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Exhibit 99.1
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
SHP ACQUISITION, L.L.C.,
SHP INVESTORS SUB, INC.
AND
SUNSTONE HOTEL INVESTORS, INC.
DATED AS OF JULY 12, 1999
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TABLE OF CONTENTS
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ARTICLE 1 THE MERGER......................................................................................2
1.1 The Merger......................................................................................2
1.2 Closing.........................................................................................2
1.3 Effective Time..................................................................................3
1.4 Effect of Merger on Charter and Bylaws..........................................................3
1.5 Directors and Officers..........................................................................3
1.6 Effect on Shares................................................................................3
1.7 Merger Consideration............................................................................3
1.8 Transactions Relating to Seller Partnership.....................................................5
1.9 Exchange of Certificates........................................................................5
1.10 Further Assurances..............................................................................6
ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF SELLER........................................................7
2.1 Organization, Standing and Power of Seller......................................................7
2.2 Seller Subsidiaries/Investments.................................................................7
2.3 Capital Structure...............................................................................8
2.4 Authority; Noncontravention; Consents..........................................................10
2.5 SEC Documents; Financial Statements; Undisclosed Liabilities...................................11
2.6 Absence of Certain Changes or Events...........................................................12
2.7 Litigation.....................................................................................13
2.8 Properties.....................................................................................13
2.9 Environmental Matters..........................................................................15
2.10 Related Party Transactions.....................................................................16
2.11 Employee Benefits..............................................................................16
2.12 Employee Matters...............................................................................18
2.13 Taxes..........................................................................................18
2.14 No Payments to Employees, Officers or Directors................................................20
2.15 Brokers........................................................................................20
2.16 Compliance With Laws...........................................................................20
2.17 Contracts; Debt Instruments....................................................................21
2.18 Opinion of Financial Advisor...................................................................22
2.19 State Takeover Statutes........................................................................22
2.20 Proxy Statement and Information Statement......................................................23
2.21 Investment Company Act of 1940.................................................................23
2.22 Definition of Knowledge of Seller..............................................................23
2.23 Insurance......................................................................................23
2.24 Board Recommendation...........................................................................23
2.25 Representations in Partnership Merger Agreement................................................24
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF PARENT AND BUYER.............................................24
3.1 Organization, Standing and Power of Parent and Buyer...........................................24
3.2 Ownership of Parent, Buyer and Holdings........................................................25
3.3 Authority; Noncontravention; Consents..........................................................25
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3.4 Litigation.....................................................................................26
3.5 Undisclosed Liability..........................................................................26
3.6 Brokers........................................................................................26
3.7 Compliance With Laws...........................................................................26
3.8 Contracts; Debt Instruments....................................................................27
3.9 Solvency.......................................................................................27
3.10 Proxy Statement and Information Statement......................................................27
3.11 Investment Company Act of 1940.................................................................27
3.12 Ownership of Stock in Seller...................................................................27
3.13 Definition of Knowledge........................................................................28
3.14 Sufficient Funds...............................................................................28
3.15 Representations in Partnership Merger Agreement................................................28
ARTICLE 4 COVENANTS......................................................................................28
4.1 Acquisition Proposals..........................................................................28
4.2 Conduct of Seller's Business Pending Merger....................................................30
4.3 Conduct of Parent's and Buyer's Business Pending Merger........................................33
4.4 Other Actions..................................................................................33
4.5 Private Placement..............................................................................34
4.6 Escrow Arrangement.............................................................................34
4.7 Seller Partnership Actions.....................................................................34
4.8 Pro Formas.....................................................................................34
ARTICLE 5 ADDITIONAL COVENANTS...........................................................................34
5.1 Preparation of the Proxy Statement; Seller Stockholders Meeting................................34
5.2 Access to Information; Confidentiality.........................................................36
5.3 Reasonable Best Efforts; Notification..........................................................36
5.4 Public Announcements...........................................................................39
5.5 Transfer Taxes.................................................................................39
5.6 Benefit Plans..................................................................................39
5.7 Indemnification................................................................................40
5.8 Declaration of Dividends and Distributions.....................................................41
5.9 Resignations...................................................................................42
5.10 Stockholder Claims.............................................................................42
5.11 Seller Franchise Agreements and Leases.........................................................42
5.12 Cooperation with Proposed Financings...........................................................42
ARTICLE 6 CONDITIONS.....................................................................................43
6.1 Conditions to Each Party's Obligation to Effect the Merger.....................................43
6.2 Conditions to Obligations of Parent and Buyer..................................................43
6.3 Conditions to Obligations of Seller............................................................45
ARTICLE 7 TERMINATION, AMENDMENT AND WAIVER..............................................................46
7.1 Termination....................................................................................46
7.2 Certain Fees and Expenses......................................................................47
7.3 Effect of Termination..........................................................................51
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7.4 Amendment......................................................................................51
7.5 Extension; Waiver..............................................................................51
ARTICLE 8 GENERAL PROVISIONS.............................................................................51
8.1 Nonsurvival of Representations and Warranties..................................................51
8.2 Notices........................................................................................52
8.3 Interpretation.................................................................................53
8.4 Counterparts...................................................................................53
8.5 Entire Agreement; No Third-Party Beneficiaries.................................................53
8.6 Governing Law..................................................................................53
8.7 Assignment.....................................................................................53
8.8 Enforcement....................................................................................54
8.9 Severability...................................................................................54
EXHIBITS
Exhibit A Seller Partnership Redemption Terms
Exhibit B Lessee/Manager Agreement
Exhibit C Voting Agreement and Irrevocable Proxy
Exhibit D Form of Seller Charter Amendments
Exhibit E Voting Agreements and Consents of Seller Unit Holders
Exhibit F Form of Seller Partnership Agreement Amendments
Exhibit G Financing Commitment
Exhibit H Form of Letter of Credit
Exhibit I Form of Tax Opinions
Exhibit J Pro Forma
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INDEX OF DEFINED TERMS
DEFINED TERM SECTION
1940 Act.......................................................................................................2.21
Acquisition Proposal.........................................................................................4.1(a)
Additional Filings...........................................................................................5.1(a)
Adverse Determination .......................................................................................7.1(j)
Affiliate......................................................................................................2.10
Agreement..................................................................................................Preamble
AICPA Statement..............................................................................................5.1(b)
Alter.....................................................................................................Recital E
Alter Investment Group....................................................................................Recital E
Articles of Merger..............................................................................................1.3
Base Amount..................................................................................................7.2(b)
Biederman.................................................................................................Recital E
Break-Up Expenses............................................................................................7.2(c)
Break-Up Expenses Tax Opinion................................................................................7.2(c)
Break-Up Fee.................................................................................................7.2(b)
Break-Up Fee Tax Opinion.....................................................................................7.2(b)
Buyer......................................................................................................Preamble
Buyer Disclosure Letter...................................................................................Article 3
Buyer Material Adverse Effect................................................................................3.1(b)
Buyer Operating Partnership...............................................................................Recital G
CapEx Budget.................................................................................................2.8(c)
Cash Collateral.................................................................................................4.6
Certificates.................................................................................................1.9(c)
Charter.........................................................................................................1.4
Charter Amendments...........................................................................................2.4(a)
Claims.......................................................................................................5.7(b)
Closing.........................................................................................................1.2
Closing Date....................................................................................................1.2
Code........................................................................................................2.11(a)
Commitment...................................................................................................4.2(q)
Common Merger Consideration...............................................................................1.7(a)(i)
Contribution..............................................................................................Recital E
Contribution Agreement....................................................................................Recital E
Controlled Group Member........................................................................................2.11
Data Room....................................................................................................2.8(a)
Defect Amount................................................................................................7.1(j)
Development Agreements.......................................................................................4.2(i)
Effective Time..................................................................................................1.3
Employee Plan..................................................................................................2.11
Encumbrances.................................................................................................2.8(a)
Environmental Law............................................................................................2.9(c)
Environmental Liabilities and Costs..........................................................................2.9(c)
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ERISA..........................................................................................................2.11
Escrow Agent....................................................................................................4.6
Escrow Agreement................................................................................................4.6
Exchange Act.................................................................................................2.5(a)
Financing......................................................................................................3.14
Financing Commitment...........................................................................................3.14
Financing Overage.........................................................................................5.3(c)(i)
Flow-Through Entity.........................................................................................2.13(b)
Franchise Consents...........................................................................................5.3(a)
Franchise Fees...............................................................................................5.3(d)
GAAP.........................................................................................................2.5(a)
Goldman Sachs..................................................................................................2.15
Governmental Entity..........................................................................................2.4(b)
Hazardous Materials..........................................................................................2.9(a)
Holdings.....................................................................................................3.1(b)
HSR Act......................................................................................................2.4(b)
Indebtedness................................................................................................2.17(b)
Indemnified Parties..........................................................................................5.7(a)
Indemnifying Parties.........................................................................................5.7(b)
Information Statement........................................................................................5.1(a)
Injunction...................................................................................................7.1(d)
Irrevocable Proxy.........................................................................................Recital I
IRS..........................................................................................................7.2(b)
Knowledge of Buyer.............................................................................................3.13
Knowledge of Parent............................................................................................3.13
Knowledge of Seller............................................................................................2.22
Laws.........................................................................................................2.4(b)
Lender Consents......................................................................................5.3(a), 5.3(a)
Lender Property Determination................................................................................7.1(j)
Lessee....................................................................................................Recital E
Lessee/Manager Agreement..................................................................................Recital H
Letter of Credit................................................................................................4.6
Liens.....................................................................................................2.2(b)(i)
Management Sub............................................................................................Recital E
Manager...................................................................................................Recital E
Maryland Department.............................................................................................1.3
Material Contract...........................................................................................2.17(a)
Merger....................................................................................................Recital A
Merger Consideration.....................................................................................1.7(a)(ii)
MGCL............................................................................................................1.1
Option Consideration.........................................................................................1.7(b)
Ordinary Course Liabilities..................................................................................4.2(p)
Outside Date.................................................................................................2.4(b)
Parent.....................................................................................................Preamble
Parent Material Adverse Effect...............................................................................3.1(a)
Partnership Agreement Amendment................................................................................2.24
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Partnership Merger..............................................................................................1.8
Partnership Merger Agreement..............................................................................Recital G
Paying Agent.................................................................................................1.9(a)
Pension Plan...................................................................................................2.11
Person.......................................................................................................2.2(a)
Preferred Merger Consideration...........................................................................1.7(a)(ii)
Property Reports.............................................................................................5.1(a)
Property Restrictions........................................................................................2.8(a)
Proxy Statement..............................................................................................5.1(a)
Qualifying Income............................................................................................7.2(b)
REIT........................................................................................................2.13(b)
REIT Income Requirements.....................................................................................7.2(b)
Required Consents............................................................................................5.3(a)
Riverside ................................................................................................Recital E
Satisfaction Date...............................................................................................1.2
SEC..........................................................................................................2.4(b)
Securities Act ...........................................................................................2.5(a)
Seller.....................................................................................................Preamble
Seller 1994 Incentive Plan...................................................................................2.3(a)
Seller 1997 Supplemental Plan................................................................................2.3(a)
Seller Board..............................................................................................Recital A
Seller Common OP Units..........................................................................................1.8
Seller Common Shares.........................................................................................2.3(a)
Seller Common Unit Holder.......................................................................................1.8
Seller Contribution Agreements..............................................................................2.17(a)
Seller Director Plan.........................................................................................2.3(a)
Seller Disclosure Letter..................................................................................Article 2
Seller Financial Statement Date.................................................................................2.6
Seller Franchise Agreements..................................................................................2.8(e)
Seller Ground Leases.........................................................................................2.8(d)
Seller Material Adverse Change..................................................................................2.6
Seller Material Adverse Effect..................................................................................2.1
Seller OP Preferred Units....................................................................................2.3(e)
Seller OP Preferred Unit Holder..............................................................................2.3(e)
Seller OP Units..............................................................................................2.3(e)
Seller Options...............................................................................................2.3(b)
Seller Partner Approval......................................................................................2.4(a)
Seller Partnership........................................................................................Recital F
Seller Partnership Agreement.................................................................................2.3(e)
Seller Partnership Redemption.............................................................................Recital F
Seller Permits.................................................................................................2.16
Seller Plans.................................................................................................2.3(b)
Seller Preferred Shares......................................................................................2.3(a)
Seller Properties....................................................................................2.8(a), 2.9(a)
Seller SEC Documents.........................................................................................2.5(b)
Seller Stockholder Approvals.................................................................................2.4(a)
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Seller Stockholders Meeting..................................................................................5.1(c)
Seller Subsidiaries..........................................................................................2.2(a)
Seller's Environmental Reports...............................................................................2.9(a)
Seller's Knowledge.............................................................................................2.22
Service Agreements..........................................................................................2.17(c)
Special Committee.........................................................................................Recital A
Subsidiary...................................................................................................2.2(a)
Superior Acquisition Proposal...................................................................................4.1
Surviving Company...............................................................................................1.1
Surviving Operating Partnership...........................................................................Recital G
Takeover Statute...............................................................................................2.19
Tax Authority...............................................................................................2.13(a)
Tax Protection Agreements...................................................................................2.17(f)
Tax Returns.................................................................................................2.13(a)
Taxes.......................................................................................................2.13(a)
Third Party Provisions..........................................................................................8.5
Transactions...................................................................................................2.24
Transfer Taxes..................................................................................................5.5
Underlying Loan...........................................................................................5.3(c)(i)
Voting Agreement..........................................................................................Recital I
Welfare Plan...................................................................................................2.11
Westbrook Co-Investment...................................................................................Recital E
Westbrook Fund I..........................................................................................Recital E
Westbrook Fund III........................................................................................Recital E
Westbrook SHP.............................................................................................Recital E
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") dated as of July
12, 1999, is by and among SHP Acquisition, L.L.C., a Delaware limited liability
company ("Parent"), SHP Investors Sub, Inc., a Maryland corporation and an
indirect subsidiary of Parent ("Buyer"), and Sunstone Hotel Investors, Inc., a
Maryland corporation ("Seller").
RECITALS:
A. The Board of Directors of Seller ("Seller Board"), based upon the
recommendation of a duly appointed special committee thereof of independent
directors ("Special Committee"), and the Board of Directors of Buyer have each
determined it to be advisable and in the best interests of their respective
stockholders, subject to the conditions and other provisions contained herein,
that Buyer merge with and into Seller ("Merger").
B. The members of Parent have approved this Agreement and the Merger.
C. The Special Committee and the Seller Board have received a fairness
opinion relating to the transactions contemplated hereby as more fully described
herein.
D. Parent, Buyer and Seller desire to make certain representations,
warranties and agreements in connection with the transactions contemplated
hereby.
E. Contemporaneously with the execution of this Agreement, Westbrook
SHP L.L.C., a Delaware limited liability company ("Westbrook SHP"), Robert A.
Alter ("Alter"), Riverside Hotel Partners, Inc., a California corporation
("Riverside"), Alter Investment Group Ltd., a Colorado limited partnership,
("Alter Investment Group"), Charles L. Biederman ("Biederman"), Sunstone Hotel
Management, Inc., a Colorado corporation ("Manager"), Management Sub SHP L.L.C.,
a Delaware limited liability company ("Management Sub"), Sunstone Hotel
Properties, Inc., a Colorado corporation ("Lessee"), Parent, Westbrook Real
Estate Fund III, L.P., a Delaware limited partnership ("Westbrook Fund III"),
Westbrook Real Estate Co-Investment Partnership III, L.P., a Delaware limited
partnership ("Westbrook Co-Investment"), and, solely for purposes of Section
4.2(c) of the Contribution Agreement (as defined), Westbrook Real Estate Fund I,
L.P., a Delaware limited partnership ("Westbrook Fund I"), and, solely for the
purposes of Section 9.14 of the Contribution Agreement, Regina Biederman have
entered into a Contribution Agreement (the "Contribution Agreement") pursuant to
which and subject to the terms and conditions thereof, Westbrook SHP, Alter,
Biederman, Manager, Westbrook Fund III, Westbrook Co-Investment, Management Sub,
Riverside and Alter Investment Group shall contribute certain assets, equity
interests and cash to Parent as described therein (the "Contribution")
immediately prior to the Seller Partnership Redemption (as defined below).
F. Immediately prior to the Partnership Merger (as defined below)
Sunstone Hotel Investors, L.P., a Delaware limited partnership ("Seller
Partnership"), will redeem from Seller certain outstanding units of Seller
Partnership held by Seller in exchange for certain assets held by Seller
Partnership ("Seller Partnership Redemption") in accordance with the terms set
forth on Exhibit A attached hereto.
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G. Contemporaneously with the execution of this Agreement, SHP OP,
L.L.C., a Delaware limited liability company ("Buyer Operating Partnership"),
Seller Partnership and Parent are entering into a Merger Agreement ("Partnership
Merger Agreement") pursuant to which, and subject to the terms and conditions
thereof, immediately after the Seller Partnership Redemption and immediately
prior to the Merger, Buyer Operating Partnership will be merged with and into
Seller Partnership (the "Partnership Merger") with Seller Partnership as the
surviving entity ("Surviving Operating Partnership").
H. To effect the Partnership Merger and the Partnership Agreement
Amendment (as defined below), (i) approval by the General Partner (as defined in
the Seller Partnership Agreement) (the "General Partner") and Limited Partners
(as defined in the Seller Partnership Agreement, "Limited Partners") who own
more than 50% of the Percentage Interests (as defined in the Seller Partnership
Agreement) ("Percentage Interests") of the Partners (as defined in the Seller
Partnership Agreement) of the Partnership Merger and the Partnership Merger
Agreement and (ii) approval by Limited Partners holding more than 66-2/3% of the
Percentage Interests of the Limited Partners (excluding the Percentage Interests
held by Seller or any entity controlled by Seller) of the Partnership Agreement
Amendment ((i) and (ii) collectively, the "Seller Partner Approval") must be
obtained as of the date hereof, and copies of such approvals as have been
obtained as a result of the delivery to the Seller Partnership of certain voting
agreements and consents are attached as Exhibit E.
I. Contemporaneously with the execution of this Agreement, Alter,
Biederman, Seller, Seller Partnership, Lessee and Manager have entered into a
drag-along agreement (the "Lessee/Manager Agreement"), a copy of which is
attached as Exhibit B, pursuant to which, under certain circumstances, Seller
and the Seller Partnership have the right to require Alter and Biederman or
Lessee and Manager, and Alter and Biederman or Lessee or Manager have the
obligation, to sell all of their equity interest in Lessee and Manager, as the
case may be, to certain third parties.
J. Contemporaneously with the execution of this Agreement, Seller,
Alter, Biederman, Westbrook Fund I and Parent have entered into a voting
agreement (the "Voting Agreement") and a limited irrevocable proxy (the
"Irrevocable Proxy"), a copy of which is attached as Exhibit C.
NOW, THEREFORE, in consideration of the premises and the
representations, warranties, covenants and agreements contained herein, the
parties hereto hereby agree as follows:
ARTICLE 1
THE MERGER
1.1 The Merger. Upon the terms and subject to the conditions of this
Agreement, and in accordance with Subtitle 1 of Title 3 of the Maryland General
Corporation Law ("MGCL"), Buyer shall be merged with and into Seller, with
Seller as the surviving entity (the entity surviving the Merger, the "Surviving
Company"). The Merger shall have the effects specified in Section 3-114 of the
MGCL and this Agreement.
1.2 Closing. On the terms and subject to the conditions of this
Agreement and provided that this Agreement has not been terminated pursuant to
Article 7, the closing of the Merger ("Closing") will take place at 10:00 a.m.,
local time in New York, New York, on the date which is the third business day
following
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satisfaction (or waiver by the parties entitled to the benefit thereof) of the
conditions set forth in Article 6 (other than conditions that by their terms,
cannot be satisfied until the Closing Date), at the offices of Simpson Thacher &
Bartlett, 425 Lexington Avenue, New York, NY 10017-3954, unless another date or
place is agreed to in writing by the parties; provided however that without the
written consent of Parent and Buyer, the Closing shall not occur prior to
October 30, 1999 unless the Lender Consent (as herein defined) has been obtained
under that certain loan facility dated May 7, 1999 in the original principal
amount of $16,135,000. The date on which the Closing occurs is referred to
herein as the "Closing Date."
1.3 Effective Time. On the Closing Date, the parties shall execute and
file articles of merger (the "Articles of Merger"), executed in accordance with
Maryland law, and shall make all other filings and recordings required under
Maryland law. The Merger shall become effective at the time ("Effective Time")
the Articles of Merger are accepted for record by the Maryland State Department
of Assessments and Taxation (the "Maryland Department"), or at such time as
Buyer and Seller shall agree should be specified in the Articles of Merger (not
to exceed 30 days after the Articles of Merger are filed with the Maryland
Department). Unless otherwise agreed, the parties shall cause the Effective Time
to occur on the Closing Date.
1.4 Effect of Merger on Charter and Bylaws. The Articles of
Incorporation, as amended and restated ("Charter"), as further amended by the
amendments discussed below, of Seller and the bylaws, as amended and restated,
of Seller, as in effect immediately prior to the Effective Time, shall
constitute the Charter and bylaws, respectively, of the Surviving Company, from
and after the Effective Time, until further amended in accordance with
applicable Maryland law.
1.5 Directors and Officers. The directors and officers of the Surviving
Company shall be the Persons who were the directors and officers, respectively,
of Buyer immediately prior to the Effective Time. Such directors and officers
shall continue to serve for the balance of their unexpired terms or their
earlier death, resignation or removal.
1.6 Effect on Shares. The effect of the Merger on the shares of Seller
shall be as provided in this Article 1. Each share of common stock of Buyer
outstanding immediately prior to the Merger shall be converted, without any
action on the part of the holder thereof, into one share of the common stock of
the Surviving Company.
1.7 Merger Consideration.
(a) At the Effective Time, by virtue of the Merger and without
any action on the part of Parent, Buyer, Seller or the holders of the following
securities:
(i) each Seller Common Share (as defined in Section 2.3(a))
issued and outstanding immediately prior to the Effective Time shall be
converted into the right to receive $10.35 in cash as adjusted pursuant to
Section 1.7(c) ("Common Merger Consideration"), without interest thereon, upon
surrender of the certificate formerly representing such Share; and
(ii) each Seller Preferred Share (as defined in Section
2.3(a)) issued and outstanding immediately prior to the Effective Time (other
than Seller Preferred Shares held by Parent, Buyer or any wholly-owned
Subsidiary of Parent or Buyer, which shares by virtue of the Merger and without
any action
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on the part of the holder thereof, shall be canceled and shall cease
to exist with no payment being made with respect thereto and Parent and Buyer
hereby consent to such treatment) shall be converted into the right to receive
the "Liquidation Preference" (as such term is defined in the Articles
Supplementary of the Seller Preferred Shares) (the "Preferred Merger
Consideration"), without interest thereon, upon surrender of the certificate
formerly representing such share.
The Preferred Merger Consideration, together with the Common Merger
Consideration, is hereinafter referred to as the "Merger Consideration."
(b) Each outstanding Seller Option (as defined in Section
2.3(b)) shall be subject to the terms of this Agreement. As of the Effective
Time, each outstanding Seller Option, whether or not then vested or exercisable,
shall have the expiration date thereof accelerated to the Closing Date, and
Seller shall use its reasonable best efforts to cause each such Seller Option to
be converted into the right to receive from the Surviving Company an amount of
cash equal to the product of (i) the number of Seller Common Shares subject to
the Seller Option and (ii) the excess, if any, of the Common Merger
Consideration over the exercise price per Seller Common Share of such option
(the "Option Consideration"). Each outstanding agreement for the issuance of
warrants ("Warrants") and the shares which would be issuable upon the exercise
of such warrants (such shares, "Warrant Shares") shall be subject to the terms
of this Agreement. Seller shall use its reasonable best efforts to cause each
Warrant to be converted into the right to receive from the Surviving Company an
amount of cash equal to the product of (i) the number of Warrant Shares and (ii)
the excess, if any, of the Common Merger Consideration over the exercise price
per Warrant Share of such Warrants (the "Warrant Consideration"). Prior to the
Effective Time, Seller shall take all steps necessary to give written notice to
each holder of a Seller Option and Warrant that all Seller Options and Warrants
shall expire effective as of the Effective Time and be converted into the right
to receive the Option Consideration or Warrant Consideration, as the case may
be. The Surviving Company shall cause the Paying Agent (as defined below) to pay
each holder of Seller Options and Warrants, promptly following the Effective
Time, the Option Consideration or Warrant Consideration, as the case may be, for
all Seller Options and of Warrant Shares held by such holder. The Seller Board
or any committee thereof responsible for the administration of Seller's stock
option plans or warrant plans shall take any and all action necessary to
effectuate the matters described in this Section 1.7(b) on or before the
Effective Time. Any amounts payable pursuant to this Section 1.7(b) shall be
subject to any required withholding of taxes and shall be paid without interest.
Parent agrees to provide the Surviving Company with sufficient funds to permit
the Surviving Company to satisfy its obligations under this Section 1.7(b).
(c) The Common Merger Consideration shall be decreased to the
extent and in the circumstances described in Section 5.3 (a)(ii)(y) and (z),
Section 5.3(c), Section 5.3(d), the last sentence of Section 5.8 or the last
sentence of Section 6.2(f). The Common Merger Consideration shall be increased
by an amount (the "Closing Adjustment Amount") equal to: 50% of (i) consolidated
cash, cash equivalents and marketable securities (valued equal to their market
value) of Seller and its Subsidiaries, determined by Ernst & Young, LLP in
accordance with GAAP, as of the close of business on the fifth business day
prior to Closing (the "Measurement Date") minus (ii) consolidated cash, cash
equivalents and marketable securities (valued equal to their market value) of
Seller and its Subsidiaries, determined by Ernst & Young LLP in accordance with
GAAP, as of June 30, 1999; minus (iii) the aggregate proceeds received by Seller
and its Subsidiaries during the period after June 30, 1999 and on or prior to
the Measurement Date of (x) any sales or other dispositions of assets of Seller
or any of its Subsidiaries, (y) any incurrence of indebtedness or other
non-equity financing by Seller or any of its Subsidiaries or (z) any issuances
of equity interests by Seller or
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any of its Subsidiaries, except in each case to the extent such proceeds were
utilized to pay down debt (other than scheduled amortization payments or
payments at scheduled maturity); plus (iv) expenses not exceeding $11,500,000
described in Section 6.2(f) and paid in cash by Seller after June 30, 1999 and
on or prior to the Measurement Date, plus (v) the amount by which accrued
property taxes of Seller as of the Measurement Date are less than the amount at
June 30, 1999; minus (vi) the amount by which accrued property taxes of Seller
as of the Measurement Date exceed the amount at June 30, 1999; plus (vii) any
amounts overdue from Lessee as of the Measurement Date; minus (viii) the amount
of insurance and condemnation proceeds received by Seller that have not been
applied (x) to purchase or repair the assets giving rise to such proceeds or (y)
to the repayment of debt (other than scheduled amortization payments or payments
at scheduled maturity); provided however that the Closing Adjustment Amount will
equal not less than $2,500,000. The determination of Ernst & Young LLP with
respect to the Closing Adjustment Amount pursuant to this Section 5.8(b) will be
binding on the parties except in the case of fraud or gross negligence by Ernst
& Young LLP.
1.8 Transactions Relating to Seller Partnership. Contemporaneously with
the execution of this Agreement, Buyer Operating Partnership and Seller
Partnership are entering into the Partnership Merger Agreement pursuant to which
and subject to the terms and conditions thereof, among other things, (i) on the
Closing Date and prior to the Effective Time Buyer Operating Partnership will be
merged with and into Seller Partnership (the "Partnership Merger") with Seller
Partnership surviving as the Surviving Operating Partnership and (ii) each
holder ("Seller Common Unit Holder") other than Seller of common units in the
Seller Partnership ("Seller Common OP Units") will be offered the option of
receiving either (A) an amount per Seller Common OP Unit equal to the Common
Merger Consideration or (B) one Class A Unit (as defined in the limited
liability company agreement of Parent, as amended) for each Seller Common OP
Unit held by such holder, or (C) one Class B Unit (as defined in the Limited
Liability Company Agreement of Parent, as amended) for each Seller Common OP
Unit held by such holder, provided that such holder must be an "accredited
investor" as defined in Rule 501 under the Securities Act (as defined below) and
not an "interested stockholder" of Seller or an "affiliate" of an interested
stockholder of Seller (both as defined in Section 3-601 of the MGCL) to elect
the option described in the clause (B) or (C). Each Seller Common OP Unit held
by Seller shall be converted into the right to receive an amount equal to the
Common Merger Consideration. Immediately prior to the Partnership Merger, Seller
Partnership shall redeem all of the Seller OP Preferred Units (as defined in
Section 2.3(e)) and certain of the Seller Common OP Units held by Seller in
exchange for certain assets held by the Seller Partnership in accordance with
the terms set forth on Exhibit A attached hereto.
1.9 Exchange of Certificates.
(a) Prior to the Effective Time, Buyer shall appoint a paying
agent reasonably acceptable to Seller to act as agent (the "Paying Agent") for
the payment of the Merger Consideration upon surrender of certificates formerly
representing issued and outstanding Seller Common Shares or Seller Preferred
Shares and cash payable in respect of Seller Common OP Units, Seller Options and
Warrants.
(b) Parent and Buyer shall provide to the Paying Agent on or
before the Effective Time, for the benefit of the holders of Seller Common
Shares, Seller Preferred Shares and Seller Common OP Units, cash payable in
exchange for the issued and outstanding Seller Common Shares and Seller
Preferred Shares and cash payable in respect of Seller Common OP Units.
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(c) Promptly after the Effective Time, the Surviving Company
shall cause the Paying Agent to mail to each holder of record of a certificate
or certificates which immediately prior to the Effective Time represented
outstanding Seller Common Shares or Seller Preferred Shares (the "Certificates")
(i) a letter of transmittal (which shall specify that delivery shall be
effected, and risk of loss and title to the Certificates shall pass, only upon
delivery of the Certificates to the Paying Agent and shall be in such form and
have such other provisions as Buyer may reasonably specify) and (ii)
instructions for use in effecting the surrender of the Certificates in exchange
for the Merger Consideration. Upon surrender of a Certificate for cancellation
to the Paying Agent, together with such letter of transmittal, duly executed and
completed in accordance with the instructions thereto, the holder of such
Certificate shall be entitled to receive in exchange therefor the applicable
Merger Consideration, and the Certificate so surrendered shall forthwith be
canceled. In the event of a transfer of ownership of Seller Common Shares or
Seller Preferred Shares which is not registered in the transfer records of
Seller, payment may be made to a Person (as defined in Section 2.2(a)) other
than the Person in whose name the Certificate so surrendered is registered if
such Certificate shall be properly endorsed or otherwise be in proper form for
transfer and the Person requesting such payment either shall pay any transfer or
other Taxes (as defined in Section 2.14(a)) required by reason of such payment
being made to a Person other than the registered holder of such Certificate or
establish to the satisfaction of the Surviving Company that such Tax or Taxes
have been paid or are not applicable. Until surrendered as contemplated by this
Section 1.9, each Certificate shall be deemed at any time after the Effective
Time to represent only the right to receive upon such surrender the Merger
Consideration, without interest. No interest will be paid or will accrue on the
Merger Consideration upon the surrender of any Certificate. Consideration
payable in respect of Seller Common OP Units will be paid as provided in the
Partnership Merger Agreement.
(d) All Merger Consideration paid upon the surrender of
Certificates in accordance with the terms of this Section 1.9 shall be deemed to
have been paid in full satisfaction of all rights pertaining to the Seller
Common Shares or Seller Preferred Shares formerly represented by such
Certificates; provided, however, that Seller shall transfer to the Paying Agent
cash sufficient to pay any dividends or make any other distributions with a
record date on or prior to the Effective Time which may have been declared or
made by Seller on such Seller Common Shares or Seller Preferred Shares,
including without limitation any dividends permitted by the second paragraph of
Section 5.8 hereof, in accordance with the terms of this Agreement or prior to
the date of this Agreement and which remain unpaid at the Effective Time and
have not been paid prior to such surrender, and there shall be no further
registration of transfers on the stock transfer books of Seller of the Seller
Common Shares or Seller Preferred Shares which were outstanding immediately
prior to the Effective Time. If, after the Effective Time, Certificates are
presented to the Surviving Company for any reason, they shall be canceled and
exchanged as provided in this Section 1.9.
(e) None of Parent, Seller, Buyer, the Surviving Company or
the Paying Agent shall be liable to any Person in respect of any Merger
Consideration delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law. Any portion of the Merger
Consideration delivered to the Paying Agent pursuant to this Agreement that
remains unclaimed for 12 months after the Effective Time shall be redelivered by
the Paying Agent to the Surviving Company, upon demand, and any holders of
Certificates who have not theretofore complied with Section 1.9(c) shall
thereafter look only to the Surviving Company for delivery of the Merger
Consideration and any unpaid dividends, subject to applicable escheat and other
similar Laws (as defined below).
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1.10 Further Assurances. If, at any time after the Effective Time, the
Surviving Company shall determine or be advised that any deeds, bills of sale,
assignments, assurances or any other actions or things are necessary or
desirable to vest, perfect or confirm of record or otherwise in the Surviving
Company the right, title or interest in, to or under any of the rights,
properties or assets of Seller acquired or to be acquired by the Surviving
Company as a result of, or in connection with, the Merger or otherwise to carry
out this Agreement, the Surviving Company shall be authorized to execute and
deliver, in the name and on behalf of each of Parent, Buyer and Seller, all such
deeds, bills of sale, assignments and assurances and to take and do, in the name
and on behalf of each of Parent, Buyer and Seller or otherwise, all such other
actions and things as may be necessary or desirable to vest, perfect or confirm
any and all right, title and interest in, to and under such rights, properties
or assets in the Surviving Company or otherwise to carry out this Agreement.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Parent and Buyer, except (i) as set
forth in Seller SEC Documents (as defined below) to the extent it is reasonably
clear from a reading of the disclosure in such Seller SEC Document that such
disclosure is applicable to the relevant representation and warranty contained
herein, (ii) with respect to events, facts, or circumstances or conditions known
to Alter as of the date of this Agreement or existing because of acts or
omissions by Alter since April 6, 1999, but solely with respect to the
representations and warranties set forth in Sections 2.4(b)(ii) and (iii),
2.6(f), and 2.8(e), (g) and (h) or (iii) the letter of even date herewith
delivered to Buyer prior to the execution hereof (the "Seller Disclosure
Letter") (it being understood that the Seller Disclosure Letter shall be
arranged in sections corresponding to the sections contained in this Article 2,
and the disclosures in any section of the Seller Disclosure Letter shall qualify
all of the representations in the corresponding section of this Article 2 and,
in addition, all other sections in this Article 2 to the extent it is reasonably
clear from a reading of the disclosure that such disclosure is applicable to
such other sections) as follows:
2.1 Organization, Standing and Power of Seller. Seller is a corporation
duly organized and validly existing under the Laws of Maryland. Seller has the
requisite corporate power and authority to carry on its business as now being
conducted. Seller is duly qualified or licensed to do business as a foreign
corporation and is in good standing in each jurisdiction in which the nature of
its business or the ownership or leasing of its properties makes such
qualification or licensing necessary, other than in such jurisdictions where the
failure to be so qualified or licensed, individually or in the aggregate, would
not have a Seller Material Adverse Effect. Seller has delivered to Buyer
complete and correct copies of Seller's Charter and bylaws, in each case, as
amended to the date of this Agreement. As used in this Agreement, "Seller
Material Adverse Effect" shall mean a material adverse effect on the business,
properties, assets, financial condition, or results of operations of Seller and
its Subsidiaries, taken as a whole, including the prevention of the ability of
Seller or Seller Partnership to consummate timely any of the Transactions (as
defined below); provided that adverse effects on the business, properties,
assets, financial condition or results of operation of Seller or its
Subsidiaries resulting from (A) the fact that Seller and Seller Partnership have
entered into this Agreement or Seller's and Seller Partnership's compliance with
the terms of this Agreement, including consummating the Merger or the
Partnership Merger, (B) general economic or market conditions or (C) the real
estate or hotel and lodging industry generally, shall not individually or in the
aggregate constitute a Seller Material Adverse Effect.
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2.2 Seller Subsidiaries/Investments.
(a) Section 2.2(a) of the Seller Disclosure Letter sets forth
as of the date hereof (i) each Subsidiary (as defined below) of Seller (the
"Seller Subsidiaries"), (ii) the ownership interest therein of Seller, (iii) if
not wholly-owned by Seller, the identity and ownership interest of each of the
other owners of such Seller Subsidiary (it being understood that such
representation with respect to securities held by any entity other than Seller
or a Seller Subsidiary is made only to the Knowledge of Seller (as defined
below)) and (iv) each real property owned or leased by such Subsidiary, and
identifies whether such property is owned or leased and if leased, the name of
the lessor. As used in this Agreement, "Subsidiary" of any Person (as defined
below) means any corporation, partnership, limited liability company, joint
venture, trust or other legal entity of which such Person (either directly or
through or together with another Subsidiary of such Person) owns 50% or more of
the capital stock or other equity interests of such corporation, partnership,
limited liability company, joint venture or other legal entity, including,
without limitation, the Seller Partnership, but does not include short-term
money market investments and other participation interests in short-term
investments. As used herein, "Person" means an individual, corporation,
partnership, limited liability company, joint venture, association, trust,
unincorporated organization or other entity.
(b) (i) All the outstanding shares of capital stock owned by
Seller or a Seller Subsidiary of each Seller Subsidiary that is a corporation
have been validly issued and are (A) fully paid, nonassessable and free of any
preemptive rights, (B) owned by Seller or by another Seller Subsidiary and (C)
owned free and clear of all pledges, claims, liens, charges, encumbrances and
security interests of any kind or nature whatsoever (collectively, "Liens") or
any other limitation or restriction (including any contractual restriction on
the right to vote or sell the same) other than restrictions under applicable
securities laws; and (ii) all equity interests in each Seller Subsidiary that is
a partnership, joint venture, limited liability company or trust which are owned
by Seller, by another Seller Subsidiary or by Seller and another Seller
Subsidiary are owned free and clear of all Liens or any other limitation or
restriction (including any contractual restriction on the right to vote or sell
the same) other than restrictions under applicable securities laws. Each Seller
Subsidiary that is a corporation is duly incorporated and validly existing under
the Laws of its jurisdiction of incorporation and has the requisite corporate
power and authority to carry on its business as now being conducted, and each
Seller Subsidiary that is a partnership, limited liability company or trust is
duly organized and validly existing under the Laws of its jurisdiction of
organization and has the requisite power and authority to carry on its business
as now being conducted. Each Seller Subsidiary is duly qualified or licensed to
do business and is in good standing in each jurisdiction in which the nature of
its business or the ownership or leasing of its properties makes such
qualification or licensing necessary, other than in such jurisdictions where the
failure to be so qualified or licensed, individually or in the aggregate, would
not have a Seller Material Adverse Effect. True and correct copies of the
certificate or articles of incorporation, By-laws, organization documents and
partnership, joint venture and operating agreements of each Seller Subsidiary,
and all amendments to the date of this Agreement, have been made available or
previously delivered to Buyer.
(c) Neither Seller nor any Seller Subsidiary owns, directly or
indirectly, any interest or investment (whether equity or debt) in any
corporation, partnership, joint venture, business, trust or entity (other than
investments in the Seller Subsidiaries and short-term investment securities).
2.3 Capital Structure.
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(a) The authorized shares of capital stock of Seller consist
of 150,000,000 shares of common stock, $0.01 par value per share, of which
37,929,477 shares are issued and outstanding as of June 30, 1999 (the "Seller
Common Shares"), and 10,000,000 shares of preferred stock, $0.01 par value per
share, of which 250,000 are issued and outstanding as of the date hereof and are
designated as Class A Cumulative Convertible Preferred Stock (the "Seller
Preferred Shares"). Since June 30, 1999, no Seller Common Shares have been
issued. As of the date hereof, (i) 2,400,000 Seller Common Shares have been
reserved for issuance under the 1994 Stock Incentive Plan of Seller (the "Seller
1994 Incentive Plan"), under which options in respect of 1,690,640 Seller Common
Shares have been granted and are outstanding as of the date hereof, (ii) 150,900
Seller Common Shares have been reserved for issuance under the 1994 Directors
Plan of Seller (the "Seller Director Plan"), under which options in respect of
30,000 Seller Common Shares have been granted and are outstanding on the date
hereof, (iii) 15,900 Seller Common Shares have been reserved for issuance under
the 1997 Supplemental Stock Option Plan of Seller (the "Seller 1997 Supplemental
Plan"), under which options in respect of 9,300 Seller Common Shares have been
granted and are outstanding on the date hereof, (iv) 2,072,250 Seller Common
Shares are reserved for issuance upon conversion of Seller Common OP Units, (v)
1,699,605 Seller Common Shares are reserved for issuance upon conversion of the
Seller Preferred Shares, and (vi) 464,042 Seller Common Shares are reserved for
issuance upon exercise of warrants of Seller of which warrants for the purchase
of 17,042 Seller Common Shares have been issued and are outstanding.
(b) Set forth in Section 2.3(b) of the Seller Disclosure
Letter is a true and complete list of the following: (i) each qualified or
nonqualified option to purchase Seller Common Shares granted under the Seller
1994 Incentive Plan, Seller Director Plan and Seller 1997 Supplemental Plan
(collectively, the "Seller Plans") or any other formal or informal arrangement
("Seller Options"); (ii) each grant of Seller Common Shares to employees which
are subject to any risk of forfeiture; (iii) all agreements for the issuance of
warrants or to purchase Seller Common Shares and the number of shares which
would be issuable upon the exercise of such warrants or agreements, and (iv) all
other rights to acquire stock, all limited stock appreciation rights, phantom
stock, dividend equivalents, performance units and performance shares granted
under the Seller Plans which are outstanding as of the date hereof. On the date
of this Agreement, except as set forth in this Section 2.3, no shares of capital
stock of Seller were outstanding or reserved for issuance.
(c) All outstanding shares of capital stock of Seller are duly
authorized, validly issued, fully paid and nonassessable, and not subject to
preemptive rights. There are no bonds, debentures, notes or other indebtedness
of Seller having the right under applicable law or Seller's Charter or bylaws to
vote (or convertible into, or exchangeable for, securities having the right to
vote) on any matters on which stockholders of Seller may vote.
(d) There are no outstanding securities, options, warrants,
calls, rights, commitments, agreements, arrangements or undertakings of any kind
to which Seller or any Seller Subsidiary is a party or by which any such entity
is bound, obligating Seller or any Seller Subsidiary to issue, deliver or sell,
or cause to be issued, delivered or sold, additional shares of capital stock,
voting securities or other ownership interests of Seller or any Seller
Subsidiary or obligating Seller or any Seller Subsidiary to issue, grant, extend
or enter into any such security, option, warrant, call, right, commitment,
agreement, arrangement or undertaking (other than to Seller or a Seller
Subsidiary). There are no outstanding obligations of Seller or any Seller
Subsidiary to repurchase, redeem or otherwise acquire any shares of stock of
Seller or shares of stock or other ownership interests of any Seller Subsidiary.
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(e) As of the date hereof, 40,001,727 Seller Common OP Units
are validly issued and outstanding, fully paid and nonassessable, except to the
extent provided by applicable law, of which 37,929,477 are owned by Seller. As
of the date hereof, 250,000 preferred units of the Seller Partnership are
designated 7.9% Class A Cumulative Convertible Preferred Partnership Units (the
"Seller OP Preferred Units" (and each holder thereof, a "Seller OP Preferred
Unit Holder"), and together with the Seller OP Common Units, the "Seller OP
Units") and are validly issued and outstanding, fully paid and nonassessable,
all of which are owned by Seller. Section 2.3(e) of the Seller Disclosure Letter
sets forth the name of each Seller OP Common Unit Holder and the number of
Seller OP Units owned by each such Seller Unit Holder as of the date of this
Agreement. The Seller OP Units are not subject to any restriction established by
Seller or under applicable law (other than restrictions on sale imposed by
applicable securities laws) except as set forth in the Second Amended and
Restated Agreement of Limited Partnership of the Seller Partnership (the "Seller
Partnership Agreement") and Seller Contribution Agreements (as defined below).
Seller Partnership has not issued or granted and is not a party to any
outstanding commitments of any kind relating to, or any presently effective
agreements or understandings with respect to, issuing interests in Seller
Partnership or securities convertible into interests in Seller Partnership.
(f) All dividends on Seller Common Shares and distributions on
Seller OP Units which have been declared prior to the date of this Agreement
have been paid in full.
2.4 Authority; Noncontravention; Consents.
(a) Seller has the requisite corporate power and corporate
authority to enter into this Agreement and, subject to the approval (i) of the
amendments to Seller's Charter as set forth on Exhibit D hereto ("Charter
Amendments") and the recommendation by Seller Board that Seller should terminate
its status as a real estate investment trust, in each case, by the affirmative
vote of two-thirds of all votes entitled to be cast by the holders of the issued
and outstanding Seller Common Shares and Seller Preferred Shares (voting on an
"as converted" basis), voting as a single class, and (ii) of this Agreement and
the Merger by the affirmative vote of a majority of all votes entitled to be
cast by the holders of the issued and outstanding Seller Common Shares and
Seller Preferred Shares (voting on an "as converted" basis), voting as a single
class ((i) and (ii) collectively, the "Seller Stockholder Approvals"), and
ratification and approval of the matters described in (i) and (ii) by Seller
Board following stockholder approval ("Seller Board Approval") and the Seller
Partner Approval to consummate the transactions contemplated by this Agreement
to which Seller is a party. The execution and delivery of this Agreement by
Seller and the consummation by Seller of the transactions contemplated by this
Agreement to which Seller is a party have been duly authorized by all necessary
corporate action on the part of Seller, except for and subject to the Seller
Stockholder Approvals, Seller Partner Approval and Seller Board Approval. This
Agreement has been duly executed and delivered by Seller and constitutes a valid
and binding obligation of Seller, enforceable against Seller in accordance with
and subject to its terms, subject to applicable bankruptcy, insolvency,
moratorium or other similar Laws relating to creditors' rights and general
principles of equity. The Seller Board, based upon the recommendation of the
Special Committee, has duly and validly approved, and taken all corporate action
required to be taken by it for the consummation of the Transactions (other than
the Seller Board Approval), including, assuming the accuracy of the
representations and warranties of Parent and Buyer in Section 3.12, all actions
required to render inapplicable to the Merger and this Agreement (and the
transactions provided for herein) the restrictions on "business combinations"
(as defined in Subtitle 6 of Title 3 of the MGCL) between Seller (or any
affiliate thereof) and Buyer (or any affiliate thereof) set forth in Subtitle 6
of Title
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3 of the MGCL and the limitations on voting rights of shares of stock acquired
in a "control share acquisition" (as defined in Subtitle 7 of Title 3 of the
MGCL) set forth in Subtitle 7 of Title 3 of the MGCL.
(b) The execution and delivery of this Agreement by Seller do
not, and the consummation of the transactions contemplated by this Agreement to
which Seller is a party and compliance by Seller with the provisions of this
Agreement will not, require any consent, approval or notice under, or conflict
with, or result in any violation of, or default (with or without notice or lapse
of time, or both) under, or give rise to a right of termination, cancellation or
acceleration of any obligation or to loss of a benefit under, or result in the
creation of any Lien upon any of the properties or assets of Seller or any
Seller Subsidiary under, (i) the Charter or the bylaws of Seller, or subject to
the Seller Partner Approval, the comparable articles or certificate of
incorporation or organizational documents or partnership or similar agreement
(as the case may be) of any Seller Subsidiary, each as amended or supplemented
to the date hereof, (ii) any material loan or credit agreement, note, bond,
mortgage or indenture to which Seller or any Seller Subsidiary is a party, (iii)
any reciprocal easement agreement, lease, joint venture agreement, development
agreement, benefit plan or other agreement, instrument, permit, concession,
franchise or license applicable to Seller or any Seller Subsidiary or (iv)
subject to the governmental filings and other matters referred to in the
following sentence, any judgment, order, decree, statute, law, ordinance, rule
or regulation (collectively, "Laws") applicable to Seller or any Seller
Subsidiary, provided no representation or warranty is made in this sentence as
to any agreement with Lessee, Manager or any of their affiliates, and in the
case of clause (iii) or (iv), any such conflicts, violations, defaults, rights,
loss or Liens that individually or in the aggregate would not reasonably be
expected to (x) have a Seller Material Adverse Effect or (y) prevent or delay
beyond December 31, 1999 (the "Outside Date") the consummation of the
transactions contemplated by this Agreement. No consent, approval, order or
authorization of, or registration, declaration or filing with, any federal,
state or local government or any court, administrative or regulatory agency or
commission or other governmental authority or agency, domestic or foreign (a
"Governmental Entity"), is required by or with respect to Seller or any Seller
Subsidiary in connection with the execution and delivery of this Agreement by
Seller or the consummation by Seller of the transactions contemplated by this
Agreement, except for (i) the filing with the Securities and Exchange Commission
(the "SEC") and the New York Stock Exchange of the Proxy Statement (as defined
in Section 5.1(a)) and any filings required by the Exchange Act (including
Schedule 13E-3), (ii) the filing of the Articles of Merger with the Maryland
Department, (iii) the filing of a certificate of merger with the Secretary of
State of the State of Delaware with respect to the Partnership Merger, (iv) any
filings required under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended (the "HSR Act"), (v) the filing of a Form D with the SEC with respect
to the transaction contemplated by the Partnership Merger Agreement and (vi)
such other consents, approvals, orders, authorizations, registrations,
declarations and filings (A) as are set forth in Section 2.4 of the Seller
Disclosure Letter, (B) as may be required under (y) federal, state or local
environmental Laws or (z) the "blue sky" laws of various states, to the extent
applicable or (C) which, if not obtained or made, would not prevent or delay
beyond the Outside Date the consummation of any of the transactions contemplated
by this Agreement or otherwise prevent or delay beyond the Outside Date Seller
from performing its obligations under this Agreement in any material respect or
have, individually or in the aggregate, a Seller Material Adverse Effect.
2.5 SEC Documents; Financial Statements; Undisclosed Liabilities.
(a) Seller has filed all Seller SEC Documents (as defined
below) on a timely basis. Section 2.5(a) of the Seller Disclosure Letter
contains a complete list of all Seller SEC Documents filed by
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Seller or Seller Partnership with the SEC since January 1, 1999 and on or prior
to the date of this Agreement. All of the Seller SEC Documents (other than
preliminary material and, if amended or superseded by a filing prior to the date
of this Agreement or of the Closing Date, then on the date of such filing), as
of their respective filing dates, did or, if not yet filed, will (i) comply as
to form in all material respects with all applicable requirements of the
Securities Act of 1933, as amended (the "Securities Act"), and the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in each case, the
rules and regulations promulgated thereunder applicable to such Seller SEC
Documents and (ii) not contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which they
were made, not misleading. The consolidated financial statements of Seller
included in the Seller SEC Documents did (or, if not yet filed, upon filing
will) comply as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto, have been (or, if not yet filed, upon filing will be) prepared in
accordance with generally accepted accounting principles ("GAAP") (except, in
the case of unaudited statements, as permitted by the applicable rules and
regulations of the SEC) applied on a consistent basis during the periods
involved (except as may be indicated in the notes thereto) and fairly presented
(or, if not yet filed, upon filing will fairly present) in all material
respects, in accordance with the applicable requirements of GAAP and the
applicable rules and regulations of the SEC, the consolidated financial position
of Seller and its Subsidiaries, as of the dates thereof and the consolidated
results of operations and cash flows for the periods then ended (subject, in the
case of unaudited statements, to normal year-end audit adjustments). Seller has
no Subsidiaries which are not consolidated for accounting purposes.
(b) Except (i) for liabilities or obligations incurred in the
ordinary course of business, (ii) for liabilities or obligations incurred in
connection with the transactions contemplated by this Agreement, or (iii) as
disclosed in the Seller SEC Documents filed after July 1, 1996 or in the Seller
Disclosure Letter, Seller and its Subsidiaries have no liabilities or
obligations (whether absolute, accrued, contingent or otherwise) which would
have a Seller Material Adverse Effect other than those resulting from any
lawsuits or other claims filed with respect to the Merger and the other
transactions completed hereby. As used herein, "Seller SEC Documents" shall mean
all reports, schedules, forms, statements and other documents required to be
filed by the Seller with the SEC since July 1, 1996; provided that with respect
to all representations and warranties of Seller contained in this Article 2
(except those contained in Section 2.5(a)), references to Seller SEC Documents
shall refer only to those filings made prior to the date hereof.
2.6 Absence of Certain Changes or Events. Except as disclosed in
the Seller SEC Documents, since the date of the most recent audited financial
statements included in the Seller SEC Documents (the "Seller Financial Statement
Date") through the date of this Agreement, Seller and its Subsidiaries have
conducted their business only in the ordinary course (taking into account prior
practices, including the acquisition and disposition of properties and issuance
of securities) and, except as disclosed in the Seller SEC Documents or the
Seller Disclosure Letter, there has not been (a) any Seller Material Adverse
Change (as defined below), (b) except for regular quarterly distributions not in
excess of $0.285 per Seller Common Share or Seller Common OP Unit and dividends
on the Seller Preferred Shares in accordance with the terms of Seller's Articles
Supplementary of Incorporation, respectively (or as necessary to maintain REIT
status) and Seller Preferred OP Units, in each case subject to rounding
adjustments as necessary and with customary record and payment dates, and any
authorization, declaration, setting aside or payment of any dividend or other
distribution (whether in cash, stock or property) with respect to the Seller
Common Shares, the Seller OP Units or the Seller Preferred Shares, (c) any
split, combination or reclassification of the Seller Common Shares, the Seller
OP Units or the Seller Preferred Shares or any issuance or the authorization of
any issuance
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of any other securities in respect of, in lieu of or in substitution for, or
giving the right to acquire by exchange or exercise, shares of stock of Seller
or partnership interests in Seller partnerships or any issuance of an ownership
interest in, any Seller Subsidiary, (d) any damage, destruction or loss, whether
or not covered by insurance, that has or would reasonably be likely to have a
Seller Material Adverse Effect, (e) any change in financial or tax accounting
methods, principles or practices by Seller or any Seller Subsidiary materially
affecting its assets, liabilities or business, except insofar as may have been
required by a change in GAAP, (f) (x) any granting by Seller or any of its
Subsidiaries to any officer or other key employee of Seller or any of its
Subsidiaries of any increase in compensation, except for normal increases in the
ordinary course of business consistent with past practice or as required under
employment agreements in effect as of the date hereof, (y) any granting by
Seller or any of its Subsidiaries to any such officer or key employee of any
increase in severance or termination pay, except as was required under any
employment, severance or termination agreements in effect as of December 31,
1998 or (z) any entry by Seller or any of its Subsidiaries into any employment,
severance or termination agreement with any such officer or key employee except
in the ordinary course of business consistent with past practice, (g) any
acquisition or disposition of any real property, or any commitment to do so,
made by Seller or any of its Subsidiaries or (h) any making or revocation of any
material tax election. As used in this Agreement, "Seller Material Adverse
Change" shall mean (i) any material adverse change in the business, properties,
assets, financial condition or results of operations of Seller and its
Subsidiaries, taken as a whole, or (ii) any other change that would prevent or
delay beyond the Outside Date the ability of Seller or the Seller Partnership
from consummating any of the Transactions; provided that in no event shall any
change, circumstance or effect relating to or arising out of (A) the fact that
Seller and Seller Partnership have entered into this Agreement or Seller's and
Seller Partnership's compliance with the terms of this Agreement including,
consummating the Merger or the Partnership Merger, (B) general economic or
market conditions, or (C) the real estate or hotel and lodging industry
generally, individually or in the aggregate, constitute a Seller Material
Adverse Change.
2.7 Litigation. Except as disclosed in the Seller SEC Documents,
and other than personal injury and other routine tort litigation arising from
the ordinary course of operations of Seller and its Subsidiaries which are
covered by adequate insurance, as of the date hereof, there are no suits,
actions or proceedings pending (in which service of process has been received by
Seller or a Seller Subsidiary) or, to the Knowledge of Seller, threatened in
writing against or affecting Seller or any Seller Subsidiary that, individually
or in the aggregate, would reasonably be expected to (i) have a Seller Material
Adverse Effect or (ii) prevent or delay beyond the Outside Date the consummation
of the material transactions contemplated by this Agreement, nor, as of the date
of this Agreement, is there any judgment, decree, injunction, rule or order of
any Governmental Entity or arbitrator outstanding against Seller or any Seller
Subsidiaries having, or which insofar as can reasonably be foreseen, in future
will have, any such effect. No claim is pending or has been made within the
two-year period ending on the date of this Agreement under any director's or
officer's liability insurance policy maintained at any time by Seller or any of
its Subsidiaries.
2.8 Properties.
(a) Each Seller Subsidiary set forth in Section 2.2(a) of the Seller
Disclosure Letter owns marketable fee simple or leasehold title to the real
properties identified opposite it in Section 2.2(a) of the Seller Disclosure
Letter (collectively with all buildings, structures and other improvements
thereon, the "Seller Properties" and each, collectively with all buildings,
structures and other improvements thereon, a "Seller Property"), which are all
of the real properties owned or leased by Seller and the Seller Subsidiaries as
of the date hereof. Except as set forth in the existing title reports identified
in clause (iii) below or in
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Section 2.2(a) of the Seller Disclosure Letter and except for any easements
granted in the ordinary course of business since the date of such title reports
which do not have a material adverse effect on the operation of any of the
Seller Properties, no other Person has any real property ownership interest in
any of the Seller Properties. The Seller Properties are not subject to any
rights of way, written agreements, Laws, ordinances and regulations affecting
building use or occupancy, or reservations of an interest in title
(collectively, "Property Restrictions") or Liens (including Liens for Taxes),
mortgages or deeds of trust, claims against title, charges which are Liens,
security interests or other encumbrances on title (the "Encumbrances"), except
for (i) Property Restrictions and Encumbrances set forth in Section 2.8(a)(i) of
the Seller Disclosure Letter, (ii) Property Restrictions imposed or promulgated
by law or any governmental body or authority with respect to real property,
including zoning regulations, which, individually or in the aggregate, would not
have a Seller Material Adverse Effect, (iii) Property Restrictions and
Encumbrances disclosed on existing title reports or existing surveys (in either
case copies of which title reports and surveys have been made available to
Buyer's representatives at the data room established by Seller and examined by
representatives of Buyer (the "Data Room")), and referenced on Seller's Data
Room index dated June 15, 1999 or provided to Parent or Buyer prior to the date
hereof, and (iv) mechanics', carriers', workmen's, repairmen's Liens and other
Encumbrances and Property Restrictions, if any, which, individually or in the
aggregate, would not have a Seller Material Adverse Effect.
(b) Seller has obtained title insurance insuring Seller's or the
applicable Seller Subsidiary's fee simple title to each of the Seller Properties
owned by it and leasehold title to each of the Seller Properties leased by it,
in each case, subject only to the matters disclosed in such policies, in clause
(a) above and in Section 2.8(b) of the Seller Disclosure Letter. Seller has not
received any written notice that any such policy is not in full force and
effect. No claim has been made against any such policy in excess of $50,000.
(c) Section 2.8(c) of the Seller Disclosure Letter sets forth Seller's
and each Seller Subsidiary's capital expenditure budget and schedule for each
Seller Property, which describes the capital expenditures which the Seller or
any Subsidiary has budgeted for such Seller Property for the period running
through December 31, 1999 (the "CapEx Budget"). Section 2.8(c) of the Seller
Disclosure Letter, sets forth a complete list of each Seller Property that is
currently under development or subject to any agreement with respect to
development; provided, however, that "development" shall not include capital
improvements made in the ordinary course of business to existing Seller
Properties and repairs made to existing Seller Properties.
(d) The ground leases underlying the leased Seller Properties
referenced in Section 2.2(a) of the Seller Disclosure Letter (collectively, the
"Seller Ground Leases") are listed, by property, in Section 2.8(d) of the Seller
Disclosure Letter. Each of the Seller Ground Leases is valid, binding and in
full force and effect as against Seller or its Subsidiaries and, to Seller's
Knowledge, as against the other party thereto, except to the extent the failure
to be binding and in full force and effect would not reasonably be expected to
have a Seller Material Adverse Effect. Seller has not received written notice
under any of the Seller Ground Leases of any default, and, to Seller's
Knowledge, no event has occurred which, with notice or lapse of time or both,
would constitute such a default by Seller, except as would not, individually or
in the aggregate, be reasonably expected to result in a Seller Material Adverse
Effect.
(e) Section 2.8(e) to the Seller Disclosure Letter sets forth a list of
the hotel franchise agreements (the "Seller Franchise Agreements") pursuant to
which each of the Seller Properties is being operated by Lessee and Manager.
Each of the Seller Franchise Agreements is in full force and effect with respect
to Seller or the applicable Seller Subsidiary and there are no defaults
thereunder by Seller or a Seller
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Subsidiary and, to the Knowledge of Seller, or by any other party thereto. To
the Knowledge of Seller, no events have occurred which with the giving notice or
the passage time or both would constitute a default or event of default
thereunder, except for those which either singly or in the aggregate would not
constitute a Seller Material Adverse Effect.
(f) Neither Seller nor any Seller Subsidiary has received written
notice of any violation of any federal, state or municipal law, ordinance,
order, regulation or requirement issued by any governmental authority which,
individually or in the aggregate, would have a Seller Material Adverse Effect.
There has been no physical damage to any Seller Properties which, individually
or in the aggregate, would have a Seller Material Adverse Effect for which there
is no insurance in effect covering the cost of the restoration (less applicable
deductibles).
(g) Neither Seller nor any of the Seller Subsidiaries has received any
written notice with respect to any Seller Property to the effect that any
condemnation or rezoning proceedings are pending or threatened which,
individually or in the aggregate, would have a Seller Material Adverse Effect.
(h) To the Knowledge of Seller, no Governmental Entity having
jurisdiction over any Seller Property under development has denied or rejected
any applications by Seller for a certificate, permit or license with respect to
such Seller Property, which denial or rejection, individually or in the
aggregate, would have a Seller Material Adverse Effect.
(i) There are no structural defects in any of the Seller Properties
that would, individually or in the aggregate, have a Seller Material Adverse
Effect.
(j) Seller or Seller Partnership has marketable title to all material
furniture, fixtures equipment, operating supplies and other personal property
necessary for the operation of the Seller Properties, subject to no Liens which,
individually or in the aggregate, would have a Seller Material Adverse Effect.
2.9 Environmental Matters.
(a) Except as disclosed in the Seller SEC Documents and Seller's
Environmental Reports (as defined below) previously made available to Buyer,
none of Seller, any of the Seller Subsidiaries or any other Person has caused or
permitted (i) the presence of any hazardous substances, hazardous materials,
toxic substances or waste materials, pollutants, contaminants, and materials
regulated or defined or designated as hazardous, extremely or imminently
hazardous, dangerous, or toxic pursuant to any local, county, state, territorial
or federal governmental authority or with respect to which such a governmental
authority otherwise requires environmental investigation, monitoring, reporting
or remediation (collectively, "Hazardous Materials") on any of the Seller
Properties except to the extent such presence would, individually or in the
aggregate, not have a Seller Material Adverse Effect or (ii) any spills,
releases, discharges or disposal of Hazardous Materials to have occurred or be
presently occurring on or from the Seller Properties as a result of any
construction on or operation and use of the Seller Properties, which presence or
occurrence would, individually or in the aggregate, have a Seller Material
Adverse Effect; and in connection with the construction on or operation and use
of the Seller Properties, Seller and the Seller Subsidiaries have complied with
all applicable local, state and federal Environmental Laws, including all
regulations, ordinances and administrative and judicial orders relating to the
generation, recycling, reuse, sale, storage, handling,
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transport and disposal of any Hazardous Materials, except to the extent such
failure to comply, individually or in the aggregate, would not have a Seller
Material Adverse Effect. With respect to each Seller Property, since the date of
the most recent Seller's Environmental Report relating to such Seller Property,
except where the failure of any of the following to be true individually or in
the aggregate would not have a Seller Material Adverse Effect, (i) the assets,
properties, businesses and operations of Seller and its Subsidiaries are and
have been in compliance with applicable Environmental Laws, (ii) Seller and its
Subsidiaries have obtained, currently maintain and, as currently operating, are
in compliance with all Seller Permits necessary under any Environmental Law for
the conduct of the business and operations of Seller and its Subsidiaries in the
manner now conducted, and there are no actions or proceedings pending or
threatened to revoke or materially modify such Seller Permits, (iii) no
Hazardous Materials have been used, stored, manufactured, treated, processed or
transported to or from any such Seller Property except as necessary to the
customary conduct of business and in compliance with law and in a manner that
does not result in liability under applicable Environmental Laws; (iv) there
have been no spills, releases, discharges or disposals of Hazardous Materials on
or from such Seller Property of any type or quantity as would require reporting
to a Governmental Entity under the Environmental Laws; and (v) Seller and Seller
Subsidiaries have not received any written notice of potential responsibility,
letter of inquiry or written notice of alleged liability from any Person
regarding such Seller Property or the business conducted thereon. For the
purposes of this Section 2.9 only, "Seller Properties" shall be deemed to
include all property formerly owned, operated or leased by Seller or Seller
Subsidiaries; solely, however, as to the period of time when such property was
so owned, operated or leased by Seller or the Seller Subsidiaries. Seller has
previously made available to Buyer complete copies of all final versions of
environmental investigations and testing or analysis (other than those which
have been superseded by more recent investigations, testing or analyses) that
are in the possession, custody or control of any of Seller or any of the Seller
Subsidiaries with respect to the environmental condition of the Seller
Properties, all of which are listed in Section 2.9 of the Seller Disclosure
Letter ("Seller's Environmental Reports").
(b) Except as set forth in Seller's Environmental Reports, (i) there
are no friable asbestos-containing materials, lead-based paints, or radon at, in
or part of any facility owned, operated or leased by Seller or any of its
Subsidiaries, and (ii) there are no underground storage tanks owned, operated or
controlled by Seller or its Subsidiaries on any real property owned, operated or
leased by Seller, the presence of which, in the case of items described in
clauses (i) and (ii) individually or in the aggregate, would be reasonably
expected to result in Seller incurring Environmental Liabilities and Costs
aggregating $30 million or more.
(c) For purposes of this Agreement, the terms below shall have the
following meanings:
"Environmental Law" means any law (including, without limitation,
common law), regulation, ordinance, guideline, code, decree, judgment, order,
permit or authorization or other legally enforceable requirement of any
Governmental Entity relating to or imposing liability with respect to worker or
public safety or the indoor or outdoor environment or natural resources,
including, without limitation, pollution, contamination, Hazardous Materials,
cleanup, regulation and protection of the air, natural resources, water or soils
in the indoor or outdoor environment; and
"Environmental Liabilities and Costs" means all losses, liabilities,
damages, fines, penalties, obligations, costs or expenses (including, without
limitation, fees, disbursements, expenses of legal
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counsel, experts and engineers and the costs of investigation and cleanup
studies and to remove, treat or clean up Hazardous Materials) incurred, assessed
or levied pursuant to any Environmental Law.
2.10 Related Party Transactions. Set forth in Section 2.10 of the Seller
Disclosure Letter is a list of all written arrangements, agreements and
contracts entered into by Seller or any of the Seller Subsidiaries with any
Person who is an officer, director or Affiliate (as defined below) of Seller, or
any entity of which any of the foregoing is an Affiliate, except those of a type
available to Seller employees generally or are with Parent or an Affiliate of
Parent. Such documents, copies of all of which have previously been delivered or
made available to Buyer, are listed in Section 2.10 of the Seller Disclosure
Letter. As used in this Agreement, the term "Affiliate" shall have the same
meaning as such term is defined in Rule 405 promulgated under the Securities
Act.
