<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13D/A
(RULE 13D-101)
INFORMATION TO BE INCLUDED IN STATEMENTS FILED PURSUANT
TO RULE 13d-1(A) AND AMENDMENTS THERETO FILED PURSUANT TO
RULE 13D-2(a)
(AMENDMENT NO. 5)(1)
SUNSTONE HOTEL INVESTORS, INC.
- --------------------------------------------------------------------------------
(NAME OF ISSUER)
COMMON STOCK, PAR VALUE $0.01 PER SHARE
- --------------------------------------------------------------------------------
(TITLE OF CLASS OF SECURITIES)
-----------------------------------------------------------------------
(CUSIP NUMBER)
JONATHAN H. PAUL
WESTBROOK REAL ESTATE PARTNERS, L.L.C.
599 LEXINGTON AVENUE
NEW YORK, NY 10022
(212) 849-8800
WITH A COPY TO:
PATRICK K. FOX, ESQ.
WESTBROOK REAL ESTATE PARTNERS, L.L.C.
13155 NOEL ROAD - LB54
SUITE 2300
DALLAS, TX 75240
(972) 934-0100
- --------------------------------------------------------------------------------
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE NOTICES AND
COMMUNICATIONS)
JULY 13, 1999
-----------------------------------------------------------------------
(DATE OF EVENT WHICH REQUIRES FILING OF THIS STATEMENT)
IF THE FILING PERSON HAS PREVIOUSLY FILED A STATEMENT ON SCHEDULE 13G TO REPORT
THE ACQUISITION THAT IS THE SUBJECT OF THIS SCHEDULE 13D, AND IS FILING THIS
SCHEDULE BECAUSE OF RULE 13D-1(e), 13D-1(f) OR 13D-1(g), CHECK THE FOLLOWING BOX
[ ].
NOTE: SCHEDULES FILED IN PAPER FORMAT SHALL INCLUDE A SIGNED ORIGINAL AND FIVE
COPIES OF THE SCHEDULE, INCLUDING ALL EXHIBITS. SEE RULE 13D-7(b) FOR OTHER
PARTIES TO WHOM COPIES ARE TO BE SENT.
1 THE REMAINDER OF THIS COVER PAGE SHALL BE FILLED OUT FOR A REPORTING PERSON'S
INITIAL FILING ON THIS FORM WITH RESPECT TO THE SUBJECT CLASS OF SECURITIES, AND
FOR ANY SUBSEQUENT AMENDMENT CONTAINING INFORMATION WHICH WOULD ALTER
DISCLOSURES PROVIDED IN A PRIOR COVER PAGE.
THE INFORMATION REQUIRED ON THE REMAINDER OF THIS COVER PAGE SHALL NOT BE DEEMED
TO BE "FILED" FOR THE PURPOSE OF SECTION 18 OF THE SECURITIES EXCHANGE ACT OF
1934 OR OTHERWISE SUBJECT TO THE LIABILITIES OF THAT SECTION OF THE ACT BUT
SHALL BE SUBJECT TO ALL OTHER PROVISIONS OF THE ACT (HOWEVER, SEE THE NOTES).
PAGE 1 OF 12 PAGES
<PAGE> 2
AMENDMENT NO. 5 TO
STATEMENT PURSUANT TO RULE 13d-1
OF THE
GENERAL RULES AND REGULATIONS
UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
This Amendment No. 5 amends the Schedule 13D filed on October
24, 1997, as amended (the "Schedule 13D"), which relates to shares of common
stock, par value $0.01 per share, of Sunstone Hotel Investors, Inc., a Maryland
corporation. Capitalized terms used herein but not defined shall have the
meanings attributed to them in the Schedule 13D.
Item 2. Identity and Background.
Item 2 of the Schedule 13D is hereby amended and supplemented
by deleting the fourth paragraph thereof and adding the following paragraphs
after the third paragraph thereof:
As described in Item 4 below, SHP Acquisition and its
subsidiary, SHP Investors Sub, Inc., a Maryland corporation ("Buyer"),
have entered into an Agreement and Plan of Merger with Issuer dated as
of July 12, 1999 (the "Merger Agreement") pursuant to which, on the
terms and conditions set forth therein, SHP Acquisition would acquire
Issuer, and holders of Issuer Common Stock (other than certain holders
described in Item 4 below) would receive consideration of $10.35 per
share (as adjusted as provided in the Merger Agreement) in cash (the
"Cash Price") in exchange for their shares. In addition, as described
in Item 4 below, SHP Acquisition and its subsidiary, SHP OP, L.L.C., a
Delaware limited liability company ("Buyer OP"), have entered into an
Agreement and Plan of Merger with Sunstone Hotel Investors, L.P.
("Sunstone OP") dated as of July 12, 1999 (the "Partnership Merger
Agreement") pursuant to which, on the terms and conditions set forth
therein, SHP Acquisition would acquire Sunstone OP and holders of
outstanding partnership units in Sunstone OP ("OP Units") would receive
in exchange for their OP Units consideration equal to the Cash Price
or, at the election of eligible holders as provided in the Partnership
Merger Agreement, preferred units or common units of SHP Acquisition in
a face amount per OP Unit equal to the Cash Price.
Item 3. Source and Amount of Funds or Other Consideration.
Item 3 of the Schedule 13D is hereby amended and supplemented
by deleting the second paragraph thereof and adding the following paragraphs
after the first paragraph thereof:
SHP Acquisition estimates that it will require approximately
$900 million of funds to finance the transactions contemplated by the
Merger Agreement and the Partnership Merger Agreement. SHP Acquisition
expects to obtain such funds from equity contributions from its members
and debt financing as further described below. Pursuant
Page 2 of 12 Pages
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to the terms of the Contribution and Sale Agreement among Westbrook SHP
L.L.C. ("Westbrook LLC"), a Delaware limited liability company, WREF
III, WRECIP III, Mr. Alter, Riverside Hotel Partners, Inc., a
California corporation ("Riverside"), Alter Investment Group Ltd., a
Colorado limited partnership ("Alter Investment Group"), Mr. Biederman,
Regina Biederman ("Mrs. Biederman"), Sunstone Hotel Management, Inc., a
Colorado corporation ("Management"), Management Sub SHP L.L.C., a
Delaware limited liability company ("Management Sub"), Lessee, SHP
Acquisition and WREF I, dated as of July 12, 1999 (the "Contribution
Agreement") (attached hereto as Exhibit 10), certain of the parties to
the Contribution Agreement have agreed to contribute assets, equity
interests and cash to SHP Acquisition. The Contribution Agreement
provides that, subject to the terms and conditions thereof, Westbrook
LLC, WREF III, WREF I and WRECIP I will make aggregate cash
contributions to SHP Acquisition such that, after giving effect to the
proceeds under the Commitment Letter (as defined below), SHP
Acquisition and its subsidiaries shall have an amount of cash that is
sufficient to consummate the transactions contemplated by the Merger
Agreement and the Partnership Merger Agreement. The Contribution
Agreement further provides that Mr. Alter will contribute to SHP
Acquisition certain of the capital stock and other interests in Lessee
held by him and that Mr. Alter, Riverside and Alter Investment Group
will contribute all the OP Units owned by each of them to SHP
Acquisition. Pursuant to the Contribution Agreement, Mr. Biederman will
sell all of his shares of capital stock of Lessee and contribute all of
his OP Units to SHP Acquisition.
In addition to the equity financing discussed above, PW Real
Estate Investments Inc. ("PW"), a wholly-owned subsidiary of Paine
Webber Real Estate Securities Inc., has provided WREF III with a
commitment letter dated July 12, 1999 (the "Commitment Letter")
(attached hereto as Exhibit G to the Merger Agreement) with respect to
debt financing for the transactions contemplated by the Merger
Agreement and the Partnership Merger Agreement. Subject to the terms
and conditions of the Commitment Letter, PW has agreed to provide a
loan to fund a portion of the consideration required for the
consummation of the transactions contemplated by the Merger Agreement
and the Partnership Merger Agreement. The proposed loan (the "Mortgage
Loan") will be secured by (i) first mortgage liens on certain
properties, (ii) a first priority assignment of all leases and rents
attributable to such properties, (iii) a first priority assignment of
all security accounts and other reserves and escrows for such
properties and (iv) a first priority assignment of all rights of the
borrowers or the operating lessee, as applicable, under operating
leases, management agreements, franchise agreements, licensing
agreements and other licenses, permits and agreements relating to the
ownership and/or operation of such properties.
Subject to the terms and conditions set forth in the
Commitment Letter, PW has committed to provide at least $454,600,000 of
debt financing (subject to reduction as provided in the Commitment
Letter) and may provide as much as $502,000,000 of debt financing. PW's
financing commitment is subject to execution of definitive financing
agreements and other conditions set forth in the Commitment Letter.
Page 3 of 12 Pages
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The information set forth in response to this Item 3 is
qualified in its entirety by reference to the Contribution Agreement,
the Commitment Letter, the Merger Agreement and the Partnership Merger
Agreement.
None of the Reporting Persons has contributed any funds or
other consideration toward the purchase of the shares of Issuer Common
Stock that may be deemed to be beneficially owned by the Alter
Affiliates as described in Item 5.
Item 4. Purpose of Transaction.
Item 4 of the Schedule 13D is hereby amended and supplemented
by deleting each paragraph after the fifth paragraph hereof and adding the
following thereafter:
On the morning of July 13, 1999, SHP Acquisition, Buyer and
the Issuer entered into the Merger Agreement (attached hereto as
Exhibit 11) pursuant to which, on the terms and subject to the
conditions set forth therein, among other things, Buyer will be merged
with and into the Issuer, each share of Issuer Common Stock (other than
Issuer Common Stock held by SHP Acquisition, Buyer or any wholly-owned
subsidiary of SHP Acquisition or Buyer) will be converted into the
right to receive the Cash Price and each share of Issuer Preferred
Stock (other than Issuer Preferred Stock held by SHP Acquisition, Buyer
or any wholly-owned subsidiary of SHP Acquisition or Buyer) shall be
converted into the right to receive the "Liquidation Preference" (as
such term is defined in the Articles Supplementary). Consummation of
the transactions contemplated by the Merger Agreement is subject to,
among other things, the affirmative approval of (i) the Merger
Agreement by holders of a majority of the outstanding Issuer Common
Stock and Issuer Preferred Stock and (ii) certain amendments (attached
hereto as Exhibit D to the Merger Agreement) to the Issuer's articles
of incorporation by holders of two-thirds of the outstanding Issuer
Common Stock and Issuer Preferred Stock.
Concurrently with the execution and delivery of the Merger
Agreement, SHP Acquisition, Buyer OP, SHP Properties Corp., a Delaware
corporation ("SHP Properties"), and Sunstone OP entered into the
Partnership Merger Agreement (attached hereto as Exhibit 12), pursuant
to which, on the terms and subject to the conditions set forth therein,
among other things, Buyer OP will be merged with and into Sunstone OP
and each holder of common OP Units other than Issuer will be offered
the option of receiving, for each such OP Unit held by such holder,
either (A) an amount equal to the Cash Price or (B) one Class A
Preferred Unit of SHP Acquisition or (C) one Class B Common Unit of SHP
Acquisition (in the case of (B) and (C) having the terms set forth in
the LLC Agreement referred to in Item 6) (provided that such holder
must be an "accredited investor" as defined in Rule 501 under the
Securities Act of 1933, as amended, and satisfy certain other
conditions, to elect the option described in clause (B) or (C)).
Immediately prior to the Partnership Merger, Sunstone OP shall redeem
certain of the common and preferred OP Units held by the Issuer in
exchange for certain assets held by Sunstone OP in accordance with the
terms set forth in the Partnership Merger Agreement. Each common OP
Unit held by the Issuer after this redemption shall be converted into
the right
Page 4 of 12 Pages
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to receive the Cash Price. Consummation of the transactions
contemplated by the Partnership Merger Agreement is subject to, among
other things, the affirmative approval of (i) the Partnership Merger
Agreement by the Issuer, in its capacity as general partner of Sunstone
OP, and limited partners of Sunstone OP holding more than fifty percent
of the partnership interests of the partners of Sunstone OP and (ii)
certain amendments (attached hereto as Exhibit F to the Merger
Agreement) to Sunstone OP's partnership agreement by holders of
two-thirds of the outstanding OP Units (excluding any OP Units held by
Issuer or its affiliates).
To secure certain obligations of SHP Acquisition and Buyer
under the Merger Agreement, on the morning of July 13, 1999, SHP
Acquisition entered into an escrow agreement, dated as of July 12,
1999, with the Issuer, Sunstone OP and Fidelity National Title
Insurance Company, as escrow agent (the "Escrow Agent") (attached
hereto as Exhibit 14), pursuant to which WREF III has deposited a
letter of credit (the "Letter of Credit") (attached hereto as Exhibit H
to the Merger Agreement) in the amount of $25,000,000 in favor of the
Escrow Agent which may, subject to the terms of the Merger Agreement,
be drawn upon to pay certain amounts to the Issuer if the Merger
Agreement is terminated in certain circumstances.
The Reporting Persons have been advised that each of the Alter
Affiliates originally acquired the shares of Issuer Common Stock
beneficially owned by each of them in their respective capacities as
officers and directors of the Issuer and Lessee, as the case may be.
Other than as described above in Item 3 and this Item 4, none
of the Reporting Persons has, and the Reporting Persons have been
advised that none of the Alter Affiliates have, any plans or proposals
which relate to or would result in any of the matters described in
subparagraphs (a) through (j) of Item 4 of Schedule 13D (although they
reserve the right to develop such plans).
The information set forth in response to this Item 4 is
qualified in its entirety by reference to the Merger Agreement, the
Partnership Merger Agreement, the LLC Agreement (as defined in Item 6),
the Escrow Agreement and the Letter of Credit, each of which is
incorporated herein by reference.
Item 6. Contracts, Arrangements, Understandings or Relationships With
Respect to Securities of the Issuer.
Item 6 of the Schedule 13D is hereby amended and supplemented
by deleting each paragraph after the first paragraph thereof in its entirety and
inserting the following paragraphs after the first paragraph thereof:
As described in Item 3 hereof, on the morning of July 13,
1999, Westbrook LLC, WREF III, WRECIP III, Mr. Alter, Riverside, Alter
Investment Group, Mr. Biederman, Mrs. Biederman, Management, Management
Sub, Lessee, SHP Acquisition and WREF I entered into the Contribution
Agreement, which sets forth certain understandings among the parties
thereto
Page 5 of 12 Pages
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with respect to certain contributions of assets, equity interests and
cash to be made to SHP Acquisition in connection with the consummation
of the transactions under the Merger Agreement and the Partnership
Merger Agreement. In addition, on the morning of July 13, 1999, each of
Westbrook LLC, WREF III, WRECIP III, Alter SHP LLC., a Delaware limited
liability company, and Biederman SHP LLC, a Delaware limited liability
company, as members of SHP Acquisition, and Mr. Alter and WF III, as
withdrawing members of SHP Acquisition, have entered into the Amended
and Restated Limited Liability Company Agreement of SHP Acquisition
dated as of July 12, 1999 (the "LLC Agreement") (attached hereto as
Exhibit 13), which sets forth the terms of the equity interests in SHP
Acquisition to be issued at consummation of the transactions
contemplated by the Contribution Agreement, Merger Agreement and
Partnership Merger Agreement as well as certain agreements among the
members of SHP Acquisition with respect to their respective rights and
obligations with respect to their interests therein, including without
limitation as to structure, capitalization, distributions,
liquidations, governance, transfers of interests, call rights, rights
of first offer, restrictions on sale of assets and exclusivity.
As described in Item 4 hereof, on the morning of July 13 SHP
Acquisition, Buyer and the Issuer entered into the Merger Agreement
providing for the merger of Buyer with and into Issuer. The agreements
entered into contemporaneously with the Merger Agreement include a
Voting Agreement and Proxy (attached hereto as Exhibit C to the Merger
Agreement) (the "Proxy") among the Issuer, WREF I, Mr. Alter, Mr.
Biederman and SHP Acquisition pursuant to which each of WREF I, Mr.
Alter and Mr. Biederman agrees to vote each of the shares of Issuer
Common Stock held by such shareholder to approve the transactions
contemplated by the Merger Agreement and the amendments to the articles
of incorporation of Issuer relating thereto and to vote against any
merger, consolidation, sale of assets or other business combination
involving the Issuer other than the transactions contemplated by the
Merger Agreement, and grants a voting proxy to the Issuer to vote the
shares held by each such shareholder accordingly.
Other agreements entered into contemporaneously with the
Merger Agreement include the Partnership Merger Agreement described in
Item 4 hereof among SHP Acquisition, Buyer OP, SHP Properties and
Sunstone OP, pursuant to which Buyer OP will be merged with and into
Sunstone OP, and the Voting Agreements and Consents (attached hereto as
Exhibit E to the Merger Agreement) (the "Partner Consents") of certain
holders of OP Units consenting to the Partnership Merger and the
amendments to the partnership agreement of Sunstone OP relating thereto
and agreeing to vote against any merger, consolidation, sale of assets
or other business combination involving Sunstone OP other than the
transactions contemplated by the Partnership Merger Agreement.
The descriptions of the LLC Agreement, Merger Agreement,
Proxy, Partnership Merger Agreement and the Partner Consents contained
in this Item 6 are qualified in their entirety by reference to the LLC
Agreement, Merger Agreement, Proxy, Partnership Merger Agreement and
the Partner Consents, each of which is incorporated herein by
reference.
Page 6 of 12 Pages
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Except as set forth in this Schedule 13D, and except for the
Joint Filing Agreement dated April 5, 1999 among the Reporting Persons
and attached as Exhibit 5 to this Schedule 13D, the Reporting Person do
not have any contracts, arrangements, understandings or relationship
(legal or otherwise) with any person with respect to any securities of
the Issuer, including but not limited to transfer or voting of any of
the securities of the Issuer, finder's fees, joint ventures, loan or
option arrangements, puts or calls, guarantees of profits, division of
profits or loss, or the giving or withholding of proxies, or a pledge
or contingency the occurrence of which would give another person voting
power over the securities of the Issuer.
Item 7. Material to be Filed as Exhibits.
Item 7 of the Schedule 13D is amended and supplemented by
deleting Exhibits 5, 6, 7, 9, 14 and 15, renumbering Exhibits 8, 10, 11, 12 and
13 as numbers 5, 6, 7, 8, and 9, respectively, and adding the following Exhibits
thereto:
10. Contribution and Sale Agreement among Westbrook LLC,
WREF III, WRECIP III, Mr. Alter, Riverside, Alter
Investment Group, Mr. Biederman, Mrs. Biederman,
Management, Management Sub, Lessee, SHP Acquisition
and WREF I, dated as of July 12, 1999
11. Agreement and Plan of Merger, dated as of July 12,
1999, by and among SHP Acquisition, Buyer and the
Issuer
12. Agreement and Plan of Merger, dated as of July 12,
1999, by and among SHP Acquisition, Buyer OP,
Sunstone OP and SHP Properties
13. Amended and Restated Limited Liability Company
Agreement of SHP Acquisition, dated as of July 12,
1999
14. Escrow Agreement, dated as of July 12, 1999, by and
among SHP Acquisition, the Issuer, Sunstone OP and
the Escrow Agent
Page 7 of 12 Pages
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SIGNATURE
After reasonable inquiry and to the best of my knowledge and
belief, I certify that the information set forth in this statement is true,
complete and correct.
Dated: July 13, 1999
WESTBROOK REAL ESTATE PARTNERS, L.L.C.
By: /s/ Jonathan H. Paul
---------------------------------
Name: Jonathan H. Paul
Title: Managing Principal
WESTBROOK REAL ESTATE PARTNERS
MANAGEMENT I, L.L.C.
By: Westbrook Real Estate Partners, L.L.C.,
its sole member
By: /s/ Jonathan H. Paul
---------------------------------
Name: Jonathan H. Paul
Title: Managing Principal
WESTBROOK REAL ESTATE FUND I, L.P.
By: Westbrook Real Estate Partners
Management I, L.L.C., its General Partner
By: Westbrook Real Estate Partners, L.L.C.,
its sole member
By: /s/ Jonathan H. Paul
---------------------------------
Name: Jonathan H. Paul
Title: Managing Principal
Page 8 of 12 Pages
<PAGE> 9
WESTBROOK REAL ESTATE
CO-INVESTMENT PARTNERSHIP I, L.P.
By: Westbrook Real Estate Partners
Management I, L.L.C., its General Partner
By: Westbrook Real Estate Partners, L.L.C.,
its sole member
By: /s/ Jonathan H. Paul
-------------------------------------------
Name: Jonathan H. Paul
Title: Managing Principal
WESTBROOK REAL ESTATE PARTNERS
MANAGEMENT III, L.L.C.
By: Westbrook Real Estate Partners, L.L.C., its sole
member
By: /s/ Jonathan H. Paul
-------------------------------------------
Name: Jonathan H. Paul
Title: Managing Principal
WESTBROOK REAL ESTATE FUND III, L.P.
By: Westbrook Real Estate Partners
Management III, L.L.C., its General Partner
By: Westbrook Real Estate Partners, L.L.C.,
its sole member
By: /s/ Jonathan H. Paul
-------------------------------------------
Name: Jonathan H. Paul
Title: Managing Principal
WESTBROOK REAL ESTATE
CO-INVESTMENT PARTNERSHIP III, L.P.
By: Westbrook Real Estate Partners
Management III, L.L.C., its General Partner
By: Westbrook Real Estate Partners, L.L.C.,
its sole member
By: /s/ Jonathan H. Paul
-------------------------------------------
Name: Jonathan H. Paul
Title: Managing Principal
Page 9 of 12 Pages
<PAGE> 10
WESTBROOK REAL ESTATE
CO-INVESTMENT PARTNERSHIP III, L.P.
By: Westbrook Real Estate Partners
Management III, L.L.C., its General Partner
By: Westbrook Real Estate Partners, L.L.C.,
its sole member
By: /s/ Jonathan H. Paul
--------------------------------------------
Name: Jonathan H. Paul
Title: Managing Principal
WESTBROOK FUND III ACQUISITIONS, L.L.C.
By: /s/ Jonathan H. Paul
--------------------------------------------
Name: Jonathan H. Paul
Title: Vice President
SHP ACQUISITION, L.L.C.
By: /s/ Jonathan H. Paul
--------------------------------------------
Name: Jonathan H. Paul
Title: Manager
GREGORY J. HARTMAN
/s/ Jonathan H. Paul
-------------------------------------------------
By: Jonathan H. Paul, Attorney-in-Fact
PAUL D. KAZILIONIS
/s/ Jonathan H. Paul
-------------------------------------------------
By: Jonathan H. Paul, Attorney-in-Fact
Page 10 of 12 Pages
<PAGE> 11
JONATHAN H. PAUL
/s/ Jonathan H. Paul
-------------------------------------------------
WILLIAM H. WALTON III
/s/ Jonathan H. Paul
-------------------------------------------------
By: Jonathan H. Paul, Attorney-in-Fact
Page 11 of 12 Pages
<PAGE> 12
INDEX TO EXHIBITS
Exhibit Number Description of Exhibits
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10. Contribution and Sale Agreement among Westbrook LLC,
WREF III, WRECIP III, Mr. Alter, Riverside, Alter
Investment Group, Mr. Biederman, Mrs. Biederman,
Management, Management Sub, Lessee, SHP Acquisition
and WREF I, dated as of July 12, 1999
11. Agreement and Plan of Merger, dated as of July 12,
1999, by and among SHP Acquisition, Buyer and the
Issuer
12. Agreement and Plan of Merger, dated as of July 12,
1999, by and among SHP Acquisition, Buyer OP,
Sunstone OP and SHP Properties
13. Amended and Restated Limited Liability Company
Agreement of SHP Acquisition, dated as of July 12,
1999
14. Escrow Agreement, dated as of July 12, 1999, by and
among SHP Acquisition, the Issuer, Sunstone OP and
the Escrow Agent
Page 12 of 12 Pages
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Exhibit 10
CONTRIBUTION AND SALE AGREEMENT
among
WESTBROOK SHP L.L.C.,
WESTBROOK REAL ESTATE FUND III, L.P.
WESTBROOK REAL ESTATE CO-INVESTMENT PARTNERSHIP III, L.P.,
ROBERT A. ALTER,
RIVERSIDE HOTEL PARTNERS, INC.,
ALTER INVESTMENT GROUP LTD.,
CHARLES L. BIEDERMAN,
REGINA BIEDERMAN
SUNSTONE HOTEL MANAGEMENT, INC.,
MANAGEMENT SUB SHP L.L.C.,
SUNSTONE HOTEL PROPERTIES, INC.,
SHP ACQUISITION, L.L.C.,
and
WESTBROOK REAL ESTATE FUND I, L.P.
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TABLE OF CONTENTS
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ARTICLE I....................................................................... 2
DEFINITIONS................................................................ 2
1.1 Definitions............................................................ 2
1.2 Other Interpretive Provisions.......................................... 8
ARTICLE II...................................................................... 8
CONTRIBUTIONS AND SALE TO SHP AND OTHER CLOSING EVENTS..................... 8
2.1 Time and Place of Closing.............................................. 8
ARTICLE III..................................................................... 12
REPRESENTATIONS AND WARRANTIES OF THE PARTIES.............................. 12
3.1 Representations and Warranties of the Alter Entities, Management,
Management Sub, Lessee and Biederman................................... 12
3.2 Additional Representations and Warranties of the Alter Entities........ 28
3.3 Additional Representations and Warranties of Biederman................. 30
3.4 Representations and Warranties of the Westbrook Entities............... 31
3.5 Representations and Warranties of SHP.................................. 33
3.6 Survival of Representations and Warranties............................. 34
3.7 Exclusion of Lessee/Manager Agreement.................................. 34
ARTICLE IV...................................................................... 34
COVENANTS ................................................................. 34
4.1 Conduct of Business Pending the Closing................................ 34
4.2 Transfers and Voting of Equity Interests............................... 36
4.3 Access to Information.................................................. 37
4.4 Agreement to Cooperate; Further Assurances............................. 37
4.5 Consents............................................................... 37
4.6 Public Statements...................................................... 38
4.7 Notification of Certain Matters........................................ 38
4.8 Employee Matters....................................................... 38
4.9 Transfer Taxes......................................................... 39
4.10 Injunctions or Restraints............................................. 39
4.11 Certification of United States Status of Alter and Biederman.......... 40
4.12 Spousal Claims........................................................ 40
4.13 Tax Matters........................................................... 40
4.14 Tax Filing............................................................ 40
4.15 Certain Obligations................................................... 41
ARTICLE V....................................................................... 42
CONDITIONS TO CLOSING...................................................... 42
5.1 Conditions Precedent to Obligations of Each Party...................... 42
5.2 Conditions Precedent to Obligation of the Westbrook Entities........... 42
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5.3 Conditions Precedent to Obligations of the Alter Entities.............. 43
5.4 Conditions Precedent to Obligations of Biederman. .................... 43
5.5 Conditions Precedent to Obligations of Management, Management Sub
and Lessee............................................................. 44
ARTICLE VI...................................................................... 44
COVENANTS AND AGREEMENTS WITH RESPECT TO LESSEE............................ 44
6.1 Recapitalization of Lessee............................................. 44
6.2 Governance............................................................. 45
6.3 Restrictions on Transfers and Issuances................................ 46
6.4 Option................................................................. 46
6.5 Additional Securities Subject to Agreement............................. 47
6.6 No Conflicting Agreements.............................................. 47
6.7 Survival............................................................... 47
ARTICLE VII..................................................................... 47
TERMINATION................................................................ 47
7.1 Termination Events..................................................... 47
7.2 Fees and Expenses...................................................... 48
7.3 Effect of Termination.................................................. 49
ARTICLE VIII.................................................................... 49
INDEMNIFICATION............................................................ 49
8.1 Indemnification by Westbrook LLC....................................... 49
8.2 Indemnification by Alter, Management and Management Sub................ 49
8.3 Indemnification by Biederman........................................... 50
8.4 Tax Indemnification.................................................... 50
8.5 Indemnification by SHP and Management Newco............................ 50
8.6 Third-Party Claims..................................................... 50
8.7 Termination of Indemnification......................................... 51
8.8 Limitations on Indemnity Obligations................................... 51
8.9 Allocation of Certain Indemnity Obligations............................ 53
8.10 Exclusive Remedy...................................................... 53
ARTICLE IX...................................................................... 53
MISCELLANEOUS AGREEMENTS OF THE PARTIES.................................... 53
9.1 Notices................................................................ 53
9.2 Integration; Amendments................................................ 55
9.3 Waiver................................................................. 55
9.4 No Assignment; Successors and Assigns.................................. 56
9.5 Expenses............................................................... 56
9.6 Severability........................................................... 56
9.7 Section Headings; Table of Contents.................................... 56
9.8 Third Parties.......................................................... 56
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9.9 GOVERNING LAW......................................................... 56
9.10 Enforcement........................................................... 56
9.11 Counterparts.......................................................... 57
9.12 Cumulative Remedies................................................... 57
9.13 Bulk Sales Law Waiver................................................. 57
9.14 Consent of Regina Biederman........................................... 57
9.15 Alternative Transaction............................................... 57
9.16 Operating Leases...................................................... 58
9.17 Exclusivity........................................................... 58
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<PAGE> 5
CONTRIBUTION AND SALE AGREEMENT
This Contribution and Sale Agreement (hereinafter, this "Agreement") is
made as of July 12, 1999, by and among Westbrook SHP L.L.C., a Delaware limited
liability company ("Westbrook LLC"), Westbrook Real Estate Fund III, L.P., a
Delaware limited partnership ("WREF III"), Westbrook Real Estate Co-Investment
Partnership III, L.P., a Delaware limited partnership ("Westbrook
Co-Investment"), Robert A. Alter ("Alter"), Riverside Hotel Partners, Inc., a
California corporation ("Riverside"), Alter Investment Group Ltd., a Colorado
limited partnership ("Alter Investment Group"), Charles L. Biederman
("Biederman"), Sunstone Hotel Management, Inc., a Colorado corporation
("Management"), Management Sub SHP L.L.C., a Delaware limited liability company
("Management Sub"), Sunstone Hotel Properties, Inc., a Colorado corporation
("Lessee"), SHP Acquisition, L.L.C., a Delaware limited liability company
("SHP"), and, solely for purposes of Section 4.2(c) hereof, Westbrook Real
Estate Fund I, L.P., a Delaware limited partnership ("WREF I"), and, solely for
the purposes of Section 9.14, Regina Biederman.
W I T N E S S E T H:
WHEREAS, concurrently with the execution and delivery of this Agreement,
SHP has entered into a Merger Agreement (the "Merger Agreement") dated as of the
date hereof with Sunstone Hotel Investors, Inc., a Maryland corporation
("Sunstone"), SHP Investors Sub, Inc., a Maryland corporation and a subsidiary
of SHP ("Investors Sub") and Sunstone Hotel Investors, L.P., a Delaware limited
partnership ("Sunstone OP"), pursuant to which and subject to the terms and
conditions thereof, Investors Sub shall merge into Sunstone (the "Merger");
WHEREAS, concurrently with the execution and delivery of this Agreement,
SHP has entered into a Merger Agreement (the "Partnership Merger Agreement")
dated as of the date hereof with Sunstone OP and SHP OP, L.L.C., a Delaware
limited liability company and a subsidiary of SHP ("SHP OP") pursuant to which
and subject to the terms and conditions thereof, SHP OP shall merge into
Sunstone OP (the "Partnership Merger");
WHEREAS, concurrently with the execution and delivery of this Agreement,
Westbrook LLC, WREF III, Alter, Westbrook Fund III Acquisitions, L.L.C., a
Delaware limited liability company ("WF III"), and certain other Persons have
entered into an Amended and Restated Limited Liability Company Agreement (the
"LLC Agreement") dated as of the date hereof pursuant to which, among other
things, (i) Westbrook LLC will cause WF III to withdraw from SHP, (ii) Alter
will withdraw from SHP and (iii) Westbrook LLC, Alter SHP LLC (as herein
defined) and certain other Persons will become members of SHP in accordance with
the provisions of the LLC Agreement;
WHEREAS, concurrently with the execution and delivery of this Agreement,
SHP and Alter have entered into an Employment Agreement (the "Employment
Agreement") dated as of the date hereof pursuant to which and subject to the
terms and conditions thereof, SHP shall employ Alter as Chief Executive Officer
of SHP effective as of the Closing;
<PAGE> 6
2
WHEREAS, prior to the execution of this Agreement, Management transferred
the Basis Assets (as defined below) to Management Sub, an entity owned by
Management and Alter; and
WHEREAS, the parties hereto desire to make certain agreements,
representations, warranties and covenants in connection with the transactions
contemplated hereby;
NOW, THEREFORE, in consideration of the premises and the mutual promises
contained herein, the parties hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. (a) Capitalized terms used and not defined in this
Agreement shall have the meanings set forth in the Merger Agreement. The
following terms shall have the following meanings:
"Advance Booking Agreement" means any agreement relating to advance
reservations and bookings of the Real Property or any facilities therein taken
from guests, groups, conventions or others.
"Affiliate" means with respect to a specified Person, any Person that
directly or indirectly, through one or more intermediaries, Controls, is
Controlled by, or is under common Control with, the specified Person.
"Alter Entities" means Alter, Riverside and Alter Investment Group.
"Basis Assets" means assets of Management Sub set forth on Schedule
1.1(a) that have previously been contributed by Management.
"Business Day" means a day, other than Saturday or Sunday, on which
commercial banks in New York City are open for the general transaction of
business.
"Capital Accounts" has the meaning set forth in Section 6.3 of the LLC
Agreement.
"Closing Date" means the date of the Closing hereunder.
"Code" means the Internal Revenue Code of 1986, as amended.
"Common Merger Consideration" has the meaning set forth in the Merger
Agreement.
<PAGE> 7
3
"Control" means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a Person,
whether through ownership of voting securities, as trustee or executor, by
contract or credit arrangement or otherwise.
"Environmental Laws" means any and all laws, rules, orders,
regulations, statutes, ordinances, guidelines, codes, decrees, or other legally
enforceable requirement (including, without limitation, common law) of any
foreign government, the United States, or any state, local, municipal or other
governmental authority, regulating, relating to or imposing liability or
standards of conduct concerning protection of the environment or of human
health, or employee health and safety.
"Equipment Lease" means any lease or rental agreement relating to the
equipment, services, vehicles, furniture or any other type of personal property
of Management or Lessee together with all supplements, amendments and
modifications thereto.
"GAAP" means generally accepted accounting principles in the United
States.
"Governmental Authority" means any nation or government, any state or
other political subdivision thereof, and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to such government.
"Hotel Management Agreement" means any hotel management agreement
relating to the management and operation of the Real Property together with all
supplements, amendments and modifications thereto.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
"Implementing Agreements" means the Merger Agreement, the Partnership
Merger Agreement, the LLC Agreement and the Employment Agreement.
"Knowledge" means (i) as to Biederman, that Biederman has actual
knowledge without due inquiry, (ii) as to Alter and the Alter Investment Group,
that Alter has actual knowledge without due inquiry, (iii) as to Riverside, that
either Alter or Biederman has actual knowledge without due inquiry; (iv) as to
Lessee, that either Alter, Biederman, Douglas Sutten, Randy Hulce or Evan Studer
has actual knowledge without due inquiry, (v) as to Management and Management
Sub, that Alter, Biederman, Douglas Sutten, Randy Hulce or Evan Studer has
actual knowledge without due inquiry and (vi) as to the Westbrook Entities, that
Paul Kazilionis, Jonathan Paul or Mark Mance has actual knowledge without due
inquiry.
"Leased Real Property" means all real property which is leased or
subleased by Management or Lessee.
"Lessee Class A Voting Stock" has the meaning set forth on Exhibit A
hereto.
<PAGE> 8
4
"Lessee Class B Non-Voting Stock" has the meaning set forth on Exhibit
A hereto.
"Lessee Stock" means (i) prior to the Recapitalization (as herein
defined), the common stock, par value $.01 per share, of Lessee; and (ii)
following the Recapitalization, the Lessee Class A Voting Stock and the Lessee
Class B Non-Voting Stock.
"Liability" means, as to any Person, all debts, liabilities and
obligations, direct, indirect, absolute or contingent of such Person, whether
accrued, vested or otherwise, whether known or unknown and whether or not
actually reflected, or required in accordance with GAAP to be reflected, in such
Person's balance sheets.
"Lien" means any mortgage, pledge, security interest, claim,
encumbrance, lien or charge of any kind.
"Liquor License" means any alcoholic beverage license relating to the
use and/or operation of the Real Property.
"Losses" means any and all damages, claims, losses, expenses, costs and
Liabilities including, without limiting the generality of the foregoing,
Liabilities for all reasonable attorneys' fees and expenses (including
reasonable attorney and expert fees and expenses incurred to enforce the terms
of this Agreement).
"Management Agreement" means any agreement relating to the management
of any of the Real Property.
"Management Assets" means all the properties, assets and other rights
of Management owned or used by Management in the conduct of its business
excluding the Basis Assets.
"Management Newco" means SHP Management, Inc., a Delaware corporation
and a wholly-owned subsidiary of SHP.
"Management Stock" means the common stock, par value $0.01 per share,
of Management.
"Material Adverse Effect" means (x) a material adverse effect on (i)
the assets, Liabilities, business, results of operations or condition (financial
or otherwise) of Lessee and Management, taken as a whole, or (ii) the ability of
the Alter Entities, Biederman, Management, Management Sub or Lessee to perform
his or its obligations hereunder or under the Implementing Agreements to which
he or it is a party or (y) the effect of preventing or delaying beyond December
31, 1999 of the consummation of the Transactions.
"Materials of Environmental Concern" means any gasoline or petroleum
(including, without limitation, crude oil or any fraction thereof) or petroleum
products,
<PAGE> 9
5
polychlorinated biphenyls, urea-formaldehyde insulation, asbestos, pollutants,
contaminants, radioactivity, and any other substances of any kind, whether or
not any such substance is defined as hazardous or toxic under any Environmental
Law, that is regulated pursuant to or could give rise to liability under any
Environmental Law.
"OP Units" means the common limited partnership units in Sunstone OP.
"Permitted Liens" means (i) Liens for Taxes that (x) are not yet due or
delinquent or (y) are being contested in good faith by appropriate proceedings
and for which adequate reserves have been established in accordance with GAAP;
(ii) statutory Liens or landlords', carriers', warehousemen's, mechanics',
suppliers', materialmen's, repairmen's or other like Liens arising in the
ordinary course of business with respect to amounts not yet overdue for a period
of 45 days or amounts being contested in good faith by appropriate proceedings
if a reserve or other appropriate provision, if any, as shall be required by
GAAP shall have been made therefor; (iii) Liens incurred or deposits made in
connection with workers' compensation, unemployment insurance and other types of
social security or similar benefits; (iv) Liens incurred or deposits made to
secure the performance of tenders, bids, leases, statutory obligations, surety
and appeal bonds, government contracts, performance and return-of-money bonds
and other obligations of like nature; (v) any installment not yet due and
payable of assessments of any Governmental Authority imposed after the date
hereof; (vi) the rights and interests held by tenants under any Space Leases or
subleases of the Real Property Leases; and (vii) any other Liens imposed by
operation of law that do not, individually or in the aggregate, materially
affect the relevant entity or business, taken as a whole.
"Person" means any individual, corporation, partnership, joint venture,
trust, incorporated organization, limited liability company, other form of
business or legal entity or Governmental Authority.
"Real Property" means the Leased Real Property and real property, if
any, owned by Management or Lessee.
"Securities" means (i) shares of Lessee Stock, (ii) any capital stock
of Lessee other than Lessee Stock, (iii) any stock, warrants, rights, calls,
options or other securities exchangeable or exercisable for or convertible into
Lessee Stock or any other capital stock of Lessee and (iv) any warrants, rights,
calls, options or other securities exchangeable for or exercisable or
convertible into any securities referenced in clause (iii), in each case whether
owned on the date hereof or hereafter acquired.
"Service Contract" means any contract and/or agreement relating to the
operation and maintenance of the Real Property, including service agreements,
brokerage commission agreements, maintenance contracts, contracts for purchase
of delivery of services, materials, goods, inventory or supplies, cleaning
contracts, equipment rental agreements, equipment leases or leases of personal
property (other than franchise agreements and Management Agreements), together
with all supplements, amendments and modifications thereto.
<PAGE> 10
6
"Space Lease" means any lease or other agreement demising space in or
providing for the use or occupancy of all or any portion of the Real Property
and all guaranties thereof.
"Subsidiary" or "Subsidiaries" of any Person means any corporation,
partnership, limited liability company, joint venture or other legal entity of
which such Person (either alone or through or together with any other
subsidiary), owns, directly or indirectly, more than 50% of the stock or other
equity interests, the holders of which are generally entitled to vote for the
election of the board of directors or other governing body of such corporation
or other legal entity and any partnership of which such Person serves as general
partner.
"Sunstone Stock" means the common shares of Sunstone, $0.01 par value
per share.
"Tax Return" means any return, report or statement required to be filed
with any governmental authority with respect to Taxes, including any schedule or
attachment thereto or amendment thereof.
"Taxes" means any taxes of any kind, including but not limited to those
on or measured by or referred to as income, gross receipts, capital, sales, use,
ad valorem, franchise, profits, license, withholding, payroll, employment,
excise, severance, stamp, occupation, premium, value added, property or windfall
profits taxes, customs, duties or similar fees, assessments or charges of any
kind whatsoever, together with any interest and any penalties, additions to tax
or additional amounts imposed by any governmental authority, domestic or
foreign.
"Transfer" means, directly or indirectly, assign, sell, exchange,
transfer, pledge, mortgage, hypothecate or otherwise dispose or encumber.
"Transactions" means all of the transactions contemplated hereby and by
the Implementing Agreements, including the Recapitalization and the exercise of
the Option.
"Westbrook Entities" means Westbrook LLC, WREF III, WREF I and
Westbrook Co-Investment.
(b) As used in this Agreement, each of the following capitalized terms
shall have the meaning ascribed to them in the Section set forth opposite such
term:
<TABLE>
<CAPTION>
Term Section
---- -------
<S> <C>
Aggregate Westbrook Capital 2.1(a)
Agreement Preamble
Alter Preamble
Alter/Biederman Parties 4.15(b)
Alter Director 6.2(a)
Alter Investment Group Preamble
</TABLE>
<PAGE> 11
7
<TABLE>
<CAPTION>
Term Section
---- -------
<S> <C>
Alter SHP LLC 2.1(c)
Assumed Management Liabilities 2.1(d)
Biederman Preamble
Biederman LLC 2.1(h)
Business Intellectual Property 3.1(m)
Closing 2.1
Contributors 4.13(a)
Controlled Group Member 3.1(p)
December 31 Balance Sheets 3.1(f)(i)
December 31 Financial Statements 3.1(f)(i)
Employee Plan 3.1(p)
Employment Agreement Recitals
ERISA 3.1(p)
Exercise Notice 6.4
Expenses 7.2(a)
Failure to Approve 6.4
Insurance Policies 3.1(u)
Intellectual Property 3.1(m)
Investors Sub Recitals
Lease Termination 9.16
Lessee Preamble
Lessee Board 6.2(a)
Lessee Line of Credit 4.1(o)
Lessee/Manager Agreement 3.7
Lessee Stockholders 6.2
Lessee Subsidiary 3.1(e)(ii)
LLC Agreement Recitals
Management Preamble
Management Sub Preamble
March 31 Balance Sheets 3.1(f)(ii)
March 31 Financial Statements 3.1(f)(ii)
Merger Recitals
Merger Agreement Recitals
Merger Agreement Payment 7.2(a)
Multiemployer Plan 3.1(p)
Option 6.4
Option Price 6.4
Partnership Merger Recitals
Partnership Merger Agreement Recitals
Pension Plan 3.1(p)
Real Property Leases 3.1(j)(ii)
Recapitalization 6.1
Retained Management Liabilities 2.1(d)
</TABLE>
<PAGE> 12
8
<TABLE>
<CAPTION>
Term Section
---- -------
<S> <C>
Riverside Preamble
Section (v) Contract 3.1(j)(v)
Section 7.2 Percentage 7.2(b)
Section 7.2 Price 7.2(b)
Section 7.2 Purchase 7.2(b)
Securities Act 3.2(g)
SHP Preamble
SHP Directors 6.2(a)
SHP OP Recitals
Straddle Period 8.4(b)
Sunstone Recitals
Sunstone OP Recitals
Technology 3.1(m)
Termination 6.4
Term Sheet Letter 9.2
Vacation Policy 4.8(c)
Welfare Plan 3.1(p)
Wells Fargo 2.1(s)
Wells Fargo Lien 3.2(g)
Westbrook Co-Investment Preamble
Westbrook LLC Preamble
Westbrook Payment 7.2(a)
WF III Recitals
WREF I Preamble
WREF III Preamble
</TABLE>
1.2 Other Interpretive Provisions. The words "include", "includes and
"including" shall be deemed to be followed by the phrase "without limitation".
The words "hereof", "herein" and "hereunder" and words of similar import when
used in this Agreement shall refer to this Agreement as a whole and not to any
particular provision of this Agreement, and Section, Schedule and Exhibit
references are to this Agreement unless otherwise specified. The meanings given
to terms defined herein shall be equally applicable to both the singular and
plural forms of such terms.
ARTICLE II
CONTRIBUTIONS AND SALE TO SHP AND OTHER CLOSING EVENTS
2.1 Time and Place of Closing. Subject to the satisfaction (or waiver by
the parties entitled to the benefit thereof) of the conditions set forth in
Article V, the closing of the transactions contemplated hereby (the "Closing")
shall take place at the offices of Simpson Thacher & Bartlett, 425 Lexington
Avenue, New York, New York 10017, immediately prior to
<PAGE> 13
9
the closings under the Partnership Merger Agreement and the Merger Agreement,
all as set forth more fully in the Merger Agreement.
At the Closing, the following actions will take place in the following
order:
(a) Contribution by the Westbrook Entities. Westbrook LLC, WREF III and
Westbrook Co-Investment will make aggregate cash contributions to SHP such that,
after giving effect to at least $454,600,000 of proceeds under the Financing
Commitment, SHP, the Surviving Company and the Surviving Operating Partnership
shall have an amount of cash that is sufficient to consummate the transactions
contemplated by the Merger Agreement (including paying the Merger Consideration
and related expenses), and each will receive a credit to its respective Capital
Account equal to the amount contributed by it; provided, however, that (i) the
aggregate cash contributions by the Westbrook Entities (the "Aggregate Westbrook
Capital") is currently estimated not to exceed $375 million and (ii) the capital
contribution of Westbrook LLC shall be at least the greater of (x) 10% of the
Aggregate Westbrook Capital and (y) the Aggregate Westbrook Capital less $310
million.
In connection with such contributions, Westbrook LLC, WREF III and
Westbrook Co-Investment will receive an amount of Class B Units as described in
Section 3.4 of the LLC Agreement.
(b) Sale by Management Sub. Management Sub will transfer the Basis
Assets to SHP in exchange for a payment of $3.0 million in cash (less cash
retained by Management Sub). Management Sub shall deliver to SHP at Closing an
executed bill of sale in form and substance reasonably satisfactory to SHP and
Management to evidence such transfer of the Basis Assets;
(c) Contribution by Management. Management will contribute the
Management Assets (subject to the Assumed Management Liabilities) to SHP as a
capital contribution and will receive a credit to its Capital Account in the
amount of $500,000 for such capital contribution (which Capital Account it will
assign to Alter SHP L.L.C., a Delaware limited liability company ("Alter SHP
LLC"), at the Closing);
(d) Transfer to Management Newco. SHP will transfer the Management
Assets and the Basis Assets to Management Newco, and SHP will cause Management
Newco to assume from Management and Management Sub and agree to pay, perform and
discharge when due, all Liabilities of Management and Management Sub with
respect to: (i) the ownership or use of the Management Assets and the Basis
Assets after the Closing; (ii) Liabilities disclosed on the March 31, 1999
Balance Sheet of Management; (iii) Liabilities under all contracts and
agreements of Management set forth on the schedules hereto (provided that the
amount of any Liability as of the Closing Date in respect of indebtedness for
borrowed money under any such contract or agreement shall be specifically
identified on Schedule 2.1(d)); (iv) Liabilities incurred by Management
subsequent to March 31, 1999 in the ordinary course of business consistent with
past practice; (v) Liabilities arising from litigation related to the
Transactions; (vi) Liabilities to employees of Management to be assumed by SHP
under Section 4.8; (vii) Liabilities otherwise
<PAGE> 14
10
specifically identified in Schedule 2.1(d) (all Liabilities described in clauses
(i) through (vii), collectively, the "Assumed Management Liabilities"; all other
Liabilities of Management, the "Retained Management Liabilities"). Except for
Liabilities explicitly assumed in this Section 2.1(d), neither Management Newco
nor SHP nor any of SHP's other Subsidiaries will assume any Liabilities of
Alter, Biederman, Management or Management Sub. Management Newco shall deliver
to Management and Alter at Closing an executed assignment and assumption
agreement in form and substance reasonably satisfactory to Management and Alter
to evidence the assumption of the Assumed Management Liabilities assumed by
Management Newco.
(e) Sale by Biederman of Lessee Stock. Biederman will transfer to SHP
200 shares of Lessee Class A Voting Stock and 200 shares of Lessee Class B
Non-Voting Stock (which shall constitute all of Biederman's right, title and
interest in Lessee Stock), free and clear of all Liens, in exchange for a
payment of $2.15 million in cash;
(f) Contribution by Alter of Lessee Stock. Alter will contribute 470
shares of Lessee Class A Voting Stock and 290 shares of Lessee Class B
Non-Voting Stock plus all rights to dividends and other distributions with
respect to any Securities owned by Alter (as described in Section 6.3(c)) and
any consideration paid or payable (except as provided in this Section 2.1(f))
with respect to any Transfer of the Securities by Alter or any of his Affiliates
(as described in Section 6.3(a)) to SHP as a capital contribution and will
receive a credit to his Capital Account in the amount of $8.6 million for such
capital contribution (which Capital Account he will assign to Alter SHP LLC at
the Closing);
(g) Purchase by Alter of Biederman's Interest in Riverside. Biederman
will transfer to Alter Biederman's 18% interest in Riverside in exchange for a
payment of an amount in cash equal to the product of (i) 14,400 multiplied by
(ii) the Common Merger Consideration;
(h) Contribution by Biederman of OP Units. Biederman will contribute
his 382,647 OP Units to SHP as a capital contribution and Biederman will receive
a credit to his Capital Account in an amount equal to the product of (i) 382,647
multiplied by (ii) the Common Merger Consideration for such capital contribution
(which Capital Account he will assign to Biederman SHP L.L.C., a Delaware
limited liability company wholly-owned by Biederman ("Biederman LLC"), at the
Closing). The Capital Account of Biederman SHP LLC will be represented by an
amount of Class B Units as described in Section 3.4 of the LLC Agreement;
(i) Contribution by Alter Investment Group of OP Units. Alter
Investment Group will contribute its 99,251 OP Units to SHP as a capital
contribution and will receive a credit to its Capital Account in an amount equal
to the product of (i) 99,251 multiplied by (ii) the Common Merger Consideration.
At the Closing, Alter Investment Group will contribute its Capital Account to
Alter SHP LLC in exchange for an interest therein;
(j) Contribution by Alter of OP Units. Alter will contribute his
318,961 OP Units to SHP as a capital contribution and Alter will receive a
credit to his Capital Account in an amount equal to the product of (i) 318,961
multiplied by (ii) the Common Merger Consideration.
<PAGE> 15
11
At the Closing, Alter will contribute his Capital Account to Alter SHP LLC in
exchange for an interest therein.
(k) Contribution by Riverside. Riverside will contribute its 80,000 OP
Units to SHP as a capital contribution and will receive a credit to its Capital
Account in an amount equal to the product of (i) 80,000 multiplied by (ii) the
Common Merger Consideration. At the Closing, Riverside will contribute its
Capital Account to Alter SHP LLC in exchange for an interest therein. The
Capital Account of Alter SHP LLC created by the contributions described in
Sections 2.1(c), 2.1(f), 2.1(i), 2.1(j) and 2.1(k) will be represented by an
amount of Class B Units as described in Section 3.4 of the LLC Agreement; and
(l) Issuance of Class C Units and Class D Units.
(i) Alter SHP LLC will receive an amount of Class C Units of
SHP as provided in Section 3.5 of the LLC Agreement and as set forth on
Schedule 2.1(1)(i) hereto and 90% of the Class D Units, as described in
Section 3.5 of the LLC Agreement and as set forth on Schedule 2.1(1)(i)
hereto;
(ii) Biederman SHP LLC will receive an amount of Class C Units
of SHP as provided in Section 3.5 of the LLC Agreement and as set forth
on Schedule 2.1(1)(ii) hereto and 10% of the Class D Units as described
in Section 3.5 of the LLC Agreement and as set forth on Schedule
2.1(1)(ii) hereto; and
(m) Additional Consideration for Services. As additional consideration,
Biederman will receive a payment of $2.25 million in cash and the employees
identified on Schedule 2.1(m) will receive an aggregate payment of $1 million in
cash from Lessee (or from SHP on behalf of Lessee) as set forth on Schedule
2.1(m).
(n) Sunstone OP Transactions. Pursuant to the Partnership Merger
Agreement, Sunstone OP will distribute certain assets to Sunstone as provided in
the Partnership Merger Agreement. The Partnership Merger will be consummated in
accordance with the terms of the Partnership Merger Agreement. Immediately after
consummation of the Partnership Merger, Sunstone OP will be a wholly-owned
Subsidiary of SHP.
(o) Purchase of WREF I Preferred Stock. Prior to the Merger, SHP will
purchase from WREF I all of WREF I's shares of Sunstone's 7.9% Class A
Cumulative Convertible Preferred Shares, $0.01 par value per share, in exchange
for a payment of the "Liquidation Preference" for such shares (as such term is
defined in the Articles Supplementary of Sunstone's 7.9% Class A Cumulative
Convertible Preferred Shares).
(p) Sunstone Merger. The Merger will be consummated in accordance with
the terms of the Merger Agreement. After consummation of the Merger, Sunstone
will be a wholly-owned Subsidiary of SHP.
<PAGE> 16
12
(q) Rescission. If the Merger shall not have been consummated on or
prior to the second business day following the Closing, all of the transactions
described in Section 2.1 (other than Sections 2.1(n) and (p)) shall be rescinded
and the consideration and documents delivered at the Closing shall be returned
by the applicable receiving party to the applicable delivering party.
(r) Transfer of Leases. Immediately following the Closing, Lessee shall
transfer all its leases to a new special purpose subsidiary and Lessee shall
enter into management contracts to manage the properties subject to the leases.
(s) Wells Fargo Payoff. If, immediately prior to the Closing, the OP
Units to be contributed by Alter or his Affiliates pursuant to Section 2.1(i),
2.1(j) or 2.1(k) remain subject to the Wells Fargo Lien, the parties hereto
agree that Alter may direct all or any part of the cash consideration to be paid
to any Alter Entity under this Agreement to be paid instead to Wells Fargo Bank,
N.A. ("Wells Fargo") or its designee in order to terminate the Wells Fargo Lien,
and Alter will obtain releases from Wells Fargo of the pledge with respect to
such OP Units, together with evidence of the filing of the appropriate Uniform
Commercial Code release termination statements fully executed by Alter and such
secured parties relating to the OP Units (such releases and statements to be in
form and substance reasonably satisfactory to the Westbrook Entities).
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PARTIES
3.1 Representations and Warranties of the Alter Entities, Management,
Management Sub, Lessee and Biederman. The Alter Entities jointly and severally
represent and warrant to SHP and the Westbrook Entities with respect to each of
Management, Management Sub, Lessee and each Lessee Subsidiary (as defined
below), Management and Management Sub jointly and severally represent and
warrant to SHP and the Westbrook Entities with respect to Management and
Management Sub only, Biederman represents and warrants to SHP and the Westbrook
Entities with respect to Lessee and each Lessee Subsidiary only, and Lessee
severally represents and warrants to SHP and the Westbrook Entities with respect
to Lessee and each Lessee Subsidiary only, as follows:
(a) Due Organization; Power and Good Standing. Each of Management,
Management Sub and Lessee is duly organized, validly existing and in good
standing under the laws of its jurisdiction of organization, and has the
requisite power and authority to own, lease and operate its properties and to
conduct its business as now conducted by it. Each of Management, Management Sub
and Lessee has all requisite power and authority to enter into this Agreement
and the Implementing Agreements to which it is a party and to perform its
obligations hereunder and thereunder. Each of Management, Management Sub and
Lessee is qualified to do business and is in good standing as a foreign
corporation in all jurisdictions in which it conducts its business, except where
the failure to be so qualified would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect. Complete and correct
copies of the Certificate of
<PAGE> 17
13
Incorporation and Bylaws of Management and Lessee and the Certificate of
Formation and limited liability company agreement of Management Sub are set
forth in Schedule 3.1(a) hereto.
(b) Authorization and Validity of Agreement. The execution, delivery
and performance by each of Management, Management Sub and Lessee of this
Agreement and the Implementing Agreements to which it is a party and the
consummation by it of the Transactions have been duly authorized by all
necessary corporate or limited liability company action on the part of it. The
Agreement, and each of the Implementing Agreements to which either Management,
Management Sub or Lessee is a party have been duly executed and delivered by
Management, Management Sub or Lessee, as the case may be, and constitute a valid
and legally binding obligation of Management, Management Sub or Lessee, as the
case may be, enforceable against it in accordance with its terms.
(c) No Government Approvals or Notices Required; No Conflict with
Instruments. Except as described in Schedule 3.1(c), the execution, delivery and
performance of this Agreement by Management, Management Sub and Lessee and the
consummation by each of them of the Transactions will not (i) violate, conflict
with or result in a breach of any provision of the Certificate of Incorporation,
Bylaws or limited liability company agreement of such Person, as applicable,
(ii) except for any filings required under the HSR Act, require any consent,
approval, authorization or permit of, or filing with or notification to, any
Governmental Authority, (iii) require the consent or approval of any Person
(other than a Governmental Authority), violate, conflict with or result in a
breach of any provision of, constitute a default (or an event which with notice
or lapse of time or both would become a default) under, or give to any Person
any right of termination, cancellation, amendment, purchase, sale or
acceleration under, or result in the creation of a Lien on any of the assets,
properties or stock of Management, Management Sub, Lessee, any Lessee
Subsidiary, Sunstone or any of Sunstone's Subsidiaries under, any of the
provisions of any contract, lease, note, permit, franchise, license or other
instrument or agreement to which such Person is a party or by which it or its
assets or properties are bound, or (iv) violate or conflict with any order,
writ, injunction, decree, statute, rule or regulation of any Governmental
Authority or arbitrator applicable to Management, Management Sub, Lessee, any
Lessee Subsidiary, Sunstone or any of Sunstone's Subsidiaries, or any of their
respective assets or properties; other than any consents and approvals the
failure of which to obtain and any violations, conflicts, breaches and defaults
set forth pursuant to clauses (ii), (iii) and (iv) above which, individually or
in the aggregate, would not reasonably be expected to have a Material Adverse
Effect.
(d) Capitalization. The authorized, issued and outstanding capital
stock of Management, Management Sub and Lessee (both before and after giving
effect to the Recapitalization), and the ownership thereof, is described on
Schedule 3.1(d). All such issued shares of Management, Management Sub and Lessee
have been duly authorized and validly issued, are fully paid and non-assessable
and have not been issued in violation of any preemptive rights. With respect to
Lessee, after giving effect to the Recapitalization, all issued shares of Lessee
will be duly authorized and validly issued, will be fully paid and
non-assessable and will not have been issued in violation of any preemptive
rights. There are no equity interests in Management, Management Sub or Lessee
reserved for issuance, and there are (i) no options,
<PAGE> 18
14
warrants or rights of any
kind to acquire any equity interests in, or any other securities that are
convertible into or exchangeable for any equity interest in, Management,
Management Sub or Lessee and (ii) except for the Recapitalization, no
agreements, commitments or arrangements relating to the sale, issuance,
redemption, purchase, acquisition or voting of or the granting of a right to
acquire any capital stock of Management, Management Sub or Lessee or any
options, warrants, rights or securities described in clause (i) other than the
Lessee/Manager Agreement (as defined).
(e) Subsidiaries.
(i) There is no corporation, partnership or other entity,
other than Management Sub, in which Management directly or indirectly
owns any equity or other interest.
(ii) (A) Schedule 3.1(e) sets forth (x) each Subsidiary of
Lessee ("Lessee Subsidiary"), (y) the ownership interest therein of
Lessee and (z) if not wholly owned by Lessee, the identity and
ownership interest of each of the other owners of such Lessee
Subsidiary.
