Draft 10/24/96
U.S. Franchise Systems, Inc.
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Class A Common Stock
(par value $0.01 per share)
Underwriting Agreement
New York, New York
October __, 1996
Schroder Wertheim & Co. Incorporated
Montgomery Securities
As representatives of the several Underwriters
named in Schedule I hereto,
c/o Schroder Wertheim & Co. Incorporated
Equitable Center,
787 Seventh Avenue,
New York, New York 10019-6016.
Ladies and Gentlemen:
U.S. Franchise Systems, Inc., a Delaware corporation (the "Company"),
proposes, subject to the terms and conditions stated herein, to issue and sell
to the Underwriters named in Schedule I hereto (the "Underwriters") an aggregate
of 1,825,000 shares of Class A Common Stock, par value $0.01 per share
("Stock"), of the Company, and the persons named in Schedule II hereto (the
"Selling Stockholders") propose, subject to the terms and conditions stated
herein, to sell to the Underwriters an aggregate of 500,000 shares of Stock. The
2,325,000 shares of Common Stock to be sold by the Company and the Selling
Stockholders are herein referred to as the "Firm Shares." In addition, the
Company and the Selling Shareholders propose to grant to the Underwriters an
option to purchase up to an additional 348,750 shares of Stock (the "Optional
Shares"), on the terms and for the purposes set forth in Section 2 hereof. (The
Firm Shares and the Optional Shares that the Underwriters elect to purchase
pursuant to Section 2 hereof are herein collectively called the "Shares").
1. (a) The Company represents and warrants to, and agrees with, each of the
Underwriters that:
(i) A registration statement on Form S-1 (File No. 333-11427)
(the "Initial Registration Statement") in respect of the Shares has
been filed with the Securities and Exchange Commission (the
"Commission"); the Initial Registration Statement and any
post-effective amendment thereto, each in the form heretofore delivered
to you, and, excluding exhibits thereto, to you for each of the other
Underwriters, have been declared effective by the Commission in such
form; other than a registration statement, if any, increasing the size
of the offering (a "Rule 462(b) Registration Statement"), filed
pursuant to Rule 462(b) under the Securities Act of 1933, as amended
(the "Act"), which became effective upon filing, no other document with
respect to the Initial Registration Statement has heretofore been filed
with the Commission; and no stop order suspending the effectiveness of
the Initial Registration Statement, any post-effective amendment
thereto or the Rule 462(b) Registration Statement, if any, has been
issued and no proceeding for that purpose has been initiated or
threatened by the Commission (any preliminary prospectus included in
the Initial Registration Statement or filed with the Commission
pursuant to Rule 424(a) of the rules and regulations of the Commission
under the Act, is hereinafter called a "Preliminary Prospectus"; the
various parts of the Initial Registration Statement and the Rule 462(b)
Registration Statement, if any, including all exhibits thereto and
including the information contained in the form of final prospectus
filed with the Commission pursuant to Rule 424(b) under the Act in
accordance with Section 5(a) hereof and deemed by virtue of Rule 430A
under the Act to be part of the Initial Registration Statement at the
time it was declared effective or such part of the Rule 462(b)
Registration Statement, if any, at the time it became or hereafter
becomes effective, each as amended at the time such part of the
registration statement became effective, is hereinafter collectively
called the "Registration Statement"; and such final prospectus, in the
form first filed pursuant to Rule 424(b) under the Act, is hereinafter
called the "Prospectus");
(ii) No order preventing or suspending the use of any Preliminary
Prospectus has been issued by the Commission, and each Preliminary
Prospectus, at the time of filing thereof, conformed in all material
respects to the requirements of the Act and the rules and regulations
of the Commission thereunder, and did not contain an untrue statement
of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading;
provided, however, that this representation and warranty shall not
apply to any statements or omissions made in reliance upon and in
conformity with information furnished in writing to the Company by an
Underwriter through Schroder Wertheim & Co. Incorporated expressly for
use therein;
(iii) The Registration Statement conforms, and the Prospectus and
any further amendments or supplements to the Registration Statement or
the Prospectus will conform, in all material respects to the
requirements of the Act and the rules and regulations of the Commission
thereunder and do not and will not, as of the applicable effective date
as to the Registration Statement and any amendment thereto, and as of
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the applicable filing date as to the Prospectus and any amendment or
supplement thereto, contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; provided,
however, that this representation and warranty shall not apply to any
statements or omissions made in reliance upon and in conformity with
information furnished in writing to the Company by an Underwriter
through Schroder Wertheim & Co. Incorporated expressly for use therein;
(iv) Neither the Company nor any of its subsidiaries has
sustained since the date of the latest audited financial statements
included in the Prospectus any material loss or interference with its
business from fire, explosion, flood or other calamity, whether or not
covered by insurance, or from any labor dispute or court or
governmental action, order or decree, otherwise than as set forth or
contemplated in the Prospectus; and, since the respective dates as of
which information is given in the Registration Statement and the
Prospectus, there has not been any change in the capital stock or
long-term debt of the Company or any of its subsidiaries, or any
material adverse change, or any development involving a prospective
material adverse change, in or affecting the general affairs,
management, financial position, stockholders' equity, results of
operations or prospects of the Company and its subsidiaries, otherwise
than as set forth or contemplated in the Prospectus;
(v) The Company and its subsidiaries have good and marketable
title in fee simple to all real property and good and marketable title
to all personal property owned by them, in each case free and clear of
all liens, encumbrances and defects except such as are described in the
Prospectus or such as do not materially affect the value of such
property and do not interfere with the use made and proposed to be made
of such property by the Company and its subsidiaries; and any real
property and buildings held under lease by the Company and its
subsidiaries are held by them under valid, subsisting and enforceable
leases with such exceptions as are not material and do not interfere
with the use made and proposed to be made of such property and
buildings by the Company and its subsidiaries;
(vi) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Delaware, with power and authority (corporate and other) to own its
properties and conduct its business as described in the Prospectus, and
has been duly qualified as a foreign corporation for the transaction of
business and is in good standing under the laws of each other
jurisdiction in which it owns or leases properties or conducts any
business so as to require such qualification, except to the extent the
failure to be so qualified in any such jurisdiction would not have a
material adverse effect on the general affairs, management, financial
position, stockholders' equity, results of operations or prospects of
the Company and its subsidiaries considered as a whole; and each
subsidiary of the Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of its
jurisdiction of incorporation;
(vii) The Company has an authorized capitalization as set forth in
the Prospectus under the caption "Description of Capital Stock"; all of
the issued shares of capital stock of the Company have been duly and
validly authorized and issued, are fully paid
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and non-assessable, are free of any preemptive rights, rights of first
refusal or similar rights (except as provided in the Old Stockholders'
Agreement (as defined in the Prospectus)), were issued and sold in
compliance with the applicable Federal and state securities laws and
conform to the description of the Stock contained in the Prospectus;
except as described in the Prospectus, there are no outstanding
options, warrants or other rights calling for the issuance of, and
there are no commitments to issue, any shares of capital stock of the
Company or any security convertible or exchangeable or exercisable for
capital stock of the Company; there are no holders of securities of the
Company who, by reasons of the filing of the Registration Statement,
have the right (and have not waived such right) to request the Company
to include in the Registration Statement securities owned by them;
(viii) All of the issued shares of capital stock of each subsidiary
of the Company have been duly and validly authorized and issued, are
fully paid and non-assessable and (except for directors' qualifying
shares) are owned directly or indirectly by the Company, free and clear
of all liens, encumbrances, equities or claims; and there are no
outstanding options, warrants or other rights calling for the issuance
of, and there are no commitments to issue, any shares of capital stock
of any subsidiary or any security convertible or exchangeable or
exercisable for capital stock of any subsidiary; except for the shares
of stock of each subsidiary owned by the Company and the equity
interests in Equity Partners, L.P., USFS Equity, L.L.C. and Pure
Lodging, Inc. owned by the Company, neither the Company nor any
subsidiary owns, directly or indirectly, any shares of capital stock of
any corporation or has any equity interest in any firm, partnership,
joint venture, association or other entity;
(ix) The unissued Shares to be issued and sold by the Company to
the Underwriters hereunder have been duly and validly authorized and,
when issued and delivered against payment therefor as provided herein,
will be duly and validly issued and fully paid and non-assessable and
will conform to the description of the Stock contained in the
Prospectus;
(x) The issue and sale of the Shares by the Company and the
compliance by the Company with all of the provisions of this Agreement
and the consummation of the transactions herein contemplated will not
conflict with or result in a breach or violation of any of the terms or
provisions of, or constitute a default under, any indenture, mortgage,
deed of trust, loan agreement or other agreement or instrument, in each
case as in effect at the applicable Time of Delivery, to which the
Company or any of its subsidiaries is a party or by which the Company
or any of its subsidiaries is bound or to which any of the property or
assets of the Company or any of its subsidiaries is subject nor will
such action result in any violation of the provisions of the
Certificate of Incorporation or By-laws of the Company, in each case as
in effect at the applicable Time of Delivery, or any statute or any
order, rule or regulation of any court or governmental agency or body
having jurisdiction over the Company or any of its subsidiaries or any
of their properties; and no consent, approval, authorization, order,
registration or qualification of or with any such court or governmental
agency or body is required for the issue and sale of the Shares or the
consummation by the Company of the transactions contemplated by this
Agreement, except the registration under the
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Act of the Shares and such consents, approvals, authorizations,
registrations or qualifications as may be required under state
securities or Blue Sky laws in connection with the purchase and
distribution of the Shares by the Underwriters;
(xi) Each of the Joint Venture Agreement between the Company and
Microtel Franchise and Development Corporation dated as of September 7,
1995 and the Master Franchise Agreement between the Company and HSA
Properties, L.L.C. dated as of March 27, 1996 (the "Acquisition
Agreements") has been duly authorized, executed and delivered by the
Company and constitutes the legal, valid and binding agreement of the
Company, enforceable in accordance with its terms except as may be
limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to or affecting creditors' rights generally and
by general principles of equity; and the execution and delivery of such
agreement and the performance of the actions contemplated therein by
the Company, are within the power and authority of the Company, do not
and will not result in a breach or violation of any of the terms or
provisions of, or constitute a default under any other agreement or
instrument to which the Company is a party or by which the Company is
bound, and do not require the consent, approval, authorization or order
of any court or governmental agency or body or other third party;
(xii) Each of the Company and Microtel Inns and Suites
Franchising, Inc. and Hawthorn Suites Franchising (together, the
"Franchising Subsidiaries") is duly registered or authorized as a
franchisor in all jurisdictions where it is required to be so
registered or authorized to conduct its business as described in the
Prospectus; and the procedures of each of the Company and the
Franchising Subsidiaries comply with the requirements of all applicable
federal, state and local laws and any applicable rules and regulations
