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EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER dated as of December 9, 1997 (the
"Agreement") by and between U.S. FRANCHISE SYSTEMS, INC., a Delaware
corporation ("USFS"), and USFS HAWTHORN, INC., a Delaware corporation (the
"Company").
WHEREAS, the respective boards of directors of USFS and the Company
have approved this Agreement pursuant to which, among other things, USFS will
be merged with and into the Company (the "Merger") on the terms and conditions
contained herein and in accordance with the General Corporation Law of the
State of Delaware, as amended (the "DGCL");
WHEREAS, the Company, USFS, Hawthorn Suites Associates, an Illinois
joint venture ("HSA"), and HSA Properties, Inc., a Delaware corporation
("HPI"), have entered into the Contribution Agreement, dated as of the date
hereof (the "Contribution Agreement"), a copy of which is attached hereto as
Exhibit A, pursuant to which HSA and HPI shall sell, assign, transfer, convey,
grant and set over to the Company, immediately prior to the Effective Time (as
defined in Section 1.2), all of their right, title and interest to their
respective membership interests in HSA Properties, LLC, a Delaware limited
liability company (the "LLC Company"), which collectively constitute 99% of the
membership interests of the LLC Company (collectively, the "LLC Interest");
WHEREAS, USFS and the Company desire to make certain
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representations, warranties, covenants and agreements in connection with the
Merger and to prescribe various conditions to the Merger; and
WHEREAS, it is the express intention of the Company and USFS and their
respective stockholders and holders of options that the Merger constitute a
tax-free reorganization for federal income tax purposes under the Internal
Revenue Code of 1986, as amended (the "Code"), and the regulations thereunder.
NOW THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained herein, and intending to be legally bound
hereby, the parties hereto agree as follows:
ARTICLE 1
THE MERGER
1.1 The Merger. Upon the terms and subject to the conditions of
this Agreement, at the Effective Time and in accordance with the DGCL, USFS
shall be merged with and into the Company, which shall be the surviving
corporation in the Merger (the "Surviving Corporation"). At the Effective
Time, the separate existence of USFS shall cease and the other effects of the
Merger shall be as set forth in Section 259 of the DGCL.
1.2 Closing; Effective Time. Subject to the provisions of Article
6, the closing of the Merger (the "Closing") shall take place in New York City
at the offices of Paul, Weiss, Rifkind, Wharton & Garrison, as soon as
practicable but in no event later than 10:00 a.m. New York City time on the
first business day after the date
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on which each of the conditions set forth in Article 6 have been satisfied or
waived by the party or parties entitled to the benefit of such conditions, or,
subject to receipt of consent of HSA and HPI pursuant to the Contribution
Agreement, at such other place, at such other time or on such other date as
USFS and the Company may mutually agree. The date on which the Closing
actually occurs is hereinafter referred to as the "Closing Date." At the
Closing, USFS and the Company shall cause a certificate of merger (the
"Certificate of Merger") to be executed and filed with the Secretary of State
of the State of Delaware in accordance with the DGCL and the parties hereto
shall take all such other and further actions as may be required by law to make
the Merger effective. The Merger shall become effective at such time as the
Certificate of Merger is duly filed with the Secretary of State of the State of
Delaware, or at such other time as is specified in the Certificate of Merger
(the "Effective Time").
1.3 Certificate of Incorporation. The certificate of
incorporation of the Company, as in effect immediately prior to the Effective
Time, shall become, from and after the Effective Time, the certificate of
incorporation of the Surviving Corporation, until thereafter altered, amended
or repealed as provided therein and in accordance with applicable law, except
that Section 1 of the Certificate of Incorporation of the Company shall be
amended and restated in its entirety as follows:
"1. Name. The name of the Corporation is "U.S. Franchise Systems,
Inc. (the 'Corporation')."
1.4 By-laws. The by-laws of the Company, as in effect immediately
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prior to the Effective Time, shall become, from and after the Effective time,
the by-laws of the Surviving Corporation, until thereafter altered, amended or
repealed as provided therein and in accordance with applicable law.
1.5 Directors and Officers. The directors and officers of the
Surviving Corporation at the Effective Time shall be the directors and officers
of USFS immediately prior to the Effective Time each of whom shall hold office
from the Effective Time until their respective successors are duly elected or
appointed and qualify in the manner provided in the Certificate of
Incorporation and By-Laws of the Surviving Corporation.
1.6 Meeting of USFS Stockholders. USFS hereby covenants and
agrees that it shall, as promptly as practicable, use its reasonable best
efforts to take all necessary action in accordance with applicable law to
convene a meeting of its stockholders and shall use its reasonable best efforts
to hold such meeting as promptly as reasonably practicable after the date
hereof. The purpose of such meeting shall be, among other things, to consider
and vote upon this Agreement and the transactions contemplated hereby
(including, without limitation, the Merger). The Board of Directors of USFS
has approved this Agreement and the transactions contemplated hereby
(including, without limitation, the Merger) and will recommend that USFS
stockholders vote in favor of the Merger and the transactions contemplated
hereby.
1.7 SEC Filings.
(a) As soon as practicable after the date hereof, the
Company and USFS shall prepare and file with the Securities and Exchange
Commission (the
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"SEC") a Registration Statement on Form S-4 (such Registration Statement at the
time it becomes effective, together with all amendments and exhibits thereto is
referred to as the "Registration Statement") under the Securities Act of 1933,
as amended (the "Securities Act"), and the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), which registers the shares of Company Common
Stock (as defined in Section 2.2) to be issued pursuant to the Merger and which
relates to the vote of USFS stockholders to approve the Merger and which shall
contain a prospectus (the "Prospectus") which will be in the form of a Proxy
Statement.
(b) Each of the Company and USFS, as applicable, shall
use its reasonable best efforts to (i) respond to any comments of the SEC, (ii)
have the Registration Statement declared effective under the Securities Act as
promptly as practicable after such filing and to keep the Registration
Statement effective as long as is necessary to consummate the Merger and (iii)
cause the Prospectus to be mailed to the stockholders of USFS as promptly as
practicable after the Registration Statement is declared effective under the
Securities Act; provided that, the Company and USFS may, upon prior written
notice to each of HSA and HPI, delay the effectiveness and mailing of the
Registration Statement if any event occurs and is continuing which causes the
Registration Statement to contain an untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements made
therein, in light of the circumstances under which they were made, not
misleading and the Company and USFS determine that the disclosure of such
events at such time would adversely affect their interests. Each of the Company
and USFS shall notify the other
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(and shall notify each of HSA and HPI) promptly of the receipt of any comments
from the SEC and of any requests by the SEC for amendments or supplements to
the Registration Statement or for additional information and will supply the
other (and HSA and HPI) with copies of all correspondence between such party or
any of its representatives and the SEC, with respect to the Registration
Statement. The Registration Statement shall comply in all material respects
with all applicable requirements of law. The Company shall take any action
required to be taken under state blue sky or securities laws in connection with
the Merger and the issuance of the Merger consideration in connection
therewith.
(c) No amendment or supplement to the Registration
Statement will be made without the approval of the Company and USFS and each of
HSA and HPI, which approval will not be unreasonably withheld or delayed. Each
of the Company and USFS will advise each other (and each of HSA and HPI)
promptly after it receives notice thereof, of the time when the Registration
Statement or any amendment thereto has become effective, or the issuance of any
stop order, or the suspension of the qualification of the Company Common Stock
to be issued in the Merger for offering or sale in any jurisdiction or of any
request by the Nasdaq Stock Market, Inc. for amendment of the Registration
Statement.
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ARTICLE 2
CONVERSION OF SECURITIES
2.1 Company Common Stock. Each share of common stock of
Company issued and outstanding immediately prior to the Effective Time shall
remain outstanding.
2.2 USFS Common Stock. Each share of Class A Common Stock, par
value $.01 per share, ("USFS Class A Stock"), and Class B Common Stock, par
value $.01 per share ("USFS Class B Stock" and together with the USFS Class A
Stock, collectively, the "USFS Common Stock"), of USFS issued and outstanding
immediately prior to the Effective Time shall, by virtue of the Merger and
without any action on the part of the holder thereof, be converted into the
right to receive one share of Class A Common Stock, par value $.01 per share
("Company Class A Stock"), or one share of Class B Common Stock, par value $.01
per share ("Company Class B Stock" and together with the Company Class A Stock,
collectively, the "Company Common Stock"), of the Company, respectively (the
"Merger Consideration").
2.3 Effect on USFS Company Options. At the Effective Time, each
holder of an issued and outstanding option ("USFS Options") exercisable for
shares of USFS Class A Stock will be entitled, by virtue of the Merger and
without any action on the part of the holder thereof, to exercise such option
for an equal number of shares of Company Class A Stock on the same terms and
conditions as such USFS Options immediately prior to the Effective Time.
2.4 Treasury Shares. At the Effective Time each share of USFS
Common Stock held in treasury by USFS immediately prior to the Effective Time
shall, by virtue of the Merger, be converted into a share of Company Class A
Stock held in treasury by the Company.
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2.5 Exchange of Certificates.
2.5.1 Prior to the Closing Date, the
Company shall appoint Wachovia Bank of North Carolina, N.A. or another agent
mutually acceptable to USFS, HSA and HPI to act as exchange agent (the
"Exchange Agent") for the Merger. Promptly after the Closing Date, the Company
shall deposit, or cause to be deposited, with the Exchange Agent such
certificates evidencing such number of shares of Company Class A Stock and
Company Class B Stock in order to enable the Exchange Agent to effect the
exchange of certificates contemplated by Section 2.2.
2.5.2 As soon as reasonably practicable
following the Closing Date, the Company and USFS shall instruct the Exchange
Agent to deliver to each holder of record of a certificate or certificates,
which immediately prior to the Effective Time represented outstanding shares of
USFS Common Stock (collectively, the "Certificates"), (i) a letter of
transmittal (which shall specify that delivery shall be effected, and risk of
loss and title to the Certificates shall pass, only upon delivery of the
Certificates to the Exchange Agent and shall be in such form and have such
other provisions as the Company may reasonably specify), and (ii) instructions
for use in effecting the surrender of the Certificates in exchange for
certificates representing the Merger Consideration.
2.5.3 After the Effective Time, each
holder of Shares of USFS Common Stock shall surrender and deliver the
Certificates to the Exchange Agent together with a duly completed and executed
transmittal letter. Upon such surrender and delivery, the holder shall receive
a certificate representing the number of shares of
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Company Common Stock into which such holder's shares of USFS Common Stock have
been converted pursuant to this Agreement. Until so surrendered and exchanged,
each outstanding Certificate after the Effective Time shall be deemed for all
purposes to evidence the right to receive that number of shares of Company
Common Stock into which the shares of USFS Common Stock evidenced thereby have
been converted pursuant to this Agreement.
2.5.4 At the Effective Time, the stock
transfer books of USFS shall be closed and no transfer of shares USFS Common
Stock shall be made thereafter, other than transfers of shares of USFS Common
Stock that have occurred prior to the Effective Time. In the event that, after
the Effective Time, Certificates are presented to the Surviving Corporation,
they shall be canceled and exchanged for shares of Company Common Stock as
provided in Section 2.2.
2.5.5 Any portion of the Merger
Consideration that shall not have been paid to any holder of shares of USFS
Common Stock pursuant to this Section 2.5 prior to the second anniversary of
the Effective Time shall be paid to the Company and any stockholder who has not
theretofore complied with this Section 2.5 thereafter shall look, subject to
escheat and other similar laws, solely to the Company for payment of the Merger
Consideration to which they are entitled under this Agreement.
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ARTICLE 3
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY
The Company represents and warrants to USFS as follows:
3.1 Organization. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has all requisite corporate power and authority to own, lease and
operate its properties and to carry on its business as now being conducted.
The Company is duly qualified or licensed to do business and in good standing
in each jurisdiction in which the property owned, leased or operated by it or
the nature of the business conducted by it makes such qualification or
licensing necessary, except for such failures to be so duly qualified or
licensed that, individually or in the aggregate, could not reasonably be
expected to result in a Material Adverse Effect (as defined in Section 8.1.e)
with respect to the Company. The Company has previously delivered or made
available to USFS correct and complete copies of its certificate of
incorporation and by-laws, as currently in effect.
3.2 Capital Structure. On the date hereof, the Company
has no subsidiaries or any interest in any person or entity. The Company has
conducted no business or other activity other than the execution and delivery
of this Agreement and the Contribution Agreement and the consummation of the
transactions contemplated hereby and thereby. Immediately prior to the
Effective Time, the authorized capital stock of the Company will consist of
30,000,000 shares of Company Class A Stock of which 2,222,222 shares will be
issued and outstanding (after giving effect to the redemption at $.01 per share
of the 1,000 shares of Company Class A Stock held by
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Neal K. Aronson, to occur immediately prior to the Effective Time), 5,000,000
shares of Company Class B Stock, none of which shares will be issued and
outstanding, and 1,000,000 shares of Preferred Stock, par value $.01 per share,
none of which will be issued and outstanding. At the Effective Time, the
Company will have good title to the LLC Interest, free and clear of any claim,
charge or encumbrance ("Lien"), and the LLC Interest will have been duly
authorized and validly issued, and will be fully paid and non-assessable.
There are no outstanding options to purchase, or any rights or warrants to
subscribe for, or any commitments or agreements to issue or sell, or any
securities or obligations convertible into, or any powers of attorney relating
to, shares of the capital stock of the Company. Except for the Shareholders
Agreement, there are no outstanding agreements or instruments binding upon any
of the Company or its stockholders relating to the ownership of its shares of
capital stock. The shares of Company Common Stock to be exchanged for shares
of USFS Common Stock in the Merger have been duly authorized and, when issued
and delivered in accordance with the terms of this Agreement, will have been
validly issued and will be fully paid and non-assessable and free of preemptive
rights.
