1
EXHIBIT 1.1
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SUNSTONE HOTEL INVESTORS, INC.
(a Maryland corporation)
4,500,000 Shares of Common Stock
PURCHASE AGREEMENT
Dated: February 5, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
2
SUNSTONE HOTEL INVESTORS, INC.
(a Maryland corporation)
4,500,000 Shares of Common Stock
(Par Value $.01 Per Share)
PURCHASE AGREEMENT
------------------
February 5, 1998
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
BEAR, STEARNS & CO. INC.
GOLDMAN, SACHS & CO.
A.G. EDWARDS & SONS, INC.
NATIONSBANC MONTGOMERY SECURITIES LLC
as Representatives of several Underwriters
c/o Merrill Lynch, Pierce, Fenner & Smith Incorporated
North Tower
World Financial Center
New York, NY 10281-1209
Ladies and Gentlemen:
Sunstone Hotel Investors, Inc., a Maryland corporation (the "Company")
and Sunstone Hotel Investors, L.P., a Delaware limited partnership (the
"Partnership"), confirm their respective agreements with Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("Merrill Lynch"), Bear, Stearns & Co. Inc.,
Goldman, Sachs & Co., A.G. Edwards & Sons, Inc., NationsBanc Montgomery
Securities LLC and each of the other Underwriters named in Schedule A hereto
(collectively, the "Underwriters", which term shall also include any underwriter
substituted as hereinafter provided in Section 10 hereof), for whom Merrill
Lynch, Bear, Stearns & Co. Inc., Goldman, Sachs & Co., A.G. Edwards & Sons, Inc.
and NationsBanc Montgomery Securities LLC are acting as representatives (in such
capacity, the "Representatives"), with respect to the issue and sale by the
Company and the purchase by the Underwriters, acting severally and not jointly,
of the respective numbers of shares of Common Stock, par value $.01 per share,
of the Company ("Common Stock") set forth in said Schedule A, and with respect
to the grant by the Company to the Underwriters, acting severally and not
jointly, of the option described in Section 2(b) hereof to purchase all or any
part of 675,000 additional shares of Common Stock to cover over-allotments, if
any. The aforesaid 4,500,000 shares of Common Stock (the "Initial Securities")
to be purchased by the Underwriters and all or any part of the 675,000 shares of
Common Stock subject to the option described in Section 2(b) hereof (the "Option
Securities") are hereinafter called, collectively, the "Securities."
The Company understands that the Underwriters propose to make a public
offering of the Securities as soon as the Representatives deem advisable after
this Agreement has been executed and delivered.
3
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-3 dated August 26, 1997 (No.
333-34377) covering the registration of the Securities under the Securities Act
of 1933, as amended (the "1933 Act"), and the offering thereof from time to time
in accordance with Rule 415 of the rules and regulations of the Commission under
the 1933 Act (the "1933 Act Regulations"), including the related preliminary
prospectus or prospectuses. Promptly after execution and delivery of this
Agreement, the Company will either (i) prepare and file a prospectus in
accordance with the provisions of Rule 430A ("Rule 430A") of the 1933 Act
Regulations and paragraph (b) of Rule 424 ("Rule 424(b)") of the 1933 Act
Regulations or (ii) if the Company has elected to rely upon Rule 434 ("Rule
434") of the 1933 Act Regulations, prepare and file a term sheet (a "Term
Sheet") in accordance with the provisions of Rule 434 and Rule 424(b). The
information included in any such prospectus or in any such Term Sheet, as the
case may be, that was omitted from such registration statement at the time it
became effective but that is deemed to be part of such registration statement at
the time it became effective (a) pursuant to paragraph (b) of Rule 430A is
referred to as "Rule 430A Information" or (b) pursuant to paragraph (d) of Rule
434 is referred to as "Rule 434 Information." Each Prospectus used before such
registration statement became effective, and any prospectus that omitted, as
applicable, the Rule 430A Information or the Rule 434 Information, that was used
after such effectiveness and prior to the execution and delivery of this
Agreement, is herein called a "preliminary prospectus." The registration
statements described above, including the exhibits thereto, schedules thereto,
if any, and the documents incorporated by reference therein pursuant to Item 12
of Form S-3 under the 1933 Act, at the time it became effective and including
the Rule 430A Information and the Rule 434 Information, as applicable, is herein
called the "Registration Statement." Any registration statement filed pursuant
to Rule 462(b) of the 1933 Act Regulations is herein referred to as the "Rule
462(b) Registration Statement," and after such filing the term "Registration
Statement" shall include the Rule 462(b) Registration Statement. The final
prospectus, including the documents incorporated by reference therein pursuant
to Item 12 of Form S-3 under the 1933 Act, in the form first furnished to the
Underwriters for use in connection with confirmation of the offering of the
Securities is herein called the "Prospectus." If Rule 434 is relied on, the term
"Prospectus" shall refer to the preliminary Prospectus dated January 30, 1998,
together with the applicable Term Sheet and all references in this Agreement to
the date of the Prospectus shall mean the date of the applicable Term Sheet. For
purposes of this Agreement, all references to the Registration Statement, any
preliminary prospectus, the Prospectus or any Term Sheet or any amendment or
supplement to any of the foregoing shall be deemed to include the copy filed
with the Commission pursuant to its Electronic Data Gathering, Analysis and
Retrieval system ("EDGAR").
All references in this Agreement to financial statements and schedules
and other information which is "contained," "included" or "stated" in the
Registration Statement, any preliminary prospectus or the Prospectus (or other
references of like import) shall be deemed to mean and include all such
financial statements and schedules and other information which is incorporated
by reference in the Registration Statement, any preliminary prospectus or the
Prospectus, as the case may be; and all references in this Agreement to
amendments or supplements to the Registration Statement, any preliminary
prospectus or the Prospectus shall be deemed to mean and include the filing of
any of any document under the Securities Exchange Act of 1934, as amended (the
"1934 Act") which is incorporated by reference in the Registration Statement,
such preliminary prospectus or the Prospectus, as the case may be.
2
4
For purposes of this Agreement, the term "Subsidiary," with respect to
the Company, refers to each of the entities listed on Schedule C and all other
corporations, partnerships, associations, limited liability companies, joint
ventures or other business entities of which 50% or more of the total voting
power of shares of stock or other ownership interest entitled (without regard to
the occurrence of any contingency) to vote in the election of the person or
persons (whether directors, managers, partners, trustees or other persons
performing similar functions) having the power to direct or cause the direction
of the management and policies thereof is at the time owned or controlled,
directly or indirectly, by the Company or one or more of the other Subsidiaries
of the Company or a combination thereof.
SECTION 1. REPRESENTATIONS AND WARRANTIES.
(a) Representations and Warranties by the Company and the Partnership.
The Company and the Partnership, jointly and severally, represent and warrant to
each Underwriter as of the date hereof, as of the Closing Time referred to in
Section 2(c) hereof, and as of each Date of Delivery (if any) referred to in
Section 2(b) hereof, and agree with each Underwriter, as follows:
(i) Compliance and Registration Requirements. The Company meets
the requirements for use of Form S-3 under the 1933 Act. Each of the
Registration Statement and any Rule 462(b) Registration Statement has
become effective under the 1933 Act and no stop order suspending the
effectiveness of the Registration Statement or any Rule 462(b)
Registration Statement has been issued under the 1933 Act and no
proceedings for that purpose have been instituted or are pending or, to
the knowledge of the Company, are contemplated by the Commission, and
any request on the part of the Commission for additional information has
been complied with. At the respective times the Registration Statement,
any Rule 462(b) Registration Statement and any post-effective amendments
thereto became effective and at the Closing Time (and, if any Option
Securities are purchased, at the Date of Delivery referred to below),
the Registration Statement, the Rule 462(b) Registration Statement and
any amendments and supplements thereto complied and will comply in all
material respects with the requirements of the 1933 Act and the 1933 Act
Regulations and did not and will not contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading. On
the date hereof and at the Closing Time (and, if any Option Securities
are purchased, at such Date of Delivery) neither the Prospectus nor any
amendments or supplements thereto contained or will contain an untrue
statement of a material fact or omitted or will omit to state a material
fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading. If Rule
434 is used, the Company will comply with the requirements of Rule 434.
The representations and warranties in this subsection shall not apply to
statements in or omissions from the Registration Statement or Prospectus
made in reliance upon and in conformity with information furnished to
the Company in writing by any Underwriter through Merrill Lynch
expressly for use in the Registration Statement or Prospectus.
Each preliminary prospectus and the Prospectus filed as part of
the Registration Statement as originally filed or as part of any
amendment thereto, or filed pursuant to
3
5
Rule 424 under the 1933 Act, complied when so filed in all material
respects with the 1933 Act Regulations and each preliminary prospectus
and the Prospectus delivered to the Underwriters for use in connection
with this offering was substantially identical to the electronically
transmitted copies thereof filed with the Commission pursuant to EDGAR,
except to the extent permitted by Regulation S-T.
(ii) Incorporated Documents. The documents incorporated or deemed
to be incorporated by reference in the Registration Statement and the
Prospectus, at the time they were or hereafter are filed with the
Commission, complied and will comply in all material respects with the
requirements of the 1934 Act and the rules and regulations of the
Commission thereunder (the "1934 Act Regulations"), and, when read
together with the other information in the Prospectus, at the date of
the Prospectus and at the Closing Time, (and, if any Option Securities
are purchased, at the Date of Delivery) will not contain an untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
(iii) Independent Accountants. The accountants who certified the
financial statements and supporting schedules incorporated by reference
in the Registration Statement are independent public accountants as
required by the 1933 Act and the 1933 Act Regulations.
(iv) Financial Statements. The financial statements incorporated
by reference in the Registration Statement and the Prospectus, together
with the related schedules and notes, present fairly the financial
position of the Company and its consolidated subsidiaries and of
Sunstone Hotel Properties, Inc. (the "Lessee") and of Kahler Realty
Corporation and its consolidated subsidiaries at the dates indicated and
the statements of operations, changes in stockholders' equity and cash
flows of the Company and its consolidated subsidiaries and of the Lessee
and of Kahler Realty Corporation and its consolidated subsidiaries for
the periods specified; said financial statements have been prepared in
conformity with generally accepted accounting principles ("GAAP")
applied on a consistent basis throughout the periods involved. The
supporting schedules, if any, incorporated by reference in the
Registration Statement present fairly in accordance with GAAP the
information required to be stated therein. The financial and operating
information incorporated by reference in the Prospectus present fairly
the information shown therein and have been compiled on a basis
consistent with that of the last audited financial statements
incorporated by reference in the Registration Statement. The pro forma
financial statements and the related notes thereto incorporated by
reference in the Registration Statement and the Prospectus present
fairly the information shown therein, have been prepared in accordance
with the Commission's rules and guidelines with respect to pro forma
financial statements and have been properly compiled on the bases
described therein, and the assumptions used in the preparation thereof
are reasonable and the adjustments used therein are appropriate to give
effect to the transactions and circumstances referred to therein.