thereunder governing the offer and sale of franchises and the
relationships between franchisors and franchisees and has filed all
notices, reports, documents and other information required to be filed
thereunder, except to the extent any failure so to comply would not
have a material adverse effect on the general affairs, management,
financial position, stockholders' equity, results of operations or
prospects of the Company and its subsidiaries considered as a whole;
(xiii) The consolidated financial statements and schedules of the
Company and its subsidiaries included in the Registration Statement and
the Prospectus present fairly the financial condition, the results of
operations and the cash flows of the Company and its subsidiaries as of
the dates and for the periods therein specified in conformity with
generally accepted accounting principles consistently applied
throughout the periods involved, except as otherwise stated therein;
and the other financial and statistical information and data set forth
in the Registration Statement and the Prospectus are accurately
presented and, to the extent such information and data are derived from
the financial statements and books and records of the Company and its
subsidiaries, are prepared on a basis consistent with such financial
statements and the books and records of the Company and its
subsidiaries; no other financial statements or schedules are required
to be included in the Registration Statement and the Prospectus;
(xiv) There are no statutes or governmental regulations, or any
contracts or other documents that are required to be described in or
filed as exhibits to the Registration
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Statement which are not described therein or filed as exhibits thereto;
and all contracts described in or filed as exhibits to the Registration
Statement to which the Company or any subsidiary is a party have been
duly authorized, executed and delivered by the Company or such
subsidiary, constitute valid and binding agreements of the Company or
such subsidiary and are enforceable against the Company or subsidiary
in accordance with the terms thereof except as may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar
laws relating to or affecting creditors' rights generally and by
general principles of equity;
(xv) The Company and its subsidiaries own or possess adequate
patent rights or licenses or other rights to use patent rights,
inventions, trademarks, service marks, trade names, copyrights,
technology and know-how necessary to conduct the general business
operated or proposed to be operated by them as described in the
Prospectus; neither the Company nor any of its subsidiaries has
received any notice of infringement of or conflict with asserted rights
of others with respect to any patent, patent rights, inventions,
trademarks, service marks, trade names, copyrights, technology or
know-how which individually or in the aggregate could have a material
adverse effect on the general affairs, management, financial position,
stockholders' equity, results of operations or prospects of the Company
and its subsidiaries considered as a whole;
(xvi) Neither the Company nor any of its subsidiaries is in
violation of its Certificate of Incorporation or By-laws or in default
in the performance or observance of any material obligation, agreement,
covenant or condition contained in any indenture, mortgage, deed of
trust, loan agreement, lease or other material agreement or material
instrument to which it is a party or by which it or any of its
properties may be bound;
(xvii) The statements set forth in the Prospectus under the caption
"Description of Capital Stock", insofar as they purport to constitute a
summary of the terms of the Stock, are accurate and complete;
(xviii) Other than as set forth in the Prospectus, there are no
legal or governmental proceedings pending to which the Company or any
of its subsidiaries is a party or of which any property of the Company
or any of its subsidiaries is the subject which, if determined
adversely to the Company or any of its subsidiaries, would individually
or in the aggregate have a material adverse effect on the current or
future consolidated financial position, stockholders' equity or results
of operations of the Company and its subsidiaries; and, to the best of
the Company's knowledge, no such proceedings are threatened or
contemplated by governmental authorities or threatened by others;
(xix) The Company and its subsidiaries maintain a system of
internal accounting controls sufficient to provide reasonable
assurances that (i) transactions are executed in accordance with
management's general or specific authorization; (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to
maintain accountability for assets; (iii) access to assets is permitted
only in accordance with management's general or specific authorization;
and (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken
with respect to any differences;
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(xx) The Company is not and, after giving effect to the offering
and sale of the Shares, will not be required to be registered or
regulated as an "investment company" or an entity "controlled" by an
"investment company", as such terms are defined in the Investment
Company Act of 1940, as amended (the "Investment Company Act");
(xxi) None of the Company, any of its subsidiaries, nor any of
their officers, directors, employees or agents has used any corporate
funds for any unlawful contribution, gift, entertainment or other
unlawful expense relating to political activity,
or made any unlawful payment of funds of the Company or any subsidiary
or received or retained any funds in violation of any law, rule or
regulation;
(xxii) Neither the Company nor any of its affiliates does business
with the government of Cuba or with any person or affiliate located in
Cuba within the meaning of Section 517.075, Florida Statutes; and
(xxiii) Deloitte & Touche, who have certified certain financial
statements of the Company and its subsidiaries, are independent public
accountants as required by the Act and the rules and regulations of the
Commission thereunder.
(b) Each Selling Stockholder, severally and not jointly, represents and
warrants to, and agrees with, each of the Underwriters that:
(i) Such Selling Stockholder has, and at the Time of Delivery
(as defined in Section 4 hereof) will have, good and valid title to the
Shares to be sold by such Selling Stockholder hereunder, free and clear
of any liens, encumbrances, equities, security interests, claims and
other restrictions of any nature whatsoever, and such Selling
Stockholder has the full legal, right, power and authority, and any
approval required by law, to enter into this Agreement and to sell,
assign, transfer and deliver the Shares being sold by such Selling
Stockholder hereunder and to make the representations, warranties,
covenants and agreements made by it in this Agreement; and upon the
delivery of and payment for such Shares as herein provided, the several
Underwriters will acquire good and valid title thereto, free and clear
of all liens, encumbrances, equities, security interests, claims and
other restrictions of any nature whatsoever; if applicable, such
Selling Stockholder has been duly incorporated and is validly existing
as a corporation in good standing under the laws of its jurisdiction of
incorporation;
(ii) Such Selling Stockholder has duly executed and delivered
a power of attorney (with respect to such Selling Stockholder, the
"Power-of-Attorney"), in the form heretofore delivered to the
Representatives, appointing Neal K. Aronson, Judith R. Thoyer and Craig
C. Albert, each acting individually, as such Selling Stockholder's
attorney-in-fact (each, the "Attorney-in-Fact") with authority to
execute, deliver and perform this Agreement and the Custody Agreement
(as defined below) on behalf of such Selling Stockholder and such
Selling Stockholder, through its Attorney-in-Fact, has duly executed
and delivered a custody agreement (with respect to such Selling
Stockholder, the "Custody Agreement" and, together with the
Power-of-Attorney, the "Agreement and Power-of-Attorney"),in the form
heretofore delivered to the Representatives, appointing Wachovia Bank
of North Carolina, N.A., as custodian thereunder (the "Custodian").
Certificates in negotiable form, endorsed in blank or accompanied by
blank stock powers duly executed, with signatures appropriately
guaranteed, representing the Shares to be sold by such Selling
Stockholder hereunder have been deposited with the Custodian pursuant
to the Agreement and Power-of-Attorney for the purpose of delivery
pursuant to this Agreement. Such Selling Stockholder has full power
(corporate and other) to enter into the Agreement and Power-of-Attorney
and
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to perform its obligations thereunder. The execution and delivery of
the Agreement and Power-of-Attorney have been duly authorized by all
necessary corporate action of such Selling Stockholder; the Agreement
and the Power-of-Attorney have been duly executed and delivered by such
Selling Stockholder and, assuming due authorization, execution and
delivery by the Custodian, constitute the legal, valid and binding
instruments of such Selling Stockholder, enforceable in accordance with
their terms except as may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or
affecting creditors' rights generally and by general
principles of equity. Such Selling Stockholder agrees that each of the
Shares represented by the certificates on deposit with the Custodian
(up to and including the number of Shares to be sold by the Selling
Stockholder hereunder) is subject to the interests of the Underwriters,
the Company and the other Selling Stockholders hereunder, that the
arrangements made for such custody, the appointment of the
Attorney-in-Fact and the right, power and authority of the
Attorney-in-Fact to execute and deliver this Agreement and to carry out
the terms of this Agreement, are to that extent irrevocable and that
the obligations of such Selling Stockholder hereunder shall not be
terminated, except as provided in this Agreement or the Agreement and
Power- of-Attorney, by any act of such Selling Stockholder, by
operation of law or otherwise, whether in the case of any individual
Selling Stockholder by the death or incapacity of such Selling
Stockholder, or in the case of a corporate or partnership Selling
Stockholder by its liquidation or dissolution or by the occurrence of
any other event. If any individual Selling Stockholder should die or
become incapacitated, or if any corporate or partnership Selling
Stockholder shall liquidate or dissolve, or if any other event should
occur, before the delivery of such Shares hereunder, the certificates
for such Shares deposited with the Custodian shall be delivered by the
Custodian in accordance with the respective terms and conditions of
this Agreement as if such death, incapacity, termination, liquidation
or dissolution or other event had not occurred, regardless of whether
or not the Custodian or the Attorney-in-Fact shall have received notice
thereof;
(iii) Neither the execution and delivery or performance of this
Agreement or the Agreement and Power-of-Attorney or the consummation of
the transactions herein or therein contemplated nor the compliance with
the terms hereof or thereof by such Selling Stockholder will conflict
with, or result in a breach or violation of any of the terms and
provisions of, or constitute a default under, or result in the creation
or imposition of any lien, charge, claim or encumbrance on any property
of the Company or any of its subsidiaries under, any indenture,
mortgage, deed of trust, lease or other agreement or instrument to
which such Selling Stockholder is a party or by which such Selling
Stockholder's property is bound, or the charter documents or by-laws of
such Selling Stockholder or any statute, ruling, judgment, decree,
order, or regulation of any court or other governmental authority or
any arbitrator applicable to such Selling Stockholder; and no consent,
approval, authorization, order, registration or qualification of or
with any governmental authority, except such as have been obtained,
such as may be required under state or foreign securities or Blue Sky
laws or by the by-laws and rules of the National Association of
Securities Dealers, Inc. and, if the registration statement filed with
respect to the Shares is not effective under the Act as of the time
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of execution hereof, such as may be required (and shall be obtained as
provided in this Agreement) under the Act;
(iv) Such Selling Stockholder has not taken, directly or
indirectly, any action designed to cause or result in, or that has
constituted or which might reasonably be expected to constitute, the
stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of the Shares;
(v) The sale by such Selling Stockholder of Shares pursuant
hereto is not prompted by any adverse information concerning the
Company that is not set forth in the Registration Statement or the
Prospectus;
(vi) Such Selling Stockholder has reviewed the Prospectus and the
Registration Statement, and the information regarding such Selling
Stockholder set forth therein under the caption "Selling Stockholders"
is complete and accurate; and
(vii) At the Time of Delivery, all stock transfer or other taxes
(other than income taxes) which are required to be paid in connection
with the sale and transfer of the Shares to be sold by such Selling
Stockholder to the several Underwriters hereunder will have been fully
paid or provided for by such Selling Stockholder and all laws imposing
such taxes will have been fully complied with.
