RECAPITALIZATION AGREEMENT
by and among
U.S. FRANCHISE SYSTEMS, INC.
SDI, INC.,
MERIDIAN ASSOCIATES, L.P.
and
HSA PROPERTIES, INC.
Dated June 2, 2000
TABLE OF CONTENTS
Page
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RECITALS.....................................................................1
AGREEMENT....................................................................1
ARTICLE 1
Defined Terms..........................................................1
ARTICLE 2
Tender Offer...........................................................2
Section 2.1 Tender Offer...............................................2
Section 2.2 Compliance.................................................2
Section 2.3 Conditions to Commencement of the Offer....................3
Section 2.4 Meridian and HSA Properties Shares.........................4
ARTICLE 3
Investment in Preferred Stock..........................................4
Section 3.1 Authorization of the Preferred Stock.......................4
Section 3.2 Purchase and Sale of the Preferred Stock...................4
Section 3.3 The Closing................................................4
ARTICLE 4
Conditions to Closing..................................................4
Section 4.1 Conditions to each Party's Obligations.....................5
Section 4.2 Additional Conditions to the Investors' Obligations........6
Section 4.3 Additional Conditions to the Company's Obligations.........8
ARTICLE 5
Covenants Pending the Closing..........................................9
Section 5.1 Interim Operations of the Company..........................9
Section 5.2 Negative Covenants........................................10
Section 5.3 No Solicitation...........................................12
Section 5.4 Approval by the Company's Stockholders....................13
Section 5.6 Filings; Other Action.....................................14
Section 5.7 Access....................................................14
Section 5.8 Notification of Certain Matters...........................14
Section 5.9 Publicity.................................................15
Section 5.10 Options; Restricted Stock................................15
Section 5.11 Reasonable Efforts.......................................15
ARTICLE 6
Representations and Warranties........................................15
Section 6.1 Representations and Warranties of Investors...............15
Section 6.2 Representations and Warranties of the Company.............18
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ARTICLE 7
Indemnification and Insurance.........................................27
ARTICLE 8
Termination...........................................................29
Section 8.1 Termination by Mutual Consent.............................29
Section 8.2 Termination by either Party...............................29
Section 8.3 Termination by Investors..................................29
Section 8.4 Termination by the Company................................29
Section 8.5 Effect of Termination and Abandonment.....................29
Section 8.6 Liquidated Damages........................................30
ARTICLE 9
Stockholder Protection................................................30
Section 9.1 NASDAQ Listing............................................30
Section 9.2 Restrictions on Stock Acquisitions........................31
Section 9.3 Affiliate Transactions....................................31
Section 9.4 Enforcement...............................................31
ARTICLE 10
Miscellaneous Provisions..............................................31
Section 10.1 Payment of Expenses......................................31
Section 10.2 Modification or Amendment................................31
Section 10.3 Waiver of Conditions. ..................................32
Section 10.4 Captions.................................................32
Section 10.5 Governing Law............................................32
Section 10.6 Notices..................................................32
Section 10.7 Entire Agreement.........................................32
Section 10.8 Assignment; Binding Effect...............................32
Section 10.9 Counterparts.............................................33
Glossary
Exhibit A Leven Agreement
Exhibit B Hawthorn Termination
Exhibit C Offer to Purchase
Exhibit X Xxxxxxx Agreement
Exhibit E Xxxxxxx Termination Agreement
Exhibit F Series A Preferred
Exhibit G Series B Preferred
Exhibit H Opinion of Company Counsel
Exhibit I Proxy Statement Outline
Exhibit J Stockholders Agreement
Exhibit K Registration Rights Agreement
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RECAPITALIZATION AGREEMENT
THIS RECAPITALIZATION AGREEMENT (the "Agreement") is made as of June 2,
2000, by and among U.S. Franchise Systems, Inc., a Delaware corporation (the
"Company"), SDI, Inc., a Nevada corporation ("SDI", together with its permitted
assignees collectively, the "Investors"), HSA Properties, Inc., a Delaware
corporation ("HSA Properties"), and Meridian Associates, L.P., an Illinois
limited partnership ("Meridian").
RECITALS
A. The Company desires to engage in a recapitalization transaction
involving an offer by the Company to purchase a portion of its outstanding
common stock to provide, among other things, liquidity for its stockholders who
may wish to receive cash for their shares.
B. The Investors desire to make an investment in new preferred stock of
the Company to facilitate the recapitalization transaction and provide cash to
the Company for other corporate purposes.
C. The board of directors of the Company (the "Board of Directors") has
duly approved this Agreement and the various other agreements and arrangements
to which the Company is a party or which are otherwise contemplated by this
Agreement.
D. Simultaneously with or immediately after the execution and delivery of
this Agreement: (i) Meridian, Xxxxxxx X. Xxxxx and Xxxxxx Xxxxx are entering
into an agreement in the form of Exhibit A attached hereto (the "Leven
Agreement"); and (ii) the Company, Xxxxxxx X. Xxxxx, Meridian, and HSA
Properties are entering into an agreement in the form of Exhibit B attached
hereto (the "Hawthorn Termination").
E. Banc of America Securities LLC ("BAS") has delivered a letter to the
Board of Directors expressing its opinion that the transactions contemplated by
this Agreement are fair to the Company and its stockholders (other than
specified Persons as to which BAS has expressed no opinion) from a financial
point of view.
AGREEMENT
For good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
ARTICLE 1
Defined Terms
Capitalized terms and acronyms used herein as defined terms but not
defined herein shall have the meanings given to them in the Glossary attached
hereto.
ARTICLE 2
Tender Offer
Section 2.1 Tender Offer. Pursuant to an Offer to Purchase conforming to
the requirements of applicable law, including the rules and
regulations of the SEC, this Agreement and Exhibit C attached hereto
and otherwise in customary form (the "Offer to Purchase"), and
subject to the terms and conditions set forth in this Agreement, the
Company will commence (within the meaning of Rule 13e-4 of the
Exchange Act) as soon as practicable after the execution hereof, and
in any event within ten Business Days after the satisfaction or
waiver of the conditions set forth in Section 2.3, after the
execution hereof, an offer to purchase (the "Offer") up to
8,666,666, but not less than 3,000,000, of the outstanding shares of
Class A Common Stock, $0.01 par value, of the Company (the "Class A
Common Stock"), and Class B Common Stock, $0.01 par value, of the
Company (the "Class B Common Stock" together with the Class A Common
Stock collectively, the "Shares") at a price of $7.50 per Share, net
to the seller in cash and, subject only to the condition concerning
the minimum number of Shares tendered, the conditions set forth in
the Offer to Purchase, and applicable provisions of the Exchange
Act, will accept for purchase and pay for all Shares duly tendered,
up to a maximum of 8,666,666 Shares, commencing at the later of
(such later date being referred to herein as the "Scheduled
Expiration Date") (a) 20 Business Days following commencement of the
Offer and (b) 12:00 noon New York time on the first Business Day
following the satisfaction or waiver of all conditions to the
Investors' purchase of the Preferred Stock. The Offer to Purchase
and related documents distributed in connection with the Offer (the
"Offer Documents") shall be consistent with the terms and conditions
contained or referred to in the first sentence of this Section 2.1.
Section 2.2 Compliance. In connection with the Offer, the Company shall
comply in all material respects with the provisions of the Exchange
Act and the rules and regulations thereunder and other applicable
laws. The Investor Group and its counsel shall be given a reasonable
opportunity to review and comment upon the Offer Documents prior to
their being first published, sent or given to holders of Shares. The
Company agrees that the Offer Documents, including any amendments
thereto, will not include any untrue statement of a material fact or
omit to state a material fact required to be stated therein or
necessary to make the statements made therein, in light of the
circumstances under which they were made, not misleading; provided
that the foregoing shall not apply to the extent that any such
untrue statement of a material fact or omission to state a material
fact was made by the Company in reliance upon and in conformity with
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information concerning the Investor Group furnished to the Company
by the Investor Group specifically for use in the Offer Documents.
The Company shall not amend the Offer, extend the time for tenders
of Shares, or waive any condition to the Company's obligation to
purchase Shares pursuant to the Offer, without the consent of the
Investor Group; provided, however, that the Company may extend the
Offer if at the Scheduled Expiration Date any of the conditions to
the Offer shall not have been satisfied or waived, or if less than
the maximum number of Shares have been tendered, in each case for up
to an additional 30 days beyond the Scheduled Expiration Date. If
requested by the Investor Group, the Company will: (i) extend the
time for tenders of Shares pursuant to the Offer for up to 30 days
beyond the Scheduled Expiration Date; (ii) extend the time for
tenders of Shares pursuant to the Offer for an additional 30 days
(in addition to the 30 day period provided in the preceding clause
(i)) if the Investors shall have waived the conditions set forth in
Sections 4.2(a) and 4.2(b); and (iii) waive any condition to the
Offer that is a condition to the Investors' obligation to purchase
the Preferred Stock as set forth in Section 4.2.
Section 2.3 Conditions to Commencement of the Offer. The obligation of the
Company to commence the Offer is subject to the fulfilment, at or
before the commencement date, of each of the following conditions:
(a) Litigation. No preliminary or permanent injunction or other
order issued by any United States federal or state court of competent
jurisdiction in the United States prohibiting the commencement or
consummation of the Offer shall be in effect or threatened.
(b) Representations and Warranties. The representations and
warranties of the Investor Group contained in Section 6.1 shall be true in
all material respects.
(c) Fairness Opinion. BAS shall not have withdrawn or modified its
fairness opinion relating to the transactions contemplated by this
Agreement, as delivered to the Board of Directors prior to the execution
of this Agreement.
(d) Xxxxxxx Agreements. Xxxx Xxxxxxx and Meridian shall have
executed and delivered the agreement in the form of Exhibit D attached
hereto. Xxxx Xxxxxxx and the Company shall have executed and delivered the
Termination Agreement in the form of Exhibit E attached hereto (the
"Xxxxxxx Termination"). Xxxx Xxxxxxx shall have executed and delivered the
Hawthorn Termination.
(e) Defense Agreement. The Company and each of its directors shall
have entered into a joint defense agreement, in form and substance
satisfactory to the Investors, the Company and the Company's directors'
and officers' insurance carrier, providing, among other things, for (i)
the appointment of a single lead defense counsel (and as needed, one local
counsel) for the Company and each of its directors in the Stockholder
Litigation, and
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any similar litigation stating substantially the same cause of action for
substantially the same claim period, (ii) the appointment of separate
counsel only for limited purposes in the event that such lead counsel
determines that it cannot act for one or more defendant parties and (iii)
the determination of each director's rights to indemnification by other
independent counsel selected by such lead counsel and reasonably
satisfactory to the Company.
(f) NASDAQ Listing. The Company shall be reasonably satisfied that
(i) the issuance of the Preferred Stock will not result in the loss of
listing of the Shares on the NASDAQ Stock Market and (ii) the Class A
Common Stock issuable upon conversion of the B Preferred will be accepted
on or before the Closing Date for listing for trading on the NASDAQ Stock
Market pending official notice of issuance. The Investors shall have
agreed to such matters regarding the voting rights of the Preferred Stock
that the NASDAQ Stock Market may reasonably require in connection
therewith.
Section 2.4 Meridian and HSA Properties Shares. Meridian represents and
warrants that as of the date hereof it beneficially owns 2,099,775
Shares. HSA Properties represents and warrants that as of the date
hereof it beneficially owns 22,447 Shares. Meridian and HSA
Properties each agrees that it shall not transfer, pledge,
hypothecate or otherwise dispose of any interest in any of such
Shares prior to the completion of the Offer or the termination of
this Agreement. Meridian and HSA Properties each agrees that it
shall not tender any Shares for purchase pursuant to the Offer.
ARTICLE 3
Investment in Preferred Stock
Section 3.1 Authorization of the Preferred Stock. Subject to any required
stockholder approval, the Company has authorized the issuance and
sale to the Investors of 65,000 shares of its Series A 8.5%
Cumulative Redeemable Preferred Stock, par value $.01 per share (the
"A Preferred") having the rights and preferences set forth in
Exhibit F attached hereto, and 10,000 shares of its Series B 6.0%
Cumulative Redeemable Convertible/Exchangeable Preferred Stock, par
value $.01 per share (the "B Preferred") having the rights and
preferences set forth in Exhibit G attached hereto. The A Preferred
and the B Preferred are collectively referred to herein as the
"Preferred Stock."
Section 3.2 Purchase and Sale of the Preferred Stock. Immediately
following the expiration of the Offer and simultaneously with the
Company's acceptance for purchase of Shares tendered in accordance
with the Offer to Purchase, the Company shall sell to each Investor
and, subject to the terms and conditions set forth herein, each
Investor shall purchase from the Company, the number of shares of A
Preferred and B Preferred set forth opposite such Investor's name on
the Schedule of Investors attached hereto at a price of $1,000 per
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share for the A Preferred and $1,000 per share for the B Preferred.
The purchase of Preferred Stock by the Investors is referred to
herein as the "Investment."
Section 3.3 The Closing. The closing of the Investment (the "Closing")
shall take place at such place as shall be mutually agreeable to the
Company and the Investors immediately following the expiration of
the Offer and simultaneously with the acceptance for purchase and
payment for Shares tendered pursuant to the Offer, or at such other
time as may be mutually agreeable to the Company and the Investors.
At the Closing, the Company shall deliver to each Investor stock
certificates evidencing the Preferred Stock to be purchased by such
Investor, registered in such Investor's or its nominee's name, upon
payment of the purchase price therefor by wire transfer of
immediately available funds to such account as the Company shall
direct, in the amount set forth opposite such Investor's name on the
Schedule of Investors. Each certificate for Preferred Stock and
Class A Common Stock issuable upon conversion of the B Preferred
shall be imprinted with a legend in the customary form acknowledging
the private placement of the securities and the consequent
limitations on the transfer of the securities.
ARTICLE 4
Conditions to Closing
Section 4.1 Conditions to each Party's Obligations. The respective
obligations of the Company, on the one hand, to accept for purchase
Shares tendered pursuant to the Offer and consummate the Investment,
and the Investors, on the other hand, to consummate the Investment
are subject to the fulfillment, at or before the Closing Date, of
each of the following conditions:
(a) HSR Act Waiting Period; Violation of Law. All applicable
waiting periods under the HSR Act shall have expired or been
terminated and consummation of the Offer and the Investment
shall not result in violation of any applicable law, order or
regulation of the United States or any of the several states
or any foreign jurisdiction.
(b) Litigation. No preliminary or permanent injunction or other
order issued by any United States federal or state court of
competent jurisdiction in the United States prohibiting the
consummation of the Offer or the Investment shall be in effect
or threatened.
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(c) Stockholder Approval; Charter Amendments. The issuance of the
A Preferred and the B Preferred and the Class A Common Stock
issuable upon the conversion/exchange of the B Preferred shall
have been duly approved by the stockholders of the Company in
accordance with applicable law and the certificate of
incorporation and by-laws of the Company as contemplated by
Section 5.4. Stockholders of the Company shall have duly
approved, in accordance with applicable law and the
certificate of incorporation and by-laws of the Company, the
amendments to the Company's certificate of incorporation (the
"Charter Amendments") as contemplated by Section 5.4 to (i)
eliminate supermajority voting requirements in Sections 11.1
thereof; (ii) eliminate prohibitions on stockholder action by
written consent in Section 9.1 thereof; and (iii) adopt new
Sections 12 and 13 described in Exhibit I attached hereto.
(d) Offer Conditions. All conditions to the acceptance for
purchase and payment for Shares set forth in the Offer to
Purchase shall have been satisfied or waived in accordance
with this Agreement.
(e) Directors. Directors of the Company other than Xxxxxxx Xxxxx,
Xxxxxxx Xxxxxxxxxx, and Xxxxxxx Xxxxx shall have tendered
letters of resignation effective as of the Closing Date and no
such resignation shall have been withdrawn or rescinded or
delayed in its effectiveness. Directors of the Company shall
have taken actions necessary to cause the Board of Directors
of the Company to consist of eleven people effective
immediately following the effective time of the resignations
described in the preceding sentence. Xxxxxxx Xxxxx, Xxxxxxx
Xxxxxxxxxx and Xxxxxxx Xxxxx, as directors of the Company,
shall have taken action required to appoint (i) as Independent
Directors under new Section 12 of the Company's Certificate of
Incorporation three persons mutually acceptable to the Company
and the Investors, and (ii) as other directors five people
designated by the Investor Group, two whom shall not be
directors, officers, employees, agents or representatives of
the Investor Group or any Affiliate of the Investor Group.
(f) NASDAQ Listing. The Class A Common Stock issuable upon
conversion/exchange of the B Preferred shall have been listed
for trading on the NASDAQ Stock Market pending official notice
of issuance.
Section 4.2 Additional Conditions to the Investors' Obligations. The
obligations of the Investors to consummate the Investment are
subject to the fulfillment, at or before the Closing Date, of the
following additional conditions:
(a) Representations and Warranties; Performance. The
representations and warranties of the Company contained in
Section 6.2(b) shall be true and correct in all respects on
and as of the Closing Date with the same effect as though made
at and as of such date. The other representations and
warranties of the Company contained in Section 6.2 shall be
true in all respects on and
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as of the Closing Date (without regard to any "materiality"
qualifications that may be contained in those representations
and warranties or any exceptions for matters that would not
reasonably be expected to have a Material Adverse Effect on
the Company) with the same effect as though made at and as of
such date, except (i) as affected by transactions permitted or
contemplated by this Agreement; or (ii) where the event or
condition that caused such representation and warranty to be
untrue could not reasonably be expected to have a Material
Adverse Effect on the Company or materially and adversely
affect the consummation of the transactions contemplated by
this Agreement. The Company shall have duly performed and
complied in all respects with all agreements and covenants
required by this Agreement to be performed or complied with by
it prior to or on the Closing Date (without regard to
materiality qualifications that may be contained in any such
agreement or covenant or any exceptions for matters that would
not reasonably be expected to have a Material Adverse Effect
on the Company) except where the failure to so comply results
from or results in an event or condition that could not
reasonably be expected to have a Material Adverse Effect on
the Company or materially and adversely affect the
consummation of the transactions contemplated by this
Agreement.
(b) No Material Adverse Change. Since the date of this Agreement,
no change shall have occurred in the assets, financial
condition or results of operations of the Company or its
Subsidiaries, nor shall there have occurred any other
development, event or condition relating to or affecting the
Company or its Subsidiaries, that could reasonably be expected
to have a Material Adverse Effect on the Company. Without
limiting the generality of the foregoing: (i) there shall not
have occurred after the date hereof any development (including
any discovery of fact) in any of the litigation matters
described in the Company Disclosure Letter or any other
pending or threatened litigation matter, as a result of which
the litigation matter to which such development relates could
reasonably be expected to have a Material Adverse Effect on
the Company; provided that the filing of an amended complaint
in the Stockholder Litigation or another complaint in the same
venue (or in another federal court venue if pending cases in
different venues are able to be consolidated under the
multi-district litigation panel or pursuant to a motion to
transfer venue or in a state court venue if such action is
capable of being removed to a federal court and is then able
to be consolidated under the multi-district litigation panel
or pursuant to a motion to transfer venue) shall not be deemed
to have a Material Adverse Effect on the Company if it states
substantially the same cause of action for substantially the
same class period.
(c) Consents. The Investors shall have received evidence,
reasonably satisfactory to the Investors and their legal
counsel, that the Company and its Subsidiaries have obtained
all necessary waivers, consents and permits required to permit
the consummation of the Offer and the Investment without the
occurrence of a breach or default (or a condition which, with
action of
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third parties or the passage of time, or both, would
constitute a breach or default) under any note, bond,
mortgage, indenture, license, franchise or other material
agreement to which the Company or any of its Subsidiaries is a
party or a breach or violation of any law, order or regulation
applicable to the Company or its Subsidiaries or the business
of the Company and its Subsidiaries, except for any breach or
default that could not reasonably be expected to have a
Material Adverse Effect on the Company.
(d) Certificates of Designation. The Company shall have duly
adopted, executed and filed with the Secretary of State of
Delaware a Certificate of Designation of Rights and
Preferences establishing the terms and the relative rights and
preferences of the A Preferred and the B Preferred in the
forms set forth in Exhibit F and Exhibit G hereto (the
"Certificates of Designation"), and the Company shall not have
adopted or filed any other document designating terms,
relative rights or preferences of its Preferred Stock. The
Certificates of Designation shall be in full force and effect
as of the Closing under the laws of Delaware and shall not
have been amended or modified.
(e) Closing Documents. The Company shall have delivered to each
Investor all of the following documents:
(i) an Officer's Certificate, dated the date of the Closing,
stating that the conditions specified in Sections 4.2(a) through
4.2(d), inclusive, have been fully satisfied;
(ii) certified copies of (A) the resolutions duly adopted by
the Board of Directors authorizing the execution, delivery and
performance of this Agreement and each of the other agreements
contemplated hereby, the filing of the Certificates of Designation,
the issuance and sale of the Preferred Stock, the reservation for
issuance as dividends on the A Preferred an aggregate of 12,000
shares of A Preferred, the reservation for issuance as dividends on
the B Preferred an aggregate of 8,200 shares of B Preferred, the
reservation for issuance upon conversion of the B Preferred an
aggregate of 10,000,000 shares of Class A Common Stock and the
consummation of all other transactions contemplated by this
Agreement, and (B) the resolutions duly adopted by the Company's
stockholders authorizing the issuance and sale of the Preferred
Stock and the Class A Common Stock issuable upon conversion/exchange
of the B Preferred and the Charter Amendments.
(iii) certified copies of the Company's certificate of
incorporation as amended, the Certificates of Designation and the
Company's by-laws, each as in effect at the Closing;
(f) Opinion of the Company's Counsel. Each Investor shall have
received from Xxxx, Weiss, Rifkind, Xxxxxxx & Xxxxxxxx legal
counsel for the Company, an opinion with respect to the
matters set forth in Exhibit H
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attached hereto, which shall be addressed to each Investor,
dated the date of the Closing and in form and substance
reasonably satisfactory to each Investor.
(g) Proceedings. All corporate and other proceedings taken or
required to be taken by the Company in connection with the
transactions contemplated hereby, including the Offer and the
Investment, at or prior to the Closing and all documents
incident thereto shall be reasonably satisfactory in form and
substance to each Investor and its legal counsel.
(h) Delivery of Certificates. At the Closing, the Company shall
have delivered to each Investor one or more certificates,
representing the Preferred Stock to be purchased by such
Investor as set forth on the Schedule of Investors attached
hereto, duly executed and registered in the name of such
Investor, against payment by such Investor of the purchase
price thereof as set forth in the Schedule of Investors.
(i) Xxxxxxx Agreement. The Company shall have not agreed to any
modification, waiver or termination of any provision of the
Xxxxxxx Termination without the prior consent of the
Investors.
Section 4.3 Additional Conditions to the Company's Obligations. The
obligations of the Company to consummate the Investment are subject
to the fulfillment, at or before the Closing Date, of the following
conditions:
(a) Representations and Warranties; Performance. The
representations and warranties of the Investor Group contained
in Section 6.1 shall be true on and as of the Closing Date
with the same effect as though made at and as of such date,
except as affected by transactions permitted or contemplated
by this Agreement. The Investor Group shall have duly
performed and complied with all agreements and conditions
required by this Agreement to be performed or complied with by
them prior to or on the Closing Date.
(b) Payment of Investment. At the Closing, the Investors shall
have paid to the Company an amount by wire transfer of funds
equal to $75,000,000 against delivery by the Company to the
Investors the certificates representing the Preferred Stock.
ARTICLE 5
Covenants Pending the Closing
Section 5.1 Interim Operations of the Company. Except as contemplated
hereby, during the period from the date of this Agreement to the
Closing Date, the Company shall, and shall cause each of its
Subsidiaries to:
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(a) conduct its business only in the usual, regular and ordinary
course;
(b) maintain all of its properties in normal repair, order and
condition, except for depreciation, ordinary wear and tear and
damage by unavoidable casualty, except where the failure could
not reasonably be expected to have a Material Adverse Effect
on the Company;
(c) maintain its books of account and records in the usual,
regular and ordinary manner;
(d) use commercially reasonable efforts (without the payment of or
commitment to pay money (or other consideration that would be
reportable at any time as taxable income to the recipient) for
stay bonuses or similar inducements unless approved by Xxxxxxx
X. Xxxxx and Xxxxxx Xxxxxxxxxx and, if the amount exceeds $1
million in the aggregate, the Investors) to cause the key
employees of the Company and its Subsidiaries to remain
employed by the Company and its Subsidiaries on the Closing
Date;
(e) at all times cause to be done all things necessary to
maintain, preserve and renew its corporate existence and use
commercially reasonable efforts to maintain all licenses,
authorizations and permits necessary to the conduct of its
businesses, except where the failure could not reasonably be
expected to have a Material Adverse Effect on the Company;
(f) comply with all material obligations which it incurs pursuant
to any contract or agreement, whether oral or written, express
or implied, as such obligations become due to the extent to
which the failure to so comply would reasonably be expected to
have a Material Adverse Effect upon the Company, unless and
except to the extent that the same are being contested in good
faith and by appropriate proceedings and adequate reserves (as
determined in accordance with GAAP) have been established on
its books with respect thereto;
(g) comply with all applicable laws, rules and regulations of all
governmental authorities, the violation of which would
reasonably be expected to have a Material Adverse Effect on
the Company;
(h) continue in force existing insurance coverage or comparable
insurance coverage, to the extent available on commercially
reasonable terms; and
(i) file when due all reports required to be filed by it under the
Exchange Act and the rules and regulations adopted by the SEC
thereunder.
Section 5.2 Negative Covenants. Except as contemplated hereby, during the
period from the date of this Agreement to the Closing Date, neither
the Company nor any of its Subsidiaries will, unless the
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Investor Group gives its prior written approval (which shall not be
unreasonably withheld, delayed or conditioned):
(a) except as disclosed in the Company Disclosure Letter, amend or
otherwise change the Certificates of Designation or its
certificate of incorporation or by-laws, as each such document
is in effect on the date hereof;
(b) except as disclosed in the Company Disclosure Letter, incur
any indebtedness for borrowed money or enter into any guaranty
or other similar obligation with respect to the debts or other
obligations of any other Person (other than the endorsement of
instruments for collection in the ordinary course of business)
or make any loan to or investment in any Person excepting (i)
loans from the Company to its wholly-owned Subsidiaries, (ii)
guarantees by the Company of the obligations of its
wholly-owned Subsidiaries, (iii) investments by the Company in
its wholly owned Subsidiaries, and (iv) loans to, or
guarantees on behalf of, the reservation and marketing funds
or loans to franchisees in the ordinary course of business;
provided that loans and guarantees pursuant to this clause
(iv) shall be either committed as of the date hereof and
disclosed in the Company Disclosure Letter or, if not so
committed, shall not exceed $100,000 in any single transaction
or $400,000 in the aggregate (less any development subsidies
made after the date hereof pursuant to Section 5.2(j)) and
shall have been approved by Xxxxxxx X. Xxxxx and Xxxxxx
Xxxxxxxxxx;
(c) except as disclosed in the Company Disclosure Letter, directly
or indirectly issue or sell, or authorize for issuance or sale
or enter into any agreement providing for the issuance
(contingent or otherwise) of, (i) any notes or debt securities
containing equity features (including, without limitation, any
notes or debt securities convertible into or exchangeable for
equity securities, issued in connection with the issuance of
equity securities or containing profit participation
features), (ii) any equity securities (or any securities
convertible into or exchangeable for any equity securities)
other than the Preferred Stock and issuance of Shares pursuant
to exercise of options existing as of the date hereof, and
other than the issuance of shares of capital stock under
existing agreements described in the Company Disclosure
Letter, or (iii) any option or rights to acquire any equity
securities, other than grants of options under existing
commitments described on the Company Disclosure Letter and
other options approved by Xxxxxxx X. Xxxxx and Xxxxxx
Xxxxxxxxxx for grants to newly hired or newly promoted
employees;
(d) in the case of the Company and any wholly-owned Subsidiary,
declare, set aside, make or pay any dividend or other
distribution with respect to its capital stock or directly or
indirectly redeem, purchase or otherwise acquire, or permit
any Subsidiary to redeem, purchase or otherwise acquire, any
of the Company's or such wholly-owned Subsidiary's equity
securities
11
(including, without limitation, warrants, options and other
rights to acquire equity securities) other than purchases of
Shares pursuant to the Offer and repurchases of Shares from
employees of the Company and its Subsidiaries upon termination
of employment pursuant to arrangements heretofore entered into
by the Company;
(e) acquire (by merger, consolidation, or acquisition of stock or
assets) any significant corporation, limited liability
company, partnership or other business organization or
division thereof, merge or consolidate with any corporation,
limited liability company, partnership, or other business
organization, or enter into or modify any contract, agreement,
commitment or arrangement with respect to any of the
foregoing;
(f) except as disclosed in the Company Disclosure Letter, pay or
take any action with respect to any new grants of any
severance, change of control, or termination pay other than in
connection with the termination of the hotel management
business pursuant to policies or agreements of the Company or
any of its Subsidiaries in effect on the date hereof and other
arrangements approved by Xxxxxxx X. Xxxxx and Xxxxxx
Xxxxxxxxxx, and if the amount exceeds $1,000,000, the
Investors;
(g) except for salary increases or other employee benefit
arrangements consistent with the usual, regular and ordinary
course of business prior to or on the date hereof, or
heretofore described in writing to the Investor Group, adopt
or amend any bonus, profit sharing, compensation, stock
option, restricted stock, pension, retirement, deferred
compensation, employment or other employee benefit plan,
agreement, trust, fund or arrangement for the benefit or
welfare of any employee;
(h) make any material and substantive changes in the fundamental
business of the Company or its Subsidiaries as conducted on
the date hereof, other than with respect to the Company's
hotel management business;
(i) except as disclosed in the Company Disclosure Letter, incur or
enter into any commitment to make any capital expenditure
having a value to the Company or its Subsidiaries or cost of
$25,000 or more in the aggregate;
(j) except as disclosed in the Company Disclosure Letter, enter
into any development subsidy agreement or arrangement or any
franchise or license agreement with "key man" provisions or
terms and conditions at variance in any material respect from
the Company's standard franchise/licensing agreements;
provided that the Company may grant development subsidies not
to exceed $100,000 in any single transaction or $400,000 in
the aggregate (less any loans to franchisees after the date
hereof pursuant to Section 5.2(b)) if such development
subsidies are approved by Xxxxxxx X. Xxxxx or Xxxxxxx
Xxxxxxxxxx.
12
(k) except as disclosed in the Company Disclosure Letter, enter
into any other agreement having a value to the Company or its
Subsidiaries or cost of $50,000 or more in the aggregate
except in the usual, regular and ordinary course of business;
(l) sell, lease or otherwise dispose of, or permit any Subsidiary
to sell, lease or otherwise dispose of, any material assets of
the Company or its Subsidiaries in any transaction or series
of related transactions or sell or permanently dispose of any
of its or any Subsidiary's material Proprietary Rights,
excepting settlements of claims for money due on terms and
conditions that are approved by Xxxxxxx X. Xxxxx and Xxxxxx
Xxxxxxxxxx; or
(m) except as disclosed in the Company Disclosure Letter, take any
action, or fail to take any action, or cause or permit any
Subsidiary to take or fail to take any action, which would
result in the invalidity, abuse, misuse or unenforceability of
its Proprietary Rights or which would infringe upon any rights
of other Persons, which in any case, could reasonably be
expected to have a Material Adverse Effect on the Company.
