Exhibit 1.1
U.S. FRANCHISE SYSTEMS, INC.
______________________
Class A Common Stock
(par value $0.01 per share)
Underwriting Agreement
New York, New York
May ___, 1998
NationsBanc Montgomery Securities LLC
CIBC Oppenheimer Corp.
The Robinson-Humphrey Company, LLC
Schroder & Co. Inc.
c/o NationsBanc Montgomery Securities LLC
600 Montgomery Street
San Francisco, CA 94111
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 4,500,000 shares of Class A Common Stock, par value $0.01 per share
("STOCK"), of the Company. The 4,500,000 shares of Common Stock to be sold by
the Company are herein referred to as the "FIRM SHARES." In addition, the
Company proposes to grant to the Underwriters an option to purchase up to an
additional 675,000 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-3 (File No.
333-50291) (the "REGISTRATION STATEMENT") in respect of the Shares
has been filed with the Securities and Exchange Commission (the
"COMMISSION"); the Registration Statement and any post-effective
amendment thereto, each in the form heretofore delivered to you,
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 Registration Statement has heretofore been filed with
the Commission; and no stop order suspending the effectiveness of
the 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
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 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 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
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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
NationsBanc Montgomery Securities LLC 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, if filed by electronic transmission
pursuant to the Commission's Electronic Data Gathering And Retrieval
system, was identical (except as may be permitted by Regulation S-T
under the Act) to the copy thereof delivered to the Underwriters)
and do not and will not, as of the applicable effective date as to
the Registration Statement and any amendment thereto, and as of 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 NationsBanc Montgomery Securities LLC 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
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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, in each case, 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 (a "Material Adverse Effect"); and each
subsidiary of the Company has been duly formed and is validly
existing and in good standing under the laws of its jurisdiction of
formation;
(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 and
non-assessable, are free of any preemptive rights, rights of first
refusal or similar rights (except as described 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,
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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
directly or indirectly by the Company, and the equity interests in
Equity Partners, L.P. and USFS Equity, L.L.C. 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, except as disclosed in the Prospectus; other than
Microtel Inns and Suites, Inc., Hawthorn Suites Franchising, Inc.,
Microtel Inns Realty Corp., Microtel International, Inc., U.S.
Funding Corp., U.S. Franchise Capital, Inc. and USFS Management
Inc., each a Georgia corporation, Tempe Holdings LLC and Chandler
Holdings LLC, each an Arizona limited liability company, and HSA
Properties LLC, a Delaware limited liability company (each, a
"MATERIAL SUBSIDIARY"), there are no "significant subsidiaries" (as
defined in Regulation S-X under the Securities Act) of the Company;
(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;
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(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 (as defined in Section 4
hereof), 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 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) The Joint Venture Agreement between the Company and
Microtel Franchise and Development Corporation dated as of September
7, 1995 (the "ACQUISITION AGREEMENT") 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;
(xii) Each of the Company and Microtel Inns and Suites
Franchising, Inc., Hawthorn Suites Franchising, Inc. and Best
Franchising, Inc. (together, the "FRANCHISING SUBSIDIARIES") is duly
registered (or in the process of registration in the case of Best
Franchising, Inc.) or authorized as a franchisor in all
jurisdictions where it is required to be so registered or authorized
to conduct its
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business as described in the Prospectus (other than any jurisdiction
requiring registration in which the Company or any of the
Franchising Subsidiaries is actively seeking to renew or amend a
registration which has lapsed due to the passage of time with
respect to which the Company or the applicable Franchising
Subsidiary has no reason to believe that such renewal or amendment
will not be obtained); 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;
(xiii) The consolidated financial statements and schedules of
the Company and its subsidiaries included in the Registration
Statement and the Prospectus present fairly in all material respects
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 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
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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;
(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 the 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
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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;
(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.
2. Subject to the terms and conditions herein set forth, (a) the
Company agrees to issue and sell to each of the Underwriters, and each of the
Underwriters agrees, severally and not jointly, to purchase from the Company at
a purchase price per share of $_____, the number of respective Firm Shares (to
be adjusted by you so as to eliminate fractional shares) set forth opposite the
name of such Underwriter in Schedule I hereto 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 agrees to issue and sell to each of the
Underwriters, and each
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of the Underwriters agrees, severally and not jointly, to purchase from the
Company 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)
set forth opposite the name of such Underwriter in Schedule I hereto.
