<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________TO __________
COMMISSION FILE NUMBER 0-23941
U.S. FRANCHISE SYSTEMS, INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 58-2361501
(State or other jurisdiction of (I.R.S Employer Identification No.)
Incorporation or Organization)
13 CORPORATE SQUARE, SUITE 250
ATLANTA, GEORGIA 30329
(Address of Principal Executive Offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (404) 321-4045
Indicate by check mark whether the registrant: (1) has filed all reports
required by Sections 12, 13, or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
There were 12,917,194 shares of the registrant's Class A Common Stock and
2,707,919 shares of the registrant's Class B Common Stock outstanding as of May
1, 1998.
1
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U.S. FRANCHISE SYSTEMS, INC.
INDEX
PAGE
----
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Statements of Financial Position at December 31,
1997 and March 31, 1998 (Unaudited) 3
Consolidated Statements of Operations for the three months
ended March 31, 1998 and 1997 (Unaudited) 4
Consolidated Statement of Cash Flows for the three months
ended March 31, 1998 and 1997 (Unaudited) 5
Notes to Consolidated Financial Statements (Unaudited) 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 8
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK 16
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 14
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 14
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 15
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS 15
ITEM 5. OTHER INFORMATION 16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 17
SIGNATURES 19
EXHIBIT INDEX 20
2
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
U.S. FRANCHISE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (UNAUDITED)
- ---------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS MARCH 31, 1998 DECEMBER 31, 1997
-------------- -----------------
<S> <C> <C>
CURRENT ASSETS:
Cash and temporary cash investments $ 16,286,000 $ 15,890,000
Accounts receivable (net of allowance for doubtful
accounts of $17,000 as of March 31, 1998 and
December 31, 1997) 998,000 268,000
Deposits 340,000 114,000
Prepaid expenses 713,000 602,000
Promissory notes receivable 709,000 862,000
Deferred commissions 2,524,000 2,563,000
------------ ------------
Total current assets 21,570,000 20,299,000
PROMISSORY NOTES RECEIVABLE 3,689,000 2,869,000
PROPERTY AND EQUIPMENT - Net 7,098,000 5,595,000
FRANCHISE RIGHTS - Net 21,756,000 3,322,000
DEFERRED COMMISSIONS 3,804,000 3,049,000
OTHER ASSETS - Net 1,222,000 1,217,000
------------ ------------
Total assets $ 59,139,000 $ 36,351,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 656,000 1,138,000
Commissions payable 764,000 1,171,000
Deferred application fees 4,143,000 4,402,000
Accrued expenses 2,135,000 990,000
Due to Hudson Hotels Corporation 454,000 454,000
------------ ------------
Total current liabilities 8,152,000 8,155,000
DEFERRED APPLICATION FEES 5,534,000 4,586,000
SUBORDINATED DEBENTURES 19,655,000 19,412,000
------------ ------------
Total liabilities 33,341,000 32,153,000
REDEEMABLE STOCK:
Common shares, par value $0.01 per share; issued and
outstanding 3,128,473 (net of 58,807 shares in
Treasury) at March 31, 1998 and December 31, 1997
entitled to redemption under certain circumstances
to $324,000 (net of $6,000 in Treasury) at March 31,
1998 and December 31, 1997, respectively 324,000 324,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common shares, par value $0.01 per share; authorized
30,000,000 shares of Class A Common Stock and 5,000,000
shares of Class B Common Stock; issued and outstanding
9,438,721 Class A shares and 2,707,919 Class B shares at
March 31, 1998; issued and outstanding 6,716,499 Class A
shares and 2,707,919 Class B shares at December 31, 1997 124,000 96,000
Capital in excess of par 44,519,000 21,092,000
Accumulated deficit (19,169,000) (17,314,000)
------------ ------------
Total stockholders' equity 25,474,000 3,874,000
------------ ------------
$ 59,139,000 $ 36,351,000
============ ============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
3
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U.S. FRANCHISE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
- -------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, 1998 MARCH 31, 1997
-------------- --------------
<S> <C> <C>
REVENUES:
Marketing and reservation fees $ 582,000 $ 376,000
Franchise application and royalty fees 1,067,000 136,000
Other 334,000 33,000
----------- -----------
1,983,000 545,000
EXPENSES:
Marketing and reservations 653,000 461,000
Royalties paid to third parties 87,000 11,000
Franchise sales commissions 313,000 72,000
Other franchise sales and advertising 875,000 851,000
Other general and administrative 1,477,000 1,436,000
Depreciation and amortization 210,000 132,000
----------- -----------
3,615,000 2,963,000
----------- -----------
LOSS FROM OPERATIONS (1,632,000) (2,418,000)
OTHER INCOME (EXPENSE):
Interest income 229,000 383,000
Interest expense (452,000) (480,000)
----------- -----------
NET LOSS $(1,855,000) $(2,515,000)
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 13,094,249 12,580,395
=========== ===========
NET LOSS PER SHARE - BASIC AND DILUTED $ (0.14) $ (0.20)
=========== ===========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE>
U.S. FRANCHISE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
- -------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, 1998 MARCH 31, 1997
-------------- --------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $(1,855,000) $(2,515,000)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 210,000 132,000
Deferred compensation amortization 53,000 73,000
Changes in assets and liabilities:
Increase in deposits and accounts receivable (956,000) (19,000)
Increase in prepaid expenses (169,000) (99,000)
(Increase)/decrease in promissory notes receivable (667,000) 29,000
Increase in deferred commissions (716,000) (420,000)
Increase in other assets (23,000) (25,000)
Decrease in accounts payable (482,000) (375,000)
Increase in accrued expenses 1,145,000 372,000
Decrease in commissions payable (407,000) (393,000)
Increase in deferred application fees 689,000 328,000
Increase in subordinated debentures paid in kind 243,000 231,000
----------- -----------
Net cash used in operating activities (2,935,000) (2,681,000)
INVESTING ACTIVITIES:
Acquisition of property and equipment (1,545,000) (40,000)
Acquisition of franchise rights (748,000) -
----------- -----------
Net cash used in investing activities (2,293,000) (40,000)
FINANCING ACTIVITIES:
Issuance of common stock 5,624,000 -
----------- -----------
Net cash provided by financing activities 5,624,000 -
----------- -----------
NET INCREASE (DECREASE) IN CASH AND TEMPORARY
CASH INVESTMENTS $ 396,000 $(2,721,000)
CASH AND TEMPORARY INVESTMENTS
Beginning of period 15,890,000 31,188,000
----------- -----------
End of period $16,286,000 $28,467,000
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Noncash activities;
Issuance of 2,222,222 shares for acquisition of Hawthorn
franchise rights $17,777,000 $ -
=========== ===========
Portion of purchase price due to Hudson Hotels Corporation
in future years, discounted at 10% $ - $ 454,000
=========== ===========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
5
<PAGE>
U.S. FRANCHISE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared pursuant
to the rules and regulations of the Securities and Exchange Commission for
reporting on Form 10-Q. Accordingly, certain information and footnotes required
by generally accepted accounting principles for complete financial statements
have been omitted. In the opinion of management, all adjustments, consisting of
normal recurring adjustments, which are necessary for a fair presentation of
financial position and results of operations have been made. These interim
financial statements should be read in conjunction with the consolidated
financial statements and notes thereto, presented in the U.S. Franchise Systems,
Inc. ("USFS" or the "Company") Annual Report on Form 10-K for the year ended
December 31, 1997 and the current report on Form 8-K dated March 23, 1998,
filed with the Securities and Exchange Commission. The results of operations
for the three months ended March 31, 1998 are not necessarily indicative of
results that may be expected for the full year.
2. EARNINGS PER SHARE
Earnings per share for the three months ended March 31, 1998 and three
months ended March 31, 1997 have been calculated by dividing the loss
applicable to common shareholders by the weighted average shares outstanding.
Weighted averaged shares include redeemable common shares outstanding.
3. ACQUISITION OF REMAINING INTEREST IN HAWTHORN
On March 12, 1998, USFS, USFS Hawthorn, Inc. ("USH"), Hawthorn Suites
Associates ("HSA") and HSA Properties, Inc. ("HPI") completed a series of
transactions whereby all of the ownership interests of HSA Properties LLC ("HSA
LLC"), a joint venture among USFS, HPI and HSA which owned an interest in the
Hawthorn Suites brand of hotels, were contributed to USH in return for the
issuance of shares of Class A Common Stock, par value $.01 per share ("USH Class
A Common Stock") of USH, and USFS merged into USH. Pursuant to these
transactions, HSA and HPI received 2,199,775 and 22,447 shares of Class A Common
Stock of USFS, respectively. In addition, the holders of Class A Common Stock
of USFS and Class B Common Stock of USFS received an equivalent number of USH
Class A Common Stock and Class B Common Stock, par value $.01 per share, as
applicable. Prior to these transactions, USFS and HSA LLC were parties to a
Master Franchise Agreement dated as of March 27, 1996 (the "Hawthorn Acquisition
Agreement"), pursuant to which USFS acquired the exclusive worldwide rights to
franchise and to control the development and operation of the Hawthorn Suites
brand of hotels. The Hawthorn Acquisition Agreement required that a percentage
of royalties received by USFS from the franchising of Hawthorn Suites Hotels be
remitted to HSA LLC and also contained certain restrictions on USFS's operations
and imposed standards relating to the development of the Hawthorn Suites brand
of hotels. The merger of USFS with and into USH permitted the surviving entity
(renamed "U.S. Franchise Systems, Inc.") to acquire all of the trademarks,
copyrights and other intellectual property related to the Hawthorn Suites hotel
brand and as a related consequence, eliminated the aforementioned royalty
payments and restrictive provisions previously governed by the Hawthorn
Acquisition Agreement.
4. ESTABLISHMENT OF DEVELOPMENT FUND
On March 17, 1998, NorthStar Capital Partners LLC (together with its
affiliates, "NorthStar"), Lubert-Adler Real Estate Opportunity Funds (together
with its affiliates, "Lubert-Adler") and Constellation Equity Corp., an entity
controlled by NorthStar and Lubert-Adler ("Constellation"), formed Constellation
6
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Development Fund LLC (the "Development Fund"). NorthStar, Lubert-Adler and
Constellation will contribute to the Development Fund equity totaling $50
million, and will arrange debt financing for an additional $60 million in the
form of a senior credit facility with a commercial bank. In connection with the
establishment of the Development Fund, the Company has committed to make a $10
million loan to Constellation, which will use the funds to make a subordinated
investment in the Development Fund. The loan bears interest at an annual rate
of 8%, is non-recourse and is repayable from distributions and payments made to
Constellation from the Development Fund.
In connection with the establishment of the Development Fund, the
Company sold an aggregate of 500,000 shares of Class A Common Stock to
NorthStar and Lubert-Adler for $5.625 million. NorthStar and Lubert-Adler
also have the right to purchase up to an additional 500,000 shares of Class A
Common Stock, exercisable on a pro-rata basis within eighteen months of the
commitment of the Development Fund's capital, at a price of $11.25 per
share. Dean S. Adler, a director of the Company, is a principal of the entity
that controls Lubert-Adler. In addition, David T. Hamamoto was elected to
the Board of Directors of the Company. Mr. Hamamoto is the Co-Chief
Executive Officer, Co-President and Co-Chairman of NorthStar.
5. ACQUISITION OF BEST INNS
On April 28, 1998, the Company completed its acquisition of the exclusive
worldwide franchise rights to the Best Inns hotel brands, including the
franchise agreements for the existing Best Inns hotels. In addition, the
Company acquired the management contracts and related personnel relating to the
management of 29 existing Best Inns hotels and became the controlling member of
the not-for-profit corporation which supplies reservation services to Best Inns
hotels.
In connection with this transaction, the Company and the sellers entered
into an agreement with Alpine Hospitality Ventures LLC ("Ventures") pursuant to
which Ventures (through a wholly-owned subsidiary) acquired 17 Best Inns hotels
(the "Acquired Hotels"). Contemporaneously with the closing of the transaction,
new franchise and management agreements were entered into between the Company
and Ventures with respect to the Acquired Hotels. As a result of the
transaction, the Company owns the exclusive worldwide franchise rights to the
Best Inns hotel brands, is the franchisor of 35 existing Best Inns hotels and
will be the franchisor of three hotels under development, manages 29 of the
existing Best Inns hotels and will manage two Best Inns hotels under
development.
To facilitate the transaction, the Company made a $15 million unsecured
subordinated loan to Ventures at an interest rate of 12% per annum, interest
on which will be paid in cash to the extent there is available cash and
otherwise will be paid-in-kind. The loan is subordinated to a guarantee
provided by Ventures in connection with a third-party loan in the principal
amount of approximately $65 million to its subsidiary that owns the
Acquired Hotels and is subordinated to such third party loan. The Company
made the subordinated loan and issued the Alpine Shares (as defined below) in
order to induce Ventures to purchase from the Sellers the Acquired Hotels.
USFS financed the subordinated loan through a $10 million full recourse loan
from NationsBank N.A., the $1.6 million it received from an affiliate of
Ventures for the Alpine Shares and $3.4 million of its own cash. In
addition, the Company committed to make up to $7.5 million of additional
loans to Ventures under certain circumstances at an interest rate and upon
other terms that are substantially similar to Ventures' or its subsidiaries'
third-party indebtedness at such time. The Company expects Ventures to be a
highly leveraged entity and there can be no assurance that any loans to
Ventures will be repaid. It is anticipated that the proceeds from the Equity
Offering (as defined below in footnote 6 - Subsequent Event) will be utilized
to repay the NationsBank loan.
Also in connection with the Best Inns acquisition, the Company issued to
Alpine Hospitality Equities LLC ("Alpine Equities"), an affiliate of Ventures,
350,000 shares (the "Alpine Shares") of Class A Common Stock for a purchase
price of $1.6 million. Alpine Equities was granted certain demand and
piggy-back
7
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registration rights on customary terms with respect to the Alpine Shares, as
well as certain tag-along rights on certain sales of Common Stock made by
Messrs. Leven and Aronson. Additionally, the Company agreed to pay to Alpine
Equities $1,000 per year for each Best Inns hotel that is added to the Best Inns
system of hotels after the closing date of the transaction, provided that such
new hotels are paying royalties to the Company or any of its affiliates (the
"New Hotel Fee").
Richard D. Goldstein, a director of the Company, is an Executive Vice
President and a Senior Managing Director of the general partner Alpine Equity
Partners L.P., the entity that indirectly owns and controls a majority of Alpine
Equities and Ventures.
6. SUBSEQUENT EVENT
On April 23, 1998, the Company filed with the Securities and Exchange
Commission a registration statement for the offer and sale of up to 5,175,000
shares (including 675,000 Shares issuable pursuant to the underwriters'
over-allotment option) of Class A Common Stock to the public (the "Equity
Offering"). The net proceeds of the Equity Offering are expected to be used as
follows: (i) to repay approximately $19.7 million aggregate principal amount
outstanding on the Company's 10% Subordinated Debentures due September 29, 2007,
plus accrued interest thereon to the date of repayment, (ii) to repay
approximately $10 million aggregate principal amount outstanding under the loan
to be incurred in connection with the Best Inns acquisition (see Note 5) and
(iii) for working capital and general corporate purposes, which may include
additional acquisitions. The Equity Offering has not been completed as of May
11, 1998.
7. ACCOUNTING PRONOUNCEMENTS
The Company adopted Financial Accounting Standards Board (FASB) Statement
No. 130, "Reporting Comprehensive Income," at the beginning of fiscal year
1998. Statement No. 130 established standards for reporting and display of
comprehensive earnings and its components in financial statements; however,
the adoption of this Statement had no impact on the Company's net earnings or
shareholders' equity.
The Financial Accounting Standards Board (FASB) has issued two
accounting pronouncements which the Company will adopt in the fourth quarter
of 1998. FASB Statement No. 131 "Disclosures about Segments of an Enterprise
and Related Information" requires that a publicly-held company report
financial and descriptive information about its operating segments in
financial statements issued to shareholders for interim and annual periods.
The statement also requires additional disclosures with respect to products
and services, geographic areas of operation, and major customers.
FASB Statement No. 132 "Employers' Disclosures about Pensions and Other
Postretirement Benefits - an amendment of FASB Statements NO. 87, 88, and
106" requires revised disclosures about pension and other postretirement
benefit plans. The Company does not expect that adoption of the disclosure
requirements of this pronouncement will have a material impact on its
financial statements.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
This "Management's Discussion and Analysis of Financial Condition and
Results of Operations" should be read in conjunction with the consolidated
financial statements included herein of the Company and its subsidiaries.
Certain statements under this caption "Management's Discussion and Analysis of
Financial Condition and Results of Operations" constitute "forward-looking
statements" under the Private Securities Litigation Reform Act of 1995 (the
"Reform Act"). Certain, but not necessarily all, of such forward-looking
statements can be identified by the use of forward-looking terminology such as
"believes," "expects," "may," "will," "should," or "anticipates" or the negative
thereof or other variations thereon or comparable terminology, or by discussions
of strategy that involve risks and uncertainties. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors
which may cause the actual results, performance or achievements of U.S.
Franchise Systems, Inc. and its subsidiaries ("USFS" or the "Company") to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
but are not limited to, the following: general economic and business
conditions; competition in the lodging and franchising industries; success of
acquisitions and operating initiatives; management of growth; dependence on
senior management; brand awareness; general risks of the lodging and franchising
industries; development risk; risk relating to the availability of financing for
franchisees; the existence or absence of adverse publicity; changes in business
strategy or development plan; availability, terms and deployment of capital;
business abilities and judgment of personnel; availability of qualified
personnel; labor and employee benefit costs; changes in, or failure to comply
with, government regulations; construction schedules; the costs and other
effects of legal and administrative proceedings; and other factors referenced in
this Form 10-Q. The Company will not undertake and specifically declines any
obligation to publicly release the results of any revisions which may be made to
any forward-looking statement to reflect events or circumstances after the date
of such statements or to reflect the occurrence of anticipated or unanticipated
events.
8
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The Company was formed in August 1995 to acquire, market and service
well-positioned brands with potential for rapid unit growth through franchising.
The Company's initial brands, which are in the lodging industry, are the
Microtel and Hawthorn Suites brands. The Company acquired the rights to these
brands because of their potential for significant growth, which reflects, among
other things, their potential profitability for franchisees at the property
level and their positions in attractive segments of the lodging industry. In
addition, the Company recently acquired the exclusive worldwide franchise rights
to the Best Inns brand, an economy and upper economy brand positioned between
the budget Microtel and upscale Hawthorn Suites brands. With the acquisition of
the Best Inns brand, the Company also acquired management contracts and
capabilities. (See "Item 5. Other Information - Best Inns.")
As a franchisor, the Company licenses the use of its brand names to
independent hotel owners and operators (i.e. franchisees). The Company provides
its franchisees with a variety of benefits and services designed to (i) decrease
the development costs, (ii) shorten the time frame and reduce the complexity of
the construction process and (iii) increase the occupancy rates, revenues and
profitability of the franchised properties. The Company offers prospective
franchisees access to financing, a business format, design and construction
assistance (including architectural plans), uniform quality standards, training
programs, national reservations systems, national and local advertising,
promotional campaigns and volume purchasing discounts.
The Company expects that its future revenues will consist primarily of (i)
franchise royalty fees, (ii) franchise application fees, (iii) reservation and
marketing fees, (iv) management fees, (v) various fees for acting as manager of
the Development Fund and (vi) payments made by vendors who supply the Company's
franchisees with various products and services. The Company recognizes
franchise application fees as revenue only upon the opening of the underlying
hotels.
The Company's predecessor was incorporated in Delaware in August 1995. The
Company was incorporated in Delaware on November 26, 1997 and merged with its
predecessor on March 12, 1998 with the Company as the surviving corporation.
The Company's executive offices are located at 13 Corporate Square, Suite 250,
Atlanta, Georgia 30329 and its telephone number is (404) 321-4045.
Comparisons have been made between the three months ended March 31, 1998
and March 31, 1997 for the purposes of the following discussion:
RESULTS OF OPERATIONS
FRANCHISE SALES GROWTH - Since acquiring the Microtel brand in October 1995 and
establishing its sales force by January 1996, the Company has realized franchise
sales growth as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
AS OF MARCH 31, AS OF MARCH 31
MICROTEL FRANCHISE DATA 1998 1997
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Properties open (1) 75 32
Executed agreements & under construction(2) 59 28
Executed franchise agreements but not under construction(3)(4) 277 169
Pending franchise applications (5) - 29
Accepted applications (6) 60 55
Total under development and accepted applications (7) 396 281
- ---------------------------------------------------------------------------------------------------------
OPEN PLUS UNDER DEVELOPMENT AND ACCEPTED APPLICATIONS 471 313
- ---------------------------------------------------------------------------------------------------------
</TABLE>
9
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(1) The Company does not receive royalties from twenty-eight and twenty-seven
hotels open as of March 31, 1998 and March 31, 1997, respectively.
(2) The Company will not receive royalties from one and two of the hotels under
construction as of March 31, 1998 and March 31, 1997, respectively.
(3) The Company will not receive royalties from five and seven of the executed
franchise agreements as of March 31, 1998 and March 31, 1997, respectively.
(4) Four of the agreements as of March 31, 1997 were terminated between April 1
and April 11, 1997.
(5) The 29 pending franchise applications as of March 31, 1997 resulted in
executed franchise agreements between April 1 and April 11, 1997.
(6) The Company will not receive royalties from two of the franchise
applications approved as of March 31, 1997.
(7) There can be no assurance that properties under development or for which
applications have been accepted will result in open hotels.
Since acquiring the Hawthorn Suites brand in March 1996 and establishing
its sales force by July 1996, the Company has realized franchise sales growth as
follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
AS OF MARCH 31, AS OF MARCH 31
HAWTHORN SUITES FRANCHISE DATA 1998 1997
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Properties open (1) 29 19
Executed agreements & under construction 19 3
Executed franchise agreements but not under construction 65 20
Pending franchise applications (2) - 6
Accepted applications 20 20
Total under development and accepted applications (3) 104 49
- ---------------------------------------------------------------------------------------------------------
OPEN PLUS UNDER DEVELOPMENT AND ACCEPTED APPLICATIONS 133 68
- ---------------------------------------------------------------------------------------------------------
</TABLE>
(1) The Company was not receiving royalties from 18 of the hotels open as of
March 31, 1997. As a result of the HSA Acquisition, the Company now
receives and retains all royalties from all hotels as of March 1998.
(2) The six pending applications as of March 31, 1997 resulted in executed
franchise agreements between April 1 and April 11, 1997.
(3) There can be no assurance that properties under development or for which
applications have been accepted will result in open hotels.
The Company received franchise application fees of $1,684,000 and $504,000
for the three months ended March 31, 1998 and 1997, respectively, for Microtel
and Hawthorn Suites. The average franchise application fee was $22,000 and
$24,000 for the three months ended March 31, 1998 and 1997, respectively. Such
fees are recognized as revenue when the underlying hotel opens.
REVENUE - The Company has derived revenues from the following sources:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 1998 MARCH 31, 1997
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Franchise application and royalty fees $1,067,000 $136,000
Other fees 334,000 33,000
Marketing and reservation fees 582,000 376,000
TOTAL $1,983,000 $545,000
- ---------------------------------------------------------------------------------------
</TABLE>
Franchise application and royalty fees (the "Fees") increased $931,000 for
the three months ended March 31, 1998 as compared to the comparable prior year's
period. The increase is primarily attributable
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to (i) the Fees received on the 42 Microtels open on March 31, 1998 which
were not open on March 31, 1997, and (ii) the Fees received on 28 Hawthorn
Suites hotels as a result of the HSA Acquisition.
Other fee income increased $301,000 for the three months ended March 31,
1998 as compared to the comparable prior year's period. The majority of the
increase is attributable to the Development Fund management fee revenue for the
three months ended March 31, 1998. The balance of the increase is related to
various miscellaneous fee income.
Marketing and reservation fees increased $206,000 for the three months
ended March 31, 1998 as compared to the comparable prior year's period because
additional properties were added to the system during 1998. While the Company
recognizes marketing and reservations fees as revenue, such fees are intended to
reimburse the Company for the expenses associated with providing support
services to its franchisees and do not generate profit for the Company. As
additional properties join the system, the marketing and reservation fees
received will increase and there will be a corresponding increase in marketing
and reservations expenses.
EXPENSES - The Company's expenses were as summarized below:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 1998 MARCH 31, 1997
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Marketing and reservations $ 653,000 $ 461,000
Royalties paid to third parties 87,000 11,000
Franchise sales commissions 313,000 72,000
Other franchise sales and advertising 875,000 851,000
Other general and administrative 1,477,000 1,436,000
Depreciation and amortization 210,000 132,000
TOTAL $3,615,000 $2,963,000
- ---------------------------------------------------------------------------------------
</TABLE>
Marketing and reservation expenses increased $192,000 for the three months
ended March 31, 1998 as compared to the comparable prior year's period primarily
because there were more properties open in 1998 causing an incremental rise in
reservation costs and allowing for more funds to be expended in marketing the
Hawthorn Suites and Microtel brands.
Royalties paid to third parties increased $76,000 for the three months
ended March 31, 1998 as compared to the comparable prior year's period because
the number of Microtel and Hawthorn Suites properties opened by the Company
increased throughout the last three quarters of 1997 and the first quarter of
1998. In 1997 and the first quarter of 1998, the Company was required to pay a
percentage of the royalties collected to Hudson for each new Microtel property
and in 1997 and the first two months of 1998, the Company was required to pay a
percentage of royalties collected to HSA LLC for each new Hawthorn Suites
property when franchisees commenced making royalty payments to the Company. As
of March 1998, the Company is no longer required to pay HSA LLC such fees.
Franchise sales commissions increased $241,000 for the three months ended
March 31, 1998 as compared to the comparable prior year's period because
commissions were expensed for the 15 hotels which opened during the first
quarter of 1998 compared to four hotels which opened during the first quarter of
1997.
Other franchise sales and advertising expenses, which are costs related to
the Company's franchise sales effort, increased $24,000 for the three months
ended March 31, 1998 as compared to the comparable prior year's period primarily
because larger Microtel and Hawthorn Suites sales forces were in place.
11
<PAGE>
General and administrative expenses increased $41,000 for the three months
ended March 31, 1998 as compared to the comparable prior year's period primarily
due to additional salaries, wages and benefits, and general office and travel
expenses for the additional staff in place during 1998.
Depreciation and amortization expense primarily includes: (i) depreciation
of equipment for the corporate and regional sales offices, (ii) amortization for
the cost of acquiring the Microtel and Hawthorn Suites brands, (iii)
amortization of consulting payments made to Hudson under the Microtel
Acquisition Agreement, (iv) amortization of costs related to the formation of
the Company and (v) amortization of architectural plans developed for the
Microtel and Hawthorn Suites hotels and (vi) depreciation of a truck.
OTHER INCOME (EXPENSES)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 1998 MARCH 31, 1997
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Interest income $229,000 $383,000
Interest expense $452,000 $480,000
- ---------------------------------------------------------------------------------------
</TABLE>
Interest income, resulting from investments in cash and marketable
securities, decreased $154,000 for the three months ended March 31, 1998 as
compared to the comparable prior year's period. This is primarily the result of
the decrease in the balance of Cash and Temporary Cash Investments by
$12,181,000 from March 31, 1997 to March 31, 1998.
NET LOSS - A summary of operating results is as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 1998 MARCH 31, 1997
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Net Loss $1,855,000 $2,515,000
- ---------------------------------------------------------------------------------------
</TABLE>
The Company's net loss decreased $660,000 for the three months ended March
31, 1998 as compared to the comparable prior year's period. Revenues increased
$1,438,000 primarily because a greater number of hotels were open and opened
during the first quarter of 1998, thus, the Company received more royalty
payments and recognized more application fees. This increase in revenues was
offset by an increase in operating expenses of $652,000. The Company did not
expect to generate a profit in the first quarter of 1997 or 1998 as it was
investing in its infrastructure to facilitate future growth. To date it has
generally taken 12 to 18 months in the case of Microtel and seven to 15 months
in the case of Hawthorn Suites from the time a franchise agreement is executed
until the opening of a hotel, at which time the Company generally begins
receiving royalty income. Total hotels open plus under development and approval
applications increased from 381 to 604 from March 31, 1997 to March 31, 1998.
A total of 76 of the 104 hotels open as of March 31, 1998 were paying royalties
to the Company compared to only six of the 51 properties open as of March 31,
1997. The Company continues to focus on building its future royalty stream.
LIQUIDITY AND CAPITAL RESOURCES
From August 28, 1995 (inception) to October 24, 1996, the Company financed
its operations primarily through a private placement of securities, franchise
application fees, and interest income. In October 1995, the Company raised
approximately $17.5 million in gross proceeds through private sales of shares of
its old common stock (i.e., stock prior to the reclassification of shares on
October 11, 1996) and Redeemable Preferred Stock.
12
<PAGE>
On October 24, 1996, the Company completed a public offering of 1,825,000
shares of Class A Common Stock at $13.50 per share (the "Initial Offering").
Net proceeds to the Company from the Initial Offering were approximately
$21,391,000. As of March 31, 1998 approximately $13,905,000 of such proceeds
had been used by the Company (including to fund its remaining obligations under
the Microtel Acquisition Agreement, pay interest on Subordinated Debentures,
make loans to certain franchisees, acquire a limited number of hotel properties
owned by the Company, fund transaction fees and expenses, fund reservation
system expenditures and for working capital and general corporate purposes) and
the remaining proceeds of approximately $7,485,000 were held either as cash or
cash equivalents and will be used for working capital and general corporate
purposes.
On January 1, 1997, the Company exercised its option to exchange the
Redeemable Preferred Stock at the liquidation value of $18,477,000 into 10%
Subordinated Debentures due September 29, 2007 (the "Subordinated Debentures").
The Company is required to pay interest expense by issuing additional debentures
for 50% of the expense with the remaining 50% to be paid in cash. Interest is
payable semi-annually on the last business day in June and December of each
year. If Mr. Michael A. Leven's employment were to terminate for any reason the
Company would be obligated to redeem all outstanding Subordinated Debentures.
The Company also had outstanding indebtedness related to the Microtel
Acquisition of approximately $454,000 in principal and interest as of March 31,
1998.
In connection with the establishment of the Development Fund, the Company
has committed to lend up to $10 million to Constellation, which will use the
funds to make a subordinated equity investment in the Development Fund. The
Company's loan will bear interest at an annual rate of 8%, will be non-recourse
and will be repayable from distributions and payments made to Constellation from
the Development Fund. In addition, the Company sold an aggregate of 500,000
shares of Class A Common Stock to NorthStar and Lubert-Adler for a purchase
price of $11.25 per share totaling $5.625 million. NorthStar and Lubert-Adler
also have the right to purchase up to an additional 500,000 shares of Class A
Common Stock, exercisable as funds are committed by the Development Fund, at a
price of $11.25 per share. The Company will also be paid $3.5 million over the
next five years to manage the Development Fund.
On April 28, 1998 in connection with the Best Inns acquisition, the Company
made a $15 million unsecured subordinated loan to Ventures at an interest rate
of 12% per annum, (interest on which will be paid in cash to the extent there is
available cash and otherwise will be paid-in-kind) and issued to Alpine
Equities 350,000 shares of Class A Common Stock for a purchase price of $1.6
million. (See "Item 5. Other Information - Best Inns.") The Company used the
proceeds of a $10.0 million loan from NationsBank N.A., the $1.6 million it
received from the sale to Alpine Equities of 350,000 shares of Class A Common
Stock, and $3.4 million of its own cash to make the $15 million loan to
Ventures. In addition, the Company used its own cash to pay the expenses
incurred in connection with these transactions.
On April 23, 1998, the Company filed with the Securities and Exchange
Commission a registration statement for the offer and sale of up to 5,175,000
shares of Class A Common Stock to the public (the "Equity Offering"). The net
proceeds of the Equity Offering are expected to be used as follows: (i) to repay
approximately $19.7 million aggregate principal amount outstanding on the
Company's 10% Subordinated Debentures due September 29, 2007, plus accrued
interest thereon to the date of repayment, (ii) to repay approximately $10
million aggregate principal amount outstanding under the loan to be incurred in
connection with the Best Inns acquisition (see "Item 5. Other Information - Best
Inns") and (iii) for working capital and general corporate purposes including
acquisitions. The Equity Offering has not been completed as of May 11, 1998.
13
<PAGE>
Cash and cash equivalents were $16,286,000 as of March 31, 1998. In
Management's opinion, based on the Company's current operations, the Company's
capital resources are sufficient to fund operations for the next twelve months.
The Company expects to satisfy its cash requirements during the next twelve
months, including those arising as a result of the Best Inns acquisition and its
commitments to the Development Fund, with its cash and cash equivalents.
Additionally, Company expects to use the net proceeds from the Equity Offering
to repay the $10.0 million loan from NationsBank N.A. and to redeem the
approximately $19.7 million aggregate principal amount of Subordinated
Debentures outstanding plus accrued interest thereon to the date of repayment
and to allow the Company to further accelerate its growth. The Company has no
outstanding lines of credit in place.
For the three months ended March 31, 1998, the Company had a net loss of
$1,855,000 and net cash used in operating activities of $2,935,000. In
addition, for the three months ended March 31, 1998 net cash used in investing
activities was $2,293,000. Such investments were primarily costs related to the
acquisition of property and construction of hotels on such property, the
acquisition of additional office furniture and office equipment, costs related
to the construction of a national reservation system, and the capitalization of
costs incurred on the HSA Acquisition. For the three months ended March 31,
1998, such operating and financing uses of cash were funded by net cash provided
by financing activities of $5,625,000 which was the result of the Company
issuing 500,000 shares of Class A Common Stock for cash to NorthStar and
Lubert-Adler in connection with the establishment of the Development Fund during
the period.
SEASONALITY
The Company expects to experience seasonal revenue patterns similar to
those experienced by the lodging industry generally. Accordingly, the summer
months, because of increase in leisure travel, are expected to produce higher
revenues for the Company than other periods during the year. In addition,
developers of new hotels typically attempt, whenever feasible, to schedule the
opening of a new property to occur prior to the spring and summer seasons. This
also may have an impact on the seasonality of the Company's revenues, a
significant portion of which is not recognized until the opening of a property.
Accordingly, the Company may experience lower revenues and profits in the first
and fourth quarters and higher revenues and profits in the second and third
quarters.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not a party to any material litigation. However, claims and
litigation may arise in the Company's normal course of business.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
INITIAL PUBLIC OFFERING. On October 30, 1996, the Company completed an
initial public offering of its Class A Common Stock, with par value $0.01 (the
"Initial Offering").
14
<PAGE>
Net proceeds to the Company from the Initial Offering were approximately
$21,390,000. As of March 31, 1998, all of the proceeds have been used or
invested as follows (amounts are estimated):
<TABLE>
<S> <C>
Temporary Investments:
Montgomery Securities $ 7,485,000
-----------
Total Temporary Investments 7,485,000
-----------
Proceeds Spent:
Microtel Acquisition 500,000
US Funding Corp. Program 433,000
Interest on Subordinated Debentures 935,000
Building of Hotel Properties 5,212,000
Loans to Franchisees 2,084,000
Acquisition of Other Brands 238,000
Lease Deposit 150,000
Reservations System for Microtel 608,000
General Working Capital, net of interest 3,745,000
-----------
Total Proceeds Spent 13,905,000
-----------
Total Proceeds $21,390,000
===========
</TABLE>
RECENT SALE OF UNREGISTERED SECURITIES. In connection with the
establishment of the Development Fund, the Company sold an aggregate of
500,000 shares of Class A Common Stock to NorthStar and Lubert-Adler for a
purchase price of $11.25 per share totaling $5.625 million. NorthStar and
Lubert-Adler also have the right to purchase up to an additional 500,000
shares of Class A Common Stock, exercisable within eighteen months of, and
pro rata based upon the amounts of, the commitment of real estate investments
by the Development Fund, at a price of $11.25 per share.
On March 12, 1998, the Company entered into a series of transactions which
enabled it to acquire the entire interest in the Hawthorn Suites brand of
hotels in consideration for the issuance by the Company of (i) 2,199,775 shares
of Class A Common Stock to Hawthorn Suites Associates and (ii) 22,447 shares of
Class A Common Stock to HSA Properties, Inc.
The issuance of securities described above were made in reliance on the
exemption from registration provided by Section 4(2) of the Securities Act of
1933 as transactions by an issuer not involving a public offering. The
securities were acquired by the recipients thereof for investment and with no
view toward the resale or distribution thereof. The offers and sales in the
above transactions were made without any public solicitation, the
certificates bear a restrictive legend and appropriate stop transfer
instructions have been or will be given to the transfer agent. No
underwriters were involved in the transactions and no commissions were paid.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
A special meeting of the Stockholders of U.S. Franchise Systems, Inc. was
held March 11, 1998 at 4:00 p.m., at the Company's offices, 13 Corporate Square,
Suite 250, Atlanta, Georgia 30329.
One matter was submitted to the Stockholders: the consideration of a series of
transactions designed to enable USFS to acquire the entire interest in the
Hawthorn Suites brand of hotels.
The proposal that came before the meeting was passed by the Stockholders. The
tally was as follows:
For 32,105,010
Against 600
Abstain 3,407
15
<PAGE>
The total number of votes held by the shareholders of the Company as of March
11, 1998 was 36,924,162.
ITEM 5. OTHER INFORMATION
BEST INNS. On April 28, 1998, the Company completed its acquisition of the
exclusive worldwide franchise rights to the Best Inns hotel brands, including
the franchise agreements for the existing Best Inns hotels. In addition, the
Company acquired the management contracts and related personnel, relating to the
management of 29 existing Best Inns hotels and became the controlling member of
the not-for-profit corporation which supplies reservation services to Best Inns
hotels.
In connection with this transaction, the Company and the sellers entered
into an agreement with Ventures pursuant to which Ventures (through a
wholly-owned subsidiary) acquired the Acquired Hotels. Contemporaneously with
the closing of the transaction, new franchise and management agreements were
entered into between the Company and Ventures with respect to the Acquired
Hotels. As a result of the transaction, the Company owns the exclusive
worldwide franchise rights to the Best Inns hotel brands, is the franchisor of
35 existing Best Inns hotels and will be the franchisor of three hotels under
development, manages 29 of the existing Best Inns hotels and will manage two
Best Inns hotels under development.
To facilitate the transaction, the Company made a $15 million unsecured
subordinated loan to Ventures at an interest rate of 12% per annum, interest
on which will be paid in cash to the extent there is available cash and
otherwise will be paid-in-kind. The loan is subordinated to a guarantee
provided by Ventures in connection with a third-party loan in the principal
amount of approximately $65 million to its subsidiary that will own the
Acquired Hotels and is subordinated to such third party loan. The Company
made the subordinated loan and issued the Alpine Shares in order to induce
Ventures to purchase from the Sellers the Acquired Hotels. USFS financed the
subordinated loan through a $10 million full recourse loan from NationsBank
N.A., the $1.6 million it received from an affiliate of Ventures for the
Alpine Shares and $3.4 million of its own cash. In addition, the Company
committed to make up to $7.5 million of additional loans to Ventures under
certain circumstances at an interest rate and upon other terms that are
substantially similar to Ventures' or its subsidiaries' third-party
indebtedness at such time. The Company expects Ventures to be a highly
leveraged entity and there can be no assurance that any loans to Ventures
will be repaid. It is anticipated that the proceeds from the Equity Offering
will be utilized to repay the NationsBank loan.
Also in connection with the Best Inns acquisition, the Company issued to
Alpine Equities, the Alpine Shares for a purchase price of $1.6 million. Alpine
Equities was granted certain demand and piggy-back registration rights on
customary terms with respect to the Alpine Shares, as well as certain tag-along
rights on certain sales of Common Stock made by Messrs. Leven and Aronson.
Additionally, the Company agreed to pay to Alpine Equities the New Hotel Fee for
each Best Inns hotel that is added to the Best Inns system of hotels after the
closing date of the transaction, provided that such new hotels are paying
royalties to the Company or any of its affiliates.
Richard D. Goldstein, a director of the Company, is an Executive Vice
President and a Senior Managing Director of the general partner of Alpine Equity
Partners L.P., the entity that indirectly owns and controls a majority of Alpine
Equities and Ventures.
16
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A) EXHIBITS:
Exhibit
Number Description
- --------------------------------------------------------------------------------
4.1 Registration Rights Agreement dated as of April 28, 1998 among U.S.
Franchise Systems, Inc., Alpine Hospitality Equities LLC, Michael A.
Leven and Neal K. Aronson.
4.2 Shareholders Agreement, dated as of March 12, 1998 by and among
Hawthorn Suites Associates, HSA Properties, Inc., Michael A. Leven,
Neal K. Aronson and U.S. Franchise Systems, Inc.
4.3 Registration and Tag-Along Rights Agreement dated as of March 17, 1998
between (i) U.S. Franchise Systems, Inc., (ii) Sextant Trading LLC,
Lubert-Adler Real Estate Opportunity Fund, L.P., Lubert-Adler Real
Estate Opportunity Fund II, L.P. and Lubert-Adler Capital Real Estate
Opportunity Fund, L.P., and (iii) Michael Leven and Neal K. Aronson.
10.1 Asset Transfer Agreement dated as of April 28, 1998 among Best
Acquisition, Inc., Alpine Hospitality Ventures LLC, RSVP-BI OPCO, LLC,
RSVP-ABI REALCO, LLC, America's Best Inns, Inc. and the entities
identified on Schedule 1 thereto. The Company agrees to furnish
copies of the schedules hereto supplementally on request.
10.2 Securities Purchase Agreement dated as of April 28, 1998 by and
between U.S. Franchise Systems, Inc. and Alpine Hospitality Equities
LLC. The Company agrees to furnish copies of the schedules hereto
supplementally on request.
10.3 Hotel Management Agreement made and entered into on April 28, 1998 by
and among Alpine Hospitality Ventures LLC, RSVP-BI OPCO, LLC, RSVP-ABI
REALCO, LLC and USFS Management, Inc.
10.4 Amended and Restated License Agreement dated April 28, 1998 by and
between Best Franchising, Inc. and RSVP-BI OPCO, LLC.
10.5 Best Franchising, Inc. current form of License Agreement for Best Inns
hotels.
10.6 Loan Agreement dated as of April 28, 1998 by and between U.S.
Franchise Systems, Inc. and NationsBank, N.A. The Company agrees to
furnish copies of the exhibits and schedules hereto supplementally to
the Commission on request.
10.7 Senior Subordinated Note Purchase Agreement dated as of April 28, 1998
between Alpine Hospitality Ventures LLC and U.S. Franchise Systems,
Inc. The Company agrees to furnish copies of the schedules hereto
supplementally on request.
10.8 Subscription Agreement dated as of March 17, 1998 between (i) U.S.
Franchise Systems, Inc., (ii) Sextant Trading LLC, and (iii)
Lubert-Adler Real Estate Opportunity Fund, L.P., Lubert-Adler Real
Estate Opportunity Fund II, L.P. and Lubert-Adler Capital Real Estate
Opportunity Fund, L.P.
17
<PAGE>
27.1 Financial Data Schedule.
B) REPORTS ON FORM 8-K
During the first quarter ended March 31, 1998, the Company filed the following
report on Form 8-K: Current Report on Form 8-K dated March 23, 1998.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
U.S. FRANCHISE SYSTEMS, INC.
By /s/ MICHAEL A. LEVEN By /s/ NEAL K. ARONSON
-------------------- -------------------
Michael A. Leven Neal K. Aronson
Chairman of the Board, President Executive Vice President and Chief
and Chief Executive Officer Financial Officer
Dated: May 11, 1998
19
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
4.1 Registration Rights Agreement dated as of April 28, 1998 among U.S.
Franchise Systems, Inc., Alpine Hospitality Equities LLC, Michael A.
Leven and Neal K. Aronson.
4.2 Shareholders Agreement, dated as of March 12, 1998 by and among
Hawthorn Suites Associates, HSA Properties, Inc., Michael A. Leven,
Neal K. Aronson and U.S. Franchise Systems, Inc.
4.3 Registration and Tag-Along Rights Agreement dated as of March 17, 1998
between (i) U.S. Franchise Systems, Inc., (ii) Sextant Trading LLC,
Lubert-Adler Real Estate Opportunity Fund, L.P., Lubert-Adler Real
Estate Opportunity Fund II, L.P. and Lubert-Adler Capital Real Estate
Opportunity Fund, L.P., and (iii) Michael Leven and Neal K. Aronson.
10.1 Asset Transfer Agreement dated as of April 28, 1998 among Best
Acquisition, Inc., Alpine Hospitality Ventures LLC, RSVP-BI OPCO, LLC,
RSVP-ABI REALCO, LLC, America's Best Inns, Inc. and the entities
identified on Schedule 1 thereto. The Company agrees to furnish
copies of the schedules hereto supplementally on request.
10.2 Securities Purchase Agreement dated as of April 28, 1998 by and
between U.S. Franchise Systems, Inc. and Alpine Hospitality Equities
LLC. The Company agrees to furnish copies of the schedules hereto
supplementally on request.
10.3 Hotel Management Agreement made and entered into on April 28, 1998 by
and among Alpine Hospitality Ventures LLC, RSVP-BI OPCO, LLC, RSVP-ABI
REALCO, LLC and USFS Management, Inc.
10.4 Amended and Restated License Agreement dated April 28, 1998 by and
between Best Franchising, Inc. and RSVP-BI OPCO, LLC.
10.5 Best Franchising, Inc. current form of License Agreement for Best Inns
hotels.
10.6 Loan Agreement dated as of April 28, 1998 by and between U.S.
Franchise Systems, Inc. and NationsBank, N.A. The Company agrees to
furnish copies of the exhibits and schedules hereto supplementally to
the Commission on request.
10.7 Senior Subordinated Note Purchase Agreement dated as of April 28, 1998
between Alpine Hospitality Ventures LLC and U.S. Franchise Systems,
Inc. The Company agrees to furnish copies of the schedules hereto
supplementally on request.
10.8 Subscription Agreement dated as of March 17, 1998 between (i) U.S.
Franchise Systems, Inc., (ii) Sextant Trading LLC, and (iii)
Lubert-Adler Real Estate Opportunity Fund, L.P., Lubert-Adler Real
Estate Opportunity Fund II, L.P. and Lubert-Adler Capital Real Estate
Opportunity Fund, L.P.
27.1 Financial Data Schedule.
20
<PAGE>
Exhibit 4.1
Execution Copy
REGISTRATION RIGHTS AGREEMENT
between
U.S. FRANCHISE SYSTEMS, INC.
and
ALPINE HOSPITALITY EQUITIES LLC
---------------------------------------
Dated as of April 28, 1998
---------------------------------------
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C> <C>
1. Definitions.....................................................................................1
2. Registration Rights.............................................................................3
2.1 (a) Incidental Registration.......................................................3
(b) Demand Registrations..........................................................5
(c) Expenses......................................................................6
(d) Holdback Agreements...........................................................6
(e) Seller Information............................................................6
(f) Notice to Discontinue.........................................................6
(g) Registration Procedures.......................................................7
2.2 Underwritten Offerings................................................................10
2.3 Reports Under the Exchange Act........................................................10
3. Tag-Along Rights...............................................................................10
4. Indemnification; Contribution..................................................................12
4.1 Indemnification by the Company.......................................................12
4.2 Indemnification by Purchaser..........................................................12
4.3 Conduct of Indemnification Proceedings................................................13
4.4 Contribution..........................................................................13
5. Miscellaneous..................................................................................14
5.1 Recapitalizations, Exchanges, etc.....................................................14
5.2 No Inconsistent Agreements............................................................14
5.3 Successors and Assigns; Third Party Beneficiaries.....................................14
5.4 Specific Performance..................................................................14
5.5 Survival of Representations and Warranties............................................15
5.6 Entire Agreement......................................................................15
5.7 Severability..........................................................................15
5.8 Notices...............................................................................15
5.9 Governing Law.........................................................................16
5.10 Counterparts..........................................................................16
</TABLE>
<PAGE>
REGISTRATION RIGHTS AGREEMENT, dated as of April 28, 1998,
among U.S. FRANCHISE SYSTEMS, INC., a Delaware corporation (the "Company"),
ALPINE HOSPITALITY EQUITIES LLC, a Delaware limited liability company (the
"Purchaser"), Michael A. Leven ("Leven") and Neal K. Aronson ("Aronson").
Pursuant to a Securities Purchase Agreement, dated as of the
date hereof, between the Company and the Purchaser (the "Purchase Agreement"),
the Purchaser has agreed to purchase from the Company, and the Company has
agreed to issue and sell to the Purchaser, 350,000 shares (the "Shares") of
Class A Common Stock, par value $.01 per share (the "Class A Stock"), of the
Company.
The parties hereby agree as follows:
1. Definitions. As used herein, unless the context otherwise
requires, the following terms shall have the following respective meanings:
"Affiliate" means, with respect to any Person, any Person
that, directly or indirectly, controls, is controlled by or is under common
control with the Person in question. For the purposes of this definition,
"control" (including, with correlative meanings, the terms "controlled by" and
"under common control with") shall mean the possession, directly or indirectly,
of the power to direct or cause the direction of the management and policies of
such Person, whether through the ownership of voting securities or by contract
or otherwise.
"Commission" shall mean the Securities and Exchange Commission
or any other Federal agency at the time administering the Securities Act and the
Exchange Act.
"Common Stock" means shares of Class A Common Stock, par value
$.01 each, of the Company and shares of Class B Common Stock, par value $.01
each, of the Company.
"Effective Period" means a period commencing on the date of
this Agreement and ending on the earliest of (i) the first date as of which all
Registrable Securities cease to be Registrable Securities and (ii) the third
anniversary of the date of the Closing Date.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended, or any superseding Federal statute, and the rules and regulations
promulgated thereunder, all as the same shall be in effect at the time.
Reference to a particular section of the Securities Exchange Act of 1934, as
amended, shall include a reference to the comparable section, if any, of any
such superseding Federal statute.
"Indemnified Party" has the meaning set forth in Section 4.3.
<PAGE>
2
"NationsBank Loan" means that certain loan in the principal
amount of $10,000,000 to be made concurrent herewith by NationsBank, N.A., as
lender, to the Company, as borrower.
"Person" means an individual or a corporation, partnership,
limited liability company, trust, incorporated or unincorporated association,
joint venture, joint stock company, government (or an agency or political
subdivision thereof) or other entity of any kind.
"Principal Stockholder" means each of Leven and Aronson.
"Registrable Securities" means each of the following: (a) any
and all Shares owned by the Purchaser and (b) any shares of Common Stock issued
or issuable to the Purchaser with respect to the Shares by way of stock dividend
or stock split or in connection with a combination of shares, recapitalization,
merger, consolidation or other reorganization or otherwise and shares of Common
Stock issuable upon conversion, exercise or exchange thereof. Registrable
Securities will cease to be Registrable Securities when (i) a Registration
Statement covering such Registrable Securities has been declared effective under
the Securities Act by the Commission and such Registrable Securities have been
disposed of pursuant to such effective Registration Statement or (ii) such
securities shall have been sold pursuant to Rule 144 (or any successor
provision) under the Securities Act.
"Registration Expenses" means all expenses arising from or
incident to the Company's performance of, or compliance with, this Agreement,
including, without limitation, all registration, filing and listing fees; all
fees and expenses of complying with securities or "blue sky" laws (including
reasonable fees and disbursements of counsel in connection with "blue sky"
qualifications of Registrable Securities); all printing, messenger and delivery
expenses; the fees and disbursements of counsel for the Company and its
independent public accountants; the fees, disbursements and expenses of one firm
of counsel (other than in-house counsel) retained by the holders of Registrable
Securities being registered; the expenses of any special audits required by or
incident to such performance and compliance; and any liability insurance or
other premiums for insurance obtained in connection with any registration
pursuant to the terms of this Agreement.
"Registration Statement" means a registration statement filed
pursuant to the Securities Act.
"Securities Act" shall mean the Securities Act of 1933, as
amended, or any superseding Federal statute, and the rules and regulations
promulgated thereunder, all as the same shall be in effect at the time.
<PAGE>
3
2. Registration Rights.
2.1 (a) Incidental Registration.
(i) If the Company, at any time or from
time to time, proposes to register any of its shares of Common Stock
under the Securities Act (other than (i) a registration of an employee
stock ownership, stock option, stock purchase or other employee
compensation plan or arrangement adopted in the ordinary course of
business on Form S-8 (or any successor form), or any dividend
reinvestment plan or (ii) a registration of securities on Form S-4 (or
any successor form), including, without limitation, in connection with
a proposed issuance in exchange for securities or assets of, or in
connection with a merger or consolidation with, another corporation)
then the Company will at each such time give written notice (given at
least 30 days prior to the proposed filing date) describing the
proposed registration and distribution to the Purchaser of the
Company's intention to do so and, upon the written request of the
Purchaser, made within 30 days after the receipt of any such notice
(which request shall specify the amount of Registrable Securities
proposed to be sold by the Purchaser and the intended method of
disposition thereof), the Company will, as provided in this Section 2,
use its reasonable best efforts to effect the registration under the
Securities Act of all of the Registrable Securities that the Company
has been so requested to register by the Purchaser, to the extent
required to permit the disposition (in accordance with the intended
methods thereof as aforesaid) of the Registrable Securities to be
registered (each, an "Incidental Registration"); provided, however,
that if, at any time after giving written notice of its intention to
register any of its shares of Common Stock and prior to the effective
date of the Registration Statement filed in connection with such
Incidental Registration, the Company shall determine for any reason not
to register such shares of Common Stock, the Company may, at its
election, give written notice of such determination to the Purchaser
and, thereupon, shall be relieved from its obligation to register any
Registrable Securities in connection with such Incidental Registration.
In connection with any Incidental Registration under this Section 2.1
involving an underwriter, or a distribution with the assistance of a
selling agent, the right of the Purchaser to participate in such
Incidental Registration shall be conditioned upon the Purchaser's
participation in such underwriting or distribution.
(ii) Priority on Primary Registrations.
If an Incidental Registration is an underwritten primary registration
on behalf of the Company, and the managing underwriters advise the
Company in writing that in their opinion the amount of securities
requested to be included in such registration exceeds the amount which
can be sold in such offering without adversely affecting the
marketability of the offering, the Company will include in such
registration (i) first, the securities the Company proposes to sell,
(ii) second, the Registrable Securities requested to be included in
such registration along with securities requested to be included in
such registration by other holders exercising similar piggyback rights,
pro rata among the
<PAGE>
4
holders of such Registrable Securities and such other holders on the
basis of the number of shares requested to be included therein by each
such holder, and (iii) third, other securities requested to be included
in such registration.
(iii) Priority on Secondary Registrations.
If an Incidental Registration is an underwritten secondary registration
on behalf of holders of the Company's securities exercising demand
registration rights, and the managing underwriters advise the Company
in writing that in their opinion the amount of securities requested to
be included in such registration exceeds the amount which can be sold
in such offering without adversely affecting the marketability of the
offering, the Company will include in such registration (i) first, the
securities requested to be included therein by the holders exercising
demand registration rights, (ii) second, the Registrable Securities
requested to be included in such registration along with securities
requested to be included in such registration by other holders
exercising similar piggyback rights, pro rata among the holders of such
Registrable Securities and such other holders on the basis of the
number of shares requested to be included therein by each such holder,
and (iii) third, other securities requested to be included in such
registration.
(iv) Waiver of Incidental Rights.
Purchaser acknowledges that in connection with the acquisition by the
Company of the Best Inns brand of hotels from America's Best Inns,
Inc., the Company intends to enter into the NationsBank Loan and that
Leven, Andrea Leven and Aronson intend to pledge as collateral under
the NationsBank Loan (the "Pledge") an aggregate of at least
$14,300,000 worth of their shares (the "Collateral Shares") pursuant to
separate Stock Pledge Agreements to be entered into with NationsBank
(the "Pledge Agreements"). In addition, Purchaser acknowledges that
NationsBank and the Company intend, concurrently with the Loan, to
enter into a Registration Rights Agreement (the "NationsBank
Agreement") with respect to such Collateral Shares, the provisions of
which are only to have effect at such time, if at all, when the
Collateral Shares are foreclosed upon in accordance with the terms of
the Pledge Agreements. Notwithstanding the above, Purchaser hereby
waives any right it may have to notice of the Company's filing of a
Registration Statement pursuant to the terms and provisions of the
NationsBank Agreement, and waives any registration rights it has or may
have under this Agreement and any other agreement with the Company or
otherwise to include in such Registration Statement(s) any shares of
Common Stock beneficially owned by Purchaser, without regard as to
whether any other holder of capital stock (or stock equivalents) of the
Company exercises any registration rights in respect of, or
participates in, an offering of securities of the Company related to
such Registration Statement.
<PAGE>
5
(b) Demand Registrations.
(i) The Purchaser may request
registration under the Securities Act of all or any portion of its
Registrable Securities in accordance with the provisions of this
Section 2(b). All registrations requested pursuant to this Section 2(b)
are referred to herein as "Demand Registrations." Each request for a
Demand Registration shall specify the number of Registrable Securities
requested to be registered. Within ten (10) days after receipt of any
such request, the Company shall give written notice of such requested
registration to all other holders of Registrable Securities and shall
include in such registration all Registrable Securities with respect to
which the Company has received written requests for inclusion therein
within fifteen (15) days after the receipt of the Company's notice.
(ii) The Purchaser shall be entitled to
request no more than one Demand Registration in accordance with this
Section 2(b). A registration shall not count as the permitted Demand
Registration until it has become effective.
(iii) If the Demand Registration is an
underwritten offering and the managing underwriters advise the Company
in writing that in their opinion the number of Registrable Securities
and other securities requested to be included in such offering exceeds
the number of Registrable Securities and other securities, if any, that
can be sold in an orderly manner in such offering within a price range
acceptable to the holders of a majority of the Registrable Securities
included in such registration, the Company shall include in such
registration prior to the inclusion of any securities that are not
Registrable Securities the number of Registrable Securities requested
to be included which in the opinion of such underwriters can be sold in
an orderly manner within the price range of such offering.
(iv) The Company shall not be obligated to
effect any Demand Registration within 60 days after the effective date
of a previous offering of Common Stock registered under the Securities
Act. The Company may postpone for up to 90 days the filing or the
effectiveness of a registration statement for a Demand Registration if
the Company's board of directors determines in its reasonable good
faith judgment that such Demand Registration would reasonably be
expected to have a material adverse effect on any proposal or plan by
the Company or any of its subsidiaries to engage in any acquisition
(other than in the ordinary course of business) or any merger,
consolidation, tender offer, reorganization or similar transaction;
provided that (a) the Company may exercise its right to delay the
Demand Registration only once in any twelve-month period and (b) if the
Demand Registration is delayed hereunder, the Purchaser shall be
entitled to withdraw such request and, if such request is withdrawn,
such Demand Registration shall not count as the permitted Demand
Registration hereunder and the Company shall pay all Registration
Expenses in connection with such terminated registration.
<PAGE>
6
Notwithstanding anything to the contrary in this Section 2(b)(iv), (x)
the Company may not prevent, delay or postpone any Demand Registration
and (y) the Purchaser shall not be subject to any lockup or similar
agreements following the Demand Registration, in either case for more
than 180 days during any 360-day period.
(v) The Company shall have the right to
select the investment banker(s) and manager(s) to administer the
offering, subject to the consent of Purchaser, such consent not to be
unreasonably withheld.
(c) Expenses. The Company shall pay all
Registration Expenses in connection with any registration pursuant to this
Section 2, whether or not such registration becomes effective; provided, that
all underwriting discount and selling commissions applicable to the Registrable
Securities shall be borne by the holders selling such Registrable Securities, in
proportion to the number of Registrable Securities sold by each such holder;
provided further that, if the Purchaser has requested to include Registrable
Securities that may, in the reasonable opinion of counsel to the Company
delivered to such Purchaser, be distributed to the public without limitation as
to volume pursuant to Rule 144 (or any successor provision of the Securities
Act) the Purchaser shall pay its pro rata portion of all Registration Expenses
incurred in connection with such offering.
(d) Holdback Agreements. The Purchaser agrees
not to effect any public sale or distribution of any Registrable Securities
being registered or of any securities convertible into or exchangeable or
exercisable for such Registrable Securities, including a sale pursuant to Rule
144 under the Securities Act (i) during the 90 day period beginning on the
effective date of such Registration Statement (except as part of such
registration), in the case of a non-underwritten public offering, or (ii) during
the reasonable period, if any, requested by the underwriters, in the case of an
underwritten public offering, provided, in each case, that all directors of the
Company, Principal Stockholders and other 5% or greater beneficial owners of
shares of the Common Stock of the Company seeking to include shares of Common
Stock in such Registration Statement are similarly restricted.
(e) Seller Information. The Company may require
each seller of Registrable Securities as to which any registration is being
effected to furnish to the Company such information regarding the distribution
of such securities as the Company may from time to time reasonably request in
writing and as shall be required by law in connection therewith.
(f) Notice to Discontinue. The Purchaser agrees
that, upon receipt of any notice from the Company of the happening of any event
that causes the Registration Statement to include an untrue statement of a
material fact or to omit to state a material fact required to be stated therein
or necessary to make the statements therein not misleading in light of the
circumstances then existing, Purchaser shall forthwith discontinue disposition
of Registrable Securities pursuant to the Registration Statement covering such
Registrable Securities until the Purchaser's receipt of the
<PAGE>
7
copies of a supplemented or amended prospectus and, if so directed by the
Company, Purchaser shall deliver to the Company all copies, of the prospectus
covering such Registrable Securities that is current at the time of receipt of
such notice.
(g) Registration Procedures. Whenever the
Purchaser has requested that any Registrable Securities be registered pursuant
to this Agreement, the Company shall use its reasonable best efforts to effect
the registration and the sale of such Registrable Securities in accordance with
the intended method of disposition thereof, and pursuant thereto the Company
shall as expeditiously as reasonably practicable:
(i) prepare and file with
the Commission within 90 days after the request or demand therefor
a Registration Statement with respect to such Registrable
Securities and use its reasonable best efforts to cause such
Registration Statement to become effective (provided that before
filing a Registration Statement or prospectus or any amendments or
supplements thereto, the Company shall furnish to one firm of
counsel selected by the Purchaser, and contemplated by the
definition of "Registration Expenses" contained herein, copies of
all such documents proposed to be filed);
(ii) notify the Purchaser of
the effectiveness of each Registration Statement filed hereunder
and prepare and file with the Commission such amendments and
supplements to such Registration Statement and the prospectus used
in connection therewith as may be necessary to keep such
Registration Statement effective for a period of not less than 180
days and comply with the provisions of the Securities Act with
respect to the disposition of all securities covered by such
Registration Statement during such period in accordance with the
intended methods of disposition by the sellers thereof set forth in
such Registration Statement; provided, that, in determining the
180- day period of this Section 2.1(g)(ii), such 180-day period
shall be extended for one day for every day which a stop order is
in effect or has been initiated or every day on which any fact
contemplated by Section 2.1(g)(v) exists.
(iii) furnish to the Purchaser
such number of copies of such Registration Statement, each
amendment and supplement thereto, the prospectus included in such
Registration Statement (including each preliminary prospectus) and
such other documents as the Purchaser may reasonably request in
order to facilitate the disposition of the Registrable Securities
owned by Purchaser;
(iv) use its reasonable best
efforts to register or qualify such Registrable Securities under
such other securities or blue sky laws of such jurisdictions as the
Purchaser reasonably requests and do any and all other acts and
things which may be reasonably necessary or advisable to enable the
Purchaser to consummate the disposition in such jurisdictions of
the Registrable Securities owned by Purchaser (provided that the
Company shall
<PAGE>
8
not be required to (a) qualify generally to do business in any
jurisdiction where it would not otherwise be required to qualify
but for this subparagraph, (b) subject itself to taxation in any
such jurisdiction or (c) consent to general service of process in
any such jurisdiction);
(v) notify the Purchaser at
any time when a prospectus relating thereto is required to be
delivered under the Securities Act, of the happening of any event
as a result of which the prospectus included in such Registration
Statement contains an untrue statement of a material fact or omits
any fact necessary to make the statements therein not misleading,
and, at the request of any such seller, the Company shall prepare a
supplement or amendment to such prospectus so that, as thereafter
delivered to the purchasers of such Registrable Securities, such
prospectus shall not contain an untrue statement of a material fact
or omit to state any fact necessary to make the statements therein
not misleading;
(vi) cause all such Registrable
Securities to be listed on each securities exchange on which
similar securities issued by the Company are then listed and, if
not so listed, to be listed on the NASD automated quotation system
and, if listed on the NASD automated quotation system, use its
reasonable best efforts to secure designation of all such
Registrable Securities covered by such Registration Statement as a
NASDAQ "national market system security" within the meaning of Rule
llAa2-1 of the Commission or, failing that, to secure NASDAQ
authorization for such Registrable Securities;
(vii) provide a transfer agent
and registrar for all such Registrable Securities not later than
the effective date of such Registration Statement;
(viii) enter into such
customary agreements (including underwriting agreements in
customary form) and take all such other actions as the Purchaser or
the underwriters, if any, reasonably request in order to expedite
or facilitate the disposition of such Registrable Securities,
whether or not an underwriting agreement is entered into and
whether or not the registration is an underwritten registration:
(1) make such representations
and warranties to the Purchaser and the underwriters, if any,
in form, scope and substance as are customarily made by
issuers to underwriters in firm commitment underwritten
offerings;
(2) obtain opinions of counsel
to the Company and updates thereof (which counsel and opinions
(in form, scope and substance) shall be reasonably
satisfactory to the managing underwriters, if any, and the
Purchaser) addressed to Purchaser and the underwriters
covering the matters customarily covered in opinions
<PAGE>
9
requested in firm commitment underwritten offerings and such
other matters as may be reasonably requested by the Purchaser
and the managing underwriter, if any;
(3) obtain "cold comfort"
letters and updates thereof from the Company's independent
certified public accountants addressed to the Purchaser and
the underwriters, if any, such letters to be in customary form
and covering matters of the type customarily covered in "cold
comfort" letters by independent accountants in connection with
firm commitment underwritten offerings on such date or dates
as may be reasonably requested by Purchaser and the managing
underwriter, if any;
(4) if requested, provide
indemnification in accordance with the provisions and
procedures of Section 4 hereof to all parties to be
indemnified pursuant to said Section; and
(5) deliver such documents and
certificates as may be reasonably requested by the Purchaser
and the managing underwriters, if any, to evidence compliance
with clause (v) above and with any customary conditions
contained in the underwriting agreement or other agreement
entered into by the Company (the matters set forth in this
Section 2(g)(viii) to be effected at each closing under any
underwriting or similar agreement as and to the extent
required thereunder);
(ix) make available for inspection by
Purchaser and any underwriter participating in any disposition
pursuant to such Registration Statement and any attorney,
accountant or other agent retained by any such seller or
underwriter, all financial and other records, pertinent
corporate documents and properties of the Company, and cause
the Company's officers, directors, employees and independent
accountants to supply all information reasonably requested by
Purchaser, underwriter, each attorney, accountant or other
agent in connection with such Registration Statement;
(x) cause its employees to participate
in "road shows" and other presentations as reasonably
requested by the underwriters in connection with any
registered offering; and
(xi) otherwise use its reasonable best
efforts to comply with all applicable rules and regulations of
the Commission, and make available to its security holders, as
soon as reasonably practicable, an earnings statement covering
the period of at least twelve months beginning with the first
day of the Company's first full calendar quarter after the
effective date of the Registration Statement, which earnings
statement shall satisfy the provisions of Section 11(a) of the
Securities Act and Rule 158 thereunder.