3.3 Authorization; Binding Agreement. The Company has
full corporate power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby
have been duly and validly authorized by all necessary corporate action on the
part of the Company, subject to any required approval by the Company's
stockholders of the
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issuance of Company Common Stock in connection with the Merger (which will be
obtained prior to the Effective Time). This Agreement has been duly and
validly executed and delivered by the Company and, subject to any required
approval by the Company's stockholders of the issuance of Company Common Stock
in connection with the Merger (which will be obtained prior to the Effective
Time), constitutes a legal, valid and binding agreement of the Company,
enforceable against the Company in accordance with its terms, except as such
enforcement may be limited by bankruptcy, fraudulent conveyance, fraudulent
transfer, insolvency, reorganization, liquidation, conservatorship, moratorium
and other similar laws relating to or affecting creditors' rights or the
collection of debtors' obligations generally and any general equitable
principles (regardless of whether enforcement is considered in a proceeding in
equity or at law) and the discretion of any court before which any proceedings
therefor may be brought.
3.4 Noncontravention. Neither the execution and delivery
of this Agreement nor the consummation of the transactions contemplated hereby
will (a) conflict with or result in any breach of any provision of the
certificate of incorporation or by-laws of the Company, (b) require any
consent, approval or notice under or conflict with or result in a violation or
breach of, or constitute (with or without notice or lapse of time or both) a
default (or give rise to any right of termination, cancellation or
acceleration) under, any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, license, agreement or other instrument or obligation
(collectively, "Contracts and Other Agreements") to which the
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Company is a party or by which it or any material portion of its properties or
assets is bound or (c) violate any order, judgment, writ, injunction,
determination, award, decree, law, statute, rule or regulation (collectively,
"Legal Requirements") applicable to the Company or any material portion of its
properties or assets, provided that no representation or warranty is made in
foregoing clauses (b) and (c) with respect to matters that, individually or in
the aggregate, could not reasonably be expected to result in a Material Adverse
Effect with respect to the Company.
3.5 Governmental Approvals; Required Consents.
(i) No consent, approval or authorization of or declaration
or filing with any foreign, federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality (each, a
"Governmental Entity") on the part of the Company that has not been obtained or
made is required in connection with the execution or delivery by the Company of
this Agreement or the consummation by the Company of the transactions
contemplated hereby, other than (a) the filing of the Certificate of Merger
with the Secretary of State of the State of Delaware, (b) filings and other
applicable requirements under the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended (the "HSR Act"), the Securities Act, the Exchange Act, and
under state securities or "Blue Sky" laws; and (c) consents, approvals,
authorizations, declarations or filings that, if not obtained or made, could
not, individually or in the aggregate, reasonably be expected to result in a
Material Adverse Effect with respect to the Company or prevent the Company from
consummating the transactions contemplated hereby.
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(ii) No consent, approval or action of, or filing with, or
notice to, any Person (other than a Governmental Entity) shall be required in
connection with the execution or delivery by the Company of this Agreement,
consummation by the Company of the transactions contemplated hereby or
compliance by the Company with the provisions hereof (the "Company Required
Consents"), other than consents, approvals, actions, filings or notices which
would not have a Material Adverse Effect with respect to the Company.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
OF USFS
USFS represents and warrants to the Company as follows:
4.1 Organization. Each of USFS and its subsidiaries is a
Person duly organized, validly existing and in good standing under the laws of
its jurisdiction of organization and has all requisite corporate or limited
liability company power and authority to own, lease and operate its properties
and to carry on its business as now being conducted. Each of USFS and its
subsidiaries is duly qualified or licensed to do business and in good standing
in each jurisdiction in which the property owned, leased or operated by it or
the nature of the business conducted by it make such qualification or licensing
necessary, except for such failures to be so duly qualified or licensed and in
good standing that could not reasonably be expected to result, individually or
in the aggregate, in a Material Adverse Effect with respect to USFS. USFS has
previously delivered or made available to the Company correct and complete
copies of its
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certificate of incorporation and by-laws, as currently in effect.
4.2 Capitalization. Immediately prior to the Effective
Time, except as provided in the Disclosure Letter, the authorized capital stock
of USFS will consist of 30,000,000 shares of USFS Class A Stock, of which
9,844,972 shares will be issued and outstanding (and 57,807 shares will be held
in treasury), 5,000,000 shares of USFS Class B Stock, of which 2,707,919 shares
will be issued and outstanding, and 1,000,000 shares of preferred stock, par
value $.01 per share, none of which will be issued and outstanding. USFS has
good title to all of the shares or other equity interests of each of its
subsidiaries, free and clear in each case of any lien, restriction or
encumbrance. Except as disclosed in the USFS SEC Filings (as defined in
Section 4.7) and except for 57,807 shares of USFS Class A Stock that Michael
Leven and Neal Aronson collectively have the right to purchase from USFS (the
"Repurchase Option"), pursuant to those certain Amended and Restated Employee
Stock Purchase Agreements, dated October 30, 1996, in the forms previously
delivered to USH, HSA and HPI and except for options granted under the U.S.
Franchise Systems, Inc. 1996 Stock Option Plan and the U.S. Franchise Systems,
Inc. 1996 Stock Option Plan for Non-Employee Directors, there are no
outstanding options to purchase, or any rights or warrants to subscribe for, or
any commitments or agreements to issue or sell, or any securities or
obligations convertible into, or any powers of attorney relating to, shares of
the capital stock of USFS or any of its subsidiaries. There are no outstanding
agreements or instruments binding upon USFS or its subsidiaries relating to the
ownership of shares of their respective capital stock or other equity
interests, as
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the case may be. All issued and outstanding shares of USFS Common Stock have
been duly authorized and validly issued, fully paid, non-assessable and free of
preemptive rights.
4.3 Subsidiaries. Except as disclosed in the USFS SEC
Filings or as set forth on Schedule 4.3, USFS does not own, directly or
indirectly, (a) any shares of capital stock or other equity securities of any
subsidiary of USFS or (b) any other equity interest in any person, domestic or
foreign. All of the outstanding shares of capital stock or other equity
securities of each of USFS's subsidiaries that are owned by USFS or any other
subsidiary of USFS (collectively, the "USFS Subsidiary Shares") have been duly
authorized and are validly issued, fully paid and nonassessable and free of
preemptive rights. There are no irrevocable proxies or similar obligations or
restrictions with respect to any of the USFS Subsidiary Shares and all of the
USFS Subsidiary Shares are owned by USFS free and clear of all Liens.
4.4 Authorization; Binding Agreement. USFS has the full
corporate power and authority to execute and deliver this Agreement and,
subject to obtaining any necessary approval of its stockholders as contemplated
by Section 1.6 hereof with respect to the Merger, to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly and
validly authorized by all necessary corporate action on the part of USFS
subject to the adoption of this Agreement by the stockholders of USFS in
accordance with the DGCL and the certificate of incorporation and by-laws of
USFS. This Agreement has been duly and validly executed and
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delivered by USFS and subject to the adoption of this Agreement by the
stockholders of USFS in accordance with the DGCL and the certificate of
incorporation and by-laws of USFS constitutes a legal, valid and binding
agreement of USFS enforceable against USFS in accordance with its terms, except
as such enforcement may be limited by bankruptcy, fraudulent conveyance,
fraudulent transfer, insolvency, reorganization, liquidation, conservatorship,
moratorium and other similar laws relating to or affecting creditors' rights or
the collection of debtors' obligations generally and any general equitable
principles (regardless of whether an enforcement is considered in a proceeding
in equity or at law) and the discretion of any court before which any
proceedings therefor may be brought.
4.5 Noncontravention. Neither the execution and delivery
of this Agreement nor the consummation of the transactions contemplated hereby
will (a) conflict with or result in any breach of any provision of the
certificate of incorporation or by-laws of USFS, (b) require any consent,
approval or notice under or conflict with or result in a violation or breach
of, or constitute (with or without notice or lapse of time or both) a default
(or give rise to any right of termination, cancellation or acceleration) under,
any of the terms, conditions or provisions of any Contracts and Other
Agreements to which USFS is a party or by which USFS or any material portion of
its properties or assets may be bound or (c) violate any Legal Requirements
applicable to USFS or any material portion of its properties or assets;
provided that no representation or warranty is made in the foregoing clauses
(b) and (c) with respect to matters that, individually or in the aggregate,
could not reasonably be expected to
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result in a Material Adverse Effect with respect to USFS.
4.6 Governmental Approvals; Required Consents.
(i) No consent, approval or authorization of, or declaration
or filing with, any Governmental Entity on the part of USFS that has not been
obtained or made is required in connection with the execution or delivery by
USFS of this Agreement or the consummation by USFS of the transactions
contemplated hereby, other than (a) the filing of the Certificate of Merger
with the Secretary of State of the State of Delaware, (b) filings under the HSR
Act, the Securities Act, the Exchange Act and state securities or "Blue Sky"
laws, and (c) consents, approvals, authorizations, declarations or filings
that, if not obtained or made, could not, individually or in the aggregate,
reasonably be expected to result in a Material Adverse Effect with respect to
USFS or prevent USFS from consummating the transactions contemplated hereby.
(ii) No consent, approval or action of, or filing with, or
notice to, any Person (other than a Governmental Entity) shall be required in
connection with the execution or delivery by USFS of this Agreement,
consummation by USFS of the transactions contemplated hereby or compliance by
USFS with the provisions hereof (the "USFS Required Consents") other than
consents, approvals, actions, filings or notices which would not have,
individually or in the aggregate, a Material Adverse Effect with respect to
USFS.
4.7 SEC Filings; Financial Statements. USFS has
delivered or made available to the Company, HSA and HPI, correct and complete
copies of USFS's (a) Annual Report on Form 10-K for the year ended December 31,
1996 (the "USFS
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1996 Form 10-K"), as filed with the SEC, (b) proxy statements relating to all
of USFS's meetings of stockholders (whether annual or special) since October
30, 1996 and (c) all other reports, statements and registration statements
(including Quarterly Reports on Form 10-Q and Current Reports on Form 8-K)
filed by USFS with the SEC since October 30, 1996 (collectively, and in each
case including all exhibits and schedules thereto and documents incorporated by
reference therein, and as such documents have been amended or supplemented
since their time of filing, the "USFS SEC Filings"). As of their respective
dates or, if amended or supplemented, as of the date of the last such amendment
or supplement, the USFS SEC Filings did not 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. The consolidated financial statements of
USFS and its subsidiaries included in the USFS 1996 Form 10-K and USFS's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1997 have
been prepared in accordance with generally accepted accounting principles
applied on a consistent basis during the periods involved (except as may be
indicated in the notes to such financial statements) and fairly present in all
material respects the consolidated financial position of USFS and its
subsidiaries at the respective dates thereof and the consolidated results of
operations and cash flows for the respective periods then ended (subject, in
the case of unaudited interim financial statements, to normal year-end
adjustments).
4.8 Absence of Certain Changes or Events. Except as
disclosed in the USFS SEC Filings or the Disclosure Letter, since September 30,
1997 USFS and
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its subsidiaries have conducted their respective businesses in the normal and
ordinary course consistent with past practice and there has not been any
condition, event or occurrence that has resulted, or could reasonably be
expected to result, individually or in the aggregate, in a Material Adverse
Effect with respect to USFS (without regard, however, to changes in conditions
generally applicable to the industries in which USFS and its subsidiaries are
involved or general economic condition in the jurisdictions in which USFS or
its subsidiaries conduct business, and any changes in the condition, business,
operations or financial results of USFS and its subsidiaries taken as a whole
that are caused primarily or substantially by such changes or events or as a
result of the announcement of this Agreement and the transactions contemplated
hereby including the payment of any costs, expenses, fees or similar charges
incurred by USFS's contemplation, negotiation, execution or consummation of
this Agreement).
4.9 Absence of Litigation. Except as disclosed in the
USFS SEC Filings, as of the date hereof there are no claims, actions or
proceedings pending or, to the knowledge of USFS, threatened against USFS or
any of its subsidiaries or any material portion of their properties or assets
before any court or Governmental Entity that could reasonably be expected to
result, individually or in the aggregate, in a Material Adverse Effect with
respect to USFS. As of the date hereof, neither USFS nor any of its
subsidiaries nor any material portion of their properties or assets is subject
to any order of any court or Governmental Entity.
4.10 Compliance. Except as disclosed in the USFS SEC
Filings, neither USFS nor any of its subsidiaries is in default or violation of
any term, condition
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or provision of (a) its certificate of incorporation or by-laws (or equivalent
governing instruments), (b) any Contracts and Other Agreements to which USFS or
any of its subsidiaries is a party or by which any of them or any material
portion of their properties or assets may be bound or (c) any Legal
Requirements applicable to USFS or any of its subsidiaries or any material
portion of their properties or assets; provided that no representation or
warranty is made in the foregoing clauses (b) and (c) with respect to matters
that have not had or could not reasonably be expected to result, individually
or in the aggregate, in a Material Adverse Effect with respect to USFS.
ARTICLE 5
COVENANTS
5.1 Operation of the Company. Prior to the Effective
Time the Company shall not engage in any activity or business, other than
executing and delivering this Agreement and the Contribution Agreement and
consummating the transactions contemplated hereby and thereby.
