Mr. X. Xxxxx Xxxxxx
October 17, 1996
Page 1
October 17, 1996
Mr. X. Xxxxx Xxxxxx
Senior Executive Vice President
and Chief Financial Officer
Xxxxxx's, Inc.
0000 Xxx Xxxx Xxxx
Xxxxxxxxx, XX 00000
Re: Sale of Warrants and Rights to Royalty Payments
Dear Xx. Xxxxxx:
The purpose of this letter is to set forth in writing the agreement among
Xxxxxx's Investments, Inc. ("SII") and ShoLodge, Inc. ("ShoLodge") and ShoLodge
Franchise Systems, Inc. ("SFS") concerning the sale by SII to ShoLodge of its
warrants to acquire shares of common stock of ShoLodge and the relinquishment
and cancellation by SII of its right to receive future royalty payments with
respect to Xxxxxx's Inns. The terms of the agreement are as follows:
1. In consideration of the payment from ShoLodge to SII on the closing
date of $2,050,000 in good and collected funds, SII shall transfer and convey
to ShoLodge all of its warrants to acquire shares of common stock of ShoLodge,
such warrants having been obtained pursuant to that certain Stock Purchase and
Warrant Agreement dated as of October 25, 1991 between ShoLodge (then known as
Gulf Coast Development, Inc.) and SII, and such warrants being evidenced by
that certain Warrant Certificate dated October 25, 1991 executed by ShoLodge
(then known as Gulf Coast Development, Inc.) in favor of SII, such Warrant
Certificate having been executed and issued pursuant to such Stock Purchase and
Warrant Agreement. At closing, SII shall deliver the Warrant Certificate to
ShoLodge properly endorsed for transfer, and shall enter into a Warrant
Purchase Agreement which will contain terms and provisions customary for
similar transactions and mutually acceptable to SII, ShoLodge and their
respective legal counsel, including, without limitation, representations and
warranties from SII to ShoLodge that SII is the true and lawful owner and
holder of the Warrant Certificate, that SII has good right and lawful authority
to transfer, convey and endorse the Warrant Certificate to ShoLodge, that such
Warrant Certificate has not been previously transferred, conveyed or endorsed
to any other person and that such Warrant Certificate is free and clear of any
and all liens, encumbrances or security interests of any kind.
2. In consideration of the payment from SFS to SII on the closing date
of $5,250,000 in good and collected funds, SII shall (i) relinquish and cancel
its right to receive future royalties pursuant to Section 4.1 of that certain
License Agreement dated October 25, 1991 between SII and SFS (then known as
Shoney's Lodging, Inc.) (such License Agreement as heretofore amended being
referred to herein as the "License Agreement"), (ii) transfer, convey and
endorse to ShoLodge the stock certificate evidencing the ownership by SII of
1,000 shares of the Series A Redeemable Nonparticipating Stock of ShoLodge
issued to SII pursuant to Section 5.5 of the License Agreement, (iii) cause the
resignation at closing of the directors elected by SII to the Board of
Directors of ShoLodge, (iv) transfer, convey and endorse to SFS the stock
certificate evidencing the ownership by SII of 1,000 shares of the Series A
Redeemable Nonparticipating Stock of SFS issued to SII pursuant to Section 5.5
of the License Agreement, (v) cause the resignation at closing of the directors
elected by SII to the Board of Directors of SFS, (vi) terminate and fully
release any and all UCC-1 financing statements filed to perfect the security
interest granted pursuant to that certain Stock Pledge Agreement dated as of
October 28, 1991 between ShoLodge (then known as Gulf Coast Development, Inc.)
and SII and deliver to ShoLodge the stock certificates evidencing the shares of
SFS pledged to SII pursuant to such Stock Pledge Agreement, (vii) terminate and
fully release any and all UCC-1 financing statements filed to perfect the
security interest granted pursuant to that certain Security Agreement dated as
of October 25, 1991 between SFS (then known as Shoney's Lodging, Inc.) and SII,
(viii) cancel and terminate that certain Stock Restriction Agreement dated
October 25, 1991 among Xxxx Xxxxx, ShoLodge (then known as Gulf Coast
Development, Inc.) and SII, such Stock Restriction Agreement having been
entered into pursuant to Section 5.1 of the License Agreement, (ix) cause any
and all lenders which hold a security interest in the Licensed Mark (as defined
in the License Agreement) or the License Agreement to enter into an agreement
whereby such lender or lenders recognize and agree that, so long as no event
has occurred giving SII the right to terminate the License Agreement in
accordance with the terms thereof, SFS shall not be disturbed in its use and
licensing of the use of the Licensed Mark pursuant to the terms of the License
Agreement during the term thereof or any extension thereof, notwithstanding the
exercise by such lender or lenders of any remedies available as a result of any
such security interest in the Licensed Mark or the License Agreement, and
(x) modify and amend the License Agreement and Guaranty Agreement dated as of
October 25, 1991, made by ShoLodge (then known as Gulf Coast Development, Inc.)
