U.S. FRANCHISE SYSTEMS, INC.
A Delaware Corporation
AMENDED AND RESTATED
EMPLOYER STOCK PURCHASE AGREEMENT
---------------------------------
Michael A. Leven
TABLE OF CONTENTS
Page
1. Definitions............................................................3
2. Management Equity Participation........................................9
3. Representations of Employee...........................................14
4. Representations and Warranties of the Corporation.....................15
5. Limitations on Restricted Shares......................................16
6. Earned Shares.........................................................17
7. Redemption of Restricted Shares Not Earned............................17
8. Termination Forfeiture................................................18
9. Termination of Employment Without Cause or by Employee
for Good Reason.......................................................19
10. Death or Total Disability of Employee.................................19
11. Reissue of Forfeit Shares.............................................20
12. Performance Criteria..................................................20
13. Successors and Assigns................................................23
14. Sale of All or Substantially All Stock or Assets, or Merger...........23
15. Legends...............................................................24
16. Additional Covenants..................................................24
17. Withholding Taxes; Section 83(b) Election.............................25
18. Notices...............................................................26
19. Miscellaneous.........................................................27
20. Multiple Counterparts.................................................29
21. Record Owner..........................................................29
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THIS AMENDED AND RESTATED EMPLOYEE STOCK PURCHASE AGREEMENT AND THE SECURITIES
ISSUED UPON THE TERMS HEREOF, HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS, AND NEITHER THIS
AGREEMENT NOR THE UNDERLYING SECURITIES MAY BE ASSIGNED, HYPOTHECATED,
ENCUMBERED, PLEDGED, SOLD OR OTHERWISE TRANSFERRED EXCEPT AS PROVIDED BY THE
TERMS HEREOF, IN ACCORDANCE WITH THE TERMS OF A SEPARATE STOCKHOLDERS' AGREEMENT
DATED ON OR ABOUT THE DATE HEREOF, AS THE SAME MAY BE AMENDED FROM TIME TO TIME,
AND PURSUANT TO EITHER AN EFFECTIVE REGISTRATION STATEMENT OR IN A TRANSACTION
EXEMPT FROM REGISTRATION UNDER APPLICABLE FEDERAL AND STATE SECURITIES LAWS.
STATE OF GEORGIA
COUNTY OF FULTON
U.S. FRANCHISE SYSTEMS, INC.,
a Delaware corporation
AMENDED AND RESTATED
EMPLOYEE STOCK PURCHASE AGREEMENT
This Amended and Restated Employee Stock Purchase Agreement (as amended,
the "Agreement") is entered into as of the ___ day of _____________ 1996, by and
between U.S. FRANCHISE SYSTEMS, INC., a Delaware corporation (the
"Corporation"), and MICHAEL A. LEVEN, an individual resident of the State of
Georgia (the "Employee").
WHEREAS, on September 29, 1995, the Employee and the Corporation executed
an Employee Stock Purchase Agreement (the "Old Agreement"), pursuant to which
the Corporation issued to the Employee and to Neal K. Aronson (together, the
"Initial Management") a total of 567,245 shares of common stock, par value $.10
per share (the "Old Common Stock"), of the Corporation, constituting 51% of the
then issued and outstanding common shares of the Corporation;
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WHEREAS, as set forth in greater detail on Exhibit A hereto, 278,061 of
such shares, or 25% of the then outstanding common shares of the Corporation,
were acquired outright by Initial Management as Unrestricted Shares (as defined
in the Old Agreement) and 289,184 of such shares, or 26% of the then outstanding
common shares, were acquired by Initial Management as Restricted Shares (as
defined in the Old Agreement), subject to the terms and conditions and
provisions as set forth in the Old Agreement;
WHEREAS, with respect to the 26% of the then outstanding common shares that
were held by Initial Management as Restricted Shares (as defined in the Old
Agreement), the Old Agreement (i) limited the rights of Initial Management to
vote and to receive dividends with respect to such shares, (ii) imposed
substantial restrictions on the transferability of such shares until such shares
were "earned" by Initial Management by reason of the Corporation's satisfaction
of certain performance criteria set forth therein and (iii) provided that such
shares were subject to forfeiture in the event the employment of the Management
holder thereof was terminated in certain circumstances;
WHEREAS, the Corporation is considering an IPO (as defined below) with
respect to its common shares, as adjusted for the Reclassification (as defined
below);
WHEREAS, in connection with the IPO, the Corporation and the Employee have
agreed to eliminate some of the restrictions that were imposed on Restricted
Shares pursuant to the Old Agreement and to deem that certain shares designated
as Restricted Shares pursuant to the Old Agreement be redesignated as
Unrestricted Shares;
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NOW THEREFORE, FOR AND IN CONSIDERATION of the mutual covenants set forth
herein, and other good and valuable consideration, the receipt, adequacy and
sufficiency of which is hereby acknowledged, the parties do hereby agree to
amend and restate the Old Agreement, as so amended, as follows:
1. Definitions. For purposes hereof, the following terms shall be defined
as follows:
(a) "Adjusted EBITDA" for any fiscal year of the Corporation means (i)
consolidated earnings of the Corporation and its subsidiaries before
consolidated interest, taxes, depreciation, amortization, and other non-cash
charges, adjusted to exclude one-time or non-recurring expenses or credits (such
exclusions to include but not be limited to the payments to Hudson Hotels
Corporation (formerly known as Microtel Franchising and Development Corporation)
in the total amount of $4 million dollars pursuant to the terms of that certain
Joint Venture Agreement dated September 7, 1995) for such fiscal year, as
determined by the Corporation in good faith in accordance with generally
accepted accounting principles consistently applied, minus (ii) 10% of the
Transaction Consideration (as defined below) actually paid by the Corporation
and/or its subsidiaries in connection with a Transaction (as defined below)
closed after the closing of the IPO (provided that such consideration has not
been deducted in determining the amount referred to in clause (i) above). In the
event of any dispute or disagreement regarding the determination of the amount
of Adjusted EBITDA, then such dispute or disagreement shall be resolved by the
accounting firm regularly engaged to and providing auditing services to the
Corporation.