(v) No Material Adverse Change in Business. Since the respective
dates as of which information is given in the Registration Statement and
the Prospectus, except as otherwise stated therein, (A) there has been
no material adverse change in the
4
6
condition, financial or otherwise, or in the earnings, business affairs
or business prospects of the Company, the Partnership, considered as a
whole, or the Lessee, whether or not arising in the ordinary course of
business (a "Material Adverse Effect"), (B) there have been no
transactions entered into by the Company, other than those in the
ordinary course of business, which are material with respect to the
Company, and (C) there has been no dividend or distribution of any kind
declared, paid or made by the Company on any class of its capital stock.
(vi) Good Standing of the Company, the Lessee and the Manager;
Power and Authority of Company. Each of the Company, the Lessee and
Sunstone Hotel Management, Inc. (the "Manager") has been duly organized
and is validly existing as a corporation in good standing under the laws
of its state of incorporation and has corporate power and authority to
own, lease and operate its properties and to conduct its business as
described in the Prospectus. The Company has the corporate power and
authority to enter into and perform its obligations under this
Agreement. Each of the Company, the Lessee and the Manager is, and after
consummation of the offering will be, duly qualified as a foreign
corporation to transact business and in good standing in each other
jurisdiction in which such qualification is required, whether by reason
of the ownership or leasing of property or the conduct of business,
except where the failure to so qualify or to be in good standing would
not result in a Material Adverse Effect, and no proceeding has been
instituted in any such jurisdiction, revoking, limiting or curtailing,
or seeking to revoke, limit or curtail, such power and authority or
qualification. Except as disclosed in the Registration Statement neither
the Company nor the Partnership owns or controls, directly or
indirectly, any corporation, partnership, association or other entity.
(vii) Good Standing, Power and Authority of the Partnership. The
Partnership has been duly formed and is validly existing as a limited
partnership under the laws of the State of Delaware with full power and
authority (partnership and other) to own and lease its properties, to
conduct its business as currently conducted or as described in the
Prospectus, and to enter into and perform its obligations under this
Agreement. The Company is the sole general partner of the Partnership.
Upon the consummation of the offering, the Company will own the units of
partnership interest in the Partnership ("Units") it holds free and
clear of all liens, encumbrances, equities, claims, security interests,
voting trusts or charges. The Partnership is, and after the consummation
of the offering will be, duly qualified to do business and in good
standing as a foreign partnership in each other jurisdiction in which
the ownership or leasing of properties or the conduct of its business
requires such qualification, except for jurisdictions in which the
failure to so qualify would not have a Material Adverse Effect, and no
proceeding has been instituted in any such jurisdiction, revoking,
limiting or curtailing, or seeking to revoke, limit or curtail, such
power and authority or qualification.
(viii) Good Standing of the Subsidiaries. Each Subsidiary of the
Company is duly organized, validly existing and in good standing under
the laws of its state of formation, with full power and authority to own
and lease its properties, to conduct its business as currently conducted
or as described in the Prospectus. Each Subsidiary is, and after the
consummation of the offering will be, duly qualified to do business and
in good standing as a foreign corporation, partnership or limited
liability company, as the
5
7
case may be, in each other jurisdiction in which the ownership or
leasing of properties or the conduct of its business requires such
qualification, except for jurisdictions in which the failure to so
qualify would not have a Material Adverse Effect, and no proceeding has
been instituted in any such jurisdiction, revoking, limiting or
curtailing, or seeking to revoke, limit or curtail, such power and
authority or qualification.
(ix) Qualification as a REIT. The Company is organized in
accordance with the requirements for qualification as a real estate
investment trust (a "REIT") under Sections 856 through 860 of the
Internal Revenue Code of 1986, as amended (the "Internal Revenue Code")
and the rules and regulations thereunder. The contemplated method of
operation of the Company's business as described in the Registration
Statement will allow the Company to satisfy the operational requirements
for qualification as a real estate investment trust under Sections 856
through 860 of the Internal Revenue Code, and the rules and regulations
thereunder. Less than 15% of the aggregate adjusted tax bases of both
the personal property and the real property (the "Total Bases") to be
leased pursuant to any lease to the Lessee (a "Percentage Lease") shall
consist of the adjusted tax bases of the personal property (the
"Personal Property Bases"), except in each instance where the failure to
maintain such ratios will not disqualify the Company's election as a
REIT or otherwise have a Material Adverse Effect; in each succeeding
year the Personal Property Bases in connection with each Percentage
Lease will not exceed 15% of the Total Bases for such lease, except in
each instance where the failure to maintain such ratios will not cause
the Company to fail to qualify as a REIT or otherwise have a Material
Adverse Effect; and the Company has received a segmentation study from
its independent accountants stating that based on its projections,
during the first five years of the term of each Percentage Lease less
than 15% of the Total Bases of each such Percentage Lease is expected to
consist of Personal Property Bases, except in each instance where the
failure to maintain such ratios will not cause the Company to fail to
qualify as a REIT or otherwise have a Material Adverse Effect. Except as
described in the Prospectus, the Company does not know of any event
which would cause or is likely to cause the Company to fail to qualify
as a REIT at any time. All of the assets, liabilities and items of
income, deduction and credit of the Partnership are treated as assets,
liabilities and items of income, deduction and credit of the Company
under the provisions of the Internal Revenue Code and the Partnership is
not, nor will it be, treated as a separate corporation under the
provisions of the Internal Revenue Code. The Partnership is treated for
federal income tax purposes as a partnership and not as an association
taxable as a corporation.
(x) Capitalization. The authorized, issued and outstanding
capital stock of the Company is as set forth in the Prospectus in the
column entitled "Actual" under the caption "Capitalization" (except for
subsequent issuances, if any, pursuant to this Agreement, pursuant to
reservations, agreements or employee benefit plans referred to in the
Prospectus or pursuant to the exercise of options referred to in the
Prospectus) and except for warrants to acquire Partnership Units (the
"Warrants"). The shares of issued and outstanding capital stock of the
Company have been duly authorized and validly issued and are fully paid
and non-assessable; none of the outstanding shares of capital stock of
the Company was issued in violation of any preemptive or other similar
rights of any security holder of the Company.
6
8
(xi) Company's Interest in Partnership. The Company is the sole
general partner of the Partnership. At Closing Time, all of the
outstanding partnership interests in the Partnership ("Units") held by
the Company will be validly issued, will be owned by the Company in the
percentage amounts set forth and in the manner described in the
Prospectus and will be owned by the Company free and clear of all liens,
encumbrances, equities, claims, security interests, voting trusts or
charges. Except as described in the Prospectus, there are no outstanding
options, warrants or other rights calling for the issuance of, or any
commitment, plan or arrangement to issue, any partnership interests in
the Partnership or any security convertible into or exchangeable or
exercisable for, any partnership interests in the Partnership.
(xii) Company's Interest in Subsidiaries. Except for such cases
as would not cause a Material Adverse Effect, the ownership interests of
each of the Subsidiaries (A) have been duly authorized and validly
issued, (B) are fully paid and nonassessable, (C) have been issued in
reliance on exemptions from all applicable federal and state securities
laws, as reported in the unofficial compilations of such laws, and, (D)
except as otherwise set forth in the Prospectus, are beneficially owned,
directly or indirectly, by the Company and/or the Partnership free and
clear of any security interests, liens, encumbrances, equities or
claims.
(xiii) Authorization of Agreement. This Agreement has been duly
authorized, executed and delivered by the Company and the Partnership.
(xiv) Authorization and Description of Securities. The Securities
to be purchased by the Underwriters from the Company have been duly
authorized for issuance and sale to the Underwriters pursuant to this
Agreement, and, when issued and delivered by the Company pursuant to
this Agreement against payment of the consideration set forth herein,
will be validly issued and fully paid and non-assessable; the Common
Stock conforms to all statements relating thereto contained in the
Prospectus and such description conforms to the rights set forth in the
instruments defining the same, no holder of the Securities will be
subject to personal liability by reason of being such a holder; and the
issuance of the Securities is not subject to the preemptive or other
similar rights of any securityholder of the Company. As of the Closing
Time, the Securities will have been approved for listing on the New York
Stock Exchange, subject only to official notice of issuance.
(xv) Absence of Defaults and Conflicts. None of the Company, the
Partnership or any Subsidiary is in violation of its charter or by-laws,
partnership agreement or other formation document, as applicable, or in
default in the performance or observance of any obligation, agreement,
covenant or condition contained in any contract, indenture, mortgage,
deed of trust, loan or credit agreement, note, lease or other agreement
or instrument to which it is a party or by which it may be bound, or to
which any of its property or assets is subject (collectively, for
purposes of this paragraph "Agreements and Instruments") except for such
defaults that would not result in a Material Adverse Effect; and the
execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated in this Agreement and in
the Registration Statement (including the issuance and sale of the
Securities and the use of the proceeds from the sale of the Securities
as described in the Prospectus under the
7
9
caption "Use of Proceeds") and compliance by the Company and the
Partnership with their respective obligations under this Agreement have
been duly authorized by all necessary corporate or partnership action,
as applicable, and do not and will not, whether with or without the
giving of notice or passage of time or both, conflict with or constitute
a breach of, or default or Repayment Event (as defined below) under, or
result in the creation or imposition of any lien, charge or encumbrance
upon any property or assets of the Company, the Partnership or any
Subsidiary pursuant to, the Agreements and Instruments (except for such
conflicts, breaches or defaults or liens, charges or encumbrances that
would not result in a Material Adverse Effect), nor will such action
result in any violation of the provisions of the charter or by-laws of
the Company or the partnership agreement of the Partnership or any
applicable law, statute, rule, regulation, judgment, order, writ or
decree of any government, government instrumentality or court, domestic
or foreign having jurisdiction over the Company or the Partnership or
any of their respective assets, properties or operations. As used in
this Agreement, a "Repayment Event" means any event or condition which
gives the holder of any note, debenture or other evidence of
indebtedness (or any person acting on such holder's behalf) the right to
require the repurchase, redemption or repayment of all or a portion of
such indebtedness by the Company or the Partnership.
(xvi) Absence of Labor Dispute. To the Company's knowledge, no
general labor problem exists or is imminent with the employees of any of
the Current Hotels (as defined in the Prospectus), the Company, the
Partnership, the Subsidiaries, the Manager or the Lessee.
(xvii) Absence of Proceedings. There is no action, suit,
proceeding, inquiry or investigation before or brought by any court or
governmental agency or body, domestic or foreign now pending, or, to the
knowledge of the Company or the Partnership, threatened, against or
affecting the Company, the Partnership or any Subsidiary, which is
required to be disclosed in the Registration Statement (other than as
disclosed therein), or which might reasonably be expected to result in a
Material Adverse Effect, or which might reasonably be expected
materially and adversely to affect the consummation of the transactions
contemplated in this Agreement or the performance by the Company or the
Partnership of their respective obligations hereunder; the aggregate of
all pending legal or governmental proceedings to which the Company, the
Partnership or any Subsidiary is a party or of which any of their assets
or any property is the subject which are not described in the
Registration Statement, including ordinary routine litigation incidental
to the business, are reasonably expected not to result in a Material
Adverse Effect.