The Company hereby grants to the Underwriters the right to purchase at
their election up to 675,000 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 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. Any such election to purchase Optional Shares
may be exercised only by 48 hours' prior written or telephonic notice
(subsequently confirmed in writing) from NationsBanc Montgomery Securities LLC
to the Company 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
NationsBanc Montgomery Securities LLC but in no event earlier than the First
Time of Delivery (as defined in Section 4 hereof) or, unless NationsBanc
Montgomery Securities LLC and the Company 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 NationsBanc Montgomery Securities LLC may request upon at least 48
hours, prior notice to the Company shall be delivered by or on behalf of the
Company to NationsBanc Montgomery Securities LLC 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 on at least 24 hours, prior notice to NationsBanc
Montgomery Securities LLC, 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. The Company will
cause the certificates representing the Shares to be made available for checking
and packaging at least 24 hours prior to the Time of Delivery (as defined below)
with respect thereto at the office of NationsBanc Montgomery Securities LLC, 600
Montgomery Street, San Francisco, CA 94111 (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 May __, 1997 or such other time and
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date as NationsBanc Montgomery Securities LLC 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 NationsBanc Montgomery Securities LLC in the written
notice given by NationsBanc Montgomery Securities LLC of the Underwriters'
election to purchase such Optional Shares, or such other time and date as
NationsBanc Montgomery Securities LLC 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(j) hereof, will be delivered at the offices
of Davis Polk & Wardwell, 450 Lexington Avenue, New York, New York 10017 (the
"CLOSING LOCATION"), and the Shares will be delivered at the Designated Office,
all at such Time of Delivery. A meeting will be held at the Closing Location at
3:00 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
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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 in the United States
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 and at such places 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 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
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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 18 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 90 days after the date of the
Prospectus, not to, without your prior written consents (which
consent may be withheld at your sole discretion), directly or
indirectly, sell, offer, contract or grant any option to sell,
pledge, transfer or establish an open "put equivalent position"
within the meaning of Rule 16a-1(h) under the Securities Exchange
Act of 1934, or otherwise dispose of or transfer, or announce the
offering of, or file any registration statement under the Securities
Act in respect of, any share of Stock, options or warrants to
acquire shares of the Stock or securities exchangeable or
exercisable for or convertible into shares of Stock (other than as
contemplated by this Agreement with respect to the Shares);
PROVIDED, HOWEVER; that the Company may (i) issue up to an aggregate
amount of 500,000 shares of Stock to NorthStar Capital Partners LLC,
Lubert-Adler Real Estate Opportunity Fund, LLC and their affiliates,
(ii) issue up to an aggregate of $900,000 in value of shares of
Stock to Leisure Hotel Corporation, (iii) issue shares of its
Stock or options to purchase Stock, or Stock upon exercise
of options, pursuant to any stock option, stock bonus
or other stock plan or arrangement described in the Prospectus,
and (iv) increase up to 200,000 the
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number of shares of Stock or options to purchase Stock issuable
pursuant to the Company's Amended and Restated 1996 Stock Option
Plan (or pursuant to options granted thereunder);
(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 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
14
(xi) To file with the Commission such reports on Form SR as
maybe required by Rule 463 under the Act.
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 counsel and accountants in
connection with 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, 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; (v) 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; (vi) the cost
of preparing stock certificates; (vii) the cost and charges of any transfer
agent or registrar; and (viii) 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, 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 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 herein are, at and as of such Time of Delivery, true and correct,
the condition that the Company shall have performed all of its obligations
hereunder theretofore to be performed, and the following additional conditions:
15
(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) Davis Polk & Wardwell, 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;
(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 and HSA Properties LLC, a Delaware limited
liability company, have been duly incorporated and organized,
respectively, and are validly existing as a corporation and a
limited liability company, respectively, in good standing under the
laws of the State of Delaware, with all requisite power and
authority to own its properties and conduct its business as
described in the Prospectus; and all of the issued limited liability
company interests of HSA Properties LLC have been duly and validly
authorized and issued, are fully paid and non-assessable, and are
owned directly or indirectly by the Company, free and clear of all
liens and encumbrances, equities or claims (such counsel being
entitled to rely in respect of matters of fact upon certificates of
officers of the 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);
(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 upon payment therefor as provided in this
16
Agreement) have been duly and validly authorized and issued and are
fully paid and non-assessable; and the Shares conform in all
material respects to the description contained in the Prospectus
under the caption "Description of the Capital Stock -- Common
Stock";
(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 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;
(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 breach
or result in a default under, any indenture, mortgage, deed of
trust, loan agreement or other agreement or instrument filed as an
exhibit to the Registration Statement, 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, except for such
breaches that could not, singly or in the aggregate, reasonably be
expected to have a Material Adverse Effect, 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 result in a violation of any Applicable
Law or any judgment, order or decree of any court or arbitration
known to us, except as could not, singly or in the aggregate,
reasonably be expected to have a Material Adverse Effect.