5.2 Stockholder Approval; Proxy Statement. Each of the
Company and USFS shall take all action necessary in accordance with applicable
law to convene the USFS Stockholders' Meeting as promptly as practicable after
the date hereof to consider and vote upon this Agreement and the transactions
contemplated hereby. USFS shall, through its Board of Directors (the "USFS
Board"), recommend that its stockholders vote in favor of the adoption of this
Agreement and the transactions contemplated hereby. The Company shall obtain
the approval of its stockholders of
23
22
this Agreement and the transactions contemplated hereby.
5.3 Reasonable Best Efforts; Additional Actions.
5.3.1 Upon the terms and subject to the
conditions of this Agreement, each of the parties hereto shall use all
reasonable best efforts to take, or cause to be taken, all action, and to do or
cause to be done, and to assist and cooperate with the other parties in doing,
all things necessary, proper or advisable to consummate and make effective as
promptly as practicable the transactions contemplated by this Agreement,
including using all reasonable best efforts to (a) obtain all consents,
amendments to or waivers under the terms of any of the Company's and USFS's
borrowing or other contractual arrangements required by the transactions
contemplated by this Agreement (other than consents, amendments or waivers the
failure of which to obtain could not, individually or in the aggregate,
reasonably be expected to result in a Material Adverse Effect), (b) effect
promptly all necessary or appropriate registrations and filings with
Governmental Entities, including, without limitation, filings and submissions
pursuant to the HSR Act, the Securities Act, the Exchange Act, the DGCL and
state "Blue Sky" laws (it being agreed that a copy of each of such registration
and filing shall be delivered to HSA and HPI), (c) defend any lawsuits or other
legal proceedings, whether judicial or administrative, challenging this
Agreement or the consummation of the transactions contemplated hereby and (d)
fulfill or cause the fulfillment of the conditions to Closing set forth in
Article 6.
5.3.2 If, at any time after the Effective
Time, the Surviving Corporation shall determine or be advised that any deeds,
bills of sale, assignments,
24
23
assurances or any other actions or things are necessary or desirable to vest,
perfect or confirm of record or otherwise in the Surviving Corporation the
right, title or interest in, to or under any of the rights, properties or
assets of USFS or its subsidiaries acquired or to be acquired by the Surviving
Corporation as a result of, or in connection with, the Merger or otherwise to
carry out this Agreement, the officers and directors of the Surviving
Corporation shall be authorized to execute and deliver, in the name and on
behalf of USFS or its subsidiaries or otherwise, all such deeds, bills of sale,
assignments and assurances and to take and do, in the name and on behalf of
USFS or its subsidiaries or otherwise, all such other actions and things as may
be necessary or desirable to vest, perfect or confirm any and all right, title
and interest in, to and under such rights, properties or assets in the
Surviving Corporation or otherwise to carry out this Agreement.
5.4 Notification of Certain Matters. Each of the Company
and USFS shall give prompt notice to the other party (and to HSA and HPI) of:
(i) any notice of, or other communication relating to, a default or event
which, with notice or lapse of time or both, would become a default under any
agreement, indenture or instrument material to the business, assets, property,
condition (financial or otherwise) or the results of operations of the Company
or of USFS and its subsidiaries, taken as a whole, as the case may be, to which
the Company or USFS or any of its subsidiaries, as the case may be, is a party
or is subject; (ii) any notice or other communication from any third party
alleging that the consent of such third party is or may be required in
connection with the transactions contemplated by the Contribution Agreement or
this
25
24
Agreement including the Merger; (iii) any notice or other communication from
any regulatory authority, the Nasdaq Stock Market, Inc. or national securities
exchange in connection with the transactions contemplated by the Contribution
Agreement or this Agreement, including the Merger; (iv) any material adverse
change in the business, assets, financial condition or results of operations of
the Company or of USFS and its subsidiaries, taken as a whole, as the case may
be, or the occurrence of an event which, so far as reasonably can be foreseen
at the time of its occurrence, would result in any such change; (v) any claims,
actions, proceedings or investigations commenced or, to the best of its
knowledge, threatened, involving or affecting the Company or USFS or any of its
subsidiaries, as the case may be, or any of their respective property or
assets, or, to the best of its knowledge, any employee, director or officer, in
his or her capacity as such, of the Company or any of its subsidiaries or USFS,
as the case may be, which, if pending on the date hereof, would have been
required to have been disclosed in a Schedule pursuant to this Agreement or
which relates to the consummation of the Merger; (vi) any occurrence, or
failure to occur, of any event, which occurrence or failure to occur has caused
or could reasonably be expected to cause any representation or warranty in this
Agreement to be untrue or inaccurate in any material respect at any time after
the date hereof and prior to the Effective Time and (vii) any material failure
on its part to comply with or satisfy any covenant, condition or agreement to
be complied with or satisfied by it hereunder; provided that the delivery of
any notice pursuant to this Section 5.4 shall not limit or otherwise affect the
remedies available hereunder to the party receiving such notice.
26
25
5.5 Stock Exchange Listing. The Company shall use its
reasonable best efforts to cause the shares of Company Class A Stock to be
issued in the Merger to be listed on the Nasdaq National Market, subject only
to official notice of issuance thereof.
5.6 Issuance of Additional Securities; Etc. Each of the
Company and USFS hereby agrees that from and after the date of this Agreement
through the Effective Time, except as contemplated by this Agreement, the
Contribution Agreement or the Disclosure Letter or pursuant to the Repurchase
Option or any employee or director stock option plan described in the USFS SEC
Filings, it shall not (a) issue, or authorize the issuance of, any additional
shares of its capital stock, (b) grant, or agree to grant, any options,
warrants, rights, contract, calls, put, rights to subscribe, conversion rights
or enter into, or agree to enter into, any other agreements or commitments
providing for the issuance, disposition or acquisition of any shares of its
capital stock, (c) grant, or agree to grant, any stock appreciation, phantom
stock or similar rights with respect to shares of its capital stock, (d) enter
into, or agree to enter into, any voting trusts, proxies or any other
agreements or understandings with respect to the voting of its capital stock,
(e) incur any obligation (contingent or otherwise) to repurchase or otherwise
acquire or retire any shares of its capital stock except as otherwise
contemplated by Section 3.2 hereto or (f) declare or distribute any cash
dividend.
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26
ARTICLE 6
CONDITIONS
6.1 Conditions to Each Party's Obligations. The
respective obligations of each party to effect the Merger shall be subject to
the fulfillment or waiver at or prior to the Effective Time of the following
conditions:
(a) This Agreement shall have been adopted by the
affirmative vote of the stockholders of USFS and the Company by the requisite
vote in accordance with applicable law;
(b) No Legal Requirements shall have been
enacted, entered, promulgated or enforced by any court or Governmental Entity
that prohibit or prevent the consummation of the Merger;
(c) The Registration Statement shall have become
effective under the Securities Act and shall not be the subject of any stop
order or proceedings seeking a stop order;
(d) All approvals required under state securities
or "Blue Sky" laws shall have been obtained;
(e) The Company Common Stock to be issued in the
Merger pursuant to this Agreement shall have been authorized for listing on the
Nasdaq National Market, subject to official notice of issuance;
(f) (i) All consents, authorizations, orders and
approvals of (or filings or registrations with) any Governmental Entity
required in connection with the execution, delivery and performance of this
Agreement shall have been obtained or made (as the case may be), except for
filings in connection with the Merger and any
28
27
other documents required to be filed after the Effective Time and except where
the failure to have obtained or made any such consent, authorization, order,
approval, filing or registration would not have a Material Adverse Effect with
respect to the Company or USFS and (ii) such consents, authorizations, orders
and approvals shall be subject to no conditions other than conditions that
could not reasonably be expected to have a Material Adverse Effect with respect
to the Company and USFS, taken as a whole;
(g) Any required consents or approvals of any
person to the Merger or the transactions contemplated hereby shall have been
obtained and be in full force and effect, except for those the failure to
obtain will not have a material adverse effect on the business, assets,
properties, financial condition or the results of operations of the Surviving
Corporation and its subsidiaries taken as a whole; and
(h) Any waiting period applicable to the Merger
under the HSR Act shall have expired or been terminated.
6.2 Conditions to Obligation of USFS. The obligation of
USFS to effect the Merger shall be subject to the fulfillment or waiver at the
Effective Time of the following additional conditions:
(a) The Company shall have performed in all
material respects the covenants and obligations required to be performed by it
under this Agreement on or prior to the Effective Time;
(b) Each party to the Contribution Agreement
shall have performed in all material respect the covenants and obligations
required to be
29
28
performed by it under the Contribution Agreement on or prior to the Effective
Time;
(c) The representations and warranties of the
Company contained in this Agreement shall be true and correct in all material
respects on and as of the Effective Time as if made on and as of such date
(except to the extent that any such representation or warranty had by its terms
been made as of a specific date in which case such representation or warranty
shall have been true and correct as of such specific date);
(d) The representations and warranties of HSA and
HPI contained in the Contribution Agreement shall be true and correct in all
material respects on and as of the Closing (as defined in the Contribution
Agreement) as if made on and as of such time (except to the extent that any
such representation or warranty had by its terms been made as of a specific
date in which case such representation or warranty shall have been true and
correct as of such specific date);
(e) The transactions contemplated by the
Contribution Agreement shall have been consummated in accordance with its
terms;
(f) USFS shall have received a certificate signed
by an executive officer of (i) the Company to the effect of Sections 6.2(a),
(b) and (c) and (ii) of HSA and HPI to the effect of Sections 6.2(d) and (e);
(g) HSA and HPI shall have executed and delivered
to the Company the Shareholders Agreement (the "Shareholders Agreement")
substantially in the form of Exhibit B hereto; and
30
29
(h) USFS shall have received the opinion of Paul,
Weiss, Rifkind, Wharton & Garrison, dated the Closing Date, that, under federal
income tax law, and based on (i) certain representations regarding factual
matters and certain covenants as to future actions made by the Company, USFS
and major holders of USFS Common Stock, and (ii) the assumption that the Merger
and related transactions will take place as described herein, the Merger will
constitute a reorganization for federal income tax purposes within the meaning
of Section 368(a) of the Code.
6.3 Conditions to Obligation of the Company. The
obligation of the Company to effect the Merger shall be subject to the
fulfillment or waiver at the Effective Time of the following additional
conditions:
(a) USFS shall have performed in all material
respects the covenants and obligations required to be performed by it under
this Agreement on or prior to the Effective Time;
(b) The representations and warranties of USFS
contained in this Agreement shall be true and correct in all material respects
on and as of the Effective Time as if made on and as of such date;
(c) The Company shall have received a certificate
signed by an executive officer of USFS to the effect of Sections 6.3 (a) and
(b); and
(d) Michael A. Leven and Neal K. Aronson shall
have executed and delivered to the Company the Shareholders Agreement.
31
30
ARTICLE 7
TERMINATION
7.1 Termination. Subject to the provisions of Section
4.6 of the Contribution Agreement, this Agreement may be terminated and the
Merger contemplated hereby may be abandoned at any time prior to the Effective
Time, whether before or after adoption by the stockholders of the Company:
(a) By the mutual written consent of USFS and the
Company;
(b) By USFS or the Company:
(i) if there has been a material breach of any
representation, warranty, covenant or agreement on the part of the Company, HSA
or HPI, on the one hand, or USFS, on the other hand, as the case may be, set
forth in this Agreement or the Contribution Agreement which breach, if not a
willful breach, has not been cured within ten (10) Business Days following
receipt by the breaching party of notice of such breach;
(ii) if a court of competent jurisdiction or other
Governmental Entity shall have issued an order or taken any other action
permanently restraining, enjoining or otherwise prohibiting the Merger and such
order or other action shall have become final and nonappealable; or
(iii) if the Effective Time shall not have occurred
on or before April 30, 1998 provided, however, that the right to terminate this
Agreement under this Section 7.1(b)(iii) shall not be available to any party
whose failure to fulfill materially any covenant or obligation under this
Agreement has been the cause of, or resulted in, the failure of the Effective
Time to occur on or before
32
31
such date; and
(c) by USFS, if the approval of USFS's
stockholders shall not have been obtained by reason of the failure to obtain
the requisite vote at a duly held meeting of such stockholders or at any
adjournment thereof.
7.2 Procedure for and Effect of Termination. In the
event that this Agreement is terminated and the Merger is abandoned by USFS, on
the one hand, or by the Company, on the other hand, pursuant to Section 7.1,
written notice of such termination and abandonment shall forthwith be given to
the other party (and to HSA and HPI) and this Agreement shall terminate and the
Merger shall be abandoned without any further action. If this Agreement is
terminated as provided herein, no party hereto shall have any liability or
further obligation to any other party under the terms of this Agreement except
with respect to the willful breach by any party hereto and except that the
provisions of this Section 7.2 and Article 8 shall survive the termination of
this Agreement.
ARTICLE 8
MISCELLANEOUS
8.1 Certain Definitions. For purposes of this Agreement,
the following terms shall have the meanings ascribed to them in this Section
8.1:
(a) "affiliate," with respect to any person,
shall mean any person controlling, controlled by or under common control with
such person;
(b) "Business Day" means any day other than a
day on which
33
32
(i) banks in the State of Delaware are authorized or obligated to be closed or
(ii) the Nasdaq National Market is closed;
(c) "Disclosure Letter" means the letter dated
the date hereof, from USFS to HPI and HSA.
(d) "knowledge," with respect to the Company or
USFS, shall mean the actual knowledge of any executive officer or director of
the Company or USFS, respectively;
(e) "Material Adverse Effect," with respect to
any Person, shall mean a material adverse effect on the business, assets,
properties, financial condition or results of operations of such Person and its
subsidiaries taken as a whole;
(f) "Person" shall mean and include an
individual, a partnership, a joint venture, a limited liability company or
partnership, a corporation, a trust, an unincorporated organization and a
government or any department or agency thereof; and
(g) "subsidiary," with respect to any Person,
shall mean any corporation 50% or more of the outstanding voting power of
which, or any partnership, joint venture, limited liability company or other
entity 50% or more of the total equity interest of which, is directly or
indirectly owned by such Person. For purposes of this Agreement, all
references to "subsidiaries" of a Person shall be deemed to mean "subsidiary"
if such person has only one subsidiary.
