FUNDING AND COOPERATION AGREEMENT
FUNDING AND COOPERATION AGREEMENT (this "AGREEMENT"), dated as of November
3, 2006, by and among Kingdom Hotels International, a Cayman Islands company
("KINGDOM"), Cascade Investment, L.L.C., a Washington limited liability company
("CASCADE" and, together with Kingdom, the "LEAD INVESTORS"), Triples Holdings
Limited, an Ontario corporation ("TRIPLES" and, together with the Lead
Investors, the "INVESTORS"), and Xxxxxxx Xxxxx ("XXXXX" and, together with
Triples, the "SHARP PARTIES"; the Sharp Parties and the Lead Investors are
referred to herein as the "PARTIES").
RECITALS:
WHEREAS, the Lead Investors (or their affiliates) and Triples currently are
shareholders of Four Seasons Hotels Inc. (the "COMPANY") and Sharp is Chairman
and CEO of the Company;
WHEREAS, the Lead Investors have proposed to the Sharp Parties that the
Parties make a joint proposal to acquire all of the outstanding capital stock of
the Company, other than shares held by the Parties and certain of their
respective affiliates (the "ACQUISITION"), and the Sharp Parties have informed
the Lead Investors that they are willing to join in such proposal;
WHEREAS, the Parties wish to agree to certain terms and conditions relating
to the funding of the Acquisition and their relationship in connection with
their joint pursuit of the Acquisition;
NOW, THEREFORE, in consideration of the premises and the mutual promises
set forth herein, the Parties agree as follows:
1. PROPOSAL. The Parties hereby agree, on the terms and subject to the
conditions contained herein, to jointly pursue the Acquisition of the Company.
The Parties agree that the Lead Investors shall submit a proposal letter on
behalf of all of the Parties relating to the Acquisition in the form approved by
each of the Parties (the "PROPOSAL"). In connection with the Proposal, the Lead
Investors shall cause a Canadian entity (the "ACQUIROR") to be formed as the
acquisition vehicle.
2. COOPERATION IN COMPLETING PROPOSAL AND ACQUISITION. If the Board of
Directors of the Company approves the Proposal, the Parties agree to cooperate
to negotiate and finalize an acquisition or similar agreement with the Company
(the "ACQUISITION AGREEMENT"), the Shareholders' Agreement (as defined below),
the Acquisition Credit Facility (as defined below) and all of the other
agreements and arrangements among the Parties required to be finalized prior to
the closing (the "CLOSING") under the Acquisition Agreement (collectively, the
"TRANSACTION AGREEMENTS"), each of which shall reflect the terms set forth
herein and in the Proposal and otherwise be in a form acceptable to each of the
Parties. Subject to Paragraph 6 below, (i) each Party shall take, or cause to be
taken, all actions, and to do, or cause to be
done, and to assist and cooperate with the other Parties in doing, all things
reasonably necessary, proper or advisable to cause Acquiror to perform and
comply with all agreements and covenants required to be performed by Acquiror
under the Transaction Agreements and to cause Acquiror to consummate the
Acquisition and other transactions contemplated by the Transaction Agreements
and (ii) none of the Parties shall take any action that results in a breach or
violation by Acquiror of the Transaction Agreements.
3. SOURCE OF FUNDS. The Parties contemplate that the cash required to
complete the Acquisition and other transactions contemplated by the Transaction
Agreements and to pay related expenses will be funded by the proceeds of
borrowings to be made under a US$750.0 million credit facility that the Acquiror
will enter into at Closing (the "ACQUISITION CREDIT FACILITY"), which will be
assumed by the Company upon completion of the Acquisition, and by cash equity
contributions by the Lead Investors, as provided in Paragraph 4 below.
4. EQUITY CONTRIBUTIONS. Each of the Lead Investors and Triples hereby
agrees to contribute to Acquiror, concurrently with the Closing and subject to
satisfaction or waiver of the conditions to closing to be set forth in the
Acquisition Agreement, all of the shares of capital stock in the Company owned
by such Party, free and clear of all liens and encumbrances, and cash, in each
case as set forth below.
(a) Kingdom shall contribute (or cause a wholly owned subsidiary to
contribute) 50% of the Required Common Equity (as defined below), consisting of
the 7,389,182 Limited Voting Shares of the Company currently held by Kingdom
Investments, Inc., valued at the price paid to public shareholders pursuant to
the Acquisition Agreement (the "ACQUISITION PRICE"), plus an amount of cash
equal to 50% of the Required Common Equity less the value of such contributed
Limited Voting Shares, in exchange for 50% of the Series A Limited Voting Shares
of Acquiror.
(b) Cascade shall contribute 50% of the Required Common Equity,
consisting of 715,850 Limited Voting Shares of the Company, valued at the
Acquisition Price, plus an amount of cash equal to 50% of the Required Common
Equity less the value of such contributed Limited Voting Shares, in exchange for
50% of the Series A Limited Voting Shares of Acquiror.
(c) Triples shall contribute 3,725,698 Variable Multiple Voting Shares
of the Company, valued at the Acquisition Price, in exchange for 3,725,698
Variable Multiple Voting Shares of Acquiror. The Variable Multiple Voting Shares
of Acquiror shall be in two series and shall have the conversion, dividend,
redemption, voting, and other rights described in the term sheet attached as
ANNEX A hereto (the "TERM SHEET").