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(b) "Earned Shares" means those Shares that are designated herein as
Restricted Shares and are subsequently redesignated as Earned Shares in
accordance with the terms hereof due to the attainment by the Corporation of
certain performance standards as provided for herein.
(c) "Employee Shares" means the Restricted Shares and Unrestricted Shares
held by Employee under this Agreement.
(d) "Employment Agreement" means that certain agreement relating to the
employment of Employee with the Corporation dated October 1, 1995, as the same
may be amended from time to time.
(e) "Initial Management" means Employee and Neal K. Aronson.
(f) "IPO" shall mean the initial public offering of Shares pursuant to the
Securities Act of 1933, as amended.
(g) "Management" means the group of individuals (including Initial
Management) who are employees of the Corporation and who have been issued shares
of Class A Common Stock pursuant to the terms of the Old Agreement or a stock
purchase agreement substantially similar to the Old Agreement, as the same may
be amended from time to time (with such changes thereto as are authorized by the
Stock Reallocation Committee).
(h) "Management Shares" means Shares issued to and acquired by Management
(or their permitted designees and successors), including Unrestricted Shares,
Restricted Shares, Earned Shares, Reallocable Shares, shares acquired through
preemptive (or similar) rights or otherwise from or through the Corporation and
such shares that are transferred to other Management.
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(i) "Original Stockholders" or "Original Investors" means those persons who
are not employees of the Corporation and who were issued shares of Old Common
Stock pursuant to the offering described in the Confidential Investment
Memorandum of the Corporation, dated August 19, 1995, and their Permitted
Transferees (as such term is used in that certain Stockholders' Agreement among
the Corporation and the Original Investors, dated as of September 29, 1995).
(j) "Reallocable Shares" means those Restricted Shares and/or Unrestricted
Shares owned or held by Initial Management that were specifically designated at
the time of their original issue as Reallocable Shares and that, prior to the
date hereof, have been reallocated to other Management pursuant to the Old
Agreement. Such shares shall retain such designation regardless of whether they
are converted from Restricted Shares to Earned Shares (in the case of
Reallocable Restricted Shares), unless and until such shares become Forfeit
Shares and are redeemed or otherwise repurchased by the Corporation from the
Management holder (other than Initial Management) thereof.
(k) "Reclassification" means the conversion of each share of Old Common
Stock into 9.67 shares of Class A Common Stock, par value $.01 per share ("Class
A Common Stock"), of the Corporation pursuant to the Corporation's Amended and
Restated Certification of Incorporation, which is to be filed with the State of
Delaware prior to the consummation of the IPO.
(l) "Restricted Shares" means 144,592 Shares (prior to the
Reclassification), constituting 13% of the outstanding common stock of the
Corporation as of October 2, 1995), that were issued to Initial Management
pursuant to the Old Agreement and that were specifically designated at the time
of issue as Restricted Shares,
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as the same are reclassified pursuant to the Reclassification. Restricted Shares
are subject to repurchase (even if they have been converted to Earned Shares)
pursuant to a Termination Forfeiture. Restricted Shares are eligible for
conversion to Earned Shares upon attainment by the Corporation of certain
performance criteria as set forth herein. Restricted Shares that have not been
converted to Earned Shares by September 29, 2005 are subject to redemption by
the Corporation (and reissue to the Original Investors). If such shares are then
reissued to Original Investors, such shares shall automatically be converted to
and shall thereafter be deemed to be Unrestricted Shares.
(m) "Shares" means the shares of the Old Common Stock that were authorized
immediately prior to the Reclassification, as reclassified by the
Reclassification into Class A Common Stock and, to the extent set forth in
Section 2(b)(iv) hereof, exchanged for Class B Common Stock, par value $.01 per
share ("Class B Common Stock"), of the Corporation, all as the same may be
further reclassified from time to time.
(n) "Stock Reallocation Committee" means the committee appointed by the
Board of Directors of the Corporation from among its members to administer the
reallocation of Reallocable Shares hereunder.
(o) "Stockholders' Agreement" means that certain Stockholders' Agreement
dated as of September 29, 1995 by and between the Corporation and the
Stockholders named therein, as such agreement may be amended from time to time.
Employee acknowledges that all of the Shares held by Employee hereunder shall be
issued and held in accordance with the terms of the Stockholders' Agreement, in
addition to the terms and conditions hereof.
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(p) "Termination Forfeiture" means the redemption by the Corporation from
the Employee of Restricted Shares (whether or not converted to Earned Shares)
upon the occurrence of a Termination Forfeiture Event.
(q) "Termination Forfeiture Event" means the occurrence or happening of one
of the following during the period ending on September 29, 2005: (i) voluntary
resignation for other than Good Reason (as defined in the Employment Agreement)
of Employee; or (ii) termination of Employee by the Corporation for Cause (as
defined in the Employment Agreement).
