EXHIBIT 2.3
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CONVERSION INCENTIVE AGREEMENT
CONVERSION INCENTIVE AGREEMENT (the "AGREEMENT") dated as of May 1, 2002, by and
among INTERSTATE HOTELS CORPORATION, a Maryland corporation (the "COMPANY"),
CGLH PARTNERS I LP, a Delaware limited partnership (the "STOCKHOLDER") and CGLH
PARTNERS II LP, a Delaware limited partnership (the "NOTEHOLDER", and together
with the Stockholder, the "SECURITY HOLDERS").
RECITALS
WHEREAS, the Company is the issuer of (i) Class A Common Stock, par
value $0.01 per share ("INTERSTATE COMMON STOCK"), (ii) Series B Convertible
Preferred Stock, par value $0.01 per share ("SERIES B CONVERTIBLE PREFERRED
STOCK") and (iii) 8.75% convertible subordinated notes due October 20, 2007
("8.75% CONVERTIBLE SUBORDINATED NOTES");
WHEREAS, the Stockholder is the owner of 500,000 shares of the
Company's Series B Convertible Preferred Stock (such 500,000 shares, the "SERIES
B STOCK") and the Noteholder is the holder of 8.75% Convertible Subordinated
Notes in the aggregate principal amount of $25,000,000 issued to the Noteholder
as payee thereunder (the "CONVERTIBLE NOTES", and together with the Series B
Stock, the "CONVERTIBLE SECURITIES");
WHEREAS, the Company and the Security Holders entered into a Securities
Purchase Agreement, an Investor Agreement and a Registration Rights Agreement,
each dated as of October 20, 2000 (the "GOVERNING AGREEMENTS"), with respect to
the purchase of, and certain rights and restrictions relating to, the
Convertible Securities;
WHEREAS, contemporaneously with the execution of this Agreement, the
Company is entering into an Agreement and Plan of Merger (the "MERGER
AGREEMENT") with MeriStar Hotels and Resorts, Inc., a Delaware corporation
("MERISTAR"), pursuant to which the Company will merge with and into MeriStar on
the terms and subject to the conditions set forth in the Merger Agreement, with
MeriStar surviving (the "MERGER"). Each capitalized term used in this Agreement
that is not defined in this Agreement shall have the meaning ascribed to such
term in the Merger Agreement;
WHEREAS, in order to induce MeriStar to enter into the Merger
Agreement, and as a condition to MeriStar's willingness to do so, MeriStar has
requested the Security Holders and the Security Holders have agreed,
contemporaneously with the execution of this Agreement, to enter into a voting
agreement (the "INTERSTATE VOTING AGREEMENT") pursuant to which the Security
Holders agree (i) to convert a portion of the Convertible Securities in
accordance with their terms into shares of Interstate Common Stock on the record
date for the Interstate Stockholders Meeting, (ii) to vote, and to grant
MeriStar a proxy to vote (including by written consent, if applicable), all
securities of Interstate held by the Security Holders or subsequently acquired
by the Security Holders in favor of the Merger and related matters, and (iii)
that such of the Convertible Securities as are outstanding immediately before
the Effective Time shall be
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exchanged in the Merger for shares of common stock issued by the Surviving
Corporation in accordance with the provisions set forth in the Merger Agreement;
NOW, THEREFORE, in order to induce the Stockholder and the Noteholder
to agree to convert the Convertible Securities and enter into the Interstate
Voting Agreement and thereby facilitate the transactions contemplated by the
Merger Agreement, which the Special Committee of the Board of Directors of
Interstate has determined are in the best interests of the stockholders of
Interstate (other than the Stockholder and the Noteholder) and in consideration
of the premises and of the mutual covenants and obligations hereinafter set
forth, for good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, the parties agree as follows:
ARTICLE I
CONVERSION OF CONVERTIBLE SECURITIES AND
PAYMENT OF CONVERSION INCENTIVE
1.1. REQUIRED CONVERSION. At the Required Conversion Closing (as
defined in Section 1.2) the following (the "REQUIRED
Conversion") shall occur:
(a) the Stockholder shall surrender to the Company the certificate
evidencing the Series B Stock duly endorsed to the Company in blank for
conversion into shares of Interstate Common Stock in accordance with the
provisions of Section 7 of the Articles Supplementary of the Company designating
the Series B Convertible Preferred Stock (the "ARTICLES SUPPLEMENTARY"), and the
Company shall deliver to the Stockholder (i) certificates representing the
number of validly issued, fully paid and nonassessible shares of Interstate
Common Stock to which the Stockholder is entitled upon conversion of Series B
Stock in accordance with the provisions of Section 7 of the Articles
Supplementary (such shares of Interstate Common Stock, together with the Note
Conversion Shares, the "CONVERSION SHARES"); and
(b) the Noteholder shall surrender to the Company the Convertible
Notes together with written instructions specifying the principal amount of
Convertible Notes that is to be converted in accordance with the provisions of
Section 4 of the Convertible Notes (the "CONVERTED PRINCIPAL") into shares of
Interstate Common Stock, and the Company shall deliver to the Noteholder
certificates representing the number of validly issued, fully paid and
nonassessible shares of Common Stock equal to the Converted Principal plus all
Accrued Interest (as such term is defined in the Convertible Notes) thereon to
the date of conversion divided by the Conversion Price (as such term is defined
in the Convertible Notes) as adjusted pursuant to Section 4.1(c) of the
Convertible Notes (the "NOTE CONVERSION SHARES");
(c) the Company shall cancel the Convertible Notes and issue to
the Noteholder a new note or notes, as requested by Noteholder, in substantially
identical form to the Convertible Notes and in the aggregate principal amount
equal to the aggregate principal amount of the Convertible Notes less the
Converted Principal;
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(d) the Company shall pay to the Security Holders the amount of
$9,250,000 (the "CONVERSION INCENTIVE PAYMENT") in United States dollars in
immediately available funds by wire transfer to an account specified in writing
by the Security Holders.
1.2. THE REQUIRED CONVERSION CLOSING. Subject to the satisfaction or
waiver in accordance with this Agreement of the conditions set forth in Articles
VI and VIII of this Agreement, the closing of the transactions contemplated by
Section 1.1 of this Agreement (the "REQUIRED CONVERSION CLOSING") shall take
place at the offices of Xxxxx, Day, Xxxxxx & Xxxxx, New York, New York at 10:00
A.M. on the date set by the board of directors of Interstate as the record date
for the Interstate Stockholders Meeting, or at such other place and time or on
such other date as the Company, MeriStar and the Security Holders may mutually
determine (the "REQUIRED CONVERSION CLOSING DATE").
1.3. DEEMED SATISFACTION OF NOTICE REQUIREMENTS. This execution of this
Agreement shall be deemed to satisfy all notice and informational requirements
of Section 4.1(e) of the Convertible Notes and Section 7(d) of the Articles
Supplementary that would otherwise be required of the Security Holders in
connection with the Required Conversion.
ARTICLE II
TERMINATION OF GOVERNING AGREEMENTS
2. The Company and the Security Holders hereby agree that at the Effective Time
each of the Governing Agreements shall terminate and shall be of no further
effect. Notwithstanding the forgoing, nothing in this Article II shall relieve
any party of liability for any breach of the provisions of the Governing
Documents occurring prior to the Effective Time.
ARTICLE III
REPRESENTATIONS & WARRANTIES OF THE COMPANY
3. The Company represents and warrants to the Security Holders as of the date
hereof and as of the Required Conversion Closing Date (as though made on and as
of such date):
3.1. ORGANIZATION. The Company is a corporation duly organized, validly
existing under the laws of the state of Maryland, and has all requisite
corporate power and authority to enter into this Agreement and to carry out the
transactions contemplated by this Agreement.