As used herein, the term "REQUIRED COMMON EQUITY" shall mean a dollar amount
equal to (i) the total amounts required (A) to acquire all outstanding capital
stock of the Company, (B) to pay the principal, all accrued interest and premium
and any other amounts incurred to redeem, repurchase or otherwise retire the
convertible debt of the Company, (C) to make all payments due to Sharp under the
Sale of Control Agreement between the Company and Sharp, and (D) to pay all
expenses paid by the Company in
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connection with the Acquisition, less (ii) the Company's available cash at the
time of Closing, less (iii) the proceeds available at Closing under the
Acquisition Credit Facility and less (iv) the value (based on the Acquisition
Price) of the number of Variable Multiple Voting Shares contributed to Acquiror
by Triples as described above.
5. GUARANTY OF ACQUISITION AGREEMENT.
(a) To the extent required in connection with negotiation of the
Acquisition Agreement, each Lead Investor shall provide a several guaranty (each
a "GUARANTY") directly to the Company of 50% of Acquiror's obligations under the
Acquisition Agreement. The liability of each Lead Investor under such Guaranty
shall be capped at an amount acceptable to the Lead Investors.
(b) The Parties shall cooperate in defending any claim that the Lead
Investors are, or any one of them is, liable to make payments under the
Guaranties. Each Investor agrees to contribute to the amount paid or payable by
the Lead Investors in respect of the Guaranties so that each Party shall have
paid an amount equal to the product of the aggregate amount paid under all of
the Guaranties multiplied by the following percentages: Kingdom, 47.5%; Cascade,
47.5%; and Triples, 5%; PROVIDED that no Lead Investor shall be entitled to
receive any contribution payments if such Lead Investor's liability under its
Guaranty arose by reason of a breach by such Lead Investor of its obligations
hereunder or under any Transaction Agreement.
6. DECISIONS RELATING TO PROPOSAL AND ACQUISITION AGREEMENT. All decisions
with respect to the Proposal, the Acquisition Agreement and the Acquisition
Credit Facility shall be made jointly by the Lead Investors, including any
decision (i) to modify the Proposal, (ii) to enter into the Acquisition
Agreement or the Acquisition Credit Facility, (iii) to amend, modify or waive
any term or condition of the Acquisition Agreement or the Acquisition Credit
Facility, (iv) to terminate the Acquisition Agreement or the Acquisition Credit
Facility in accordance with its terms (except as provided in the following
sentence) and (v) as to whether the conditions in the Acquisition Agreement or
the Acquisition Credit Facility have been satisfied. If either Lead Investor
determines that there is a right to terminate the Acquisition Agreement pursuant
to the terms thereof (including because of a failure of a condition), and if
such Lead Investor desires to terminate the Acquisition Agreement as a result
thereof, such Lead Investor may notify the other of such desire and the Lead
Investors shall take all necessary action to terminate the Acquisition
Agreement; PROVIDED, HOWEVER, that if the other Lead Investor (the "CONTINUING
LEAD INVESTOR") desires to consummate the Acquisition Agreement without any
involvement by the Lead Investor desiring to terminate the Acquisition Agreement
(the "WITHDRAWING LEAD INVESTOR"), and the Sharp Parties agree to proceed with
the Proposal on such basis, then the continuing Lead Investor and the
withdrawing Lead Investor shall cooperate in such reasonable arrangements
requested by the other to permit the continuing Lead Investor to proceed with
the Acquisition and to terminate any liability or obligation of the withdrawing
Lead Investor. Without limiting the generality of the foregoing, the continuing
Lead Investor shall be required to assume the withdrawing Lead Investor's
obligations under its Guaranty referred to in Paragraph 5 above.
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7. POST-CLOSING GOVERNANCE ARRANGEMENTS. Prior to or concurrently with the
Closing, (i) each of the Parties shall enter into a shareholders agreement
containing provisions for the post-closing governance of the Company and other
arrangements regarding their ownership of shares of the Company after completion
of the Acquisition (the "SHAREHOLDERS AGREEMENT") and (ii) Sharp shall enter
into, and the Lead Investors shall cause the Company to enter into, an
employment agreement between Sharp and the Company, in each case on
substantially the terms set forth in the Term Sheet and as otherwise agreed
by the Parties.
8. EXCLUSIVITY. During the term of this Agreement and for twelve months
thereafter if this Agreement terminates other than pursuant to clause (ii) of
Paragraph 11, no Party shall, directly or indirectly, through any officer,
director, employee, affiliate, attorney, financial advisor or other person,
agent or representative, seek to acquire or acquire, or encourage or participate
in any other acquisition of or proposal to acquire, capital stock of the Company
that would result in such person or Party (together with any other person or
Party participating in such offer or acquisition) holding more than 40% of the
capital stock of the Company or all or any substantial portion of the assets of
the Company, except as contemplated hereby (including Paragraph 6) or with the
consent of both Lead Investors, such consent not to be unreasonably withheld;
provided that the foregoing shall not restrict any person who is a director of
the Company from complying with the fiduciary duties owed by such person to the
Company.