(xviii) Accuracy of Exhibits. There are no contracts or documents
required to be described in the Registration Statement or the Prospectus
or to be filed as exhibits thereto which have not been so described and
filed as required other than a copy of this Agreement and the tax
opinion to be rendered in connection with this offering, all of which
will be filed on Form 8-K on or before February 9, 1998.
(xix) Possession of Intellectual Property. The Company, the
Partnership and the Subsidiaries own, possess, or can acquire on
reasonable terms, adequate patents, patent rights, licenses, inventions,
copyrights, know-how (including trade secrets and
8
10
other unpatented and/or unpatentable proprietary or confidential
information, systems or procedures), trademarks, service marks, trade
names or other intellectual property (collectively, "Intellectual
Property") necessary to carry on their business as contemplated in the
Prospectus, and each of the Company, the Partnership and each Subsidiary
has not received any notice and is not otherwise aware of any
infringement of or conflict with asserted rights of others with respect
to any Intellectual Property or of any facts or circumstances which
would render any Intellectual Property invalid or inadequate to protect
the interest of the Company, the Partnership or any Subsidiary therein,
and which infringement or conflict (if the subject of any unfavorable
decision, ruling or finding) or invalidity or inadequacy, singly or in
the aggregate, would result in a Material Adverse Effect.
(xx) Absence of Further Requirements. No filing with or
authorization, approval, consent, license, order, registration,
qualification or decree of, any court or governmental authority or
agency is necessary or required for the performance by the Company or
the Partnership of its respective obligations under this Agreement or
otherwise in connection with the offering, including the issuance or
sale of the Securities under this Agreement and the consummation of the
transactions contemplated by this Agreement, except such as have been
already obtained or as may be required under the 1933 Act or the 1933
Act Regulations and foreign or state securities or blue sky laws and the
listing of the Securities with the New York Stock Exchange.
(xxi) Possession of Licenses and Permits. Each of the Company,
the Partnership, the Subsidiaries, the Lessee and the Manager is and,
after the consummation of the offering and use of proceeds as described
in the Prospectus, will be in possession of all permits, licenses,
approvals, consents and other authorizations (collectively,
"Governmental Licenses") issued by the appropriate federal, state, local
or foreign regulatory agencies or bodies necessary to conduct its
business as currently conducted and as contemplated in the Prospectus;
each of the Company, the Partnership, the Subsidiaries, the Lessee and
the Manager is in compliance with the terms and conditions of all such
Governmental Licenses, except where the failure to so comply would not,
singly or in the aggregate, have a Material Adverse Effect; and none of
them has received any notice of proceedings relating to the revocation
or modification of any such Governmental Licenses which, singly or in
the aggregate, if the subject of an unfavorable decision, rating or
finding, would result in a Material Adverse Effect.
(xxii) Investment Company Act. The Company is not, and upon the
issuance and sale of the Securities as herein contemplated and the
application of the net proceeds from the sale of the Securities
substantially as described in the Prospectus will not be, an "investment
company" or an entity "controlled" by an "investment company" as such
terms are defined in the Investment Company Act of 1940, as amended (the
"1940 Act").
(xxiii) Accounting Controls. The Company maintains a system of
internal accounting controls sufficient to provide reasonable assurance
that (A) transactions are executed in accordance with management's
general or specific authorization and (B) transactions are recorded as
necessary to permit preparation of financial statements in conformity
with GAAP and to maintain accountability for assets.
9
11
(xxiv) Registration Rights. There are no persons with
registration rights or other similar rights to have any securities
registered pursuant to the Registration Statement or otherwise
registered by the Company under the 1933 Act, except as set forth in the
amended and restated partnership agreement of the Partnership, a true
and current copy of which has been delivered to the Underwriters and
except those registration rights granted in connection with the Kahler
Acquisition (as defined in the Prospectus).
(xxv) Good and Marketable Title. The Partnership, either directly
or through Subsidiaries, owns good and marketable title to the Current
Hotels, subject to no lien, mortgage, pledge, charge or encumbrance of
any kind except (i) those reflected in the financial statements (or
described elsewhere in the Prospectus) or (ii) those which are not
material in amount and do not adversely affect the use made and proposed
to be made of such property by the Company and the Partnership. The
Partnership and the Subsidiaries hold their leased properties under
valid and binding leases, with such exceptions as are not or will not be
materially significant in relation to the business of the Partnership
and the Subsidiaries, taken as a whole. The Company does not own or
lease any real property. The Partnership and the Subsidiaries own or
lease all such real and personal properties (except for items of
inventory, vehicles, liquor licenses and franchise agreements to be held
by the Lessee) as are necessary to operate their properties as now
operated or as proposed to be operated.
(xxvi) No Defaults. To the knowledge of the Company, the
Partnership or any Subsidiary (i) no lessee, licensee, concessionaire or
vendor of any portion of any of the Current Hotels is in default under
any of the leases or licenses governing such properties and there is no
event which, but for the passage of time or the giving of notice, or
both, would constitute a default under any of such leases or licenses,
except such defaults that would not have a Material Adverse Effect; (ii)
all such material leases or licenses are assignable without consent or
approval or if such consent or approval is required the applicable
consent or approval has been obtained to assign any such lease or
license, to the Partnership or the Lessee, as applicable except where
the failure to obtain such consents would not have a Material Adverse
Effect; (iii) the current and intended use and occupancy of each of the
Current Hotels complies with all applicable codes and zoning laws and
regulations, if any, except for such failures to comply which would not,
individually or in the aggregate, have a Material Adverse Effect; and
(iv) there is no pending or, threatened condemnation, zoning change,
environmental or other proceeding or action that will in any material
respect affect the size of, use of, improvements on, construction on, or
access to any of the Current Hotels or actions that would reasonably be
expected to have a Material Adverse Effect.
(xxvii) No Material Change. Since September 30, 1997 and except
as described in or specifically contemplated by the Prospectus: (i) none
of the Company, the Partnership, any Subsidiary, the Manager or the
Lessee has incurred any material liabilities or obligations, indirect,
direct or contingent, or entered into any material verbal or written
agreement or other transaction which is not in the ordinary course of
business or which could result in a material reduction in the future
earnings of the Company, the Partnership, any Subsidiary, the Manager or
the Lessee; (ii) none of the Company, the Partnership, any Subsidiary,
the Manager or the Lessee has sustained any material loss
10
12
or interference with its respective businesses or properties from fire,
flood, windstorm, accident or other calamity, whether or not covered by
insurance; (iii) none of the Company, the Partnership, any Subsidiary or
the Lessee has paid or declared any dividends or other distributions
with respect to its capital stock and none of the Company, the
Partnership, any Subsidiary, the Manager or the Lessee is in default in
the payment of principal or interest on any outstanding material debt
obligations; (iv) there has not been any change in the number of
outstanding Shares (other than upon the sale of the Common Stock or
purchase of shares pursuant to the Company's dividend reinvestment
program) of the Company, the ownership interests in the Partnership or
any of the Subsidiaries or the common stock of the Lessee or
indebtedness material to the Company, the Partnership, any Subsidiary,
the Manager or the Lessee (other than in the ordinary course of
business); and (v) there has not been any material adverse change in the
condition (financial or otherwise), business, properties, results of
operations or prospects of the Company, the Partnership, any Subsidiary,
the Manager or the Lessee.
(xxviii) No Violation of Law. None of the Company, the
Partnership or any Subsidiary has been advised, or has reason to
believe, that the Company, the Partnership, the Subsidiaries, the
Manager and the Lessee are not conducting business in compliance with
all applicable laws, rules and regulations of the jurisdictions in which
any of them is conducting business, including, without limitation, all
applicable local, state and federal environmental laws and regulations;
except where failure to be in compliance would not have a Material
Adverse Effect.
(xxix) Tax Returns. The Company, the Partnership, the
Subsidiaries, the Manager and the Lessee each has filed all necessary
federal, state and foreign income and franchise tax returns and has paid
all taxes shown as due thereon; and to the Company's knowledge, there is
no tax deficiency which has been or might be asserted or threatened
against which could materially and adversely affect the business,
operations or properties of, the Company, the Partnership, any
Subsidiary, the Manager or the Lessee, as the case may be.
(xxx) Distribution of Offering Materials. None of the Company,
the Partnership or any Subsidiary has distributed or will distribute
prior to the Closing Time any offering material in connection with the
offering and sale of the Common Stock other than the Prospectus, the
Registration Statement and the other materials permitted by the Act
(including press releases permitted by the Act).
(xxxi) Unlawful Contributions. None of the Company, the
Partnership, any Subsidiary, the Manager or the Lessee has at any time
during the last five years (i) made any unlawful contribution to any
candidate for foreign office or failed to disclose fully any
contribution in violation of law or (ii) made any payment to any federal
or state governmental officer or official, or other person charged with
similar public or quasi-public duties, other than payments required or
permitted by the laws of the United States or any jurisdiction thereof.
(xxxii) Price Manipulation. Neither the Company nor any of its
affiliates has taken or will take, directly or indirectly, any action
designed to or that might be
11
13
reasonably expected to cause or result in stabilization or manipulation
of the price of the Common Stock to facilitate the sale or resale of the
Common Stock.
(xxxiii) Maintenance of Insurance. The Company, the Partnership,
the Subsidiaries, the Manager or the Lessee, as applicable, have and
maintains liability, property and casualty insurance (insured by
insurers of recognized financial responsibility) in favor of the
Partnership and the Subsidiaries, and in the case of liability
insurance, the Lessee, the Partnership, the Subsidiaries and the
Manager, with respect to each of the Current Hotels, in an amount and on
such terms as is reasonable and customary for businesses of the type
proposed to be conducted by the Partnership, the Subsidiaries, the
Manager and the Lessee, including, among other things, insurance against
theft, damage, destruction and acts of vandalism. None of the Company,
the Partnership or any Subsidiary has received from any insurance
company written notice of any material defects or deficiencies affecting
the insurability of any Current Hotel.
(xxxiv) Title Insurance. Title insurance in favor of the
Partnership or the applicable Subsidiary is in force with respect to
each of the Hotels.
(xxxv) Mortgages. The mortgages and deeds of trust encumbering
the Current Hotels are not convertible, nor does the Company, the
Partnership or any Subsidiary hold a participating interest therein, and
such mortgages and deeds of trust are not cross-defaulted or
cross-collateralized to any property not to be owned directly or
indirectly by the Company, the Partnership or any Subsidiary.
(xxxvi) Compliance With Environmental Laws. Each of the Company,
the Partnership, each Subsidiary, the Manager and the Lessee (i) is in
compliance with any and all applicable foreign, federal, state and local
laws and regulations relating to the protection of human health and
safety, the environment or any Hazardous Material (as hereinafter
defined) ("Environmental Laws"), (ii) has received all permits, licenses
or other approvals required of them under applicable Environmental Laws
to conduct their respective businesses, and (iii) is in compliance with
all terms and conditions of any such permit, license or approval, except
where such noncompliance with Environmental Laws, failure to receive
required permits, licenses or other approvals or failure to comply with
the terms and conditions of such permits, licenses or approvals are
otherwise disclosed in the Prospectus or would not, singly or in the
aggregate, have a Material Adverse Effect. As used herein, "Hazardous
Material" shall mean (a) any "hazardous substance" as defined by the
Comprehensive Environmental Response, Compensation, and Liability Act of
1980, as amended ("CERCLA"), (b) any "hazardous waste" as defined by the
Resource Conservation and Recovery Act, as amended, (c) any petroleum or
petroleum product, (d) any polychlorinated biphenyl, and (e) any
pollutant or contaminant or hazardous, dangerous, or toxic chemical,
material, waste or substance regulated under or within the meaning of
any other Environmental Laws.