in favor of SII, as necessary to reflect the foregoing transactions.
3. On the closing date, the License Agreement shall be further
modified as follows: (i) Section 1.5 shall be deleted in its entirety;
(ii) Section 4.1 and 4.2 shall be deleted in their entirety; (iii) Section
4.4(a) of the License Agreement shall be deleted in its entirety and the
language attached hereto as Insert 4.4(a) shall be inserted in lieu thereof,
(iv) Section 4.4(b) of the License Agreement shall be deleted in its entirety,
(v) Section 4.4(c) of the License Agreement shall be deleted in its entirety,
(vi) the phrase "subject to the limitations set forth below" shall be deleted
from the second sentence of Section 4.4(d) and the fourth sentence therein
shall be deleted in its entirety and the following language shall be inserted
in lieu thereof "Licensor shall not object to a form of agreement, offering
circular or other promotional items because of the fees, royalties or
advertising fees or similar financial obligations proposed to be charged
thereunder," (vii) Section 4.5(a) of the License Agreement shall be amended by
inserting the words "Upon Licensor's request," at the beginning of the first
sentence thereof and by deleting the second through fourth sentences thereof,
(viii) Section 4.10 of the License Agreement shall be deleted in its entirety
and the language attached hereto as Insert 4.10 shall be inserted in lieu
thereof, (ix) Section 4.11(b) shall be amended by deleting the phrase "that
consent may be given by any of Licensor's representatives to the board of
directors of Gulf or Licensee" and inserting in lieu thereof the words "a
request for consent shall be made by Licensee in writing to the Secretary of
Licensor and written approval may be given by the Secretary, Treasurer or Chief
Financial Officer of Licensor," (x) Section 5.1 shall be deleted in its
entirety, (xi) Section 5.2 shall be amended to delete the date "October 27,
19091" and insert the date "October 27, 1996," (xii) Sections 5.4 and 5.5 shall
be deleted in their entirety, (xiii) the words "subject to the provisions of
Section 4.10" shall be inserted immediately before the words "Gulf will
continue" in the third line of that section, (xiv) Section 6.3 shall be amended
by deleting the second and third sentences thereof, (xv) Section 6.5 shall be
deleted in its entirety, (xvi) Sections 7.1(f) and 7.1(g) shall be deleted in
their entirety, (xvii) Section 7.1(j) shall be amended by deleting the term
"ten (10)" and inserting the term "thirty (30)" in lieu thereof, and
(xx) Sections 7.4(c), 7.4(d) and 7.4(f) shall be deleted in their entirety.
All other provisions of the License Agreement shall remain unchanged and in
full force and effect except to the extent that additional revisions may be
mutually agreed upon by the parties hereto.
4. The transactions contemplated by this agreement shall close on or
before October 25, 1996. If this transaction has not closed on or before
October 25, 1996, either party hereto may terminate this agreement upon written
notice to the other and all further obligations of the parties hereunder shall
terminate.
5. The transactions contemplated by this agreement and the obligations
of SII hereunder are subject to and contingent upon approval of this agreement
by both: (i) the board of directors of Shoney's, Inc. ("Shoney's"); and
(ii) Xxxxxx's lenders as required by their respective instruments.
Please sign below indicating your agreement to the foregoing terms.
Sincerely,
SHOLODGE, INC.
By: /s/ Xxxx Xxxxx
Xxxx Xxxxx, President
SHOLODGE FRANCHISE SYSTEMS, INC.
By: /s/ Xxxx Xxxxx
Xxxx Xxxxx, Chairman
The undersigned agrees to the foregoing this 17th day of October, 1996.
SHONEY'S INVESTMENTS, INC.
By: /s/ X. Xxxxx Xxxxxx
Title: Senior Executive Vice
President and Chief
Financial Officer
