EXHIBIT 2.1
ACQUISITION AGREEMENT
BY AND AMONG
U.S. FRANCHISE SYSTEMS, INC.
SDI, INC.,
USFS ACQUISITION CO.,
MERIDIAN ASSOCIATES, L.P.
AND
HSA PROPERTIES, INC.
DATED SEPTEMBER 18, 2000
TABLE OF CONTENTS
RECITALS .........................................................................................................1
AGREEMENT.........................................................................................................2
ARTICLE 1
DEFINED TERMS............................................................................................2
ARTICLE 2
TENDER OFFER.............................................................................................2
Section 2.1 Tender Offer. ................................................................2
Section 2.2 Actions by SDI and Newco......................................................3
Section 2.3 Company Actions...............................................................4
Section 2.4 Board Representation..........................................................4
Section 2.5 Restricted Stock; Options.....................................................5
ARTICLE 3
MERGER...................................................................................................5
Section 3.1 The Merger....................................................................5
Section 3.2 Effective Time; Filing of Certificate of Merger...............................6
Section 3.3 Certificate of Incorporation..................................................6
Section 3.4 Bylaws........................................................................6
Section 3.5 Directors and Officers........................................................6
Section 3.6 Additional Actions............................................................6
Section 3.7 Time and Place of Closing.....................................................6
ARTICLE 4 CONVERSION OF SECURITIES........................................................................7
Section 4.1 Merger Consideration..........................................................7
Section 4.2 Exchange of Certificates. ....................................................7
Section 4.3 Stock Transfer Books..........................................................9
Section 4.4 Dissenters' Rights............................................................9
ARTICLE 5
CONDITIONS..............................................................................................10
Section 5.1 Conditions to the Offer......................................................10
Section 5.2 Conditions to the Merger.....................................................12
ARTICLE 6
COVENANTS PENDING THE CLOSING...........................................................................12
Section 6.1 Interim Operations of the Company............................................12
Section 6.2 Negative Covenants...........................................................13
Section 6.3 Approval by the Company's Stockholders.......................................15
Section 6.4 Filings; Other Action........................................................16
Section 6.5 Access.......................................................................16
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Section 6.6 Notification of Certain Matters. ...........................................16
Section 6.7 Publicity....................................................................17
Section 6.8 Reasonable Efforts...........................................................17
Section 6.9 Vesting of Restricted Stock and Stock Options................................17
ARTICLE 7
REPRESENTATIONS AND WARRANTIES..........................................................................17
Section 7.1 Representations and Warranties of Investors. ................................17
Section 7.2 Representations and Warranties of the Company................................19
ARTICLE 8
INDEMNIFICATION AND INSURANCE...........................................................................25
Section 8.1 Charter and Bylaws...........................................................25
Section 8.2 Indemnity....................................................................25
Section 8.3 Insurance....................................................................26
Section 8.4 Survival.....................................................................26
ARTICLE 9
TERMINATION.............................................................................................27
Section 9.1 Termination by Mutual Consent................................................27
Section 9.2 Termination by Either Party..................................................27
Section 9.3 Termination by Investors.....................................................27
Section 9.4 Termination by the Company...................................................27
Section 9.5 Effect of Termination and Abandonment........................................27
Section 9.6 Liquidated Damages...........................................................27
ARTICLE 10
RELEASE.................................................................................................28
Section 10.1 Company Release..............................................................28
Section 10.2 Investor Release.............................................................28
ARTICLE 11
Miscellaneous Provisions................................................................................29
Section 11.1 Payment of Expenses..........................................................29
Section 11.2 Modification or Amendment....................................................29
Section 11.3 Waiver of Conditions; Non-Survival...........................................29
Section 11.4 Captions.....................................................................29
Section 11.5 Governing Law................................................................29
Section 11.6 Notices......................................................................29
Section 11.7 Entire Agreement.............................................................29
Section 11.8 Assignment; Binding Effect...................................................30
Section 11.9 Third Party Beneficiaries....................................................30
Section 11.10 Counterparts.................................................................30
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Page
Glossary
Exhibit A Exchange Agreement
Exhibit B Hawthorn Termination
Exhibit C Aronson Agreement
Exhibit D Separation Agreement
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ACQUISITION AGREEMENT
THIS ACQUISITION AGREEMENT (the "AGREEMENT") is made as of
September 18, 2000, by and among U.S. Franchise Systems, Inc., a Delaware
corporation (the "COMPANY"), SDI, Inc., a Nevada corporation ("SDI"), USFS
Acquisition Co., a Delaware corporation ("NEWCO"), HSA Properties, Inc.,
a Delaware corporation ("HSA PROPERTIES"), and Meridian Associates, L.P.,
an Illinois limited partnership ("MERIDIAN").
RECITALS
A. The Company, SDI, Meridian, and HSA Properties are parties to the
Recapitalization Agreement dated as of June 2, 2000 (the "RECAPITALIZATON
AGREEMENT"), pursuant to which the Company would engage in a recapitalization
transaction involving an offer by the Company to purchase a portion of its
outstanding common stock.
B. The Company, SDI, Meridian, and HSA Properties have decided to
terminate the Recapitalization Agreement by their mutual agreement.
C. Newco and the Company desire to engage in a transaction involving
the merger of Newco with the Company following the completion of an offer by
Newco to purchase outstanding common stock of the Company.
D. Simultaneously with the execution and delivery of this Agreement:
(i) Newco, Meridian, HSA Properties, Michael A. Leven and Andrea Leven are
entering into an agreement in the form of EXHIBIT A attached hereto (the
"EXCHANGE AGREEMENT"); (ii) the Company, Michael A. Leven, Neal Aronson,
Meridian, and HSA Properties are entering into an agreement in the form of
EXHIBIT B attached hereto (the "HAWTHORN TERMINATION"); (iii) Neal Aronson and
Newco are entering into an agreement in the form of EXHIBIT C attached hereto
(the "ARONSON AGREEMENT"); and (iv) Neal Aronson and the Company are entering
into the Separation Agreement in the form of EXHIBIT D attached hereto (the
"SEPARATION AGREEMENT").
E. 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.
F. Banc of America Securities LLC ("BAS") has delivered a letter to
the Board of Directors, in form and content reasonably acceptable to the
Investors, expressing its opinion that the consideration to be received by the
Company's stockholders (other than specified Persons as to which BAS has
expressed no opinion) is fair 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 otherwise in customary form (the "OFFER TO
PURCHASE"), and subject to the terms and conditions set
forth in this Agreement, Newco will commence (within the
meaning of Rule 14d-2 of the Exchange Act), and SDI will
cause Newco to commence, as soon as practicable but not
more than 10 Business Days after the execution hereof,
an offer to purchase (the "OFFER") any and all 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
$5.00 per Share, net to the seller in cash, subject only
to the condition (which may not be waived without the
written consent of the Company) that there be tendered
and not withdrawn the number of Shares that, together
with the Shares owned by the Investors and their
Affiliates, represents a majority of the outstanding
Shares of the Company (the "MINIMUM CONDITION"), the
conditions set forth in this Agreement, and applicable
provisions of the Exchange Act. Newco will, and SDI will
cause Newco to, accept for purchase and pay for all
Shares duly tendered, commencing at the later of (such
later date, as extended as permitted in this Agreement,
being referred to herein as the "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 Newco's obligation to purchase Shares.