8.2 Amendment and Modification. Subject to applicable
law and the provisions of the Contribution Agreement requiring the prior
written consent of HSA
34
33
and HPI, this Agreement may be amended, modified or supplemented only by a
written agreement signed by each of the parties hereto at any time prior to the
Effective Time with respect to any of the terms contained herein; provided,
however, that after this Agreement is adopted by USFS's stockholders, no such
amendment or modification shall (a) alter or change the amount or kind of the
consideration to be delivered to the stockholders of USFS, (b) alter or change
any term of the certificate of incorporation of the Surviving Corporation
(other than as contemplated pursuant to Section 1.3 hereof) or (c) alter or
change any of the terms or conditions of this Agreement if such alteration or
change would adversely affect the stockholders of USFS.
8.3 Waiver of Compliance; Consents. Any failure of USFS,
on the one hand, or the Company, on the other hand, to comply with any
obligation, covenant, agreement or condition herein may be waived by USFS or
the Company (with the prior written consent, in either case, of HSA and HPI),
respectively, only by a written instrument signed by the party granting such
waiver, but such waiver or failure to insist upon strict compliance with such
obligation, covenant, agreement or condition shall not operate as a waiver of,
or estoppel with respect to, any subsequent or other failure. Whenever this
Agreement requires or permits consent by or on behalf of any party hereto, such
consent shall be given in writing in a manner consistent with the requirements
for a waiver of compliance as set forth in this Section 8.3.
8.4 Survival of Representations and Warranties. Unless
otherwise provided for herein, the respective representations and warranties of
USFS and the Company contained herein or in any certificates or other documents
delivered prior to
35
34
or at the Closing shall survive the execution and delivery of this Agreement
and shall terminate at the Effective Time.
8.5 Notices. All notices and other communications
hereunder shall be in writing and shall be deemed to have been duly given when
delivered in person, by telecopier (with a confirmed receipt thereof) or
registered or certified mail (postage prepaid, return receipt requested), and
on the next business day when sent by overnight courier service, to the parties
at the following addresses (or at such other address for a party as shall be
specified by like notice):
if to USFS, to:
U.S. Franchise Systems, Inc.
13 Corporate Square, Suite 250
Atlanta, Georgia 30329
Attention: Neal K. Aronson
Telecopier: (404) 235-7448
with copies to:
Paul Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019
Attention: Paul D. Ginsberg
Telecopier: (212) 757-3990
and
HSA Properties, Inc.
200 West Madison Street
Suite 3800
Chicago, Illinois 60606
Attention: Harold S. Handelsman, Esq.
Telecopier: (312) 750-8545
and
36
35
Neal, Gerber & Eisenberg
Two North LaSalle Street
Suite 2200
Chicago, Illinois 60602
Attention: Michael A. Pucker, Esq.
Telecopier: (312) 269-1747
(b) if to the Company, to:
c/o USFS Hawthorn, Inc.
U.S. Franchise Systems, Inc.
13 Corporate Square, Suite 250
Atlanta, Georgia 30329
Attention: Neal K. Aronson
Telecopier: (404) 235-7448
with copies to:
Paul Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019
Attention: Paul D. Ginsberg
Telecopier: (212) 757-3990
and
HSA Properties, Inc.
200 West Madison Street
Suite 3800
Chicago, Illinois 60606
Attention: Harold S. Handelsman, Esq.
Telecopier: (312) 750-8545
and
Neal, Gerber & Eisenberg
Two North LaSalle Street
Suite 2200
Chicago, Illinois 60602
Attention: Michael A. Pucker, Esq.
Telecopier: (312) 269-1747
37
36
8.6 Assignment. This Agreement and all of the provisions
hereof shall be binding upon and inure to the benefit of the parties hereto and
their respective successors and permitted assigns, but neither this Agreement
nor any of the rights, interests or obligations hereunder shall be assigned by
any of the parties hereto without the prior written consent of the other
parties. This Agreement is not intended to confer upon any other person except
the parties hereto and HSA and HPI any rights or remedies hereunder.
8.7 Expenses. Whether or not the Merger is consummated,
all fees, charges and expenses incurred in connection with this Agreement and
the transactions contemplated hereby shall be paid by the party incurring such
fees, charges or expenses.
8.8 Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of Delaware applicable
to agreements made and to be performed entirely within such State, without
regard to the choice of law principles thereof.
8.9 Counterparts. This Agreement may be executed in one
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
8.10 Interpretation. The article and section headings
contained in this Agreement are solely for the purpose of reference, are not
part of the agreement of the parties and shall not in any way affect the
meaning or interpretation of this Agreement.
8.11 Entire Agreement. This Agreement, the Contribution
Agreement
38
37
and the Shareholders Agreement (including the schedules, exhibits, documents or
instruments referred to herein and therein), embodies entire agreement and
understanding of the parties hereto in respect of the subject matter hereof and
thereof and supersede all prior agreements and understandings, both written and
oral, among the parties, or between any of them, with respect to the subject
matter hereof and thereof.
8.12 Third Party Beneficiaries. This Agreement is not
intended to, and does not, create any rights or benefits of any party other
than the parties hereto and HSA and HPI.
39
38
IN WITNESS WHEREOF, USFS and the Company have caused this Agreement to
be signed by their respective duly authorized officers as of the date first
above written.
U.S. FRANCHISE SYSTEMS, INC.
By /s/ Michael A. Leven
--------------------------------
Name: Michael A. Leven
Title: Chief Execuitve Officer
and President
USFS HAWTHORN, INC.
By /s/ Neal K. Aronson
--------------------------------
Name: Neal K. Aronson
Title: President
40
SCHEDULE 4.3 (2 of 2)
SCHEDULE 4.3 (1 of 2)
U.S. FRANCHISE SYSTEMS, INC.
***
List of Subsidiaries/Affiliates
Revised December 3, 1997
**********************************************************************************************************************
- -------------------------------- --- ------------------------ -- ------------------------------ --- ------------------
Subsidiary State of Incorporation Stockholder(s) Number of Shares
- -------------------------------- --- ------------------------ -- ------------------------------ --- ------------------
Microtel Inns and Suites Georgia U.S. Franchise Systems, Inc. 1,000
Franchising, Inc.
- -------------------------------- --- ------------------------ -- ------------------------------ --- ------------------
Hawthorn Suites Franchising, Georgia U.S. Franchise Systems, Inc. 1,000
Inc.
- -------------------------------- --- ------------------------ -- ------------------------------ --- ------------------
Microtel Inns Realty Corp. Georgia Microtel Inns and Suites 1,000
("MIRC")(sub of Microtel) Franchising, Inc.
(makes equity investments in
land/hotels)
- -------------------------------- --- ------------------------ -- ------------------------------ --- ------------------
Microtel International, Inc. Georgia Microtel Inns and Suites 1,000
(sub of Microtel) Franchising, Inc.
(international licensing)
- -------------------------------- --- ------------------------ -- ------------------------------ --- ------------------
U.S. Funding Corp. (sub of USFS) Georgia U.S. Franchise Systems, Inc. 10,000
(receives fees from Nomura)
- -------------------------------- --- ------------------------ -- ------------------------------ --- ------------------
U.S. Franchise Capital, Inc. Georgia U.S. Franchise Systems, Inc. 10,000
(sub of USFS) (loans money
to franchisees)
- -------------------------------- --- ------------------------ -- ------------------------------ --- ------------------
Equity Partners, L.P. Delaware USFS Equity, L.L.C. (General
- -------------------------------- --- ------------------------ -- ------------------------------ --- ------------------
41
SCHEDULE 4.3 (2 OF 2)
- -------------------------------- --- ------------------------ -- ------------------------------ --- ------------------
Subsidiary State of Incorporation Stockholder(s) Number of Shares
- -------------------------------- --- ------------------------ -- ------------------------------ --- ------------------
(affiliate) Partner)
- -------------------------------- --- ------------------------ -- ------------------------------ --- ------------------
USFS Equity, L.L.C. (sub of Delaware U.S. Franchise Systems, Inc.
USFS) general partner of Managing Member)
Equity Partners)
- -------------------------------- --- ------------------------ -- ------------------------------ --- ------------------
CMS Hotel Associates, L.P.
(Member)
- -------------------------------- --- ------------------------ -- ------------------------------ --- ------------------
Tempe Inns Realty Corp. Georgia Microtel Inns Realty Corp. 100
(sub of MIRC)(not being
used at this time)
- -------------------------------- --- ------------------------ -- ------------------------------ --- ------------------
Chandler Inns Realty Corp. (sub Georgia Microtel Inns Realty Corp. 100
of MIRC) (not being
used at this time)
- -------------------------------- --- ------------------------ -- ------------------------------ --- ------------------
Tempe Holdings, LLC Arizona LLC Microtel Inns Realty Corp. 100% interest
sub of MIRC (borrower (Managing Member)
under construction loan for
Tempe, Arizona Microtel)
- -------------------------------- --- ------------------------ -- ------------------------------ --- ------------------
Chandler Holdings, LLC Arizona LLC Microtel Inns Realty Corp. 100% interest
(sub of MIRC)(borrower (Managing Member)
under construction loan for
Tempe, Arizona Microtel)
- -------------------------------- --- ------------------------ -- ------------------------------ --- ------------------
- -------------------------------- --- ------------------------ -- ------------------------------ --- ------------------
42
EXECUTION COPY
===============================================================================
AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN
U.S. FRANCHISE SYSTEMS, INC.
AND
USFS HAWTHORN, INC.
------------------
DECEMBER 9, 1997
------------------
===============================================================================
43
TABLE OF CONTENTS
Page
ARTICLE 1 THE MERGER.....................................................................................2
1.1 The Merger.........................................................................2
1.2 Closing; Effective Time............................................................2
1.3 Certificate of Incorporation.......................................................3
1.4 By-laws............................................................................4
1.5 Directors and Officers.............................................................4
1.6 Meeting of USFS Stockholders.......................................................4
1.7 SEC Filings........................................................................5
ARTICLE 2 CONVERSION OF SECURITIES.......................................................................7
2.1 Company Common Stock...............................................................7
2.2 USFS Common Stock..................................................................7
2.3 Effect on USFS Company Options.....................................................7
2.4 Treasury Shares....................................................................8
2.5 Exchange of Certificates...........................................................8
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY.................................................10
3.1 Organization......................................................................10
3.2 Capital Structure.................................................................10
3.3 Authorization; Binding Agreement..................................................11
3.4 Noncontravention..................................................................12
3.5 Governmental Approvals; Required Consents.........................................13
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF USFS........................................................14
4.1 Organization......................................................................14
4.2 Capitalization....................................................................15
4.3 Subsidiaries......................................................................16
4.4 Authorization; Binding Agreement..................................................16
4.5 Noncontravention..................................................................17
4.6 Governmental Approvals; Required Consents.........................................18
4.7 SEC Filings; Financial Statements.................................................19
4.8 Absence of Certain Changes or Events..............................................20
4.9 Absence of Litigation.............................................................20
4.10 Compliance........................................................................21
ARTICLE 5 COVENANTS.....................................................................................21
5.1 Operation of the Company..........................................................21
5.2 Stockholder Approval; Proxy Statement.............................................22
i
44
5.3 Reasonable Best Efforts; Additional Actions.......................................22
5.4 Notification of Certain Matters...................................................24
5.5 Stock Exchange Listing............................................................25
5.6 Issuance of Additional Securities; Etc............................................25
ARTICLE 6 CONDITIONS....................................................................................26
6.1 Conditions to Each Party's Obligations............................................26
6.2 Conditions to Obligation of USFS..................................................28
6.3 Conditions to Obligation of the Company...........................................29
ARTICLE 7 TERMINATION...................................................................................30
7.1 Termination.......................................................................30
7.2 Procedure for and Effect of Termination...........................................31
ARTICLE 8 MISCELLANEOUS.................................................................................32
8.1 Certain Definitions...............................................................32
8.2 Amendment and Modification........................................................33
8.3 Waiver of Compliance; Consents....................................................34
8.4 Survival of Representations and Warranties........................................34
8.5 Notices...........................................................................34
8.6 Assignment........................................................................36
8.7 Expenses..........................................................................37
8.8 Governing Law.....................................................................37
8.9 Counterparts......................................................................37
8.10 Interpretation....................................................................37
8.11 Entire Agreement..................................................................37
8.12 Third Party Beneficiaries.........................................................38
SCHEDULES
Schedule 4.3 Subsidiaries
EXHIBITS
Exhibit A Contribution Agreement
Exhibit B Shareholders Agreement
ii
45
EXHIBIT A
CONTRIBUTION AGREEMENT
SEE EXHIBIT 99.2
46
EXHIBIT B
FORM OF SHAREHOLDERS AGREEMENT
47
EXHIBIT D
SHAREHOLDERS AGREEMENT
THIS SHAREHOLDERS AGREEMENT, dated as of _________, 1998 (the
"Agreement") by and among Hawthorn Suites Associates, an Illinois joint venture
("HSA"), HSA Properties, Inc., a Delaware corporation ("HPI", and together with
HSA, the "Securityholders"), Michael A. Leven ("Leven"), Neal K. Aronson
("Aronson"), and U.S. Franchise Systems, Inc. (formerly known as USFS Hawthorn,
Inc.), a Delaware corporation (the "Company").