Section 5.3 No Solicitation.
(a) From and after the date of this Agreement until the earlier of
the termination of this Agreement or the expiration of the
Offer and the purchase of Shares pursuant thereto, the Company
will not, and will use reasonable efforts to cause its
directors, officers, employees, agents, representatives, or
investment bankers not to, directly or indirectly, (i)
solicit, initiate, or knowingly encourage any Acquisition
Proposal, (ii) engage in negotiations or discussions
concerning, or provide any non-public information to any
person or entity in connection with, any Acquisition Proposal,
or (iii) agree to, approve, recommend or otherwise endorse or
support any Acquisition Proposal. As used herein, the term
"Acquisition Proposal" means any proposal relating to a
possible (i) merger, consolidation, tender or exchange offer,
or similar transaction involving the Company or any of its
Subsidiaries, (ii) sale, lease or other disposition, directly
or indirectly, by merger, consolidation, share exchange or
otherwise, of any material Proprietary Rights or any other
assets of the Company or its Subsidiaries (other than the
hotel management business) representing, in the aggregate, 10%
or more of the assets of the Company or its Subsidiaries on a
consolidated basis, (iii) acquisition of or issuance, sale or
other disposition of (including by way of merger,
consolidation, share exchange or any similar transaction) to
any Person or group of Persons (as defined and as interpreted
by the SEC for purposes of Section 13(d) of the Exchange Act
and the Rules thereunder) securities (or options, rights or
warrants to purchase or securities convertible into, such
securities) representing 15% or more of the votes attached to
the outstanding securities of the Company, (iv) liquidation,
dissolution, or other similar type of transaction with respect
to the Company, (v) recapitalization of the Company whether or
not similar, in whole or in part, to the transactions
contemplated by this Agreement, or (vi) transaction which is
similar, in whole or in part, in form, substance or purpose to
any of the foregoing transactions; provided, however, that the
term "Acquisition Proposal" shall not include the Offer or the
Investment. The Company will immediately
13
cease any and all existing activities, discussions or
negotiations with any Person conducted heretofore with respect
to any Acquisition Proposal other than the Offer and the
Investment.
(b) Notwithstanding the provisions of Section 5.3(a), the Company
or its Board of Directors may, directly or through
representatives or agents on behalf of the Board of Directors,
(i) furnish non-public information to, or enter into
discussions or negotiations with, any Person in connection
with an unsolicited bona fide Acquisition Proposal by such
Person, if (A) such Acquisition Proposal would, if
consummated, result in a transaction that would give all
stockholders of the Company the opportunity to receive cash or
other property for not less than 75% of all issued and
outstanding Shares and, in the reasonable good faith judgment
of the Board of Directors, taking into account all
considerations relevant to such Acquisition Proposal such as
conditions to closing and other contingencies, would result in
a transaction more favorable to the stockholders, from a
financial point of view, than the Offer (any such more
favorable Acquisition Proposal being referred to in this
Agreement as a "Superior Proposal"), and (B) prior to
furnishing such non-public information to, or entering into
discussions or negotiations with, such Person, the Company's
board of directors receives from such Person an executed
confidentiality agreement with customary confidentiality
provisions, or (ii) complying with Rule 14d-9 and Rule 14e-2
promulgated under the Exchange Act or other applicable law
with regard to an Acquisition Proposal.
(c) In the event the Company receives a Superior Proposal, nothing
contained in this Agreement shall prevent the board of
directors of the Company from accepting or approving such
Superior Proposal or recommending such Superior Proposal to
the stockholders, in which case, the board of directors may
terminate this Agreement and withdraw the Offer. Subject to
the right of termination set forth in Section 8.4, except to
the extent expressly set forth in this Section 5.3, nothing
shall relieve the Company from complying with all other terms
of this Agreement.
Section 5.4 Approval by the Company's Stockholders. The Company will take
all reasonable action necessary in accordance with applicable law
and its certificate of incorporation and by-laws to convene a
meeting of stockholders (which may be the Company's annual meeting
of stockholders) to be held at or before the scheduled expiration
date of the Offer to consider and vote upon: (a) the approval and
authorization of the issuance and sale of the Preferred Stock to the
Investors and the issuance of Common Stock issuable upon
conversion/exchange of the B Preferred, (b) the Charter Amendments,
and (c) such other matters as may be necessary or advisable to
consummate the transactions contemplated by this Agreement. The
approval by stockholders of all such matters is herein referred to
as the "Stockholder Approval". Subject to requirements of applicable
law, the board of directors of the Company shall recommend such
approval, adoption and authorization, and the Company shall take all
reasonable lawful action to solicit such approval, adoption and
authorization of the Stockholder Approval. At any such meeting of
stockholders, all of the Shares then owned by Meridian and its
Affiliates will be voted in
14
favor of the Stockholder Approval. The Company's proxy statement
with respect to such meeting of stockholders (the "Proxy Statement")
will conform to the requirements of this Agreement and Exhibit I
attached hereto and, at the date thereof and at the date of such
meeting, will not include any untrue statement of a material fact or
omit to state a material fact required to be stated therein or
necessary to make the statements made therein, in light of the
circumstances under which they were made, not misleading; provided
that the foregoing shall not apply to the extent that any such
untrue statement of a material fact or omission to state a material
fact was made by the Company in reliance upon and in conformity with
information concerning the Investor Group furnished to the Company
by the Investor Group specifically for use in the Proxy Statement.
No amendment or supplement to the Proxy Statement will be made by
the Company without consultation with the Investors and their legal
counsel.
Section 5.5 Shareholder Arrangements. The Investors agree that all
arrangements entered into between either of the Investors or any of
their Affiliates and Xxxxxxx X. Xxxxx, Xxxx X. Xxxxxxx and Xxxxxxx
Xxxxxxxxxx shall not be modified or terminated prior to the Closing
Date without the prior written consent of the Company, and that,
except for the proposed Stockholders Agreement attached as Exhibit J
hereto and the proposed Registration Rights Agreement attached as
Exhibit K hereto, no further arrangements between any of the
Investors or their Affiliates and any of such named persons shall be
entered into prior to the Closing Date without the prior written
consent of the Company (which consent will not be unreasonably
withheld, delayed or conditioned). On or before the Closing Date,
the Company shall execute and deliver the Registration Rights
Agreement in the form of Exhibit K attached hereto.
Section 5.6 Filings; Other Action. Subject to the terms and conditions
herein provided, the Company and the Investor Group shall: (a)
promptly make their respective filings and thereafter make any other
required submissions under the HSR Act with respect to the
transactions contemplated by this Agreement; and (b) use their
reasonable best efforts promptly to take, or cause to be taken, all
other action and do, or cause to be done, all other things
necessary, proper or appropriate under applicable laws and
regulations to consummate and make effective the transactions
contemplated by this Agreement; provided that neither Investor Group
nor the Company shall be required to take any action that would
reasonably be expected to have a Material Adverse Effect on it. The
Company shall, as promptly as reasonably practicable, take such
actions as may be necessary or advisable in connection herewith
under applicable state and federal laws relating to the regulation
of franchising to amend or supplement its Uniform Franchise Offering
Circulars (the
15
"UFOCs"), provided that any and all amendments to the UFOCs shall be
approved by the Investors before being filed.
Section 5.7 Access. Upon reasonable notice, the Company shall (and shall
cause each of its Subsidiaries to) afford the Investor Group's
officers, employees, counsel, accountants and other authorized
representatives access, during normal business hours throughout the
period prior to the Closing Date, to all of its properties, books,
contracts, commitments and records, and, during such period, the
Company shall (and shall cause each of its Subsidiaries to) furnish
promptly to the Investor Group (a) a copy of each report, schedule
and other document filed or received by it pursuant to the
requirements of federal or state securities laws and (b) all other
information concerning its business, properties and personnel as the
Investor Group may reasonably request; provided that no
investigation pursuant to this Section shall affect or be deemed to
modify any representation or warranty made by the parties to this
Agreement. All such information that may be made available to the
Investor Group shall be subject to the existing confidentiality
agreement by which the Investor Group is bound.
Section 5.8 Notification of Certain Matters.
(a) The Company shall give prompt notice to the Investor Group of
any breach or default of this Agreement by or on the part of
the Company and any notice of, or other communication known to
an executive officer of the Company relating to, a default or
event which, with notice or lapse of time or both, would
become a default under this Agreement subsequent to the date
of this Agreement and prior to the Closing Date. The Company
shall give prompt notice to the Investor Group of any notice
or other communication from any Person alleging that the
consent of any Person is or may be required in connection with
the transactions contemplated by this Agreement.
(b) The Investor Group shall give prompt notice to the Company of
any breach or default of this Agreement by or on the part of
the Investor Group and any notice of, or other communication
known to an executive officer of any member of the Investor
Group relating to, a default or event which, with notice or
lapse of time or both, would become a default under this
Agreement subsequent to the date of this Agreement and prior
to the Closing Date. The Investor Group shall give prompt
notice to the Company of any notice or other communication
from any Person alleging that the consent of any Person is or
may be required in connection with the transactions
contemplated by this Agreement.
Section 5.9 Publicity. The initial press release with respect to the
execution of this Agreement shall be a joint press release, and
thereafter the Company and Investor Group shall consult with each
16
other in issuing any press releases or otherwise making public
statements with respect to the transactions contemplated hereby and
in making any filings with any federal or state governmental or
regulatory agency or with any national market system or securities
exchange with respect thereto.
Section 5.10 Options; Restricted Stock. The Company will take such actions
as are necessary to cause to be vested (and no longer subject to
forfeiture) immediately before the Closing Date (but subject to the
Closing) all options outstanding under the Stock Option Plan and all
Restricted Stock. Holders of vested and exercisable options to
purchase Shares under the Stock Option Plan shall be afforded an
opportunity to receive cash for their vested and exercisable options
(and receive the net value thereof) at or following expiration of
the Offer, and holders of Restricted Stock shall be afforded an
opportunity to tender their Shares pursuant to the Offer.
Section 5.11 Reasonable Efforts. Each member of the Investor Group and the
Company shall use all commercially reasonable efforts to cause to be
satisfied all conditions to the Company's obligation to make the
Offer and the Investors' obligation to consummate the Investment and
otherwise to consummate the transactions contemplated by this
Agreement.
ARTICLE 6
Representations and Warranties.
Section 6.1 Representations and Warranties of Investors. The Investor
Group jointly and severally represent and warrant to the Company
that:
(a) Corporate Organization. SDI, Inc. is a corporation duly
organized, validly existing and in good standing under the
laws of its jurisdiction of organization and is in good
standing as a foreign corporation in each jurisdiction where
the properties owned, leased or operated, or the business
conducted, by it require such qualification and where failure
to so qualify or be in good standing either singly or in the
aggregate would have a Material Adverse Effect on SDI, Inc.
Each permitted assignee of SDI, Inc. that purchases Preferred
Stock pursuant to this Agreement is a partnership or limited
liability company duly organized, validly existing and in good
standing under the laws of its jurisdiction of organization
and is in good standing as a foreign entity in each
jurisdiction where the properties owned, leased or operated or
the business conducted, by it require such qualification and
where failure to so qualify or be in good standing either
singly or in the aggregate would have a Material Adverse
Effect on such permitted assignee.
17
HSA Properties is a corporation duly organized, validly
existing and in good standing under the laws of its
jurisdiction of organization and is in good standing as a
foreign corporation in each jurisdiction where the properties
owned, leased or operated or the business is conducted, by it
require such qualification and where failure to so qualify or
be in good standing either singly or in the aggregate would
have a Material Adverse Effect on HSA Properties. Each
Investor has the corporate power to carry on its respective
businesses as it is now being conducted. Meridian is a limited
partnership duly organized, validly existing and in good
standing under the laws of its jurisdiction of organization
and is in good standing as a foreign entity in each
jurisdiction where the properties owned, leased or operated,
or the business conducted, by it require such qualification
and where failure to so qualify or be in good standing either
singly or in the aggregate would have a Material Adverse
Effect on Meridian.
(b) Corporate Authorization. Each member of the Investor Group has
taken all required corporate or partnership action, as
applicable, to approve and adopt this Agreement, and this
Agreement is a valid and binding agreement of each member of
the Investor Group, enforceable against them in accordance
with its terms.
(c) No Conflicts. The execution and delivery of this Agreement by
each member of the Investor Group does not, and the
consummation of the transactions contemplated hereby by each
member of the Investor Group will not, (i) violate or conflict
with the certificate of incorporation or by-laws of SDI, Inc.,
or HSA Properties, the certificate of limited partnership or
limited partnership agreement of Meridian, or the certificate
of limited partnership or the certificate of organization or
operating agreement of any assignee of SDI, Inc., or (ii)
assuming compliance with the HSR Act, the Exchange Act and the
rules and regulations thereunder, State Laws, and Foreign
Laws, constitute a breach or violation of, or a default under,
any law, rule or regulation or any judgment, decree, order,
governmental permit or license, or agreement, indenture or
instrument of any member of the Investor Group or to which any
member of the Investor Group is subject, which breach,
violation or default would have a Material Adverse Effect on
any member of the Investor Group, or would prevent or
materially and adversely affect the consummation of the
transactions contemplated hereby.
(d) Compliance with Laws. Other than the filings pursuant to the
HSR Act, the Exchange Act, State Laws, and Foreign Laws, there
are no filings required to be made by the members of the
Investor Group, and there are no consents, approvals, permits
or authorizations required to be obtained by the members of
the Investor Group, from governmental and regulatory
authorities of the United States and the several states in
connection with the execution and delivery of this Agreement
by Meridian or the Investors and the consummation of the
transactions contemplated hereby by the members of the
Investor Group, other than such as may be required solely
because the
18
Company is a party to this Agreement and other than such which
the failure to make or obtain would not, in the aggregate,
have a Material Adverse Effect on the members of the Investor
Group, or would prevent or materially and adversely affect the
consummation of the transactions contemplated hereby.
(e) Investment Representations. Each Investor represents that it
is acquiring the Preferred Stock purchased hereunder and any
Preferred Stock distributed as dividends thereon and Class A
Common Stock issuable upon conversion/exchange of the B
Preferred for its own account with the present intention of
holding such securities for purposes of investment, and that
it has no intention of selling such securities in a public
distribution in violation of the federal securities laws or
any applicable state securities laws; provided that nothing
contained herein shall prevent any Investor and subsequent
holders of Preferred Stock and Class A Common Stock issuable
upon conversion/exchange of the B Preferred from transferring
such securities in compliance with the applicable provisions
of federal and state securities laws.
(f) Financing. The Investors have, and on the Closing Date will
have, the funds necessary to purchase the Preferred Stock on
the Closing Date pursuant to this Agreement.
(g) Advisory Fee. No member of the Investor Group nor any of their
Affiliates nor any of their officers, directors, or employees,
has employed any broker or finder or incurred any liability
for any advisory fees, brokerage fees, commissions, or
finder's fees in connection with this Agreement or the
transactions contemplated hereby that could result in any
liability to the Company or any of its Subsidiaries.
(h) Shareholder Arrangements. The Investors have disclosed to the
Company the terms of all arrangements entered into between
either of the Investors or any of their Affiliates and Xxxxxxx
X. Xxxxx, Xxxx X. Xxxxxxx and Xxxxxx Xxxxxxxxxx and have
provided the Company with true and correct copies of all
documents pertaining thereto.
(i) Disclosure Documents. The information with respect to the
Investor Group or any of their Affiliates that the Investor
Group or any of their Affiliates furnishes to the Company in
writing specifically for use in the Offer Documents, the Proxy
Statement or any related documents, at the respective times of
the filing thereof with the SEC or such other governmental
entity, and at the time of any distribution or dissemination
thereof and, in the case of the Proxy Statement at the date it
or any amendment or supplement is mailed to stockholders of
the Company and at the time of the meeting of stockholders of
the Company, will not contain any untrue statement of a
material fact or misstate any material fact necessary in
19
order to make the statements made therein, in light of the
circumstances under which they were made, not misleading.
(j) No Interested Stockholder. As of the date of this Agreement,
neither of the Investors, nor any affiliate (as defined in
Section 203 of the DGCL) of any of the Investors, is an
"interested stockholder" as such term is defined in Section
203 of the DGCL.
Section 6.2 Representations and Warranties of the Company. The Company
represents and warrants to the Investor Group that:
(a) Corporate Organization. Each of the Company and its
Significant Subsidiaries is a corporation, partnership or
limited liability company duly organized, validly existing and
in good standing under the laws of its respective jurisdiction
of organization and is in good standing as a foreign
corporation, partnership or limited liability company in each
jurisdiction where the properties owned, leased or operated,
or the business conducted by it require such qualification and
where failure to so qualify or be in good standing would,
either singly or in the aggregate, have a Material Adverse
Effect on the Company. Each of the Company and its Significant
Subsidiaries has the corporate, partnership or limited
liability company power to carry on its respective businesses
as they are now being conducted. Except as disclosed in the
Company Disclosure Letter, each of the Company's Subsidiaries
is wholly-owned by the Company. All issued and outstanding
shares of capital stock of the Company's Significant
Subsidiaries have been validly issued and are fully paid and
nonassessable.
(b) Capitalization. The authorized capital stock of the Company
consists of 36,000,000 shares of capital stock, of which (i)
35,000,000 shares are Common Stock, par value $0.01 per share
(and which are herein referred to as the Shares), of which
30,000,000 are designated as Class A Common Stock and
5,000,000 are designated as Class B Common Stock and (ii)
1,000,000 shares are preferred stock, par value $0.01 per
share. As of the close of business on June 1, 2000, there were
19,953,753 Shares issued and outstanding of which 17,245,834
are designated as Class A Common Stock and 2,707,919 are
designated as Class B Common Stock. As of the same date, there
were no shares of preferred stock issued and outstanding. All
of the outstanding Shares have been validly issued and are
fully paid and nonassessable. As of the date hereof, except as
disclosed in the Company Disclosure Letter, the Company has no
Shares reserved for issuance, except that, as of the close of
business on June 1, 2000, there were 885,207 shares of Class A
Common Stock reserved for issuance pursuant to unexercised
options granted and currently outstanding under the Stock
Option Plan and the Directors Option Plan and 2,707,919 shares
of Class A Common Stock reserved for issuance upon conversion
of the shares of Class B Common Stock. Except as set forth
above or as disclosed in the Company Disclosure Letter, there
are no shares of capital stock of the Company authorized or
outstanding, and there are no outstanding subscriptions,
options, warrants,
20
rights, convertible securities or other agreements or
commitments of any character relating to the issued or
unissued capital stock or other securities of the Company or
any Subsidiary obligating the Company or any Subsidiary to
issue any securities. Except as disclosed in the Company
Disclosure Letter or the Company Reports, since April 30,
2000, no Shares have been issued by the Company except
pursuant to exercise of options under the Stock Option Plan.
(c) Corporate Authorization. Subject only to Stockholder Approval,
the Company has taken all required corporate action to
authorize and adopt this Agreement and approve the
transactions contemplated hereby including the Offer, the
Investment and the Leven Agreement, Hawthorn Termination, and
the Registration Rights Agreement attached as Exhibit K
hereto, and this Agreement is a valid and binding agreement of
the Company enforceable against the Company in accordance with
its terms. The Board of Directors has (i) determined that each
of the Offer and the Investment is fair to holders of Shares,
(ii) approved the making of the Offer and the purchase of
Shares pursuant to the Offer and (iii) resolved to recommend
acceptance of the Offer by the holders of Shares who wish to
receive cash for their Shares at the time the Offer is made.
(d) SEC Filings. As of their respective dates, neither the
Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 2000, Annual Report on Form 10-K for the year ended
December 31, 1999, Annual Report on Form 10-K/A for the year
ended December 31, 1999 (the March 31, 2000 Quarterly Report
being referred to herein as the "Latest Company Report"), nor
the Proxy Statement with respect to the Company's 1999 annual
meeting, each in the form (including exhibits) filed with the
SEC (collectively, the "Company Reports"), nor the Company's
press releases contained, nor will any of the Company's xxxxxx
xxxxx releases or Quarterly Reports on Form 10-Q contain, any
untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to
make the statements made therein, in light of the
circumstances in which they were made, not misleading. The
Company Reports, when filed, complied in all material respects
with all applicable requirements of the Exchange Act.
(e) Financial Statements. Each of the consolidated balance sheets,
included in or incorporated by reference into the Company
Reports (including the related notes and schedules) fairly
presents in all material respects the financial position of
the entity or entities to which it relates as of its date, and
each of the consolidated statements of earnings and of changes
in financial position or equivalent statements, included in
the Company Reports (including any related notes and
schedules) fairly presents in all material respects the
results of operations and changes in financial position, as
the case may be, of the entity or entities to which it relates
for the period set forth therein (subject, in the case of
unaudited statements to normal year-end audit adjustments), in
each case in accordance with
21
generally accepted accounting principles consistently applied
during the periods involved, except as may be noted therein.
(f) No Adverse Change. Except as disclosed in the Company Reports,
or the Company Disclosure Letter, since December 31, 1999,
there has not been any change in the assets, financial
condition or results of operations of the Company and its
Subsidiaries, that could reasonably be expected to have a
Material Adverse Effect on the Company. There has been no
material adverse change in the composition of the Company's
and its Subsidiaries' sales force since the date of this
Agreement that could reasonably be expected to have a Material
Adverse Effect on the Company. There has been no change in the
Company's and its Subsidiaries' rates of new business
generation since March 31, 2000 that reflects, or could
reasonably be expected to have, a Material Adverse Effect on
the Company.
(g) No Conflicts. Except as disclosed in the Company Disclosure
Letter, the execution and delivery of this Agreement by the
Company do not, and the consummation of the transactions
contemplated hereby by the Company will not, (i) subject to
Stockholder Approval, violate or conflict with the certificate
of incorporation or by-laws of the Company, or (ii) assuming
compliance with the HSR Act, the Exchange Act, State Laws and
Foreign Laws, constitute a breach or violation of, or a
default under, any law, rule or regulation or any judgment,
decree, order, governmental permit or license, to which the
Company or any of its Subsidiaries is subject, or (iii)
constitute a breach or violation of, a default (or an event or
condition which, with notice or lapse of time, or both, would
constitute a default) under, permit the termination or change
of, or cause or permit the acceleration of the maturity of,
any agreement, indenture, mortgage, bond, note or instrument
to which the Company or any of its Subsidiaries is a party or
by which the Company or any of its Subsidiaries is bound,
which conflict, breach, violation, default, termination,
change or acceleration would have a Material Adverse Effect on
the Company. Except as disclosed in the Company Disclosure
Letter, the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby will not
require the consent or approval of any other party to any
agreement, indenture, mortgage, bond, note or instrument to
which the Company or any of its Subsidiaries is a party or by
which the Company or any of its Subsidiaries is bound where
the failure to obtain any such consent or approval would have
a Material Adverse Effect on the Company, or would prevent or
materially and adversely affect the consummation of the
transactions contemplated hereby.
(h) Compliance with Laws. Except as disclosed in the Company
Disclosure Letter, other than the filings pursuant to the HSR
Act, the Exchange Act, State Laws and Foreign Laws, there are
no filings required to be made by the Company with, and there
are no consents, approvals, permits or authorizations required
to be obtained by the Company from, govern-
22
mental and regulatory authorities of the United States and the
several states in connection with the execution and delivery
of this Agreement by the Company and the consummation of the
transactions contemplated hereby by the Company, other than
such as may be required solely because any member of the
Investor Group is a party to this Agreement and other than
such which the failure to make or obtain would not, in the
aggregate, have a Material Adverse Effect on the Company, or
would prevent or materially and adversely affect the
consummation of the transactions contemplated hereby.
(i) Properties. The Company and its Subsidiaries own all of their
material assets reflected as owned by them on the Latest
Company Report (except for assets consumed, sold or otherwise
disposed of in the usual, regular and ordinary course of
business), subject, in each case, to no Encum brance, except
as set forth in the Latest Company Report, excepting any
Encumbrance the existence or enforcement of which could not
reasonably be expected to have a Material Adverse Effect on
the Company. Except as disclosed in the Company Disclosure
Letter, the Company and its Subsidiaries own all of their
material Proprietary Rights relating to the Microtel, Hawthorn
and Best brands (the "Brands") subject to no Encumbrance
arising by express consent or agreement of the Company or its
Affiliates. The Company and its Subsidiaries own all other
material Proprietary Rights they purport to own, subject in
each case to no Encumbrance excepting any Encumbrance that
could not reasonably be expected to have a Material Adverse
Effect on the Company. The material Proprietary Rights owned
by the Company or its Subsidiaries include all Proprietary
Rights the use of which is reasonably necessary for the
continued conduct of the business of the Company and its
Subsidiaries as now conducted. To the knowledge of the Company
and its Subsidiaries, the use by the Company and its
Subsidiaries of all Proprietary Rights in the operation of the
business of the Company and its Subsidiaries does not cause
any infringement of the Proprietary Rights of others, and
there are no claims against the Company or its Subsidiaries
for such infringement except as disclosed in the Company
Reports or the Company Disclosure Letter or except where such
infringement could not reasonably be expected to have a
Material Adverse Effect on the Company. Neither the Company
nor any of its Affiliates is in breach or default of any
agreement relating to the acquisition or license by the
Company or its Affiliates of any material Proprietary Rights,
nor has any event occurred nor does any condition exist that,
but for the giving of notice or passage of time, or both,
would constitute a breach or default thereunder except for any
breach or default that could not reasonably be expected to
have a Material Adverse Effect on the Company.
(j) Taxes. Except as disclosed in the Company Disclosure Letter,
the Company and its Subsidiaries have duly filed, when due or
within proper extensions of time, all federal, state, local
and foreign income, sales, use, employment, excise, premium,
value added and other tax returns and reports which are
required to be filed by or on behalf of the Company and/or its
23
Subsidiaries or with respect to the income, deductions and
credits of the Company and its Subsidiaries, and have paid all
taxes (including estimated payments thereof), interest and
penalties, if any, shown on such returns, reports or notices.
Neither the Company nor any of its Subsidiaries has entered
into agreements with the Internal Revenue Service or other
taxing authority to extend the period for the assessment and
collection of federal income taxes payable with respect to the
income, deductions and credits of the Company or its
Subsidiaries for any period. Neither the Company nor any of
its Subsidiaries has received any notice of deficiency or
assessment with respect to any taxable year of the Company or
its Subsidiaries that has not been paid or otherwise
discharged or adequately reserved against. Except as disclosed
in the Company Disclosure Letter, all federal, state, local
and foreign income, sales, use, employment, excise, premium,
value added and other taxes attributable to the income,
business operations, or properties of the Company or its
Subsidiaries for periods ending on or before December 31,
1999, have been paid or adequate provision therefor has been
made on the Company Reports.
(k) Litigation. Except as disclosed in the Company Disclosure
Letter, there are no judicial or administrative actions, suits
or proceedings pending or, to the knowledge of the Company or
its Subsidiaries, threatened that might reasonably be expected
to result in a Material Adverse Effect on the Company, or
which question the validity of this Agreement or of any action
taken or to be taken in connection herewith.
(l) Welfare and Benefit Plans. The Company has provided the
Investor Group with a list of all severance pay, vacation,
sick leave, fringe benefit, medical, dental, life insurance,
disability or other welfare plans, savings, profit sharing or
other retirement plans and all bonus or other incentive plans,
contracts, arrangements or practices (collectively, excluding
ordinary commissions and compensation paid to employees for
their services, the "Plans") maintained or contributed to by
the Company or its Affiliates and in which any one or more of
the current or former employees of the Company or its
Affiliates (including beneficiaries of employees or former
employees) participates or is eligible to participate and each
other Plan in which any one or more current or former
employees of the Company or its Affiliates (including
beneficiaries of employees or former employees) has
participated within the immediately preceding five years and
for which benefits accrue or the Company or its Affiliates
otherwise incur or may incur any material costs in any current
or future period. The Company has furnished or made available
to the Investor Group true and complete copies of all Plans
currently in effect that have been reduced to writing, and
written summaries of the material terms of all unwritten Plans
currently in effect. All Plans are in compliance with all
applicable provisions of ERISA, as well as with all other
applicable federal, state and local statutes, ordinances and
regulations. All material reports or other documents required
by law or contract to be filed with any governmental agency,
or distributed to Plan participants or
24
beneficiaries, with respect to the Plans have been timely
filed or distributed. Neither the Company nor any Plan
Affiliate nor any trustee or any other fiduciary of any of the
Plans has engaged in any prohibited transaction within the
meaning of sections 406 and 407 of ERISA or section 4975 of
the Code with respect to any of the Plans that has occurred
during the six-year period preceding the date of this
Agreement. The Company and the Plan Affiliates have not,
during the past six years, maintained, or been obligated to
contribute to, or incurred any liability with respect to, a
Plan that is subject to the provisions of Title IV of ERISA,
and neither the Company, nor any Plan Affiliate, has incurred
any liability under section 4201 of ERISA with respect to any
"multi-employer plan" (as such term is defined in section
4001(a)(3) of ERISA) or any other plan subject to Title IV of
ERISA, and the consummation of the transactions contemplated
by this Agreement will not constitute a complete or partial
withdrawal from or with respect to any such "multi-employer
plan" or other plan subject to Title IV of ERISA or any
collective bargaining agreement to which the Company is a
party or by which the Company is bound or otherwise give rise
to any liability of the Company in connection therewith. Each
of the Plans maintained by the Company which is intended to be
"qualified" within the meaning of section 401(a) of the Code
and any trust maintained in connection with any of the Plans
which trust is intended to be so exempt under section 501(a)
of the Code has been determined by the IRS to be so qualified
and exempt, as the case may be, and such determinations have
not been modified, revoked or limited and nothing has occurred
(or failed to occur) since the receipt of such determination
letters that would adversely affect any such Plan's
qualification or any such trust's exempt status. The Company
neither maintains nor is obligated to provide benefits under
any life, medical or health plan that provides benefits to
retirees or other terminated employees other than (a) benefit
continuation rights under COBRA, (b) benefits under insured
plans maintained by the Company provided in the event an
employee is disabled at the time of termination of the
employee's employment with the Company, and (c) the conversion
privileges provided under such insured plans. The Company has
complied with all of its material obligations under COBRA, and
will not incur any liability in connection with the benefit
continuation rights under COBRA with respect to its employees
or any other employees. No Plan is a multiple employer welfare
arrangement. Any Plan that is funded through a "welfare
benefit fund" as defined in section 419(e) of the Code has
complied and continues to comply with all material
requirements of section 419 and 419A of the Code and
regulations thereunder. The Company does not maintain any
unfunded deferred compensation arrangement with respect to any
employee or former employee, which has not been properly
accrued on the financial statements included in the Latest
Company Report. There are no current or former Plan
Affiliates. Except as set forth on the Company Disclosure
Letter or as otherwise contemplated by Section 5.10, the
consummation of the transactions contemplated by this
Agreement will not (a) entitle any current or former employee
of the Company to severance pay, unemployment compensation or
any other payment, (b) accelerate the time
25
of payment or vesting of any payment, forgive any
indebtedness, or increase the amount of any compensation due
to any such employee or former employee, or (c) give rise to
the payment of any amount that would not be deductible
pursuant to the terms of section 280G of the Code.