9. REGULATORY MATTERS. Each Party shall use commercially reasonable efforts
to supply and provide information that is accurate in all material respects to
any governmental authority requesting such information in connection with
filings or notifications under, or relating to, Antitrust and Investment Laws
(as defined below). If any governmental authority asserts any objections under
any applicable antitrust, competition, foreign investment or fair trade laws
(collectively, the "ANTITRUST AND INVESTMENT LAWS") with respect to the
Acquisition and such objections relate to the activities or investments of a
Party or such Party's affiliates, such Party shall attempt to resolve such
objections; PROVIDED no Party or any affiliate of a Party shall be required to
dispose of any assets or enter into any agreements that materially restrict the
activities of such Party or its affiliates as a condition of resolving any such
objections under the Antitrust and Investment Laws; PROVIDED, FURTHER if any
Party is unable to resolve the objections of any governmental authority related
to the activities or investments of a Party or such Party's affiliates under the
Antitrust and Investment Laws, then such Party shall be responsible for all
Pursuit Costs (as defined below).
10. SHARING OF EXPENSES; OTHER MATTERS.
(a) Except as provided in Paragraph 9, if the Acquisition is not
consummated for any reason, all reasonable out-of-pocket expenses (including
legal fees and expenses) incurred after the date of this Agreement by any Party
(other than a Party that has committed a material breach of its obligations
hereunder) or any such non-breaching Party's affiliates (including any Acquiror)
in connection with the Proposal, the Acquisition and the related transactions
("PURSUIT COSTS") shall be shared among the Parties as follows: Kingdom, 47.5%;
Cascade, 47.5%; and the Sharp Parties, 5%. Each
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Party shall make such payments to the others as shall be necessary to implement
such sharing of expenses. Any "break up fees" or other amounts received from
the Company and any amounts received from the Company as a result of a breach
of the Acquisition Agreement by the Company shall be shared among the Lead
Investors and Triples according to the following percentages: Kingdom, 47.5%;
Cascade, 47.5%; and the Sharp Parties, 5%.
(b) If the Closing occurs, then the Acquiror shall reimburse the Parties
and their respective affiliates for all Pursuit Costs incurred by each of them.
11. TERMINATION. This Agreement shall become effective on the date hereof
and shall terminate (except with respect to Paragraphs 8, 10(a) (but only with
respect to Pursuit Costs incurred prior to termination) and 12 through 23 and
this Paragraph 11, each of which shall survive any such termination) upon the
earliest of (i) December 31, 2006, unless the Acquisition Agreement shall have
been executed and delivered on or before such date, (ii) the Closing, (iii) the
termination of the Acquisition Agreement and (iv) notice delivered by either
Lead Investor to the other Parties prior to execution and delivery of an
Acquisition Agreement. Termination of this Agreement shall not relieve any Party
of any liability for breach of this Agreement prior to such termination.
12. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement, and
supersedes all prior agreements, understandings, negotiations and statements,
both written and oral, among the Parties or any of their affiliates with respect
to the subject matter contained herein.
13. CONFIDENTIALITY. Each Party agrees to, and shall cause its affiliates
(other than the Company), directors, officers, employees, agents, advisors and
representatives ("REPRESENTATIVES") to, keep any information supplied by or on
behalf of any of the other Parties to this Agreement in connection with the
transactions contemplated hereby confidential ("CONFIDENTIAL INFORMATION") and
to use, and cause its Representatives to use, the Confidential Information only
in connection with the Proposal, the Acquisition, and the other transactions
contemplated hereby; PROVIDED that the term "Confidential Information" does not
include information that (a) is already in such Party's possession, PROVIDED
that such information is not subject to another confidentiality agreement with
or other obligation of secrecy to any person, (b) is or becomes generally
available to the public other than as a result of a disclosure, directly or
indirectly, by such Party or such Party's Representatives in breach of this
Agreement, or (c) is or becomes available to such Party on a non-confidential
basis from a source other than any of the Parties hereto or any of their
respective Representatives, PROVIDED that such source is not known by such Party
to be bound by a confidentiality agreement with or other obligation of secrecy
to any person; PROVIDED FURTHER that that nothing herein shall prevent any Party
from disclosing Confidential Information (i) upon the order of any court or
administrative agency, (ii) upon the request or demand of any regulatory agency
or authority having jurisdiction over such Party, (iii) to the extent required
by law or regulation, (iv) to the extent necessary in connection with the
exercise of any remedy, hereunder, and (v) to such Party's Representatives that
need to know such information (it being understood and
5
agreed that, in the case of clause (i), (ii) or (iii), such Party shall notify
the other Parties hereto of the proposed disclosure as far in advance of such
disclosure as practicable and use reasonable efforts to ensure that any
information so disclosed is accorded confidential treatment, when and if
available). Notwithstanding anything to the contrary, nothing in this Agreement
shall impose on any Party or any other Person a limitation on the disclosure of
the tax treatment or tax structure of any transaction set forth herein.
14. PUBLIC ANNOUNCEMENTS. Each Party shall coordinate in good faith any and
all press releases and other public announcements with respect to the Proposal,
the Acquisition, and the other transactions contemplated hereby; provided that,
without the consent of all of the Parties, no such press releases or public
announcements shall contain information materially different from information
contained in press releases or other public announcements previously made by the
Company. This provision shall not apply, however, to any public announcement or
written statement required to be made by law or the regulations of any
governmental authority or any stock exchange, except that the Party required to
make such announcement shall, whenever practicable, consult with the other
Parties concerning the content and timing of such announcement before such
announcement is made.
15. THIRD PARTY BENEFICIARIES. No person (including the Company) other than
the Parties and their respective successors and permitted assigns shall have any
rights hereunder.
