EXHIBIT 10.85
SMITH BARNEY, INC.
1345 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10105
CONFIDENTIAL
July 11, 1994
United Inns, Inc.
2300 Clark Tower
Memphis, TN 38137
Attention: Don Wm. Cockroft
President
Gentlemen:
The purpose of this letter is to set forth the terms of the engagement by United
Inns, Inc. and its subsidiaries (collectively the "Company") of Smith Barney
Inc. ("Smith Barney") to act as exclusive financial advisor to the Company and
to furnish financial advisory and investment banking services in connection with
a potential Transaction (as hereafter defined) involving the Company and one or
more potential purchasers (the "Acquiror"). For purposes hereof, a
"Transaction" shall mean, directly or indirectly, and whether in one or a series
of transactions, the sale or other transfer of all or substantially all of the
outstanding capital stock or assets of the Company, whether by way of a
leveraged buyout, merger or consolidation, reorganization, recapitalization or
restructuring, exchange offer, negotiated purchase, or otherwise.
l. The Company hereby engages Smith Barney as its exclusive financial advisor
to render financial advisory services to the Company concerning the
Transaction.
2. In undertaking this assignment, Smith Barney will, at the request of the
Company, provide the following services to the Company:
(a) Study and review the business, operations, historical financial
performance and anticipated future financial performance of the
Company and, if appropriate, the Acquiror;
(b) Assist in the preparation of confidential information to be provided
to Acquirors;
(c) Assist the Company in negotiations and related strategy with the
Acquiror and its financial and legal advisors;
(d) Assist in any presentation to the Board of Directors of the Company,
as requested;
(e) If requested, render an opinion ("Opinion") to the Board of Directors
of the Company as to whether the terms of any proposed Transactions
are fair to the Company from a financial point of view; and
(f) Assist and advise the Company in any other matters related to the
Transaction.
3. The Company hereby agrees to pay Smith Barney, as compensation for its
services hereunder and subject to such conditions as are described in each
case, the following fees, subject to certain fee credits described below.
(a) RETAINER FEE
The Company hereby agrees to pay Smith Barney a retainer fee (the
"Retainer Fee") of $100,000, payable in cash immediately upon
execution of this letter.
(b) TRANSACTION FEE
The Company shall pay to Smith Barney a transaction fee (the
"Transaction Fee") which shall be 1% of the transaction value (the
"Transaction Value"), as hereinafter defined. The Transaction Fee
shall be payable in cash on the date of the closing of the
Transaction.
(c) OPINION FEE
If Smith Barney is requested to render an Opinion as contemplated by
subparagraph 2(e) above, an opinion fee of $250,000 (the "Opinion
Fee"), payable in cash promptly upon delivery by Smith Barney of an
Opinion (whether oral or written, as requested by the Company).
(d) CERTAIN FEE CREDITS
The Retainer Fee and the Opinion Fee, to the extent previously paid,
shall be credited against the Transaction Fee payable to Smith Barney
hereunder.
4. For the purpose of calculating the Transaction Fee, Transaction Value shall
equal the total proceeds and other consideration paid or received and to be
paid or received (which shall be deemed to include amounts paid or to be
paid into escrow) in connection with a Transaction, including, without
limitation: (i) cash; (ii) notes, securities and other property valued at
the fair market value thereof; (iii) all debt for borrowed money and notes
and loans payable (but excluding any other current liabilities), preferred
stock, pension liabilities and guarantees, assumed; (iv) payments to be
made in installments; (v) amounts paid or payable under consulting
agreements, agreements not to compete or similar arrangements (including
such payments to management); and (vi) the net present value of any
contingent payments (whether or not related to future earnings or
operations). For purposes of computing any fees payable to Smith Barney
hereunder, non-cash consideration shall be valued as follows: (i) publicly
traded securities shall be valued at the average of their closing prices
(as reported in THE WALL STREET JOURNAL) for the five trading days prior
to the closing of the Transaction and (ii) any other non-cash consideration
shall be valued at the fair market value thereof as determined in good
faith by
the Company and Smith Barney and in the case of future payments to be made
based upon the future financial performance of the Company, then such
payments shall be valued at their discounted present value (using a 10%
discount rate per annum) assuming the most recent projections as provided
by the Company to Smith Barney are achieved.
5. If a Transaction occurs either:
(a) during the term of Smith Barney's engagement hereunder or
(b) at any time during a period of 12 months following the effective date
of termination of Smith Barney's engagement hereunder, involving a
party Smith Barney engaged in discussions with during the term of its
engagement hereunder, which parties shall be identified by Smith
Barney at the time of termination
then the Company shall pay to Smith Barney the Transaction Fee outlined in
subparagraph 3(b) above.
6. In addition to any fees that may be payable to Smith Barney hereunder and
regardless of whether any proposed Transaction is consummated, the Company
hereby agrees from time to time, upon request, to reimburse Smith Barney
for all reasonable travel, legal and other out-of-pocket expenses incurred
in performing the services hereunder, including fees and disbursements of
Smith Barney's counsel. Such out-of-pocket expenses shall not exceed
$30,000 without the prior consent of the Company, which consent shall not
be unreasonably withheld.
