EXHIBIT 99.1
EXCHANGE AGREEMENT
This Exchange Agreement (this "AGREEMENT") is made and entered into as
of September 18, 2000 by and among Meridian Associates, L.P. ("MERIDIAN"), HSA
Properties, Inc., a Delaware corporation ("HSA PROPERTIES"), Michael A. Leven,
Andrea Leven, Jonathan Leven, Robert Leven, and Adam Leven (collectively, the
"LEVEN FAMILY"), and USFS Acquisition Co., a Delaware corporation ("NEWCO").
RECITALS
SDI, Inc., a Nevada corporation, Newco, HSA Properties, Meridian, and
U.S. Franchise Systems Inc., a Delaware corporation (the "Company"), are parties
to an Acquisition Agreement dated as of September 18, 2000 (the "ACQUISITION
AGREEMENT"), which contemplates the acquisition of the Company by Newco. In
connection with the consummation of the transactions contemplated by the
Acquisition Agreement, Meridian, HSA Properties and the Leven Family
(collectively, the "SUBSCRIBERS" and individually, a "SUBSCRIBER") desire to
transfer shares of capital stock of the Company to Newco in exchange for shares
of capital stock of Newco, all on the terms and subject to the conditions set
forth herein.
For federal income tax purposes, it is intended that, but such
transactions shall not be conditioned upon, the transactions provided for herein
shall qualify as a transfer to a corporation controlled by transferor within the
meaning of Section 351(a) of the Internal Revenue Code of 1986, as amended (the
"CODE").
AGREEMENT
For good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereby agree as follows:
1. DEFINED TERMS. Capitalized words used in this Agreement as
defined terms shall have the meanings given to them in the Acquisition
Agreement, unless otherwise defined herein.
2. SUBSCRIPTION.
2.1 Effective as of the Expiration Date, if Newco purchases such
number of Shares, that together with the Company's Shares owned by the Investors
and its affiliates, represents a majority of the Company's outstanding Shares
(the "Minimum Condition"), pursuant to and in accordance with the Offer, each
Subscriber respectively, shall assign and transfer to Newco the number of shares
of common stock of the Company set forth on Appendix 1 hereto, in exchange for
the number of shares of common stock of Newco ("Newco Stock") set forth on
Appendix 1 hereto.
2.2 This Agreement constitutes the irrevocable subscription of each
Subscriber to acquire the Newco Stock in exchange for Shares on the terms
and subject to the conditions set forth in this Agreement. Newco accepts all
such subscriptions on the terms and subject to the conditions set forth in this
Agreement.
2.3 Upon the issuance of Newco Stock in exchange for Shares, the
Subscribers shall execute and deliver a Stockholders Agreement in the form of
Appendix 2 hereto.
3. TERMINATION. Notwithstanding the foregoing, this Agreement shall
cease to be effective if: (a) the Offer shall have expired in accordance with
its terms without the acceptance for purchase of the Minimum Condition pursuant
thereto, (b) the Offer shall have been terminated or withdrawn for any reason,
(c) the Acquisition Agreement is earlier terminated for any reason in accordance
with Article 9 thereof or otherwise, (d) the Offer shall have been amended or
otherwise modified in any material respect (other than the extension of the time
for tenders of Shares), including, without limitation, to reduce the number of
Shares which Newco is offering to purchase or the price at which Newco will
purchase Shares pursuant thereto, or (e) the Board of Directors of the Company
shall have recommended to stockholders or shall have authorized or approved an
Alternative Proposal.
4. SUBSCRIBERS' REPRESENTATIONS AND WARRANTIES. Each Subscriber (for
itself, himself or herself and not for the others) represents and warrants to,
and covenants with, Newco and each other Subscriber as follows:
4.1 The Subscriber is an "accredited investor" as that term is
defined in Rule 501(a) of Regulation D promulgated under the Securities Act.
4.2 If a natural person, the Subscriber is a bona fide resident of
the state contained in the address set forth on the signature page of this
Agreement and is legally competent to execute this Agreement. If an entity, the
Subscriber is duly authorized to execute this Agreement and this Agreement
constitutes the legal, valid and binding obligation of the Subscriber
enforceable against the Subscriber according to its terms.
4.3 Regarding Newco and the Company, its business, plans and
financial condition, the terms of the offering and the risks associated
therewith, and any other matters relating to this Agreement, the Subscriber has
received all materials which have been requested by the Subscriber; has had a
reasonable opportunity to ask questions of Newco and the Company and their
representatives; and Newco and the Company have answered all inquiries that the
Subscriber or the Subscriber's representatives have put to it. The Subscriber
has had access to all additional information, and has taken all the steps
necessary to evaluate the merits and risks of an investment in Newco.
4.4 The Subscriber has, and reasonably can be assumed to have, such
knowledge and experience in finance, securities, investments and other business
matters that the Subscriber is capable of utilizing the information that is
available to the Subscriber concerning
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Newco and the Company to evaluate the risks of investment in Newco and
understands and acknowledges that (a) this investment is suitable only for an
investor who is able to bear the economic consequences of losing his, her or its
entire investment, (b) the acquisition of the Newco Stock is a speculative
investment which involves a high degree of risk of loss of the entire
investment, (c) any predictions or projections as to Newco's or the Company's
future performance are necessarily subject to a high degree of uncertainty, and
that Newco makes no representations or warranties as to the realization of such
predictions or projections, and (d) there are substantial restrictions on the
transferability of, and there will be no public market for, the Newco Stock, and
accordingly, it may not be possible for the Subscriber to liquidate his, her or
its investment in the Newco Stock at a time when it may be desirable to do so,
or at any other time.
