resorts, Inc.
1010 Wisconsin Avenue
Suite 500
Washington, D.C. 20007
Attention: Christopher L. Bennett, Esq.
Telecopy: (207) 295-1026
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Attention: Richard S. Borisoff, Esq.
Facsimile: (212) 757-3990
If to Interstate:
Interstate Hotels Corporation
Foster Plaza Ten
680 Andersen Drive
Pittsburgh, PA 15220
Attention: Timothy Q. Hudak, Esq.
Facsimile: (412) 937-3116
with copies to:
Jones, Day, Reavis & Pogue
599 Lexington Avenue
New York, New York 10022
Attention: Jere R. Thomson, Esq.
Facsimile: (212) 755-7306
Arnold & Porter
515 Twelfth Street, NW
Washington, D.C. 20004
Attention: Blake D. Rubin, Esq.
Facsimile: (202) 942-5999
or to such other persons or addresses as may be designated in writing by the
party to receive such notice as provided above.
85
Section 8.6 ENTIRE AGREEMENT. This Agreement (including any annexes to
this Agreement), the Interstate Disclosure Letter and the MeriStar Disclosure
Letter, the Confidentiality Agreement, the MeriStar Voting Agreement, the
Interstate Voting Agreement, and Conversion Incentive Agreement constitute the
entire agreement and supersede all other prior agreements, understandings,
representations and warranties, both written and oral, among the parties to this
Agreement, with respect to the subject matter of this Agreement.
Section 8.7 BINDING EFFECT BENEFITS. This Agreement shall be binding
upon and inure to the benefit of the parties to this Agreement and their
respective successors and permitted assigns. Except as provided in Section 5.10,
this Agreement is not intended to confer upon any person other than the parties
to this Agreement or their respective successors or permitted assigns any rights
or remedies under this Agreement.
Section 8.8 AMENDMENT. This Agreement may be amended by the parties to
this Agreement by action taken by or on behalf of their respective Boards of
Directors at any time prior to the Effective Time; provided that, after the
approval of this Agreement by the stockholders of Interstate or MeriStar, no
amendment may be made that would change the amount or type of consideration into
which each share of Interstate Common Stock shall be converted upon consummation
of the Merger. This Agreement may not be amended except by an instrument in
writing signed by the parties to this Agreement.
Section 8.9 WAIVER. At any time prior to the Effective Time, any party
to this Agreement who receives the benefit of, or has the right to enforce such
obligation, representation, warranty, agreement or condition may (a) extend the
time for the performance of any obligation or other act of any other party to
this Agreement, (b) waive any inaccuracy in the representations and warranties
contained in this Agreement or in any document delivered pursuant to this
Agreement and (c) waive compliance with any agreement or condition contained in
this Agreement. Any extension of time, waiver of a condition set forth in
Section 6.1, Section 6.2, or Section 6.3 or any determination that such a
condition has been satisfied, will be effective only if made in writing by the
party against whom such extension or waiver is to be effective and, unless
otherwise specified in such writing, shall thereafter operate as an extension of
time, waiver (or satisfaction) of such condition for any and all purposes of
this Agreement. Any such extension or waiver shall be valid if set forth in an
instrument in writing signed by the party or parties to be bound thereby.
Section 8.10 OBLIGATIONS OF MERISTAR AND OF INTERSTATE. Whenever this
Agreement requires a MeriStar Subsidiary to take any action, that requirement
shall be deemed to include an undertaking on the part of MeriStar to cause that
MeriStar Subsidiary to take that action. Whenever this Agreement requires a
Interstate Subsidiary to take any action, that requirement shall be deemed to
include an undertaking on the part of Interstate to cause that Interstate
Subsidiary to take that action and, after the Effective Time, on the part of the
Surviving Corporation to cause that Interstate Subsidiary or MeriStar
Subsidiary, as applicable, to take that action.
Section 8.11 SEVERABILITY. The provisions of this Agreement shall be
deemed severable and the invalidity or unenforceability of any provision shall
not affect the validity or enforceability or the
86
other provisions of this Agreement. If any provision of this Agreement, or the
application of that provision to any person or any circumstance, is invalid or
unenforceable, (a) a suitable and equitable provision shall be substituted for
that provision in order to carry out, so far as may be valid and enforceable,
the intent and purpose of the invalid or unenforceable provision and (b) the
remainder of this Agreement and the application of the provision to other
persons or circumstances shall not be affected by such invalidity or
unenforceability, nor shall such invalidity or unenforceability affect the
validity or enforceability of the provision, or the application of that
provision, in any other jurisdiction.
Section 8.12 INTERPRETATION. The table of contents and headings in this
Agreement are for convenience of reference only, do not constitute part of this
Agreement and shall not be deemed to limit or otherwise affect any of the
provisions of this Agreement. Where a reference in this Agreement is made to a
Section, Schedule or annex, that reference shall be to a Section of or Schedule
or annex to this Agreement unless otherwise indicated.
Section 8.13 ASSIGNMENT. Neither this Agreement nor any of the rights,
interests or obligations under this Agreement shall be assignable, in whole or
in part, by operation of Law or otherwise, by any of the parties hereto without
the prior written consent of the other parties; PROVIDED, HOWEVER, that no such
assignment will relieve the assigning party of its obligations hereunder.
Section 8.14 SPECIFIC PERFORMANCE. The parties to this Agreement agree
that irreparable damage would occur in the event that any of the provisions of
this Agreement were not performed in accordance with their specific terms or
were otherwise reached. It is accordingly agreed that the parties shall be
entitled to an injunction or injunctions to prevent breaches of this Agreement
and to enforce specifically the terms and provisions of this Agreement in any
court of the United States or any state having jurisdiction, this being in
addition to any other remedy to which they are entitled at Law or in equity.
87
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered
by the duly authorized officers of the parties to this Agreement as of the date
first written above.
MERISTAR HOTELS & RESORTS, INC.
By: /s/ Paul W. Whetsell
-------------------------------
Name: Paul W. Whetsell
Title: Chairman and Chief Executive
Officer
INTERSTATE HOTELS CORPORATION
By: /s/ Thomas F. Hewitt
-------------------------------
Name: Thomas F. Hewitt
Title: Chief Executive Officer
In connection with the filing of the Agreement and Plan of Merger (the "Merger
Agreement"), dated as of May 1, 2002, by and between Interstate Hotels
Corporation, a Maryland corporation ("Interstate"), and MeriStar Hotels &
Resorts, Inc., a Delaware corporation (the "Company"), on this Report on Form
8-K, the following schedules to the Merger Agreement have been omitted:
1. Schedule A to the Merger Agreement which sets forth (i) amendments to
the Company's Amended and Restated Certificate of Incorporation; (ii)
amendments to the Company's Bylaws; and (iii) officers and directors of
the surviving corporation under the Merger Agreement.
2. Schedule 5.9(e) which sets forth a letter agreement executed by
MeriStar Hospitality Corporation.
3. Schedule 5.9(f) which sets forth the amended limited liability company
agreement of Interstate Hotels, LLC.
The Company agrees to provide such omitted schedules, upon request by,
and on supplemental basis to, the Securities and Exchange Commission.