WHEREAS, concurrently herewith, pursuant to a Contribution Agreement,
by and among the Securityholders, the Company and Old USFS (as defined below),
dated as of December __, 1997 (the "Contribution Agreement"), HSA shall acquire
2,199,775 shares of Class A Common Stock, $.01 par value per share, of the
Company ("Class A Stock"), and HPI shall acquire 22,447 shares of Class A Stock
(such shares hereinafter referred to as the "Shares"), and the Securityholders
shall contribute, assign, transfer and convey (the "Transfer") all of their
respective interests in HSA Properties, L.L.C., a Delaware limited liability
company ("HSA LLC"), on the terms, and subject to the conditions, contained in
the Contribution Agreement;
WHEREAS, on the date hereof, immediately upon the consummation of the
Transfer, U.S. Franchise Systems, Inc., a Delaware corporation ("Old USFS"),
shall merge with and into the Company with the Company as the surviving
corporation (the "Merger"), pursuant to the Agreement and Plan of Merger, dated
as of December __, 1997 (the "Merger Agreement"), between the Company and Old
USFS. In the Merger, each outstanding share of Class A Common Stock, par value
$.01 per share, and Class B Common Stock, par value $.01 per share, of Old USFS
shall be converted into the right to receive a share of Class A Stock or Class
B Common Stock, par value $.01 per share ("Class B Stock" and together with the
Class A Stock, collectively, the "Common Stock"), of the Company, respectively,
and the Shares will remain outstanding; and
WHEREAS, it is a condition to the consummation of the transactions
contemplated by each of the Merger Agreement and the Contribution Agreement
that the parties hereto execute and deliver this Agreement.
NOW THEREFORE, in consideration of the mutual covenants and agreements
set forth herein and for good and valuable consideration, the receipt of which
is hereby acknowledged, the parties agree as follows.
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Section 1. Definitions. As used in this Agreement, the following
terms shall have the following respective meanings:
"Affiliate" means, with respect to any Person, any Person that,
directly or indirectly, controls, is controlled by or is under common control
with the Person in question. In addition to the foregoing, with respect to the
Securityholders, "Affiliate" shall mean the lineal descendants of Nicholas J.
Pritzker, deceased, and their immediate family members, trusts primarily for
the benefit of such individuals and Persons controlled, directly or indirectly,
by such individuals and/or trusts.
"Commission" means the Securities and Exchange Commission or any
similar agency then having jurisdiction to enforce the Securities Act and the
Exchange Act.
"Common Stock" means shares of Class A Common Stock, par value $.01
each, of the Company and shares of Class B Common Stock, par value $.01 each,
of the Company.
"Control" (including, with correlative meanings, the terms "controlled
by" and "under common control with") shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of such Person, whether through the ownership of voting securities or
by contract or otherwise.
"Designated Holder" means each of the Securityholders and their
permitted transferees under Section 2(b)(i).
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations of the Commission promulgated thereunder.
"Included Transferee" means, with respect to a Principal Stockholder,
an immediate family member (which shall mean, with respect to such person, such
person's spouse, parents, children and grandchildren and the spouse of such
person's children and grandchildren) of such Principal Stockholder, and any
trust or partnership of which all the beneficiaries or partners, as the case
may be, are Principal Stockholders and/or an immediate family member of such
Principal Stockholder.
"Lockup Period" means the period commencing on the date hereof and
ending on the second anniversary of the date hereof.
"Person" means an individual or a corporation, partnership, limited
liability company or partnership, trust, incorporated or unincorporated
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association, joint venture, joint stock company, government (or an agency or
political subdivision thereof) or other entity of any kind.
"Principal Stockholder" means each of Michael A. Leven and Neal K.
Aronson.
"Registrable Securities" means each of the following: (a) any and all
Shares owned by the Designated Holders and (b) any shares of Class A Stock
issued or issuable to any of the Designated Holders with respect to the Shares
by way of stock dividend or stock split or in connection with a combination of
shares, recapitalization, merger, consolidation or other reorganization or
otherwise and shares of Common Stock or other equity securities of the Company
issuable upon conversion, exercise or exchange thereof. Registrable Securities
will cease to be Registrable Securities when (i) a Registration Statement
covering such Registrable Securities has been declared effective under the
Securities Act by the Commission and such Registrable Securities have been
disposed of pursuant to such effective Registration Statement, (ii) such
securities shall have been sold pursuant to Rule 144 (or any successor
provision) under the Securities Act and in compliance with the requirements of
paragraphs (c) (e), (f) and (g) of Rule 144 (notwithstanding the provisions of
paragraph (k) of such Rule), or (iii) the Registrable Securities are sold or
distributed by a Person not entitled to the registration rights granted by this
Agreement.
"Registration Expenses" means all expenses arising from or incident to
the Company's performance of, or compliance with, this Agreement, including,
without limitation, all registration, filing and listing fees; all fees and
expenses of complying with state securities or "blue sky" laws (including
reasonable fees and disbursements of counsel in connection with "blue sky"
qualifications of Registrable Securities); all printing, messenger and delivery
expenses; the fees and disbursements of counsel for the Company and its
independent public accountants; the fees and disbursements of one firm of
counsel (other than in-house counsel) retained by the holders of Registrable
Securities being registered; the expenses of any special audits required by or
incident to such performance and compliance; and any liability insurance or
other premiums for insurance obtained in connection with any registration
pursuant to the terms of this Agreement.
"Registration Statement" means a registration statement filed pursuant
to the Securities Act.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the Commission promulgated thereunder.
"Voting Securities" shall mean the shares of Common Stock and any
other securities of the Company entitled to vote generally in the election of
directors.
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Section 2. Transfer of Shares.
(1) Restrictions on Transfer. Each Designated Holder
agrees that such Designated Holder will not, directly or indirectly, offer,
sell, exchange, pledge, hypothecate, encumber, transfer, assign or otherwise
dispose of (collectively, a "transfer") any of its Shares, except as provided
in Section 2(b).
(2) Exceptions to Restrictions. Subject to Section 4(e),
the provisions of Section 2(a) shall not apply to any of the following
transfers:
(1) from any Designated Holder to the Company
or to any Affiliate of such Designated Holder, provided that, each
such Affiliate shall execute an agreement in form and substance
reasonably satisfactory to the Company pursuant to which such
Affiliate shall agree to comply with, and shall be bound by, the terms
of this Agreement;
(2) pursuant to Section 3;
(3) pursuant to a registered offering in which
either of the Principal Stockholders or an Included Transferee is
participating; provided that the Designated Holder's shares of Common
Stock included in such offering do not represent a greater percentage
of the total shares of Common Stock owned by such Designated Holder
then the shares of Common Stock being sold by such Principal
Stockholder or Included Transferee represents of his total shares of
Common Stock owned;
(4) pursuant to a tender offer, exchange offer,
merger, consolidation or other business combination involving the
Company, or a sale of all or substantially all of the outstanding
shares of Common Stock of the Company with a third party not an
Affiliate of the Company (x) which the Board of Directors of the
Company does not oppose or (y) which the Board of Directors of the
Company opposes (an "Opposed Tender"); provided that, no indication or
arrangement to tender the Shares may be made in the case of an Opposed
Tender until twenty-four hours prior to the expiration of any time
after which securities tendered may be treated less favorably than
securities tendered prior to such time;
(5) after the expiration the Lockup Period;
(6) to the extent necessary to obtain or
maintain, without suspension or threatened revocation, any gaming
license, permit or approval of any Affiliate of any Securityholder;
provided that, in the event of
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any such proposed transfer the transferor shall have complied with the
right of first refusal contained in Section 2(c); provided further
that, the transferee shall execute an agreement in form and substance
reasonably satisfactory to the Company pursuant to which such
transferee shall agree to comply with, and be bound by, the terms of
this Agreement; or
(7) as contemplated by Section VI of the
Contribution Agreement; provided that, prior to the expiration of the
Lockup Period each transferee (other than the Company) shall execute
an agreement in form and substance reasonably satisfactory to the
Company pursuant to which such transferee shall agree to comply with,
and be bound by, the terms of this Agreement.
Notwithstanding the foregoing, no transfer shall be permitted
under Section 2(b),(i), (ii), (iii), (iv) or (vi) prior to the first
anniversary of the date of this Agreement unless HSA and/or HPI, as the case
may be, shall have agreed, in a written instrument reasonably acceptable to the
Company not to transfer any of the net (pre-tax) proceeds received in such
transfer prior to the first anniversary of the date of this Agreement.
(3) Right of First Refusal.
(1) If during the Lockup Period any Designated
Holder (a "Selling Stockholder") desires to transfer all or any
portion to its Shares to any Person (a "Third Party Offeror") pursuant
to Section 2(b)(vi) and has received a bona fide offer from such Third
Party Offeror to buy all of such Shares (a "Third Party Offer"), such
Selling Stockholder shall send written notice (a "Notice") to the
Company, which shall state (a) the number of Shares proposed to be
transferred (the "Offered Securities"), (b) the proposed purchase
price per Share to be paid by the Third Party Offeror (the "Offer
Price"), which shall be payable solely in cash, (c) the name of the
Third Party Offeror, (d) that the proposed purchase of the Offered
Securities shall be consummated after the expiration or termination of
the Option Period (as defined below) but on or prior to the first
business day which occurs after the later of sixty (60) days after
delivery of the Notice and the date which is five (5) days after the
expiration or waiver of any applicable waiting period under the HSR
Act (as defined below), and (e) that the Third Party Offer has been
accepted by the Selling Stockholder subject to the rights of the
Company contained in this Section 2(c). The Offering Notice shall also
state any other material terms and conditions of the Third Party Offer
and shall include a copy of all writings between the Third Party
Offeror and the Selling Stockholder necessary to establish the terms
of the Third Party Offer.
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(2) For a period of ten (10) days after the
delivery of the Notice (the "Option Period"), the Company or its
designee shall have the right to elect to purchase all (but not less
than all) of the Offered Securities at a purchase price equal to the
Offer Price and upon the terms and conditions of the Third Party
Offer. The election of the Company or its designee under this Section
2(c) shall be exercisable by delivering written notice of the exercise
thereof, prior to the expiration of the Option Period, to the Selling
Stockholder. The failure of the Company or its designee to respond
within the Option Period to the Selling Stockholder shall be deemed to
be a waiver of its rights under this Section 2(c).
(3) The closing of the purchase of Offered
Securities to be purchased by the Company or its designee under this
Section 2(c) shall be held at the principal office of the Company at
11:00 a.m., local time, on the date that is the later of sixty (60)
days after delivery of the Notice and the date which is five (5) days
after the expiration or waiver of any applicable waiting period under
the HSR Act or at such other time and place as the parties to the
transaction may agree. At such closing, the Selling Stockholder shall
deliver to the Company or its designee certificates representing the
Offered Securities, duly endorsed for transfer and accompanied by all
requisite transfer taxes, if any, and such Offered Securities shall be
free and clear of any liens, claims, options, charges, encumbrances or
rights (other than those arising hereunder), and the Selling
Stockholder shall so represent and warrant, and shall further
represent and warrant that it is the beneficial and record owner of
such Offered Securities. The Company or its designee shall, at the
closing, deliver to the Selling Stockholder payment in full in
immediately available funds for the Offered Securities purchased by
it. At such closing, all of the parties to the transaction shall
execute such additional documents as are otherwise necessary or
appropriate.
(4) Unless the Company or its designee elects
to purchase all of the Offered Securities pursuant to Section 2(c),
the Selling Stockholder may sell all (but not less than all) the
Offered Securities to the Third Party Offeror on the terms and
conditions of the Third Party Offer; provided, however, that such sale
is bona fide and made prior to or the date that is the later of ninety
(90) days after delivery of the Notice and five (5) days after the
expiration or waiver of any applicable waiting period under the HSR
Act. If such sale is not completed prior to such date, for any reason,
then the restrictions provided for herein shall again become
effective, and no transfer of such Offered Securities may be made
thereafter under Section 2(b)(vi) without again offering the same to
the Company in accordance with this Section 2(c).
(4) Endorsement on Certificates, etc.
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(1) Upon the execution of this Agreement, in
addition to any other legend which the Company may deem advisable
under the Securities Act and certain state securities laws, all
certificates representing issued and outstanding Shares and shares of
Common Stock owned by the Principal Stockholders shall be endorsed as
follows:
THIS CERTIFICATE IS SUBJECT TO, AND IS TRANSFERABLE ONLY UPON
COMPLIANCE WITH, THE PROVISIONS OF A SHAREHOLDERS AGREEMENT
DATED AS OF ___________, 1998, AMONG THE COMPANY AND CERTAIN
OF ITS SHAREHOLDERS. A COPY OF THE ABOVE-REFERENCED AGREEMENT
IS ON FILE AT THE PRINCIPAL OFFICE OF THE COMPANY.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE
SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT,
OR AN EXEMPTION FROM REGISTRATION UNDER SAID ACT AS EVIDENCED
BY AN OPINION OF COUNSEL THAT REGISTRATION IS NOT REQUIRED.
(2) Except as otherwise expressly provided in
this Agreement, all certificates or other instruments representing
shares of Common Stock hereafter issued to or acquired by any of the
Designated Holders or their successors, assigns or transferees shall
bear the legends set forth above, and the shares of Common Stock
represented by such certificates or instruments shall be subject to
the applicable provisions of this Agreement.