4.5 The Subscriber confirms that he, she or it is able (a) to bear
the economic risk of this investment, (b) to hold the Newco Stock for an
indefinite period of time, and (c) afford a complete loss of Subscriber's
investment; and the Subscriber has sufficient liquid assets so that the
illiquidity associated with this investment will not cause any undue financial
difficulties or affect the Subscriber's ability to provide for his, her or its
current needs and possible financial contingencies, and that the Subscriber's
commitment to all speculative investments (including this one) is reasonable in
relation to the Subscriber's net worth and/or annual income.
4.6 The Subscriber is acquiring the Newco Stock for the Subscriber's
own account, for investment purposes only, not for the account of any other
person, and not with a view to the sale or distribution thereof or the granting
of any participation therein, and has no present intention of distributing or
selling to others any of such interest or granting participations therein. The
Subscriber does not have any contract, undertaking, agreement or arrangement
with any person to sell, transfer or grant participations to such person or to
any third person, with respect to the Newco Stock.
4.7 The Subscriber is aware that the Newco Stock has not been
registered under the Securities Act or any state or foreign securities or "blue
sky" laws, that the Newco Stock will be issued on the basis of the statutory
exemption provided by Section 4(2) of the Securities Act, relating to
transactions by an issuer not involving any public offering and under similar
exemptions under certain state securities or "blue sky" laws, that this offering
has not been reviewed by, passed on or submitted to any federal or state agency
or self-regulatory organization where an exemption is being relied upon, and
that Newco's reliance thereon is based, in part, upon the truth, completeness
and accuracy of the representations made by the Subscriber in this Agreement.
4.8 The Subscriber acknowledges that it is familiar with the nature
of the limitations imposed by the Securities Act and the rules and regulations
thereunder on the transfer of securities. In particular, the Subscriber agrees
that no sale, assignment or transfer of any Newco Stock by the Subscriber shall
be valid or effective, and Newco shall not be required to give any effect to
such sale, assignment or transfer, unless: (a) (i) such sale, assignment or
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transfer is registered under the Securities Act and applicable state securities
or "blue sky" laws (collectively, "SECURITIES LAWS"), it being understood that
the Newco Stock is not currently registered for sale and that Newco has no
obligation or intention to so register the Newco Stock, or (ii) the Newco Stock
is sold, assigned or transferred in accordance with all the requirements and
limitations of Rule 144 under the Securities Act, it being understood that Rule
144 is not available at the present time for the sale of the Newco Stock, or
(iii) such sale, assignment or transfer is otherwise exempt from the
registration requirements of Securities Laws; and (b) such sale, assignment or
transfer is in compliance with any applicable agreement by and among Newco and
any one or more of the Subscribers relating to the Newco Stock. The Subscriber
consents that Newco may, if it desires, permit the transfer of the Newco Stock
out of his, her or its name only when the request for transfer is accompanied by
an opinion of counsel, which counsel and opinion are reasonably satisfactory to
counsel to Newco, that neither the sale nor the proposed transfer results in a
violation of Securities Laws.
4.9 The Subscriber acknowledges that the certificates evidencing the
Newco Stock shall bear the following, or substantially similar legends, and such
other legends may be required by state securities or "blue sky" laws:
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS
AND CONDITIONS OF A STOCKHOLDERS AGREEMENT DATED AS OF
________________, 2000, AS THE SAME MAY BE AMENDED FROM TIME TO TIME
(THE "STOCKHOLDERS' AGREEMENT"), BY AND AMONG VARIOUS INDIVIDUAL
SIGNATORIES THERETO AND THE COMPANY, A COPY OF WHICH IS AVAILABLE AT
THE PRINCIPAL OFFICE OF THE COMPANY. THE SALE, TRANSFER OR OTHER
DISPOSITION OF SUCH SHARES BY THE HOLDER THEREOF IS SUBJECT TO THE
TERMS OF THE STOCKHOLDERS' AGREEMENT, WHICH PROVIDES, AMONG OTHER
THINGS, THAT UNDER SPECIFIED CIRCUMSTANCES THE COMPANY AND OTHER
SPECIFIED PERSONS HAVE THE RIGHT TO PURCHASE SUCH SHARES FROM THE
HOLDER THEREOF."
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR ANY STATE SECURITIES OR "BLUE SKY" LAWS AND
NEITHER SUCH SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD,
PLEDGED, ASSIGNED OR OTHERWISE TRANSFERRED UNLESS (1) A REGISTRATION
STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE SECURITIES ACT
AND ANY APPLICABLE STATE SECURITIES OR "BLUE SKY" LAWS, OR (2) THE
COMPANY RECEIVES AN OPINION OF COUNSEL TO THE HOLDER OF SUCH
SECURITIES, WHICH COUNSEL AND OPINION ARE REASONABLY SATISFACTORY TO
COUNSEL TO THE COMPANY, THAT SUCH SECURITIES MAY BE OFFERED, SOLD,
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PLEDGED, ASSIGNED OR TRANSFERRED IN THE MANNER CONTEMPLATED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR APPLICABLE
STATE SECURITIES OR "BLUE SKY" LAWS."
4.10 The Subscriber acknowledges that this offering may involve tax
consequences and that he, she or it is not relying on any statements or
representations of Newco or any of its agents, employees or affiliates with
respect to the tax and other economic considerations of an investment in the
Newco Stock and acknowledges that the Subscriber must retain his, her or its own
professional advisors to evaluate the federal, state and local tax and other
economic considerations of an investment in the Newco Stock. The Subscriber also
acknowledges that he, she or it is solely responsible for any of his, her or its
own tax liability that may arise as a result of this investment or the
transactions contemplated by this Agreement.