(xxxvii) Environmental Laws. To the knowledge of the Company,
the Partnership and the Subsidiaries, there is no liability, alleged
liability or potential liability (including, without limitation,
liability, alleged liability or potential liability for investigatory
costs, cleanup costs, governmental response costs, natural resources
damages, property damages, personal injuries or penalties), of the
Company, the
12
14
Partnership, any Subsidiary, the Manager or the Lessee arising out of,
based on or resulting from (a) the presence or release into the
environment of any Hazardous Material at any location, whether or not
owned by the Company or the Lessee or (b) any violation or alleged
violation of any Environmental Laws, which liability, alleged liability
or potential liability is required to be disclosed in the Registration
Statement, other than as disclosed therein, or which liability, alleged
liability or potential liability, singly or in the aggregate, would have
a Material Adverse Effect or have a material and adverse effect on the
respective business, prospects, properties, condition (financial or
otherwise) or results of operations of any of the Current Hotels.
(b) Officers' Certificates. Any certificate signed by any officer of the
Company, the Partnership or any Subsidiary and delivered to the Representatives
or to counsel for the Underwriters shall be deemed a representation and warranty
by the Company and the Partnership to each Underwriter as to the matters covered
thereby.
SECTION 2. SALE AND DELIVERY TO UNDERWRITERS; CLOSING.
(a) Initial Securities. On the basis of the representations and
warranties herein contained and subject to the terms and conditions herein set
forth, the Company agrees to sell to each Underwriter, severally and not
jointly, and each Underwriter, severally and not jointly, agrees to purchase
from the Company, at the price per share set forth in Schedule B, the number of
Initial Securities set forth in Schedule A opposite the name of such
Underwriter, plus any additional number of Initial Securities which such
Underwriter may become obligated to purchase pursuant to the provisions of
Section 10 hereof.
(b) Option Securities. In addition, on the basis of the representations
and warranties herein contained and subject to the terms and conditions herein
set forth, the Company hereby grants an option to the Underwriters, severally
and not jointly, to purchase up to an additional 675,000 shares of Common Stock
at the price per share set forth in Schedule B, less an amount per share equal
to any dividends or distributions declared by the Company and payable on the
Initial Securities but not payable on the Option Securities. The option hereby
granted will expire 30 days after the date hereof and may be exercised in whole
or in part from time to time only for the purpose of covering over-allotments
which may be made in connection with the offering and distribution of the
Initial Securities upon notice by Merrill Lynch to the Company setting forth the
number of Option Securities as to which the several Underwriters are then
exercising the option and the time and date of payment and delivery for such
Option Securities. Any such time and date of delivery (a "Date of Delivery")
shall be determined by Merrill Lynch, but shall not be later than seven full
business days after the exercise of said option, nor in any event prior to the
Closing Time, as hereinafter defined. If the option is exercised as to all or
any portion of the Option Securities, each of the Underwriters, acting severally
and not jointly, will purchase that proportion of the total number of Option
Securities then being purchased which the number of Initial Securities set forth
in Schedule A opposite the name of such Underwriter bears to the total number of
Initial Securities, subject in each case to such adjustments as Merrill Lynch in
its discretion shall make to eliminate any sales or purchases of fractional
shares.
(c) Payment. Transfer of the Initial Securities to be purchased by the
Underwriters and payment therefor shall be made at 10:00 A.M. (Eastern time) at
such place and in the manner
13
15
set forth below on the third (or, if the Initial Securities are priced, as
contemplated by Rule 15c6- 1(c) of the 1934 Act Regulations, after 4:30 P.M.
Washington, D.C. Time, the fourth) full business day following the first date
that any of the Securities are released by you for sale to the public, as you
shall designate by at least 48 hours' prior notice to the Company (or at such
other time and date, not later than one week after such third (or fourth) full
business day as may be agreed upon by the Company and the Representatives) (the
"Closing Time"); provided, however, that if the Prospectus is at any time prior
to the Closing Time recirculated to the public, the Closing Time shall occur
upon the later of the third or fourth, as the case may be, full business day
following the first date that any of the Securities are released by you for sale
to the public or the date that is 48 hours after the date that the Prospectus
has been so recirculated.
Transfer of the Initial Securities shall be made by or on behalf of the
Company to you, through the FAST system of The Depository Trust Company, for the
respective accounts of the Underwriters, in New York, New York, against payment
by you, for the accounts of the several Underwriters, of the purchase price
therefor by wire transfer of same day funds to the order of the Company for the
purposes set forth in the Prospectus. Time shall be of the essence, and delivery
in the manner specified in this Agreement is a further condition to the
obligations of the Underwriters.
In addition, in the event that any or all of the Option Securities are
purchased by the Underwriters, payment of the purchase price for, and delivery
of such Option Securities shall be made in the above-mentioned manner, or at
such over place as shall be agreed upon by the Representatives and the Company,
on each Date of Delivery as specified in the notice from the Representatives to
the Company.
It is understood that each Underwriter has authorized the
Representatives, for its account, to accept delivery of, receipt for, and make
payment of the purchase price for, the Initial Securities and the Option
Securities, if any, which it has agreed to purchase. Merrill Lynch, individually
and not as representative of the Underwriters, may (but shall not be obligated
to) make payment of the purchase price for the Initial Securities or the Option
Securities, if any, to be purchased by any Underwriter whose funds have not been
received by the Closing Time or the relevant Date of Delivery, as the case may
be, but such payment shall not relieve such Underwriter from its obligations
hereunder.
(d) Denominations; Registration. At your option, certificates for the
Initial Securities and the Option Securities, if any, shall be in such
denominations and registered in such names as the Representatives may request in
writing at least one full business day before the Closing Time or the relevant
Date of Delivery, as the case may be. The certificates for the Initial
Securities and the Option Securities, if any, will be made available for
examination and packaging by the Representatives in the City of New York not
later than 10:00 A.M. (Eastern Time) on the business day prior to the Closing
Time or the relevant Date of Delivery, as the case may be.
SECTION 3. COVENANTS OF THE COMPANY AND THE PARTNERSHIP. The Company and the
Partnership covenant with each Underwriter as follows:
(a) Compliance with Securities Regulations and Commission Requests. The
Company, subject to Section 3(b), will comply with the requirements of Rule 430A
or Rule 434,
14
16
as applicable, and will notify the Representatives immediately, and confirm the
notice in writing, (i) when any post-effective amendment to the Registration
Statement, shall become effective, or any supplement to the Prospectus or any
amended Prospectus shall have been filed, (ii) of the receipt of any comments
from the Commission, (iii) of any request by the Commission for any amendment to
the Registration Statement or any amendment or supplement to the Prospectus or
for additional information, and (iv) of the issuance by the Commission of any
stop order suspending the effectiveness of the Registration Statement or of any
order preventing or suspending the use of any preliminary prospectus, or of the
suspension of the qualification of the Securities for offering or sale in any
jurisdiction, or of the initiation or threat of any proceedings for any of such
purposes. The Company will promptly effect the filings necessary pursuant to
Rule 424(b) and will take such steps as it deems necessary to ascertain promptly
whether the form of prospectus transmitted for filing under Rule 424(b) was
received for filing by the Commission and, in the event that it was not, it will
promptly file such prospectus. The Company will make every reasonable effort to
prevent the issuance of any stop order and, if any stop order is issued, to
obtain the lifting thereof at the earliest possible moment.
(b) Filing of Amendments. The Company will give the Representatives
notice of its intention to file or prepare any amendment to the Registration
Statement (including any filing under Rule 462(b)), any Term Sheet or any
amendment, supplement or revision to either the prospectus included in the
Registration Statement at the time it became effective or to the Prospectus,
whether pursuant to the 1933 Act, the 1934 Act or otherwise, will furnish the
Representatives with a reasonable number of copies of any such documents a
reasonable amount of time prior to such proposed filing or use, as the case may
be, and, unless required to do so by law, will not file or use any such document
to which the Representatives or counsel for the Underwriters shall reasonably
object.
(c) Delivery of Registration Statements. The Company has furnished or
will deliver to the Representatives and counsel for the Underwriters, without
charge, signed copies of the Registration Statement as originally filed and of
each amendment thereto (including exhibits filed therewith) and signed copies of
all consents and certificates of experts, and will also deliver to the
Representatives, without charge, a conformed copy of the Registration Statement
as originally filed and of each amendment thereto (without exhibits) for each of
the Underwriters. The copies of the Registration Statement and each amendment
thereto furnished to the Underwriters will be identical to the electronically
transmitted copies thereof filed with the Commission pursuant to EDGAR, except
to the extent permitted by Regulation S-T.
(d) Delivery of Prospectus. The Company has delivered to each
Underwriter, without charge, as many copies of each preliminary prospectus as
such Underwriter reasonably requested, and the Company hereby consents to the
use of such copies for purposes permitted by the 1933 Act. The Company will
furnish to each Underwriter, without charge, during the period when the
Prospectus is required to be delivered under the 1933 Act or the 1934 Act, such
number of copies of the Prospectus (as amended or supplemented) as such
Underwriter may reasonably request. The Prospectus and any amendments or
supplements thereto furnished to the Underwriters will be identical to the
electronically transmitted copies thereof filed with the Commission pursuant to
EDGAR, except to the extent permitted by Regulation S-T.
(e) Continued Compliance with Securities Laws. The Company will comply
with the 1933 Act and the 1933 Act Regulations and the 1934 Act and the 1934 Act
Regulations so
15
17
as to permit the completion of the distribution of the Securities as
contemplated in this Agreement and in the Prospectus. If at any time when a
prospectus is required by the 1933 Act to be delivered in connection with sales
of the Securities, any event shall occur or condition shall exist as a result of
which it is necessary, in the opinion of counsel for the Underwriters or for the
Company, to amend the Registration Statement or amend or supplement the
Prospectus in order that the Prospectus will not include any untrue statements
of a material fact or omit to state a material fact necessary in order to make
the statements therein not misleading in the light of the circumstances existing
at the time it is delivered to a purchaser, or if it shall be necessary, in the
opinion of such counsel, at any such time to amend the Registration Statement or
amend or supplement the Prospectus in order to comply with the requirements of
the 1933 Act or the 1933 Act Regulations, the Company will promptly prepare and
file with the Commission, subject to Section 3(b), such amendment or supplement
as may be necessary to correct such statement or omission or to make the
Registration Statement or the Prospectus comply with such requirements, and the
Company will furnish to the Underwriters such number of copies of such amendment
or supplement as the Underwriters may reasonably request.