(3) Notwithstanding any other provision of this
Agreement, no transfer of the Shares may be made unless (a) the
transfer complies in all material respects with the applicable
provisions of this Agreement and applicable federal and state
securities laws, including without limitation, the Securities Act and
(b) if requested by the Company, an opinion of counsel to such
transferring Securityholder shall be supplied to the Company, at such
transferring Securityholder's expense, to the effect that such
transfer complies in all material respects with, or is otherwise
exempt from the provisions of, all applicable federal and state
securities laws. The second paragraph of the legend set forth in
clause (i) of this Section 2(d) shall be
54
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removed from a particular certificate representing shares of Common
Stock when an opinion of counsel has been delivered to the Company to
the effect that any such security may be freely sold to the public
without compliance with the registration provisions of the Securities
Act. Counsel referred to in this Section 2(d)(iii) shall be reasonably
acceptable to the Company and may include an attorney who is an
employee of a Securityholder.
(4) Whenever the restrictions imposed by this
Agreement shall terminate as to any particular shares of Common Stock,
the holder thereof shall be entitled to receive from the Company,
without expense, upon delivery to the Company of the existing
certificate representing such shares of Common Stock, a new
certificate not bearing the restrictive legends otherwise required
pursuant to this Section 2(d).
(5) Improper Transfer. Any attempt to transfer or
encumber any shares of Common Stock other than in accordance with the terms of
this Agreement shall be null and void and neither the Company nor any transfer
agent of such securities shall give any effect to such attempted transfer or
encumbrance in its stock records.
Section 3. Tag-Along Rights.
(1) If a Principal Stockholder or his Included
Transferees desires to transfer (such transferring stockholder(s) being
referred to as the "Transferor(s)") to any Person, (i) at any time during the
Lockup Period, any shares of Common Stock, or (ii) at any time after the Lockup
Period, shares of Common Stock that, together with any shares of Common Stock
sold by the Principal Stockholders and their Included Transferees in such
transaction or series of related transactions, that would result in a transfer
of "control" of the Company, the Transferors shall, in the case of clauses (i)
and (ii), prior to making any such transfer, first notify each of the
Securityholders of such transfer. Such notice (the "Transferors' Notice") shall
specify the proposed transferee thereof, the number of shares of Common Stock
to be transferred, and the amount and type of consideration to be received
therefor, and shall contain the Participation Offer set forth in Section 3(c).
(2) Notwithstanding Section 3(a), a Transferor
shall not be obligated to deliver a Transferors' Notice in respect of, and the
provisions of this Section 3 shall not apply to, (i) any transfers made to a
Principal Stockholder or an Included Transferee, (ii) any transfers made
pursuant to a registered public offering for which the Securityholders have
been provided registration rights under Section 6 and (iii) any transfers made
by a Transferor to a Person not a Principal Stockholder or an Included
Transferee of shares of Common Stock that, together with each other transfer of
such type since the date of this Agreement, constitute less than 5% of the
number of
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shares owned as of the date of this Agreement by the Principal Stockholders and
the Included Transferees.
(3) The Transferors shall offer (the "Participation
Offer") to include in the proposed transfer: a number of shares of Common Stock
designated by each Designated Holder, not to exceed, in respect of any such
Designated Holder the number of shares of Common Stock equal to the product of
(x) the aggregate number of shares of Common Stock proposed to be transferred
pursuant to the Transferors' Notice and (y) a fraction, the numerator of which
is equal to the number of shares of Common Stock owned by such Designated
Holder and the denominator of which is the total number of shares of Common
Stock held by the Transferors and all holders (including the Designated Holder)
of Common Stock who are exercising tag-along rights in connection with such
transfer, in each case, as of the date of the Transferors' Notice. The
Participation Offer shall be conditioned upon the Transferors consummating a
transfer on the terms described in the Transferors' Notice (which they shall
not be obligated to do) to the transferee named in the Transferors' Notice.
(4) Any Designated Holder which does not accept the
Participation Offer by written notice to the Transferors within 5 business days
after such Designated Holder has received notice thereof shall be deemed to
have waived its rights under this Section 3 (for purposes only of the
particular transfer described in the Transferors' Notice), and the Transferors
and, if any Designated Holder accepts the Participation Offer, such Designated
Holder (the Transferors and each such accepting Securityholder being
hereinafter sometimes called "Sellers") may transfer the shares described in
the Transferors' Notice and the shares included by such Designated Holder
pursuant to the Participation Offer to the proposed transferee, in accordance
with the terms of such transfer set forth in the Transferors' Notice, so long
as such transfer occurs on or before the later of 90 days after the date the
Transferors' Notice was received by the other Designated Holder and the date
which is five days after the expiration or waiver of any applicable waiting
period to such proposed transfer pursuant to the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"). The price per share, form
of consideration and other terms and conditions for sales of Common Stock made
pursuant to this Section 3 shall be the same for the Transferors and each
Designated Holder accepting the Participation Offer; provided, however, that
any indemnification obligations of any Designated Holder which accepts the
Participation Offer shall be made severally, and not jointly, and shall, in any
event, be limited to a maximum amount equal to the net (pre-tax) proceeds
actually received by such Designated Holder in connection with the transfer
subject to the Participation Offer.
Section 4. Standstill.
(1) During such period as (x) Leven is Chairman, Chief
Executive Officer or President of the Company and (y) the Principal
Stockholders and
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their Included Transferees, in the aggregate, own at least one-half of the
shares of Common Stock owned by such Persons, in the aggregate, on the date
hereof, the Designated Holders each agree, without the prior written consent of
the Board of Directors of the Company specifically expressed in a resolution
adopted by a majority of the directors of the Company who are not Affiliates of
the Designated Holders, that the Designated Holders, acting either individually
or together, will not, and the Designated Holders will use their reasonable
best efforts to cause each of its Affiliates not to, directly or indirectly:
(1) acquire, announce an intention to acquire,
offer or propose to acquire, or agree to acquire (except, in any case,
by way of stock dividends or other distributions or offerings made
available to holders of any Common Stock generally, provided, that any
such securities shall be subject to the provisions hereof), directly
or indirectly, whether by purchase, tender or exchange offer, through
the acquisition of control of another Person (as hereinafter defined),
by joining a partnership, limited partnership, syndicate or other
"group" (within the meaning of Section 13(d)(3) of the Exchange Act)
or otherwise, any equity securities of the Company that would result
in such Designated Holder and its Affiliates, in the aggregate, owning
Voting Securities representing a greater amount of the voting power of
the Company than would be held by any Nonexcluded Person following
such transaction. "Nonexcluded Person" means any Person or "group"
(within the meaning of Section 13(d)(3) of the Exchange Act), other
than the Principal Stockholders, the Included Transferees or a "group"
which includes any of the Principal Stockholders or Included
Transferees;
(2) make, or in any way participate, directly
or indirectly, in any "solicitation" (as such term is used in the
proxy rules of the Commission as in effect on the date hereof) of
proxies or consents (whether or not relating to the election or
removal of directors), seek to advise, encourage or influence any
Person with respect to the voting of any Voting Securities, initiate,
propose or otherwise "solicit" (as such term is used in the proxy
rules of the Commission as in effect on the date hereof) stockholders
of the Company for the approval of stockholder proposals made pursuant
to Rule 14a-8 of the Exchange Act, or induce or attempt to induce any
other Person to initiate any such stockholder proposal;
(3) seek, propose, or make any statement
(whether written or oral) with respect to, any merger, consolidation,
business combination, tender or exchange offer, sale or purchase of
assets, sale or purchase of securities (except as and to the extent
specifically permitted hereby), dissolution, liquidation,
restructuring, recapitalization or similar transactions of or
involving the Company or any of its Affiliates or solicit or
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encourage any other person to make any such statement or proposal;
(4) form, join or in any way participate in a
"group" (within the meaning of Section 13(d)(3) of the Exchange Act)
with respect to any Voting Securities, other than groups consisting
solely of one or more of the Securityholders, directors of the
Company, other parties hereto and their respective Affiliates;
(5) deposit any Voting Securities in any voting
trust or subject any Voting Securities to any arrangement or agreement
with respect to the voting of any Voting Securities except a set forth
in Section 5 hereof;
(6) execute any written consent with respect to
the Company or its Voting Securities, except as set forth in Section 5
hereof;
(7) otherwise act, alone or in concert with
others, to control or seek to control or influence or seek to
influence the management, Board of Directors or policies of the
Company;
(8) seek, alone or in concert with others,
representation on the Board of Directors of the Company or seek the
removal of any member of the Board of Directors;
(9) make any publicly disclosed proposal or
enter into any discussion regarding any of the foregoing;
(10) make any proposal, statement or inquiry, or
disclose any intention, plan or arrangement (whether written or oral)
inconsistent with the foregoing, or make or disclose any request to
amend, waive or terminate any provision of this Agreement or the
Certificate of Incorporation or By-laws of the Company;
(11) have any discussions or communications or
enter into any arrangements, understandings or agreements (whether
written or oral) with, or advise, finance, assist or encourage, any
other Person in connection with any of the foregoing, or make any
investment in or enter into any arrangement with, any other Person
that engages, or offers or proposes to engage, in any of the
foregoing; or
(12) request the Company (or its directors,
officers, employees or agents), directly or indirectly, to amend or
waive any provisions of this Agreement or take any action which might
require the other party to make a public announcement regarding the
possibility of a merger,
58
consolidation, tender or exchange offer or other business combination
or extraordinary transaction.
(2) The Securityholders and their Affiliates may acquire
Voting Securities and other securities of the Company without regard to the
foregoing limitation if any of the following events shall occur: (A) a tender
or exchange offer is made by any Person or 13D Group (as hereinafter defined)
(other than an Affiliate of, or any Person acting in concert with, a
Securityholder or any of its Affiliates and other than a Principal Stockholder,
any Affiliate thereof or 13D Group including a Principal Stockholder), which
Person or 13D Group has the financial wherewithal to consummate such a
transaction, to acquire Voting Securities in an amount which, together with
Voting Securities (if any) already owned by such person or 13D Group, would
represent more than 50% of the total combined voting power of all Voting
Securities then outstanding or (B) it is publicly disclosed that Voting
Securities representing more than 50% of the total combined voting power of all
Voting Securities then outstanding have been acquired subsequent to the Closing
Date by an Person or 13D Group (other than the Securityholders or any of their
respective Affiliates and other than a Principal Stockholder, any Affiliate
thereof or 13D Group including a Principal Stockholder). As used herein, the
term "13D Group" shall mean any group of Persons formed for the purpose of
acquiring, holding, voting or disposing of Voting Securities which would be
required under Section 13(d) of the Exchange Act and the rules and regulations
thereunder (as now in effect) to file a statement on Schedule 13D with the
Securities and Exchange Commission as a "person" within the meaning of Section
13(d)(3) of the Exchange Act if such group beneficially owned Voting Securities
representing more than 5% of the total combined voting power of all Voting
Securities then outstanding.
(3) Nothing in this Section 4 shall prohibit any Person
who is serving as a director of the Company as contemplated by Section 7 of
this Agreement from, solely in his or her capacity as director, (a) taking any
action or making any statement at any meeting of the Board of Directors of the
Company or any committee thereof or (b) making any statement to any director,
officer or agent of the Company. In addition, nothing in this Section 4 shall
restrict any private communications between the Securityholders and any Person
designated by the Securityholders as a director, provided that all such
communications by such Person remain subject to the fiduciary duties of such
Person as a director.
(4) Notwithstanding anything contained in this Section
4, the Securityholders shall have the right in their sole discretion to vote
any Voting Securities owned by them as they shall determine in connection with
any Significant Event. "Significant Event" shall mean any event other than the
election of directors or appointment of auditors or approval of any stockholder
proposal made pursuant to Rule 14a-8 of the Exchange Act.
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(5) Except in connection with a transfer made pursuant
to Section 3, the Securityholders each agree that they shall not effect any
transfer of any of the Shares to any Person who such Securityholder believes,
after due inquiry, would, after giving effect to such transfer beneficially
own, together with its Affiliates, more than 5% of the total combined voting
power of all Voting Securities then outstanding unless it shall have obtained
prior to such transfer a written instrument from such transferee agreeing to be
bound by this Section 4, in form and substance satisfactory to the Company.
Section 5. Voting. The Designated Holders each agree
that so long as they or any of their respective Affiliates beneficially own any
Voting Securities, it will, and will cause its Affiliates to, (a) be present,
in person or represented by proxy, at all properly noticed annual and special
meetings of stockholders of the Company so that all Voting Securities
beneficially owned by such Securityholder and its Affiliates then entitled to
vote may be counted for the purpose of determining the presence of a quorum at
such meetings, (b) support each nominee on the slate of nominees proposed by
the Board of Directors of the Company and vote all Voting Securities which it
is then entitled to vote in favor of the election of each such nominee, and (c)
vote in accordance with the Board of Directors' recommendation on all
stockholder proposals made pursuant to Rule 14a-8 under the Exchange Act.
Section 6. Registration Rights.
(1) Incidental Registration.