(B) (1) All the outstanding shares of capital stock
owned by Lessee of each Lessee Subsidiary that is a corporation have
been validly issued and are (x) fully paid, nonassessable and free of
any preemptive rights, (y) owned by Lessee or by another Lessee
Subsidiary and (z) owned free and clear of all Liens or any other
limitation or restriction (including any contractual restriction on the
right to vote or sell the same) other than restrictions under
applicable securities laws; and (2) all equity interests in each Lessee
Subsidiary that is a partnership, joint venture, limited liability
company or trust which are owned by Lessee, by another Lessee
Subsidiary or by Lessee and another Lessee Subsidiary are owned free
and clear of all Liens or any other limitation or restriction
(including any contractual restriction on the right to vote or sell the
same) other than restrictions under applicable securities laws. Each
Lessee Subsidiary that is a corporation is duly incorporated and
validly existing under the Laws of its jurisdiction of incorporation
and has the requisite corporate power and authority to carry on its
business as now being conducted, and each Lessee Subsidiary that is a
partnership, limited liability company or trust is duly organized and
validly existing under the laws of its jurisdiction of organization and
has the requisite power and authority to carry on its business as now
being conducted. Each Lessee Subsidiary is duly qualified or licensed
to do business and is in good standing in each jurisdiction in which
the nature of its business or the ownership or leasing of its
properties makes such qualification or licensing necessary, other than
in such jurisdictions where the failure to be so qualified or licensed,
individually or in the aggregate, would not have a Material Adverse
Effect. True and correct copies of the charter, by-laws, organizational
documents and partnership, joint venture and operating agreements of
each Lessee Subsidiary, and all amendments to the date of this
Agreement, have been made available to the Westbrook Entities and SHP
at the data room established by Sunstone and examined by
representatives of the Westbrook Entities and SHP on or prior to
June 15, 1999.
<PAGE> 19
15
(f) Financial Information, Liabilities.
(i) Attached as Schedule 3.1(f)(i) are the audited
consolidated balance sheets of each of (i) Management and (ii) Lessee
and its Subsidiaries as at December 31, 1998 (the "December 31 Balance
Sheets") and the accompanying audited consolidated statements of
operations and cash flows, and, with respect to the Lessee,
stockholder's equity, for the year then ended audited By Ernst & Young
LLP (together with the December 31 Balance Sheets, the "December 31
Financial Statements"). The December 31 Financial Statements have been
prepared in accordance with GAAP (except as may be indicated in the
notes thereto) and fairly present in all material respects the
consolidated financial position of each of Management and Lessee as at
December 31, 1998 and the results of operations of each of Management
and Lessee for the year then ended.
(ii) Attached as Schedule 3.1(f)(ii) are the unaudited
consolidated balance sheets of each of (i) Management and Management
Sub, and (ii) Lessee and its Subsidiaries as at March 31, 1999 (the
"March 31 Balance Sheets") and the accompanying unaudited consolidated
statements of operations and cash flows for the three months then ended
(together with the March 31 Balance Sheet, the "March 31 Financial
Statements"). The March 31 Financial Statements have been prepared in a
manner consistent with that employed in the December 31 Financial
Statements except as disclosed in the notes to such financial
statements. The March 31 Financial Statements have been prepared in
accordance with GAAP and fairly present (subject to normal year-end
adjustments, which adjustments are not material) in all material
respects the financial positions of each of Management and Lessee as at
March 31, 1999 and the results of operations of each of Management and
Lessee for the three months then ended.
(iii) None of Management, Management Sub, Lessee or any of the
Lessee Subsidiaries has any Liabilities except: (A) as set forth on
Schedule 3.1(f)(iii); (B) Liabilities disclosed on the applicable March
31, 1999 Balance Sheet; (C) Liabilities under all contracts and
agreements set forth on the schedules hereto, other than any such
Liabilities in respect of indebtedness for borrowed money; (D)
Liabilities incurred subsequent to March 31, 1999 in the ordinary
course of business consistent with past practice and in compliance with
the provisions of this Agreement; (E) Liabilities arising from
litigation relating to the Transactions; (F) Liabilities under all
contracts and agreements entered into by such Person after the date of
this Agreement so long as such contract or agreement was entered into
in compliance with this Agreement; and (G) Liabilities in connection
with bonuses contemplated by the proviso in clause (i) of Section 4.1.
(iv) As of March 31, 1999 except as set forth on the March 31,
1999 Balance Sheet or reserved against on such balance sheet, Lessee
and its Subsidiaries do not have Liabilities of the type required to be
reflected as Liabilities on a balance sheet prepared in accordance with
GAAP.
<PAGE> 20
16
(g) Absence of Certain Changes or Events. Since December 31,
1998, Lessee, the Lessee Subsidiaries, Management and Management Sub have
conducted their respective businesses, taken as a whole, in all material
respects in the ordinary course of business consistent with past practice, and
there has not been any material adverse change in the assets, Liabilities,
business, results of operations or condition (financial or otherwise) of
Management, Management Sub, Lessee or any Lessee Subsidiary or any damage,
destruction, loss, conversion, condemnation or taking by eminent domain related
to any material Management Asset or Basis Asset. In addition, except as
disclosed on Schedule 3.1(g) or in the March 31 Financial Statements, from
December 31, 1998 to the date hereof, none of Lessee, any Lessee Subsidiary,
Management or Management Sub has other than as expressly contemplated by this
Agreement or the Implementing Agreements:
(i) increased the compensation or benefits payable by it to
its Employees except for increases in compensation or benefits in the
ordinary course of business consistent with past practice;
(ii) incurred, assumed or guaranteed any (i) indebtedness for
borrowed money or (ii) other than in the ordinary course of business
consistent with past practice, any other indebtedness;
(iii) made any loan or advance to any Person, except in the
ordinary course of business consistent with past practice;
(iv) made any capital expenditure or commitment for any
capital expenditure in excess of $20,000 individually or $200,000 in
the aggregate;
(v) merged or consolidated with, or acquired an interest in,
any Person or otherwise acquired any material assets, except for
acquisitions in the ordinary course of business consistent with past
practice;
(vi) sold or otherwise disposed of any material properties or
assets, except for dispositions in the ordinary course of business
consistent with past practice;
(vii) mortgaged, pledged or encumbered any material assets,
other than pursuant to Permitted Liens;
(viii) issued, sold or redeemed any capital stock or other
equity interests, notes, bonds or other securities, or any option,
warrant or other right to acquire the same;
(ix) amended its Certificate of Incorporation or Bylaws;
(x) made any change in the financial or accounting practices
or policies customarily followed by it (other than changes required by
GAAP); or
(xi) entered into any contract or other agreement to do any of
the foregoing.
<PAGE> 21
17
(h) Title; Absence of Liens. Each of Management Sub and
Management has, and at the Closing SHP and Management Newco will, acquire good
and valid title interests in all properties, assets and other rights included in
the Management Assets and the Basis Assets, respectively, free and clear of all
Liens except for Permitted Liens or as set forth on Schedule 3.1(h).
(i) Contracts, Permits and Other Data. Schedule 3.1(i) lists
all of the following to which either Management, Lessee or any Lessee Subsidiary
is a party as of the date hereof:
(i) contracts containing covenants limiting the freedom of
Management, Lessee or any Lessee Subsidiary after the date hereof (A)
to engage in any line of business or to compete with any Person or (B)
to incur indebtedness for borrowed money;
(ii) partnership, limited liability company, or joint venture
or shareholder agreements;
(iii) hotel franchise agreements;
(iv) Equipment Leases (excluding any such agreements providing
for payment of less than $20,000 per annum on an individual basis or
terminable without penalty upon 90 days or less prior written notice);
(v) Service Contracts (excluding any such agreements providing
for payment of less than $20,000 per annum on an individual basis or
terminable without penalty of more than $5,000 upon 90 days or less
prior written notice);
(vi) Management Agreements;
(vii) any Advance Booking Agreements (excluding any such
agreements providing for payment of less than $600,000 per annum on an
individual basis or terminable without penalty of more than $60,000
upon 90 days or less prior written notice);
(viii) employment agreements;
(ix) contracts which provide for payments after the date
hereof in excess of $100,000 during any one-year period and which are
not otherwise listed on Schedule 3.1(i) or Schedules 3.1(j)(ii) through
(vi);
(x) mortgages, pledges, security agreements, deeds of trust or
other instruments creating or, to the Knowledge of Lessee, Management
or Management Sub, as applicable, purporting to create Liens; or
<PAGE> 22
18
(xi) contracts (other than this Agreement and the Implementing
Agreements) for the sale or other Transfer of any material assets of
Management, Management Sub, Lessee or any Lessee Subsidiary after the
date hereof.
Except as specified in Schedule 3.1(i) hereto, all instruments listed on
Schedule 3.1(i) and all other rights, licenses, leases, registrations,
applications, contracts, commitments and other agreements of Lessee, any Lessee
Subsidiary, Management or Management Sub which are necessary to the operation of
their respective businesses or by which Lessee, any Lessee Subsidiary, the
Management Assets or the Basis Assets are bound to the extent they are necessary
to the operation of their respective businesses are legal, valid and binding
obligations of Lessee, each Lessee Subsidiary, Management or Management Sub, as
applicable, and to the Knowledge of Lessee, Management or Management Sub, as
applicable, each other party thereto, enforceable in accordance with their
terms, except for such failures to be enforceable that would not, individually
or in the aggregate, have a Material Adverse Effect. None of Lessee, any Lessee
Subsidiary, Management or Management Sub or, to the Knowledge of Lessee,
Management or Management Sub, any other party, is in breach or default in the
performance of any obligation thereunder and no event has occurred or has failed
to occur whereby any of the other parties thereto have been or will be released
therefrom or will be entitled to refuse to perform thereunder, in any case which
would have, either individually or in the aggregate, a Material Adverse Effect.
(j) Properties.
(i) Owned Real Property. None of Management, Management Sub,
Lessee or any Lessee Subsidiary owns a fee interest in any real
property, and none Management, Management Sub or Lessee has owned a fee
interest in any real property since April 1, 1989.
(ii) Leased Real Property. Schedule 3.1(j)(ii) sets forth as
of the date hereof, by address, each Leased Real Property, all of which
are leased from Sunstone OP or its Subsidiaries (collectively, the
"Real Property Leases"). Except as set forth on Schedule 3.1(i), as of
the date hereof, none of Lessee, any Lessee Subsidiary, Management or
Management Sub is a lessor under any ground lease or Space Lease.
Pursuant to the Real Property Leases, Management, Management Sub or
Lessee holds good and valid leasehold title to the Leased Real
Property, in each case in accordance with the provisions of the
applicable Real Property Lease and free of all Liens except for
Permitted Liens. Other than such exceptions which would not,
individually or in the aggregate, have a Material Adverse Effect, all
Real Property Leases (i) are legal, valid and binding obligations of
Lessee, Management or Management Sub, as applicable, and to the
Knowledge of Lessee, Management or Management Sub, as applicable, each
other party thereto, enforceable in accordance with their terms, and
(ii) to the Knowledge of Lessee, Management or Management Sub, grant in
all respects the leasehold estates or rights of occupancy or use they
purport to grant. Except as set forth on Schedule 3.1(j)(ii), as of the
date hereof, there are no existing defaults (either on the part of
Management, Management Sub or Lessee or, to the Knowledge of
Management, Management Sub or Lessee, as applicable, any other party
thereto) under any Real Property Lease and no
<PAGE> 23
19
event has occurred which, with notice or the lapse of time, or both,
would constitute a default (either on the part of Management,
Management Sub or Lessee or, to the Knowledge of Management, Management
Sub or Lessee, as applicable, any other party thereto) under any of the
Real Property Leases, except for any of the foregoing which,
individually or in the aggregate, would not have a Material Adverse
Effect. The consummation of the Transactions will not result in any
payment obligations under any of the Real Property Leases (whether
pursuant to a "change in control" provision in the Real Property Leases
or otherwise) to any Person other than Sunstone OP or its Subsidiaries,
except as set forth on Schedule 3.1(j)(ii).
(iii) No Transfer Agreements. Except as set forth on Schedule
3.1(j)(iii), as of the date hereof, none of Management, Lessee or any
Lessee Subsidiary has entered into any agreement to sell, transfer,
mortgage, lease, grant any preferential right to purchase (including
but not limited to any option, right of first refusal or right of first
negotiation) with respect to, or otherwise dispose of or encumber all
or any portion of their respective interest in, the Leased Real
Property.
(iv) Space Leases. Except as set forth on Schedule 3.1(j)(iv),
as of the date hereof, there are no Space Leases, nor are there any
other tenants or occupants (other than transient guests and as
otherwise contemplated in the Hotel Management Agreements) with rights
to occupy all or any portion of the Real Property. A copy of each Space
Lease described on Schedule 3.1(j)(iv) has been provided to SHP and is
a true and accurate copy, including all amendments to date, and
constitutes the entire agreement between Management, Management Sub or
Lessee, as the case may be, and the other party or parties named
therein. Each such Space Lease is a legal, valid and binding obligation
of Lessee, Management or Management Sub, as applicable, and to the
Knowledge of Lessee, Management or Management Sub, as applicable, each
other party thereto, enforceable in accordance with its terms, and, to
the Knowledge of Management, Management Sub or Lessee, as applicable,
free of any default by any party thereto, nor has Management,
Management Sub or Lessee received any written or verbal notice or other
communication of any alleged breach or default thereunder. As of the
date hereof, none of Management, Management Sub, Lessee or any Lessee
Subsidiary is required to pay for any alterations in excess of $20,000
for any tenant which alterations have not been completed as required
pursuant to the relevant lease, except as set forth on Schedule
3.1(j)(iv). To the Knowledge of Lessee, Management or Management Sub,
as applicable, no brokerage commissions or finder's fees that Lessee,
Management or Management Sub is required to pay in excess of $20,000
with respect to the negotiation, renewal, extension or modification of
any Space Lease set forth on Schedule 3.1(i)(iv) will be owing on the
Closing Date. To the Knowledge of Lessee, Management or Management Sub,
as applicable, there are no pending actions or proceedings instituted
against Management, Management Sub, Lessee or any Lessee Subsidiary by
any tenant under any Space Lease.
(v) Equipment Leases, Service Contracts, Advance Booking
Agreements. Schedule 3.1(j)(v), as of the date hereof, sets forth a
list of all of the Equipment Leases, Service Contracts and Advance
Booking Agreements which involve the payment or
<PAGE> 24
20
receipt of more than $20,000, in any individual case, or which may not
be canceled on ninety (90) days notice or less without payment of any
penalty in excess of $5,000 and all amendments thereto, and the
expiration date of each such Equipment Lease, Service Contract and
Advance Booking Agreement and, in the case of the Advanced Booking
Agreements, the rates applicable thereunder (each, a "Section (v)
Contract"). Each Section (v) Contract is a legal, valid and binding
obligation of Lessee, Management or Management Sub, as applicable, and
to the Knowledge of Lessee, Management or Management Sub, as
applicable, each other party thereto, enforceable in accordance with
its terms, all amounts due thereunder have been paid, to the Knowledge
of Management, Management Sub or Lessee, as applicable, no default
except for defaults that would not have a Material Adverse Effect by
any Person exists under any Section (v) Contract and none of
Management, Management Sub or Lessee has received any written notice
from any party to any Section (v) Contract claiming the existence of
any default under such Section (v) Contract and no such Section (v)
Contract has been assigned, transferred, hypothecated, pledged or
encumbered by Management, Management Sub, Lessee or any Lessee
Subsidiary. None of Management, Management Sub, Lessee, any Lessee
Subsidiary or any of their Affiliates has any direct or indirect
ownership interests in any Person providing goods or services under the
Section (v) Contracts. To the Knowledge of Management, Management Sub
or Lessee, as applicable, there are no pending actions or proceedings
instituted against Management, Management Sub, Lessee or any Lessee
Subsidiary by any party under any Section (v) Contracts. Each Section
(v) Contract to be transferred to SHP and Management Newco pursuant to
this Agreement is transferable without consent, other than as set forth
on Schedule 3.1(j)(v) attached hereto.
(vi) Liquor Licenses. Schedule 3.1(j)(vi) sets forth, as of
the date hereof, the Liquor Licenses for the businesses conducted by
Management, Management Sub, Lessee and any Lessee Subsidiary, all of
which are held in the names as set forth on Schedule 3.1(j)(vi). The
Liquor Licenses are legal, valid and binding obligations of Lessee,
each Lessee Subsidiary, Management and Management Sub, as applicable,
and to the Knowledge of Lessee, Management or Management Sub, as
applicable, each other party thereto, enforceable in accordance with
their terms. To the Knowledge of Management, Management Sub or Lessee,
as applicable, no default except for defaults that would not have a
Material Adverse Effect by any Person exists under the Liquor Licenses,
and none of Management, Management Sub or Lessee has received any
written notification of any material violation or alleged material
violation of any applicable laws or regulations relating to the sale
and service of alcoholic beverages which are outstanding and which have
not been remedied. The Liquor Licenses are adequate for the operation
of the business conducted by Management, Management Sub, Lessee and
each Lessee Subsidiary consistent with past practice. All applicable
state and federal liquor stamp taxes have been paid in full or will be
paid in full on or prior to the Closing Date.
(vii) Other Matters. Schedule 3.1(j)(vii), as of the date
hereof, is a true, correct and complete list of (A) all properties
which Management, Management Sub, Lessee or any Lessee Subsidiary are
obligated, or have the right, to purchase or lease, which are now not
owned or leased by Management, Management Sub, Lessee or any Lessee
Subsidiary,
<PAGE> 25
21
(B) all Real Property which Management, Management Sub, Lessee or any
Lessee Subsidiary are obligated to sell or assign, (C) all Real
Property which Management, Management Sub, Lessee or any Lessee
Subsidiary are in the process of constructing or which are otherwise
not yet fully constructed and operational and (D) all Real Property
subject to purchase options, rights of first offer, rights of first
refusal or similar agreements or arrangements.
(k) Legal Proceedings. Except as described in Schedule 3.1(k), as of
the date hereof, there is no litigation, claim, arbitration, proceeding or
investigation to which Management, Management Sub, Lessee or any Lessee
Subsidiary is a party pending or, to the Knowledge of Management, Management Sub
or Lessee, as applicable, threatened against Management, Management Sub, Lessee
or any Lessee Subsidiary or relating to any of the assets of Management,
Management Sub, Lessee or any Lessee Subsidiary or the Transactions which,
either individually or in the aggregate, would reasonably be expected to have a
Material Adverse Effect or which seeks to restrain or enjoin the consummation of
any of the Transactions. None of Management, Management Sub, Lessee or any
Lessee Subsidiary as of the date hereof is party to nor are any of the assets of
Management, Management Sub, Lessee or any Lessee Subsidiary subject to any
judgment, writ, decree, injunction or order entered by any court, governmental
authority or arbitrator.
(l) Labor Controversies. Except as set forth on Schedule 3.1(l), as of
the date hereof, (i) there have been no labor strikes, slow-downs, work
stoppages, lock-outs or other material labor controversies or disputes during
the past two years, nor is any such strike, slow-down, work stoppage or other
material labor controversy or dispute pending or, to the Knowledge of
Management, Management Sub or Lessee, as applicable, threatened, in each case
with respect to the current or former employees of Management, Management Sub,
Lessee or any Lessee Subsidiary, (ii) none of Management, Management Sub, Lessee
or any Lessee Subsidiary is a party to any labor contract, collective bargaining
agreement, contract, letter of understanding or, to the Knowledge of Management,
Management Sub or Lessee, as applicable, any other agreement, formal or
informal, with any labor union or organization, nor are any of the employees of
Management, Management Sub, Lessee or any Lessee Subsidiary represented by any
labor union or organization, and (iii) none of Management, Management Sub,
Lessee or any Lessee Subsidiary has closed any facility, effectuated any layoffs
of employees or implemented any early retirement, separation or window program
within the past three years nor has Management, Management Sub or Lessee planned
or announced any such action or program for the future except for any of the
foregoing which, individually or in the aggregate, would not have a Material
Adverse Effect.
(m) Intellectual Property and Technology. Management, Management Sub,
Lessee and each Lessee Subsidiary own, or are licensed or otherwise have the
right to use in the manner currently being used, all patents, patent
registrations, patent applications, trademarks, trademark registrations,
trademark applications, tradenames, copyrights, copyright applications,
copyright registrations, franchises, URLs, domain names, permits and licenses
("Intellectual Property") used by Management, Management Sub and Lessee and
necessary to the operation of their respective businesses (the "Business
Intellectual Property"), subject to the terms of the
<PAGE> 26
22
respective franchise, license and other agreements. Except as would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect, (i) none of Management, Management Sub, Lessee or any Lessee
Subsidiary has infringed upon or is in conflict with the Intellectual Property
of any third party, except with respect to off-the-shelf software and with
respect to Intellectual Property licensed under franchise agreements, such
exception being applicable only if Management, Management Sub, Lessee or such
Lessee Subsidiary, as the case may be, shall not be in violation of the
Intellectual Property license provisions of the applicable franchise agreement,
(ii) nor has Management, Management Sub, Lessee or any Lessee Subsidiary
received any written notice of any claim that Management, Management Sub, Lessee
or any Lessee Subsidiary has infringed upon or is in conflict with any
Intellectual Property of any third party. Except as would not, individually or
in the aggregate, reasonably be expected to have a Material Adverse Effect, all
trademark registrations of each of Management, Management Sub, Lessee and Lessee
Subsidiary are valid and subsisting and in full force and effect. Each of
Management, Management Sub, Lessee or each Lessee Subsidiary owns or is licensed
or otherwise has the right to use all of the processes, formulae, proprietary
technology, inventions, trade secrets, know-how, product descriptions and
specifications ("Technology") in the manner currently used by Management,
Management Sub, Lessee or each Lessee Subsidiary, except as would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect. Except as would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect, there have been no
written claims (whether private or governmental) against Management, Management
Sub or Lessee asserting the invalidity or unenforceability of its ownership,
license or other right to use any of the Technology. Except as would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect, none of the rights of Management, Management Sub, Lessee or any
Lessee Subsidiary to the Business Intellectual Property or the Technology will
be impaired in any way by any of the Transactions, except with respect to
off-the-shelf software and with respect to Intellectual Property licensed under
franchise agreements, such exception being applicable only if Management,
Management Sub, Lessee or such Lessee Subsidiary, as the case may be, shall not
be in violation of the Intellectual Property provisions of the applicable
franchise agreement, and all of the rights of Management and Management Sub to
the Business Intellectual Property and Technology included in the Management
Assets and the Basis Assets will be fully enforceable by Management Newco after
the Closing Date to the same extent as such rights would have been enforceable
by Management or Management Sub, as the case may be, before the Closing.
(n) Conduct of Business in Compliance with Laws.
(i) Each of Management, Management Sub, Lessee and each Lessee
Subsidiary has complied with all applicable laws, ordinances,
regulations or orders or other requirements of any Governmental
Authority applicable to it, except where the failure to be in such
compliance would not have, either individually or in the aggregate, a
Material Adverse Effect.
(ii) Each of Management, Management Sub, Lessee and each
Lessee Subsidiary has all licenses, permits, consents, approvals,
authorizations, qualifications and orders of Governmental Authorities
required for the conduct of its respective businesses
<PAGE> 27
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as presently conducted, except where failure would not, individually or
in the aggregate, have a Material Adverse Effect.
(o) Environmental Matters. Except as set forth on Schedule 3.1(o) and
except for matters that, individually or in the aggregate, would not have a
Material Adverse Effect, (i) each of Management, Management Sub, Lessee and each
Lessee Subsidiary complies and has complied with all Environmental Laws
applicable to it, and has possessed and complied with all permits required under
Environmental Laws for its respective businesses; (ii) to Management's,
Management Sub's and Lessee's Knowledge, there are and have been no Materials of
Environmental Concern at any property currently or formerly owned, operated or
leased by Management, Management Sub, Lessee or any Lessee Subsidiary that could
reasonably be expected to give rise to any liability under any Environmental Law
or result in costs arising out of any Environmental Law; (iii) no judicial,
administrative, or arbitral proceeding (including any notice of violation or
alleged violation) under any Environmental Law to which Management, Management
Sub, Lessee or any Lessee Subsidiary is, or to the Knowledge of Management,
Management Sub or Lessee, as applicable, will be, named as a party is pending
or, to the Knowledge of Management, Management Sub or Lessee, as applicable,
threatened, with respect to Management, Management Sub, Lessee or any Lessee
Subsidiary nor to the Knowledge of Management, Management Sub or Lessee, as
applicable, is Management, Management Sub, Lessee or any Lessee Subsidiary the
subject of any investigation in connection with any such proceeding or potential
proceeding; (iv) to Management's, Management Sub's and Lessee's Knowledge, there
are no past, present, or anticipated future events, conditions, circumstances,
practices, plans, or legal requirements that could be expected to prevent, or
materially increase the burden on Management, Management Sub, Lessee or any
Lessee Subsidiary of complying with applicable Environmental Laws or of
obtaining, renewing, or complying with all permits required under Environmental
Laws required under such laws; and (v) Management, Management Sub, Lessee, Alter
and Biederman have provided to SHP true and complete copies of all reports with
respect to Environmental Laws relating to Management, Management Sub, Lessee or
each Lessee Subsidiary or the Real Property in their possession or control.
(p) Employee Benefits. As used herein, the term "Employee Plan"
includes any pension, retirement, savings, disability, medical, dental, health,
life, death benefit, group insurance, profit sharing, deferred compensation,
stock option, bonus, incentive, vacation pay, tuition reimbursement, severance
pay, or other material employee benefit plan, trust, employment agreement,
contract, agreement, policy, program or arrangement (including, without
limitation, any pension plan, as defined in Section 3(2) of the Employee
Retirement Income Security Act of 1974, as amended and the rules and regulations
promulgated thereunder ("ERISA") ("Pension Plan"), any multiemployer plan, as
defined in Section 3(37) of ERISA (a "Multiemployer Plan") and any welfare plan
as defined in Section 3(1) of ERISA ("Welfare Plan")), whether or not any of the
foregoing is funded, insured or self-funded, written or oral, (i) sponsored or
maintained by Management, Management Sub, Lessee, any Lessee Subsidiary, or any
entity which, together with Management, Management Sub or Lessee, would be
treated as a single employer under Section 414 of the Code (each a "Controlled
Group Member") and covering any Controlled Group Member's active or former
employees (or their beneficiaries), (ii) to which any Controlled Group Member is
a party or by which any Controlled Group Member (or any of the rights,
properties or
<PAGE> 28
24
assets thereof) is bound or (iii) with respect to which any current Controlled
Group Member may otherwise have any material liability (whether or not such
Controlled Group Member still maintains such Employee Plan). Each Employee Plan
is listed in Schedule 3.1(p). With respect to the Employee Plans:
(i) Except as disclosed in Schedule 3.1(p), no Controlled
Group Member has any continuing liability under any Welfare Plan which
provides for continuing benefits or coverage for any participant or any
beneficiary of a participant after such participant's termination of
employment, except as may be required by Section 4980B of the Code, or
Section 601 (et seq.) of ERISA, or under any applicable state law, and
at the expense of the participant or the beneficiary of the
participant.
(ii) Except as disclosed in Schedule 3.1(p), each Employee
Plan which is not a Multiemployer Plan (and, to the Knowledge of
Management, Management Sub or Lessee, as applicable, each Multiemployer
Plan) complies in all material respects with the applicable
requirements of ERISA and any other applicable law governing such
Employee Plan, and each Employee Plan which is not a Multiemployer
Plan (and, to the Knowledge of Management, Management Sub or Lessee,
as applicable, each Multiemployer Plan) has at all times been
administered in all material respects in accordance with all such
requirements of law, and in accordance with its terms and the terms of
any applicable collective bargaining agreement to the extent consistent
with all such requirements of law. Each Employee Plan which is intended
to be qualified has (A) received a favorable determination letter from
the Internal Revenue Service stating that such Employee Plan meets the
requirements of and is qualified under Section 401(a) of the Code, and
that the trust associated with such Employee Plan is tax exempt under
Section 501(a) of the Code, (B) an application for such determination
is pending or (C) the remedial amendment period during which an
application for such determination may be timely filed has not expired
and such application will be timely filed before the expiration of such
remedial amendment period, and to the Knowledge of Management,
Management Sub or Lessee, as applicable, no event has occurred which
would jeopardize the qualified status of any such plan or the tax
exempt status of any such trust under Sections 401(a) and Section
501(a) of the Code, respectively, except in circumstances in which,
individually or in the aggregate, the failure to so qualify or be tax
exempt would not have a Material Adverse Effect.
(iii) No lawsuits, claims (other than routine claims for
benefits) or complaints to, or by, any Person or Governmental Authority
have been filed or are pending which, individually or in the aggregate,
would have a Material Adverse Effect and, to the Knowledge of
Management, Management Sub or Lessee, as applicable, there is no fact
or contemplated event which would be expected to give rise to any such
lawsuit, claim (other than routine claims for benefits) or complaint
with respect to any Employee Plan that would have a Material Adverse
Effect. Without limiting the foregoing, except in the case of the
following clauses (1) through (6) as would not individually or in the
aggregate have a Material Adverse Effect, the following are true with
respect to each Employee Plan:
<PAGE> 29
25
(1) all Controlled Group Members have filed or caused to be
filed every material return, report statement, notice, declaration and
other document required by any law or governmental agency, federal,
state and local (including, without limitation, the Internal Revenue
Service and the Department of Labor) with respect to each such Employee
Plan, other than a Multiemployer Plan, each of such filings has been
complete and accurate in all material respects and no Controlled Group
Member has incurred any material liability in connection with such
filings;
(2) all Controlled Group Members have delivered or caused to
be delivered to every participant, beneficiary and other party entitled
to such material, all material plan descriptions, returns, reports,
schedules, notices, statements and similar materials, including,
without limitation, summary plan descriptions and summary annual
reports, as are required under Title I of ERISA, the Code, or both, and
no Controlled Group Member has incurred any material liability in
connection with such deliveries;
(3) all contributions and payments with respect to Employee
Plans that are required to be made by a Controlled Group Member with
respect to periods ending on or before the Closing Date (including
periods from the first day of the current plan or policy year to the
Closing Date) have been, or will be, made or accrued before the Closing
Date in accordance with the appropriate plan document, actuarial
report, collective bargaining agreements or insurance contracts or
arrangements or as otherwise required by ERISA or the Code;
(4) with respect to each such Employee Plan, to the extent
applicable, Management, Management Sub and Lessee have delivered to or
have made available to Westbrook LLC true and complete copies of (i)
plan documents, or any and all other documents that establish the
existence of the plan, trust, arrangement, contract, policy, program or
arrangement and all amendments thereto, (ii) the most recent
determination letter, if any, received from the Internal Revenue
Service, (iii) the three most recent Form 5500 Annual Reports (and all
schedules and reports relating thereto) and actuarial reports (if
required to be prepared) and (iv) all related trust agreements,
insurance contract or other funding agreements that implement each such
Employee Plan;
(5) no payment made or to be made to an officer, director or
employee pursuant to an Employee Plan either before, on, or after
consummation of the Transactions and contingent on or related to such
transactions shall constitute an "excess parachute payment" within the
meaning of Section 280G of the Code; and
(6) consummation of the Transactions shall not (i) give rise
to a severance pay obligation with respect to those employees of
Management, Management Sub or Lessee who continue employment with
Management Newco
<PAGE> 30
26
or Lessee or (ii) enhance or trigger (including acceleration of
vesting, payment or funding) any benefits under any Employee Plan.
(iv) With respect to each Employee Plan which is not a
Multiemployer Plan (and to the Knowledge of Management, Management Sub
or Lessee, as applicable, with respect to each Multiemployer Plan),
there has not occurred, and no Person or entity is contractually bound
to enter into, any "prohibited transaction" within the meaning of
Section 4975(c) of the Code or Section 406 of ERISA, which transaction
is not exempt under Section 4975(d) of the Code or Section 408 of ERISA
which, individually or in the aggregate, would have a Material Adverse
Effect.
(v) Except as disclosed on Schedule 3.1(p) hereto, no
Controlled Group Member has maintained or been obligated to contribute
to any plan subject to Code Section 412 or Title IV of ERISA (other
than a Multiemployer Plan).
(vi) As of the date hereof, Management, Management Sub, Lessee
and the Lessee Subsidiaries have approximately 4,700 employees in the
aggregate, and no demand for recognition made by any labor organization
is pending with respect to any such employees. Schedule 3.1(p)(vi) sets
forth all collective bargaining agreements to which the Company is a
party as of the date hereof and any pending grievances thereunder. None
of Management, Management Sub or Lessee has at any time during the last
two years (A) had, nor, to the Knowledge of Management, Management Sub
or Lessee, as applicable, is there now threatened, a material strike,
picketing, work stoppage, work slowdown, lockout or other labor trouble
or dispute or grievance under any collective bargaining agreement or
(B) engaged in any unfair labor practice or discriminated on the basis
of age or other discrimination prohibited by applicable law in their
employment conditions or practices. There are no representation
petitions, unfair labor practice or age discrimination charges or
complaints, or other charges or complaints alleging illegal
discriminatory practices by Management, Management Sub, Lessee or any
Lessee Subsidiary, pending or, to the Knowledge of Management,
Management Sub or Lessee, as applicable, threatened before the National
Labor Relations Board or any other governmental body. Neither
Management, Management Sub, Lessee nor any ERISA Affiliate has incurred
any liability or obligation under the Worker Adjustment and Retaining
Notification Act or similar state laws which remains unpaid or
unsatisfied.
(vii) All insurance premiums required to be paid with respect
to Employee Plans as of the Effective Time have been or will be paid
prior thereto and adequate reserves have been provided for on the
balance sheets of Management and Lessee for any premiums (or portions
thereof) attributable to service on or prior to the Closing Date.
(q) Entire Business. The properties, assets and other rights
of Lessee constitute all of the properties, assets and other rights necessary
for the conduct of the business of Lessee as currently conducted. As of the
Closing, Management and Management Sub will have transferred or caused to be
transferred to SHP all of the properties, assets and other rights of Management
and Management Sub used in the conduct of their business as currently conducted.
<PAGE> 31
27
(r) Tax Matters.
(i) Management, Management Sub, Lessee and each Lessee
Subsidiary have filed all Tax Returns required to be filed in the
manner prescribed by law, except as would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect,
and have paid all Taxes due (whether or not shown on such Tax Returns),
except as would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect. Except as would not,
individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect, all Taxes that Lessee, each Lessee Subsidiary,
Management or Management Sub are or were required to withhold or
collect have been duly withheld or collected and, to the extent
required, have been paid to the appropriate governmental authority.
(ii) Except as set forth on Schedule 3.1(r)(ii), as of the
date hereof, to the Knowledge of Lessee, Management or Management Sub,
as applicable, no action, suit,
proceeding, investigation, claim or audit has been commenced, or is
threatened in writing, with respect to Lessee, any Lessee Subsidiary,
Management or Management Sub in respect of any Taxes. Any deficiency
proposed as a result of such action, suit, proceeding, investigation,
claim or audit has been paid or, as described on Schedule 3.1(r)(ii),
are being contested in good faith by appropriate proceedings.
(iii) Except as set forth on Schedule 3.1(r)(iii) or as would
not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect, none of Lessee, any Lessee Subsidiary,
Management or Management Sub will be required to include any amount in
income for any taxable period ending after the Closing Date by reason
of a change in method of accounting, any closing or similar agreement
with a governmental authority, any installment sale or any other item
which economically accrued prior to the Closing Date.
(iv) Lessee and Management have at all times qualified as, and
have elected to be treated as, "S Corporations" as defined in section
1361 of the Code and no assets of Lessee or Management are subject to
section 1374 of the Code.
(v) None of Lessee, any Lessee Subsidiary, Management or
Management Sub could be responsible to pay the Taxes of any other
Person under any agreement or otherwise.
(s) Year 2000 Compliance. To the Knowledge of Lessee,
Management or Management Sub, as applicable, all of the computer programs,
computer firmware, computer hardware (whether general or special purpose) and
other similar or related items of automated, computerized and/or software
system(s) that are used or relied on by Management, Management Sub Lessee or any
Lessee Subsidiary in the conduct of their respective businesses will not
malfunction, will not cease to function, will not generate incorrect data, and
will not provide incorrect results when processing, providing, and/or receiving
date-related data into and between
<PAGE> 32
28
the twentieth and twenty-first centuries in a manner that, individually or in
the aggregate, would reasonably be expected to result in a Material Adverse
Effect.
(t) Contracts with Certain Persons. Schedule 3.1(t) sets forth
each agreement or arrangement between Lessee, any Lessee Subsidiary, Management
and Management Sub, on the one hand, and Alter, Biederman, Sunstone, Sunstone
OP, or any other Affiliate of Lessee, any Lessee Subsidiary, Management or
Management Sub, or any officers, directors, or holders of more than a 10% equity
interest in any of the foregoing, on the other hand in excess of $100,000.
(u) Insurance. Each of Management, Management Sub, Lessee and
each Lessee Subsidiary maintain policies of fire, flood and casualty, liability
and other forms of insurance in such amounts, with such deductibles and against
such risks and losses as are reasonable for the businesses, properties and
assets of Management, Management Sub, Lessee and the Lessee Subsidiaries. As of
the date hereof, the insurance policies maintained with respect to each of
Management, Management Sub, Lessee and each Lessee Subsidiary and their
respective businesses, assets and properties (the "Insurance Policies") are
listed in Schedule 3.1(u). All such Insurance Policies are in full force and
effect, and all premiums due and payable thereon have been paid except for any
of the foregoing which, individually or in the aggregate, would not have a
Material Adverse Effect. To the Knowledge of Lessee, Management or Management
Sub, as applicable, no insurer under any such policy has canceled or generally
disclaimed liability under any such policy or indicated any intent to do so or
to materially increase the premiums payable under or not renew any such policy
except for any of the foregoing which, individually or in the aggregate, would
not have a Material Adverse Effect.
(v) Certain Fees. Except as set forth on Schedule 3.1(v), none
of Management, Management Sub, Lessee or any Lessee Subsidiary nor the officers,
directors or employees thereof have employed any broker or finder or incurred
any other Liability for any brokerage fees, commissions or finders' fees in
connection with the Transactions.
3.2 Additional Representations and Warranties of the Alter Entities.
Each of the Alter Entities jointly and severally represents and warrants to
Biederman, SHP and the Westbrook Entities as follows:
(a) Due Organization; Power and Good Standing. Each Alter
Entity that is an entity is duly organized, validly existing and in good
standing under the laws of its jurisdiction of organization, and has the
requisite power and authority to own, lease and operate its properties and to
conduct its business as now conducted by it. Each Alter Entity that is an entity
has all requisite power and authority, and Alter has the legal capacity, power
and authority, to enter into this Agreement and the Implementing Agreements to
which it is a party and to perform its obligations hereunder and thereunder.
Each Alter Entity that is an entity is qualified to do business and is in good
standing as a foreign corporation, partnership or other entity, as applicable,
in all jurisdictions in which it conducts its business, except where the failure
to be so qualified would not, individually or in the aggregate, materially
adversely affect its ability to perform its obligations hereunder or under the
Implementing Agreements to which it is a party. Alter is not married as of the
date of this Agreement and agrees that if he becomes married prior
<PAGE> 33
29
to the Closing Date, his spouse shall execute and deliver an acknowledgment to
the other parties hereto to the effect of the consent set forth in Section 9.14.
(b) Authorization and Validity of Agreement. The execution, delivery
and performance by each Alter Entity of this Agreement and the Implementing
Agreements to which it is a party and the consummation by such Alter Entity of
the Transactions have been duly authorized by all necessary action on the part
of such Alter Entity. This Agreement and each of the Implementing Agreements to
which each Alter Entity is a party have been duly executed and delivered by such
Alter Entity and constitutes a valid and legally binding obligation of such
Alter Entity, enforceable against it in accordance with its terms.
(c) No Government Approvals or Notices Required; No Conflict with
Instruments. Except as described in Schedule 3.2(c), the execution, delivery and
performance of this Agreement and the Implementing Agreements to which each
Alter Entity is a party and the consummation by each Alter Entity of the
Transactions will not (i) with respect to each Alter Entity that is an entity,
violate, conflict with or result in a breach of any provision of the Certificate
of Incorporation, Bylaws or limited partnership agreement of such Person, as
applicable, (ii) except for any filings required under the HSR Act, require any
consent, approval, authorization or permit of, or filing with or notification
to, any Governmental Authority, (iii) require the consent or approval of any
Person (other than a Governmental Authority), violate, conflict with or result
in a breach of any provision of, constitute a default (or an event which with
notice or lapse of time or both would become a default) under, or give to any
Person any right of termination, cancellation, amendment, purchase, sale or
acceleration under, or result in the creation of a Lien on any of the assets,
properties or stock of any of the Alter Entities, Management, Management Sub,
Lessee, any Lessee Subsidiary, Sunstone or any of Sunstone's Subsidiaries under,
any of the provisions of any contract, lease, note, permit, franchise, license
or other instrument or agreement to which such Person is a party or by which it
or its assets or properties are bound or (iv) violate or conflict with any
order, writ, injunction, decree, statute, rule or regulation of any Governmental
Authority or arbitrator applicable to any Alter Entity, Management, Management
Sub, Lessee, any Lessee Subsidiary, Sunstone or any of Sunstone's Subsidiaries,
or any of their respective assets or properties; other than any consents and
approvals the failure of which to obtain and any violations, conflicts, breaches
and defaults set forth pursuant to clauses (ii), (iii) and (iv) above which,
individually or in the aggregate, would not reasonably be expected to have a
Material Adverse Effect.
(d) Legal Proceedings. Except as described in Schedule 3.2(d), as of
the date hereof, there is no litigation, claim, arbitration, proceeding or
investigation to which any Alter Entity is a party pending or, to the Knowledge
of each Alter Entity, threatened against such Alter Entity or relating to any of
the assets of such Alter Entity or the Transactions which, either individually
or in the aggregate, would reasonably be expected to restrain or enjoin the
consummation of any of the Transactions.
(e) Certain Fees. Except as set forth on Schedule 3.2(e), no Alter
Entity has employed any broker or finder or incurred any other Liability for any
brokerage fees, commissions or finders' fees in connection with the
Transactions.
<PAGE> 34
30
(f) Investment Intent. The Alter Entities are acquiring their interests
in SHP for their own account for investment, without a view to, or for a resale
in connection with, the distribution thereof in violation of U.S. Federal or
state or applicable foreign securities laws and with no present intention of
distributing or reselling any part thereof. The Alter Entities will not so
distribute or resell any of such interest in violation of any such law.
(g) Equity Ownership. (i) Alter owns, beneficially and of record, and
has good title to 318,961 OP Units and 100 shares of Lessee Stock (provided that
upon the effect of the Recapitalization, Alter shall own, beneficially and of
record and shall have good title to, 800 shares of Lessee Class A Voting Stock
and 800 shares of Lessee Class B Non-Voting Stock); (ii) Alter Investment Group
owns, beneficially and of record, and has good title to 99,251 OP Units; and
(ii) Riverside owns, beneficially and of record, and has good title to 80,000 OP
Units, in each case free and clear of any Liens (other than the Lien set forth
on Schedule 3.2(g) (the "Wells Fargo Lien"), which shall be released at or prior
to Closing, and the Lien in favor of Sunstone OP created pursuant to the
Agreement set forth on Schedule 3.2(h)), agreements or limitations on voting
rights of any nature whatsoever other than restrictions imposed by the
Securities Act of 1933, as amended (the "Securities Act"), applicable state
securities and "Blue Sky" laws and, with respect to OP Units, the Partnership
Agreement.
(h) Title; Absence of Liens. At the Closing, SHP will acquire from the
Alter Entities good title to 418,292 OP Units, 800 shares of Lessee Class A
Voting Stock and 800 shares of Lessee Class B Non-Voting Stock, free and clear
of all Liens (other than Liens created, imposed or granted by SHP and the Lien
in favor of Sunstone OP created pursuant to the Agreement set forth on Schedule
3.2(h)), agreements or limitations on voting rights of any nature whatsoever
other than restrictions imposed by the Securities Act and applicable state
securities and "Blue Sky" laws.
3.3 Additional Representations and Warranties of Biederman. Biederman
represents and warrants to the Alter Entities, SHP and the Westbrook Entities as
follows:
(a) Power and Authority. Biederman has all requisite power and
authority to enter into this Agreement and the Implementing Agreements to which
he is a party and to perform his obligations hereunder and thereunder.
(b) Validity of Agreement. This Agreement has been, and each of the
Implementing Agreements to which Biederman is a party will on the Closing Date
be, duly executed and delivered by Biederman, and constitutes or, in the case of
the Implementing Agreements, upon execution thereof will constitute, a valid and
legally binding obligation of Biederman, enforceable against him in accordance
with its terms.
(c) No Government Approvals or Notices Required; No Conflict with
Instruments. Except as described in Schedule 3.3(c), the execution, delivery and
performance of this Agreement and the Implementing Agreements to which Biederman
is a party in his individual capacity by him, and the consummation by Biederman
of the Transactions will not (i) except for any filings required under the HSR
Act, require any consent, approval, authorization or permit of,
<PAGE> 35
31
or filing with or notification to, any Governmental Authority, (ii) require the
consent or approval of any Person (other than a Governmental Authority),
violate, conflict with or result in a breach of any provision of, constitute a
default (or an event which with notice or lapse of time or both would become a
default) under, or give to any Person any right of termination, cancellation,
amendment, purchase, sale or acceleration under, or result in the creation of a
Lien on any of the assets, properties or stock of Management, Management Sub,
Lessee, any Lessee Subsidiary, Sunstone or any of Sunstone's Subsidiaries under,
any of the provisions of any contract, lease, note, permit, franchise, license
or other instrument or agreement to which such Person is a party or by which it
or its assets or properties are bound or (iii) violate or conflict with any
order, writ, injunction, decree, statute, rule or regulation of any Governmental
Authority or arbitrator applicable to Biederman, Management, Management Sub,
Lessee, any Lessee Subsidiary, Sunstone or any of Sunstone's Subsidiaries, or
any of their respective assets or properties; other than any consents and
approvals the failure of which to obtain and any violations, conflicts, breaches
and defaults set forth pursuant to clauses (ii), (iii) and (iv) above which,
individually or in the aggregate, would not reasonably be expected to have a
Material Adverse Effect.
(d) Legal Proceedings. Except as described in Schedule 3.3(d), as of
the date hereof, there is no litigation, claim, arbitration, proceeding or
investigation to which Biederman is a party pending or, to the Knowledge of
Biederman, threatened against Biederman which, either individually or in the
aggregate, would reasonably be expected to restrain or enjoin the consummation
of any of the Transactions.
(e) Certain Fees. Except as set forth on Schedule 3.3(e), Biederman has
not employed any broker or finder or incurred any other Liability for any
brokerage fees, commissions or finders' fees in connection with the
Transactions.
(f) Investment Intent. Biederman is acquiring his interest in SHP for
his own account for investment, without a view to, or for a resale in connection
with, the distribution thereof in violation of U.S. Federal or state or
applicable foreign securities laws and with no present intention of distributing
or reselling any part thereof. Biederman will not so distribute or resell any of
such interest in violation of any such law.
(g) Equity Ownership. Biederman owns, beneficially and of record, and
has good title to 38,680 shares of Sunstone Stock, 382,647 OP Units and 25
shares of Lessee Stock (provided that upon the effect of the Recapitalization,
Biederman shall own, beneficially and of record and shall have good title to,
200 shares of Lessee Class A Voting Stock and 200 shares of Lessee Class B
Non-Voting Stock), in each case free and clear of any Liens (other than the Lien
in favor of Sunstone OP created pursuant to the Agreement set forth on Schedule
3.2(h)), agreements or limitations on voting rights of any nature whatsoever
other than restrictions imposed by the Securities Act and applicable state
securities and "Blue Sky" laws and, with respect to OP Units, the Partnership
Agreement.
(h) Title; Absence of Liens. At the Closing, SHP will acquire from
Biederman good title to 382,647 OP Units, 200 shares of Lessee Class A Voting
Stock and 200 shares of Lessee Class B Non-Voting Stock, free and clear of all
Liens (other than Liens created, imposed
<PAGE> 36
32
or granted by SHP and the Lien in favor of Sunstone OP created pursuant to the
Agreement set forth on Schedule 3.2(h)), agreements or limitations on voting
rights of any nature whatsoever other than restrictions imposed by the
Securities Act and applicable state securities and "Blue Sky" laws.
3.4 Representations and Warranties of the Westbrook Entities. Each of the
Westbrook Entities jointly and severally represents and warrants to SHP, the
Alter Entities, Biederman, Management and Management Sub as follows:
(a) Due Organization; Power and Good Standing. Each Westbrook Entity is
duly organized, validly existing and in good standing under the laws of its
jurisdiction of organization, and has the requisite power and authority to own,
lease and operate its properties and to conduct its business as now conducted by
it. Each Westbrook Entity has all requisite power and authority to enter into
this Agreement and the Implementing Agreements to which it is a party and to
perform its obligations hereunder and thereunder. Each Westbrook Entity is
qualified to do business and is in good standing as a foreign corporation,
partnership or other entity, as applicable, in all jurisdictions in which it
conducts its business, except where the failure to be so qualified would not,
individually or in the aggregate, materially adversely affect its ability to
perform its obligations hereunder or under the Implementing Agreements to which
it is a party.
(b) Authorization and Validity of Agreement. The execution, delivery
and performance by each Westbrook Entity of this Agreement and the Implementing
Agreements to which it is a party and the consummation by such Westbrook Entity
of the Transactions have been duly authorized by all necessary action on the
part of such Westbrook Entity. This Agreement and each of the Implementing
Agreements to which each Westbrook Entity is a party have been duly executed and
delivered by such Westbrook Entity and constitutes a valid and legally binding
obligation of such Westbrook Entity, enforceable against it in accordance with
its terms.
(c) No Government Approvals or Notices Required; No Conflict with
Instruments. The execution, delivery and performance of this Agreement and the
Implementing Agreements to which each Westbrook Entity is a party and the
consummation by each Westbrook Entity of the Transactions will not (i) violate,
conflict with or result in a breach of any provision of the limited liability
company agreement or partnership agreement of such party, as applicable, (ii)
except for any filings required under the HSR Act, require any consent,
approval, authorization or permit of, or filing with or notification to, any
Governmental Authority, (iii) require the consent or approval of any Person
(other than a Governmental Authority), violate, conflict with or result in a
breach of any provision of, constitute a default (or an event which with notice
or lapse of time or both would become a default) under, or give to any Person
any right of termination, cancellation, amendment or acceleration under, or
result in the creation of a Lien on any of the assets, properties or limited
liability interests of such Westbrook Entity, under, any of the provisions of
any contract, lease, note, permit, franchise, license or other instrument or
agreement to which such Westbrook Entity is a party or by which it or its assets
or properties are bound, or (iv) violate or conflict with any order, writ,
injunction, decree, statute, rule or regulation of any Governmental Authority or
arbitrator applicable to such Westbrook Entities or its assets or properties;
other than any consents and approvals the failure of which to obtain and
<PAGE> 37
33
any violations, conflicts, breaches and defaults set forth pursuant to clauses
(ii), (iii) and (iv) above which, individually or in the aggregate, would not
materially adversely affect the ability of such Westbrook Entity to perform its
obligations hereunder or under the Implementing Agreements to which it is a
party.
(d) Legal Proceedings. Except as described in Schedule 3.4(d), as of
the date hereof, there is no litigation, claim, arbitration, proceeding or
investigation to which any Westbrook Entity is a party pending or, to the
Knowledge of each Westbrook Entity, threatened against such Westbrook Entity or
relating to any of the assets of such Westbrook Entity or the Transactions
which, either individually or in the aggregate, would reasonably be expected to
restrain or enjoin the consummation of any of the Transactions.
(e) Certain Fees. None of the Westbrook Entities nor any of their
members or partners, nor the officers, directors or employees thereof have
employed any broker or finder or incurred any other Liability for any brokerage
fees, commissions or finders' fees in connection with the Transactions.
(f) Investment Intent. Westbrook LLC is acquiring its interest in SHP
for its own account for investment, without a view to, or for a resale in
connection with, the distribution thereof in violation of U.S. Federal or state
or applicable foreign securities laws and with no present intention of
distributing or reselling any part thereof. Westbrook LLC will not so distribute
or resell any of such interest in violation of any such law.
(g) Control. Westbrook Real Estate Partners III, L.L.C. controls each
of the Westbrook Entities.
3.5 Representations and Warranties of SHP. SHP represents and warrants to
the Alter Entities, the Westbrook Entities, Biederman, Management and Management
Sub as follows:
(a) Due Organization; Power and Good Standing. SHP is duly organized,
validly existing and in good standing under the laws of its jurisdiction of
organization, and has the requisite power and authority to own, lease and
operate its properties and to conduct its business as now conducted by it. SHP
has all requisite power and authority to enter into this Agreement and the
Implementing Agreements to which it is a party and to perform its obligations
hereunder and thereunder. SHP is qualified to do business and is in good
standing as a foreign corporation, partnership or other entity, as applicable,
in all jurisdictions in which it conducts its business, except where the failure
to be so qualified would not, individually or in the aggregate, materially
adversely affect its ability to perform its obligations hereunder or under the
Implementing Agreements to which it is a party.
(b) Authorization and Validity of Agreement. The execution, delivery
and performance by SHP of this Agreement and the Implementing Agreements to
which it is a party and the consummation by SHP of the Transactions have been
duly authorized by all necessary action on the part of SHP. This Agreement and
each of the Implementing Agreements to which
<PAGE> 38
34
SHP is a party have been duly executed and delivered by SHP and constitutes a
valid and legally binding obligation of SHP, enforceable against it in
accordance with its terms.
(c) No Government Approvals or Notices Required; No Conflict with
Instruments. Except as described in Schedule 3.5(c), the execution, delivery and
performance of this Agreement and the Implementing Agreements to which it is a
party by SHP and the consummation by SHP of the Transactions will not (i)
violate, conflict with or result in a breach of any provision of the limited
liability company agreement of such party, (ii) except for any filings required
under the HSR Act, require any consent, approval, authorization or permit of, or
filing with or notification to, any Governmental Authority, (iii) require the
consent or approval of any Person (other than a Governmental Authority),
violate, conflict with or result in a breach of any provision of, constitute a
default (or an event which with notice or lapse of time or both would become a
default) under, or give to any Person any right of termination, cancellation,
amendment or acceleration under, or result in the creation of a Lien on any of
the assets, properties or limited liability interests of SHP, under, any of the
provisions of any contract, lease, note, permit, franchise, license or other
instrument or agreement to which SHP is a party or by which it or its assets or
properties are bound, or (iv) violate or conflict with any order, writ,
injunction, decree, statute, rule or regulation of any Governmental Authority or
arbitrator applicable to SHP or its assets or properties; other than any
consents and approvals the failure of which to obtain and any violations,
conflicts, breaches and defaults set forth pursuant to clauses (ii), (iii) and
(iv) above which, individually or in the aggregate, would not materially
adversely affect the ability of SHP to perform its obligations hereunder or
under the Implementing Agreements to which it is a party.
(d) Legal Proceedings. Except as described in Schedule 3.5(d), as of
the date hereof, there is no litigation, claim, arbitration, proceeding or
investigation to which SHP is a party pending or, to the Knowledge of SHP,
threatened against SHP or relating to any of the assets of SHP or the
Transactions which, either individually or in the aggregate, would reasonably be
expected to restrain or enjoin the consummation of any of the Transactions
beyond December 31, 1999. As of the date hereof, SHP is not party to nor are any
of the assets of SHP subject to any judgment, writ, decree, injunction or order
entered by any court, governmental authority or arbitrator.
3.6 Survival of Representations and Warranties. Each of the
representations and warranties given by the parties in Article III shall be
deemed repeated and remade at the Closing as if made at such time and shall,
notwithstanding any investigation on the part of any other party, survive the
Closing until the two year anniversary thereof, at which time such
representations and warranties will terminate, provided that the representations
and warranties contained in Sections 3.1(d), 3.1(h), 3.2(g), 3.2(h), 3.3(g) and
3.3(h) shall survive the Closing and shall not terminate, and the
representations and warranties contained in Sections 3.1(p) and 3.1(r) shall
survive until the expiration of the statute of limitations with respect thereto.
3.7 Exclusion of Lessee/Manager Agreement. The parties hereto acknowledge
that Alter, Biederman, Lessee and Management are parties to the Lessee/Manager
Agreement, dated the date hereof (the "Lessee/Manager Agreement"), which, among
other things, grants Sunstone, Sunstone OP and certain other parties the right,
under certain circumstances, following the
<PAGE> 39
35
termination of the Merger Agreement, to acquire all of the Lessee Stock and
Management Stock owned by Alter and Biederman and waive any claims of breach of
representations, warranties or covenants arising out of or in connection with
the transactions contemplated by the Lessee/Manager Agreement.
ARTICLE IV
COVENANTS
4.1 Conduct of Business Pending the Closing. Except with the prior
written consent of Westbrook LLC and except as may be expressly permitted by
this Agreement, prior to the Closing, each of Management, Management Sub and
Lessee shall, and Lessee shall cause each Lessee Subsidiary, and Alter and
Biederman shall, and shall cause Lessee and each Lessee Subsidiary and, in the
case of Alter, Management and Management Sub to, operate its business only in
the usual, regular and ordinary manner, on a basis consistent with past practice
and, to the extent consistent with such operation, use its reasonable best
efforts to preserve its present business organization intact, keep available the
services of its present employees, preserve its present business relationships
and maintain all rights, privileges and franchises necessary or desirable in the
normal conduct of those businesses. Without limitation of the foregoing, prior
to the Closing, except as expressly permitted by this Agreement, each of
Management, Management Sub and Lessee shall not, and Lessee shall cause each
Lessee Subsidiary, and Alter and Biederman shall not, and shall cause Lessee and
each Lessee Subsidiary and, in the case of Alter, Management and Management Sub
not to:
(a) amend its Certificate of Incorporation or Bylaws;
(b) issue, purchase or redeem, or authorize or propose the
issuance, purchase or redemption of, or declare or pay any dividend with respect
to, any shares of its capital stock or any class of securities convertible into,
or rights, warrants or options to acquire, any such shares of other convertible
securities, except for dividends on the capital stock of Management and Lessee
which do not exceed $500,000 in the aggregate since December 31, 1998;
(c) form any partnership, limited liability company or other
joint venture (other than in the ordinary course consistent with past practice
of such business), acquire or dispose of any business (whether by merger,
purchase or otherwise) or of any assets (other than in the ordinary course
consistent with past practice of such business) or acquire or dispose of any
investment in any Person;
(d) make or incur any capital expenditures other than in the
ordinary course of business consistent with past practice and in no event in
excess of $20,000 individually or $200,000 in the aggregate;
(e) enter into any transaction involving the incurrence,
assumption or guarantee of indebtedness other than in the ordinary course of
business consistent with past practice;
<PAGE> 40
36
(f) enter into any agreement of the type described in Sections
3.1(i), 3.1(j)(ii) through (v) or 3.1(t) which contemplates payments in excess
of $200,000 during any one year or $600,000 over the term of the contract;
provided, however, that Lessee or Management may enter into any agreement or
amend any existing agreement in connection with the acquisition or development
of hotels by Sunstone or any Subsidiary thereof but only to the extent that (x)
such acquisition or development is in compliance with the Merger Agreement and
(y) any such agreement is of the type and contains terms that are in the
ordinary course of business consistent with past practice of Lessee or
Management, as applicable; provided further, that Lessee may pay reasonable
legal fees and expenses incurred in connection with the Transactions;
(g) except as provided in Section 4.1(f), terminate or amend
in any material respect any agreement listed or required to be listed on
Schedule 3.1(i), 3.1(j)(ii) through (v) or 3.1(t)
(h) file any voluntary petition for bankruptcy or receivership
or fail to oppose any other Person's petition for bankruptcy of, or action to
appoint a receiver regarding, it;
(i) except as required by applicable law or to the extent
required under existing employee benefit plans, agreements or arrangements as in
effect on the date of this Agreement, (A) increase the compensation or fringe
benefits of any employee, except for increases, in the ordinary course of
business, in salary or wages of employees who are not directors or officers, (B)
grant any severance or termination pay to any employee or (C) enter into or
amend or terminate any collective bargaining, bonus, profit sharing, thrift,
compensation, pension, retirement, deferred compensation, employment,
termination, severance or other plan, agreement, trust, fund, policy or
arrangement for the benefit of any employee; provided that Lessee (on behalf of
SHP) shall be permitted to make or agree to make payments as described on
Schedule 2.1(m) hereto;
(j) change any accounting principle except as required by
GAAP;
(k) make any election with respect to Taxes;
(l) cancel any indebtedness payable to it in excess of
$10,000;
(m) make any loan or other advance to any Person other than
advances to wholly-owned Subsidiaries in existence on the date hereof;
(n) take any willful action which would cause any
representation or warranty of Alter or Biederman contained in this Agreement to
be or become untrue at Closing in any material respect; or
(o) authorize any of, or commit or agree to take any of, the
foregoing actions.
<PAGE> 41
37
Notwithstanding anything to the contrary herein, Management,
Management Sub and Lessee shall have the unrestricted right but not the
obligation to pay off Liabilities under the loan agreement set forth on Schedule
4.1(o) (the "Lessee Line of Credit").
4.2 Transfers and Voting of Equity Interests. (a) From the date hereof
until the Closing, the Alter Entities and Biederman each agree not to Transfer
any capital stock of Management, Management Sub, Lessee or Sunstone or any
interest in Sunstone OP owned by it except for the Transfers contemplated by
this Agreement or otherwise in connection with the Merger.
(b) The Alter Entities and Biederman each (i) agree to vote
(including by proxy or written consent) all Sunstone Stock and OP Units and any
other interests in Sunstone or Sunstone OP owned or controlled by it in favor of
the Merger Agreement, the Partnership Merger Agreement, the Merger, the
Partnership Merger and the Transactions at any meeting of stockholders of
Sunstone or unitholders of Sunstone OP called for that purpose; and (ii)
covenant not to enter into any agreement or instrument restricting or
transferring its right to vote such shares and units or which otherwise
conflicts with its obligations under this Section 4.2.
