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EXHIBIT 99.2
CONTRIBUTION AGREEMENT
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EXECUTION COPY
CONTRIBUTION AGREEMENT
THIS CONTRIBUTION AGREEMENT (this "AGREEMENT"), dated as of
December 9, 1997, by and among Hawthorn Suites Associates, an Illinois joint
venture ("HSA"), HSA Properties, Inc., a Delaware corporation ("HPI," and
together with HSA, the "ASSIGNORS"), USFS Hawthorn, Inc., a Delaware corporation
(the "COMPANY"), and U.S. Franchise Systems, Inc., a Delaware corporation
("USFS").
WHEREAS, HSA owns a 98% percentage interest (the "HSA
INTEREST"), and HPI owns a 1% percentage interest (the "HPI INTEREST" and
together with the HSA Interest collectively, the "EQUITY INTERESTS"), in HSA
Properties, L.L.C., a Delaware limited liability company ("HSA LLC"); and
WHEREAS, in order to induce the Company and USFS to enter into
the Agreement and Plan of Merger (the "MERGER AGREEMENT"), dated as of the date
hereof, by and between USFS and the Company, the Assignors are entering into
this Agreement pursuant to which the Assignors and the Company will consummate
the transactions contemplated hereby immediately prior to the Effective Time of
the Merger (each as defined in the Merger Agreement), on the terms and
conditions set forth herein.
NOW THEREFORE, in consideration of good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties agree as follows:
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SECTION I
DEFINED TERMS
I.1 Defined Terms. Except as otherwise herein expressly
provided, defined terms when used in this Agreement shall have the meanings set
forth in Section 8.1.
SECTION II
CONTRIBUTION AND ISSUANCE; CLOSING
II.1 Contribution. Upon the terms and subject to the
conditions set forth herein, on the Closing Date (as defined in Section 2.4),
each of the Assignors shall sell, assign, transfer, convey, grant and set over
to the Company all of its rights, title and interest in and to the Equity
Interests, free and clear of all liens, encumbrances and claims (collectively,
"LIENS"), including, without limitation, all of the Assignors' rights to receive
allocations of income, gain, loss, deduction, credit and similar items and
distributions by reason of the Assignors' interest in HSA LLC in respect of all
periods subsequent to the Closing Date (it being agreed that the Assignors shall
receive and be entitled to distribute all allocations of income, gain, loss,
deduction, credit and similar items and distributions of HSA LLC to which they
are otherwise entitled through the Closing Date), as well as all of the
Assignors' rights as members in HSA LLC, with the intent that on the Closing
Date the Company shall become a member in HSA LLC, to the extent of the Equity
Interests conveyed.
II.2 Assumption. Upon the terms and subject to the conditions
set forth herein, on the Closing Date the Company shall accept, assume, take
over and
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succeed to all of the Assignors' rights, title and interest in and to the Equity
Interests and shall assume and agree to perform and discharge in full, when due,
all of the obligations and commitments of the Assignors related thereto pursuant
to the terms of the Operating Agreement of HSA Properties, L.L.C., dated as of
March 27, 1996 ("HSA LLC AGREEMENT"), in the form previously delivered to the
parties hereto, or otherwise and to be bound by all of the provisions of the HSA
LLC Agreement.
II.3 Subscription. Upon the terms and subject to the
conditions set forth herein, and in consideration for the Equity Interests, on
the Closing Date the Company shall issue to the Assignors an aggregate of
2,222,222 shares of Class A common stock, par value $.01 per share (the "CLASS A
STOCK"), of the Company to be allocated between the Assignors as specified on
Schedule 1 hereto. Such shares of Class A Stock shall be issued on the Closing
Date and when issued shall be duly authorized, validly issued, fully paid and
non-assessable and the certificates therefor shall so state.
II.4 Closing. The closing of the transactions contemplated by
this Section 2 (the "CLOSING") shall take place on the day of (the "CLOSING
DATE"), and immediately prior to, the Effective Time of the Merger at the
offices of Paul, Weiss, Rifkind, Wharton & Garrison, 1285 Avenue of the
Americas, New York, New York. At the Closing, in addition to the other
deliveries specified in this Agreement, each Assignor shall deliver to the
Company such good and sufficient instruments of conveyance and assignment as the
Company and its counsel shall deem reasonably necessary or appropriate to vest
in the Company good title in and to the Equity Interests, respectively owned by
each such Assignor, free and clear of all Liens.
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SECTION III
REPRESENTATIONS AND WARRANTIES
III.1 Representations and Warranties of the Company and USFS.
The Company and USFS, severally and jointly, represent and warrant to the
Assignors that:
(a) Merger Agreement. The representations and
warranties contained in Articles 3 and 4 of the Merger Agreement are true and
correct.
(b) Due Authorization and Validity. Each of the
Company and USFS 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 each of the
Company and USFS and constitutes the legal, valid and binding obligation of each
of the Company and USFS enforceable against the Company and USFS, respectively,
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.
(c) Non-Contravention. The execution, delivery
and performance by each of the Company and USFS of this Agreement and the
issuance by the Company of the shares of Class A Stock pursuant hereto do not
and will not conflict with or result in a breach or violation of any agreement
to which the Company or USFS is a party or is otherwise bound or subject and do
not and will not result in
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any violation of the Certificate of Incorporation or By-laws of the Company or
USFS or any statute, order, rule or regulation of any foreign, federal, state,
municipal or other court, commission or governmental agency or body (each, a
"Governmental Authority") having jurisdiction over the Company or USFS or any of
their respective properties.
(d) Shares Issued Free and Clear of Liens. All
of the shares of Class A Stock to be issued to each Assignor pursuant to this
Agreement shall be duly authorized, validly issued, fully paid and
nonassessable, and issued free and clear of any Liens.
(e) Due Incorporation. Each of the Company and
USFS is a corporation duly incorporated and validly existing in good standing
under the laws of the State of Delaware.
(f) Certificate of Incorporation and By-Laws of
the Company. Each of the Certificate of Incorporation and By-Laws of the
Company is in full force and effect in the form previously delivered to the
Assignors and has not been amended, modified, revoked or rescinded since the
date thereof.
(g) Capitalization of the Company; Subsidiaries.
The authorized capital stock of the Company consists of 30,000,000 shares of
Class A Stock, of which, as of the date hereof, 1,000 shares are issued and
outstanding, and 5,000,000 shares of Class B common stock, par value $.01 per
share (the "Class B Stock"), of which, as of the date hereof, no shares are
issued and outstanding, and 1,000,000 shares of Preferred Stock, par value $.01
per share (the "Preferred Stock"
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and together with the Class A Stock and the Class B Stock, the "Company Stock"),
of which, as of the date hereof, no shares are issued and outstanding. As of the
date hereof, Neal K. Aronson is the sole record and beneficial owner of all of
the issued and outstanding shares of Class A Stock. All of the issued and
outstanding shares of Common Stock have been duly authorized, are validly
issued, fully paid and nonassessable, are not subject to, nor were they issued
in violation of, any preemptive rights. Except for this Agreement and the Merger
Agreement, as of the date hereof, there are no outstanding or authorized
options, warrants, rights, contracts, calls, puts, rights to subscribe,
conversion rights or other agreements or commitments to which the Company is a
party or which are binding on the Company providing for the issuance,
disposition or acquisition of any shares of its capital stock. As of the date
hereof, there are no outstanding or authorized stock appreciation, phantom stock
or similar rights with respect to the Company. As of the date hereof, there are
no voting trusts, proxies or any other agreements or understandings with respect
to the voting of the capital stock of the Company. Except for the redemption at
$.01 per share of the 1,000 shares of Class A Stock owned by Neal K. Aronson to
occur at the Closing, the Company is not subject to any obligation (contingent
or otherwise) to repurchase or otherwise acquire or retire any shares of its
capital stock. The Company does not own or hold, directly or indirectly, any
shares of capital stock, partnership or membership interests, or other ownership
of any entity.