16. REMEDIES. The Parties hereto agree that, except as provided herein,
this Agreement shall be enforceable by all available remedies at law or in
equity (including specific performance).
17. EXERCISE OF RIGHTS AND REMEDIES. No delay of or omission in the
exercise of any right, power or remedy accruing to any Party as a result of any
breach or default by any other Party under this Agreement shall impair any such
right, power or remedy, nor shall it be construed as a waiver of or acquiescence
in any such breach or default, or of any similar breach or default occurring
later; nor shall any such delay, omission or waiver of any single breach or
default be deemed a waiver of any other breach or default occurring before or
after that waiver.
18. NO RECOURSE. Notwithstanding anything that may be expressed or implied
in this Agreement, and notwithstanding the fact that certain of the Investors
may be partnerships or limited liability companies, each Party covenants, agrees
and acknowledges that no recourse under this Agreement or any documents or
instruments delivered in connection with this Agreement shall be had against any
former, current or future directors, officers, agents, affiliates, general or
limited partners, members, managers or stockholders of any Investor or any
former, current or future directors, officers, agents, affiliates, employees,
general or limited partners, members, managers or stockholders of any of the
foregoing, as such, whether by the enforcement of any assessment or by any legal
or equitable proceeding, or by virtue of any statute, regulation or other
applicable law, it being expressly agreed and acknowledged that no personal
liability whatsoever shall attach to, be imposed on or otherwise be incurred by
any current
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or future director, officer, employee, general or limited partner or member or
manager of any Investor or of any partner, member, manager or affiliate thereof,
as such, for any obligation of any Investor under this Agreement or any
documents or instruments delivered in connection with this Agreement for any
claim based on, in respect of or by reason of such obligations or their
creation.
19. GOVERNING LAW; JURISDICTION. This Agreement shall be enforced,
construed and interpreted in accordance with the laws of the State of New York.
Each of the Parties (i) consents to submit itself to the personal jurisdiction
of any state or federal court located in the Borough of Manhattan, State of New
York with respect to any action arising from this Agreement, (ii) agrees that it
will not attempt to deny or defeat such personal
jurisdiction by motion or other request for leave from any such court and (iii)
agrees not to commence any such action in any forum other than such court. The
Parties irrevocably and unconditionally waive any objection to the laying of
venue of any such action in any such state or federal court, and hereby further
irrevocably and unconditionally waive and agree not to plead or claim in any
such court that any such action brought in any such court has been brought in an
inconvenient forum. Each of the Parties, to the fullest extent permitted by
applicable law, waives any right to a jury trial in any such action
20. NO ASSIGNMENT. This Agreement may not be assigned by any Party, nor
shall any Party syndicate its contribution obligation, without the consent of
the other Parties, other than to an affiliate of such Party, it being agreed
that any such assignment shall not relieve the assigning Party from its
obligations hereunder.
21. AMENDMENTS. This Agreement may not be amended or modified orally, but
only by a written instrument signed by all of the Parties.
22. NO REPRESENTATIONS OR DUTY. (a) Each Parry specifically understands and
agrees that no other Party has made and will not make any representation or
warranty with respect to the terms, value or any other aspect of the
transactions contemplated hereby and each Party explicitly disclaims any
warranty, express or implied, with respect to such matters. In addition, each
Party specifically acknowledges, represents and warrants that it is not relying
on any other Party (i) for its due diligence concerning, or evaluation of, the
Company or its assets or businesses, (ii) for its decision with respect to
making any investment contemplated hereby or (iii) with respect to tax and other
economic considerations involved in such investment.
(b) In making any determination contemplated by this Agreement, each
Party may make such determination in its sole and absolute discretion, taking
into account only such Party's own views, self-interest, objectives and
concerns. No Party shall have any fiduciary or other duty to any other Party
except as expressly set forth in this Agreement.
23. COUNTERPARTS; FACSIMILE SIGNATURES. This Agreement may be executed in
multiple counterparts, each of which shall be deemed an original and all of
which together shall constitute one instrument. For purposes hereof, facsimile
signatures shall be binding on the Parties to this Agreement.
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WITNESS WHEREOF, the Parties have executed this Funding and Cooperation
Agreement by their duly authorized officers as of the date first written above.
KINGDOM HOTELS INTERNATIONAL
By: /s/ HRH Prince Alwaleed Bin Talal Bin
-------------------------------------
Xxxxxxxxx Xxxxxx
-------------------------------------
Name: HRH Prince Alwaleed Bin Talal
Bin Xxxxxxxxx Xxxxxx
Title: President
CASCADE INVESTMENT, L.L.C.
By: /s/ Xxxxxxx Xxxxxx
-------------------------------------
Name: Xxxxxxx Xxxxxx
-------------------------------------
Title: BusinessManager
-------------------------------------
TRIPLES HOLDINGS LIMITED
By: /s/ Xxxxxxx Xxxxx
-------------------------------------
Name: Xxxxxxx Xxxxx
-------------------------------------
Title: President
-------------------------------------
/s/ Xxxxxxx Xxxxx
-------------------------------------
Xxxxxxx Xxxxx
ANNEX A
TRANSACTION SUMMARY
================================================================================
A. TRANSACTION OVERVIEW
The following summarizes certain terms of the transaction (the "TRANSACTION")
contemplated by the Funding and Cooperation Agreement to which this Transaction
Summary is attached. Certain capitalized terms used in this Transaction Summary
have the meanings ascribed to them in that Agreement.