Notwithstanding the foregoing, SDI and Newco shall have
the right to extend the Offer (i) from time to time, if,
at the scheduled Expiration Date or any extended
expiration date of the Offer, any of the conditions to
the Offer shall not have been satisfied or waived, until
such conditions are satisfied or waived; provided that
if any of the conditions to the Offer is not satisfied
or waived on the scheduled Expiration Date of the Offer,
SDI and Newco shall extend the Offer unless such
condition or
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conditions could not reasonably be expected to be
satisfied on or prior to the Termination Date, (ii) for
any period required by any rule, regulation,
interpretation or position of the SEC or the staff
thereof applicable to the Offer or any period required
by applicable law and (iii) for one or more subsequent
offering periods of up to an additional 20 Business Days
in the aggregate (collectively, the "SUBSEQUENT PERIOD")
pursuant to Rule 14d-11 under the Exchange Act. Subject
to the terms and conditions of the Offer in this
Agreement, Newco shall, and SDI shall cause Newco to,
accept for payment and pay for Shares validly tendered
and not withdrawn pursuant to the Offer as soon as
possible after the expiration of the Offer; provided
that Newco shall, and SDI shall cause Newco to,
immediately accept and promptly pay for all Shares as
they are tendered during the Subsequent Period, if the
Minimum Condition is met. 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
this SECTION 2.1. The Company 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.
Section 2.2 ACTIONS BY SDI AND NEWCO.
(a) As soon as reasonably practicable following the
execution of this Agreement, SDI and Newco shall, and shall cause each
other Person that is required to, file with the SEC a Tender Offer
Statement and a Rule 13e-3 Transaction Statement on Schedule TO,
including all exhibits thereto (together with all amendments and
supplements thereto, the "SCHEDULE TO") with respect to the Offer,
Merger and the other transactions contemplated hereby. The Schedule TO
shall contain or incorporate by reference the Offer to Purchase and
forms of the related letter of transmittal and any related documents
(the Schedule TO, the Offer to Purchase and such other documents,
together with all supplements or amendments thereto, collectively, the
"OFFER DOCUMENTS"). The Offer Documents shall comply in all material
respects with the requirements of the Exchange Act. The Company 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. On the date filed with the SEC and on the
date first published, sent or given to the Company's stockholders, the
Offer Documents shall not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading, except that
no representation is made by SDI or Newco with respect to information
supplied by the Company for inclusion in the Offer Documents. Each of
SDI and Newco agrees to correct promptly, and the Company agrees to
notify SDI promptly as to, any information provided by it for use in
the Offer Documents, if and to the extent such information shall have
become false or misleading in any material respect, and each
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of SDI and Newco further agrees to take all steps necessary to cause
the Offer Documents as so corrected to be filed with the SEC and to be
disseminated to all of the holders of Shares, in each case as and to
the extent required by applicable federal securities laws. SDI and
Newco agree to provide the Company and its counsel in writing any
comments SDI, Newco or their counsel may receive from the SEC or its
staff with respect to the Offer Documents promptly after the receipt of
such comments. SDI and Newco shall use their respective reasonable best
efforts to respond to such comments promptly and shall provide the
Company copies of any written responses and telephonic notification of
any verbal responses by SDI, Newco or their counsel.
(b) SDI shall provide or cause to be provided to Newco on a
timely basis all the funds necessary to purchase any Shares that Newco
becomes obligated to purchase pursuant to the Offer.
Section 2.3 COMPANY ACTIONS. The Company consents to the Offer
and represents that (a) its Board of Directors (at a
meeting duly called and held) consents to the Offer and
has resolved to recommend acceptance of the Offer and
approval and adoption of this Agreement and the Merger
by its stockholders and (b) BAS has delivered to the
Board of Directors of the Company its opinion dated as
of September 18, 2000, to the effect that the
consideration to be paid in the Offer and the Merger is
fair from a financial point of view to the holders of
Shares (other than specific persons as to whom BAS has
expressed no opinion). The Company agrees to file with
the SEC immediately following the filing of the Schedule
TO on the date of the commencement of the Offer a
Solicitation/Recommendation Statement on Schedule 14D-9
(together with all amendments and supplements thereto,
the "SCHEDULE 14D-9") in the form reviewed by Newco and
its counsel, containing such recommendations, unless the
Board of Directors shall have recommended to
stockholders or authorized or approved an Alternative
Proposal or a Superior Proposal. Newco and its counsel
shall be given a reasonable opportunity to review and
comment upon the Schedule 14D-9 prior to its being first
published, sent or given to holders of Shares and the
Schedule 14D-9 shall be in a form and substance
reasonably satisfactory to Newco and its counsel. In
connection with the Offer, the Company will promptly
furnish, or request its transfer agent to furnish, Newco
with mailing labels, security position listings and any
available listing or computer file containing the names
and addresses of the record holders of Shares as of a
recent date and shall furnish Newco with such
information and assistance as Newco or its agents may
reasonably request in communicating the Offer to the
stockholders of the Company.
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Section 2.4 BOARD REPRESENTATION.
(a) Promptly upon the purchase of Shares pursuant to
the Offer, Newco shall be entitled to designate such number of
directors, rounded up to the next whole number, as will give
Newco representation on the Board of Directors of the Company
equal to the product of (i) the total number of directors on
the Board of Directors (giving effect to the election of any
additional directors pursuant to this Section) and (ii) the
percentage that the number of Shares beneficially owned by the
Investors (including Shares accepted for payment) bears to the
number of Shares outstanding. The Company shall take all
reasonable actions to permit Newco's designees to be elected
or appointed to the Company's Board of Directors, including
without limitation, increasing the size of the Board of
Directors and/or securing the resignations of incumbent
directors. The Company shall take at its expense all action
necessary pursuant to Section 14(f) of the Exchange Act and
then Rule 14f-1 under the Exchange Act in order to fulfill its
obligations under this Section and shall include in the
Schedule 14d-9 or otherwise timely mail to its stockholders
all necessary information to comply therewith.
(b) Following the election or appointment of Newco's
designees pursuant to this Section and until the Effective
Time, the approval of a majority of the directors of the
Company then in office who are not designated by or otherwise
affiliated with SDI shall be required to authorize, and such
authorization shall constitute the authorization of the Board
of Directors and no other action on the part of the Company,
including any action by any other director of the Company,
shall be required to authorize, any termination of this
Agreement by the Company, any amendment of this Agreement, any
extension of time for performance of any obligation or action
hereunder by SDI or Newco and any enforcement of or any waiver
of compliance with any of the agreements or conditions
contained herein for the benefit of the Company, unless any
such amendment or waiver will not have an adverse effect on
(i) the rights of stockholders to receive the Merger
Consideration on the terms of this Agreement (including the
timing of such payment) or (ii) the rights of holders of
Restricted Stock or holders of stock options under SECTION 2.5
(including the timing of any payment to be made to such
holders pursuant to this Agreement).