(h) Liabilities. The Company does not have any
direct or indirect indebtedness, liability, claim, loss, damage, deficiency,
obligation or responsibility, fixed or unfixed, choate or inchoate, liquidated
or unliquidated, secured
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or unsecured, accrued, absolute, contingent or otherwise.
III.2 Representations and Warranties of Assignors. Subject to
Section 3.3, each Assignor hereby represents and warrants, severally and
jointly, to the Company and USFS that:
(a) Due Organization. It is an organization
duly organized and validly existing in good standing under the laws of its
jurisdiction of organization.
(b) Due Authorization and Validity. Such
Assignor 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 Assignor and constitutes the legal,
valid and binding obligation of such Assignor, enforceable against such Assignor
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.
(c) Non-Contravention. The execution, delivery
and performance by such Assignor 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 agreement to which such Assignor is a party or is
otherwise bound or subject and do not and will not result in any violation of
the organizational documents of such Assignor or any statute, order, rule or
regulation of any
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Governmental Authority having jurisdiction over such Assignor or any of its
properties.
(d) Title to Equity Interests. Such Assignor
is the legal, beneficial and record owner of the Equity Interests opposite its
name on Schedule 1, free and clear of any Liens.
(e) Due Formation of HSA LLC. HSA LLC is a
limited liability company, duly formed, validly existing and in good standing
under the laws of the State of Delaware and has full right, power and authority
to own and license the Hawthorn Brand. HSA LLC, at the time of the Master
Franchise Agreement, had the full right, power and authority to execute, deliver
and perform the Existing Licenses and the assignment thereof to USFS. The
authorized and issued and outstanding limited liability company interests of HSA
LLC are as described on Schedule 2 hereto.
(f) Investment. Such Assignor or such
Assignor's representatives has had an opportunity to ask questions of and
receive answers from officers of the Company and USFS, or a person or persons
acting on their behalf, concerning the terms and conditions of this investment.
Such Assignor is an "accredited investor" as such term is defined in Regulation
501 promulgated under the Securities Act of 1933, as amended (the "ACT"), and
has such knowledge and experience in financial and business matters to evaluate
the risks of investment in the Company. The shares of Class A Stock are being
acquired by such Assignor for the Assignor's own benefit and account for
investment and not with a view to, or for resale
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in connection with, a public offering or distribution. Such Assignor
acknowledges that such Assignor has been advised that the shares being acquired
by it hereunder have not been registered under the Act and, accordingly, that
such Assignor may not be able to sell or otherwise dispose of such shares when
such Assignor wishes to do so. Such Assignor agrees that such shares will not be
resold (a) without registration thereof under the Act (unless an exemption from
such registration is available) or (b) in violation of any law; and the
certificate or certificates representing such shares may be endorsed with a
legend indicating that such shares are not registered under the Act and reciting
that transfer thereof is restricted.
(g) Intellectual Property.
(1) To the Knowledge of the Assignors,
HSA LLC owns or is exclusively licensed or otherwise has the exclusive right to
use, practice, sell, license and dispose of, without restriction, all
Intellectual Property reasonably necessary for the operation of the business
relating to the Hawthorn System as conducted on the date of the Master Franchise
Agreement, without violation or infringement of any rights of HSA LLC, the
Assignors or USFS.
(2) Schedule 3.2(g)(2) hereto sets forth
all Trademarks, Patents and Copyrights which, to the Knowledge of the Assignors,
are owned by HSA LLC and used by HSA LLC in connection with the Hawthorn System
which Schedule 3.2(g)(2) specifies, as to each item of Trademark, Patent or
Copyright: (w) the nature of the item, including the title or description; (x)
the jurisdictions by or in which the item is, to Knowledge of the Assignors,
issued or registered, or in which an application for issuance or registration
has been filed, including the respective
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registration or application numbers; (y) the issue date and expiration date of
the item, and (z) with respect to each Trademark, the class or classes of goods
or services on which such Trademark is or is intended to be used.
(3) Schedule 3.2(g)(3) sets forth all
licenses, sublicenses and other agreements ("IP LICENSES") under which HSA LLC
is a licensee or otherwise is authorized to use or practice any Intellectual
Property and all IP Licenses under which HSA LLC is a licensor or otherwise
authorizes any Person to use or practice Intellectual Property, other than the
Master Franchise Agreement.
(4) To the Knowledge of the Assignors,
HSA LLC possesses all right, title and interest in and to the Intellectual
Property, free and clear of any lien or other restriction (other than the Master
Franchise Agreement and the IP Licenses), and has received no notice from any
third party to the contrary.
(5) To the Knowledge of the Assignors,
HSA LLC is not, and, as a result of the execution and delivery of this Agreement
or the performance of its obligations hereunder and subsequent to the completion
of the transactions contemplated herein, will not be, in violation of, and will
not lose any rights pursuant to, any instrument or agreement governing
Intellectual Property. Each IP License is now, to the Knowledge of the
Assignors, valid and enforceable and in full force and effect (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
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at law) and the discretion of any court before which any proceedings therefor
may be brought) and will continue to be so on identical terms following the
execution and delivery of this Agreement, in accordance with the terms of each
such IP License.
(6) To the Knowledge of the Assignors,
no other party is in breach or default under any IP License in any material
respect, nor does any condition exist which with notice or lapse of time or both
would constitute a material breach or default by any such third party, or permit
termination, modification or acceleration thereunder, and no such third party
has repudiated any provision thereof. HSA LLC has not received from any third
party any notice, and has no actual knowledge of the existence of, any breach or
default under any IP License in any material respect, nor, to the Knowledge of
the Assignors, does any condition exist which with notice or the lapse of time
or both would constitute a material breach or default by HSA LLC or permit
termination, modification or acceleration thereunder, or give rise to a right of
repudiation, by any other party to any such IP License.
(7) No litigation is pending or, to the
Knowledge of the Assignors, threatened that challenges the validity,
enforceability, ownership or right to use, sell, license or dispose of any item
of Intellectual Property, and no item of Intellectual Property is subject to any
outstanding order, ruling, judgment, decree, stipulation, charge or agreement
(other than the Master Franchise Agreement) restricting in any manner the use or
licensing thereof by HSA LLC or the sublicensing thereof by USFS.
(8) HSA LLC has received no notice of
any claim, charge, complaint, demand or notice alleging any infringement upon or
other violation
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of the intellectual property rights of third parties, and, to the Knowledge of
the Assignors, no basis for any such claim exists. To the Knowledge of the
Assignors, the use of the Intellectual Property by USFS in the manner
contemplated by the Master Franchise Agreement will not infringe upon or
otherwise violate any intellectual property right of third parties.
(9) To the Knowledge of the Assignors,
no third party is infringing upon or otherwise violating any of its rights to
the Intellectual Property.
