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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
JUNE 15, 1999
------------------------------------------
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED)
STARWOOD FINANCIAL TRUST
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(Exact Name of Registrant as Specified in its Charter)
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MARYLAND 1-10150 95-6881527
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(State of Organization) (Commission File Number) (IRS Employer Identification No.)
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1114 AVENUE OF THE AMERICAS
27(TH) FLOOR
NEW YORK, NY 10036
(Address of Registrant's Principal Executive Office)(Zip Code)
(212) 930-9400
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(Registrant's telephone number, including area code)
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ITEM 5. OTHER EVENTS.
On June 16, 1999, Starwood Financial Trust ("Starwood Financial") announced
that it entered into an Agreement and Plan of Merger (the "Merger Agreement"),
dated as of June 15, 1999, with TriNet Corporate Realty Trust, Inc. ("TriNet"),
pursuant to which TriNet will merge with and into a subsidiary of Starwood
Financial, with TriNet surviving as a subsidiary of Starwood Financial (the
"Merger"). Following the Merger, Starwood Financial will continue to qualify as
a real estate investment trust for federal income tax purposes.
In the Merger, each issued and outstanding share of common stock of TriNet
will be exchanged for 1.15 shares of beneficial interest of Starwood Financial;
each issued and outstanding share of 9 3/8% Series A Cumulative Redeemable
Preferred Stock of TriNet will be converted into one 9 3/8% Series B Cumulative
Redeemable Preferred Share of Starwood Financial; each issued and outstanding
share of 9.2% Series B Cumulative Redeemable Preferred Stock of TriNet will be
converted into one 9.2% Series C Cumulative Redeemable Preferred Share of
Starwood Financial; and each issued and outstanding share of 8% Series C
Cumulative Redeemable Preferred Share of TriNet will be converted into one 8%
Series D Cumulative Redeemable Preferred Share of Starwood Financial. The Merger
is expected to close in the third or fourth quarter of 1999, subject to receipt
of approval by the TriNet shareholders and satisfaction of customary closing
conditions.
Contemporaneously with the consummation of the Merger, Starwood Financial
will acquire all of the outstanding ownership interests in Starwood Financial
Advisors, LLC, Starwood Financial's external advisor, in exchange for aggregate
consideration of four million common shares of beneficial interest of Starwood
Financial (the "Advisor Transaction"). This transaction will be accomplished
principally through a merger of the advisor's controlling shareholder with and
into a subsidiary of Starwood Financial. The closings of the Merger and the
Advisor Transaction are conditions to each other.
Prior to the consummation of the Merger and the Advisor Transaction,
Starwood Financial intends to change its form from a Maryland trust to a
Maryland corporation through a merger with a wholly-owned subsidiary of Starwood
Financial formed solely to effect such merger (the "Incorporation Merger"). In
the Incorporation Merger, the Class B shares of beneficial interest of Starwood
Financial will be converted into shares of common stock on a 49-for-one basis
and the Class A shares of beneficial interest of Starwood Financial will be
converted into shares of common stock on a one-for-one basis.
The Merger Agreement provides that, following completion of the
Incorporation Merger but prior to the effective time of the Merger with TriNet,
Starwood Financial intends to pay a special dividend of an aggregate of one
million shares of common stock pro rata to all holders of its common stock.
Starwood Financial's principal shareholders, who together represent
approximately 99% of the outstanding voting power of Starwood Financial, have
entered into agreements with TriNet, pursuant to which, among other things,
those holders have granted to TriNet irrevocable proxies to vote their shares in
favor of the Merger, and against any proposal which would compete with the
Merger. Those Shareholders have also agreed to vote all of their Starwood
Financial shares in favor of the Advisor Transaction and the Incorporation
Merger. TriNet has agreed with Starwood Financial that if the Merger Agreement
is terminated under certain circumstances, TriNet will pay Starwood Financial
certain fees and expenses. Starwood Financial has agreed with TriNet that if the
Merger Agreement is terminated under certain other circumstances, Starwood
Financial will pay TriNet certain fees and expenses.
A copy of the Starwood Financial press release announcing the transactions
is attached hereto as Exhibit 99.1.
2
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ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
FINANCIAL STATEMENTS.
None.
PRO FORMA FINANCIAL INFORMATION.
None.
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EXHIBIT NO. EXHIBIT
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10.1 Agreement and Plan of Merger, dated as of June 15, 1999, by and between Starwood Financial Trust, ST
Merger Sub, Inc., and TriNet Corporate Realty Trust, Inc.
10.2 Agreement and Plan of Merger, dated as of June 15, 1999, by and between Starwood Financial Trust,
Starwood Financial, Inc. and TriNet Corporate Realty Trust, Inc.
10.3 Agreement and Plan of Merger and Interest Contribution Agreement, dated as of June 15, 1999, by and
between Starwood Financial Trust, STW Holdings I, Inc., Starwood Financial Capital Group, L.L.C.,
TriNet Corporate Realty Trust, Inc. and the stockholders named therein.
99.1 Press Release, dated June 16, 1999.
99.2 Presentation to Analysts and Investors.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned hereunto duly authorized.
STARWOOD FINANCIAL TRUST
By: /s/ SPENCER B. HABER
-----------------------------------------
Name: Spencer B. Haber
Title: CHIEF FINANCIAL OFFICER
Date: June 21, 1999
4
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EXHIBIT INDEX
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EXHIBIT NO. EXHIBIT
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10.1 Agreement and Plan of Merger, dated as of June 15, 1999, by and between Starwood Financial Trust, ST
Merger Sub, Inc., and TriNet Corporate Realty Trust, Inc.
10.2 Agreement and Plan of Merger, dated as of June 15, 1999, by and between Starwood Financial Trust,
Starwood Financial, Inc. and TriNet Corporate Realty Trust.
10.3 Agreement and Plan of Merger and Interest Contribution Agreement, dated as of June 15, 1999, by and
between STW Holdings I, Inc., Starwood Financial Capital Group, L.L.C. TriNet Corporate Realty Trust
and the stockholders named therein.
99.1 Press Release, dated June 16, 1999.
99.2 Presentation to Analysts and Investors.
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5
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EXHIBIT 10.1
AGREEMENT AND PLAN OF MERGER
DATED AS OF JUNE 15, 1999
BY AND AMONG
STARWOOD FINANCIAL TRUST,
ST MERGER SUB, INC.
AND
TRINET CORPORATE REALTY TRUST, INC.
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TABLE OF CONTENTS
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ARTICLE I THE MERGER......................................................................... 2
Section 1.1. The Merger..................................................................... 2
Section 1.2. Closing........................................................................ 2
Section 1.3. Effective Time................................................................. 3
Section 1.4. Charter and Bylaws............................................................. 3
Section 1.5. Directors...................................................................... 3
Section 1.6. Officers....................................................................... 3
Section 1.7. Election Not to Proceed With Incorporation Merger.............................. 3
ARTICLE II EFFECTS OF THE MERGER; EXCHANGE OF CERTIFICATES.................................... 4
Section 2.1. Effect on Stock................................................................ 4
(a) Stock Owned by TriNet or Its Subsidiaries...................................... 4
(b) Conversion of TriNet Stock into New Starwood Stock............................. 4
(c) Shares of New Starwood and Starwood Sub Stock.................................. 5
Section 2.2. Exchange of Certificates....................................................... 5
(a) Exchange Agent................................................................. 5
(b) Starwood to Provide Merger Consideration....................................... 5
(c) Exchange Procedure............................................................. 5
(d) Record Dates; Distributions with Respect to Unexchanged Shares................. 6
(e) No Further Ownership Rights in TriNet Capital Stock............................ 6
(f) Unclaimed Merger Consideration................................................. 7
(g) No Fractional Shares........................................................... 7
(h) Withholding.................................................................... 7
(i) No Dissenters' Rights.......................................................... 8
(j) Adjustments to Prevent Dilution................................................ 8
ARTICLE III REPRESENTATIONS AND WARRANTIES..................................................... 8
Section 3.1. Representations and Warranties of TriNet....................................... 8
(a) Organization, Standing and Corporate Power of TriNet........................... 8
(b) TriNet Subsidiaries; Interests in Other Persons................................ 8
(c) Capital Structure.............................................................. 9
(d) Authority; Noncontravention; Consents.......................................... 10
(e) SEC Documents; Financial Statements; Undisclosed Liabilities................... 11
(f) Absence of Certain Changes or Events........................................... 11
(g) Litigation..................................................................... 12
(h) Absence of Changes in Benefit Plans; ERISA Compliance.......................... 12
(i) Taxes.......................................................................... 13
(j) No Loans or Payments to Employees, Officers or Directors....................... 14
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(k) Brokers; Schedule of Fees and Expenses......................................... 15
(l) Compliance with Laws........................................................... 15
(m) Contracts; Debt Instruments.................................................... 15
(n) Environmental Matters.......................................................... 16
(o) TriNet Properties.............................................................. 16
(p) Opinion of Financial Advisor................................................... 18
(q) State Takeover Statutes; Rights Agreement...................................... 19
(r) Investment Company Act of 1940................................................. 19
(s) Proxy Statement and Registration Statement..................................... 19
(t) Vote Required.................................................................. 19
(u) Year 2000 Issues............................................................... 19
Section 3.2. Representations and Warranties of Starwood and Starwood Sub.................... 20
(a) Organization, Standing and Corporate Power of Starwood......................... 20
(b) Starwood Subsidiaries; Interests in Other Persons.............................. 20
(c) Capital Structure.............................................................. 22
(d) Authority; Noncontravention; Consents.......................................... 23
(e) SEC Documents; Financial Statements; Undisclosed Liabilities................... 24
(f) Absence of Certain Changes or Events........................................... 25
(g) Litigation..................................................................... 25
(h) Absence of Changes in Benefit Plans; ERISA Compliance.......................... 26
(i) Taxes.......................................................................... 27
(j) No Loans or Payments to Employees, Officers or Directors....................... 27
(k) Brokers; Schedule of Fees and Expenses......................................... 28
(l) Compliance with Laws........................................................... 28
(m) Contracts; Debt Instruments.................................................... 28
(n) Environmental Matters.......................................................... 29
(o) Starwood Properties............................................................ 29
(p) Opinion of Financial Advisor................................................... 31
(q) State Takeover Statutes........................................................ 31
(r) 1940 Act....................................................................... 31
(s) Proxy Statement and Registration Statement..................................... 31
(t) Vote Required.................................................................. 32
(u) Year 2000 Issues............................................................... 32
(v) Operations of Starwood Sub and New Starwood.................................... 32
(w) No Ownership of TriNet Stock................................................... 32
ARTICLE IV COVENANTS.......................................................................... 32
Section 4.1. Conduct of Business by TriNet.................................................. 32
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Section 4.2. Conduct of Business by Starwood................................................ 35
Section 4.3. Other Actions.................................................................. 37
ARTICLE V ADDITIONAL COVENANTS............................................................... 38
Preparation of the Registration Statement and the Proxy Statement;
Section 5.1. Shareholders' Meetings; Consents............................................. 38
Section 5.2. Access to Information; Confidentiality......................................... 39
Section 5.3. Commercially Reasonable Efforts; Notification.................................. 39
Section 5.4. Affiliates..................................................................... 40
Section 5.5. Tax Treatment.................................................................. 40
Section 5.6. No Solicitation of Transactions................................................ 40
Section 5.7. Public Announcements........................................................... 41
Section 5.8. AMEX De-Listing; NYSE Listing.................................................. 42
Section 5.9. Letters of Accountants......................................................... 42
Section 5.10. Transfer and Gains Taxes; Shareholder Demand Letters........................... 42
Section 5.11. Benefit Plans and Other Employee Arrangements.................................. 42
(a) Benefit Plans.................................................................. 42
(b) Stock Incentive Plans.......................................................... 43
Section 5.12. Indemnification; Directors' and Officers' Insurance............................ 44
Section 5.13. The TriNet Rights Plan......................................................... 46
Section 5.14. Coordination of Dividends...................................................... 46
Section 5.15. [Intentionally deleted.]....................................................... 46
Section 5.16. Environmental Reports.......................................................... 46
ARTICLE VI CONDITIONS PRECEDENT............................................................... 46
Section 6.1. Conditions to Each Party's Obligation to Effect the Merger..................... 46
(a) Shareholder Approvals.......................................................... 46
(b) Listing of Shares.............................................................. 46
(c) Registration Statement......................................................... 47
(d) No Injunctions or Restraints................................................... 47
(e) Incorporation Merger and Advisor Transaction................................... 47
Section 6.2. Conditions to Obligations of Starwood.......................................... 47
(a) Representations and Warranties................................................. 47
(b) Performance of Obligations of TriNet........................................... 47
(c) Material Adverse Effect........................................................ 47
(d) Opinions Relating to REIT Status............................................... 48
(e) Other Tax Opinion.............................................................. 48
(f) Consents....................................................................... 48
Section 6.3. Conditions to Obligation of TriNet............................................. 48
(a) Representations and Warranties................................................. 48
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(b) Performance of Obligations of Starwood......................................... 48
(c) Material Adverse Effect........................................................ 48
(d) Opinions Relating to REIT and Partnership Status............................... 48
(e) Other Tax Opinion.............................................................. 49
(f) Consents....................................................................... 49
(g) Incorporation Merger Representations........................................... 49
(h) Advisor Transaction Representations............................................ 49
(i) Lock-Up Agreements; Stockholders' Agreement.................................... 49
(j) Election of REIT Status........................................................ 49
ARTICLE VII BOARD ACTIONS...................................................................... 50
Section 7.1. Board Actions.................................................................. 50
Section 7.2. TriNet Subsidiary Boards....................................................... 50
ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER.................................................. 50
Section 8.1. Termination.................................................................... 50
Section 8.2. Expenses....................................................................... 52
Section 8.3. Effect of Termination.......................................................... 55
Section 8.4. Amendment...................................................................... 55
Section 8.5. Extension; Waiver.............................................................. 55
ARTICLE IX GENERAL PROVISIONS................................................................. 56
Section 9.1. Survival....................................................................... 56
Section 9.2. Notices........................................................................ 56
Section 9.3. Interpretation................................................................. 56
Section 9.4. Counterparts................................................................... 57
Section 9.5. Entire Agreement; No Third-Party Beneficiaries................................. 57
Section 9.6. GOVERNING LAW.................................................................. 57
Section 9.7. Assignment..................................................................... 57
Section 9.8. Enforcement.................................................................... 57
Section 9.9. Exhibits; Disclosure Letters................................................... 57
ARTICLE X CERTAIN DEFINITIONS................................................................ 58
Section 10.1. Certain Definitions............................................................ 58
1940 Act...................................................................................................... 19
Additional Acceleration Event................................................................................. 37
Advisor Affiliate Lock-Up Agreement........................................................................... 2
Advisor Transaction........................................................................................... 1
Advisor Transaction Agreement................................................................................. 1
affiliate..................................................................................................... 58
Agreement..................................................................................................... 1
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AMEX..................................................................................................... 42
Ancillary Agreements..................................................................................... 58
Base Amount.............................................................................................. 52, 54
Bear, Stearns............................................................................................ 28
Bylaws................................................................................................... 3
Certificate.............................................................................................. 4
change of control........................................................................................ 58
Charter.................................................................................................. 3
Closing.................................................................................................. 2
Closing Date............................................................................................. 3
Code..................................................................................................... 1
Confidentiality Agreement................................................................................ 39
Defaulted TriNet Lease................................................................................... 47
Effective Time........................................................................................... 3
Employee Plan............................................................................................ 58
Environmental Law........................................................................................ 16
ERISA.................................................................................................... 13
Event of Default......................................................................................... 37
Exchange Act............................................................................................. 11
Exchange Agent........................................................................................... 5
Exchange Ratio........................................................................................... 4
Final TriNet Dividend.................................................................................... 6
GAAP..................................................................................................... 11
GECC..................................................................................................... 37
Governmental Entity...................................................................................... 10
Greenhill................................................................................................ 15
Hazardous Materials...................................................................................... 16
Incorporation Merger..................................................................................... 1
Incorporation Merger Agreement........................................................................... 1
indebtedness............................................................................................. 15
Indemnified Liabilities.................................................................................. 44
Indemnified Parties...................................................................................... 44
Indemnifying Parties..................................................................................... 44
Irrevocable Proxies...................................................................................... 52
Knowledge................................................................................................ 58
Law...................................................................................................... 58
Laws..................................................................................................... 10
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LF Offshore Fund......................................................................................... 23
LF Onshore Fund.......................................................................................... 23
LF Securities Purchase Agreement......................................................................... 23
Liens.................................................................................................... 8
Lock-Up Agreements....................................................................................... 2
Market Price............................................................................................. 43, 44
Merger................................................................................................... 1
Merger Consideration..................................................................................... 4
MGCL..................................................................................................... 2
New Starwood............................................................................................. 1
New Starwood Articles Supplementary...................................................................... 4
New Starwood Board....................................................................................... 3
New Starwood Common Stock................................................................................ 1
New Starwood Preferred Stock............................................................................. 4
New Starwood Series B Preferred Stock.................................................................... 4
New Starwood Series C Preferred Stock.................................................................... 4
New Starwood Series D Preferred Stock.................................................................... 4
Offshore Fund Warrant.................................................................................... 23
Onshore Fund Warrant..................................................................................... 23
Option Standstill Agreement.............................................................................. 2
Optionholder............................................................................................. 43
Person................................................................................................... 58
Proxy Statement.......................................................................................... 10
Qualifying Income........................................................................................ 52
Registration Statement................................................................................... 10
REIT..................................................................................................... 1
REIT Requirements........................................................................................ 52
Rights Agreement......................................................................................... 19
SDAT..................................................................................................... 3
Securities Act........................................................................................... 11
SFA...................................................................................................... 1
SFA II................................................................................................... 1
Shareholder Agreement.................................................................................... 2
Starwood................................................................................................. 1
Starwood Advisor Transaction Shareholder Approval........................................................ 32
Starwood Affiliate Lock-Up Agreement..................................................................... 2
Starwood Benefit Plan.................................................................................... 26
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Starwood Break-Up Expenses............................................................................... 53
Starwood Break-Up Fee.................................................................................... 52
Starwood Break-Up Fee Tax Opinion........................................................................ 52
Starwood Class A Common Shares........................................................................... 22
Starwood Class B Common Shares........................................................................... 1
Starwood CMBS............................................................................................ 21
Starwood Competing Transaction........................................................................... 41
Starwood Disclosure Letter............................................................................... 20
Starwood Encumbrances.................................................................................... 29
Starwood ERISA Affiliate................................................................................. 26
Starwood Expense Fee Base Amount......................................................................... 53
Starwood Filed SEC Documents............................................................................. 25
Starwood Financial Statement Date........................................................................ 25
Starwood Incorporation Merger Shareholder Approval....................................................... 32
Starwood Lease........................................................................................... 30
Starwood Loans........................................................................................... 21
Starwood Material Adverse Effect......................................................................... 20
Starwood Merger Shareholder Approval..................................................................... 32
Starwood Office Space Leases............................................................................. 30
Starwood Pledged Ground Lease............................................................................ 21
Starwood Properties...................................................................................... 29
Starwood Rent Roll....................................................................................... 31
Starwood SEC Documents................................................................................... 24
Starwood Series A Preferred Shares....................................................................... 22
Starwood Shareholder Approvals........................................................................... 32
Starwood Shareholders Meeting............................................................................ 38
Starwood Stock Options................................................................................... 22
Starwood Stock Plan...................................................................................... 22
Starwood Sub............................................................................................. 1
Starwood Subsidiary...................................................................................... 58
Starwood Tax Protection Agreement........................................................................ 28
Starwood Warrants........................................................................................ 23
Stock Dividend........................................................................................... 5
Subsidiary............................................................................................... 58
Superior TriNet Competing Transaction.................................................................... 50
Surviving Corporation.................................................................................... 1
Takeover Statute......................................................................................... 40
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Tax Return............................................................................................... 14
Taxes or Tax............................................................................................. 14
Taxing Authority......................................................................................... 13
Transfer and Gains Taxes................................................................................. 42
TriNet................................................................................................... 1
TriNet Benefit Plan...................................................................................... 12
TriNet Break-Up Expenses................................................................................. 54
TriNet Break-Up Fee...................................................................................... 54
TriNet Break-Up Fee Tax Opinion.......................................................................... 54
TriNet Common Stock...................................................................................... 1
TriNet Competing Transaction............................................................................. 41
TriNet Disclosure Letter................................................................................. 8
TriNet Encumbrances...................................................................................... 16
TriNet ERISA Affiliate................................................................................... 12
TriNet Expense Fee Base Amount........................................................................... 54
TriNet Filed SEC Documents............................................................................... 11
TriNet Financial Statement Date.......................................................................... 11
TriNet Lease............................................................................................. 17
TriNet Managed Subsidiary................................................................................ 58
TriNet Management Company Owners......................................................................... 2
TriNet Management Company Stock Purchase Agreement....................................................... 2
TriNet Material Adverse Effect........................................................................... 8
TriNet Non-Managed Subsidiary............................................................................ 58
TriNet Office Space Lease................................................................................ 17
TriNet Preferred Stock................................................................................... 1
TriNet Properties........................................................................................ 16
TriNet Proxy Default..................................................................................... 52
TriNet Rent Roll......................................................................................... 18
TriNet Revolver.......................................................................................... 34
TriNet SEC Documents..................................................................................... 11
TriNet Series A Preferred Stock.......................................................................... 1
TriNet Series B Preferred Stock.......................................................................... 1
TriNet Series C Preferred Stock.......................................................................... 1
TriNet Shareholder Approvals............................................................................. 19
TriNet Shareholders Meeting.............................................................................. 38
TriNet Stock Options..................................................................................... 9
TriNet Stock Plans....................................................................................... 9
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TriNet Subsidiary........................................................................................ 58
TriNet Tax Protection Agreement.......................................................................... 15
Year 2000 Ready.......................................................................................... 19
</TABLE>
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INDEX OF EXHIBITS AND SCHEDULES
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Schedule A Starwood shareholders executing Starwood Shareholder Agreement
Schedule B Starwood shareholders executing Starwood Affiliate Lock-Up Agreements
Schedule C Persons executing Advisor Affiliate Lock-Up Agreements
Schedule D Persons Executing Option Standstill Agreements
Schedule E TriNet Management Company Owners
Schedule F Directors of New Starwood
Schedule G Directors of the Surviving Corporation
Schedule H Officers of New Starwood
Schedule I Officers of the Surviving Corporation
Exhibit A Incorporation Merger Agreement
Exhibit B Advisor Transaction Agreement
Exhibit C Form of Starwood Shareholder Agreement
Exhibit D Form of Starwood Affiliate Lock-Up Agreement
Exhibit E Form of Advisor Affiliate Lock-Up Agreement
Exhibit F Form of Option Standstill Agreement
Exhibit G TriNet Management Company Stock Purchase Agreement
Exhibit H Form of Charter of the Surviving Corporation
Exhibit I Form of Bylaws of the Surviving Corporation
Exhibit J Form of Charter of New Starwood
Exhibit K Form of Bylaws of New Starwood
Exhibit L Form of Articles Supplementary for each class of New Starwood Preferred Stock
Exhibit M Form of Katten Muchin & Zavis Tax Opinion
Exhibit N Form of Mayer, Brown & Platt LLP Tax Opinion
Exhibit O Form of Rogers & Wells LLP Tax Opinion
Exhibit P Form of Paul, Weiss, Rifkind, Wharton & Garrison Tax Opinion
Exhibit Q Form of Affiliate Letter
</TABLE>
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AGREEMENT AND PLAN OF MERGER ("AGREEMENT"), dated as of June 15, 1999, by and
among STARWOOD FINANCIAL TRUST, a Maryland real estate investment trust
("STARWOOD"), ST MERGER SUB, INC., a Maryland corporation ("STARWOOD SUB"), and
TRINET CORPORATE REALTY TRUST, INC., a Maryland corporation ("TRINET").
RECITALS
A. The Boards of Trustees or Directors, as the case may be, of Starwood,
Starwood Sub and TriNet each have determined that it is advisable and in the
best interest of their respective companies and shareholders that upon the terms
and subject to the conditions set forth in this Agreement, Starwood Sub will
merge with and into TriNet, with TriNet being the surviving corporation (the
"SURVIVING CORPORATION"), in a merger (the "MERGER") in which each issued and
outstanding share of common stock, par value $.01 per share, of TriNet (the
"TRINET COMMON STOCK"), each issued and outstanding share of 9 3/8% Series A
Cumulative Redeemable Preferred Stock, par value $.01 per share, of TriNet (the
"TRINET SERIES A PREFERRED STOCK"), each issued and outstanding share of 9.2%
Series B Cumulative Redeemable Preferred Stock, par value $.01 per share, of
TriNet (the "TRINET SERIES B PREFERRED STOCK") and each issued and outstanding
share of 8% Series C Cumulative Redeemable Preferred Stock, par value $.01 per
share, of TriNet (the "TRINET SERIES C PREFERRED STOCK," and together with the
TriNet Series A Preferred Stock and the TriNet Series B Preferred Stock, the
"TRINET PREFERRED STOCK") will be converted into the applicable Merger
Consideration (as defined below).
B. The parties intend that for federal income tax purposes the Merger will
qualify as a tax-free reorganization under Section 368(a) of the Internal
Revenue Code of 1986, as amended (the "CODE"), and that, following the Merger,
Starwood will continue to be subject to taxation as a real estate investment
trust (a "REIT") and TriNet will be a qualified REIT subsidiary of Starwood, in
each case within the meaning of the Code.
C. Prior to the consummation of the Merger, Starwood intends to merge with
and into Starwood Financial, Inc., a newly formed Maryland corporation ("NEW
STARWOOD"), for the purpose of changing Starwood's form from a Maryland real
estate investment trust to a Maryland corporation (the "INCORPORATION MERGER"),
all in accordance with the terms of the Agreement and Plan of Merger, dated the
date hereof, between New Starwood and Starwood, a copy of which is attached as
EXHIBIT A hereto (the "INCORPORATION MERGER AGREEMENT"). As part of the
Incorporation Merger, the Class B Common Shares of beneficial interest, par
value $.01 per share, of Starwood ("STARWOOD CLASS B COMMON SHARES") will be
converted into shares of common stock, par value $.001 per share, of New
Starwood ("NEW STARWOOD COMMON STOCK") on the basis of 49 Starwood Class B
Common Shares for one share of New Starwood Common Stock. Upon consummation of
the Incorporation Merger, New Starwood will succeed to all of Starwood's rights,
obligations and liabilities under this Agreement.
D. Contemporaneously with the consummation of the Merger, (i) STW Holdings
I, Inc., a Delaware corporation which owns 99.9% of the membership interests of
Starwood Advisors II, LLC, a Delaware limited liability company ("SFA II"),
which in turn owns 99.9% of the membership interests of Starwood Advisors, LLC,
a Delaware limited liability company ("SFA"), will merge with and into a
subsidiary of New Starwood, with such subsidiary of New Starwood being the
surviving corporation and (ii) Starwood Capital Group, LLC, a Connecticut
limited liability company which owns 0.1% of the membership interests of each of
SFA and SFA II, will contribute those interests to New Starwood, in accordance
with the terms of the Agreement and Plan of Merger and Interest Contribution
Agreement, dated the date hereof, a copy of which is attached as EXHIBIT B
hereto (the "ADVISOR TRANSACTION AGREEMENT"). The transactions contemplated by
the Advisor Agreement are referred to herein as the "ADVISOR TRANSACTION." Upon
consummation of the Incorporation Merger, New Starwood will succeed to all of
Starwood's rights, obligations and liabilities under the Advisor Transaction
Agreement.
E. Contemporaneously with the execution and delivery of this Agreement,
certain holders of Starwood Common Stock named in SCHEDULE A hereto have entered
into an agreement with Starwood and TriNet, substantially in the form of EXHIBIT
C hereto (the "SHAREHOLDER AGREEMENT"), pursuant to which, among other things,
those holders have granted to TriNet irrevocable proxies to vote their shares in
favor
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of the Merger, this Agreement, the Incorporation Merger, the Incorporation
Merger Agreement, the Advisor Transaction and the Advisor Transaction Agreement
and against any proposal which would compete with the Merger.
F. Contemporaneously with the execution and delivery of this Agreement, (i)
the Persons listed on SCHEDULE B hereto have entered into agreements, each
substantially in the form of EXHIBIT D hereto (each a "STARWOOD AFFILIATE
LOCK-UP AGREEMENT"), in which such Persons have agreed to certain restrictions
on transfers of shares of New Starwood Common Stock by such Persons, (ii) the
Persons listed on SCHEDULE C hereto have entered into agreements, each
substantially in the form of EXHIBIT E hereto (each an "ADVISOR AFFILIATE
LOCK-UP AGREEMENT" and each such agreement together with each Starwood Affiliate
Lock-Up Agreement, the "LOCK-UP AGREEMENTS"), in which such Persons agreed to
certain restrictions on transfers of shares of New Starwood Common Stock by such
Persons and (iii) the Persons listed on SCHEDULE D hereto have entered into
agreements, each substantially in the form of EXHIBIT F hereto (each an "OPTION
STANDSTILL AGREEMENT") in which such Persons have agreed to certain restrictions
on exercises of options to purchase TriNet Common Stock by such Persons.
G. Contemporaneously with the execution and delivery of this Agreement, the
persons named in SCHEDULE E hereto (the "TRINET MANAGEMENT COMPANY OWNERS") have
entered into a stock purchase agreement, a copy of which is attached as EXHIBIT
G hereto (the "TRINET MANAGEMENT COMPANY STOCK PURCHASE AGREEMENT") pursuant to
which the TriNet Management Company Owners have agreed to sell to the purchasers
named therein, and such purchasers have agreed to acquire, all of the interests
of the TriNet Management Company Owners in TriNet Management Operating Company,
Inc.
AGREEMENT
In consideration of the representations, warranties, covenants and
agreements contained in this Agreement, the parties agree as follows:
ARTICLE I
THE MERGER
Section 1.1. THE MERGER.
(a) Upon the terms and subject to the conditions set forth in this
Agreement, at the Effective Time (as hereinafter defined), Starwood Sub shall be
merged with and into TriNet in accordance with the Maryland General Corporation
Law (the "MGCL"), whereupon the separate corporate existence of Starwood Sub
shall cease and TriNet shall continue as the Surviving Corporation.
(b) The Merger shall have the effects set forth in the MGCL. Accordingly,
from and after the Effective Time, the Surviving Corporation shall possess all
the rights, privileges, powers and franchises and be subject to all of the
restrictions, disabilities, liabilities and duties of Starwood Sub and TriNet.
Section 1.2. CLOSING. The closing of the Merger (the "CLOSING") will take
place at 10:00 a.m. New York City time on the fifth business day after
satisfaction or waiver of the conditions set forth in Article VI (the "CLOSING
DATE"), at the offices of Rogers & Wells LLP, 200 Park Avenue, New York, New
York 10166, unless another date or place is agreed to in writing by the parties.
Section 1.3. EFFECTIVE TIME. On the Closing Date, the parties shall
execute and file Articles of Merger or other appropriate documents in accordance
with the MGCL, and shall make all other filings or recordings required with
respect to the Merger under the MGCL. The Merger shall become effective upon
acceptance for record of the Articles of Merger by the State Department of
Assessments and Taxation of Maryland (the "SDAT") or at such other time or times
as may be agreed by Starwood, Starwood Sub and TriNet and specified in the
Articles of Merger but not exceeding 30 days after acceptance of the Articles of
Merger for record by the SDAT (the time the Merger becomes effective being the
"EFFECTIVE TIME"), it
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being understood that the parties shall cause the Effective Time to occur as
soon as practicable after the Closing Date.
Section 1.4. CHARTER AND BYLAWS. The charter and bylaws of Starwood Sub,
substantially in the forms set forth in EXHIBITS H and I hereto, shall, by
amendment of the charter and bylaws of TriNet in the manner provided by Maryland
law, become the charter (the "CHARTER") and bylaws (the "BYLAWS") of the
Surviving Corporation upon the Effective Time until further amended in
accordance with applicable Maryland law. The charter and bylaws of New Starwood,
substantially in the forms set forth in EXHIBITS J and K hereto, shall continue
to be in effect as the charter and bylaws of New Starwood as of and after the
Effective Time until amended in accordance with Maryland law.
Section 1.5. DIRECTORS. Immediately following the Effective Time, the
Board of Directors of New Starwood (the "NEW STARWOOD BOARD") and certain
committees of the New Starwood Board shall consist of the persons named on
SCHEDULE F hereto, each of whom shall be a member of the class indicated on
SCHEDULE F. Immediately following the Effective Time, the Board of Directors of
the Surviving Corporation shall consist of the persons named on SCHEDULE G
hereto. If any person referred to in the preceding sentences should for any
reason be unable or unwilling to serve, such person's replacement shall be
selected before the Effective Time by mutual agreement of Starwood, Starwood Sub
and TriNet or after the Effective Time by the New Starwood Board.
Section 1.6. OFFICERS. The executive officers of New Starwood immediately
following the Effective Time shall include the persons named on SCHEDULE H
hereto; the executive officers of the Surviving Corporation immediately
following the Effective Time shall include the persons named on Schedule I
hereto. Each executive officer shall hold the position indicated on SCHEDULES H
AND/OR I hereto. If any such person should for any reason be unable or unwilling
to serve, such person's replacement shall be selected before the Effective Time
by mutual agreement of Starwood, Starwood Sub and TriNet or after the Effective
Time by the New Starwood Board.
Section 1.7. ELECTION NOT TO PROCEED WITH INCORPORATION
MERGER. Notwithstanding anything in this Agreement to the contrary, if after
the date of this Agreement and before the mailing of the Proxy Statement (as
defined in Section 3.1(d)) Starwood reasonably determines that the consummation
of the Incorporation Merger would have an adverse impact on Starwood, Starwood
may elect not to proceed with the Incorporation Merger and Starwood shall
provide prompt written notice to TriNet of any such determination. In such
event, (i) all references in this Agreement and the exhibits hereto to "New
Starwood" shall be deemed to refer to and become references to Starwood and all
references to shares of common or preferred stock of New Starwood shall be
deemed to refer to and become references to common shares of beneficial interest
and preferred shares of beneficial interest of Starwood in each case MUTATIS
MUTANDIS and (ii) Starwood shall submit to its shareholders a proposal to amend
its declaration of trust and bylaws in the manner provided by Maryland law to
substantially conform such declaration of trust and bylaws, to the extent
permitted under applicable Maryland law governing Maryland real estate
investment trusts, to the forms of charter and bylaws of New Starwood,
respectively, set forth in EXHIBITS J and K hereto, including, without
limitation, to eliminate the Starwood Class B Common Shares and cause the
conversion of all Starwood Class B Common Shares into Starwood Class A Common
Shares on the basis of 49 Starwood Class B Common Shares for one Starwood Class
A Common Share and make such other changes as Starwood and TriNet mutually
agree. Starwood and TriNet agree to cooperate and work together in good faith to
amend and restate this Agreement and the exhibits hereto to give effect to any
determination made by Starwood in accordance with this Section 1.7.
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ARTICLE II
EFFECTS OF THE MERGER;
EXCHANGE OF CERTIFICATES
Section 2.1. EFFECT ON STOCK.
(a) STOCK OWNED BY TRINET OR ITS SUBSIDIARIES. As of the Effective Time,
any shares of capital stock of TriNet that are owned by TriNet or any TriNet
Subsidiary (as defined herein) automatically shall be cancelled and retired and
all rights with respect thereto shall cease to exist, and no consideration shall
be delivered in exchange therefor.
(b) CONVERSION OF TRINET STOCK INTO NEW STARWOOD STOCK. At the Effective
Time, except as provided in Section 2.1(a), (A) each issued and outstanding
share of TriNet Common Stock shall be converted by virtue of the Merger,
automatically and without any action on the part of the holder thereof, into
1.15 (the "EXCHANGE RATIO") fully paid and nonassessable shares of New Starwood
Common Stock, (B) each issued and outstanding share of TriNet Series A Preferred
Stock shall, by virtue of the Merger, automatically and without any action on
the part of the holder thereof, be converted into and continue to exist as one
fully paid and nonassessable share of 9 3/8% Series B Cumulative Redeemable
Preferred Stock, par value $.001 per share, of New Starwood ("NEW STARWOOD
SERIES B PREFERRED STOCK"), (C) each issued and outstanding share of TriNet
Series B Preferred Stock shall, by virtue of the Merger automatically and
without any action on the part of the holder thereof, be converted into and
continue to exist as one fully paid and nonassessable share of 9.2% Series C
Cumulative Redeemable Preferred Stock, par value $.001 per share, of New
Starwood ("NEW STARWOOD SERIES C PREFERRED STOCK") and (D) each issued and
outstanding share of TriNet Series C Preferred Stock shall, by virtue of the
Merger, automatically and without any action on the part of the holder thereof,
be converted into and continue to exist as one fully paid and nonassessable
share of 8% Series D Cumulative Redeemable Preferred Stock, par value $.001 per
share, of New Starwood ("NEW STARWOOD SERIES D PREFERRED STOCK"), and together
with the New Starwood Series B Preferred Stock and the New Starwood Series C
Preferred Stock, the "NEW STARWOOD PREFERRED STOCK"). The preferences, other
rights, voting powers, restrictions, limitations as to dividends and other
distributions, qualifications and terms and conditions of redemption of each
class of New Starwood Preferred Stock shall be as set forth in the Articles
Supplementary of New Starwood attached hereto as EXHIBIT L (the "NEW STARWOOD
ARTICLES SUPPLEMENTARY"), and are identical to the preferences, other rights,
voting powers, restrictions, limitations at to dividends and other
distributions, qualifications and terms and conditions of redemption of the
corresponding series of TriNet Preferred Stock except for the additional voting
rights of each class of New Starwood Preferred Stock. At the Effective Time,
each holder of a certificate representing any shares of TriNet Common Stock or
TriNet Preferred Stock (or affidavit of loss in lieu thereof) (a "CERTIFICATE")
shall cease to have any rights with respect thereto, except the right to
receive, upon surrender of such Certificate in accordance with Section 2.2(c), a
certificate or certificates representing the shares of New Starwood Common Stock
or New Starwood Preferred Stock, as applicable, into which those shares are
converted pursuant to this Section 2.1(b) and any cash in lieu of fractional
shares of New Starwood Common Stock to be issued or paid in consideration
therefor upon surrender of such certificate (the "MERGER CONSIDERATION") and any
dividends or other distributions to which such holder is entitled pursuant to
Section 2.2(d), in each case without interest and less any required withholding
taxes. Notwithstanding the foregoing, the right of each TriNet shareholder to
receive shares of stock of New Starwood under this Section 2.1 will be subject
to the ownership limitations and other related provisions contained in New
Starwood's charter and bylaws.
(c) SHARES OF NEW STARWOOD AND STARWOOD SUB STOCK. Prior to the Effective
Time, the Board of Directors of Starwood will declare a stock dividend (the
"STOCK DIVIDEND") of a total of one million shares of New Starwood Common Stock
payable prior to the Effective Time pro rata to all holders of record of New
Starwood Common Stock as of a record date prior to the Effective Time to be
determined by New Starwood, with a provision for a cash payment in lieu of
fractional shares equal to the arithmetic mean of
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the closing sales price per share of the New Starwood Common Stock on the
principal stock exchange on which New Starwood Common Stock is then listed on
each of the three trading days immediately after the payment date for the Stock
Dividend. Upon the Effective Time, each share of stock of New Starwood
(including, but not limited to, shares of New Starwood outstanding as a result
of the Stock Dividend) and each share of stock of Starwood Sub outstanding
immediately prior to the Effective Time shall remain outstanding and shall
represent one share of validly issued, fully paid and nonassessable stock of the
same class and designation.
Section 2.2. EXCHANGE OF CERTIFICATES.
(a) EXCHANGE AGENT. Prior to the Effective Time, Starwood shall appoint a
bank or trust company that is reasonably acceptable to TriNet to act as exchange
agent (the "EXCHANGE AGENT") for the exchange of certificates representing
shares of stock of New Starwood for Certificates representing issued and
outstanding shares of TriNet Common Stock and TriNet Preferred Stock.
(b) STARWOOD TO PROVIDE MERGER CONSIDERATION. Starwood shall provide, or
cause to be provided, to the Exchange Agent on and after the Effective Time from
time to time as required pursuant to Section 2.2(c) and 2.2(g), for the benefit
of the holders of TriNet Common Stock and TriNet Preferred Stock, certificates
representing the shares of New Starwood Common Stock and New Starwood Preferred
Stock into which the issued and outstanding shares of TriNet Common Stock and
TriNet Preferred Stock are converted pursuant to Section 2.1(b), together with
the cash payable in respect of fractional shares pursuant to Section 2.2(g).
(c) EXCHANGE PROCEDURE. As soon as reasonably practicable after the
Effective Time, the Exchange Agent shall mail to each holder of record of a
Certificate or Certificates whose shares were converted into the Merger
Consideration pursuant to Section 2.1, (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 Exchange
Agent and shall be in a form and have such other provisions as Starwood may
reasonably specify) and (ii) instructions for use in effecting the surrender of
the Certificates in exchange for the applicable Merger Consideration. Upon
surrender of a Certificate for cancellation to the Exchange Agent or to such
other agent or agents as may be appointed by Starwood, together with such letter
of transmittal, duly executed, and such other documents as may reasonably be
required by the Exchange Agent, the holder of such Certificate shall be entitled
to receive in exchange therefor the applicable Merger Consideration and any
dividends or other distributions to which such holder is entitled pursuant to
Section 2.2(d), and the Certificate so surrendered shall forthwith be cancelled.
In the event of a transfer of ownership of TriNet Common Stock or TriNet
Preferred Stock which is not registered in the transfer records of TriNet,
payment may be made to a person 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 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 Starwood that such tax or taxes
have been paid or are not applicable. Until surrendered as contemplated by this
Section 2.2, each Certificate shall be deemed at any time after the Effective
Time to represent only the right to receive upon such surrender the applicable
Merger Consideration, without interest, into which the shares theretofore
represented by such Certificate shall have been converted pursuant to Section
2.1 and any dividends or other distributions to which such holder is entitled
pursuant to Section 2.2(d). No interest will be paid or will accrue on the
applicable Merger Consideration upon the surrender of any Certificate or on any
amount payable pursuant to Section 2.2(d) or Section 2.2(g).
(d) RECORD DATES; DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES.
(i) To the extent reasonably necessary to ensure satisfaction of the
requirements of Section 857(a)(1) of the Code and to avoid the imposition of
federal income taxes for the taxable year of TriNet ending at the Effective
Time, TriNet shall authorize a dividend (the "FINAL TRINET DIVIDEND") to
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holders of shares of TriNet Common Stock, the record date for which shall be the
close of business on the last business day prior to the Effective Time, in an
amount sufficient to permit TriNet to satisfy such requirements. The aggregate
amount required by TriNet to pay any Final TriNet Dividend will be deposited
with the Exchange Agent by TriNet upon the Effective Time. If TriNet determines
it necessary to declare the Final TriNet Dividend, it shall notify Starwood at
least 10 days prior to the date for the TriNet Shareholders Meeting (as defined
in Section 5.1(b)), and Starwood shall declare a dividend per share to holders
of Starwood Common Stock (or New Starwood Common Stock, if payable after the
effective time of the Incorporation Merger), the record date for which shall be
the close of business on the last business day prior to the Effective Time, in
an amount per share equal to the quotient obtained by dividing (x) the Final
TriNet Dividend per share of TriNet Common Stock paid by TriNet by (y) the
Exchange Ratio. The dividends payable hereunder to holders of TriNet Common
Stock shall be paid by the Exchange Agent upon presentation of the Certificates
of TriNet Common Stock for exchange in accordance with this Article II.
(ii) All shares of New Starwood Common Stock to be issued pursuant to
the Merger shall be deemed issued and outstanding as of the Effective Time and
whenever a dividend or other distribution is declared by New Starwood in respect
of the New Starwood Common Stock, the record date for which is at or after the
Effective Time, that declaration shall include dividends or other distributions
in respect of all shares of New Starwood Common Stock issuable pursuant to this
Agreement. Notwithstanding the foregoing, no dividends or other distributions
with respect to New Starwood Common Stock or New Starwood Preferred Stock with a
record date after the Effective Time shall be paid to the holder of any
unsurrendered Certificate with respect to the shares represented thereby, and no
cash payment in lieu of fractional shares shall be paid to any such holder
pursuant to Section 2.2(g), in each case until the surrender of such Certificate
in accordance with this Article II. Subject to the effect of applicable
abandoned property, escheat or similar laws, in addition to the payment of any
Final TriNet Dividend under Section 2.2(d)(i), following surrender of any such
Certificate there shall be paid to the holder of such Certificate without
interest, (A) at the time of such surrender, the amount of any cash payable in
lieu of any fractional share of TriNet Common Stock to which such holder is
entitled pursuant to Section 2.2(g) and (B) if such Certificate is exchangeable
for one or more whole shares of New Starwood Common Stock or New Starwood
Preferred Stock, (x) at the time of such surrender, the amount of dividends or
other distributions with a record date after the Effective Time theretofore paid
with respect to such whole shares of New Starwood Common Stock or New Starwood
Preferred Stock, and (y) at the appropriate payment date, the amount of
dividends or other distributions with a record date after the Effective Time but
prior to such surrender and with a payment date subsequent to such surrender
payable with respect to such whole shares of New Starwood Common Stock or New
Starwood Preferred Stock.
(e) NO FURTHER OWNERSHIP RIGHTS IN TRINET CAPITAL STOCK. All Merger
Consideration paid upon the surrender of Certificates in accordance with the
terms of this Article II (and any cash paid pursuant to Section 2.2(g)) shall be
deemed to have been paid in full satisfaction of all rights pertaining to the
shares of TriNet Common Stock and TriNet Preferred Stock theretofore represented
by such Certificates; subject, however, to the obligation of TriNet to pay,
without interest, any dividends, including any Final TriNet Dividend, or make
any other distributions with a record date prior to the Effective Time which may
have been declared or paid by TriNet on such shares 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
TriNet of the shares of TriNet Common Stock or TriNet Preferred Stock which were
outstanding immediately prior to the Effective Time. If, after the Effective
Time, Certificates are properly presented to New Starwood they shall be
cancelled and exchanged as provided in this Article II.
(f) UNCLAIMED MERGER CONSIDERATION. Any portion of the Merger
Consideration delivered to the Exchange Agent pursuant to this Agreement that
remains unclaimed for 12 months after the Effective Time shall be redelivered by
the Exchange Agent to New Starwood, upon demand, and any holders of
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Certificates who have not theretofore complied with Section 2.2(b) shall
thereafter look only to New Starwood for delivery of the Merger Consideration,
subject to applicable abandoned property, escheat and other similar laws. New
Starwood shall have no liability to any holder of shares of TriNet Common Stock
or TriNet Preferred Stock for Merger Consideration delivered to a public
official pursuant to any applicable abandoned property, escheat or similar law.
Any Merger Consideration remaining unclaimed by any holder of shares of TriNet
Common Stock or TriNet Preferred Stock on the day immediately prior to the time
such amounts otherwise would escheat to or become the property of any
governmental entity shall, to the extent permitted by law, become the property
of New Starwood, free and clear of any claim or interest of any Persons
previously entitled thereto.
(g) NO FRACTIONAL SHARES.
(i) No certificates or scrip representing fractional shares of New
Starwood Common Stock shall be issued upon the surrender for exchange of
Certificates, and such fractional share interests will not entitle the owner
thereof to vote, to receive dividends or to any other rights of a stockholder of
New Starwood.