2.11 Employee Benefits. As used herein, the term "Employee Plan"
includes any pension, retirement, savings, disability, medical, dental, health,
life, death benefit, group insurance, profit sharing, deferred compensation,
stock option, bonus, incentive, vacation pay, tuition reimbursement, severance
pay, or other material employee benefit plan, trust, employment agreement,
contract, agreement, policy or commitment (including, without limitation, any
pension plan, as defined in Section 3(2) of the Employee Retirement Income
Security Act of 1974, as amended and the rules and regulations promulgated
thereunder ("ERISA") ("Pension Plan"), and any welfare plan as defined in
Section 3(1) of ERISA ("Welfare Plan")), whether any of the foregoing is funded,
insured or self-funded, written or oral, (i) sponsored or maintained by Seller
or its Subsidiaries (each a "Controlled Group Member") and covering any
Controlled Group Member's active or former employees (or their beneficiaries),
(ii) to which any Controlled Group Member is a party or by which any Controlled
Group Member (or any of the rights, properties or assets thereof) is bound or
(iii) with respect to which any current Controlled Group Member may otherwise
have any material liability (whether or not such Controlled Group Member still
maintains such Employee Plan). Each Employee Plan is listed in Section 2.11 of
the Seller Disclosure Letter. With respect to the Employee Plans:
(a) No Controlled Group Member has any continuing liability under any
Welfare Plan which provides for continuing benefits or coverage for any
participant or any beneficiary of a participant after such participant's
termination of employment, except as may be required by Section 4980B of the
Internal Revenue Code of 1986, as amended (the "Code"), or Section 601 (et seq.)
of ERISA, or under any applicable state law, and at the expense of the
participant or the beneficiary of the participant.
(b) Each Employee Plan complies in all material respects with the
applicable requirements of ERISA and any other applicable law governing such
Employee Plan, and each Employee Plan has at all times been properly
administered in all material respects in accordance with all such requirements
of law, and in accordance with its terms and the terms of any applicable
collective bargaining agreement to the extent consistent with all such
requirements of law. Each Pension Plan which is intended to be qualified is
qualified under Section 401(a) of the Code, has received a favorable
determination letter from the IRS stating that such Plan meets the requirements
of Section 401(a) of the Code and that the trust associated with such Plan is
tax exempt under Section 501(a) of the Code and to the Knowledge of Seller no
event has occurred which would jeopardize the qualified status of any such plan
or the tax exempt status of any such trust under Sections 401(a) and Section
501(a) of the Code, respectively, except in circumstances in which, individually
or in the aggregate, the failure to so qualify or be tax exempt would not have a
Seller Material Adverse Effect. No lawsuits, claims (other than routine claims
for benefits) or complaints to, or by, any Person or Governmental Entity have
been filed or are pending which, individually or in the
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aggregate, would have a Seller Material Adverse Effect and, to the Knowledge of
Seller, there is no fact or contemplated event which would be expected to give
rise to any such lawsuit, claim (other than routine claims for benefits) or
complaint with respect to any Employee Plan that would have a Seller Material
Adverse Effect. Without limiting the foregoing, except in the case of the
following clauses (i) through (iv) which have not and would not individually or
in the aggregate have a Seller Material Adverse Effect, the following are true
with respect to each Employee Plan:
(i) all Controlled Group Members have filed or caused to be
filed every material return, report statement, notice, declaration and
other document required by any law or governmental agency, federal,
state and local (including, without limitation, the Internal Revenue
Service and the Department of Labor) with respect to each such Employee
Plan, each of such filings has been complete and accurate in all
material respects and no Controlled Group Member has incurred any
material liability in connection with such filings;
(ii) all Controlled Group Members have delivered or caused to
be delivered to every participant, beneficiary and other party entitled
to such material, all material plan descriptions, returns, reports,
schedules, notices, statements and similar materials, including,
without limitation, summary plan descriptions and summary annual
reports, as are required under Title I of ERISA, the Code, or both, and
no Controlled Group Member has incurred any material liability in
connection with such deliveries;
(iii) all contributions and payments with respect to Employee
Plans that are required to be made by a Controlled Group Member with
respect to periods ending on or before the Closing Date (including
periods from the first day of the current plan or policy year to the
Closing Date) have been, or will be, made or accrued before the Closing
Date in accordance with the appropriate plan document, actuarial
report, collective bargaining agreements or insurance contracts or
arrangements or as otherwise required by ERISA or the Code;
(iv) with respect to each such Employee Plan, to the extent
applicable, Seller has delivered to or has made available to Buyer true
and complete copies of (A) plan documents, or any and all other
documents that establish the existence of the plan, trust, arrangement,
contract, policy or commitment and all amendments thereto, (B) the most
recent determination letter, if any, received from the Internal Revenue
Service, (C) the three most recent Form 5500 Annual Reports (and all
schedules and reports relating thereto) and actuarial reports and (D)
all related trust agreements, insurance contract or other funding
agreements that implement each such Employee Plan; and
(v) no payment made or to be made to an officer, director or
employee, whether or not pursuant to an Employee Plan, either before,
on, or after consummation of the transactions contemplated by this
Agreement shall constitute an "excess parachute payment" within the
meaning of Section 280G of the Code; and consummation of the
transactions contemplated by this Agreement shall not (A) give rise to
a severance pay obligation with respect to those employees who continue
employment with the Surviving Corporation or (B) enhance or trigger
(including acceleration of vesting, payment or funding) any benefits
under any Employee Plan.
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(c) With respect to each Employee Plan, there has not
occurred, and no Person or entity is contractually bound to enter into,
any "prohibited transaction" within the meaning of Section 4975(c) of
the Code of Section 406 of ERISA, which transaction is not exempt under
Section 4975(d) of the Code or Section 408 of ERISA which, individually
or in the aggregate, would have a Seller Material Adverse Effect.
(d) No Controlled Group Member has maintained or been
obligated to contribute to any Employee Plan subject to Section 412 of
the Code or Title IV of ERISA.
2.12 Employee Matters. Neither Seller nor any of the Seller Subsidiaries is
a party to, or bound by, any collective bargaining agreement, contract or other
agreement or understanding with a labor union or other labor organization, nor
has Seller or any of the Seller Subsidiaries agreed that any unit of its
employees is appropriate for collective bargaining. No union or other labor
organization has been certified as bargaining representative for any employees
of Seller or any of its Subsidiaries. To the Knowledge of Seller, there are no
organizational efforts with respect to the formation of a collective bargaining
unit presently being made or threatened involving employees of Seller or any of
the Seller Subsidiaries.
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2.13 Taxes.
(a) Each of Seller and the Seller Subsidiaries and any consolidated,
combined, unitary or aggregate group for tax purposes of which Seller or any
Seller Subsidiary is or has been a member has timely filed all Tax Returns (as
defined below) required to be filed by it (after giving effect to any extension
properly granted by a Tax Authority (as defined below) having authority to do
so) and has timely paid (or Seller has timely paid on its behalf) all Taxes (as
defined below) required to be paid by it (whether or not shown on such Tax
Returns) except (i) Taxes that are being contested in good faith by appropriate
proceedings and for which Seller or the applicable Seller Subsidiary shall have
set aside on its books adequate reserves or (ii) where the failure to file such
Tax Returns or pay such Taxes would not have a Seller Material Adverse Effect.
Each such Tax Return is complete and accurate except where any failure to be
complete and accurate would not have a Seller Material Adverse Effect. The most
recent audited financial statements contained in the Seller SEC Documents
reflect an adequate reserve for all Taxes payable by Seller and the Seller
Subsidiaries for all taxable periods and portions thereof through the date of
such financial statements except where any failure would not have a Seller
Material Adverse Effect. Since the Seller Financial Statement Date, Seller has
incurred no liability for Taxes under Sections 857(b), 857(f), 860(c) or 4981 of
the Code, including without limitation any Tax arising from a prohibited
transaction described in Section 857(b)(6) of the Code, and neither Seller nor
any Seller Subsidiary has incurred any material liability for Taxes other than
in the ordinary course of business. No event has occurred, and no condition or
circumstance exists, which, in the absence of the Transactions (as defined
below), would present a risk that any Tax described in the preceding sentence
will be imposed upon Seller or any Seller Subsidiary except where any failure
would not have a Seller Material Adverse Effect. No material deficiencies for
any Taxes have been proposed, asserted or assessed in writing against Seller or
any Seller Subsidiary, and no requests for waivers of the time to assess any
such Taxes are pending and no extensions of time to assess any such Taxes are in
effect. All Taxes required to be withheld, collected and paid over to any Tax
Authority by the Seller and any Seller Subsidiary have been timely withheld,
collected and paid over to the proper Tax Authority except where failure to do
so would not have a Seller Material Adverse Effect. No Tax Authority has imposed
a Lien against any Seller Property for any Taxes payable by Seller except for
Taxes not yet due and payable. There are no material pending actions or
proceedings by any Taxing Authority for assessment or collection of any Tax.
Complete copies of all federal, state and local income or franchise Tax Returns
that have been filed by Seller and each Seller Subsidiary for all taxable years
beginning on or after January 1, 1995, all extensions filed with any Tax
Authority that are currently in effect and all written communications with a
Taxing Authority relating thereto, have been made available to the Buyer and the
representatives of the Buyer. No written claim has been made by a Taxing
Authority in a jurisdiction where Seller or any Seller Subsidiary does not file
Tax Returns that it is or may be subject to taxation by the jurisdiction except
where the failure to file such Tax Return would not have a Seller Material
Adverse Effect. Neither the Seller nor any Seller Subsidiary holds any material
asset (A) the disposition of which would be subject to rules similar to Section
1374 of the Code as a result of an election under Internal Revenue Service
Notice 88-19 other than as set forth in Section 2.13 of the Seller Disclosure
Letter or (B) that is subject to a consent filed pursuant to Section 341(f) of
the Code and the regulations thereunder. Neither the Seller, nor any Seller
Subsidiary is obligated to make after the Closing any payment that would be not
deductible under Section 162(m) of the Code except where the lack of such
deduction would not have a Seller Material Adverse Effect. Neither Seller nor
any Seller Subsidiary is party to, nor has any liability under (including
liability with respect to any predecessor entity), any indemnification,
allocation or sharing agreement with respect to Taxes. As used in this
Agreement, "Tax" or "Taxes" shall include all federal, state, local and foreign
income, property, sales, use, occupancy, transfer, recording, withholding,
franchise, employment, excise and other taxes, tariffs or governmental charges
of any nature whatsoever, together with penalties, interest or additions to tax
with respect thereto. As used in this Agreement, "Tax Return" or "Tax Returns"
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shall include all original and amended returns and reports (including elections,
claims, declarations, disclosures, schedules, estimates, computations and
information returns) required to be supplied to a Tax Authority in any
jurisdiction. As used in this Agreement, "Tax Authority" shall mean the Internal
Revenue Service and any other domestic or foreign bureau, department, entity,
agency or other Governmental Entity responsible for the administration of any
Tax.
(b) Seller (i) for all taxable years commencing with its initial
taxable year through December 31, 1998 has been properly subject to taxation as
a real estate investment trust (a "REIT") within the meaning of Section 856 of
the Code and has qualified as a REIT for such years, (ii) has operated since
December 31, 1998, and will continue to operate to the Closing, in such a manner
as to qualify as a REIT (determined without regard to the dividends paid
deduction requirements for the current year) for the taxable year beginning
January 1, 1999 determined as if the taxable year of the REIT ended as of the
Closing and (iii) has not taken or omitted to take any action which would
reasonably be expected to result in a challenge to its status as a REIT, and no
such challenge is pending or to Seller's Knowledge threatened. Each Seller
Subsidiary which is a partnership, joint venture or limited liability company
(i) has been since its formation and continues to be treated for federal income
tax purposes as a partnership or disregarded as a separate entity, as the case
may be, and has not been treated for federal income tax purposes as a
corporation or an association taxable as a corporation and (ii) has not since
the later of its formation or the acquisition by Seller of a direct or indirect
interest therein owned any assets (including, without limitation, securities)
that would cause Seller to violate Section 856(c)(4) of the Code. The nature of
the assets of the Seller and the Seller Subsidiaries is such that the sale of
all of the assets owned by them would not cause the Seller to be disqualified as
a REIT under Code Section 856(c)(2) or 856(c)(3) or otherwise. Seller has not
elected to pay Tax on any capital gain recognized on or after January 1, 1999.
Each Seller Subsidiary which is a corporation has been since it became a
Subsidiary a qualified REIT subsidiary under Section 856(i) of the Code. Seller
Partnership is not a publicly traded partnership within the meaning of Section
7704 of the Code, and the interests in the Seller Partnership are not considered
to be (i) traded on an established securities market or (ii) readily tradable on
a secondary market or the substantial equivalent thereof under either Internal
Revenue Service Notice 88-75 or Treasury Regulations Section 1.7704-1. In the
case of a partner of Seller Partnership that is a Flow-Through Entity (as
defined below), no Person owning an interest in such Flow-Through Entity
(directly or through another Flow-Through Entity) is treated as a partner of the
Seller Partnership under either Internal Revenue Service Notice 88-75 or
Treasury Regulation Section 1.7704-1(h)(3). For purposes of this Section
2.13(b), "Flow-Through Entity" means an entity classified as a partnership, a
grantor trust or an S corporation for federal income tax purposes.
2.14 No Payments to Employees, Officers or Directors. Section 2.14 of the
Seller Disclosure Letter contains a true and complete list of all material cash
and non-cash payments, rights to property or other contract rights which will
become payable, accelerated or vested to or in each employee, officer or
director of Seller or any Seller Subsidiary as a result of the Merger other than
Alter and Biederman. There is no employment or severance contract, or other
agreement requiring payments or an increase in existing payments, cancellation
of indebtedness or other obligation to be made on a change of control or
otherwise as a result of the consummation of any of the transactions
contemplated by this Agreement, with respect to any employee, officer or
director of Seller or any Seller Subsidiary (other than Alter and Biederman) in
an aggregate amount in excess of $50,000.
2.15 Brokers. No broker, investment banker, financial advisor or other
Person, other than Goldman, Sachs & Co. ("Goldman Sachs"), the fees and expenses
of which are as described in the
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engagement letter dated April 14, 1999, a true and correct copy of which has
previously been given to Buyer, is entitled to any broker's, finder's, financial
advisor's or other similar fee or commission in connection with the transactions
contemplated hereby based upon arrangements made by or on behalf of Seller or
any Seller Subsidiary.
2.16 Compliance With Laws. (i) Neither Seller nor any of the Seller
Subsidiaries has violated or failed to comply with any statute, law, ordinance,
regulation, rule, judgment, decree or order of any Governmental Entity
applicable to its business, properties or operations (excluding any violation or
failure by Lessee or Manager), except to the extent that such violation or
failure has not had or would not reasonably be expected to have a Seller
Material Adverse Effect; (ii) Seller and its Subsidiaries have, and are in
compliance with, all permits, licenses, certificates, franchises, registrations,
variances, exemptions, orders and approvals of all Governmental Entities which
are material to the operation of their businesses, taken as a whole ("Seller
Permits"), except where the failure to comply has not had or would not
reasonably be expected to have a Seller Material Adverse Effect; and (iii) no
investigation by any Governmental Entity with respect to the Seller or the
Seller Subsidiaries is pending or, to the Knowledge of the Seller, threatened,
other than investigations which, individually or in the aggregate, would not
reasonably be expected to have a Seller Material Adverse Effect.
2.17 Contracts; Debt Instruments.
(a) Except as disclosed in the Seller SEC Documents, neither Seller nor
any Seller Subsidiary is a party to any contract or agreement that purports to
limit in any material respect the geographic location in which Seller or any
Seller Subsidiary may conduct its business. Neither Seller nor any Seller
Subsidiary (i) is in violation of or in default under any material loan or
credit agreement, note, bond, mortgage, indenture, lease, permit, concession,
franchise, license or any other material contract, agreement, arrangement or
understanding, to which it is a party or by which it or any of its properties or
assets is bound (excluding primarily as a result of any action or inaction of
Lessee or Manager and excluding any of the foregoing with Lessee or Manager)
(each, a "Material Contract"), nor (ii) to the Knowledge of Seller does such a
violation or default exist, except to the extent that such violation or default
referred to in clauses (i) or (ii), individually or in the aggregate, would not
have a Seller Material Adverse Effect. Each Material Contract as of the date
hereof which has not been filed as an Exhibit to any of the Seller SEC Documents
has been or made available to Buyer's representatives at the Data Room, is
listed on Seller's Data Room index dated June 15, 1999 or has been provided to
Parent or Buyer prior to the date hereof. Seller has made available at the Data
Room on or prior to June 15, 1999 or has provided to Parent or Buyer prior to
the date hereof all contracts and other agreements relating to the contribution
of assets to Seller Partnership in exchange for Seller OP Units (the "Seller
Contribution Agreements") and all such agreements are listed on Seller's Data
Room index dated June 15, 1999 or have been provided to Parent or Buyer prior to
the date hereof.
(b) Section 2.17(b) of the Seller Disclosure Letter sets forth a list
as of the date hereof of each loan or credit agreement, note, bond, mortgage,
indenture and any other agreement and instrument pursuant to which any
Indebtedness (as defined below) of Seller or any of Seller Subsidiaries, other
than Indebtedness payable to Seller or a Seller Subsidiary, is outstanding or
may be incurred in an amount in excess of $2,000,000, together with the amount
outstanding thereunder as of the date hereof. For purposes of this Section 2.17,
"Indebtedness" shall mean (i) indebtedness for borrowed money, whether secured
or unsecured, (ii) obligations under conditional sale or other title retention
agreements relating to property
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purchased by such Person, (iii) capitalized lease obligations, (iv) obligations
under interest rate cap, swap, collar or similar transaction or currency hedging
transactions (valued at the termination value thereof) and (v) guarantees of any
such indebtedness of any other Person.
(c) Neither Seller nor any of the Seller Subsidiaries is a party to any
agreement relating to the management of any of the Seller Properties by any
Person other than Manager. Section 2.17(c) to the Seller Disclosure Letter lists
as of the date hereof all service agreements, brokerage commission agreements,
maintenance contracts, contracts for purchase of delivery of services,
materials, goods, inventory or supplies, cleaning contracts, equipment rental
agreements, equipment leases or leases of personal property (other than the
Seller Franchise Agreements) (but excluding any such agreements providing for
payment of less than $100,000 per annum or which are terminable by Seller or a
Seller Subsidiary without penalty upon 90 days or less prior written notice) to
which Seller or any Seller Subsidiary is a party (the foregoing, collectively
the "Service Agreements"). Section 2.17(c) to the Seller Disclosure Letter lists
as of the date hereof all proposed material Service Agreements being negotiated
except for proposed Service Agreements known to Alter as of the date hereof. To
Seller's Knowledge, (i) the Service Agreements are in full force and effect and
constitute legal, valid, binding and enforceable obligations as against Seller
or its Subsidiaries and, to Seller's Knowledge, as against the other party
thereto, and (ii) there exists no default of any party thereto, nor has any
event or circumstances occurred that, with notice or lapse of time or both,
would constitute any default thereunder, except for any defaults that would not
reasonably be expected to have a Seller Material Adverse Effect.
(d) Section 2.17(d) of the Seller Disclosure Letter lists all
agreements entered into by Seller or any of the Seller Subsidiaries providing
for the sale or exchange of, or option to sell or exchange, any Seller
Properties or the purchase of or exchange, or option to purchase or exchange,
any real estate which are currently in effect.
(e) Neither Seller nor any Seller Subsidiary has any continuing
contractual liability (i) for indemnification under any agreement relating to
the sale of real estate previously owned by Seller or any Seller Subsidiary,
(ii) to pay any additional purchase price for any of the Seller Properties, or
(iii) to make any reprorations or adjustments to prorations involving an amount
in excess of $500,000 that may previously have been made with respect to any
property currently or formerly owned by Seller.
(f) Neither Seller nor any Seller Subsidiary has entered into or is
subject, directly or indirectly, to any Tax Protection Agreements. As used
herein, a "Tax Protection Agreement" is an agreement, oral or written, other
than with Parent or an Affiliate of Parent (A) that has as one of its purposes
to permit a Person to take the position that such Person could defer federal
taxable income that otherwise might have been recognized upon a transfer of
property to Seller Partnership or any other Seller Subsidiary that is treated as
a partnership for federal income tax purposes, and (B) that (i) prohibits or
restricts in any manner the disposition of any assets of Seller or any Seller
Subsidiary, (ii) requires that Seller or any Seller Subsidiary maintain, or put
in place, or replace, indebtedness, secured by one or more of the Seller
Properties, or (iii) requires that Seller or any Seller Subsidiary offer to any
Person at any time the opportunity to guarantee or otherwise assume, directly or
indirectly, the risk of loss for federal income tax purposes for indebtedness or
other liabilities of Seller or any Seller Subsidiary.
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(g) Except for obligations to provide funds to the Seller Partnership
or to Seller Subsidiaries owned entirely by Seller and/or Seller Partnership,
there are no material outstanding contractual obligations of Seller or its
Subsidiaries to provide any funds to, or make investments in, any other Person.
(h) Neither Seller nor any of the Seller Subsidiaries is party to any
agreement other than with Parent or, in the case of clause (ii), with an
affiliate of Parent which (i) would restrict any of them from prepaying any of
their Indebtedness without penalty or premium at any time or (ii) requires any
of them to maintain any amount of Indebtedness with respect to any of the Seller
Properties.
(i) To the extent not set forth in response to the requirements of
Section 2.17(b), Section 2.17 of the Seller Disclosure Letter sets forth as of
the date hereof each interest rate cap, interest rate collar, interest rate
swap, currency hedging transaction, and any other agreement relating to a
similar transaction, in each case involving $50,000 or more, to which Seller or
any Seller Subsidiary is a party or an obligor with respect thereto.
(j) Neither Seller nor any of the Seller Subsidiaries is a party to any
agreement pursuant to which Seller or any Seller Subsidiary manages any real
properties.
2.18 Opinion of Financial Advisor. The Seller Board and Special Committee
have received the opinion of Goldman Sachs dated July 12, 1999 with respect to
the fairness from a financial point of view of the consideration to be received
by the holders (other than Parent and its Subsidiaries and Affiliates) of Seller
Common Shares in connection with the Merger.
2.19 State Takeover Statutes. Assuming the accuracy of the representations
and warranties of Parent and Buyer set forth in Section 3.12, Seller has taken
all action necessary to exempt the transactions contemplated by this Agreement,
including without limitation the Merger, among Parent, Buyer and Seller and
their respective Affiliates from the operation of any "business combination,"
"fair price," "moratorium," "control share acquisition" or any other
anti-takeover statute or similar statute of any state (a "Takeover Statute") and
(ii) the action of the Seller Board and Special Committee in approving the
Merger and this Agreement (and the transactions provided for herein) is
sufficient to render inapplicable to the Merger and this Agreement (and the
transactions provided for herein) the restrictions on "business combinations"
(as defined in Subtitle 6 of Title 3 of the MGCL) set forth in Subtitle 6 of
Title 3 of the MGCL and the limitations on the voting rights of shares of stock
acquired in a "control share acquisition" (as defined in Subtitle 7 of Title 3
of the MGCL) set forth in Subtitle 7 of Title 3 of the MGCL.
2.20 Proxy Statement and Information Statement. The information relating to
Seller and the Seller Subsidiaries included in the Proxy Statement (as defined
in Section 5.1(a)) and the Information Statement (as defined in Section 5.1(a))
will not, as of the date of mailing of the Proxy Statement and the Information
Statement, respectively, 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 light of the circumstances under which they were made,
not misleading.
2.21 Investment Company Act of 1940. Neither Seller nor any of Seller
Subsidiaries is, or at the Effective Time will be, required to be registered
under the Investment Company Act of 1940, as amended (the "1940 Act").
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2.22 Definition of Knowledge of Seller. As used in this Agreement, the
phrase "Knowledge of Seller" or "Seller's Knowledge" (or words of similar
import) means the actual knowledge, without any duty of investigation or
inquiry, of only those individuals identified in Section 2.22 of the Seller
Disclosure Letter. Without limiting the generality of the foregoing, in no event
will the knowledge of Alter or Biederman by itself be deemed the "Knowledge of
Seller" or "Seller's Knowledge."
2.23 Insurance. Seller and Seller Subsidiaries maintain insurance coverage
for Seller and Seller Subsidiaries and their respective properties and assets of
a type and in amounts typical of similar companies engaged in the respective
businesses in which Seller and Seller Subsidiaries are engaged. All such
insurance policies (a) are in full force and effect, and with respect to all
policies neither of Seller nor any Seller Subsidiary is delinquent in the
payment of any premiums thereon, and no notice of cancellation or termination
has been received with respect to any such policy, and (b) are sufficient for
compliance with all requirements of law and of all agreements to which Seller or
the Seller Subsidiaries are a party or otherwise bound and are valid,
outstanding, collectible, and enforceable policies, subject to any exception in
the case of either clause (a) or (b), as would not, alone or in the aggregate,
be reasonably expected to have a Seller Material Adverse Effect or prevent or
materially delay the ability of Seller to consummate the transactions
contemplated by this Agreement. Neither Seller nor any Seller Subsidiary has
received written notice within the last 12 months from any insurance company or
board of fire underwriters of any defects or inadequacies that would materially
adversely affect the insurability of, or cause any material increase in the
premiums for, insurance covering either Seller or any Seller Subsidiary or any
of their respective properties or assets that have not been cured or repaired to
the satisfaction of the party issuing the notice, except as would not have a
Seller Material Adverse Effect.
2.24 Board Recommendation. Seller Board, at a meeting duly called and held
on July 12, 1999, at which all of the incumbent directors were present and
acting throughout, based upon the unanimous recommendation and approval of the
Special Committee, unanimously adopted resolutions which, among other things,
(a) declared that the Merger and the other transactions contemplated by this
Agreement are advisable on substantially the terms set forth in this Agreement,
(b) set forth the Charter Amendments and declared that the Charter Amendments
are advisable, (c) directed that the Charter Amendments, the Merger and the
other transactions contemplated by this Agreement be submitted for consideration
by the stockholders of Seller, (d) recommended that the Seller terminate its
status as a real estate investment trust and (e) authorized and approved the
Partnership Merger Agreement and the transactions contemplated thereby,
including the Partnership Merger (such transactions, together with the
transactions contemplated by this Agreement, including, without limitation, the
Merger, are hereinafter collectively referred to as the "Transactions"). Seller
Board has recommended that (y) Seller's stockholders approve this Agreement, the
Merger, the Charter Amendments, the termination of Seller's status as a real
estate investment trust and the other transactions contemplated by this
Agreement, and (z) on behalf of Seller as the sole general partner of Seller
Partnership, that the Seller Unit Holders adopt the Partnership Merger Agreement
and approve the Partnership Merger and the amendment (the "Partnership Agreement
Amendment") to the Seller Partnership Agreement attached hereto as Exhibit F.
Such recommendations shall not be withdrawn, modified or amended, other than as
expressly permitted under Section 4.1.
2.25 Representations in Partnership Merger Agreement. The representations
and warranties of the Seller and the Seller Partnership set forth in the
Partnership Merger Agreement are true and correct.
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ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF PARENT AND BUYER
Parent and Buyer, jointly and severally, represent and warrant to Seller,
except as set forth in the letter of even date herewith and delivered to Seller
prior to the execution hereof (the "Buyer Disclosure Letter") (it being
understood that the Buyer Disclosure Letter shall be arranged in sections
corresponding to the sections contained in this Article 3, and the disclosures
in any section of the Buyer Disclosure Letter shall qualify all of the
representations in the corresponding section of this Article 3 and, in addition,
other sections in this Article 3 to the extent it is reasonably clear from a
reading of the disclosure that such disclosure is applicable to such other
sections) as follows:
3.1 Organization, Standing and Power of Parent and Buyer.
(a) Parent is a limited liability company duly organized and validly
existing under the Laws of Delaware and has the requisite power and authority to
carry on its business as now being conducted. Parent is duly qualified or
licensed to do business as a foreign limited liability company and is in good
standing in each jurisdiction in which the nature of its business or the
ownership or leasing of its properties makes such qualification or licensing
necessary, other than in such jurisdictions where the failure to be so qualified
or licensed, individually or in the aggregate, would not have a material adverse
effect on the ability of Parent and Buyer to timely consummate the transactions
contemplated by this Agreement or the Partnership Merger Agreement ("Parent
Material Adverse Effect"). Parent has delivered to Seller complete and correct
copies of its organizational documents (including the certificate of formation
and limited liability company agreement of Parent) as amended or supplemented to
the date of this Agreement.
(b) Each of Buyer and SHP Investors, Inc. ("Holdings") is a corporation
duly organized and validly existing under the Laws of Maryland, in the case of
Buyer, or Delaware, in the case of Holdings, and has the requisite corporate
power and authority to carry on its business as now being conducted. Each of
Buyer and Holdings is duly qualified or licensed to do business as a foreign
corporation and is in good standing in each jurisdiction in which the nature of
its business or the ownership or leasing of its properties makes such
qualifications or licensing necessary, other than in such jurisdictions where
the failure to be so qualified or licensed, individually or in the aggregate,
would not have a material adverse effect on the ability of Buyer and Holdings to
timely consummate the transactions contemplated by this Agreement or the
Partnership Merger Agreement (a "Buyer Material Adverse Effect"). Complete and
correct copies of the organizational documents as amended or supplemented to the
date of this Agreement of Buyer and Holdings have been delivered to Seller.
(c) Each of Parent, Buyer and Holdings are newly formed and, except for
activities incident to the acquisition of Seller, none of Parent, Buyer or
Holdings has (i) engaged in any business activities of any type or kind
whatsoever or (ii) acquired any property of any type or kind whatsoever.
3.2 Ownership of Parent, Buyer and Holdings. As of the date hereof, all of
Parent's membership interests are owned by Westbrook Fund III and Alter.
Holdings is a wholly-owned Subsidiary of Parent, and Buyer is a wholly-owned
Subsidiary of Holdings. As of the Closing Date, at least 75% of the voting
interests and 75% of the equity interest of Parent will be owned, directly or
indirectly by Westbrook Fund III, Westbrook SHP and Westbrook Co-Investment.
Parent has delivered to Seller a true and complete copy of
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the Contribution Agreement which is being executed contemporaneously with the
execution of this Agreement.
3.3 Authority; Noncontravention; Consents.
(a) Each of Parent and Buyer has the requisite power and authority to
enter into this Agreement and to consummate the transactions contemplated by
this Agreement to which it is a party. The execution and delivery of this
Agreement by Parent and Buyer and the consummation by Parent and Buyer of the
transactions contemplated by this Agreement to which Parent and/or Buyer is a
party have been duly authorized by all necessary limited liability company or
corporate action on the part of Parent, Buyer and Holdings. The Merger has been
approved by Holdings as the sole stockholder of Buyer. This Agreement has been
duly executed and delivered by Parent and Buyer and constitutes a valid and
binding obligation of each of Parent and Buyer, enforceable against each of
Parent and Buyer in accordance with and subject to its terms, subject to
applicable bankruptcy, insolvency, moratorium or other similar Laws relating to
creditors' rights and general principles of equity. The Contribution Agreement
has been duly executed and delivered by the parties thereto and constitutes a
valid and binding obligation of each party thereto, enforceable against each
party thereto in accordance with and subject to its terms, subject to applicable
bankruptcy, insolvency, moratorium or other similar laws relating to creditors'
rights and general principles of equity.
(b) The execution and delivery of this Agreement by each of Parent and
Buyer does not, and the consummation of the transactions contemplated by this
Agreement to which Parent and/or Buyer is a party and compliance by each of
Parent and Buyer with the provisions of this Agreement will not, conflict with,
or result in any violation of or default (with or without notice or lapse of
time, or both) under, or give rise to a right of termination, cancellation or
acceleration of any material obligation or to loss of a material benefit under,
or result in the creation of any Lien upon any of the properties or assets of
Parent or any of its Subsidiaries under, (i) the organizational documents of
Parent or Buyer or the comparable certificate of incorporation or organizational
documents or partnership or similar agreement (as the case may be) of any other
Subsidiary of the Parent, each as amended or supplemented to the date of this
Agreement, (ii) any loan or credit agreement, note, bond, mortgage, indenture,
reciprocal easement agreement, lease or other agreement, instrument, permit,
concession, franchise or license applicable to Parent or any of its Subsidiaries
or their respective properties or assets or (iii) subject to the governmental
filings and other matters referred to in the following sentence, any Laws
applicable to Parent or any of its Subsidiaries or their respective properties
or assets, other than, in the case of clause (ii) or (iii), any such conflicts,
violations, defaults, rights, loss or Liens that individually or in the
aggregate would not reasonably be expected to (x) have a Parent Material Adverse
Effect or a Buyer Material Adverse Effect or (y) prevent the consummation of the
transactions contemplated by this Agreement. No consent, approval, order or
authorization of, or registration, declaration or filing with, any Governmental
Entity is required by or with respect to Parent or any of its Subsidiaries in
connection with the execution and delivery of this Agreement by Parent or Buyer
or the consummation by Parent or Buyer of any of the transactions contemplated
by this Agreement, except for (i) any filings required under the Exchange Act
(including Schedule 13E-3), (ii) the filing of the Articles of Merger with the
Maryland Department, (iii) the filing of a certificate of merger with the
Secretary of State of the State of Delaware with respect to the Partnership
Merger, (iv) such filings as may be required in connection with the payment of
any Transfer Taxes (as defined in Section 5.6), (v) any filings required under
the HSR Act, (vi) the filing of a Form D with the SEC with respect to the
transaction contemplated by the Partnership Merger Agreement and (vii) such
other consents, approvals, orders, authorizations, registrations,
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declarations and filings (A) as may be required under federal, state or local
environmental Laws, (B) as may be required under the "blue sky" laws of various
states, to the extent applicable, or (C) which, if not obtained or made, would
not prevent or delay beyond December 31, 1999 the consummation of any of the
transactions contemplated by this Agreement or otherwise prevent Parent or Buyer
from timely performing its obligations under this Agreement in any material
respect or have, individually or in the aggregate, a Parent Material Adverse
Effect.
3.4 Litigation. As of the date of this Agreement, there is no suit, action
or proceeding pending (in which service of process has been received by Parent
or any of its Subsidiaries) or, to the Knowledge of Parent (as defined in
Section 3.13), threatened in writing against or affecting Parent or any of its
Subsidiaries that, individually or in the aggregate, would reasonably be
expected to (i) have a Parent Material Adverse Effect or (ii) prevent or delay
beyond the Outside Date the consummation of any of the material transactions
contemplated by this Agreement, nor, as of the date of this transaction, is
there any judgment, decree, injunction, rule or order of any Governmental Entity
or arbitrator outstanding against Parent of any of its Subsidiaries having, or
which, insofar as reasonably can be foreseen, in the future would have, any such
effect.
3.5 Undisclosed Liability. As of the date hereof, neither Parent nor Buyer
has any liabilities or obligations of any nature (whether accrued, absolute,
contingent or otherwise) whether or not required by GAAP to be set forth on a
consolidated balance sheet of Parent or Buyer or in the notes thereto which,
individually or in the aggregate, would have a Parent Material Adverse Effect or
Buyer Material Adverse Effect other than those resulting from any lawsuits or
other claims filed with respect to the Merger and the other transactions
contemplated hereby.
3.6 Brokers. No broker, investment banker, financial advisor or other
Person, the fees and expenses of which will be paid by Parent or Buyer, is
entitled to any broker's, finder's, financial advisor's or other similar fee or
commission in connection with the transactions contemplated hereby based upon
arrangements made by or on behalf of Parent or any of its Subsidiaries other
than as set forth in Section 3.6 of the Buyer Disclosure Letter.
3.7 Compliance With Laws. Neither Parent nor any of its Subsidiaries has
violated or failed to comply with any statute, law, ordinance, regulation, rule,
judgment, decree or order of any Governmental Entity applicable to its business,
properties or operations, except to the extent that such violation or failure
would not reasonably be expected to have a Parent Material Adverse Effect or
Buyer Material Adverse Effect.
3.8 Contracts; Debt Instruments. Neither Parent nor any of its Subsidiaries
(i) has received a written notice that Parent or any of its Subsidiaries is in
violation of or in default under any material loan or credit agreement, note,
bond, mortgage, indenture, lease, permit, concession, franchise, license or any
other material contract, agreement, arrangement or understanding, to which it is
a party or by which it or any of its properties or assets is bound, nor (ii) to
the Knowledge of Buyer (as defined in Section 3.15) does such a violation or
default exist, except to the extent such violation or default referred to in
clauses (i) or (ii), individually or in the aggregate, would not have a Parent
Material Adverse Effect or a Buyer Material Adverse Effect.
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3.9 Solvency. Immediately after giving effect to the Transactions and the
closing of the Financing (as herein defined) and the Contribution, the Surviving
Company and the Surviving Operating Partnership shall (a) be able to pay their
respective debts as they become due and shall each own property having a fair
market value greater than the amounts required to pay its debts (including a
reasonable estimate of the amount of all contingent liabilities) and (b) have
adequate capital to carry on their respective businesses. No transfer of
property is being made and no obligation is being incurred in connection with
the transactions contemplated by this Agreement and the Partnership Merger
Agreement and the closing of any financing to be obtained by Parent, Buyer or
Buyer Operating Partnership in order to effect the transactions contemplated by
this Agreement and the Partnership Merger Agreement or with the intent to
hinder, delay or defraud either present or future creditors of Parent, Buyer,
Buyer Operating Partnership, the Surviving Company or the Surviving Operating
Partnership.
3.10 Proxy Statement and Information Statement. The information provided by
Parent or Buyer with respect to Parent and its Subsidiaries and the Surviving
Company for inclusion in the Proxy Statement and the Information Statement will
not, as of the date of mailing of the Proxy Statement and the Information
Statement, respectively, 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 light of the circumstances under which they were made,
not misleading.
3.11 Investment Company Act of 1940. Neither Parent nor any of its
Subsidiaries is, or at the Effective Time will be, required to be registered
under the 1940 Act.
3.12 Ownership of Stock in Seller.
(a) The beneficial ownership of Seller Common Shares (excluding any
Seller Common Shares issuable upon exercise of the options for 845,362 Seller
Common Shares issued to Alter and Biederman that were not exercisable within 60
days of April 15, 1999), Seller Preferred Shares and Seller OP Units by Parent,
Buyer, Buyer Operating Partnership and the parties to the Contribution Agreement
and certain other affiliated persons and entities listed in the Schedule 13Ds
are as set forth in the Schedule 13D filed by Westbrook Fund I and the other
parties named therein with the SEC on October 24, 1997, as amended through the
date hereof, and the Schedule 13D filed by Alter and the other parties named
therein with the SEC on April 15, 1999, as amended through the date hereof.
(b) Parent, Holdings, Buyer, and Buyer Operating Partnership are
"affiliates" or "associates" (as such terms are defined in Section 3-601 of the
MGCL) of Alter.
(c) Of Parent, Holdings, Buyer, Buyer Operating Partnership, the
parties to the Contribution Agreement and the other direct and indirect
beneficial owners of stock and affiliates (as such terms are defined in Section
3-601 of the MGCL) of Buyer, only (i) Westbrook Fund I, (ii) Westbrook
Co-Investment Partnership I, L.P., a Delaware limited partnership ("Westbrook
Co-Investment I"), and (iii) each other beneficial owner of the securities of
Seller beneficially owned by Westbrook Fund I or Westbrook Co-Investment I is or
was at any time within the 2 years prior to the date hereof the beneficial owner
(as such term is defined in Section 3-601 of the MGCL) directly or indirectly of
10 percent or more of the voting power of the outstanding voting stock of
Seller.
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3.13 Definition of Knowledge. As used in this Agreement, the phrase
"Knowledge of Parent" or "Knowledge of Buyer" (or words of similar import) means
the actual knowledge without any duty of investigation or inquiry of those
individuals identified in Section 3.13 of the Buyer Disclosure Letter.
3.14 Sufficient Funds. After giving effect to the contribution of cash and
assets to Parent pursuant to, and in accordance with, the Contribution
Agreement, and borrowings (the "Financing") under Parent's financing commitment
attached as Exhibit G (the "Financing Commitment"), which Contribution Agreement
and Financing Commitment are in full force and effect, the Surviving Company and
the Surviving Operating Partnership will have sufficient funds available to:
(a) refinance or repay in cash all indebtedness for borrowed money of
Seller or any Seller Subsidiary that will become due as a result of the
transactions contemplated by this Agreement or the Partnership Merger Agreement,
plus unpaid interest accrued thereon, and any prepayment, breakage or other
costs associated with the repayment or refinancing, as the case may be, in each
case as set forth in Section 3.14(a) of the Seller Disclosure Letter;
(b) pay all amounts required to be paid pursuant to this Agreement and
the Partnership Merger Agreement;
(c) pay all fees, costs and expenses incurred by Seller and the Seller
Partnership in connection with this Agreement, the Partnership Merger Agreement
and the transactions contemplated herein and therein assuming such fees, costs
and expenses (including severance costs) are not in excess of $11,500,000; and
(d) pay all fees, costs and expenses incurred by Parent, Buyer and
Buyer Operating Partnership in connection with this Agreement, the Partnership
Merger Agreement and the other transactions contemplated herein and therein.
3.15 Representations in Partnership Merger Agreement. The representations
and warranties of Parent and the Buyer Operating Partnership and its
Subsidiaries set forth in the Partnership Merger Agreement are true and correct.
ARTICLE 4
COVENANTS
4.1 Acquisition Proposals. During the period from the date hereof and
continuing through the Effective Time or the earlier termination of this
Agreement in accordance with its terms, Seller agrees that:
(a) neither it nor any of the Seller Subsidiaries shall initiate,
solicit or knowingly encourage, directly or indirectly, any inquiries or the
making or implementation of any proposal or offer (including, without
limitation, any proposal or offer to its stockholders) with respect to a merger,
acquisition, tender offer, exchange offer, consolidation, share exchange, sale
of assets or similar transaction involving all or any significant portion of the
assets or any equity securities of, Seller and its Subsidiaries, taken as a
whole, other than the transactions contemplated by this Agreement (any such
proposal or offer being hereinafter referred to as an "Acquisition Proposal") or
engage in any negotiations concerning or provide any
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confidential information or data to, or have any discussions with, any Person
relating to an Acquisition Proposal, or otherwise facilitate any effort or
attempt to make or implement an Acquisition Proposal (for the avoidance of
doubt, responding to an unsolicited inquiry by informing such inquiror that
Seller is subject to this Section 4.1 and instructing such inquiror to review
this Agreement shall not be a violation of this Section 4.1);
(b) it shall direct and use its reasonable best efforts to cause its
officers, directors, employees, agents or financial advisors not to engage in
any of the activities restricted by Section 4.1(a);
(c) it will immediately cease and cause to be terminated any existing
activities, discussions or negotiations theretofore conducted with any Person
with respect to any Acquisition Proposal and will take the necessary steps to
inform the individuals or entities referred to in Section 4.1(b) of the
obligations undertaken in this Section 4.1; and
(d) it will notify Buyer promptly if Seller receives any such inquiries
or proposals, or any requests for such information, or if any such negotiations
or discussions are sought to be initiated or continued with it;
provided, however, that nothing contained in this Agreement shall restrict
Seller Board or Special Committee (and the officers, directors, employees,
agents and financial advisors of Seller acting at the direction of Seller Board
or Special Committee) from (i) prior to the Seller Stockholders Meeting (as
defined below), furnishing information to, or entering into discussions or
negotiations with, any Person that makes an unsolicited Acquisition Proposal, if
(A) Seller Board or Special Committee determines in good faith that the failure
to take such action would reasonably be expected to violate its duties under
applicable law and such proposal is, or is reasonably likely to be, a Superior
Acquisition Proposal (as defined below), (B) prior to furnishing such
information to, or entering into discussions or negotiations with, such Person,
Seller provides written notice to Buyer to the effect that it is furnishing
information to, or entering into discussions with, such Person and (C) subject
to any confidentiality agreement with such Person, Seller keeps Buyer informed
of the status (not the terms or identity of parties) of any such discussions or
negotiations (Seller agreeing that it will not enter into any confidentiality
agreement with any Person subsequent to the date hereof which prohibits Seller
from providing such information to Buyer); and (ii) to the extent applicable,
taking and disclosing to the Seller stockholders a position contemplated by
Rules 14d-9 and 14e-2 promulgated under the Exchange Act with regard to an
Acquisition Proposal; provided, however, that Seller Board or Special Committee
may not approve or recommend an Acquisition Proposal, or withdraw or modify in a
manner adverse to Buyer its approval or recommendation of this Agreement and the
Merger, unless such Acquisition Proposal is a Superior Acquisition Proposal.
Nothing in this Section 4.1 shall (x) permit Seller to terminate this Agreement
(except as specifically provided in Article 7 hereof) or (y) permit Seller to
enter into an agreement with respect to an Acquisition Proposal during the term
of this Agreement (other than a confidentiality agreement in customary form
executed as provided above); provided, however, that the Seller Board or Special
Committee may approve and recommend a Superior Acquisition Proposal and, in
connection therewith, withdraw or modify its approval or recommendation of this
Agreement and the Merger. As used herein, "Superior Acquisition Proposal" means
a bona fide Acquisition Proposal made by a third party which Seller Board or
Special Committee determines in good faith (after consultation with its
financial advisor) to be more favorable to Seller's stockholders than the Merger
and which Seller Board or Special Committee determines is reasonably capable of
being consummated.
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4.2 Conduct of Seller's Business Pending Merger. During the period from the
date hereof and continuing through the Effective Time, except (i) as consented
to in writing by Buyer or as contemplated by this Agreement and (ii) as set
forth on Section 4.2 of the Seller Disclosure Letter, Seller shall, and shall
cause each of the Seller Subsidiaries to:
(a) conduct its business only in the usual, regular and ordinary course
and in substantially the same manner as heretofore conducted and, except as
contemplated by this Agreement and the transactions contemplated hereby, take
all action necessary to continue to qualify as a REIT;
(b) use its reasonable efforts to (i) preserve intact its business
(corporate or otherwise) organizations and goodwill and (ii) keep available the
services of its officers and key employees other than those employed by Parent,
Lessee or Manager or any of Affiliate thereof;
(c) confer on a regular basis upon reasonable request with one or more
representatives of Buyer to report on material operational matters and, subject
to Section 4.1, any proposals to engage in material transactions;
(d) promptly notify Buyer of any material adverse change in its
condition (financial or otherwise), business, properties, assets or liabilities,
or of any material governmental complaints, investigations or hearings adverse
to it (or written threats thereof) which could reasonably be expected to have a
Seller Material Adverse Effect;
(e) promptly deliver to Buyer true and correct copies of any report,
statement or schedule filed with the SEC subsequent to the date of this
Agreement and prior to the Closing Date;
(f) maintain its books and records in accordance with GAAP consistently
applied and not change in any material manner any of its methods, principles or
practices of accounting in effect at the Seller Financial Statement Date, except
as may be required by the SEC, applicable law or GAAP;
(g) duly and timely file all material Tax Returns and other documents
required to be filed with federal, state, local and other Tax Authorities,
subject to timely extensions permitted by law, and provided such extensions do
not adversely affect Seller's status as a qualified REIT under the Code;
(h) except as set forth in this Agreement, not make, rescind or revoke
any material express or deemed election relative to Taxes (unless required by
law or necessary to preserve Seller's status as a REIT or the status of any
Seller Subsidiary as a partnership for federal income tax purposes or as a
qualified REIT subsidiary under Section 856(i) of the Code, as the case may be);
(i) except as contemplated in the CapEx Budget previously made
available to Buyer, not acquire, enter into any option to acquire, or exercise
an option or contract to acquire, additional real property, incur additional
indebtedness except for working capital under its revolving lines of credit,
encumber assets or commence construction of, or enter into any agreement or
commitment to develop or construct, other real estate projects, except with
respect to projects described in the Seller SEC Documents or the Seller
Disclosure Letter as being under development in accordance with the agreements
in existence on the date of this Agreement and previously furnished to Buyer
(the "Development Agreements");
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(j) not (except as contemplated by this Agreement and the Partnership
Merger Agreement) amend its Charter or bylaws, or the articles or certificate of
incorporation, bylaws, code of regulations, partnership agreement, operating
agreement or joint venture agreement or comparable charter or organization
document of any Seller Subsidiary;
(k) except as contemplated by this Agreement and the Seller Partnership
Redemption and for issuances under Seller's dividend reinvestment plan in
accordance with past practice, make no change in the number of its shares of
capital stock, membership interests or units of limited partnership interest (as
the case may be) issued and outstanding or reserved for issuance, other than
pursuant to (i) the exercise of options or other rights disclosed in Section 2.3
of the Seller Disclosure Letter, (ii) the conversion of Seller Preferred Shares,
or (iii) the exchange or redemption of Seller OP Units pursuant to the Seller
Partnership Agreement for Seller Common Shares or cash, at Seller's option;
(l) except as set forth in Section 4.2(l) of the Seller Disclosure
Letter or without the consent of Parent, grant no options or other rights or
commitments relating to its shares of capital stock, membership interests or
units of limited partnership interest or any security convertible into its
shares of capital stock, membership interests or units of limited partnership
interest, or any security the value of which is measured by shares of capital
stock, or any security subordinated to the claim of its general creditors and,
except as contemplated by this Agreement, not amend or waive any rights under
any of the Seller Options;
(m) except as provided in this Agreement (including the Seller
Partnership Redemption and Section 5.8), the Partnership Merger Agreement and in
connection with the use of Seller Common Shares to pay the exercise price or tax
withholding in connection with equity-based employee benefit plans by the
participants therein, not (i) authorize, declare, set aside or pay any dividend
or make any other distribution or payment with respect to any Seller Common
Shares, Seller Preferred Shares or Seller OP Units or (ii) directly or
indirectly redeem, purchase or otherwise acquire any shares of capital stock,
membership interests or units of partnership interest or any option, warrant or
right to acquire, or security convertible into, shares of capital stock,
membership interests, or units of partnership interest, except for (A)
redemptions of Seller Common Shares required under Section 2 of Article V of
Seller's Charter in order to preserve the status of Seller as a REIT under the
Code and (B) conversions or redemptions of Seller OP Units, whether or not
outstanding on the date of this Agreement, for cash or Seller Common Shares in
accordance with the terms of the Seller Partnership Agreement;
(n) not sell, lease (other than to Lessee), exchange or otherwise
dispose of any Seller Property outside the ordinary course of business or as set
forth on Section 4.2(n) of the Seller Disclosure Letter;
(o) not make any loans, advances or capital contributions to, or
investments in, any other Person, other than regular advances to employees in
the ordinary course of business and loans, advances and capital contributions to
Seller Subsidiaries in existence on the date hereof;
(p) not pay, discharge or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or otherwise)
which are material to Seller and its Subsidiaries taken as a whole, other than
the payment, discharge or satisfaction, in the ordinary course of business
consistent with past practice or in accordance with their terms, of liabilities
reflected or reserved against in, or contemplated
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by, the most recent consolidated financial statements (or the notes thereto)
furnished to Buyer or incurred in the ordinary course of business consistent
with past practice (collectively, "Ordinary Course Liabilities");
(q) except as provided in Section 4.2(i) above, not enter into any
commitment, contractual obligation or transaction (each, a "Commitment") for the
purchase of any real estate; provided that expansion or improvements made in the
ordinary course of business to existing real property shall not be considered a
purchase of real property;
(r) not guarantee the indebtedness of another Person, enter into any
"keep well" or other agreement to maintain any financial statement condition of
another Person or enter into any arrangement having the economic effect of any
of the foregoing;
(s) not enter into any contractual obligation with any officer,
director or Affiliate of Seller except as set forth in this Agreement;
(t) not increase any compensation or enter into or amend any
employment, severance or other agreement with any of its officers, directors or
employees earning a base salary of more than $100,000 per annum, other than as
required by any contract or Employee Plan or pursuant to waivers by employees of
benefits under such agreements;
(u) except as provided in Section 4.2(l) of this Agreement, not adopt
any new employee benefit plan or amend or terminate or increase the benefits
under any existing plans or rights, not grant any additional options, warrants,
rights to acquire stock, stock appreciation rights, phantom stock, dividend
equivalents, performance units or performance stock to any officer, employee or
director, or accelerate vesting with respect to any grant of Seller Common
Shares to employees which are subject to any risk of forfeiture, except for
changes which are required by law and changes which are not more favorable to
participants than provisions presently in effect;
(v) not change the ownership of any of its Subsidiaries, except changes
which arise as a result of the conversion of Seller OP Units into Seller Common
Shares or cash or the Seller Partnership Redemption;
(w) not accept a promissory note in payment of the exercise price
payable under any option to purchase Seller Common Shares;
(x) not enter into or amend or otherwise modify or waive any material
rights under any agreement or arrangement for the Persons that are executive
officers or directors of Seller or any Seller Subsidiary (other than Alter and
Biederman in their capacities as such);
(y) not directly or indirectly or through a subsidiary, merge or
consolidate with, acquire all or substantially all of the assets of, or acquire
the beneficial ownership of a majority of the outstanding capital stock or a
majority of any other equity interest in, any Person other than any of the
foregoing (other than a merger or consolidation) in connection with a
transaction permitted pursuant to Section 4.2(i);
(z) not settle or compromise any material tax liability;
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(aa) perform all actions required to consummate the Seller Partnership
Redemption on the Closing Date prior to the Effective Time;
(bb) perform all agreements required to be performed by the Seller and
its Subsidiaries (including the Seller Partnership) under the Partnership Merger
Agreement; and
(cc) not agree, commit or arrange to take any action prohibited under
this Section.
4.3 Conduct of Parent's and Buyer's Business Pending Merger. Prior to the
Effective Time, except as (i) contemplated by this Agreement, or (ii) consented
to in writing by Seller, Parent shall, and shall cause Buyer to:
(a) use its reasonable efforts to preserve intact its business
organizations and goodwill and keep available the services of its officers and
employees;
(b) promptly notify Seller of any material emergency or other material
change in the condition (financial or otherwise), business, properties, assets,
liabilities, prospects or the normal course of its businesses or in the
operation of its properties, or of any material governmental complaints,
investigations or hearings (or communications indicating that the same may be
contemplated);
(c) not directly or indirectly, through a subsidiary or otherwise,
merge or consolidate with, or acquire all or substantially all of the assets of,
or the beneficial ownership of a majority of the outstanding capital stock or
other equity interests in any Person whose securities are registered under the
Exchange Act unless such transaction has been approved by Seller;
(d) except as contemplated by this Agreement, not issue or commit to
issue or change the ownership of any Buyer or Buyer Operating Partnership
securities unless such issuance or change in ownership has been approved by
Seller;
(e) use reasonable best efforts to do all necessary things required to
obtain and to close the funding contemplated by the Contribution Agreement and
the borrowings contemplated by the Financing Commitment or if the Financing
Commitment is terminated or such funds shall not otherwise be available, to
obtain alternate financing, in each case on financial and other terms no less
favorable than those set forth in the Financing Commitment or to the extent not
set forth therein, on terms reasonably acceptable to Parent, and to cause such
equity funding and such borrowings to be made available to Parent, Buyer, Buyer
Operating Partnership and Seller Partnership or the other borrowers thereunder,
as applicable as and subject to the conditions provided in the Contribution
Agreement and the Financing Commitment. Parent and Buyer will not amend or
otherwise modify in any material respect, or waive any material rights under the
Contribution Agreement or Financing Commitment, in each case to the extent such
action could reasonably be expected to materially and adversely affect the
likelihood of obtaining such funding. Parent agrees to use its reasonable best
efforts so that representatives of Seller shall have reasonable access to the
lender under the Financing Commitment and use its reasonable best efforts to
cause such lender to respond to Seller's reasonable request regarding the status
of such financing;
(f) not agree, commit or arrange to take any action prohibited under
this Section; and
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(g) except as contemplated by the Contribution Agreement, not acquire
ownership, beneficially or of record, of any Seller Common Shares or Seller
Preferred Shares.
4.4 Other Actions. Each of Seller on the one hand, and Parent and Buyer on
the other hand, shall not knowingly take, and shall use commercially reasonable
efforts to cause their Subsidiaries not to take, any action that would result in
(i) any of the representations and warranties of such party (without giving
effect to any "knowledge" qualification) set forth in this Agreement that are
qualified as to materiality becoming untrue, (ii) any of such representations
and warranties (without giving effect to any "knowledge" qualification) that are
not so qualified becoming untrue in any material respect or (iii) except as
contemplated by Section 4.1, any of the conditions to the Merger set forth in
Article 6 not being satisfied.
4.5 Private Placement. Parent shall take all actions necessary to offer and
sell interests in Parent to holders of Seller OP Units in the manner
contemplated by the Partnership Merger Agreement and Sections 1.8 and 5.1 hereof
and as shall be required for the offering and sale of such units of limited
partnership interest to be exempt from the registration requirements of the
Securities Act pursuant to Rule 506 of Regulation D.
4.6 Escrow Arrangement. Parent has delivered to Fidelity National Title
Insurance Company, as escrow agent (the "Escrow Agent") $25,000,000 (the "Cash
Collateral") in cash or an irrevocable letter of credit in the amount of the
Cash Collateral, substantially in the form attached hereto as Exhibit H, with
such changes as shall be reasonably satisfactory to Seller and from a bank
reasonably satisfactory to Seller (the "Letter of Credit") to secure the
obligation of Parent and Buyer to pay certain fees and expenses pursuant to
Section 7.2 and to be held in accordance with the terms of an Escrow Agreement
dated as of the date hereof among the Escrow Agent, Seller, Seller Partnership
and Parent (the "Escrow Agreement").
4.7 Seller Partnership Actions. Seller shall use its reasonable best
efforts to cause Seller Partnership to (a) obtain the Seller Partner Approval
and (b) redeem from Seller, Seller OP Units in exchange for assets of Seller
Partnership as set forth on Exhibit A. Parent will cooperate with Seller in
obtaining the Seller Partner Approval.
4.8 Pro Formas. Set forth on Exhibit J is the current estimated sources and
uses of funds in connection with the Contribution, the Financing Commitment and
the consummation of the transactions contemplated by this Agreement and the
Partnership Merger Agreement, which reflects the current assumptions regarding
sources and uses of funds for such purposes, and Parent will promptly notify
Seller of any material changes in such estimated sources and uses of funds and
provide Seller a revised statement reflecting such changes.
ARTICLE 5
ADDITIONAL COVENANTS
5.1 Preparation of the Proxy Statement; Seller Stockholders Meeting.
(a) The parties shall cooperate and promptly prepare, and Seller shall
file with the SEC as soon as practicable a proxy statement with respect to the
meeting of the stockholders of Seller in connection with the Merger and Charter
Amendments (the "Proxy Statement"). The parties shall cooperate
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and promptly prepare and the appropriate party shall file with the SEC as soon
as practicable any other filings required under the Exchange Act ("Additional
Filings"), including a Rule 13e-3 Transaction Statement on Schedule 13E-3 with
respect to the Merger to be filed jointly by Seller, Parent and Buyer, together
with any required amendments thereto. To the extent the Seller Partnership has
received the Seller Partner Approval in the form of valid written consents
executed by partners of the Seller Partnership promptly after the date hereof,
Seller Partnership and Parent shall jointly promptly prepare an Information
Statement of Seller Partnership and Parent for use in connection with the
offering of units of limited liability company interest in Parent (the
"Information Statement). To the extent the Seller Partnership has not received
the Seller Partner Approval in the form of valid written consents executed by
partners of the Seller Partnership promptly after the date hereof, Seller
Partnership and Parent shall jointly and promptly prepare a Consent Solicitation
Statement soliciting the written consent of the holders of Seller OP Units to
the adoption of this Agreement and the approval of the Partnership Merger (the
"Consent Solicitation Statement"), which Consent Solicitation Statement shall
contain a description of the terms of the Class A Preferred Units and the Class
B Units and the recommendation of Seller General Partner's Board of Directors
that the holders of Seller OP Units consent to the adoption of this Agreement
and the approval of the Partnership Merger. Each of Seller, Seller Partnership,
Parent, Buyer and Buyer Operating Partnership agrees that the information
provided by it for inclusion in the Proxy Statement, the Additional Filings, the
Information Statement, Consent Solicitation Statement and each amendment or
supplement thereto, at the time of mailing thereof and at the time of the
meeting of stockholders of Seller and at the time of the taking of consent in
respect of the Seller Partner Approval, will not include 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 light of the circumstances under
which they were made, not misleading. Parent, Buyer and Buyer Operating
Partnership shall, with respect to the Seller Partner Approval and the offering
of units of limited liability interests in Parent to holders of Seller OP Units,
comply with Regulation D of the Securities Act, as applicable. Seller will use
its reasonable best efforts, and Parent, Buyer and Buyer Operating Partnership
will cooperate with Seller to (i) file a preliminary Proxy Statement with the
SEC and (ii) cause the Proxy Statement to be mailed to Seller's stockholders, in
each case, as promptly as practicable (including clearing the Proxy Statement
with the SEC) following receipt by Seller of written certification from the
lender under the Financing Commitment that it has received and reviewed the
environmental reviews, engineering reports, title reports, surveys and appraisal
reports with respect to substantially all (based on the aggregate value of the
Seller Properties) of the Seller Properties for which it desires such reports
(collectively, the "Property Reports"), provided that the termination date of
the Financing Commitment shall be later than 12 days from the date the Proxy
Statement was otherwise to be mailed to Seller's stockholders; and provided,
further, that the parties acknowledge that any of such reports may be updated or
supplemented from time to time prior to Closing. Seller will use its reasonable
best efforts, and Parent, Buyer and Buyer Operating Partnership will cooperate
with Seller, to cause the Information Statement or Consent Solicitation
Statement, as applicable, to be mailed to the Seller Unit Holders as promptly as
practicable after the SEC has cleared the Proxy Statement and it has been mailed
to Seller's stockholders. Seller will notify Buyer promptly of the receipt of
any comments from the SEC and of any request by the SEC for amendments or
supplements to the Proxy Statement or the Additional Filings or for additional
information and will supply Buyer with copies of all correspondence between such
party or any of its representatives and the SEC, with respect to the Proxy
Statement or the Additional Filings. The parties shall cooperate to cause the
Proxy Statement, the Information Statement, Consent Solicitation Statement and
any Additional Filings to comply in all material respects with all applicable
requirements of law. Whenever any event occurs which is required to be set forth
in an amendment or supplement to the Proxy Statement, the Additional Filings, or
the Information Statement or Consent Solicitation Statement, Seller on the one
hand, and Parent and Buyer on the other hand, shall
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promptly inform the other of such occurrence and cooperate in filing with the
SEC and/or mailing to the stockholders of Seller or holders of Seller OP Units,
as applicable, such amendment or supplement to the Proxy Statement or the
Information Statement or Consent Solicitation Statement.
(b) It shall be a condition to the mailing of the Proxy Statement and
the Information Statement that if they so request, Buyer and Buyer Operating
Partnership shall have received a "comfort" letter or an "agreed upon
procedures" letter from Ernst & Young LLP, independent public accountants for
Seller and Seller Partnership, of the kind contemplated by the Statement of
Auditing Standards with respect to Letters to Underwriters promulgated by the
American Institute of Certified Public Accountants (the "AICPA Statement"),
dated as of the date on which the Proxy Statement is to be mailed to the
stockholders of Seller, addressed to Parent, Buyer and Buyer Operating
Partnership, in form and substance reasonably satisfactory to Buyer and Buyer
Operating Partnership, concerning the procedures undertaken by Ernst & Young,
LLP with respect to the financial statements and information of Seller, Seller
Partnership and their Subsidiaries contained in the Proxy Statement and the
other matters contemplated by the AICPA Statement and otherwise customary in
scope and substance for letters delivered by independent public accountants in
connection with transactions such as those contemplated by this Agreement.
(c) Seller will, as soon as practicable following the date of this
Agreement, duly call, give notice of, convene and hold a meeting of its
stockholders, such meeting to be held no sooner than 20 business days nor later
than 45 days following the date the Proxy Statement is mailed to the
stockholders of Seller (the "Seller Stockholders Meeting") for the purpose of
obtaining the Seller Stockholder Approvals. Seller shall be required to hold the
Seller Stockholders Meeting, regardless of whether the Seller Board has
withdrawn, amended or modified its recommendation that its stockholders adopt
this Agreement and approve the Merger, unless this Agreement has been terminated
pursuant to the provisions of Section 7.1. Seller will, through its Seller
Board, recommend that its stockholders adopt this Agreement and approve the
transactions contemplated hereby, including the Merger and Charter Amendments;
provided, that prior to the Seller Stockholders Meeting, such recommendation may
be withdrawn, modified or amended only to the extent expressly permitted under
Section 4.1.
(d) If on the date for the Seller Stockholders Meeting established
pursuant to Section 5.1(c) of this Agreement, Seller has not received duly
executed proxies which, when added to the number of votes represented in person
at the meeting by Persons who intend to vote to adopt this Agreement, will
constitute a sufficient number of votes to adopt the Seller Stockholder
Approvals (but less than one-third of the outstanding Seller Common Shares and
Seller Preferred Shares (voting on an "as-converted basis"), voting as a single
class have indicated their intention to vote against, or have submitted duly
executed proxies voting against, the adoption of the Seller Stockholder
Approvals), then Seller shall recommend the adjournment of its stockholders
meeting until the date 10 business days after the originally scheduled date of
the stockholders meeting.
5.2 Access to Information; Confidentiality. Subject to the requirements of
confidentiality agreements with third parties, each of Seller, Parent and Buyer
shall, and shall cause each of its Subsidiaries to, afford to the other party
and to the officers, employees, accountants, counsel, financial advisors,
sources of financing and other representatives of such other party, reasonable
access during normal business hours prior to the Effective Time to all their
respective properties, books, contracts, commitments, personnel and records and,
during such period, each of Seller, Parent and Buyer shall, and shall cause each
of its Subsidiaries to, furnish promptly to the other party and its financing
sources all other information concerning
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its business, properties and personnel as such other party may reasonably
request. Parent, Buyer and their financing sources shall have the right to
conduct non-intrusive environmental and engineering inspections at the Seller
Properties, provided that in no event shall Parent or Buyer have the right to
conduct so-called "Phase II" environmental tests without Seller's prior consent,
which shall not be unreasonably withheld. Notwithstanding anything in this
Section 5.2 to the contrary, all of Parent's and Buyer's activities pursuant to
this Section 5.2 must be conducted in a manner that does not unreasonably
interfere with the ongoing operations of Seller and Seller Subsidiaries.
5.3 Reasonable Best Efforts; Notification.
(a) Subject to the terms and conditions herein provided,
Seller, Parent and Buyer shall: (i) use all reasonable best efforts to cooperate
with one another in (A) determining which filings are required to be made prior
to the Effective Time with, and which consents, approvals, permits or
authorizations are required to be obtained prior to the Effective Time from,
governmental or regulatory authorities of the United States, the several states
and foreign jurisdictions and any third parties in connection with the execution
and delivery of this Agreement, and the consummation of the transactions
contemplated hereby, including without limitation any required filings and
consents under the HSR Act, and (B) timely making all such filings and timely
seeking all such consents, approvals, permits and authorizations (the parties
acknowledge that all consents under each of the Seller Franchise Agreements
shall comply with the provisions of Section 5.3(a) of the Buyer Disclosure
Letter unless otherwise mutually agreed by Seller and Parent); (ii) use all
reasonable best efforts to obtain, in writing, the consents listed in Section
5.3(a)(1) of the Seller Disclosure Letter (the "Lender Consents") in the manner
set forth in Section 5.3(c) and the consents listed in Section 5.3(a)(3) of the
Seller Disclosure Letter (the "Ground Lessor Consents"), and the parties shall
use all reasonable best efforts to cause Lessee to obtain, in writing, the
consents listed in Section 5.3(a)(2) of the Seller Disclosure Letter (the
"Franchise Consents") in the manner set forth in Section 5.3(d) (such Lender
Consents, Ground Lessor Consents and Franchise Consents referred to herein
collectively as the "Required Consents") in form reasonably satisfactory to
Seller and Buyer, provided however, that, without the prior written consent of
Parent, neither Seller, the Seller Partnership nor any other Seller Subsidiary
shall pay any cash or other consideration, make any commitments or incur any
liability or other obligation except (x) in the case of obtaining Lender
Consents and consents under the Seller Franchise Agreements, as set forth in
clause (y) below and Sections 5.3(c) and 5.3(d), (y) in the case of obtaining
Ground Lessor Consents and Lender Consents, in an aggregate amount of $1,500,000
or less for the payment of all Ground Lessor Amounts and Prepayment Amounts
(provided that such amount may exceed $1,500,000 if the aggregate cash
consideration payable to holders of Seller Common Shares in the Merger and
Seller Partnership Units in the Partnership Merger is reduced by the aggregate
amount of such excess, and the Merger Consideration and Partnership Merger
Consideration per share or unit, as the case may be, is reduced accordingly) and
(z) for all other consents required to effect the Transactions, in an aggregate
amount of $100,000 or less (provided that such amount may exceed $100,000 if the
aggregate cash consideration payable to holders of Seller Common Shares in the
Merger and Seller Partnership Units in the Partnership Merger is reduced by the
aggregate amount of such excess, and the Merger Consideration and Partnership
Merger Consideration per share or unit, as the case may be, is reduced
accordingly); and (iii) use all reasonable best efforts to take, or cause to be
taken, all other action and do, or cause to be done, all other things necessary,
proper or appropriate to consummate and make effective the transactions
contemplated by this Agreement, subject in the case of Seller to the exercise by
the Seller Board or Special Committee prior to the Outside Date of its duties
under applicable law; provided however, that nothing in this Section 5.3 shall
require Parent or Buyer to pay or commit to pay any money or other consideration
or to incur any liability or other obligation (except
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as described in clause (i) of Section 5.3(c)). In furtherance thereof, Seller
agrees to vote in favor of, or at Buyer's request deliver a written consent with
respect to, the transactions contemplated by the Partnership Merger Agreement in
its capacity as a limited partner of the Seller Partnership, and in its capacity
as a general partner of the Seller Partnership. If at any time after the
Effective Time any further action is necessary or desirable to carry out the
purpose of this Agreement, Parent and the Surviving Company shall take all such
necessary action.