2. Subject to the terms and conditions herein set forth, (a) the
Company and each of the Selling Stockholders agree, severally and not jointly,
to issue and sell to each of the Underwriters, and each of the Underwriters
agrees, severally and not jointly, to purchase from the Company and each of the
Selling Stockholders, at a purchase price per share of $....., the number of
Firm Shares (to be adjusted by you so as to eliminate fractional shares)
determined by multiplying the aggregate number of Firm Shares to be sold by the
Company and each of the Selling Stockholders as set forth opposite their
respective names in Schedule II hereto by a fraction, the numerator of which is
the aggregate number of Firm Shares to be purchased by such Underwriter as set
forth opposite the name of such Underwriter in Schedule I hereto and the
denominator of which is the aggregate number of Firm Shares to be purchased by
all of the Underwriters from the Company and all of the Selling Stockholders
hereunder and (b) in the event and to the extent that the Underwriters shall
exercise the election to purchase Optional Shares as provided below, the Company
and each of the Selling Stockholders agree, severally and not jointly, to issue
and sell to each of the Underwriters, and each of the Underwriters agrees,
severally and not jointly, to purchase from the Company and each of the Selling
Stockholders, at the purchase price per share set forth in clause (a) of this
Section 2, that portion of the number of Optional Shares as to which such
election shall have been exercised (to be adjusted by you so as to eliminate
fractional shares) determined by multiplying such number of Optional Shares by a
fraction, the numerator of which is the maximum number of Optional Shares which
such Underwriter is entitled to purchase as set forth opposite the name of such
Underwriter in Schedule I hereto and the denominator of which is the maximum
number of Optional Shares that all of the Underwriters are entitled to purchase
hereunder.
The Company and the Selling Stockholders, as and to the extent indicated in
Schedule II hereto, hereby grant severally and not jointly, to the Underwriters
the right to purchase at their election up to 348,750 Optional Shares, at the
purchase price per share set forth in the paragraph above, for the sole purpose
of covering overallotments in the sale of the Firm
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Shares. Any such election to purchase Optional Shares shall be made in
proportion to the maximum number of Optional Shares to be sold by the Company
and each Selling Stockholder as set forth in Schedule II hereto. Any such
election to purchase Optional Shares may be exercised only by 48 hours' prior
written or telephonic notice (subsequently confirmed in writing) from you to the
Company and the Attorneys-in-Fact, given within 30 calendar days after the date
of this Agreement, setting forth the aggregate number of Optional Shares to be
purchased and the date on which such Optional Shares are to be delivered, as
determined by you but in no event earlier than the First Time of Delivery (as
defined in Section 4 hereof) or, unless you and the Company and the
Attorneys-in-Fact otherwise agree in writing, earlier than two or later than ten
business days after the date of such notice.
3. Upon the authorization by you of the release of the Firm Shares, the
several Underwriters propose to offer the Firm Shares for sale upon the terms
and conditions set forth in the Prospectus.
4. (a) The Shares to be purchased by each Underwriter hereunder, in
definitive form, and in such authorized denominations and registered in such
names as Schroder Wertheim & Co. Incorporated may request upon at least
forty-eight hours' prior notice to the Company and the Custodian, shall be
delivered by or on behalf of the Company and the Selling Stockholders to
Schroder Wertheim & Co. Incorporated, for the account of such Underwriter,
against payment by or on behalf of such Underwriter of the purchase price
therefor by wire transfer of federal (same day) funds to a bank account
designated by the Company and the Custodian on at least twenty-four hours' prior
notice to Schroder Wertheim & Co. Incorporated, or by certified or official bank
check or checks, payable in federal (same day) funds, to the order of the
Company, for the purchase price of the Firm Shares being sold by the Company,
and to the order of the Custodian for the purchase price of the Firm Shares
being sold by the Selling Stockholders. The Company and the Selling Stockholders
will cause the certificates representing the Shares to be made available for
checking and packaging at least twenty-four hours prior to the Time of Delivery
(as defined below) with respect thereto at the office of Schroder Wertheim & Co.
Incorporated, Equitable Center, 787 Seventh Avenue, New York, New York
10019-6016 (the "Designated Office"). The time and date of such delivery and
payment shall be, with respect to the Firm Shares, 9:30 a.m., New York City
time, on ............., 1996 or such other time and date as Schroder Wertheim &
Co. Incorporated and the Company may agree upon in writing, and, with respect to
the Optional Shares, 9:30 a.m., New York time, on the date specified by Schroder
Wertheim & Co. Incorporated in the written notice given by Schroder Wertheim &
Co. Incorporated of the Underwriters' election to purchase such Optional Shares,
or such other time and date as Schroder Wertheim & Co. Incorporated and the
Company may agree upon in writing. Such time and date for delivery of the Firm
Shares is herein called the "First Time of Delivery", such time and date for
delivery of the Optional Shares, if not the First Time of Delivery, is herein
called the "Second Time of Delivery", and each such time and date for delivery
is herein called a "Time of Delivery".
(b) The documents to be delivered at each Time of Delivery by or on
behalf of the parties hereto pursuant to Section 7 hereof, including the cross
receipt for the Shares and any additional documents requested by the
Underwriters pursuant to Section 7(k) hereof, will be delivered at the offices
of Sullivan & Cromwell, 125 Broad Street, New York, New York 10004 (the "Closing
Location"), and the Shares will be delivered at the Designated Office, all at
such
-10-
Time of Delivery. A meeting will be held at the Closing Location at .......p.m.,
New York City time, on the New York Business Day next preceding such Time of
Delivery, at which meeting the final drafts of the documents to be delivered
pursuant to the preceding sentence will be available for review by the parties
hereto. For the purposes of this Section 4, "New York Business Day" shall mean
each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which
banking institutions in New York are generally authorized or obligated by law or
executive order to close.