(ii) Notwithstanding any other provision of this Agreement, each holder
of shares of TriNet Common Stock who would otherwise have been entitled to
receive a fraction of a share of New Starwood Common Stock (after taking into
account all Certificates delivered by such holder) shall receive, from the
Exchange Agent upon surrender of such holder's Certificates in accordance with
Section 2.1, a cash payment in lieu of such fractional shares of New Starwood
Common Stock equal to the same fractional proportion of the arithmetic mean of
the closing sales price per share of the New Starwood Common Stock on the
principal stock exchange on which the New Starwood Common Stock is then listed
(less, if New Starwood Common Stock is trading CUM DIVIDEND on any of those
days, the amount of the dividend, if any, declared by Starwood pursuant to
Section 2.2(d)) on each of the three trading days immediately after the Closing
Date.
(h) WITHHOLDING. New Starwood or the Exchange Agent shall be entitled to
deduct and withhold from the Merger Consideration otherwise payable pursuant to
this Agreement to any holder of shares of TriNet Common Stock or TriNet
Preferred Stock such amounts as New Starwood or the Exchange Agent is required
to deduct and withhold with respect to the making of such payment under the
Code, or any provision of state, local or foreign tax law. To the extent that
amounts are so withheld by New Starwood or the Exchange Agent, such withheld
amounts shall be treated for all purposes of this Agreement as having been paid
to the holder of the shares of TriNet Common Stock or TriNet Preferred Stock, as
the case may be, in respect of which such deduction and withholding was made by
New Starwood or the Exchange Agent.
(i) NO DISSENTERS' RIGHTS. No dissenters' or appraisal rights shall be
available with respect to the Merger.
(j) ADJUSTMENTS TO PREVENT DILUTION. In the event that TriNet changes the
number of shares of TriNet Common Stock or securities convertible or
exchangeable into or exercisable for such shares, or Starwood or New Starwood
changes the number of shares of New Starwood Common Stock or securities
convertible or exchangeable into or exercisable for shares of New Starwood
Common Stock, issued and outstanding prior to the Effective Time as a result of
a reclassification, stock split (including a reverse split), stock dividend or
distribution, recapitalization, merger, subdivision, issuer tender or exchange
offer, or other similar transaction involving TriNet, Starwood or New Starwood,
the Merger Consideration and the Exchange Ratio shall be equitably adjusted.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.1. REPRESENTATIONS AND WARRANTIES OF TRINET. Except as set forth
in the letter of even date herewith (with sections organized in accordance with
Section 9.9) signed by the President or Chief Executive Officer and the Chief
Financial Officer of TriNet and delivered to Starwood prior to the execution of
this Agreement (the "TRINET DISCLOSURE LETTER"), TriNet represents and warrants
to Starwood as follows:
(a) ORGANIZATION, STANDING AND CORPORATE POWER OF TRINET. TriNet is a
corporation duly organized and validly existing under the laws of the State of
Maryland and has the requisite corporate power and authority to carry on its
business as now being conducted. TriNet 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, leasing of its properties or management of properties
for others makes such qualification or licensing necessary, except where the
failure to be so qualified or licensed, individually or in the aggregate, would
not have a material adverse effect on the business, properties, financial
condition or results of operations of TriNet and the TriNet Subsidiaries, taken
as a whole (a "TRINET MATERIAL ADVERSE EFFECT"; for purposes of this agreement,
however, "TriNet Material Adverse Effect" does not include any such effect
directly resulting from or directly attributable to (i) the execution of this
Agreement and each Ancillary Agreement to which TriNet is a party or the
proposed consummation of the transactions contemplated by this Agreement and
each Ancillary Agreement to which TriNet is a party or the public announcement
thereof and (ii) changes in the U.S. economy, the U.S. securities markets, the
real estate industry or the real estate finance industry that generally affect,
to the same extent, all participants in the industries in which TriNet operates,
or changes in law.
(b) TRINET SUBSIDIARIES; INTERESTS IN OTHER PERSONS.
(i) Section 3.1(b)(i) of the TriNet Disclosure Letter sets forth each
TriNet Subsidiary and the ownership interest therein of TriNet and each other
TriNet Subsidiary. All the outstanding shares of capital stock of each TriNet
Subsidiary that is a corporation have been duly authorized and validly issued
and are fully paid and nonassessable and are not subject to any preemptive
rights, and are owned by TriNet, by another TriNet Subsidiary or by TriNet and
another TriNet Subsidiary, free and clear of all pledges, claims, liens,
charges, encumbrances and security interests of any kind or nature whatsoever
(collectively, "LIENS"), and equity interests in each TriNet Subsidiary that is
a partnership, limited liability company or trust have been duly authorized,
validly issued, and are owned by TriNet, by another TriNet Subsidiary or by
TriNet and another TriNet Subsidiary free and clear of all Liens. Each TriNet
Subsidiary 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 TriNet 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, leasing of its properties or
management of properties for others makes such qualification or licensing
necessary, except where the failure to be so qualified or licensed, individually
or in the aggregate, would not reasonably be expected to result in a TriNet
Material Adverse Effect.
(ii) Except for the capital stock of, or other equity interests in, the
TriNet Subsidiaries, TriNet does not own, directly or indirectly (including
through any TriNet Subsidiary), any capital stock or other equity interest, with
a fair market value as of the date of this Agreement greater than $1,000,000 in
any Person or which represents 5% or more of the outstanding voting power,
capital stock or other ownership interest of any class in any Person. Section
3.1(b)(ii) of the TriNet Disclosure Letter indicates each TriNet Managed
Subsidiary. Neither TriNet nor any TriNet Subsidiary is in default of any
provision of any material documents governing or otherwise relating to its
rights in any TriNet Subsidiary other than such defaults that would not,
individually or in the aggregate, reasonably be expected to result in a TriNet
Material Adverse Effect. All such documents, other than the charter and bylaws
of any TriNet Subsidiary which is a corporation, are set forth in Section
3.1(b)(ii) of the TriNet Disclosure Letter and are in full
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force and effect and true and correct copies of all such documents have been
previously delivered or made available to Starwood.
(iii) There are no outstanding contractual obligations of TriNet or any
TriNet Subsidiary to repurchase, redeem or otherwise acquire any shares of stock
of TriNet or any capital stock, voting securities or other ownership interests
in TriNet or any TriNet Subsidiary, and there are no outstanding contractual
obligations of TriNet or any TriNet Subsidiary to make any investment of
$500,000 or more, individually, or more than $2,000,000 in the aggregate during
the 12 months after the Effective Time (in each case, in the form of a loan,
capital contribution or otherwise) in any Person (other than a TriNet
Subsidiary).
(c) CAPITAL STRUCTURE. The authorized stock of TriNet consists of
40,000,000 shares of TriNet Common Stock, 15,000,000 shares of TriNet Preferred
Stock and 25,000,000 shares of excess stock, par value $.01 per share. As of
June 1, 1999, (i) 24,946,094 shares of TriNet Common Stock, 2,000,000 shares of
TriNet Series A Preferred Stock, 1,300,000 shares of TriNet Series B Preferred
Stock and 4,000,000 shares of TriNet Series C Preferred Stock constitute all of
the issued and outstanding shares of stock of TriNet, (ii) no options to
purchase shares of TriNet Common Stock were available for issuance under
TriNet's 1993 Stock Incentive Plan, (iii) options to purchase 11,084 shares of
TriNet Common Stock were available for issuance under TriNet's 1995 Stock
Incentive Plan, (iv) options to purchase 620,577 shares of TriNet Common Stock
were available for issuance under TriNet's 1997 Stock Incentive Plan (the 1993
Stock Incentive Plan, the 1995 Stock Incentive Plan and the 1997 Stock Incentive
Plan are collectively referred to as the "TRINET STOCK PLANS"), (v) no shares of
TriNet Common Stock were issued but had not yet vested under restricted stock
grants made pursuant to the TriNet Stock Plans, (vi) 1,615,225 shares of TriNet
Common Stock were reserved for issuance upon exercise of outstanding stock
options to purchase shares of TriNet Common Stock granted to employees and
directors of TriNet under the TriNet Stock Plans (the "TRINET STOCK OPTIONS")
and (vii) 500,000 shares of TriNet's Series D Junior Participating Preferred
Stock were reserved for issuance pursuant to the Rights Agreement (as defined in
Section 3.1(q)). On the date of this Agreement, except as set forth above in
this Section 3.1(c), no shares of stock or other voting securities of TriNet
were issued, reserved for issuance or outstanding. There are no outstanding
stock appreciation rights relating to the capital stock of TriNet. All
outstanding shares of stock of TriNet 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 TriNet having the right to vote (or
convertible into, or exchangeable for, securities having the right to vote) on
any matters on which shareholders of TriNet may vote. Except as set forth in
this Section 3.1(c), there are no outstanding securities, options, warrants,
calls, rights, commitments, agreements, arrangements or undertakings of any kind
to which TriNet or any TriNet Subsidiary is a party or by which such entity is
bound, obligating TriNet or any TriNet 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 TriNet or any TriNet
Subsidiary or obligating TriNet or any TriNet Subsidiary to issue, grant, extend
or enter into any such security, option, warrant, call, right, commitment,
agreement, arrangement or undertaking other than to TriNet or a TriNet
Subsidiary other than to a wholly owned TriNet Subsidiary; Section 3.1(c) of the
TriNet Disclosure Letter sets forth the amount of any such securities issuable
by TriNet on an agreement by agreement basis.
(d) AUTHORITY; NONCONTRAVENTION; CONSENTS. TriNet has the requisite
corporate power and authority to enter into this Agreement and each Ancillary
Agreement to which TriNet is a party and, subject to receipt of the TriNet
Shareholder Approval, to consummate the transactions contemplated by this
Agreement (including the Ancillary Agreements to which TriNet is a party). The
execution and delivery of this Agreement and any other agreement contemplated by
this Agreement (including the Ancillary Agreements to which TriNet is a party)
by TriNet and the consummation by TriNet of the transactions contemplated hereby
and thereby have been duly authorized by all necessary corporate action on the
part of TriNet, subject to receipt of the TriNet Shareholder Approval. This
Agreement and each Ancillary Agreement to which TriNet is a party have been duly
executed and delivered by TriNet and constitute the
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valid and binding obligations of TriNet enforceable against TriNet in accordance
with their terms, subject to applicable bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and similar laws affecting creditors'
rights and remedies generally and to general principles of equity. The execution
and delivery of this Agreement and each Ancillary Agreement to which TriNet is a
party by TriNet does not, and the consummation of the transactions contemplated
hereby and thereby and compliance by TriNet with the provisions of this
Agreement and each Ancillary Agreement to which TriNet is a party does not and
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 TriNet or any TriNet Subsidiary under, (i) the
charter or bylaws of TriNet or the comparable charter or organizational
documents or partnership or similar agreement (as the case may be) of any TriNet
Subsidiary, each as amended, restated 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, contract, franchise or license applicable to TriNet or any TriNet
Subsidiary or their respective properties or assets or (iii) 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 TriNet, any TriNet Subsidiary or their
respective properties or assets, other than, in the case of clause (ii) or
(iii), any such conflicts, violations, defaults, rights or Liens that
individually or in the aggregate would not (x) reasonably be expected to result
in a TriNet Material Adverse Effect or (y) materially delay or prevent the
consummation of the Merger. 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 (a "GOVERNMENTAL ENTITY"), is required by or
with respect to TriNet or any TriNet Subsidiary in connection with the execution
and delivery of this Agreement or any Ancillary Agreement to which TriNet is a
party or the other agreements contemplated by this Agreement by TriNet or the
consummation by TriNet and the TriNet Subsidiaries of any of the other
transactions contemplated hereby and thereby, except for (i) the filing with the
SEC of (x) a joint proxy statement relating to the approval by TriNet's
shareholders and Starwood's shareholders of the transactions contemplated by
this Agreement and, as to Starwood's shareholders, the Incorporation Merger
Agreement and the Advisor Transaction Agreement (as amended or supplemented from
time to time, the "PROXY STATEMENT") and a registration statement relating to
the issuance of the Merger Consideration and the New Starwood Common Stock to be
issued in the Advisor Transaction (the "REGISTRATION STATEMENT"), and (y) such
reports under Section 13 and 16 of the Securities Exchange Act of 1934, as
amended (the "EXCHANGE ACT"), as may be required in connection with this
Agreement and the transactions contemplated by this Agreement, (ii) the
acceptance for record of the Articles of Merger for the Merger by the SDAT,
(iii) such filings as may be required in connection with the payment of any
Transfer and Gains Taxes (as defined below), and (iv) such other consents,
approvals, orders, authorizations, registrations, declarations and filings as
are set forth in Section 3.1(d) of the TriNet Disclosure Letter or (A) as may be
required under (x) federal, state, local or foreign environmental laws or (y)
the "blue sky" laws of various states or (B) which, if not obtained or made,
would not prevent or delay in any material respect the consummation of any of
the transactions contemplated by this Agreement or any Ancillary Agreement or
otherwise prevent TriNet from performing its obligations hereunder or thereunder
in any material respect or be reasonably expected to result, individually or in
the aggregate, in a TriNet Material Adverse Effect.
(e) SEC DOCUMENTS; FINANCIAL STATEMENTS; UNDISCLOSED LIABILITIES. TriNet
has filed all reports, schedules, forms, statements and other documents required
to be filed with the SEC since January 1, 1996 (collectively, the "TRINET SEC
DOCUMENTS"). All of the TriNet SEC Documents (other than preliminary materials
or materials that were subsequently amended), as of their respective filing
dates, complied in all material respects with all applicable requirements of the
Securities Act of 1933, as amended (the "SECURITIES ACT"), and the Exchange Act
and, in each case, the rules and regulations promulgated thereunder applicable
to such TriNet SEC Documents. None of the TriNet SEC Documents at the time of
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filing contained any untrue statement of a material fact or omitted 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, except to the extent such statements have been amended, modified
or superseded by later filed TriNet SEC Documents. None of the TriNet SEC
Documents is, as of the date hereof, the subject of any confidential treatment
request by TriNet. Except to the extent such statements have been amended,
modified or superseded by later TriNet Filed SEC Documents (as defined below),
the consolidated financial statements of TriNet, as applicable, included in the
TriNet SEC Documents complied 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 prepared in accordance with generally
accepted accounting principles ("GAAP") (except, in the case of interim
financial 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 in all material
respects, in accordance with the applicable requirements of GAAP, the
consolidated financial position of TriNet and the TriNet Subsidiaries taken as a
whole, as of the dates thereof and the consolidated results of operations and
cash flows for the periods then ended (subject, in the case of interim financial
statements, to normal year-end adjustments). Except as set forth in the TriNet
SEC Documents filed with the SEC prior to the date of this Agreement (the
"TRINET FILED SEC DOCUMENTS"), neither TriNet nor any TriNet Managed Subsidiary
has, nor, to TriNet's Knowledge, does any TriNet Non-Managed Subsidiary have,
any liabilities or obligations of any nature (whether accrued, absolute,
contingent or otherwise) required by GAAP to be set forth on a consolidated
balance sheet of TriNet or in the notes thereto and which, individually or in
the aggregate, would reasonably be expected to result in a TriNet Material
Adverse Effect.
(f) ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in the
TriNet Filed SEC Documents since December 31, 1998 (the "TRINET FINANCIAL
STATEMENT DATE") and to the date of this Agreement, TriNet, the TriNet Managed
Subsidiaries and, to TriNet's Knowledge, the TriNet Non-Managed Subsidiaries
have conducted their business only in the ordinary course and there has not been
(i) any events which have occurred or circumstances which have arisen that,
individually or in the aggregate have resulted in or would reasonably be
expected to result in a TriNet Material Adverse Effect, (ii) any declaration,
setting aside or payment of any dividend or other distribution (whether in cash,
stock or property) with respect to any of TriNet's stock, except for (A) regular
quarterly dividends on the TriNet Common Stock not in excess of $.65 per share
of TriNet Common Stock, (B) regular quarterly dividends on TriNet Series A
Preferred Stock not in excess of $.585938 per share of TriNet Series A Preferred
Stock, (C) regular quarterly dividends on TriNet Series B Preferred Stock not in
excess of $.575 per share of TriNet Series B Preferred Stock, (D) regular
quarterly dividends on TriNet Series C Preferred Stock not in excess of $.50 per
share of TriNet Series C Preferred Stock and (E) any distributions by any TriNet
Subsidiaries to other TriNet Subsidiaries or to TriNet, (iii) any split,
combination or reclassification of any of TriNet's stock or any issuance or the
authorization of any issuance 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 its stock or any issuance of an ownership interest in, any TriNet
Subsidiary that is not wholly owned by TriNet, (iv) any damage, destruction or
loss, whether or not covered by insurance, that individually or in the aggregate
has resulted in or would reasonably be expected to result in a TriNet Material
Adverse Effect or (v) any change in accounting methods, principles or practices
materially affecting its assets, liabilities or business, except insofar as may
have been disclosed in the TriNet SEC Documents filed with the SEC prior to the
date of this Agreement or required by a change in applicable Law or GAAP. All
dividends on TriNet Common Stock and TriNet Preferred Stock which have been
declared prior to the date of this Agreement have been paid in full, except for
(i) the dividend in the amount of $.65 per share that is payable to holders of
record of TriNet Common Stock on June 30, 1999 and the dividends in the amount
of $.585938, $.575 and $.50 that is payable to holders of record on June 15,
1999 of TriNet Series A Preferred Stock, TriNet Series B Preferred Stock and
TriNet Series C Preferred Stock, respectively, and (ii) dividends which the
failure to pay has not resulted in and would not reasonably be expected to
result in a TriNet Material Adverse Effect.
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(g) LITIGATION. Except as disclosed in the TriNet Filed SEC Documents, and
other than personal injury and other routine tort litigation arising from the
ordinary course of operations of TriNet and the TriNet Subsidiaries which are
covered by adequate insurance, there is no suit, action or proceeding pending
(in which service of process has been received by an employee of TriNet) or, to
the Knowledge of TriNet, threatened against or affecting TriNet or any TriNet
Managed Subsidiary or, to the Knowledge of TriNet, any TriNet Non-Managed
Subsidiary that, individually or in the aggregate, would reasonably be expected
to (i) result in a TriNet Material Adverse Effect or (ii) prevent the
consummation of any of the transactions contemplated herein, nor is there any
judgment, decree, injunction, rule or order of any Governmental Entity or
arbitrator outstanding against TriNet or any TriNet Managed Subsidiary or to the
Knowledge of TriNet any TriNet Non-Managed Subsidiary having or that would have,
any such effect. Section 3.1(g) of the TriNet Disclosure Letter lists and
briefly describes each litigation pending against TriNet, any TriNet Managed
Subsidiary or, to the Knowledge of TriNet, any TriNet Non-Managed Subsidiary,
other than personal injury and routine tort litigation arising from the ordinary
course of business of TriNet and the TriNet Subsidiaries, which would reasonably
be expected to result in a TriNet Material Adverse Effect.
(h) ABSENCE OF CHANGES IN BENEFIT PLANS; ERISA COMPLIANCE.
(i) Except as disclosed in the TriNet Filed SEC Documents, since the
TriNet Financial Statement Date, there has not been any adoption or amendment in
any material respect, or the undertaking of any additional obligation, by
TriNet, any TriNet Subsidiary or any TriNet ERISA Affiliate (as defined below)
of any TriNet Benefit Plan (as defined below). For purposes of this Agreement,
"TRINET BENEFIT PLAN" shall mean any Employee Plan sponsored or maintained by
TriNet, any TriNet Subsidiary or any TriNet ERISA Affiliate, or with respect to
which TriNet, any TriNet Subsidiary or any TriNet ERISA Affiliate has any
obligation to contribute, has liability under or is otherwise a party to, or
which otherwise provides benefits for any current or former employees, officers,
directors or other independent contractors (or their dependents and
beneficiaries) of TriNet or any TriNet Subsidiary. For purposes of this
Agreement, "TRINET ERISA AFFILIATE" means any entity required to be aggregated
with any of TriNet or any TriNet Subsidiary under Sections 414(b), (c), (m) or
(o) of the Code or Section 4001 of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"). Section 3.1(h)(i) of the TriNet Disclosure Letter
sets forth each TriNet Benefit Plan.
(ii) Except as described in the TriNet Filed SEC Documents or as would
not reasonably be expected to result in a TriNet Material Adverse Effect, (A)
all TriNet Benefit Plans, including any such plan that is an "employee benefit
plan" as defined in Section 3(3) of ERISA, have been made available to Starwood
and are in compliance with the terms of such plan and all applicable
requirements of law, including ERISA and the Code and, without limitation, the
requirements of ERISA and all tax rules for which favorable tax treatment is
intended, and (B) there are no liabilities or obligations with respect to any
such TriNet Benefit Plan, whether accrued, contingent or otherwise (other than
obligations by TriNet and the TriNet Subsidiaries to make contributions, and for
such plan to pay benefits and administrative costs, incurred in the ordinary
course), nor to the Knowledge of TriNet are any such liabilities or obligations
expected to be incurred. The execution of, and performance of the transactions
contemplated in, this Agreement will not (either alone or together with the
occurrence of any additional or subsequent events) constitute an event under any
TriNet Benefit Plan, policy, program, arrangement or agreement, trust or loan
that will or may result in any payment (whether of severance pay or otherwise),
acceleration, forgiveness of indebtedness, vesting, distribution, increase in
benefits or obligation to fund benefits with respect to any employee or
director, will not result in any "golden parachute payments" being due (as
defined for purposes of Section 280G of the Code), or result in any breach or
violation of, or a default under, any of the TriNet Benefit Plans. The only
severance agreements or severance policies applicable to TriNet or the TriNet
Subsidiaries are the agreements and policies specifically referred to in Section
3.1(h)(ii) of the TriNet Disclosure Letter.
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(iii) Without limiting the foregoing, each TriNet Benefit Plan which is
intended to be tax-qualified under Section 401(a) of the Code has been
determined by the IRS to be so qualified and such determination has not been
modified, revoked or limited, and no circumstances have occurred that would
adversely affect the tax-qualified status of any such plan. No TriNet Benefit
Plan is or has ever been subject to Part III of Subtitle B of Title I of ERISA
or Title IV of ERISA or Section 412 of the Code. None of TriNet or any TriNet
Subsidiary, or any "party in interest" (as defined in Section 3(14) of ERISA) or
any "disqualified person" (as defined in Section 4975 of the Code) with respect
to any TriNet Benefit Plan, has engaged in a non-exempt "prohibited transaction"
within the meaning of Section 4975 of the Code or Section 406 of ERISA that
would reasonably be expected to result in a TriNet Material Adverse Effect. No
TriNet Benefit Plan provides for health or life insurance for employees after
termination of employment (except as required by law).
(iv) All of the TriNet Stock Options issued under the TriNet 1997 Stock
Incentive Plan have been issued to directors of TriNet.
(i) TAXES.
(i) Each of TriNet, each TriNet Managed Subsidiary and, to the
Knowledge of TriNet, each TriNet Non-Managed Subsidiary has timely filed all Tax
Returns and reports required to be filed by it (after giving effect to any
filing extension properly granted by a Governmental Entity having authority to
do so). Each such Tax Return is true, correct and complete in all material
respects except as disclosed in writing to Starwood. TriNet, each TriNet Managed
Subsidiary and to the Knowledge of TriNet, each TriNet Non-Managed Subsidiary
has paid (or TriNet has paid on their behalf), within the time and manner
prescribed by law, all Taxes that are due and payable except as otherwise
disclosed in writing to Starwood. The United States federal income Tax Returns
of TriNet, each TriNet Managed Subsidiary and, to the Knowledge of TriNet, each
TriNet Non-Managed Subsidiary have not been audited by any Governmental Entity
responsible for tax matters (a "TAXING AUTHORITY"). There are no audits by any
Taxing Authority currently being conducted with regard to Taxes or Tax Returns
of TriNet, any TriNet Managed Subsidiary or, to the Knowledge of TriNet, any
TriNet Non-Managed Subsidiary, and, to the Knowledge of TriNet, there are no
pending audits or current inquiries being made by any Taxing Authority with
respect to any Taxes or Tax Returns. The most recent financial statements
contained in the TriNet SEC Documents filed with the SEC prior to the date of
this Agreement reflect an adequate reserve for all material Taxes (including
real estate taxes) payable by TriNet, by each TriNet Managed Subsidiary and, to
the Knowledge of TriNet, each TriNet Non-Managed Subsidiary for all taxable
periods and portions thereof through the date of such financial statements.
Since the TriNet Financial Statement Date, TriNet has incurred no liability for
federal taxes, other than withholding and employment taxes, under the Code or
IRS Notice 88-19. To the Knowledge of TriNet, no event has occurred, and no
condition or circumstance exists, which presents a material risk that any
material Tax described in the preceding sentence will be imposed upon TriNet or
any TriNet Subsidiary. No deficiencies for any Taxes have been proposed,
asserted or assessed against TriNet or any of the TriNet Subsidiaries and no
requests for waivers of the time to assess any such Taxes have been granted and
remain in effect or are pending. As used in this Agreement, "TAXES" or "TAX"
shall mean any federal, state, local or foreign income, gross receipts, license,
payroll, employment withholding, property, recording, stamp, sales, excise or
other tax or similar governmental charges of any nature whatsoever, together
with any penalties, interest or additions thereto and "TAX RETURN" shall mean
any return, declaration, report, claim for refund, or information return or
statement relating to Taxes, including any schedule or attachment thereto, and
including any amendment thereof.
(ii) TriNet (A) for each taxable year beginning with the taxable year
ended on December 31, 1993, has been subject to taxation as a REIT within the
meaning of the Code and has satisfied the requirements to qualify as a REIT for
such years, (B) has operated, and intends to continue to operate, in such a
manner as to qualify as a REIT through the end of its taxable year ending at the
Effective Time and (C) has not taken or omitted to take any action which could
reasonably be expected to result in a challenge to its status as a REIT, and no
such challenge is pending or, to TriNet's Knowledge, threatened. Each
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TriNet Subsidiary which is a partnership or limited liability company or files
Tax Returns as a partnership for federal income tax purposes has since its
acquisition by TriNet been classified for federal income tax purposes as a
partnership or disregarded entity and not as an association taxable as a
corporation, or a "publicly traded partnership" within the meaning of Section
7704(b) of the Code that is treated as a corporation for federal income tax
purposes under Section 7704(a) of the Code. Neither TriNet nor any TriNet
Subsidiary holds any asset (x) the disposition of which would be subject to
rules similar to Section 1374 of the Code as announced in IRS Notice 88-19 or
(y) that is subject to a consent filed pursuant to Section 341(f) of the Code
and the regulations thereunder.
(iii) As of the date hereof, TriNet does not have any earnings and
profits attributable to TriNet or any other corporation in any non-REIT year
within the meaning of Section 857 of the Code.
(iv) To the Knowledge of TriNet, TriNet qualifies as a "domestically
controlled" REIT within the meaning of Section 897(h)(4)(B) of the Code, as of
the date hereof.
(j) NO LOANS OR PAYMENTS TO EMPLOYEES, OFFICERS OR DIRECTORS. Except as
disclosed in the TriNet Filed SEC Documents or as otherwise specifically
provided for in this Agreement, there is no (i) loan outstanding from or to any
employee, officer or director of TriNet or any TriNet Subsidiary which, in the
aggregate together with all such loans, has a principal amount in excess of
$500,000, (ii) employment or severance agreement which, in the aggregate
together with all such agreements, provides for payments in excess of $500,000
by TriNet or any TriNet Subsidiary or material consulting contract, or any
material policy, agreement, program or arrangement of TriNet or any TriNet
Subsidiary, (iii) agreement which, in the aggregate together with all other
agreements, requires material payments to be made on a change of control or
otherwise as a result of the consummation of the Merger or any of the other
transactions contemplated by this Agreement with respect to any employee,
officer or director of TriNet or any TriNet Managed Subsidiary or, to the
Knowledge of TriNet, any TriNet Non-Managed Subsidiary or (iv) any agreement to
appoint or nominate any person as a director of TriNet, any TriNet Managed
Subsidiary or, to the Knowledge of TriNet, any TriNet Non-Managed Subsidiary.
(k) BROKERS; SCHEDULE OF FEES AND EXPENSES. No broker, investment banker,
financial advisor or other person, other than Greenhill & Co., LLC
("GREENHILL"), the fees and expenses of which, as set forth in a letter
agreement between TriNet and such financial advisor, have previously been
disclosed to Starwood and will be paid by TriNet, is entitled to any broker's,
finder's, financial advisor's or other similar fee or commission in connection
with the Merger or any of the other transactions contemplated by this Agreement
based upon arrangements made by or on behalf of TriNet or any TriNet Subsidiary.
(l) COMPLIANCE WITH LAWS. Except as disclosed in the TriNet Filed SEC
Documents, none of TriNet, any of the TriNet Managed Subsidiaries and, to the
Knowledge of TriNet, any of the TriNet Non-Managed 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 for violations and failures to comply that
would not, individually or in the aggregate, reasonably be expected to result in
a TriNet Material Adverse Effect.
(m) CONTRACTS; DEBT INSTRUMENTS.
(i) None of TriNet, any TriNet Managed Subsidiary and, to TriNet's
Knowledge, any TriNet Non-Managed Subsidiary has received written notice that it
is in violation of or in default under, in any material respect (nor does there
exist any condition which upon the passage of time or the giving of notice or
both would cause such a violation of or default under), any material loan or
credit agreement, note, bond, mortgage or indenture or any material lease,
permit, concession, franchise or license, or any material agreement to acquire
real property, 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, except for violations or defaults that would not, individually
or in the aggregate, reasonably be expected to result in a TriNet Material
Adverse Effect.
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(ii) Section 3.1(m)(ii) of the TriNet Disclosure Letter sets forth (A)
a detailed list of all indebtedness of TriNet, the TriNet Managed Subsidiaries
and, to TriNet's Knowledge, the TriNet Non-Managed Subsidiaries, under which an
aggregate principal amount in excess of $5,000,000 per item is outstanding or
may be incurred, other than (i) indebtedness payable to TriNet or a wholly owned
TriNet Subsidiary and (ii) indebtedness which is reflected in the financial
statements set forth in TriNet Filed SEC Documents and (B) the respective
principal amounts outstanding thereunder or, in the case of financial products
the notional amounts thereof, on March 31, 1999. For purposes of this Section
3.1(m)(ii) and Section 3.2(m)(ii), "INDEBTEDNESS" shall mean, with respect to
any person, without duplication, (A) all indebtedness of such person for
borrowed money, whether secured or unsecured, (B) all obligations of such person
under conditional sale or other title retention agreements relating to property
purchased by such person, (C) all capitalized lease obligations of such person,
(D) all obligations of such person under interest rate or currency hedging
transactions (valued at the termination value thereof), and (E) all guarantees
of such person of any such indebtedness of any other person. TriNet has
previously delivered or made available to Starwood true and correct copies of
all of the material agreements relating to the indebtedness disclosed in Section
3.1(m)(ii) of the TriNet Disclosure Letter.
(iii) None of TriNet, any TriNet Managed Subsidiary and, to TriNet's
Knowledge, any TriNet Non-Managed Subsidiary has entered into or is subject,
directly or indirectly, to any TriNet Tax Protection Agreements. As used herein,
a "TRINET TAX PROTECTION AGREEMENT" is an agreement, oral or written, (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 TriNet or a TriNet Subsidiary or
attributable to the acquisition or ownership of an interest in any TriNet
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 TriNet or any TriNet Subsidiary, (ii) requires that TriNet or any TriNet
Subsidiary maintain, increase or put in place, or replace, indebtedness, whether
or not secured by one or more of the TriNet Properties or (iii) requires that
TriNet or any TriNet Subsidiary offer to any person or entity 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
TriNet or any TriNet Subsidiary.
(n) ENVIRONMENTAL MATTERS. Except as disclosed in the TriNet Filed SEC
Documents, (i) none of TriNet or the TriNet Subsidiaries or, to TriNet's
Knowledge, any other Person has caused or permitted the presence of any
hazardous substances, hazardous materials, toxic substances or waste materials
(collectively, "HAZARDOUS MATERIALS") or under any of the TriNet Properties and
none of TriNet or the TriNet Subsidiaries has any Knowledge of the presence of
any Hazardous Materials on or under any of the TriNet Properties except to the
extent the presence of such Hazardous Materials would not, individually or in
the aggregate, reasonably be expected to result in a TriNet Material Adverse
Effect, (ii) none of TriNet or any of the TriNet Subsidiaries or, to TriNet's
Knowledge, any other Person, has caused or permitted any unlawful spills,
releases, discharges or disposal of Hazardous Materials to have occurred or be
presently occurring on or from the TriNet Properties as a result of any
construction on or operation or use of such properties and none of TriNet or any
of the TriNet Subsidiaries has any Knowledge of any spills, releases, discharges
or disposal of Hazardous Materials having occurred or presently occurring on,
under or from the TriNet Properties as a result of any construction on or
operation or use of any such property, in each of the foregoing cases, which
presence or occurrence would, individually or in the aggregate, reasonably be
expected to result in a TriNet Material Adverse Effect; (iii) in connection with
the construction on or operation and use of the TriNet Properties, TriNet and
the TriNet Managed Subsidiaries and, to TriNet's Knowledge, the TriNet
Non-Managed Subsidiaries, have not failed to comply in any material respect with
any applicable local, state and federal environmental law, regulation, ordinance
or administrative and judicial orders relating to the generation, recycling,
reuse, sale, storage, handling, transport and disposal of any Hazardous
Materials (any of the foregoing, an "ENVIRONMENTAL LAW"), except to the extent
such failure to comply would not, individually or in the aggregate, reasonably
be expected to result in a TriNet Material Adverse Effect. TriNet has previously
delivered or made available to Starwood complete copies of all
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reports on and results of investigations, testing or analysis that are in the
possession of or available to any of them with respect to the environmental
condition of the TriNet Properties or with respect to environmental compliance
of operations conducted on or from any such Property.
(o) TRINET PROPERTIES.
(i) TriNet, a TriNet Subsidiary or, to the Knowledge of TriNet, a
TriNet Non-Managed Subsidiary owns fee simple title to or has a valid leasehold
interest in, each of the real properties reflected on the most recent balance
sheet of TriNet included in the TriNet Filed SEC Documents or as identified in
Section 3.1(o) of the TriNet Disclosure Letter (the "TRINET PROPERTIES"), which
are all of the real estate properties owned or leased by them, free and clear of
liens, mortgages or deeds of trust, claims against title, charges which are
liens, security interests or other encumbrances on title, any rights of way,
written agreements or reservations of an interest in title ("TRINET
ENCUMBRANCES") except for (a) debt or other liabilities identified on Section
3.1(m)(ii) of the TriNet Disclosure Letter, (b) inchoate liens imposed for
construction work in progress, (c) mechanics', workmen's and repairmen's liens
(other than inchoate liens for work in progress) which have heretofore been
bonded over or which, individually or in the aggregate, are not reasonably
expected to result in a TriNet Material Adverse Effect or the discharge of which
is the responsibility of a lessee of the applicable TriNet Property, (d) Taxes
not yet due and payable or which are being contested in good faith with adequate
reserves as required by GAAP, (e) leases entered into in the ordinary course of
TriNet's business and subleases under such leases as tenants only with no
options to purchase except as listed on Section 3.1(o) of the TriNet Disclosure
Letter, (f) matters affecting title to multi-tenant office real estate a portion
of which has been leased to TriNet or a TriNet Subsidiary, as tenants only,
primarily for office purposes (each such lease, a "TRINET OFFICE SPACE LEASE")
and (g) other TriNet Encumbrances, if any, which would not, individually or in
the aggregate, reasonably be expected to result in a TriNet Material Adverse
Effect;
(ii) Valid policies of title insurance have been issued insuring
TriNet's or a TriNet Subsidiary's fee simple title or leasehold estate to the
TriNet Properties (other than leasehold estates consisting of a tenant's
interest under the TriNet Office Space Leases) except as noted therein, and such
policies are, at the date hereof, in full force and effect and no claim has been
made against any such policy which is currently pending which would, if
determined adversely, individually or in the aggregate, reasonably be expected
to result in a TriNet Material Adverse Effect (with respect to TriNet
Non-Managed Subsidiaries, the foregoing representation is made only to the
Knowledge of TriNet);
(iii) None of TriNet and the TriNet Managed Subsidiaries and, to the
Knowledge of TriNet, the TriNet Non-Managed Subsidiaries has received written
notice of any violation of any federal, state or municipal law, ordinance,
order, regulation or requirement affecting any portion of any of the TriNet
Properties issued by any Governmental Entity that has not otherwise been
resolved which would, individually or in the aggregate, reasonably be expected
to result in a TriNet Material Adverse Effect;
(iv) None of TriNet and the TriNet Managed Subsidiaries and, to the
Knowledge of TriNet, the TriNet Non-Managed Subsidiaries has received notice of
or has Knowledge of, any condemnation or rezoning or proceedings that are
pending or to the Knowledge of TriNet and its Subsidiaries, threatened with
respect to any of the TriNet Properties which would, individually or in the
aggregate, reasonably be expected to result in a TriNet Material Adverse Effect;
(v) Except as would not, individually or in the aggregate, reasonably
be expected to result in a TriNet Material Adverse Effect, each tenant of a
TriNet Property (or subtenant if TriNet or the applicable TriNet Subsidiary is
itself a tenant), owned or leased by TriNet or a TriNet Managed Subsidiary, or,
to the Knowledge of TriNet, a TriNet Property owned or leased by a TriNet
Non-Managed Subsidiary, or, to the Knowledge of TriNet, a subtenant thereof in
which subtenant's rent TriNet or a TriNet Subsidiary participates or otherwise
shares with the tenant, has entered into a lease or a sublease, if applicable,
for the possession of such TriNet Property (each lease or other right of
occupancy affecting or relating to a TriNet Property under which TriNet or a
TriNet Subsidiary is the lessor or sublessor is referred to herein as a
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"TRINET LEASE"); except as disclosed in the TriNet Filed SEC Documents or except
as would not, individually or in the aggregate, reasonably be expected to result
in a TriNet Material Adverse Effect, each TriNet Lease of a TriNet Property
owned or leased by TriNet or a TriNet Managed Subsidiary, or, to the Knowledge
of TriNet, each TriNet Property owned or leased by a TriNet Non-Managed
Subsidiary, is in full force and effect and none of TriNet and any of the TriNet
Managed Subsidiaries and, to the Knowledge of TriNet, the TriNet Non-Managed
Subsidiaries has received written notice of any defense to the obligations of
the tenant thereunder or any claim asserted or threatened by any such tenant or
guarantor of the tenant's obligations, which defense or claim, if sustained,
would reasonably be expected to result in a TriNet Material Adverse Effect; and
except as would not individually or in the aggregate reasonably be expected to
result in a TriNet Material Adverse Effect, (a) the lessor under each TriNet
Lease of a TriNet Property owned or leased by TriNet or a TriNet Managed
Subsidiary, or, to the Knowledge of TriNet, each TriNet Property owned or leased
by a TriNet Non-Managed Subsidiary, has complied with its obligations under such
TriNet Lease, (b) as of the date hereof no tenant with respect to any TriNet
Property owned by TriNet, any TriNet Managed Subsidiary or, to the Knowledge of
TriNet, any TriNet Non-Managed Subsidiary is in default in the payment of fixed,
base or minimum rent or other rental obligations payable to TriNet or a TriNet
Subsidiary beyond the expiration of all applicable grace periods and (c) none of
TriNet and any of the TriNet Managed Subsidiaries and, to the Knowledge of
TriNet, the TriNet Non-Managed Subsidiaries has notice of any default by the
tenant under such TriNet Lease;
(vi) The rent roll provided by TriNet to Starwood lists each TriNet
Lease in effect as of the date hereof and, as of the date hereof, the following
information for each TriNet Lease (other than the TriNet Office Space Leases):
(a) tenant's name, (b) rentable square feet, (c) current rental rate, (d)
scheduled rental increases, (e) current expiration date and (f) to the extent
the landlord may be obligated to perform the following within the five year
period after the Effective Time: each existing obligation of the landlord to
construct, add to or expand a building (not including for this purpose tenant
improvements in the ordinary course) and each option of a tenant of a TriNet
Property to require TriNet or any TriNet Subsidiary to construct, add to or
expand a building (the "TRINET RENT ROLL"). TriNet has made available to
Starwood true, correct and complete copies of all TriNet Leases, including all
material amendments, modifications, supplements, renewals, extensions and
guarantees related thereto, as of the date hereof. Except for discrepancies
that, either individually or in the aggregate, would not reasonably be expected
to result in a TriNet Material Adverse Effect, all information set forth in the
TriNet Rent Roll is true, correct and complete as of the date thereof;
(vii) The mortgages and deeds of trust encumbering the TriNet
Properties are not (i) cross-defaulted to any indebtedness other than
indebtedness of TriNet or any of the TriNet Subsidiaries or (ii)
cross-collateralized to any property not owned by TriNet or any of the TriNet
Subsidiaries;
(viii) TriNet and the TriNet Managed Subsidiaries and, to the Knowledge
of TriNet, the TriNet Non-Managed Subsidiaries are insured by insurers of
recognized financial responsibility against such losses and risks and in such
amounts as are customary in the business in which they are engaged and such
insurance is adequate for the value of their properties; all policies of
insurance insuring TriNet and the TriNet Managed Subsidiaries and, to the
Knowledge of TriNet, the TriNet Non-Managed Subsidiaries or their respective
businesses and assets, are in full force and effect except as would not
reasonably be expected to result in a TriNet Material Adverse Effect and TriNet
and the TriNet Managed Subsidiaries and, to the Knowledge of TriNet, the TriNet
Non-Managed Subsidiaries are in compliance with the terms of such policies and
there are no claims by TriNet and the TriNet Managed Subsidiaries and, to the
Knowledge of TriNet, the TriNet Non-Managed Subsidiaries under any such policy
as to which any insurance company is denying liability or defending under a
reservation of rights clause, other than claims which (i) are for less than
$250,000 or as disclosed in Section 3.1(o)(viii) of the TriNet Disclosure Letter
or (ii) would not otherwise, individually or in the aggregate, reasonably be
expected to result in a TriNet Material Adverse Effect (it being understood that
any such claim which is for an amount in excess of
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$250,000 shall not, solely by reason of such fact, be deemed reasonably likely
to have a TriNet Material Adverse Effect); and
(ix) Section 3.1(o)(ix) of the TriNet Disclosure Letter lists each
letter of intent or term sheet executed by TriNet or a TriNet Subsidiary
relating to a proposed TriNet Lease of more than 50,000 square feet, which
imposes a legally binding obligation on TriNet or a TriNet Subsidiary and which
is not otherwise disclosed pursuant to TriNet SEC Filed Documents or another
section of this Agreement or the TriNet Rent Roll.
(p) OPINION OF FINANCIAL ADVISOR. The Board of Directors of TriNet has
received the written opinion of Greenhill dated June 15, 1999 satisfactory to
TriNet and its Board of Directors, a copy of which opinion was provided to
Starwood, to the effect that, as of the date of such opinion, the Exchange Ratio
is fair from a financial point of view to the holders of TriNet Common Stock. It
is agreed and understood that such opinion is for the benefit of TriNet's Board
of Directors and may not be relied upon by Starwood or its affiliates.
(q) STATE TAKEOVER STATUTES; RIGHTS AGREEMENT.
(i) TriNet has taken all actions necessary, if any, to exempt the
Merger, this Agreement and the transactions contemplated by this Agreement from
the operation of any Takeover Statute (as defined below) of the State of
Maryland, including, without limitation, Sections 3-602 and 3-603 of the MGCL.
(ii) TriNet has taken all actions necessary to ensure that the Rights
Agreement, dated as of February 25, 1998, as amended, between TriNet and First
Chicago Trust Co. of New York, as Rights Agent (the "RIGHTS AGREEMENT") is
inapplicable to this Agreement, the Merger and the other transactions
contemplated hereby.
(r) INVESTMENT COMPANY ACT OF 1940. None of TriNet or any of the TriNet
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").
(s) PROXY STATEMENT AND REGISTRATION STATEMENT. The information furnished
by TriNet for inclusion or incorporation by reference in the Registration
Statement and any amendment or supplement thereto will not, as of the date the
Registration Statement is declared effective by the SEC, 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 not
misleading. The information furnished by TriNet for inclusion or incorporation
by reference in the Proxy Statement will not, on the date the Proxy Statement is
first mailed or furnished to securityholders of TriNet or Starwood or on the
respective meeting dates, 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 in which they were made, not
misleading. Notwithstanding the foregoing, TriNet makes no representation or
warranty with respect to any information furnished by Starwood for inclusion or
incorporation by reference in any of the foregoing documents.
(t) VOTE REQUIRED. The affirmative vote of the holders of at least
two-thirds of the outstanding shares of TriNet Common Stock is the only vote of
the holders of any class or series of TriNet's stock necessary (under applicable
law or otherwise) to approve the Merger, this Agreement and the other
transactions contemplated hereby (the "TRINET SHAREHOLDER APPROVAL").
(u) YEAR 2000 ISSUES.
(i) To the best Knowledge of TriNet, based on representations and
warranties made by third parties and publicly available information, the
software, hardware and equipment of TriNet owned, leased or licensed by it and
used in the conduct of its business, as well as the elevator systems in those of
TriNet's Properties for which TriNet has the responsibility under the applicable
lease agreements to address Year 2000 compliance, and the heating, ventilation
and air conditioning, fire and safety and other automated
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building systems at those of the TriNet Properties for which TriNet has the
responsibility under the applicable lease agreements to address Year 2000
compliance are or will be on or before December 31, 1999 Year 2000 Ready, except
to the extent that the failure to be Year 2000 Ready would not reasonably be
expected to result in a TriNet Material Adverse Effect.
(ii) "YEAR 2000 READY" means that the software, hardware, equipment and
systems will: (A) handle properly entered date information involving any and all
dates before, during and/or after January 1, 2000, including accepting input,
providing output and performing date calculations in whole or in part; (B)
operate accurately and without interruption on and in respect of any and all
dates before, during and/or after January 1, 2000 and without any change in
performance; and (C) store and provide properly entered date input information
without creating any ambiguity as to the century.
Section 3.2. REPRESENTATIONS AND WARRANTIES OF STARWOOD AND STARWOOD
SUB. Except as set forth in the letter of even date herewith (with section
references organized in accordance with Section 9.9) signed by the President or
Chief Executive Officer and the Chief Financial Officer of Starwood and
delivered to TriNet prior to the execution of this Agreement (the "STARWOOD
DISCLOSURE LETTER"), each of Starwood and Starwood Sub, jointly and severally,
represents and warrants to TriNet as follows:
(a) ORGANIZATION, STANDING AND CORPORATE POWER OF STARWOOD. Starwood is a
real estate investment trust duly organized and validly existing under the laws
of the State of Maryland. Starwood Sub is a corporation duly organized and
validly existing under the laws of the State of Maryland. Each of Starwood and
Starwood Sub has the requisite corporate power and authority to carry on its
business as now being conducted. Each of Starwood and Starwood Sub 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, leasing of
its properties or management of properties for others makes such qualification
or licensing necessary, except where the failure to be so qualified or licensed,
individually or in the aggregate, would not have a material adverse effect on
the business, properties, financial condition or results of operations or
prospects of Starwood and the Starwood Subsidiaries, taken as a whole (a
"Starwood Material Adverse Effect"); for purposes of this agreement, however,
"Starwood Material Adverse Effect" does not include any such effect directly
resulting from or directly attributable to (i) the execution of this Agreement
and each Ancillary Agreement to which Starwood is a party or the proposed
consummation of the transactions contemplated by this Agreement and each
Ancillary Agreement to which Starwood is a party or the public announcement
thereof and (ii) changes in the U.S. economy, the U.S. securities markets, the
real estate industry or the real estate finance industry that generally affect,
to the same extent, all participants in the industries in which Starwood
operates or changes in law.