(10) "Intellectual Property" shall mean
each of the following, except, in each case, to the extent such description
refers to commercially available "canned" or off-the-shelf software:
(1) United States and foreign
trademarks, service marks, trade names, brand names, trade dress,
designs and logos, and product or service identifiers, whether
registered or unregistered, and all registrations and applications for
registration thereof, that were, as of the date of the Master Franchise
Agreement, and that are as, of the date hereof, used by HSA LLC in
connection with the Hawthorn System (the "Trademarks");
(2) Patents and patent
applications throughout the world that were, as of the date of the
Master Franchise Agreement, and that are, as of the date hereof,
actually used by HSA LLC in connection with the Hawthorn System (the
"PATENTS");
(3) Copyrights, registered or
unregistered, throughout the world that were, as of the date of the
Master Franchise Agreement and that are, as of the date hereof,
actually used by HSA LLC in
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connection with the Hawthorn System (the "COPYRIGHTS");
(4) Trade secrets (if any)
actually used by HSA LLC in connection with the Hawthorn System and
other confidential and proprietary intellectual property information in
the possession of HSA LLC concerning the Hawthorn System that is not
generally available to the public and that is treated as confidential
or proprietary by HSA LLC (excluding information regarding financial
performance and employees);
(5) Computer software programs,
source code, object code, date and documentation to the extent owned by
HSA LLC that were, as of the date of the Master Franchise Agreement,
and that are, as of the date hereof, actually used in connection with
the Hawthorn System;
(6) All transferable permits,
grants and licenses or other rights running to or from HSA LLC relating
to any of the foregoing; and
(7) Any other similar
intellectual property rights actually used in connection with the
Hawthorn Brand.
(h) Non-Contravention of HSA LLC. Except as set
forth on Schedule 3.2(h), neither the execution and delivery of this Agreement
by the Assignors or any other agreement or instrument contemplated hereby, nor
the consummation of the transactions contemplated hereby, nor the performance of
this Agreement or any other agreement or instrument contemplated hereby in
accordance with their respective terms and conditions, by the Assignors will
(i) require HSA LLC to obtain any consent, approval or action of, or make any
filing with or give any notice to, any
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Governmental Authority or other person, (ii) conflict with or result in any
breach or violation of any of the terms and conditions of, or constitute (with
or without notice or lapse of time or both), to the Knowledge of the Assignors,
a default under, the certificate of formation of HSA LLC, the HSA LLC Agreement
or any law, statute, rule or regulation, order, writ, injunction, determination,
award, judgment or decree applicable to HSA LLC or, to the Knowledge of the
Assignors, the Hawthorn System, or any material instrument, contract, franchise
agreement or other agreement to which HSA LLC is a party or by which HSA LLC or,
to the Knowledge of the Assignors, the Hawthorn System may be bound or subject,
or (iii) require any consent, approval or written notice under or result in a
violation or breach of, or a material modification of the effect of, or
constitute (with or without due 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 material note, bond, mortgage,
indenture or any agreement, instrument, license or obligation to which HSA LLC
is a party or by which HSA LLC or, to the Knowledge of the Assignors, the
Hawthorn System may be bound, provided that no representation or warranty is
made in foregoing clauses (i), (ii) or (iii) with respect to matters that could
not reasonably be expected, individually or in the aggregate, to have a Material
Adverse Effect with respect to HSA LLC.
(i) No Claims. To the Knowledge of the
Assignors, there are no outstanding orders, writs, injunctions, determinations,
awards, judgments or decrees against HSA LLC relating to the Hawthorn System,
and there are no actions, suits, claims or legal administrative or arbitral
proceedings or investigations (collectively, "CLAIMS"), pending or, to the
Knowledge of the Assignors, threatened
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against HSA LLC provided that no representation or warranty is made in this
subsection 3.2(i) with respect to matters that could not reasonably be expected,
individually or in the aggregate, to result in a Material Adverse Effect with
respect to HSA LLC.
(j) Compliance with Laws. To the Knowledge of
the Assignors, HSA LLC is in material compliance with all laws (including,
without limitation, all federal and state franchise laws and regulations),
ordinances, regulations and orders, judgments, injunctions, awards or decrees as
presently enacted and in force, of any governmental authority relating to HSA
LLC. To the Knowledge of the Assignors, HSA LLC has all material licenses,
permits, orders or approvals (excluding any licenses, permits, orders or
approvals that relate to the offer and sale by USFS of franchises) of any
governmental authority (collectively, "PERMITS") that are necessary for the
conduct of the Hawthorn System as now conducted and Schedule 3.2(j) contains a
true and complete list of all Permits currently in effect and held by HSA LLC.
To the Knowledge of the Assignors, HSA LLC has received no written notice from
any governmental authority of any material violation of any Permit and no
proceeding is pending, or to the Knowledge of the Assignors, threatened, to
revoke or limit any Permit.
(k) Contracts. Schedule 3.2(k) sets forth a
true and complete list of all material agreements, contracts, commitments or
undertakings entered into by HSA LLC or any of its Affiliates with respect to
the Hawthorn System (the "CONTRACTS"). HSA LLC has delivered or made available
to the Company and/or USFS true and complete copies of each of the Contracts.
Each of the Contracts is, to
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the Knowledge of the Assignors, legal, valid, binding and enforceable and in
full force and effect and will continue to be so on identical terms after the
consummation of the transactions contemplated hereby (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). To the Knowledge of the Assignors, no party is in breach or default
under any Contract in any material respect, nor, to the Knowledge of the
Assignors, does any condition exist which with notice or lapse of time or both
would constitute a material breach or default or permit termination,
modification or acceleration thereunder, and no party has repudiated any
provision thereof.
(l) Financial Statements. The unaudited balance
sheets of HSA LLC as of December 31, 1996 and September 30, 1997 and the
unaudited related statements of earnings, members' equity (deficit), and
unaudited cash flows for the periods ended on such dates, have been prepared in
accordance with United States generally accepted accounting principles in effect
for the periods covered thereby, and present fairly the financial position of
HSA LLC at such dates and the results of HSA LLC's operations for such periods
(subject, in the case of interim financial statements, to normal year-end
adjustments). Since September 30, 1997, there has been no material adverse
change in the condition, financial or otherwise, of HSA LLC, except changes in
the ordinary course of business, which individually or in the aggregate,
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could not reasonably be expected to have a material adverse effect on the
business, assets, properties, prospects or condition (financial or otherwise) of
HSA LLC.
(m) Liabilities. Except as reflected in the
most recent financial statements referred to in Section 3.2(l), or the notes
thereto, and subject to normal year-end adjustments, HSA LLC does not have any
direct or indirect indebtedness, liability, claim, loss, damage, deficiency,
obligation or responsibility, fixed or unfixed, choate or inchoate, liquidated
or unliquidated, secured or unsecured, accrued, absolute, contingent or
otherwise ("LIABILITIES"), whether or not of a kind required by generally
accepted accounting principles to be set forth in a financial statement. HSA LLC
does not have any (i) obligations in respect of borrowed money, (ii) obligations
evidenced by bonds, debentures, notes or other similar instruments,
(iii) obligations which would be required by generally accepted accounting
principles to be classified as "capital leases," (iv) obligations to pay the
deferred purchase price of property or services and (v) any guaranties of any
obligations of any other person. Prior to the Closing Date, the contracts and
other agreements, including without limitation, management agreements, and
commitments between HSA LLC and either of the Assignors or any of their
Affiliates set forth on Schedule 3.2(m) shall be terminated without any
liability to HSA LLC and all amounts owing thereunder by HSA LLC shall have been
paid in full or shall have been forgiven (it being understood that,
notwithstanding the foregoing, the Assignors shall be entitled to receive all
allocations of income, gain, loss, deduction, credit and similar items and
distributions of HSA LLC to which they are otherwise entitled through the
Closing Date).
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(n) Information Supplied. None of the
information relating to HSA LLC supplied or to be supplied in writing by HSA LLC
or the Assignors for inclusion or incorporation by reference in the Registration
Statement (as defined in the Merger Agreement) will, at the time the
Registration Statement becomes effective under the Act or at the time the proxy
statement included therein is mailed to USFS stockholders, contain any untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements made, in light of the circumstances under which they were
made, not misleading.