<PAGE>
10
2.2 Underwritten Offerings. If the registration of Registrable
Shares is to be accomplished through an underwritten offering, the Purchaser
shall be party to the underwriting agreement between the Company and such
underwriters and the representations and warranties by, and the other agreements
on the part of, the Company to and for the benefit of such underwriters shall
also be made to and for the benefit of the Purchaser. The underwriting agreement
shall not include conditions that are not customary in underwriting agreements
with respect to combined primary and secondary distributions and shall be
otherwise reasonably satisfactory to such holders. The Purchaser shall not be
required by the Company to make any representations or warranties to or
agreements with the Company or the underwriters other than representations,
warranties or agreements regarding such Purchaser, such Purchaser's Registrable
Shares and such Purchaser's intended method of distribution or any other
representations required by applicable law.
2.3 Reports Under the Exchange Act. The Company agrees
to:
(a) file with the Commission in a timely manner
all reports and other documents required of the Company under the Exchange Act,
and
(b) furnish to the Purchaser, during the
Effective Period, forthwith upon request (A) a written statement by the Company
that it has complied with the current public information and reporting
requirements of Rule 144 under the Securities Act and the Exchange Act and (B) a
copy of the most recent annual or quarterly report of the Company and such other
reports and documents so filed by the Company.
3. Tag-Along Rights. (a) In the event that any Principal Stockholder
proposes to transfer, in a single transaction or series of related transactions,
shares of Common Stock representing 25% or more of the shares of Common Stock
held by such Principal Stockholder on the date hereof, which transfer either (i)
occurs prior to the date on which all Registrable Securities are freely
transferable pursuant to Rule 144(k) under the Securities Act, or (ii) involves
a change in control of the Company (defined as the acquisition of Common Stock
representing more than 33% of the total combined voting power of the Common
Stock taken as a whole, by any person or group of persons acting in concert),
the transferring Principal Stockholder shall give written notice of such
proposed transfer to Purchaser specifying the terms and conditions of such
transfer and the identity of the proposed transferee (a "Sale Notice").
Purchaser shall have the right to participate in the proposed transfer by
delivering to the transferring Principal Stockholder a written notice of such
election within five business days following delivery of the Sale Notice. If
Purchaser elects to participate in such transfer, the transferring Principal
Stockholder and Purchaser will be entitled to sell in such proposed transfer, at
the same price and on the same terms, a number of shares of Common Stock equal
to the product of (i) the quotient determined by dividing the number of shares
of Common Stock then held by the transferring Principal Stockholder or
Purchaser, as the case may be, by the aggregate number of shares of Common Stock
then held by the transferring Principal Stockholder and all participating
holders (including the Purchaser) exercising
<PAGE>
11
contractual tag-along rights, multiplied by (ii) the number of shares of Common
Stock to be sold in such proposed transfer. The transferring Principal
Stockholder shall not effect such proposed transfer unless the proposed
transferee consents to the participation of the Purchaser pursuant to this
Section 3. In the event that Purchaser does not elect to participate in a
proposed transfer, the transferring Principal Stockholder shall have a period of
time ending 90 days after the date of delivery of the Sale Notice (or, if later,
five days following the expiration or early termination of all waiting periods
applicable to such transfer under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended) within which to effect the transfer on the terms set
forth in the Sale Notice. If such transfer is not completed within such period
or in the event of a material change in the terms set forth in the Sale Notice,
the transferring Principal Stockholder shall be required to once again comply
with the provisions of this Section 3 prior to effecting any transfer of such
shares. This Section 3 shall not apply to transfers between the Principal
Stockholder or by a Principal Stockholder to members of such Principal
Stockholder's immediate family or a trust for the benefit of members of such
Principal Stockholder's immediate family so long as such transferee agrees to be
bound by the provisions of this Section 3 in connection with any subsequent
transfer of such shares. For purposes of this Section 3, "Common Stock" shall
include the Company's Class A Common Stock and Class B Common Stock.
(b) Notwithstanding the provisions of Section
3(a) above, the Purchaser acknowledges that (i) notice is not required with
respect to the Pledge of the Collateral Shares by the Principal Stockholders and
Andrea Leven as collateral under the NationsBank Loan and pursuant to the
respective Pledge Agreements and (ii) there shall not exist any "tag-along"
rights as contemplated by Section 3(a) with respect to the transfer of the
Collateral Shares pursuant to (y) the Pledge and/or (z) the foreclosure and/or
sale of the Collateral Shares by NationsBank upon the occurrence of an Event of
Default (as defined in the Pledge Agreement).
4. Indemnification; Contribution.
4.1 Indemnification by the Company. In the event of any
registration of any Registrable Securities pursuant to the terms of Section 2,
the Company will indemnify and hold harmless, to the fullest extent permitted by
law, Purchaser and its respective directors, officers, partners, trustees,
employees, legal counsel, accountants, financial advisors and agents, and each
other Person, if any, who controls (within the meaning of the Securities Act and
the Exchange Act) Purchaser or any such directors, officers, partners, trustees,
employees, legal counsel, accountants, financial advisors and agents (each of
the foregoing, a "Purchaser indemnified party") against any and all losses,
claims, damages, liabilities and expenses (including reasonable costs of
investigation), joint or several, to which such Purchaser indemnified party may
become subject under the Securities Act or otherwise, insofar as such losses,
claims, damages, liabilities or expenses (or actions or proceedings in respect
thereof) arise out of or are based upon (x) any untrue statement or alleged
untrue statement of any material fact or (y) any omission or alleged omission to
state therein a material fact required to be stated therein or
<PAGE>
12
necessary to make the statements therein not misleading contained in any
Registration Statement under which such Registrable Securities were registered
under the Securities Act, provided, however, that the Company shall not be
liable in any such case to the extent that any such loss, claim, damage or
liability (or actions or proceedings in respect thereof) arises out of or is
based upon (x) any untrue statement or alleged untrue statement of any material
fact or (y) any omission or alleged omission to state a material fact required
to be stated therein or necessary to make the statements therein not misleading
in such Registration Statement, or amendment or supplement thereto, in reliance
upon and in conformity with written information concerning Purchaser and
furnished to the Company for use in the preparation thereof.
4.2 Indemnification by Purchaser. The Company may require, as
a condition to including any Registrable Securities in any Registration
Statement filed pursuant to Section 2, that the Company shall have received an
undertaking from Purchaser to indemnify and hold harmless the Company, its
directors, officers, legal counsel, accountants and financial advisors and each
other Person, if any, who controls (within the meaning of the Securities Act and
the Exchange Act) the Company or any such directors, officers, legal counsel,
accountants and financial advisors (each of the foregoing, a "Company
Indemnified Party") against any losses, claims, damages, liabilities or
expenses, joint or several, to which such Company Indemnified Party may become
subject under the Securities Act or otherwise, insofar as such losses, claims,
damages, liabilities or expenses (or actions or proceedings in respect thereof)
arise out of or are based upon (x) any untrue statement or alleged untrue
statement of a material fact or (y) any omission or alleged omission to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading contained in any Registration Statement under which such
Registrable Securities were registered under the Securities Act or any amendment
or supplement thereto, if such statement or omission was made in reliance upon
and in conformity with written information concerning Purchaser and furnished to
the Company.
4.3 Conduct of Indemnification Proceedings. Promptly after
receipt by any Purchaser Indemnified Party or Company Indemnified Party (each,
an "Indemnified Party") of notice of the commencement of any action, suit,
proceeding or investigation or threatened thereof in writing for which the
Indemnified Party intends to claim indemnification or contribution pursuant to
this Agreement, such Indemnified Party will give written notice thereof to the
Indemnifying Party; provided, however, that the failure of any Indemnified Party
to give notice as provided herein shall not relieve the Indemnifying Party of
its obligations under this Agreement, except to the extent that the Indemnifying
Party is actually prejudiced by such failure to give notice. If notice of
commencement of any such action is brought against an Indemnified Party, the
Indemnifying Party may, at its expense, participate in and assume the defense
thereof, with counsel reasonably satisfactory to such Indemnified Party. The
Indemnified Party shall have the right to employ separate counsel in any such
action and participate in the defense thereof, but the fees and expenses of such
counsel shall be paid by the Indemnified Party unless (i) the Indemnifying Party
agrees to pay the same, (ii) the Indemnifying Party fails to assume
<PAGE>
13
the defense of such action with counsel satisfactory to the Indemnified Party in
its reasonable judgment or (iii) the named parties to any such action (including
any impleaded parties) have been advised by such counsel in writing that either
(x) representation of such Indemnified Party and the Indemnifying Party by the
same counsel would be inappropriate under applicable standards of professional
conduct or (y) there may be one or more legal defenses available to the
Indemnified Party which are different from or additional to those available to
the Indemnifying Party. In no event shall the Indemnifying Party be responsible
for the fees of more than one counsel (in addition to local counsel) for all
Indemnified Parties. No Indemnifying Party or Indemnified Party shall consent to
entry of any judgment or enter into any settlement without the written consent
of the other, which consent shall not be unreasonably withheld.
4.4 Contribution. If the indemnification provided for in this
Section 4 from the Indemnifying Party is unavailable to an Indemnified Party
hereunder in respect of any losses, claims, damages, liabilities or expenses
referred to therein, then the Indemnifying Party, in lieu of indemnifying such
Indemnified Party, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such losses, claims, damages, liabilities or
expenses in such proportion as is appropriate to reflect the relative fault of
the Indemnifying Party and Indemnified Party in connection with the actions
which resulted in such losses, claims, damages, liabilities or expenses, as well
as any other relevant equitable considerations. The relative faults of such
Indemnifying Party and Indemnified Party shall be determined by reference to,
among other things, whether any action in question, including any untrue or
alleged untrue statement of a material fact or omission or alleged omission to
state a material fact, has been made by, or relates to information supplied by,
such Indemnifying Party or Indemnified Party, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
action. The amount paid or payable by a party as a result of the losses, claims,
damages, liabilities and expenses referred to above shall be deemed to include
any legal or other fees, charges or expenses reasonably incurred by such party
in connection with any investigation or proceeding.
The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 4 were determined by pro rata
allocation or by any other method of allocation that does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
No person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any Person.
5. Miscellaneous.
5.1 Recapitalizations, Exchanges, etc. The provisions of this
Agreement shall apply, to the full extent set forth herein, with respect to (i)
the Shares and (ii) any and all equity securities of the Company or any
successor or assign of the Company (whether by merger, consolidation, sale of
assets or otherwise), which may be issued in respect of, in conversion of, in
exchange for or in
<PAGE>
14
substitution of, the Shares, and shall be appropriately adjusted for any stock
dividends, splits, reverse splits, combinations, recapitalizations and the like
occurring after the date hereof.
5.2 No Inconsistent Agreements. The Company shall not enter
into any agreement with respect to its securities that is inconsistent with the
registration rights granted in this Agreement.
5.3 Successors and Assigns; Third Party Beneficiaries. This
Agreement shall inure to the benefit of and be binding upon the successors and
permitted assigns of each of the parties hereto. Except as specifically provided
herein, this Agreement is not assignable by any of the parties. The rights
granted to Purchaser hereunder are transferable to any other subsequent holder
of the Shares, provided that the Shares received by such subsequent holder have
not been distributed pursuant to a Registration Statement or sold in a broker
transaction pursuant to the terms of Rule 144.
5.4 Specific Performance. Each of the parties hereto
acknowledges that the other party would not have an adequate remedy at law for
money damages if any of the covenants or agreements of the other party in this
Agreement were not performed in accordance with its terms and therefore agrees
that the other party shall be entitled to specific enforcement of such covenants
or agreements and to injunctive and other equitable relief in addition to any
other remedy to which it may be entitled, at law or in equity.
5.5 Survival of Representations and Warranties. The
representations, warranties, covenants and agreements contained in this
Agreement shall survive the execution of this Agreement and any investigation at
any time by the Purchaser, the Company, or on behalf of either thereof.
5.6 Entire Agreement. This Agreement, together with the
Securities Purchase Agreement, contains the entire understandings of the parties
with respect to the subject matter of such agreements. This Agreement may not be
amended except by a writing signed by all of the parties.
5.7 Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions of this Agreement shall remain in full force and
effect, unless such action would substantially impair the benefits to either
party of the remaining provisions of this Agreement.
5.8 Notices. Any notices and other communications required or
permitted hereunder shall be in writing and shall be delivered personally,
telecopied or sent by registered or certified or express mail, postage prepaid.
Any such notice shall be deemed given when so delivered personally, telecopied
or sent by certified, registered or express mail, as follows:
<PAGE>
15
If to the Company, Leven or Aronson:
U.S. Franchise Systems, Inc.
13 Corporate Square, Suite 250
Atlanta, Georgia 30329
Attention: Stephen D. Aronson, Esq.
Telecopier: (404) 235-7448
With copies to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Attention: Judith R. Thoyer, Esq.
Telecopier: (212) 757-3990
If to the Purchaser:
Alpine Equity Partners L.P.
1285 Avenue of the Americas
21st Floor
New York, New York 10019-6064
Attention: Lorraine E. Jackson, Esq.
Telecopier: (212) 641-5125
with copies to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Attention: Robert B. Schumer, Esq.
Telecopier: (212) 757-3990
5.9 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York without regard to
conflict of laws provisions, except to the extent the General Corporation Law of
the State of Delaware applies.
5.10 Counterparts. This Agreement may be executed in one or
more counterparts, which together will constitute a single agreement.
<PAGE>
16
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and delivered as of the date first above written.
ALPINE HOSPITALITY EQUITIES LLC
By Alpine Hospitality Holdings LLC
its Managing Member
By Alpine Equity Partners L.P.,
its Managing Member
By Alpine Equity Partners L.L.C.
its General Partner
By: /s/ Richard D. Goldstein
-------------------------------
Name: Richard D. Goldstein
Title: Executive Vice President
U.S. FRANCHISE SYSTEMS, INC.
By: /s/ Neal K. Aronson
-------------------------------
Name: Neal K. Aronson
Title: Executive Vice President
/s/ Neal K. Aronson
-------------------------------
Neal K. Aronson
/s/ Michael A. Leven
-------------------------------
Michael A. Leven
<PAGE>
Exhibit 4.2
SHAREHOLDERS AGREEMENT
----------------------
THIS SHAREHOLDERS AGREEMENT, dated as of March 12, 1998 (the
"AGREEMENT") by and among Hawthorn Suites Associates, an Illinois joint venture
("HSA"), HSA Properties, Inc., a Delaware corporation ("HPI", and together with
HSA, the "SECURITYHOLDERS"), Michael A. Leven ("LEVEN"), Neal K. Aronson
("ARONSON"), and U.S. Franchise Systems, Inc. (formerly known as USFS Hawthorn,
Inc.), a Delaware corporation (the "COMPANY").
WHEREAS, concurrently herewith, pursuant to a Contribution Agreement,
by and among the Securityholders, the Company and Old USFS (as defined below),
dated as of December 9, 1997 (the "CONTRIBUTION AGREEMENT"), HSA shall acquire
2,199,775 shares of Class A Common Stock, $.01 par value per share, of the
Company ("CLASS A STOCK"), and HPI shall acquire 22,447 shares of Class A Stock
(such shares hereinafter referred to as the "SHARES"), and the Securityholders
shall contribute, assign, transfer and convey (the "TRANSFER") all of their
respective interests in HSA Properties, L.L.C., a Delaware limited liability
company ("HSA LLC"), on the terms, and subject to the conditions, contained in
the Contribution Agreement;
WHEREAS, on the date hereof, immediately upon the consummation of the
Transfer, U.S. Franchise Systems, Inc., a Delaware corporation ("OLD USFS"),
shall merge with and into the Company with the Company as the surviving
corporation (the "MERGER"), pursuant to the Agreement and Plan of Merger, dated
as of December 9, 1997 (the "MERGER AGREEMENT"), between the Company and Old
USFS. In the Merger, each outstanding share of Class A Common Stock, par value
$.01 per share, and Class B Common Stock, par value $.01 per share, of Old USFS
shall be converted into the right to receive a share of Class A Stock or Class B
Common Stock, par value $.01 per share ("CLASS B STOCK" and together with the
Class A Stock, collectively, the "COMMON STOCK"), of the Company, respectively,
and the Shares will remain outstanding; and
WHEREAS, it is a condition to the consummation of the transactions
contemplated by each of the Merger Agreement and the Contribution Agreement that
the parties hereto execute and deliver this Agreement.
NOW THEREFORE, in consideration of the mutual covenants and agreements
set forth herein and for good and valuable consideration, the receipt of which
is hereby acknowledged, the parties agree as follows.
<PAGE>
2
Section 1. DEFINITIONS. As used in this Agreement, the following
terms shall have the following respective meanings:
"AFFILIATE" means, with respect to any Person, any Person that,
directly or indirectly, controls, is controlled by or is under common control
with the Person in question. In addition to the foregoing, with respect to the
Securityholders, "Affiliate" shall mean the lineal descendants of Nicholas
J. Pritzker, deceased, and their immediate family members, trusts primarily for
the benefit of such individuals and Persons controlled, directly or indirectly,
by such individuals and/or trusts.
"COMMISSION" means the Securities and Exchange Commission or any
similar agency then having jurisdiction to enforce the Securities Act and the
Exchange Act.
"COMMON STOCK" means shares of Class A Common Stock, par value
$.01 each, of the Company and shares of Class B Common Stock, par value $.01
each, of the Company.
"CONTROL" (including, with correlative meanings, the terms
"CONTROLLED BY" and "UNDER COMMON CONTROL WITH") shall mean the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of such Person, whether through the ownership of voting
securities or by contract or otherwise.
"DESIGNATED HOLDER" means each of the Securityholders and their
permitted transferees under Section 2(b)(i).
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission promulgated thereunder.
"INCLUDED TRANSFEREE" means, with respect to a Principal
Stockholder, an immediate family member (which shall mean, with respect to such
person, such person's spouse, parents, children and grandchildren and the spouse
of such person's children and grandchildren) of such Principal Stockholder, and
any trust or partnership of which all the beneficiaries or partners, as the case
may be, are Principal Stockholders and/or an immediate family member of such
Principal Stockholder.
"LOCKUP PERIOD" means the period commencing on the date hereof
and ending on the second anniversary of the date hereof.
"PERSON" means an individual or a corporation, partnership,
limited liability company or partnership, trust, incorporated or unincorporated
association, joint venture, joint stock company, government (or an agency or
political subdivision thereof) or other entity of any kind.
<PAGE>
3
"PRINCIPAL STOCKHOLDER" means each of Michael A. Leven and
Neal K. Aronson.
"REGISTRABLE SECURITIES" means each of the following: (a) any
and all Shares owned by the Designated Holders and (b) any shares of Class A
Stock issued or issuable to any of the Designated Holders with respect to the
Shares by way of stock dividend or stock split or in connection with a
combination of shares, recapitalization, merger, consolidation or other
reorganization or otherwise and shares of Common Stock or other equity
securities of the Company issuable upon conversion, exercise or exchange
thereof. Registrable Securities will cease to be Registrable Securities when
(i) a Registration Statement covering such Registrable Securities has been
declared effective under the Securities Act by the Commission and such
Registrable Securities have been disposed of pursuant to such effective
Registration Statement, (ii) such securities shall have been sold pursuant to
Rule 144 (or any successor provision) under the Securities Act and in compliance
with the requirements of paragraphs (c) (e), (f) and (g) of Rule 144
(notwithstanding the provisions of paragraph (k) of such Rule), or (iii) the
Registrable Securities are sold or distributed by a Person not entitled to the
registration rights granted by this Agreement.
"REGISTRATION EXPENSES" means all expenses arising from or
incident to the Company's performance of, or compliance with, this Agreement,
including, without limitation, all registration, filing and listing fees; all
fees and expenses of complying with state securities or "blue sky" laws
(including reasonable fees and disbursements of counsel in connection with "blue
sky" qualifications of Registrable Securities); all printing, messenger and
delivery expenses; the fees and disbursements of counsel for the Company and its
independent public accountants; the fees and disbursements of one firm of
counsel (other than in-house counsel) retained by the holders of Registrable
Securities being registered; the expenses of any special audits required by or
incident to such performance and compliance; and any liability insurance or
other premiums for insurance obtained in connection with any registration
pursuant to the terms of this Agreement.
"REGISTRATION STATEMENT" means a registration statement filed
pursuant to the Securities Act.
"SECURITIES ACT" means the Securities Act of 1933, as amended,
and the rules and regulations of the Commission promulgated thereunder.
"VOTING SECURITIES" shall mean the shares of Common Stock and any
other securities of the Company entitled to vote generally in the election of
directors.
<PAGE>
4
Section 2. TRANSFER OF SHARES.
(a) RESTRICTIONS ON TRANSFER. Each Designated Holder agrees
that such Designated Holder will not, directly or indirectly, offer, sell,
exchange, pledge, hypothecate, encumber, transfer, assign or otherwise dispose
of (collectively, a "transfer") any of its Shares, except as provided in Section
2(b).
(b) EXCEPTIONS TO RESTRICTIONS. Subject to Section 4(e), the
provisions of Section 2(a) shall not apply to any of the following transfers:
(i) from any Designated Holder to the Company or to any
Affiliate of such Designated Holder, PROVIDED THAT, each such Affiliate
shall execute an agreement in form and substance reasonably satisfactory to
the Company pursuant to which such Affiliate shall agree to comply with,
and shall be bound by, the terms of this Agreement;
(ii) pursuant to Section 3;
(iii) pursuant to a registered offering in which either of
the Principal Stockholders or an Included Transferee is participating;
provided that the Designated Holder's shares of Common Stock included in
such offering do not represent a greater percentage of the total shares of
Common Stock owned by such Designated Holder then the shares of Common
Stock being sold by such Principal Stockholder or Included Transferee
represents of his total shares of Common Stock owned;
(iv) pursuant to a tender offer, exchange offer, merger,
consolidation or other business combination involving the Company, or a
sale of all or substantially all of the outstanding shares of Common Stock
of the Company with a third party not an Affiliate of the Company (x) which
the Board of Directors of the Company does not oppose or (y) which the
Board of Directors of the Company opposes (an "OPPOSED TENDER"); PROVIDED
THAT, no indication or arrangement to tender the Shares may be made in the
case of an Opposed Tender until twenty-four hours prior to the expiration
of any time after which securities tendered may be treated less favorably
than securities tendered prior to such time;
(v) after the expiration the Lockup Period;
(vi) to the extent necessary to obtain or maintain,
without suspension or threatened revocation, any gaming license, permit or
approval of any Affiliate of any Securityholder; PROVIDED THAT, in the
event of any such proposed transfer the transferor shall have complied with
the right of first refusal contained in Section 2(c); PROVIDED FURTHER
THAT, the transferee shall execute an agreement in form and substance
reasonably satisfactory to the
<PAGE>
5
Company pursuant to which such transferee shall agree to comply with, and
be bound by, the terms of this Agreement; or
(vii) as contemplated by Section VI of the Contribution
Agreement; PROVIDED THAT, prior to the expiration of the Lockup Period each
transferee (other than the Company ) shall execute an agreement in form and
substance reasonably satisfactory to the Company pursuant to which such
transferee shall agree to comply with, and be bound by, the terms of this
Agreement.
Notwithstanding the foregoing, no transfer shall be permitted under
Section 2(b),(i), (ii), (iii), (iv) or (vi) prior to the first anniversary of
the date of this Agreement unless HSA and/or HPI, as the case may be, shall have
agreed, in a written instrument reasonably acceptable to the Company not to
transfer any of the net (pre-tax) proceeds received in such transfer prior to
the first anniversary of the date of this Agreement.
(c) RIGHT OF FIRST REFUSAL.
(i) If during the Lockup Period any Designated Holder (a
"SELLING STOCKHOLDER") desires to transfer all or any portion to its Shares
to any Person (a "THIRD PARTY OFFEROR") pursuant to Section 2(b)(vi) and
has received a bona fide offer from such Third Party Offeror to buy all of
such Shares (a "THIRD PARTY OFFER"), such Selling Stockholder shall send
written notice (a "NOTICE") to the Company, which shall state (a) the
number of Shares proposed to be transferred (the "OFFERED SECURITIES"),
(b) the proposed purchase price per Share to be paid by the Third Party
Offeror (the "OFFER PRICE"), which shall be payable solely in cash, (c) the
name of the Third Party Offeror, (d) that the proposed purchase of the
Offered Securities shall be consummated after the expiration or termination
of the Option Period (as defined below) but on or prior to the first
business day which occurs after the later of sixty (60) days after delivery
of the Notice and the date which is five (5) days after the expiration or
waiver of any applicable waiting period under the HSR Act (as defined
below), and (e) that the Third Party Offer has been accepted by the Selling
Stockholder subject to the rights of the Company contained in this
Section 2(c). The Offering Notice shall also state any other material
terms and conditions of the Third Party Offer and shall include a copy of
all writings between the Third Party Offeror and the Selling Stockholder
necessary to establish the terms of the Third Party Offer.
(ii) For a period of ten (10) days after the delivery of
the Notice (the "OPTION PERIOD"), the Company or its designee shall have
the right to elect to purchase all (but not less than all) of the Offered
Securities at a purchase price equal to the Offer Price and upon the terms
and conditions of the Third Party Offer. The election of the Company or
its designee under this
<PAGE>
6
Section 2(c) shall be exercisable by delivering written notice of the
exercise thereof, prior to the expiration of the Option Period, to the
Selling Stockholder. The failure of the Company or its designee to respond
within the Option Period to the Selling Stockholder shall be deemed to be a
waiver of its rights under this Section 2(c).
(iii) The closing of the purchase of Offered Securities to
be purchased by the Company or its designee under this Section 2(c) shall
be held at the principal office of the Company at 11:00 a.m., local time,
on the date that is the later of sixty (60) days after delivery of the
Notice and the date which is five (5) days after the expiration or waiver
of any applicable waiting period under the HSR Act or at such other time
and place as the parties to the transaction may agree. At such closing,
the Selling Stockholder shall deliver to the Company or its designee
certificates representing the Offered Securities, duly endorsed for
transfer and accompanied by all requisite transfer taxes, if any, and such
Offered Securities shall be free and clear of any liens, claims, options,
charges, encumbrances or rights (other than those arising hereunder), and
the Selling Stockholder shall so represent and warrant, and shall further
represent and warrant that it is the beneficial and record owner of such
Offered Securities. The Company or its designee shall, at the closing,
deliver to the Selling Stockholder payment in full in immediately available
funds for the Offered Securities purchased by it. At such closing, all of
the parties to the transaction shall execute such additional documents as
are otherwise necessary or appropriate.
(iv) Unless the Company or its designee elects to
purchase all of the Offered Securities pursuant to Section 2(c), the
Selling Stockholder may sell all (but not less than all) the Offered
Securities to the Third Party Offeror on the terms and conditions of the
Third Party Offer; PROVIDED, HOWEVER, that such sale is bona fide and made
prior to or the date that is the later of ninety (90) days after delivery
of the Notice and five (5) days after the expiration or waiver of any
applicable waiting period under the HSR Act. If such sale is not completed
prior to such date, for any reason, then the restrictions provided for
herein shall again become effective, and no transfer of such Offered
Securities may be made thereafter under Section 2(b)(vi) without again
offering the same to the Company in accordance with this Section 2(c).
(d) ENDORSEMENT ON CERTIFICATES, ETC.
(i) Upon the execution of this Agreement, in addition to
any other legend which the Company may deem advisable under the Securities
Act and certain state securities laws, all certificates representing issued
and outstanding Shares and shares of Common Stock owned by the Principal
Stockholders shall be endorsed as follows:
<PAGE>
7
THIS CERTIFICATE IS SUBJECT TO, AND IS TRANSFERABLE ONLY
UPON COMPLIANCE WITH, THE PROVISIONS OF A SHAREHOLDERS
AGREEMENT DATED AS OF MARCH 12, 1998, AMONG THE COMPANY
AND CERTAIN OF ITS SHAREHOLDERS. A COPY OF THE
ABOVE-REFERENCED AGREEMENT IS ON FILE AT THE PRINCIPAL
OFFICE OF THE COMPANY.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE
SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT,
OR AN EXEMPTION FROM REGISTRATION UNDER SAID ACT AS
EVIDENCED BY AN OPINION OF COUNSEL THAT REGISTRATION IS NOT
REQUIRED.
(ii) Except as otherwise expressly provided in this
Agreement, all certificates or other instruments representing shares of
Common Stock hereafter issued to or acquired by any of the Designated
Holders or their successors, assigns or transferees shall bear the legends
set forth above, and the shares of Common Stock represented by such
certificates or instruments shall be subject to the applicable provisions
of this Agreement.
(iii) Notwithstanding any other provision of this
Agreement, no transfer of the Shares may be made unless (a) the transfer
complies in all material respects with the applicable provisions of this
Agreement and applicable federal and state securities laws, including
without limitation, the Securities Act and (b) if requested by the Company,
an opinion of counsel to such transferring Securityholder shall be supplied
to the Company, at such transferring Securityholder's expense, to the
effect that such transfer complies in all material respects with, or is
otherwise exempt from the provisions of, all applicable federal and state
securities laws. The second paragraph of the legend set forth in clause
(i) of this Section 2(d) shall be removed from a particular certificate
representing shares of Common Stock when an opinion of counsel has been
delivered to the Company to the effect that any such security may be freely
sold to the public without compliance with the registration provisions of
the Securities Act. Counsel referred to in this Section 2(d)(iii) shall be
reasonably acceptable to the Company and may include an attorney who is an
employee of a Securityholder.
(iv) Whenever the restrictions imposed by this Agreement
shall terminate as to any particular shares of Common Stock, the
<PAGE>
8
holder thereof shall be entitled to receive from the Company, without
expense, upon delivery to the Company of the existing certificate
representing such shares of Common Stock, a new certificate not bearing the
restrictive legends otherwise required pursuant to this Section 2(d).
(e) IMPROPER TRANSFER. Any attempt to transfer or encumber any
shares of Common Stock other than in accordance with the terms of this Agreement
shall be null and void and neither the Company nor any transfer agent of such
securities shall give any effect to such attempted transfer or encumbrance in
its stock records.
Section 3. TAG-ALONG RIGHTS.
(a) If a Principal Stockholder or his Included Transferees
desires to transfer (such transferring stockholder(s) being referred to as the
"TRANSFEROR(S)") to any Person, (i) at any time during the Lockup Period, any
shares of Common Stock, or (ii) at any time after the Lockup Period, shares of
Common Stock that, together with any shares of Common Stock sold by the
Principal Stockholders and their Included Transferees in such transaction or
series of related transactions, that would result in a transfer of "control" of
the Company, the Transferors shall, in the case of clauses (i) and (ii), prior
to making any such transfer, first notify each of the Securityholders of such
transfer. Such notice (the "TRANSFERORS' NOTICE") shall specify the proposed
transferee thereof, the number of shares of Common Stock to be transferred, and
the amount and type of consideration to be received therefor, and shall contain
the Participation Offer set forth in Section 3(c).
(b) Notwithstanding Section 3(a), a Transferor shall not be
obligated to deliver a Transferors' Notice in respect of, and the provisions of
this Section 3 shall not apply to, (i) any transfers made to a Principal
Stockholder or an Included Transferee, (ii) any transfers made pursuant to a
registered public offering for which the Securityholders have been provided
registration rights under Section 6 and (iii) any transfers made by a Transferor
to a Person not a Principal Stockholder or an Included Transferee of shares of
Common Stock that, together with each other transfer of such type since the date
of this Agreement, constitute less than 5% of the number of shares owned as of
the date of this Agreement by the Principal Stockholders and the Included
Transferees.
(c) The Transferors shall offer (the "PARTICIPATION OFFER") to
include in the proposed transfer: a number of shares of Common Stock designated
by each Designated Holder, not to exceed, in respect of any such Designated
Holder the number of shares of Common Stock equal to the product of (x) the
aggregate number of shares of Common Stock proposed to be transferred pursuant
to the Transferors' Notice and (y) a fraction, the numerator of which is equal
to the number of shares of Common Stock owned by such Designated Holder and the
denominator of which is
<PAGE>
9
the total number of shares of Common Stock held by the Transferors and all
holders (including the Designated Holder) of Common Stock who are exercising
tag-along rights in connection with such transfer, in each case, as of the date
of the Transferors' Notice. The Participation Offer shall be conditioned upon
the Transferors consummating a transfer on the terms described in the
Transferors' Notice (which they shall not be obligated to do) to the transferee
named in the Transferors' Notice.
(d) Any Designated Holder which does not accept the
Participation Offer by written notice to the Transferors within 5 business days
after such Designated Holder has received notice thereof shall be deemed to
have waived its rights under this Section 3 (for purposes only of the particular
transfer described in the Transferors' Notice), and the Transferors and, if any
Designated Holder accepts the Participation Offer, such Designated Holder (the
Transferors and each such accepting Securityholder being hereinafter sometimes
called "SELLERS") may transfer the shares described in the Transferors' Notice
and the shares included by such Designated Holder pursuant to the Participation
Offer to the proposed transferee, in accordance with the terms of such transfer
set forth in the Transferors' Notice, so long as such transfer occurs on or
before the later of 90 days after the date the Transferors' Notice was received
by the other Designated Holder and the date which is five days after the
expiration or waiver of any applicable waiting period to such proposed transfer
pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the "HSR ACT"). The price per share, form of consideration and other terms and
conditions for sales of Common Stock made pursuant to this Section 3 shall be
the same for the Transferors and each Designated Holder accepting the
Participation Offer; PROVIDED, HOWEVER, that any indemnification obligations of
any Designated Holder which accepts the Participation Offer shall be made
severally, and not jointly, and shall, in any event, be limited to a maximum
amount equal to the net (pre-tax) proceeds actually received by such Designated
Holder in connection with the transfer subject to the Participation Offer.
Section 4. STANDSTILL.
(a) During such period as (x) Leven is Chairman, Chief Executive
Officer or President of the Company and (y) the Principal Stockholders and their
Included Transferees, in the aggregate, own at least one-half of the shares of
Common Stock owned by such Persons, in the aggregate, on the date hereof, the
Designated Holders each agree, without the prior written consent of the Board of
Directors of the Company specifically expressed in a resolution adopted by a
majority of the directors of the Company who are not Affiliates of the
Designated Holders, that the Designated Holders, acting either individually or
together, will not, and the Designated Holders will use their reasonable best
efforts to cause each of its Affiliates not to, directly or indirectly:
(i) acquire, announce an intention to acquire, offer or
propose to acquire, or agree to acquire (except, in any case, by way of
stock
<PAGE>
10
dividends or other distributions or offerings made available to holders of
any Common Stock generally, provided, that any such securities shall be
subject to the provisions hereof), directly or indirectly, whether by
purchase, tender or exchange offer, through the acquisition of control of
another Person (as hereinafter defined), by joining a partnership, limited
partnership, syndicate or other "group" (within the meaning of Section
13(d)(3) of the Exchange Act) or otherwise, any equity securities of the
Company that would result in such Designated Holder and its Affiliates, in
the aggregate, owning Voting Securities representing a greater amount of
the voting power of the Company than would be held by any Nonexcluded
Person following such transaction. "Nonexcluded Person" means any Person
or "group" (within the meaning of Section 13(d)(3) of the Exchange Act),
other than the Principal Stockholders, the Included Transferees or a
"group" which includes any of the Principal Stockholders or Included
Transferees;
(ii) make, or in any way participate, directly or
indirectly, in any "solicitation" (as such term is used in the proxy rules
of the Commission as in effect on the date hereof) of proxies or consents
(whether or not relating to the election or removal of directors), seek to
advise, encourage or influence any Person with respect to the voting of any
Voting Securities, initiate, propose or otherwise "solicit" (as such term
is used in the proxy rules of the Commission as in effect on the date
hereof) stockholders of the Company for the approval of stockholder
proposals made pursuant to Rule 14a-8 of the Exchange Act, or induce or
attempt to induce any other Person to initiate any such stockholder
proposal;
(iii) seek, propose, or make any statement (whether
written or oral) with respect to, any merger, consolidation, business
combination, tender or exchange offer, sale or purchase of assets, sale or
purchase of securities (except as and to the extent specifically permitted
hereby), dissolution, liquidation, restructuring, recapitalization or
similar transactions of or involving the Company or any of its Affiliates
or solicit or encourage any other person to make any such statement or
proposal;
(iv) form, join or in any way participate in a "group"
(within the meaning of Section 13(d)(3) of the Exchange Act) with respect
to any Voting Securities, other than groups consisting solely of one or
more of the Securityholders, directors of the Company, other parties hereto
and their respective Affiliates;
(v) deposit any Voting Securities in any voting trust or
subject any Voting Securities to any arrangement or agreement with respect
to the voting of any Voting Securities except a set forth in Section 5
hereof;
<PAGE>
11
(vi) execute any written consent with respect to the
Company or its Voting Securities, except as set forth in Section 5 hereof;
(vii) otherwise act, alone or in concert with others, to
control or seek to control or influence or seek to influence the
management, Board of Directors or policies of the Company;
(viii) seek, alone or in concert with others,
representation on the Board of Directors of the Company or seek the removal
of any member of the Board of Directors;
(ix) make any publicly disclosed proposal or enter into
any discussion regarding any of the foregoing;
(x) make any proposal, statement or inquiry, or disclose
any intention, plan or arrangement (whether written or oral) inconsistent
with the foregoing, or make or disclose any request to amend, waive or
terminate any provision of this Agreement or the Certificate of
Incorporation or By-laws of the Company;
(xi) have any discussions or communications or enter into
any arrangements, understandings or agreements (whether written or oral)
with, or advise, finance, assist or encourage, any other Person in
connection with any of the foregoing, or make any investment in or enter
into any arrangement with, any other Person that engages, or offers or
proposes to engage, in any of the foregoing; or
(xii) request the Company (or its directors, officers,
employees or agents), directly or indirectly, to amend or waive any
provisions of this Agreement or take any action which might require the
other party to make a public announcement regarding the possibility of a
merger, consolidation, tender or exchange offer or other business
combination or extraordinary transaction.
(b) The Securityholders and their Affiliates may acquire Voting
Securities and other securities of the Company without regard to the foregoing
limitation if any of the following events shall occur: (A) a tender or exchange
offer is made by any Person or 13D Group (as hereinafter defined) (other than an
Affiliate of, or any Person acting in concert with, a Securityholder or any of
its Affiliates and other than a Principal Stockholder, any Affiliate thereof or
13D Group including a Principal Stockholder), which Person or 13D Group has the
financial wherewithal to consummate such a transaction, to acquire Voting
Securities in an amount which, together with Voting Securities (if any) already
owned by such person or 13D Group, would represent more than 50% of the total
combined voting power of all Voting Securities then outstanding or (B) it is
publicly disclosed that Voting Securities
<PAGE>
12
representing more than 50% of the total combined voting power of all Voting
Securities then outstanding have been acquired subsequent to the Closing Date by
an Person or 13D Group (other than the Securityholders or any of their
respective Affiliates and other than a Principal Stockholder, any Affiliate
thereof or 13D Group including a Principal Stockholder). As used herein, the
term "13D Group" shall mean any group of Persons formed for the purpose of
acquiring, holding, voting or disposing of Voting Securities which would be
required under Section 13(d) of the Exchange Act and the rules and regulations
thereunder (as now in effect) to file a statement on Schedule 13D with the
Securities and Exchange Commission as a "person" within the meaning of Section
13(d)(3) of the Exchange Act if such group beneficially owned Voting Securities
representing more than 5% of the total combined voting power of all Voting
Securities then outstanding.
(c) Nothing in this Section 4 shall prohibit any Person who is
serving as a director of the Company as contemplated by Section 7 of this
Agreement from, solely in his or her capacity as director, (a) taking any action
or making any statement at any meeting of the Board of Directors of the Company
or any committee thereof or (b) making any statement to any director, officer or
agent of the Company. In addition, nothing in this Section 4 shall restrict any
private communications between the Securityholders and any Person designated by
the Securityholders as a director, provided that all such communications by such
Person remain subject to the fiduciary duties of such Person as a director.
(d) Notwithstanding anything contained in this Section 4, the
Securityholders shall have the right in their sole discretion to vote any Voting
Securities owned by them as they shall determine in connection with any
Significant Event. "Significant Event" shall mean any event other than the
election of directors or appointment of auditors or approval of any stockholder
proposal made pursuant to Rule 14a-8 of the Exchange Act.
(e) Except in connection with a transfer made pursuant to
Section 3, the Securityholders each agree that they shall not effect any
transfer of any of the Shares to any Person who such Securityholder believes,
after due inquiry, would, after giving effect to such transfer beneficially own,
together with its Affiliates, more than 5% of the total combined voting power of
all Voting Securities then outstanding unless it shall have obtained prior to
such transfer a written instrument from such transferee agreeing to be bound by
this Section 4, in form and substance satisfactory to the Company.
Section 5. VOTING. The Designated Holders each agree that so long as
they or any of their respective Affiliates beneficially own any Voting
Securities, it will, and will cause its Affiliates to, (a) be present, in person
or represented by proxy, at all properly noticed annual and special meetings of
stockholders of the Company so that all Voting Securities beneficially owned by
such Securityholder and its Affiliates then entitled to vote may be counted for
the purpose of determining the
<PAGE>
13
presence of a quorum at such meetings, (b) support each nominee on the slate of
nominees proposed by the Board of Directors of the Company and vote all Voting
Securities which it is then entitled to vote in favor of the election of each
such nominee, and (c) vote in accordance with the Board of Directors'
recommendation on all stockholder proposals made pursuant to Rule 14a-8 under
the Exchange Act.
Section 6. REGISTRATION RIGHTS.
(a) INCIDENTAL REGISTRATION.
(i) If the Company, at any time or from time to time,
(1) after the Lockup Period proposes to register any of its shares of
Common Stock for its own account under the Securities Act (other than (i) a
registration of an employee stock ownership, stock option, stock purchase
or other employee compensation plan or arrangement adopted in the ordinary
course of business on Form S-8 (or any successor form), or any dividend
reinvestment plan or (ii) a registration of securities on Form S-4 (or any
successor form), including, without limitation, in connection with a
proposed issuance in exchange for securities or assets of, or in connection
with a merger or consolidation with, another corporation or (2) during the
Lockup Period so proposes to register any of its shares of Common Stock and
such Registration Statement also includes the registration of shares of
Common Stock owned by either or both of the Principal Stockholders or their
Included Transferees, then it will at each such time give written notice
(given at least 30 days prior to the proposed filing date) describing the
proposed registration and distribution to each of the Designated Holders of
its intention to do so and, upon the written request of each of the
Designated Holders, made within 30 days after the receipt of any such
notice (which request shall specify the amount of Registrable Securities
proposed to be sold by such Designated Holder and the intended method of
disposition thereof), the Company will, as provided in this Section 6, use
its reasonable best efforts to effect the registration under the Securities
Act of all of the Registrable Securities that the Company has been so
requested to register by the Designated Holders, to the extent required to
permit the disposition (in accordance with the intended methods thereof as
aforesaid) of the Registrable Securities to be registered (each, an
"INCIDENTAL REGISTRATION"); PROVIDED, HOWEVER, that if, at any time after
giving written notice of its intention to register any of its shares of
Common Stock and prior to the effective date of the Registration Statement
filed in connection with such Incidental Registration, the Company shall
determine for any reason not to register such shares of Common Stock, the
Company may, at its election, give written notice of such determination to
each of the Designated Holders and, thereupon, shall be relieved from its
obligation to register any Registrable Securities in connection with such
Incidental Registration. In connection with any Incidental Registration
under this Section 6(a) involving an underwriter, or a distribution with
the assistance of a selling agent, the right of any Designated
<PAGE>
14
Holder to participate in such Incidental Registration shall be conditioned
upon such Designated Holder's participation in such underwriting or
distribution on terms not less favorable than those available to other
stockholders participating therein.
(ii) Notwithstanding anything to the contrary set forth
in Section 6(a), if a proposed Incidental Registration is for a registered
public offering involving an underwriting and the representative of the
underwriters advises the Company in writing that the registration of all or
part of the shares of Common Stock to be underwritten in such Incidental
Registration would adversely effect such offering, then the Company shall
so advise the Designated Holders and any other holders of shares of Common
Stock requesting registration in such Incidental Registration, and the
number of shares of Common Stock that are entitled to be included in the
Incidental Registration shall be allocated (i) first, to the Company for
shares of Common Stock being sold for its own account, (ii) second, among
the Principal Stockholders, the Designated Holders and any other holders of
shares of Common Stock entitled to "incidental" registration rights and
requesting inclusion of shares of Common Stock in such Incidental
Registration, pro rata on the basis of the number of shares of Common Stock
requested to be included in such Incidental Registration, and (iii) third,
any other shares of Common Stock requested to be included in such
Incidental Registration.
(b) DEMAND REGISTRATIONS.
(i) At any time after the expiration of the Lockup
Period, the Designated Holders holding a majority of the then Registrable
Securities may request registration under the Securities Act of all or any
portion of their Registrable Securities in accordance with the provisions
of this Section 6(b). All registrations requested pursuant to this
Section 6(b) are referred to herein as "Demand Registrations." Each
request for a Demand Registration shall specify the number of Registrable
Securities requested to be registered. Within ten days after receipt of
any such request, the Company shall give written notice of such requested
registration to all other holders of Registrable Securities and shall
include in such registration all Registrable Securities with respect to
which the Company has received written requests for inclusion therein
within fifteen (15) days after the receipt of the Company's notice.
(ii) The Designated Holders of Registrable Securities
shall be entitled to request no more than three Demand Registrations in
accordance with this Section 6(b). The aggregate offering value of the
Registrable Securities requested to be registered in any Demand
Registration must, in the good faith judgment of the holders thereof, equal
at least $5,000,000. A registration shall not count as one of the
permitted Demand
<PAGE>
15
Registrations until it has become effective (unless the holders of a
majority of the Registrable Securities included in such registration have
agreed to abandon such registration after a registration statement has been
filed with the Commission).
(iii) If a Demand Registration is an underwritten offering
and the managing underwriters advise the Company in writing that in their
opinion the number of Registrable Securities and other securities requested
to be included in such offering exceeds the number of Registrable
Securities and other securities, if any, which can be sold in an orderly
manner in such offering within a price range acceptable to the holders of a
majority of the Registrable Securities included in such registration, the
Company shall include in such registration prior to the inclusion of any
securities which are not Registrable Securities the number of Registrable
Securities requested to be included which in the opinion of such
underwriters can be sold in an orderly manner within the price range of
such offering, pro rata among the respective holders thereof on the basis
of the amount of securities requested to be included therein by each such
holder.
(iv) The Company shall not be obligated to effect more
than one Demand Registration in any twelve-month period, and the Company
shall not be obligated to effect any Demand Registration within 60 days
after the effective date of a previous offering of Common Stock registered
under the Securities Act. The Company may postpone for up to 180 days the
filing or the effectiveness of a registration statement for a Demand
Registration if the Company's board of directors determines in its
reasonable good faith judgment that such Demand Registration would
reasonably be expected to have a material adverse effect on any proposal or
plan by the Company or any of its subsidiaries to engage in any acquisition
(other than in the ordinary course of business) or any merger,
consolidation, tender offer, reorganization or similar transaction;
PROVIDED THAT (a) the Company may exercise its right to delay a Demand
Registration only once in any twelve-month period and (b) if a Demand
Registration is delayed hereunder, the holders of Registrable Securities
initially requesting such Demand Registration shall be entitled to withdraw
such request and, if such request is withdrawn, such Demand Registration
shall not count as one of the permitted Demand Registrations hereunder and
the Company shall pay all Registration Expenses in connection with such
registration. Notwithstanding anything to the contrary in this
Section 6(b)(iv), (x) the Company may not prevent, delay or postpone any
Demand Registration and (y) the Securityholders shall not be subject to any
lockup or similar agreements following any Demand Registration for more
than 270 days during any 360-day period.
<PAGE>
16
(v) The Designated Holders shall have the right to
select the investment banker(s) and manager(s) to administer the offering,
subject to the approval of the Company in its sole discretion.
(c) EXPENSES. The Company shall pay all Registration Expenses
in connection with any registration pursuant to this Section 6, whether or not
such registration becomes effective; PROVIDED, THAT all underwriting discount
and selling commissions applicable to the Registrable Securities shall be borne
by the holders selling such Registrable Securities, in proportion to the number
of Registrable Securities sold by each such holder; PROVIDED FURTHER THAT, the
Designated Holders that have requested to include Registrable Securities that
may, in the reasonable opinion of counsel to the Company delivered to such
Designated Holders, be distributed to the public without limitation as to volume
pursuant to Rule 144 (or any successor provision of the Securities Act), in any
Registration Statement that does not also cover shares of Common Stock owned by
any of the Principal Stockholders or any of their Included Transferees, shall
pay their pro rata portion of all Registration Expenses incurred in connection
with such offering.
(d) HOLDBACK AGREEMENTS. Each of the Designated Holders agrees
not to effect any public sale or distribution of any Registrable Securities
being registered or of any securities convertible into or exchangeable or
exercisable for such Registrable Securities, including a sale pursuant to
Rule 144 under the Securities Act (i) during the 90 day period beginning on the
effective date of such Registration Statement (except as part of such
registration), in the case of a non-underwritten public offering, or (ii) during
the reasonable period, if any, requested by the underwriters, in the case of an
underwritten public offering, PROVIDED, in each case, that all directors of the
Company, Principal Stockholders and other 5% or greater beneficial owners of
shares of the Common Stock of the Company (other than institutional shareholders
in respect of shares of Common Stock not acquired directly from the Company)
seeking to include shares of Common Stock in such Registration Statement are
similarly restricted.
(e) SELLER INFORMATION. The Company may require each seller of
Registrable Securities as to which any registration is being effected to furnish
to the Company such information regarding the distribution of such securities as
the Company may from time to time reasonably request in writing and as shall be
required by law in connection therewith.
(f) NOTICE TO DISCONTINUE. Each Designated Holder of
Registrable Securities agrees that, upon receipt of any notice from the Company
of the happening of any event that causes the Registration Statement to include
an untrue statement of a material fact or to omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in light of the circumstances then existing, such Designated Holder
shall forthwith discontinue disposition of Registrable Securities pursuant
to the Registration Statement covering
<PAGE>
17
such Registrable Securities until such Designated Holder's receipt of the copies
of a supplemented or amended prospectus and, if so directed by the Company, such
Designated Holder shall deliver to the Company all copies, of the prospectus
covering such Registrable Securities that is current at the time of receipt of
such notice.
(g) REGISTRATION PROCEDURES. Whenever the Designated Holders of
Registrable Securities have requested that any Registrable Securities be
registered pursuant to this Agreement, the Company shall use its reasonable best
efforts to effect the registration and the sale of such Registrable Securities
in accordance with the intended method of disposition thereof, and pursuant
thereto the Company shall as expeditiously as reasonably practicable:
(i) prepare and file with the Commission within 90 days
after the request or demand therefor a Registration Statement with respect
to such Registrable Securities and use its reasonable best efforts to cause
such Registration Statement to become effective (provided that before
filing a Registration Statement or prospectus or any amendments or
supplements thereto, the Company shall furnish to the counsel selected by
the holders of a majority of the Registrable Securities covered by such
Registration Statement copies of all such documents proposed to be filed);
(ii) notify each holder of Registrable Securities of the
effectiveness of each Registration Statement filed hereunder and prepare
and file with the Securities and Exchange Commission such amendments and
supplements to such Registration Statement and the prospectus used in
connection therewith as may be necessary to keep such Registration
Statement effective for a period of not less than 180 days and comply with
the provisions of the Securities Act with respect to the disposition of all
securities covered by such Registration Statement during such period in
accordance with the intended methods of disposition by the sellers thereof
set forth in such Registration Statement;
(iii) furnish to each seller of Registrable Securities
such number of copies of such Registration Statement, each amendment and
supplement thereto, the prospectus included in such Registration Statement
(including each preliminary prospectus) and such other documents as such
seller may reasonably request in order to facilitate the disposition of the
Registrable Securities owned by such seller;
(iv) use its reasonable best efforts to register or
qualify such Registrable Securities under such other securities or blue sky
laws of such jurisdictions as any seller reasonably requests and do any and
all other acts and things which may be reasonably necessary or advisable to
enable such seller to consummate the disposition in such jurisdictions of
the Registrable Securities owned by such seller (provided that the Company
shall not be
<PAGE>
18
required to (a) qualify generally to do business in any jurisdiction where
it would not otherwise be required to qualify but for this subparagraph,
(b) subject itself to taxation in any such jurisdiction or (c) consent to
general service of process in any such jurisdiction);
(v) notify each seller of such Registrable Securities,
at any time when a prospectus relating thereto is required to be delivered
under the Securities Act, of the happening of any event as a result of
which the prospectus included in such Registration Statement contains an
untrue statement of a material fact or omits any fact necessary to make the
statements therein not misleading, and, at the request of any such seller,
the Company shall prepare a supplement or amendment to such prospectus so
that, as thereafter delivered to the purchasers of such Registrable
Securities, such prospectus shall not contain an untrue statement of a
material fact or omit to state any fact necessary to make the statements
therein not misleading;
(vi) cause all such Registrable Securities to be listed
on each securities exchange on which similar securities issued by the
Company are then listed and, if not so listed, to be listed on the NASD
automated quotation system and, if listed on the NASD automated quotation
system, use its reasonable best efforts to secure designation of all such
Registrable Securities covered by such Registration Statement as a NASDAQ
"national market system security" within the meaning of Rule llAa2-1 of the
Commission or, failing that, to secure NASDAQ authorization for such
Registrable Securities;
(vii) provide a transfer agent and registrar for all such
Registrable Securities not later than the effective date of such
Registration Statement;
(viii) enter into such customary agreements (including
underwriting agreements in customary form) and take all such other actions
as the holders of a majority of the Registrable Securities being sold or
the underwriters, if any, reasonably request in order to expedite or
facilitate the disposition of such Registrable Securities;
(ix) make available for inspection by any seller of
Registrable Securities, any underwriter participating in any disposition
pursuant to such Registration Statement and any attorney, accountant or
other agent retained by any such seller or underwriter, all financial and
other records, pertinent corporate documents and properties of the Company,
and cause the Company's officers, directors, employees and independent
accountants to supply all information reasonably requested by any such
seller, underwriter, attorney, accountant or other agent in connection with
such Registration Statement;
<PAGE>
19
(x) cause its employees to participate in "road shows"
and other presentations as reasonably requested by the underwriters in
connection with any registered offering; and
(xi) otherwise use its reasonable best efforts to comply
with all applicable rules and regulations of the Securities and Exchange
Commission, and make available to its security holders, as soon as
reasonably practicable, an earnings statement covering the period of at
least twelve months beginning with the first day of the Company's first
full calendar quarter after the effective date of the Registration
Statement, which earnings statement shall satisfy the provisions of
Section 11(a) of the Securities Act and Rule 158 thereunder.
(h) INDEMNIFICATION; CONTRIBUTION.
(i) In the event of any registration of any Registrable
Securities pursuant to the terms of Section 6, the Company will indemnify
and hold harmless, to the fullest extent permitted by law, each of the
Designated Holders and their respective Affiliates, directors, officers,
partners, trustees, employees, legal counsel, accountants, financial
advisors and agents, and each other Person, if any, who controls (within
the meaning of the Securities Act and the Exchange Act) such Designated
Holder or any such directors, officers, partners, trustees, employees,
legal counsel, accountants, financial advisors and agents (each of the
foregoing, a "designated indemnified party") against any and all losses,
claims, damages, liabilities and expenses (including reasonable costs of
investigation), joint or several, to which such designated indemnified
party may become subject under the Securities Act or otherwise, insofar as
such losses, claims, damages, liabilities or expenses (or actions or
proceedings in respect thereof) arise out of or are based upon (x) any
untrue statement or alleged untrue statement of any material fact or
(y) any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein
not misleading contained in any Registration Statement under which such
Registrable Securities were registered under the Securities Act, PROVIDED,
HOWEVER, that the Company shall not be liable in any such case to the
extent that any such loss, claim, damage or liability (or actions or
proceedings in respect thereof) arises out of or is based upon (x) any
untrue statement of any material fact or (y) any omission to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading in such Registration Statement, or
amendment or supplement thereto, in reliance upon and in conformity with
written information concerning such Designated Holder and furnished to the
Company for use in the preparation thereof.
(ii) The Company may require, as a condition to including
any Registrable Securities in any Registration Statement filed
<PAGE>
20
pursuant to Section 6, that the Company shall have received an undertaking
from each Designated Holder selling such Registrable Securities, severally
and not jointly, to indemnify and hold harmless the Company, its directors,
officers, legal counsel, accountants and financial advisors and each other
Person, if any, who controls (within the meaning of the Securities Act and
the Exchange Act) the Company or any such directors, officers, legal
counsel, accountants and financial advisors (each of the foregoing, a
"Company Indemnified Party") against any losses, claims, damages,
liabilities or expenses, joint or several, to which such Company
Indemnified Party may become subject under the Securities Act or otherwise,
insofar as such losses, claims, damages, liabilities or expenses (or
actions or proceedings in respect thereof) arise out of or are based upon
(x) any untrue statement or alleged untrue statement of a material fact or
(y) any omission or alleged omission to state a material fact required to
be stated therein or necessary to make the statements therein not
misleading contained in any Registration Statement under which such
Registrable Securities were registered under the Securities Act or any
amendment or supplement thereto, if such statement or omission was made in
reliance upon and in conformity with written information concerning such
Designated Holder and furnished to the Company; PROVIDED, in each instance,
that any Designated Holder's maximum liability in respect of such
indemnification obligations shall be limited to the amount of net (pre-tax)
proceeds actually received by such Designated Holder pursuant to the sale
of such Registrable Securities.
(iii) Promptly after receipt by any designated Indemnified
Party or Company Indemnified Party (each, an "Indemnified Party") of
notice of the commencement of any action, suit, proceeding or investigation
or threatened thereof in writing for which the Indemnified Party intends to
claim indemnification or contribution pursuant to this Agreement, such
Indemnified Party will give written notice thereof to the Indemnifying
Party; PROVIDED, HOWEVER, that the failure of any Indemnified Party to give
notice as provided herein shall not relieve the Indemnifying Party of its
obligations under this Agreement, except to the extent that the
Indemnifying Party is actually prejudiced by such failure to give notice.
If notice of commencement of any such action is brought against an
Indemnified Party, the Indemnifying Party may, at its expense, participate
in and assume the defense thereof, with counsel reasonably satisfactory to
such Indemnified Party. The Indemnified Party shall have the right to
employ separate counsel in any such action and participate in the defense
thereof, but the fees and expenses of such counsel shall be paid by the
Indemnified Party unless (i) the Indemnifying Party agrees to pay the same,
(ii) the Indemnifying Party fails to assume the defense of such action with
counsel satisfactory to the Indemnified Party in its reasonable judgment or
(iii) the named parties to any such action (including any impleaded
parties) have been advised by such counsel in writing that either
(x) representation of such Indemnified Party and the Indemnifying Party by
the
<PAGE>
21
same counsel would be inappropriate under applicable standards of
professional conduct or (y) there may be one or more legal defenses
available to the Indemnified Party which are different from or additional
to those available to the Indemnifying Party. In no event shall the
Indemnifying Party be responsible for the fees of more than one counsel (in
addition to local counsel) for all Indemnified Parties. No Indemnifying
Party or Indemnified Party shall consent to entry of any judgment or enter
into any settlement without the written consent of the other.
(i) If the indemnification provided for in this Section 6 from
the Indemnifying Party is unavailable to an Indemnified Party hereunder in
respect of any losses, claims, damages, liabilities or expenses referred to
therein, then the Indemnifying Party, in lieu of indemnifying such Indemnified
Party, shall contribute to the amount paid or payable by such Indemnified Party
as a result of such losses, claims, damages, liabilities or expenses in such
proportion as is appropriate to reflect the relative fault of the Indemnifying
Party and Indemnified Party in connection with the actions which resulted in
such losses, claims, damages, liabilities or expenses, as well as any other
relevant equitable considerations. The relative faults of such Indemnifying
Party and Indemnified Party shall be determined by reference to, among other
things, whether any action in question, including any untrue or alleged untrue
statement of a material fact or omission or alleged omission to state a material
fact, has been made by, or relates to information supplied by, such Indemnifying
Party or Indemnified Party, and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such action. The amount
paid or payable by a party as a result of the losses, claims, damages,
liabilities and expenses referred to above shall be deemed to include any legal
or other fees, charges or expenses reasonably incurred by such party in
connection with any investigation or proceeding.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 6 were determined by pro rata allocation
or by any other method of allocation that does not take account of the equitable
considerations referred to in the immediately preceding paragraph. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any Person.
Section 7. BOARD REPRESENTATION.
(a) On the Closing Date, Mr. Doug Geoga shall be elected as a
director of the Company by the Company's Board of Directors. Subject to its
fiduciary duties, the Company's Board of Directors will nominate Mr. Geoga (or,
if Mr. Geoga is unable or unwilling to serve, a successor as contemplated by
this Section 7) for election at each meeting (or in each action by written
consent in lieu of a meeting) of stockholders of the Company for the election of
directors during the term of this Agreement so long as the Securityholders
and/or their Affiliates beneficially own (as such term is defined in Rule 13d-3
of the Exchange Act) more
<PAGE>
22
than 1.1 million shares of Common Stock (as such number of shares of Common
Stock shall be adjusted to take into account any stock splits, reverse stock
splits, reclassifications and other similar transactions or adjustments).
(b) If Mr. Doug Geoga (or such a successor) is no longer a
director of the Company as contemplated by paragraph (a) of this Section 7, the
Securityholders may propose to the Company as a nominee for election as a
director of the Company a person who (i) has recognized standing in the business
community, (ii) is not a former director, officer or employee of the Company,
(iii) does not have a conflict of interest with the Company and (iv) is at such
time either the President of Hyatt Hotels Corp. or a person who is otherwise
reasonably acceptable to USFS.
(c) The Company will use its best efforts to cause Mr. Doug
Geoga or any successor nominated as provided in this Section 7 to be elected by
the stockholders of the Company and will solicit proxies in favor of Mr. Geoga
or any such successor at each meeting (or in each action by written consent in
lieu of a meeting) of stockholders of the Company.
(d) If the Company does not accept a Securityholders' designee
as provided in paragraph (b) of this Section 7, the process set forth therein
shall be repeated so long as reasonably appropriate to find a successor
candidate acceptable to both Securityholders and the Company.
Section 8. NOTIFICATION AS TO CERTAIN MATTERS. Each Designated
Holder shall notify the Company of any change in such Designated Holder's
beneficial ownership of shares of Voting Securities not later than two business
days after such change and from time to time, upon request, shall notify the
Company of the number of shares of Voting Securities beneficially owned by such
Designated Holder and of the names and addresses of all Affiliates to whom such
Designated Holder shall have transferred shares in accordance with
Section 2(b)(i).
Section 9. REPRESENTATIONS AND WARRANTIES.
(a) Each Securityholder, severally and not jointly, represents
and warrants to the other parties hereto as follows:
(i) Such Securityholder has full right, power and
authority to enter into this Agreement and consummate the transactions
contemplated hereby. This Agreement has been duly authorized, executed and
delivered by such Securityholder and constitutes the legal, valid and
binding obligation of such Securityholder, enforceable against such
Securityholder in accordance with its terms, except that such enforcement
may be limited by bankruptcy, fraudulent conveyance, fraudulent transfer,
insolvency, reorganization, liquidation, conservatorship, moratorium and
other similar laws relating to or affecting creditors' rights or the
collection of debtors' obligations
<PAGE>
23
generally and any general equitable principles (regardless of whether
enforcement is considered in a proceeding in equity or at law) and the
discretion of any court before which any proceedings therefor may be
brought.
