HIGHLAND HOSPITALITY
CORPORATION
and
FRIEDMAN, BILLINGS, RAMSEY &
CO., INC.
WARRANT AGREEMENT
Dated as of December 19,
2003
WARRANT AGREEMENT
This Warrant Agreement (the
“Agreement”) is made as of December 19, 2003 between
HIGHLAND HOSPITALITY CORPORATION, a Maryland corporation (the
“Company”),as the issuer of the Warrants (as defined
below) and FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
(“FBR”).
RECITALS
A In connection with its initial
public offering (the “Offering”), the Company proposes
to sell, pursuant to an Underwriting Agreement dated December 15,
2003 (the “Underwriting Agreement”) between the Company
and FBR, as representative of the underwriters named therein,
30,000,000 shares (the “Initial Shares”) of Common
Stock, par value $.01 per share, of the Company (the “Common
Stock”), to certain underwriters, for which FBR is acting as
lead representative (the “Underwriters”) and up to
4,500,000 shares of Common Stock, to cover over-allotments, if
any.
B. The Company deems it advisable,
in consideration for the services rendered to the Company by FBR as
lead underwriter in connection with the Offering, to issue to FBR
warrants (the “Warrants”) entitling the holders thereof
to purchase 888,488 shares of Common Stock on the terms and
conditions set forth herein. The shares of Common Stock issuable
upon exercise of the Warrants are referred to as the “Warrant
Shares.”
C. The Company desires to enter into
this Agreement to set forth the terms and conditions of the
Warrants and the rights of the holders.
NOW, THEREFORE, in consideration of
the foregoing and the mutual agreements herein contained, the
parties hereto agree as follows:
ARTICLE I
ISSUANCE, EXECUTION, EXPIRATION
AND TRANSFER OF WARRANT
CERTIFICATES
SECTION 1.01. Form of Warrant
Certificates . The Warrants shall be evidenced by certificates
in temporary or definitive fully registered form (the
“Warrant Certificates”) substantially in the form of
Exhibit A and may have such letters, numbers or other marks
of identification and such legends or endorsements placed thereon
as may be required to comply with any law or with any rule or
regulation made pursuant thereto or with any rule or regulation of
any securities exchange, or to conform to usage, or as consistently
herewith may be determined by the officers executing such Warrant
Certificates as evidenced by their execution of the Warrant
Certificates. Each Warrant Certificate shall evidence the right,
subject to the provisions of this Agreement and of the Warrant
Certificate, to purchase the number of shares of Common Stock
stated therein, adjusted as provided for in Article III hereof,
upon payment of the Exercise Price (as defined in Section
2.01 ).
SECTION 1.02. Execution of
Warrant Certificates . Each Warrant Certificate, whenever
issued, shall be dated as of the date of signature thereof by the
Company either upon initial issuance or upon exchange, substitution
or transfer, shall be signed manually by, or bear the facsimile
signature of, the Chairman of the Board or the President or a
Treasurer or a Vice President of the Company and shall be attested
by the manual or facsimile signature of the
Secretary or an Assistant Secretary of the
Company. In case any officer of the Company whose manual or
facsimile signature has been placed upon any Warrant Certificate
shall have ceased to be such before such Warrant Certificate is
issued, it may be issued with the same effect as if such officer
had not ceased to be such at the date of issuance. Any Warrant
Certificate may be signed on behalf of the Company by any person
who, at the actual date of the execution of such Warrant
Certificate, shall be a proper officer of the Company to sign such
Warrant Certificate, although at the date of the execution of this
Agreement any such person was not such an officer.
SECTION 1.03. Issuance, Delivery
and Registration of Warrant Certificates . The Company shall
issue and deliver, at the closing of the sale of the Initial Shares
to the Underwriter as provided in the Underwriting Agreement, to
FBR or its permitted designees, a Warrant Certificate representing
the Warrants, in substantially the form of Exhibit A .
Additionally, the Company shall sign and deliver Warrant
Certificates upon exchange, transfer or substitution for one or
more previously signed Warrant Certificates as hereinafter
provided. The Company shall maintain books for the registration of
transfer and registration of Warrant Certificates (the
“Warrant Register”).
SECTION 1.04. Transfer and
Exchange of Warrant Certificates . The Company, from time to
time, shall register the permitted transfer of any outstanding
Warrant Certificates in the Warrant Register upon surrender at the
principal office of the Company of Warrant Certificates accompanied
by a written instrument or instruments of transfer, in form
satisfactory to the Company, duly executed by the Warrantholder (as
defined in Section 5.12 ) or the Warrantholder’s
attorney duly authorized in writing, and evidence, satisfactory to
the Company, of compliance with the provisions of Section
5.04 . Upon any such registration of transfer, a new Warrant
Certificate shall be signed by the Company and issued to the
transferee and the surrendered Warrant Certificate shall be
canceled by the Company. Warrant Certificates may be exchanged at
the option of the holder thereof, upon surrender, properly
endorsed, at the principal office of the Company, with written
instructions, for other Warrant Certificates signed by the Company
entitling the registered holder thereof, subject to the provisions
thereof and of this Agreement, to purchase in the aggregate a like
number of shares of Common Stock as the Warrant Certificate so
surrendered. The Company may require the payment of a sum
sufficient to cover any tax or governmental charge that may be
imposed in connection with any such exchange or
transfer.