III.3 Agreement Regarding Representations and Warranties of
Assignors. Notwithstanding any of the representations and warranties made by the
Assignors in Section 3.2 hereof, the Company and USFS hereby agree that neither
of the Assignors shall have any liability or obligation (including
indemnification obligations under Section 6.1 hereof) for any inaccuracies
contained in, or omissions from, any of the representations and warranties set
forth in such Section 3.2 (including the Schedules and other deliveries
contemplated thereby) to the extent that such (a) arise or result from or were
or are caused by any act or omission of USFS or any of its Affiliates since the
date of the Master Franchise Agreement in respect of the management, control,
franchising, licensing or operation of the Hawthorn Brand or Hawthorn System
and/or in USFS's capacity as a member of HSA LLC, or (b) are actually known to
USFS or any of its Affiliates on the date hereof or as of the date of Closing.
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SECTION IV
COVENANTS
IV.1 Cooperation. The parties mutually covenant and agree to
cooperate with each other and promptly to take such other action and to execute
and deliver, or use their reasonable best efforts to cause to be executed or
delivered, such other and further documents as may be reasonable and necessary
to give effect to the transactions contemplated by this Agreement and the Merger
Agreement including, but not limited to, any amendments to limited liability
company agreements necessary to provide for the admission of the Company as a
member thereof, as the case may be and the preparation and filing of the
Registration Statement. Between the date of this Agreement and the Closing Date,
the Assignors shall use their reasonable best efforts to cause HSA LLC to afford
the Company, and the Company and USFS shall afford the Assignors and their
respective authorized representatives (including its accountants, financial
advisors and legal counsel) reasonable access during normal business hours to
all of the properties, personnel, contracts and other agreements, books and
records of HSA LLC, the Company and/or USFS, as the case may be, and shall
promptly deliver or make available to the Company or the Assignors, as
applicable, all information concerning the business, properties, assets and
personnel of HSA LLC, the Company and/or USFS, as the case may be, as the
Company or the Assignors, respectively, may from time to time reasonably
request. In furtherance of the above, the parties shall use their reasonable
best efforts to ensure that their accountants (and the accountants for HSA LLC)
cooperate in a timely manner including, but not limited to, in the preparation
of financial information for inclusion in the Registration Statement.
IV.2 Shareholders Agreement. At or prior to the Closing, HSA,
HPI
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and the Company shall execute and deliver the Shareholders Agreement
substantially in the form previously delivered to the parties hereto (the
"SHAREHOLDERS AGREEMENT").
IV.3 Operations. During the period commencing on the date
hereof and ending at the Effective Time, the Assignors shall use their
reasonable best efforts to cause HSA LLC to conduct its operations according to
its ordinary course of business consistent with past practice.
IV.4 Operation of the Company. Prior to the Effective Time (as
defined in the Merger Agreement), the Company shall not, and USFS shall not
cause or permit the Company to, engage in any business or activity other than
executing and delivering this Agreement, the Merger Agreement and the
Shareholders Agreement and consummating the transactions contemplated hereby and
thereby.
IV.5 Certificate of Incorporation and By-Laws. Prior to the
Closing Date, the Company shall not, and USFS shall not cause or permit the
Company to, take any action to amend, modify, revoke or rescind its Certificate
of Incorporation or By-Laws.
IV.6 Merger and Merger Agreement. Immediately after the
closing of the transactions contemplated hereby, USFS and the Company hereby
agree with the Assignors that they shall consummate the Merger in accordance
with, and subject to, the terms and conditions of the Merger Agreement, in the
form previously delivered to the parties hereto. Neither the Company nor USFS
shall take any action to amend, modify or terminate the Merger Agreement,
without the prior written consent of the Assignors, which shall not be
unreasonably withheld.
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IV.7 Reasonable Efforts; Additional Actions.
(a) Upon the terms and subject to the conditions
of this Agreement, and in addition to the covenants contained in Section 4.1,
each of the parties hereto shall use all reasonable best efforts, and the
Assignors shall use their reasonable best efforts to cause HSA LLC, 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
efforts to (a) obtain all consents, amendments to or waivers under the terms of
any of the parties' or HSA LLC'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 on HSA LLC or the Company or the consummation of the transactions
contemplated hereby), (b) effect promptly all necessary or appropriate
registrations and filings with any Governmental Authority, including, without
limitation, filings and submissions pursuant to the HSR Act (as defined in
Section 7.1(b)), the Act, the Securities Exchange Act of 1934, as amended, the
General Corporation Law of the State of Delaware and state "blue sky" laws,
(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 7.
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(b) If, at any time after the Effective Time (as
defined in the Merger Agreement), the Company shall determine or be advised that
any deeds, bills of sale, assignments, assurances or any other actions or things
are necessary or desirable to vest, perfect or confirm in the Company the right,
title or interest in, to or under any of the rights, properties or assets of, or
Equity Interests to, HSA LLC, acquired or to be acquired by the Company as a
result of, or in connection with, the Merger, this Agreement or any of the
transactions contemplated hereby or thereby or otherwise to carry out this
Agreement, the officers and directors of the Company shall be authorized to
execute and deliver, in the name and on behalf HSA LLC, all such deeds, bills of
sale, assignments and assurances and to take and do, in the name and on behalf
of HSA LLC and the Assignors, all such other actions and things as may be
reasonably necessary or desirable to vest, perfect or confirm any and all right,
title and interest in, to and under such rights, properties or assets of, or
Equity Interests in, HSA LLC or to carry out this Agreement.
IV.8 Notification of Certain Matters. Each of the parties
hereto shall give prompt notice (and provide copies) to each other party 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 such party or
HSA LLC, as the case may be, to which such party or HSA LLC or any of their
respective subsidiaries, as the case may be, is a party or is otherwise bound or
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
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with the transactions contemplated by the Merger Agreement or this 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 Merger
Agreement or this Agreement, including the Merger; (iv) any material adverse
change in the business, assets, financial condition or results of operations of
such parties and their 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 such party or HSA LLC, 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 such party or
HSA LLC, 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
would otherwise render inaccurate any representation or warranty contained
herein or which relates to the consummation of the transactions contemplated by
this Agreement; (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 Closing Date 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
4.8 shall not limit or otherwise affect the remedies available hereunder to the
party receiving
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such notice.
IV.9 Provision of Additional Information. Each of the Company
and USFS hereby agrees to provide, or cause to be provided, to each of the
Assignors, copies of all documents contemplated by the Merger Agreement,
including, without, limitation, the Proxy Statement/Registration Statement on
Form S-4, and submissions pursuant to the HSR Act (as defined in Section
7.1(b)).
IV.10 Confidentiality. At all times, both during the term of
this Agreement and after the Closing Date, each party (including, without
limitation, their agents, representatives, attorneys, accountants, financial
advisors and employees) shall not use or disclose any non-public, confidential
or proprietary information in the possession of or known by the parties hereto
in connection with their respective business or operations, or any of their
respective subsidiaries, except as required by law (provided that before making
any disclosure by reason of legal requirement the party seeking to make such
disclosure shall give prior notice to each other party hereunder, and use its
best efforts to provide such parties an opportunity to obtain appropriate
protective orders or confidentiality undertakings). Each party agrees that it
shall not divulge, furnish or make accessible any such knowledge or information
to anyone except their or another party's attorneys, accountants and advisors
who are aware of and bound by the requirements of confidentiality provisions set
forth herein, or as authorized in writing by the appropriate other party hereto
and they shall not use any such knowledge or information in any trade or
business. The provisions of this Section 4.10 shall survive the Closing or any
termination of this Agreement.