(m) Franchising Matters. Except as disclosed in the Company
Reports or the Company Disclosure Letter:
(i) Validity of Franchise Agreements. The Company has provided
or made available to the Investors prior to the date hereof, true
and correct copies of all franchise and license agreements in effect
as of the date hereof for each of its three Brands. The Company has
no rights or interest in any franchise and license agreements other
than with respect to the Brands, and there are no outstanding
options or rights to enter into or acquire any of the Company's
franchise and license agreements from the Company or to enter into
any other franchise and license agreement with the Company. The
Company has not granted any subfranchising or developmental rights
to its franchise systems in countries other than the United States.
All of the Company's franchise and license agreements are valid,
binding and enforceable against each franchisee thereunder subject
to any franchisee's or licensee's bankruptcy, insolvency,
receivership or similar proceeding under state or federal law; there
are no existing defaults by the Company or its Subsidiaries
thereunder; and no event has occurred which (with notice, or lapse
of time, or both) would constitute a default by the Company or its
Subsidiaries thereunder, which in any such case would permit any
franchisee or licensee to terminate its franchise or license
agreement, or that, individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect on the
Company, and, to the knowledge of the Company and its Subsidiaries,
no event has occurred that (with notice, or lapse of time, or both)
would constitute a default by the Company or its Subsidiaries
thereunder which would permit any franchisee or licensee to
terminate its franchise or license agreement, or that, individually
or in the aggregate, could reasonably be expected to have a Material
Adverse Effect on the Company. There have been no fees received by
the Company pursuant to a franchise or license agreement that are
currently, or which with the execution of this Agreement, the
consummation of the transactions contemplated hereby, the passage of
time, or the giving of notice, or both, would be subject to a claim
for refund by a franchisee or licensee that could, individually or
in the aggregate, reasonably be expected to have a Material Adverse
Effect on the Company. The Company Disclosure Letter sets forth a
summary schedule, as of a specified recent date, of the term
(without giving effect to early termination provisions) and fee
arrangements under each of the Company's and its Subsidiaries
franchise or license agreements.
(ii) Uniform Franchise Offering Circular. The Company has
prepared and maintained each of its Uniform Franchise Offering
Circulars ("UFOCs") for the three Brands in an accurate and correct
manner, has filed
26
its UFOCs in all states in which the Company offered or sold
franchises which required registration and approval prior to offers
or sales of franchises in such states and has not failed to file any
required amendments or renewals on a timely and accurate basis
except where the failure to do so could not reasonably be expected
to have a Material Adverse Effect on the Company. There are no
misrepresentations or omissions of information in the UFOCs that
could reasonably be expected to have a Material Adverse Effect on
the Company. The Company has provided or made available to the
Investors prior to the date hereof, copies of all material
correspondence since January 1, 1998 affecting the registration and
renewals of the UFOCs in the applicable states. The Company and its
Subsidiaries do not and have not authorized their officers,
directors or representatives to furnish any materials or information
which is in any way inconsistent with the "earnings claim"
information set forth in Item 19 of the UFOCs, as that term is
defined by federal and state franchising laws.
(iii) Litigation. There is no action, proceeding or
investigation pending or, to the knowledge of the Company and its
Subsidiaries (after reasonable investigation), threatened against or
involving the Company or any of its Subsidiaries with any of its
domestic or international franchisees and to the Company's and its
Subsidiaries' knowledge (after reasonable investigation) there is no
basis for any such action, proceeding or investigation except for
actions, proceedings or investigations that could not reasonably be
expected to have a Material Adverse Effect on the Company. There are
no pending or to the Company's and its Subsidiaries' knowledge
threatened causes of action by a franchisee or group of franchisees
against the Company, its Affiliates, or their officers or directors
except for actions, proceedings or investigations that could not
reasonably be expected to have a Material Adverse Effect on the
Company. Except as disclosed in the Latest Company Report, neither
the Company nor any of its Subsidiaries is subject to any judgment,
order or decree entered in any lawsuit or proceeding which has or
may have an adverse effect on its rights and interest in its
franchise agreements or its ability to assign those rights and
interest. There are not currently, nor have there ever been any
administrative actions, cease and desist orders or other
administrative actions by any federal or state agency which
regulates franchising that would have a Material Adverse Effect on
the Company or which could materially and adversely affect the
transactions contemplated by this Agreement.
(iv) Compliance with Laws. The Company and its Subsidiaries
have not violated any federal or state law or rule or regulation
thereunder in connection with the offer and sale of franchises,
except for such violations that could not reasonably be expected to
have a Material Adverse Effect on the Company. The Company and its
Subsidiaries have not violated any federal or state law or rule or
regulation thereunder in connection with the issuance of a notice of
default or termination of any franchise or license agreement that
could reasonably be expected to have a Material Adverse
27
Effect on the Company. The Company and its Subsidiaries have
complied with all applicable federal and state franchise
termination, fair practices and relationship laws with respect to
the proper notice of default, time to cure, and the actual
termination of any of its franchisees as prescribed by such laws
except where the failure to comply could not reasonably be expected
to have a Material Adverse Effect on the Company.
(v) Special Discounts or Commitments. The Company has not made
to any franchisee, or to any of its franchisees' employees or
agents, or to any other Person, any commitment to provide any
special discount, allowance or other accommodation other than as set
forth in the Company's franchise and license agreements delivered or
made available to the Investor Group prior to the date hereof or as
disclosed in the UFOCs, or to acquire any minimum or fixed volume of
goods or services or to provide any minimum or fixed volume of goods
or services.
(vi) No Other Agreements. Except as set forth in the franchise
and license agreements provided or made available to the Investors
prior to the date hereof, there are no other material agreements or
special arrangements with any franchisee as of the date hereof.
(vii) Advertising Fund and Advisory Councils. The Company has
at all times complied fully with all agreements governing each of
its three advertising funds (the "Funds") except where the failure
to comply could not reasonably be expected to have a Material
Adverse Effect on the Company. The only covenants or agreements
governing the Funds are contained in the articles of incorporation,
by-laws, management agreements, standards manuals, and franchise and
license agreements previously delivered or made available to the
Investor and the Funds and all monies paid thereto have been
allocated and used in all material respects in accordance with such
documents. The Company has provided the Investor Group with all
copies of documents pertaining to the Funds as well as all documents
relating to Franchisee Advisory Councils, Local Advertising
Cooperatives, Franchisee Associations, or related organizations
affecting the franchise systems.
(n) Existing Permits and Violations of Law. The Company and each
of its Subsidiaries has all licenses, permits, approvals,
exemptions, orders, approvals, franchises, qualifications,
permissions, agreements and governmental authorizations
required by law and required for the conduct of the business
of the Company and its Subsidiaries as currently conducted,
except where the failure to have the same would not have a
Material Adverse Effect on the Company. No action or
proceeding is pending or, to the knowledge of the Company,
threatened that is reasonably likely to result in a
revocation, non-renewal, termination, suspension or other
material impairment of any material permits of the Company or
its Subsidiaries. The business of the Company and its
Subsidiaries is not being conducted in violation of any
applicable law, except for such violations that would not
28
have a Material Adverse Effect on the Company. No governmental
entity has indicated in writing to any executive officer the
Company or any Subsidiary an intention to conduct an
investigation or review with respect to the Company or any
Subsidiary other than, in each case, those which would not
have a Material Adverse Effect on the Company.
(o) Change of Control Agreements. Except as disclosed in the
Company Disclosure Letter, neither the Company nor any of its
Subsidiaries is a party to any agreement or plan, including
any stock option plan, stock appreciation rights plan,
restricted stock plan or stock purchase plan, any of the
benefits of which will be increased, or the vesting of the
benefits of which will be accelerated, by the consummation of
the transactions contemplated by this Agreement except as
contemplated by Section 5.10. Except as disclosed in the
Company Disclosure Letter or as contemplated by Section 5.10,
the transactions contemplated by this Agreement will not
constitute a "change in control" under, require the consent
from or the giving of notice to any third party pursuant to,
or accelerate the vesting or lapse of repurchase rights under,
any contract to which the Company or any of its Subsidiaries
is a party. Except as disclosed in the Company Disclosure
Letter or as contemplated by Section 5.10, there are no
amounts that will be payable by the Company to any officers of
the Company (in their capacity as officers) as a result of the
transactions contemplated by this Agreement other than in
connection with the purchase of Shares pursuant to the Offer.
(p) Advisory Fees. With the exception of a fee payable to BAS in
its capacity as financial advisor to the Company pursuant to a
letter agreement that has been delivered to Investor Group,
neither the Company nor any of its Subsidiaries nor any of
their officers, directors, or employees, has employed any
broker or finder or incurred any liability for any advisory
fees, brokerage fees, commissions or finder's fees in
connection with this Agreement or the transactions
contemplated hereby.
ARTICLE 7
Indemnification and Insurance.
Section 7.1 After the Closing Date, the certificate of incorporation and
bylaws of the Company and each of its Subsidiaries shall contain
provisions with respect to indemnification no less favorable than
those set forth in the certificate of incorporation and the bylaws
of the Company and each of its Subsidiaries on the date hereof,
which provisions shall not be amended, modified or otherwise
repealed for a period of six years after the Closing Date in any
manner that would adversely affect the rights thereunder as of the
Closing Date of individuals who at the Closing Date were directors,
officers, employees or agents of the Company or such Subsidiary,
unless such modification is required after the Closing Date by law.
Section 7.2 The Company shall, and the Investor Group, to the extent of
the liability limit hereinafter provided, shall cause the Company,
to the fullest extent permitted under applicable law or under the
Company's or such Subsidiary's certificate of incorporation or
bylaws or any
29
indemnification agreement in effect as of the date hereof, to
indemnify and hold harmless, each present and former director,
officer or employee of the Company or any of its Subsidiaries
(collectively, the "Indemnified Parties") against any costs or
expenses (including attorneys' fees and disbursements), judgments,
fines, losses, claims, damages, liabilities and amounts paid in
settlement in connection with any claim, action, suit, proceeding or
investigation, whether civil, criminal, administrative or
investigative, or otherwise (a) arising out of or pertaining to the
transactions contemplated by this Agreement (but excluding any
matter to the extent involving an Indemnified Party in a capacity
other than as a director, officer, employee or agent of the Company)
or (b) with respect to any acts or omissions occurring at or prior
to the Closing Date, to the same extent as provided in the Company's
or such Subsidiary's certificate of incorporation or bylaws or any
applicable contract or agreement as in effect on the Closing Date,
in each case for a period of six years after the date hereof. In the
event of any such claim, action, suit, proceeding or investigation
(whether arising before or after the Closing Date) and subject to
the specific terms of any indemnification contract (except as
provided in the joint defense agreement contemplated by Section
2.3(e) insofar as it may affect the procedure for the determination
of entitlement to indemnification), (a) after the Closing Date, the
Company shall pay the reasonable fees and expenses of any counsel
retained by the Indemnified Parties, promptly after statements
therefor are received and (b) the Company shall cooperate in the
defense of any such matter, provided, however, that in the event
that any claim or claims for indemnification are asserted or made
within the foregoing six year period, all rights to indemnification
in respect of any such claim or claims shall continue until the
disposition of any and all such claims. Notwithstanding any contrary
provision of this Section 7.2, the liability of the Investor Group
to cause the Company and its Subsidiaries to indemnify and hold
harmless their present and former directors, officers and employees
shall be limited to the aggregate amount of cash and fair market
value of property received by the Investors and their successors in
interest as payments in redemption of the Preferred Stock (but
excluding any amounts paid in redemption that represent accrued and
unpaid dividends on the Preferred Stock) and as distributions on the
Preferred Stock, excluding dividends accrued and paid in cash or in
kind at the stated dividend rates for the Preferred Stock and
"Ordinary Dividends" (as defined in the Certificates of
Designation).
Section 7.3 In addition, the Company shall provide, for a period of not
less than six years after the Closing Date, the Company's current
directors and officers an insurance and indemnification policy that
provides coverage for events occurring at or prior to the Closing
Date (the "D&O Insurance") that is no less favorable than the
existing policy or, if substantially equivalent insurance coverage
is unavailable, the best available coverage; provided, however, that
the Company shall not be required to pay an annual premium for the
D&O Insurance in excess of 200% of the annual premium currently paid
by the Company for such insurance, but in such case shall purchase
as much of such coverage as possible for such amount.
Section 7.4 This Article 7 shall survive the consummation of the
transactions contemplated by this Agreement at the Closing Date, is
intended to benefit the Indemnified Parties, shall be binding on all
successors and assigns of the Company and shall be enforceable by
the Indemnified Parties.
30
ARTICLE 8
Termination
Section 8.1 Termination by Mutual Consent. This Agreement may be
terminated and the Offer may be abandoned at any time prior to the
Closing Date, before or after any Stockholder Approval, by the
mutual consent of the Investors and the Company.
Section 8.2 Termination by either Party. This Agreement may be terminated
and the Offer may be terminated and abandoned by either the
Investors or the Company at any time prior to the Closing Date,
before or after any Stockholder Approval, if (a) the purchase of
Shares pursuant to the Offer shall not have become effective in
accordance with the terms of the Offer to Purchase by November 30,
2000, or Stockholder Approval shall not have been obtained by
October 15, 2000 (which date shall be automatically extended (to a
date not later than November 30, 2000) for each day in excess of 45
calendar days that the SEC requires to initially review and comment
on the preliminary Proxy Statement and each day in excess of 20
calendar days thereafter that are required to resubmit, and obtain
SEC approval of the revisions to the preliminary Proxy Statement) or
(b) the Offer shall have expired or shall have been terminated
without the acceptance for purchase of any Shares pursuant thereto;
provided that the Company shall not have the right to terminate this
Agreement or the Offer pursuant to this clause if the termination or
expiration of the Offer without the purchase of Shares thereunder is
in violation of the terms of the Offer or this Agreement, and the
Investors shall not have the right to terminate this Agreement
pursuant to this clause if the termination or expiration of the
Offer without the acceptance for purchase of Shares thereunder is by
reason of a breach of this Agreement by the Investor Group.
Section 8.3 Termination by Investors. This Agreement may be terminated and
the Investment may be abandoned at any time prior to the Closing
Date, before or after any Stockholder Approval, by the Investors if:
(a) any of the conditions set forth in Sections 2.3(d) and (e) shall
not have been fulfilled within 10 Business Days after the date of
execution of this Agreement; or (b) the Company shall have failed to
comply in any material respect with any of the covenants or
agreements contained in this Agreement (including the obligation to
commence the Offer and accept for purchase and pay for Shares upon
the terms and subject to the conditions of the Offer) to be complied
with or performed by the Company at or prior to the Closing.
Section 8.4 Termination by the Company. This Agreement may be terminated
and the Offer may be abandoned at any time prior to the Closing
Date, before or after any Stockholder Approval, by the Company (a)
if the Investor Group shall have failed to comply in any material
respect with any of the covenants or agreements contained in this
Agreement to be complied with or performed by the Investor Group
prior to the Closing or (b) if the Board of Directors shall
concurrently approve and the Company shall concurrently enter into a
definitive agreement providing for the implementation of a Superior
Proposal.
Section 8.5 Effect of Termination and Abandonment. In the event of
termination of this Agreement and abandonment of the Offer pursuant
to Section 8.1, 8.2, 8.3 or 8.4, no party hereto (or any of its
directors or officers) shall have any liability or further
obligation to any other party hereto, except as provided in Sections
8.6 and 8.7 and except that nothing herein will relieve any party
from liability for any breach of this Agreement.
31
Section 8.6 Liquidated Damages.
(a) In the event that: (i) any of the conditions set forth in
Sections 2.3(d) and (e) are not fulfilled within 10 Business
Days after the date of execution of this Agreement, (ii) the
Company is in material breach or default of its
representations, warranties or covenants under this Agreement
and as a consequence thereof, the Investor Group exercises any
right to terminate this Agreement under Section 8.3 and
abandon the Investment, or (iii) the Company or the Company's
or any of its Subsidiaries' directors, officers, agent or
representatives seeks, solicits, negotiates, encourages,
accepts, recommends, endorses, supports, consents to, or
acquiesces in an Acquisition Proposal in violation of Section
5.3 and as a consequence thereof, the Investor Group exercises
any right to terminate this Agreement under Section 8.3 and
abandon the Investment, the Company shall (without duplication
of any amounts paid under Section 8.6(b)): (i) reimburse the
Investor Group for their expenses reasonably incurred for
outside legal counsel in connection with investigating the
Company and preparation and negotiation of this Agreement and
the other agreements, documents, and instruments contemplated
by this Agreement, not to exceed $1,000,000; (ii) reimburse
the Investor Group for legal expenses reasonably incurred in
any litigation or proceeding seeking enforcement of this
Section 8.6(a); and (iii) pay to the Investors interest
accruing, from the second Business Day after any such demand
for payment to the date such sum is paid, at the Applicable
Rate.
(b) In the event the Board of Directors approve and the Company
enters into a definitive agreement providing for the
implementation of a Superior Proposal, the Company shall
(without duplication of any amounts paid under Section
8.6(a)): (i) pay to the Investors on demand, the sum of
$3,000,000 to reimburse the Investors for the efforts they
have made and will make, the risks they have undertaken and
will undertake, and the expenses they have incurred and will
incur in investigating the Company, negotiating the
transaction, arranging financing, and otherwise preparing to
support the Offer and consummate the Investment; (ii)
reimburse the Investor Group for their expenses reasonably
incurred for outside legal counsel in connection with
investigating the Company and preparation and negotiation of
this Agreement and the other agreements, documents, and
instruments contemplated by this Agreement, not to exceed
$1,000,000; (iii) reimburse the Investor Group for legal
expenses reasonably incurred in any litigation or proceeding
seeking enforcement of this Section 8.6(b); and (iv) pay to
the Investors interest accruing, from the second Business Day
after any such demand for payment to the date such sum is
paid, at the Applicable Rate.
ARTICLE 9
Stockholder Protection
Section 9.1 NASDAQ Listing. From and after the Closing Date, to the extent
of its control over such matters, the Investor Group shall use
reasonable efforts to cause the Class A Common Stock of the Company
to be listed for trading on the NASDAQ Stock Market unless otherwise
determined by the Board of Directors acting with a majority vote of
the Independent Directors.
32
Section 9.2 Restrictions on Stock Acquisitions. From and after the Closing
Date until the fourth anniversary of the Closing Date, the Investor
Group shall not, and shall not cause or permit any Affiliate of the
Investor Group to, purchase shares of the Company's Common Stock
either on the open market or pursuant to a tender or exchange offer
or in any other transaction (other than in a transaction approved in
accordance with Section 12 of the Company's certificate of
incorporation or in a transaction between or among the Investor
Group and their Affiliates) at a per share price that is less then
$7.50, if such transaction is effected within 24 months after the
Closing Date, or if effected after such 24 month period at a price
that is less than the highest bid price per share for the preceding
52 week period. If the Company shall in any manner subdivide (by
stock split, stock dividend or otherwise), combine (by reverse stock
split or otherwise), reclassify, recapitalize or take any similar
action with respect to the outstanding shares of common stock, then
effective provision shall be made by resolution of the Board of
Directors with the affirmative votes of a majority of the
Independent Directors to adjust the price referred to in this
Section 9.2 to give effect to any such change.
Section 9.3 Affiliate Transactions. From and after the Closing Date until
the fifth anniversary of the Closing Date, Investor Group shall not
cause the Company or any Subsidiary of the Company to enter into or
permit to exist any transaction, including any purchase, sale, lease
or exchange of property or the rendering of service with any member
of the Investor Group or any of their Affiliates (an "Affiliate
Transaction") unless the terms thereof (a) are fair and no less
favorable to the Company than those that could be obtained in a
comparable arms' length transaction with a person that is not a
member of the Investor Group or any of their Affiliates, (b) if such
Affiliate Transaction involves an amount in excess of $2.0 million,
(i) are set forth in writing and (ii) have been approved by
resolution of the Board of Directors acting with the affirmative
votes of a majority of the Independent Directors and (c) if such
Affiliate Transaction involves an amount in excess of $5.0 million,
the financial terms of which have been determined by a nationally
recognized investment banking, valuation or accounting firm to be
fair, from a financial point of view, to the Company.
Section 9.4 Enforcement. The provisions of this Article 9 and the
provisions of Article 10 as they relate to Article 9 are for the
benefit of the Company's stockholders and shall be enforceable by or
in the name of the Company by any of the Independent Directors.
33
ARTICLE 10
Miscellaneous Provisions
Section 10.1 Payment of Expenses. Except as otherwise provided by Section
8.6, whether or not the Offer and the Investment shall be
consummated, each party hereto shall pay its own expenses incident
to preparing for, entering into and carrying out this Agreement and
the consummation of the Offer and the Investment.
Section 10.2 Modification or Amendment. At any time prior to the Closing
Date, the parties hereto may, by written agreement, make any
modification or amendment of this Agreement approved by their
respective boards of directors. Except as contemplated by Section
2.2, this Agreement and the Exhibits hereto shall not be modified or
amended except pursuant to an instrument in writing executed and
delivered on behalf of each of the parties hereto. Notwithstanding
the foregoing, no amendment, modification, or waiver of any
provision of Article 7 or Article 9 shall be effective as against
the Company or any Indemnified Parties unless authorized by the
Board of Directors acting with the affirmative votes of a majority
of the Independent Directors.
Section 10.3 Waiver of Conditions. The conditions to each of the parties'
obligations to consummate the Offer and the Investment are for the
sole benefit of such party and may be waived by such party by a
written instrument, in whole or in part, to the extent permitted by
applicable law.
Section 10.4 Captions. The Article, Section and paragraph captions herein
are for convenience of reference only, do not constitute part of
this Agreement and shall not be deemed to modify or otherwise affect
any of the provisions hereof.
Section 10.5 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware.
Section 10.6 Notices. Any notice, request, instruction or other document
to be given hereunder by any party to the others shall be in writing
and delivered personally or sent by registered or certified mail,
postage prepaid, if to the Investor Group, addressed to SDI, Inc.,
at 000 Xxxx Xxxxxxx Xxxxxx, Xxxxx 0000, Xxxxxxx, Xxxxxxxx 00000,
Attention: Xxxxxx X. Xxxxxxxxxx (with a copy to Xxxxxx Xxxxxx Zavis,
000 Xxxx Xxxxxx Xxxxxx, Xxxxxxx, Xxxxxxxx 00000, Attention: Xxxxx X.
Xxxxxxx and Xxxxx X. Xxxxxx) and if to the Company, addressed to the
Company at 00 Xxxxxxxxx Xxxxxx, Xxxxx 000, Xxxxxxx, Xxxxxxx 00000,
Attention: Xxxxxxx Xxxxxxx (with a copy to Xxxx, Weiss, Rifkind,
Xxxxxxx & Xxxxxxxx, 0000 Xxxxxx xx Xxxxxxx, Xxx Xxxx, Xxx Xxxx,
00000, Attention: Xxxxxx X. Xxxxxxx and Xxxx X.
34
Xxxxxxxx), or to such other persons or addresses as may be
designated in writing by the party to receive such notice.
Section 10.7 Entire Agreement. This Agreement and its Exhibits and the
Offer Documents constitute the entire agreement, and supersedes all
other prior agreements and understandings, both written and oral,
among the parties, with respect to the subject matter hereof.
Section 10.8 Assignment; Binding Effect. Neither this Agreement, nor any
rights, obligations or interests hereunder, may be assigned by any
party hereto, except with the prior written consent of the other
parties hereto; provided that any Investor may designate, by written
notice to the Company, an Affiliate of such Investor to make its
Investment in lieu of such Investor, in the event of which
designation all references herein to such Investor shall be deemed
references to such Affiliate except that all representations and
warranties made herein with respect to such Investor as of the date
of this Agreement shall be deemed representations and warranties
made with respect to such Affiliate as of the date of such
designation; provided, further, that no such assignment shall
relieve the assigning Investor of any of its obligations hereunder
without the written consent of the Company. Subject to the preceding
sentence, this Agreement shall be binding upon, and shall inure to
the benefit of, the parties hereto and their respective successors
and assigns.
Section 10.9 Counterparts. For the convenience of the parties hereto, this
Agreement may be executed in any number of counterparts, each such
counterpart being deemed to be an original instrument, and all such
counterparts shall together constitute the same agreement.
[signature page to follow]
35
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the duly authorized officers of the parties hereto on the date first written
above.
U.S. FRANCHISE SYSTEMS, INC.
By: /s/ Xxxxxxx X. Xxxxxxx
--------------------------
Name: Xxxxxxx X. Xxxxxxx
Title: Vice President/General Counsel
SDI, INC.
By: /s/ X.X. Xxxxxxxxxx
-----------------------
Name: X.X. Xxxxxxxxxx
Title: Vice President
MERIDIAN ASSOCIATES, L.P.
By: Meridian Investments, Inc.
Its General Partner
By: /s/ X.X. Xxxxxxxxxx
-----------------------
Name: X.X. Xxxxxxxxxx
Title: Vice President
HSA PROPERTIES, INC.
By: /s/ X.X. Xxxxxxxxxx
-----------------------
Name: X.X. Xxxxxxxxxx
Title: Vice President
GLOSSARY OF DEFINED TERMS
"Affiliate" of any particular Person means any other Person, entity or
investment fund controlling, controlled by or under common control with such
particular Person and any partner of such Person which is a partnership.
"Affiliate" with respect to the Investors, HSA Properties, and Meridian, means,
in addition to the foregoing, any and all of the lineal descendants of Xxxxxxxx
X. Xxxxxxxx, deceased, any and all trusts for their benefit or for the benefit
of any of their spouses, and any Person owned or controlled by such lineal
descendants or trusts.
"Applicable Rate" means a fluctuating rate of interest corresponding to a
rate per annum equal to 3.0 percent in excess of the prime rate reported from
time to time in the Wall Street Journal.
"Business Day" shall mean any day other than a Saturday, a Sunday or a day
on which banks are required or permitted to be closed in the State of New York.
"Closing Date" means the date upon which the Investors' purchase of
Preferred Stock occurs.
"COBRA" means the Consolidated Omnibus Budget Reconciliation Act of 1985,
as amended.
"Code" means the Internal Revenue Code of 1986, as amended.
"DGCL" means the General Corporation Law of the State of Delaware.
"Directors' Option Plan" means the U.S. Franchise Systems, Inc. 1996 Stock
Option Plan for Non-Employee Directors.
"Encumbrance" with respect to any property means any mortgage, pledge,
lien, security interest, charge, encumbrance, conditional sale or title
retention agreement, option or other claim affecting such property or its use or
marketability.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Exchange Act" mean the Securities Exchange Act of 1934, as amended.
"Foreign Laws" means the applicable laws and regulations of any foreign
country.
"GAAP" mean generally accepted accounting principles consistently applied
from period to period.
"HSR Act" means the Xxxx Xxxxx Xxxxxx Antitrust Improvements Act of 1976,
as amended, and the federal regulation promulgated thereunder.
2
"Independent Directors " means the persons serving from time to time as
"Independent Directors " under new Section 12.1 of the Company's certificate of
incorporation.
"Investor Group" means, collectively, Meridian, HSA Properties, and the
Investors.
"Material Adverse Effect" with respect to any Person means a material
adverse effect on the assets, financial condition, results of operations, cash
flows, or business prospects of such Person and its Subsidiaries, taken as a
whole; provided, however, that a Material Adverse Effect shall not include (i)
changes in general economic or financial or market conditions, including changes
in the trading price of the Shares, (ii) changes in conditions or circumstances
generally affecting the lodging or franchising industry or (iii) changes
resulting from this Agreement or from the announcement of the transactions
contemplated hereby.
"Person" means an individual, a partnership, a limited liability company,
a corporation, an association, a joint stock company, a trust, a joint venture,
an unincorporated organization and a governmental entity or any department,
agency or political subdivision thereof.
"Plan Affiliate" means each Person with whom the Company constitutes or
has constituted all or part of a controlled group, or which would be treated or
has been treated with the Company as under common control or whose employees
would be treated or have been treated as employed by the Company, under section
414 of the Code or section 4001(b) of ERISA.
"Proprietary Rights" means all (i) patents, patent applications, patent
disclosures and inventions, (ii) trademarks, service marks, trade dress, trade
names and corporate names and registrations and applications for registration
thereof, (iii) copyrights and registrations and applications for registration
thereof, (iv) mask works and registrations and applications for registration
thereof, (v) computer software, data and documentation, (vi) trade secrets and
other confidential information (including, without limitation, ideas, formulas,
compositions, inventions (whether patentable or unpatentable and whether or not
reduced to practice), know-how, manufacturing and production processes and
techniques, research and development information, drawings, specifications,
designs, plans, proposals, technical data, copyrightable works, financial and
marketing plans and customer and supplier lists and information), (vii) other
intellectual property rights, and (viii) copies and tangible embodiments thereof
(in whatever form or medium).
"Restricted Stock " means (i) the 123,805 shares of Class A Common Stock
held by Xxxxxxx Xxxxx, and designated as Restricted Shares under the Amended and
Restated Employee Stock Purchase Agreement between the Company and Xxxxxxx
Xxxxx, entered into as of September 29, 1995, as amended effective October 24,
1996 (the "Leven Stock
3
Purchase Agreement"), (ii) the 233,032 Restricted Shares held by Xxxxxx Xxxxx
originally acquired under the Leven Employee Stock Purchase Agreement, (iii)
589,865 Restricted Shares held by Xxxx Xxxxxxx acquired under the Amended and
Restated Employee Stock Purchase Agreement between the Company and Xxxx X.
Xxxxxxx entered into as of September 29, 1995, as amended effective October 24,
1996 (the "Xxxxxxx Employee Stock Purchase Agreement"), and (iv) 424,615 Shares
that have been reallocated to other members of management or transferred to
members of Xxxxxxx X. Xxxxx'x family.
"SEC" means the United States Securities and Exchange Commission.
"Significant Subsidiary" means any significant subsidiary of the Company
within the meaning of Regulation S-X under the Securities Exchange Act of 1934,
as amended.
"State Laws" mean the applicable laws and regulations of the several
states of the United States of America or any political subdivision thereof.
"Stockholder Litigation" means the complaint filed May 17, 2000 in the
United States District Court for the Northern District of Georgia, Atlanta
Division, Case No. 00- CV-1244, captioned Xxxxxxx X. Xxxxxx on behalf of himself
and all others similarly situated vs. U.S. Franchise Systems, Inc., Xxxxxxx X.
Xxxxx, Xxxx X. Xxxxxxx, and Xxxxxxx Xxxxxxxxx.
"Stock Option Plan" means the Company's Amended and Restated 1996 Stock
Option Plan.
