Exhibit 10.5
STOCKHOLDERS AGREEMENT
THIS STOCKHOLDERS AGREEMENT (the "AGREEMENT") is made as of June 30, 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 Michael A. Leven, Andrea
Leven, Jonathan Leven, Robert Leven, and Adam Leven (collectively, the "LEVEN
STOCKHOLDERS"), and Steven Romaniello (the "ROMANIELLO"). The Investor Group,
the Leven Stockholders and Romaniello 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"). Romaniello is or may
become a holder 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 2, 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 Nicholas J. Pritzker, 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
descendants (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.
"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 held, 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 securities 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 Stockholder.
"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").
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(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 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 Romaniello 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 Michael and/or Andrea Leven 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 Michael and/or
Andrea Leven 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 Michael and Andrea Leven) in
Brokers Transactions at any time and from time to time after notice to
the Investor Group;
(iv) by Romaniello 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 Romaniello shall not be
permitted to Transfer, in the aggregate, more than one-third of his
Original Shares before 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
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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. 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 Michael
Leven's 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 Mr. Leven 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 Romaniello upon the termination of Romaniello's 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 Romaniello 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.
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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 Michael A. Leven as long as
Michael A. Leven 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;
(C) election to the Board of Directors of Romaniello as long as
Romaniello is employed by the Company; and
(D) election to the Board of Directors of at least three 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 cfiSection
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 2,
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.
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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.
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 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.
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 subsequent 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 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.
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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: /s/ H.S. Handelsman
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Name: H.S. Handleman
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Its: Vice President
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SDI, INC.
By: /s/ H.S. Handelsman
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Name: H.S. Handelsman
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Its: Vice President
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HSA PROPERTIES INC.
By: /s/ H.S. Handelsman
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Name: H.S. Handelsman
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Its: Vice President
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200 West Madison, Suite 3800
Chicago, Illinois 60606
Attention: Harold S. Handelsman
LEVEN STOCKHOLDERS:
/s/ Michael A. Leven
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Michael A. Leven
/s/ Andrea E. Leven
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Andrea E. Leven
/s/ Jonathan Leven
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Jonathan Leven
/s/ Robert Leven
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Robert Leven
/s/ Adam Leven
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Adam Leven
ROMANIELLO:
/s/ Steven Romaniello
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Steven Romaniello
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