(r) "Transaction Consideration" means the total consideration paid or to be
paid in connection with a Transaction, including, without limitation: (i) cash;
(ii) notes, securities and other property; (iii) indebtedness for borrowed money
assumed, refinanced or extinguished; (iv) amounts payable under consulting
agreements, agreements not to compete or similar arrangements; and (v)
contingent payments (whether or not related to future earnings or operations);
provided, that in the event debt financing is utilized to effect a Transaction,
proceeds from such debt financing shall no longer be considered as Transaction
Consideration as and to the extent such proceeds have been repaid to the lender
thereof. For purposes of determining the amount of consideration paid, non-cash
consideration shall be valued as follows: (x) publicly traded securities,
including capital stock of the Corporation, shall be valued at the average of
their closing prices (as reported in The Wall Street Journal) for the five
trading days prior to the closing of the Transaction and (y) any other non-cash
consideration shall be valued at the fair market value thereof as determined in
good faith by the Board of Directors of the Corporation.
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(s) "Transaction" means an acquisition by the Corporation and/or its
subsidiaries of another corporation or other entity, a business or a brand,
including, but not limited to, through a merger, consolidation, tender or
exchange offer, acquisition of securities or assets, or through a licensing
agreement, but excluding any investment in another corporation, joint venture or
other entity (an "entity") that represents less than 25% of the equity of such
entity.
(t) "Unrestricted Shares" means all Shares owned or held by the Initial
Management (or by other Management, in the case of Reallocable Shares, or by the
Permitted Transferees of Initial Management (as such term is defined in the
Stockholders' Agreement, prior to any amendment thereof)) that have not been
specifically designated herein as Restricted Shares, including but not limited
to Shares acquired for value from the Corporation pursuant to a voluntary
exchange (including the exchange referred to in Section 2(b)(iv) hereof) or
through preemptive (or similar) rights, stock splits or dividends with respect
to Unrestricted Shares and the like or other subsequently acquired shares.
Unrestricted Shares are held outright and subject to the terms and conditions
set forth in the Amended and Restated Certificate of Incorporation of the
Corporation, as the same may be amended from time to time, and in the
Stockholders' Agreement.
(u) Capitalized terms not defined in this Agreement shall have the meaning
and intent ascribed to them in the Stockholders' Agreement.
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2. Management Equity Participation.
(a) Stock Reallocation Committee. (i) Pursuant to the Old Agreement,
the Management Shares were initially issued, allocated, offered and divided
among Employee and Neal K. Aronson in the amounts and designations set forth in
Exhibit "A" attached hereto. Following the Reclassification, the IPO and
effectiveness of this amendment in accordance with Section 19 hereof, Management
(including Initial Management) will own Shares in the amounts and designations
set forth in Exhibit "B" attached hereto. Thereafter, subsequent offers, call
options, redemptions, and the like, in each case to the extent permitted
hereunder, shall be subject to the exclusive control and authority of the Stock
Reallocation Committee of the Corporation. The Stock Reallocation Committee
shall also have the authority to cause the Corporation to act with respect to
Management Shares that are forfeited by Management to the Corporation, subject
to the rights of Initial Management to have Forfeit Shares reoffered to them
under this Agreement.
(b) Unrestricted Shares.
(i) Thirty-eight percent (38%) of the total 51% of Shares acquired
by Initial Management pursuant to the Old Agreement are hereby designated as
Unrestricted Shares. 62,911 of such shares, or approximately 5.656% of the 38%
constituting Unrestricted Shares were designated as Reallocable Shares pursuant
to the Old Agreement and have heretofore been called and repurchased from time
to time at the direction of the Stock Reallocation Committee from Initial
Management (or their Permitted Transferees) and sold to other members of
Management. The Stock Reallocation Committee has had and shall continue to have
the authority to impose such
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terms, conditions, limitations and otherwise as it deems reasonable, desirable
or necessary with respect to Reallocable Shares held by Management other than
Initial Management; provided, however, that following the effectiveness of this
Agreement, no other Shares (including Shares that have been forfeited to the
Corporation and reissued to Initial Management, as contemplated by Section
2(a)(ii) hereof) shall be subject to call and repurchase from Initial Management
(or their Permitted Transferees) for offer, sale and/or transfer to other
Management; and provided further, the Stock Reallocation Committee may not
permit such Reallocable Shares to be held by other Management under terms,
conditions, limitations and otherwise which are more favorable, desirable or
beneficial than as imposed on Initial Management, other than the provisions with
respect to the duration of service after which the risk of Termination
Forfeiture may lapse. The remaining approximately 32.34% of the 38% constituting
Unrestricted Shares shall be held outright, free and clear by Initial Management
(or their Permitted Transferees), are not subject to call, purchase or
reallocation by the Stock Reallocation Committee or otherwise, shall not be
subject to the risk of Termination Forfeiture, and the holders thereof shall
enjoy all incidents of ownership to such shares (subject to any restrictions or
limitations set forth in the Stockholders' Agreement).
(ii) Notwithstanding anything to the contrary in this Agreement,
while the Employee is still employed by the Corporation, the Stock Reallocation
Committee shall offer to Employee the opportunity to repurchase any Reallocable
Shares (Restricted, Earned and/or Unrestricted) that have heretofore been
called, repurchased, reallocated from the Employee and sold by the Corporation
at the direction of the Stock Reallocation Committee to other Management, where,
thereafter, such Reallocable Shares
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are forfeited to the Corporation or repurchased or held by the Corporation for
any reason ("Forfeit Shares"). Such Forfeit Shares shall be reoffered to the
Employee at the original purchase price of $1.00 per share, as such price is
adjusted for the Reclassification (the "Adjusted Original Price"), and the right
to purchase such shares may be exercisable by Employee at any time. Forfeit
Shares reacquired by Employee shall not regain their status as Reallocable
Shares and therefore shall not be subject to call and redemption by the Stock
Reallocation Committee for purpose of reallocation to other Management.