4.11 The Subscriber confirms that, except as expressly set forth in
this Agreement, no representations or warranties have been made to the
Subscriber by Newco or any agent, employee or affiliate of Newco, and in
entering into this transaction, the Subscriber is not relying on any
information, other than the results of independent investigation by the
Subscriber.
4.12 The Subscriber is the record and beneficial owner of the Shares
listed opposite his, her or its name on Schedule 1 and will assign such Shares
to Newco on the terms and subject to the conditions set forth in this Agreement
free and clear of all liens, claims, and encumbrances.
5. REPRESENTATIONS AND WARRANTIES OF NEWCO. Newco represents and
warrants to each Subscriber as follows:
5.1 Newco is a corporation duly organized, existing and in good
standing under the laws of the State of Delaware and has the corporate power to
conduct the business which it conducts and proposes to conduct. Newco has been
organized solely for the purpose of consummating the Offer and Merger
contemplated by the Acquisition Agreement, has conducted no business or
operations of any nature and has no assets and has incurred no obligations or
liabilities other than those created by or in connection with the Acquisition
Agreement and this Agreement.
5.2 The execution, delivery and performance of this Agreement by
Newco has been duly approved by the Board of Directors of Newco, and all other
corporate actions required to authorize and consummate the offer and sale of the
Newco Stock have been duly taken. No consent, approval, qualification, order or
authorization of, or filing with any governmental authority is required in
connection with Newco's valid execution, delivery or performance of this
Agreement, or the offer, issuance or sale of the Newco Stock, except for filings
to perfect an exemption from registration or qualification under applicable
federal and state securities
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laws. This Agreement is a legal, valid and binding agreement of Newco,
enforceable in accordance with its terms, except to the extent that (a) the
enforceability hereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws from time to time in effect and affecting the rights
of creditors generally, (b) the enforceability hereof is subject to general
principles of equity or (c) the indemnification provisions hereof may be held to
be violative of public policy.
5.3 News has furnished to each subscriber a complete and correct copy
of its Certificate of Incorporation and By-Laws. Newco is not in violation of or
default under, nor will the execution and delivery of this Agreement, the
issuance of the Newco Stock, and the incurrence of the obligations herein set
forth and the consummation of the transactions herein contemplated, result in a
violation of, or constitute a default under, Newco's Certificate of
Incorporation or By-laws, any material obligation, agreement, covenant or
condition contained in any agreement or instrument to which Newco is a party or
by which it or any of its properties may be bound or any material order, rule,
regulation, writ, injunction or decree of any government, governmental
instrumentality or court, domestic or foreign.
5.4 The authorized capital stock of Newco is 36,000,000 shares,
consisting of 35,000,000 shares of common stock, par value $0.01 per share (the
"COMMON STOCK"), and 1,000,000 shares of preferred stock, par value $0.01 per
share (the "PREFERRED STOCK"). As of the closing with respect to the issuance of
Newco Stock contemplated by this Agreement, a total of 19,953,753 shares of
Common Stock will be issued and outstanding, all of which will be owned by SDI,
Inc., Meridian, HSA Properties and the Leven Family, and no shares of Preferred
Stock will be outstanding. Upon issuance of the Newco Stock in accordance with
the terms hereof, the Newco Stock will be, validly issued, fully paid and
nonassessable. As of the closing with respect to the Newco Stock, Newco will not
have outstanding (a) any rights (either preemptive or otherwise) or options to
subscribe for or purchase, or any warrants or other agreements providing for or
requiring the issuance of, any capital stock or any securities convertible into
or exchangeable for Newco's capital stock, (b) any obligation to repurchase or
otherwise acquire or retire any of its capital stock, any securities convertible
into or exchangeable for its capital stock or any rights, options or warrants
with respect thereto, (c) any rights that require Newco to register the offering
of any of its securities under the Securities Act or (d) any restrictions on
voting any of Newco's securities.
5.5 No litigation or proceeding before, or investigation by, any
foreign, federal, state or municipal board or other governmental or
administrative agency or any arbitrator is currently pending or, to the
knowledge of Newco, threatened against Newco or, to Newco's knowledge, any
officer of Newco, which seeks rescission of, seeks to enjoin the consummation
of, or which questions the validity of, this Agreement or any of the
transactions contemplated by the Acquisition Agreement.
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6. TAX FREE EXCHANGE.
Newco, Meridian and HSA shall take all actions reasonably necessary and
within their control to cause the transactions contemplated by this Agreement to
constitute an exchange of the type described in Section 351(a) of the Code with
respect to which no gain or loss will be recognized; PROVIDED, HOWEVER, that
Newco, Meridian and HSA shall not be obligated to take any actions (i) that are
inconsistent with the terms of the Acquisition Agreement or any of the
agreements executed in connection therewith, and (ii) that involve any
significant additional cost or risk.
7. MISCELLANEOUS.
7.1 NOTICE. Except as otherwise specifically provided herein, any
notice or other communication required or permitted to be given hereunder shall
be in writing and shall be mailed by certified mail, return receipt requested,
or by courier service or delivered by facsimile transmission to whom it is to be
given at the address set forth on the signature page hereof, or to such other
address or facsimile number as the party shall have furnished in writing in
accordance with the provisions of this Section. Any notice or other
communication given by certified mail shall be deemed given at the time of
certification thereof, except for a notice changing a party's address which
shall be deemed given at the time of receipt thereof. Any notice given by other
means permitted by this Section shall be deemed given at the time of receipt
thereof.
7.2 BINDING AGREEMENT. This Agreement shall be binding upon each
Subscriber, each Subscriber's heirs, estate, legal representatives and
successors and shall inure to the benefit of Newco, its successors and assigns.