3.2. AUTHORIZATION OF AGREEMENT. The execution, delivery and
performance of this Agreement has been duly authorized by all requisite
corporate action on the part of the Company, and constitutes, a legal, valid and
binding obligation of the Company, enforceable against the Company, in
accordance with its terms, except to the extent that enforceability may be
limited by bankruptcy, insolvency or other similar laws affecting creditors'
rights generally.
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3.3. NO VIOLATION, ETC. The execution, delivery and performance by the
Company of this Agreement and the consummation by the Company of the
transactions contemplated hereby will not (i) violate any Law applicable to the
Company or any of its properties or assets, (ii) conflict with or result in any
breach of any of the terms, conditions or provisions of, or constitute (with due
notice or lapse of time, or both) a default (or give rise to any right of
termination, cancellation or acceleration) under any material agreement of the
Company, or result in the creation of any Lien upon any of the properties or
assets of the Company, (iii) violate the organizational documents of the Company
or (iv) require approval by the Company's stockholders.
3.4. AUTHORIZATION AND ISSUANCE OF CONVERSION SHARES. The Conversion
Shares, when issued, will be validly issued and outstanding, fully paid and
nonassessable with no personal liability attaching to the ownership thereof,
free and clear of any Encumbrances and not subject to pre-emptive or similar
rights of the stockholders of Interstate or others, and will be validly listed
on the Nasdaq National Market. The Conversion Shares, when issued, will be
entitled to all rights attaching to shares of Interstate Common Stock,
including, without limitation, the right to vote such shares at the Interstate
Stockholder Meeting.
3.5. INTERSTATE PERMITS. No Interstate Permits other than those that
have been obtained by the Company are required by the Company or any of its
subsidiaries in connection with the execution, delivery and performance of this
Agreement and the consummation by Interstate of the transactions contemplated
hereby.
ARTICLE IV
REPRESENTATIONS & WARRANTIES OF THE SECURITY HOLDERS
4. Each of the Security Holders, severally and not jointly, represents
and warrants to the Company as of the date hereof and as of the Required
Conversion Closing Date (as though made on and as of such date):
4.1. ORGANIZATION. Such Security Holder is a limited liability
partnership duly organized and validly existing under the laws the state of
Delaware, and has all requisite power and authority to enter into this Agreement
and to carry out the transactions contemplated by this Agreement.
4.2. AUTHORIZATION. The execution, delivery and performance of this
Agreement has been duly authorized by all requisite action on the part of such
Security Holder, and constitutes a legal, valid and binding obligation of such
Security Holder, enforceable against such Security Holder, in accordance with
its terms, except to the extent that enforceability may be limited by
bankruptcy, insolvency or other similar laws affecting creditors' rights
generally.
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4.3. NO VIOLATION, ETC. The execution, delivery and performance by such
Security Holder of this Agreement will not (a) violate any Law applicable to
such Security Holder or any of its properties or assets, (b) conflict with or
result in any breach of any of the terms, conditions or provisions of, or
constitute (with due notice or lapse of time, or both) a default (or give rise
to any right of termination, cancellation or acceleration) under any material
agreement of such Security Holder, or result in the creation of any Lien upon
any of the properties or assets of such Security Holder or (c) violate the
organizational documents of such Security Holder.
4.4. CONSENTS AND PERMITS. No federal or state governmental licenses,
permits, qualifications and authorizations, and no authorization, consent,
waiver of contractual right or obligation, or approval of or by, or any
notification of or filing with, any Person is required by such Security Holder
in connection with the execution, delivery and performance of this Agreement and
the consummation by such Security Holder of the transactions contemplated
hereby.
ARTICLE V
COVENANTS OF THE PARTIES
5.1. COVENANTS OF THE PARTIES. Each of the parties hereto hereby
covenants and agrees with each other party hereto that from the date hereof
until the Required Conversion Closing such party will cooperate in a
commercially reasonable manner with such other parties to obtain any
authorization required of, or to make any filing or response required by, the
Securities and Exchange Commission or any other Governmental Entity in
connection with the Agreement, the Merger and the transactions contemplated
hereby and thereby.