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SECTION V
SURVIVAL OF REPRESENTATIONS AND WARRANTIES
The representations and warranties of the Company contained in
Section 3.1 of this Agreement (including the Schedules and other deliveries
contemplated thereby) and of HSA and HPI contained in Section 3.2 of this
Agreement (including the Schedules and other deliveries contemplated thereby)
shall survive the execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby for a period of one year following the
Closing Date, except that those contained in Sections 3.2(d), 3.2(m) and 3.2(n)
shall survive for a period of five years following the Closing Date and those
fraudulently made shall survive indefinitely.
SECTION VI
INDEMNIFICATION
VI.1 Indemnity by Assignors and Rockwood.
(a) The Assignors, jointly and severally, do
hereby indemnify and agree to defend and hold each of the Company and USFS, its
officers, directors, shareholders, employees, agents, successors, permitted
assigns and Affiliates completely free and harmless from any and all manner of
claim, loss, damage, liability or expense (including, without limitation,
reasonable legal fees and expenses) (collectively, the "LOSSES") arising under
or relating to: (i) any representation or warranty of HSA LLC contained in the
Master Franchise Agreement being untrue or incorrect as of the date of the
Master Franchise Agreement; (ii) any representation and warranty of an Assignor
herein contained being untrue or incorrect as of the date made
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or as of the Closing Date; (iii) the failure of HSA LLC to have performed or
complied with any of its covenants or agreements contained in the Master
Franchise Agreement to have been performed or complied with on or prior to the
Closing Date; (iv) the failure of an Assignor to perform or comply with any of
its covenants or agreements contained in this Agreement; (v) the operation of
the Hawthorn System, including, without limitation, any matters pertaining to
the Existing Licenses (including without limitation the administration of the Ad
Fund), prior to the date of the Master Franchise Agreement; (vi) the grant of
any Hawthorn License, or the execution of any agreement, by HSA LLC or any of
its Affiliates prior to the date of the Master Franchise Agreement; (vii) any
Restrictive Agreement (as defined in the Master Franchise Agreement) that
relates to or is asserted against any Hawthorn Brand hotel for which Deemed
Approval (as defined in the Master Franchise Agreement) was given under Section
2.4(b) of the Master Franchise Agreement or which is not listed on Schedule I to
the Master Franchise Agreement; (viii) any matters pertaining to any UFOC
prepared or delivered by the Company, USFS or any of their Affiliates or the
Registration Statement, in each case solely to the extent such losses are the
result of information that was provided in writing by HSA LLC, HSA, HPI or their
Affiliates to the Company, USFS or any of their Affiliates for inclusion
therein; (ix) the operation of HSA LLC on or prior to the Closing Date; or (x)
any claim made by any Affiliate, shareholder or joint venture partner of HSA or
HPI, in respect of the transactions contemplated hereby or the operation of HSA
LLC on or prior to the Closing Date, except in each case to the extent that such
arise or result from or were or are caused by any act or omission of USFS or any
of its Affiliates since the date of the Master
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Franchise Agreement in respect of the management, control, franchising,
licensing or operation of the Hawthorn Brand or Hawthorn System or in USFS's
capacity as a member of HSA LLC (other than an act or omission taken or not
taken, as the case may be, in reliance on any representation, warranty, covenant
or agreement of HSA LLC under the Master Franchise Agreement).
(b) Rockwood & Co. ("Rockwood") does hereby
indemnify and agree to defend and hold each of the Company and USFS, its
officers, directors, shareholders, employees, agents, successors, permitted
assigns and Affiliates completely free and harmless from any and all Losses
arising under or relating to: (i) any representation or warranty contained in
Section 3.2(d), 3.2(m) (solely to the extent such Losses exceed the Basket
Amount) or 3.2(n) of this Agreement being untrue or incorrect as of the date
made or as of the Closing Date or any other representation and warranty of the
Assignors contained in this Agreement that was fraudulently made; (ii) any
Restrictive Agreement that relates to or is asserted against any Hawthorn Brand
hotel for which Deemed Approval was given under Section 2.4(b) of the Master
Franchise Agreement or which is not listed on Schedule I to the Master Franchise
Agreement; (iii) any Losses resulting from the Registration Statement solely to
the extent such Losses are the result of information that was provided in
writing by HSA LLC, HSA, HPI or their Affiliates to the Company, USFS or their
Affiliates for inclusion therein; (iv) the operation of HSA LLC on or prior to
the Closing Date (solely to the extent such Losses exceed the Basket Amount); or
(v) any claim made by any Affiliate, shareholder or joint venture partner of HSA
or HPI, in respect to the transactions contemplated hereby or the operation of
HSA LLC on or prior to the
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Closing Date, except in each case to the extent that such arise or result from
or were or are caused by any act or omission of USFS or any of its Affiliates
since the date of the Master Franchise Agreement in respect of the management,
control, franchising, licensing or operation of the Hawthorn Brand or Hawthorn
System or in USFS's capacity as a member of HSA LLC (other than an act or
omission taken or not taken, as the case may be, in reliance on any
representation, warranty, covenant or agreement of HSA LLC under the Master
Franchise Agreement).
VI.2 Indemnity by the Company and USFS. The Company and USFS,
jointly and severally, hereby agree to indemnify, defend and hold HSA and HPI,
their officers, directors, shareholders, employees, agents, successors,
permitted assigns and Affiliates completely free and harmless from any and all
manner of Losses arising under or relating to the operation of the Hawthorn
System, or any other acts or omissions of the Company, USFS or their Affiliates,
with respect to the Hawthorn Brand or the Hawthorn System, to the extent the
same relates to matters occurring or events arising or otherwise in any respect
relating to the period on and after the date of the Master Franchise Agreement
(except for such matters that entitle the Company to indemnity from HSA and HPI
under Section 6.1). Without in any way eliminating the generality of the
foregoing, the aforesaid indemnity shall relate to: (i) any representation or
warranty of the Company or USFS herein contained being untrue or incorrect in
any material respect as of the date made or as of the Closing Date; (ii) failure
of the Company or USFS to perform and comply in any material respect with any of
its covenants or agreements contained in this Agreement or the Merger Agreement;
(iii) the operation of the Hawthorn System after the date of the Master
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Franchise Agreement; (iv) the grant of any Hawthorn License after the date of
the Master Franchise Agreement; or (v) any matters pertaining to any UFOC
prepared or delivered by USFS or the Company or any of their Affiliates other
than any matters included therein relating to or arising out of information that
was provided in writing by HSA LLC (prior to the Closing Date), HSA or HPI or
their Affiliates for inclusion therein.
VI.3 Limitations on Indemnification. (a) The Assignors shall
not be obligated to pay any amounts for indemnification under Section 6.1(a) in
respect of any Loss (except those based upon, arising out of or otherwise in
respect of a matter for which indemnification is available under Section 6.1(b)
(the "Basket Exclusions")), until the aggregate amounts of such Losses,
exclusive of those based on the Basket Exclusions, equals $200,000 (the "Basket
Amount"), whereupon the Assignors shall be obligated to pay in full the amount
of all such Losses in excess of the Basket Amount.
(b) The Assignors and Rockwood shall be
obligated to pay any amounts for indemnification based on the Basket Exclusions
in accordance with Section 6.1(a) and 6.1(b) without regard to whether all other
indemnification payments shall have exceeded, in the aggregate, the Basket
Amount.
(c) The Assignors shall not be obligated to
make any payment for indemnification under Section 6.1(a) to the extent that
such payment, together with all prior indemnifications made by the Assignors
under Section 6.1(a) in respect of Losses that are not Basket Exclusions
exceeds Twenty Million Dollars ($20,000,000).