(ii) The execution, delivery and performance by such
Securityholder of this Agreement and the consummation of the transactions
contemplated hereby do not and will not conflict with or result in any
breach or violation of any material agreement to which such Securityholder
is a party or is otherwise bound or subject and do not and will not result
in any material violation of the organizational documents of such
Securityholder or any statute, order, rule or regulation of any court or
governmental agency or body having jurisdiction over such Securityholder or
any of its properties.
(b) The Company represents and warrants to the other parties as
follows:
(i) The Company has all requisite corporate power and
authority to enter into this Agreement and consummate the transactions
contemplated hereby. This Agreement has been duly authorized, executed and
delivered by the Company and constitutes a legal, valid and binding
obligation of the Company enforceable against it in accordance with its
terms, except that such enforcement may be limited by bankruptcy,
fraudulent conveyance, fraudulent transfer, insolvency, reorganization,
liquidation, conservatorship, moratorium and other similar laws relating to
or affecting creditors' rights or the collection of debtors' obligations
generally and any general equitable principles (regardless of whether an
enforcement is considered in a proceeding in equity or at law) and the
discretion of any court before which any proceedings therefor may be
brought.
(ii) The execution, delivery and performance by the
Company of this Agreement do not and will not conflict with or result in a
breach or violation of any agreement to which the Company is bound or
subject and do not and will not result in any violation of the Certificate
of Incorporation or Bylaws of the Company or any statute, order, rule or
regulation of any court or governmental agency or body having jurisdiction
over the Company or any of its properties.
(c) Leven and Aronson, severally and not jointly, each
represents and warrants to the other parties as follows:
(i) He has the full right, capacity and authority to
enter into this Agreement. This Agreement has been duly authorized,
executed and delivered by such Person and constitutes the legal, valid and
binding obligation of such Person enforceable against him in accordance
with
<PAGE>
24
its terms, except that such enforcement may be limited by bankruptcy,
fraudulent conveyance, fraudulent transfer, insolvency, reorganization,
liquidation, conservatorship, moratorium and other similar laws relating to
or affecting creditors' rights or the collection of debtors' obligations
generally and any general equitable principles (regardless of whether
enforcement is considered in a proceeding in equity or at law) and the
discretion of any court before which any proceedings therefor may be
brought.
(ii) The execution, delivery and performance by such
Persons do not and will not conflict with or result in a breach or
violation of any agreement to which such Person is bound or subject and do
not and will not result in any violation of any statute, order, rule or
regulation of any court or governmental agency or body having jurisdiction
over such Person.
Section 10. MISCELLANEOUS.
(a) RECAPITALIZATIONS, EXCHANGES, ETC. The provisions of this
Agreement shall apply, to the full extent set forth herein, with respect to
(i) the shares of Common Stock and (ii) any and all equity securities of the
Company or any successor or assign of the Company (whether by merger,
consolidation, sale of assets or otherwise), which may be issued in respect of,
in conversion of, in exchange for or in substitution of, the shares of Common
Stock, and shall be appropriately adjusted for any stock dividends, splits,
reverse splits, combinations, recapitalizations and the like occurring after the
date hereof.
(b) NO INCONSISTENT AGREEMENTS. The Company shall not enter
into any agreement with respect to its securities that is inconsistent with the
registration rights granted in this Agreement.
(c) SUCCESSORS AND ASSIGNS; THIRD PARTY BENEFICIARIES. This
Agreement shall inure to the benefit of and be binding upon the successors and
permitted assigns of each of the parties hereto. Except as specifically
provided herein, this Agreement is not assignable by any of the parties.
(d) SPECIFIC PERFORMANCE. Each of the parties hereto
acknowledges that the other parties would not have an adequate remedy at law for
money damages if any of the covenants or agreements of the parties in this
Agreement were not performed in accordance with its terms and therefore agrees
that the other party(ies) shall be entitled to specific enforcement of such
covenants or agreements and to injunctive and other equitable relief in addition
to any other remedy to which it may be entitled, at law or in equity.
(e) SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
representations, warranties, covenants and agreements contained in this
Agreement
<PAGE>
25
shall survive the execution of this Agreement and any investigation at any time
by the Securityholders, the Company, or on behalf of either thereof.
(f) ENTIRE AGREEMENT. This Agreement, together with the Merger
Agreement and the Contribution Agreement, contains the entire understandings of
the parties with respect to the subject matter of such agreements. This
Agreement may not be amended except by a writing signed by all of the Company,
Leven, Aronson and record holders of a majority of the Shares.
(g) SEVERABILITY. If any terms, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, void or unenforceable, the remainder of the terms, provisions,
covenants and restriction of this Agreement shall remain in full force and
effect, unless such action would substantially impair the benefits to either
party of the remaining provisions of this Agreement.
(h) NOTICES. Any notices and other communications required to
be given pursuant to this Agreement shall be delivered by hand, by registered or
certified mail, postage prepaid, return receipt requested, by private courier,
by facsimile or by telex, as follows:
If to the Company, Leven or Aronson:
U.S. Franchise Systems, Inc.
13 Corporate Square, Suite 250
Atlanta, Georgia 30329
Attention: Neal K. Aronson
Telecopier: (404) 235-7448
With copies to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Attention: Paul D. Ginsberg, Esq.
Telecopier: (212) 757-3990
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26
If to the Securityholders:
c/o HSA Properties, Inc.
200 West Madison Street
Suite 3800
Chicago, Illinois 60606
Attention: Harold S. Handelsman, Esq.
Telecopier: (312) 750-8545
with copies to:
Neal, Gerber & Eisenberg
Two North LaSalle Street
Suite 2200
Chicago, Illinois 60602
Attention: Michael A. Pucker, Esq.
Telecopier: (312) 269-1747
(i) GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware.
(j) COUNTERPARTS. This Agreement may be executed in one or more
counterparts, which together will constitute a single agreement.
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27
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered as of the date first above written.
HAWTHORN SUITES ASSOCIATES
By: Meridian Associates, L.P., its managing
venturer
By: Meridian Investments, Inc., its general
partner
By: /s/ GLEN MILLER
-------------------------------------
Name: GLEN MILLER
Title: Vice President
HSA PROPERTIES, INC.
By: /s/ GLEN MILLER
-------------------------------------
Name: GLEN MILLER
Title: Vice President
U.S. FRANCHISE SYSTEMS, INC.
By: /s/ NEAL ARONSON
-------------------------------------
Name: NEAL ARONSON
Title: Executive Vice President & CFO
<PAGE>
Exhibit 4.3
Execution Copy
REGISTRATION AND TAG-ALONG RIGHTS AGREEMENT
AGREEMENT dated as of March 17, 1998 among (i) U.S. FRANCHISE SYSTEMS,
INC., a Delaware corporation (the"Company"), (ii) SEXTANT TRADING LLC,
LUBERT-ADLER REAL ESTATE OPPORTUNITY FUND, L.P., LUBERT-ADLER REAL ESTATE
OPPORTUNITY FUND II, L.P. and LUBERT-ADLER CAPITAL REAL ESTATE OPPORTUNITY FUND,
L.P. (the "Investors"), and (iii) MICHAEL LEVEN and NEAL K. ARONSON (the
"Management Holders" and, together with the Investors, the "Stockholders").
The Investors have purchased a total of 500,000 shares of the
Company's Class A Common Stock, $.0l par value (the "Common Stock"), pursuant to
a Subscription Agreement of even date herewith, and have under certain
circumstances the right to purchase additional shares of Common Stock. All such
shares of Common Stock acquired by the Investors from the Company, and all other
securities issued or issuable with respect to such Common Stock by way of a
stock dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization, are referred to
herein as the "Registrable Securities." As to any particular Registrable
Securities, such securities will cease to be Registrable Securities when they
are either (i) distributed to the public pursuant to an offering registered
under the Securities Act of 1933, as amended (the "Securities Act"), (ii) sold
to the public through a broker, dealer or market maker in compliance with Rule
144 under the Securities Act or any similar rule then in force, or (iii)
eligible for sale pursuant to the provisions of Rule 144(k) under the Securities
Act. In consideration of the mutual undertakings set forth herein and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby agree as follows:
Section 1. DEMAND REGISTRATIONS.
(a) REQUESTS FOR REGISTRATION. Each Investor shall have the
right on one occasion to require the Company to register all or part of its
Registrable Securities under the Securities Act on Form S-1 or any similar
long-form registration form ("Long-Form Registrations") or on Form S-2 or S-3 or
any similar short-form registration form ("Short-Form Registrations"), if
available. Within ten days after receipt of any such request, the Company will
give written notice of such requested registration to all other holders of
Registrable Securities and will include in such registration all Registrable
Securities with respect to which the Company has received written requests for
inclusion therein within 10 days after the receipt of the Company's notice. All
registrations requested pursuant to this Section 2(a) are referred to herein as
"Demand Registrations."
(b) NUMBER OF DEMAND REGISTRATIONS. Each Investor will be
entitled to one Demand Registration in which the Company will pay all
Registration
<PAGE>
Expenses. A registration will not count as a permitted Demand Registration
until it has become effective and has remained continuously effective for a
period of 120 days (or such shorter period as may be required to effect the
distribution of Registrable Securities in accordance with the intended methods
of distribution thereunder).
(c) PRIORITY ON DEMAND REGISTRATIONS. No securities other than
Registrable Securities shall be included in any Demand Registration. If a
Demand Registration is an underwritten offering and the managing underwriters
advise the Company in writing that in their opinion the amount of Registrable
Securities requested to be included in such offering exceeds the amount of
securities which can be sold therein without adversely affecting the
marketability of the offering, the Company will reduce the amount of Registrable
Securities in such registration pro rata among the holders thereof on the basis
of the respective amounts of Registrable Securities requested to be included
therein.
(d) RESTRICTIONS ON DEMAND REGISTRATIONS. The Company will
not be obligated to effect any Long-Form Demand Registration within six months
after the effective date of a previous Demand Registration or a registration in
which the Stockholders were given piggyback rights pursuant to Section 2 and in
which there was no underwriter cut-back in the amount of Registrable Securities
requested to be included therein. The Company may postpone for up to 90 days
the filing or the effectiveness of a Demand Registration if the Company's board
of directors reasonably determines in its good faith judgment that such Demand
Registration would have an adverse effect on any material pending corporate
transaction that has not been publicly disclosed, provided that in such event
the Investors will be entitled to withdraw such request and, if such request is
withdrawn, such Demand Registration will not count as one of the permitted
Demand Registrations hereunder. The Company may not exercise its right to
postpone a Demand Registration more than once in any nine-month period.
(e) SELECTION OF UNDERWRITERS. The Company shall have the right
to select the investment banker(s) and manager(s) to administer any Demand
Registration, subject to the approval of the Investors, which will not be
unreasonably withheld.
(f) OTHER REGISTRATIONS. If the Company has previously filed a
registration statement with respect to Registrable Securities pursuant to this
Section 1, and if such previous registration has not been withdrawn or
abandoned, the Company will not file or cause to be effected any other
registration of any of its equity securities or securities convertible or
exchangeable into or exercisable for its equity securities under the Securities
Act (other than on Form S-4 or Form S-8 or any successor form or pursuant to the
exercise of contractual demand registration rights) until a period of at least
six months has elapsed from the effective date of such previous registration.
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<PAGE>
Section 2. PIGGYBACK REGISTRATIONS.
(a) RIGHT TO PIGGYBACK. Whenever the Company proposes to
register any of its securities under the Securities Act and the registration
form to be used for the registration of Registrable Securities (a "Piggyback
Registration"), the Company will give prompt written notice to the Investors of
its intention to effect such a registration and will include in such
registration all Registrable Securities with respect to which the Company has
received written requests from the Investors for inclusion therein within 30
days after the receipt of the Company's notice.
(b) PRIORITY ON PRIMARY REGISTRATIONS. If a Piggyback
Registration is an underwritten primary registration on behalf of the Company,
and the managing underwriters advise the Company in writing that in their
opinion the amount of securities requested to be included in such registration
exceeds the amount which can be sold in such offering without adversely
affecting the marketability of the offering, the Company will include in such
registration (i) first, the securities the Company proposes to sell, (ii)
second, the Registrable Securities requested to be included in such registration
along with securities requested to be included in such registration by other
holders exercising similar piggyback rights, pro rata among the holders of such
Registrable Securities and such other holders on the basis of the number of
shares requested to be included therein by each such holder, and (iii) third,
other securities requested to be included in such registration.
(c) PRIORITY ON SECONDARY REGISTRATIONS. If a Piggyback
Registration is an underwritten secondary registration on behalf of holders of
the Company's securities exercising demand registration rights, and the managing
underwriters advise the Company in writing that in their opinion the amount of
securities requested to be included in such registration exceeds the amount
which can be sold in such offering without adversely affecting the marketability
of the offering, the Company will include in such registration (i) first, the
securities requested to be included therein by the holders exercising demand
registration rights, (ii) second, the Registrable Securities requested to be
included in such registration along with securities requested to be included in
such registration by other holders exercising similar piggyback rights, pro rata
among the holders of such Registrable Securities and such other holders on the
basis of the number of shares requested to be included therein by each such
holder, and (iii) third, other securities requested to be included in such
registration.
Section 3. REGISTRATION PROCEDURES. Whenever the Investors have
requested that any Registrable Securities be registered pursuant to this
Agreement, the Company will use its reasonable best efforts to effect the
registration and the sale of such Registrable Securities in accordance with the
intended method of disposition thereof, and pursuant thereto the Company will as
expeditiously as possible:
(a) prepare and file with the Securities and Exchange
Commission, within 45 days (if a Short-Form Registration) or 90 days (if a
Long-Form Registration) after a demand therefor, a registration statement with
respect to such
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<PAGE>
Registrable Securities and use its reasonable best efforts to cause such
registration statement to become effective (provided that before filing a
registration statement or prospectus or any amendments or supplements thereto,
the Company will furnish to the counsel selected by the Investors copies of all
such documents proposed to be filed, which documents will be subject to the
review of such counsel);
(b) prepare and file with the Securities and Exchange Commission
such amendments and supplements to such registration statement and the
prospectus used in connection therewith as may be necessary to keep such
registration statement effective for a period of not less than six months and
comply with the provisions of the Securities Act with respect to the disposition
of all securities covered by such registration statement during such period in
accordance with the intended methods of disposition by the sellers thereof set
forth in such registration statement;
(c) furnish to each Stockholder such number of copies of such
registration statement, each amendment and supplement thereto, the prospectus
included in such registration statement (including each preliminary prospectus)
and such other documents as such Stockholder may reasonably request in order to
facilitate the disposition of the Registrable Securities owned by such
Stockholder;
(d) use its reasonable best efforts to register or qualify such
Registrable Securities under such other securities or blue sky laws of such
jurisdictions as any seller reasonably requests and do any and all other acts
and things which may be reasonably necessary or advisable to enable such seller
to consummate the disposition in such jurisdictions of the Registrable
Securities owned by such Stockholder (provided that the Company will not be
required to (i) qualify generally to do business in any jurisdiction where it
would not otherwise be required to qualify, (ii) subject itself to taxation in
any such jurisdiction or (iii) consent to general service of process in any such
jurisdiction);
(e) promptly notify each seller of Registrable Securities, at
any time when a prospectus relating thereto is required to be delivered under
the Securities Act, of the happening of any event as a result of which the
prospectus included in such registration statement contains an untrue statement
of a material fact or omits any fact necessary to make the statements therein
not misleading, and, at the request of any such seller, the Company will prepare
a supplement or amendment to such prospectus so that, as thereafter delivered to
the purchasers of such Registrable Securities, such prospectus will not contain
an untrue statement of a material fact or omit to state any fact necessary to
make the statements therein not misleading;
(f) cause all such Registrable Securities to be listed on each
securities exchange on which similar securities issued by the Company are then
listed and, if not so listed, to be listed on the NASD Automated Quotation
System;
(g) provide a transfer agent and registrar for all such
Registrable Securities not later than the effective date of such registration
statement:
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<PAGE>
(h) enter into such customary agreements (including underwriting
agreements in customary form) and take all such other actions as the Investors
or the underwriters, if any, reasonably request in order to expedite or
facilitate the disposition of such Registrable Securities (including, without
limitation, effecting a stock split or a combination of shares);
(i) make available for inspection by any seller of Registrable
Securities, any underwriter participating in any disposition pursuant to such
registration statement and any attorney, accountant or other agent retained by
any such seller or underwriter, all financial and other records, pertinent
corporate documents and properties of the Company, and cause the Company's
officers, directors, employees and independent accountants to supply all
information reasonably requested by any such seller, underwriter, attorney,
accountant or agent in connection with such registration statement;
(j) otherwise use its reasonable best efforts to comply with all
applicable rules and regulations of the Securities and Exchange Commission, and
make available to its security holders, as soon as reasonably practicable, an
earnings statement covering the period of at least twelve months beginning with
the first day of the Company's first full calendar quarter after the effective
date of the registration statement, which earnings statement shall satisfy the
provisions of Section 11 (a) of the Securities Act and Rule 158 thereunder; and
(k) obtain a cold comfort letter from the Company's independent
public accountants in customary form and covering such matters of the type
customarily covered by cold comfort letters.
Section 4. REGISTRATION EXPENSES. All expenses incident to any
permitted Demand Registration or any Piggyback Registration, including without
limitation all registration and filing fees, fees and expenses of compliance
with securities or blue sky laws, printing expenses, messenger and delivery
expenses, fees and disbursements of counsel for the Company and one counsel for
the holders of Registrable Securities, and fees and expenses of all independent
certified public accountants, underwriters (excluding discounts and commissions)
and other persons retained by the Company (together, "Registration Expenses")
will be borne by the Company.
Section 5. INDEMNIFICATION.
(a) The Company agrees to indemnify, to the extent permitted by
law, each holder of Registrable Securities against all losses, claims, damages,
liabilities and expenses caused by any untrue or alleged untrue statement of
material fact contained in any registration statement, prospectus or preliminary
prospectus or any amendment thereof or supplement thereto or any omission or
alleged omission of a material fact required to be stated therein or necessary
to make the statements therein not misleading, except insofar as the same are
caused by or contained in any information furnished in writing to the Company by
such holder of Registrable Securities expressly
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<PAGE>
for use therein or by such holder's failure to deliver a copy of the
registration statement or prospectus or any amendments or supplements thereto
after the Company has furnished such holder with a sufficient number of copies
of the same. In connection with an underwritten offering, the Company will
indemnify such underwriters, their officers and directors and each person who
controls such underwriters (within the meaning of the Securities Act) to the
same extent as provided above with respect to the indemnification of the holders
of Registrable Securities.
(b) In connection with any registration statement in which a
holder of Registrable Securities is participating, each such holder will furnish
to the Company in writing such information and affidavits as the Company
reasonably requests for use in connection with any such registration statement
or prospectus and, to the extent permitted by law, will indemnify the Company,
its directors and officers and each person who controls the Company (within the
meaning of the Securities Act) against any losses, claims, damages, liabilities
and expenses resulting from any untrue or alleged untrue statement of material
fact contained in the registration statement, prospectus or preliminary
prospectus or any amendment thereof or supplement thereto or any omission or
alleged omission of a material fact required to be stated therein or necessary
to make the statements therein not misleading, but only to the extent that such
untrue statement or omission is contained in any information or affidavit so
furnished in writing by such holder of Registrable Securities; provided that the
obligation to indemnify will be individual to each holder of Registrable
Securities and will be limited to the net amount of proceeds received by such
holder from the sale of Registrable Securities pursuant to such registration
statement.
(c) Any person entitled to indemnification hereunder will (i)
give prompt written notice to the indemnifying party of any claim with respect
to which it seeks indemnification and (ii) unless in such indemnified party's
reasonable judgment a conflict of interest between such indemnified and
indemnifying parties may exist with respect to such claim, permit such
indemnifying party to assume the defense of such claim with counsel reasonably
satisfactory to the indemnified party. If such defense is assumed, the
indemnifying party will not be subject to any liability for any settlement made
by the indemnified party without the indemnifying party's consent (but such
consent will not be unreasonably withheld). An indemnifying party who is not
entitled to, or elects not to, assume the defense of a claim will not be
obligated to pay the fees and expenses of more than one counsel for all parties
indemnified by such indemnifying party with respect to such claim, unless in the
reasonable judgment of any indemnified party a conflict of interest may exist
between such indemnified party and any other of such indemnified parties with
respect to such claim, in which case the fees of such additional counsel shall
be paid by the indemnifying party.
(d) The indemnification provided for under this Agreement will
remain in full force and effect regardless of any investigation made by or on
behalf of the indemnified party or any officer, director or controlling person
of such indemnified party and will survive the transfer of securities. The
Company also agrees to make such
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<PAGE>
provisions, as are reasonably requested by any indemnified party, for
contribution to such party in the event the Company's indemnification is
unavailable for any reason.
Section 6. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS. No holder
of Registrable Securities may participate in any registration hereunder which is
underwritten unless such person (1) agrees to sell such Registrable Securities
on the basis provided with any underwriting arrangements (including any lock-up)
governing such registration and (ii) completes and executes all questionnaires,
powers of attorney, indemnities, underwriting agreements and other documents
(including holdback agreements) required under the terms of such underwriting
arrangements.
Section 7. TAG-ALONG RIGHTS. In the event that any Management
Holder proposes to transfer, in a single transaction or series of related
transactions, shares of Common Stock representing 25% or more of the shares of
Common Stock held by such Management Holder on the date hereof, which transfer
either (i) occurs prior to the date on which all Registrable Securities are
freely transferable pursuant to Rule 144(k) under the Securities Act, or (ii)
involves a change in control of the Company (defined as the acquisition of
Common Stock representing more than 33% of the total combined voting power of
the Common Stock taken as a whole, by any person or group of persons acting in
concert), the transferring Management Holder shall give written notice of such
proposed transfer to each Investor specifying the terms and conditions of such
transfer and the identity of the proposed transferee (a "Sale Notice"). Each
Investor shall have the right to participate in the proposed transfer by
delivering to the transferring Stockholder a written notice of such election
within five business days following delivery of the Sale Notice. If any
Investor elects to participate in such transfer, the transferring Management
Holder and each such participating Investor will be entitled to sell in such
proposed transfer, at the same price and on the same terms, a number of shares
of Common Stock equal to the product of (i) the quotient determined by dividing
the number of shares of Common Stock then held by the transferring Management
Holder or such participating Investor, as the case may be, by the aggregate
number of shares of Common Stock then held by the transferring Management Holder
and all participating holders (including the Investors) exercising contractual
tag-along rights, multiplied by (ii) the number of shares of Common Stock to be
sold in such proposed transfer. The transferring Management Holder shall not
effect such proposed transfer unless the proposed transferee consents to the
participation of the Investors pursuant to this Section 7. In the event that no
Investor elects to participate in a proposed transfer, the transferring
Management Holder shall have a period of time ending 90 days after the date of
delivery of the Sale Notice (or, if later, five days following the expiration or
early termination of all waiting periods applicable to such transfer under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended) within which
to effect the transfer on the terms set forth in the Sale Notice. In the event
that such transfer is not completed within such period or in the event of a
material change in the terms set forth in the Sale Notice, the transferring
Management Holder shall be required to once again comply with the provisions of
this Section 7 prior to effecting any transfer of such shares. This Section 7
shall not apply to transfers between the Management
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<PAGE>
Holders or by a Management Holder to members of such Stockholder's immediate
family or a trust for the benefit of members of such Stockholder's immediate
family so long as such transferee agrees to be bound by the provisions of this
Section 7 in connection with any subsequent transfer of such shares. For
purposes of this Section 7, "Common Stock" shall include the Company's Class A
Common Stock and Class B Common Stock.
Section 8. SECURITIES LAW COMPLIANCE. With a view to making
available the benefits of certain rules and regulations of the Securities and
Exchange Commission which may effectuate the registration of Registrable
Securities or permit the sale of Registrable Securities to the public without
registration, the Company agrees to: (i) exercise best efforts to cause the
Company to be eligible to utilize Form S-3 (or any similar form) for the
registration of Registrable Securities; (ii) at such time as any Registrable
Securities are eligible for transfer under Rule 144(k), upon the request of the
holder of such Registrable Securities, remove any restrictive legend from the
certificates evidencing such securities at no cost to such holder; (iii) make
and keep available public information as defined in Rule 144 under the
Securities Act at all times; (iv) file with the Commission in a timely manner
all reports and other documents required of the Company under the Securities Act
and the Securities Exchange Act of 1934, as amended (the "Exchange Act"); and
(v) furnish any holder of Registrable Securities upon request a written
statement by the Company as to its compliance with the reporting requirements of
Rule 144 and of the Securities Act and the Exchange Act, a copy of the most
recent annual or quarterly report of the Company, and such other reports and
documents as a holder of Registrable Securities may reasonably request in
availing itself of any rule or regulation of the Commission (including Rule
144A) allowing a holder of Registrable Securities to sell any such securities
without registration.
Section 9. MISCELLANEOUS.
(a) NO INCONSISTENT AGREEMENTS. The Company will not hereafter
enter into any agreement with respect to its securities which is inconsistent
with or violates the rights granted to the Investors in this Agreement.
(b) ADJUSTMENTS AFFECTING REGISTRABLE SECURITIES. The Company
will not take any action, or permit any change to occur, with respect to its
securities which would materially and adversely affect the ability of the
Investors to include such Registrable Securities in a registration undertaken
pursuant to this Agreement or which would materially and adversely affect the
marketability of such Registrable Securities in any such registration
(including, without limitation, effecting a stock split or a combination of
shares).
(c) REMEDIES. Any Stockholder having rights under any provision
of this Agreement will be entitled to enforce such rights specifically and
recover damages caused by reason of any breach of any provision of this
Agreement and to exercise all other rights granted by law or equity. The
parties hereto agree and acknowledge that money damages may not be an adequate
remedy for any breach of the provisions of this Agreement and that any party may
in its sole discretion apply to any
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<PAGE>
court of law or equity of competent jurisdiction (without posting any bond or
other security) for specific performance and for other injunctive relief in
order to enforce or prevent violation of the provisions of this Agreement.
(d) AMENDMENTS, WAIVERS AND TERMINATION. Except as otherwise
provided herein, the provisions of this Agreement may be amended or waived only
upon the prior written consent of the Company and the Investors. This Agreement
shall automatically expire on the fifteenth anniversary of the date hereof.
(e) SUCCESSORS AND ASSIGNS. All covenants and agreements in
this Agreement by or on behalf of any of the parties hereto will bind and inure
to the benefit of the respective successors of the parties hereto whether so
expressed or not. In addition, whether or not any express assignment has been
made, the provisions of this Agreement which are for the benefit of the
Investors are also for the benefit of, and enforceable by, any subsequent holder
of Registrable Securities, and the rights under this Agreement shall be
automatically assigned to any such subsequent holder.
(f) SEVERABILITY. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision will be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this Agreement.
(g) COUNTERPARTS. This Agreement may be executed simultaneously
in two or more counterparts, any one of which need not contain the signatures of
more than one party, but all such counterparts taken together will constitute
one and the same Agreement.
(h) DESCRIPTIVE HEADINGS. The descriptive headings of this
Agreement are inserted for convenience only and do not constitute a part of this
Agreement.
Section 10. NOTICES. All notices, demands or other communications
to be given or delivered under or by reason of the provisions of this Agreement
will be in writing and shall be (i) delivered personally, (ii) mailed by
certified or registered mail, return receipt requested and postage prepaid,
(iii) sent by fax transmission with telephonic confirmation accompanied by a
mailing, pursuant to clause (ii), or (iv) sent on a next-day basis via a
nationally recognized overnight courier to the recipient. Such notices, demands
and other communications will be sent to the address indicated below:
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<PAGE>
(a) If to the Company:
U.S. Franchise Systems, Inc.
13 Corporate Square, Suite 250
Atlanta, GA 30329
Attn: Neal Aronson
` Facsimile: (404) 321-4482
(b) If to the Investors:
Sextant Trading LLC
527 Madison Avenue, 17th Floor
New York, NY 10022
Attn: Adam Anhang
Facsimile: (212) 319-4557
Lubert-Adler Funds
101 West Main Street
Moorestown, NJ 08057
Attn: Dean Adler
Facsimile: __________
(c) If to the Management Holders:
c/o U.S. Franchise Systems, Inc.
13 Corporate Square, Suite 250
Atlanta, GA 30329
Facsimile: (404) 321-4482
or to such other address as any party may specify by notice given to the other
party in accordance with this Section. The date of giving any such notice shall
be (i) the date of hand delivery, (ii) the date five days after posting of the
mail, (iii) the date sent by fax transmission if during a business day or
otherwise the first business day thereafter or (iv) the business day after
delivery to the overnight courier service.
Section 11. GOVERNING LAW. ALL ISSUES AND QUESTIONS CONCERNING THE
CONSTRUCTION, VALIDITY, ENFORCEMENT AND INTERPRETATION OF THIS AGREEMENT SHALL
BE GOVERNED BY THE INTERNAL LAW, AND NOT THE LAW OF CONFLICTS, OF DELAWARE.
* * * * *
-10-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first written above.
U.S. FRANCHISE SYSTEMS, INC.
By: /s/ Neal Aronson
----------------------------------
Its: Executive Vice President and
Chief Financial Officer
SEXTANT TRADING LLC
By: /s/ David Hamamoto
-----------------------------
Its:
-------------------------
LUBERT-ADLER REAL ESTATE
OPPORTUNITY FUND, L.P.
By: IL PARTNERS, L.P., its General Partner
By: L&A Management, Inc., its
General Partner
By: /s/ Dean S. Adler
----------------------------
Dean S. Adler, President
LUBERT-ADLER REAL ESTATE
OPPORTUNITY FUND II, L.P.
By: IL PARTNERS, L.P., its General Partner
By: L&A Management, Inc., its
General Partner
By: /s/ Dean S. Adler
----------------------------
Dean S. Adler, President
[Signatures continued on next page]
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<PAGE>
LUBERT-ADLER CAPITAL REAL ESTATE
OPPORTUNITY FUND, L.P.
By: IL PARTNERS, L.P., its General Partner
By: L&A Management, Inc., its
General Partner
By: /s/ Dean S. Adler
----------------------------
Dean S. Adler, President
-12-
<PAGE>
Exhibit 10.1
Execution Copy
ASSET TRANSFER AGREEMENT
ASSET TRANSFER AGREEMENT (this "Agreement"), dated as of April
28, 1998, among BEST ACQUISITION, INC., a Georgia corporation, having an address
at 13 Corporate Square, Suite 250, Atlanta, Georgia 30329 ("BAI"), ALPINE
HOSPITALITY VENTURES, LLC, a Delaware limited liability company having an
address at 1285 Avenue of the Americas, 21st Floor, New York, New York 10019
("Parent"), RSVP-BI OPCO, LLC, a Delaware limited liability company and a
wholly-owned subsidiary of BAI ("OPCO"), RSVP-ABI REALCO, LLC, a Delaware
limited liability company and wholly-owned subsidiary of OPCO ("REALCO"),
AMERICA'S BEST INNS, INC., a Delaware corporation having an address at 1205
Skyline Drive, Marion, Illinois 62959 ("ABI") and the entities identified on
Schedule I hereto (collectively with ABI, the "Sellers").
RECITALS
WHEREAS, pursuant to that certain Agreement of Purchase and
Sale, dated as of December 15, 1997 (as amended by amendments dated December 15,
1997, January 7, 1998, March 9, 1998 and April 1, 1998, the "Purchase
Agreement"), on this date Sellers are selling and BAI is purchasing the Assets
of Sellers (the "Closing"); (all capitalized terms used herein and not otherwise
defined shall have the meaning set forth therefor in the Purchase Agreement);
WHEREAS, at the Closing, BAI has agreed to acquire, directly
or indirectly through subsidiaries, the assets described on Schedule II hereto
(the "Hospitality Assets") pursuant to the terms and provisions of the Purchase
Agreement, and immediately thereafter transfer to, or as directed by, Parent all
of its direct or indirect right, title and interest in and to the Hospitality
Assets through the Redemption (as defined below) of BAI's membership interests
in OPCO;
WHEREAS, Parent will make (i) a capital contribution, directly
or indirectly, of twenty-two million dollars ($22,000,000) to OPCO in return for
1,000 units of membership interests in OPCO ("Units"), (ii) OPCO will borrow
$64,700,000 from PW Real Estate Investments Inc., and (iii) Parent will cause
OPCO to redeem the 1,000 Units owned by BAI in exchange for $84.0 million
dollars (the "Redemption"), and BAI is agreeing to the foregoing.
WHEREAS, in consideration of BAI's assignment and transfer to
Parent (through OPCO and REALCO) of the Hospitality Assets, Parent has agreed to
indemnify and hold BAI harmless from any and all liabilities which might arise
therefrom;
WHEREAS, in connection with the transfer by BAI of the
Hospitality Assets to Parent (through OPCO and REALCO), BAI has also agreed to
assign
<PAGE>
2
certain of its rights under the Purchase Agreement to Parent (through OPCO and
REALCO);
WHEREAS, Section 14.9 of the Purchase Agreement provides that
BAI has the right to assign, in whole or in part, any of its right, title and
interest in the Purchase Agreement or any of the other Transaction Documents to
any Person or other Entity with the consent of ABI on behalf of itself and the
Sellers;
WHEREAS, Section 14.9 of the Purchase Agreement provides that
the rights, obligations, representations, warranties, indemnities and covenants
contained therein and in the other Transaction Documents are binding on, and the
benefits thereof shall inure to, successors and assigns of BAI, and,
furthermore, contemplates that BAI would transfer its interests in some or all
of the Assets to another Person or Persons;
WHEREAS, pursuant to Sections 1.1(f) and (h) of the Purchase
Agreement, the Sellers are assigning to BAI all of their respective rights,
title and interest as franchisee in separate franchise agreements for each of
the Hospitality Units (the "Franchise Agreements"), and pursuant to Section
1.1(j) of the Purchase Agreement, ABI is assigning to BAI all of its rights,
title and interest as franchisor in the Franchise Agreements; and
NOW THEREFORE, in consideration of the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, BAI, ABI, Sellers, OPCO, REALCO
and Parent hereby agree as follows:
1. Transfer. BAI is, at the Closing, conveying to OPCO and
REALCO the Hospitality Assets. It is the intention of the Parties hereto that
the property interests being conveyed to OPCO and REALCO consist of all of the
Assets at the Closing or thereafter conveyed to BAI from the Sellers pursuant to
the Purchase Agreement other than the Related Assets.
2. Conveyance to OPCO; Redemption.
(a) At the Closing, at BAI's request, ABI will
convey the Hospitality Assets (other than the Land Lease and any other
Hospitality Assets utilized with or related to the Land Lease (collectively, the
"Asheville Assets")) to OPCO and the Asheville Assets to REALCO. BAI hereby
agrees that the Hospitality Assets specifically includes its rights, title and
interest as franchisee under the Franchise Agreements. In furtherance of such
transfer, OPCO and REALCO will execute, acknowledge and deliver instruments of
assumption in respect of all items being assigned to OPCO and REALCO,
respectively, at Closing required pursuant to this Agreement or the Purchase
Agreement, for which such assumption by OPCO or
<PAGE>
3
REALCO is required by the terms of any of the documents, agreements or
instruments being so assigned to OPCO or REALCO;
(b) Immediately following the conveyance
described in Section 2(a) above, Parent will cause the Redemption to take place.
3. Covenants of the Parties.
(a) BAI, OPCO, REALCO and Parent agree that the
closing conditions to Purchaser's obligations set forth in Section 5.1 of the
Purchase Agreement have been met, or waived, to the satisfaction of each of BAI,
OPCO, REALCO and Parent.
(b) BAI hereby assigns to OPCO and REALCO all of
its right, title and interest to the benefit of the representations, warranties,
covenants and indemnities set forth in the Purchase Agreement and the
Transaction Documents to the extent that the same are in respect of the
Hospitality Assets, including without limitation, those set forth in Section 6.1
and Section 14.13 of the Purchase Agreement.
(c) BAI hereby acknowledges that (i) the
provisions of Section 6.1.9 of the Purchase Agreement, in so far as the same
relates to the Hospitality Assets and (ii) the provisions of Sections 4.1.29,
6.1.9(b), (c), (d)(C) and (e)(ii)(y) of the Purchase Agreement shall be for the
sole benefit of OPCO and REALCO and Parent and each of their respective
Affiliates, officers directors, agents and consultants. In furtherance thereof,
BAI hereby agrees that it shall not make any claim for indemnification under
Section 6.1.9 of the Purchase Agreement in respect of Losses arising out of
matters relating to any of the Hospitality Assets or for any claim in respect of
Environmental Costs. It is understood that nothing in this Section 3(c) shall
limit BAI's rights under Section 11(c) hereof to make a claim against OPCO,
REALCO and/or Parent in respect of any Losses referred to in this Section 3(c)
to the extent they are included in Transfer Losses (as defined in Section 10
hereof) and are suffered by the BAI Indemnitees (as defined in Section 10(b)
hereof).
(d) Pursuant to Section 14.9 of the Purchase
Agreement, ABI, on behalf of the Sellers, hereby consents to each of the
assignments of benefits and rights of BAI, as Purchaser under the Purchase
Agreement, to OPCO and REALCO as provided in this Agreement, and ABI shall
recognize OPCO (or REALCO, as applicable) as Purchaser, in lieu of BAI, under
the Purchase Agreement, but only to the extent OPCO or REALCO has assumed such
obligations and liabilities pursuant to Section 3(f) hereof. Without limiting
the foregoing, ABI (on behalf of the Sellers) specifically agrees that if and to
the extent that OPCO, REALCO or Parent (on behalf of OPCO or REALCO) shall make
a claim for Losses pursuant to Section 6.1.9(f) of the Purchase Agreement or at
law or in equity, ABI
<PAGE>
4
(on behalf of the Sellers) shall recognize OPCO's or REALCO's right to do so as
fully as if OPCO or REALCO, as the case may be, were the Purchaser.
(e) ABI, on behalf of the Sellers, hereby agrees
that the assignments hereunder are in compliance with Section 14.9 of the
Purchase Agreement and, accordingly, BAI is released from all obligations and
liabilities under the Purchase Agreement, to the extent OPCO, REALCO or Parent
has assumed such obligations and liabilities pursuant to Section 3(f) hereof.
(f) Each of OPCO and REALCO hereby agrees,
except as provided in Section 3(g) hereof, to assume all obligations and
liabilities of BAI, as Purchaser under the Purchase Agreement, to the extent
such obligations and liabilities survive the Closing and relate to the Asheville
Assets (as for REALCO) or the Hospitality Assets other than the Asheville Assets
(as for OPCO), and from and after the date hereof all references in the Purchase
Agreement to Purchaser, to the extent they relate to the Hospitality Assets,
shall be deemed to refer to OPCO or REALCO, as the case may be. In furtherance
thereof, OPCO and REALCO, as appropriate, agree to accept, assume, take over and
succeed to all of ABI's rights, title and interest as franchisee under the
Franchise Agreements. Except as expressly provided in the Purchase Agreement, to
the extent such agreement is hereby assumed by OPCO or REALCO pursuant to this
Section 3.1(f), neither OPCO nor REALCO, as the case may be, assumes any of the
liabilities of BAI or Sellers relating to or incurred or in connection with the
ownership or operation of the Hospitality Assets (other than the Asheville
Assets) or the Asheville Assets, respectively; it being understood that any
liabilities under any of the Service Agreements, transferable Insurance Policies
or Permits transferred to OPCO or REALCO, (a) which arose prior to the date of
Closing, shall not be assumed by OPCO or REALCO and shall remain Sellers'
responsibility and (b) which arise from and after the date of Closing, shall be
assumed by OPCO or REALCO and shall become OPCO's or REALCO's responsibility.
(g) Each of OPCO and REALCO hereby agrees that
to the extent it has received the Books and Records from BAI or from Sellers
pursuant to Section 10 hereof, it shall comply, or cause compliance with, the
obligations of Purchaser under Section 6.2.5 of the Purchase Agreement. Sellers
hereby agree that the benefits of Section 6.2.5 to the extent such Section
relates to the Books and Records referred to in Section 8 hereof, shall inure to
the benefit of OPCO.
(h) BAI hereby covenants and agrees that it
shall not enter into any amendment or modification of the Purchase Agreement if
such amendment or modification would affect in any manner the benefits or other
rights being assigned to OPCO or REALCO hereunder, or would increase the
liabilities or obligations of OPCO or REALCO, without the prior written consent
of Parent.
(i) Management Contracts. OPCO and REALCO
hereby agree, and BAI agrees to cause USFS Management, Inc., a Georgia
corporation
<PAGE>
5
("Management"), or another affiliate or subsidiary of U.S. Franchise Systems,
Inc., a Delaware corporation, at the Closing, to enter into management contracts
in form and substance satisfactory to OPCO, REALCO and Management.
4. Representations and Warranties of BAI. BAI represents and
warrants as follows:
(a) Organization of BAI; Authority of BAI;
Validity. BAI is a corporation, duly incorporated under the laws of the state of
Georgia and in good standing under the laws of such state. BAI has full power
and authority to execute and deliver to OPCO, REALCO and Parent this Agreement
and to perform the obligations and carry out the duties imposed on BAI by this
Agreement. This Agreement has been duly authorized, approved and executed by BAI
and constitutes the valid and binding obligation of BAI, enforceable against BAI
in accordance with its terms.
(b) Governmental Approvals. No approval,
consent, order or authorization of, or designation, registration or declaration
with, any governmental authority is required in connection with the valid
execution and delivery of, and compliance with, this Agreement by BAI.
(c) Compliance with Other Instruments. Neither
the execution, delivery or performance by BAI of this Agreement, nor any of the
transactions contemplated hereby will (a) conflict with, or will result in a
breach of, violate, or will constitute a default under (i) the organizational
documents of BAI, (ii) any judgment, statute, rule, order, decree, writ,
injunction or regulation of any court or governmental authority to which BAI is
subject, or (iii) any material agreement or instrument to which BAI may be bound
or which may affect the Hospitality Assets or (b) result in the creation or
imposition of any lien, charge, or encumbrance upon any of the Hospitality
Assets or any other property of any BAI.
(d) Bankruptcy; Insolvency; Litigation. There
is not pending against BAI, or any of its respective Affiliates (i) a petition
in bankruptcy, whether voluntary or otherwise, (ii) an assignment for the
benefit of creditors, (iii) any petition seeking reorganization or arrangement
under the bankruptcy or insolvency laws of the United States or any state, or
(iv) any other similar action brought under such bankruptcy or insolvency laws;
(b) no trustee or receiver has been appointed to take control over BAI, or any
part of the property of BAI and (c) to BAI's knowledge, there are no other
material claims, litigation or proceedings against BAI.
(e) Organization of OPCO and REALCO;
Liabilities.
(i) Prior to the Closing, each of OPCO and REALCO are
limited liability companies, duly formed under the laws of the state of
Delaware and with good standing under the laws of such state. Each of
OPCO and
<PAGE>
6
REALCO has full power and authority to execute and deliver to BAI and
Parent this Agreement. This Agreement has been duly authorized and
approved and executed by each of OPCO and REALCO and constitutes the
valid and binding obligation of OPCO and REALCO, respectively,
enforceable against each of OPCO and REALCO, as the case may be, in
accordance with its terms
(ii) Neither OPCO nor REALCO has any direct or indirect
indebtedness, liability, claim, loss, damage, deficiency, obligation or
responsibility, known or unknown, fixed or unfixed, choate or inchoate,
liquidated or unliquidated, secured or unsecured, accrued, absolute,
contingent or otherwise ("Liabilities"), except for Liabilities
incurred in their formation or resulting from, relating to or otherwise
in any manner attributable to the acquisition of the Hospitality Assets
as contemplated pursuant to this Agreement or the transactions
contemplated hereunder.
5. Representations and Warranties of Parent.
(a) Organization of Parent. Parent is a limited
liability corporation duly formed under the laws of the state of Delaware and in
good standing under the laws of such state and is authorized to do business in
each state in which the conduct of its business or the ownership of any of its
assets requires it to be so qualified. Parent has full power and authority to
execute and deliver to BAI this Agreement and perform the obligations and carry
out the duties imposed on Parent by this Agreement. This Agreement has been duly
authorized, approved and executed by Parent and constitutes the valid and
binding obligation of Parent, enforceable against Parent in accordance with its
terms.
(b) Compliance with Other Instruments. Neither
the execution, delivery or performance by Parent of this Agreement, nor any of
the transactions contemplated hereby will (a) conflict with, or will result in a
breach of, violate, or will constitute a default under (i) the organizational
documents of Parent, (ii) any judgment, statute, rule, order, decree, writ,
injunction or regulation of any court or governmental authority to which Parent
is subject, or (iii) any material agreement or instrument to which Parent may be
bound or which may affect the Hospitality Assets or (b) result in the creation
or imposition of any lien, charge, or encumbrance upon any of the Hospitality
Assets or any other property of any Parent.
(c) Governmental Approvals. No approval,
consent, order or authorization of, or designation, registration or declaration
with, any governmental authority is required in connection with the valid
execution and delivery of, and compliance with, this Agreement or any of the
other Transfer Documents by Parent.
(d) Transferred Employees. OPCO and/or REALCO
will hire all of Seller's employees who regularly work in the Hospitality Units,
effective
<PAGE>
7
as of the date hereof, on the same terms upon which such Seller's employees are
currently employed by Seller (other than as specifically addressed in that
certain letter agreement dated December 15, 1997 by and between BAI and the
Sellers); provided that nothing herein shall be deemed to require OPCO and/or
REALCO to continue to employ such Seller's employees for a period in excess of
ninety (90) days or such shorter period if such ABI's employee is dismissed for
cause.
(e) Insurance Coverages for Transferred
Employees. OPCO and/or REALCO will provide immediate coverage for the
Transferred Employees, effective as the date hereof, under a group health
insurance plan sponsored by Parent or OPCO. The group health insurance coverage
will provide coverages similar to those provided by the Sellers' plans. Parent
or OPCO, as applicable, agrees to waive all waiting or elimination periods and
preexisting condition limitations of such plan for the Transferred Employees and
to equalize deductibles for the year for the Transferred Employees.
6. Notices to Vendors. Sellers and OPCO (or REALCO, as
applicable) shall send to each vendor supplying goods and/or services to the
Hospitality Units pursuant to a Service Agreement assumed by OPCO (or REALCO, as
applicable) a written notice stating:
(a) that the applicable Service Agreement has
been assigned to and assumed by OPCO (or REALCO, as applicable); and
(b) requesting that all services previously
performed by such vendor for Sellers be performed by such vendor for OPCO (or
REALCO, as applicable), as applicable, in accordance with such Service Contract.
7. FIRPTA. BAI has delivered to Parent a certificate with
respect to the matters represented in Section 4.1.27 of the Purchase Agreement.
8. Additional Deliveries. BAI has delivered to Parent all
other documents relating to Hospitality Units to the extent received from
Sellers.
9. Apportionments. To the extent that pursuant to Sections 8.9
and 8.10 of the Purchase Agreement there are any items that are to be
apportioned post-closing relating to the Hospitality Assets, ABI, on behalf of
the Sellers, and OPCO and REALCO hereby agree that such post-closing items shall
be adjusted between them as if OPCO (or REALCO, as applicable) were the
Purchaser.
10. Indemnification.
(a) BAI shall defend, indemnify, and hold
harmless and reimburse Parent, OPCO, REALCO and each of Parent's, OPCO's and
REALCO's assignees and designees and each of their respective Affiliates,
officers, directors,
<PAGE>
8
members, partners, agents, employees and consultants (collectively, the "Parent
Indemnitees") for any and all losses, claims, damages, expenses (including
reasonable fees, disbursements and changes of counsels) or other liabilities
(hereinafter "Transfer Loss" or "Transfer Losses") suffered or incurred by any
Parent Indemnitee resulting from, relating to or otherwise in any manner
attributable to (i) any breach or inaccuracy of any representation or warranty
of BAI set forth in this Agreement or in the Purchase Agreement or in any
certificate or other document delivered by BAI pursuant hereto or thereto or in
connection herewith or therewith, or (ii) any breach of or noncompliance by BAI
with any covenant or agreement of BAI contained in this Agreement or in the
Purchase Agreement.
(b) Parent, OPCO and REALCO shall defend,
indemnify, and hold harmless and reimburse BAI and each of BAI's assignees and
designees and each of their respective Affiliates, officers, directors, members,
partners, agents, employees and consultants (collectively, the "BAI
Indemnitees") for any and all Transfer Losses suffered or incurred by any BAI
Indemnitee, resulting from relating to or otherwise in any manner attributable
to (i) any breach or inaccuracy of any representation or warranty of the Parent
set forth in this Agreement or in any certificate or other document delivered by
Parent pursuant hereto or in connection herewith, and (ii) any breach of or
noncompliance by Parent, OPCO or REALCO, as applicable, with any covenant or
agreement of Parent, OPCO or REALCO contained in this Agreement.
(c) Parent, OPCO and REALCO shall indemnify,
defend and hold harmless BAI Indemnitees from all claims for Transfer Losses
incurred as a result of BAI being the contract-vendee under the Purchase
Agreement relating to the acquisition (through OPCO) or disposition of, the
Hospitality Assets, including, without limitation, claims arising under
Environmental Laws or ERISA, but excluding (y) any Transfer Losses relating to
income tax liability or any other taxes or charges including transfer or sales
taxes) incurred by a BAI Indemnitee as a result of BAI being the contract-vendee
under the Purchase Agreement and (z) any Transfer Losses incurred by a BAI
Indemnitee from an obligation of BAI under the Purchase Agreement which was to
have been performed prior to Closing.
11. Transfer Taxes and Other Charges. OPCO and/or REALCO, as
applicable, shall be obligated to pay any and all filing fees, recording
charges, and all transfer, conveyance, assignment, sales, mortgage, intangible
and other taxes and charges, if any, payable in connection with the Redemption
or other transactions contemplated hereunder (whether payable by a purchaser or
seller under applicable law or custom) (collectively, "Transfer Fees"); provided
that Transfer Fees shall be considered "Expenses" as such term is defined in
Section 6.10 of the Securities Purchase Agreement, dated as of the date hereof
by and between U.S. Franchise Systems, Inc., a Delaware corporation and Alpine
Hospitality Equities LLC, a Delaware limited liability company, and subject to
the limitations contained in such
<PAGE>
9
Section 6.10. Transfer Fees shall not include any of BAI's or Sellers' federal,
state or local income taxes or franchise taxes.
12. No Broker. BAI, ABI, on behalf of the Sellers, and Parent
each represents that it has not retained or dealt with any broker, finder or
similar person or entity in connection with this Agreement or the transactions
contemplated hereunder other than Merrill Lynch & Co. ("Broker") whose brokerage
commission or other fees or compensation is to be paid by Sellers pursuant to
Section 10 of the Purchase Agreement. Each of the parties hereto shall defend,
indemnify and hold each other harmless from and against any liability, cost,
loss, damage or expense (including, without limitation, reasonable attorneys'
fees and disbursements) arising from any claim by any broker, finder or similar
person or entity (including Broker, in the case of Sellers' indemnification of
Parent and BAI, but excluding Broker, in the case of Parent's and BAI's
indemnification of Sellers) for any brokerage commission or finder's fee or
other compensation based on an allegation that such indemnifying party retained
or otherwise dealt with such broker, finder or similar person or entity in
connection with this Agreement or the transactions contemplated hereunder.
13. Entire Agreement. This Agreement and the Exhibits and
Schedules hereto, together with the Purchase Agreement, constitute the entire
agreement between the parties hereto with respect to the Closing and transfer of
interests in the Hospitality Assets. No variations, modifications, or changes
herein or hereof shall be binding upon any party hereto unless set forth in a
document duly executed by or on behalf of such party.
14. Waiver. No failure by either party to insist upon the
strict performance of any covenant, duty, agreement or term condition of this
Agreement or to exercise any right or remedy consequent upon a breach thereof
shall constitute a waiver of any such breach or of such or any other covenant,
duty, agreement, term or condition.
15. Severability. If any provision of this Agreement or the
application thereof to any person or circumstances shall be invalid or
unenforceable to any extent, the remainder of this Agreement and the application
of such provisions to other persons or circumstances shall not be affected
thereby and shall be enforced to the greatest extent permitted by law.
16. No Third Party Beneficiaries. Except for the indemnified
parties referred to herein and provisions that are intended to inure to the
benefit of the respective Affiliates of the parties, no person or entity other
than the parties hereto and their respective successors and permitted assigns is
or shall be deemed to be a third party beneficiary of this Agreement.
17. Notices. All notices, consents, waivers or other
communications required or permitted by this Agreement (each, a "Notice") shall
be
<PAGE>
10
in writing and shall be delivered addressed as provided below (a) by personal
delivery, (b) by nationally recognized overnight courier, (c) registered or
certified mail, postage prepaid, return receipt requested, or (d) by
electronically verified transmission by telecopier (provided that the original
of such Notice by telecopier shall be sent contemporaneously by one of the
methods described in clause (a)-(c) above). Counsel for any party may give
Notice for such party, and any party may change its address for Notice by Notice
properly given hereunder. Notices shall be deemed given upon receipt (as
evidenced by the receipt of the personal delivery, overnight courier service,
return receipt or by telecopier confirmation) and refusal to accept delivery
shall be deemed receipt.
If to BAI: Best Acquisition, Inc.
13 Corporate Square
Suite 250
Atlanta, Georgia 30329
Attention: Stephen D. Aronson, Esq.
Telecopier: 404-321-4482
If to Parent, c/o Alpine Equity Partners L.P.
OPCO or 1285 Avenue of the Americas
REALCO: New York, New York 10019-6064
Attention: Lorraine E. Jackson, Esq.
Telecopier: 212-641-5125
With a copy to: Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Attention: Robert M. Schumer, Esq.
Telecopier: 212-757-3990
If to ABI: America's Best Inns, Inc.
1205 Skyline Drive
P.O. Box 1719
Marion, Illinois 62959
Attention: Robert N. Brewer
Telecopier: 618-993-5974
With a copy to: Long, Aldridge and Norman LLP
One Peachtree Center
303 Peachtree Street, N.E.
Suite 5300
Atlanta, Georgia 30308
Attention: Jeffrey K. Haidet, Esq.
Telecopier: 404-527-4198
<PAGE>
11
and
Ronald E. Osman & Associates, Ltd.
1602 West Kimmel
Marion, Illinois 62959
Attention: Ronald E. Osman, Esq.
Telecopier: 618-997-4983
18. Further Assurances. ABI, BAI, OPCO, REALCO and Parent
agree to execute, acknowledge and deliver such instruments and to take such
actions as either party may reasonably request which are necessary to effectuate
the provisions of this Agreement or the transactions contemplated hereunder.
19. Amendments; Waivers; Counterparts. This Agreement may not
be amended, modified or otherwise changed other than by an agreement in writing
signed by ABI, BAI and Parent. No waiver of any of the requirements or other
provisions of this Agreement shall be effective unless the same shall be in
writing. This Agreement may be executed in multiple original counterparts.
20. Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the Sellers, BAI, OPCO, REALCO and Parent and
their respective successors and permitted assigns.
21. Governing Law. This Agreement shall be construed in
accordance with and governed by the laws of the State of Illinois (without
giving effect to conflict of laws principles thereof), except for Section 10
hereto, which shall be construed in accordance with and governed by the laws of
the State of Delaware (without giving effect to conflict of laws principles
thereof).
22. No Recordation. Neither this Agreement nor any memorandum
hereof may be recorded without the prior consent of Parent.
23. Waiver of Trial by Jury. BAI, Sellers, OPCO, REALCO and
Parent waive any right to a jury trial in regard to any contingency or dispute
arising out or relating of this Agreement.
24. Survival. The terms, conditions and covenants of
this Agreement shall survive the conveyance of the Hospitality Assets to OPCO
and REALCO.
<PAGE>
12
IN WITNESS WHEREOF, BAI, OPCO, REALCO, Parent and the Sellers
have executed this Agreement as of the day and year first above written.
BEST ACQUISITION, INC.
By: /s/ Neal K. Aronson
-------------------------
Neal K. Aronson
Executive Vice President
RSVP-BI OPCO, LLC
By: /s/ Richard D. Goldstein
-------------------------
Richard D. Goldstein
Executive Vice President
RSVP-ABI REALCO, LLC
by RSVP-BI OPCO, LLC,
its managing member,
By: /s/ Richard D. Goldstein
-------------------------
Richard D. Goldstein
Executive Vice President
ALPINE HOSPITALITY VENTURES
LLC
by Ventures Manager Inc.,
its Managing Member
By: /s/ Richard D. Goldstein
-------------------------
Richard D. Goldstein
President
<PAGE>
13
SELLERS:
AMERICA'S BEST INNS, INC.
By: /s/ Robert N. Brewer
-------------------------
Robert N. Brewer
President
BREWER MANAGEMENT COMPANY,
INC.
By: /s/ Robert N. Brewer
-------------------------
Robert N. Brewer
President
CARBONDALE HOSPITALITY
PARTNERS
by America's Best Inns, Inc.,
its general partner
By: /s/ Robert N. Brewer
-------------------------
Robert N. Brewer
President
PADUCAH JOINT VENTURE
by America's Best Inns, Inc.,
a general partner
By: /s/ Robert N. Brewer
-------------------------
Robert N. Brewer
President
<PAGE>
14
FORT WAYNE JOINT VENTURE
by America's Best Inns, Inc.,
a general partner
By: /s/ Robert N. Brewer
-------------------------
Robert N. Brewer
President
JOHNSTON, IOWA JOINT VENTURE
by America's Best Inns, Inc.,
a general partner
By: /s/ Robert N. Brewer
-------------------------
Robert N. Brewer
President
SPRINGFIELD JOINT VENTURE
by America's Best Inns, Inc.,
a general partner
By: /s/ Robert N. Brewer
-------------------------
Robert N. Brewer
President
ANDERSON JOINT VENTURE
by America's Best Inns, Inc.,
a general partner
By: /s/ Robert N. Brewer
-------------------------
Robert N. Brewer
President
<PAGE>
15
LIBERTYVILLE JOINT VENTURE
by America's Best Inns, Inc.,
a general partner
By: /s/ Robert N. Brewer
-------------------------
Robert N. Brewer
President
NASHVILLE BEST SUITES JOINT
VENTURE
by America's Best Inns, Inc.,
a general partner
By: /s/ Robert N. Brewer
-------------------------
Robert N. Brewer
President
BEST SUITES JACKSON, L.L.C.
by America's Best Inns, Inc.,
its managing member
By: /s/ Robert N. Brewer
-------------------------
Robert N. Brewer
President
/s/ Robert N. Brewer
-------------------------
Robert N. Brewer
<PAGE>
SCHEDULE I
Other Selling Entities
Carbondale Hospitality Partners,
an Illinois limited partnership
Paducah Joint Venture,
an Illinois general partnership
Fort Wayne Joint Venture,
an Illinois general partnership
Johnston, Iowa Joint Venture, an Illinois
general partnership
Springfield Joint Venture,
an Illinois general partnership
Anderson Joint Venture,
an Illinois general partnership
Libertyville Joint Venture,
an Illinois general partnership
Nashville Best Suites Joint Venture,
an Illinois general partnership
Best Suites Jackson, L.L.C.,
an Illinois limited liability company
Brewer Management Company, Inc.,
a Delaware corporation
<PAGE>
SCHEDULE II
(a) A fee simple interest in the parcels of land
described on Exhibit A annexed hereto (collectively, the "Land");
(b) Leasehold estates in the parcel of land ("Leased Land")
described on Exhibit B annexed hereto (the "Land Leases");
(c) A fee simple interest in all of the buildings and
improvements (collectively, the "Improvements") situated on the Land or Leased
Land, as applicable;
(d) All right, title and interest of each Seller (whether as
owner in fee simple of the Land or as tenant under any of the Land Leases) in
and to any land lying in the bed of any highway, street, road, or avenue, open
or proposed, including vaults, if any, and any strips and gores in front of or
abutting or adjoining the Land or Leased Land, and any award made or to be made
in lieu thereof and in and to any unpaid award for damages to any Land, Leased
Land or any of the Improvements by reason of a change of grade of any highway,
street, road or avenue adjoining any of the Land or Leased Land;
(e) All right, title and interest of each Seller in and to all
easements, tenements, hereditaments, privileges and appurtenances in any way
belonging to the Land, Leased Land, Land Leases or Improvements;
(f) To the extent not previously transferred to Parent, OPCO
or REALCO directly from the Sellers, all Bookings, Books and Records,
Consumables, FF&E, Miscellaneous Assets, Small Operating Equipment and all other
articles of personal property, whether tangible or intangible, which are
attached, appurtenant to, installed or placed in or upon or used for or adapted
in any way to the complete and comfortable use, enjoyment, occupancy and
operation of the Hospitality Assets, and all contractual rights of every kind
relating to the Hospitality Assets (all of the above being hereinafter
collectively referred to as "Personal Property"). Notwithstanding the foregoing,
Personal Property shall not include any items (x) which are owned by Tenants
under the Leases (defined in paragraph (h) below) other than those items which
are not removable by such Tenants pursuant to the terms of their respective
Leases or (y) which are owned by guests at the Improvements or (z) constituting
Excluded Assets. Each parcel of Land and the Improvements located thereon and
the property interests described in paragraphs (d), (e) and (f) appurtenant
thereto, and each Land Lease, Leased Land pursuant thereto and Improvements
located on such Leased Land and the property interests described in paragraphs
(d), (e) and (f) appurtenant thereto is hereinafter individually referred to as
a "Hospitality Unit", and collectively as the "Hospitality Units";
<PAGE>
2
(g) To the extent assignable or transferable to OPCO (or
REALCO (with respect to the Asheville Assets)), all "Permits" relating to
Hospitality Units, all "Service Agreements" relating to Hospitality Units; and
all of Sellers' rights under any unexpired warranties or guarantees relating to
Personal Property or Improvements; and
(h) Except to the extent it constitutes a part of the
Franchise Business or the Management Business, all of Sellers' right, title and
interest in and to the leases, license agreements, concessionaire agreements,
franchises or other agreements and all modifications, renewals and amendments
thereto and third party guarantees thereof any person or entity (each, a
"Tenant") to use or occupy space at Hospitality Units (collectively, "Leases"),
and all rental, security deposits, receivables, and other monetary items payable
by Tenants and all rentals paid by Tenants prior to the date hereof, but
relating to the period on or after the Closing Date.
<PAGE>
Schedule A - The Land
<PAGE>
Schedule B - The Leased Land
<PAGE>
Execution Copy
Exhibit 10.2
- --------------------------------------------------------------------------------
SECURITIES PURCHASE AGREEMENT
between
U.S. FRANCHISE SYSTEMS, INC.
AND
ALPINE HOSPITALITY EQUITIES LLC
---------------------------
Dated: as of April 28, 1998
---------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE 1 DEFINITIONS.......................................................1
1.1 Definitions.......................................................1
ARTICLE 2 PURCHASE AND SALE OF SECURITIES...................................4
2.1 Purchase and Sale of Securities...................................4
2.2 Closing...........................................................4
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY.....................5
3.1 Corporate Existence and Power.....................................5
3.2 Corporate Authorization; No Contravention.........................5
3.3 Governmental Authorization; Third Party Consents..................5
3.4 Binding Effect....................................................6
3.5 Capitalization of the Company.....................................6
3.6 Options...........................................................6
3.7 Private Offering..................................................6
3.8 Broker's, Finder's or Similar Fees................................6
3.9 Litigation........................................................6
3.10 No Default or Breach..............................................7
3.11 Financial Condition...............................................7
3.12 No Material Adverse Change........................................7
3.13 Investment Company................................................7
3.14 Exchange Act Documents............................................7
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF THE
PURCHASERS........................................................8
4.1 Existence and Power...............................................8
4.2 Authorization; No Contravention...................................8
4.3 Governmental Authorization; Third Party Consents..................8
4.4 Binding Effect....................................................9
4.5 Investment; Purchase for Own Account..............................9
4.6 Broker's, Finder's or Similar Fees...............................10
ARTICLE 5 INDEMNIFICATION..................................................10
5.1 Indemnification by the Company...................................10
5.2 Indemnification by the Purchaser.................................10
5.3 Additional Indemnification by the Company........................10
5.4 Notification.....................................................11
5.5 Registration Rights Agreement....................................12
<PAGE>
Page
ARTICLE 6 MISCELLANEOUS....................................................12
6.1 Notices..........................................................12
6.2 Successors and Assigns...........................................13
6.3 Amendment and Waiver.............................................13
6.4 Counterparts.....................................................14
6.5 Headings.........................................................14
6.6 Governing Law....................................................14
6.7 Severability.....................................................14
6.8 Entire Agreement.................................................14
6.9 Further Assurances...............................................14
6.10 Expenses.........................................................15
6.11 Payments.........................................................15
6.12 Survival of Provisions...........................................16
Schedules
Schedule 3.6 - Options
<PAGE>
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT, dated as of April 28, 1998 (this
"Agreement"), by and between U.S. Franchise Systems, Inc., a Delaware
corporation (the "Company"), and Alpine Hospitality Equities LLC, a Delaware
limited liability company (the "Purchaser").