(iii) Unless otherwise specifically set forth in this Agreement or
in a separate written agreement between the Corporation and the Employee, any
and all shares acquired by the Employee from the Corporation for value (other
than Restricted Shares), including through a voluntary exchange (including the
exchange referred to in Section 2(b)(iv) hereof (the "Exchange")) or pursuant to
the exercise of preemptive (or similar) rights, or from stock splits or stock
dividends as to Unrestricted Shares (but not acquired shares which are
attributable to Restricted Shares), shall be deemed Unrestricted Shares.
(iv) Immediately following the effectiveness of this Amendment, the
Corporation shall issue to Initial Management and Initial Management shall
purchase from the Corporation 2,706,557 shares of the Corporation's Class B
Common Stock (which shares shall be Unrestricted Shares) in exchange for the
same number of shares of the Corporation's Class A Common Stock.
(c) Restricted Shares.
(i) Shares designated herein as Restricted Shares are limited as to
their incidents of ownership and other rights as herein specifically set forth
(but shall
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retain all other rights including, without limitation, the right to vote and to
receive dividends with respect to such shares) until such time as the Restricted
Shares are deemed "Earned" and converted to Earned Shares in accordance with the
terms hereof.
(ii) Thirteen percent (13%), or 144,592 (pre-Reclassification), of
the 51% of Shares acquired by Initial Management pursuant to the Old Agreement
are hereby designated as Restricted Shares. Restricted Shares are subject to the
substantial restrictions on transferability and the substantial risks of
forfeiture as set forth under this Agreement. 22,593 shares
(pre-Reclassification) or 2.0315% of the 13% constituting Restricted Shares were
designated as Reallocable Shares pursuant to the Old Agreement and have
heretofore called and repurchased from Initial Management (or their Permitted
Transferees) and sold by the Corporation to other Management in the same manner
as the Reallocable Shares referred to in Section 2(b) hereof. While such
Reallocable Shares are held by Management other than Initial Management, such
Shares shall cease to be Reallocable (but shall remain Restricted (subject to
being "Earned")). The Stock Reallocation Committee has had and shall continue to
have the authority to impose such terms, conditions, limitations and otherwise
as it deems reasonable, desirable or necessary with respect to such Reallocable
Shares held by Management other than Initial Management; provided, however, that
following the effectiveness of this Agreement, no other Shares (including
Forfeit Shares) shall be subject to call and repurchase from Initial Management
(or their Permitted Transferees) for offer, sale and/or transfer to other
Management; and provided further, the Stock Reallocation Committee may not
permit such Reallocable Shares to be held by other Management under terms,
conditions, limitations and otherwise which are more favorable, desirable or
beneficial than as
13
imposed on Initial Management, other than the provisions with respect to the
duration of service after which the risk of Termination Forfeiture may lapse.
(iii) Where certain performance criteria are attained by the
Corporation, Restricted Shares shall become Earned Shares such that the
substantial limitations on the holder's enjoyment of incidents of ownership in
the Restricted Shares will lapse and be suspended and the holder thereof will
become entitled to all incidents of ownership in the Earned Shares, subject only
to Termination Forfeiture and the restrictions on transfer hereinafter set
forth. The specific performance criteria and the related terms and conditions
whereby Restricted Shares may become Earned Shares are set forth in Sections 7
and 13 of this Agreement.
(d) Interpretation of "Percentage." Whenever this Agreement refers to a
"percentage" as to Shares, the percentage shall refer to a percentage based on
100%, and not based on the percentage of the stated percentage of such Shares.
By way of example and not limitation, a "percentage" of the 51%, 38% and/or 25%,
respectively, refers to said 51%, 38% and/or 25% being viewed as a total of 51,
38 and/or 25 increments of 1% each (and not to 100 increments of .51%, .38%
and/or .25%), respectively. By way of further example and not limitation, if the
total of 51% of issued and outstanding Management Shares (including all
Unrestricted, Restricted and Earned Shares) is represented by 510,000 Shares,
then 38% of the 51% shall refer to 380,000 Shares, 5% of the 38% shall refer to
50,000 Shares, and so forth.
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3. Representations of Employee. Employee hereby represents and warrants to
the Corporation that:
(a) Investment Intent. The Employee Shares (including those to be
acquired pursuant to the Exchange) were or will be acquired for Employee's own
account and not with a view to, or intention of, distribution thereof in
violation of the Securities Act of 1933, as amended (the "Securities Act"), or
any applicable state securities laws, and the Employee Shares shall not be
disposed of in contravention of the Securities Act or any applicable state
securities laws.
(b) Accredited Investor. Employee is an executive officer of the
Corporation and (i) is an "accredited investor" as defined in Rule 501(a) under
the Securities Act or (ii) by reason of Employee's business and financial
experience, and the business and financial experience of those retained by
Employee to advise Employee with respect to Employee's investment in the
Employee Shares purchased pursuant to the Old Agreement or the Exchange,
Employee, together with such advisors, has such knowledge, sophistication and
experience in business and financial matters so as to be capable of evaluating
the risks and benefits of the investment in the Employee Shares.