(f) Blue Sky Qualifications. The Company will use its best efforts, in
cooperation with the Underwriters, to qualify the Securities for offering and
sale under the applicable securities laws of such states and other jurisdictions
(domestic or foreign) as Merrill Lynch may designate and to maintain such
qualifications in effect for a period of not less than one year from the later
of the effective date of the Registration Statement and any Rule 462(b)
Registration Statement; provided, however, that the Company shall not be
obligated to file any general consent to service of process or to qualify as a
foreign corporation or as a dealer in securities in any jurisdiction in which it
is not so qualified or to subject itself to taxation in respect of doing
business in any jurisdiction in which it is not otherwise so subject. In each
jurisdiction in which the Securities have been so qualified, the Company will
file such statements and reports as may be required by the laws of such
jurisdiction to continue such qualification in effect for a period of not less
than one year from the effective date of the Registration Statement and any Rule
462(b) Registration Statement.
(g) Rule 158. The Company will timely file such reports pursuant to the
1934 Act as are necessary in order to make generally available to its
securityholders as soon as practicable an earnings statement for the purposes
of, and to provide the benefits contemplated by, the last paragraph of Section
11(a) of the 1933 Act.
(h) Use of Proceeds. The Company will use the net proceeds received by
it from the sale of the Securities substantially in the manner specified in the
Prospectus under "Use of Proceeds."
(i) Restriction on Sale of Securities. During a period of 90 days from
the date of the Prospectus, the Company will not, without the prior written
consent of Merrill Lynch, (A) directly or indirectly, offer, pledge, sell,
contract to sell, sell any option or contract to purchase, purchase any option
or contract to sell, grant any option, right or warrant to purchase or otherwise
transfer or dispose of any share of Common Stock or any securities convertible
into or exercisable or exchangeable for Common Stock or file any registration
statement under the 1933 Act with respect to any of the foregoing or (B) enter
into any swap or any other agreement or any transaction that transfers, in whole
or in part, directly or indirectly, the economic consequence of ownership of the
Common Stock, whether any such swap or transaction described
16
18
in clause (A) or (B) above is to be settled by delivery of Common Stock or such
other securities, in cash or otherwise. The foregoing sentence shall not apply
to (A) the Securities to be sold under this Agreement, (B) any shares of Common
Stock issued by the Company upon the exercise of an option or warrant or the
conversion of a security outstanding on the date hereof and referred to in the
Prospectus, (C) any shares of Common Stock issued or options to purchase Common
Stock granted pursuant to existing employee benefit plans of the Company
referred to in the Prospectus, (D) any shares of Common Stock issued pursuant to
any non-employee director stock plan or dividend reinvestment plan, (E) the
filing of a registration statement for the benefit of any limited partner who
elects to redeem his Units for Common Stock and the sale by any such limited
partner of such shares of registered Common Stock, (F) any shares of Common
Stock issued by the Company pursuant to the existing Stock Purchase and Dividend
Reinvestment Plan, (G) any Units issued by the Partnership in connection with
any purchase of any hotel or other asset, or (H) any shares of Common Stock or
preferred stock issued in connection with any purchase of any hotel or other
assets, including any merger or other business combinations.
(j) Reporting Requirements. The Company, during the period when the
Prospectus is required to be delivered under the 1933 Act or the 1934 Act, will
file all documents required to be filed with the Commission pursuant to the 1934
Act within the time periods required by the 1934 Act and the 1934 Act
Regulations.
(k) REIT Requirements. The Company will continue to meet the
requirements to qualify as a REIT under the Internal Revenue Code, unless the
Company's Board of Directors determines to revoke the Company's REIT election
because of circumstances or changes in the Internal Revenue Code (or the
Treasury regulations).
(l) Lock-Up Agreements with Respect to the Kahler Transaction. The
Company will not amend the terms and conditions of the transfer restrictions
imposed on the shares issued in connection with the Kahler Acquisition as
provided in Section 4.10 of the Stock Purchase Agreement among the Company,
Westbrook Real Estate Fund I, L.P., Westbrook Real Estate Co-Investment
Partnership I, L.P. and Kahler Realty Corporation.
SECTION 4. PAYMENT OF EXPENSES.
(a) Expenses. The Company and the Partnership will pay all expenses
incident to the performance of their obligations under this Agreement, including
(i) the preparation, printing and filing of the Registration Statement
(including financial statements and exhibits) as originally filed and of each
amendment thereto, (ii) the preparation, printing and delivery to the
Underwriters of this Agreement, any Agreement among Underwriters and such other
documents as may be required in connection with the offering, purchase, sale,
issuance or delivery of the Securities, (iii) the preparation, issuance and
delivery of the certificates for the Securities to the Underwriters, including
any stock or other transfer taxes and any stamp or other duties payable upon the
sale, issuance or delivery of the Securities to the Underwriters, (iv) the fees
and disbursements of the Company's counsel, accountants and other advisors, (v)
the qualification of the Securities under securities laws in accordance with the
provisions of Section 3(f) hereof, including filing fees and the reasonable fees
and disbursements of counsel for the Underwriters in connection therewith and in
connection with the preparation of the Blue Sky Survey and any supplement
thereto, (vi) the printing and delivery to the Underwriters of copies of each
17
19
preliminary prospectus, any Term Sheets and of the Prospectus and any amendments
or supplements thereto, (vii) the preparation, printing and delivery to the
Underwriters of copies of the Blue Sky Survey and any supplement thereto, (viii)
the fees and expenses of any transfer agent or registrar for the Securities,
(ix) the filing fees incident to, and the reasonable fees and disbursements of
counsel to the Underwriters in connection with, the review by the National
Association of Securities Dealers, Inc. or its subsidiary NASD Regulation, Inc.
(collectively, the "NASD") of the terms of the sale of the Securities (other
than counsel fees incurred relating to compensation issues), and (x) the fees
and expenses incurred in connection with the listing of the Securities on the
New York Stock Exchange.
(b) Termination of Agreement. If this Agreement is terminated by the
Representatives in accordance with the provisions of Section 5 (other than
Section 5(g)) or Section 9(a)(i) hereof, the Company or the Partnership shall
reimburse the Underwriters for all of their out-of-pocket expenses, including
the reasonable fees and disbursements of counsel for the Underwriters.
SECTION 5. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations of the
several Underwriters under this Agreement are subject to the accuracy of the
representations and warranties of the Company and the Partnership contained in
Section 1 hereof or in certificates of any officer of the Company, the
Partnership, any Subsidiary, the Lessee or the Manager delivered pursuant to the
provisions hereof, to the performance by each of the Company and the
Partnership, of its respective covenants and other obligations under this
Agreement, and to the following further conditions;
(a) Effectiveness of Registration Statement. The Registration Statement,
including any Rule 462(b) Registration Statement, has become effective and at
Closing Time no stop order suspending the effectiveness of the Registration
Statement shall have been issued under the 1933 Act or proceedings therefor
initiated or threatened by the Commission, and any request on the part of the
Commission for additional information shall have been complied with to the
reasonable satisfaction of counsel to the Underwriters. A prospectus containing
the Rule 430A Information shall have been filed with the Commission in
accordance with Rule 424(b) (or a post-effective amendment providing such
information shall have been filed and declared effective in accordance with the
requirements of Rule 430A) or, if the Company has elected to rely upon Rule 434,
a Term Sheet shall have been filed with the Commission in accordance with Rule
424(b).
(b) Opinion of Counsel for the Company, the Partnership and the Lessee.
At Closing Time, the Representatives shall have received the favorable opinion,
dated as of Closing Time, of counsel for the Company, the Partnership and the
Lessee, Brobeck Phleger & Harrison LLP, or as to matters of Maryland law, from
Ballard Spahr Andrews & Ingersoll, opining as to the substance (but not
necessarily the form) set forth in Exhibit A and to such further effect as
counsel to the Underwriters may reasonably request, together with signed or
reproduced copies of such letters for each of the other Underwriters.
(c) Opinion of Counsel for Underwriters. At Closing Time, the
Representatives shall have received the favorable opinion, dated as of Closing
Time, of O'Melveny & Myers LLP, counsel for the Underwriters, together with
signed or reproduced copies of such letter for each
18
20
of the other Underwriters, in form satisfactory to the Underwriters. In giving
such opinion O'Melveny & Myers LLP may rely, as to all matters governed by the
laws of jurisdictions other than the law of the State of California, the federal
law of the United States and the General Corporation Law of the State of
Delaware, upon the opinions of counsel satisfactory to the Representatives. Such
counsel may also state that, insofar as such opinion involves factual matters,
they have relied, to the extent they deem proper, upon certificates of officers
of the Company, the Lessee, the Partnership, any Subsidiary and the Manager and
certificates of public officials.
(d) Officers' Certificates. At Closing Time, there shall not have been,
since the date hereof or since the respective dates as of which information is
given in the Prospectus, any material adverse change in the condition, financial
or otherwise, or in the earnings, business affairs or business prospects of the
Company, the Partnership and the Subsidiaries, taken as a whole, whether or not
arising in the ordinary course of business, and the Representatives and their
counsel shall have received certificates from (A) the President or a Vice
President of the Company on the Company's behalf and (B) the President or a Vice
President of the Company as general partner of the Partnership on the
Partnership's behalf, dated as of Closing Time, to the effect that (i) there has
been no such material adverse change, (ii) the representations and warranties in
Section 1(a) hereof are true and correct with the same force and effect as
though expressly made at and as of Closing Time, (iii) such entity has complied
in all material respects with all agreements and satisfied all conditions on its
part to be performed or satisfied at or prior to Closing Time, and (iv) no stop
order suspending the effectiveness of the Registration Statement has been issued
and no proceedings for that purpose have been instituted or are pending or, to
such officers' knowledge, are contemplated by the Commission.
(e) Accountants' Comfort Letter. At the time of the execution of this
Agreement, the Representatives shall have received from Ernst & Young LLP (the
"Accountants") a letter dated such date, in form and substance satisfactory to
the Representatives, together with signed or reproduced copies of such letter
for each of the other Underwriters containing statements and information of the
type ordinarily included in accountants' "comfort letters" to underwriters with
respect to the financial statements and certain financial information contained
in the Registration Statement and the Prospectus.
In the event that the letter referred to above describe, for the period
subsequent to the date of the most recent balance sheet and income statement of
the Company incorporated by reference in the Registration Statement, any changes
in the capital stock, increases in long-term debt, or decreases in the
consolidated assets or stockholders' equity of the Company and its consolidated
subsidiaries, as compared with amounts shown on the most recent balance sheet of
the Company incorporated by reference in the Registration Statement, or any
decreases, as compared with the corresponding period in the preceding year, in
consolidated net revenues or net income per share of the Company and its
consolidated Subsidiaries, except in each case for such changes, increases or
decreases that the Registration Statement discloses have occurred or may occur,
it shall be a further condition to the obligations of the Underwriters that (A)
such letters shall be accompanied by the written explanation of the Company as
to the significance thereof, unless the Representatives deem such explanation
unnecessary, and (B) such changes or decreases do not, in the sole judgment of
the Representatives, make it impractical or inadvisable to proceed with the
purchase and delivery of the Securities as contemplated by this Agreement.