(b) STARWOOD SUBSIDIARIES; INTERESTS IN OTHER PERSONS.
(i) Section 3.2(b)(i) of the Starwood Disclosure Letter sets forth each
Starwood Subsidiary and the ownership interest therein of Starwood and each
other Starwood Subsidiary. Starwood Sub has no Subsidiaries. All the outstanding
shares of capital stock of each Starwood Subsidiary that is a corporation have
been duly authorized, validly issued and are fully paid and nonassessable and
are not subject to any preemptive rights, and are owned by Starwood, by another
Starwood Subsidiary or by Starwood and another Starwood Subsidiary, free and
clear of all Liens, and all equity interests in each Starwood Subsidiary that is
a partnership or limited liability company or trust have been duly authorized,
validly issued, are not subject to preemptive rights and are owned by Starwood
or by Starwood and another Starwood Subsidiary free and clear of all Liens. Each
Starwood Subsidiary 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 Starwood 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 or management of properties for others makes such qualification
or licensing necessary, except where the failure to be so qualified or licensed,
individually or in the aggregate, would not reasonably be expected to result in
a Starwood Material Adverse Effect.
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(ii) Except for the capital stock of or other equity interests in the
Starwood Subsidiaries, neither Starwood nor Starwood Sub owns, directly or
indirectly (including through any Starwood Subsidiary), any capital stock or
other equity interest, with a fair market value as of the date of this Agreement
greater than $1,000,000 in any Person or which represents 5% or more of the
outstanding voting power, outstanding capital stock or other ownership interest
of any class in any Person. Neither Starwood nor any Starwood Subsidiary is in
default of any provision of any material documents governing or otherwise
relating to its rights in any Starwood Subsidiary other than such defaults that
would not, individually or in the aggregate, reasonably be expected to result in
a Starwood Material Adverse Effect. All such documents, other than the charter
and bylaws of any Starwood Subsidiary which is a corporation, are set forth in
Section 3.2(b)(ii) of the Starwood Disclosure Letter and are in full force and
effect and true and correct copies of all such documents have been previously
delivered or made available to TriNet.
(iii) None of Starwood or any Starwood Subsidiary has given any notice
(that is still outstanding) of any monetary or non-monetary default, breach,
violation or event of acceleration and there is no default in the payment of
principal or interest or other monetary default beyond the expiration of any
applicable grace period or, to the Knowledge of Starwood, any non-monetary
default, breach, violation or event of acceleration beyond the expiration of any
applicable grace period existing under any of the loans disclosed in Section
3.2(b)(iii) of the Starwood Disclosure Letter (the "STARWOOD LOANS") that could,
individually or in the aggregate, reasonably be expected to result in a Starwood
Material Adverse Effect and Starwood has received no notice of any such default,
breach or violation. None of Starwood or any Starwood Subsidiary has received
any written notice of any default, breach or violation by Starwood or a Starwood
Subsidiary of any of the terms of any Starwood Loans, and to the Knowledge of
Starwood, no such default, breach or violation exists, except, in either
instance, for such defaults, breaches or violations that could not, individually
or in the aggregate, reasonably be expected to result in a Starwood Material
Adverse Effect, and, to the Knowledge of Starwood, no person has any right of
offset against Starwood or a Starwood Subsidiary in respect of any Starwood
Loans which would, individually or in the aggregate, reasonably be expected to
result in a Starwood Material Adverse Effect. To the Knowledge of Starwood,
there is no monetary default or any material default, breach, violation or event
of acceleration under (x) by the applicable borrower, any loan or security
ranking in priority senior to any Starwood Loans (y) by the applicable tenant,
any ground lease mortgaged or pledged to Starwood or a Starwood Subsidiary as
security for a Starwood Loan (each such ground lease, a "STARWOOD PLEDGED GROUND
LEASE") or (z) by the applicable pledgor, any partnership agreement, limited
liability company agreement or other governing documentation for any entity in
which less than all of ownership interests have been pledged to Starwood or a
Starwood Subsidiary to secure a Starwood Loan, which would, individually or in
the aggregate, reasonably be expected to result in any circumstance under (x),
(y) or (z) reasonably be expected to result in a Starwood Material Adverse
Effect. Starwood or a Starwood Subsidiary owns each Starwood Loan free and clear
of all liens and encumbrances, except for liens securing debt and participations
which are listed in Section 3.2(b)(iii) of the Starwood Disclosure Letter.
Starwood has made available to TriNet true, correct and complete copies of (A)
all material documents evidencing or securing the Starwood Loans, except that
with respect to Starwood Loans which are in the nature of collateralized
mortgage backed securities ("STARWOOD CMBS"), Starwood has made such items
available only to the extent in Starwood's files, (B) all intercreditor and
similar agreements with lenders whose loans are senior to the Starwood Loans,
except that with respect to the Starwood CMBS and Starwood Loans in the nature
of a participation interest, such items are made available only to the extent in
Starwood's files, (C) to the extent in Starwood's files, all documents
evidencing or securing such senior loans and, to the extent in Starwood's files,
the Starwood Pledged Ground Leases, (D) all participation agreements relating to
Starwood Loans which consist of loan participations except that with respect to
the Starwood CMBS and items described in (C) above and (E) below, such items are
made available only to the extent in Starwood's files, (E) to the extent in
Starwood's files, all partnership agreements of partnerships interests in which
have been pledged as security for any Starwood Loan and (F) all material
amendments and modifications of the foregoing documents described in clauses
(A), (B), (C), (D) and (E) above, except with respect to the Starwood
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CMBS and Starwood Loans in the nature of a participation interest, such items
are made available only to the extent in Starwood's files. Section 3.2(b)(iii)
of the Starwood Disclosure Letter sets forth a list, as of the date hereof
unless otherwise indicated, of the following: (A) all loans (including loan
participations) held by Starwood or any of its Subsidiaries and the holder of,
and borrower with respect to, each such loan (except with respect to Starwood
CMBS), (B) the outstanding principal balance of each such loan (the term
"principal balance" to include, for this purpose, all accrued and unpaid
interest, other than interest accrued during the current month or other payment
period), except with respect to Starwood CMBS, only the principal balance of the
Starwood CMBS is indicated), (C) in the case of any loan which entitles the
lender to a share of cash flow or revenues, the amount received by Starwood or
its Subsidiary in the year ended December 31, 1998 on account of such cash flow
or revenues, (D) with respect to Starwood Loans which are in the nature of a
participation interest in which Starwood and the participants participate in
payments thereunder entirely on a PARI PASSU basis, the percentage interest of
Starwood or the applicable Starwood Subsidiary, (E) the amount of any remaining
monetary commitments of Starwood and its Subsidiaries with respect to such
loans, (F) the amount of impounds or reserves deposited with Starwood or a
Starwood Subsidiary by a borrower or other obligor in respect of a Starwood
Loan, (G) to the Knowledge of Starwood, the outstanding principal balance as of
April 30, 1999 of loans senior to the Starwood Loans and (H) a general
description of the categories of collateral securing each Starwood Loan. To the
Knowledge of Starwood, each Starwood Loan (other than Starwood CMBS and Starwood
participations, as to which the representation is made only to the Knowledge of
Starwood) is secured by valid, perfected security interests or liens the
invalidity or nonperfection of which would not, individually or in the
aggregate, reasonably be expected to result in a Starwood Material Adverse
Effect, subject only to senior loans identified elsewhere in this Agreement or
in Starwood's files, to the extent such files were made available to TriNet (or
which were otherwise made available to TriNet) and indebtedness described in the
Starwood Disclosure Letter and to Starwood Encumbrances. None of Starwood, any
of its Subsidiaries, and, to the Knowledge of Starwood, the lead lender in
respect of any Starwood Loan which consists of a loan participation, has waived
the borrower's obligations with respect to any Starwood Loan which would be
reasonably expected to result in a Starwood Material Adverse Effect. To the
Knowledge of Starwood, no property which serves as security (or the equity
interests with respect to which serve as security) for any Starwood Loan has
been affected by any casualty which has not been fully restored or by any
condemnation or eminent domain proceeding which would be reasonably expected to
result in a Starwood Material Adverse Effect. Representations and Warranties in
this Agreement as to Starwood CMBS and participations are qualified by the
Knowledge of Starwood to the extent relating to the loans underlying such
assets.
(iv) There are no outstanding contractual obligations of Starwood or
any Starwood Subsidiary to repurchase, redeem or otherwise acquire any shares of
beneficial interest, stock or other ownership interests in Starwood or any
Starwood Subsidiary, and, other than the Starwood Loans, there are no
outstanding contractual obligations of Starwood or any Starwood Subsidiary to
make any investment of $500,000 or more, individually, or more than $2,000,000
in the aggregate during the 12 months after the Effective Time (in each case, in
the form of a loan, capital contribution or otherwise) in any Person.
(c) CAPITAL STRUCTURE. The authorized shares of beneficial interest of
Starwood consists of 109,400,000 shares of beneficial interest, of which
70,000,000 shares are designated Class A Common Shares, par value $1.00 per
share (the "STARWOOD CLASS A COMMON SHARES"), and 35,000,000 shares are
designated Class B Common Shares, par value $.01 per share (the "STARWOOD CLASS
B COMMON SHARES") and 4,400,000 shares are designated preferred shares, par
value $.01 per share. As of June 1, 1999, (i) 52,470,951 Starwood Class A Common
Shares, 26,235,475 Starwood Class B Common Shares and 4,400,000 9.5% Series A
Preferred Shares of Starwood ("STARWOOD SERIES A PREFERRED SHARES") constitute
all of the issued and outstanding shares of beneficial interest of Starwood,
(ii) options to purchase 5,439,884 Starwood Class A Common Shares (the "STARWOOD
STOCK OPTIONS") were available for grant under Starwood's 1996 Long-Term
Incentive Plan (as amended and restated as of March 13, 1998) (the "STARWOOD
STOCK PLAN"), of which 2,427,603 options to purchase Starwood Class A Common
Shares are outstanding,
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(iii) 2,975,400 of Starwood Class A Common Shares were reserved for issuance
upon the exercise of warrants issued to Lazard Freres Real Estate Fund II, L.P.
(the "LF ONSHORE FUND") pursuant to a Securities Purchase Agreement (the "F
SECURITIES PURCHASE AGREEMENT"), dated December 15, 1998, by and among Starwood,
LF Mortgage REIT, LF Onshore Fund and Lazard Freres Real Estate Offshore Fund
II, L.P. (the "LF Offshore Fund") (the "ONSHORE FUND WARRANT"), (iv) 3,024,600
shares of Starwood Class A Common Shares were reserved for issuance upon the
exercise of warrants issued to the LF Offshore Fund pursuant to the LF
Securities Purchase Agreement (the "OFFSHORE FUND WARRANT") and together with
the Onshore Fund Warrant, the "STARWOOD WARRANTS") and (v) 535,418 Starwood
Class A Common Shares were reserved for issuance upon conversion of the
outstanding Starwood Class B Common Shares. The authorized stock of Starwood Sub
consists of 1,000 shares of common stock, par value $.01 per share, all of which
are outstanding and held by Starwood on the date hereof. On the date of this
Agreement, except as set forth in this Section 3.2(c), no shares of beneficial
interest, stock or other voting securities of Starwood or Starwood Sub were
issued, reserved for issuance or outstanding. There are no outstanding share
appreciation rights relating to the beneficial interest or stock of Starwood or
Starwood Sub. All outstanding shares of beneficial interest or stock of Starwood
and Starwood Sub are, and all shares which may be issued pursuant to this
Agreement will be, when issued, duly authorized, validly issued, fully paid and
nonassessable and not subject to preemptive rights. There are no bonds,
debentures, notes or other indebtedness of Starwood or Starwood Sub having the
right to vote (or convertible into, or exchangeable for, securities having the
right to vote) on any matters on which shareholders of Starwood may vote.
Starwood Class B Common Shares may be converted for Starwood Class A Common
Shares on the basis of one Starwood Class A Common Share for 49 Starwood Class B
Common Shares at the option of the holder of Starwood Class B Common Shares.
Except as set forth in this Section 3.2(c), and except for the Starwood Stock
Options, the Starwood Warrants and the Starwood Class B Common Shares as of the
date of this Agreement there are no outstanding securities, options, warrants,
calls, rights, commitments, agreements, arrangements or undertakings of any kind
to which Starwood or any Starwood Subsidiary is a party or by which such entity
is bound, obligating Starwood or any Starwood Subsidiary to issue, deliver or
sell, or cause to be issued, delivered or sold, additional shares of beneficial
interest, stock, voting securities or other ownership interests of Starwood or
of any Starwood Subsidiary or obligating Starwood or any Starwood Subsidiary to
issue, grant, extend or enter into any such security, option, warrant, call,
right, commitment, agreement, arrangement or undertaking, other than to Starwood
or a wholly owned Starwood Subsidiary; Section 3.2(c) of the Starwood Disclosure
Letter sets forth the amount of any such securities issuable by Starwood on an
agreement by agreement basis.
(d) AUTHORITY; NONCONTRAVENTION; CONSENTS. Starwood has the requisite
corporate power and authority to enter into this Agreement, the Incorporation
Merger Agreement and the Advisor Transaction Agreement and each other Ancillary
Agreement to which Starwood is a party and, subject to receipt of the Starwood
Shareholder Approvals, to consummate the transactions contemplated by this
Agreement, the Incorporation Merger Agreement, the Advisor Transaction Agreement
and each other Ancillary Agreement to which Starwood is a party. Starwood Sub
has the requisite corporate power and authority to enter into this Agreement and
to consummate the transactions contemplated by this Agreement. The execution and
delivery of this Agreement, the Incorporation Merger Agreement, the Advisor
Transaction Agreement and each other Ancillary Agreement to which Starwood is a
party by Starwood and the consummation by Starwood of the transactions
contemplated hereby and thereby have been duly authorized by all necessary
action on the part of Starwood, subject to receipt of the Starwood Shareholder
Approvals. The execution and delivery of this Agreement by Starwood Sub and the
consummation by Starwood Sub of the transactions contemplated hereby have been
duly authorized by all necessary action on the part of Starwood Sub. This
Agreement, the Incorporation Merger Agreement, the Advisor Transaction Agreement
and each other Ancillary Agreement to which Starwood is a party have been duly
executed and delivered by Starwood and, in the case of this Agreement, by
Starwood Sub, and constitute the valid and binding obligations of Starwood and
Starwood Sub, as applicable, and are enforceable against Starwood and Starwood
Sub, as applicable, in accordance with their terms, subject to applicable
bankruptcy,
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insolvency, fraudulent conveyance, reorganization, moratorium and similar laws
affecting creditors' rights and remedies generally and to general principles of
equity. The execution and delivery of this Agreement, the Incorporation Merger
Agreement, the Advisor Transaction Agreement and each other Ancillary Agreement
to which Starwood is a party by Starwood and the execution and delivery of this
Agreement by Starwood Sub do not, and the consummation of the transactions
contemplated hereby and thereby and compliance by Starwood and Starwood Sub, as
applicable, with the provisions of this Agreement, the Incorporation Merger
Agreement, the Advisor Transaction Agreement and each other Ancillary Agreement
to which Starwood is a party do not and 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 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 Starwood or any Starwood
Subsidiary under, (i) subject to receipt of the Starwood Shareholder Approvals,
the amended and restated declaration of trust or the amended and restated bylaws
of Starwood or the comparable charter or organizational documents or partnership
or similar agreement (as the case may be) of any Starwood Subsidiary, each as
amended, restated 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, contract,
franchise or license applicable to Starwood or any Starwood Subsidiary 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
Starwood or any Starwood Subsidiary or their respective properties or assets,
other than, in the case of clause (ii) or (iii), any such conflicts, violations,
defaults, rights or Liens that individually or in the aggregate would not (x)
reasonably be expected to result in a Starwood Material Adverse Effect or (y)
materially delay or prevent the consummation of the Merger, the Incorporation
Merger and the Advisor Transaction. No consent, approval, order or authorization
of, or registration, declaration or filing with, any Governmental Entity is
required by or with respect to Starwood or any Starwood Subsidiary in connection
with the execution and delivery of this Agreement, the Incorporation Merger
Agreement, the Advisor Transaction Agreement and each other Ancillary Agreement
to which Starwood is a party, by Starwood or Starwood Sub or the consummation by
Starwood or the Starwood Subsidiaries of any of the transactions contemplated
hereby and thereby, except for (i) the filing with the SEC of (x) the Proxy
Statement and the Registration Statement and (y) such reports under Sections 13
and 16 of the Exchange Act as may be required in connection with this Agreement
and the transactions contemplated by this Agreement, (ii) the acceptance for
record of the Articles of Merger for the Merger by the SDAT, (iii) such filings
as may be required in connection with the payment of any Transfer and Gains
Taxes, and (iv) such other consents, approvals, orders, authorizations,
registrations, declarations and filings as are set forth in Section 3.2(d) of
the Starwood Disclosure Letter or (A) as may be required under (x) federal,
state or local environmental laws or (y) the "blue sky" laws of various states
or (B) which, if not obtained or made, would not prevent or delay in any
material respect the consummation of the Merger or any of the transactions
contemplated by this Agreement or any Ancillary Agreement or otherwise prevent
Starwood from performing its obligations hereunder or thereunder in any material
respect or be reasonably expected to result in, individually or in the
aggregate, a Starwood Material Adverse Effect.
(e) SEC DOCUMENTS; FINANCIAL STATEMENTS; UNDISCLOSED LIABILITIES. Starwood
has filed all reports, schedules, forms, statements and other documents required
to be filed with the SEC since March 18, 1998 (collectively, the "STARWOOD SEC
DOCUMENTS"). All of the Starwood SEC Documents (other than preliminary materials
or materials that were subsequently amended), as of their respective filing
dates, complied in all material respects with all applicable requirements of the
Securities Act and the Exchange Act and, in each case, the rules and regulations
promulgated thereunder applicable to such Starwood SEC Documents. None of the
Starwood SEC Documents at the time of filing contained any untrue statement of a
material fact or omitted 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, except to the extent
such statements have been amended, modified or superseded by later filed
Starwood
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SEC Documents. None of the Starwood SEC Documents is, as of the date hereof, the
subject of any confidential treatment request by Starwood. Except to the extent
such statements have been amended, modified or superseded by later Starwood
Filed SEC Documents (as defined below), the consolidated financial statements of
Starwood, as applicable, included in the Starwood SEC Documents complied 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
prepared in accordance with GAAP (except, in the case of interim financial
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 in all material respects,
in accordance with the applicable requirements of GAAP, the consolidated
financial position of Starwood and the Starwood Subsidiaries, taken as a whole,
as of the dates thereof and the consolidated results of operations and cash
flows for the periods then ended (subject, in the case of interim financial
statements, to normal year-end adjustments). Except as set forth in the Starwood
SEC Documents filed with the SEC prior to the date of this Agreement (the
"STARWOOD FILED SEC DOCUMENTS"), neither Starwood nor any Starwood Subsidiary
has any liabilities or obligations of any nature (whether accrued, absolute,
contingent or otherwise) required by GAAP to be set forth on a consolidated
balance sheet of Starwood or in the notes thereto and which, individually or in
the aggregate, would reasonably be expected to result in a Starwood Material
Adverse Effect.
(f) ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in the
Starwood Filed SEC Documents, since December 31, 1998 (the "STARWOOD FINANCIAL
STATEMENT DATE") and to the date of this Agreement, Starwood and the Starwood
Subsidiaries have conducted their business only in the ordinary course and there
has not been (i) any events which have occurred or circumstances which have
arisen that, individually or in the aggregate have resulted in or would
reasonably be expected to result in a Starwood Material Adverse Effect, nor has
there been any occurrence or circumstance that with the passage of time would
reasonably be expected to result in a Starwood Material Adverse Change, (ii) any
declaration, setting aside or payment of any dividend or distribution (whether
in cash, stock or property) with respect to any of Starwood's beneficial
interest or Starwood Sub's stock, except for (A) regular quarterly dividends not
in excess of $.42 per Starwood Class A Common Share, (B) regular quarterly
dividends not in excess of $200,000 in the aggregate for all Starwood Class B
Common Shares, (C) regularly quarterly dividends not in excess of $4.75 Starwood
Series A Preferred Share and (D) any distributions by any Starwood Subsidiaries
to other Starwood Subsidiaries or to Starwood, in each case, with customary
record and payment dates, (iii) any split, combination or reclassification of
any of Starwood's beneficial interest or Starwood Sub's stock or any issuance or
the authorization of any issuance 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 its stock or any issuance of an ownership interest in any
Starwood Subsidiary that is not wholly owned by Starwood, (iv) any damage,
destruction or loss, whether or not covered by insurance, that, individually or
in the aggregate, has resulted in or would reasonably be expected to result in a
Starwood Material Adverse Effect or (v) any change in accounting methods,
principles or practices by Starwood or any Starwood Subsidiary materially
affecting its assets, liabilities or business, except insofar as may have been
required by a change in applicable Law or GAAP. All dividends on Starwood Common
Stock and Starwood Preferred Stock which have been declared prior to the date of
this Agreement have been paid in full.
(g) LITIGATION. Except as disclosed in the Starwood Filed SEC Documents
and other than personal injury and other routine tort litigation arising from
the ordinary course of operations of Starwood and the Starwood Subsidiaries
which are covered by adequate insurance, there is no suit, action or proceeding
pending (in which service of process has been received by an employee of
Starwood) or, to the Knowledge of Starwood and Starwood Sub, threatened against
or affecting Starwood or any Starwood Subsidiary that, individually or in the
aggregate, could reasonably be expected to (i) result in a Starwood Material
Adverse Effect or (ii) prevent the consummation of any of the transactions
contemplated by this Agreement, the Advisor Transaction Agreement or the
Incorporation Merger Agreement or any other Ancillary Agreement, nor is there
any judgment, decree, injunction, rule or order of any Governmental Entity or
arbitrator outstanding against Starwood or any Starwood Subsidiary having, or
that would have, any such effect.
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Section 3.2(g) of the Starwood Disclosure Letter lists and briefly describes
each litigation pending as of the date hereof against Starwood or any Starwood
Subsidiary other than personal injury and routine tort litigation arising from
the ordinary course of business of Starwood and the Starwood Subsidiaries, which
would reasonably be expected to result in a Starwood Material Adverse Effect.
(h) ABSENCE OF CHANGES IN BENEFIT PLANS; ERISA COMPLIANCE.
(i) Except as disclosed in the Starwood Filed SEC Documents since the
Starwood Financial Statement Date, there has not been any adoption or amendment
in any material respect, or the undertaking of any additional obligation by
Starwood, any Starwood Subsidiary or any Starwood ERISA Affiliate (as defined
below) of any Starwood Benefit Plan (as defined below). For purposes of this
Agreement, "STARWOOD BENEFIT PLAN" shall mean any Employee Plan sponsored or
maintained by Starwood, any Starwood Subsidiary or any Starwood ERISA Affiliate,
or with respect to which Starwood, any Starwood Subsidiary or any Starwood ERISA
Affiliate has any obligation to contribute, has liability under or is otherwise
a party to, or which otherwise provides benefits for any current or former
employees, officers, directors or other independent contractors (or their
dependents and beneficiaries) of Starwood or any Starwood Subsidiary. For
purposes of this Agreement, "STARWOOD ERISA AFFILIATE" means any entity required
to be aggregated with any of Starwood or any Starwood Subsidiary under Sections
414(b), (c), (m) or (o) of the Code or Section 4001 of ERISA. Section 3.2(h)(i)
of the Starwood Disclosure Letter sets forth each Starwood Benefit Plan.
(ii) Except as described in the Starwood Filed SEC Documents or as
would not reasonably be expected to result in a Starwood Material Adverse
Effect, (A) all Starwood Benefit Plans, including any such plan that is an
"employee benefit plan" as defined in Section 3(3) of ERISA, have been made
available to TriNet and are in compliance with the terms of such plan and all
applicable requirements of law, including ERISA and the Code and, without
limitation, the requirements of ERISA and all tax rules for which favorable tax
treatment is intended, and (B) there are no liabilities or obligations with
respect to any such Starwood Benefit Plan, whether accrued, contingent or
otherwise (other than obligations by Starwood and the Starwood Subsidiaries to
make contributions, and for such plan to pay benefits and administrative costs,
incurred in the ordinary course), nor to the Knowledge of Starwood are any such
liabilities or obligations expected to be incurred. The execution of, and
performance of the transactions contemplated in, this Agreement will not (either
alone or together with the occurrence of any additional or subsequent events)
constitute an event under any Starwood Benefit Plan, policy, program,
arrangement or agreement, trust or loan that will or may result in any payment
(whether of severance pay or otherwise), acceleration, forgiveness of
indebtedness, vesting, distribution, increase in benefits or obligation to fund
benefits with respect to any employee or director, will not result in any
"golden parachute payments" being due (as defined for purposes of Section 280G
of the Code), or result in any breach or violation of, or a default under, any
of the Starwood Benefit Plans. The only severance agreements or severance
policies applicable to Starwood or the Starwood Subsidiaries are the agreements
and policies specifically referred to in Section 3.2(h)(ii) of the Starwood
Disclosure Letter.
(iii) Without limiting the foregoing, each Starwood Benefit Plan which
is intended to be tax-qualified under Section 401(a) of the Code has been
determined by the IRS to be so qualified and such determination has not been
modified, revoked or limited, and no circumstances have occurred that would
adversely affect the tax-qualified status of any such plan. No Starwood Benefit
Plan is or has ever been subject to Part III of Subtitle B of Title I of ERISA
or Title IV of ERISA or Section 412 of the Code. None of Starwood or any
Starwood Subsidiary, or any "party in interest" (as defined in Section 3(14) of
ERISA) or any "disqualified person" (as defined in Section 4975 of the Code)
with respect to any Starwood Benefit Plan, has engaged in a non-exempt
"prohibited transaction" within the meaning of Section 4975 of the Code or
Section 406 of ERISA that would reasonably be expected to result in a Starwood
Material Adverse Effect. No Starwood Benefit Plan provides for health or life
insurance for employees after termination of employment (except as required by
law).
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(i) TAXES.
(i) Each of Starwood and each Starwood Subsidiary has timely filed with
the appropriate taxing authority all Tax Returns and reports required to be
filed by it (after giving effect to any filing extension properly granted by a
Governmental Entity having authority to do so). Each such Tax Return is true,
correct and complete in all material respects. Starwood and each Starwood
Subsidiary has paid (or Starwood has paid on their behalf), within the time and
manner prescribed by law, all Taxes that are due and payable. The United States
federal income Tax Returns of Starwood and each Starwood Subsidiary have not
been audited by any Taxing Authority. There are no audits by any Taxing
Authority currently being conducted with regard to Taxes or Tax Returns of
Starwood or any Starwood Subsidiary, and to the Knowledge of Starwood, there are
no pending audits or current inquiries being made by any Taxing Authority with
respect to any Taxes or Tax Returns. The most recent financial statements
contained in the Starwood SEC Documents filed with the SEC prior to the date of
this Agreement reflect an adequate reserve for all material Taxes (including
real estate Taxes) payable by Starwood and each Starwood Subsidiary for all
taxable periods and portions thereof through the date of such financial
statements. Since the Starwood Financial Statement Date, Starwood has incurred
no liability for federal taxes, other than withholding and employment taxes,
under the Code or IRS Notice 88-19. To the Knowledge of Starwood, no event has
occurred, and no condition or circumstance exists, which presents a material
risk that any material Tax described in the preceding sentence will be imposed
upon Starwood or any Starwood Subsidiary. No deficiencies for any Taxes have
been proposed, asserted or assessed against Starwood or any of the Starwood
Subsidiaries and no requests for waivers of the time to assess any such Taxes
have been granted and remain in effect or are pending.
(ii) Starwood (A) for its taxable year ended on December 31, 1998 has
satisfied the requirements to qualify for taxation as a REIT under the Code for
such year, (B) has operated, and intends to continue to operate, in such a
manner as to qualify as a REIT and (C) has not taken or omitted to take any
action which could reasonably be expected to result in a challenge to its status
as a REIT, and no such challenge is pending or, to Starwood's Knowledge,
threatened. Each Starwood Subsidiary which is a partnership or limited liability
company or files Tax Returns as a partnership for federal income tax purposes
has since its acquisition by Starwood been classified for federal income tax
purposes as a partnership or disregarded entity and not as an association
taxable as a corporation or a "publicly traded partnership" within the meaning
of Section 7704(b) of the Code that is treated as a corporation for federal
income tax purposes under Section 7704(a) of the Code. Starwood distributed all
of its earnings and profits accumulated in non-REIT years (within the meaning of
Section 857 of the Code) on or before December 31, 1998. Neither Starwood nor
any Starwood Subsidiary holds any assets the disposition of which would be
subject to rules similar to Section 1374 of the Code as announced in IRS Notice
88-19.
(iii) To the best Knowledge and belief of Starwood, Starwood qualifies
as a "domestically controlled" REIT within the meaning of Section 897(h)(4)(B)
of the Code, as of the date hereof.
(j) NO LOANS OR PAYMENTS TO EMPLOYEES, OFFICERS OR DIRECTORS. Except as
disclosed in the Starwood Filed SEC Documents or as otherwise specifically
provided for in this Agreement, there is no (i) loan outstanding from or to any
employee, officer, director or trustee of Starwood or any Starwood Subsidiary
which, in the aggregate together with all such loans, has a principal amount in
excess of $500,000, (ii) employment or severance agreement which, in the
aggregate together with all such agreements, provides for payments in excess of
$500,000 by Starwood or any Starwood Subsidiary or material consulting contract,
policy, agreement, program or arrangement of Starwood or any Starwood
Subsidiary, (iii) agreements which, in the aggregate together with all other
agreements, requires material payments 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, director
or trustee of Starwood or any Starwood Subsidiary or (iv) any agreement to
appoint or nominate any person as a director of Starwood, New Starwood or any
Starwood Subsidiary.
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(k) BROKERS; SCHEDULE OF FEES AND EXPENSES. No broker, investment banker,
financial advisor or other person, other than Bear, Stearns & Co., Inc. ("BEAR,
STEARNS"), Bank of America Securities LLC and Houlihan Lokey Howard & Zukin, the
fees and expenses of which, as set forth in letter agreements between Starwood
and each such financial advisor, have previously been disclosed to TriNet and
will be paid by Starwood, is entitled to any broker's, finder's, financial
advisor's or other similar fee or commission in connection with the Merger or
any of the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of Starwood or any other Starwood Subsidiary.
(l) COMPLIANCE WITH LAWS. Except as disclosed in the Starwood Filed SEC
Documents, none of Starwood or any of the Starwood 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 for violations and failures to comply that
would not, individually or in the aggregate, reasonably be expected to result in
a Starwood Material Adverse Effect.
(m) CONTRACTS; DEBT INSTRUMENTS.
(i) None of Starwood or any Starwood Subsidiary has received written
notice that it is in violation of or in default under, in any material respect
(nor does there exist any condition which upon the passage of time or the giving
of notice or both would cause such a violation of or default under), any
material loan or credit agreement, note, bond, mortgage, indenture or any
material lease, permit, concession, franchise or license, or any material
agreement to acquire real property, 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, except for violations or defaults that would
not, individually or in the aggregate, reasonably be expected to result in a
Starwood Material Adverse Effect.
(ii) Section 3.2(m)(ii) of the Starwood Disclosure Letter sets forth
(A) a detailed list of all indebtedness of Starwood and the Starwood
Subsidiaries under which an aggregate principal amount in excess of $5,000,000
per item is outstanding or may be incurred other than (i) indebtedness payable
to Starwood or a wholly owned Starwood Subsidiary and (ii) indebtedness which is
reflected in the financial statements set forth in the Starwood Filed SEC
Documents, and (B) the respective principal amounts outstanding thereunder or,
in the case of financial products the notional amounts thereof, on March 31,
1999. Starwood has previously delivered to TriNet true and correct copies of all
of the agreements relating to the indebtedness disclosed in Section 3.2(m)(ii)
of the Starwood Disclosure Letter.
(iii) None of Starwood or any Starwood Subsidiary has entered into or
is subject, directly or indirectly, to any Starwood Tax Protection Agreements.
As used herein, a "STARWOOD TAX PROTECTION AGREEMENT" is an agreement, oral or
written, (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 Starwood or a Starwood
Subsidiary or attributable to the acquisition or ownership of an interest in any
Starwood 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 Starwood or any Starwood Subsidiary, (ii) requires that
Starwood or any Starwood Subsidiary maintain, increase or put in place, or
replace, indebtedness, whether or not secured by one or more of the Starwood
Properties or (iii) requires that Starwood or any Starwood Subsidiary offer to
any person or entity 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 Starwood or any Starwood Subsidiary.
(n) ENVIRONMENTAL MATTERS. Except as disclosed in the Starwood Filed SEC
Documents, (i) none of Starwood or the Starwood Subsidiaries or, to Starwood's
Knowledge, any other Person has caused or permitted the presence of any
Hazardous Materials on or under any of the Starwood Properties or any of the
properties securing the Starwood Loans and none of Starwood or the Starwood
Subsidiaries has any Knowledge of the presence of any Hazardous Materials on or
under any of the Starwood Properties or any of the properties securing the
Starwood Loans except to the extent the presence of such Hazardous
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Materials, individually or in the aggregate, would not reasonably be expected to
result in a Starwood Material Adverse Effect, (ii) none of Starwood, any of the
Starwood Subsidiaries or, to Starwood's Knowledge, any other Person, has caused
or permitted any unlawful spills, releases, discharges or disposal of Hazardous
Materials to have occurred or be presently occurring on or from the Starwood
Properties or any of the properties securing the Starwood Loans as a result of
any construction on or operation or use of such properties and none of Starwood
or the Starwood Subsidiaries has any Knowledge of any spills, releases,
discharges or disposal of Hazardous Materials having occurred or presently
occurring on, under or from the Starwood Properties or any of the properties
securing the Starwood Loans as a result of any construction on or operation or
use of any such property, in each of the foregoing cases, which presence or
occurrence would, individually or in the aggregate, reasonably be expected to
result in a Starwood Material Adverse Effect; (iii) in connection with the
construction on or operation and use of the Starwood Properties, Starwood and
the Starwood Subsidiaries and, to Starwood's Knowledge, the owners or operators
of the properties securing the Starwood Loans have not failed to comply in any
material respect with any applicable Environmental Law, except to the extent
such failure to comply, individually or in the aggregate, would not reasonably
be expected to result in a Starwood Material Adverse Effect. Starwood has
previously delivered or made available to TriNet complete copies of all reports
on and results of investigations, testing or analysis that are in the possession
of or available to any of them with respect to the environmental condition of
the Starwood Properties or with respect to environmental compliance of
operations conducted on or from any such Property.
(n) ENVIRONMENTAL MATTERS. Except as disclosed in the Starwood Filed SEC
Documents, (i) none of Starwood or the Starwood Subsidiaries or, to Starwood's
Knowledge, any other Person has caused or permitted the presence of any
Hazardous Materials on or under any of the Starwood Properties or any of the
properties securing the Starwood Loans and none of Starwood or the Starwood
Subsidiaries has any Knowledge of the presence of any Hazardous Materials on or
under any of the Starwood Properties or any of the properties securing the
Starwood Loans except to the extent the presence of such Hazardous Materials,
individually or in the aggregate, would not reasonably be expected to result in
a Starwood Material Adverse Effect, (ii) none of Starwood, any of the Starwood
Subsidiaries or, to Starwood's Knowledge, any other Person, has caused or
permitted any unlawful spills, releases, discharges or disposal of Hazardous
Materials to have occurred or be presently occurring on or from the Starwood
Properties or any of the properties securing the Starwood Loans as a result of
any construction on or operation or use of such properties and none of Starwood
or the Starwood Subsidiaries has any Knowledge of any spills, releases,
discharges or disposal of Hazardous Materials having occurred or presently
occurring on, under or from the Starwood Properties or any of the properties
securing the Starwood Loans as a result of any construction on or operation or
use of any such property, in each of the foregoing cases, which presence or
occurrence would, individually or in the aggregate, reasonably be expected to
result in a Starwood Material Adverse Effect; (iii) in connection with the
construction on or operation and use of the Starwood Properties, Starwood and
the Starwood Subsidiaries and, to Starwood's Knowledge, the owners or operators
of the properties securing the Starwood Loans have not failed to comply in any
material respect with any applicable Environmental Law, except to the extent
such failure to comply, individually or in the aggregate, would not reasonably
be expected to result in a Starwood Material Adverse Effect. Starwood has
previously delivered or made available to TriNet complete copies of all reports
on and results of investigations, testing or analysis that are in the possession
of or available to any of them with respect to the environmental condition of
the Starwood Properties or with respect to environmental compliance of
operations conducted on or from any such Property.
(o) STARWOOD PROPERTIES.
(i) Starwood or a Starwood Subsidiary owns fee simple title to or has a
valid leasehold interest in, each of the real properties reflected on the most
recent balance sheet of Starwood included in the Starwood Filed SEC Documents or
as identified in Section 3.2(o) of the Starwood Disclosure Letter (the "STARWOOD
PROPERTIES"), which are all of the real estate properties owned or leased by
them, free and clear
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of liens, mortgages or deeds of trust, claims against title, charges which are
liens, security interests or other encumbrances on title, any rights of way,
written agreements or reservations of an interest in title ("STARWOOD
ENCUMBRANCES") except for (a) debt or other liabilities identified on Section
3.1(m)(ii) of the Starwood Disclosure Letter, (b) inchoate liens imposed for
construction work in progress, (c) mechanics', workmen's and repairmen's liens
(other than inchoate liens for work in progress) which have heretofore been
bonded over or which, individually or in the aggregate, are not reasonably
expected to result in a Starwood Material Adverse Effect or the discharge of
which is the responsibility of a lessee of the applicable Starwood Property, (d)
Taxes not yet due and payable or which are being contested in good faith with
adequate reserves as required by GAAP, (e) leases entered into in the ordinary
course of Starwood's business and subleases under such leases as tenants only
with no options to purchase except as listed on Section 3.2(o) of the Starwood
Disclosure Letter, (f) matters affecting title to multi-tenant office real
estate a portion of which has been leased to Starwood or a Starwood Subsidiary,
as tenants, primarily for office purposes (each such lease, a "STARWOOD OFFICE
SPACE LEASES") and (g) other Starwood Encumbrances, if any, which, individually
or in the aggregate, would not, individually or in the aggregate, reasonably be
expected to result in a Starwood Material Adverse Effect;
(ii) Valid policies of title insurance have been issued (or, in the
case of title policies with regard to Starwood Loans secured by real estate
mortgages or deeds of trust, if not issued, the insurer is obligated to issue a
title policy with respect thereto) insuring (i) Starwood's or a Starwood
Subsidiary's fee simple title or leasehold estate to the Starwood Properties,
(other than leaseholds with respect to Starwood Office Space Leases) and (ii)
the real estate mortgages or deeds of trust pertaining to Starwood Loans (other
than Starwood CMBS and participations) originated by Starwood or a Starwood
Subsidiary or, to the Knowledge of Starwood, any other Starwood Loans or
Starwood participations (excluding Starwood CMBS) secured by a real estate
mortgage or deed of trust, and except as noted therein, and such policies are,
at the date hereof, in full force and effect and no claim has been made against
any such policy which is currently pending which would, if decided adversely,
individually or in the aggregate, reasonably be expected to result in a Starwood
Material Adverse Effect;
(iii) None of Starwood or the Starwood Subsidiaries has received
written notice of any violation of any federal, state or municipal law,
ordinance, order, regulation or requirement affecting any portion of any of the
Starwood Properties issued by any Governmental Entity that has not otherwise
been resolved which would, individually or in the aggregate, reasonably be
expected to result in a Starwood Material Adverse Effect;
(iv) None of Starwood or the Starwood Subsidiaries has received notice
of or has Knowledge of, any condemnation or rezoning or proceedings that are
pending or, to the Knowledge of Starwood, threatened with respect to any of the
Starwood Properties which would, individually or in the aggregate, reasonably be
expected to result in a Starwood Material Adverse Effect;
(v) Except as would not, individually or in the aggregate, reasonably
be expected to result in a Starwood Material Adverse Effect, each tenant (or
subtenant if Starwood or a Starwood Subsidiary is itself a tenant), of a
Starwood Property owned or leased by Starwood or the applicable Starwood
Subsidiary, or, to the Knowledge of Starwood, a subtenant thereof in which
subtenant's rent Starwood or a Starwood Subsidiary participates or otherwise
shares with the tenant, has entered into a lease or a sublease, if applicable,
for the possession of such Starwood Property (each lease or other right of
occupancy affecting or relating to a Starwood Property under which Starwood or a
Starwood Subsidiary is the lessor is referred to herein as a "STARWOOD LEASE");
except as disclosed in the Starwood Filed SEC Documents, each Starwood Lease
owned or leased by Starwood or a Starwood Subsidiary, is in full force and
effect and none of Starwood or the Starwood Subsidiaries has received written
notice of any defense to the obligations of the tenant thereunder or any claim
asserted or threatened by any such tenant or guarantor of the tenant's
obligations, which defense or claim, if sustained, would be reasonably expected
to result in a Starwood Material Adverse Effect; and except as would not
individually or in the aggregate reasonably be expected to result in a Starwood
Material Adverse Effect, (a) the lessor under each Starwood Lease owned or
leased
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by Starwood or a Starwood Subsidiary, has complied with its obligations under
such Starwood Lease, (b) no tenant with respect to any Starwood Property owned
or leased by Starwood or any Starwood Subsidiary is in default in the payment of
fixed, base or minimum rent or other rental obligation payable to Starwood or a
Starwood Subsidiary beyond the expiration of any applicable grace or cure period
and (c) none of Starwood or the Starwood Subsidiaries has notice of any default
by the tenant under such Starwood Lease;
(vi) The mortgages and deeds of trust encumbering the Starwood
Properties are not (i) cross-defaulted to any indebtedness other than
indebtedness of Starwood or any of the Starwood Subsidiaries or (ii)
cross-collateralized to any property not owned by Starwood or any of the
Starwood Subsidiaries;
(vii) The rent roll provided by Starwood to TriNet lists each Starwood
Lease in effect as of the date hereof and the following information as of the
date hereof for each Starwood Lease (other than Starwood Office Space Leases):
(a) tenant's name, (b) rentable square feet, (c) current rental rate, (d)
scheduled rental increases, (e) current expiration date and (f) to the extent
the landlord may be obligated to perform the following within five years after
the Effective Time: each obligation of the landlord to construct, add to or
expand a building (not including for this purpose tenant improvements in the
ordinary course) and each option of a tenant of a Starwood Property to require
Starwood or any Starwood Subsidiary to construct, add to or expand a building
(the "STARWOOD RENT ROLL"). Starwood has made available to TriNet true, correct
and complete copies of all Starwood Leases, including all material amendments,
modifications, supplements, renewals, extensions and guarantees related thereto,
as of the date hereof. Except for discrepancies that, either individually or in
the aggregate, would not reasonably be expected to result in a Starwood Material
Adverse Effect, all information set forth in the Starwood Rent Roll is true,
correct and complete as of the date thereof; and
(viii) Starwood and the Starwood Subsidiaries are insured by insurers
of recognized financial responsibility against such losses and risks and in such
amounts as are customary in the business in which they are engaged and such
insurance is adequate for the value of their properties; all policies of
insurance insuring Starwood and the Starwood Subsidiaries or their respective
businesses and assets, are in full force and effect except as would not
reasonably be expected to result in a Starwood Material Adverse Effect; Starwood
and the Starwood Subsidiaries are in compliance with the terms of such policies
and there are no claims by Starwood or the Starwood Subsidiaries under any such
policy as to which any insurance company is denying liability or defending under
a reservation of rights clause, other than claims which (i) are for less than
$250,000 or as disclosed in Section 3.2(o)(vii) of the Starwood Disclosure
Letter or (ii) would not otherwise, individually or in the aggregate, reasonably
be expected to result in a Starwood Material Adverse Effect (it being understood
that any such claim which is for an amount in excess of $250,000 shall not,
solely by reason of such fact, be deemed reasonably likely to result in a
Starwood Material Adverse Effect).
(p) OPINION OF FINANCIAL ADVISOR. The Board of Trustees of Starwood has
received the opinion of Bear Stearns, Starwood's financial advisor, satisfactory
to Starwood's Board of Trustees, a written copy of which was or, upon receipt by
Starwood's Board of Trustees will be, provided to TriNet, to the effect that, as
of the date of such opinion, the Exchange Ratio is fair to Starwood from a
financial point of view. It is agreed and understood that such opinion is for
the benefit of Starwood's Board of Trustees and may not be relied upon by TriNet
or its affiliates.
(q) STATE TAKEOVER STATUTES. Starwood and Starwood Sub each has taken all
actions necessary, if any, to exempt the Merger, this Agreement and the
transactions contemplated by this Agreement from the operation of any Takeover
Statute of the State of Maryland, including, without limitation, Sections 3-602
and 3-603 of the MGCL.
(r) 1940 ACT. None of Starwood or any of the Starwood Subsidiaries is, or
at the Effective Time will be, required to be registered under the 1940 Act.
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(s) PROXY STATEMENT AND REGISTRATION STATEMENT. The information furnished
by Starwood and Starwood Sub for inclusion or incorporation by reference in the
Registration Statement and any amendment or supplement thereto will not, as of
the date the Registration Statement is declared effective by the SEC, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order the make the statements
therein not misleading. The information furnished by Starwood for inclusion or
incorporation by reference in the Proxy Statement will not, on the dates the
Proxy Statement first is mailed or furnished to securityholders of TriNet or
Starwood or on the respective meeting dates, 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 in which
they were made, not misleading. Notwithstanding the foregoing, Starwood and
Starwood Sub make no representation or warranty with respect to any information
furnished by TriNet for inclusion or incorporation by reference in any of the
foregoing documents.
(t) VOTE REQUIRED. The affirmative vote of the holders of at least
two-thirds of the outstanding Starwood Class A Common Shares and Starwood Class
B Common Shares voting as a single class is the only vote of the holders of any
class or series of Starwood's beneficial interest necessary (under applicable
law or otherwise) to approve the Merger, this Agreement, the Incorporation
Merger and the Incorporation Merger Agreement (the "STARWOOD MERGER SHAREHOLDER
APPROVAL" and the "STARWOOD INCORPORATION MERGER SHAREHOLDER APPROVAL"). The
approval of a majority of the outstanding Starwood Class A Common Shares and
Starwood Class B Common Shares voting as a single class is the only vote of the
holders of any class or series of Starwood's beneficial interest necessary
(under applicable law or otherwise) to approve the Advisor Transaction and the
Advisor Transaction Agreement (the "STARWOOD ADVISOR TRANSACTION SHAREHOLDER
APPROVAL") and together with the Starwood Merger Shareholder Approval and the
Starwood Incorporation Merger Shareholder Approval, the "STARWOOD SHAREHOLDER
APPROVALS").
(u) YEAR 2000 ISSUES.
(i) To the best Knowledge of Starwood and Starwood Sub, based on
representations and warranties made by third parties and publicly available
information, the software, hardware and equipment of Starwood owned, leased or
licensed by it and used in the conduct of its business, as well as the elevator
systems in those of the Starwood Properties for which Starwood has the
responsibility under the applicable lease agreements to address Year 2000
compliance, and the heating ventilation and air conditioning, fire and safety
and other automated building systems at those of the Starwood Properties for
which Starwood has the responsibility under the applicable lease agreements to
address Year 2000 compliance are or will be on or before December 31, 1999 Year
2000 Ready, except to the extent that the failure to be Year 2000 Ready would
not reasonably be expected to result in a Starwood Material Adverse Effect.