(1) If the Company, at any time or
from time to time, (1) after the Lockup Period proposes to register
any of its shares of Common Stock for its own account under the
Securities Act (other than (i) a registration of an employee stock
ownership, stock option, stock purchase or other employee compensation
plan or arrangement adopted in the ordinary course of business on Form
S-8 (or any successor form), or any dividend reinvestment plan or (ii)
a registration of securities on Form S-4 (or any successor form),
including, without limitation, in connection with a proposed issuance
in exchange for securities or assets of, or in connection with a
merger or consolidation with, another corporation or (2) during the
Lockup Period so proposes to register any of its shares of Common
Stock and such Registration Statement also includes the registration
of shares of Common Stock owned by either or both of the Principal
Stockholders or their Included Transferees, then it will at each such
time give written notice (given at least 30 days prior to the proposed
filing date) describing the proposed registration and distribution to
each of the Designated Holders of its intention to do so and, upon the
written request of each of the Designated Holders, made within 30 days
after the receipt of any such notice (which request shall specify the
amount of Registrable
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Securities proposed to be sold by such Designated Holder and the intended
method of disposition thereof), the Company will, as provided in this Section
6, use its reasonable best efforts to effect the registration under the
Securities Act of all of the Registrable Securities that the Company has been
so requested to register by the Designated Holders, to the extent required to
permit the disposition (in accordance with the intended methods thereof as
aforesaid) of the Registrable Securities to be registered (each, an "Incidental
Registration"); provided, however, that if, at any time after giving written
notice of its intention to register any of its shares of Common Stock and prior
to the effective date of the Registration Statement filed in connection with
such Incidental Registration, the Company shall determine for any reason not to
register such shares of Common Stock, the Company may, at its election, give
written notice of such determination to each of the Designated Holders and,
thereupon, shall be relieved from its obligation to register any Registrable
Securities in connection with such Incidental Registration. In connection with
any Incidental Registration under this Section 6(a) involving an underwriter,
or a distribution with the assistance of a selling agent, the right of any
Designated Holder to participate in such Incidental Registration shall be
conditioned upon such Designated Holder's participation in such underwriting or
distribution on terms not less favorable than those available to other
stockholders participating therein.
(2) Notwithstanding anything to the contrary set forth
in Section 6(a), if a proposed Incidental Registration is for a registered
public offering involving an underwriting and the representative of the
underwriters advises the Company in writing that the registration of all or
part of the shares of Common Stock to be underwritten in such Incidental
Registration would adversely effect such offering, then the Company shall so
advise the Designated Holders and any other holders of shares of Common Stock
requesting registration in such Incidental Registration, and the number of
shares of Common Stock that are entitled to be included in the Incidental
Registration shall be allocated (i) first, to the Company for shares of Common
Stock being sold for its own account, (ii) second, among the Principal
Stockholders, the Designated Holders and any other holders of shares of Common
Stock entitled to "incidental" registration rights and requesting inclusion of
shares of Common Stock in such Incidental Registration, pro rata on the basis
of the number of shares of Common Stock requested to be included in such
Incidental Registration, and (iii) third, any other shares of Common Stock
requested to be included in such Incidental Registration.
(2) Demand Registrations.
(1) At any time after the expiration of the Lockup
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Period, the Designated Holders holding a majority of the then
Registrable Securities may request registration under the Securities
Act of all or any portion of their Registrable Securities in
accordance with the provisions of this Section 6(b). All registrations
requested pursuant to this Section 6(b) are referred to herein as
"Demand Registrations." Each request for a Demand Registration shall
specify the number of Registrable Securities requested to be
registered. Within ten days after receipt of any such request, the
Company shall give written notice of such requested registration to
all other holders of Registrable Securities and shall include in such
registration all Registrable Securities with respect to which the
Company has received written requests for inclusion therein within
fifteen (15) days after the receipt of the Company's notice.
(2) The Designated Holders of Registrable
Securities shall be entitled to request no more than three Demand
Registrations in accordance with this Section 6(b). The aggregate
offering value of the Registrable Securities requested to be
registered in any Demand Registration must, in the good faith judgment
of the holders thereof, equal at least $5,000,000. A registration
shall not count as one of the permitted Demand Registrations until it
has become effective (unless the holders of a majority of the
Registrable Securities included in such registration have agreed to
abandon such registration after a registration statement has been
filed with the Commission).
(3) If a Demand Registration is an underwritten
offering and the managing underwriters advise the Company in writing
that in their opinion the number of Registrable Securities and other
securities requested to be included in such offering exceeds the
number of Registrable Securities and other securities, if any, which
can be sold in an orderly manner in such offering within a price range
acceptable to the holders of a majority of the Registrable Securities
included in such registration, the Company shall include in such
registration prior to the inclusion of any securities which are not
Registrable Securities the number of Registrable Securities requested
to be included which in the opinion of such underwriters can be sold
in an orderly manner within the price range of such offering, pro rata
among the respective holders thereof on the basis of the amount of
securities requested to be included therein by each such holder.
(4) The Company shall not be obligated to
effect more than one Demand Registration in any twelve-month period,
and the Company shall not be obligated to effect any Demand
Registration within 60 days after the effective date of a previous
offering of Common Stock registered under the Securities Act. The
Company may postpone for up to 180 days the filing or the
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effectiveness of a registration statement for a Demand Registration if
the Company's board of directors determines in its reasonable good
faith judgment that such Demand Registration would reasonably be
expected to have a material adverse effect on any proposal or plan by
the Company or any of its subsidiaries to engage in any acquisition
(other than in the ordinary course of business) or any merger,
consolidation, tender offer, reorganization or similar transaction;
provided that (a) the Company may exercise its right to delay a Demand
Registration only once in any twelve-month period and (b) if a Demand
Registration is delayed hereunder, the holders of Registrable
Securities initially requesting such Demand Registration shall be
entitled to withdraw such request and, if such request is withdrawn,
such Demand Registration shall not count as one of the permitted
Demand Registrations hereunder and the Company shall pay all
Registration Expenses in connection with such registration.
Notwithstanding anything to the contrary in this Section 6(b)(iv), (x)
the Company may not prevent, delay or postpone any Demand Registration
and (y) the Securityholders shall not be subject to any lockup or
similar agreements following any Demand Registration for more than 270
days during any 360-day period.
(5) The Designated Holders shall have the right
to select the investment banker(s) and manager(s) to administer the
offering, subject to the approval of the Company in its sole
discretion.
(3) Expenses. The Company shall pay all Registration
Expenses in connection with any registration pursuant to this Section 6,
whether or not such registration becomes effective; provided, that all
underwriting discount and selling commissions applicable to the Registrable
Securities shall be borne by the holders selling such Registrable Securities,
in proportion to the number of Registrable Securities sold by each such holder;
provided further that, the Designated Holders that have requested to include
Registrable Securities that may, in the reasonable opinion of counsel to the
Company delivered to such Designated Holders, be distributed to the public
without limitation as to volume pursuant to Rule 144 (or any successor
provision of the Securities Act), in any Registration Statement that does not
also cover shares of Common Stock owned by any of the Principal Stockholders or
any of their Included Transferees, shall pay their pro rata portion of all
Registration Expenses incurred in connection with such offering.
(4) Holdback Agreements. Each of the Designated Holders
agrees not to effect any public sale or distribution of any Registrable
Securities being registered or of any securities convertible into or
exchangeable or exercisable for such Registrable Securities, including a sale
pursuant to Rule 144 under the Securities Act (i) during the 90 day period
beginning on the effective date of such Registration Statement (except as part
of such registration), in the case of a non-underwritten public
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offering, or (ii) during the reasonable period, if any, requested by the
underwriters, in the case of an underwritten public offering, provided, in each
case, that all directors of the Company, Principal Stockholders and other 5% or
greater beneficial owners of shares of the Common Stock of the Company (other
than institutional shareholders in respect of shares of Common Stock not
acquired directly from the Company) seeking to include shares of Common Stock
in such Registration Statement are similarly restricted.
(5) Seller Information. The Company may require each
seller of Registrable Securities as to which any registration is being effected
to furnish to the Company such information regarding the distribution of such
securities as the Company may from time to time reasonably request in writing
and as shall be required by law in connection therewith.
(6) Notice to Discontinue. Each Designated Holder of
Registrable Securities agrees that, upon receipt of any notice from the Company
of the happening of any event that causes the Registration Statement to include
an untrue statement of a material fact or to omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in light of the circumstances then existing, such Designated Holder
shall forthwith discontinue disposition of Registrable Securities pursuant to
the Registration Statement covering such Registrable Securities until such
Designated Holder's receipt of the copies of a supplemented or amended
prospectus and, if so directed by the Company, such Designated Holder shall
deliver to the Company all copies, of the prospectus covering such Registrable
Securities that is current at the time of receipt of such notice.
(7) Registration Procedures. Whenever the Designated
Holders of Registrable Securities have requested that any Registrable
Securities be registered pursuant to this Agreement, the Company shall use its
reasonable best efforts to effect the registration and the sale of such
Registrable Securities in accordance with the intended method of disposition
thereof, and pursuant thereto the Company shall as expeditiously as reasonably
practicable:
(1) prepare and file with the Commission within
90 days after the request or demand therefor a Registration Statement
with respect to such Registrable Securities and use its reasonable
best efforts to cause such Registration Statement to become effective
(provided that before filing a Registration Statement or prospectus or
any amendments or supplements thereto, the Company shall furnish to
the counsel selected by the holders of a majority of the Registrable
Securities covered by such Registration Statement copies of all such
documents proposed to be filed);
(2) notify each holder of Registrable
Securities of the
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effectiveness of each Registration Statement filed hereunder and
prepare and file with the Securities and Exchange Commission such
amendments and supplements to such Registration Statement and the
prospectus used in connection therewith as may be necessary to keep
such Registration Statement effective for a period of not less than
180 days and comply with the provisions of the Securities Act with
respect to the disposition of all securities covered by such
Registration Statement during such period in accordance with the
intended methods of disposition by the sellers thereof set forth in
such Registration Statement;
(3) furnish to each seller of Registrable
Securities such number of copies of such Registration Statement, each
amendment and supplement thereto, the prospectus included in such
Registration Statement (including each pre liminary prospectus) and
such other documents as such seller may reasonably request in order to
facilitate the disposition of the Registrable Securities owned by such
seller;
(4) use its reasonable best efforts to register
or qualify such Registrable Securities under such other securities or
blue sky laws of such jurisdictions as any seller reasonably requests
and do any and all other acts and things which may be reasonably
necessary or advisable to enable such seller to consummate the
disposition in such jurisdictions of the Registrable Securities owned
by such seller (provided that the Company shall not be required to (a)
qualify generally to do business in any jurisdiction where it would
not otherwise be required to qualify but for this subparagraph, (b)
subject itself to taxation in any such jurisdiction or (c) consent to
general service of process in any such jurisdiction);
(5) notify each seller of such Registrable
Securities, at any time when a prospectus relating thereto is required
to be delivered under the Securities Act, of the happening of any
event as a result of which the prospectus included in such
Registration Statement contains an untrue statement of a material fact
or omits any fact necessary to make the statements therein not
misleading, and, at the request of any such seller, the Company shall
prepare a supplement or amendment to such prospectus so that, as
thereafter delivered to the purchasers of such Registrable Securities,
such prospectus shall not contain an untrue statement of a material
fact or omit to state any fact necessary to make the statements
therein not misleading;
(6) cause all such Registrable Securities to be
listed on each securities exchange on which similar securities issued
by the Company are then listed and, if not so listed, to be listed on
the NASD automated quotation system and, if listed on the NASD
automated quotation system, use its
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reasonable best efforts to secure designation of all such Registrable
Securities covered by such Registration Statement as a NASDAQ
"national market system security" within the meaning of Rule llAa2-1
of the Commission or, failing that, to secure NASDAQ authorization for
such Registrable Securities;
(7) provide a transfer agent and registrar for
all such Registrable Securities not later than the effective date of
such Registration Statement;
(8) enter into such customary agreements
(including underwriting agreements in customary form) and take all
such other actions as the holders of a majority of the Registrable
Securities being sold or the underwriters, if any, reasonably request
in order to expedite or facilitate the disposition of such Registrable
Securities;
(9) make available for inspection by any seller
of Registrable Securities, any underwriter participating in any
disposition pursuant to such Registration Statement and any attorney,
accountant or other agent retained by any such seller or underwriter,
all financial and other records, pertinent corporate documents and
properties of the Company, and cause the Company's officers,
directors, employees and independent accountants to supply all
information reasonably requested by any such seller, underwriter,
attorney, accountant or other agent in connection with such
Registration Statement;
(10) cause its employees to participate in "road
shows" and other presentations as reasonably requested by the
underwriters in connection with any registered offering; and
(11) otherwise use its reasonable best efforts
to comply with all applicable rules and regulations of the Securities
and Exchange Commission, and make available to its security holders,
as soon as reasonably practicable, an earnings statement covering the
period of at least twelve months beginning with the first day of the
Company's first full calendar quarter after the effective date of the
Registration Statement, which earnings statement shall satisfy the
provisions of Section 11(a) of the Securities Act and Rule 158
thereunder.
(8) Indemnification; Contribution.
(1) In the event of any registration of any
Registrable Securities pursuant to the terms of Section 6, the Company
will indemnify and hold harmless, to the fullest extent permitted by
law, each of the Designated
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Holders and their respective Affiliates, directors, officers, partners,
trustees, employees, legal counsel, accountants, financial advisors and agents,
and each other Person, if any, who controls (within the meaning of the
Securities Act and the Exchange Act) such Designated Holder or any such
directors, officers, partners, trustees, employees, legal counsel, accountants,
financial advisors and agents (each of the foregoing, a "designated indemnified
party") against any and all losses, claims, damages, liabilities and expenses
(including reasonable costs of investigation), joint or several, to which such
designated indemnified party may become subject under the Securities Act or
otherwise, insofar as such losses, claims, damages, liabilities or expenses (or
actions or proceedings in respect thereof) arise out of or are based upon (x)
any untrue statement or alleged untrue statement of any material fact or (y)
any omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading
contained in any Registration Statement under which such Registrable Securities
were registered under the Securities Act, provided, however, that the Company
shall not be liable in any such case to the extent that any such loss, claim,
damage or liability (or actions or proceedings in respect thereof) arises out
of or is based upon (x) any untrue statement of any material fact or (y) any
omission to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in such Registration Statement, or
amendment or supplement thereto, in reliance upon and in conformity with
written information concerning such Designated Holder and furnished to the
Company for use in the preparation thereof.