(b) Seller shall give prompt notice to Parent and Buyer, and
Parent and Buyer shall give prompt notice to Seller, (i) if any representation
or warranty made by it or them contained in this Agreement that is qualified as
to Seller Material Adverse Effect, Parent Material Adverse Effect or Buyer
Material Adverse Effect, as the case may be, becomes untrue or incorrect in any
respect or any such representation or warranty that is not so qualified becomes
untrue or incorrect in any material respect or (ii) of the failure by it or them
to comply with or satisfy in any material respect any covenant, condition or
agreement to be complied with or satisfied by it under this Agreement; provided,
however, that no such notification shall affect the representations, warranties,
covenants or agreements of the parties or the conditions to the obligations of
the parties under this Agreement.
(c) With respect to securing the Lender Consents, Buyer and
Seller shall cooperate with each other and use all reasonable best efforts to
secure each of the Lender Consents, including taking the actions set forth in
Section 5.3(d) of the Seller's Disclosure Schedule. Each party shall update the
other on its progress at the request of the other:
(i) In the event some or all of the Lender Consents are
not obtained, to the extent the Original Loan Amounts (as defined in
the Financing Commitment), as such Original Loan Amount may be
increased pursuant to the terms of the Financing Commitment, exceed
$454,600,000 less the amount, if any, by which the proceeds under the
Financing Commitment are reduced as a result of any defect or loss
referred to in clause (i)(A) of Section 7.1(j) (whether or not a Lender
Property Determination (as defined below) shall have occurred) (a
"Financing Overage"), the Financing Overage shall be used as a source
of funds to prepay as of the Closing Date, in whole or in part, the
outstanding amounts under all of the loans for which a Lender Consent
is required (any such loan, an "Underlying Loan") which have not been
received and any prepayment penalty with respect thereto. To the extent
an Underlying Loan and any related prepayment penalty will be paid as
of the Closing Date with the proceeds of a Financing Overage, the
Lender Consent with respect to such Underlying Loan shall be deemed to
have been obtained;
(ii) In the event that at any time after July 15, 1999,
Seller reasonably believes that (A) some or all of the Lender Consents
will not be obtained or waived or (B) the Financing Overage will be an
insufficient source of funds for the prepayment in full of all the
Underlying Loans (together with all prepayment penalties) or (C) Buyer
will not be able to obtain additional financing to prepay in full all
the Underlying Loans (together with all prepayment penalties), Seller
may seek to obtain new financing in an amount equal to such excess upon
terms materially similar to market terms for similar loans on the date
hereof. The proceeds of such financings shall be used solely to prepay
as of the Closing Date in whole or in part one or more of the
Underlying Loans for which Lender Consents have not been received or
waived and any prepayment penalty with respect thereto. To the extent
an Underlying Loan and any related prepayment penalty will be paid as
of the Closing Date with the proceeds of any such financing, together
with any Financing Overage, the
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Lender Consent with respect to such Underlying Loan shall be deemed to
have been obtained. With respect to Underlying Loans that are not
prepayable in accordance with their respective terms, all amounts paid
or required to be paid pursuant to clause (i) above or this clause (ii)
to obtain Lender Consents that exceed the amount of principal and
accrued interest on the applicable Underlying Loan are referred to
herein as the "Prepayment Amounts" and the parties shall use all
reasonable best efforts to minimize the Prepayment Amounts;
(iii) In the event that, following the operation of
clauses (i) and (ii) above, all of the Lender Consents have not been
obtained or deemed waived, Seller may, at its sole option, agree to
have the Common Merger Consideration reduced by the aggregate amount
necessary to pay at Closing all remaining amounts under the Underlying
Loans in full, and Buyer shall agree to waive the condition that it
receive any of the Lender Consents.
(d) Seller, Buyer and Parent shall use all reasonable best
efforts to minimize (i) the amounts of so-called Property Improvement Plan costs
and termination fees paid or payable by Seller, Seller Partnership or any other
Seller Subsidiary or Lessee in cash or other consideration (including by making
commitments or incurring any liability or obligation) in connection with
obtaining consent of the franchisors (including the Franchise Consents) under
each of the Seller Franchise Agreements with respect to any Seller Property
(collectively and in the aggregate, "Franchise Fees") and (ii) the amounts paid
or required to be paid by Seller, Seller Partnership or any other Seller
Subsidiary in cash or other consideration (including by making commitments or
incurring any liability or obligation) in connection with obtaining the Ground
Lessor Consents (the "Ground Lessor Amounts"), in each case in connection with
transactions contemplated hereby and by the Contribution Agreement. If the
Franchise Fees are equal to or less than $12,500,000, the aggregate cash
consideration payable to the holders of Seller Common Shares in the Merger and
Seller Partnership Units in the Partnership Merger shall not be adjusted
pursuant to this Section 5.3(d). If the Franchise Fees exceed $12,500,000 but
are less than $25,000,000 the aggregate cash consideration payable to holders of
Seller Common Shares in the Merger and Seller Partnership Units in the
Partnership Merger shall be reduced by one-half of the amount by which the
Franchise Fees exceed $12,500,000, and the Merger Consideration and Partnership
Merger Consideration per share or unit, as the case may be, shall be reduced
accordingly. If the Franchise Fees exceed $25,000,000, at the option of Seller,
Seller may or any Seller Subsidiary may pay or commit to pay or Seller may
consent to Lessee paying or committing to pay such excess, and the aggregate
cash consideration payable to holders of Seller Common Shares in the Merger and
Seller Partnership Units in the Partnership Merger shall be reduced by the sum
of (x) $6,250,000 as required by the preceding sentence and (y) the amount by
which the Franchise Fees exceed $25,000,000, and the Merger Consideration and
Partnership Merger Consideration per share or unit, as the case may be, shall be
reduced accordingly. The Special Committee (or its representatives) shall be
provided reasonable advance notice of all meetings with and copies of all
correspondence with any franchisors under each of the Seller Franchise
Agreements and be given the opportunity to attend and participate in all such
meetings.
(e) For purposes of the last two sentences of Section 5.3(d),
no Franchise Fees that are paid or payable by Parent, Buyer or Lessee shall be
included in determining the dollar thresholds in such sentences unless Seller
shall have been consulted by Parent, Buyer or Lessee, as applicable, prior to
the incurrence of such Franchise Fees.
5.4 Public Announcements. Parent, Buyer and Seller will consult
with each other before issuing, and provide each other the opportunity to review
and comment upon, any press release or other
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written public statements with respect to the transactions contemplated by this
Agreement, and shall not issue any such press release or make any such written
public statement prior to such consultation, except as may be required by
applicable law, court process or by obligations pursuant to any listing
agreement with any national securities exchange. The parties agree that the
initial press release to be issued with respect to the transactions contemplated
by this Agreement will be in the form agreed to by the parties hereto prior to
the execution of this Agreement.
5.5 Transfer Taxes. Buyer and Seller shall cooperate in the
preparation, execution and filing of all returns, questionnaires, applications
or other documents regarding any real property transfer, sales, use, transfer,
value added, stock transfer and stamp taxes, any transfer, recording,
registration and other fees and any similar taxes which become payable in
connection with the transactions contemplated by this Agreement (together with
any related interests, penalties or additions to tax, "Transfer Taxes"). From
and after the Effective Time, the Surviving Company shall pay, or shall cause
the Surviving Operating Partnership, as appropriate, to pay or cause to be paid,
without deduction or withholding from any amounts payable to the holders of
Seller Common Shares or Seller OP Units, all Transfer Taxes.
5.6 Benefit Plans. After the Effective Time, all employees of
Seller who are employed by the Surviving Company shall, at the option of the
Surviving Company, either continue to be eligible to participate in an "employee
benefit plan," as defined in Section 3(3) of ERISA, of Seller which is, at the
option of the Surviving Company, continued by the Surviving Company, or
alternatively shall be eligible to participate in any "employee benefit plan,"
as defined in Section 3(3) of ERISA, established, sponsored or maintained by the
Surviving Company after the Effective Time. With respect to each such employee
benefit plan not formerly maintained by Seller, service with Seller or any
Seller Subsidiary (as applicable) shall be included for purposes of determining
eligibility to participate, vesting (if applicable) and entitlement to benefits
and all pre-existing condition exclusions shall be waived and expenses incurred
by any employee for deductibles and copayments in the portion of the year prior
to the date such employee first becomes a participant in such employee benefit
plan shall be credited to the benefit of such employee under such employee
benefit plan for the year in which the employee's participation commences.
5.7 Indemnification.
(a) From and after the Effective Time, the Surviving Company
shall provide exculpation and indemnification for each Person who is now or has
been at any time prior to the date hereof or who becomes prior to the Effective
Time, an officer, employee or director of Seller or any Seller Subsidiary (the
"Indemnified Parties") which is the same as the exculpation and indemnification
provided to the Indemnified Parties by Seller and the Seller Subsidiaries
immediately prior to the Effective Time in their respective articles or
certificate of incorporation and bylaws or other organizational documents, as in
effect on the date hereof; provided, that such exculpation and indemnification
covers actions on or prior to the Effective Time, including, without limitation,
all transactions contemplated by this Agreement and the Financing.
(b) In addition to the rights provided in Section 5.7(a)
above, in the event of any threatened or actual claim, action, suit, proceeding
or investigation, whether civil, criminal or administrative, including without
limitation, any action by or on behalf of any or all security holders of Seller,
Parent or Buyer, or any Subsidiary of the Seller or Parent, or by or in the
right of Seller, Parent or Buyer, or any Subsidiary of the Seller or Parent, or
any claim, action, suit, proceeding or investigation (collectively,
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"Claims") in which any Indemnified Party is, or is threatened to be, made a
party based in whole or in part on, or arising in whole or in part out of, or
pertaining to (i) the fact that he is or was an officer, employee or director of
Seller or any of the Seller Subsidiaries or any action or omission or alleged
action or omission by such Person in his capacity as an officer, employee or
director, or (ii) this Agreement or the Partnership Merger Agreement or the
transactions contemplated by this Agreement, the Partnership Merger Agreement or
the Financing, whether in any case asserted or arising before or after the
Effective Time, Parent and the Surviving Company (the "Indemnifying Parties")
shall from and after the Effective Time jointly and severally indemnify and hold
harmless the Indemnified Parties from and against any losses, claims,
liabilities, expenses (including reasonable attorneys' fees and expenses),
judgments, fines or amounts paid in settlement arising out of or relating to any
such Claims. Parent, the Surviving Company and the Indemnified Parties hereby
agree to use their reasonable best efforts to cooperate in the defense of such
Claims. In connection with any such Claim, the Indemnified Parties shall have
the right to select and retain one counsel, at the cost of the Indemnifying
Parties, subject to the consent of the Indemnifying Parties (which consent shall
not be unreasonably withheld or delayed). In addition, after the Effective Time,
in the event of any such threatened or actual Claim, the Indemnifying Parties
shall promptly pay and advance reasonable expenses and costs incurred by each
Indemnified Person as they become due and payable in advance of the final
disposition of the Claim to the fullest extent and in the manner permitted by
law. Notwithstanding the foregoing, the Indemnifying Parties shall not be
obligated to advance any expenses or costs prior to receipt of an undertaking by
or on behalf of the Indemnified Party, such undertaking to be accepted without
regard to the creditworthiness of the Indemnified Party, to repay any expenses
advanced if it shall ultimately be determined that the Indemnified Party is not
entitled to be indemnified against such expense. Notwithstanding anything to the
contrary set forth in this Agreement, the Indemnifying Parties (i) shall not be
liable for any settlement effected without their prior written consent (which
consent shall not be unreasonably withheld or delayed), and (ii) shall not have
any obligation hereunder to any Indemnified Party to the extent that a court of
competent jurisdiction shall determine in a final and non-appealable order that
such indemnification is prohibited by applicable law. In the event of a final
and non-appealable determination by a court that any payment of expenses is
prohibited by applicable law, the Indemnified Party shall promptly refund to the
Indemnifying Parties the amount of all such expenses theretofore advanced
pursuant hereto. Any Indemnified Party wishing to claim indemnification under
this Section 5.7, upon learning of any such Claim, shall promptly notify the
Indemnifying Parties of such Claim and the relevant facts and circumstances with
respect thereto; provided however, that the failure to provide such notice shall
not affect the obligations of the Indemnifying Parties except to the extent such
failure to notify materially prejudices the Indemnifying Parties' ability to
defend such Claim; and provided, further, however, that no Indemnified Party
shall be obligated to provide any notification pursuant to this Section 5.7(b)
prior to the Effective Time.
(c) At or prior to the Effective Time, Buyer shall purchase
directors' and officers' liability insurance policy coverage for Seller's and
each Seller Subsidiary's directors and officers with at least $20,000,000 of
coverage for a period of six years which will provide the directors and officers
with coverage on substantially similar terms as currently provided by Seller and
the Seller Subsidiaries to such directors and officers. At or prior to the
Effective Time, Seller shall have the right to reasonably review and approve any
such policy, which approval shall not be unreasonably withheld.
(d) This Section 5.7 is intended for the irrevocable benefit
of, and to grant third-party rights to, the Indemnified Parties and their
successors, assigns and heirs and shall be binding on all successors and assigns
of Parent and Buyer, including without limitation the Surviving Company. Each of
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the Indemnified Parties shall be entitled to enforce the covenants contained in
this Section 5.7 and Parent and Buyer acknowledge and agree that each
Indemnified Party would suffer irreparable harm and that no adequate remedy at
law exists for a breach of such covenants and such Indemnified Party shall be
entitled to injunctive relief and specific performance in the event of any
breach of any provision in this Section 5.7.
(e) In the event that the Surviving Company or any of its
respective successors or assigns (i) consolidates with or merges into any other
Person and shall not be the continuing or surviving corporation or entity of
such consolidation or merger or (ii) transfers all or substantially all of its
properties and assets to any Person, then, and in each such case, the successors
and assigns of such entity shall assume the obligations set forth in this
Section 5.7, which obligations are expressly intended to be for the irrevocable
benefit of, and shall be enforceable by, each director and officer covered
hereby.
Parent guarantees, unconditionally and absolutely, the performance of
Surviving Company's and Buyer's obligations under this Section 5.7.
5.8 Declaration of Dividends and Distributions. From and after the
date of this Agreement, Seller shall not make any dividend or distribution to
its stockholders without the prior written consent of Buyer; provided, however,
the written consent of Buyer shall not be required for the authorization and
payment of, and Seller shall make quarterly distributions with respect to the
Seller Preferred Shares in the amounts provided for in the Articles
Supplementary in respect of the Seller Preferred Shares. From and after the date
of this Agreement, Seller Partnership shall not make any distribution to the
holders of Seller OP Units except a distribution per Seller OP Unit in the same
amount as a dividend per Seller Common Share, with the same record and payment
dates as such dividend on the Seller Common Shares, and the Seller Partnership
shall not make any distribution to Seller OP Preferred Unit Holders except a
distribution per Seller OP Preferred Unit in the same amount as a dividend per
Seller Preferred Share. The foregoing restrictions, and Section 4.2(m)(i), shall
not apply, however, to the extent a distribution by Seller is necessary for
Seller to maintain REIT status or to prevent Seller from having to pay federal
income or excise tax; provided that in the event of such a necessary
distribution, the aggregate cash consideration payable to holders of Seller
Common Shares in the Merger and Seller Partnership Units in the Partnership
Merger shall be reduced by the aggregate amount of such distribution, and the
Merger Consideration and Partnership Merger Consideration per share or unit, as
the case may be, shall be reduced accordingly.
5.9 Resignations. On the Closing Date, Seller shall use its best
efforts to cause the directors and officers of Seller or any of the Seller
Subsidiaries to submit their resignations from such positions as may be
requested by Buyer, effective immediately after the Effective Time; provided,
however, that by resigning, such officers and directors will not lose the
benefit of any "change of control" provisions of any employment agreement or
other instruments to which they would otherwise be entitled.
5.10 Stockholder Claims. Seller shall not settle or compromise any
claim relating to the Transactions brought by any current, former or purported
holder of any securities of Seller or the Seller Partnership without the prior
written consent of Buyer, which consent will not be unreasonably withheld.
5.11 Seller Franchise Agreements and Leases. Except as (i)
permitted pursuant to Section 5.3 or (ii) approved by Buyer (which approval
shall not be unreasonably withheld or delayed), Seller will not, and will not
permit any of its Subsidiaries to, amend in any material respect any of the
Seller Franchise Agreements or Seller Ground Leases, or renew any Seller
Franchise Agreement or Seller Ground Lease.
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5.12 Cooperation with Proposed Financings. At the request of the
Buyer, Seller will, at the Buyer's expense, reasonably cooperate with the Buyer
in connection with the proposed financing of the Transactions by the Parent and
its Subsidiaries (including causing Seller Partnership and other Seller
Subsidiaries who are identified as borrowers in the Financing Commitment to
execute and deliver at the Closing the definitive financing agreements as
contemplated under the Financing Commitment), provided that such requested
actions do not unreasonably interfere with the ongoing operations of Seller and
Seller Subsidiaries. Solely in order to permit Parent and Buyer to consummated
the Financing, Seller shall immediately prior to the Effective Time cause to be
(i) created a special committee of the Seller Board whose sole authority and
purpose shall be to authorize the execution of definitive finance documents to
effect the Financing at the Closing and (ii) appointed to such special committee
2 designees of Parent who are reasonably acceptable to Seller. It is expressly
agreed and understood that no action or inaction of such special committee shall
be treated as action or inaction of Seller or any of its Subsidiaries for
purposes of this Agreement.
ARTICLE 6
CONDITIONS
6.1 Conditions to Each Party's Obligation to Effect the Merger.
The obligations of each party to effect the Merger and to consummate the other
transactions contemplated by this Agreement to occur on the Closing Date shall
be subject to the fulfillment at or prior to the Closing Date of the following
conditions:
(a) Stockholder Approval. The (i) Seller Stockholder
Approvals and (ii) Seller Board Approval shall have been obtained.
(b) No Injunctions or Restraints. No temporary restraining
order, preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the Merger, the Partnership Merger, the Seller Partnership
Redemption or any of the other transactions contemplated hereby (other than the
Contribution) shall be in effect.
(c) HSR. All applicable waiting periods (and any extensions
thereof) under the HSR Act shall have expired or otherwise been terminated.
6.2 Conditions to Obligations of Parent and Buyer. The obligations
of Parent and Buyer to effect the Merger and to consummate the other
transactions contemplated to occur on the Closing Date are further subject to
the following conditions, any one or more of which may be waived in writing by
Buyer (provided that the failure of any condition set forth in Section 6.2(a)
and (c) as a result of any action taken or not taken by Seller as contemplated
by Section 4.2 of the Seller Disclosure Letter, as otherwise agreed to by Parent
or as a result of the consummation of the transactions contemplated by this
Agreement and the Partnership Merger Agreement shall not cause or result in any
such condition not being satisfied):
(a) Representations and Warranties. The representations and
warranties of Seller set forth in this Agreement (i) that are qualified as to
Seller Material Adverse Effect shall be true and correct and (ii) that are not
so qualified shall be true and correct in all material respects, as of the date
of this
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Agreement and as of the Closing Date, in each case as though made on and as of
the Closing Date, except to the extent the representation or warranty is
expressly limited by its terms to another date, in which case such
representation or warranty shall be true and correct (if qualified as to Seller
Material Adverse Effect) or true and correct in all material respects (if not so
qualified) only as of such specific date, and Parent and Buyer shall have
received a certificate (which certificate may be qualified by Knowledge to the
same extent as the representations and warranties of Seller contained herein are
so qualified) signed on behalf of Seller by the chief operating officer of
Seller, in such capacity, to such effect.
(b) Performance of Obligations of Seller. Seller shall have
performed in all material respects all obligations required to be performed by
it under this Agreement at or prior to the Effective Time, and Parent and Buyer
shall have received a certificate signed on behalf of Seller by an executive
officer of Seller, in such capacity, to such effect.
(c) Material Adverse Change. Since the date of this Agreement
through and including the Closing Date, (i) there shall have been no Seller
Material Adverse Change and (ii) Parent and Buyer shall have received a
certificate of an executive officer of Seller, in such capacity, certifying to
such effect. For purposes of this Section 6.2(c), it is understood and agreed
that a Seller Material Adverse Change shall be deemed to have occurred, without
regard to any certificate provided pursuant to clause (ii) of the first sentence
of this Section 6.2(c), if, as a result of a "change of law" after the date
hereof, at the Effective Time Seller would not qualify (at or prior to the
Effective Time) as a REIT. For this purpose, the term "change in law" shall mean
any amendment to or change (including any announced prospective change having a
proposed effective date at or prior to the Effective Time) in the federal tax
laws of the United States, including any statute, regulation or proposed
regulation or any official administrative pronouncement (consisting of the
issuance or revocation of any revenue ruling, revenue procedure, notice, private
letter ruling or technical advice memorandum) or any judicial decision
interpreting such federal tax laws (whether or not such pronouncement or
decision is issued to, or in connection with, a proceeding involving the Seller
or a Seller Subsidiary or is subject to review or appeal).
(d) Tax Opinions Relating to REIT Status of Seller And
Partnership Status of Seller Partnership. Parent and Buyer shall have received
an opinion of Brobeck, Phleger and Harrison LLP, or other counsel to Seller
reasonably acceptable to Parent and Buyer, dated as of the Effective Time, in
the form attached hereto as Exhibit J. Such opinion may be based on certificates
in the form of Section 6.2(d) of the Seller Disclosure Letter.
(e) Consents. All Required Consents shall have been obtained,
and not subsequently been revoked, as of the Closing Date. In addition, the
Franchise Fees shall not exceed $25 million (unless Seller shall have exercised
its option described in the last sentence of Section 5.3(d)).
(f) Seller Expenses. All (i) investment banking, (ii) legal
and accounting, (iii) advisory, consulting and severance, (iv) printing and SEC
filing and (v) other fees and expenses incurred, paid or accrued by Seller and
the Seller Subsidiaries in connection with the Transactions shall not exceed
$11,500,000. Parent and Buyer shall have received a certificate signed on behalf
of Seller by the chief operating officer of Seller setting forth in reasonable
detail the amount of each such fees and expenses. In the event the aggregate of
such fees and expenses exceed $11,500,000, the aggregate cash consideration
payable to holders of Seller Common Shares in the Merger and Seller Partnership
Units in the Partnership
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Merger shall be reduced by the aggregate amount of such excess, and the Common
Merger Consideration and Partnership Merger Consideration per share or unit, as
the case may be, shall be reduced accordingly.
(g) Partnership Redemption. The Partnership Redemption shall
have occurred.
(h) Partnership Merger. The Partnership Merger shall have been
consummated.
(i) Financing. Parent and its Subsidiaries shall have obtained
funds under the Financing Commitment on terms and conditions consistent with
Exhibit G hereto and otherwise reasonably acceptable to Parent and Buyer and the
Original Loan Amount equals or exceeds $454,600,000 less any reduction resulting
from a Lender Property Determination up to the Defect Amount (as defined below).
Notwithstanding anything to the contrary in this Agreement, none of the
initiation, threat or existence of any legal action of any kind with respect to
this Agreement or the Partnership Merger Agreement or any transaction
contemplated hereby or thereby, including without limitation any action
initiated, threatened or maintained by any stockholder of Seller or any partner
in the Seller Partnership, whether alleging rights with respect to claims under
any Federal or state securities law, contract or tort claims, claims for breach
of fiduciary duty or otherwise, will constitute a failure of any of the
conditions set forth in Sections 6.2 and 6.3 (and no such action shall cause the
chief operating officer of Seller or of Parent or Buyer to be unable to deliver
a certificate attesting to compliance with such conditions) unless that action
has resulted in the granting of injunctive relief that prevents the consummation
of the Merger and the other transactions contemplated hereby or thereby, and
such injunctive relief has not been dissolved or vacated.
6.3 Conditions to Obligations of Seller. The obligation of Seller
to effect the Merger and to consummate the other transactions contemplated to
occur on the Closing Date is further subject to the following conditions, any
one or more of which may be waived in writing by Seller:
(a) Representations and Warranties. The representations and
warranties of Parent and Buyer set forth in this Agreement (i) that are
qualified as to Parent Material Adverse Effect or Buyer Material Adverse Effect
shall be true and correct and (ii) that are not so qualified shall be true and
correct in all material respects, as of the date of this Agreement and as of the
Closing Date, in each case as though made on and as of the Closing Date, except
to the extent the representation or warranty is expressly limited by its terms
to another date, in which case such representation or warranty shall be true and
correct (if qualified as to Parent Material Adverse Effect or Buyer Material
Adverse Effect) or true and correct in all material respects (if not so
qualified) only as of such specific date, and Seller shall have received a
certificate (which certificate may be qualified by Knowledge to the same extent
as the representations and warranties of Parent and Buyer contained herein are
so qualified) signed on behalf of Parent and Buyer by the chief executive
officer or the chief financial officer of such party, in such capacity, to such
effect.
(b) Performance of Obligations of Buyer. Each of Parent and
Buyer shall have performed in all material respects all obligations required to
be performed by them, respectively under this Agreement at or prior to the
Effective Time, and Seller shall have received a certificate of Parent and Buyer
signed on behalf of Parent and Buyer by the chief executive officer or the chief
financial officer of Parent and Buyer, in such capacity, to such effect.
(c) Material Adverse Change. Since the date of this Agreement,
there shall have been no change in the business, financial condition or results
of operations of Parent and its Subsidiaries, taken
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as a whole, or of Buyer and the Buyer Subsidiaries, taken as a whole, that has
had or would reasonably be expected to have a material adverse effect on the
ability of Parent, Buyer or Buyer Operating Partnership to consummate the
transactions contemplated by this Agreement and the Partnership Merger
Agreement, and Seller shall have received a certificate of the chief executive
officer or chief financial officer of Parent and Buyer, in such capacity,
certifying to such effect.
(d) Solvency Opinion. Seller and Seller Partnership shall have
received an opinion, by a nationally recognized firm selected by Parent and
reasonably acceptable to Seller, in a customary form for transactions of this
type as to the solvency and adequate capitalization of the Seller and Seller
Partnership immediately before and of the Surviving Company and the Surviving
Operating Partnership immediately after giving effect to the Transactions, which
opinion shall be reasonably satisfactory to Seller.
(e) Payment of Expenses. Expenses, to the extent incurred and
not exceeding $11,500,000, described in Section 6.2(f) shall have been paid in
full or a reasonably satisfactory arrangement exists to pay in full such amounts
at Closing.
(f) Partnership Merger. The Partnership Merger shall have been
consummated.
ARTICLE 7
TERMINATION, AMENDMENT AND WAIVER
7.1 Termination. This Agreement may be terminated at any time
prior to the Effective Time, (in the case of Seller, upon the direction of the
Special Committee) whether before or after the Seller Stockholder Approvals are
obtained:
(a) by mutual written consent duly authorized by Parent, Buyer
and Seller;
(b) by Parent or Buyer, upon a breach of any (i)
representation or warranty, or (ii) covenant, obligation or agreement on the
part of Seller set forth in this Agreement, in any case such that the conditions
set forth in Section 6.2(a) or Section 6.2(b), as the case may be, are not
satisfied or would be incapable of being satisfied within 30 days after the
giving of written notice to Seller (or, if sooner, the date the Closing would
otherwise occur);
(c) by Seller, upon a breach of any (i) representation or
warranty, or (ii) covenant obligation or agreement on the part of Parent or
Buyer set forth in this Agreement, in either case such that the conditions set
forth in Section 6.3(a) or Section 6.3(b), as the case may be, are not satisfied
or would be incapable of being satisfied within 30 days after the giving of
written notice to Parent or Buyer (or, if sooner, the date the Closing would
otherwise occur);
(d) by Parent, Buyer or Seller, if any judgment, injunction,
order, decree or action by any Governmental Entity of competent authority
preventing the consummation of the Merger shall have become final and
nonappealable (an "Injunction");
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(e) by Parent, Buyer or Seller, if the Merger shall not have
been consummated on or before the Outside Date; provided, however, that a party
may not terminate pursuant to this clause (e) if the terminating party shall
have breached in any material respect its representations or warranties or its
obligations under this Agreement in any manner that shall have proximately
contributed to the occurrence of the failure referred to in this clause;
(f) by either Seller (unless Seller is in breach of its
obligations under Section 5.1(c)) or Parent and Buyer (unless Parent or Buyer is
in breach of its obligations under Section 4.3(e)) if, upon a vote at a duly
held Seller Stockholders Meeting or any adjournment thereof, Seller Stockholder
Approvals shall not have been obtained as contemplated by Section 5.1 or the
Seller Partner Approval shall not have been obtained within 5 business days of
receipt of the Seller Stockholder Approvals;
(g) by Seller, prior to the Seller Stockholders Meeting, if
Seller Board or Special Committee shall have withdrawn or modified its approval
or recommendation of the Merger or this Agreement in connection with, or
approved or recommended, a Superior Acquisition Proposal; provided, however,
that no termination shall be effective pursuant to this Section 7.1(g) under
circumstances in which a Break-Up Fee (as defined in Section 7.2(b)) is payable
pursuant to Section 7.2(a)(vii), unless simultaneous with such termination, such
Break-Up Fee is paid in full by Seller or Seller Partnership in accordance with
Section 7.2(a)(vii);
(h) by Parent or Buyer if (i) prior to the Seller Stockholders
Meeting, Seller Board shall have withdrawn or modified in any manner adverse to
Buyer its approval or recommendation of the Merger or this Agreement, or
approved or recommended any Acquisition Proposal; or (ii) Seller shall have
entered into an agreement with respect to any Acquisition Proposal other than a
confidentiality agreement that was entered into in compliance with Section 4.1;
(i) by Seller, unless a Lender Property Determination (as
defined below) shall have occurred, if (x) the borrowings contemplated by the
Financing Commitment have not been closed on or prior to the date the Closing
would otherwise have occurred (except if the failure of the Closing to occur is
due to the failure of the condition set forth in Section 6.2(i) to be satisfied)
or (y) the Financing Commitment shall have terminated in accordance with its
terms or been terminated for any reason whatsoever;
(j) by Parent or Buyer, if (i) the lender under the Financing
Commitment does not provide the funds specified in the Financing Commitment on
or prior to the date the Closing would otherwise have occurred because (A) the
aggregate amount of the sum of (x) the amount of the estimated expenditures
necessary to remedy defects which are identified in the Property Reports, as
such may have been amended or supplemented, at or with respect to the Seller
Properties and, in the case of any defects at or with respect to the Seller
Properties which are identified in the Property Reports, as such may have been
amended or supplemented, which cannot be remedied, the difference between the
value of such Seller Property with such defect and its value without such defect
plus (y) the sum of all losses with respect to which there is not insurance and
which occur following the date hereof at the Seller Properties exceeds the
Defect Amount or (B) the Bench Mark Cash Flow Amount (as defined in the
Financing Commitment) is more than 1.5% less than the Bench Mark Cash Flow
Amount at May 31, 1999 (a circumstance described in either clause (A) or (B), a
"Lender Property Determination"). As used in the prior sentence, "Defect Amount"
means $25,000,000;
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(k) by Parent or Buyer if an Acquisition Proposal shall have
been publicly announced and (i) Seller shall not have rejected such proposal
within 10 business days after the date of the receipt thereof by Seller or after
the date of its existence first becomes publicly announced, if sooner, or (ii)
Seller shall have failed to confirm its recommendation described in Section 2.24
within 10 business days after being requested by Buyer to do so;
(l) by Parent or Buyer if the Franchise Fees exceed
$25,000,000 and Seller does not, within five business days of a request by
Parent, notify Parent in writing that Seller has exercised Seller's option
described in the last sentence of Section 5.3(d); and
(m) by Parent or Buyer in the event the condition set forth in
Section 6.1(a)(ii) is not satisfied by the first business day following receipt
of the Seller Stockholder Approvals.
7.2 Certain Fees and Expenses.
(a) If this Agreement shall be terminated:
(i) pursuant to Section 7.1(b)(i), then Seller and Seller
Partnership will pay Parent an aggregate amount equal to the Break-Up
Fee plus the Break-Up Expenses (provided that, in the case of a
termination by Parent or Buyer pursuant to Section 7.1(b)(i) on the
basis of a breach of (A) the representation in Section 2.9(b) that was
not willful or (B) any representation which Alter had actual knowledge
(without any duty of investigation or inquiry) as of the date hereof
was not true and correct, then Seller and Seller Partnership will pay
Parent an aggregate amount equal to the Break-Up Expenses plus
$7,500,000;
(ii) pursuant to Section 7.1(b)(ii), then Seller and
Seller Partnership will pay Parent an aggregate amount equal to the
Break-Up Fee plus the Break-Up Expenses;
(iii) pursuant to Section 7.1(c)(i), then Parent and Buyer
will pay Seller an aggregate amount equal to the Break-Up Fee plus the
Break-Up Expenses;
(iv) pursuant to Section 7.1(c)(ii), then Parent and Buyer
will pay Seller an aggregate amount equal to the Break-Up Fee plus
Break-Up Expenses;
(v) pursuant to Section 7.1(f) and at the time of the
Seller Stockholders Meeting, (A) Parent and Buyer are not in material
breach of this Agreement, and (B) the Financing Commitment and
Contribution Agreement are then in full force and effect, then Seller
and Seller Partnership will pay Parent an aggregate amount equal to the
Break-Up Expenses;
(vi) pursuant to Section 7.1(f) and (A) at or prior to the
time of the termination of this Agreement, an Acquisition Proposal has
been received by Seller or publicly announced, (B) Parent and Buyer are
not then in material breach of this Agreement, (C) the Financing
Commitment and Contribution Agreement are then in full force and
effect, and (D) either prior to the termination of this Agreement or
within 12 months thereafter an Acquisition Proposal is consummated or
Seller, Seller Partnership or any other Seller Subsidiary enters into
any written agreement, other than a confidentiality agreement (which
confidentiality agreement shall have been
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entered into in compliance with Section 4.1 if entered into prior to
the termination of this Agreement), related to any Acquisition Proposal
which is subsequently consummated, in each case with any Person (or any
Affiliate thereof) who shall have made an Acquisition Proposal prior to
the termination of this Agreement, then Seller and Seller Partnership
will pay Parent upon consummation of such Acquisition Proposal an
aggregate amount equal to the Break-Up Fee plus Break-Up Expenses (to
the extent not already paid);
(vii) pursuant to Section 7.1(g), 7.1(h) or 7.1(k) and at
the time of such termination (A) Parent and Buyer are not in material
breach of this Agreement and (B) the Financing Commitment and
Contribution Agreement are in full force and effect, then Seller and
Seller Partnership will pay Parent an aggregate amount equal to the
Break-Up Fee plus the Break-Up Expenses;
(viii) pursuant to Section 7.1(i)(x) then Parent will pay
Seller an aggregate amount equal to the Break-Up Fee plus the Break-Up
Expenses; provided, however, that Parent shall not be obligated to pay
Seller any amount if the lender terminates the Financing Commitment
because of a Lender Property Determination;
(ix) pursuant to Section 7.1(e) by Seller and Seller had
not mailed the Proxy Statement to its stockholders as permitted by
Section 5.1 due to the failure of the lender under the Financing
Commitment to deliver the certification to Seller contemplated by such
Section when Seller was otherwise prepared to mail the Proxy Statement,
then the terminating party will pay the non-terminating party an
aggregate amount equal to the Break-Up Expenses; and
(x) pursuant to Section 7.1(m) by Parent or Buyer then
Seller will pay Parent an aggregate amount equal to the Break-Up Fee
plus the Break-Up Expenses.
Notwithstanding anything in this Agreement to the contrary, the right
of a party to receive payment of the Break-Up Fee, Break-Up Expenses or other
amounts in accordance with this Section 7.2 shall be the exclusive remedy of
such party for the loss suffered by such party as a result of the failure of the
Merger and the Partnership Merger to be consummated, any breach of this
Agreement or otherwise, and no party shall have any other liability to any other
party after the payment of the Break-Up Fee, Break-Up Expenses or other amounts
(as applicable) as a result of the failure of the Merger and the Partnership
Merger to be consummated, any breach of this Agreement or otherwise. The
Break-Up Fee, Break-Up Expenses or other amounts payable by Seller and Seller
Partnership in accordance with this Section 7.2 shall be paid by Seller and
Seller Partnership to Parent, in immediately available funds within 15 days
after the date the event giving rise to the obligation to make such payment
occurred unless a different time is expressly provided. Except as provided in
Section 7.2(b), the Break-Up Fee, the Break-Up Expenses or other amounts payable
by Parent and Buyer to Seller in accordance with this Section 7.2 shall be paid
by Parent or Buyer to Seller, in immediately available funds within 15 days
after the day the event giving rise to the obligation to make such payment
occurred except as otherwise specifically provided in Section 7.2.
(b) As used in this Agreement, the "Break-Up Fee" payable to
Parent shall be an amount equal to $17,500,000. The "Break-Up Fee" payable to
Seller shall be an amount equal to the lesser of: (i) $17,500,000, (the "Base
Amount"); and (ii) the maximum amount that can be paid to Seller without causing
it to fail to meet the requirements of Sections 856(c)(2) and (3) of the Code
(the "REIT Income
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Requirements") determined as if the payment of such amount did not constitute
income described in Sections 856(c)(2) and 856(c)(3) of the Code ("Qualifying
Income"), as determined by independent accountants to Seller. Notwithstanding
the foregoing, in the event Seller receives a letter from outside counsel (the
"BreakUp Fee Tax Opinion") or a ruling from the Internal Revenue Service ("IRS")
to the effect that Seller's receipt of the Base Amount would either constitute
Qualifying Income or would otherwise not cause Seller to fail to meet the REIT
Income Requirements, the Break-Up Fee shall be an amount equal to the Base
Amount. The obligation of Parent and Buyer to pay any unpaid portion of the
Break-Up Fee not payable by reason of the foregoing provisions shall terminate
five years from the date of this Agreement. In the event that Seller is not able
to receive the full Base Amount, Parent and Buyer shall place the unpaid amount
in escrow by wire transfer within three days of termination (except as otherwise
provided in Section 7.1(c)), and the Escrow Agent shall not release any portion
thereof to Seller, and such portion shall not be payable, except in accordance
with, and unless and until the other party receives, either one or a combination
of the following: (i) a letter from Seller's independent accountants indicating
the maximum amount that can be paid at that time to Seller without causing
Seller to fail to meet the REIT Income Requirements or (ii) a Break-Up Fee Tax
Opinion, in either of which events the escrow agent or the other party shall pay
to Seller the lesser of the unpaid Base Amount or the maximum amount stated in
the letter referred to in (i) above. Parent and Buyer agree to amend this
Section 7.2 at the reasonable request of Seller solely in order to (x) maximize
the portion of the Base Amount that may be paid to Seller hereunder without
causing Seller to fail to meet the REIT Income Requirements or (y) improve
Seller's chances of securing a favorable ruling described in this Section
7.2(b), provided that no such amendment may result in any additional cost or
expense to the other party. Amounts remaining in escrow after the obligation of
a party to pay the Break-Up Fee is satisfied or otherwise terminates shall be
released to the party making such escrow deposit. The amounts described in
Sections 7.2(a)(iii) and (iv) shall be subject to the conditional limitations of
clause (ii) of this Section 7.2(b) as if it were a Break-Up Fee payable to
Seller.
(c) As used in this Agreement, the "Break-Up Expenses" payable
to Seller or Parent, as the case may be, shall be an amount, not to exceed
$7,500,000, equal to the documented out-of-pocket expenses of such party (and,
in the case of Parent, including Buyer's and Parent's respective stockholders
and members) incurred in connection with this Agreement and the transactions
contemplated hereby and any litigation associated therewith (including, without
limitation, all fees and expenses payable to financing sources or hedging
counterparties, environmental and structural consultants, attorneys',
accountants', and investment bankers' fees and expenses); provided that the
Break-Up Expenses payable to Seller shall not exceed the maximum amount that can
be paid to Seller without causing it to fail to meet the REIT Income
Requirements determined as if the payment of such amount did not constitute
Qualifying Income, as determined by independent accountants to Seller.
Notwithstanding the foregoing, in the event Seller receives a letter from
outside counsel (the "Break-Up Expenses Tax Opinion") or a ruling from the IRS
to the effect that Seller's receipt of the Break-Up Expenses would either
constitute Qualifying Income or would otherwise not cause Seller to fail to meet
the REIT Income Requirements, the Break-Up Expenses shall be determined without
regard to foregoing provisions. The obligation of Buyer, as applicable, to pay
any unpaid portion of the Break-Up Expenses not payable by reason of foregoing
proviso shall terminate five years from the date of this Agreement. In the event
that Seller is not able to receive the full Break-Up Expenses determined without
regard to foregoing proviso, Parent and Buyer shall place the unpaid amount in
escrow, and the escrow agent shall not release any portion thereof to Seller,
and such portion shall not be payable, except in accordance with, and unless and
until the Buyer receives any one or a combination of the following: (i) a letter
from Seller's independent accountants indicating the maximum amount that can be
paid at that time to Seller without causing Seller to fail to meet the REIT
Income Requirements or (ii) a Break-Up Expense
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Tax Opinion, in either of which events the escrow agent or the Buyer shall pay
to Seller the lesser of the unpaid Break-Up Expenses or the maximum amount
stated in the letter referred to in (i) above. Amounts remaining in escrow after
the obligation of a party to pay the Break-Up Expenses is satisfied or otherwise
terminates shall be released to the party making such escrow deposit. Such
Break-Up Expenses shall be reflected on invoices or other means verifying the
incurrence of such Break-Up Expenses. Buyer agrees to amend this Section 7.2 at
the reasonable request of Seller solely in order to (x) maximize the portion of
Break-Up Expenses that may be paid to Seller hereunder without causing Seller to
fail to meet the REIT Income Requirements or (y) improve Seller's chances of
securing a favorable ruling described in this Section 7.2(c), provided that no
such amendment may result in any additional cost or expense to the other party.
(d) If this Agreement shall be terminated by Seller and, as
provided in Section 7.2(a), Parent and Buyer are required to pay to Seller a
Break-Up Fee or Break-Up Expenses, then Seller shall be entitled to enforce its
rights under the Escrow Agreement to receive the Cash Collateral or to draw on
the Letter of Credit in accordance with the terms thereof. Except as described
in the preceding sentence, in no other circumstances shall Seller have any right
to receive any part of the Cash Collateral or to draw on the Letter of Credit.
If this Agreement is terminated in any circumstance other than as described in
the first sentence of this Section 7.2(d), Seller shall direct the Escrow Agent
to return the Cash Collateral of Letter of Credit, as applicable, to Parent
within one business day of any such termination. Notwithstanding anything in
this Agreement to the contrary, the receipt by Seller of amounts under the
Escrow Agreement shall be the exclusive remedy of Seller, and its stockholders,
the Seller Partnership and the OP Unit Holders for any and all losses suffered
as a result of the failure of the Merger and the Partnership Merger to be
consummated and upon payment of such amounts neither Parent nor Buyer shall have
any other liability to Seller hereunder (including under Section 7.2(a)). Any
amounts which Seller has the right to receive pursuant to this Section 7.2(d)
shall be applied as set forth in the Escrow Agreement.
(e) In the event either party is required to file suit to seek
all or a portion of the BreakUp Fee and/or Break-Up Expenses, and it ultimately
succeeds, it shall be entitled to all expenses, including attorneys' fees and
expenses, which it has incurred in enforcing its rights hereunder. Except as
specifically provided in this Section 7.2, each party shall bear its own
expenses in connection with this Agreement and the Transactions.
(f) Notwithstanding anything else to the contrary herein, if
Seller or Seller Partnership shall be required to make a payment to Parent or
Buyer pursuant to (i) Section 7.2(a), then the amount of such payment shall be
increased by $12,500,000 if, on or prior to the termination of this Agreement,
Seller has committed a willful violation of the provisions of Section 4.1 and
(ii) Section 7.2(a)(ix), then the maximum amount of Break-Up Expenses pursuant
to Section 7.2(c) shall be limited to $3,000,000.
(g) If Seller and Seller Partnership shall be required to make
a payment to Parent pursuant to Section 7.2(a)(i) and there is a dispute, as the
case may be, whether a breach of Section 2.9(b) was willful or Alter had actual
knowledge then Seller and Seller Partnership shall, no later than the time that
they were required to make such payment to Parent, deliver to the Escrow Agent
$10,000,000 or a letter of credit for such amount to be held and disbursed
pursuant to the terms of an escrow agreement substantially in the form of the
Escrow Agreement, except that such agreement shall secure the obligations of
Seller and Seller Partnership described in Section 7.2(g) rather than the
obligations of Parent secured under the Escrow Agreement, and if such dispute is
ultimately resolved in favor of Parent, in addition to the $10,000,000 held
under such escrow, Parent shall be entitled to receive interest from Seller and
Seller Partnership on such
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$10,000,000 at a rate of 5.5% per annum from the date of termination of the
Merger Agreement until Parent receives such $10,000,000.
7.3 Effect of Termination. In the event of termination of this
Agreement by Seller, Buyer or Parent as provided in Section 7.1, this Agreement
shall forthwith become void and have no effect, without any liability or
obligation on the part of Parent, Buyer, or Seller, other than in accordance
with or as provided in Section 7.2, this Section 7.3 and Article 8.
7.4 Amendment. This Agreement may be amended by Parent, Buyer and
Seller in writing by action of their respective Boards of Directors at any time
before or after any Seller Stockholder Approvals are obtained and prior to the
Effective Time; provided, however, that, after the Seller Stockholder Approvals
are obtained, no such amendment, modification or supplement shall be made which
by law requires the further approval of stockholders without obtaining such
further approval. The parties agree to amend this Agreement in the manner
provided in the immediately preceding sentence to the extent required to
continue the status of Seller as a REIT.
7.5 Extension; Waiver. At any time prior to the Effective Time, the
parties may (a) extend the time for the performance of any of the obligations or
other acts of any other party, (b) waive any inaccuracies in the representations
and warranties of any other party contained in this Agreement or in any document
delivered pursuant to this Agreement or (c) subject to the proviso of Section
7.4, waive compliance with any of the agreements or conditions of any other
party contained in this Agreement. Any agreement on the part of a party to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party. The failure of any party to this
Agreement to assert any of its rights under this Agreement or otherwise shall
not constitute a waiver of those rights.
ARTICLE 8
GENERAL PROVISIONS
8.1 Nonsurvival of Representations and Warranties. None of the
representations and warranties in this Agreement, the Partnership Merger
Agreement or in any instrument delivered pursuant to this Agreement or the
Partnership Merger Agreement confirming the representations and warranties in
this Agreement shall survive the Effective Time. This Section 8.1 shall not
limit any covenant or agreement of the parties which by its terms contemplates
performance after the Effective Time.
8.2 Notices. All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be delivered
personally, sent by overnight courier (providing proof of delivery) to the
parties or sent by telecopy (providing confirmation of transmission) at the
following addresses or telecopy numbers (or at such other address or telecopy
number for a party as shall be specified by like notice):
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(a) if to Parent or Buyer, to:
SHP Acquisition, L.L.C.
c/o Sunstone Hotel Properties, Inc.
903 Calle Amanecer
San Clemente, CA 92673
Attention: Robert A. Alter
Fax: (949) 369-4210
and to:
SHP Acquisition, L.L.C.
c/o Westbrook Real Estate Partners
599 Lexington Avenue
Suite 3800
New York, NY 10022
Attention: Jonathan Paul
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017-3954
Attention: Richard Capelouto, Esq.
Brian M. Stadler, Esq.
Fax: (212) 455-2502
and
Battle Fowler LLP
75 East 55th Street
New York, NY 10022
Attention: Steve Lichtenfeld, Esq.
Fax: (212) 856-7823
(b) if to Seller, to:
Sunstone Hotel Investors, Inc.
903 Calle Amanecer
San Clemente, CA 92673
Attention: Chief Operating Officer
Fax: (949) 369-4230
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with a copy to:
Altheimer & Gray
10 South Wacker Drive
Chicago, IL 60606
Attention: Phillip Gordon, Esq.
Fax: (312) 715-4800
All notices shall be deemed given only when actually received.
8.3 Interpretation. When a reference is made in this Agreement to a
Section, such reference shall be to a Section of this Agreement unless otherwise
indicated. The table of contents and headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Whenever the words "include," "includes" or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation."
8.4 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties.
8.5 Entire Agreement; No Third-Party Beneficiaries. This Agreement, the
Seller Disclosure Letter, the Buyer Disclosure Letter, the Partnership Merger
Agreement and the other agreements entered into in connection with the Merger
(a) constitute the entire agreement and supersede all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter of this Agreement and (b) except as provided in Section 5.7 (the
"Third Party Provisions") are not intended to confer upon any Person other than
the parties hereto any rights or remedies. The Third Party Provisions may be
enforced by the beneficiaries thereof or on behalf of the beneficiaries thereof
by the directors of Seller who had been members of the Seller Board prior to the
Effective Time.
8.6 Governing Law. EXCEPT TO THE EXTENT THAT THE MGCL SHALL GOVERN THE
MERGER AND THE CHARTER AMENDMENTS, THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE, REGARDLESS OF
THE LAWS THAT MIGHT OTHERWISE GOVERN UNDER APPLICABLE PRINCIPLES OF CONFLICT OF
LAWS THEREOF.
8.7 Assignment. Neither this Agreement nor any of the rights, interests
or obligations under this Agreement shall be assigned or delegated, in whole or
in part, by operation of law or otherwise by any of the parties without the
prior written consent of the other parties. Subject to the preceding sentence,
this Agreement will be binding upon, inure to the benefit of, and be enforceable
by, the parties and their respective successors and assigns.
8.8 Enforcement. The parties agree that irreparable harm would occur in
the event that any of the provisions of this Agreement were not performed by any
party in accordance with their specific terms or were otherwise breached. It is
accordingly agreed that any party shall be entitled to an injunction or
injunctions to prevent or redress breaches of this Agreement by any other party
and to enforce specifically the terms and provisions of this Agreement in any
federal court located in Delaware or in Chancery Court
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in Delaware, this being in addition to any other remedy to which they are
entitled at law or in equity. Notwithstanding the foregoing, the parties agree
that no party shall be entitled to a judgment specifically enforcing the
obligations of any other party to consummate the Merger or the Partnership
Merger. The parties agree that the provisions of Section 7.2 constitute the
exclusive remedy of any party for the loss suffered by such party as a result of
the failure of the Merger and the Partnership Merger to be consummated. In
addition, each of the parties hereto (a) consents to submit itself (without
making such submission exclusive) to the personal jurisdiction of any federal
court located in Delaware or Chancery Court located in Delaware in the event any
dispute arises out of this Agreement or any of the transactions contemplated by
this Agreement and (b) agrees that it will not attempt to deny or defeat such
personal jurisdiction by motion or other request for leave from any such court.
8.9 Severability. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable.
* * * * * *
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IN WITNESS WHEREOF, Parent, Buyer and Seller have caused this Agreement
to be signed by their respective officers thereunto duly authorized all as of
the date first written above.
SHP ACQUISITION, L.L.C.,
a Delaware limited liability company
By: /s/ Paul Kazilionis
---------------------------------------
Name: Paul Kazilionis
-------------------------------------
Title: Manager
------------------------------------
SHP INVESTORS SUB, INC.,
a Maryland corporation
By: /s/ Jonathan H. Paul
---------------------------------------
Name: Jonathan H. Paul
-------------------------------------
Title: Authorized Person
------------------------------------
SUNSTONE HOTEL INVESTORS, INC.,
a Maryland corporation
By: /s/ R. Terrence Crowley
---------------------------------------
Name: R. Terrence Crowley
-------------------------------------
Title: Chief Operating Officer
------------------------------------
SUNSTONE HOTEL INVESTORS, L.P., a Delaware limited partnership, joins
in this Agreement solely with respect to Section 7.2
By: Sunstone Hotel Investors, L.P.
By: /s/ R. Terrence Crowley
---------------------------------------
Name: R. Terrence Crowley
-------------------------------------
Title: Authorized Person
------------------------------------
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Exhibit A
---------
TERMS OF REDEMPTION
Capitalized terms used in this Exhibit A but not defined herein shall have the
meaning set forth in the Agreement and Plan of Merger dated as of July 12, 1999
by and among SHP Acquisition, L.L.C., a Delaware limited liability company, SHP
Investors Sub, Inc., a Maryland corporation, and Sunstone Hotel Investors, Inc.,
a Maryland corporation, or if not defined herein or therein, shall have the
meaning set forth in the Second Amended and Restated Agreement of Limited
Partnership of Sunstone Hotel Investors, L.P. dated as of October 14, 1997.
To effect the Seller Partnership Redemption, Seller will form a new wholly owned
subsidiary, SHP Kahler LLC, a Delaware limited liability company ("SHP Kahler"),
and will cause SHP Kahler to form (a) a wholly-owned subsidiary, SHP General,
Inc., a Delaware corporation ("SHP General") and (b) a subsidiary, SHP Limited,
LP, a Delaware limited partnership ("SHP Limited") in which SHP Kahler will hold
a 99% limited partnership interest and SHP General will hold a 1% general
partnership interest.
The redemptions and distributions set forth in paragraphs 1 through 8 below
shall occur immediately prior to the Partnership Merger
1. Seller Partnership Interests to be Redeemed. As consideration and in
exchange for the distributions of the equity interests and assets described
in items 2 through 7 below (collectively, the "Kahler Assets"), Seller
Partnership will redeem that portion of the Partnership Interest held by
Seller which is equal in value at Market Price to the fair market value of
the Kahler Assets, in each case determined as of the Business Day
immediately preceding such distributions. The Seller Partnership will
redeem such portion of the Partnership Interest held by Seller in the
following order: (i) first, all the Partnership Interest held by Seller in
the form of Seller OP Preferred Units and (ii) such portion as is necessary
of the Partnership Interest held by Seller in the form of OP Common Units,
provided that in no event shall any redemption pursuant to this paragraph 1
cause Seller to lose its status as a General Partner or a Limited Partner.
2. Distribution of Kahler E&P Partners L.P. I: Seller Partnership will make an
in-kind distribution to SHP Limited, as designated recipient of such
distribution on behalf of Seller, of the 99% limited partnership interest
in Kahler E&P Partners L.P. I held by Sunstone Hotels, LLC.
3. Distribution of University Inn Associates: Seller Partnership will make an
in-kind distribution to SHP General, as designated recipient of such
distribution on behalf of Seller, of a 1% general partnership interest in
University Inn Associates held by Seller Partnership.
Seller Partnership will make an in-kind distribution to SHP Limited, as
designated recipient of such distribution on behalf of Seller, of each of
(i) the remaining 74% general partnership interest in University Inn
Associates held by Seller Partnership (which will be converted into a 74%
limited partnership interest in University Inn Associates), (ii) the 1%
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2
limited partnership interest in University Inn Associates held by Seller
Partnership, and (iii) the 24% general partnership interest in University
Inn Associates held by Sunstone Hotels, LLC (which will be converted into a
24% limited partnership interest in University Inn Associates).
4. Distribution of Rochester and Chandler Properties: Seller Partnership will
make an in-kind distribution to SHP Limited, as designated recipient of
such distribution on behalf of Seller, of the Laundry, Rochester, Minnesota
property and the Sheraton San Marcos, Chandler, Arizona property held by
Sunstone Hotels, LLC.
5. Distribution of Santa Monica Property: Seller Partnership will make an
in-kind distribution to SHP Limited, as designated recipient of such
distribution on behalf of Seller, of the leasehold interest in the Pacific
Shore Hotel, Santa Monica, California property held by Seller Partnership.
6. Distribution of Sunstone Hotels, LLC and Park Hotels, L.C.: Seller
Partnership will make an in-kind distribution to Seller of all of the
outstanding equity interests of each of Sunstone Hotels, LLC and Park
Hotels, L.C..
7. Distribution of Ogden Property: Seller Partnership will form a new
subsidiary, SHP Ogden LLC, a Delaware limited liability company ("SHP
Ogden") and contribute the Marriott Hotel, Ogden, Utah property (the "Ogden
Marriott") to SHP Ogden. Seller Partnership will make an in-kind
distribution to SHP Limited and SHP General, as designated recipients of
such distribution on behalf of Seller, collectively, of that percentage
interest in SHP Ogden equal to the percentage of ownership interests in the
Ogden Marriott corresponding to the contribution with respect to such
property made by Kahler Realty Corporation. SHP General will receive
approximately a 1% interest in SHP Ogden and SHP Limited will receive the
remaining portion of such distribution. Seller Partnership will retain
ownership of that portion of the ownership interest in SHP Ogden which is
not distributed to SHP Limited and SHP General.
8. Other Transfer. Seller will cause SSIE & P Corp. I to transfer its 1%
general partnership interest in Kahler E&P Partners L.P. I to SHP General.
Notwithstanding the foregoing, the Seller Redemption may be effected in any
alternative manner mutually agreed upon by Seller and Parent, provided that such
alternative is acceptable to the lenders under the Financing Commitment and will
not result in the Merger or the Partnership Merger causing the disposition of
any asset subject to rules similar to Section 1374 of the Code as a result of an
election under Internal Revenue Service Notice 88-19.
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Exhibit B
LESSEE/MANAGER AGREEMENT
AMONG
SUNSTONE HOTEL INVESTORS, INC.
SUNSTONE HOTEL INVESTORS, L.P.
ROBERT A. ALTER
CHARLES L. BIEDERMAN
SUSNTONE HOTEL PROPERTIES, INC.
AND
SUNSTONE HOTEL MANAGEMENT, INC.
DATED AS OF JULY 12, 1999
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TABLE OF CONTENTS
ARTICLE 1
DEFINITIONS..........................................................2
Section 1.1 Definitions........................................2
Section 1.2 Other Interpretive Provisions......................8
ARTICLE 2
SALE OF LESSEE AND MANAGEMENT EQUITY,
PAYMENT AND CLOSING..................................................8
Section 2.1 Purchase Price.....................................8
Section 2.2 Closing Events.....................................8
Section 2.3 Time and Place of Closing..........................8
ARTICLE 3
DRAG-ALONG RIGHT OF SUNSTONE PARTIES.................................9
Section 3.1 Drag-Along.........................................9
Section 3.2 Notice. ...........................................9
Section 3.3 Exercise...........................................9
Section 3.4 Third Party Acquiror Agreement and Termination
of Merger Agreement.............................9
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE PARTIES.......................10
Section 4.1 Representations and Warranties of the
Stockholders...................................10
Section 4.2 Representations and Warranties of the Sunstone
Parties........................................25
Section 4.3 Survival of Representations and Warranties........26
Section 4.4 Exclusion of Contribution Agreement...............27
ARTICLE 5
COVENANTS ..........................................................27
Section 5.1 Conduct of Business Pending the Closing...........27
Section 5.2 Transfers of Equity Interests.....................29
Section 5.3 Access to Information.............................29
Section 5.4 Agreement to Cooperate; Further Assurances........29
Section 5.5 Consents..........................................30
Section 5.6 Public Statements.................................30
Section 5.7 Notification of Certain Matters...................30
Section 5.8 Intentionally Omitted.............................30
Section 5.9 Transfer Taxes....................................30
Section 5.10 Injunctions or Restraints.........................30
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Section 5.11 Certification of United States Status of Alter
and Biederman..................................31
Section 5.12 Spousal Claims....................................31
Section 5.13 Certain Obligations...............................31
ARTICLE 6
CONDITIONS TO CLOSING...............................................32
Section 6.1 Conditions Precedent to Obligations of Each
Party..........................................32
Section 6.2 Conditions Precedent to Obligation of the
Sunstone Parties...............................32
Section 6.3 Conditions Precedent to Obligations of Alter......33
Section 6.4 Conditions Precedent to Obligations of Biederman..34
ARTICLE 7
TERMINATION.........................................................34
Section 7.1 Termination Events................................34
Section 7.2 Effect of Termination.............................35
ARTICLE 8
INDEMNIFICATION.....................................................35
Section 8.1 Indemnification by Sunstone Parties...............35
Section 8.2 Indemnification by Alter..........................35
Section 8.3 Indemnification by Biederman......................36
Section 8.4 Tax Indemnification...............................36
Section 8.5 Third-Party Claims................................36
Section 8.6 Termination of Indemnification....................37
Section 8.7 Limitations on Indemnity Obligations..............37
Section 8.8 Allocation of Certain Indemnity Obligations.......38
Section 8.9 Exclusive Remedy..................................38
ARTICLE 9
MISCELLANEOUS AGREEMENTS OF THE PARTIES.............................39
Section 9.1 Notices...........................................39
Section 9.2 Integration; Amendments...........................40
Section 9.3 Waiver............................................40
Section 9.4 No Assignment; Successors and Assigns.............40
Section 9.5 Expenses..........................................41
Section 9.6 Severability......................................41
Section 9.7 Section Headings; Table of Contents...............41
Section 9.8 Third Parties.....................................41
Section 9.9 GOVERNING LAW.....................................41
Section 9.10 Enforcement.......................................41
Section 9.11 Counterparts......................................42
Section 9.12 Cumulative Remedies...............................42
Section 9.13 Consent of Regina Biederman.......................42
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EXHIBIT LIST
Exhibit 3.2
Exhibit 3.3
Exhibit 3.4
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SCHEDULE LIST
Schedule 4.1(a)
Schedule 4.1(c)
Schedule 4.1(d)
Schedule 4.1(e)
Schedule 4.1(f)(i)
Schedule 4.1(f)(ii)
Schedule 4.1(f)(iii)
Schedule 4.1(g)
Schedule 4.1(h)
Schedule 4.1(h)(viii)
Schedule 4.1(i)(ii)
Schedule 4.1(i)(iii)
Schedule 4.1(i)(iv)
Schedule 4.1(i)(v)
Schedule 4.1(i)(vi)
Schedule 4.1(i)(vii)
Schedule 4.1(j)
Schedule 4.1(k)
Schedule 4.1(n)
Schedule 4.1(o)
Schedule 4.1(o)(vi)
Schedule 4.1(q)(ii)
Schedule 4.1(q)(iii)
Schedule 4.1(s)
Schedule 4.1(t)
Schedule 4.1(u)
Schedule 4.2(c)
Schedule 4.2(d)
Schedule 5.1(o)
Schedule 5.13(a)
Schedule 5.13(b)
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LESSEE/MANAGER AGREEMENT
------------------------
This LESSEE/MANAGER AGREEMENT (the "Agreement"), dated as of July 12,
1999, among SUNSTONE HOTEL INVESTORS, INC., a Maryland corporation ("Sunstone"),
SUNSTONE HOTEL INVESTORS, L.P., a Delaware limited partnership ("Sunstone OP";
Sunstone and Sunstone OP sometimes hereinafter collectively referred to as
"Sunstone Parties"), ROBERT A. ALTER ("Alter"), CHARLES L. BIEDERMAN
("Biederman"; Alter and Biederman sometimes hereinafter collectively referred to
as the "Stockholders"), SUNSTONE HOTEL PROPERTIES, INC., a Colorado corporation
("Lessee") and SUNSTONE HOTEL MANAGEMENT, INC., a Colorado corporation
("Management").
R E C I T A L S:
WHEREAS, the Lessee is the lessee of hotels owned by Sunstone OP;
WHEREAS, Management has entered into management agreements with the
Lessee for each of the hotels the Lessee has leased from Sunstone OP;
WHEREAS, Alter is the beneficial owner of eighty percent (80%)(the
"Alter Lessee Stock") of the issued and outstanding shares of $0.01 par value
per share of common stock of the Lessee (the "Lessee Common Stock") and
Biederman is the beneficial owner of twenty percent (20%) (the "Biederman Lessee
Stock") of the issued and outstanding Lessee Common Stock;
WHEREAS, Alter is the beneficial owner of one hundred percent (100%) of
the issued and outstanding shares of $0.01 par value per share of common stock
of Management (the "Management Common Stock," and together with the Lessee
Common Stock, the "Lessee and Management Equity");
WHEREAS, concurrently with the execution and delivery of this
Agreement, Parent has entered into a Merger Agreement (the "Merger Agreement")
dated as of the date hereof with Sunstone, SHP Investors Sub, Inc., a Maryland
corporation ("Buyer") and subsidiary of SHP Acquisition, L.L.C., a Delaware
limited liability company ("Parent") and certain other parties pursuant to
which, and subject to the terms and conditions thereof, Buyer shall merge with
and into Sunstone (the "Merger");
WHEREAS, concurrently with the execution and delivery of this
Agreement, Parent has entered into a merger agreement (the "Partnership Merger
Agreement") dated as the date hereof with Sunstone OP, and certain other parties
pursuant to which and subject to the terms and conditions thereof, SHP
Properties, L.L.C., a Delaware limited liability company and a subsidiary of
Parent ("SHP Properties"), shall merge with and into Sunstone OP (the
"Partnership Merger"); and
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WHEREAS, concurrently with the execution and delivery of the Merger
Agreement, Alter and Biederman and Sunstone Parties desire to enter into this
Agreement pursuant to which, under certain circumstances, Sunstone Parties shall
have the right to require the Stockholders, and such Stockholders shall have the
obligation, to sell all of their respective interests in the Lessee and
Management Equity to certain third parties.
NOW, THEREFORE, in consideration of the premises, mutual covenants and
agreements contained herein, the sufficiency of which is hereby acknowledged and
intending to be legally bound, the parties hereto hereby agree as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.1 DEFINITIONS. (a) Capitalized terms used and not defined in
this Agreement shall have the meanings set forth in the Merger Agreement. For
the purposes of this Agreement, the following terms shall have the meanings set
forth below:
"ADVANCE BOOKING AGREEMENT" means any agreement relating to advance reservations
and bookings of the Real Property or any facilities therein taken from guests,
groups, conventions or others.
"AFFILIATE" means with respect to a specified Person, any Person that directly
or indirectly, through one or more intermediaries, Controls, is Controlled by,
or is under common Control with, the specified Person.
"ALTER LESSEE STOCK" shall have such meaning ascribed to such term in the
recitals hereto.
"ASSUMPTION AGREEMENT" shall have such meaning ascribed to such term in Section
4.4 hereof.
"BIEDERMAN" shall have the meaning ascribed to such term in the preamble hereto.
"BIEDERMAN LESSEE STOCK" shall have such meaning ascribed to such term in the
recitals hereto.
"BUSINESS DAY" means a day, other than Saturday or Sunday, on which commercial
banks in New York City are open for the general transaction of business.
"BUYER" shall have the meaning described to such term in the recitals hereto.
"CLOSING" shall mean the consummation of the purchase and sale of the Lessee and
Management Equity as contemplated by this Agreement.
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"CLOSING DATE" means the date of the Closing hereunder, as provided in Section
2.3 hereof.
"CODE" means the Internal Revenue Code of 1986, as amended.
"CONTROL" means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of a Person, whether
through ownership of voting securities, as trustee or executor, by contract or
credit arrangement or otherwise.
"EFFECTIVE DATE OF THIS AGREEMENT" shall mean the date on which Sunstone Parties
and Stockholders execute this Agreement, or if Sunstone Parties and Stockholders
do not execute this Agreement on the same day, the later of the dates on which
Sunstone Parties and Stockholders execute this Agreement.
"ENVIRONMENTAL LAWS" means any and all laws, rules, orders, regulations,
statutes, ordinances, guidelines, codes, decrees, or other legally enforceable
requirement (including, without limitation, common law) of any foreign
government, the United States, or any state, local, municipal or other
governmental authority, regulating, relating to or imposing liability or
standards of conduct concerning protection of the environment of human health,
or employee health and safety.
"EQUIPMENT LEASE" means any lease or rental agreement relating to the equipment,
services, vehicles, furniture or any other type of personal property of
Management or Lessee together with all supplements, amendments and modifications
thereto.
"GAAP" means generally accepted accounting principles in the United States.