5. (a) The Company agrees with each of the Underwriters:
(i) To prepare the Prospectus in a form approved by you and to
file such Prospectus pursuant to Rule 424(b) under the Act not later
than the Commission's close of business on the second business day
following the execution and delivery of this Agreement, or, if
applicable, such earlier time as may be required by Rule 430A(a)(3)
under the Act; to make no further amendment or any supplement to the
Registration Statement or Prospectus prior to the last Time of Delivery
which shall be disapproved by you promptly after reasonable notice
thereof; to advise you, promptly after it receives notice thereof, of
the time when any amendment to the Registration Statement has been
filed or becomes effective or any supplement to the Prospectus or any
amended Prospectus has been filed and to furnish you and counsel for
the Underwriters, without charge, signed copies of the registration
statement originally filed with respect to the Shares and each
amendment thereto (in each case including all exhibits thereto) and to
each other Underwriter, without charge, a conformed copy of such
registration statement and each amendment thereto (in each case without
exhibits thereto); to advise you, promptly after it receives notice
thereof, of the issuance by the Commission of any stop order or of any
order preventing or suspending the use of any Preliminary Prospectus or
prospectus, of the suspension of the qualification of the Shares for
offering or sale in any jurisdiction, of the initiation or threatening
of any proceeding for any such purpose, or of any request by the
Commission for the amending or supplementing of the Registration
Statement or Prospectus or for additional information; and, in the
event of the issuance of any stop order or of any order preventing or
suspending the use of any Preliminary Prospectus or prospectus or
suspending any such qualification, promptly to use its best efforts to
obtain the withdrawal of such order;
(ii) Promptly from time to time to take such action as you may
reasonably request to qualify the Shares for offering and sale under
the securities laws of such jurisdictions as you may request and to
comply with such laws so as to permit the continuance of sales and
dealings therein in such jurisdictions for as long as may be necessary
to complete the distribution of the Shares, provided that in connection
therewith the Company shall not be required to qualify as a foreign
corporation or to file a general consent to service of process in any
jurisdiction;
(iii) Prior to 10:00 a.m., New York City time, on the New York
Business Day next succeeding the date of this Agreement and from time
to time, to furnish the Underwriters with copies of the Prospectus in
New York City in such quantities as you may reasonably request, and, if
the delivery of a prospectus is required at any time prior to the
expiration of nine months after the time of issue of the Prospectus in
connection
-11-
with the offering or sale of the Shares and if at such time any event shall have
occurred as a result of which the Prospectus as then amended or supplemented
would include an untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made when such Prospectus is delivered,
not misleading, or, if for any other reason it shall be necessary during such
period to amend or supplement the Prospectus in order to comply with the Act, to
notify you and upon your request to prepare and furnish without charge to each
Underwriter and to any dealer in securities as many copies as you may from time
to time reasonably request of an amended Prospectus or a supplement to the
Prospectus which will correct such statement or omission or effect such
compliance, and in case any Underwriter is required to deliver a prospectus in
connection with sales of any of the Shares at any time nine months or more after
the time of issue of the Prospectus, upon your request but at the expense of
such Underwriter, to prepare and deliver to such Underwriter as many copies as
you may request of an amended or supplemented Prospectus complying with Section
10(a)(3) of the Act;
(iv) To make generally available to its securityholders as soon
as practicable, but in any event not later than eighteen months after
the effective date of the Registration Statement (as defined in Rule
158(c) under the Act), an earnings statement of the Company and its
subsidiaries (which need not be audited) complying with Section 11(a)
of the Act and the rules and regulations thereunder (including, at the
option of the Company, Rule 158); (v) During the period beginning from
the date hereof and continuing to and including the date 180 days after
the date of the Prospectus, not to offer, sell, contract to sell or
otherwise dispose of, except as provided hereunder any securities of
the Company that are substantially similar to the Shares, including but
not limited to any securities that are convertible into or exchangeable
for, or that represent the right to receive, Stock or any such
substantially similar securities (other than pursuant to employee or
non-employee director stock option plans existing on, or upon the
conversion or exchange of convertible or exchangeable securities
outstanding as of, the date of this Agreement), without your prior
written consent;
(vi) During a period of three years from the effective date of
the Registration Statement, to furnish to its stockholders as soon as
practicable after the end of each fiscal year an annual report
(including a balance sheet and statements of income, stockholders'
equity and cash flows of the Company and its consolidated subsidiaries
certified by independent public accountants) and, as soon as
practicable after the end of each of the first three quarters of each
fiscal year (beginning with the fiscal quarter ending after the
effective date of the Registration Statement), unaudited consolidated
summary financial information of the Company and its subsidiaries for
such quarter in reasonable detail;
(vii) During a period of three years from the effective date of
the Registration Statement, to furnish to you copies of all reports or
other communications (financial or other) furnished to stockholders,
and to deliver to you (i) as soon as they are available, copies of any
reports and financial statements furnished to or filed with the
Commission
-12-
or any national securities exchange on which any class of securities of
the Company is listed; and (ii) such additional information concerning
the business and financial condition of the Company as you may from
time to time reasonably request (such financial statements to be on a
consolidated basis to the extent the accounts of the Company and its
subsidiaries are consolidated in reports furnished to its stockholders
generally or to the Commission);
(viii) To use the net proceeds received by it from the sale of the
Shares pursuant to this Agreement in the manner specified in the
Prospectus under the caption "Use of Proceeds";
(ix) To use its best efforts to list for quotation the Shares on
the National Association of Securities Dealers Automated Quotations
National Market System
("NASDAQ");
(x) To file promptly all documents required to be filed with the
Commission pursuant to Section 13, 14 or 15(d) of the Securities
Exchange Act of 1934, as amended, subsequent to the Effective Date and
during any period when the Prospectus is required to be delivered; and
(xi) To file with the Commission such reports on Form SR as may
be required by Rule 463 under the Act.
(b) Each Selling Stockholder, severally and not jointly, covenants and
agrees with each of the Underwriters that:
(i) Such Selling Stockholder will not, directly or indirectly,
take any action designed to cause or result in, or that has constituted
or which might reasonably be expected to constitute, the stabilization
or manipulation of the price of any security of the Company to
facilitate the sale or resale of the Shares;
(ii) As soon as any Selling Stockholder is advised thereof, such
Selling Stockholder will advise the Representatives and confirm such
advice in writing, (A) of receipt by the Selling Stockholder or by any
representative or agent of such Selling Stockholder, of any
communication from the Commission relating to the Registration
Statement, the Prospectus or any Preliminary Prospectus, or any notice
or order of the Commission relating to the Company or any of the
Selling Stockholders in connection with the transactions contemplated
by this Agreement and (B) of the happening of any event which makes or
may make any statement made in the Registration Statement, the
Prospectus or any Preliminary Prospectus untrue or that requires the
making of any change in the Registration Statement, Prospectus or
Preliminary Prospectus, as the case may be, in order to make such
statement, in light of the circumstances in which it was made, not
misleading; and
(iii) Such Selling Stockholder will deliver to the Representatives
prior to the Time of Delivery a properly completed and executed United
States Treasury Department Form W-9.
6. The Company covenants and agrees with the several Underwriters that
the Company will pay or cause to be paid the following: (i) the fees,
disbursements and expenses of the Company's and the Selling Stockholders'
counsel and accountants in connection with
-13-
the registration of the Shares under the Act and all other expenses in
connection with the preparation, printing and filing of the Registration
Statement, any Preliminary Prospectus and the Prospectus and amendments and
supplements thereto and the mailing and delivering of copies thereof to the
Underwriters and dealers; (ii) the cost of printing any Agreement among
Underwriters, this Agreement, the Blue Sky Memorandum and any other documents in
connection with the offering, purchase, sale and delivery of the Shares; (iii)
all expenses in connection with the qualification of the Shares for offering and
sale under state securities laws as provided in Section 5(b) hereof, including
the fees and disbursements of counsel for the Underwriters in connection with
such qualification and in connection with the Blue Sky survey; (iv) all fees and
expenses in connection with listing the Shares on NASDAQ; (iv) the filing fees
incident to, and the fees and disbursements of counsel for the Underwriters in
connection with, securing any required review by the National Association of
Securities Dealers, Inc. of the terms of the sale of the Shares; (v) the cost of
preparing stock certificates; (vi) the cost and charges of any transfer agent or
registrar; and (vii) all other costs and expenses incident to the performance of
its obligations hereunder which are not otherwise specifically provided for in
this Section, including the cost of any stock issue or transfer taxes on sale of
the Shares to the Underwriters (whether such Shares are sold by the Company or
the Selling Shareholders), the cost of the Company's personnel and other
internal costs, and all other taxes incident to the sale and delivery of the
Shares to be sold by the Company and the Selling Stockholders to the
Underwriters hereunder. It is understood, however, that, except as provided in
this Section, and Sections 8 and 11 hereof, the Underwriters will pay all of
their own costs and expenses, including their travel costs, the roadshow costs
(other than the lodging expenses of the officers of the Company), the fees of
their counsel, stock transfer taxes on resale of any of the Shares by them, and
any advertising expenses connected with any offers they may make.