1. CONSIDERATION PER SHARE: US$82.00 cash per share (the "TRANSACTION
PRICE").
2. TRIPLES/SHARP INTEREST: (i) Xx. Xxxxx would be entitled to receive
the proceeds due under the Sharp Sale of
Control Agreement, estimated to be
approximately US$288 million.
(ii) Triples would hold all of Acquiror's
Variable Multiple Voting Shares ("VMVS"),
as described below. (The terms "Acquiror"
and "Four Seasons" are used interchangeably
herein, unless the context requires
otherwise.)
(iii) The terms of the VMVSwould be amended
to provide that:
o TWO SERIES: The VMVS would be issued
in two series. The first series
("SERIES A VMVS") would be convertible
into Preferred Shares on the terms and
conditions described below. The number
of Series A VMVS would equal the total
number of VMVS currently held by Triples
less the number of Series B VMVS issued
in the Transaction. The second series of
VMVS ("SERIES B VMVS") would be
convertible into Series B Limited Voting
Shares of Four Seasons on the terms and
conditions described below. The number
of Series B VMVS would be equal to
1/19th times the total number of
Series A Limited Voting Shares of Four
Seasons held by Kingdom and Cascade
following the Transaction (I.E., such
that upon conversion of the Series B
VMVS into Series B Limited Voting
Shares, Triples would hold 5% of the
aggregate Series A and B Limited Voting
Shares).
o REGULAR VOTING: Except with respect to
Special Matters(1), both series of
VMVS would entitle the holder to one
vote per share, voting together with
the Limited Voting Shares as one class.
o CONVERSION OF SERIES A VMVS TO PREFERRED
SHARES: The Series A VMVS would be
convertible, into preferred shares with
the terms described below ("PREFERRED
SHARES") on a 1:1 basis (i) at
--------------------------------
1 THE SPECIAL MATTERS WOULD BE THOSE MATERIAL DECISIONS IDENTIFIED IN ITEMS
1, 3, 7, 13, 14 AND 16 OF PART C THAT WOULD REQUIRE THE APPROVAL OF XX.
XXXXX/TRIPLES SO LONG AS NONE OF THE SERIES B VMVS HAD BEEN TRANSFERRED
OUTSIDE THE SHARP FAMILY AND XX. XXXXX WAS EITHER THE CHIEF EXECUTIVE
OFFICER OR THE CHAIRMAN OF THE COMPANY (AND PROVIDED THAT HE WAS NOT
PHYSICALLY INCAPACITATED OR MENTALLY INCOMPETENT).
CONFIDENTIAL
11-3-06
Page 2
any time at the option of the holder,
(ii) at any time on or following the
fifth anniversary date of closing of the
Transaction at the option of Four
Seasons, (iii) automatically upon Xx.
Xxxxx dying, becoming physically
incapacitated or mentally incompetent,
or if he was neither the Chief Executive
Officer nor the Chairman (other than as
a result of a breach by a party other
than Xx. Xxxxx of agreements relating to
Xx. Xxxxx'x tenure in those positions),
and (iv) automatically upon the
completion of a public offering of
voting or equity securities of Four
Seasons that had been approved as a
Material Decision and following which
Four Seasons was listed on an
internationally recognized stock
exchange.(2)
|X| CONVERSION OF SERIES B VMVS TO SERIES B
LIMITED VOTING SHARES BY HOLDER OR BY
COMPANY: The Series B VMVS would be
convertible into Series B Limited Voting
Shares on a 1:1 basis (i) at any time at
the option of the holder, (ii)
automatically upon the transfer of any
Series B VMVS outside the Sharp family,
upon Xx. Xxxxx dying, becoming
physically incapacitated or mentally
incompetent, or if he was neither the
Chief Executive Officer nor the Chairman
(other than as a result of a breach by a
party other than Xx. Xxxxx of agreements
relating to Xx. Xxxxx'x tenure in those
positions), and (iii) at the option of
the Company upon the completion of a
public offering of voting or equity
securities of Four Seasons that had been
approved as a Material Decision and
following which Four Seasons was listed
on an internationally recognized stock
exchange.(3)
|X| VOTING ON SPECIAL MATTERS: In respect of
Special Matters only, the two series of
VMVS would, as a single class, entitle
the holder to the lesser of their then
current multiple votes (as calculated on
the basis of the currently authorized
VMVS of Four Seasons) and that number of
the votes that, in aggregate, is 25% of
the votes attaching to all outstanding
securities of Four Seasons, and would
vote as a separate class from the
Limited Voting Shares.
|X| DIVIDENDS: The Series B VMVS would
entitle the holder to the same dividends
as are paid on the Limited Voting
Shares. No dividends would be paid on
the Series A VMVS.
(iv) The Preferred Shares would have a "face
value" per share equal to the Transaction
Price and would entitle the holder to
cumulative, compound dividends (accruing from
the date of closing of the Transaction) at a
rate equal to 9.9% per annum. No dividends
would be paid on the Preferred Shares until
the end of the fifth year after the date
--------------------------------------------------------------------------------
2 AMONG OTHER THINGS, THE TERMS OF THE PREFERRED SHARES COULD PERMIT FOUR
SEASONS TO CAUSE THOSE SHARES TO BE PURCHASED BY A THIRD PARTY FOR THE
REDEMPTION PRICE IN PLACE OF THEIR BEING REDEEMED BY FOUR SEASONS.