"GOVERNMENTAL AUTHORITY" means any nation or government, any state or other
political subdivision thereof, and any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to such
government.
"HOTEL MANAGEMENT AGREEMENT" means any hotel management agreement relating to
the management and operation of the Real Property together with all supplements,
amendments and modifications thereto.
"HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended.
"KNOWLEDGE" shall mean (i) as to Alter or Biederman, that such individual, as
applicable, has actual knowledge without due inquiry, and (ii) as to Sunstone
Parties, that R. Terrence Crowley, Daniel Lutz, Kenneth Coatsworth and Gary
Stougaard have actual knowledge without due inquiry, without imputing to any
such party any knowledge of any other party, including, without limitation, any
agents, managing agents or other representatives of such party.
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"LEASED REAL PROPERTY" shall mean hotels or other property subject to a lease
between Sunstone OP and the Lessee.
"LESSEE" shall have the meaning ascribed to such term in the preamble hereto.
"LESSEE AND MANAGEMENT EQUITY" shall have the meaning ascribed to such term in
the recitals hereto.
"LESSEE COMMON STOCK" shall have the meaning ascribed to such term in the
recitals hereto.
"LIABILITY" means, as to any Person, all debts, liabilities and obligations,
direct, indirect, absolute or contingent of such Person, whether accrued, vested
or otherwise, whether known or unknown and whether or not actually reflected, or
required in accordance with GAAP to be reflected, in such Person's balance
sheets.
"LIEN" means any mortgage, pledge, security interest, claim, encumbrance, lien
or charge of any kind.
"LIQUOR LICENSE" means any alcoholic beverage license relating to the use and/or
operation of the Real Property.
"LOSSES" means any and all damages, claims, losses, expenses, costs and
Liabilities including, without limiting the generality of the foregoing,
Liabilities for all reasonable attorneys' fees and expenses (including
reasonable attorney and expert fees and expenses incurred to enforce the terms
of this Agreement).
"MANAGEMENT" shall have the meaning ascribed to such term in the preamble
hereto.
"MANAGEMENT AGREEMENT" means any agreement relating to the management of any of
the Real Property.
"MANAGEMENT ASSETS" means all the properties, assets and other rights of
Management owned or used by Management in the conduct of its business.
"MATERIAL ADVERSE EFFECT" means (x) a material adverse effect on (i) the assets,
Liabilities, business, results of operations or condition (financial or
otherwise) of Lessee and Management, taken as a whole, or (ii) the ability of
Alter or Biederman to perform his obligations hereunder or (y) the effect of
preventing or delaying beyond December 31, 1999 the consummation of the
Transactions.
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"MATERIALS OF ENVIRONMENTAL CONCERN" means any gasoline or petroleum (including,
without limitation, crude oil or any fraction thereof) or petroleum products,
polychlorinated biphenyls, urea-formaldehyde insulation, asbestos, pollutants,
contaminants, radioactivity, and any other substances of any kind, whether or
not any such substance is defined as hazardous or toxic under any Environmental
Law, that is regulated pursuant to or could give rise to liability under any
Environmental Law.
"MERGER" shall have the meaning ascribed to such term in the recitals hereto.
"MERGER AGREEMENT" shall have the meaning ascribed to such term in the recitals
hereto.
"PARENT" shall have the meaning ascribed to such term in the recitals hereto.
"PARTNERSHIP MERGER AGREEMENT" shall have the meaning ascribed to such term in
the recitals hereto.
"PERMITTED LIENS" means (i) Liens for Taxes that (x) are not yet due or
delinquent or (y) are being contested in good faith by appropriate proceedings
and for which adequate reserves have been established in accordance with GAAP;
(ii) statutory Liens or landlords', carriers', warehousemen's, mechanics',
suppliers', materialmen's, repairmen's or other like Liens arising in the
ordinary course of business with respect to amounts not yet overdue for a period
of 45 days or amounts being contested in good faith by appropriate proceedings
if a reserve or other appropriate provision, if any, as shall be required by
GAAP shall have been made therefor; (iii) Liens incurred or deposits made in
connection with workers' compensation, unemployment insurance and other types of
social security or similar benefits; (iv) Liens incurred or deposits made to
secure the performance of tenders, bids, leases, statutory obligations, surety
and appeal bonds, government contracts, performance and return-of-money bonds
and other obligations of like nature; (v) any installment not yet due and
payable of assessments of any Governmental Authority imposed after the date
hereof; (vi) the rights and interests held by tenants under any Space Leases or
subleases of the Real Property Leases; and (vii) any other Liens imposed by
operation of law that do not, individually or in the aggregate, materially
affect the relevant entity or business, taken as a whole.
"PERSON" means any individual, corporation, partnership, joint venture, trust,
incorporated organization, limited liability company, other form of business or
legal entity or Governmental Authority.
"PURCHASE PRICE" shall have the meaning given such term in Section 2.1 of this
Agreement.
"REAL PROPERTY" means the Leased Real Property and real property, if any, owned
by Management or Lessee.
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79
"SERVICE CONTRACT" means any contract and/or agreement relating to the operation
and maintenance of the Real Property, including service agreements, brokerage
commission agreements, maintenance contracts, contracts for purchase of delivery
of services, materials, goods, inventory or supplies, cleaning contracts,
equipment rental agreements, equipment leases or leases of personal property
(other than franchise agreements and Management Agreements), together with all
supplements, amendments and modifications thereto.
"SHP PROPERTIES" shall have the meaning ascribed to such term in the recitals
hereto.
"SPACE LEASE" means any lease or other agreement demising space in or providing
for the use or occupancy of all or any portion of the Real Property and all
guaranties thereof.
"SUBSIDIARY" or "SUBSIDIARIES" of any Person means any corporation, partnership,
limited liability company, joint venture or other legal entity of which such
Person (either alone or through or together with any other subsidiary), owns,
directly or indirectly, more than 50% of the stock or other equity interests,
the holders of which are generally entitled to vote for the election of the
board of directors or other governing body of such corporation or other legal
entity and any partnership of which such Person serves as general partner.
"SUPERIOR ACQUISITION PROPOSAL" shall have such meaning ascribed to such term in
the Merger Agreement.
"SUNSTONE" shall have the meaning ascribed to such term in the recitals hereto.
"SUNSTONE OP" shall have the meaning ascribed to such term in the recitals
hereto.
"TAX RETURN" means any return, report or statement required to be filed with any
governmental authority with respect to Taxes, including any schedule or
attachment thereto or amendment thereof.
"TAXES" means any taxes of any kind, including but not limited to those on or
measured by or referred to as income, gross receipts, capital, sales, use, ad
valorem, franchise, profits, license, withholding, payroll, employment, excise,
severance, stamp, occupation, premium, value added, property or windfall profits
taxes, customs, duties or similar fees, assessments or charges of any kind
whatsoever, together with any interest and any penalties, additions to tax or
additional amounts imposed by any governmental authority, domestic or foreign.
"THIRD PARTY ACQUIROR" shall mean all parties other than Parent, Buyer or the
Sunstone Parties who are a party to a Superior Proposal Transaction and shall
include all Persons which Control such parties.
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"TRANSFER" means, directly or indirectly, assign, sell, exchange, transfer,
pledge, mortgage, hypothecate or otherwise dispose or encumber.
"TRANSACTIONS" means all of the transactions contemplated hereby.
(b) The terms used in this Agreement which are defined in (a) the
introductory paragraphs of this Agreement, (b) in the further Articles of this
Agreement, and (c) in the Schedules and Exhibits attached to this Agreement,
shall have the respective definitions there ascribed to them.
(c) As used in this Agreement, each of the following capitalized terms
shall have the meaning ascribed to them in the Section set forth opposite such
term:
Term Section
---- -------
Agreement Preamble
Alter Preamble
Alter Purchase Price 2.2(b)
Biederman Preamble
Business Intellectual Property 4.1(l)
Biederman Lessee Stock Recitals
Biederman Purchase Price 2.2(a)
Closing 2.3
Controlled Group Member 4.1(o)
December 31 Balance Sheets 4.1(f)(i)
December 31 Financial Statements 4.1(f)(i)
Drag-Along Right 3.1
Employee Plan 4.1(o)
ERISA 4.1(o)
Expenses 7.2
Execution Notice 3.2
Insurance Policies 4.1(t)
Intellectual Property 4.1(l)
Lessee Recitals
Lessee Line of Credit 5.1(o)
Lessee Subsidiary 4.1(e)(ii)
Management Recitals
March 31 Balance Sheets 4.1(f)(ii)
March 31 Financial Statements 4.1(f)(ii)
Merger Recitals
Merger Agreement Recitals
Multiemployer Plan 4.1(o)
Partnership Merger Recitals
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Term Section
---- -------
Partnership Merger Agreement Recitals
Pension Plan 4.1(o)
Real Property Leases 4.1(j)(ii)
SAP Purchase Agreement 3.2
Section (v) Contract 4.1(i)(v)
Term Section
Term Section
Securities Act 4.1(v)
Straddle Period 8.4(b)
Sunstone Recitals
Sunstone OP Recitals
Sunstone Stock Recitals
Superior Proposal Transaction 3.1
Technology 4.1(l)
Vacation Policy 5.8(c)
Welfare Plan 4.1(o)
SECTION 1.2 OTHER INTERPRETIVE PROVISIONS. The words "include",
"includes and "including" shall be deemed to be followed by the phrase "without
limitation." The words "hereof", "herein," "hereby" and "hereunder" and words of
similar import when used in this Agreement shall refer to this Agreement as a
whole and not to any particular provision of this Agreement, and Section,
Schedule and Exhibit references are to this Agreement unless otherwise
specified. The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
ARTICLE 2
SALE OF LESSEE AND MANAGEMENT EQUITY,
PAYMENT AND CLOSING
SECTION 2.1 PURCHASE PRICE. The aggregate consideration for the sale of
the Lessee and Management Equity shall be Thirty Million and No/100 Dollars
($30,000,000.00) (the "Purchase Price"). The Purchase Price shall be paid by
Sunstone Parties at the Closing by wire transfer of immediately available
federal funds to an account as designated by the Stockholders in writing not
less than two days prior to the Closing Date.
SECTION 2.2 CLOSING EVENTS.
(a) Deliveries by Biederman. At Closing Biederman will transfer to
Sunstone Parties or their designee the Biederman Lessee Stock (which Biederman
Lessee Stock shall constitute 20% of the issued and outstanding Lessee Common
Stock as of the Closing Date), and Sunstone Parties will pay Biederman cash in
consideration for such Biederman Lessee Stock 18.33% of the Purchase Price (such
amount, the "Biederman Purchase Price").
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(b) Deliveries by Alter. At Closing Alter will transfer to Sunstone
Parties or their designee the Alter Lessee Stock (which Alter Lessee Stock shall
constitute 80% of the issued and outstanding Lessee Common Stock as of the
Closing Date) and the Management Common Stock (which Management Common Stock
shall constitute 100% of the issued and outstanding Management Common Stock as
of the Closing Date), and Sunstone Parties will pay Alter cash in consideration
for such Alter Lessee Stock and Management Common Stock 81.67% of the Purchase
Price (such amount, the "Alter Purchase Price").
SECTION 2.3 TIME AND PLACE OF CLOSING. Subject to the satisfaction (or
waiver by the parties entitled to the benefit thereof) of the conditions set
forth in Article VI, the closing of the transactions contemplated hereby (the
"Closing") shall take place at the offices of Battle Fowler LLP, 75 East 55th
Street, New York, New York 10022 concurrently with the closing of the Superior
Proposal Transaction.
ARTICLE 3
DRAG-ALONG RIGHT OF SUNSTONE PARTIES
SECTION 3.1 DRAG-ALONG. The Stockholders agree that concurrently with
the consummation of any Superior Acquisition Proposal (such a transaction, a
"Superior Proposal Transaction"), Sunstone Parties shall have the right (the
"Drag-Along Right") to require Alter and Biederman, and Alter and Biederman
shall have the obligation, to sell to Sunstone Parties or the Third Party
Acquiror in such Superior Proposal Transaction all, but not less than all, of
the Lessee and Management Equity in consideration of the Purchase Price.
SECTION 3.2 NOTICE. If Sunstone Parties enter into a definitive
agreement constituting a Superior Acquisition Proposal (such an agreement, the
"SAP Purchase Agreement"), then Sunstone Parties shall promptly deliver written
notice in the form of Exhibit 3.2 hereof (such notice, the "Execution Notice")
no later than five (5) days after entering into such agreement to the
Stockholders, attaching thereto (1) a true, correct, complete and originally
executed copy of the SAP Agreement together with all exhibits and schedules
thereto and all related ancillary agreements executed and delivered in
connection therewith by the parties thereto, (2) an originally executed copy of
the Assumption Agreement (as defined below), and (3) an originally executed copy
of the Drag-Along Notice (as defined below).
SECTION 3.3 EXERCISE. If Sunstone Parties decide to exercise their
Drag-Along Right; provided that the Merger Agreement shall have been terminated
in accordance with its terms, then Sunstone Parties shall exercise the
Drag-Along Right by delivery of written notice in the form of Exhibit 3.3 (the
"Drag Along Notice") to each of Alter and Biederman simultaneously with the
delivery of the Execution Notice. The Drag-Along Right must be exercised for all
of the Lessee and Management Equity and must be executed and delivered within
five (5) days after entering into a SAP Agreement.
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SECTION 3.4 THIRD PARTY ACQUIROR AGREEMENT AND TERMINATION OF MERGER
AGREEMENT. Concurrently with the delivery of the Drag-Along Notice and as a
condition precedent to the Drag-Along Right, Sunstone Parties shall cause the
Third Party Acquiror to execute and deliver an Assumption Agreement pursuant to
which the Third Party Acquiror shall assume and guarantee the performance of all
of the obligations of Sunstone Parties under this Agreement. If the Third Party
Acquiror fails to execute and deliver an assumption agreement in the form
attached hereto as Exhibit 3.4 (the "Assumption Agreement") or the Merger
Agreement shall not have terminated, then Sunstone Parties shall be prohibited
from exercising the Drag- Along Right and any obligations of the Stockholders
hereunder shall immediately terminate. The execution and delivery of the
Assumption Agreement by the Third Party Acquiror shall not relieve, discharge or
otherwise release the Sunstone Parties from any of their obligations under this
Agreement.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE PARTIES
SECTION 4.1 REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS. Alter
and Biederman jointly and severally represent and warrant to Sunstone Parties
with respect to the Lessee and Lessee Common Stock, and Alter severally
represents and warrants with respect to Management and the Management Common
Stock, as follows:
(a) Due Organization; Power and Good Standing. Each of Management and
Lessee is duly organized, validly existing and in good standing under the laws
of its jurisdiction of organization, and has the requisite power and authority
to own, lease and operate its properties and to conduct its business as now
conducted by it. Each of Management and Lessee is qualified to do business and
is in good standing as a foreign corporation in all jurisdictions in which it
conducts its business, except where the failure to be so qualified would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect. Complete and correct copies of the Certificate of Incorporation
and Bylaws of Management and Lessee are set forth in Schedule 4.1(a) hereto.
(b) Authorization and Validity of Agreement. Each of the Stockholders
has all requisite power and authority to enter into this Agreement and to
perform his obligations hereunder. This Agreement has been duly executed and
delivered by each of the Stockholders, as the case may be, and constitutes a
valid and legally binding obligation of each of the Stockholders enforceable
against each Stockholder in accordance with its terms. Alter is not married as
of the date of this Agreement and agrees that if he becomes married prior to the
Closing Date, his spouse shall execute and deliver an acknowledgment to the
other parties hereto to the effect of the consent set forth in Section 9.13.
(c) No Government Approvals or Notices Required; No Conflict with
Instruments. Except as described in Schedule 4.1(c), the execution, delivery and
performance of
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this Agreement by the Stockholders and the consummation by each of them of the
Transactions will not (i) violate, conflict with or result in a breach of any
provision of the Certificate of Incorporation or Bylaws of the Lessee or
Management, (ii) except for any filings required under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), require any
consent, approval, authorization or permit of, or filing with or notification
to, any Governmental Authority, (iii) require the consent or approval of any
Person (other than a Governmental Authority), violate, conflict with or result
in a breach of any provision of, constitute a default (or an event which with
notice or lapse of time or both would become a default) under, or give to any
Person any right of termination, cancellation, amendment, purchase, sale or
acceleration under, or result in the creation of a Lien on any of the assets,
properties or stock of Management, Lessee, any Lessee Subsidiary, Sunstone or
any of Sunstone's Subsidiaries under, any of the provisions of any contract,
lease, note, permit, franchise, license or other instrument or agreement to
which such Person is a party or by which it or its assets or properties are
bound, or (iv) violate or conflict with any order, writ, injunction, decree,
statute, rule or regulation of any Governmental Authority or arbitrator
applicable to Management, Lessee, any Lessee Subsidiary, Sunstone or any of
Sunstone's Subsidiaries, or any of their respective assets or properties; other
than any consents and approvals the failure of which to obtain and any
violations, conflicts, breaches and defaults set forth pursuant to clauses (ii),
(iii) and (iv) above which, individually or in the aggregate, would not
reasonably be expected to have a Material Adverse Effect.
(d) Capitalization. The authorized, issued and outstanding capital
stock of Management and Lessee, and the ownership thereof, is described on
Schedule 4.1(d). All such issued shares of Management and Lessee have been duly
authorized and validly issued, are fully paid and non-assessable and have not
been issued in violation of any preemptive rights. There are no equity interests
in Management or Lessee reserved for issuance, and there are (i) no options,
warrants or rights of any kind to acquire any equity interests in, or any other
securities that are convertible into or exchangeable for any equity interest in,
Management or Lessee and (ii) no agreements, commitments or arrangements
relating to the sale, issuance, redemption, purchase, acquisition or voting of
or the granting of a right to acquire any capital stock of Management or Lessee
or any options, warrants, rights or securities described in clause (i) other
than this Agreement.
(e) Subsidiaries.
(i) There is no corporation, partnership or other entity in which
Management directly or indirectly owns any equity or other interest.
(ii) (A) Schedule 4.1(e) sets forth (x) each Subsidiary of Lessee
("Lessee Subsidiary"), (y) the ownership interest therein of Lessee and (z)
if not wholly owned by Lessee, the identity and ownership interest of each
of the other owners of such Lessee Subsidiary.
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(B) (1) All the outstanding shares of capital stock owned by Lessee of
each Lessee Subsidiary that is a corporation have been validly issued and
are (x) fully paid, nonassessable and free of any preemptive rights, (y)
owned by Lessee or by another Lessee Subsidiary and (z) owned free and
clear of all Liens or any other limitation or restriction (including any
contractual restriction on the right to vote or sell the same) other than
restrictions under applicable securities laws; and (2) all equity interests
in each Lessee Subsidiary that is a partnership, joint venture, limited
liability company or trust which are owned by Lessee, by another Lessee
Subsidiary or by Lessee and another Lessee Subsidiary are owned free and
clear of all Liens or any other limitation or restriction (including any
contractual restriction on the right to vote or sell the same) other than
restrictions under applicable securities laws. Each Lessee Subsidiary that
is a corporation is duly incorporated and validly existing under the Laws
of its jurisdiction of incorporation and has the requisite corporate power
and authority to carry on its business as now being conducted, and each
Lessee Subsidiary that is a partnership, limited liability company or trust
is duly organized and validly existing under the laws of its jurisdiction
of organization and has the requisite power and authority to carry on its
business as now being conducted. Each Lessee Subsidiary is duly qualified
or licensed to do business and is in good standing in each jurisdiction in
which the nature of its business or the ownership or leasing of its
properties makes such qualification or licensing necessary, other than in
such jurisdictions where the failure to be so qualified or licensed,
individually or in the aggregate, would not have a Material Adverse Effect.
True and correct copies of the charter, by-laws, organizational documents
and partnership, joint venture and operating agreements of each Lessee
Subsidiary, and all amendments to the date of this Agreement, have been
made available to Sunstone Parties and examined by Sunstone Parties on or
prior to the date hereof.
(f) Financial Information, Liabilities.
(i) Attached as Schedule 4.1(f)(i) are the audited consolidated
balance sheets of each of (i) Management and (ii) Lessee and its
Subsidiaries as at December 31, 1998 (the "December 31 Balance Sheets") and
the accompanying audited consolidated statements of operations and cash
flows and, with respect to the Lessee, stockholder's equity for the year
then ended audited by Ernst & Young LLP (together with the December 31
Balance Sheets, the "December 31 Financial Statements"). The December 31
Financial Statements have been prepared in accordance with GAAP (except as
may be indicated in the notes thereto) and fairly present in all material
respects the consolidated financial position of each of Management and
Lessee as at December 31, 1998 and the results of operations of each of
Management and Lessee for the year then ended.
(ii) Attached as Schedule 4.1(f)(ii) are the unaudited consolidated
balance sheets of each of (i) Management and (ii) Lessee and its
Subsidiaries as at March 31, 1999 (the "March 31 Balance Sheets") and the
accompanying unaudited consolidated statements of operations and cash flows
for the three months then ended (together with the March 31
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Balance Sheet, the "March 31 Financial Statements"). The March 31 Financial
Statements have been prepared in a manner consistent with that employed in
the December 31 Financial Statements except as disclosed in the notes to
such financial statements. The March 31 Financial Statements have been
prepared in accordance with GAAP and fairly present (subject to normal
year-end adjustments, which adjustments are not material) in all material
respects the financial positions of each of Management and Lessee as at
March 31, 1999 and the results of operations of each of Management and
Lessee for the three months then ended.
(iii) None of Management, Lessee or any of the Lessee Subsidiaries has
any Liabilities except: (A) as set forth on Schedule 4.1(f)(iii); (B)
Liabilities disclosed on the applicable March 31, 1999 Balance Sheet; (C)
Liabilities under all contracts and agreements set forth on the schedules
hereto, other than any such Liabilities in respect of indebtedness for
borrowed money; and (D) Liabilities incurred subsequent to March 31, 1999
in the ordinary course of business consistent with past practice and in
compliance with the provisions of this Agreement; (E) Liabilities arising
from litigation relating to the Transaction; and (F) Liabilities under all
contracts and agreements entered into by such Person after the date of this
Agreement so long as such contract or agreement was entered into in
compliance with this Agreement.
(iv) As of March 31, 1999 except as set forth on the March 31, 1999
Balance Sheet or reserved against on such balance sheet, Lessee and its
Lessee Subsidiaries do not have Liabilities of the type required to be
reflected as Liabilities on a balance sheet prepared in accordance with
GAAP.
(g) Absence of Certain Changes or Events. Since December 31, 1998,
Lessee, the Lessee Subsidiaries and Management have conducted their respective
businesses, taken as a whole, in all material respects in the ordinary course of
business consistent with past practice, and there has not been any material
adverse change in the assets, Liabilities, business, results of operations or
condition (financial or otherwise) of Management, Lessee or any Lessee
Subsidiary or any damage, destruction, loss, conversion, condemnation or taking
by eminent domain related to any material asset of Management or Lessee. In
addition, except as disclosed on Schedule 4.1(g) or in the March 31 Financial
Statements, from December 31, 1998 to the date hereof, none of Lessee, any
Lessee Subsidiary or Management has other than as expressly contemplated by this
Agreement:
(i) increased the compensation or benefits payable by it to its
Employees except for increases in compensation or benefits in the ordinary
course of business consistent with past practice;
(ii) incurred, assumed or guaranteed any (i) indebtedness for borrowed
money or (ii) other than in the ordinary course of business consistent with
past practice, any other indebtedness;
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(iii) made any loan or advance to any Person, except in the ordinary
course of business consistent with past practice;
(iv) made any capital expenditure or commitment for any capital
expenditure in excess of $20,000 individually or $200,000 in the aggregate;
(v) merged or consolidated with, or acquired an interest in, any
Person or otherwise acquired any material assets, except for acquisitions
in the ordinary course of business consistent with past practice;
(vi) sold or otherwise disposed of any material properties or assets,
except for dispositions in the ordinary course of business consistent with
past practice;
(vii) mortgaged, pledged or encumbered any material assets, other than
pursuant to Permitted Liens;
(viii) issued, sold or redeemed any capital stock or other equity
interests, notes, bonds or other securities, or any option, warrant or
other right to acquire the same;
(ix) amended its Certificate of Incorporation or Bylaws;
(x) made any change in the financial or accounting practices or
policies customarily followed by it (other than changes required by GAAP);
or
(xi) entered into any contract or other agreement to do any of the
foregoing.
(h) Contracts, Permits and Other Data. Schedule 4.1(h) lists all of the
following to which either Management, Lessee or any Lessee Subsidiary is a party
as of the date hereof:
(i) contracts containing covenants limiting the freedom of Management,
Lessee or any Lessee Subsidiary after the date hereof (A) to engage in any
line of business or to compete with any Person or (B) to incur indebtedness
for borrowed money;
(ii) partnership, limited liability company, or joint venture or
shareholder agreements;
(iii) hotel franchise agreements;
(iv) Equipment Leases (excluding any such agreements providing for
payment of less than $20,000 per annum on an individual basis or terminable
without penalty upon 90 days or less prior written notice);
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(v) Service Contracts (excluding any such agreements providing for
payment of less than $20,000 per annum on an individual basis or terminable
without penalty of more than $5,000 upon 90 days or less prior written
notice);
(vi) Management Agreements;
(vii) any Advance Booking Agreements (excluding any such agreements
providing for payment of less than $600,000 per annum on an individual
basis or terminable without penalty of more than $60,000 upon 90 days or
less prior written notice);
(viii) employment agreements;
(ix) contracts which provide for payments after the date hereof in
excess of $100,000 during any one-year period and which are not otherwise
listed on Schedule 4.1(h) or Schedules 4.1(i)(ii) through (vi);
(x) mortgages, pledges, security agreements, deeds of trust or other
instruments creating or, to the Knowledge of Alter or Biederman, as
applicable, purporting to create Liens; or
(xi) contracts for the sale or other Transfer of any material assets
of Management, Lessee or any Lessee Subsidiary after the date hereof.
Except as specified in Schedule 4.1(h) hereto, all instruments listed on
Schedule 4.1(h) and all other rights, licenses, leases, registrations,
applications, contracts, commitments and other agreements of Lessee, any Lessee
Subsidiary or Management which are necessary to the operation of their
respective businesses or by which Lessee, any Lessee Subsidiary or Management
are bound to the extent they are necessary to the operation of their respective
businesses are legal, valid and binding obligations of Lessee, each Lessee
Subsidiary or Management, as applicable, and to the Knowledge of Alter or
Biederman, as applicable, each other party thereto, enforceable in accordance
with their terms, except for such failures to be enforceable that would not,
individually or in the aggregate, have a Material Adverse Effect. None of
Lessee, any Lessee Subsidiary or Management or, to the Knowledge of Alter or
Biederman, any other party, is in breach or default in the performance of any
obligation thereunder and no event has occurred or has failed to occur whereby
any of the other parties thereto have been or will be released therefrom or will
be entitled to refuse to perform thereunder, in any case which would have,
either individually or in the aggregate, a Material Adverse Effect.
(i) Properties.
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(i) Owned Real Property. None of Management, Lessee or any Lessee
Subsidiary owns a fee interest in any real property, and neither Management
nor Lessee has owned a fee interest in any real property since April 1,
1989.
(ii) Leased Real Property. Schedule 4.1(i)(ii) sets forth as of the
date hereof, by address, each Leased Real Property, all of which are leased
from Sunstone OP or its Subsidiaries (collectively, the "Real Property
Leases"). Except as set forth on Schedule 4.1(h), as of the date hereof,
none of Lessee, any Lessee Subsidiary or Management is a lessor under any
ground lease or Space Lease. Pursuant to the Real Property Leases,
Management or Lessee holds good and valid leasehold title to the Leased
Real Property, in each case in accordance with the provisions of the
applicable Real Property Lease and free of all Liens except for Permitted
Liens. Other than such exceptions which would not, individually or in the
aggregate, have a Material Adverse Effect, all Real Property Leases (i) are
legal, valid and binding obligations of Lessee or Management, as
applicable, and to the Knowledge of Alter or Biederman, as applicable, each
other party thereto, enforceable in accordance with their terms, and (ii)
to the knowledge of Alter and Biederman, grant in all respects the
leasehold estates or rights of occupancy or use they purport to grant.
Except as set forth on Schedule 4.1(i)(ii), as of the date hereof, there
are no existing defaults (either on the part of Management or Lessee or, to
the Knowledge of Alter or Biederman, as applicable, any other party
thereto) under any Real Property Lease and no event has occurred which,
with notice or the lapse of time, or both, would constitute a default
(either on the part of Management or Lessee or, to the Knowledge of Alter
or Biederman, as applicable, any other party thereto) under any of the Real
Property Leases, except for any of the foregoing which, individually or in
the aggregate, would not have a Material Adverse Effect. The consummation
of the Transactions will not result in any payment obligations under any of
the Real Property Leases (whether pursuant to a "change in control"
provision in the Real Property Leases or otherwise) to any Person other
than Sunstone OP or its Subsidiaries, except as set forth on Schedule
4.1(i)(ii).
(iii) No Transfer Agreements. Except as set forth on Schedule
4.1(i)(iii), as of the date hereof, none of Management, Lessee or any
Lessee Subsidiary has entered into any agreement to sell, transfer,
mortgage, lease, grant any preferential right to purchase (including but
not limited to any option, right of first refusal or right of first
negotiation) with respect to, or otherwise dispose of or encumber all or
any portion of their respective interest in, the Leased Real Property.
(iv) Space Leases. Except as set forth on Schedule 4.1(i)(iv), as of
the date hereof, there are no Space Leases, nor are there any other tenants
or occupants (other than transient guests and as otherwise contemplated in
the Hotel Management Agreements) with rights to occupy all or any portion
of the Real Property. A copy of each Space Lease described on Schedule
4.1(i)(iv) has been provided to Sunstone Parties and is a true and accurate
copy, including all amendments to date, and constitutes the entire
agreement
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between Management or Lessee, as the case may be, and the other party or
parties named therein. Each such Space Lease is a legal, valid and binding
obligation of Lessee or Management, as applicable, and to the Knowledge of
Alter or Biederman, as applicable, each other party thereto, enforceable in
accordance with its terms, and, to the Knowledge of Alter or Biederman, as
applicable, free of any default by any party thereto, nor has Management or
Lessee received any written or verbal notice or other communication of any
alleged breach or default thereunder. As of the date hereof, none of
Management, Lessee or any Lessee Subsidiary is required to pay for any
alterations in excess of $20,000 for any tenant which alterations have not
been completed as required pursuant to the relevant lease, except as set
forth on Schedule 4.1(j)(iv). To the Knowledge of Alter or Biederman, as
applicable, no brokerage commissions or finder's fees that Lessee or
Management is required to pay in excess of $20,000 with respect to the
negotiation, renewal, extension or modification of any Space Lease set
forth on Schedule 4.1(i)(iv) will be owing on the Closing Date. To the
Knowledge of Alter or Biederman, as applicable, there are no pending
actions or proceedings instituted against Management, Lessee or any Lessee
Subsidiary by any tenant under any Space Lease.
(v) Equipment Leases, Service Contracts, Advance Booking Agreements.
Schedule 4.1(i)(v), as of the date hereof, sets forth a list of all of the
Equipment Leases, Service Contracts and Advance Booking Agreements which
involve the payment or receipt of more than $20,000, in any individual
case, or which may not be canceled on ninety (90) days notice or less
without payment of any penalty in excess of $5,000 and all amendments
thereto, and the expiration date of each such Equipment Lease, Service
Contract and Advanced Booking Agreement and, in the case of the Advance
Booking Agreements, the rates applicable thereunder (each, a "Section (v)
Contract"). Each Section (v) Contract is a legal, valid and binding
obligation of Lessee or Management, as applicable, and to the Knowledge of
Alter or Biederman, as applicable, each other party thereto, enforceable in
accordance with its terms, all amounts due thereunder have been paid, to
the Knowledge of Alter or Biederman, as applicable, no default except for
defaults that would not have a Material Adverse Effect by any Person exists
under any Section (v) Contract and neither Management nor Lessee has
received any written notice from any party to any Section (v) Contract
claiming the existence of any default under such Section (v) Contract and
no such Section (v) Contract has been assigned, transferred, hypothecated,
pledged or encumbered by Management, Lessee or any Lessee Subsidiary. None
of Management, Lessee, any Lessee Subsidiary or any of their Affiliates has
any direct or indirect ownership interests in any Person providing goods or
services under the Section (v) Contracts. To the Knowledge of Alter or
Biederman, as applicable, there are no pending actions or proceedings
instituted against Management, Lessee or any Lessee Subsidiary by any party
under any Section (v) Contracts. Each Section (v) Contract to be
transferred to Sunstone Parties pursuant to this Agreement is transferable
without consent, other than as set forth on Schedule 4.1(i)(v) attached
hereto.
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(vi) Liquor Licenses. Schedule 4.1(i)(vi) sets forth, as of the date
hereof, the Liquor Licenses for the businesses conducted by Management,
Lessee and any Lessee Subsidiary, all of which are held in the names set
forth on Schedule 4.1(i)(vi). The Liquor Licenses are legal, valid and
binding obligations of Lessee, each Lessee Subsidiary and Management, as
applicable, and to the Knowledge of Alter or Biederman, as applicable, each
other party thereto, enforceable in accordance with their terms. To the
Knowledge of Alter or Biederman, as applicable, no default except for
defaults that would not have a Material Adverse Effect by any Person exists
under the Liquor Licenses, and neither Management nor Lessee has received
any written notification of any material violation or alleged material
violation of any applicable laws or regulations relating to the sale and
service of alcoholic beverages which are outstanding and which have not
been remedied. The Liquor Licenses are adequate for the operation of the
business conducted by Management, Lessee and each Lessee Subsidiary
consistent with past practice. All applicable state and federal liquor
stamp taxes have been paid in full or will be paid in full on or prior to
the Closing Date.
(vii) Other Matters. Schedule 4.1(i)(vii), as of the date hereof, is a
true, correct and complete list of (A) all properties which Management,
Lessee or any Lessee Subsidiary are obligated, or have the right, to
purchase or lease, which are now not owned or leased by Management, Lessee
or any Lessee Subsidiary, (B) all Real Property which Management, Lessee or
any Lessee Subsidiary are obligated to sell or assign, (C) all Real
Property which Management, Lessee or any Lessee Subsidiary are in the
process of constructing or which are otherwise not yet fully constructed
and operational and (D) all Real Property subject to purchase options,
rights of first offer, rights of first refusal or similar agreements or
arrangements.
(j) Legal Proceedings. Except as described in Schedule 4.1(j), as of
the date hereof, there is no litigation, claim, arbitration, proceeding or
investigation to which Management, Lessee or any Lessee Subsidiary is a party
pending or, to the Knowledge of Alter or Biederman, as applicable, threatened
against Management, Lessee or any Lessee Subsidiary or relating to any of the
assets of Management, Lessee or any Lessee Subsidiary or the Transactions which,
either individually or in the aggregate, would reasonably be expected to have a
Material Adverse Effect or which seeks to restrain or enjoin the consummation of
any of the Transactions. None of Management, Lessee or any Lessee Subsidiary as
of the date hereof is party to nor are any of the assets of Management, Lessee
or any Lessee Subsidiary subject to any judgment, writ, decree, injunction or
order entered by any court, governmental authority or arbitrator.
(k) Labor Controversies. Except as set forth on Schedule 4.1(k), as of
the date hereof, (i) there have been no labor strikes, slow-downs, work
stoppages, lock-outs or other material labor controversies or disputes during
the past two years, nor is any such strike, slow- down, work stoppage or other
material labor controversy or dispute pending or, to the Knowledge of Alter or
Biederman, as applicable, threatened, in each case with respect to the current
or
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former employees of Management, Lessee or any Lessee Subsidiary, (ii) none of
Management, Lessee or any Lessee Subsidiary is a party to any labor contract,
collective bargaining agreement, contract, letter of understanding or, to the
Knowledge of Alter or Biederman, as applicable, any other agreement, formal or
informal, with any labor union or organization, nor are any of the employees of
Management, Lessee or any Lessee Subsidiary represented by any labor union or
organization, and (iii) none of Management, Lessee or any Lessee Subsidiary has
closed any facility, effectuated any layoffs of employees or implemented any
early retirement, separation or window program within the past three years nor
has Management or Lessee planned or announced any such action or program for the
future except for any of the foregoing which, individually or in the aggregate,
would not have a Material Adverse Effect.
(l) Intellectual Property and Technology. Management, Lessee and each
Lessee Subsidiary own, or are licensed or otherwise have the right to use in the
manner currently being used, all patents, patent registrations, patent
applications, trademarks, trademark registrations, trademark applications,
tradenames, copyrights, copyright applications, copyright registrations,
franchises, URLs, domain names, permits and licenses ("Intellectual Property")
used by Management and Lessee and necessary to the operation of their respective
businesses (the "Business Intellectual Property"), subject to the terms of the
respective franchise, license and other agreements. Except as would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect, (i) none of Management, Lessee or any Lessee Subsidiary has
infringed upon or is in conflict with the Intellectual Property of any third
party, except with respect to off-the-shelf software and with respect to
Intellectual Property licensed under franchise agreements, such exception being
applicable only if Management, Lessee or such Lessee Subsidiary, as the case may
be, shall not be in violation of the Intellectual Property license provisions of
the applicable franchise agreement, (ii) nor has Management, Lessee or any
Lessee Subsidiary received any written notice of any claim that Management,
Lessee or any Lessee Subsidiary has infringed upon or is in conflict with any
Intellectual Property of any third party. Except as would not, individually or
in the aggregate, reasonably be expected to have a Material Adverse Effect, all
trademark registrations of each of Management, Lessee and Lessee Subsidiary are
valid and subsisting and in full force and effect. Each of Management, Lessee or
each Lessee Subsidiary owns or is licensed or otherwise has the right to use all
of the processes, formulae, proprietary technology, inventions, trade secrets,
know-how, product descriptions and specifications ("Technology") in the manner
currently used by Management, Lessee or each Lessee Subsidiary, except as would
not, individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect. Except as would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect, there have been no
written claims (whether private or governmental) against Management or Lessee
asserting the invalidity or unenforceability of its ownership, license or other
right to use any of the Technology. Except as would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect, none of the
rights of Management, Lessee or any Lessee Subsidiary to the Business
Intellectual Property or the Technology will be impaired in any way by any of
the Transactions, except with respect to off-the-shelf software and with respect
to Intellectual Property licensed under franchise agreements, such exception
being applicable only if Management, Lessee or such
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Lessee Subsidiary, as the case may be, shall not be in violation of the
Intellectual Property provisions of the applicable franchise agreement, and all
of the rights of Management to the Business Intellectual Property and Technology
included in the Management Assets will be fully enforceable by Management Newco
after the Closing Date to the same extent as such rights would have been
enforceable by Management before the Closing.
(m) Conduct of Business in Compliance with Laws.
(i) Each of Management, Lessee and each Lessee Subsidiary has complied
with all applicable laws, ordinances, regulations or orders or other
requirements of any Governmental Authority applicable to it, except where
the failure to be in such compliance would not have, either individually or
in the aggregate, a Material Adverse Effect.
(ii) Each of Management, Lessee and each Lessee Subsidiary has all
licenses, permits, consents, approvals, authorizations, qualifications and
orders of Governmental Authorities required for the conduct of its
respective businesses as presently conducted, except where failure would
not, individually or in the aggregate, have a Material Adverse Effect.
(n) Environmental Matters. Except as set forth on Schedule 4.1(n) and
except for matters that, individually or in the aggregate, would not have a
Material Adverse Effect, (i) each of Management, Lessee and each Lessee
Subsidiary complies and has complied with all Environmental Laws applicable to
it, and has possessed and complied with all permits required under Environmental
Laws for its respective businesses; (ii) to Management's and Lessee's Knowledge,
there are and have been no Materials of Environmental Concern at any property
currently or formerly owned, operated or leased by Management, Lessee or any
Lessee Subsidiary that could reasonably be expected to give rise to any
liability under any Environmental Law or result in costs arising out of any
Environmental Law; (iii) no judicial, administrative, or arbitral proceeding
(including any notice of violation or alleged violation) under any Environmental
Law to which Management, Lessee or any Lessee Subsidiary is, or to the Knowledge
of Alter or Biederman, as applicable, will be, named as a party is pending or,
to the Knowledge of Alter or Biederman, as applicable, threatened, with respect
to Management, Lessee or any Lessee Subsidiary nor to the Knowledge of Alter or
Biederman, as applicable, is Management, Lessee or any Lessee Subsidiary the
subject of any investigation in connection with any such proceeding or potential
proceeding; (iv) to Management's and Lessee's Knowledge, there are no past,
present, or anticipated future events, conditions, circumstances, practices,
plans, or legal requirements that could be expected to prevent, or materially
increase the burden on Management, Lessee or any Lessee Subsidiary of complying
with applicable Environmental Laws or of obtaining, renewing, or complying with
all permits required under Environmental Laws required under such laws; and (v)
Management, Lessee, Alter and Biederman have provided to Sunstone Parties true
and complete copies of all reports with respect to Environmental Laws relating
to Management, Lessee or each Lessee Subsidiary or the Real Property in their
possession or control.
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(o) Employee Benefits. As used herein, the term "Employee Plan"
includes any pension, retirement, savings, disability, medical, dental, health,
life, death benefit, group insurance, profit sharing, deferred compensation,
stock option, bonus, incentive, vacation pay, tuition reimbursement, severance
pay, or other material employee benefit plan, trust, employment agreement,
contract, agreement, policy, program or arrangement (including, without
limitation, any pension plan, as defined in Section 3(2) of the Employee
Retirement Income Security Act of 1974, as amended and the rules and regulations
promulgated thereunder ("ERISA") ("Pension Plan"), any multiemployer plan, as
defined in Section 3(37) of ERISA (a "Multiemployer Plan") and any welfare plan
as defined in Section 3(1) of ERISA ("Welfare Plan")), whether or not any of the
foregoing is funded, insured or self-funded, written or oral, (i) sponsored or
maintained by Management, Lessee, any Lessee Subsidiary, or any entity which,
together with Management or Lessee, would be treated as a single employer under
Section 414 of the Code (each a "Controlled Group Member") and covering any
Controlled Group Member's active or former employees (or their beneficiaries),
(ii) to which any Controlled Group Member is a party or by which any Controlled
Group Member (or any of the rights, properties or assets thereof) is bound or
(iii) with respect to which any current Controlled Group Member may otherwise
have any material liability (whether or not such Controlled Group Member still
maintains such Employee Plan). Each Employee Plan is listed in Schedule 4.1(o).
With respect to the Employee Plans:
(i) Except as disclosed in Schedule 4.1(o), no Controlled Group Member
has any continuing liability under any Welfare Plan which provides for
continuing benefits or coverage for any participant or any beneficiary of a
participant after such participant's termination of employment, except as may be
required by Section 4980B of the Code, or Section 601 (et seq.) of ERISA, or
under any applicable state law, and at the expense of the participant or the
beneficiary of the participant.
(ii) Except as disclosed in Schedule 4.1(o), each Employee Plan which
is not a Multiemployer Plan (and, to the Knowledge of Alter or Biederman, as
applicable, each Multiemployer Plan) complies in all material respects with the
applicable requirements of ERISA and any other applicable law governing such
Employee Plan, and each Employee Plan which is not a Multiemployer Plan (and, to
the Knowledge of Alter or Biederman, as applicable, each Multiemployer Plan) has
at all times been administered in all material respects in accordance with all
such requirements of law, and in accordance with its terms and the terms of any
applicable collective bargaining agreement to the extent consistent with all
such requirements of law. Each Employee Plan which is intended to be qualified,
has (A) received a favorable determination letter from the Internal Revenue
Service stating that such Employee Plan meets the requirements of and is
qualified under Section 401(a) of the Code and that the trust associated with
such Employee Plan is tax exempt under Section 501(a) of the Code, (B) an
application for such determination is pending, or (C) the remedial amendment
period during which an application for such determination may be timely filed
has not expired and such application will be timely filed before the expiration
of such remedial amendment period, and to the Knowledge of Alter or Biederman,
as applicable, no event has occurred which would jeopardize the qualified status
of any such plan or the tax exempt status of any such trust under Sections
401(a) and Section 501(a) of the Code,
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respectively, except in circumstances in which, individually or in the
aggregate, the failure to so qualify or be tax exempt would not have a Material
Adverse Effect.
(iii) No lawsuits, claims (other than routine claims for benefits) or
complaints to, or by, any Person or Governmental Authority have been filed or
are pending which, individually or in the aggregate, would have a Material
Adverse Effect and, to the Knowledge of Alter or Biederman, as applicable, there
is no fact or contemplated event which would be expected to give rise to any
such lawsuit, claim (other than routine claims for benefits) or complaint with
respect to any Employee Plan that would have a Material Adverse Effect.
Without limiting the foregoing, except in the case of the following
clauses (1) through (6) as would not individually or in the aggregate have a
Material Adverse Effect, the following are true with respect to each Employee
Plan:
(1) all Controlled Group Members have filed or caused to be filed
every material return, report statement, notice, declaration and other
document required by any law or governmental agency, federal, state and
local (including, without limitation, the Internal Revenue Service and the
Department of Labor) with respect to each such Employee Plan other than a
Multiemployer Plan, each of such filings has been complete and accurate in
all material respects and no Controlled Group Member has incurred any
material liability in connection with such filings;
(2) all Controlled Group Members have delivered or caused to be
delivered to every participant, beneficiary and other party entitled to
such material, all material plan descriptions, returns, reports, schedules,
notices, statements and similar materials, including, without limitation,
summary plan descriptions and summary annual reports, as are required under
Title I of ERISA, the Code, or both, and no Controlled Group Member has
incurred any material liability in connection with such deliveries;
(3) all contributions and payments with respect to Employee Plans that
are required to be made by a Controlled Group Member with respect to
periods ending on or before the Closing Date (including periods from the
first day of the current plan or policy year to the Closing Date) have
been, or will be, made or accrued before the Closing Date in accordance
with the appropriate plan document, actuarial report, collective bargaining
agreements or insurance contracts or arrangements or as otherwise required
by ERISA or the Code;
(4) with respect to each such Employee Plan, to the extent applicable,
Management and Lessee have delivered to or have made available to Sunstone
Parties true and complete copies of (i) plan documents, or any and all
other documents that establish the existence of the plan, trust,
arrangement, contract, policy, program or arrangement and all amendments
thereto, (ii) the most recent determination letter, if any, received from
the Internal Revenue Service, (iii) the three most recent Form 5500 Annual
Reports (and all
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schedules and reports relating thereto) and actuarial reports (if required
to be prepared) and (iv) all related trust agreements, insurance contract
or other funding agreements that implement each such Employee Plan;
(5) no payment made or to be made to an officer, director or employee
pursuant to an Employee Plan either before, on, or after consummation of
the Transactions and contingent on or related to such transactions shall
constitute an "excess parachute payment" within the meaning of Section 280G
of the Code; and
(6) consummation of the Transactions shall not (i) give rise to a
severance pay obligation with respect to those employees of Management or
Lessee who continue employment with Management Newco or Lessee or (ii)
enhance or trigger (including acceleration of vesting, payment or funding)
any benefits under any Employee Plan.
(iv) With respect to each Employee Plan which is not a Multiemployer
Plan (and to the Knowledge of Alter or Biederman, as applicable, with respect to
each Multiemployer Plan), there has not occurred, and no Person or entity is
contractually bound to enter into, any "prohibited transaction" within the
meaning of Section 4975(c) of the Code or Section 406 of ERISA, which
transaction is not exempt under Section 4975(d) of the Code or Section 408 of
ERISA which, individually or in the aggregate, would have a Material Adverse
Effect on Management or Lessee.
(v) Except as disclosed on Schedule 4.1(o) hereto, no Controlled Group
Member has maintained or been obligated to contribute to any plan subject to
Code Section 412 or Title IV of ERISA (other than a Multiemployer Plan).
(vi) As of the date hereof, Management, Lessee and the Lessee
Subsidiaries have approximately 4,700 employees in the aggregate, and no demand
for recognition made by any labor organization is pending with respect to any
such employees. Schedule 4.1(o)(vi) sets forth all collective bargaining
agreements to which the Company is a party as of the date hereof and any pending
grievances thereunder. Neither Management nor Lessee has at any time during the
last two years (A) had, nor, to the Knowledge of Alter or Biederman, as
applicable, is there now threatened, a material strike, picketing, work
stoppage, work slowdown, lockout or other labor trouble or dispute or grievance
under any collective bargaining agreement or (B) engaged in any unfair labor
practice or discriminated on the basis of age or other discrimination prohibited
by applicable law in their employment conditions or practices. There are no
representation petitions, unfair labor practice or age discrimination charges or
complaints, or other charges or complaints alleging illegal discriminatory
practices by Management, Lessee or any Lessee Subsidiary, pending or, to the
Knowledge of Alter or Biederman, as applicable, threatened before the National
Labor Relations Board or any other governmental body. Neither Management, Lessee
nor any ERISA Affiliate has incurred any liability or obligation under the
Worker Adjustment and Retaining Notification Act or similar state laws which
remains unpaid or unsatisfied.
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(vii) All insurance premiums required to be paid with respect to
Employee Plans as of the Effective Time have been or will be paid prior thereto
and adequate reserves have been provided for on the balance sheets of Management
and Lessee for any premiums (or portions thereof) attributable to service on or
prior to the Closing Date.
(p) Entire Business. The properties, assets and other rights of Lessee
and Management constitute all of the properties, assets and other rights
necessary for the conduct of the business of Lessee and Management,
respectively, as currently conducted.
(q) Tax Matters.
(i) Management, Lessee and each Lessee Subsidiary have filed all Tax
Returns required to be filed in the manner prescribed by law, except as
would not, individually or in the aggregate, reasonably be expected to have
a Material Adverse Effect, and have paid all Taxes due (whether or not
shown on such Tax Returns), except as would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect. Except
as would not, individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect, all Taxes that Lessee, each Lessee
Subsidiary or Management are or were required to withhold or collect have
been duly withheld or collected and, to the extent required, have been paid
to the appropriate governmental authority.
(ii) Except as set forth on Schedule 4.1(q)(ii), as of the date
hereof, to the Knowledge of Alter or Biederman, as applicable, no action,
suit, proceeding, investigation, claim or audit has been commenced, or is
pending or threatened, with respect to Lessee, any Lessee Subsidiary or
Management in respect of any Taxes. Any deficiency proposed as a result of
such action, suit, proceeding, investigation, claim or audit has been paid
or, as described on Schedule 4.1(q)(ii), are being contested in good faith
by appropriate proceedings.
(iii) Except as set forth on Schedule 4.1(q)(iii) or as would not
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect, none of Lessee, any Lessee Subsidiary or Management will be
required to include any amount in income for any taxable period ending
after the Closing Date by reason of a change in method of accounting, any
closing or similar agreement with a governmental authority, any installment
sale or any other item which economically accrued prior to the Closing
Date.
(iv) Lessee and Management have at all times qualified as, and have
elected to be treated as, "S Corporations" as defined in section 1361 of
the Code and no assets of either Lessee or Management are subject to
section 1374 of the Code.
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(v) None of Alter, Biederman, Lessee, any Lessee Subsidiary or
Management could be responsible to pay the Taxes of any other Person under
any agreement or otherwise.
(r) Year 2000 Compliance. To the Knowledge of Alter or Biederman, as
applicable, all of the computer programs, computer firmware, computer
hardware (whether general or special purpose) and other similar or related
items of automated, computerized and/or software system(s) that are used or
relied on by Management, Lessee or any Lessee Subsidiary in the conduct of
their respective businesses will not malfunction, will not cease to
function, will not generate incorrect data, and will not provide incorrect
results when processing, providing, and/or receiving date-related data into
and between the twentieth and twenty-first centuries in a manner that,
individually or in the aggregate, would reasonably be expected to result in
a Material Adverse Effect on Management, Lessee or any Lessee Subsidiary.
(s) Contracts with Certain Persons. Schedule 4.1(s) sets forth each
agreement or arrangement between Lessee, any Lessee Subsidiary and Management,
on the one hand, and Alter, Biederman, Sunstone, Sunstone OP, or any other
Affiliate of Lessee, any Lessee Subsidiary or Management, or any officers,
directors, or holders of more than a 10% equity interest in any of the
foregoing, on the other hand in excess of $100,000.
(t) Insurance. Each of Management, Lessee and each Lessee Subsidiary
maintain policies of fire, flood and casualty, liability and other forms of
insurance in such amounts, with such deductibles and against such risks and
losses as are reasonable for the businesses, properties and assets of
Management, Lessee and the Lessee Subsidiaries. As of the date hereof, the
insurance policies maintained with respect to each of Management, Lessee and
each Lessee Subsidiary and their respective businesses, assets and properties
(the "Insurance Policies") are listed in Schedule 4.1(t). All such Insurance
Policies are in full force and effect, and all premiums due and payable thereon
have been paid except for any of the foregoing which, individually or in the
aggregate, would not have a Material Adverse Effect. To the Knowledge of Alter
or Biederman, as applicable, no insurer under any such policy has canceled or
generally disclaimed liability under any such policy or indicated any intent to
do so or to materially increase the premiums payable under or not renew any such
policy except for any of the foregoing which, individually or in the aggregate,
would not have a Material Adverse Effect.
(u) Certain Fees. Except as set forth on Schedule 4.1(u), neither Alter
nor Biederman, nor any of Management, Lessee or any Lessee Subsidiary nor the
officers, directors or employees thereof have employed any broker or finder or
incurred any other Liability for any brokerage fees, commissions or finders'
fees in connection with the Transactions.
(v) Equity Ownership. Alter owns, beneficially and of record, and has
good title to, 100 shares of Lessee Common Stock and 100 shares of Management
Common Stock in each case free and clear of any Liens, rights, options,
agreements or limitations on voting rights
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of any nature whatsoever other than restrictions imposed by the Securities Act
of 1933, as amended (the "Securities Act"), applicable state securities and
"Blue Sky" laws.
(w) Title; Absence of Liens. At the Closing, Sunstone Parties or its
designee will acquire from Alter good title to 100 shares of Lessee Stock and
100 shares of Management Common Stock, free and clear of all Liens, rights,
options, agreements or limitations on voting rights of any nature whatsoever
other than restrictions imposed by the Securities Act and applicable state
securities and "Blue Sky" laws.
(x) Equity Ownership. Biederman owns, beneficially and of record, and
has good title to, 25 shares of Lessee Common Stock, in each case free and clear
of any Liens, rights, options, agreements or limitations on voting rights of any
nature whatsoever other than restrictions imposed by the Securities Act and
applicable state securities and "Blue Sky" laws.
(y) Title; Absence of Liens. At the Closing, Sunstone Parties will
acquire from Biederman good title to 25 shares of Lessee Common Stock, free and
clear of all Liens, rights, options, agreements or limitations on voting rights
of any nature whatsoever other than restrictions imposed by the Securities Act
and applicable state securities and "Blue Sky" laws.
SECTION 4.2 REPRESENTATIONS AND WARRANTIES OF THE SUNSTONE PARTIES.
Each of the Sunstone Parties jointly and severally represents and warrants to
Stockholders as follows:
(a) Due Organization; Power and Good Standing. Each Sunstone Party is
duly organized, validly existing and in good standing under the laws of its
jurisdiction of organization, and has the requisite power and authority to own,
lease and operate its properties and to conduct its business as now conducted by
it. Each Sunstone Party has all requisite power and authority to enter into this
Agreement and to perform its obligations hereunder and thereunder. Each Sunstone
Party is qualified to do business and is in good standing as a foreign
corporation, partnership or other entity, as applicable, in all jurisdictions in
which it conducts its business, except where the failure to be so qualified
would not, individually or in the aggregate, materially adversely affect its
ability to perform its obligations hereunder.
(b) Authorization and Validity of Agreement. The execution, delivery
and performance by each Sunstone Party of this Agreement and the consummation by
such Sunstone Party of the Transactions have been duly authorized by all
necessary action on the part of such Sunstone Party. This Agreement has been
duly executed and delivered by such Sunstone Party and constitutes a valid and
legally binding obligation of such Sunstone Party, enforceable against it in
accordance with its terms.
(c) No Government Approvals or Notices Required; No Conflict with
Instruments. Except as described in Schedule 4.2(c), which Schedule shall be
delivered by the Sunstone Parties on or prior to the 15th day following the date
of this Agreement, the execution, delivery and performance of this Agreement by
each Sunstone Party and the consummation by
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each Sunstone Party of the Transactions will not (i) violate, conflict with or
result in a breach of any provision of the limited liability company agreement
of such party, (ii) except for any filings required under the HSR Act, require
any consent, approval, authorization or permit of, or filing with or
notification to, any Governmental Authority, (iii) require the consent or
approval of any Person (other than a Governmental Authority), violate, conflict
with or result in a breach of any provision of, constitute a default (or an
event which with notice or lapse of time or both would become a default) under,
or give to any Person any right of termination, cancellation, amendment or
acceleration under, or result in the creation of a Lien on any of the assets,
properties or limited liability interests of such Sunstone Party, under, any of
the provisions of any contract, lease, note, permit, franchise, license or other
instrument or agreement to which such Sunstone Party is a party or by which it
or its assets or properties are bound, or (iv) violate or conflict with any
order, writ, injunction, decree, statute, rule or regulation of any Governmental
Authority or arbitrator applicable to such Sunstone Parties or its assets or
properties; other than any consents and approvals the failure of which to obtain
and any violations, conflicts, breaches and defaults set forth pursuant to
clauses (ii), (iii) and (iv) above which, individually or in the aggregate,
would not materially adversely affect the ability of such Sunstone Party to
perform its obligations hereunder.
(d) Legal Proceedings. Except as described in Schedule 4.2(d), as of
the date hereof, there is no litigation, claim, arbitration, proceeding or
investigation to which any Sunstone Party is a party pending or, to the
Knowledge of each Sunstone Party, threatened against such Sunstone Party or
relating to any of the assets of such Sunstone Party or the Transactions which,
either individually or in the aggregate, would reasonably be expected to
restrain or enjoin the consummation of any of the Transactions.
(e) Certain Fees. None of the Sunstone Parties nor any of their members
or partners, nor the officers, directors or employees thereof have employed any
broker or finder or incurred any other Liability for any brokerage fees,
commissions or finders' fees in connection with the Transactions.
SECTION 4.3 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Each of the
representations and warranties given by the parties in Article IV shall be
deemed repeated and remade at the Closing as if made at such time and shall,
notwithstanding any investigation on the part of any other party, survive the
Closing until the two year anniversary thereof, at which time such
representations and warranties will terminate, provided that the representations
and warranties contained in Sections 4.1(d), 4.1(v), 4.1(w), 4.1(x) and 4.1(y)
shall survive the Closing and shall not terminate, and the representations and
warranties contained in Sections 4.1(o) and 4.1(q) shall survive until the
expiration of the statute of limitations with respect thereto.
SECTION 4.4 EXCLUSION OF CONTRIBUTION AGREEMENT. The parties hereto
acknowledge that Alter, Biederman, Lessee and Management are parties to the
Contribution and Sale Agreement, dated the date hereof (the "Contribution
Agreement"), which among other things, grants certain other parties thereto the
right, under certain circumstances, to acquire all of the
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Lessee Common Stock and the assets of Management and upon receipt of a
Drag-Along Notice, Alter and Biederman will cause the Contribution Agreement to
be terminated in accordance with its terms.
ARTICLE 5
COVENANTS
SECTION 5.1 CONDUCT OF BUSINESS PENDING THE CLOSING. Except with the
prior written consent of Sunstone Parties and except as may be expressly
permitted by this Agreement, prior to the Closing, each of Management and Lessee
shall, and Lessee shall cause each Lessee Subsidiary, and Alter and Biederman
shall, and shall cause Lessee and each Lessee Subsidiary and, in the case of
Alter, Management to, operate its business only in the usual, regular and
ordinary manner, on a basis consistent with past practice and, to the extent
consistent with such operation, use its reasonable best efforts to preserve its
present business organization intact, keep available the services of its present
employees, preserve its present business relationships and maintain all rights,
privileges and franchises necessary or desirable in the normal conduct of those
businesses. Without limitation of the foregoing, prior to the Closing, except as
expressly permitted by this Agreement, each of Management and Lessee shall not,
and Lessee shall cause each Lessee Subsidiary, and Alter and Biederman shall
not, and shall cause Lessee and each Lessee Subsidiary and, in the case of
Alter, Management not to:
(a) amend its Certificate of Incorporation or Bylaws;
(b) issue, purchase or redeem, or authorize or propose the issuance,
purchase or redemption of, or declare or pay any dividend with respect to, any
shares of its capital stock or any class of securities convertible into, or
rights, warrants or options to acquire, any such shares of other convertible
securities, except for dividends on the capital stock of Management and Lessee
which do not exceed $500,000 in the aggregate since December 31, 1998;
(c) form any partnership, limited liability company or other joint
venture (other than in the ordinary course consistent with past practice of such
business), acquire or dispose of any business (whether by merger, purchase or
otherwise) or of any assets (other than in the ordinary course consistent with
past practice of such business) or acquire or dispose of any investment in any
Person;
(d) make or incur any capital expenditures other than in the ordinary
course of business consistent with past practice and in no event in excess of
$20,000 individually or $200,000 in the aggregate;
(e) enter into any transaction involving the incurrence, assumption or
guarantee of indebtedness other than in the ordinary course of business
consistent with past practice;
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(f) enter into any agreement of the type described in Sections 4.1(i),
4.1(j)(ii) through (v) or 4.1(t) which contemplates payments in excess of
$200,000 during any one year or $600,000 over the term of the contract;
provided, however, that Lessee or Management may enter into any agreement or
amend any existing agreement in connection with the acquisition or development
of hotels by Sunstone or any Subsidiary thereof but only to the extent that (x)
such acquisition or development is in compliance with the Merger Agreement and
(y) any such agreement is of the type and contains terms that are in the
ordinary course of business consistent with past practice of Lessee or
Management, as applicable; provided further, that Lessee may pay reasonable
legal fees and expenses incurred in connection with the Transactions;
(g) except as provided in Section 5.1(f), terminate or amend in any
material respect any agreement listed or required to be listed on Schedule
4.1(h), 4.1(i)(ii) through (v) or 4.1(s)
(h) file any voluntary petition for bankruptcy or receivership or fail
to oppose any other Person's petition for bankruptcy of, or action to appoint a
receiver regarding, it;
(i) except as required by applicable law or to the extent required
under existing employee benefit plans, agreements or arrangements as in effect
on the date of this Agreement, (1) increase the compensation or fringe benefits
of any employee, except for increases, in the ordinary course of business, in
salary or wages of employees who are not directors or officers, (2) grant any
severance or termination pay to any employee or (3) enter into or amend or
terminate any collective bargaining, bonus, profit sharing, thrift,
compensation, pension, retirement, deferred compensation, employment,
termination, severance or other plan, agreement, trust, fund, policy or
arrangement for the benefit of any employee;
(j) change any accounting principle except as required by GAAP;
(k) make any election with respect to Taxes;
(l) cancel any indebtedness payable to it in excess of $10,000;
(m) make any loan or other advance to any Person other than advances to
wholly-owned Subsidiaries in existence on the date hereof;
(n) take any willful action which would cause any representation or
warranty of Alter or Biederman contained in this Agreement to be or become
untrue at Closing in any material respect; or
(o) authorize any of, or commit or agree to take any of, the foregoing
actions.
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Notwithstanding anything to the contrary herein, Management and Lessee
shall have the unrestricted right but not the obligation to pay off Liabilities
under the loan agreement set forth on Schedule 5.1(o) (the "Lessee Line of
Credit").
SECTION 5.2 TRANSFERS OF EQUITY INTERESTS. From the date hereof until
the Closing, Alter and Biederman each agree not to Transfer any capital stock of
Management or Lessee except for the Transfers contemplated by this Agreement.
SECTION 5.3 ACCESS TO INFORMATION. From the date hereof to the Closing,
each of Management and Lessee shall, and Lessee shall cause each Lessee
Subsidiary, and Alter and Biederman shall, and shall cause Lessee and, in the
case of Alter, Management to, upon prior reasonable notice, afford the officers,
employees, auditors and other agents of Sunstone Parties or the Third Party
Acquiror reasonable access during normal business hours to the officers,
employees, properties, offices, plants and other facilities of Management,
Lessee and the Lessee Subsidiaries and to the contracts, commitments, books and
records relating thereto, and shall use commercially reasonable efforts to
furnish such Persons all such documents and such financial, operating and other
data and information regarding such businesses and Persons that are in the
possession of such Person as Sunstone Parties, through their officers, employees
or agents, may from time to time reasonably request.
SECTION 5.4 AGREEMENT TO COOPERATE; FURTHER ASSURANCES. Subject to the
terms and conditions of this Agreement, each of the parties hereto shall use all
reasonable best efforts to take, or cause to be taken, all action and to do, or
cause to be done, all things necessary, proper or advisable under applicable
laws and regulations to consummate and make effective the Transactions,
including providing information and using reasonable best efforts to obtain all
necessary or appropriate waivers, consents and approvals, and effecting all
necessary registrations and filings; provided, however, that, without the prior
written consent of Sunstone Parties, no party shall pay any cash or other
consideration, make any commitments or incur any liability or other obligation
in an aggregate amount in excess of $200,000 in connection with the obtaining of
all consents required to effect the Transactions. In case at any time after the
Closing Date any further action is necessary or desirable to transfer any of the
Lessee and Management Equity pursuant to the terms of this Agreement, or to
otherwise to carry out the terms of this Agreement, the parties hereto and their
respective Affiliates shall execute such further documents (including
assignments, acknowledgments and consents and other instruments of transfer) and
shall take such further action as shall be necessary or desirable to effect such
transfer and to otherwise carry out the terms of this Agreement, in each case to
the extent not inconsistent with applicable law provided that Alter and
Biederman are not required to make any payments thereby and are reimbursed for
all expenses and costs incurred.
SECTION 5.5 CONSENTS. Notwithstanding anything to the contrary
contained in this Agreement, to the extent that the sale, conveyance, transfer,
assignment or delivery or attempted sale, conveyance, transfer, assignment or
delivery to Sunstone Parties or the Third Party Acquiror of any Lessee and
Management Equity is prohibited by applicable law or would
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require any governmental or third-party authorization, approval, consent or
waiver and such authorization, approval, consent or waiver shall not have been
obtained prior to the Closing, this Agreement shall not constitute a sale,
conveyance, transfer, assignment or delivery, or an attempted sale, conveyance,
transfer, assignment or delivery thereof if any of the foregoing would
constitute a breach of applicable law or the rights of any third party;
provided, however, that, except to the extent that a condition to closing set
forth herein, if any, relating to the foregoing shall not be satisfied (in which
case the Closing shall not occur unless waived by Sunstone Parties), the Closing
shall occur notwithstanding the foregoing on account of such required
authorization. Following the Closing, Alter and Biederman shall use all
reasonable best efforts to obtain promptly such authorizations, approvals,
consents or waivers provided, however, that neither Alter nor Biederman shall be
required to make any payments to obtain such authorizations, approvals, consents
or waivers.
SECTION 5.6 PUBLIC STATEMENTS. Before any party to this Agreement or
any Affiliate of such party shall release any statements concerning this
Agreement or the matters contemplated hereby which is intended for or may result
in public dissemination thereof, such party shall cooperate with the other
parties and provide the other parties the reasonable opportunity to review and
comment upon any such statements and shall not release or permit release of any
such information without the consent of the other parties, which shall not be
unreasonably withheld.
SECTION 5.7 NOTIFICATION OF CERTAIN MATTERS. Each party to this
Agreement shall give prompt notice to each other party of (i) the occurrence or
non-occurrence of any event, the occurrence or non-occurrence of which is likely
to cause any representation or warranty of such party contained in this
Agreement to be untrue or inaccurate at or prior to the Closing Date and (ii)
any failure of such party to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it hereunder; provided, however,
that the delivery of any notice pursuant to this Section 5.7 shall not limit or
otherwise affect any remedies available to the party receiving such notice. No
disclosure by any party pursuant to this Section 5.7 shall be deemed to amend or
supplement the disclosures set forth on the Schedules hereto or prevent or cure
any misrepresentations, breach of warranty or breach of covenant.
SECTION 5.8 INTENTIONALLY OMITTED
SECTION 5.9 TRANSFER TAXES. Sunstone Parties shall bear all share
transfer taxes, recording fees and other sales, transfer, use, purchase, stamp
or similar taxes resulting or arising out of the Transactions.