(c) WREF I (i) agrees to vote (including by proxy or written
consent) all Sunstone Stock and OP Units and any other interests in Sunstone or
Sunstone OP owned or controlled by it in favor of the Merger Agreement, the
Partnership Merger Agreement, the Merger, the Partnership Merger and the
Transactions at any meeting of stockholders of Sunstone or unitholders of
Sunstone OP called for that purpose and (ii) covenants not to enter into any
agreement or instrument restricting or transferring its right to vote such
shares and units or which otherwise conflicts with its obligations under this
Section 4.2; provided that notwithstanding anything to the contrary in this
Section 4.2(c), WREF I shall be permitted to transfer its Sunstone Stock and OP
Units and any other interests in Sunstone or Sunstone OP to any general or
limited partner of WREF I provided that the transferee expressly assumes WREF
I's obligations hereunder.
4.3 Access to Information. From the date hereof to the Closing, each of
Management and Lessee shall, and Lessee shall cause each Lessee Subsidiary, and
Alter and Biederman shall, and shall cause Lessee and, in the case of Alter,
Management to, upon prior reasonable notice, afford the officers, employees,
auditors and other agents of the Westbrook Entities reasonable access during
normal business hours to the officers, employees, properties, offices, plants
and other facilities of Management, Lessee and the Lessee Subsidiaries and to
the contracts, commitments, books and records relating thereto, and shall use
commercially reasonable efforts to furnish such Persons all such documents and
such financial, operating and other data and information regarding such
businesses and Persons that are in the possession of such Person as the
Westbrook Entities, through their officers, employees or agents, may from time
to time reasonably request. All such information will be provided subject to the
confidentiality provisions contained in the letter agreement dated April 5, 1999
between Alter and WF III.
4.4 Agreement to Cooperate; Further Assurances. Subject to the terms
and conditions of this Agreement, each of the parties hereto shall use all
reasonable best efforts to take, or cause
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38
to be taken, all action and to do, or cause to be done, all things necessary,
proper or advisable under applicable laws and regulations to consummate and make
effective the Transactions, including providing information and using reasonable
best efforts to obtain all necessary or appropriate waivers, consents and
approvals, and effecting all necessary registrations and filings; provided,
however, that, without the prior written consent of Westbrook LLC, no party
shall pay any cash or other consideration, make any commitments or incur any
liability or other obligation in an aggregate amount in excess of $200,000 in
connection with the obtaining of all consents required to effect the
Transactions. In case at any time after the Closing Date any further action is
necessary or desirable to transfer any of the Management Assets, Basis Assets,
Sunstone Stock or OP Units pursuant to the terms of this Agreement, or to
otherwise to carry out the terms of this Agreement, the parties hereto and their
respective Affiliates shall execute such further documents (including
assignments, acknowledgments and consents and other instruments of transfer) and
shall take such further action as shall be necessary or desirable to effect such
transfer and to otherwise carry out the terms of this Agreement, in each case to
the extent not inconsistent with applicable law provided that Alter, Management
and Management Sub are not required to make any payments thereby and are
reimbursed for all expenses and costs incurred.
4.5 Consents. Notwithstanding anything to the contrary contained in
this Agreement, to the extent that the sale, conveyance, transfer, assignment or
delivery or attempted sale, conveyance, transfer, assignment or delivery to SHP
or Management Newco of any Management Asset (including any assumed contract,
license or other agreement) is prohibited by applicable law or would require any
governmental or third-party authorization, approval, consent or waiver and such
authorization, approval, consent or waiver shall not have been obtained prior to
the Closing, this Agreement shall not constitute a sale, conveyance, transfer,
assignment or delivery, or an attempted sale, conveyance, transfer, assignment
or delivery thereof if any of the foregoing would constitute a breach of
applicable law or the rights of any third party; provided, however, that, except
to the extent that a condition to closing set forth herein, if any, relating to
the foregoing shall not be satisfied (in which case the Closing shall not occur
unless waived by Westbrook LLC), the Closing shall occur notwithstanding the
foregoing on account of such required authorization. Following the Closing,
Alter and Management shall use all reasonable best efforts to obtain promptly
such authorizations, approvals, consents or waivers provided, however, that
neither Alter nor Management shall be required to make any payments to obtain
such authorizations, approvals, consents or waivers. Pending or in the absence
of such authorization, approval, consent or waiver, Alter and Management shall
enter into reasonable and lawful arrangements which do not conflict with the
terms of any agreements relating to the Management Assets or the Basis Assets in
existence as of the date of this Agreement with SHP and/or Management Newco
designed to provide to SHP and/or Management Newco the benefits and liabilities
of use of such Management Assets and Basis Assets provided that Alter and
Management are not required to make any payments thereby and are reimbursed for
all expenses and costs incurred.
4.6 Public Statements. Before any party to this Agreement or any
Affiliate of such party shall release any statements concerning this Agreement
or the matters contemplated hereby which is intended for or may result in public
dissemination thereof, such party shall cooperate with the other parties and
provide the other parties the reasonable opportunity to review and comment
<PAGE> 43
39
upon any such statements and shall not release or permit release of any such
information without the consent of the other parties, which shall not be
unreasonably withheld.
4.7 Notification of Certain Matters. Each party to this Agreement shall
give prompt notice to each other party of (i) the occurrence or non-occurrence
of any event, the occurrence or non-occurrence of which is likely to cause any
representation or warranty of such party contained in this Agreement to be
untrue or inaccurate at or prior to the Closing Date and (ii) any failure of
such party to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it hereunder; provided, however, that the delivery
of any notice pursuant to this Section 4.7 shall not limit or otherwise affect
any remedies available to the party receiving such notice. No disclosure by any
party pursuant to this Section 4.7 shall be deemed to amend or supplement the
disclosures set forth on the Schedules hereto or prevent or cure any
misrepresentations, breach of warranty or breach of covenant.
4.8 Employee Matters. (a) SHP shall cause Management Newco and Lessee
to promptly pay or provide when due all compensation and benefits earned or
accrued through or prior to the Closing Date as provided pursuant to the terms
of any compensation arrangements, employment agreements and employee or director
pension, welfare benefit or employee benefit plans, programs, arrangements and
policies in existence as of the date hereof for all employees (and former
employees) and directors (and former directors) of Management Newco and Lessee
and listed on any Schedule to this Agreement. SHP shall cause Management Newco
and Lessee to pay promptly or provide when due all compensation and benefits
required to be paid pursuant to the terms of any individual agreement with any
current or former employee or director in effect and listed on Schedule 4.8(a)
to this Agreement. Nothing in this Agreement shall require the continued
employment of any Person or prevent SHP and/or Management Newco or Lessee from
taking any action or refraining from taking any action which Management or
Lessee could take or refrain from taking prior to the Closing Date.
Notwithstanding the above, except as set forth on Schedule 4.8(a), SHP shall
cause Management Newco and Lessee to pay compensation to any key employee in
accordance with compensation parameters agreed to by Alter and Westbrook LLC and
as provided in the LLC Agreement and this Agreement.
(b) After the Closing Date, all employees of Management or
Lessee who continue employment with SHP and/or Management Newco or Lessee shall,
at the option of SHP, either continue to be eligible to participate in an
"employee benefit plan," as defined in Section 3(3) of ERISA, of Management or
Lessee which is, at the option of SHP, continued by SHP, Management Newco or
Lessee, or alternatively shall be eligible to participate in any "employee
benefit plan," as defined in Section 3(3) of ERISA, established, sponsored or
maintained by SHP, Management Newco or Lessee after the Closing Date; provided
that the employee benefits immediately after the Closing shall be no less
favorable to the employees of Management and Lessee in the aggregate than the
employee benefits immediately prior to the Closing; and provided further that
nothing contained in this Section 4.8(b) shall in any way limit the ability of
SHP, Management Newco or Lessee to modify any employee benefits in any respect
following the Closing. With respect to each such employee benefit plan not
formerly maintained by Management or Lessee, service with Management, Lessee or
any Controlled Group Member (as applicable) shall be included for purposes of
determining eligibility to participate, vesting (if
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40
applicable) and entitlement to and level of benefits (other than accrual of
benefits under any defined benefit plan) and all pre-existing condition
exclusions and waiting periods shall be waived and expenses incurred by any
employee for deductibles and copayments in the portion of the year prior to the
date employee first becomes a participant in such employee benefit plan shall be
credited to the benefit of such employee under such employee benefit plan for
the year in which the employee's participation commences.
(c) With respect to any accrued but unused vacation time to
which any Transferred Employee is entitled pursuant to the vacation policy
applicable to such Employee immediately prior to the Closing (the "Vacation
Policy"), SHP shall cause Management Newco and Lessee to allow such Employee to
use such accrued vacation; provided, however, that if SHP deems it necessary to
disallow such employee from taking such accrued vacation, SHP shall cause
Management Newco and Lessee to be liable for and pay in cash to each such
Employee an amount equal to such vacation time in accordance with terms of the
Vacation Policy.
4.9 Transfer Taxes. SHP shall bear all share transfer taxes, recording
fees and other sales, transfer, use, purchase, stamp or similar taxes resulting
or arising out of the Transactions.
4.10 Injunctions or Restraints. In the event that there exists at or
prior to Closing (i) any injunction, restraining order or other decree of any
nature of any court of competent jurisdiction or other Governmental Authority
that is in effect that restrains or prohibits the consummation of any of the
Transactions or (ii) any action taken, or any statute, rule, regulation or order
enacted, entered or enforced, which makes the consummation of the Transactions
illegal, each party to this Agreement shall use their reasonable commercial
efforts to have any such injunction, order, decree, action, statute, rule or
regulation vacated or declared inapplicable.
4.11 Certification of United States Status of Alter and Biederman. Each
of Alter and Biederman shall deliver as of Closing to SHP a certificate, duly
executed and acknowledged, certifying that each is not a foreign person, as
defined in Treasury regulation section 1.1445-2(b)(2)(i), such certification in
the form similar to that described in Treasury regulation section
1.1445-2(b)(2)(iii)(A) or otherwise meeting the requirements of Treasury
regulation section 1.1445-2(b)(2).
4.12 Spousal Claims. Alter agrees to maintain all Lessee Stock, OP
Units and other property to be contributed to SHP pursuant to Section 2.1 hereof
free from all potential spousal claims including election share, community
property interest or otherwise.
4.13 Tax Matters. (a) Guaranty or Indemnity. To enable Riverside,
Management, Alter and Biederman (the "Contributors") at their election to defer
the recognition of gain for federal income tax purposes resulting from their
contribution to SHP pursuant to Section 2.1 hereof at Closing, or at any time
subsequent thereto in accordance with the terms hereof, SHP agrees to permit,
and to cause its Subsidiaries to permit, the Contributors to guarantee at the
Contributors' option (or indemnify SHP or its Affiliates at the Contributors'
option) at or any time after the Closing, upon the request of any Contributor,
indebtedness of SHP or its Subsidiaries in an amount not to exceed $10.5 million
to be allocated among such Contributors as
<PAGE> 45
41
set forth in Schedule 4.13. Such guarantee or indemnity will be with respect to
debt chosen by the Contributors, subject to the consent of the Westbrook
Entities with respect to which debt shall be guaranteed or indemnified, which
consent shall not be unreasonably withheld, and shall guarantee or indemnify the
bottom portion of such debt. The Westbrook Entities hereby consent to the
guarantee by the Contributors of the debt to be provided by PaineWebber in
connection with the Merger and any indebtedness that replaces such indebtedness.
(b) Representatives. For purposes of this Section 4.13(b), the
Contributors shall designate Alter as their representative and if Alter is
unavailable, Biederman as their representative, for purposes of coordinating any
guarantees, indemnities, or other items set forth in such sections.
(c) Allocation Method. SHP covenants that the "traditional
method" (without curative allocations), as defined in Treas. Reg. Section
1-704-3(b), of allocating income, gain, loss and deduction to account for the
variation between the fair market value and adjusted basis of the property for
federal income tax purposes, shall be used with respect to (i) the contribution
of any property (other than cash) that has been contributed by a member to SHP,
and (ii) any revaluation of such property, pursuant to Treas. Reg. Sections
1.704-1(b)(2)(iv)(f), 1.704-1(b)(2)(iv)(g) and 1.704-3(a)(6).
4.14 Tax Filing. The parties to this Agreement agree to report the
Transactions in the manner described in Section 2.1 hereto for purposes of
filing any and all Tax and information returns and to take and defend positions
consistent therewith in all dealings with the Internal Revenue Service, and all
other government authorities (except upon a decision by a final taxing authority
in which case any returns shall be amended to be consistent with such decision
and any future returns shall be filed consistently with such decision).
4.15 Certain Obligations. (a) SHP will use its reasonable best efforts
to secure the release of each of Alter and Biederman from their respective
obligations incurred following the Closing under the guarantees and indemnities
listed in Schedule 4.15(a), which release may be accomplished (at SHP's
election) by issuances of guarantees or indemnities by SHP with respect to such
obligations or the assumption by SHP of such obligations. To the extent Alter
and Biederman are not released from such post-Closing obligations, SHP and
Management Newco shall, jointly and severally, indemnify and hold Alter and
Biederman, and their respective Affiliates, heirs, executors, successors and
assigns, harmless for all Losses suffered or incurred by either of them under
such obligations.
(b) Effective as of the Closing, all arrangements between any
of the Alter Entities, Biederman, Lessee, Management or Management Sub or any
Affiliate of the foregoing, other than Sunstone and Sunstone's Subsidiaries
(collectively the "Alter/Biederman Parties"), on the one hand, and Sunstone or
any of Sunstone's Subsidiaries, on the other hand, shall be terminated with no
further obligations or Liabilities by Sunstone or any of Sunstone's Subsidiaries
thereunder, except for the agreements listed on Schedule 4.15(b) (which shall
not be terminated) and the obligations or liabilities incurred thereunder
following the Closing. Each of the Alter/Biederman Parties severally represents
to SHP that no amounts are owing or payable by it or him to Sunstone
<PAGE> 46
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or any Sunstone Subsidiary under any agreement or arrangement between any of the
Alter/Biederman Parties, on the one hand, and Sunstone or any of Sunstone's
Subsidiaries, on the other hand, whether or not such agreement or arrangement
shall be terminated pursuant to this section. Notwithstanding the termination of
the agreements and arrangements referred to in the second preceding sentence,
the Alter/Biederman Parties shall retain all obligations and Liabilities to
Sunstone and its Subsidiaries under all agreements and arrangements between the
Alter/Biederman Parties, on the one hand, and Sunstone and its Subsidiaries, on
the other hand, incurred before the Closing, and shall indemnify SHP for all
Losses incurred by it in connection with such obligations and Liabilities.
Except with respect to obligations or Liabilities incurred following the Closing
under the agreements listed on Schedule 4.15(a) or Schedule 4.15(b), any
obligations or Liabilities under this Agreement or the Implementing Agreements
or payment obligations under the Lessee Line of Credit, the Alter/Biederman
Parties hereby release and discharge and indemnify and hold harmless SHP, on
behalf of Sunstone and Sunstone's Subsidiaries, and their successors and assigns
from all actions, causes of action, suits, debts, dues, sums of money, accounts,
claims and demands owed by Sunstone or any of Sunstone's Subsidiaries to any of
the Alter/Biederman Parties, by reason of any matter, cause, contract, course of
dealing or thing whatsoever arising during, or in respect of, the period on or
before the Closing.
(c) All amounts due and payable by Management and Lessee under
the agreement set forth on Schedule 3.1(v) will be Assumed Management
Liabilities (in the case of amounts due and payable by Management) or a
Liability of Lessee after the Closing (in the case of amounts due and payable by
Lessee), and Alter agrees to reimburse Management and Lessee for 44.5% of such
amounts at or prior to the Closing.
ARTICLE V
CONDITIONS TO CLOSING
5.1 Conditions Precedent to Obligations of Each Party. The respective
obligations of each party to this Agreement to consummate the transactions
contemplated hereby shall be subject to the satisfaction (or waiver by the party
entitled to the benefit of such condition) of each of the following conditions
at or prior to the Closing:
(a) No Injunctions or Restraints. There shall not be (i) any
injunction, restraining order or other decree of any nature of any court of
competent jurisdiction or other Governmental Authority that is in effect that
restrains or prohibits the consummation of any of the Transactions or (ii) any
action taken, or any statute, rule, regulation or order enacted, entered or
enforced, which makes the consummation of the Transactions illegal.
(b) HSR Act. Any waiting period (and any extension thereof)
under the HSR Act applicable to the Transactions shall have expired or been
terminated.
(c) Merger Conditions. All conditions to the Merger set forth
in Article 6 of the Merger Agreement (other than the consummation of the
Partnership Merger) shall have been satisfied or waived.
(d) Partnership Merger Conditions. All conditions to the
Partnership Merger set forth in Article 5 of the Partnership Merger Agreement
shall have been satisfied or waived.
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5.2 Conditions Precedent to Obligation of the Westbrook Entities. The
obligation of each of the Westbrook Entities to consummate the Transactions
shall be subject to the satisfaction of each of the following conditions (unless
waived by Westbrook LLC) at or prior to the Closing:
(a) Accuracy of Representations and Warranties. The
representations and warranties of Management, Management Sub, Lessee, the Alter
Entities and Biederman contained in this Agreement shall be true and correct in
all material respects (except for representations having a materiality or
Material Adverse Effect qualification, which shall be correct in all respects),
in each case on and as of the date of this Agreement and on and as of the
Closing Date as though made on and as of such time, except to the extent such
representations and warranties by their terms speak as of a specified date, in
which case they shall be so true and correct as of such date; and Westbrook LLC
shall have received from each of Alter and Biederman, both in their individual
capacities and in their capacities as officers of Lessee and, in the case of
Alter, Management, Management Sub and the Alter Entities, a certificate to such
effect dated as of the Closing Date and signed by each such Person.
(b) Covenants. Each of Management, Management Sub, Lessee, the
Alter Entities and Biederman shall have complied in all material respects with
each covenant contained in this Agreement to be performed by him or it on or
prior to the Closing; and Westbrook LLC shall have received from each of Alter
and Biederman, both in their individual capacities and in their capacities as
officers of Lessee and, in the case of Alter, Management, Management Sub and the
Alter Entities, a certificate to such effect dated as of the Closing and signed
by each such Person.
(c) Material Adverse Change. Since the date of this Agreement
through and including the Closing Date, there shall have been no Material
Adverse Effect and Westbrook LLC shall have received from each of Alter and
Biederman, both in their individual capacities and in their capacities as
officers of Lessee and, in the case of Alter, Management and the Alter Entities,
a certificate to such effect dated as of the Closing and signed by each such
Person.
(d) Consents. All consents and waivers (including, without
limitation, waivers of rights of first refusal) from Governmental Authorities
and third parties necessary in connection with the consummation of the
Transactions shall have been obtained and not subsequently been revoked as of
the Closing Date other than such consents and waivers from third parties, which,
if not obtained, would not result, individually or in the aggregate, in a
Material Adverse Effect.
5.3 Conditions Precedent to Obligations of the Alter Entities. The
obligation of each Alter Entity to consummate the Transactions shall be subject
to the satisfaction of each of the following conditions (unless waived by Alter)
at or prior to the Closing:
(a) Accuracy of Representations and Warranties. The
representations and warranties of each Westbrook Entity and Biederman contained
in this Agreement shall be true and correct in all material respects (except for
representations having a materiality or Material Adverse Effect qualification,
which shall be correct in all respects), in each case on and as of the date of
this Agreement and on and as of the Closing Date as though made on and as of
such time,
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except to the extent such representations and warranties by their terms speak as
of a specified date, in which case they shall be so true and correct as of such
date; and Alter shall have received from each the Westbrook Entities and
Biederman a certificate to such effect dated as of the Closing Date and signed
by an officer thereof in the case of each Westbrook Entity and by Biederman in
the case of Biederman.
(b) Covenants. Each of the Westbrook Entities and Biederman
shall have complied in all material respects with each covenant contained in
this Agreement to be performed by it or him on or prior to the Closing; and
Alter shall have received from each of the Westbrook Entities and Biederman a
certificate to such effect dated as of the Closing Date and signed by an officer
thereof in the case of each Westbrook Entity and by Biederman in the case of
Biederman.
5.4 Conditions Precedent to Obligations of Biederman. The obligation of
Biederman to consummate the Transactions shall be subject to the satisfaction of
each of the following conditions (unless waived by Biederman) at or prior to the
Closing:
(a) Accuracy of Representations and Warranties. The
representations and warranties of each Westbrook Entity and each Alter Entity in
this Agreement shall be true and correct in all material respects (except for
representations having a materiality or Material Adverse Effect qualification,
which shall be correct in all respects), in each case on and as of the date of
this Agreement and on and as of the Closing Date as though made on and as of
such time, except to the extent such representations and warranties by their
terms speak as of a specified date, in which case they shall be so true and
correct as of such date; and Biederman shall have received from each of the
Westbrook Entities and the Alter Entities a certificate to such effect dated as
of the Closing Date and signed by an officer thereof in the case of the
Westbrook Entities, and by Alter in the case of the Alter Entities.
(b) Covenants. Each of the Westbrook Entities and the Alter
Entities shall have complied in all material respects with each covenant
contained in this Agreement to be performed by it or him on or prior to the
Closing; and Biederman shall have received from each of the Westbrook Entities
and the Alter Entities a certificate to such effect dated as of the Closing Date
and signed by an officer thereof in the case of the Westbrook Entities and by
Alter in the case of the Alter Entities.
5.5 Conditions Precedent to Obligations of Management, Management Sub
and Lessee.
(a) Accuracy of Representations and Warranties. The
representations and warranties of the Westbrook Entities, the Alter Entities and
Biederman shall be true and correct in all material respects (except for
representations having a materiality or Material Adverse Effect qualification,
which shall be correct in all respects), in each case on and as of the date of
this Agreement and on and as of the Closing Date as though made on and as of
such time, except to the extent such representations and warranties by their
terms speak as of a specified date, in which case they shall be so true and
correct as of such date; and Management and Lessee shall have received from each
of the Westbrook Entities, the Alter Entities and Biederman a certificate to
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such effect dated as of the Closing Date and signed by an officer thereof in the
case of the Westbrook Entities, by Alter in the case of the Alter Entities and
by Biederman in the case of Biederman.
(b) Covenants. Each of the Westbrook Entities, the Alter
Entities and Biederman shall have complied in all material respects with each
covenant contained in this Agreement to be performed by it or him on or prior to
the Closing; and Management, Management Sub and Lessee shall have received from
each of the Westbrook Entities, the Alter Entities and Biederman a certificate
to such effect dated as of the Closing Date and signed by an officer thereof in
the case of the Westbrook Entities, by Alter in the case of the Alter Entities
and by Biederman in the case of Biederman.
ARTICLE VI
COVENANTS AND AGREEMENTS WITH RESPECT TO LESSEE
6.1 Recapitalization of Lessee. (a) Lessee hereby agrees to take all
necessary action required to be taken by it to recapitalize its capital
structure (the "Recapitalization") so that immediately prior to the Closing the
outstanding capital stock of Lessee shall consist of 1,000 shares of Lessee
Class A Voting Stock and 1,000 shares of Lessee Class B Non-Voting Stock, 800
shares of each such class to be held by Alter and 200 shares of each such class
to be held by Biederman. All such actions (and documentation related thereto)
shall be reasonably satisfactory to the Westbrook Entities.
(b) Each of Alter and Biederman hereby agrees to take all
necessary action required to be taken by such Person, and to cause Lessee to
take all necessary action to effect the Recapitalization. All such actions (and
documentation related thereto) shall be reasonably satisfactory to the Westbrook
Entities.
(c) To the extent the Recapitalization shall not be effected
on terms and in a manner reasonably satisfactory to the Westbrook Entities, (i)
Lessee shall not effect the Recapitalization and (ii) all of the outstanding
Lessee Stock shall be contributed to SHP by the Alter Entities and Biederman
pursuant to Section 2.1 (without receipt of any additional consideration
(including any additional Capital Account credit)).
6.2 Governance. Each of Alter, any of his Affiliates who owns
Securities and SHP (collectively, the "Lessee Stockholders"), hereby covenants
and agrees, from and after the Closing until exercise of the Option, to comply
with the following provisions related to the governance of Lessee:
(a) Election of Directors. Each Lessee Stockholder hereby
agrees that such Lessee Stockholder will vote all of the Securities beneficially
owned by it entitled to vote in the election of members of the board of
directors of Lessee (the "Lessee Board") so as to elect and to continue in
office a Lessee Board consisting of three designees of SHP ("SHP Directors") and
one designee of Alter (the "Alter Director"). For so long as Alter is employed
by SHP, Alter shall
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be the Alter Director. If Alter is no longer an employee of SHP, another
individual acceptable to SHP may be selected by Alter to serve as the Alter
Director instead of Alter. SHP agrees to vote all of the voting Securities
beneficially owned by it so as to elect the Alter Director to the Lessee Board.
If at any time SHP shall notify Alter it desires to remove any SHP Director,
with or without cause, Alter agrees to vote all of such voting Securities
beneficially owned or held by him as to remove such SHP Director.
(b) Lessee Board Meetings. Meetings of the Lessee Board,
annual, regular and special, shall be held at the principal office of Lessee or
other place as may from time to time be fixed by resolution of the Lessee Board.
Regular meetings of the Lessee Board shall be held at such times as may from
time to time be fixed by resolution of the Lessee Board, and no notice (other
than the resolution) need be given as to any regular meeting. Special meetings
may be held at any time upon the call of any two members of the Lessee Board, by
oral, telephonic or facsimile notice (or notice given by other means of
electronic transmission (including electronic mail)) duly given or sent at least
one day, or by written notice sent by express mail at least two days, before the
meeting to each member of the Lessee Board. Any action required or permitted to
be taken at any meeting of the Lessee Board may be taken without a meeting if a
written consent thereto is signed by all members of the Lessee Board. Lessee
shall reimburse each member of the Lessee Board for his or her reasonable
expenses in connection with attending any meeting of the Lessee Board.
(c) Lessee Board Voting. A majority of incumbent members of
the Lessee Board shall be necessary to constitute a quorum for the transaction
of business at any Lessee Board meeting. The Lessee Board shall have the general
powers and duties typically vested in the board of directors of a corporation.
All actions or decisions of the Lessee Board shall require approval of a
majority of the members of the Lessee Board; provided that, so long as Lessee is
a Subsidiary of SHP, it will remain subject to the provisions of the LLC
Agreement applicable to Subsidiaries of SHP.
6.3 Restrictions on Transfers and Issuances.
(a) Limitations on Transfer. Alter hereby agrees that he will
not, and will not permit or cause any of his Affiliates (including Alter SHP
LLC) to, from and after the Closing, without the prior written consent of SHP,
Transfer or agree to Transfer record or beneficial ownership of any Securities.
To the extent SHP consents to a Transfer of Securities by Alter or any of his
Affiliates (including Alter SHP LLC) who holds Securities, Alter agrees that all
consideration paid or payable to him or such Affiliate with respect to any such
Transfer shall be paid directly to SHP, and Alter will direct any purported
transferee of such Securities to pay such proceeds or consideration directly to
SHP. To the extent any such proceeds or consideration are paid directly to Alter
or any of his Affiliates, Alter agrees to immediately forward any such
consideration to SHP.
(b) Effect of Void Transfers. In the event of any purported
Transfer of any Securities in violation of the provisions of this Article VI,
such purported Transfer shall be void and of no effect and Lessee shall not give
effect to such Transfer.
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(c) Rights to Dividends and Distributions. Alter agrees that
Lessee shall pay, and Lessee agrees to pay, directly to SHP all dividends and
other distributions after the Closing and prior to the exercise of the Option,
whether cash or non-cash, with respect to any Securities beneficially owned by
it. To the extent any such dividends or other distributions are paid directly to
Alter or any of his Affiliates (including Alter SHP LLC), Alter agrees to, or to
direct any such Affiliate to, immediately forward any such dividends and
distributions to SHP.
6.4 Option. In the event that (a) the Alter Director fails to vote in
favor of any action approved by a majority of the Lessee Board (a "Failure to
Approve") or (b) Alter ceases to be an employee of SHP for any reason (a
"Termination"), SHP shall have the right, at any time to require Alter or any of
Alter's Affiliates holding Securities to sell to SHP all of the Securities owned
by him or it, as the case may be, and Alter shall have the obligation to sell,
or cause such Affiliate to sell, such Securities to SHP, free and clear of all
Liens (the "Option") for an aggregate cash purchase price of $1 (the "Option
Price"). The Option may be exercised by SHP at any time after a Failure to
Approve or a Termination by delivery of written notice to Alter (the "Exercise
Notice"). Unless otherwise agreed upon by SHP and Alter, the closing of the
purchase of the Securities shall occur at the offices of SHP on the third
business day after delivery of the Exercise Notice. At the closing, Alter shall,
or shall cause his Affiliate to, deliver to Lessee all stock certificates
representing the Securities together with blank stock powers or such other
assignments as reasonably requested by SHP, and SHP shall pay Alter or his
designee the Option Price. In addition, in the event Alter or his Affiliate
fails to deliver the stock certificates, stock powers or assignments reasonably
requested by SHP as set forth herein, SHP may deliver the Option Price to Alter
and upon such delivery, execute and deliver, as the attorney in fact for the
Alter Member, such stock powers and required assignments, as well as
documentation instructing Lessee to issue replacement stock certificates. Such
power of attorney is coupled with an interest and shall survive the insolvency,
bankruptcy and dissolution of Alter or his Affiliate. SHP, on the one hand, and
Alter and his Affiliates on the other hand, shall each pay their own expenses in
connection with the exercise of the Option.
6.5 Additional Securities Subject to Agreement. Each Lessee Stockholder
agrees that any other Securities which it shall hereafter acquire by means of a
stock split, stock dividend, distribution, exercise of stock options, or
otherwise shall be subject to the provisions of this Article VI to the same
extent as if held on the date hereof.
6.6 No Conflicting Agreements. Neither of the Lessee Stockholders shall
enter into, nor shall they permit Lessee or any Affiliate thereof to enter into,
directly or indirectly, any stockholder agreement or other arrangement of any
kind with any Person with respect to any Securities which is inconsistent with
the provisions of this Article VI or which may impair its ability to comply with
this Agreement.
6.7 Survival. The provisions of this Article VI shall survive the
Closing and continue until terminated by exercise of the Option by SHP.
ARTICLE VII
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TERMINATION
7.1 Termination Events. This Agreement may be terminated and the
Transactions may be abandoned at any time prior to the Closing:
(a) by mutual written consent of Alter and Westbrook LLC;
(b) by Westbrook LLC, upon a breach of any representation,
warranty, covenant, obligation or agreement on the part of Management, Lessee,
any Alter Entity or Biederman set forth in this Agreement, in any case such that
the conditions set forth in Section 5.2(a) or 5.2(b), as the case may be, are
not satisfied or would be incapable of being satisfied within 30 days after the
giving of written notice to Alter;
(c) by Alter, upon a breach of any representation, warranty,
covenant, obligation or agreement on the part of any of the Westbrook Entities
such that the conditions set forth in Section 5.3(a) or 5.3(b) are not satisfied
or would be incapable of being satisfied within 30 days after the giving of
written notice to Westbrook LLC; or by Biederman, upon a breach of any
representation, warranty, covenant, obligation or agreement on the part of any
of the Westbrook Entities, such that the conditions set forth in 5.4(a) or
5.4(b) are not satisfied or would be incapable of being satisfied within 30 days
after the giving of written notice to Westbrook LLC;
(d) by any of Alter or Westbrook LLC if any court of competent
jurisdiction in the United States shall have issued a final and unappealable
permanent injunction, order, judgment or other decree (other than a temporary
restraining order) restraining, enjoining or otherwise prohibiting the
consummation of the Transactions, provided that the party seeking to terminate
this Agreement under this clause (d) is not then in material breach of this
Agreement and provided, further, that the right to terminate this Agreement
under this clause (d) shall not be available to any party who shall not have
used reasonable commercial efforts to avoid the issuance of such order, decree
or ruling; and
(e) by any of Alter, Biederman or Westbrook LLC if the Merger
Agreement or the Partnership Merger Agreement shall have been terminated in
accordance with its terms.
7.2 Fees and Expenses.
(a) In the event that this Agreement is terminated by any
party prior to Closing, all documented out-of-pocket fees and expenses
(including reasonable attorney's fees and costs relating thereto) incurred by
each of the Alter Entities, Biederman, the Westbrook Entities and their
respective Affiliates (including SHP) in connection with this Agreement and the
Transactions (the "Expenses") shall be paid by SHP, but only to the extent SHP
receives any payments pursuant to Section 7.2 of the Merger Agreement (the
"Merger Agreement Payment"). To the extent the Merger Agreement Payment is not
sufficient to pay all the Expenses incurred by the parties hereto, Westbrook LLC
and its Affiliates, on the one hand, and Alter and his Affiliates, on the other
hand, shall receive a pro rata portion of the Merger Agreement Payment based on
the
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actual Expenses incurred by the Westbrook Entities and the Alter Entities,
respectively. To the extent the Merger Agreement Payment exceeds all Expenses,
any remaining portion of the Merger Agreement Payment will be distributed 88.5%
to the Westbrook Entities (the "Westbrook Payment") and 11.5% to Alter.
(b) Subject to the terms and conditions of this Section
7.2(b), to the extent the Westbrook Entities receive a Westbrook Payment, the
Westbrook Entities, jointly and severally, agree to use 30% of the Westbrook
Payment (the "Section 7.2 Price") in cash to purchase, and Alter agrees to sell,
or to cause one or more of his Affiliates to sell, a number of shares of Lessee
Stock representing the Section 7.2 Percentage (as defined below) of all issued
and outstanding Lessee Stock as soon as practicable following receipt of the
Westbrook Payment by the Westbrook Entities (the "Section 7.2 Purchase"). The
Section 7.2 Purchase shall be subject to the terms and conditions hereof, other
than the provisions of Article II, Sections 3.3, 3.5, 4.13, 4.14, 4.15, 5.1(c),
5.1(d), 5.4, 5.5, Article VI and Sections 8.3, 8.5, 8.8(d) and 8.9 and such
other modifications to this Agreement as may be necessary to reflect the Section
7.2 Purchase rather than the closing of all the transactions contemplated by
this Agreement. In addition, (i) references to "Biederman" in Sections 5.2, 5.3,
8.1 and 8.2 shall be disregarded in connection with the Section 7.2 Purchase,
(ii) each dollar amount referenced in Sections 8.8(a) and 8.8(b) shall be deemed
to be replaced by the Section 7.2 Percentage multiplied by such amount and (iii)
the consummation of a Section 7.2 Purchase shall be conditioned on the
Recapitalization having not been consummated or, if consummated, the
Recapitalization having been rescinded. As used herein, the "Section 7.2
Percentage" shall be equal to the Section 7.2 Price divided by $16 million, but
in no event shall the Section 7.2 Percentage exceed 37.5%, and in no event shall
the Section 7.2 Price exceed $6 million.
(c) Notwithstanding anything to the contrary contained herein,
in the event a transaction is consummated with respect to an Acquisition
Proposal and Management and Lessee are Transferred to any Person who is not an
Affiliate of Westbrook LLC, (i) any Merger Agreement Payment will be distributed
entirely to Westbrook LLC, except to the extent Alter is entitled to receive
payment for his Expenses in accordance with the first two sentences of 7.2(a)
and (ii) Section 7.2(b) shall not be applicable.
(d) If SHP breaches the Merger Agreement as a result of the
fault of WREF III or any other entity controlled by Westbrook Real Estate
Partners, L.L.C. and such breach results in a termination of the Merger
Agreement by Sunstone, then WREF III agrees to reimburse or cause the
reimbursement of the Expenses of Alter, Biederman, Management and Lessee (such
Expenses to include the reasonable fees and expenses of only one counsel to all
of the foregoing). If the Closing has not occurred, except as provided in the
foregoing sentence, no Westbrook Entity shall have any Liability to any of the
Alter Entities, Biederman, Management, Management Sub or Lessee for any breach
of any representation, warranty or covenant contained herein or otherwise.
7.3 Effect of Termination. In the event of any termination of the
Agreement as provided in Section 7.1 hereto, this Agreement shall forthwith
become wholly void and of no further force or effect (except Sections 7.2 and
7.3 and Article IX (other than Sections 9.15 and 9.16)) and there shall be no
liability on the part of any parties hereto or their respective officers or
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directors, except as provided in such Sections and Article. Notwithstanding the
foregoing, no party hereto shall be relieved from liability for any willful
breach of this Agreement.
ARTICLE VIII
INDEMNIFICATION
8.1 Indemnification by Westbrook LLC. From and after the Closing,
Westbrook LLC shall indemnify and hold harmless each of the Alter Entities,
Biederman, Management, Management Sub and their respective Affiliates, agents,
heirs, executors, successors and assigns from and against any and all Losses
suffered or incurred by any such indemnified Person arising from, relating to or
otherwise in respect of (a) any breach of, or inaccuracy in, any representation
or warranty of any Westbrook Entity contained in this Agreement and (b) any
breach of any covenant of any Westbrook Entity contained in this Agreement.
8.2 Indemnification by Alter, Management and Management Sub. From and
after the Closing, Alter, Management and Management Sub shall, jointly and
severally, indemnify and hold harmless each of the Westbrook Entities, SHP and
Biederman and their Affiliates and respective directors, officers, employees,
agents, heirs, executors, successors and assigns of any of the foregoing from
and against any and all Losses suffered or incurred by any such indemnified
Person arising from, relating to or otherwise in respect of (a) any breach of,
or inaccuracy in, any representation or warranty of any Alter Entity, Management
or Management Sub contained in this Agreement; (b) any breach of any covenant of
any Alter Entity, Management or Management Sub contained in this Agreement; and
(c) any Retained Management Liabilities;
8.3 Indemnification by Biederman. From and after the Closing, Biederman
shall indemnify and hold harmless each of the Alter Entities and the Westbrook
Entities and their respective Affiliates and each of the foregoing's respective
agents, directors, officers, employees, agents, heirs, executors, successors and
assigns from and against any and all Losses suffered or incurred by any such
indemnified Person arising from, relating to or otherwise in respect of, (a) any
breach of, or inaccuracy in, any representation or warranty of Biederman
contained in this Agreement or (b) any breach of any covenant of Biederman
contained in this Agreement.
8.4 Tax Indemnification. (a) Notwithstanding any other provision of
this Agreement (but subject to Section 8.8), following the Closing, the Alter
Entities and Biederman shall indemnify and hold harmless each of the Westbrook
Entities, SHP and their Affiliates and respective directors, officers,
employees, agents, heirs, executors, successors and assigns of any of the
foregoing from and against any and all Losses suffered or incurred by any such
indemnified Person arising from, relating to or otherwise in respect of (a) any
breach of, or inaccuracy in, any representation or warranty in Section
3.1(r)(iv), and (b) any and all income taxes of Lessee or Management for any
taxable period or year ending before the Closing Date and with respect to any
Straddle Period (as defined), for the portion of such Taxes determined pursuant
to Section 8.4(b).
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(b) With respect to any Taxes for any taxable period that
includes but does not end as of the day prior to the Closing Date (a "Straddle
Period"), the amount of income taxes subject to indemnification under this
Section 8.4 attributable to pre-Closing and post-Closing tax periods shall be
calculated as if such taxable period ended as of the close of business on the
day prior to the Closing Date.
8.5 Indemnification by SHP and Management Newco. From and after the
Closing, SHP and Management Newco shall, jointly and severally, (i) indemnify
and hold harmless Management, Alter and their respective Affiliates, heirs,
executors, successors and assigns from and against any and all Losses suffered
or incurred by any such indemnified Person arising from, relating to or
otherwise in respect of, any Assumed Management Liabilities and (ii) provide the
indemnity set forth in Section 4.15(a).
8.6 Third-Party Claims. If a claim by a third party is made against an
indemnified Person hereunder, and if such indemnified Person intends to seek
indemnity with respect thereto under this Article, such indemnified Person shall
promptly notify the indemnifying Person in writing of such claims setting forth
such claims in reasonable detail, provided that failure of such indemnified
Person to give prompt notice as provided herein shall not relieve the
indemnifying Person of any of its obligations hereunder, except to the extent
that the indemnifying Person is materially prejudiced by such failure. If the
indemnifying Person acknowledges in writing its obligation to indemnify the
indemnified Person against any Losses that may result from such third party
claim, then the indemnifying Person shall have 20 days after receipt of such
notice to undertake, through counsel of its own choosing, subject to the
reasonable approval of such indemnified Person, and at its own expense, the
settlement or defense thereof, and the indemnified Person shall cooperate with
it in connection therewith; provided, however, that the indemnified Person may
participate in such settlement or defense through counsel chosen by such
indemnified Person, provided that the fees and expenses of such counsel shall be
borne by such indemnified Person. The indemnifying Person shall not settle any
claim or consent to the entry of any judgment without the prior written consent
of the indemnified Person, unless (i) such settlement or judgement includes as
an unconditional term thereof the giving by the claimant of a release of the
indemnified Person from all Liability with respect to such claim and (ii) such
settlement or judgement does not involve the imposition of equitable remedies or
the imposition of any material obligations on such indemnified Person other than
financial obligations for which such indemnified Person will be indemnified
hereunder. If the indemnifying Person shall assume the defense of a claim, the
fees of any separate counsel retained by the indemnified Person shall be borne
by such indemnified Person unless there exists or is reasonably likely to exist
a conflict of interest between them as to their respective legal defenses (other
than one that is of a monetary nature) in the reasonable judgment of the
indemnified Person, in which case the indemnified Person shall be entitled to
retain one law firm as its separate counsel, the reasonable fees and expenses of
which shall be reimbursed as they are incurred by the indemnifying Person. If
the indemnifying Person does not notify the indemnified Person within 20 days
after the receipt of the indemnified Person's notice of a claim of indemnity
hereunder that it elects to undertake the defense thereof and that it
acknowledges its obligation to indemnify the indemnified Person against any
Losses that may result from such claim, the indemnified Person shall have the
right to contest, settle or compromise the claim in a reasonable manner, and the
indemnifying Person shall cooperate with in
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connection therewith, but the indemnified Person shall not thereby waive any
right to indemnity therefor pursuant to this Agreement.
8.7 Termination of Indemnification. The obligations to indemnify and
hold harmless a party hereto pursuant to Sections 8.1, 8.2 (other than 8.2(c)),
8.3 and 8.4 shall terminate upon the termination of the relevant representation,
warranty or pre-closing agreement pursuant to Section 3.6; provided, however,
that such obligation to indemnify and hold harmless shall not terminate with
respect to any item as to which the Person to be indemnified shall have, before
the expiration of the applicable period, previously made a claim by delivering a
written notice (stating in reasonable detail the basis of such claim) to the
indemnifying party.
8.8 Limitations on Indemnity Obligations. (a) Notwithstanding any
contrary provision of this Agreement, (i) the maximum liability of Westbrook LLC
pursuant to its indemnification obligation under Section 8.1(a) is $30,000,000,
(ii) except as otherwise provided in clause (iii) below or in the last sentence
of this Section 8.8(a), the maximum liability of the Alter Entities, Biederman,
Management and Management Sub, in the aggregate, pursuant to their
indemnification obligations under Sections 8.2(a) and 8.3 and with respect to
any breach of a representation or warranty set forth in clause 3.1(c), 3.2(c)
and 3.3(c) is $10,000,000, and (iii) the maximum liability of the Alter
Entities, Biederman, Management and Management Sub, in the aggregate, pursuant
to their indemnification obligations under Section 8.2(a) and 8.3 with respect
to any breach of a representation or warranty set forth in clauses (i), (ii) or
(iii) of Section 3.1(f), Sections 3.1(a), 3.1(b), 3.1(o), 3.1(p), 3.1(q),
3.1(r), 3.1(t), 3.1(v), 3.2(a), 3.2(b), 3.3(a) and 3.3(b) is $30,000,000. These
limitations do not apply to any indemnification obligations under Sections 8.2
and 8.3 relating to a breach of any representation or warranty set forth in
clause (iv) of Section 3.1(f), Sections 3.1(d), 3.1(h), 3.2(g), 3.2(h), 3.3(g)
or 3.3(h) or any other section of this Article VIII.
(b) No amount shall be payable:
(i) under Section 8.1(a) unless and until the aggregate amount
of Losses indemnifiable under Section 8.1(a) exceeds $500,000 (and if
such amount is so exceeded, then only those Losses under such Section
8.1(a) shall then be payable in accordance with this Article VIII to
the extent such Losses exceed $500,000);
(ii) under Section 8.2(a) unless and until the aggregate
amount of Losses indemnifiable under Section 8.2(a) exceeds $500,000
(and if such amount is so exceeded, then only those Losses under such
Section 8.2(a) shall then be payable in accordance with this Article
VIII to the extent such Losses exceed $500,000);
(iii) under Section 8.3 unless and until the aggregate amount
of Losses indemnifiable under Section 8.3 exceeds $500,000 (and if such
amount is so exceeded, then only those Losses under such Section 8.3
shall then be payable in accordance with this Article VIII to the
extent such Losses exceed $500,000).
<PAGE> 57
53
(iv) under Section 8.2(c) unless and until the aggregate
amount of Losses indemnifiable under Section 8.2(c) exceeds $500,000
(and if such amount is so exceeded, then only those Losses under such
Section 8.2(a) shall then be payable in accordance with this Article
VIII to the extent such Losses exceed $500,000); and
(v) no amount shall be payable under clause (a) of Sections
8.1, 8.2 or 8.3 for any breach the Losses arising from which in any
individual case amount to $10,000 or less, and such Losses shall not be
included in establishing the thresholds established in clauses (i),
(ii) and (iii) of Section 8.8(b) and, in connection with the foregoing,
the parties agree that any breach of any representation in clause (i)
of Section 3.1(r) which relates to sales taxes shall be determined also
on an individual basis, subject to the $10,000 threshold, and on a
hotel by hotel basis for any particular taxable year;
(c) References in Article III to Material Adverse Effect and
material adverse effect qualifiers shall be disregarded for purposes of
determining whether a party has incurred Losses pursuant to Section 8.1(a),
8.2(a), 8.2(c) and 8.3.
(d) Any indemnification obligations for Losses owed by Alter
or Biederman under this Agreement shall be satisfied only to the extent that
Alter or Biederman, as the case may be, has received cash payments pursuant to
Section 2.1 or has received or receives cash distributions from SHP, it being
understood that to the extent that any indemnification obligation is not
satisfied as a result of the foregoing provisions of this Section 8.8(d), such
accrued but unpaid payment obligations shall be satisfied to the extent of
future cash distributions from SHP to Alter or Biederman, as the case may be,
until all such accrued but unpaid indemnification obligations are satisfied.
8.9 Allocation of Certain Indemnity Obligations. Westbrook LLC, Alter,
Biederman and SHP agree as follows: with respect to any indemnification
obligations arising from, relating to or otherwise in respect of any breach of,
or inaccuracy in, any representation or warranty with respect to Lessee
contained in Section 3.1 of this Agreement or any other indemnification
obligations hereunder arising from, relating to or otherwise in respect of the
acts or omissions of Lessee, Alter and Biederman shall not be responsible for
more than 80% and 20%, respectively, of such indemnified Losses.
8.10 Exclusive Remedy. The indemnification provided in this Article
VIII shall be the exclusive post-Closing remedy available to any party for any
breach of any representation, warranty or covenant contained herein, except in
circumstances involving fraud.
ARTICLE IX
MISCELLANEOUS AGREEMENTS OF THE PARTIES
9.1 Notices. Any notice in connection with this Agreement shall be in
writing and shall be delivered personally by overnight courier or by facsimile
at the addresses or facsimile numbers given below. If notice is given by: (a)
overnight courier, notice shall be deemed given
<PAGE> 58
54
when recorded on the records of the air courier as received by the receiving
party; or (b) facsimile, notice shall be deemed given upon transmission, if on a
business day and during business hours in the city of receipt; otherwise, notice
shall be deemed to have been given at 9:00 A.M. on the next Business Day in the
city of receipt.
If to Westbrook LLC, WREF III or Westbrook Co-Investment:
c/o Westbrook Real Estate Partners, L.L.C.
599 Lexington Avenue, Suite 3800
New York, New York 10022
Attn.: Jonathan Paul
Facsimile: (212) 849-8801
c/o Westbrook Real Estate Partners, L.L.C.
345 California Street, Suite 3450
San Francisco, California 94104
Attn.: Mark Mance
Facsimile: (415) 438-7921
c/o Westbrook Real Estate Partners, L.L.C.
13155 Noel Road
Dallas, Texas 75240
Attn.: Patrick Fox
Facsimile: (972) 934-8333
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Attn.: Richard Capelouto
Brian M. Stadler
Facsimile: (212) 455-2502
If to Alter, Riverside or Alter Investment Group:
c/o Sunstone Hotel Investors, Inc.
903 Calle Amanecer
San Clemente, California 92673-6212
Attn.: Robert A. Alter
Facsimile: (949) 369-4210
<PAGE> 59
55
with a copy to:
Battle Fowler LLP
75 East 55th Street
New York, New York 10022
Attn.: Steven Lichtenfeld
Facsimile: (212) 856-7823
If to Biederman:
c/o Sunstone Hotel Investors, Inc.
903 Calle Amanecer
San Clemente, California 92673-6212
Attn.: Robert A. Alter
Facsimile: (949) 369-4210
with a copy to:
Battle Fowler LLP
75 East 55th Street
New York, New York 10022
Attn.: Steven Lichtenfeld
Facsimile: (212) 856-7823
If to SHP:
c/o Westbrook Real Estate Partners, L.L.C.
599 Lexington Avenue, Suite 3800
New York, New York 10022
Attn.: Jonathan Paul
Facsimile: (212) 849-8801
c/o Westbrook Real Estate Partners, L.L.C.
345 California Street, Suite 3450
San Francisco, California 94104
Attn.: Mark Mance
Facsimile: (415) 438-7921
with copies to:
Sunstone Hotel Investors, Inc.
903 Calle Amanecer
San Clemente, California 92673-6212
Attn.: Robert A. Alter
Facsimile: (949) 369-4210
<PAGE> 60
56
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Attn.: Richard Capelouto
Brian M. Stadler
Facsimile: (212) 455-2502
Battle Fowler LLP
75 East 55th Street
New York, New York 10022
Attn.: Steven Lichtenfeld
Facsimile: (212) 856-7823
or to such other address as any such party shall designate by written notice to
the other parties hereto.
9.2 Integration; Amendments. This Agreement (including the Schedules
and Exhibits hereto) contains the entire agreement and understanding of the
parties with regard to the matters contained herein and supercedes any prior
written or oral agreement with respect to the subject matter hereto, except for
paragraph 20 of the term sheet letter between Alter and WF III, dated as of
April 5, 1999 (the "Term Sheet Letter"), which shall continue in full force and
effect. This Agreement (including the Schedules and Exhibits hereto) may not be
amended or modified except in a writing signed by all parties hereto.
9.3 Waiver. No waiver by any of the parties hereto of any of the
provisions hereof shall be effective unless explicitly set forth in writing and
executed by the party so waiving. Except as provided in the preceding sentence,
no action taken pursuant to this Agreement, including without limitation, any
investigation by or on behalf of any party, shall be deemed to constitute a
waiver by the party taking such action of compliance with any representations,
warranties, covenants, or agreements contained herein, and in any documents
delivered or to be delivered pursuant to this Agreement and in connection with
the Closing hereunder. The waiver by any party hereto of a breach of any
provision of this Agreement shall not operate or be construed as a waiver of any
subsequent breach.
9.4 No Assignment; Successors and Assigns. The parties' respective
rights and obligations hereunder may not be assigned, transferred, pledged, or
encumbered, in any manner, direct or indirect, contingent or otherwise, in whole
or in part, voluntarily or by operation of law, without the prior written
consent of the other parties, provided that any of the Westbrook Entities may
assign, in whole or in part, any of its rights and obligations hereunder and
under the Implementing Agreements to one or more of its Affiliates without the
consent of the other parties hereto, but Westbrook LLC and WREF III will remain
liable for their obligations hereunder and under each of the Implementing
Agreements to which they are a party. Subject to the preceding sentence, and
subject to the restrictions contained in Section 6.3, this Agreement shall be
binding on the parties hereto and their respective successors and permitted
assigns. In the event of the
<PAGE> 61
57
death, disability or incapacity of Alter or Biederman, such party's executors,
administrators, testamentary trustees or personal representatives shall be bound
by all the terms and conditions of this Agreement and, in addition, such party's
legatees or beneficiaries shall be bound by the provisions of Article VI.
9.5 Expenses. Except as set forth in this Agreement, whether or not the
Transactions are consummated, all costs and expenses incurred in connection with
this Agreement and the Transactions shall be paid by the party incurring such
costs.
9.6 Severability. If any provision of this Agreement shall be declared
by any court of competent jurisdiction to be illegal, void or unenforceable, all
other provisions of this Agreement shall not be affected and shall remain in
full force and effect, and the parties hereto shall negotiate in good faith to
replace such illegal, void or unenforceable provision with a provision that
corresponds as closely as possible to the intentions of the parties as expressed
by such illegal, void or unenforceable provision.
9.7 Section Headings; Table of Contents. The section headings contained
in this Agreement and the table of contents to this Agreement are for reference
purposes only and shall not affect the meaning or interpretation of this
Agreement.
9.8 Third Parties. Except for the beneficiaries of the indemnification
provided in Article VII, this Agreement does not create any rights, claims or
benefits inuring to any Person that is not a party hereto nor create or
establish any third party beneficiary hereto.
9.9 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE, REGARDLESS OF THE LAWS
THAT MIGHT OTHERWISE GOVERN UNDER APPLICABLE PRINCIPLES OF CONFLICT OF LAWS
THEREOF.
9.10 Enforcement. The parties agree that irreparable damage would occur
in the event that any of the provisions of this Agreement were not performed by
any of Lessee, Management, Management Sub, the Alter Entities or Biederman in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the Westbrook Entities and SHP shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement by any of
Lessee, Management, Management Sub, the Alter Entities or Biederman and to
enforce specifically the terms and provisions of this Agreement in any federal
court located in Delaware or in Chancery Court in Delaware, this being in
addition to any other remedy to which Westbrook Entities or SHP is entitled at
law or in equity. In addition, each of Lessee, Management, Management Sub, the
Alter Entities and Biederman (a) consents to submit itself (without making such
submission exclusive) to the personal jurisdiction of any federal court located
in Delaware or Chancery Court located in Delaware in the event any dispute
arises out of this Agreement or any of the Transactions 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.
<PAGE> 62
58
In the event any dispute or difference of opinion arises under
this Agreement, the parties hereto shall endeavor to resolve such dispute or
difference of opinion by negotiation or mediation. If, for any reason, such
mediation or negotiation fails to result in a mutually acceptable resolution,
the parties agree to be bound by their consent to the jurisdiction of any
federal court located in Delaware or Chancery Court located in Delaware. The
parties hereby irrevocably and unconditionally waive trial by jury.
9.11 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original and all of which
together shall be deemed to be one and the same instrument.
9.12 Cumulative Remedies. All rights and remedies of either party
hereto are cumulative of each other and of every other right or remedy such
party may otherwise have at law or in equity, and the exercise of one or more
rights or remedies shall not prejudice or impair the concurrent or subsequent
exercise of other rights or remedies.
9.13 Bulk Sales Law Waiver. Each party hereto agrees to waive
compliance by the other with the provisions of the bulk sales law or comparable
law of any jurisdiction to the extent that the same may be applicable to the
Transactions. SHP agrees to indemnify and hold harmless Alter and Management
from and against any and all claims that may be asserted against Alter and
Management as a result of any failure to comply with any such bulk sales law or
comparable law of any jurisdiction to the extent that the same may be applicable
to the Transactions.
9.14 Consent of Regina Biederman. Regina Biederman hereby consents to
all of the Transactions, and waives any and all right to contest or prevent the
consummation of such transactions.
9.15 Alternative Transaction. In the event the death or incapacity of
Alter delays the consummation of the Transactions, Lessee and the other parties
hereto agree that, in lieu of the contributions of Lessee Stock to SHP
contemplated by Section 2.1, Lessee shall transfer all of its assets and
liabilities to SHP at the Closing in exchange for the consideration contemplated
to be received by the Alter Entities and Biederman in exchange for Lessee Stock
pursuant to Section 2.1.
9.16 Operating Leases. Notwithstanding anything to the contrary in this
Agreement, if (w) all the conditions to Closing shall have been satisfied or
waived except for the conditions set forth in Section 5.2(a) or 5.2(b), (x) the
Closing does not occur, (y) (i) it shall have been determined by a court of
competent jurisdiction that the Losses that would have been suffered or incurred
by the Westbrook Entities arising from, relating to or otherwise in respect of
any breach of, or inaccuracy in, any representation or warranty or any breach of
any covenant of any Alter Entity, Management, Management Sub or Biederman if the
Closing had occurred at the time such other conditions were satisfied or waived
would have exceeded $30 million in the aggregate or (ii) any Alter Entity,
Management, Management Sub or Biederman willfully shall fail to make the
contributions contemplated to be made by them pursuant to Article II, and (z)
the Merger shall have been consummated, then, the Alter Entities, Management,
Management Sub and Biederman
<PAGE> 63
59
agree that the Westbrook Entities shall have the right to cause Sunstone OP and
its Affiliates to terminate any or all of the operating leases and related
agreements between them and Lessee and Management without any payment or other
Liability to any Alter Entity, Management, Management Sub or Biederman (such
event, the "Lease Termination"). In connection with a Lease Termination, the
provisions of Section 4.15 shall be applicable as if the Closing had occurred.
9.17 Exclusivity. Upon execution of this Agreement and until 30 days
after the termination of the Merger Agreement in accordance with its terms, none
of the Westbrook Entities and none of the Alter Entities (in their respective
individual capacities and not in any capacity they have at Sunstone) will engage
in discussions or enter into agreements or understandings with any person or
group, including Sunstone, concerning a business combination involving, or the
acquisition of a material portion of the assets or equity of, Sunstone, Sunstone
OP, Lessee or Management, other than the other of them concerning the
Transactions (provided, however, that the foregoing shall not prohibit (x) any
of the Westbrook Entities from discussing or entering into agreements or
understandings regarding the Transactions with their internal or co-investors,
subject to their respective agreement to comply with the confidentiality and
other provisions set forth in the Term Sheet Letter or (y) Alter or Biederman
from selling their respective interests in Lessee and Management (or their
assets) in any transaction contemplated by the Lessee/Manager Agreement (or any
derivative or modification thereof approved by the board of directors of
Sunstone).
<PAGE> 64
60
IN WITNESS WHEREOF, the parties have caused this Agreement to
be duly executed as of the date first above written.
WESTBROOK SHP L.L.C.
By: /s/ Jonathan H. Paul
-----------------------------------
Name: Jonathan H. Paul
Title: Authorized Person
WESTBROOK REAL ESTATE FUND III, L.P.
By: /s/ Jonathan H. Paul
------------------------------------
Name: Jonathan H. Paul
Title: Authorized Person
WESTBROOK REAL ESTATE CO-
INVESTMENT PARTNERSHIP III
By: /s/ Jonathan H. Paul
------------------------------------
Name: Jonathan H. Paul
Title: Authorized Person
/s/ Robert A. Alter
---------------------------------
Robert A. Alter
RIVERSIDE HOTEL PARTNERS
By: /s/ Robert A. Alter
-----------------------------------
Name: Robert A. Alter
Title: President
<PAGE> 65
61
ALTER INVESTMENT GROUP LTD.
By: /s/ Robert A. Alter
--------------------------
Name: Robert A. Alter
Title: General Partner
/s/ Charles L. Biederman
-------------------------------------
Charles L. Biederman
SUNSTONE HOTEL MANAGEMENT, INC.
By: /s/ Robert A. Alter
--------------------------
Name: Robert A. Alter
Title: Chairman
SUNSTONE HOTEL PROPERTIES, INC.
By: /s/ Robert A. Alter
---------------------------
Name: Robert A. Alter
Title: Chairman
MANAGEMENT SUB SHP L.L.C.
By: /s/ Robert A. Alter
----------------------------
Name: Robert A. Alter
Title: Manager
<PAGE> 66
62
SHP ACQUISITION, L.L.C.
By: /s/ Paul Kazilionis
-----------------------------
Name: Paul Kazilionis
Title: Manager
By: /s/ Robert A. Alter
------------------------------
Name: Robert A. Alter
Title: Manager
Solely with respect to Section 4.2(c):
WESTBROOK REAL ESTATE FUND I, L.P.
By: /s/ Jonathan H. Paul
------------------------------
Name: Jonathan H. Paul
Title: Authorized Person
Solely with respect to Section 9.14:
/s/ REGINA BIEDERMAN
--------------------------------------
REGINA BIEDERMAN
<PAGE> 1
Exhibit 11
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
SHP ACQUISITION, L.L.C.,
SHP INVESTORS SUB, INC.
AND
SUNSTONE HOTEL INVESTORS, INC.