7. Any Opinion delivered pursuant to this Agreement shall be based upon such
financial review of the Acquiror and the Company and their respective
businesses and operations as Smith Barney shall deem appropriate and
feasible, limited in any event to an analysis of (i) publicly available
information with respect to each such corporation and such other matters as
Smith Barney deems appropriate and (ii) such other information as shall be
supplied to Smith Barney by the Company or the Acquiror (the
"Information"). The Company hereby warrants that any Information with
respect to the Company will be fair, accurate and complete and will not
contain any material omissions or misstatements of fact. The Company
recognizes and confirms that Smith Barney will rely upon the Information,
will assume the accuracy and completeness of the Information and will not
attempt independently to verify any of the Information and will not make an
appraisal of any of the assets of the Company or the Acquiror. The Opinion
may be in such form as Smith Barney shall determine and Smith Barney may
qualify the Opinion in such manner as Smith Barney believes appropriate.
The Opinion shall be limited to the fairness, from a financial point of
view, to the Company's stockholders of the consideration to be offered to
the Company in the Transaction, and shall not address the Company's
underlying business decision to effect the Transaction. The Company agrees
that the Opinion shall be used solely by the Board of Directors of the
Company in considering the terms of the proposed Transaction and, except
as set forth below that the Company shall not publish or refer to the
Opinion in any proxy statement or otherwise in connection with the proposed
Transaction, furnish the Opinion or any summaries or excerpts thereof to
any other person or persons or use the Opinion for any other purpose
without the prior written approval of Smith Barney. It is understood,
however, that the Opinion may be referred to or summarized in filings
required to be made by the Company under applicable law (including under
the federal securities laws); provided, however, that any description of
Smith Barney or any summary or excerpts of the Opinion shall be subject to
Smith Barney's prior review and approval, which review and approval shall
not be unreasonably delayed or withheld.
8. Smith Barney agrees to keep confidential all non-public information which
it receives or develops concerning the Company and to disclose that
information only with the consent of the Company or as required by law,
regulation, regulatory authority or legal process.
9. The term of this engagement shall run from the date of this letter to a
minimum of 12 months thereafter (subject to earlier
termination as provided in paragraph 11), and may be extended by mutual
consent of the parties. The Company agrees that except as required by
applicable law, any advice to be provided by Smith Barney under this
engagement letter shall not be disclosed publicly or made available to
third parties without the prior approval of Smith Barney.
10. The Company agrees to indemnify Smith Barney in accordance with the
indemnification, contribution and expense reimbursement provisions set
forth in Schedule A attached hereto and incorporated herein by reference.
11. This agreement may be terminated with or without cause by either party upon
furnishing 30 days prior written notice to the other party, provided that
such termination shall not affect the indemnification and contribution
obligations of the Company or the right of Smith Barney to receive the
Transaction Fee as provided in paragraph 5, or the right of Smith Barney to
receive reimbursement for out-of-pocket expenses described above.
12. This agreement and the indemnification letter, attached hereto as Schedule
A, constitutes the entire agreement between the parties with respect to the
subject matter hereof and supersedes all other prior agreements and
understandings, both written and oral, between the parties with respect to
the subject matter hereof. This letter agreement may not be amended or
modified except in writing signed by the parties hereto.
13. The Company represents that this Agreement has been duly authorized,
executed and delivered on its behalf and constitutes its legal, valid,
binding and enforceable obligation.
14. The Company acknowledges that Smith Barney in connection with its
engagement hereunder is acting as an independent contractor with duties
owing solely to the Company and that, other than as set forth in Schedule
A, nothing in this agreement is intended to confer upon any other person
any rights or remedies hereunder or by reason hereof.
15. This letter of agreement shall be governed by, and construed in accordance
with, the laws of the State of New York, without regard to the conflict of
laws rules thereof.
If the foregoing correctly reflects our understanding, please sign and return
the enclosed copy of this letter, whereupon this letter will constitute an
agreement between us.
Very truly yours,
SMITH BARNEY INC.
By:/s/ Brian W. Keane
---------------------------
Brian W. Keane
Director
Accepted and Agreed to:
UNITED INNS, INC.
By:/s/ Don Wm. Cockroft
---------------------------
Don Wm. Cockroft
President
SCHEDULE A
INDEMNIFICATION
Recognizing that transactions of the type contemplated in this engagement
sometimes result in litigation and that Smith Barney's role is advisory, the
Company agrees to indemnify and hold harmless Smith Barney, its affiliates and
their respective officers, directors, employees, agents and controlling persons
(collectively, the "Indemnified Parties"), from and against any losses, claims,
damages and liabilities, joint or several, related to or arising in any manner
out of any transaction, proposal or any other matter (collectively, the
"Matters") contemplated by the engagement of Smith Barney hereunder, and will
promptly reimburse the Indemnified Parties for all expenses (including fees and
expenses of legal counsel) as incurred in connection with the investigation of,
preparation for or defense of any pending or threatened claim related to or
arising in any manner out of any Matter contemplated by the engagement of Smith
Barney hereunder, or any action or proceeding arising therefrom (collectively,
"Proceedings"), whether or not such Indemnified Party is a formal party to any
such Proceeding. Notwithstanding the foregoing, the Company shall not be liable
in respect of any losses, claims, damages, liabilities or expenses that a court
of competent jurisdiction shall have determined by final judgment resulted
* from the gross negligence or willful misconduct of an Indemnified Party.