"Subsidiary" means, with respect to any Person, any corporation, limited
liability company, partnership, association or other business entity of which
(i) if a corporation, a majority of the total voting power of shares of stock
entitled (without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustee thereof is at the time owned or
controlled, directly or indirectly, by that Person or one or more of the other
Subsidiaries of that Person or a combination thereof, or (ii) if a limited
liability company, partnership, association or other business entity, a majority
of the membership, partnership or other similar ownership interest thereof is at
the time owned or controlled, directly or indirectly, by any Person or one or
more Subsidiaries of that Person or combination thereof. For purposes hereof, a
Person or Persons shall be deemed to have a majority ownership interest in a
limited liability company, partnership, association or other business entity if
such Person or Persons shall be allocated a majority of partnership, association
or other business entity gains or losses or shall be or control the managing
director or general partner of such partnership, association or other business
entity. For purposes of this Agreement, Best Reservation Corporation, an
Illinois not-for-profit corporation, Microtel Reservations and Advertising Fund,
Inc., a Georgia not-for-profit corporation and Hawthorn Reservations and
Advertising Fund, Inc., a Georgia not-for-profit corporation, shall not be
deemed to be Subsidiaries of the Company or any of its Subsidiaries.
EXHIBIT A
LEVEN AGREEMENT
This Agreement is made as of June __, 2000, between Meridian Associates,
L.P., an Illinois limited partnership ("Meridian"), and Xxxxxxx X. Xxxxx and
Xxxxxx Xxxxx (the "Stockholders").
RECITALS
SDI, Inc., a Nevada corporation, HSA Properties, Inc., a Delaware
corporation and Meridian have entered into a Recapitalization Agreement dated as
of the date hereof with US Franchise Systems, Inc., a Delaware corporation (the
"Company"), contemplating, among other things, an investment by the Investors in
new Preferred Stock of the Company and an offer by the Company to purchase
shares of its Common Stock. The Stockholders are the record and beneficial
owners of an aggregate of 1,555,303 Shares of Common Stock of the Company (the
"Shares"). The Investor Group has requested that the Stockholders enter into
this Agreement simultaneously with the execution and delivery of the
Recapitalization Agreement.
AGREEMENT
For good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereby agree as follows:
Section 1. Defined Terms. Capitalized words used in this Agreement as
defined terms shall have the meanings given to them in the Recapitalization
Agreement, unless otherwise defined herein.
Section 2. Standstill.
(a) The Stockholders agree, solely in their capacity as stockholders
of the Company, that for a period of 90 days subject to Section 4, the
Stockholders shall not sell or otherwise dispose of or exchange the Shares
for another class of securities except pursuant to a Superior Proposal,
solicit or enter into discussions with anyone else regarding an offer to
purchase or acquire their Shares (or enter into any agreement in advance
to sell or exchange their Shares if such an offer is made), or vote their
Shares in favor of a merger, consolidation, asset sale or similar
transaction relating to the Company, or provide information or take any
other action or make any statement that
would reasonably be expected to adversely affect the transactions
contemplated by the Recapitalization Agreement. The Stockholders will
promptly advise Meridian of any proposals or discussions known to the
Stockholders regarding any Acquisition Proposal or any attempt to acquire
any of their Shares.
(b) It is understood and agreed that the undertaking of the
Stockholders in Section 2(a) applies to the Stockholders solely in their
capacity as stockholders of the Company and shall not apply to actions,
judgments, or decisions of Xx. Xxxxx in his capacity as a director or
officer of the Company as may be necessary to discharge his fiduciary
duties as a director of the Company.
Section 3. Voting of Shares.
At any meeting of stockholders of the Company called for this purpose, the
Stockholders shall vote their Shares and any other shares of Common Stock of the
Company as to which the Stockholders or either of them have the power to vote,
in person or by proxy, in favor of any resolution authorizing the issuance of
the Preferred Stock and the Class A Common Stock issuable upon conversion of the
B Preferred, the Charter Amendments, and any other matter necessary or advisable
in order to consummate the transactions contemplated by the Recapitalization
Agreement.
Section 4. Termination
The undertakings of the Stockholders in Section 2(a) and Section 3 shall
terminate if: (a) the Company's financial adviser advises the board of directors
of the Company or its special committee that it will be unable to render an
opinion, within five days after the date hereof and prior to the Offer, to the
effect that the transactions contemplated by the Recapitalization Agreement are
fair to stockholders of the Company from a financial point of view, unless the
failure to do so results from the failure of the financial adviser to act in
good faith; or (b) the Offer is terminated or withdrawn pursuant to Section
5.3(c) of the Recapitalization Agreement or the Recapitalization Agreement is
earlier terminated in accordance with Section 8.4 thereof.
Section 5. Agreement Regarding Tender Offer
The Stockholders shall not tender for purchase pursuant to the Offer more
of their Shares than will result in more than fifty percent (50%) of their
Shares being acquired by the Company pursuant to the Offer. If Shares tendered
by the Stockholders are subject to prorationing in the Offer, the Stockholders
will request that the Company purchase the Stockholders' Class A Common Stock
before purchasing any Class B Common Stock.
Section 6. Amendment and Waiver. Except as otherwise provided herein, no
modification, amendment or waiver of any provision of this Agreement shall be
effective against Meridian or the Stockholders unless such modification,
amendment or waiver is approved in
-2-
writing signed by the party to be bound. The failure of any party to enforce any
of the provi sions of this Agreement shall in no way be construed as a waiver of
such provisions and shall not affect the right of such party thereafter to
enforce each and every provision of this Agreement in accordance with its terms.
Section 7. Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provi sion of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision or any other jurisdiction, but this Agreement shall be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
Section 8. Entire Agreement. Except as otherwise expressly set forth
herein, this document, together with all other agreements to be executed and
delivered by Xx. Xxxxx in connection with the transactions contemplated by the
Recapitalization Agreement, embodies the complete agreement and understanding
among the parties hereto with respect to the subject matter hereof and
supersedes and preempts any prior understandings, agreements or representations
by or among the parties, written or oral, which may have related to the subject
matter hereof in any way.
Section 9. Successors and Assigns. Except as otherwise provided herein,
this Agreement shall bind and inure to the benefit of and be enforceable by
Meridian and the Stockholders and any subsequent holders of the Shares and the
respective successors and assigns of each of them, except that this Agreement
may not be assigned without the prior written consent of the Company, which is
an intended third party beneficiary of this provision.
Section 10. Descriptive Headings. The descriptive headings of this
Agreement are inserted for convenience only and do not constitute a part of this
Agreement.
Section 11. Remedies. Meridian shall be entitled to enforce its rights
under this Agreement specifically to recover damages by reason of any breach of
any provision of this Agreement and to exercise all other rights existing in its
favor. The parties hereto agree and acknowledge that money damages may not be an
adequate remedy for any breach of the provisions of this Agreement and that
Meridian may in its sole discretion apply to any court of law or equity of
competent jurisdiction for specific performance and/or injunctive relief
(without posting a bond or other security) in order to enforce or prevent any
violation of the provisions of this Agreement.
Section 12. Notices. Any notice provided for in this Agreement shall be in
writing and shall be either personally delivered, or mailed first class mail
(postage prepaid) or sent by reputable overnight courier service (charges
prepaid) to any other recipient at the address indicated on the signature pages
hereof, or at such address or to the attention of such other Person as the
recipient party has specified by prior written notice to the sending party.
Notices
-3-
will be deemed to have been given hereunder when delivered personally, three
days after deposit in the U.S. mail and one day after deposit with a reputable
overnight courier service.
Section 13. Governing Law. All questions concerning the construction,
validity and interpretation of this Agreement shall be governed by the internal
law, and not the law of conflicts, of Delaware.
Section 14. Counterparts. This Agreement may be executed in separate
counterparts each of which shall be an original and all of which taken together
shall constitute one and the same agreement.
[Remainderof page intentionally left blank; signature page
follows.]
-4-
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
day and year first written above.
MERIDIAN ASSOCIATES, L.P.
By: Meridian Investments, Inc.
By:_______________________________
Name: ____________________________
Its: _______________________________
000 Xxxx Xxxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxxxxx 00000
Attention: Xxxxxx X. Xxxxxxxxxx
Xxxxxxx X. Xxxxx
------------------------------------
Xxxxxx X. Xxxxx
0 Xxxxxx Xxxxx Xxxx
Xxxxxxx, Xxxxxxx 00000
EXHIBIT B
TERMINATION AGREEMENT
This Termination Agreement (this "Agreement") is made and entered into as
of June ___, 2000 by and among Meridian Associates, L.P. ("Meridian"), HSA
Properties, Inc., a Delaware corporation ("HSA Properties"), Xxxxxxx X. Xxxxx
("Leven"), Xxxx X. Xxxxxxx ("Xxxxxxx") and U.S. Franchise Systems, Inc., a
Delaware corporation (the "Company").
RECITALS
Reference is made to that certain Shareholders' Agreement, dated as of
March 12, 1998, and Amendment No. 1 thereto dated March 10, 1999, by and among
Meridian, as successor in interest to Hawthorn Suites Associates, an Illinois
joint venture, HSA Properties, Leven, Xxxxxxx and the Company (as amended, the
"Shareholders' Agreement").
The Company, SDI, Inc., a Nevada corporation, HSA Properties, and Meridian
are parties to a Recapitalization Agreement dated as of June ___, 2000 (the
"Recapitalization Agreement"). In connection with the consummation of the
transactions contemplated by the Recapitalization Agreement, the parties hereto,
both directly and indirectly for themselves and their affiliates, desire to
terminate the Shareholders' Agreement in total, effective as herein provided.
AGREEMENT
For good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereby agree as follows:
1. Capitalized words used in this Agreement as defined terms shall have
the meanings given to them in the Recapitalization Agreement, unless otherwise
defined herein.
2. Effective as of the Closing Date, the Shareholders' Agreement is hereby
terminated in its entirety, and thereafter shall be of no further force or
effect. On or before the Closing Date, the parties hereto (other than Xxxxxxx)
will execute and deliver the Stockholders Agreement in the form of Exhibit J to
the Recapitalization Agreement.
3. Notwithstanding the foregoing, this Agreement shall cease to be
effective if: (a) the Offer shall have expired in accordance with its terms
without the acceptance for purchase of at least 3,000,000 Shares pursuant
thereto, (b) the Offer shall have been terminated or
withdrawn for any reason (other than a breach by Xxxxxxx of any of his
obligations to the Company and/or the Investor Group), (c) the Recapitalization
is earlier terminated for any reason (other than a breach by Xxxxxxx of any of
his obligations to the Company and/or the Investor Group) in accordance with
Article 8 thereof or otherwise, (d) the Offer shall have been amended or
otherwise modified in any material respect (other than the extension of the time
for tenders of Shares), including, without limitation, to reduce the number of
Shares which the Company is offering to purchase or the price at which the
Company will purchase Shares pursuant thereto, or (e) the Restricted Stock shall
not have fully vested (and no longer be subject to forfeiture) immediately
before the Closing Date (but subject to the Closing).
4. This Agreement may be executed in any number of counterparts, each of
which shall be considered to be an original and all of which together shall
constitute one and the same instrument.
IN WITNESS WHEREOF the parties have executed this Agreement as of the date
first written above.
U.S. FRANCHISE SYSTEMS, INC.
By:
Title:
MERIDIAN ASSOCIATES, L.P.
By: Meridian Investments, Inc.
Its: General Partner
By:
Title:
HSA PROPERTIES, INC.
By:
Title:
Xxxxxxx X. Xxxxx
Xxxx X. Xxxxxxx
EXHIBIT C
SUMMARY OF TENDER OFFER
Number of Shares to be Up to 8,666,666, but not less than 3,000,000
Purchased Shares of Common Stock of the Company (the
"Shares")
Purchase Price $7.50 per Share (the "Purchase Price"),
net to the stockholder tendering in cash.
How to Tender Shares To validly tender shares the (1) certificates
for the tendered Shares, or confirmation
receipt of such Shares, together with the
properly completed and duly executed letter of
transmittal, or manually signed facsimile, with
any required signature guarantees, must be
received by 5:00 p.m., New York Time on the
expiration date by the depository; or (2) the
tendering holder must comply with the
guaranteed delivery procedure which requires
(a) tender be made through an eligible
institution; (b) depository receives on or
prior to expiration date a properly completed
and executed notice of guaranteed delivery
including signature guarantee by an eligible
institution; and (c) certificates of all
tendered Shares in proper form for transfer and
any required signature guarantees required by
the letter of transmittal are received by the
depository within 3 NASDAQ trading days after
depository receives such notice of guaranteed
delivery.
Brokerage Commissions Tendering stockholders who hold Shares in their
own name and who tender their Shares directly
to the depository will not be obligated to pay
brokerage commissions. Stockholders holding
Shares through brokers or banks are urged to
consult the brokers or banks to determine
whether the transaction costs are applicable if
stockholders tender Shares through the brokers
or banks and not directly to the depository.
Stock Transfer Tax None, if payment is made to the registered
holder.
Expiration and Proration Dates ________, 2000 at 5:00 p.m. New York Time,
unless extended by the Company.
Payment Date As soon as practicable after the expiration
date.
Conditions to the Offer (cont'd)
Position of the Company and its Subject to Section 5.3 of the Recapitalization
Board of Directors Agreement, the Board will recommend acceptance
of the Offer for those stockholders who wish to
receive cash for their Shares.
Withdrawal Rights Tendered Shares may be withdrawn at any time
until the expiration date.
Proration In the event more than 8,666,666 Shares are
validly tendered and not withdrawn, the Company
will accept for payment, and thereby purchase
Shares, on a pro rata basis. The Offer shall
include a right for stockholders who tender
both Class A Common Stock and Class B Common
Stock to indicate which Shares are to be
accepted for payment first in the event of
proration.
2
Conditions to the Offer (cont'd)
Conditions to the Offer The Offer is subject to the following
conditions:
(1) minimum number of Shares tendered must be
3,000,000;
(2) Receipt of Stockholder Approvals regarding
the (a) issuance of Series A Preferred
Stock, Series B Preferred Stock and the
Class A Common Stock issuable upon the
conversion/ exchange of the Series B
Preferred Stock, and (b) the Charter
Amendments;
(3) Regulatory Clearances, i.e., HSR, blue sky
laws, etc.
(4) The Investors shall not have breached in
any material respect any of their covenants
or agreements contained in the
Recaptialization Agreement, nor shall any
representation or warranty of the Investors
in the Recapitalization Agreement shall
have been untrue as of the date of the
Recapitalization Agreement or as of the
date of the acceptance for payment of the
Shares tendered pursuant to the Offer,
which breach or breaches, in the aggregate,
would have a material adverse effect on the
Company; and
(5) All conditions to the Investors' obligation
to purchase the Preferred Stock shall have
been fulfilled or waived; and
(6) In addition, the Company may withdraw the
Offer and will not be required to accept
for purchase and pay for Shares if any of
the following occur:
(a) there shall have occurred (i) any
general suspension of trading in securities
in, or limitation of prices for, securities
on the New York Stock Exchange, Inc., or
the NASDAQ Stock
3
Conditions to the Offer (cont'd)
Market (ii) a declaration of a general
banking moratorium or any suspension of
payments in respect of banks in the United
States; or (iii) a declaration of war by
the Congress of the United States; or in
the case of any of the foregoing existing
at the time of the commencement of the
Offer, a material acceleration or worsening
thereof; and
(b) the Company shall have publically
withdrawn, modified or amended in any
material respect its recommendation of
acceptance of the Offer; and
(c) there shall have been any statute,
rule, regulation, judgment, order, decree
or injunction, promulgated, entered,
enforced, enacted, issued or deemed
applicable to the Offer or related
transactions by or before any government or
governmental authority or agency, domestic
or foreign that directly or indirectly (i)
prohibits, or imposes any material
limitations on, the Investors' ownership or
operation of all or a material portion of
the Company's business or assets or (ii)
prohibits, or makes illegal the acceptance
for payment, purchase or payment for Shares
or the consummation of the Offer or related
transactions; and
(d) the Recapitalization Agreement shall
have been terminated in accordance with its
terms.
4
EXHIBIT X
XXXXXXX AGREEMENT
This Agreement is made as of June ___, 2000, between Meridian Associates,
L.P., an Illinois limited partnership ("Meridian"), and Xxxx X. Xxxxxxx (the
"Stockholder").
RECITALS
SDI, Inc., a Nevada corporation, HSA Properties, Inc. a Delaware
corporation, and Meridian, have entered into a Recapitalization Agreement dated
as of June ___, 2000 (the "Recapitalization Agreement"), with U.S. Franchise
Systems, Inc., a Delaware corporation (the "Company"), contemplating, among
other things, an investment by the Investors in new Preferred Stock of the
Company and an offer by the Company to purchase shares of its Common Stock. The
Stockholder is the record and beneficial owner of 2,099,318 Shares of Common
Stock of the Company (the "Stockholder Shares"). The Investor Group has
requested that the Stockholder enter into this Agreement simultaneously with the
execution and delivery of the Recapitalization Agreement.
AGREEMENT
For good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereby agree as follows:
Section 1. Defined Terms. Capitalized words used in this Agreement as
defined terms shall have the meanings given to them in the Recapitalization
Agreement, unless otherwise defined herein.
Section 2. Termination. Notwithstanding any of the provisions herein, the
Stockholder's obligations stated in this Agreement shall cease to be effective
if (a) the Offer shall have expired in accordance with its terms without the
acceptance for purchase of at least 3,000,000 Shares pursuant thereto, (b) the
Offer shall have been terminated or withdrawn for any reason (other than a
breach by the Stockholder of any of his obligations to the Company and/or the
Investor Group), (c) the Recapitalization Agreement is earlier terminated for
any reason (other than a breach by the Stockholder of any of his obligations to
the Company and/or the Investor Group) in accordance with Section 8.4 thereof or
otherwise, (d) the Offer shall have been amended or otherwise modified in any
material respect (other than the extension of time for tenders of Shares),
including, without limitation, to reduce the number of Shares which the Company
is offering to purchase or the price at which the Company will purchase Shares
pursuant thereto, or (e) the Restricted Stock shall not have fully vested (and
no longer be subject to forfeiture) immediately before the Closing Date (but
subject to the Closing).
Section 3. Agreement Regarding Tender Offer. The Stockholder shall, prior
to the expiration date of the Offer, duly tender all of his Stockholder Shares
to the Company for purchase pursuant to the Offer and shall not withdraw such
Stockholder Shares.
Section 4. Voting Shares. At any meeting of stockholders of the Company
called for this purpose, the Stockholder shall vote his Stockholder Shares and
any other shares of Common Stock of the Company as to which the Stockholder has
the power to vote, in person or by proxy, in favor of any resolution
authorizing, in accordance with the Recapitalization Agreement, the issuance of
the Preferred Stock and the Class A Common Stock issuable upon conversion of the
B Preferred, the Charter Amendments, and any other action necessary or advisable
in order to consummate the transactions contemplated by the Recapitalization
Agreement.
Section 5. Agreement to Convert. If the Offer is consummated in accordance
with its terms and the Company purchases any Shares but does not purchase all of
the Stockholder's Shares, the Stockholder will take all actions required to
exercise his right to convert his Shares that represent Class B Common Stock
into Shares that represent Class A Common Stock, effective on or before the
first Business Day after the Closing Date.
Section 6. Termination of Other Agreements.
(a) The Stockholder shall take such actions and execute and deliver
such instruments as Meridian may deem reasonably necessary and appropriate
to terminate the Registration Rights Agreement among the Company, Alpine
Hospitality Equities LLC, Leven and Xxxxxxx dated April 28, 1998 (the
"Alpine Registration Rights Agreement") and the Registration and Tag-Along
Rights Agreement among Sextant Trading LLC, Xxxxxx-Xxxxx Real Estate
Opportunity Fund, L.P., Xxxxxx-Xxxxx Real Estate Opportunity Fund II,
L.P., Xxxxxx-Xxxxx Capital Real Estate Opportunity Fund, L.P., the
Company, Leven and Xxxxxxx dated March, 1998 (the "Sextant/Xxxxxx-Xxxxx
Agreement") and/or the Stockholder's rights under those agreements,
effective as of the Closing Date.
(b) The Stockholder shall execute and deliver a Special Durable
Power of Attorney as of the date hereof (the "Power of Attorney"),
pursuant to which Power of Attorney the Stockholder shall irrevocably
appoint Xxxxxxx X. Xxxxx as his true lawful attorney-in-fact to execute
and deliver in the name and on behalf of the Stockholder (i) the documents
required to be executed and delivered in order to terminate the Alpine
Registration Rights Agreement and for the rights of the Stockholder
thereunder, (ii) the documents required to be executed and delivered in
order to terminate the Sextant/Xxxxxx-Xxxxx Agreement and for the rights
of the Stockholder thereunder and (iii) any other documents required to be
executed in connection with the matters described in the preceding clauses
(i) and (ii).
2
Section 7. Amendment and Waiver. Except as otherwise provided herein, no
modification, amendment or waiver of any provision of this Agreement shall be
effective against Meridian or the Stockholder unless such modification,
amendment or waiver is approved in writing signed by the party to be bound. The
failure of any party to enforce any of the provisions of this Agreement shall in
no way be construed as a waiver of such provisions and shall not affect the
right of such party thereafter to enforce each and every provision of this
Agreement in accordance with its terms.
Section 8. Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision or any other jurisdiction, but this Agreement shall be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
Section 9. Entire Agreement. Except as otherwise expressly set forth
herein, this document together with the agreements dated the date hereof to
which the Stockholder is a party relating to the transactions contemplated by
the Recapitalization Agreement shall serve as the entire agreement of the
parties hereto concerning the subject matter of this Agreement and supersedes
and preempts any prior understandings, agreements or representations by or among
the parties, written or oral, which may have related to the subject matter
hereof in any way.
Section 10. Successors and Assigns. Except as otherwise provided herein,
this Agreement shall bind and inure to the benefit of and be enforceable by
Meridian and the Stockholder and any subsequent holders of the Shares and the
respective successors and assigns of each of them.
Section 11. Descriptive Headings. The descriptive headings of this
Agreement are inserted for convenience only and do not constitute a part of this
Agreement.
Section 12. Remedies. Each of the parties hereto shall be entitled to
enforce its or his rights under this Agreement specifically to recover damages
by reason of any breach of any provision of this Agreement and to exercise all
other rights existing in its or his favor. The parties hereto agree and
acknowledge that money damages may not be an adequate remedy for any breach of
the provisions of this Agreement and that each party may in its or his sole
discretion apply to any court of law or equity of competent jurisdiction for
specific performance and/or injunctive relief (without posting a bond or other
security) in order to enforce or prevent any violation of the provisions of this
Agreement.
Section 13. Notices. Any notice provided for in this Agreement shall be in
writing and shall be either personally delivered, or mailed first class
certified mail (postage prepaid and return receipt requested) or sent by
reputable overnight courier service (charges prepaid) to any other recipient at
the address indicated on the signature pages hereof, or at such address or to
3
the attention of such other Person as the recipient party has specified by prior
written notice to the sending party. Notices will be deemed to have been given
hereunder when delivered personally, when received if sent by U.S. mail and one
day after deposit with a reputable overnight courier service.
Section 14. Governing Law. All questions concerning the construction,
validity and interpretation of this Agreement shall be governed by the internal
law, and not the law of conflicts, of Delaware.
Section 15. Counterparts. This Agreement may be executed in separate
counterparts each of which shall be an original and all of which taken together
shall constitute one and the same agreement.
[Remainderof page intentionally left blank; signature page
follows.]
4
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
day and year first written above.
MERIDIAN ASSOCIATES, L.P.
By: Meridian Investments Inc.
By:_______________________________
Name: ____________________________
Its: _______________________________
000 Xxxx Xxxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxxxxx 00000
Attention: Xxxxxx X. Xxxxxxxxxx
Xxxx Xxxxxxx
Address:
00 00xx Xxxxxx, #0000
Xxxxxxx, Xxxxxxx 00000
EXHIBIT E
SEPARATION AGREEMENT
The parties to this Agreement (the "Agreement"), entered into this ____
day of June 2000 are Xxxx X. Xxxxxxx ("Employee") and U.S. Franchise Systems,
Inc. (the "Company").
The Company, SDI, Inc., HSA Properties, Inc. and Meridian Associates,
L.P., have entered into a Recapitalization Agreement dated as of June ___, 2000
(the "Recapitalization Agreement"), contemplating, among other things, an
investment by the Investors in new Preferred Stock of the Company and an offer
by the Company to purchase shares of its Common Stock.
Employee and the Company are parties to (a) the Employment Agreement made
as of October 1, 1995, as amended by the Amendment to Employment Agreement made
as of January 15, 1997 (as amended, the "Employment Agreement") and (b) an
Indemnification Agreement dated as of November ___, 1996 (the "Indemnification
Agreement"). Subject to the occurrence of the Closing Date, the parties have
agreed that Employee's employment with the Company shall end on the terms and
conditions set forth herein.
In consideration of the promises, mutual covenants and agreements
contained in this Agreement, Employee and the Company agree as follows:
1. Capitalized words used in this Agreement as defined terms shall have
the meanings given to them in the Recapitalization Agreement, unless otherwise
defined herein.
2. Notwithstanding any of the provisions contained herein, the Employee's
obligations and resignations and releases in favor of the Company stated in this
Agreement, and the Company's obligations and releases in favor of Employee as
stated in this Agreement, shall cease to be effective if: (a) the Offer shall
have expired in accordance with its terms without the acceptance for purchase of
at least 3,000,000 Shares, (b) the Offer shall have been terminated or withdrawn
for any reason (other than a breach of any of Employee's obligations to the
Company and/or the Investor Group), (c) the Recapitalization Agreement is
earlier terminated for any reason other than a breach of any of Employee's
obligations to the Company and/or the Investor Group) in accordance with Article
8 thereof or otherwise, (d) the Offer shall have been amended or otherwise
modified in any material respect (other than the extension of the time for
tenders of Shares), including, without limitation, to reduce the number of
Shares which the Company is offering to purchase or the price at which the
Company will purchase Shares pursuant thereto, or (e) the Restricted Stock shall
not have fully vested (and no longer be subject to forfeiture) immediately
before the Closing Date (but subject to the Closing).
3. Employee's employment pursuant to the Employment Agreement shall end
effective as of the close of business sixty (60) days after the Closing Date
(the "Ending Date"). From and after the Closing Date, Employee shall have no
further authority to act as an officer or agent of the Company or otherwise bind
the Company with respect to any obligation or undertaking, except to the extent
expressly authorized by the Company's Chief Executive Officer after the Closing
Date. Employee shall resign from any and all offices and positions he holds with
the Company effective as of the Ending Date (except with respect to his position
as a director, which resignation shall be effective as of the Closing Date). The
Employment Agreement shall continue in effect through the Ending Date and
Employee shall be entitled through such date to all salary, bonuses, expense
reimbursement, property, medical insurance, dental insurance, life insurance,
and other employment related benefits (other than severance, holiday pay,
vacation pay, stock options and other compensation and benefits on or after the
Ending Date by reason of the termination of Employee's employment or other
events) provided for in the Employment Agreement through the Ending Date. If
Employee resigns from the Company for any reason on or after the Closing Date
and prior to the Ending Date, he shall nevertheless be entitled to receive all
of the payments and other rights provided for on Schedule A (except that the
payments provided in the preceding sentence shall be through the effective date
of his resignation). For the purposes of calculating any bonus that accrues
based on the number of franchises signed during any calendar quarter, Employee
shall be entitled to the pro rata portion, calculated on a daily basis, based on
the amount of the bonus the Employee would be entitled to if such Employee had
remained employed by the Company for the full calendar quarter.
4. After the Ending Date, the Company shall provide Employee with such
compensation, payments and benefits as are described on Schedule A, incorporated
by reference herein. Employee acknowledges and agrees that the payments and
benefits specified in this Agreement are in full and complete satisfaction of
any and all obligations of the Company to Employee on and after the Ending Date,
for salary, severance pay, bonuses, expense reimbursement, property, holiday
pay, vacation pay, stock options, medical insurance, dental insurance, life
insurance, and other employment - related benefits to which Employee might
otherwise be entitled. Employee acknowledges that a portion of the payments and
benefits may be subject to any and all applicable withholding and other
employment taxes.
5. Notwithstanding any other provision of this Agreement, Employee, and
his beneficiaries and dependents as applicable, shall retain his entitlement to:
(a) any and all benefits to which he is entitled under the terms of any plan
maintained or contributed to by the Company which is qualified under Section
401(a) of the Internal Revenue Code of 1986, as amended, (b) any continuation of
health or medical coverage at the Employee's, beneficiary's or dependent's
expense, to the extent required by the relevant provisions of the Consolidated
Omnibus Budget Reconciliation Act of 1985, (c) the rights to which Employee is
entitled as of the Ending Date under any vested options not yet exercised under
the Company's Amended and Restated 1996 Stock Option Plan or with respect to any
Shares then owned by Employee, and (d) the indemnification rights (and rights to
maintenance of directors' and officers' insurance) to which Employee is entitled
as a director or an officer of the Company or its Affiliates with respect to his
services as such prior to the Ending Date to the fullest extent provided in the
Company's certificate of incorporation, bylaws, Article 7 of the
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Recapitalization Agreement, the Indemnification Agreement, or Section 10 of the
Employment Agreement, each as in effect as of the date hereof. The Company
confirms that the rights of Employee under clause (d) of this Section 5 shall
extend to the Shareholder Litigation and any related lawsuits or similar
litigation in accordance with the terms and conditions of such rights.
6. Employee agrees to turn over to the Company on the Ending Date all
confidential information, materials and tangible personal property of the
Company, which are used in or pertain to the business of the Company, in each
case that are within his possession or control on that date, it being understood
that Employee shall not be precluded from retaining copies of information or
materials that reasonably relate to Employee's compensation and benefits and
other contractual rights or that Employee may reasonably require for personal
tax purposes or for litigation purposes.
7. After the Closing Date and until the Ending Date, Employee shall(a)
continue to serve the Company in pursuit of an orderly transition of his duties,
(b) make himself available, upon the request of the Company, to render services
to the Company relevant to the transition of responsibilities of Employee to
other employees of the Company and (c) receive compensation as provided in this
Agreement.