Section 2.5 RESTRICTED STOCK; OPTIONS. Immediately following
the consummation of the Offer, all shares of Restricted
Stock will be deemed irrevocably vested and no longer
subject to forfeiture and the holders of such shares of
Restricted Stock shall be entitled to receive the Merger
Consideration in accordance with Section 4.1(c) of this
Agreement. The parties acknowledge that the purchase of
Shares pursuant to the Offer shall constitute a "Change
of Control," as described in the Stock Option Plan and
that, as a result, upon the purchase of Shares pursuant
to the Offer all stock options outstanding under the
Stock Option Plan shall automatically be deemed
exercisable and otherwise vested. At the Effective Time,
all unexercised options to purchase shares of Common
Stock of the Company outstanding pursuant to the Stock
Option Plan and the Directors' Option Plan (whether or
not then exercisable) shall cease
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to represent a right to acquire Shares and shall convert
automatically into an amount of cash equal to the
greater of (a) $.01 or (b) the amount, if any, by which
the Merger Consideration exceeds the exercise price per
share of such option, in either case multiplied by the
number of Shares subject to such option.
ARTICLE 3
MERGER
Section 3.1 THE MERGER. Upon the terms and subject to the
conditions set forth in this Agreement and in accordance
with DGCL, at the Effective Time, Newco shall be merged
with and into the Company (the "MERGER"), the separate
corporate existence of Newco shall cease and the Company
shall (a) be the surviving corporation in the Merger (in
such capacity, the "SURVIVING CORPORATION"), (b) succeed
to and assume all the rights and obligations of Newco in
accordance with DGCL, and (c) continue its corporate
existence under the laws of the State of Delaware. The
Merger shall be pursuant to the provisions of, and shall
be with the effect provided in DGCL. In accordance with
DGCL, all of the rights, privileges, property, powers
and franchises of the Company and Newco shall vest in
the Surviving Corporation, and all of the debts,
liabilities and duties of the Company and Newco shall
become the debts, liabilities and duties of the
Surviving Corporation.
Section 3.2 EFFECTIVE TIME; FILING OF CERTIFICATE OF MERGER.
Subject to the terms of this Agreement, the parties
shall cause the Merger to be consummated by filing a
properly executed Certificate of Merger or other
appropriate documents with the Secretary of State of the
State of Delaware in accordance with the provisions of
DGCL. The Merger shall become effective at the time of
such filing of the Certificate of Merger with the
Secretary of State of the State of Delaware or at such
later date or time as Newco and the Company shall agree
and specify in the Certificate of Merger (the "EFFECTIVE
TIME").
Section 3.3 CERTIFICATE OF INCORPORATION. At the Effective
Time, the Certificate of Incorporation of the Surviving
Corporation shall be the Certificate of Incorporation of
Newco as in effect immediately prior to the Effective
Time, until thereafter amended in accordance with its
terms and DGCL, except that Article 1 thereof shall be
amended to read as follows:
FIRST. The name of the corporation is U.S. Franchise Systems
Inc. (the "CORPORATION").
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Section 3.4 BYLAWS. At the Effective Time, the Bylaws of the
Surviving Corporation shall be the Bylaws of Newco as in
effect immediately prior to the Effective Time, until
thereafter amended in accordance with their terms and
DGCL.
Section 3.5 DIRECTORS AND OFFICERS. At the Effective Time, the
directors of Newco and the officers of the Company
immediately prior to the Effective Time shall be the
initial directors and officers of the Surviving
Corporation. Each director and officer of the Surviving
Corporation shall hold office in accordance with the
Certificate of Incorporation and Bylaws of the Surviving
Corporation until his or her death, resignation or
removal or a successor is duly elected or appointed and
qualified.
Section 3.6 ADDITIONAL ACTIONS. If, at any time after the
Effective Time, the Surviving Corporation shall consider
or be advised that consistent with the terms of this
Agreement any further assignments or assurances in law
or any other acts are necessary or desirable (a) to
vest, perfect or confirm, of record or otherwise, in the
Surviving Corporation, title to and possession of any
property or right of either constituent corporation
acquired or to be acquired by reason of, or as a result
of, the Merger, or (b) otherwise to carry out the
purposes of this Agreement, then, subject to the terms
and conditions of this Agreement, each such constituent
corporation and its officers and directors shall be
deemed to have granted to the Surviving Corporation an
irrevocable power of attorney to execute and deliver all
such deeds, assignments and assurances in law and to do
all acts necessary or proper to vest, perfect or confirm
title to and possession of such property or rights in
the Surviving Corporation and otherwise to carry out the
purposes of this Agreement; and the officers and
directors of the Surviving Corporation are fully
authorized in the name of either constituent corporation
to take any and all such action.
Section 3.7 TIME AND PLACE OF CLOSING. The closing of the
Merger (the "CLOSING") shall take place at such place,
at such time and not later than one business day
following the satisfaction of all conditions to the
Merger, or on such other date as the parties may
mutually agree (the date of the Closing is hereinafter
sometimes referred to as the "CLOSING DATE").
ARTICLE 4
CONVERSION OF SECURITIES
Section 4.1 MERGER CONSIDERATION. At the Effective Time, by virtue
of the Merger and without any action on the part of Newco, the Company or the
holders of any of the following securities:
(a) Each share of common stock, par value $0.01 per share,
of Newco issued and outstanding immediately prior to the Effective Time
shall be converted into one validly issued, fully paid and
non-assessable share of common stock, par value $0.01 per share, of the
Surviving Corporation. Each stock certificate of Newco evidencing
ownership of any
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such shares of common stock of Newco shall, following the Merger,
evidence ownership of the same number of shares of common stock of the
Surviving Corporation.
(b) Each share of Company Class A Common Stock and Class B
Common Stock owned by Newco immediately prior to the Effective Time
shall be canceled and extinguished without any conversion thereof and
no payment shall be made with respect thereto.
(c) Each share of Company Class A Common Stock and Class B
Common Stock that is issued and outstanding immediately prior to the
Effective Time (excluding any shares of Company Common Stock canceled
pursuant to SECTION 4.1(b)), shall by virtue of the Merger and without
any action on the part of the holder thereof become and be converted
into the right to receive cash in the amount of $5.00 for each whole
Share (the "MERGER CONSIDERATION").
(d) At the Effective Time, holders of Shares shall cease to
be, and shall have no rights as, stockholders of the Company, other
than to receive any dividend or other distribution with respect to such
Shares with a record date occurring prior to the Effective Time and the
Merger Consideration.
Section 4.2 EXCHANGE OF CERTIFICATES.
(a) At or prior to the Effective Time, SDI shall deposit, or
shall cause to be deposited, with a bank or trust company organized
under the laws of the United States or any state thereof with capital
surplus and undivided profits of at least $500 million and which is
reasonably satisfactory to the Company (the "EXCHANGE AGENT") for the
benefit of the holders of certificates representing the Shares
("COMPANY STOCK CERTIFICATES") for payment in accordance with this
ARTICLE 4, through the Exchange Agent, an amount of cash equal to the
Merger Consideration to be paid for Shares pursuant to this ARTICLE 4
(without any interest thereon), such cash being hereinafter referred to
as the "EXCHANGE FUND"). The Exchange Fund shall not be used for any
other purpose. The Exchange Agent shall invest cash in the Exchange
Fund, as directed by SDI, on a daily basis; provided that all such
investments shall be in (1) obligations of, or guaranteed by, the
United States of America, (2) commercial paper obligations receiving
the highest rating from either Moody's Investors Services, Inc. or
Standard and Poor's Corporation, or (3) certificates of deposit of
commercial banks with capital exceeding $1.0 billion. Any interest and
other income resulting from such investments shall be paid to SDI.