The rights and obligations of each Subscriber hereunder are not assignable, and
any purported assignments shall be void.
7.3 HEADINGS. The headings in this Agreements are solely for
convenience of reference and shall be given no effect in the construction or
interpretation of this Agreement.
7.4 CHOICE OF LAW; JURISDICTION; VENUE. This Agreement shall be
governed by and construed in accordance with the laws of the State of Delaware,
without regard to its principles of conflicts of law. The parties hereto
irrevocably consent to the jurisdiction of the courts of Delaware and of any
federal court located in the District of the State of Delaware in connection
with any action or proceeding arising out of or relating to this Agreement, any
document or instrument delivered pursuant to, in connection with or
simultaneously with this Agreement, or a breach of this Agreement or any such
document or instrument; PROVIDED, HOWEVER, that if the federal courts have
subject matter jurisdiction, any action shall be commenced and maintained there.
In any such action or proceeding, each party hereto waives personal service of
any summons, complaint or other
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process and agrees that service thereof may be made in accordance with Section
7.1. Within 30 days after such service, or such other time as may be mutually
agreed upon in writing by the attorneys for the parties to such action or
proceeding, the party so served shall appear or answer such summons, complaint
or other process. Should the party so served fail to appear or answer within
such 30-day period or such extended period, as the case may be, such party shall
be deemed in default and judgment may be entered against such party for the
amount as demanded in any summons, complaint or other process so served.
7.5 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
7.6 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
among the parties with respect to the subject matter hereof and may be amended
or superseded only by a writing executed by the parties.
7.7 WAIVER. Neither this Agreement nor any provision hereof shall be
waived, modified, changed, discharged, terminated, revoked or canceled except by
an instrument in writing signed by the party effecting the same against whom any
change, discharge or termination is sought. Failure of Newco to exercise any
right or remedy under this Agreement or any other agreement between Newco and
any Subscriber, or otherwise or delay by Newco in exercising such right or
remedy, will not operate as a waiver thereof.
7.8 INVALIDITY. If any provision of this Agreement is invalid or
unenforceable under any applicable statute or rule of law, then such provision
shall be deemed inoperative to the extent that it may conflict therewith and
shall be deemed modified to conform with such statute or rule of law. Any
provision hereof that may prove invalid or unenforceable under any law shall not
affect the validity or enforceability of any other provision hereof.
7.9 FURTHER ASSURANCE. The parties agree to execute and deliver all
such further documents, agreements and instruments and take such other and
further action as may be necessary or appropriate to carry out the purposes and
intent of this Agreement.
7.10 INDEMNIFICATION. Each Subscriber agrees to indemnify and hold
harmless Newco and each officer, director, employee or control person of Newco,
who is or may be a party or may be threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, against all losses, liabilities and
expenses (including attorney's fees, judgments, fines and amounts paid in
settlement) actually and reasonably incurred by Newco or such officer, director,
employee or control person in connection with such action, suit or proceeding,
by reason of or arising from (i) any actual or alleged misrepresentation or
misstatement of facts or omissions to represent or state facts made or alleged
to have been made by the Subscriber to Newco, or omitted or alleged to have been
omitted by the Subscriber, concerning the Subscriber, including, without
limitation, any such misrepresentation, misstatement or omission contained
herein, or (ii) any sale or distribution of the Newco Stock purchased hereunder
by the Subscriber in violation of Securities Laws.
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IN WITNESS WHEREOF the parties have executed this Agreement as of the
date first written above.
USFS ACQUISITION CO.
By: /s/ H.S. Handelsman
----------------------------------------
Title:
-------------------------------------
MERIDIAN ASSOCIATES, L.P.
By: Meridian Investments, Inc.
Its: General Partner
By: /s/ H.S. Handelsman
-------------------------------
Title:
----------------------------
HSA PROPERTIES, INC.
By: /s/ H.S. Handelsman
----------------------------------------
Title:
-------------------------------------
/s/ Michael Leven
--------------------------------------------
MICHAEL A. LEVEN
/s/ Andrea Leven
--------------------------------------------
ANDREA LEVEN
/s/ Jonathan Leven
--------------------------------------------
JONATHAN LEVEN
/s/ Robert Leven
--------------------------------------------
ROBERT LEVEN
/s/ Adam Leven
--------------------------------------------
ADAM LEVEN
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APPENDIX 1
TO
EXCHANGE AGREEMENT
Subscriber Company Shares Newco Stock
---------- -------------- -----------
Meridian Associates, L.P. 2,099,775 2,099,775
HSA Properties, Inc. 22,447 22,447
Michael Leven 200,000 200,000
Andrea Leven 200,000 200,00
Jonathan Leven 156,667 156,667
Robert Leven 156,667 156,667
Adam Leven 156,666 156,666
APPENDIX 2
TO
STOCKHOLDERS AGREEMENT
THIS STOCKHOLDERS AGREEMENT (the "Agreement") is made as of
_________ __, 2000, by and among Meridian Associates, L.P., an Illinois limited
partnership ("MERIDIAN"), SDI, Inc., a Nevada corporation ("SDI"), HSA
Properties, Inc., a Delaware corporation ("HSA PROPERTIES" and together with
Meridian and SDI, the "INVESTORS"), and Michael A. Leven, Andrea Leven, Jonathan
Leven, Robert Leven, and Adam Leven (collectively, the "LEVEN STOCKHOLDERS").
The Investors and the Leven Stockholders are collectively referred to as the
"STOCKHOLDERS" and individually as a "STOCKHOLDER."
RECITALS
The Stockholders are all of the holders of Common Stock of
USFS Acquisition Co., a Delaware corporation ("NEWCO").