ARTICLE II
SHARES OF COMMON STOCK ISSUABLE,
EXERCISE PRICE, EXPIRATION DATE
AND EXERCISE OF
WARRANTS
SECTION 2.01. Warrant Shares
Issuable; Exercise Price; Expiration Date . Each Warrant
Certificate shall entitle the registered holder thereof, subject to
the provisions thereof and of this Agreement, to purchase from the
Company at any time from the closing date of the sale of the
Initial Shares pursuant to the Underwriting Agreement (the
“Closing Date”) until the close of business on the
fifth anniversary of the Closing Date (or, if such date is not a
Business Day (as defined below), the first following Business Day)
the number of shares of Common Stock stated therein, adjusted as
provided in Article III, upon payment of $10 per share (which price
is equal to the initial public offering price), adjusted as
provided in Article III. Such price, as it may be adjusted from
time to time as provided in Article III, is referred to as the
“Exercise Price.” Each share of Common Stock issuable
upon exercise of a Warrant is referred to as a “Warrant
Share.” Each Warrant not exercised during the period set
forth above shall become void, and all rights thereunder and all
rights in respect thereof under this Agreement shall cease, at the
end of such
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period. For purposes of this Agreement, the term
“Business Day” means any day of the week other than a
Saturday, Sunday or a day which in The City of New York or in the
city in which the principal office of the Company is located shall
be a legal holiday or a day on which banking institutions are
authorized or required by law to close.
SECTION 2.02. Exercise of
Warrants . (a) Warrants may be exercised by surrendering the
Warrant Certificate evidencing such Warrants at the principal
office of the Company, with the Election to Exercise form set forth
on the reverse of the Warrant Certificate duly completed and
signed, and by paying in full to the Company (i) in cash, or (ii)
by certified or official bank check or (iii) by any combination of
the foregoing, the Exercise Price for each Warrant Share as to
which Warrants are then being exercised and any applicable taxes,
other than taxes that the Company is required to pay under
subsection (d) below. A Warrantholder may exercise such
holder’s Warrant for the full number of Warrant Shares
issuable upon exercise thereof or any lesser number of whole
Warrant Shares.
(b) As soon as practicable after the
exercise of any Warrants and payment by the Warrantholder of the
full Exercise Price for the Warrant Shares as to which such
Warrants are then being exercised, the Company shall requisition
from the transfer agent for the shares of Common Stock and deliver
to or upon the order of such Warrantholder a certificate or
certificates for the number of full Warrant Shares to which such
Warrantholder is entitled, registered in the name of such
Warrantholder or as such Warrantholder shall direct to the Company
in writing. Fractional Warrant Shares that otherwise would be
issuable in respect of such exercise shall be paid in cash as
provided in Section 2.03 , and the number of Warrant Shares
issuable to such Warrantholder shall be rounded down to the next
nearest whole number. If such Warrant Certificate shall not have
been exercised in full, the Company will issue to such
Warrantholder a new Warrant Certificate exercisable for the number
of shares of Common Stock as to which such Warrant shall not have
been exercised. The Company will cancel all Warrants so
surrendered.
(c) Each person in whose name any
such certificate for Warrant Shares is issued shall for all
purposes be deemed to have become the holder of record of such
Warrant Shares on the date on which the Warrant Certificate was
surrendered to the Company and payment of the Exercise Price and
any applicable taxes was made to the Company, irrespective of the
date of delivery of such certificate for Warrant Shares.
(d) The Company will pay all
documentary stamp taxes attributable to the initial issuance of
Warrant Shares. The Company will not be required, however, to pay
any tax imposed in connection with any transfer involved in the
issue of the Warrant Shares in a name other than that of the
Warrantholder. In such case, the Company will not be required to
issue any certificate for Warrant Shares until the person or
persons requesting the same shall have paid to the Company the
amount of any such tax or shall have established to the
Company’s satisfaction that the tax has been paid or that no
tax is due.