(b) As soon as reasonably practicable after the Effective
Time, the Surviving Corporation will instruct the Exchange Agent to
mail to each holder of record of Company Stock Certificates who has not
previously surrendered his or her Company Stock Certificates (other
than holders of any shares of Company Common Stock canceled pursuant to
SECTION 4.1(b)) (1) a letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to such holder's
Company Stock Certificates shall pass, only upon proper delivery of the
Company Stock Certificates to the Exchange Agent and shall be in such
form and have such other provisions as the Surviving Corporation may
reasonably specify) and (2) instructions for use in effecting the
surrender of the Company Stock Certificates in exchange for cash in
accordance with SECTION 4.1 (collectively, the "LETTER OF
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TRANSMITTAL").
(c) Upon the later of the Effective Time and the surrender
of a Company Stock Certificate for cancellation (or the affidavits and
indemnification regarding the loss or destruction of such certificates
reasonably acceptable to the Surviving Corporation) to the Exchange
Agent together with the Letter of Transmittal, duly executed, and such
other customary documents as may be required pursuant thereto, the
holder of such Company Stock Certificate shall be entitled to receive
in exchange therefor, and the Exchange Agent shall deliver in
accordance with the Letter of Transmittal, the Merger Consideration for
each Share formerly evidenced by such Company Stock Certificate in
accordance with SECTION 4.1, and the Company Stock Certificate so
surrendered shall forthwith be canceled. In the event of a transfer of
ownership of Shares which is not registered in the transfer records of
the Company, cash may be paid in accordance with this ARTICLE 4 to a
transferee if the Company Stock Certificate evidencing such Shares is
presented to the Exchange Agent, accompanied by all documents required
to evidence and effect such transfer and by evidence that any
applicable stock transfer taxes have been paid. Until surrendered as
contemplated by this SECTION 4.2, each Company Stock Certificate (other
than Dissenting Shares and Shares held in treasury, if any) shall be
deemed at any time after the Effective Time to evidence only the right
to receive upon such surrender the Merger Consideration multiplied by
the number of shares evidenced by such certificates.
(d) All cash paid upon the surrender of Company Stock
Certificates in accordance with the terms of this ARTICLE 4 shall be
deemed to have been paid in full satisfaction of all rights pertaining
to the Shares theretofore represented by such Company Stock
Certificates.
(e) Any portion of the Exchange Fund which remains
undistributed to the holders of the Company Stock Certificates for 12
months after the Effective Time shall be delivered by the Exchange
Agent to SDI, upon demand, and any holders of Company Stock
Certificates who have not theretofore complied with this ARTICLE 4
shall thereafter look only to SDI for payment of their claim for the
Merger Consideration.
(f) None of SDI, the Company, Newco or the Exchange Agent
shall be liable to any Person in respect of any cash from the Exchange
Fund in each case delivered to a public official pursuant to any
applicable abandoned property, escheat or similar law. If any Company
Stock Certificate shall not have been surrendered prior to seven years
after the Effective Time (or immediately prior to such earlier date on
which any Merger Consideration and any cash payable to the holder of
such Company Stock Certificate pursuant to SECTION 4.2(e) would
otherwise escheat to, or become the property of, any governmental body
or authority), any such Merger Consideration shall, to the extent
permitted by applicable law, become the property of the Surviving
Corporation, free and clear of all claims or interest of any person
previously entitled thereto.
(g) SDI, Newco and the Surviving Corporation shall be
entitled to deduct and withhold from the consideration otherwise
payable pursuant to this Agreement to any holder of Shares such amounts
as it is required to deduct and withhold with respect to the making of
such payment under the Code or any provision of state, local or foreign
tax law. To the
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extent that amounts are so withheld, such withheld amounts shall be
treated for all purposes of this Agreement as having been paid to the
holder of the Shares in respect of which such deduction and withholding
was made.
(h) If any Company Stock Certificate shall have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by
the Person claiming such Company Stock Certificate to be lost, stolen
or destroyed and, if required by the Surviving Corporation, the posting
by such Person of a bond in such reasonable amount as the Surviving
Corporation may direct as indemnity against any claim that may be made
against it with respect to such Company Stock Certificate, the Exchange
Agent will issue in exchange for such lost, stolen or destroyed Company
Stock Certificate the Merger Consideration, pursuant to this ARTICLE 4.
(i) In the event this Agreement is terminated without the
occurrence of the Effective Time, SDI shall, or shall cause the
Exchange Agent to, return promptly any Company Stock Certificates
theretofore submitted or delivered to the Exchange Agent, without
charge to the Person who submitted such Company Stock Certificates.
Section 4.3 STOCK TRANSFER BOOKS. After the Effective Time, there
shall be no further registration of transfers on the stock transfer books of the
Surviving Corporation of the Shares which were outstanding immediately prior to
the Effective Time. If, after the Effective Time, Company Stock Certificates are
presented to the Surviving Corporation or the Exchange Agent for any reason,
they shall be canceled and exchanged as provided in this ARTICLE 4, except as
otherwise provided by law.
Section 4.4 DISSENTERS' RIGHTS. Dissenting Shares, if required by
DGCL, but only to the extent required thereby, shall not be converted into the
right to receive the Merger Consideration, but the holders of Dissenting Shares
shall be entitled to receive such consideration as shall be determined pursuant
to Section 262 of DGCL; provided that if any such holder shall have failed to
perfect or shall withdraw or lose his or her right to appraisal and payment
under DGCL, such holder's Shares shall thereupon be deemed to have been
converted as of the Effective Time into the right to receive such Merger
Consideration as if such holder had made a non-election, without any interest
thereon, and such shares shall no longer be Dissenting Shares. The Company shall
give SDI, Newco and the Exchange Agent prompt notice of any claim by a
stockholder for payment of fair value for Dissenting Shares as provided in
Section 262 of DGCL. Prior to the Effective Time, the Company will not, except
with the prior written consent of SDI and Newco, make any payments with respect
to, or settle or offer to settle, any such demands. Notwithstanding anything to
the contrary contained in this Section, if the Merger is rescinded or abandoned,
then the right of any stockholder to be paid the fair value of such
stockholder's Dissenting Shares shall cease. The Surviving Corporation shall
comply with all its obligations under the DGCL with respect to holders of
Dissenting Shares.
Section 4.5 MERGER WITHOUT MEETING OF STOCKHOLDERS. Notwithstanding
the foregoing, in the event that Newco, or any other direct or indirect
subsidiary of SDI, shall acquire at least 90% of the outstanding Shares, the
parties hereto shall take all necessary and appropriate action to cause the
Merger to become effective as soon as practicable after the expiration of the
Offer
10
without a meeting of stockholders of the Company, in accordance with Section 253
of the DGCL.