(c) Risk of Investment. Employee is able to bear the economic risk of
the investment in the Employee Shares, including the complete loss of such
investment in the Employee Shares, for an indefinite period of time because the
Employee Shares have not been registered under the Securities Act and,
therefore, cannot be sold unless subsequently registered under the Securities
Act or an exemption from such registration is available.
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(d) Adequate Information. Employee has had an opportunity to ask
questions and receive answers concerning the terms and conditions of the
offering of Employee Shares and has had full access to such other information
concerning the Corporation as Employee has requested.
(e) Binding Agreement. This Agreement constitutes the legal, valid and
binding obligation of Employee, enforceable against Employee in accordance with
its terms, except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium and other similar laws relating to or affecting
creditors' rights generally, by general equitable principles (regardless of
whether such enforceability is considered in a proceeding in equity or at law)
or by an implied covenant of good faith and fair dealing. The execution,
delivery and performance of this Agreement does not conflict with, violate or
cause a breach of any agreement, contract or instrument to which Employee is a
party or any judgment, order or decree to which Employee is subject.
4. Representations and Warranties of the Corporation. The Corporation
hereby represents and warrants to Employee that:
(a) Corporate Entity. The Corporation is a corporation duly organized,
validly existing and in good standing under the laws of Delaware.
(b) Binding Agreement. The execution, delivery and performance of this
Agreement has been duly authorized by the Corporation. This Agreement
constitutes a valid and binding obligation of the Corporation enforceable
against it in accordance with its terms, except as enforceability may be limited
by bankruptcy, insolvency, reorganization, moratorium and other similar laws
relating to or affecting creditors'
16
rights generally, by general equitable principles (regardless of whether such
enforceability is considered in a proceeding in equity or at law) or by an
implied covenant of good faith and fair dealing.
(c) Fully Paid and Non-Assessable Shares. All Shares acquired by the
Employee pursuant to the Old Agreement have been validly issued, and Shares
acquired upon the Reclassification and the Exchange will be validly issued, and
all such Shares are or will be, as the case may be, fully paid and nonassessable
when issued.
5. Limitations on Restricted Shares. Employee will be entitled to enjoy all
incidents of ownership of the Restricted Shares, except that (i) such shares
shall be subject to the risk of Termination Forfeiture and (ii) may not be sold,
transferred, pledged or otherwise disposed of until September 29, 2005 other
than to an immediate family member of such holder or any trust or partnership of
which all of the beneficiaries or partners, as the case may be, are such holder
and/or immediate family members of such holder, so long as the transferee agrees
in writing to be bound by the restrictions set forth in this Agreement. All
Restricted Shares that have become Earned Shares subsequent to the date hereof
(i.e., not including the 13% deemed Unrestricted Shares by virtue of amendments
to the Old Agreement) shall become permanently vested with Employee or his
Permitted Transferees as Unrestricted Shares and shall no longer be subject to
any Termination Forfeiture on September 29, 2005. Restricted Shares not yet
earned and redesignated as Earned Shares by September 29, 2005 shall be called
and repurchased by the Corporation as set forth in Section 7 hereof.
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6. Earned Shares.
(a) Repurchase Upon Termination Forfeiture Event. Restricted Shares
will be deemed and become Earned Shares upon the Corporation's attaining the
Performance Criteria set forth in Section 13 hereof.
(b) Incidents of Ownership. Subject to the restrictions on transfer
contained herein and the risk of Termination Forfeiture, the holder of Earned
Shares will enjoy all incidents of ownership to such shares, including the right
to receive all dividends and to vote such shares.
7. Redemption of Restricted Shares Not Earned.
(a) Call and Repurchase by Corporation. Shares that remain Restricted
Shares on September 29, 2005 (i.e., which have not previously been converted to
Earned Shares) (the "Unearned Restricted Shares") shall be called and redeemed
by the Corporation at the Adjusted Original Price. The Board of Directors of the
Corporation may establish reasonable notice provisions, time frames, procedures
and otherwise as it deems reasonable or necessary to facilitate and effect the
transaction contemplated by this Section 7(a). Subject to Section 8(b), the
Corporation must call and purchase such shares from Employee within sixty (60)
days of September 29, 2005.
(b) Reoffer of Restricted Shares Not Earned. Subject to applicable
federal and state securities laws, Unearned Restricted Shares so acquired by the
Corporation shall be offered by the Corporation at the Adjusted Original Price
to the Original Investors pro rata with their holdings of shares of common
stock, par value $.10 per share, prior to the IPO.
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8. Termination Forfeiture.
(a) Termination for Cause; Resignation. If a Termination Forfeiture
Event occurs, then all Restricted Shares issued to Employee (whether or not then
converted to the status of Earned Shares) shall be called and repurchased by the
Corporation at the Adjusted Original Price, subject to Section 8(b) hereof.
(b) Deferral of Purchase by Corporation. In the event that any payment
by the Corporation under Section 7(a) or 8(a) for such shares would constitute a
default or an event of default or result in a mandatory prepayment requirement
under the terms of any agreement for indebtedness or other agreement to which
the Corporation or any of its subsidiaries is a party as of the date for such
purchase, the Corporation shall have the right, by delivery of written notice to
the Employee, to defer exercise of its call and purchase right until such
payment by the Corporation would no longer have such an effect; provided that
the Corporation's exercise of its purchase right may not be deferred for more
than six (6) months. The Corporation shall give Employee prompt written notice
of when it is no longer restricted from making such purchase, and the procedures
set forth in Section 7(a) or 8(a) hereof, as the case may be, shall apply as
though the date giving rise to the purchase right occurred on the date such
notice is given.