DATED AS OF JULY 12, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1 THE MERGER......................................................................................2
1.1 The Merger......................................................................................2
1.2 Closing.........................................................................................2
1.3 Effective Time..................................................................................3
1.4 Effect of Merger on Charter and Bylaws..........................................................3
1.5 Directors and Officers..........................................................................3
1.6 Effect on Shares................................................................................3
1.7 Merger Consideration............................................................................3
1.8 Transactions Relating to Seller Partnership.....................................................5
1.9 Exchange of Certificates........................................................................5
1.10 Further Assurances..............................................................................6
ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF SELLER........................................................7
2.1 Organization, Standing and Power of Seller......................................................7
2.2 Seller Subsidiaries/Investments.................................................................7
2.3 Capital Structure...............................................................................8
2.4 Authority; Noncontravention; Consents..........................................................10
2.5 SEC Documents; Financial Statements; Undisclosed Liabilities...................................11
2.6 Absence of Certain Changes or Events...........................................................12
2.7 Litigation.....................................................................................13
2.8 Properties.....................................................................................13
2.9 Environmental Matters..........................................................................15
2.10 Related Party Transactions.....................................................................16
2.11 Employee Benefits..............................................................................16
2.12 Employee Matters...............................................................................18
2.13 Taxes..........................................................................................18
2.14 No Payments to Employees, Officers or Directors................................................20
2.15 Brokers........................................................................................20
2.16 Compliance With Laws...........................................................................20
2.17 Contracts; Debt Instruments....................................................................21
2.18 Opinion of Financial Advisor...................................................................22
2.19 State Takeover Statutes........................................................................22
2.20 Proxy Statement and Information Statement......................................................23
2.21 Investment Company Act of 1940.................................................................23
2.22 Definition of Knowledge of Seller..............................................................23
2.23 Insurance......................................................................................23
2.24 Board Recommendation...........................................................................23
2.25 Representations in Partnership Merger Agreement................................................24
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF PARENT AND BUYER.............................................24
3.1 Organization, Standing and Power of Parent and Buyer...........................................24
3.2 Ownership of Parent, Buyer and Holdings........................................................25
3.3 Authority; Noncontravention; Consents..........................................................25
</TABLE>
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<TABLE>
<S> <C>
3.4 Litigation.....................................................................................26
3.5 Undisclosed Liability..........................................................................26
3.6 Brokers........................................................................................26
3.7 Compliance With Laws...........................................................................26
3.8 Contracts; Debt Instruments....................................................................27
3.9 Solvency.......................................................................................27
3.10 Proxy Statement and Information Statement......................................................27
3.11 Investment Company Act of 1940.................................................................27
3.12 Ownership of Stock in Seller...................................................................27
3.13 Definition of Knowledge........................................................................28
3.14 Sufficient Funds...............................................................................28
3.15 Representations in Partnership Merger Agreement................................................28
ARTICLE 4 COVENANTS......................................................................................28
4.1 Acquisition Proposals..........................................................................28
4.2 Conduct of Seller's Business Pending Merger....................................................30
4.3 Conduct of Parent's and Buyer's Business Pending Merger........................................33
4.4 Other Actions..................................................................................33
4.5 Private Placement..............................................................................34
4.6 Escrow Arrangement.............................................................................34
4.7 Seller Partnership Actions.....................................................................34
4.8 Pro Formas.....................................................................................34
ARTICLE 5 ADDITIONAL COVENANTS...........................................................................34
5.1 Preparation of the Proxy Statement; Seller Stockholders Meeting................................34
5.2 Access to Information; Confidentiality.........................................................36
5.3 Reasonable Best Efforts; Notification..........................................................36
5.4 Public Announcements...........................................................................39
5.5 Transfer Taxes.................................................................................39
5.6 Benefit Plans..................................................................................39
5.7 Indemnification................................................................................40
5.8 Declaration of Dividends and Distributions.....................................................41
5.9 Resignations...................................................................................42
5.10 Stockholder Claims.............................................................................42
5.11 Seller Franchise Agreements and Leases.........................................................42
5.12 Cooperation with Proposed Financings...........................................................42
ARTICLE 6 CONDITIONS.....................................................................................43
6.1 Conditions to Each Party's Obligation to Effect the Merger.....................................43
6.2 Conditions to Obligations of Parent and Buyer..................................................43
6.3 Conditions to Obligations of Seller............................................................45
ARTICLE 7 TERMINATION, AMENDMENT AND WAIVER..............................................................46
7.1 Termination....................................................................................46
7.2 Certain Fees and Expenses......................................................................47
7.3 Effect of Termination..........................................................................51
</TABLE>
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<TABLE>
<S> <C>
7.4 Amendment......................................................................................51
7.5 Extension; Waiver..............................................................................51
ARTICLE 8 GENERAL PROVISIONS.............................................................................51
8.1 Nonsurvival of Representations and Warranties..................................................51
8.2 Notices........................................................................................52
8.3 Interpretation.................................................................................53
8.4 Counterparts...................................................................................53
8.5 Entire Agreement; No Third-Party Beneficiaries.................................................53
8.6 Governing Law..................................................................................53
8.7 Assignment.....................................................................................53
8.8 Enforcement....................................................................................54
8.9 Severability...................................................................................54
</TABLE>
EXHIBITS
Exhibit A Seller Partnership Redemption Terms
Exhibit B Lessee/Manager Agreement
Exhibit C Voting Agreement and Irrevocable Proxy
Exhibit D Form of Seller Charter Amendments
Exhibit E Voting Agreements and Consents of Seller Unit Holders
Exhibit F Form of Seller Partnership Agreement Amendments
Exhibit G Financing Commitment
Exhibit H Form of Letter of Credit
Exhibit I Form of Tax Opinions
Exhibit J Pro Forma
-iii-
<PAGE> 5
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
DEFINED TERM SECTION
<S> <C>
1940 Act.......................................................................................................2.21
Acquisition Proposal.........................................................................................4.1(a)
Additional Filings...........................................................................................5.1(a)
Adverse Determination .......................................................................................7.1(j)
Affiliate......................................................................................................2.10
Agreement..................................................................................................Preamble
AICPA Statement..............................................................................................5.1(b)
Alter.....................................................................................................Recital E
Alter Investment Group....................................................................................Recital E
Articles of Merger..............................................................................................1.3
Base Amount..................................................................................................7.2(b)
Biederman.................................................................................................Recital E
Break-Up Expenses............................................................................................7.2(c)
Break-Up Expenses Tax Opinion................................................................................7.2(c)
Break-Up Fee.................................................................................................7.2(b)
Break-Up Fee Tax Opinion.....................................................................................7.2(b)
Buyer......................................................................................................Preamble
Buyer Disclosure Letter...................................................................................Article 3
Buyer Material Adverse Effect................................................................................3.1(b)
Buyer Operating Partnership...............................................................................Recital G
CapEx Budget.................................................................................................2.8(c)
Cash Collateral.................................................................................................4.6
Certificates.................................................................................................1.9(c)
Charter.........................................................................................................1.4
Charter Amendments...........................................................................................2.4(a)
Claims.......................................................................................................5.7(b)
Closing.........................................................................................................1.2
Closing Date....................................................................................................1.2
Code........................................................................................................2.11(a)
Commitment...................................................................................................4.2(q)
Common Merger Consideration...............................................................................1.7(a)(i)
Contribution..............................................................................................Recital E
Contribution Agreement....................................................................................Recital E
Controlled Group Member........................................................................................2.11
Data Room....................................................................................................2.8(a)
Defect Amount................................................................................................7.1(j)
Development Agreements.......................................................................................4.2(i)
Effective Time..................................................................................................1.3
Employee Plan..................................................................................................2.11
Encumbrances.................................................................................................2.8(a)
Environmental Law............................................................................................2.9(c)
Environmental Liabilities and Costs..........................................................................2.9(c)
</TABLE>
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<TABLE>
<S> <C>
ERISA..........................................................................................................2.11
Escrow Agent....................................................................................................4.6
Escrow Agreement................................................................................................4.6
Exchange Act.................................................................................................2.5(a)
Financing......................................................................................................3.14
Financing Commitment...........................................................................................3.14
Financing Overage.........................................................................................5.3(c)(i)
Flow-Through Entity.........................................................................................2.13(b)
Franchise Consents...........................................................................................5.3(a)
Franchise Fees...............................................................................................5.3(d)
GAAP.........................................................................................................2.5(a)
Goldman Sachs..................................................................................................2.15
Governmental Entity..........................................................................................2.4(b)
Hazardous Materials..........................................................................................2.9(a)
Holdings.....................................................................................................3.1(b)
HSR Act......................................................................................................2.4(b)
Indebtedness................................................................................................2.17(b)
Indemnified Parties..........................................................................................5.7(a)
Indemnifying Parties.........................................................................................5.7(b)
Information Statement........................................................................................5.1(a)
Injunction...................................................................................................7.1(d)
Irrevocable Proxy.........................................................................................Recital I
IRS..........................................................................................................7.2(b)
Knowledge of Buyer.............................................................................................3.13
Knowledge of Parent............................................................................................3.13
Knowledge of Seller............................................................................................2.22
Laws.........................................................................................................2.4(b)
Lender Consents......................................................................................5.3(a), 5.3(a)
Lender Property Determination................................................................................7.1(j)
Lessee....................................................................................................Recital E
Lessee/Manager Agreement..................................................................................Recital H
Letter of Credit................................................................................................4.6
Liens.....................................................................................................2.2(b)(i)
Management Sub............................................................................................Recital E
Manager...................................................................................................Recital E
Maryland Department.............................................................................................1.3
Material Contract...........................................................................................2.17(a)
Merger....................................................................................................Recital A
Merger Consideration.....................................................................................1.7(a)(ii)
MGCL............................................................................................................1.1
Option Consideration.........................................................................................1.7(b)
Ordinary Course Liabilities..................................................................................4.2(p)
Outside Date.................................................................................................2.4(b)
Parent.....................................................................................................Preamble
Parent Material Adverse Effect...............................................................................3.1(a)
Partnership Agreement Amendment................................................................................2.24
</TABLE>
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<PAGE> 7
<TABLE>
<S> <C>
Partnership Merger..............................................................................................1.8
Partnership Merger Agreement..............................................................................Recital G
Paying Agent.................................................................................................1.9(a)
Pension Plan...................................................................................................2.11
Person.......................................................................................................2.2(a)
Preferred Merger Consideration...........................................................................1.7(a)(ii)
Property Reports.............................................................................................5.1(a)
Property Restrictions........................................................................................2.8(a)
Proxy Statement..............................................................................................5.1(a)
Qualifying Income............................................................................................7.2(b)
REIT........................................................................................................2.13(b)
REIT Income Requirements.....................................................................................7.2(b)
Required Consents............................................................................................5.3(a)
Riverside ................................................................................................Recital E
Satisfaction Date...............................................................................................1.2
SEC..........................................................................................................2.4(b)
Securities Act ...........................................................................................2.5(a)
Seller.....................................................................................................Preamble
Seller 1994 Incentive Plan...................................................................................2.3(a)
Seller 1997 Supplemental Plan................................................................................2.3(a)
Seller Board..............................................................................................Recital A
Seller Common OP Units..........................................................................................1.8
Seller Common Shares.........................................................................................2.3(a)
Seller Common Unit Holder.......................................................................................1.8
Seller Contribution Agreements..............................................................................2.17(a)
Seller Director Plan.........................................................................................2.3(a)
Seller Disclosure Letter..................................................................................Article 2
Seller Financial Statement Date.................................................................................2.6
Seller Franchise Agreements..................................................................................2.8(e)
Seller Ground Leases.........................................................................................2.8(d)
Seller Material Adverse Change..................................................................................2.6
Seller Material Adverse Effect..................................................................................2.1
Seller OP Preferred Units....................................................................................2.3(e)
Seller OP Preferred Unit Holder..............................................................................2.3(e)
Seller OP Units..............................................................................................2.3(e)
Seller Options...............................................................................................2.3(b)
Seller Partner Approval......................................................................................2.4(a)
Seller Partnership........................................................................................Recital F
Seller Partnership Agreement.................................................................................2.3(e)
Seller Partnership Redemption.............................................................................Recital F
Seller Permits.................................................................................................2.16
Seller Plans.................................................................................................2.3(b)
Seller Preferred Shares......................................................................................2.3(a)
Seller Properties....................................................................................2.8(a), 2.9(a)
Seller SEC Documents.........................................................................................2.5(b)
Seller Stockholder Approvals.................................................................................2.4(a)
</TABLE>
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<TABLE>
<S> <C>
Seller Stockholders Meeting..................................................................................5.1(c)
Seller Subsidiaries..........................................................................................2.2(a)
Seller's Environmental Reports...............................................................................2.9(a)
Seller's Knowledge.............................................................................................2.22
Service Agreements..........................................................................................2.17(c)
Special Committee.........................................................................................Recital A
Subsidiary...................................................................................................2.2(a)
Superior Acquisition Proposal...................................................................................4.1
Surviving Company...............................................................................................1.1
Surviving Operating Partnership...........................................................................Recital G
Takeover Statute...............................................................................................2.19
Tax Authority...............................................................................................2.13(a)
Tax Protection Agreements...................................................................................2.17(f)
Tax Returns.................................................................................................2.13(a)
Taxes.......................................................................................................2.13(a)
Third Party Provisions..........................................................................................8.5
Transactions...................................................................................................2.24
Transfer Taxes..................................................................................................5.5
Underlying Loan...........................................................................................5.3(c)(i)
Voting Agreement..........................................................................................Recital I
Welfare Plan...................................................................................................2.11
Westbrook Co-Investment...................................................................................Recital E
Westbrook Fund I..........................................................................................Recital E
Westbrook Fund III........................................................................................Recital E
Westbrook SHP.............................................................................................Recital E
</TABLE>
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<PAGE> 9
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") dated as of July
12, 1999, is by and among SHP Acquisition, L.L.C., a Delaware limited liability
company ("Parent"), SHP Investors Sub, Inc., a Maryland corporation and an
indirect subsidiary of Parent ("Buyer"), and Sunstone Hotel Investors, Inc., a
Maryland corporation ("Seller").
RECITALS:
A. The Board of Directors of Seller ("Seller Board"), based upon the
recommendation of a duly appointed special committee thereof of independent
directors ("Special Committee"), and the Board of Directors of Buyer have each
determined it to be advisable and in the best interests of their respective
stockholders, subject to the conditions and other provisions contained herein,
that Buyer merge with and into Seller ("Merger").
B. The members of Parent have approved this Agreement and the Merger.
C. The Special Committee and the Seller Board have received a fairness
opinion relating to the transactions contemplated hereby as more fully described
herein.
D. Parent, Buyer and Seller desire to make certain representations,
warranties and agreements in connection with the transactions contemplated
hereby.
E. Contemporaneously with the execution of this Agreement, Westbrook
SHP L.L.C., a Delaware limited liability company ("Westbrook SHP"), Robert A.
Alter ("Alter"), Riverside Hotel Partners, Inc., a California corporation
("Riverside"), Alter Investment Group Ltd., a Colorado limited partnership,
("Alter Investment Group"), Charles L. Biederman ("Biederman"), Sunstone Hotel
Management, Inc., a Colorado corporation ("Manager"), Management Sub SHP L.L.C.,
a Delaware limited liability company ("Management Sub"), Sunstone Hotel
Properties, Inc., a Colorado corporation ("Lessee"), Parent, Westbrook Real
Estate Fund III, L.P., a Delaware limited partnership ("Westbrook Fund III"),
Westbrook Real Estate Co-Investment Partnership III, L.P., a Delaware limited
partnership ("Westbrook Co-Investment"), and, solely for purposes of Section
4.2(c) of the Contribution Agreement (as defined), Westbrook Real Estate Fund I,
L.P., a Delaware limited partnership ("Westbrook Fund I"), and, solely for the
purposes of Section 9.14 of the Contribution Agreement, Regina Biederman have
entered into a Contribution Agreement (the "Contribution Agreement") pursuant to
which and subject to the terms and conditions thereof, Westbrook SHP, Alter,
Biederman, Manager, Westbrook Fund III, Westbrook Co-Investment, Management Sub,
Riverside and Alter Investment Group shall contribute certain assets, equity
interests and cash to Parent as described therein (the "Contribution")
immediately prior to the Seller Partnership Redemption (as defined below).
F. Immediately prior to the Partnership Merger (as defined below)
Sunstone Hotel Investors, L.P., a Delaware limited partnership ("Seller
Partnership"), will redeem from Seller certain outstanding units of Seller
Partnership held by Seller in exchange for certain assets held by Seller
Partnership ("Seller Partnership Redemption") in accordance with the terms set
forth on Exhibit A attached hereto.
<PAGE> 10
G. Contemporaneously with the execution of this Agreement, SHP OP,
L.L.C., a Delaware limited liability company ("Buyer Operating Partnership"),
Seller Partnership and Parent are entering into a Merger Agreement ("Partnership
Merger Agreement") pursuant to which, and subject to the terms and conditions
thereof, immediately after the Seller Partnership Redemption and immediately
prior to the Merger, Buyer Operating Partnership will be merged with and into
Seller Partnership (the "Partnership Merger") with Seller Partnership as the
surviving entity ("Surviving Operating Partnership").
H. To effect the Partnership Merger and the Partnership Agreement
Amendment (as defined below), (i) approval by the General Partner (as defined in
the Seller Partnership Agreement) (the "General Partner") and Limited Partners
(as defined in the Seller Partnership Agreement, "Limited Partners") who own
more than 50% of the Percentage Interests (as defined in the Seller Partnership
Agreement) ("Percentage Interests") of the Partners (as defined in the Seller
Partnership Agreement) of the Partnership Merger and the Partnership Merger
Agreement and (ii) approval by Limited Partners holding more than 66-2/3% of the
Percentage Interests of the Limited Partners (excluding the Percentage Interests
held by Seller or any entity controlled by Seller) of the Partnership Agreement
Amendment ((i) and (ii) collectively, the "Seller Partner Approval") must be
obtained as of the date hereof, and copies of such approvals as have been
obtained as a result of the delivery to the Seller Partnership of certain voting
agreements and consents are attached as Exhibit E.
I. Contemporaneously with the execution of this Agreement, Alter,
Biederman, Seller, Seller Partnership, Lessee and Manager have entered into a
drag-along agreement (the "Lessee/Manager Agreement"), a copy of which is
attached as Exhibit B, pursuant to which, under certain circumstances, Seller
and the Seller Partnership have the right to require Alter and Biederman or
Lessee and Manager, and Alter and Biederman or Lessee or Manager have the
obligation, to sell all of their equity interest in Lessee and Manager, as the
case may be, to certain third parties.
J. Contemporaneously with the execution of this Agreement, Seller,
Alter, Biederman, Westbrook Fund I and Parent have entered into a voting
agreement (the "Voting Agreement") and a limited irrevocable proxy (the
"Irrevocable Proxy"), a copy of which is attached as Exhibit C.
NOW, THEREFORE, in consideration of the premises and the
representations, warranties, covenants and agreements contained herein, the
parties hereto hereby agree as follows:
ARTICLE 1
THE MERGER
1.1 The Merger. Upon the terms and subject to the conditions of this
Agreement, and in accordance with Subtitle 1 of Title 3 of the Maryland General
Corporation Law ("MGCL"), Buyer shall be merged with and into Seller, with
Seller as the surviving entity (the entity surviving the Merger, the "Surviving
Company"). The Merger shall have the effects specified in Section 3-114 of the
MGCL and this Agreement.
1.2 Closing. On the terms and subject to the conditions of this
Agreement and provided that this Agreement has not been terminated pursuant to
Article 7, the closing of the Merger ("Closing") will take place at 10:00 a.m.,
local time in New York, New York, on the date which is the third business day
following
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<PAGE> 11
satisfaction (or waiver by the parties entitled to the benefit thereof) of the
conditions set forth in Article 6 (other than conditions that by their terms,
cannot be satisfied until the Closing Date), at the offices of Simpson Thacher &
Bartlett, 425 Lexington Avenue, New York, NY 10017-3954, unless another date or
place is agreed to in writing by the parties; provided however that without the
written consent of Parent and Buyer, the Closing shall not occur prior to
October 30, 1999 unless the Lender Consent (as herein defined) has been obtained
under that certain loan facility dated May 7, 1999 in the original principal
amount of $16,135,000. The date on which the Closing occurs is referred to
herein as the "Closing Date."
1.3 Effective Time. On the Closing Date, the parties shall execute and
file articles of merger (the "Articles of Merger"), executed in accordance with
Maryland law, and shall make all other filings and recordings required under
Maryland law. The Merger shall become effective at the time ("Effective Time")
the Articles of Merger are accepted for record by the Maryland State Department
of Assessments and Taxation (the "Maryland Department"), or at such time as
Buyer and Seller shall agree should be specified in the Articles of Merger (not
to exceed 30 days after the Articles of Merger are filed with the Maryland
Department). Unless otherwise agreed, the parties shall cause the Effective Time
to occur on the Closing Date.
1.4 Effect of Merger on Charter and Bylaws. The Articles of
Incorporation, as amended and restated ("Charter"), as further amended by the
amendments discussed below, of Seller and the bylaws, as amended and restated,
of Seller, as in effect immediately prior to the Effective Time, shall
constitute the Charter and bylaws, respectively, of the Surviving Company, from
and after the Effective Time, until further amended in accordance with
applicable Maryland law.
1.5 Directors and Officers. The directors and officers of the Surviving
Company shall be the Persons who were the directors and officers, respectively,
of Buyer immediately prior to the Effective Time. Such directors and officers
shall continue to serve for the balance of their unexpired terms or their
earlier death, resignation or removal.
1.6 Effect on Shares. The effect of the Merger on the shares of Seller
shall be as provided in this Article 1. Each share of common stock of Buyer
outstanding immediately prior to the Merger shall be converted, without any
action on the part of the holder thereof, into one share of the common stock of
the Surviving Company.
1.7 Merger Consideration.
(a) At the Effective Time, by virtue of the Merger and without
any action on the part of Parent, Buyer, Seller or the holders of the following
securities:
(i) each Seller Common Share (as defined in Section 2.3(a))
issued and outstanding immediately prior to the Effective Time shall be
converted into the right to receive $10.35 in cash as adjusted pursuant to
Section 1.7(c) ("Common Merger Consideration"), without interest thereon, upon
surrender of the certificate formerly representing such Share; and
(ii) each Seller Preferred Share (as defined in Section
2.3(a)) issued and outstanding immediately prior to the Effective Time (other
than Seller Preferred Shares held by Parent, Buyer or any wholly-owned
Subsidiary of Parent or Buyer, which shares by virtue of the Merger and without
any action
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<PAGE> 12
on the part of the holder thereof, shall be canceled and shall cease
to exist with no payment being made with respect thereto and Parent and Buyer
hereby consent to such treatment) shall be converted into the right to receive
the "Liquidation Preference" (as such term is defined in the Articles
Supplementary of the Seller Preferred Shares) (the "Preferred Merger
Consideration"), without interest thereon, upon surrender of the certificate
formerly representing such share.
The Preferred Merger Consideration, together with the Common Merger
Consideration, is hereinafter referred to as the "Merger Consideration."
(b) Each outstanding Seller Option (as defined in Section
2.3(b)) shall be subject to the terms of this Agreement. As of the Effective
Time, each outstanding Seller Option, whether or not then vested or exercisable,
shall have the expiration date thereof accelerated to the Closing Date, and
Seller shall use its reasonable best efforts to cause each such Seller Option to
be converted into the right to receive from the Surviving Company an amount of
cash equal to the product of (i) the number of Seller Common Shares subject to
the Seller Option and (ii) the excess, if any, of the Common Merger
Consideration over the exercise price per Seller Common Share of such option
(the "Option Consideration"). Each outstanding agreement for the issuance of
warrants ("Warrants") and the shares which would be issuable upon the exercise
of such warrants (such shares, "Warrant Shares") shall be subject to the terms
of this Agreement. Seller shall use its reasonable best efforts to cause each
Warrant to be converted into the right to receive from the Surviving Company an
amount of cash equal to the product of (i) the number of Warrant Shares and (ii)
the excess, if any, of the Common Merger Consideration over the exercise price
per Warrant Share of such Warrants (the "Warrant Consideration"). Prior to the
Effective Time, Seller shall take all steps necessary to give written notice to
each holder of a Seller Option and Warrant that all Seller Options and Warrants
shall expire effective as of the Effective Time and be converted into the right
to receive the Option Consideration or Warrant Consideration, as the case may
be. The Surviving Company shall cause the Paying Agent (as defined below) to pay
each holder of Seller Options and Warrants, promptly following the Effective
Time, the Option Consideration or Warrant Consideration, as the case may be, for
all Seller Options and of Warrant Shares held by such holder. The Seller Board
or any committee thereof responsible for the administration of Seller's stock
option plans or warrant plans shall take any and all action necessary to
effectuate the matters described in this Section 1.7(b) on or before the
Effective Time. Any amounts payable pursuant to this Section 1.7(b) shall be
subject to any required withholding of taxes and shall be paid without interest.
Parent agrees to provide the Surviving Company with sufficient funds to permit
the Surviving Company to satisfy its obligations under this Section 1.7(b).
(c) The Common Merger Consideration shall be decreased to the
extent and in the circumstances described in Section 5.3 (a)(ii)(y) and (z),
Section 5.3(c), Section 5.3(d), the last sentence of Section 5.8 or the last
sentence of Section 6.2(f). The Common Merger Consideration shall be increased
by an amount (the "Closing Adjustment Amount") equal to: 50% of (i) consolidated
cash, cash equivalents and marketable securities (valued equal to their market
value) of Seller and its Subsidiaries, determined by Ernst & Young, LLP in
accordance with GAAP, as of the close of business on the fifth business day
prior to Closing (the "Measurement Date") minus (ii) consolidated cash, cash
equivalents and marketable securities (valued equal to their market value) of
Seller and its Subsidiaries, determined by Ernst & Young LLP in accordance with
GAAP, as of June 30, 1999; minus (iii) the aggregate proceeds received by Seller
and its Subsidiaries during the period after June 30, 1999 and on or prior to
the Measurement Date of (x) any sales or other dispositions of assets of Seller
or any of its Subsidiaries, (y) any incurrence of indebtedness or other
non-equity financing by Seller or any of its Subsidiaries or (z) any issuances
of equity interests by Seller or
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<PAGE> 13
any of its Subsidiaries, except in each case to the extent such proceeds were
utilized to pay down debt (other than scheduled amortization payments or
payments at scheduled maturity); plus (iv) expenses not exceeding $11,500,000
described in Section 6.2(f) and paid in cash by Seller after June 30, 1999 and
on or prior to the Measurement Date, plus (v) the amount by which accrued
property taxes of Seller as of the Measurement Date are less than the amount at
June 30, 1999; minus (vi) the amount by which accrued property taxes of Seller
as of the Measurement Date exceed the amount at June 30, 1999; plus (vii) any
amounts overdue from Lessee as of the Measurement Date; minus (viii) the amount
of insurance and condemnation proceeds received by Seller that have not been
applied (x) to purchase or repair the assets giving rise to such proceeds or (y)
to the repayment of debt (other than scheduled amortization payments or payments
at scheduled maturity); provided however that the Closing Adjustment Amount will
equal not less than $2,500,000. The determination of Ernst & Young LLP with
respect to the Closing Adjustment Amount pursuant to this Section 5.8(b) will be
binding on the parties except in the case of fraud or gross negligence by Ernst
& Young LLP.
1.8 Transactions Relating to Seller Partnership. Contemporaneously with
the execution of this Agreement, Buyer Operating Partnership and Seller
Partnership are entering into the Partnership Merger Agreement pursuant to which
and subject to the terms and conditions thereof, among other things, (i) on the
Closing Date and prior to the Effective Time Buyer Operating Partnership will be
merged with and into Seller Partnership (the "Partnership Merger") with Seller
Partnership surviving as the Surviving Operating Partnership and (ii) each
holder ("Seller Common Unit Holder") other than Seller of common units in the
Seller Partnership ("Seller Common OP Units") will be offered the option of
receiving either (A) an amount per Seller Common OP Unit equal to the Common
Merger Consideration or (B) one Class A Unit (as defined in the limited
liability company agreement of Parent, as amended) for each Seller Common OP
Unit held by such holder, or (C) one Class B Unit (as defined in the Limited
Liability Company Agreement of Parent, as amended) for each Seller Common OP
Unit held by such holder, provided that such holder must be an "accredited
investor" as defined in Rule 501 under the Securities Act (as defined below) and
not an "interested stockholder" of Seller or an "affiliate" of an interested
stockholder of Seller (both as defined in Section 3-601 of the MGCL) to elect
the option described in the clause (B) or (C). Each Seller Common OP Unit held
by Seller shall be converted into the right to receive an amount equal to the
Common Merger Consideration. Immediately prior to the Partnership Merger, Seller
Partnership shall redeem all of the Seller OP Preferred Units (as defined in
Section 2.3(e)) and certain of the Seller Common OP Units held by Seller in
exchange for certain assets held by the Seller Partnership in accordance with
the terms set forth on Exhibit A attached hereto.
1.9 Exchange of Certificates.
(a) Prior to the Effective Time, Buyer shall appoint a paying
agent reasonably acceptable to Seller to act as agent (the "Paying Agent") for
the payment of the Merger Consideration upon surrender of certificates formerly
representing issued and outstanding Seller Common Shares or Seller Preferred
Shares and cash payable in respect of Seller Common OP Units, Seller Options and
Warrants.
(b) Parent and Buyer shall provide to the Paying Agent on or
before the Effective Time, for the benefit of the holders of Seller Common
Shares, Seller Preferred Shares and Seller Common OP Units, cash payable in
exchange for the issued and outstanding Seller Common Shares and Seller
Preferred Shares and cash payable in respect of Seller Common OP Units.
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<PAGE> 14
(c) Promptly after the Effective Time, the Surviving Company
shall cause the Paying Agent to mail to each holder of record of a certificate
or certificates which immediately prior to the Effective Time represented
outstanding Seller Common Shares or Seller Preferred Shares (the "Certificates")
(i) a letter of transmittal (which shall specify that delivery shall be
effected, and risk of loss and title to the Certificates shall pass, only upon
delivery of the Certificates to the Paying Agent and shall be in such form and
have such other provisions as Buyer may reasonably specify) and (ii)
instructions for use in effecting the surrender of the Certificates in exchange
for the Merger Consideration. Upon surrender of a Certificate for cancellation
to the Paying Agent, together with such letter of transmittal, duly executed and
completed in accordance with the instructions thereto, the holder of such
Certificate shall be entitled to receive in exchange therefor the applicable
Merger Consideration, and the Certificate so surrendered shall forthwith be
canceled. In the event of a transfer of ownership of Seller Common Shares or
Seller Preferred Shares which is not registered in the transfer records of
Seller, payment may be made to a Person (as defined in Section 2.2(a)) other
than the Person in whose name the Certificate so surrendered is registered if
such Certificate shall be properly endorsed or otherwise be in proper form for
transfer and the Person requesting such payment either shall pay any transfer or
other Taxes (as defined in Section 2.14(a)) required by reason of such payment
being made to a Person other than the registered holder of such Certificate or
establish to the satisfaction of the Surviving Company that such Tax or Taxes
have been paid or are not applicable. Until surrendered as contemplated by this
Section 1.9, each Certificate shall be deemed at any time after the Effective
Time to represent only the right to receive upon such surrender the Merger
Consideration, without interest. No interest will be paid or will accrue on the
Merger Consideration upon the surrender of any Certificate. Consideration
payable in respect of Seller Common OP Units will be paid as provided in the
Partnership Merger Agreement.
(d) All Merger Consideration paid upon the surrender of
Certificates in accordance with the terms of this Section 1.9 shall be deemed to
have been paid in full satisfaction of all rights pertaining to the Seller
Common Shares or Seller Preferred Shares formerly represented by such
Certificates; provided, however, that Seller shall transfer to the Paying Agent
cash sufficient to pay any dividends or make any other distributions with a
record date on or prior to the Effective Time which may have been declared or
made by Seller on such Seller Common Shares or Seller Preferred Shares,
including without limitation any dividends permitted by the second paragraph of
Section 5.8 hereof, in accordance with the terms of this Agreement or prior to
the date of this Agreement and which remain unpaid at the Effective Time and
have not been paid prior to such surrender, and there shall be no further
registration of transfers on the stock transfer books of Seller of the Seller
Common Shares or Seller Preferred Shares which were outstanding immediately
prior to the Effective Time. If, after the Effective Time, Certificates are
presented to the Surviving Company for any reason, they shall be canceled and
exchanged as provided in this Section 1.9.
(e) None of Parent, Seller, Buyer, the Surviving Company or
the Paying Agent shall be liable to any Person in respect of any Merger
Consideration delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law. Any portion of the Merger
Consideration delivered to the Paying Agent pursuant to this Agreement that
remains unclaimed for 12 months after the Effective Time shall be redelivered by
the Paying Agent to the Surviving Company, upon demand, and any holders of
Certificates who have not theretofore complied with Section 1.9(c) shall
thereafter look only to the Surviving Company for delivery of the Merger
Consideration and any unpaid dividends, subject to applicable escheat and other
similar Laws (as defined below).
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<PAGE> 15
1.10 Further Assurances. If, at any time after the Effective Time, the
Surviving Company shall determine or be advised that any deeds, bills of sale,
assignments, assurances or any other actions or things are necessary or
desirable to vest, perfect or confirm of record or otherwise in the Surviving
Company the right, title or interest in, to or under any of the rights,
properties or assets of Seller acquired or to be acquired by the Surviving
Company as a result of, or in connection with, the Merger or otherwise to carry
out this Agreement, the Surviving Company shall be authorized to execute and
deliver, in the name and on behalf of each of Parent, Buyer and Seller, all such
deeds, bills of sale, assignments and assurances and to take and do, in the name
and on behalf of each of Parent, Buyer and Seller or otherwise, all such other
actions and things as may be necessary or desirable to vest, perfect or confirm
any and all right, title and interest in, to and under such rights, properties
or assets in the Surviving Company or otherwise to carry out this Agreement.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Parent and Buyer, except (i) as set
forth in Seller SEC Documents (as defined below) to the extent it is reasonably
clear from a reading of the disclosure in such Seller SEC Document that such
disclosure is applicable to the relevant representation and warranty contained
herein, (ii) with respect to events, facts, or circumstances or conditions known
to Alter as of the date of this Agreement or existing because of acts or
omissions by Alter since April 6, 1999, but solely with respect to the
representations and warranties set forth in Sections 2.4(b)(ii) and (iii),
2.6(f), and 2.8(e), (g) and (h) or (iii) the letter of even date herewith
delivered to Buyer prior to the execution hereof (the "Seller Disclosure
Letter") (it being understood that the Seller Disclosure Letter shall be
arranged in sections corresponding to the sections contained in this Article 2,
and the disclosures in any section of the Seller Disclosure Letter shall qualify
all of the representations in the corresponding section of this Article 2 and,
in addition, all other sections in this Article 2 to the extent it is reasonably
clear from a reading of the disclosure that such disclosure is applicable to
such other sections) as follows:
2.1 Organization, Standing and Power of Seller. Seller is a corporation
duly organized and validly existing under the Laws of Maryland. Seller has the
requisite corporate power and authority to carry on its business as now being
conducted. Seller is duly qualified or licensed to do business as a foreign
corporation and is in good standing in each jurisdiction in which the nature of
its business or the ownership or leasing of its properties makes such
qualification or licensing necessary, other than in such jurisdictions where the
failure to be so qualified or licensed, individually or in the aggregate, would
not have a Seller Material Adverse Effect. Seller has delivered to Buyer
complete and correct copies of Seller's Charter and bylaws, in each case, as
amended to the date of this Agreement. As used in this Agreement, "Seller
Material Adverse Effect" shall mean a material adverse effect on the business,
properties, assets, financial condition, or results of operations of Seller and
its Subsidiaries, taken as a whole, including the prevention of the ability of
Seller or Seller Partnership to consummate timely any of the Transactions (as
defined below); provided that adverse effects on the business, properties,
assets, financial condition or results of operation of Seller or its
Subsidiaries resulting from (A) the fact that Seller and Seller Partnership have
entered into this Agreement or Seller's and Seller Partnership's compliance with
the terms of this Agreement, including consummating the Merger or the
Partnership Merger, (B) general economic or market conditions or (C) the real
estate or hotel and lodging industry generally, shall not individually or in the
aggregate constitute a Seller Material Adverse Effect.
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2.2 Seller Subsidiaries/Investments.
(a) Section 2.2(a) of the Seller Disclosure Letter sets forth
as of the date hereof (i) each Subsidiary (as defined below) of Seller (the
"Seller Subsidiaries"), (ii) the ownership interest therein of Seller, (iii) if
not wholly-owned by Seller, the identity and ownership interest of each of the
other owners of such Seller Subsidiary (it being understood that such
representation with respect to securities held by any entity other than Seller
or a Seller Subsidiary is made only to the Knowledge of Seller (as defined
below)) and (iv) each real property owned or leased by such Subsidiary, and
identifies whether such property is owned or leased and if leased, the name of
the lessor. As used in this Agreement, "Subsidiary" of any Person (as defined
below) means any corporation, partnership, limited liability company, joint
venture, trust or other legal entity of which such Person (either directly or
through or together with another Subsidiary of such Person) owns 50% or more of
the capital stock or other equity interests of such corporation, partnership,
limited liability company, joint venture or other legal entity, including,
without limitation, the Seller Partnership, but does not include short-term
money market investments and other participation interests in short-term
investments. As used herein, "Person" means an individual, corporation,
partnership, limited liability company, joint venture, association, trust,
unincorporated organization or other entity.
(b) (i) All the outstanding shares of capital stock owned by
Seller or a Seller Subsidiary of each Seller Subsidiary that is a corporation
have been validly issued and are (A) fully paid, nonassessable and free of any
preemptive rights, (B) owned by Seller or by another Seller Subsidiary and (C)
owned free and clear of all pledges, claims, liens, charges, encumbrances and
security interests of any kind or nature whatsoever (collectively, "Liens") or
any other limitation or restriction (including any contractual restriction on
the right to vote or sell the same) other than restrictions under applicable
securities laws; and (ii) all equity interests in each Seller Subsidiary that is
a partnership, joint venture, limited liability company or trust which are owned
by Seller, by another Seller Subsidiary or by Seller and another Seller
Subsidiary are owned free and clear of all Liens or any other limitation or
restriction (including any contractual restriction on the right to vote or sell
the same) other than restrictions under applicable securities laws. Each Seller
Subsidiary that is a corporation is duly incorporated and validly existing under
the Laws of its jurisdiction of incorporation and has the requisite corporate
power and authority to carry on its business as now being conducted, and each
Seller Subsidiary that is a partnership, limited liability company or trust is
duly organized and validly existing under the Laws of its jurisdiction of
organization and has the requisite power and authority to carry on its business
as now being conducted. Each Seller Subsidiary is duly qualified or licensed to
do business and is in good standing in each jurisdiction in which the nature of
its business or the ownership or leasing of its properties makes such
qualification or licensing necessary, other than in such jurisdictions where the
failure to be so qualified or licensed, individually or in the aggregate, would
not have a Seller Material Adverse Effect. True and correct copies of the
certificate or articles of incorporation, By-laws, organization documents and
partnership, joint venture and operating agreements of each Seller Subsidiary,
and all amendments to the date of this Agreement, have been made available or
previously delivered to Buyer.
(c) Neither Seller nor any Seller Subsidiary owns, directly or
indirectly, any interest or investment (whether equity or debt) in any
corporation, partnership, joint venture, business, trust or entity (other than
investments in the Seller Subsidiaries and short-term investment securities).
2.3 Capital Structure.
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<PAGE> 17
(a) The authorized shares of capital stock of Seller consist
of 150,000,000 shares of common stock, $0.01 par value per share, of which
37,929,477 shares are issued and outstanding as of June 30, 1999 (the "Seller
Common Shares"), and 10,000,000 shares of preferred stock, $0.01 par value per
share, of which 250,000 are issued and outstanding as of the date hereof and are
designated as Class A Cumulative Convertible Preferred Stock (the "Seller
Preferred Shares"). Since June 30, 1999, no Seller Common Shares have been
issued. As of the date hereof, (i) 2,400,000 Seller Common Shares have been
reserved for issuance under the 1994 Stock Incentive Plan of Seller (the "Seller
1994 Incentive Plan"), under which options in respect of 1,690,640 Seller Common
Shares have been granted and are outstanding as of the date hereof, (ii) 150,900
Seller Common Shares have been reserved for issuance under the 1994 Directors
Plan of Seller (the "Seller Director Plan"), under which options in respect of
30,000 Seller Common Shares have been granted and are outstanding on the date
hereof, (iii) 15,900 Seller Common Shares have been reserved for issuance under
the 1997 Supplemental Stock Option Plan of Seller (the "Seller 1997 Supplemental
Plan"), under which options in respect of 9,300 Seller Common Shares have been
granted and are outstanding on the date hereof, (iv) 2,072,250 Seller Common
Shares are reserved for issuance upon conversion of Seller Common OP Units, (v)
1,699,605 Seller Common Shares are reserved for issuance upon conversion of the
Seller Preferred Shares, and (vi) 464,042 Seller Common Shares are reserved for
issuance upon exercise of warrants of Seller of which warrants for the purchase
of 17,042 Seller Common Shares have been issued and are outstanding.
(b) Set forth in Section 2.3(b) of the Seller Disclosure
Letter is a true and complete list of the following: (i) each qualified or
nonqualified option to purchase Seller Common Shares granted under the Seller
1994 Incentive Plan, Seller Director Plan and Seller 1997 Supplemental Plan
(collectively, the "Seller Plans") or any other formal or informal arrangement
("Seller Options"); (ii) each grant of Seller Common Shares to employees which
are subject to any risk of forfeiture; (iii) all agreements for the issuance of
warrants or to purchase Seller Common Shares and the number of shares which
would be issuable upon the exercise of such warrants or agreements, and (iv) all
other rights to acquire stock, all limited stock appreciation rights, phantom
stock, dividend equivalents, performance units and performance shares granted
under the Seller Plans which are outstanding as of the date hereof. On the date
of this Agreement, except as set forth in this Section 2.3, no shares of capital
stock of Seller were outstanding or reserved for issuance.
(c) All outstanding shares of capital stock of Seller are duly
authorized, validly issued, fully paid and nonassessable, and not subject to
preemptive rights. There are no bonds, debentures, notes or other indebtedness
of Seller having the right under applicable law or Seller's Charter or bylaws to
vote (or convertible into, or exchangeable for, securities having the right to
vote) on any matters on which stockholders of Seller may vote.
(d) There are no outstanding securities, options, warrants,
calls, rights, commitments, agreements, arrangements or undertakings of any kind
to which Seller or any Seller Subsidiary is a party or by which any such entity
is bound, obligating Seller or any Seller Subsidiary to issue, deliver or sell,
or cause to be issued, delivered or sold, additional shares of capital stock,
voting securities or other ownership interests of Seller or any Seller
Subsidiary or obligating Seller or any Seller Subsidiary to issue, grant, extend
or enter into any such security, option, warrant, call, right, commitment,
agreement, arrangement or undertaking (other than to Seller or a Seller
Subsidiary). There are no outstanding obligations of Seller or any Seller
Subsidiary to repurchase, redeem or otherwise acquire any shares of stock of
Seller or shares of stock or other ownership interests of any Seller Subsidiary.
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<PAGE> 18
(e) As of the date hereof, 40,001,727 Seller Common OP Units
are validly issued and outstanding, fully paid and nonassessable, except to the
extent provided by applicable law, of which 37,929,477 are owned by Seller. As
of the date hereof, 250,000 preferred units of the Seller Partnership are
designated 7.9% Class A Cumulative Convertible Preferred Partnership Units (the
"Seller OP Preferred Units" (and each holder thereof, a "Seller OP Preferred
Unit Holder"), and together with the Seller OP Common Units, the "Seller OP
Units") and are validly issued and outstanding, fully paid and nonassessable,
all of which are owned by Seller. Section 2.3(e) of the Seller Disclosure Letter
sets forth the name of each Seller OP Common Unit Holder and the number of
Seller OP Units owned by each such Seller Unit Holder as of the date of this
Agreement. The Seller OP Units are not subject to any restriction established by
Seller or under applicable law (other than restrictions on sale imposed by
applicable securities laws) except as set forth in the Second Amended and
Restated Agreement of Limited Partnership of the Seller Partnership (the "Seller
Partnership Agreement") and Seller Contribution Agreements (as defined below).
Seller Partnership has not issued or granted and is not a party to any
outstanding commitments of any kind relating to, or any presently effective
agreements or understandings with respect to, issuing interests in Seller
Partnership or securities convertible into interests in Seller Partnership.
(f) All dividends on Seller Common Shares and distributions on
Seller OP Units which have been declared prior to the date of this Agreement
have been paid in full.
2.4 Authority; Noncontravention; Consents.
(a) Seller has the requisite corporate power and corporate
authority to enter into this Agreement and, subject to the approval (i) of the
amendments to Seller's Charter as set forth on Exhibit D hereto ("Charter
Amendments") and the recommendation by Seller Board that Seller should terminate
its status as a real estate investment trust, in each case, by the affirmative
vote of two-thirds of all votes entitled to be cast by the holders of the issued
and outstanding Seller Common Shares and Seller Preferred Shares (voting on an
"as converted" basis), voting as a single class, and (ii) of this Agreement and
the Merger by the affirmative vote of a majority of all votes entitled to be
cast by the holders of the issued and outstanding Seller Common Shares and
Seller Preferred Shares (voting on an "as converted" basis), voting as a single
class ((i) and (ii) collectively, the "Seller Stockholder Approvals"), and
ratification and approval of the matters described in (i) and (ii) by Seller
Board following stockholder approval ("Seller Board Approval") and the Seller
Partner Approval to consummate the transactions contemplated by this Agreement
to which Seller is a party. The execution and delivery of this Agreement by
Seller and the consummation by Seller of the transactions contemplated by this
Agreement to which Seller is a party have been duly authorized by all necessary
corporate action on the part of Seller, except for and subject to the Seller
Stockholder Approvals, Seller Partner Approval and Seller Board Approval. This
Agreement has been duly executed and delivered by Seller and constitutes a valid
and binding obligation of Seller, enforceable against Seller in accordance with
and subject to its terms, subject to applicable bankruptcy, insolvency,
moratorium or other similar Laws relating to creditors' rights and general
principles of equity. The Seller Board, based upon the recommendation of the
Special Committee, has duly and validly approved, and taken all corporate action
required to be taken by it for the consummation of the Transactions (other than
the Seller Board Approval), including, assuming the accuracy of the
representations and warranties of Parent and Buyer in Section 3.12, all actions
required to render inapplicable to the Merger and this Agreement (and the
transactions provided for herein) the restrictions on "business combinations"
(as defined in Subtitle 6 of Title 3 of the MGCL) between Seller (or any
affiliate thereof) and Buyer (or any affiliate thereof) set forth in Subtitle 6
of Title
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<PAGE> 19
3 of the MGCL and the limitations on voting rights of shares of stock acquired
in a "control share acquisition" (as defined in Subtitle 7 of Title 3 of the
MGCL) set forth in Subtitle 7 of Title 3 of the MGCL.
(b) The execution and delivery of this Agreement by Seller do
not, and the consummation of the transactions contemplated by this Agreement to
which Seller is a party and compliance by Seller with the provisions of this
Agreement will not, require any consent, approval or notice under, or conflict
with, or result in any violation of, or default (with or without notice or lapse
of time, or both) under, or give rise to a right of termination, cancellation or
acceleration of any obligation or to loss of a benefit under, or result in the
creation of any Lien upon any of the properties or assets of Seller or any
Seller Subsidiary under, (i) the Charter or the bylaws of Seller, or subject to
the Seller Partner Approval, the comparable articles or certificate of
incorporation or organizational documents or partnership or similar agreement
(as the case may be) of any Seller Subsidiary, each as amended or supplemented
to the date hereof, (ii) any material loan or credit agreement, note, bond,
mortgage or indenture to which Seller or any Seller Subsidiary is a party, (iii)
any reciprocal easement agreement, lease, joint venture agreement, development
agreement, benefit plan or other agreement, instrument, permit, concession,
franchise or license applicable to Seller or any Seller Subsidiary or (iv)
subject to the governmental filings and other matters referred to in the
following sentence, any judgment, order, decree, statute, law, ordinance, rule
or regulation (collectively, "Laws") applicable to Seller or any Seller
Subsidiary, provided no representation or warranty is made in this sentence as
to any agreement with Lessee, Manager or any of their affiliates, and in the
case of clause (iii) or (iv), any such conflicts, violations, defaults, rights,
loss or Liens that individually or in the aggregate would not reasonably be
expected to (x) have a Seller Material Adverse Effect or (y) prevent or delay
beyond December 31, 1999 (the "Outside Date") the consummation of the
transactions contemplated by this Agreement. No consent, approval, order or
authorization of, or registration, declaration or filing with, any federal,
state or local government or any court, administrative or regulatory agency or
commission or other governmental authority or agency, domestic or foreign (a
"Governmental Entity"), is required by or with respect to Seller or any Seller
Subsidiary in connection with the execution and delivery of this Agreement by
Seller or the consummation by Seller of the transactions contemplated by this
Agreement, except for (i) the filing with the Securities and Exchange Commission
(the "SEC") and the New York Stock Exchange of the Proxy Statement (as defined
in Section 5.1(a)) and any filings required by the Exchange Act (including
Schedule 13E-3), (ii) the filing of the Articles of Merger with the Maryland
Department, (iii) the filing of a certificate of merger with the Secretary of
State of the State of Delaware with respect to the Partnership Merger, (iv) any
filings required under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended (the "HSR Act"), (v) the filing of a Form D with the SEC with respect
to the transaction contemplated by the Partnership Merger Agreement and (vi)
such other consents, approvals, orders, authorizations, registrations,
declarations and filings (A) as are set forth in Section 2.4 of the Seller
Disclosure Letter, (B) as may be required under (y) federal, state or local
environmental Laws or (z) the "blue sky" laws of various states, to the extent
applicable or (C) which, if not obtained or made, would not prevent or delay
beyond the Outside Date the consummation of any of the transactions contemplated
by this Agreement or otherwise prevent or delay beyond the Outside Date Seller
from performing its obligations under this Agreement in any material respect or
have, individually or in the aggregate, a Seller Material Adverse Effect.
2.5 SEC Documents; Financial Statements; Undisclosed Liabilities.
(a) Seller has filed all Seller SEC Documents (as defined
below) on a timely basis. Section 2.5(a) of the Seller Disclosure Letter
contains a complete list of all Seller SEC Documents filed by
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<PAGE> 20
Seller or Seller Partnership with the SEC since January 1, 1999 and on or prior
to the date of this Agreement. All of the Seller SEC Documents (other than
preliminary material and, if amended or superseded by a filing prior to the date
of this Agreement or of the Closing Date, then on the date of such filing), as
of their respective filing dates, did or, if not yet filed, will (i) comply as
to form in all material respects with all applicable requirements of the
Securities Act of 1933, as amended (the "Securities Act"), and the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in each case, the
rules and regulations promulgated thereunder applicable to such Seller SEC
Documents and (ii) not contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which they
were made, not misleading. The consolidated financial statements of Seller
included in the Seller SEC Documents did (or, if not yet filed, upon filing
will) comply as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto, have been (or, if not yet filed, upon filing will be) prepared in
accordance with generally accepted accounting principles ("GAAP") (except, in
the case of unaudited statements, as permitted by the applicable rules and
regulations of the SEC) applied on a consistent basis during the periods
involved (except as may be indicated in the notes thereto) and fairly presented
(or, if not yet filed, upon filing will fairly present) in all material
respects, in accordance with the applicable requirements of GAAP and the
applicable rules and regulations of the SEC, the consolidated financial position
of Seller and its Subsidiaries, as of the dates thereof and the consolidated
results of operations and cash flows for the periods then ended (subject, in the
case of unaudited statements, to normal year-end audit adjustments). Seller has
no Subsidiaries which are not consolidated for accounting purposes.
(b) Except (i) for liabilities or obligations incurred in the
ordinary course of business, (ii) for liabilities or obligations incurred in
connection with the transactions contemplated by this Agreement, or (iii) as
disclosed in the Seller SEC Documents filed after July 1, 1996 or in the Seller
Disclosure Letter, Seller and its Subsidiaries have no liabilities or
obligations (whether absolute, accrued, contingent or otherwise) which would
have a Seller Material Adverse Effect other than those resulting from any
lawsuits or other claims filed with respect to the Merger and the other
transactions completed hereby. As used herein, "Seller SEC Documents" shall mean
all reports, schedules, forms, statements and other documents required to be
filed by the Seller with the SEC since July 1, 1996; provided that with respect
to all representations and warranties of Seller contained in this Article 2
(except those contained in Section 2.5(a)), references to Seller SEC Documents
shall refer only to those filings made prior to the date hereof.
2.6 Absence of Certain Changes or Events. Except as disclosed in
the Seller SEC Documents, since the date of the most recent audited financial
statements included in the Seller SEC Documents (the "Seller Financial Statement
Date") through the date of this Agreement, Seller and its Subsidiaries have
conducted their business only in the ordinary course (taking into account prior
practices, including the acquisition and disposition of properties and issuance
of securities) and, except as disclosed in the Seller SEC Documents or the
Seller Disclosure Letter, there has not been (a) any Seller Material Adverse
Change (as defined below), (b) except for regular quarterly distributions not in
excess of $0.285 per Seller Common Share or Seller Common OP Unit and dividends
on the Seller Preferred Shares in accordance with the terms of Seller's Articles
Supplementary of Incorporation, respectively (or as necessary to maintain REIT
status) and Seller Preferred OP Units, in each case subject to rounding
adjustments as necessary and with customary record and payment dates, and any
authorization, declaration, setting aside or payment of any dividend or other
distribution (whether in cash, stock or property) with respect to the Seller
Common Shares, the Seller OP Units or the Seller Preferred Shares, (c) any
split, combination or reclassification of the Seller Common Shares, the Seller
OP Units or the Seller Preferred Shares or any issuance or the authorization of
any issuance
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<PAGE> 21
of any other securities in respect of, in lieu of or in substitution for, or
giving the right to acquire by exchange or exercise, shares of stock of Seller
or partnership interests in Seller partnerships or any issuance of an ownership
interest in, any Seller Subsidiary, (d) any damage, destruction or loss, whether
or not covered by insurance, that has or would reasonably be likely to have a
Seller Material Adverse Effect, (e) any change in financial or tax accounting
methods, principles or practices by Seller or any Seller Subsidiary materially
affecting its assets, liabilities or business, except insofar as may have been
required by a change in GAAP, (f) (x) any granting by Seller or any of its
Subsidiaries to any officer or other key employee of Seller or any of its
Subsidiaries of any increase in compensation, except for normal increases in the
ordinary course of business consistent with past practice or as required under
employment agreements in effect as of the date hereof, (y) any granting by
Seller or any of its Subsidiaries to any such officer or key employee of any
increase in severance or termination pay, except as was required under any
employment, severance or termination agreements in effect as of December 31,
1998 or (z) any entry by Seller or any of its Subsidiaries into any employment,
severance or termination agreement with any such officer or key employee except
in the ordinary course of business consistent with past practice, (g) any
acquisition or disposition of any real property, or any commitment to do so,
made by Seller or any of its Subsidiaries or (h) any making or revocation of any
material tax election. As used in this Agreement, "Seller Material Adverse
Change" shall mean (i) any material adverse change in the business, properties,
assets, financial condition or results of operations of Seller and its
Subsidiaries, taken as a whole, or (ii) any other change that would prevent or
delay beyond the Outside Date the ability of Seller or the Seller Partnership
from consummating any of the Transactions; provided that in no event shall any
change, circumstance or effect relating to or arising out of (A) the fact that
Seller and Seller Partnership have entered into this Agreement or Seller's and
Seller Partnership's compliance with the terms of this Agreement including,
consummating the Merger or the Partnership Merger, (B) general economic or
market conditions, or (C) the real estate or hotel and lodging industry
generally, individually or in the aggregate, constitute a Seller Material
Adverse Change.
2.7 Litigation. Except as disclosed in the Seller SEC Documents,
and other than personal injury and other routine tort litigation arising from
the ordinary course of operations of Seller and its Subsidiaries which are
covered by adequate insurance, as of the date hereof, there are no suits,
actions or proceedings pending (in which service of process has been received by
Seller or a Seller Subsidiary) or, to the Knowledge of Seller, threatened in
writing against or affecting Seller or any Seller Subsidiary that, individually
or in the aggregate, would reasonably be expected to (i) have a Seller Material
Adverse Effect or (ii) prevent or delay beyond the Outside Date the consummation
of the material transactions contemplated by this Agreement, nor, as of the date
of this Agreement, is there any judgment, decree, injunction, rule or order of
any Governmental Entity or arbitrator outstanding against Seller or any Seller
Subsidiaries having, or which insofar as can reasonably be foreseen, in future
will have, any such effect. No claim is pending or has been made within the
two-year period ending on the date of this Agreement under any director's or
officer's liability insurance policy maintained at any time by Seller or any of
its Subsidiaries.
2.8 Properties.
(a) Each Seller Subsidiary set forth in Section 2.2(a) of the Seller
Disclosure Letter owns marketable fee simple or leasehold title to the real
properties identified opposite it in Section 2.2(a) of the Seller Disclosure
Letter (collectively with all buildings, structures and other improvements
thereon, the "Seller Properties" and each, collectively with all buildings,
structures and other improvements thereon, a "Seller Property"), which are all
of the real properties owned or leased by Seller and the Seller Subsidiaries as
of the date hereof. Except as set forth in the existing title reports identified
in clause (iii) below or in
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<PAGE> 22
Section 2.2(a) of the Seller Disclosure Letter and except for any easements
granted in the ordinary course of business since the date of such title reports
which do not have a material adverse effect on the operation of any of the
Seller Properties, no other Person has any real property ownership interest in
any of the Seller Properties. The Seller Properties are not subject to any
rights of way, written agreements, Laws, ordinances and regulations affecting
building use or occupancy, or reservations of an interest in title
(collectively, "Property Restrictions") or Liens (including Liens for Taxes),
mortgages or deeds of trust, claims against title, charges which are Liens,
security interests or other encumbrances on title (the "Encumbrances"), except
for (i) Property Restrictions and Encumbrances set forth in Section 2.8(a)(i) of
the Seller Disclosure Letter, (ii) Property Restrictions imposed or promulgated
by law or any governmental body or authority with respect to real property,
including zoning regulations, which, individually or in the aggregate, would not
have a Seller Material Adverse Effect, (iii) Property Restrictions and
Encumbrances disclosed on existing title reports or existing surveys (in either
case copies of which title reports and surveys have been made available to
Buyer's representatives at the data room established by Seller and examined by
representatives of Buyer (the "Data Room")), and referenced on Seller's Data
Room index dated June 15, 1999 or provided to Parent or Buyer prior to the date
hereof, and (iv) mechanics', carriers', workmen's, repairmen's Liens and other
Encumbrances and Property Restrictions, if any, which, individually or in the
aggregate, would not have a Seller Material Adverse Effect.
(b) Seller has obtained title insurance insuring Seller's or the
applicable Seller Subsidiary's fee simple title to each of the Seller Properties
owned by it and leasehold title to each of the Seller Properties leased by it,
in each case, subject only to the matters disclosed in such policies, in clause
(a) above and in Section 2.8(b) of the Seller Disclosure Letter. Seller has not
received any written notice that any such policy is not in full force and
effect. No claim has been made against any such policy in excess of $50,000.
(c) Section 2.8(c) of the Seller Disclosure Letter sets forth Seller's
and each Seller Subsidiary's capital expenditure budget and schedule for each
Seller Property, which describes the capital expenditures which the Seller or
any Subsidiary has budgeted for such Seller Property for the period running
through December 31, 1999 (the "CapEx Budget"). Section 2.8(c) of the Seller
Disclosure Letter, sets forth a complete list of each Seller Property that is
currently under development or subject to any agreement with respect to
development; provided, however, that "development" shall not include capital
improvements made in the ordinary course of business to existing Seller
Properties and repairs made to existing Seller Properties.
(d) The ground leases underlying the leased Seller Properties
referenced in Section 2.2(a) of the Seller Disclosure Letter (collectively, the
"Seller Ground Leases") are listed, by property, in Section 2.8(d) of the Seller
Disclosure Letter. Each of the Seller Ground Leases is valid, binding and in
full force and effect as against Seller or its Subsidiaries and, to Seller's
Knowledge, as against the other party thereto, except to the extent the failure
to be binding and in full force and effect would not reasonably be expected to
have a Seller Material Adverse Effect. Seller has not received written notice
under any of the Seller Ground Leases of any default, and, to Seller's
Knowledge, no event has occurred which, with notice or lapse of time or both,
would constitute such a default by Seller, except as would not, individually or
in the aggregate, be reasonably expected to result in a Seller Material Adverse
Effect.
(e) Section 2.8(e) to the Seller Disclosure Letter sets forth a list of
the hotel franchise agreements (the "Seller Franchise Agreements") pursuant to
which each of the Seller Properties is being operated by Lessee and Manager.
Each of the Seller Franchise Agreements is in full force and effect with respect
to Seller or the applicable Seller Subsidiary and there are no defaults
thereunder by Seller or a Seller
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<PAGE> 23
Subsidiary and, to the Knowledge of Seller, or by any other party thereto. To
the Knowledge of Seller, no events have occurred which with the giving notice or
the passage time or both would constitute a default or event of default
thereunder, except for those which either singly or in the aggregate would not
constitute a Seller Material Adverse Effect.