SECTION 2.03. No Fractional
Shares to Be Issued . If more than one Warrant Certificate
shall be surrendered for exercise at one time by the same holder,
the number of full Warrant Shares which shall be issuable upon
exercise thereof shall be computed on the basis of the aggregate
number of Warrants so surrendered. The Warrantholders, by their
acceptance of the Warrant Certificates, expressly waive their right
to receive any fraction of a Warrant Share or a share certificate
representing a fraction of a Warrant Share. In lieu thereof, the
Company will purchase such fractional interest for an amount in
cash equal to the current market value of such fractional interest,
as reasonably determined by the Company.
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SECTION 2.04. Cancellation of
Warrants . The Company shall cancel any Warrant Certificate
delivered to it for exercise, in whole or in part, or delivered to
it for transfer, exchange or substitution, and no Warrant
Certificates shall be issued in lieu thereof except as expressly
permitted by any of the provisions of this Agreement. The Company
shall mark as canceled any such Warrant Certificates.
ARTICLE III
ADJUSTMENT OF EXERCISE PRICE;
MERGER, ACQUISITION, ETC.;
RESERVATION OF SHARES OF COMMON
STOCK; PAYMENT OF TAXES
SECTION 3.01. Adjustment of
Exercise Price and Number of Warrant Shares .(a) The Exercise
Price shall be subject to adjustment from time to time as provided
in this Article III. After each adjustment of the Exercise Price,
each Warrantholder shall at any time thereafter be entitled to
purchase, at the Exercise Price resulting from such adjustment, the
number of Warrant Shares obtained by multiplying the Exercise Price
in effect immediately prior to such adjustment by the number of
Warrant Shares purchasable pursuant to the provisions of such
Warrant immediately prior to such adjustment and dividing the
product thereof by the Exercise Price resulting from such
adjustment.
(b) For purposes of making
adjustments of the Exercise Price pursuant to this Article III, the
“Current Market Price” shall be determined as of the
date of the grant, issuance or sale, whichever is earlier, as the
case may be, giving rise to the adjustment and shall be equal to
the last sale price with respect to shares of Common Stock as
reported on the New York Stock Exchange on such date. If there are
no reported transactions on the New York Stock Exchange on such
date, the “Current Market Price” shall be the average
of the highest current independent bid and lowest current
independent offer for the shares.
(c) Notwithstanding anything herein
to the contrary, the Exercise Price and Number of Warrant Shares
shall not be adjusted if (i) the sale price of any shares of Common
Stock is equal to or greater than the Current Market Price as of
the date of the Company’s commitment to sell, (ii) the
exercise price of any Options (determined as described in the
relevant sections of any Options (as defined in Section
3.03(a) ) is equal to or greater than 95% of the Current Market
Price as of the date of grant, (iii) the sale or issuance price
(determined as described in Section 3.03(b) ) of any
Convertible Securities (as defined in Section 3.03(a) ) is
equal to or greater than the Current Market Price as of the date of
the Company’s commitment to sell or (iv) notwithstanding
clause (i) and (iii) any shares of Common Stock or Convertible
Securities are issued or sold in a firm commitment underwritten
registered public offering or in a private placement in which
shares of Common Stock are issued at a market rate
discount.
SECTION 3.02. Exercise Price
Adjustment Formula . Subject to Section 3.01 , if,
during the period in which Warrants are exercisable, the Company
sells any shares of Common Stock for a price per share that is less
than the Current Market Price in effect at the time of such sale,
the Exercise Price immediately shall be adjusted by multiplying the
Exercise Price by (a) an amount equal to the sum of (i) the number
of shares of Common Stock outstanding and deemed (in accordance
with the provisions of Section 3.03 ) to be outstanding
immediately prior to such sale multiplied by the Current Market
Price at the time of such issuance or sale and (ii) the total
consideration received and deemed (in accordance with the
provisions of Section 3.03 ) to be received by the Company
upon such issuance and sale and (b) dividing the result by an
amount equal to (i) the sum of (A) the amount determined in (a) and
(B) the product of the number of shares issued or sold multiplied
by the Current Market Price, minus (ii) the consideration
received.
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SECTION 3.03. Constructive
Issuance of Shares . (a) Subject to Section 3.01 , if
the Company grants any rights, warrants or options (collectively
referred to as “Options”) to subscribe for or purchase
any shares of Common Stock or any securities (collectively referred
to as “Convertible Securities”) convertible into or
exchangeable for shares of Common Stock, whether or not any such
Options or the right to convert or exchange any such Convertible
Securities are immediately exercisable, and the price per share for
which shares of Common Stock are issuable upon the exercise of such
Options or upon conversion or exchange of such Convertible
Securities (determined by dividing (i) the total consideration
received or receivable by the Company for the granting of such
Options, plus any additional consideration payable to the Company
upon the exercise of such Options, plus in the case of any such
Options which relate to Convertible Securities, any additional
consideration payable to the Company upon the conversion or
exchange thereof by (ii) the maximum number of shares of Common
Stock issuable upon the exercise of such Options or upon the
conversion or exchange of such Convertible Securities) shall be
less than the Current Market Price in effect as of the time of
granting such Options, the maximum number of shares of Common Stock
issuable upon the exercise of such Options or upon conversion or
exchange of all Convertible Securities issuable upon the exercise
of such Options shall be deemed, upon the granting of such Options,
to be outstanding and to have been issued for such price per share.