(v) OPERATIONS OF STARWOOD SUB AND NEW STARWOOD. Each of New Starwood and
Starwood Sub was formed solely for the purpose of engaging in the transactions
contemplated by this Agreement and the Incorporation Merger and has not engaged
in any business activities or conducted any operations other than in conjunction
with such transactions.
(w) NO OWNERSHIP OF TRINET STOCK. As of the date of this Agreement, none
of Starwood and the Starwood Subsidiaries owns, and as of the Closing Date
(immediately prior to the Effective Time), none of Starwood and the Starwood
Subsidiaries will own, any shares of capital stock of TriNet.
ARTICLE IV
COVENANTS
Section 4.1. CONDUCT OF BUSINESS BY TRINET. Except as set forth in Section
4.1 of the TriNet Disclosure Letter, and as contemplated by this Agreement and
the Ancillary Agreements to which TriNet is a party, during the period from the
date of this Agreement to the earlier of (i) the termination of this Agreement
and (ii) the Effective Time, TriNet shall, and shall cause each of the TriNet
Managed
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Subsidiaries and shall use commercially reasonable efforts to cause each TriNet
Non-Managed Subsidiary to, carry on its businesses in the usual, regular and
ordinary course in substantially the same manner as heretofore conducted and, to
the extent consistent therewith, use commercially reasonable efforts to preserve
intact in all material respects its current business organization, goodwill,
ongoing businesses and TriNet's status as a REIT within the meaning of the Code.
Without limiting the generality of the foregoing, from the date of this
Agreement to the earlier of (i) the termination of this Agreement and (ii) the
Effective Time, except as set forth in Section 4.1 of the TriNet Disclosure
Letter, and as contemplated by this Agreement and the Ancillary Agreements,
TriNet shall not (and shall not authorize, commit or agree to) and shall cause
the TriNet Managed Subsidiaries and shall use commercially reasonable efforts to
cause the TriNet Non-Managed Subsidiaries not to (and not to authorize or commit
or agree to):
(a) (i) declare, set aside or pay any dividends on, or make any other
distributions in respect of, any of TriNet's stock, or any stock or other equity
interests in any TriNet Subsidiary that is not directly or indirectly wholly
owned by TriNet or any TriNet Subsidiary, except (v) in the case of TriNet, for
regular quarterly dividends not in excess of $.65 per share of TriNet Common
Stock and on and after December 1, 1999 $.70 per share of TriNet Common Stock,
$.585938 per share of TriNet Series A Preferred Stock, $.575 per share of TriNet
Series B Preferred Stock and $.50 per share of TriNet Series C Preferred Stock,
(w) any other distributions by any other wholly owned TriNet Subsidiaries, (x)
the Final TriNet Dividend to be paid pursuant to Section 2.2(d)(i), (y) other
dividends necessary in order for TriNet to maintain its status as a REIT and (z)
required distributions under the organizational documents governing the TriNet
Subsidiaries or under other agreements to which the TriNet Subsidiaries are a
party; (ii) split, combine or reclassify any capital stock or partnership
interests or issue or authorize the issuance of any other securities in respect
of, in lieu of, or in substitution for, shares of such stock or partnership
interests or (iii) purchase, redeem or otherwise acquire any shares of stock of
TriNet or any options, warrants or rights to acquire, or security convertible
into, shares of stock of TriNet except in connection with the use of TriNet
Common Stock to pay the exercise price or tax withholding obligation upon the
exercise of a TriNet Stock Option issued under any of the TriNet Stock Plans as
presently permitted under those plans;
(b) issue, deliver or sell, or grant any option or other right in respect
of, any shares of capital stock, any other voting or redeemable securities of
TriNet or any TriNet Subsidiary or any securities convertible into, or any
rights, warrants or options to acquire, any such shares, voting securities or
convertible or redeemable securities except to TriNet or a TriNet Subsidiary,
except as permitted or required in connection with the exercise of outstanding
options under the TriNet Option Plans or under any TriNet dividend reinvestment
plan currently in effect, and except as permitted under Section 4.1(e);
(c) amend TriNet's charter or bylaws, or any other comparable charter or
organizational documents of any TriNet Subsidiary, except as otherwise
contemplated by this Agreement or except for amendments to the organizational
documents of the TriNet Subsidiaries to reflect the admission of new equity
members and for other administrative matters;
(d) merge, consolidate or enter into any other business combination
transaction with any Person;
(e) (i) acquire or agree to acquire by merging or consolidating with, or by
purchasing all or a substantial portion of the equity securities or assets of,
or by any other manner, any business or any corporation, partnership, limited
liability company, joint venture, association, business trust or other business
organization or division thereof or interest therein or any assets; (ii)
mortgage or otherwise encumber or subject to any Lien or sell, lease or
otherwise dispose of any of its material properties or assets or assign or
encumber the right to receive income, dividends, distributions and the like or
agree to do any of the foregoing, other than leases with respect to TriNet
Properties which are entered into in the ordinary course of TriNet's business,
consistent with past practice; or (iii) incur indebtedness for borrowed money or
guarantee any indebtedness of another person, other than a TriNet Subsidiary,
issue or sell any debt securities or warrants or other rights to acquire any
debt securities of TriNet or any TriNet Subsidiary, guarantee any debt
securities of another person, enter into any "keep well" or other agreement to
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maintain any financial statement condition of another person or enter into any
arrangement having the economic effect of any of the foregoing, prepay or
refinance any indebtedness or make any loans, advances or capital contributions
to, or investments in, any other Person other than the TriNet Subsidiaries,
except that TriNet and the TriNet Subsidiaries may borrow and re-borrow, up to
the limits in effect on the date of this Agreement, under the Amended and
Restated Credit Agreement, dated as of June 1, 1998 among TriNet, Morgan
Guaranty Trust Company and the other lenders named therein (the "TRINET
REVOLVER") and TriNet and the TriNet Subsidiaries may refinance indebtedness
outstanding on the date of this Agreement when it matures, provided that the
replacement indebtedness may be prepaid at any time without penalty;
(f) make any election relating to Taxes, other than an election which is
not reasonably expected to affect the amount or timing of items of income, gain,
loss or deductions of greater than $5,000,000 on a cumulative basis or Taxes in
any year of greater than $500,000 (unless such action is required by law or
necessary to preserve TriNet's status as a REIT or any TriNet Subsidiary as a
partnership for federal tax purposes);
(g) (i) change in any material manner any of its methods, principles or
practices of accounting in effect at the TriNet Financial Statement Date, or
(ii) settle or compromise any material claim, action, suit, litigation,
proceeding, arbitration, investigation, audit or controversy in each case
relating to taxes, or change any of its methods of reporting income or
deductions for federal income tax purposes from those employed in the
preparation of its federal income tax return for the taxable year ended December
31, 1997, except, in the case of clause (i), as may be required by the SEC,
applicable Law or GAAP and, in the case of clause (ii), as may be required by
applicable Law;
(h) except as otherwise previously agreed to by Starwood in writing, adopt
any new employee benefit plan, incentive plan, severance plan, bonus plan, stock
option or similar plan, grant new stock appreciation rights or amend any
existing plan or rights, or enter into or amend any employment agreement or
similar agreement or arrangement or, except in the ordinary course consistent
with past practice, grant or become obligated to grant any increase in the
compensation of officers or employees, except such changes as are required by
law or which are not more favorable to participants than provisions currently in
effect;
(i) settle any stockholder derivative or class action claims arising out of
or in connection with any of the transactions contemplated by this Agreement;
(j) enter into or amend or otherwise modify any of the material terms of
any agreement or arrangement with persons that are affiliates or, as of the date
hereof, are officers or directors of TriNet or any TriNet Subsidiary without
prior written notice to Starwood and the approval of a majority of the
"independent" members of the Board of Directors of TriNet; or
(k) expend more than $3,000,000 in the aggregate for capital expenditures
or commit to do the foregoing other than those projects, repairs or renovations
in progress on the date hereof or which are required to be performed by TriNet
under a TriNet Lease or existing letter of intent to which TriNet or a TriNet
Subsidiary is a party, in each case as described in Section 4.1(k) of the TriNet
Disclosure Letter, and other than to fund, to the extent necessary, the
operations of the properties in the event of a tenant default.
Section 4.2. CONDUCT OF BUSINESS BY STARWOOD. Except as set forth in
Section 4.2 of the Starwood Disclosure Letter, and as contemplated by this
Agreement and the Ancillary Agreements to which Starwood is a party, during the
period from the date of this Agreement to the earlier of (i) the termination of
this Agreement and (ii) the Effective Time, Starwood shall, and shall cause the
Starwood Subsidiaries to, carry on its and their businesses in the usual,
regular and ordinary course in substantially the same manner as heretofore
conducted and, to the extent consistent therewith, use commercially reasonable
efforts to preserve intact in all material respects its current business
organization, goodwill, ongoing businesses and Starwood's status as a REIT
within the meaning of the Code. Without limiting the generality of the
foregoing, during the period from the date of this Agreement to the earlier of
(i) the
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termination of this Agreement and (ii) the Effective Time, except as set forth
in Section 4.2 of the Starwood Disclosure Letter, and as contemplated by this
Agreement and the Ancillary Agreements, Starwood shall not (and shall not
authorize, commit or agree to) and shall cause the Starwood Subsidiaries not to
(and not to authorize or commit or agree to):
(a) (i) declare, set aside or pay any dividends on, or make any
distributions in respect of, any of Starwood's shares of beneficial interest or
any stock or other equity interests in any Starwood Subsidiary that is not
directly or indirectly wholly owned by Starwood except (u) in the case of
Starwood, for aggregate dividends on Starwood's common shares of beneficial
interest not in excess of the greater of (A) 100% of the consolidated funds from
operations of Starwood and the Starwood Subsidiaries and (B) 100% of the
consolidated REIT taxable income of Starwood and the Starwood Subsidiaries, in
each case for the applicable dividend period, and for dividends required to be
paid on Starwood's preferred shares of beneficial interest in accordance with
their terms, (v) any distributions by any other wholly owned Starwood
Subsidiary, (w) dividends payable by Starwood pursuant to Section 2.2(d)(i), (x)
other dividends necessary in order for Starwood to maintain its status as a REIT
and (z) required distributions under the organizational documents governing the
Starwood Subsidiaries or under other agreements to which the Starwood
Subsidiaries are a party; (ii) split, combine or reclassify any shares of
beneficial interest or partnership interests or issue or authorize the issuance
of any other securities in respect of, in lieu of or in substitution for such
shares of beneficial interest or partnership interests, except pursuant to the
Advisor Transaction and the Incorporation Merger or (iii) purchase, redeem or
otherwise acquire any shares of beneficial interest of Starwood or any options,
warrants or rights to acquire, or security convertible into, shares of
beneficial interest of Starwood, except in connection with the use of Starwood
Common Stock to pay the exercise price or withholding tax obligation upon the
exercise of any Starwood Stock Option, upon the exercise of any Starwood
Warrants or under the Starwood Stock Plan as presently permitted under that
plan;
(b) issue, deliver or sell, or grant any option or other right in respect
of, any shares of beneficial interest, any other voting or redeemable securities
of Starwood or any Starwood Subsidiary or any securities convertible into, or
any rights, warrants or options to acquire, any such shares, voting securities
or convertible or redeemable securities except to Starwood or a Starwood
Subsidiary except (i) pursuant to the Advisor Transaction, the Incorporation
Merger and the Stock Dividend, (ii) for issuances of shares of beneficial
interest of Starwood in an amount not to exceed in the aggregate 19.9% of the
aggregate issued and outstanding shares of beneficial interest of Starwood on
the date of this Agreement and (iii) for issuances of Starwood Class B Common
Shares upon the exercise of outstanding Starwood Stock Options pursuant to
Section 6.1 of Starwood's Declaration of Trust;
(c) amend Starwood's declaration of trust, bylaws or other comparable
charter or organizational documents of Starwood or any Starwood Subsidiary,
except as otherwise contemplated by this Agreement, pursuant to the Advisor
Transaction and the Incorporation Merger or except for amendments to the
organizational documents of the Starwood Subsidiaries to reflect the admission
of new equity members and for other administrative matters;
(d) subject to Section 4.2(b) hereof, merge, consolidate or enter into any
other business combination with any Person except for any merger, consolidation
or business combination, as a result of which (i) Starwood is the surviving or
successor Person or the ultimate parent of the surviving or successor Person and
(ii) no change of control of Starwood will occur;
(e) subject to Section 4.2(b) hereof, (i) acquire or agree to acquire by
purchasing all or a substantial portion of the equity securities or assets of,
or by any other manner, any business or any corporation, partnership, limited
liability company, joint venture, association, business trust or other business
organization or division thereof or interest therein or any assets in
transactions involving capital, securities, assets or indebtedness, or any
combination thereof, of Starwood or Starwood Subsidiaries in excess of
$250,000,000, for all such transactions in the aggregate, except (x) for
acquisitions of businesses whose
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primary activities are similar or closely related to the businesses currently
conducted by Starwood or any of the Subsidiaries or whose assets consist
primarily of assets similar to the Starwood Loans, (y) as otherwise necessary in
order for Starwood to maintain its status as a REIT and (z) that Starwood may
originate or otherwise acquire assets of types similar to the Starwood Loans in
the ordinary course of its business without restriction; (ii) other than in the
ordinary course of business or in connection with (x) borrowings under
Starwood's existing credit lines, (y) refinancings of outstanding indebtedness
of Starwood and (z) securitizations of Starwood Loans, mortgage or otherwise
materially encumber or subject to any Lien or sell, lease or otherwise dispose
of any of its material properties or assets or assign or materially encumber the
right to receive income, dividends, distributions and the like or agree to do
any of the foregoing; (iii) incur indebtedness for borrowed money or guarantee
any indebtedness of another person, issue or sell any debt securities or
warrants or other rights to acquire any debt securities of Starwood or any
Starwood Subsidiary; guarantee any debt securities 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 or prepay or refinance any indebtedness if, as a result of
any of the activities described in this clause (iii), the ratio of Starwood's
consolidated debt to consolidated equity, as determined in accordance with GAAP
and based the most recent consolidated balance sheet of Starwood included in the
Starwood SEC Documents filed through the time of the activity in question, would
exceed 2.0:1.0 or (iv) make any loans, advances or capital contributions to, or
investments in, any other person other than loans, advances, capital
contributions or investments which are (A) specifically permitted by this
Agreement, (B) consistent with the types of activities Starwood engages in the
ordinary course of its business or (C) not in excess of $100,000,000 in the
aggregate;
(f) (i) change in any material manner any of its methods, principles or
practices of accounting in effect at the Starwood Financial Statement Date or
(ii) settle or compromise any claim, action, suit, litigation, proceeding,
arbitration, investigation, audit or controversy in each case relating to taxes,
except in the case of settlements or compromises relating to taxes on real
property or sales taxes in an amount not to exceed, individually or in the
aggregate, $5,000,000, except, in the case of clause (i), as may be required by
the SEC, applicable Law or GAAP and, in the case of clause (ii) as may be
required by applicable Law;
(g) except as provided in this Agreement, adopt any new employee benefit
plan, incentive plan, severance plan, bonus plan, stock option or similar plan,
grant new stock appreciation rights or amend any existing plan or rights, or
enter into or amend any employment agreement or similar agreement or arrangement
(other than as contemplated under Section 5.11) or, except in the ordinary
course consistent with past practice, grant or become obligated to grant any
increase in the compensation of officers or employees, except such changes as
are required by law or which are not more favorable to participants than
provisions currently in effect;
(h) enter into, amend or otherwise modify any of the material terms of, any
agreement or arrangement with persons that are affiliates or, as of the date
hereof, are officers or trustees of Starwood or any Starwood Subsidiary, except
that in connection with the transactions contemplated by the Advisor Transaction
Agreement, Starwood may terminate the Financial Advisory Agreement, dated as of
March 18, 1998, between Starwood and the Starwood Advisors L.L.C.
(i) expend more than $3,000,000 in the aggregate for capital expenditures
or commit to do the foregoing other than those projects, repairs or renovations
in progress on the date hereof or which are required to be performed by Starwood
under a Starwood Lease or existing letter of intent to which Starwood or a
Starwood Subsidiary is a party, in each case as described in Section 4.2(i) of
the Starwood Disclosure Letter; or
(j) other than after consultation with TriNet, settle any stockholder
derivative or class action claims arising out of or in connection with any of
the transactions contemplated by this Agreement; PROVIDED, HOWEVER, that
Starwood shall not enter into any such settlement which provides, as part of the
settlement, for an injunction to be issued against the consummation of the
transactions contemplated by this Agreement.
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Section 4.3. OTHER ACTIONS.
(a) Each of TriNet and Starwood shall use its commercially reasonable
efforts not to, and shall use its commercially reasonable efforts to cause its
respective 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) any of the conditions
to the Merger set forth in Article VI not being satisfied.
(b) Starwood shall, in connection with the transactions contemplated by
this Agreement, take all actions necessary to give effect to the exchange or
redemption rights in favor of joint venture partners of TriNet or any TriNet
Subsidiaries that are listed in Section 4.3(b) of the TriNet Disclosure Letter.
Such actions shall include, without limitation, the assumption of the
obligations of TriNet and any TriNet Subsidiary with respect to such exchange or
redemption rights that are disclosed in Section 4.3(b) of the TriNet Disclosure
Letter and the entering into of registration rights agreements with such joint
venture partners comparable to those heretofore entered into by TriNet or such
TriNet Subsidiary and that are listed in Section 4.3(b) of the TriNet Disclosure
Letter.
(c) Starwood shall notify TriNet of (i) any foreclosure by a lender on
shares of beneficial interest of Starwood pledged to secure indebtedness of a
shareholder of Starwood who is a party to the Shareholder Agreement, or (ii) the
occurrence of an "Event of Default" (an "EVENT OF DEFAULT") or "Additional
Acceleration Event" (an "ADDITIONAL ACCELERATION EVENT") under the Credit and
Guaranty Agreement among Starwood Opportunity Fund IV, L.P., a Delaware limited
partnership, SOFI-IV SMT Holdings, L.L.C., a Delaware limited liability company,
certain guarantors listed therein and General Electric Capital Corporation, a
New York corporation ("GECC"), in each case within two business days after such
foreclosure, Event of Default or Additional Acceleration Event, as the case may
be.
ARTICLE V
ADDITIONAL COVENANTS
Section 5.1. PREPARATION OF THE REGISTRATION STATEMENT AND THE PROXY
STATEMENT; SHAREHOLDERS' MEETINGS; CONSENTS.
(a) As soon as practicable following the date of this Agreement, TriNet and
Starwood shall jointly (i) prepare and file the Proxy Statement with the SEC,
with appropriate requests for confidential treatment, in form and substance
satisfactory to each of Starwood and TriNet, and Starwood will provide on a
supplemental basis to the SEC the Registration Statement, in which the Proxy
Statement will be included as a prospectus. Each of TriNet and Starwood shall
use its commercially reasonable efforts to cause and enable Starwood to (i)
respond to any comments of the staff of the SEC and (ii) have the Registration
Statement declared effective under the Securities Act and the rules and
regulations promulgated thereunder as promptly as practicable after such filing
and to keep the Registration Statement effective as long as is necessary to
consummate the Merger and the Advisor Transaction. Each of TriNet and Starwood
will use its commercially reasonable efforts to cause the Proxy Statement to be
mailed to TriNet's shareholders and Starwood's shareholders, respectively, as
promptly as practicable after the Registration Statement is declared effective
under the Securities Act. Each party will notify the other promptly of the
receipt of any comments from the SEC and of any request by the SEC for
amendments or supplements to the Registration Statement or the Proxy Statement
or for additional information and will supply the other with copies of all
correspondence between such party or any of its representatives and the SEC with
respect to the Registration Statement or the Proxy Statement. The Registration
Statement and the Proxy Statement shall 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 Registration Statement or the
Proxy Statement, Starwood or TriNet, as the case may be, shall promptly
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inform the other of such occurrences and cooperate in filing with the SEC and/or
mailing to the shareholders of Starwood and the shareholders of TriNet such
amendment or supplement in a form reasonably acceptable to Starwood and TriNet.
(b) TriNet will, as soon as practicable following the date of this
Agreement, duly call, give notice of, convene and hold a meeting of its
shareholders (the "TRINET SHAREHOLDERS MEETING") (but in no event shall such
meeting be held sooner than 20 business days following the date the Proxy
Statement is mailed to its shareholders), for the purpose of obtaining the
TriNet Shareholder Approval. Starwood will, as soon as practicable following the
date of this Agreement, duly call, give notice of, convene and hold a meeting of
its shareholders (the "STARWOOD SHAREHOLDERS MEETING") (but in no event shall
such meeting be held sooner than 20 business days following the date the Proxy
Statement is mailed to its shareholders), for the purpose of obtaining the
Starwood Shareholder Approvals and, if necessary, the approval of its
shareholders to amend the declaration of trust and bylaws of Starwood in the
manner contemplated by Section 1.7. TriNet and Starwood will cooperate in good
faith to seek to ensure that the TriNet Shareholder Meeting and the Starwood
Shareholder Meeting are held on the same day, as close together in time as is
reasonably practicable. Starwood covenants that Starwood will, through its Board
of Trustees, recommend to its shareholders approval of the Merger, this
Agreement, the Advisor Transaction, the Advisor Transaction Agreement, the
Incorporation Merger and the Incorporation Merger Agreement and the transactions
contemplated hereby and thereby and further covenants that the Proxy Statement
will include such recommendation. TriNet covenants that, subject to Section 7.1,
TriNet will, through its Board of Directors, recommend to its shareholders
approval of the Merger, this Agreement and the other transactions contemplated
hereby and thereby and further covenants that the Proxy Statement will include
such recommendation. Starwood shall furnish all information concerning New
Starwood and the holders of New Starwood Common Stock as may reasonably be
requested in connection with any action required to be taken under any
applicable state securities or "blue sky" laws in connection with the issuance
of New Starwood Common Stock and New Starwood Preferred Stock pursuant to the
Merger and the Advisor Transaction, and TriNet shall furnish all information
concerning TriNet and the holders of TriNet Common Stock and TriNet Preferred
Stock as may be reasonably requested in connection with any such action. In
connection with the preparation of the Proxy Statement and the Registration
Statement, Starwood shall use reasonable efforts to cause to be delivered to
TriNet, prior to the mailing of the Proxy Statement to TriNet's shareholders and
Starwood's shareholders, the opinion dated the date of the Proxy Statement of
Katten Muchin & Zavis, substantially in the form of EXHIBIT M, regarding the
historical treatment of certain partnerships, Mayer, Brown & Platt,
substantially in the form attached hereto as EXHIBIT N, regarding the historical
qualification of Starwood as a REIT under the Code, and the opinion of Rogers &
Wells LLP, substantially in the form attached hereto as EXHIBIT O, regarding the
prospective qualification of New Starwood as a REIT under the Code. In issuing
its opinion, Rogers & Wells LLP shall be permitted to rely on the opinion of
Mayer, Brown & Platt and on the opinion of Paul, Weiss, Rifkind, Wharton &
Garrison described in the next sentence. In connection with the preparation of
the Proxy Statement and the Registration Statement, TriNet shall use reasonable
efforts to cause to be delivered to Starwood, prior to the mailing of the Proxy
Statement to TriNet's shareholders and Starwood's shareholders, the opinion
dated the date of the Proxy Statement of Paul, Weiss, Rifkind, Wharton &
Garrison substantially in the form attached hereto as EXHIBIT P regarding the
qualification of TriNet as a REIT under the Code.
Section 5.2. ACCESS TO INFORMATION; CONFIDENTIALITY. Each of TriNet and
Starwood shall, and shall cause each of its respective Subsidiaries to, afford
to the other party and to the officers, employees, accountants, counsel,
financial advisors and other representatives of such other party, reasonable
access during normal business hours during the period prior to the Effective
Time to all their respective properties, books, contracts, commitments,
personnel and records and, during such period, each of TriNet and Starwood
shall, and shall cause each of its respective subsidiaries to, furnish promptly
to the other party (a) a copy of each report, schedule, registration statement
and other document filed by it during such period pursuant to the requirements
of federal or state securities laws and (b) all other information concerning its
business, properties and personnel as such other party may reasonably request.
Each of
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TriNet and Starwood will hold, and will use commercially reasonable efforts to
cause its respective officers and employees (and those of its respective
subsidiaries), accountants, counsel, financial advisors and other
representatives and affiliates to hold any nonpublic information in confidence
to the extent required by, and in accordance with, and will comply with the
provisions of the letter agreement between TriNet and Starwood dated as of
February 25, 1999, as amended to date (as so amended, the "CONFIDENTIALITY
AGREEMENT").
Section 5.3. COMMERCIALLY REASONABLE EFFORTS; NOTIFICATION.
(a) Upon the terms and subject to the conditions set forth in this
Agreement, each of Starwood and TriNet agrees to use its commercially reasonable
efforts to take, or cause to be taken, all actions, and to do, or cause to be
done, and to assist and cooperate with the other in doing, all things necessary,
proper or advisable to fulfill all conditions applicable to such party pursuant
to this Agreement and to consummate and make effective, in the most expeditious
manner practicable, the Merger and the other transactions contemplated hereby,
including (i) the obtaining of all necessary actions or nonactions, waivers,
consents and approvals from Governmental Entities and the making of all
necessary registrations and filings and the taking of all reasonable steps as
may be necessary to obtain an approval, waiver or exemption from, or to avoid an
action or proceeding by, any Governmental Entity, (ii) the obtaining of all
necessary consents, approvals, waivers or exemption from non-governmental third
parties; (iii) the defending of any lawsuits or other legal proceedings, whether
judicial or administrative, challenging the Merger, the Advisor Transaction, the
Incorporation Merger or the consummation of the transactions contemplated by
this Agreement, the Advisor Transaction Agreement, the Incorporation Merger
Agreement and the other Ancillary Agreements including seeking to have any stay
or temporary restraining order entered by any court or other Governmental Entity
vacated or reversed and (iv) the execution and delivery of any additional
instruments necessary to consummate the transactions contemplated by, and fully
to carry out the purposes of, this Agreement, the Advisor Transaction Agreement,
the Incorporation Merger Agreement and the other Ancillary Agreements. In
connection with and without limiting the foregoing, TriNet, Starwood and their
respective Boards of Directors or Trustees, as applicable, shall (x) take all
action necessary so that no "fair price," "business combination," "moratorium,"
"control share acquisition" or any other anti-takeover statute or similar
statute enacted under state or federal laws of the United States or similar
statute or regulation (a "TAKEOVER STATUTE") is or becomes applicable to the
Merger or the Advisor Transaction, and (y) if any Takeover Statute becomes
applicable, take all action necessary so that the Merger or the Advisor
Transaction may be consummated as promptly as practicable on the terms
contemplated by this Agreement or the Advisor Transaction Agreement, as
applicable, and otherwise to minimize the effect of such Takeover Statute on the
Merger and the Advisor Transaction. From the date hereof through the Effective
Time, TriNet shall timely file with the SEC all TriNet SEC Documents required to
be so filed. From the date hereof through the Effective Time, Starwood shall
timely file with the SEC all Starwood SEC Documents required to be so filed.
Subject to the provisions of the Advisor Transaction Agreement, the
Incorporation Merger Agreement and Section 2.1(b)(ii), Starwood shall consummate
the Advisor Transaction and the Incorporation Merger as promptly as reasonably
practicable following the satisfaction or waiver of the conditions set forth in
Article VI of this Agreement. Without the consent of TriNet (which will not
unreasonably be withheld or delayed), Starwood will not consent to any amendment
or other modification, waive any material right or condition under the Advisor
Transaction Agreement or the Incorporation Merger Agreement or terminate the
Advisor Transaction Agreement.
(b) TriNet shall give prompt notice to Starwood, and Starwood shall give
prompt notice to TriNet, if (i) any representation or warranty made by it
contained in this Agreement, the Advisor Transaction Agreement or the
Incorporation Merger Agreement that is qualified as to materiality becomes
untrue or inaccurate in any respect or any such representation or warranty that
is not so qualified becomes untrue or inaccurate in any material respect or (ii)
it fails 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, the Advisor
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Transaction Agreement or the Incorporation Merger 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.
Section 5.4. AFFILIATES. Prior to the Closing Date, TriNet and Starwood
shall exchange letters identifying all persons who are, at the time this
Agreement is submitted for approval to the shareholders of TriNet and Starwood,
their respective "affiliates" for purposes of Rule 145 under the Securities Act.
TriNet and Starwood shall use their respective commercially reasonable efforts
to cause each of their respective affiliates to deliver on or prior to the
Closing Date a written agreement substantially in the form attached as EXHIBIT Q
hereto.
Section 5.5. TAX TREATMENT. Each of Starwood and TriNet shall use its
commercially reasonable efforts to (a) cause the Merger to qualify as a tax-free
reorganization under Section 368(a) of the Code and (b) obtain the opinions of
counsel referred to in Sections 5.1(b), 6.2(e) and 6.3(e).
Section 5.6. NO SOLICITATION OF TRANSACTIONS.
(a) Subject to Section 7.1, TriNet shall not directly or indirectly,
through any officer, director, trustee, employee, agent, investment banker,
financial advisor, attorney, accountant, broker, finder or other representative,
initiate, solicit, encourage or facilitate (including by way of furnishing
nonpublic information or assistance) any inquiries or the making of any proposal
or other action that constitutes, or may reasonably be expected to lead to, any
TriNet Competing Transaction (as defined below), or enter into or maintain or
continue discussions or negotiate with any person in furtherance of such
inquiries or to obtain a TriNet Competing Transaction, or agree to or endorse
any TriNet Competing Transaction, or authorize or permit any of its officers,
directors, trustees, employees or agents, attorneys, investment bankers,
financial advisors, accountants, brokers, finders or other representatives to
take any such action. TriNet shall notify Starwood in writing (as promptly as
practicable) of all of the relevant details relating to all inquiries and
proposals which it or any of its Subsidiaries or any such officer, director,
employee, agent, investment banker, financial advisor, attorney, accountant,
broker, finder or other representative may receive relating to any of such
matters and if such inquiry or proposal is in writing, TriNet shall deliver to
Starwood a copy of such inquiry or proposal. For purposes of this Agreement,
"TRINET COMPETING TRANSACTION" shall mean any of the following (other than the
transactions expressly provided for in this Agreement or described in the TriNet
Disclosure Letter): (i) any merger, consolidation, share exchange, business
combination or similar transaction involving TriNet (or any of its
Subsidiaries), as the case may be; (ii) any sale, lease, exchange, mortgage,
pledge, transfer or other disposition of 20% or more of the assets of TriNet and
its Subsidiaries, taken as a whole, in a single transaction or series of related
transactions, excluding any bona fide financing transactions which do not,
individually or in the aggregate, have as a purpose or effect the sale or
transfer of control of such assets; (iii) any tender offer or exchange offer for
20% or more of the outstanding equity securities of TriNet (or any of its
Subsidiaries), or (iv) any public announcement of a proposal, plan or intention
to do any of the foregoing or any agreement to engage in any of the foregoing.
(b) Starwood shall not directly or indirectly, through any officer,
director, trustee, employee, agent, investment banker, financial advisor,
attorney, accountant, broker, finder or other representative, initiate, solicit,
encourage or facilitate (including by way of furnishing nonpublic information or
assistance) any inquiries or the making of any proposal or other action that
constitutes, or may reasonably be expected to lead to, any Starwood Competing
Transaction (as defined below), or enter into or maintain or continue
discussions or negotiate with any person in furtherance of such inquiries or to
obtain a Starwood Competing Transaction, or agree to or endorse any Starwood
Competing Transaction, or authorize or permit any of its officers, directors,
trustees, employees or agents, attorneys, investment bankers, financial
advisors, accountants, brokers, finders or other representatives to take any
such action. Starwood shall notify TriNet in writing (as promptly as
practicable) of all of the relevant details relating to all inquiries and
proposals which it or any of its Subsidiaries or any such officer, director,
employee, agent, investment
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banker, financial advisor, attorney, accountant, broker, finder or other
representative may receive relating to any of such matters and if such inquiry
or proposal is in writing, Starwood shall deliver to TriNet a copy of such
inquiry or proposal. For purposes of this Agreement, "STARWOOD COMPETING
TRANSACTION" shall mean any of the following (other than the transactions
expressly provided for in this Agreement, the Incorporation Merger Agreement and
the Advisor Transaction Agreement or described in the Starwood Disclosure
Letter): (i) any merger, consolidation, share exchange, business combination or
similar transaction involving Starwood (or any of its Subsidiaries), as the case
may be, which is required under applicable Law or under the rules of the
principal securities exchange on which the Starwood Common Stock is then listed
to be submitted to Starwood's shareholders for approval, (ii) any sale, lease,
exchange, mortgage, pledge, transfer or other disposition of more than 20% of
the assets of Starwood and its Subsidiaries, taken as a whole, in a single
transaction or series of related transactions, excluding any bona fide financing
transactions which do not, individually or in the aggregate, have as a purpose
or effect the sale or transfer of control of such assets; (iii) any tender offer
or exchange offer for more than 20% of the outstanding equity securities of
Starwood (or any of its Subsidiaries); or (iv) any public announcement of a
proposal, plan or intention to do any of the foregoing or any agreement to
engage in any of the foregoing.
Section 5.7. PUBLIC ANNOUNCEMENTS. Starwood and TriNet will consult with
each other before issuing, and provide each other the opportunity to review and
comment upon, any press release or other public statements with respect to the
Merger or any other transactions contemplated by this Agreement, and shall not
issue any such press release or make any such 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 Merger will be in the form agreed to by the parties hereto prior
to the execution of this Agreement.
Section 5.8. AMEX DE-LISTING; NYSE LISTING. Starwood shall prepare and
submit to the NYSE a listing application covering the New Starwood Common Stock
(including the New Starwood Common Stock to be issued in the Merger and the
Advisor Transaction) and New Starwood Preferred Stock and shall use its
commercially reasonable efforts to have the NYSE approve for listing, upon
official notice of issuance, the New Starwood Common Stock and New Starwood
Preferred Stock. In the event that all such securities are approved for listing
on the NYSE, Starwood shall take such steps as are necessary to cause all
Starwood securities listed on the American Stock Exchange ("AMEX") to be
de-listed as of the Effective Time.
Section 5.9. LETTERS OF ACCOUNTANTS.
(a) TriNet shall use its reasonable best efforts to cause to be delivered
to Starwood and TriNet a "comfort" letter of PricewaterhouseCoopers LLP,
TriNet's independent public accountants, dated and delivered the date on which
the Registration Statement shall become effective and as of the Effective Time,
and addressed to Starwood and TriNet, in form and substance reasonably
satisfactory to Starwood and TriNet and reasonably customary in scope and
substance for letters delivered by independent public accountants in connection
with transactions such as those contemplated by this Agreement.
(b) Starwood shall use its reasonable best efforts to cause to be delivered
to TriNet and Starwood a "comfort" letter of PricewaterhouseCoopers LLP,
Starwood's independent public accountants, dated and delivered the date on which
the Registration Statement shall become effective and as of the Effective Time,
and addressed to TriNet and Starwood, in form and substance reasonably
satisfactory to TriNet and Starwood and reasonably customary in scope and
substance for letters delivered by independent public accountants in connection
with transactions such as those contemplated by this Agreement.
Section 5.10. TRANSFER AND GAINS TAXES; SHAREHOLDER DEMAND
LETTERS. Starwood and TriNet shall cooperate in the preparation, execution and
filing of all returns, questionnaires, applications or other documents regarding
any real property transfer or gains, sales, use, transfer, value added stock
transfer and stamp taxes, any transfer, recording, registration and other fees
and any similar taxes which become
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payable in connection with the transactions contemplated by this Agreement
(together with any related interests, penalties or additions to tax, "TRANSFER
AND GAINS TAXES"). Within 30 days after the Effective Time, Starwood shall send
the shareholder demand letters required by Treasury Regulation Section 1.857-8
to the appropriate shareholders of TriNet for TriNet's taxable year ended on the
Effective Time.
Section 5.11. BENEFIT PLANS AND OTHER EMPLOYEE ARRANGEMENTS.
(a) BENEFIT PLANS. Subject to subsection (b) below, upon and after the
Effective Time, Starwood (or its respective successors or assigns) shall provide
benefits to former employees of TriNet and its Subsidiaries that are no less
favorable in the aggregate to such employees than those provided to other
similarly situated employees of Starwood at any applicable time after the
termination of the benefits provided to such employees by TriNet and the TriNet
Subsidiaries. With respect to any Starwood Benefit Plan which is an "employee
benefit plan" as defined in Section 3(3) of ERISA and any other service based
benefits (including vacations) in which employees of TriNet or Starwood or their
respective Subsidiaries may participate, solely for purposes of determining
eligibility to participate, vesting and entitlement to benefits but not for
purposes of accrual of pension benefits, service with TriNet, Starwood or any of
their respective Subsidiaries shall be treated as service with Starwood;
PROVIDED, HOWEVER, that such service shall not be recognized to the extent that
such recognition would result in a duplication of benefits under both a TriNet
Benefit Plan and a Starwood Benefit Plan (or is not otherwise recognized for
such purposes under the benefit plan of Starwood). Notwithstanding the above,
Starwood shall specifically assume TriNet's obligations under the change of
control agreements and TriNet employee severance policy listed or described in
Section 5.11(a) of the TriNet Disclosure Letter and honor all obligations
arising thereunder.
(b) STOCK INCENTIVE PLANS. Each holder (each an "OPTIONHOLDER") of a
TriNet Stock Option shall have the right, within 10 business days after receipt
by such Optionholder of written notice from New Starwood of the "MARKET PRICE"
(as defined below) and subject to such rules and procedures (including, without
limitation, any requirement that written forms be executed by each Optionholder)
as the Board of Directors of TriNet may establish in its sole discretion, to
elect one of the following choices with respect to the disposition of any such
Optionholder's TriNet Stock Options held by the Optionholder immediately prior
to the Effective Time in connection with the Merger:
(i) Each Optionholder (other than the members of the Board of Directors
of TriNet, each of whom agreed, subject to certain exceptions, not to exercise
his TriNet Stock Options pursuant to the terms and provisions of an Option
Standstill Agreement) may elect to receive, with respect to any such
Optionholder's TriNet Stock Options (each of which TriNet Stock Options shall be
deemed to have become vested immediately prior to the Effective Time), cash in
an amount equal to the difference between (x) the Market Price of the shares of
TriNet Common Stock subject to such TriNet Stock Options and (y) the exercise
price of such TriNet Stock Options, in which event, following receipt by such
Optionholder of such cash amount, such Optionholder shall thereafter cease to
have any right to purchase TriNet Common Stock or shares of New Starwood Common
Stock in connection with the exercise of the TriNet Stock Options and all such
TriNet Stock Options shall be cancelled and terminated; or
(ii) Each Optionholder may elect, with respect to any of such
Optionholder's outstanding TriNet Stock Options, that such TriNet Stock Option
shall be assumed by Starwood and shall be deemed to constitute an option to
acquire, on substantially the same terms and conditions as were applicable under
such TriNet Stock Option (including, without limitation, as to vesting and
exercisability, it being understood that in the case of an election under this
clause (ii), (A) in the case of TriNet Stock Options held by Optionholders that
are either members of the Board of Directors of TriNet on the date hereof or are
persons listed in Section 5.11(b) of the TriNet Disclosure Letter (each of whom
is a party to an Agreement Regarding Change of Control with TriNet), such TriNet
Stock Options shall accordingly vest immediately prior to the Effective Time and
(B) in the case of TriNet Stock Options held by all other Optionholders,
notwithstanding the foregoing, no effect shall be given to any provisions
governing the terms of such TriNet Stock Options that would result in the
acceleration of vesting of such TriNet Stock Options in connection
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with the execution and delivery of this Agreement or the completion of the
Merger), subject to the requirements of Section 424(a) of the Code with respect
to incentive stock options, the same number of shares of New Starwood Common
Stock as a holder of such TriNet Stock Option would have been entitled to
receive pursuant to the Merger had such holder exercised such TriNet Stock
Option in full immediately prior to the Effective Time at a price per share
equal to the aggregate exercise price for the shares subject to such TriNet
Stock Option divided by the number of full shares of New Starwood Common Stock
deemed to be purchasable pursuant to such TriNet Stock Option; PROVIDED,
HOWEVER, that the number of shares of Starwood Common Stock that may be
purchased upon exercise of each such TriNet Stock Option shall not include any
fractional share but shall be rounded upward to the next whole number of shares,
or if rounding up would disqualify an option as an incentive stock option, shall
be rounded down to the nearest whole number and cash shall be paid to each
affected optionee as compensation for such fractional share in accordance with
methodology set forth in Section 2.2(g)(ii) hereof; PROVIDED, FURTHER, HOWEVER,
that prior to, or simultaneously with, the Effective Time, New Starwood shall
use its reasonable best efforts to cause to become effective under the
Securities Act, a Registration Statement on Form S-8 in compliance with the
rules promulgated under the Securities Act covering that number of shares of New
Starwood Common Stock that would become issuable upon the exercise of all TriNet
Options. The term "MARKET PRICE" shall mean the average of the closing prices of
the New Starwood Common Stock on the principal stock exchange on which New
Starwood Common Stock is listed for the five (5) consecutive trading days
beginning with the fourth trading day after the Effective Time.
(iii) Each Starwood Stock Option shall continue in accordance with its
terms and conditions, including, without limitation, vesting and exercisability.
(iv) Immediately prior to the Effective Time, TriNet shall take all
actions necessary to terminate the TriNet Stock Plans, TriNet's management
incentive (bonus) plans, Automatic Dividend Reinvestment Plan, Management Stock
Purchase Plan and Dividend Equivalent Rights Program (other than with respect to
Dividend Equivalent Rights Awards outstanding on the date hereof and provisions
of the Dividend Equivalent Rights Program with respect to the vesting of such
awards).
Section 5.12. INDEMNIFICATION; DIRECTORS' AND OFFICERS' INSURANCE.
(a) (i) TriNet shall, and, from and after the Effective Time, Starwood
(collectively, the "INDEMNIFYING PARTIES") shall, jointly and severally,
indemnify, defend and hold harmless 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 or director of TriNet or any TriNet Subsidiary (the "INDEMNIFIED
PARTIES") against, by paying directly on behalf of the Indemnified Parties, to
the extent permitted by law, all losses, claims, damages, costs, expenses
(including attorneys' fees and expenses), liabilities, judgments and amounts
that are or are to be paid in settlement of, with the approval of the
Indemnifying Parties (which approval shall not be unreasonably withheld or
delayed), or otherwise in connection with any threatened or actual claim,
action, suit, proceeding or investigation based on or arising out of the fact
that such person is or was a director or officer of TriNet or any TriNet
Subsidiary at or prior to the Effective Time, whether asserted or claimed prior
to, or at or after, the Effective Time ("INDEMNIFIED LIABILITIES"), including
all Indemnified Liabilities based on, or arising out of, or pertaining to this
Agreement, the Merger, or the transactions contemplated by this Agreement, in
each case to the full extent a corporation is permitted under the MGCL to
indemnify its own directors or officers, as the case may be (and Starwood will
pay expenses in advance of the final disposition of any such action or
proceeding to each Indemnified Party to the full extent permitted by law subject
to the limitations set forth in Section 5.12(a)(iii)).
(ii) Any Indemnified Parties proposing to assert the right to be
indemnified under this Section 5.12 shall, promptly after receipt of notice of
commencement of any action against such Indemnified Parties in respect of which
a claim is to be made under this Section 5.12 against TriNet and, from and after
the Effective Time, Starwood, notify the Indemnifying Parties of the
commencement of such action, enclosing a copy of all papers served; PROVIDED,
that the failure to so notify shall not limit in any way or
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otherwise affect the obligations of the Indemnifying Parties, except to the
extent such failure to notify materially prejudices such party. If any such
action is brought against any of the Indemnified Parties and such Indemnified
Parties notify the Indemnifying Parties of its commencement, the Indemnifying
Parties will assume the defense of such action and will pay the costs and
expenses of the defense; provided, however, that the Indemnifying Parties will
be entitled to participate in and, to the extent that they elect by delivering
written notice to such Indemnified Parties promptly after receiving notice of
the commencement of the action from the Indemnified Parties, to assume the
defense of the action and after notice from the Indemnifying Parties to the
Indemnified Parties of their election to assume the defense, the Indemnifying
Parties will not be liable to the Indemnified Parties for any legal or other
expenses except as provided below and except for the reasonable costs of
investigation subsequently incurred by the Indemnified Parties in connection
with the defense. The Indemnifying Parties shall not settle any such action
without the consent of the Indemnified Parties; PROVIDED, HOWEVER, that such
consent shall not be unreasonably withheld, it being understood that it shall
not be deemed unreasonable to withhold such consent if the settlement includes
any admission of wrongdoing or payment of any money by or on the part of the
Indemnified Parties or any decree or restriction on the Indemnified Parties or
their officers or directors; PROVIDED, FURTHER, that no Indemnifying Parties, in
the defense of any such action shall, except with the consent of the Indemnified
Parties consent to entry of any judgment or enter into any settlement that does
not include as an unconditional term thereof the giving by the claimant or
plaintiff to such Indemnified Parties of a release from all liability with
respect to such action. The Indemnified Parties will have the right to employ
their own counsel in any such action, but the fees, expenses and other charges
of such counsel will be at the expense of such Indemnified Parties unless (i)
the employment of counsel by the Indemnified Parties has been authorized in
writing by the Indemnifying Parties, (ii) the Indemnified Parties have
reasonably concluded (based on advice of counsel) that there may be legal
defenses available to them that are different from or in addition to those
available to the Indemnifying Parties, (iii) a conflict or potential conflict
exists (based on advice of counsel to the Indemnified Parties) between the
Indemnified Parties and the Indemnifying Parties (in which case the Indemnifying
Parties will not have the right to direct the defense of such action on behalf
of the Indemnified Parties) or (iv) the Indemnifying Parties have not in fact
employed counsel to assume the defense of such action within a reasonable time
after receiving notice of the commencement of the action, in each of which cases
the reasonable fees, disbursements and other charges of counsel will be at the
expense of the Indemnifying Parties.
(iii) It is understood that the Indemnifying Parties shall not, in
connection with any proceeding or related proceedings, be liable for the
reasonable fees, disbursements and other charges of more than one separate firm
(and one local counsel in each jurisdiction in which such counsel is reasonably
required) at any one time for all such Indemnified Parties unless (a) the
employment of more than one counsel has been authorized in writing by the
Indemnifying Parties, (b) any of the Indemnified Parties has reasonably
concluded (based on advice of counsel) that there may be legal defenses
available to them that are different from or in addition to those available to
other Indemnified Parties or (c) a conflict or potential conflict exists (based
on advice of counsel to the Indemnified Parties) between any of the Indemnified
Parties and the other Indemnified Parties, in each case of which the
Indemnifying Parties shall be obligated to pay the reasonable fees and expenses
of such additional counsel or counsels.
(iv) The Indemnifying Parties will not be liable for any settlement of
any action or claim effected without their written consent (which consent shall
not be unreasonably withheld or delayed).
(b) Without limiting any of the obligations under paragraph (a) of this
Section 5.12, Starwood agrees that all rights to indemnification and all
limitations of liability existing in favor of the Indemnified Parties as
provided in TriNet's charter or bylaws as in effect as of the date hereof with
respect to matters occurring on or prior to the Effective Time shall survive the
Merger as obligations of New Starwood and continue in full force and effect for
a period of six years from the Effective Time.