(d) Except in the case of fraud, no claim for
indemnification shall be made unless notice thereof shall have been delivered to
the indemnifying party
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(i) in the case of a claim under 6.1(a), 6.1(b)(i) (with respect to
representations and warranties contained in Sections 3.2(m) or (n)),
6.1(b)(ii)-(iv), or 6.2, on or prior to the first anniversary of the Closing
Date or (ii) in the case of a claim under Section 6.1(b)(i) (with respect to
representations and warranties contained in Section 3.2(d)) or 6.1(b)(v), on or
prior to the fifth anniversary of the Closing Date.
VI.4 Indemnification Procedures. Any party that proposes to
assert the right to be indemnified under Section VI shall, promptly after
receipt of notice of commencement or threatened commencement of any action
against such party in respect of which a claim is to be or may be made against
an indemnifying party or parties under Section VI, notify the indemnifying party
of the commencement or threatened commencement of such action, enclosing a copy
of all papers served, it being understood and agreed, however, that the failure
so to notify promptly the indemnifying party will not relieve the indemnifying
party from any liability it may have to any indemnified party under such Section
unless, and only to the extent that, such omission results in the forfeiture of
substantive rights or defenses by the indemnifying party or otherwise materially
adversely affects the ability of the indemnifying party to defend against or
diminish the losses arising out of such claim, action or proceeding. If any such
action is brought against any indemnified party and it notifies the indemnifying
party of its commencement, the indemnifying party will be entitled to
participate in and, to the extent that it elects by delivering written notice to
the indemnified party promptly after receiving notice of the commencement of the
action from the indemnified party, to assume the defense of the action, with
counsel selected by the indemnified party. After notice from the indemnifying
party to the
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indemnified party of its election to assume the defense, the indemnifying party
will not be liable to the indemnified party for any legal or other expenses
except as provided below. It is understood and agreed that the indemnifying
party or parties shall not, in connection with any proceeding or related
proceedings in the same jurisdiction, be liable for the reasonable fees,
disbursements and other charges of more than one separate firm of counsel
(together with local counsel in each applicable jurisdiction) at any one time
for all such indemnified party or parties. All such fees, disbursements and
other charges will be paid or reimbursed by the indemnifying party promptly as
they are incurred. An indemnifying party who has assumed the defense of any
claim or action pursuant to this Section 6.4 will not be liable for any
settlement of any action or claim effected without its written consent. If the
indemnifying party assumes the defense of any claim or action pursuant to this
Section 6.4, the indemnified party shall make available to the indemnifying
party any books, records or other documents within its control that are
reasonably necessary for such defense.
VI.5 Indemnification Payments by Assignor(s). In the event
that the Assignors, or either of them, is required to make any payments pursuant
to this Section VI, such payments may be made, in the sole discretion of such
Assignor(s), by the delivery of shares of Class A Stock to the party entitled to
receive such payment (subject to compliance with all applicable laws and the
terms of the Shareholders Agreement referred to in Section 4.2 hereof). Any
shares of Class A Stock delivered by the Assignor(s) in satisfaction of its or
their obligations pursuant to this Section VI shall have a value per share equal
to the average of the closing trade prices for the Class A Stock as reported on
the NASDAQ National Market for the five (5) trading
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days immediately prior to such payment.
VI.6 Exclusive Remedy. Except as such claim may arise as a
result of fraud, the indemnification provisions of this Section VI shall be the
exclusive remedies of the parties hereto for any breach of representation or
warranty contained herein.
SECTION VII
CLOSING CONDITIONS
VII.1 Conditions to the Company's Obligations. The obligations
of the Company to complete the transactions contemplated in this Agreement are
subject to the fulfillment of the following conditions on or before the Closing
Date:
(a) the Assignors shall have assigned,
transferred and set over their respective Equity Interests (in accordance with
Schedule 1) to the Assignee.
(b) All filings required to be made prior to
the Closing Date with, and all consents, approvals, permits and authorizations
required to be obtained prior to the Closing Date from, governmental entities,
including, without limitation, any such filings under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, and the rules and regulations
promulgated thereunder (the "HSR ACT"), in connection with the execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby the Company will have been made or obtained (as the case may be) and all
HSR Act waiting periods shall have expired or been terminated.
(c) The representations and warranties of the
Assignors contained in this Agreement shall be true and correct as of the
Closing Date as if made
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at such time.
(d) The conditions to the Merger contained in
the Merger Agreement shall have been satisfied in accordance with their terms.
(e) The Assignors shall have duly executed and
delivered the Shareholders Agreement referenced in Section 4.2 hereof.
(f) The Company and USFS shall have received
the opinion of Neal, Gerber & Eisenberg, dated the Closing Date, in the form
reasonably acceptable to the parties.
(g) Hyatt Hotels Corporation shall have
delivered a letter to the Company substantially in the form of the letter dated
March 27, 1996 (the "SPIRIT SYSTEM LETTER"), addressed to USFS, confirming the
matters contained in the Spirit System Letter.
VII.2 Condition to the Obligations of Assignors. The
obligations of the Assignors to complete the transactions contemplated in this
Agreement are subject to the fulfillment of the following conditions on or
before the Closing Date:
(a) The Assignors shall have been issued the
shares of Class A Stock pursuant to Section 2.3.
(b) All filings required to be made prior to
the Closing Date with, and all consents, approvals, permits and authorizations
required to be obtained prior to the Closing Date from, governmental entities,
including, without limitation any such filings under the HSR Act, in connection
with the execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby will have been made or obtained (as the case
may be) and all HSR Act waiting periods shall have
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expired or been terminated.
(c) The representations and warranties of the
Company and USFS contained in this Agreement shall be true and correct as of the
Closing Date as if made at such time.
(d) The conditions to the Merger contained in
the Merger Agreement shall have been satisfied in accordance with their
terms(without waiver or modification).
(e) The Assignors shall have received the
opinion of Paul, Weiss, Rifkind, Wharton & Garrison, dated the Closing Date, in
the form reasonably acceptable to the parties.
(f) The Company, Michael A. Leven and Neal K.
Aronson shall have duly executed and delivered the Shareholders Agreement
referred to in Section 4.2 hereof.
(g) USFS shall have duly executed and delivered
a Release Agreement and Covenant Not to Sue, in the form reasonably acceptable
to the parties, releasing Rockwood & Co. from all liabilities and obligations
arising under or related to the Master Franchise Agreement (other than as
provided in Section 6.1(b)).
(h) USFS shall have duly executed and delivered
an Estoppel Certificate, in the form reasonably acceptable to the parties,
certifying that, on and as of the Closing Date, (i) USFS is not in breach or
default of any of the terms or conditions of the Master Franchise Agreement, and
(ii) to the best of USFS's and USFS's Affiliates actual knowledge, (A) neither
of the Assignors is in breach or default of any of the terms or conditions of
the Master Franchise Agreement, and (B) there
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does not exist any condition (with or without notice or lapse of time or both)
which would constitute a breach or default of the Master Franchise Agreement by
either or both of the Assignors and (c) the Assignors are not in breach of any
representation or warranty contained in Section 3.2 of this Agreement.
SECTION VIII
MISCELLANEOUS
VIII.1 Certain Definitions.
(a) "Affiliate," with respect to any person,
shall mean any person controlling, controlled or under common control with such
person.
(b) "Hawthorn Brand" shall mean the trade names
"Hawthorn," "Hawthorn Suites" and any other trade names, trademarks, copyrights
and other Intellectual Property now used, or which may hereafter be developed
for use, in connection with the operation of hotels under the "Hawthorn" brand.