3 THIS CONVERSION OF THE VMVS WOULD RESULT IN THE SPECIAL MATTERS REQUIRING
THE APPROVAL OF XX. XXXXX, AS PROVIDED UNDER "MATERIAL DECISIONS".
CONFIDENTIAL
11-3-06
Page 3
of closing of the Transaction (or, if
later, the issuance of the Preferred Shares
upon conversion of the Series A VMVS), at
which time dividends would begin to be paid
on a current basis. One-third of the
dividends accrued and compounded before the
fifth anniversary of the date of closing of
the Transaction would be paid at the end of
each of the fifth, sixth and seventh years
after the date of closing of the Transaction
(with unpaid dividends continuing to compound
to the date of such payment). The Preferred
Shares would be redeemable for their face
value and accrued but unpaid dividends to the
date of redemption (i) at the option of the
holder or Four Seasons at any times beginning
on the fifth anniversary of the date of
closing the Transaction, provided that at the
end of the sixth and seventh years after the
date of closing the Transaction,
respectively, no more than one-third and
two-thirds of the maximum number of Preferred
Shares into which the Series A VMVS may be
converted (regardless of the number of
Preferred Shares actually issued) shall have
been redeemed, (ii) at the option of the
holder at any time if Xx. Xxxxx ceased to be
either the Chief Executive Officer or the
Chairman as a result of a breach by a party
other than Xx. Xxxxx of agreements relating
to Xx. Xxxxx'x tenure in those positions, and
(iii) in whole at the option of Four Seasons
if, beginning on the fifth anniversary of the
date of closing of the Transaction, the
holder did not consent to Four Seasons or its
subsidiaries incurring indebtedness for
borrowed money that had been approved as a
"Material Decision" (as provided in Part C,
below).
While all or any portion of the Preferred
Shares remain outstanding, no indebtedness
for borrowed money that was not subordinated
to the Preferred Shares could be incurred by
Four Seasons or its subsidiaries without Xx.
Xxxxx'x consent. (Xx. Xxxxx would pre-approve
the debt associated with the implementation
of the Transaction, up to US$750 million of
acquisition financing and a US$200 million
evergreen operating facility with one or more
banks, as "permitted senior debt".)
The final structure would address the
commercial and tax efficiencies associated
with achieving the overall economic objective
of the Transaction.
Page 4
3. COMMITMENT OF Xx. Xxxxx would agree to continue in his
CHAIRMAN AND CHIEF current capacity as Chief Executive Officer
EXECUTIVE OFFICER: for at least three years. Thereafter, at his
option, Xx. Xxxxx would advise the Board of
Directors regarding further extensions of his
service as Chief Executive Officer. Xx. Xxxxx
would continue as the Chairman while he is
Chief Executive Officer and, at his option,
after he ceases to be Chief Executive
Officer. X. Xxxxx would tender his
resignation as Chief Executive Officer and
Chairman if Xx. Xxxxx/Triples disposed of all
or substantially all of their equity
interest in Four Seasons (other than pursuant
to a PRO RATA secondary public offering or
private placement by Xx. Xxxxx/Triples and
the Lead Investors participating in the
offering). The continuing Chief Executive
Officer and Chairman's roles contemplated for
Xx. Xxxxx are outlined in Part B, below.
4. GOVERNANCE: The governance structure for Four Seasons
would be established pursuant to a
shareholders agreement among Four Seasons,
the Lead Investors, Xx. Xxxxx and Triples.
The basic terms of the shareholders agreement
are outlined in Part C, below.
5. MECHANISM FOR It is contemplated that the Transaction
IMPLEMENTATION: would be implemented through a shareholder-
approved corporate transaction, such as an
amalgamation or a plan of arrangement
approved by shareholders and the court.
CONFIDENTIAL
11-3-06
Page 5
B. POSITION DESCRIPTION OF CHIEF EXECUTIVE OFFICER AND CHAIRMAN OF THE
BOARD
CHIEF EXECUTIVE OFFICER
GENERAL
As Chief Executive Officer, Xx. Xxxxx would continue to have responsibility for
providing the strategic and aesthetic vision for Four Seasons and overseeing the
day-to-day management of the business of the Company in accordance with its
strategic plans and annual budgets as reviewed and, as necessary, approved by
the Board.
SPECIFIC RESPONSIBILITIES
Without limitation, as Chief Executive Officer, Xx. Xxxxx would have
responsibility, as currently is the case, to:
|X| lead the strategic planning process for Four Seasons,
|X| subject to the Material Decisions list, lead succession planning and
personnel related initiatives for Four Seasons,
|X| with other members of senior management, advise the Board of the goals for
Four Seasons' business and, oversee the implementation of corresponding
strategic, operational and profit plans,
|X| advise on the development and implementation of the activities of Four
Seasons to achieve agreed-upon targets,
|X| report to, and meet periodically with, the Board to review material issues,
|X| arrange for the provision to the Board of all information reasonably
required by the Board, and
|X| subject to the Material Decisions list, implement top-level organizational
structure, staffing, compensation and succession in a manner consistent
with current succession plans and recommend to the Board any changes
thereto.