SECTION 5.10 INJUNCTIONS OR RESTRAINTS. In the event that there exists
at or prior to Closing (i) any injunction, restraining order or other decree of
any nature of any court of competent jurisdiction or other Governmental
Authority that is in effect that restrains or prohibits the consummation of any
of the Transactions or (ii) any action taken, or any statute, rule, regulation
or order enacted, entered or enforced, which makes the consummation of the
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Transactions illegal, each party to this Agreement shall use their reasonable
commercial efforts to have any such injunction, order, decree, action, statute,
rule or regulation vacated or declared inapplicable.
SECTION 5.11 CERTIFICATION OF UNITED STATES STATUS OF ALTER AND
BIEDERMAN. Each of Alter and Biederman shall deliver as of Closing to Sunstone
Parties a certificate, duly executed and acknowledged, certifying that each is
not a foreign person, as defined in Treasury regulation section
1.1445-2(b)(2)(i), such certification in the form similar to that described in
Treasury regulation section 1.1445-2(b)(2)(iii)(A) or otherwise meeting the
requirements of Treasury regulation section 1.1445-2(b)(2).
SECTION 5.12 SPOUSAL CLAIMS. Alter agrees to maintain all Lessee Stock
to be sold to Sunstone Parties or the Third Party Acquiror hereunder free from
all potential spousal claims including election share, community property
interest or otherwise.
SECTION 5.13 CERTAIN OBLIGATIONS. (a) Sunstone Parties will use its
reasonable best efforts to secure the release of each of Alter and Biederman
from their respective obligations incurred following the Closing under the
guarantees and indemnities listed in Schedule 5.13(a), which release may be
accomplished (at Sunstone Parties' election) by issuances of guarantees or
indemnities by Sunstone Parties with respect to such obligations or the
assumption by Sunstone Parties of such obligations. To the extent Alter and
Biederman are not released from such post- Closing obligations, Sunstone Parties
and Management and Lessee shall, jointly and severally, indemnify and hold Alter
and Biederman, and their respective Affiliates, heirs, executors, successors and
assigns, harmless for all Losses suffered or incurred by either of them under
such obligations.
(b) Effective as of the Closing, all arrangements between any of Alter,
Biederman or any Affiliate of the foregoing, other than Sunstone and Sunstone's
Subsidiaries (collectively the "Alter/Biederman Parties"), on the one hand, and
Sunstone or any of Sunstone's Subsidiaries, on the other hand, shall be
terminated with no further obligations or Liabilities by Sunstone or any of
Sunstone's Subsidiaries thereunder, except for the agreements listed on Schedule
5.13(b) (which shall not be terminated) and the obligations or liabilities
incurred thereunder following the Closing. Each of the Alter/Biederman Parties
severally represents to Sunstone Parties that no amounts are owing or payable by
it or him to Sunstone or any Sunstone Subsidiary under any agreement or
arrangement between any of the Alter /Biederman Parties, on the one hand, and
Sunstone or any of Sunstone's Subsidiaries, on the other hand, whether or not
such agreement or arrangement shall be terminated pursuant to this section.
Notwithstanding the termination of the agreements and arrangements referred to
in the second preceding sentence, the Alter/Biederman Parties shall retain all
obligations and Liabilities to Sunstone and its Subsidiaries under all
agreements and arrangements between the Alter/Biederman Parties, on the one
hand, and Sunstone and its Subsidiaries, on the other hand, incurred before the
Closing, and shall indemnify Sunstone Parties for all Losses incurred by it in
connection with such obligations and Liabilities. Except with respect to
obligations or Liabilities incurred following the Closing under
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the agreements listed on Schedule 5.13(a) or Schedule 5.13(b), any obligations
or Liabilities under this Agreement or payment obligations under the Lessee Line
of Credit, the Alter/Biederman Parties hereby release and discharge and
indemnify and hold harmless Sunstone Parties, on behalf of Sunstone and
Sunstone's Subsidiaries, and their successors and assigns from all actions,
causes of action, suits, debts, dues, sums of money, accounts, claims and
demands owed by Sunstone or any of Sunstone's Subsidiaries to any of the
Alter/Biederman Parties, by reason of any matter, cause, contract, course of
dealing or thing whatsoever arising during, or in respect of, the period on or
before the Closing.
ARTICLE 6
CONDITIONS TO CLOSING
SECTION 6.1 CONDITIONS PRECEDENT TO OBLIGATIONS OF EACH PARTY. The
respective obligations of each party to this Agreement to consummate the
transactions contemplated hereby shall be subject to the satisfaction (or waiver
by the party entitled to the benefit of such condition) of each of the following
conditions at or prior to the Closing:
(a) No Injunctions or Restraints. There shall not be (i) any
injunction, restraining order or other decree of any nature of any court of
competent jurisdiction or other Governmental Authority that is in effect that
restrains or prohibits the consummation of any of the Transactions or (ii) any
action taken, or any statute, rule, regulation or order enacted, entered or
enforced, which makes the consummation of the Transactions illegal.
(b) HSR Act. Any waiting period (and any extension thereof) under the
HSR Act applicable to the Transactions shall have expired or been terminated.
(c) Merger Agreement. The Merger Agreement shall have been terminated
in accordance with its terms.
SECTION 6.2 CONDITIONS PRECEDENT TO OBLIGATION OF THE SUNSTONE PARTIES.
The obligation of each of the Sunstone Parties to consummate the Transactions
shall be subject to the satisfaction of each of the following conditions (unless
waived by Sunstone Parties) at or prior to the Closing:
(a) Accuracy of Representations and Warranties. The representations and
warranties of Alter and Biederman contained in this Agreement shall be true and
correct in all material respects (except for representations having a
materiality or Material Adverse Effect qualification, which shall be correct in
all respects), in each case on and as of the date of this Agreement and on and
as of the Closing Date as though made on and as of such time, except to the
extent such representations and warranties by their terms speak as of a
specified date, in which case they shall be so true and correct as of such date;
and Sunstone Parties shall have received from each of Alter and Biederman a
certificate to such effect dated as of the Closing Date and signed by each such
Person.
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(b) Covenants. Each of Alter and Biederman shall have complied in all
material respects with each covenant contained in this Agreement to be performed
by him or it on or prior to the Closing; and Sunstone Parties shall have
received from each of Alter and Biederman a certificate to such effect dated as
of the Closing and signed by each such Person.
(c) Material Adverse Change. Since the date of this Agreement through
and including the Closing Date, there shall have been no Material Adverse Effect
and Sunstone Parties shall have received from each of Alter and Biederman a
certificate to such effect dated as of the Closing and signed by each such
Person.
(d) Consents. All consents and waivers (including, without limitation,
waivers of rights of first refusal) from Governmental Authorities and third
parties necessary in connection with the consummation of the Transactions shall
have been obtained and not subsequently been revoked as of the Closing Date
other than such consents and waivers from third parties, which, if not obtained,
would not result, individually or in the aggregate, in a Material Adverse
Effect.
SECTION 6.3 CONDITIONS PRECEDENT TO OBLIGATIONS OF ALTER. The
obligation of Alter to consummate the Transactions shall be subject to the
satisfaction of each of the following conditions (unless waived by Alter) at or
prior to the Closing:
(a) Accuracy of Representations and Warranties. The representations and
warranties of Sunstone Parties contained in this Agreement shall be true and
correct in all material respects (except for representations having a
materiality or Material Adverse Effect qualification, which shall be correct in
all respects), in each case on and as of the date of this Agreement and on and
as of the Closing Date as though made on and as of such time, except to the
extent such representations and warranties by their terms speak as of a
specified date, in which case they shall be so true and correct as of such date;
and Alter shall have received from each of Sunstone Parties a certificate to
such effect dated as of the Closing Date and signed by an officer thereof in the
case of Sunstone Party.
(b) Covenants. Each of Sunstone Parties shall have complied in all
material respects with each covenant contained in this Agreement to be performed
by it or him on or prior to the Closing; and Alter shall have received from each
of Sunstone Parties a certificate to such effect dated as of the Closing Date
and signed by an officer thereof in the case of Sunstone Party.
(c) Assumption Agreement. The Assumption Agreement shall have been
executed and delivered by the Third Party Acquiror and shall be a valid and
binding obligation of the Third Party Acquiror enforceable against it in
accordance with its terms.
SECTION 6.4 CONDITIONS PRECEDENT TO OBLIGATIONS OF BIEDERMAN. The
obligation of Biederman to consummate the Transactions shall be subject to the
satisfaction of each of the following conditions (unless waived by Biederman) at
or prior to the Closing:
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(a) Accuracy of Representations and Warranties. The representations and
warranties each of Sunstone Party in this Agreement shall be true and correct in
all material respects (except for representations having a materiality or
Material Adverse Effect qualification, which shall be correct in all respects),
in each case on and as of the date of this Agreement and on and as of the
Closing Date as though made on and as of such time, except to the extent such
representations and warranties by their terms speak as of a specified date, in
which case they shall be so true and correct as of such date; and Biederman
shall have received from each of Sunstone Parties a certificate to such effect
dated as of the Closing Date and signed by an officer thereof in the case of
Sunstone Parties.
(b) Covenants. Each of Sunstone Parties shall have complied in all
material respects with each covenant contained in this Agreement to be performed
by it or him on or prior to the Closing; and Biederman shall have received from
each of Sunstone Parties a certificate to such effect dated as of the Closing
Date and signed by an officer thereof in the case of Sunstone Parties.
(c) Assumption Agreement. The Assumption Agreement shall have been
executed and delivered by the Third Party Acquiror and shall be a valid and
binding obligation of the Third Party Acquiror enforceable against it in
accordance with its terms.
ARTICLE 7
TERMINATION
SECTION 7.1 TERMINATION EVENTS. This Agreement may be terminated and
the Transactions may be abandoned at any time prior to the Closing:
(a) by mutual written consent of Alter, Biederman and Sunstone Parties;
(b) by Sunstone Parties, upon a breach of any representation, warranty,
covenant, obligation or agreement on the part of Alter or Biederman set forth in
this Agreement, in any case such that the conditions set forth in Section 6.2(a)
or 6.2(b), as the case may be, are not satisfied or would be incapable of being
satisfied within 30 days after the giving of written notice to Alter;
(c) by Alter, upon a breach of any representation, warranty, covenant,
obligation or agreement on the part of any of Sunstone Parties such that the
conditions set forth in Section 6.3(a) or 6.3(b) are not satisfied or would be
incapable of being satisfied within 30 days after the giving of written notice
to Sunstone Parties; or by Biederman, upon a breach of any representation,
warranty, covenant, obligation or agreement on the part of any of Sunstone
Parties, such that the conditions set forth in 6.4(a) or 6.4(b) are not
satisfied or would be incapable of being satisfied within 30 days after the
giving of written notice to Sunstone Parties;
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(d) by any of Alter, Biederman or Sunstone Parties if any court of
competent jurisdiction in the United States shall have issued a final and
unappealable permanent injunction, order, judgment or other decree (other than a
temporary restraining order) restraining, enjoining or otherwise prohibiting the
consummation of the Transactions, provided that the party seeking to terminate
this Agreement under this clause (d) is not then in material breach of this
Agreement and provided, further, that the right to terminate this Agreement
under this clause (d) shall not be available to any party who shall not have
used reasonable commercial efforts to avoid the issuance of such order, decree
or ruling; and
(e) by any of Alter, Biederman or Sunstone Parties if the Superior
Proposal Transaction shall have been terminated in accordance with its terms.
SECTION 7.2 EFFECT OF TERMINATION. In the event of any termination of
the Agreement as provided in Section 7.1 hereto, this Agreement shall forthwith
become wholly void and of no further force or effect (except Sections 7.2 and
7.3 and Article IX hereof) and there shall be no liability on the part of any
parties hereto or their respective officers or directors, except as provided in
such Sections and Articles. Notwithstanding the foregoing, no party hereto shall
be relieved from liability for any willful breach of this Agreement.
ARTICLE 8
INDEMNIFICATION
SECTION 8.1 INDEMNIFICATION BY SUNSTONE PARTIES. From and after the
Closing, Sunstone Parties and Third Party Acquiror shall indemnify and hold
harmless each of Alter, Biederman and their respective Affiliates, agents,
heirs, executors, successors and assigns from and against any and all Losses
suffered or incurred by any such indemnified Person arising from, relating to or
otherwise in respect of (a) any breach of, or inaccuracy in, any representation
or warranty of any Sunstone Party contained in this Agreement, (b) any breach of
any covenant of any Sunstone Party contained in this Agreement, and (c) any
breach of any covenant or representation or warranty pursuant to the Assumption
Agreement. In addition, the Sunstone Parties and Third Party Acquiror shall
provide the indemnity set forth in Section 5.13(a).
SECTION 8.2 INDEMNIFICATION BY ALTER. From and after the Closing, Alter
shall indemnify and hold harmless each of Sunstone Parties and Third Party
Acquiror and their Affiliates and respective directors, officers, employees,
agents, heirs, executors, successors and assigns of any of the foregoing from
and against any and all Losses suffered or incurred by any such indemnified
Person arising from, relating to or otherwise in respect of (a) any breach of,
or inaccuracy in, any representation or warranty of Alter contained in this
Agreement; and (b) any breach of any covenant of Alter contained in this
Agreement.
SECTION 8.3 INDEMNIFICATION BY BIEDERMAN. From and after the Closing,
Biederman shall indemnify and hold harmless each of Sunstone Parties and Third
Party Acquiror
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and their respective Affiliates and each of the foregoing's respective agents,
directors, officers, employees, agents, heirs, executors, successors and assigns
from and against any and all Losses suffered or incurred by any such indemnified
Person arising from, relating to or otherwise in respect of, (a) any breach of,
or inaccuracy in, any representation or warranty of Biederman contained in this
Agreement or (b) any breach of any covenant of Biederman contained in this
Agreement. In addition, Alter shall provide the indemnity set forth in Section
5.13(b).
SECTION 8.4 TAX INDEMNIFICATION. (a) Notwithstanding any other
provision of this Agreement (but subject to Section 8.7), following the Closing,
Alter and Biederman shall indemnify and hold harmless each of Sunstone Parties
and their Affiliates and respective directors, officers, employees, agents,
heirs, executors, successors and assigns of any of the foregoing from and
against any and all Losses suffered or incurred by any such indemnified Person
arising from, relating to or otherwise in respect of (a) any breach of, or
inaccuracy in, any representation or warranty in Section 4.1(q)(iv), and (b) any
and all income taxes of Lessee or Management for any taxable period or year
ending before the Closing Date and with respect to any Straddle Period (as
defined), for the portion of such Taxes determined pursuant to Section 8.4(b).
In addition, Biederman shall provide the indemnity set forth in Section 5.13(b).
(b) With respect to any Taxes for any taxable period that includes but
does not end as of the day prior to the Closing Date (a "Straddle Period"), the
amount of income taxes subject to indemnification under this Section 8.4
attributable to pre-Closing and post-Closing tax periods shall be calculated as
if such taxable period ended as of the close of business on the day prior to the
Closing Date.
SECTION 8.5 THIRD-PARTY CLAIMS. If a claim by a third party is made
against an indemnified Person hereunder, and if such indemnified Person intends
to seek indemnity with respect thereto under this Article, such indemnified
Person shall promptly notify the indemnifying Person in writing of such claims
setting forth such claims in reasonable detail, provided that failure of such
indemnified Person to give prompt notice as provided herein shall not relieve
the indemnifying Person of any of its obligations hereunder, except to the
extent that the indemnifying Person is materially prejudiced by such failure. If
the indemnifying Person acknowledges in writing its obligation to indemnify the
indemnified Person against any Losses that may result from such third party
claim, then the indemnifying Person shall have 20 days after receipt of such
notice to undertake, through counsel of its own choosing, subject to the
reasonable approval of such indemnified Person, and at its own expense, the
settlement or defense thereof, and the indemnified Person shall cooperate with
it in connection therewith; provided, however, that the indemnified Person may
participate in such settlement or defense through counsel chosen by such
indemnified Person, provided that the fees and expenses of such counsel shall be
borne by such indemnified Person. The indemnifying Person shall not settle any
claim or consent to the entry of any judgment without the prior written consent
of the indemnified Person, unless (i) such settlement or judgement includes as
an unconditional term thereof the giving by the claimant of a release of the
indemnified Person from all Liability with respect to such claim and (ii) such
settlement or judgement does not involve the imposition of equitable remedies or
the imposition
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of any material obligations on such indemnified Person other than financial
obligations for which such indemnified Person will be indemnified hereunder. If
the indemnifying Person shall assume the defense of a claim, the fees of any
separate counsel retained by the indemnified Person shall be borne by such
indemnified Person unless there exists or is reasonably likely to exist a
conflict of interest between them as to their respective legal defenses (other
than one that is of a monetary nature) in the reasonable judgment of the
indemnified Person, in which case the indemnified Person shall be entitled to
retain one law firm as its separate counsel, the reasonable fees and expenses of
which shall be reimbursed as they are incurred by the indemnifying Person. If
the indemnifying Person does not notify the indemnified Person within 20 days
after the receipt of the indemnified Person's notice of a claim of indemnity
hereunder that it elects to undertake the defense thereof and that it
acknowledges its obligation to indemnify the indemnified Person against any
Losses that may result from such claim, the indemnified Person shall have the
right to contest, settle or compromise the claim in a reasonable manner, and the
indemnifying Person shall cooperate with in connection therewith, but the
indemnified Person shall not thereby waive any right to indemnity therefor
pursuant to this Agreement.
SECTION 8.6 TERMINATION OF INDEMNIFICATION. The obligations to
indemnify and hold harmless a party hereto pursuant to Sections 8.1, 8.2, 8.3
and 8.4 shall terminate upon the termination of the relevant representation,
warranty or pre-closing agreement pursuant to Section 4.3; provided, however,
that such obligation to indemnify and hold harmless shall not terminate with
respect to any item as to which the Person to be indemnified shall have, before
the expiration of the applicable period, previously made a claim by delivering a
written notice (stating in reasonable detail the basis of such claim) to the
indemnifying party.
SECTION 8.7 LIMITATIONS ON INDEMNITY OBLIGATIONS. (a) Notwithstanding
any contrary provision of this Agreement, (i) the maximum liability of Sunstone
Parties pursuant to its indemnification obligation under Section 8.1(a) is
$30,000,000, (ii) except as otherwise provided in clause (iii) below or in the
last sentence of this Section 8.7(a), the maximum liability of Alter and
Biederman, in the aggregate, pursuant to their indemnification obligations under
Sections 8.2(a) and 8.3(a) with respect to any breach of a representation or
warranty set forth in clause 4.1(c) is $10,000,000, and (iii) the maximum
liability of Alter and Biederman, in the aggregate, pursuant to their
indemnification obligations under Section 8.2(a) and 8.3(a) with respect to any
breach of a representation or warranty set forth in clauses (i), (ii) or (iii)
of Section 4.1(f), Sections 4.1(a), 4.1(b), 4.1(n), 4.1(o), 4.1(p), 4.1(q),
4.1(s), 4.1(u) is $30,000,000. These limitations do not apply to any
indemnification obligations under Sections 8.2 and 8.3 relating to a breach of
any representation or warranty set forth in clause (iv) of Section 4.1(f),
Sections 4.1(d), 4.1(v), 4.1(w), 4.1(x), 4.1(y) or any other section of this
Article 8.
(b) No amount shall be payable:
(i) under Section 8.1(a) unless and until the aggregate amount of
Losses exceeds $500,000 (and if such amount is so exceeded, then only those
Losses shall then
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be payable in accordance with this Article VIII to the extent such Losses
exceed $500,000);
(ii) under Section 8.2(a) unless and until the aggregate amount of
Losses exceeds $500,000 (and if such amount is so exceeded, then only those
Losses shall then be payable in accordance with this Article VIII to the
extent such Losses exceed $500,000);
(iii) under Section 8.3(a) unless and until the aggregate amount of
Losses exceeds $500,000 (and if such amount is so exceeded, then only those
Losses shall then be payable in accordance with this Article VIII to the
extent such Losses exceed $500,000).
(iv) no amount shall be payable under clause (a) of Sections 8.1, 8.2
or 8.3 for any breach the Losses arising from which in any individual case
amount to $10,000 or less, and such Losses shall not be included in
establishing the thresholds established in clauses (i), (ii) and (iii) of
Section 8.8(b) and, in connection with the foregoing, the parties agree
that any breach of any representation in clause (i) of Section 4.1(q) which
relates to sales taxes shall be determined also on an individual basis,
subject to the $10,000 threshold, and on a hotel by hotel basis for any
particular taxable year;
(c) References in Article 4 to Material Adverse Effect and material
adverse effect qualifiers shall be disregarded for purposes of determining
whether a party has incurred Losses pursuant to Section 8.1(a), 8.2(a) and 8.3.
SECTION 8.8 ALLOCATION OF CERTAIN INDEMNITY OBLIGATIONS. Sunstone
Parties, Alter and Biederman agree as follows: with respect to any
indemnification obligations arising from, relating to or otherwise in respect of
any breach of, or inaccuracy in, any representation or warranty with respect to
Lessee contained in Section 4.1 of this Agreement or any other indemnification
obligations hereunder arising from, relating to or otherwise in respect of the
acts or omissions of Alter and Biederman shall not be responsible for more than
80% and 20%, respectively, of such indemnified Losses.
SECTION 8.9 EXCLUSIVE REMEDY. The indemnification provided in this
Article 8 and Sections 5.13(a) and 5.13(b) shall be the exclusive post-Closing
remedy available to any party for any breach of any representation, warranty or
covenant contained herein, except in circumstances involving fraud.
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ARTICLE 9
MISCELLANEOUS AGREEMENTS OF THE PARTIES
SECTION 9.1 NOTICES. Any notice in connection with this Agreement shall
be in writing and shall be delivered personally by overnight courier or by
facsimile at the addresses or facsimile numbers given below. If notice is given
by: (a) overnight courier, notice shall be deemed given when recorded on the
records of the air courier as received by the receiving party; or (b) facsimile,
notice shall be deemed given upon transmission, if on a business day and during
business hours in the city of receipt; otherwise, notice shall be deemed to have
been given at 9:00 A.M. on the next Business Day in the city of receipt.
If to Alter:
c/o Sunstone Hotel Investors, Inc.
903 Calle Amanecer
San Clemente, California 92673-6212
Attn.: Robert A. Alter
Facsimile: (949) 369-4210
with a copy to:
Battle Fowler LLP
75 East 55th Street
New York, New York 10022
Attn.: Steven Lichtenfeld
Facsimile: (212) 856-7823
If to Biederman:
c/o Sunstone Hotel Investors, Inc.
903 Calle Amanecer
San Clemente, California 92673-6212
Attn.: Robert A. Alter
Facsimile: (949) 369-4210
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with a copy to:
Battle Fowler LLP
75 East 55th Street
New York, New York 10022
Attn.: Steven Lichtenfeld
Facsimile: (212) 856-7823
If to any Sunstone Entity to:
Sunstone Hotel Investors, Inc.
903 Calle Amanecer
San Clemente, California 92673-6212
Attn.: R. Terrence Crowley
Facsimile: (949) 369-4210
with copies to:
Altheimer & Gray
10 South Wacker Drive
Chicago, Illinois 60606-7482
Attn: Mark Kindelin
Facsimile: (312) 715-4800
or to such other address as any such party shall designate by written notice to
the other parties hereto.
SECTION 9.2 INTEGRATION; AMENDMENTS. This Agreement (including the
Schedules and Exhibits hereto) contains the entire agreement and understanding
of the parties with regard to the matters contained herein and supercedes any
prior written or oral agreement with respect to the subject matter hereto. This
Agreement (including the Schedules and Exhibits hereto) may not be amended or
modified except in a writing signed by all parties hereto.
SECTION 9.3 WAIVER. No waiver by any of the parties hereto of any of
the provisions hereof shall be effective unless explicitly set forth in writing
and executed by the party so waiving. Except as provided in the preceding
sentence, no action taken pursuant to this Agreement, including without
limitation, any investigation by or on behalf of any party, shall be deemed to
constitute a waiver by the party taking such action of compliance with any
representations, warranties, covenants, or agreements contained herein, and in
any documents delivered or to be delivered pursuant to this Agreement and in
connection with the Closing hereunder. The waiver by any party hereto of a
breach of any provision of this Agreement shall not operate or be construed as a
waiver of any subsequent breach.
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SECTION 9.4 NO ASSIGNMENT; SUCCESSORS AND ASSIGNS. The parties'
respective rights and obligations hereunder may not be assigned, transferred,
pledged, or encumbered, in any manner, direct or indirect, contingent or
otherwise, in whole or in part, voluntarily or by operation of law, without the
prior written consent of the other parties, provided that any of Sunstone
Parties may assign, in whole or in part, any of its rights and obligations under
this Agreement to the Third Party Acquiror without the consent of the other
parties hereto, and such assignee shall have all of the rights and obligations
of a "Sunstone Party" hereunder but Sunstone Parties will remain liable for
their obligations hereunder. Subject to the preceding sentence, this Agreement
shall be binding on the parties hereto and their respective successors and
permitted assigns. In the event of the death, disability or incapacity of Alter
or Biederman, such party's executors, administrators, testamentary trustees or
personal representatives shall be bound by all the terms and conditions of this
Agreement.
SECTION 9.5 EXPENSES. Except as set forth in this Agreement, whether or
not the Transactions are consummated, all costs and expenses incurred in
connection with this Agreement and the Transactions shall be paid by the party
incurring such costs.
SECTION 9.6 SEVERABILITY. If any provision of this Agreement shall be
declared by any court of competent jurisdiction to be illegal, void or
unenforceable, all other provisions of this Agreement shall not be affected and
shall remain in full force and effect, and the parties hereto shall negotiate in
good faith to replace such illegal, void or unenforceable provision with a
provision that corresponds as closely as possible to the intentions of the
parties as expressed by such illegal, void or unenforceable provision.
SECTION 9.7 SECTION HEADINGS; TABLE OF CONTENTS. The section headings
contained in this Agreement and the table of contents to this Agreement are for
reference purposes only and shall not affect the meaning or interpretation of
this Agreement.
SECTION 9.8 THIRD PARTIES. Except for the beneficiaries of the
indemnification provided in Article VII, this Agreement does not create any
rights, claims or benefits inuring to any Person that is not a party hereto nor
create or establish any third party beneficiary hereto.
SECTION 9.9 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE, REGARDLESS OF
THE LAWS THAT MIGHT OTHERWISE GOVERN UNDER APPLICABLE PRINCIPLES OF CONFLICT OF
LAWS THEREOF.
SECTION 9.10 ENFORCEMENT. The parties agree that irreparable damage
would occur in the event that any of the provisions of this Agreement were not
performed by Alter or Biederman in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that Sunstone Parties shall be
entitled to an injunction or injunctions to prevent breaches of this Agreement
by Alter or Biederman and to enforce specifically the terms and provisions of
this Agreement in any federal court located in Delaware or in Chancery Court in
Delaware, this
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being in addition to any other remedy to which Sunstone Parties is entitled at
law or in equity. In addition, each of Alter and Biederman (a) consents to
submit himself (without making such submission exclusive) to the personal
jurisdiction of any federal court located in Delaware or Chancery Court located
in Delaware in the event any dispute arises out of this Agreement or any of the
Transactions and (b) agrees that it will not attempt to deny or defeat such
personal jurisdiction by motion or other request for leave from any such court.
In the event any dispute or difference of opinion arises under this
Agreement, the parties hereto shall endeavor to resolve such dispute or
difference of opinion by negotiation or mediation. If, for any reason, such
mediation or negotiation fails to result in a mutually acceptable resolution,
the parties agree to be bound by their consent to the jurisdiction of any
federal court located in Delaware or Chancery Court located in Delaware.
SECTION 9.11 COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which shall be deemed to be an original and all of
which together shall be deemed to be one and the same instrument.
SECTION 9.12 CUMULATIVE REMEDIES. All rights and remedies of either
party hereto are cumulative of each other and of every other right or remedy
such party may otherwise have at law or in equity, and the exercise of one or
more rights or remedies shall not prejudice or impair the concurrent or
subsequent exercise of other rights or remedies.
SECTION 9.13 CONSENT OF REGINA BIEDERMAN. Regina Biederman hereby
consents to all of the Transactions, and waives any and all right to contest or
prevent the consummation of such transactions.
[SIGNATURES APPEAR ON FOLLOWING PAGES]
43
117
IN WITNESS WHEREOF, each of the parties has signed its name to this
Agreement, authorized as of the day and year first above written.
SUNSTONE HOTEL INVESTORS, INC.
By: /s/ R. Terrence Crowley
------------------------------------
Name: R. Terrence Crowley
Title: Chief Operating Officer
SUNSTONE HOTEL INVESTORS, L.P.
By: Sunstone Hotel Investors, Inc., its general
partner
By: /s/ R. Terrence Crowley
------------------------------
Name: R. Terrence Crowley
Title: Chief Operating Officer
ROBERT A. ALTER
/s/ Robert A. Alter
------------------------------------------
Robert A. Alter
CHARLES L. BIEDERMAN
/s/ Charles L. Biederman
------------------------------------------
Charles L. Biederman
SUNSTONE HOTEL PROPERTIES, INC.
By: /s/ Robert A. Alter
---------------------------------------
Name: Robert A. Alter
Title: Chairman
SUNSTONE HOTEL MANAGEMENT, INC.
By: /s/ Robert A. Alter
---------------------------------------
Name: Robert A. Alter
Title: Chairman
45
118
REGINA BIEDERMAN
/s/ Regina Biederman
----------------------------------------
Regina Biederman
46
119
EXHIBIT 3.2
EXECUTION NOTICE
Mr. Robert A. Alter
Mr. Charles L. Biederman
c/o Robert A. Alter
Sunstone Hotel Properties, Inc.
903 Calle Amanecer
San Clemente, California 92673
Re: Execution Notice
----------------
Attention: Robert A. Alter
In accordance with the terms and conditions of the Lessee/Manager
Agreement among the undersigned and you, dated July ___, 1999, you are hereby
notified that the Sunstone Parties have entered into a SAP Purchase Agreement on
____, 1999 (which was entered into within five days of the date of this notice).
The undersigned hereby certify to you that attached is a true, correct and
complete (i) originally executed copy of the SAP Agreement together with all
exhibits and schedules thereto and all ancillary related agreements, executed
and delivered in connection therewith by the parties thereto (ii) an originally
executed copy of the Assumption Agreement and (iii) an originally executed copy
of the Drag-Along Notice.
Unless otherwise defined herein, all defined terms herein shall have
such meaning ascribed such terms in the Lessee/Manager Agreement.
Dated , 1999
----------
SUNSTONE HOTEL INVESTORS, INC.
By:
---------------------------------------------
Name:
Title:
SUNSTONE HOTEL INVESTORS, L.P.
By: Sunstone Hotel Investors, Inc., its general
partner
By:
---------------------------------------
Name:
Title:
cc: Steven L. Lichtenfeld
Battle Fowler LLP
47
120
EXHIBIT 3.3
DRAG-ALONG NOTICE
Mr. Robert A. Alter
Mr. Charles L. Biederman
c/o Robert A. Alter
Sunstone Hotel Properties, Inc.
903 Calle Amanecer
San Clemente, California 92673
Re: Drag-Along Notice
-----------------
Attention: Robert A. Alter
You are hereby notified in accordance with Section 3.3 of the
Lessee/Manager Agreement, dated July ___, 1999, among the undersigned and you
(the "Lessee/Manager Agreement") that the undersigned hereby exercises, in
accordance with the terms and conditions of the Lessee/Manager Agreement, its
Drag-Along Right to the fullest extent provided pursuant to the Lessee Manager
Agreement for all of the Stockholders' right title and interest in the Lessee
and Management Equity.
Unless otherwise defined herein, all defined terms herein shall have
such meaning ascribed such terms in the Lessee/Manager Agreement.
Dated , 1999
----------
SUNSTONE HOTEL INVESTORS, INC.
By:
---------------------------------------------
Name:
Title:
SUNSTONE HOTEL INVESTORS, L.P.
By: Sunstone Hotel Investors, Inc., its general
partner
By:
---------------------------------------
Name:
Title:
cc: Steven L. Lichtenfeld
Battle Fowler LLP
48
121
EXHIBIT 3.4
ASSUMPTION AGREEMENT
THIS ASSUMPTION AGREEMENT, dated as of ______, 1999, by and among
[___________________].
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Sunstone Hotel Investors, Inc., a Maryland corporation (the
"REIT") and Sunstone Hotel Investors, L.P., a Delaware limited partnership (the
"Operating Partnership," and together with the REIT the "Sunstone Parties") and
Robert A. Alter("Alter") and Charles L. Biederman ("Biederman") are parties to a
Lessee/Manager Agreement, dated as of July __, 1999 (the "Lessee/Manager
Agreement"), which provides, among other things, the Sunstone Parties with the
right to require Alter and Biederman to sell to the Sunstone Parties or the
Third Party Acquiror, under certain circumstances, all of the Lessee and
Management Equity owned by Alter and Biederman;
WHEREAS, the Lessee/Manager Agreement provides, among other things,
that as a condition precedent with the Sunstone Parties exercising their
Drag-Along Right, the Third Party Acquiror must assume and guarantee the
performance of all of the obligations of the Sunstone Parties under the
Lessee/Manager Agreement;
WHEREAS, the Sunstone Parties desire to exercise the Drag-Along Right;
NOW, THEREFORE, in consideration of the premises, the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
(i) The Third Party Acquiror hereby assumes, guarantees, and undertakes
to pay, perform and otherwise discharge, as the same shall become due in
accordance with their respective terms, all of the liabilities, duties, terms,
conditions, indemnities and obligations of the Sunstone Parties under the
Lessee/Manager Agreement;
(ii) The Third Party Acquiror on behalf of itself makes the same
representations and warranties and covenants as made by Sunstone Parties under
the Lessee/Manager Agreement;
(iii) The persons set forth on the attached Exhibit A are the persons
who have actual knowledge without due inquiry on behalf of the Third Party
Acquiror; and
49
122
(iv) The undersigned agree and acknowledge that this Assumption
Agreement does not relieve, discharge or otherwise release the Sunstone Parties
from any of their obligations existing and arising under the Lessee/Manager
Agreement.
IN WITNESS WHEREOF, the undersigned has caused this instrument to be
duly executed this __th day of _____, 1999.
THIRD PARTY ACQUIROR:
-------------------------------
Name:
Title:
[Controlling Persons]
-------------------------------
Name:
Title:
123
EXHIBIT C
VOTING AGREEMENT
VOTING AGREEMENT, dated as of July 12, 1999 ("Agreement"), by and among
Westbrook Real Estate Fund I, L.P., a Delaware limited partnership
("Westbrook"), Robert A. Alter ("Alter") and Charles L. Biederman ("Biederman")
in their respective capacities as stockholders ("Stockholders") of Sunstone
Hotel Investors, Inc., a Maryland corporation (the "Company"), SHP Acquisition,
L.L.C., a Delaware limited liability company ("SHP"), and the Company.
WHEREAS, concurrently herewith, SHP, SHP Investors Sub, Inc., a
Maryland corporation, and the Company are entering into an Agreement and Plan of
Merger dated July 12, 1999 (the "Merger Agreement"; capitalized terms used
without definition herein having the meanings ascribed thereto in the Merger
Agreement);
WHEREAS, Stockholders are as of the date hereof the beneficial owners
of 2,088,815 shares of common stock, $0.01 par value per share, of the Company
("Common Stock") and 250,000 shares of 7.9% Class A Cumulative Convertible
Preferred Stock of the Company (collectively with the Common Stock, but
excluding any shares of Common Stock issuable (but not yet issued) upon
conversion of units in Sunstone Hotel Investors, L.P. or other securities
convertible into Common Stock or upon exercise of stock options, the "Shares");
WHEREAS, approval of the Merger Agreement by the Company's stockholders
is a condition to the consummation of the Merger;
WHEREAS, as a condition to its entering into the Merger Agreement, each
of the Company and SHP has required that Stockholders agree, and Stockholders
have agreed, to enter into this Agreement; and
WHEREAS, Stockholders have been informed that the Board of Directors of
the Company has approved the Merger Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements set forth herein, the parties hereto agree as follows:
Section 1. Agreement to Vote, Restrictions on Dispositions, Etc.
a. Each Stockholder hereby agrees to attend any stockholders
meeting of the Company, in person or by proxy, and to vote (or cause to
be voted) all Shares, and any other voting securities of the Company,
owned by such Stockholder whether issued heretofore or hereafter, that
such person owns or has the right to vote, for approval and adoption of
the Merger Agreement and the Merger, and the transactions contemplated
by the Merger Agreement, such agreement to vote to apply also to any
adjournment of such stockholder meeting of the Company. Each
Stockholder agrees not to grant any proxies or enter into any voting
agreement or arrangement inconsistent with this Agreement or the
Limited Irrevocable Proxy of even date herewith executed by
Stockholders in favor of the Company ("Irrevocable Proxy").
b. Each Stockholder hereby agrees that, without the prior
written consent of the
124
Company, except as provided in the Contribution Agreement, such
Stockholder shall not, directly or indirectly, sell, offer to sell,
grant any option for the sale of or otherwise transfer or dispose of,
or enter into any agreement to sell, any Shares and any other voting
securities of the Company that such Stockholder owns beneficially or
otherwise. Each Stockholder agrees that the Company may enter stop
transfer orders with the transfer agent(s) and the registrar(s) of the
Shares against the transfer of Shares and any other voting securities
of the Company that Stockholder owns beneficially or otherwise.
c. Each Stockholder agrees to vote (or cause to be voted) all
Shares, and any other voting securities of the Company, owned by such
Stockholder whether issued heretofore or hereafter, that such person
owns or has the right to vote, against (i) any recapitalization,
merger, consolidation, sale of assets or other business combination or
similar transaction involving the Company or any of its Subsidiaries,
securities or assets other than the Merger or other transaction with
SHP and (ii) any other action or agreement that would result in a
breach of any covenant, representation or warranty or any other
obligation or agreement of the Company under the Merger Agreement or
which could result in any of the conditions to the Company's
obligations under the Merger Agreement not being fulfilled.
d. Each Stockholder agrees not, directly or indirectly, to
solicit or authorize any person to solicit, any inquiries or proposals
from any person other than SHP relating to the merger or consolidation
of the Company with any person other than SHP or its Affiliates, or the
acquisition of the Company's or any of its significant subsidiaries'
voting securities by, or the direct or indirect acquisition or
disposition of a significant amount of assets of the Company or any of
its significant subsidiaries otherwise than in the ordinary course of
business of the Company or such significant subsidiary, from or to any
person other than SHP or its Affiliates or directly or indirectly enter
into or continue any discussions, negotiations or agreements relating
to, or vote (or cause to be voted) in favor of, any such transaction.
Nothing contained herein shall be construed to limit or otherwise
affect each Stockholder, any Affiliate or representative of Stockholder
who shall serve as a director of the Company from taking any action
permitted by Section 4.1 of the Merger Agreement in his or her capacity
as such director.
e. Each Stockholder agrees to promptly notify the Company and
SHP in writing of the nature and amount of any acquisition by
Stockholder after the date hereof of any voting securities of the
Company.
Section 2. Additional Representations and Warranties of Stockholder.
Each Stockholder represents and warrants, severally and not jointly, to the
Company and SHP as follows: Stockholder has all necessary power and authority to
execute and deliver this Agreement, to perform its obligations hereunder and to
consummate the transactions contemplated hereby. This Agreement has been duly
executed and delivered by Stockholder. Assuming the due authorization, execution
and delivery of this Agreement by the Company, this Agreement constitutes the
valid and binding agreement of Stockholder enforceable against Stockholder in
accordance with its terms, except as may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium and other similar laws of general
application which may affect the enforcement of creditors' rights generally and
by general equitable principles. The Shares of Stockholder are the only voting
securities of the Company owned (beneficially or of record) by Stockholder and
are owned free and clear of all liens, charges, encumbrances, restrictions and
commitments of any kind other than the Contribution Agreement, this Agreement
and shares pledged as margin stock. Other than the Irrevocable Proxy,
Stockholder has not appointed or granted any irrevocable proxy, which
appointment or grant is still effective, with respect to the Shares. The
125
execution and delivery of this Agreement by Stockholder does not (a) conflict
with or violate any agreement, law, rule, regulation, order, judgment or
decision or other instrument binding upon it, nor require any consent,
notification, regulatory filing or approval which has not been obtained or (b)
result in any breach of or constitute a default (or an event that with notice or
lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of, or result in
the creation of a lien or encumbrance on any of the Shares owned by Stockholder
pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease,
license, permit, franchise or other instrument or obligation to which
Stockholder is a party or by which Stockholder or the Shares owned by
Stockholder are bound or affected. Stockholder acknowledges that the
restrictions imposed upon it are so imposed only in Stockholder's capacity as a
stockholder of the Company.
Section 3. Representations and Warranties of the Company. The Company
represents and warrants to the Stockholders as follows: each of this Agreement
and the Merger Agreement has been approved by the Board of Directors of the
Company. Each of this Agreement and the Merger Agreement has been duly executed
and delivered by a duly authorized officer of the Company. Assuming the due
authorization, execution and delivery of this Agreement by the Stockholders,
each of this Agreement and the Merger Agreement constitutes a valid and binding
agreement of the Company, enforceable against the Company in accordance with its
terms, except as may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium and other similar laws of general application which
may affect the enforcement of creditors' rights generally and by general
equitable principles.
Section 4. Further Assurances. Each party shall execute and deliver
such additional instruments and other documents and shall take such further
actions as may be necessary or appropriate to effectuate, carry out and comply
with all of their obligations under this Agreement. Without limiting the
generality of the foregoing, neither of the parties hereto shall enter into any
agreement or arrangement (or alter, amend or terminate any existing agreement or
arrangement) if such action would materially impair the ability of either party
to effectuate, carry out or comply with all the terms of this Agreement.
Section 5. Effectiveness and Termination. It is a condition precedent
to the effectiveness of this Agreement that the Merger Agreement shall have been
executed and delivered and be in full force and effect. This Agreement shall
automatically terminate and be of no further force or effect upon the earlier
termination of the Merger Agreement in accordance with its terms. Upon any
termination of this Agreement, except for any rights either party may have in
respect of any breach by either party of its obligations hereunder, none of the
parties hereto shall have any further obligation or liability hereunder. The
provisions of Section 1 of this Agreement shall terminate and be of no further
force or effect from and after the Effective Time of the Merger.
Section 6. Covenants of Stockholder Not to Enter Into Inconsistent
Agreements. Each Stockholder hereby agrees that, except as contemplated by this
Agreement, the Irrevocable Proxy and the Merger Agreement, each Stockholder
shall not enter into any voting agreement or grant an irrevocable proxy or power
of attorney with respect to the Shares which is inconsistent with this
Agreement.
Section 7. Miscellaneous.
a. Notices, Etc. All notices, requests, demands or other communications
required by or otherwise given with respect to this Agreement shall be in
writing and shall be deemed to have been duly given to either party when
delivered personally (by courier service or otherwise), when delivered by
telecopy and confirmed by return telecopy, or seven days after being mailed by
first-class mail, postage
126
prepaid in each case to the applicable addresses set forth below:
If to the Company:
Sunstone Hotel Investors, Inc.
903 Calle Amanecer
San Clemente, CA 92673-6212
Attention: Chief Operating Officer
Facsimile: 949-369-4230
with a copy to:
Altheimer & Gray
10 South Wacker Drive
Suite 4000
Chicago, Illinois 60606
Attention: Phillip Gordon
Facsimile: 312-715-4800
If to Westbrook or SHP:
Westbrook Real Estate Partners L.L.C.
599 Lexington Avenue
Suite 3800
New York, New York 10022
Attention: Jonathan H. Paul
Facsimile: 212-849-8801
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017-3954
Attention: Richard Capelouto
Brian Stadler
Facsimile: 212-455-2502
If to Alter and Biederman:
c/o Sunstone Hotel Properties, Inc.
903 Calle Amanecer
San Clemente, California 92673-6212
Attention: Robert A. Alter
Facsimile: 949-369-4210
with a copy to:
Battle Fowler LLP
Park Avenue Tower
75 East 55th Street
127
New York, NY 10022
Attention: Steven L. Lichtenfeld
Facsimile: 212-856-7808
or to such other address as such party shall have designated by notice so given
to each other party.
b. Amendments, Waivers, Etc. This Agreement may not be amended,
changed, supplemented, waived or otherwise modified or terminated except by an
instrument in writing signed by the Company, SHP and the affected Stockholder.
c. Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of and be enforceable by the parties and their
respective successors and assigns, including without limitation any corporate
successor by merger or otherwise. Notwithstanding any transfer of Shares, the
transferor shall remain liable for the performance of all obligations of the
transferor under this Agreement.
d. Entire Agreement. This Agreement (together with the Merger Agreement
and the documents referred to therein and the Irrevocable Proxy dated July 12,
1999) embodies the entire agreement and understanding among the parties
relating to the subject matter hereof and supersedes all prior agreements and
understandings relating to such subject matter. There are no representations,
warranties or covenants by the parties hereto relating to such subject matter
other than those expressly set forth in this Agreement, the Merger Agreement and
the documents referred to therein and the Irrevocable Proxy.
e. Severability. If any term of this Agreement or the application
thereof to either party or circumstance shall be held invalid or unenforceable
to any extent, the remainder of this Agreement and the application of such term
to the other parties or circumstances shall not be affected thereby and shall be
enforced to the greatest extent permitted by applicable law; provided that in
such event the parties shall negotiate in good faith in an attempt to agree to
another provision (in lieu of the term or application held to be invalid or
unenforceable) that will be valid and enforceable and will carry out the
parties' intentions hereunder.
f. Specific Performance. The parties acknowledge that money damages are
not an adequate remedy for violations of this Agreement and that either party
may, in its sole discretion, apply to a court of competent jurisdiction for
specific performance or injunction or such other relief as such court may deem
just and proper in order to enforce this Agreement or prevent any violation
hereof and, to the extent permitted by applicable law, each party waives any
objection to the imposition of such relief.
g. Remedies Cumulative. All rights, powers and remedies provided under
this Agreement or otherwise available in respect hereof at law or in equity
shall be cumulative and not alternative, and the exercise or beginning of the
exercise of any thereof by either party shall not preclude the simultaneous or
later exercise of any other such rights, power or remedy by such party.
h. No Waiver. The failure of either party hereto to exercise any right,
power or remedy provided under this Agreement or otherwise available in respect
hereof at law or in equity, or to insist upon compliance by the other party
hereto with its obligations hereunder, and any custom or practice of the parties
at variance with the terms hereof, shall not constitute a waiver by such party
of its right to exercise any such or other right, power or remedy or to demand
such compliance.
128
i. No Third Party Beneficiaries. This Agreement is not intended to be
for the benefit of and shall not be enforceable by any person or entity who or
which is not a party hereto.
j. Jurisdiction. Each party hereby irrevocably submits to the exclusive
jurisdiction of the Court of Chancery in the State of Delaware in any action,
suit or proceeding arising in connection with this Agreement, and agrees that
any such action, suit or proceeding shall be brought only in such court (and
waives any objection based on forum non conveniens or any other objection to
venue therein) provided, however, that such consent to jurisdiction is solely
for the purpose referred to in this paragraph (j) and shall not be deemed to be
in general submission to the jurisdiction of said Court or in the State of
Delaware other than for such purposes. Each party hereto waives any right to a
trial by jury in connection with any such action, suit or proceeding.
k. Governing Law. This Agreement and all disputes hereunder shall be
governed by and construed and enforced in accordance with the laws of the State
of Delaware.
l. Name, Captions, Gender. The name assigned this Agreement and the
section captions used herein are for convenience of reference only and shall not
affect the interpretation or construction hereof. Whenever the context may
require, any pronoun used herein shall include the corresponding masculine,
feminine or neuter forms.
m. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one instrument. Each counterpart may consist of a
number of copies each signed by less than all, but together signed by all, the
parties hereto.
n. Expenses. Each party shall bear its own expenses incurred in
connection with this Agreement and the transactions contemplated hereby.
o. Beneficial Ownership. For purposes of this Voting Agreement,
beneficial ownership shall be determined as set forth in Rule 13d-3 under the
Securities Exchange Act of 1934, as amended.
129
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first above written.
WESTBROOK REAL ESTATE FUND I, L.P.
By: /s/ Jonathan H. Paul
--------------------------------------
Name: Jonathan H. Paul
Title: Authorized Signatory
/s/ Robert A. Alter
--------------------------------------------
Robert A. Alter
/s/ Charles L. Biederman
--------------------------------------------
Charles L. Biederman
SHP ACQUISITION, L.L.C.
By: /s/ Paul Kazilionis
--------------------------------------
Name: Paul Kazilionis
Title: Manager
SUNSTONE HOTEL INVESTORS, INC.
By: /s/ R. Terrence Crowley
--------------------------------------
Name: R. Terrence Crowley
Title: Chief Operating Officer
130
LIMITED IRREVOCABLE PROXY
The undersigned stockholders of Sunstone Hotel Investors, Inc., a
Maryland corporation (the "Company"), hereby irrevocably appoint the Company,
the attorney-in-fact and proxy of the undersigned, within the limitations of
this Proxy, with respect to shares of common stock, $0.01 par value per share,
of the Company and 250,000 shares of 7.9% Class A Cumulative Convertible
Preferred Stock of the Company owned of record or beneficially by the
undersigned (but excluding any shares of Common Stock issuable (but not yet
issued) upon conversion of units in Sunstone Hotel Investors, L.P. or other
securities convertible into Common Stock of exercise of stock options, the
"Shares"). Upon the execution hereof, all prior proxies given by the
undersigned with respect to the Shares are hereby revoked and no subsequent
proxies will be given. This Proxy is irrevocable (to the extent permitted
under Maryland law), and coupled with an interest and is granted in
consideration of the Company entering into the Agreement and Plan of Merger
dated July 12, 1999 among SHP Acquisition, L.L.C., a Delaware limited liability
company ("SHP"), SHP Investors Sub, Inc., a Maryland corporation, and the
Company (the "Merger Agreement"). The attorney and proxy named above will be
empowered at any time prior to the earliest of (i) the effectiveness of the
Merger as defined in the Merger Agreement or (ii) the termination of the Voting
Agreement among the Company, SHP and the undersigned in accordance with its
terms, to exercise all voting and other rights to the extent specified in the
succeeding paragraph. Upon the occurrence of the earliest of the foregoing
events described in clauses (i) or (ii) above, this Proxy shall expire and be
of no further force or effect.
The attorney and proxy named above may only exercise this proxy to vote
the Shares subject hereto as set forth in Section 1(a) and 1(c) of the Voting
Agreement at any annual, special or other meeting of the holders of capital
stock of the Company and any adjournments thereof (including, without
limitation, the power to execute and deliver written consents with respect to
the Shares) and may not exercise this Proxy on any other matters. The
undersigned stockholder may vote the Shares on all other matters. The
undersigned will, upon request, execute and deliver any additional documents
deemed by the above-named attorney-in-fact and proxy to be necessary or
desirable to effect the limited irrevocable proxy created hereby.
Dated: July 12, 1999
/s/ Robert A. Alter
--------------------------------
Robert A. Alter
Shares Owned: Zero (0)
/s/ Charles L. Biederman
--------------------------------
Charles L. Biederman
Shares Owned: 39,680
WESTBROOK REAL ESTATE FUND I, L.P.
By: /s/ Jonathan Paul
----------------------------
Name: Jonathan Paul
Title: Authorized Signatory
Shares Owned: 2,049,135
131
Exhibit D
SUNSTONE HOTEL INVESTORS, INC.
CHARTER AMENDMENTS
1. Article III of the Charter is to be amended by deleting in its entirety
the second sentence of said Article III.
2. The words "Section 5 of Article V" at the end of the first sentence of
Section 1(a) of Article V are to be deleted in their entirety and
"Section 3 of Article V" inserted in lieu thereof.
3. The words "Section 6 of Article V" at the end of the third sentence of
Section 1(a) of Article V are to be deleted in their entirety and
"Section 4 of Article V" inserted in lieu thereof.
4. Sections 2, 4 and 7 of Article V of the Charter are to be deleted in
their entirety.
5. The initial phrase of the first sentence of Section 3 of Article V of
the Charter is to be deleted in its entirety and the following inserted
in lieu thereof:
Subject to the provisions of Sections 3 and 4 of this Article
V, the Common Shares shall have the following preferences,
conversion and other rights, voting powers, restrictions,
limitations as to dividends, qualifications and terms and
conditions of the redemption and such other rights as may be
afforded by law:.
6. The initial phrase of the first sentence of Section 6 of Article V of
the Charter is to be deleted in its entirety and the following inserted
in lieu thereof:
The power of the Board of Directors to classify and reclassify
any of the shares of capital stock shall include, without
limitation, subject to the provisions of the Charter,
authority to classify or reclassify any unissued shares of
such stock into a class or classes of preferenced stock,
special stock or other stock, by determining, fixing or
altering one or more of the following:.
7. Section 1 of Article VII of the Charter is to be deleted in its
entirety and the following inserted in lieu thereof:
The Corporation shall be authorized to act as the general
partner of the Partnership. In addition, the Corporation shall
be permitted to exchange Common Shares for partnership
interests in the Partnership pursuant to the provisions
contained in the Partnership Agreement and without any action
by the stockholders.
8. Section 3 of Article VII of the Charter is to be deleted in its
entirety and the following inserted in lieu thereof:
Except as provided by the Board of Directors in authorizing
the issuance of
132
2
Preferred Shares pursuant to Section 3 of Article V, no holder
of any stock or any securities of the Corporation, whether now
or hereafter authorized, shall have any preemptive right to
subscribe to or purchase (i) any shares of capital stock of
the Corporation, (ii) any warrants, rights or options to
purchase any such shares, or (iii) any other securities of the
Corporation or obligations convertible into any shares of
capital stock of the Corporation or such other securities or
into warrants, rights or options to purchase any such shares
or other securities.
9. Section 3 of Article IX of the Charter is to be amended by deleting in
its entirety the last sentence of subsection (a) of said Section 3 of
Article IX.
10. Section 3 of Article IX of the Charter is to be amended by deleting in
its entirety subsection (b) of said Section 3 of Article IX and by
redesignating subsection (c) of said Section 3 of Article IX as
subsection (b) of said Section 3.
11. Sections 3, 5 and 6 of Article V of the Charter are to be renumbered as
Sections 2, 3 and 4, respectively of Article V of the Charter.
133
Exhibit E
PARTNER CONSENT
Action Taken by the Written Consent of
Partners of Sunstone Hotel Investors, L.P.
July 12, 1999
The undersigned partner of Sunstone Hotel Investors, L.P., a
Delaware limited partnership ("Seller Partnership"), acting by written consent
in lieu of a meeting pursuant to Section 17-302(e) of the Delaware Revised
Uniform Limited Partnership Act, as amended, hereby irrevocably consents to the
adoption of and adopts the following resolution with respect to the partnership
units in Seller Partnership owned of record by such partner on the date hereof:
RESOLVED, that the Agreement and Plan of Merger, dated as of
July 12, 1999 (the "Merger Agreement"), among Seller Partnership, SHP
Acquisition, L.L.C., a Delaware limited liability company ("SHP"), and SHP OP,
L.L.C., an indirect wholly-owned subsidiary of SHP, a copy of which has been
furnished to the undersigned partner, and the transactions contemplated
thereunder, be, and hereby are, adopted and approved by the undersigned partner.
Sunstone Hotel Investors, Inc.
---------------------------------------
(Print Name)
By: /s/ R. Terrence Crowley
-----------------------------------
Name: R. Terrence Crowley
-----------------------------
Title: Chief Operating Officer
----------------------------
Partnership Interest: 37,929,477 Units
-----------------
Address of the partner:
---------------------------------------
---------------------------------------
---------------------------------------
Date of Execution:
--------------------
134
PARTNER CONSENT
Action Taken by the Written Consent of
Partners of Sunstone Hotel Investors, L.P.
July 12, 1999
The undersigned partner of Sunstone Hotel Investors, L.P., a
Delaware limited partnership ("Seller Partnership"), acting by written consent
in lieu of a meeting pursuant to Section 17-302(e) of the Delaware Revised
Uniform Limited Partnership Act, as amended, hereby irrevocably consents to the
adoption of and adopts the following resolution with respect to the partnership
units in Seller Partnership owned of record by such partner on the date hereof:
RESOLVED, that the amendments to the Second Amended and
Restated Agreement of Limited Partnership of Seller Partnership, dated as of
October 14, 1997, attached as Exhibit A hereto, be, and hereby are, adopted and
approved by the undersigned partner.
Sunstone Hotel Investors, Inc.
---------------------------------------
(Print Name)
By: /s/ R. Terrence Crowley
-----------------------------------
Name: R. Terrence Crowley
-----------------------------
Title: Chief Operating Officer
----------------------------
Partnership Interest: 37,929,477 Units
------------------
Address of the partner:
---------------------------------------
---------------------------------------
---------------------------------------
Date of Execution:
--------------------
135
PARTNER CONSENT
Action Taken by the Written Consent of
Partners of Sunstone Hotel Investors, L.P.
July 12, 1999
The undersigned partner of Sunstone Hotel Investors, L.P., a
Delaware limited partnership ("Seller Partnership"), acting by written consent
in lieu of a meeting pursuant to Section 17-302(e) of the Delaware Revised
Uniform Limited Partnership Act, as amended, hereby irrevocably consents to the
adoption of and adopts the following resolution with respect to the partnership
units in Seller Partnership owned of record by such partner on the date hereof:
RESOLVED, that the Agreement and Plan of Merger, dated as of
July 12, 1999 (the "Merger Agreement"), among Seller Partnership, SHP
Acquisition, L.L.C., a Delaware limited liability company ("SHP"), and SHP OP,
L.L.C., an indirect wholly-owned subsidiary of SHP, a copy of which has been
furnished to the undersigned partner, and the transactions contemplated
thereunder, be, and hereby are, adopted and approved by the undersigned partner.
ALTER INVESTMENT GROUP, LTD.
By: /s/ Robert A. Alter
-----------------------------------
Robert A. Alter, as general partner
Partnership Interest: 99,251 Units
Address of the partner:
________________________________________
________________________________________
________________________________________
Date of Execution: July 12, 1999
136
PARTNER CONSENT
Action Taken by the Written Consent of
Partners of Sunstone Hotel Investors, L.P.
July 12, 1999
The undersigned partner of Sunstone Hotel Investors, L.P., a
Delaware limited partnership ("Seller Partnership"), acting by written consent
in lieu of a meeting pursuant to Section 17-302(e) of the Delaware Revised
Uniform Limited Partnership Act, as amended, hereby irrevocably consents to the
adoption of and adopts the following resolution with respect to the partnership
units in Seller Partnership owned of record by such partner on the date hereof:
RESOLVED, that the amendments to the Second Amended and
Restated Agreement of Limited Partnership of Seller Partnership, dated as of
October 14, 1997, attached as Exhibit A hereto, be, and hereby are, adopted and
approved by the undersigned partner.
RIVERSIDE HOTEL PARTNERS, INC.
By: /s/ Robert A. Alter
-------------------------------------
Name: Robert A. Alter
Title: President
Partnership Interest: 80,000 Units
Address of the partner:
________________________________________
________________________________________
________________________________________
Date of Execution: July 12, 1999
137
PARTNER CONSENT
Action Taken by the Written Consent of
Partners of Sunstone Hotel Investors, L.P.
July 12, 1999
The undersigned partner of Sunstone Hotel Investors, L.P., a
Delaware limited partnership ("Seller Partnership"), acting by written consent
in lieu of a meeting pursuant to Section 17-302(e) of the Delaware Revised
Uniform Limited Partnership Act, as amended, hereby irrevocably consents to the
adoption of and adopts the following resolution with respect to the partnership
units in Seller Partnership owned of record by such partner on the date hereof:
RESOLVED, that the Agreement and Plan of Merger, dated as of
July 12, 1999 (the "Merger Agreement"), among Seller Partnership, SHP
Acquisition, L.L.C., a Delaware limited liability company ("SHP"), and SHP OP,
L.L.C., an indirect wholly-owned subsidiary of SHP, a copy of which has been
furnished to the undersigned partner, and the transactions contemplated
thereunder, be, and hereby are, adopted and approved by the undersigned partner.
/s/ Robert A. Alter
---------------------------------------
Robert A. Alter
Partnership Interest: 318,961 Units
Address of the partner:
________________________________________
________________________________________
________________________________________
Date of Execution: July 12, 1999
138
PARTNER CONSENT
Action Taken by the Written Consent of
Partners of Sunstone Hotel Investors, L.P.
July 12, 1999
The undersigned partner of Sunstone Hotel Investors, L.P., a
Delaware limited partnership ("Seller Partnership"), acting by written consent
in lieu of a meeting pursuant to Section 17-302(e) of the Delaware Revised
Uniform Limited Partnership Act, as amended, hereby irrevocably consents to the
adoption of and adopts the following resolution with respect to the partnership
units in Seller Partnership owned of record by such partner on the date hereof:
RESOLVED, that the amendments to the Second Amended and
Restated Agreement of Limited Partnership of Seller Partnership, dated as of
October 14, 1997, attached as Exhibit A hereto, be, and hereby are, adopted and
approved by the undersigned partner.
/s/ Charles L. Biederman
----------------------------------------
Charles L. Biederman
Partnership Interest: 382,647
Address of the partner:
________________________________________
________________________________________
________________________________________
Date of Execution: July 12, 1999
139
PARTNER CONSENT
Action Taken by the Written Consent of
Partners of Sunstone Hotel Investors, L.P.
July 12, 1999
The undersigned partner of Sunstone Hotel Investors, L.P., a
Delaware limited partnership ("Seller Partnership"), acting by written consent
in lieu of a meeting pursuant to Section 17-302(e) of the Delaware Revised
Uniform Limited Partnership Act, as amended, hereby irrevocably consents to the
adoption of and adopts the following resolution with respect to the partnership
units in Seller Partnership owned of record by such partner on the date hereof:
RESOLVED, that the Agreement and Plan of Merger, dated as of
July 12, 1999 (the "Merger Agreement"), among Seller Partnership, SHP
Acquisition, L.L.C., a Delaware limited liability company ("SHP"), and SHP OP,
L.L.C., an indirect wholly-owned subsidiary of SHP, a copy of which has been
furnished to the undersigned partner, and the transactions contemplated
thereunder, be, and hereby are, adopted and approved by the undersigned partner.
/s/ Audrey Enever
----------------------------------------
Audrey Enever
Partnership Interest: 20,799 Units
Address of the partner:
________________________________________
________________________________________
________________________________________
Date of Execution: July 12, 1999
140
PARTNER CONSENT
Action Taken by the Written Consent of
Partners of Sunstone Hotel Investors, L.P.
July 12, 1999
The undersigned partner of Sunstone Hotel Investors, L.P., a
Delaware limited partnership ("Seller Partnership"), acting by written consent
in lieu of a meeting pursuant to Section 17-302(e) of the Delaware Revised
Uniform Limited Partnership Act, as amended, hereby irrevocably consents to the
adoption of and adopts the following resolution with respect to the partnership
units in Seller Partnership owned of record by such partner on the date hereof:
RESOLVED, that the amendments to the Second Amended and
Restated Agreement of Limited Partnership of Seller Partnership, dated as of
October 14, 1997, attached as Exhibit A hereto, be, and hereby are, adopted and
approved by the undersigned partner.
ENEVER ROUTT INVESTMENT GROUP LTD
By: /s/ Robert Enever
------------------------------------
Name: Robert Enever
Title: General Partner
Partnership Interest: 100,254
Address of the partner:
________________________________________
________________________________________
________________________________________
Date of Execution: July 12, 1999
141
PARTNER CONSENT
Action Taken by the Written Consent of
Partners of Sunstone Hotel Investors, L.P.
July 12, 1999
The undersigned partner of Sunstone Hotel Investors, L.P., a
Delaware limited partnership ("Seller Partnership"), acting by written consent
in lieu of a meeting pursuant to Section 17-302(e) of the Delaware Revised
Uniform Limited Partnership Act, as amended, hereby irrevocably consents to the
adoption of and adopts the following resolution with respect to the partnership
units in Seller Partnership owned of record by such partner on the date hereof:
RESOLVED, that the Agreement and Plan of Merger, dated as of
July 12, 1999 (the "Merger Agreement"), among Seller Partnership, SHP
Acquisition, L.L.C., a Delaware limited liability company ("SHP"), and SHP OP,
L.L.C., an indirect wholly-owned subsidiary of SHP, a copy of which has been
furnished to the undersigned partner, and the transactions contemplated
thereunder, be, and hereby are, adopted and approved by the undersigned partner.
/s/ Robert Enever
----------------------------------------
Robert Enever
Partnership Interest: 26,148 Units
Address of the partner:
________________________________________
________________________________________
________________________________________
Date of Execution: July 12, 1999
142
PARTNER CONSENT
Action Taken by the Written Consent of
Partners of Sunstone Hotel Investors, L.P.
July 12, 1999
The undersigned joint partners of Sunstone Hotel Investors,
L.P., a Delaware limited partnership ("Seller Partnership"), acting by written
consent in lieu of a meeting pursuant to Section 17-302(e) of the Delaware
Revised Uniform Limited Partnership Act, as amended, hereby irrevocably consents
to the adoption of and adopts the following resolution with respect to the
partnership units in Seller Partnership owned of record by such partner on the
date hereof:
RESOLVED, that the amendments to the Second Amended and
Restated Agreement of Limited Partnership of Seller Partnership, dated as of
October 14, 1997, attached as Exhibit A hereto, be, and hereby are, adopted and
approved by the undersigned partner.
/s/ Robert Enever
---------------------------------------
Robert Enever
/s/ Audrey Enever
---------------------------------------
Audrey Enever
Partnership Interest: 34,901 Units
Address of the partner:
________________________________________
________________________________________
________________________________________
Date of Execution: July 12, 1999
143
VOTING AGREEMENT
VOTING AGREEMENT, dated as of July 12, 1999 ("Agreement"), by and
among Robert A. Alter in his capacity as a partner ("Partner") of Sunstone Hotel
Investors, L.P., a Delaware partnership (the "Seller Partnership"), SHP
Acquisition, L.L.C., a Delaware limited liability company ("SHP"), and the
Seller Partnership.
WHEREAS, concurrently herewith, SHP, SHP OP, LLC, a Delaware limited
liability company, and the Seller Partnership are entering into an Agreement and
Plan of Merger dated July 12, 1999 (the "Partnership Merger Agreement";
capitalized terms used without definition herein having the meanings ascribed
thereto in the Partnership Merger Agreement);
WHEREAS, Partner is as of the date hereof the beneficial owner of
318,961 common partnership units of Seller Partnership ("Common Units") and 0
units of 7.9% Class A Cumulative Convertible Preferred Partnership Units of the
Seller Partnership ("Preferred Units" and, collectively with the Common Units,
but excluding any Common Units or Preferred Units issuable (but not yet issued)
upon conversion of any securities convertible into Common Units or Preferred
Units, the "Units");
WHEREAS, approval of the Partnership Merger Agreement by the Seller
Partnership's partners is a condition to the consummation of the Partnership
Merger;
WHEREAS, as a condition to its entering into the Partnership Merger
Agreement, each of the Seller Partnership and SHP has required that Partner
agrees, and Partner has agreed, to enter into this Agreement; and
WHEREAS, Partner has been informed that the Board of Directors of the
general partner of Seller Partnership has approved the Partnership Merger
Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements set forth herein, the parties hereto agree as follows:
Section 1. Agreement to Vote, Restrictions on Dispositions, Etc.
a. Partner hereby agrees to attend any partners meeting of the Seller
Partnership, in person or by proxy, and to vote (or cause to be voted) all
Units, and any other voting securities of the Seller Partnership, owned by
Partner whether issued heretofore or hereafter, that such person owns or has the
right to vote, (i) for approval and adoption of the Partnership Merger Agreement
and the Partnership Merger, and the transactions contemplated by the Partnership
Merger Agreement and (ii) for approval and adoption of the amendments to the
Second Amended and Restated Agreement of Limited Partnership of Seller
Partnership attached as Exhibit A to the Consents (as defined below) (the
"Amendments"), such agreements to vote to apply also to any adjournment of such
partner meeting of the Seller Partnership.