(c) Procedures. The Board of Directors of the Corporation may establish
reasonable notice provisions, time frames, procedures and otherwise as it deems
reasonable or necessary to facilitate and effect the transaction contemplated by
this Section; provided, the Corporation may not exercise its option and call the
Shares subject
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to the Termination Forfeiture later than ninety (90) days after the Corporation
receives written notice of the Termination Forfeiture Event.
9. Termination of Employment Without Cause or by Employee for Good Reason.
Upon termination of employment of Employee under the Employment Agreement by the
Corporation without Cause (as defined in the Employment Agreement) or by the
Employee for Good Reason (as defined in the Employment Agreement), all
limitations, restrictions, risks of forfeiture and conditions which relate to
Restricted Shares (as unearned Restricted Shares or Earned Restricted Shares)
held by Employee, including but not limited to risk of Termination Forfeiture,
limitations on transfer or risk of call by the Board for non-conversion to
Earned Shares, will automatically and permanently lapse and all Restricted
Shares and Earned Shares will permanently become Unrestricted Shares held by
Employee. The restrictions, terms and conditions of the Stockholders' Agreement
(or any other applicable agreement) then in effect shall remain in full force
and effect.
10. Death or Total Disability of Employee. Where termination of Employee is
due to Disability (as that term is defined in the Employee's Employment
Agreement) or death, (i) all risks of Termination Forfeiture shall immediately
lapse and terminate and (ii) as to any Restricted Shares held by Employee as of
the date of such event, the Disabled or deceased Employee (or his duly
authorized successors) will receive the benefit of the Corporation's performance
over the two (2) fiscal year ends immediately following such termination as to
the Corporation attaining the Performance Criteria such that Restricted Shares
may become Earned Shares and Unrestricted Shares. By way of clarification,
restrictions and risks of forfeiture as to Restricted Shares held by the
20
Disabled or deceased Employee (or his successors) shall permanently lapse and
Restricted Shares shall become Earned (and therefore Unrestricted Shares) to the
extent that the Corporation attains the Adjusted EBITDA Performance Criteria set
forth herein at such two (2) fiscal year ends.
11. Reissue of Forfeit Shares. Forfeit Shares shall be reoffered by the
Corporation to Initial Management, pro rata based on their relative percentage
ownership of shares of common stock, par value $.10 per share, immediately
following the initial capitalization of the Company, at the Adjusted Original
Price per share, as the same may be further readjusted from time to time.
12. Performance Criteria. Restricted Shares may be earned and become Earned
Shares upon attainment by the Corporation of the following performance criteria
(the "Performance Criteria"):
(a) Adjusted EBITDA Threshold. One thirteenth (1/13) of the Restricted
Shares (allocated pro rata among Restricted Shares also designated Reallocable
and other Restricted Shares) will be redesignated as (and deemed to be earned
as) "Earned Shares" for every one million dollars ($1,000,000) of annual
Adjusted EBITDA earned by the Corporation, subject to the limitations set forth
in Section 12(b) hereof. Any incremental portion of Adjusted EBITDA less than
$1,000,000 will be disregarded for such calculation.
(b) Determination of Attained Thresholds and Earned Shares. The number
of Restricted Shares with respect to which restrictions and risk of forfeiture
will lapse shall be based on the highest annual Adjusted EBITDA of the
Corporation attained at any time and from time to time; provided, however,
Restricted Shares shall not be
21
redesignated as Earned Shares until the Corporation's annual Adjusted EBITDA for
a fiscal year reaches or exceeds fourteen million dollars ($14,000,000). By way
of example and not limitation, where Adjusted EBITDA in a given year is
$13,300,000, then no restrictions or risk of forfeiture shall lapse and no
Restricted Shares shall become Earned Shares. If Adjusted EBITDA in a given year
is $14,000,000 (to $14,999,999.99), then Management shall be deemed to have
earned rights to 1/13 of the Restricted Shares, and such Restricted Shares
automatically shall become Earned Shares. Thereafter, if Adjusted EBITDA in a
given year is $20,000,000, then Management shall be deemed to have earned rights
to a total of 7/13 (i.e., an additional 6/13) of the Restricted Shares, and so
forth. Accordingly, Management's rights to have all Restricted Shares become
Earned Shares will not occur until such time as the Corporation realizes
Adjusted EBITDA of twenty-six million dollars ($26,000,000) or more in a given
fiscal year.
(c) Reduction in Adjusted EBITDA; Averaging. Once Restricted Shares are
earned, based upon the Corporation's annual Adjusted EBITDA for a given fiscal
year, and such Shares are redesignated as Earned Shares, such Earned Shares
shall not be affected by the fact that the Corporation's annual Adjusted EBITDA
may decline for any subsequent fiscal year. However, once Adjusted EBITDA of
$14,000,000 or more has been attained, if the Corporation's annual Adjusted
EBITDA declines in a subsequent fiscal year from the highest level at which
additional Restricted Shares become Earned Shares, additional Restricted Shares
will not become Earned Shares until the Corporation's average annual Adjusted
EBITDA for the fiscal years including and following the year of such decline in
annual Adjusted EBITDA is greater than the level
22
of annual Adjusted EBITDA at which Restricted Shares were last earned. For
example, no additional Restricted Shares would be earned if annual Adjusted
EBITDA in the most recent year in which Restricted Shares were earned had been
$16,000,000, such annual Adjusted EBITDA declined to $14,000,000 in the
following year and thereafter increased to $17,000,000 in the subsequent year
(the average of $14,000,000 and $17,000,000 is $15,500,000, which does not
exceed $16,000,000, the level of annual Adjusted EBITDA for the most recent year
in which Restricted Shares were earned). Additional Restricted Shares would not
be earned in this example until such average annual Adjusted EBITDA was at least
$17,000,000. As is always the case, additional Restricted Shares are not earned
as Earned Shares until annual Adjusted EBITDA increases from the prior year to
the next $1,000,000 threshold of Adjusted EBITDA (and thereafter additional
Restricted Shares are earned for each $1,000,000 threshold).