19
21
(f) Bring-down Comfort Letter. At Closing Time, the Representatives
shall have received from the Accountants a letter, dated as of Closing Time, to
the effect that they reaffirm the statements made in the letter furnished
pursuant to subsection (e) of this Section, except that the specified date
referred to shall be a date not more than three business days prior to Closing
Time.
(g) No Objection. The NASD shall not have raised any objection with
respect to the fairness and reasonableness of the underwriting terms and
arrangements.
(h) Lock-up Agreements. At the date of this Agreement the
Representatives shall have received an agreement substantially in the form of
Exhibit B hereto signed by the persons listed on Schedule D hereto.
(i) Conditions to Purchase of Option Securities. In the event that the
Underwriters exercise their option provided in Section 2(b) hereof to purchase
all or any portion of the Option Securities, the representations and warranties
of the Company and the Partnership contained herein and the statements in any
certificates finished by the Company, the Partnership, the Lessee or the Manager
under this Agreement shall be true and correct as of each Date of Delivery and,
at the relevant Date of Delivery, the Representatives shall have received:
(i) Officers' Certificate. Certificates, dated such Date of
Delivery, from (A) the President or a Vice President of the Company on
the Company's behalf and (B) the President or a Vice President of the
Company as general partner of the Partnership on the Partnership's
behalf, confirming that the certificates delivered at the Closing Time
pursuant to Section 5(d) hereof remain true and correct in all material
respects as of such Date of Delivery.
(ii) Opinion of Counsel for the Partnership and the Lessee. The
favorable opinion of Brobeck, Phleger & Harrison LLP, and Ballard Spahr
Andrews & Ingersoll, as applicable, counsel for the Company, the
Partnership and the Lessee, in form and substance satisfactory to
counsel for the Underwriters, dated such Date of Delivery, relating to
the Option Securities to be purchased on such Date of Delivery and
otherwise to the same effect as the opinion required by Section 5(b)
hereof.
(iii) Opinion of Counsel for Underwriters. The favorable opinion
of O'Melveny & Myers LLP, counsel for the Underwriters, dated such Date
of Delivery, relating to the Option Securities to be purchased on such
Date of Delivery and otherwise to the same effect as the opinion
required by Section 5(c) hereof.
(iv) Bring-down Comfort Letter. One or more letters from the
Accountants, in form and substance satisfactory to the Representatives
and dated such Date of Delivery, substantially in the same form and
substance as the letter furnished to the Representatives pursuant to
Section 5(f) hereof, except that the "specified date" in the letter
furnished pursuant to this paragraph shall be a date not more than five
days prior to such Date of Delivery.
(j) Additional Documents. At Closing Time and at each Date of Delivery,
counsel for the Underwriters shall have been furnished with such documents and
opinions as they may
20
22
require for the purpose of enabling them to pass upon the issuance and sale of
the Securities as herein contemplated, or in order to evidence the accuracy of
any of the representations or warranties, or the fulfillment of any of the
conditions, herein contained; and all proceedings taken by the Company, the
Partnership, the Subsidiaries and the Lessee in connection with the issuance and
sale of the Securities as herein contemplated shall be satisfactory in form and
substance to the Representatives and counsel for the Underwriters.
(k) Termination of Agreement. If any condition specified in this Section
shall not have been fulfilled when and as required to be fulfilled, this
Agreement, or, in the case of any condition to the purchase of Option
Securities, on a Date of Delivery which is after the Closing Time, the
obligations of the several Underwriters to purchase the relevant Option
Securities, may be terminated by the Representatives by notice to the Company at
any time at or prior to Closing Time or such Date of Delivery, as the case may
be, and such termination shall be without liability of any party to any other
party except as provided in Section 4 and except that Sections 1, 6, 7 and 8
shall survive any such termination and remain in full force and effect.
SECTION 6. INDEMNIFICATION.
(a) Indemnification of Underwriters. The Company and the Partnership,
jointly and severally, agree to indemnify and hold harmless each Underwriter and
each person, if any, who controls any Underwriter within the meaning of Section
15 of the 1933 Act or Section 20 of the 1934 Act as follows:
(i) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of any untrue statement or
alleged untrue statement of a material fact contained in the
Registration Statement (or any amendment thereto), including the Rule
430A Information and the Rule 434 Information, if applicable, or the
omission or alleged omission therefrom of a material fact required to be
stated therein or necessary to make the statements therein not
misleading or arising out of any untrue statement or alleged untrue
statement of a material fact included or incorporated by reference in
any preliminary prospectus or the Prospectus (or any amendment or
supplement thereto), or the omission or alleged omission therefrom of a
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading;
(ii) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, to the extent of the aggregate amount
paid in settlement of any litigation, or any investigation or proceeding
by any governmental agency or body, commenced or threatened, or of any
claim whatsoever based upon any such untrue statement or omission, or
any such alleged untrue statement or omission, provided that (subject to
Section 6(d) below) any such settlement is effected with the written
consent of the Company; and
(iii) against any and all expense whatsoever, as incurred
(including the fees and disbursements of counsel chosen by Merrill
Lynch), reasonably incurred in investigating, preparing or defending
against any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or any claim
21
23
whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission, to the extent that any such
expense is not paid under (i) or (ii) above;
provided, however, that this indemnity agreement shall not apply to any loss,
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Company by any
Underwriter through Merrill Lynch expressly for use in the Registration
Statement (or any amendment thereto), including the Rule 430A Information and
the Rule 434 Information, if applicable, or any preliminary prospectus or the
Prospectus (or any amendment or supplement thereto).
(b) Indemnification of the Company, the Partnership and their Respective
Directors and Officers. Each Underwriter severally agrees to indemnify and hold
harmless the Company, the Partnership and their respective directors, each of
the Company's officers who signed the Registration Statement, and each person,
if any, who controls the Company or the Partnership within the meaning of
Section 15 of the 1933 Act or Section 20 of the 1934 Act against any and all
loss, liability, claim, damage and expense described in the indemnity contained
in subsection (a) of this Section, as incurred, but only with respect to untrue
statements or omissions, or alleged untrue statements or omissions, made in the
Registration Statement (or any amendment thereto), including the Rule 430A
Information and the Rule 434 Information, if applicable, or any preliminary
prospectus or the Prospectus (or any amendment or supplement thereto) in
reliance upon and in conformity with written information furnished to the
Company by such Underwriter through Merrill Lynch expressly for use in the
Registration Statement (or any amendment thereto) or such preliminary prospectus
or the Prospectus (or any amendment or supplement thereto).
(c) Actions against Parties; Notification. Each indemnified party shall
give notice as promptly as reasonably practicable to each indemnifying party of
any action commenced against it in respect of which indemnity may be sought
hereunder, but failure to so notify an indemnifying party shall not relieve such
indemnifying party from any liability hereunder to the extent it is not
materially prejudiced as a result thereof and in any event shall not relieve it
from any liability which it may have otherwise than on account of this indemnity
agreement. In the case of parties indemnified pursuant to Section 6(a) above,
counsel to the indemnified parties shall be selected by Merrill Lynch, and, in
the case of parties indemnified pursuant to Section 6(b) above, counsel to the
indemnified parties shall be selected by the Company. An indemnifying party may
participate at its own expense in the defense of any such action; provided,
however, that counsel to the indemnifying party shall not (except with the
consent of the indemnified party) also be counsel to the indemnified party. In
no event shall the indemnifying parties be liable for fees and expenses of more
than one counsel (in addition to any local counsel) separate from their own
counsel for all indemnified parties in connection with any one action or
separate but similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances. No indemnifying party shall,
without the prior written consent of the indemnified parties, settle or
compromise or consent to the entry of any judgment with respect to any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever in respect of which
indemnification or contribution could be sought under this Section 6 or Section
7 hereof (whether or not the indemnified parties are actual or potential parties
thereto), unless such settlement, compromise or consent (i) includes an
unconditional release of each indemnified party from all liability arising out
of such litigation,
22
24
investigation, proceeding or claim and (ii) does not include a statement as to
or an admission of fault, culpability or a failure to act by or on behalf of any
indemnified party.
(d) Settlement without Consent if Failure to Reimburse. If at any time
an indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel, such indemnifying party
agrees that it shall be liable for any settlement of the nature contemplated by
Section 6(a)(ii) effected without its written consent if (i) such settlement is
entered into more than 45 days after receipt by such indemnifying party of the
aforesaid request, (ii) such indemnifying party shall have received notice of
the terms of such settlement at least 30 days prior to such settlement being
entered and (iii) such indemnifying party shall not have reimbursed such
indemnified party in accordance with such request prior to the date of such
settlement.
SECTION 7. CONTRIBUTION. If the indemnification provided for in Section 6 hereof
is for any reason unavailable to or insufficient to hold harmless an indemnified
party in respect of any losses, liabilities, claims, damages or expenses
referred to therein, then each indemnifying party shall contribute to the
aggregate amount of such losses, liabilities, claims, damages and expenses
incurred by such indemnified party, as incurred, (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company and the
Partnership on the one hand and the Underwriters on the other hand from the
offering of the Securities pursuant to this Agreement or (ii) if the allocation
provided by clause (i) is not permitted by applicable law, in such proportion as
is appropriate to reflect not only the relative benefits referred to in clause
(i) above but also the relative fault of the Company and the Partnership on the
one hand and of the Underwriters on the other hand in connection with the
statements or omissions which resulted in such losses, liabilities, claims,
damages or expenses, as well as any other relevant equitable considerations.
The relative benefits received by the Company and the Partnership on
the one hand and the Underwriters on the other hand in connection with the
offering of the Securities pursuant to this Agreement shall be deemed to be in
the same respective proportions as the total net proceeds from the offering of
the Securities pursuant to this Agreement (before deducting expenses) received
by the Company and the total underwriting discount received by the Underwriters,
in each case as set forth on the cover of the Prospectus, or, if Rule 434 is
used, the corresponding location on the Term Sheet, bear to the aggregate
initial public offering price of the Securities as set forth on such cover.
The relative fault of the Company and the Partnership, on the one hand,
and the Underwriters on the other hand shall be determined by reference to,
among other things, whether any such untrue or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact relates
to information supplied by the Company, or the Partnership, on the one hand, or
by the Underwriters on the other hand and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
The Company, the Partnership and the Underwriters agree that it would
not be just and equitable if contribution pursuant to this Section 7 were
determined by pro rata allocation (even if the Underwriters were treated as one
entity for such purpose) or by any other method
23
25
of allocation which does not take account of the equitable considerations
referred to above in this Section 7. The aggregate amount of losses,
liabilities, claims, damages and expenses incurred by an indemnified party and
referred to above in this Section 7 shall be deemed to include any legal or
other expenses reasonably incurred by such indemnified party in investigating,
preparing or defending against any litigation, or any investigation or
proceeding by any governmental agency or body, commenced or threatened, or any
claim whatsoever based upon any such untrue or alleged untrue statement or
omission or alleged omission.
Notwithstanding the provisions of this Section 7, no Underwriter shall
be required to contribute any amount in excess of the amount by which the total
price at which the Securities underwritten by it and distributed to the public
were offered to the public exceeds the amount of any damages which such
Underwriter has otherwise been required to pay by reason of any such untrue or
alleged untrue statement or omission or alleged omission.