144
Partner agrees not to grant any proxies or enter into any voting agreement or
arrangement inconsistent with this Agreement or the two consents of even date
herewith executed by Partner (the "Consents"). Partner agrees to deliver the
executed Consents to SHP, at the request of SHP, and Partner agrees not to
rescind, modify or withdraw the Consents.
b. Partner hereby agrees that, without the prior written consent of the
Seller Partnership, except as provided in the Contribution Agreement, Partner
shall not, directly or indirectly, sell, offer to sell, grant any option for the
sale of or otherwise transfer or dispose of, or enter into any agreement to
sell, any Units and any other voting securities of the Seller Partnership that
Partner owns beneficially or otherwise. Partner agrees that the Seller
Partnership may enter stop transfer orders with the transfer agent(s) and the
registrar(s) of the Units against the transfer of Units and any other voting
securities of the Seller Partnership that Partner owns beneficially or
otherwise. Partner agrees to vote (or cause to be voted) all Units, and any
other voting securities of the Seller Partnership, owned by Partner whether
issued heretofore or hereafter, that such person owns or has the right to vote,
against (i) any recapitalization, merger, consolidation, sale of assets or other
business combination or similar transaction involving the Seller Partnership or
any of its Subsidiaries, securities or assets other than the Partnership Merger
or other transaction with SHP and (ii) any other action or agreement that would
result in a breach of any covenant, representation or warranty or any other
obligation or agreement of the Seller Partnership under the Partnership Merger
Agreement or which could result in any of the conditions to the Seller
Partnership's obligations under the Partnership Merger Agreement not being
fulfilled.
c. Partner agrees not, directly or indirectly, to solicit or authorize
any person to solicit, any inquiries or proposals from any person other than SHP
relating to the merger or consolidation of the Seller Partnership with any
person other than SHP or its Affiliates, or the acquisition of the Seller
Partnership's or any of its significant subsidiaries' voting securities by, or
the direct or indirect acquisition or disposition of a significant amount of
assets of the Seller Partnership or any of its significant subsidiaries
otherwise than in the ordinary course of business of the Seller Partnership or
such significant subsidiary, from or to any person other than SHP or its
Affiliates or directly or indirectly enter into or continue any discussions,
negotiations or agreements relating to, or vote (or cause to be voted) in favor
of, any such transaction.
d. Partner agrees to promptly notify the Seller Partnership and SHP in
writing of the nature and amount of any acquisition by Partner after the date
hereof of any voting securities of the Seller Partnership.
Section 2. Additional Representations and Warranties of Partner.
Partner represents and warrants to the Seller Partnership and SHP as follows:
Partner has all necessary power and authority to execute and deliver this
Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by Partner. Assuming the due authorization,
145
execution and delivery of this Agreement by the Seller Partnership, this
Agreement constitutes the valid and binding agreement of Partner enforceable
against Partner in accordance with its terms, except as may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium and other similar
laws of general application which may affect the enforcement of creditors'
rights generally and by general equitable principles. The Units of Partner are
the only voting securities of the Seller Partnership owned (beneficially or of
record) by Partner and are owned free and clear of all liens, charges,
encumbrances, restrictions and commitments of any kind other than the
Contribution Agreement, this Agreement and the Consents. Partner has not
appointed or granted any irrevocable proxy, which appointment or grant is still
effective, with respect to the Units. The execution and delivery of this
Agreement by Partner does not (a) conflict with or violate any agreement, law,
rule, regulation, order, judgment or decision or other instrument binding upon
it, nor require any consent, notification, regulatory filing or approval which
has not been obtained or (b) result in any breach of or constitute a default (or
an event that with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of a lien or encumbrance on any of
the Units owned by Partner pursuant to, any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument or
obligation to which Partner is a party or by which Partner or the Units owned by
Partner are bound or affected. Partner acknowledges that the restrictions
imposed upon it are so imposed only in Partner's capacity as a partner of the
Seller Partnership.
Section 3. Representations and Warranties of the Seller Partnership.
The Seller Partnership represents and warrants to Partner as follows: each of
(i) this Agreement, (ii) the Partnership Merger Agreement and (iii) the
Amendments has been approved by the Board of Directors of the general partner of
Seller Partnership. Each of this Agreement and the Partnership Merger Agreement
has been duly executed and delivered by a duly authorized officer of the Seller
Partnership. Assuming the due authorization, execution and delivery of this
Agreement by Partner, each of this Agreement and the Partnership Merger
Agreement constitutes a valid and binding agreement of the Seller Partnership,
enforceable against the Seller Partnership in accordance with its terms, except
as may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium and other similar laws of general application which may affect the
enforcement of creditors' rights generally and by general equitable principles.
Section 4. Further Assurances. Each party shall execute and deliver
such additional instruments and other documents and shall take such further
actions as may be necessary or appropriate to effectuate, carry out and comply
with all of their obligations under this Agreement. Without limiting the
generality of the foregoing, neither of the parties hereto shall enter into any
agreement or arrangement (or alter, amend or terminate any existing agreement or
arrangement) if such action would materially impair the ability of either party
to effectuate, carry out or comply with all the terms of this Agreement.
146
Section 5. Effectiveness and Termination. It is a condition precedent
to the effectiveness of this Agreement that the Partnership Merger Agreement
shall have been executed and delivered and be in full force and effect. This
Agreement shall automatically terminate and be of no further force or effect
upon the earlier termination of the Partnership Merger Agreement in accordance
with its terms. Upon any termination of this Agreement, except for any rights
either party may have in respect of any breach by either party of its
obligations hereunder, none of the parties hereto shall have any further
obligation or liability hereunder. The provisions of Section 1 of this Agreement
shall terminate and be of no further force or effect from and after the
Effective Time of the Partnership Merger.
Section 6. Covenants of Partner Not to Enter Into Inconsistent
Agreements. Partner hereby agrees that, except as contemplated by this
Agreement, the Consents and the Partnership Merger Agreement, Partner shall not
enter into any voting agreement or grant an irrevocable proxy or power of
attorney with respect to the Units which is inconsistent with this Agreement.
Section 7. Miscellaneous.
a. Notices, Etc. All notices, requests, demands or other communications
required by or otherwise given with respect to this Agreement shall be in
writing and shall be deemed to have been duly given to either party when
delivered personally (by courier service or otherwise), when delivered by
telecopy and confirmed by return telecopy, or seven days after being mailed by
first-class mail, postage prepaid in each case to the applicable addresses set
forth below:
If to the Seller Partnership:
Sunstone Hotel Investors, L.P.
903 Calle Amanecer
San Clemente, CA 92673-6212
Attention: Chief Operating Officer
Facsimile: 949-369-4230
with a copy to:
Altheimer & Gray
10 South Wacker Drive
Suite 4000
Chicago, Illinois 60606
Attention: Phillip Gordon
Facsimile: 312-715-4800
If to Westbrook or SHP:
147
Westbrook Real Estate Partners L.L.C.
599 Lexington Avenue
Suite 3800
New York, New York 10022
Attention: Jonathan H. Paul
Facsimile: 212-849-8801
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017-3954
Attention: Richard Capelouto
Brian Stadler
Facsimile: 212-455-2502
If to Partner, at its address set forth on the unitholder ledger maintained by
the transfer agent of Seller Partnership with respect to the Seller Partnership;
or to such other address as such party shall have designated by notice so given
to each other party.
b. Amendments, Waivers, Etc. This Agreement may not be amended,
changed, supplemented, waived or otherwise modified or terminated except by an
instrument in writing signed by the Seller Partnership, SHP and Partner.
c. Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of and be enforceable by the parties and their
respective successors and assigns, including without limitation any corporate
successor by merger or otherwise. Notwithstanding any transfer of Units, the
transferor shall remain liable for the performance of all obligations of the
transferor under this Agreement.
d. Entire Agreement. This Agreement (together with the Partnership
Merger Agreement and the documents referred to therein and the Consents)
embodies the entire agreement and understanding among the parties relating to
the subject matter hereof and supersedes all prior agreements and understandings
relating to such subject matter. There are no representations, warranties or
covenants by the parties hereto relating to such subject matter other than those
expressly set forth in this Agreement, the Partnership Merger Agreement and the
documents referred to therein.
148
e. Severability. If any term of this Agreement or the application
thereof to either party or circumstance shall be held invalid or unenforceable
to any extent, the remainder of this Agreement and the application of such term
to the other parties or circumstances shall not be affected thereby and shall be
enforced to the greatest extent permitted by applicable law; provided that in
such event the parties shall negotiate in good faith in an attempt to agree to
another provision (in lieu of the term or application held to be invalid or
unenforceable) that will be valid and enforceable and will carry out the
parties' intentions hereunder.
f. Specific Performance. The parties acknowledge that money damages are
not an adequate remedy for violations of this Agreement and that either party
may, in its sole discretion, apply to a court of competent jurisdiction for
specific performance or injunction or such other relief as such court may deem
just and proper in order to enforce this Agreement or prevent any violation
hereof and, to the extent permitted by applicable law, each party waives any
objection to the imposition of such relief.
g. Remedies Cumulative. All rights, powers and remedies provided under
this Agreement or otherwise available in respect hereof at law or in equity
shall be cumulative and not alternative, and the exercise or beginning of the
exercise of any thereof by either party shall not preclude the simultaneous or
later exercise of any other such rights, power or remedy by such party.
h. No Waiver. The failure of either party hereto to exercise any right,
power or remedy provided under this Agreement or otherwise available in respect
hereof at law or in equity, or to insist upon compliance by the other party
hereto with its obligations hereunder, and any custom or practice of the parties
at variance with the terms hereof, shall not constitute a waiver by such party
of its right to exercise any such or other right, power or remedy or to demand
such compliance.
i. No Third Party Beneficiaries. This Agreement is not intended to be
for the benefit of and shall not be enforceable by any person or entity who or
which is not a party hereto.
j. Jurisdiction. Each party hereby irrevocably submits to the exclusive
jurisdiction of the Court of Chancery in the State of Delaware in any action,
suit or proceeding arising in connection with this Agreement, and agrees that
any such action, suit or proceeding shall be brought only in such court (and
waives any objection based on forum non conveniens or any other objection to
venue therein) provided, however, that such consent to jurisdiction is solely
for the purpose referred to in this paragraph (j) and shall not be deemed to be
in general submission to the jurisdiction of said Court or in the State of
Delaware other than for such purposes. Each party hereto waives any right to a
trial by jury in connection with any such action, suit or proceeding.
149
k. Governing Law. This Agreement and all disputes hereunder shall be
governed by and construed and enforced in accordance with the laws of the State
of Delaware.
l. Name, Captions, Gender. The name assigned this Agreement and the
section captions used herein are for convenience of reference only and shall not
affect the interpretation or construction hereof. Whenever the context may
require, any pronoun used herein shall include the corresponding masculine,
feminine or neuter forms.
m. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one instrument. Each counterpart may consist of a
number of copies each signed by less than all, but together signed by all, the
parties hereto.
n. Expenses. Each party shall bear its own expenses incurred in
connection with this Agreement and the transactions contemplated hereby.
o. Beneficial Ownership. For purposes of this Voting Agreement,
beneficial ownership shall be determined as set forth in Rule 13d-3 under the
Securities Exchange Act of 1934, as amended.
150
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first above written.
/s/ Robert A. Alter
--------------------------------------
Robert A. Alter
SHP ACQUISITION, L.L.C.
By: /s/ Paul Kazilionis
--------------------------------------
Name: Paul Kazilionis
Title: Manager
SUNSTONE HOTEL INVESTORS, L.P.
By: /s/ R. Terrence Crowley
--------------------------------------
Name: R. Terrence Crowley
Title: Authorized Signatory
151
VOTING AGREEMENT
VOTING AGREEMENT, dated as of July 12, 1999 ("Agreement"), by and among
Charles L. Biederman in his capacity as a partner ("Partner") of Sunstone Hotel
Investors, L.P., a Delaware partnership (the "Seller Partnership"), SHP
Acquisition, L.L.C., a Delaware limited liability company ("SHP"), and the
Seller Partnership.
WHEREAS, concurrently herewith, SHP, SHP OP, LLC, a Delaware limited
liability company, and the Seller Partnership are entering into an Agreement and
Plan of Merger dated July 12, 1999 (the "Partnership Merger Agreement";
capitalized terms used without definition herein having the meanings ascribed
thereto in the Partnership Merger Agreement);
WHEREAS, Partner is as of the date hereof the beneficial owner of
382,647 common partnership units of Seller Partnership ("Common Units") and 0
units of 7.9% Class A Cumulative Convertible Preferred Partnership Units of the
Seller Partnership ("Preferred Units" and, collectively with the Common Units,
but excluding any Common Units or Preferred Units issuable (but not yet issued)
upon conversion of any securities convertible into Common Units or Preferred
Units, the "Units");
WHEREAS, approval of the Partnership Merger Agreement by the Seller
Partnership's partners is a condition to the consummation of the Partnership
Merger;
WHEREAS, as a condition to its entering into the Partnership Merger
Agreement, each of the Seller Partnership and SHP has required that Partner
agrees, and Partner has agreed, to enter into this Agreement; and
WHEREAS, Partner has been informed that the Board of Directors of the
general partner of Seller Partnership has approved the Partnership Merger
Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements set forth herein, the parties hereto agree as follows:
Section 1. Agreement to Vote, Restrictions on Dispositions, Etc.
a. Partner hereby agrees to attend any partners meeting of the Seller
Partnership, in person or by proxy, and to vote (or cause to be voted) all
Units, and any other voting securities of the Seller Partnership, owned by
Partner whether issued heretofore or hereafter, that such person owns or has the
right to vote, (i) for approval and adoption of the Partnership Merger Agreement
and the Partnership Merger, and the transactions contemplated by the Partnership
Merger Agreement and (ii) for approval and adoption of the amendments to the
Second Amended and Restated Agreement of Limited Partnership of Seller
Partnership attached as Exhibit A to the Consents (as defined below) (the
"Amendments"), such agreements to vote to apply also to any adjournment of such
partner meeting of the Seller Partnership.
152
Partner agrees not to grant any proxies or enter into any voting agreement or
arrangement inconsistent with this Agreement or the two consents of even date
herewith executed by Partner (the "Consents"). Partner agrees to deliver the
executed Consents to SHP, at the request of SHP, and Partner agrees not to
rescind, modify or withdraw the Consents.
b. Partner hereby agrees that, without the prior written consent of the
Seller Partnership, except as provided in the Contribution Agreement, Partner
shall not, directly or indirectly, sell, offer to sell, grant any option for the
sale of or otherwise transfer or dispose of, or enter into any agreement to
sell, any Units and any other voting securities of the Seller Partnership that
Partner owns beneficially or otherwise. Partner agrees that the Seller
Partnership may enter stop transfer orders with the transfer agent(s) and the
registrar(s) of the Units against the transfer of Units and any other voting
securities of the Seller Partnership that Partner owns beneficially or
otherwise. Partner agrees to vote (or cause to be voted) all Units, and any
other voting securities of the Seller Partnership, owned by Partner whether
issued heretofore or hereafter, that such person owns or has the right to vote,
against (i) any recapitalization, merger, consolidation, sale of assets or other
business combination or similar transaction involving the Seller Partnership or
any of its Subsidiaries, securities or assets other than the Partnership Merger
or other transaction with SHP and (ii) any other action or agreement that would
result in a breach of any covenant, representation or warranty or any other
obligation or agreement of the Seller Partnership under the Partnership Merger
Agreement or which could result in any of the conditions to the Seller
Partnership's obligations under the Partnership Merger Agreement not being
fulfilled.
c. Partner agrees not, directly or indirectly, to solicit or authorize
any person to solicit, any inquiries or proposals from any person other than SHP
relating to the merger or consolidation of the Seller Partnership with any
person other than SHP or its Affiliates, or the acquisition of the Seller
Partnership's or any of its significant subsidiaries' voting securities by, or
the direct or indirect acquisition or disposition of a significant amount of
assets of the Seller Partnership or any of its significant subsidiaries
otherwise than in the ordinary course of business of the Seller Partnership or
such significant subsidiary, from or to any person other than SHP or its
Affiliates or directly or indirectly enter into or continue any discussions,
negotiations or agreements relating to, or vote (or cause to be voted) in favor
of, any such transaction.
d. Partner agrees to promptly notify the Seller Partnership and SHP in
writing of the nature and amount of any acquisition by Partner after the date
hereof of any voting securities of the Seller Partnership.
Section 2. Additional Representations and Warranties of Partner.
Partner represents and warrants to the Seller Partnership and SHP as follows:
Partner has all necessary power and authority to execute and deliver this
Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by Partner. Assuming the due authorization,
153
execution and delivery of this Agreement by the Seller Partnership, this
Agreement constitutes the valid and binding agreement of Partner enforceable
against Partner in accordance with its terms, except as may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium and other similar
laws of general application which may affect the enforcement of creditors'
rights generally and by general equitable principles. The Units of Partner are
the only voting securities of the Seller Partnership owned (beneficially or of
record) by Partner and are owned free and clear of all liens, charges,
encumbrances, restrictions and commitments of any kind other than the
Contribution Agreement, this Agreement and the Consents. Partner has not
appointed or granted any irrevocable proxy, which appointment or grant is still
effective, with respect to the Units. The execution and delivery of this
Agreement by Partner does not (a) conflict with or violate any agreement, law,
rule, regulation, order, judgment or decision or other instrument binding upon
it, nor require any consent, notification, regulatory filing or approval which
has not been obtained or (b) result in any breach of or constitute a default (or
an event that with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of a lien or encumbrance on any of
the Units owned by Partner pursuant to, any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument or
obligation to which Partner is a party or by which Partner or the Units owned by
Partner are bound or affected. Partner acknowledges that the restrictions
imposed upon it are so imposed only in Partner's capacity as a partner of the
Seller Partnership.
Section 3. Representations and Warranties of the Seller Partnership.
The Seller Partnership represents and warrants to Partner as follows: each of
(i) this Agreement, (ii) the Partnership Merger Agreement and (iii) the
Amendments has been approved by the Board of Directors of the general partner of
Seller Partnership. Each of this Agreement and the Partnership Merger Agreement
has been duly executed and delivered by a duly authorized officer of the Seller
Partnership. Assuming the due authorization, execution and delivery of this
Agreement by Partner, each of this Agreement and the Partnership Merger
Agreement constitutes a valid and binding agreement of the Seller Partnership,
enforceable against the Seller Partnership in accordance with its terms, except
as may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium and other similar laws of general application which may affect the
enforcement of creditors' rights generally and by general equitable principles.
Section 4. Further Assurances. Each party shall execute and deliver
such additional instruments and other documents and shall take such further
actions as may be necessary or appropriate to effectuate, carry out and comply
with all of their obligations under this Agreement. Without limiting the
generality of the foregoing, neither of the parties hereto shall enter into any
agreement or arrangement (or alter, amend or terminate any existing agreement or
arrangement) if such action would materially impair the ability of either party
to effectuate, carry out or comply with all the terms of this Agreement.
154
Section 5. Effectiveness and Termination. It is a condition precedent
to the effectiveness of this Agreement that the Partnership Merger Agreement
shall have been executed and delivered and be in full force and effect. This
Agreement shall automatically terminate and be of no further force or effect
upon the earlier termination of the Partnership Merger Agreement in accordance
with its terms. Upon any termination of this Agreement, except for any rights
either party may have in respect of any breach by either party of its
obligations hereunder, none of the parties hereto shall have any further
obligation or liability hereunder. The provisions of Section 1 of this Agreement
shall terminate and be of no further force or effect from and after the
Effective Time of the Partnership Merger.
Section 6. Covenants of Partner Not to Enter Into Inconsistent
Agreements. Partner hereby agrees that, except as contemplated by this
Agreement, the Consents and the Partnership Merger Agreement, Partner shall not
enter into any voting agreement or grant an irrevocable proxy or power of
attorney with respect to the Units which is inconsistent with this Agreement.
Section 7. Miscellaneous.
a. Notices, Etc. All notices, requests, demands or other communications
required by or otherwise given with respect to this Agreement shall be in
writing and shall be deemed to have been duly given to either party when
delivered personally (by courier service or otherwise), when delivered by
telecopy and confirmed by return telecopy, or seven days after being mailed by
first-class mail, postage prepaid in each case to the applicable addresses set
forth below:
If to the Seller Partnership:
Sunstone Hotel Investors, L.P.
903 Calle Amanecer
San Clemente, CA 92673-6212
Attention: Chief Operating Officer
Facsimile: 949-369-4230
with a copy to:
Altheimer & Gray
10 South Wacker Drive
Suite 4000
Chicago, Illinois 60606
Attention: Phillip Gordon
Facsimile: 312-715-4800
If to Westbrook or SHP:
155
Westbrook Real Estate Partners L.L.C.
599 Lexington Avenue
Suite 3800
New York, New York 10022
Attention: Jonathan H. Paul
Facsimile: 212-849-8801
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017-3954
Attention: Richard Capelouto
Brian Stadler
Facsimile: 212-455-2502
If to Partner, at its address set forth on the unitholder ledger maintained by
the transfer agent of Seller Partnership with respect to the Seller Partnership;
or to such other address as such party shall have designated by notice so given
to each other party.
b. Amendments, Waivers, Etc. This Agreement may not be amended,
changed, supplemented, waived or otherwise modified or terminated except by an
instrument in writing signed by the Seller Partnership, SHP and Partner.
c. Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of and be enforceable by the parties and their
respective successors and assigns, including without limitation any corporate
successor by merger or otherwise. Notwithstanding any transfer of Units, the
transferor shall remain liable for the performance of all obligations of the
transferor under this Agreement.
d. Entire Agreement. This Agreement (together with the Partnership
Merger Agreement and the documents referred to therein and the Consents)
embodies the entire agreement and understanding among the parties relating to
the subject matter hereof and supersedes all prior agreements and understandings
relating to such subject matter. There are no representations, warranties or
covenants by the parties hereto relating to such subject matter other than those
expressly set forth in this Agreement, the Partnership Merger Agreement and the
documents referred to therein.
156
e. Severability. If any term of this Agreement or the application
thereof to either party or circumstance shall be held invalid or unenforceable
to any extent, the remainder of this Agreement and the application of such term
to the other parties or circumstances shall not be affected thereby and shall be
enforced to the greatest extent permitted by applicable law; provided that in
such event the parties shall negotiate in good faith in an attempt to agree to
another provision (in lieu of the term or application held to be invalid or
unenforceable) that will be valid and enforceable and will carry out the
parties' intentions hereunder.
f. Specific Performance. The parties acknowledge that money damages are
not an adequate remedy for violations of this Agreement and that either party
may, in its sole discretion, apply to a court of competent jurisdiction for
specific performance or injunction or such other relief as such court may deem
just and proper in order to enforce this Agreement or prevent any violation
hereof and, to the extent permitted by applicable law, each party waives any
objection to the imposition of such relief.
g. Remedies Cumulative. All rights, powers and remedies provided under
this Agreement or otherwise available in respect hereof at law or in equity
shall be cumulative and not alternative, and the exercise or beginning of the
exercise of any thereof by either party shall not preclude the simultaneous or
later exercise of any other such rights, power or remedy by such party.
h. No Waiver. The failure of either party hereto to exercise any right,
power or remedy provided under this Agreement or otherwise available in respect
hereof at law or in equity, or to insist upon compliance by the other party
hereto with its obligations hereunder, and any custom or practice of the parties
at variance with the terms hereof, shall not constitute a waiver by such party
of its right to exercise any such or other right, power or remedy or to demand
such compliance.
i. No Third Party Beneficiaries. This Agreement is not intended to be
for the benefit of and shall not be enforceable by any person or entity who or
which is not a party hereto.
j. Jurisdiction. Each party hereby irrevocably submits to the exclusive
jurisdiction of the Court of Chancery in the State of Delaware in any action,
suit or proceeding arising in connection with this Agreement, and agrees that
any such action, suit or proceeding shall be brought only in such court (and
waives any objection based on forum non conveniens or any other objection to
venue therein) provided, however, that such consent to jurisdiction is solely
for the purpose referred to in this paragraph (j) and shall not be deemed to be
in general submission to the jurisdiction of said Court or in the State of
Delaware other than for such purposes. Each party hereto waives any right to a
trial by jury in connection with any such action, suit or proceeding.
157
k. Governing Law. This Agreement and all disputes hereunder shall be
governed by and construed and enforced in accordance with the laws of the State
of Delaware.
l. Name, Captions, Gender. The name assigned this Agreement and the
section captions used herein are for convenience of reference only and shall not
affect the interpretation or construction hereof. Whenever the context may
require, any pronoun used herein shall include the corresponding masculine,
feminine or neuter forms.
m. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one instrument. Each counterpart may consist of a
number of copies each signed by less than all, but together signed by all, the
parties hereto.
n. Expenses. Each party shall bear its own expenses incurred in
connection with this Agreement and the transactions contemplated hereby.
o. Beneficial Ownership. For purposes of this Voting Agreement,
beneficial ownership shall be determined as set forth in Rule 13d-3 under the
Securities Exchange Act of 1934, as amended.
158
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first above written.
/s/ Charles L. Biederman
---------------------------------------
Charles L. Biederman
SHP ACQUISITION, L.L.C.
By: /s/ Paul Kazilionis
---------------------------------------
Name: Paul Kazilionis
Title: Manager
SUNSTONE HOTEL INVESTORS, L.P.
By: /s/ R. Terrence Crowley
---------------------------------------
Name: R. Terrence Crowley
Title: Authorized Signatory
159
VOTING AGREEMENT
VOTING AGREEMENT, dated as of July 12, 1999 ("Agreement"), by and among
Riverside Hotel Partners, Inc., a California corporation, in its capacity as a
partner ("Partner") of Sunstone Hotel Investors, L.P., a Delaware partnership
(the "Seller Partnership"), SHP Acquisition, L.L.C., a Delaware limited
liability company ("SHP"), and the Seller Partnership.
WHEREAS, concurrently herewith, SHP, SHP OP, LLC, a Delaware limited
liability company, and the Seller Partnership are entering into an Agreement and
Plan of Merger dated July 12, 1999 (the "Partnership Merger Agreement";
capitalized terms used without definition herein having the meanings ascribed
thereto in the Partnership Merger Agreement);
WHEREAS, Partner is as of the date hereof the beneficial owner of
80,000 common partnership units of Seller Partnership ("Common Units") and 0
units of 7.9% Class A Cumulative Convertible Preferred Partnership Units of the
Seller Partnership ("Preferred Units" and, collectively with the Common Units,
but excluding any Common Units or Preferred Units issuable (but not yet issued)
upon conversion of any securities convertible into Common Units or Preferred
Units, the "Units");
WHEREAS, approval of the Partnership Merger Agreement by the Seller
Partnership's partners is a condition to the consummation of the Partnership
Merger;
WHEREAS, as a condition to its entering into the Partnership Merger
Agreement, each of the Seller Partnership and SHP has required that Partner
agrees, and Partner has agreed, to enter into this Agreement; and
WHEREAS, Partner has been informed that the Board of Directors of the
general partner of Seller Partnership has approved the Partnership Merger
Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements set forth herein, the parties hereto agree as follows:
Section 1. Agreement to Vote, Restrictions on Dispositions, Etc.
a. Partner hereby agrees to attend any partners meeting of the Seller
Partnership, in person or by proxy, and to vote (or cause to be voted) all
Units, and any other voting securities of the Seller Partnership, owned by
Partner whether issued heretofore or hereafter, that such person owns or has the
right to vote, (i) for approval and adoption of the Partnership Merger Agreement
and the Partnership Merger, and the transactions contemplated by the Partnership
Merger Agreement and (ii) for approval and adoption of the amendments to the
Second Amended and Restated Agreement of Limited Partnership of Seller
Partnership attached as Exhibit A to the Consents (as defined below) (the
"Amendments"), such agreements to vote to apply also to any adjournment of such
partner meeting of the Seller Partnership.
160
Partner agrees not to grant any proxies or enter into any voting agreement or
arrangement inconsistent with this Agreement or the two consents of even date
herewith executed by Partner (the "Consents"). Partner agrees to deliver the
executed Consents to SHP, at the request of SHP, and Partner agrees not to
rescind, modify or withdraw the Consents.
b. Partner hereby agrees that, without the prior written consent of the
Seller Partnership, except as provided in the Contribution Agreement, Partner
shall not, directly or indirectly, sell, offer to sell, grant any option for the
sale of or otherwise transfer or dispose of, or enter into any agreement to
sell, any Units and any other voting securities of the Seller Partnership that
Partner owns beneficially or otherwise. Partner agrees that the Seller
Partnership may enter stop transfer orders with the transfer agent(s) and the
registrar(s) of the Units against the transfer of Units and any other voting
securities of the Seller Partnership that Partner owns beneficially or
otherwise. Partner agrees to vote (or cause to be voted) all Units, and any
other voting securities of the Seller Partnership, owned by Partner whether
issued heretofore or hereafter, that such person owns or has the right to vote,
against (i) any recapitalization, merger, consolidation, sale of assets or other
business combination or similar transaction involving the Seller Partnership or
any of its Subsidiaries, securities or assets other than the Partnership Merger
or other transaction with SHP and (ii) any other action or agreement that would
result in a breach of any covenant, representation or warranty or any other
obligation or agreement of the Seller Partnership under the Partnership Merger
Agreement or which could result in any of the conditions to the Seller
Partnership's obligations under the Partnership Merger Agreement not being
fulfilled.
c. Partner agrees not, directly or indirectly, to solicit or authorize
any person to solicit, any inquiries or proposals from any person other than SHP
relating to the merger or consolidation of the Seller Partnership with any
person other than SHP or its Affiliates, or the acquisition of the Seller
Partnership's or any of its significant subsidiaries' voting securities by, or
the direct or indirect acquisition or disposition of a significant amount of
assets of the Seller Partnership or any of its significant subsidiaries
otherwise than in the ordinary course of business of the Seller Partnership or
such significant subsidiary, from or to any person other than SHP or its
Affiliates or directly or indirectly enter into or continue any discussions,
negotiations or agreements relating to, or vote (or cause to be voted) in favor
of, any such transaction.
d. Partner agrees to promptly notify the Seller Partnership and SHP in
writing of the nature and amount of any acquisition by Partner after the date
hereof of any voting securities of the Seller Partnership.
Section 2. Additional Representations and Warranties of Partner.
Partner represents and warrants to the Seller Partnership and SHP as follows:
Partner has all necessary power and authority to execute and deliver this
Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by Partner. Assuming the due authorization,
161
execution and delivery of this Agreement by the Seller Partnership, this
Agreement constitutes the valid and binding agreement of Partner enforceable
against Partner in accordance with its terms, except as may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium and other similar
laws of general application which may affect the enforcement of creditors'
rights generally and by general equitable principles. The Units of Partner are
the only voting securities of the Seller Partnership owned (beneficially or of
record) by Partner and are owned free and clear of all liens, charges,
encumbrances, restrictions and commitments of any kind other than the
Contribution Agreement, this Agreement and the Consents. Partner has not
appointed or granted any irrevocable proxy, which appointment or grant is still
effective, with respect to the Units. The execution and delivery of this
Agreement by Partner does not (a) conflict with or violate any agreement, law,
rule, regulation, order, judgment or decision or other instrument binding upon
it, nor require any consent, notification, regulatory filing or approval which
has not been obtained or (b) result in any breach of or constitute a default (or
an event that with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of a lien or encumbrance on any of
the Units owned by Partner pursuant to, any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument or
obligation to which Partner is a party or by which Partner or the Units owned by
Partner are bound or affected. Partner acknowledges that the restrictions
imposed upon it are so imposed only in Partner's capacity as a partner of the
Seller Partnership.
Section 3. Representations and Warranties of the Seller Partnership.
The Seller Partnership represents and warrants to Partner as follows: each of
(i) this Agreement, (ii) the Partnership Merger Agreement and (iii) the
Amendments has been approved by the Board of Directors of the general partner of
Seller Partnership. Each of this Agreement and the Partnership Merger Agreement
has been duly executed and delivered by a duly authorized officer of the Seller
Partnership. Assuming the due authorization, execution and delivery of this
Agreement by Partner, each of this Agreement and the Partnership Merger
Agreement constitutes a valid and binding agreement of the Seller Partnership,
enforceable against the Seller Partnership in accordance with its terms, except
as may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium and other similar laws of general application which may affect the
enforcement of creditors' rights generally and by general equitable principles.
Section 4. Further Assurances. Each party shall execute and deliver
such additional instruments and other documents and shall take such further
actions as may be necessary or appropriate to effectuate, carry out and comply
with all of their obligations under this Agreement. Without limiting the
generality of the foregoing, neither of the parties hereto shall enter into any
agreement or arrangement (or alter, amend or terminate any existing agreement or
arrangement) if such action would materially impair the ability of either party
to effectuate, carry out or comply with all the terms of this Agreement.
162
Section 5. Effectiveness and Termination. It is a condition precedent
to the effectiveness of this Agreement that the Partnership Merger Agreement
shall have been executed and delivered and be in full force and effect. This
Agreement shall automatically terminate and be of no further force or effect
upon the earlier termination of the Partnership Merger Agreement in accordance
with its terms. Upon any termination of this Agreement, except for any rights
either party may have in respect of any breach by either party of its
obligations hereunder, none of the parties hereto shall have any further
obligation or liability hereunder. The provisions of Section 1 of this Agreement
shall terminate and be of no further force or effect from and after the
Effective Time of the Partnership Merger.
Section 6. Covenants of Partner Not to Enter Into Inconsistent
Agreements. Partner hereby agrees that, except as contemplated by this
Agreement, the Consents and the Partnership Merger Agreement, Partner shall not
enter into any voting agreement or grant an irrevocable proxy or power of
attorney with respect to the Units which is inconsistent with this Agreement.
Section 7. Miscellaneous.
a. Notices, Etc. All notices, requests, demands or other communications
required by or otherwise given with respect to this Agreement shall be in
writing and shall be deemed to have been duly given to either party when
delivered personally (by courier service or otherwise), when delivered by
telecopy and confirmed by return telecopy, or seven days after being mailed by
first-class mail, postage prepaid in each case to the applicable addresses set
forth below:
If to the Seller Partnership:
Sunstone Hotel Investors, L.P.
903 Calle Amanecer
San Clemente, CA 92673-6212
Attention: Chief Operating Officer
Facsimile: 949-369-4230
with a copy to:
Altheimer & Gray
10 South Wacker Drive
Suite 4000
Chicago, Illinois 60606
Attention: Phillip Gordon
Facsimile: 312-715-4800
If to Westbrook or SHP:
163
Westbrook Real Estate Partners L.L.C.
599 Lexington Avenue
Suite 3800
New York, New York 10022
Attention: Jonathan H. Paul
Facsimile: 212-849-8801
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017-3954
Attention: Richard Capelouto
Brian Stadler
Facsimile: 212-455- 2502
If to Partner, at its address set forth on the unitholder ledger maintained by
the transfer agent of Seller Partnership with respect to the Seller Partnership;
or to such other address as such party shall have designated by notice so given
to each other party.
b. Amendments, Waivers, Etc. This Agreement may not be amended,
changed, supplemented, waived or otherwise modified or terminated except by an
instrument in writing signed by the Seller Partnership, SHP and Partner.
c. Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of and be enforceable by the parties and their
respective successors and assigns, including without limitation any corporate
successor by merger or otherwise. Notwithstanding any transfer of Units, the
transferor shall remain liable for the performance of all obligations of the
transferor under this Agreement.
d. Entire Agreement. This Agreement (together with the Partnership
Merger Agreement and the documents referred to therein and the Consents)
embodies the entire agreement and understanding among the parties relating to
the subject matter hereof and supersedes all prior agreements and understandings
relating to such subject matter. There are no representations, warranties or
covenants by the parties hereto relating to such subject matter other than those
expressly set forth in this Agreement, the Partnership Merger Agreement and the
documents referred to therein.
164
e. Severability. If any term of this Agreement or the application
thereof to either party or circumstance shall be held invalid or unenforceable
to any extent, the remainder of this Agreement and the application of such term
to the other parties or circumstances shall not be affected thereby and shall be
enforced to the greatest extent permitted by applicable law; provided that in
such event the parties shall negotiate in good faith in an attempt to agree to
another provision (in lieu of the term or application held to be invalid or
unenforceable) that will be valid and enforceable and will carry out the
parties' intentions hereunder.
f. Specific Performance. The parties acknowledge that money damages are
not an adequate remedy for violations of this Agreement and that either party
may, in its sole discretion, apply to a court of competent jurisdiction for
specific performance or injunction or such other relief as such court may deem
just and proper in order to enforce this Agreement or prevent any violation
hereof and, to the extent permitted by applicable law, each party waives any
objection to the imposition of such relief.
g. Remedies Cumulative. All rights, powers and remedies provided under
this Agreement or otherwise available in respect hereof at law or in equity
shall be cumulative and not alternative, and the exercise or beginning of the
exercise of any thereof by either party shall not preclude the simultaneous or
later exercise of any other such rights, power or remedy by such party.
h. No Waiver. The failure of either party hereto to exercise any right,
power or remedy provided under this Agreement or otherwise available in respect
hereof at law or in equity, or to insist upon compliance by the other party
hereto with its obligations hereunder, and any custom or practice of the parties
at variance with the terms hereof, shall not constitute a waiver by such party
of its right to exercise any such or other right, power or remedy or to demand
such compliance.
i. No Third Party Beneficiaries. This Agreement is not intended to be
for the benefit of and shall not be enforceable by any person or entity who or
which is not a party hereto.
j. Jurisdiction. Each party hereby irrevocably submits to the exclusive
jurisdiction of the Court of Chancery in the State of Delaware in any action,
suit or proceeding arising in connection with this Agreement, and agrees that
any such action, suit or proceeding shall be brought only in such court (and
waives any objection based on forum non conveniens or any other objection to
venue therein) provided, however, that such consent to jurisdiction is solely
for the purpose referred to in this paragraph (j) and shall not be deemed to be
in general submission to the jurisdiction of said Court or in the State of
Delaware other than for such purposes. Each party hereto waives any right to a
trial by jury in connection with any such action, suit or proceeding.
165
k. Governing Law. This Agreement and all disputes hereunder shall be
governed by and construed and enforced in accordance with the laws of the State
of Delaware.
l. Name, Captions, Gender. The name assigned this Agreement and the
section captions used herein are for convenience of reference only and shall not
affect the interpretation or construction hereof. Whenever the context may
require, any pronoun used herein shall include the corresponding masculine,
feminine or neuter forms.
m. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one instrument. Each counterpart may consist of a
number of copies each signed by less than all, but together signed by all, the
parties hereto.
n. Expenses. Each party shall bear its own expenses incurred in
connection with this Agreement and the transactions contemplated hereby.
o. Beneficial Ownership. For purposes of this Voting Agreement,
beneficial ownership shall be determined as set forth in Rule 13d-3 under the
Securities Exchange Act of 1934, as amended.
166
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first above written.
RIVERSIDE HOTEL PARTNERS, INC.
By:/s/ Robert A. Alter
------------------------------------
Name: Robert A. Alter
Title: President
SHP ACQUISITION, L.L.C.
By:/s/ Paul Kazilionis
------------------------------------
Name: Paul Kazilionis
Title: Manager
SUNSTONE HOTEL INVESTORS, L.P.
By:/s/ R. Terrence Crowley
------------------------------------
Name: R. Terrence Crowley
Title: Authorized Signatory
167
VOTING AGREEMENT
VOTING AGREEMENT, dated as of July 12, 1999 ("Agreement"), by and among
Enever Routt Investment Group Ltd., a Colorado limited partnership, in its
capacity as a partner ("Partner") of Sunstone Hotel Investors, L.P., a Delaware
partnership (the "Seller Partnership"), SHP Acquisition, L.L.C., a Delaware
limited liability company ("SHP"), and the Seller Partnership.
WHEREAS, concurrently herewith, SHP, SHP OP, LLC, a Delaware limited
liability company, and the Seller Partnership are entering into an Agreement and
Plan of Merger dated July, 12, 1999 (the "Partnership Merger Agreement";
capitalized terms used without definition herein having the meanings ascribed
thereto in the Partnership Merger Agreement);
WHEREAS, Partner is as of the date hereof the beneficial owner of
100,254 common partnership units of Seller Partnership ("Common Units") and 0
units of 7.9% Class A Cumulative Convertible Preferred Partnership Units of the
Seller Partnership ("Preferred Units" and, collectively with the Common Units,
but excluding any Common Units or Preferred Units issuable (but not yet issued)
upon conversion of any securities convertible into Common Units or Preferred
Units, the "Units");
WHEREAS, approval of the Partnership Merger Agreement by the Seller
Partnership's partners is a condition to the consummation of the Partnership
Merger;
WHEREAS, as a condition to its entering into the Partnership Merger
Agreement, each of the Seller Partnership and SHP has required that Partner
agrees, and Partner has agreed, to enter into this Agreement; and
WHEREAS, Partner has been informed that the Board of Directors of the
general partner of Seller Partnership has approved the Partnership Merger
Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements set forth herein, the parties hereto agree as follows:
Section 1. Agreement to Vote, Restrictions on Dispositions, Etc.
a. Partner hereby agrees to attend any partners meeting of the Seller
Partnership, in person or by proxy, and to vote (or cause to be voted) all
Units, and any other voting securities of the Seller Partnership, owned by
Partner whether issued heretofore or hereafter, that such person owns or has the
right to vote, (i) for approval and adoption of the Partnership Merger Agreement
and the Partnership Merger, and the transactions contemplated by the Partnership
Merger Agreement and (ii) for approval and adoption of the amendments to the
Second Amended and Restated Agreement of Limited Partnership of Seller
Partnership attached as Exhibit A to the Consents (as defined below) (the
"Amendments"), such agreements to vote to apply also to any adjournment of such
partner meeting of the Seller Partnership.
168
Partner agrees not to grant any proxies or enter into any voting agreement or
arrangement inconsistent with this Agreement or the two consents of even date
herewith executed by Partner (the "Consents"). Partner agrees to deliver the
executed Consents to SHP, at the request of SHP, and Partner agrees not to
rescind, modify or withdraw the Consents.
b. Partner hereby agrees that, without the prior written consent of the
Seller Partnership, except as provided in the Contribution Agreement, Partner
shall not, directly or indirectly, sell, offer to sell, grant any option for the
sale of or otherwise transfer or dispose of, or enter into any agreement to
sell, any Units and any other voting securities of the Seller Partnership that
Partner owns beneficially or otherwise. Partner agrees that the Seller
Partnership may enter stop transfer orders with the transfer agent(s) and the
registrar(s) of the Units against the transfer of Units and any other voting
securities of the Seller Partnership that Partner owns beneficially or
otherwise. Partner agrees to vote (or cause to be voted) all Units, and any
other voting securities of the Seller Partnership, owned by Partner whether
issued heretofore or hereafter, that such person owns or has the right to vote,
against (i) any recapitalization, merger, consolidation, sale of assets or other
business combination or similar transaction involving the Seller Partnership or
any of its Subsidiaries, securities or assets other than the Partnership Merger
or other transaction with SHP and (ii) any other action or agreement that would
result in a breach of any covenant, representation or warranty or any other
obligation or agreement of the Seller Partnership under the Partnership Merger
Agreement or which could result in any of the conditions to the Seller
Partnership's obligations under the Partnership Merger Agreement not being
fulfilled.
c. Partner agrees not, directly or indirectly, to solicit or authorize
any person to solicit, any inquiries or proposals from any person other than SHP
relating to the merger or consolidation of the Seller Partnership with any
person other than SHP or its Affiliates, or the acquisition of the Seller
Partnership's or any of its significant subsidiaries' voting securities by, or
the direct or indirect acquisition or disposition of a significant amount of
assets of the Seller Partnership or any of its significant subsidiaries
otherwise than in the ordinary course of business of the Seller Partnership or
such significant subsidiary, from or to any person other than SHP or its
Affiliates or directly or indirectly enter into or continue any discussions,
negotiations or agreements relating to, or vote (or cause to be voted) in favor
of, any such transaction.
d. Partner agrees to promptly notify the Seller Partnership and SHP in
writing of the nature and amount of any acquisition by Partner after the date
hereof of any voting securities of the Seller Partnership.
Section 2. Additional Representations and Warranties of Partner.
Partner represents and warrants to the Seller Partnership and SHP as follows:
Partner has all necessary power and authority to execute and deliver this
Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by Partner. Assuming the due authorization,
169
execution and delivery of this Agreement by the Seller Partnership, this
Agreement constitutes the valid and binding agreement of Partner enforceable
against Partner in accordance with its terms, except as may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium and other similar
laws of general application which may affect the enforcement of creditors'
rights generally and by general equitable principles. The Units of Partner are
the only voting securities of the Seller Partnership owned (beneficially or of
record) by Partner and are owned free and clear of all liens, charges,
encumbrances, restrictions and commitments of any kind other than the
Contribution Agreement, this Agreement and the Consents. Partner has not
appointed or granted any irrevocable proxy, which appointment or grant is still
effective, with respect to the Units. The execution and delivery of this
Agreement by Partner does not (a) conflict with or violate any agreement, law,
rule, regulation, order, judgment or decision or other instrument binding upon
it, nor require any consent, notification, regulatory filing or approval which
has not been obtained or (b) result in any breach of or constitute a default (or
an event that with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of a lien or encumbrance on any of
the Units owned by Partner pursuant to, any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument or
obligation to which Partner is a party or by which Partner or the Units owned by
Partner are bound or affected. Partner acknowledges that the restrictions
imposed upon it are so imposed only in Partner's capacity as a partner of the
Seller Partnership.
Section 3. Representations and Warranties of the Seller Partnership.
The Seller Partnership represents and warrants to Partner as follows: each of
(i) this Agreement, (ii) the Partnership Merger Agreement and (iii) the
Amendments has been approved by the Board of Directors of the general partner of
Seller Partnership. Each of this Agreement and the Partnership Merger Agreement
has been duly executed and delivered by a duly authorized officer of the Seller
Partnership. Assuming the due authorization, execution and delivery of this
Agreement by Partner, each of this Agreement and the Partnership Merger
Agreement constitutes a valid and binding agreement of the Seller Partnership,
enforceable against the Seller Partnership in accordance with its terms, except
as may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium and other similar laws of general application which may affect the
enforcement of creditors' rights generally and by general equitable principles.
Section 4. Further Assurances. Each party shall execute and deliver
such additional instruments and other documents and shall take such further
actions as may be necessary or appropriate to effectuate, carry out and comply
with all of their obligations under this Agreement. Without limiting the
generality of the foregoing, neither of the parties hereto shall enter into any
agreement or arrangement (or alter, amend or terminate any existing agreement or
arrangement) if such action would materially impair the ability of either party
to effectuate, carry out or comply with all the terms of this Agreement.
170
Section 5. Effectiveness and Termination. It is a condition precedent
to the effectiveness of this Agreement that the Partnership Merger Agreement
shall have been executed and delivered and be in full force and effect. This
Agreement shall automatically terminate and be of no further force or effect
upon the earlier termination of the Partnership Merger Agreement in accordance
with its terms. Upon any termination of this Agreement, except for any rights
either party may have in respect of any breach by either party of its
obligations hereunder, none of the parties hereto shall have any further
obligation or liability hereunder. The provisions of Section 1 of this Agreement
shall terminate and be of no further force or effect from and after the
Effective Time of the Partnership Merger.
Section 6. Covenants of Partner Not to Enter Into Inconsistent
Agreements. Partner hereby agrees that, except as contemplated by this
Agreement, the Consents and the Partnership Merger Agreement, Partner shall not
enter into any voting agreement or grant an irrevocable proxy or power of
attorney with respect to the Units which is inconsistent with this Agreement.
Section 7. Miscellaneous.
a. Notices, Etc. All notices, requests, demands or other communications
required by or otherwise given with respect to this Agreement shall be in
writing and shall be deemed to have been duly given to either party when
delivered personally (by courier service or otherwise), when delivered by
telecopy and confirmed by return telecopy, or seven days after being mailed by
first-class mail, postage prepaid in each case to the applicable addresses set
forth below:
If to the Seller Partnership:
Sunstone Hotel Investors, L.P.
903 Calle Amanecer
San Clemente, CA 92673-6212
Attention: Chief Operating Officer
Facsimile: 949-369-4230
with a copy to:
Altheimer & Gray
10 South Wacker Drive
Suite 4000
Chicago, Illinois 60606
Attention: Phillip Gordon
Facsimile: 312-715-4800
If to Westbrook or SHP:
171
Westbrook Real Estate Partners L.L.C.
599 Lexington Avenue
Suite 3800
New York, New York 10022
Attention: Jonathan H. Paul
Facsimile: 212-849-8801
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017-3954
Attention: Richard Capelouto
Brian Stadler
Facsimile: 212-455- 2502
If to Partner, at its address set forth on the unitholder ledger maintained by
the transfer agent of Seller Partnership with respect to the Seller Partnership;
or to such other address as such party shall have designated by notice so given
to each other party.
b. Amendments, Waivers, Etc. This Agreement may not be amended,
changed, supplemented, waived or otherwise modified or terminated except by an
instrument in writing signed by the Seller Partnership, SHP and Partner.
c. Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of and be enforceable by the parties and their
respective successors and assigns, including without limitation any corporate
successor by merger or otherwise. Notwithstanding any transfer of Units, the
transferor shall remain liable for the performance of all obligations of the
transferor under this Agreement.
d. Entire Agreement. This Agreement (together with the Partnership
Merger Agreement and the documents referred to therein and the Consents)
embodies the entire agreement and understanding among the parties relating to
the subject matter hereof and supersedes all prior agreements and understandings
relating to such subject matter. There are no representations, warranties or
covenants by the parties hereto relating to such subject matter other than those
expressly set forth in this Agreement, the Partnership Merger Agreement and the
documents referred to therein.
172
e. Severability. If any term of this Agreement or the application
thereof to either party or circumstance shall be held invalid or unenforceable
to any extent, the remainder of this Agreement and the application of such term
to the other parties or circumstances shall not be affected thereby and shall be
enforced to the greatest extent permitted by applicable law; provided that in
such event the parties shall negotiate in good faith in an attempt to agree to
another provision (in lieu of the term or application held to be invalid or
unenforceable) that will be valid and enforceable and will carry out the
parties' intentions hereunder.
f. Specific Performance. The parties acknowledge that money damages are
not an adequate remedy for violations of this Agreement and that either party
may, in its sole discretion, apply to a court of competent jurisdiction for
specific performance or injunction or such other relief as such court may deem
just and proper in order to enforce this Agreement or prevent any violation
hereof and, to the extent permitted by applicable law, each party waives any
objection to the imposition of such relief.
g. Remedies Cumulative. All rights, powers and remedies provided under
this Agreement or otherwise available in respect hereof at law or in equity
shall be cumulative and not alternative, and the exercise or beginning of the
exercise of any thereof by either party shall not preclude the simultaneous or
later exercise of any other such rights, power or remedy by such party.
h. No Waiver. The failure of either party hereto to exercise any right,
power or remedy provided under this Agreement or otherwise available in respect
hereof at law or in equity, or to insist upon compliance by the other party
hereto with its obligations hereunder, and any custom or practice of the parties
at variance with the terms hereof, shall not constitute a waiver by such party
of its right to exercise any such or other right, power or remedy or to demand
such compliance.
i. No Third Party Beneficiaries. This Agreement is not intended to be
for the benefit of and shall not be enforceable by any person or entity who or
which is not a party hereto.
j. Jurisdiction. Each party hereby irrevocably submits to the exclusive
jurisdiction of the Court of Chancery in the State of Delaware in any action,
suit or proceeding arising in connection with this Agreement, and agrees that
any such action, suit or proceeding shall be brought only in such court (and
waives any objection based on forum non conveniens or any other objection to
venue therein) provided, however, that such consent to jurisdiction is solely
for the purpose referred to in this paragraph (j) and shall not be deemed to be
in general submission to the jurisdiction of said Court or in the State of
Delaware other than for such purposes. Each party hereto waives any right to a
trial by jury in connection with any such action, suit or proceeding.
173
k. Governing Law. This Agreement and all disputes hereunder shall be
governed by and construed and enforced in accordance with the laws of the State
of Delaware.
l. Name, Captions, Gender. The name assigned this Agreement and the
section captions used herein are for convenience of reference only and shall not
affect the interpretation or construction hereof. Whenever the context may
require, any pronoun used herein shall include the corresponding masculine,
feminine or neuter forms.
m. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one instrument. Each counterpart may consist of a
number of copies each signed by less than all, but together signed by all, the
parties hereto.
n. Expenses. Each party shall bear its own expenses incurred in
connection with this Agreement and the transactions contemplated hereby.
o. Beneficial Ownership. For purposes of this Voting Agreement,
beneficial ownership shall be determined as set forth in Rule 13d-3 under the
Securities Exchange Act of 1934, as amended.
174
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first above written.
ENEVER ROUTT INVESTMENT GROUP LTD
By:/s/ Robert Enever
------------------------------------
Name: Robert Enever
Title: General Partner
SHP ACQUISITION, L.L.C.
By:/s/ Paul Kazilionis
------------------------------------
Name: Paul Kazilionis
Title: Manager
SUNSTONE HOTEL INVESTORS, L.P.
By:/s/ R. Terrence Crowley
------------------------------------
Name: R. Terrence Crowley
Title: Authorized Signatory
175
VOTING AGREEMENT
VOTING AGREEMENT, dated as of July 12, 1999 ("Agreement"), by and
among Robert Enever and Audrey Enever jointly in their capacity as a partner
("Partner") of Sunstone Hotel Investors, L.P., a Delaware partnership (the
"Seller Partnership"), SHP Acquisition, L.L.C., a Delaware limited liability
company ("SHP"), and the Seller Partnership.
WHEREAS, concurrently herewith, SHP, SHP OP, LLC, a Delaware limited
liability company, and the Seller Partnership are entering into an Agreement and
Plan of Merger dated July, 12, 1999 (the "Partnership Merger Agreement";
capitalized terms used without definition herein having the meanings ascribed
thereto in the Partnership Merger Agreement);
WHEREAS, Partner is as of the date hereof the beneficial owner of
34,901 common partnership units of Seller Partnership ("Common Units") and 0
units of 7.9% Class A Cumulative Convertible Preferred Partnership Units of the
Seller Partnership ("Preferred Units" and, collectively with the Common Units,
but excluding any Common Units or Preferred Units issuable (but not yet issued)
upon conversion of any securities convertible into Common Units or Preferred
Units, the "Units");
WHEREAS, approval of the Partnership Merger Agreement by the Seller
Partnership's partners is a condition to the consummation of the Partnership
Merger;
WHEREAS, as a condition to its entering into the Partnership Merger
Agreement, each of the Seller Partnership and SHP has required that Partner
agrees, and Partner has agreed, to enter into this Agreement; and
WHEREAS, Partner has been informed that the Board of Directors of the
general partner of Seller Partnership has approved the Partnership Merger
Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements set forth herein, the parties hereto agree as follows:
Section 1. Agreement to Vote, Restrictions on Dispositions, Etc.
a. Partner hereby agrees to attend any partners meeting of the Seller
Partnership, in person or by proxy, and to vote (or cause to be voted) all
Units, and any other voting securities of the Seller Partnership, owned by
Partner whether issued heretofore or hereafter, that such person owns or has the
right to vote, (i) for approval and adoption of the Partnership Merger Agreement
and the Partnership Merger, and the transactions contemplated by the Partnership
Merger Agreement and (ii) for approval and adoption of the amendments to the
Second Amended and Restated Agreement of Limited Partnership of Seller
Partnership attached as Exhibit A to the Consents (as defined below) (the
"Amendments"), such agreements to vote to apply also to any adjournment of such
partner meeting of the Seller Partnership.
176
Partner agrees not to grant any proxies or enter into any voting agreement or
arrangement inconsistent with this Agreement or the two consents of even date
herewith executed by Partner (the "Consents"). Partner agrees to deliver the
executed Consents to SHP, at the request of SHP, and Partner agrees not to
rescind, modify or withdraw the Consents.
b. Partner hereby agrees that, without the prior written consent of the
Seller Partnership, except as provided in the Contribution Agreement, Partner
shall not, directly or indirectly, sell, offer to sell, grant any option for the
sale of or otherwise transfer or dispose of, or enter into any agreement to
sell, any Units and any other voting securities of the Seller Partnership that
Partner owns beneficially or otherwise. Partner agrees that the Seller
Partnership may enter stop transfer orders with the transfer agent(s) and the
registrar(s) of the Units against the transfer of Units and any other voting
securities of the Seller Partnership that Partner owns beneficially or
otherwise. Partner agrees to vote (or cause to be voted) all Units, and any
other voting securities of the Seller Partnership, owned by Partner whether
issued heretofore or hereafter, that such person owns or has the right to vote,
against (i) any recapitalization, merger, consolidation, sale of assets or other
business combination or similar transaction involving the Seller Partnership or
any of its Subsidiaries, securities or assets other than the Partnership Merger
or other transaction with SHP and (ii) any other action or agreement that would
result in a breach of any covenant, representation or warranty or any other
obligation or agreement of the Seller Partnership under the Partnership Merger
Agreement or which could result in any of the conditions to the Seller
Partnership's obligations under the Partnership Merger Agreement not being
fulfilled.
c. Partner agrees not, directly or indirectly, to solicit or authorize
any person to solicit, any inquiries or proposals from any person other than SHP
relating to the merger or consolidation of the Seller Partnership with any
person other than SHP or its Affiliates, or the acquisition of the Seller
Partnership's or any of its significant subsidiaries' voting securities by, or
the direct or indirect acquisition or disposition of a significant amount of
assets of the Seller Partnership or any of its significant subsidiaries
otherwise than in the ordinary course of business of the Seller Partnership or
such significant subsidiary, from or to any person other than SHP or its
Affiliates or directly or indirectly enter into or continue any discussions,
negotiations or agreements relating to, or vote (or cause to be voted) in favor
of, any such transaction.
d. Partner agrees to promptly notify the Seller Partnership and SHP in
writing of the nature and amount of any acquisition by Partner after the date
hereof of any voting securities of the Seller Partnership.
Section 2. Additional Representations and Warranties of Partner.
Partner represents and warrants to the Seller Partnership and SHP as follows:
Partner has all necessary power and authority to execute and deliver this
Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by Partner. Assuming the due authorization,
177
execution and delivery of this Agreement by the Seller Partnership, this
Agreement constitutes the valid and binding agreement of Partner enforceable
against Partner in accordance with its terms, except as may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium and other similar
laws of general application which may affect the enforcement of creditors'
rights generally and by general equitable principles. The Units of Partner are
the only voting securities of the Seller Partnership owned (beneficially or of
record) by Partner and are owned free and clear of all liens, charges,
encumbrances, restrictions and commitments of any kind other than the
Contribution Agreement, this Agreement and the Consents. Partner has not
appointed or granted any irrevocable proxy, which appointment or grant is still
effective, with respect to the Units. The execution and delivery of this
Agreement by Partner does not (a) conflict with or violate any agreement, law,
rule, regulation, order, judgment or decision or other instrument binding upon
it, nor require any consent, notification, regulatory filing or approval which
has not been obtained or (b) result in any breach of or constitute a default (or
an event that with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of a lien or encumbrance on any of
the Units owned by Partner pursuant to, any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument or
obligation to which Partner is a party or by which Partner or the Units owned by
Partner are bound or affected. Partner acknowledges that the restrictions
imposed upon it are so imposed only in Partner's capacity as a partner of the
Seller Partnership.
Section 3. Representations and Warranties of the Seller Partnership.
The Seller Partnership represents and warrants to Partner as follows: each of
(i) this Agreement, (ii) the Partnership Merger Agreement and (iii) the
Amendments has been approved by the Board of Directors of the general partner of
Seller Partnership. Each of this Agreement and the Partnership Merger Agreement
has been duly executed and delivered by a duly authorized officer of the Seller
Partnership. Assuming the due authorization, execution and delivery of this
Agreement by Partner, each of this Agreement and the Partnership Merger
Agreement constitutes a valid and binding agreement of the Seller Partnership,
enforceable against the Seller Partnership in accordance with its terms, except
as may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium and other similar laws of general application which may affect the
enforcement of creditors' rights generally and by general equitable principles.
Section 4. Further Assurances. Each party shall execute and deliver
such additional instruments and other documents and shall take such further
actions as may be necessary or appropriate to effectuate, carry out and comply
with all of their obligations under this Agreement. Without limiting the
generality of the foregoing, neither of the parties hereto shall enter into any
agreement or arrangement (or alter, amend or terminate any existing agreement or
arrangement) if such action would materially impair the ability of either party
to effectuate, carry out or comply with all the terms of this Agreement.
178
Section 5. Effectiveness and Termination. It is a condition precedent
to the effectiveness of this Agreement that the Partnership Merger Agreement
shall have been executed and delivered and be in full force and effect. This
Agreement shall automatically terminate and be of no further force or effect
upon the earlier termination of the Partnership Merger Agreement in accordance
with its terms. Upon any termination of this Agreement, except for any rights
either party may have in respect of any breach by either party of its
obligations hereunder, none of the parties hereto shall have any further
obligation or liability hereunder. The provisions of Section 1 of this Agreement
shall terminate and be of no further force or effect from and after the
Effective Time of the Partnership Merger.
Section 6. Covenants of Partner Not to Enter Into Inconsistent
Agreements. Partner hereby agrees that, except as contemplated by this
Agreement, the Consents and the Partnership Merger Agreement, Partner shall not
enter into any voting agreement or grant an irrevocable proxy or power of
attorney with respect to the Units which is inconsistent with this Agreement.
Section 7. Miscellaneous.
a. Notices, Etc. All notices, requests, demands or other communications
required by or otherwise given with respect to this Agreement shall be in
writing and shall be deemed to have been duly given to either party when
delivered personally (by courier service or otherwise), when delivered by
telecopy and confirmed by return telecopy, or seven days after being mailed by
first-class mail, postage prepaid in each case to the applicable addresses set
forth below:
If to the Seller Partnership:
Sunstone Hotel Investors, L.P.
903 Calle Amanecer
San Clemente, CA 92673-6212
Attention: Chief Operating Officer
Facsimile: 949-369-4230
with a copy to:
Altheimer & Gray
10 South Wacker Drive
Suite 4000
Chicago, Illinois 60606
Attention: Phillip Gordon
Facsimile: 312-715-4800
If to Westbrook or SHP:
179
Westbrook Real Estate Partners L.L.C.
599 Lexington Avenue
Suite 3800
New York, New York 10022
Attention: Jonathan H. Paul
Facsimile: 212-849-8801
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017-3954
Attention: Richard Capelouto
Brian Stadler
Facsimile: 212-455- 2502
If to Partner, at its address set forth on the unitholder ledger maintained by
the transfer agent of Seller Partnership with respect to the Seller Partnership;
or to such other address as such party shall have designated by notice so given
to each other party.
b. Amendments, Waivers, Etc. This Agreement may not be amended,
changed, supplemented, waived or otherwise modified or terminated except by an
instrument in writing signed by the Seller Partnership, SHP and Partner.
c. Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of and be enforceable by the parties and their
respective successors and assigns, including without limitation any corporate
successor by merger or otherwise. Notwithstanding any transfer of Units, the
transferor shall remain liable for the performance of all obligations of the
transferor under this Agreement.
d. Entire Agreement. This Agreement (together with the Partnership
Merger Agreement and the documents referred to therein and the Consents)
embodies the entire agreement and understanding among the parties relating to
the subject matter hereof and supersedes all prior agreements and understandings
relating to such subject matter. There are no representations, warranties or
covenants by the parties hereto relating to such subject matter other than those
expressly set forth in this Agreement, the Partnership Merger Agreement and the
documents referred to therein.
180
e. Severability. If any term of this Agreement or the application
thereof to either party or circumstance shall be held invalid or unenforceable
to any extent, the remainder of this Agreement and the application of such term
to the other parties or circumstances shall not be affected thereby and shall be
enforced to the greatest extent permitted by applicable law; provided that in
such event the parties shall negotiate in good faith in an attempt to agree to
another provision (in lieu of the term or application held to be invalid or
unenforceable) that will be valid and enforceable and will carry out the
parties' intentions hereunder.
f. Specific Performance. The parties acknowledge that money damages are
not an adequate remedy for violations of this Agreement and that either party
may, in its sole discretion, apply to a court of competent jurisdiction for
specific performance or injunction or such other relief as such court may deem
just and proper in order to enforce this Agreement or prevent any violation
hereof and, to the extent permitted by applicable law, each party waives any
objection to the imposition of such relief.
g. Remedies Cumulative. All rights, powers and remedies provided under
this Agreement or otherwise available in respect hereof at law or in equity
shall be cumulative and not alternative, and the exercise or beginning of the
exercise of any thereof by either party shall not preclude the simultaneous or
later exercise of any other such rights, power or remedy by such party.
h. No Waiver. The failure of either party hereto to exercise any right,
power or remedy provided under this Agreement or otherwise available in respect
hereof at law or in equity, or to insist upon compliance by the other party
hereto with its obligations hereunder, and any custom or practice of the parties
at variance with the terms hereof, shall not constitute a waiver by such party
of its right to exercise any such or other right, power or remedy or to demand
such compliance.
i. No Third Party Beneficiaries. This Agreement is not intended to be
for the benefit of and shall not be enforceable by any person or entity who or
which is not a party hereto.
j. Jurisdiction. Each party hereby irrevocably submits to the exclusive
jurisdiction of the Court of Chancery in the State of Delaware in any action,
suit or proceeding arising in connection with this Agreement, and agrees that
any such action, suit or proceeding shall be brought only in such court (and
waives any objection based on forum non conveniens or any other objection to
venue therein) provided, however, that such consent to jurisdiction is solely
for the purpose referred to in this paragraph (j) and shall not be deemed to be
in general submission to the jurisdiction of said Court or in the State of
Delaware other than for such purposes. Each party hereto waives any right to a
trial by jury in connection with any such action, suit or proceeding.
181
k. Governing Law. This Agreement and all disputes hereunder shall be
governed by and construed and enforced in accordance with the laws of the State
of Delaware.
l. Name, Captions, Gender. The name assigned this Agreement and the
section captions used herein are for convenience of reference only and shall not
affect the interpretation or construction hereof. Whenever the context may
require, any pronoun used herein shall include the corresponding masculine,
feminine or neuter forms.
m. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one instrument. Each counterpart may consist of a
number of copies each signed by less than all, but together signed by all, the
parties hereto.
n. Expenses. Each party shall bear its own expenses incurred in
connection with this Agreement and the transactions contemplated hereby.
o. Beneficial Ownership. For purposes of this Voting Agreement,
beneficial ownership shall be determined as set forth in Rule 13d-3 under the
Securities Exchange Act of 1934, as amended.
182
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first above written.
/s/ Robert Enever
-----------------------------------
Robert Enever
/s/ Audrey Enever
-----------------------------------
Audrey Enever
SHP ACQUISITION, L.L.C.
By:/s/ Paul Kazilionis
------------------------------------
Name: Paul Kazilionis
Title: Manager
SUNSTONE HOTEL INVESTORS, L.P.
By:/s/ R. Terrence Crowley
------------------------------------
Name: R. Terrence Crowley
Title: Authorized Person
183
VOTING AGREEMENT
VOTING AGREEMENT, dated as of July 12, 1999 ("Agreement"), by and
among Robert Enever in his capacity as a partner ("Partner") of Sunstone Hotel
Investors, L.P., a Delaware partnership (the "Seller Partnership"), SHP
Acquisition, L.L.C., a Delaware limited liability company ("SHP"), and the
Seller Partnership.
WHEREAS, concurrently herewith, SHP, SHP OP, LLC, a Delaware limited
liability company, and the Seller Partnership are entering into an Agreement and
Plan of Merger dated July 12, 1999 (the "Partnership Merger Agreement";
capitalized terms used without definition herein having the meanings ascribed
thereto in the Partnership Merger Agreement);
WHEREAS, Partner is as of the date hereof the beneficial owner of
26,148 common partnership units of Seller Partnership ("Common Units") and 0
units of 7.9% Class A Cumulative Convertible Preferred Partnership Units of the
Seller Partnership ("Preferred Units" and, collectively with the Common Units,
but excluding any Common Units or Preferred Units issuable (but not yet issued)
upon conversion of any securities convertible into Common Units or Preferred
Units, the "Units");
WHEREAS, approval of the Partnership Merger Agreement by the Seller
Partnership's partners is a condition to the consummation of the Partnership
Merger;
WHEREAS, as a condition to its entering into the Partnership Merger
Agreement, each of the Seller Partnership and SHP has required that Partner
agrees, and Partner has agreed, to enter into this Agreement; and
WHEREAS, Partner has been informed that the Board of Directors of the
general partner of Seller Partnership has approved the Partnership Merger
Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements set forth herein, the parties hereto agree as follows:
Section 1. Agreement to Vote, Restrictions on Dispositions, Etc.
a. Partner hereby agrees to attend any partners meeting of the Seller
Partnership, in person or by proxy, and to vote (or cause to be voted) all
Units, and any other voting securities of the Seller Partnership, owned by
Partner whether issued heretofore or hereafter, that such person owns or has the
right to vote, (i) for approval and adoption of the Partnership Merger Agreement
and the Partnership Merger, and the transactions contemplated by the Partnership
Merger Agreement and (ii) for approval and adoption of the amendments to the
Second Amended and Restated Agreement of Limited Partnership of Seller
Partnership attached as Exhibit A to the Consents (as defined below) (the
"Amendments"), such agreements to vote to apply also to any adjournment of such
partner meeting of the Seller Partnership.