(c) "Hawthorn System" shall mean the Hawthorn
Brand, together with the system of operation now existing with respect thereto,
including, without limitation, the system of licensing, reservations, training,
marketing and advertising, prototype plans, specifications and working drawings,
and operations, used or associated with the use and operation of hotels operated
under the Hawthorn Brand, and together with the rights and interests of HSA LLC
under the Reservation Agreement (referred to in the Master Franchise Agreement)
and the Contracts.
(d) "Knowledge of the Assignors" shall mean the
actual (as opposed to imputed or constructive) knowledge of any of Nicholas J.
Pritzker, any
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other member of the Pritzker family, Douglas G. Geoga, Harold S. Handlesman or
John Lyons.
(e) "Master Franchise Agreement" shall mean the
Master Franchise Agreement, dated as of March 27, 1996, between HSA Properties,
L.L.C. and U.S. Franchise Systems, Inc.
(f) "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;
(g) "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.
VIII.2 Consent. The Assignors and USFS hereby provide such
consents and waivers as may be necessary under the HSA LLC Agreement to permit
the completion of the transactions contemplated in this Agreement.
VIII.3 Expenses. 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.
VIII.4 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
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party as shall be specified by like notice):
(a) If to the Company or USFS, to:
U.S. Franchise Systems, Inc.
13 Corporate Square, Suite 250
Atlanta, Georgia 30329
Attention: Mr. Neal K. Aronson
Telecopier: (404) 235-7448
With a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019
Attention: Paul D. Ginsberg, Esq.
Telecopier: (212) 757-3990
(b) If to HSA or HPI, to:
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
Attention: Michael A. Pucker, Esq.
Telecopier: (312) 269-1747
VIII.5 Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
VIII.6 Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and assigns
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for the uses and purposes set forth and referred to herein, effective as of the
date hereof.
VIII.7 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE WITHOUT REGARD
TO CONFLICT OF LAWS PROVISIONS.
VIII.8 Amendments; Waivers. This Agreement may not be amended,
supplemented or discharged, and no provision hereof may be modified or waived,
except expressly by an instrument in writing signed by all of the parties. No
waiver of any provision hereof by any party shall be deemed a waiver by any
other party nor shall any waiver by any party be deemed a continuing waiver of
any matter by such party.
VIII.9 Severability. If any provision hereof or any
application thereof shall be invalid or unenforceable, the remainder hereof and
any other application of such provision shall not be affected thereby.
VIII.10 Termination. This Agreement may be terminated by
mutual written consent of the Company and the Assignors or, at the election of
any of the
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Assignors or the Company, if the Closing Date has not occurred on or prior to
April 30, 1998.
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: /s/ Glen Miller
-----------------------------------
Name: Glen Miller
Title: Vice President
HSA PROPERTIES, INC.
By: /s/ Glen Miller
-----------------------------------
Name: Glen Miller
Title: Vice President
USFS HAWTHORN, INC.
By: /s/ Neal K. Aronson
-----------------------------------
Name: Neal K. Aronson
Title: President
U.S. FRANCHISE SYSTEMS, INC.
By: /s/ Michael A. Leven
-----------------------------------
Name: Michael A. Leven
Title: Chief Executive Officer
and President
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JOINDER OF ROCKWOOD & CO.
The undersigned, Rockwood & Co., a Delaware corporation, for
valuable consideration which is hereby acknowledged, hereby joins in the
execution and delivery of this Agreement solely for purposes of binding itself
to the provisions of Section VI.
Notwithstanding the foregoing, the liability of the
undersigned hereunder shall be limited to the periods specified in Section
6.3(d) of this Agreement and shall be limited to an aggregate amount of Twenty
Million Dollars ($20,000,000) (the "GUARANTEE AMOUNT"). At such time as the
undersigned has paid, in the aggregate (and without consideration of interest or
other carrying charges), the Guarantee Amount, whether or not as a result of any
single or group of related occurrences, this Joinder shall terminate and the
undersigned shall have no further liability or obligation hereunder.
The provisions of this Joinder are intended solely for the
benefit of the Company and USFS and their successors in interest under the above
Agreement, and are not intended for the benefit of, and may not be enforced by,
any third party.
ROCKWOOD & CO.,
a Delaware corporation
By /s/ Glen Miller
----------------------------------
Name: Glen Miller
Title: Vice President
42
SCHEDULE 1
- ----------------------------------------------------------------------------------------------
NAME OF ASSIGNOR EQUITY INTERESTS NUMBER OF SHARES OF CLASS A
COMMON STOCK OF
USFS/HAWTHORNE, INC.
- ----------------------------------------------------------------------------------------------
Hawthorn Suites 98% membership interest in HSA
Associates Properties, LLC 2,199,775
- ----------------------------------------------------------------------------------------------
HSA Properties, Inc. 1% membership interest 22,447
in HSA Properties, LLC
- ----------------------------------------------------------------------------------------------
43
2
SCHEDULE 2
- ----------------------------------------------------------------------------------
NAME OF MEMBER EQUITY INTEREST
- ----------------------------------------------------------------------------------
Hawthorn Suites Associates 98% membership interest of HSA Properties, LLC
- ----------------------------------------------------------------------------------
HSA Properties, Inc. 1% membership interest of HSA Properties, LLC
- ----------------------------------------------------------------------------------
U.S. Franchise Systems, Inc. 1% membership interest of HSA Properties, LLC
- ----------------------------------------------------------------------------------
44
ASSIGNORS' SCHEDULES TO
CONTRIBUTION AGREEMENT
General Comments
While the Assignors have endeavored to identify under each Section and
Section subheading the particular items relevant thereto, items listed under one
Section or under one Section subheading may be relevant to another Section or
Section subheading of the following schedules. Accordingly, items listed under
each Section and Section subheading are hereby incorporated by reference in each
other Section and Section subheading.
The inclusion of a matter herein is not an admission by and does not
reflect a judgment on the part of either of the Assignors or its partners,
officers or employees that such matter is material to the business of HSA
Properties, L.L.C. or that it does or may have a material adverse effect.
Capitalized terms used herein and not otherwise defined have the
meanings specified in the Contribution Agreement.
In addition, please note that the attached schedules may not include or
reflect matters that have arisen since the date of the Master Franchise
Agreement and were the result of any act or omission of U.S. Franchise Systems,
Inc. Please refer to Section 3.3 of the Contribution Agreement with respect to
such matters.
45
SCHEDULE 3.2(g)(2)
TRADEMARKS, PATENTS AND COPYRIGHTS
1. See attached chart showing Trademarks, Patents and Copyrights assigned
to HSA Properties, L.L.C. in connection with the Master Franchise
Agreement.
2. HSA Properties, L.L.C. may have limited common law trademark rights to
the marks HAWTHORN SUITES HAPPENINGS, HAWTHORN SUITES HOTELS and IT'S
SO MUCH LIKE HOME.
3. As of the date of the Master Franchise Agreement, Riverview Marketing
had compiled information in a database for Hawthorn Suites Associates.
NOTE: NEITHER OF THE ASSIGNORS NOR HSA PROPERTIES, L.L.C. HAS TAKEN
ANY ACTION WITH RESPECT TO ANY TRADEMARKS, PATENTS OR
COPYRIGHTS HELD BY HSA PROPERTIES, L.L.C. SINCE THE DATE OF
THE MASTER FRANCHISE AGREEMENT, EXCEPT AT THE REQUEST OF USFS.
46
SCHEDULE 3.2(g)(2)
HSA PROPERTIES, L.L.C.