ARTICLE 5
CONDITIONS
Section 5.1 CONDITIONS TO THE OFFER. The obligation of Newco to
consummate the purchase of Shares pursuant to the Offer
is subject to the fulfillment, at or before the
Expiration Date, of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES; PERFORMANCE. The
representations and warranties of the Company contained
in SECTION 7.2(b) shall be true and correct in all
material respects on and as of the Expiration 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 7.2 shall be true in all respects
on and as of the Expiration 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 or the fact that it is untrue
could not reasonably be expected to have a Material
Adverse Effect on the Company. The Company shall have
duly performed and complied in all respects with all
agreements and covenants required by Section 6.1 and
Section 6.2 of this Agreement to be performed or
complied with by it prior to or on the Expiration 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. The Company shall have duly performed
and complied in all material respects with all other
material agreements and covenants required by this
Agreement to be performed or complied with by it prior
to or on the Expiration Date.
(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,
that could reasonably be expected to have a Material Adverse Effect on
the Company, excepting changes attributable to the expected effects of
matters known to the Investors as of the date hereof.
(c) JOINT DEFENSE AGREEMENT. The Joint Defense Agreement
shall be in full force and effect, enforceable in accordance with its
terms.
11
(d) 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 shall be in effect.
(e) HSR ACT WAITING PERIOD. All applicable waiting periods
under the HSR Act shall have expired or been terminated.
(f) MINIMUM CONDITION. The Minimum Condition shall have been
satisfied.
(g) FAIRNESS OPINION. BAS shall not have withdrawn 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, nor shall BAS have modified such opinion
so as to make the form and content of such opinion no longer reasonably
satisfactory to the Investors.
(h) OTHER CONDITIONS.
(i) There shall not have occurred (a) any general
suspension of trading in securities and, or limitation of
prices for, securities on the New York Stock Exchange, Inc. or
the Nasdaq Stock Market, (b) a declaration of a general
banking moratorium or any suspension of payments in respect of
banks in the United States; or (c) 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 commencement of the Offer, a
material acceleration or worsening thereof.
(ii) The Company shall not have publicly withdrawn,
modified or amended in any material respect its recommendation
of acceptance of the Offer.
(iii) There shall not 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 (a) prohibits, or
imposes any material limitations on, Newco's ownership or
operation of all or a material portion of the Company's
business or assets or (b) prohibits or makes illegal the
acceptance for purchase of or payment for the Shares or the
consummation of the Offer or related transactions.
(iv) This Agreement shall not have been terminated in
accordance with its terms.
Section 5.2 CONDITIONS TO THE MERGER. The respective
obligations of each party to consummate the Merger are
subject to the fulfillment 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
12
in the United States prohibiting the consummation of the Merger shall
be in effect.
(b) VIOLATION OF LAW. Consummation of the Merger 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.
(c) STOCKHOLDER APPROVAL. If necessary to effect the Merger,
the Merger shall have been approved by the requisite vote of
stockholders of the Company.
ARTICLE 6
COVENANTS PENDING THE CLOSING
Section 6.1 INTERIM OPERATIONS OF THE COMPANY. Except as
contemplated hereby, during the period from the date of
this Agreement to the Expiration Date, the Company
shall, and shall cause each of its Subsidiaries to:
(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 Michael A. Leven
and Steven Romaniello and, if the amount exceeds $1
million in the aggregate, Newco) to cause the key
employees of the Company and its Subsidiaries to remain
employed by the Company and its Subsidiaries as of the
Expiration Date.
(e) at all times cause to be done all things reasonably
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
13
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) use its best efforts to 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 6.2 NEGATIVE COVENANTS. Except as contemplated hereby,
during the period from the date of this Agreement to the
Expiration Date, neither the Company nor any of its
Subsidiaries will, unless SDI 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 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 otherwise disclosed in writing to
the Investors prior to the date hereof or, if not so
committed and disclosed, 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 6.2(j)) and shall have been
approved by Michael A. Leven and Steven Romaniello;
(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
14
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 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
Michael A. Leven and Steven Romaniello 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 (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 Michael A. Leven and Steven
Romaniello, 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 the Company's business prior to
or on the date hereof, or heretofore described in
writing to the Investors, 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;
15
(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 6.2(b)) if such development
subsidies are approved by Michael A. Leven or Steven
Romaniello.
(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) except as disclosed in the Company Disclosure
Letter, 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 Michael A. Leven and
Steven Romaniello; 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 6.3 APPROVAL BY THE COMPANY'S STOCKHOLDERS. If
necessary to effect the Merger, 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
consider and vote upon: (a) the approval and
authorization of the Merger, and (b) 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". Unless the
Board of Directors
16
shall have recommended to stockholders or authorized or
approved an Alternative Proposal, and subject to
requirements of applicable law, the Board of Directors
of the Company shall recommend Stockholder Approval and
the Company shall take all reasonable lawful action to
solicit such Stockholder Approval. The Company's proxy
statement with respect to such meeting of stockholders,
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 furnished
to the Company by any of the Investors specifically for
use in the Company's proxy statement. At any such
meeting of stockholders, SDI agrees to cause any and all
of the Shares then owned by Newco, the Investors or
their Affiliates to be voted in favor of the Merger.
Section 6.4 FILINGS; OTHER ACTION. Subject to the terms and
conditions herein provided, the Company and the
Investors 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. 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 "UFOCS"), PROVIDED that any and
all amendments to the UFOCs shall be approved by the
Investors before being filed.
Section 6.5 ACCESS. Upon reasonable notice, the Company shall
(and shall cause each of its Subsidiaries to) afford the
Investors' 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 Investors (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 any of the Investors may reasonably
request; provided that no investigation pursuant to this
Section 6.5 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 Investors shall be subject to the
existing confidentiality agreement by which the
Investors are bound.
17
Section 6.6 NOTIFICATION OF CERTAIN MATTERS.
(a) The Company shall give prompt notice to the
Investors upon becoming aware 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 Effective
Time. The Company shall give prompt notice to the
Investors 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 Investors shall give prompt notice to the
Company of any breach or default of this Agreement by or
on the part of the Investors and any notice of, or other
communication known to an executive officer of any
member of the Investors 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 Effective Time.
The Investors 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 6.7 PUBLICITY. The initial press release with respect
to the execution of this Agreement shall be a joint
press release, and thereafter the Company and the
Investors shall consult with each 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 6.8 REASONABLE EFFORTS. Each of the Investors and the
Company shall use all commercially reasonable efforts to
cause to be satisfied all conditions to Newco's
obligation to make the Offer and otherwise to consummate
the transactions contemplated by this Agreement as
expeditiously as reasonably possible.
Section 6.9 OPTIONS; RESTRICTED STOCK. The Company will take
such actions as are necessary to cause to be vested (and
no longer subject to forfeiture) immediately following
the Expiration Date (but subject to the purchase of
Shares in the Offer) all options outstanding under the
Stock Option Plan and all Restricted Stock.
18
ARTICLE 7
REPRESENTATIONS AND WARRANTIES
Section 7.1 REPRESENTATIONS AND WARRANTIES OF INVESTORS. The
Investors jointly and severally represent and warrant to
the Company that:
(a) CORPORATE ORGANIZATION. SDI 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. Newco
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 Newco. 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
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 or other
applicable 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 of the Investors has taken
all required corporate or partnership action, as applicable,
to approve and adopt this Agreement and consummate the
transactions hereunder, and this Agreement is a valid and
binding agreement of each of the Investors, enforceable
against them in accordance with its terms.