184
Partner agrees not to grant any proxies or enter into any voting agreement or
arrangement inconsistent with this Agreement or the two consents of even date
herewith executed by Partner (the "Consents"). Partner agrees to deliver the
executed Consents to SHP, at the request of SHP, and Partner agrees not to
rescind, modify or withdraw the Consents.
b. Partner hereby agrees that, without the prior written consent of the
Seller Partnership, except as provided in the Contribution Agreement, Partner
shall not, directly or indirectly, sell, offer to sell, grant any option for the
sale of or otherwise transfer or dispose of, or enter into any agreement to
sell, any Units and any other voting securities of the Seller Partnership that
Partner owns beneficially or otherwise. Partner agrees that the Seller
Partnership may enter stop transfer orders with the transfer agent(s) and the
registrar(s) of the Units against the transfer of Units and any other voting
securities of the Seller Partnership that Partner owns beneficially or
otherwise. Partner agrees to vote (or cause to be voted) all Units, and any
other voting securities of the Seller Partnership, owned by Partner whether
issued heretofore or hereafter, that such person owns or has the right to vote,
against (i) any recapitalization, merger, consolidation, sale of assets or other
business combination or similar transaction involving the Seller Partnership or
any of its Subsidiaries, securities or assets other than the Partnership Merger
or other transaction with SHP and (ii) any other action or agreement that would
result in a breach of any covenant, representation or warranty or any other
obligation or agreement of the Seller Partnership under the Partnership Merger
Agreement or which could result in any of the conditions to the Seller
Partnership's obligations under the Partnership Merger Agreement not being
fulfilled.
c. Partner agrees not, directly or indirectly, to solicit or authorize
any person to solicit, any inquiries or proposals from any person other than SHP
relating to the merger or consolidation of the Seller Partnership with any
person other than SHP or its Affiliates, or the acquisition of the Seller
Partnership's or any of its significant subsidiaries' voting securities by, or
the direct or indirect acquisition or disposition of a significant amount of
assets of the Seller Partnership or any of its significant subsidiaries
otherwise than in the ordinary course of business of the Seller Partnership or
such significant subsidiary, from or to any person other than SHP or its
Affiliates or directly or indirectly enter into or continue any discussions,
negotiations or agreements relating to, or vote (or cause to be voted) in favor
of, any such transaction.
d. Partner agrees to promptly notify the Seller Partnership and SHP in
writing of the nature and amount of any acquisition by Partner after the date
hereof of any voting securities of the Seller Partnership.
Section 2. Additional Representations and Warranties of Partner.
Partner represents and warrants to the Seller Partnership and SHP as follows:
Partner has all necessary power and authority to execute and deliver this
Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by Partner. Assuming the due authorization,
185
execution and delivery of this Agreement by the Seller Partnership, this
Agreement constitutes the valid and binding agreement of Partner enforceable
against Partner in accordance with its terms, except as may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium and other similar
laws of general application which may affect the enforcement of creditors'
rights generally and by general equitable principles. The Units of Partner are
the only voting securities of the Seller Partnership owned (beneficially or of
record) by Partner and are owned free and clear of all liens, charges,
encumbrances, restrictions and commitments of any kind other than the
Contribution Agreement, this Agreement and the Consents. Partner has not
appointed or granted any irrevocable proxy, which appointment or grant is still
effective, with respect to the Units. The execution and delivery of this
Agreement by Partner does not (a) conflict with or violate any agreement, law,
rule, regulation, order, judgment or decision or other instrument binding upon
it, nor require any consent, notification, regulatory filing or approval which
has not been obtained or (b) result in any breach of or constitute a default (or
an event that with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of a lien or encumbrance on any of
the Units owned by Partner pursuant to, any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument or
obligation to which Partner is a party or by which Partner or the Units owned by
Partner are bound or affected. Partner acknowledges that the restrictions
imposed upon it are so imposed only in Partner's capacity as a partner of the
Seller Partnership.
Section 3. Representations and Warranties of the Seller Partnership.
The Seller Partnership represents and warrants to Partner as follows: each of
(i) this Agreement, (ii) the Partnership Merger Agreement and (iii) the
Amendments has been approved by the Board of Directors of the general partner of
Seller Partnership. Each of this Agreement and the Partnership Merger Agreement
has been duly executed and delivered by a duly authorized officer of the Seller
Partnership. Assuming the due authorization, execution and delivery of this
Agreement by Partner, each of this Agreement and the Partnership Merger
Agreement constitutes a valid and binding agreement of the Seller Partnership,
enforceable against the Seller Partnership in accordance with its terms, except
as may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium and other similar laws of general application which may affect the
enforcement of creditors' rights generally and by general equitable principles.
Section 4. Further Assurances. Each party shall execute and deliver
such additional instruments and other documents and shall take such further
actions as may be necessary or appropriate to effectuate, carry out and comply
with all of their obligations under this Agreement. Without limiting the
generality of the foregoing, neither of the parties hereto shall enter into any
agreement or arrangement (or alter, amend or terminate any existing agreement or
arrangement) if such action would materially impair the ability of either party
to effectuate, carry out or comply with all the terms of this Agreement.
186
Section 5. Effectiveness and Termination. It is a condition precedent
to the effectiveness of this Agreement that the Partnership Merger Agreement
shall have been executed and delivered and be in full force and effect. This
Agreement shall automatically terminate and be of no further force or effect
upon the earlier termination of the Partnership Merger Agreement in accordance
with its terms. Upon any termination of this Agreement, except for any rights
either party may have in respect of any breach by either party of its
obligations hereunder, none of the parties hereto shall have any further
obligation or liability hereunder. The provisions of Section 1 of this Agreement
shall terminate and be of no further force or effect from and after the
Effective Time of the Partnership Merger.
Section 6. Covenants of Partner Not to Enter Into Inconsistent
Agreements. Partner hereby agrees that, except as contemplated by this
Agreement, the Consents and the Partnership Merger Agreement, Partner shall not
enter into any voting agreement or grant an irrevocable proxy or power of
attorney with respect to the Units which is inconsistent with this Agreement.
Section 7. Miscellaneous.
a. Notices, Etc. All notices, requests, demands or other communications
required by or otherwise given with respect to this Agreement shall be in
writing and shall be deemed to have been duly given to either party when
delivered personally (by courier service or otherwise), when delivered by
telecopy and confirmed by return telecopy, or seven days after being mailed by
first-class mail, postage prepaid in each case to the applicable addresses set
forth below:
If to the Seller Partnership:
Sunstone Hotel Investors, L.P.
903 Calle Amanecer
San Clemente, CA 92673-6212
Attention: Chief Operating Officer
Facsimile: 949-369-4230
with a copy to:
Altheimer & Gray
10 South Wacker Drive
Suite 4000
Chicago, Illinois 60606
Attention: Phillip Gordon
Facsimile: 312-715-4800
If to Westbrook or SHP:
187
Westbrook Real Estate Partners L.L.C.
599 Lexington Avenue
Suite 3800
New York, New York 10022
Attention: Jonathan H. Paul
Facsimile: 212-849-8801
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017-3954
Attention: Richard Capelouto
Brian Stadler
Facsimile: 212-455- 2502
If to Partner, at its address set forth on the unitholder ledger maintained by
the transfer agent of Seller Partnership with respect to the Seller Partnership;
or to such other address as such party shall have designated by notice so given
to each other party.
b. Amendments, Waivers, Etc. This Agreement may not be amended,
changed, supplemented, waived or otherwise modified or terminated except by an
instrument in writing signed by the Seller Partnership, SHP and Partner.
c. Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of and be enforceable by the parties and their
respective successors and assigns, including without limitation any corporate
successor by merger or otherwise. Notwithstanding any transfer of Units, the
transferor shall remain liable for the performance of all obligations of the
transferor under this Agreement.
d. Entire Agreement. This Agreement (together with the Partnership
Merger Agreement and the documents referred to therein and the Consents)
embodies the entire agreement and understanding among the parties relating to
the subject matter hereof and supersedes all prior agreements and understandings
relating to such subject matter. There are no representations, warranties or
covenants by the parties hereto relating to such subject matter other than those
expressly set forth in this Agreement, the Partnership Merger Agreement and the
documents referred to therein.
188
e. Severability. If any term of this Agreement or the application
thereof to either party or circumstance shall be held invalid or unenforceable
to any extent, the remainder of this Agreement and the application of such term
to the other parties or circumstances shall not be affected thereby and shall be
enforced to the greatest extent permitted by applicable law; provided that in
such event the parties shall negotiate in good faith in an attempt to agree to
another provision (in lieu of the term or application held to be invalid or
unenforceable) that will be valid and enforceable and will carry out the
parties' intentions hereunder.
f. Specific Performance. The parties acknowledge that money damages are
not an adequate remedy for violations of this Agreement and that either party
may, in its sole discretion, apply to a court of competent jurisdiction for
specific performance or injunction or such other relief as such court may deem
just and proper in order to enforce this Agreement or prevent any violation
hereof and, to the extent permitted by applicable law, each party waives any
objection to the imposition of such relief.
g. Remedies Cumulative. All rights, powers and remedies provided under
this Agreement or otherwise available in respect hereof at law or in equity
shall be cumulative and not alternative, and the exercise or beginning of the
exercise of any thereof by either party shall not preclude the simultaneous or
later exercise of any other such rights, power or remedy by such party.
h. No Waiver. The failure of either party hereto to exercise any right,
power or remedy provided under this Agreement or otherwise available in respect
hereof at law or in equity, or to insist upon compliance by the other party
hereto with its obligations hereunder, and any custom or practice of the parties
at variance with the terms hereof, shall not constitute a waiver by such party
of its right to exercise any such or other right, power or remedy or to demand
such compliance.
i. No Third Party Beneficiaries. This Agreement is not intended to be
for the benefit of and shall not be enforceable by any person or entity who or
which is not a party hereto.
j. Jurisdiction. Each party hereby irrevocably submits to the exclusive
jurisdiction of the Court of Chancery in the State of Delaware in any action,
suit or proceeding arising in connection with this Agreement, and agrees that
any such action, suit or proceeding shall be brought only in such court (and
waives any objection based on forum non conveniens or any other objection to
venue therein) provided, however, that such consent to jurisdiction is solely
for the purpose referred to in this paragraph (j) and shall not be deemed to be
in general submission to the jurisdiction of said Court or in the State of
Delaware other than for such purposes. Each party hereto waives any right to a
trial by jury in connection with any such action, suit or proceeding.
189
k. Governing Law. This Agreement and all disputes hereunder shall be
governed by and construed and enforced in accordance with the laws of the State
of Delaware.
l. Name, Captions, Gender. The name assigned this Agreement and the
section captions used herein are for convenience of reference only and shall not
affect the interpretation or construction hereof. Whenever the context may
require, any pronoun used herein shall include the corresponding masculine,
feminine or neuter forms.
m. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one instrument. Each counterpart may consist of a
number of copies each signed by less than all, but together signed by all, the
parties hereto.
n. Expenses. Each party shall bear its own expenses incurred in
connection with this Agreement and the transactions contemplated hereby.
o. Beneficial Ownership. For purposes of this Voting Agreement,
beneficial ownership shall be determined as set forth in Rule 13d-3 under the
Securities Exchange Act of 1934, as amended.
190
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first above written.
/s/ Robert Enever
-----------------------------------
Robert Enever
SHP ACQUISITION, L.L.C.
By:/s/ Paul Kazilionis
------------------------------------
Name: Paul Kazilionis
Title: Manager
SUNSTONE HOTEL INVESTORS, L.P.
By:/s/ R. Terrence Crowley
------------------------------------
Name: R. Terrence Crowley
Title: Authorized Signatory
191
VOTING AGREEMENT
VOTING AGREEMENT, dated as of July 12, 1999 ("Agreement"), by and
among Audrey Enever in her capacity as a partner ("Partner") of
Sunstone Hotel Investors, L.P., a Delaware partnership (the "Seller
Partnership"), SHP Acquisition, L.L.C., a Delaware limited liability company
("SHP"), and the Seller Partnership.
WHEREAS, concurrently herewith, SHP, SHP OP, LLC, a Delaware limited
liability company, and the Seller Partnership are entering into an Agreement and
Plan of Merger dated July, 12, 1999 (the "Partnership Merger Agreement";
capitalized terms used without definition herein having the meanings ascribed
thereto in the Partnership Merger Agreement);
WHEREAS, Partner is as of the date hereof the beneficial owner of
20,799 common partnership units of Seller Partnership ("Common Units") and 0
units of 7.9% Class A Cumulative Convertible Preferred Partnership Units of the
Seller Partnership ("Preferred Units" and, collectively with the Common Units,
but excluding any Common Units or Preferred Units issuable (but not yet issued)
upon conversion of any securities convertible into Common Units or Preferred
Units, the "Units");
WHEREAS, approval of the Partnership Merger Agreement by the Seller
Partnership's partners is a condition to the consummation of the Partnership
Merger;
WHEREAS, as a condition to its entering into the Partnership Merger
Agreement, each of the Seller Partnership and SHP has required that Partner
agrees, and Partner has agreed, to enter into this Agreement; and
WHEREAS, Partner has been informed that the Board of Directors of the
general partner of Seller Partnership has approved the Partnership Merger
Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements set forth herein, the parties hereto agree as follows:
Section 1. Agreement to Vote, Restrictions on Dispositions, Etc.
a. Partner hereby agrees to attend any partners meeting of the Seller
Partnership, in person or by proxy, and to vote (or cause to be voted) all
Units, and any other voting securities of the Seller Partnership, owned by
Partner whether issued heretofore or hereafter, that such person owns or has the
right to vote, (i) for approval and adoption of the Partnership Merger Agreement
and the Partnership Merger, and the transactions contemplated by the Partnership
Merger Agreement and (ii) for approval and adoption of the amendments to the
Second Amended and Restated Agreement of Limited Partnership of Seller
Partnership attached as Exhibit A to the Consents (as defined below) (the
"Amendments"), such agreements to vote to apply also to any adjournment of such
partner meeting of the Seller Partnership.
192
Partner agrees not to grant any proxies or enter into any voting agreement or
arrangement inconsistent with this Agreement or the two consents of even date
herewith executed by Partner (the "Consents"). Partner agrees to deliver the
executed Consents to SHP, at the request of SHP, and Partner agrees not to
rescind, modify or withdraw the Consents.
b. Partner hereby agrees that, without the prior written consent of the
Seller Partnership, except as provided in the Contribution Agreement, Partner
shall not, directly or indirectly, sell, offer to sell, grant any option for the
sale of or otherwise transfer or dispose of, or enter into any agreement to
sell, any Units and any other voting securities of the Seller Partnership that
Partner owns beneficially or otherwise. Partner agrees that the Seller
Partnership may enter stop transfer orders with the transfer agent(s) and the
registrar(s) of the Units against the transfer of Units and any other voting
securities of the Seller Partnership that Partner owns beneficially or
otherwise. Partner agrees to vote (or cause to be voted) all Units, and any
other voting securities of the Seller Partnership, owned by Partner whether
issued heretofore or hereafter, that such person owns or has the right to vote,
against (i) any recapitalization, merger, consolidation, sale of assets or other
business combination or similar transaction involving the Seller Partnership or
any of its Subsidiaries, securities or assets other than the Partnership Merger
or other transaction with SHP and (ii) any other action or agreement that would
result in a breach of any covenant, representation or warranty or any other
obligation or agreement of the Seller Partnership under the Partnership Merger
Agreement or which could result in any of the conditions to the Seller
Partnership's obligations under the Partnership Merger Agreement not being
fulfilled.
c. Partner agrees not, directly or indirectly, to solicit or authorize
any person to solicit, any inquiries or proposals from any person other than SHP
relating to the merger or consolidation of the Seller Partnership with any
person other than SHP or its Affiliates, or the acquisition of the Seller
Partnership's or any of its significant subsidiaries' voting securities by, or
the direct or indirect acquisition or disposition of a significant amount of
assets of the Seller Partnership or any of its significant subsidiaries
otherwise than in the ordinary course of business of the Seller Partnership or
such significant subsidiary, from or to any person other than SHP or its
Affiliates or directly or indirectly enter into or continue any discussions,
negotiations or agreements relating to, or vote (or cause to be voted) in favor
of, any such transaction.
d. Partner agrees to promptly notify the Seller Partnership and SHP in
writing of the nature and amount of any acquisition by Partner after the date
hereof of any voting securities of the Seller Partnership.
Section 2. Additional Representations and Warranties of Partner.
Partner represents and warrants to the Seller Partnership and SHP as follows:
Partner has all necessary power and authority to execute and deliver this
Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by Partner. Assuming the due authorization,
193
execution and delivery of this Agreement by the Seller Partnership, this
Agreement constitutes the valid and binding agreement of Partner enforceable
against Partner in accordance with its terms, except as may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium and other similar
laws of general application which may affect the enforcement of creditors'
rights generally and by general equitable principles. The Units of Partner are
the only voting securities of the Seller Partnership owned (beneficially or of
record) by Partner and are owned free and clear of all liens, charges,
encumbrances, restrictions and commitments of any kind other than the
Contribution Agreement, this Agreement and the Consents. Partner has not
appointed or granted any irrevocable proxy, which appointment or grant is still
effective, with respect to the Units. The execution and delivery of this
Agreement by Partner does not (a) conflict with or violate any agreement, law,
rule, regulation, order, judgment or decision or other instrument binding upon
it, nor require any consent, notification, regulatory filing or approval which
has not been obtained or (b) result in any breach of or constitute a default (or
an event that with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of a lien or encumbrance on any of
the Units owned by Partner pursuant to, any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument or
obligation to which Partner is a party or by which Partner or the Units owned by
Partner are bound or affected. Partner acknowledges that the restrictions
imposed upon it are so imposed only in Partner's capacity as a partner of the
Seller Partnership.
Section 3. Representations and Warranties of the Seller Partnership.
The Seller Partnership represents and warrants to Partner as follows: each of
(i) this Agreement, (ii) the Partnership Merger Agreement and (iii) the
Amendments has been approved by the Board of Directors of the general partner of
Seller Partnership. Each of this Agreement and the Partnership Merger Agreement
has been duly executed and delivered by a duly authorized officer of the Seller
Partnership. Assuming the due authorization, execution and delivery of this
Agreement by Partner, each of this Agreement and the Partnership Merger
Agreement constitutes a valid and binding agreement of the Seller Partnership,
enforceable against the Seller Partnership in accordance with its terms, except
as may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium and other similar laws of general application which may affect the
enforcement of creditors' rights generally and by general equitable principles.
Section 4. Further Assurances. Each party shall execute and deliver
such additional instruments and other documents and shall take such further
actions as may be necessary or appropriate to effectuate, carry out and comply
with all of their obligations under this Agreement. Without limiting the
generality of the foregoing, neither of the parties hereto shall enter into any
agreement or arrangement (or alter, amend or terminate any existing agreement or
arrangement) if such action would materially impair the ability of either party
to effectuate, carry out or comply with all the terms of this Agreement.
194
Section 5. Effectiveness and Termination. It is a condition precedent
to the effectiveness of this Agreement that the Partnership Merger Agreement
shall have been executed and delivered and be in full force and effect. This
Agreement shall automatically terminate and be of no further force or effect
upon the earlier termination of the Partnership Merger Agreement in accordance
with its terms. Upon any termination of this Agreement, except for any rights
either party may have in respect of any breach by either party of its
obligations hereunder, none of the parties hereto shall have any further
obligation or liability hereunder. The provisions of Section 1 of this Agreement
shall terminate and be of no further force or effect from and after the
Effective Time of the Partnership Merger.
Section 6. Covenants of Partner Not to Enter Into Inconsistent
Agreements. Partner hereby agrees that, except as contemplated by this
Agreement, the Consents and the Partnership Merger Agreement, Partner shall not
enter into any voting agreement or grant an irrevocable proxy or power of
attorney with respect to the Units which is inconsistent with this Agreement.
Section 7. Miscellaneous.
a. Notices, Etc. All notices, requests, demands or other communications
required by or otherwise given with respect to this Agreement shall be in
writing and shall be deemed to have been duly given to either party when
delivered personally (by courier service or otherwise), when delivered by
telecopy and confirmed by return telecopy, or seven days after being mailed by
first-class mail, postage prepaid in each case to the applicable addresses set
forth below:
If to the Seller Partnership:
Sunstone Hotel Investors, L.P.
903 Calle Amanecer
San Clemente, CA 92673-6212
Attention: Chief Operating Officer
Facsimile: 949-369-4230
with a copy to:
Altheimer & Gray
10 South Wacker Drive
Suite 4000
Chicago, Illinois 60606
Attention: Phillip Gordon
Facsimile: 312-715-4800
If to Westbrook or SHP:
195
Westbrook Real Estate Partners L.L.C.
599 Lexington Avenue
Suite 3800
New York, New York 10022
Attention: Jonathan H. Paul
Facsimile: 212-849-8801
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017-3954
Attention: Richard Capelouto
Brian Stadler
Facsimile: 212-455- 2502
If to Partner, at its address set forth on the unitholder ledger maintained by
the transfer agent of Seller Partnership with respect to the Seller Partnership;
or to such other address as such party shall have designated by notice so given
to each other party.
b. Amendments, Waivers, Etc. This Agreement may not be amended,
changed, supplemented, waived or otherwise modified or terminated except by an
instrument in writing signed by the Seller Partnership, SHP and Partner.
c. Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of and be enforceable by the parties and their
respective successors and assigns, including without limitation any corporate
successor by merger or otherwise. Notwithstanding any transfer of Units, the
transferor shall remain liable for the performance of all obligations of the
transferor under this Agreement.
d. Entire Agreement. This Agreement (together with the Partnership
Merger Agreement and the documents referred to therein and the Consents)
embodies the entire agreement and understanding among the parties relating to
the subject matter hereof and supersedes all prior agreements and understandings
relating to such subject matter. There are no representations, warranties or
covenants by the parties hereto relating to such subject matter other than those
expressly set forth in this Agreement, the Partnership Merger Agreement and the
documents referred to therein.
196
e. Severability. If any term of this Agreement or the application
thereof to either party or circumstance shall be held invalid or unenforceable
to any extent, the remainder of this Agreement and the application of such term
to the other parties or circumstances shall not be affected thereby and shall be
enforced to the greatest extent permitted by applicable law; provided that in
such event the parties shall negotiate in good faith in an attempt to agree to
another provision (in lieu of the term or application held to be invalid or
unenforceable) that will be valid and enforceable and will carry out the
parties' intentions hereunder.
f. Specific Performance. The parties acknowledge that money damages are
not an adequate remedy for violations of this Agreement and that either party
may, in its sole discretion, apply to a court of competent jurisdiction for
specific performance or injunction or such other relief as such court may deem
just and proper in order to enforce this Agreement or prevent any violation
hereof and, to the extent permitted by applicable law, each party waives any
objection to the imposition of such relief.
g. Remedies Cumulative. All rights, powers and remedies provided under
this Agreement or otherwise available in respect hereof at law or in equity
shall be cumulative and not alternative, and the exercise or beginning of the
exercise of any thereof by either party shall not preclude the simultaneous or
later exercise of any other such rights, power or remedy by such party.
h. No Waiver. The failure of either party hereto to exercise any right,
power or remedy provided under this Agreement or otherwise available in respect
hereof at law or in equity, or to insist upon compliance by the other party
hereto with its obligations hereunder, and any custom or practice of the parties
at variance with the terms hereof, shall not constitute a waiver by such party
of its right to exercise any such or other right, power or remedy or to demand
such compliance.
i. No Third Party Beneficiaries. This Agreement is not intended to be
for the benefit of and shall not be enforceable by any person or entity who or
which is not a party hereto.
j. Jurisdiction. Each party hereby irrevocably submits to the exclusive
jurisdiction of the Court of Chancery in the State of Delaware in any action,
suit or proceeding arising in connection with this Agreement, and agrees that
any such action, suit or proceeding shall be brought only in such court (and
waives any objection based on forum non conveniens or any other objection to
venue therein) provided, however, that such consent to jurisdiction is solely
for the purpose referred to in this paragraph (j) and shall not be deemed to be
in general submission to the jurisdiction of said Court or in the State of
Delaware other than for such purposes. Each party hereto waives any right to a
trial by jury in connection with any such action, suit or proceeding.
197
k. Governing Law. This Agreement and all disputes hereunder shall be
governed by and construed and enforced in accordance with the laws of the State
of Delaware.
l. Name, Captions, Gender. The name assigned this Agreement and the
section captions used herein are for convenience of reference only and shall not
affect the interpretation or construction hereof. Whenever the context may
require, any pronoun used herein shall include the corresponding masculine,
feminine or neuter forms.
m. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one instrument. Each counterpart may consist of a
number of copies each signed by less than all, but together signed by all, the
parties hereto.
n. Expenses. Each party shall bear its own expenses incurred in
connection with this Agreement and the transactions contemplated hereby.
o. Beneficial Ownership. For purposes of this Voting Agreement,
beneficial ownership shall be determined as set forth in Rule 13d-3 under the
Securities Exchange Act of 1934, as amended.
198
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first above written.
/s/ Audrey Enever
---------------------------------------
Audrey Enever
SHP ACQUISITION, L.L.C.
By: /s/ Paul Kazilionis
---------------------------------------
Name: Paul Kazilionis
Title: Manager
SUNSTONE HOTEL INVESTORS, L.P.
By: /s/ R. Terrence Crowley
---------------------------------------
Name: R. Terrence Crowley
Title: Authorized Signatory
199
VOTING AGREEMENT
VOTING AGREEMENT, dated as of July 12, 1999 ("Agreement"), by and
among Alter Investment Group, Ltd. in its capacity as a partner
("Partner") of Sunstone Hotel Investors, L.P., a Delaware partnership (the
"Seller Partnership"), SHP Acquisition, L.L.C., a Delaware limited liability
company ("SHP"), and the Seller Partnership.
WHEREAS, concurrently herewith, SHP, SHP OP, LLC, a Delaware limited
liability company, and the Seller Partnership are entering into an Agreement and
Plan of Merger dated July, 12, 1999 (the "Partnership Merger Agreement";
capitalized terms used without definition herein having the meanings ascribed
thereto in the Partnership Merger Agreement);
WHEREAS, Partner is as of the date hereof the beneficial owner of
99,251 common partnership units of Seller Partnership ("Common Units") and 0
units of 7.9% Class A Cumulative Convertible Preferred Partnership Units of the
Seller Partnership ("Preferred Units" and, collectively with the Common Units,
but excluding any Common Units or Preferred Units issuable (but not yet issued)
upon conversion of any securities convertible into Common Units or Preferred
Units, the "Units");
WHEREAS, approval of the Partnership Merger Agreement by the Seller
Partnership's partners is a condition to the consummation of the Partnership
Merger;
WHEREAS, as a condition to its entering into the Partnership Merger
Agreement, each of the Seller Partnership and SHP has required that Partner
agrees, and Partner has agreed, to enter into this Agreement; and
WHEREAS, Partner has been informed that the Board of Directors of the
general partner of Seller Partnership has approved the Partnership Merger
Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements set forth herein, the parties hereto agree as follows:
Section 1. Agreement to Vote, Restrictions on Dispositions, Etc.
a. Partner hereby agrees to attend any partners meeting of the Seller
Partnership, in person or by proxy, and to vote (or cause to be voted) all
Units, and any other voting securities of the Seller Partnership, owned by
Partner whether issued heretofore or hereafter, that such person owns or has the
right to vote, (i) for approval and adoption of the Partnership Merger Agreement
and the Partnership Merger, and the transactions contemplated by the Partnership
Merger Agreement and (ii) for approval and adoption of the amendments to the
Second Amended and Restated Agreement of Limited Partnership of Seller
Partnership attached as Exhibit A to the Consents (as defined below) (the
"Amendments"), such agreements to vote
200
to vote to apply also to any adjournment of such partner meeting of the Seller
Partnership. Partner agrees not to grant any proxies or enter into any voting
agreement or arrangement inconsistent with this Agreement or the two consents of
even date herewith executed by Partner (the "Consents"). Partner agrees to
deliver the executed Consents to SHP, at the request of SHP, and Partner agrees
not to rescind, modify or withdraw the Consents.
b. Partner hereby agrees that, without the prior written consent of the
Seller Partnership, except as provided in the Contribution Agreement, Partner
shall not, directly or indirectly, sell, offer to sell, grant any option for the
sale of or otherwise transfer or dispose of, or enter into any agreement to
sell, any Units and any other voting securities of the Seller Partnership that
Partner owns beneficially or otherwise. Partner agrees that the Seller
Partnership may enter stop transfer orders with the transfer agent(s) and the
registrar(s) of the Units against the transfer of Units and any other voting
securities of the Seller Partnership that Partner owns beneficially or
otherwise. Partner agrees to vote (or cause to be voted) all Units, and any
other voting securities of the Seller Partnership, owned by Partner whether
issued heretofore or hereafter, that such person owns or has the right to vote,
against (i) any recapitalization, merger, consolidation, sale of assets or other
business combination or similar transaction involving the Seller Partnership or
any of its Subsidiaries, securities or assets other than the Partnership Merger
or other transaction with SHP and (ii) any other action or agreement that would
result in a breach of any covenant, representation or warranty or any other
obligation or agreement of the Seller Partnership under the Partnership Merger
Agreement or which could result in any of the conditions to the Seller
Partnership's obligations under the Partnership Merger Agreement not being
fulfilled.
c. Partner agrees not, directly or indirectly, to solicit or authorize
any person to solicit, any inquiries or proposals from any person other than SHP
relating to the merger or consolidation of the Seller Partnership with any
person other than SHP or its Affiliates, or the acquisition of the Seller
Partnership's or any of its significant subsidiaries' voting securities by, or
the direct or indirect acquisition or disposition of a significant amount of
assets of the Seller Partnership or any of its significant subsidiaries
otherwise than in the ordinary course of business of the Seller Partnership or
such significant subsidiary, from or to any person other than SHP or its
Affiliates or directly or indirectly enter into or continue any discussions,
negotiations or agreements relating to, or vote (or cause to be voted) in favor
of, any such transaction.
d. Partner agrees to promptly notify the Seller Partnership and SHP in
writing of the nature and amount of any acquisition by Partner after the date
hereof of any voting securities of the Seller Partnership.
Section 2. Additional Representations and Warranties of Partner.
Partner represents and warrants to the Seller Partnership and SHP as follows:
Partner has all necessary power and authority to execute and deliver this
Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby. This
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Agreement has been duly executed and delivered by Partner. Assuming the due
authorization, execution and delivery of this Agreement by the Seller
Partnership, this Agreement constitutes the valid and binding agreement of
Partner enforceable against Partner in accordance with its terms, except as may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium and
other similar laws of general application which may affect the enforcement of
creditors' rights generally and by general equitable principles. The Units of
Partner are the only voting securities of the Seller Partnership owned
(beneficially or of record) by Partner and are owned free and clear of all
liens, charges, encumbrances, restrictions and commitments of any kind other
than the Contribution Agreement, this Agreement and the Consents. Partner has
not appointed or granted any irrevocable proxy, which appointment or grant is
still effective, with respect to the Units. The execution and delivery of this
Agreement by Partner does not (a) conflict with or violate any agreement, law,
rule, regulation, order, judgment or decision or other instrument binding upon
it, nor require any consent, notification, regulatory filing or approval which
has not been obtained or (b) result in any breach of or constitute a default (or
an event that with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of a lien or encumbrance on any of
the Units owned by Partner pursuant to, any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument or
obligation to which Partner is a party or by which Partner or the Units owned by
Partner are bound or affected. Partner acknowledges that the restrictions
imposed upon it are so imposed only in Partner's capacity as a partner of the
Seller Partnership.
Section 3. Representations and Warranties of the Seller Partnership.
The Seller Partnership represents and warrants to Partner as follows: each of
(i) this Agreement, (ii) the Partnership Merger Agreement and (iii) the
Amendments has been approved by the Board of Directors of the general partner of
Seller Partnership. Each of this Agreement and the Partnership Merger Agreement
has been duly executed and delivered by a duly authorized officer of the Seller
Partnership. Assuming the due authorization, execution and delivery of this
Agreement by Partner, each of this Agreement and the Partnership Merger
Agreement constitutes a valid and binding agreement of the Seller Partnership,
enforceable against the Seller Partnership in accordance with its terms, except
as may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium and other similar laws of general application which may affect the
enforcement of creditors' rights generally and by general equitable principles.
Section 4. Further Assurances. Each party shall execute and deliver
such additional instruments and other documents and shall take such further
actions as may be necessary or appropriate to effectuate, carry out and comply
with all of their obligations under this Agreement. Without limiting the
generality of the foregoing, neither of the parties hereto shall enter into any
agreement or arrangement (or alter, amend or terminate any existing agreement or
arrangement) if such action would materially impair the ability of either party
to effectuate, carry out or comply with all the terms of this Agreement.
202
Section 5. Effectiveness and Termination. It is a condition precedent
to the effectiveness of this Agreement that the Partnership Merger Agreement
shall have been executed and delivered and be in full force and effect. This
Agreement shall automatically terminate and be of no further force or effect
upon the earlier termination of the Partnership Merger Agreement in accordance
with its terms. Upon any termination of this Agreement, except for any rights
either party may have in respect of any breach by either party of its
obligations hereunder, none of the parties hereto shall have any further
obligation or liability hereunder. The provisions of Section 1 of this Agreement
shall terminate and be of no further force or effect from and after the
Effective Time of the Partnership Merger.
Section 6. Covenants of Partner Not to Enter Into Inconsistent
Agreements. Partner hereby agrees that, except as contemplated by this
Agreement, the Consents and the Partnership Merger Agreement, Partner shall not
enter into any voting agreement or grant an irrevocable proxy or power of
attorney with respect to the Units which is inconsistent with this Agreement.
Section 7. Miscellaneous.
a. Notices, Etc. All notices, requests, demands or other communications
required by or otherwise given with respect to this Agreement shall be in
writing and shall be deemed to have been duly given to either party when
delivered personally (by courier service or otherwise), when delivered by
telecopy and confirmed by return telecopy, or seven days after being mailed by
first-class mail, postage prepaid in each case to the applicable addresses set
forth below:
If to the Seller Partnership:
Sunstone Hotel Investors, L.P.
903 Calle Amanecer
San Clemente, CA 92673-6212
Attention: Chief Operating Officer
Facsimile: 949-369-4230
with a copy to:
Altheimer & Gray
10 South Wacker Drive
Suite 4000
Chicago, Illinois 60606
Attention: Phillip Gordon
Facsimile: 312-715-4800
If to Westbrook or SHP:
203
Westbrook Real Estate Partners L.L.C.
599 Lexington Avenue
Suite 3800
New York, New York 10022
Attention: Jonathan H. Paul
Facsimile: 212-849-8801
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017-3954
Attention: Richard Capelouto
Brian Stadler
Facsimile: 212-455- 2502
If to Partner, at its address set forth on the unitholder ledger maintained by
the transfer agent of Seller Partnership with respect to the Seller Partnership;
or to such other address as such party shall have designated by notice so given
to each other party.
b. Amendments, Waivers, Etc. This Agreement may not be amended,
changed, supplemented, waived or otherwise modified or terminated except by an
instrument in writing signed by the Seller Partnership, SHP and Partner.
c. Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of and be enforceable by the parties and their
respective successors and assigns, including without limitation any corporate
successor by merger or otherwise. Notwithstanding any transfer of Units, the
transferor shall remain liable for the performance of all obligations of the
transferor under this Agreement.
d. Entire Agreement. This Agreement (together with the Partnership
Merger Agreement and the documents referred to therein and the Consents)
embodies the entire agreement and understanding among the parties relating to
the subject matter hereof and supersedes all prior agreements and understandings
relating to such subject matter. There are no representations, warranties or
covenants by the parties hereto relating to such subject matter other than those
expressly set forth in this Agreement, the Partnership Merger Agreement and the
documents referred to therein.
204
e. Severability. If any term of this Agreement or the application
thereof to either party or circumstance shall be held invalid or unenforceable
to any extent, the remainder of this Agreement and the application of such term
to the other parties or circumstances shall not be affected thereby and shall be
enforced to the greatest extent permitted by applicable law; provided that in
such event the parties shall negotiate in good faith in an attempt to agree to
another provision (in lieu of the term or application held to be invalid or
unenforceable) that will be valid and enforceable and will carry out the
parties' intentions hereunder.
f. Specific Performance. The parties acknowledge that money damages are
not an adequate remedy for violations of this Agreement and that either party
may, in its sole discretion, apply to a court of competent jurisdiction for
specific performance or injunction or such other relief as such court may deem
just and proper in order to enforce this Agreement or prevent any violation
hereof and, to the extent permitted by applicable law, each party waives any
objection to the imposition of such relief.
g. Remedies Cumulative. All rights, powers and remedies provided under
this Agreement or otherwise available in respect hereof at law or in equity
shall be cumulative and not alternative, and the exercise or beginning of the
exercise of any thereof by either party shall not preclude the simultaneous or
later exercise of any other such rights, power or remedy by such party.
h. No Waiver. The failure of either party hereto to exercise any right,
power or remedy provided under this Agreement or otherwise available in respect
hereof at law or in equity, or to insist upon compliance by the other party
hereto with its obligations hereunder, and any custom or practice of the parties
at variance with the terms hereof, shall not constitute a waiver by such party
of its right to exercise any such or other right, power or remedy or to demand
such compliance.
i. No Third Party Beneficiaries. This Agreement is not intended to be
for the benefit of and shall not be enforceable by any person or entity who or
which is not a party hereto.
j. Jurisdiction. Each party hereby irrevocably submits to the exclusive
jurisdiction of the Court of Chancery in the State of Delaware in any action,
suit or proceeding arising in connection with this Agreement, and agrees that
any such action, suit or proceeding shall be brought only in such court (and
waives any objection based on forum non conveniens or any other objection to
venue therein) provided, however, that such consent to jurisdiction is solely
for the purpose referred to in this paragraph (j) and shall not be deemed to be
in general submission to the jurisdiction of said Court or in the State of
Delaware other than for such purposes. Each party hereto waives any right to a
trial by jury in connection with any such action, suit or proceeding.
205
k. Governing Law. This Agreement and all disputes hereunder shall be
governed by and construed and enforced in accordance with the laws of the State
of Delaware.
l. Name, Captions, Gender. The name assigned this Agreement and the
section captions used herein are for convenience of reference only and shall not
affect the interpretation or construction hereof. Whenever the context may
require, any pronoun used herein shall include the corresponding masculine,
feminine or neuter forms.
m. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one instrument. Each counterpart may consist of a
number of copies each signed by less than all, but together signed by all, the
parties hereto.
n. Expenses. Each party shall bear its own expenses incurred in
connection with this Agreement and the transactions contemplated hereby.
o. Beneficial Ownership. For purposes of this Voting Agreement,
beneficial ownership shall be determined as set forth in Rule 13d-3 under the
Securities Exchange Act of 1934, as amended.
206
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first above written.
ALTER INVESTMENT GROUP, LTD.
By: /s/ Robert A Alter
-----------------------------------
Robert A. Alter, as general partner
SHP ACQUISITION, L.L.C.
By: /s/ Paul Kazilionis
-----------------------------------
Name: Paul Kazilionis
Title: Manager
SUNSTONE HOTEL INVESTORS, L.P.
By: /s/ R. Terrence Crowley
-----------------------------------
Name: R. Terrence Crowley
Title: Authorized Person
207
EXHIBIT F
---------
Amendments Effective Immediately. The following amendment of the Second
Amended and Restated Agreement of Limited Partnership (the "Original Agreement")
of Sunstone Hotel Investors, L.P. (the "Partnership") shall be effective as of
the date of approval:
(a) The Original Agreement is hereby amended to add a new Section
8.5(i) reading as follows:
"(i) Notwithstanding any other provision or this Section 8.5 to
the contrary, or any other provision of this Agreement to the
contrary, but subject to Section 17-607 of the Act, the
Partnership, acting by and through the General Partner (who shall
act in its sole discretion on behalf of the Partnership), may at
any time and from time to time redeem from the General Partner
any or all of the Preferred Units or Common Units held by the
General Partner in its capacity as a Preferred Unitholder or
Common Unitholder, as the case may be, in exchange for the
Partnership's distributing to the General Partner certain assets
of the Partnership consisting of any or all of the assets of the
Partnership the disposition of which would be subject to rules
similar to Section 1374 of the Internal Revenue Code of 1986, as
amended, as a result of an election under Internal Revenue
Service Notice 88-19 (the "Kahler Assets"). The Kahler Assets
distributed to the General Partner pursuant to this Section
8.5(i) shall be valued, as of the Business Day immediately
preceding such distribution, at fair market value, and such
number of the Preferred Units and Common Units held by the
General Partner as are equal in value, as of the Business Day
immediately preceding such distribution, at Market Price to the
Kahler Assets to be conveyed to the General Partner in
consideration of the Preferred Units and Common Units to be
redeemed from the General Partner, shall be redeemed by the
Partnership from the General Partner in exchange for such
distribution and shall upon any such redemption be canceled. In
no event shall any redemption by the Partnership pursuant to this
Section 8.5(i) cause the General Partner to lose its status as a
general partner and as a limited partner of the Partnership."
208
2
Amendments Effective Upon Merger Approval. The following amendments of the
Second Amended and Restated Agreement of Limited Partnership (the "Original
Agreement") of Sunstone Hotel Investors, L.P. (the "Partnership") shall be
effective as of the date that the merger of SHP Acquisition Sub, L.P., a
Delaware limited partnership, with and into the Partnership is approved by the
Limited Partners or, following such Limited Partner approval, when implemented
by the General Partner, in its sole discretion, pursuant to authority granted to
the General Partner as part of the Limited Partner approval vote:
(a) The introductory paragraph of the Original Agreement is
hereby amended by deleting the words ", in its individual capacity (the
"Company") and in its capacity as the general partner of the Partnership (the
"General Partner")", and by inserting in lieu thereof the words "(the "General
Partner"),".
(b) Article I of the Original Agreement is hereby amended by
deleting the term "Company" and the definition thereof in its entirety from the
DEFINED TERMS of Article I.
(c) Article I of the Original Agreement is hereby amended by
adding the following words immediately prior to the period at the end of the
definition of "REIT PREFERRED SHARE" in the DEFINED TERMS of Article I:
", but shall not mean a share of preferred stock of any
substitute general partner of the Partnership admitted pursuant
to Section 7.1(e) of this Agreement"
(d) Article I of the Original Agreement is hereby amended by
adding the following words immediately prior to the period at the end of the
definition of "REIT SHARE" in the DEFINED TERMS of Article I:
", but shall not mean a share of common stock of any substitute
general partner of the Partnership admitted pursuant to Section
7.1(e) of this Agreement"
(e) The Original Agreement is hereby amended by deleting the word
"Company" wherever it appears in the Original Agreement, and by inserting in
lieu thereof the words "General Partner", so that all references to the
"Company" in the Original Agreement shall now refer to the "General Partner".
(f) The first and second sentences of Section 2.4(a) of the
Original Agreement are hereby deleted in their entirety.
(g) The second sentence of Section 4.3 of the Original Agreement
is hereby deleted in its entirety.
209
3
(h) Section 6.1(b) of the Original Agreement is hereby deleted
and replaced in its entirety by the following:
"[Intentionally omitted.]"
(i) Section 6.6 of the Original Agreement is hereby amended by
deleting the words "Subject to Section 6.8 hereof, the Articles of Incorporation
and any agreements entered into by the General Partner or its Affiliates with
the Partnership or a Subsidiary," from the first sentence of Section 6.6, and by
inserting in lieu thereof the words "The General Partner and".
(j) Section 6.8 of the Original Agreement is hereby deleted in
its entirety.
(k) Section 7.1(a) of the Original Agreement is hereby amended by
adding the following words immediately prior to the period at the end of Section
7.1(a):
"or Section 7.1(e)"
(l) Section 7.1(b) of the Original Agreement is hereby deleted
and replaced in its entirety by the following:
"[Intentionally omitted.]"
(m) Section 7.1(c) of the Original Agreement is hereby amended by
deleting the words "or Section 7.1(d)" from the first clause of Section 7.1(c),
and by inserting in lieu thereof the words "Section 7.1(d) or Section 7.1(e)".
(n) The Original Agreement is hereby amended to add a new Section
7.1(e) reading as follows:
"(e) Notwithstanding Section 7.1(c) or Section 7.1(d) or any
other provision of this Agreement to the contrary, SHP Investors
Sub, Inc., a Maryland corporation, and Sunstone Hotel Investors,
Inc., a Maryland corporation, may merge, with Sunstone Hotel
Investors, Inc. surviving the said merger. In connection with
such merger, Sunstone Hotel Investors, Inc., may transfer any or
all of the Partnership Interests held by Sunstone Hotel
Investors, Inc., in any capacity, to any Person, including to SHP
Properties Corp., a Delaware corporation, and may withdraw as a
Partner of the Partnership, including as the general partner of
the Partnership. Upon the occurrence of any of the
210
4
events described above in this Section 7.1(e), and upon the
satisfaction by SHP Properties Corp. of the conditions for
becoming a substitute general partner as set forth in Section
7.2(b) below, including its filing of an amendment of the
Certificate, SHP Properties Corp. shall be, and hereby is deemed,
admitted to the Partnership as a substitute general partner of
the Partnership, effective immediately prior to the withdrawal of
Sunstone Hotel Investors, Inc., from the Partnership as the
general partner of the Partnership, and SHP Properties Corp.
shall have the rights and duties of a Surviving General Partner
as described in the second, third and fourth full sentences of
Section 7.1(d)(ii) above, along with any other rights and duties
of a general partner of the Partnership under this Agreement. To
the fullest extent permitted by law, all of the mergers,
transfers, withdrawals, admissions, activities and events
described in this Section 7.1(e), and anything contemplated
thereby and related thereto, may, and shall, take place without
any further act, vote or approval of any Partner or other Person,
notwithstanding any other provision of this Agreement to the
contrary, the Act or other applicable law, rule or regulation."
(o) Section 7.2 of the Original Agreement is hereby amended by
deleting the word "A" as the first word of the opening sentence of Section 7.2,
and by inserting in lieu thereof the words "Except as provided in Section 7.1(e)
above, a".
211
Exhibit G
PW REAL ESTATE INVESTMENTS INC.
1285 Avenue of the Americas
New York, New York 10019
July 12, 1999
WESTBROOK REAL ESTATE FUND III, L.P.
c/o Westbrook Real Estate Partners, L.L.C.
599 Lexington Avenue
Suite 3800
New York, New York 10022
Attention: Jonathan H. Paul, Managing Principal
re Senior Mortgage Financing
Gentlemen:
You have requested that PW Real Estate Investments Inc. ("PWREI")
provide the Mortgage Loan defined and described in Exhibit A (the "Term Sheet")
attached to this letter (this "Commitment") and made a part hereof. All
capitalized terms used in this Commitment without definition shall have the
respective meanings ascribed to them in the Term Sheet. You have requested that
PWREI provide the Mortgage Loan to finance a portion of the purchase price to be
paid by your affiliates to acquire the assets, business and operations
(including the management company and interests in the operating lessee) of
Sunstone Hotel Investors, Inc. and its affiliates (whether such transaction is
effected through a merger, stock acquisition, asset acquisition or other
acquisition transaction, the "Acquisition"). PWREI hereby commits to provide the
Mortgage Loan in accordance with this Commitment and the Term Sheet, subject to
satisfaction of all conditions set forth in this Commitment and the Term Sheet.
You, on behalf of the Borrower (as defined in the Term Sheet), hereby agree to
accept the Mortgage Loan in accordance with this Commitment and the Term Sheet.
As a material inducement for PWREI to provide the Mortgage Loan, you
hereby agree:
(a) to indemnify PWREI and any other Indemnified Person (as
hereinafter defined) and hold each Indemnified Person harmless against any and
all losses, claims, damages, liabilities or expenses (including any and all
investigative, legal and other expenses reasonably incurred in connection with
any action, suit or proceeding or any claim asserted) to which PWREI or any
other Indemnified Person may become subject insofar as such losses, claims,
damages, liabilities or expenses (A) are related to or arise in any manner out
of or in connection
212
with (i) actions taken or omitted to be taken (including without limitation any
untrue statements made or any statements omitted to be made in a preliminary or
final prospectus circulated with respect to the Securitization) by you or any of
your affiliates or (ii) actions taken or omitted to be taken by any Indemnified
Person with the consent of, or in conformity with the instruction, action or
omission of, you or any of your affiliates, in each case, in connection with
matters contemplated by this Commitment or the Term Sheet or (B) are otherwise
related to, or arise in any manner out of or in connection with the transactions
contemplated by this Commitment or the Term Sheet or the rendering of services
by PWREI hereunder and thereunder, unless and to the extent it is finally
judicially determined that such losses, claims, damages, liabilities or expenses
resulted solely and directly from the gross negligence, willful misconduct or
breach of this Commitment by such Indemnified Person; and
(b) subject to the provisions of the following paragraph, to
reimburse PWREI and each other Indemnified Person promptly for any reasonable
legal or other expenses incurred by it in connection with investigating,
preparing to defend or defending, or providing evidence in or preparing to serve
or serving as a witness with respect to, any lawsuits, investigations, claims or
other proceedings related to or arising in any manner out of or in connection
with the transactions contemplated by this Commitment or the Term Sheet or the
rendering of services by PWREI hereunder and thereunder (including, without
limitation, in connection with the enforcement of this Commitment and the
indemnification obligations set forth herein) whether or not any Indemnified
Person is named as a party in a proceeding and whether or not any liability
results therefrom. All such legal fees, disbursements and other expenses shall
be reimbursed by the indemnifying party promptly as they are incurred. In the
event a final judicial determination is made to the effect specified in
subparagraph (a) above, PWREI will promptly remit to you any amounts reimbursed
under this subparagraph (b).
You also agree that no Indemnified Person shall have any liability
to you or any of your affiliates for or in connection with the transactions
contemplated by this Commitment or the Term Sheet or the rendering of services
by PWREI hereunder and thereunder unless and to the extent that it is finally
judicially determined that liability for losses, claims, damages, liabilities or
expenses incurred by you or such affiliates resulted from the gross negligence,
willful misconduct or breach of this Commitment by such Indemnified Person.
Promptly after receipt by an Indemnified Person of notice of any
claim or the commencement of any action, the Indemnified Person shall, if a
claim in respect thereof is to be made against you, notify you in writing of the
claim or the commencement of that action; provided, however, that the failure to
notify you shall not relieve you from any liability which you may have under the
indemnification provisions of this Commitment except to the extent that you have
been materially prejudiced by such failure; and, provided further, that the
failure to notify you shall not relieve you from any liability which you may
have to an Indemnified Person otherwise than under the indemnification
provisions of this Commitment. If any such claim or action shall be brought
against an Indemnified Person, and it shall notify you thereof, you shall be
entitled to participate therein and, to the extent that you wish, to assume the
defense thereof with counsel reasonably satisfactory to the Indemnified Person.
After notice from you to the Indemnified Person of your election to assume the
defense of such claim or action, you shall not be liable to the Indemnified
Person under the indemnification provisions of this Commitment for
-2-
213
any legal or other expenses subsequently incurred by the Indemnified Person in
connection with the defense thereof except as provided in the following
sentence. The Indemnified Person shall have the right to employ separate counsel
in any such action and to participate in the defense thereof, but the fees and
expenses of such counsel shall be at the expense of such Indemnified Person
unless: (i) the employment thereof has been specifically authorized by you in
writing; or (ii) in such claims or action there is, in the opinion of
independent counsel, a conflict concerning any material issue between the
positions of you and such Indemnified Person, in which case if such Indemnified
Person notifies you in writing that it elects to employ separate counsel at your
expense, you shall not have the right to assume the defense of such action on
behalf of such Indemnified Person; provided, however, that unless an actual or
potential conflict exists between two or more Indemnified Persons, you shall not
be required to pay the fees and disbursements of more than one separate counsel
for all Indemnified Persons. Nothing set forth herein is intended to or shall
impair the right of any Indemnified Person to retain separate counsel at its own
expense.
Without the prior written consent of PWREI, neither you nor any of
your affiliates will settle or compromise or consent to the entry of any
judgment in any pending or threatened claim, action, suit or proceeding in
respect of which indemnification may be sought hereunder (whether or not any
Indemnified Person is an actual or potential party to such claim, action, suit
or proceeding) unless (a) you shall have given PWREI reasonable prior written
notice thereof and used all reasonable efforts, after consultation with PWREI,
to obtain an unconditional release of PWREI and each other Indemnified Person
hereunder from all liability arising out of such claim, action, suit or
proceedings, or (b) you reaffirm in writing your indemnity and contribution
obligations hereunder regardless of any common, federal or state statutory law
to the contrary. As long as you have complied with your obligations to defend
and indemnify hereunder, you shall not be liable for any settlement made by
PWREI or any other Indemnified Person without your consent.
You and PWREI agree that if any indemnification or reimbursement
sought pursuant to the foregoing provisions of this Commitment is finally
judicially determined to be unavailable for a reason other than the gross
negligence, willful misconduct or breach of the provisions of this Commitment by
any Indemnified Person or is otherwise unavailable or insufficient to hold an
Indemnified Person harmless, then, whether or not PWREI is the Indemnified
Person, you and PWREI shall contribute to the losses, claims, damages,
liabilities and expense for which such indemnification or reimbursement is held
unavailable: (x) in such proportion as is appropriate to reflect the relative
benefits to you, on the one hand, and PWREI, on the other hand, from the
transactions to which such indemnification or reimbursement relates; or (y) if
the allocation provided by clause (x) above is not permitted by applicable law,
in such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (x) but also the relative faults of you, on the one hand,
and all Indemnified Persons, on the other hand, as well as any other equitable
considerations. Notwithstanding the provisions of this paragraph, or any other
provisions of this Commitment or the Term Sheet, you and PWREI agree that in no
event shall the amount to be contributed by PWREI pursuant to this paragraph
exceed the amount of the fees actually received by PWREI hereunder.
You agree that the indemnification, contribution and reimbursement
obligations
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set forth in this Commitment shall apply whether or not PWREI or any other
Indemnified Person is a formal party to any such lawsuits, claims or other
proceedings, and that such obligations shall extend upon the terms set forth in
this Commitment to any controlling person, affiliate (including, without
limitation, PaineWebber Incorporated), director, officer, employee,
representative or agent of PWREI (each, with PWREI, an "Indemnified Person").
You further agree that your indemnification, contribution and reimbursement
obligations set forth in this Commitment shall be in addition to any liability
which you may otherwise have and shall extend, upon the same terms and
conditions, to each person, if any, who controls any Indemnified Persons within
the meaning of the Securities Act of 1933, as amended. The indemnification,
contribution and reimbursement provisions of this Commitment shall survive any
termination of this Commitment, but simultaneous with the closing of the
Acquisition and the Mortgage Loan, all of your rights and all of your
obligations under this Commitment, including without limitation, all of your
indemnification, contribution and reimbursement obligations hereunder, may be
assigned by you to the Holding Company (as defined in the Term Sheet), provided,
that (i) the Holding Company shall have a net worth of not less than
$250,000,000 after giving effect to the Acquisition and (ii) the Holding Company
shall assume all of your rights and obligations hereunder simultaneous with such
assignment. Upon such assignment and assumption, you shall have no further
obligations under this Commitment ab initio, and PWREI and all other Indemnified
Persons shall look solely to the Holding Company for performance of your
obligations hereunder, regardless of the date from which such obligations
accrued. The provisions of the two immediately preceding sentences of this
paragraph shall survive closing of the Mortgage Loan.
In addition to the fees described in the Term Sheet, and regardless
of whether or not the Mortgage Loan is funded, you will promptly pay to PWREI
upon request all reasonable out-of-pocket expenses incurred by PWREI in
connection with the Mortgage Loan and the performance of its services hereunder
or under the Term Sheet, including, without limitation, the costs of title,
survey and lien searches, the fees and disbursements of legal counsel,
accountants, environmental experts, engineers, appraisers, due diligence
contractors and travel expenses and rating agency fees and expenses. PWREI will
keep you reasonably informed of its ongoing out-of-pocket expenses, and will
advise you as to the estimated cost of any material third party due diligence
(including reports prepared by third parties) prior to contracting for services
and incurring such costs. Your obligations with respect to expenses set forth in
this paragraph shall survive any termination of this Commitment, but may be
assigned to, and assumed by, the Holding Company in accordance with the
foregoing provisions hereof.
This Commitment and the Term Sheet are delivered to you with the
understanding that, whether or not this or any other commitment is accepted from
PWREI relating to any aspect of the transactions outlined herein, this
Commitment and the terms outlined herein and in the Term Sheet will be kept
confidential by you and your affiliates and not disclosed to any third party
(including, without limitation, other sources of financing) without the express
prior written consent of PWREI, except that (a) you and your affiliates may
disclose this Commitment and the Term Sheet, and the contents hereof and thereof
(i) to the seller in the Acquisition and to investors in the Acquisition
(including their beneficial owners) on a confidential basis in connection with
the Acquisition, (ii) to your respective partners, shareholders, officers,
directors, employees, accountants, attorneys and other advisors on a
confidential basis in connection with
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the transactions contemplated hereby or thereby or (iii) as required by law, and
(b) after acceptance of this Commitment by you, you may disclose this
Commitment, the Term Sheet and the contents hereof and thereof (as well as a
summary of the principal terms and conditions of PWREI's commitments and
obligations hereunder or thereunder) in any public filings whether in connection
with the transactions contemplated hereby or otherwise (provided that any such
summary written disclosure shall be subject to PWREI's reasonable review and
approval). The provisions of this paragraph shall survive any termination of
this Commitment.
You represent and warrant that neither you nor any person acting on
your behalf has employed or used a broker in connection with the transactions
contemplated herein, and you agree to indemnify and hold harmless PWREI and each
other Indemnified Person from and against all loss, cost, damage or expense
arising by reason of any claim made by any such broker. PWREI represents and
warrants that neither it nor any person acting on its behalf has employed or
used a broker in connection with the transactions contemplated herein, and PWREI
agrees to indemnify and hold harmless you and your affiliates from and against
all loss, cost, damage or expense arising by reason of any claim made by any
such broker. The provisions of this paragraph shall survive any termination of
this Commitment.
You are hereby advised (and hereby agree) that other entities with
conflicting interests may also be (or become at any time in the future)
customers of PWREI or any of its affiliates, and, subject to the section of the
Term Sheet entitled "Exclusivity", that PWREI or any of its affiliates may be
providing financing or other services to such other customers. PWREI agrees to
disclose to you the existence of any such conflicting interests as and when they
arise, provided that PWREI shall only be required to make such disclosure if and
to the extent (x) that the existence of such conflicting interests is actually
known by one of Steven Baum, John Taylor or James Glasgow, (y) such disclosure
is not prohibited by law or any rule, regulation or policy of any governmental
authority having jurisdiction over PWREI or any of its affiliates, and (z) such
disclosure will not cause PWREI or any of its affiliates to be in breach of any
agreement (including, without limitation, any confidentiality agreement) to
which PWREI or any of its affiliates is a party. The foregoing provisions of
this paragraph have been reviewed and approved by your counsel.
You recognize that PWREI has issued this Commitment only for your
benefit, and that the agreements set forth herein and in the Term Sheet are not
intended to confer rights upon any of your shareholders, owners or partners or
any other person not a party hereto as against PWREI or any of its affiliates or
the respective directors, officers, agents, employees or representatives of
PWREI or its affiliates. No one other than you is authorized to rely upon the
agreements set forth herein and in the Term Sheet or any statements or conduct
by PWREI.
This Commitment and the rights and obligations of the parties set
forth herein and in the Term Sheet shall terminate and be of no further force or
effect (other than those obligations set forth in this Commitment which are
expressly stated to survive termination of this Commitment) if the Mortgage Loan
has not been funded by November 23, 1999.
THIS COMMITMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND
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GOVERNED BY THE LAW OF THE STATE OF NEW YORK. THE PARTIES HERETO AGREE NOT TO
ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY JURY, AND WAIVE ANY RIGHT
TO TRIAL BY JURY FULLY TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER
EXIST WITH REGARD TO THIS COMMITMENT, THE TERM SHEET, OR ANY CLAIM, COUNTERCLAIM
OR OTHER ACTION ARISING IN CONNECTION HEREWITH OR THEREWITH. THE FOREGOING
WAIVER OF RIGHT TO TRIAL BY JURY IS GIVEN KNOWINGLY AND VOLUNTARILY BY EACH
PARTY HERETO, AND IS INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH
ISSUE AS TO WHICH THE RIGHT TO TRIAL BY JURY WOULD OTHERWISE ACCRUE. EACH PARTY
HERETO IS HEREBY AUTHORIZED TO FILE A COPY OF THIS PARAGRAPH IN ANY PROCEEDING
AS CONCLUSIVE EVIDENCE OF THIS WAIVER BY BOTH PARTIES HERETO.
This Commitment shall be of no force or effect until executed and
delivered by both parties hereto. This Commitment may not be amended except by
written instrument executed by both parties hereto. This Commitment may be
executed in multiple counterparts, each of which shall be deemed an original and
all of which, taken together, shall constitute one instrument.
This Commitment, the Term Sheet and the letter regarding fees, dated
the date hereof (the "Fee Letter"), between you and us contain all of the
agreements and understandings of the parties hereto relating to the transactions
described herein and therein, and the respective obligations of PWREI and its
affiliates and you and your affiliates in connection therewith. All prior
negotiations, proposals, agreements and understandings relating to the subject
matter of this Commitment, the Term Sheet and the Fee Letter are null and void.
If you are in agreement with the foregoing, please sign and return
to PWREI the enclosed copy of each of this Commitment and the Fee Letter by no
later than 11:00 p.m., New York time on July 12, 1999. This Commitment shall
terminate at such time unless you accept this Commitment as provided above.
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Each signatory hereto represents and warrants that he or she is duly
authorized and empowered to execute this Commitment and the Fee Letter on behalf
of the relevant party hereto.
Very truly yours,
PW REAL ESTATE INVESTMENTS INC.
By: /s/ John A. Taylor
------------------------------
Name: John A. Taylor
Title: President
Agreed to and Accepted this
12 day of July, 1999
WESTBROOK REAL ESTATE FUND III, L.P.,
a Delaware limited partnership
By: Westbrook Real Estate Management III, L.L.C., its
general partner
By: Westbrook Real Estate Partners, L.L.C., its
managing member
By: /s/ Jonathan H. Paul
--------------------------------
Name: Jonathan H. Paul
Title: Authorized Person
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EXHIBIT A
TERM SHEET
FOR
FLOATING RATE SENIOR MORTGAGE FINANCING
This is the Term Sheet referred to in that certain letter agreement dated
July 12, 1999 (the "Commitment") between PW Real Estate Investments Inc. and
Westbrook Real Estate Fund III, L.P. All capitalized terms used in this Term
Sheet without definition shall have the meanings ascribed to them in the
Commitment.
CLIENT: Westbrook Real Estate Fund III, L.P. and its affiliates
(collectively, the "Client"), including, without
limitation, the surviving holding company following
consummation of the Acquisition (such surviving company,
the "Holding Company").
BORROWER: The entities listed in Schedule I attached hereto and
the lessee under the operating lease (collectively, the
"Borrower"), which entities shall be (i) special purpose
and bankruptcy remote, (ii) owned by the Client and
Robert A. Alter and other minority owners, (iii)
controlled by the Client, (iv) engaged only in the fee
or leasehold ownership of the Properties (hereinafter
defined) and (v) otherwise reasonably satisfactory to
Lender.
LENDER: PW Real Estate Investments Inc., a wholly-owned
subsidiary of Paine Webber Real Estate Securities Inc.,
or any affiliate.
MORTGAGE LOAN: The proposed loan (the "Mortgage Loan") will be fully
cross-collateralized and cross-defaulted.
SECURITY: The Mortgage Loan will be secured by (i) first mortgage
liens on the properties listed on Exhibit B attached
hereto (collectively, the "Properties", and
individually, a "Property"), (ii) a first priority
assignment of all leases and rents attributable to the
Properties, (iii) a first priority assignment of all
Security Accounts and other reserves and escrows
described below for the Properties, and (iv) a first
priority assignment of all rights of the Borrower or the
operating lessee, as applicable, under operating leases,
management agreements, franchise agreements, licensing
agreements and other licenses, permits and agreements
relating to the ownership and/or operation of the
Properties. The items of security described in clauses
(i) through (iv) of the preceding sentence are referred
to collectively herein as the
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EXHIBIT A
Page 2
"Collateral". All management agreements and leases
(including operating leases but excluding any land
leases which by their terms do not require such
subordination) are required to be subordinated to the
Mortgage Loan. All franchise agreements and land leases
must be satisfactory to Lender and meet rating agency
requirements. The Collateral must be free and clear of
all liens, claims and encumbrances of any kind or nature
whatsoever other than those reasonably approved by
Lender.
TERM: The Mortgage Loan will have a term (the "Term") of four
(4) years with one, one (1) year extension option to be
granted to Borrower, subject to satisfaction of the
extension conditions described below.
EXTENSION CONDITIONS: The one (1) year extension option will be
conditioned upon: (i) no monetary or material non-monetary
event of default existing with respect to the Mortgage
Loan at the time of the extension, (ii) Borrower having
requested the Term extension not less than 60 days nor
more than 150 days prior to the then existing maturity
date, (iii) Borrower paying an extension fee at the time
of the extension in the amount of 1.0% of the outstanding
principal amount of the Mortgage Loan at the time of the
extension, and (iv) the debt service coverage ratio for
the Mortgage Loan, calculated based on the trailing twelve
month Actual Net Cash Flow (subject to a 4% FF&E and
replacement reserve) of the Properties and a 10.5%
underwriting constant (the "DSCR") being not less than
1.35 times, which DSCR will be calculated 30 days after
Lender's receipt of Borrower's extension request. To the
extent the DSCR test is not met, Borrower will be
permitted to pay down the Mortgage Loan to bring it into
compliance. The term "Actual Net Cash Flow" when used
herein shall mean, for the relevant calculation period,
the aggregate gross revenues of the Properties minus the
aggregate operating expenses, fixed expenses and fees
attributable to the management and operation of the
Properties. For purposes of calculating Actual Net Cash
Flow, "gross revenues" shall mean actual revenues received
from hotel departments, including but not limited to room
rental, food and beverage operations, telecommunications,
health club, golf, tennis, business center activities,
retail, parking and any other related activities.
Non-recurring revenues will not be included in gross
revenues. For purposes of calculating Actual Net Cash
Flow, "operating expenses", "fixed expenses" and "fees"
shall include all expenses paid in connection with the
operation and management of
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EXHIBIT A
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the Properties, and will additionally include all
accrued but unpaid expenses associated with real estate
taxes and insurance. For purposes of calculating
operating expenses, fixed expenses and fees, franchise
and management fees will be included at the higher of
the actual amount paid or the contractual amount.
LOAN AMOUNT: The original principal amount of the Mortgage
Loan (the "Original Loan Amount") is currently
estimated to be $502 million. The Original Loan
Amount shall in no event exceed $502 million, nor
shall it exceed 64.5% of the total purchase price
paid in the Acquisition (inclusive of $69.2
million of Existing Debt (as defined below)),
including customary closing costs, the purchase
price paid to acquire a minimum 49% interest in
the operating lessee (together with rights to
100% of the net cash flow from the leasehold
interests), and the purchase price paid to
acquire the management company. Lender's
approval shall be required with respect to (x)
Fees (as hereinafter defined) in the event that
the actual aggregate amount thereof exceeds $10.8
million; (y) closing costs other than Fees in the
event that the actual aggregate amount thereof
exceeds $12.5 million; and (z) the aggregate
price to acquire the management company and the
interests in the operating lessee in the event
that such amount exceeds $30 million. The actual
Original Loan Amount will be determined by Lender
upon the completion of Lender's underwriting
analysis and in accordance with the DSCR and LTV
Parameters described below. The term "Existing
Debt" when used herein refers to $69.2 million of
existing first mortgage debt encumbering the
properties listed on Exhibit C. The term "Fees"
when used herein refers to the structuring fee
payable hereunder to Lender, the fees and
disbursements payable by Lender to
PriceWaterhouse Coopers in connection herewith,
the fees and disbursements payable by Lender to
its attorneys in connection herewith, and the
purchase price of the interest rate cap described
below.