(f) Neither Seller nor any Seller Subsidiary has received written
notice of any violation of any federal, state or municipal law, ordinance,
order, regulation or requirement issued by any governmental authority which,
individually or in the aggregate, would have a Seller Material Adverse Effect.
There has been no physical damage to any Seller Properties which, individually
or in the aggregate, would have a Seller Material Adverse Effect for which there
is no insurance in effect covering the cost of the restoration (less applicable
deductibles).
(g) Neither Seller nor any of the Seller Subsidiaries has received any
written notice with respect to any Seller Property to the effect that any
condemnation or rezoning proceedings are pending or threatened which,
individually or in the aggregate, would have a Seller Material Adverse Effect.
(h) To the Knowledge of Seller, no Governmental Entity having
jurisdiction over any Seller Property under development has denied or rejected
any applications by Seller for a certificate, permit or license with respect to
such Seller Property, which denial or rejection, individually or in the
aggregate, would have a Seller Material Adverse Effect.
(i) There are no structural defects in any of the Seller Properties
that would, individually or in the aggregate, have a Seller Material Adverse
Effect.
(j) Seller or Seller Partnership has marketable title to all material
furniture, fixtures equipment, operating supplies and other personal property
necessary for the operation of the Seller Properties, subject to no Liens which,
individually or in the aggregate, would have a Seller Material Adverse Effect.
2.9 Environmental Matters.
(a) Except as disclosed in the Seller SEC Documents and Seller's
Environmental Reports (as defined below) previously made available to Buyer,
none of Seller, any of the Seller Subsidiaries or any other Person has caused or
permitted (i) the presence of any hazardous substances, hazardous materials,
toxic substances or waste materials, pollutants, contaminants, and materials
regulated or defined or designated as hazardous, extremely or imminently
hazardous, dangerous, or toxic pursuant to any local, county, state, territorial
or federal governmental authority or with respect to which such a governmental
authority otherwise requires environmental investigation, monitoring, reporting
or remediation (collectively, "Hazardous Materials") on any of the Seller
Properties except to the extent such presence would, individually or in the
aggregate, not have a Seller Material Adverse Effect or (ii) any spills,
releases, discharges or disposal of Hazardous Materials to have occurred or be
presently occurring on or from the Seller Properties as a result of any
construction on or operation and use of the Seller Properties, which presence or
occurrence would, individually or in the aggregate, have a Seller Material
Adverse Effect; and in connection with the construction on or operation and use
of the Seller Properties, Seller and the Seller Subsidiaries have complied with
all applicable local, state and federal Environmental Laws, including all
regulations, ordinances and administrative and judicial orders relating to the
generation, recycling, reuse, sale, storage, handling,
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transport and disposal of any Hazardous Materials, except to the extent such
failure to comply, individually or in the aggregate, would not have a Seller
Material Adverse Effect. With respect to each Seller Property, since the date of
the most recent Seller's Environmental Report relating to such Seller Property,
except where the failure of any of the following to be true individually or in
the aggregate would not have a Seller Material Adverse Effect, (i) the assets,
properties, businesses and operations of Seller and its Subsidiaries are and
have been in compliance with applicable Environmental Laws, (ii) Seller and its
Subsidiaries have obtained, currently maintain and, as currently operating, are
in compliance with all Seller Permits necessary under any Environmental Law for
the conduct of the business and operations of Seller and its Subsidiaries in the
manner now conducted, and there are no actions or proceedings pending or
threatened to revoke or materially modify such Seller Permits, (iii) no
Hazardous Materials have been used, stored, manufactured, treated, processed or
transported to or from any such Seller Property except as necessary to the
customary conduct of business and in compliance with law and in a manner that
does not result in liability under applicable Environmental Laws; (iv) there
have been no spills, releases, discharges or disposals of Hazardous Materials on
or from such Seller Property of any type or quantity as would require reporting
to a Governmental Entity under the Environmental Laws; and (v) Seller and Seller
Subsidiaries have not received any written notice of potential responsibility,
letter of inquiry or written notice of alleged liability from any Person
regarding such Seller Property or the business conducted thereon. For the
purposes of this Section 2.9 only, "Seller Properties" shall be deemed to
include all property formerly owned, operated or leased by Seller or Seller
Subsidiaries; solely, however, as to the period of time when such property was
so owned, operated or leased by Seller or the Seller Subsidiaries. Seller has
previously made available to Buyer complete copies of all final versions of
environmental investigations and testing or analysis (other than those which
have been superseded by more recent investigations, testing or analyses) that
are in the possession, custody or control of any of Seller or any of the Seller
Subsidiaries with respect to the environmental condition of the Seller
Properties, all of which are listed in Section 2.9 of the Seller Disclosure
Letter ("Seller's Environmental Reports").
(b) Except as set forth in Seller's Environmental Reports, (i) there
are no friable asbestos-containing materials, lead-based paints, or radon at, in
or part of any facility owned, operated or leased by Seller or any of its
Subsidiaries, and (ii) there are no underground storage tanks owned, operated or
controlled by Seller or its Subsidiaries on any real property owned, operated or
leased by Seller, the presence of which, in the case of items described in
clauses (i) and (ii) individually or in the aggregate, would be reasonably
expected to result in Seller incurring Environmental Liabilities and Costs
aggregating $30 million or more.
(c) For purposes of this Agreement, the terms below shall have the
following meanings:
"Environmental Law" means any law (including, without limitation,
common law), regulation, ordinance, guideline, code, decree, judgment, order,
permit or authorization or other legally enforceable requirement of any
Governmental Entity relating to or imposing liability with respect to worker or
public safety or the indoor or outdoor environment or natural resources,
including, without limitation, pollution, contamination, Hazardous Materials,
cleanup, regulation and protection of the air, natural resources, water or soils
in the indoor or outdoor environment; and
"Environmental Liabilities and Costs" means all losses, liabilities,
damages, fines, penalties, obligations, costs or expenses (including, without
limitation, fees, disbursements, expenses of legal
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counsel, experts and engineers and the costs of investigation and cleanup
studies and to remove, treat or clean up Hazardous Materials) incurred, assessed
or levied pursuant to any Environmental Law.
2.10 Related Party Transactions. Set forth in Section 2.10 of the Seller
Disclosure Letter is a list of all written arrangements, agreements and
contracts entered into by Seller or any of the Seller Subsidiaries with any
Person who is an officer, director or Affiliate (as defined below) of Seller, or
any entity of which any of the foregoing is an Affiliate, except those of a type
available to Seller employees generally or are with Parent or an Affiliate of
Parent. Such documents, copies of all of which have previously been delivered or
made available to Buyer, are listed in Section 2.10 of the Seller Disclosure
Letter. As used in this Agreement, the term "Affiliate" shall have the same
meaning as such term is defined in Rule 405 promulgated under the Securities
Act.
2.11 Employee Benefits. As used herein, the term "Employee Plan"
includes any pension, retirement, savings, disability, medical, dental, health,
life, death benefit, group insurance, profit sharing, deferred compensation,
stock option, bonus, incentive, vacation pay, tuition reimbursement, severance
pay, or other material employee benefit plan, trust, employment agreement,
contract, agreement, policy or commitment (including, without limitation, any
pension plan, as defined in Section 3(2) of the Employee Retirement Income
Security Act of 1974, as amended and the rules and regulations promulgated
thereunder ("ERISA") ("Pension Plan"), and any welfare plan as defined in
Section 3(1) of ERISA ("Welfare Plan")), whether any of the foregoing is funded,
insured or self-funded, written or oral, (i) sponsored or maintained by Seller
or its Subsidiaries (each a "Controlled Group Member") and covering any
Controlled Group Member's active or former employees (or their beneficiaries),
(ii) to which any Controlled Group Member is a party or by which any Controlled
Group Member (or any of the rights, properties or assets thereof) is bound or
(iii) with respect to which any current Controlled Group Member may otherwise
have any material liability (whether or not such Controlled Group Member still
maintains such Employee Plan). Each Employee Plan is listed in Section 2.11 of
the Seller Disclosure Letter. With respect to the Employee Plans:
(a) No Controlled Group Member has any continuing liability under any
Welfare Plan which provides for continuing benefits or coverage for any
participant or any beneficiary of a participant after such participant's
termination of employment, except as may be required by Section 4980B of the
Internal Revenue Code of 1986, as amended (the "Code"), or Section 601 (et seq.)
of ERISA, or under any applicable state law, and at the expense of the
participant or the beneficiary of the participant.
(b) Each Employee Plan complies in all material respects with the
applicable requirements of ERISA and any other applicable law governing such
Employee Plan, and each Employee Plan has at all times been properly
administered in all material respects in accordance with all such requirements
of law, and in accordance with its terms and the terms of any applicable
collective bargaining agreement to the extent consistent with all such
requirements of law. Each Pension Plan which is intended to be qualified is
qualified under Section 401(a) of the Code, has received a favorable
determination letter from the IRS stating that such Plan meets the requirements
of Section 401(a) of the Code and that the trust associated with such Plan is
tax exempt under Section 501(a) of the Code and to the Knowledge of Seller no
event has occurred which would jeopardize the qualified status of any such plan
or the tax exempt status of any such trust under Sections 401(a) and Section
501(a) of the Code, respectively, except in circumstances in which, individually
or in the aggregate, the failure to so qualify or be tax exempt would not have a
Seller Material Adverse Effect. No lawsuits, claims (other than routine claims
for benefits) or complaints to, or by, any Person or Governmental Entity have
been filed or are pending which, individually or in the
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aggregate, would have a Seller Material Adverse Effect and, to the Knowledge of
Seller, there is no fact or contemplated event which would be expected to give
rise to any such lawsuit, claim (other than routine claims for benefits) or
complaint with respect to any Employee Plan that would have a Seller Material
Adverse Effect. Without limiting the foregoing, except in the case of the
following clauses (i) through (iv) which have not and would not individually or
in the aggregate have a Seller Material Adverse Effect, the following are true
with respect to each Employee Plan:
(i) all Controlled Group Members have filed or caused to be
filed every material return, report statement, notice, declaration and
other document required by any law or governmental agency, federal,
state and local (including, without limitation, the Internal Revenue
Service and the Department of Labor) with respect to each such Employee
Plan, each of such filings has been complete and accurate in all
material respects and no Controlled Group Member has incurred any
material liability in connection with such filings;
(ii) all Controlled Group Members have delivered or caused to
be delivered to every participant, beneficiary and other party entitled
to such material, all material plan descriptions, returns, reports,
schedules, notices, statements and similar materials, including,
without limitation, summary plan descriptions and summary annual
reports, as are required under Title I of ERISA, the Code, or both, and
no Controlled Group Member has incurred any material liability in
connection with such deliveries;
(iii) all contributions and payments with respect to Employee
Plans that are required to be made by a Controlled Group Member with
respect to periods ending on or before the Closing Date (including
periods from the first day of the current plan or policy year to the
Closing Date) have been, or will be, made or accrued before the Closing
Date in accordance with the appropriate plan document, actuarial
report, collective bargaining agreements or insurance contracts or
arrangements or as otherwise required by ERISA or the Code;
(iv) with respect to each such Employee Plan, to the extent
applicable, Seller has delivered to or has made available to Buyer true
and complete copies of (A) plan documents, or any and all other
documents that establish the existence of the plan, trust, arrangement,
contract, policy or commitment and all amendments thereto, (B) the most
recent determination letter, if any, received from the Internal Revenue
Service, (C) the three most recent Form 5500 Annual Reports (and all
schedules and reports relating thereto) and actuarial reports and (D)
all related trust agreements, insurance contract or other funding
agreements that implement each such Employee Plan; and
(v) no payment made or to be made to an officer, director or
employee, whether or not pursuant to an Employee Plan, either before,
on, or after consummation of the transactions contemplated by this
Agreement shall constitute an "excess parachute payment" within the
meaning of Section 280G of the Code; and consummation of the
transactions contemplated by this Agreement shall not (A) give rise to
a severance pay obligation with respect to those employees who continue
employment with the Surviving Corporation or (B) enhance or trigger
(including acceleration of vesting, payment or funding) any benefits
under any Employee Plan.
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(c) With respect to each Employee Plan, there has not
occurred, and no Person or entity is contractually bound to enter into,
any "prohibited transaction" within the meaning of Section 4975(c) of
the Code of Section 406 of ERISA, which transaction is not exempt under
Section 4975(d) of the Code or Section 408 of ERISA which, individually
or in the aggregate, would have a Seller Material Adverse Effect.
(d) No Controlled Group Member has maintained or been
obligated to contribute to any Employee Plan subject to Section 412 of
the Code or Title IV of ERISA.
2.12 Employee Matters. Neither Seller nor any of the Seller Subsidiaries is
a party to, or bound by, any collective bargaining agreement, contract or other
agreement or understanding with a labor union or other labor organization, nor
has Seller or any of the Seller Subsidiaries agreed that any unit of its
employees is appropriate for collective bargaining. No union or other labor
organization has been certified as bargaining representative for any employees
of Seller or any of its Subsidiaries. To the Knowledge of Seller, there are no
organizational efforts with respect to the formation of a collective bargaining
unit presently being made or threatened involving employees of Seller or any of
the Seller Subsidiaries.
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2.13 Taxes.
(a) Each of Seller and the Seller Subsidiaries and any consolidated,
combined, unitary or aggregate group for tax purposes of which Seller or any
Seller Subsidiary is or has been a member has timely filed all Tax Returns (as
defined below) required to be filed by it (after giving effect to any extension
properly granted by a Tax Authority (as defined below) having authority to do
so) and has timely paid (or Seller has timely paid on its behalf) all Taxes (as
defined below) required to be paid by it (whether or not shown on such Tax
Returns) except (i) Taxes that are being contested in good faith by appropriate
proceedings and for which Seller or the applicable Seller Subsidiary shall have
set aside on its books adequate reserves or (ii) where the failure to file such
Tax Returns or pay such Taxes would not have a Seller Material Adverse Effect.
Each such Tax Return is complete and accurate except where any failure to be
complete and accurate would not have a Seller Material Adverse Effect. The most
recent audited financial statements contained in the Seller SEC Documents
reflect an adequate reserve for all Taxes payable by Seller and the Seller
Subsidiaries for all taxable periods and portions thereof through the date of
such financial statements except where any failure would not have a Seller
Material Adverse Effect. Since the Seller Financial Statement Date, Seller has
incurred no liability for Taxes under Sections 857(b), 857(f), 860(c) or 4981 of
the Code, including without limitation any Tax arising from a prohibited
transaction described in Section 857(b)(6) of the Code, and neither Seller nor
any Seller Subsidiary has incurred any material liability for Taxes other than
in the ordinary course of business. No event has occurred, and no condition or
circumstance exists, which, in the absence of the Transactions (as defined
below), would present a risk that any Tax described in the preceding sentence
will be imposed upon Seller or any Seller Subsidiary except where any failure
would not have a Seller Material Adverse Effect. No material deficiencies for
any Taxes have been proposed, asserted or assessed in writing against Seller or
any Seller Subsidiary, and no requests for waivers of the time to assess any
such Taxes are pending and no extensions of time to assess any such Taxes are in
effect. All Taxes required to be withheld, collected and paid over to any Tax
Authority by the Seller and any Seller Subsidiary have been timely withheld,
collected and paid over to the proper Tax Authority except where failure to do
so would not have a Seller Material Adverse Effect. No Tax Authority has imposed
a Lien against any Seller Property for any Taxes payable by Seller except for
Taxes not yet due and payable. There are no material pending actions or
proceedings by any Taxing Authority for assessment or collection of any Tax.
Complete copies of all federal, state and local income or franchise Tax Returns
that have been filed by Seller and each Seller Subsidiary for all taxable years
beginning on or after January 1, 1995, all extensions filed with any Tax
Authority that are currently in effect and all written communications with a
Taxing Authority relating thereto, have been made available to the Buyer and the
representatives of the Buyer. No written claim has been made by a Taxing
Authority in a jurisdiction where Seller or any Seller Subsidiary does not file
Tax Returns that it is or may be subject to taxation by the jurisdiction except
where the failure to file such Tax Return would not have a Seller Material
Adverse Effect. Neither the Seller nor any Seller Subsidiary holds any material
asset (A) the disposition of which would be subject to rules similar to Section
1374 of the Code as a result of an election under Internal Revenue Service
Notice 88-19 other than as set forth in Section 2.13 of the Seller Disclosure
Letter or (B) that is subject to a consent filed pursuant to Section 341(f) of
the Code and the regulations thereunder. Neither the Seller, nor any Seller
Subsidiary is obligated to make after the Closing any payment that would be not
deductible under Section 162(m) of the Code except where the lack of such
deduction would not have a Seller Material Adverse Effect. Neither Seller nor
any Seller Subsidiary is party to, nor has any liability under (including
liability with respect to any predecessor entity), any indemnification,
allocation or sharing agreement with respect to Taxes. As used in this
Agreement, "Tax" or "Taxes" shall include all federal, state, local and foreign
income, property, sales, use, occupancy, transfer, recording, withholding,
franchise, employment, excise and other taxes, tariffs or governmental charges
of any nature whatsoever, together with penalties, interest or additions to tax
with respect thereto. As used in this Agreement, "Tax Return" or "Tax Returns"
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shall include all original and amended returns and reports (including elections,
claims, declarations, disclosures, schedules, estimates, computations and
information returns) required to be supplied to a Tax Authority in any
jurisdiction. As used in this Agreement, "Tax Authority" shall mean the Internal
Revenue Service and any other domestic or foreign bureau, department, entity,
agency or other Governmental Entity responsible for the administration of any
Tax.
(b) Seller (i) for all taxable years commencing with its initial
taxable year through December 31, 1998 has been properly subject to taxation as
a real estate investment trust (a "REIT") within the meaning of Section 856 of
the Code and has qualified as a REIT for such years, (ii) has operated since
December 31, 1998, and will continue to operate to the Closing, in such a manner
as to qualify as a REIT (determined without regard to the dividends paid
deduction requirements for the current year) for the taxable year beginning
January 1, 1999 determined as if the taxable year of the REIT ended as of the
Closing and (iii) has not taken or omitted to take any action which would
reasonably be expected to result in a challenge to its status as a REIT, and no
such challenge is pending or to Seller's Knowledge threatened. Each Seller
Subsidiary which is a partnership, joint venture or limited liability company
(i) has been since its formation and continues to be treated for federal income
tax purposes as a partnership or disregarded as a separate entity, as the case
may be, and has not been treated for federal income tax purposes as a
corporation or an association taxable as a corporation and (ii) has not since
the later of its formation or the acquisition by Seller of a direct or indirect
interest therein owned any assets (including, without limitation, securities)
that would cause Seller to violate Section 856(c)(4) of the Code. The nature of
the assets of the Seller and the Seller Subsidiaries is such that the sale of
all of the assets owned by them would not cause the Seller to be disqualified as
a REIT under Code Section 856(c)(2) or 856(c)(3) or otherwise. Seller has not
elected to pay Tax on any capital gain recognized on or after January 1, 1999.
Each Seller Subsidiary which is a corporation has been since it became a
Subsidiary a qualified REIT subsidiary under Section 856(i) of the Code. Seller
Partnership is not a publicly traded partnership within the meaning of Section
7704 of the Code, and the interests in the Seller Partnership are not considered
to be (i) traded on an established securities market or (ii) readily tradable on
a secondary market or the substantial equivalent thereof under either Internal
Revenue Service Notice 88-75 or Treasury Regulations Section 1.7704-1. In the
case of a partner of Seller Partnership that is a Flow-Through Entity (as
defined below), no Person owning an interest in such Flow-Through Entity
(directly or through another Flow-Through Entity) is treated as a partner of the
Seller Partnership under either Internal Revenue Service Notice 88-75 or
Treasury Regulation Section 1.7704-1(h)(3). For purposes of this Section
2.13(b), "Flow-Through Entity" means an entity classified as a partnership, a
grantor trust or an S corporation for federal income tax purposes.
2.14 No Payments to Employees, Officers or Directors. Section 2.14 of the
Seller Disclosure Letter contains a true and complete list of all material cash
and non-cash payments, rights to property or other contract rights which will
become payable, accelerated or vested to or in each employee, officer or
director of Seller or any Seller Subsidiary as a result of the Merger other than
Alter and Biederman. There is no employment or severance contract, or other
agreement requiring payments or an increase in existing payments, cancellation
of indebtedness or other obligation to be made on a change of control or
otherwise as a result of the consummation of any of the transactions
contemplated by this Agreement, with respect to any employee, officer or
director of Seller or any Seller Subsidiary (other than Alter and Biederman) in
an aggregate amount in excess of $50,000.
2.15 Brokers. No broker, investment banker, financial advisor or other
Person, other than Goldman, Sachs & Co. ("Goldman Sachs"), the fees and expenses
of which are as described in the
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engagement letter dated April 14, 1999, a true and correct copy of which has
previously been given to Buyer, is entitled to any broker's, finder's, financial
advisor's or other similar fee or commission in connection with the transactions
contemplated hereby based upon arrangements made by or on behalf of Seller or
any Seller Subsidiary.
2.16 Compliance With Laws. (i) Neither Seller nor any of the Seller
Subsidiaries has violated or failed to comply with any statute, law, ordinance,
regulation, rule, judgment, decree or order of any Governmental Entity
applicable to its business, properties or operations (excluding any violation or
failure by Lessee or Manager), except to the extent that such violation or
failure has not had or would not reasonably be expected to have a Seller
Material Adverse Effect; (ii) Seller and its Subsidiaries have, and are in
compliance with, all permits, licenses, certificates, franchises, registrations,
variances, exemptions, orders and approvals of all Governmental Entities which
are material to the operation of their businesses, taken as a whole ("Seller
Permits"), except where the failure to comply has not had or would not
reasonably be expected to have a Seller Material Adverse Effect; and (iii) no
investigation by any Governmental Entity with respect to the Seller or the
Seller Subsidiaries is pending or, to the Knowledge of the Seller, threatened,
other than investigations which, individually or in the aggregate, would not
reasonably be expected to have a Seller Material Adverse Effect.
2.17 Contracts; Debt Instruments.
(a) Except as disclosed in the Seller SEC Documents, neither Seller nor
any Seller Subsidiary is a party to any contract or agreement that purports to
limit in any material respect the geographic location in which Seller or any
Seller Subsidiary may conduct its business. Neither Seller nor any Seller
Subsidiary (i) is in violation of or in default under any material loan or
credit agreement, note, bond, mortgage, indenture, lease, permit, concession,
franchise, license or any other material contract, agreement, arrangement or
understanding, to which it is a party or by which it or any of its properties or
assets is bound (excluding primarily as a result of any action or inaction of
Lessee or Manager and excluding any of the foregoing with Lessee or Manager)
(each, a "Material Contract"), nor (ii) to the Knowledge of Seller does such a
violation or default exist, except to the extent that such violation or default
referred to in clauses (i) or (ii), individually or in the aggregate, would not
have a Seller Material Adverse Effect. Each Material Contract as of the date
hereof which has not been filed as an Exhibit to any of the Seller SEC Documents
has been or made available to Buyer's representatives at the Data Room, is
listed on Seller's Data Room index dated June 15, 1999 or has been provided to
Parent or Buyer prior to the date hereof. Seller has made available at the Data
Room on or prior to June 15, 1999 or has provided to Parent or Buyer prior to
the date hereof all contracts and other agreements relating to the contribution
of assets to Seller Partnership in exchange for Seller OP Units (the "Seller
Contribution Agreements") and all such agreements are listed on Seller's Data
Room index dated June 15, 1999 or have been provided to Parent or Buyer prior to
the date hereof.
(b) Section 2.17(b) of the Seller Disclosure Letter sets forth a list
as of the date hereof of each loan or credit agreement, note, bond, mortgage,
indenture and any other agreement and instrument pursuant to which any
Indebtedness (as defined below) of Seller or any of Seller Subsidiaries, other
than Indebtedness payable to Seller or a Seller Subsidiary, is outstanding or
may be incurred in an amount in excess of $2,000,000, together with the amount
outstanding thereunder as of the date hereof. For purposes of this Section 2.17,
"Indebtedness" shall mean (i) indebtedness for borrowed money, whether secured
or unsecured, (ii) obligations under conditional sale or other title retention
agreements relating to property
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purchased by such Person, (iii) capitalized lease obligations, (iv) obligations
under interest rate cap, swap, collar or similar transaction or currency hedging
transactions (valued at the termination value thereof) and (v) guarantees of any
such indebtedness of any other Person.
(c) Neither Seller nor any of the Seller Subsidiaries is a party to any
agreement relating to the management of any of the Seller Properties by any
Person other than Manager. Section 2.17(c) to the Seller Disclosure Letter lists
as of the date hereof all service agreements, brokerage commission agreements,
maintenance contracts, contracts for purchase of delivery of services,
materials, goods, inventory or supplies, cleaning contracts, equipment rental
agreements, equipment leases or leases of personal property (other than the
Seller Franchise Agreements) (but excluding any such agreements providing for
payment of less than $100,000 per annum or which are terminable by Seller or a
Seller Subsidiary without penalty upon 90 days or less prior written notice) to
which Seller or any Seller Subsidiary is a party (the foregoing, collectively
the "Service Agreements"). Section 2.17(c) to the Seller Disclosure Letter lists
as of the date hereof all proposed material Service Agreements being negotiated
except for proposed Service Agreements known to Alter as of the date hereof. To
Seller's Knowledge, (i) the Service Agreements are in full force and effect and
constitute legal, valid, binding and enforceable obligations as against Seller
or its Subsidiaries and, to Seller's Knowledge, as against the other party
thereto, and (ii) there exists no default of any party thereto, nor has any
event or circumstances occurred that, with notice or lapse of time or both,
would constitute any default thereunder, except for any defaults that would not
reasonably be expected to have a Seller Material Adverse Effect.
(d) Section 2.17(d) of the Seller Disclosure Letter lists all
agreements entered into by Seller or any of the Seller Subsidiaries providing
for the sale or exchange of, or option to sell or exchange, any Seller
Properties or the purchase of or exchange, or option to purchase or exchange,
any real estate which are currently in effect.
(e) Neither Seller nor any Seller Subsidiary has any continuing
contractual liability (i) for indemnification under any agreement relating to
the sale of real estate previously owned by Seller or any Seller Subsidiary,
(ii) to pay any additional purchase price for any of the Seller Properties, or
(iii) to make any reprorations or adjustments to prorations involving an amount
in excess of $500,000 that may previously have been made with respect to any
property currently or formerly owned by Seller.
(f) Neither Seller nor any Seller Subsidiary has entered into or is
subject, directly or indirectly, to any Tax Protection Agreements. As used
herein, a "Tax Protection Agreement" is an agreement, oral or written, other
than with Parent or an Affiliate of Parent (A) that has as one of its purposes
to permit a Person to take the position that such Person could defer federal
taxable income that otherwise might have been recognized upon a transfer of
property to Seller Partnership or any other Seller Subsidiary that is treated as
a partnership for federal income tax purposes, and (B) that (i) prohibits or
restricts in any manner the disposition of any assets of Seller or any Seller
Subsidiary, (ii) requires that Seller or any Seller Subsidiary maintain, or put
in place, or replace, indebtedness, secured by one or more of the Seller
Properties, or (iii) requires that Seller or any Seller Subsidiary offer to any
Person at any time the opportunity to guarantee or otherwise assume, directly or
indirectly, the risk of loss for federal income tax purposes for indebtedness or
other liabilities of Seller or any Seller Subsidiary.
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(g) Except for obligations to provide funds to the Seller Partnership
or to Seller Subsidiaries owned entirely by Seller and/or Seller Partnership,
there are no material outstanding contractual obligations of Seller or its
Subsidiaries to provide any funds to, or make investments in, any other Person.
(h) Neither Seller nor any of the Seller Subsidiaries is party to any
agreement other than with Parent or, in the case of clause (ii), with an
affiliate of Parent which (i) would restrict any of them from prepaying any of
their Indebtedness without penalty or premium at any time or (ii) requires any
of them to maintain any amount of Indebtedness with respect to any of the Seller
Properties.
(i) To the extent not set forth in response to the requirements of
Section 2.17(b), Section 2.17 of the Seller Disclosure Letter sets forth as of
the date hereof each interest rate cap, interest rate collar, interest rate
swap, currency hedging transaction, and any other agreement relating to a
similar transaction, in each case involving $50,000 or more, to which Seller or
any Seller Subsidiary is a party or an obligor with respect thereto.
(j) Neither Seller nor any of the Seller Subsidiaries is a party to any
agreement pursuant to which Seller or any Seller Subsidiary manages any real
properties.
2.18 Opinion of Financial Advisor. The Seller Board and Special Committee
have received the opinion of Goldman Sachs dated July 12, 1999 with respect to
the fairness from a financial point of view of the consideration to be received
by the holders (other than Parent and its Subsidiaries and Affiliates) of Seller
Common Shares in connection with the Merger.
2.19 State Takeover Statutes. Assuming the accuracy of the representations
and warranties of Parent and Buyer set forth in Section 3.12, Seller has taken
all action necessary to exempt the transactions contemplated by this Agreement,
including without limitation the Merger, among Parent, Buyer and Seller and
their respective Affiliates from the operation of any "business combination,"
"fair price," "moratorium," "control share acquisition" or any other
anti-takeover statute or similar statute of any state (a "Takeover Statute") and
(ii) the action of the Seller Board and Special Committee in approving the
Merger and this Agreement (and the transactions provided for herein) is
sufficient to render inapplicable to the Merger and this Agreement (and the
transactions provided for herein) the restrictions on "business combinations"
(as defined in Subtitle 6 of Title 3 of the MGCL) set forth in Subtitle 6 of
Title 3 of the MGCL and the limitations on the voting rights of shares of stock
acquired in a "control share acquisition" (as defined in Subtitle 7 of Title 3
of the MGCL) set forth in Subtitle 7 of Title 3 of the MGCL.
2.20 Proxy Statement and Information Statement. The information relating to
Seller and the Seller Subsidiaries included in the Proxy Statement (as defined
in Section 5.1(a)) and the Information Statement (as defined in Section 5.1(a))
will not, as of the date of mailing of the Proxy Statement and the Information
Statement, respectively, contain an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
2.21 Investment Company Act of 1940. Neither Seller nor any of Seller
Subsidiaries is, or at the Effective Time will be, required to be registered
under the Investment Company Act of 1940, as amended (the "1940 Act").
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2.22 Definition of Knowledge of Seller. As used in this Agreement, the
phrase "Knowledge of Seller" or "Seller's Knowledge" (or words of similar
import) means the actual knowledge, without any duty of investigation or
inquiry, of only those individuals identified in Section 2.22 of the Seller
Disclosure Letter. Without limiting the generality of the foregoing, in no event
will the knowledge of Alter or Biederman by itself be deemed the "Knowledge of
Seller" or "Seller's Knowledge."
2.23 Insurance. Seller and Seller Subsidiaries maintain insurance coverage
for Seller and Seller Subsidiaries and their respective properties and assets of
a type and in amounts typical of similar companies engaged in the respective
businesses in which Seller and Seller Subsidiaries are engaged. All such
insurance policies (a) are in full force and effect, and with respect to all
policies neither of Seller nor any Seller Subsidiary is delinquent in the
payment of any premiums thereon, and no notice of cancellation or termination
has been received with respect to any such policy, and (b) are sufficient for
compliance with all requirements of law and of all agreements to which Seller or
the Seller Subsidiaries are a party or otherwise bound and are valid,
outstanding, collectible, and enforceable policies, subject to any exception in
the case of either clause (a) or (b), as would not, alone or in the aggregate,
be reasonably expected to have a Seller Material Adverse Effect or prevent or
materially delay the ability of Seller to consummate the transactions
contemplated by this Agreement. Neither Seller nor any Seller Subsidiary has
received written notice within the last 12 months from any insurance company or
board of fire underwriters of any defects or inadequacies that would materially
adversely affect the insurability of, or cause any material increase in the
premiums for, insurance covering either Seller or any Seller Subsidiary or any
of their respective properties or assets that have not been cured or repaired to
the satisfaction of the party issuing the notice, except as would not have a
Seller Material Adverse Effect.
2.24 Board Recommendation. Seller Board, at a meeting duly called and held
on July 12, 1999, at which all of the incumbent directors were present and
acting throughout, based upon the unanimous recommendation and approval of the
Special Committee, unanimously adopted resolutions which, among other things,
(a) declared that the Merger and the other transactions contemplated by this
Agreement are advisable on substantially the terms set forth in this Agreement,
(b) set forth the Charter Amendments and declared that the Charter Amendments
are advisable, (c) directed that the Charter Amendments, the Merger and the
other transactions contemplated by this Agreement be submitted for consideration
by the stockholders of Seller, (d) recommended that the Seller terminate its
status as a real estate investment trust and (e) authorized and approved the
Partnership Merger Agreement and the transactions contemplated thereby,
including the Partnership Merger (such transactions, together with the
transactions contemplated by this Agreement, including, without limitation, the
Merger, are hereinafter collectively referred to as the "Transactions"). Seller
Board has recommended that (y) Seller's stockholders approve this Agreement, the
Merger, the Charter Amendments, the termination of Seller's status as a real
estate investment trust and the other transactions contemplated by this
Agreement, and (z) on behalf of Seller as the sole general partner of Seller
Partnership, that the Seller Unit Holders adopt the Partnership Merger Agreement
and approve the Partnership Merger and the amendment (the "Partnership Agreement
Amendment") to the Seller Partnership Agreement attached hereto as Exhibit F.
Such recommendations shall not be withdrawn, modified or amended, other than as
expressly permitted under Section 4.1.
2.25 Representations in Partnership Merger Agreement. The representations
and warranties of the Seller and the Seller Partnership set forth in the
Partnership Merger Agreement are true and correct.
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ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF PARENT AND BUYER
Parent and Buyer, jointly and severally, represent and warrant to Seller,
except as set forth in the letter of even date herewith and delivered to Seller
prior to the execution hereof (the "Buyer Disclosure Letter") (it being
understood that the Buyer Disclosure Letter shall be arranged in sections
corresponding to the sections contained in this Article 3, and the disclosures
in any section of the Buyer Disclosure Letter shall qualify all of the
representations in the corresponding section of this Article 3 and, in addition,
other sections in this Article 3 to the extent it is reasonably clear from a
reading of the disclosure that such disclosure is applicable to such other
sections) as follows:
3.1 Organization, Standing and Power of Parent and Buyer.
(a) Parent is a limited liability company duly organized and validly
existing under the Laws of Delaware and has the requisite power and authority to
carry on its business as now being conducted. Parent is duly qualified or
licensed to do business as a foreign limited liability company and is in good
standing in each jurisdiction in which the nature of its business or the
ownership or leasing of its properties makes such qualification or licensing
necessary, other than in such jurisdictions where the failure to be so qualified
or licensed, individually or in the aggregate, would not have a material adverse
effect on the ability of Parent and Buyer to timely consummate the transactions
contemplated by this Agreement or the Partnership Merger Agreement ("Parent
Material Adverse Effect"). Parent has delivered to Seller complete and correct
copies of its organizational documents (including the certificate of formation
and limited liability company agreement of Parent) as amended or supplemented to
the date of this Agreement.
(b) Each of Buyer and SHP Investors, Inc. ("Holdings") is a corporation
duly organized and validly existing under the Laws of Maryland, in the case of
Buyer, or Delaware, in the case of Holdings, and has the requisite corporate
power and authority to carry on its business as now being conducted. Each of
Buyer and Holdings is duly qualified or licensed to do business as a foreign
corporation and is in good standing in each jurisdiction in which the nature of
its business or the ownership or leasing of its properties makes such
qualifications or licensing necessary, other than in such jurisdictions where
the failure to be so qualified or licensed, individually or in the aggregate,
would not have a material adverse effect on the ability of Buyer and Holdings to
timely consummate the transactions contemplated by this Agreement or the
Partnership Merger Agreement (a "Buyer Material Adverse Effect"). Complete and
correct copies of the organizational documents as amended or supplemented to the
date of this Agreement of Buyer and Holdings have been delivered to Seller.
(c) Each of Parent, Buyer and Holdings are newly formed and, except for
activities incident to the acquisition of Seller, none of Parent, Buyer or
Holdings has (i) engaged in any business activities of any type or kind
whatsoever or (ii) acquired any property of any type or kind whatsoever.
3.2 Ownership of Parent, Buyer and Holdings. As of the date hereof, all of
Parent's membership interests are owned by Westbrook Fund III and Alter.
Holdings is a wholly-owned Subsidiary of Parent, and Buyer is a wholly-owned
Subsidiary of Holdings. As of the Closing Date, at least 75% of the voting
interests and 75% of the equity interest of Parent will be owned, directly or
indirectly by Westbrook Fund III, Westbrook SHP and Westbrook Co-Investment.
Parent has delivered to Seller a true and complete copy of
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the Contribution Agreement which is being executed contemporaneously with the
execution of this Agreement.
3.3 Authority; Noncontravention; Consents.
(a) Each of Parent and Buyer has the requisite power and authority to
enter into this Agreement and to consummate the transactions contemplated by
this Agreement to which it is a party. The execution and delivery of this
Agreement by Parent and Buyer and the consummation by Parent and Buyer of the
transactions contemplated by this Agreement to which Parent and/or Buyer is a
party have been duly authorized by all necessary limited liability company or
corporate action on the part of Parent, Buyer and Holdings. The Merger has been
approved by Holdings as the sole stockholder of Buyer. This Agreement has been
duly executed and delivered by Parent and Buyer and constitutes a valid and
binding obligation of each of Parent and Buyer, enforceable against each of
Parent and Buyer in accordance with and subject to its terms, subject to
applicable bankruptcy, insolvency, moratorium or other similar Laws relating to
creditors' rights and general principles of equity. The Contribution Agreement
has been duly executed and delivered by the parties thereto and constitutes a
valid and binding obligation of each party thereto, enforceable against each
party thereto in accordance with and subject to its terms, subject to applicable
bankruptcy, insolvency, moratorium or other similar laws relating to creditors'
rights and general principles of equity.
(b) The execution and delivery of this Agreement by each of Parent and
Buyer does not, and the consummation of the transactions contemplated by this
Agreement to which Parent and/or Buyer is a party and compliance by each of
Parent and Buyer with the provisions of this Agreement will not, conflict with,
or result in any violation of or default (with or without notice or lapse of
time, or both) under, or give rise to a right of termination, cancellation or
acceleration of any material obligation or to loss of a material benefit under,
or result in the creation of any Lien upon any of the properties or assets of
Parent or any of its Subsidiaries under, (i) the organizational documents of
Parent or Buyer or the comparable certificate of incorporation or organizational
documents or partnership or similar agreement (as the case may be) of any other
Subsidiary of the Parent, each as amended or supplemented to the date of this
Agreement, (ii) any loan or credit agreement, note, bond, mortgage, indenture,
reciprocal easement agreement, lease or other agreement, instrument, permit,
concession, franchise or license applicable to Parent or any of its Subsidiaries
or their respective properties or assets or (iii) subject to the governmental
filings and other matters referred to in the following sentence, any Laws
applicable to Parent or any of its Subsidiaries or their respective properties
or assets, other than, in the case of clause (ii) or (iii), any such conflicts,
violations, defaults, rights, loss or Liens that individually or in the
aggregate would not reasonably be expected to (x) have a Parent Material Adverse
Effect or a Buyer Material Adverse Effect or (y) prevent the consummation of the
transactions contemplated by this Agreement. No consent, approval, order or
authorization of, or registration, declaration or filing with, any Governmental
Entity is required by or with respect to Parent or any of its Subsidiaries in
connection with the execution and delivery of this Agreement by Parent or Buyer
or the consummation by Parent or Buyer of any of the transactions contemplated
by this Agreement, except for (i) any filings required under the Exchange Act
(including Schedule 13E-3), (ii) the filing of the Articles of Merger with the
Maryland Department, (iii) the filing of a certificate of merger with the
Secretary of State of the State of Delaware with respect to the Partnership
Merger, (iv) such filings as may be required in connection with the payment of
any Transfer Taxes (as defined in Section 5.6), (v) any filings required under
the HSR Act, (vi) the filing of a Form D with the SEC with respect to the
transaction contemplated by the Partnership Merger Agreement and (vii) such
other consents, approvals, orders, authorizations, registrations,
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declarations and filings (A) as may be required under federal, state or local
environmental Laws, (B) as may be required under the "blue sky" laws of various
states, to the extent applicable, or (C) which, if not obtained or made, would
not prevent or delay beyond December 31, 1999 the consummation of any of the
transactions contemplated by this Agreement or otherwise prevent Parent or Buyer
from timely performing its obligations under this Agreement in any material
respect or have, individually or in the aggregate, a Parent Material Adverse
Effect.
3.4 Litigation. As of the date of this Agreement, there is no suit, action
or proceeding pending (in which service of process has been received by Parent
or any of its Subsidiaries) or, to the Knowledge of Parent (as defined in
Section 3.13), threatened in writing against or affecting Parent or any of its
Subsidiaries that, individually or in the aggregate, would reasonably be
expected to (i) have a Parent Material Adverse Effect or (ii) prevent or delay
beyond the Outside Date the consummation of any of the material transactions
contemplated by this Agreement, nor, as of the date of this transaction, is
there any judgment, decree, injunction, rule or order of any Governmental Entity
or arbitrator outstanding against Parent of any of its Subsidiaries having, or
which, insofar as reasonably can be foreseen, in the future would have, any such
effect.
3.5 Undisclosed Liability. As of the date hereof, neither Parent nor Buyer
has any liabilities or obligations of any nature (whether accrued, absolute,
contingent or otherwise) whether or not required by GAAP to be set forth on a
consolidated balance sheet of Parent or Buyer or in the notes thereto which,
individually or in the aggregate, would have a Parent Material Adverse Effect or
Buyer Material Adverse Effect other than those resulting from any lawsuits or
other claims filed with respect to the Merger and the other transactions
contemplated hereby.
3.6 Brokers. No broker, investment banker, financial advisor or other
Person, the fees and expenses of which will be paid by Parent or Buyer, is
entitled to any broker's, finder's, financial advisor's or other similar fee or
commission in connection with the transactions contemplated hereby based upon
arrangements made by or on behalf of Parent or any of its Subsidiaries other
than as set forth in Section 3.6 of the Buyer Disclosure Letter.
3.7 Compliance With Laws. Neither Parent nor any of its Subsidiaries has
violated or failed to comply with any statute, law, ordinance, regulation, rule,
judgment, decree or order of any Governmental Entity applicable to its business,
properties or operations, except to the extent that such violation or failure
would not reasonably be expected to have a Parent Material Adverse Effect or
Buyer Material Adverse Effect.
3.8 Contracts; Debt Instruments. Neither Parent nor any of its Subsidiaries
(i) has received a written notice that Parent or any of its Subsidiaries is in
violation of or in default under any material loan or credit agreement, note,
bond, mortgage, indenture, lease, permit, concession, franchise, license or any
other material contract, agreement, arrangement or understanding, to which it is
a party or by which it or any of its properties or assets is bound, nor (ii) to
the Knowledge of Buyer (as defined in Section 3.15) does such a violation or
default exist, except to the extent such violation or default referred to in
clauses (i) or (ii), individually or in the aggregate, would not have a Parent
Material Adverse Effect or a Buyer Material Adverse Effect.
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3.9 Solvency. Immediately after giving effect to the Transactions and the
closing of the Financing (as herein defined) and the Contribution, the Surviving
Company and the Surviving Operating Partnership shall (a) be able to pay their
respective debts as they become due and shall each own property having a fair
market value greater than the amounts required to pay its debts (including a
reasonable estimate of the amount of all contingent liabilities) and (b) have
adequate capital to carry on their respective businesses. No transfer of
property is being made and no obligation is being incurred in connection with
the transactions contemplated by this Agreement and the Partnership Merger
Agreement and the closing of any financing to be obtained by Parent, Buyer or
Buyer Operating Partnership in order to effect the transactions contemplated by
this Agreement and the Partnership Merger Agreement or with the intent to
hinder, delay or defraud either present or future creditors of Parent, Buyer,
Buyer Operating Partnership, the Surviving Company or the Surviving Operating
Partnership.
3.10 Proxy Statement and Information Statement. The information provided by
Parent or Buyer with respect to Parent and its Subsidiaries and the Surviving
Company for inclusion in the Proxy Statement and the Information Statement will
not, as of the date of mailing of the Proxy Statement and the Information
Statement, respectively, contain an untrue statement of a material fact or omit
to state a material fact required to be stated therein, or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
3.11 Investment Company Act of 1940. Neither Parent nor any of its
Subsidiaries is, or at the Effective Time will be, required to be registered
under the 1940 Act.
3.12 Ownership of Stock in Seller.
(a) The beneficial ownership of Seller Common Shares (excluding any
Seller Common Shares issuable upon exercise of the options for 845,362 Seller
Common Shares issued to Alter and Biederman that were not exercisable within 60
days of April 15, 1999), Seller Preferred Shares and Seller OP Units by Parent,
Buyer, Buyer Operating Partnership and the parties to the Contribution Agreement
and certain other affiliated persons and entities listed in the Schedule 13Ds
are as set forth in the Schedule 13D filed by Westbrook Fund I and the other
parties named therein with the SEC on October 24, 1997, as amended through the
date hereof, and the Schedule 13D filed by Alter and the other parties named
therein with the SEC on April 15, 1999, as amended through the date hereof.
(b) Parent, Holdings, Buyer, and Buyer Operating Partnership are
"affiliates" or "associates" (as such terms are defined in Section 3-601 of the
MGCL) of Alter.
(c) Of Parent, Holdings, Buyer, Buyer Operating Partnership, the
parties to the Contribution Agreement and the other direct and indirect
beneficial owners of stock and affiliates (as such terms are defined in Section
3-601 of the MGCL) of Buyer, only (i) Westbrook Fund I, (ii) Westbrook
Co-Investment Partnership I, L.P., a Delaware limited partnership ("Westbrook
Co-Investment I"), and (iii) each other beneficial owner of the securities of
Seller beneficially owned by Westbrook Fund I or Westbrook Co-Investment I is or
was at any time within the 2 years prior to the date hereof the beneficial owner
(as such term is defined in Section 3-601 of the MGCL) directly or indirectly of
10 percent or more of the voting power of the outstanding voting stock of
Seller.
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3.13 Definition of Knowledge. As used in this Agreement, the phrase
"Knowledge of Parent" or "Knowledge of Buyer" (or words of similar import) means
the actual knowledge without any duty of investigation or inquiry of those
individuals identified in Section 3.13 of the Buyer Disclosure Letter.
3.14 Sufficient Funds. After giving effect to the contribution of cash and
assets to Parent pursuant to, and in accordance with, the Contribution
Agreement, and borrowings (the "Financing") under Parent's financing commitment
attached as Exhibit G (the "Financing Commitment"), which Contribution Agreement
and Financing Commitment are in full force and effect, the Surviving Company and
the Surviving Operating Partnership will have sufficient funds available to:
(a) refinance or repay in cash all indebtedness for borrowed money of
Seller or any Seller Subsidiary that will become due as a result of the
transactions contemplated by this Agreement or the Partnership Merger Agreement,
plus unpaid interest accrued thereon, and any prepayment, breakage or other
costs associated with the repayment or refinancing, as the case may be, in each
case as set forth in Section 3.14(a) of the Seller Disclosure Letter;
(b) pay all amounts required to be paid pursuant to this Agreement and
the Partnership Merger Agreement;
(c) pay all fees, costs and expenses incurred by Seller and the Seller
Partnership in connection with this Agreement, the Partnership Merger Agreement
and the transactions contemplated herein and therein assuming such fees, costs
and expenses (including severance costs) are not in excess of $11,500,000; and
(d) pay all fees, costs and expenses incurred by Parent, Buyer and
Buyer Operating Partnership in connection with this Agreement, the Partnership
Merger Agreement and the other transactions contemplated herein and therein.
3.15 Representations in Partnership Merger Agreement. The representations
and warranties of Parent and the Buyer Operating Partnership and its
Subsidiaries set forth in the Partnership Merger Agreement are true and correct.
ARTICLE 4
COVENANTS
4.1 Acquisition Proposals. During the period from the date hereof and
continuing through the Effective Time or the earlier termination of this
Agreement in accordance with its terms, Seller agrees that:
(a) neither it nor any of the Seller Subsidiaries shall initiate,
solicit or knowingly encourage, directly or indirectly, any inquiries or the
making or implementation of any proposal or offer (including, without
limitation, any proposal or offer to its stockholders) with respect to a merger,
acquisition, tender offer, exchange offer, consolidation, share exchange, sale
of assets or similar transaction involving all or any significant portion of the
assets or any equity securities of, Seller and its Subsidiaries, taken as a
whole, other than the transactions contemplated by this Agreement (any such
proposal or offer being hereinafter referred to as an "Acquisition Proposal") or
engage in any negotiations concerning or provide any
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confidential information or data to, or have any discussions with, any Person
relating to an Acquisition Proposal, or otherwise facilitate any effort or
attempt to make or implement an Acquisition Proposal (for the avoidance of
doubt, responding to an unsolicited inquiry by informing such inquiror that
Seller is subject to this Section 4.1 and instructing such inquiror to review
this Agreement shall not be a violation of this Section 4.1);
(b) it shall direct and use its reasonable best efforts to cause its
officers, directors, employees, agents or financial advisors not to engage in
any of the activities restricted by Section 4.1(a);
(c) it will immediately cease and cause to be terminated any existing
activities, discussions or negotiations theretofore conducted with any Person
with respect to any Acquisition Proposal and will take the necessary steps to
inform the individuals or entities referred to in Section 4.1(b) of the
obligations undertaken in this Section 4.1; and
(d) it will notify Buyer promptly if Seller receives any such inquiries
or proposals, or any requests for such information, or if any such negotiations
or discussions are sought to be initiated or continued with it;
provided, however, that nothing contained in this Agreement shall restrict
Seller Board or Special Committee (and the officers, directors, employees,
agents and financial advisors of Seller acting at the direction of Seller Board
or Special Committee) from (i) prior to the Seller Stockholders Meeting (as
defined below), furnishing information to, or entering into discussions or
negotiations with, any Person that makes an unsolicited Acquisition Proposal, if
(A) Seller Board or Special Committee determines in good faith that the failure
to take such action would reasonably be expected to violate its duties under
applicable law and such proposal is, or is reasonably likely to be, a Superior
Acquisition Proposal (as defined below), (B) prior to furnishing such
information to, or entering into discussions or negotiations with, such Person,
Seller provides written notice to Buyer to the effect that it is furnishing
information to, or entering into discussions with, such Person and (C) subject
to any confidentiality agreement with such Person, Seller keeps Buyer informed
of the status (not the terms or identity of parties) of any such discussions or
negotiations (Seller agreeing that it will not enter into any confidentiality
agreement with any Person subsequent to the date hereof which prohibits Seller
from providing such information to Buyer); and (ii) to the extent applicable,
taking and disclosing to the Seller stockholders a position contemplated by
Rules 14d-9 and 14e-2 promulgated under the Exchange Act with regard to an
Acquisition Proposal; provided, however, that Seller Board or Special Committee
may not approve or recommend an Acquisition Proposal, or withdraw or modify in a
manner adverse to Buyer its approval or recommendation of this Agreement and the
Merger, unless such Acquisition Proposal is a Superior Acquisition Proposal.
Nothing in this Section 4.1 shall (x) permit Seller to terminate this Agreement
(except as specifically provided in Article 7 hereof) or (y) permit Seller to
enter into an agreement with respect to an Acquisition Proposal during the term
of this Agreement (other than a confidentiality agreement in customary form
executed as provided above); provided, however, that the Seller Board or Special
Committee may approve and recommend a Superior Acquisition Proposal and, in
connection therewith, withdraw or modify its approval or recommendation of this
Agreement and the Merger. As used herein, "Superior Acquisition Proposal" means
a bona fide Acquisition Proposal made by a third party which Seller Board or
Special Committee determines in good faith (after consultation with its
financial advisor) to be more favorable to Seller's stockholders than the Merger
and which Seller Board or Special Committee determines is reasonably capable of
being consummated.
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4.2 Conduct of Seller's Business Pending Merger. During the period from the
date hereof and continuing through the Effective Time, except (i) as consented
to in writing by Buyer or as contemplated by this Agreement and (ii) as set
forth on Section 4.2 of the Seller Disclosure Letter, Seller shall, and shall
cause each of the Seller Subsidiaries to:
(a) conduct its business only in the usual, regular and ordinary course
and in substantially the same manner as heretofore conducted and, except as
contemplated by this Agreement and the transactions contemplated hereby, take
all action necessary to continue to qualify as a REIT;
(b) use its reasonable efforts to (i) preserve intact its business
(corporate or otherwise) organizations and goodwill and (ii) keep available the
services of its officers and key employees other than those employed by Parent,
Lessee or Manager or any of Affiliate thereof;
(c) confer on a regular basis upon reasonable request with one or more
representatives of Buyer to report on material operational matters and, subject
to Section 4.1, any proposals to engage in material transactions;
(d) promptly notify Buyer of any material adverse change in its
condition (financial or otherwise), business, properties, assets or liabilities,
or of any material governmental complaints, investigations or hearings adverse
to it (or written threats thereof) which could reasonably be expected to have a
Seller Material Adverse Effect;
(e) promptly deliver to Buyer true and correct copies of any report,
statement or schedule filed with the SEC subsequent to the date of this
Agreement and prior to the Closing Date;
(f) maintain its books and records in accordance with GAAP consistently
applied and not change in any material manner any of its methods, principles or
practices of accounting in effect at the Seller Financial Statement Date, except
as may be required by the SEC, applicable law or GAAP;
(g) duly and timely file all material Tax Returns and other documents
required to be filed with federal, state, local and other Tax Authorities,
subject to timely extensions permitted by law, and provided such extensions do
not adversely affect Seller's status as a qualified REIT under the Code;
(h) except as set forth in this Agreement, not make, rescind or revoke
any material express or deemed election relative to Taxes (unless required by
law or necessary to preserve Seller's status as a REIT or the status of any
Seller Subsidiary as a partnership for federal income tax purposes or as a
qualified REIT subsidiary under Section 856(i) of the Code, as the case may be);
(i) except as contemplated in the CapEx Budget previously made
available to Buyer, not acquire, enter into any option to acquire, or exercise
an option or contract to acquire, additional real property, incur additional
indebtedness except for working capital under its revolving lines of credit,
encumber assets or commence construction of, or enter into any agreement or
commitment to develop or construct, other real estate projects, except with
respect to projects described in the Seller SEC Documents or the Seller
Disclosure Letter as being under development in accordance with the agreements
in existence on the date of this Agreement and previously furnished to Buyer
(the "Development Agreements");
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(j) not (except as contemplated by this Agreement and the Partnership
Merger Agreement) amend its Charter or bylaws, or the articles or certificate of
incorporation, bylaws, code of regulations, partnership agreement, operating
agreement or joint venture agreement or comparable charter or organization
document of any Seller Subsidiary;
(k) except as contemplated by this Agreement and the Seller Partnership
Redemption and for issuances under Seller's dividend reinvestment plan in
accordance with past practice, make no change in the number of its shares of
capital stock, membership interests or units of limited partnership interest (as
the case may be) issued and outstanding or reserved for issuance, other than
pursuant to (i) the exercise of options or other rights disclosed in Section 2.3
of the Seller Disclosure Letter, (ii) the conversion of Seller Preferred Shares,
or (iii) the exchange or redemption of Seller OP Units pursuant to the Seller
Partnership Agreement for Seller Common Shares or cash, at Seller's option;
(l) except as set forth in Section 4.2(l) of the Seller Disclosure
Letter or without the consent of Parent, grant no options or other rights or
commitments relating to its shares of capital stock, membership interests or
units of limited partnership interest or any security convertible into its
shares of capital stock, membership interests or units of limited partnership
interest, or any security the value of which is measured by shares of capital
stock, or any security subordinated to the claim of its general creditors and,
except as contemplated by this Agreement, not amend or waive any rights under
any of the Seller Options;
(m) except as provided in this Agreement (including the Seller
Partnership Redemption and Section 5.8), the Partnership Merger Agreement and in
connection with the use of Seller Common Shares to pay the exercise price or tax
withholding in connection with equity-based employee benefit plans by the
participants therein, not (i) authorize, declare, set aside or pay any dividend
or make any other distribution or payment with respect to any Seller Common
Shares, Seller Preferred Shares or Seller OP Units or (ii) directly or
indirectly redeem, purchase or otherwise acquire any shares of capital stock,
membership interests or units of partnership interest or any option, warrant or
right to acquire, or security convertible into, shares of capital stock,
membership interests, or units of partnership interest, except for (A)
redemptions of Seller Common Shares required under Section 2 of Article V of
Seller's Charter in order to preserve the status of Seller as a REIT under the
Code and (B) conversions or redemptions of Seller OP Units, whether or not
outstanding on the date of this Agreement, for cash or Seller Common Shares in
accordance with the terms of the Seller Partnership Agreement;
(n) not sell, lease (other than to Lessee), exchange or otherwise
dispose of any Seller Property outside the ordinary course of business or as set
forth on Section 4.2(n) of the Seller Disclosure Letter;
(o) not make any loans, advances or capital contributions to, or
investments in, any other Person, other than regular advances to employees in
the ordinary course of business and loans, advances and capital contributions to
Seller Subsidiaries in existence on the date hereof;
(p) not pay, discharge or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or otherwise)
which are material to Seller and its Subsidiaries taken as a whole, other than
the payment, discharge or satisfaction, in the ordinary course of business
consistent with past practice or in accordance with their terms, of liabilities
reflected or reserved against in, or contemplated
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by, the most recent consolidated financial statements (or the notes thereto)
furnished to Buyer or incurred in the ordinary course of business consistent
with past practice (collectively, "Ordinary Course Liabilities");
(q) except as provided in Section 4.2(i) above, not enter into any
commitment, contractual obligation or transaction (each, a "Commitment") for the
purchase of any real estate; provided that expansion or improvements made in the
ordinary course of business to existing real property shall not be considered a
purchase of real property;
(r) not guarantee the indebtedness of another Person, enter into any
"keep well" or other agreement to maintain any financial statement condition of
another Person or enter into any arrangement having the economic effect of any
of the foregoing;
(s) not enter into any contractual obligation with any officer,
director or Affiliate of Seller except as set forth in this Agreement;
(t) not increase any compensation or enter into or amend any
employment, severance or other agreement with any of its officers, directors or
employees earning a base salary of more than $100,000 per annum, other than as
required by any contract or Employee Plan or pursuant to waivers by employees of
benefits under such agreements;
(u) except as provided in Section 4.2(l) of this Agreement, not adopt
any new employee benefit plan or amend or terminate or increase the benefits
under any existing plans or rights, not grant any additional options, warrants,
rights to acquire stock, stock appreciation rights, phantom stock, dividend
equivalents, performance units or performance stock to any officer, employee or
director, or accelerate vesting with respect to any grant of Seller Common
Shares to employees which are subject to any risk of forfeiture, except for
changes which are required by law and changes which are not more favorable to
participants than provisions presently in effect;
(v) not change the ownership of any of its Subsidiaries, except changes
which arise as a result of the conversion of Seller OP Units into Seller Common
Shares or cash or the Seller Partnership Redemption;
(w) not accept a promissory note in payment of the exercise price
payable under any option to purchase Seller Common Shares;
(x) not enter into or amend or otherwise modify or waive any material
rights under any agreement or arrangement for the Persons that are executive
officers or directors of Seller or any Seller Subsidiary (other than Alter and
Biederman in their capacities as such);
(y) not directly or indirectly or through a subsidiary, merge or
consolidate with, acquire all or substantially all of the assets of, or acquire
the beneficial ownership of a majority of the outstanding capital stock or a
majority of any other equity interest in, any Person other than any of the
foregoing (other than a merger or consolidation) in connection with a
transaction permitted pursuant to Section 4.2(i);
(z) not settle or compromise any material tax liability;
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(aa) perform all actions required to consummate the Seller Partnership
Redemption on the Closing Date prior to the Effective Time;
(bb) perform all agreements required to be performed by the Seller and
its Subsidiaries (including the Seller Partnership) under the Partnership Merger
Agreement; and
(cc) not agree, commit or arrange to take any action prohibited under
this Section.