8. EFFECTIVE ON THE CLOSING DATE, EMPLOYEE HEREBY RELEASES, FOREVER
DISCHARGES AND COVENANTS NOT TO XXX THE COMPANY, ANY PREDECESSOR OR SUCCESSOR OF
THE COMPANY, AND ANY AND ALL OF THEIR RESPECTIVE PAST OR PRESENT OFFICERS,
DIRECTORS, SHAREHOLDERS, AGENTS, AND EMPLOYEES (ALL COLLECTIVELY, THE "RELEASED
PARTIES"), FROM ANY AND ALL MANNER OF ACTIONS, CAUSES OF ACTION, DEMANDS,
CLAIMS, AGREEMENTS, PROMISES, DEBTS, LAWSUITS, LIABILITIES, RIGHTS,
CONTROVERSIES, COSTS, EXPENSES AND FEES WHATEVER WITH RESPECT TO THE EMPLOYMENT
AGREEMENT (COLLECTIVELY, "EMPLOYEE CLAIMS"), WHETHER ARISING IN CONTRACT, TORT
OR ANY OTHER THEORY OF ACTION, WHETHER ARISING IN LAW OR EQUITY, WHETHER KNOWN
OR UNKNOWN, XXXXXX OR INCHOATE, MATURED OR UNMATURED, CONTINGENT OR FIXED,
LIQUIDATED OR UNLIQUIDATED, ACCRUED OR UNACCRUED, ASSERTED OR UNASSERTED, FROM
THE BEGINNING OF TIME UP TO THE CLOSING DATE, EXCEPT FOR, IN EACH CASE, THOSE
OBLIGATIONS OF THE COMPANY (a) CREATED BY OR ARISING OUT OF THIS AGREEMENT, OR
TO THE EXTENT ARISING ON OR AFTER THE CLOSING DATE AND PRIOR TO THE ENDING DATE,
CREATED OR ARISING OUT OF THE EMPLOYMENT AGREEMENT (OTHER THAN RIGHTS TO
COMPENSATION AND BENEFITS ON OR AFTER THE ENDING DATE BY REASON OF THE
TERMINATION OF EMPLOYEE'S EMPLOYMENT OR OTHER EVENTS, WHICH EMPLOYEE IS
RELEASING), (b) TO WHICH EMPLOYEE HAS RETAINED ENTITLEMENT UNDER SECTION 5 OF
THIS AGREEMENT, CREATED BY OR ARISING OUT OF SECTION 10 OF THE EMPLOYMENT
AGREEMENT OR THE INDEMNIFICATION AGREEMENT OR (c) FOR SALARY AND BENEFITS
ACCRUED UNDER THE EMPLOYMENT AGREEMENT AS OF THE TERMINATION DATE (OTHER THAN
RIGHTS TO COMPENSATION AND BENEFITS ON OR AFTER THE ENDING DATE BY REASON OF THE
TERMINATION
-3-
OF EMPLOYEE'S EMPLOYMENT OR OTHER EVENTS, WHICH EMPLOYEE IS RELEASING). EMPLOYEE
EXPRESSLY WAIVES THE BENEFIT OF ANY STATUTE OR RULE OF LAW WHICH, IF APPLIED TO
THIS AGREEMENT, WOULD OTHERWISE PRECLUDE FROM ITS BINDING EFFECT ANY EMPLOYEE
CLAIM AGAINST ANY RELEASED PARTY NOT NOW KNOWN BY EMPLOYEE TO EXIST. EXCEPT AS
NECESSARY FOR EMPLOYEE TO ENFORCE THIS AGREEMENT, THIS AGREEMENT IS INTENDED TO
BE A SPECIAL RELEASE AND A COVENANT NOT TO XXX THAT EXTINGUISHES ALL EMPLOYEE
CLAIMS AND PRECLUDES ANY ATTEMPT BY EMPLOYEE TO INITIATE ANY LITIGATION AGAINST
ANY RELEASED PARTY BASED ON EMPLOYEES CLAIMS. IF EMPLOYEE COMMENCES OR CONTINUES
ANY EMPLOYEE CLAIM IN VIOLATION OF THIS AGREEMENT, THE RELEASED PARTY SHALL BE
ENTITLED TO ASSERT THIS AGREEMENT AS A BAR TO SUCH ACTION OR PROCEEDING AND
SHALL BE ENTITLED TO RECOVER ITS ATTORNEYS' FEES AND COSTS OF LITIGATION FROM
THE PARTY COMMENCING OR CONTINUING THE EMPLOYEE CLAIM, INCLUDING REASONABLE
COMPENSATION FOR THE SERVICES OF THE INTERNAL PERSONNEL OF THE RELEASED PARTY.
EMPLOYEE IS NOT, HOWEVER, WAIVING ANY RIGHT OR CLAIM THAT MAY ARISE AFTER THE
DATE THIS AGREEMENT IS EXECUTED.
9. EFFECTIVE ON THE CLOSING DATE, THE COMPANY HEREBY RELEASES, FOREVER
DISCHARGES AND COVENANTS NOT TO XXX EMPLOYEE, FROM ANY AND ALL MANNER OF
ACTIONS, CAUSES OF ACTION, DEMANDS, CLAIMS, AGREEMENTS, PROMISES, DEBTS,
LAWSUITS, LIABILITIES, RIGHTS, DUES, CONTROVERSIES, COSTS, EXPENSES AND FEES
WHATEVER, WITH RESPECT TO THE EMPLOYMENT AGREEMENT OR EMPLOYEE'S SERVICE AS AN
EMPLOYEE, DIRECTOR OR OFFICER OF THE COMPANY (COLLECTIVELY, "COMPANY CLAIMS"),
WHETHER ARISING IN CONTRACT, TORT OR ANY OTHER THEORY OF ACTION, WHETHER ARISING
IN LAW OR EQUITY, WHETHER KNOWN OR UNKNOWN, XXXXXX OR INCHOATE, MATURED OR
UNMATURED, CONTINGENT OR FIXED, LIQUIDATED OR UNLIQUIDATED, ACCRUED OR
UNACCRUED, ASSERTED OR UNASSERTED, FROM THE BEGINNING OF TIME UP TO THE CLOSING
DATE, EXCEPT FOR, IN EACH CASE, THOSE OBLIGATIONS OF EMPLOYEE (a) CREATED BY OR
ARISING OUT OF THIS AGREEMENT OR TO THE EXTENT ARISING ON OR PRIOR TO THE ENDING
DATE, CREATED OR ARISING OUT OF THE EMPLOYMENT AGREEMENT, (b) THOSE OBLIGATIONS
ARISING UNDER SECTION 7 OF THE EMPLOYMENT AGREEMENT AND SECTION 9 OF THE
EMPLOYMENT AGREEMENT TO THE EXTENT IT RELATES TO SECTION 7 OF THE EMPLOYMENT
AGREEMENT, (c) ANY ACT OR OMISSION OF EMPLOYEE INVOLVING FRAUD, BREACH OF DUTY
OF LOYALTY, OR ANY OTHER MATTER FOR WHICH HE MAY BE HELD LIABLE TO STOCKHOLDERS
OF THE COMPANY OR LIABLE TO THE COMPANY IN A STOCKHOLDER DERIVATIVE CLAIM, (d)
ANY ACT OR OMISSION NOT TAKEN OR MADE IN GOOD FAITH AND IN A MANNER EMPLOYEE
REASONABLY BELIEVES TO BE IN OR NOT OPPOSED TO THE BEST INTERESTS OF THE
COMPANY, OR (e) ANY CLAIM THE RELEASE OF WHICH BY THE COMPANY WOULD IMPAIR THE
RIGHTS OF THE COMPANY OR ITS DIRECTORS AND OFFICERS UNDER THE COMPANY'S
DIRECTORS' AND
-4-
OFFICERS' INSURANCE. THE COMPANY EXPRESSLY WAIVES THE EMPLOYEE COVENANT NOT TO
COMPETE IN SECTION 8(b) (1) OF THE EMPLOYMENT AGREEMENT. THE COMPANY EXPRESSLY
WAIVES THE BENEFIT OF ANY STATUTE OR RULE OF LAW WHICH, IF APPLIED TO THIS
AGREEMENT, WOULD OTHERWISE PRECLUDE FROM ITS BINDING EFFECT ANY COMPANY CLAIM
AGAINST EMPLOYEE NOT NOW KNOWN BY THE COMPANY TO EXIST. EXCEPT AS NECESSARY FOR
THE COMPANY TO ENFORCE THIS AGREEMENT, THIS AGREEMENT IS INTENDED TO BE A
SPECIAL RELEASE AND A COVENANT NOT TO XXX THAT EXTINGUISHES ALL COMPANY CLAIMS
AND PRECLUDES ANY ATTEMPT BY THE COMPANY TO INITIATE ANY LITIGATION AGAINST
EMPLOYEE BASED UPON COMPANY CLAIMS. IF THE COMPANY COMMENCES OR CONTINUES ANY
COMPANY CLAIM IN VIOLATION OF THIS AGREEMENT, EMPLOYEE SHALL BE ENTITLED TO
ASSERT THIS AGREEMENT AS A BAR TO SUCH ACTION OR PROCEEDING AND SHALL BE
ENTITLED TO RECOVER HIS ATTORNEYS' FEES AND COSTS OF LITIGATION FROM THE PARTY
COMMENCING OR CONTINUING THE COMPANY CLAIM. THE COMPANY IS NOT, HOWEVER, WAIVING
ANY RIGHT OR CLAIM THAT MAY ARISE AFTER THE DATE THIS AGREEMENT IS EXECUTED.
10. Employee represents and warrants that Employee has not assigned or
transferred, or purported to assign or transfer, to any person or entity, any
Employee Claim or any portion thereof or interest therein.
11. Any notice provided for in this Agreement shall be in writing and
shall be either personally delivered, or mailed first class certified mail
(postage prepaid and return receipt requested) or sent by reputable overnight
courier service (charges prepaid) to any other recipient at the address
indicated on the signature pages hereof, or at such address or to the attention
of such other person as the recipient party has specified by prior written
notice to the sending party. Notices will be deemed to have been given hereunder
when delivered personally, when received if sent by U.S. mail and one day after
deposit with a reputable overnight courier service.
12. This Agreement, together with the other agreements dated the date
hereof to which Employee is a party relating to the transactions contemplated by
the Recapitalization Agreement, shall serve as the entire agreement of the
parties concerning the subject matter of this Agreement and supersedes and
preempts any prior understandings, agreements or representations by or among the
parties, written or oral, which may have related to the subject matter hereof in
any way.
13. Each party agrees that such party shall not make or publish any
statement (orally or in writing), or instigate or assist or participate in the
making or publication of any statement that would libel, slander, or disparage
(whether or not such disparagement legally constitutes libel or slander) or
expose to contempt or ridicule the other party. For purposes of the preceding
sentence, the Company shall be deemed to have made (and shall be deemed to be
responsible for) all statements made by its Chief Executive Officer or its Chief
Operating
-5-
Officer or any other authorized officer or agent speaking on behalf of the
Company in the capacity of an authorized representative or any authorized
officer or agent of Meridian, HSA Properties or SDI speaking on their behalf in
the capacity of an authorized representative. The provisions of this Section 13
shall not apply to any statement made in connection with any legal or
administrative proceeding or otherwise required by law.
14. This Agreement shall be binding upon and inure to the benefit of the
respective successors, heirs, assigns, administrators, executors and legal
representatives of the parties and other Persons described in this Agreement.
15. This Agreement shall be deemed to have been executed and delivered
within the State of Georgia and the rights and obligations of the parties shall
be construed and enforced in accordance with, and governed by, the laws of the
State of Georgia without regard to that state's rules regarding conflict of
laws. The language of all parts of this Agreement shall in all cases be
construed as a whole, according to its fair meaning and not strictly for or
against any of the parties.
16. The parties agree that any dispute relating to this Agreement or
Employee's employment with the Company or the termination thereof shall be
submitted by the parties to, and decided by, the courts in Atlanta, Georgia.
17. In the event that either party shall initiate legal action to enforce
the terms and conditions of this Agreement, in addition to any other legal or
equitable relief to which the prevailing party in such action may be entitled,
the prevailing party in such action shall be entitled to recover from the other
party its legal fees and other expenses reasonably incurred in connection with
such action; in the event that a party shall prevail as to some but not all
matters at issue in such action, each party shall be entitled to a recovery of
its or his legal fees and other expenses reasonably incurred with respect to the
matters as to which such party prevailed, as shall be determined by the court
upon application of any party.
18. The remedy for a breach of this Agreement shall be limited to an
action for damages, and no party shall assert as a right or remedy for breach of
any provision of this Agreement, the validity or unenforceability of any other
provision of this Agreement.
19. EMPLOYEE HAS BEEN ADVISED AND ENCOURAGED BY THE COMPANY TO CONSULT
WITH AN ATTORNEY BEFORE SIGNING THIS AGREEMENT. EMPLOYEE AFFIRMS THAT HE HAS
CAREFULLY READ AND FULLY UNDERSTANDS THIS AGREEMENT, HAS HAD SUFFICIENT TIME TO
CONSIDER IT, HAS HAD AN OPPORTUNITY TO ASK QUESTIONS AND HAVE IT EXPLAINED, AND
IS ENTERING INTO THIS AGREEMENT FREELY AND VOLUNTARILY, WITH AN UNDERSTANDING
THAT THE GENERAL RELEASE WILL HAVE THE EFFECT OF WAIVING ANY ACTION OR RECOVERY
HE MIGHT PURSUE FOR ANY CLAIMS ARISING ON OR PRIOR TO THE DATE OF THE EXECUTION
OF THIS AGREEMENT.
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[Signature Page follows.]
-7-
IN WITNESS WHEREOF, the parties have executed this Agreement on this date
or dates set forth below.
U.S. FRANCHISE SYSTEMS, INC.
_________________________ By:_____________________________
Xxxx Xxxxxxx Name:___________________________
Its:_____________________________
00 00xx Xxxxxx, #0000 00 Xxxxxxxxx Xxxxxx, Xxxxx 000
Xxxxxxx, Xxxxxxx 00000 Xxxxxxx, Xxxxxxx 00000
Subscribed and sworn to before Subscribed and sworn to before
me this __________ day of me this __________ day of
___________________ 2000. ___________________ 2000.
-------------------------- --------------------------------
Notary Public Notary Public
-8-
SCHEDULE A
1. Medical insurance plan coverage for Employee and his dependents continued
at the cost of the Company for a period of 16 months from and after the
Ending Date; provided, however, that such coverage shall cease if Employee
becomes eligible for similar coverage provided by another employer.
2. A cash payment in the amount of $350,000.00 payable on the Ending Date.
3. Reimbursement for any and all documented employee business expenses not
yet reimbursed as of the Ending Date, subject to the Company's normal
reimbursement policies.
4. Employee shall be entitled to request and receive from the Company at the
Company's expense office space determined by the Company at the Company's
headquarters, use of phone services and customary office support services
for a period of 30 days following the Ending Date.
5. Reimbursement of the reasonable out-of-pocket costs of travel relating to
pursuit of other employment opportunities for a period beginning on the
date of this Agreement and ending 60 days after the Ending Date, up to a
maximum aggregate reimbursement of $15,000.00.
6. Reimbursement of legal fees in connection with this Agreement up to a
maximum amount of $10,000.00.
7 Reimbursement of relocation expenses incurred in connection with one
relocation incident to his next employment position to the extent not
reimbursed by such employer, up to a maximum reimbursement of $15,000.00.
8. The Company shall assign to Employee, as of the Closing Date, the
Company's interest in the split-dollar life insurance insuring Employee's
life and the Company shall not be obligated for any further payments with
respect thereto, it being understood that neither Employee, his estate or
beneficiaries shall be required to reimburse the Company (out of the
proceeds of such life insurance or otherwise) for any premiums paid by the
Company prior to the Ending Date.
-9-
EXHIBIT F
CERTIFICATE
-----------
SETTING FORTH A RESOLUTION CREATING A SERIES
OF PREFERRED STOCK DESIGNATED AS
"SERIES A 8.5% CUMULATIVE REDEEMABLE PREFERRED STOCK"
ADOPTED BY THE BOARD OF DIRECTORS OF
U.S. FRANCHISE SYSTEMS, INC.
Pursuant to the Provisions of Section 151(g) of Title 8 of the
Delaware Code of 1953, as amended.
We, the undersigned ________________ and _______________, respectively the
President and Secretary of U.S. Franchise Systems, Inc., a Delaware corporation
(hereinafter sometimes referred to as the "Corporation"), hereby certify as
follows:
FIRST: By the Certificate of Incorporation the total number of shares
which the Corporation may issue is set forth in Article Fourth as follows: "The
total number of shares of all classes of stock that the Corporation shall have
authority to issue is Thirty-Six Million (36,000,000), of which (a) Thirty-Five
Million (35,000,000) shall be shares of Common Stock, par value $.01 per share,
and (b) One Million (1,000,000) shall be shares of preferred stock, par value
$.01 per share"; and by the Certificate of Incorporation the shares of preferred
stock are authorized to be issued by the Board of Directors from time to time in
one or more series and the Board of Directors is expressly authorized to
determine in the resolution providing for the issuance of any series of
preferred stock, subject to the provisions of the Certificate of Incorporation,
the designation, dividend rate, redemption provisions, rights on liquidation or
dissolution, sinking fund provisions, conversion rights, voting power, and other
preferences and relative, participating, optional or other special rights, and
qualifications, limitations or restrictions, of shares of such series not fixed
and determined by the Certificate of Incorporation.
SECOND: The Board of Directors of the Corporation pursuant to the
authority so vested in it by the Certificate of Incorporation, and in accordance
with the provisions of Section 151(g) of the General Corporation Law of the
State of Delaware, as amended, at a meeting duly held, adopted the following
resolution creating a series of Preferred Stock designated as "Series A 8.5%
Cumulative Redeemable Preferred Stock":
"A RESOLUTION OF THE BOARD OF DIRECTORS OF
U.S. FRANCHISE SYSTEMS, INC. CREATING A
SERIES OF PREFERRED STOCK DESIGNATED AS
'SERIES A 8.5% CUMULATIVE REDEEMABLE PREFERRED STOCK."
Be It Resolved, that, pursuant to authority expressly granted to and
vested in the Board of Directors of U.S. Franchise Systems, Inc., hereinafter
called the "Corporation", by the provisions of the Certificate of Incorporation,
the Board of Directors of the Corporation hereby creates a series
of the preferred stock of the Corporation to consist initially of 77,000 shares,
and hereby fixes the designations, dividend rate, redemption provisions, rights
on liquidation or dissolution, conversion rights, voting powers, and other
preferences and relative, participating, optional or other special rights, and
the qualifications, limitation or restrictions thereof, of the shares of such
series (in addition to the designations, preferences and relative,
participating, optional or other special rights, and the qualifications,
limitations or restrictions thereof, set forth in the Certificate of
Incorporation which are applicable to the Preferred Stock of all series) as
follows:
Section 1. Designation
The series of the Corporation's Preferred Stock, par value $.01 per
share, created by this resolution shall be designated as the "Series A 8.5%
Cumulative Redeemable Preferred Stock" and is hereinafter referred to in this
resolution as the "Series A Preferred Stock". Capitalized terms used herein and
not otherwise defined shall have the meanings set forth in Section 10.
Section 2. Dividends.
2.1. General Obligation. When and as declared by the Corporation's
board of directors and to the extent permitted under the General Corporation Law
of the State of Delaware, the Corporation shall pay preferential dividends to
the holders of Series A Preferred Stock as provided in this Section 2. Except as
otherwise provided herein, dividends on each share of Series A Preferred Stock
(a "Share") shall accrue at the rate of 8.5% per annum, compounded quarterly, of
the Issue Price thereof, plus the amount of any accrued and unpaid dividends on
such Share through the most recent Dividend Reference Date, from and including
the date of issuance of such Share to and including the date on which the
Liquidation Value of such Share is paid in cash. Such dividends shall accrue
whether or not they have been declared and whether or not there are profits,
surplus or other funds of the Corporation legally available for the payment of
dividends. Such dividends shall be cumulative such that all accrued and unpaid
dividends shall be fully paid or declared with funds irrevocably set apart for
payment before any dividend, distribution or payment may be made with respect to
any Junior Securities. The date on which the Corporation initially issues any
Share shall be deemed to be its "date of issuance" regardless of the number of
times transfer of such Share is made on the stock records maintained by or for
the Corporation and regardless of the number of certificates which may be issued
to evidence such Share.
2.2. Dividend Reference Dates. All accrued dividends on outstanding
Shares of Series A Preferred Stock shall be payable (whether or not declared) on
March 31, June 30, September 30 and December 31 of each year (the "Dividend
Reference Dates"), beginning on the first Dividend Reference Date (the "First
Dividend Reference Date") following the first date of issuance of Series A
Preferred Stock.
2.3. Payment of Dividends in Kind. At the option of the Corporation
(exercisable by resolution of the Board of Directors acting with the affirmative
votes of a majority of the Independent Directors), dividends accrued from time
to time on the Series A Preferred Stock at any time on or before the second
Anniversary Date, may be paid in the form of additional Shares of Series A
Preferred Stock (including fractional Shares expressed as a decimal rounded to
the nearest 1/1000 of a Share) having an initial Liquidation Value equal to the
amount of the dividend so paid. The Corporation shall at all times reserve and
keep available out of the authorized but unissued
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Shares of Series A Preferred Stock, solely for the purpose of issuance as
dividends on Series A Preferred Stock, such maximum number of Shares of Series A
Preferred Stock as may become issuable as dividends on Series A Preferred Stock.
2.4. Distribution of Partial Dividend Payments. Except as otherwise
provided herein, if at any time the Corporation pays less than the total amount
of dividends then accrued with respect to any Share of Series A Preferred Stock,
such payment shall be distributed ratably among the holders of Series A
Preferred Stock based upon the number of Shares of Series A Preferred Stock held
by each such holder.
Section 3. Liquidation.
Upon any liquidation, dissolution or winding up of the Corporation,
whether voluntary or involuntary, each holder of Series A Preferred Stock shall
be entitled to be paid, before any distribution or payment is made upon any
Junior Securities, an amount in cash equal to the aggregate Liquidation Value of
all Shares of Series A Preferred Stock held by such holder, and the holders of
Series A Preferred Stock shall not be entitled to any further payment. The
Corporation shall mail written notice of such liquidation, dissolution or
winding up, not less than 60 days prior to the payment date stated therein, to
each record holder of Series A Preferred Stock. Neither the consolidation or
merger of the Corporation into or with any other entity or entities, nor the
reduction of the capital stock of the Corporation, shall be deemed to be a
liquidation, dissolution or winding up of the Corporation within the meaning of
this Section 3.
Section 4. Priority of Preferred Stock.
So long as any Series A Preferred Stock remains outstanding, neither
the Corporation or any Subsidiary shall redeem, purchase or otherwise acquire
directly or indirectly any Junior Securities, nor shall the Corporation or any
Subsidiary directly or indirectly pay or declare any dividend or make any
distribution upon any Junior Securities (other than dividends paid solely in
shares of capital stock of the Corporation consisting of Junior Securities), if
at the time of or immediately after any such redemption, purchase, acquisition,
dividend or distribution the Corporation has failed to pay in cash the full
amount of dividends accrued but unpaid on the Series A Preferred Stock or the
Corporation has failed to make any redemption of the Series A Preferred Stock
required hereunder; provided that the Corporation may purchase up to 8,666,666
shares of Common Stock on or promptly following the first date of issuance of
Series A Preferred Stock with proceeds of sale of Series A Preferred Stock and
Series B 6% Cumulative Redeemable Convertible/Exchangeable Preferred Stock of
the Corporation.
Section 5. Redemptions.
5.1. Scheduled Redemption. On the seventh Anniversary Date, the
Corporation shall redeem in cash, out of funds legally available therefor, all
outstanding Shares of Series A Preferred Stock at a price per Share equal to the
Liquidation Value thereof as of the Redemption Date.
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5.2. Optional Redemption. In addition to the mandatory redemption
otherwise required by this Section 5, the Corporation shall have the option to
redeem all or any portion of the Shares of Series A Preferred Stock at any time
and from time to time on (upon the notice and otherwise in the manner set forth
in this Section 5), exercisable by resolution of the Board of Directors acting
with the affirmative votes of a majority of the Independent Directors.
5.3. Redemption Payment. For each Share which is to be redeemed, the
Corporation shall be obligated on the Redemption Date to pay to the holder
thereof (upon surrender by such holder at the Corporation's principal office of
the certificate representing such Share) an amount in immediately available
funds equal to the Liquidation Value of such Share as of the Redemption Date. If
the funds of the Corporation legally available for redemption of Shares on the
Redemption Date are insufficient to redeem the total number of Shares to be
redeemed on such date, those funds which are legally available shall be used to
redeem the maximum possible number of Shares ratably among the holders of the
Shares to be redeemed based upon the aggregate Liquidation Value of such Shares
held by each such holder. At any time thereafter when additional funds of the
Corporation are legally available for the redemption of Shares, such funds shall
immediately be used to redeem the balance of the Shares which the Corporation
has become obligated to redeem but which it has not redeemed.
5.4. Notice of Redemption. The Corporation shall mail written notice
of each redemption of any Series A Preferred Stock to each record holder of
Series A Preferred Stock not more than 60 nor less than 30 days prior to the
date on which such redemption is to be made. Upon mailing any notice of
redemption which relates to a redemption at the Corporation's option, the
Corporation shall become obligated to redeem the total number of Shares
specified in such notice at the time of redemption specified therein. In case
fewer than the total number of Shares represented by any certificate are
redeemed, a new certificate representing the number of unredeemed Shares shall
be issued to the holder thereof without cost to such holder within three
business days after surrender of the certificate representing the redeemed
Shares.
5.5. Determination of the Number of Each Holder's Shares to be
Redeemed. The number of Shares of Series A Preferred Stock to be redeemed from
each holder thereof in redemptions hereunder shall be the number of Shares
determined by multiplying the total number of Shares of Series A Preferred Stock
to be redeemed times a fraction, the numerator of which shall be the total
number of Shares of Series A Preferred Stock then held by such holder and the
denominator of which shall be the total number of Shares of Series A Preferred
Stock then outstanding.
5.6. Dividends After Redemption Date. From and after the Redemption
Date (unless the Corporation shall default in the payment of the redemption
price when due) dividends on Shares of Series A Preferred Stock called for
redemption or otherwise required to be redeemed on such Redemption Date shall
cease to accrue and such Shares shall no longer be deemed to be outstanding, and
all rights (except the right to receive the redemption price thereof) of the
holder thereof, as the holder of such Shares of Series A Preferred Stock, shall
cease.
5.7. Redeemed or Otherwise Acquired Shares. Any Shares which are
redeemed or otherwise acquired by the Corporation shall be canceled and shall
have the status of authorized
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but unissued shares of Preferred Stock, undesignated as to series, and shall not
be reissued, sold or transferred as Shares of Series A Preferred Stock.
5.8. Other Redemptions or Acquisitions. Neither the Corporation nor
any Subsidiary shall redeem or otherwise acquire any Series A Preferred Stock,
except as expressly authorized herein or pursuant to a purchase offer made
pro-rata to all holders of Series A Preferred Stock on the basis of the number
of Shares of Series A Preferred Stock owned by each such holder.
Section 6. Voting Rights.
6.1. Generally. Except as otherwise provided herein and as otherwise
required by law, the Series A Preferred Stock shall have no voting rights;
provided that each holder of Series A Preferred Stock shall be entitled to
notice of all stockholders meetings at the same time and in the same manner as
notice is given to the stockholders entitled to vote at such meeting.
6.2. Other Voting Rights. The Corporation shall not merge or
consolidate with another entity or entities, sell all or substantially all of
its assets or dissolve or liquidate without the prior approval of the holder or
holders of at least a majority of the Series A Preferred Stock then outstanding
voting together as a separate class; provided that the Corporation may, without
obtaining such approval, merge with any wholly-owned Subsidiary so long as (a)
the Corporation is the surviving corporation, (b) the terms of the Series A
Preferred Stock are not changed and (c) the Series A Preferred Stock is not
exchanged for cash, securities or other property.
6.3. Additional Class Voting Rights. In addition to any other vote
or consent required herein or by law, the vote or written consent of the holder
or holders of a majority of the then outstanding Shares of Series A Preferred
Stock shall be necessary for effecting or validating the following actions:
(a) Any authorization or any designation, whether by
reclassification or otherwise, of any new class or series of stock or any
other securities convertible into equity securities of the Corporation (or
any increase in the authorized or designated number of any such new class
or series) ranking senior to or on a parity with the Series A Preferred
Stock as to payment of dividends, distribution of assets upon liquidation,
dissolution or winding-up (whether voluntary or involuntary), voting,
redemption or otherwise; or
(b) Any action that results in any amendment, alteration, or repeal
(by merger or consolidation or otherwise) of any provisions of the
Certificate of Incorporation or any certificate amendatory thereof so as
to materially adversely affect any of the preferences, rights, powers or
privileges of the Series A Preferred Stock.
Section 7. Registration of Transfer.
The Corporation shall keep at its principal office a register for
the registration of Series A Preferred Stock. Upon the surrender of any
certificate representing Series A Preferred Stock at such place, the Corporation
shall, at the request of the record holder of such certificate, execute and
deliver (at the Corporation's expense) a new certificate or certificates in
exchange there-
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for representing in the aggregate the number of Shares represented by the
surrendered certificate. Each such new certificate shall be registered in such
name and shall represent such number of Shares as is requested by the holder of
the surrendered certificate and shall be substantially identical in form to the
surrendered certificate, and dividends shall accrue on the Shares of Series A
Preferred Stock represented by such new certificate from the date to which
dividends have been fully paid on such Shares of Series A Preferred Stock
represented by the surrendered certificate.
Section 8. Replacement.
Upon receipt of an affidavit of the registered holder or other
evidence reasonably satisfactory to the Corporation of the ownership and the
loss, theft, destruction or mutilation of any certificate evidencing Shares of
Series A Preferred Stock, and in the case of any such loss, theft or
destruction, upon receipt of indemnity reasonably satisfactory to the
Corporation (provided that the holder's own unsecured indemnity agreement shall
be satisfactory), or, in the case of any such mutilation upon surrender of such
certificate, the Corporation shall (at its expense) execute and deliver in lieu
of such certificate a new certificate of like kind representing the number of
Shares of Series A Preferred Stock represented by such lost, stolen, destroyed
or mutilated certificate and dated the date of such lost, stolen, destroyed or
mutilated certificate, and dividends shall accrue on the Series A Preferred
Stock represented by such new certificate from the date to which dividends have
been fully paid on such lost, stolen, destroyed or mutilated certificate.
Section 9. Financial Statements. The Corporation shall (a) file when due
all of its reports, including, without limitation, annual and quarterly reports,
required to be filed by it under the Exchange Act and the rules and regulations
adopted by the SEC thereunder, and (b) if the Corporation is not subject to
Section 13 or 15(d) of the Exchange Act, the Corporation shall provide to the
holder or holders of Shares of Series A Preferred Stock the financial statements
that would be required to be included in the Corporation's annual and quarterly
reports filed with the SEC if the Corporation were subject to Section 13 or
15(d) of the Exchange Act, which shall be delivered or made available to the
holder or holders of Shares of Series A Preferred Stock when the Corporation
would be required to file periodic reports with the SEC under the Exchange Act
if it were subject to Section 13 or 15(d) of the Exchange Act.
Section 10. Definitions.
"Affiliate" of any particular Person means any other Person controlling,
controlled by or under common control with such particular Person.
"Anniversary Date" mean each anniversary of the First Dividend Reference
Date.