AMORTIZATION: Lender will receive 27% of Actual Net Cash Flow
(subject to a 4% FF&E and replacement reserve),
determined and payable monthly after the payment
of debt service on the Mortgage Loan and other
required reserves, to amortize the principal
balance of the Mortgage Loan by 3.4% of the
Original Loan Amount (the "Amortization Amount").
If the principal balance of the Mortgage Loan is
not reduced by the Amortization Amount through
application of such Actual Net Cash Flow by March
31, 2001, the Borrower will be
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EXHIBIT A
Page 4
obligated to provide additional funds to reduce the
principal balance of the Mortgage Loan by the
Amortization Amount at that time. Notwithstanding the
foregoing, if the DSCR is less than 1.50 times on the
Final Test Date (as defined below), additional
amortization in an amount equal to 2.26% of the Original
Loan Amount (the "Additional Amortization Amount") will
be required by March 31, 2001, and Lender will continue
to collect 27% of Actual Net Cash Flow for application
to this additional amortization obligation. If the
principal balance of the Mortgage Loan is not reduced by
the Amortization Amount and, if required, the Additional
Amortization Amount through application of such Actual
Net Cash Flow by March 31, 2001, the Borrower will be
obligated to provide additional funds to reduce the
principal balance of the Mortgage Loan by the
Amortization Amount and, if required, the Additional
Amortization Amount at that time.
If the DSCR is equal to or greater than 1.50 times on the
Final Test Date, the Reserved Interest Amount (as defined
below) will be applied to amortize the principal balance
of the Mortgage Loan as provided in the section hereof
entitled "Interest Rate", and such amortization shall be
credited toward the foregoing amortization requirements.
Prepayments of the Mortgage Loan made in connection with
Property releases or in connection with the occurrence of
any casualty or condemnation at a Property will not be
deemed to satisfy the Borrower's obligations to amortize
the principal balance of the Mortgage Loan set forth in
this section; provided, however, in the event of a
Property release, the aggregate principal amount of the
required amortization under this section shall be reduced
in the same proportion as the portion of the Mortgage Loan
originally allocated to such Property bears to the
Original Loan Amount.
After the principal amortization required by this section
has been paid, the Mortgage Loan will be interest only
during the remainder of the Term.
INTEREST RATE: The Mortgage Loan will bear interest at a per
annum rate determined by Lender which shall be
equal to the one month LIBOR rate plus ____%,
subject to the provisions of the last paragraph
of this section. If, as of ____________ (the
"First Test Date") or ____________ (the "Final
Test Date"), the following DSCR tests are met,
the interest rate
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EXHIBIT A
Page 5
spread for the Mortgage Loan will be adjusted
prospectively, effective as of the applicable test date,
as follows:
Trailing 12-month DSCR Spread to one (1)
("Test Coverage") month LIBOR
----------------- -----------
____ times up to (but ____%
excluding) ____
____ times up to (but ____%
excluding) ____
____ times or greater ____%
Notwithstanding the foregoing, prior to the Final Test
Date, a portion of the interest payable by the Borrower
equal to ____ basis points (the "Reserved Interest
Amount") shall be deposited into a Security Account (as
defined below) for application on the Final Test Date in
accordance with this section and the section hereof
entitled "Amortization". If the DSCR is equal to or
greater than ____ times on the First Test Date, (x) the
Reserved Interest Amount will no longer be collected and
deposited in the Security Account, and (y) the Reserved
Interest Amount theretofore collected and deposited in the
Security Account will be applied on the Final Test Date to
amortize the principal balance of the Mortgage Loan as
provided in the section hereof entitled "Amortization". If
the DSCR is equal to or greater than ____ times on the
Final Test Date, the Reserved Interest Amount will be
applied on the Final Test Date to amortize the principal
balance of the Mortgage Loan as provided in the section
hereof entitled "Amortization". If the foregoing DSCR test
is not met on the Final Test Date, then the Reserved
Interest Amount shall be released to Lender from the
Security Account on the Final Test Date and applied to the
payment of interest on the Mortgage Loan for the period
for which such Reserve Interest Amount was collected.
INTEREST PAYMENTS: Interest payments will be due monthly on the
first business day of each month, in arrears.
Interest will be calculated on an actual/360 day
basis.
DSCR PARAMETERS: The minimum debt service coverage ratio for the Mortgage
Loan at closing will be 1.30 times, calculated based upon
Lender's underwriting analysis and an underwriting
constant anticipated to be 10.5%.
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EXHIBIT A
Page 6
LTV PARAMETERS: MAI Appraisals of the Properties satisfactory in
form and content to the Lender, prepared by duly
licensed MAI Appraisers, will be required prior
to closing. Once appraisal reports have been
received and approved by Lender in its sole
discretion, Lender will review the Original Loan
Amount to ensure that it does not exceed at
closing a loan-to-value ("LTV") of 67%, based
upon Lender's underwriting analysis in respect of
the Mortgage Loan.
DUE DILIGENCE: Based on the financial due diligence Lender has
done to date for the limited purpose of
determining compliance with the DSCR Parameters
and the LTV Parameters, Lender hereby commits to
fund an Original Loan Amount at least equal to
$454,600,000 less the Sale Reduction Amount on
the Closing Date, subject to (i) satisfaction of
all other conditions set forth in the Commitment
and this Term Sheet as of the Closing Date,
including, without limitation, those set forth in
the section hereof entitled "Credit Underwriting"
and (ii) there not occurring prior to the Closing
Date a material adverse change in the condition,
financial or otherwise, of the Borrower, the
Client or the Properties; provided, however, that
a change or changes in the financial performance
of the Properties shall be deemed to be a
material adverse change in the financial
condition of the Properties only if such change
or changes result in the Bench Mark Cash Flow
Amount (as defined below) as of the last day of
any month after May, 1999 being less than 98.5%
of the Bench Mark Cash Flow Amount as of May 31,
1999. In addition to the foregoing, with respect
to the DSCR Parameters and LTV Parameters
described above, provided that Client and
Borrower cooperate in all respects with Lender,
Lender shall, not later than July 20, 1999,
complete a sufficient amount of its financial due
diligence for the limited purpose of determining
compliance with the DSCR Parameters and the LTV
Parameters, and shall notify Client on July 20,
1999 of the Original Loan Amount that Lender will
commit to fund on the Closing Date and the Bench
Mark Cash Flow Amount as of May 31, 1999, subject
to (i) satisfaction of all other conditions set
forth in the Commitment and this Term Sheet as of
the Closing Date, including, without limitation,
those set forth in the section hereof entitled
"Credit Underwriting", (ii) the Bench Mark Cash
Flow Amount as of the last day of any month after
May, 1999 being not less than the Bench Mark Cash
Flow Amount as of May 31, 1999, and (iii) there
not occurring prior to the Closing Date a
material adverse change in the condition,
financial or otherwise, of the
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EXHIBIT A
Page 7
Borrower, the Client or the Properties. Borrower and
Client agree that their lack of cooperation will
automatically extend the July 20, 1999 date. The term
"Bench Mark Cash Flow Amount" when used herein means the
trailing 12 month Actual Net Cash Flow for the Properties
as determined as of any determination date; provided,
however, that in the event that any of the Properties
listed on Exhibit D attached hereto are sold prior to a
determination date the trailing 12 month Actual Net Cash
Flow for such Property shall be excluded from the Bench
Mark Cash Flow Amounts as of May 31, 1999 and as of such
determination date.
Client shall notify Lender in writing of the anticipated
date of the mailing of the Proxy Statement and the Consent
Solicitation Statement (as such terms are defined in the
Merger Agreement (as defined below)) not more than
fourteen (14) days and not less than ten (10) days prior
to such anticipated date. Within seven (7) days following
receipt of such notice, Lender shall deliver to Client a
written report (the "Status Report") with respect to the
status of Lender's due diligence. The Status Report shall
describe as of a date three (3) days prior to its date (a)
the extent to which Lender has completed its due diligence
(the "Completed Due Diligence"); and (b) any issues
identified by Lender as a result of the Completed Due
Diligence.
PREPAYMENT
PROVISION: The Mortgage Loan will be prepayable in whole or
in part during its Term in accordance with the
provisions of this paragraph. The Mortgage Loan
will have a prepayment fee of ____% of the
principal amount prepaid in loan years one and
two and ____% of the principal amount prepaid in
loan years three and four; provided, however,
that there will be a right to prepay up to a
portion of the principal of the Mortgage Loan
equal to $100 million less the Sale Reduction
Amount as of the Closing Date within the first
nine (9) months of the Term, but in no event
later than May 31, 2000, with a prepayment fee of
____% of the principal amount prepaid. No
prepayment fee shall be payable in connection
with (i) the payments required pursuant to the
section hereof entitled "Amortization", (ii)
involuntary prepayments due to casualty or
condemnation or (iii) prepayments made to obtain
an extension of the Term of the Mortgage Loan
pursuant to the section hereof entitled
"Extension Conditions".
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EXHIBIT A
Page 8
RELEASE: Borrower may obtain the release of a Property
from the liens and security interests securing
the Mortgage Loan in connection with a sale or
refinancing of such Property, subject to the
Prepayment Provision set forth above and subject
to certain customary release provisions,
including, but not limited to, the following:
(i) no monetary or material non-monetary default shall
have occurred and be continuing on the date of the
release;
(ii) in connection with any release of a Property during
the period from the Closing Date to (but excluding)
the Final Test Date, the Borrower shall make a
prepayment of the Mortgage Loan in an amount not less
than the greatest of (a) an amount sufficient to
cause the DSCR (after giving effect to the release
and prepayment) to equal the DSCR on the Closing
Date, (b) an amount sufficient to cause the DSCR
(after giving effect to the release and prepayment)
to equal the average of the DSCR existing immediately
prior to such release and the DSCR on the Closing
Date, and (c) an amount equal to (x) ____ times the
original principal amount of the Mortgage Loan
allocated by Lender to the Property being released if
such Property was previously identified and deemed by
Lender to be a limited service hotel (which aggregate
allocable loan amount shall equal approximately $____
million), (y) ____ times the original principal
amount of the Mortgage Loan allocated by Lender to
the Property being released if such Property was
previously identified and deemed by Lender to be an
early disposition hotel (which aggregate allocable
loan amount shall equal approximately $____ million),
or (z) ____ times the original principal amount of
the Mortgage Loan allocated by Lender to any other
Property being released;
(iii)in connection with any release of a Property
occurring during the Period from the Final Test Date
to the Maturity Date, the Borrower shall make a
prepayment of the Mortgage Loan in an amount not less
than the greatest of (a) an amount sufficient to
cause the DSCR (after giving effect to the release
and prepayment) to equal the DSCR on the Final Test
Date, (b) an amount sufficient to cause the DSCR
(after giving effect to the release and prepayment)
to equal the average of the DSCR existing immediately
prior to such release and the DSCR on the
226
EXHIBIT A
Page 9
Final Test Date, (c) an amount sufficient to cause
the DSCR (after giving effect to the release and
prepayment) to equal the DSCR on the Closing Date,
and (d) an amount equal to ____ times the original
principal amount of the Mortgage Loan allocated by
Lender to the Property being released; and
(iv) if the Property being released is being refinanced,
such Property must be transferred to an entity that
is not a subsidiary of the Borrower and otherwise
satisfies all rating agency requirements.
Notwithstanding the foregoing, the Borrower shall make a
prepayment of the Mortgage Loan in connection with each
release of any of the Properties identified on Exhibit B
as Building Pads or a Development Land in an amount to be
agreed by the parties; provided, however, that the
aggregate of such prepayment amounts shall equal
$1,000,000.
The parties understand that some or all of the Properties
listed on Exhibit D attached hereto may be sold prior to
the Closing Date. In such event (x) any of such Properties
which are sold shall not constitute Collateral, (y) the
Original Loan Amount shall be reduced on account of each
of such Properties which is sold by an amount equal to the
amount specified in clause (ii) (c) above which would be
payable in connection with the release of such Property
(the aggregate of such reduction amounts as of any
relevant date being referred to herein as the "Sale
Reduction Amount"), and (z) Lender shall be entitled in
its reasonable discretion to reallocate the Original Loan
Amount as so reduced among the remaining Properties.
ACQUISITION; EQUITY
PORTION OF
PURCHASE PRICE: The Acquisition shall not include a tender offer
and shall be consummated on the Closing Date
pursuant to a structure which shall be in
accordance with the terms of the forms of merger
agreement (the "Merger Agreement")and
contribution agreement annexed hereto as Exhibits
E and F, respectively, and shall otherwise be on
terms that do not conflict with the terms hereof
and of the Commitment and which are satisfactory
to the Lender. The Acquisition shall include,
without limitation, acquisition of the management
and leasing companies affiliated with Sunstone
Hotel Investors, Inc. Prior to the Closing
227
EXHIBIT A
Page 10
Date, the Client and Borrower will provide evidence
satisfactory to Lender, in its sole discretion, that the
total equity provided by Client and Borrower (without
duplication) is not less than 35.5% of an amount equal
to the total purchase price paid in the Acquisition less
$69.2 million of Existing Debt (or, if greater, the net
proceeds of any refinancing of the Existing Debt),
including customary closing costs, the purchase price
paid to acquire the interests in the operating lessee
and the purchase price paid to acquire the management
company.
INTEREST RATE CAP: The Borrower shall be obligated to purchase an
interest rate cap reasonably satisfactory to
Lender from a provider whose identity and credit
worthiness are satisfactory to Lender in its sole
discretion as soon as one (1) month LIBOR reaches
____% but in no event later than the earlier of
____________ or Securitization of the Mortgage
Loan. The cap shall have a ____% one (1) month
LIBOR strike price. The principal that is
required to be repaid by March 31, 2001 under the
terms of the first paragraph of the section
hereof entitled "Amortization" may have an
interest rate cap that expires on March 31, 2001.
SECURITY ACCOUNTS: One or more security accounts shall be
established in the name of, and under the sole
dominion and control of, the Lender or its
designated representatives (the "Security
Accounts"), and all income from the Properties
shall be deposited directly into such Security
Accounts. At the discretion of Lender, such
Security Accounts may include (but may not be
limited to) the following:
(i) Debt Service Account - A replenishable
account in an amount equal to the sum of
(a) one month's interest payment, which
amount will be collected during the term
of the Mortgage Loan over the course of
each month and deposited into the debt
service account and applied as described
more fully in the loan documents; and (b)
$2,000,000, which amount will be deposited
in the debt service account on the Closing
Date and maintained therein at all times
in addition to the amount collected
monthly;
(ii) Basic Carrying Cost Account - An annual
budget for monthly payments to be made on
account of the real estate taxes and
assessments, insurance premiums and land
lease rental payments for the Properties
(in an amount sufficient to pay
228
EXHIBIT A
Page 11
these costs) shall be submitted to Lender for
approval each year. Once such budget is
approved, the amounts therein shall be
reserved in monthly installments to be
mutually agreed from the revenues
deposited in the Security Accounts. The
budget for each year of the Term will be
at least 3% in excess of the actual amount
of the previous year's real estate taxes
and assessments and insurance premiums for
the Properties;
(iii) FF&E Reserve Account/Replacement Reserve
Account - An amount, subject (as to
replacement reserves) to an engineering
report for each Property, to be escrowed
monthly in increments equal to 4.0% of the
prior month's total gross revenues for
such Property. At closing, such amount
will be equal to 1/12th of 4.0% of
year-end Pro Forma 1999 gross revenues of
the Properties;
(iv) Deferred Maintenance Account and Environmental
Remediation Account - Such accounts to be
established as recommended in the relevant third
party reports and such additional amounts as
mutually agreed between the parties;
(v) Reserved Interest Account - An account for purposes
of holding the Reserved Interest Amount until its
application on the Final Test Date in accordance
with the section hereof entitled "Interest Rate";
and
(vi) Net Cash Flow Reserve Account - An account to be
established in accordance with the section hereof
entitled "Net Cash Flow
Reserve Account".
NET CASH FLOW
RESERVE ACCOUNT: If the DSCR drops below _____ times for any
trailing twelve month period during the Term of
the Mortgage Loan, all cash flow after debt
service, reserves, income taxes, non-affiliate
fees, approved affiliate management fees, and
operating expenses will be collected and held in
a reserve account (the "Net Cash Flow Reserve
Account") as part of the Collateral. Funds will
be released from the Net Cash Flow Reserve
Account when the DSCR is equal to or greater than
_____times for a trailing twelve-month period.
In addition to the foregoing, from and after the
Final Test Date, if the DSCR is less than ____
times
229
EXHIBIT A
Page 12
but greater than or equal to ____ times for any trailing
twelve month period, ___% of all cash flow after debt
service, reserves, income taxes, non-affiliate fees,
approved affiliate management fees, and operating
expenses will be collected and held in the Net Cash Flow
Reserve Account, and the funds therein will be released
when the DSCR is equal to or greater than _____ times for
a trailing twelve-month period. Provided no default then
exists on the Mortgage Loan, Lender shall, from time to
time, release funds from the Net Cash Flow Reserve
Account to the Borrower for the purpose of paying
operating expenses that have been approved by Lender in
its sole discretion, if and to the extent the Borrower
has insufficient funds to pay such operating expenses at
the time such payment is due. At Borrower's option,
funds in the Net Cash Flow Reserve Account may be
applied to prepay principal of the Mortgage Loan;
provided, however, that such prepayment will be deemed
voluntary and will be subject to the prepayment fee
described above.
REQUIRED LENDER
APPROVALS: Lender's approval, which shall not be
unreasonably withheld, is required for changes in
a Property flag if (i) there is a proposed flag
downgrade, (ii) the Property in question is one
of the largest ten assets in allocated loan
amount, or (iii) if, after giving effect to such
flag change there have been flag changes in
respect of more than seven (7) Properties during
the Term. Lender's approval is required for the
management agreement and the operating lease and
any change in the property manager or operating
lessee , as well as any change in the form and
content of the management agreement or the
operating lease.
PROPERTY MANAGEMENT
REPLACEMENT: Lender reserves the right to replace the property
manager if (i) the Actual Net Cash Flow (adjusted
for a 4% FF&E and replacement reserve) for any
trailing 12-month period during the Term of the
Mortgage Loan is insufficient to cause the debt
service coverage ratio for the Mortgage Loan to
be at least equal to 1.10 times (using the then
current interest rate on the Mortgage Loan), (ii)
there is a material default under the management
agreement by the property manager, or (iii) the
property manager becomes insolvent.
RECOURSE: The Mortgage Loan will be non-recourse to the
Borrower and the Holding Company, except for
losses sustained by Lender with regard to (i)
fraud, (ii) misappropriation of funds, (iii)
breach of
230
EXHIBIT A
Page 13
representations or warranties, provided such breach is
intentional or if unintentional, involved information
that a similarly situated borrower in similar
circumstances should have known assuming due inquiry,
(iv) violation of restrictions against transfer and/or
encumbrances, and (v) any other matters upon which
Borrower and Lender may agree. The Mortgage Loan shall
in all events be recourse to the Borrower and the
Holding Company in the case of voluntary bankruptcy or
failure to contest involuntary bankruptcy. The Mortgage
Loan will be non-recourse to the Client except for
losses sustained by Lender with regard to fraud or
misappropriation of funds by the Client or of which the
Client has actual knowledge. Up to $10.5 million of the
senior-most (i.e., least risky) portion of the Mortgage
Loan may be guaranteed on a recourse basis by the direct
or indirect owners of Borrower but only if such guaranty
does not impair the bankruptcy remote nature of Borrower
or cause Borrower not to meet the requirements of the
rating agencies involved in any Securitization of the
Mortgage Loan (including, without limitation, the
requirement for the delivery by Borrower's counsel of a
satisfactory non-consolidation opinion).
CLOSING: The Client and Lender currently anticipate that the
Mortgage Loan will close by no later than November 19,
1999, subject to Client's timely delivery of information
satisfactory to Lender, and subject to the satisfaction of
all of the conditions of the Commitment and this Term
Sheet.
CREDIT UNDERWRITING: Lender will perform credit underwriting of the
Mortgage Loan in accordance with the standards of
prudent institutional investors, which will
include, among other things, environmental
reviews, engineering reports (which for all
Properties identified by Lender must include a
seismic assessment), title reports, appraisal
reports, NOI audits, assessments of casualty and
liability insurance coverages (which coverages
shall be satisfactory to Lender and shall include
earthquake insurance for all properties in an
earthquake zone), and a full legal documentation
review. The bankruptcy remote nature of the
Borrower must be satisfactory to Lender's counsel
and must meet the requirements of the rating
agencies involved in any Securitization of the
Mortgage Loan. Origination of the Mortgage Loan
is contingent upon and subject to Lender's
complete satisfaction, in its sole and absolute
discretion, with the result of its credit
underwriting; provided, however, that if such
credit underwriting causes Lender to
231
EXHIBIT A
Page 14
require cash reserves in order to include any of the
Properties as Collateral or if Lender rejects any of the
Properties as Collateral because cash reserves are
insufficient, no such rejection or reserve requirement
shall entitle Lender to refuse to make the Mortgage Loan
as a result of its credit underwriting unless the sum of
(a) the principal amount of the Mortgage Loan allocated
by Lender to the Properties so rejected and (b) the
amount of cash reserves so required by Lender, exceeds
$25 million. Additionally, earthquake insurance and/or
seismic upgrades may be required. Notwithstanding the
foregoing, Lender shall determine compliance with the
DSCR Parameters and LTV Parameters by July 20, 1999 as
provided in the section hereof entitled "Due Diligence
in Respect of DSCR and LTV".
ADDITIONAL FINANCING: Borrower will not be permitted to incur, directly or
indirectly, any additional indebtedness other than the
Mortgage Loan, except for de minimus amounts of short
term unsecured trade debt incurred in the ordinary
course of business. The parent of Borrower (the
"Parent") will not be permitted to incur, directly or
indirectly, any additional indebtedness other than
mezzanine financing after December 31, 2000, provided
the following criteria are met with respect thereto: (i)
the total indebtedness of the Parent shall not exceed
the lesser of (x) ____% of the portion of the purchase
price paid in the Acquisition for the Properties which
constitute the Collateral for the Mortgage Loan and (y)
___% of the then current fair market value of such
Properties, (ii) the rating agencies affirm that there
will be no downgrades of the ratings given to any
securities issued in a securitization of the Mortgage
Loan, and (iii) the mezzanine debt may be secured by a
pledge of equity interests in the Borrower.
ADVERTISING: Lender and Client and their respective affiliates
do not intend to advertise the Mortgage Loan.
However, either party will be entitled to
advertise the Mortgage Loan, at its own expense,
subject to the prior written consent of the other
party, such consent to be granted in the sole
discretion of such other party.
DOCUMENTATION: All documents relating to the Mortgage Loan must
be mutually satisfactory to the parties.
SERVICER: Lender or its designee will originate the
Mortgage Loan and may engage a third party loan
servicer (the "Servicer") to administer the
Mortgage Loan. The Client will be responsible
for reasonable initial
232
EXHIBIT A
Page 15
setup fees of the Servicer and any direct bank charges
of the Servicer. Client will not incur any on-going
servicing fees.
REPRESENTATIONS AND
WARRANTIES: It is a condition of Lender's origination of the
Mortgage Loan that the Borrower provide satisfactory
representations and warranties. In addition, the Mortgage
Loan must contain indemnities from the Borrower which are
satisfactory to Lender.
COOPERATION: Lender's funding is not contingent upon any rating or
subordination levels being obtained from any rating
agencies for the Mortgage Loan. However, Client
acknowledges and agrees that Lender has the absolute
right to securitize, sell or otherwise dispose of all or
any portion of the Mortgage Loan (each, a
"Securitization"), and Client agrees that it and its
affiliates (including Borrower) shall cooperate in all
respects at Lender's request in connection with any such
Securitization of the Mortgage Loan by Lender, including
in connection with any documentation changes (which
result in no material economic adverse changes to
Borrower), the preparation, completion, execution and
delivery (including as issuer and/or registrant, as
applicable) of all necessary registration statements,
prospectuses and/or private placement memoranda, site
inspections, updated appraisals, or other diligence
requested or conducted by any investors, and/or any
rating agency, whether before or after funding.
Lender's Securitization of the Mortgage Loan may include a
syndication of all or a portion of the Mortgage Loan to
other lenders, to be accomplished through one or more
Mortgage Loan assignments and/or participations. Client
agrees that it and its affiliates (including Borrower)
shall cooperate in all respects at Lender's request in
connection with any such syndication of the Mortgage Loan
by Lender, including in connection with any documentation
changes requested by Lender (which result in no material
economic adverse changes to Borrower).
In order to implement a Securitization, Lender may, in its
sole discretion, determine to (i) reconstitute the
Mortgage Loan such that it is recast into multiple senior
and subordinate loan tranches, (ii) reallocate the
Collateral among the various tranches of the Mortgage Loan
and/or (iii) sever the Mortgage Loan or any tranche
thereof into two or more self-contained, internally
cross-collateralized
233
EXHIBIT A
Page 16
mortgage loan financings (any or all of the foregoing, a
"Loan Reconstitution"). Client agrees that it and its
affiliates (including Borrower) shall cooperate in all
respects at Lender's request in connection with any such
Loan Reconstitution by Lender, including in connection
with any documentation changes and any changes to the
structure of the Mortgage Loan or the ownership of the
Properties requested by Lender (which result in no
material economic adverse changes to Borrower).
Borrower shall pay all Securitization costs and expenses;
provided, however, that Borrower shall not be obligated to
pay any third party out of pocket costs and expenses which
accrue after the Closing Date.
EXCLUSIVITY: From the date of the Commitment until its expiration or
termination, (i) Lender shall have the exclusive right
to arrange for the financing of the Acquisition and
Client shall not enter into discussions with any other
source in respect of, or procure from any other source,
financing for the Acquisition, and (ii) neither Lender
nor any of its affiliates shall provide financing to any
third party competing with the Client to acquire
Sunstone Hotel Investors, Inc. or its assets, business
and operations.
Notwithstanding the first paragraph of this section, if
the Original Loan Amount specified by Lender on July 20,
1999 is less than an amount equal to $478,300,000 less the
Sale Reduction Amount as of such date, then Client will
have thirty (30) days to notify Lender whether or not
Client will accept the specified Original Loan Amount. If
Client accepts the specified Original Loan Amount, this
Commitment will remain in full force and effect. If Client
rejects the specified Original Loan Amount or does not
respond within such 30-day period, this Commitment shall
terminate at the expiration of such 30-day period.
Lender shall have (i) an exclusive right of first offer to
provide mortgage or entity financing for any Properties
that are refinanced by Borrower, Client or any of their
respective affiliates (and Lender's refinancing offer must
be accepted unless an alternative bid for the same loan is
accepted from a third party on terms that are materially
more favorable to Client, Borrower or their relevant
affiliate, as applicable), (ii) the right to serve as lead
manager in connection with
234
EXHIBIT A
Page 17
any public or private debt offering by Client or any of
its affiliates, the proceeds of which are to be used, in
whole or in part, to repay all or any portion of the
Mortgage Loan, (iii) the right to serve as co-lead
manager on equal economic terms with any other co-lead
manager in connection with any equity offering made by
Client or any of its affiliates, the proceeds of which
are to be used, in whole or in part, to repay all or any
portion of the Mortgage Loan, and (iv) the right to
serve as dealer/manager for the Client in the event the
Acquisition takes the form of a tender offer.
ATTORNEY'S FEES: In the event of any litigation, arbitration or other
dispute resolution proceedings between the parties
hereto arising out of or relating to the Commitment,
this Term Sheet or the transactions contemplated hereby
and thereby, the party prevailing in such litigation,
arbitration or proceeding shall be entitled to recover
from the other party the reasonable attorney's fees and
disbursements incurred by such prevailing party in
connection with such litigation, arbitration or
proceeding.
NO JOINT VENTURE: Nothing contained herein or in the Commitment (i) shall
constitute Lender or any of its affiliates as members of
any partnership, joint venture, association or other
separate entity with the Client, the Borrower, their
respective affiliates or any other entities, (ii) shall
be construed to impose any liability as such on Lender,
or (iii) shall constitute a general or limited agency or
be deemed to confer on either party hereto any express,
implied or apparent authority to incur any obligation or
liability on behalf of the other.
235
Schedule I
LIST OF BORROWERS
- Sunstone Hotel Properties, Inc.
- Sunstone Hotel Investors, L.P.
- Kahler E&P Partners, L.P.
- Sunstone Hotels, LLC
- Park Hotels, LLC
- Sunstone Kent Associates, L.P.
236
EXHIBIT B
PROPERTY CITY STATE FEE/LEASEHOLD ROOMS
- -------- ---- ----- ------------- -----
Residence Inn Provo UT Fee 114
Marriott Provo Park UT Fee 333
Economy Inn Rochester MN Fee 266
Holiday Inn Rochester MN Fee 170
Marriott Rochester MN Fee 194
Hilton Salt Lake City UT Fee 362
Courtyard by Marriott Cypress CA Fee 180
Holiday Inn Flagstaff AZ Fee 156
Marriott Courtyard Fresno CA Fee 116
Residence Inn High. Ranch CO Fee 117
Hawthorn Suites Kent WA Fee 152
Marriott Napa CA Fee 192
Hampton Inn Oakland CA Fee 152
Residence Inn Oxnard CA Fee 252
Holiday Inn Express Poulsbo WA Fee 63
Holiday Inn Price UT Fee 151
Holiday Inn Provo UT Fee 78
Marriott Courtyard Riverside CA Fee 163
Residence Inn Sacramento CA Fee 126
Holiday Inn San Diego (Harbor) CA Fee 202
Holiday Inn San Diego (Stadium) CA Leasehold 175
Fairfield Inn Santa Clarita CA Fee 66
Residence Inn Santa Clarita CA Fee 90
Comfort Suites South San Francisco CA Fee 165
Holiday Inn Steamboat CO Fee 82
Hampton Inn Clackamas OR Leasehold 114
Holiday Inn Kent WA Fee 122
Holiday Inn Express Starks OR Fee 85
Hampton Inn Tucson AZ Fee 125
Hampton Inn Silverthorne CO Fee 160
Hilton Carson CA Fee 224
Holiday Inn La Mirada CA Fee 289
Marriott Courtyard Los Angeles (LAX) CA Leasehold 180
Holiday Inn Mesa AZ Fee 246
Hampton Inn Mesa AZ Fee 118
Marriott Pueblo CO Leasehold 164
Hawthorn Suites Sacramento CA Fee 272
237
EXHIBIT B
(Continued)
PROPERTY CITY STATE FEE/LEASEHOLD ROOMS
- -------- ---- ----- ------------- -----
Holiday Inn San Diego (Old Town) CA Fee 175
Residence Inn San Diego CA Fee/Leasehold 144
Ramada Inn San Diego (Vacation CA Fee 125
Inn)
Hawthorn Suites Anaheim CA Leasehold 130
Holiday Inn Craig UT Fee 152
Best Western Lynnwood WA Fee 103
Marriott Courtyard Lynnwood WA Fee 164
Radisson Oxnard CA Fee 160
Holiday Inn Select Renton CA Fee 226
Hilton Garden Inn Sacramento CA Fee 153
Residence Inn San Diego CA Fee 121
Holiday Inn Santa Clara CA Fee 168
Hampton Inn Santa Clarita CA Fee 130
Pacific Shores Santa Monica CA Leasehold 164
Marriott Courtyard Sante Fe NM Fee 213
Building Pads San Clemente CA Fee ___
Development Land Napa CA Fee ___
Development Land Cypress CA Fee ___
Development Land Rochester Minn Fee ___
238
EXHIBIT C
PROPERTY CITY STATE FEE/LEASEHOLD ROOMS
- -------- ---- ----- ------------- -----
Sheraton Chandler AZ Fee 295
University Marriott Salt Lake City UT Fee 218
Kahler Hotel Rochester MN Fee 699
Marriott Park City UT Fee 200
Marriott Ogden UT Fee 288
Two (2) Laundry
facilities
239
Exhibit D
PROPERTIES WHICH MAY
BE SOLD PRIOR TO
CLOSING DATE
Property City State Property Type
- -------- ---- ----- -------------
Hampton Inn Clackamas OR Limited Service
Holiday Inn Express Starks OR Limited Service
Hawthorne Suites Kent WA Other
Holiday Inn Kent WA Other
240
Exhibit E
FORM OF MERGER
AGREEMENT
241
Exhibit F
FORM OF CONTRIBUTION
AGREEMENT
242
Exhibit H
Bank of America
IRREVOCABLE STANDBY LETTER OF CREDIT
ISSUING BANK:
NATIONSBANK, N.A.
ISSUE DATE: 08JUL99 EXPIRY DATE: 31JAN00
LETTER OF CREDIT NUMBER: 941648 PLACE: DALLAS, TEXAS
AMOUNT: USD 25,000,000.00
TWENTY FIVE MILLION AND 00/100
BENEFICIARY:
FIDELITY NATIONAL TITLE INSURANCE
COMPANY, AS ESCROW AGENT, OR ANY
SUCCESSOR AS ESCROW AGENT UNDER THE
ESCROW AGREEMENT DATED JULY __,1999
BY AND AMONG SUNSTONE HOTEL ****
APPLICANT:
WESTBROOK REAL ESTATE FUND III, LP
13155 NOEL RD., LB 54, STE 2300
DALLAS, TX 75240
WE HEREBY ISSUE THIS IRREVOCABLE STANDBY LETTER OF CREDIT IN BENEFICIARY'S FAVOR
WHICH IS AVAILABLE BY PAYMENT AGAINST DRAFTS DRAWN AT SIGHT ON NATIONSBANK, N.A.
BEARING THE CLAUSE: QUOTE DRAWN UNDER IRREVOCABLE LETTER OF CREDIT NO. 941648
CLOSE QUOTE ACCOMPANIED BY THE FOLLOWING DOCUMENTS:
1. A WRITTEN STATEMENT PURPORTEDLY SIGNED BY AN AUTHORIZED REPRESENTATIVE
OF THE BENEFICIARY IN THE FORM OF EXHIBIT "A" ATTACHED HERETO.
2. THE ORIGINAL OF THIS LETTER OF CREDIT AND ANY AMENDMENTS HERETO.
SPECIAL CONDITIONS:-
**** INVESTORS, L.P.,
SUNSTONE HOTEL INVESTORS, INC.
SHP ACQUISITION, L.L.C. AND
FIDELITY NATIONAL TITLE INSURANCE COMPANY
AS ESCROW AGENT
1300 DOVE ST., STE 310
NEWPORT BEACH, CA 92660
ATTN: PATTY BEVERLY
IRREVOCABLE STANDBY LETTER OF CREDIT NO. 941648, PAGE 1
243
2
Bank of America
PRESENT DOCUMENTS TO BANK OF AMERICA, N.A., ATTN: LETTER OF CREDIT DEPARTMENT,
901 MAIN STREET, 9TH FLOOR, TX1-492-09-01, DALLAS, TEXAS 75202.
UNLESS OTHERWISE SPECIFICALLY STATED, THIS CREDIT IS SUBJECT TO THE UNIFORM
CUSTOMS AND PRACTICE FOR DOCUMENTARY CREDITS 1993 REVISION. THE INTERNATIONAL
CHAMBER OF COMMERCE PUBLICATION NO. 500.
FOR ASSISTANCE PLEASE CALL BARBARA TEAGUE AT 214-209-3097.
- ------------------------
AUTHORIZED SIGNATURE
NATIONSBANK, N.A.
IRREVOCABLE STANDBY LETTER OF CREDIT NO. 941648, PAGE 2
244
3
Bank of America
EXHIBIT A TO IRREVOCABLE LETTER OF CREDIT NO. 941648
CERTIFICATE
THE UNDERSIGNED, A DULY AUTHORIZED OFFICER OF FIDELITY NATIONAL TITLE INSURANCE
COMPANY, AS ESCROW AGENT (THE "ESCROW AGENT"), HEREBY CERTIFIES TO NATIONSBANK,
N.A. (THE "ISSUER") WITH REFERENCE TO LETTER OF CREDIT NO. 941648 (THE "LETTER
OF CREDIT") HELD BY THE ESCROW AGENT UNDER THE ESCROW AGREEMENT DATED JULY __,
1999 BY AND AMONG SUNSTONE HOTEL INVESTORS, L.P., SUNSTONE HOTEL INVESTORS,
INC., SHP ACQUISITION, L.L.C. AND THE ESCROW AGENT, AS AMENDED THROUGH THE DATE
OF THIS CERTIFICATE (AS SO AMENDED, THE "ESCROW AGREEMENT") THAT:
1. THE UNDERSIGNED IS A DULY AUTHORIZED OFFICER OF FIDELITY
NATIONAL TITLE INSURANCE COMPANY.
2. THE UNDERSIGNED IS AUTHORIZED TO DRAW ON, AND DISBURSE THE
PROCEEDS OF, THE LETTER OF CREDIT PURSUANT TO SECTION 4 OF THE
ESCROW AGREEMENT.
PLEASE WIRE THE FUNDS AS FOLLOWS:
ABA NO.:.....................
ACCOUNT NO.:.................
ACCOUNT NAME:................
BANK:........................
AMOUNT:......................
REFERENCE:...................
IN WITNESS WHEREOF, THE UNDERSIGNED HAS EXECUTED AND DELIVERED THIS CERTIFICATE
AS OF THE ____ DAY OF____, ____.
FIDELITY NATIONAL TITLE
INSURANCE COMPANY, AS ESCROW
AGENT
BY:_________________________
PATTY BEVERLY
VICE PRESIDENT AND
ESCROW MANAGER
245
Exhibit I
[BROBECK PHLEGER & HARRISON LETTERHEAD]
RE: SUNSTONE HOTEL INVESTORS, INC./TAX OPINION
Ladies and Gentlemen:
This opinion is being delivered to you in connection with the Agreement
and Plan of Merger dated as of July 12, 1999 (the "Merger Agreement") by
and among SHP Acquisition, Inc., a Delaware limited liability company
("Parent"), SHP Acquisition Corp., a Maryland corporation and indirect
subsidiary of Parent ("Buyer") and Sunstone Hotel Investors, Inc., a Maryland
corporation (the "Company"). Except as otherwise provided, capitalized terms not
defined herein shall have the meanings set forth in the Merger Agreement and the
exhibits thereto. All section references, unless otherwise indicated, are to the
Internal Revenue Code of 1986, as amended (the "Code").
The Company currently owns more than a 90% general partner interest in
Sunstone Hotel Investors, L.P. (the "Partnership"). The Partnership currently
owns, either directly or indirectly through subsidiary entities, several hotels
and associated personal property (the "Hotels"). Each of the Hotels is leased to
Sunstone Hotel Properties, Inc., a Colorado corporation (the "Lessee"), pursuant
to a percentage lease (collectively, the "Leases"). Sunstone Hotel Management,
Inc. (the "Management Company") is managing the Hotels. Robert A. Alter and
Charles L. Biederman are 80% and 20% shareholders, respectively, of the Lessee
and Mr. Alter is the sole shareholder of the Management Company.
In 1997, the Company acquired all of the stock of Kahler Realty
Corporation ("Kahler"). (This transaction is referred to herein as the
"Acquisition".) Kahler adopted a plan of liquidation after the Acquisition and
all of its assets, subject to all of its outstanding liabilities, were
transferred to the Company during 1997. The Company in turn contributed all such
assets to the Partnership.
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In our capacity as counsel to the Company in connection with the
opinions rendered below, we have examined the following:
1. The Articles of Incorporation of the Company, as amended to
date.
2. The Company's By-Laws, as amended to date.
3. The Merger Agreement.
4. The Limited Partnership Agreement of the Partnership, as
amended to date (the "Partnership Agreement").
5. The cost segmentation analysis dated August 15, 1995, the
cost segmentation analysis as of December 31, 1995, the cost segmentation
analysis as of May 31, 1996, and the cost segmentation analysis as of December
31, 1996, prepared by Coopers & Lybrand L.L.P., and the cost segmentation
analysis prepared by Ernst & Young LLP ("Ernst & Young") in connection with the
Acquisition. (The foregoing analyses and information are referred to herein as
the "Cost Segmentation Analyses.")
6. An analysis dated June 25, 1999, of the Company's
satisfaction of the tests for qualification as a REIT for income tax purposes
prepared by Ernst & Young (the "REIT Qualification Analysis").
7. The analysis of Kahler's pre-Acquisition earnings and
profits prepared by KPMG Peat Marwick LLP in connection with the Acquisition
(the "KPMG E&P Analysis").
8. The review of the KPMG E&P Analysis prepared by Ernst &
Young in connection with the Acquisition (the "Ernst & Young E&P Review").
9. A representation certificate from the Company as to certain
factual matters (the "Representation Certificate," a copy of which is attached
to this letter).
10. Such other documents and data as we have deemed necessary
or appropriate for purposes of this opinion.
In connection with the opinions rendered below, we have assumed or
obtained representations that:
A. Each of the documents referred to above has been duly
authorized, executed, and delivered, is authentic if an original or accurate if
a copy, and has not been amended.
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B. The Company will not make any amendments to its
organizational documents, or in its operations or the Leases, after the date of
this opinion that would affect its qualification as a REIT for any taxable
period prior to the Effective Time.
C. No actions will be taken by the Company, the shareholders
of the Company, the Partnership, the partners of the Partnership or any other
entity in which the Company owns an interest (either directly or indirectly)
after the date hereof that would have the effect of materially altering the
facts upon which we have relied in rendering our opinion, including those facts
set forth in the Representation Certificate.
D. The Cost Segmentation Analyses and the REIT Qualification
Analysis are accurate in all material respects and there have been no material
changes in the information reflected in the Ernst & Young REIT Qualification
Analysis since the date thereof that would adversely affect the Company's
qualification as a REIT.
E. The information and conclusions reflected in the KPMG E&P
Analysis and the Ernst & Young E&P Review are accurate in all material respects.
F. All projections that have been provided to us by the
Company regarding the expected financial performance of the Company, the Lessee
and the Management Company represented reasonable projections when prepared.
G. All representations made by the Company in the Merger
Agreement and other agreements to which the Company is a party related to the
Merger are true and correct in all material respects.
H. The Company's taxable year that commenced on January 1,
1999, will end on the date of the Effective Time and the Company will be
included in the consolidated return of _______________ from the day after the
date of the Effective Time.
I. The Company is a validly organized and duly incorporated
corporation under the laws of the State of Maryland.
J. The Partnership is a duly organized and validly existing
partnership under the laws of the State of Delaware.
K. Each partnership, limited liability company or joint
venture in which the Company or the Partnership has an interest was properly
treated as a partnership for federal income tax purposes for all relevant
periods.
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We are of the opinion that, if all of the representations and
assumptions upon which we have relied are accurate in all material respects:
1. Since the inception of its taxable year ended December 31,
1995, through its taxable year ended December 31, 1998, the Company was
organized and operated in conformity with the requirements for qualification and
taxation as a REIT under the Code and qualified as a REIT under the Code.
2. For the period that commenced on January 1, 1999, and
continuing through the Effective Time of the Merger, the Company was organized
and operated in conformity with the requirements for qualification and taxation
as a REIT under the Code and qualified as a REIT under the Code.
3. For all periods commencing upon the formation of the
Partnership on September 22, 1994, and ending at the Effective Time of the
Merger, for United States federal income tax purposes, the Partnership has been
classified as a partnership, rather than as an association taxable as a
corporation, and has not been a "publicly traded partnership" taxable as a
corporation pursuant to Section 7704 of the Code.
If any of the representations upon which we have relied is inaccurate
in any material respect, you may not rely on the foregoing opinions. In that
event, our opinion could be different (e.g., that the Company was not organized
and operated in conformity with the requirements for qualification as a REIT
under the Code and did not qualify as a REIT under the Code for the pertinent
portion or all periods prior to the Effective Time). Inasmuch as a failure of
the Company to qualify as REIT for all periods or a loss of REIT status at a
particular point in time prior to the Merger could result in substantial taxes,
interest and penalties to the Company, Parent should assure itself prior to the
closing of the Merger that the factual representations and information referred
to above (including, without limitation, each of the representations set forth
in the attached representation certificate) are accurate in all material
respects. We have undertaken no independent investigation of these factual
representations and we express no opinion as to the accuracy of any such factual
representations or information. Therefore, we cannot provide certainty that the
Company actually qualified as a REIT during the periods in question or that the
Partnership was treated as a partnership for federal income tax purposes during
the periods in question.
Furthermore, inasmuch as we are acting as counsel for the Company and
not as Parent's counsel, Parent should consult with its own tax advisers to
satisfy itself with regard to the opinion set forth in this letter.
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Page 5
The foregoing opinions are based on current provisions of the Code, the
Treasury Regulations, published administrative interpretations thereof, and
published court decisions. The Internal Revenue Service (the "Service") has not
issued Regulations or administrative interpretations with respect to various
provisions of the Code relating to REITs. The foregoing opinion is not binding
on the Service or the courts, and no assurance can be given that the Service
will not successfully challenge our opinion upon audit. Furthermore, no
assurance can be given that the tax law will not change in a way that will
adversely affect the Company and its shareholders.
The foregoing opinion is limited to the federal income tax matters
specifically addressed herein, and no other opinion is rendered with respect to
other federal tax matters or to any issues arising under the tax laws of any
state or locality. We undertake no obligation to update the opinion expressed
herein after the date of this letter. This opinion letter is solely for the
information and use of the addressees and may not be relied upon for any purpose
by any other person without our express written consent.
Very truly yours,
BROBECK, PHLEGER & HARRISON LLP
250
REPRESENTATION CERTIFICATE
FOR
TAX OPINION
This certificate is delivered in connection with the tax opinion
(the "Tax Opinion") to be rendered by Brobeck, Phleger & Harrison LLP as a
condition to the closing of the merger (the "Merger") pursuant to that certain
Agreement and Plan of Merger dated as of the 12th day of July, 1999 (the "Merger
Agreement") by and among SHP Acquisition, Inc., a Delaware corporation, SHP
Acquisition Corp., a Maryland corporation, and Sunstone Hotel Investors, Inc., a
Maryland corporation (the "Company").
The undersigned is aware that the Tax Opinion will contain as a
material premise the truthfulness and accuracy of the representations set forth
in this certificate.
Terms not defined in this certificate have the meaning ascribed
to them in the Merger Agreement filed with respect to the issuance of the
Warrants and Common Stock. Particular sections of the Internal Revenue Code of
1986, as amended (the "Code") referred to in this Certificate are explained in
the Appendix attached hereto.
The undersigned, to the best of his actual knowledge and belief
with respect to each of the following representations, on behalf of the Company
and Sunstone Hotel Investors, L.P. (the "Partnership"), represents and certifies
as follows:
1. Commencing with its 1995 taxable year and in all subsequent
taxable years through the Effective Time of the Merger, the Company has been and
will be operated in such a manner that will make the representations set forth
below true for all such years. The Company's taxable year commencing January 1,
1999, will end on the date of the closing of the Merger, and the Company will
file a consolidated return with _______________ as the common parent commencing
the day after the closing.
2. The Company will not make any amendments to its
organizational documents through the Effective Time of the Merger, or in its
operations or the Leases, after the date of the Tax Opinion that would affect
its qualification as a REIT for any taxable year.
3. No actions will be taken by the Company, the Partnership or
any other entity in which the Company owns an interest after the date hereof
that would have the effect of materially altering the facts upon which the Tax
Opinion is based, including the representations set forth in this Certificate.
Neither the Merger nor any transaction related to the Merger will have the
effect of materially altering the representations set forth in this Certificate
(including, without limitation, the representations relating to the Company's
sources of income, distributions and composition of assets).
4. The cost segmentation analysis dated August 15, 1995, the
cost segmentation analysis as of December 31, 1995, the cost segmentation
analysis as of May 31, 1996, and
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the cost segmentation analysis as of December 31, 1996, prepared by Coopers &
Lybrand, L.L.P., and the cost segmentation analysis prepared by Ernst & Young
LLP ("Ernst & Young") in connection with the offering of the Company's stock
incident to the acquisition (the "Acquisition") of Kahler Realty Corporation
("Kahler") are accurate in all material respects.
5. The analysis dated June 25, 1999, prepared by Ernst & Young
with respect to, among other things, the Company's assets and sources of income
is accurate in all material respects, and there have been no material changes in
the information reflected in the Ernst & Young analysis since the date thereof
that would adversely affect the Company's qualification as a REIT.
6. All projections that the Company has provided to Brobeck,
Phleger & Harrison LLP regarding the expected financial performance of the
Company, the Lessee (as defined below) and the Management Company have
represented good faith estimates when prepared.
7. The following requirements have been and will be met by the
Lessee, the Management Company and any other person who leases, manages, or
operates the hotels presently owned directly or indirectly by the Partnership
(the "Hotels") or other hotel properties ("Other Hotel Properties") or non-hotel
properties ("Non-Hotel Properties") in which the Company owns, or may in the
future own, an interest, either directly, through a qualified REIT subsidiary (a
"QRS") within the meaning of Section 856(i) of the Code, or through a limited
liability company or a partnership:
(a) Such person will not own, directly or indirectly (within
the meaning of Section 856(d)(5) of the Code), more than 35% of the
shares of the Company.
(b) If such person is a corporation, not more than 35% of its
stock, measured by voting power or number of shares, or, if such person
is a noncorporate entity, not more than 35% of the interest in its
assets or net profits will be owned, directly or indirectly (within the
meaning of Section 856(d)(5) of the Code), by one or more persons who
own 35% or more of the shares of the Company.
(c) The Company and any QRS of the Company will not derive or
receive any income, directly or indirectly, from such person, other
than rents from the Hotels, Other Hotel Properties or Non-Hotel
Properties.
(d) Such person will be adequately compensated for its
services.
(e) If such person is an individual, he or she will not be an
officer or employee of the Company.
(f) If such person is a corporation, none of its officers or
employees will be officers or employees of the Company.
(g) If an individual serves as both (i) one of such person's
directors and (ii) a director and officer or employee of the Company,
that individual will not receive any compensation for serving as one of
such person's directors.
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(h) If an individual serves as both (i) one of such person's
directors and officers (or employees) and (ii) a director of the
Company, that individual will not receive any compensation for serving
as a director of the Company.
(i) If an individual serves as a director, officer or employee
of the Company, such person will not be engaged in the day-to-day
management of the Hotels, Other Hotel Properties or Non-Hotel
Properties and will confine his or her activities as a shareholder or
director of any corporate entity which leases or manages the Hotels,
Other Hotel Properties or Non-Hotel Properties to such activities as
are consistent with his or her status as a shareholder and/or director
(as opposed to an officer or employee) of such entity.
8. The Company (and any QRS of the Company and any partnership
or limited liability company in which the Company owns an interest) have not
furnished or rendered, and will not furnish or render, or bear the cost of
furnishing or rendering, any services to tenants (including the Lessee) of the
Hotels or Other Hotel Properties, other than the payment of real and personal
property taxes, ground lease rent (where applicable), insurance (other than
workers' compensation insurance), capital improvements, and the cost of
repairing, replacing or refurbishing furniture, fixtures and equipment with
respect to such hotel property (to the extent prescribed in the Leases). The
costs and services described in the preceding sentences are usually or
customarily borne or provided by lessors of hotel properties in the geographic
areas in which the Hotels or Other Hotel Properties are located. The Company
(and any QRS of the Company and any partnership or limited liability company in
which the Company owns an interest) has not rendered, and will not render, or
bear the cost of furnishing or rendering, any services to tenants (including the
Lessee) of any Non-Hotel Properties.
9. The following requirements have been and will be met by the
Lessee, the Management Company and any other person who furnishes or renders
services ("Noncustomary Services") to the tenants of the Hotels or Other Hotel
Properties, other than services that are usually or customarily rendered in
connection with the rental of space for occupancy only and are not otherwise
considered rendered to the occupant:
(a) The Lessee, the Management Company and each such other
person will satisfy the requirements described in paragraph 7 above.
(b) The cost of the Noncustomary Services will be borne by the
Lessee, the Management Company or such other person.
(c) Any charge for such Noncustomary Services will be made,
received and retained by the Lessee, the Management Company or such
other person.
10. The Company has not been and is not chartered or
supervised as a bank, savings and loan, or similar association under state or
federal law.
11. The Company has not and will not operate as a small
business investment company under the Small Business Investment Act of 1958.
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12. The Company was not created by or pursuant to an act of a
state legislature for the purpose of promoting, maintaining, and assisting the
economy within the state by making loans that generally would not be made by
banks.
13. The Company has not and will not engage in the business of
issuing life insurance, annuity contracts, or contracts of health or accident
insurance.
14. Beginning with the Company's 1996 taxable year, beneficial
ownership of the Company has been and will be held by 100 or more persons for at
least 335 days of each taxable year or during a proportionate part of the short
taxable year commenced January 1, 1999, and ending on the closing date of the
Merger. During the entire 1995 through 1999 taxable years, the Company has been
managed by one or more directors and the beneficial ownership of the Company has
been represented by transferable shares.
15. At all times during the last half of each taxable year
beginning with the Company's 1996 taxable year and ending with the Company's
1999 taxable year (which will end on the closing date of the Merger) no more
than 50% in value of the Company's outstanding shares has been or will be
(during such period of time) owned, directly or indirectly (within the meaning
of Section 544 of the Code, as modified by Section 856(h)(i)(B) of the Code), by
or for five or fewer individuals. For this purpose, a qualified stock bonus,
pension, or profit-sharing plan (as described in Section 401(a) of the Code), a
supplemental unemployment compensation benefits plan (as described in Section
501(c)(17) of the Code), a private foundation (as described in Section 509(a) of
the Code), or a portion of a trust permanently set aside or to be used
exclusively for charitable purposes (as described in Section 642(c) of the Code)
generally is considered an individual. However, stock held by a trust described
in Section 401(a) of the Code and exempt from tax under Section 501(a) of the
Code (a "Qualified Trust") generally is treated as held directly by the
Qualified Trust's beneficiaries in proportion to their actuarial interests in
the Qualified Trust.
16. The Company was organized on September 23, 1994. The
Company has not at any time been a party to a tax-free reorganization with
another corporation and, except for assets acquired upon the liquidation of
Kahler, has not held any asset the disposition of which could be subject to
Section 1374 of the Code. The assets received upon the liquidation of Kahler are
assets subject to Section 1374 of the Code.
17. The Company elected to be a REIT for its taxable year
ended December 31, 1995, by computing its taxable income as a REIT on its
federal income tax return for that taxable year (i.e., IRS Form 1120-REIT). The
Company has also computed and reported, or will compute and report its taxable
income as a REIT for the taxable years ended December 31, 1996, December 31,
1997, December 31, 1998, and the taxable year commenced January 1, 1999, and
ending on the closing date of the Merger. The Company has revoked and will not
terminate or revoke its REIT election prior to the closing of the Merger.
18. The Company has not had, and will not have, at the end of
any taxable year, and will not succeed to, any earnings and profits accumulated
during a non-REIT year of the Company or any other corporation.
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19. During 1995 and each subsequent taxable year, at least 95%
of the Company's gross income, including any gross income of any QRS of the
Company and excluding gross income from the sale of property held as inventory
or held primarily for sale to customers in the ordinary course of the Company's
(or any QRS's) trade or business ("Prohibited Income"), has been and will be
(for such period of time) derived from:
(a) Dividends.
(b) Interest.
(c) "Rents from real property" within the meaning of Section
856(d) of the Code.
(d) Gain from the sale or other disposition of stock,
securities, and real property (including interests in real property and
interests in mortgages on real property) that is not Prohibited Income.
(e) Abatements and refunds of taxes on real property.
(f) Income and gain derived from real property acquired
directly by foreclosure or deed in lieu thereof ("Foreclosure
Property"), not including property acquired as a result of indebtedness
arising from the sale of property held as inventory or primarily for
sale to customers in the ordinary course of the Company's business.
(g) Amounts (other than amounts based on the income or profits
of any person within the meaning of Section 856 of the Code) received
or accrued as consideration for entering into agreements (i) to make
loans secured by mortgages on real property or on interests in real
property or (ii) to purchase or lease real property (including
interests in real property and interests in mortgages on real
property).
(h) Gain from the sale or other disposition of real estate
assets that is not Prohibited Income.
(i) Payments under bona fide interest rate swap or cap
agreements, options, futures contracts, forward rate agreement, or any
similar financial instrument, entered into by the Company (or any QRS
of the Company) in a transaction to reduce the interest rate risks with
respect to any indebtedness incurred or to be incurred by the Company
to acquire or carry real estate assets ("Qualified Hedging Contracts").
(j) Gain from the sale or other disposition of Qualified
Hedging Contracts.
20. During 1995 and each subsequent taxable year, at least 75%
of the Company's gross income (including any gross income of any QRS of the
Company, but excluding Prohibited Income) has been and will be (for such period
of time) derived from:
(a) "Rents from real property" within the meaning of Section
856(d) of the Code.
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(b) Interest (as defined in Section 856(f) of the Code) on
obligations secured by mortgages on real property or on interests in
real property.
(c) Gain from the sale or other disposition of real property
(including interests in real property and interests in mortgages on
real property) that is not Prohibited Income.
(d) Dividends or other distributions on, and gain (other than
Prohibited Income) from the sale or other disposition of, transferable
shares in other REITs.
(e) Abatements and refunds of taxes on real property.
(f) Income and gain (other than Prohibited Income) derived
from Foreclosure Property.
(g) Amounts (other than amounts based on the income or profits
of any person) received or accrued as consideration for entering into
agreements (i) to make loans secured by mortgages on real property or
on interests in real property or (ii) to purchase or lease real
property (including interests in real property and interests in
mortgages on real property).
(h) Income that was (i) attributable to stock or a debt
instrument (with a maturity date of at least five years), (ii)
attributable to the temporary investment of new capital, and (iii)
received or accrued during the one-year period beginning on the date on
which the Company received such capital.
21. For purposes of this representation, the term "Adjusted
Basis Ratio" means the ratio of (i) the average of the adjusted bases of the
personal property contained in a Hotel (or other property) at the beginning and
at the end of such taxable year to (ii) the average of the aggregate adjusted
bases of both the real property and personal property comprising the Hotel (or
other property) at the beginning and at the end of such taxable year. To the
extent that the Adjusted Basis Ratio for each Hotel, Other Hotel Property or
Non-Hotel Property of the Company, a QRS of the Company or the Partnership (or
any partnership or limited liability company in which the Partnership, the
Company or a QRS of the Company owns an interest) has exceeded or in the future
exceeds 15% for any taxable year, the percentage-of-gross-income tests set forth
in the two immediately preceding representations has been and will be satisfied
notwithstanding that the gross income of the Company properly attributable to
the subject personal property is disqualified income not constituting "rents
from real property."
22. The Leases provide that rent is the greater of a fixed
amount or a percentage amount that is calculated by multiplying specified
percentages by the gross room revenues for each of the Hotels in excess of
certain levels (the "Rent"). The lease terms, base rent and percentages used to
compute the Rent (i) have not been and will not be renegotiated during the term
of the Leases in a manner that bases the Rent on income or profits of any person
and (ii) have and will at all times conform with normal business practices. In
this regard, any rent abatements under the Leases (and any subsequent Leases)
have and will conform with normal business practices, have been and will be
based and calculated on objective factors other than the Lessee's net income
from the particular Hotel (or other property) involved and have not
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been and will not be administered in a manner such that any rent abatement is
determined with reference to the Lessee's net income from the particular Hotel
(or other property) involved.
23. At all times since 1995, the Company's and the Lessee's
financial projections have indicated that the Lessee will have sufficient future
revenue to enable the Lessee to satisfy all of its liabilities and obligations
(including payments under the Leases and payments to the Management Company) and
generate a reasonable profit to the Lessee.
24. The stock of the Lessee has been ascribed an approximate
value of $___________ in connection with the Merger.
25. The Company has leased and will lease any Non-Hotel
Properties to the Lessee (or another lessee) for fixed rental payments on
commercially reasonable terms or for rental payments which comply with the
requirements in the immediately following representation and conform with normal
business practices.
26. The Company has not received and will not receive or
accrue, directly or indirectly (including through any QRS of the Company, the
Partnership or any other partnership or limited liability company), any rent,
interest, contingency fees, or other amounts that were or are determined in
whole or in part with reference to the income or profits derived by any person
(excluding amounts received (i) as rents from Hotels that are (A) based solely
on a percentage or percentages of receipts or sales and the percentage or
percentages are fixed at the time the leases are entered into, are not
renegotiated during the term of the leases in a manner that has the effect of
basing rent on income or profits, and conform with normal business practices or
(B) attributable to qualified rents from subtenants as provided by Section
856(d)(6) of the Code and (ii) as interest that is (A) based solely on a fixed
percentage or percentages of receipts or sales or (B) attributable to qualified
rents received or accrued by debtors as provided by Section 856(f)(2) of the
Code).
27. The Company (and any QRS of the Company) has not owned and
will not own, directly or indirectly (within the meaning of Section 856(d)(5) of
the Code), 10% or more of the stock, by voting power or number of shares, of the
Lessee, any other lessee of its properties, the Management Company or any other
manager of its properties. The Company (and any QRS of the Company) will not
receive or accrue, directly or indirectly, any rents from any of the following
parties:
(a) A corporation of which the Company (or any QRS of the
Company) owns, directly or indirectly (within the meaning of Section
856(d)(5) of the Code), 10% or more of the stock, by voting power or
number of shares.
(b) A noncorporate entity in which the Company (or any QRS of
the Company) owns, directly or indirectly (within the meaning of
Section 856(d)(5) of the Code), an interest of 10% or more of the
assets or net profits.
28. During each taxable year through 1997, less than 30% of
the Company's gross income (including any gross income of any QRS of the
Company) was derived from the sale or other disposition of:
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(a) Stock, Qualified Hedging Contracts or other securities
held for less than one year.
(b) Property in a transaction that generated Prohibited
income.
(c) Real property (including interests in real property
interests in mortgages on real property) held for less than four years
other than (i) property compulsorily or involuntarily converted to
another form as a result of its destruction (in whole or in part),
seizure, requisition, or condemnation (or the threat or imminence
thereof) and (ii) Foreclosure Property.
29. At the close of each quarter of each taxable year of the
Company (including the taxable year commenced January 1, 1995) through the
closing date of the Merger, (i) at least 75% of the value of the Company's total
assets (including the assets of any QRS of the Company) have and will be
represented by real estate assets, cash and cash items, and government
securities (the "75% Basket") and (ii) with respect to securities not included
in the 75% Basket, (A) not more than 5% of the value of the Company's total
assets have or will consist of the securities of any one issuer (excluding QRS's
of the Company) and (B) the Company has not and will not hold more than 10% of
the outstanding voting securities of any one issuer (excluding QRS's of the
Company). For purposes of this representation, (i) the term "securities" does
not include the Company's interest in the Partnership (or any other partnership
or limited liability company in which the Company or the Partnership owns an
interest if such entity is not taxable as a corporation), (ii) the Company's
proportionate share of the assets of the Partnership (and any other partnership
or limited liability company in which the Company or the Partnership owns an
interest if such entity is not taxable as a corporation) are treated as assets
of the Company, and (iii) the term "value" means (A) fair value as determined in
good faith by the Board of Directors of the Company or (B) in the case of
securities for which market quotations are readily available, the market value
of such securities.
30. The Company has and will maintain sufficient records as to
its investments to be able to show that it complies with the diversification
requirements described in the preceding paragraph.
31. For each taxable year (including the taxable year
commenced on January 1, 1999, and ending on the closing date), the deduction for
dividends paid by the Company (as defined in Section 561 of the Code, but
without regard to capital gain dividends, as defined in Section 857(b)(3)(C) of
the Code) has and will equal or exceed (i) the sum of (A) 95% of the Company's
real estate investment trust taxable income (as defined in Section 857(b)(2) of
the Code, but without regard to the deduction for dividends paid and excluding
any net capital gain) and (B) 95% of the excess of its net income from
Foreclosure Property over the tax imposed on such income by Section 857(b)(4)(A)
of the Code, minus (ii) any excess noncash income (as defined in Section 857(e)
of the Code).
32. The dividends paid by the Company (including dividends
deemed paid under any dividend reinvestment plan or optional cash purchase plan)
have been and will be made pro rata, with no preference to any share as compared
with other shares of the same class. The Company has not sold and will not sell
any shares under any dividend reinvestment plan
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(including optional cash purchases) at a discount in excess of Internal Revenue
Service ("IRS") published guide-lines, in a manner that is preferential with
respect to any purchaser as compared to another purchaser or in a manner
inconsistent with the IRS private letter ruling issued to the Company with
respect to its dividend reinvestment plan and optional cash purchase plan.
33. Within 30 days after the end of each of the 1995 through
1998 taxable years the Company demanded, and within 30 days after the end of its
taxable year commenced January 1, 1999, and ending on the closing date of the
Merger, the Company will demand, written statements from its shareholders that,
at any time during the last six months of the taxable year, owned 5% or more of
its shares (or if the Company has less than 2,000 and more than 200 shareholders
of record of its shares on any dividend record date, 1% or more of its shares,
or if the Company has 200 or less shareholders of record on any dividend record
date, one-half of 1% or more of its shares) setting forth the following
information:
(a) The actual owners of the Company's stock (i.e., the
persons who are required to include in gross income in their returns
the dividends received on the stock).
(b) The maximum number of shares of the Company (including the
number and face value of securities convertible into shares of the
Company) that were considered owned, directly or indirectly (within the
meaning of Section 544 of the Code, as modified by Section 856
(h)(1)(B) of the Code), by each of the actual owners of any of the
Company's shares at any time during the last half of the Company's
taxable year.
34. The Company has maintained and will maintain the written
statements described in the preceding paragraph (and other information required
by Section 1.857-8(d) of the Regulations) in its principal office, and the
statements (and such other information) will be available for inspection by the
IRS.
35. The Company has and will use the calendar year as its
taxable year (provided that the 1999 taxable year will end on the closing date
of the Merger).
36. The Partnership has been duly formed as a limited
partnership under Delaware law and has been and will be operated in accordance
with applicable Delaware law and the Partnership Agreement.
37. The Partnership Agreement will remain in substantially the
same form as its current form and will not be amended in any respect that could
adversely affect the Company's qualification as a REIT.
38. No Limited Partner (nor any affiliate of any Limited
Partner) has owned or will own at any time, directly, indirectly or by
attribution (as defined in Section 856(d)(5) of the Code), 10% or more of the
Company. For purposes of this representation, beneficial ownership of the
interests in the Partnership is taken into account.
39. A majority of the Company's Board of Directors at all
times has been and, through the closing of the Merger, will be independent
directors.
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40. The Partnership has since its formation satisfied the
private placement "safe harbor" from publicly traded partnership status under
Notice 88-75 issued by the Service (including the requirement that the
Partnership not have more than 500 partners). If the Partnership should fail to
satisfy at least one of the safe harbors set forth in Notice 88-75 or the
Regulations under Section 7704 of the Code, whichever is applicable, in any
taxable year, the Partnership will satisfy the gross income test to avoid
corporate treatment, as set forth in Section 7704(c)(2) of the Code, for such
taxable year and all taxable years thereafter.
41. The interests in the Partnership have not been and will
not be traded on an established securities market.
42. The Partnership has not issued and will not issue any
Units in a transaction required to be registered under the Securities Act of
1933 (the "1933 Act").
43. The Partnership has not elected and will not elect to be
taxable as a corporation under the Code.
44. No partnership or limited liability company in which the
Company, the Partnership or a QRS of the Company owns an interest has elected or
will elect to be treated as a corporation for tax purposes or will otherwise be
treated as a corporation for tax purposes.
45. The Company has owned all of the stock of its corporate
subsidiaries at all times since the incorporation of those subsidiaries and will
continue to own all such stock.
46. The Company has not made, and will not make, an election
under Section 338 of the Code.
47. The Company has elected pursuant to Notice 88-19, 1988-1
C.B. 486, to be subject to rules similar to those in Section 1374 of the Code
with respect to the net built-in gain in properties acquired from Kahler and its
subsidiaries.
The undersigned recognizes that (a) the Tax Opinion will be
based on the representations set forth herein and on the statements contained in
the Merger Agreement and other documents relating to Merger and (b) the Tax
Opinion will be subject to certain limitations and qualifications, including
that it may not be relied upon if any such representations are not accurate in
all material respects.
The undersigned recognizes that the Tax Opinion will not address
any tax consequences except as expressly set forth in such opinion.
SUNSTONE HOTEL INVESTORS, INC.
Dated: By
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