The Stockholders desire to enter into this Agreement for the
purposes, among others, of (i) assuring continuity in the management and
ownership of the Company, and (ii) limiting the manner and terms by which the
stock may be transferred.
AGREEMENT
For good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties to this Agreement
hereby agree as follows:
1. DEFINED TERMS. Capitalized terms used herein as defined terms
and not otherwise defined herein shall have them meanings given to them below:
"AFFILIATE" with respect to any Person, means any other Person, entity
or investment fund controlling, controlled by or under common control with such
Person and any partner of such Person which is a partnership. "Affiliate" with
respect to the Investors, means, in addition to the foregoing, any and all of
the lineal descendants of Nicholas J. Pritzker, deceased, any and all trusts for
their benefit or for the benefit of any of their spouses, and any Person owned
or controlled by such lineal descendants or trusts.
"BROKERS TRANSACTION" has the meaning provided in Section 4(4) of the
Securities Act of 1933.
"COMMON STOCK" means the Common Stock of Newco, $.01 par value, and any
Common Stock of the Company that any Stockholder may acquire as a result of the
conversion or exchange of such Common Stock.
"COMPANY" means Newco and any corporation or other Person with which
Newco or any successor in interest to Newco may merge or consolidate.
"CURRENT MARKET PRICE" of any security means the average of the closing
prices of such security's sales on all securities exchanges on which such
security may at the time be listed, or, if there has been no sales on any such
exchange on any day, the average of the highest bid and lowest asked prices on
all such exchanges at the end of such day, or, if on any day such security is
not so listed, the average of the representative bid and asked prices quoted in
the NASDAQ Stock Market as of 4:00 p.m., New York time, or, if on any day such
security is not quoted in the NASDAQ Stock Market, the average of the highest
bid and lowest asked prices on such day in the domestic over-the-counter market
as reported by the National Quotation Bureau, Incorporated, or any similar
successor organization, on the day as of which "Current Market Price" is being
determined.
"EFFECTIVE DATE" means the date of this Agreement.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"FAIR MARKET VALUE" of the Shares shall be determined in accordance
with the requirements of Schedule A attached hereto.
"INDEPENDENT THIRD PARTY" means any Person who, immediately prior to
the contemplated transaction, does not own in excess of 5% of the Company's
Common Stock on a fully-diluted basis (a "5% OWNER"), who is not an Affiliate
with any such 5% Owner and who is not in the Leven Family Group or a trust for
the benefit of such 5% Owner and/or such other Persons.
"LEVEN FAMILY GROUP" means each of the Leven Stockholders and each such
person's spouse and descendants (whether natural or adopted) and any trust
solely for the benefit of such person and/or the person's spouse and/or
descendants.
"ORIGINAL SHARES" with respect to any Person or group means the Shares
held by such Person or group as of the Effective Date and Shares acquired after
the Effective Date pursuant to the exercise of options or conversion/exchange
rights.
"PERSON" means an individual, a partnership, a limited liability
company, a corporation, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
"PUBLIC COMPANY DATE" means the first date after the Effective Date
upon which the Shares are registered under Section 12 of the Exchange Act.
"SHARES" means (i) any Common Stock held, purchased or otherwise
acquired by any Stockholder, (ii) any warrants purchased or otherwise acquired
by any Stockholder, (iii) any equity securities issued or issuable directly or
indirectly with respect to the Common Stock referred to in clause (i) above by
way of stock dividend or stock split or in connection with a combination of
shares, recapitalization, merger, consolidation or other reorganization, and
2
(v) any other shares of any class or series of capital stock of the Company held
by a Stockholder.
2. RESTRICTIONS ON TRANSFER OF SHARES.
(a) PROHIBITED TRANSFER OF SHARES. From and after the
Effective Date and until the Public Company Date, no Stockholder, other
than the Investors, shall sell, transfer, assign, pledge or otherwise
dispose (whether voluntarily or involuntarily, by operation of law or
otherwise a "TRANSFER") of any interest in any Shares, whether now
owned or hereafter acquired, without the prior written consent of the
Investors, unless such Transfer is made in accordance with SECTION
2(d), 3, 4, 6, or 7.
(b) RESTRICTIONS ON TRANSFER. From and after the Public
Company Date, no Stockholder shall Transfer any interest in any Shares,
whether now owned or hereafter acquired, without the consent of the
Investors, except in compliance with SECTION 2(c), 2(d), 3, 4, 6, or 7.
Each Stockholder agrees not to consummate any Transfer subject to this
Agreement until 20 days after the later of the delivery to the other
Stockholders of such Stockholder's Offer Notice or Sale Notice (if
required by this Agreement), unless the parties to the Transfer have
been finally determined pursuant to this SECTION 2 prior to the
expiration of such 20 day period (the "ELECTION PERIOD").