(c) NO CONFLICTS. The execution and delivery of this
Agreement by each of the Investors does not, and the
consummation of the transactions contemplated hereby by each
of the Investors will not, (i) violate or conflict with the
certificate of incorporation or by-laws of SDI, Newco, or HSA
Properties, or the certificate of limited partnership or
limited partnership agreement of Meridian, or (ii) assuming
compliance with the HSR Act, the Exchange Act and the rules
and regulations thereunder, State Laws, and
19
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 of the Investors or to which
any of the Investors is subject, which breach, violation or
default would have a Material Adverse Effect on any of the
Investors, 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 Investors, and
there are no consents, approvals, permits or authorizations
required to be obtained by the Investors, from governmental
and regulatory authorities of the United States and the
several states in connection with the execution and delivery
of this Agreement by the Investors and the consummation of the
transactions contemplated hereby by the Investors, other than
such as may be required solely because the 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 Investors, or would prevent or
materially and adversely affect the consummation of the
transactions contemplated hereby.
(e) FINANCING. SDI has, and at the consummation of the
Offer, Newco will have, the funds necessary to purchase the
Shares pursuant to the Offer. Upon consummation of the Merger,
SDI will, or will cause Newco, to provide the Surviving
Corporation with the funds necessary to cancel the options
under the Stock Option Plan and the Directors' Option Plan as
provided in SECTION 2.5. SDI has, and at the Effective Time,
Newco will have, the funds necessary to pay for Shares
pursuant to the Merger.
(f) SHAREHOLDER ARRANGEMENTS. The Investors have disclosed
to the Company the terms of all arrangements entered into
between any of the Investors or any of their Affiliates and
Michael A. Leven, Neal K. Aronson and Steven Romaniello and
have provided the Company with true and correct copies of all
documents pertaining thereto.
(g) ADVISORY FEE. None of the Investors 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) INTERIM OPERATIONS OF NEWCO. Newco was formed solely for
the purpose of engaging in the transactions contemplated
hereby, has engaged in no other business activities and has
conducted its operations as contemplated hereby.
20
(i) INFORMATION SUPPLIED. None of the Offer Documents or any
amendment or supplement thereto, at the respective time such documents
are filed with the SEC or first published, sent or given to the
Company's stockholders, will contain any untrue statement of a material
fact or will omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading except
that no representations made by SDI or Newco with respect to
information supplied by the Company specifically for inclusion in the
Offer Documents. None of the information supplied or to be supplied by
SDI or Newco for inclusion or incorporation by reference in the
Schedule 14D-9 will, at the time such documents are filed with the SEC
or distributed to the Company's stockholders, contain 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 therein, in
light of the circumstances under which they were made, not misleading.
If at any time prior to the Expiration Date either of SDI or Newco
shall obtain knowledge of any facts with respect to itself, any of its
officers and directors or any of its Subsidiaries that will require the
supplement or amendment to the Offer Documents or the information
supplied by SDI or Newco for inclusion or incorporation by reference in
the Schedule 14D-9 in order to make the statements therein, in light of
the circumstances under which they were made, not misleading, or to
comply with applicable laws, such amendment or supplement shall be
promptly filed with the SEC and, as required by law, disseminated to
the stockholders of the Company, and in the event the Company shall
advise SDI or Newco as to its obtaining knowledge of any facts that
would make it necessary to supplement or amend any of the foregoing
documents, SDI or Newco shall promptly amend or supplement such
document as required and distribute the same to the Company's
stockholders.
Section 7.2 REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The
Company represents and warrants to the Investors 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
21
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 30, 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 30, 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
and except for issuances permitted by SECTION 6.2(c)
after the date hereof, there are no shares of capital
stock of the Company authorized or outstanding, and
there are no outstanding subscriptions, options,
warrants, 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 and except for issuances permitted under
SECTION 6.2(c), since June 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, 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 the Offer is fair to
holders of Shares (other than the Investors named
herein), (ii) approved the making of the Offer and the
Merger and (iii) resolved to recommend acceptance of the
Offer by the holders of Shares.
(d) SEC FILINGS. As of their respective dates, the
Company's press releases made after the date hereof and
Quarterly Reports on Form 10-Q filed after the date
hereof will not when made or filed, as applicable,
contain, 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 in which they are made, not
misleading. The Company Reports on Form 10-Q filed after
the date of this Agreement, when filed, will comply in
all material respects with all applicable requirements
of the Exchange Act.
22
(e) 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.
(f) 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, governmental 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 Investor 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.
(g) PROPERTIES. The Company and its Subsidiaries own
all of their material assets reflected as owned by them
on its balance sheet as of June 30, 2000 (except for
assets consumed, sold or otherwise disposed of in the
usual, regular and ordinary course of business),
subject, in each case, to no Encumbrance, except as set
forth in any report filed by the Company with the SEC on
or prior to the date hereto (the "COMPANY SEC REPORTS")
and excepting any Encumbrance the existence or
enforcement of which could not
23
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 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.
(h) 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
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
24
31, 1999, have been paid or adequate provision therefor
has been made on the Company Reports.
(i) 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. It is
understood that the commencement of any legal proceeding
or other action arising out or relating to this
Agreement or the transactions contemplated hereby or the
termination of the Recapitalization Agreement (including
the disposition of any such proceeding or action other
than a disposition that has resulted in an injunction
that remains in effect) shall not constitute the breach
of this or any other representation and warranty of the
Company contained in this Agreement or result in the
failure of any condition to the Offer or the Merger to
be satisfied.
(j) WELFARE AND BENEFIT PLANS. Each of the 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 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 (i) benefit continuation
rights under COBRA, (ii) 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 (iii) the
conversion privileges provided under such insured plans.
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 Company SEC
Reports. There are no current or former Plan Affiliates.
Except as set forth on the Company Disclosure Letter or
as otherwise contemplated by SECTION 6.9, the
consummation of the transactions contemplated by this
Agreement will not (i) entitle any current or former
employee of the Company to severance pay, unemployment
compensation or any other payment, (ii) 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 (iii)
give rise to the payment of any amount that would not be
deductible pursuant to the terms of section 280G of the
Code.
(k) FRANCHISING MATTERS. Except as disclosed in the
Company Reports or the Company Disclosure Letter:
(i) 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.
(ii) 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.
(iii) 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.
(iv) 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.
(l) EXISTING PERMITS AND VIOLATIONS OF LAW. 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. No governmental entity has
indicated in writing to any executive officer of 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.
(m) 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
26
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 6.9. Except as disclosed in the Company
Disclosure Letter or as contemplated by SECTION 6.9, 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 material 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 6.9, 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.
(n) 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 Investors, 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
(o) QUALIFICATIONS OF REPRESENTATIONS AND WARRANTIES.
Except for representations and warranties contained in
Sections 7.2(m), 7.2(n), and the last sentence in
7.2(j), all representations and warranties of the
Company contained in this Agreement shall be deemed
qualified in all respects by all of the information
provided prior to the date hereof to the Investors and
their representatives as part of their due diligence
examination of the Company. Any matter, fact or
circumstance that has been so disclosed to Investors or
their representatives shall be deemed to be incorporated
into all appropriate sections of the Company Disclosure
Letter.
ARTICLE 8
INDEMNIFICATION AND INSURANCE.