(2) The Company may require, as a condition to including
any Registrable Securities in any Registration Statement filed pursuant to
Section 6, that the Company shall have received an undertaking from each
Designated Holder selling such Registrable Securities, severally and not
jointly, to indemnify and hold harmless the Company, its directors, officers,
legal counsel, accountants and financial advisors and each other Person, if
any, who controls (within the meaning of the Securities Act and the Exchange
Act) the Company or any such directors, officers, legal counsel, accountants
and financial advisors (each of the foregoing, a "Company Indemnified Party")
against any losses, claims, damages, liabilities or expenses, joint or several,
to which such Company Indemnified Party may become subject under the Securities
Act or otherwise, insofar as such losses, claims, damages, liabilities or
expenses (or actions or proceedings in respect thereof) arise out of or are
based upon (x) any untrue statement or alleged untrue statement of a material
fact or (y) any omission or alleged omission to state a material fact required
to be stated therein or necessary to make the statements therein not misleading
contained in any Registration Statement under which such Registrable Securities
were registered under the Securities Act or any amendment or supplement
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thereto, if such statement or omission was made in reliance upon and
in conformity with written information concerning such Designated
Holder and furnished to the Company; provided, in each instance, that
any Designated Holder's maximum liability in respect of such
indemnification obligations shall be limited to the amount of net
(pre-tax) proceeds actually received by such Designated Holder
pursuant to the sale of such Registrable Securities.
(3) Promptly after receipt by any designated Indemnified
Party or Company Indemnified Party (each, an "Indemnified Party") of
notice of the commencement of any action, suit, proceeding or
investigation or threatened thereof in writing for which the
Indemnified Party intends to claim indemnification or contribution
pursuant to this Agreement, such Indemnified Party will give written
notice thereof to the Indemnifying Party; provided, however, that the
failure of any Indemnified Party to give notice as provided herein
shall not relieve the Indemnifying Party of its obligations under this
Agreement, except to the extent that the Indemnifying Party is
actually prejudiced by such failure to give notice. If notice of
commencement of any such action is brought against an Indemnified
Party, the Indemnifying Party may, at its expense, participate in and
assume the defense thereof, with counsel reasonably satisfactory to
such Indemnified Party. The Indemnified Party shall have the right to
employ separate counsel in any such action and participate in the
defense thereof, but the fees and expenses of such counsel shall be
paid by the Indemnified Party unless (i) the Indemnifying Party agrees
to pay the same, (ii) the Indemnifying Party fails to assume the
defense of such action with counsel satisfactory to the Indemnified
Party in its reasonable judgment or (iii) the named parties to any
such action (including any impleaded parties) have been advised by
such counsel in writing that either (x) representation of such
Indemnified Party and the Indemnifying Party by the same counsel would
be inappropriate under applicable standards of professional conduct or
(y) there may be one or more legal defenses available to the
Indemnified Party which are different from or additional to those
available to the Indemnifying Party. In no event shall the
Indemnifying Party be responsible for the fees of more than one
counsel (in addition to local counsel) for all Indemnified Parties. No
Indemnifying Party or Indemnified Party shall consent to entry of any
judgment or enter into any settlement without the written consent of
the other.
(9) If the indemnification provided for in this Section
6 from the Indemnifying Party is unavailable to an Indemnified Party hereunder
in respect of any losses, claims, damages, liabilities or expenses referred to
therein, then the Indemnifying Party, in lieu of indemnifying such Indemnified
Party, shall contribute to the amount paid or payable by such Indemnified Party
as a result of such losses, claims, damages, liabilities or expenses in such
proportion as is appropriate to reflect
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the relative fault of the Indemnifying Party and Indemnified Party in
connection with the actions which resulted in such losses, claims, damages,
liabilities or expenses, as well as any other relevant equitable
considerations. The relative faults of such Indemnifying Party and Indemnified
Party shall be determined by reference to, among other things, whether any
action in question, including any untrue or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact, has
been made by, or relates to information supplied by, such Indemnifying Party or
Indemnified Party, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such action. The amount paid
or payable by a party as a result of the losses, claims, damages, liabilities
and expenses referred to above shall be deemed to include any legal or other
fees, charges or expenses reasonably incurred by such party in connection with
any investigation or proceeding.
The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 6 were determined by pro
rata allocation or by any other method of allocation that does not take account
of the equitable considerations referred to in the immediately preceding
paragraph. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any Person.
Section 7. Board Representation.
(1) On the Closing Date, Mr. Doug Geoga shall be elected
as a director of the Company by the Company's Board of Directors. Subject to
its fiduciary duties, the Company's Board of Directors will nominate Mr. Geoga
(or, if Mr. Geoga is unable or unwilling to serve, a successor as contemplated
by this Section 7) for election at each meeting (or in each action by written
consent in lieu of a meeting) of stockholders of the Company for the election
of directors during the term of this Agreement so long as the Securityholders
and/or their Affiliates beneficially own (as such term is defined in Rule 13d-3
of the Exchange Act) more than 1.1 million shares of Common Stock (as such
number of shares of Common Stock shall be adjusted to take into account any
stock splits, reverse stock splits, reclassifications and other similar
transactions or adjustments).
(2) If Mr. Doug Geoga (or such a successor) is no longer
a director of the Company as contemplated by paragraph (a) of this Section 7,
the Securityholders may propose to the Company as a nominee for election as a
director of the Company a person who (i) has recognized standing in the
business community, (ii) is not a former director, officer or employee of the
Company, (iii) does not have a conflict of interest with the Company and (iv)
is at such time either the President of Hyatt Hotels Corp. or a person who is
otherwise reasonably acceptable to USFS.
(3) The Company will use its best efforts to cause Mr.
Doug
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Geoga or any successor nominated as provided in this Section 7 to be elected by
the stockholders of the Company and will solicit proxies in favor of Mr. Geoga
or any such successor at each meeting (or in each action by written consent in
lieu of a meeting) of stockholders of the Company.
(4) If the Company does not accept a Securityholders'
designee as provided in paragraph (b) of this Section 7, the process set forth
therein shall be repeated so long as reasonably appropriate to find a successor
candidate acceptable to both Securityholders and the Company.
Section 8. Notification as to Certain Matters. Each
Designated Holder shall notify the Company of any change in such Designated
Holder's beneficial ownership of shares of Voting Securities not later than two
business days after such change and from time to time, upon request, shall
notify the Company of the number of shares of Voting Securities beneficially
owned by such Designated Holder and of the names and addresses of all
Affiliates to whom such Designated Holder shall have transferred shares in
accordance with Section 2(b)(i).
Section 9. Representations and Warranties.
(1) Each Securityholder, severally and not
jointly, represents and warrants to the other parties hereto as follows:
(i) Such Securityholder has full
right, power and authority to enter into this Agreement and consummate
the transactions contemplated hereby. This Agreement has been duly
authorized, executed and delivered by such Securityholder and
constitutes the legal, valid and binding obligation of such
Securityholder, enforceable against such Securityholder in accordance
with its terms, except that such enforcement may be limited by
bankruptcy, fraudulent conveyance, fraudulent transfer, insolvency,
reorganization, liquidation, conservatorship, moratorium and other
similar laws relating to or affecting creditors' rights or the
collection of debtors' obligations generally and any general equitable
principles (regardless of whether enforcement is considered in a
proceeding in equity or at law) and the discretion of any court before
which any proceedings therefor may be brought.
(ii) The execution, delivery and
performance by such Securityholder of this Agreement and the
consummation of the transactions contemplated hereby do not and will
not conflict with or result in any breach or violation of any material
agreement to which such Securityholder is a party or is otherwise
bound or subject and do not and will not result in any material
violation of the organizational documents of such Securityholder or
any statute, order, rule or regulation of any court or governmental
agency or body having
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jurisdiction over such Securityholder or any of its properties.
(2) The Company represents and warrants to the
other parties as follows:
(i) The Company has all requisite
corporate power and authority to enter into this Agreement and
consummate the transactions contemplated hereby. This Agreement has
been duly authorized, executed and delivered by the Company and
constitutes a legal, valid and binding obligation of the Company
enforceable against it in accordance with its terms, except that such
enforcement may be limited by bankruptcy, fraudulent conveyance,
fraudulent transfer, insolvency, reorganization, liquidation,
conservatorship, moratorium and other similar laws relating to or
affecting creditors' rights or the collection of debtors' obligations
generally and any general equitable principles (regardless of whether
an enforcement is considered in a proceeding in equity or at law) and
the discretion of any court before which any proceedings therefor may
be brought.
(ii) The execution, delivery and
performance by the Company of this Agreement do not and will not
conflict with or result in a breach or violation of any agreement to
which the Company is bound or subject and do not and will not result
in any violation of the Certificate of Incorporation or Bylaws of the
Company or any statute, order, rule or regulation of any court or
governmental agency or body having jurisdiction over the Company or
any of its properties.
(3) Leven and Aronson, severally and not
jointly, each represents and warrants to the other parties as follows:
(i) He has the full right, capacity
and authority to enter into this Agreement. This Agreement has been
duly authorized, executed and delivered by such Person and constitutes
the legal, valid and binding obligation of such Person enforceable
against him in accordance with its terms, except that such enforcement
may be limited by bankruptcy, fraudulent conveyance, fraudulent
transfer, insolvency, reorganization, liquidation, conservatorship,
moratorium and other similar laws relating to or affecting creditors'
rights or the collection of debtors' obligations generally and any
general equitable principles (regardless of whether enforcement is
considered in a proceeding in equity or at law) and the discretion of
any court before which any proceedings therefor may be brought.
(ii) The execution, delivery and
performance by such Persons do not and will not conflict with or
result in a breach or violation of
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any agreement to which such Person is bound or subject and do not and
will not result in any violation of any statute, order, rule or
regulation of any court or governmental agency or body having
jurisdiction over such Person.
Section 10. Miscellaneous.
(1) Recapitalizations, Exchanges, etc. The
provisions of this Agreement shall apply, to the full extent set forth herein,
with respect to (i) the shares of Common Stock and (ii) any and all equity
securities of the Company or any successor or assign of the Company (whether by
merger, consolidation, sale of assets or otherwise), which may be issued in
respect of, in conversion of, in exchange for or in substitution of, the shares
of Common Stock, and shall be appropriately adjusted for any stock dividends,
splits, reverse splits, combinations, recapitalizations and the like occurring
after the date hereof.
(2) No Inconsistent Agreements. The Company
shall not enter into any agreement with respect to its securities that is
inconsistent with the registration rights granted in this Agreement.
(3) Successors and Assigns; Third Party
Beneficiaries. This Agreement shall inure to the benefit of and be binding upon
the successors and permitted assigns of each of the parties hereto. Except as
specifically provided herein, this Agreement is not assignable by any of the
parties.
(4) Specific Performance. Each of the parties
hereto acknowledges that the other parties would not have an adequate remedy at
law for money damages if any of the covenants or agreements of the parties in
this Agreement were not performed in accordance with its terms and therefore
agrees that the other party(ies) shall be entitled to specific enforcement of
such covenants or agreements and to injunctive and other equitable relief in
addition to any other remedy to which it may be entitled, at law or in equity.
(5) Survival of Representations and Warranties.
The representations, warranties, covenants and agreements contained in this
Agreement shall survive the execution of this Agreement and any investigation
at any time by the Securityholders, the Company, or on behalf of either
thereof.
(6) Entire Agreement. This Agreement, together
with the Merger Agreement and the Contribution Agreement, contains the entire
understandings of the parties with respect to the subject matter of such
agreements. This Agreement may not be amended except by a writing signed by all
of the Company, Leven, Aronson and record holders of a majority of the Shares.
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(7) Severability. If any terms, provision,
covenant or restriction of this Agreement is held by a court of competent
jurisdiction to be invalid, void or unenforceable, the remainder of the terms,
provisions, covenants and restriction of this Agreement shall remain in full
force and effect, unless such action would substantially impair the benefits to
either party of the remaining provisions of this Agreement.
(8) Notices. Any notices and other
communications required to be given pursuant to this Agreement shall be
delivered by hand, by registered or certified mail, postage prepaid, return
receipt requested, by private courier, by facsimile or by telex, as follows:
If to the Company, Leven or Aronson:
U.S. Franchise Systems, Inc.
13 Corporate Square, Suite 250
Atlanta, Georgia 30329
Attention: Neal K. Aronson
Telecopier: (404) 235-7448
With copies to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Attention: Paul D. Ginsberg, Esq.
Telecopier: (212) 757-3990
If to the Securityholders:
c/o HSA Properties, Inc.
200 West Madison Street
Suite 3800
Chicago, Illinois 60606
Attention: Harold S. Handelsman, Esq.
Telecopier: (312) 750-8545
with copies to:
Neal, Gerber & Eisenberg
Two North LaSalle Street
Suite 2200
Chicago, Illinois 60602
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27
Attention: Michael A. Pucker, Esq.
Telecopier: (312) 269-1747
(9) Governing Law. This Agreement shall be
governed by and construed in accordance with the laws of the State of Delaware.
(10) Counterparts. This Agreement may be
executed in one or more counterparts, which together will constitute a single
agreement.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered as of the date first above written.
HAWTHORN SUITES ASSOCIATES
By: Meridian Associates, L.P., its
managing venturer
By: Meridian Investments, Inc., its
general partner
By:
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Name:
Title:
HSA PROPERTIES, INC.
By:
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Name:
Title:
U.S. FRANCHISE SYSTEMS, INC.
By:
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Name:
Title:
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Michael A. Leven
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Neal K. Aronson