Except as provided in Section 3.03(c), no further adjustment of the
Exercise Price shall be made upon the issue or sale of shares of
Common Stock upon the exercise of such Options or the conversion or
exchange of such Convertible Securities.
(b) Subject to Section 3.01 ,
if the Company issues or sells any Convertible Securities (other
than securities referred to in Section 3.03(a) ), whether or
not the right to convert or exchange any such Convertible
Securities is immediately exercisable, and the price per share for
which the shares of Common Stock are issuable upon such conversion
or exchange (determined by dividing (i) the total consideration
received or receivable by the Company for the issue or sale of such
Convertible Securities, plus any additional consideration payable
to the Company upon the conversion or exchange of such Convertible
Securities by (ii) the maximum number of shares of Common Stock
issuable upon the conversion or exchange of such Convertible
Securities) shall be less than the Current Market Price in effect
as of the time of such issue or sale of the Convertible Securities,
the maximum number of shares of Common Stock issuable upon
conversion or exchange of all such Convertible Securities shall be
deemed, upon the issue or sale of such Convertible Securities, to
be outstanding and to have been issued for such price per share.
Except as provided in Section 3.03(c) , no further
adjustment of the Exercise Price shall be made upon the issue or
sale of shares of Common Stock upon conversion or exchange of any
such Convertible Securities.
(c) Subject to Section 3.01 ,
if the exercise price provided for in any Option referred to in
Section 3.03(a) , or the rate at which any Convertible
Security referred to in Section 3.03(a) or Section
3.03(b) is convertible into or exchangeable for shares of
Common Stock, shall change or a different exercise price or rate
shall become effective at any time or from time to time, the
Exercise Price immediately shall be adjusted to the Exercise Price
that would have obtained had the adjustments made and required to
be made under this Section 3.03 upon the grant, issuance or
sale of such Options or such Convertible Securities been made upon
the basis of (i) the issuance of the number of shares of Common
Stock theretofore delivered upon the exercise of such Options or
upon the conversion or exchange of such Convertible Securities and
the total consideration received therefor, (ii) the issuance of all
shares of Common Stock and all other Options or Convertible
Securities and the total consideration received therefor and (iii)
the
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original issuance at the time of
such change of exercise price or rate of any such Options or
Convertible Securities then outstanding and the total consideration
received therefor. On the expiration of any such Option or the
termination of any such right to convert or exchange any such
Convertible Securities, the Exercise Price immediately shall be
adjusted to the Exercise Price that would have obtained (iv) had
the adjustments made upon the issuance of such Options or such
Convertible Securities been made upon the issuance of only the
number of shares of Common Stock actually delivered and the total
consideration received therefor upon the exercise of such Options
or upon the conversion or exchange of such Convertible Securities
and (v) had adjustments been made on the basis of the Exercise
Price as adjusted under clause (iv) of this Section 3.03(c)
for all issues or sales of shares of Common Stock, Options or
Convertible Securities made after the issuance of such Options or
Convertible Securities. If the exercise price provided for in any
Option referred to in Section 3.03(a) , or the rate at which
any Convertible Security referred to in Section 3.03(a) or
Section 3.03(b) is convertible or exchangeable for shares of
Common Stock, shall decrease at any time pursuant to applicable
provisions thereof designed to protect against dilution, the
Exercise Price immediately shall be decreased in the case of
delivery of shares of Common Stock upon the exercise of any such
Option or upon the conversion or exchange of any such Convertible
Securities, to the Exercise Price that would have obtained had the
adjustments made upon the issue or sale of such Option (as defined
in Section 3.03(a) ) or such Convertible Security (as
defined in Section 3.03(b) ) been made upon the basis of the
issuance of the shares of Common Stock so delivered and the total
consideration received therefor.
(d) If any shares of Common Stock or
any Convertible Securities or any Option shall be issued or sold
for cash, the consideration received by the Company shall be deemed
to be the amount paid by the purchaser therefor without deduction
of any expense incurred or any underwriting commission, concession
or discount paid or allowed by the Company in connection therewith.
If any shares of Common Stock or any Convertible Securities or any
Option shall be issued or sold for a consideration other than cash,
the consideration received by the Company shall be deemed to be the
fair value of such consideration as determined by the Board of
Directors of the Company without deduction of any expense incurred
or any underwriting commission, concession or discount paid or
allowed by the Company in connection therewith. If any shares of
Common Stock or any Convertible Securities or any Option shall be
issued in conne