ARTICLE VI
COMPANY'S CONDITIONS TO CLOSING
6. The obligation of the Company to effect the consummation of the
transactions contemplated hereby is subject to the fulfilment prior to the
Required Conversion Closing (or waiver by the Company) of the conditions that:
6.1. REPRESENTATIONS AND WARRANTIES. The representations and warranties
of the Security Holders contained herein shall be true and correct in all
respects as of the Required Conversion Closing Date with the same effect as
though made as of the Required Conversion Closing Date.
6.2. NO EXERCISE OF NON-CONVERSION RIGHT. The Security Holders shall
not have exercised their Non-Conversion Right (as such term is defined in the
Interstate Voting Agreement), if any, pursuant to Section 3.2 of the Interstate
Voting Agreement.
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6.3. NO INJUNCTION, ETC. No temporary restraining order, preliminary or
permanent injunction or other order or decree which prevents the consummation of
the transactions contemplated hereby shall have been issued and remain in
effect, and no Law shall have been enacted by any Governmental Entity which
prevents the consummation of the transactions contemplated hereby; provided,
however, that the parties shall use their reasonable best efforts to cause any
such decree, ruling, injunction or other order to be vacated or lifted.
ARTICLE VII
SECURITY HOLDERS' CONDITIONS TO CLOSING
7. The obligation of the Security Holders to effect the consummation of
the transactions contemplated hereby is subject to the fulfilment prior to the
Required Conversion Closing (or waiver by each of the Security Holders) of the
conditions that:
7.1. REPRESENTATIONS AND WARRANTIES. The representations and warranties
of the Company contained herein shall be true and correct in all respects as of
the Required Conversion Closing Date with the same effect as though made as of
the Required Conversion Closing Date.
7.2. ABSENCE OF OTHER SECURITIES. Except for the Convertible
Securities, there shall be no shares of Series B Convertible Preferred Stock
outstanding and no principal amount outstanding under any 8.75% Convertible
Subordinated Notes.
7.3. NO EXERCISE OF NON-CONVERSION RIGHT. The Security Holders shall
not have exercised their Non-Conversion Right (as such term is defined in the
Interstate Voting Agreement), if any, pursuant to Section 3.2 of the Interstate
Voting Agreement.
7.4. NO INJUNCTION, ETC. No temporary restraining order, preliminary or
permanent injunction or other order or decree which prevents the consummation of
the transactions contemplated hereby shall have been issued and remain in
effect, and no Law shall have been enacted by any Governmental Entity which
prevents the consummation of the transactions contemplated hereby; provided,
however, that the parties shall use their reasonable best efforts to cause any
such decree, ruling, injunction or other order to be vacated or lifted.
ARTICLE VIII
TERMINATION
8.1. TERMINATION. This Agreement and the obligations of the Company and
the Security Holders to effect the Required Conversion and the other actions
contemplated hereby shall terminate upon (i) the termination in accordance with
its terms of the Merger Agreement or (ii) the Effective Time and (iii) may be
earlier terminated by the mutual written consent of the Company, the Security
Holders and MeriStar.
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ARTICLE IX
MISCELLANEOUS
9.1. COSTS AND EXPENSES. As between the Company and the Security
Holders, the costs of and incidental to the preparation and consummation of this
Agreement and the transactions contemplated hereby shall be borne by the party
incurring such costs.
9.2. NOTICES. Except as otherwise provided in this Agreement, all
notices, requests, consents and other communications hereunder to any party
shall be deemed to be sufficient if contained in a written instrument delivered
in person, by telecopy (with confirmation promptly sent by regular mail) or by
internationally recognized express delivery service, return receipt requested,
postage prepaid, addressed to such party at the address set forth below or such
other address as may hereafter be designated in writing by such party to the
other parties:
If to the Company:
Interstate Hotels Corporation
000 Xxxxxxxx Xxxxx, Xxxxxx Xxxxx Ten
Xxxxxxxxxx, Xxxxxxxxxxxx 00000
Attention: General Counsel
Facsimile: (000) 000-0000
With copies to:
Xxxxx, Day, Xxxxxx & Xxxxx
000 Xxxx 00xx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000-0000
Attention: Xxxx X. Xxxxxxx, Esq.