WHEREAS, the Company proposes to issue and sell to Purchaser 350,000 shares
of the Class A Common Stock, par value $0.01 per share (the "Common Stock"), of
the Company upon the terms and subject to the conditions set forth in this
Agreement and the Purchaser desires to purchase such shares from the Company for
an aggregate consideration of $1,600,000;
WHEREAS, Best Acquisition, Inc., a Georgia corporation and a wholly-owned
subsidiary of the Company ("BAI"), is party to that certain Asset Transfer
Agreement, dated as of the date hereof (the "Asset Transfer Agreement"), among
BAI, Ventures, RSVP-BI OPCO, LLC, a Delaware limited liability company ("OPCO"),
RSVP-ABI REALCO, LLC, a Delaware limited liability company ("REALCO"), America's
Best Inns, Inc., a Delaware corporation ("ABI"), and the entities identified on
Schedule I thereto (collectively, with ABI, the "Sellers"), pursuant to which
Alpine Hospitality Ventures LLC, a Delaware limited liability company
("Ventures"), has agreed to purchase certain Best brand lodging properties that
BAI is acquiring from ABI; and
WHEREAS, concurrently herewith, the Company and the Purchaser are entering
into a Registration Rights Agreement, dated the date hereof (the "Registration
Rights Agreement"), pursuant to which the parties thereto are agreeing, among
other things, to provide for certain registration rights with respect to the
Common Stock.
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth herein and for good and valuable consideration, the receipt and adequacy
of which are hereby acknowledged, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
1.1 Definitions. As used in this Agreement, and unless the context
requires a different meaning, the following terms shall have the meanings set
forth below:
<PAGE>
2
"Affiliate" of any Person means any other Person directly or indirectly
controlling, controlled by or under direct or indirect common control with such
Person. For the purposes of this definition, "control," when used with respect
to any Person, means the power to direct or cause the direction of the
management or policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "con trolled" have meanings correlative to the foregoing.
"Agreement" means this Agreement as the same may be amended, supplemented
or modified in accordance with the terms hereof.
"Asset Transfer Agreement" has the meaning assigned to such term in the
recitals to this Agreement.
"Business" has the meaning assigned to such term in the recitals to this
Agreement.
"Business Day" means any day other than Saturday, Sunday or other day on
which commercial banks in the State of New York are authorized or required by
law or executive order to close.
"Bylaws" means the bylaws of the Company as in effect as of the Closing
Date.
"Certificate of Incorporation" means the Certificate of Incorporation of
the Company as in effect as of the Closing Date.
"Closing" has the meaning assigned to such term in Section 2.2.
"Closing Date" has the meaning assigned to such term in Section 2.2.
"Commission" means the Securities and Exchange Commission or any similar
agency then having jurisdiction to enforce the Securities Act.
"Common Stock" means the Class A Common Stock, par value $.01 per share, of
the Company, or any other capital stock of the Company into which such stock is
reclassified or reconstituted.
"Contractual Obligations" means as to any Person, any agreement,
undertaking, contract, indenture, mortgage, deed of trust or other instrument to
which such Person is a party or by which it or any of its property is bound.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations of the Commission thereunder.
"GAAP" means generally accepted United States accounting principles in
effect from time to time.
<PAGE>
3
"Governmental Authority" means the government of any nation, state, city,
locality or other political subdivision of any thereof, any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"Lien" means any mortgage, deed of trust, pledge, hypothecation,
assignment, encumbrance, lien (statutory or other) or other security interest of
any kind or nature whatsoever.
"Person" means any individual, firm, corporation, partnership, limited
liability company, trust, incorporated or unincorporated association, joint
venture, joint stock company, Governmental Authority or other entity of any
kind.
"Purchase Agreement" means that certain Agreement of Purchase and Sale,
dated as of December 15, 1997 (as amended by amendments dated December 15, 1997,
January 7, 1998, March 9, 1998 and April 1, 1998) by and between BAI, ABI and
the other selling entities listed on Schedule I thereto.
"PW Debt" means the indebtedness of OPCO of at least $64,700,000 to PWREI
under that certain loan agreement of even date herewith among PWREI, OPCO
REALCO, as such loan agreement may be amended from time to time (including
through waivers of any provisions thereof) or any refinancing or refunding of
such indebtedness.
"PW Loan" means that certain borrowing of at least $64,700,000 by OPCO from
PW Real Estate Investments, Inc. ("PWREI")
"Registration Rights Agreement" has the meaning assigned to such term in
the recitals to this Agreement.
"Requirements of Law" means as to any Person, the Certificate of
Incorporation and Bylaws or other organizational or governing documents of such
Person, and any law, treaty, rule, regulation, right, privilege, qualification,
license or franchise or determination of an arbitrator or a court or other
Governmental Authority, in each case applicable or binding upon such Person or
any of its property or to which such Person or any of its property is subject or
pertaining to any or all of the transactions contemplated or referred to herein.
"Securities" has the meaning assigned to such term in Section 2.1.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the Commission thereunder.
"Subsidiary" means, as to any Person, any corporation or other entity of
which at least a majority of the securities or other ownership interests having
<PAGE>
4
ordinary voting power for the election of directors or other persons performing
similar functions are at the time owned directly or indirectly by such Persons.
"Transaction" means (i) the loan of $10,000,000 by NationsBank, N.A. to
Company, (ii) the direct and indirect contribution of $7,000,000 of equity into
Ventures by Alpine Hospitality Holdings LLC, a Delaware limited liability
company, (iii) the issuance of the Securities pursuant to this Agreement, (iv)
the loan of $15,000,000 by Company to Ventures, (v) the direct and indirect
capital contribution of $22,000,000 by Ventures into OPCO in return for 1,000
membership units of OPCO, (vi) the loan of at least $64,700,000 under the PW
Loan, (vii) the sale transactions contemplated under the Purchase Agreement,
(viii) the sale transactions and redemption transaction contemplated under the
Asset Transfer Agreement and (ix) all other acts and things contemplated under
any of the Transaction Documents.
"Transaction Documents" means each agreement, instrument or document being
entered into or delivered by the Company, any of its Subsidiaries or OPCO and/or
REALCO (but only to the extent at such time of delivery OPCO and/or REALCO, as
the case may be, are Subsidiaries of the Company) in connection with the
Transaction, including, in any event, but not limited to, this Agreement, the
Purchase Agreement, the Asset Transfer Agreement, the Registration Rights
Agreement, the loan documents relating to the PW Debt, the Senior Subordinated
Note Purchase Agreement between the Company and Ventures, and those management
and franchise agreements entered into between OPCO and/or REALCO and certain
Subsidiaries of the Company.
ARTICLE 2
PURCHASE AND SALE OF SECURITIES
2.1 Purchase and Sale of Securities. Subject to the terms herein set
forth, the Company agrees to sell to Purchaser, and Purchaser agrees that it
will purchase from the Company, on the Closing Date, 350,000 shares of Common
Stock (the "Securities") for an aggregate purchase price of $1,600,000.
2.2 Closing. The purchase and issuance of the Securities shall take place
at and simultaneously with the closing (the "Closing") of the acquisition of the
Hospitality Assets (as defined in the Asset Transfer Agreement), to be held at
the offices of Paul, Weiss, Rifkind, Wharton & Garrison, 1285 Avenue of the
Americas, New York, New York 10019 on the date hereof (the "Closing Date"). The
Company is delivering to the Purchaser certificates representing the Securities,
and the Purchaser is delivering to the Company the aggregate purchase price
therefor by wire transfer of immediately available funds to an account
designated by the Company.
<PAGE>
5
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to the Purchaser as follows:
3.1 Corporate Existence and Power. The Company (a) is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware; (b) has all requisite corporate power and authority to own and operate
its property and to conduct the business in which it is currently, or is cur
rently proposed to be, engaged; and (c) has the corporate power and authority to
execute, deliver and perform its obligations under this Agreement, the
Registration Rights Agreement and any other Transaction Document to which it is
a party. Each of the Subsidiaries of the Company (a) is duly organized and
validly existing under the laws of the states of their respective formation or
incorporation and (b) has the requisite power and authority to execute, deliver
and perform its obligations under the Transaction Documents to which it is a
party.
3.2 Corporate Authorization; No Contravention. The execution, delivery and
performance of this Agreement and each of the Transaction Documents and the
transactions contemplated hereby and thereby, including, without limitation, the
sale, issuance and delivery of the Securities, (a) have been duly authorized by
all necessary corporate action of the Company (or, where applicable, its
Subsidiaries); (b) do not contravene the terms of the Certificate of
Incorporation or Bylaws or such similar corporate or limited liability company
documents of any Subsidiary of the Company; and (c) do not violate, conflict
with or result in any breach or contravention of or the creation of any Lien
under, any Contractual Obligation of the Company or any Subsidiary, or any
Requirement of Law applicable to the Company or any Subsidiary.
3.3 Governmental Authorization; Third Party Consents. No approval,
consent, compliance, exemption, authorization, or other action by, or notice to,
or filing with, any Governmental Authority or any other Person in respect of any
Requirement of Law, including any filings and other applicable requirements
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, (the
"HSR Act"), and no lapse of a waiting period under a Requirement of Law, is
necessary or required in connection with the execution, delivery or performance
(including, without limitation, the sale, issuance and delivery of the
Securities) by the Company, or enforcement against the Company or any
Subsidiary, of this Agreement and each of the other Transaction Documents to
which the Company or any Subsidiary is a party or the transactions contemplated
hereby and thereby, other than those that have been obtained or made on or prior
to the Closing.
<PAGE>
6
3.4 Binding Effect. This Agreement and each of the other Transaction
Documents to which the Company or any of its Subsidiaries is a party have been
duly executed and delivered by the Company or such Subsidiary, as the case may
be, and constitute the legal, valid and binding obligations of the Company or,
where applicable, its Subsidiaries, enforceable against it in accordance with
their terms.
3.5 Capitalization of the Company. The authorized capital stock of the
Company consists as of April 15, 1998 of (i) 30,000,000 shares of Common Stock,
of which 12,567,194 shares were issued and outstanding as of such date
(excluding the securities being issued hereunder) and 58,807 are treasury
shares, (ii) 5,000,000 shares of Class B Common Stock, par value $.01 per share,
of which 2,707,919 shares were issued and outstanding as of such date, and (iii)
1,000,000 shares of Preferred Stock, none of which was issued and outstanding as
of such date. The issued and outstanding shares of Common Stock and Class B
Common Stock including, without limitation, the Securities, are all duly
authorized, and are (or, in the case of the Securities after payment therefor to
the Company, will be) validly issued, fully paid and nonassessable.
3.6 Options. Except as set forth in Schedule 3.6, there are no options,
warrants or other rights to purchase shares of capital stock or other securities
of the Company, nor is the Company obligated in any manner to issue shares of
its capital stock or other securities.
3.7 Private Offering. No form of general solicitation or general
advertising was used by the Company or its representatives in connection with
the offer or sale of the Securities. In reliance upon Section 4.5, no
registration of the Securities pursuant to the provisions of the Securities Act
or any state securities or "blue sky" laws will be required by the offer, sale,
or issuance of the Securities pursuant to this Agreement.
3.8 Broker's, Finder's or Similar Fees. There are no brokerage
commissions, finder's fees or similar fees or commissions payable in connection
with the transactions contemplated hereby based on any agreement, arrangement or
understanding with the Company or any action taken by the Company.
3.9 Litigation. There are no actions, suits, proceedings, claims or
disputes pending, or to the best knowledge of the Company threatened, at law, in
equity, in arbitration or before any Governmental Authority against the Company
or the Subsidiaries:
(a) with respect to any Transaction Document or any of the
transactions contemplated hereby or thereby; or
<PAGE>
7
(b) which could reasonably be expected to, after giving effect to the
Transaction Documents and the transactions contemplated hereby and thereby, if
adversely determined, (i) have a material adverse effect on the assets,
business, properties, prospects, operations or financial or other condition of
the Company and its Subsidiaries taken as a whole or (ii) have a material
adverse effect on the ability of the Company to perform its obligations under
this Agreement or any other Transaction Document. No injunction, writ, temporary
restraining order, decree or any order of any nature has been issued by any
court or other Governmental Authority purporting to enjoin or restrain the
execution, delivery and performance of this Agreement or any other Transaction
Document.
3.10 No Default or Breach. Neither the Company nor any of its Subsidiaries
is, and after giving effect to the transactions contemplated by the Transaction
Documents, will be in default under or with respect to any Transaction Document
or any other agreement material to the Company or any such Subsidiary, other
than any such violations that, individually or in the aggregate, could not
reasonably be expected to (i) have a material adverse effect on the assets,
business, properties, prospects, operations or financial or other condition of
the Company and its Subsidiaries taken as a whole, (ii) impair the ability of
the Company to perform its obligations under the Transaction Documents or (iii)
prevent or materially delay consummation of the transactions contemplated by the
Transaction Documents.
3.11 Financial Condition. The Company heretofore has delivered to Purchaser
true and correct copies of financial statements of the Company for the fiscal
year ended December 31, 1997 (audited) (the "Year-end Financials"), reported
upon by Deloitte & Touche LLP. The Financials have been prepared in accordance
with GAAP applied consistently throughout the periods covered thereby, and
present fairly in all material respects the financial condition of the Company
as of the dates thereof, and the results of operations of the Company for the
period then ended. The Year-End Financials present fairly in all material
respects the financial condition of the Company as of the date thereof and the
results of operations of the Company for the period then ended, all in
conformity with GAAP applied in a consistent basis.
3.12 No Material Adverse Change. Since December 31, 1997, there has not
been any material adverse change, nor to the knowledge of the Company is any
such change threatened, in the assets, business, properties, prospects,
operations or financial or other condition of the Company and its Subsidiaries
taken as a whole.
3.13 Investment Company. Neither the Company nor any Person controlling the
Company is an "investment company" within the meaning of the Investment Company
Act of 1940, as amended.
3.14 Exchange Act Documents. The Company (including its predecessor) has
made all filings required to be made with the Securities and Exchange Commission
(the "SEC") since October 24, 1996 and has delivered or made available to
Purchaser the Company's correct and complete copies of the
<PAGE>
8
Company's (i) Annual Reports on Form 10-K for the years ended December 31, 1996
and December 31, 1997 (the "Company 1996 Form 10-K" and the "Company 1997 Form
10-K," respectively), as filed with the SEC, (ii) proxy statements relating to
all of the Company's meetings of stockholders (whether annual or special) since
October 24, 1996, and (iii) all other reports, statements and registration
statements (including Quarterly Reports on Form 10-Q and Current Reports on Form
8-K) filed by the Company with the SEC since October 24, 1996 (collectively, and
in each case including all exhibits and schedules thereto and documents
incorporated by reference therein, the "Company SEC Filings"). As of their
respective dates, the SEC Filings (i) did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading and (ii) complied in all material respects
with applicable requirements of the Exchange Act.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
The Purchaser hereby represents and warrants to the Company as follows:
4.1 Existence and Power. The Purchaser (i) is duly organized and validly
existing under the laws of the Delaware and (ii) has the requisite power and
authority to execute, deliver and perform its obligations under this Agreement
and the Registration Rights Agreement.
4.2 Authorization; No Contravention. The execution, delivery and
performance by the Purchaser of this Agreement and the Registration Rights
Agreement and the transactions contemplated hereby, including, without
limitation, the purchase of the Securities, (i) have been duly authorized by all
necessary action, (ii) do not contravene the terms of such Purchaser's
organizational documents, or any amendment thereof, and (iii) do not violate,
conflict with or result in any breach or contravention of or the creation of any
Lien under, any Contractual Obligation of such Purchaser, or any Requirement of
Law applicable to such Purchaser.
4.3 Governmental Authorization; Third Party Consents. No approval,
consent, compliance, exemption, authorization, or other action by, or notice to,
or filing with, any Governmental Authority or any other Person in respect of any
Requirement of Law, including any filings and other applicable requirements
under the HSR Act, and no lapse of a waiting period under a Requirement of Law,
is necessary or required in connection with the execution, delivery or
performance (including, without limitation, the purchase, of the Securities) by
the Purchaser, or enforcement against the Purchaser, of this Agreement, the
Registration Rights Agreement or the transactions contemplated hereby and
thereby.
<PAGE>
9
4.4 Binding Effect. Each of this Agreement and the Registration Rights
Agreement has been duly executed and delivered by the Purchaser and constitutes
the legal, valid and binding obligation of the Purchaser, enforceable against it
in accordance with its terms.
4.5 Investment; Purchase for Own Account. The Purchaser has had an
opportunity to ask questions of and receive answers from officers of the Company
concerning the terms and conditions of this investment. The Purchaser is an
"accredited investor" as such term is defined in Regulation 501 promulgated
under the Securities Act and has such knowledge and experience in financial and
business matters to evaluate the rights of investment in the Company. The
Purchaser represents and warrants that it has received copies of the Company's
most recent annual, quarterly and current reports on Form 10-K, Form 10-Q and
Form 8-K and that it is not making this investment in response to any general
solicitation or advertisement by the Company. The Securities to be acquired by
the Purchaser pursuant to this Agreement are being acquired for its own account
and with no intention of distributing or reselling such Securities or any part
thereof in any transaction that would be in violation of the securities laws of
the United States of America, or any state, without prejudice, however, to the
rights of the Purchaser at all times to sell or otherwise dispose of all or any
part of such Securities under an effective registration statement under the
Securities Act (including, without limitation, a registration of the Securities
by the Company pursuant to the terms and provisions of the Registration Rights
Agreement), or under an exemption from such registration available under the
Securities Act, and subject, nevertheless, to the disposition of the Purchaser's
property being at all times within its control. If the Purchaser should in the
future decide to dispose of any part of the Securities, the Purchaser
understands and agrees that it may do so only in compliance with the Securities
Act and applicable state securities laws, as then in effect. The Purchaser
agrees to the imprinting, so long as required by law, of a legend on
certificates representing all of such Securities to the following effect: THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY
NOT BE OFFERED FOR SALE, SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES
LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS
OF SUCH ACT AND SUCH LAWS. The legend set forth in the preceding sentence shall
be removed from a particular certificate representing any of the Securities when
an opinion of counsel has ben delivered to the Company to the effect that any
such security may be freely sold to the public without compliance with the
registration provisions of the Securities Act. Such counsel shall be reasonably
acceptable to the Company and may include an attorney who is an employee of a
Purchaser and such opinion shall be subject to the reasonable approval of the
Company, such approval or disapproval to be given within 5 days after receipt by
the Company of the form of such opinion. The Purchaser
<PAGE>
10
consents that stop transfer instructions in respect of the Securities may be
issued to any transfer agent, transfer clerk or other agent at any time acting
for the Corporation.
4.6 Broker's, Finder's or Similar Fees. There are no brokerage
commissions, finder's fees or similar fees or commissions payable to any third
party in connection with the transactions contemplated hereby based on any
agreement, arrangement or understanding with the Purchaser or any action taken
by the Purchaser.
ARTICLE 5
INDEMNIFICATION
5.1 Indemnification by the Company. The Company shall defend, indemnify
and hold harmless and reimburse the Purchaser and Ventures and each of
Purchaser's and Ventures' assignees and designees and each of their respective
Affiliates, officers, directors, agents, employees, members and partners
(collectively, the "Purchaser Indemnitees") for any and all losses, claims,
damages, expenses (including reasonable fees, disbursements and charges of
counsel) or other liabilities (hereinafter "Purchase Agreement Loss" or
"Purchase Agreement Losses") suffered or incurred by any Purchaser Indemnitee
resulting from, relating to or otherwise in any manner attributable to (i) any
breach or inaccuracy of any representation or warranty of the Company set forth
in this Agreement or in any certificate or other document delivered by the
Company pursuant hereto or in connection herewith or (ii) any breach of or
noncompliance by the Company with any covenant or agreement of the Company
contained in this Agreement.
5.2 Indemnification by the Purchaser. The Purchaser and Ventures, jointly
and severally, shall defend, indemnify and hold harmless and reimburse the
Company and each of the Company's assignees and designees and each of their
respective Affiliates, officers, directors, agents and employees (collectively,
the "Company Indemnitees") for any and all Purchase Agreement Losses suffered or
incurred by any Company Indemnitee resulting from, relating to or otherwise in
any manner attributable to, (i) any breach or inaccuracy of any representation
or warranty of the Purchaser or Ventures set forth in this Agreement or in any
certificate or other document delivered by Purchaser or Ventures pursuant hereto
or in connection herewith and (ii) any breach of or noncompliance by the
Purchaser or Ventures with any covenant or agreement of Purchaser or Ventures
contained in this Agreement.
5.3 Additional Indemnification by the Company. In addition to other
amounts due hereunder or provided for under this Agreement, including, without
limitation, under Section 5.1, the Company shall defend, indemnify and hold
harmless the Purchaser Indemnitees for any and all losses, claims, damages,
expenses (including reasonable fees, disbursements and other charges of counsel)
or other
<PAGE>
11
liabilities ("Losses") resulting from, relating to or otherwise in any manner
attributable to, any legal, administrative or other actions (including actions
brought by any equity holders of the Company or derivative actions brought by
any Person claiming through the Company or in the Company's name), proceedings
or investigations (whether formal or informal), or written threats thereof,
based upon, relating to or arising out of, this Agreement or the transactions
contemplated hereby or by the Transaction or any of the Transaction Documents;
provided, however, that the Company shall not be liable: (a) for any amount paid
in settlement of claims without the Company's consent (which consent shall not
be unreasonably withheld), (b) with respect to Losses arising solely out of
actions brought by one indemnified party against another or (c) to the extent
that it is finally judicially determined that such Losses resulted from the
willful misconduct, bad faith or gross negligence of such indemnified party or a
material breach of Ventures' or the Purchaser's representations in any
Transaction Document (to which the Company or any of its Subsidiaries is a
party) or of Ventures' or the Purchaser's material obligations under the
Agreement or any Transaction Document (a "Breach"). In connection with the
obligation of the Company to indemnify for expenses as set forth above, the
Company further agrees to reimburse each indemnified party for all such expenses
(including reasonable fees, disbursements and other charges of counsel) as they
are reasonably incurred by such indemnified party; provided, however, that if an
indemnified party is reimbursed hereunder for any expenses, such reimbursement
of expenses shall be refunded to the extent it is finally judicially determined
that the Losses in question resulted from the willful misconduct, bad faith or
gross negligence of such indemnified party or from a Breach.
5.4 Notification. Each indemnified party under Section 5.1, 5.2 or 5.3
will, promptly after the receipt of notice of the commencement of any action or
other proceeding against such indemnified party in respect of which indemnity
may be sought, notify the indemnifying party in writing of the commencement
thereof. The omission of any indemnified party so to notify the indemnifying
party of any such action shall not relieve the indemnifying party from any
liability which it may have to such indemnified party other than pursuant hereto
and shall not relieve the indemnifying party from its obligations hereunder,
unless, and only to the extent that, such omission results in the indemnifying
party's forfeiture of substantive rights or defenses. In case any such action or
other proceeding shall be brought against any indemnified party, the
indemnifying party shall be entitled to participate therein and, to the extent
that it may wish, to assume the defense thereof, with counsel reasonably
satisfactory to such indemnified party; provided, however, that any indemnified
party may, at its own expense, retain separate counsel to participate in such
defense. Notwithstanding the foregoing, in any action or proceeding in which
both the indemnifying party and an indemnified party is, or is reasonably likely
to become, a party, such indemnified party shall have the right to employ
separate counsel at the indemnifying party's expense and to control its own
defense of such action or proceeding if, in the reasonable opinion of counsel to
such indemnified party, (a) there are or may be legal defenses available to such
indemnified party or to other
<PAGE>
12
indemnified parties that are different from or additional to those available to
the indemnifying party or (b) any conflict or potential conflict exists between
the indemnifying party and such indemnified party that would make such separate
representation advisable; provided, however, that in no event shall the
indemnifying party be required to pay fees and expenses under this Agreement for
more than one firm of attorneys in any jurisdiction in any one legal action or
group of related legal actions. The indemnifying party shall not, without the
consent of the indemnified party (which consent shall not be unreasonably
withheld), consent to the entry of any judgment or enter into any settlement of
any action or proceeding covered by this Article 5, which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect to such claim or
litigation or which requires action other than the payment of money by the
indemnifying party. The rights accorded to indemnified parties hereunder shall
be in addition to any rights that any indemnified party may have at common law,
by separate agreement or otherwise.
5.5 Registration Rights Agreement. Notwithstanding anything to the
contrary in this Article 5, the indemnification and contribution provisions of
the Registration Rights Agreement shall govern any claim made with respect to
registration statements filed pursuant thereto or sales made thereunder.
ARTICLE 6
MISCELLANEOUS
6.1 Notices. All notices or other communication required or permitted
hereunder shall be in writing and shall be delivered personally, telecopied or
sent by certified, registered or express mail, postage prepaid. Any such notice
shall be deemed given when so delivered personally, telecopied or sent by
certified, registered or express mail, as follows:
(a) if to the Company:
U.S. Franchise Systems, Inc.
13 Corporate Square, Suite 250
Atlanta, Georgia 30329
Attention: Stephen D. Aronson, Esq.
Telecopy: (404) 235-7448
<PAGE>
13
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Attention: Judith R. Thoyer, Esq.
Telecopy: (212) 757-3990
(b) if to the Purchaser:
Alpine Hospitality Equities LLC
c/o Alpine Equity Partners L.P.
1285 Avenue of the Americas
21st Floor
New York, New York 10019
Attention: Lorraine E. Jackson, Esq.
Telecopy: 212-641-5125
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019
Attention: Robert B. Schumer, Esq.
Telecopy: (212) 757-3990
Any party may by notice given in accordance with this Section 6.1 designate
another address or person for receipt of notices hereunder.
6.2 Successors and Assigns. This Agreement shall inure to the benefit of
and be binding upon the successors and permitted assigns of the parties hereto.
Ventures and its Subsidiaries are intended third party beneficiaries of this
Agreement. Except for Ventures and its Subsidiaries, persons indemnified
pursuant to Article 5, and Affiliates thereof when referred to by specific
provisions hereof, no Person other than the parties hereto and their successors
and permitted assigns is intended to be a beneficiary of this Agreement. No
party hereto may assign its rights under this Agreement without the prior
written consent of the other party hereto, which shall not be unreasonably
withheld.
6.3 Amendment and Waiver.
(a) No failure or delay on the part of the Company or the Purchaser
in exercising any right, power or remedy hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right, power or
remedy preclude any other or further exercise thereof or the exercise of any
other
<PAGE>
14
right, power or remedy. The remedies provided for herein are cumulative and are
not exclusive of any remedies that may be available to the Company or the
Purchaser at law, in equity or otherwise.
(b) Any amendment, supplement or modification of or to any provision
of this Agreement and any waiver of any provision of this Agreement shall be
effective only if it is made or given in writing and signed by the Company and
the Purchaser.
6.4 Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, all of which
when so executed shall be deemed to be an original and both of which taken
together shall constitute one and the same agreement.
6.5 Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
6.6 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE
CONFLICTS OF LAW PRINCIPLES, EXCEPT TO THE EXTENT THE GENERAL CORPORATION LAW OF
THE STATE OF DELAWARE APPLIES.
6.7 Severability. If any one or more of the provisions contained herein,
or the application thereof in any circumstance, is held invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions hereof shall not be in any way impaired, unless the provisions held
invalid, illegal or unenforceable shall substantially impair the benefits of the
remaining provisions hereof.
6.8 Entire Agreement. This Agreement, together with the Registration
Rights Agreement and the other Transaction Documents, is intended by the parties
as a final expression of their agreement and intended to be a complete and
exclusive statement of the agreement and understanding of the parties hereto in
respect of the subject matter contained herein and therein. There are no
restrictions, promises, warranties or undertakings, other than those set forth
or referred to herein or therein. This Agreement supersedes all prior agreements
and understandings between the parties with respect to such subject matter.
6.9 Further Assurances. Each of the parties shall execute such documents
and perform such further acts (including, without limitation, obtaining any
consents, exemptions, authorizations, or other actions by, or giving any notices
to, or making any filings with, any Governmental Authority or any other Person)
as may be reasonably required or desirable to carry out or to perform the
provisions of this
<PAGE>
15
Agreement both prior and subsequent to the Closing. In furtherance of the
preceding sentence, the Company agrees that it shall, and to the extent
necessary, it shall cause its Subsidiaries to, both prior and subsequent to the
Closing, assist the Purchaser, Ventures or any of Ventures' Subsidiaries in the
procurement of any licenses or permits (including liquor licenses or permits)
necessary to operate the Hospitality Assets (as defined in the Asset Transfer
Agreement) and, at any time Ventures proposes to refinance the PW Loan, the
Company agrees to cooperate fully in connection with any refinancing and
subsequent refinancings, including, without limitation, providing appropriate
subordination agreements, if necessary, for the outstanding loan referred to in
clause (iv) of the definition of Transaction, certificates of estoppel and all
other necessary documents and instruments that may be required, including
franchising consents as reasonably requested by Ventures, provided that such
franchising consents are no more materially burdensome than the franchise
consents the Company has provided with respect to the PW Loan. In addition, if
Ventures or its Subsidiaries decides to refinance the PW Debt prior to one year
from the date hereof, the Company agrees to pay all expenses related to such
refinancing, including, without limitation, any prepayment penalties, points
applicable to the new credit facility, legal fees, fees of consultants, filing
fees, title insurance premiums, mortgage and intangible taxes, and recordation
fees.
6.10 Expenses.
(a) All fees, charges and expenses ("Expenses") incurred by the
Purchaser or Ventures or the Company or any of their respective Affiliates in
connection with the negotiation, execution or delivery of this Agreement, the
other Transaction Documents and the transactions contemplated hereby and thereby
shall be paid by the Company, including, without limitation, the Expenses
required to be paid under Section 11 of the Asset Transfer Agreement, except for
the commitment fee and the structuring fee under the PW Loan and additional
Expenses, up to an aggregate of $1,000,000 for such fee and additional Expenses,
which shall be paid by the Purchaser, Ventures and/or Ventures' Subsidiaries.
(b) If Ventures or any Affiliate thereof (other than OPCO or REALCO
with respect to any apportionments required pursuant to Section 9 of the Asset
Transfer Agreement) is obligated to pay ABI any amounts under the Asset Transfer
Agreement, other than amounts due as a result of or arising from a breach by
such Person of its obligations thereunder, the Company shall pay or reimburse
Ventures or such Affiliate for such amount.
6.11 Payments. Each year, the Company shall pay in perpetuity to Purchaser
(or as directed by Purchaser), $1,000 per hotel for every Best Inn or Suite or
other "Best" product that is added to the USFS system in the future for so long
as such hotel is paying royalties to the Company or any of its Affiliates.
Payments under this Section 6.11 shall be made within 30 days after the end of
each calendar
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16
year and, with respect to any Best hotel that is not part of the USFS system for
the entire calendar year in question, will be appropriately pro-rated.
6.12 Survival of Provisions. All of the representations, warranties,
covenants and agreements made herein shall survive the execution and delivery of
this Agreement and the Closing hereunder and shall thereafter continue in full
force and effect, except that the liability of the Company for any inaccuracy
in, or breach of, any of the representations and warranties set forth in
Sections 3.11, 3.12 and 3.14 shall terminate 18 months from the Closing Date
with respect to any claim not theretofore asserted.
<PAGE>
17
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered by their respective officers hereunto duly authorized as
of the date first above written.
U.S. FRANCHISE SYSTEMS, INC.
By: /s/ Neal K. Aronson
Name: Neal K. Aronson
Title: Executive Vice President
ALPINE HOSPITALITY EQUITIES LLC
By: Alpine Hospitality Holdings LLC
its managing member,
By: /s/ Richard D. Goldstein
Name: Richard D. Goldstein
Title: President
ALPINE HOSPITALITY VENTURES LLC
by Venturers Manager Inc.,
its managing member
By: /s/ Richard D. Goldstein
Richard D. Goldstein
President
<PAGE>
Exhibit 10.3
HOTEL MANAGEMENT AGREEMENT
THIS HOTEL MANAGEMENT AGREEMENT (the "Agreement") is made and entered into this
28th day of April, 1998, by and between ALPINE HOSPITALITY VENTURES LLC, a
Delaware limited liability company ("Parent"), RSVP-BI OPCO, LLC, a Delaware
limited liability company ("OPCO"), RSVP-ABI REALCO, LLC, a Delaware limited
liability company ("REALCO") (OPCO and REALCO are hereinafter collectively
referred to as "Borrower") (Parent and Borrower are hereinafter collectively
referred to as "Owner") and USFS MANAGEMENT, INC., a Georgia corporation
("Operator").
WITNESSETH:
WHEREAS, Borrower owns (or is the ground lessee relating to) the 11
Best Inn hotels and 6 Best Suite hotels listed on Exhibit A (collectively, the
"Hotels");
WHEREAS, the Hotels are licensed by Best Franchising, Inc.
("Licensor") as Best Inns or Best Suites (as applicable) hotels to Borrower
pursuant to the terms of 17 amended and restated license agreements (the
"Licenses"), each dated April 28, 1998;
WHEREAS, Licensor assumed the rights, duties and obligations under
the original license agreements of the original licensor, America's Best Inns,
Inc., and Borrower assumed the rights, duties and obligations under the original
license agreement of the original licensees, affiliates of America's Best Inns,
Inc., pursuant to the terms of certain assignments of license agreements each
dated as of April 28, 1998;
WHEREAS, Parent is the guarantor of the rights, duties and
obligations of Borrower under the License;
WHEREAS, Owner wishes to engage Operator as its agent to manage and
operate the Hotels on behalf of Owner under the Licenses; and
WHEREAS, Operator has the knowledge and expertise to manage and
operate the Hotels on behalf of Owner pursuant to the terms herein and the
License;
NOW, THEREFORE, for and in consideration of the mutual covenants and
agreements contained herein, and other good and lawful consideration, and
intending to be legally bound hereby, the parties agree as follows:
<PAGE>
ARTICLE 1
GENERAL
1.1 Appointment and Term. Owner hereby appoints Operator as the
manager of the Hotels with the sole and exclusive obligation and authority to
direct, supervise, manage, and operate the Hotels as the agent of the Owner.
This Agreement and the obligations of Operator hereunder shall be effective the
date the Hotels are purchased by the Owner ("Effective Date"). Unless terminated
pursuant to other terms contained herein, this Agreement will continue for a
term commencing on the Effective Date and ending at the end of the then next
calendar month following the twentieth (20th) anniversary of the Effective Date.
1.2 Management. Operator accepts its appointment and agrees to
supervise, manage, and operate the Hotels in accordance with (i) the provisions
of the Agreement, (ii) applicable law, (iii) the Licenses, incorporated by
reference herein, (iv) Owner's obligations under all loan agreements applicable
to the Hotels that Operator is aware of, and (v) the fiduciary obligation of
Operator to Owner.
ARTICLE 2
OPERATIONS
2.1 Employees. Operator shall, in the name of the Owner, hire,
terminate where appropriate, supervise, direct, train and assign the duties of
the managers, assistant managers, employees and agents (collectively,
"Employees") at the Hotels as may be required in the Operator's discretion to
operate the Hotels, and prompt notice of any such proposed change shall be given
to Operator. The Employees shall in every instance be deemed agents or
employees, as the case may be, of Owner. All hiring expenses, salaries, wages
and other compensation of the Employees of the Owner hereunder working
exclusively at and for the benefit of the Hotels, including, but not limited to,
fringe benefits, medical and health insurance and profit sharing shall be an
Operating Expense (as hereinafter defined). Reasonable meal allowances for
Operator's personnel visiting the Hotels in connection with the management
thereof shall also be considered Operating Expenses of the Hotels. Owner shall
provide free lodging at the Hotels to Operator's personnel visiting the Hotels
in connection with the management thereof.
2.2 Compliance with Laws. Operator shall be responsible, at Owner's
expense, for the management, operation and maintenance of the Hotels in
compliance with the License and all laws, ordinances, regulations, permits and
orders relative to the leasing, management, operation, repair and maintenance of
the Hotels.
2.3 Operating Budget. Operator agrees to submit to Owner not later
than seventy (70) days prior to the end of the calendar year, an operating
budget setting forth an estimated profit and loss statement for the ensuing year
on a monthly basis
2
<PAGE>
(the "Operating Budget"), in the form prescribed by Owner's first mortgage
lender. The Operating Budget represents Operator's best good faith efforts to
accurately project revenues and expenditures but in no way does Operator
guarantee such results.
2.4 Capital Expenditures Budget. Operator shall submit to Owner not
later than seventy (70) days prior to the end of the calendar year, a capital
expenditures budget setting forth a good faith estimate of the capital
expenditures proposed for the ensuing year ("Capital Expenditures Budget"), in
the form prescribed by Owner's first mortgage lender. Operator shall make those
alterations, additions, or improvements in or to the Hotel that have been
approved by Owner as part of the approved Capital Expenditures Budget. The cost
of such alterations, additions, or improvements shall be paid from the Capital
Reserve. It shall be the responsibility of Owner to ensure that funds from the
Capital Reserve established and maintained by Owner's lender are available to
Operator to effectuate capital maintenance and repairs. Operator shall receive
no purchasing fee in connection with any purchases made on behalf of the Owner.
2.5 Other Reports. Operator shall prepare and deliver to Owner such
other reports as may be required to be furnished to Owner's first mortgage
lender not less than five (5) business days prior to the date such reports are
to be delivered to Owner's lender. Such reports shall be prepared by Operator in
the manner prescribed by Owner's lender to ensure compliance with the terms of
the Owner's first mortgage loan documents, as amended from time to time.
Notwithstanding the foregoing, upon an amendment to such loan documents Owner
shall be obligated to provide Operator with notice of all new or revised reports
to be prepared for the benefit of Owner's lender in accordance with this Section
2.5, which notice shall include the format and all applicable time requirements
regarding the submission of such reports. Operator shall also prepare all such
reports as required by Licensor in a timely manner in compliance with the terms
of the License.
2.6 Repairs. Operator shall use its reasonable best efforts to
maintain the Hotels in good repair and maintenance.
2.7 Service Contracts. Operator shall negotiate service contracts
reasonably necessary or desirable in connection with the operation of the Hotels
in the usual course of business, and shall be authorized to enter into such
service contracts in Owner's name. Operator shall provide Owner with prompt
notice following execution of any such contracts.
2.8 Insurance. Unless Owner requests in writing for Operator to
obtain insurance for each Hotel, Owner will obtain and maintain at its own
expense all insurance. All insurance coverage (i) shall be placed with such
companies which are in good standing and licensed to do business in the states
where the Hotels are located, in such amounts, against such risks and with such
beneficial interest as shall be acceptable to and in conformity with the
requirements of Licensor, Owner's lender
3
<PAGE>
and applicable law, (ii) shall not be claims-made types policies, and (iii)
shall include workers compensation procured on behalf of Owner's Employees as
mandated by applicable law. Operator shall notify Owner in writing of any
material accident or material claim for damage concerning the ownership,
operation or maintenance of the Hotels or any material damage to the Hotels and
the estimated cost of repair thereof and Operator shall prepare (with Owner's
assistance) reports to any insurance company in connection therewith. Owner
shall furnish Operator with certificates evidencing all insurance obtained by
Owner, which certificates shall list Operator, Licensor, Licensor's parent,
Owner and Owner's lender as additional insureds under all insurance policies and
state that Operator shall receive thirty (30) days advance written notice prior
to cancellation.
ARTICLE 3
ACCOUNTING
3.1 Books of Account. Operator shall maintain separate books and
records for the operation and management of the Hotels in accordance with
generally accepted accounting principles. Operator shall also be entitled to
receive a monthly accounting fee of $1,000 for each Hotel managed by Operator
pursuant to this Agreement. All books and records of the Hotels shall be
available to Owner and Owner's lender at all reasonable times for examination,
audit, inspection and transcription. Upon termination of this Agreement, all
such books and records shall be turned over to Owner. Operator shall provide
Owner with financial reports for the Hotels each month within twenty (20) days
after the close of each month and annually within seventy-five (75) days of the
end of the calendar year, all in such form as prescribed by Owner's first
mortgage lender. Without limiting the foregoing, Operator shall coordinate with
the Owner and the Owner's independent public accountants to ensure that Owner's
annual audited financial statements are delivered to the Owner's first mortgage
lender on or prior to March 31 of the following year. These reports shall
include an unaudited balance sheet, operating statement, and cash flow statement
indicating both monthly and year-to-date figures. The cost of any audit of the
financial statements or reports provided to Owner shall be an expense of the
Owner. Operator shall also provide such other reports, and prepare and maintain
such records and accounting systems, as required by Owner's lender (including,
but not limited to, Section 12 of the Loan Agreement with Owner's first mortgage
lender) or Licensor (including, but not limited to, Sections 6A, 6B and 6D of
the License) in a timely fashion as outlined in Section 2.5 of this Agreement.
3.2 Operating Account. Operator is authorized to establish, as agent
for Owner, one or more accounts (collectively, the "Operating Account") at
financial institutions approved by Owner. Operator and Owner shall each
designate signatures authorized to access such account. Operator shall not
commingle its funds with the funds of the Hotels. Operator shall pay all
expenses incurred in connection with the operation and supervision of the Hotels
and any other payments relative to the Hotels
4
<PAGE>
as required by this Agreement ("Operating Expenses") from the Operating Account
after funds are wired into the Operating Account by Owner or Owner's lender.
Payment of all expenses concerning the ownership of the Hotels shall be the
responsibility of Owner. Owner agrees that Operating Expenses to be paid out of
the Operating Account include, but are not limited to, salary and wages, payroll
taxes, utilities, costs of collection of delinquent accounts, management fees,
and all royalty fees and reservation/marketing fees under the License. After
Operator has paid, to the extent funds are available in the Operating Account,
all bills, charges, costs and expenses of operating and managing the Hotels,
Operator shall submit to Owner written notice together with copies of all
remaining unpaid, due and outstanding bills. Owner shall advance to the
Operating Account funds in an amount necessary to pay all such remaining unpaid
bills within a reasonable time after the receipt of said written notice.
Operator shall in no event be required to advance any of its funds for the
operation of the Hotels, nor to incur any obligation to third parties in
connection with the operation of the Hotels. Any operating loss and/or negative
cash flow shall be for the account of and shall be borne by the Owner
exclusively, and shall not reduce any fees due to Operator or Licensor.
ARTICLE 4
COMPENSATION
4.1 Management Fee. Operator shall receive a monthly management
fee within ten (10) days of Owner's lender wiring funds into the Operating
Account, if applicable, otherwise within ten (10) days from the end of each
calendar month (the "Management Fee") equal to five percent (5%) of Gross
Revenue (as hereinafter defined) for each month from the Effective Date until
the expiration or sooner termination of this Agreement.
4.2 "Gross Revenue" Defined.
A. "Gross Revenue" shall mean all revenues from the operation of the
Hotels, computed on an accrual basis, from whatever source derived, including,
but not limited to, proceeds from the use of rooms (both sleeping rooms and
public rooms) and the sale of food and beverage services from the Hotels.
B. "Gross Revenue" shall not include, and there shall be deducted
from the computation of Gross Revenues: (i) all gratuities, tips, or sales
charges added to a customer's bill which are payable to hotel employees; (ii)
all sales taxes, excise taxes, gross receipts taxes, admission taxes,
entertainment taxes, tourist taxes, liquor taxes and all other taxes; (iii) all
abatements of taxes; (iv) interest on investments or Hotel accounts; (v) awards
arising out of a taking by eminent domain; (vi) discounts and dividends on
insurance policies; (vii) proceeds recovered or collected with regard to or on
account of insurance covering the Hotels; and (viii) amounts collected from a
third party and/or their insurance carrier as the result of damage to the
Hotels.
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ARTICLE 5
TERMINATION
5.1 Termination By Owner.
A. Notwithstanding Section 1.1, Owner may terminate this Agreement
upon written notice to the Operator given at any time after either of the
following events:
(i) Operator shall default on any of the material terms or
conditions of this Agreement or the material obligations imposed hereunder and
shall fail to cure such default within thirty (30) days after receipt of written
notice from Owner. Notwithstanding the foregoing, any default which cannot be
cured within thirty (30) days shall not give Owner a right to terminate this
Agreement if Operator is diligently attempting to cure such default; or
(ii) If any Hotel is materially damaged by fire or other casualty
and Owner shall not within thirty (30) days after such casualty, elect to
rebuild or renovate the Hotel, this Agreement shall terminate with respect to
that Hotel and shall continue in full force and effect with respect to the
remaining Hotels.
B. Notwithstanding Sections 1.1 or 5.1, Owner may terminate this
Agreement without cause at any time but with sixty (60) days prior written
notice to Operator with respect to one or more Hotels, subject to the payment to
Operator of the Termination Fee provided in Section 5.2.
5.2 Effect of Termination. Upon termination of this Agreement
pursuant to Section 5.1, Operator shall be entitled to a final accounting of and
payment of any sums due to Operator through the date of termination. If this
Agreement is terminated pursuant to Section 5.1B, including, without limitation,
a termination in connection with any sale, assignment or other transfer of all
or any of the Hotels, the Owner agrees to pay Operator a Termination Fee with
respect to the particular Hotel(s) being sold, assigned, transferred or
otherwise terminated in an amount equal to three (3) multiplied by the lesser of
(i) the annual fees paid to Operator for the last 12 months under this
Agreement, as supplemented by the parties, and (ii) the average annual fees paid
to operator for the last 36 months under this Agreement, as supplemented by the
parties (the amount determined under clause (i) or (ii) is being referred to as
the "Applicable Annual Amount").
ARTICLE 6
INDEMNIFICATION
6.1 Standard of Performance. Operator shall not be liable to Owner
for the failure to perform any act or any omission in connection with the
performance of any
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duty hereunder except to the extent that such failure is due to the gross
negligence or willful misconduct of Operator, or Operator's officers, agents,
servants or employees. Owner shall not be liable to Operator for the failure to
perform any act or any omission in connection with the performance of any duty
hereunder except to the extent that such failure is due to the gross negligence
or willful misconduct of Owner, or Owner's officers, agents, servants, or
employees.
6.2 Indemnification.
A. Operator hereby agrees to indemnify, defend and hold Owner and
Parent and each officer, director, employee, partner, member or agent of Owner,
its affiliates, partners, members and joint venturers harmless from and against
any loss, expense, damage, claim, liability, obligation, judgment or injury
sustained by it by reason of any act, omission or alleged act or omission
arising out of Operator's gross negligence or willful misconduct in connection
with the management and/or operation of the Hotels. The indemnification rights
herein shall be in addition to any rights of Owner pursuant to this Agreement,
at law or in equity and shall survive the termination of this Agreement.
B. Owner hereby agrees to indemnify, defend, and hold Operator and
its parent and each officer, director, employee, parent, agent, affiliate or
joint venturer thereof harmless from and against any loss, expense, damage,
claim, liability, obligation, judgment or injury sustained by it by reason of
any act, omission or alleged act or omission arising out of or incidental to
Owner's ownership of the Hotel (other than in connection with this Agreement or
the Operator's discharge of its obligations hereunder). The indemnification
rights herein shall be in addition to any rights of Operator pursuant to this
Agreement, at law or in equity and shall survive the termination of this
Agreement.
6.3 Priority of Agreement and Estoppel Certificates. This Agreement
shall be subordinate to the payment of senior debt service related to the
payment of the Owner's first mortgage lender. Upon request of either party, the
other party shall execute a certificate stating whether or not this Agreement is
in full force and effect, specifying the nature of any uncured defaults
hereunder and specifying any amounts due and owing hereunder which have not been
paid.
ARTICLE 7
MISCELLANEOUS
7.1 Assignment. Neither party may assign its rights, duties or
obligations under this Agreement without the prior written consent of the other
party, and any such purported assignment shall be considered void and of no
force and effect. Operator's consent shall not be required if Owner assigns its
rights hereunder to the holder of any senior debt covering the Hotel(s). In
connection with the sale or
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transfer of a Hotel(s), Owner may terminate this Agreement with respect to the
Hotel(s) being sold or transferred upon payment to Operator of the Termination
Fee provided in Section 5.2. Operator may assign its rights, duties and
obligations hereunder to any wholly owned subsidiary of U.S. Franchise Systems,
Inc. without Owner's consent, provided, however, that any such assignment by
Operator shall not relieve Operator of its obligation to perform its duties and
obligations hereunder.
7.2 Notices. All notices, demands, requests and other communications
hereunder shall be in writing and shall be deemed to be delivered when received
whether through U.S. Express Mail or any private overnight service or personal
delivery (as evidenced by a written receipt), addressed to the addressee at its
address set forth below or at such other address as such party may have
specified by notice delivered in accordance with this Section:
If to Operator: USFS Management, Inc.
13 Corporate Square, Suite 250
Atlanta, Georgia 30329
Attention: Stephen D. Aronson, Esq.
If to Parent or
Borrower: 1285 Avenue of the Americas, 21st Floor
New York, New York 10019
Attention: Lorraine E. Jackson, Esq.
7.3 Survival. Except as otherwise expressly provided herein,
obligations accrued to the date of any termination of this Agreement shall
survive the termination.
7.4 Governing Law; Venue. The laws of the State of Georgia shall
govern the validity, enforcement and interpretation of this Agreement unless
otherwise agreed to in writing by Owner and Operator.
7.5 Integration; Modification; Waiver. This Agreement constitutes
the complete and final expression of the agreement of the parties relating to
the Hotels and supersedes all previous contracts, agreements and understandings
of the parties, either oral or written, relating to the Hotels. This Agreement
cannot be modified, or any of the terms hereof waived, except in writing
executed by all parties hereto.
7.6 Counterpart Execution. This Agreement may be executed in several
counterparts, each of which shall be fully effective as an original and all of
which together shall constitute one and the same instrument.
7.7 Headings; Construction. The headings used throughout this
Agreement have been inserted for convenience of reference only and do not
constitute matter to be construed in interpreting this Agreement. The words
"herein," "hereof," "hereunder" and other similar compounds of the word "here"
when used in this
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Agreement shall refer to the entire Agreement and not to any particular
provision or section.
7.8 Agent Only for Owner. Operator is acting solely as agent for and
on behalf of and for the account of the Owner. Nothing in this Agreement shall
create or be construed to create a partnership or joint venture relationship
between Owner, its successors and assigns, and Operator, its successor and
assigns. Operator shall bear no portion of losses arising out of or connected
with the ownership or operation of the Hotel except as specifically set forth
herein.
7.9 Limited Liability. The parties agree that no officer, director,
shareholder, member or partner of the other shall have any personal liability
under this Agreement.
7.10 Invalid Provisions. If any of the provisions of this Agreement
shall be held invalid or unenforceable such provision shall be modified to the
minimum extent necessary to make it or its application valid and enforceable,
and the validity and enforceability of all other provisions of this Agreement
and all other applications for any such provision shall not be affected thereby.
7.11 Binding Effect. This Agreement shall be binding upon and inure
to the benefit of Owner and Operator and their respective successors and
permitted assigns. Except as expressly provided herein, nothing in this
Agreement is intended to confer on any person, other than the parties thereto
and their respective successors and permitted assigns, any rights or remedies
under or by reason of this Agreement.
SIGNATURES TO FOLLOW ON NEXT PAGE
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<PAGE>
PARENT: OPERATOR:
ALPINE HOSPITALITY USFS MANAGEMENT, INC.
VENTURES LLC
by Ventures Manager Inc.,
its managing member By: /s/ Neal K. Aronson
------------------------------
Neal K. Aronson,
Executive Vice President
By: /s/ Richard D. Goldstein and Chief Financial Officer
------------------------
Richard D. Goldstein
President
BORROWER:
RSVP-BI OPCO, LLC
by OPCO MANAGER INC.,
its managing member
By: /s/ Richard D. Goldstein
------------------------
Richard D. Goldstein
President
BORROWER:
RSVP-ABI REALCO, LLC
by RSVP-BI OPCO, LLC,
its managing member,
by OPCO Manager, Inc.,
its managing member
By: /s/ Richard D. Goldstein
------------------------
Richard D. Goldstein
President
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<PAGE>
EXHIBIT A
Montgomery, AL (Suites)
Mobile, AL (Suites)
Johnston, IA (Inn)
Mobile, AL (Inn)
Birmingham, AL (Suites)
Libertyville, IL (Inn)
Caseyville, IL(Inn)
Carbondale, IL (Inn)
Springfield, IL (Inn)
Ft. Wayne, IN (Inn)
South Bend, IN (Inn)
Anderson, IN (Inn)
Paducah, KY (Inn)
Jackson, MS (Suites)
Asheville, NC (Inn)
Canton, OH (Suites)
Nashville, TN (Suites)
11
<PAGE>
EXHIBIT
Listing of Properties
1. Montgomery Best Suites
5155 Carmichael Road
Montgomery, AL 36106
Montgomery County
2. Birmingham Best Suites
140 State Farm Parkway
Homewood, AL 35209
Jefferson County
3. Mobile Best Suites
150 Beltline Highway South
Mobile, AL 36608
Mobile County
4. Mobile Best Inns
156 Beltline Highway South
Mobile, AL 36608
Mobile County
5. Carbondale Best Inns
1345 East Main Street
Carbondale, IL 62901
Jackson County
6. Libertyville Best Inns
1809 N. Milwaukee Avenue
Libertyville, IL 60048
Lake County
7. South Bend Best Inns
425 Dixie Highway North
South Bend, IN 46637
St. Joseph County
8. Jackson Best Suites
5411 Interstate Highway 55 North
Jackson, MS 39206
Hinds County
9. Canton Best Suites
4914 Everhard Road N.W.
Canton, OH 44718
Stark County
10. Springfield Best Inns
500 North First Street
Springfield, IL 62702
Sangamon County
11. Paducah Best Inns
5001 Hinkleville Road
Paducah, KY 42002
McCracken County
12. Caseyville Best Inns
2423 Old Country Inn Drive
Caseyville, IL 62232
St. Clair County
13. Asheville Best Inns
1445 Tunnel Road
Asheville, NC 28805
Buncombe County
14. Des Moines Best Inns
5050 Merle Hay Road
Johnston, IA 50131
County of Polk
15. Anderson Best Inns
5706 Scatterfield Road
Anderson, IN 46013
Madison County
16. Nashville Best Suites
2521 Elm Hill Pike
Nashville, TN 37214
Davidson County
17. Fort Wayne Best Inns
3017 West Coliseum Blvd.
Fort Wayne, IN 46808
County of Allen
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Exhibit 10.4
Location: 5155 Carmichael Road
Montgomery, AL 36106
ID Number: 1089
Date: April 28, 1998
-------------------------
BEST SUITES AMENDED AND RESTATED LICENSE AGREEMENT
BETWEEN
BEST FRANCHISING, INC.
AND
RSVP-BI OPCO, LLC
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
<S> <C> <C>
1. THE LICENSE....................................................1
2. GRANT OF LICENSE...............................................1
3. YOUR RESPONSIBILITIES..........................................2
4. OUR RESPONSIBILITIES.......................................... 3
5. PROPRIETARY RIGHTS............................................ 4
6. RECORDS AND AUDITS............................................ 5
7. INDEMNITY AND INSURANCE....................................... 6
8. TRANSFER.......................................................7
9. CONDEMNATION AND CASUALTY......................................8
10. TERMINATION....................................................9
11. RENEWAL.......................................................11
12. RELATIONSHIP OF PARTIES.......................................12
13. MISCELLANEOUS.................................................12
GUARANTY
ATTACHMENT A
ATTACHMENT B
ATTACHMENT C
ATTACHMENT D
</TABLE>
<PAGE>
AMENDED AND RESTATED LICENSE AGREEMENT
This amended and restated license agreement ("Agreement" or "License
Agreement"), dated April 28, 1998, is entered into by and between Best
Franchising, Inc., a Georgia corporation having an address at 13 Corporate
Square, Suite 250, Atlanta, Georgia 30329 ("we," "our" or "us"), and RSVP-BI
OPCO, LLC, a Delaware limited liability company, having an address at c/o Alpine
Equity Partners L.P., 1285 Avenue of the Americas, 21st floor, New York, New
York 10019 ("you" or "your"). The parties acknowledge that pursuant to the terms
of an assignment of license agreement dated as of April 28, 1998, we are
successors in interest to the rights and obligations of the original licensor,
America's Best Inns, Inc., and you are successors in interest to the rights and
obligations of the original licensee, America's Best Inns, Inc. The parties
hereto desire to amend and restate the terms and conditions of the original
license agreement dated as of April 28, 1998. Accordingly, in consideration of
the following mutual promises, the parties agree that the original license
agreement is amended and restated and replaced in its entirety as follows:
1. The License.
We have the exclusive right to license a unique concept and system (the "Hotel
System") to establish and operate "upper economy" hotels under the names "Best
Inns of America" and "Best Suites of America" (collectively, "Hotels" or "Best
Hotels"). Before signing this Agreement, you read our Offering Circular for
Prospective Franchisees ("UFOC") and independently evaluated and investigated
the risks of investing in the hotel industry generally and purchasing a Best
franchise specifically, including such factors as current and potential market
conditions, owning a franchise and various competitive factors. Following your
investigation, you wish to enter into this Agreement to obtain a license to use
the Hotel System to operate a Best Suites hotel located at 5155 Carmichael Road,
Montgomery, AL 36106 (the "Hotel").
A. The Hotel. The Hotel includes all structures, facilities, appurtenances,
furniture, fixtures, equipment, entry, exit and parking areas located on the
real property identified on Attachment A hereto or any other real property we
approve for Hotel expansion, signage or other facilities. You agree not to make
any material changes to the Hotel without our prior written consent, including,
but not limited to, any change in the number of rooms or suites at the Hotel
("Guest Rooms").
B. The Hotel System. We have designed the Hotel System so that the public
associates the Hotels with high quality standards. The Hotel System includes,
without limitation: (i) the tradenames, trademarks, and service marks "Best Inns
of America" and "Best Suites of America" and such other tradenames, trademarks,
and service marks we hereafter designate for use with the Hotel System
(collectively, the "Proprietary Marks"); (ii) architectural plans, designs and
layouts, including, without limitation, site, floor, roof, plumbing, lobby,
electrical and landscape plans; (iii) a national toll free number system for
central reservation referrals, as renovated by us from time to time
(collectively, the "FIRST SYSTEM"); (iv) the national Best directory (the
"National Directory"); (v) management, personnel and operational training
programs, materials and procedures; (vi) standards and specifications for
construction, equipment and furnishings described in our confidential manuals,
as amended by us from time to time (collectively, the "Manual"); and (vii)
marketing, advertising and promotional programs.
2. Grant of License.
We hereby grant to you a license (this "License") to use the Hotel System to
build and operate the Hotel in accordance with the terms of and commencing on
the date the Hotel is sold to you and terminating as provided in Paragraph 10
(the "License Term"). During the License Term, neither we nor any of our
affiliates or franchisees will develop or license any Best Hotels within the
area described in Attachment B (the "Territory"). This Agreement does not limit
our right, or the rights of our parent, subsidiaries or affiliates, (i) to use
or license others to use any part of the Hotel System outside the Territory;
(ii) to conduct other business activities under, or license others to use,
hospitality brands that are not part of the Proprietary Marks, whether outside
or within
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<PAGE>
the Territory, even if the other brands or business activities compete
with the Hotel and/or the Hotel System; or (iii) to use or license others to use
the Hotel System within the Territory to replace any of the previously executed
Best Hotel license agreements listed on Attachment C attached hereto.
3. Your Responsibilities.
A. Operational and Other Requirements. During the License Term, you agree to:
(1) maintain the Hotel in first class condition and in a clean, safe
and orderly manner;
(2) provide efficient, courteous, and high-quality service to the
public while maintaining a high moral and ethical standard and
atmosphere at the Hotel;
(3) operate the Hotel twenty-four (24) hours a day, every day;
(4) strictly comply in all respects with our requirements concerning:
(a) the Hotel System, the Manual and all other policies and
procedures we communicate to you;
(b) our quality standards and the types of services, products
and amenities you may use, promote or offer at the Hotel;
(c) your use of the Proprietary Marks and display, style and
type of signage;
(d) directory and reservation service listings of the Hotel;
and
(e) your participation in all of our marketing, reservation
service, advertising, Internet, computer, training and
operating programs, including a property management system
that interfaces with the FIRST SYSTEM or any other central
reservation system we adopt;
(5) execute our then-current software license agreement to participate
in, connect with and use the FIRST SYSTEM;
(6) except as provided in Paragraph 4E, adopt all changes we make to
the Hotel System;
(7) strictly comply with all governmental requirements, including:
(i) the payment of taxes; (ii) the filing and maintenance of trade or
fictitious name registrations; and (iii) the filing and maintenance of
all licenses and permits to operate the Hotel;
(8) permit our representatives to inspect the Hotel at any time and
provide them free lodging during the inspection period;
(9) not use the Hotel or the Hotel System to promote a competing
business or other lodging facility;
(10) use your best efforts to create a favorable response to the names
"Best Inns of America" and "Best Suites of America";
(11) promptly pay to us and/or our parent, subsidiaries and affiliates
when due all royalties and fees owed under this Agreement;
(12) treat the Manual and any other information or materials we
designate, as confidential ("Confidential Materials") and not
duplicate, circulate or distribute any Confidential Materials to any
unauthorized person without our prior written consent;
(13) obtain from each employee who will have access to any Confidential
Materials their written agreement to keep the Confidential Materials
confidential; and
(14) conduct your advertising in a dignified manner. At our request,
you agree to submit to us all advertising and promotional materials
and immediately discontinue your use of any materials we reasonably
reject.
B. Performance of the Work. As a primary inducement for us to enter into this
Agreement, you agree to perform the work listed on Attachment D (the "Work") in
strict accordance with our specifications.
C. Upgrading of the Hotel. If at any time the Hotel falls below the quality
standards set forth in the Manual, we may require you to upgrade or renovate the
Hotel to reach acceptable standards. Your failure to upgrade or renovate the
Hotel promptly after we notify you to do so may result in our issuing a quality
default notice which could lead to our terminating this Agreement.
D. Fees.
(1) For each month (or part of a month) during the License Term,
beginning with the date you or your
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<PAGE>
affiliate acquires fee simple title (or succeeds to the interest of
the long term lessee in the case of Asheville) to the Hotel (the
"Opening Date"), you shall pay to us by the tenth (10th) day of the
following month:
(a) a "Royalty Fee" equal to the following percentages of
Gross Room Revenues (as defined in Paragraph 3D(2)) of the
Hotel: (i) three percent (3%) during the first twelve (12)
month period following the Opening Date ("Year 1"); (ii)
four percent (4%) during the twelve (12) month period
following Year 1 ("Year 2"); and (iii) five percent (5%)
for each month after Year 2 until the expiration or sooner
termination of this Agreement.
(b) a "Marketing/Reservation Contribution" ("Contribution") equal to two
percent (2.0%) of Gross Room Revenues of the Hotel from the Opening Date
until the expiration or sooner termination of this Agreement. Beginning in
Year 3, we may, at any time, increase your Contribution only if: (i) we
simultaneously impose a similar increase on all other Best Hotel licensees
whose license agreements contain fee provisions similar to this Paragraph 3D;
and (ii) at least sixty-six percent (66%) of all such Best Hotel licensees
agree to such an increase.
(2) "Gross Room Revenues" shall mean gross receipts attributable to or
payable for the rental of Guest Rooms, including, without limitation,
the net proceeds of use and occupancy and business interruption, rent
loss, or similar insurance held by you with respect to the Hotel.
However, insurance proceeds are included in Gross Room Revenues only
if you actually receive them. Gross Room Revenues do not include
gratuities to employees or service charges levied in lieu of such
gratuities which are payable to employees, or any taxes or fees
collected by you for transmittal to any taxing authorities.
(3) If we require, you agree to make your monthly payments to a
designated bank account by telegraphic transfer, automatic debit
arrangement, or other means we specify. We will pay for the cost of
connection to such telegraphic or automatic debit service. If an
automatic debit or similar arrangement is utilized and funds are
insufficient to cover your payment obligation, any amounts unpaid on
or before the due date shall be deemed overdue. If any payment is
overdue, in addition to the overdue amount, you shall pay us interest
on the overdue amount from the due date until paid in full at the
lesser rate of one and one-half percent (1.5%) per month or the
maximum rate permitted by law. Our ability to charge interest on all
overdue amounts shall be in addition to any other remedies we may have
as a result of your failure to make payments when due.
(4) You agree to pay us a $2,500.00 fee each time you apply to us to
add any Guest Rooms to the Hotel.
(5) Subject to our requirements and at your own expense, you may
conduct local and regional marketing and advertising programs. You
shall pay us reasonable fees for optional advertising materials you
order from us for these programs.
(6) You will participate in any global distribution system connected
to our FIRST SYSTEM and pay applicable commissions to travel agents.
You agree to pay: (i) all commissions and fees for reservations you
accept through any sources (including the Internet), whether processed
through us, our FIRST SYSTEM, third party reservation systems, or
billed directly to you; and (ii) telephone charges and equipment
related to the FIRST SYSTEM.
4. Our Responsibilities.
A. Training. We provide initial training prior to the Opening Date. During the
License Term, we will provide both required and optional training programs. We
are responsible for the cost of instruction and you are responsible for all
travel, lodging and other training expenses, including reasonable charges for
training materials. If any training is held at your Hotel, you agree to provide
our representatives with free lodging.
B. Services. Provided you are in full compliance with your obligations under
this Agreement, you shall have access to the FIRST SYSTEM, listings in
advertising publications and the National Directory.
C. Consultation on Operations, Facilities and Marketing. On an ongoing basis,
you may consult with us and we shall advise you in connection with Hotel
operations, facilities and marketing, including suppliers for fixtures,
furnishings, signs and other equipment.