7. The obligations of the Underwriters hereunder, as to the Shares to
be delivered at each Time of Delivery, shall be subject, in their discretion, to
the condition that all representations and warranties and other statements of
the Company and the Selling Stockholders herein are, at and as of such Time of
Delivery, true and correct, the condition that the Company and the Selling
Stockholders shall have performed all of their obligations hereunder theretofore
to be performed, and the following additional conditions:
(a) The Prospectus shall have been filed with the Commission pursuant
to Rule 424(b) within the applicable time period prescribed for such filing by
the rules and regulations under the Act and in accordance with Section 5(a)
hereof; no stop order suspending the effectiveness of the Registration Statement
or any part thereof shall have been issued and no proceeding for that purpose
shall have been initiated or threatened by the Commission; and all requests for
additional information on the part of the Commission shall have been complied
with to your reasonable satisfaction;
(b) Sullivan & Cromwell, counsel for the Underwriters, shall have
furnished to you such opinion or opinions, dated such Time of Delivery, with
respect to the validity of the Shares being delivered at such Time of Delivery,
the Registration Statement, the Prospectus and such other related matters as you
may reasonably request, and such counsel shall have received such papers and
information as they may reasonably request to enable them to pass upon such
matters;
-14-
(c) Paul, Weiss, Rifkind, Wharton & Garrison, counsel for the Company,
shall have furnished to you their written opinion, dated such Time of Delivery,
in form and substance satisfactory to you, to the effect that:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Delaware, with power and authority (corporate and other) to own its
properties and conduct its business as described in the Prospectus;
(ii) The Company has an authorized capitalization as set forth in
the Prospectus, and all of the issued shares of capital stock of the
Company (including the Shares being delivered at such Time of Delivery)
have been duly and validly authorized and issued and are fully paid and
non-assessable; and the Shares conform to the description of the Stock
contained in the Prospectus;
(iii) To such counsel's knowledge and other than as set forth in
the Prospectus, there are no legal or governmental proceedings pending
to which the Company or any of its subsidiaries or any of their
respective officers or directors is a party or of which any property of
the Company or any of its subsidiaries is the subject which, if
determined adversely to the Company or any of its subsidiaries, would
individually or in the aggregate have a material adverse effect on the
current or future consolidated financial position, stockholders' equity
or results of operations of the Company and its subsidiaries; and, to
the best of such counsel's knowledge, no such proceedings are
threatened or contemplated by governmental authorities or threatened by
others;
(iv) This Agreement has been duly authorized, executed and
delivered by the Company and, assuming the due authorization, execution
and delivery by the Underwriters and assuming further that the
Registration Statement and the Prospectus do not contain any material
misstatements or omissions, this Agreement is a legal, valid and
binding agreement of the Company enforceable in accordance with its
terms, except as enforcement of the same may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting
creditors' rights generally and subject, as to enforceability, to
general principles of equity (regardless of whether enforcement is
sought in a proceeding in equity or at law) and subject, as to
enforceability of those provisions relating to indemnity, to the
Federal securities laws and principles of public policy;
(v) The issue and sale of the Shares being delivered at such
Time of Delivery by the Company and the compliance by the Company with
all of the provisions of this Agreement and the consummation of the
transactions herein contemplated will not conflict with or result in a
breach or violation of any of the terms or provisions of, or constitute
a default under, any indenture, mortgage, deed of trust, loan agreement
or other material agreement or material instrument known to such
counsel, in each case as in effect at such Time of Delivery, to which
the Company or any of its subsidiaries is a party or by which the
Company or any of its subsidiaries is bound or to which any of the
property or assets of the Company or any of its subsidiaries is subject
nor will such action result in any violation of the provisions of the
Certificate of Incorporation or By-laws of the Company, in each case as
in effect at such Time of Delivery, or any statute or any order, rule
or regulation known to such counsel of any court or governmental agency
or body having jurisdiction over the Company or any of its subsidiaries
or any of their properties;
-15-
(vi) No consent, approval, authorization, order, registration or
qualification of or with any court or governmental agency or body is
required for the issue and sale of the Shares or the consummation by
the Company of the transactions contemplated by this Agreement, except
the registration under the Act of the Shares, and such consents,
approvals, authorizations, registrations or qualifications as have been
obtained or as may be required under state securities or Blue Sky laws
in connection with the purchase and distribution of the Shares by the
Underwriters;
(vii) To such counsel's knowledge, neither the Company nor any of
its subsidiaries is in violation of its Certificate of Incorporation or
By-laws or in default in the performance or observance of any material
obligation, agreement, covenant or condition contained in any
indenture, mortgage, deed of trust, loan agreement, lease or other
material agreement or material instrument that is filed as an exhibit
to the Registration Statement, in each case as in effect at such Time
of Delivery;
(viii) Except as described in the Prospectus and except as
provided herein and in the Old Stockholders' Agreement, there are no
preemptive or other rights to subscribe for or to purchase, nor any
restriction upon the voting or transfer of, any Shares pursuant to the
Company's Certificate of Incorporation or By-laws, in each case as
amended to the date hereof, or any agreement or other instrument known
to such counsel; and no holders of securities of the Company have
rights to the registration thereof under the Registration Statement or,
if any such holders have such rights, such holders have waived such
rights;
(ix) To the extent summarized therein, all contracts and
agreements summarized in the Registration Statement and the Prospectus
are fairly summarized therein, conform in all material respects to the
descriptions thereof contained therein and, to the extent such
contracts or agreements are required under the Act or the rules and
regulations thereunder to be filed as exhibits to the Registration
Statement, they are so filed; and such counsel does not know of any
contracts or other documents or any other material agreements required
to be summarized or disclosed in the Prospectus or to be so filed as an
exhibit to the Registration Statement, which have not been so
summarized or disclosed, or so filed;
(x) The statements set forth in the Prospectus under the caption
"Description of Capital Stock", insofar as they purport to constitute a
summary of the terms of the Stock, are accurate and complete;
(xi) The Company is not required to be registered and is not
regulated as an "investment company" or an entity "controlled" by an
"investment company", as such terms are defined in the Investment
Company Act; and
(xii) The Registration Statement and the Prospectus and any
further amendments and supplements thereto made by the Company prior to
such Time of Delivery (other than the financial statements and related
schedules and lodging industry data prepared by third-party sources
therein, as to which such counsel need express no opinion) comply as to
form in all material respects with the requirements of the Act and the
rules and regulations thereunder.
-16-
In addition, such counsel shall state that they have participated in the
preparation of the Registration Statement and the Prospectus and, although they
do not assume any responsibility for the accuracy, completeness or fairness of
the statements contained in the Registration Statement or the Prospectus, except
for those referred to in the opinion in subsection (x) of this section 7(c),
nothing has come to their attention to cause them to believe that, as of its
effective date, the Registration Statement or any further amendment thereto made
by the Company prior to such Time of Delivery (other than the financial
statements and related schedules and lodging industry data prepared by
third-party sources therein, as to which such counsel need express no opinion)
contained an untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading or that, as of its date, the Prospectus or any further amendment
or supplement thereto made by the Company prior to such Time of Delivery (other
than the financial statements and related schedules and lodging industry data
prepared by third-party sources therein, as to which such counsel need express
no opinion) contained an untrue statement of a material fact or omitted to state
a material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading or that, as of such
Time of Delivery, either the Registration Statement or the Prospectus or any
further amendment or supplement thereto made by the Company prior to such Time
of Delivery (other than the financial statements and related schedules and
lodging industry data prepared by third-party sources therein, as to which such
counsel need express no opinion) contains an untrue statement of a material fact
or omits to state a material fact necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading; and
they do not know of any amendment to the Registration Statement required to be
filed in the Registration Statement or the Prospectus which has not been filed;
(d) Bodker, Ramsey & Andrews, counsel for the Company, shall have
furnished to you their written opinion, dated such Time of Delivery, in form and
substance satisfactory to you, to the effect that:
(i) The Company has been duly qualified as a foreign corporation
for the transaction of business and is in good standing under the laws
of each other jurisdiction in which it owns or leases properties or
conducts any business so as to require such qualification or is subject
to no material liability or disability by reason of failure to be so
qualified in any such jurisdiction (such counsel being entitled to rely
in respect of matters of fact upon certificates of officers of the
Company, provided that such counsel shall state that they believe that
both you and they are justified in relying upon such certificates); and
(ii) Each subsidiary of the Company has been duly incorporated
and is validly existing as a corporation in good standing under the
laws of its jurisdiction of incorporation; and all of the issued shares
of capital stock of each such subsidiary have been duly and validly
authorized and issued, are fully paid and non-assessable, and (except
for directors' qualifying shares) are owned directly or indirectly by
the Company, free and clear of all liens, encumbrances, equities or
claims (such counsel being entitled to rely in respect of matters of
fact upon certificates of officers of the
-17-
Company or its subsidiaries, provided that such counsel shall state
that they believe that both you and they are justified in relying upon
such certificates).
(e) Rudnick, Wolfe, Epstein & Zeidman, special counsel for the Company,
shall have furnished to you their written opinion, dated such Time of Delivery,
in form and substance satisfactory to you, to the effect that, to the best of
such counsel's knowledge, and other than as set forth in the Prospectus, each of
the Company and the Franchising Subsidiaries is duly registered or authorized as
a franchisor in all jurisdictions where it is required to be so registered or
authorized as a franchisor to conduct its business as described in the
Prospectus; and the procedures of each of the Company and the Franchising
Subsidiaries comply with the requirements of all applicable federal, state and
local laws and any applicable rules and regulations thereunder governing the
offer and sale of franchises and the relationships between franchisors and
franchisees, except to the extent any failure so to comply would not be expected
to have a material adverse effect on the business or financial condition of the
Company and its subsidiaries considered as a whole;
(f) The respective counsel for each of the Selling Stockholders, which
counsel shall be satisfactory to you, shall have furnished to you their written
opinion, dated the Time of Delivery, in form and substance satisfactory to you
to the effect that:
(i) The Selling Stockholder has full legal right, power and
authority to enter into this Agreement, the Agreement and
Power-of-Attorney and to sell, transfer and deliver the Shares being
sold by such Selling Stockholder hereunder in the manner provided in
this Agreement and to perform its obligations under the Agreement and
Power-of-Attorney; the execution and delivery of this Agreement, and
the Agreement and Power-of-Attorney have been duly authorized by all
necessary corporate action of the Selling Stockholder; this Agreement,
the Agreement and Power-of-Attorney have been duly executed and
delivered by the Selling Stockholder; assuming due authorization,
execution and delivery by the Custodian, the Agreement and Power-of-
Attorney are legal, valid and binding agreements of the Selling
Stockholder, enforceable in accordance with their terms, except as
enforcement of the same may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting creditors'
rights generally and subject, as to enforceability, to general
principles of equity (regardless of whether enforcement is sought in a
proceeding in equity or at law);
(ii) Upon delivery of and payment for the Shares being sold by
the Selling Stockholder, the several Underwriters will receive good and
valid title to such Shares, free and clear of all liens, encumbrances,
equities, security interests, claims or other defects;
(iii) The sale of the Shares to the Underwriters by the Selling
Stockholder pursuant to this Agreement, the compliance by the Selling
Stockholder with the other provisions of this Agreement, the Agreement
and Power-of-Attorney and the consummation of the other transactions
herein contemplated do not (A) conflict with, or result in a breach or
violation of any of the terms and provisions of, or constitute a
default under, or result in the creation or imposition of any lien,
charge, claim, or encumbrance on any property of the Selling
Stockholder under, any indenture, mortgage, deed of trust, lease or
other agreement or instrument to which the Selling Stockholder is a
party or by which the Selling
-18-
Stockholder or any of the Selling Stockholder's property is bound, or
the charter documents or by-laws of the Selling Stockholder or any
statute or any judgment, decree, order, rule or regulation of any court
or other governmental authority or any arbitrator applicable to the
Selling Stockholder, or (B) require the consent, approval,
authorization, order, registration or qualification of or with any
governmental authority, except such as have been obtained and such as
may be required under state or foreign securities or Blue Sky laws; and
(iv) There are no transfer or other taxes (other than income
taxes) known to such counsel payable in connection with the sale and
delivery of the Shares by the Selling Stockholder to the several
Underwriters or all such taxes have been fully paid in connection with
such sale and delivery.
In rendering such opinion, such counsel may rely, to the extent deemed
advisable by such counsel, as to factual matters, upon certificates of public
officials and the Selling Stockholders.