(c) FIRST OFFER RIGHT. At least 20 days prior to making any
Transfer of any Shares after the Public Company Date, other than a
Transfer of Shares held by the Investors, the Stockholder intending to
make such transfer (the "TRANSFERRING STOCKHOLDER") shall deliver a
written notice (the "OFFER NOTICE") to the other Stockholders (the
"OTHER STOCKHOLDERS"). The Offer Notice shall disclose in reasonable
detail the proposed number of Shares to be transferred, the identity of
the proposed transferee, and the proposed terms and conditions of the
Transfer and shall be accompanied by a bona fide offer to purchase such
Shares on such terms and conditions from an Independent Third Party or
other Person not an Affiliate of the Transferring Stockholder. Each
Other Stockholder may elect to purchase all (but not less than all) of
its, his or her Pro Rata Share (as defined below) of the Shares
specified in the Offer Notice at the price and on the terms specified
therein by delivering written notice of such election to the
Transferring Stockholder as soon as practical but in any event within
10 days after delivery of the Offer Notice. Any Shares not elected to
be purchased by the end of such 10 day period shall be reoffered for
the 10 day period prior to the expiration of the Election Period by the
Transferring Stockholder on a pro rata basis to the Other Stockholders
who have elected to purchase their Pro Rata Share. If any Other
Stockholders have elected to purchase Shares from the Transferring
Stockholder, the transfer of such shares shall be consummated as soon
as practical after the delivery of the election notices, but in any
event within 10 days after the expiration of the Election Period. To
the extent that the Other Stockholders have not elected to purchase all
of the Shares being offered, the Transferring Stockholder may, within
30 days after the expiration of the Election Period, transfer such
Shares to the proposed transferee named in the Offer Notice for the
price per Share specified in the Offer Notice and on the other terms
and conditions stated in the Offer Notice. The purchase price specified
in any Offer Notice shall be payable solely
3
in cash at the closing of the transaction. Each Stockholder's "Pro Rata
Share" shall be based upon such Stockholder's proportionate ownership
of all Shares on a fully-diluted basis.
(d) PERMITTED TRANSFERS. The restrictions and rights contained
in this SECTION 2 shall not apply with respect to any Transfer of
Shares:
(i) by a Leven Stockholder pursuant to applicable
laws of descent and distribution or among the Leven Family
Group; provided, however, that the restrictions contained in
this Agreement shall continue to be applicable to the Shares
after any such Transfer; and provided, further, that the
transferees of such Shares shall have agreed in writing to be
bound by the provisions of this Agreement affecting the Shares
so transferred;
(ii) by a Leven Stockholder in a Brokers Transaction,
after notice to the Investors, at any time and from time to
time after the later of the Public Company Date and the second
anniversary of the Effective Date; provided that the Leven
Stockholders shall not be permitted to Transfer pursuant to
this SECTION 2(d)(II) and SECTION 6(a), in the aggregate, more
than one-third of their Original Shares before the third
anniversary of the Effective Date or more than two-thirds of
their Original Shares before the fourth anniversary of the
Effective Date;
(iii) by any Leven Stockholder to an Investor; or
(iv) by any Stockholder to the Company.
3. TAG-ALONG RIGHTS. In the event that the Investors propose to
Transfer, in one or a series of related transactions, more than 20% of their
aggregate Original Shares to one or more Independent Third Parties, they shall
deliver a written notice (the "SALE NOTICE") to the Other Stockholders,
specifying in reasonable detail the identity of the prospective transferee(s)
and the terms and conditions of the Transfer. The Other Stockholders may elect
to participate in the contemplated Transfer with respect to any Shares they then
hold by delivering written notice to the Investors within 10 days after delivery
of the Sale Notice. If any Other Stockholders have elected to participate in
such Transfer, the Investors and such Other Stockholders shall be entitled to
sell in the contemplated Transfer, at the same price and on the same terms, a
number of Shares equal to the product of (a) the quotient determined by dividing
the percentage of Shares owned by such person by the aggregate percentage of
Shares owned by Investors and the Other Stockholders participating in such sale
and (b) the number of Shares to be sold in the contemplated Transfer. The
Investors shall use their best efforts to obtain the agreement of the
prospective transferee(s) to the participation of the Other Stockholders in the
contemplated Transfer, and the Investors shall not transfer any of their Shares
to the prospective transferee(s) if the prospective transferee(s) declines to
allow the participation of the Other Stockholders.
4. CO-SALE RIGHTS. In the event that the Investors propose to
Transfer more than 50% of their Shares to one or more Independent Third Parties,
they may deliver a written
4
notice (the "CO-SALE NOTICE") to the Other Stockholders, not less than 10 days
prior to the date of such Transfer, specifying in reasonable detail the identity
of the prospective transferee(s) and the terms and conditions of the proposed
transfer and directing that the Stockholders shall participate in such proposed
Transfer. If the Investors give the Co-Sale Notice, each Stockholder shall
participate in such Transfer and sell, at the same price and on the same terms,
a number of Shares equal to the product of (a) the quotient determined by
dividing the number of Shares owned by each Stockholder by the aggregate number
of Shares owned by all Stockholders and (b) the number of Shares to be acquired
by the proposed transferee.
5. PLEDGE OF SHARES. From and after the Effective Date, no Shares
may be pledged without the prior written consent of the Investors which consent
may be withheld in their sole discretion.
6. PUT OPTIONS.
(a) OPTION. At any time and from time to time after the second
anniversary of the Effective Date but before the Public Company Date, the Leven
Family Group shall have the right and option to sell to the Investors, and
require the Investors to purchase, all or any part of the Shares then held by
the Leven Family Group for the price and on the other terms and conditions set
forth in this SECTION 6; provided that the Leven Family Group shall not be
permitted to Transfer pursuant to this SECTION 6(a) and SECTION 2(d)(II), in the
aggregate, more than one-third of their Original Shares before the third
anniversary of the Effective Date or more than two thirds of their Original
Shares before the fourth anniversary of the Effective Date.
(b) TERMINATION OF EMPLOYMENT. Upon and from time to time
after the termination of Michael Leven's employment with the Company under
circumstances constituting termination by the Company without "cause" (as
defined in the applicable employment agreement) or termination by Mr. Leven for
"good reason" (as defined in the applicable employment agreement), the Leven
Family Group shall have the right and option to sell to the Investors, and
require the Investors to purchase, all or any part of the Shares then held by
the Leven Family Group for the price and upon the other terms and conditions
provided in this SECTION 6.