The Company further agrees that it will not, without the prior written consent
of Smith Barney, settle, compromise or consent to the entry of any judgment in
any pending or threatened Proceeding in respect of which indemnification may be
sought hereunder (whether or not Smith Barney or any Indemnified Party is an
actual or potential party to such Proceeding), unless such settlement,
compromise or consent includes an unconditional release of Smith Barney and each
other Indemnified Party hereunder from all liability arising out of such
Proceeding.
The Company agrees that if any indemnification or reimbursement sought pursuant
to this letter were for any reason not to be available to any Indemnified Party
or insufficient to hold it harmless as and to the extent contemplated by this
letter, then the Company shall contribute to the amount paid or payable by such
Indemnified Party in respect of losses, claims, damages and liabilities in such
proportion as is appropriate to reflect the relative benefits to the Company and
its stockholders on the one hand, and Smith Barney on the other, in connection
with the Matters to which such indemnification or reimbursement relates or, if
such allocation is not permitted by applicable law, not only such relative
benefits but also the relative faults of such parties as well as any other
equitable considerations. It is hereby agreed that the relative benefits to the
Company and/or its stockholders and to Smith Barney with respect to Smith
Barney's engagement shall be deemed to be in the same proportion as (i) the
total value paid or received or to be paid or received by the Company and/or its
stockholders pursuant to the Matters (whether or not consummated) for which
Smith Barney is engaged to render financial advisory
* primarily
services bears to (ii) the fees paid to Smith Barney in connection with such
engagement. In no event shall the Indemnified Parties contribute or otherwise
be liable for an amount in excess of the aggregate amount of fees actually
received by Smith Barney pursuant to such engagement (excluding amounts received
by Smith Barney as reimbursement of expenses).
The Company further agrees that no Indemnified Party shall have any liability
(whether direct or indirect, in contract or tort or otherwise) to the Company
for or in connection with Smith Barney's engagement hereunder except for losses,
claims, damages, liabilities or expenses that a court of competent jurisdiction
shall have determined by final judgment resulted * from the gross
negligence or willful misconduct of such Indemnified Party. The indemnity,
reimbursement and contribution obligations of the Company shall be in addition
to any liability which the Company may otherwise have and shall be binding upon
and inure to the benefit of any successors, assigns, heirs and personal
representatives of the Company or an Indemnified Party.
The indemnity, reimbursement and contribution provisions set forth herein shall
remain operative and in full force and effect regardless of (i) any withdrawal,
termination or consummation of or failure to initiate or consummate any Matter
referred to herein, (ii) any investigation made by or on behalf of any party
hereto or any person controlling (within the meaning of Section 15 of the
Securities Act of 1933, as amended, or Section 20 of the Securities Exchange Act
of 1934, as amended) any party hereto, (iii) any termination or the completion
or expiration of this letter or Smith Barney's engagement and (iv) whether or
not Smith Barney shall, or shall not be called upon to, render any formal or
informal advice in the course of such engagement.
Very truly yours,
SMITH BARNEY INC.
By:/s/ Brian W. Keane
---------------------------
Brian W. Keane
Director
Accepted and Agreed to:
UNITED INNS INC.
By:/s/Don Wm. Cockroft
---------------------------
Don Wm. Cockroft
President
*primarily
Acknowledged and Accepted:
SMITH BARNEY INC.
/s/Brian W. Keane
---------------------------
By: Brian W. Keane
Director
CONFIDENTIAL
September 1, 1994
Brian W. Keane
Director
Smith Barney Inc.
1345 Avenue of the Americas
New York, New York 10105
RE: MODIFICATION OF ENGAGEMENT LETTER
---------------------------------
Dear Mr. Keane:
This letter serves as written confirmation of an agreed-upon modification to the
engagement letter dated July 11, 1994 between United Inns, Inc. ("United") and
Smith Barney Inc. ("Smith Barney") (the "Engagement Letter"). In return for
Smith Barney's willingness to enter into the Compensation Agreement dated
August 31, 1994, among United, Smith Barney, Laurence Geller and Geller & Co.,
United has agreed to modify Paragraph 3(b) of the Engagement Letter to increase
the Transaction Fee (as defined therein) to 1.25% from 1.00% of the Transaction
Value (as defined therein). All other provisions of the Engagement Letter
remain in full force and effect.
Very truly yours,
UNITED INNS, INC.
/s/Don Wm. Cockroft
- -------------------------
By: Don Wm. Cockroft
President
Acknowledged and Accepted:
SMITH BARNEY INC.
/s/Brian W. Keane
--------------------------
By: Brian W. Keane
Director