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(c) At or prior to the Effective Time, Starwood shall purchase directors'
and officers' liability insurance "tail" policy coverage for TriNet's directors
and executive officers for a period of six years which will provide the
directors and officers with coverage on substantially similar terms as (but
which shall be no less favorable than those) currently provided by TriNet to
such directors and officers for claims based on activity prior to the Effective
Time; PROVIDED, HOWEVER, that Starwood shall have no obligation to pay aggregate
premiums for such coverage in excess of $350,000.
(d) The indemnification provided by this Section 5.12 shall (i) be in
addition to any other rights to which an Indemnitee may be entitled under any
agreement, as a matter of law or otherwise, as to action in the Indemnitee's
capacity as a director or officer of TriNet and shall continue as to an
Indemnitee who has ceased to serve in such capacity and (ii) be for the benefit
of, and shall be enforceable by, each Indemnified Party, his or her heirs and
his or her personal representatives and shall be binding on all successors and
assigns of Starwood and TriNet.
Section 5.13. THE TRINET RIGHTS PLAN. TriNet has taken and shall take, in
a timely manner, all steps necessary to ensure that the entering into of this
Agreement and the Ancillary Agreements and the consummation of the transactions
contemplated hereby or thereby and any other action or combination of actions or
any other transactions contemplated hereby and thereby do not and will not
result in the grant of any rights to any person to exercise or receive
certificates for Rights or acquire any property in respect of Rights under the
Rights Agreement. TriNet shall not redeem the Rights issued under the Rights
Agreement, or terminate the Rights Agreement, prior to the Effective Time (other
than in accordance with the preceding sentence) unless required to do so by a
court of competent jurisdiction; PROVIDED, HOWEVER, that TriNet may take any of
the foregoing actions if the Board of Directors of TriNet shall have accepted a
proposal for a Superior TriNet Competing Transaction in accordance with the
terms of Section 7.1.
Section 5.14. COORDINATION OF DIVIDENDS. Each of Starwood and TriNet shall
coordinate with the other regarding the declaration and payment of dividends in
respect of New Starwood Common Stock and TriNet Common Stock and the record
dates and payment dates relating thereto, it being the intention of Starwood and
TriNet that any holder of TriNet Common Stock shall not receive two dividends,
or fail to receive one dividend, for any single calendar quarter with respect to
such holder's TriNet Common Stock and/or New Starwood Common Stock such holder
receives in exchange therefor pursuant to the Merger.
Section 5.15. [Intentionally deleted.]
Section 5.16. ENVIRONMENTAL REPORTS. Within 21 days after the date of this
Agreement, Starwood shall deliver to TriNet Phase I environmental assessments
with regard to the Starwood Properties listed in Section 5.16 of the Starwood
Disclosure Letter.
ARTICLE VI
CONDITIONS PRECEDENT
Section 6.1. CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE
MERGER. The respective obligations of TriNet and Starwood to effect the Merger
and to consummate the other transactions contemplated by this Agreement on the
Closing Date are subject to the satisfaction or waiver on or prior to the
Effective Time of the following conditions:
(a) SHAREHOLDER APPROVALS. The TriNet Shareholder Approval and the
Starwood Merger Shareholder Approval and the Starwood Advisor Transaction
Shareholder Approval shall have been obtained.
(b) LISTING OF SHARES. The NYSE or the AMEX shall have approved for
listing the New Starwood Common Stock (including the New Starwood Common Stock
to be issued in the Merger and the Advisor Transaction) and the New Starwood
Preferred Stock.
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(c) REGISTRATION STATEMENT. The Registration Statement shall have become
effective under the Securities Act and shall not be the subject of any stop
order or proceedings by the SEC seeking a stop order.
(d) 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 Incorporation Merger or the Advisor Transaction
shall be in effect.
(e) INCORPORATION MERGER AND ADVISOR TRANSACTION. Unless Starwood shall
have delivered the written notice to TriNet contemplated by Section 1.7, the
Incorporation Merger shall have occurred in accordance with the Incorporation
Merger Agreement. The Advisor Transaction Agreement shall be in full force and
effect and the Advisor Transaction shall occur simultaneously with the Merger in
accordance with the Advisor Transaction Agreement.
Section 6.2. CONDITIONS TO OBLIGATIONS OF STARWOOD. The obligation of
Starwood to effect the Merger and the Advisor Transaction on the Closing Date
are further subject to the following conditions, any one or more of which may be
waived by Starwood:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties of
TriNet set forth in this Agreement that are qualified by any "materiality,"
"Material Adverse Effect" or similar qualification or limitation shall be true
and correct, and the other representations and warranties of TriNet set forth in
this Agreement shall be true and correct in all material respects, in each case
on and as of the Closing Date 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 it shall be true and correct as of such
other date), and Starwood shall have received a certificate (which certificate
may be qualified by Knowledge to the same extent as such representations and
warranties are so qualified) signed on behalf of TriNet by the President and the
Chief Financial Officer of TriNet to such effect.
(b) PERFORMANCE OF OBLIGATIONS OF TRINET. TriNet 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 Starwood shall have received a
certificate signed on behalf of TriNet by the President and the Chief Financial
Officer of TriNet to such effect.
(c) MATERIAL ADVERSE EFFECT. Since the date of this Agreement, no events
shall have occurred and no circumstances shall have occurred that, individually
or in the aggregate, have resulted in or would reasonably be expected to result
in a TriNet Material Adverse Effect. This condition shall be deemed not
satisfied if on the Closing Date there are Defaulted TriNet Leases, other than
the TriNet Leases described in Section 3.1(o)(v) of the TriNet Disclosure
Letter, that in the aggregate represent in excess of 5% of the consolidated
rental income of TriNet and the TriNet Subsidiaries for the fiscal quarter of
TriNet most recently completed. For purposes of this Section, a TriNet Lease
becomes a "DEFAULTED TRINET LEASE" when (i) a material uncured default in the
payment of monetary obligations due from the tenant or guarantor under the
TriNet Lease has occurred and is continuing beyond the applicable notice and
grace periods set forth in the applicable TriNet Lease and the amounts of such
monetary obligations are not the subject of a good faith dispute between TriNet
and the tenant or guarantor, (ii) the tenant or guarantor under the TriNet
Lease, pursuant to any bankruptcy law applicable to it, commences a voluntary
case, consents to the entry of an order for relief, consents to the appointment
of a custodian of it or a substantial part of its property or makes a general
assignment for the benefit of its creditors or (iii) a court of competent
jurisdiction enters an order or decree with regard to a tenant or guarantor
under a TriNet Lease under any applicable bankruptcy law for relief in an
involuntary case, appoints a custodian for the tenant or guarantor or any
substantial part of its property or orders the winding up or liquidation of the
tenant.
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(d) OPINIONS RELATING TO REIT STATUS. Starwood shall have received an
opinion dated as of the Closing Date of Paul, Weiss, Rifkind, Wharton &
Garrison, substantially in the form of EXHIBIT P attached hereto, regarding the
qualification of TriNet as a REIT under the Code and the treatment of the TriNet
Subsidiaries that are partnerships, limited liability companies or joint
ventures as partnerships or disregarded entities under the Code, and Paul,
Weiss, Rifkind, Wharton & Garrison shall have permitted Rogers & Wells LLP to
rely on its opinion for purposes of delivering the opinion required by Section
6.3(d).
(e) OTHER TAX OPINION. Starwood shall have received an opinion dated as of
the Closing Date from Rogers & Wells LLP in form reasonably satisfactory to
TriNet (subject to customary assumptions and qualifications, and based on
customary representations) to the effect that the Merger will qualify as a
tax-free reorganization under Section 368(a) of the Code.
(f) CONSENTS. All consents and waivers from third parties necessary in
connection with the consummation of the Merger shall have been obtained, other
than such consents and waivers from third parties, which (i) if not obtained,
would not result, individually or in the aggregate, in a TriNet Material Adverse
Effect or (ii) Starwood has previously acknowledged are consents or waivers
which, if not obtained, would not individually result in a TriNet Material
Adverse Effect.
Section 6.3. CONDITIONS TO OBLIGATION OF TRINET. The obligations of TriNet
to effect the Merger and to consummate the other transactions contemplated by
this Agreement to occur on the Closing Date are further subject to the following
conditions, any one or more of which may be waived by TriNet:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties of
Starwood set forth in this Agreement that are qualified by any "materiality,"
"Material Adverse Effect" or similar qualification or limitation shall be true
and correct, and the other representations and warranties of Starwood set forth
in this Agreement shall be true and correct in all material respects, in each
case on and as of the Closing Date 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 it shall be true and correct as of such
other date), and TriNet shall have received a certificate (which certificate may
be qualified by knowledge to the same extent as such representations and
warranties are so qualified) signed on behalf of Starwood by the Chief Executive
Officer and the Chief Financial Officer of Starwood to such effect.
(b) PERFORMANCE OF OBLIGATIONS OF STARWOOD. Starwood 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 TriNet shall have received
a certificate signed on behalf of Starwood by the Chief Executive Officer and
the Chief Financial Officer of Starwood to such effect.
(c) MATERIAL ADVERSE EFFECT. Since the date of this Agreement, no events
shall have occurred and no circumstances shall have occurred that, individually
or in the aggregate, have resulted in or would reasonably be expected to result
in a Starwood Material Adverse Effect.
(d) OPINIONS RELATING TO REIT AND PARTNERSHIP STATUS. TriNet shall have
received the opinions dated as of the Closing Date of Katten Muchin & Zavis
substantially in the form of EXHIBIT M attached hereto regarding the historical
treatment of Starwood Subsidiaries that are partnerships, limited liability
companies or joint ventures as partnerships or disregarded entities under the
Code, the opinion of Mayer, Brown & Platt substantially in the form of EXHIBIT N
attached hereto regarding the historical qualification of Starwood as a REIT
under the Code and the opinion of Rogers & Wells LLP substantially in the form
of EXHIBIT O attached hereto regarding the prospective qualification of New
Starwood, as a REIT under the Code and the treatment of Starwood Subsidiaries
that are partnerships, limited liability companies or joint ventures as
partnerships or disregarded entities under the Code. Katten Muchin & Zavis and
Mayer Brown & Platt shall have permitted Rogers & Wells LLP to rely on their
opinions for purposes of delivering its opinion required by this Section 6.3(d).
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(e) OTHER TAX OPINION. TriNet shall have received an opinion dated as of
the Closing Date from Paul Weiss, Rifkind, Wharton & Garrison in form reasonably
satisfactory to Starwood (subject to customary assumptions and qualifications,
and based on customary representations) to the effect that the Merger will
qualify as a tax-free reorganization under Section 368(a) of the Code.
(f) CONSENTS. All consents and waivers from third parties necessary in
connection with the consummation of the Merger shall have been obtained, other
than (i) such consents and waivers from third parties, which, if not obtained,
would not result, individually or in the aggregate, in a Starwood Material
Adverse Effect and (ii) any consent necessary under or in respect of the TriNet
Revolver.
(g) INCORPORATION MERGER REPRESENTATIONS. Unless Starwood shall have
delivered the written notice to TriNet contemplated in Section 1.7, the
representations and warranties of New Starwood set forth in the Incorporation
Merger Agreement shall be true and correct in all material respects on and as of
the Closing Date, 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, and the Incorporation Merger shall have been effected in
accordance with the Incorporation Merger Agreement. TriNet shall have received a
certificate confirming the foregoing (which certificate may be qualified by
Knowledge to the same extent as such representations and warranties are so
qualified) signed on behalf of New Starwood by the Chief Executive Officer and
the Chief Financial Officer of New Starwood to such effect.
(h) ADVISOR TRANSACTION REPRESENTATIONS. The representations and
warranties of the Advisor set forth in the Advisor Transaction Agreement shall
be true and correct in all material respects on and as of the Closing Date, 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,
and the parties to the Advisor Transaction Agreement shall have complied in all
material respects with their obligations under that Agreement. TriNet shall have
received a certificate confirming the foregoing (which certificate may be
qualified by Knowledge to the same extent as such representations and warranties
are so qualified) signed on behalf of the Advisor by the Chief Executive Officer
and the Chief Financial Officer of the Advisor.
(i) LOCK-UP AGREEMENTS; STOCKHOLDERS' AGREEMENT. The Lock-Up Agreements
and the Stockholders' Agreement shall remain in full force and effect and no
party thereto shall be in violation of or shall have notified TriNet or Starwood
of its intention to violate any of such agreements.
(j) ELECTION OF REIT STATUS. Starwood shall have elected to be subject to
taxation as a REIT under the Code for its taxable year ended December 31, 1998
by having properly and timely filed Form 1120-REIT prior to the Closing Date and
shall have included the information set forth in Section 856(c)(6)(A) of the
Code in a schedule attached to such tax return.
ARTICLE VII
BOARD ACTIONS
Section 7.1. BOARD ACTIONS. Notwithstanding Section 5.6 or any other
provision of this Agreement to the contrary, to the extent required by the
obligations of the Board of Directors of TriNet under the MGCL, as determined by
the Board of Directors of TriNet in good faith after consultation with outside
counsel, TriNet may:
(a) disclose to its shareholders any information required to be disclosed
under applicable law;
(b) take and disclose to its shareholders (but not earlier than five
business days after first notifying Starwood thereof) a position contemplated by
Rule 14d-9 or Rule 14e-2 promulgated under the Exchange Act with respect to a
Competing Transaction;
(c) in response to an unsolicited request therefor, participate in
discussions or negotiations with or furnish information with respect to it
pursuant to a confidentiality agreement which is at least as favorable to it as
the Confidentiality Agreement, or otherwise respond to or deal with any person
in connection with
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a proposal for a Superior TriNet Competing Transaction, provided that it shall
have notified Starwood of such unsolicited requests or its participation in
discussions or negotiations in accordance with Section 5.6; and
(d) approve or recommend (and in connection therewith withdraw or modify
its approval or recommendation of this Agreement and the Merger) a Superior
TriNet Competing Transaction (as defined below) or enter into an agreement with
respect to such Superior TriNet Competing Transaction (for purposes of this
Agreement, "SUPERIOR TRINET COMPETING TRANSACTION" means a bona fide proposal
for a TriNet Competing Transaction made by a third party which a majority of the
members of the Board of Directors of TriNet determines in good faith (after
consultation with its financial advisor) to be more favorable to its common
shareholders than the Merger).
Section 7.2. TRINET SUBSIDIARY BOARDS. On the Closing Date, TriNet shall
use commercially reasonable efforts to cause the directors and officers of each
of the TriNet Subsidiaries to submit their resignations from such positions,
effective as of the Effective Time.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
Section 8.1. TERMINATION. This Agreement may be terminated at any time
prior to the acceptance for record of the Articles of Merger for the Merger by
the SDAT, whether before or after the TriNet Shareholder Approval and the
Starwood Shareholder Approvals are obtained:
(a) by mutual written consent duly authorized by the respective Board of
Directors of TriNet, the Board of Directors of Starwood Sub and the Board of
Trustees of Starwood;
(b) by Starwood, upon a breach of any representation, warranty, covenant or
agreement on the part of TriNet set forth in this Agreement, or if any
representation or warranty of TriNet shall have become untrue, in either case
such that the conditions set forth in Section 6.2(a) or Section 6.2(b), as the
case may be, would be incapable of being satisfied by December 31, 1999 (as
otherwise extended);
(c) by Starwood upon a failure of the condition set forth in Section
6.2(c);
(d) by TriNet, upon a breach of any representation, warranty, covenant or
agreement on the part of Starwood set forth in this Agreement, or if any
representation or warranty of Starwood shall have become untrue, in either case
such that the conditions set forth in Section 6.3(a) or Section 6.3(b), as the
case may be, would be incapable of being satisfied by December 31, 1999 (as
otherwise extended);
(e) by TriNet upon a failure of the condition set forth in Section 6.3(c);
(f) by either Starwood or TriNet, 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;
(g) by either Starwood or TriNet, if the Merger shall not have been
consummated before December 31, 1999; PROVIDED, HOWEVER, that a party that has
materially breached a representation, warranty or covenant of such party set
forth in this Agreement shall not be entitled to exercise its right to terminate
under this Section 8.1(g);
(h) by Starwood or TriNet if, upon a vote at a duly held TriNet
Shareholders Meeting or any adjournment thereof, the TriNet Shareholder Approval
shall not have been obtained, as contemplated by Section 5.1;
(i) by Starwood if (i) prior to the TriNet Shareholders Meeting, the Board
of Directors of TriNet shall have withdrawn or modified in any manner adverse to
Starwood its approval or recommendation of the Merger or this Agreement in
connection with, or approved or recommended, any TriNet Competing
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Transaction, (ii) TriNet shall have entered into any agreement with respect to
any TriNet Competing Transaction or (iii) the Board of Directors of TriNet or
any committee thereof shall have resolved to do any of the foregoing;
(j) by TriNet if TriNet shall previously or concurrently have consummated a
transaction constituting a Superior TriNet Competing Transaction or shall
previously or concurrently have entered into a definitive agreement providing
for a Superior TriNet Competing Transaction, but only upon payment of all
amounts then required, by reason of such termination, to be paid pursuant to
Section 8.2(b);
(k) by TriNet upon a termination of the Advisor Transaction Agreement or,
if Starwood has not previously delivered to TriNet the written notice
contemplated by Section 1.7, upon termination of the Incorporation Merger
Agreement;
(l) by TriNet within 15 days after receiving written notice from Starwood
pursuant to Section 4.3(c) that (a) (i) a lender on shares of beneficial
interest of Starwood pledged to secure indebtedness of a shareholder of Starwood
who is party to the Shareholder Agreement has foreclosed on such Shares and the
number of Starwood Class A Common Shares held by all parties to the Shareholder
Agreement after giving effect to such foreclosure represents less than
two-thirds of the aggregate number of then outstanding Starwood Class A Common
Shares and Starwood Class B Common Shares or (ii) an Event of Default or an
Additional Acceleration Event shall have occurred and be continuing and (b) the
lender (in the case of a foreclosure) or GECC or its successors and assigns (in
the case of an Event of Default or Additional Acceleration Event), as the case
may be, has not agreed in writing (in a manner reasonably satisfactory to
TriNet) to vote in favor of this Agreement, the Merger, the Advisor Transaction
Agreement and the Advisor Transaction, all shares of beneficial interest in
Starwood with respect to which such lender or GECC (or its successors and
assigns), as the case may be, has received the right to exercise voting and
consensual rights in connection with such foreclosure, Event of Default or
Additional Acceleration Event; or
(m) by Starwood or TriNet if, upon a vote at a duly held Starwood
Shareholders Meeting or any adjournment thereof, the Starwood Merger Shareholder
Approval or the Starwood Advisor Transaction Shareholder Approval shall not have
been obtained, as contemplated by Section 5.1; PROVIDED, HOWEVER, that TriNet
shall have no right to terminate this Agreement pursuant to this Section 8.1(m)
if (i) the irrevocable proxies which TriNet holds pursuant to the Shareholder
Agreement (the "IRREVOCABLE PROXIES") are valid instruments as of the time of
the Starwood Shareholders Meeting or any adjournment thereof and (ii) TriNet
shall have failed to exercise its rights under the Irrevocable Proxies to cause
the shares of beneficial interest of Starwood held by the shareholders of
Starwood who are parties to the Shareholder Agreement to be voted in favor of
the Merger and the Advisor Transaction at the Starwood Shareholders Meeting or
any adjournment thereof (such failure of TriNet being referred to herein as a
"TRINET PROXY DEFAULT").
Section 8.2. EXPENSES.
(a) Except as otherwise specified in this Section 8.2 or agreed in writing
by the parties, all out-of-pocket costs and expenses incurred in connection with
this Agreement, the Merger, and the other transactions contemplated hereby shall
be paid by the party incurring such cost or expense.
(b) TriNet agrees that if this Agreement shall be terminated pursuant to
Section 8.1(b), (h), (i) or (j) then TriNet will pay to Starwood, or as directed
by Starwood, an amount equal to the Starwood Break-Up Expenses (as defined
below). In addition, TriNet agrees that if (w) this Agreement shall be
terminated pursuant to Section 8.1(b) by reason of a breach by TriNet of any
representation or warranty set forth in this Agreement (and not by reason of any
such representation or warranty of TriNet having become untrue after the date of
this Agreement) and within 12 months following such termination TriNet shall
consummate a transaction constituting a change of control of TriNet or enter
into a definitive
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agreement providing for such a transaction, (x) this Agreement shall be
terminated pursuant to Section 8.1(c) and within 12 months following such
termination, TriNet shall consummate a transaction constituting a Superior
TriNet Competing Transaction or enter into a definitive agreement providing for
a transaction which will constitute a Superior TriNet Competing Transaction, (y)
this Agreement shall be terminated pursuant to Section 8.1(h) and within nine
months following such termination, TriNet shall consummate a transaction
constituting a change of control of TriNet or enter into a definitive agreement
providing for a transaction which will constitute a change of control of TriNet,
or (z) this Agreement is terminated pursuant to Section 8.1(i) or Section
8.1(j), or pursuant to Section 8.1(b), by reason of a breach by TriNet of a
covenant set forth in this Agreement, then TriNet will pay as directed by
Starwood a fee in an amount equal to the Starwood Break-Up Fee (as defined
below). Payment of any of such amounts shall be made, as directed by Starwood,
by wire transfer of immediately available funds promptly, but in no event later
than two business days after the amount is due as provided herein. The "STARWOOD
BREAK-UP FEE" shall be an amount equal to the lesser of (i) $50,000,000 (the
"BASE AMOUNT") and (ii) the sum of (A) the maximum amount that can be paid to
Starwood for the taxable year in which this Agreement is terminated without
causing Starwood to fail to meet the requirements of Sections 856(c)(2) and (3)
of the Code determined as if the payment of such amount did not constitute
income described in Sections 856(c)(2) and (3) of the Code ("QUALIFYING
INCOME"), as determined by outside counsel or independent accountants to
Starwood, and (B) in the event Starwood receives a letter from outside counsel
(the "STARWOOD BREAK-UP FEE TAX OPINION") indicating that Starwood has received
a ruling from the IRS holding that the receipt by Starwood of the Base Amount
would either constitute Qualifying Income as to Starwood with respect to
Starwood's proportionate share thereof or would be excluded from Starwood's
gross income for purposes of Sections 856(c)(2) and (3) of the Code (the "REIT
REQUIREMENTS"), the Base Amount less the amount payable under clause (A) above.
In the event that Starwood is not able to receive the full Base Amount, TriNet
shall place the unpaid amount (I.E., the difference between the Base Amount and
the Starwood Break-Up Fee) in escrow and shall not release any portion thereof
to Starwood unless and until TriNet receives any one or a combination of the
following: (i) a letter(s) from Starwood's outside counsel or independent
accountants indicating the maximum amount that can be paid at that time to
Starwood without causing Starwood to fail to meet the REIT Requirements for any
relevant taxable year together with an IRS ruling or opinion of tax counsel to
the effect that such payment would not be treated as included in income for any
prior taxable year, in which event such maximum amount shall be paid to
Starwood, or (ii) a Starwood Break-Up Fee Tax Opinion, in which event TriNet
shall pay to Starwood the unpaid Base Amount. TriNet's obligation to pay any
unpaid portion of the Starwood Break-Up Fee (provided TriNet has otherwise
complied with its obligations under this provision) shall terminate (and any
amount still held in such escrow shall be released to TriNet) on the date that
is five years from the date the Starwood Break-Up Fee first becomes due under
this Agreement. The "STARWOOD BREAK-UP EXPENSES" shall be an amount equal to the
lesser of (i) the total amount of costs and expenses incurred by Starwood in
connection with the preparation, negotiation, execution and delivery of this
Agreement (including, without limitation, fees and disbursements of counsel,
investment bankers and accountants and out-of-pocket expenses), up to a maximum
amount of $3,500,000 and which are supported by invoices or other reasonable
documentation (the "STARWOOD EXPENSE FEE BASE AMOUNT") and (ii) the sum of (A)
the maximum amount that can be paid to Starwood for the taxable year in which
this Agreement is terminated without causing Starwood to fail to meet the
requirements of Sections 856(c)(2) and (3) of the Code determined as if the
payment of such amount did not constitute Qualifying Income, as determined by
outside counsel or independent accountants to Starwood and (B) in the event
Starwood receives a Starwood Break-Up Fee Tax Opinion indicating that Starwood
has received a ruling from the IRS holding that Starwood's receipt of the
Starwood Expense Fee Base Amount would either constitute Qualifying Income as to
Starwood with respect to Starwood's proportionate share thereof or would be
excluded from Starwood's gross income for purposes of the REIT Requirements, the
Starwood Expense Fee Base Amount less the amount payable under clause (A) above.
Notwithstanding anything in the foregoing to the contrary, if this Agreement is
terminated but Starwood acquires, directly or indirectly, substantially all of
the assets or stock of the Advisor or any of its direct or indirect Subsidiaries
within 12 months after such
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termination, then TriNet shall have no obligation to pay to Starwood any
Starwood Break-Up Expenses which are directly and solely attributable to the
Advisor Transaction and if any such Starwood Break-Up Expenses have already been
paid by TriNet, Starwood shall reimburse TriNet for those expenses promptly
after the consummation of the acquisition of the Advisor. In the event that
Starwood is not able to receive the full amount of the Starwood Break-Up
Expenses, TriNet shall place the unpaid amount (I.E., the difference between the
Starwood Expense Fee Base Amount and the Starwood Break-Up Expenses) in escrow
and shall not release any portion thereof to Starwood unless and until TriNet
receives any one or combination of the following: (i) a letter(s) from
Starwood's outside counsel or independent accountants indicating the maximum
amount that can be paid at that time to Starwood without causing Starwood to
fail to meet the REIT Requirements for any relevant taxable year, together with
an IRS ruling or opinion of tax counsel to the effect that such payment would
not be treated as included in income for any prior taxable year, in which event
such maximum amount shall be paid to Starwood, or (ii) a Starwood Break-Up Fee
Tax Opinion indicating that Starwood's receipt of the Starwood Expense Fee Base
Amount would satisfy the REIT Requirements, in which event TriNet shall pay to
Starwood the unpaid Starwood Expense Fee Base Amount. TriNet's obligation to pay
any unpaid portion of the Starwood Break-Up Expenses (provided TriNet has
otherwise complied with its obligations under this provision) shall terminate
(and any amount still held in such escrow shall be released to TriNet) on the
date that is five years from the date the Starwood Break-Up Expenses first
become due under this Agreement.
(c) Starwood agrees that if this Agreement shall be terminated pursuant to
Section 8.1(d), 8.1(k) or 8.1(l) or, in the absence of a TriNet Proxy Default,
pursuant to Section 8.1(m), then Starwood will pay, as directed by TriNet, an
amount equal to the TriNet Break-Up Expenses (as defined below). In addition,
Starwood agrees that if (w) this Agreement shall be terminated pursuant to
Section 8.1(d) by reason of a breach by Starwood of a representation or warranty
set forth in this Agreement (and not by reason of any such representation or
warranty of Starwood having become untrue after the date of this Agreement) and
within 12 months following such termination Starwood shall consummate a
transaction constituting a change of control of Starwood or enter into a
definitive agreement providing for a transaction which will constitute a change
of control of Starwood, (x) this Agreement shall be terminated pursuant to
Section 8.1(e) and within 12 months following such termination, Starwood shall
consummate a transaction constituting a Superior Starwood Competing Transaction
or enter into a definitive agreement providing for a transaction which will
constitute a Superior Starwood Competing Transaction; (y) this Agreement shall
be terminated pursuant to Section 8.1(k), Section 8.1(l) or pursuant to Section
8.1(d), by reason of a breach by Starwood of a covenant set forth in this
Agreement; or (z) this Agreement shall be terminated pursuant to Section 8.1(m)
in the absence of a TriNet Proxy Default, then Starwood will pay as directed by
TriNet a fee in an amount equal to the TriNet Break-Up Fee (as defined below).
Payment of any of such amounts shall be made, as directed by TriNet, by wire
transfer of immediately available funds promptly, but in no event later than two
business days after the amount is due as provided herein. The "TRINET BREAK-UP
FEE" shall be an amount equal to the lesser of (i) $50,000,000 or, in the event
of a termination of this Agreement pursuant to Section 8.1(l) or, in the absence
of a TriNet Proxy Default, pursuant to Section 8.1(m), $60,000,000 (the "BASE
AMOUNT") and (ii) the sum of (A) the maximum amount that can be paid to TriNet
for the taxable year in which this Agreement is terminated without causing it to
fail to meet the requirements of Sections 856(c)(2) and (3) of the Code
determined as if the payment of such amount did not constitute Qualifying
Income, as determined by outside counsel or independent accountants to TriNet
and (B) in the event TriNet receives a letter from outside counsel (the "TRINET
BREAK-UP FEE TAX OPINION") indicating that TriNet has received a ruling from the
IRS holding that TriNet's receipt of the Base Amount would either constitute
Qualifying Income or would be excluded from gross income for purposes of
Sections 856(c)(2) and (3) of the Code, the Base Amount less the amount payable
under clause (A) above. In the event that TriNet is not able to receive the full
Base Amount, Starwood shall place the unpaid amount (i.e., the difference
between the Base Amount and the TriNet Break-Up Fee) in escrow and shall not
release any portion thereof to TriNet unless and until Starwood receives any one
or a combination of the following: (i) a letter(s) from TriNet's outside counsel
or independent accountants
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indicating the maximum amount that can be paid at that time to TriNet without
causing TriNet to fail to meet the REIT Requirements for any relevant taxable
year together with an IRS ruling or opinion of tax counsel to the effect that
such payment would not be treated as included in income for any prior taxable
year, in which event such maximum amount shall be paid to TriNet, or (ii) a
TriNet Break-Up Fee Tax Opinion, in which event Starwood shall pay to TriNet the
unpaid Base Amount. Starwood's obligation to pay the TriNet Break-Up Fee
(provided Starwood has otherwise complied with its obligations under this
provision) shall terminate (and any amount still held in such escrow shall be
released to Starwood) on the date that is five years from the date the TriNet
Break-Up Fee first becomes due under this Agreement. The "TRINET BREAK-UP
EXPENSES" shall be an amount equal to the lesser of (i) the total amount of
costs and expenses incurred by TriNet in connection with the preparation,
negotiation, execution and delivery of this Agreement (including, without
limitation, fees and disbursements of counsel, investment bankers and
accountants and out-of-pocket expenses), up to a maximum amount of $3,500,000
and which are supported by invoices or other reasonable documentation (the
"TRINET EXPENSE FEE BASE AMOUNT") and (ii) the sum of (A) the maximum amount
that can be paid to TriNet for the taxable year in which this Agreement is
terminated without causing it to fail to meet the requirements of Sections
856(c)(2) and (3) of the Code determined as if the payment of such amount did
not constitute Qualifying Income, as determined by outside counsel or
independent accountants to TriNet and (B) in the event TriNet receives a TriNet
Break-Up Fee Tax Opinion indicating that TriNet has received a ruling from the
IRS holding that TriNet's receipt of the TriNet Expense Fee Base Amount would
either constitute Qualifying Income or would be excluded from gross income for
purposes of the REIT Requirements the TriNet Expense Fee Base Amount less the
amount payable under clause (A) above. In the event that TriNet is not able to
receive the full TriNet Expense Fee Base Amount, Starwood shall place the unpaid
amount (I.E., the difference between the TriNet Expense Fee Base Amount and the
TriNet Break-Up Expenses) in escrow and shall not release any portion thereof to
TriNet unless and until Starwood receives any one or a combination of the
following: (i) a letter(s) from TriNet's outside counsel or independent
accountants indicating the maximum amount that can be paid at that time to
TriNet without causing TriNet to fail to meet the REIT Requirements for any
relevant taxable year together with an IRS ruling or opinion of tax counsel to
the effect that such payment would not be treated as included in income for any
prior taxable year, in which event such maximum amount shall be paid to TriNet,
or (ii) a TriNet Break-Up Fee Tax Opinion indicating that TriNet's receipt of
the TriNet Expense Fee Base Amount would satisfy the REIT Requirements, in which
event Starwood shall pay to TriNet the unpaid TriNet Expense Fee Base Amount.
Starwood's obligation to pay any unpaid portion of the TriNet Break-Up Expenses
(provided Starwood has otherwise complied with its obligations under this
provision) shall terminate (and any amount still held in such escrow shall be
released to Starwood) on the date that is five years from the date the TriNet
Break-Up Expenses first become due under this Agreement.
(d) In the event that either Starwood or TriNet is required to file suit to
seek all or a portion of the amounts payable under this Section 8.2, and such
party prevails in such litigation, such party shall be entitled to all expenses,
including attorney's fees and expenses which it has incurred in enforcing its
rights hereunder; provided, that such expenses shall be considered part of
out-of-pocket expenses incurred in connection with this Agreement and the other
transactions within the definition of Starwood Break-Up Expenses or TriNet
Break-Up Expenses, as the case may be.
Section 8.3. EFFECT OF TERMINATION. In the event of termination of this
Agreement by either TriNet or Starwood as provided in Section 8.1, this
Agreement shall forthwith become void and have no effect, without any liability
or obligation on the part of Starwood or TriNet, other than the last sentence of
Section 5.2, Section 8.2, this Section 8.3 and Article IX and except to the
extent that such termination results from a willful breach by a party of any of
its representations or warranties or a breach by a party of any of its covenants
or agreements set forth in this Agreement and except that the remedies of
Starwood and TriNet set forth in Sections 8.2(b) and 8.2(c) shall be in addition
to any other remedies available to TriNet under law or principles of equity upon
the occurrence of the events contemplated in Sections 8.1(d) or 8.1(k).
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Section 8.4. AMENDMENT. This Agreement may be amended by the parties in
writing by action of their respective Boards of Directors or Trustees, as the
case may be, at any time before or after any TriNet or Starwood Shareholder
Approvals are obtained and prior to the filing of the Articles of Merger for the
Merger with the SDAT; PROVIDED, HOWEVER, that, after any of the TriNet or
Starwood Shareholder Approvals are obtained, no such amendment, modification or
supplement shall alter the amount or change the form of the consideration to be
delivered to TriNet's or Starwood's shareholders or alter or change any of the
terms or conditions of this Agreement if such alteration or change would
adversely affect TriNet's shareholders.
Section 8.5. EXTENSION; WAIVER. At any time prior to the Effective Time,
each of TriNet and Starwood may (a) extend the time for the performance of any
of the obligations or other acts of the other party, (b) waive any inaccuracies
in the representations and warranties of the other party contained in this
Agreement or in any document delivered pursuant to this Agreement or (c) subject
to the proviso of Section 8.4, waive compliance with any of the agreements or
conditions of the 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 IX
GENERAL PROVISIONS
Section 9.1. SURVIVAL. None of the representations and warranties in this
Agreement or in any instrument delivered pursuant to this Agreement shall
survive the Effective Time. This Section 9.1 shall not limit any covenant or
agreement of the parties which by its terms contemplates performance after the
Effective Time and all such provisions (including, but not limited to, Section
5.8, Section 5.11 and Section 5.12) shall survive the consummation of the
Merger.
Section 9.2. NOTICES. All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be deemed
given if 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):
(a) if to Starwood or Starwood Sub, to
c/o Starwood Financial Trust
1114 Avenue of the Americas, 27(th) Floor
New York, New York 10036
Attn: Spencer B. Haber and Nina Matis, Esq.
Fax: (212) 930-9400
with a copy to:
Rogers & Wells LLP
200 Park Avenue
New York, NY 10166
Attn: John A. Healy, Esq.
Fax: (212) 878-8375
(b) if to TriNet, to
TriNet Corporate Realty Trust, Inc.
One Embarcadero Center
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Suite 3150
San Francisco, California 94111
Attn: A. William Stein and Geoff Dugan, Esq.
Fax: (415) 391-3092
with a copy to:
Paul Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, NY 10019
Attn: James M. Dubin, Esq.
Fax: (212) 757-3990
Section 9.3. 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."
Section 9.4. 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.
Section 9.5. ENTIRE AGREEMENT; NO THIRD-PARTY BENEFICIARIES. This
Agreement, the Advisor Transaction Agreement, the Incorporation Merger
Agreement, the Confidentiality Agreement and the other agreements entered into
in connection with the transactions (a) constitute the entire agreement and
supersede all prior agreements and understandings, both written and oral,
between the parties with respect to the subject matter of this Agreement and (b)
except for the provisions of Article II and Sections 5.11 and 5.12, are not
intended to confer upon any person other than the parties hereto any rights or
remedies.
Section 9.6. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING
EFFECT TO CONFLICTS OF LAWS PRINCIPLES THEREOF, EXCEPT TO THE EXTENT THAT THE
MERGER OR OTHER TRANSACTIONS CONTEMPLATED HEREBY ARE REQUIRED TO BE GOVERNED BY
THE MGCL.
Section 9.7. 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.
Section 9.8. ENFORCEMENT. The parties agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any court of the United States
located in the State of New York or in any New York State court, this being in
addition to any other remedy to which they are entitled at law or in equity. 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 the State of New York or any New York State court 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.
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Section 9.9. EXHIBITS; DISCLOSURE LETTERS. All Exhibits referred to herein
and in the TriNet Disclosure Letter and the Starwood Disclosure Letter are
intended to be and hereby are specifically made a part of this Agreement. All
references herein to Articles, Sections, Exhibits and Disclosure Letters shall
be deemed references to such parts of this Agreement, unless the context
otherwise requires. Each exception to a representation or warranty of Starwood
or TriNet that is set forth in the applicable Starwood or TriNet Disclosure
Letter is identified by reference to, or has been grouped under a heading
referring to, a specific individual Section of this Agreement.
ARTICLE X
CERTAIN DEFINITIONS
Section 10.1. CERTAIN DEFINITIONS. For purposes of this Agreement:
"ANCILLARY AGREEMENTS" means the Incorporation Merger Agreement, the Advisor
Transaction Agreement, the Shareholder Agreement, the Lock-Up Agreements and the
Option Standstill Agreement.
An "AFFILIATE" of any person means another person that directly or
indirectly, through one or more intermediaries, controls, is controlled by, or
is under common control with, such first person including as to Starwood,
without limitation, Starwood Hotels & Resorts, Starwood Hotels & Resorts
Worldwide, Inc. and Starwood Capital Group, LLC.
A "CHANGE OF CONTROL" with respect to Starwood or TriNet means that the
common shareholders of Starwood or TriNet, as applicable, immediately prior to
the consummation of a merger, consolidation, acquisition of assets or
securities, or a disposition of assets or securities (other than a public
offering of common stock) own less than 50% of the equity of the surviving or
successor entity resulting from such transaction.
"EMPLOYEE PLAN" means any employment, bonus, incentive compensation,
deferred compensation, pension, profit sharing, retirement, stock purchase,
stock option, stock ownership, stock appreciation rights, phantom stock, equity
(or equity-based) leave of absence, layoff, vacation, day or dependent care,
legal services, cafeteria, life, health, medical, accident, disability,
workmen's compensation or other insurance, severance, separation, termination,
change of control or other benefit plan, agreement (including any collective
bargaining agreement), practice, policy or arrangement of any kind, whether
written or oral, and whether or not subject to ERISA, including, but not limited
to, any "employee benefit plan" within the meaning of Section 3(3) of ERISA.
"KNOWLEDGE" where used herein with respect to TriNet shall mean the actual
knowledge of the persons named in Section 10 of the TriNet Disclosure Letter and
where used with respect to Starwood shall mean the actual knowledge of the
persons named in Section 10 of the Starwood Disclosure Letter.
"LAW" means any statute, law, regulation or ordinance of any Governmental
Entity applicable to Starwood or TriNet or any of their respective Subsidiaries.
"PERSON" means an individual, corporation, partnership, limited liability
company, joint venture, association, trust, unincorporated organization or other
entity.
"STARWOOD SUBSIDIARY" means each Subsidiary of Starwood.
"SUBSIDIARY" of any person means any corporation, partnership, limited
liability company, joint venture 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 voting stock, value of or other equity interests (voting
or non-voting) of such corporation, partnership, limited liability company,
joint venture or other legal entity.
"TRINET MANAGED SUBSIDIARY" means each Subsidiary of TriNet in which TriNet
or another TriNet Managed Subsidiary acts as a general partner or managing
member or in a similar capacity.
"TRINET NON-MANAGED SUBSIDIARY" means each Subsidiary of TriNet that is not
a TriNet Managed Subsidiary.
"TRINET SUBSIDIARY" means each Subsidiary of TriNet.
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IN WITNESS WHEREOF, Starwood, Starwood Sub and TriNet have caused this
Agreement to be signed by their respective officers thereunto duly authorized,
all as of the date first written above.
STARWOOD FINANCIAL TRUST
By:
-----------------------------------------
Name:
Title:
ST MERGER SUB, INC.
By:
-----------------------------------------
Name:
Title:
TRINET CORPORATE REALTY TRUST
By:
-----------------------------------------
Name:
Title:
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EXHIBIT 10.2
AGREEMENT AND PLAN OF MERGER
DATED AS OF JUNE 15, 1999
BY AND BETWEEN
STARWOOD FINANCIAL TRUST,
STARWOOD FINANCIAL, INC.
AND, TO THE EXTENT DESCRIBED HEREIN,
TRINET CORPORATE REALTY TRUST, INC.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<C> <S> <C>
ARTICLE I THE INCORPORATION MERGER............................................................... 1
Section 1.1. The Incorporation Merger........................................................... 1
Section 1.2. Effective Time..................................................................... 1
Section 1.3. Charter and By-laws................................................................ 1
Section 1.4. Directors.......................................................................... 1
Section 1.5. Officers........................................................................... 2
Section 1.6. Additional Actions................................................................. 2
ARTICLE II EFFECTS OF THE INCORPORATION MERGER; EXCHANGE OF CERTIFICATES.......................... 2
Section 2.1. Effect on Capital Stock............................................................ 2
(a) Capital Stock Owned by the Trust or its Subsidiaries............................... 2
(b) Capital Stock Owned by the Company................................................. 2
(c) Conversion of Trust Capital Stock Into Company Capital Stock....................... 2
Section 2.2. Warrants........................................................................... 3
Section 2.3. Long-Term Incentive Plan........................................................... 3
ARTICLE III REPRESENTATIONS AND WARRANTIES......................................................... 3
Section 3.1. Representations and Warranties of the Company...................................... 3
(a) Organization, Standing and Corporate Power of the Company.......................... 3
(b) Capital Structure.................................................................. 4
(c) Authority; Noncontravention........................................................ 4
(d) Operations of The Company.......................................................... 4
(e) Litigation......................................................................... 4
(f) Brokers; Schedule of Fees and Expenses............................................. 4
(g) No ownership of TriNet Stock....................................................... 4
(h) Enforceability..................................................................... 4
ARTICLE IV MISCELLANEOUS.......................................................................... 5
Section 4.1. Termination........................................................................ 5
Section 4.2. Approval........................................................................... 5
Section 4.3. Notices............................................................................ 5
Section 4.4. Amendments......................................................................... 6
Section 4.5. Counterparts....................................................................... 6
Section 4.6. Entire Agreement; No Third-Party Beneficiaries..................................... 6
Section 4.7. GOVERNING LAW...................................................................... 6
</TABLE>
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AGREEMENT AND PLAN OF MERGER ("AGREEMENT"), dated as of June 15, 1999, by
and between STARWOOD FINANCIAL TRUST, a Maryland real estate investment trust
(the "TRUST"), STARWOOD FINANCIAL, INC., a Maryland corporation (the "COMPANY")
and, to the extent described on the signature page hereto, TRINET CORPORATE
REALTY TRUST, INC., a Maryland corporation ("TRINET").
RECITALS
The Boards of Directors of the Company and the Trust each has determined
that it is advisable and in the best interests of their respective companies and
stockholders that upon the terms and subject to the conditions set forth in this
Agreement, the Trust will merge with and into the Company (the "INCORPORATION
MERGER") with the Company being the surviving entity of the merger.
AGREEMENT
In consideration of the representations, warranties, covenants and
agreements contained in this Agreement, the parties agree as follows:
ARTICLE I
THE INCORPORATION MERGER
Section 1.1. THE INCORPORATION MERGER.
(a) Upon the terms and subject to the conditions set forth in this
Agreement, at the Effective Time (as hereinafter defined), the Trust shall be
merged with and into the Company in accordance with the Maryland General
Corporation Law (the "MGCL"), whereupon the separate corporate existence of the
Trust shall cease and the Company shall be the surviving company in the merger
(the "SURVIVING CORPORATION").
(b) The Incorporation Merger shall have the effects set forth in the MGCL.
Accordingly, from and after the Effective Time, the Surviving Corporation shall
possess all the rights, privileges, powers and franchises and be subject to all
of the restrictions, disabilities, liabilities and duties of the Company and the
Trust.
Section 1.2. EFFECTIVE TIME. The parties shall execute and file Articles
of Merger or other appropriate documents in accordance with the MGCL, and shall
make all other filings or recordings required with respect to the Incorporation
Merger under the MGCL. The Incorporation Merger shall become effective at the
time of acceptance for filing by the State Department of Assessments and
Taxation of the State of Maryland of the Articles of Merger.
Section 1.3. CHARTER AND BY-LAWS. The articles of incorporation and
by-laws of the Company, substantially in the forms set forth in EXHIBITS A and B
hereto, shall become the articles of incorporation (the "CHARTER") and by-laws
(the "BY-LAWS") of the Surviving Corporation upon the Effective Time until
further amended in accordance with applicable Maryland law.
Section 1.4. DIRECTORS. The Trustees of the Trust immediately prior to the
Effective Time shall be the Directors of the Surviving Corporation from and
after the Effective Time and shall hold office until their respective successors
are duly elected or appointed and qualified in the manner provided in the
Charter and By-laws of the Surviving Corporation, or as otherwise provided by
law.
Section 1.5. OFFICERS. The officers of the Trust immediately prior to the
Effective Time shall be the officers of the Surviving Corporation from and after
the Effective Time and shall hold office until their respective successors are
duly elected or appointed and qualified in the manner provided in the Charter
and By-laws of the Surviving Corporation, or as otherwise provided by law.
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Section 1.6. ADDITIONAL ACTIONS. If, at any time after the Effective Time,
the Surviving Corporation determines that any deeds, bills of sale, assignments,
assurances or any other acts or things are necessary or desirable (a) to vest,
perfect or confirm, of record or otherwise, in the Surviving Corporation, its
right, title or interest in, to or under any of the rights, properties or assets
of the Trust by reason of, or as a result of, the Incorporation Merger, or (b)
otherwise to carry out the purposes of this Agreement, the Surviving Corporation
and its proper officers and directors shall be authorized to execute and
deliver, in the name and on behalf of the Trust, all such deeds, bills of sale,
assignments and assurances and to do, in the name and on behalf of the Trust,
all such other acts and things necessary or desirable to vest, perfect or
confirm any and all right, title or interest in, to or under such rights,
properties or assets in the Surviving Corporation or otherwise to carry out the
purposes of this Agreement.
ARTICLE II
EFFECTS OF THE INCORPORATION MERGER;
EXCHANGE OF CERTIFICATES
Section 2.1. EFFECT ON CAPITAL STOCK.
(a) CAPITAL STOCK OWNED BY THE TRUST OR ITS SUBSIDIARIES. As of the
Effective Time, any shares of capital stock of the Trust that are owned by the
Trust or any Trust Subsidiary (as defined below), automatically shall be
cancelled and retired and all rights with respect thereto shall cease to exist,
and no consideration shall be delivered in exchange therefor. As used in this
Agreement, "SUBSIDIARY" of any person means any corporation, partnership,
limited liability company, joint venture 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 voting stock, value or other equity interests
(voting or non-voting) of such corporation, partnership, limited liability
company, joint venture or other legal entity.