No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 7, each person, if any, who controls a
Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act shall have the same rights to contribution as such Underwriter, and
each director of the Company, the Partnership, and each officer of the Company
who signed the Registration Statement, and each person, if any, who controls the
Company or the Partnership within the meaning of Section 15 of the 1933 Act or
Section 20 of the 1934 Act shall have the same rights to contribution as the
Company and the Partnership respectively. The Underwriters' respective
obligations to contribute pursuant to this Section 7 are several in proportion
to the number of Initial Securities set forth opposite their respective names in
Schedule A hereto and not joint.
SECTION 8. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE DELIVERY. All
representations, warranties and agreements contained in this Agreement or in
certificates of officers of the Company or the Partnership submitted pursuant to
this Agreement, shall remain operative and in full force and effect, regardless
of any investigation made by or on behalf of any Underwriter or controlling
person, or by or on behalf of the Company or the Partnership, and shall survive
delivery of the Securities to the Underwriters.
SECTION 9. TERMINATION OF AGREEMENT.
(a) Termination; General. The Representatives may terminate this
Agreement, by notice to the Company, at any time at or prior to Closing Time (i)
if there has been, since the time of execution of this Agreement or since the
respective dates as of which information is given in the Prospectus, any
material adverse change in the condition, financial or otherwise, or in the
earnings, business affairs or business prospects of the Company, whether or not
arising in the ordinary course of business, or any such adverse change with
respect to the Partnership, the Manager, or the Lessee which is material in the
context of the transactions contemplated by this Agreement, or (ii) if there has
occurred any material adverse change in the financial markets in the United
States or the international financial markets, any outbreak of hostilities or
escalation
24
26
thereof or other calamity or crisis or any change or development involving a
prospective change in national or international political, financial or economic
conditions, in each case the effect of which is such as to make it, in the
judgment of the Representatives, impracticable to market the Securities or to
enforce contracts for the sale of the Securities, or (iii) if trading in any
securities of the Company has been suspended or materially limited by the
Commission or the New York Stock Exchange, or if trading generally on the
American Stock Exchange or the New York Stock Exchange or in the Nasdaq National
Market has been suspended or materially limited, or minimum or maximum prices
for trading have been fixed, or maximum ranges for prices have been required, by
any of said exchanges or by such system or by order of the Commission, the NASD
or any other governmental authority, or (iv) if a banking moratorium has been
declared by either Federal or New York authorities.
(b) Liabilities. If this Agreement is terminated pursuant to this
Section 9, such termination shall be without liability of any party to any other
party except as provided in Section 4 hereof, and provided, further, that
Sections 1, 6, 7 and 8 shall survive such termination and remain in full force
and effect.
SECTION 10. DEFAULT BY ONE OR MORE OF THE UNDERWRITERS. If one or more of the
Underwriters shall fail at Closing Time or a Date of Delivery to purchase the
Securities which it or they are obligated to purchase under this Agreement (the
"Defaulted Securities"), the Representatives shall have the right, within 24
hours thereafter, to make arrangements for one or more of the non-defaulting
Underwriters, or any other underwriters, to purchase all, but not less than all,
of the Defaulted Securities in such amounts as may be agreed upon and upon the
terms herein set forth; if, however, the Representatives shall not have
completed such arrangements within such 24-hour period, then:
(a) if the number of Defaulted Securities does not exceed 10% of the
number of Securities to be purchased on such date, each of the non-defaulting
Underwriters shall be obligated, severally and not jointly, to purchase the full
amount thereof in the proportions that their respective underwriting obligations
under this Agreement bear to the underwriting obligations of all non-defaulting
Underwriters, or
(b) if the number of Defaulted Securities exceeds 10% of the number of
Securities to be purchased on such date, this Agreement or, with respect to any
Date of Delivery which occurs after the Closing Time, the obligation of the
Underwriters to purchase and of the Company to sell the Option Securities to be
purchased and sold on such Date of Delivery shall terminate without liability on
the part of any non-defaulting Underwriter.
No action taken pursuant to this Section 10 shall relieve any
defaulting Underwriter from liability in respect of its default.
In the event of any such default which does not result in a termination
of this Agreement or, in the case of a Date of Delivery which is after the
Closing Time, which does not result in a termination of the obligation of the
Underwriters to purchase and the Company to sell the relevant Option Securities,
as the case may be, either the Representatives or the Company shall have the
right to postpone Closing Time or the relevant Date of Delivery, as the case may
be, for a period not exceeding seven days in order to effect any required
changes in the
25
27
Registration Statement or Prospectus or in any other documents or arrangements.
As used herein, the term " Underwriter" includes any person substituted for a
Underwriter under this Section 10.
SECTION 11. NOTICES. All notices and other communications under this Agreement
shall be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to the
Underwriters shall be directed to the Representatives at North Tower, World
Financial Center, 250 Vesey Street, New York, New York 10281-1201, Attention:
Corporate and Institutional Client Group, and at 101 California Street, Suite
1420, San Francisco, California 94111, with a copy to O'Melveny & Myers LLP, 275
Battery Street, 26th Floor, San Francisco, California 94111, Attention: Peter T.
Healy, Esq.; and notices to the Company shall be directed to it at 115 Calle de
Industrias, Suite 201, San Clemente, California 92672, Attention: Mr. Robert A.
Alter, with a copy to Brobeck, Phleger & Harrison LLP, 4675 MacArthur Court,
Suite 1000, Newport Beach, California 92660, Attention: Laura B. Hunter, Esq.
SECTION 12. PARTIES. This Agreement shall inure to the benefit of and be binding
upon the Underwriters, the Company, the Partnership and their respective
successors. Nothing expressed or mentioned in this Agreement is intended or
shall be construed to give any person, firm or corporation, other than the
Underwriters, the Company and the Partnership and their respective successors
and the controlling persons and officers and directors referred to in Sections 6
and 7 and their heirs and legal representatives, any legal or equitable right,
remedy or claim under or in respect of this Agreement or any provision herein
contained. This Agreement and all conditions and provisions hereof are intended
to be for the sole and exclusive benefit of the Underwriters, the Company and
the Partnership and their respective successors, and said controlling persons
and officers and directors and their heirs and legal representatives, and for
the benefit of no other person, firm or corporation. No purchaser of Securities
from any Underwriter shall be deemed to be a successor by reason merely of such
purchase.
SECTION 13. GOVERNING LAW AND TIME. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. Except as
otherwise set forth herein, specified times of day refer to New York City time.
SECTION 14. EFFECT OF HEADINGS. The Article and Section headings herein and any
Table of Contents are for convenience only and shall not affect the construction
hereof.
[signature page follows]
26
28
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company a counterpart hereof, whereupon
this instrument, along with all counterparts, will become a binding agreement
between the Underwriters, the Company and the Partnership, in accordance with
its terms.
Very truly yours,
SUNSTONE HOTEL INVESTORS, INC.
By:
-------------------------------------
Robert A. Alter
President
SUNSTONE HOTEL INVESTORS, L.P.
By: SUNSTONE HOTEL INVESTORS, INC.
Its: General Partner
By:
-------------------------------------
Robert A. Alter
President
CONFIRMED AND ACCEPTED, as of the date first above written:
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
BEAR, STEARNS & CO. INC.
GOLDMAN, SACHS & CO.
A.G. EDWARDS & SONS, INC.
NATIONSBANC MONTGOMERY SECURITIES LLC
By: MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
By
-------------------------------
Brian Maier
Authorized Signatory
For themselves and as Representatives of the other Underwriters named in
Schedule A hereto.
S-1
29
SCHEDULE A
UNDERWRITERS
Number of
Initial Securities
Underwriter to be Purchased
- ------------------------------------------------------------------- ---------------------
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...................................... 900,000
Bear, Stearns & Co. Inc.......................................... 900,000
Goldman, Sachs & Co.............................................. 900,000
A.G. Edwards & Sons, Inc......................................... 900,000
NationsBanc Montgomery Securities LLC............................ 900,000
---------
Total............................................. 4,500,000
=========
Schedule A-1
30
SCHEDULE B
PRICING INFORMATION
SUNSTONE HOTEL INVESTORS, INC.
4,500,000 Shares of Common Stock
(Par Value $.01 Per Share)
1. The initial public offering price per share for the Securities,
determined as provided in said Section 2, shall be $16.375.
2. The purchase price per share for the Securities to be paid by the
several Underwriters shall be $15.535, being an amount equal to the
initial public offering price set forth above less $0.84 per share;
provided that the purchase price per share for any Option Securities
purchased upon the exercise of the over-allotment option described in
Section 2(b) shall be reduced by an amount per share equal to any
dividends or distributions declared by the Company and payable on the
Initial Securities but not payable on the Option Securities.
Schedule B-1
31
SCHEDULE C
SUBSIDIARIES OF THE COMPANY AND/OR THE PARTNERSHIP
Kent Hotel Investors, Inc. (CA)
Sunstone/Kent Associates, L.P. (CA)
Sunstone Hotels, LLC (DE)
Park Hotels L.C. (UT)
University Inn Associates (UT)
Ogden Hotel Associates (UT)
SSI E&P Corp I (DE)
SSI E&P Corp II (DE)
Kahler E&P Partners L.P. I (DE)
Kahler E&P Partners L.P. II (DE)
Schedule C-1
32
SCHEDULE D
PERSONS SUBJECT TO LOCK-UP AGREEMENTS
Robert A. Alter
Charles L. Biederman
Schedule D-1
33
EXHIBIT A
FORM OF OPINION OF COMPANY COUNSEL
TO BE DELIVERED PURSUANT TO SECTION 5(B)
(a) The Company has been duly formed and is validly existing as a
corporation, is in good standing under the laws of the State of Maryland, and is
duly qualified to do business as a foreign corporation and is in good standing
in all other jurisdictions where the ownership or leasing of properties or the
conduct of its business requires such qualification, except for jurisdictions in
which the failure to so qualify would not reasonably be expected to have a
Material Adverse Effect, and has the requisite power to own its properties and
conduct its business substantially as described in the Registration Statement;
and, to such counsel's knowledge, other than the Partnership and the
Subsidiaries, the Company does not own or control, directly or indirectly, any
corporation, association, partnership or other entity.
(b) Each of the Lessee and Manager has been duly incorporated and is
validly existing as a corporation in good standing under the laws of the State
of Colorado, and is duly qualified to do business as a foreign corporation and
is in good standing in each of the states in which it leases real property from
the Partnership or the Subsidiaries and has the requisite corporate power and
authority to own its properties and conduct its business as described in the
Registration Statement.
(c) The Partnership has been duly formed and is validly existing as a
limited partnership under the laws of the State of Delaware, is duly qualified
to do business as a foreign limited partnership and is in good standing in each
of the states in which it owns real property, has the requisite partnership
power and authority to own and lease its properties and conduct its business as
currently conducted as described in the Prospectus. The Company is the sole
general partner of the Partnership, which Units, to such counsel's knowledge are
held free and clear of all liens, encumbrances, equities, claims, security
interests, voting trusts or charges. The Partnership is the sole limited partner
of Sunstone/Kent Associates.