Facsimile: (000) 000-0000
If to either of the Security Holders:
c/x Xxxxxx Brothers Holdings Inc.
000 Xxxxx Xxxxxx
00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxx Xxxxxxxx
Facsimile: (000) 000-0000
with a copy to:
Continental Gencom Holdings
c/o Xx. X. Xxxxxxx and Xx. X. Xxxxxx
0000 Xxxx Xxxxxx
Xxxxx 000
Xxxxx, Xxxxxxx 00000
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Facsimile: (000) 000-0000
with a copy to:
Xxxxxxx Xxxxxx Xxxxxx Xxxxxxxx Xxxxxxxx &
Xxxxxxxxx, P.A.
000 Xxxx Xxxxxxx Xxxxxx
Xxxxx 0000
Xxxxx, Xxxxxxx 00000
Attention: Xxxxxxx X. Xxxxxx, Esq.
Facsimile: (000) 000-0000
with a copy to:
Fried, Frank, Harris, Xxxxxxx & Xxxxxxxx
Xxx Xxx Xxxx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxxxx Mechanic, Esq.
Facsimile: (000) 000-0000
9.3. FURTHER ASSURANCES. From time to time on and after the date
hereof, the Company and the Security Holders, as the case may be, shall deliver
or cause to be delivered to the other parties hereto such further documents and
instruments and shall do and cause to be done such further acts as the other
parties hereto shall reasonably request to carry out more effectively the
provisions and purposes of this Agreement and the transactions contemplated
hereby, to evidence compliance herewith or to assure that such parties are
protected in acting hereunder.
9.4. AMENDMENTS AND WAIVERS. This Agreement may not be amended,
modified, supplemented or waived except by an instrument signed in writing on
behalf of each of the parties whose rights or obligations are changed by the
terms of such amendment, modification, supplement or waiver.
9.5. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of and be enforceable by the parties hereto and their
respective successors and the personal representatives and assigns of the
parties hereto, whether so expressed or not; provided that the parties hereto
may not assign their obligations hereunder. For the avoidance of doubt, to the
extent that all or any part of the Security Holders' interests in the
Convertible Securities shall be validly transferred, such transferee and the
Company shall each be bound hereunder as if such transferee was an original
signatory hereunder as Stockholder and/or Noteholder, as applicable.
9.6. ENTIRE AGREEMENT; NO THIRD-PARTY BENEFICIARIES; SEVERAL
OBLIGATIONS. This Agreement (together with the Merger Agreement, the Interstate
Voting Agreement and the documents referred to herein or delivered pursuant
hereto) embodies the entire agreement and understanding between the parties
hereto and supersedes all prior agreements and understandings relating to the
subject matter hereof. This Agreement is not intended to confer upon any Person
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other than the parties hereto any rights or remedies. The obligations of, and
the representations and warranties made by, each Security Holder shall be
several and not joint and shall relate only to such Security Holder.
9.7. JURISDICTION; CONSENT TO SERVICE OF PROCESS.
(a) Each party hereto hereby irrevocably and unconditionally
submits, for itself and its property, to the exclusive jurisdiction of the
Chancery or other courts of the State of Maryland (a "MARYLAND COURT"), and any
appellate court from any such court, in any suit, action or proceeding arising
out of or relating to this Agreement, or for recognition or enforcement of any
judgment resulting from any suit, action or proceeding, and each party hereby
irrevocably and unconditionally agrees that all claims in respect of any such
suit, action or proceeding may be heard and determined in a Maryland Court.
(b) It will be a condition precedent to each party's right to
bring any such suit, action or proceeding that such suit, action or proceeding,
in the first instance, be brought in a Maryland Court (unless such suit, action
or proceeding is brought solely to obtain discovery or to enforce a judgment),
and if each such court refuses to accept jurisdiction with respect thereto, such
suit, action or proceeding may be brought in any other court with jurisdiction.