Section 8.1 CHARTER AND BYLAWS. After the Closing Date, the
Investors will cause the certificate of incorporation and bylaws of the
Surviving Corporation and each of its Subsidiaries to 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 8.2 INDEMNITY. The Company shall, and the Investors, to the
extent of the liability limit hereinafter provided, shall cause the Company (and
the Surviving Corporation following the
27
Merger), to the fullest extent permitted under applicable law or under the
Company's (or the Surviving Corporation's) or such Subsidiary's certificate of
incorporation or bylaws or any 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) including without limitation, the termination of the
Recapitalization Agreement or (b) with respect to any acts or omissions
occurring at or prior to the Effective Time, 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 currently in effect, 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
Effective Time) and subject to the specific terms of any indemnification
contract (except as provided in the Joint Defense Agreement insofar as it may
affect the procedure for the determination of entitlement to indemnification),
(a) the Company (and after the Effective Time, the Surviving Corporation) 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
(and after the Effective Tie, the Surviving Corporation) shall cooperate in the
defense of any such matter, provided 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 8.2, the liability of the Investors to cause
the Company (and after the Effective Time, the Surviving Corporation) 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 dividends or distributions from the Company (or the Surviving
Corporation).
Section 8.3 INSURANCE. In addition, the Company (and after the
Effective Time, the Surviving Corporation), shall provide, for a period of not
less than six years after the Effective Time, the Company's current directors
and officers an insurance and indemnification policy that provides coverage for
events occurring at or prior to the Effective Time (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 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 8.4 SURVIVAL. This ARTICLE 8 shall survive the consummation
of the transactions contemplated by this Agreement at the Effective Time, is
intended to benefit the Indemnified Parties, their heirs and representatives
shall be binding on all successors and assigns of the Company (and after the
Effective Time, the Surviving Corporation) and shall be enforceable by and may
not be amended or modified without the written approval of the Indemnified
Parties. If the Surviving Corporation or any of its successors or assigns (i)
shall consolidate with or merge into any other corporation or other entity and
shall not be the continuing or surviving corporation or entity of the
28
consolidation or merger or (ii) shall transfer all or substantially all of its
properties and assets to any individual, corporation or other entity, then and
in each such case, proper provisions shall be made so that the successors and
assigns of the Surviving Corporation shall assume all of the obligations set
forth in this Article 8.
ARTICLE 9
TERMINATION
Section 9.1 TERMINATION BY MUTUAL CONSENT. This Agreement may be
terminated and the Offer or the Merger may be abandoned at any time prior to the
Effective Time, before or after any Stockholder Approval, by the mutual consent
of SDI and the Company.
Section 9.2 TERMINATION BY EITHER PARTY. This Agreement may be
terminated and the Offer or the Merger may be terminated and abandoned by either
SDI or the Company at any time prior to the Effective Time, 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 December 31, 2000 (the "Termination Date"), or (b) the Offer shall have
expired or shall have been terminated without the acceptance for purchase of any
Shares pursuant thereto; provided that SDI 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 shall have resulted from
the failure of SDI or Newco to set forth any obligation of either of them
contained in this Agreement.
Section 9.3 TERMINATION BY INVESTORS. This Agreement may be
terminated and the Offer or the Merger may be abandoned at any time (a) prior to
the Expiration Date, by SDI if the Company shall have failed to comply in all
respects with any of the covenants or agreements required by SECTION 6.1 and
SECTION 6.2 of this Agreement prior to the Expiration 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, (b)
without limiting SDI's rights under clause (d) below, prior to the Expiration
Date, by SDI if the Company shall have failed to comply in all material respects
with all other material agreements and covenants required by this Agreement to
be performed or complied with by it prior to or on the Expiration Date, (c)
prior to the Closing Date, by SDI if the Board of Directors shall have
recommended to stockholders or authorized or approved an Alternative Proposal or
Superior Proposal, or (d) prior to the Closing Date, by SDI if the Company shall
have failed to comply in all material respects with its covenants and agreements
in SECTION 2.4(a).
Section 9.4 TERMINATION BY THE COMPANY. This Agreement may be
terminated at any time prior to the Closing Date, by the Company (a) if the
Investors 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 Investors prior to the Closing Date 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.
29
Section 9.5 EFFECT OF TERMINATION AND ABANDONMENT. In the event of
termination of this Agreement and abandonment of the Offer or the Merger
pursuant to SECTION 9.1, 9.2, 9.3 or 9.4, 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 9.6, 10.1, 10.2 and 10.3 and
except that nothing herein will relieve any party from liability for any breach
of this Agreement.
Section 9.6 LIQUIDATED DAMAGES.
(a) In the event that prior to consummation of the Offer SDI
exercises any right to terminate this Agreement under SECTION 9.3 and
abandon the Offer, the Company shall (without duplication of any
amounts paid under Section 9.6(b)): (i) reimburse the Investors for
their out-of-pocket expenses reasonably incurred in connection with the
preparation and negotiation of the Recapitalization Agreement and the
other agreements, documents, and instruments contemplated by the
Recapitalization Agreement (including but not limited to the proxy
statement and the offer to purchase) and their out-of-pocket expenses
reasonably incurred 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 $1,500,000 in the aggregate; (ii) reimburse the Investors for
legal expenses reasonably incurred in any litigation or proceeding
seeking enforcement of this SECTION 9.6(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 recommends to
stockholders or authorizes or approves an Alternative Proposal or a
Superior Proposal or the Company enters into a definitive agreement
providing for the implementation of an Alternative Proposal or Superior
Proposal, the Company shall (without duplication of any amounts paid
under SECTION 9.6(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 and making the Offer; (ii) reimburse the Investors
for their out-of-pocket expenses reasonably incurred in connection with
the preparation and negotiation of the Recapitalization Agreement and
the other agreements, documents, and instruments contemplated by the
Recapitalization Agreement (including but not limited to the proxy
statement and the offer to purchase) and their out-of-pocket expenses
reasonably incurred 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 $1,500,000 in the aggregate; (iii) reimburse the Investors for
legal expenses reasonably incurred in any litigation or proceeding
seeking enforcement of this SECTION 9.6(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.
30
ARTICLE 10
RELEASE
Section 10.1 TERMINATION OF THE RECAPITALIZATION AGREEMENT. SDI,
Meridian, HSA and the Company, by mutual agreement hereby terminate the
Recapitalization Agreement in accordance with SECTION 8.1 thereof.
Section 10.2 COMPANY RELEASE. Effective upon the execution and
delivery of this Agreement by each of the parties hereto, the Company for itself
and its successors and assigns, irrevocably releases and discharges SDI,
Meridian and HSA Properties and their respective directors, officers,
stockholders, and partners, and their respective successors and assigns, from
all agreements, liabilities, obligations, claims, and causes of action of any
nature, whether known or unknown, under or in connection with the
Recapitalization Agreement.
Section 10.3 INVESTOR RELEASE. Effective upon the execution and
delivery of this Agreement by each of the parties hereto, SDI, Meridian and HSA
Properties, each for itself and its successors, assigns, stockholders, and
partners, irrevocably releases and discharges the Company and its directors,
officers, and stockholders, and their respective successors and assigns, from
all agreements, liabilities, obligations, claims, and causes of action of any
nature, whether known or unknown, arising under or in connection with the
Recapitalization Agreement.
ARTICLE 11
MISCELLANEOUS PROVISIONS
Section 11.1 PAYMENT OF EXPENSES. Except as otherwise provided
by SECTION 9.6, whether or not the Offer 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.