4.3 Conduct of Parent's and Buyer's Business Pending Merger. Prior to the
Effective Time, except as (i) contemplated by this Agreement, or (ii) consented
to in writing by Seller, Parent shall, and shall cause Buyer to:
(a) use its reasonable efforts to preserve intact its business
organizations and goodwill and keep available the services of its officers and
employees;
(b) promptly notify Seller of any material emergency or other material
change in the condition (financial or otherwise), business, properties, assets,
liabilities, prospects or the normal course of its businesses or in the
operation of its properties, or of any material governmental complaints,
investigations or hearings (or communications indicating that the same may be
contemplated);
(c) not directly or indirectly, through a subsidiary or otherwise,
merge or consolidate with, or acquire all or substantially all of the assets of,
or the beneficial ownership of a majority of the outstanding capital stock or
other equity interests in any Person whose securities are registered under the
Exchange Act unless such transaction has been approved by Seller;
(d) except as contemplated by this Agreement, not issue or commit to
issue or change the ownership of any Buyer or Buyer Operating Partnership
securities unless such issuance or change in ownership has been approved by
Seller;
(e) use reasonable best efforts to do all necessary things required to
obtain and to close the funding contemplated by the Contribution Agreement and
the borrowings contemplated by the Financing Commitment or if the Financing
Commitment is terminated or such funds shall not otherwise be available, to
obtain alternate financing, in each case on financial and other terms no less
favorable than those set forth in the Financing Commitment or to the extent not
set forth therein, on terms reasonably acceptable to Parent, and to cause such
equity funding and such borrowings to be made available to Parent, Buyer, Buyer
Operating Partnership and Seller Partnership or the other borrowers thereunder,
as applicable as and subject to the conditions provided in the Contribution
Agreement and the Financing Commitment. Parent and Buyer will not amend or
otherwise modify in any material respect, or waive any material rights under the
Contribution Agreement or Financing Commitment, in each case to the extent such
action could reasonably be expected to materially and adversely affect the
likelihood of obtaining such funding. Parent agrees to use its reasonable best
efforts so that representatives of Seller shall have reasonable access to the
lender under the Financing Commitment and use its reasonable best efforts to
cause such lender to respond to Seller's reasonable request regarding the status
of such financing;
(f) not agree, commit or arrange to take any action prohibited under
this Section; and
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(g) except as contemplated by the Contribution Agreement, not acquire
ownership, beneficially or of record, of any Seller Common Shares or Seller
Preferred Shares.
4.4 Other Actions. Each of Seller on the one hand, and Parent and Buyer on
the other hand, shall not knowingly take, and shall use commercially reasonable
efforts to cause their Subsidiaries not to take, any action that would result in
(i) any of the representations and warranties of such party (without giving
effect to any "knowledge" qualification) set forth in this Agreement that are
qualified as to materiality becoming untrue, (ii) any of such representations
and warranties (without giving effect to any "knowledge" qualification) that are
not so qualified becoming untrue in any material respect or (iii) except as
contemplated by Section 4.1, any of the conditions to the Merger set forth in
Article 6 not being satisfied.
4.5 Private Placement. Parent shall take all actions necessary to offer and
sell interests in Parent to holders of Seller OP Units in the manner
contemplated by the Partnership Merger Agreement and Sections 1.8 and 5.1 hereof
and as shall be required for the offering and sale of such units of limited
partnership interest to be exempt from the registration requirements of the
Securities Act pursuant to Rule 506 of Regulation D.
4.6 Escrow Arrangement. Parent has delivered to Fidelity National Title
Insurance Company, as escrow agent (the "Escrow Agent") $25,000,000 (the "Cash
Collateral") in cash or an irrevocable letter of credit in the amount of the
Cash Collateral, substantially in the form attached hereto as Exhibit H, with
such changes as shall be reasonably satisfactory to Seller and from a bank
reasonably satisfactory to Seller (the "Letter of Credit") to secure the
obligation of Parent and Buyer to pay certain fees and expenses pursuant to
Section 7.2 and to be held in accordance with the terms of an Escrow Agreement
dated as of the date hereof among the Escrow Agent, Seller, Seller Partnership
and Parent (the "Escrow Agreement").
4.7 Seller Partnership Actions. Seller shall use its reasonable best
efforts to cause Seller Partnership to (a) obtain the Seller Partner Approval
and (b) redeem from Seller, Seller OP Units in exchange for assets of Seller
Partnership as set forth on Exhibit A. Parent will cooperate with Seller in
obtaining the Seller Partner Approval.
4.8 Pro Formas. Set forth on Exhibit J is the current estimated sources and
uses of funds in connection with the Contribution, the Financing Commitment and
the consummation of the transactions contemplated by this Agreement and the
Partnership Merger Agreement, which reflects the current assumptions regarding
sources and uses of funds for such purposes, and Parent will promptly notify
Seller of any material changes in such estimated sources and uses of funds and
provide Seller a revised statement reflecting such changes.
ARTICLE 5
ADDITIONAL COVENANTS
5.1 Preparation of the Proxy Statement; Seller Stockholders Meeting.
(a) The parties shall cooperate and promptly prepare, and Seller shall
file with the SEC as soon as practicable a proxy statement with respect to the
meeting of the stockholders of Seller in connection with the Merger and Charter
Amendments (the "Proxy Statement"). The parties shall cooperate
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and promptly prepare and the appropriate party shall file with the SEC as soon
as practicable any other filings required under the Exchange Act ("Additional
Filings"), including a Rule 13e-3 Transaction Statement on Schedule 13E-3 with
respect to the Merger to be filed jointly by Seller, Parent and Buyer, together
with any required amendments thereto. To the extent the Seller Partnership has
received the Seller Partner Approval in the form of valid written consents
executed by partners of the Seller Partnership promptly after the date hereof,
Seller Partnership and Parent shall jointly promptly prepare an Information
Statement of Seller Partnership and Parent for use in connection with the
offering of units of limited liability company interest in Parent (the
"Information Statement). To the extent the Seller Partnership has not received
the Seller Partner Approval in the form of valid written consents executed by
partners of the Seller Partnership promptly after the date hereof, Seller
Partnership and Parent shall jointly and promptly prepare a Consent Solicitation
Statement soliciting the written consent of the holders of Seller OP Units to
the adoption of this Agreement and the approval of the Partnership Merger (the
"Consent Solicitation Statement"), which Consent Solicitation Statement shall
contain a description of the terms of the Class A Preferred Units and the Class
B Units and the recommendation of Seller General Partner's Board of Directors
that the holders of Seller OP Units consent to the adoption of this Agreement
and the approval of the Partnership Merger. Each of Seller, Seller Partnership,
Parent, Buyer and Buyer Operating Partnership agrees that the information
provided by it for inclusion in the Proxy Statement, the Additional Filings, the
Information Statement, Consent Solicitation Statement and each amendment or
supplement thereto, at the time of mailing thereof and at the time of the
meeting of stockholders of Seller and at the time of the taking of consent in
respect of the Seller Partner Approval, will not include an untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. Parent, Buyer and Buyer Operating
Partnership shall, with respect to the Seller Partner Approval and the offering
of units of limited liability interests in Parent to holders of Seller OP Units,
comply with Regulation D of the Securities Act, as applicable. Seller will use
its reasonable best efforts, and Parent, Buyer and Buyer Operating Partnership
will cooperate with Seller to (i) file a preliminary Proxy Statement with the
SEC and (ii) cause the Proxy Statement to be mailed to Seller's stockholders, in
each case, as promptly as practicable (including clearing the Proxy Statement
with the SEC) following receipt by Seller of written certification from the
lender under the Financing Commitment that it has received and reviewed the
environmental reviews, engineering reports, title reports, surveys and appraisal
reports with respect to substantially all (based on the aggregate value of the
Seller Properties) of the Seller Properties for which it desires such reports
(collectively, the "Property Reports"), provided that the termination date of
the Financing Commitment shall be later than 12 days from the date the Proxy
Statement was otherwise to be mailed to Seller's stockholders; and provided,
further, that the parties acknowledge that any of such reports may be updated or
supplemented from time to time prior to Closing. Seller will use its reasonable
best efforts, and Parent, Buyer and Buyer Operating Partnership will cooperate
with Seller, to cause the Information Statement or Consent Solicitation
Statement, as applicable, to be mailed to the Seller Unit Holders as promptly as
practicable after the SEC has cleared the Proxy Statement and it has been mailed
to Seller's stockholders. Seller will notify Buyer promptly of the receipt of
any comments from the SEC and of any request by the SEC for amendments or
supplements to the Proxy Statement or the Additional Filings or for additional
information and will supply Buyer with copies of all correspondence between such
party or any of its representatives and the SEC, with respect to the Proxy
Statement or the Additional Filings. The parties shall cooperate to cause the
Proxy Statement, the Information Statement, Consent Solicitation Statement and
any Additional Filings to comply in all material respects with all applicable
requirements of law. Whenever any event occurs which is required to be set forth
in an amendment or supplement to the Proxy Statement, the Additional Filings, or
the Information Statement or Consent Solicitation Statement, Seller on the one
hand, and Parent and Buyer on the other hand, shall
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promptly inform the other of such occurrence and cooperate in filing with the
SEC and/or mailing to the stockholders of Seller or holders of Seller OP Units,
as applicable, such amendment or supplement to the Proxy Statement or the
Information Statement or Consent Solicitation Statement.
(b) It shall be a condition to the mailing of the Proxy Statement and
the Information Statement that if they so request, Buyer and Buyer Operating
Partnership shall have received a "comfort" letter or an "agreed upon
procedures" letter from Ernst & Young LLP, independent public accountants for
Seller and Seller Partnership, of the kind contemplated by the Statement of
Auditing Standards with respect to Letters to Underwriters promulgated by the
American Institute of Certified Public Accountants (the "AICPA Statement"),
dated as of the date on which the Proxy Statement is to be mailed to the
stockholders of Seller, addressed to Parent, Buyer and Buyer Operating
Partnership, in form and substance reasonably satisfactory to Buyer and Buyer
Operating Partnership, concerning the procedures undertaken by Ernst & Young,
LLP with respect to the financial statements and information of Seller, Seller
Partnership and their Subsidiaries contained in the Proxy Statement and the
other matters contemplated by the AICPA Statement and otherwise customary in
scope and substance for letters delivered by independent public accountants in
connection with transactions such as those contemplated by this Agreement.
(c) Seller will, as soon as practicable following the date of this
Agreement, duly call, give notice of, convene and hold a meeting of its
stockholders, such meeting to be held no sooner than 20 business days nor later
than 45 days following the date the Proxy Statement is mailed to the
stockholders of Seller (the "Seller Stockholders Meeting") for the purpose of
obtaining the Seller Stockholder Approvals. Seller shall be required to hold the
Seller Stockholders Meeting, regardless of whether the Seller Board has
withdrawn, amended or modified its recommendation that its stockholders adopt
this Agreement and approve the Merger, unless this Agreement has been terminated
pursuant to the provisions of Section 7.1. Seller will, through its Seller
Board, recommend that its stockholders adopt this Agreement and approve the
transactions contemplated hereby, including the Merger and Charter Amendments;
provided, that prior to the Seller Stockholders Meeting, such recommendation may
be withdrawn, modified or amended only to the extent expressly permitted under
Section 4.1.
(d) If on the date for the Seller Stockholders Meeting established
pursuant to Section 5.1(c) of this Agreement, Seller has not received duly
executed proxies which, when added to the number of votes represented in person
at the meeting by Persons who intend to vote to adopt this Agreement, will
constitute a sufficient number of votes to adopt the Seller Stockholder
Approvals (but less than one-third of the outstanding Seller Common Shares and
Seller Preferred Shares (voting on an "as-converted basis"), voting as a single
class have indicated their intention to vote against, or have submitted duly
executed proxies voting against, the adoption of the Seller Stockholder
Approvals), then Seller shall recommend the adjournment of its stockholders
meeting until the date 10 business days after the originally scheduled date of
the stockholders meeting.
5.2 Access to Information; Confidentiality. Subject to the requirements of
confidentiality agreements with third parties, each of Seller, Parent and Buyer
shall, and shall cause each of its Subsidiaries to, afford to the other party
and to the officers, employees, accountants, counsel, financial advisors,
sources of financing and other representatives of such other party, reasonable
access during normal business hours prior to the Effective Time to all their
respective properties, books, contracts, commitments, personnel and records and,
during such period, each of Seller, Parent and Buyer shall, and shall cause each
of its Subsidiaries to, furnish promptly to the other party and its financing
sources all other information concerning
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its business, properties and personnel as such other party may reasonably
request. Parent, Buyer and their financing sources shall have the right to
conduct non-intrusive environmental and engineering inspections at the Seller
Properties, provided that in no event shall Parent or Buyer have the right to
conduct so-called "Phase II" environmental tests without Seller's prior consent,
which shall not be unreasonably withheld. Notwithstanding anything in this
Section 5.2 to the contrary, all of Parent's and Buyer's activities pursuant to
this Section 5.2 must be conducted in a manner that does not unreasonably
interfere with the ongoing operations of Seller and Seller Subsidiaries.
5.3 Reasonable Best Efforts; Notification.
(a) Subject to the terms and conditions herein provided,
Seller, Parent and Buyer shall: (i) use all reasonable best efforts to cooperate
with one another in (A) determining which filings are required to be made prior
to the Effective Time with, and which consents, approvals, permits or
authorizations are required to be obtained prior to the Effective Time from,
governmental or regulatory authorities of the United States, the several states
and foreign jurisdictions and any third parties in connection with the execution
and delivery of this Agreement, and the consummation of the transactions
contemplated hereby, including without limitation any required filings and
consents under the HSR Act, and (B) timely making all such filings and timely
seeking all such consents, approvals, permits and authorizations (the parties
acknowledge that all consents under each of the Seller Franchise Agreements
shall comply with the provisions of Section 5.3(a) of the Buyer Disclosure
Letter unless otherwise mutually agreed by Seller and Parent); (ii) use all
reasonable best efforts to obtain, in writing, the consents listed in Section
5.3(a)(1) of the Seller Disclosure Letter (the "Lender Consents") in the manner
set forth in Section 5.3(c) and the consents listed in Section 5.3(a)(3) of the
Seller Disclosure Letter (the "Ground Lessor Consents"), and the parties shall
use all reasonable best efforts to cause Lessee to obtain, in writing, the
consents listed in Section 5.3(a)(2) of the Seller Disclosure Letter (the
"Franchise Consents") in the manner set forth in Section 5.3(d) (such Lender
Consents, Ground Lessor Consents and Franchise Consents referred to herein
collectively as the "Required Consents") in form reasonably satisfactory to
Seller and Buyer, provided however, that, without the prior written consent of
Parent, neither Seller, the Seller Partnership nor any other Seller Subsidiary
shall pay any cash or other consideration, make any commitments or incur any
liability or other obligation except (x) in the case of obtaining Lender
Consents and consents under the Seller Franchise Agreements, as set forth in
clause (y) below and Sections 5.3(c) and 5.3(d), (y) in the case of obtaining
Ground Lessor Consents and Lender Consents, in an aggregate amount of $1,500,000
or less for the payment of all Ground Lessor Amounts and Prepayment Amounts
(provided that such amount may exceed $1,500,000 if the aggregate cash
consideration payable to holders of Seller Common Shares in the Merger and
Seller Partnership Units in the Partnership Merger is reduced by the aggregate
amount of such excess, and the Merger Consideration and Partnership Merger
Consideration per share or unit, as the case may be, is reduced accordingly) and
(z) for all other consents required to effect the Transactions, in an aggregate
amount of $100,000 or less (provided that such amount may exceed $100,000 if the
aggregate cash consideration payable to holders of Seller Common Shares in the
Merger and Seller Partnership Units in the Partnership Merger is reduced by the
aggregate amount of such excess, and the Merger Consideration and Partnership
Merger Consideration per share or unit, as the case may be, is reduced
accordingly); and (iii) use all reasonable best efforts to take, or cause to be
taken, all other action and do, or cause to be done, all other things necessary,
proper or appropriate to consummate and make effective the transactions
contemplated by this Agreement, subject in the case of Seller to the exercise by
the Seller Board or Special Committee prior to the Outside Date of its duties
under applicable law; provided however, that nothing in this Section 5.3 shall
require Parent or Buyer to pay or commit to pay any money or other consideration
or to incur any liability or other obligation (except
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as described in clause (i) of Section 5.3(c)). In furtherance thereof, Seller
agrees to vote in favor of, or at Buyer's request deliver a written consent with
respect to, the transactions contemplated by the Partnership Merger Agreement in
its capacity as a limited partner of the Seller Partnership, and in its capacity
as a general partner of the Seller Partnership. If at any time after the
Effective Time any further action is necessary or desirable to carry out the
purpose of this Agreement, Parent and the Surviving Company shall take all such
necessary action.
(b) Seller shall give prompt notice to Parent and Buyer, and
Parent and Buyer shall give prompt notice to Seller, (i) if any representation
or warranty made by it or them contained in this Agreement that is qualified as
to Seller Material Adverse Effect, Parent Material Adverse Effect or Buyer
Material Adverse Effect, as the case may be, becomes untrue or incorrect in any
respect or any such representation or warranty that is not so qualified becomes
untrue or incorrect in any material respect or (ii) of the failure by it or them
to comply with or satisfy in any material respect any covenant, condition or
agreement to be complied with or satisfied by it under this Agreement; provided,
however, that no such notification shall affect the representations, warranties,
covenants or agreements of the parties or the conditions to the obligations of
the parties under this Agreement.
(c) With respect to securing the Lender Consents, Buyer and
Seller shall cooperate with each other and use all reasonable best efforts to
secure each of the Lender Consents, including taking the actions set forth in
Section 5.3(d) of the Seller's Disclosure Schedule. Each party shall update the
other on its progress at the request of the other:
(i) In the event some or all of the Lender Consents are
not obtained, to the extent the Original Loan Amounts (as defined in
the Financing Commitment), as such Original Loan Amount may be
increased pursuant to the terms of the Financing Commitment, exceed
$454,600,000 less the amount, if any, by which the proceeds under the
Financing Commitment are reduced as a result of any defect or loss
referred to in clause (i)(A) of Section 7.1(j) (whether or not a Lender
Property Determination (as defined below) shall have occurred) (a
"Financing Overage"), the Financing Overage shall be used as a source
of funds to prepay as of the Closing Date, in whole or in part, the
outstanding amounts under all of the loans for which a Lender Consent
is required (any such loan, an "Underlying Loan") which have not been
received and any prepayment penalty with respect thereto. To the extent
an Underlying Loan and any related prepayment penalty will be paid as
of the Closing Date with the proceeds of a Financing Overage, the
Lender Consent with respect to such Underlying Loan shall be deemed to
have been obtained;
(ii) In the event that at any time after July 15, 1999,
Seller reasonably believes that (A) some or all of the Lender Consents
will not be obtained or waived or (B) the Financing Overage will be an
insufficient source of funds for the prepayment in full of all the
Underlying Loans (together with all prepayment penalties) or (C) Buyer
will not be able to obtain additional financing to prepay in full all
the Underlying Loans (together with all prepayment penalties), Seller
may seek to obtain new financing in an amount equal to such excess upon
terms materially similar to market terms for similar loans on the date
hereof. The proceeds of such financings shall be used solely to prepay
as of the Closing Date in whole or in part one or more of the
Underlying Loans for which Lender Consents have not been received or
waived and any prepayment penalty with respect thereto. To the extent
an Underlying Loan and any related prepayment penalty will be paid as
of the Closing Date with the proceeds of any such financing, together
with any Financing Overage, the
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Lender Consent with respect to such Underlying Loan shall be deemed to
have been obtained. With respect to Underlying Loans that are not
prepayable in accordance with their respective terms, all amounts paid
or required to be paid pursuant to clause (i) above or this clause (ii)
to obtain Lender Consents that exceed the amount of principal and
accrued interest on the applicable Underlying Loan are referred to
herein as the "Prepayment Amounts" and the parties shall use all
reasonable best efforts to minimize the Prepayment Amounts;
(iii) In the event that, following the operation of
clauses (i) and (ii) above, all of the Lender Consents have not been
obtained or deemed waived, Seller may, at its sole option, agree to
have the Common Merger Consideration reduced by the aggregate amount
necessary to pay at Closing all remaining amounts under the Underlying
Loans in full, and Buyer shall agree to waive the condition that it
receive any of the Lender Consents.
(d) Seller, Buyer and Parent shall use all reasonable best
efforts to minimize (i) the amounts of so-called Property Improvement Plan costs
and termination fees paid or payable by Seller, Seller Partnership or any other
Seller Subsidiary or Lessee in cash or other consideration (including by making
commitments or incurring any liability or obligation) in connection with
obtaining consent of the franchisors (including the Franchise Consents) under
each of the Seller Franchise Agreements with respect to any Seller Property
(collectively and in the aggregate, "Franchise Fees") and (ii) the amounts paid
or required to be paid by Seller, Seller Partnership or any other Seller
Subsidiary in cash or other consideration (including by making commitments or
incurring any liability or obligation) in connection with obtaining the Ground
Lessor Consents (the "Ground Lessor Amounts"), in each case in connection with
transactions contemplated hereby and by the Contribution Agreement. If the
Franchise Fees are equal to or less than $12,500,000, the aggregate cash
consideration payable to the holders of Seller Common Shares in the Merger and
Seller Partnership Units in the Partnership Merger shall not be adjusted
pursuant to this Section 5.3(d). If the Franchise Fees exceed $12,500,000 but
are less than $25,000,000 the aggregate cash consideration payable to holders of
Seller Common Shares in the Merger and Seller Partnership Units in the
Partnership Merger shall be reduced by one-half of the amount by which the
Franchise Fees exceed $12,500,000, and the Merger Consideration and Partnership
Merger Consideration per share or unit, as the case may be, shall be reduced
accordingly. If the Franchise Fees exceed $25,000,000, at the option of Seller,
Seller may or any Seller Subsidiary may pay or commit to pay or Seller may
consent to Lessee paying or committing to pay such excess, and the aggregate
cash consideration payable to holders of Seller Common Shares in the Merger and
Seller Partnership Units in the Partnership Merger shall be reduced by the sum
of (x) $6,250,000 as required by the preceding sentence and (y) the amount by
which the Franchise Fees exceed $25,000,000, and the Merger Consideration and
Partnership Merger Consideration per share or unit, as the case may be, shall be
reduced accordingly. The Special Committee (or its representatives) shall be
provided reasonable advance notice of all meetings with and copies of all
correspondence with any franchisors under each of the Seller Franchise
Agreements and be given the opportunity to attend and participate in all such
meetings.
(e) For purposes of the last two sentences of Section 5.3(d),
no Franchise Fees that are paid or payable by Parent, Buyer or Lessee shall be
included in determining the dollar thresholds in such sentences unless Seller
shall have been consulted by Parent, Buyer or Lessee, as applicable, prior to
the incurrence of such Franchise Fees.
5.4 Public Announcements. Parent, Buyer and Seller will consult
with each other before issuing, and provide each other the opportunity to review
and comment upon, any press release or other
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written public statements with respect to the transactions contemplated by this
Agreement, and shall not issue any such press release or make any such written
public statement prior to such consultation, except as may be required by
applicable law, court process or by obligations pursuant to any listing
agreement with any national securities exchange. The parties agree that the
initial press release to be issued with respect to the transactions contemplated
by this Agreement will be in the form agreed to by the parties hereto prior to
the execution of this Agreement.
5.5 Transfer Taxes. Buyer and Seller shall cooperate in the
preparation, execution and filing of all returns, questionnaires, applications
or other documents regarding any real property transfer, sales, use, transfer,
value added, stock transfer and stamp taxes, any transfer, recording,
registration and other fees and any similar taxes which become payable in
connection with the transactions contemplated by this Agreement (together with
any related interests, penalties or additions to tax, "Transfer Taxes"). From
and after the Effective Time, the Surviving Company shall pay, or shall cause
the Surviving Operating Partnership, as appropriate, to pay or cause to be paid,
without deduction or withholding from any amounts payable to the holders of
Seller Common Shares or Seller OP Units, all Transfer Taxes.
5.6 Benefit Plans. After the Effective Time, all employees of
Seller who are employed by the Surviving Company shall, at the option of the
Surviving Company, either continue to be eligible to participate in an "employee
benefit plan," as defined in Section 3(3) of ERISA, of Seller which is, at the
option of the Surviving Company, continued by the Surviving Company, or
alternatively shall be eligible to participate in any "employee benefit plan,"
as defined in Section 3(3) of ERISA, established, sponsored or maintained by the
Surviving Company after the Effective Time. With respect to each such employee
benefit plan not formerly maintained by Seller, service with Seller or any
Seller Subsidiary (as applicable) shall be included for purposes of determining
eligibility to participate, vesting (if applicable) and entitlement to benefits
and all pre-existing condition exclusions shall be waived and expenses incurred
by any employee for deductibles and copayments in the portion of the year prior
to the date such employee first becomes a participant in such employee benefit
plan shall be credited to the benefit of such employee under such employee
benefit plan for the year in which the employee's participation commences.
5.7 Indemnification.
(a) From and after the Effective Time, the Surviving Company
shall provide exculpation and indemnification for each Person who is now or has
been at any time prior to the date hereof or who becomes prior to the Effective
Time, an officer, employee or director of Seller or any Seller Subsidiary (the
"Indemnified Parties") which is the same as the exculpation and indemnification
provided to the Indemnified Parties by Seller and the Seller Subsidiaries
immediately prior to the Effective Time in their respective articles or
certificate of incorporation and bylaws or other organizational documents, as in
effect on the date hereof; provided, that such exculpation and indemnification
covers actions on or prior to the Effective Time, including, without limitation,
all transactions contemplated by this Agreement and the Financing.
(b) In addition to the rights provided in Section 5.7(a)
above, in the event of any threatened or actual claim, action, suit, proceeding
or investigation, whether civil, criminal or administrative, including without
limitation, any action by or on behalf of any or all security holders of Seller,
Parent or Buyer, or any Subsidiary of the Seller or Parent, or by or in the
right of Seller, Parent or Buyer, or any Subsidiary of the Seller or Parent, or
any claim, action, suit, proceeding or investigation (collectively,
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"Claims") in which any Indemnified Party is, or is threatened to be, made a
party based in whole or in part on, or arising in whole or in part out of, or
pertaining to (i) the fact that he is or was an officer, employee or director of
Seller or any of the Seller Subsidiaries or any action or omission or alleged
action or omission by such Person in his capacity as an officer, employee or
director, or (ii) this Agreement or the Partnership Merger Agreement or the
transactions contemplated by this Agreement, the Partnership Merger Agreement or
the Financing, whether in any case asserted or arising before or after the
Effective Time, Parent and the Surviving Company (the "Indemnifying Parties")
shall from and after the Effective Time jointly and severally indemnify and hold
harmless the Indemnified Parties from and against any losses, claims,
liabilities, expenses (including reasonable attorneys' fees and expenses),
judgments, fines or amounts paid in settlement arising out of or relating to any
such Claims. Parent, the Surviving Company and the Indemnified Parties hereby
agree to use their reasonable best efforts to cooperate in the defense of such
Claims. In connection with any such Claim, the Indemnified Parties shall have
the right to select and retain one counsel, at the cost of the Indemnifying
Parties, subject to the consent of the Indemnifying Parties (which consent shall
not be unreasonably withheld or delayed). In addition, after the Effective Time,
in the event of any such threatened or actual Claim, the Indemnifying Parties
shall promptly pay and advance reasonable expenses and costs incurred by each
Indemnified Person as they become due and payable in advance of the final
disposition of the Claim to the fullest extent and in the manner permitted by
law. Notwithstanding the foregoing, the Indemnifying Parties shall not be
obligated to advance any expenses or costs prior to receipt of an undertaking by
or on behalf of the Indemnified Party, such undertaking to be accepted without
regard to the creditworthiness of the Indemnified Party, to repay any expenses
advanced if it shall ultimately be determined that the Indemnified Party is not
entitled to be indemnified against such expense. Notwithstanding anything to the
contrary set forth in this Agreement, the Indemnifying Parties (i) shall not be
liable for any settlement effected without their prior written consent (which
consent shall not be unreasonably withheld or delayed), and (ii) shall not have
any obligation hereunder to any Indemnified Party to the extent that a court of
competent jurisdiction shall determine in a final and non-appealable order that
such indemnification is prohibited by applicable law. In the event of a final
and non-appealable determination by a court that any payment of expenses is
prohibited by applicable law, the Indemnified Party shall promptly refund to the
Indemnifying Parties the amount of all such expenses theretofore advanced
pursuant hereto. Any Indemnified Party wishing to claim indemnification under
this Section 5.7, upon learning of any such Claim, shall promptly notify the
Indemnifying Parties of such Claim and the relevant facts and circumstances with
respect thereto; provided however, that the failure to provide such notice shall
not affect the obligations of the Indemnifying Parties except to the extent such
failure to notify materially prejudices the Indemnifying Parties' ability to
defend such Claim; and provided, further, however, that no Indemnified Party
shall be obligated to provide any notification pursuant to this Section 5.7(b)
prior to the Effective Time.
(c) At or prior to the Effective Time, Buyer shall purchase
directors' and officers' liability insurance policy coverage for Seller's and
each Seller Subsidiary's directors and officers with at least $20,000,000 of
coverage for a period of six years which will provide the directors and officers
with coverage on substantially similar terms as currently provided by Seller and
the Seller Subsidiaries to such directors and officers. At or prior to the
Effective Time, Seller shall have the right to reasonably review and approve any
such policy, which approval shall not be unreasonably withheld.
(d) This Section 5.7 is intended for the irrevocable benefit
of, and to grant third-party rights to, the Indemnified Parties and their
successors, assigns and heirs and shall be binding on all successors and assigns
of Parent and Buyer, including without limitation the Surviving Company. Each of
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the Indemnified Parties shall be entitled to enforce the covenants contained in
this Section 5.7 and Parent and Buyer acknowledge and agree that each
Indemnified Party would suffer irreparable harm and that no adequate remedy at
law exists for a breach of such covenants and such Indemnified Party shall be
entitled to injunctive relief and specific performance in the event of any
breach of any provision in this Section 5.7.
(e) In the event that the Surviving Company or any of its
respective successors or assigns (i) consolidates with or merges into any other
Person and shall not be the continuing or surviving corporation or entity of
such consolidation or merger or (ii) transfers all or substantially all of its
properties and assets to any Person, then, and in each such case, the successors
and assigns of such entity shall assume the obligations set forth in this
Section 5.7, which obligations are expressly intended to be for the irrevocable
benefit of, and shall be enforceable by, each director and officer covered
hereby.
Parent guarantees, unconditionally and absolutely, the performance of
Surviving Company's and Buyer's obligations under this Section 5.7.
5.8 Declaration of Dividends and Distributions. From and after the
date of this Agreement, Seller shall not make any dividend or distribution to
its stockholders without the prior written consent of Buyer; provided, however,
the written consent of Buyer shall not be required for the authorization and
payment of, and Seller shall make quarterly distributions with respect to the
Seller Preferred Shares in the amounts provided for in the Articles
Supplementary in respect of the Seller Preferred Shares. From and after the date
of this Agreement, Seller Partnership shall not make any distribution to the
holders of Seller OP Units except a distribution per Seller OP Unit in the same
amount as a dividend per Seller Common Share, with the same record and payment
dates as such dividend on the Seller Common Shares, and the Seller Partnership
shall not make any distribution to Seller OP Preferred Unit Holders except a
distribution per Seller OP Preferred Unit in the same amount as a dividend per
Seller Preferred Share. The foregoing restrictions, and Section 4.2(m)(i), shall
not apply, however, to the extent a distribution by Seller is necessary for
Seller to maintain REIT status or to prevent Seller from having to pay federal
income or excise tax; provided that in the event of such a necessary
distribution, the aggregate cash consideration payable to holders of Seller
Common Shares in the Merger and Seller Partnership Units in the Partnership
Merger shall be reduced by the aggregate amount of such distribution, and the
Merger Consideration and Partnership Merger Consideration per share or unit, as
the case may be, shall be reduced accordingly.
5.9 Resignations. On the Closing Date, Seller shall use its best
efforts to cause the directors and officers of Seller or any of the Seller
Subsidiaries to submit their resignations from such positions as may be
requested by Buyer, effective immediately after the Effective Time; provided,
however, that by resigning, such officers and directors will not lose the
benefit of any "change of control" provisions of any employment agreement or
other instruments to which they would otherwise be entitled.
5.10 Stockholder Claims. Seller shall not settle or compromise any
claim relating to the Transactions brought by any current, former or purported
holder of any securities of Seller or the Seller Partnership without the prior
written consent of Buyer, which consent will not be unreasonably withheld.
5.11 Seller Franchise Agreements and Leases. Except as (i)
permitted pursuant to Section 5.3 or (ii) approved by Buyer (which approval
shall not be unreasonably withheld or delayed), Seller will not, and will not
permit any of its Subsidiaries to, amend in any material respect any of the
Seller Franchise Agreements or Seller Ground Leases, or renew any Seller
Franchise Agreement or Seller Ground Lease.
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5.12 Cooperation with Proposed Financings. At the request of the
Buyer, Seller will, at the Buyer's expense, reasonably cooperate with the Buyer
in connection with the proposed financing of the Transactions by the Parent and
its Subsidiaries (including causing Seller Partnership and other Seller
Subsidiaries who are identified as borrowers in the Financing Commitment to
execute and deliver at the Closing the definitive financing agreements as
contemplated under the Financing Commitment), provided that such requested
actions do not unreasonably interfere with the ongoing operations of Seller and
Seller Subsidiaries. Solely in order to permit Parent and Buyer to consummated
the Financing, Seller shall immediately prior to the Effective Time cause to be
(i) created a special committee of the Seller Board whose sole authority and
purpose shall be to authorize the execution of definitive finance documents to
effect the Financing at the Closing and (ii) appointed to such special committee
2 designees of Parent who are reasonably acceptable to Seller. It is expressly
agreed and understood that no action or inaction of such special committee shall
be treated as action or inaction of Seller or any of its Subsidiaries for
purposes of this Agreement.
ARTICLE 6
CONDITIONS
6.1 Conditions to Each Party's Obligation to Effect the Merger.
The obligations of each party to effect the Merger and to consummate the other
transactions contemplated by this Agreement to occur on the Closing Date shall
be subject to the fulfillment at or prior to the Closing Date of the following
conditions:
(a) Stockholder Approval. The (i) Seller Stockholder
Approvals and (ii) Seller Board Approval shall have been obtained.
(b) No Injunctions or Restraints. No temporary restraining
order, preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the Merger, the Partnership Merger, the Seller Partnership
Redemption or any of the other transactions contemplated hereby (other than the
Contribution) shall be in effect.
(c) HSR. All applicable waiting periods (and any extensions
thereof) under the HSR Act shall have expired or otherwise been terminated.
6.2 Conditions to Obligations of Parent and Buyer. The obligations
of Parent and Buyer to effect the Merger and to consummate the other
transactions contemplated to occur on the Closing Date are further subject to
the following conditions, any one or more of which may be waived in writing by
Buyer (provided that the failure of any condition set forth in Section 6.2(a)
and (c) as a result of any action taken or not taken by Seller as contemplated
by Section 4.2 of the Seller Disclosure Letter, as otherwise agreed to by Parent
or as a result of the consummation of the transactions contemplated by this
Agreement and the Partnership Merger Agreement shall not cause or result in any
such condition not being satisfied):
(a) Representations and Warranties. The representations and
warranties of Seller set forth in this Agreement (i) that are qualified as to
Seller Material Adverse Effect shall be true and correct and (ii) that are not
so qualified shall be true and correct in all material respects, as of the date
of this
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Agreement and as of the Closing Date, in each case as though made on and as of
the Closing Date, except to the extent the representation or warranty is
expressly limited by its terms to another date, in which case such
representation or warranty shall be true and correct (if qualified as to Seller
Material Adverse Effect) or true and correct in all material respects (if not so
qualified) only as of such specific date, and Parent and Buyer shall have
received a certificate (which certificate may be qualified by Knowledge to the
same extent as the representations and warranties of Seller contained herein are
so qualified) signed on behalf of Seller by the chief operating officer of
Seller, in such capacity, to such effect.
(b) Performance of Obligations of Seller. Seller shall have
performed in all material respects all obligations required to be performed by
it under this Agreement at or prior to the Effective Time, and Parent and Buyer
shall have received a certificate signed on behalf of Seller by an executive
officer of Seller, in such capacity, to such effect.
(c) Material Adverse Change. Since the date of this Agreement
through and including the Closing Date, (i) there shall have been no Seller
Material Adverse Change and (ii) Parent and Buyer shall have received a
certificate of an executive officer of Seller, in such capacity, certifying to
such effect. For purposes of this Section 6.2(c), it is understood and agreed
that a Seller Material Adverse Change shall be deemed to have occurred, without
regard to any certificate provided pursuant to clause (ii) of the first sentence
of this Section 6.2(c), if, as a result of a "change of law" after the date
hereof, at the Effective Time Seller would not qualify (at or prior to the
Effective Time) as a REIT. For this purpose, the term "change in law" shall mean
any amendment to or change (including any announced prospective change having a
proposed effective date at or prior to the Effective Time) in the federal tax
laws of the United States, including any statute, regulation or proposed
regulation or any official administrative pronouncement (consisting of the
issuance or revocation of any revenue ruling, revenue procedure, notice, private
letter ruling or technical advice memorandum) or any judicial decision
interpreting such federal tax laws (whether or not such pronouncement or
decision is issued to, or in connection with, a proceeding involving the Seller
or a Seller Subsidiary or is subject to review or appeal).
(d) Tax Opinions Relating to REIT Status of Seller And
Partnership Status of Seller Partnership. Parent and Buyer shall have received
an opinion of Brobeck, Phleger and Harrison LLP, or other counsel to Seller
reasonably acceptable to Parent and Buyer, dated as of the Effective Time, in
the form attached hereto as Exhibit J. Such opinion may be based on certificates
in the form of Section 6.2(d) of the Seller Disclosure Letter.
(e) Consents. All Required Consents shall have been obtained,
and not subsequently been revoked, as of the Closing Date. In addition, the
Franchise Fees shall not exceed $25 million (unless Seller shall have exercised
its option described in the last sentence of Section 5.3(d)).
(f) Seller Expenses. All (i) investment banking, (ii) legal
and accounting, (iii) advisory, consulting and severance, (iv) printing and SEC
filing and (v) other fees and expenses incurred, paid or accrued by Seller and
the Seller Subsidiaries in connection with the Transactions shall not exceed
$11,500,000. Parent and Buyer shall have received a certificate signed on behalf
of Seller by the chief operating officer of Seller setting forth in reasonable
detail the amount of each such fees and expenses. In the event the aggregate of
such fees and expenses exceed $11,500,000, the aggregate cash consideration
payable to holders of Seller Common Shares in the Merger and Seller Partnership
Units in the Partnership
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Merger shall be reduced by the aggregate amount of such excess, and the Common
Merger Consideration and Partnership Merger Consideration per share or unit, as
the case may be, shall be reduced accordingly.
(g) Partnership Redemption. The Partnership Redemption shall
have occurred.
(h) Partnership Merger. The Partnership Merger shall have been
consummated.
(i) Financing. Parent and its Subsidiaries shall have obtained
funds under the Financing Commitment on terms and conditions consistent with
Exhibit G hereto and otherwise reasonably acceptable to Parent and Buyer and the
Original Loan Amount equals or exceeds $454,600,000 less any reduction resulting
from a Lender Property Determination up to the Defect Amount (as defined below).
Notwithstanding anything to the contrary in this Agreement, none of the
initiation, threat or existence of any legal action of any kind with respect to
this Agreement or the Partnership Merger Agreement or any transaction
contemplated hereby or thereby, including without limitation any action
initiated, threatened or maintained by any stockholder of Seller or any partner
in the Seller Partnership, whether alleging rights with respect to claims under
any Federal or state securities law, contract or tort claims, claims for breach
of fiduciary duty or otherwise, will constitute a failure of any of the
conditions set forth in Sections 6.2 and 6.3 (and no such action shall cause the
chief operating officer of Seller or of Parent or Buyer to be unable to deliver
a certificate attesting to compliance with such conditions) unless that action
has resulted in the granting of injunctive relief that prevents the consummation
of the Merger and the other transactions contemplated hereby or thereby, and
such injunctive relief has not been dissolved or vacated.
6.3 Conditions to Obligations of Seller. The obligation of Seller
to effect the Merger and to consummate the other transactions contemplated to
occur on the Closing Date is further subject to the following conditions, any
one or more of which may be waived in writing by Seller:
(a) Representations and Warranties. The representations and
warranties of Parent and Buyer set forth in this Agreement (i) that are
qualified as to Parent Material Adverse Effect or Buyer Material Adverse Effect
shall be true and correct and (ii) that are not so qualified shall be true and
correct in all material respects, as of the date of this Agreement and as of the
Closing Date, in each case as though made on and as of the Closing Date, except
to the extent the representation or warranty is expressly limited by its terms
to another date, in which case such representation or warranty shall be true and
correct (if qualified as to Parent Material Adverse Effect or Buyer Material
Adverse Effect) or true and correct in all material respects (if not so
qualified) only as of such specific date, and Seller shall have received a
certificate (which certificate may be qualified by Knowledge to the same extent
as the representations and warranties of Parent and Buyer contained herein are
so qualified) signed on behalf of Parent and Buyer by the chief executive
officer or the chief financial officer of such party, in such capacity, to such
effect.
(b) Performance of Obligations of Buyer. Each of Parent and
Buyer shall have performed in all material respects all obligations required to
be performed by them, respectively under this Agreement at or prior to the
Effective Time, and Seller shall have received a certificate of Parent and Buyer
signed on behalf of Parent and Buyer by the chief executive officer or the chief
financial officer of Parent and Buyer, in such capacity, to such effect.
(c) Material Adverse Change. Since the date of this Agreement,
there shall have been no change in the business, financial condition or results
of operations of Parent and its Subsidiaries, taken
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as a whole, or of Buyer and the Buyer Subsidiaries, taken as a whole, that has
had or would reasonably be expected to have a material adverse effect on the
ability of Parent, Buyer or Buyer Operating Partnership to consummate the
transactions contemplated by this Agreement and the Partnership Merger
Agreement, and Seller shall have received a certificate of the chief executive
officer or chief financial officer of Parent and Buyer, in such capacity,
certifying to such effect.
(d) Solvency Opinion. Seller and Seller Partnership shall have
received an opinion, by a nationally recognized firm selected by Parent and
reasonably acceptable to Seller, in a customary form for transactions of this
type as to the solvency and adequate capitalization of the Seller and Seller
Partnership immediately before and of the Surviving Company and the Surviving
Operating Partnership immediately after giving effect to the Transactions, which
opinion shall be reasonably satisfactory to Seller.
(e) Payment of Expenses. Expenses, to the extent incurred and
not exceeding $11,500,000, described in Section 6.2(f) shall have been paid in
full or a reasonably satisfactory arrangement exists to pay in full such amounts
at Closing.
(f) Partnership Merger. The Partnership Merger shall have been
consummated.
ARTICLE 7
TERMINATION, AMENDMENT AND WAIVER
7.1 Termination. This Agreement may be terminated at any time
prior to the Effective Time, (in the case of Seller, upon the direction of the
Special Committee) whether before or after the Seller Stockholder Approvals are
obtained:
(a) by mutual written consent duly authorized by Parent, Buyer
and Seller;
(b) by Parent or Buyer, upon a breach of any (i)
representation or warranty, or (ii) covenant, obligation or agreement on the
part of Seller set forth in this Agreement, in any case such that the conditions
set forth in Section 6.2(a) or Section 6.2(b), as the case may be, are not
satisfied or would be incapable of being satisfied within 30 days after the
giving of written notice to Seller (or, if sooner, the date the Closing would
otherwise occur);
(c) by Seller, upon a breach of any (i) representation or
warranty, or (ii) covenant obligation or agreement on the part of Parent or
Buyer set forth in this Agreement, in either case such that the conditions set
forth in Section 6.3(a) or Section 6.3(b), as the case may be, are not satisfied
or would be incapable of being satisfied within 30 days after the giving of
written notice to Parent or Buyer (or, if sooner, the date the Closing would
otherwise occur);
(d) by Parent, Buyer or Seller, if any judgment, injunction,
order, decree or action by any Governmental Entity of competent authority
preventing the consummation of the Merger shall have become final and
nonappealable (an "Injunction");
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(e) by Parent, Buyer or Seller, if the Merger shall not have
been consummated on or before the Outside Date; provided, however, that a party
may not terminate pursuant to this clause (e) if the terminating party shall
have breached in any material respect its representations or warranties or its
obligations under this Agreement in any manner that shall have proximately
contributed to the occurrence of the failure referred to in this clause;
(f) by either Seller (unless Seller is in breach of its
obligations under Section 5.1(c)) or Parent and Buyer (unless Parent or Buyer is
in breach of its obligations under Section 4.3(e)) if, upon a vote at a duly
held Seller Stockholders Meeting or any adjournment thereof, Seller Stockholder
Approvals shall not have been obtained as contemplated by Section 5.1 or the
Seller Partner Approval shall not have been obtained within 5 business days of
receipt of the Seller Stockholder Approvals;
(g) by Seller, prior to the Seller Stockholders Meeting, if
Seller Board or Special Committee shall have withdrawn or modified its approval
or recommendation of the Merger or this Agreement in connection with, or
approved or recommended, a Superior Acquisition Proposal; provided, however,
that no termination shall be effective pursuant to this Section 7.1(g) under
circumstances in which a Break-Up Fee (as defined in Section 7.2(b)) is payable
pursuant to Section 7.2(a)(vii), unless simultaneous with such termination, such
Break-Up Fee is paid in full by Seller or Seller Partnership in accordance with
Section 7.2(a)(vii);
(h) by Parent or Buyer if (i) prior to the Seller Stockholders
Meeting, Seller Board shall have withdrawn or modified in any manner adverse to
Buyer its approval or recommendation of the Merger or this Agreement, or
approved or recommended any Acquisition Proposal; or (ii) Seller shall have
entered into an agreement with respect to any Acquisition Proposal other than a
confidentiality agreement that was entered into in compliance with Section 4.1;
(i) by Seller, unless a Lender Property Determination (as
defined below) shall have occurred, if (x) the borrowings contemplated by the
Financing Commitment have not been closed on or prior to the date the Closing
would otherwise have occurred (except if the failure of the Closing to occur is
due to the failure of the condition set forth in Section 6.2(i) to be satisfied)
or (y) the Financing Commitment shall have terminated in accordance with its
terms or been terminated for any reason whatsoever;
(j) by Parent or Buyer, if (i) the lender under the Financing
Commitment does not provide the funds specified in the Financing Commitment on
or prior to the date the Closing would otherwise have occurred because (A) the
aggregate amount of the sum of (x) the amount of the estimated expenditures
necessary to remedy defects which are identified in the Property Reports, as
such may have been amended or supplemented, at or with respect to the Seller
Properties and, in the case of any defects at or with respect to the Seller
Properties which are identified in the Property Reports, as such may have been
amended or supplemented, which cannot be remedied, the difference between the
value of such Seller Property with such defect and its value without such defect
plus (y) the sum of all losses with respect to which there is not insurance and
which occur following the date hereof at the Seller Properties exceeds the
Defect Amount or (B) the Bench Mark Cash Flow Amount (as defined in the
Financing Commitment) is more than 1.5% less than the Bench Mark Cash Flow
Amount at May 31, 1999 (a circumstance described in either clause (A) or (B), a
"Lender Property Determination"). As used in the prior sentence, "Defect Amount"
means $25,000,000;
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(k) by Parent or Buyer if an Acquisition Proposal shall have
been publicly announced and (i) Seller shall not have rejected such proposal
within 10 business days after the date of the receipt thereof by Seller or after
the date of its existence first becomes publicly announced, if sooner, or (ii)
Seller shall have failed to confirm its recommendation described in Section 2.24
within 10 business days after being requested by Buyer to do so;
(l) by Parent or Buyer if the Franchise Fees exceed
$25,000,000 and Seller does not, within five business days of a request by
Parent, notify Parent in writing that Seller has exercised Seller's option
described in the last sentence of Section 5.3(d); and
(m) by Parent or Buyer in the event the condition set forth in
Section 6.1(a)(ii) is not satisfied by the first business day following receipt
of the Seller Stockholder Approvals.
7.2 Certain Fees and Expenses.
(a) If this Agreement shall be terminated:
(i) pursuant to Section 7.1(b)(i), then Seller and Seller
Partnership will pay Parent an aggregate amount equal to the Break-Up
Fee plus the Break-Up Expenses (provided that, in the case of a
termination by Parent or Buyer pursuant to Section 7.1(b)(i) on the
basis of a breach of (A) the representation in Section 2.9(b) that was
not willful or (B) any representation which Alter had actual knowledge
(without any duty of investigation or inquiry) as of the date hereof
was not true and correct, then Seller and Seller Partnership will pay
Parent an aggregate amount equal to the Break-Up Expenses plus
$7,500,000;
(ii) pursuant to Section 7.1(b)(ii), then Seller and
Seller Partnership will pay Parent an aggregate amount equal to the
Break-Up Fee plus the Break-Up Expenses;
(iii) pursuant to Section 7.1(c)(i), then Parent and Buyer
will pay Seller an aggregate amount equal to the Break-Up Fee plus the
Break-Up Expenses;
(iv) pursuant to Section 7.1(c)(ii), then Parent and Buyer
will pay Seller an aggregate amount equal to the Break-Up Fee plus
Break-Up Expenses;
(v) pursuant to Section 7.1(f) and at the time of the
Seller Stockholders Meeting, (A) Parent and Buyer are not in material
breach of this Agreement, and (B) the Financing Commitment and
Contribution Agreement are then in full force and effect, then Seller
and Seller Partnership will pay Parent an aggregate amount equal to the
Break-Up Expenses;
(vi) pursuant to Section 7.1(f) and (A) at or prior to the
time of the termination of this Agreement, an Acquisition Proposal has
been received by Seller or publicly announced, (B) Parent and Buyer are
not then in material breach of this Agreement, (C) the Financing
Commitment and Contribution Agreement are then in full force and
effect, and (D) either prior to the termination of this Agreement or
within 12 months thereafter an Acquisition Proposal is consummated or
Seller, Seller Partnership or any other Seller Subsidiary enters into
any written agreement, other than a confidentiality agreement (which
confidentiality agreement shall have been
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entered into in compliance with Section 4.1 if entered into prior to
the termination of this Agreement), related to any Acquisition Proposal
which is subsequently consummated, in each case with any Person (or any
Affiliate thereof) who shall have made an Acquisition Proposal prior to
the termination of this Agreement, then Seller and Seller Partnership
will pay Parent upon consummation of such Acquisition Proposal an
aggregate amount equal to the Break-Up Fee plus Break-Up Expenses (to
the extent not already paid);
(vii) pursuant to Section 7.1(g), 7.1(h) or 7.1(k) and at
the time of such termination (A) Parent and Buyer are not in material
breach of this Agreement and (B) the Financing Commitment and
Contribution Agreement are in full force and effect, then Seller and
Seller Partnership will pay Parent an aggregate amount equal to the
Break-Up Fee plus the Break-Up Expenses;
(viii) pursuant to Section 7.1(i)(x) then Parent will pay
Seller an aggregate amount equal to the Break-Up Fee plus the Break-Up
Expenses; provided, however, that Parent shall not be obligated to pay
Seller any amount if the lender terminates the Financing Commitment
because of a Lender Property Determination;
(ix) pursuant to Section 7.1(e) by Seller and Seller had
not mailed the Proxy Statement to its stockholders as permitted by
Section 5.1 due to the failure of the lender under the Financing
Commitment to deliver the certification to Seller contemplated by such
Section when Seller was otherwise prepared to mail the Proxy Statement,
then the terminating party will pay the non-terminating party an
aggregate amount equal to the Break-Up Expenses; and
(x) pursuant to Section 7.1(m) by Parent or Buyer then
Seller will pay Parent an aggregate amount equal to the Break-Up Fee
plus the Break-Up Expenses.
Notwithstanding anything in this Agreement to the contrary, the right
of a party to receive payment of the Break-Up Fee, Break-Up Expenses or other
amounts in accordance with this Section 7.2 shall be the exclusive remedy of
such party for the loss suffered by such party as a result of the failure of the
Merger and the Partnership Merger to be consummated, any breach of this
Agreement or otherwise, and no party shall have any other liability to any other
party after the payment of the Break-Up Fee, Break-Up Expenses or other amounts
(as applicable) as a result of the failure of the Merger and the Partnership
Merger to be consummated, any breach of this Agreement or otherwise. The
Break-Up Fee, Break-Up Expenses or other amounts payable by Seller and Seller
Partnership in accordance with this Section 7.2 shall be paid by Seller and
Seller Partnership to Parent, in immediately available funds within 15 days
after the date the event giving rise to the obligation to make such payment
occurred unless a different time is expressly provided. Except as provided in
Section 7.2(b), the Break-Up Fee, the Break-Up Expenses or other amounts payable
by Parent and Buyer to Seller in accordance with this Section 7.2 shall be paid
by Parent or Buyer to Seller, in immediately available funds within 15 days
after the day the event giving rise to the obligation to make such payment
occurred except as otherwise specifically provided in Section 7.2.
(b) As used in this Agreement, the "Break-Up Fee" payable to
Parent shall be an amount equal to $17,500,000. The "Break-Up Fee" payable to
Seller shall be an amount equal to the lesser of: (i) $17,500,000, (the "Base
Amount"); and (ii) the maximum amount that can be paid to Seller without causing
it to fail to meet the requirements of Sections 856(c)(2) and (3) of the Code
(the "REIT Income
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Requirements") determined as if the payment of such amount did not constitute
income described in Sections 856(c)(2) and 856(c)(3) of the Code ("Qualifying
Income"), as determined by independent accountants to Seller. Notwithstanding
the foregoing, in the event Seller receives a letter from outside counsel (the
"BreakUp Fee Tax Opinion") or a ruling from the Internal Revenue Service ("IRS")
to the effect that Seller's receipt of the Base Amount would either constitute
Qualifying Income or would otherwise not cause Seller to fail to meet the REIT
Income Requirements, the Break-Up Fee shall be an amount equal to the Base
Amount. The obligation of Parent and Buyer to pay any unpaid portion of the
Break-Up Fee not payable by reason of the foregoing provisions shall terminate
five years from the date of this Agreement. In the event that Seller is not able
to receive the full Base Amount, Parent and Buyer shall place the unpaid amount
in escrow by wire transfer within three days of termination (except as otherwise
provided in Section 7.1(c)), and the Escrow Agent shall not release any portion
thereof to Seller, and such portion shall not be payable, except in accordance
with, and unless and until the other party receives, either one or a combination
of the following: (i) a letter from Seller's independent accountants indicating
the maximum amount that can be paid at that time to Seller without causing
Seller to fail to meet the REIT Income Requirements or (ii) a Break-Up Fee Tax
Opinion, in either of which events the escrow agent or the other party shall pay
to Seller the lesser of the unpaid Base Amount or the maximum amount stated in
the letter referred to in (i) above. Parent and Buyer agree to amend this
Section 7.2 at the reasonable request of Seller solely in order to (x) maximize
the portion of the Base Amount that may be paid to Seller hereunder without
causing Seller to fail to meet the REIT Income Requirements or (y) improve
Seller's chances of securing a favorable ruling described in this Section
7.2(b), provided that no such amendment may result in any additional cost or
expense to the other party. Amounts remaining in escrow after the obligation of
a party to pay the Break-Up Fee is satisfied or otherwise terminates shall be
released to the party making such escrow deposit. The amounts described in
Sections 7.2(a)(iii) and (iv) shall be subject to the conditional limitations of
clause (ii) of this Section 7.2(b) as if it were a Break-Up Fee payable to
Seller.
(c) As used in this Agreement, the "Break-Up Expenses" payable
to Seller or Parent, as the case may be, shall be an amount, not to exceed
$7,500,000, equal to the documented out-of-pocket expenses of such party (and,
in the case of Parent, including Buyer's and Parent's respective stockholders
and members) incurred in connection with this Agreement and the transactions
contemplated hereby and any litigation associated therewith (including, without
limitation, all fees and expenses payable to financing sources or hedging
counterparties, environmental and structural consultants, attorneys',
accountants', and investment bankers' fees and expenses); provided that the
Break-Up Expenses payable to Seller shall not exceed the maximum amount that can
be paid to Seller without causing it to fail to meet the REIT Income
Requirements determined as if the payment of such amount did not constitute
Qualifying Income, as determined by independent accountants to Seller.
Notwithstanding the foregoing, in the event Seller receives a letter from
outside counsel (the "Break-Up Expenses Tax Opinion") or a ruling from the IRS
to the effect that Seller's receipt of the Break-Up Expenses would either
constitute Qualifying Income or would otherwise not cause Seller to fail to meet
the REIT Income Requirements, the Break-Up Expenses shall be determined without
regard to foregoing provisions. The obligation of Buyer, as applicable, to pay
any unpaid portion of the Break-Up Expenses not payable by reason of foregoing
proviso shall terminate five years from the date of this Agreement. In the event
that Seller is not able to receive the full Break-Up Expenses determined without
regard to foregoing proviso, Parent and Buyer shall place the unpaid amount in
escrow, and the escrow agent shall not release any portion thereof to Seller,
and such portion shall not be payable, except in accordance with, and unless and
until the Buyer receives any one or a combination of the following: (i) a letter
from Seller's independent accountants indicating the maximum amount that can be
paid at that time to Seller without causing Seller to fail to meet the REIT
Income Requirements or (ii) a Break-Up Expense
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Tax Opinion, in either of which events the escrow agent or the Buyer shall pay
to Seller the lesser of the unpaid Break-Up Expenses or the maximum amount
stated in the letter referred to in (i) above. Amounts remaining in escrow after
the obligation of a party to pay the Break-Up Expenses is satisfied or otherwise
terminates shall be released to the party making such escrow deposit. Such
Break-Up Expenses shall be reflected on invoices or other means verifying the
incurrence of such Break-Up Expenses. Buyer agrees to amend this Section 7.2 at
the reasonable request of Seller solely in order to (x) maximize the portion of
Break-Up Expenses that may be paid to Seller hereunder without causing Seller to
fail to meet the REIT Income Requirements or (y) improve Seller's chances of
securing a favorable ruling described in this Section 7.2(c), provided that no
such amendment may result in any additional cost or expense to the other party.
(d) If this Agreement shall be terminated by Seller and, as
provided in Section 7.2(a), Parent and Buyer are required to pay to Seller a
Break-Up Fee or Break-Up Expenses, then Seller shall be entitled to enforce its
rights under the Escrow Agreement to receive the Cash Collateral or to draw on
the Letter of Credit in accordance with the terms thereof. Except as described
in the preceding sentence, in no other circumstances shall Seller have any right
to receive any part of the Cash Collateral or to draw on the Letter of Credit.
If this Agreement is terminated in any circumstance other than as described in
the first sentence of this Section 7.2(d), Seller shall direct the Escrow Agent
to return the Cash Collateral of Letter of Credit, as applicable, to Parent
within one business day of any such termination. Notwithstanding anything in
this Agreement to the contrary, the receipt by Seller of amounts under the
Escrow Agreement shall be the exclusive remedy of Seller, and its stockholders,
the Seller Partnership and the OP Unit Holders for any and all losses suffered
as a result of the failure of the Merger and the Partnership Merger to be
consummated and upon payment of such amounts neither Parent nor Buyer shall have
any other liability to Seller hereunder (including under Section 7.2(a)). Any
amounts which Seller has the right to receive pursuant to this Section 7.2(d)
shall be applied as set forth in the Escrow Agreement.
(e) In the event either party is required to file suit to seek
all or a portion of the BreakUp Fee and/or Break-Up Expenses, and it ultimately
succeeds, it shall be entitled to all expenses, including attorneys' fees and
expenses, which it has incurred in enforcing its rights hereunder. Except as
specifically provided in this Section 7.2, each party shall bear its own
expenses in connection with this Agreement and the Transactions.
(f) Notwithstanding anything else to the contrary herein, if
Seller or Seller Partnership shall be required to make a payment to Parent or
Buyer pursuant to (i) Section 7.2(a), then the amount of such payment shall be
increased by $12,500,000 if, on or prior to the termination of this Agreement,
Seller has committed a willful violation of the provisions of Section 4.1 and
(ii) Section 7.2(a)(ix), then the maximum amount of Break-Up Expenses pursuant
to Section 7.2(c) shall be limited to $3,000,000.
(g) If Seller and Seller Partnership shall be required to make
a payment to Parent pursuant to Section 7.2(a)(i) and there is a dispute, as the
case may be, whether a breach of Section 2.9(b) was willful or Alter had actual
knowledge then Seller and Seller Partnership shall, no later than the time that
they were required to make such payment to Parent, deliver to the Escrow Agent
$10,000,000 or a letter of credit for such amount to be held and disbursed
pursuant to the terms of an escrow agreement substantially in the form of the
Escrow Agreement, except that such agreement shall secure the obligations of
Seller and Seller Partnership described in Section 7.2(g) rather than the
obligations of Parent secured under the Escrow Agreement, and if such dispute is
ultimately resolved in favor of Parent, in addition to the $10,000,000 held
under such escrow, Parent shall be entitled to receive interest from Seller and
Seller Partnership on such
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$10,000,000 at a rate of 5.5% per annum from the date of termination of the
Merger Agreement until Parent receives such $10,000,000.
7.3 Effect of Termination. In the event of termination of this
Agreement by Seller, Buyer or Parent as provided in Section 7.1, this Agreement
shall forthwith become void and have no effect, without any liability or
obligation on the part of Parent, Buyer, or Seller, other than in accordance
with or as provided in Section 7.2, this Section 7.3 and Article 8.
7.4 Amendment. This Agreement may be amended by Parent, Buyer and
Seller in writing by action of their respective Boards of Directors at any time
before or after any Seller Stockholder Approvals are obtained and prior to the
Effective Time; provided, however, that, after the Seller Stockholder Approvals
are obtained, no such amendment, modification or supplement shall be made which
by law requires the further approval of stockholders without obtaining such
further approval. The parties agree to amend this Agreement in the manner
provided in the immediately preceding sentence to the extent required to
continue the status of Seller as a REIT.