"Common Stock" means, collectively, the Corporation's Class A Common
Stock, par value $.01 per share the Corporation's Class B Common Stock, par
value $.01 per share and any capital stock of any class of the Corporation
hereafter authorized which is not limited to a fixed sum or percentage of par or
stated value with respect to the rights of the holders thereof to participate in
dividends or in the distribution of assets upon any liquidation, dissolution or
winding up of the Corporation.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
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"Independent Directors" means, so long as Section 12 of the Certificate of
Incorporation is in effect, the directors of the Corporation who are serving as
Independent Directors (as defined in the Certificate of Incorporation); and
after Section 12 of the Certificate of Incorporation ceases to be effective,
Independent Directors means directors of the Corporation who are not a director,
officer, employee, agent, independent contractor or other representative of a
record or beneficial owner of Series A Preferred Stock or any Affiliate of such
owner.
"Issue Price" of any Share of Series A Preferred Stock is $1,000.00.
"Junior Securities" means any of the Corporation's equity securities other
than the Series A Preferred Stock.
"Liquidation Value" of any Share of Series A Preferred Stock as of any
particular date shall be equal to the Issue Price plus all accrued but unpaid
dividends through the date of determination of Liquidation Value.
"Person" means an individual, a partnership, a limited liability company,
a corporation, an association, a joint stock company, a trust, a joint venture,
an unincorporated organization and a governmental entity or any department,
agency or political subdivision thereof.
"Redemption Date" as to any Share means the date specified in the notice
of any redemption given or required to be given by the Corporation; provided
that no such date shall be a Redemption Date unless the Liquidation Value of
such Share is actually paid in full on such date, and if not so paid in full,
the Redemption Date shall be the date on which such amount is fully paid.
"SEC" means the Securities and Exchange Commission.
"Subsidiary" means any Person of which the Corporation owns, directly or
through one or more intermediaries, more than 50% of the outstanding capital
stock (or other ownership interests) possessing the voting power (under ordinary
circumstances) in electing the board of directors (or other governing body).
Section 11. Amendment and Waiver.
No amendment, modification or waiver shall be binding or effective with
respect to any provision hereof without the (a) prior written consent of the
holder or holders of at least a majority of the Series A Preferred Stock
outstanding at the time such action is taken and (b) approval by resolution of
the Board of Directors acting with the affirmative votes of a majority of the
Independent Directors. No change in the terms hereof may be accomplished by
merger or consolidation of the Corporation with another corporation or entity
unless the Corporation has obtained the (a) prior written consent of the holder
or holders of a majority of the Series A Preferred Stock then outstanding and
(b) approval by resolution of the Board of Directors acting with the affirmative
votes of a majority of the Independent Directors.
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Section 12. Notices.
Except as otherwise expressly provided hereunder, all notices referred to
herein shall be in writing and shall be delivered by registered or certified
mail, return receipt requested and postage prepaid, or by reputable overnight
courier service, charges prepaid, and shall be deemed to have been given when so
mailed or sent (a) to the Corporation, at its principal executive offices and
(b) to any stockholder, at such holder's address as it appears in the stock
records of the Corporation (unless otherwise indicated by any such holder).
THIRD: The Series A Preferred Stock shall initially consist of 77,000
shares, which number of shares may be increased or decreased (but not below the
number then outstanding plus the maximum number of additional shares required to
be reserved for issuance as dividends on the Series A Preferred Stock) from time
to time by the Board of Directors of the Corporation.
RESOLVED, FURTHER, that the appropriate officers of the Corporation are
hereby authorized and directed to execute and acknowledge a certificate setting
forth these resolutions and to cause such certificate to be filed and recorded,
all in accordance with the requirements of Section 151(g) of Title 8 of the
Delaware Code of 1953, as amended.
IN WITNESS WHEREOF, this Certificate has been made under the seal of U.S.
Franchise Systems, Inc., and has been signed by the undersigned
___________________, President, and ____________, Secretary, this ____ day of
_________ 2000.
------------------------------------------
President
[SEAL]
----------------------------
Secretary
-8-
EXHIBIT G
CERTIFICATE
-----------
SETTING FORTH A RESOLUTION CREATING A SERIES
OF PREFERRED STOCK DESIGNATED AS
"SERIES B 6.0% CUMULATIVE REDEEMABLE
CONVERTIBLE/EXCHANGEABLE PREFERRED STOCK"
ADOPTED BY THE BOARD OF DIRECTORS OF
U.S. FRANCHISE SYSTEMS, INC.
Pursuant to the Provisions of Section 151(g) of Title 8 of the
Delaware Code of 1953, as amended.
We, the undersigned ________________ and _______________, respectively the
President and Secretary of U.S. Franchise Systems, Inc., a Delaware corporation
(hereinafter sometimes referred to as the "Corporation"), hereby certify as
follows:
FIRST: By the Certificate of Incorporation the total number of shares
which the Corporation may issue is set forth in Article Fourth as follows: "The
total number of shares of all classes of stock that the Corporation shall have
authority to issue is Thirty-Six Million (36,000,000), of which (a) Thirty-Five
Million (35,000,000) shall be shares of Common Stock, par value $.01 per share,
and (b) One Million (1,000,000) shall be shares of preferred stock, par value
$.01 per share"; and by the Certificate of Incorporation the shares of preferred
stock are authorized to be issued by the Board of Directors from time to time in
one or more series and the Board of Directors is expressly authorized to
determine in the resolution providing for the issuance of any series of
preferred stock, subject to the provisions of the Certificate of Incorporation,
the designation, dividend rate, redemption provisions, rights on liquidation or
dissolution, sinking fund provisions, conversion rights, voting power, and other
preferences and relative, participating, optional or other special rights, and
qualifications, limitations or restrictions, of shares of such series not fixed
and determined by the Certificate of Incorporation.
SECOND: The Board of Directors of the Corporation pursuant to the
authority so vested in it by the Certificate of Incorporation, and in accordance
with the provisions of Section 151(g) of the General Corporation Law of the
State of Delaware, as amended, at a meeting duly held, adopted the following
resolution creating a series of Preferred Stock designated as "Series B 6.0%
Cumulative Redeemable Convertible/Exchangeable Preferred Stock":
"A RESOLUTION OF THE BOARD OF DIRECTORS OF
U.S. FRANCHISE SYSTEMS, INC. CREATING A
SERIES OF PREFERRED STOCK DESIGNATED AS
'SERIES B CUMULATIVE REDEEMABLE CONVERTIBLE/EXCHANGEABLE
PREFERRED STOCK."
Be It Resolved, that, pursuant to authority expressly granted to and
vested in the Board of Directors of U.S. Franchise Systems, Inc., hereinafter
called the "Corporation", by the provisions of the Certificate of Incorporation,
the Board of Directors of the Corporation hereby creates a series of the
preferred stock of the Corporation to consist initially of 18,200 shares, and
hereby fixes the designations, dividend rate, redemption provisions, rights on
liquidation or dissolution, conversion rights, voting powers, and other
preferences and relative, participating, optional or other special rights, and
the qualifications, limitation or restrictions thereof, of the shares of such
series (in addition to the designations, preferences and relative,
participating, optional or other special rights, and the qualifications,
limitations or restrictions thereof, set forth in the Certificate of
Incorporation which are applicable to the Preferred Stock of all series) as
follows:
Section 1. Designation
The series of the Corporation's Preferred Stock, par value $.01 per
share, created by this resolution shall be designated as the "Series B 6.0%
Cumulative Redeemable Convertible/ Exchangeable Preferred Stock" and is
hereinafter referred to in this resolution as the "Series B Preferred Stock".
Capitalized terms used herein and not otherwise defined shall have the meanings
set forth in Section 14.
Section 2. Dividends.
2.1. General Obligation. When and as declared by the Corporation's
board of directors and to the extent permitted under the General Corporation Law
of the State of Delaware, the Corporation shall pay preferential dividends to
the holders of Series B Preferred Stock as provided in this Section 2. Except as
otherwise provided herein, dividends on each share of Series B Preferred Stock
(a "Share") shall accrue at the rate of 6.0% per annum, compounded quarterly, of
the Issue Price thereof, plus the amount of any accrued and unpaid dividends on
such Share through the most recent Dividend Reference Date, from and including
the date of issuance of such Share to and including the date on which the
Liquidation Value of such Share is paid in cash or the date on which such Share
is converted/exchanged into shares of Conversion Stock hereunder. Such dividends
shall accrue whether or not they have been declared and whether or not there are
profits, surplus or other funds of the Corporation legally available for the
payment of dividends. Such dividends shall be cumulative such that all accrued
and unpaid dividends shall be fully paid or declared with funds irrevocably set
apart for payment before any dividend, distribution or payment may be made with
respect to any Junior Securities. The date on which the Corporation initially
issues any Share shall be deemed to be its "date of issuance" regardless of the
number of times transfer of such Share is made on the stock records maintained
by or for the Corporation and regardless of the number of certificates which may
be issued to evidence such Share.
2.2. Dividend Reference Dates. All accrued dividends on outstanding
Shares of Series B Preferred Stock shall be payable (whether or not declared) on
March 31, June 30, September 30 and December 31 of each year (the "Dividend
Reference Dates"), beginning on the first Dividend Reference Date (the "First
Dividend Reference Date") following the first date of issuance of Series B
Preferred Stock.
2.3. Payment of Dividends in Kind. At the option of the Corporation
(exercisable by resolution of the Board of Directors acting with the affirmative
votes of a majority of the
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Independent Directors), dividends accrued from time to time on the Series B
Preferred Stock at any time may be paid in the form of additional Shares of
Series B Preferred Stock (including fractional Shares expressed as a decimal
rounded to the nearest 1/1000 of a Share) having an initial Liquidation Value
equal to the amount of the dividend so paid. The Corporation shall at all times
reserve and keep available out of the authorized but unissued Shares of Series B
Preferred Stock, solely for the purpose of issuance as dividends on Series B
Preferred Stock, such maximum number of Shares of Series B Preferred Stock as
may become issuable as dividends on Series B Preferred Stock.
2.4. Distribution of Partial Dividend Payments. Except as otherwise
provided herein, if at any time the Corporation pays less than the total amount
of dividends then accrued with respect to any Series B Preferred Stock, such
payment shall be distributed ratably among the holders of Series B Preferred
Stock based upon the number of Shares of Series B Preferred Stock held by each
such holder.
Section 3. Participating Dividends.
If the Corporation declares or pays a dividend in cash on or in
respect of the Conversion Stock out of annual after-tax earnings (determined in
accordance with generally accepted accounting principles consistently applied)
in any fiscal year (an "Ordinary Dividend") then the Corporation shall pay to
the holders of Series B Preferred Stock at the time of payment thereof the
Ordinary Dividends which would have been paid on the shares of Conversion Stock
that would have been held by the holders of Series B Preferred Stock had such
Series B Preferred Stock been converted/exchanged immediately prior to the date
on which a record is taken for such Ordinary Dividend, or, if no record is
taken, the date as of which the record holders of Conversion Stock entitled to
such Ordinary Dividends are to be determined.
Section 4. Liquidation.
Upon any liquidation, dissolution or winding up of the Corporation,
whether voluntary or involuntary, each holder of Series B Preferred Stock shall
be entitled to be paid, before any distribution or payment is made upon any
Junior Securities, an amount in cash equal to the aggregate Liquidation Value of
all Shares of Series B Preferred Stock held by such holder, and the holders of
Series B Preferred Stock shall not be entitled to any further payment. The
Corporation shall mail written notice of such liquidation, dissolution or
winding up, not less than 60 days prior to the payment date stated therein, to
each record holder of Series B Preferred Stock. Neither the consolidation or
merger of the Corporation into or with any other entity or entities, nor the
reduction of the capital stock of the Corporation, shall be deemed to be a
liquidation, dissolution or winding up of the Corporation within the meaning of
this Section 4.
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Section 5. Priority of Preferred Stock.
So long as any Series B Preferred Stock remains outstanding, neither
the Corporation or any Subsidiary shall redeem, purchase or otherwise acquire
directly or indirectly any Junior Securities, nor shall the Corporation or any
Subsidiary directly or indirectly pay or declare any dividend or make any
distribution upon any Junior Securities, if at the time of or immediately after
any such redemption, purchase, acquisition, dividend or distribution the
Corporation has failed to pay in cash the full amount of dividends accrued on
the Series B Preferred Stock or the Corporation has failed to make any
redemption of the Series B Preferred Stock required hereunder; provided that the
Corporation may purchase up to 8,666,666 shares of Common Stock on or promptly
following the first date of issuance of Series B Preferred Stock with proceeds
of sale of Series B Preferred Stock and Series A 8.5% Cumulative Redeemable
Preferred Stock of the Corporation.
Section 6. Redemptions.
6.1. Scheduled Redemption. On the tenth Anniversary Date, the
Corporation shall, out of funds legally available therefor, redeem all
outstanding Shares of Series B Preferred Stock at a price per Share equal to the
Liquidation Value thereof as of the Redemption Date.
6.2. Optional Redemption. In addition to the mandatory redemption
otherwise required by this Section 6, the Corporation shall have the option to
redeem all or any portion of the Shares of Series B Preferred Stock at any time
and from time to time on or after the seventh Anniversary Date (upon the notice
and otherwise in the manner set forth in this Section 6), exercisable by
resolution of the Board of Directors acting with the affirmative votes of a
majority of the Independent Directors.
6.3. Redemption Payment. For each Share which is to be redeemed, the
Corporation shall be obligated on the Redemption Date to pay to the holder
thereof (upon surrender by such holder at the Corporation's principal office of
the certificate representing such Share) an amount in immediately available
funds equal to the Liquidation Value of such Share as of the Redemption Date. If
the funds of the Corporation legally available for redemption of Shares on the
Redemption Date are insufficient to redeem the total number of Shares to be
redeemed on such date, those funds which are legally available shall be used to
redeem the maximum possible number of Shares ratably among the holders of the
Shares to be redeemed based upon the aggregate Liquidation Value of such Shares
held by each such holder. At any time thereafter when additional funds of the
Corporation are legally available for the redemption of Shares, such funds shall
immediately be used to redeem the balance of the Shares which the Corporation
has become obligated to redeem but which it has not redeemed.
6.4. Notice of Redemption. The Corporation shall mail written notice
of each redemption of any Series B Preferred Stock to each record holder of
Series B Preferred Stock not more than 60 nor less than 30 days prior to the
date on which such redemption is to be made. Upon mailing any notice of
redemption which relates to a redemption at the Corporation's option, the
Corporation shall, subject to the rights arising out of any prior
conversion/exchange, become obligated to redeem the total number of Shares
specified in such notice at the time of redemption specified therein. In case
fewer than the total number of Shares represented by any certificate are
redeemed, a new certificate representing the number of unredeemed Shares shall
be issued to the
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holder thereof without cost to such holder within three business days after
surrender of the certificate representing the redeemed Shares.
6.5. Determination of the Number of Each Holder's Shares to be
Redeemed. The number of Shares of Series B Preferred Stock to be redeemed from
each holder thereof in redemptions hereunder shall be the number of Shares
determined by multiplying the total number of Shares of Series B Preferred Stock
to be redeemed times a fraction, the numerator of which shall be the total
number of Shares of Series B Preferred Stock then held by such holder and the
denominator of which shall be the total number of Shares of Series B Preferred
Stock then outstanding.
6.6. Dividends After Redemption Date. From and after the Redemption
Date (unless the Corporation shall default in the payment of the redemption
price when due) dividends on Shares of Series B Preferred Stock called for
redemption or otherwise required to be redeemed on such Redemption Date shall
cease to accrue and such Shares shall no longer be deemed to be outstanding, and
all rights (except the right to receive the redemption price thereof) of the
holder thereof, as the holder of such Shares of Series B Preferred Stock, shall
cease.
6.7. Redeemed or Otherwise Acquired Shares. Any Shares which are
redeemed or otherwise acquired by the Corporation shall be canceled and shall
have the status of authorized but unissued shares of Preferred Stock,
undesignated as to series, and shall not be reissued, sold or transferred as
Shares of Series B Preferred Stock.
6.8. Other Redemptions or Acquisitions. Neither the Corporation nor
any Subsidiary shall redeem or otherwise acquire any Series B Preferred Stock,
except as expressly authorized herein or pursuant to a purchase offer made
pro-rata to all holders of Series B Preferred Stock on the basis of the number
of Shares of Series B Preferred Stock owned by each such holder.
Section 7. Voting Rights.
7.1. Generally. The holders of the Series B Preferred Stock shall be
entitled to notice of all stockholders meetings in accordance with the
Corporation's bylaws, and the holders of the Series B Preferred Stock shall be
entitled to vote on all matters submitted to the stockholders for a vote
together with the holders of the Common Stock voting together as a single class,
with each Share of Series B Preferred Stock entitled to one vote per Share for
each share (including for this purpose, fractional shares) of Conversion Stock
issuable upon conversion/exchange of a Share of Series B Preferred Stock.
7.2. Other Voting Rights. The Corporation shall not merge or
consolidate with another entity or entities, sell all or substantially all of
its assets or dissolve or liquidate without the prior approval of the holder or
holders of at least a majority of the Series B Preferred Stock then outstanding
voting together as a single class; provided that the Corporation may, without
obtaining such approval, merge with any wholly-owned Subsidiary so long as (a)
the Corporation is the surviving corporation, (b) the terms of the Series B
Preferred Stock are not changed and (c) the Series B Preferred Stock is not
exchanged for cash, securities or other property.
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7.3. Additional Class Voting Rights. In addition to any other vote
or consent required herein or by law, the vote or written consent of the holder
or holders of a majority of the then outstanding Shares of Series B Preferred
Stock shall be necessary for effecting or validating the following actions:
(a) Any authorization or any designation, whether by
reclassification or otherwise, of any new class or series of stock or any
other securities convertible into equity securities of the Corporation (or
any increase in the authorized or designated number of any such new class
or series) ranking senior to or on a parity with the Series B Preferred
Stock as to payment of dividends, distribution of assets upon liquidation,
dissolution or winding-up (whether voluntary or involuntary), voting,
redemption or otherwise; or
(b) Any action that results in any amendment, alteration, or repeal
(by merger or consolidation or otherwise) of any provisions of the
Certificate of Incorporation or any certificate amendatory thereof so as
to materially adversely affect any of the preferences, rights, powers or
privileges of the Series B Preferred Stock.
Section 8. Conversion/Exchange.
8.1. Conversion/Exchange Price
(a) The initial conversion/exchange price for the Series B Preferred
Stock shall be $7.50 per Share (as adjusted as provided in Section 8.1(b),
the "Initial Conversion Price").
(b) On the 90th day after the first date of issuance of Series B
Preferred Stock (the "Reset Date"), the Initial Conversion Price shall be
adjusted so that the Initial Conversion Price then and thereafter in
effect shall be the lesser of (i) $7.50 and (ii) 130% of the Market Price
as of the Reset Date; provided that the Initial Conversion Price, as so
adjusted, shall not be less than $6.50.
(c) The "Conversion Price" shall be, initially, the Initial
Conversion Price and shall be adjusted from time to time as provided in
this Section 8, giving effect on the Reset Date to any other adjustment to
the Conversion Price provided in this Section 8 as a result of events on
or prior to the Reset Date.
8.2. Conversion/Exchange Procedure.
(a) Subject to the provisions for adjustment hereinafter set forth,
any holder of Series B Preferred Stock may convert/exchange at any time
and from time to time all or any portion of the Series B Preferred Stock
(including any fraction of a Share) held by such holder into a number of
shares of Conversion Stock computed by (i) multiplying (A) the number of
Shares of Series B Preferred Stock to be converted/exchanged times (B)
1,000 times (C) the Initial Conversion Price and (ii) dividing the result
by the Conversion Price then in effect without giving effect to any
adjustment to the Conversion Price pursuant to Section 8.6.
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(b) Each conversion/exchange of Series B Preferred Stock shall be
deemed to have been effected as of the close of business on the date on
which the certificate or certificates representing the Series B Preferred
Stock to be converted/exchanged have been surrendered at the principal
office of the Corporation, together with cash and/or Face Value of Series
A Preferred Stock equal to (i) the number of shares of Conversion Stock
issuable upon the conversion/exchange of the Series B Preferred Stock
surrendered for conversion/exchange multiplied by the Conversion Price
then in effect, minus (ii) the aggregate Liquidation Value of the Series B
Preferred Stock surrendered for conversion/exchange determined as of the
effective date of such conversion/exchange. At such time as such
conversion/exchange has been effected, the rights of the holder of such
Series B Preferred Stock as such holder shall cease and the Person or
Persons in whose name or names any certificate or certificates for shares
of Conversion Stock are to be issued upon such conversion/exchange shall
be deemed to have become the holder or holders of record of the shares of
Conversion Stock represented thereby.
(c) As soon as possible after a conversion/exchange has been
effected (but in any event within three business days in the case of
subparagraph (i) below), the Corporation shall deliver to the
converting/exchanging holder:
(i) a certificate or certificates representing the number of
shares of Conversion Stock issuable by reason of such
conversion/exchange in such name or names and in such denomination
or denominations as the converting/exchanging holder has specified;
(ii) the amount payable under subparagraph (f) below with
respect to such conversion/exchange; and
(iii) a certificate representing any Shares (including
fractional Shares expressed as a decimal rounded to the nearest
1/1000) of Series B Preferred Stock which were represented by the
certificate or certificates delivered to the Corporation in
connection with such conversion/exchange but which were not
converted/exchanged.
(d) The issuance of certificates for shares of Conversion Stock upon
conversion/exchange of Series B Preferred Stock shall be made without
charge to the holders of such Series B Preferred Stock for any issuance
tax in respect thereof or other cost incurred by the Corporation in
connection with such conversion/exchange and the related issuance of
shares of Conversion Stock. Upon conversion/exchange of each Share of
Series B Preferred Stock, the Corporation shall take all such actions as
are necessary in order to ensure that the Conversion Stock issuable with
respect to such conversion/exchange shall be validly issued, fully paid
and nonassessable.
(e) The Corporation shall not close its books against the transfer
of Series B Preferred Stock or of Conversion Stock issued or issuable upon
conversion/exchange of Series B Preferred Stock in any manner which
interferes with the timely conversion/exchange of Series B Preferred
Stock. The Corporation shall assist and cooperate with any holder of
Shares required to make any governmental filings or obtain any
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governmental approval prior to or in connection with any
conversion/exchange of Shares hereunder (including, without limitation,
making any filings required to be made by the Corporation).
(f) If any fractional interest in a share of Conversion Stock would,
except for the provisions of this subparagraph (f), be deliverable upon
any conversion/exchange of the Series B Preferred Stock, the Corporation,
in lieu of delivering the fractional share therefor, shall pay an amount
to the holder thereof equal to the Market Price of such fractional
interest as of the date of conversion/exchange.
(g) The Corporation shall at all times reserve and keep available
out of its authorized but unissued shares of Conversion Stock, solely for
the purpose of issuance upon the conversion/exchange of the Series B
Preferred Stock, such maximum number of shares of Conversion Stock
issuable upon the conversion/exchange of all outstanding Series B
Preferred Stock. All shares of Conversion Stock which are so issuable
shall, when issued, be duly and validly issued, fully paid and
nonassessable and free from all taxes, liens and charges. The Corporation
shall take all such actions as may be necessary to assure that all such
shares of Conversion Stock may be so issued without violation of any
applicable law or governmental regulation or any requirements of any
domestic securities exchange upon which shares of Conversion Stock may be
listed (except for official notice of issuance which shall be immediately
delivered by the Corporation upon each such issuance).
8.3. Subdivision or Combination of Conversion Stock. If the
Corporation at any time subdivides (by any stock split, stock dividend,
recapitalization, reclassification or otherwise) one or more classes of its
outstanding shares of Conversion Stock into a greater number of shares, the
Conversion Price in effect immediately prior to such subdivision shall be
proportionately reduced, and if the Corporation at any time combines (by reverse
stock split, reclassification or otherwise) one or more classes of its
outstanding shares of Conversion Stock into a smaller number of shares, the
Conversion Price in effect immediately prior to such combination shall be
proportionately increased. Such adjustment shall be made whenever any of the
events listed above shall occur. An adjustment made pursuant to this Section 8.3
shall become effective retroactively with respect to conversions/exchanges made
subsequent to the record date in the case of a stock split or dividend, and
shall become effective on the effective date in the case of a subdivision,
combination or reclassification.
8.4. Reorganization, Reclassification, Consolidation, Merger or
Sale. Prior to the consummation of any Organic Change, the Corporation shall
make appropriate provisions (in form and substance satisfactory to the holders
of a majority of the Series B Preferred Stock then outstanding) to ensure that
each of the holders of Series B Preferred Stock shall thereafter have the right
to acquire and receive, in lieu of or in addition to (as the case may be) the
shares of Conversion Stock immediately theretofore issuable upon the
conversion/exchange of such holder's Shares of Series B Preferred Stock, such
shares of stock, securities or assets as such holder would have received in
connection with such Organic Change if such holder had converted/exchanged its
Shares of Series B Preferred Stock immediately prior to such Organic Change. In
each such case, the Corporation shall also make appropriate provisions (in form
and substance satisfactory to the holders of a majority of the Series B
Preferred Stock then outstanding) to ensure that the provisions of this Section
8 and Sections 9 and 10 hereof shall thereafter be applicable to the Series B
Preferred Stock
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(including, in the case of any such consolidation, merger or sale in which the
successor entity or purchasing entity is other than the Corporation, an
immediate adjustment of the Conversion Price to the value for the Conversion
Stock reflected by the terms of such consolidation, merger or sale, and a
corresponding immediate adjustment in the number of shares of Conversion Stock
issuable upon conversion/exchange of Series B Preferred Stock, if the value so
reflected is less than the Conversion Price in effect immediately prior to such
consolidation, merger or sale). The Corporation shall not effect any such
consolidation, merger or sale, unless prior to the consummation thereof, the
successor corporation (if other than the Corporation) resulting from
consolidation or merger or the corporation purchasing such assets assumes by
written instrument (in form reasonably satisfactory to the holders of a majority
of the Series B Preferred Stock then outstanding), the obligation to deliver to
each such holder such shares of stock, securities or assets as, in accordance
with the foregoing provisions, such holder may be entitled to acquire.
8.5. Certain Events. If any event occurs of the type contemplated by
the provisions of Sections 8.3 and 8.4 but not expressly provided for by such
provisions, then the Corporation's Board of Directors shall make an appropriate
adjustment in the Conversion Price so as to protect the rights of the holders of
Series B Preferred Stock; provided that no such adjustment shall increase the
Conversion Price as otherwise determined pursuant to this Section 8 or decrease
the number of shares of Conversion Stock issuable upon conversion/exchange of
each Share of Series B Preferred Stock.
8.6. Special Adjustments. If the Corporation incurs Special Losses
(as defined below) from time to time after June 2, 2000, and prior to the fifth
Anniversary Date, then the Conversion Price shall be reduced on each date
Special Losses are incurred by an amount equal to (a) the aggregate Special
Losses, divided by the total number of issued and outstanding shares of
Conversion Stock of the Corporation (on a fully diluted basis) as of the date of
the adjustment, minus (b) the aggregate amount of all prior adjustments to the
Conversion Price under this Section 8.6. For purposes of this Section 8.6,
Special Losses means (i) the total amount of any and all losses incurred by the
Corporation after June 2, 2000 and prior to the fifth Anniversary Date, as a
result of payments, in the form of loans or otherwise, made or required to be
made to Alpine Hospitality Ventures, LLC ("Alpine") (and potentially any other
Persons as may be required) by reason of the obligation of the Corporation in
Section 16 of that certain Supplements to Agreements dated April 28, 1998 (the
"Alpine Agreement"), or the release of such obligation by Alpine or any claim by
any Person in connection therewith, and all other associated out-of-pocket
costs, losses, damages and expenses (including, without limitation, reasonable
fees and expenses of attorneys) incurred by the Corporation and its Subsidiaries
in connection therewith, provided that Special Losses shall not include payment
of up to $2.5 million in the aggregate to Alpine Hospitality Holdings LLC or any
of its Affiliates in connection with the termination of certain of the Company's
management agreements and certain of the Company's obligations under the Alpine
Agreement; and (ii) the total amount of any and all losses incurred by the
Corporation after June 2, 2000, and prior to the fifth Anniversary Date by
reason of any amounts paid by the Corporation in settlement of claims or
satisfaction of judgments in connection with any stockholder or derivative
litigation asserting a cause of action arising out of events or circumstances
occurring or existing before June 2, 2000 and any out-of-pocket expenses
incurred by the Corporation in the defense or settlement thereof, including, but
not limited to, the fees and expenses of legal counsel and experts for the
Corporation or its directors and officers, but only to the extent not paid or
reimbursed to the Corporation from available insurance.
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8.7. Minimum Adjustment; Rounding. Notwithstanding anything herein
to the contrary, no adjustment of the Conversion Price shall be made pursuant to
this Section 8 in an amount less than $.01 per Share, and any such lesser
adjustment shall be carried forward and shall be made at the time and together
with the next subsequent adjustment which together with any adjustments so
carried forward shall amount to $.01 per Share or more. For the purpose of
calculation of fractional Shares of Series B Preferred Stock resulting from the
conversion/exchange of Series B Preferred Stock, fractional Shares shall be
expressed as a decimal rounded to the nearest 1/1,000 of a Share.
8.8. Notices.
(a) Immediately upon any adjustment of the Conversion Price, the
Corporation shall give written notice thereof to all holders of Series B
Preferred Stock setting forth in reasonable detail the calculation of such
adjustment.
(b) The Corporation shall give written notice to all holders of
Series B Preferred Stock at least 20 days prior to the date on which the
Corporation closes its books or takes a record (i) with respect to any
dividend or distribution upon Conversion Stock, (ii) with respect to any
pro rata subscription offer to holders of Conversion Stock or (iii) for
determining rights to vote with respect to any Organic Change, dissolution
or liquidation.
(c) The Corporation shall also give written notice to the holders of
Series B Preferred Stock at least 20 days prior to the date on which any
Organic Change shall take place.
Section 9. Liquidating Dividends.
If the Corporation declares or pays a dividend upon the Conversion
Stock or makes any other distribution (whether pursuant to a merger,
consolidation, or otherwise) to holders of Conversion Stock as such (whether in
cash, evidences of its indebtedness or assets), excepting Ordinary Dividends and
dividends payable in shares of Conversion Stock (a "Liquidating Dividend"), then
the Corporation shall pay or distribute to each holder of Series B Preferred
Stock at the time of payment or distribution thereof the Liquidating Dividend
that would have been paid or distributed to such holder if such holder had held
the number of shares of Conversion Stock issuable upon conversion/exchange of
such holder's Series B Preferred Stock immediately before the date on which a
record is taken for such Liquidating Dividend, or, if no record is taken, the
date as of which the record holders of Conversion Stock entitled to such
dividends or distributions are to be determined.
Section 10. Purchase Rights.
If at any time the Corporation grants, issues or sells any options,
Convertible Securities or rights to purchase stock, warrants, securities or
other property pro rata to the record holders of Conversion Stock (the "Purchase
Rights"), then, in addition to the rights of the holders of Series B Preferred
Stock under Section 8, each holder of Series B Preferred Stock shall be entitled
to acquire, upon the terms applicable to such Purchase Rights, the aggregate
Purchase Rights that
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such holder could have acquired if such holder had held the number of shares of
Conversion Stock issuable upon conversion/exchange of such holder's Series B
Preferred Stock immediately before the date on which a record is taken for the
grant, issuance or sale of such Purchase Rights, or, if no such record is taken,
the date as of which the record holders of Conversion Stock are to be determined
for the grant, issue or sale of such Purchase Rights.