Section 11.2 MODIFICATION OR AMENDMENT. At any time prior to the
Effective Time, the parties hereto may, by written
agreement, make any modification or amendment of this
Agreement approved by their respective boards of
directors. 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.
Section 11.3 WAIVER OF CONDITIONS; NON-SURVIVAL.
(a) The conditions to each of the parties' obligations to
consummate the Offer and the Merger 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 (except for the
Minimum Condition which may not be waived without the written consent
of the Company).
(b) None of the representations or warranties in this
Agreement, or in any instrument delivered pursuant to this Agreement,
shall survive the Effective Time.
Section 11.4 CAPTIONS. The Article, Section and paragraph
captions herein are for convenience of reference only,
do not constitute part of this Agreement and
31
shall not be deemed to modify or otherwise affect any of
the provisions hereof.
Section 11.5 GOVERNING LAW. This Agreement shall be governed by
and construed in accordance with the laws of the State
of Delaware.
Section 11.6 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 INVESTORS, addressed to SDI, Inc., at 200 West
Madison Street, Suite 3800, Chicago, Illinois 60606,
Attention: Harold S. Handelsman (with a copy to Katten
Muchin Zavis, 525 West Monroe Street, Chicago, Illinois
60661, Attention: David R. Shevitz and Bruce G. Wilson)
AND IF TO THE COMPANY, addressed to the Company at 13
Corporate Square, Suite 250, Atlanta, Georgia 30329,
Attention: Stephen Aronson (with a copy to Paul, Weiss,
Rifkind, Wharton & Garrison, 1285 Avenue of America, New
York, New York, 10019, Attention: Robert B. Schumer and
Paul D. Ginsberg), or to such other persons or addresses
as may be designated in writing by the party to receive
such notice.
Section 11.7 ENTIRE AGREEMENT. This Agreement, its Exhibits and
the Company Disclosure Letter 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 11.8 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. 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 11.9 THIRD PARTY BENEFICIARIES. This Agreement is
intended for the benefit of the parties hereto and their
respective successors and assigns and is not for the
benefit of, nor may any provision hereof be enforced by,
any other Person, unless specifically provided for
herein. Notwithstanding the foregoing, holders of
Restricted Stock and holders of the Company's stock
options are express beneficiaries of SECTION 2.5,
SECTION 6.9 and the second sentence of SECTION 7.1(e)
hereof.
Section 11.10 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]
32
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/ Stephen D. Aronson
----------------------
Name: Stephen D. Aronson
----------------------
Title: VP/General Counsel
----------------------
SDI, INC.
By: /s/ H.S. Handelsman
----------------------
Name: H.S. Handelsman
----------------------
Title:
-------------------------
USFS ACQUISITION CO.
By: /s/ H.S. Handelsman
-------------------------
Name: H.S. Handelsman
-------------------------
Title:
-------------------------
MERIDIAN ASSOCIATES, L.P.
By: Meridian Investments, Inc.
Its General Partner
By: /s/ H.S. Handelsman
-------------------------
Name: H.S. Handelsman
-------------------------
Title:
-------------------------
HSA PROPERTIES, INC.
By: /s/ H.S. Handelsman
-------------------------
Name: H.S. Handelsman
-------------------------
Title:
-------------------------
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 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.
"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.
"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, 75% 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 75% 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
substantially 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 Merger.
"Alternative Proposal" means any Acquisition Proposal, other than a
Superior Proposal, that, if consummated, would result in (i) a transaction that
would give all stockholders of the Company the opportunity to receive cash
and/or property for their Shares, which in the good faith judgment of the Board
of Directors, taking into account all considerations materially relevant to such
Acquisition Proposal such as conditions to closing and other contingencies, and
based upon the written opinion of BAS or another nationally recognized financial
advisor to the Board of Directors, would result in a transaction having a value
to stockholders of the Company, from a financial point of view, in an amount per
share greater than the Merger Consideration and (ii) written confirmation to the
Investors, by the Company and the proponent of such transaction, of the
Company's obligations under Section 9.6 of the Acquisition Agreement.
"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.
"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.
"Dissenting Shares" means shares with respect to which the holders
thereof have perfected their dissenters' rights in accordance with Section 262
of the DCGL.
"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 Hart Scott Rodino Antitrust Improvements Act of
1976, as amended, and the federal regulation promulgated thereunder.
"Investors" means, collectively, SDI, Meridian, HSA Properties, and
Newco.
"Joint Defense Agreement" means the Joint Defense Agreement dated June
___, 2000, as amended by the Amendment to Joint Defense Agreement dated
September ___, 2000, among the Company and directors of the Company.
"Material Adverse Effect" with respect to any Person means a material
adverse effect on the assets, financial condition, results of operations or cash
flows, 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, (iii) changes resulting from this Agreement or
from the announcement of the transactions contemplated hereby, (iv) changes in
reserves in connection with any receivables, (v) the writeoff or writedown of
any of loans in the Company's loan portfolios, or (vi) the granting of royalty
rebates or the reducing or forgiving of application fees, in the ordinary course
of business consistent in nature and amount with past practice.
"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.
"Proprietary Rights" means all (i) patents, patent applications, patent
disclosures and inventions, (ii) trademarks, service marks, trade dress, trade
names and corporate names and
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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 Michael Leven, and designated as Restricted Shares under the Amended and
Restated Employee Stock Purchase Agreement between the Company and Michael
Leven, entered into as of September 29, 1995, as amended effective October 24,
1996 (the "Leven Stock Purchase Agreement"), (ii) the 233,032 Restricted Shares
held by Andrea Leven originally acquired under the Leven Employee Stock Purchase
Agreement, (iii) 589,865 Restricted Shares held by Neal Aronson acquired under
the Amended and Restated Employee Stock Purchase Agreement between the Company
and Neal K. Aronson entered into as of September 29, 1995, as amended effective
October 24, 1996 (the "Aronson Employee Stock Purchase Agreement"), and (iv)
424,615 Shares that have been reallocated to other members of management or
transferred to members of Michael A. Leven's family, as set forth on the
attached Schedule.
"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 FORREST P. GUNTER ON BEHALF OF HIMSELF
AND ALL OTHERS SIMILARLY SITUATED VS. U.S. FRANCHISE SYSTEMS, INC., MICHAEL A.
LEVEN, NEAL K. ARONSON, AND RICHARD GOLDSTEIN.
"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,
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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.
"Superior Proposal" means an Acquisition Proposal that, if consummated,
would result in (i) a transaction that would give all stockholders of the
Company the opportunity to receive cash for their Shares in an amount per share
greater than the Merger Consideration and (ii) written confirmation to the
Investors, by the Company and the proponent of such transaction, of the
Company's obligations under Section 9.6 of the Acquisition Agreement.
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RESTRICTED STOCK SCHEDULE
Restricted Number
Stock of Shares
Holder Held
- ------------ ---------
Steven Romaniello 40,333
David E Shaw, Sr. 26,887
Jonathan Leven 91,123
Robert Leven 91,123
Adam Leven 77,677
Debbie Campbell 20,166
Brad LeBlanc 3,360
Timothy Muir 33,613
Michael Muir 33,613
Eugene Welch 6,720
Total: 424,615
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