D. Use of Marketing/Reservation Contributions. We will use the Contributions for
costs associated with: (i)
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advertising, promotion, publicity, market research and other marketing programs
and related activities; (ii) maintaining and producing the National Directory
and the FIRST SYSTEM; and (iii) our overhead relating directly to national and
local marketing and reservations. Our overhead is limited to costs associated
with the financial management of the Contributions and the salaries and benefits
of certain individuals who work for our reservation or marketing departments. We
will neither profit financially from nor use the Contributions to pay for
marketing directly related to our sale of franchises. We are not obligated to
spend funds for marketing or reservation services exceeding the Contributions
received from licensees using the Hotel System. If we have a surplus of
Contributions at the end of any taxable year, all expenditures in the following
taxable year(s) shall be made first out of earnings accumulated from previous
years, next out of current year earnings, and finally from current year
Contributions. We will prepare an annual statement regarding Contributions and
provide a copy to you upon your written request.
E. Application of Manual. All Best Hotels must comply with the terms of the
Manual, although we may permit limited exceptions based on local conditions or
special circumstances. Each change in the Manual will be explained to you at
least thirty (30) days prior to its effective date. Any change to the Manual
which, in our reasonable discretion, would cause a substantial investment by you
will not be effective unless approved by sixty-six percent (66%) of the open
Best Hotels. Each open hotel shall have one vote and approval of sixty-six
percent (66%) of the open hotels will be required to implement the change.
Notwithstanding the foregoing, changes to the Manual which relate to guest
security and/or life/safety issues are not subject to the approval of you or
other licensees even if substantial investments are required.
F. Other Arrangements. We may arrange for development, marketing, operations,
administration, technical and support functions, facilities, services and/or
personnel with any other entity and may use any facilities, programs, services
and/or personnel used in connection with the Hotel System in connection with our
other business activities, even if our other business activities compete with
the Hotel or the Hotel System.
G. Inspections/Compliance Assistance. We have the right to inspect your Hotel at
any time, with or without notice to you, to determine if the Hotel is in
compliance with the Hotel System and the standards set forth in the Manual. If
the Hotel fails to comply with either, we may, at our option and at your cost,
require you to correct the deficiencies within the reasonable time we establish.
5. Proprietary Rights.
A. Ownership of the Hotel System and Proprietary Marks. You acknowledge and
shall not contest, either directly or indirectly, either during the License Term
or thereafter: (i) our exclusive right to both use and grant licenses to use the
Hotel System and any element(s) or component(s) thereof; (ii) that we are the
owner or exclusive licensee of all right, title and interest in and to the
Proprietary Marks together with the goodwill they symbolize; or (iii) the
validity or ownership of the Proprietary Marks. All improvements and additions
to or associated with the Hotel System made by you or anyone else and all
goodwill arising from your use of the Proprietary Marks shall inure to our
benefit and become our property. Upon expiration or termination of this
Agreement, no monetary amount shall be attributed to any goodwill associated
with your use of the Hotel System or portion thereof.
B. Trademark Disputes. We have the sole right to handle third party disputes
concerning the use of all or any part of the Hotel System, and you shall, at
your reasonable expense, extend your full cooperation to us in all matters
relating to the operation of the Hotel. All recoveries made as a result of
disputes with third parties regarding use of the Hotel System or any part
thereof belong solely to us. We are not required to initiate lawsuits against
alleged imitators or infringers and may settle any dispute in our discretion.
You shall not initiate any lawsuit or proceeding against alleged imitators or
infringers or any other lawsuit or proceeding to enforce or protect the Hotel
System without our prior written consent.
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C. Protection of Name and Marks. Consistent with their ownership rights and
rights to use the Proprietary Marks, both parties to this Agreement shall use
their reasonable best efforts to protect and maintain the Proprietary Marks and
their distinguishing characteristics. You agree: (i) to execute any documents we
request to obtain or maintain protection for the Proprietary Marks; (ii) to use
the Proprietary Marks only in connection with the operation of your Hotel and
only as we instruct; and (iii) that your unauthorized use of the Proprietary
Marks shall constitute both an infringement of our rights and a material breach
of your obligations under this Agreement. You must notify us immediately, in
writing, if you have any actual or constructive knowledge of any infringement or
challenge to your use of the Proprietary Marks or any unauthorized use or
possible misuse of either the Proprietary Marks, the names "Best Inns of
America" or "Best Suites of America" or any Confidential Materials.
6. Records and Audits.
A. Monthly Reports. By the tenth (10th) day of each month, you agree to prepare
and submit to us a statement for the previous month, certified by your chief
financial or principal accounting officer or the manager of the Hotel (provided
the manager is an affiliate of U.S. Franchise Systems, Inc.), listing Gross
Rooms Revenue, other revenues generated at the Hotel, room occupancy rates,
reservation data, the amounts currently due under Paragraph 3D and other
information we deem useful in connection with the Hotel System (the "Data"). The
statement shall be in such form and detail as we may reasonably request, shall
be our property and may be used by us for all reasonable purposes. We will not
knowingly provide Data on your Hotel as an inducement to develop other hotel
brands in your market area, although you understand that some of the Data may be
compiled into information we provide to prospective licensees.
B. Preparation and Maintenance of Records. You agree to: (i) prepare on a
current basis in a form satisfactory to us, (and preserve for at least four (4)
years), complete and accurate records concerning Gross Rooms Revenue and all
financial, operating, marketing and other aspects of the Hotel; and (ii)
maintain an accounting system which fully and accurately reflects all financial
aspects of the Hotel, including, but not limited to, books of account, tax
returns, governmental reports, register tapes, daily reports, profit and loss
and cash flow statements, balance sheets and complete quarterly and annual
financial statements.
C. Audit. We or our agents may, at any time, examine and copy, all books,
records, and tax returns related to your Hotel and, at our option, require an
independent audit. If an inspection or audit reveals that you have understated
payments in any report to us, you shall immediately pay us the amount
understated, in addition to interest from the date such amount was due until
paid, at the lesser of one and one-half percent (1.5%) per month or the maximum
rate permitted by law. In this event, we may also require that all of your
future annual financial statements be audited at your expense by an independent
certified public accounting firm you select and we approve. If an inspection or
audit discloses an underpayment to us of five percent (5%) or more of the total
amount owed during any six (6) month period, you shall, in addition to paying
the understated amount with interest, reimburse us for our costs and expenses in
connection with the inspection or audit, including legal and accounting fees.
These remedies supplement any others we may have under this Agreement.
D. Annual Financial Statements. Upon our request, not later than ninety (90)
days after the end of your fiscal year, you must provide us with complete
financial statements for such year certified by your chief financial or
principal accounting officer or the manager of the hotel (provided the manager
is an affiliate of U.S. Franchise Systems, Inc.), to be true and correct and
prepared in accordance with generally accepted accounting principles
consistently applied. Any false certification shall be a material breach of this
Agreement. Upon our request from time to time you also agree to provide us with
operating statistics for the Hotel.
7. Indemnity and Insurance.
A. Indemnity. You agree that nothing in this Agreement authorizes either party
to make any contract, agreement, warranty or representation on the other's
behalf, or to incur any debt or other obligation in the other's
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name, and that neither party shall assume liability for, or be deemed liable as
a result of any such action, or by reason of any act or omission of the other
party or any claim or judgment arising therefrom.
(1) You agree to indemnify, defend and hold harmless us, our parent,
affiliates, subsidiaries and our respective, officers, directors,
agents, employees, successors and assigns (the "Indemnified Parties")
against, and to reimburse the Indemnified Parties for, any and all
claims or actions arising or alleging to arise directly or indirectly
from, as a result of, or in connection with, your operation of the
Hotel, including, but not limited to, claims alleging either
intentional or negligent conduct, acts or omissions by you or us
relating to the operation of the Hotel or the Hotel System, as well as
the costs, including attorneys' fees, of defending against said claims
or actions. We reserve the right to defend any such claim or action
against us. You agree that this indemnity will survive the expiration
or termination of this Agreement. You have no obligation to indemnify
us if a court of competent jurisdiction makes a final decision not
subject to further appeal that we or our employees directly engaged in
willful misconduct or intentionally caused the property damage or
bodily injury that is the subject of the claim. You shall notify us
immediately (but not later than five (5) days following your receipt of
notice) of any claim, action or potential claim or action naming any
Indemnified Party as a defendant or potential defendant (the
"Indemnification Notice"). The Indemnification Notice shall include
copies of all correspondence or court papers relating to the claim or
action.
(2) We shall indemnify you and hold harmless your parent, affiliates,
subsidiaries and respective officers, directors, agents, and employees
against all claims against you arising as a result of, or in connection
with, a material breach by us hereunder which is adjudicated by a
court of competent jurisdiction to be the sole cause of the claim,
as well as the cost, including attorneys' fees and expenses, of
defending the claim, provided, however, this indemnification shall
be inapplicable if we have exercised our rights in accordance with
this Agreement.
(3) If you fail to comply with this Paragraph 7A, we may retain
attorneys of our choice and defend any claim, action or alleged claim
or action at your sole expense. You agree that our obligations under
this Agreement are exclusively to you, and no other party may rely on,
enforce, or obtain relief for breach of such obligations.
B. Insurance. During the License Term, you shall comply with the insurance
requirements of any applicable law, lease or mortgage covering the Hotel and our
specifications regarding amounts and types of insurance. Prior to the Opening
Date, and thereafter on an annual basis and/or each time you change the terms of
your insurance policy or carrier, you shall provide us with certificates of
insurance which: (i) evidence your liability insurance and its amounts; (ii)
name Best Franchising, Inc. and U.S. Franchise Systems, Inc. as additional
insureds; (iii) state that your policy may not be canceled, amended or permitted
to lapse or expire without thirty (30) days prior written notice to us. All
insurance policies shall be written on a fully insured basis. Deductibles and
self insurance retentions are subject to our prior approval. At the minimum, you
agree to maintain or cause to be maintained (as applicable) the following
insurance underwritten by an insurer we approve:
(1) employer's liability and workers' compensation insurance as
prescribed by applicable law;
(2) comprehensive general and automobile liability insurance (with
products, completed operations and independent contractors coverage),
all on an occurrence basis, with single-limit coverage for personal and
bodily injury and property damage of at least $5,000,000.00 per
occurrence which can be met by a combination of primary liability and
umbrella liability policies. You also agree to cause your general
contractor to maintain comprehensive general liability insurance of at
least $5,000,000.00 per occurrence naming Best Franchising, Inc. and
U.S. Franchise Systems, Inc. as additional insureds; and
(3) Dram Shop/Liquor liability insurance, in the same amounts provided
above and naming the same additional insureds, if you serve alcohol of
any kind at the Hotel. If you begin serving alcohol at any time during
the License Term, you agree to notify us immediately and provide us
with a revised certificate of insurance evidencing Dram Shop/Liquor
liability insurance coverage.
8. Transfer.
A. Transfer by Us. We have the right to transfer or assign our rights or
obligations under this Agreement to
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<PAGE>
any person or entity and our interests will inure to the benefit of any
transferee, successor or assignee.
B. Transfer by You. You agree that the rights and duties created by this
Agreement are personal to you and that we have granted this License in reliance
on the business skill, financial capacity and character of you and your
partners, shareholders or members. You may mortgage the Hotel to any financial
institution without our consent if you remain the mortgagor of the Hotel. Except
as provided in Paragraph 8B(1), neither you, nor any successor to your interest,
shall sell, assign, transfer, convey or otherwise encumber any direct or
indirect interest in this License, the Hotel or the assets of the Hotel without
our consent.
(1) A transfer of less than a fifty percent (50%) equity interest in
you which does not transfer Control (as defined below), does not
require our consent if you notify us in writing within thirty (30) days
of the transfer.
(2) A transfer which alone or combined with previous or simultaneous
transfers changes Control of the License, you, the Hotel, or greater
than fifty percent (50%) of the Hotel's assets requires our prior
written consent.
We may require any or all of the following as conditions of
our consent to a transfer:
(a) your compliance with all terms of this Agreement;
(b) the transferee entity or individual, and all
shareholders, partners or members of the transferee
(collectively, the "Transferee"), shall meet our
then-current qualifications for new licensees;
(c) the Transferee shall execute our then-standard forms of
license agreement and other applicable agreements for new
Hotel System licensees (which will include then-current fees
and Contributions);
(d) any new general manager retained by the Transferee
completes our initial training program;
(e) the Hotel shall be upgraded within the time period we
set to conform to the then-current standards and
specifications for hotels operating under the Hotel System;
(f) you or the Transferee must pay us a $5,000.00 transfer
fee unless the transfer is to the spouse, issue, parent, or
sibling of your partner(s) or shareholder(s), or from one
partner or shareholder to another. If the Transferee
requests approval of a term exceeding the remainder of the
License Term, the Transferee must pay our then-current
application fee, prorated for the time period exceeding the
License Term;
(g) you execute a general release, in a form satisfactory to
us, of any and all claims by you against us and our
officers, directors, shareholders, and employees;
(h) the Transferee executes a written assignment, in a form
satisfactory to us, assuming and agreeing to discharge all
of your obligations under this Agreement; and
(i) you execute all documents we request evidencing your
agreement to remain liable for all obligations to us and our
parent, subsidiaries and affiliates prior to the transfer.
(3) "Control" or "Controlling" shall mean the direct or indirect
possession of the power to direct or cause the direction of the
management and policies of any person or legal entity.
(4) Except as otherwise provided herein, any purported assignment
or transfer without our prior written consent is null and void,
constitutes a material breach of this Agreement, enables us to
terminate this Agreement without providing you an opportunity to
cure and allows us to seek both injunctive relief and monetary
damages.
(5) If you are an individual, you may transfer this License
without paying a transfer or application fee if:
(i) you retain at least twenty-five percent (25%) ownership; (ii)
we receive your request and supporting documentation before the
Opening Date; and (iii) the Transferee meets our then-current
standards for new licensees.
C. Transfers of the License or Equity Interest in You Upon Death. Upon the death
or mental incompetency of you or a person Controlling you, the executor,
administrator, or personal representative ("Representative") of such person
shall transfer within three (3) months his interest to a third party subject to
our approval and the conditions set forth in Paragraph 8B. In the case of
transfer by devise or inheritance, if the heirs or beneficiaries can not meet
the conditions of Paragraph 8B, the Representative shall have six (6) months
from the death or mental incompetency to dispose of the interest, subject to the
transfer provisions of this Agreement, after which
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<PAGE>
time we may terminate this Agreement.
D. Registration of a Proposed Transfer of Equity Interests. Securities in you
may be offered to the public only with our prior written consent. All materials
required by federal or state law for the sale of any interest in you shall be
submitted to us for review prior to distribution or filing with any government
agency, including any materials to be used in any offering exempt from
registration under federal or state securities laws. No offering by you shall
imply or state (by use of the Proprietary Marks or otherwise) that we are
participating as an underwriter, issuer or your representative. You agree to pay
us a non-refundable fee equal to our costs and expenses of reviewing each
proposed offering including, without limitation, attorneys' fees. You
acknowledge that we may require changes to your offering materials before
issuing our consent.
E. Non-Waiver of Claims. Our consent to a transfer is not a waiver of: (i) any
claims we may have against you; or (ii) our right to demand strict compliance by
the Transferee with the terms of this Agreement.
9. Condemnation and Casualty.
A. Condemnation. You shall immediately notify us of any proposed taking of
the Hotel by eminent domain. If a taking occurs, we shall use reasonable efforts
(but shall not be obligated) to transfer this Agreement to a location selected
by you and approved by us within four (4) months of the taking. If we approve
the new location and you subsequently open a new hotel at the new location
within two (2) years of the taking, the new hotel shall be deemed to be the
Hotel licensed hereunder. If a taking occurs and the new hotel does not become
the Hotel licensed hereunder (or if it is evident to us that such shall be the
case), we may terminate this Agreement, but you will not pay us any liquidated
damages.
B. Casualty. If the Hotel is damaged by fire or casualty, you shall repair the
damage in accordance with our standards. If the damage or repair requires
closing all or any portion of the Hotel, you shall: (i) notify us immediately;
(ii) commence reconstruction within the later to occur of six (6) months of
closing or your obtaining all necessary construction permits (provided you are
proceeding in a reasonably diligent manner to obtain such permits); and (iii)
reopen for continuous business operations as soon as practicable (but in any
event within twenty-four (24) months after closing of the Hotel and not without
providing us at least ten (10) days advance notice of the proposed reopening
date). If the Hotel is not reopened in accordance with this Paragraph 9B, we may
terminate this Agreement and you shall pay us liquidated damages (see Paragraph
10D), provided, however, that your payment of liquidated damages shall not
exceed the amount of any insurance proceeds you receive, net of repayment of
first mortgage debt.
C. Extensions of Term. The License Term will be extended for the period the
Hotel is not operating as a result of fire or other casualty. You are not
required to make any payments pursuant to Paragraph 3D while the Hotel is closed
by reason of condemnation or casualty unless you receive insurance proceeds.
10. Termination.
A. Expiration of Term. Subject to our Renewal Option (as defined in Paragraph
11A) and earlier termination as set forth herein, this Agreement will expire
without notice twenty (20) years from the authorized Opening Date. If we fail to
exercise our Renewal Option, upon the expiration of the License Term you shall
comply with our de-identification procedures as set forth in Paragraph 10C of
this Agreement or in the Manual.
B. Defaults.
(1) Default with Opportunity to Cure.
(a) If you fail to comply with or violate any provision of
this Agreement, the Manual or any Hotel System standard,
unless this Agreement, applicable law or any default notice
we send to you provides otherwise, you shall have thirty
(30) days from your receipt of a written default
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notice to remedy such default (the "Cure Period"). If any
default remains uncured after the Cure Period expires, this
Agreement shall terminate automatically without further
notice to you, effective immediately upon the expiration of
the Cure Period. Alternatively, instead of considering this
Agreement automatically terminated upon the expiration of
the Cure Period, we may suspend your access to the FIRST
SYSTEM or remove your Hotel from our advertising
publications or the National Directory until your default is
cured to our satisfaction.
(b) If we issue you two (2) written default notices within
any twelve (12) month period, the Cure Period in the second
written default notice shall be ten (10) days, unless
applicable law provides otherwise.
(c) In any judicial or other proceeding in which the
validity of our termination of this Agreement is contested,
we may cite and rely upon all of your defaults or violations
of this Agreement, not solely the defaults or violations
referenced in any written default notice sent to you.
(d) Any notice of termination or suspension of services we
issue to you shall not relieve you of your obligations that
survive termination of this Agreement, including, but not
limited to, its de-identification, indemnification and
liquidated damages provisions.
(e) If you fail to provide us with a copy of the recorded
deed, an executed lease for at least the License Term or
other evidence satisfactory to us of your Control of the
Hotel on or before commencement of construction or
renovation, we may issue you a default notice which may lead
to us terminating this Agreement.
(2) Default Without Opportunity to Cure (Immediate Termination by Us).
This Agreement shall terminate immediately without notice to you if:
(a) you, or any guarantor of your obligations (a
"Guarantor"), shall: (i) not pay its debts as they become
due; (ii) admit its inability to pay its debts; or (iii)
make a general assignment for the benefit of creditors;
(b) you, or any Guarantor, commence or consent to any case,
proceeding or action seeking: (i) reorganization,
arrangement, adjustment, liquidation, dissolution or
composition of you or your debts under any law relating to
bankruptcy, insolvency, reorganization or relief of debtors;
or (ii) appointment of a receiver, trustee, custodian or
other official for any portion of its property;
(c) you, or any Guarantor, take any corporate or other
action to authorize any of the actions set forth above in
Paragraphs 10B(2)(a) or 10B(2)(b);
(d) any case, proceeding, or other action against you or any
Guarantor is commenced seeking an order for relief against
it as debtor, or seeking reorganization, arrangement,
adjustment, liquidation, dissolution or composition of it or
its debts under any law relating to bankruptcy, insolvency,
reorganization or relief of debtors, or seeking appointment
of a receiver, trustee, custodian or other official for it
or for any portion of its property, and such case,
proceeding or other action: (i) results in an order for
relief against it which is not fully stayed within seven (7)
business days after the entry thereof; or (ii) remains
undismissed for forty-five (45) days;
(e) an attachment remains on all or any part of the Hotel or
your or any Guarantor's assets for thirty (30) days;
(f) you or any Guarantor fail, within sixty (60) days of the
entry of a final judgment against you or any Guarantor in
any amount exceeding $50,000.00, to discharge, vacate or
reverse the judgment, or to stay execution of it, or if
appealed, to discharge the judgment within thirty (30) days
after a final adverse decision in the appeal;
(g) you cease to operate the Hotel at the location
designated on Attachment A or under the Proprietary Marks,
or lose possession or the right to possession of all or a
significant part of the Hotel, except as otherwise provided
herein;
(h) you contest in any court or proceeding either all or any
portion of our ownership of the Hotel System or the validity
of any of the Proprietary Marks;
(i) you transfer your rights under this Agreement in
violation of Paragraph 8;
(j) you fail to identify the Hotel to the public as a Best
Hotel;
(k) any action is taken to dissolve or liquidate you or any
Guarantor, except due to death;
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(l) you or any of your principals or Guarantors is, or is
discovered to have been, convicted of a felony or any other
offense likely to reflect adversely upon us, the Hotel
System, or the Proprietary Marks, including, but not limited
to, any violation of laws or regulations relating to
discrimination, equal employment or equal opportunity;
(m) you knowingly maintain false books and records of
account or knowingly submit false or misleading reports or
information to us, including any information you provide or
fail to provide to us on your franchise application or
otherwise;
(n) you disclose the contents of any Confidential Materials
to any unauthorized person or fail to exercise reasonable
care to prevent such disclosure; or
(o) in our discretion, we determine a threat or danger to
public health or safety results from the construction,
maintenance or operation of the Hotel, such that an
immediate shutdown of the Hotel is necessary to avoid a
substantial liability or loss of goodwill to the Hotel
System. Notwithstanding the foregoing, if we determine, in
our discretion, that both the threat of danger to public
health or safety is eliminated and the reopening of the
Hotel will not cause a substantial loss of goodwill to the
Hotel System within six (6) months of the termination of
this Agreement, we will reinstate the Agreement on identical
terms and conditions.
C. De-identification of Hotel Upon Termination or Expiration of this Agreement.
(1) Within ten (10) days of the effective date of termination or
expiration of this Agreement, as the case may be, you agree to
de-identify the Hotel by taking whatever action we deem necessary to
ensure that the Hotel is no longer identified as a hotel within the
Hotel System and no use is made of any part of the Hotel System at or
in connection with the Hotel or otherwise. Among the actions you must
take to de-identify the Hotel, you agree to: (i) return the Manual and
all other proprietary materials to us; (ii) remove all items
identifying the Hotel System; (iii) change the telephone listing for
the Hotel; (iv) remove all items bearing the Proprietary Marks
(including all signage) from the Hotel; (v) cancel all fictitious or
assumed name or equivalent registrations relating to your use of the
Proprietary Marks; (vi) stop answering the telephone in any way that
would lead a prospective customer to believe that the Hotel is
affiliated with the Hotel System; and (vii) permit our representative
to enter the Hotel to conduct inspections on a periodic basis until
de-identification is completed to our satisfaction. Until
de-identification is completed to our satisfaction, you agree to
maintain a conspicuous sign at the registration desk in a form we
specify stating that the Hotel is no longer associated with the Hotel
System. You acknowledge that the de-identification process intends to
immediately alert the public that the Hotel is not affiliated with the
Hotel System.
(2) If you fail to comply with all of the de-identification provisions
of Paragraph 10C(1) within the permitted ten (10) day period, you
agree to: (i) pay a royalty fee of $5,000.00 per day until
de-identification is completed to our satisfaction; and (ii) permit
our representative to enter the Hotel to complete the
de-identification process at your expense.
(3) You agree to pay all our costs and expenses of enforcing these
de-identification provisions, including, but not limited to, all
attorneys' fees. Nothing contained herein limits our rights or
remedies at law or in equity should you not complete the
de-identification procedures within the permitted ten (10) day period,
including, but not limited to, our right to seek and obtain an
injunction to remove or cause to be removed, at your sole cost and
expense, all signage from the Hotel.
D. Payment of Liquidated Damages. You acknowledge the difficulty of determining
our damages if we terminate this Agreement prior to the expiration of the
License Term (a "Premature Termination"). Unless expressly provided otherwise,
if a Premature Termination occurs for any reason, you agree to pay us liquidated
damages as set forth in Paragraph 10D. Your payment of liquidated damages to us
shall not be considered as a penalty for a Premature Termination or for your
breaching this Agreement, but rather a reasonable estimate of our damages and
lost future fees we would have received from you under the Agreement. You
acknowledge that your obligation to pay us liquidated damages is in addition to,
not in lieu of, your obligations to pay any amounts then due to us and comply
with the de-identification provisions of Paragraph 10C. You agree to pay us
liquidated damages in a lump sum within thirty (30) days following the date of
termination in an amount equal
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to: (i) the average monthly Royalty Fee paid under Paragraph 3D(1)(a) for the
twelve (12) month period prior to Premature Termination of this Agreement
multiplied by 36; or (ii) in the event that a Premature Termination occurs
within the first twelve (12) months of the License Term, the average monthly
Royalty Fee paid under Paragraph 3D(1)(a) during the License Term, multiplied by
36.
11. Renewal.
A. Upon your written submission of our then-current form of renewal application
at least 180 days prior to this Agreement's expiration date, we shall grant you
a ten (10) year renewal term if, in our discretion, the following criteria are
satisfied:
(1) you pay a non-refundable fee equal to one-half of the then-current
franchise application fee;
(2) you received passing Quality Assurance Scores (as defined in the
Manual) during the preceding three (3) year period;
(3) you agree to upgrade the Hotel to meet our then-current criteria
for the Hotel System; and
(4) you have a favorable operating and payment history.
Notwithstanding the foregoing, if an independent third party chosen by us
determines that the location of the Hotel is inappropriate or obsolete for the
brand we shall not be required to renew your license. We will accept or reject
your written renewal request within thirty (30) days of its receipt by us. You
agree to execute our then-current form of license agreement to effectuate any
renewal.
B. If we determine that you do not meet the above criteria, you may apply to
renew this Agreement for a ten (2) year term by submitting an application at
least 120 days prior to the expiration of the License Term with a non-refundable
renewal fee equal to our then-current franchise application fee. We will
evaluate your application based on your operating history, the location of the
Hotel and your agreement to upgrade the Hotel. If we accept your application,
you will execute our then-current form of license agreement.
C. Notwithstanding the foregoing, we shall have the option to renew ("Renewal
Option") this Agreement for an additional term of twenty (20) years provided we
inform you in writing of our decision to exercise our Renewal Option within
ninety (90) days of the expiration of the License Term (the "Renewal Notice").
If we elect to exercise our Renewal Option, you agree to execute a new license
agreement within seven (7) days of your receipt of the Renewal Notice on the
same terms and conditions of this Agreement.
12. Relationship of Parties.
A. No Agency Relationship. You are an independent contractor. Neither party is
the legal representative or agent of, or has the power to obligate the other for
any purpose. The parties have a business relationship defined entirely by the
express provisions of this Agreement. No partnership, joint venture, affiliate,
agency, fiduciary or employment relationship is intended or created hereby.
B. Your Notices to Public Concerning Independent Status. You shall take such
steps as we require to minimize the chance of a claim being made against us for
any occurrence at the Hotel, or for acts, omissions or obligations of you or
anyone affiliated with you or the Hotel. Such steps may include giving notice in
private or public rooms or on advertisements, business forms and stationery,
making clear to the public that we are not the owner or operator of the Hotel
and are not accountable for events occurring at the Hotel.
C. Use of the Best Name. You shall not use the word "Best" or any similar words
in your entity or trade name, nor authorize or permit such use by anyone else.
You shall not use the word "Best" or any other name or mark associated with the
Hotel System to incur any obligation or indebtedness.
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13. Miscellaneous.
A. Severability and Interpretation. The remedies provided in this Agreement are
not exclusive. If any provision of this Agreement is held unenforceable, void or
voidable, all remaining provisions shall continue in full force and effect
unless deletion of the provision(s) materially frustrates the purpose of the
parties or makes performance commercially impracticable. If any provision
requires interpretation, such interpretation shall be based on the reasonable
intention of the parties without interpreting any provision in favor of or
against any party hereto by reason of the drafting of the party or its position
relative to the other party.
B. Binding Effect. This Agreement is valid when executed and accepted by us at
our office in Atlanta, Georgia. It is made and entered into in the State of
Georgia and shall be governed and construed under and in accordance with the
laws of the State of Georgia. You acknowledge that you have sought, voluntarily
accepted, and become associated with us at our headquarters in Atlanta, Georgia.
The choice of law designation permits all lawsuits or proceedings concerning
this Agreement to be filed in the State of Georgia.
C. Exclusive Benefit. This Agreement is exclusively for the benefit of the
parties hereto and shall not create liability to any third party, unless
otherwise set forth herein. No agreement between us and any third party is for
your benefit.
D. Entire Agreement. This is the entire Agreement between the parties relating
to the Hotel. Neither we nor any person on our behalf has made any
representation to you concerning this Agreement, the Hotel or the Hotel System
that is not set forth herein or in our UFOC. No change in this Agreement shall
be valid unless in writing signed by both parties. No failure to require strict
performance or to exercise any right or remedy hereunder shall preclude
requiring strict performance or exercising any right or remedy in the future.
E. Our Withholding of Consent. Our consent, wherever required, may be withheld
if any default by you exists under this Agreement. Prior to any deviation by you
from any material term of this Agreement, you must obtain our prior written
consent.
F. Notices. All notices given under this Agreement shall be in writing,
delivered by any means which provides evidence of the date received. Notices
shall be deemed given at the date and time receipt is evidenced, to the
respective parties at the following addresses unless and until a different
address is designated by written notice to the other party:
<TABLE>
<S> <C>
Notices to us: Best Franchising, Inc. Notices to you: RSVP-BI OPCO, LLC
13 Corporate Square, c/o Alpine Equity Partners L.P.
Suite 250 1285 Avenue of the Americas
Atlanta, Georgia 30329 21st Floor
Attention: Jim Darby New York, New York 10019
Attention: Lorraine Jackson, Esq.
</TABLE>
G. Descriptive Headings. The headings in this Agreement are for convenience only
and shall not control or affect the meaning or construction of any provision.
H. Management of the Hotel. The parties acknowledge that contemporaneously
herewith you have entered into a management agreement with USFS Management,
Inc., an affiliate of U.S. Franchise Systems, Inc., to manage the operations of
the Hotel. You shall not enter into any other lease, management agreement or
other similar arrangement for the operation of the Hotel or any part thereof
with any independent entity without our prior written consent.
12
<PAGE>
I. Guest Room Rates. You shall establish room rates for the Hotel which must be
submitted to us before the deadline for the next National Directory. With the
exception of special event periods, you agree not to charge any rate exceeding
the rate published in the current edition of the National Directory.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first stated above.
LICENSEE: RSVP-BI OPCO, LLC
By: /s/ RICHARD GOLDSTEIN
----------------------------------------------
Richard Goldstein
Attest:
------------------------------------------
LICENSOR: BEST FRANCHISING, INC.
By: /s/ JIM DARBY
-----------------------------------------------
Jim Darby
Executive Vice President, Franchise Operations
Attest:
-------------------------------------------
Assistant Secretary
13
<PAGE>
GUARANTY
As an inducement to Best Franchising, Inc. ("we," "our" or "us") to execute that
certain amended and restated license agreement (including any future amendments
thereto) with RSVP-BI OPCO, LLC ("Licensee") dated as of _______________, a copy
of which is attached hereto (collectively, the "License Agreement"), the
undersigned ("Guarantor") hereby unconditionally warrants to us and our parent,
successors and assigns that all representations of Licensee contained in both
the License Agreement and the application submitted in connection therewith are
true and correct. The Guarantor also guarantees the timely payment and
performance of all of Licensee's obligations under the License Agreement.
Upon notice from us that Licensee is in default under any of the terms of the
License Agreement, the Guarantor shall cure any monetary default within ten (10)
business days from such notice and immediately commence performance of all other
obligations of Licensee under the License Agreement. Without affecting the
obligations of the Guarantor under this Guaranty, we may without notice to the
undersigned extend, modify or release any indebtedness or obligation of the
Licensee, or settle, adjust or compromise any claims against the Licensee. The
Guarantor waives notice of amendment of the License Agreement and notice of
demand for payment or performance by the Licensee. The Guarantor expressly
acknowledges that its obligation to cure all defaults and guaranty the
performance of Licensee shall survive the termination of the License Agreement.
This Guaranty constitutes a guaranty of payment and performance and not of
collection, and each Guarantor specifically waives any obligation we may have to
proceed against the Licensee on any money or property held by the Licensee or by
any other person or entity as collateral security, by way of set off or
otherwise. The Guarantor further agrees that this Guaranty shall continue to be
effective or be reinstated, as the case may be, if at any time payment or any of
the guaranteed obligations is rescinded or must otherwise be restored or
returned by us upon the insolvency, bankruptcy or reorganization of the Licensee
or the Guarantor, all as though such payment has not been made.
Our failure to enforce all or any portion of our rights under this Guaranty
shall not constitute a waiver of our ability to do so at any point in the
future.
IN WITNESS WHEREOF, the undersigned has signed this Guaranty as of ____________,
the date of the License Agreement.
Witnesses: Guarantor: ALPINE HOSPITALITY VENTURES LLC
- -------------------------- --------------------------------------------
By: Richard Goldstein
Notarized (with seal):
- -------------------------- --------------------------------------------
<PAGE>
ATTACHMENT A
THE HOTEL
Facilities (Paragraph 1 ):
Site --- Area and general description: A Best Suites hotel located at
5155 Carmichael Road
Montgomery, AL 36106
Number of approved Guest Rooms: 110
Number of Suites included: 110
Ownership of Licensee (Paragraph 8):
RSVP-BI OPCO, LLC 100%
<PAGE>
ATTACHMENT B
TERRITORY
BEST SUITES MONTGOMERY, AL/#1089
No other Best Brand hotel may be built or converted within a five mile radius of
the Hotel.
<PAGE>
ATTACHMENT C
RIGHT TO REPLACE EXISTING LICENSES
WITHIN THE TERRITORY
NONE
<PAGE>
ATTACHMENT D
THE WORK
NONE
<PAGE>
Location: HOTELADDRESS1
HOTELADDRESS2
ID Number: IDNUMBER
Hotel Name: PROPERTYNAME
Date: , 1998
--------------
BRAND
between
BEST FRANCHISING, INC.
and
ENTITYNAMECAPS
1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. The License 1
A. The Hotel 1
B. The Hotel System 1
2. Grant of License 1
3. Your Responsibilities 2
A. Operational and Other Requirements 2
B. Performance of the Work 2
C. Upgrading of the Hotel 2
D. Fees 3
4. Our Responsibilities 4
A. Training 4
B. Services 4
C. Consultation on Operations, Facilities and Marketing 4
D. Use of Marketing/Reservation Contributions 4
E. Application of Manual 4
F. Other Arrangements 4
G. Inspections/Compliance Assistance 5
5. Proprietary Rights 5
A. Ownership of the Hotel System and Proprietary Marks 5
B. Trademark Disputes 5
C. Protection of Name and Marks 5
6. Records and Audits 5
A. Monthly Reports 5
B. Preparation and Maintenance of Records 6
C. Audit 6
D. Annual Financial Statements 6
7. Indemnity and Insurance 6
A. Indemnity 6
B. Insurance 7
8. Transfer 7
A. Transfer by Us 7
B. Transfer by You 8
C. Transfers of the License or Equity Interest in You Upon
Death 9
D. Registration of a Proposed Transfer of Equity Interests 9
E. Non-Waiver of Claims 9
F. Our Right of First Refusal 9
G. No Right of First Refusal 10
9. Condemnation and Casualty 10
A. Condemnation 10
B. Casualty 10
C. Extensions of Term 10
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
10. Termination 10
A. Expiration of Term 10
B. Defaults 10
C. De-identification of Hotel Upon Termination or
Expiration of this Agreement 12
D. Payment of Liquidated Damages 13
11. Renewal 13
A. Requirements. 13
B. Alternative Process 14
12. Relationship of Parties 14
A. No Agency Relationship 14
B. Your Notices to Public Concerning Independent Status 14
C. Use of the Best Name 14
13. Miscellaneous 14
A. Severability and Interpretation 14
B. Binding Effect 14
C. Exclusive Benefit 15
D. Entire Agreement 15
E. Our Withholding of Consent 15
F. Notices 15
G. Descriptive Headings 15
H. Management of the Hotel 15
I. Guest Room Rates 15
GUARANTY
ATTACHMENT A
ATTACHMENT B
ATTACHMENT C
</TABLE>
3
<PAGE>
LICENSE AGREEMENT
This license agreement ("Agreement" or "License Agreement"),
dated ____________, 199__, is entered into by and between Best
Franchising, Inc., a Georgia corporation having an address at 13
Corporate Square, Suite 250, Atlanta, Georgia 30329 ("we", "our", "us"
or "Licensor"), and ENTITYNAMECAPS, a ENTITYTYPE, having an address at
ENTITYADDRESS ("you", "your" or "Licensee"). In consideration of the
following mutual promises, the parties agree as follows:
1. The License.
We have the exclusive right to license a unique concept and system (the
"Hotel System") to establish and operate "mid-level economy" hotels
under the names "Best Inns of America," "Best Suites of America" and
certain brand extensions thereof (collectively, "Hotels" or "Best
Hotels"). Before signing this Agreement, you read our Offering Circular
for Prospective Franchisees ("UFOC") and independently evaluated and
investigated the risks of investing in the hotel industry generally and
purchasing a Best franchise specifically, including such factors as
current and potential market conditions, owning a franchise and various
competitive factors. Following your investigation, you wish to enter
into this Agreement to obtain a license to use the Hotel System to
operate a BRAND hotel located at HOTELADDRESS1, HOTELADDRESS2, (the
"Hotel").
A. The Hotel. The Hotel includes all structures, facilities,
appurtenances, furniture, fixtures, equipment, entry, exit and parking
areas located on the real property identified on Attachment A hereto or
any other real property we approve for Hotel expansion, signage or
other facilities. You agree not to make any material changes to the
Hotel without our prior written consent, including, but not limited to,
any change in the number of rooms or suites at the Hotel ("Guest
Rooms").
B. The Hotel System. We have designed the Hotel System so that
the public associates the Hotels with high quality standards. The Hotel
System includes, without limitation: (i) the tradenames, trademarks,
and service marks "Best Inns of America" and "Best Suites of America"
and such other tradenames, trademarks, and service marks we hereafter
designate for use with the Hotel System (collectively, the "Proprietary
Marks"); (ii) prototypical architectural plans, designs and layouts,
including, without limitation, site, floor, roof, plumbing, lobby,
electrical and landscape plans; (iii) a national toll free number
system for central reservation referrals, as renovated by us from time
to time (collectively, the "CRS"); (iv) the national Best directory
(the "National Directory"); (v) management, personnel and operational
training programs, materials and procedures; (vi) standards and
specifications for operations, marketing, construction, equipment and
furnishings described in our confidential manuals, as amended by us
from time to time (collectively, the "Manual"); and (vii) marketing,
advertising and promotional programs.
2. Grant of License.
We hereby grant to you a license (this "License") to use the Hotel
System to build and operate the Hotel in accordance with the terms of
and commencing on the date of this Agreement and terminating as
provided in Paragraph 10 (the "License Term"). During the License Term,
neither we nor any of our affiliates or franchisees will develop or
license any Best Hotels within the area described in Attachment B (the
"Territory"). This Agreement does not limit our right, or the rights of
our parent, subsidiaries or affiliates, (i) to use or license others to
use any part of the Hotel System outside the Territory; (ii) to conduct
other business activities under, or license others to use, hospitality
brands that are not part of the Proprietary Marks, whether outside or
within the Territory, even if the other brands or business activities
compete with the Hotel and/or the Hotel System; or (iii) to use or
license others to use the Hotel System within the Territory to replace
any previously executed Best Hotel license agreement.
3. Your Responsibilities.
A. Operational and Other Requirements. During the License
Term, you agree to:
4
<PAGE>
1. maintain the Hotel in first class condition
and in a clean, safe and orderly manner;
2. provide efficient, courteous, and
high-quality service to the public while
maintaining a high moral and ethical
standard and atmosphere at the Hotel;
3. operate the Hotel twenty-four (24) hours a
day, every day;
4. strictly comply in all respects with our
requirements concerning:
a) the Hotel System, the Manual and
all other policies and procedures
we communicate to you;
b) our quality standards and the types
of services, products and amenities
you may use, promote or offer at
the Hotel;
c) your use of the Proprietary Marks
and display, style and type of
signage;
d) directory and reservation service
listings of the Hotel; and
e) your participation in all of our
marketing, reservation service,
advertising, Internet, computer,
training and operating programs,
including a property management
system that interfaces with the CRS
or any other central reservation
system we adopt;
5. execute our then-current software license
agreement to participate in, connect with
and use the CRS;
6. except as provided in Paragraph 4E, adopt
all changes we make to the Hotel System;
7. strictly comply with all governmental
requirements, including: (i) the payment of
taxes; (ii) the filing and maintenance of
trade or fictitious name registrations; and
(iii) the filing and maintenance of all
licenses and permits to operate the Hotel;
8. permit our representatives to inspect the
Hotel at any time and provide them free
lodging during the inspection period;
9. not use the Hotel or the Hotel System to
promote a competing business or other
lodging facility;
10. use your best efforts to create a favorable
response to the names "Best Inns of
America," "Best Suites of America" and the
names of any brand extensions we develop;
11. promptly pay to us and/or our parent,
subsidiaries and affiliates when due all
royalties and fees owed under this
Agreement;
12. treat the Manual and any other information
or materials we designate, as confidential
("Confidential Materials") and not
duplicate, circulate or distribute any
Confidential Materials to any unauthorized
person without our prior written consent;
13. obtain from each employee who will have
access to any Confidential Materials their
written agreement to keep the Confidential
Materials confidential; and
14. conduct your advertising in a dignified
manner. At our request, you agree to submit
to us all advertising and promotional
materials and immediately discontinue your
use of any materials we reasonably reject.
B. Performance of the Work. As a primary inducement for us to
enter into this Agreement, you agree to perform the work listed on
Attachment C (the "Work") in strict accordance with our specifications.
C. Upgrading of the Hotel. If at any time the Hotel falls
below the quality standards set forth in the Manual, we may require you
to upgrade or renovate the Hotel to reach acceptable standards. Your
failure to upgrade or renovate the Hotel promptly after we notify you
to do so may result in our issuing a quality default notice which could
lead to our terminating this Agreement.
D. Fees.
5
<PAGE>
1. For each month (or part of a month) during
the License Term, beginning with the date
the Hotel opens for business (the "Opening
Date"), you shall pay to us by the tenth
(10th) day of the following month:
a) a "Royalty Fee" equal to the
following percentages of Gross Room
Revenues (as defined in Paragraph
3D(2)) of the Hotel: (i) three
percent (3%) during the first
twelve (12) month period following
the Opening Date ("Year 1"); (ii)
four percent (4%) during the twelve
(12) month period following Year 1
("Year 2"); and (iii) five percent
(5%) for each month after Year 2
until the expiration or sooner
termination of this Agreement.
b) a "Marketing/Reservation
Contribution" ("Contribution")
equal to two and one-half percent
(2.5%) of Gross Room Revenues of
the Hotel from the Opening Date
until the expiration or sooner
termination of this Agreement.
Beginning in Year 3, we may, at any
time, increase your Contribution
only if: (i) we simultaneously
increase the Contributions of all
other licensees whose agreements
contain fee provisions similar to
this Paragraph 3D; and (ii) at
least sixty-six percent (66%) of
the open Best Hotels (one vote per
open Hotel) agree to such an
increase; and
c) any sales, gross receipts, or
similar tax imposed on us and
calculated solely on any payment
required under this Agreement,
unless the tax is an optional
alternative to an income tax
otherwise payable by us.
2. "Gross Room Revenues" shall mean gross
receipts attributable to or payable for the
rental of Guest Rooms, including, without
limitation, the net proceeds of use and
occupancy and business interruption, rent
loss, or similar insurance held by you with
respect to the Hotel. However, insurance
proceeds are included in Gross Room Revenues
only if you actually receive them. Gross
Room Revenues do not include gratuities to
employees or service charges levied in lieu
of such gratuities which are payable to
employees, or any taxes or fees collected by
you for transmittal to any taxing
authorities.
3. If we require, you agree to make your
monthly payments to a designated bank
account by telegraphic transfer, automatic
debit arrangement, or other means we
specify. We will pay for the cost of
connection to such telegraphic or automatic
debit service. If an automatic debit or
similar arrangement is utilized and funds
are insufficient to cover your payment
obligation, any amounts unpaid on or before
the due date shall be deemed overdue. If any
payment is overdue, in addition to the
overdue amount, you shall pay us interest on
the overdue amount from the due date until
paid in full at the lesser rate of one and
one-half percent (1.5%) per month or the
maximum rate permitted by law. Our ability
to charge interest on all overdue amounts
shall be in addition to any other remedies
we may have as a result of your failure to
make payments when due.
4. You agree to pay us a $2,500.00 fee each
time you apply to us to add any Guest Rooms
to the Hotel.
5. Subject to our requirements and at your own
expense, you may conduct local and regional
marketing and advertising programs. You
shall pay us reasonable fees for optional
advertising materials you order from us for
these programs.
6. You will participate in any global
distribution system connected to the CRS and
pay applicable commissions to travel agents.
You agree to pay: (i) all commissions and
fees for reservations you accept through any
sources (including the Internet), whether
processed through us, the CRS, third party
reservation systems, or billed directly to
you; and (ii) CRS related telephone and
equipment charges.
4. Our Responsibilities.
6
<PAGE>
A. Training. We provide initial training prior to the Opening
Date. During the License Term, we will provide both required and
optional training programs. We are responsible for the cost of
instruction and you are responsible for all travel, lodging and other
training expenses, including reasonable charges for training materials.
If any training is held at your Hotel, you agree to provide our
representatives with free lodging.
B. Services. Provided you are in full compliance with your
obligations under this Agreement, you shall have access to the CRS,
listings in advertising publications and the National Directory.
C. Consultation on Operations, Facilities and Marketing. On an
ongoing basis, you may consult with us in connection with Hotel
operations, including suppliers for fixtures, furnishings, signs and
other equipment.
D. Use of Marketing/Reservation Contributions. We will use the
Contributions to pay for: (i) advertising, promotion, publicity, market
research and other marketing programs; (ii) maintaining and producing
the National Directory, our Internet site, and the CRS; and (iii) our
overhead relating directly to national and local marketing and
reservations. Our overhead is limited to costs associated with the
financial management of the Contributions and the salaries and benefits
of certain individuals who work for our reservation or marketing
departments. We will neither profit financially from nor use the
Contributions to directly market our sale of franchises. We are not
obligated to spend funds for marketing or reservation services
exceeding the Contributions received from licensees using the Hotel
System. If we have a surplus of Contributions at the end of any taxable
year, all expenditures in the following taxable year(s) shall be made
first out of earnings accumulated from previous years, next out of
current year earnings, and finally from current year Contributions.
Upon your written request, we will provide you with an annual statement
regarding Contributions.
E. Application of Manual. All Best Hotels must comply with the
terms of the Manual, although we may permit limited exceptions based on
local conditions or special circumstances. Each change in the Manual
will be explained to you at least thirty (30) days prior to its
effective date. Any change to the Manual which, in our reasonable
discretion, would cause a substantial investment by you will not be
effective unless approved by sixty-six percent (66%) of the open Best
Hotels. Each open hotel shall have one vote and approval of sixty-six
percent (66%) of the open hotels will be required to implement the
change. Notwithstanding the foregoing, changes to the Manual which
relate to guest security and/or life/safety issues are not subject to
the approval of you or other licensees even if substantial investments
are required.
F. Other Arrangements. We may arrange for development,
marketing, operations, administration, technical and support functions,
facilities, services and/or personnel with any other entity and may use
any facilities, programs, services and/or personnel used in connection
with the Hotel System in connection with our other business activities,
even if our other business activities compete with the Hotel or the
Hotel System.
G. Inspections/Compliance Assistance. We have the right to
inspect your Hotel at any time, with or without notice to you, to
determine if the Hotel is in compliance with the Hotel System and the
standards set forth in the Manual. If the Hotel fails to comply with
either, we may, at our option and at your cost, require you to correct
the deficiencies within the reasonable time we establish.
5. Proprietary Rights.
A. Ownership of the Hotel System and Proprietary Marks. You
acknowledge and shall not contest, either directly or indirectly,
either during the License Term or thereafter: (i) our exclusive right
to both use and grant licenses to use the Hotel System and any
element(s) or component(s) thereof; (ii) that we are the owner or
exclusive licensee of all right, title and interest in and to the
Proprietary Marks together with the goodwill they symbolize; or (iii)
the validity or ownership of the Proprietary Marks.
7
<PAGE>
All improvements and additions to or associated with the Hotel System
made by you or anyone else and all goodwill arising from your use of
the Proprietary Marks shall inure to our benefit and become our
property. Upon expiration or termination of this Agreement, no monetary
amount shall be attributed to any goodwill associated with your use of
the Hotel System or portion thereof.
B. Trademark Disputes. We have the sole right to handle third
party disputes concerning the use of all or any part of the Hotel
System, and you shall, at your reasonable expense, extend your full
cooperation to us in all matters relating to the operation of the
Hotel. All recoveries made as a result of disputes with third parties
regarding use of the Hotel System or any part thereof belong solely to
us. We are not required to initiate lawsuits against alleged imitators
or infringers and may settle any dispute in our discretion. You shall
not initiate any lawsuit or proceeding against alleged imitators or
infringers or any other lawsuit or proceeding to enforce or protect the
Hotel System without our prior written consent.
C. Protection of Name and Marks. Consistent with their
ownership rights and rights to use the Proprietary Marks, both parties
to this Agreement shall use their reasonable best efforts to protect
and maintain the Proprietary Marks and their distinguishing
characteristics. You agree: (i) to execute any documents we request to
obtain or maintain protection for the Proprietary Marks; (ii) to use
the Proprietary Marks only in connection with the operation of your
Hotel and only as we instruct; and (iii) that your unauthorized use of
the Proprietary Marks shall constitute both an infringement of our
rights and a material breach of your obligations under this Agreement.
You must notify us immediately, in writing, if you have any actual or
constructive knowledge of any infringement or challenge to your use of
the Proprietary Marks or any unauthorized use or possible misuse of
either the Proprietary Marks, the names "Best Inns of America" or "Best
Suites of America" or any Confidential Materials.
6. Records and Audits.
A. Monthly Reports. By the tenth (10th) day of each month, you
agree to prepare and submit to us a statement for the previous month,
certified by your chief financial or principal accounting officer,
listing Gross Rooms Revenue, other revenues generated at the Hotel,
room occupancy rates, reservation data, the amounts currently due under
Paragraph 3D and other information we deem useful in connection with
the Hotel System (the "Data"). The statement shall be in such form and
detail as we may reasonably request, shall be our property and may be
used by us for all reasonable purposes. We will not knowingly provide
Data on your Hotel as an inducement to develop other hotel brands in
your market area, although you understand that some of the Data may be
compiled into information we provide to prospective licensees.
B. Preparation and Maintenance of Records. You agree to: (i)
prepare on a current basis in a form satisfactory to us, (and preserve
for at least four (4) years), complete and accurate records concerning
Gross Rooms Revenue and all financial, operating, marketing and other
aspects of the Hotel; and (ii) maintain an accounting system which
fully and accurately reflects all financial aspects of the Hotel,
including, but not limited to, books of account, tax returns,
governmental reports, register tapes, daily reports, profit and loss
and cash flow statements, balance sheets and complete quarterly and
annual financial statements.
C. Audit. We or our agents may, at any time, examine and copy,
all books, records, and tax returns related to your Hotel and, at our
option, require an independent audit. If an inspection or audit reveals
that you have understated payments in any report to us, you shall
immediately pay us the amount understated, in addition to interest from
the date such amount was due until paid, at the lesser of one and
one-half percent (1.5%) per month or the maximum rate permitted by law.
In this event, we may also require that all of your future annual
financial statements be audited at your expense by an independent
certified public accounting firm you select and we approve. If an
inspection or audit discloses an underpayment to us of five percent
(5%) or more of the total amount owed during any six (6) month period,
you shall, in addition to paying the understated amount with interest,
reimburse us for our costs and expenses in connection with the
inspection or audit, including legal and accounting fees. These
remedies supplement any others we may have under this Agreement.
8
<PAGE>
D. Annual Financial Statements. Upon our request, not later
than ninety (90) days after the end of your fiscal year, you must
provide us with complete financial statements for such year certified
by your chief financial or principal accounting officer to be true and
correct and prepared in accordance with generally accepted accounting
principles consistently applied. Any false certification shall be a
material breach of this Agreement. Upon our request from time to time
you also agree to provide us with operating statistics for the Hotel.
7. Indemnity and Insurance.
A. Indemnity. You agree that nothing in this Agreement
authorizes either party to make any contract, agreement, warranty or
representation on the other's behalf, or to incur any debt or other
obligation in the other's name, and that neither party shall assume
liability for, or be deemed liable as a result of any such action, or
by reason of any act or omission of the other party or any claim or
judgment arising therefrom.
1. You agree to indemnify, defend and hold
harmless us, our parent, affiliates,
subsidiaries and our respective, officers,
directors, agents, employees, successors and
assigns (the "Indemnified Parties") against,
and to reimburse the Indemnified Parties
for, any and all claims or actions arising
or alleging to arise directly or indirectly
from, as a result of, or in connection with,
your operation of the Hotel, including, but
not limited to, claims alleging either
intentional or negligent conduct, acts or
omissions by you or us relating to the
operation of the Hotel or the Hotel System,
as well as the costs, including attorneys'
fees, of defending against said claims or
actions. We reserve the right to defend any
such claim or action against us. You agree
that this indemnity will survive the
expiration or termination of this Agreement.
You have no obligation to indemnify us if a
court of competent jurisdiction makes a
final decision not subject to further appeal
that we or our employees directly engaged in
willful misconduct or intentionally caused
the property damage or bodily injury that is
the subject of the claim. You shall notify
us immediately (but not later than five (5)
days following your receipt of notice) of
any claim, action or potential claim or
action naming any Indemnified Party as a
defendant or potential defendant (the
"Indemnification Notice"). The
Indemnification Notice shall include copies
of all correspondence or court papers
relating to the claim or action.
2. We shall indemnify you and hold harmless
your parent, affiliates, subsidiaries and
respective officers, directors, agents, and
employees against all claims against you
arising as a result of, or in connection
with, a material breach by us which is
adjudicated by a court of competent
jurisdiction to be the sole cause of the
claim, as well as the cost of defending the
claim, provided, however, this
indemnification shall be inapplicable if we
have exercised our rights in accordance with
this Agreement.
3. If you fail to comply with this Paragraph
7A, we may retain attorneys and defend any
claim, action or alleged claim or action at
your sole expense. You agree that our
obligations hereunder are exclusively to
you, and no other party may rely on,
enforce, or obtain relief for breach of such
obligations.
B. Insurance. During the License Term, you shall
comply with the insurance requirements of any applicable law, lease or
mortgage covering the Hotel and our specifications regarding amounts
and types of insurance. Prior to the Opening Date, and thereafter on an
annual basis and/or each time you change the terms of your insurance
policy or carrier, you shall provide us with certificates of insurance
which: (i) evidence your liability insurance and its amounts; (ii) name
Best Franchising, Inc. and U.S. Franchise Systems, Inc. as additional
insureds; (iii) state that your policy may not be canceled, amended or
permitted to lapse or expire without thirty (30) days prior written
notice to us. All insurance policies shall be written on a fully
insured basis. Deductibles and self insurance
9
<PAGE>
retentions are subject to our prior approval. At the minimum, you agree
to maintain or cause to be maintained (as applicable) the following
insurance underwritten by an insurer we approve:
1. employer's liability and workers'
compensation insurance as prescribed by
applicable law;
2. comprehensive general and automobile
liability insurance (with products,
completed operations and independent
contractors coverage), all on an occurrence
basis, with single-limit coverage for
personal and bodily injury and property
damage of at least $5,000,000.00 per
occurrence which can be met by a combination
of primary liability and umbrella liability
policies. You also agree to cause your
general contractor to maintain comprehensive
general liability insurance of at least
$5,000,000.00 per occurrence naming Best
Franchising, Inc. and U.S. Franchise
Systems, Inc. as additional insureds; and
3. Dram Shop/Liquor liability insurance, in the
same amounts provided above and naming the
same additional insureds, if you serve
alcohol of any kind at the Hotel. If you
begin serving alcohol at any time during the
License Term, you agree to notify us
immediately and provide us with a revised
certificate of insurance evidencing Dram
Shop/Liquor liability insurance coverage.
8. Transfer.
A. Transfer by Us. We have the right to transfer or assign our
rights or obligations under this Agreement to any person or entity and
our interests will inure to the benefit of any transferee, successor or
assignee.
B. Transfer by You. You agree that the rights and duties
created by this Agreement are personal to you and that we have granted
this License in reliance on the business skill, financial capacity and
character of you and your partners, shareholders or members. You may
mortgage the Hotel to any financial institution without our consent if
you remain the mortgagor of the Hotel. Except as provided in Paragraph
8B(1), neither you, any successor to your interest, or any individual,
partnership, corporation, or other legal entity which directly or
indirectly owns any interest in this License or in you shall sell,
assign, transfer, convey or otherwise encumber any direct or indirect
interest in this License, the Hotel or the assets of the Hotel without
our consent.
1. A transfer of less than a fifty percent
(50%) equity interest in you which does not
transfer Control (as defined below), does
not require our consent if you notify us in
writing within thirty (30) days of the
transfer.
2. A transfer which alone or combined with
previous or simultaneous transfers changes
Control of the License, you, the Hotel, or
greater than fifty percent (50%) of the
Hotel's assets requires our prior written
consent. We may require any or all of the
following as conditions of our consent to a
transfer:
a) your compliance with all terms of
this Agreement;
b) the transferee entity or
individual, and all shareholders,
partners or members of the
transferee (collectively, the
"Transferee"), shall meet our
then-current qualifications for new
licensees;
c) the Transferee shall execute our
then-standard forms of license
agreement and other applicable
agreements for new Hotel System
licensees (which will include
then-current fees and
Contributions);
d) any new general manager retained by
the Transferee completes our
initial training program;
e) the Hotel shall be upgraded within
the time period we set to conform
to the then-current standards and
specifications for hotels operating
under the Hotel System;
f) you or the Transferee must pay us a
$5,000.00 transfer fee unless the
transfer is to the spouse, issue,
parent, or sibling of your
partner(s) or shareholder(s), or
from one partner or shareholder to
another. If the Transferee requests
approval of a term exceeding the
remainder of the
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<PAGE>
License Term, the Transferee must
pay our then-current application
fee, prorated for the time period
exceeding the License Term;
g) you execute a general release, in a
form satisfactory to us, of any and
all claims by you against us and our
officers, directors, shareholders,
and employees;
h) the Transferee executes a written
assignment, in a form satisfactory
to us, assuming and agreeing to
discharge all of your obligations
under this Agreement; and
i) you execute all documents we
request evidencing your agreement
to remain liable for all
obligations to us and our parent,
subsidiaries and affiliates
prior to the transfer.
2. "Control" or "Controlling" shall mean the
direct or indirect possession of the power
to direct or cause the direction of the
management and policies of any person or
legal entity.
3. Except as otherwise provided herein, any
purported assignment or transfer without our
prior written consent is null and void,
constitutes a material breach of this
Agreement, enables us to terminate this
Agreement without providing you an
opportunity to cure and allows us to seek
both injunctive relief and monetary damages.
4. If you are an individual, you may transfer
this License without paying a transfer or
application fee if: (i) you retain at least
twenty-five percent (25%) ownership; (ii) we
receive your request and supporting
documentation before the Opening Date; and
(iii) the Transferee meets our then-current
standards for new licensees.
C. Transfers of the License or Equity Interest in You Upon
Death. Upon the death or mental incompetency of you or a person
Controlling you, the executor, administrator, or personal
representative ("Representative") of such person shall transfer within
three (3) months his interest to a third party subject to our approval
and the conditions set forth in Paragraph 8B. In the case of transfer
by devise or inheritance, if the heirs or beneficiaries can not meet
the conditions of Paragraph 8B, the Representative shall have six (6)
months from the death or mental incompetency to dispose of the
interest, subject to the transfer provisions of this Agreement, after
which time we may terminate this Agreement.
D. Registration of a Proposed Transfer of Equity Interests.
Securities in you may be offered to the public only with our prior
written consent. All materials required by federal or state law for the
sale of any interest in you shall be submitted to us for review prior
to distribution or filing with any government agency, including any
materials to be used in any offering exempt from registration under
federal or state securities laws. No offering by you shall imply or
state (by use of the Proprietary Marks or otherwise) that we are
participating as an underwriter, issuer or your representative. You
agree to pay us a non-refundable fee equal to the greater of $5,000.00
or our costs and expenses of reviewing each proposed offering
including, without limitation, attorneys' fees. You acknowledge that we
may require changes to your offering materials and a full
indemnification from all participants in the offering before issuing
our consent.
E. Non-Waiver of Claims. Our consent to a transfer is not a
waiver of: (i) any claims we may have against you; or (ii) our right to
demand strict compliance by the Transferee with the terms of this
Agreement.
F. Our Right of First Refusal. If any party holding any direct
or indirect interest in you or in all or substantially all of the
Hotel's assets desires to accept a bona fide offer from a third party
to purchase the interest, you agree to notify us and provide whatever
documentation relating to the offer we require. If the third party
purchaser wishes to remove the Hotel from the Hotel System, we have the
right and option, exercisable within thirty (30) days after we receive
written notification, to inform you that we intend to purchase the
seller's interest on the same terms and conditions offered by the third
party. If we elect to purchase the seller's interest, closing will
occur within ninety (90) days from the
11
<PAGE>
date of our notice to the seller. If we elect not to purchase the
seller's interest, any material change thereafter to the terms of the
offer shall constitute a new offer subject to our same rights of first
refusal as in the case of the third party purchaser's initial offer.
Our failure to exercise this option is not a waiver by us of any other
provision of this Agreement. If the consideration, terms, and/or
conditions offered by the third party purchaser are such that we may
not reasonably be required to furnish the same consideration, terms,
and/or conditions, then we may purchase the interest for the reasonable
cash equivalent. If the parties cannot agree within thirty (30) days on
the reasonable cash equivalent of the consideration, terms, and/or
conditions offered by the third party purchaser, an independent
appraiser whose determination shall be binding will be designated by us
at our expense to determine the reasonable equivalent cash
consideration.
G. No Right of First Refusal. If a third party meeting our
then-current qualifications offers to purchase the Hotel and wishes to
keep the Hotel in the Hotel System, we shall have no right of first
refusal.
9. Condemnation and Casualty.
A. Condemnation. You shall immediately notify us of any
proposed taking of the Hotel by eminent domain. If a taking occurs, we
shall use reasonable efforts (but shall not be obligated) to transfer
this Agreement to a location selected by you and approved by us within
four (4) months of the taking. If we approve the new location and you
subsequently open a new hotel at the new location within two (2) years
of the taking, the new hotel shall be deemed to be the Hotel licensed
hereunder. If a taking occurs and the new hotel does not become the
Hotel licensed hereunder (or if it is evident to us that such shall be
the case), this Agreement will terminate, but you will not pay us any
liquidated damages.
B. Casualty. If the Hotel is damaged by fire or casualty, you
shall repair the damage in accordance with our standards. If the damage
or repair requires closing all or any portion of the Hotel, you shall:
(i) notify us immediately; (ii) commence reconstruction within four (4)
months of closing; and (iii) reopen for continuous business operations
as soon as practicable (but in any event within twenty-four (24) months
after closing of the Hotel and not without providing us at least ten
(10) days advance notice of the proposed reopening date). If the Hotel
is not reopened in accordance with this Paragraph 9B, this Agreement
will terminate and you shall pay us liquidated damages (see Paragraph
10D), provided, however, that your payment of liquidated damages shall
not exceed the amount of any insurance proceeds you receive.
C. Extensions of Term. The License Term will be extended for
the period the Hotel is not operating as a result of fire or other
casualty. You are not required to make any payments pursuant to
Paragraph 3D while the Hotel is closed by reason of condemnation or
casualty unless you receive insurance proceeds.
10. Termination.
A. Expiration of Term. This Agreement will expire without
notice [twenty (20) years for new construction; ten (10) years for
conversions] from the authorized Opening Date, subject to its earlier
termination as set forth herein. You acknowledge the difficulty of
determining our damages if this Agreement terminates prior to its
expiration. You also acknowledge that the liquidated damages set forth
in Paragraph 10D represent the best estimate of our damages arising
from any termination of this Agreement prior to its expiration. Subject
to Paragraph 11A, upon the expiration of the License Term, you shall
comply with our de-identification procedures as set forth in Paragraph
10C of this Agreement or in the Manual.