(c) EXERCISE OF OPTION. The options provided in Section 6(a)
and (b) shall be exercised by delivering written notice of exercise to the
Investors or their permitted transferees.
(d) PURCHASE PRICE; CLOSING. The purchase price of Shares
purchased under this SECTION 6 shall be the Fair Market Value of the Shares if
the purchase occurs before the Public Company Date and the Current Market Price
of the Shares if the purchase occurs on or after the Public Company Date. The
closing of the purchase of Shares pursuant to this SECTION 6 shall take place at
the general offices of the Company within 60 days after the Investors' receipt
of notice of exercise of the option. The purchase price shall be paid in cash.
5
7. CALL OPTION.
(a) OPTION. Upon and at any time from time to time after the
termination of Michael Leven's employment with the Company under circumstances
constituting termination by the Company for "cause" (as defined in the
applicable employment agreement) or termination by Mr. Leven without "good
reason" (as defined in the applicable employment agreement) the Investors shall
have the right and option to purchase from the Leven Family Group, and require
the Leven Family Group to sell to the Investors, all or any part of the Shares
then held by the Leven Family Group for the price and upon the other terms and
conditions provided in this SECTION 7.
(b) EXERCISE OF OPTION. The option provided in SECTION 7(a)
shall be exercised by delivering written notice of exercise to the Leven Family
Group.
(c) PURCHASE PRICE; CLOSING. The purchase price of Shares
purchased under this SECTION 7 shall be the Fair Market Value of the Shares if
the purchase occurs before the Public Company Date and the Current Market Price
of the Shares if the purchase occurs on or after the Public Company Date. The
closing of the purchase of Shares pursuant to this SECTION 7 shall take place at
the general office of the Company within 60 days after the Investors', or such
Investors' permitted transferees, delivery of notice of exercise of the option.
The purchase price shall be paid in cash.
8. ELECTION OF DIRECTORS.
Each of the Stockholders shall vote all of the Shares owned or
controlled by such Stockholder (i) at each annual or special meeting of the
Company's stockholders called for the purpose of electing directors or (ii) by
written consent (in lieu of a meeting) of the Company's stockholders for the
purpose of electing directors, in favor of the election to the Board of
Directors of Michael A. Leven as long as Michael A. Leven is employed by the
Company and thereafter as long as he and the Leven Family Group and their
Affiliates, collectively, hold Shares or options to acquire Shares representing
in excess of 2.5% of the voting power represented by the Common Stock of the
Company outstanding, calculated on a fully diluted basis.
9. LEGEND. Each certificate evidencing Shares and each
certificate issued in exchange for or upon the transfer of any Shares (if such
Shares remain subject to this Agreement after such transfer) shall be stamped or
otherwise imprinted with a legend in substantially the following form:
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE
TERMS AND CONDITIONS OF A STOCKHOLDERS AGREEMENT DATED AS OF
_____________, 2000, AS THE SAME MAY BE AMENDED FROM TIME TO
TIME (THE "STOCKHOLDERS AGREEMENT'), BY AND AMONG VARIOUS
INDIVIDUAL SIGNATORIES THERETO AND THE COMPANY, A COPY OF
WHICH IS AVAILABLE AT THE PRINCIPAL OFFICE OF THE COMPANY. THE
SALE, TRANSFER
6
OR OTHER DISPOSITION OF SUCH SHARES BY THE HOLDER THEREOF IS
SUBJECT TO THE TERMS OF THE STOCKHOLDERS AGREEMENT, WHICH
PROVIDES, AMONG OTHER THINGS, THAT UNDER SPECIFIED
CIRCUMSTANCES THE COMPANY AND OTHER SPECIFIED PERSON HAVE THE
RIGHT TO PURCHASE SUCH SHARES FROM THE HOLDER THEREOF."
The Company shall imprint such legend on certificates evidencing Shares
outstanding as of the Effective Date. The legend set forth above shall be
removed from the certificates evidencing any Shares that are no longer subject
to this Agreement by reason of a Transfer permitted by SECTION 2 hereof.
10. TRANSFERS IN VIOLATION OF AGREEMENT. Any Transfer or attempted
Transfer of any Shares in violation of any provision of this Agreement shall be
void, and the Company shall not be required to record such Transfer on its books
or treat any purported transferee of such Shares as the owner of such Shares for
any purpose.
11. AMENDMENT AND WAIVER. Except as otherwise provided herein, any
provision of this Agreement may be amended, modified, or waived if such
modification, amendment or waiver is approved in writing by the holders of at
least 90% of the Shares; provided that no such covenant shall materially and
adversely affect the right of any Stockholder who did not consent thereto. The
failure of any party to enforce any of the provisions of this Agreement shall in
no way be construed as a waiver of such provisions and shall not affect the
right of such party thereafter to enforce each and every provision of this
Agreement in accordance with its terms.
12. SEVERABILITY. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision or any other jurisdiction, but this Agreement shall be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
13. ENTIRE AGREEMENT. Except as otherwise expressly set forth
herein, this document embodies the complete agreement and understanding among
the parties hereto with respect to the subject matter hereof and supersedes and
preempts any prior understandings, agreements or representations by or among the
parties, written or oral, which may have related to the subject matter hereof in
any way.
14. SUCCESSORS AND ASSIGNS. Except as otherwise provided herein,
this Agreement shall bind and inure to the benefit of and be enforceable by the
Stockholders and any subsequent holders of Shares and the respective successors
and assigns of each of them, so long as they hold Shares.
15. DESCRIPTIVE HEADINGS. The descriptive headings of this
Agreement are inserted for convenience only and do not constitute a part of this
Agreement.