TRADEMARKS, PATENTS AND COPYRIGHTS
ASSIGNED TO HSA PROPERTIES, L.L.C. IN CONNECTION WITH
THE MASTER FRANCHISE AGREEMENT
===================================================================================================================================
MARK/COUNTRY APPLICATION/ PRIORITY DATES GOODS/SERVICES
REGISTRATION NO.
===================================================================================================================================
HAWTHORN SUITES Reg. No. 1,401,695 1st use alleged 10/7/85; Hotel services, namely providing
application filed 11/13/85; lodging and restaurant services in
registered 7/15/86 hotels
United States
- -----------------------------------------------------------------------------------------------------------------------------------
HAWTHORN SUITES Application No. Application filed 3/13/87 (ITU) Operation of a business providing
Canada 579,986 hotel, food and cocktail services
===================================================================================================================================
TREE LOGO Reg. No. 1st use alleged 11/02/86; Hotel, restaurant and bar services;
United States 1,534,742 application filed 3/23/87; hotel management and reservation
registered 4/11/89 services
- -----------------------------------------------------------------------------------------------------------------------------------
TREE LOGO Application No. Application filed Operation of a business providing
Canada 579,955 3/13/87 (ITU) hotel, food and cocktail services
===================================================================================================================================
HAWTHORN SUITES AND TREE LOGO Reg. No. 1,531,365 1st use alleged 11/02/86; Hotel, restaurant and bar services;
United States application filed 3/23/87; hotel management and reservation
registered 3/21/89; services
===================================================================================================================================
HAWTHORN SUITES Reg. No. Application filed 3/22/91; Hotel, food and cocktail services
AND TREE LOGO 426,084 registered 11/24/92
Mexico
- -----------------------------------------------------------------------------------------------------------------------------------
THE SUITE Application No. Application filed Operation of a business of providing
OPPORTUNITY 579,979 3/13/87 (ITU) hotel services and providing food and
Canada cocktail services, namely the
operation of restaurants, provisions
of banquet facilities and operation of
cocktail lounges
- -----------------------------------------------------------------------------------------------------------------------------------
HAWTHORN SUITES Reg. No. 1st use alleged 5/16/89; Entertainment services, namely,
CARES ABOUT KIDS 1,626,350 application filed 6/5/89; providing children's activities
United States registered 12/4/90 programs featuring games, beverages,
food and sound events at a hotel
- -----------------------------------------------------------------------------------------------------------------------------------
STAY A LITTLE CLOSER TO HOME Reg. No. 1st use alleged 5/87; application Rendering technical aid and assistance
United States 1,512,029 filed 7/2/87; registered 11/8/88 in the establishment and/or operation
of hotels and restaurants
===================================================================================================================================
47
SCHEDULE 3.2(g)(3)
INTELLECTUAL PROPERTY LICENSES
None
48
SCHEDULE 3.2(h)
EXCEPTIONS TO NON-CONTRAVENTION
REPRESENTATION OF HSA PROPERTIES, L.L.C.
As of December 9, 1997, HSA Properties, L.L.C. was not in good standing in the
State of Delaware solely as a result of the failure to file its Annual Report
and pay the required franchise fee. A Certificate to Restore Good Standing with
respect to this entity was filed with the Secretary of State of the State of
Delaware on December 9, 1997. According to the Office of the Secretary of State
of the State of Delaware, the amount required to restore the company to good
standing is approximately $211.00.
49
SCHEDULE 3.2(j)
PERMITS
None (1)
- ------------------------------
(1) Please refer to Schedule 7.2(i) of the Master Franchise Agreement for
permits held by Hawthorn Suites Associates as of the date of that
agreement.
50
SCHEDULE 3.2(k)
CONTRACTS
HSA Properties, L.L.C. or its Affiliates have entered into (or acknowledged) the
following contracts:
1. Reservation Agreement, dated as of March 27, 1996, between
Hyatt Corporation d/b/a Regency Systems Solutions, Inc. and
HSA Properties, L.L.C.(1)
2. Master Franchise Agreement, dated as of March 27, 1996,
between HSA Properties, L.L.C. and U.S. Franchise Systems,
Inc., together with the Side Letter (re: Naperville License)
of even date therewith.
3. Assignment of Existing Licenses from HSA Properties, L.L.C. to
Hawthorn Suites Franchising Inc.
4. Assignment of Contracts from HSA Properties, L.L.C. to
Hawthorn Suites Franchising Inc.
5. License Agreement, dated March 27, 1996, between HSA
Properties, L.L.C. and Hawthorn Suites Associates.
6. Fee Agreement, dated as of March 27, 1996, between Rockwood &
Co., Inc. and HSA Properties, L.L.C.
7. Shared Space and Services Agreement, dated as of March 27,
1996, among Hawthorn Suites Associates, HSA Properties, Inc.
and HSA Properties, L.L.C.
8. Hawthorn Suites Hotel's Master Development Strategic Alliance
Agreement, dated December 23, 1996, among USFS, Hawthorn
Suites Franchising, Inc. and Sunstone Hotel Investors, L.P.
(acknowledged by HSA Properties, L.L.C., January 20, 1997).
NOTE: With respect to the Existing Licenses (as defined in the
Master Franchise Agreement), neither of the Assignors nor
HSA Properties, L.L.C. has taken any action since the
date of the Master Franchise Agreement, except at the
direction of, or as disclosed to, USFS.
- ----------------------------
(1) As set forth in the attached letter from Peter D. Connolly, Senior Vice
President and General Counsel of Hyatt Hotels Corporation, certain aspects
of the reservation system have been outsourced to CSC Outsourcing, Inc.
51
Master Franchise Agreement, except at the direction of,
or as disclosed to, USFS.
52
Peter D. Connolly
Senior Vice President and General Counsel
Hyatt Hotels Corporation
200 West Madison
Chicago, IL 60606 USA
Telephone: 312.750.8105
Telex: 687 1520
FAX: 312.750.8581
December 10, 1997
Michael Pucker, Esquire
Neal, Gerber & Eisenberg
Two North LaSalle
Suite 2300
Chicago, Illinois 60602
Re: Reservation Services
Dear Michael:
You have requested that I summarize for you the impact, if any, of the
Outsourcing Agreement between Hyatt and CSC Outsourcing, Inc. dated June 30,
1996 and effective August 1, 1996, on the obligations of Hyatt to provide
central reservations services to Hawthorn Suites, pursuant to the Reservations
Agreement between the latter two entities.
The Outsourcing Agreement specifies a series of particular services
which CSCO and its subcontractor, the Sabre Group, are obligated to provide to
Hyatt and members of the Hyatt Organization (which defined term includes
Hawthorn Suites). These services include the maintenance, enhancement and future
development of the hardware, software, data bases and network configurations
which comprise the SPIRIT reservation system. Hyatt ultimately maintains
direction and control over the services provided, which activities are measured
against a series of minimum acceptable service levels. Hyatt continues to
operate the call center activities at the Omaha Reservation Center with Hyatt
employees, as those functions were not outsourced. Thus, in shorthand, CSCO
maintains the box and Hyatt answers the phone.
Nothing in the Outsourcing Agreement should impact Hawthorn Suites'
rights to continue to receive reservations services under the terms and
conditions of the Reservations Agreement. If you need further information
concerning the Outsourcing Agreement or related issues, please don't hesitate to
call me.
Very truly yours,
/s/ Peter D. Connolly
53
SCHEDULE 3.2(m)
CONTRACTS TO BE TERMINATED PRIOR TO CLOSING
1. Fee Agreement, dated as of March 27, 1996, between Rockwood &
Co., Inc. and HSA Properties, L.L.C.
2. Shared Space and Services Agreement, dated as of March 27,
1996, among Hawthorn Suites Associates, HSA Properties, Inc.
and HSA Properties, L.L.C.