(g) On the date of the Prospectus at a time prior to the
execution of this Agreement; at 9:30 a.m., New York City time, on the
effective date of any post-effective amendment to the Registration
Statement filed subsequent to the date of this Agreement and also at
each Time of Delivery, Deloitte & Touche shall have furnished to you a
letter or letters, dated the respective dates of delivery thereof, in
form and substance satisfactory to you, to the effect set forth in
Annex I hereto (the executed copy of the letter delivered prior to the
execution of this Agreement is attached as Annex I(a) hereto and a
draft of the form of letter to bedelivered on the effective date of any
post-effective amendment to the Registration Statement and as of each
Time of Delivery is attached as Annex I(b) hereto);
(h)(i) Neither the Company nor any of its subsidiaries shall have
sustained since the date of the latest audited financial statements included in
the Prospectus any loss or interference with its business from fire, explosion,
flood or other calamity, whether or not covered by insurance, or from any labor
dispute or court or governmental action, order or decree, otherwise than as set
forth or contemplated in the Prospectus, and (ii) since the respective dates as
of which information is given in the Prospectus there shall not have been any
change in the capital stock or long-term debt of the Company or any of its
subsidiaries, or any change, or any development involving a prospective change,
in or affecting the general affairs, management, financial position,
stockholders' equity, results of operations or prospects of the Company and its
subsidiaries, otherwise than as set forth or contemplated in the Prospectus, the
effect of which, in any such case described in Clause (i) or (ii), is in the
judgment of the Representatives so material and adverse as to make it
impracticable or inadvisable to proceed with the public offering or the delivery
of the Shares being delivered at such Time of Delivery on the terms and in the
manner contemplated in the Prospectus;
(i) On or after the date hereof there shall not have occurred any of
the following: (i) a suspension or material limitation in trading in securities
generally on the New York Stock Exchange or on NASDAQ or the establishment of
minimum or maximum prices on such exchange or market; (ii) a suspension or
material limitation in trading in the Company's securities on NASDAQ; (iii) a
general moratorium on commercial banking activities declared by either Federal
or New York State authorities; or (iv) a material adverse change in the
political, financial or economic conditions in the United States or the outbreak
or escalation of hostilities
-19-
involving the United States or the declaration by the United States of a
national emergency or war, if the effect of any such event specified in this
Clause (iv) in the judgment of the Representatives makes it impracticable or
inadvisable to proceed with the public offering or the delivery of the Shares
being delivered at such Time of Delivery on the terms and in the manner
contemplated in the Prospectus;
(j) The Shares to be sold at such Time of Delivery shall have been duly
listed for quotation on NASDAQ;
(k) The Company and the Selling Stockholders shall have furnished or
caused to be furnished to you at such Time of Delivery certificates of officers
of the Company and of each Selling Stockholder or the Attorney-in-Fact on behalf
of each Selling Stockholder satisfactory to you as to (i) the accuracy of the
representations and warranties of the Company and the Selling Stockholders
herein at and as of such Time of Delivery, (ii) the performance by the Company
and each of the Selling Stockholders of all of its respective obligations
hereunder to be performed at or prior to such Time of Delivery, (iii) the
matters set forth in subsections (a) and (h) of this Section 7; (iv) the fact
that they have carefully examined the Registration Statement and Prospectus and,
(A) as of the Effective Date, the statements contained in the Registration
Statement and the Prospectus were true and correct and neither the Registration
Statement nor the Prospectus omitted to state a material fact required to be
stated therein or necessary to make the statements therein not misleading and
(B) since the Effective Date, no event has occurred that is required by the Act
or the rules and regulations of the Commission thereunder to be set forth in an
amendment of, or a supplement to, the Prospectus that has not been set forth in
such an amendment or supplement; and (v) as to such other matters as you may
reasonably request;
8. (a) The Company will indemnify and hold harmless each Underwriter
against any losses, claims, damages or liabilities, joint or several, to which
such Underwriter may become subject, under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon (i) an untrue statement or alleged untrue statement of a
material fact contained in any Preliminary Prospectus, the Registration
Statement or the Prospectus, or any amendment or supplement thereto, or in any
Blue Sky application or other document executed by the Company specifically for
that purpose or based upon written information furnished by the Company filed in
any state or other jurisdiction in order to qualify any or all of the Securities
under the security laws thereof or filed with the Commission or any securities
association or securities exchange (each, an "Application"), or arise out of or
are based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, or (ii) any untrue statement or alleged untrue statement made by the
Company in Section 1(a) of this Agreement, or (iii) the employment by the
Company of any device, scheme or artifice to defraud, or the engaging by the
Company in any act, practice or course of business which operates or would
operate as a fraud or deceit, or any conspiracy with respect thereto, in which
the Company shall participate, in connection with the issuance and sale of any
of the Shares, and will reimburse each Underwriter for any legal or other
expenses reasonably incurred by such Underwriter in connection with
investigating or defending any such action or claim as such expenses are
incurred; provided, however, that the Company shall not be liable in any such
case to the extent that any such loss, claim, damage or liability arises out of
or is
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based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in any Preliminary Prospectus, the Registration Statement
or the Prospectus or any such amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by any Underwriter
through Schroder Wertheim & Co. Incorporated expressly for use therein.
(b) Each Selling Stockholder, severally and not jointly, will indemnify
and hold harmless each Underwriter, the Company and the other Selling
Stockholders against any losses, claims, damages or liabilities to which such
Underwriter, the Company or such Selling Stockholder may become subject under
the Act or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon (i) any untrue
statement or alleged untrue statement of a material fact contained in the
Preliminary Prospectus, the Registration Statement, or the Prospectus, or any
amendment or supplement thereto, or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements made therein not misleading, in each case to the extent, but only to
the extent, that such untrue statement or alleged untrue statement or omission
or alleged omission was made in the Preliminary Prospectus, the Registration
Statement, the Prospectus or such amendment or supplement in reliance upon and
in conformity with information furnished to such Underwriter or the Company by
such Selling Stockholder expressly for use therein, or (ii) any untrue statement
or alleged untrue statement made by such Selling Stockholder in Section 1(b) of
this Agreement, and will reimburse such Underwriter, the Company or such Selling
Stockholder for any legal or other expenses incurred by such Underwriter, the
Company or such Selling Stockholder in connection with investigating, preparing
to defend, defending or appearing as a third-party witness in connection with
any such action or claim.
(c) In addition to any obligations of the Company and the Selling
Stockholders under Section 8(a) and Section 8(b), the Company and each of the
Selling Stockholders agree that
they shall perform their indemnification obligations under Section 8(a) and
Section 8(b) (as modified by Section 8(h)) with respect to counsel fees and
expenses and other expenses reasonably incurred by making payments within 45
days to the Underwriter in the amount of the statements of the Underwriter's
counsel or other statements which shall be forwarded by the Underwriter, and
that they shall make such payments notwithstanding the absence of a judicial
determination as to the propriety and enforceability of the obligation to
reimburse the Underwriters for such expenses and the possibility that such
payments might later be held to have been improper by a court and a court orders
return of such payments.
(d) Each Underwriter will indemnify and hold harmless the Company and
the Selling Stockholders against any losses, claims, damages or liabilities to
which the Company and the Selling Stockholders may become subject, under the Act
or otherwise, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon an untrue statement or
alleged untrue statement of a material fact contained in any Preliminary
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Prospectus, the Registration Statement or the Prospectus, or any amendment or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in any Preliminary
Prospectus, the Registration Statement or the Prospectus or any such amendment
or supplement in reliance upon and in conformity with written information
furnished to the Company and the Selling Stockholders by such Underwriter
through Schroder Wertheim & Co. Incorporated expressly for use therein; and will
reimburse the Company and the Selling Stockholders for any legal or other
expenses reasonably incurred by the Company and the Selling Stockholders in
connection with investigating or defending any such action or claim as such
expenses are incurred.
(e) Promptly after receipt by an indemnified party under subsection (a),
(b) or (d) above of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify the indemnifying party in
writing of the commencement thereof; but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have to
any indemnified party which it may have to any indemnified party under Section
8(a), 8(b) or 8(d) except to the extent it was unaware of such action and has
been prejudiced in any material respect by such failure or from any liability
which it may have to any indemnified party otherwise than under such Section
8(a), 8(b) or 8(d). In case any such action shall be brought against any
indemnified party and it shall notify the indemnifying party of the commencement
thereof, the indemnifying party shall be entitled to participate therein and, to
the extent that it shall wish, jointly with any other indemnifying party
similarly notified, to assume the defense thereof, with counsel satisfactory to
such indemnified party (who shall not, except with the consent of the
indemnified party, be counsel to the indemnifying party in any such action),
and, after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party shall not be
liable to such indemnified party under such subsection for any legal expenses of
other counsel or any other expenses, in each case subsequently incurred by such
indemnified party, in connection with the defense thereof other than reasonable
costs of investigation. If, however, (i) the indemnifying party has authorized
the employment of counsel for the indemnified party at the expense of the
indemnifying party or (ii) an indemnified party shall have reasonably concluded
that representation of such indemnified party and the indemnifying party by the
same counselwould be inappropriate under applicable standards of professional
conduct due to actual or potential differing interests between them and the
indemnified party so notifies the indemnifying party, then the indemnified party
shall be entitled to employ counsel different from counsel for the indemnifying
party at the expense of the indemnifying party and the indemnifying party shall
not have the right to assume the defense of such indemnified party. In no event
shall the indemnifying parties be liable for fees and expenses of more than one
counsel (in addition to local counsel) for all indemnified parties in connection
with any one action or separate but similar or related actions in the same
jurisdiction arising out of the same set of allegations or circumstances. The
counsel with respect to which fees and expenses shall be so reimbursed shall be
designated in writing by Schroder Wertheim & Co. Incorporated in the case of
parties indemnified pursuant to Section 8(a) and Section 8(b) and by the Company
in the case of parties indemnified pursuant to Section 8(d).