(d) Resumption of Thresholds. After the average Adjusted EBITDA has
exceeded the Adjusted EBITDA for the year of Adjusted EBITDA at which Restricted
Shares were last earned, then no averaging shall be applicable for so long as
Adjusted EBITDA does not decrease from a prior year's.
(e) Pro Rata Conversion. Upon the Corporation's attaining the
Performance Criteria from time to time, Restricted Shares held by all Management
(and their Permitted Transferees) shall be converted pro rata into Earned
Shares, based on the number of all Restricted Shares then held by all Management
(and their Permitted Transferees). Provided, nothing herein shall be construed
to limit the authority or ability of the Stock Reallocation Committee to require
or impose additional, more strict or other conditions, restrictions,
requirements or limitations as to Restricted Shares held by other
23
than Initial Management, such that vesting of and/or lapse of restrictions on
such Restricted Shares may be delayed, prohibited, limited or otherwise with
respect to Management other than Initial Management.
13. Successors and Assigns. The duly authorized Permitted Transferees (as
such term is defined in the Stockholders' Agreement prior to any amendment
thereof) and holders of Restricted Shares and Reallocable Shares originally held
from or through Management, including any transferee obtaining Restricted Shares
in accordance with Section 5 hereof, shall be subject to the same restrictions,
obligations, call rights, purchase options, benefits, put options, terms and
otherwise as would be applicable if such shares were held directly by
Management. All restrictions, forfeiture and repurchase provisions and other
terms and conditions relating to Restricted Shares and Reallocable Shares shall
be binding on and inure to the benefit of the transferees, successors and
assignees of those shares.
14. Sale of All or Substantially All Stock or Assets, or Merger. In the
event that all or substantially all of the Corporation's stock or all or
substantially all assets of the Corporation are transferred or sold, or upon a
merger or other business combination, then all Restricted Shares will become
Unrestricted Shares to the extent that value for the entire Corporation
indicated by the gross sale price as determined in good faith by the Board of
Directors in such transaction results in an internal rate of return to those
Original Investors who, at the time of such transaction, continue to be
stockholders of the Corporation, of at least 40% on a compounded annual basis
based upon such persons' original holdings in the Corporation (after taking into
account the amount and timing of all distributions and payments received by
those Original Investors from the Corporation,
24
after considering Unrestricted and Earned Shares then held by Management, and
after giving effect to Restricted Shares that become Unrestricted Shares as
result of such sale, transfer or merger). Restricted Shares that do not become
Unrestricted Shares as a result of such sale, transfer or merger shall retain
their characteristics and potential benefits as Restricted Shares under this
Agreement, unless such issue is expressly addressed in the documentation with
respect to such sale, transfer or merger. The Corporation may, without the
consent of Employee, modify or eliminate the Restricted Share rights and
designation as to Restricted Shares not converted to Unrestricted Shares in the
documentation with respect to such sale, transfer or merger where the
Corporation agrees in writing to such matters as part of such sale, transfer or
merger.
15. Legends. Employees agrees that all share certificates representing
Shares issued to Employee under the Agreement shall have the legend required by
the Stockholders' Agreement or as otherwise may be reasonably be imposed by the
Corporation.
16. Additional Covenants.
(a) Stockholders' Agreement. Employee hereby acknowledges that the
Shares shall be subject to the terms and conditions of the Stockholders'
Agreement. Employee has received a copy of such Stockholders' Agreement and
Employee further acknowledges that such Stockholders' Agreement contains
provisions restricting the transferability of the Shares in addition to those
set forth herein.
(b) Dilution. All Shares held by Management (including Restricted
Shares) will be diluted under the same circumstances as and pro rata with any
Shares held by an Original Investor and all other stockholders of the
Corporation.
25
(c) Not an Employment Agreement. This Agreement is not an employment
contract, the terms and conditions of which shall exclusively be controlled by
the provisions of the Employment Agreement.
(d) Stock Dividends, Stock Splits and Recapitalizations. If dividends
are declared and payable in kind, and in the event of a stock split,
recapitalization or other transaction which causes shares to be issued or
exchanged, the additional, issued, successor, substituted, and/or replacement
shares shall bear the same characteristics, restrictions, rights, obligations,
options and otherwise as the shares with respect to which such additional
issued, successor, substituted and/or replacement shares arose, for all purposes
and the Adjusted Original Price shall be further adjusted on a proportional
basis to reflect such change.
(e) Preemptive Shares. If shares are acquired pursuant to pre-emptive
(or substantially similar) rights by Employee, said acquired shares shall
possess and be subject to the same characteristics, restrictions, rights
obligations, options and otherwise as the shares giving rise to the acquisition
of such additional shares.