(b) CAPITAL STOCK OWNED BY THE COMPANY. As of the Effective Time, any
shares of capital stock of the Company that are owned by the Trust,
automatically shall be cancelled and retired and all rights with respect thereto
shall cease to exist, and no consideration shall be delivered in exchange
therefor.
(c) CONVERSION OF TRUST CAPITAL STOCK INTO COMPANY CAPITAL STOCK. At the
Effective Time, except as provided in Section 2.1(a), (i) each issued and
outstanding Class A share of beneficial interest of the Trust, par value $1.00
per share (the "TRUST CLASS A COMMON SHARES"), shall be converted by virtue of
the Incorporation Merger, automatically and without any action on the part of
the holder thereof, into the right to receive one fully paid and nonassessable
share of common stock, par value $.001 per share, of the Company (the "COMPANY
COMMON STOCK"), (ii) each issued and outstanding Class B share of beneficial
interest of the Trust, par value $.01 per share (the "TRUST CLASS B COMMON
SHARES"), shall be converted by virtue of the Incorporation Merger,
automatically and without any action on the part of the holder thereof, into the
right to receive one forty-ninth of one fully paid and nonassessable share of
Company Common Stock and (iii) each issued and outstanding 9.5% Series A
Preferred Share of beneficial interest of the Trust, par value $.01 per share,
(the "TRUST PREFERRED SHARES") shall be converted by virtue of the Incorporation
Merger, automatically and without any action on the part of the holder thereof,
into the right to receive one fully paid and nonassessable share of 9.5% Series
A Cumulative Redeemable Preferred Stock, par value $.01 per share, of the
Company (the "COMPANY PREFERRED STOCK"). The voting powers, rights and
preferences of the Company Preferred Stock are intended to be substantially
identical to the powers, rights and preferences of the Trust Preferred Shares.
At the Effective Time, certificates representing the Trust Class A Common
Shares, the Trust Class B Common Shares and the Trust Preferred Shares before
the Incorporation Merger, will represent the Company Common Stock and the
Company Preferred Stock, as applicable, and it will not be necessary for
shareholders of the Trust to surrender or exchange their existing share
certificates for new stock certificates. In the event the number of shares of
Company Common Stock to be issued to a shareholder includes a fraction, the
Company will pay to the shareholder, a cash payment in lieu of such fractional
shares of Company Common Stock equal to the
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same fractional proportion of the arithmetic mean of the closing sales price per
share of the Company Common Stock on the principal stock exchange on which the
Company Common Stock is then listed on each of the three trading days
immediately after the Effective Time.
Section 2.2. WARRANTS. Each warrant to purchase Trust Class A Common
Shares (a "TRUST WARRANT") which is outstanding immediately prior to the
Effective Time shall be converted into a warrant to purchase shares of Company
Common Stock (a "COMPANY WARRANT"). Each warrant and the obligation to issue
shares of Trust Class A Common Shares upon exercise of such Trust Warrant shall
be assumed by the Company effective as of the Effective Time. Each Company
Warrant shall be exercisable upon the same terms and conditions as set forth in
the warrant and/or warrant agreement respecting the Trust Warrant converted into
such Company Warrant.
Section 2.3. LONG-TERM INCENTIVE PLAN As at and from the Effective Time,
the Company and the Trust shall take such action, if any, as may be necessary to
provide that all obligations of the Trust under the Starwood Financial Trust
1996 Long-Term Incentive Plan (the "PLAN") shall be assumed by the Company and
all rights of the participants under the Plan to receive grants of options and
to exercise the options and all other rights granted thereunder shall thereupon
be honored by the Company. Participants of the Plan shall receive the right to
exercise options for one share of Company Common Stock for every Trust Class A
Common Share the participant was granted under the Plan. All other rights
granted thereunder in respect of shares of beneficial interest of the Company
shall be on substantially identical terms and conditions as set forth in the
Plan.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to the Trust as follows:
(a) ORGANIZATION, STANDING AND CORPORATE POWER OF THE COMPANY. The Company
is a corporation organized and validly existing under the laws of the State of
Maryland and has the requisite corporate power and authority to carry on its
business as now being conducted. The Company is duly qualified to do business
and is in good standing in each jurisdiction in which the nature of its business
or the ownership, leasing of its properties or management of its properties for
others 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 business,
properties, financial condition, results of operation or prospects of the
Company (a "COMPANY MATERIAL ADVERSE EFFECT").
(b) CAPITAL STRUCTURE. The authorized capital stock of the Company
consists of 230,000,000 shares of Company Common Stock and 30,000,000 shares
designated as preferred stock, par value $0.001 per share. On the date of this
Agreement, 1,000 shares of Company Common Stock are the only outstanding shares
of capital stock of the Company. There are no shares of capital stock of the
Company reserved for issuance. There are no outstanding stock appreciation
rights relating to the capital stock of the Company. All outstanding shares of
capital stock of the Company are duly authorized, and not subject to preemptive
rights. As of the date of this Agreement there are no outstanding securities,
options, warrants, calls, rights, commitments, agreements, arrangements or
undertakings of any kind to which the Company is a party or by which such entity
is bound, obligating the Company to issue, deliver or sell, or cause to be
issued, delivered or sold, shares of capital stock, voting securities or other
ownership interests of the Company or obligating the Company to issue, grant,
extend or enter into any such security, option, warrant, call, right,
commitment, agreement, arrangement or undertaking (other than to the Company).
(c) AUTHORITY; NONCONTRAVENTION. The Company has the requisite corporate
power and authority to enter into this Agreement and to consummate the
transactions contemplated by this Agreement. The execution and delivery of this
Agreement by the Company and the consummation by the Company of the
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transactions contemplated hereby and thereby have been duly authorized by all
necessary action on the part of the Company. This Agreement has been duly
executed and delivered by the Company and constitutes the valid and binding
obligation of the Company and is enforceable against the Company in accordance
with its terms. The execution and delivery of this Agreement by the Company does
not, and the consummation of the transactions contemplated hereby and compliance
by the Company with the provisions of this Agreement does not and 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 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 the Company under the articles of incorporation or by-laws of the
Company.
(d) OPERATIONS OF THE COMPANY. The Company was formed solely for the
purpose of engaging in the transactions contemplated by this Agreement and has
not engaged in any business activities or conducted any operations other than in
conjunction with such transactions.
(e) LITIGATION. There is no suit, action or proceeding pending or, to the
knowledge of the Company, threatened against or affecting the Company that,
individually or in the aggregate, could reasonably be expected to (i) have a
material adverse effect on the Company or (ii) prevent the consummation of any
of the transaction contemplated herein, nor is there any judgment, decree,
injunction, rule or order of governmental entity or arbitrator outstanding
against the Company having, or which, insofar as reasonably can be foreseen, in
the future would have, any such effect.
(f) BROKERS; SCHEDULE OF FEES AND EXPENSES. No broker, investment banker,
financial advisor or other person is entitled to any broker's, finder's
financial advisor's or other similar fee or commission in connection with the
Incorporation Merger or based upon arrangements made by or on behalf of the
Company.
(g) NO OWNERSHIP OF TRINET STOCK. As of the date of this Agreement the
Company does not, and as of the Closing Date (immediately prior to the Effective
Time) the Company will not, own any shares of capital stock of TriNet.
(h) ENFORCEABILITY. The provision of this Section 3.1 are intended to be
for the benefit of, and shall be enforceable by, TriNet.
ARTICLE IV
MISCELLANEOUS
Section 4.1. TERMINATION. This Agreement may be terminated and abandoned
by action of the Board of Directors of each of the Company and the Board of
Trustees of the Trust at any time prior to the Effective Time, whether before or
after approval by the shareholders of the Company and the stockholder of the
Trust.
Section 4.2. APPROVAL. The respective obligation of each party to effect
the Incorporation Merger is subject to adoption by the requisite vote of the
shareholders of the Trust and the stockholder of the Company pursuant of Section
3-105 and 8-501.1 of the MGCL.
Section 4.3. NOTICES. All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be deemed
given if 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):
4
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(a) if to the Trust or the Company to
Starwood Financial, Inc.
1114 Avenue of the Americas
27(th) Floor
New York, New York 10036
Attn: Spencer B. Haber and Nina Matis, Esq.
Fax: (212) 930-9494
with a copy to:
Rogers & Wells LLP
200 Park Avenue
New York, New York 10166
Attn: John A. Healy, Esq.
Fax: (212) 878-8375
(b) if to TriNet, to TriNet Corporate Realty Trust, Inc.
One Embarcadero Center
33(rd) Floor
San Francisco, California 94111
Attn: A. William Stein and Geoff Dugan, Esq.
Fax: (415) 391-3092
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019
Attn: James M. Dubin, Esq.
Fax: (212) 757-3990
Section 4.4. AMENDMENTS. The Board of Trustee of the Trust and the Board
of Directors of the Company may amend this Agreement at any time prior to the
filing of this Agreement (or certificate in lieu thereof) with the Secretary of
State of the State of Maryland, provided that an amendment made subsequent to
the adoption of the Agreement by the shareholders of the Trust and the
stockholder of the Company shall not: (1) alter or change the amount or kind of
shares, securities, cash, property and/or rights to be received in exchange for
or on conversion of all or any of the shares of any class or series thereof of
either the Trust or the Company, (2) materially alter or change any term of the
Charter to be effected by the Incorporation Merger, or (3) alter or change any
of the terms and conditions of this Agreement if such alteration or change would
adversely affect the holders of any class or series thereof of either the Trust
or the Company.
Section 4.5. COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the different parties on separate counterparts, and each
such counterpart shall be deemed to be an original but all such counterparts
shall together constitute one and the same Agreement.
Section 4.6. ENTIRE AGREEMENT; NO THIRD-PARTY BENEFICIARIES. This
Agreement and the other agreements entered into in connection with the
transactions (a) constitute the entire agreement and supersede all prior
agreements and understandings, both written and oral, between the parties with
respect to the subject matter of this Agreement and (b) except for the
provisions of Section 3.1 are not intended to confer upon any person other than
the parties hereto any rights or remedies.
Section 4.7. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF MARYLAND, WITHOUT GIVING
EFFECT TO CONFLICTS OF LAWS PRINCIPLES THEREOF.
5
<PAGE>
IN WITNESS WHEREOF, each of the Company, the Trust and TriNet has executed
this Agreement, or has caused this Agreement to be executed on its behalf by a
representative duly authorized, all as of the day and year first above written.
STARWOOD FINANCIAL TRUST
By:
-----------------------------------------
Name:
Title:
STARWOOD FINANCIAL, INC.
By:
-----------------------------------------
Name:
Title:
TRINET CORPORATE REALTY TRUST, INC. (solely in
its capacity as an intended third party
beneficiary of the designated representations
and warranties in the Agreement)
By:
-----------------------------------------
Name:
Title:
6
<PAGE>
EXHIBIT 10.3
AGREEMENT AND PLAN OF MERGER
AND
INTEREST CONTRIBUTION AGREEMENT
DATED AS OF JUNE 15, 1999
BY AND AMONG
STARWOOD FINANCIAL TRUST,
SA MERGER SUB, INC.,
STW HOLDINGS I, INC.,
THE STOCKHOLDERS NAMED HEREIN,
STARWOOD CAPITAL GROUP, LLC
AND, TO THE EXTENT DESCRIBED HEREIN,
TRINET CORPORATE REALTY TRUST, INC.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
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<C> <S> <C>
ARTICLE I THE ADVISOR MERGER AND THE CONTRIBUTION TRANSACTIONS.................. 2
Section 1.1. The Advisor Merger................................................ 2
Section 1.2. The Contribution Transactions..................................... 2
Section 1.3. Closing........................................................... 3
Section 1.4. Effective Time.................................................... 3
Section 1.5. Charter and Bylaws................................................ 3
Section 1.6. Directors......................................................... 3
Section 1.7. Officers.......................................................... 3
Section 1.8. Election Not to Proceed With Incorporation Merger................. 3
ARTICLE II EFFECTS OF THE ADVISOR MERGER; EXCHANGE OF CERTIFICATES............... 4
Section 2.1. Effect on Stock................................................... 4
(a) Stock Owned by Advisor............................................ 4
(b) Conversion of Advisor Stock Into New Starwood Common Stock........ 4
(c) Shares of New Starwood Sub Stock.................................. 4
Section 2.2. Exchange of Certificates.......................................... 4
(a) Exchange Agent.................................................... 4
(b) Starwood to Provide Merger Consideration.......................... 4
(c) Exchange Procedure................................................ 5
(d) Distributions with Respect to Unexchanged Shares.................. 5
(e) No Further Ownership Rights in Advisor Common Stock............... 5
(f) Unclaimed Merger Consideration.................................... 6
(g) No Fractional Shares.............................................. 6
(h) Withholding....................................................... 6
(i) No Dissenters' Rights............................................. 6
ARTICLE III REPRESENTATIONS AND WARRANTIES........................................ 7
Section 3.1. Representations and Warranties of Advisor......................... 7
(a) Organization, Standing and Corporate Power of the Advisor......... 7
(b) Advisor Subsidiaries; Interests in Other Persons.................. 7
(c) Capital Structure................................................. 8
(d) Authority; Noncontravention; Consents............................. 8
(e) Operations of Advisor and the Advisor Subsidiaries................ 9
(f) Litigation........................................................ 9
(g) Taxes............................................................. 9
(h) Absence of Changes in Benefit Plans; ERISA Compliance............. 10
</TABLE>
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<C> <S> <C>
(i) No Loans or Payments to Employees, Officers or Directors.......... 11
(j) Brokers; Schedule of Fees and Expenses............................ 11
(k) Compliance with Laws.............................................. 11
(l) Contracts; Debt Instruments, Liabilities.......................... 11
(m) Title to Assets................................................... 11
(n) Books and Records................................................. 12
(o) State Takeover Statutes........................................... 12
(p) Investment Company Act of 1940.................................... 12
(q) Proxy Statement and Registration Statement........................ 12
(r) Vote Required..................................................... 12
(s) Year 2000 Issues.................................................. 12
Section 3.2. Representations and Warranties of Starwood and New Starwood Sub... 13
(a) Organization, Standing and Corporate Power of Starwood............ 13
(b) Authority; Noncontravention; Consents............................. 13
(c) Opinion of Financial Advisor...................................... 14
Section 3.3. Representations and Warranties of SCG............................. 14
(a) Organization, Standing and Power of SCG........................... 14
(b) Authority; Noncontravention; Consents............................. 14
(c) Title to Interests................................................ 15
(d) Accredited Investor............................................... 15
(e) Investment........................................................ 15
ARTICLE IV COVENANTS............................................................. 15
Section 4.1. Conduct of Business by Advisor.................................... 15
Section 4.2. Other Actions..................................................... 17
ARTICLE V ADDITIONAL COVENANTS.................................................. 17
Section 5.1. Preparation of the Registration Statement and the Proxy Statement;
Shareholders' Meetings; Consents................................ 17
Section 5.2. Commercially Reasonable Efforts; Notification..................... 18
Section 5.3. Affiliates........................................................ 18
Section 5.4. AMEX De-Listing; NYSE Listing..................................... 19
Section 5.5. Indemnification of Directors and Officers; Directors' and
Officers' Insurance............................................. 19
Section 5.6. Indemnification Against Loss Due to Inaccuracies in
Representations and Warranties; Tax Indemnity................... 20
Section 5.7. Limit on Claims Regarding Representations and Warranties.......... 21
ARTICLE VI CONDITIONS PRECEDENT.................................................. 22
Section 6.1. Conditions to Each Party's Obligation to Effect the Merger and the
Contribution Transactions....................................... 22
</TABLE>
ii
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<TABLE>
<CAPTION>
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<C> <S> <C>
(a) Shareholder Approvals............................................. 22
(b) Listing of Shares................................................. 22
(c) Registration Statement............................................ 22
(d) No Injunctions or Restraints...................................... 23
(e) Incorporation Merger and Merger................................... 23
Section 6.2. Conditions to Obligations of Starwood............................. 23
(a) Representations and Warranties.................................... 23
(b) Performance of Obligations of Advisor............................. 23
(c) Material Adverse Effect........................................... 23
(d) Assignment of SFA II and SFA Interest............................. 23
Section 6.3. Conditions to Obligation of Advisor and SCG....................... 23
(a) Representations and Warranties.................................... 23
(b) Performance of Obligations of Starwood............................ 24
(c) Material Adverse Effect........................................... 24
(d) Consents.......................................................... 24
ARTICLE VII TERMINATION, AMENDMENT AND WAIVER..................................... 24
Section 7.1. Termination....................................................... 24
Section 7.2. Expenses.......................................................... 25
Section 7.3. Effect of Termination............................................. 25
Section 7.4. Amendment......................................................... 25
Section 7.5. Extension; Waiver................................................. 25
ARTICLE VIII GENERAL PROVISIONS.................................................... 25
Section 8.1. Survival.......................................................... 25
Section 8.2. Notices........................................................... 25
Section 8.3. Interpretation.................................................... 27
Section 8.4. Counterparts...................................................... 27
Section 8.5. Entire Agreement; No Third-Party Beneficiaries.................... 27
Section 8.6. GOVERNING LAW..................................................... 27
Section 8.7. Assignment........................................................ 28
Section 8.8. Enforcement....................................................... 28
Section 8.9. Exhibits; Disclosure Letters...................................... 28
ARTICLE IX CERTAIN DEFINITIONS................................................... 28
Section 9.1. Certain Definitions............................................... 28
</TABLE>
iii
<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
1940 Act.............................................................................. 12
Advisor............................................................................... 1
Advisor Benefit Plan.................................................................. 10
Advisor Common Stock.................................................................. 1
Advisor Disclosure Letter............................................................. 7
Advisor ERISA Affiliate............................................................... 10
Advisor Information Technology........................................................ 13
Advisor Material Adverse Effect....................................................... 7
Advisor Merger........................................................................ 1
Advisor Proposal...................................................................... 2
Advisor Shareholder Approvals......................................................... 12
Advisor Subsidiary.................................................................... 28
affiliate............................................................................. 28
Agreement............................................................................. 1
AMEX.................................................................................. 19
Board................................................................................. 3
Certificate........................................................................... 4
Closing............................................................................... 3
Closing Date.......................................................................... 3
Code.................................................................................. 1
Contribution Consideration............................................................ 2
Contribution Transactions............................................................. 1
DGCL.................................................................................. 2
Effective Time........................................................................ 3
Employee Plan......................................................................... 28
ERISA................................................................................. 10
Exchange Agent........................................................................ 4
Exchange Ratio........................................................................ 4
Fair Market Value..................................................................... 21
Fairness Opinion...................................................................... 2
Governmental Entity................................................................... 9
Incorporation Merger.................................................................. 1
Incorporation Merger Agreement........................................................ 1
Indemnified Liabilities............................................................... 19
Indemnified Parties................................................................... 19
Indemnifying Parties.................................................................. 19
Knowledge............................................................................. 28
Laws.................................................................................. 9
Liens................................................................................. 8
Losses................................................................................ 20
Maximum Amount........................................................................ 21
Merger................................................................................ 2
Merger Agreement...................................................................... 2
Merger Consideration.................................................................. 4
New Starwood.......................................................................... 1
New Starwood Common Stock............................................................. 1
New Starwood Sub...................................................................... 1
</TABLE>
iv
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<TABLE>
<CAPTION>
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<S> <C>
NYSE.................................................................................. 19
Person................................................................................ 28
Proxy Statement....................................................................... 17
Qualifying Income..................................................................... 22
Registration Statement................................................................ 17
REIT.................................................................................. 1
REIT Requirements..................................................................... 22
SCG................................................................................... 1
SCG Material Adverse Effect........................................................... 15
SFA II................................................................................ 1
SFA II Interest....................................................................... 2
SFA Interest.......................................................................... 2
Special Committee..................................................................... 2
Starwood.............................................................................. 1
Starwood Class A Common Shares........................................................ 3
Starwood Class B Common Shares........................................................ 1
Starwood Disclosure Letter............................................................ 13
Starwood Indemnification Tax Opinion.................................................. 22
Starwood Material Adverse Effect...................................................... 13
Starwood Shareholders Meeting......................................................... 17
Starwood Sub.......................................................................... 2
Starwood Subsidiary................................................................... 29
Stockholders.......................................................................... 1
Sub-Advisory Agreements............................................................... 29
Subsidiary............................................................................ 29
Surviving Corporation................................................................. 1
Takeover Statute...................................................................... 18
Tax Damages........................................................................... 21
Tax Return............................................................................ 10
Taxes or Tax.......................................................................... 10
Taxing Authority...................................................................... 9
TriNet................................................................................ 1
Year 2000 Ready....................................................................... 13
</TABLE>
INDEX OF EXHIBITS AND SCHEDULES
<TABLE>
<S> <C>
Exhibit A Form of Incorporation Merger Agreement
Exhibit B Form of Merger Agreement
Exhibit C Form of Articles of Incorporation of Surviving Corporation
Exhibit D Form of Bylaws of Surviving Corporation
Exhibit E Form of Affiliate Letter
Schedule A Directors of Surviving Corporation
Schedule B Officers of Surviving Corporation
</TABLE>
v
<PAGE>
AGREEMENT
AGREEMENT AND PLAN OF MERGER AND INTEREST CONTRIBUTION AGREEMENT
("AGREEMENT"), dated as of June 15, 1999, by and among STARWOOD FINANCIAL TRUST,
a Maryland real estate investment trust ("STARWOOD"), SA MERGER SUB, INC., a
Delaware corporation ("NEW STARWOOD SUB"), STW HOLDINGS I, INC., a Delaware
corporation ("ADVISOR"), STARWOOD CAPITAL GROUP, LLC, a Connecticut limited
liability company ("SCG"), each of the individual stockholders named on the
signature pages of this Agreement (the "STOCKHOLDERS") and, to the extent
described on the signature page hereto, TRINET CORPORATE REALTY TRUST, INC., a
Maryland corporation ("TRINET").
RECITALS
A. The Boards of Trustees and Directors, as the case may be, of Starwood,
New Starwood Sub and Advisor each have declared that it is advisable and in the
best interest of their respective companies and shareholders that upon the terms
and subject to the conditions set forth in this Agreement, New Starwood Sub will
merge with and into Advisor, with Advisor being the surviving corporation (the
"SURVIVING CORPORATION"), in a merger (the "ADVISOR MERGER") in which each
issued and outstanding share of common stock, no par value per share of Advisor
(the "ADVISOR COMMON STOCK"), will be converted into the Merger Consideration
(as defined below).
B. The parties hereto anticipate that the Advisor Merger will further
certain of their business objectives including, without limitation, allowing
Starwood to become an entirely self-administered and self-managed real estate
investment trust.
C. Concurrently with the consummation of the Advisor Merger, SCG will
contribute its 0.1% managing member interest in each of Starwood Financial
Advisors II, L.L.C., a Delaware limited liability company ("SFA II") and
Starwood Financial Advisors, L.L.C., a Connecticut limited liability company
("SFA"), to Starwood in exchange for the Contribution Consideration (as defined
below) (collectively, the "CONTRIBUTION TRANSACTIONS"). As a result of the
Advisor Merger and the Contribution Transactions, Starwood will, directly and
through its Subsidiaries, own 100% of the interests in SFA II and SFA.
D. Prior to the consummation of the Advisor Merger and the Contribution
Transactions, Starwood intends to merge with and into Starwood Financial, Inc.,
a newly formed Maryland corporation ("NEW STARWOOD"), for the purpose of
changing Starwood's form from a Maryland real estate investment trust to a
Maryland corporation (the "INCORPORATION MERGER") all in accordance with the
terms of the Agreement and Plan of Merger, dated the date hereof, between New
Starwood and Starwood, a copy of which is attached as Exhibit A hereto (the
"INCORPORATION MERGER AGREEMENT"). As part of the Incorporation Merger, the
Class B shares of beneficial interest, par value $.01 per share, of Starwood
("STARWOOD CLASS B COMMON SHARES") will be converted into shares of common
stock, par value $.001 per share, of New Starwood ("NEW STARWOOD COMMON STOCK")
on the basis of 49 Starwood Class B Common Shares for one share of New Starwood
Common Stock. Upon consummation of the Incorporation Merger, New Starwood will
succeed to all of Starwood's rights, obligations and liabilities under this
Agreement.
E. The parties intend that for federal income tax purposes the Advisor
Merger will qualify as a tax-free reorganization under Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "CODE"), and that, following the
Advisor Merger, New Starwood will continue to be subject to taxation as a real
estate investment trust (a "REIT") within the meaning of the Code.
F. The Special Committee (the "SPECIAL COMMITTEE") of the independent
members of the Board of Trustees of Starwood has received a fairness opinion
(the "FAIRNESS OPINION") from Houlihan Lokey Howard & Zukin ("HOULIHAN") that
the consideration to be paid to those shareholders of Starwood who hold
ownership interests in the Advisor is fair from a financial point of view to the
shareholders of Starwood who do not hold any ownership interests in the Advisor.
1
<PAGE>
G. The Special Committee has recommended the Advisor Merger and the
Contribution Transactions to the Board of Trustees of Starwood and the Board of
Trustees of Starwood has approved the proposal to approve the Advisor Merger and
the Contribution Transactions (the "ADVISOR PROPOSAL") and the related
transactions and has resolved to recommend that the shareholders of Starwood
approve the Advisor Proposal.
H. The Board of Directors of Advisor has approved the Advisor Proposal and
the related transactions and has resolved to recommend that the shareholders of
Advisor approve the Advisor Proposal.
I. Concurrently with the consummation of the Advisor Merger and the
Contribution Transactions, TriNet will merge with and into Starwood Sub, Inc., a
newly-formed Maryland corporation ("STARWOOD SUB"), (the "MERGER"), all in
accordance with the terms of the Agreement and Plan of Merger, dated the date
hereof, by and among Starwood, Starwood Sub and TriNet, a copy of which is
attached as Exhibit B hereto (the "MERGER AGREEMENT"). Upon consummation of the
Merger, TriNet, as the surviving corporation, will be a wholly owned subsidiary
of New Starwood.
In consideration of the representations, warranties, covenants and
agreements contained in this Agreement, the parties agree as follows:
ARTICLE I
THE ADVISOR MERGER AND THE CONTRIBUTION TRANSACTIONS
Section 1.1. THE ADVISOR MERGER.
(a) Upon the terms and subject to the conditions set forth in this
Agreement, at the Effective Time (as hereinafter defined), New Starwood Sub
shall be merged with and into Advisor in accordance with the Delaware General
Corporation Law (the "DGCL"), whereupon the separate corporate existence of New
Starwood Sub shall cease and Advisor shall continue as the Surviving
Corporation.
(b) The Advisor Merger shall have the effects set forth in the DGCL.
Accordingly, from and after the Effective Time (as defined below), the Surviving
Corporation shall possess all the rights, privileges, powers and franchises and
be subject to all of the restrictions, disabilities, liabilities and duties of
New Starwood Sub and Advisor.
Section 1.2. THE CONTRIBUTION TRANSACTIONS.
(a) Upon the terms and subject to the conditions set forth in this
Agreement, concurrently with the Effective Time, SCG shall contribute its 0.1%
managing member interest in SFA II (the "SFA II INTEREST") and its 0.1% managing
member interest in SFA (the "SFA INTEREST") to Starwood, in each case free and
clear of all Liens, in exchange for an aggregate of 8,000 shares of New Starwood
Common Stock (the "CONTRIBUTION CONSIDERATION").
Section 1.3. CLOSING. The closing of the Advisor Merger (the "Closing")
will take place at 10:00 a.m. New York City time on the fifth business day after
satisfaction or waiver of the conditions set forth in Article VI (the "CLOSING
DATE"), at the offices of Rogers & Wells LLP, 200 Park Avenue, New York, New
York 10166, unless another date or place is agreed to in writing by the parties.
Section 1.4. EFFECTIVE TIME.
(i) On the Closing Date, the parties shall execute and file a
Certificate of Merger or other appropriate documents in accordance with the
DGCL, and shall make all other filings or recordings required with respect to
the Advisor Merger under the DGCL. The Advisor Merger shall become effective
upon the filing of the Certificate of Merger with the Secretary of State of the
State of Delaware or at such other time or times as may be agreed by Starwood,
New Starwood Sub and Advisor and specified in the Certificate of Merger
described in this Section 1.3 (the time the Advisor Merger becomes effective
being
2
<PAGE>
the "EFFECTIVE TIME"), it being understood that the parties shall cause the
Effective Time to occur as soon as practicable on or after the Closing Date.
(ii) On the Closing Date, SCG shall deliver to New Starwood customary
written instruments of transfer to effect the contribution of the SFA Interest
and the SFA II Interest to New Starwood and in exchange therefor, New Starwood
shall deliver to SCG certificates representing shares of fully paid and
non-assessable New Starwood Common Stock in an amount equal to the aggregate
Contribution Consideration, in such denominations and in such names as SCG shall
have advised Starwood in writing prior to the Closing Date.
Section 1.5. CHARTER AND BYLAWS. Upon the Effective Time, the certificate
of incorporation and bylaws of the Surviving Corporation shall be amended and
restated in their entirety to be as set forth in Exhibits C and D hereto, until
further amended in accordance with applicable Delaware law.
Section 1.6. DIRECTORS. Immediately following the Effective Time, the
Board of Directors of the Surviving Corporation (the "BOARD") shall consist of
the persons named on Schedule A hereto.
Section 1.7. OFFICERS. The executive officers of the Surviving Corporation
immediately following the Effective Time shall include the persons named on
Schedule B hereto, each of whom shall hold the position indicated on Schedule B
hereto.
Section 1.8. ELECTION NOT TO PROCEED WITH INCORPORATION
MERGER. Notwithstanding anything in this Agreement to the contrary, if after
the date of this Agreement Starwood reasonably determines that the consummation
of the Incorporation Merger would have an adverse impact on Starwood, Starwood
may elect not to proceed with the Incorporation Merger and Starwood shall
provide written notice to Advisor of any such determination. In such event, (i)
all references in this Agreement to "NEW STARWOOD" shall be deemed to refer to
and become references to Starwood and all references to shares of common stock
of New Starwood shall be deemed to refer to and become references to common
shares of beneficial interest of Starwood in each case MUTATIS MUTANDIS and (ii)
Starwood shall submit to its shareholders a proposal to amend its declaration of
trust and bylaws in the manner provided by Maryland law substantially to conform
such declaration of trust and bylaws, to the extent permitted by Maryland law
governing Maryland real estate investment trusts, to the forms of charter and
bylaws of New Starwood, respectively, set forth as Exhibits J and K to the
Merger Agreement, including without limitation, to eliminate the Starwood Class
B Common Shares and cause the conversion of all Starwood Class B Common Shares
into Class A Common Shares of beneficial interest of Starwood, $1.00 par value
per share, ("STARWOOD CLASS A COMMON SHARES") on the basis of 49 Starwood Class
B Common Shares for one Starwood Class A Common Share. Starwood and Advisor
agree to cooperate and work together in good faith to amend and restate this
Agreement to give effect to any determination made by Starwood in accordance
with this Section 1.7.
ARTICLE II
EFFECTS OF THE ADVISOR MERGER;
EXCHANGE OF CERTIFICATES
Section 2.1. EFFECT ON STOCK.
(a) STOCK OWNED BY ADVISOR. As of the Effective Time, any shares of
capital stock that are owned by Advisor automatically shall be cancelled and
retired and all rights with respect thereto shall cease to exist, and no
consideration shall be delivered in exchange therefor.
(b) CONVERSION OF ADVISOR STOCK INTO NEW STARWOOD COMMON STOCK. At the
Effective Time, except as provided in Section 2.1(a), each issued and
outstanding share of Advisor Common Stock shall be converted by virtue of the
Advisor Merger, automatically and without any action on the part of the holder
thereof, into 2,661.3 (the "EXCHANGE RATIO") fully paid and nonassessable shares
of New Starwood Common Stock (the "MERGER CONSIDERATION"). At the Effective
Time, each holder of a certificate representing any shares of Advisor Common
Stock (or affidavit of loss, in form and substance reasonably acceptable
3
<PAGE>
to New Starwood, in lieu thereof) (a "CERTIFICATE") shall cease to have any
rights with respect thereto, except the right to receive, upon surrender of such
Certificate in accordance with Section 2.2(c), a certificate or certificates
representing the shares of New Starwood Common Stock into which those shares are
converted pursuant to this Section 2.1(b) and any cash in lieu of fractional
shares of New Starwood Common Stock to be issued or paid in consideration
therefor upon surrender of such Certificate (the "MERGER CONSIDERATION") and any
dividends or other distributions to which such holder is entitled pursuant to
Section 2.2(d), in each case without interest and less any required withholding
taxes. Notwithstanding the foregoing, the right of each Advisor shareholder to
receive shares of New Starwood Common Stock under this Section 2.1 will be
subject to the ownership limitations and other related provisions contained in
New Starwood's charter and bylaws.
(c) SHARES OF NEW STARWOOD SUB STOCK. Upon the Effective Time, each share
of stock of New Starwood Sub outstanding immediately prior to the Effective Time
shall remain outstanding and shall represent one share of validly issued, fully
paid and nonassessable stock of the same class and designation.
Section 2.2. EXCHANGE OF CERTIFICATES.
(a) EXCHANGE AGENT. Prior to the Effective Time, Starwood shall appoint a
bank or trust company that is reasonably acceptable to Advisor to act as
exchange agent (the "EXCHANGE AGENT") for the exchange of certificates
representing shares of stock of New Starwood for Certificates representing
issued and outstanding shares of Advisor Common Stock.
(b) STARWOOD TO PROVIDE MERGER CONSIDERATION. Starwood shall provide, or
cause to be provided, to the Exchange Agent on and after the Effective Time from
time to time as required pursuant to Section 2.2(c) and 2.2(g), for the benefit
of the holders of Advisor Common Stock certificates representing the shares of
New Starwood Common Stock into which the issued and outstanding shares of
Advisor Common Stock are converted pursuant to Section 2.1(b), together with the
cash payable in respect of fractional shares pursuant to Section 2.2(g).
(c) EXCHANGE PROCEDURE. As soon as reasonably practicable after the
Effective Time, the Exchange Agent shall mail to each holder of record of a
Certificate or Certificates whose shares were converted into the Merger
Consideration pursuant to Section 2.1, (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 Exchange
Agent and shall be in a form and have such other provisions as Starwood 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 Exchange Agent or to such other agent or
agents as may be appointed by Starwood, together with such letter of
transmittal, duly executed, and such other documents as may reasonably be
required by the Exchange Agent, the holder of such Certificate shall be entitled
to receive in exchange therefor the Merger Consideration and any dividends or
other distributions to which such holder is entitled pursuant to Section 2.2(d),
and the Certificate so surrendered shall forthwith be cancelled. In the event of
a transfer of ownership of Advisor Common Stock which is not registered in the
transfer records of Advisor, payment may be made to a person 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 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
Starwood that such tax or taxes have been paid or are not applicable. Until
surrendered as contemplated by this Section 2.2, 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, into
which the shares theretofore represented by such Certificate shall have been
converted pursuant to Section 2.1 and any dividends or other distributions to
which such holder is entitled pursuant to Section 2.2(d). No interest will be
paid or will accrue on the applicable Merger Consideration upon the surrender of
any Certificate or on any amount payable pursuant to Section 2.2(d) or Section
2.2(g).
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(d) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. All shares of New
Starwood Common Stock to be issued pursuant to the Merger shall be deemed issued
and outstanding as of the Effective Time and whenever a dividend or other
distribution is declared by New Starwood in respect of the New Starwood Common
Stock, the record date for which is at or after the Effective Time, that
declaration shall include dividends or other distributions in respect of all
shares of New Starwood Common Stock issuable pursuant to this Agreement.
Notwithstanding the foregoing, no dividends or other distributions with respect
to New Starwood Common Stock with a record date after the Effective Time shall
be paid to the holder of any unsurrendered Certificate with respect to the
shares represented thereby, and no cash payment in lieu of fractional shares
shall be paid to any such holder pursuant to Section 2.2(g), in each case until
the surrender of such Certificate in accordance with this Article II. Subject to
the effect of applicable abandoned property, escheat or similar laws, following
surrender of any such Certificate there shall be paid to the holder of such
Certificate without interest, (A) at the time of such surrender, the amount of
any cash payable in lieu of any fractional share of Advisor Common Stock to
which such holder is entitled pursuant to Section 2.2(g) and (B) if such
Certificate is exchangeable for one or more whole shares of New Starwood Common
Stock, (x) at the time of such surrender, the amount of dividends or other
distributions with a record date after the Effective Time theretofore paid with
respect to such whole shares of New Starwood Common Stock, and (y) at the
appropriate payment date, the amount of dividends or other distributions with a
record date after the Effective Time but prior to such surrender and with a
payment date subsequent to such surrender payable with respect to such whole
shares of New Starwood Common Stock.
(e) NO FURTHER OWNERSHIP RIGHTS IN ADVISOR COMMON STOCK. All Merger
Consideration paid upon the surrender of Certificates in accordance with the
terms of this Article II (and any cash paid pursuant to Section 2.2(g)) shall be
deemed to have been paid in full satisfaction of all rights pertaining to the
shares of Advisor Common Stock theretofore represented by such Certificate;
subject, however, to the obligation of the Advisor to pay or make, without
interest, any dividends or make any other distributions with a record date prior
to the Effective Time which may have been declared or paid by Advisor on such
shares 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 or made prior to such surrender, and there shall be no further registration
of transfers on the transfer books of the Advisor of the shares of Advisor
Common Stock which were outstanding immediately prior to the Effective Time. If,
after the Effective Time, Certificates are properly presented to New Starwood
they shall be cancelled and exchanged as provided in this Article II.
(f) UNCLAIMED MERGER CONSIDERATION. Any portion of the Merger
Consideration delivered to the Exchange Agent pursuant to this Agreement that
remains unclaimed for 12 months after the Effective Time shall be redelivered by
the Exchange Agent to New Starwood, upon demand, and any holders of Certificates
who have not theretofore complied with Section 2.2(b) shall thereafter look only
to New Starwood for delivery of the Merger Consideration, subject to applicable
abandoned property, escheat and other similar laws. New Starwood shall have no
liability to any holder of shares of Advisor Common Stock for Merger
Consideration delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law. Any Merger Consideration remaining
unclaimed by any holder of shares of Advisor Common Stock on the day immediately
prior to the time such amounts otherwise would escheat to or become the property
of any governmental entity shall, to the extent permitted by law, become the
property of New Starwood, free and clear of any claim or interest of any Persons
previously entitled thereto.
(g) NO FRACTIONAL SHARES.
(i) No certificates or scrip representing fractional shares of New
Starwood Common Stock shall be issued upon the surrender for exchange of
Certificates, and such fractional share interests will not entitle the owner
thereof to vote, to receive dividends or to any other rights of a stockholder of
New Starwood.
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(ii) Notwithstanding any other provision of this Agreement, each holder
of shares of Advisor Common Stock who would otherwise have been entitled to
receive a fraction of a share of New Starwood Common Stock (after taking into
account all Certificates delivered by such holder) shall receive from the
Exchange Agent upon surrender of such holder's Certificates in accordance with
Section 2.1, a cash payment in lieu of such fractional shares of New Starwood
Common Stock equal to the same fractional proportion of the arithmetic mean of
the closing sales price per share of New Starwood Common Stock on the principal
stock exchange on which the New Starwood Common Stock is then listed (less, if
New Starwood Common Stock is trading cum dividend on any of those days, the
amount of that dividend) on each of the three trading days immediately after the
Closing Date.
(h) WITHHOLDING. New Starwood or the Exchange Agent shall be entitled to
deduct and withhold from the Merger Consideration otherwise payable pursuant to
this Agreement to any holder of shares of Advisor Common Stock such amounts as
New Starwood or the Exchange Agent is required to deduct and withhold with
respect to the making of such payment under the Code, or any provision of state,
local or foreign tax law. To the extent that amounts are so withheld by New
Starwood or the Exchange Agent, such withheld amounts shall be treated for all
purposes of this Agreement as having been paid to the holder of the shares of
Advisor Common Stock in respect of which such deduction and withholding was made
by New Starwood or the Exchange Agent.
(i) NO DISSENTERS' RIGHTS. Each of the stockholders of Advisor has
consented in writing to the Advisor Merger pursuant to Section 228 of the DGCL;
therefore, no dissenters' or appraisal rights shall be available with respect to
the Advisor Merger.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.1. REPRESENTATIONS AND WARRANTIES OF ADVISOR. Except as set
forth in the letter of even date herewith (with sections organized in accordance
with Section 8.9) signed by the President or Chief Executive Officer and the
Chief Financial Officer of Advisor and delivered to Starwood prior to the
execution of this Agreement (the "ADVISOR DISCLOSURE LETTER"), (i) each of the
Stockholders, severally and not jointly, represents and warrants, to Starwood
and (ii) Advisor represents and warrants to Starwood, that:
(a) ORGANIZATION, STANDING AND CORPORATE POWER OF THE ADVISOR. Advisor is
a corporation duly organized and validly existing under the laws of the State of
Delaware and has the requisite corporate power and authority to carry on its
business as now being conducted. Advisor 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, leasing of its properties or management of properties
for others makes such qualification or licensing necessary, except where the
failure to be so qualified or licensed, individually or in the aggregate, would
not have a material adverse effect on the business, properties, financial
condition, results of operations or prospects of Advisor or the Advisor
Subsidiaries, after giving effect to any indemnification to which the Advisor
and the Advisor Subsidiaries may be entitled under the Advisory Agreement, as
defined herein (an "ADVISOR MATERIAL ADVERSE EFFECT").
(b) ADVISOR SUBSIDIARIES; INTERESTS IN OTHER PERSONS.
(i) SFA and SFA II are the only Advisor Subsidiaries. SFA is a limited
liability company duly organized and validly existing under the laws of the
State of Connecticut and SFA II is a limited liability company duly organized
and validly existing under the laws of the State of Delaware and has the
requisite power and authority to carry on its business as now being conducted.
Each of SFA and SFA II 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, leasing of its properties or management of properties for others
makes such
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qualification or licensing necessary, except where the failure to be so
qualified or licensed, individually or in the aggregate, would not have an
Advisor Material Adverse Effect.
(ii) Except for membership interests in SFA and SFA II and options
issued under Starwood's 1996 Long Term Incentive Plan to purchase Class A shares
of beneficial interest of Starwood, Advisor does not own, directly or indirectly
(including through any Advisor Subsidiary), any capital stock or other equity
interest, with a fair market value as of the date of this Agreement greater than
$50,000 in any Person or which represents 5% or more of the outstanding voting
power, capital stock or other ownership interest of any class in any Person.
Neither Advisor nor any Advisor Subsidiary is in default of any provision of any
documents governing or otherwise relating to its rights in any Advisor
Subsidiary other than such defaults that would not, individually or in the
aggregate, have an Advisor Material Adverse Effect. All such documents are set
forth in Section 3.1(b)(ii) of the Advisor Disclosure Letter and are in full
force and effect and true and correct copies of all such documents have been
previously delivered or made available to Starwood.
(iii) Except as contemplated by this Agreement, there are no
outstanding contractual obligations of Advisor or any Advisor Subsidiary to
repurchase, redeem or otherwise acquire any shares of stock of Advisor or any
capital stock, voting securities or other ownership interests in Advisor or any
Advisor Subsidiary, and there are no outstanding contractual obligations of
Advisor or any Advisor Subsidiary to make any investment of $50,000 or more (in
the form of a loan, capital contribution or otherwise) in any Person (other than
an Advisor Subsidiary).
(c) CAPITAL STRUCTURE. On the date hereof, Advisor owns a 99.9% membership
interest in SFA II, and SFA II owns a 99.9% membership interest in SFA, in each
case free and clear of all Liens. Upon consummation of the Contribution
Transactions, the entire outstanding equity interests in SFA and SFA II will be
owned beneficially and of record by Advisor and another Advisor Subsidiary. The
authorized stock of Advisor consists of 1,500 shares of Advisor Common Stock,
all of which are owned by the Stockholders. One thousand five hundred shares of
Advisor Common Stock constitute all of the issued and outstanding capital stock
of Advisor. There are no outstanding stock or equity appreciation rights
relating to the capital stock or equity interests of Advisor or the Advisor
Subsidiaries. All outstanding shares of Advisor Common Stock are duly
authorized, validly issued, and nonassessable are not subject to any preemptive
rights. All the outstanding membership interests of each of SFA and SFA II have
been duly authorized, validly issued and are not subject to preemptive rights.
Other than the SFA Interest, the SFA II Interest, the membership interests in
SFA II owned by Advisor and the membership interests in SFA owned by SFA II, no
other shares of Advisor Common Stock or other economic or voting membership
interests in Advisor or any Advisor Subsidiary are issued, reserved for issuance
or outstanding. There are no bonds, debentures, notes or other indebtedness of
Advisor or any Advisor Subsidiary having the right to vote (or convertible into,
or exchangeable for, securities having the right to vote) on any matters on
which shareholders of Advisor or members of any Advisor Subsidiary may vote.
There are no outstanding securities, options, warrants, calls, rights,
commitments, agreements, arrangements or undertakings of any kind to which
Advisor or any Advisor Subsidiary is a party or by which Advisor or any Advisor
Subsidiary is bound, obligating Advisor or any Advisor Subsidiary to issue,
deliver or sell, or cause to be issued, delivered or sold, additional shares of
capital stock, voting securities, membership interests or other ownership
interests of Advisor or any Advisor Subsidiary or obligating Advisor or any
Advisor Subsidiary to issue, grant extend or enter into any such security,
option, warrant, call right, commitment, agreement, arrangement or undertaking.
There are no outstanding contractual obligations of Advisor or any Advisor
Subsidiary to repurchase, redeem or otherwise acquire any shares of capital
stock, voting securities, membership interests or other ownership interest in
Advisor or any Advisor Subsidiary or make any material investment (in the form
of a loan, capital contribution or otherwise) in any Person.
(d) AUTHORITY; NONCONTRAVENTION; CONSENTS. Advisor has the requisite
corporate power and authority to enter into this Agreement and to consummate the
transactions contemplated by this Agreement and each other agreement
contemplated by this Agreement to which Advisor is a party and the Contribution
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Transactions. The execution and delivery of this Agreement and any other
agreement contemplated by this Agreement by Advisor and the consummation by
Advisor of the transactions contemplated hereby and thereby to which Advisor is
a party and the Contribution Transactions have been duly authorized by all
necessary corporate action on the part of the Advisor. This Agreement has been
duly executed and delivered by Advisor and constitutes the valid and binding
obligation of Advisor enforceable against Advisor in accordance with its terms,
subject to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar laws affecting creditors' rights and
remedies generally and to general principles of equity. The execution and
delivery of this Agreement by Advisor does not, the consummation of the
transactions contemplated hereby and the Contribution Transactions and
compliance by Advisor with the provisions of this Agreement does not and 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 pledges, claims, liens, charges,
encumbrances or security interests of any kind or nature whatsoever
(collectively, "LIENS") upon any of the assets of Advisor or any Advisor
Subsidiary under, (i) the charter or bylaws or other comparable organizational
documents of Advisor or any Advisor Subsidiary, (ii) any loan or credit
agreement, note, bond, mortgage, indenture, reciprocal easement agreement, lease
or other agreement, instrument, permit, concession, contract, franchise or
license applicable to Advisor or any Advisor Subsidiary or either of their
respective assets or (iii) 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 Advisor
or any Advisor Subsidiary, or either of their respective assets, other than, in
the case of clause (ii) or (iii), any such conflicts, violations, defaults,
rights or Liens that individually or in the aggregate would not (x) have an
Advisor Material Adverse Effect or (y) materially delay or prevent the
consummation of the Advisor Merger. 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 (a "GOVERNMENTAL ENTITY"), is required by
or with respect to Advisor or any Advisor Subsidiary in connection with the
execution and delivery of this Agreement or the other agreements contemplated by
this Agreement by Advisor or the consummation by Advisor of any of the other
transactions contemplated hereby and thereby or the Contribution Transactions,
except for (i) the filing of the Certificate of Merger for the Advisor Merger
with the Secretary of State of the State of Delaware, and (ii) such other
consents, approvals, orders, authorizations, registrations, declarations and
filings as are set forth in Section 3.1(d) of the Advisor Disclosure Letter or
(A) as may be required under (x) federal, state, local or foreign environmental
laws or (y) the "blue sky" laws of various states or (B) which, if not obtained
or made, would not prevent or delay in any material respect the consummation of
any of the transactions contemplated by this Agreement or the Contribution
Transactions or otherwise prevent Advisor from performing its obligations under
this Agreement in any material respect or have, individually or in the
aggregate, an Advisor Material Adverse Effect.