(d) The Sunstone Hotel Investors, LLC (the "LLC") has been duly formed
and is validly existing as a limited liability company in good standing under
the laws of the State of Delaware. The LLC is duly qualified to do business a
foreign limited liability company in all other jurisdictions where the ownership
or leasing of properties or the conduct of its business requires such
qualification, except for jurisdictions in which the failure to so qualify would
not reasonably be expected to have a material adverse effect on the LLC, and has
the requisite power to own its properties and conduct its business substantially
as described in the Registration Statement. The Partnership is the sole member
of the LLC.
(e) Each Subsidiary (other than the LLC, Center Plaza Association and
Improvement Limited Partnership) is in good standing as a corporation, limited
partnership or limited liability company, as the case may be, under the laws of
its jurisdiction of formation and is duly qualified to do business as a foreign
corporation, limited partnership or limited liability company, as the case may
be, and is in good standing in each of the states in which it owns real
property, except where the failure to be so qualified, individually or in the
aggregate, would not cause a Material Adverse Effect.
A-1
34
(f) All of the issued and outstanding shares of the Company's Common
Stock ("Shares") have been duly authorized and validly issued; all outstanding
Shares were duly registered under the Act or were issued in transactions exempt
from the registration requirements of the Act and were duly registered or
subject to an available exemption from the registration requirements of the
applicable state securities or blue sky laws, are fully paid and nonassessable,
were not issued in violation of or subject to any statutory, or to such
counsel's knowledge, other preemptive rights or other rights to subscribe for or
purchase any securities and conform in all material respects to the description
thereof incorporated by reference in the Registration Statement; provided,
however, that such counsel need not express any opinion with respect to the
registration or availability of an exemption under applicable state securities
or blue sky laws for Common Stock issued pursuant to an underwritten public
offering.
(g) The Company has given proper authorization to ChaseMellon
Shareholder Service, L.L.C. (the "Transfer Agent") to issue the Initial
Securities to the Underwriters at the Closing Time by electronic transfer
through the FAST system of The Depository Trust Company, upon receipt of
telephonic notification from you and the Company to issue such shares. Upon your
payment of the agreed consideration for the Initial Securities in accordance
with the provisions of the Purchase Agreement, and the electronic transfer to
you of the Initial Securities by the Transfer Agent, the Initial Securities will
be duly authorized and validly issued, fully paid and nonassessable, and will
not have been issued in violation of or subject to any preemptive rights or (to
our knowledge) other rights to subscribe for or purchase securities from the
Company.
(h) Except as disclosed in or specifically contemplated by the
Prospectus, the Company's Annual Report on Form 10-K for the year ended December
31, 1996 or the Company's Proxy Statement prepared in connection with its 1997
annual shareholders' meeting, to such counsel's knowledge, there are no
outstanding options, warrants or other rights calling for the issuance of, and
no commitments, plans or arrangements to issue, any shares of capital stock of
the Company or any security convertible into or exchangeable for capital stock
of the Company.
(i) (i) To such counsel's knowledge, no stop order suspending the
effectiveness of the Registration Statement or preventing the use of the
Prospectus has been issued and no proceedings for that purpose have been
instituted or are pending or contemplated by the Commission and any
required filing of the Prospectus and any supplement thereto pursuant to
Rule 424(b) of the Rules and Regulations has been made in the manner and
within the time period required by such Rule 424(b);
(ii) The Registration Statement, the Prospectus and any
amendment or supplement thereto (except for the financial statements and
schedules and other financial and statistical information included
therein as to which such counsel need express no opinion) comply as to
form in all material respects with the requirements of the Act and the
Rules and Regulations; and
(iii) To such counsel's knowledge, there are no legal or
governmental actions, suits or proceedings pending (in which service or
notice of process has been received by the Company) or threatened
against the Company which are required to be described in the Prospectus
which are not described as required.
A-2
35
(j) The Company has the corporate power and authority to enter into this
Agreement, to sell and deliver the Securities to be sold by it to the several
Underwriters and to consummate the other transactions contemplated herein; the
Partnership has the partnership power and authority to enter into this Agreement
and to consummate the transactions contemplated herein; this Agreement has been
duly and validly authorized by all necessary partnership action by each of the
Company and the Partnership, respectively, has been duly and validly executed
and delivered by and on behalf of each of the Company and the Partnership; and
no approval, authorization, order, consent, registration, filing, qualification,
license or permit of or with any court, regulatory, administrative or other
governmental body is required for the execution and delivery of this Agreement
by each of the Company and the Partnership or the consummation of the
transactions contemplated by this Agreement, except such as have been obtained
and are in full force and effect under the Act and such as may be required under
applicable Blue Sky or Canadian securities laws in connection with the purchase
and distribution of the Securities by the Underwriters and the clearance of such
offering with the NASD.
(k) The execution and delivery of the Purchase Agreement and the
issuance of the Securities contemplated therein will not conflict with, result
in the material breach of, or constitute, either by itself or upon notice or the
passage of time or both, a material default under, any agreement, mortgage, deed
of trust, lease, franchise, license, indenture, permit or other instrument
listed on Schedule 1 to any of the Backup Officers' Certificates; or violate any
of the provisions of the partnership certificate, partnership agreement,
articles of incorporation or bylaws, or other organizational documents, as
applicable, of the Company or the Partnership; or to our knowledge, violate any
California statute, judgment, decree, order, rule or regulation of any court or
California governmental body having jurisdiction over the Company or the
Partnership, or any of their property;
(l) Such counsel has not received written notice and has no reason to
believe that the Company, the Partnership, the LLC or the Lessee is in violation
of its respective declaration of trust, partnership certificate, partnership
agreement, certificate of incorporation or bylaws, or other organizational
documents, as applicable, or is in breach of or default with respect to any
provision of any agreements, mortgages, deeds of trust, leases, franchises,
licenses, indentures, permits or other instruments listed in Schedule 1 to any
of the Officers' Certificates delivered to back-up such counsel's opinion to
which the Company, the Partnership, the LLC or the Lessee is a party or by which
they or any of their properties may be bound or affected, except where such
default would not materially adversely affect the Company, the Partnership, the
LLC or the Lessee, as the case may be.
(m) To such counsel's knowledge, no holders of securities of the Company
or the Partnership have rights to register Shares, Units or other securities
because of the filing of the Registration Statement by the Company or the
offering.
(n) No transfer taxes are required to be paid to the states of Maryland
and New York in connection with the sale and delivery of the Securities to the
Underwriters hereunder.
(o) Neither the Company nor the Partnership is or will be an "investment
company" within the meaning of the 1940 Act.
A-3
36
(p) The Securities have been duly authorized for listing by the New York
Stock Exchange upon official notice of issuance.
(q) Since the inception of its taxable year ended on December 31, 1995,
the Company has been organized and operated in conformity with the requirements
for qualification as a REIT pursuant to Sections 856 through 860 of the Internal
Revenue Code, and the Company's organization and contemplated method of
operation will enable it to continue to meet the requirements for qualification
and taxation as a REIT under the code in 1998 and subsequent years.
(r) The description of law and legal conclusions contained in the
Registration Statement and the Prospectus Supplement under the caption "United
States Federal Income Tax Considerations" are correct in all material respects,
and the discussion therein fairly summarizes the federal income tax
considerations and tax risks that are material to a holder of the Securities.
(s) The Partnership will be treated for federal income tax purposes as a
partnership and not as an association taxable as a corporation.
In rendering such opinion, such counsel may rely as to matters of local
law, on opinions of local counsel, and as to matters of fact, to the extent they
deem proper, on certificates of officers of the Company, the Partnership, the
Subsidiaries, or the Lessee, as applicable, and certificates and verbal advice
of governmental officials, in which case their opinion is to state that they are
so doing and that the Underwriters are justified in relying on such opinions or
certificates and copies of said opinions or certificates are to be attached to
the opinion. Such counsel shall also include a statement to the effect that
although such counsel is not passing upon and does not assume responsibility for
the accuracy, completeness or fairness of the statements contained therein,
nothing has come to such counsel's attention that would lead such counsel to
believe that either at the effective date of the Registration Statement or at
the applicable Closing Time the Registration Statement or the Prospectus, or any
amendment or supplement thereto, contains any untrue statement of a material
fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading (other than with respect
to the financial statements, the notes thereto and the related financial
schedules and other financial data as to which such counsel need express no
opinion).
A-4
37
EXHIBIT B
FORM OF LOCK-UP AGREEMENT
[pricing date]
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
BEAR, STEARNS & CO. INC.
GOLDMAN, SACHS & CO.
A.G. EDWARDS & SONS, INC.
NATIONSBANC MONTGOMERY SECURITIES LLC
as Representatives of the several
Underwriters to be named in the
within-mentioned Purchase Agreement
c/o Merrill Lynch, Pierce, Fenner & Smith Incorporated
North Tower
World Financial Center
New York, New York 10281-1209
Re: Proposed Public Offering by Sunstone Hotel Investors, Inc.
Ladies and Gentlemen:
The undersigned, a stockholder of Sunstone Hotel Investors, Inc., a
Maryland corporation (the "Company"), understands that Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("Merrill Lynch"), Bear, Stearns & Co. Inc.,
Goldman, Sachs & Co., A.G. Edwards & Sons, Inc. and NationsBanc Montgomery
Securities LLC propose to enter into a purchase agreement (the "Purchase
Agreement") with the Company providing for the public offering of shares (the
"Securities") of the Company's common stock, par value $.01 per share (the
"Common Stock"). In recognition of the benefit that such offerings will confer
upon the undersigned as a stockholder of the Company, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the undersigned agrees with each underwriter to be named in the
Purchase Agreement that, during a period of 90 days from the date of the such
Purchase Agreements, the undersigned will not, without the prior written consent
of Merrill Lynch, directly or indirectly, (i) offer, pledge, sell, contract to
sell, sell any option or contract to purchase, purchase any option or contract
to sell, grant any option, right or warrant for the sale of, or otherwise
dispose of or transfer any shares of the Company's Common Stock or any
securities convertible into or exchangeable or exercisable for Common Stock,
whether now owned or hereafter acquired by the undersigned or with respect to
which the undersigned has or hereafter acquires the power of disposition, or
file any registration statement under the Securities Act of 1933, as amended,
with respect to any of the foregoing or (ii) enter into any swap or any other
agreement or any transaction that transfers, in whole or in part, directly or
indirectly, the economic consequence of ownership of the Common Stock, whether
any such swap or transaction
B-1
38
is to be settled by delivery of Common Stock or other securities, in cash or
otherwise. Notwithstanding the foregoing, the undersigned shall be allowed to
effect (A) the conversion of Partnership Units (as defined in the Purchase
Agreement) owned by the undersigned for shares of Common Stock, (B) the exercise
of warrants to purchase Partnership Units, (C) the exercise of any stock option
or warrant to purchase securities of the Company, and (D) the enrollment in, and
purchase of any shares of Common Stock issued pursuant to, any stock plan or
dividend reinvestment plan of the Company, including, without limitation, the
existing Stock Purchase and Dividend Reinvestment Plan.
Very truly yours,
Signature:
-----------------------------
Print Name:
-----------------------------
B-2