17. Withholding Taxes; Section 83(b) Election.
(a) Withholding Taxes. Employee shall be solely responsible for paying
the Corporation an amount necessary to satisfy the withholding and payment of
all applicable federal and state income tax withholdings, if any, including but
not limited to social security (FICA) and Medicare tax, at the applicable rates
in existence as of September 29, 1995. Employee hereby authorizes the
Corporation to withhold from any amounts otherwise payable to Employee such
taxes as may be required by law in connection with the issue to Employee of the
Shares. Employee agrees that if such
26
amounts are insufficient Employee will pay or make arrangements satisfactory to
the Corporation for payment of such taxes.
(b) Section 83(b) Election. Employee has filed an election under I.R.C.
Section 83(b) and the parties hereto acknowledge and agree that withholding
taxes shall be computed as an amount equal to (1) the fair market value of the
Shares issued to the Employee pursuant to the Old Agreement as of September 29,
1995 less (2) any amount paid therefor. The Corporation shall assist Employee at
his request in the filing and perfecting of such I.R.C. Section 83(b) election.
18. Notices. All notices permitted or required hereunder shall be in
writing and shall be deemed to have been duly and properly given as of the
earlier of the date and time of actual delivery or three (3) days following the
date the same are deposited with the United States Postal Service, postage
prepaid, to be sent certified mail with return receipt requested, and addressed
to the Corporation, as follows:
U.S. Franchise Systems, Inc.
Attention: Neal Aronson
13 Corporate Square
Suite 250
Atlanta, Georgia 30329
and addressed to Employee, as follows:
Mr. Michael A. Leven
5 West Wesley Ridge
Atlanta, Georgia 30327
or at such other address as the Corporation or Employee may at any time and from
time to time specify to the other by notice as herein provided.
27
19. Miscellaneous.
(a) This Amended and Restated Employee Stock Purchase Agreement shall
not be effective unless and until the closing of the IPO.
(b) Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the parties and their respective agents, representatives,
successors and permitted assigns.
(c) Cooperation. The parties shall cooperate fully with each other and
their respective counsel and representatives in connection with all steps to be
taken as part of their obligations under this Agreement.
(d) Governing Law. This Agreement and the rights and duties of the
parties attendant hereto shall be construed and governed in accordance with the
internal laws (and not the conflict of laws) of the State of Georgia.
(e) No Waiver. The failure of either party to insist, in one or more
instances, on the performance by the other in strict compliance with the terms
and conditions of this Agreement, shall not be deemed a waiver or relinquishment
of any right granted hereunder or of any terms and conditions of this Agreement
unless such waiver is contained in a writing signed by the parties.
(f) Entire Agreement. This Agreement and any amendments or exhibits
attached hereto or related documents referenced herein comprise all the
agreement, understandings, representations, conditions and warranties by and
between the parties. This Agreement may not be modified or amended except in a
writing signed by the parties to this Agreement.
28
(g) Survival. All representations, warranties and covenants contained
in this Agreement shall survive the execution and delivery of this Agreement and
all documents executed in performance of this Agreement.
(h) Interpretation. Within this Agreement, the singular shall include
the plural and the plural shall include the singular, and any gender shall
include the other gender, as the meaning in the context of this Agreement shall
require. Should any provision of this Agreement require judicial interpretation,
it is agreed that the court interpreting or construing the same shall not imply
a presumption that the terms hereof shall be more strictly construed against one
party by reason of the rule of construction that a document is to be construed
more strictly against the party who itself or through its agent prepared this
Agreement, it being agreed that all parties have had the opportunity to review
and understand this Agreement.
(i) Injunctive Relief. In the event of a breach or threatened breach by
a party of any of his obligations hereunder, the parties hereby acknowledge and
agree that the parties will not have an adequate remedy at law and shall be
entitled to such equitable and injunctive relief as may be available to restrain
a threatened or actual violation. Nothing herein shall be construed as
prohibiting a party from pursuing any other remedies available for such breach
or threatened breach, including without limitation the recovery of damages. All
remedies shall be cumulative. No party shall be required to post a bond or other
surety as a condition to obtaining such injunctive relief.
29
20. Multiple Counterparts. This Agreement may be simultaneously executed in
several counterparts, each of which shall be an original and all of which shall
constitute but one and the same instrument.
21. Record Owner. The Corporation shall not be required (i) to transfer on
its books any shares that shall have been sold or otherwise transferred in
violation of any of the provisions set forth in this Agreement or the
Stockholders' Agreement or (ii) to treat the improper transferee as owner of
such shares or to accord to such improper transferee the right to vote, if any,
as such owner.
IN WITNESS WHEREOF, the parties have executed this Amended and Restated
Stock Purchase Agreement on the date first above written.
CORPORATION:
U.S. FRANCHISE SYSTEMS, INC.
By:______________________________
Neal K. Aronson
Executive Vice President and
Chief Financial Officer
ATTEST:
By:_____________________________
____________ Secretary
EMPLOYEE:
---------------------------
MICHAEL A. LEVEN
EXHIBIT "A"
EMPLOYEE SHARES
(as of September 29, 1995)
TOTAL Michael A. Neal K.
Leven Aronson
(a) Restricted Shares
(i) Reallocable 66,735 33,367 33,368
ii) Non-Reallocable 222,449 111,225 111,224
Total Restricted Shares 289,184 144,592 144,592
(b) Unrestricted Shares
(i) Reallocable 55,612 33,367 22,245
(ii) Non-Reallocable 222,449 133,470 88,979
Total Unrestricted 278,061 166,837 111,224
Shares
Total Shares Issued 567,245 311,429 255,816
Hereunder:
EXHIBIT "B"
EMPLOYEE SHARES
(as of ____________ __, 1996)