"APPLICABLE LAW" means the General Corporation Law of the State of
Delaware (the "DGCL") and those laws, rules and
17
regulations of the United States of America and the State of New
York, in each case that in our experience are normally applicable to
transactions of the type contemplated by this Agreement;
(vi) No consent, approval, authorization, order,
registration or qualification of or with any Governmental Authority
or 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. The term
"GOVERNMENTAL AUTHORITY" means any executive, legislative, judicial,
administrative, or regulatory body of the State of New York, the
State of Delaware under the DGCL or the United States of America;
(vii) To such counsel's knowledge, neither the Company nor
HSA Properties LLC is in violation of its Certificate of
Incorporation or By-laws or other constitutive documents and neither
the Company nor any of the Material Subsidiaries is 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,
except for such conflicts, breaches or violations that could not,
singly or in the aggregate, reasonably be expected to have a
Material Adverse Effect;
(viii) Except as otherwise set forth in the Registration
Statement, 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 that is filed as an exhibit to the
Registration Statement; and, to our knowledge, 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;
18
(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 or incorporated by
reference; 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 or incorporated by reference;
(x) The statements set forth in the Prospectus under the
caption "Description of the 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 and, after giving effect to the
offering and sale of the Shares (assuming the proceeds therefrom are
used as described in the Prospectus under the caption "Use of
Proceeds") will not be 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, financial or statistical data 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.
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), based upon such representation
and relying as to materiality to the extent such counsel deemed
reasonable on officers, employees and other representatives of the
Company as to factual
19
matters, no facts have 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, financial or
statistical data 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, financial or statistical data 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, financial or
statistical data 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 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
20
(ii) Each Material Subsidiary that is incorporated in the
State of Georgia and has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the
State of Georgia; and all of the issued shares of capital stock of
each such Material 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 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) Smith Gambrel & Russell, 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 (other than any
jurisdiction requiring registration in which the Company or either of the
Franchising Subsidiaries is actively seeking to renew or amend a
registration which has lapsed due to the passage of time with respect to
which such counsel has no reason to believe that such renewal or
amendment will not be obtained); 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) 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
21
attached as Annex I(a) hereto and a draft of the form of letter to be
delivered 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);
(g) (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 Representative 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;
(h) 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 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 NationsBanc Montgomery
Securities LLC 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;
(i) The Shares to be sold at such Time of Delivery shall have been
duly listed for quotation on NASDAQ;
22
(j) The Company shall have furnished or caused to be furnished to
you at such Time of Delivery certificates of officers of the Company as
to (i) the accuracy of the representations and warranties of the Company
herein at and as of such Time of Delivery, (ii) the performance by the
Company 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 (g) 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;
(k) On the date hereof, the Company shall have furnished to you a
"lock-up" agreement in form and substance satisfactory to you from each
director and executive officer of the Company, and each such agreement
shall be in full force and effect at such Time of Delivery
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
23
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 (upon presentation of a statement or statements therefor in
reasonable detail) 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 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 NationsBanc Montgomery
Securities LLC expressly for use therein; PROVIDED, FURTHER, that with respect
to any preliminary prospectus, the foregoing indemnity agreement shall not inure
to the benefit of any Underwriter from whom the person asserting any loss,
claim, damage, liability or expense purchased Shares, or any person controlling
such Underwriter, if copies of the Prospectus were timely delivered to the
Underwriter pursuant to Section 5(a)(iii) hereof and a copy of the Prospectus
(as then amended or supplemented if the Company shall have furnished any
amendments or supplements thereto) was not sent or given by or on behalf of such
Underwriter to such person, if required by law so to have been delivered, at or
prior to the written confirmation of the sale of the Shares, to such person, and
if the Prospectus (as so amended or supplemented) would have cured the defect
giving rise to such loss, claim, damage, liability or expense.