If at any time an indemnified party shall have requested an
indemnifying party to reimburse the indemnified party for fees and expenses of
counsel as contemplated by Section 8(c), the indemnifying party agrees that it
shall be liable for any settlement of any proceeding effected without its
written consent if (i) such settlement is entered into more than
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30 days after receipt by such indemnifying party of the aforesaid request and
(ii) such indemnifying party shall not have reimbursed the indemnified party in
accordance with such request prior to the date of such settlement. No
indemnifying party shall, without the written consent of the indemnified party,
effect the settlement or compromise of, or consent to the entry of any judgment
with respect to, any pending or threatened action or claim in respect of which
indemnification or contribution may be sought hereunder (whether or not the
indemnified party is an actual or potential party to such action or claim)
unless such settlement, compromise or judgment (i) includes an unconditional
release of the indemnified party from all liability arising out of such action
or claim and (ii) does not include a statement as to or an admission of fault,
culpability or a failure to act, by or on behalf of any indemnified party.
(f) If the indemnification provided for in this Section 8 is unavailable to
or insufficient to hold harmless an indemnified party under subsection (a) or
(b) above in respect of any losses, claims, damages or liabilities (or actions
in respect thereof) referred to therein, then each indemnifying party shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages or liabilities (or actions in respect thereof)
in such proportion as is appropriate to reflect the relative benefits received
by the Company and the Selling Stockholders on the one hand and the Underwriters
on the other from the offering of the Shares. If, however, the allocation
provided by the immediately preceding sentence is not permitted by applicable
law or if the indemnified party failed to give the notice required under
subsection (d) above, then each indemnifying party shall contribute to such
amount paid or payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of the Company and the Selling Stockholders on the one hand and the
Underwriters on the other in connection with the statements or omissions which
resulted in such losses, claims, damages or liabilities (or actions in respect
thereof), as well as any other relevant equitable considerations. The relative
benefits received by the Company and the Selling Stockholders on the one hand
and the Underwriters on the other shall be deemed to be in the same proportion
as the total net proceeds from the offering (before deducting expenses) received
by the Company bear to the total underwriting discounts and commissions received
by the Underwriters, in each case as set forth in the table on the cover page of
the Prospectus. The relative fault shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by the Company and the Selling Stockholders on the one hand
or the Underwriters on the other and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission. The Company, each of the Selling Stockholders and the Underwriters
agree that it would not be just and equitable if contributions pursuant to this
subsection (f) were determined by pro rata allocation (even if the Underwriters
were treated as one entity for such purpose) or by any other method of
allocation which does not take account of the equitable considerations referred
to above in this subsection (f). The amount paid or payable by an indemnified
party as a result of the losses, claims, damages or liabilities (or actions in
respect thereof) referred to above in this subsection (f) shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this subsection (f), no Underwriter shall be
required to contribute any amount in excess of the
-23-
amount by which the total price at which the Shares underwritten by it and
distributed to the public were offered to the public exceeds the amount of any
damages which such Underwriter has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations in
this subsection (f) to contribute are several in proportion to their respective
underwriting obligations and not joint.
(g) Promptly after receipt by any party to this Agreement of notice of
the commencement of any action, suit or proceeding, such party will, if a claim
for contribution in respect thereof is to be made against another party (the
"contributing party"), notify the contributing party of the commencement
thereof; but the omission so to notify the contributing party will not relieve
it from any liability which it may have to any other party for contribution
under the Act except to the extent it was unaware of such action and has been
prejudiced in any material respect by such failure or from any liability which
it may have to any other party other than for contribution under the Act. In
case any such action, suit or proceeding is brought against any party, and such
party notifies a contributing party of the commencement thereof, the
contributing party will be entitled to participate therein with the notifying
party and any other contributing party similarly notified.
(h) The obligations of the Company and the Selling Stockholders under
this Section 8 shall be in addition to any liability which the Company and the
Selling Stockholders may otherwise have and shall extend, upon the same terms
and conditions, to each person, if any, who controls any Underwriter within the
meaning of the Act; and the obligations of the Underwriters under this Section 8
shall be in addition to any liability which the respective Underwriters may
otherwise have and shall extend, upon the same terms and conditions, to each
officer and director of the Company and the Selling Stockholders (including any
person who, with his or her consent, is named in the Registration Statement as
about to become a director of the Company) and to each person, if any, who
controls the Company and the Selling Stockholders within the meaning of the Act.
9. (a) If any Underwriter shall default in its obligation to purchase
the Shares which it has agreed to purchase hereunder at a Time of Delivery, you
may in your discretion arrange for you or another party or other parties to
purchase such Shares on the terms containedherein. If within thirty-six hours
after such default by any Underwriter you do not arrange for the purchase of
such Shares, then the Company and the Selling Stockholders shall be entitled to
a further period of thirty-six hours within which to procure another party or
other parties satisfactory to you to purchase such Shares on such terms. In the
event that, within the respective prescribed periods, you notify the Company and
the Selling Stockholders that you have so arranged for the purchase of such
Shares, or the Company and the Selling Stockholders notifies you that it has so
arranged for the purchase of such Shares, you or the Company shall have the
right to postpone such Time of Delivery for a period of not more than seven
days, in order to effect whatever changes may thereby be made necessary in the
Registration Statement or the Prospectus, or in any other documents or
arrangements, and the Company agrees to file promptly any amendments to the
Registration Statement or the Prospectus which in your opinion may thereby be
made necessary. The term "Underwriter" as
-24-
used in this Agreement shall include any person substituted under this Section
with like effect as if such person had originally been a party to this Agreement
with respect to such Shares.
(b) If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting Underwriter or Underwriters by you or the Company and the
Selling Stockholders or both as provided in subsection (a) above, the aggregate
number of such Shares which remains unpurchased does not exceed one-eleventh of
the aggregate number of all the Shares to be purchased at such Time of Delivery,
then the Company and the Selling Stockholders shall have the right to require
each non-defaulting Underwriter to purchase the number of shares which such
Underwriter agreed to purchase hereunder at such Time of Delivery and, in
addition, to require each non-defaulting Underwriter to purchase its pro rata
share (based on the number of Shares which such Underwriter agreed to purchase
hereunder) of the Shares of such defaulting Underwriter or Underwriters for
which such arrangements have not been made; but nothing herein shall relieve a
defaulting Underwriter from liability for its default.
(c) If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting Underwriter or Underwriters by you or the Company and the
Selling Stockholders as provided in subsection (a) above, the aggregate number
of such Shares which remains unpurchased exceeds one-eleventh of the aggregate
number of all the Shares to be purchased at such Time of Delivery, or if the
Company and the Selling Stockholders shall not exercise the right described in
subsection (b) above to require non-defaulting Underwriters to purchase Shares
of a defaulting Underwriter or Underwriters, then this Agreement (or, with
respect to the Second Time of Delivery, the obligations of the Underwriters to
purchase and of the Company to sell the Optional Shares) shall thereupon
terminate, without liability on the part of any non-defaulting Underwriter or
the Company, except for the expenses to be borne by the Company and the Selling
Stockholders and the Underwriters as provided in Section 6 hereof and the
indemnity and contribution agreements in Section 8 hereof; but nothing herein
shall relieve a defaulting Underwriter from liability for its default.
10. The respective indemnities, agreements, representations, warranties
and other statements of the Company, each of the Selling Stockholders and the
several Underwriters, as set forth in this Agreement or made by or on behalf of
them, respectively, pursuant to this Agreement, shall remain in full force and
effect, regardless of any investigation (or any statement as to the results
thereof) made by or on behalf of any Underwriter or any controlling person of
any Underwriter, or the Company, or any officer or director or controlling
person of the Company, or any of the Selling Stockholders, or any controlling
person of any of the Selling Stockholders, and shall survive delivery of and
payment for the Shares.
11. If this Agreement shall be terminated pursuant to Section 9 hereof,
the Company and the Selling Stockholders shall not then be under any liability
to any Underwriter except as provided in Sections 6 and 8 hereof; but, if for
any other reason, any Shares are not delivered by or on behalf of the Company or
any of the Selling Stockholders as provided herein, the Company will reimburse
the Underwriters through you for all out-of-pocket expenses approved in writing
by you, including fees and disbursements of counsel, reasonably incurred by the
Underwriters in making preparations for the purchase, sale and delivery of the
Shares not so delivered, but the Company and the Selling Stockholders shall then
be under no further liability to any Underwriter except as provided in Sections
6 and 8 hereof.
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12. In all dealings hereunder, you shall act on behalf of each of the
Underwriters, and the parties hereto shall be entitled to act and rely upon any
statement, request, notice or agreement on behalf of any Underwriter made or
given by you jointly or by Schroder Wertheim & Co. Incorporated on behalf of you
as the representatives, and in all dealings with the Selling Stockholders
hereunder, you and the Company shall be entitled to act and rely upon any
statement, request, notice or agreement furnished in writing by or on behalf of
such Selling Stockholder or made or given by the Attorney-in-Fact for such
Selling Stockholder.
All statements, requests, notices and agreements hereunder shall be in
writing, and if to the Underwriters shall be delivered or sent by mail, telex or
facsimile transmission to you as the representatives in care of Schroder
Wertheim & Co. Incorporated, Equitable Center, 787 Seventh Avenue, New York, New
York 10019-6016, Attention: Registration Department; and if to the Company or
the Selling Stockholders shall be delivered or sent by mail to the address of
the Company set forth in the Registration Statement, Attention: Chief Financial
Officer; provided, however, that any notice to an Underwriter pursuant to
Section 8(d) hereof shall be delivered or sent by mail, telex or facsimile
transmission to such Underwriter at its address set forth in its Underwriters'
Questionnaire, or telex constituting such Questionnaire, which address will be
supplied to the Company by you upon request. Any such statements, requests,
notices or agreements shall take effect upon receipt thereof.