7.5 Extension; Waiver. At any time prior to the Effective Time, the
parties may (a) extend the time for the performance of any of the obligations or
other acts of any other party, (b) waive any inaccuracies in the representations
and warranties of any other party contained in this Agreement or in any document
delivered pursuant to this Agreement or (c) subject to the proviso of Section
7.4, waive compliance with any of the agreements or conditions of any other
party contained in this Agreement. Any agreement on the part of a party to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party. The failure of any party to this
Agreement to assert any of its rights under this Agreement or otherwise shall
not constitute a waiver of those rights.
ARTICLE 8
GENERAL PROVISIONS
8.1 Nonsurvival of Representations and Warranties. None of the
representations and warranties in this Agreement, the Partnership Merger
Agreement or in any instrument delivered pursuant to this Agreement or the
Partnership Merger Agreement confirming the representations and warranties in
this Agreement shall survive the Effective Time. This Section 8.1 shall not
limit any covenant or agreement of the parties which by its terms contemplates
performance after the Effective Time.
8.2 Notices. All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be delivered
personally, sent by overnight courier (providing proof of delivery) to the
parties or sent by telecopy (providing confirmation of transmission) at the
following addresses or telecopy numbers (or at such other address or telecopy
number for a party as shall be specified by like notice):
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(a) if to Parent or Buyer, to:
SHP Acquisition, L.L.C.
c/o Sunstone Hotel Properties, Inc.
903 Calle Amanecer
San Clemente, CA 92673
Attention: Robert A. Alter
Fax: (949) 369-4210
and to:
SHP Acquisition, L.L.C.
c/o Westbrook Real Estate Partners
599 Lexington Avenue
Suite 3800
New York, NY 10022
Attention: Jonathan Paul
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017-3954
Attention: Richard Capelouto, Esq.
Brian M. Stadler, Esq.
Fax: (212) 455-2502
and
Battle Fowler LLP
75 East 55th Street
New York, NY 10022
Attention: Steve Lichtenfeld, Esq.
Fax: (212) 856-7823
(b) if to Seller, to:
Sunstone Hotel Investors, Inc.
903 Calle Amanecer
San Clemente, CA 92673
Attention: Chief Operating Officer
Fax: (949) 369-4230
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<PAGE> 64
with a copy to:
Altheimer & Gray
10 South Wacker Drive
Chicago, IL 60606
Attention: Phillip Gordon, Esq.
Fax: (312) 715-4800
All notices shall be deemed given only when actually received.
8.3 Interpretation. When a reference is made in this Agreement to a
Section, such reference shall be to a Section of this Agreement unless otherwise
indicated. The table of contents and headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Whenever the words "include," "includes" or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation."
8.4 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties.
8.5 Entire Agreement; No Third-Party Beneficiaries. This Agreement, the
Seller Disclosure Letter, the Buyer Disclosure Letter, the Partnership Merger
Agreement and the other agreements entered into in connection with the Merger
(a) constitute the entire agreement and supersede all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter of this Agreement and (b) except as provided in Section 5.7 (the
"Third Party Provisions") are not intended to confer upon any Person other than
the parties hereto any rights or remedies. The Third Party Provisions may be
enforced by the beneficiaries thereof or on behalf of the beneficiaries thereof
by the directors of Seller who had been members of the Seller Board prior to the
Effective Time.
8.6 Governing Law. EXCEPT TO THE EXTENT THAT THE MGCL SHALL GOVERN THE
MERGER AND THE CHARTER AMENDMENTS, THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE, REGARDLESS OF
THE LAWS THAT MIGHT OTHERWISE GOVERN UNDER APPLICABLE PRINCIPLES OF CONFLICT OF
LAWS THEREOF.
8.7 Assignment. Neither this Agreement nor any of the rights, interests
or obligations under this Agreement shall be assigned or delegated, in whole or
in part, by operation of law or otherwise by any of the parties without the
prior written consent of the other parties. Subject to the preceding sentence,
this Agreement will be binding upon, inure to the benefit of, and be enforceable
by, the parties and their respective successors and assigns.
8.8 Enforcement. The parties agree that irreparable harm would occur in
the event that any of the provisions of this Agreement were not performed by any
party in accordance with their specific terms or were otherwise breached. It is
accordingly agreed that any party shall be entitled to an injunction or
injunctions to prevent or redress breaches of this Agreement by any other party
and to enforce specifically the terms and provisions of this Agreement in any
federal court located in Delaware or in Chancery Court
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<PAGE> 65
in Delaware, this being in addition to any other remedy to which they are
entitled at law or in equity. Notwithstanding the foregoing, the parties agree
that no party shall be entitled to a judgment specifically enforcing the
obligations of any other party to consummate the Merger or the Partnership
Merger. The parties agree that the provisions of Section 7.2 constitute the
exclusive remedy of any party for the loss suffered by such party as a result of
the failure of the Merger and the Partnership Merger to be consummated. In
addition, each of the parties hereto (a) consents to submit itself (without
making such submission exclusive) to the personal jurisdiction of any federal
court located in Delaware or Chancery Court located in Delaware in the event any
dispute arises out of this Agreement or any of the transactions contemplated by
this Agreement and (b) agrees that it will not attempt to deny or defeat such
personal jurisdiction by motion or other request for leave from any such court.
8.9 Severability. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable.
* * * * * *
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IN WITNESS WHEREOF, Parent, Buyer and Seller have caused this Agreement
to be signed by their respective officers thereunto duly authorized all as of
the date first written above.
SHP ACQUISITION, L.L.C.,
a Delaware limited liability company
By: /s/ Paul Kazilionis
---------------------------------------
Name: Paul Kazilionis
-------------------------------------
Title: Manager
------------------------------------
SHP INVESTORS SUB, INC.,
a Maryland corporation
By: /s/ Jonathan H. Paul
---------------------------------------
Name: Jonathan H. Paul
-------------------------------------
Title: Authorized Person
------------------------------------
SUNSTONE HOTEL INVESTORS, INC.,
a Maryland corporation
By: /s/ R. Terrence Crowley
---------------------------------------
Name: R. Terrence Crowley
-------------------------------------
Title: Chief Operating Officer
------------------------------------
SUNSTONE HOTEL INVESTORS, L.P., a Delaware limited partnership, joins
in this Agreement solely with respect to Section 7.2
By: Sunstone Hotel Investors, L.P.
By: /s/ R. Terrence Crowley
---------------------------------------
Name: R. Terrence Crowley
-------------------------------------
Title: Authorized Person
------------------------------------
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Exhibit A
---------
TERMS OF REDEMPTION
Capitalized terms used in this Exhibit A but not defined herein shall have the
meaning set forth in the Agreement and Plan of Merger dated as of July 12, 1999
by and among SHP Acquisition, L.L.C., a Delaware limited liability company, SHP
Investors Sub, Inc., a Maryland corporation, and Sunstone Hotel Investors, Inc.,
a Maryland corporation, or if not defined herein or therein, shall have the
meaning set forth in the Second Amended and Restated Agreement of Limited
Partnership of Sunstone Hotel Investors, L.P. dated as of October 14, 1997.
To effect the Seller Partnership Redemption, Seller will form a new wholly owned
subsidiary, SHP Kahler LLC, a Delaware limited liability company ("SHP Kahler"),
and will cause SHP Kahler to form (a) a wholly-owned subsidiary, SHP General,
Inc., a Delaware corporation ("SHP General") and (b) a subsidiary, SHP Limited,
LP, a Delaware limited partnership ("SHP Limited") in which SHP Kahler will hold
a 99% limited partnership interest and SHP General will hold a 1% general
partnership interest.
The redemptions and distributions set forth in paragraphs 1 through 8 below
shall occur immediately prior to the Partnership Merger
1. Seller Partnership Interests to be Redeemed. As consideration and in
exchange for the distributions of the equity interests and assets described
in items 2 through 7 below (collectively, the "Kahler Assets"), Seller
Partnership will redeem that portion of the Partnership Interest held by
Seller which is equal in value at Market Price to the fair market value of
the Kahler Assets, in each case determined as of the Business Day
immediately preceding such distributions. The Seller Partnership will
redeem such portion of the Partnership Interest held by Seller in the
following order: (i) first, all the Partnership Interest held by Seller in
the form of Seller OP Preferred Units and (ii) such portion as is necessary
of the Partnership Interest held by Seller in the form of OP Common Units,
provided that in no event shall any redemption pursuant to this paragraph 1
cause Seller to lose its status as a General Partner or a Limited Partner.
2. Distribution of Kahler E&P Partners L.P. I: Seller Partnership will make an
in-kind distribution to SHP Limited, as designated recipient of such
distribution on behalf of Seller, of the 99% limited partnership interest
in Kahler E&P Partners L.P. I held by Sunstone Hotels, LLC.
3. Distribution of University Inn Associates: Seller Partnership will make an
in-kind distribution to SHP General, as designated recipient of such
distribution on behalf of Seller, of a 1% general partnership interest in
University Inn Associates held by Seller Partnership.
Seller Partnership will make an in-kind distribution to SHP Limited, as
designated recipient of such distribution on behalf of Seller, of each of
(i) the remaining 74% general partnership interest in University Inn
Associates held by Seller Partnership (which will be converted into a 74%
limited partnership interest in University Inn Associates), (ii) the 1%
<PAGE> 68
2
limited partnership interest in University Inn Associates held by Seller
Partnership, and (iii) the 24% general partnership interest in University
Inn Associates held by Sunstone Hotels, LLC (which will be converted into a
24% limited partnership interest in University Inn Associates).
4. Distribution of Rochester and Chandler Properties: Seller Partnership will
make an in-kind distribution to SHP Limited, as designated recipient of
such distribution on behalf of Seller, of the Laundry, Rochester, Minnesota
property and the Sheraton San Marcos, Chandler, Arizona property held by
Sunstone Hotels, LLC.
5. Distribution of Santa Monica Property: Seller Partnership will make an
in-kind distribution to SHP Limited, as designated recipient of such
distribution on behalf of Seller, of the leasehold interest in the Pacific
Shore Hotel, Santa Monica, California property held by Seller Partnership.
6. Distribution of Sunstone Hotels, LLC and Park Hotels, L.C.: Seller
Partnership will make an in-kind distribution to Seller of all of the
outstanding equity interests of each of Sunstone Hotels, LLC and Park
Hotels, L.C..
7. Distribution of Ogden Property: Seller Partnership will form a new
subsidiary, SHP Ogden LLC, a Delaware limited liability company ("SHP
Ogden") and contribute the Marriott Hotel, Ogden, Utah property (the "Ogden
Marriott") to SHP Ogden. Seller Partnership will make an in-kind
distribution to SHP Limited and SHP General, as designated recipients of
such distribution on behalf of Seller, collectively, of that percentage
interest in SHP Ogden equal to the percentage of ownership interests in the
Ogden Marriott corresponding to the contribution with respect to such
property made by Kahler Realty Corporation. SHP General will receive
approximately a 1% interest in SHP Ogden and SHP Limited will receive the
remaining portion of such distribution. Seller Partnership will retain
ownership of that portion of the ownership interest in SHP Ogden which is
not distributed to SHP Limited and SHP General.
8. Other Transfer. Seller will cause SSIE & P Corp. I to transfer its 1%
general partnership interest in Kahler E&P Partners L.P. I to SHP General.
Notwithstanding the foregoing, the Seller Redemption may be effected in any
alternative manner mutually agreed upon by Seller and Parent, provided that such
alternative is acceptable to the lenders under the Financing Commitment and will
not result in the Merger or the Partnership Merger causing the disposition of
any asset subject to rules similar to Section 1374 of the Code as a result of an
election under Internal Revenue Service Notice 88-19.
<PAGE> 69
Exhibit B
LESSEE/MANAGER AGREEMENT
AMONG
SUNSTONE HOTEL INVESTORS, INC.
SUNSTONE HOTEL INVESTORS, L.P.
ROBERT A. ALTER
CHARLES L. BIEDERMAN
SUSNTONE HOTEL PROPERTIES, INC.
AND
SUNSTONE HOTEL MANAGEMENT, INC.
DATED AS OF JULY 12, 1999
<PAGE> 70
TABLE OF CONTENTS
ARTICLE 1
DEFINITIONS..........................................................2
Section 1.1 Definitions........................................2
Section 1.2 Other Interpretive Provisions......................8
ARTICLE 2
SALE OF LESSEE AND MANAGEMENT EQUITY,
PAYMENT AND CLOSING..................................................8
Section 2.1 Purchase Price.....................................8
Section 2.2 Closing Events.....................................8
Section 2.3 Time and Place of Closing..........................8
ARTICLE 3
DRAG-ALONG RIGHT OF SUNSTONE PARTIES.................................9
Section 3.1 Drag-Along.........................................9
Section 3.2 Notice. ...........................................9
Section 3.3 Exercise...........................................9
Section 3.4 Third Party Acquiror Agreement and Termination
of Merger Agreement.............................9
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE PARTIES.......................10
Section 4.1 Representations and Warranties of the
Stockholders...................................10
Section 4.2 Representations and Warranties of the Sunstone
Parties........................................25
Section 4.3 Survival of Representations and Warranties........26
Section 4.4 Exclusion of Contribution Agreement...............27
ARTICLE 5
COVENANTS ..........................................................27
Section 5.1 Conduct of Business Pending the Closing...........27
Section 5.2 Transfers of Equity Interests.....................29
Section 5.3 Access to Information.............................29
Section 5.4 Agreement to Cooperate; Further Assurances........29
Section 5.5 Consents..........................................30
Section 5.6 Public Statements.................................30
Section 5.7 Notification of Certain Matters...................30
Section 5.8 Intentionally Omitted.............................30
Section 5.9 Transfer Taxes....................................30
Section 5.10 Injunctions or Restraints.........................30
i
<PAGE> 71
Section 5.11 Certification of United States Status of Alter
and Biederman..................................31
Section 5.12 Spousal Claims....................................31
Section 5.13 Certain Obligations...............................31
ARTICLE 6
CONDITIONS TO CLOSING...............................................32
Section 6.1 Conditions Precedent to Obligations of Each
Party..........................................32
Section 6.2 Conditions Precedent to Obligation of the
Sunstone Parties...............................32
Section 6.3 Conditions Precedent to Obligations of Alter......33
Section 6.4 Conditions Precedent to Obligations of Biederman..34
ARTICLE 7
TERMINATION.........................................................34
Section 7.1 Termination Events................................34
Section 7.2 Effect of Termination.............................35
ARTICLE 8
INDEMNIFICATION.....................................................35
Section 8.1 Indemnification by Sunstone Parties...............35
Section 8.2 Indemnification by Alter..........................35
Section 8.3 Indemnification by Biederman......................36
Section 8.4 Tax Indemnification...............................36
Section 8.5 Third-Party Claims................................36
Section 8.6 Termination of Indemnification....................37
Section 8.7 Limitations on Indemnity Obligations..............37
Section 8.8 Allocation of Certain Indemnity Obligations.......38
Section 8.9 Exclusive Remedy..................................38
ARTICLE 9
MISCELLANEOUS AGREEMENTS OF THE PARTIES.............................39
Section 9.1 Notices...........................................39
Section 9.2 Integration; Amendments...........................40
Section 9.3 Waiver............................................40
Section 9.4 No Assignment; Successors and Assigns.............40
Section 9.5 Expenses..........................................41
Section 9.6 Severability......................................41
Section 9.7 Section Headings; Table of Contents...............41
Section 9.8 Third Parties.....................................41
Section 9.9 GOVERNING LAW.....................................41
Section 9.10 Enforcement.......................................41
Section 9.11 Counterparts......................................42
Section 9.12 Cumulative Remedies...............................42
Section 9.13 Consent of Regina Biederman.......................42
ii
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EXHIBIT LIST
Exhibit 3.2
Exhibit 3.3
Exhibit 3.4
iii
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SCHEDULE LIST
Schedule 4.1(a)
Schedule 4.1(c)
Schedule 4.1(d)
Schedule 4.1(e)
Schedule 4.1(f)(i)
Schedule 4.1(f)(ii)
Schedule 4.1(f)(iii)
Schedule 4.1(g)
Schedule 4.1(h)
Schedule 4.1(h)(viii)
Schedule 4.1(i)(ii)
Schedule 4.1(i)(iii)
Schedule 4.1(i)(iv)
Schedule 4.1(i)(v)
Schedule 4.1(i)(vi)
Schedule 4.1(i)(vii)
Schedule 4.1(j)
Schedule 4.1(k)
Schedule 4.1(n)
Schedule 4.1(o)
Schedule 4.1(o)(vi)
Schedule 4.1(q)(ii)
Schedule 4.1(q)(iii)
Schedule 4.1(s)
Schedule 4.1(t)
Schedule 4.1(u)
Schedule 4.2(c)
Schedule 4.2(d)
Schedule 5.1(o)
Schedule 5.13(a)
Schedule 5.13(b)
iv
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LESSEE/MANAGER AGREEMENT
------------------------
This LESSEE/MANAGER AGREEMENT (the "Agreement"), dated as of July 12,
1999, among SUNSTONE HOTEL INVESTORS, INC., a Maryland corporation ("Sunstone"),
SUNSTONE HOTEL INVESTORS, L.P., a Delaware limited partnership ("Sunstone OP";
Sunstone and Sunstone OP sometimes hereinafter collectively referred to as
"Sunstone Parties"), ROBERT A. ALTER ("Alter"), CHARLES L. BIEDERMAN
("Biederman"; Alter and Biederman sometimes hereinafter collectively referred to
as the "Stockholders"), SUNSTONE HOTEL PROPERTIES, INC., a Colorado corporation
("Lessee") and SUNSTONE HOTEL MANAGEMENT, INC., a Colorado corporation
("Management").
R E C I T A L S:
WHEREAS, the Lessee is the lessee of hotels owned by Sunstone OP;
WHEREAS, Management has entered into management agreements with the
Lessee for each of the hotels the Lessee has leased from Sunstone OP;
WHEREAS, Alter is the beneficial owner of eighty percent (80%)(the
"Alter Lessee Stock") of the issued and outstanding shares of $0.01 par value
per share of common stock of the Lessee (the "Lessee Common Stock") and
Biederman is the beneficial owner of twenty percent (20%) (the "Biederman Lessee
Stock") of the issued and outstanding Lessee Common Stock;
WHEREAS, Alter is the beneficial owner of one hundred percent (100%) of
the issued and outstanding shares of $0.01 par value per share of common stock
of Management (the "Management Common Stock," and together with the Lessee
Common Stock, the "Lessee and Management Equity");
WHEREAS, concurrently with the execution and delivery of this
Agreement, Parent has entered into a Merger Agreement (the "Merger Agreement")
dated as of the date hereof with Sunstone, SHP Investors Sub, Inc., a Maryland
corporation ("Buyer") and subsidiary of SHP Acquisition, L.L.C., a Delaware
limited liability company ("Parent") and certain other parties pursuant to
which, and subject to the terms and conditions thereof, Buyer shall merge with
and into Sunstone (the "Merger");
WHEREAS, concurrently with the execution and delivery of this
Agreement, Parent has entered into a merger agreement (the "Partnership Merger
Agreement") dated as the date hereof with Sunstone OP, and certain other parties
pursuant to which and subject to the terms and conditions thereof, SHP
Properties, L.L.C., a Delaware limited liability company and a subsidiary of
Parent ("SHP Properties"), shall merge with and into Sunstone OP (the
"Partnership Merger"); and
<PAGE> 75
WHEREAS, concurrently with the execution and delivery of the Merger
Agreement, Alter and Biederman and Sunstone Parties desire to enter into this
Agreement pursuant to which, under certain circumstances, Sunstone Parties shall
have the right to require the Stockholders, and such Stockholders shall have the
obligation, to sell all of their respective interests in the Lessee and
Management Equity to certain third parties.
NOW, THEREFORE, in consideration of the premises, mutual covenants and
agreements contained herein, the sufficiency of which is hereby acknowledged and
intending to be legally bound, the parties hereto hereby agree as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.1 DEFINITIONS. (a) Capitalized terms used and not defined in
this Agreement shall have the meanings set forth in the Merger Agreement. For
the purposes of this Agreement, the following terms shall have the meanings set
forth below:
"ADVANCE BOOKING AGREEMENT" means any agreement relating to advance reservations
and bookings of the Real Property or any facilities therein taken from guests,
groups, conventions or others.
"AFFILIATE" means with respect to a specified Person, any Person that directly
or indirectly, through one or more intermediaries, Controls, is Controlled by,
or is under common Control with, the specified Person.
"ALTER LESSEE STOCK" shall have such meaning ascribed to such term in the
recitals hereto.
"ASSUMPTION AGREEMENT" shall have such meaning ascribed to such term in Section
4.4 hereof.
"BIEDERMAN" shall have the meaning ascribed to such term in the preamble hereto.
"BIEDERMAN LESSEE STOCK" shall have such meaning ascribed to such term in the
recitals hereto.
"BUSINESS DAY" means a day, other than Saturday or Sunday, on which commercial
banks in New York City are open for the general transaction of business.
"BUYER" shall have the meaning described to such term in the recitals hereto.
"CLOSING" shall mean the consummation of the purchase and sale of the Lessee and
Management Equity as contemplated by this Agreement.
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"CLOSING DATE" means the date of the Closing hereunder, as provided in Section
2.3 hereof.
"CODE" means the Internal Revenue Code of 1986, as amended.
"CONTROL" means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of a Person, whether
through ownership of voting securities, as trustee or executor, by contract or
credit arrangement or otherwise.
"EFFECTIVE DATE OF THIS AGREEMENT" shall mean the date on which Sunstone Parties
and Stockholders execute this Agreement, or if Sunstone Parties and Stockholders
do not execute this Agreement on the same day, the later of the dates on which
Sunstone Parties and Stockholders execute this Agreement.
"ENVIRONMENTAL LAWS" means any and all laws, rules, orders, regulations,
statutes, ordinances, guidelines, codes, decrees, or other legally enforceable
requirement (including, without limitation, common law) of any foreign
government, the United States, or any state, local, municipal or other
governmental authority, regulating, relating to or imposing liability or
standards of conduct concerning protection of the environment of human health,
or employee health and safety.
"EQUIPMENT LEASE" means any lease or rental agreement relating to the equipment,
services, vehicles, furniture or any other type of personal property of
Management or Lessee together with all supplements, amendments and modifications
thereto.
"GAAP" means generally accepted accounting principles in the United States.
"GOVERNMENTAL AUTHORITY" means any nation or government, any state or other
political subdivision thereof, and any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to such
government.
"HOTEL MANAGEMENT AGREEMENT" means any hotel management agreement relating to
the management and operation of the Real Property together with all supplements,
amendments and modifications thereto.
"HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended.
"KNOWLEDGE" shall mean (i) as to Alter or Biederman, that such individual, as
applicable, has actual knowledge without due inquiry, and (ii) as to Sunstone
Parties, that R. Terrence Crowley, Daniel Lutz, Kenneth Coatsworth and Gary
Stougaard have actual knowledge without due inquiry, without imputing to any
such party any knowledge of any other party, including, without limitation, any
agents, managing agents or other representatives of such party.
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"LEASED REAL PROPERTY" shall mean hotels or other property subject to a lease
between Sunstone OP and the Lessee.
"LESSEE" shall have the meaning ascribed to such term in the preamble hereto.
"LESSEE AND MANAGEMENT EQUITY" shall have the meaning ascribed to such term in
the recitals hereto.
"LESSEE COMMON STOCK" shall have the meaning ascribed to such term in the
recitals hereto.
"LIABILITY" means, as to any Person, all debts, liabilities and obligations,
direct, indirect, absolute or contingent of such Person, whether accrued, vested
or otherwise, whether known or unknown and whether or not actually reflected, or
required in accordance with GAAP to be reflected, in such Person's balance
sheets.
"LIEN" means any mortgage, pledge, security interest, claim, encumbrance, lien
or charge of any kind.
"LIQUOR LICENSE" means any alcoholic beverage license relating to the use and/or
operation of the Real Property.
"LOSSES" means any and all damages, claims, losses, expenses, costs and
Liabilities including, without limiting the generality of the foregoing,
Liabilities for all reasonable attorneys' fees and expenses (including
reasonable attorney and expert fees and expenses incurred to enforce the terms
of this Agreement).
"MANAGEMENT" shall have the meaning ascribed to such term in the preamble
hereto.
"MANAGEMENT AGREEMENT" means any agreement relating to the management of any of
the Real Property.
"MANAGEMENT ASSETS" means all the properties, assets and other rights of
Management owned or used by Management in the conduct of its business.
"MATERIAL ADVERSE EFFECT" means (x) a material adverse effect on (i) the assets,
Liabilities, business, results of operations or condition (financial or
otherwise) of Lessee and Management, taken as a whole, or (ii) the ability of
Alter or Biederman to perform his obligations hereunder or (y) the effect of
preventing or delaying beyond December 31, 1999 the consummation of the
Transactions.
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"MATERIALS OF ENVIRONMENTAL CONCERN" means any gasoline or petroleum (including,
without limitation, crude oil or any fraction thereof) or petroleum products,
polychlorinated biphenyls, urea-formaldehyde insulation, asbestos, pollutants,
contaminants, radioactivity, and any other substances of any kind, whether or
not any such substance is defined as hazardous or toxic under any Environmental
Law, that is regulated pursuant to or could give rise to liability under any
Environmental Law.
"MERGER" shall have the meaning ascribed to such term in the recitals hereto.
"MERGER AGREEMENT" shall have the meaning ascribed to such term in the recitals
hereto.
"PARENT" shall have the meaning ascribed to such term in the recitals hereto.
"PARTNERSHIP MERGER AGREEMENT" shall have the meaning ascribed to such term in
the recitals hereto.
"PERMITTED LIENS" means (i) Liens for Taxes that (x) are not yet due or
delinquent or (y) are being contested in good faith by appropriate proceedings
and for which adequate reserves have been established in accordance with GAAP;
(ii) statutory Liens or landlords', carriers', warehousemen's, mechanics',
suppliers', materialmen's, repairmen's or other like Liens arising in the
ordinary course of business with respect to amounts not yet overdue for a period
of 45 days or amounts being contested in good faith by appropriate proceedings
if a reserve or other appropriate provision, if any, as shall be required by
GAAP shall have been made therefor; (iii) Liens incurred or deposits made in
connection with workers' compensation, unemployment insurance and other types of
social security or similar benefits; (iv) Liens incurred or deposits made to
secure the performance of tenders, bids, leases, statutory obligations, surety
and appeal bonds, government contracts, performance and return-of-money bonds
and other obligations of like nature; (v) any installment not yet due and
payable of assessments of any Governmental Authority imposed after the date
hereof; (vi) the rights and interests held by tenants under any Space Leases or
subleases of the Real Property Leases; and (vii) any other Liens imposed by
operation of law that do not, individually or in the aggregate, materially
affect the relevant entity or business, taken as a whole.
"PERSON" means any individual, corporation, partnership, joint venture, trust,
incorporated organization, limited liability company, other form of business or
legal entity or Governmental Authority.
"PURCHASE PRICE" shall have the meaning given such term in Section 2.1 of this
Agreement.
"REAL PROPERTY" means the Leased Real Property and real property, if any, owned
by Management or Lessee.
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"SERVICE CONTRACT" means any contract and/or agreement relating to the operation
and maintenance of the Real Property, including service agreements, brokerage
commission agreements, maintenance contracts, contracts for purchase of delivery
of services, materials, goods, inventory or supplies, cleaning contracts,
equipment rental agreements, equipment leases or leases of personal property
(other than franchise agreements and Management Agreements), together with all
supplements, amendments and modifications thereto.
"SHP PROPERTIES" shall have the meaning ascribed to such term in the recitals
hereto.
"SPACE LEASE" means any lease or other agreement demising space in or providing
for the use or occupancy of all or any portion of the Real Property and all
guaranties thereof.
"SUBSIDIARY" or "SUBSIDIARIES" of any Person means any corporation, partnership,
limited liability company, joint venture or other legal entity of which such
Person (either alone or through or together with any other subsidiary), owns,
directly or indirectly, more than 50% of the stock or other equity interests,
the holders of which are generally entitled to vote for the election of the
board of directors or other governing body of such corporation or other legal
entity and any partnership of which such Person serves as general partner.
"SUPERIOR ACQUISITION PROPOSAL" shall have such meaning ascribed to such term in
the Merger Agreement.
"SUNSTONE" shall have the meaning ascribed to such term in the recitals hereto.
"SUNSTONE OP" shall have the meaning ascribed to such term in the recitals
hereto.
"TAX RETURN" means any return, report or statement required to be filed with any
governmental authority with respect to Taxes, including any schedule or
attachment thereto or amendment thereof.
"TAXES" means any taxes of any kind, including but not limited to those on or
measured by or referred to as income, gross receipts, capital, sales, use, ad
valorem, franchise, profits, license, withholding, payroll, employment, excise,
severance, stamp, occupation, premium, value added, property or windfall profits
taxes, customs, duties or similar fees, assessments or charges of any kind
whatsoever, together with any interest and any penalties, additions to tax or
additional amounts imposed by any governmental authority, domestic or foreign.
"THIRD PARTY ACQUIROR" shall mean all parties other than Parent, Buyer or the
Sunstone Parties who are a party to a Superior Proposal Transaction and shall
include all Persons which Control such parties.
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"TRANSFER" means, directly or indirectly, assign, sell, exchange, transfer,
pledge, mortgage, hypothecate or otherwise dispose or encumber.
"TRANSACTIONS" means all of the transactions contemplated hereby.
(b) The terms used in this Agreement which are defined in (a) the
introductory paragraphs of this Agreement, (b) in the further Articles of this
Agreement, and (c) in the Schedules and Exhibits attached to this Agreement,
shall have the respective definitions there ascribed to them.
(c) As used in this Agreement, each of the following capitalized terms
shall have the meaning ascribed to them in the Section set forth opposite such
term:
Term Section
---- -------
Agreement Preamble
Alter Preamble
Alter Purchase Price 2.2(b)
Biederman Preamble
Business Intellectual Property 4.1(l)
Biederman Lessee Stock Recitals
Biederman Purchase Price 2.2(a)
Closing 2.3
Controlled Group Member 4.1(o)
December 31 Balance Sheets 4.1(f)(i)
December 31 Financial Statements 4.1(f)(i)
Drag-Along Right 3.1
Employee Plan 4.1(o)
ERISA 4.1(o)
Expenses 7.2
Execution Notice 3.2
Insurance Policies 4.1(t)
Intellectual Property 4.1(l)
Lessee Recitals
Lessee Line of Credit 5.1(o)
Lessee Subsidiary 4.1(e)(ii)
Management Recitals
March 31 Balance Sheets 4.1(f)(ii)
March 31 Financial Statements 4.1(f)(ii)
Merger Recitals
Merger Agreement Recitals
Multiemployer Plan 4.1(o)
Partnership Merger Recitals
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<PAGE> 81
Term Section
---- -------
Partnership Merger Agreement Recitals
Pension Plan 4.1(o)
Real Property Leases 4.1(j)(ii)
SAP Purchase Agreement 3.2
Section (v) Contract 4.1(i)(v)
Term Section
Term Section
Securities Act 4.1(v)
Straddle Period 8.4(b)
Sunstone Recitals
Sunstone OP Recitals
Sunstone Stock Recitals
Superior Proposal Transaction 3.1
Technology 4.1(l)
Vacation Policy 5.8(c)
Welfare Plan 4.1(o)
SECTION 1.2 OTHER INTERPRETIVE PROVISIONS. The words "include",
"includes and "including" shall be deemed to be followed by the phrase "without
limitation." The words "hereof", "herein," "hereby" and "hereunder" and words of
similar import when used in this Agreement shall refer to this Agreement as a
whole and not to any particular provision of this Agreement, and Section,
Schedule and Exhibit references are to this Agreement unless otherwise
specified. The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
ARTICLE 2
SALE OF LESSEE AND MANAGEMENT EQUITY,
PAYMENT AND CLOSING
SECTION 2.1 PURCHASE PRICE. The aggregate consideration for the sale of
the Lessee and Management Equity shall be Thirty Million and No/100 Dollars
($30,000,000.00) (the "Purchase Price"). The Purchase Price shall be paid by
Sunstone Parties at the Closing by wire transfer of immediately available
federal funds to an account as designated by the Stockholders in writing not
less than two days prior to the Closing Date.
SECTION 2.2 CLOSING EVENTS.
(a) Deliveries by Biederman. At Closing Biederman will transfer to
Sunstone Parties or their designee the Biederman Lessee Stock (which Biederman
Lessee Stock shall constitute 20% of the issued and outstanding Lessee Common
Stock as of the Closing Date), and Sunstone Parties will pay Biederman cash in
consideration for such Biederman Lessee Stock 18.33% of the Purchase Price (such
amount, the "Biederman Purchase Price").
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(b) Deliveries by Alter. At Closing Alter will transfer to Sunstone
Parties or their designee the Alter Lessee Stock (which Alter Lessee Stock shall
constitute 80% of the issued and outstanding Lessee Common Stock as of the
Closing Date) and the Management Common Stock (which Management Common Stock
shall constitute 100% of the issued and outstanding Management Common Stock as
of the Closing Date), and Sunstone Parties will pay Alter cash in consideration
for such Alter Lessee Stock and Management Common Stock 81.67% of the Purchase
Price (such amount, the "Alter Purchase Price").
SECTION 2.3 TIME AND PLACE OF CLOSING. Subject to the satisfaction (or
waiver by the parties entitled to the benefit thereof) of the conditions set
forth in Article VI, the closing of the transactions contemplated hereby (the
"Closing") shall take place at the offices of Battle Fowler LLP, 75 East 55th
Street, New York, New York 10022 concurrently with the closing of the Superior
Proposal Transaction.
ARTICLE 3
DRAG-ALONG RIGHT OF SUNSTONE PARTIES
SECTION 3.1 DRAG-ALONG. The Stockholders agree that concurrently with
the consummation of any Superior Acquisition Proposal (such a transaction, a
"Superior Proposal Transaction"), Sunstone Parties shall have the right (the
"Drag-Along Right") to require Alter and Biederman, and Alter and Biederman
shall have the obligation, to sell to Sunstone Parties or the Third Party
Acquiror in such Superior Proposal Transaction all, but not less than all, of
the Lessee and Management Equity in consideration of the Purchase Price.
SECTION 3.2 NOTICE. If Sunstone Parties enter into a definitive
agreement constituting a Superior Acquisition Proposal (such an agreement, the
"SAP Purchase Agreement"), then Sunstone Parties shall promptly deliver written
notice in the form of Exhibit 3.2 hereof (such notice, the "Execution Notice")
no later than five (5) days after entering into such agreement to the
Stockholders, attaching thereto (1) a true, correct, complete and originally
executed copy of the SAP Agreement together with all exhibits and schedules
thereto and all related ancillary agreements executed and delivered in
connection therewith by the parties thereto, (2) an originally executed copy of
the Assumption Agreement (as defined below), and (3) an originally executed copy
of the Drag-Along Notice (as defined below).
SECTION 3.3 EXERCISE. If Sunstone Parties decide to exercise their
Drag-Along Right; provided that the Merger Agreement shall have been terminated
in accordance with its terms, then Sunstone Parties shall exercise the
Drag-Along Right by delivery of written notice in the form of Exhibit 3.3 (the
"Drag Along Notice") to each of Alter and Biederman simultaneously with the
delivery of the Execution Notice. The Drag-Along Right must be exercised for all
of the Lessee and Management Equity and must be executed and delivered within
five (5) days after entering into a SAP Agreement.
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SECTION 3.4 THIRD PARTY ACQUIROR AGREEMENT AND TERMINATION OF MERGER
AGREEMENT. Concurrently with the delivery of the Drag-Along Notice and as a
condition precedent to the Drag-Along Right, Sunstone Parties shall cause the
Third Party Acquiror to execute and deliver an Assumption Agreement pursuant to
which the Third Party Acquiror shall assume and guarantee the performance of all
of the obligations of Sunstone Parties under this Agreement. If the Third Party
Acquiror fails to execute and deliver an assumption agreement in the form
attached hereto as Exhibit 3.4 (the "Assumption Agreement") or the Merger
Agreement shall not have terminated, then Sunstone Parties shall be prohibited
from exercising the Drag- Along Right and any obligations of the Stockholders
hereunder shall immediately terminate. The execution and delivery of the
Assumption Agreement by the Third Party Acquiror shall not relieve, discharge or
otherwise release the Sunstone Parties from any of their obligations under this
Agreement.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE PARTIES
SECTION 4.1 REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS. Alter
and Biederman jointly and severally represent and warrant to Sunstone Parties
with respect to the Lessee and Lessee Common Stock, and Alter severally
represents and warrants with respect to Management and the Management Common
Stock, as follows:
(a) Due Organization; Power and Good Standing. Each of Management and
Lessee is duly organized, validly existing and in good standing under the laws
of its jurisdiction of organization, and has the requisite power and authority
to own, lease and operate its properties and to conduct its business as now
conducted by it. Each of Management and Lessee is qualified to do business and
is in good standing as a foreign corporation in all jurisdictions in which it
conducts its business, except where the failure to be so qualified would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect. Complete and correct copies of the Certificate of Incorporation
and Bylaws of Management and Lessee are set forth in Schedule 4.1(a) hereto.
(b) Authorization and Validity of Agreement. Each of the Stockholders
has all requisite power and authority to enter into this Agreement and to
perform his obligations hereunder. This Agreement has been duly executed and
delivered by each of the Stockholders, as the case may be, and constitutes a
valid and legally binding obligation of each of the Stockholders enforceable
against each Stockholder in accordance with its terms. Alter is not married as
of the date of this Agreement and agrees that if he becomes married prior to the
Closing Date, his spouse shall execute and deliver an acknowledgment to the
other parties hereto to the effect of the consent set forth in Section 9.13.
(c) No Government Approvals or Notices Required; No Conflict with
Instruments. Except as described in Schedule 4.1(c), the execution, delivery and
performance of
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this Agreement by the Stockholders and the consummation by each of them of the
Transactions will not (i) violate, conflict with or result in a breach of any
provision of the Certificate of Incorporation or Bylaws of the Lessee or
Management, (ii) except for any filings required under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), require any
consent, approval, authorization or permit of, or filing with or notification
to, any Governmental Authority, (iii) require the consent or approval of any
Person (other than a Governmental Authority), violate, conflict with or result
in a breach of any provision of, constitute a default (or an event which with
notice or lapse of time or both would become a default) under, or give to any
Person any right of termination, cancellation, amendment, purchase, sale or
acceleration under, or result in the creation of a Lien on any of the assets,
properties or stock of Management, Lessee, any Lessee Subsidiary, Sunstone or
any of Sunstone's Subsidiaries under, any of the provisions of any contract,
lease, note, permit, franchise, license or other instrument or agreement to
which such Person is a party or by which it or its assets or properties are
bound, or (iv) violate or conflict with any order, writ, injunction, decree,
statute, rule or regulation of any Governmental Authority or arbitrator
applicable to Management, Lessee, any Lessee Subsidiary, Sunstone or any of
Sunstone's Subsidiaries, or any of their respective assets or properties; other
than any consents and approvals the failure of which to obtain and any
violations, conflicts, breaches and defaults set forth pursuant to clauses (ii),
(iii) and (iv) above which, individually or in the aggregate, would not
reasonably be expected to have a Material Adverse Effect.
(d) Capitalization. The authorized, issued and outstanding capital
stock of Management and Lessee, and the ownership thereof, is described on
Schedule 4.1(d). All such issued shares of Management and Lessee have been duly
authorized and validly issued, are fully paid and non-assessable and have not
been issued in violation of any preemptive rights. There are no equity interests
in Management or Lessee reserved for issuance, and there are (i) no options,
warrants or rights of any kind to acquire any equity interests in, or any other
securities that are convertible into or exchangeable for any equity interest in,
Management or Lessee and (ii) no agreements, commitments or arrangements
relating to the sale, issuance, redemption, purchase, acquisition or voting of
or the granting of a right to acquire any capital stock of Management or Lessee
or any options, warrants, rights or securities described in clause (i) other
than this Agreement.
(e) Subsidiaries.
(i) There is no corporation, partnership or other entity in which
Management directly or indirectly owns any equity or other interest.
(ii) (A) Schedule 4.1(e) sets forth (x) each Subsidiary of Lessee
("Lessee Subsidiary"), (y) the ownership interest therein of Lessee and (z)
if not wholly owned by Lessee, the identity and ownership interest of each
of the other owners of such Lessee Subsidiary.
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(B) (1) All the outstanding shares of capital stock owned by Lessee of
each Lessee Subsidiary that is a corporation have been validly issued and
are (x) fully paid, nonassessable and free of any preemptive rights, (y)
owned by Lessee or by another Lessee Subsidiary and (z) owned free and
clear of all Liens or any other limitation or restriction (including any
contractual restriction on the right to vote or sell the same) other than
restrictions under applicable securities laws; and (2) all equity interests
in each Lessee Subsidiary that is a partnership, joint venture, limited
liability company or trust which are owned by Lessee, by another Lessee
Subsidiary or by Lessee and another Lessee Subsidiary are owned free and
clear of all Liens or any other limitation or restriction (including any
contractual restriction on the right to vote or sell the same) other than
restrictions under applicable securities laws. Each Lessee Subsidiary that
is a corporation is duly incorporated and validly existing under the Laws
of its jurisdiction of incorporation and has the requisite corporate power
and authority to carry on its business as now being conducted, and each
Lessee Subsidiary that is a partnership, limited liability company or trust
is duly organized and validly existing under the laws of its jurisdiction
of organization and has the requisite power and authority to carry on its
business as now being conducted. Each Lessee Subsidiary is duly qualified
or licensed to do business and is in good standing in each jurisdiction in
which the nature of its business or the ownership or leasing of its
properties makes such qualification or licensing necessary, other than in
such jurisdictions where the failure to be so qualified or licensed,
individually or in the aggregate, would not have a Material Adverse Effect.
True and correct copies of the charter, by-laws, organizational documents
and partnership, joint venture and operating agreements of each Lessee
Subsidiary, and all amendments to the date of this Agreement, have been
made available to Sunstone Parties and examined by Sunstone Parties on or
prior to the date hereof.
(f) Financial Information, Liabilities.
(i) Attached as Schedule 4.1(f)(i) are the audited consolidated
balance sheets of each of (i) Management and (ii) Lessee and its
Subsidiaries as at December 31, 1998 (the "December 31 Balance Sheets") and
the accompanying audited consolidated statements of operations and cash
flows and, with respect to the Lessee, stockholder's equity for the year
then ended audited by Ernst & Young LLP (together with the December 31
Balance Sheets, the "December 31 Financial Statements"). The December 31
Financial Statements have been prepared in accordance with GAAP (except as
may be indicated in the notes thereto) and fairly present in all material
respects the consolidated financial position of each of Management and
Lessee as at December 31, 1998 and the results of operations of each of
Management and Lessee for the year then ended.
(ii) Attached as Schedule 4.1(f)(ii) are the unaudited consolidated
balance sheets of each of (i) Management and (ii) Lessee and its
Subsidiaries as at March 31, 1999 (the "March 31 Balance Sheets") and the
accompanying unaudited consolidated statements of operations and cash flows
for the three months then ended (together with the March 31
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Balance Sheet, the "March 31 Financial Statements"). The March 31 Financial
Statements have been prepared in a manner consistent with that employed in
the December 31 Financial Statements except as disclosed in the notes to
such financial statements. The March 31 Financial Statements have been
prepared in accordance with GAAP and fairly present (subject to normal
year-end adjustments, which adjustments are not material) in all material
respects the financial positions of each of Management and Lessee as at
March 31, 1999 and the results of operations of each of Management and
Lessee for the three months then ended.
(iii) None of Management, Lessee or any of the Lessee Subsidiaries has
any Liabilities except: (A) as set forth on Schedule 4.1(f)(iii); (B)
Liabilities disclosed on the applicable March 31, 1999 Balance Sheet; (C)
Liabilities under all contracts and agreements set forth on the schedules
hereto, other than any such Liabilities in respect of indebtedness for
borrowed money; and (D) Liabilities incurred subsequent to March 31, 1999
in the ordinary course of business consistent with past practice and in
compliance with the provisions of this Agreement; (E) Liabilities arising
from litigation relating to the Transaction; and (F) Liabilities under all
contracts and agreements entered into by such Person after the date of this
Agreement so long as such contract or agreement was entered into in
compliance with this Agreement.
(iv) As of March 31, 1999 except as set forth on the March 31, 1999
Balance Sheet or reserved against on such balance sheet, Lessee and its
Lessee Subsidiaries do not have Liabilities of the type required to be
reflected as Liabilities on a balance sheet prepared in accordance with
GAAP.
(g) Absence of Certain Changes or Events. Since December 31, 1998,
Lessee, the Lessee Subsidiaries and Management have conducted their respective
businesses, taken as a whole, in all material respects in the ordinary course of
business consistent with past practice, and there has not been any material
adverse change in the assets, Liabilities, business, results of operations or
condition (financial or otherwise) of Management, Lessee or any Lessee
Subsidiary or any damage, destruction, loss, conversion, condemnation or taking
by eminent domain related to any material asset of Management or Lessee. In
addition, except as disclosed on Schedule 4.1(g) or in the March 31 Financial
Statements, from December 31, 1998 to the date hereof, none of Lessee, any
Lessee Subsidiary or Management has other than as expressly contemplated by this
Agreement:
(i) increased the compensation or benefits payable by it to its
Employees except for increases in compensation or benefits in the ordinary
course of business consistent with past practice;
(ii) incurred, assumed or guaranteed any (i) indebtedness for borrowed
money or (ii) other than in the ordinary course of business consistent with
past practice, any other indebtedness;
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(iii) made any loan or advance to any Person, except in the ordinary
course of business consistent with past practice;
(iv) made any capital expenditure or commitment for any capital
expenditure in excess of $20,000 individually or $200,000 in the aggregate;
(v) merged or consolidated with, or acquired an interest in, any
Person or otherwise acquired any material assets, except for acquisitions
in the ordinary course of business consistent with past practice;
(vi) sold or otherwise disposed of any material properties or assets,
except for dispositions in the ordinary course of business consistent with
past practice;
(vii) mortgaged, pledged or encumbered any material assets, other than
pursuant to Permitted Liens;
(viii) issued, sold or redeemed any capital stock or other equity
interests, notes, bonds or other securities, or any option, warrant or
other right to acquire the same;
(ix) amended its Certificate of Incorporation or Bylaws;
(x) made any change in the financial or accounting practices or
policies customarily followed by it (other than changes required by GAAP);
or
(xi) entered into any contract or other agreement to do any of the
foregoing.
(h) Contracts, Permits and Other Data. Schedule 4.1(h) lists all of the
following to which either Management, Lessee or any Lessee Subsidiary is a party
as of the date hereof:
(i) contracts containing covenants limiting the freedom of Management,
Lessee or any Lessee Subsidiary after the date hereof (A) to engage in any
line of business or to compete with any Person or (B) to incur indebtedness
for borrowed money;
(ii) partnership, limited liability company, or joint venture or
shareholder agreements;
(iii) hotel franchise agreements;
(iv) Equipment Leases (excluding any such agreements providing for
payment of less than $20,000 per annum on an individual basis or terminable
without penalty upon 90 days or less prior written notice);
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<PAGE> 88
(v) Service Contracts (excluding any such agreements providing for
payment of less than $20,000 per annum on an individual basis or terminable
without penalty of more than $5,000 upon 90 days or less prior written
notice);
(vi) Management Agreements;
(vii) any Advance Booking Agreements (excluding any such agreements
providing for payment of less than $600,000 per annum on an individual
basis or terminable without penalty of more than $60,000 upon 90 days or
less prior written notice);
(viii) employment agreements;
(ix) contracts which provide for payments after the date hereof in
excess of $100,000 during any one-year period and which are not otherwise
listed on Schedule 4.1(h) or Schedules 4.1(i)(ii) through (vi);
(x) mortgages, pledges, security agreements, deeds of trust or other
instruments creating or, to the Knowledge of Alter or Biederman, as
applicable, purporting to create Liens; or
(xi) contracts for the sale or other Transfer of any material assets
of Management, Lessee or any Lessee Subsidiary after the date hereof.
Except as specified in Schedule 4.1(h) hereto, all instruments listed on
Schedule 4.1(h) and all other rights, licenses, leases, registrations,
applications, contracts, commitments and other agreements of Lessee, any Lessee
Subsidiary or Management which are necessary to the operation of their
respective businesses or by which Lessee, any Lessee Subsidiary or Management
are bound to the extent they are necessary to the operation of their respective
businesses are legal, valid and binding obligations of Lessee, each Lessee
Subsidiary or Management, as applicable, and to the Knowledge of Alter or
Biederman, as applicable, each other party thereto, enforceable in accordance
with their terms, except for such failures to be enforceable that would not,
individually or in the aggregate, have a Material Adverse Effect. None of
Lessee, any Lessee Subsidiary or Management or, to the Knowledge of Alter or
Biederman, any other party, is in breach or default in the performance of any
obligation thereunder and no event has occurred or has failed to occur whereby
any of the other parties thereto have been or will be released therefrom or will
be entitled to refuse to perform thereunder, in any case which would have,
either individually or in the aggregate, a Material Adverse Effect.
(i) Properties.
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<PAGE> 89
(i) Owned Real Property. None of Management, Lessee or any Lessee
Subsidiary owns a fee interest in any real property, and neither Management
nor Lessee has owned a fee interest in any real property since April 1,
1989.
(ii) Leased Real Property. Schedule 4.1(i)(ii) sets forth as of the
date hereof, by address, each Leased Real Property, all of which are leased
from Sunstone OP or its Subsidiaries (collectively, the "Real Property
Leases"). Except as set forth on Schedule 4.1(h), as of the date hereof,
none of Lessee, any Lessee Subsidiary or Management is a lessor under any
ground lease or Space Lease. Pursuant to the Real Property Leases,
Management or Lessee holds good and valid leasehold title to the Leased
Real Property, in each case in accordance with the provisions of the
applicable Real Property Lease and free of all Liens except for Permitted
Liens. Other than such exceptions which would not, individually or in the
aggregate, have a Material Adverse Effect, all Real Property Leases (i) are
legal, valid and binding obligations of Lessee or Management, as
applicable, and to the Knowledge of Alter or Biederman, as applicable, each
other party thereto, enforceable in accordance with their terms, and (ii)
to the knowledge of Alter and Biederman, grant in all respects the
leasehold estates or rights of occupancy or use they purport to grant.
Except as set forth on Schedule 4.1(i)(ii), as of the date hereof, there
are no existing defaults (either on the part of Management or Lessee or, to
the Knowledge of Alter or Biederman, as applicable, any other party
thereto) under any Real Property Lease and no event has occurred which,
with notice or the lapse of time, or both, would constitute a default
(either on the part of Management or Lessee or, to the Knowledge of Alter
or Biederman, as applicable, any other party thereto) under any of the Real
Property Leases, except for any of the foregoing which, individually or in
the aggregate, would not have a Material Adverse Effect. The consummation
of the Transactions will not result in any payment obligations under any of
the Real Property Leases (whether pursuant to a "change in control"
provision in the Real Property Leases or otherwise) to any Person other
than Sunstone OP or its Subsidiaries, except as set forth on Schedule
4.1(i)(ii).
(iii) No Transfer Agreements. Except as set forth on Schedule
4.1(i)(iii), as of the date hereof, none of Management, Lessee or any
Lessee Subsidiary has entered into any agreement to sell, transfer,
mortgage, lease, grant any preferential right to purchase (including but
not limited to any option, right of first refusal or right of first
negotiation) with respect to, or otherwise dispose of or encumber all or
any portion of their respective interest in, the Leased Real Property.
(iv) Space Leases. Except as set forth on Schedule 4.1(i)(iv), as of
the date hereof, there are no Space Leases, nor are there any other tenants
or occupants (other than transient guests and as otherwise contemplated in
the Hotel Management Agreements) with rights to occupy all or any portion
of the Real Property. A copy of each Space Lease described on Schedule
4.1(i)(iv) has been provided to Sunstone Parties and is a true and accurate
copy, including all amendments to date, and constitutes the entire
agreement
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<PAGE> 90
between Management or Lessee, as the case may be, and the other party or
parties named therein. Each such Space Lease is a legal, valid and binding
obligation of Lessee or Management, as applicable, and to the Knowledge of
Alter or Biederman, as applicable, each other party thereto, enforceable in
accordance with its terms, and, to the Knowledge of Alter or Biederman, as
applicable, free of any default by any party thereto, nor has Management or
Lessee received any written or verbal notice or other communication of any
alleged breach or default thereunder. As of the date hereof, none of
Management, Lessee or any Lessee Subsidiary is required to pay for any
alterations in excess of $20,000 for any tenant which alterations have not
been completed as required pursuant to the relevant lease, except as set
forth on Schedule 4.1(j)(iv). To the Knowledge of Alter or Biederman, as
applicable, no brokerage commissions or finder's fees that Lessee or
Management is required to pay in excess of $20,000 with respect to the
negotiation, renewal, extension or modification of any Space Lease set
forth on Schedule 4.1(i)(iv) will be owing on the Closing Date. To the
Knowledge of Alter or Biederman, as applicable, there are no pending
actions or proceedings instituted against Management, Lessee or any Lessee
Subsidiary by any tenant under any Space Lease.
(v) Equipment Leases, Service Contracts, Advance Booking Agreements.
Schedule 4.1(i)(v), as of the date hereof, sets forth a list of all of the
Equipment Leases, Service Contracts and Advance Booking Agreements which
involve the payment or receipt of more than $20,000, in any individual
case, or which may not be canceled on ninety (90) days notice or less
without payment of any penalty in excess of $5,000 and all amendments
thereto, and the expiration date of each such Equipment Lease, Service
Contract and Advanced Booking Agreement and, in the case of the Advance
Booking Agreements, the rates applicable thereunder (each, a "Section (v)
Contract"). Each Section (v) Contract is a legal, valid and binding
obligation of Lessee or Management, as applicable, and to the Knowledge of
Alter or Biederman, as applicable, each other party thereto, enforceable in
accordance with its terms, all amounts due thereunder have been paid, to
the Knowledge of Alter or Biederman, as applicable, no default except for
defaults that would not have a Material Adverse Effect by any Person exists
under any Section (v) Contract and neither Management nor Lessee has
received any written notice from any party to any Section (v) Contract
claiming the existence of any default under such Section (v) Contract and
no such Section (v) Contract has been assigned, transferred, hypothecated,
pledged or encumbered by Management, Lessee or any Lessee Subsidiary. None
of Management, Lessee, any Lessee Subsidiary or any of their Affiliates has
any direct or indirect ownership interests in any Person providing goods or
services under the Section (v) Contracts. To the Knowledge of Alter or
Biederman, as applicable, there are no pending actions or proceedings
instituted against Management, Lessee or any Lessee Subsidiary by any party
under any Section (v) Contracts. Each Section (v) Contract to be
transferred to Sunstone Parties pursuant to this Agreement is transferable
without consent, other than as set forth on Schedule 4.1(i)(v) attached
hereto.
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<PAGE> 91
(vi) Liquor Licenses. Schedule 4.1(i)(vi) sets forth, as of the date
hereof, the Liquor Licenses for the businesses conducted by Management,
Lessee and any Lessee Subsidiary, all of which are held in the names set
forth on Schedule 4.1(i)(vi). The Liquor Licenses are legal, valid and
binding obligations of Lessee, each Lessee Subsidiary and Management, as
applicable, and to the Knowledge of Alter or Biederman, as applicable, each
other party thereto, enforceable in accordance with their terms. To the
Knowledge of Alter or Biederman, as applicable, no default except for
defaults that would not have a Material Adverse Effect by any Person exists
under the Liquor Licenses, and neither Management nor Lessee has received
any written notification of any material violation or alleged material
violation of any applicable laws or regulations relating to the sale and
service of alcoholic beverages which are outstanding and which have not
been remedied. The Liquor Licenses are adequate for the operation of the
business conducted by Management, Lessee and each Lessee Subsidiary
consistent with past practice. All applicable state and federal liquor
stamp taxes have been paid in full or will be paid in full on or prior to
the Closing Date.
(vii) Other Matters. Schedule 4.1(i)(vii), as of the date hereof, is a
true, correct and complete list of (A) all properties which Management,
Lessee or any Lessee Subsidiary are obligated, or have the right, to
purchase or lease, which are now not owned or leased by Management, Lessee
or any Lessee Subsidiary, (B) all Real Property which Management, Lessee or
any Lessee Subsidiary are obligated to sell or assign, (C) all Real
Property which Management, Lessee or any Lessee Subsidiary are in the
process of constructing or which are otherwise not yet fully constructed
and operational and (D) all Real Property subject to purchase options,
rights of first offer, rights of first refusal or similar agreements or
arrangements.
(j) Legal Proceedings. Except as described in Schedule 4.1(j), as of
the date hereof, there is no litigation, claim, arbitration, proceeding or
investigation to which Management, Lessee or any Lessee Subsidiary is a party
pending or, to the Knowledge of Alter or Biederman, as applicable, threatened
against Management, Lessee or any Lessee Subsidiary or relating to any of the
assets of Management, Lessee or any Lessee Subsidiary or the Transactions which,
either individually or in the aggregate, would reasonably be expected to have a
Material Adverse Effect or which seeks to restrain or enjoin the consummation of
any of the Transactions. None of Management, Lessee or any Lessee Subsidiary as
of the date hereof is party to nor are any of the assets of Management, Lessee
or any Lessee Subsidiary subject to any judgment, writ, decree, injunction or
order entered by any court, governmental authority or arbitrator.
(k) Labor Controversies. Except as set forth on Schedule 4.1(k), as of
the date hereof, (i) there have been no labor strikes, slow-downs, work
stoppages, lock-outs or other material labor controversies or disputes during
the past two years, nor is any such strike, slow- down, work stoppage or other
material labor controversy or dispute pending or, to the Knowledge of Alter or
Biederman, as applicable, threatened, in each case with respect to the current
or
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<PAGE> 92
former employees of Management, Lessee or any Lessee Subsidiary, (ii) none of
Management, Lessee or any Lessee Subsidiary is a party to any labor contract,
collective bargaining agreement, contract, letter of understanding or, to the
Knowledge of Alter or Biederman, as applicable, any other agreement, formal or
informal, with any labor union or organization, nor are any of the employees of
Management, Lessee or any Lessee Subsidiary represented by any labor union or
organization, and (iii) none of Management, Lessee or any Lessee Subsidiary has
closed any facility, effectuated any layoffs of employees or implemented any
early retirement, separation or window program within the past three years nor
has Management or Lessee planned or announced any such action or program for the
future except for any of the foregoing which, individually or in the aggregate,
would not have a Material Adverse Effect.
(l) Intellectual Property and Technology. Management, Lessee and each
Lessee Subsidiary own, or are licensed or otherwise have the right to use in the
manner currently being used, all patents, patent registrations, patent
applications, trademarks, trademark registrations, trademark applications,
tradenames, copyrights, copyright applications, copyright registrations,
franchises, URLs, domain names, permits and licenses ("Intellectual Property")
used by Management and Lessee and necessary to the operation of their respective
businesses (the "Business Intellectual Property"), subject to the terms of the
respective franchise, license and other agreements. Except as would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect, (i) none of Management, Lessee or any Lessee Subsidiary has
infringed upon or is in conflict with the Intellectual Property of any third
party, except with respect to off-the-shelf software and with respect to
Intellectual Property licensed under franchise agreements, such exception being
applicable only if Management, Lessee or such Lessee Subsidiary, as the case may
be, shall not be in violation of the Intellectual Property license provisions of
the applicable franchise agreement, (ii) nor has Management, Lessee or any
Lessee Subsidiary received any written notice of any claim that Management,
Lessee or any Lessee Subsidiary has infringed upon or is in conflict with any
Intellectual Property of any third party. Except as would not, individually or
in the aggregate, reasonably be expected to have a Material Adverse Effect, all
trademark registrations of each of Management, Lessee and Lessee Subsidiary are
valid and subsisting and in full force and effect. Each of Management, Lessee or
each Lessee Subsidiary owns or is licensed or otherwise has the right to use all
of the processes, formulae, proprietary technology, inventions, trade secrets,
know-how, product descriptions and specifications ("Technology") in the manner
currently used by Management, Lessee or each Lessee Subsidiary, except as would
not, individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect. Except as would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect, there have been no
written claims (whether private or governmental) against Management or Lessee
asserting the invalidity or unenforceability of its ownership, license or other
right to use any of the Technology. Except as would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect, none of the
rights of Management, Lessee or any Lessee Subsidiary to the Business
Intellectual Property or the Technology will be impaired in any way by any of
the Transactions, except with respect to off-the-shelf software and with respect
to Intellectual Property licensed under franchise agreements, such exception
being applicable only if Management, Lessee or such
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<PAGE> 93
Lessee Subsidiary, as the case may be, shall not be in violation of the
Intellectual Property provisions of the applicable franchise agreement, and all
of the rights of Management to the Business Intellectual Property and Technology
included in the Management Assets will be fully enforceable by Management Newco
after the Closing Date to the same extent as such rights would have been
enforceable by Management before the Closing.
(m) Conduct of Business in Compliance with Laws.
(i) Each of Management, Lessee and each Lessee Subsidiary has complied
with all applicable laws, ordinances, regulations or orders or other
requirements of any Governmental Authority applicable to it, except where
the failure to be in such compliance would not have, either individually or
in the aggregate, a Material Adverse Effect.
(ii) Each of Management, Lessee and each Lessee Subsidiary has all
licenses, permits, consents, approvals, authorizations, qualifications and
orders of Governmental Authorities required for the conduct of its
respective businesses as presently conducted, except where failure would
not, individually or in the aggregate, have a Material Adverse Effect.