(c) No party may move to (i) transfer any such suit, action or
proceeding from a Maryland Court to another jurisdiction, (ii) consolidate any
such suit, action or proceeding brought in a Maryland Court with a suit, action
or proceeding in another jurisdiction, or (iii) dismiss any such suit, action or
proceeding brought in a Maryland Court for the purpose of bringing the same in
another jurisdiction.
(d) Each party hereby irrevocably and unconditionally waives, to
the fullest extent it may legally and effectively do so, (i) any objection which
it may now or hereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to this Agreement in a Maryland Court,
(ii) the defense of an inconvenient forum to the maintenance of such suit,
action or proceeding in any such court, and (iii) the right to object, with
respect to such suit, action or proceeding, that such court does not have
jurisdiction over such party. Each party irrevocably consents to service of
process in any manner permitted by law.
9.8. FIDUCIARY DUTIES.
Each Security Holder is signing this Agreement solely in such Security Holder's
capacity as the beneficial owner of the Convertible Securities and,
notwithstanding anything herein to the contrary, nothing contained herein shall
limit or affect any actions taken by such Security Holder or any designee of
such Security Holder in his or her capacity, if any, as an officer or director
of the Company or any of its Subsidiaries and none of such actions in any such
capacity shall be deemed to constitute a breach of this Agreement.
9.9. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument. All signatures need not appear on any one
counterpart.
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9.10. SEVERABILITY. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction.
9.11. SPECIFIC PERFORMANCE. The parties hereto acknowledge that there
would be no adequate remedy at law if any party fails to perform any of its
obligations hereunder, and accordingly agree that each party, in addition to any
other remedy to which it may be entitled at law or in equity, shall be entitled
to injunctive relief, including specific performance, to enforce such
obligations without the posting of any bond, and, if any action should be
brought in equity to enforce any of the provisions of this Agreement, none of
the parties hereto shall raise the defense that there is an adequate remedy at
law.
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IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first above written.
INTERSTATE HOTELS CORPORATION
By: /s/ Xxxxxx X. Xxxxxx
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Name: Xxxxxx X. Xxxxxx
Title: Chief Executive Officer
CGLH PARTNERS I LP
By: MK/CG-GP LLC
General Partner
By: CG Interstate Associates, LLC
a Managing Member
By: Continental Gencom Holdings, LLC
its Sole Member
By: /s/ Xxxxx Xxxxxxx
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Name: Xxxxx Xxxxxxx
Title: Member
By: KFP Interstate, LLC, a Managing Member
By: KFP Holdings, Ltd., its Sole Member
By: Xxxxxxxxx, X.X., its General Partner
By: /s/ Xxxxxxx Xxxxxx
-----------------------------
Name: Xxxxxxx Xxxxxx
Title: President
By: LB INTERSTATE GP LLC
General Partner
By: PAMI LLC
its Sole Member
By: /s/ Xxxxxx X. Xxxxxxxx
-----------------------------
Name: Xxxxxx X. Xxxxxxxx
Title: Authorized Signatory
CGLH PARTNERS II LP
By: MK/CG-GP LLC
General Partner
By: CG Interstate Associates, LLC
a Managing Member
By: Continental Gencom Holdings, LLC
its Sole Member
By: /s/ Xxxxx Xxxxxxx
-----------------------------
Name: Xxxxx Xxxxxxx
Title: Member
By: KFP Interstate, LLC, a Managing Member
By: KFP Holdings, Ltd., its Sole Member
By: Xxxxxxxxx, X.X., its General Partner
By: /s/ Xxxxxxx Xxxxxx
-----------------------------
Name: Xxxxxxx Xxxxxx
Title: President
By: LB INTERSTATE GP LLC
General Partner
By: PAMI LLC
its Sole Member
By: /s/ Xxxxxx X. Xxxxxxxx
-----------------------------
Name: Xxxxxx X. Xxxxxxxx
Title: Authorized Signatory