13. This Agreement shall be binding upon, and inure solely to the
benefit of, the Underwriters, the Company, each of the Selling Stockholders and,
to the extent provided in Sections 8 and 10 hereof, the officers and directors
of the Company and each person who controls the Company, any Selling Stockholder
or any Underwriter, and their respective heirs, executors, administrators,
successors and assigns, and no other person shall acquire or have any right
under or by virtue of this Agreement. No purchaser of any of the Shares from any
Underwriter shall be deemed a successor or assign by reason merely of such
purchase.
14. Time shall be of the essence of this Agreement. As used herein, the
term "business day" shall mean any day when the Commission's office in
Washington, D.C. is open for business.
15. This Agreement shall be governed by and construed in accordance
with the laws of the State of New York without regard to the principles of
conflicts of law.
16. This Agreement may be executed by any one or more of the parties
hereto in any number of counterparts, each of which shall be deemed to be an
original, but all such counterparts shall together constitute one and the same
instrument.
26
If the foregoing is in accordance with your understanding, please sign and
return to us five counterparts hereof, and upon the acceptance hereof by you, on
behalf of each of the Underwriters, this letter and such acceptance hereof shall
constitute a binding agreement among each of the Underwriters, the Company and
each of the Selling Stockholders. It is understood that your acceptance of this
letter on behalf of each of the Underwriters is pursuant to the authority set
forth in a form of Agreement among Underwriters, the form of which shall be
submitted to the Company for examination upon request, but without warranty on
your part as to the authority of the signers thereof.
Very truly yours,
U.S. FRANCHISE SYSTEMS, INC.
By: __________________________________
Name:
Title:
SELLING STOCKHOLDERS
By: ___________________________________
As Attorney-in-Fact for each of the
Selling Stockholders listed in
Schedule II
Accepted as of the date hereof:
SCHRODER WERTHEIM & CO. INCORPORATED
MONTGOMERY SECURITIES
By: SCHRODER WERTHEIM & CO. INCORPORATED
By: ______________________________________
Managing Director
SCHEDULE I
Number of Optional
Shares to be
Number of Firm Purchased if
Shares to be Maximum Option
Underwriter Purchased Exercised
----------- -------------- ------------------
Schroder Wertheim & Co.
Incorporated
Montgomery Securities
Total................................ 1,825,000 273,750
========= =======
SCHEDULE II
Number of Optional
Number of Firm Shares to be Sold if
Shares to be Maximum Option
Selling Stockholder Sold Exercised
- ------------------- -------------- --------------------
Ronald N. Beck 15,797 2,370
H. Pierre Eilian, M.D. 3,195 479
Jonathan D. Eilian 3,195 479
Nancy and Howard Feinglass 3,362 504
Goolock Associates 65,130 9,770
Lotte Bravmann & Carol
Bravmann Berlin
as Trustees FBO
Alyssa Michelle Berlin 14,347 2,152
Lotte Bravmann & Carol
Bravmann Berlin
as Trustees FBO
Elana Danielle Berlin 14,348 2,152
Lotte Bravmann & Carol
Bravmann Berlin
as Trustees FBO
Nicole Amy Berlin 14,348 2,152
Lotte Bravmann & Judith Kaufthal
as Trustees FBO
Jeremy J. Kaufthal 14,348 2,152
Lotte Bravmann & Judith Kaufthal
as Trustees FBO
Jonathan S. Kaufthal 14,348 2,152
Lotte Bravmann & Judith Kaufthal
as Trustees FBO
Joshua M. Kaufthal 14,348 2,152
Marc Lasry 12,637 1,896
Leon Levy 39,110 5,867
Microtopp Associates 71,304 10,696
David A. Mintz 3,363 504
Nash Grandchildren 1986 Trust 86,957 13,044
Schwartz Microtel
Investors, L.L.C. 109,863 16,479
------- ------
Total................................ 500,000 75,000
======= ======
ANNEX I
DESCRIPTION OF COMFORT LETTER
Pursuant to Section 7(g) of the Underwriting Agreement, the accountants
shall furnish letters to the Underwriters to the effect that:
(i) They are independent certified public accountants with
respect to the Company and its subsidiaries within the meaning of the
Act and the applicable published rules and regulations thereunder;
(ii) In their opinion, the financial statements and any
supplementary financial information and schedules (and, if applicable,
financial forecasts and/or pro forma financial information) examined by
them and included in the Prospectus or the Registration Statement
comply as to form in all material respects with the applicable
accounting requirements of the Act and the related published rules and
regulations thereunder; and, if applicable, they have made a review in
accordance with standards established by the American Institute of
Certified Public Accountants of the unaudited consolidated interim
financial statements, selected financial data, pro forma financial
information, financial forecasts and/or condensed financial statements
derived from audited financial statements of the Company for the
periods specified in such letter, as indicated in their reports
thereon, copies of which have been furnished to the representatives of
the Underwriters (the "Representatives") and are attached hereto;
(iii) They have made a review in accordance with standards
established by the American Institute of Certified Public Accountants
of the unaudited condensed consolidated statements of income,
consolidated balance sheets and consolidated statements of cash flows
included in the Prospectus as indicated in their reports thereon copies
of which are attached hereto and on the basis of specified procedures
including inquiries of officials of the Company who have responsibility
for financial and accounting matters regarding whether the unaudited
condensed consolidated financial statements referred to in paragraph
(vi)(A)(i) below comply as to form in all material respects with the
applicable accounting requirements of the Act and the related published
rules and regulations, nothing came to their attention that cause them
to believe that the unaudited condensed consolidated financial
statements do not comply as to form in all material respects with the
applicable accounting requirements of the Act and the related published
rules and regulations;
(iv) The unaudited selected financial information with
respect to the consolidated results of operations and financial
position of the Company for the five most recent fiscal years included
in the Prospectus agrees with the corresponding amounts (after
restatements where applicable) in the audited consolidated financial
statements for such five fiscal years;
(v) They have compared the information in the Prospectus
under selected captions with the disclosure requirements of Regulation
S-K and on the basis of limited procedures specified in such letter
nothing came to their attention as a result of the foregoing procedures
that caused them to believe that this information does not conform in
all material respects with the disclosure requirements of Items 301,
302, 402 and 503(d), respectively, of Regulation S-K;
I-1
(vi) On the basis of limited procedures, not constituting an
examination in accordance with generally accepted auditing standards,
consisting of a reading of the unaudited financial statements and other
information referred to below, a reading of the latest available
interim financial statements of the Company and its subsidiaries,
inspection of the minute books of the Company and its subsidiaries
since the date of the latest audited financial statements included in
the Prospectus, inquiries of officials of the Company and its
subsidiaries responsible for financial and accounting matters and such
other inquiries and procedures as may be specified in such letter,
nothing came to their attention that caused them to believe that:
(A) (i) the unaudited consolidated statements of
income, consolidated balance sheets and consolidated
statements of cash flows included in the Prospectus do
not comply as to form in all material respects with the
applicable accounting requirements of the Act and the
related published rules and regulations, or (ii) any
material modifications should be made to the unaudited
condensed consolidated statements of income, consolidated
balance sheets and consolidated statements of cash flows
included in the Prospectus for them to be in conformity
with generally accepted accounting principles;
(B) any other unaudited income statement data
and balance sheet items included in the Prospectus do not
agree with the corresponding items in the unaudited
consolidated financial statements from which such data
and items were derived, and any such unaudited data and
items were not determined on a basis substantially
consistent with the basis for the corresponding amounts
in the audited consolidated financial statements included
in the Prospectus;
(C) the unaudited financial statements which
were not included in the Prospectus but from which were
derived any unaudited condensed financial statements
referred to in Clause (A) and any unaudited income
statement data and balance sheet items included in the
Prospectus and referred to in Clause (B) were not
determined on a basis substantially consistent with the
basis for the audited consolidated financial statements
included in the Prospectus;
(D) any unaudited pro forma consolidated
condensed financial statements included in the Prospectus
do not comply as to form in all material respects with
the applicable accounting requirements of the Act and the
published rules and regulations thereunder or the pro
forma adjustments have not been properly applied to the
historical amounts in the compilation of those
statements;
(E) as of a specified date not more than five
days prior to the date of such letter, there have been
any changes in the consolidated capital stock (other than
issuances of capital stock upon exercise of options and
stock appreciation rights, upon earn-outs of performance
shares and upon conversions of convertible securities, in
each case which were outstanding on the date of the
latest financial statements included
I-2
in the Prospectus) or any increase in the consolidated
long-term debt of the Company and its subsidiaries, or
any decreases in consolidated net current assets or
stockholders' equity or other items specified by the
Representatives, or any increases in any items specified
by the Representatives, in each case as compared with
amounts shown in the latest balance sheet included in the
Prospectus, except in each case for changes, increases or
decreases which the Prospectus discloses have occurred or
may occur or which are described in such letter; and
(F) for the period from the date of the latest
financial statements included in the Prospectus to the
specified date referred to in Clause (E) there were any
decreases in consolidated net revenues or operating
profit or the total or per share amounts of consolidated
net income or other items specified by the
Representatives, or any increases in any items specified
by the Representatives, in each case as compared with the
comparable period of the preceding year and with any
other period of corresponding length specified by the
Representatives, except in each case for decreases or
increases which the Prospectus discloses have occurred or
may occur or which are described in such letter; and
(vii) In addition to the examination referred to in their
report(s) included in the Prospectus and the limited procedures,
inspection of minute books, inquiries and other procedures referred to
in paragraphs (iii) and (vi) above, they have carried out certain
specified procedures, not constituting an examination in accordance
with generally accepted auditing standards, with respect to certain
amounts, percentages and financial information specified by the
Representatives, which are derived from the general accounting records
of the Company and its subsidiaries, which appear in the Prospectus, or
in Part II of, or in exhibits and schedules to, the Registration
Statement specified by the Representatives, and have compared certain
of such amounts, percentages and financial information with the
accounting records of the Company and its subsidiaries and have found
them to be in agreement.
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