(e) OPERATIONS OF ADVISOR AND THE ADVISOR SUBSIDIARIES. Advisor was formed
solely for the purpose of owning a membership interest in SFA II and has not
engaged in any business activities or conducted any operations other than in
conjunction with such ownership. SFA II was formed solely for the purpose of
owning a membership interest in SFA and has not engaged in any business
activities or conducted any operations other than in conjunction with such
ownership. SFA was formed solely for the purpose of acting as the external
advisor to Starwood pursuant to the Investment Advisory Agreement, dated as of
March 13, 1998, between Starwood and SFA (the "ADVISORY AGREEMENT") and has not
engaged in any business activities or conducted any operations other than its
capacity as the external advisor to Starwood.
(f) LITIGATION. There is no suit, action or proceeding pending or, to the
Knowledge of Advisor, threatened against or affecting Advisor or the Advisor
Subsidiaries that, individually or in the aggregate, would reasonably be
expected to (i) have an Advisor Material Adverse Effect or (ii) prevent the
consummation of any of the transactions contemplated herein, including, without
limitation, the Contribution Transactions or the Merger, nor is there any
judgment, decree, injunction, rule or order of any
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Governmental Entity or arbitrator outstanding against Advisor or the Advisor
Subsidiaries having, or which, insofar as reasonably can be foreseen, in the
future would have, any such effect.
(g) TAXES. Each of Advisor and each Advisor Subsidiary has timely filed
all Tax Returns (as defined below) and reports required to be filed by it (after
giving effect to any filing extension properly granted by a Governmental Entity
having authority to do so). Each such Tax Return is true, correct and complete
in
all material respects. Each of Advisor and each Advisor Subsidiary has paid,
within the time and manner prescribed by law, all Taxes (as defined herein) that
are due and payable. The Tax Returns of Advisor and each Advisor Subsidiary have
not been audited by any Governmental Entity responsible for tax matters (a
"TAXING AUTHORITY"). Advisor, with the requisite consent of its stockholders,
has validly and timely filed an election to be taxed as an S corporation for
federal and applicable state tax purposes, which election was effective on
January 1, 1999, and will continue to qualify as a S corporation through the
Effective Time. Neither Advisor nor any Advisor Subsidiary will have any
liability for any Taxes under Section 1374 of the Code in connection with the
transactions contemplated by this Agreement. There are no Tax liens upon the
assets of Advisor or any Advisor Subsidiary other than liens for Taxes not yet
due. Since January 1, 1999, neither Advisor nor any Advisor Subsidiary has
incurred any liability for federal taxes, other than withholding and employment
taxes, under the Code. To the Knowledge of Advisor, no event has occurred, and
no condition or circumstance exists, which presents a material risk that any
material Tax described in the preceding sentence will be imposed upon Advisor or
any Advisor Subsidiary. No deficiencies for any Taxes have been proposed,
asserted or assessed against Advisor or any Advisor Subsidiary, and no requests
for waivers of the time to assess any such Taxes have been granted or are
pending. As used in this Agreement, "TAXES" or "TAX" shall mean any federal,
state, local or foreign income, gross receipts, license, payroll, employment
withholding, property, recording, stamp, sales, excise or other tax or
governmental charges of any nature whatsoever, together with any penalties,
interest or additions thereto and "TAX RETURN" shall mean any return,
declaration, report, claim for refund, or information return or statement
relating to Taxes, including any schedule or attachment thereto, and including
any amendment thereof.
(h) ABSENCE OF CHANGES IN BENEFIT PLANS; ERISA COMPLIANCE.
(i) Section 3.1(h)(i) of the Advisor Disclosure Letter sets forth each
Advisor Benefit Plan (as defined below) as in effect on the date hereof. For
purposes of this Agreement, "ADVISOR BENEFIT PLAN" shall mean any Employee Plan
sponsored or maintained by Advisor or any Advisor ERISA Affiliate, or with
respect to which Advisor or any Advisor ERISA Affiliate has any obligation to
contribute, has liability under or is otherwise a party to, or which otherwise
provides benefits for any current or former employees, officers, directors or
other independent contractors (or their dependents and beneficiaries) of
Advisor. For purposes of this Agreement, "ADVISOR ERISA AFFILIATE" means any
entity required to be aggregated with Advisor under Sections 414(b), (c), (m) or
(o) of the Code or Section 4001 of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA").
(ii) Except as would not reasonably be expected to result in an Advisor
Material Adverse Effect, (A) all Advisor Benefit Plans, including any such plan
that is an "employee benefit plan" as defined in Section 3(3) of ERISA, have
been made available to Starwood and TriNet and are in compliance with the terms
of such plan and all applicable requirements of law, including ERISA and the
Code and, without limitation, the requirements of ERISA and all tax rules for
which favorable tax treatment is intended, and (B) there are no liabilities or
obligations with respect to any such Advisor Benefit Plan, whether accrued,
contingent or otherwise (other than obligations by Advisor and the Advisor
Subsidiaries to make contributions, and for such plan to pay benefits and
administrative costs, incurred in the ordinary course), nor to the Knowledge of
Advisor are any such liabilities or obligations expected to be incurred. The
execution of, and performance of the transactions contemplated in, this
Agreement will not (either alone or together with the occurrence of any
additional or subsequent events) constitute an event under any Advisor Benefit
Plan, policy, program, arrangement or agreement, trust or loan that will or may
result in any payment (whether of severance pay or otherwise), acceleration,
forgiveness of indebtedness, vesting, distribution, increase in benefits or
obligation to fund benefits with respect to any employee or director, will not
result
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in any "golden parachute payments" being due (as defined for purposes of Section
280G of the Code), or result in any breach or violation of, or a default under,
any of the Advisor Benefit Plans. The only severance agreements or severance
policies applicable to Advisor or the Advisor Subsidiaries are the agreements
and policies specifically referred to in Section 3.1(h)(ii) of the Advisor
Disclosure Letter.
(iii) Without limiting the foregoing, each Advisor Benefit Plan which
is intended to be tax-qualified under Section 401(a) of the Code has been
determined by the IRS to be so qualified and such determination has not been
modified, revoked or limited, and no circumstances have occurred that would
adversely affect the tax-qualified status of any such plan. No Advisor Benefit
Plan is or has ever been subject to Part III of Subtitle B of Title I of ERISA
or Title IV of ERISA or Section 412 of the Code. None of Advisor or any Advisor
Subsidiary, or any "party in interest" (as defined in Section 3(14) of ERISA) or
any "disqualified person" (as defined in Section 4975 of the Code) with respect
to any Advisor Benefit Plan, has engaged in a non-exempt "prohibited
transaction" within the meaning of Section 4975 of the Code or Section 406 of
ERISA that would reasonably be expected to result in a an Advisor Material
Adverse Effect. No Advisor Benefit Plan provides for health or life insurance
for employees after termination of employment (except as required by law).
(i) NO LOANS OR PAYMENTS TO EMPLOYEES, OFFICERS OR DIRECTORS. There is no
(i) loan outstanding from or to any employee, officer or director of Advisor or
an Advisor Subsidiary, (ii) employment, severance or consulting contract,
policy, agreement, program or arrangement, (iii) agreements requiring payments
to be made on a change of control or otherwise as a result of the consummation
of the Advisor Merger or any of the other transactions contemplated by this
Agreement with respect to any employee, officer or director of Advisor or any
Advisor Subsidiary or (iv) any agreement to appoint or nominate any person as a
director of Advisor or any Advisor Subsidiary.
(j) BROKERS; SCHEDULE OF FEES AND EXPENSES. No broker, investment banker,
financial advisor or other person is entitled to any broker's, finder's,
financial advisor's or other similar fee or commission in connection with the
Advisor Merger or based upon arrangements made by or on behalf of Advisor or any
Advisor Subsidiary.
(k) COMPLIANCE WITH LAWS. Neither Advisor nor any Advisor Subsidiary 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 for violations and failures to comply that
would not, individually or in the aggregate, reasonably be expected to result in
an Advisor Material Adverse Effect.
(l) CONTRACTS; DEBT INSTRUMENTS, LIABILITIES.
(i) Neither Advisor nor any Advisor Subsidiary has any outstanding
indebtedness and neither is a party to any loan or credit agreement, note, bond,
mortgage or indenture, or any material lease, permit, concession, franchise or
license, or any agreement to acquire real property, or any other material
contract, agreement, arrangement or understanding, except for the Advisory
Agreement and the Sub Advisory Agreements. None of Advisor and the Advisor
Subsidiary has received written notice that it is in violation of or in default
under, in any material respect (nor does there exist any condition which upon
the passage of time or the giving of notice or both would cause such a violation
of or default under), any material loan or credit agreement, note, bond,
mortgage or indenture or any material lease, permit, concession, franchise or
license, or any material agreement to acquire real property, 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, except for
violations or defaults that would not individually or in the aggregate, result
in an Advisor Material Adverse Effect.
(ii) Neither Advisor nor any Advisor Subsidiary has any liability
(contingent or accrued, liquidated or unliquidated) except for liabilities (i)
for which indemnification may be sought by the Advisor
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and the Advisor Subsidiaries pursuant to the Advisory Agreement or (ii) that
would not result in an Advisor Material Adverse Effect.
(m) TITLE TO ASSETS. Advisor or an Advisor Subsidiary has good title to,
or a valid leasehold interest in, the assets used by them in the operation of
their business, free and clear of all Liens, except for non-material assets
disposed of in the ordinary course of business. Advisor and the Advisor
Subsidiaries do not own any real property.
(n) BOOKS AND RECORDS.
(i) The books of account and other financial records of Advisor and the
Advisor Subsidiaries are in all material respects true, complete and correct,
have been maintained in accordance with good business practices and were made
available to Starwood and TriNet prior to the date of this Agreement.
(ii) Advisor has previously delivered or made available to Starwood and
TriNet true and correct copies of the certificates of formation and limited
liability company agreements of SFA and SFA II and the charter and bylaws of
Advisor, each as amended to date. All such documents are listed in Section
3.1(n)(ii) of the Advisor Disclosure Letter.
(iii) The minute books and other records of corporate proceedings of
Advisor and the Advisor Subsidiaries have been made available to Starwood and
TriNet, contain in all material respects accurate records of all meetings and
accurately reflect in all material respects all other action of the shareholders
or member(s)of Advisor and the Advisor Subsidiaries.
(iv) The stock ledger of Advisor has been made available to Starwood
and TriNet and accurately reflects the number of outstanding shares of capital
stock of Advisor.
(o) STATE TAKEOVER STATUTES. Advisor has taken all actions necessary, if
any, to exempt the Advisor Merger, this Agreement or any of the transactions
contemplated by this Agreement from the operation of any Takeover Statute (as
defined below) of the State of Delaware.
(p) INVESTMENT COMPANY ACT OF 1940. None of Advisor and the Advisor
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") or under
the Investment Advisors Act of 1940, as amended.
(q) PROXY STATEMENT AND REGISTRATION STATEMENT. The information furnished
by Advisor for inclusion in the Registration Statement (as defined in Section
5.1) and any amendment or supplement thereto will not, as of the date the
Registration Statement is declared effective by the SEC, 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 not
misleading. The information furnished by Advisor for inclusion in the Proxy
Statement (as defined in Section 5.1) will not, on the date the Proxy Statement
is first mailed or furnished to securityholders of TriNet or Starwood or on the
respective meeting dates of TriNet or Starwood, 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 in which
they were made, not misleading. Notwithstanding the foregoing, Advisor makes no
representation or warranty with respect to any information furnished by Starwood
or TriNet for inclusion or incorporation by reference in any of the foregoing
documents.
(r) VOTE REQUIRED. The affirmative vote or written consent of at least a
majority of the outstanding shares of Advisor Common Stock is the only vote or
consent of the holders of any series of Advisor's capital stock necessary (under
applicable law or otherwise) to approve the Advisor Merger, this Agreement and
the other transactions contemplated hereby (the "ADVISOR SHAREHOLDER APPROVAL").
The Advisor Shareholder Approval has been obtained.
(s) YEAR 2000 ISSUES.
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(i) To the best Knowledge of Advisor, based on representations and
warranties made by third parties and publicly available information, the
software, hardware and equipment of Advisor and the Advisor Subsidiaries owned,
leased or licensed by them and used in the conduct of its business (the "ADVISOR
INFORMATION TECHNOLOGY") are or will be prior to December 31, 1999 Year 2000
ready.
(ii) "YEAR 2000 READY" means that the software, hardware, equipment and
systems will: (A) handle date information involving any and all dates before,
during and/or after January 1, 2000, including accepting input, providing output
and performing date calculations in whole or in part; (B) operate, accurately
and without interruption on and in respect of any and all dates before, during
and/or after January 1, 2000 and without any change in performance; and (C)
store and provide properly-entered date input information without creating any
ambiguity as to the century.
Section 3.2. REPRESENTATIONS AND WARRANTIES OF STARWOOD AND NEW STARWOOD
SUB. Except as set forth in the letter of even date herewith (with section
references organized in accordance with Section 8.9 signed by the President or
Chief Executive Officer and the Chief Financial Officer of Starwood and
delivered to the Advisor prior to the execution of this Agreement (the "STARWOOD
DISCLOSURE LETTER"), each of Starwood and New Starwood Sub, jointly and
severally represents and warrants to Advisor as follows:
(a) ORGANIZATION, STANDING AND CORPORATE POWER OF STARWOOD. Starwood is a
real estate investment trust duly organized and validly existing under the laws
of the State of Maryland. New Starwood Sub is a corporation duly organized and
validly existing under the laws of the state of Delaware. Each of Starwood and
New Starwood Sub has the requisite corporate power and authority to carry on its
business as now being conducted. Each of Starwood and New Starwood Sub 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, leasing of
its properties or management of properties for others makes such qualification
or licensing necessary, except where the failure to be so qualified or licensed,
individually or in the aggregate, would not have a material adverse effect on
the business, properties, financial condition or results of operations or
prospects of Starwood and the Starwood Subsidiaries, taken as a whole (a
"STARWOOD MATERIAL ADVERSE EFFECT").
(b) AUTHORITY; NONCONTRAVENTION; CONSENTS. Subject to receipt of the
requisite approval of Starwood's shareholders, Starwood has the requisite
corporate power and authority to enter into this Agreement, the Incorporation
Merger Agreement and the Merger Agreement, to consummate the transactions
contemplated by this Agreement, the Incorporation Merger Agreement and the
Merger Agreement. New Starwood Sub has the requisite corporate power and
authority to enter into this Agreement and to consummate the transactions
contemplated by this Agreement, subject to receipt of the requisite approval of
Starwood's shareholders. The execution and delivery of this Agreement, the
Incorporation Merger Agreement and the Merger Agreement by Starwood and the
consummation by Starwood of the transactions contemplated hereby and thereby
have been duly authorized by all necessary action on the part of Starwood. The
execution and delivery of this Agreement by New Starwood Sub and the
consummation by New Starwood Sub of the transactions contemplated hereby have
been duly authorized by all necessary action on the part of New Starwood Sub.
This Agreement, the Incorporation Merger Agreement and the Merger Agreement have
been duly executed and delivered by Starwood, and in the case of this Agreement,
by New Starwood Sub, and constitute the valid and binding obligations of
Starwood and New Starwood Sub, as applicable, and are enforceable against
Starwood and New Starwood Sub, as applicable, in accordance with its terms,
subject to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar laws affecting creditors' rights and
remedies generally and to general principles of equity. The execution and
delivery of this Agreement, the Incorporation Merger Agreement and the Merger
Agreement by Starwood does not, and the consummation of the transactions
contemplated hereby and thereby and compliance by Starwood and New Starwood Sub,
as applicable, and the execution and delivery of this Agreement by New Starwood
Sub do, with the provisions of this Agreement, the Incorporation Merger
Agreement and the Merger Agreement do not and 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 obligation or to loss of a material benefit under,
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or result in the creation of any Lien upon any of the properties or assets of
Starwood or, any Starwood Subsidiary under, (i) the amended and restated
declaration of trust or the amended and restated bylaws of Starwood or the
comparable charter or organizational documents or partnership or similar
agreement (as the case may be) of any Starwood Subsidiary, 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, contract, franchise or license
applicable to Starwood or any Starwood Subsidiary 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 Starwood or any
Starwood Subsidiary or their respective properties or assets, other than, in the
case of clause (ii) or (iii), any such conflicts, violations, defaults, rights
or Liens that individually or in the aggregate would not (x) have a Starwood
Material Adverse Effect or (y) materially delay or prevent the consummation of
the Advisor Merger, the Incorporation Merger and the Merger. No consent,
approval, order or authorization of, or registration, declaration or filing
with, any Governmental Entity is required by or with respect to Starwood or, any
Starwood Subsidiary in connection with the execution and delivery of this
Agreement, the Incorporation Merger Agreement and the Merger Agreement by
Starwood the consummation by Starwood and, the Starwood Subsidiaries of any of
the transactions contemplated hereby and thereby, except for (i) the filing with
the SEC of (x) the Proxy Statement and the Registration Statement and (y) such
reports under Section 13 and Section 16 of the Exchange Act as may be required
in connection with this Agreement and the transactions contemplated by this
Agreement, (ii) the filing of the Certificate of Merger with the Secretary of
State of the State of Delaware, (iii) such filings as may be required in
connection with the payment of any Transfer and Gains Taxes, and (iv) the
requisite approval of Starwood's shareholders or (A) as may be required under
(x) federal, state or local environmental laws or (y) the "blue sky" laws of
various states or (B) which, if not obtained or made, would not prevent or delay
in any material respect the consummation of the Advisor Merger or any of the
transactions contemplated by this Agreement or otherwise prevent Starwood from
performing its obligations under this Agreement in any material respect or have,
individually or in the aggregate, a Starwood Material Adverse Effect.
(c) OPINION OF FINANCIAL ADVISOR. The Special Committee has received the
opinion of Houlihan, the Special Committee's financial advisor, satisfactory to
the Special Committee, a written copy of which was, or upon receipt by the
Special Committee will be, provided to TriNet, to the effect that, as of the
date of such opinion, the consideration to be paid to those shareholders of
Starwood who hold ownership interests in the Advisor is fair from a financial
point of view to the Starwood shareholders who do not hold any ownership
interests in the Advisor. It is agreed and understood that such opinion is for
the benefit of the Special Committee and may not be relied upon by TriNet,
Advisor or any of their affiliates.
Section 3.3. REPRESENTATIONS AND WARRANTIES OF SCG. SCG REPRESENTS AND
WARRANTS TO STARWOOD AS FOLLOWS:
(a) ORGANIZATION, STANDING AND POWER OF SCG. SCG is a limited liability
company duly organized and validly existing under the laws of the State of
Connecticut. SCG has the requisite power and authority to carry on its business
as now being conducted.
(b) AUTHORITY; NONCONTRAVENTION; CONSENTS. SCG has the requisite power and
authority to enter into this Agreement and to consummate the transactions
contemplated by this Agreement. The execution and delivery of this Agreement by
SCG and the consummation by SCG of the transactions contemplated hereby have
been duly authorized by all necessary action on the part of SCG. This Agreement
has been duly executed and delivered by SCG and constitutes the valid and
binding obligation of SCG, enforceable against SCG in accordance with its terms,
subject to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar laws affecting creditors' rights and
remedies generally and to general principles of equity. The execution and
delivery of this Agreement by SCG does not, the consummation of the transactions
contemplated hereby and compliance by SCG, with the provisions of this Agreement
does not and will not, conflict with, or result in any violation of, or default
(with or without
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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 material benefit
under, or result in the creation of any Lien upon any of the properties or
assets of SCG under, (i) the amended and restated limited liability company
agreement of SCG, (ii) any loan or credit agreement, note, bond, mortgage,
indenture, reciprocal easement agreement, lease or other agreement, instrument,
permit, concession, contract, franchise or license applicable to SCG or its
assets or (iii) any Laws applicable to SCG, other than, in the case of clause
(ii) or (iii), any such conflicts, violations, defaults, rights or Liens that
individually or in the aggregate would not (x) reasonably be expected to result
in a material adverse effect on the business, properties, financial condition or
results of operations or prospects of SCG (an "SCG MATERIAL ADVERSE EFFECT") or
(y) materially delay or prevent the consummation of the Contribution
Transactions. No consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity is required by or with
respect to SCG in connection with the execution and delivery of this Agreement
by SCG or the consummation by SCG of any of the transactions contemplated hereby
which, if not obtained or made, would prevent or delay in any material respect
the consummation of the Contribution Transactions or any of the transactions
contemplated by this Agreement or otherwise prevent SCG from performing its
obligations under this Agreement in any material respect or reasonably be
expected to result in, individually or in the aggregate, an SCG Material Adverse
Effect.
(c) TITLE TO INTERESTS. SCG is the sole beneficial and record owner of the
SFA Interest and the SFA II Interest, free and clear of all Liens. The transfer
and delivery of the SFA Interest and the SFA II Interest in the Contribution
Transactions will, upon consummation of the Contribution Transactions, transfer
good and marketable title thereto to New Starwood, free and clear of all Liens.
(d) ACCREDITED INVESTOR. SCG is an "accredited investor" as such term is
defined in Regulation D under the Securities Act of 1933, as amended.
(e) INVESTMENT. SCG will be acquiring shares of New Starwood Common Stock
for investment for its own account, not as a nominee or agent, and not with the
view to, or for resale in connection with, any distribution thereof in violation
of the Securities Act of 1933, as amended. SCG understands that the New Starwood
Common Stock to be acquired by it in exchange for the SFA Interest and the SFA
II Interest have not been, and will not be, registered under the Securities Act
by reason of a specific exemption from the registration provisions of the
Securities Act, the availability of which depends upon, among other things, the
bona fide nature of the investment intent and the accuracy of SCG's
representations as expressed herein.
ARTICLE IV
COVENANTS
Section 4.1. CONDUCT OF BUSINESS BY ADVISOR. Except as contemplated by
this Agreement, during the period from the date of this Agreement to the earlier
of (i) the termination of this Agreement and (ii) the Effective Time, Advisor
shall, and shall cause each Advisor Subsidiary to, carry on its businesses in
the usual, regular and ordinary course in substantially the same manner as
heretofore conducted and, to the extent consistent therewith, use commercially
reasonable efforts to preserve intact, in all material respects, its current
business organization, goodwill and ongoing businesses. Without limiting the
generality of the foregoing, the following additional restrictions shall apply:
during the period from the date of this Agreement to the earlier of (i) the
termination of this Agreement or (ii) the Effective Time, except as otherwise
contemplated by this Agreement or as otherwise disclosed in Section 4.1 of the
Advisor Disclosure Letter, Advisor shall not, and shall cause each Advisor
Subsidiary not to:
(a) (i) make any distributions of assets (other than cash) in respect of
any of its stock;
(b) issue, deliver, sell or grant any option or other right in respect of
any shares of capital stock, any other voting or redeemable securities of it or
any securities convertible into, or any rights, warrants or options to acquire,
any such shares, voting securities or convertible or redeemable securities,
except as permitted under Section 4.1(e);
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(c) amend its charter or bylaws or certificate of formation or limited
liability company agreement;
(d) merge, consolidate or enter into any other business combination
transaction with any Person;
(e) (i) acquire or agree to acquire by merging or consolidating with, or by
purchasing all or a substantial portion of the equity securities or assets of,
or by any other manner, any business or any corporation, partnership, limited
liability company, joint venture, association, business trust or other business
organization or division thereof or interest therein or any assets; (ii)
mortgage or otherwise encumber or subject to any Lien or sell, lease or
otherwise dispose of any of its material properties or assets or assign or
encumber the right to receive income, dividends, distributions and the like or
agree to do any of the foregoing; or (iii) incur indebtedness for borrowed money
or guarantee any indebtedness of another person, issue or sell any debt
securities or warrants or other rights to acquire any debt securities of it,
guarantee any debt securities 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, prepay or refinance any indebtedness or make any loans, advances or
capital contributions to, or investments in, any other person;
(f) make any election relating to Taxes;
(g) (i) change in any material manner any of its methods, principles or
practices of accounting in effect at the date of this Agreement, or (ii) settle
or compromise any material claim, action, suit, litigation, proceeding,
arbitration, investigation, audit or controversy relating to taxes or change any
of its methods of reporting income or deductions for federal income tax purposes
from those employed in the preparation of its federal income tax return for the
taxable year ended December 31, 1997, except, in the case of clause (i), as may
be required applicable Law or GAAP;
(h) adopt any new employee benefit plan, incentive plan, severance plan,
bonus plan, stock option or similar plan, grant new stock appreciation rights or
amend any existing plan or rights, or enter into or amend any employment
agreement or similar agreement or arrangement or, except in the ordinary course
consistent with past practice, grant or become obligated to grant any increase
in the compensation of officers or employees, except such changes as are
required by law or which are not more favorable to participants than provisions
currently in effect;
(i) settle any shareholder derivative or class action claims arising out of
or in connection with any of the transactions contemplated by this Agreement;
and
(j) enter into or amend or otherwise modify any of the material terms of
any agreement or arrangement with persons that are affiliates or, as of the date
hereof, are officers or directors of the Advisor or any Advisor Subsidiary
without prior written notice to Starwood and the approval of a majority of the
"disinterested" members of the Board of Directors of Advisor, on behalf of
itself and as member of SFA.
Section 4.2. OTHER ACTIONS. Each of Advisor and Starwood shall use its
commercially reasonable efforts not to, and shall use its commercially
reasonable efforts to cause its respective 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) any of the conditions' to the Advisor Merger set forth in Article VI
not being satisfied.
ARTICLE V
ADDITIONAL COVENANTS
Section 5.1. PREPARATION OF THE REGISTRATION STATEMENT AND THE PROXY
STATEMENT; SHAREHOLDERS' MEETINGS; CONSENTS.
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(a) As soon as practicable following the date of this Agreement, Starwood
shall (i) prepare and file with the SEC a proxy statement under the Securities
Exchange Act of 1934 soliciting the approval of the shareholders of Starwood of
the Advisor Merger (the "PROXY STATEMENT"), with appropriate requests for
confidential treatment, and Starwood will provide on a supplemental basis to the
SEC a registration statement on Form S-4 with regard to the shares of New
Starwood Common Stock to be issued in the Advisor Merger (the "REGISTRATION
STATEMENT"), in which the Proxy Statement will be included as a prospectus. The
Proxy Statement shall state that in the opinion of counsel (which shall be a
reputable, national law firm), the Advisor Merger will (or will more likely than
not) qualify as a tax-free reorganization under Section 368(a) of the Code. The
Proxy Statement will also include solicitations by Starwood of approvals by
Starwood's shareholders for the Merger and the Incorporation Merger, and the
Registration Statement also will include the shares of capital stock of New
Starwood to be issued in the Merger. Starwood shall use its commercially
reasonable efforts to (i) respond to any comments of the staff of the SEC and
(ii) have the Registration Statement declared effective under the Securities Act
and the rules and regulations promulgated thereunder as promptly as practicable
after such filing and to keep the Registration Statement effective as long as is
necessary to consummate the Merger and the Advisor Merger. Starwood will use its
commercially reasonable efforts to cause the Proxy Statement to be mailed to
Starwood's shareholders, as promptly as practicable after the Registration
Statement is declared effective under the Securities Act. Starwood will notify
Advisor promptly of the receipt of any comments from the SEC and of any request
by the SEC for amendments or supplements to the Registration Statement or the
Proxy Statement or for additional information and will supply Advisor with
copies of all correspondence between such party or any of its representatives
and the SEC with respect to the Registration Statement or the Proxy Statement.
The Registration Statement and the Proxy Statement shall 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
Registration Statement or the Proxy Statement, Starwood shall promptly inform
Advisor of such occurrences and cooperate in filing with the SEC and/or mailing
to the shareholders of Starwood such amendment or supplement.
(b) Starwood will, as soon as practicable following the date of this
Agreement, duly call, give notice of, convene and hold a meeting of its
shareholders (the "STARWOOD SHAREHOLDERS MEETING") (but in no event shall such
meeting be held sooner than 20 business days following the date the Proxy
Statement is mailed to its shareholders), for the purpose of obtaining the
Starwood Shareholder Approvals. Starwood covenants that Starwood will, through
its Board of Trustees, recommend to its shareholders approval of the Advisor
Merger, this Agreement, the Merger, the Merger Agreement, the Incorporation
Merger and the Incorporation Merger Agreement and the transactions contemplated
hereby and thereby and further covenants that the Proxy Statement will include
such recommendation. Advisor shall furnish all information concerning Advisor
Common Stock as may reasonably be requested in connection with any action
required to be taken under any applicable state securities or "blue sky" laws in
connection with the issuance of Advisor Common Stock pursuant to the Advisor
Merger.
Section 5.2. COMMERCIALLY REASONABLE EFFORTS; NOTIFICATION.
(a) Upon the terms and subject to the conditions set forth in this
Agreement, each of Starwood, the Stockholders, SCG and Advisor agrees to use its
commercially reasonable efforts to take, or cause to be taken, all actions, and
to do, or cause to be done, and to assist and cooperate with the other in doing,
all things necessary, proper or advisable to fulfill all conditions applicable
to such party pursuant to this Agreement and to consummate and make effective,
in the most expeditious manner practicable, the Advisor Merger, the Contribution
Transactions and the other transactions contemplated hereby, including (i) the
obtaining of all necessary actions or nonactions, waivers, consents and
approvals from Governmental Entities and the making of all necessary
registrations and filings and the taking of all reasonable steps as may be
necessary to obtain an approval, waiver or exemption from, or to avoid an action
or proceeding by, any Governmental Entity, (ii) the obtaining of all necessary
consents, approvals, waivers or exemption from non-governmental third parties;
(iii) the defending of any lawsuits or other legal proceedings,
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whether judicial or administrative, challenging the Advisor Merger, the
Contribution Transactions, the Merger, the Incorporation Merger or the
consummation of the transactions contemplated by this Agreement, the Merger
Agreement, the Incorporation Merger Agreement, including seeking to have any
stay or temporary restraining order entered by any court or other Governmental
Entity vacated or reversed and (iv) the execution and delivery of any additional
instruments necessary to consummate the transactions contemplated by and to
fully carry out the purposes of, this Agreement, the Merger Agreement and the
Incorporation Merger Agreement. In connection with and without limiting the
foregoing, Advisor, Starwood and their respective Boards of Directors or
Trustees, as applicable, shall (x) take all action necessary so that no "fair
price," "business combination," "moratorium," "control share acquisition" or any
other anti-takeover statute or similar statute enacted under state or federal
laws of the United States or similar statute or regulation (a "TAKEOVER
STATUTE") is or becomes applicable to the Advisor Merger or the Merger, and (y)
if any Takeover Statute becomes applicable to the Advisor Merger, take all
action necessary so that the Advisor Merger may be consummated as promptly as
practicable on the terms contemplated by this Agreement or the Merger Agreement,
as applicable, or otherwise to minimize the effect of such Takeover Statute on
the Advisor Merger and the Merger. From the date hereof through the Effective
Time, Starwood shall timely file with the SEC all Starwood SEC Documents
required to be so filed.
(b) Advisor shall give prompt notice to Starwood, and Starwood shall give
prompt notice to Advisor, if (i) any representation or warranty made by it
contained in this Agreement, the Merger Agreement or the Incorporation Merger
Agreement, that is qualified as to materiality becomes untrue or inaccurate in
any respect or any such representation or warranty that is not so qualified
becomes untrue or inaccurate in any material respect or (ii) it fails 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, the Merger Agreement
or the Incorporation Merger 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.
Section 5.3. AFFILIATES. Prior to the Closing Date, Advisor, Starwood and
SCG shall exchange letters identifying all persons who are, at the time this
Agreement is submitted to the shareholders of Starwood, their respective
"affiliates" for purposes of Rule 145 under the Securities Act. The Advisor and
Starwood shall use their respective commercially reasonable efforts to cause
each of their respective affiliates to deliver on or prior to the Closing Date a
written agreement substantially in the form attached as EXHIBIT E hereto.
Section 5.4. AMEX DE-LISTING; NYSE LISTING. Starwood shall prepare and
submit to the New York Stock Exchange, Inc. ("NYSE") a listing application
covering the New Starwood Common Stock to be issued in the Advisor Merger and
the Contribution Transactions, and shall use its commercially reasonable efforts
to have the NYSE approve for listing, upon official notice of issuance, the New
Starwood Common Stock. In the event that such securities are approved for
listing on the NYSE, Starwood shall take such steps as are necessary to cause
all Starwood securities listed on the American Stock Exchange ("AMEX") to be
de-listed as of the Effective Time.
Section 5.5. INDEMNIFICATION OF DIRECTORS AND OFFICERS; DIRECTORS' AND
OFFICERS' INSURANCE.
(a) (i) Advisor shall, and, from and after the Effective Time, Starwood
(collectively, the "INDEMNIFYING PARTIES") shall, jointly and severally,
indemnify, defend and hold harmless 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 or director of Advisor (the "INDEMNIFIED PARTIES") against all losses,
claims, damages, costs, expenses (including attorneys' fees and expenses),
liabilities or judgments or amounts that are paid in settlement of, with the
approval of the Indemnifying Parties (which approval shall not be unreasonably
withheld or delayed), or otherwise in connection with any threatened or actual
claim, action, suit, proceeding or investigation based on or arising out of the
fact that such person is or was a director or officer of Advisor at or prior to
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the Effective Time, whether asserted or claimed prior to, or at or after, the
Effective Time ("INDEMNIFIED LIABILITIES"), including all Indemnified
Liabilities based on, or arising out of, or pertaining to this Agreement or the
transactions contemplated by this Agreement, in each case to the full extent a
corporation is permitted under the DGCL to indemnify its own directors or
officers, as the case may be (and Starwood will pay expenses in advance of the
final disposition of any such action or proceeding to each Indemnified Party to
the full extent permitted by law subject to the limitations set forth in Section
5.5(a)(iii)).
(ii) Any Indemnified Parties proposing to assert the right to be
indemnified under this Section 5.5 shall, promptly after receipt of notice of
commencement of any action against such Indemnified Parties in respect of which
a claim is to be made under this Section 5.5 against Advisor and, from and after
the Effective Time, Starwood, notify the Indemnifying Parties of the
commencement of such action, enclosing a copy of all papers served; provided,
that the failure to so notify shall not limit in any way or otherwise affect the
obligations of the Indemnifying Parties except to the extent such failure to
notify materially prejudices such party. If any such action is brought against
any of the Indemnified Parties and such Indemnified Parties notify the
Indemnifying Parties of its commencement, the Indemnifying Parties will be
entitled to participate in and, to the extent that they elect by delivering
written notice to such Indemnified Parties promptly after receiving notice of
the commencement of the action from the Indemnified Parties, to assume the
defense of the action and after notice from the Indemnifying Parties to the
Indemnified Parties of their election to assume the defense, the Indemnifying
Parties will not be liable to the Indemnified Parties for any legal or other
expenses except as provided below and except for the reasonable costs of
investigation subsequently incurred by the Indemnified Parties in connection
with the defense. The Indemnifying Parties shall not settle any such action
without the consent of the Indemnified Parties; PROVIDED, HOWEVER, that such
consent shall not be unreasonably withheld, it being understood that it shall
not be deemed unreasonable to withhold such consent if the settlement includes
any admission of wrongdoing or payment of any money by or on the part of the
Indemnified Parties or any decree or restriction on the Indemnified Parties or
their officers or directors; PROVIDED, FURTHER, that no Indemnifying Parties, in
the defense of any such action shall, except with the consent of the Indemnified
Parties, consent to entry of any judgment or enter into any settlement that does
not include as an unconditional term thereof the giving by the claimant or
plaintiff to such Indemnified Parties of a release from all liability with
respect to such action. The Indemnified Parties will have the right to employ
their own counsel in any such action, but the fees, expenses and other charges
of such counsel will be at the expense of such Indemnified Parties unless (i)
the employment of counsel by the Indemnified Parties has been authorized in
writing by the Indemnifying Parties, (ii) the Indemnified Parties have
reasonably concluded (based on advice of counsel) that there may be legal
defenses available to them that are different from or in addition to those
available to the Indemnifying Parties, (iii) a conflict or potential conflict
exists (based on advice of counsel to the Indemnified Parties) between the
Indemnified Parties and the Indemnifying Parties (in which case the Indemnifying
Parties will not have the right to direct the defense of such action on behalf
of the Indemnified Parties) or (iv) the Indemnifying Parties have not in fact
employed counsel to assume the defense of such action within a reasonable time
after receiving notice of the commencement of the action, in each of which cases
the reasonable fees, disbursements and other charges of counsel will be at the
expense of the Indemnifying Parties.
(iii) It is understood that the Indemnifying Parties shall not, in
connection with any proceeding or related proceedings, be liable for the
reasonable fees, disbursements and other charges of more than one separate firm
(and one local counsel in each jurisdiction in which such counsel is reasonably
required) at any one time for all such Indemnified Parties unless (a) the
employment of more than one counsel has been authorized in writing by the
Indemnifying Parties, (b) any of the Indemnified Parties has reasonably
concluded (based on advice of counsel) that there may be legal defenses
available to them that are different from or in addition to those available to
other Indemnified Parties or (c) a conflict or potential conflict exists (based
on advice of counsel to the Indemnified Parties) between any of the Indemnified
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Parties and the other Indemnified Parties, in each case of which the
Indemnifying Parties shall be obligated to pay the reasonable fees and expenses
of such additional counsel or counsels.
(iv) The Indemnifying Parties will not be liable for any settlement of
any action or claim effected without their written consent (which consent shall
not be unreasonably withheld or delayed).
(b) At or prior to the Effective Time, Starwood shall purchase directors'
and officers' liability insurance "tail" policy coverage for Advisor's directors
and executive officers for a period of six years which will provide the
directors and officers with coverage on substantially similar terms as (but
which shall be no less favorable than those) currently provided by Advisor to
such directors and officers for claims based on activity prior to the Effective
Time; PROVIDED, HOWEVER, that Starwood shall have no obligation to pay aggregate
premiums for such coverage in excess of $350,000.
(c) The provisions of this Section 5.5 are intended to be for the benefit
of, and shall be enforceable by, each Indemnified Party, his or her heirs and
his or her personal representatives and shall be binding on all successors and
assigns of Starwood and Advisor.
Section 5.6. INDEMNIFICATION AGAINST LOSS DUE TO INACCURACIES IN
REPRESENTATIONS AND WARRANTIES; TAX INDEMNITY.
(i) Each of the Stockholders and SCG, severally and not jointly,
indemnifies Starwood and New Starwood Sub against, and agrees to hold Starwood
and New Starwood Sub harmless from, all losses, costs, damages, liabilities,
claims, demands, judgments, settlements and expenses of any nature whatsoever,
governmental or non-governmental (including, but not limited to, reasonable fees
and expenses of counsel and expenses of investigation) (collectively, "LOSSES")
incurred directly or indirectly because or resulting from or arising out of (i)
the fact that any matter which is the subject of a representation or warranty
contained in Section 3.1, in the case of the Stockholders, or Section 3.3, in
the case of SCG, is not as represented or warranted, but only up to a Maximum
Amount (as defined in Section 5.7(i)) or (ii) the failure of any Stockholder,
SCG or Advisor to fulfill in any respect any of its obligations under this
Agreement or under any document delivered in accordance with this Agreement
which is required to be fulfilled before or after the Effective Time.
(ii) Starwood indemnifies the Stockholders and SCG against, and agrees
to hold the Stockholders and SCG harmless from, all Losses incurred directly or
indirectly because or resulting from or arising out of (i) the fact that any
matter which is the subject of a representation or warranty contained in Section
3.2 is not as represented or warranted, but only up to a maximum amount equal to
the Fair Market Value (as defined in Section 5.8(i)) of the sum of the Merger
Consideration and the Contribution Consideration or (ii) the failure of Starwood
to fulfill in any respect any of its obligations under this Agreement or under
any document delivered in accordance with this Agreement which is required to be
fulfilled before or after the Effective Time.
(iii) Each of the Stockholders, severally and not jointly, indemnifies
Starwood and New Starwood Sub against, and agrees to hold Starwood and New
Starwood Sub harmless from, any and all Taxes and other Losses ("TAX DAMAGES")
arising out of (i) the fact that, as a result of events occurring before or
after the Effective Time, the Advisor Merger does not qualify as a tax-free
reorganization under Section 368 of the Code, (ii) any other Taxes attributable
to Advisor or which become payable solely on account of the Advisor Merger or
(iii) any and all Taxes relating to Advisor or any Advisor Subsidiary in respect
of any period (or portion thereof) that ends on or prior to the Closing Date or,
if later, the date on which the Effective Time occurs. The indemnities provided
for in this Section 5.6(iii) shall survive until 60 days after the end of the
statute of limitations period applicable to the matters which are the subject of
the indemnities.
Section 5.7. LIMIT ON CLAIMS REGARDING REPRESENTATIONS AND WARRANTIES. (i)
The maximum amount (the "MAXIMUM AMOUNT") for which each of the Stockholders and
SCG shall be liable on account of all Losses for which indemnification may be
sought is the fair market value of the Merger Consideration or
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<PAGE>
the Contribution Consideration, as the case may be, received by the Stockholder
or SCG, as the case may be, pursuant to this Agreement; PROVIDED, HOWEVER, that
notwithstanding anything to the contrary, indemnification made with respect to
any matter which is the subject of a representation or warranty contained in
Section 3.1(c) or Section 3.3(c), shall not be subject to any limitations as to
amount. The fair market value (the ("FAIR MARKET VALUE") shall be determined
based on the average of the closing prices of New Starwood Common Stock on the
principal stock exchange on which it is listed for the five consecutive trading
days beginning with the fourth trading day after the Effective Time or, if
greater, the average closing prices of New Starwood Common Stock on such
exchange for the five consecutive trading days on which the relevant payments in
respect of such indemnification is made hereunder. All liabilities of the
Stockholders and SCG pursuant to Sections 5.6 and 5.7 shall be satisfied
exclusively by the Stockholder or SCG, as applicable, tendering shares of New
Starwood Common Stock received by the Stockholder or SCG, as applicable, in the
Advisor Merger or the Contribution Transactions, as applicable, to Starwood or
New Starwood.
(ii) The indemnification in Sections 5.6(i) and (ii) will be the sole
remedy because any matter which is the subject of a representation or warranty
contained in Section 3.1, 3.2 or 3.3 is not as represented or warranted. Any
claim for that indemnification pursuant to Section 5.6(i) or (ii) must be made
not later than the one year anniversary of the Effective Time; provided that,
any claim for indemnification made with respect to any matter which is the
subject of a representation or warranty contained in Section 3.1(c) or 3.3(c),
may be made at any time and any matter which is the subject of a representation
or warranty contained in Section 3.1(g) may be made at any time prior to 60 days
after the end of the statue of limitations period applicable to the matter which
is the subject of the claim. Any claim for indemnification pursuant to Section
5.6(iii) must be made prior to 60 days after the end of the statute of
limitations period applicable to the matter which is the subject of the claim. A
claim must be made by a written notification to the party from which
indemnification is sought which reasonably summarizes the nature of the claim
and the facts on which it is based. None of the Stockholders, Advisor, SCG,
Starwood or New Starwood will have any liability pursuant to Section 5.6 unless
the claim is described in a notification given in substantial compliance with
this Section.
(iii) Payment of any indemnification amounts shall be made as directed
by Starwood promptly, but in no event later than two business days after the
amount is due as provided herein. The indemnification amounts each year shall
not exceed (A) the maximum amount that can be paid to Starwood for the taxable
year without causing Starwood to fail to meet the requirements of Sections
856(c)(2) and (3) of the Code determined as if the payment of such amount did
not constitute income described in Sections 856(c)(2) and (3) of the Code
("QUALIFYING INCOME"), as determined by outside counsel or independent
accountants to Starwood, and (B) in the event Starwood receives a letter from
outside counsel (the "STARWOOD INDEMNIFICATION TAX OPINION") indicating its
opinion that the receipt by Starwood of the indemnification payments would
constitute Qualifying Income as to Starwood with respect to Starwood's
proportionate share thereof or would be excluded from Starwood's gross income
for purposes of Sections 856(c)(2) and (3) of the Code (the "REIT
REQUIREMENTS"), the amounts indicated in such letter. In the event that Starwood
is not able to receive the full amount of the indemnification amounts the
Stockholders shall place the unpaid amount in escrow and shall not release any
portion thereof to Starwood unless and until Starwood receives any one or
combination of the following: (i) a letter(s) from Starwood's outside counsel or
independent accountants indicating the maximum amount that can be paid at that
time to Starwood without causing Starwood to fail to meet the REIT Requirements
for any relevant taxable year together with an IRS ruling or opinion of tax
counsel to the effect that such payment would not be treated as included in
income for any prior taxable year, in which event such maximum amount shall be
paid to Starwood, or (ii) a tax opinion indicating that Starwood's receipt of
the indemnification amounts would satisfy the REIT Requirements, in which event
the Stockholders shall pay to Starwood the unpaid indemnification amount.
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ARTICLE VI
CONDITIONS PRECEDENT
Section 6.1. CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER AND
THE CONTRIBUTION TRANSACTIONS. The respective obligations of Advisor, Starwood
and SCG to effect the Advisor Merger and the Contribution Transactions and to
consummate the other transactions contemplated by this Agreement on the Closing
Date are subject to the satisfaction or waiver on or prior to the Effective Time
of the following conditions:
(a) SHAREHOLDER APPROVALS. The affirmative vote of at least a majority of
the outstanding shares of Starwood Class A Common Stock and the Starwood Class B
Common Stock, voting as one class, at the Starwood Shareholders meeting, or any
adjournment thereof, to approve this Agreement and the Advisor Merger shall have
been obtained.
(b) LISTING OF SHARES. The NYSE or the AMEX shall have approved for
listing the New Starwood Common Stock to be issued in the Advisor Merger and the
Contribution Transactions.
(c) REGISTRATION STATEMENT. The Registration Statement shall have become
effective under the Securities Act and shall not be the subject of any stop
order or proceedings by the SEC seeking a stop order.
(d) 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 Advisor Merger, the Contribution Transactions, the Merger,
the Incorporation Merger or any of the other transactions or agreements
contemplated by this Agreement shall be in effect.
(e) INCORPORATION MERGER AND MERGER. Unless Starwood shall have delivered
the written notice to Advisor contemplated by Section 1.7, the Incorporation
Merger shall have occurred in accordance with the Incorporation Merger
Agreement. The Merger Agreement shall be in full force and effect and the Merger
shall occur simultaneously with the Advisor Merger and the Contribution
Transactions in accordance with the Merger Agreement.