B. Defaults.
1. Default with Opportunity to Cure.
a) If you fail to comply with or
violate any provision of this
Agreement, the Manual or any Hotel
System standard, unless this
Agreement,
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<PAGE>
applicable law or any
default notice we send to you
provides otherwise, you shall have
thirty (30) days from your receipt
of a written default notice to
remedy such default (the "Cure
Period"). If any default remains
uncured after the Cure Period
expires, this Agreement shall
terminate automatically without
further notice to you, effective
immediately upon the expiration of
the Cure Period. Alternatively,
instead of considering this
Agreement automatically terminated
upon the expiration of the Cure
Period, we may suspend your access
to the CRS or remove your Hotel
from our advertising publications
or the National Directory until
your default is cured to our
satisfaction.
b) If we issue you two (2) written
default notices within any twelve
(12) month period, the Cure Period
in the second written default notice
shall be ten (10) days, unless
applicable law provides otherwise.
c) In any judicial or other proceeding
in which the validity of our
termination of this Agreement is
contested, we may cite and rely upon
all of your defaults or violations
of this Agreement, not solely the
defaults or violations referenced in
any written default notice sent to
you.
d) Any notice of termination or
suspension of services we issue to
you shall not relieve you of your
obligations that survive termination
of this Agreement, including, but
not limited to, its
de-identification, indemnification
and liquidated damages provisions.
e) If you fail to provide us with a
copy of the recorded deed, an
executed lease for at least the
License Term or other evidence
satisfactory to us of your Control
of the Hotel on or before
commencement of construction or
renovation, we may issue you a
default notice which may lead to us
terminating this Agreement.
2. Default Without Opportunity to Cure
(Immediate Termination by Us). This Agreement shall
terminate immediately without notice to you if:
a) you, or any guarantor of your
obligations (a "Guarantor"), shall:
(i) not pay its debts as they
become due; (ii) admit its
inability to pay its debts; or
(iii) make a general assignment for
the benefit of creditors;
b) you, or any Guarantor, commence or
consent to any case, proceeding or
action seeking: (i) reorganization,
arrangement, adjustment,
liquidation, dissolution or
composition of you or your debts
under any law relating to
bankruptcy, insolvency,
reorganization or relief of debtors;
or (ii) appointment of a receiver,
trustee, custodian or other official
for any portion of its property;
c) you, or any Guarantor, take any
corporate or other action to
authorize any of the actions set
forth above in Paragraphs 10B(2)(a)
or 10B(2)(b);
d) any case, proceeding, or other
action against you or any Guarantor
is commenced seeking an order for
relief against it as debtor, or
seeking reorganization,
arrangement, adjustment,
liquidation, dissolution or
composition of it or its debts
under any law relating to
bankruptcy, insolvency,
reorganization or relief of
debtors, or seeking appointment of
a receiver, trustee, custodian or
other official for it or for any
portion of its property, and such
case, proceeding or other action:
(i) results in an order for relief
against it which is not fully
stayed within seven (7) business
days after the entry thereof; or
(ii) remains undismissed for
forty-five (45) days;
e) an attachment remains on all or any
part of the Hotel or your or any
Guarantor's assets for thirty (30)
days;
f) you or any Guarantor fail, within
sixty (60) days of the entry of a
final judgment against you or any
Guarantor in any amount exceeding
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<PAGE>
$50,000.00, to discharge, vacate or
reverse the judgment, or to stay
execution of it, or if appealed, to
discharge the judgment within thirty
(30) days after a final adverse
decision in the appeal;
g) you cease to operate the Hotel at
the location designated on
Attachment A or under the
Proprietary Marks, or lose
possession or the right to
possession of all or a significant
part of the Hotel, except as
otherwise provided herein;
h) you contest in any court or
proceeding either all or any portion
of our ownership of the Hotel System
or the validity of any of the
Proprietary Marks;
i) you transfer your rights under this
Agreement in violation of Paragraph
8;
j) you fail to identify the
Hotel to the public as a Best
Hotel;
k) any action is taken to
dissolve or liquidate you or any
Guarantor, except due to death;
l) you or any of your principals or
Guarantors is, or is discovered to
have been, convicted of a felony or
any other offense likely to reflect
adversely upon us, the Hotel System,
or the Proprietary Marks, including,
but not limited to, any violation of
laws or regulations relating to
discrimination, equal employment or
equal opportunity;
m) you knowingly maintain false books
and records of account or knowingly
submit false or misleading reports
or information to us, including any
information you provide or fail to
provide to us on your franchise
application or otherwise;
n) you disclose the contents of any
Confidential Materials to any
unauthorized person or fail to
exercise reasonable care to prevent
such disclosure; or
o) in our discretion, we determine a
threat or danger to public health
or safety results from the
construction, maintenance or
operation of the Hotel, such that
an immediate shutdown of the Hotel
is necessary to avoid a substantial
liability or loss of goodwill to
the Hotel System. Notwithstanding
the foregoing, if we determine, in
our discretion, that both the
threat of danger to public health
or safety is eliminated and the
reopening of the Hotel will not
cause a substantial loss of
goodwill to the Hotel System within
six (6) months of the termination
of this Agreement, we will
reinstate the Agreement on
identical terms and conditions.
C. De-identification of Hotel Upon Termination or Expiration of
this Agreement.
1. Within ten (10) days of the effective date
of termination or expiration of this
Agreement, as the case may be, you agree to
de-identify the Hotel by taking whatever
action we deem necessary to ensure that the
Hotel is no longer identified as a hotel
within the Hotel System and no use is made
of any part of the Hotel System at or in
connection with the Hotel or otherwise.
Among the actions you must take to
de-identify the Hotel, you agree to: (i)
return the Manual and all other proprietary
materials to us; (ii) remove all items
identifying the Hotel System; (iii) change
the telephone listing for the Hotel; (iv)
remove all items bearing the Proprietary
Marks (including all signage) from the
Hotel; (v) cancel all fictitious or assumed
name or equivalent registrations relating to
your use of the Proprietary Marks; (vi) stop
answering the telephone in any way that
would lead a prospective customer to believe
that the Hotel is affiliated with the Hotel
System; and (vii) permit our representative
to enter the Hotel to conduct inspections on
a periodic basis until de-identification is
completed to our satisfaction. Until
de-identification is completed to our
satisfaction, you agree to maintain a
conspicuous sign at the registration desk in
a form we specify stating
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<PAGE>
that the Hotel is no longer associated with
the Hotel System. You acknowledge that the
de-identification process intends to
immediately alert the public that the Hotel
is not affiliated with the Hotel System.
2. If you fail to comply with all of the
de-identification provisions of Paragraph
10C(1) within the permitted ten (10) day
period, you agree to: (i) pay a royalty fee
of $5,000.00 per day until de-identification
is completed to our satisfaction; and (ii)
permit our representative to enter the Hotel
to complete the de-identification process at
your expense.
3. You agree to pay all our costs and expenses
of enforcing these de-identification
provisions, including, but not limited to,
all attorneys' fees. Nothing contained
herein limits our rights or remedies at law
or in equity should you not complete the
de-identification procedures within the
permitted ten (10) day period, including,
but not limited to, our right to seek and
obtain an injunction to remove or cause to
be removed, at your sole cost and expense,
all signage from the Hotel.
D. Payment of Liquidated Damages. If this Agreement terminates
after the first twenty-four (24) months of Hotel operations and prior
to its expiration for any reason other than as set forth in Paragraphs
9A or 9B, you agree to pay us liquidated damages as set forth below.
Your payment of liquidated damages to us shall not be considered a
penalty for your breaching this Agreement, but rather a reasonable
estimate of our damages and lost future fees we would have received
from you under the Agreement. You acknowledge that your obligation to
pay us liquidated damages is in addition to, not in lieu of, your
obligations to pay any amounts then due to us and comply with the
de-identification provisions of Paragraph 10C. You agree to pay us
liquidated damages in a lump sum within thirty (30) days following the
date of termination, based on the average occupancy rate at the Hotel
for the twelve (12) months preceding the termination ("Occupancy Rate")
as follows:
1. if the Occupancy Rate was below fifty
percent (50%), you shall pay no liquidated
damages;
2. if the Occupancy Rate was fifty percent
(50%) to fifty-nine and nine-tenths percent
(59.9%), you agree to pay us an amount equal
to twelve (12) months of all fees under
Paragraph 3D(1)(a), unless you give us
twelve (12) months prior written notice and
your Occupancy Rate meets the criteria of
this Paragraph 10D(2), in which case you
shall pay no liquidated damages;
3. if the Occupancy Rate was sixty percent
(60%) to sixty-nine and nine-tenths percent
(69.9%), you agree to pay an amount equal to
twenty-four (24) months of fees under
Paragraph 3D(1)(a); and
4. if the Occupancy Rate was seventy percent
(70%) or greater, you agree to pay an amount
equal to thirty-six (36) months of fees
under Paragraph 3D(1)(a).
If this Agreement terminates at any time during the
first twenty-four (24) months of the operation of the
Hotel, you agree to pay us liquidated damages equal
to the greater of: (i) $2,000.00 multiplied by the
number of Guest Rooms; or (ii) thirty-six (36)
multiplied by the average monthly fees required under
Paragraph 3D(1)(a).
11. Renewal.
A. Requirements. Upon your written submission of our
then-current form of renewal application at least 180 days prior to
this Agreement's expiration date, we shall grant you a ten (10) year
renewal term if, in our discretion, the following criteria are
satisfied:
1. you pay a non-refundable fee equal to
one-half of the then-current franchise
application fee;
2. you received passing Quality Assurance
Scores (as defined in the Manual) during the
preceding three (3) year period;
3. you agree to upgrade the Hotel to meet our
then-current criteria for the Hotel System;
and
4. you have a favorable operating and payment
history.
15
<PAGE>
Notwithstanding the foregoing, if an independent
third party chosen by us determines that the location
of the Hotel is inappropriate or obsolete for the
brand we shall not be required to renew your license.
We will accept or reject your written renewal request
within thirty (30) days of its receipt by us. You
agree to execute our then-current form of license
agreement to effectuate any renewal.
B. Alternative Process. If we determine that you do not meet
the above criteria, you may apply to renew this Agreement for a ten
year term by submitting an application at least 120 days prior to the
expiration of the License Term with a non-refundable renewal fee equal
to our then-current franchise application fee. We will evaluate your
application based on your operating history, the location of the Hotel
and your agreement to upgrade the Hotel. If we accept your application,
you will execute our then-current form of license agreement.
12. Relationship of Parties.
A. No Agency Relationship. You are an independent contractor.
Neither party is the legal representative or agent of, or has the power
to obligate the other for any purpose. The parties have a business
relationship defined entirely by the express provisions of this
Agreement. No partnership, joint venture, affiliate, agency, fiduciary
or employment relationship is intended or created hereby.
B. Your Notices to Public Concerning Independent Status. You
shall take such steps as we require to minimize the chance of a claim
being made against us for any occurrence at the Hotel, or for acts,
omissions or obligations of you or anyone affiliated with you or the
Hotel. Such steps may include giving notice in private or public rooms
or on advertisements, business forms and stationery, making clear to
the public that we are not the owner or operator of the Hotel and are
not accountable for events occurring at the Hotel.
C. Use of the Best Name. You shall not use the word "Best" or
any similar words in your entity or trade name, nor authorize or permit
such use by anyone else. You shall not use the word "Best" or any other
name or mark associated with the Hotel System to incur any obligation
or indebtedness.
13. Miscellaneous.
A. Severability and Interpretation. The remedies provided in
this Agreement are not exclusive. If any provision of this Agreement is
held unenforceable, void or voidable, all remaining provisions shall
continue in full force and effect unless deletion of the provision(s)
materially frustrates the purpose of the parties or makes performance
commercially impracticable. If any provision requires interpretation,
such interpretation shall be based on the reasonable intention of the
parties without interpreting any provision in favor of or against any
party hereto by reason of the drafting of the party or its position
relative to the other party.
B. Binding Effect. This Agreement is valid when executed and
accepted by us at our office in Atlanta, Georgia. It is made and
entered into in the State of Georgia and shall be governed and
construed under and in accordance with the laws of the State of
Georgia. You acknowledge that you have sought, voluntarily accepted,
and become associated with us at our headquarters in Atlanta, Georgia.
The choice of law designation permits but does not require that all
lawsuits or proceedings concerning this Agreement be filed in the State
of Georgia.
C. Exclusive Benefit. This Agreement is exclusively for the
benefit of the parties hereto and shall not create liability to any
third party, unless otherwise set forth herein. No agreement between us
and any third party is for your benefit.
D. Entire Agreement. This is the entire Agreement between the
parties relating to the Hotel. Neither we nor any person on our behalf
has made any representation to you concerning this Agreement, the Hotel
or the Hotel System that is not set forth herein or in our UFOC. No
change in this
16
<PAGE>
Agreement shall be valid unless in writing signed by
both parties. No failure to require strict performance or to exercise
any right or remedy hereunder shall preclude requiring strict
performance or exercising any right or remedy in the future.
E. Our Withholding of Consent. Our consent, wherever required,
may be withheld if any default by you exists under this Agreement.
Prior to any deviation by you from any material term of this Agreement,
you must obtain our prior written consent.
F. Notices. All notices given under this Agreement shall be in
writing, delivered by any means which provides evidence of the date
received. Notices shall be deemed given at the date and time receipt is
evidenced, to the respective parties at the following addresses unless
and until a different address is designated by written notice to the
other party:
Notices to us:Best Franchising, Inc. Notices to you: ENTITYNAMECAPS13
Corporate Square, PCNAME
Suite 250 PCADDRESS1
Atlanta, Georgia30329 PCADDRESS2
Attention: Jim Darby
G. Descriptive Headings. The headings in this Agreement are
for convenience only and shall not control or affect the meaning or
construction of any provision.
H. Management of the Hotel. You must at all times retain and
exercise direct management control over the business of the Hotel. You
shall not enter into any lease, management agreement or other similar
arrangement for the operation of the Hotel or any part thereof with any
independent entity without our prior written consent.
I. Guest Room Rates. You shall establish room rates for the
Hotel which must be submitted to us before the deadline for the next
National Directory. With the exception of special event periods, you
agree not to charge any rate exceeding the rate published in the
current edition of the National Directory.
[SIGNATURES TO FOLLOW ON NEXT PAGE]
17
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first stated above.
LICENSEE:
ENTITYNAMECAPS
By:
---------------------------------------------
SIGNEENAME
SIGNEETITLE
Attest/Witness:
----------------------------------------------
Any other corporate officer or notary
public w/seal
LICENSOR:
BEST FRANCHISING, INC.
By:
------------------------------------------------
Jim Darby,
Executive Vice President, Franchise Operations
Attest:
--------------------------------------------
Assistant Secretary
18
<PAGE>
GUARANTY
As an inducement to Best Franchising, Inc. ("we," "our" or "us") to
execute that certain license agreement (including any future amendments
thereto) with ENTITYNAMECAPS("Licensee") dated as of _______________, a
copy of which is attached hereto, (collectively, the "License
Agreement"), the undersigned (individually, a "Guarantor" and
collectively, the "Guarantors"), jointly and severally, hereby
unconditionally warrant to us and our parent, successors and assigns
that all representations of Licensee contained in both the License
Agreement and the application submitted in connection therewith are
true and correct. The Guarantors also jointly and severally guarantee
the timely payment and performance of all of Licensee's obligations
under the License Agreement.
Upon notice from us that Licensee is in default under any of the terms
of the License Agreement, the Guarantors shall cure any monetary
default within five (5) business days from such notice and immediately
perform all other obligations of Licensee under the License Agreement.
Without affecting the obligations of the Guarantors under this
Guaranty, we may without notice to the undersigned extend, modify or
release any indebtedness or obligation of the Licensee, or settle,
adjust or compromise any claims against the Licensee. The Guarantors
waive notice of amendment of the License Agreement and notice of demand
for payment or performance by the Licensee. The Guarantors expressly
acknowledge that their joint and several obligation to cure all
defaults and guaranty the performance of Licensee shall survive the
termination of the License Agreement.
Upon the death of a Guarantor, the estate of such Guarantor shall be
bound by this Guaranty but only for defaults and obligations hereunder
existing at the time of death. The obligations of the surviving
Guarantors shall continue in full force and effect.
This Guaranty constitutes a guaranty of payment and performance and not
of collection, and each of the Guarantors specifically waives any
obligation we may have to proceed against the Licensee on any money or
property held by the Licensee or by any other person or entity as
collateral security, by way of set off or otherwise. The Guarantors
further agree that this Guaranty shall continue to be effective or be
reinstated, as the case may be, if at any time payment or any of the
guaranteed obligations is rescinded or must otherwise be restored or
returned by us upon the insolvency, bankruptcy or reorganization of the
Licensee or any Guarantor, all as though such payment has not been
made.
Our failure to enforce all or any portion of our rights under this
Guaranty shall not constitute a waiver of our ability to do so at any
point in the future.
IN WITNESS WHEREOF, each of the undersigned has signed this Guaranty as
of ____________, the date of the License Agreement.
Witnesses: Guarantors:
Notarized (with seal):
------------------------- -------------------------------
GUARANTOR1, Legal Signature
------------------------- -------------------------------
GUARANTOR2, Legal Signature
------------------------- -------------------------------
, Legal Signature
------------------------- -------------------------------
, Legal Signature
------------------------- -------------------------------
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<PAGE>
ATTACHMENT A
THE HOTEL
Facilities (Paragraph 1 ):
Site --- Area and general description: ABRANDhotel located at:
HOTELADDRESS1 HOTELADDRESS2
Number of approved Guest Rooms: ROOMS
Number of Suites included:
Ownership of Licensee (Paragraph 8):
ENTITYNAMECAPS 100%
20
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ATTACHMENT B
TERRITORY
PROPERTYNAME#IDNUMBER
The Territory is defined as that area bordered by:
21
<PAGE>
ATTACHMENT C
THE WORK
You acknowledge that every detail of the Hotel System is
important to us and other licensees operating under the Hotel
System to develop and maintain the standards and public image
of the Hotel System. You agree to strictly comply with the
details of the Hotel System, as set forth in the Manual or
otherwise in writing. The following constitutes the
development schedule for the Hotel.
(1) Conversion of an Existing Facility
(a) You agree to renovate the Hotel in strict accordance and
within the time frames set forth on the attached property
conversion plan ("PCP"). If requested by us, you agree to
submit renovation plans for the Hotel for our approval. If we
require you to submit renovation plans, renovations shall not
begin until we approve the renovation plans in writing. Once
we approve the renovation plans, you agree not to make any
subsequent changes without our prior written consent. Our
approval of your renovation plans is exclusively for the
purpose of ensuring compliance with our then-current
standards. Your failure to renovate the Hotel in strict
accordance with the PCP and within the specified time frames
shall constitute a material breach of this Agreement and may
lead to us issuing a default notice and subsequently
terminating this Agreement.
(b) The Hotel shall be ready to open for business not later than
six (6) months from the date hereof, unless otherwise provided
in the PCP ("Completion Date"). Within ten (10) days of the
Completion Date you shall ask us to conduct a final
inspection, which we shall promptly conduct. You shall not
open for business prior to our written authorization to do so,
and you agree to open within ten (10) days of our
authorization. We will not authorize you to open the Hotel
unless and until you are in full compliance with all terms of
this Agreement.
(2) New Development
(a) You shall submit preliminary plans (the "Plans"), including
site layout and outline specifications within three (3) months
from the date of this Agreement.
(b) You shall attend at your own expense a briefing to acquaint
you with our building process and support structure at our
headquarters in Atlanta, Georgia within four (4) months from
the date of this Agreement.
(c) You shall submit to us complete working drawings and
specifications for the Hotel, including its proposed
equipment, furnishings, facilities and signs, with such detail
and containing such information as we require within five (5)
months from the date of this Agreement. The Plans shall
conform to our then-prevailing Hotel System standards.
Construction shall not begin until we have approved the Plans
in writing. Following our approval of your Plans, you shall
make no changes to the Plans without our prior written
consent. If during the course of construction changes in the
Plans are required, you shall notify us immediately. Your
failure to construct the Hotel in strict accordance with the
Plans we approve in writing shall constitute a material breach
and may lead to our issuing a default notice and subsequently
terminating this Agreement. Our approval of the Plans is
intended exclusively to ensure compliance with our
then-current standards.
(d) Construction shall commence within seven (7) months from the
date of this Agreement. You shall notify us within (5) days of
commencement of construction, which shall mean excavation and
poured footings with a finished building slab. Construction
shall continue uninterrupted (unless interrupted by force
majeure) until completion of the Hotel. The term "force
majeure" shall mean an act of God, war, civil disturbance,
government action, fire, flood, accident, hurricane,
earthquake or other calamity, strike or other labor dispute.
The Hotel shall be ready to open for business within twelve (12) months
from the date hereof ("Completion Date"). Within ten (10) days of the
Completion Date you shall ask us to conduct a
22
<PAGE>
final inspection, which we shall promptly conduct. You shall not open
for business prior to our written authorization to do so, and you agree
to open within ten (10) days of our authorization. We will not
authorize you to open the Hotel unless and until you are in full
compliance with all terms of this Agreement.
23
<PAGE>
Exhibit 10.6
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LOAN AGREEMENT
Dated as of April 28, 1998
Between
U.S. FRANCHISE SYSTEMS, INC.
(the Borrower)
and
NATIONSBANK, N.A.
(the Lender)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS1
ARTICLE 1 - DEFINITIONS.......................................................1
SECTION 1.1 DEFINITIONS......................................................1
SECTION 1.2 OTHER REFERENTIAL PROVISIONS.....................................9
SECTION 1.3 EXHIBITS AND SCHEDULES..........................................10
ARTICLE 2 - THE LOAN.........................................................10
SECTION 2.1 TERM LOAN.......................................................10
SECTION 2.2 MANNER OF BORROWING AND DISBURSING TERM LOAN....................10
SECTION 2.3 REPAYMENT OF LOAN...............................................10
SECTION 2.4 TERM NOTE.......................................................11
SECTION 2.5 PREPAYMENT OF TERM LOAN.........................................11
ARTICLE 3 - GENERAL LOAN PROVISIONS..........................................11
SECTION 3.1 INTEREST........................................................11
SECTION 3.2 FEES............................................................12
SECTION 3.3 CHANGED CIRCUMSTANCES...........................................12
SECTION 3.4 INCREASED COSTS AND REDUCED RETURNS.............................13
SECTION 3.5 MANNER OF PAYMENT...............................................13
SECTION 3.6 TERMINATION OF AGREEMENT........................................13
ARTICLE 4 - CONDITIONS PRECEDENT.............................................13
SECTION 4.1 CONDITIONS PRECEDENT TO INITIAL LOAN............................13
ARTICLE 5 - REPRESENTATIONS AND WARRANTIES OF THE BORROWER...................15
SECTION 5.1 REPRESENTATIONS AND WARRANTIES..................................15
SECTION 5.2 SURVIVAL OF REPRESENTATIONS AND WARRANTIES, ETC.................19
ARTICLE 6 - AFFIRMATIVE COVENANTS............................................19
SECTION 6.1 PRESERVATION OF CORPORATE EXISTENCE AND SIMILAR MATTERS.........19
SECTION 6.2 COMPLIANCE WITH APPLICABLE LAW..................................19
SECTION 6.3 CONDUCT OF BUSINESS.............................................20
SECTION 6.4 PAYMENT OF TAXES AND CLAIMS.....................................20
SECTION 6.5 ACCOUNTING METHODS AND FINANCIAL RECORDS........................20
SECTION 6.6 USE OF PROCEEDS.................................................20
SECTION 6.7 HAZARDOUS WASTE AND SUBSTANCES; ENVIRONMENTAL REQUIREMENTS......20
SECTION 6.8 ACCURACY OF INFORMATION.........................................20
SECTION 6.9 LOAN TO STOCK RATIO.............................................20
SECTION 6.10 INSURANCE......................................................21
SECTION 6.11 INSPECTION.....................................................21
SECTION 6.12 YEAR 2000 COMPLIANCE...........................................21
<PAGE>
ARTICLE 7 - INFORMATION......................................................21
SECTION 7.1 FINANCIAL STATEMENTS............................................21
SECTION 7.2 DISCUSSIONS WITH ACCOUNTANTS....................................22
SECTION 7.3 OFFICER'S CERTIFICATE...........................................22
SECTION 7.4 COPIES OF OTHER REPORTS.........................................22
SECTION 7.5 NOTICE OF LITIGATION AND OTHER MATTERS..........................23
SECTION 7.6 ERISA...........................................................23
ARTICLE 8 - NEGATIVE COVENANTS...............................................24
SECTION 8.1 INVESTMENTS.....................................................24
SECTION 8.2 MERGER, CONSOLIDATION AND SALE OF ASSETS........................24
SECTION 8.3 TRANSACTIONS WITH AFFILIATES....................................24
SECTION 8.4 LIENS...........................................................24
SECTION 8.5 RESTRICTED DISTRIBUTIONS AND PAYMENTS, ETC......................24
SECTION 8.6 BENEFIT PLANS...................................................24
SECTION 8.7 AMENDMENTS OF OTHER AGREEMENTS..................................24
SECTION 8.8 TAG-ALONG/PIGGY BACK RIGHTS....................................24
ARTICLE 9 - DEFAULT..........................................................24
SECTION 9.1 EVENTS OF DEFAULT...............................................25
SECTION 9.2 REMEDIES........................................................27
SECTION 9.3 APPLICATION OF PROCEEDS.........................................28
SECTION 9.4 MISCELLANEOUS PROVISIONS CONCERNING REMEDIES....................28
ARTICLE 10 - MISCELLANEOUS...................................................29
SECTION 10.1 NOTICES........................................................29
SECTION 10.2 EXPENSES.......................................................29
SECTION 10.3 STAMP AND OTHER TAXES..........................................30
SECTION 10.4 SETOFF.........................................................30
SECTION 10.5 MANDATORY ARBITRATION; LITIGATION..............................30
SECTION 10.6 REVERSAL OF PAYMENTS...........................................32
SECTION 10.8 ACCOUNTING MATTERS............................................32
SECTION 10.9 ASSIGNMENT; PARTICIPATION......................................32
SECTION 10.10 AMENDMENTS....................................................32
SECTION 10.11 PERFORMANCE OF BORROWER'S DUTIES..............................32
SECTION 10.12 INDEMNIFICATION...............................................33
SECTION 10.13 ALL POWERS COUPLED WITH INTEREST..............................33
SECTION 10.14 SURVIVAL......................................................33
SECTION 10.15 SEVERABILITY OF PROVISIONS....................................33
SECTION 10.16 GOVERNING LAW.................................................33
SECTION 10.17 COUNTERPARTS..................................................33
SECTION 10.18 REPRODUCTION OF DOCUMENTS.....................................33
SECTION 10.19 FINAL AGREEMENT..............................................34
<PAGE>
EXHIBITS AND SCHEDULES
EXHIBIT A FORM OF TERM NOTE
SCHEDULE 5.1(a) Material Jurisdictions in Which Borrower is Qualified as a
Foreign Corporation
SCHEDULE 5.1(b) Borrower's Subsidiaries
SCHEDULE 5.1(e) Borrower's Business
SCHEDULE 5.1(f) Exceptions to Governmental Approvals
SCHEDULE 5.1(g) Non Lien Title Exceptions and Defects and Property Disposed
of Out of Ordinary Course of Business
SCHEDULE 5.1(h) Liens
SCHEDULE 5.1(i) Indebtedness for Money Borrowed and Guaranties
SCHEDULE 5.1(j) Litigation
SCHEDULE 5.1(k) Tax Returns and Payments
SCHEDULE 5.1(o) ERISA
SCHEDULE 5.1(t) Employee Relations
SCHEDULE 5.1(x) Tag-Along Rights
SCHEDULE 6.6 Use of Proceeds
SCHEDULE 8.3 Certain Affiliated Transactions
1 This Table of contents is included for reference purposes only and does not
constitute part of the Loan and Security Agreement.
<PAGE>
LOAN AGREEMENT
Dated as of April 28, 1998
U.S. FRANCHISE SYSTEMS, INC., a Delaware corporation, and NATIONSBANK,
N.A., a national banking association, agree as follows:
ARTICLE 1 - DEFINITIONS
Section 1.1 Definitions. For the purposes of this Agreement:
"Acquire", as applied to any Investment, means the acquisition of such
Investment by purchase, exchange, issuance of stock or other securities, or by
merger, reorganization or any other method.
"Affiliate" means, with respect to a Person, (a) any officer, director,
employee or managing agent of such Person, and (b) any other Person that, (i)
directly or indirectly, through one or more intermediaries, controls, or is
controlled by, or is under common control with such given Person, (ii) directly
or indirectly beneficially owns or holds 10% or more of any class of voting
stock or partnership or other interest of such Person or any Subsidiary of such
Person, or (iii) 10% or more of the voting stock or partnership or other
interest of which is directly or indirectly beneficially owned or held by such
Person or a Subsidiary of such Person. The term "control" means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of a Person, whether through ownership of voting
securities or partnership or other interests, by contract or otherwise.
"Agreement" means this Agreement, including the Exhibits and Schedules
hereto, and all amendments, modifications and supplements hereto and thereto and
restatements hereof and thereof.
"Agreement Date" means the date as of which this Agreement is dated.
"Alpine Ventures" means Alpine Hospitality Ventures, LLC, a Delaware
limited liability company.
"Alpine Ventures Loan Documents" means, collectively, the Alpine Ventures
Note and the Alpine Ventures Note Purchase Agreement.
"Alpine Ventures Note" means the Senior Subordinated Promissory Note, dated
as of the Effective Date, in the principal amount of $15,000,000, executed by
Alpine Ventures and payable to the order of the Borrower.
"Alpine Ventures Note Purchase Agreement" means the Senior Subordinated
Note Purchase Agreement, dated as of the Effective Date, between the Borrower,
as lender, and Alpine Ventures, as borrower, together with all amendments,
modifications and supplements thereto (including the Supplemental Letter
Agreement, as defined therein).
<PAGE>
2
"Aronson" means Neal K. Aronson.
"Benefit Plan" means an employee benefit plan as defined in Section 3(35)
of ERISA (other than a Multiemployer Plan) in respect of which a Person or any
Related Company is, or within the immediately preceding 6 years was, an
"employer" as defined in Section 3(5) of ERISA, including such plans as may be
established after the Agreement Date.
"Borrower" means U.S. Franchise Systems, Inc., a Delaware corporation, and
its successors and assigns.
"Business Day" means (a) any day other than a Saturday, Sunday or other day
on which banks in Atlanta, Georgia are authorized to close, and (b) in respect
of any determination with respect to a LIBOR Loan, any day referred to in clause
(a) that is also a day on which tradings are conducted in the London interbank
eurodollar market.
"Business Unit" means the assets constituting the business, or a division
or operating unit thereof, of any Person.
"Capitalized Lease" means a lease that is required to be capitalized for
financial reporting purposes in accordance with GAAP.
"Capitalized Lease Obligation" means Indebtedness represented by
obligations under a Capitalized Lease, and the amount of such Indebtedness shall
be the capitalized amount of such obligations determined in accordance with
GAAP.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Collateral" means all property and assets serving as collateral for the
Obligations, including any collateral under the Collateral Assignment of Loan
Documents, the Collateral Assignment of Deposit Account, and the Stock Pledge
Agreements.
"Collateral Assignment of Deposit Account" means the Escrow and Security
Agreement, dated as of the Effective Date, executed by the Borrower in favor of
the Lender, pursuant to which the Borrower pledges $185,156.25 to the Lender as
collateral for the Obligations.
"Collateral Assignment of Loan Documents" means the Collateral Assignment
of Loan Documents, dated as of the Effective Date, executed by the Borrower in
favor of the Lender with respect to the Alpine Ventures Loan Documents.
"Default" means any of the events specified in Section 9.1 that, with the
passage of time or giving of notice or both, would constitute an Event of
Default.
"Default Margin" means 2%.
<PAGE>
3
"Dollar" and "$" means freely transferable United States dollars.
"ERISA" means the Employee Retirement Income Security Act of 1974, as in
effect from time to time, and any successor statute.
"Effective Date" means the later of (a) the Agreement Date, and (b) the
first date on which all of the conditions set forth in Section 4.1 shall have
been fulfilled or waived by the Lender.
"Environmental Laws" means all federal, state, local and foreign laws now
or hereafter in effect relating to pollution or protection of the environment,
including laws relating to emissions, discharges, releases or threatened
releases of pollutants, contaminants, chemicals or industrial, toxic or
hazardous substances or wastes into the environment (including, without
limitation, ambient air, surface water, ground water or land) or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, removal, transport or handling of pollutants, contaminants, chemicals
or industrial, toxic or hazardous substances or wastes, and any and all
regulations, notices or demand letters issued, entered, promulgated or approved
thereunder.
"Event of Default" means any of the events specified in Section 9.1.
"GAAP" means generally accepted accounting principles consistently applied
and maintained throughout the period indicated and consistent with the prior
financial practice of the Person referred to.
"Governmental Approvals" means all authorizations, consents, approvals,
licenses and exemptions of, registrations and filings with, and reports to, all
governmental bodies, whether federal, state, local, foreign national or
provincial, and all agencies thereof.
"Governmental Authority" means any government or political subdivision or
any agency, authority, bureau, central bank, commission, department or
instrumentality of either, or any court, tribunal, grand jury or arbitrator, in
each case whether foreign or domestic.
"Guaranty", "Guaranteed" or to "Guarantee," as applied to any obligation of
another Person shall mean and include
(a) a guaranty (other than by endorsement of negotiable instruments for
collection in the ordinary course of business), directly or indirectly, in any
manner, of any part or all of such obligation of such other Person, and
(b) an agreement, direct or indirect, contingent or otherwise, and whether
or not constituting a guaranty, the practical effect of which is to assure the
payment or performance (or payment of damages in the event of nonperformance) of
any part or all of such obligation of such other Person whether by (i) the
purchase of securities or obligations, (ii) the purchase, sale or lease (as
lessee or lessor) of property or the purchase or sale of services primarily for
the purpose of enabling the obligor with respect to such obligation to make any
payment or performance (or payment of damages in the event of nonperformance) of
or on account of any part or all of such obligation or to assure the owner of
such obligation against loss,
<PAGE>
4
(iii) the supplying of funds to, or in any other manner investing in, the
obligor with respect to such obligation, (iv) repayment of amounts drawn down by
beneficiaries of letters of credit, or (v) the supplying of funds to or
investing in a Person on account of all or any part of such Person's obligation
under a guaranty of any obligation or indemnifying or holding harmless, in any
way, such Person against any part or all of such obligation.
"Indebtedness" of any Person means (a) all obligations for money borrowed
or for the deferred purchase price of property or services (other than trade
payables incurred in the ordinary course of business) or in respect of
reimbursement obligations (whether or not due) under letters of credit, (b) all
obligations represented by bonds, debentures, notes and accepted drafts that
represent extensions of credit, (c) Capitalized Lease Obligations, (d) all
obligations (including, during the non-cancellable term of any lease in the
nature of a title retention agreement, all future payment obligations under such
lease discounted to their present value in accordance with GAAP) secured by any
Lien to which any property or asset owned or held by such Person is subject,
whether or not the obligation secured thereby shall have been assumed by such
Person, (e) all obligations of other Persons which such Person has Guaranteed,
including, but not limited to, all obligations of such Person consisting of
recourse liability with respect to accounts receivable sold or otherwise
disposed of by such Person, (f) all amounts payable under interest rate
protection products, takeout commitments, or purchase contracts, and (g) all
other amounts considered by rating agencies as indebtedness.
"Intellectual Property" means, as to any Person, all of such Person's then
owned existing and future acquired or arising patents, patent rights,
copyrights, works which are the subject of copyrights, trademarks, service
marks, trade names, trade styles, patent, trademark and service mark
applications, and all licenses and rights related to any of the foregoing and
all other rights under any of the foregoing, all extensions, renewals, reissues,
divisions, continuations and continuations-in-part of any of the foregoing and
all rights to sue for past, present and future infringements of any of the
foregoing.
"Interbank Offered Rate" means, as such rate changes each day, the rate per
annum appearing on Telerate Page 3750 (or any successor page) as the London
interbank offered rate for deposits in United States dollars at approximately
11:00 a.m. (London time) for a thirty-day period, with the applicable Interbank
Offered Rate for each day being the Interbank Offered Rate that appeared, as
aforesaid, two Business Days prior to such day. If for any reason such rate is
not available, the term "Interbank Offered Rate" shall mean, as such rate
changes each day, without notice, the rate per annum appearing on Reuters Screen
LIBO Page as the London interbank offered rate for deposits in United States
dollars at approximately 11:00 a.m. (London time) for a thirty-day period, with
the applicable Interbank Offered Rate for each day being the Interbank Offered
Rate that appeared, as aforesaid, two Business Days prior to such day; provided,
however, if more than one rate is specified on Reuters Screen LIBO Page, the
applicable rate shall be the arithmetic mean of all such rates.
"Interest Payment Date" means the first day of each calendar month
commencing on May 1, 1998.
"Investment" means, with respect to any Person: (a) the direct or indirect
purchase or acquisition of any beneficial interest in, any share of capital
stock of, evidence of Indebtedness of or other security issued by any other
Person, (b) any loan, advance or extension of credit to, or contribution to the
capital
<PAGE>
5
of, any other Person, excluding advances to employees in the ordinary course of
business for business expenses, (c) any Guaranty of the obligations of any other
Person, or (d) the direct or indirect purchase or Acquisition of any Business
Unit.
"Lender" means NationsBank, N.A., a national banking association, and its
successors and assigns.
"Lender's Office" means the office of the Lender specified in or determined
in accordance with the provisions of Section 10.1(c).
"LIBOR" means, as of any date of determination, a simple per annum interest
rate determined pursuant to the following formula:
LIBOR = Interbank Offered Rate
----------------------------
1 - LIBOR Reserve Percentage
LIBOR shall be adjusted automatically as of the effective date of any change in
the LIBOR Reserve Percentage.
"LIBOR Loan" means the Loan at any time that it bears interest with
reference to LIBOR.
"LIBOR Reserve Percentage" means, for any day, that percentage (expressed
as a decimal) which is in effect from time to time under Regulation D of the
Board of Governors of the Federal Reserve System, as such regulation may be
amended from time to time, or any successor regulation, as the maximum reserve
requirement (including, without limitation, any basic, supplemental, emergency,
special or marginal reserves) applicable to any member bank with respect to
Eurocurrency liabilities as that term is defined in Regulation D (or against any
other category of liabilities that includes deposits by reference to which the
interest rate of any LIBOR Loan is determined), whether or not the Lender has
any Eurocurrency liabilities subject to such reserve requirement at that time.
The LIBOR Loan shall be deemed to constitute Eurocurrency liabilities and as
such shall be deemed subject to reserve requirements without the benefit of
credits for proration, exceptions or offsets that may be available from time to
time to Lender.
"Lien" as applied to the property of any Person means: (a) any mortgage,
deed to secure debt, deed of trust, lien, pledge, charge, lease constituting a
Capitalized Lease Obligation, conditional sale or other title retention
agreement, or other security interest, security title or encumbrance of any kind
in respect of any property of such Person or upon the income or profits
therefrom, (b) any arrangement, express or implied, under which any property of
such Person is transferred, sequestered or otherwise identified for the purpose
of subjecting the same to the payment of Indebtedness or performance of any
other obligation in priority to the payment of the general, unsecured creditors
of such Person, and (c) the filing of, or any agreement to give, any financing
statement under the UCC or its equivalent in any jurisdiction.
"Loan" means the loan made to the Borrower pursuant to Section 2.1.
"Loan Documents" means, collectively, this Agreement, the Note, the
Security Documents and
<PAGE>
6
each other instrument, agreement and document executed and delivered by the
Borrower or any other Obligor in connection with this Agreement and each other
instrument, agreement or document referred to herein or contemplated hereby.
"Loan to Stock Ratio" means, as of any date of determination, the ratio of
(a) the outstanding principal balance of the Loan, to (b) the Stock Value. As
used herein, "Stock Value" means the sum of any cash collateral and letters of
credit held by the Lender pursuant to Section 6.9(ii) (it being understood that
the $185,156.25 of cash collateral subject to the Collateral Assignment of
Deposit Account shall not be included in the Stock Value) plus the product of
the (i) share price of the Borrower's Class A common stock as of the close of
trading on such date of determination, as set forth in the Wall Street Journal
or any comparable source chosen by the Lender, multiplied by (ii) the number of
shares of the Borrower's Class B common stock subject to the Lender's first
priority perfected Security Interest pursuant to the Stock Pledge Agreements.
"Materially Adverse Effect" means any act, omission, event or undertaking
which would, singly or in the aggregate, have a materially adverse effect upon
(a) the business, assets, properties, liabilities, condition (financial or
otherwise), results of operations or business prospects of the Borrower and of
its Subsidiaries, taken as a whole, (b) upon the ability of the Borrower or any
other Obligor to perform any obligations under this Agreement or any other Loan
Document to which it is a party, or (c) the legality, validity, binding effect,
enforceability or admissibility into evidence of any Loan Document or the
ability of Lender to enforce any rights or remedies under or in connection with
any Loan Document; in any case, whether resulting from any single act, omission,
situation, status, event, or undertaking, together with other such acts,
omissions, situations, statuses, events, or undertakings .
"Maturity Date" means April 28, 2000 or such earlier date as the
Obligations shall have been accelerated pursuant to the provisions of Section
9.2.
"Money Borrowed" means, as applied to Indebtedness, (a) Indebtedness for
money borrowed, (b) Indebtedness, whether or not in any such case the same was
for money borrowed, (i) represented by notes payable and drafts accepted, that
represent extensions of credit, (ii) constituting obligations evidenced by
bonds, debentures, notes or similar instruments, or (iii) upon which interest
charges are customarily paid (other than trade Indebtedness) or that was issued
or assumed as full or partial payment for property, (c) Indebtedness that
constitutes a Capitalized Lease Obligation, and (d) Indebtedness that is such by
virtue of clause (e) of the definition thereof, but only to the extent that the
obligations Guaranteed are obligations that would constitute Indebtedness for
Money Borrowed.
"Multiemployer Plan" means a "multiemployer plan" as defined in Section
4001(a)(3) of ERISA to which the Borrower or a Related Company is required to
contribute or has contributed within the immediately preceding 6 years.
"Note" means the Term Note made by the Borrower payable to the order of the
Lender evidencing the obligation of the Borrower to pay the aggregate unpaid
principal amount of the Loan made to it by the Lender (and any promissory note
or notes that may be issued from time to time in substitution, renewal,
extension, replacement or exchange therefor), substantially in the form of
Exhibit A hereto, with all blanks
<PAGE>
7
properly completed.
"Obligations" means, in each case whether now in existence or hereafter
arising, the principal of and interest and premium, if any, on the Loan, and all
other amounts due under this Loan Agreement and the other Loan Documents.
"Obligor" means the Borrower, Aronson, Michael Leven and Andrea Leven.
"PBGC" means the Pension Benefit Guaranty Corporation or any successor
agency.
"Permitted Investments" means (a) Investments of the Borrower in: (i)
negotiable certificates of deposit, time deposits and banker's acceptances
issued by the Lender or any Affiliate of the Lender or by any United States bank
or trust company having capital, surplus and undivided profits in excess of
$250,000,000, (ii) any direct obligation of the United States of America or any
agency or instrumentality thereof which has a remaining maturity at the time of
purchase of not more than one year and repurchase agreements relating to the
same, (iii) commercial paper of a domestic issuer rated A-1 by S&P and P-1 by
Moody's and maturing not more than 270 days after the date of Acquisition, (iv)
sales on credit in the ordinary course of business on terms customary in the
industry, and (v) notes, accepted in the ordinary course of business, evidencing
overdue accounts receivable arising in the ordinary course of business, (b)
Investments existing as of the Agreement Date, (c) Investments in Persons
engaged in substantially the same business as the Borrower and its Subsidiaries
made after the Agreement Date, and (d) other Investments made after the
Agreement Date in an aggregate amount not in excess of $5,000,000.
"Permitted Liens" means: (a) Liens securing taxes, assessments and other
governmental charges or levies (excluding any Lien imposed pursuant to any of
the provisions of ERISA) or the claims of materialmen, mechanics, carriers,
warehousemen or landlords for labor, materials, supplies or rentals, or other
similar liens, incurred in the ordinary course of business, but in all cases,
only if payment shall not at the time be required to be made in accordance with
Section 6.4; (b) Liens consisting of deposits or pledges made in the ordinary
course of business in connection with, or to secure payment of, obligations
under workers' compensation, unemployment insurance or similar legislation or
under surety or performance bonds, or other obligations of a like nature, in
each case arising in the ordinary course of business; (c) Liens constituting
encumbrances in the nature of zoning restrictions, easements and rights or
restrictions of record on the use of the Borrower's real estate, which do not
materially detract from the value of such real estate or impair the use thereof
in the business of the Borrower; (d) Purchase Money Liens securing Permitted
Purchase Money Indebtedness; (e) Liens of the Lender arising under the Security
Documents; (f) Liens arising out of or resulting from any judgment or award, the
time for the appeal or petition for rehearing of which shall not have expired,
or in respect of which the Borrower is fully protected by insurance or in
respect of which the Borrower shall at any time in good faith be prosecuting an
appeal or proceeding for a review and in respect of which a stay of execution
pending such appeal or proceeding for review shall have been secured, and as to
which appropriate reserves have been established on the books of the Borrower;
(g) Liens existing on the date hereof; and (h) Liens securing Indebtedness which
is incurred to refinance Indebtedness secured by a permitted Lien, provided such
Lien does not extend to any property or assets of the Borrower not securing the
Indebtedness so refinanced.
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8
"Permitted Purchase Money Indebtedness" means Purchase Money Indebtedness
secured only by Purchase Money Liens and Capitalized Lease Obligations.
"Person" means an individual, corporation, partnership, association, trust
or unincorporated organization or a government or any agency or political
subdivision thereof.
"Piggy Back Rights" means rights of any Person to register shares of common
stock of the Borrower in connection with the registration of any other shares of
common stock of the Borrower.
"Prime Rate" means, on any date, the rate of interest per annum then most
recently established by the Lender as its "prime rate." Any such rate is a
general reference rate of interest, may not be related to any other rate, and
may not be the lowest or best rate actually charged by the Lender to any
customer or a favored rate and may not correspond with future increases or
decreases in interest rates charged by other lenders of market rates in general.
"Prime Rate Loan" means the Loan at any time that it bears interest with
reference to the Prime Rate.
"Purchase Money Indebtedness" means Indebtedness created to finance the
payment of all or any part of the purchase price (not in excess of the fair
market value thereof) of any tangible asset (other than inventory) and incurred
at the time of or within 10 days prior to or after the acquisition of such
tangible asset.
"Purchase Money Lien" means any Lien securing Purchase Money Indebtedness,
but only if such Lien shall at all times be confined solely to the tangible
asset (other than inventory) the purchase price of which was financed through
the incurrence of the Purchase Money Indebtedness secured by such Lien.
"Related Company" means, as to any Person, any (a) corporation which
is a member of the same controlled group of corporations (within the meaning of
Section 414(b) of the Code) as such Person, (b) partnership or other trade or
business (whether or not incorporated) under common control (within the meaning
of Section 414(c) of the Code) with such Person, or (c) member of the same
affiliated service group (within the meaning of Section 414(m) of the Code) as
such Person or any corporation described in clause (a) above or any partnership,
trade or business described in clause (b) above.
"Restricted Distribution" by any Person means (a) its retirement,
redemption, purchase, or other acquisition for value of any capital stock or
other equity securities or partnership interests issued by such Person, (b) the
declaration or payment of any dividend or distribution on or with respect to any
such securities or partnership interests, (c) any loan or advance by such Person
to, or other investment by such Person in, the holder of any of such securities
or partnership interests, excluding however the $15,000,000 loan made by the
Borrower to Alpine Ventures pursuant to the Alpine Ventures Loan Documents and
(d) any other payment by such Person in respect of such securities or
partnership interests.
"Restricted Payment" means (a) any redemption, repurchase or prepayment or
other retirement, prior to the stated maturity thereof or prior to the due date
of any regularly scheduled installment or
<PAGE>
9
amortization payment with respect thereto, of any Indebtedness of a Person
(other than the Obligations and trade debt), and (b) the payment by any Person
of the principal amount of or interest on any Indebtedness (other than trade
debt) owing to an Affiliate of such Person.
"Security Documents" means the Collateral Assignment of Loan Documents,
Collateral Assignment of Deposit Account, the Stock Pledge Agreements, and each
other writing executed and delivered by any Person securing the Obligations or
evidencing such security.
"Security Interest" means the Liens of the Lender on and in the Collateral
effected hereby or by any of the Security Documents or pursuant to the terms
hereof or thereof.
"Stock Pledge Agreements" means the Stock Pledge Agreements, dated the
Effective Date, executed by Michael Leven, Andrea Leven and Aronson in favor of
the Lender, pursuant to which Michael Leven, Andrea Leven and Aronson pledge
certain shares of the Borrower's Class B common stock to the Lender.
"Subsidiary" when used to determine the relationship of a Person to another
Person, means a Person of which an aggregate of 50% or more of the stock of any
class or classes or 50% or more of other ownership interests is owned of record
or beneficially by such other Person or by one or more Subsidiaries of such
other Person or by such other Person and one or more Subsidiaries of such
Person, (i) if the holders of such stock or other ownership interests (A) are
ordinarily, in the absence of contingencies, entitled to vote for the election
of a majority of the directors (or other individuals performing similar
functions) of such Person, even though the right so to vote has been suspended
by the happening of such a contingency, or (B) are entitled, as such holders, to
vote for the election of a majority of the directors (or individuals performing
similar functions) of such Person, whether or not the right so to vote exists by
reason of the happening of a contingency, or (ii) in the case of such other
ownership interests, if such ownership interests constitute a majority voting
interest; excluding however RSVP-BI OPCO LLC, a Delaware limited liability
company, and RSVP-ABI REALCO LLC, a Delaware limited liability company.
"Tag-Along Rights" means rights of any Person, in connection with any
transfer by Aronson, Andrea Leven or Michael Leven of shares of common stock of
the Borrower, to participate in such transfer.
"Termination Event" means (a) a "Reportable Event" as defined in Section
4043(b) of ERISA, but excluding any such event as to which the provision for 30
days' notice to the PBGC is waived under applicable regulations, (b) the filing
of a notice of intent to terminate a Benefit Plan or the treatment of a Benefit
Plan amendment as a termination under Section 4041 of ERISA, or (c) the
institution of proceedings to terminate a Benefit Plan by the PBGC under Section
4042 of ERISA or the appointment of a trustee to administer any Benefit Plan.
"UCC" means the Uniform Commercial Code as in effect from time to time in
the State of Georgia.
"Unfunded Vested Accrued Benefits" means, with respect to any Benefit Plan
at any time, the amount (if any) by which (a) the present value of all vested
nonforfeitable benefits under such Benefit Plan
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10
exceeds (b) the fair market value of all Benefit Plan assets allocable to such
benefits, as determined using such reasonable actuarial assumptions and methods
as are specified in the Schedule B (Actuarial Information) to the most recent
Annual Report (Form 5500) filed with respect to such Benefit Plan.
"Waivers" means the waivers, in form acceptable to the Lender in its
discretion, from each of Alpine Hospitality Equities LLC, a Delaware limited
liability company, H Suites Associates, an Illinois joint venture, and HSA
Properties, Inc., a Delaware corporation (collectively, the "Investors"),
pursuant to which each of the Investors waives any and all (a) Tag-Along Rights
such Investor may now or hereafter possess in connection with any liquidation by
the Lender of the common stock of the Borrower (whether Class A or Class B) now
or hereafter subject to the Stock Pledge Agreements, and (b) Piggy Back Rights
such Investor may now or hereafter possess in connection with any registration
of such common stock by the Lender pursuant to the Registration Rights
Agreement.
Section 1.2 Other Referential Provisions.
(a) All terms in this Agreement, the Exhibits and Schedules hereto shall
have the same defined meanings when used in any other Loan Documents, unless the
context shall require otherwise.
(b) Except as otherwise expressly provided herein, all accounting terms not
specifically defined or specified herein shall have the meanings generally
attributed to such terms under GAAP including, without limitation, applicable
statements and interpretations issued by the Financial Accounting Standards
Board and bulletins, opinions, interpretations and statements issued by the
American Institute of Certified Public Accountants or its committees.
(c) All personal pronouns used in this Agreement, whether used in the
masculine, feminine or neuter gender, shall include all other genders; the
singular shall include the plural, and the plural shall include the singular.
(d) The words "hereof", "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provisions of this Agreement.
(e) Titles of Articles and Sections in this Agreement are for convenience
only, do not constitute part of this Agreement and neither limit nor amplify the
provisions of this Agreement, and all references in this Agreement to Articles,
Sections, Subsections, paragraphs, clauses, subclauses, Schedules or Exhibits
shall refer to the corresponding Article, Section, Subsection, paragraph, clause
or subclause of, or Schedule or Exhibit attached to, this Agreement, unless
specific reference is made to the articles, sec tions or other subdivisions or
divisions of, or to schedules or exhibits to, another document or instrument.
(f) Each definition of a document in this Agreement shall include such
document as amended, modified, supplemented or restated from time to time in
accordance with the terms of this Agreement.
(g) Except where specifically restricted, reference to a party to a Loan
Document includes that party and its successors and assigns permitted hereunder
or under such Loan Document.
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11
(h) Unless otherwise specifically stated, whenever a time is referred to in
this Agreement or in any other Loan Document, such time shall be the local time
in the city in which the principal office of Lender is located.
(i) Whenever the phrase "to the knowledge of the Borrower" or words of
similar import relating to the knowledge of the Borrower are used herein, such
phrase shall mean and refer to (i) the actual knowledge of the President or
chief financial officer or (ii) the knowledge that such officers would have
obtained if they had engaged in good faith in the diligent performance of their
duties, including the making of such reasonable specific inquiries as may be
necessary of the appropriate persons in a good faith attempt to ascertain the
accuracy of the matter to which such phrase relates.
(j) All certificates to be delivered by officers of the Borrower hereunder
shall be made by such officers on behalf of the Borrower in their capacity as
officers and not in their individual capacity.
Section 1.3 Exhibits and Schedules. All Exhibits and Schedules attached
hereto are by reference made a part hereof.
ARTICLE 2 - THE LOAN
Section 2.1 Term Loan. Upon the terms and subject to the conditions of, and
in reliance upon the representations and warranties made under, this Agreement,
the Lender agrees to make the Loan to the Borrower on the Effective Date in the
amount of $10,000,000.
Section 2.2 Manner of Borrowing and Disbursing Term Loan. On the Effective
Date, upon satisfaction of the applicable conditions set forth in Section 4.1,
the Lender will disburse the Loan in same day funds in accordance with the terms
of the written instructions from the Borrower to the Lender.
Section 2.3 Repayment of Loan. The Loan is due and payable and shall be
repaid in full by the Borrower on the Maturity Date; provided that the Borrower
shall make monthly principal payments of $75,000 each on the 1st day of each
calendar month commencing on November 1, 1998 if the Loan is not paid in full on
or before October 28, 1998. In the event the Borrower is required to make
monthly principal payments, the remaining unpaid principal balance of the Loan
shall be due and payable and shall be repaid in full by the Borrower on the
Maturity Date.
Section 2.4 Term Note. The Loan and the obligation of the Borrower to repay
such Loan shall be evidenced by a single Note payable to the order of the
Lender. Such Note shall be dated the Effective Date and be duly and validly
executed and delivered by the Borrower.
Section 2.5 Prepayment of Term Loan. The Borrower shall have the right at
any time and from time to time, to prepay the Loan in whole or in part on any
Business Day without premium or penalty. Each partial prepayment of the Loan
shall be applied to the principal installments of the Loan in the inverse order
of their maturities.
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12
ARTICLE 3 - GENERAL LOAN PROVISIONS
Section 3.1 Interest.
(a) (i) LIBOR Loan. Except as set forth in Sections 3.1(c) and 3.3, the
Borrower will pay interest on the Loan at a rate per annum equal to the sum
of the Applicable Margin plus LIBOR, payable in arrears on each Interest
Payment Date and on the Maturity Date. LIBOR shall be adjusted on a daily
basis without notice as set forth in the definition of "Interbank Offered
Rate".
(ii) Prime Rate Loan. If at any time the Loan no longer bears interest
based on LIBOR as a result of the provisions of Section 3.3, the Borrower
will pay interest on the unpaid principal amount of the Loan at a rate per
annum equal to the sum of the Applicable Margin plus the Prime Rate,
payable monthly in arrears on each Interest Payment Date and on the
Maturity Date. The Prime Rate shall be adjusted from time to time as set
forth in the definition of "Prime Rate".
(iii) Applicable Margin. As used herein, "Applicable Margin" means,
(A) in the case of the LIBOR Loan, 1.75%, and (B) in the case of the Prime
Rate Loan, 0%; provided that, in each case, the Applicable Margin shall be
increased by 25 basis points on the 28th day of each July, October, January
and April, commencing on July 28, 1998.
(b) The Borrower shall pay interest on the unpaid principal amount of each
Obligation other than the Loan for each day from the day such Obligation becomes
due and payable until such Obligation is paid at the rate per annum applicable
to the Prime Rate Loan, payable on demand.
(c) From and after the occurrence of an Event of Default, the unpaid
principal amount of each Obligation shall bear interest until paid in full (or,
if earlier, until such Event of Default is cured or waived in writing by the
Lender) at a rate per annum equal to the Default Margin plus the sum of the
Prime Rate plus the Applicable Margin. The interest rate provided for in this
Section 3.1(c) shall to the extent permitted by applicable law apply to and
accrue on the amount of any judgment entered with respect to any Obligation and
shall continue to accrue at such rate during any proceeding described in Section
9.1(g) or (h).
(d) The interest rates provided for in Sections 3.1(a), (b) and (c) shall
be computed on the basis of a year of 360 days and the actual number of days
elapsed.
(e) It is not intended by the Lender, and nothing contained in this
Agreement or the Note shall be deemed, to establish or require the payment of a
rate of interest in excess of the maximum rate permitted by applicable law (the
"Maximum Rate"). In the event the Lender receives, collects or applies as
interest any sum in excess of the Maximum Rate, such excess amount shall be
applied to the reduction of the principal balance of the applicable Obligation,
and, if no such principal is then outstanding, such excess or part thereof
remaining shall be paid to the Borrower.
<PAGE>
13
Section 3.2 Fees.
(a) Closing Fee. On the Effective Date, the Borrower shall pay to the
Lender a closing fee in the amount of $100,000 (less the $10,000 deposit) in
consideration of the making of Loan under this Agreement and in order to
compensate the Lender for the costs associated with structuring, processing,
approving and closing the Loan, but excluding expenses for which the Borrower
has agreed elsewhere in this Agreement to reimburse the Lender.
(b) Facility Fee. The Borrower shall pay the Lender a facility fee of
$100,000 during the first year of the Loan and $200,000 during the second year
of the Loan, such fees to be due on the dates set forth below; provided that, if
the Obligations are paid in full on or before October 28, 1998, no such fees
shall be due. In the event the Obligations are not paid in full on or before
October 28, 1998, the $100,000 facility fee shall be due on the earlier of (a)
April 28, 1999 and (b) the earlier of the acceleration of the Obligations
pursuant to Section 9.2 and the date on which the Obligations are paid in full;
provided that, if the Borrower voluntarily pays the Obligations in full prior to
April 28, 1999, such fee shall be pro rated by multiplying $100,000 by the ratio
of (A) the number of days elapsed from October 28, 1998 to the date of
prepayment to (B) 183. In the event the Obligations are not paid in full on or
before April 28, 1999, the $200,000 facility fee shall be due and payable on the
earlier of the acceleration of the Obligations pursuant to Section 9.2, the
Maturity Date, and the date on which the Obligations are paid in full; provided
that, if the Borrower voluntarily pays the Obligations in full prior to April
28, 2000, such fee shall be pro rated by multiplying $200,000 by the ratio of
(A) the number of days elapsed from April 28, 1999 to the date of prepayment to
(B) 365.
(c) General. All fees shall be fully earned by the Lender when due and
payable and, except as otherwise set forth herein, shall not be subject to
refund or rebate. All fees are for compensation for services and are not, and
shall not be deemed to be, interest or a charge for the use of money.
Section 3.3 Changed Circumstances.
(a) If the introduction of or any change in or in the interpretation of (in
each case, after the date hereof) any law or regulation makes it unlawful, or
any Governmental Authority asserts, after the date hereof, that it is unlawful,
for the Lender to perform its obligations hereunder to make or maintain the
LIBOR Loan, the Lender shall notify the Borrower of such event, and until the
Lender shall notify the Borrower that such circumstances no longer exist, the
Loan shall thereafter bear interest based on the Prime Rate as set forth in
Section 3.1(a)(ii).
(b) If the Lender shall notify the Borrower that LIBOR will not adequately
reflect the cost to the Lender of making or funding the LIBOR Loan or that the
Interbank Offered Rate is not determinable from any interest rate reporting
service of recognized standing, then until the Lender shall notify the Borrower
that such circumstances no longer exist, the Loan shall thereafter bear interest
based on the Prime Rate as set forth in Section 3.1(a)(ii).
Section 3.4 Increased Costs and Reduced Returns. The Borrower agrees that
if any law now or hereafter in effect and whether or not presently applicable to
the Lender or any request, guideline or
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14
directive of any Governmental Authority (whether or not having the force of law
and whether or not failure to comply therewith would be unlawful) or the
interpretation or administration thereof by any Governmental Authority, shall
either (a)(i) impose, affect, modify or deem applicable any reserve (other than
the LIBOR Reserve Percentage), special deposit, capital maintenance or similar
requirement against the LIBOR Loan, (ii) impose on the Lender any other
condition regarding the LIBOR Loan or (iii) result in any requirement regarding
capital adequacy (including any risk-based capital guidelines) affecting the
Lender being imposed or modified or deemed applicable to the Lender with respect
to the LIBOR Loan, or (b) subject the Lender to any taxes on the recording,
registration, notarization or other formalization of the Loan or the Note, and
the result of any event referred to in clause (a) or (b) above shall be to
increase the cost to the Lender of making, funding or maintaining the Loan or to
reduce the amount of any sum receivable by the Lender or the Lender's rate of
return on capital with respect to the Loan to a level below that which the
Lender could have achieved but for such imposition, modification or deemed
applicability (taking into consideration the Lender's policies with respect to
capital adequacy) by an amount deemed by Lender (in the exercise of its
discretion) to be material, then, upon demand by the Lender, the Borrower shall
within 10 days pay to the Lender additional amounts which shall be sufficient to
compensate the Lender for such increased cost, tax or reduced rate of return. A
certificate of the Lender to the Borrower claiming compensation under this
Section 3.4 shall be final, conclusive and binding on all parties for all
purposes in the absence of manifest error. Such certificate shall set forth the
nature of the occurrence giving rise to such compensation, the additional amount
or amounts to be paid to it hereunder, and the method by which such amounts were
determined. In determining such amount, the Lender may use any reasonable
averaging and attribution methods.
Section 3.5 Manner of Payment. (a) Each payment (including prepayments) by
the Borrower on account of the principal of or interest on the Loan or of any
fee or other amounts payable to the Lender under this Agreement or the Note
shall be made not later than 1:30 p.m. on the date specified for payment under
this Agreement (or if such day is not a Business Day, the next succeeding
Business Day) to the Lender at the Lender's Office, in Dollars, in immediately
available funds and shall be made without any setoff, counterclaim or deduction
whatsoever.
(b) The Borrower hereby irrevocably authorizes the Lender and each
Affiliate of the Lender to charge any account of the Borrower maintained with
the Lender or such Affiliate with such amounts as may be necessary from time to
time to pay any Obligations which are not paid when due.
Section 3.6 Termination of Agreement. On the Maturity Date, the Borrower
shall pay to the Lender, in same day funds, an amount equal to the aggregate
amount of the Loan outstanding on such date, together with accrued interest
thereon, all fees payable pursuant to Section 3.2, any amounts payable to the
Lender pursuant to the other provisions of this Agreement, including, without
limitation, Sections 3.4, 9.2, 10.11 and 10.12, and any and all other
Obligations then outstanding.
ARTICLE 4 - CONDITIONS PRECEDENT
Section 4.1 Conditions Precedent to Loan. Notwithstanding any other
provision of this Agreement, the Lender's obligation to make the Loan is subject
to the fulfillment of each of the following conditions prior to or
contemporaneously with the making of the Loan:
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15
(a) Closing Documents. The Lender shall have received each of the following
documents, all of which shall be reasonably satisfactory in form and substance
to the Lender and its counsel:
(1) this Agreement, duly executed and delivered by the Borrower;
(2) the Note, dated the Effective Date and duly executed and delivered
by the Bor rower;
(3) the Collateral Assignment of Deposit Account, duly executed and
delivered by the Borrower;
(4) the Collateral Assignment of Loan Documents, together with the
original of the Alpine Ventures Note, such Collateral Assignment to be duly
executed and delivered by the Borrower and such Alpine Ventures Note to be
duly endorsed to the Lender;
(5) the Stock Pledge Agreements and accompanying blank stock powers,
duly executed and delivered by Aronson, Andrea Leven and Michael Leven,
together with the corresponding stock certificates (representing at least
$14,300,000 of the Borrower's common stock as of the close of trading on
the Business Day immediately preceding the Effective Date, based on the
price of the Borrower's Class A common stock reflected in the Wall Street
Journal) and appropriate Form U-1s.