MANAGEMENT STYLE
Xx. Xxxxx would discharge his role as Chief Executive Officer in a manner
consistent with past practice and, without limitation, would:
|X| focus his time on significant business issues, partner relations,
architectural and interior design, and corporate and hotel employee
meetings and relations,
|X| determine his work schedule,
|X| determine the location from which he works, and
|X| have a corporate plane and driver available.
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11-3-06
Page 6
CHAIRMAN OF THE BOARD
GENERAL
As Chairman, Xx. Xxxxx would have responsibility for overseeing the management,
development and effective functioning of the Board of Directors and would
provide the Board with overall leadership in its work.
SPECIFIC RESPONSIBILITIES
In addition, as Chairman, Xx. Xxxxx would have responsibility to:
|X| promote cohesiveness among members of the Board of Directors,
|X| chair meetings of the Board of Directors and of the shareholders,
|X| ensure that Board functions are effectively carried out, and, where
functions have been delegated to Committees, that the results are reported
to the Board,
|X| oversee the Chief Executive Officer's execution of his or her
responsibilities,
|X| encourage and promote a culture of ethical business conduct, and
|X| perform such other functions as may be ancillary to the duties and
responsibilities described above and as may reasonably be delegated to the
Chairman by the Board of Directors from time to time.
REPORTING
So long as Xx. Xxxxx was the Chief Executive Officer, the Chief Operating
Officer would report directly to him and, so long as Xx. Xxxxx was the Chairman
(but not the Chief Executive Officer), the Chief Executive Officer would report
directly to him.
CONFIDENTIAL
11-3-06
Page 7
C. GOVERNANCE
TERMS OF UNANIMOUS SHAREHOLDERS AGREEMENT
PARTIES: Four Seasons, the Lead Investors, Xx. Xxxxx and
Triples.
VOTING ARRANGEMENTS: The Board would be comprised of five members:
two nominees of each of Kingdom and Cascade,
and one nominee of Xx. Xxxxx/Triples. Each of
the Lead Investors and Xx. Xxxxx/Triples would be
entitled to vote in proportion to their equity
interest through their nominees to the Board. So
long as he is the Chief Executive Officer or
Chairman, Xx. Xxxxx will be the nominee of Xx.
Xxxxx/Triples to the Board. All meetings of the
Board would be in Toronto. Participation in
meetings of the Board may be by telephone.
DAY-TO-DAY GOVERNANCE: All matters that are not Material Decisions
(as that term is defined below) would fall under
the exclusive authority of the Chairman (so long
as Xx. Xxxxx is the Chairman), the Chief
Executive Officer and the Management Committee
of Four Seasons.
REPORTING: The Chief Executive Officer and representatives
of the Management Committee would meet with the
Board of Directors quarterly in Toronto (with
participation by conference telephone being
permitted).
So long as Xx. Xxxxx was either the Chief
Executive Officer or Chairman (or would have been
eligible to occupy one of those roles but for a
breach by a party other than Xx. Xxxxx of
agreements relating to Xx. Xxxxx'x tenure in those
positions), at one of these meetings, the Chief
Executive Officer would present the annual budget
(a "SHARP ANNUAL BUDGET") for review and approval,
provided that approval could not be withheld if
the aggregate cash expenses, capital expenditures
and investments in (or advances to) secure,
maintain or enhance management agreements in that
proposed budget was not materially inconsistent
with the budget for the prior year, including
future capital commitments outlined therein (for
the purposes of determining consistency, material
capital commitments expressly approved as Material
Decisions, as provided below, in a preceding year
would not be considered to be included in that
year's budget). Thereafter (i) at one of these
meetings, the Chief Executive Officer would
present to the Board for its approval an annual
budget, which would become the approved annual
budget for the year once it was approved, and (ii)
pending approval of the proposed annual budget,
management would have the authority to operate the
business in accordance with the expense portion of
the most recently approved budget (increased by a
factor equal to any increase of the consumer price
index for the City of Toronto).
Page 8
In addition, the Chief Executive Officer would
arrange to have a monthly operating report
prepared for distribution to the Board.
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11-3-06
Page 9
MATERIAL DECISIONS: For so long as Xx. Xxxxx was either Chief
Executive Officer or Chairman (and thereafter if
he ceased to hold either of those positions as a
result of a breach by a party other than Xx. Xxxxx
of agreements relating to Xx. Xxxxx'x tenure in
those positions), and provided that he was not
physically incapacitated or mentally incompetent,
approval of the Material Decisions listed in items
1, 3, 7, 13, 14 and 16, below, would require
approval by the holder of the VMVS (or by Xx.
Xxxxx upon the conversion of the VMVS upon the
completion of a public offering as described
above, provided Xx. Xxxxx would not be entitled to
exercise such approval rights after the completion
of that public offering unless that public
offering was completed before the fifth
anniversary of the date of closing of the
Transaction, in which event he would be entitled
to exercise such approval rights until such fifth
anniversary), as well as requiring approval as a
"Material Decision."