Section 6.2. CONDITIONS TO OBLIGATIONS OF STARWOOD. The obligation of
Starwood to effect the Advisor Merger, the Contribution Transactions and the
Merger and to consummate the other transactions contemplated by this Agreement
on the Closing Date are further subject to the following conditions, any one or
more of which may be waived by Starwood:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties of
Advisor, the Stockholders and SCG (without giving effect to any "materiality,"
Material Adverse Effect" or similar qualification or limitation in any such
representation or warranty) set forth in this Agreement shall be true and
correct in all material respects on and as of the Closing Date, other than the
representations made in Section 3.1(c) which shall be true and correct in all
respects, 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, and Starwood shall have received a certificate (which certificate
may be qualified by Knowledge to the same extent as such representations and
warranties are so qualified) signed by the Chief Executive Officer and the Chief
Financial Officer of each of Advisor and SCG to such effect.
(b) PERFORMANCE OF OBLIGATIONS OF ADVISOR. Advisor and SCG 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 Starwood shall
have received a certificate signed by the Chief Executive Officer and the Chief
Financial Officer of each of Advisor and SCG to such effect.
(c) MATERIAL ADVERSE EFFECT. Since the date of this Agreement, no event
shall have occurred or circumstance shall have arisen that, individually or
taken together with all other facts, circumstances or
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<PAGE>
events, is reasonably likely to have an Advisor Material Adverse Event. Starwood
shall have received a certificate of the Chief Executive Officer and Chief
Financial Officer of Advisor to the effect that there has been no such Advisor
Material Adverse Effect.
(d) ASSIGNMENT OF SFA II AND SFA INTEREST. SCG shall have assigned its
0.1% managing member interest in each of SFA II and SFA to Advisor, free and
clear of all Liens and, as a result of such assignments and the Advisor Merger,
New Starwood will own, directly and through its Subsidiaries, 100% of the
membership interests of SFA and SFA II.
Section 6.3. CONDITIONS TO OBLIGATION OF ADVISOR AND SCG. The obligations
of Advisor to effect the Advisor Merger and of SCG to consummate the
Contribution Transactions and to consummate the other transactions contemplated
by this Agreement on the Closing Date is further subject to the following
conditions, any one or more of which may be waived by Advisor:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties of
Starwood set forth in this Agreement shall be true and correct in all material
respects on and as of the Closing Date, 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, and Advisor shall have received a certificate
(which certificate may be qualified by Knowledge to the same extent as such
representations and warranties are so qualified) signed on behalf of Starwood by
the Chief Executive Officer and the Chief Financial Officer of Starwood to such
effect.
(b) PERFORMANCE OF OBLIGATIONS OF STARWOOD. Starwood 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 Advisor shall have
received a certificate signed on behalf of Starwood by the Chief Executive
Officer and the Chief Financial Officer of Starwood to such effect; provided,
however, that for purposes of this Section 6.3(b) and Section 7.1(b), the Proxy
Statement requirement set forth in the second sentence of Section 5.1(a) shall
be deemed not to be an obligation required to be performed by Starwood.
(c) MATERIAL ADVERSE EFFECT. Since the date of this Agreement, no event
shall have occurred or circumstance shall have arisen that, individually or
taken together with all other facts, circumstances or events, is reasonably
likely to have a Material Adverse Effect. Starwood shall have received a
certificate of the Chief Executive Officer and Chief Financial Officer of
Starwood to the effect that there has been no such Starwood Material Adverse
Effect.
(d) CONSENTS. All consents and waivers from third parties necessary in
connection with the consummation of the transactions shall have been obtained,
other than such consents and waivers from third parties, which, if not obtained,
would not result, individually or in the aggregate, a Starwood Material Adverse
Effect.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
Section 7.1. TERMINATION. This Agreement may be terminated at any time
prior to the filing of the Certificate of Merger with the Secretary of State of
the State of Delaware, whether before or after the requisite approval of
Starwood's shareholders is obtained:
(a) by mutual written consent duly authorized by the respective Board of
Directors of Advisor, the Board of Directors of New Starwood Sub, the Board of
Trustees of Starwood and the managers of SCG;
(b) by Starwood, upon a breach of any representation, warranty, covenant or
agreement on the part of Advisor set forth in this Agreement, or if any
representation or warranty of the Advisor shall have become untrue, in either
case such that the conditions set forth in Section 6.2(a) or Section 6.2(b), as
the case may be, would be incapable of being satisfied by December 31, 1999 (as
otherwise extended);
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(c) by Advisor or SCG, upon a breach of any representation, warranty,
covenant or agreement on the part of Starwood set forth in this Agreement, or if
any representation or warranty of Starwood shall have become untrue, in either
case such that the conditions set forth in Section 6.3(a) or Section 6.3(b), as
the case may be, would incapable of being satisfied by December 31, 1999 (as
otherwise extended);
(d) by Starwood, Advisor or SCG, if any judgment, injunction, order, decree
or action by; any Governmental Entity of competent authority preventing the
consummation of the Advisor Merger or the Contribution Transactions shall have
become final and nonappealable;
(e) by either Starwood, Advisor or SCG, if the Advisor Merger or the
Contribution Transactions shall not have been consummated before December 31,
1999; provided, however, that a party that has materially breached a
representation, warranty or covenant of such party set forth in this Agreement
shall not be entitled to exercise its right to terminate under this Section
7.1(e); or
(f) by Starwood, Advisor or SCG, if the requisite approval of Starwood's
shareholders shall not have been obtained, as contemplated by Section 6.1.
Section 7.2. EXPENSES. Except as otherwise specified in this Section 8.2
or agreed in writing by the parties, all out-of-pocket costs and expenses
incurred in connection with this Agreement, the Advisor Merger, the Contribution
Transactions, and the other transactions contemplated hereby shall be paid by
the party incurring such cost or expense.
Section 7.3. EFFECT OF TERMINATION. In the event of termination of this
Agreement by Advisor, Starwood or SCG 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 Starwood, Advisor or SCG, and except to the extent
that such termination results from a willful breach by a party of any of its
representations, warranties, covenants or agreements set forth in this
Agreement.
Section 7.4. AMENDMENT. Subject to the provisions of the Merger Agreement,
this Agreement may be amended by the parties in writing by action of their
respective Boards of Directors or Trustees or managers, as the case may be, at
any time before or after any required shareholder approvals are obtained and
prior to the acceptance of the Certificate of Merger for the Advisor Merger with
the Secretary of State of the State of Delaware; PROVIDED, HOWEVER, that, after
any of the required shareholder approvals are obtained, no such amendment,
modification or supplement shall alter the amount or change the form of the
consideration to be delivered to Advisor's or Starwood's members/shareholders or
alter or change any of the terms or conditions of this Agreement if such
alteration or change would adversely affect Advisor's or Starwood's
shareholders.
Section 7.5. EXTENSION; WAIVER. At any time prior to the Effective Time,
each of Advisor, Starwood and SCG may (a) extend the time for the performance of
any of the obligations or other acts of the other party, (b) waive any
inaccuracies in the representations and warranties of the 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 the 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 VIII
GENERAL PROVISIONS
Section 8.1. SURVIVAL. None of the representations and warranties in this
Agreement or in any instrument delivered pursuant to this Agreement shall
survive the Effective Time. This Section 8 shall not limit any covenant or
agreement of the parties which by its terms contemplates performance after the
Effective Time shall survive the consummation of the Advisor Merger and the
Contribution Transactions.
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Section 8.2. NOTICES. All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be deemed
given if 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):
(a) if to Starwood or New Starwood Sub, to
Starwood
1114 Avenue of the Americas
27(th) Floor
New York, New York 10036
Attn: Spencer B. Haber and Nina Matis, Esq.
Fax: (212) 930-9494
with a copy to:
Rogers & Wells LLP
200 Park Avenue
New York, NY 10166
Attn: John A. Healy, Esq.
Fax: (212) 878-8375
(b) if to the Advisor, to
STW Holdings I, Inc.
(until June 28, 1999)
Three Pickwick Plaza
Suite 250
Greenwich, Connecticut 06830
(after June 28, 1999)
591 West Putnam
Greenwich, Connecticut 06830
Attention: Madison Grose
Fax: (203) 861-2101
(c) if to the Stockholders, to
Starwood Capital Group, LLC
(until June 28, 1999)
Three Pickwick Plaza
Suite 250
Greenwich, Connecticut 06830
(after June 28, 1999)
591 West Putnam
Greenwich, Connecticut 06830
Attention: Madison Grose, Esq.
Fax: (203) 861-2101
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(d) if to SCG, to
Starwood Capital Group, LLC
(until June 28, 1999)
Three Pickwick Plaza
Suite 250
Greenwich, Connecticut 06830
(after June 28, 1999)
591 West Putnam
Greenwich, Connecticut 06830
Attention: Madison Grose, Esq.
Fax: (203) 861-2101
(e) if to TriNet, to
TriNet Corporate Realty Trust, Inc.
One Embarcadero Center
Suite 3150
San Francisco, California 94111
Attention: A. William Stein and Geoff Dugan, Esq.
Fax: (415) 391-3092
Section 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."
Section 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.
Section 8.5. ENTIRE AGREEMENT; NO THIRD-PARTY BENEFICIARIES. This
Agreement, the Merger Agreement, the Incorporation Merger Agreement and the
other agreements entered into in connection with the transactions contemplated
hereby and thereby constitute the entire agreement and supersedes all prior
agreements and understandings, both written and oral, between the parties with
respect to the subject matter of this Agreement. This Agreement, the Merger
Agreement, the Incorporation Merger Agreement and the other agreements entered
into in connection with the transactions contemplated hereby and thereby are not
intended to confer upon any person other than the parties hereto any rights or
remedies except that the agreements, covenants and representations and
warranties of the parties hereto are intended to be for the benefit of, and
shall be enforceable by, TriNet.
Section 8.6. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING
EFFECT TO CONFLICTS OF LAWS PRINCIPLES THEREOF, EXCEPT TO THE EXTENT THAT THE
ADVISOR MERGER OR OTHER TRANSACTIONS CONTEMPLATED HEREBY ARE REQUIRED TO BE
GOVERNED BY THE DGCL OR THE LAWS OF THE STATE OF DELAWARE.
Section 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
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sentence, this Agreement will be binding upon, inure to the benefit of, and be
enforceable by, the parties and their respective successors and assigns.
Section 8.8. ENFORCEMENT. The parties agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any court of the United States
located in the State of New York or in any New York State court, this being in
addition to any other remedy to which they are entitled at law or in equity. 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 the State of New York or any New York State court 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.
Section 8.9. EXHIBITS; DISCLOSURE LETTERS. All Exhibits referred to herein
and in the Advisor Disclosure Letter and the Starwood Disclosure Letter are
intended to be and hereby are specifically made a part of this Agreement. All
references herein to Articles, Sections, Exhibits and Disclosure Letters shall
be deemed references to such parts of this Agreement, unless the context
otherwise requires. Each exception to a representation or warranty of Starwood
or the Advisor that is set forth in the applicable Starwood or Advisor
Disclosure Letter is identified by reference to, or has been grouped under a
heading referring to, a specific individual Section of this Agreement.
ARTICLE IX
CERTAIN DEFINITIONS
Section 9.1. CERTAIN DEFINITIONS. For purposes of this Agreement:
An "ADVISOR SUBSIDIARY" means each Subsidiary of Advisor.
An "AFFILIATE" of any person means another person that directly or
indirectly, through one or more intermediaries, controls, is controlled by, or
is under common control with, such first person.
"EMPLOYEE PLAN" means any employment, bonus, incentive compensation,
deferred compensation, pension, profit sharing, retirement, stock purchase,
stock option, stock ownership, stock appreciation rights, phantom stock, equity
(or equity-based) leave of absence, layoff, vacation, day or dependent care,
legal services, cafeteria, life, health, medical, accident, disability,
workmen's compensation or other insurance, severance, separation, termination,
change of control or other benefit plan, agreement (including any collective
bargaining agreement), practice, policy or arrangement of any kind, whether
written or oral, and whether or not subject to ERISA, including, but not limited
to, any "employee benefit plan" within the meaning of Section 3(3) of ERISA.
"KNOWLEDGE" where used herein with respect to Advisor or any Advisor
Subsidiary shall mean the knowledge, after due inquiry, of the persons named in
Section 10 of the Advisor Disclosure Letter and where used with respect to
Starwood shall mean the actual knowledge of the persons named in Section 10 of
the Starwood Disclosure Letter.
"LAW" means any statute, law, regulation or ordinance of any Government
Entity applicable to Starwood or TriNet or any of their respective Subsidiaries.
"PERSON" means an individual, corporation, partnership, limited liability
company, joint venture, association, trust, unincorporated organization or other
entity.
"STARWOOD SUBSIDIARY" means each Subsidiary of Starwood.
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"SUB-ADVISORY AGREEMENTS" means the Investment Sub-Advisory Agreement made
as of April 1, 1999 by and between SFA and New York Financial Advisors and the
Investment Sub-Advisory Agreement made as of April 1, 1999 by and between SFA
and Starwood Capital Operations, L.L.C.
"SUBSIDIARY" of any person means any corporation, partnership, limited
liability company, joint venture 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 voting stock, value of or other equity interests (voting
or non-voting) of such corporation, partnership, limited liability company,
joint venture or other legal entity.
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IN WITNESS WHEREOF, Starwood, New Starwood Sub, Advisor, TriNet and the
Stockholders have caused this Agreement to be signed by their respective
officers thereunto duly authorized, all as of the date first written above.
<TABLE>
<S> <C> <C>
STARWOOD FINANCIAL TRUST
By:
-----------------------------------------
Name:
Title:
SA MERGER SUB, INC.
By:
-----------------------------------------
Name:
Title:
STW HOLDINGS I, INC.
By:
-----------------------------------------
Name:
Title:
STARWOOD CAPITAL GROUP, LLC
By:
-----------------------------------------
Name:
Title:
TRINET CORPORATE REALTY TRUST, INC. (solely in
its capacity as an intended third party
beneficiary of the designated representations,
warranties and covenants in the Agreement)
By:
-----------------------------------------
Name:
Title:
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
STOCKHOLDERS
---------------------------------------------
---------------------------------------------
---------------------------------------------
---------------------------------------------
---------------------------------------------
---------------------------------------------
---------------------------------------------
---------------------------------------------
---------------------------------------------
---------------------------------------------
---------------------------------------------
---------------------------------------------
</TABLE>
<PAGE>
EXHIBIT 99.1
<TABLE>
<S> <C> <C>
STARWOOD FINANCIAL TRINET CORPORATE
1114 AVENUE OF THE AMERICAS REALTY TRUST
27TH FLOOR ONE EMBARCADERO CENTER
NEW YORK, NY 10036 33RD FLOOR
TRADED ASE: APT SAN FRANCISCO, CA 94111
TRADED NYSE: TRI
</TABLE>
<TABLE>
<S> <C>
AT STARWOOD FINANCIAL: AT TRINET:
Spencer B. Haber Elisa F. DiTommaso
Executive Vice President--Finance and CFO Senior Vice President--Finance and CFO
(212) 930-9400 (415) 391-4300
MEDIA INQUIRIES:
Walter Montgomery Michaelle Burstin
Robinson Lerer & Montgomery Financial Relations Board
(212) 484-6100 (310) 442-0599
</TABLE>
- --------------------------------------------------------------------------------
FOR IMMEDIATE RELEASE
JUNE 16, 1999
STARWOOD FINANCIAL AND TRINET TO MERGE
IN $1.5 BILLION TRANSACTION
- MERGER CREATES PREEMINENT, NATIONWIDE REAL ESTATE FINANCE COMPANY IN
PUBLIC MARKETS, WITH LEADING MARKET POSITIONS IN STRUCTURED MORTGAGE,
MEZZANINE AND CREDIT LEASE FINANCING
- TRANSACTION LEVERAGES COMPLEMENTARY STRENGTHS, JOINING TRINET'S RATED
FINANCING PLATFORM WITH STARWOOD'S PROPRIETARY ORIGINATION CAPABILITIES
AND TRACK RECORD OF GROWTH
- COMBINED COMPANY WILL HAVE $5 BILLION TOTAL MARKET CAPITALIZATION AND MORE
THAN 250 BORROWER AND CORPORATE TENANT RELATIONSHIPS
NEW YORK, N.Y., AND SAN FRANCISCO, CALIF.--JUNE 16, 1999--Starwood Financial
Trust (ASE: APT) and TriNet Corporate Realty Trust (NYSE: TRI) have signed a
definitive agreement to merge in a $1.5 billion stock-for-stock transaction. The
combined company, which will be headquartered in New York, will have a book
equity capitalization of approximately $2 billion and a total market
capitalization of approximately $5 billion. The merger combines two leading
franchises in structured finance to create the country's preeminent publicly
traded finance company focused exclusively on the commercial real estate
industry, with existing relationships with more than 250 borrowers and corporate
customers nationwide.
TRANSACTION TERMS
Under the terms of the merger agreement, TriNet will merge into a newly
formed subsidiary of Starwood Financial through an exchange of shares in which
TriNet common shareholders will receive 1.15 shares of Starwood Financial for
each TriNet share they own. TriNet's preferred shareholders will receive
comparable preferred shares in Starwood Financial as a result of the merger.
TriNet's existing unsecured corporate debt will continue to be an obligation of
TriNet (as a subsidiary of Starwood Financial). The combined company will have
approximately 87 million common shares outstanding, approximately 67% of which
will be owned by shareholders of Starwood Financial and approximately 33% by
former shareholders of TriNet. As described below, in the proposed transaction
Starwood Financial will also acquire the operations of its external advisor and
eliminate its Class A/B share structure.
<PAGE>
PREEMINENT STRUCTURED FINANCE COMPANY IN REAL ESTATE INDUSTRY
The merger creates the largest publicly traded finance company focused
exclusively on commercial real estate and substantially expands the companies'
nationwide platform for providing real estate borrowers and corporate customers
with innovative, custom-tailored solutions to their structured financing needs.
With $2 billion of permanent book equity capital and a rated financing
capability, Starwood Financial will have capital resources comparable to the
largest publicly traded commercial finance companies. In addition, the combined
company will join Starwood Financial's track record of strong double-digit
growth in earnings per share with TriNet's attractive current dividend, while
maintaining conservative leverage ratios significantly below those of comparable
finance companies.
The transaction provides Starwood Financial and its shareholders with an
immediate presence in a sizable, lucrative and complementary credit-related
business line; rated financing capabilities; a substantial increase in equity
capital; significantly improved share liquidity; and the opportunity to enhance
its corporate structure by eliminating its external advisor and A/B share
structure. TriNet shareholders will benefit from improved growth prospects; a
vehicle for increasing revenues and profits from the finance orientation of the
combined company's business strategy; access to a franchise and management team
with proven capabilities for generating strong returns through the origination
of highly structured, value-added transactions; and an annual dividend higher
than that currently paid by TriNet.
"This transaction reinforces Starwood Financial's leadership in structured
real estate finance, creating an enterprise with funding capabilities and
infrastructure comparable to diversified commercial finance companies but with
more proprietary origination capabilities," said Barry S. Sternlicht, Starwood
Financial's chairman. "The combined company's attractive growth prospects and
current dividend yield, combined with its improved financing capacity and
liquidity, provide both companies' customers, shareholders, lenders and
employees with a clear 'win-win' outcome."
Robert W. Holman, Jr., TriNet's chairman and chief executive officer, said,
"TriNet and Starwood Financial are a perfect strategic fit. We founded TriNet to
provide net lease real estate financing solutions to quality corporations. This
transaction provides us access to capital and a dynamic vehicle to continue to
capitalize on our proven investment capabilities and market leadership in the
expanding, profitable credit lease market. Starwood has generated strong
risk-adjusted returns through robust deal flow and innovative financial
structuring, which have led to its rapid earnings growth. TriNet's complementary
business line, strong organizational infrastructure and financial flexibility
will position the combined company to take the business to the next level."
Jay Sugarman, chief executive officer of Starwood Financial, commented, "As
the leader in credit tenant lease finance with a solid 13-year track record of
growth, TriNet brings to Starwood a uniquely attractive and complementary
business platform, which we believe can be made more valuable with the
structured finance tools and capital resources Starwood can offer. We think the
combined company is positioned as the market leader in each of its core
financing businesses and we intend to use this coast-to-coast platform to
continue to seek out opportunities to add other finance-related businesses to
our franchise."
Mr. Sugarman added, "By structuring the merger so as to retain an unsecured
funding capacity, the combined company will be able to optimize return on equity
by financing assets with either corporate debt or the match-funding financing
initiatives now underway at Starwood Financial."
ADDITIONAL TRANSACTION TERMS
As part of the transaction, the entities that own Starwood Financial's
external advisor, Starwood Financial Advisors, will be merged into the combined
company in exchange for 4.0 million common shares of Starwood Financial. In
addition, the holders of all Starwood Financial Class B common shares have
agreed to exchange such shares into Class A common shares in connection with the
merger, eliminating the A/B structure and providing the combined company with a
single class of common stock. Immediately
2
<PAGE>
prior to the merger, Starwood Financial will reorganize under Maryland law from
a business trust to a corporation, and simultaneously distribute a tax-free
dividend to each of its shareholders equal to approximately 0.019 common shares
of the reorganized company per Class A share. The combined company intends to
continue to qualify for taxation as a real estate investment trust under the
Internal Revenue Code of 1986, as amended. Starwood Financial intends to qualify
for listing on the New York Stock Exchange under the symbol "SFI."
The merger, which was unanimously approved by the Boards of Directors of
both companies, has been structured as a tax-free transaction and will be
accounted for as a purchase of TriNet by Starwood Financial. The merger of the
interests in Starwood Financial Advisors, which was unanimously approved by the
independent members of Starwood Financial's Board, has also been structured as a
tax-free transaction and will be reflected as a one-time charge to earnings upon
consummation. The transactions are expected to close in the late third quarter
or early fourth quarter of 1999.
Upon completion of the transactions, the combined company expects to pay a
quarterly dividend equivalent to approximately $2.40 per share per annum, which
equates to $2.76 per TriNet share as adjusted for the 1.15 exchange ratio, or
$0.16 per share (6.2%) higher than TriNet's existing dividend of $2.60 per
share.
LEADING BOARD OF DIRECTORS AND MANAGEMENT TEAM
Following the merger, the combined company will be governed by a 15-member
Board of Directors, consisting of 10 directors from Starwood Financial and five
directors from TriNet. Eight of the 15 directors will be independent. The
combined company's Board will include each of Starwood Financial's existing
eight directors and TriNet's five directors. In addition, Spencer B. Haber,
Starwood Financial's executive vice president and chief financial officer, and
Madison F. Grose, senior managing director of Starwood Capital Group, will join
the new Board of Directors.
The combined company's headquarters will be located in New York, N.Y., with
super-regional offices in San Francisco, Calif.; Atlanta, Ga.; and Hartford,
Conn. Its 115 employees will be led by a highly experienced management team that
represents executives from both Starwood Financial and TriNet:
<TABLE>
<S> <C>
Chief Executive Officer and
President:......................... Jay Sugarman
President--Net Lease Division:....... A. William Stein
Executive Vice President--Finance and
Chief Financial Officer:........... Spencer B. Haber
Senior Vice President--Finance and
Treasurer:......................... Elisa F. DiTommaso
Chief Operating Officer:............. Timothy J. O'Connor
Senior Vice President--Asset
Management:........................ Jo Ann Chitty
Senior Vice President--Loan
Servicing:......................... Barbara Rubin
Senior Vice
Presidents--Investments:........... Thomas M. Mulroy
James H. Ida
Jeffrey R. Digel
Roger M. Cozzi
Steven Blomquist
</TABLE>
"Our ability to efficiently integrate the best practices and extensive
experience and skills of both companies is of paramount importance to the
success of this transaction," Mr. Sugarman said. "To ensure a seamless
integration, we have organized a series of task forces under the capable
direction of Bill Stein, TriNet's president, and Tim O'Connor, Starwood
Financial's COO, who are charged with jointly identifying best practices that
will be implemented nationwide and combining functions so that the organizations
3
<PAGE>
and corporate cultures become one. Certain executives from both companies are
expected to relocate to assist in the integration process."
MINIMIZING REAL ESTATE RISK
The combined company has identified approximately $200 million of TriNet
properties that it has targeted for disposition over the 12 months following the
merger. Such properties generally consist of buildings with multiple tenants and
other operating-intensive assets. In addition, Starwood Financial is in
discussions with a number of insurance companies regarding a potential credit
enhancement of a portion of combined company's operating lease revenue tied to
the expiration of certain of its net leases.
Both the property disposition pool and potential credit enhancement
arrangement are intended to minimize the re-leasing risks in TriNet's portfolio
and reduce the combined company's exposure to operating-intensive real estate
assets, which are inconsistent with its business strategy as a finance company.
The merger and related transactions are subject to the approval of the
shareholders of both companies and customary closing conditions. Shareholders
representing approximately 99% of the voting interest in Starwood Financial have
agreed to vote in favor of the merger and related transactions. The merger
agreement is not subject to termination by either party due to movements in the
market price of either company's shares.
Starwood Financial was advised in the merger by Bear Stearns & Co., Inc. as
lead advisor and Banc of America Securities LLC as co-advisor. Starwood
Financial's independent trustee committee was advised in the Starwood Financial
Advisors merger by Houlihan Lokey Howard & Zukin. TriNet was advised in the
merger by Greenhill & Co., LLC.
Starwood Financial and TriNet management will hold a joint conference call
and Webcast for investment professionals at 10:00 a.m. EDT today, June 16, 1999,
which will be accessible to the general public via HTTP://WWW.VCALL.COM.
TriNet Corporate Realty Trust Inc. is an industry leader in the large-user
corporate real estate market. It predominantly owns strategic, suburban offices
and warehouse properties net leased to large, well-known companies. Its
portfolio contains 145 properties, comprising approximately 19.5 million square
feet in 25 states, and is 96% leased. Additional information on TriNet Corporate
Realty Trust Inc. is available on the company's Web site at
HTTP://WWW.TRICORP.COM.
Starwood Financial is the leading publicly traded finance company focused
exclusively on the commercial real estate industry. The company, which is taxed
as a real estate investment trust, provides structured mortgage, mezzanine and
lease financing through its proprietary origination, acquisition and servicing
platform. The company's mission is to maximize risk-adjusted returns on equity
by providing innovative and value-added financing solutions to the real estate
industry.
STATEMENTS IN THIS PRESS RELEASE WHICH ARE NOT HISTORICAL FACT MAY BE DEEMED
FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995. ALTHOUGH STARWOOD FINANCIAL AND TRINET BELIEVE
THE EXPECTATIONS REFLECTED IN ANY FORWARD-LOOKING STATEMENTS ARE BASED ON
REASONABLE ASSUMPTIONS, THE COMPANIES CAN GIVE NO ASSURANCE THAT THEIR
EXPECTATIONS WILL BE ATTAINED. FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM THE COMPANIES' EXPECTATIONS INCLUDE COMPLETION OF THE MERGER AND
RELATED TRANSACTIONS, THE COMBINED COMPANY'S ABILITY TO ACHIEVE ITS PROPERTY
DISPOSITION TARGETS AND ITS ABILITY TO SECURE A CREDIT ENHANCEMENT ARRANGEMENT
ON SATISFACTORY TERMS, THE COMBINED COMPANY'S ABILITY TO ORIGINATE NEW
INVESTMENTS, THE AVAILABILITY AND COST OF CAPITAL FOR FUTURE INVESTMENTS,
COMPETITION WITHIN THE FINANCE AND REAL ESTATE INDUSTRIES, REAL ESTATE AND
ECONOMIC CONDITIONS, AND OTHER RISKS DETAILED FROM TIME TO TIME IN SEC REPORTS
FILED BY STARWOOD FINANCIAL AND TRINET.
FOR MORE INFORMATION ABOUT STARWOOD FINANCIAL, PLEASE CALL
1-800-PRO-INFO AND ENTER TICKER SYMBOL APT.
# # #
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<PAGE>
EXHIBIT 99.2
STARWOOD . FINANCIAL
THE LEADER IN STRUCTURED REAL ESTATE FINANCE
TRANSACTION SUMMARY
JUNE 1999
DISCLAIMER
THESE MATERIALS CONTAIN FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES ACT
OF 1934. THE WORDS "EXCEPT," "ANTICIPATE," "ESTIMATE," "PROSPECTS" AND OTHER
SIMILAR EXPRESSIONS WHICH ARE PREDICTIONS OF OR INDICATE FUTURE EVENTS AND
TRENDS AND WHICH DO NOT RELATE SOLELY TO HISTORICAL MATTERS, INCLUDING
INFORMATION CONCERNING THE COMPANIES' FUTURE EARNINGS ESTIMATES, IDENTIFY
FORWARD-LOOKING STATEMENTS. THE COMPANIES MAKE NO REPRESENTATIONS AS TO WHETHER
THOSE ESTIMATES WILL BE ACHIEVED. RELIANCE SHOULD NOT BE PLACED ON
FORWARD-LOOKING STATEMENTS BECAUSE THEY INVOLVE KNOWN AND UNKNOWN RISKS,
UNCERTAINTIES AND OTHER FACTORS WHICH ARE IN SOME CASES BEYOND THE CONTROL OF
THE COMPANIES AND MAY CAUSE THE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS OF
THE COMPANIES TO DIFFER MATERIALLY FROM ANTICIPATED FUTURE RESULTS, PERFORMANCE
OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. FACTORS
THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE COMPANIES'
EXPECTATIONS INCLUDE COMPLETION OF THE MERGER AND RELATED TRANSACTIONS, THE
COMBINED COMPANY'S ABILITY TO ACHIEVE ITS PROPERTY DISPOSITION TARGETS AND ITS
ABILITY TO SECURE A CREDIT ENHANCEMENT ARRANGEMENT ON SATISFACTORY TERMS, THE
COMBINED COMPANY'S ABILITY TO ORIGINATE NEW INVESTMENTS, THE AVAILABILITY AND
COST OF CAPITAL FOR FUTURE INVESTMENTS, COMPETITION WITHIN THE FINANCE AND REAL
ESTATE INDUSTRIES, REAL ESTATE AND ECONOMIC CONDITIONS, AND OTHER RISKS DETAILED
FROM TIME TO TIME IN SEC REPORTS FILED BY STARWOOD FINANCIAL AND TRINET.
TRANSACTION SUMMARY
Starwood Financial and TriNet Corporate Realty have agreed to a
stock-for-stock merger to create the largest structured real estate finance
company in the public markets, with a total capitalization of approximately
$4-$5 billion (based on the trading prices of each company's stock on the date
prior to announcement).
PREEMINENT STRUCTURED FINANCE COMPANY IN REAL ESTATE
- Dominant market positions in structured mortgage, mezzanine and lease
financing for commercial real estate.
-- Goal is to be #1 in each of a limited number of focused, proprietary
business lines.
- Capital resources and size comparable to other leading commercial finance
companies:
-- $2 billion (book) equity capital base.
-- $4-$5 billion total capitalization (based on the trading prices of
each company's stock on the date prior to announcement).
-- State-of-the-art debt capital resources.
- Combines industry-leading management teams with complementary expertise.
- Strong earnings growth prospects and attractive dividend yield.
1
<PAGE>
TRANSACTION TERMS
<TABLE>
<S> <C>
Structure: TriNet Corporate Realty Trust ("TriNet") merges into wholly-owned
subsidiary of Starwood Financial Trust ("Starwood Financial").
Consideration: 1.15 shares of Starwood Financial for each TriNet share.
Board of Directors: 10 Starwood Financial and 5 TriNet directors (8 independent).
Management: Self-administered and self-advised. Starwood Financial's external
advisor merged into combined company for 4.0 million shares.
Headquarters: New York--super-regional offices in San Francisco, Atlanta and
Hartford.
Proposed Dividend: Approximately $2.40/share (annualized) = $2.76/share for TriNet
shareholders after 1.15 exchange ratio.
Proposed Listing: NYSE: SFI (Starwood Financial A / B share structure eliminated).
Basic Shares 87 million (67% Starwood Financial; 33% TriNet).
Outstanding:
Accounting: Purchase.
Closing: Estimated September 1999.
</TABLE>
TRANSACTION STRUCTURE
[LOGO]
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BENEFITS OF THE MERGER
- Creates one of the largest publicly-traded commercial finance companies.
-- Strategically refocuses TriNet as a net lease finance business.
-- Allows Starwood Financial to expand product line into large,
complementary financing market with attractive risk/return dynamics.
- Combines two leading franchises focused on providing real estate borrowers
and corporate customers with innovative, custom-tailored, structured
financing solutions.
- Scale improves diversification, operating efficiencies and customer base.
-- More than 250 borrowers and corporate tenant relationships.
- Enhances access to a variety of capital sources and lowers weighted
average cost of capital.
-- Opens up securitized financing structures for long-term leases.
-- Broadens institutional equity relationships and support.
- Creates fully-integrated organization with national footprint and in-house
expertise in origination, acquisition, capital markets, M&A, asset
management and loan servicing.
BENEFITS OF THE MERGER
The merger provides a number of benefits for the combined company.
[LOGO]
3
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STARWOOD FINANCIAL--LEADING STRUCTURED FINANCE COMPANY IN REAL ESTATE
- Starwood originates and acquires structured mortgage and mezzanine loans
on commercial properties nationwide.
-- Growing credit lease financing business.
- Business founded in 1993 as part of Starwood private investment funds to
capitalize on market inefficiency.
-- Funded by leading institutions and high net worth investors, including
six of the top pension funds in the nation.
- One of the earliest and largest structured finance players focused
exclusively on the real estate industry.
-- Grew to $1.1 billion private business with superior track record.
- Merged into public entity March 1998.
-- 99% of common stock owned by Starwood investors and affiliates.
-- Stock added to certain Frank Russell Company stock indices July 1998;
stock price volatility has increased dramatically since then.
- More than doubled size of Company in past four quarters, completing over
$1.3 billion in new financing commitments.
-- Acquired largest competitor's portfolio December 1998.
-- 20%+ growth in EPS since March 1998.
-- Increased dividend every quarter.
- Seasoned portfolio built over six years.
-- Primarily self-originated and call protected.
-- Flexible, structured solutions create premium spreads.
-- No losses.
- Proprietary deal flow and structuring captures highest risk-adjusted part
of capital structure, and creates irreplaceable assets.
- Now the largest independent, publicly-held provider of structured real
estate financing in U.S.
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STARWOOD FINANCIAL--LEADING STRUCTURED FINANCE COMPANY IN REAL ESTATE
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------
SUMMARY SELECTED FINANCIAL INFORMATION (IN 3/31/99 12/31/98 9/30/98 6/30/98 3/31/98
THOUSANDS EXCEPT PER SHARE DATA) ACTUAL ACTUAL ACTUAL ACTUAL PRO FORMA(1)
--------- --------- --------- --------- -------------
<S> <C> <C> <C> <C> <C>
Net Investment Income........................ $ 33,953 $ 28,533 $ 25,770 $ 23,015 $ 19,456
Other Income................................. 1,778 591 1,329 1,291 425
Non-Interest Expense......................... (7,514) (6,170) (6,164) (4,417) (5,233)
--------- --------- --------- --------- -------------
Net Income................................... $ 22,909 $ 22,010 $ 20,935 $ 19,889 $ 14,648
Per Basic Share............................ $0.43 $0.42 $0.40 $0.38 $0.28
Funds From Operations........................ $ 24,443 $ 23,369 $ 22,309 $ 21,263 $ 16,022
Per Basic Share............................ $0.46 $0.44 $0.42 $0.40 $0.30
Weighted Average Basic Shares................ 52,447 52,408 52,390 52,390 52,390
</TABLE>
- ------------------------
(1) Pro forma to reflect the recapitalization of Starwood Financial in March
1998 as described in Starwood Financial's Annual Report on Form 10-K for the
fiscal year ended December 31, 1998.
<TABLE>
<CAPTION>
PORTFOLIO SUMMARY AT 5/31/99
<S> <C>
Book Value Assets $2.1 billion
# of Assets 46
# of Properties 194
Total Financing Commitments $2.2 billion
Estimated First $ LTV 22.1%
Estimated Last $ LTV 75.1%
Debt Service Coverage Ratio 1.39x
Weighted Average Maturity 6.4 years
</TABLE>
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PORTFOLIO ASSETS BY SECURITY TYPE
(TOTAL PORTFOLIO AS OF 5/31/99 = $2.1 BILLION)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
FIRST MORTGAGES 48%
<S> <C>
Second Mortgages 24%
Partnership/Other 19%
Net Leases 9%
</TABLE>
PORTFOLIO ASSETS BY COLLATERAL TYPE
(TOTAL PORTFOLIO AS OF 5/31/99 = $2.1 BILLION)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
HOTEL 19%
<S> <C>
Mixed Use 11%
Office 33%
Apartment/Residential 7%
Resort/Entertainment 8%
Homebuilder/Land 7%
Retail 15%
</TABLE>
PORTFOLIO ASSETS BY REGION
(TOTAL PORTFOLIO AS OF 5/31/99 = $2.1 BILLION)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
SOUTHEAST 10%
<S> <C>
Mid Atlantic 10%
Northeast 16%
North Central 1%
Central 6%
Southeast 12%
West 38%
Northwest 7%
</TABLE>
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TRINET--LARGEST PUBLIC COMPANY IN THE CORPORATE NET LEASE MARKET
- Business founded in 1985 to provide real estate capital solutions to the
inefficient corporate real estate market.
-- Corporate credits are often mispriced in the real estate markets.
-- Focused on capturing value from credit tenant leases (CTL).
-- Investment-grade tenants pay significant premiums over their cost of
debt to lease real estate.
- The largest public company specializing in net lease corporate office,
warehouse and R&D properties.
-- Size, scale and diversity from 150 assets in 25 states net leased to
more than 200 corporate tenants.
-- Growth in enterprise value to over $1.6 billion currently.
- Demonstrated expertise in structured finance and corporate real estate.
FINANCIAL RATIONALE
- Combines Starwood Financial track record of double-digit EPS growth with
TriNet's attractive dividend yield.
- Combined company has an array of capital resources to maximize ROE:
-- Proprietary match-funded securitization vehicle.
-- Rated corporate debt at subsidiary level.
-- Combined $1.5 billion in credit facilities.
- Size, diversification and liquidity drive cost of capital lower.
- Significantly lower leverage than other commercial finance companies, with
comparable or superior ROE and earnings growth prospects.
INVESTMENT STRATEGY
- Business revolves around creating pricing power and effectively allocating
risk.
-- Focus on proprietary origination. Avoid commodity businesses.
-- Add value beyond the capital: flexibility, speed, certainty,
relationship, expertise.
-- Target markets with limited competition.
-- Take advantage of market anomalies.
-- Arbitrage spread between lease yields and tenant credit.
- Redirect focus of CTL business.
-- Focus on mispriced credits and undervalued real estate.
-- Capture best risk-adjusted return in the capital structure.
-- Exploit proprietary information and corporate relationships.
-- Expand use of state-of-the-art insurance instruments.
-- Emphasize long-term leases to major corporate users of general
purpose, but essential, facilities.
-- Develop innovative lease structures to differentiate from other
lessors.
7
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INVESTMENT STRATEGY
- Targeted property disposition pool of approx. $200 million of properties
over 12 months.
-- Minimizes short-term rollover risk and other operating-intensive
assets.
-- Focuses company on finance business.
- Considering unique credit enhancement arrangement with a number of
insurance companies.
- Emphasize portfolio financings to create built-in diversification and
single-asset financings with strong, long-term positioning.
-- Diversification by geography, asset type, property type, obligor and
loan maturity.
-- High quality real estate in major metropolitan markets.
-- Underwrite below replacement cost using static or "downside" property
cash flow scenarios.
- Principal investment culture with entrepreneurial spirit and team
orientation.
- Incentive structure focuses on long-term stock performance vs.
"production" of new transactions.
STARWOOD CTL CASE STUDIES
EXAMPLE #1
- In 1997, Starwood paid $171 million for a portfolio of 17 hotels
triple-net leased to a BBB+ rated credit tenant. Portfolio cash flow
covered lease payments more than 2x and underlying value of assets was
estimated at $350 million.
-- Net lease provided for a $15 million payment per annum and 7.5%
participation in revenue increases over a base year.
-- Lease was for 12 years with five 5-year extensions at tenant's option.
- Acquisition was financed with $125 million of floating-rate, interim
financing. Interest rate hedges were put in place for permanent financing.
-- First-year return on $50 million of equity was 13.1%.
- In order to capture imbedded value, Starwood began proactively reworking
the lease:
1) Starwood paid the tenant $1.5 million to extend the lease ten years,
convert the payment stream to monthly pay, and modify certain other
lease provisions to make it bondable.
2) Starwood paid a AAA rated insurance company $630,000 to wrap
condemnation / casualty risk to eliminate remaining "non-bondable"
provisions in lease.
- Starwood then placed $155 million, ten-year financing on portfolio at
interest rate of 7.44% to better match fund its asset.
-- Second-year return was 16.2% on $25 million of equity invested. This
return is fully guaranteed by the tenant.
- In addition to a highly secure income stream priced significantly above
its credit risk, Starwood Financial also owns:
-- 7.5% participation, providing inflation hedge.
-- Depreciation tax benefits.
-- Residual value currently estimated at $180 million in excess of
Starwood's basis.
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STARWOOD CTL EXAMPLE #2
- Starwood provided $64 million in financing to the purchaser of a renovated
office and warehouse project which has recently signed several long-term
leases.
- 100% of office space leased for 15 years on a triple net, bondable basis
to AAA rated credit tenant.
- 65% of warehouse space leased for eight years to two tenants. Remaining
space is under negotiation with one tenant.
- Based on AAA lease, Starwood obtained third-party, non-recourse financing
for $54 million at favorable rates, match funded to Starwood's $64 million
investment.
- Starwood investment of $10 million will earn a 31% cash-on-cash return for
the 18-month term of loan, with very low basis in underlying assets.
- Starwood's financing focus captured best risk-adjusted return available in
asset's capital structure.
STARWOOD CTL RETURNS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
CASE STUDY #1
<S> <C>
$175 MILLION EQUITY
STARWOOD - $25 MILLION 16.2%
SENIOR LOAN $155 MILLION 7.44%
Loan To Value
CASE STUDY #2
$20 MILLION EQUITY
STARWOOD - $10 MILLION 31.1%
SENIOR LOAN $54 MILLION 7.06%
Loan To Value
</TABLE>
FINANCING STRATEGY
- In raising capital, the combined company seeks to create the same
proprietary advantage it enjoys on the asset side of its balance sheet.
-- Size, diversification, sponsorship, and track record decrease cost of
capital, creating a compelling competitive advantage in the financing
business.
- The combined company can maximize ROE and financial flexibility by
opportunistically accessing a variety of public and private debt and
equity capital sources:
-- Match-funded, proprietary, securitized debt program.
-- Corporate (unsecured) long-term debt.
9
<PAGE>
-- $1.5 billion in revolving credit capacity (secured and unsecured).
-- Preferred and common equity.
FINANCING STRATEGY
- Starwood's business model is premised on significantly lower leverage than
other finance companies:
-- Target 1.5 - 2.0x debt / book equity and 1.5 - 2.0x fixed charge
coverage at parent.
-- Maintain minimum equity base of $2 billion--comparable or larger than
other commercial finance companies.
-- Maintain investment-grade credit statistics at subsidiary.
- Starwood is in the process of establishing STARS Series 1999-1, a branded
securitization program.
-- Proprietary structure developed by Starwood and tailored to its
funding and asset management objective.
-- The structure match-funds assets and liabilities.
- The combined company's credit lease financing product facilitates the
retention of earnings in excess of its dividend payout requirement.
10
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SENIOR MANAGEMENT TEAM
The combined company will draw on a highly-experienced senior management
team, integrating key executives from both organizations:
[LOGO]
MERGER INTEGRATION
- Management and Board committed to smooth integration process.
- "Best practices" approach.
- Relocation of certain key executives.
- Integration task force headed by Tim O'Connor (Starwood Financial, COO)
and Bill Stein (TriNet, President & COO).
<TABLE>
<CAPTION>
TASK FORCE RESPONSIBLE PARTIES
- ------------------------------------------------ ------------------------------------------------
<S> <C>
Investments Digel / Ida
Finance & Accounting Haber / DiTommaso
Asset & Property Management O'Connor / Chitty
HR / Administration Matis / Dugan
Technology / MIS Tretola, Rubin / Sinnett, Burke
Investor Relations Haber / DiTommaso, Drucker
</TABLE>
11
<PAGE>
ENHANCED DIVERSIFICATION BY PROPERTY TYPE AND GEOGRAPHY
(PRO FORMA AT 3/31/99)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
APARTMENT /
RESIDENTIAL 3%
<S> <C>
Resort / Entertainment 4%
Homebuilder / Land 3%
Retail 8%
Mixed Use 6%
Hotel 10%
Office 46%
Industrial 11%
R & D 9%
Southeast 12%
Mid Atlantic 9%
Northeast 14%
North Central 3%
Central 5%
South 17%
West 36%
Northwest 4%
</TABLE>
COAST-TO-COAST PRESENCE
[LOGO]
12
<PAGE>
PRO FORMA BALANCE SHEET AT 3/31/99 (DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
HISTORICAL PRELIMINARY
-------------------- PRO FORMA
STARWOOD COMBINED
FINANCIAL TRINET COMPANY
--------- --------- -----------
<S> <C> <C> <C>
Loans and Related, Net........................................ $ 1,934.5 $ 45.7 $ 1,980.2
Operating Leases.............................................. 188.6 1,380.1 1,758.5
Cash/Mkt. Securities.......................................... 27.4 29.2 56.5
Other Assets.................................................. 28.3 59.2 44.2
--------- --------- -----------
Total Assets.................................................. $ 2,178.8 $ 1,514.2 $ 3,839.4
--------- --------- -----------
--------- --------- -----------
Secured Debt.................................................. $ 1,172.1 $ 84.5 $ 1,256.6
Unsecured Debt................................................ -- 550.1 569.9
Other Liabilities............................................. 6.9 73.3 79.2
--------- --------- -----------
Total Liabilities............................................. $ 1,179.0 $ 707.9 $ 1,905.7
--------- --------- -----------
Minority Interest............................................. -- 2.6 2.6
Preferred Equity.............................................. 220.0 182.5 402.5
Common Equity................................................. 779.8 621.2 1,528.6
--------- --------- -----------
Total Stockholders' Equity.................................... $ 999.8 $ 803.7 $ 1,931.1
--------- --------- -----------
Total Liabilities and Stockholders' Equity.................... $ 2,178.8 $ 1,514.2 $ 3,839.4
--------- --------- -----------
Book Debt/Equity.............................................. 1.2x 0.8x 0.9x
--------- --------- -----------
--------- --------- -----------
</TABLE>
EXPLANATORY NOTE:
The preliminary pro forma balance sheet was prepared predicated on, among other
things, a $30.00 stock price for TriNet to be used for purchase accounting in
connection with the TriNet merger and the value of the Advisor merger. Pro forma
financial information to be filed with the SEC in connection with the companies'
joint proxy and registration statement will be adjusted for TriNet's actual
average stock price for a five-day period before and after the announcement
date. Such information has been provided herein for informative purposes only
and investors should refer to actual pro forma financial information, including
details about the pro forma adjustments, filed with the SEC in the companies'
joint proxy and registration statement.
13
<PAGE>
PRO FORMA INVESTMENT AND REVENUE MIX
<TABLE>
<S> <C>
ASSET MIX(1) REVENUE MIX(2)
TOTAL: $3.8 BB TOTAL: $396 MM
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
NET LEASE R.E. 46%
<S> <C>
Loans and Related 52%
Other Investments 2%
Operating Lease Income 44%
Interest Income 52%
Other Income 4%
</TABLE>
- ------------------------
(1) Pro forma 3/31/99.
(2) Pro forma three months ended 3/31/99, annualized.
14