(6) certified copies of the articles of incorporation and by-laws of
the Borrower as in effect on the Effective Date;
(7) certified copies of all corporate action, including stockholder
approval, if necessary, taken by the Borrower to authorize the execution,
delivery and performance of this Agreement and the other Loan Documents and
the borrowings under this Agreement;
(8) certificates of incumbency and specimen signatures with respect to
each of the officers of the Borrower who is authorized to execute and
deliver this Agreement or any other Loan Document on behalf of the Borrower
or any document, certificate or instrument to be delivered in connection
with this Agreement or the other Loan Documents;
(9) certificates evidencing the good standing of the Borrower in
Georgia and Delaware;
(10) with respect to Alpine Ventures, such items corresponding to
those set forth in clauses (6) - (9) above as the Lender may request;
(11) a letter from the Borrower to the Lender requesting the Loan and
specifying the method of disbursement;
(12) copies of all the financial statements referred to in Section
5.1(m) and meeting
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16
the requirements thereof;
(13) a certificate of the President of the Borrower stating that, to
the best of his knowledge and based on an examination sufficient to enable
him to make an informed statement, (a) all of the representations and
warranties made or deemed to be made under this Agreement are true and
correct as of the Effective Date, both with and without giving effect to
the Loan to be made at such time and the application of the proceeds
thereof, and (b) no Default or Event of Default exists;
(14) a signed opinion of Paul, Weiss, Rifkind, Wharton & Garrison,
counsel for the Borrower, and such local counsel as the Lender shall deem
necessary or desirable, opining as to such matters in connection with this
Agreement as the Lender or its counsel may reasonably request;
(15) the Registration Rights Agreement, duly executed by the Borrower;
and
(16) copies of each of the other Loan Documents duly executed by the
parties thereto with evidence satisfactory to the Lender and its counsel of
the due authorization, binding effect and enforceability of each such Loan
Document on each such party and such other documents and instruments as the
Lender may reasonably request.
(b) No Injunctions, Etc. No action, proceeding, investigation, regulation
or legislation shall have been instituted, threatened or proposed before any
court, governmental agency or legislative body to enjoin, restrain or prohibit
or to obtain substantial damages in respect of or which is related to or arises
out of this Agreement or the consummation of the transactions contemplated
hereby or which, in the Lender's sole discretion, would make it inadvisable to
consummate the transactions contemplated by this Agreement.
(c) Material Adverse Change. As of the Effective Date, there shall not have
occurred any change which has had or could reasonably be expected to have a
Materially Adverse Effect as compared to the condition of the Borrower presented
by the most recent financial statements of the Borrower described in Section
5.1(m).
(d) Accuracy of Representations and Warranties. All of the representations
and warranties made or deemed to be made under this Agreement shall be true and
correct at such time both with and without giving effect to the Loan to be made
at such time and the application of the proceeds thereof.
ARTICLE 5 - REPRESENTATIONS AND WARRANTIES OF THE BORROWER
Section 5.1 Representations and Warranties. The Borrower represents and
warrants to the Lender as follows:
(a) Organization; Power; Qualification. The Borrower is a corporation, duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, has the corporate
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17
power and authority to own its properties and to carry on its business as now
being and hereafter proposed to be conducted and is duly qualified and
authorized to do business in each jurisdiction in which failure to be so
qualified and authorized could reasonably be expected to have a Materially
Adverse Effect, which jurisdictions are listed on Schedule 5.1(a).
(b) Subsidiaries and Ownership of the Borrower. Except as set forth on
Schedule 5.1(b), the Borrower has no Subsidiaries. The outstanding stock of the
Borrower has been duly and validly issued and is fully paid and nonassessable.
(c) Authorization of Agreement, Note, Loan Documents and Borrowing. The
Borrower has the right and power and has taken all necessary action to authorize
it to execute, deliver and perform this Agreement and each of the other Loan
Documents to which it is a party in accordance with their respective terms and
to borrow hereunder. This Agreement and each of the other Loan Documents to
which it is a party have been duly executed and delivered by the duly authorized
officers of the Borrower and each is, or when executed and delivered in
accordance with this Agreement will be, a legal, valid and binding obligation of
the Borrower, enforceable in accordance with its terms, subject to the effects
of bankruptcy, insolvency, fraudulent conveyance, reorganization, and other
similar laws relating to or affecting creditor's rights generally, general
equitable principles and an implied covenant of good faith and fair dealing.
(d) Compliance of Agreement, Note, Loan Documents and Borrowing with Laws,
Etc. The execution, delivery and performance of this Agreement and each of the
other Loan Documents to which the Borrower is a party in accordance with their
respective terms and the borrowings hereunder do not and will not, by the
passage of time, the giving of notice or otherwise,
(i) require any Governmental Approval or violate any applicable law
relating to the Borrower or any of its Affiliates,
(ii) conflict with, result in a breach of or constitute a default
under (A) the articles or certificate of incorporation or by-laws of the
Borrower, (B) any indenture, agreement or other instrument to which the
Borrower is a party or by which any of its property may be bound or (C) any
Governmental Approval relating to the Borrower, or,
(iii) result in or require the creation or imposition of any Lien upon
or with respect to any property now owned or hereafter acquired by the
Borrower other than the Security Interest.
(e) Business. The Borrower is engaged principally in the business described
on Schedule 5.1(e).
(f) Compliance with Law; Governmental Approvals. Except as set forth in
Schedule 5.1(f), the Borrower (i) has all Governmental Approvals, including
permits relating to federal, state and local Environmental Laws, ordinances and
regulations required by any applicable law for it to conduct its business, each
of which is in full force and effect, is final and not subject to review on
appeal and is not the subject of any pending or, to the knowledge of the
Borrower, threatened attack by direct or collateral proceeding, and (ii) is in
compliance with each Governmental Approval applicable to it and in compliance
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18
with all other applicable laws relating to it, including, without being limited
to, all Environmental Laws and all occupational health and safety laws
applicable to the Borrower or its properties, except for any failure under
clause (i) or any noncompliance under clause (ii) which would not, singly or in
the aggregate, cause a Default or Event of Default or have a Materially Adverse
Effect and in respect of which adequate reserves have been established on the
books of the Borrower.
(g) Titles to Properties. Except as set forth in Schedule 5.1(g), the
Borrower has good and marketable title to or a valid leasehold interest in all
its real estate and valid and legal title to or a valid leasehold interest in
all personal property and assets used in or necessary to the conduct of the
Borrower's business, including, but not limited to, those reflected on the
balance sheet of the Borrower delivered pursuant to Section 5.1(m).
(h) Liens. Except as set forth in Schedule 5.1(h), none of the properties
and assets of the Borrower is subject to any Lien, except Permitted Liens.
(i) Indebtedness and Guaranties. Set forth on Schedule 5.1(i) is a complete
and correct listing of all of the Borrower's (i) Indebtedness for Money Borrowed
and (ii) Guaranties. The Borrower is not in default of any material provision of
any agreement evidencing or relating to such any such Indebtedness or Guaranty
the principal amount of which exceeds $1,000,000.
(j) Litigation. Except as set forth on Schedule 5.1(j), there are no
actions, suits or proceedings pending (nor, to the knowledge of the Borrower,
are there any actions, suits or proceedings threatened, nor is there any basis
therefor) against or in any other way relating adversely to or affecting the
Borrower or any of its property in any court or before any arbitrator of any
kind or before or by any governmental body.
(k) Tax Returns and Payments. Except as set forth on Schedule 5.1(k), all
United States federal, state and local and foreign national, provincial and
local and all other tax returns of the Borrower required by applicable law to be
filed have been duly filed, or appropriate requests for extensions have been
made, and all United States federal, state and local and foreign national,
provincial and local and all other taxes, assessments and other governmental
charges or levies upon the Borrower and its property, income, profits and assets
which are due and payable have been paid, except any such nonpayment which is at
the time permitted under Section 6.4. The charges, accruals and reserves on the
books of the Borrower in respect of United States federal, state and local taxes
and foreign national, provincial and local taxes for all fiscal years and
portions thereof since the organization of the Borrower are in the judgment of
the Borrower adequate, and the Borrower knows of no reason to anticipate any
additional assessments for any of such years which, singly or in the aggregate,
could reasonably be expected to have a Materially Adverse Effect.
(l) Burdensome Provisions. The Borrower is not a party to any indenture,
agreement, lease or other instrument, or subject to any charter or corporate
restriction, Governmental Approval or applicable law, compliance with the terms
of which could reasonably be expected to have a Materially Adverse Effect.
(m) Financial Statements. The Borrower has furnished to the Lender a copy
of its audited
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19
balance sheet as at December 31, 1997, and the related statements of income,
cash flow and retained earnings for the twelve-month period then ended. Such
financial statements are complete and correct and present fairly and in all
material respects in accordance with GAAP, the financial position of the
Borrower as at the dates thereof and the results of operations of the Borrower
for the periods then ended. Except as disclosed or reflected in such financial
statements, the Borrower had no material liabilities, contingent or otherwise,
and there were no material unrealized or anticipated losses of the Borrower as
of the date of such financial statements.
(n) Adverse Change. Since the date of the financial statements described in
Section 5.1(m), (i) no change in the business, assets, liabilities, condition
(financial or otherwise), results of operations or business prospects of the
Borrower has occurred that has had, or could reasonably be expected to have, a
Materially Adverse Effect, and (ii) no event has occurred or failed to occur
which has had, or could reasonably be expected to have, a Materially Adverse
Effect.
(o) ERISA. Neither the Borrower nor any Related Company maintains or
contributes to any Benefit Plan other than those listed on Schedule 5.1(o). Each
Benefit Plan is in substantial compliance with ERISA, and neither the Borrower
nor any Related Company has received any notice asserting that a Benefit Plan is
not in compliance with ERISA. No material liability to the PBGC or to a
Multiemployer Plan has been, or is expected by the Borrower to be, incurred by
the Borrower or any Related Company.
(p) Absence of Defaults. The Borrower is not in default under its articles
or certificate of incorporation or by-laws, and no event has occurred which has
not been remedied, cured or waived (i) that constitutes a Default or an Event of
Default or (ii) that constitutes or that, with the passage of time or giving of
notice, or both, would constitute a default or event of default by the Borrower
under any material agreement (other than this Agreement) or judgment, decree or
order to which the Borrower is a party or by which the Borrower or any of its
properties may be bound or which would require the Borrower to make any payment
thereunder prior to the scheduled maturity date therefor.
(q) Accuracy and Completeness of Information. To the best of the Borrower's
knowledge, all written information, reports and other papers and data produced
by or on behalf of the Borrower and furnished to the Lender were, at the time
the same were so furnished, complete and correct in all material respects to the
extent necessary to give the recipient a true and accurate knowledge of the
subject matter. No document furnished or written statement made to the Lender by
the Borrower in connection with the negotiation, preparation or execution of
this Agreement or any of the Loan Documents contains or will contain any untrue
statement of a fact material, in the light of the circumstances, to the
creditworthiness of the Borrower or omits or will omit to state a material fact,
in light of the circumstances, necessary in order to make the statements
contained therein not misleading.
(r) Federal Regulations. The Borrower is not engaged, principally or as one
of its important activities, in the business of extending credit for the purpose
of "purchasing" or "carrying" any "margin stock" (as each of the quoted terms is
defined or used in Regulations G and U of the Board of Governors of the Federal
Reserve System).
(s) Investment Company Act. The Borrower is not an "investment company" or
a company
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20
"controlled" by an "investment company" (as each of the quoted terms is defined
or used in the Investment Company Act of 1940, as amended).
(t) Employee Relations. The Borrower is not, except as set forth on
Schedule 5.1(t), party to any collective bargaining agreement nor has any labor
union been recognized as the representative of the Borrower's employees; the
Borrower knows of no pending, threatened or contemplated strikes, work stoppage
or other labor disputes involving its employees or those of its Subsidiaries.
(u) Intellectual Property. The Borrower owns or possesses all Intellectual
Property required to conduct its business as now and presently planned to be
conducted without, to its knowledge, conflict with the rights of others.
(v) Secondary Equity Offering. The Borrower filed a registration statement
with the Securities Exchange Commission on April 16, 1998 relating to a public
offering of 4,500,000 shares of the Borrower's Class A common stock, a copy of
which has been made available to the Lender.
(w) Perfection of Security Interests. Each of the Security Interests
granted under the Security Documents has been, or on the Effective Date shall
be, perfected in accordance with all applicable laws.
(x) Tag-Along/Piggy Back Rights. Except as set forth on Schedule 5.1(x), no
Person has any Tag-Along Rights or Piggy Back Rights. Schedule 5.1(x) sets forth
the name of each Person who has Tag-Along Rights and/or Piggy Back Rights, the
number of shares of common stock of the Borrower held by such Person, and the
number of such shares subject to Tag-Along Rights and/or Piggy Back Rights.
(y) Year 2000 Compliance. The Borrower has (i) initiated a review and
assessment of all areas within its and each of its Subsidiaries' business and
operations (including those affected by suppliers and vendors) that could be
adversely affected by the "Year 2000 Problem" (that is, the risk that computer
applications used by the Borrower or any of its Subsidiaries (or its suppliers
and vendors) may be unable to recognize and perform properly date-sensitive
functions involving certain dates prior to and any date after December 31,
1999), (ii) developed a plan and timeline for addressing the Year 2000 Problem
on a timely basis, and (iii) to date, implemented that plan in accordance with
that timetable. The Borrower reasonably believes that all computer applications
(including those of its suppliers and vendors) that are material to its or any
of its Subsidiaries' business and operations will on a timely basis be able to
perform properly date-sensitive functions for all dates before and after January
1, 2000 (that is, be "Year 2000 compliant"), except to the extent that a failure
to do so could not reasonably be expected to have a Materially Adverse Effect.
(z) Stock Pledge Agreements. The pledge of the Pledged Collateral under and
as such term is defined in the Stock Pledge Agreements does not violate any
agreement or law to which Borrower is subject, the violation of which could
reasonably be expected to have a Materially Adverse Effect.
Section 5.2 Survival of Representations and Warranties, Etc. All
representations and warranties set forth in this Article 5 and all statements
contained in any certificate, financial statement or other instrument delivered
by or on behalf of the Borrower pursuant to or in connection with this
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21
Agreement or any of the Loan Documents (including, but not limited to, any such
representation, warranty or statement made in or in connection with any
amendment thereto) shall constitute representations and warranties made under
this Agreement. All representations and warranties made under this Agreement
shall be made or deemed to be made at and as of the Agreement Date and at and as
of the Effective Date, except that representations and warranties which, by
their terms are applicable only to one such date shall be deemed to be made only
at and as of such date. All representations and warranties made or deemed to be
made under this Agreement shall survive and not be waived by the execution and
delivery of this Agreement, any investigation made by or on behalf of the Lender
or any borrowing hereunder.
ARTICLE 6 - AFFIRMATIVE COVENANTS
Until all the Obligations have been paid in full, unless the Lender shall
otherwise consent in the manner provided for in Section 12.11, the Borrower
will, and will cause each of its Subsidiaries to:
Section 6.1 Preservation of Corporate Existence and Similar Matters.
Preserve and maintain its corporate existence, rights, franchises, licenses and
privileges in the jurisdiction of its incorporation, and qualify and remain
qualified as a foreign corporation and authorized to do business in each
jurisdiction in which the failure to be qualified could reasonably be expected
to have a Materially Adverse Effect; provided the foregoing shall not prohibit
the merger of any Subsidiary of the Borrower into the Borrower or a wholly-owned
Subsidiary of the Borrower.
Section 6.2 Compliance with Applicable Law. Comply in all material respects
with all applicable laws relating to it.
Section 6.3 Conduct of Business. Engage only in businesses in substantially
the same fields as the businesses conducted on the Effective Date.
Section 6.4 Payment of Taxes and Claims. Pay or discharge when due (a) all
taxes, assessments and governmental charges or levies imposed upon it or upon
its income or profits or upon any properties belonging to it, and (b) all lawful
claims of materialmen, mechanics, carriers, warehousemen and landlords for
labor, materials, supplies and rentals which, if unpaid, might become a Lien on
any properties of the Borrower or such Subsidiary, except that this Section 6.4
shall not require the payment or discharge of any such tax, assessment, charge,
levy or claim which is being contested in good faith by appropriate proceedings
and for which adequate reserves have been established on the appropriate books.
Section 6.5 Accounting Methods and Financial Records. Maintain a system of
accounting, and keep such books, records and accounts (which shall be true and
complete), as may be required or as may be necessary to permit the preparation
of financial statements in accordance with GAAP consistently applied.
Section 6.6 Use of Proceeds. (a) Use the proceeds of the Loan to pay the
amounts indicated in Schedule 6.6 to the Persons indicated therein, and
(b) not use any part of such proceeds to purchase or carry, or to reduce or
retire or refinance
<PAGE>
22
any credit incurred to purchase or carry, any margin stock (within the meaning
of Regulation U of the Board of Governors of the Federal Reserve System) or for
any other purpose which would involve a violation of such Regulation U or
Regulation T or X of such Board of Governors or for any other purpose prohibited
by law or by the terms and conditions of this Agreement.
Section 6.7 Hazardous Waste and Substances; Environmental Requirements. In
addition to, and not in derogation of, the requirements of Section 6.2 and of
the Security Documents, comply in all material respects with all material laws,
governmental standards and regulations applicable to the Borrower or to any of
its assets in respect of occupational health and safety laws, rules and
regulations and Environmental Laws, promptly notify the Lender of its receipt of
any notice of a violation of any such law, rule, standard or regulation and
indemnify and hold the Lender harmless from all loss, cost, damage, liability,
claim and expense incurred by or imposed upon the Lender on account of the
Borrower's failure to perform its obligations under this Section 6.7.
Section 6.8 Accuracy of Information. To the best of the Borrower's
knowledge, all written information, reports, statements and other papers and
data furnished to the Lender, whether pursuant to Article 7 or any other
provision of this Agreement or any of the other Loan Documents, shall be, at the
time the same is so furnished, complete and correct in all material respects to
the extent necessary to give the Lender true and accurate knowledge of the
subject matter.
Section 6.9 Loan to Stock Ratio. In the event that the Loan to Stock Ratio
(a) shall, for a period of five consecutive Business Days, exceed 75%, or (b)
shall, as of the last day of any calendar quarter, exceed 70%, the Borrower
shall, within one Business Day, (i) cause Aronson, Andrea Leven and/or Michael
Leven to subject to the perfected first-priority Security Interest of the Stock
Pledge Agreements such additional shares of the Borrower's common stock (subject
to no restrictions on transfer or the Lender's exercise of remedies thereunder
other than as set forth in the Stock Pledge Agreements) as shall be necessary to
cause the Loan to Stock Ratio to be equal to or less than 70%, (ii) deliver to
the Lender cash collateral, in addition to the cash subject to the Collateral
Assignment of Deposit Account, which cash collateral shall be segregated in a
cash collateral account at the Lender, or deliver to the Lender a letter of
credit from an issuing bank acceptable to the Lender, and in form and substance
acceptable to the Lender, naming the Lender as beneficiary, in either case in
amount equal to or greater than the amount necessary to cause the Loan to Stock
Ratio to be equal to or less than 70%, and/or (iii) make a principal prepayment
on the Loan in amount equal to or greater than the amount necessary to cause the
Loan to Stock Ratio to be equal to or less than 70%; provided, that, if the
Borrower does not deliver all of the duly executed Waivers to the Lender on or
before the 90th day after the Agreement Date, each reference in this Section to
"75%" and "70%", respectively, shall without any further action be deemed to
read "65%" and "60%", respectively, as of the 91st day after the Agreement Date.
Section 6.10 Insurance. The Borrower shall at all times maintain insurance
with responsible insurance companies against such risks and in such amounts as
is customarily maintained by similar businesses or as may be required by
applicable law, including such public liability, products liability, third party
property damage and business interruption insurance as is consistent with
reasonable business practices, and from time to time deliver to the Lender upon
its request a detailed list of the insurance then in effect, stating the names
of the insurance companies, the amounts and rates of the insurance, the dates
<PAGE>
23
of the expiration thereof and the properties and risks covered thereby.
Section 6.11 Inspection. The Lender (by any of its officers, employees or
agents) shall have the right, to the extent that the exercise of such right
shall be within the control of the Borrower, at any time or times to (a) visit
the properties of the Borrower, inspect the assets of the Borrower and its
Subsidiaries and inspect and make extracts from the books and records of the
Borrower and its Subsidiaries, including, but not limited to, management letters
prepared by independent accountants, all during customary business hours at such
premises, and (b) discuss the Borrower's business, assets, liabilities,
financial condition, results of operations and business prospects, insofar as
the same are reasonably related to the rights of the Lender hereunder or under
any of the Loan Documents, with the Borrower's and its Subsidiaries' (i)
principal officers, (ii) independent accountants and other professionals
providing services to the Borrower, and (iii) any other Person (except that any
such discussion with any third parties shall be conducted only in accordance
with the Lender's standard operating procedures relating to the maintenance of
confidentiality of confidential information of borrowers). The Borrower will
deliver to the Lender any instrument necessary to authorize an independent
accountant or other professional to have discussions of the type outlined above
with the Lender or for the Lender to obtain records from any service bureau
maintaining records on behalf of the Borrower.
Section 6.12 Year 2000 Compliance. The Borrower will promptly notify the
Lender in the event the Borrower discovers or determines that any computer
application (including those of its suppliers and vendors) that is material to
its or any of its Subsidiaries' business and operations will not be Year 2000
compliant on a timely basis, except to the extent that such failure could not
reasonably be expected to have a Materially Adverse Effect.
ARTICLE 7 - INFORMATION
Until all the Obligations have been paid in full, unless the Lender shall
otherwise consent in the manner set forth in Section 10.10, the Borrower will
furnish to the Lender at the Lender's Office:
Section 7.1 Financial Statements.
(a) Audited Year-End Statements. As soon as available, but in any event
within 90 days after the end of each fiscal year of the Borrower, copies of the
consolidated balance sheet of the Borrower and its consolidated Subsidiaries as
at the end of such fiscal year and the related consolidated statements of
income, shareholders' equity and cash flow for such fiscal year, in each case
setting forth in comparative form the figures for the previous year of the
Borrower and its consolidated Subsidiaries and reported on, without
qualification, by Deloitte & Touche LLP or other independent certified public
accountants selected by the Borrower and reasonably acceptable to the Lender.
(b) Quarterly Financial Statements. As soon as available, but in any event
within 45 days after the end of each accounting quarter (other than the fourth
fiscal quarter of each fiscal year) of the Borrower, copies of the unaudited
consolidated balance sheet of the Borrower and its consolidated Subsidiaries as
at the end of such quarter and the related unaudited consolidated income
statement for the Borrower and its consolidated Subsidiaries for such quarter
and for the portion of the fiscal year of the Borrower through
<PAGE>
24
such quarter, certified by the chief financial officer of the Borrower to the
best of his knowledge as presenting fairly the financial condition and results
of operations of the Borrower and its consolidated Subsidiaries as at the date
thereof and for the periods ended on such date, subject to normal year end
adjustments.
All such financial statements shall be complete and correct in all material
respects and all such financial statements shall be prepared in accordance with
GAAP (except, with respect to interim financial statements, for the omission of
footnotes) applied consistently throughout the periods reflected therein.
Section 7.2 Discussions with Accountants . The Borrower authorizes the
Lender to discuss the financial condition of the Borrower with the Borrower's
independent certified public accountants and agrees that such discussion or
communication shall be without liability to either the Lender or the Borrower's
independent certified public accountants. The Borrower shall, upon Lender's
request, deliver a letter addressed to such accountants authorizing them to
comply with the provisions of this Section 7.2.
Section 7.3 Officer's Certificate. Together with each delivery of financial
statements required by Section 7.1(a) and (b), a certificate of the Borrower's
President or chief financial officer, stating that, based on an examination
sufficient to enable him to make an informed statement, no Default or Event of
Default exists or, if such is not the case, specifying such Default or Event of
Default and its nature, when it occurred, whether it is continuing and the steps
being taken by the Borrower with respect to such Default or Event of Default.
Section 7.4 Copies of Other Reports. (a) Promptly upon receipt thereof,
copies of all reports, if any, submitted to the Borrower or its Board of
Directors by its independent public accountants, including, without limitation,
all management reports from such accountants.
(b) As soon as practicable, copies of (i) all financial statements and
reports that the Borrower shall send to its shareholders generally, (ii) all
registration statements and all regular or periodic reports which the Borrower
shall file with the Securities and Exchange Commission or any successor
commission, and (iii) all press releases issued by or on behalf of the Borrower.
(c) From time to time and promptly upon each request, such forecasts, data,
certificates, documents or further information regarding the business, assets,
liabilities, financial condition, results of operations or business prospects of
the Borrower as the Lender may reasonably request. The rights of the Lender
under this Section 7.4(c) are in addition to and not in derogation of its rights
under any other provi sion of this Agreement or any Loan Document.
(d) If requested by the Lender, statements in conformity with the
requirements of Federal Reserve Form G-1 or U-1 referred to in Regulations G and
U, respectively, of the Board of Governors of the Federal Reserve System.
(e) Within 15 days after the last day of each calendar quarter and promptly
after any request by the Lender, a statement showing all outstanding amounts on
the Alpine Ventures Note, categorizing such amounts as principal, interest, or
other amounts due.
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25
Section 7.5 Notice of Litigation and Other Matters. Prompt notice of:
(a) the commencement, to the extent the Borrower is aware of the same, of
all proceedings and investigations by or before any governmental or
nongovernmental body and all actions and proceedings in any court or before any
arbitrator against or in any other way relating adversely to, or adversely
affecting, the Borrower or any Affiliate of the Borrower or any of their
respective property, assets or businesses which might, singly or in the
aggregate, cause a Default or an Event of Default or have a Materially Adverse
Effect,
(b) any amendment of the articles of incorporation or by-laws of the
Borrower,
(c) any change in the business, assets, liabilities, financial condition or
results of operations of the Borrower or any Affiliate of the Borrower which has
had or could reasonably be expected to have any Materially Adverse Effect and
any change in the Chief Executive Officer or Chief Financial Officer of the
Borrower,
(d) any (i) Default or Event of Default, or (ii) event that constitutes or
that, with the passage of time or giving of notice or both, would constitute a
default or event of default by the Borrower under any material agreement (other
than this Agreement) to which the Borrower is a party or by which the Borrower
or any of its property may be bound if the exercise of remedies thereunder by
the other party to such agreement would have, either individually or in the
aggregate, a Materially Adverse Effect, and
(e) the occurrence of any default or event of default under the Alpine
Ventures Loan Documents of which the Borrower is aware.
Section 7.6 ERISA. As soon as possible and in any event within 30 days
after the Borrower knows, or has reason to know, that:
(a) any Termination Event with respect to a Benefit Plan has occurred or
will occur,
(b) the aggregate present value of the Unfunded Vested Accrued Benefits
under all Plans has increased to an amount in excess of $0, or
(c) the Borrower is in "default" (as defined in Section 4219(c)(5) of
ERISA) with respect to payments to a Multiemployer Plan required by reason of
its complete or partial withdrawal (as described in Section 4203 or 4205 of
ERISA) from such Multiemployer Plan,
a certificate of the President or the chief financial officer of the Borrower
setting forth the details of such of the events described in clauses (a) through
(c) as applicable and the action which is proposed to be taken with respect
thereto and, simultaneously with the filing thereof, copies of any notice or
filing which may be required by the PBGC or other agency of the United States
government with respect to such of the events described in clauses (a) through
(c) as applicable.
ARTICLE 8- NEGATIVE COVENANTS
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26
Until all the Obligations have been paid in full, unless the Lender shall
otherwise consent in the manner set forth in Section 10.10, the Borrower and its
Subsidiaries will not, directly or indirectly:
Section 8.1 Investments. Acquire, after the Agreement Date, any Investment
or, after such date, permit any Investment to be outstanding, other than
Permitted Investments.
Section 8.2 Merger, Consolidation and Sale of Assets. Merge or consolidate
with any other Person or sell, lease or transfer or otherwise dispose of all or
a substantial portion of its assets to any Person; provided the foregoing shall
not prohibit the merger of any Subsidiary of the Borrower into the Borrower or a
wholly-owned Subsidiary of the Borrower.
Section 8.3 Transactions with Affiliates. Effect any transaction with any
Affiliate (other than a wholly-owned Subsidiary) on a basis less favorable to
the Borrower than would be the case if such transaction had been effected with a
Person not an Affiliate, provided the foregoing shall not prohibit the
transactions described on Schedule 8.3.
Section 8.4 Liens. Create, assume or permit or suffer to exist or to be
created or assumed any Lien on any of the property or assets of the Borrower,
real, personal or mixed, tangible or intangible, except for Permitted Liens.
Section 8.5 Restricted Distributions and Payments, Etc. Declare or make any
Restricted Distribution or Restricted Payment, other than any Restricted
Distribution or Restricted Payment from a Subsidiary of the Borrower to the
Borrower.
Section 8.6 Benefit Plans. Permit, or take any action which would result
in, the aggregate present value of the Unfunded Vested Accrued Benefits under
all Benefit Plans of the Borrower to exceed $0.
Section 8.7 Amendments of Other Agreements. Amend in any way the provisions
of the Borrower's articles of incorporation relating to the relative rights of
the Borrower's Class A and Class B common stock, or enter into any other
agreement the effect of which is to adversely affect the Lender's rights to
foreclose upon or dispose of the Collateral subject to the Stock Pledge
Agreements.
Section 8.8 Tag-Along/Piggy Back Rights. Enter into any registration rights
or other agreement pursuant to which any Person receives Tag-Along Rights and/or
Piggy Back Rights, unless such Person executes and delivers to the Lender a
waiver, in form acceptable to the Lender in its discretion, pursuant to which
such Person waives, in the case of Tag-Along Rights, any and all Tag-Along
Rights such Person may possess in connection with any liquidation by the Lender
of the common stock of the Borrower (whether Class A or Class B) now or
hereafter subject to the Stock Pledge Agreements, and, in the case of Piggy Back
Rights, any and all Piggy Back Rights such Person may possess in connection with
any registration of such common stock by the Lender pursuant to the Registration
Rights Agreement.
ARTICLE 9 - DEFAULT
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27
Section 9.1 Events of Default. Each of the following shall constitute an
Event of Default, whatever the reason for such event and whether it shall be
voluntary or involuntary or be effected by operation of law or pursuant to any
judgment or order of any court or any order, rule or regulation of any
governmental or nongovernmental body:
(a) Default in Payment of Loan. The Borrower shall default in any payment
of principal of, or interest on, the Loan or Note when and as due (whether at
maturity, by reason of acceleration or otherwise), and in the case of a default
in the payment of interest, such default shall continue for five days after
written notice thereof has been given to the Borrower by the Lender.
(b) Other Payment Default. The Borrower shall default in the payment, as
and when due, of any other Obligation, and such default shall continue for five
days after written notice thereof has been given to the Borrower by the Lender.
(c) Misrepresentation. Any representation or warranty made by the Borrower
under this Agree ment or any other Loan Document or any amendment hereto or
thereto shall at any time prove to have been incorrect or misleading in any
material respect when made.
(d) Default in Performance. The Borrower shall default:
(i) in the performance or observance of any term, covenant, condition
or agreement contained in Section 6.6, 6.9, 6.11 or 7.2, or in Article 8;
or
(ii) in the performance or observance of any term, covenant, condition
or agreement contained in Section 7.1, 7.3, 7.4, 7.5 or 7.6 and such
default shall continue for a period of 10 days after the earlier of the
date on which Aronson or Michael Leven becomes aware of such default and
the date on which written notice thereof has been given to the Borrower by
the Lender; or
(iii) in the performance or observance of any term, covenant,
condition or agreement contained in any other provision of this Agreement
(other than as specifically provided for otherwise in this Section 9.1) and
such default shall continue for a period of 30 days after the earlier of
the date on which Aronson or Michael Leven becomes aware of such default
and the date on which written notice thereof has been given to the Borrower
by the Lender.
(e) Indebtedness Cross-Default. (i) The Borrower shall fail to pay when due
and payable the principal of or interest on any Indebtedness (other than the
Loan or Note) where the principal amount of such Indebtedness is in excess of
$10,000,000, or (ii) the maturity of any such Indebtedness shall have (A) been
accelerated in accordance with the provisions of any indenture, contract or
instrument providing for the creation of or concerning such Indebtedness, or (B)
been required to be prepaid in full prior to the stated maturity thereof, or
(iii) any event shall have occurred and be continuing which, with or without the
passage of time or the giving of notice, or both, would permit any holder or
holders of such Indebtedness, any trustee or agent acting on behalf of such
holder or holders or any other Person so to accelerate such maturity.
<PAGE>
28
(f) Other Cross-Defaults. The Borrower shall default in the payment when
due or in the performance or observance of any material obligation or condition
of any agreement, contract or lease (other than the Security Documents or any
such agreement, contract or lease relating to Indebtedness), if the other party
thereto has commenced the exercise of remedies thereunder and such exercise of
remedies could reasonably be expected to have a Materially Adverse Effect.
(g) Voluntary Bankruptcy Proceeding. Any Obligor shall (i) commence a
voluntary case under the federal bankruptcy laws (as now or hereafter in
effect), (ii) commence a proceeding seeking to take advantage of any other laws,
domestic or foreign, relating to bankruptcy, insolvency, reorganization, winding
up or composition for adjustment of debts, (iii) consent to or fail to contest
in a timely and appropriate manner any petition filed against it in an
involuntary case under such bankruptcy laws or other laws, (iv) apply for or
consent to, or fail to contest in a timely and appropriate manner, the
appointment of, or the taking of possession by, a receiver, custodian, trustee
or liquidator of itself or of a substantial part of its property, domestic or
foreign, (v) admit in writing its inability to pay its debts as they become due,
(vi) make a general assignment for the benefit of creditors, or (vii) take any
corporate action for the purpose of authorizing any of the foregoing.
(h) Involuntary Bankruptcy Proceeding. A case or other proceeding shall be
commenced against any Obligor in any court of competent jurisdiction seeking (i)
relief under the federal bankruptcy laws (as now or hereafter in effect) or
under any other laws, domestic or foreign, relating to bankruptcy, insolvency,
reorganization, winding up or adjustment of debts, or (ii) the appointment of a
trustee, receiver, custodian, liquidator or the like of any Obligor or of all or
any substantial part of the assets, domestic or foreign, of any Obligor, and
such case or proceeding shall continue undismissed or unstayed for a period of
60 consecutive calendar days, or an order granting the relief requested in such
case or proceeding against any Obligor (including, but not limited to, an order
for relief under such federal bankruptcy laws) shall be entered.
(i) Loan Documents. Any event of default under any other Loan Document
shall occur or any Obligor shall default in the performance or observance of any
material term, covenant, condition or agree ment contained in, or the payment of
any other sum covenanted to be paid by any Obligor under, any such Loan
Document, and such default shall not be cured within the applicable grace
period, if any; or any provision of this Agreement, or of any other Loan
Document after delivery thereof hereunder, shall for any reason cease to be
valid and binding, other than a nonmaterial provision rendered unenforceable by
operation of law, or any Obligor or other party thereto (other than the Lender)
shall so state in writing; or any Loan Document, after delivery thereof
hereunder, shall for any reason (other than any action taken independently by
the Lender and except to the extent permitted by the terms thereof) cease to
create a valid, perfected and, except as otherwise expressly permitted herein,
first priority Lien on, or security interest in, any of the Collateral purported
to be covered thereby.
(j) Judgment. A judgment or order for the payment of money which exceeds
$1,000,000 in amount in excess of undisputed insurance coverage shall be entered
against any Obligor by any court and such judgment or order shall continue
undischarged or unstayed for 30 days.
(k) Attachment. A warrant or writ of attachment or execution or similar
process which exceeds
<PAGE>
29
$1,000,000 in value shall be issued against any property of any Obligor and such
warrant or process shall continue undischarged or unstayed for 30 days.
(l) ERISA. (i) Any Termination Event with respect to a Benefit Plan shall
occur that, after taking into account the excess, if any, of (A) the fair market
value of the assets of any other Benefit Plan with respect to which a
Termination Event occurs on the same day (but only to the extent that such
excess is the property of the Borrower) over (B) the present value on such day
of all vested nonforfeitable benefits under such other Benefit Plan, results in
an Unfunded Vested Accrued Benefit in excess of $0, (ii) any Benefit Plan shall
incur an "accumulated funding deficiency" (as defined in Section 412 of the Code
or Section 302 of ERISA) for which a waiver has not been obtained in accordance
with the applicable provisions of the Code and ERISA, or (iii) the Borrower is
in "default" (as defined in Section 4219(c)(5) of ERISA) with respect to
payments to a Multiemployer Plan resulting from the Borrower's complete or
partial withdrawal (as described in Section 4203 or 4205 of ERISA) from such
Multiemployer Plan.
(m) Material Adverse Change. There occurs any act, omission, event,
undertaking or circumstance or series of acts, omissions, events, undertakings
or circumstances which have, or could reasonably be expected to have, either
individually or in the aggregate, a Materially Adverse Effect.
(n) Change in Management. Michael Leven shall for any reason cease to be
the Chief Executive Officer of the Borrower and Aronson shall for any reason
cease to be the Chief Financial Officer of the Borrower.
Section 9.2 Remedies.
(a) Automatic Acceleration and Termination of Facilities. Upon the
occurrence of an Event of Default specified in Section 9.1(g) or (h), the
principal of and the interest on the Loan and the Note at the time outstanding,
and all other amounts owed to the Lender under this Agreement or any of the Loan
Documents and all other Obligations, shall thereupon become due and payable
without presentment, demand, protest or other notice of any kind, all of which
are expressly waived, anything in this Agreement or any of the Loan Documents to
the contrary notwithstanding.
(b) Other Remedies. If any Event of Default (other than as specified in
Section 9.1(g) or (h)) shall have occurred and be continuing, the Lender, in its
sole and absolute discretion, may declare the principal of and interest on the
Loan and the Note at the time outstanding, and all other amounts owed to the
Lender under this Agreement or any of the Loan Documents and all other
Obligations, to be forthwith due and payable, whereupon the same shall
immediately become due and payable without presentment, demand, protest or other
notice of any kind, all of which are expressly waived, anything in this
Agreement or the Loan Documents to the contrary notwithstanding.
(c) Further Remedies. If any Event of Default shall have occurred and be
continuing, the Lender, in its sole and absolute discretion, may do any of the
following:
(i) exercise any and all of its rights under this Agreement, the other
Loan Documents, and any and all of the Security Documents;
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30
(ii) apply any cash Collateral to the payment of the Obligations in
any order in which the Lender may elect or use such cash in connection with
the exercise of any of its other rights hereunder or under any of the
Security Documents; and
(iii) exercise all of the rights and remedies of a secured party under
the UCC (whether or not the UCC is applicable) and under any other
applicable law, including, without limitation, the right, without notice
except as specified below and with or without taking the possession
thereof, to sell the Collateral or any part thereof in one or more parcels
at public or private sale, at any location chosen by the Lender, for cash,
on credit or for future delivery and at such price or prices and upon such
other terms as the Lender may deem commercially reasonable. The Borrower
agrees that, to the extent notice of sale shall be required by law, at
least 10 days' notice to the Borrower of the time and place of any public
sale or the time after which any private sale is to be made shall
constitute reasonable notice, but notice given in any other reasonable
manner or at any other reasonable time shall also constitute reasonable
notification. The Lender shall not be obligated to make any sale of
Collateral regardless of notice of sale having been given. The Lender may
adjourn any public or private sale from time to time by announcement at the
time and place fixed therefor, and such sale may, without further notice,
be made at the time and place to which it was so adjourned.
Section 9.3 Application of Proceeds. All proceeds from each sale of, or
other realization upon, all or any part of the Collateral following an Event
of Default shall be applied or paid over as follows:
(a) First: to the payment of all costs and expenses incurred in connection
with such sale or other realization, including attorneys' fees,
(b) Second: to the payment of the Obligations (with the Borrower remaining
liable for any deficiency) in any order which the Lender may elect, and
(c) Third: the balance (if any) of such proceeds shall be paid to the
Borrower or, subject to any duty imposed by law or otherwise, to whomsoever
is entitled thereto.
The Borrower shall remain liable and will pay, on demand, any deficiency
remaining in respect of the Obligations, together with interest thereon at a
rate per annum equal to the highest rate then payable hereunder on such
Obligations, which interest shall constitute part of the Obligations.
Section 9.4 Miscellaneous Provisions Concerning Remedies .
(a) Rights Cumulative. The rights and remedies of the Lender under this
Agreement, the Note and each of the Loan Documents shall be cumulative and not
exclusive of any rights or remedies which it or they would otherwise have. In
exercising such rights and remedies, the Lender may be selective and no failure
or delay by the Lender in exercising any right shall operate as a waiver of such
right nor shall any single or partial exercise of any power or right preclude
its other or further exercise or the exercise of any other power or right.
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31
(b) Waiver of Marshalling. The Borrower hereby waives any right to require
any marshalling of assets and any similar right.
(c) Limitation of Liability. Nothing contained in this Article 9 or
elsewhere in this Agreement or in any of the Loan Documents shall be construed
as requiring or obligating the Lender or any agent or designee of the Lender to
make any demand or to make any inquiry as to the nature or sufficiency of any
payment received by it or to present or file any claim or notice or take any
action with respect to any Collateral or the moneys due or to become due
thereunder or in connection therewith or to take any steps necessary to preserve
any rights against prior parties, and neither the Lender nor any of its agents
or designees shall have any liability to the Borrower for actions taken pursuant
to this Article 9, any other provision of this Agreement or any of the Loan
Documents, so long as the Lender or such agent or designee shall act reasonably
and in good faith.
(d) Appointment of Receiver. In any action under this Article 9, the Lender
shall be entitled to the appointment of a receiver, without notice of any kind
whatsoever, to take possession of all or any portion of the Collateral and to
exercise such power as the court shall confer upon such receiver.
ARTICLE 10 - MISCELLANEOUS
Section 10.1 Notices.
(a) Method of Communication. Except as specifically provided in this
Agreement or in any of the Loan Documents, all notices and the communications
hereunder and thereunder shall be in writing or by telephone subsequently
confirmed in writing. Notices in writing shall be delivered personally or sent
by overnight courier service, by certified or registered mail, postage pre-paid,
or by facsimile transmission and shall be deemed received, in the case of
personal delivery, when delivered, in the case of overnight courier service, on
the next Business Day after delivery to such service, in the case of mailing, on
the third day after mailing (or, if such day is a day on which deliveries of
mail are not made, on the next succeeding day on which deliveries of mail are
made) and, in the case of facsimile transmission, upon transmittal; provided
that in the case of notices to the Lender, the Lender shall be charged with
knowledge of the contents thereof only when such notice is actually received by
the Lender.
(b) Addresses for Notices. Notices to any party shall be sent to it at the
following addresses, or any other address of which all the other parties are
notified in writing.
If to the Borrower: U.S. Franchise Systems, Inc.
13 Corporate Square
Suite 250
Atlanta, Georgia 30329
Attention: Stephen D. Aronson and Neal K. Aronson
Facsimile No.: (404) 321-4482 and (404) 235-7448
with a copy to: Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
<PAGE>
32
New York, New York 10019
Attention: Judith R. Thoyer
Facsimile No.: (212) 757-3990
If to the Lender: NationsBank, N.A.
600 Peachtree Street, 6th Floor
Atlanta, Georgia 30308
Attention: Donna Friedel or Kevin Brown
Facsimile No.: (404) 607-4145
(c) Lender's Office. The Lender hereby designates its office located at 600
Peachtree Street, 6th Floor, Atlanta, Georgia 30308, or any subsequent office
which shall have been specified for such purpose by written notice to the
Borrower, as the office to which payments due are to be made and at which the
Loan will be disbursed.
Section 10.2 Expenses. The Borrower agrees to pay or reimburse on demand
all costs and expenses incurred by the Lender, including, without limitation,
the reasonable fees and disbursements of counsel, in connection with (a) the
negotiation, preparation, execution, delivery, administration, enforcement and
termination of this Agreement and each of the other Loan Documents, whenever the
same shall be executed and delivered, including, without limitation, (i) the
out-of-pocket costs and expenses incurred in connection with the administration
and interpretation of this Agreement and the other Loan Documents, (ii) the
costs and expenses of taking actions to perfect, protect, and continue the
Security Interest; (b) the preparation, execution and delivery of any waiver,
amendment, supplement or consent by the Lender relating to this Agreement or any
of the Loan Documents; (c) sums paid or obligations incurred in connection with
the payment of any amount or taking any action required of the Borrower under
the Loan Documents that the Borrower fails to pay or take; (d) costs and
expenses of preserving and protecting the Collateral; and (e) costs and expenses
paid or incurred to obtain payment of the Obligations, enforce the Security
Interest, sell or otherwise realize upon the Collateral, and otherwise enforce
the provisions of the Loan Documents, or to prosecute or defend any claim in any
way arising out of, related to or connected with, this Agreement or any of the
Loan Documents, which expenses shall include the reason able fees and
disbursements of counsel and of experts and other consultants retained by the
Lender. The foregoing shall not be construed to limit any other provisions of
the Loan Documents regarding costs and expenses to be paid by the Borrower.
Section 10.3 Stamp and Other Taxes. The Borrower will pay any and all
stamp, registration, recordation and similar taxes, fees or charges and shall
indemnify the Lender against any and all liabilities with respect to or
resulting from any delay in the payment or omission to pay any such taxes, fees
or charges, which may be payable or determined to be payable in connection with
the execution, delivery, performance or enforcement of this Agreement and any of
the Loan Documents or the perfection of any rights or security interest
thereunder.
Section 10.4 Setoff. In addition to any rights now or hereafter granted
under applicable law, and not by way of limitation of any such rights, upon and
after the occurrence of any Event of Default, the Lender and any participant
with the Lender in the Loan are hereby authorized by the Borrower at any time
<PAGE>
33
or from time to time, without notice to the Borrower or to any other Person, any
such notice being hereby expressly waived, to set off and to appropriate and to
apply any and all deposits (general or special, time or demand, including, but
not limited to, indebtedness evidenced by certificates of deposit, whether
matured or unmatured) and any other indebtedness at any time held or owing by
the Lender or any participant to or for the credit or the account of the
Borrower against and on account of the Obligations irrespective or whether or
not (a) the Lender shall have made any demand under this Agreement or any of the
Loan Documents, or (b) the Lender shall have declared any or all of the
Obligations to be due and payable as permitted by Section 9.2 and although such
Obligations shall be contingent or unmatured.
Section 10.5 Mandatory Arbitration; Litigation.
(a) ANY CONTROVERSY OR CLAIM BETWEEN THE BORROWER AND THE LENDER INCLUDING
BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF
THE OTHER LOAN DOCUMENTS, INCLUDING ANY CLAIM BASED ON OR ARISING FROM AN
ALLEGED TORT, SHALL BE DETERMINED BY BINDING ARBITRATION IN ACCORDANCE WITH THE
FEDERAL ARBITRATION ACT (OR IF NOT APPLICABLE, THE APPLICABLE STATE LAW), THE
RULES OF PRACTICE AND PROCEDURE FOR THE ARBITRATION OF COMMERCIAL DISPUTES OF
ENDISPUTE, INC., DOING BUSINESS AS J.A.M.S./ENDISPUTE ("J.A.M.S."), AS AMENDED
FROM TIME TO TIME, AND THE "SPECIAL RULES" SET FORTH BELOW. IN THE EVENT OF ANY
INCONSISTENCY, THE SPECIAL RULES SHALL CONTROL. JUDGMENT UPON ANY ARBITRATION
AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. ANY PARTY TO THIS
AGREEMENT MAY BRING AN ACTION, INCLUDING A SUMMARY OR EXPEDITED PROCEEDING, TO
COMPEL ARBITRATION OF ANY CONTROVERSY OR CLAIM TO WHICH THIS AGREEMENT APPLIES
IN ANY COURT HAVING JURISDICTION OVER SUCH ACTION.
A. SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED IN ATLANTA, GEORGIA
AND ADMINISTERED BY J.A.M.S. WHO WILL APPOINT AN ARBITRATOR; IF J.A.M.S. IS
UNABLE OR LEGALLY PRECLUDED FROM ADMINISTERING THE ARBITRATION, THEN THE
AMERICAN ARBITRATION ASSOCIATION WILL SERVE. ALL ARBITRATION HEARINGS WILL BE
COMMENCED WITHIN 90 DAYS OF THE DEMAND FOR ARBITRATION; FURTHER, THE ARBITRATOR
SHALL ONLY, UPON A SHOWING OF CAUSE, BE PERMITTED TO EXTEND THE COMMENCEMENT OF
SUCH HEARING FOR UP TO AN ADDITIONAL 60 DAYS.
B. RESERVATIONS OF RIGHTS. NOTHING IN THIS AGREEMENT OR ANY OTHER LOAN
DOCUMENT SHALL BE DEEMED TO (I) LIMIT THE APPLICABILITY OF ANY OTHERWISE
APPLICABLE STATUTES OF LIMITATION OR REPOSE AND ANY WAIVERS CONTAINED IN THIS
AGREEMENT OR ANY OTHER LOAN DOCUMENT; OR (II) BE A WAIVER BY THE LENDER OF THE
PROTECTION AFFORDED TO IT BY 12 U.S.C. SEC. 91 OR ANY SUBSTANTIALLY EQUIVALENT
STATE LAW; OR (III) LIMIT THE RIGHT OF THE LENDER (A) TO EXERCISE SELF HELP
REMEDIES SUCH AS (BUT NOT LIMITED TO) SETOFF, OR (B) TO FORECLOSE AGAINST ANY
REAL OR PERSONAL PROPERTY COLLATERAL, OR (C) TO OBTAIN FROM A COURT PROVISIONAL
OR ANCILLARY REMEDIES SUCH AS (BUT NOT
<PAGE>
34
LIMITED TO) INJUNCTIVE RELIEF OR THE APPOINTMENT OF A RECEIVER. THE LENDER MAY
EXERCISE SUCH SELF HELP RIGHTS, FORECLOSE UPON SUCH PROPERTY, OR OBTAIN SUCH
PROVISIONAL OR ANCILLARY REMEDIES BEFORE, DURING OR AFTER THE PENDENCY OF ANY
ARBITRATION PROCEEDING BROUGHT PURSUANT TO THIS AGREEMENT OR ANY OTHER LOAN
DOCUMENT. NEITHER THE EXERCISE OF SELF HELP REMEDIES NOR THE INSTITUTION OR
MAINTENANCE OF AN ACTION FOR FORECLOSURE OR PROVISIONAL OR ANCILLARY REMEDIES
SHALL CONSTITUTE A WAIVER OF THE RIGHT OF ANY PARTY, INCLUDING THE CLAIMANT IN
ANY SUCH ACTION, TO ARBITRATE THE MERITS OF THE CONTROVERSY OR CLAIM OCCASIONING
RESORT TO SUCH REMEDIES.
(b) THE BORROWER AND THE LENDER HEREBY AGREE THAT THE FEDERAL COURT OF THE
NORTHERN DISTRICT OF GEORGIA OR, AT THE OPTION OF THE LENDER, ANY COURT IN WHICH
THE LENDER SHALL INITIATE LEGAL OR EQUITABLE PROCEEDINGS AND WHICH HAS SUBJECT
MATTER JURISDICTION OVER THE MATTER IN CONTROVERSY AND WHICH SITS IN A
JURISDICTION IN WHICH THE BORROWER TRANSACTS BUSINESS SHALL HAVE NON-EXCLUSIVE
JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN THE BORROWER
AND THE LENDER, PERTAINING DIRECTLY OR INDIRECTLY TO THIS AGREEMENT OR THE LOAN
DOCUMENTS OR TO ANY MATTER ARISING THEREFROM. THE BORROWER EXPRESSLY SUBMITS AND
CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR PROCEEDING COMMENCED
IN SUCH COURTS, HEREBY WAIVING PERSONAL SERVICE OF THE SUMMONS AND COMPLAINT OR
OTHER PROCESS OR PAPERS ISSUED THEREIN AND AGREEING THAT SERVICE OF SUCH SUMMONS
AND COMPLAINT OR OTHER PROCESS OR PAPERS MAY BE MADE BY REGISTERED OR CERTIFIED
MAIL ADDRESSED TO THE BORROWER AT THE ADDRESS SET FORTH IN SECTION 10.1(b),
WHICH SERVICE SHALL BE DEEMED MADE UPON RECEIPT THEREOF. THE NON-EXCLUSIVE
CHOICE OF FORUM SET FORTH IN THIS SECTION SHALL NOT BE DEEMED TO PRECLUDE THE
ENFORCEMENT OF ANY JUDGMENT OBTAINED IN SUCH FORUM OR THE TAKING OF ANY ACTION
UNDER THIS AGREEMENT TO ENFORCE THE SAME IN ANY APPROPRIATE JURISDICTION.
Section 10.6 Reversal of Payments. To the extent the Borrower makes a
payment or payments to the Lender or the Lender receives any payment or proceeds
of the Collateral for the Borrower's benefit, which payment(s) or proceeds or
any part thereof are subsequently invalidated, declared to be fraudulent or
preferential, set aside and/or required to be repaid to a trustee, receiver or
any other party under any bankruptcy law, state or federal law, common law or
equitable cause, then, the Lender shall have the continuing and exclusive right
to apply, reverse and re-apply any and all payments to any portion of the
Obligations, and, to the extent of such payment or proceeds received, the
Obligations or part thereof intended to be satisfied shall be revived and
continued in full force and effect, as if such payment or proceeds had not been
received by the Lender.
Section 10.7 Accounting Matters. All financial and accounting calculations,
measurements and computations made for any purpose relating to this Agreement,
including, without limitation, all computations utilized by the Borrower to
determine whether it is in compliance with any covenant
<PAGE>
35
contained herein, shall, unless there is an express written direction or consent
by the Lender to the contrary, be performed in accordance with GAAP.
Section 10.8 Assignment; Participation. This Agreement shall be binding
upon the Borrower, and the Borrower's heirs, devisees, representatives,
successors and assigns, and shall inure to the benefit of Lender and its
successors and assigns; provided, however, that the Borrower shall not assign or
encumber any interest of the Borrower hereunder without the prior written
consent of the Lender. The Lender may, from time to time, sell or offer to sell
the Loan, or interests therein, to one or more assignees or participants
(provided that the Lender will not, unless an Event of Default exists, assign
the Loan to a non-Affiliate without the Borrower's prior consent, such consent
not to be unreasonably withheld) and is hereby authorized to disseminate any
information it now has or hereafter obtains pertaining to the Loan, including,
without limitation, any security for the Loan and credit or other information on
the Borrower and its Affiliates, any of its principals and any guarantor, to any
assignee or participant or prospective assignee or prospective participant, to
the Lender's affiliates, including without limitation NationsBanc Montgomery
Securities LLC, to any regulatory body having jurisdiction over the Lender and
to any other parties as necessary or appropriate in the Lender's reasonable
judgment. The Borrower shall execute, acknowledge and deliver any and all
instruments reasonably requested by the Lender in connection therewith and to
the extent, if any, specified in any such assignment or participation, such
companies, assignees or participants shall have the rights and benefits with
respect to the Loan Documents as such persons would have if such persons were
the Lender hereunder.
Section 10.9 Amendments. Any term, covenant, agreement or condition of this
Agreement or any of the other Loan Documents may be amended or waived and any
departure therefrom may be consented to if, but only if, such amendment, waiver
or consent is in writing signed by the Lender and, in the case of an amendment,
by the Borrower. Unless otherwise specified in such waiver or consent, a waiver
or consent given hereunder shall be effective only in the specific instance and
for the specific purpose for which given.
Section 10.10 Performance of Borrower's Duties. The Borrower's obligations
under this Agreement and each of the Loan Documents shall be performed by the
Borrower at its sole cost and expense. If the Borrower shall fail to do any act
or thing which it has covenanted to do under this Agree ment or any of the Loan
Documents, the Lender may (but shall not be obligated to) do the same or cause
it to be done either in the name of the Lender or in the name and on behalf of
the Borrower, and the Borrower hereby irrevocably authorizes the Lender so to
act.
Section 10.11 Indemnification. The Borrower agrees to reimburse the Lender
and NationsBanc Montgomery Securities LLC (the "Arranger") for all reasonable
costs and expenses, including counsel fees and disbursements, incurred and to
indemnify and hold the Lender, the Arranger and each of their officers, agents,
attorneys and Affiliates (collectively the "Indemnitees") harmless from and
against all losses suffered by any Indemnitee, other than losses resulting from
such Indemnitees' gross negligence or willful misconduct, in connection with (a)
the exercise by the Lender of any right or remedy granted to it under this
Agreement or any of the Loan Documents, (b) any claim, and the prosecution or
defense thereof, arising out of or in any way connected with this Agreement or
any of the Loan Documents, except in the case of a dispute between the Borrower
and such Indemnitee in which the Borrower prevails in a final
<PAGE>
36
unappealed or unappealable judgment, and (c) the collection or enforcement of
the Obligations or any of them.
Section 10.12 All Powers Coupled with Interest. All powers of attorney and
other authorizations granted to the Lender and any Persons designated by the
Lender pursuant to any provisions of this Agreement or any of the Loan Documents
shall be deemed coupled with an interest and shall be irrevocable so long as any
of the Obligations remain unpaid.
Section 10.13 Survival. Notwithstanding any termination of this Agreement,
(a) until all Obligations have been paid in full, the Lender shall retain its
Security Interest and shall retain all rights under this Agreement and each of
the Security Documents with respect to the Collateral as fully as though this
Agreement had not been terminated, and (b) the indemnities to which the
Indemnitees are entitled under the provisions of this Article 10 and any other
provision of this Agreement and the Loan Documents shall continue in full force
and effect and shall protect the Indemnitees against events arising after such
termination as well as before.
Section 10.14 Severability of Provisions. Any provision of this Agreement
or any other Loan Document which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective only to the extent
of such prohibition or unenforceability without invalidating the remainder of
such provision or the remaining provisions hereof or thereof or affecting the
validity or enforceability of such provision in any other jurisdiction.
Section 10.15 Governing Law. This Agreement and the Note shall be construed
in accordance with and governed by the law of the State of Georgia.
Section 10.16 Counterparts. This Agreement may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and shall be binding
upon all parties, their successors and assigns, and all of which taken together
shall constitute one and the same agreement.
Section 10.17 Reproduction of Documents. This Agreement, each of the Loan
Documents and all documents relating thereto, including, without limitation, (a)
consents, waivers and modifications that may hereafter be executed, (b)
documents received by the Lender, and (c) financial statements, certificates and
other information previously or hereafter furnished to the Lender, may be
reproduced by the Lender by any photographic, photostatic, microcard, microfilm,
miniature photographic or other similar process, and the Lender may destroy any
original document so reproduced. Each party hereto stipulates that, to the
extent permitted by applicable laws any such reproduction shall be as admissible
in evidence as the original itself in any judicial or administrative proceeding
(whether or not the original shall be in existence and whether or not such
reproduction was made by such Lender in the regular course of business), and any
enlargement, facsimile or further reproduction of such reproduction shall
likewise be admissible in evidence.
Section 10.18 Final Agreement. This Agreement and the other Loan Documents
are intended by the parties hereto as the final, complete and exclusive
expression of the agreement among them with
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37
respect to the subject matter hereof and thereof. This Agreement and the other
Loan Documents supersede any and all prior oral or written agreements between
the parties hereto relating to the subject matter hereof and thereof.
[Remainder of page intentionally left blank]
<PAGE>
38
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in Atlanta, Georgia by their duly authorized officers in several
counterparts all as of the day and year first written above.
BORROWER:
U.S. FRANCHISE SYSTEMS, INC.
[CORPORATE SEAL]
By: /s/ Neal K. Aronson
-------------------------
Neal K. Aronson
Executive Vice President
LENDER:
NATIONSBANK, N.A.
By: /s/ Donna W. Friedel
-------------------------
Donna W. Friedel
Senior Vice President
<PAGE>
39
EXHIBIT "A"
TERM NOTE
$10,000,000 Date: April 28, 1998
FOR VALUE RECEIVED, the undersigned promises to pay to the order of
NATIONSBANK, N.A. (together with any holder hereof, called "Holder") with
offices located in Atlanta, Georgia, the principal sum of $10,000,000 at the
offices of Holder at Atlanta, Georgia, or at any other place designated by
Holder, in lawful money of the United States, together with interest, said
principal sum being payable as set forth in the below-described Loan Agreement,
and said interest on the unpaid principal balance being due at the rate and
times provided in the Loan and Security Agreement between the undersigned and
NationsBank, N.A. of even date (the "Loan Agreement").
This Note is subject to the terms and conditions of, and entitled to
the benefits of the Collateral described in, the Loan Agreement. Capitalized
terms not defined herein shall have the meanings given in the Loan Agreement.
No delay or failure on the part of the Holder in the exercise of any
right or remedy hereunder, under the Loan Agreement, the Security Documents or
at law or in equity, shall operate as a waiver thereof, and no single or partial
exercise by the Holder of any right or remedy hereunder, under the Loan
Agreement, the Security Documents, or at law or in equity shall preclude or
estop another or further exercise thereof or the exercise of any other right or
remedy. Principal and interest on this Note shall be payable and paid in lawful
money of the United States of America.
The undersigned and all endorsers waive presentment, notice of
dishonor and protest.
Time is of the essence of this Note and, in case this Note is
collected by law or through an attorney at law, or under advice therefrom, the
undersigned agrees to pay all costs of collection, including reasonable
attorneys' fees if collected by or through an attorney.
<PAGE>
40
The provisions of this Note shall be construed and interpreted and
all rights and obligations of the parties hereunder determined in accordance
with the laws of the State of Georgia.
IN WITNESS WHEREOF, the undersigned has caused this Note to be
executed, sealed and delivered in Atlanta, Georgia, in its corporate name, by
and through its respective duly authorized officers, as of the day and year
first above written.
U.S. FRANCHISE SYSTEMS, INC.
By:/s/ Neal K. Aronson
--------------------------
Neal K. Aronson
Executive Vice President
[CORPORATE SEAL]
<PAGE>
<PAGE>
- -------------------------------------------------------------------------------
SENIOR SUBORDINATED NOTE
PURCHASE AGREEMENT
DATED AS OF APRIL 28, 1998
BETWEEN
U.S. FRANCHISE SYSTEMS, INC.
as Lender
and
ALPINE HOSPITALITY VENTURES LLC
as Borrower
- -------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C> <C>
SECTION 1 DEFINITIONS; ACCOUNTING TERMS......................................................1
1.1 Definitions........................................................................1
1.2 Accounting Terms...................................................................7
SECTION 2 PURCHASE AND SALE OF NOTE..........................................................7
2.1 Authorization of Note.............................................................7
2.2 Purchase and Sale of Note..........................................................7
2.3 Obligations of the Borrower Under the Note.........................................7
2.4 Purpose............................................................................7
2.5 Prepayments........................................................................8
2.6 Interest...........................................................................8
SECTION 3 TAX DISTRIBUTIONS..................................................................9
3.1 Tax Distributions..................................................................9
3.2 Certain Definitions...............................................................10
SECTION 4 CONDITIONS PRECEDENT..............................................................10
4.1 Documentary Conditions Precedent..................................................10
4.2 Additional Conditions Precedent...................................................11
SECTION 5 REPRESENTATIONS AND WARRANTIES....................................................12
5.1 Incorporation, Good Standing and Due Qualification................................12
5.2 Corporate Power and Authority; No Conflicts.......................................12
5.3 Legally Enforceable Agreements....................................................12
5.4 Litigation........................................................................13
5.5 Purpose; Contracts and Liabilities................................................13
5.6 No Outstanding Judgments or Orders................................................13
5.7 No Defaults on Other Agreements...................................................13
5.8 Governmental Regulation...........................................................13
5.9 Broker's, Finder's or Similar Fees................................................13
SECTION 6 AFFIRMATIVE COVENANTS.............................................................13
6.1 Maintenance of Existence..........................................................14
6.2 Maintenance of Properties.........................................................14
6.3 Maintenance of Records............................................................14
6.4 Maintenance of Insurance..........................................................14
6.5 Compliance with Laws..............................................................14
6.6 Financial Statement Reporting Requirements........................................15
6.7 Other Reporting Requirements......................................................15
<PAGE>
6.8 Inspection of Property, Books and Records.........................................15
6.9 Use of Proceeds...................................................................16
SECTION 7 NEGATIVE COVENANTS................................................................16
7.1 Liens.............................................................................16
7.2 Additional Indebtedness...........................................................17
7.3 Mergers, Sales, etc...............................................................17
7.4 Acquisitions and Investments......................................................17
7.5 Conduct of Business...............................................................18
7.6 Limitation on Distributions.......................................................18
7.7 Transactions with Affiliates......................................................18
SECTION 8 EVENTS OF DEFAULT.................................................................18
8.1 Events of Default.................................................................18
8.2 Remedies..........................................................................20
SECTION 9 SUBORDINATION.....................................................................20
9.1 Definitions.......................................................................21
9.2 Limitation on Payment and Remedies................................................21
SECTION 10 MISCELLANEOUS.....................................................................23
10.1 Amendments and Waivers............................................................23
10.2 Usury.............................................................................24
10.3 Enforcement Expenses..............................................................24
10.4 Survival..........................................................................24
10.5 Assignment; Further Assurances....................................................24
10.6 Notices...........................................................................24
10.7 Jurisdiction; Immunities; Waiver of Jury Trial....................................25
10.8 Table of Contents; Headings.......................................................25
10.9 Severability......................................................................25
10.10 Counterparts......................................................................26
10.11 Integration.......................................................................26
10.13 Governing Law.....................................................................26
10.14 No Recourse Against Others........................................................26
EXHIBITS
Exhibit A Form of Note
</TABLE>
<PAGE>
SENIOR SUBORDINATED NOTE PURCHASE AGREEMENT
NOTE PURCHASE AGREEMENT, dated as of April 28, 1998, between
ALPINE HOSPITALITY VENTURES LLC, a Delaware limited liability company (the
"Borrower"), and U.S. FRANCHISE SYSTEMS, INC., a Delaware corporation (the
"Lender").
The Borrower desires that the Lender purchase a certain Note
(as defined herein) as provided herein, and the Lender is prepared to purchase
such Note.
Accordingly, the Borrower and the Lender agree as follows:
SECTION 1
DEFINITIONS; ACCOUNTING TERMS.