The following would be material decisions
("MATERIAL DECISIONS") that would require approval
by the votes cast by directors nominated by
shareholders holding at least 66 2/3% of the
equity interests of Four Seasons:
1. material departures (including new lines of
business) from Four Seasons' previously
approved long-term strategy,
2. amendment of articles or by-laws,
3. any matter that requires approval of
shareholders by way of a "special
resolution" under the Business Corporations
Act (Ontario) (such as amalgamation,
dissolution or continuance and the
disposition of all or substantially all of
the assets of the Company),
4. entering into management arrangements on
terms materially different than those in
Four Seasons' existing arrangements,
5. investing more than US$25 million in
connection with a single management,
investment or real estate opportunity,
6. settling or compromising proceedings
involving payments or receipts of more
than US$1 million, in the aggregate each
year, in addition to amounts contemplated in
the approved annual budget,
7. corporate acquisitions,
8. issuance, redemption or purchase by the
Company of securities (other than the
redemption of the preferred shares held by
Xx. Xxxxx/Triples),
9. payment of dividends or other distributions
to shareholders,
10. approval of the strategic plans proposed by
management from time to time,
11. incurring indebtedness for borrowed money in
excess of amounts
CONFIDENTIAL
11-3-06
Page 10
contemplated in the approved annual budget,
12. expenditures or capital or funding
commitments in excess of an amount to be
agreed that are not otherwise contemplated in
the approved annual budget,
13. changing the approved succession plans for
members of Management Committee,making
appointments to those positions other than as
contemplated in the approved succession plan,
or hiring any external candidate into a
Management Committee position,
14. the termination of the employment of Xx.
Xxxxxx, the appointment of a replacement for
Xx. Xxxxxx or change in the structure of
senior management following the termination,
resignation, retirement, physical incapacity,
mental incompetence or death of Xx. Xxxxxx,
15. a public offering or private placement of
voting or equity securities of Four Seasons,
16. relocating Four Seasons' worldwide head
office from its current location in
Toronto, Canada,
17. changing auditors,
18. making material tax elections or changing the
method of tax accounting,
19. changing existing accounting practices,
except as the auditors advise is required by
law or generally accepted accounting
principles, or writing up, down
or off the book value of any assets that, in
aggregate, exceed US$5 million per annum
(except for depreciation and amortization in
accordance with GAAP),
20. approval of a Sharp Annual Budget, subject to
the requirement that such approval not be
withheld in the circumstances described above
under "Reporting",and approval of any annual
budget that is not a Sharp Annual Budget,
21. transactions or arrangements that would
reasonably be expected to transfer
value from Four Seasons to one or more of its
shareholders or their affiliates (other than
those transactions or arrangements described
herein), and
22. canceling, terminating or materially amending
insurance coverage.
Approval of the Material Decision listed in item
21 (and if there is any ambiguity whether a
particular transaction or arrangement falls within
that item, the ambiguity shall be resolved in
favor of it doing so) would require approval by
the requisite majority disregarding votes cast by
directors nominated by shareholders that have (or
whose affiliates have) an interest in that
transaction or arrangement.
Any amendment or modification of the unanimous
shareholders
CONFIDENTIAL
11-3-06
Page 11
agreement would require approval by each of
Kingdom, Cascade, and Sharp/Triples.
SALE OF SHARES: None of the Lead Investors could dispose of any of
its interest in Four Seasons, directly or
indirectly, (other than to a person who controls,
was controlled by, or was under common control and
economic ownership with, the Lead Investor) until
after the second anniversary of the closing of the
Transaction.
Any direct or indirect disposition of shares of
Four Seasons by Xx. Xxxxx/Triples (other than to
a person who controlled, was controlled by, or was
under common control and economic ownership with,
Xx. Xxxxx/Triples) would be subject to an equal
right of first offer (which could be accepted only
in respect of all of the shares offered) in favour
of Kingdom and Cascade for a value determined by a
valuator mutually agreed upon by Xx.
Xxxxx/Triples,Kingdom and Cascade that reflected,
among other things, the potential of the "Four
Seasons" brand and the long-term prospects of the
enterprise but without regard to any control
premium that might be ascribed in relation to
such purchase.(4)
Any direct or indirect disposition of shares of
Four Seasons by the Lead Investors (other than (a)
to a person who controlled, was controlled by, or
was under common control and economic ownership
with, the Lead Investor, or (b) from a Kingdom
Trust company to HRH or from HRH to a Kingdom
Trust company) would be subject to a right of
first offer in favour of the other Lead Investors
and Xx. Xxxxx/Triple's, pro rata in accordance
with their equity interests. If the shares subject
to the right of first offer were not all acquired
by the other Lead Investors and Xx. Xxxxx/Triples,
they could be sold (subject to "tag-along rights"
if Kingdom or Cascade or a related entity had
initiated the sale process) to a "Qualified
Person", being a person that (i) was not, and was
not an affiliate of, a competitor of Four Seasons,
(ii) had adequate financial capacity to perform
the obligations of a shareholder under the
unanimous shareholders agreement and agreed to be
bound by such agreement, (iii) was not of ill
repute, and (iv) was not in any other manner a
person with whom the other Lead Investors and Xx.
Xxxxx/Triples, as reasonable and prudent business
persons owning a significant investment in Four
Seasons, would not wish to associate in that
capacity.
DISPUTE RESOLUTION: Final arbitration under the Rules of Arbitration
of the International Chamber of Commerce after a
60-day period of good faith negotiation.
---------------------------------
4 THE PROCESS FOR SELECTING A VALUATOR AND THE PARAMETERS TO BE TAKEN INTO
ACCOUNT BY THE VALUATOR WOULD BE FURTHER REFINED IN FORMAL DOCUMENTATION.
CONFIDENTIAL
11-3-06