(b) In addition to any obligations of the Company under Section 8(a),
the Company agrees that it shall perform its indemnification obligations under
Section 8(a) (as modified by Section 8(g)) 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.
(c) Each Underwriter will indemnify and hold harmless the Company
against any losses, claims, damages or liabilities to which the Company 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 Prospectus, the Registration Statement or the
Prospectus, or any amendment or supplement thereto, or arise out of or are based
upon the omission
24
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 by such Underwriter through NationsBank Montgomery
Securities LLC expressly for use therein; and will reimburse the Company for any
legal or other expenses reasonably incurred by the Company in connection with
investigating or defending any such action or claim as such expenses are
incurred.
(d) Promptly after receipt by an indemnified party under subsection (a)
or (c) 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
under Section 8(a) or 8(c) 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) or 8(c). 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 counsel would 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
25
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 NationsBanc
Montgomery Securities LLC in the case of parties indemnified pursuant to Section
8(a) and by the Company in the case of parties indemnified pursuant to Section
8(c).
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(b), 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 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.
(e) If the indemnification provided for in this Section 8 is unavailable
to or insufficient to hold harmless an indemnified party under subsection (a)
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 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 (c) 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 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 on the one hand and the Underwriters
on the other shall be deemed to be in the same proportion as
26
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 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 and
the Underwriters agree that it would not be just and equitable if contributions
pursuant to this subsection (e) 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 (e). 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 (e) 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 (e), no Underwriter
shall be required to contribute any amount in excess of the 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
(e) to contribute are several in proportion to their respective underwriting
obligations and not joint.
(f) 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.
27
(g) The obligations of the Company under this Section 8 shall be in
addition to any liability which the Company 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 (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 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 contained herein. If within 36 hours after
such default by any Underwriter you do not arrange for the purchase of such
Shares, then the Company shall be entitled to a further period of 36 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 that you have so arranged for the
purchase of such Shares, or the Company 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 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 or both
as provided in subsection (a) above, the aggregate number of such Shares which
remains unpurchased does not exceed 10% of the aggregate number of all the
Shares to be purchased at such Time of Delivery, then the Company 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
28
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 as
provided in subsection (a) above, the aggregate number of such Shares which
remains unpurchased exceeds 10% of the aggregate number of all the Shares to be
purchased at such Time of Delivery, or if the Company 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 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 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, and shall
survive delivery of and payment for the Shares.
11. If this Agreement shall be terminated pursuant to Section 9 hereof,
the Company 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 as provided herein, the Company
will reimburse the Underwriters through NationsBanc Montgomery Securities LLC
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 shall then be under no further liability to any Underwriter
except as provided in Sections 6 and 8 hereof.
12. 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 representative in care of NationsBanc
Montgomery Securities LLC, 600 Montgomery Street, San Francisco, CA 94111,
Attention: David Baylor, Esq. and if to the Company shall be delivered or sent
by
29
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(c) 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, 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, 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.
30
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 and
the Company. 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:
Accepted as of the date hereof:
NATIONSBANC MONTGOMERY SECURITIES LLC
By:
--------------------------
Managing Director
31
SCHEDULE I
NUMBER OF OPTIONAL
SHARES TO BE
NUMBER OF FIRM PURCHASED IF
SHARES TO BE MAXIMUM OPTION
UNDERWRITER PURCHASED EXERCISED
----------- -------------- ------------------
NationsBanc Montgomery
Securities LLC 1,125,000 168,750
Schroder & Co. 1,125,000 168,750
The Robinson-Humphrey
Company, LLC 1,125,000 168,750
CIBC Oppenheimer Corp. 1,125,000 168,750
--------- -------
Total. . . . . . . . . . . . . 4,500,000 675,000
========= =======
ANNEX I
DESCRIPTION OF COMFORT LETTER
Pursuant to Section 7(f) 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
representative of the Underwriters (the "REPRESENTATIVE") 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 caused 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
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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;
(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
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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
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
Representative, or any increases in any items specified by the
Representative, 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 Representative, or any increases in any
items specified by the Representative, in each case as compared with the
comparable period of the preceding year and with any other period of
corresponding length specified by the Representative, 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
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amounts, percentages and financial information specified by the Representative,
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 Representative,
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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