1.1 Definitions. As used in this Agreement the following terms
have the following meanings (terms defined in the singular to have a correlative
meaning when used in the plural and vice versa):
"ABI" means America's Best Inns, Inc., a Delaware corporation.
"Acquisition" means any transaction pursuant to which the
Borrower or any of its Subsidiaries (a) acquires equity securities (or warrants,
options or other rights to acquire such securities) of any Person (other than
the Borrower or any Person which is then a Subsidiary of the Borrower), pursuant
to a solicitation of tenders therefor, or in one or more negotiated block,
market or other transactions not involving a tender offer, or a combination of
any of the foregoing, or (b) makes any Person a Subsidiary of the Borrower (by
acquisition, merger or otherwise), or causes any such Person to be merged with
or into the Borrower or any of its Subsidiaries such that the Borrower or any
such Subsidiary is the surviving entity or the surviving entity becomes the
Borrower or a Subsidiary of the Borrower, or (c) purchases all or substantially
all of the business or assets of any Person or of any operating division of any
Person.
"Additional Principal" has the meaning given such term in
Section 2.6(c).
"Affiliate" shall have the meaning ascribed to such term in
Rule 12b-2 of the General Rules and Regulations under the Exchange Act.
"Agreement" means this Note Purchase Agreement, as amended or
supplemented from time to time. References to Sections, Exhibits, Schedules and
the like refer to the Sections, Exhibits, Schedules and the like of this
Agreement unless otherwise indicated.
"Asset Transfer Agreement" means that agreement dated as of
the date hereof by and among BAI, OPCO, ABI or the other selling entities listed
on Schedule I thereto.
<PAGE>
2
"Available Cash" means cash on hand minus (i) a reasonable
reserve for anticipated ministerial expenses within the next three months from
the last Interest Payment Date and (ii) a reserve for any Tax Distribution
payable or reasonably estimated to be payable within the next three months from
the last Interest Payment Date.
"BAI" means Best Acquisition, Inc., a Georgia corporation.
"Banking Day" means any day on which commercial banks are not
authorized or required to close in New York City.
"Bridge Loan" has the meaning set forth in the definition of
Overall Transaction.
"Change of Control" means that less than 65% of the ownership
interests in the Borrower is owned, directly or indirectly, by Alpine Equity
Partners L.P. and/or the Lender, and/or Affiliates or successors of either of
such entities.
"Closing Date" means the date as of which this Agreement has
been executed by the Borrower and the Lender and on which all conditions
precedent to the purchase of the Note hereunder have been satisfied or waived by
Lender in its sole discretion.
"Code" means the Internal Revenue Code of 1986, as amended
from time to time.
"Consolidated Subsidiary" means any Subsidiary of the Borrower
whose accounts are, or are required to be, consolidated with the accounts of the
Borrower in accordance with GAAP.
"Default" means any event which with the giving of notice or
lapse of time, or both, would become an Event of Default.
"Distribution" means, in respect of any corporation or limited
liability company: (a) the payment or making of any dividend or other
distribution of cash, securities, or property in respect of capital stock of
such corporation or in respect of the membership interests of such limited
liability corporation, other than distributions in capital stock or membership
interests of the same class; or (b) the redemption or other acquisition of any
capital stock (or any options or warrant for such stock) of such corporation or
membership interests of such limited liability corporation; or (c) the payment
of any principal or interest on, or the acquisition of, any Indebtedness owing
to any shareholder or member.
"Dollars" and the sign "$" mean lawful money of the United
States of America.
<PAGE>
3
"ERISA" means the Employee Retirement Income Security Act of
1974, as in effect from time to time, and any successor statute.
"Event of Default" has the meaning given such term in Section
8.1.
"Facility Documents" means this Agreement and the Note.
"GAAP" means, subject to the limitations on application
thereof set forth in Section 1.2, generally accepted accounting principles set
forth in the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as may be approved by a significant segment of
the accounting profession, that are applicable to the circumstances as of the
date of determination, applied on a basis consistent with those used in the
preparation of the financial statements referred to in Section 6.6.
"Guaranty," "Guaranteed" or to "Guarantee" as applied to any
obligation of another Person shall mean and include:
(a) a guaranty (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), directly or
indirectly, in any manner, of any part or all of such obligation of such other
Person, and
(b) an agreement, direct or indirect, contingent or otherwise,
and whether or not constituting a guaranty, the practical effect of which is to
assure the payment or performance (or payment of damages in the event of
nonperformance) of any part or all of such obligation of such other Person
whether by
(i) the purchase of securities or obligations,
(ii) the purchase, sale or lease (as lessee or
lessor) of property or the purchase or sale of services primarily for
the purpose of enabling the obligor with respect to such obligation to
make any payment or performance (or payment of damages in the event of
nonperformance) of or on account of any part of all of such obligation,
or to assure the owner of such obligation against loss, or
(iii) the supplying of funds to or in any other
manner investing in the obligor with respect to such obligation.
"Indebtedness" of any Person means the following:
(a) all obligations for money borrowed or for the deferred
purchase price of property or services, which is evidenced by a promissory note
or similar
<PAGE>
4
instrument, or in respect of drafts accepted or similar instruments or
reimbursement obligations under letters of credit,
(b) all obligations secured by any Lien to which any property
or asset owned or held by such Person is subject, whether or not the obligation
secured thereby shall have been assumed by such Person,
(c) all obligations of the nature of (a) or (b) of other
Persons, which such Person has Guaranteed, and
(d) in the case of the Borrower and its Subsidiaries, all
obligations under the PW Debt.
"Hospitality Assets" means each of the assets included in the
definition of Hospitality Assets under the Purchase Agreement.
"Investment" means any loan or advance to any Person or any
capital contribution to, or investment in or acquisition of an interest in, any
Person, other than (i) OPCO, (ii) a loan or advance by the Borrower or any
Consolidated Subsidiary to the Borrower or any Consolidated Subsidiary, (iii) an
investment (such as in treasury notes, bank certificates of deposit or other
accounts or other short term, high grade securities) or a loan or advance in the
ordinary course of business or (iv) a capital contribution from the Borrower or
any Consolidated Subsidiary to the Borrower or any Consolidated Subsidiary, but
including, without limitation, the acquisition or creation of an interest in a
joint venture, partnership or other similar arrangement, whether in corporate,
partnership or other legal form.
"Lien" means any lien (statutory or otherwise), security
interest, mortgage, deed of trust, priority, pledge, charge, conditional sale,
title retention agreement, financing lease or other encumbrance or similar right
of others, or any agreement to give any of the foregoing.
"Management" means USFS Management, Inc., a Georgia
corporation.
"Management Agreement" means the agreement, dated the date
hereof between the Borrower and OPCO, on the one hand, and Management, on the
other hand.
"Net Proceeds" means the proceeds actually received from the
sale (other than in the ordinary course of business) by the Borrower or any of
its Subsidiaries of any Hospitality Assets, after deduction of (i) reasonable
expenses related thereto, (ii) amounts permitted as Tax Distributions under
Section 3.1(b) with respect to such sale, and (iii) amounts required to be
repaid to PW Real Estate Investment Inc. or reserved under the PW Debt as a
result of such sale.
"Note" has the meaning given such term in Section 2.1.
<PAGE>
5
"Note Default Rate" means, to the extent permitted by
applicable law, a rate equal to 2% per annum above the rate of interest then in
effect on the Note.
"Note Maturity Date" means April __, 2010.
"Note Rate" means a fixed rate equal to 12.0% per annum.
"OPCO" means RSVP-BI OPCO, LLC, a Delaware limited liability
company.
"Operating Agreement" means the Limited Liability Company
Agreement of the Borrower between the Alpine Hospitality Holdings LLC and
Venture Manager Inc.
"Overall Transaction" means (i) the bridge loan of $10,000,000
by NationsBank, N.A. to the Lender ("Bridge Loan"), (ii) the direct and indirect
contribution of $7,000,000 of equity into the Borrower by Alpine Hospitality
Holdings LLC, (iii) the loan contemplated by this Agreement, (iv) the direct and
indirect capital contribution of $22,000,000 by the Borrower into OPCO in return
for 1,000 membership units of OPCO, (v) the PW Loan, (vi) the sale transactions
contemplated under the Purchase Agreement, and (vii) the sale transactions and
redemption transaction contemplated under the Asset Transfer Agreement.
"Person" means an individual, partnership, corporation,
business trust, joint stock company, trust, unincorporated association, joint
venture, limited liability company, governmental authority or other entity of
whatever nature.
"Plan" means any employee benefit or other plan established or
maintained, or to which contributions have been made, by the Borrower or any
ERISA Affiliate and which is covered by Title IV of ERISA.
"Principal" means the outstanding principal amount of the
Note, including all Additional Principal.
"Purchase Agreement" means the Agreement of Purchase and Sale,
dated as of December 15, 1997 (as amended by amendments dated December 15, 1997,
January 7 1998, March 9, 1998 and April 1, 1998) by and between BAI and ABI and
the other selling entities listed on Schedule 1 thereto.
"PW Debt" means the indebtedness of OPCO of at least
$64,700,000 to PW Real Estate Investments Inc. ("PW") under that certain loan
agreement of even date herewith among PW, OPCO and RSVP-ABI REALCO, LLC, a
Delaware limited liability company which is a wholly owned subsidiary of OPCO,
as such loan agreement may be amended from time to time (including through
waivers of any provisions thereof) or any refinancing or refunding of such
indebtedness.
<PAGE>
6
"PW Loan" means that certain borrowing of at least $64,700,000
by OPCO from PW, to occur concurrently herewith.
"Real Estate" means all owned or leased estates in real
property (whether now owned or hereafter acquired), including, without
limitation, all fees, leaseholds and future interests, together with all owned
or leased interests in the improvements and emblements thereon, the fixtures
attached thereto and the easements appurtenant thereto, in each case of the
Borrower or any Subsidiary.
"Regulation D" means Regulation D of the Board of Governors of
the Federal Reserve System, as the same may be amended or supplemented from time
to time, and any successor regulation.
"Regulation G" means Regulation G of the Board of Governors of
the Federal Reserve System, as the same may be amended or supplemented from time
to time, and any successor regulation.
"Regulation T" means Regulation T of the Board of Governors of
the Federal Reserve System, as the same may be amended or supplemented from time
to time, and any successor regulation.
"Regulation U" means Regulation U of the Board of Governors of
the Federal Reserve System, as the same may be amended or supplemented from time
to time, and any successor regulation.
"Regulation X" means Regulation X of the Board of Governors of
the Federal Reserve System, as the same may be amended or supplemented from time
to time, and any successor regulation.
"Subsidiary" means, as to any Person, any corporation or other
entity of which at least a majority of the securities or other ownership
interests having ordinary voting power for the election of directors or other
persons performing similar functions are at the time owned directly or
indirectly by such Person, or as to any limited liability company as to which
such Person has a majority of the securities of its managing member.
"Supplemental Letter Agreement" means the letter agreement,
dated the date hereof, between the Borrower and OPCO, on the one hand, and the
Lender, Management and Best Franchising, Inc., on the other hand.
"Tax Distribution" has the meaning given such term in Section
3.1.
1.2 Accounting Terms. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP, and all financial
data required to be delivered hereunder shall be prepared in accordance with
GAAP. Financial statements
<PAGE>
7
required to be delivered by the Borrower to the Lender pursuant to Section 6.6
shall be prepared in accordance with GAAP as in effect at the time of such
preparation.
SECTION 2
PURCHASE AND SALE OF NOTE
2.1 Authorization of Note. The Borrower shall authorize the
issuance of a senior subordinated promissory note, substantially in the form of
Exhibit A hereto, having an original principal amount of Fifteen Million Dollars
($15,000,000), maturing on the Note Maturity Date, bearing interest at the Note
Rate and payable to the order of the Lender (as the same may be amended or
supplemented from time to time, the "Note").
2.2 Purchase and Sale of Note. The Borrower hereby agrees to
sell the Note to the Lender and the Lender hereby agrees to purchase the Note
from the Borrower on the Closing Date, subject to satisfaction or waiver of the
conditions precedent set forth in Section 4, for a purchase price of $15,000,000
payable on the Closing Date by delivery of immediately available funds in the
amount of the purchase price therefor by wire transfer of immediately available
funds for the account of the Borrower to the account designated in writing by
the Borrower.
2.3 Obligations of the Borrower Under the Note. The Borrower
agrees that the Note shall constitute the promise and obligation of the Borrower
to pay to the Lender, in Dollars and in immediately available funds, the unpaid
Principal amount of the Note, which amount shall be due and payable in full on
the Note Maturity Date, and to pay accrued interest thereon in accordance with
Section 2.6.
2.4 Purpose. The Borrower shall use the proceeds of the Note
solely to make a capital contribution, directly or indirectly to OPCO, which
contribution, together with capital of the Borrower, will be used by OPCO,
together with the proceeds of the PW Loan, to redeem 1,000 units of beneficial
interest in OPCO owned by BAI. No portion of the proceeds of the Note shall be
used by the Borrower in any manner that might cause the issuance of the Note or
the application of such proceeds to violate Regulation G, Regulation U,
Regulation T or Regulation X or any other regulation of the Board of Governors
of the Federal Reserve System or to violate the Securities Exchange Act of 1934,
in each case as in effect on the date of such issuance and such use of proceeds.
<PAGE>
8
2.5 Prepayments.
(a) Optional Prepayments. The Borrower shall
have the right to make prepayments of Principal, in whole or in part, without
payment of any penalty or premium, at any time or from time to time. Any
prepayment of Principal under this Section 2.5(a) shall include all accrued
interest on such prepaid amount through (but excluding) the date of prepayment.
(b) Mandatory Prepayments.
(i) The Borrower shall be required to make
prepayments of Principal in the event that any Hospitality Assets are sold
(other than in the ordinary course of business). The amount required to be
prepaid shall be an amount equal to the lesser of (x) the Net Proceeds of such
sale and (y) the amount of such Net Proceeds allowed under the PW Debt to be
distributed to the Borrower. The lesser amount referred to in clauses (x) and
(y) shall be applied first to repay the Additional Principal portion of the
Principal and accrued interest thereon, with any remainder being applied to
prepay the remaining portion of the Principal and accrued interest thereon. The
Borrower agrees that the prepayment required under this Section shall occur (to
the extent permitted under the PW Debt) no later than the later of (A) ten days
after such sale of any such Hospitality Assets is consummated or (B) the date
allowed under the PW Debt.
(ii) The Borrower shall be required to
prepay all or a portion of outstanding Principal, together with all accrued
interest thereon, when prepayment is required pursuant to the terms of the
Supplemental Letter Agreement.
2.6 Interest.
(a) Interest shall accrue on the outstanding and
unpaid Principal for the period from and including the date of the issuance of
the Note to but excluding the date the Note is paid in full, at a fixed rate per
annum equal to the Note Rate, except as provided in Section 2.6(d).
(b) Interest on the Note shall be calculated on
the basis of a year of 360 days for the actual number of days elapsed.
(c) The Borrower promises to pay accrued
interest in cash semi- annually on each June 30 and December 31 of each year or,
if any such date shall not be a Banking Day, on the next succeeding Banking Day
to occur after such date (such date being an "Interest Payment Date"), beginning
on June 30, 1998. Notwithstanding the foregoing, under the following
circumstances, interest shall not be paid in cash, but shall be added to
principal ("Additional Principal") and shall, for all purposes of this Agreement
and the Note, be deemed to be included in outstanding Principal and shall accrue
interest for the period for and including the date such amount shall become
<PAGE>
9
Additional Principal until such amount is paid in full at a fixed rate per annum
equal to the Note Rate, except as provided in Section 2.6(d):
(i) If there is not Available Cash
sufficient to pay accrued interest for the semi-annual period ending on an
Interest Payment Date, in cash, then on such date such amount of accrued and
unpaid interest as is not paid in cash shall be deemed Additional Principal;
(ii) If there is Available Cash in excess
of the amount necessary to pay accrued interest for the semi-annual period
ending on an Interest Payment Date, in cash, then such excess (the "Excess")
shall be utilized as follows:
(A) to pay to the Lender the lesser of (x) any
Additional Principal then outstanding, together with accrued interest
thereon, and (y) 50% of the Excess; and
(B) to pay to the members of the Borrower any part of
the Excess remaining after the application of clause (A) as a special
distribution.
(d) Upon the occurrence and during the
continuance of any Event of Default, the outstanding Principal (including
Additional Principal) and, to the extent permitted by applicable law, any
interest payments thereon or any fees or other amounts then due and payable
hereunder shall thereafter bear interest (including postpetition interest in any
proceeding under Title 11 of the United States Code or other applicable
bankruptcy laws), payable upon demand, at the Note Default Rate.
SECTION 3
TAX DISTRIBUTIONS
3.1 Tax Distributions. The Borrower may make Distributions for
purposes of paying taxes ("Tax Distributions") as follows:
(a) For each calendar year, the Borrower may
make one or more distributions to its members in an aggregate amount equal to
the product of (x) the Tax Rate (as defined below) and (y) the Taxable Income of
the Borrower (as defined below) for such year. The Borrower shall be permitted
to make distributions with respect to the amount described in the preceding
sentence on an estimated basis for the payment of estimated taxes on the 10th
day of April, June, September, and December of such year, with the final
distribution to be made on the 10th day of April of the succeeding year.
(b) For each calendar year in which a sale of
any hotel constituting part of the Hospitality Assets occurs, at the time that
the first Tax
<PAGE>
10
Distribution is payable pursuant to Section 3.1(a) following the date of such
sale, the Borrower may make a distribution to its members in an amount equal to
the product of (x) the Tax Rate and (y) the Net Gain (as defined below)
recognized by the Borrower from such sale during such year.
3.2 Certain Definitions. For purposes of the foregoing (i) the
Tax Rate shall mean the maximum marginal rate of tax payable by a U.S.
corporation doing business in New York; (ii) the Taxable Income of the Borrower
for any year shall mean its positive taxable income as calculated for Federal
income tax purposes, computed as if the Borrower were a U.S. corporation and
after taking into account any net loss recognized by the Borrower for such year
from the sale of any hotel constituting part of the Hospitality Assets, but
determined without regard to Net Gain recognized by the Borrower in such year
and after taking into account any net operating loss recognized by the Borrower
in any other year only as provided herein; (iii) Net Gain shall mean the net
gain recognized by the Borrower for Federal income taxes with respect to the
sale of any hotel constituting part of the Hospitality Assets, net of any net
operating loss of the Borrower applied as provided herein; (iv) any net
operating loss of the Borrower for any year resulting from the application of
the definition of Taxable Income shall be applied first to the Net Gain of the
Borrower for such year, with any remaining amount carried forward (but not back)
in accordance with the provisions of Section 172 of the Code (and, to the extent
applicable, Section 1231 of the Code) to each succeeding year, and within such
year applied first to any Net Gain of the Borrower in such year and then to the
Taxable Income of the Borrower for such year
SECTION 4
CONDITIONS PRECEDENT
4.1 Documentary Conditions Precedent. The obligations
hereunder of the Lender to purchase and pay for the Note are subject to the
condition precedent that the Lender shall have received on or before the Closing
Date each of the following, in form and substance satisfactory to the Lender and
its counsel:
(a) The Note in the form of Exhibit A to this
Agreement, duly executed by the Borrower in favor of the Lender;
(b) A certificate of the Secretary, Assistant
Secretary or the managing member of the Borrower, dated the Closing Date,
attesting to all necessary corporate or limited liability company action taken
by the Borrower, including resolutions of it and its members, authorizing the
execution, delivery and performance of the Facility Documents and each other
document to be delivered pursuant to this Agreement by the Borrower;
<PAGE>
11
(c) A certificate of the Secretary, Assistant
Secretary or the managing member of the Borrower, dated the Closing Date,
certifying the names and true signatures of the officers of the Borrower
authorized to sign the Facility Documents and the other documents to be
delivered by the Borrower under this Agreement;
(d) A certificate of a duly authorized officer
or the managing member of the Borrower, dated the Closing Date, stating that the
representations and warranties in Section 5 are true and correct in all material
respects on such date as though made on and as of such date, that no event has
occurred and is continuing which constitutes a Default or Event of Default and
that no Default or Event of Default would result from the issuance of the Note
on the Closing Date;
(e) Copies of the certificate of formation and
the Operating Agreement of the Borrower, certified as of the Closing Date by the
Secretary, Assistant Secretary or managing member of the Borrower as true,
correct and complete.
4.2 Additional Conditions Precedent. The obligations hereunder
of the Lender to purchase and pay for the Note shall be subject to the further
conditions precedent that on the Closing Date the following statements shall be
true:
(i) the representations and warranties contained in
Section 5 are materially true and correct on and as of the Closing
Date as though made on and as of such date;
(ii) there has been no material adverse event which
will impair the ability of the Borrower to meet its obligations under
the Note;
(iii) no Default or Event of Default has occurred and
is continuing, or would result from the issuance of the Note;
(iv) the issuance of the Note shall not violate any
law, including, without limitation, Regulation G, Regulation T,
Regulation U or Regulation X or any other regulation of the Board of
Governors of the Federal Reserve System;
(v) each of the loan transactions, capital
contributions and other transactions referred to in the definition of
"Overall Transaction" shall have occurred or shall be occurring
simultaneously with the closing of the transactions contemplated
hereby and the terms, provisions and conditions of each of such loan
transactions, capital contributions and other transactions are
reasonably satisfactory to the Lender.
<PAGE>
12
SECTION 5
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to the Lender that
immediately prior to the Overall Transaction:
5.1 Incorporation, Good Standing and Due Qualification. The
Borrower and each Subsidiary of the Borrower which is a corporation or a limited
liability company is duly incorporated or validly existing and in good standing
under the laws of the jurisdiction of its incorporation or organization, has the
corporate or limited liability company power and authority to own its assets and
to transact the business in which it is now engaged or proposes to be engaged,
and is duly qualified as a foreign corporation or limited liability company to
do business and is in good standing in every jurisdiction where failure to be so
qualified would materially and adversely affect the business, properties or
financial condition of the Borrower and its Subsidiaries taken as a whole.
5.2 Corporate Power and Authority; No Conflicts. The
execution, delivery and performance by the Borrower of the Facility Documents
and the issuance and sale of the Note have been duly authorized by all necessary
corporate or limited liability company action and do not and will not: (a)
require any consent or approval of its members (other than that which has been
obtained); (b) contravene its certificate of formation or Operating Agreement or
any other organic law; (c) violate any provision of, or require any filing,
registration, consent or approval under, any law, rule, regulation, order, writ,
judgment, injunction, decree, determination or award presently in effect having
applicability to the Borrower or any Subsidiary of the Borrower; (d) result in a
breach of or constitute a default or require any consent under any indenture or
loan or credit agreement or any other agreement, lease or instrument to which
the Borrower or any Subsidiary of the Borrower is a party or by which it or its
properties may be bound or affected; (e) result in, or require, the creation or
imposition of any Lien upon or with respect to any of the properties now owned
or hereafter acquired by the Borrower or any Subsidiary of the Borrower; or (f)
cause the Borrower or any Subsidiary of the Borrower to violate or be in default
under any such law, rule, regulation, order, writ, judgment, injunction, decree,
determination or award or any such indenture, agreement, lease or instrument.
5.3 Legally Enforceable Agreements. Each Facility Document is,
or when executed and delivered will be, a legal, valid and binding obligation of
the Borrower, enforceable against the Borrower in accordance with its terms,
except to the extent that such enforcement may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting creditors' rights generally and general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law).
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13
5.4 Litigation. There are no actions, suits or proceedings
pending with respect to the Borrower or any Subsidiary or, to the knowledge of
the Borrower, threatened against or affecting the Borrower or any Subsidiary of
the Borrower before any court, governmental agency or arbitrator.
5.5 Purpose; Contracts and Liabilities. The Borrower and each
of its Subsidiaries have been incorporated or formed for the sole purpose to
enter into the transactions contemplated by the Purchase Agreement and the Asset
Transfer Agreement and none of the Borrower or its Subsidiaries own any assets
nor have incurred any liabilities or entered into any contracts or other
agreements other than those liabilities and those contracts contemplated by and
required to consummate the Overall Transaction.
5.6 No Outstanding Judgments or Orders. There are no
judgments, writs, injunctions or decrees, of any court, arbitrator or federal,
state, municipal or other governmental authority, commission, board, bureau,
agency or instrumentality, domestic or foreign, outstanding against the Borrower
or any Subsidiary.
5.7 No Defaults on Other Agreements. Neither the Borrower nor
any Subsidiary of the Borrower is in default in any respect in the performance,
observance or fulfillment of any of the obligations, covenants or conditions
contained in any agreement or instrument to which it is a party.
5.8 Governmental Regulation. Neither the Borrower nor any of
its Subsidiaries is subject to regulation under the Interstate Commerce Act in
any fashion that would limit its ability to incur indebtedness for money
borrowed as contemplated hereby. Neither the Borrower nor any of its
Subsidiaries is subject to regulation under the Public Utility Holding Company
Act of 1935, the Investment Company Act of 1940, the Federal Power Act or any
statute or regulation limiting its ability to incur indebtedness for money
borrowed as contemplated hereby.
5.9 Broker's, Finder's or Similar Fees. There are no brokerage
commissions, finder's fees or similar fees or commissions payable in connection
with the offer or sale of the Note contemplated hereby based on any agreement,
arrangement or understanding with the Borrower or any Affiliate or Subsidiary
thereof, or any action taken by any such entity.
SECTION 6
AFFIRMATIVE COVENANTS
From and after the date of this Agreement for so long as the
Note shall remain unpaid or any other amounts due hereunder are outstanding
under this Agreement or the Note, the Borrower shall, unless the Lender gives
prior written consent:
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14
6.1 Maintenance of Existence. Except as otherwise permitted by
Section 7.3, preserve and maintain, and cause each of its Subsidiaries to
preserve and maintain, its existence and good standing in the jurisdiction of
formation and qualify and remain qualified, and cause each of the Subsidiaries
of the Borrower to qualify and remain qualified, as a foreign limited liability
company in each jurisdiction in which such qualification is required, where the
failure to be so qualified would materially and adversely affect the business,
properties or financial condition of the Borrower and its Subsidiaries taken as
a whole.
6.2 Maintenance of Properties. Except as otherwise permitted
by Section 7.3 or under the PW Debt in connection with condemnation or casualty,
maintain, keep and preserve, and cause each of its Subsidiaries to maintain,
keep and preserve, all of its properties (tangible and intangible) necessary or
useful in the proper conduct of its business, including, without limitation, the
Hospitality Assets, in good working order and condition, ordinary wear and tear
excepted.
6.3 Maintenance of Records. Keep, and cause each of its
Subsidiaries to keep, adequate records and books of account, in which entries
will be made in accordance with GAAP, reflecting all financial transactions of
the Borrower and its Subsidiaries; provided, however, that if the manager of the
Hospitality Assets is an affiliate of the Lender, the Borrower shall not be
responsible for any breach of this covenant.
6.4 Maintenance of Insurance. Maintain, and cause each of its
Subsidiaries to maintain, insurance with financially sound and reputable
insurance com panies or associations, in such amounts and covering such risks as
are usually carried by companies engaged in the same or a similar business and
similarly situated, which insurance may provide for reasonable deductibility
from coverage thereof.
6.5 Compliance with Laws. Comply, and cause each of its
Subsidiaries to comply, in all material respects with all applicable laws,
rules, regulations and orders, including, without limitation, (i) paying before
the same become delinquent, all taxes, assessments and governmental charges
imposed upon it or upon its property, except where such taxes, assessments and
charges are being contested in good faith and by proper proceedings diligently
pursued and against which adequate reserves are being maintained, (ii) complying
in all material respects with all applicable environmental laws and (iii)
complying with all applicable health and hotel occupancy laws, in all cases in
which noncompliance is likely to have a material adverse effect upon the
Borrower and its Subsidiaries taken as a whole.
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15
6.6 Financial Statement Reporting Requirements. Furnish
------------------------------------------
to the Lender:
(a) Annual Financial Statements. As soon as
available and in any event within 120 days after the end of each fiscal year of
the Borrower, a consolidated balance sheet of the Borrower and its Consolidated
Subsidiaries as of the end of such fiscal year and related consolidated
statements of income, stockholders' equity and cash flows for such fiscal year,
all in reasonable detail and stating in comparative form the respective
consolidated figures for the corresponding date and period in the prior fiscal
year and all prepared in accordance with GAAP and certified by the Borrower;
provided that, if the Borrower does not receive such financial statements from
Management, it shall have no obligation to deliver them to Lender under this
section.
(b) Quarterly Financial Statements. As soon as
available and in any event within 90 days after the end of each of the first
three quarters of each fiscal year of the Borrower, a consolidated balance sheet
of the Borrower and its Consolidated Subsidiaries as of the end of such quarter
and related consolidated statements of income, stockholders' equity and cash
flows for the period commencing at the end of the previous fiscal year and
ending with the end of such quarter, all in reasonable detail and stating in
comparative form the respective consolidated figures for the corresponding date
and period in the previous fiscal year (subject to year-end adjustments) and all
prepared in accordance with GAAP and certified by the Borrower; provided that,
if the Borrower does not receive such financial statements from Management, it
shall have no obligation to deliver them to Lender under this section.
6.7 Other Reporting Requirements. Furnish to the Lender such
other information respecting the condition or operations, financial or
otherwise, of the Borrower or any of its Subsidiaries as the Lender may from
time to time reasonably request and which is also required or requested to be
provided to PW pursuant to the PW Debt under the relevant loan agreement.
6.8 Inspection of Property, Books and Records. Will keep, and
will cause each of its Subsidiaries to keep, proper books of record and account
in which full, true and correct entries in conformity with GAAP shall be made of
all material dealings and transactions in relation to its business and
activities; provided, however, that if the manager of the Hospitality Assets is
an affiliate of the Lender, the Borrower shall not be responsible for any breach
of the foregoing covenant; and the Borrower will permit, and will cause each of
its Subsidiaries to permit, representatives of any Lender to visit and inspect
any of their respective properties, to examine and make abstracts from any of
their respective books and record and to discuss their respective affairs,
finances and accounts with their respective officers, employees and independent
public accountants, all at such reasonable times and as often as may reasonably
be desired.
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16
6.9 Use of Proceeds. The proceeds of the Note will be applied
in accordance with Section 2.4. None of such proceeds will be used in violation
of any applicable law or regulation.
SECTION 7
NEGATIVE COVENANTS
From and after the date of this Agreement for so long as the
Note shall remain unpaid or any other amounts due hereunder are outstanding
under this Agreement or the Note, the Borrower shall not, without the prior
written consent of Lender:
7.1 Liens. Create, incur, assume or suffer to exist, or permit
any of its Subsidiaries to create, incur, assume or suffer to exist, any Lien,
upon or with respect to any of its properties, now owned or hereafter acquired,
except:
(a) Liens securing the principal of and interest
on the PW Debt or any other amounts due under the PW Debt;
(b) Liens existing on the date hereof;
(c) Liens for taxes or assessments or other
government charges or levies if not yet due and payable or if due and payable if
they are being contested in good faith by appropriate proceedings diligently
pursued and for which appropriate reserves are maintained;
(d) Liens imposed by law, such as mechanic's,
materialmen's, landlord's, warehousemen's, carrier's and other similar Liens,
securing obligations incurred in the ordinary course of business which are not
past due for more than 30 days, or which are being contested in good faith by
appropriate proceedings diligently pursued and for which appropriate reserves
are maintained;
(e) Liens under workers' compensation,
unemployment insurance, social security or similar legislation (other than
ERISA);
(f) Liens, deposits or pledges to secure the
performance of leases, public or statutory obligations, surety, stay, appeal,
indemnity, or other similar bonds, or other similar obligations arising in the
ordinary course of business;
(g) judgment and other similar Liens arising in
connection with court proceedings; provided, that, within 60 days, the Lien is
discharged or the execution or other enforcement of such Liens is effectively
stayed and the claims secured thereby are being actively contested in good faith
and by appropriate proceedings diligently pursued and for which appropriate
reserves are maintained;
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17
(h) easements, rights-of-way, restrictions and
other similar encumbrances which, in the aggregate, do not materially interfere
with the occupation, use and enjoyment by the Borrower or any of its
Subsidiaries of the property or assets encumbered thereby in the normal course
of its business or materially impair the value of the property subject thereto;
(i) Rights of set-off in favor of banks, brokers
or other financial institutions in respect of accounts maintained with such
banks, brokers or other financial institutions in the ordinary course of
business which were not created to secure the repayment of borrowed money or
other advances, and Liens on such accounts to secure obligations in respect of
transactions effected in such accounts;
(j) Liens permitted under the loan agreement for
the PW Debt (whether or not such PW Debt is outstanding);
(k) Liens on equipment and other personal
property financed by Subsidiaries in the ordinary course of business; and
(l) any extensions, renewals or replacements of
the foregoing Liens; provided that the Liens permitted by this clause shall not
extend to, or cover, any additional Indebtedness or property (other than a
substitution of like property).
7.2 Additional Indebtedness. Create, assume, or otherwise
incur or permit any of its Subsidiaries to create, assume or otherwise incur,
any Indebtedness other than (i) the Note, (ii) the PW Debt and (iii)
Indebtedness permitted under the loan agreement for the PW Debt (whether or not
such PW Debt is outstanding).
7.3 Mergers, Sales, etc. Merge or consolidate with any other
Person, or permit any of its Subsidiaries to merge or consolidate with any other
Person, or sell, lease or otherwise dispose of, or permit any of its
Subsidiaries to sell, lease or otherwise dispose of, all or substantially all of
its respective assets (whether in one transaction or in a series of
transactions); provided, however, that, if no Event of Default has occurred and
is continuing, any Subsidiary of the Borrower may merge into or consolidate with
or transfer assets to any other Subsidiary of the Borrower; nor shall the
Borrower permit any Subsidiary to sell or lease any Hospitality Assets other
than in the ordinary course of business, except for a sale of a hotel included
in such Hospitality Assets, solely for cash if the Net Proceeds, if any, of such
sale are distributed to the Borrower and such Net Proceeds are applied, to the
extent required, in accordance with Section 2.5(b).
7.4 Acquisitions and Investments. Make, or permit any of its
Subsidiaries to make, any Acquisitions or Investments other than pursuant to the
Overall Transaction.
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18
7.5 Conduct of Business. Engage in or permit any of its
Subsidiaries to engage in, directly or indirectly, any other business or
activity other than the ownership and operation of the Hospitality Assets.
7.6 Limitation on Distributions. Except as permitted in
Section 3, declare, make or pay or permit any of its Subsidiaries to declare,
make or pay, any Distributions, except for Distributions (i) from a Subsidiary
to the Borrower or (ii) from the Borrower to any member of the Borrower;
provided that (a) immediately preceding and immediately following such
Distribution no monetary Default or Event of Default shall have occurred and be
continuing, and (b) if such Distribution is a cash Distribution to any member of
the Borrower, it may be declared and paid only if the amounts required by
Section 2.6(c)(ii)(A) have been paid in cash.
7.7 Transactions with Affiliates. Except as contemplated by
and required to consummate the Overall Transaction or as otherwise permitted by
this Agreement, the Borrower shall not, and shall not permit any of its
Subsidiaries to, enter into any transaction with any Affiliate of the Borrower
or of any such Subsidiary, except (i) in the ordinary course of business and
pursuant to the reasonable requirements of the business of the Borrower or such
Subsidiary and (ii) on terms no less favorable to the Borrower or such
Subsidiary than those the Borrower or such Subsidiary would obtain in a
comparable arm's-length transaction with a Person not an Affiliate of the
Borrower or such Subsidiary.
SECTION 8
EVENTS OF DEFAULT
8.1 Events of Default. Any of the following events shall
-----------------
be an "Event of Default":
(a) The Borrower shall fail to pay the principal
of the Note when due, or interest on the Note or other amount due hereunder
within ten days of the date when due (it being understood that the creation of
Additional Principal under Section 2.6(c) shall be deemed payment of interest
when due);
(b) Any representation or warranty made or
deemed made by the Borrower in this Agreement or which is contained in any
certificate, document, opinion, financial or other statement furnished at any
time under or in connection with this Agreement shall prove to have been
incorrect in any material respect on or as of the date made or deemed made;
(c) The Borrower shall: fail to perform or
observe any term, covenant or agreement contained in this Agreement or in the
Note (other than the
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19
obligation to pay interest or principal) and, except for Sections 7.3 and 7.6,
such failure shall continue for 30 days after notice to the Borrower by the
Lender;
(d) The Borrower or any of its Subsidiaries
shall: (i) fail to pay any Indebtedness the aggregate outstanding principal
amount of which as to any or all of the Borrower and its Subsidiaries is in
excess of $5,000,000, including but not limited to indebtedness for borrowed
money (other than the payment obligations described in (a) above) of the
Borrower or such Subsidiary, as the case may be, or any interest or premium
thereon, when due (whether by scheduled maturity, required prepayment,
acceleration, demand or otherwise) and such failure shall continue after any
applicable grace period or (ii) fail to perform or observe, and such failure
shall continue after any applicable grace period, any term, covenant or
condition on its part to be performed or observed under any agreement or
instrument relating to any such Indebtedness, and as a result of (i) or (ii),
any such Indebtedness shall be declared to be due and payable, or required to be
prepaid (other than by a regularly scheduled required prepayment), prior to the
stated maturity thereof;
(e) An involuntary proceeding shall be commenced
or an involuntary petition shall be filed in a court of competent jurisdiction
seeking (a) relief in respect of the Borrower or any of its Subsidiaries, or of
a substantial part of their property or assets, under Title 11 of the United
States Code, as now constituted or hereafter amended, or any other Federal or
state bankruptcy, insolvency, receivership or similar law, (b) the appointment
of a receiver, trustee, custodian, sequestrator, conservator or similar official
for the Borrower or any of its Subsidiaries, or for a substantial part of their
property or assets, or (c) the winding up or liquidation of the Borrower or any
of its Subsidiaries; and such proceeding or petition shall continue undismissed
or unstayed for 90 days, or an order or decree approving or ordering any of the
foregoing shall be entered;
(f) The Borrower or any Subsidiary thereof shall
(a) voluntarily commence any proceeding or file any petition seeking relief
under Title 11 of the United States Code, as now constituted or hereafter
amended, or any other Federal or state bankruptcy, insolvency, receivership or
similar law, (b) consent to the institution of or the entry of an order for
relief against it, or fail to contest in a timely and appropriate manner, any
proceeding or the filing of any petition described in paragraph (e) of this
Section 8.1, (c) apply for or consent to the appointment of a receiver, trustee,
custodian, sequestrator, conservator or similar official for the Borrower or any
of its Subsidiaries, or for a substantial part of their property or assets, (d)
file an answer admitting the material allegations of a petition filed against it
in any such proceeding, (e) make a general assignment for the benefit of
creditors, (f) become unable, admit in writing its inability or fail generally
to pay its debts as they become due or (g) take any action for the purpose of
effecting any of the foregoing;
(g) One or more judgments, decrees or orders for
the payment of money shall be rendered against the Borrower or any Subsidiary of
the Borrower in
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20
excess of $1,000,000 in the aggregate at any one time (not adequately covered by
insurance as to which a solvent and unaffiliated insurance company has
acknowledged coverage) and such judgments, decrees or orders shall continue
unsatisfied and in effect for a period of 60 days without being vacated,
discharged, satisfied or stayed or bonded pending appeal;
(h) The Borrower shall cease to own, directly or
indirectly, all of the membership interests of OPCO and RSVP-ABI REALCO, LLC, a
Delaware limited liability company;
(i) A Change of Control shall have occurred
without the consent of the Lender; or
(j) The Management Agreement, as amended by the
Supplemental Letter Agreement, shall be terminated by OPCO in connection with a
sale of all or substantially all of the Hospitality Assets; it being understood
that (A) any other termination that requires, pursuant to the Management
Agreement, payment of a Termination Fee of three multiplied by the Applicable
Annual Amount (as defined in the Management Agreement) shall not be an Event of
Default hereunder and (B) a termination contemplated by the last sentence of
paragraph 2 of the Supplemental Letter Agreement shall not be an Event of
Default hereunder.
8.2 Remedies. Upon the occurrence and continuance of any Event
of Default, the Lender may, by notice to the Borrower, declare the outstanding
Principal due under the Note, all accrued interest thereon and all other amounts
payable under this Agreement and the Note to be forthwith due and payable,
whereupon the Note, all accrued interest thereon and all other amounts payable
under this Agreement and the Note shall become and be forthwith due and payable,
without presentment, demand, protest or further notice of any kind, all of which
are hereby expressly waived by the Borrower; provided, that, in the case of an
Event of Default referred to in Section 8.1(e), the Note, all accrued interest
thereon and all other amounts payable under this Agreement shall become
immediately due and payable without notice, presentment, demand, protest or
other formalities of any kind, all of which are hereby expressly waived by the
Borrower. Nothing contained herein shall modify or otherwise affect the rights
and remedies available to the Lender after the occurrence of an Event of Default
under any other agreement between the Lender and the Borrower.
SECTION 9
SUBORDINATION
Notwithstanding anything to the contrary contained herein, the
Subordinated Indebtedness (as defined below) shall at all times be wholly
subordinate and
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21
junior in right of payment to all Senior Indebtedness (as defined below) to the
extent and in the manner provided in this Section 9.
9.1 Definitions. As used in this Section 9, the following
terms shall have the following meanings:
"Senior Indebtedness" shall mean any and all guaranties given
by the Borrower to the lender under the PW Debt and any and all Indebtedness
under the PW Debt.
"Subordinated Indebtedness" shall mean (i) the principal of
and interest on the Note and (ii) any other monetary obligations of the Borrower
or any of its Subsidiaries arising out of or in connection with this Agreement
or the Note.
"Subordinated Indebtedness Documents" shall mean this
Agreement and the Note, as the same may be amended from time to time (to the
extent permitted by Section 9.2(d)).
9.2 Limitation on Payment and Remedies.
(a) The Subordinated Indebtedness is and shall
be subject and subordinate in all respects to the Senior Indebtedness and to all
sums now or hereafter outstanding under the Senior Indebtedness and to all
amendments, increases, supplements, consolidations, extensions and other
agreements of any nature whatsoever now or hereafter executed or delivered with
respect to the Senior Indebtedness or the documents and instruments which
evidence, secure and govern the Senior Indebtedness (the "Senior Indebtedness
Documents"). The Senior Indebtedness Documents may be amended or modified in any
manner as may be agreed to by PW and the borrowers under the Senior Indebtedness
(collectively, the "Property LLCs"), including, without limitation, increases in
interest rates and extensions of maturity, and any such amendment or
modification shall be senior and superior to the Subordinated Indebtedness and
all Subordinated Indebtedness Documents.
(b) Notwithstanding anything to the contrary
that may be contained in the Subordinated Indebtedness Documents or any rights
arising under the Subordinated Indebtedness Documents, the Lender shall not
commence any action or proceeding to collect the Subordinated Indebtedness until
the date upon which all principal, interest and other sums of any nature
whatsoever which may or shall become due and payable pursuant to the Senior
Indebtedness have been paid in full. The Lender shall not (i) take any action
which is adverse to the Lien and priority of the Senior Indebtedness Documents,
(ii) acquire, by subrogation or otherwise, any Lien, estate, right or other
interest in any of the properties that secure the Senior Indebtedness prior to
the repayment in full of the Senior Indebtedness, (iii) challenge the validity
or priority of the Lien of any of the Senior Indebtedness Documents, or (iv)
oppose any plan of
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22
reorganization or rehabilitation proposed or approved by the PW with respect to
any of the Property LLCs or the Borrower.
(c) Notwithstanding anything to the contrary
that may be contained in the Subordinated Indebtedness Documents, at anytime
when an "Event of Default" (as such term is defined in the Senior Indebtedness
Documents) has occurred and is continuing under the Senior Indebtedness
Documents, the Lender shall not accept the payment of any sum in reduction of
principal, interest or other sums which may or shall become due and payable
pursuant to the provisions of the Subordinated Indebtedness Documents,
irrespective of from where or from whom tendered. If the Lender shall accept any
payment of any sum in contravention of the provisions of this Section 9.2(c),
the Lender shall, upon demand, remit to PW all such payments so received for
application by PW in reduction of the indebtedness evidenced and secured by the
Senior Indebtedness Documents. Notwithstanding anything to the contrary in this
Section 9.2(c), interest on the Subordinated Indebtedness may be paid by the
addition to Principal of Additional Principal in the manner set forth in Section
2.6(c)(i), which Additional Principal shall be included as part of the
Subordinated Indebtedness.
(d) The Lender shall not, without obtaining the
prior written consent of PW, agree to any amendment or modification of Section
9.2 of this Agreement or, except as contemplated by the Supplemental Letter
Agreement, any other amendment or modification of the Subordinated Indebtedness
Documents that materially increases the liabilities or obligations of the
Borrower thereunder. Any such amendments or modifications of the Subordinated
Debt Documents without the prior written consent of PW shall be void and of no
force and effect.
(e) In the event of any proceedings to
liquidate, dissolve or wind up the Property LLCs or the Borrower, or of any
execution, sale, receivership, insolvency, bankruptcy, liquidation,
readjustment, reorganization, or other similar proceedings (a "Bankruptcy
Proceeding") relative to the Property LLCs or the Borrower or any of their
respective properties, any claim of PW in any such proceeding shall be paid in
full before any payment is made upon the Subordinated Indebtedness. The Lender
undertakes and agrees for the benefit of PW to execute, verify, deliver and file
any proofs of claim, consents, or other instruments which PW may at any time
require in order to effectuate the full benefit of the subordination contained
herein; and upon failure of the Lender to do so, PW shall be deemed to be
irrevocably appointed the agent and attorney-in-fact coupled with an interest of
the Lender to execute, verify, deliver and file any such proofs of claim,
consents or other instruments. PW shall have the sole right to accept or reject
any plan proposed in any Bankruptcy Proceeding relative to the Property LLCs or
the Borrower and to take any other action which a party filing a claim is
entitled to take.
(f) Notwithstanding anything to the contrary
that may be contained in the Subordinated Indebtedness Documents, the
Subordinated Indebtedness may not be transferred to any other person or entity
(other than to NationsBank N.A.
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23
pursuant to Section 10.5(b)) without prior written notice to PW and delivering
to PW evidence in writing from the Applicable Rating Agencies to the effect that
such a transfer will not result in a qualification withdrawal or downgrading of
the ratings in effect immediately prior to such transfer for any certificates or
securities issued in connection with any securitization of the Senior
Indebtedness, which is then outstanding, if any, or if such a securitization has
not occurred, such transfer may not occur without the prior written consent of
PW. For purposes of this Section 9.2(f), the term "Applicable Rating Agency"
shall mean any of Standard & Poor's Ratings Group, a division of McGraw- Hill,
Inc., Moody's Investors Service, Inc., Duff & Phelps Credit Rating Co. and Fitch
Investors Service, Inc. or any other nationally-recognized statistical rating
agency, which has rated the securitization of the Senior Indebtedness
(g) In the event of any conflict or ambiguity
between the terms, covenants and provisions of this Section 9.2 and any other
terms, covenants and provisions of this Agreement (or any other terms, covenants
and provisions of the other Subordinated Indebtedness Documents), the terms,
covenants and conditions of this Section 9.2 shall be controlling in all
respects.
(h) All of the terms, covenants and provisions
of this Section 9.2 shall remain in full force and effect until such time as all
principal, interest and other sums payable or which may become due and payable
under the Senior Indebtedness Documents shall have been paid in full.
(i) The provisions of this Section 9.2 are made
and agreed to for the benefit of PW, and may be enforced by PW as if PW were a
party to this Agreement. The Lender recognizes that PW would not have permitted
the creation of the Senior Indebtedness unless the Lender agreed to the terms
and provisions contained in this Section 9.2. PW as used in this Section 9.2
shall be deemed to include any and all successors and assigns of PW.
SECTION 10
MISCELLANEOUS
10.1 Amendments and Waivers. No modification, amendment or
waiver of any provision of this Agreement or the Note, and no consent to any
departure therefrom by the Borrower, shall in any event be effective unless the
same shall be in writing and signed by the Lender, and then such waiver,
amendment, modification or consent shall be effective only in the specific
instance and for the purpose for which given. No amendment, consent,
modification or waiver shall be effective against the Borrower unless signed by
the Borrower. No failure on the part of the Lender to exer cise, and no delay in
exercising, any right hereunder shall operate as a waiver thereof or preclude
any other or further exercise thereof or the exercise of any other right. The
<PAGE>
24
remedies herein provided are cumulative and not exclusive of any remedies
provided by law.
10.2 Usury. Anything herein to the contrary notwithstanding,
the obligations of the Borrower under the Note shall be subject to the
limitation that payments of interest shall not be required to the extent that
receipt thereof would be contrary to provisions of law applicable to the holder
of the Note limiting rates of interest which may be charged or collected by such
holder. The Borrower covenants (to the extent that it may lawfully do so) that
it will not at any time insist upon, plead, or in any manner whatsoever claim or
take the benefit or advantage of, any stay or extension law or any usury law or
other law that would prohibit or forgive the Borrower from paying all or any
portion of the principal of or interest on the Note, wherever enacted, now or at
any time hereafter in force, or that may affect the covenants or the performance
of the Facility Documents; and (to the extent that it may lawfully do so) the
Borrower hereby expressly waives all benefit or advantage of any such law, and
covenants that it will not hinder, delay or impede the execution of any power
herein granted to the Lender, but will suffer and permit the execution of every
such power as though no such law had been enacted.
10.3 Enforcement Expenses. The Borrower shall reimburse the
Lender on demand for all reasonable costs, expenses, and charges (including,
without limitation, all reasonable fees and charges of external legal counsel
for the Lender) incurred by the Lender in connection with the enforcement of the
Facility Documents.
10.4 Survival. The obligations of the Borrower under Section
10.3 shall survive the repayment of the Note.
10.5 Assignment; Further Assurances.
(a) This Agreement shall be binding upon, and
shall inure to the benefit of, the Borrower, the Lender and their respective
successors and assigns (including transferees of the Note), except that the
Borrower may not assign or transfer its rights or obligations hereunder.
(b) So long as there is no Event of Default then
in existence, the Note may not be transferred by the Lender or any subsequent
holder without the prior written consent of the Borrower, which consent shall
not be unreasonably withheld, delayed or conditioned; provided, however, that
the Note may be transferred to NationsBank, N.A., as required by the Bridge
Loan, or any refinancing or refunding thereof.
10.6 Notices. Unless the party to be notified otherwise
notifies the other party in writing as provided in this Section, and except as
otherwise provided in this Agreement, notices shall be given to the Lender and
to the Borrower by hand delivery, mail (return receipt requested), facsimile
transmission, or telex addressed to such party
<PAGE>
25
at its address on the signature page of this Agreement (or at such other address
of such party provided the other party receives notice of any such change of
address). Notices shall be effective upon receipt.
10.7 Jurisdiction; Immunities; Waiver of Jury Trial.
(a) The Borrower hereby irrevocably submits to
the jurisdiction of any New York State or United States Federal court sitting in
New York City over any action or proceeding arising out of or relating to any of
the Facility Documents and the Borrower hereby irrevocably agrees that all
claims in respect of such action or proceeding may be heard and determined in
such New York State or Federal court. The Borrower, as an alternative method of
service, also irrevocably consents to the service of any and all process in any
such action or proceeding by the mailing of copies of such process to the
Borrower at its address specified in Section 10.6. The Borrower agrees that a
final judgment in any such action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law. The Borrower further waives any objection to venue in such
State and any objection to an action or proceeding in such State on the basis of
a non convenient forum. The Borrower further agrees that any action or
proceeding brought against the Lender shall be brought only in a New York State
or United States Federal court sitting in New York County.
(b) THE LENDER AND THE BORROWER HEREBY AGREE TO
WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION
BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY FACILITY DOCUMENT.
(c) Nothing in this Section 10.7 shall affect
the right of the Lender to serve legal process in any other manner permitted by
law or affect the right of the Lender to bring any action or proceeding against
the Borrower or its property in the courts of any other jurisdictions.
(d) To the extent that the Borrower has or
hereafter may acquire any immunity from jurisdiction of any court or from any
legal process (whether from service or notice, attachment prior to judgment,
attachment in aid of execution, execution or otherwise) with respect to itself
or its property, the Borrower hereby irrevocably waives such immunity in respect
of its obligations under the Facility Documents.
10.8 Table of Contents; Headings. Any table of contents and
the head ings and captions hereunder are for convenience only and shall not
affect the interpretation or construction of this Agreement.
10.9 Severability. The provisions of this Agreement are
intended to be severable. If for any reason any provision of this Agreement
shall be held invalid or unenforceable in whole or in part in any jurisdiction,
such provision shall, as to such
<PAGE>
26
jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without in any manner affecting the validity or enforceability
thereof in any other jurisdiction or the remaining provisions hereof in any
jurisdiction.
10.10 Counterparts. This Agreement may be executed in any
number of counterparts, all of which taken together shall constitute one and the
same instrument, and any party hereto may execute this Agreement by signing any
such counterpart.
10.11 Integration. The Facility Documents set forth the entire
agreement among the parties hereto relating to the transactions contemplated
thereby and supersede any prior oral or written statements or agreements with
respect thereto.
10.12 Consents. Consents requested of the Lender hereunder
from the Borrower shall not be unreasonably withheld, delayed or conditioned. If
neither Michael A. Leven nor Neal K. Aronson are Chief Executive Officer or
Chief Financial Officer, respectively, then from and after such time any waiver
or consent given with respect to any non-monetary provision or default under the
PW Debt shall be deemed given hereunder with respect to the comparable
provision, if any, contained herein.
10.13 Governing Law. This Agreement shall be governed by, and
inter preted and construed in accordance with, the law of the State of New York,
without giving effect to its conflicts of law principles or rules.
10.14 No Recourse Against Others. A director, officer,
employee or member, as such, of the Borrower shall not have any liability for
any obligations of the Borrower hereunder or under the Note for any claim based
on, in respect of or by reason of such obligations or their creation.
<PAGE>
27
IN WITNESS WHEREOF, the parties have duly executed this
Agreement as of the date first set forth above.
ALPINE HOSPITALITY VENTURES LLC
by Ventures Manager Inc.,
its managing member
By: /s/ Richard D. Goldstein
Name: Richard D. Goldstein
Title: President
Address: 1285 Avenue of the Americas
New York, N.Y. 10019
Attention: Richard D. Goldstein, Esq.
Telephone: (212) 641-5018
Telecopy: (212) 641-5125
U.S. FRANCHISE SYSTEMS, INC.
By: /s/ Neal K. Aronson
Name: Neal K. Aronson
Title: Executive Vice President
Address: 13 Corporate Square, Suite 250
Atlanta, GA 30329
Attention: Associate General Counsel
Telephone: (404) 235-7444
Telecopy: (404) 321-4482
<PAGE>
Exhibit 10.8
Execution Copy
SUBSCRIPTION AGREEMENT
SUBSCRIPTION AGREEMENT dated as of March 17, 1998 between (i) U.S.
FRANCHISE SYSTEMS, INC., a Delaware corporation (the "Company"), (ii) SEXTANT
TRADING LLC ("Sextant"), and (iii) LUBERT-ADLER REAL ESTATE OPPORTUNITY FUND,
L.P., LUBERT-ADLER REAL ESTATE OPPORTUNITY FUND II, L.P. and LUBERT-ADLER
CAPITAL REAL ESTATE OPPORTUNITY FUND, L.P. (collectively, "Lubert-Adler" and,
together with Sextant, the "Purchasers").
Section 1. SALE AND PURCHASE. Upon the execution of this
Agreement, Sextant and Lubert-Adler severally agree to subscribe for and
purchase, and the Company agrees to issue and sell to such Purchasers, 437,500
and 62,500 shares, respectively, of the Company's Class A Common Stock, $.01 par
value (the "Shares"), for a purchase price of $11.25 per Share in cash.
Concurrently with such purchase, the parties shall execute and deliver a
Registration and Tag-Along Rights Agreement with respect to the Shares.
Section 2. RIGHT TO PURCHASE ADDITIONAL SHARES. For each $10.0
million of funds (up to a maximum of $50.0 million of funds) committed out of
the Initial Commitment (as defined in the Operating Agreement of the Fund) by
Constellation Development Fund LLC and its affiliated entities (collectively,
the "Fund") in hotel development projects on or before the second anniversary
hereof, the Company agrees that Sextant and Lubert-Adler shall have the right to
purchase an additional 87,500 and 12,500 Shares, respectively, at a purchase
price of $11.25 per Share in cash. Such purchase rights shall be exercisable by
either Purchaser in whole or in part at any time during the 18-month period
following completion of the Fund's incremental $10.0 million commitment by
delivery of written notice of exercise to the Company. Closing of each purchase
of additional Shares pursuant to this Section 2 shall occur within 10 days of
delivery of the notice of exercise. The purchase price and number of Shares
acquirable by the Purchasers pursuant to this Section 2 shall be appropriately
adjusted for any future stock splits, stock dividends or similar transactions
affecting the Class A Common Stock.
Section 3. INVESTMENT REPRESENTATIONS. Each Purchaser represents
and warrants to the Company (i) that the Shares will be acquired by such
Purchaser for its own account and not with a view to, or present intention of,
distribution thereof in violation of the Securities Act of 1933, as amended (the
"Securities Act"), and will not be disposed of in contravention of the
Securities Act or this Agreement; (ii) that such Purchaser is able to bear the
economic risk of an investment in the Company for an indefinite period of time
inasmuch as the Shares have not been registered under the Securities Act and,
therefore, cannot be sold unless subsequently registered under the Securities
Act or an exemption from such registration is available; (iii) that such
Purchaser is an "accredited investor" as defined in Regulation D of the
Securities and Exchange Commission; (iv) that such Purchaser has received copies
of the Company's definitive proxy statement dated February 13, 1998 and the
Company's most recent annual, quarterly and current reports on Form 10-K, Form
10-Q and Form 8-K; (v) that such Purchaser has not made its investment in
response to any general solicitation or
-1-
<PAGE>
advertisement by the Company; and (vi) that such Purchaser has had an
opportunity to ask questions and receive answers concerning the terms and
conditions of the offering of the Shares and has had full access to such other
information concerning the Company as it has requested.
Section 4. ADDITIONAL REPRESENTATIONS.
(a) The Company hereby represents and warrants to the Purchasers that
(i) the execution, delivery and performance of this Agreement by the Company
does not and will not conflict with, breach, violate or cause a default under
any contract, agreement, instrument, order, judgment or decree to which the
Company is a party or by which it is bound or violate any provision of law,
statute, rule or regulation applicable to the Company; (ii) upon the execution
and delivery of this Agreement by the Purchasers, this Agreement shall be the
valid and binding obligation of the Company, enforceable against the Company in
accordance with its terms, (iii) upon issuance of the Shares hereunder against
payment of the purchase price therefor, such Shares will be duly authorized and
validly issued, fully paid and non-assessable, and such issuance shall not
require registration under the Securities Act, and (iv) the Company's reports
and filings pursuant to the Securities Act and the Securities Exchange Act of
1934, taken as a whole, are true and complete in all material respects and do
not omit to state a material fact required to make the statements contained
therein not misleading.
(b) Each Purchaser hereby represents and warrants to the Company that
(i) the execution, delivery and performance of this Agreement by such Purchaser
does not and will not conflict with, breach, violate or cause a default under
any contract, agreement, instrument, order, judgment or decree to which such
Purchaser is a party or by which it is bound or violate any provision of law,
statute, rule or regulation applicable to such Purchaser; and (ii) upon the
execution and delivery of this Agreement by the Company, this Agreement shall be
the valid and binding obligation of such Purchaser, enforceable against such
Purchaser in accordance with its terms.
Section 5. USE OF PROCEEDS. The Company shall use the proceeds of
the sale of Shares hereunder to fund a portion of its commitment to the Fund.
Section 6. TRANSFER RESTRICTIONS. The Company may require, as a
condition to any transfer of Shares, that the transferring Purchaser deliver an
opinion of counsel (in form and substance reasonably acceptable to the Company)
to the effect that such transfer complies with applicable securities laws. Each
Purchaser consents to the placement of an appropriate restrictive legend on the
certificates representing the Shares reflecting such restrictions.
Section 7. AMENDMENTS AND WAIVERS. Any provision of this
Agreement may be amended or waived only with the prior written consent of each
of the parties hereto.
-2-
<PAGE>
Section 8. NOTICES. All notices, demands or other communications
to be given or delivered under or by reason of the provisions of this Agreement
will be in writing and will be deemed to have been given when delivered
personally, when delivered via a nationally recognized overnight courier or when
sent via facsimile (with written confirmation). Such notices, demands and other
communications will be sent to the address indicated below:
To the Company:
U.S. Franchise Systems, Inc.
13 Corporate Square, Suite 250
Atlanta, GA 30329
Attn: Neal Aronson
Facsimile: (404) 321-4482
To the Purchasers:
Sextant Trading LLC
527 Madison Avenue, 17th Floor
New York, NY 10022
Attn: Adam Anhang
Facsimile: (212) ) 319-4557
Lubert-Adler Funds
101 West Main Street
Moorestown, NJ 08057
Attn: Dean Adler
Facsimile: ______________
or such other address or to the attention of such other person as the recipient
party shall
have specified by prior written notice to the other parties.
Section 9. SEVERABILITY. Whenever possible, each provision of
this Agreement will be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement is held to be
invalid, illegal or unenforceable in any respect under any applicable law or
rule in any jurisdiction, such invalidity, illegality or unenforceability will
not affect any other provision or any other jurisdiction, but this Agreement
will be reformed, construed and enforced in such jurisdiction as if such
invalid, illegal or unenforceable provision had never been contained herein.
Section 10. ENTIRE AGREEMENT. This Agreement shall embody the
complete agreement and understanding between the parties with respect to the
subject matter hereof and supersede and preempt any prior understandings,
agreements or representations by or between the parties, written or oral, which
may have related to the subject matter hereof in any way.
-3-
<PAGE>
Section 11. COUNTERPARTS. This Agreement may be executed by the
parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute one and the same instrument.
Section 12. GOVERNING LAW. ALL QUESTIONS CONCERNING THE
CONSTRUCTION, VALIDITY AND INTERPRETATION OF THIS AGREEMENT SHALL BE GOVERNED BY
THE INTERNAL LAW (AND NOT THE LAW OF CONFLICTS) OF DELAWARE.
Section 13. REMEDIES. The parties hereto agree and acknowledge
that money damages may not be an adequate remedy for any breach of the
provisions of this Agreement and that any party may in its sole discretion apply
to any court of law or equity of competent jurisdiction for specific performance
and/or injunctive relief in order to enforce or prevent any violations of the
provisions of this Agreement. The exercise of such remedies shall not prevent
such party from recovering damages by reason of any breach of any provision of
this Agreement or exercising all other rights at law or in equity existing in
its favor.
Section 14. FEES AND EXPENSES. The Fund shall pay the reasonable
out-of-pocket expenses of the Purchasers (including reasonable attorneys' fees)
incurred in connection with the preparation and negotiation of this Agreement
and the related Registration and Tag-Along Rights Agreement and the consummation
of the transactions contemplated thereby, which expenses shall not exceed $5,000
in the aggregate.
* * * * *
-4-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Subscription
Agreement as of the date set forth above.
U.S. FRANCHISE SYSTEMS, INC.
By: /s/ Neal Aronson
----------------------------------
Its: Executive Vice President and
Chief Financial Officer
SEXTANT TRADING LLC
By: /s/ David Hamamoto
----------------------------------
Its:
----------------------------
LUBERT-ADLER REAL ESTATE
OPPORTUNITY FUND, L.P.
By: IL PARTNERS, L.P., its General Partner
By: L&A Management, Inc.,
its General Partner
By: /s/ Dean S. Adler
------------------------------
Dean S. Adler, President
LUBERT-ADLER REAL ESTATE
OPPORTUNITY FUND II, L.P.
By: IL PARTNERS, L.P., its General Partner
By: L&A Management, Inc., its
General Partner
By: /s/ Dean S. Adler
------------------------------
Dean S. Adler, President
LUBERT-ADLER CAPITAL REAL ESTATE
OPPORTUNITY FUND, L.P.
By: IL PARTNERS, L.P., its General Partner
By: L&A Management, Inc., its
General Partner
By: /s/ Dean S. Adler
------------------------------
Dean S. Adler, President
-5-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from U.S.
Franchise Systems, Inc. consolidated financial statements for the three months
ended March 31, 1998 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 16,286
<SECURITIES> 0
<RECEIVABLES> 998
<ALLOWANCES> 17
<INVENTORY> 0
<CURRENT-ASSETS> 21,570
<PP&E> 7,279
<DEPRECIATION> 181
<TOTAL-ASSETS> 59,139
<CURRENT-LIABILITIES> 8,152
<BONDS> 19,655
0
0
<COMMON> 448<F1>
<OTHER-SE> 25,350
<TOTAL-LIABILITY-AND-EQUITY> 59,139
<SALES> 1,983
<TOTAL-REVENUES> 1,983
<CGS> 0
<TOTAL-COSTS> 3,615
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 452
<INCOME-PRETAX> (1,855)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,855)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,855)
<EPS-PRIMARY> (0.14)<F2>
<EPS-DILUTED> (0.14)<F2>
<FN>
<F1>Includes 3,186,280 shares of Class A common stock that are redeemable under
certain circumstances by the company for reasons not under the Company's
control.
<F2>Per share amounts are determined by dividing loss applicable to common
stockholders by weighted average shares outstanding. Weighted average shares
include redeemable common shares outstanding. Loss applicable to common
stockholders represents net loss adjusted for dividends accreted on the
redeemable preferred stock.
</FN>
</TABLE>