Section 11. Registration of Transfer.
The Corporation shall keep at its principal office a register for
the registration of Series B Preferred Stock. Upon the surrender of any
certificate representing Series B Preferred Stock at such place, the Corporation
shall, at the request of the record holder of such certificate, execute and
deliver (at the Corporation's expense) a new certificate or certificates in
exchange there for representing in the aggregate the number of Shares
represented by the surrendered certificate. Each such new certificate shall be
registered in such name and shall represent such number of Shares as is
requested by the holder of the surrendered certificate and shall be
substantially identical in form to the surrendered certificate, and dividends
shall accrue on the Shares of Series B Preferred Stock represented by such new
certificate from the date to which dividends have been fully paid on such Shares
of Series B Preferred Stock represented by the surrendered certificate.
Section 12. Replacement.
Upon receipt of an affidavit of the registered holder or other
evidence reasonably satisfactory to the Corporation of the ownership and the
loss, theft, destruction or mutilation of any certificate evidencing Shares of
Series B Preferred Stock, and in the case of any such loss, theft or
destruction, upon receipt of indemnity reasonably satisfactory to the
Corporation (provided that the holder's own unsecured indemnity agreement shall
be satisfactory), or, in the case of any such mutilation upon surrender of such
certificate, the Corporation shall (at its expense) execute and deliver in lieu
of such certificate a new certificate of like kind representing the number of
Shares of Series B Preferred Stock represented by such lost, stolen, destroyed
or mutilated certificate and dated the date of such lost, stolen, destroyed or
mutilated certificate, and dividends shall accrue on the Shares of Series B
Preferred Stock represented by such new certificate from the date to which
dividends have been fully paid on such lost, stolen, destroyed or mutilated
certificate.
Section 13. Financial Statements. The Corporation shall (a) file when due
all of its reports, including, without limitation, annual and quarterly reports,
required to be filed by it under the Exchange Act and the rules and regulations
adopted by the SEC thereunder, and (b) if the Corporation is not subject to
Section 13 or 15(d) of the Exchange Act, the Corporation shall provide to the
holder or holders of Shares of Series B Preferred Stock the financial statements
that would be required to be included in the Corporation's annual and quarterly
reports filed with the SEC if the Corporation were subject to Section 13 or
15(d) of the Exchange Act, which shall be delivered or made available to the
holder or holders of Shares of Series B Preferred Stock when the Corporation
would be required to file periodic reports with the SEC under the Exchange Act
if it were subject to Section 13 or 15(d) of the Exchange Act.
Section 14. Definitions.
"Anniversary Date" means each anniversary of the First Dividend
Reference Date.
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"Common Stock" means, collectively, the Corporation's Class A Common
Stock, the Corporation's Class B Common Stock and any capital stock of any class
of the Corporation hereafter authorized which is not limited to a fixed sum or
percentage of par or stated value in respect to the rights of the holders
thereof to participate in dividends or in the distribution of assets upon any
liquidation, dissolution or winding up of the Corporation.
"Conversion Stock" means shares of the Corporation's Class A Common
Stock; provided that if there is a change such that the securities issuable upon
conversion/exchange of the Series B Preferred Stock are issued by an entity
other than the Corporation or there is a change in the class of securities so
issuable, then the term "Conversion Stock" shall mean one share of the security
issuable upon conversion of the Series B Preferred Stock if such security is
issuable in shares, or shall mean the smallest unit in which such security is
issuable if such security is not issuable in shares.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Face Value of Series A Preferred Stock" as of any particular date
means the liquidation preference as of such date of the Series A 8.5% Cumulative
Redeemable Preferred Stock of the Corporation.
"Independent Directors" means, so long as Section 12 of the
Certificate of Incorporation is in effect, the directors of the Corporation who
are serving as Independent Directors (as defined in the Certificate of
Incorporation); and after Section 12 of the Certificate of Incorporation ceases
to be effective, Independent Directors means directors of the Corporation who
are not a director, officer, employee, agent, independent contractor or other
representative of a record or beneficial owner of Series B Preferred Stock or
any Affiliate of such owner.
"Issue Price" of any Share means $1,000.00.
"Junior Securities" means any of the Corporation's equity securities
other than the Series A 8.5% Cumulative Redeemable Preferred Stock and Series B
Preferred Stock.
"Liquidation Value" of any Share as of any particular date shall be
equal to the Issue Price plus all accrued but unpaid dividends through the date
of determination of Liquidation Value.
"Market Price" of any security means the average of the closing
prices of such security's sales on all securities exchanges on which such
security may at the time be listed, or, if there has been no sales on any such
exchange on any day, the average of the highest bid and lowest asked prices on
all such exchanges at the end of such day, or, if on any day such security is
not so listed, the average of the representative bid and asked prices quoted in
the NASDAQ Stock Market as of 4:00 p.m., New York time, or, if on any day such
security is not quoted in the NASDAQ Stock Market, the average of the highest
bid and lowest asked prices on such day in the domestic over-the-counter market
as reported by the National Quotation Bureau, Incorporated, or any similar
successor organization, in each such case averaged over a period of 21 days
consisting of the day as of which "Market Price" is being determined and the 20
consecutive business days prior to such day. If at any time such security is not
listed on any
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securities exchange or quoted in the NASDAQ Stock Market or the over-the-counter
market, the "Market Price" shall be the fair value thereof determined jointly by
the Corporation and the holders of a majority of the Series B Preferred Stock.
If such parties are unable to reach agreement within a reasonable period of
time, such fair value shall be determined by an indepen dent appraiser
experienced in valuing securities jointly selected by the Corporation and the
holders of a majority of the Series B Preferred Stock. The determination of such
appraiser shall be final and binding upon the parties, and the Corporation shall
pay the fees and expenses of such appraiser.
"Organic Change" means any recapitalization, reorganization,
reclassification, consolidation, merger, sale of all or substantially all of the
Corporation's assets to another Person or other transaction which is effected in
such a manner that holders of Common Stock are entitled to receive (either
directly or upon subsequent liquidation) Stock, securities or assets with
respect to or in exchange for Common Stock is referred to herein as an "Organic
Change".
"Person" means an individual, a partnership, a limited liability
company, a corporation, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
"Redemption Date" as to any Share means the date specified in the
notice of any redemption given or required to be given by the Corporation;
provided that no such date shall be a Redemption Date unless the Liquidation
Value of such Share is actually paid in full on such date, and if not so paid in
full, the Redemption Date shall be the date on which such amount is fully paid.
"SEC" means the Securities and Exchange Commission.
"Subsidiary" means any Person of which the Corporation owns,
directly or through one or more intermediaries, more than 50% of the outstanding
capital stock (or other ownership interests) possessing the voting power (under
ordinary circumstances) in electing the board of directors (or other governing
body).
Section 15. Amendment and Waiver.
No amendment, modification or waiver shall be binding or effective
with respect to any provision hereof without the (a) prior written consent of
the holder or holders of a majority of the Series B Preferred Stock outstanding
at the time such action is taken and (b) approval by resolution of the Board of
Directors acting with affirmative votes of a majority of Independent Directors.
No change in the terms hereof may be accomplished by merger or consolidation of
the Corporation with another corporation or entity unless the Corporation has
obtained the (a) prior written consent of the holder or holders of a majority of
the Series B Preferred Stock then outstanding and (b) approval by resolution of
the Board of Directors acting with affirmative votes of a majority of
Independent Directors.
Section 16. Notices.
Except as otherwise expressly provided hereunder, all notices
referred to herein shall be in writing and shall be delivered by registered or
certified mail, return receipt requested and
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postage prepaid, or by reputable overnight courier service, charges prepaid, and
shall be deemed to have been given when so mailed or sent (a) to the
Corporation, at its principal executive offices and (b) to any stockholder, at
such holder's address as it appears in the stock records of the Corporation
(unless otherwise indicated by any such holder).
THIRD: The Series B Preferred Stock shall initially consist of 18,200
shares, which number of shares may be increased or decreased (but not below the
number then outstanding plus the maximum number of additional shares required to
be reserved for issuance as dividends on the Series B Preferred Stock) from time
to time by the Board of Directors of the Corporation.
RESOLVED, FURTHER, that the appropriate officers of the Corporation are
hereby authorized and directed to execute and acknowledge a certificate setting
forth these resolutions and to cause such certificate to be filed and recorded,
all in accordance with the requirements of Section 151(g) of Title 8 of the
Delaware Code of 1953, as amended.
IN WITNESS WHEREOF, this Certificate has been made under the seal of U.S.
Franchise Systems, Inc., and has been signed by the undersigned
___________________, President, and ____________, Secretary, this ____ day of
_________ 2000.
------------------------------------------
President
[SEAL]
----------------------------
Secretary
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EXHIBIT H
OPINION OF COMPANY COUNSEL
1. The Company is a corporation duly organized, existing and in good
standing under the laws of the State of Delaware.
2. The Company has all requisite corporate power and authority to enter
into and perform its obligations under the Agreement.
3. The execution and delivery of the Agreement and the performance by
the Company of its obligations thereunder will not violate the
certificate of incorporation or by-laws of the Company.
4. The execution, delivery and performance of the Agreement by the
Company, the issuance and sale to the Investors of the Preferred
Stock, the issuance of Class A Common Stock issuable upon the
conversion/exchange of the B Preferred, and the Charter Amendments
have been duly authorized by all requisite corporate action,
including action of the board of directors and stockholders, and the
Agreement has been duly executed and delivered by the Company.
5. Upon the payment therefor in accordance with the Agreement, the
shares of Preferred Stock are duly authorized, validly issued, fully
paid and nonassessable.
6. Except as have been made or obtained or could not materially and
adversely affect te transactions contemplated by the Agreement, no
consent, approval, order or authorization of, or registration,
declaration or filing with, any governmental authority of the United
States of America or the States of New York or Georgia is required
for the execution and delivery by the Company of the Agreement and
for the consummation by the Company of the transactions contemplated
by the Agreement (it being understood the Company may provide a
separate opinion of counsel to the Company (who may be an employee
of the Company) as to the laws of Georgia).
The opinion will be subject to customary exceptions, qualifications and
assumptions.
EXHIBIT I
PROXY STATEMENT OUTLINE
1. Election of Directors
In addition to normal required disclosures, explain arrangements for
resignation of specified directors on the closing date.
Disclose required information regarding the persons who will be
appointed as directors following the resignations of incumbent
directors.
2. Preferred Stock/Common Stock
Authorize and approve the issuance and sale of the Preferred Stock
and the Class A Common Stock issuable upon conversion/exchange of
the B Preferred; requires majority vote of all Common Stock and a
75% vote of the Class B Common Stock.
General description of transaction [possibly incorporated by
reference to Offer Documents]
3. Charter Amendments
Authorize and approve the amendment of Section 9.1 of the
certificate of incorporation to read as follows:
9.1 Action by Written Consent. The stockholders of the
Corporation entitled to take action on any matter may take
such action by written consent, without a meeting, in
accordance with Section 228 of the Delaware General
Corporation Law.
Authorize and approve the amendment of Article 11 and Sections 11.1
and 11.2 thereof to read as follows:
11. Amendment. The Corporation reserves the right to amend,
alter, change, or repeal any provision contained in this
Certificate of Incorporation in the manner now or hereafter
prescribed by statute, and all rights conferred on
stockholders herein are granted subject to this reservation.
The provisions of Sections 12 and 13 of the Certificate of
Incorporation and this Section 11 shall not be amended without
the approval of holders of shares representing a
majority of the voting power of the outstanding shares of
voting stock of the Corporation other than any shares held by
any Significant Shareholder. For purposes of this Certificate
of Incorporation, the term Significant Shareholder shall mean
(a) Xxxxxxx X. Xxxxx and any of his affiliates or associates,
(b) SDI, Inc., and Meridian Associates, L.P., and any of their
successors, affiliates, or associates, (c) any holder of
shares of Series B 6% Cumulative Redeemable
Convertible/Exchangeable Preferred Stock, and (d) any person
or persons or group (as such term is used within the meaning
of Section 13(d) of the Exchange Act) that beneficially owns
or has the right to vote on any matter more than 35% of the
outstanding voting power of the Corporation. For purposes of
this Certificate of Incorporation, the terms "affiliate" and
"associate" shall have the meanings given to such terms in
Rule 405 under the Securities Act of 1933.
Authorize and approve the addition of Section 12 to the Certificate of
Incorporation to read as follows:
12.1 From and after _______________ (the "Effective Date")
until the fifth anniversary of the Effective Date, the Board
of Directors shall include at least three directors (the
"Independent Directors") which directors shall meet the
following qualifications. At no time while such Director
serves as an Independent Director shall the Director be, nor
shall the Director have been during the three year period
prior to the Effective Date, (i) an affiliate or associate of
a Significant Shareholder or of any of their respective
affiliates or associates (collectively the "Restricted
Parties"), (ii) a party to or an associate or an affiliate of
any person which is or was a party to any transaction with any
Restricted Party involving payments in excess of $1.0 million
in the aggregate, or (iii) is otherwise a member of the same
family as any associate or affiliate of any Restricted Party.
The initial Independent Directors shall be selected by the
Corporation in accordance with Section 4.1(e) of the
Recapitalization Agreement, dated as of June ___, 2000 by and
among the Corporation, SDI, Inc., Meridian Associates, L.P.
and HSA Properties, Inc. Thereafter, persons either nominated
for election as Independent Directors or elected by the Board
as Independent Directors must have been approved by resolution
of the Board of Directors acting with the affirmative votes of
a majority of the Independent Directors then in office.
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12.2. From and after the Effective Date until the fifth
anniversary of the Effective Date, the Corporation shall not
effect any Extraordinary Transaction with any person unless,
prior to the consummation of such Extraordinary Transaction,
(i) the stockholders of the Corporation shall have approved
the terms and conditions of the Extraordinary Transaction and
(ii) the Corporation shall have received from a nationally
recognized investment banking firm, a written opinion for
inclusion in a proxy statement to be delivered to the
stockholders, substantially to the effect that the
consideration to be received by the stockholders in the
Extraordinary Transaction is fair to them from a financial
point of view. For purposes hereof, the term "Extraordinary
Transaction" means any transaction which would have the effect
of causing the common stock of the Corporation either to be
held of record or beneficially by less than 300 persons, or to
be neither listed on any national securities exchange nor
authorized to be quoted on the Interdealer Quotation System.
12.3. From and after the Effective Date until the fifth
anniversary of the Effective Date, the Corporation shall not
nor shall it permit any subsidiary to enter into or permit to
exist any transaction, including any purchase, sale, lease or
exchange of property or the rendering of service with any
Restricted Party (an "Affiliate Transaction") unless the terms
thereof (i) are fair and no less favorable to the Corporation
than those that could be obtained in a comparable arms' length
transaction with a person that is not a Restricted Party, (ii)
if such Affiliate Transaction involves an amount in excess of
$2.0 million, (A) are set forth in writing and (B) have been
approved by resolution of the Board of Directors acting with
the affirmative votes of a majority of the Independent
Directors and (iii) if such Affiliate Transaction involves an
amount in excess of $5.0 million, the financial terms of which
have been determined by a nationally recognized investment
banking, valuation or accounting firm to be fair, from a
financial point of view, to the Corporation.
Authorize and approve the addition of Section 13 to the Certificate of
Incorporation to read as follows:
From and after the Effective Date until the fourth anniversary
of the Effective Date, the Corporation shall not, except upon
a resolution of the Board of Directors acting with the
affirmative votes of a majority of the Independent Directors,
purchase shares of the Corporation's common stock either on
the open market or
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pursuant to a tender or exchange offer or in any other
transaction (other than in an Extraordinary Transaction
approved in accordance with Section 12 of this Certificate of
Incorporation) at a per share price that is less then $7.50,
if such transaction is effected within 24 months after the
Effective Date, or if effected after such 24 month period at a
price that is less than the highest bid price per share for
the preceding 52 week period. If the Corporation shall in any
manner subdivide (by stock split, stock dividend or otherwise)
or combine (by reverse stock split or otherwise) the
outstanding shares of common stock, then effective provision
shall be made by resolution of the Board of Directors with the
affirmative votes of a majority of the Independent Directors
to adjust the prices referred to in this Section 13 to give
effect to any such change.
4. New or Amended Stock Option Plan
5. Ratification of Selection of Auditors
4
EXHIBIT J
STOCKHOLDERS AGREEMENT
THIS STOCKHOLDERS AGREEMENT (the "Agreement") is made as of June __,
2000, by and among Meridian Associates, L.P., an Illinois limited partnership
("Meridian"), SDI, Inc., a Nevada corporation ("SDI, Inc" together with its
permitted assignees, collectively, the "Investors"), HSA Properties, Inc., a
Delaware corporation ("HSA Properties", together with the Investors and
Meridian, collectively, the "Investor Group"), and Xxxxxxx X. Xxxxx, Xxxxxx
Xxxxx, __________ Leven, ________ Leven, and _________ Leven (collectively, the
"Leven Stockholders"), and Xxxxxx Xxxxxxxxxx and _________ (together, the
"Xxxxxxxxxx Stockholders"). The Investor Group, the Leven Stockholders and the
Xxxxxxxxxx Stockholders are collectively referred to as the "Stockholders" and
individually as a "Stockholder."
RECITALS
The Leven Stockholders are holders of Common Stock of U.S. Franchise
Systems, Inc., a Delaware corporation (the "Company"). The Xxxxxxxxxx
Stockholders are or may become holders of Common Stock of the Company. Meridian
is a holder of Common Stock of the Company, and the Investors have agreed to
purchase shares of the Company's Series A 8.5% Cumulative Redeemable Preferred
Stock and Series B 6.0% Cumulative Redeemable Convertible/Exchangeable Preferred
Stock on the terms and subject to the conditions of a Recapitalization Agreement
among the Investor Group and the Company dated as of June ___, 2000 (the
"Recapitalization Agreement").
The Company and some of the Stockholders are parties to a
Stockholders' Agreement dated March 12, 1998 as amended March 10, 1999 (the "HSA
Stockholders Agreement"), providing, among other things, for restrictions on
transfers of Common Stock held by them. By separate agreement, the parties to
the HSA Stockholders Agreement have agreed to terminate the HSA Stockholders
Agreement effective on the Closing Date under the Recapitalization Agreement
(the "Effective Date").
The Stockholders desire to enter into this Agreement for the
purposes, among others, of (i) assuring continuity in the management and
ownership of the Company, and (ii) limiting the manner and terms by which the
Stockholders' Preferred Stock and Common Stock may be transferred.
AGREEMENT
For good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties to this Agreement hereby agree as
follows:
1. Defined Terms. Capitalized terms used herein as defined terms and not
otherwise defined shall have them meanings given to them below:
"Affiliate" with respect to any Person, means any other Person, entity or
investment fund controlling, controlled by or under common control with such
Person and any partner of such Person which is a partnership. "Affiliate" with
respect to the Investor Group, means, in addition to the foregoing, any and all
of the lineal descendants of Xxxxxxxx X. Xxxxxxxx, deceased, any and all trusts
for their benefit or for the benefit of any of their spouses, and any Person
owned or controlled by such lineal descendants or trusts.
"Brokers Transaction" has the meaning provided in Section 4(4) of the
Securities Act of 1933.
"Certificate of Incorporation" means the certificate of incorporation of
the Company, as amended, supplemented or restated from time to time.
"Common Stock" means the Common Stock of the Company, $.01 par value.
"Current Market Price" of any security means the average of the closing
prices of such security's sales on all securities exchanges on which such
security may at the time be listed, or, if there has been no sales on any such
exchange on any day, the average of the highest bid and lowest asked prices on
all such exchanges at the end of such day, or, if on any day such security is
not so listed, the average of the representative bid and asked prices quoted in
the NASDAQ Stock Market as of 4:00 p.m., New York time, or, if on any day such
security is not quoted in the NASDAQ Stock Market, the average of the highest
bid and lowest asked prices on such day in the domestic over-the-counter market
as reported by the National Quotation Bureau, Incorporated, or any similar
successor organization, on the day as of which "Current Market Price" is being
determined.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Family Group" with respect to any person, means such person's spouse and
descen dants (whether natural or adopted) and any trust solely for the benefit
of such person and/or the person's spouse and/or descendants.
"Independent Third Party" means any Person who, immediately prior to the
contemplated transaction, does not own in excess of 5% of the Company's Common
Stock and Underlying Common Stock on a fully-diluted basis (a "5% Owner"), who
is not an Affiliate with any such 5% Owner and who is not in the Family Group of
any such 5% Owner or a trust for the benefit of such 5% Owner and/or such other
Persons.
"Original Shares" with respect to any Person or group means the Shares
held by such Person or group as of the Effective Date and Shares acquired after
the Effective Date pursuant to the exercise of options or conversion/exchange
rights.
2
"Person" means an individual, a partnership, a limited liability company,
a corporation, an association, a joint stock company, a trust, a joint venture,
an unincorporated organization and a governmental entity or any department,
agency or political subdivision thereof.
"Preferred Stock" shall mean the Series B 6.0% Cumulative Redeemable
Convertible/Exchangeable Preferred Stock of the Company acquired by the Investor
Group pursuant to the Recapitalization Agreement.
"Shares" means (i) any Common Stock purchased or otherwise acquired by any
Stockholder, (ii) any Preferred Stock purchased or otherwise acquired by any
Stockholder, (iii) any warrants purchased or otherwise acquired by any
Stockholder, (iv) any equity securi ties issued or issuable directly or
indirectly with respect to the Common Stock referred to in clause (i) above or
the Preferred Stock referred to in clause (ii) above (including the Underlying
Common Stock) by way of stock dividend or stock split or in connection with a
combination of shares, recapitalization, merger, consolidation or other
reorganization, and (v) any other shares of any class or series of capital stock
of the Company held by a Stock holder.
"Underlying Common Stock" shall mean (i) the Common Stock issued or
issuable upon conversion of the Preferred Stock and (ii) any equity securities
issued or issuable with respect to the securities referred to in clause (i)
above by way of stock dividend or stock split or in connection with a
combination of shares, recapitalization, merger, consolidation or other
reorganization. Any person who holds Preferred Stock will be deemed to be the
holder of the Underlying Common Stock obtainable upon conversation of such
Preferred Stock and regardless of any restriction on the exercise of the
conversion of such Preferred Stock for purposes of this Agreement.
2. Restrictions on Transfer of Shares.
(a) Transfer of Shares. From and after the Effective Date, no
Stockholder shall sell, transfer, assign, pledge or otherwise dispose
(whether voluntarily or involuntarily, by operation of law or otherwise a
"Transfer") of any interest in any Shares, whether now owned or hereafter
acquired, in violation of the provisions of this Agreement. Each
Stockholder agrees not to consummate any Transfer subject to this
Agreement until 20 days after the later of the delivery to the other
Stockholders of such Stockholder's Offer Notice or Sale Notice (if
required by this Agreement), unless the parties to the Transfer have been
finally determined pursuant to this Section 2 prior to the expiration of
such 20 day period (the "Election Period").
(b) First Offer Right. At least 20 days prior to making any Transfer
of any Shares, other than a Transfer of Shares held by the Investor Group,
the Stockholder intending to make such transfer (the "Transferring
Stockholder") shall deliver a written notice (the "Offer Notice") to the
other Stockholders (the "Other Stockholders"). The Offer Notice shall
disclose in reasonable detail the proposed number of Shares to be
transferred, the identity of the proposed transferee, and the proposed
terms and conditions of the Transfer and shall be accompanied by a bona
fide offer to purchase such Shares on such terms and conditions from an
Independent Third Party or other
3
Person not an Affiliate of the Transferring Stockholder. Each Other
Stockholder may elect to purchase all (but not less than all) of its, his
or her Pro Rata Share (as defined below) of the Shares specified in the
Offer Notice at the price and on the terms specified therein by delivering
written notice of such election to the Transferring Stockholder as soon as
practical but in any event within 10 days after delivery of the Offer
Notice. Any Shares not elected to be purchased by the end of such 10 day
period shall be reoffered for the 10 day period prior to the expiration of
the Election Period by the Transferring Stockholder on a pro rata basis to
the Other Stockholders who have elected to purchase their Pro Rata Share.
If any Other Stockholders have elected to purchase Shares from the
Transferring Stockholder, the transfer of such Shares shall be consummated
as soon as practical after the delivery of the election notices, but in
any event within 10 days after the expiration of the Election Period. To
the extent that the Other Stockholders have not elected to purchase all of
the Shares being offered, the Transferring Stockholder may, within 30 days
after the expiration of the Election Period, transfer such Shares to the
proposed transferee named in the Offer Notice for the price per Share
specified in the Offer Notice and on the other terms and conditions stated
in the Offer Notice. The purchase price specified in any Offer Notice
shall be payable solely in cash at the closing of the transaction. Each
Stockholder's "Pro Rata Share" shall be based upon such Stockholder's
proportionate ownership of all Shares on a fully-diluted basis.
(c) Permitted Transfers. The restrictions and rights contained in
this Section 2 shall not apply with respect to any Transfer of Shares:
(i) by a Leven Stockholder or Xxxxxxxxxx Stockholder pursuant
to applicable laws of descent and distribution or among such
Stockholder's Family Group; provided, however, that the restrictions
contained in this Section 2 shall continue to be applicable to the
Shares after any such Transfer; and provided, further, that the
transferees of such Shares shall have agreed in writing to be bound
by the provisions of this Agreement affecting the Shares so
transferred;
(ii) by Xxxxxxx and/or Xxxxxx Xxxxx in Brokers Transactions,
after notice to the Investor Group, at any time and from time to
time after the second anniversary of the Effective Date; provided
that Xxxxxxx and/or Xxxxxx Xxxxx shall not be permitted to Transfer,
in the aggregate, more than one-third of their Original Shares
before the third anniversary of the Effective Date or more than
two-thirds of their Original Shares before the fourth anniversary of
the Effective Date;
(iii) by a Leven Stockholder (other than Xxxxxxx and Xxxxxx
Xxxxx) in Brokers Transactions at any time and from time to time
after notice to the Investor Group;
(iv) by Xxxxxx Xxxxxxxxxx in Brokers Transactions, after
notice to the Investor Group, at any time and from time to time
after the fourth anniversary of the Effective Date; provided that
Xxxxxx Xxxxxxxxxx shall not be permitted to Transfer, in the
aggregate, more than one-third of his Original Shares before
4
the fifth anniversary of the Effective Date or more than two-thirds
of his Original Shares before the sixth anniversary of the Effective
Date; and
(v) by any Stockholder to the Company.
3. Tag-Along Rights. In the event that the Investor Group proposes to
Transfer, in one or a series of related transactions, more than 20% of their
Original Shares to an Independent Third Party and not involving a "brokers
transaction" within the meaning of Rule 144 under the Securities Act of 1933,
they shall deliver a written notice (the "Sale Notice") to the Other
Stockholders, specifying in reasonable detail the identity of the prospective
transferee(s) and the terms and conditions of the Transfer. The Other
Stockholders may elect to participate in the contemplated Transfer with respect
to any Shares they then hold by delivering written notice to the Investor Group
within 10 days after delivery of the Sale Notice. If any Other Stockholders have
elected to participate in such Transfer, the Investor Group and such Other
Stockholders shall be entitled to sell in the contemplated Transfer, at the same
price and on the same terms, a number of Shares equal to the product of (a) the
quotient determined by dividing the percentage of Shares owned by such person by
the aggregate percentage of Shares owned by Investor Group and the Other
Stockholders participating in such sale and (b) the number of Shares to be sold
in the contemplated Transfer. The Investor Group shall use its best efforts to
obtain the agreement of the prospective transferee(s) to the participation of
the Other Stockholders in the contemplated Transfer, and the Investor Group
shall not transfer any of their Shares to the prospective transferee(s) if the
prospective transferee(s) declines to allow the participation of the Other
Stockholders. If any portion of the Preferred Stock is included in any Transfer
of Shares under this Section 3, the Transfer of such Preferred Stock shall be
treated as a transfer of the Underlying Common Stock, and the purchase price for
each share of Preferred Stock shall be equal to the full purchase price
determined hereunder for the underlying Common Stock issuable upon conversion of
the Preferred Stock to be transferred less any price payable by the holder of
the Preferred Stock in connection with such conversion/exchange.
4. Co-Sale Rights. In the event that the Investor Group proposes to
Transfer more than 50% of their Shares to an Independent Third Party, they may
deliver a written notice (the "Co-Sale Notice") to the Other Stockholders, not
less than 10 days prior to the date of such Transfer, specifying in reasonable
detail the identity of the prospective transferee(s) and the terms and
conditions of the proposed transfer and directing that the Stockholders shall
participate in such proposed Transfer. If the Investor Group gives the Co-Sale
Notice, each Stockholder shall participate in such Transfer and sell, at the
same price and on the same terms, a number of Shares equal to the product of (a)
the quotient determined by dividing the number of Shares owned by each
Stockholder by the aggregate number of Shares owned by all Stockholders and (b)
the number of Shares to be acquired by the proposed transferee. If any portion
of the Preferred Stock is included in any Transfer of Shares under this Section
4, the Transfer of such Preferred Stock shall be treated as a transfer of the
Underlying Common Stock, and the purchase price for each share of Preferred
Stock shall be equal to the full purchase price determined hereunder for the
underlying Common Stock issuable upon conversion of the Preferred Stock to be
transferred less any price payable by the holder of the Preferred Stock in
connection with such conversion/exchange.
5
5. Pledge of Shares. From and after the Effective Date, no Shares may be
pledged without the prior written consent of the Investor Group which consent
may be withheld in their sole discretion.
6. Termination of Restrictions. The restrictions and rights set forth in
Section 2 shall continue with respect to each Share until the earlier of (a) the
date on which such Share has been transferred pursuant to Section 2 (other than
Section 2(c)) or (b) the seventh anniversary of the Effective Date. The
restrictions and rights set forth in Section 2 shall terminate with respect to
the Shares held by the Leven Stockholders upon the termination of Xxxxxxx
Xxxxx'x employment with the Company by reason of his death or disability or
under circumstances constituting termination by the Company without "cause" (as
defined in the applicable employment agreement) or termination by Xx. Xxxxx for
"good reason" (as defined in the applicable employment agreement). The
restrictions and rights set forth in Section 2 shall terminate with respect to
the Shares held by the Romaniello Stockholders upon the termination of Xxxxxxx
Xxxxxxxxxx'x employment with the Company by reason of his death or disability or
under circumstances constituting termination by the Company without "cause" (as
defined in the applicable employment agreement) or termination by Xx. Xxxxxxxxxx
for "good reason" (as defined in the applicable employment agreement). The
restrictions and rights set forth in Sections 3, 4, and 5 shall terminate on the
earlier of (i) the seventh anniversary of the Effective Date and (ii) the date
upon which the Investor Group no longer holds 50% of their Original Shares.