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16. REMEDIES. The Stockholders shall be entitled to enforce their
rights under this Agreement specifically to recover damages by reason of any
breach of any provision of this Agreement and to exercise all other rights
existing in their favor. The parties hereto agree and acknowledge that money
damages may not be an adequate remedy for any breach of the provisions of this
Agreement and that any Stockholder may in his, her or its sole discretion apply
to any court of law or equity of competent jurisdiction for specific performance
and/or injunctive relief (without posting a bond or other security) in order to
enforce or prevent any violation of the provisions of this Agreement.
17. NOTICES. Any notice provided for in this Agreement shall be in
writing and shall be either personally delivered, or mailed first class mail
(postage prepaid) or sent by reputable overnight courier service (charges
prepaid) to any other recipient at the address indicated on the signature page
hereof and to any subsequent holder of Shares subject to this Agreement at such
address as indicated by the Company's records, or at such address or to the
attention of such other person as the recipient party has specified by prior
written notice to the sending party. Notices will be deemed to have been given
hereunder when delivered personally, three days after deposit in the U.S. mail
and one day after deposit with a reputable overnight courier service.
18. GOVERNING LAW. All questions concerning the construction,
validity and interpretation of this Agreement shall be governed by the internal
law, and not the law of conflicts, of Delaware.
19. TERMINATION OF PRIOR STOCKHOLDERS AGREEMENT. The parties
hereto hereby agree that the Stockholders Agreement dated as of June 30, 2000 by
and among Meridian, HSA Properties, SDI, Steven Romaniello and the Leven
Stockholders is hereby terminated and of no further force and effect.
20. COUNTERPARTS. This Agreement may be executed in separate
counterparts each of which shall be an original and all of which taken together
shall constitute one and the same agreement.
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IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on the day and year first written above.
INVESTORS: MERIDIAN ASSOCIATES, L.P.
By: Meridian Investments, Inc.
Its General Partner
By: __________________________________
Name: ________________________________
Its: _________________________________
SDI, INC.
By: __________________________________
Name: ________________________________
Its: _________________________________
HSA PROPERTIES INC.
By: __________________________________
Name: ________________________________
Its: _________________________________
200 West Madison, Suite 3800
Chicago, Illinois 60606
Attention: Harold S. Handelsman
LEVEN STOCKHOLDERS:
______________________________________
Michael A. Leven
Address:______________________________
______________________________________
______________________________________
______________________________________
Andrea E. Leven
Address:______________________________
______________________________________
______________________________________
______________________________________
Jonathan Leven
Address:______________________________
______________________________________
______________________________________
______________________________________
Robert Leven
Address:______________________________
______________________________________
______________________________________
______________________________________
Adam Leven
Address:______________________________
______________________________________
______________________________________
SCHEDULE A
DETERMINATION OF FAIR MARKET VALUE
1. Fair Market Value shall be an amount equal to the Enterprise
Value, plus Cash, less Funded Debt, determined in each case as of the Valuation
Date, divided by the number of issued and outstanding shares of Common Stock of
the Company as of the Valuation Date, determined on a fully-diluted basis (using
the treasury method for stock options or stock appreciation rights).
2. Valuation Date, as used herein, shall mean the last day of the
calendar quarter (March 31, June 30, September 30, or December 31) immediately
preceding the date of the exercise of the option to purchase or sell Shares
pursuant to SECTION 6 or 7 of the Agreement.
3. Measurement Period, as used herein, shall mean the period of
four consecutive calendar quarters ending on the Valuation Date.
4. Enterprise Value, as used herein, shall mean Free Cash Flow
multiplied by 8.
5. Free Cash Flow, as used herein, shall mean EBITDA, less
Capital Expenditures, less Development Subsidies, each determined for the
Measurement Period.
6. EBITDA, as used herein, means for any Measurement Period the
Company's consolidated income before interest, taxes, depreciation, and
amortization, determined from the consolidated financial statements regularly
prepared by the Company in accordance with GAAP.
7. Capital Expenditures, as used herein, means for any
Measurement Period, the expenditures of the Company and its subsidiaries during
the Measurement Period that, in accordance with GAAP, are classified by the
Company as capital expenditures.
8. Development Subsidies, as used herein, means for any
Measurement Period the expenditures of the Company and its subsidiaries during
the Measurement Period that, in accordance with GAAP, are classified as
development subsidies.
9. Cash, as used herein, as of any Valuation Date means
consolidated cash and cash equivalents of the Company and its subsidiaries
determined in accordance with GAAP as of the Valuation Date.
10. Funded Debt, as used herein, as of any Valuation Date means
the sum of (a) indebtedness arising from the lending of money by any Person to
the Company or its subsidiaries; (b) indebtedness, whether or not in any such
case arising from the lending by any Person of money to the Company or its
subsidiaries, (i) which is represented by notes payable or drafts accepted that
evidence extensions of credit, (ii) which constitutes obligations evidenced by
bonds, debentures, notes or similar instruments, or (iii) upon which interest
charges are customarily paid (other than accounts payable) or that was issued or
assumed as
full or partial payment for property; (c) indebtedness that constitutes a
capitalized lease obligation; (d) reimbursement obligations with respect to
letters of credit or guaranties of letters of credit; (e) indebtedness of the
Company or its subsidiaries under any guaranty of obligations that would
constitute Funded Debt under clauses (a) through (c) hereof, if owed directly by
the Company or its subsidiaries; and (f) the liquidation preference of any
issued and outstanding preferred stock of the Company.
11. GAAP, as used herein, means generally accepted accounting
principles, consistently applied by the Company from period to period.
12. The board of directors of the Company shall have the authority
to interpret this Schedule A, which determinations in good faith, absent
manifest error, shall be binding upon all interested Persons.