7. Election of Directors.
(a) Voting for Directors. On or as promptly as practicable after the
Effective Date, each of the Stockholders shall take all such lawful
action, including affirmatively voting the Shares owned by such
Stockholder, as necessary to cause the Company's Board of Directors to
consist of eleven persons and as necessary to remove incumbent directors
so as to enable the election of new directors as contemplated by this
Section 7(a). Subject to the provisions of Section 7(b) hereof, each of
the Stockholders shall vote all of the Shares owned or controlled by such
Stockholder (i) at each annual or special meeting of the Company's
stockholders called for the purpose of electing directors or (ii) by
written consent (in lieu of a meeting) of the Company's stockholders for
the purpose of electing directors, in favor of the following:
(A) the election to the Board of Directors of the six nominees
designated from time to time by the Investor Group, two of whom
shall be persons who are not directors, officers, employees, agents,
or other representatives of the Investor Group or any Affiliate of
the Investor Group; and
(B) election to the Board of Directors of Xxxxxxx X. Xxxxx as
long as Xxxxxxx X. Xxxxx is employed by the Company and thereafter
as long as he and his Family Group and his Affiliates, collectively,
hold Shares or options to acquire Shares representing in excess of
3% of the voting power represented by the Common Stock of the
Company outstanding, calculated on a fully diluted basis;
6
(C) election to the Board of Directors of Xxxxxx Xxxxxxxxxx as
long as Xxxxxxx Xxxxxxxxxx is employed by the Company; and
(D) election to the Board of Directors of __________,
_________, and _____ or other persons who are designated or
otherwise nominated in accordance with Section 12.1 of the
Certificate of Incorporation.
(b) Removal; Vacancies Any director who is elected to the Board of
Directors of the Company pursuant to a designation under Section 7(a)
hereof (other than clause (D) of Section 7(a)) may be removed from the
Board of Directors with or without cause upon the request of the
Stockholder who designated such director and the Stockholder shall
promptly take all such lawful action as necessary to call or convene a
special meeting of the Company's stockholders as soon as reasonably
practical and to affirmatively vote their Shares at such meeting, or to
execute a written consent of stockholders in lieu of a meeting to give
effect to such requested removal. In the event that a director so elected
resigns, is removed from office, or otherwise ceases to serve on the Board
of Directors of the Company, for any reason, the vacancy shall be filled
with an individual designated in accordance with Section 7(a) hereof by
the Stockholder who originally designated such director (in the case of
directors designated under clauses (A), (B) or (C) of Section 7(a)) and by
the remaining directors (in the case of directors designated under clause
(D) of Section 7(a)), and the Stockholders shall promptly take all such
lawful action as necessary to call or convene a special meeting of the
Company's stockholders as soon as reasonably practical and to
affirmatively vote their Shares at such meeting, or to execute a written
consent of stockholders in lieu of a meeting, to elect such individual to
the Board of Directors.
8. Legend. Each certificate evidencing Shares and each certificate issued
in exchange for or upon the transfer of any Shares (if such shares remain
subject to this Agreement after such transfer) shall be stamped or otherwise
imprinted with a legend in substantially the following form:
"The securities represented by this certificate are subject to a
Stockholders Agreement dated as of June ___, 2000, among U.S.
Franchise Systems, Inc. and certain of its stockholders. A copy of
such Stockholders Agreement is on file at the principal offices of
the Corporation."
The Company shall imprint such legend on certificates evidencing Shares
outstanding as of the Effective Date. The legend set forth above shall be
removed from the certificates evidencing any Shares that are no longer subject
to this Agreement by reason of a Transfer permitted by Section 2 hereof.
9. Transfers in Violation of Agreement. Any Transfer or attempted Transfer
of any Shares in violation of any provision of this Agreement shall be void, and
the Company shall not be required to record such Transfer on its books or treat
any purported transferee of such Shares as the owner of such shares for any
purpose.
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10. Amendment and Waiver. Except as otherwise provided herein, any
provision of this Agreement may be amended, modified, or waived if such
modification, amendment or waiver is approved in writing by the holders of at
least 90% of the Shares and Underlying Common Stock; provided that no such
covenant shall materially and adversely affect the right of any Stockholder who
did not consent thereto. The failure of any party to enforce any of the
provisions of this Agreement shall in no way be construed as a waiver of such
provisions and shall not affect the right of such party thereafter to enforce
each and every provision of this Agreement in accordance with its terms.
11. Severability. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provi sion of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision or any other jurisdiction, but this Agreement shall be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
12. Entire Agreement. Except as otherwise expressly set forth herein, this
document embodies the complete agreement and understanding among the parties
hereto with respect to the subject matter hereof and supersedes and preempts any
prior understandings, agreements or representations by or among the parties,
written or oral, which may have related to the subject matter hereof in any way.
13. Successors and Assigns. Except as otherwise provided herein, this
Agreement shall bind and inure to the benefit of and be enforceable by the
Stockholders and any subse quent holders of Shares and the respective successors
and assigns of each of them, so long as they hold Shares.
14. Descriptive Headings. The descriptive headings of this Agreement are
inserted for convenience only and do not constitute a part of this Agreement.
15. Remedies. The Stockholders shall be entitled to enforce their rights
under this Agreement specifically to recover damages by reason of any breach of
any provision of this Agreement and to exercise all other rights existing in
their favor. The parties hereto agree and acknowledge that money damages may not
be an adequate remedy for any breach of the provisions of this Agreement and
that any Stockholder may in his, her or its sole discretion apply to any court
of law or equity of competent jurisdiction for specific performance and/or
injunctive relief (without posting a bond or other security) in order to enforce
or prevent any violation of the provisions of this Agreement.
16. Notices. Any notice provided for in this Agreement shall be in writing
and shall be either personally delivered, or mailed first class mail (postage
prepaid) or sent by reputable overnight courier service (charges prepaid) to any
other recipient at the address indicated on the Schedules hereto and to any
subsequent holder of Shares subject to this Agreement at such address as
indicated by the Company's records, or at such address or to the attention of
such other person as the recipient party has specified by prior written notice
to the sending party. Notices will be deemed to have been given hereunder when
delivered
8
personally, three days after deposit in the U.S. mail and one day after deposit
with a reputable overnight courier service.
17. Governing Law. All questions concerning the construction, validity and
interpretation of this Agreement shall be governed by the internal law, and not
the law of conflicts, of Delaware.
18. Counterparts. This Agreement may be executed in separate counterparts
each of which shall be an original and all of which taken together shall
constitute one and the same agreement.
9
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
day and year first written above.
INVESTOR GROUP: MERIDIAN ASSOCIATES, L.P.
By: Meridian Investments, Inc.
Its General Partner
By:
Name:
Its:
SDI, INC.
By:
Name:
Its:
HSA PROPERTIES INC.
By:
Name:
Its:
000 Xxxx Xxxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxxxxx 00000
Attention: Xxxxxx X. Xxxxxxxxxx
LEVEN STOCKHOLDERS:
Xxxxxxx X. Xxxxx
------------------------------------
Xxxxxx X. Xxxxx
0 Xxxxxx Xxxxx Xxxx
Xxxxxxx, Xxxxxxx 00000
_________ Leven
_________ Leven
_________ Leven
XXXXXXXXXX STOCKHOLDERS:
Xxxxxxx Xxxxxxxxxx
EXHIBIT K
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made as of
_______________, 2000, by and among U.S. FRANCHISE SYSTEMS, INC., a Delaware
corporation (the "Corporation"), SDI INC., a Nevada corporation ("SDI", together
with its permitted assignees, collectively, the "Investors"), MERIDIAN
ASSOCIATES, L.P., an Illinois limited partnership ("Meridian"), HSA PROPERTIES,
INC., a Delaware corporation ("HSA Properties", and together with Meridian and
the Investors, collectively, the "Securityholders"), and XXXX X. XXXXXXX
("Xxxxxxx").
R E C I T A L S
A. Currently, (i) Xxxxxxx beneficially owns shares of Common Stock of the
Corporation ("Xxxxxxx Shares"), and (ii) HSA Properties and Meridian own shares
of Class A Common Stock of the Corporation (the "HSA/Meridian Shares").
B. The Investors have agreed to purchase shares of the Corporation's
Series A 8.5% Cumulative Redeemable Preferred Stock and Series B 6.0% Cumulative
Redeemable Convertible/Exchangeable Preferred Stock ( collectively, the
"Investor Shares", together with the HSA/Meridian Shares, collectively, the
"Securityholder Shares") pursuant to that certain Recapitalization Agreement of
even date herewith among the Corporation and the Securityholders (the
"Recapitalization Agreement").
C. The Corporation deems it desirable to grant registration rights to (i)
Xxxxxxx in connection with the Xxxxxxx Shares, and (ii) HSA Properties and
Meridian in connection with the HSA/Meridian Shares.
D. The Corporation deems it desirable to enter into this Agreement in
order to induce the Investors to purchase the Investor Shares pursuant to the
Recapitalization Agreement.
AGREEMENTS
In consideration of the premises and the mutual covenants herein contained
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto hereby agree as follows:
1. Definitions. As used in this Agreement.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means shares of the Corporation's Class A and Class B
Common Stock, each with par value $.01.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"IPO" means the Corporation's first underwritten public offering of shares
of Common Stock pursuant to a registration statement filed with the Commission.
"Public Offering" means any offering by the Corporation of its equity
securities to the public pursuant to an effective registration statement under
the Securities Act or any comparable statement under any comparable federal
statute then in effect.
"Registrable Shares" means at any time (i) any shares of Common Stock then
outstanding which were issued upon conversion of the Investor Shares; (ii) any
shares of Common Stock then issuable upon conversion of the outstanding Investor
Shares; (iii) any shares of Common Stock then outstanding which were issued as,
or were issued directly or indirectly upon the conversion or exercise of other
securities issued as, a dividend or other distribution with respect or in
replacement of any shares referred to in (i) and (ii); (iv) any shares of Common
Stock then issuable directly or indirectly upon the conversion or exercise of
other securities which were issued as a dividend or other distribution with
respect to or in replacement of any shares referred to in (i) and (ii); (v) the
Xxxxxxx Shares, and (vi) the HSA/Meridian Shares.
"Securities Act" means the Securities Act of 1933, as amended.
2. Demand Registration.
2.1 Requests for Registration.
(i) Subject to the terms of this Agreement, the holders of more
than 50% of the then outstanding Securityholder Shares may, at
any time, request registration under the Securities Act of all
or part of their Registrable Shares on Form S-1 or any similar
long-form registration or, if available, on Form S-2 or S-3 or
any similar short-form registration (a "Demand Registration").
Such request shall specify the number of their Registrable
Shares requested to be registered. Within 30 days after
receipt of any written request pursuant to this Section 2.1,
the Corporation will give written notice of such request to
all other holders of Registrable Shares and, subject to
Section 2.3 below, will include in such registration all
Registrable Shares with respect to which the Corporation has
received written requests for inclusion within 30 days after
delivery of the Corporation's notice.
(ii) The holders of the Securityholder Shares will be entitled to
request three Demand Registrations and the Corporation will
pay all Registration Expenses (as defined in Section 6 below)
associated therewith. The aggregate offering value of the
Registrable Shares requested to be registered in any Demand
Registration must, in the good faith judgment
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of the holders thereof, equal at least $5,000,000. A
registration will not constitute one of the permitted Demand
Registrations until it has become effective (unless such
Demand Registration has not become effective due solely to the
fault of the holders requesting such registration and such
holders have not reimbursed the Corporation for the reasonable
expenses associated with such registration), the first Demand
Registration will not constitute one of the permitted Demand
Registrations unless the holders of the Registrable Shares are
able to register and, if such registration is an underwritten
registration, sell, at least 80% of the Registrable Shares
requested to be included in such registration, and the second
Demand Registration will not constitute one of the permitted
Demand Registrations unless the holders of the Registrable
Shares are able to register and sell at least 80% of the
Registrable Shares requested to be included in such
registration.
2.2 Restrictions. The Corporation shall not be obligated to effect
more than one Demand Registration in any twelve-month period, and the
Corporation shall not be obligated to effect any Demand Registration within 60
days after the effective date of a previous offering of Common Stock registered
under the Securities Act. The Corporation may postpone for up to 180 days the
filing or the effectiveness of a registration statement for a Demand
Registration if the Corporation's board of directors determines in its
reasonable good faith judgment that such Demand Registration would reasonably be
expected to have a material adverse effect on any proposal or plan by the
Corporation or any of its subsidiaries to engage in any acquisition (other than
in the ordinary course of business) or any merger, consolidation, tender offer,
reorganization or similar transaction; provided that (a) the Corporation may
exercise its right to delay a Demand Registration only once in any twelve-month
period and (b) if a Demand Registration is delayed hereunder, the holders of
Registrable Shares initially requesting such Demand Registration shall be
entitled to withdraw such request and, if such request is withdrawn, such Demand
Registration shall not count as one of the permitted Demand Registrations
hereunder and the Corporation shall pay all Registration Expenses in connection
with such registration. Notwithstanding anything to the contrary in Section 2.1
(iii), (x) the Corporation may not prevent, delay or postpone any Demand
Registration and (y) the Securityholders shall not be subject to any lockup or
similar agreements following any Demand Registration for more than 270 days
during any 360-day period.
2.3 Priority. If both the Registrable Shares held by the
Securityholders and the Xxxxxxx Shares are requested to be included in a Demand
Registration which is an underwritten offering and the managing underwriters
advise the Corporation in writing that in their opinion the number of securities
requested to be included exceeds the number of Registrable Shares which can be
sold in such offering, the Corporation will include in such registration, first,
the Regisrable Shares held by the Securityholders requested to be included in
such Demand Registration, pro rata among the holders of such Registrable Shares
on the basis of the number of shares which are owned by such Securityholders,
and second, the Xxxxxxx Shares requested to be included in such Demand
Registration.
2.4 Selection of Underwriters. The holders of more than 50% of the
Registrable Shares included in any Demand Registration shall have the right to
select the
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investment banker(s) and manager(s) to administer the offering, subject to the
Corporation's approval which will not be unreasonably withheld.
3. Piggyback Registration.
3.1 Right to Piggyback. Whenever the Corporation proposes to
register, either for its own account or the account of a security holder or
holders, any of its securities under the Securities Act (other than pursuant to
a Demand Registration hereunder and other than pursuant to a registration
statement on Form S-8 or Form S-4, or their successors) and the registration
form to be used may be used for the registration of any Registrable Shares (a
"Piggyback Registration"), the Corporation will give prompt written notice to
all holders of the Registrable Shares of its intention to effect such a
registration and will include in such registration all Registrable Shares (in
accordance with the priorities set forth in Sections 3.2 below) with respect to
which the Corporation has received written requests for inclusion within 20 days
after the delivery of the Corporation's notice.
3.2 Priority on Piggyback Registrations. If a Piggyback Registration
is an underwritten primary registration on behalf of the Corporation and the
managing underwriters advise the Corporation in writing that in their opinion
the number of securities requested to be included in such registration exceeds
the number which can be sold in such offering, the Corporation will include in
such registration first, the securities that the Corporation proposes to sell,
second, the Registrable Shares held by the Securityholders requested to be
included in such registration, and third, the Xxxxxxx Shares requested to be
included in such registration.
3.3 Right to Terminate Registration. The Corporation shall have the
right to withdraw any registration initiated by it under this Section 3 prior to
the effectiveness of such registration whether or not any holder of its
securities has elected to include securities in such registration.
4. Holdback Agreements.
4.1 Holders' Agreements. Each holder of Registrable Shares agrees
not to effect any public sale or distribution of equity securities of the
Corporation, or any securities convertible into or exchangeable or exercisable
for such securities during the seven days prior to and during the 90 days
following the effective date of any underwritten Demand Registration or any
underwritten Piggyback Registration in which Registrable Shares are included
(except as part of such underwritten registration) unless the underwriters
managing the registered public offering otherwise agree.
4.2 Corporation's Agreements. The Corporation agrees (i) not to
effect any public sale or distribution of its equity securities, or any
securities convertible into or exchangeable or exercisable for such securities
during the seven days prior to, and during the 90 days following, the effective
date of any underwritten Demand Registration or any underwritten Piggyback
Registration (except as part of such underwritten registration or pursuant to
registrations on Form X-0, Xxxx X-0 or any successor forms) unless the
underwriters managing the registered public offering otherwise agree, and (ii)
to use its reasonable best efforts to cause each holder of at least 1% (on a
fully diluted basis) of its equity securities, or any
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securities convertible into or exchangeable or exercisable for such securities
to agree not to effect any public sale or distribution of any such securities
during such periods (except as part of such underwritten registration, if
otherwise permitted), unless the underwriters managing the registered public
offering otherwise agree.
5. Registration Procedures. Whenever the holders of Registrable Shares
have requested that any Registrable Shares be registered pursuant to this
Agreement, the Corporation will use its reasonable best efforts to effect the
registration and sale of such Registrable Shares in accordance with the intended
method of disposition thereof and, pursuant thereto, the Corporation will as
expeditiously as possible:
5.1 Prepare and file with the Commission a registration statement
with respect to such Registrable Shares and use its reasonable best efforts to
cause such registration statement to become effective (provided that before
filing a registration statement or prospectus, or any amendments or supplements
thereto, the Corporation will furnish copies of all such documents proposed to
be filed to the counsel or counsels for the sellers of the Registrable Shares
covered by such registration statement);
5.2 Prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus(es) used in
connection therewith as may be necessary to keep such registration statement
effective for a period of not less than nine months and comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement during such period in
accordance with the intended methods of disposition by the sellers thereof set
forth in such registration statement;
5.3 Furnish to each seller of Registrable Shares such number of
copies of such registration statement, each amendment and supplement thereto,
the prospectus(es) included in such registration statement (including each
preliminary prospectus) and such other documents as such seller may reasonably
request in order to facilitate the disposition of the Registrable Shares owned
by such seller;
5.4 Use its reasonable best efforts to register or qualify such
Registrable Shares under such other securities or blue sky laws of such
jurisdictions as any seller reasonably requests and do any and all other acts
and things which may be reasonably necessary or advisable to enable such seller
to consummate the disposition in such jurisdictions of the Registrable Shares
owned by such seller (provided that the Corporation will not be required to (i)
qualify generally to do business in any jurisdiction where it would not
otherwise be required to qualify but for this subparagraph, (ii) subject itself
to taxation in any such jurisdiction, or (iii) consent to general service of
process in any such jurisdiction);
5.5 Notify each seller of such Registrable Shares, at any time when
a prospectus relating thereto is required to be delivered under the Securities
Act, of the happening of any event as a result of which the prospectus included
in such registration statement contains an untrue statement of a material fact
or omits any fact necessary to make the statements therein not misleading, and,
at the request of any such seller, the Corporation will prepare a supplement or
amendment to such prospectus so that, as thereafter delivered to the
Securityholders of such
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Registrable Shares, such prospectus will not contain any untrue statement of a
material fact or omit to state any fact necessary to make the statements therein
not misleading;
5.6 Cause all such Registrable Shares to be listed on each
securities exchange on which similar securities issued by the Corporation are
then listed;
5.7 Provide a transfer agent and registrar for all such Registrable
Shares not later than the effective date of such registration statement;
5.8 Enter into such customary agreements (including underwriting
agreements in customary form) and take all such other actions as the holders of
a majority of the Registrable Shares being sold or the underwriters, if any,
reasonably request in order to expedite or facilitate the disposition of such
Registrable Shares;
5.9 Make available for inspection by any seller of Registrable
Shares, any underwriter participating in any disposition pursuant to such
registration statement, and any attorney, accountant or other agent retained by
any such seller or underwriter, all financial and other records, pertinent
corporate documents and properties of the Corporation, and cause the
Corporation's officers, directors, employees and independent accountants to
supply all information reasonably requested by any such seller, underwriter,
attorney, accountant or agent in connection with such registration statement;
5.10 Advise each seller of such Registrable Shares, promptly after
it shall receive notice or obtain knowledge thereof, of the issuance of any stop
order by the Commission suspending the effectiveness of such registration
statement or the initiation or threatening of any proceeding for such purpose
and promptly use all reasonable efforts to prevent the issuance of any stop
order or to obtain its withdrawal if such stop order should be issued;
5.11 Unless shorter notice is necessary under the circumstances, at
least forty eight (48) hours prior to the filing of any registration statement
or prospectus, or any amendment or supplement to such registration statement or
prospectus, furnish a copy thereof to each seller of such Registrable Shares and
refrain from filing any such registration statement, prospectus, amendment or
supplement to which counsel selected by the holders of a majority of the
Registrable Shares being registered shall have reasonably objected on the
grounds that such document does not comply in all material respects with the
requirements of the Securities Act or the rules and regulations thereunder,
unless, in the case of an amendment or supplement, in the opinion of counsel for
the Corporation the filing of such amendment or supplement is reasonably
necessary to protect the Corporation from any liabilities under any applicable
federal or state law and such filing will not violate applicable laws; and
5.12 At the request of any seller of such Registrable Shares in
connection with an underwritten offering, furnish on the date or dates provided
for in the underwriting agreement, an opinion of counsel, addressed to the
underwriters and, to the extent permissible under applicable accounting rules,
the sellers of Registrable Shares, covering such matters as such underwriters
and, sellers may reasonably request, including such matters as are customarily
furnished in connection with an underwritten offering; and (ii) a letter or
letters from the independent certified public accountants of the Corporation
addressed to the underwriters and
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the sellers of Registrable Shares, covering such matters as such underwriters
and sellers may reasonably request, in which letter(s) such accountants shall
state, without limiting the generality of the foregoing, that they are
independent certified public accountants within the meaning of the Securities
Act and that in their opinion the financial statements and other financial data
of the Corporation included in the registration statement, the prospectus(es),
or any amendment or supplement thereto, comply in all material respects with the
applicable accounting requirements of the Securities Act.
6. Registration Expenses.
6.1 Corporation's Expenses. All expenses incident to the
Corporation's performance of or compliance with this Agreement, including
without limitation all registration and filing fees, fees and expenses of
compliance with securities or blue sky laws, printing expenses, messenger and
delivery expenses, and fees and disbursements of counsel for the Corporation and
all independent certified public accountants, underwriters (excluding discounts
and commissions) and other persons retained by the Corporation (all such
expenses being herein called "Registration Expenses"), will be borne by the
Corporation.
6.2 Holder's Expenses. Notwithstanding anything to the contrary
contained herein, each holder of Registrable Shares will pay all attorney fees
and disbursements for counsel they retain in connection with the registration of
Registrable Shares, except that the Corporation will reimburse the holders of
Registrable Shares for the reasonable fees and disbursements of one counsel
chosen by the holders of more than 50% of such Registrable Shares in connection
with a Demand Registration.
7. Indemnification.
7.1 By the Corporation. The Corporation agrees to indemnify, to the
extent permitted by law, each holder of Registrable Shares, its managers,
officers and directors and each person who controls such holder (within the
meaning of the Securities Act) against all losses, claims, damages, liabilities
and expenses (including without limitation, attorney's fees) caused by any
untrue or alleged untrue statement of material fact contained in any
registration statement, prospectus or preliminary prospectus, or any amendment
thereof or supplement thereto, or any omission or alleged omission of a material
fact required to be stated therein or necessary to make the statements therein
not misleading, except insofar as the same are caused by or contained in any
information furnished in writing to the Corporation by such holder expressly for
use therein or by such holder's failure to deliver a copy of the registration
statement or prospectus or any amendments or supplements thereto after the
Corporation has furnished such holder with a sufficient number of copies of the
same. In connection with an underwritten offering, the Corporation will
indemnify such underwriters, their officers and directors and each person who
controls such underwriters (within the meaning of the Securities Act) to the
same extent as provided above with respect to the indemnification of the holders
of Registrable Shares. The payments required by this Section 7.1 will be made
periodically during the course of the investigation or defense, as and when
bills are received or expenses incurred.
7.2 By Each Holder. In connection with any registration statement in
which a holder of Registrable Shares is participating, each such holder will
furnish to the Corporation
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in writing such information and affidavits as the Corporation reasonably
requests for use in connection with any such registration statement or
prospectus and, to the extent permitted by law, will indemnify the Corporation,
its directors and officers and each person who controls the Corporation (within
the meaning of the Securities Act) against any losses, claims, damages,
liabilities and expenses resulting from any untrue or alleged untrue statement
of material fact contained in the registration statement, prospectus or
preliminary prospectus, or any amendment thereof or supplement thereto, or any
omission or alleged omission of a material fact required to be stated therein or
necessary to make the statements therein not misleading, but only to the extent
that such untrue statement or omission is contained in any information or
affidavit so furnished in writing by such holder; provided that the obligation
to indemnify will be several, not joint and several, among such holders of
Registrable Shares and the liability of each such holder of Registrable Shares
will be in proportion to and limited to the net amount received by such holder
from the sale of Registrable Shares pursuant to such registration statement.
7.3 Procedure. Any person entitled to indemnification hereunder will
(i) give prompt written notice to the indemnifying party of any claim with
respect to which it seeks indemnification and (ii) unless in such indemnified
party's reasonable judgment a conflict of interest between such indemnified and
indemnifying parties may exist with respect to such claim, permit such
indemnifying party to assume the defense of such claim with counsel reasonably
satisfactory to the indemnified party. If such defense is assumed, the
indemnifying party will not be subject to any liability for any settlement made
by the indemnified party without its consent (but such consent will not be
unreasonably withheld). An indemnifying party who is not entitled to, or elects
not to, assume the defense of a claim will not be obligated to pay the fees and
expenses of more than one counsel for all parties indemnified by such
indemnifying party with respect to such claim, unless in the reasonable judgment
of any indemnified party a conflict of interest may exist between such
indemnified party and any other of such indemnified parties with respect to such
claim.
7.4 Survival. The indemnification provided for under this Agreement
will remain in full force and effect regardless of any investigation made by or
on behalf of the indemnified party or any officer, director or controlling
person of such indemnified party and will survive the transfer of securities.
The Corporation also agrees to make such provisions as are reasonably requested
by any indemnified party for contribution to such party in the event the
Corporation's indemnification is unavailable for any reason.
8. Compliance with Rule 144. In the event that the Corporation (a)
registers a class of securities under Section 12 of the Exchange Act, (b) issues
an offering circular meeting the requirements of Regulation A under the
Securities Act, or (c) commences to file reports under Section 13 or 15(d) of
the Exchange Act, then at the request of any holder who proposes to sell
securities in compliance with Rule 144 of the Commission, the Corporation will
(i) forthwith furnish to such holder a written statement of compliance with the
filing requirements of the Commission as set forth in Rule 144, as such rule may
be amended from time to time, and (ii) make available to the public and such
holders such information as will enable the holders to make sales pursuant to
Rule 144.
9. Participation in Underwritten Registrations. No person may participate
in any registration hereunder which is underwritten unless such person (a)
agrees to sell its securities
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on the basis provided in any underwriting arrangements approved by such person
or persons entitled hereunder to approve such arrangements, and (b) completes
and executes all questionnaires, powers of attorney, custody agreements,
indemnities, underwriting agreements and other documents reasonably required
under the terms of such underwriting arrangements.
10. Miscellaneous.
10.1 No Inconsistent Agreements. The Corporation will not hereafter
enter into any agreement with respect to its securities which is inconsistent
with the rights granted to the holders of Registrable Shares in this Agreement.
10.2 Adjustments Affecting Registrable Shares. The Corporation will
not take any action, or permit any change to occur, with respect to its
securities which would adversely affect the ability of the holders of
Registrable Shares to include such Registrable Shares in a registration
undertaken pursuant to this Agreement or which would adversely affect the
marketability of such Registrable Shares in any such registration, including,
without limitation, effecting a stock split or combination of shares.
10.3 Other Registration Rights. Except as provided in this
Agreement, the Corporation will not hereafter grant to any person or persons the
right to request the Corporation to register any equity securities of the
Corporation, or any securities convertible or exchangeable into or exercisable
for such securities, without the prior written consent of the holders of more
than 50% of the Registrable Shares, which consent may not be unreasonably
withheld or delayed if and to the extent such right is subordinate to the rights
of the holders of Registrable Shares. The Corporation will not include in any
Demand Registration any securities which are not Registrable Shares (for the
purposes of Section 2) unless and until all Registrable Shares requested to be
registered have first been so included.
10.4 Successors and Assigns. Except as otherwise expressly provided
herein, all covenants and agreements contained in this Agreement by or on behalf
of any of the parties hereto will bind and inure to the benefit of the
respective successors and assigns of the parties hereto, whether so expressed or
not. In addition, and whether or not any express assignment has been made, the
provisions of this Agreement which are for the benefit of the Purchaser or
holders of Registrable Shares are also for the benefit of, and enforceable by,
any subsequent holders of such Registrable Shares.
10.5 Severability. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision will be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this Agreement.
10.6 Descriptive Headings. The descriptive headings of this
Agreement are inserted for convenience of reference only and do not constitute a
part of and shall not be utilized in interpreting this Agreement.
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10.7 Notices. Any notices required or permitted to be sent hereunder
shall be delivered personally or mailed, certified mail, return receipt
requested, or delivered by overnight courier service to the following addresses,
or such other address as any party hereto designates by written notice to the
Corporation, and shall be deemed to have been given upon delivery, if delivered
personally, three days after mailing, if mailed, or one business day after
delivery to the courier, if delivered by overnight courier service:
If to the Corporation, to:
U.S. Franchise Systems, Inc.
00 Xxxxxxxxx Xxxxxx, Xxx. 000
Xxxxxxx, Xxxxxxx 00000
Attention: General Counsel
If to the Securityholders, to:
SDI, Inc.
000 Xxxx Xxxxxxx, Xxxxx 0000
Xxxxxxx, XX 00000
Attention: Xxxxxxx X. Xxxxx
with a copy to:
Xxxxxx Xxxxxx & Zavis
000 Xxxx Xxxxxx Xxxxxx
Xxxxx 0000
Xxxxxxx, Xxxxxxxx 00000
Attention: Xxxxx Xxxxxx, Esq.
If to Xxxxxxx, to:
Xxxx X. Xxxxxxx
10.8 Governing Law. All questions concerning the construction,
validity and interpretation of this Agreement, and the performance of the
obligations imposed by this Agreement, shall be governed by the laws of the
State of Georgia applicable to contracts made and wholly to be performed in that
state.
10.9 Final Agreement. This Agreement, together with the Stock
Purchase Agreement and all other agreements entered into by the parties hereto
pursuant to the Stock Purchase Agreement, constitutes the complete and final
agreement of the parties concerning the matters referred to herein, and
supersedes all prior agreements and understandings.
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10.10 Execution in Counterparts. This Agreement may be executed in
any number of counterparts, each of which when so executed and delivered shall
be deemed an original, and such counterparts together shall constitute one
instrument.
10.11 No Strict Construction. The language used in this Agreement
will be deemed to be the language chosen by the parties hereto to express their
mutual intent, and no rule of strict construction will be used against any
party.
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The parties hereto have executed this Agreement on the date first set
forth above.
THE CORPORATION:
U.S. FRANCHISE SYSTEMS, INC.
By:
Its:
SECURITYHOLDERS
MERIDIAN ASSOCIATES, L.P.
By:
Its:
HSA PROPERTIES, INC.
By:
Its:
SDI, INC.
By:
Its:
XXXX X. XXXXXXX
Xxxx X. Xxxxxxx
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