(n) Environmental Matters. Except as set forth on Schedule 4.1(n) and
except for matters that, individually or in the aggregate, would not have a
Material Adverse Effect, (i) each of Management, Lessee and each Lessee
Subsidiary complies and has complied with all Environmental Laws applicable to
it, and has possessed and complied with all permits required under Environmental
Laws for its respective businesses; (ii) to Management's and Lessee's Knowledge,
there are and have been no Materials of Environmental Concern at any property
currently or formerly owned, operated or leased by Management, Lessee or any
Lessee Subsidiary that could reasonably be expected to give rise to any
liability under any Environmental Law or result in costs arising out of any
Environmental Law; (iii) no judicial, administrative, or arbitral proceeding
(including any notice of violation or alleged violation) under any Environmental
Law to which Management, Lessee or any Lessee Subsidiary is, or to the Knowledge
of Alter or Biederman, as applicable, will be, named as a party is pending or,
to the Knowledge of Alter or Biederman, as applicable, threatened, with respect
to Management, Lessee or any Lessee Subsidiary nor to the Knowledge of Alter or
Biederman, as applicable, is Management, Lessee or any Lessee Subsidiary the
subject of any investigation in connection with any such proceeding or potential
proceeding; (iv) to Management's and Lessee's Knowledge, there are no past,
present, or anticipated future events, conditions, circumstances, practices,
plans, or legal requirements that could be expected to prevent, or materially
increase the burden on Management, Lessee or any Lessee Subsidiary of complying
with applicable Environmental Laws or of obtaining, renewing, or complying with
all permits required under Environmental Laws required under such laws; and (v)
Management, Lessee, Alter and Biederman have provided to Sunstone Parties true
and complete copies of all reports with respect to Environmental Laws relating
to Management, Lessee or each Lessee Subsidiary or the Real Property in their
possession or control.
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(o) Employee Benefits. As used herein, the term "Employee Plan"
includes any pension, retirement, savings, disability, medical, dental, health,
life, death benefit, group insurance, profit sharing, deferred compensation,
stock option, bonus, incentive, vacation pay, tuition reimbursement, severance
pay, or other material employee benefit plan, trust, employment agreement,
contract, agreement, policy, program or arrangement (including, without
limitation, any pension plan, as defined in Section 3(2) of the Employee
Retirement Income Security Act of 1974, as amended and the rules and regulations
promulgated thereunder ("ERISA") ("Pension Plan"), any multiemployer plan, as
defined in Section 3(37) of ERISA (a "Multiemployer Plan") and any welfare plan
as defined in Section 3(1) of ERISA ("Welfare Plan")), whether or not any of the
foregoing is funded, insured or self-funded, written or oral, (i) sponsored or
maintained by Management, Lessee, any Lessee Subsidiary, or any entity which,
together with Management or Lessee, would be treated as a single employer under
Section 414 of the Code (each a "Controlled Group Member") and covering any
Controlled Group Member's active or former employees (or their beneficiaries),
(ii) to which any Controlled Group Member is a party or by which any Controlled
Group Member (or any of the rights, properties or assets thereof) is bound or
(iii) with respect to which any current Controlled Group Member may otherwise
have any material liability (whether or not such Controlled Group Member still
maintains such Employee Plan). Each Employee Plan is listed in Schedule 4.1(o).
With respect to the Employee Plans:
(i) Except as disclosed in Schedule 4.1(o), no Controlled Group Member
has any continuing liability under any Welfare Plan which provides for
continuing benefits or coverage for any participant or any beneficiary of a
participant after such participant's termination of employment, except as may be
required by Section 4980B of the Code, or Section 601 (et seq.) of ERISA, or
under any applicable state law, and at the expense of the participant or the
beneficiary of the participant.
(ii) Except as disclosed in Schedule 4.1(o), each Employee Plan which
is not a Multiemployer Plan (and, to the Knowledge of Alter or Biederman, as
applicable, each Multiemployer Plan) complies in all material respects with the
applicable requirements of ERISA and any other applicable law governing such
Employee Plan, and each Employee Plan which is not a Multiemployer Plan (and, to
the Knowledge of Alter or Biederman, as applicable, each Multiemployer Plan) has
at all times been administered in all material respects in accordance with all
such requirements of law, and in accordance with its terms and the terms of any
applicable collective bargaining agreement to the extent consistent with all
such requirements of law. Each Employee Plan which is intended to be qualified,
has (A) received a favorable determination letter from the Internal Revenue
Service stating that such Employee Plan meets the requirements of and is
qualified under Section 401(a) of the Code and that the trust associated with
such Employee Plan is tax exempt under Section 501(a) of the Code, (B) an
application for such determination is pending, or (C) the remedial amendment
period during which an application for such determination may be timely filed
has not expired and such application will be timely filed before the expiration
of such remedial amendment period, and to the Knowledge of Alter or Biederman,
as applicable, no event has occurred which would jeopardize the qualified status
of any such plan or the tax exempt status of any such trust under Sections
401(a) and Section 501(a) of the Code,
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<PAGE> 95
respectively, except in circumstances in which, individually or in the
aggregate, the failure to so qualify or be tax exempt would not have a Material
Adverse Effect.
(iii) No lawsuits, claims (other than routine claims for benefits) or
complaints to, or by, any Person or Governmental Authority have been filed or
are pending which, individually or in the aggregate, would have a Material
Adverse Effect and, to the Knowledge of Alter or Biederman, as applicable, there
is no fact or contemplated event which would be expected to give rise to any
such lawsuit, claim (other than routine claims for benefits) or complaint with
respect to any Employee Plan that would have a Material Adverse Effect.
Without limiting the foregoing, except in the case of the following
clauses (1) through (6) as would not individually or in the aggregate have a
Material Adverse Effect, the following are true with respect to each Employee
Plan:
(1) all Controlled Group Members have filed or caused to be filed
every material return, report statement, notice, declaration and other
document required by any law or governmental agency, federal, state and
local (including, without limitation, the Internal Revenue Service and the
Department of Labor) with respect to each such Employee Plan other than a
Multiemployer Plan, each of such filings has been complete and accurate in
all material respects and no Controlled Group Member has incurred any
material liability in connection with such filings;
(2) all Controlled Group Members have delivered or caused to be
delivered to every participant, beneficiary and other party entitled to
such material, all material plan descriptions, returns, reports, schedules,
notices, statements and similar materials, including, without limitation,
summary plan descriptions and summary annual reports, as are required under
Title I of ERISA, the Code, or both, and no Controlled Group Member has
incurred any material liability in connection with such deliveries;
(3) all contributions and payments with respect to Employee Plans that
are required to be made by a Controlled Group Member with respect to
periods ending on or before the Closing Date (including periods from the
first day of the current plan or policy year to the Closing Date) have
been, or will be, made or accrued before the Closing Date in accordance
with the appropriate plan document, actuarial report, collective bargaining
agreements or insurance contracts or arrangements or as otherwise required
by ERISA or the Code;
(4) with respect to each such Employee Plan, to the extent applicable,
Management and Lessee have delivered to or have made available to Sunstone
Parties true and complete copies of (i) plan documents, or any and all
other documents that establish the existence of the plan, trust,
arrangement, contract, policy, program or arrangement and all amendments
thereto, (ii) the most recent determination letter, if any, received from
the Internal Revenue Service, (iii) the three most recent Form 5500 Annual
Reports (and all
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<PAGE> 96
schedules and reports relating thereto) and actuarial reports (if required
to be prepared) and (iv) all related trust agreements, insurance contract
or other funding agreements that implement each such Employee Plan;
(5) no payment made or to be made to an officer, director or employee
pursuant to an Employee Plan either before, on, or after consummation of
the Transactions and contingent on or related to such transactions shall
constitute an "excess parachute payment" within the meaning of Section 280G
of the Code; and
(6) consummation of the Transactions shall not (i) give rise to a
severance pay obligation with respect to those employees of Management or
Lessee who continue employment with Management Newco or Lessee or (ii)
enhance or trigger (including acceleration of vesting, payment or funding)
any benefits under any Employee Plan.
(iv) With respect to each Employee Plan which is not a Multiemployer
Plan (and to the Knowledge of Alter or Biederman, as applicable, with respect to
each Multiemployer Plan), there has not occurred, and no Person or entity is
contractually bound to enter into, any "prohibited transaction" within the
meaning of Section 4975(c) of the Code or Section 406 of ERISA, which
transaction is not exempt under Section 4975(d) of the Code or Section 408 of
ERISA which, individually or in the aggregate, would have a Material Adverse
Effect on Management or Lessee.
(v) Except as disclosed on Schedule 4.1(o) hereto, no Controlled Group
Member has maintained or been obligated to contribute to any plan subject to
Code Section 412 or Title IV of ERISA (other than a Multiemployer Plan).
(vi) As of the date hereof, Management, Lessee and the Lessee
Subsidiaries have approximately 4,700 employees in the aggregate, and no demand
for recognition made by any labor organization is pending with respect to any
such employees. Schedule 4.1(o)(vi) sets forth all collective bargaining
agreements to which the Company is a party as of the date hereof and any pending
grievances thereunder. Neither Management nor Lessee has at any time during the
last two years (A) had, nor, to the Knowledge of Alter or Biederman, as
applicable, is there now threatened, a material strike, picketing, work
stoppage, work slowdown, lockout or other labor trouble or dispute or grievance
under any collective bargaining agreement or (B) engaged in any unfair labor
practice or discriminated on the basis of age or other discrimination prohibited
by applicable law in their employment conditions or practices. There are no
representation petitions, unfair labor practice or age discrimination charges or
complaints, or other charges or complaints alleging illegal discriminatory
practices by Management, Lessee or any Lessee Subsidiary, pending or, to the
Knowledge of Alter or Biederman, as applicable, threatened before the National
Labor Relations Board or any other governmental body. Neither Management, Lessee
nor any ERISA Affiliate has incurred any liability or obligation under the
Worker Adjustment and Retaining Notification Act or similar state laws which
remains unpaid or unsatisfied.
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(vii) All insurance premiums required to be paid with respect to
Employee Plans as of the Effective Time have been or will be paid prior thereto
and adequate reserves have been provided for on the balance sheets of Management
and Lessee for any premiums (or portions thereof) attributable to service on or
prior to the Closing Date.
(p) Entire Business. The properties, assets and other rights of Lessee
and Management constitute all of the properties, assets and other rights
necessary for the conduct of the business of Lessee and Management,
respectively, as currently conducted.
(q) Tax Matters.
(i) Management, Lessee and each Lessee Subsidiary have filed all Tax
Returns required to be filed in the manner prescribed by law, except as
would not, individually or in the aggregate, reasonably be expected to have
a Material Adverse Effect, and have paid all Taxes due (whether or not
shown on such Tax Returns), except as would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect. Except
as would not, individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect, all Taxes that Lessee, each Lessee
Subsidiary or Management are or were required to withhold or collect have
been duly withheld or collected and, to the extent required, have been paid
to the appropriate governmental authority.
(ii) Except as set forth on Schedule 4.1(q)(ii), as of the date
hereof, to the Knowledge of Alter or Biederman, as applicable, no action,
suit, proceeding, investigation, claim or audit has been commenced, or is
pending or threatened, with respect to Lessee, any Lessee Subsidiary or
Management in respect of any Taxes. Any deficiency proposed as a result of
such action, suit, proceeding, investigation, claim or audit has been paid
or, as described on Schedule 4.1(q)(ii), are being contested in good faith
by appropriate proceedings.
(iii) Except as set forth on Schedule 4.1(q)(iii) or as would not
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect, none of Lessee, any Lessee Subsidiary or Management will be
required to include any amount in income for any taxable period ending
after the Closing Date by reason of a change in method of accounting, any
closing or similar agreement with a governmental authority, any installment
sale or any other item which economically accrued prior to the Closing
Date.
(iv) Lessee and Management have at all times qualified as, and have
elected to be treated as, "S Corporations" as defined in section 1361 of
the Code and no assets of either Lessee or Management are subject to
section 1374 of the Code.
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(v) None of Alter, Biederman, Lessee, any Lessee Subsidiary or
Management could be responsible to pay the Taxes of any other Person under
any agreement or otherwise.
(r) Year 2000 Compliance. To the Knowledge of Alter or Biederman, as
applicable, all of the computer programs, computer firmware, computer
hardware (whether general or special purpose) and other similar or related
items of automated, computerized and/or software system(s) that are used or
relied on by Management, Lessee or any Lessee Subsidiary in the conduct of
their respective businesses will not malfunction, will not cease to
function, will not generate incorrect data, and will not provide incorrect
results when processing, providing, and/or receiving date-related data into
and between the twentieth and twenty-first centuries in a manner that,
individually or in the aggregate, would reasonably be expected to result in
a Material Adverse Effect on Management, Lessee or any Lessee Subsidiary.
(s) Contracts with Certain Persons. Schedule 4.1(s) sets forth each
agreement or arrangement between Lessee, any Lessee Subsidiary and Management,
on the one hand, and Alter, Biederman, Sunstone, Sunstone OP, or any other
Affiliate of Lessee, any Lessee Subsidiary or Management, or any officers,
directors, or holders of more than a 10% equity interest in any of the
foregoing, on the other hand in excess of $100,000.
(t) Insurance. Each of Management, Lessee and each Lessee Subsidiary
maintain policies of fire, flood and casualty, liability and other forms of
insurance in such amounts, with such deductibles and against such risks and
losses as are reasonable for the businesses, properties and assets of
Management, Lessee and the Lessee Subsidiaries. As of the date hereof, the
insurance policies maintained with respect to each of Management, Lessee and
each Lessee Subsidiary and their respective businesses, assets and properties
(the "Insurance Policies") are listed in Schedule 4.1(t). All such Insurance
Policies are in full force and effect, and all premiums due and payable thereon
have been paid except for any of the foregoing which, individually or in the
aggregate, would not have a Material Adverse Effect. To the Knowledge of Alter
or Biederman, as applicable, no insurer under any such policy has canceled or
generally disclaimed liability under any such policy or indicated any intent to
do so or to materially increase the premiums payable under or not renew any such
policy except for any of the foregoing which, individually or in the aggregate,
would not have a Material Adverse Effect.
(u) Certain Fees. Except as set forth on Schedule 4.1(u), neither Alter
nor Biederman, nor any of Management, Lessee or any Lessee Subsidiary nor the
officers, directors or employees thereof have employed any broker or finder or
incurred any other Liability for any brokerage fees, commissions or finders'
fees in connection with the Transactions.
(v) Equity Ownership. Alter owns, beneficially and of record, and has
good title to, 100 shares of Lessee Common Stock and 100 shares of Management
Common Stock in each case free and clear of any Liens, rights, options,
agreements or limitations on voting rights
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of any nature whatsoever other than restrictions imposed by the Securities Act
of 1933, as amended (the "Securities Act"), applicable state securities and
"Blue Sky" laws.
(w) Title; Absence of Liens. At the Closing, Sunstone Parties or its
designee will acquire from Alter good title to 100 shares of Lessee Stock and
100 shares of Management Common Stock, free and clear of all Liens, rights,
options, agreements or limitations on voting rights of any nature whatsoever
other than restrictions imposed by the Securities Act and applicable state
securities and "Blue Sky" laws.
(x) Equity Ownership. Biederman owns, beneficially and of record, and
has good title to, 25 shares of Lessee Common Stock, in each case free and clear
of any Liens, rights, options, agreements or limitations on voting rights of any
nature whatsoever other than restrictions imposed by the Securities Act and
applicable state securities and "Blue Sky" laws.
(y) Title; Absence of Liens. At the Closing, Sunstone Parties will
acquire from Biederman good title to 25 shares of Lessee Common Stock, free and
clear of all Liens, rights, options, agreements or limitations on voting rights
of any nature whatsoever other than restrictions imposed by the Securities Act
and applicable state securities and "Blue Sky" laws.
SECTION 4.2 REPRESENTATIONS AND WARRANTIES OF THE SUNSTONE PARTIES.
Each of the Sunstone Parties jointly and severally represents and warrants to
Stockholders as follows:
(a) Due Organization; Power and Good Standing. Each Sunstone Party is
duly organized, validly existing and in good standing under the laws of its
jurisdiction of organization, and has the requisite power and authority to own,
lease and operate its properties and to conduct its business as now conducted by
it. Each Sunstone Party has all requisite power and authority to enter into this
Agreement and to perform its obligations hereunder and thereunder. Each Sunstone
Party is qualified to do business and is in good standing as a foreign
corporation, partnership or other entity, as applicable, in all jurisdictions in
which it conducts its business, except where the failure to be so qualified
would not, individually or in the aggregate, materially adversely affect its
ability to perform its obligations hereunder.
(b) Authorization and Validity of Agreement. The execution, delivery
and performance by each Sunstone Party of this Agreement and the consummation by
such Sunstone Party of the Transactions have been duly authorized by all
necessary action on the part of such Sunstone Party. This Agreement has been
duly executed and delivered by such Sunstone Party and constitutes a valid and
legally binding obligation of such Sunstone Party, enforceable against it in
accordance with its terms.
(c) No Government Approvals or Notices Required; No Conflict with
Instruments. Except as described in Schedule 4.2(c), which Schedule shall be
delivered by the Sunstone Parties on or prior to the 15th day following the date
of this Agreement, the execution, delivery and performance of this Agreement by
each Sunstone Party and the consummation by
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each Sunstone Party of the Transactions will not (i) violate, conflict with or
result in a breach of any provision of the limited liability company agreement
of such party, (ii) except for any filings required under the HSR Act, require
any consent, approval, authorization or permit of, or filing with or
notification to, any Governmental Authority, (iii) require the consent or
approval of any Person (other than a Governmental Authority), violate, conflict
with or result in a breach of any provision of, constitute a default (or an
event which with notice or lapse of time or both would become a default) under,
or give to any Person any right of termination, cancellation, amendment or
acceleration under, or result in the creation of a Lien on any of the assets,
properties or limited liability interests of such Sunstone Party, under, any of
the provisions of any contract, lease, note, permit, franchise, license or other
instrument or agreement to which such Sunstone Party is a party or by which it
or its assets or properties are bound, or (iv) violate or conflict with any
order, writ, injunction, decree, statute, rule or regulation of any Governmental
Authority or arbitrator applicable to such Sunstone Parties or its assets or
properties; other than any consents and approvals the failure of which to obtain
and any violations, conflicts, breaches and defaults set forth pursuant to
clauses (ii), (iii) and (iv) above which, individually or in the aggregate,
would not materially adversely affect the ability of such Sunstone Party to
perform its obligations hereunder.
(d) Legal Proceedings. Except as described in Schedule 4.2(d), as of
the date hereof, there is no litigation, claim, arbitration, proceeding or
investigation to which any Sunstone Party is a party pending or, to the
Knowledge of each Sunstone Party, threatened against such Sunstone Party or
relating to any of the assets of such Sunstone Party or the Transactions which,
either individually or in the aggregate, would reasonably be expected to
restrain or enjoin the consummation of any of the Transactions.
(e) Certain Fees. None of the Sunstone Parties nor any of their members
or partners, nor the officers, directors or employees thereof have employed any
broker or finder or incurred any other Liability for any brokerage fees,
commissions or finders' fees in connection with the Transactions.
SECTION 4.3 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Each of the
representations and warranties given by the parties in Article IV shall be
deemed repeated and remade at the Closing as if made at such time and shall,
notwithstanding any investigation on the part of any other party, survive the
Closing until the two year anniversary thereof, at which time such
representations and warranties will terminate, provided that the representations
and warranties contained in Sections 4.1(d), 4.1(v), 4.1(w), 4.1(x) and 4.1(y)
shall survive the Closing and shall not terminate, and the representations and
warranties contained in Sections 4.1(o) and 4.1(q) shall survive until the
expiration of the statute of limitations with respect thereto.
SECTION 4.4 EXCLUSION OF CONTRIBUTION AGREEMENT. The parties hereto
acknowledge that Alter, Biederman, Lessee and Management are parties to the
Contribution and Sale Agreement, dated the date hereof (the "Contribution
Agreement"), which among other things, grants certain other parties thereto the
right, under certain circumstances, to acquire all of the
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Lessee Common Stock and the assets of Management and upon receipt of a
Drag-Along Notice, Alter and Biederman will cause the Contribution Agreement to
be terminated in accordance with its terms.
ARTICLE 5
COVENANTS
SECTION 5.1 CONDUCT OF BUSINESS PENDING THE CLOSING. Except with the
prior written consent of Sunstone Parties and except as may be expressly
permitted by this Agreement, prior to the Closing, each of Management and Lessee
shall, and Lessee shall cause each Lessee Subsidiary, and Alter and Biederman
shall, and shall cause Lessee and each Lessee Subsidiary and, in the case of
Alter, Management to, operate its business only in the usual, regular and
ordinary manner, on a basis consistent with past practice and, to the extent
consistent with such operation, use its reasonable best efforts to preserve its
present business organization intact, keep available the services of its present
employees, preserve its present business relationships and maintain all rights,
privileges and franchises necessary or desirable in the normal conduct of those
businesses. Without limitation of the foregoing, prior to the Closing, except as
expressly permitted by this Agreement, each of Management and Lessee shall not,
and Lessee shall cause each Lessee Subsidiary, and Alter and Biederman shall
not, and shall cause Lessee and each Lessee Subsidiary and, in the case of
Alter, Management not to:
(a) amend its Certificate of Incorporation or Bylaws;
(b) issue, purchase or redeem, or authorize or propose the issuance,
purchase or redemption of, or declare or pay any dividend with respect to, any
shares of its capital stock or any class of securities convertible into, or
rights, warrants or options to acquire, any such shares of other convertible
securities, except for dividends on the capital stock of Management and Lessee
which do not exceed $500,000 in the aggregate since December 31, 1998;
(c) form any partnership, limited liability company or other joint
venture (other than in the ordinary course consistent with past practice of such
business), acquire or dispose of any business (whether by merger, purchase or
otherwise) or of any assets (other than in the ordinary course consistent with
past practice of such business) or acquire or dispose of any investment in any
Person;
(d) make or incur any capital expenditures other than in the ordinary
course of business consistent with past practice and in no event in excess of
$20,000 individually or $200,000 in the aggregate;
(e) enter into any transaction involving the incurrence, assumption or
guarantee of indebtedness other than in the ordinary course of business
consistent with past practice;
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(f) enter into any agreement of the type described in Sections 4.1(i),
4.1(j)(ii) through (v) or 4.1(t) which contemplates payments in excess of
$200,000 during any one year or $600,000 over the term of the contract;
provided, however, that Lessee or Management may enter into any agreement or
amend any existing agreement in connection with the acquisition or development
of hotels by Sunstone or any Subsidiary thereof but only to the extent that (x)
such acquisition or development is in compliance with the Merger Agreement and
(y) any such agreement is of the type and contains terms that are in the
ordinary course of business consistent with past practice of Lessee or
Management, as applicable; provided further, that Lessee may pay reasonable
legal fees and expenses incurred in connection with the Transactions;
(g) except as provided in Section 5.1(f), terminate or amend in any
material respect any agreement listed or required to be listed on Schedule
4.1(h), 4.1(i)(ii) through (v) or 4.1(s)
(h) file any voluntary petition for bankruptcy or receivership or fail
to oppose any other Person's petition for bankruptcy of, or action to appoint a
receiver regarding, it;
(i) except as required by applicable law or to the extent required
under existing employee benefit plans, agreements or arrangements as in effect
on the date of this Agreement, (1) increase the compensation or fringe benefits
of any employee, except for increases, in the ordinary course of business, in
salary or wages of employees who are not directors or officers, (2) grant any
severance or termination pay to any employee or (3) enter into or amend or
terminate any collective bargaining, bonus, profit sharing, thrift,
compensation, pension, retirement, deferred compensation, employment,
termination, severance or other plan, agreement, trust, fund, policy or
arrangement for the benefit of any employee;
(j) change any accounting principle except as required by GAAP;
(k) make any election with respect to Taxes;
(l) cancel any indebtedness payable to it in excess of $10,000;
(m) make any loan or other advance to any Person other than advances to
wholly-owned Subsidiaries in existence on the date hereof;
(n) take any willful action which would cause any representation or
warranty of Alter or Biederman contained in this Agreement to be or become
untrue at Closing in any material respect; or
(o) authorize any of, or commit or agree to take any of, the foregoing
actions.
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Notwithstanding anything to the contrary herein, Management and Lessee
shall have the unrestricted right but not the obligation to pay off Liabilities
under the loan agreement set forth on Schedule 5.1(o) (the "Lessee Line of
Credit").
SECTION 5.2 TRANSFERS OF EQUITY INTERESTS. From the date hereof until
the Closing, Alter and Biederman each agree not to Transfer any capital stock of
Management or Lessee except for the Transfers contemplated by this Agreement.
SECTION 5.3 ACCESS TO INFORMATION. From the date hereof to the Closing,
each of Management and Lessee shall, and Lessee shall cause each Lessee
Subsidiary, and Alter and Biederman shall, and shall cause Lessee and, in the
case of Alter, Management to, upon prior reasonable notice, afford the officers,
employees, auditors and other agents of Sunstone Parties or the Third Party
Acquiror reasonable access during normal business hours to the officers,
employees, properties, offices, plants and other facilities of Management,
Lessee and the Lessee Subsidiaries and to the contracts, commitments, books and
records relating thereto, and shall use commercially reasonable efforts to
furnish such Persons all such documents and such financial, operating and other
data and information regarding such businesses and Persons that are in the
possession of such Person as Sunstone Parties, through their officers, employees
or agents, may from time to time reasonably request.
SECTION 5.4 AGREEMENT TO COOPERATE; FURTHER ASSURANCES. Subject to the
terms and conditions of this Agreement, each of the parties hereto shall use all
reasonable best efforts to take, or cause to be taken, all action and to do, or
cause to be done, all things necessary, proper or advisable under applicable
laws and regulations to consummate and make effective the Transactions,
including providing information and using reasonable best efforts to obtain all
necessary or appropriate waivers, consents and approvals, and effecting all
necessary registrations and filings; provided, however, that, without the prior
written consent of Sunstone Parties, no party shall pay any cash or other
consideration, make any commitments or incur any liability or other obligation
in an aggregate amount in excess of $200,000 in connection with the obtaining of
all consents required to effect the Transactions. In case at any time after the
Closing Date any further action is necessary or desirable to transfer any of the
Lessee and Management Equity pursuant to the terms of this Agreement, or to
otherwise to carry out the terms of this Agreement, the parties hereto and their
respective Affiliates shall execute such further documents (including
assignments, acknowledgments and consents and other instruments of transfer) and
shall take such further action as shall be necessary or desirable to effect such
transfer and to otherwise carry out the terms of this Agreement, in each case to
the extent not inconsistent with applicable law provided that Alter and
Biederman are not required to make any payments thereby and are reimbursed for
all expenses and costs incurred.
SECTION 5.5 CONSENTS. Notwithstanding anything to the contrary
contained in this Agreement, to the extent that the sale, conveyance, transfer,
assignment or delivery or attempted sale, conveyance, transfer, assignment or
delivery to Sunstone Parties or the Third Party Acquiror of any Lessee and
Management Equity is prohibited by applicable law or would
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require any governmental or third-party authorization, approval, consent or
waiver and such authorization, approval, consent or waiver shall not have been
obtained prior to the Closing, this Agreement shall not constitute a sale,
conveyance, transfer, assignment or delivery, or an attempted sale, conveyance,
transfer, assignment or delivery thereof if any of the foregoing would
constitute a breach of applicable law or the rights of any third party;
provided, however, that, except to the extent that a condition to closing set
forth herein, if any, relating to the foregoing shall not be satisfied (in which
case the Closing shall not occur unless waived by Sunstone Parties), the Closing
shall occur notwithstanding the foregoing on account of such required
authorization. Following the Closing, Alter and Biederman shall use all
reasonable best efforts to obtain promptly such authorizations, approvals,
consents or waivers provided, however, that neither Alter nor Biederman shall be
required to make any payments to obtain such authorizations, approvals, consents
or waivers.
SECTION 5.6 PUBLIC STATEMENTS. Before any party to this Agreement or
any Affiliate of such party shall release any statements concerning this
Agreement or the matters contemplated hereby which is intended for or may result
in public dissemination thereof, such party shall cooperate with the other
parties and provide the other parties the reasonable opportunity to review and
comment upon any such statements and shall not release or permit release of any
such information without the consent of the other parties, which shall not be
unreasonably withheld.
SECTION 5.7 NOTIFICATION OF CERTAIN MATTERS. Each party to this
Agreement shall give prompt notice to each other party of (i) the occurrence or
non-occurrence of any event, the occurrence or non-occurrence of which is likely
to cause any representation or warranty of such party contained in this
Agreement to be untrue or inaccurate at or prior to the Closing Date and (ii)
any failure of such party to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it hereunder; provided, however,
that the delivery of any notice pursuant to this Section 5.7 shall not limit or
otherwise affect any remedies available to the party receiving such notice. No
disclosure by any party pursuant to this Section 5.7 shall be deemed to amend or
supplement the disclosures set forth on the Schedules hereto or prevent or cure
any misrepresentations, breach of warranty or breach of covenant.
SECTION 5.8 INTENTIONALLY OMITTED
SECTION 5.9 TRANSFER TAXES. Sunstone Parties shall bear all share
transfer taxes, recording fees and other sales, transfer, use, purchase, stamp
or similar taxes resulting or arising out of the Transactions.
SECTION 5.10 INJUNCTIONS OR RESTRAINTS. In the event that there exists
at or prior to Closing (i) any injunction, restraining order or other decree of
any nature of any court of competent jurisdiction or other Governmental
Authority that is in effect that restrains or prohibits the consummation of any
of the Transactions or (ii) any action taken, or any statute, rule, regulation
or order enacted, entered or enforced, which makes the consummation of the
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Transactions illegal, each party to this Agreement shall use their reasonable
commercial efforts to have any such injunction, order, decree, action, statute,
rule or regulation vacated or declared inapplicable.
SECTION 5.11 CERTIFICATION OF UNITED STATES STATUS OF ALTER AND
BIEDERMAN. Each of Alter and Biederman shall deliver as of Closing to Sunstone
Parties a certificate, duly executed and acknowledged, certifying that each is
not a foreign person, as defined in Treasury regulation section
1.1445-2(b)(2)(i), such certification in the form similar to that described in
Treasury regulation section 1.1445-2(b)(2)(iii)(A) or otherwise meeting the
requirements of Treasury regulation section 1.1445-2(b)(2).
SECTION 5.12 SPOUSAL CLAIMS. Alter agrees to maintain all Lessee Stock
to be sold to Sunstone Parties or the Third Party Acquiror hereunder free from
all potential spousal claims including election share, community property
interest or otherwise.
SECTION 5.13 CERTAIN OBLIGATIONS. (a) Sunstone Parties will use its
reasonable best efforts to secure the release of each of Alter and Biederman
from their respective obligations incurred following the Closing under the
guarantees and indemnities listed in Schedule 5.13(a), which release may be
accomplished (at Sunstone Parties' election) by issuances of guarantees or
indemnities by Sunstone Parties with respect to such obligations or the
assumption by Sunstone Parties of such obligations. To the extent Alter and
Biederman are not released from such post- Closing obligations, Sunstone Parties
and Management and Lessee shall, jointly and severally, indemnify and hold Alter
and Biederman, and their respective Affiliates, heirs, executors, successors and
assigns, harmless for all Losses suffered or incurred by either of them under
such obligations.
(b) Effective as of the Closing, all arrangements between any of Alter,
Biederman or any Affiliate of the foregoing, other than Sunstone and Sunstone's
Subsidiaries (collectively the "Alter/Biederman Parties"), on the one hand, and
Sunstone or any of Sunstone's Subsidiaries, on the other hand, shall be
terminated with no further obligations or Liabilities by Sunstone or any of
Sunstone's Subsidiaries thereunder, except for the agreements listed on Schedule
5.13(b) (which shall not be terminated) and the obligations or liabilities
incurred thereunder following the Closing. Each of the Alter/Biederman Parties
severally represents to Sunstone Parties that no amounts are owing or payable by
it or him to Sunstone or any Sunstone Subsidiary under any agreement or
arrangement between any of the Alter /Biederman Parties, on the one hand, and
Sunstone or any of Sunstone's Subsidiaries, on the other hand, whether or not
such agreement or arrangement shall be terminated pursuant to this section.
Notwithstanding the termination of the agreements and arrangements referred to
in the second preceding sentence, the Alter/Biederman Parties shall retain all
obligations and Liabilities to Sunstone and its Subsidiaries under all
agreements and arrangements between the Alter/Biederman Parties, on the one
hand, and Sunstone and its Subsidiaries, on the other hand, incurred before the
Closing, and shall indemnify Sunstone Parties for all Losses incurred by it in
connection with such obligations and Liabilities. Except with respect to
obligations or Liabilities incurred following the Closing under
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the agreements listed on Schedule 5.13(a) or Schedule 5.13(b), any obligations
or Liabilities under this Agreement or payment obligations under the Lessee Line
of Credit, the Alter/Biederman Parties hereby release and discharge and
indemnify and hold harmless Sunstone Parties, on behalf of Sunstone and
Sunstone's Subsidiaries, and their successors and assigns from all actions,
causes of action, suits, debts, dues, sums of money, accounts, claims and
demands owed by Sunstone or any of Sunstone's Subsidiaries to any of the
Alter/Biederman Parties, by reason of any matter, cause, contract, course of
dealing or thing whatsoever arising during, or in respect of, the period on or
before the Closing.
ARTICLE 6
CONDITIONS TO CLOSING
SECTION 6.1 CONDITIONS PRECEDENT TO OBLIGATIONS OF EACH PARTY. The
respective obligations of each party to this Agreement to consummate the
transactions contemplated hereby shall be subject to the satisfaction (or waiver
by the party entitled to the benefit of such condition) of each of the following
conditions at or prior to the Closing:
(a) No Injunctions or Restraints. There shall not be (i) any
injunction, restraining order or other decree of any nature of any court of
competent jurisdiction or other Governmental Authority that is in effect that
restrains or prohibits the consummation of any of the Transactions or (ii) any
action taken, or any statute, rule, regulation or order enacted, entered or
enforced, which makes the consummation of the Transactions illegal.
(b) HSR Act. Any waiting period (and any extension thereof) under the
HSR Act applicable to the Transactions shall have expired or been terminated.
(c) Merger Agreement. The Merger Agreement shall have been terminated
in accordance with its terms.
SECTION 6.2 CONDITIONS PRECEDENT TO OBLIGATION OF THE SUNSTONE PARTIES.
The obligation of each of the Sunstone Parties to consummate the Transactions
shall be subject to the satisfaction of each of the following conditions (unless
waived by Sunstone Parties) at or prior to the Closing:
(a) Accuracy of Representations and Warranties. The representations and
warranties of Alter and Biederman contained in this Agreement shall be true and
correct in all material respects (except for representations having a
materiality or Material Adverse Effect qualification, which shall be correct in
all respects), in each case on and as of the date of this Agreement and on and
as of the Closing Date as though made on and as of such time, except to the
extent such representations and warranties by their terms speak as of a
specified date, in which case they shall be so true and correct as of such date;
and Sunstone Parties shall have received from each of Alter and Biederman a
certificate to such effect dated as of the Closing Date and signed by each such
Person.
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(b) Covenants. Each of Alter and Biederman shall have complied in all
material respects with each covenant contained in this Agreement to be performed
by him or it on or prior to the Closing; and Sunstone Parties shall have
received from each of Alter and Biederman a certificate to such effect dated as
of the Closing and signed by each such Person.
(c) Material Adverse Change. Since the date of this Agreement through
and including the Closing Date, there shall have been no Material Adverse Effect
and Sunstone Parties shall have received from each of Alter and Biederman a
certificate to such effect dated as of the Closing and signed by each such
Person.
(d) Consents. All consents and waivers (including, without limitation,
waivers of rights of first refusal) from Governmental Authorities and third
parties necessary in connection with the consummation of the Transactions shall
have been obtained and not subsequently been revoked as of the Closing Date
other than such consents and waivers from third parties, which, if not obtained,
would not result, individually or in the aggregate, in a Material Adverse
Effect.
SECTION 6.3 CONDITIONS PRECEDENT TO OBLIGATIONS OF ALTER. The
obligation of Alter to consummate the Transactions shall be subject to the
satisfaction of each of the following conditions (unless waived by Alter) at or
prior to the Closing:
(a) Accuracy of Representations and Warranties. The representations and
warranties of Sunstone Parties contained in this Agreement shall be true and
correct in all material respects (except for representations having a
materiality or Material Adverse Effect qualification, which shall be correct in
all respects), in each case on and as of the date of this Agreement and on and
as of the Closing Date as though made on and as of such time, except to the
extent such representations and warranties by their terms speak as of a
specified date, in which case they shall be so true and correct as of such date;
and Alter shall have received from each of Sunstone Parties a certificate to
such effect dated as of the Closing Date and signed by an officer thereof in the
case of Sunstone Party.
(b) Covenants. Each of Sunstone Parties shall have complied in all
material respects with each covenant contained in this Agreement to be performed
by it or him on or prior to the Closing; and Alter shall have received from each
of Sunstone Parties a certificate to such effect dated as of the Closing Date
and signed by an officer thereof in the case of Sunstone Party.
(c) Assumption Agreement. The Assumption Agreement shall have been
executed and delivered by the Third Party Acquiror and shall be a valid and
binding obligation of the Third Party Acquiror enforceable against it in
accordance with its terms.
SECTION 6.4 CONDITIONS PRECEDENT TO OBLIGATIONS OF BIEDERMAN. The
obligation of Biederman to consummate the Transactions shall be subject to the
satisfaction of each of the following conditions (unless waived by Biederman) at
or prior to the Closing:
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<PAGE> 108
(a) Accuracy of Representations and Warranties. The representations and
warranties each of Sunstone Party in this Agreement shall be true and correct in
all material respects (except for representations having a materiality or
Material Adverse Effect qualification, which shall be correct in all respects),
in each case on and as of the date of this Agreement and on and as of the
Closing Date as though made on and as of such time, except to the extent such
representations and warranties by their terms speak as of a specified date, in
which case they shall be so true and correct as of such date; and Biederman
shall have received from each of Sunstone Parties a certificate to such effect
dated as of the Closing Date and signed by an officer thereof in the case of
Sunstone Parties.
(b) Covenants. Each of Sunstone Parties shall have complied in all
material respects with each covenant contained in this Agreement to be performed
by it or him on or prior to the Closing; and Biederman shall have received from
each of Sunstone Parties a certificate to such effect dated as of the Closing
Date and signed by an officer thereof in the case of Sunstone Parties.
(c) Assumption Agreement. The Assumption Agreement shall have been
executed and delivered by the Third Party Acquiror and shall be a valid and
binding obligation of the Third Party Acquiror enforceable against it in
accordance with its terms.
ARTICLE 7
TERMINATION
SECTION 7.1 TERMINATION EVENTS. This Agreement may be terminated and
the Transactions may be abandoned at any time prior to the Closing:
(a) by mutual written consent of Alter, Biederman and Sunstone Parties;
(b) by Sunstone Parties, upon a breach of any representation, warranty,
covenant, obligation or agreement on the part of Alter or Biederman set forth in
this Agreement, in any case such that the conditions set forth in Section 6.2(a)
or 6.2(b), as the case may be, are not satisfied or would be incapable of being
satisfied within 30 days after the giving of written notice to Alter;
(c) by Alter, upon a breach of any representation, warranty, covenant,
obligation or agreement on the part of any of Sunstone Parties such that the
conditions set forth in Section 6.3(a) or 6.3(b) are not satisfied or would be
incapable of being satisfied within 30 days after the giving of written notice
to Sunstone Parties; or by Biederman, upon a breach of any representation,
warranty, covenant, obligation or agreement on the part of any of Sunstone
Parties, such that the conditions set forth in 6.4(a) or 6.4(b) are not
satisfied or would be incapable of being satisfied within 30 days after the
giving of written notice to Sunstone Parties;
35
<PAGE> 109
(d) by any of Alter, Biederman or Sunstone Parties if any court of
competent jurisdiction in the United States shall have issued a final and
unappealable permanent injunction, order, judgment or other decree (other than a
temporary restraining order) restraining, enjoining or otherwise prohibiting the
consummation of the Transactions, provided that the party seeking to terminate
this Agreement under this clause (d) is not then in material breach of this
Agreement and provided, further, that the right to terminate this Agreement
under this clause (d) shall not be available to any party who shall not have
used reasonable commercial efforts to avoid the issuance of such order, decree
or ruling; and
(e) by any of Alter, Biederman or Sunstone Parties if the Superior
Proposal Transaction shall have been terminated in accordance with its terms.
SECTION 7.2 EFFECT OF TERMINATION. In the event of any termination of
the Agreement as provided in Section 7.1 hereto, this Agreement shall forthwith
become wholly void and of no further force or effect (except Sections 7.2 and
7.3 and Article IX hereof) and there shall be no liability on the part of any
parties hereto or their respective officers or directors, except as provided in
such Sections and Articles. Notwithstanding the foregoing, no party hereto shall
be relieved from liability for any willful breach of this Agreement.
ARTICLE 8
INDEMNIFICATION
SECTION 8.1 INDEMNIFICATION BY SUNSTONE PARTIES. From and after the
Closing, Sunstone Parties and Third Party Acquiror shall indemnify and hold
harmless each of Alter, Biederman and their respective Affiliates, agents,
heirs, executors, successors and assigns from and against any and all Losses
suffered or incurred by any such indemnified Person arising from, relating to or
otherwise in respect of (a) any breach of, or inaccuracy in, any representation
or warranty of any Sunstone Party contained in this Agreement, (b) any breach of
any covenant of any Sunstone Party contained in this Agreement, and (c) any
breach of any covenant or representation or warranty pursuant to the Assumption
Agreement. In addition, the Sunstone Parties and Third Party Acquiror shall
provide the indemnity set forth in Section 5.13(a).
SECTION 8.2 INDEMNIFICATION BY ALTER. From and after the Closing, Alter
shall indemnify and hold harmless each of Sunstone Parties and Third Party
Acquiror and their Affiliates and respective directors, officers, employees,
agents, heirs, executors, successors and assigns of any of the foregoing from
and against any and all Losses suffered or incurred by any such indemnified
Person arising from, relating to or otherwise in respect of (a) any breach of,
or inaccuracy in, any representation or warranty of Alter contained in this
Agreement; and (b) any breach of any covenant of Alter contained in this
Agreement.
SECTION 8.3 INDEMNIFICATION BY BIEDERMAN. From and after the Closing,
Biederman shall indemnify and hold harmless each of Sunstone Parties and Third
Party Acquiror
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<PAGE> 110
and their respective Affiliates and each of the foregoing's respective agents,
directors, officers, employees, agents, heirs, executors, successors and assigns
from and against any and all Losses suffered or incurred by any such indemnified
Person arising from, relating to or otherwise in respect of, (a) any breach of,
or inaccuracy in, any representation or warranty of Biederman contained in this
Agreement or (b) any breach of any covenant of Biederman contained in this
Agreement. In addition, Alter shall provide the indemnity set forth in Section
5.13(b).
SECTION 8.4 TAX INDEMNIFICATION. (a) Notwithstanding any other
provision of this Agreement (but subject to Section 8.7), following the Closing,
Alter and Biederman shall indemnify and hold harmless each of Sunstone Parties
and their Affiliates and respective directors, officers, employees, agents,
heirs, executors, successors and assigns of any of the foregoing from and
against any and all Losses suffered or incurred by any such indemnified Person
arising from, relating to or otherwise in respect of (a) any breach of, or
inaccuracy in, any representation or warranty in Section 4.1(q)(iv), and (b) any
and all income taxes of Lessee or Management for any taxable period or year
ending before the Closing Date and with respect to any Straddle Period (as
defined), for the portion of such Taxes determined pursuant to Section 8.4(b).
In addition, Biederman shall provide the indemnity set forth in Section 5.13(b).
(b) With respect to any Taxes for any taxable period that includes but
does not end as of the day prior to the Closing Date (a "Straddle Period"), the
amount of income taxes subject to indemnification under this Section 8.4
attributable to pre-Closing and post-Closing tax periods shall be calculated as
if such taxable period ended as of the close of business on the day prior to the
Closing Date.
SECTION 8.5 THIRD-PARTY CLAIMS. If a claim by a third party is made
against an indemnified Person hereunder, and if such indemnified Person intends
to seek indemnity with respect thereto under this Article, such indemnified
Person shall promptly notify the indemnifying Person in writing of such claims
setting forth such claims in reasonable detail, provided that failure of such
indemnified Person to give prompt notice as provided herein shall not relieve
the indemnifying Person of any of its obligations hereunder, except to the
extent that the indemnifying Person is materially prejudiced by such failure. If
the indemnifying Person acknowledges in writing its obligation to indemnify the
indemnified Person against any Losses that may result from such third party
claim, then the indemnifying Person shall have 20 days after receipt of such
notice to undertake, through counsel of its own choosing, subject to the
reasonable approval of such indemnified Person, and at its own expense, the
settlement or defense thereof, and the indemnified Person shall cooperate with
it in connection therewith; provided, however, that the indemnified Person may
participate in such settlement or defense through counsel chosen by such
indemnified Person, provided that the fees and expenses of such counsel shall be
borne by such indemnified Person. The indemnifying Person shall not settle any
claim or consent to the entry of any judgment without the prior written consent
of the indemnified Person, unless (i) such settlement or judgement includes as
an unconditional term thereof the giving by the claimant of a release of the
indemnified Person from all Liability with respect to such claim and (ii) such
settlement or judgement does not involve the imposition of equitable remedies or
the imposition
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of any material obligations on such indemnified Person other than financial
obligations for which such indemnified Person will be indemnified hereunder. If
the indemnifying Person shall assume the defense of a claim, the fees of any
separate counsel retained by the indemnified Person shall be borne by such
indemnified Person unless there exists or is reasonably likely to exist a
conflict of interest between them as to their respective legal defenses (other
than one that is of a monetary nature) in the reasonable judgment of the
indemnified Person, in which case the indemnified Person shall be entitled to
retain one law firm as its separate counsel, the reasonable fees and expenses of
which shall be reimbursed as they are incurred by the indemnifying Person. If
the indemnifying Person does not notify the indemnified Person within 20 days
after the receipt of the indemnified Person's notice of a claim of indemnity
hereunder that it elects to undertake the defense thereof and that it
acknowledges its obligation to indemnify the indemnified Person against any
Losses that may result from such claim, the indemnified Person shall have the
right to contest, settle or compromise the claim in a reasonable manner, and the
indemnifying Person shall cooperate with in connection therewith, but the
indemnified Person shall not thereby waive any right to indemnity therefor
pursuant to this Agreement.
SECTION 8.6 TERMINATION OF INDEMNIFICATION. The obligations to
indemnify and hold harmless a party hereto pursuant to Sections 8.1, 8.2, 8.3
and 8.4 shall terminate upon the termination of the relevant representation,
warranty or pre-closing agreement pursuant to Section 4.3; provided, however,
that such obligation to indemnify and hold harmless shall not terminate with
respect to any item as to which the Person to be indemnified shall have, before
the expiration of the applicable period, previously made a claim by delivering a
written notice (stating in reasonable detail the basis of such claim) to the
indemnifying party.
SECTION 8.7 LIMITATIONS ON INDEMNITY OBLIGATIONS. (a) Notwithstanding
any contrary provision of this Agreement, (i) the maximum liability of Sunstone
Parties pursuant to its indemnification obligation under Section 8.1(a) is
$30,000,000, (ii) except as otherwise provided in clause (iii) below or in the
last sentence of this Section 8.7(a), the maximum liability of Alter and
Biederman, in the aggregate, pursuant to their indemnification obligations under
Sections 8.2(a) and 8.3(a) with respect to any breach of a representation or
warranty set forth in clause 4.1(c) is $10,000,000, and (iii) the maximum
liability of Alter and Biederman, in the aggregate, pursuant to their
indemnification obligations under Section 8.2(a) and 8.3(a) with respect to any
breach of a representation or warranty set forth in clauses (i), (ii) or (iii)
of Section 4.1(f), Sections 4.1(a), 4.1(b), 4.1(n), 4.1(o), 4.1(p), 4.1(q),
4.1(s), 4.1(u) is $30,000,000. These limitations do not apply to any
indemnification obligations under Sections 8.2 and 8.3 relating to a breach of
any representation or warranty set forth in clause (iv) of Section 4.1(f),
Sections 4.1(d), 4.1(v), 4.1(w), 4.1(x), 4.1(y) or any other section of this
Article 8.
(b) No amount shall be payable:
(i) under Section 8.1(a) unless and until the aggregate amount of
Losses exceeds $500,000 (and if such amount is so exceeded, then only those
Losses shall then
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be payable in accordance with this Article VIII to the extent such Losses
exceed $500,000);
(ii) under Section 8.2(a) unless and until the aggregate amount of
Losses exceeds $500,000 (and if such amount is so exceeded, then only those
Losses shall then be payable in accordance with this Article VIII to the
extent such Losses exceed $500,000);
(iii) under Section 8.3(a) unless and until the aggregate amount of
Losses exceeds $500,000 (and if such amount is so exceeded, then only those
Losses shall then be payable in accordance with this Article VIII to the
extent such Losses exceed $500,000).
(iv) no amount shall be payable under clause (a) of Sections 8.1, 8.2
or 8.3 for any breach the Losses arising from which in any individual case
amount to $10,000 or less, and such Losses shall not be included in
establishing the thresholds established in clauses (i), (ii) and (iii) of
Section 8.8(b) and, in connection with the foregoing, the parties agree
that any breach of any representation in clause (i) of Section 4.1(q) which
relates to sales taxes shall be determined also on an individual basis,
subject to the $10,000 threshold, and on a hotel by hotel basis for any
particular taxable year;
(c) References in Article 4 to Material Adverse Effect and material
adverse effect qualifiers shall be disregarded for purposes of determining
whether a party has incurred Losses pursuant to Section 8.1(a), 8.2(a) and 8.3.
SECTION 8.8 ALLOCATION OF CERTAIN INDEMNITY OBLIGATIONS. Sunstone
Parties, Alter and Biederman agree as follows: with respect to any
indemnification obligations arising from, relating to or otherwise in respect of
any breach of, or inaccuracy in, any representation or warranty with respect to
Lessee contained in Section 4.1 of this Agreement or any other indemnification
obligations hereunder arising from, relating to or otherwise in respect of the
acts or omissions of Alter and Biederman shall not be responsible for more than
80% and 20%, respectively, of such indemnified Losses.
SECTION 8.9 EXCLUSIVE REMEDY. The indemnification provided in this
Article 8 and Sections 5.13(a) and 5.13(b) shall be the exclusive post-Closing
remedy available to any party for any breach of any representation, warranty or
covenant contained herein, except in circumstances involving fraud.
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ARTICLE 9
MISCELLANEOUS AGREEMENTS OF THE PARTIES
SECTION 9.1 NOTICES. Any notice in connection with this Agreement shall
be in writing and shall be delivered personally by overnight courier or by
facsimile at the addresses or facsimile numbers given below. If notice is given
by: (a) overnight courier, notice shall be deemed given when recorded on the
records of the air courier as received by the receiving party; or (b) facsimile,
notice shall be deemed given upon transmission, if on a business day and during
business hours in the city of receipt; otherwise, notice shall be deemed to have
been given at 9:00 A.M. on the next Business Day in the city of receipt.
If to Alter:
c/o Sunstone Hotel Investors, Inc.
903 Calle Amanecer
San Clemente, California 92673-6212
Attn.: Robert A. Alter
Facsimile: (949) 369-4210
with a copy to:
Battle Fowler LLP
75 East 55th Street
New York, New York 10022
Attn.: Steven Lichtenfeld
Facsimile: (212) 856-7823
If to Biederman:
c/o Sunstone Hotel Investors, Inc.
903 Calle Amanecer
San Clemente, California 92673-6212
Attn.: Robert A. Alter
Facsimile: (949) 369-4210
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with a copy to:
Battle Fowler LLP
75 East 55th Street
New York, New York 10022
Attn.: Steven Lichtenfeld
Facsimile: (212) 856-7823
If to any Sunstone Entity to:
Sunstone Hotel Investors, Inc.
903 Calle Amanecer
San Clemente, California 92673-6212
Attn.: R. Terrence Crowley
Facsimile: (949) 369-4210
with copies to:
Altheimer & Gray
10 South Wacker Drive
Chicago, Illinois 60606-7482
Attn: Mark Kindelin
Facsimile: (312) 715-4800
or to such other address as any such party shall designate by written notice to
the other parties hereto.
SECTION 9.2 INTEGRATION; AMENDMENTS. This Agreement (including the
Schedules and Exhibits hereto) contains the entire agreement and understanding
of the parties with regard to the matters contained herein and supercedes any
prior written or oral agreement with respect to the subject matter hereto. This
Agreement (including the Schedules and Exhibits hereto) may not be amended or
modified except in a writing signed by all parties hereto.
SECTION 9.3 WAIVER. No waiver by any of the parties hereto of any of
the provisions hereof shall be effective unless explicitly set forth in writing
and executed by the party so waiving. Except as provided in the preceding
sentence, no action taken pursuant to this Agreement, including without
limitation, any investigation by or on behalf of any party, shall be deemed to
constitute a waiver by the party taking such action of compliance with any
representations, warranties, covenants, or agreements contained herein, and in
any documents delivered or to be delivered pursuant to this Agreement and in
connection with the Closing hereunder. The waiver by any party hereto of a
breach of any provision of this Agreement shall not operate or be construed as a
waiver of any subsequent breach.
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<PAGE> 115
SECTION 9.4 NO ASSIGNMENT; SUCCESSORS AND ASSIGNS. The parties'
respective rights and obligations hereunder may not be assigned, transferred,
pledged, or encumbered, in any manner, direct or indirect, contingent or
otherwise, in whole or in part, voluntarily or by operation of law, without the
prior written consent of the other parties, provided that any of Sunstone
Parties may assign, in whole or in part, any of its rights and obligations under
this Agreement to the Third Party Acquiror without the consent of the other
parties hereto, and such assignee shall have all of the rights and obligations
of a "Sunstone Party" hereunder but Sunstone Parties will remain liable for
their obligations hereunder. Subject to the preceding sentence, this Agreement
shall be binding on the parties hereto and their respective successors and
permitted assigns. In the event of the death, disability or incapacity of Alter
or Biederman, such party's executors, administrators, testamentary trustees or
personal representatives shall be bound by all the terms and conditions of this
Agreement.
SECTION 9.5 EXPENSES. Except as set forth in this Agreement, whether or
not the Transactions are consummated, all costs and expenses incurred in
connection with this Agreement and the Transactions shall be paid by the party
incurring such costs.
SECTION 9.6 SEVERABILITY. If any provision of this Agreement shall be
declared by any court of competent jurisdiction to be illegal, void or
unenforceable, all other provisions of this Agreement shall not be affected and
shall remain in full force and effect, and the parties hereto shall negotiate in
good faith to replace such illegal, void or unenforceable provision with a
provision that corresponds as closely as possible to the intentions of the
parties as expressed by such illegal, void or unenforceable provision.
SECTION 9.7 SECTION HEADINGS; TABLE OF CONTENTS. The section headings
contained in this Agreement and the table of contents to this Agreement are for
reference purposes only and shall not affect the meaning or interpretation of
this Agreement.
SECTION 9.8 THIRD PARTIES. Except for the beneficiaries of the
indemnification provided in Article VII, this Agreement does not create any
rights, claims or benefits inuring to any Person that is not a party hereto nor
create or establish any third party beneficiary hereto.
SECTION 9.9 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE, REGARDLESS OF
THE LAWS THAT MIGHT OTHERWISE GOVERN UNDER APPLICABLE PRINCIPLES OF CONFLICT OF
LAWS THEREOF.
SECTION 9.10 ENFORCEMENT. The parties agree that irreparable damage
would occur in the event that any of the provisions of this Agreement were not
performed by Alter or Biederman in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that Sunstone Parties shall be
entitled to an injunction or injunctions to prevent breaches of this Agreement
by Alter or Biederman and to enforce specifically the terms and provisions of
this Agreement in any federal court located in Delaware or in Chancery Court in
Delaware, this
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<PAGE> 116
being in addition to any other remedy to which Sunstone Parties is entitled at
law or in equity. In addition, each of Alter and Biederman (a) consents to
submit himself (without making such submission exclusive) to the personal
jurisdiction of any federal court located in Delaware or Chancery Court located
in Delaware in the event any dispute arises out of this Agreement or any of the
Transactions and (b) agrees that it will not attempt to deny or defeat such
personal jurisdiction by motion or other request for leave from any such court.
In the event any dispute or difference of opinion arises under this
Agreement, the parties hereto shall endeavor to resolve such dispute or
difference of opinion by negotiation or mediation. If, for any reason, such
mediation or negotiation fails to result in a mutually acceptable resolution,
the parties agree to be bound by their consent to the jurisdiction of any
federal court located in Delaware or Chancery Court located in Delaware.
SECTION 9.11 COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which shall be deemed to be an original and all of
which together shall be deemed to be one and the same instrument.
SECTION 9.12 CUMULATIVE REMEDIES. All rights and remedies of either
party hereto are cumulative of each other and of every other right or remedy
such party may otherwise have at law or in equity, and the exercise of one or
more rights or remedies shall not prejudice or impair the concurrent or
subsequent exercise of other rights or remedies.
SECTION 9.13 CONSENT OF REGINA BIEDERMAN. Regina Biederman hereby
consents to all of the Transactions, and waives any and all right to contest or
prevent the consummation of such transactions.
[SIGNATURES APPEAR ON FOLLOWING PAGES]
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IN WITNESS WHEREOF, each of the parties has signed its name to this
Agreement, authorized as of the day and year first above written.
SUNSTONE HOTEL INVESTORS, INC.
By: /s/ R. Terrence Crowley
------------------------------------
Name: R. Terrence Crowley
Title: Chief Operating Officer
SUNSTONE HOTEL INVESTORS, L.P.
By: Sunstone Hotel Investors, Inc., its general
partner
By: /s/ R. Terrence Crowley
------------------------------
Name: R. Terrence Crowley
Title: Chief Operating Officer
ROBERT A. ALTER
/s/ Robert A. Alter
------------------------------------------
Robert A. Alter
CHARLES L. BIEDERMAN
/s/ Charles L. Biederman
------------------------------------------
Charles L. Biederman
SUNSTONE HOTEL PROPERTIES, INC.
By: /s/ Robert A. Alter
---------------------------------------
Name: Robert A. Alter
Title: Chairman
SUNSTONE HOTEL MANAGEMENT, INC.
By: /s/ Robert A. Alter
---------------------------------------
Name: Robert A. Alter
Title: Chairman
45
<PAGE> 118
REGINA BIEDERMAN
/s/ Regina Biederman
----------------------------------------
Regina Biederman
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<PAGE> 119
EXHIBIT 3.2
EXECUTION NOTICE
Mr. Robert A. Alter
Mr. Charles L. Biederman
c/o Robert A. Alter
Sunstone Hotel Properties, Inc.
903 Calle Amanecer
San Clemente, California 92673
Re: Execution Notice
----------------
Attention: Robert A. Alter
In accordance with the terms and conditions of the Lessee/Manager
Agreement among the undersigned and you, dated July ___, 1999, you are hereby
notified that the Sunstone Parties have entered into a SAP Purchase Agreement on
____, 1999 (which was entered into within five days of the date of this notice).
The undersigned hereby certify to you that attached is a true, correct and
complete (i) originally executed copy of the SAP Agreement together with all
exhibits and schedules thereto and all ancillary related agreements, executed
and delivered in connection therewith by the parties thereto (ii) an originally
executed copy of the Assumption Agreement and (iii) an originally executed copy
of the Drag-Along Notice.
Unless otherwise defined herein, all defined terms herein shall have
such meaning ascribed such terms in the Lessee/Manager Agreement.
Dated , 1999
----------
SUNSTONE HOTEL INVESTORS, INC.
By:
---------------------------------------------
Name:
Title:
SUNSTONE HOTEL INVESTORS, L.P.
By: Sunstone Hotel Investors, Inc., its general
partner
By:
---------------------------------------
Name:
Title:
cc: Steven L. Lichtenfeld
Battle Fowler LLP
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<PAGE> 120
EXHIBIT 3.3
DRAG-ALONG NOTICE
Mr. Robert A. Alter
Mr. Charles L. Biederman
c/o Robert A. Alter
Sunstone Hotel Properties, Inc.
903 Calle Amanecer
San Clemente, California 92673
Re: Drag-Along Notice
-----------------
Attention: Robert A. Alter
You are hereby notified in accordance with Section 3.3 of the
Lessee/Manager Agreement, dated July ___, 1999, among the undersigned and you
(the "Lessee/Manager Agreement") that the undersigned hereby exercises, in
accordance with the terms and conditions of the Lessee/Manager Agreement, its
Drag-Along Right to the fullest extent provided pursuant to the Lessee Manager
Agreement for all of the Stockholders' right title and interest in the Lessee
and Management Equity.
Unless otherwise defined herein, all defined terms herein shall have
such meaning ascribed such terms in the Lessee/Manager Agreement.
Dated , 1999
----------
SUNSTONE HOTEL INVESTORS, INC.
By:
---------------------------------------------
Name:
Title:
SUNSTONE HOTEL INVESTORS, L.P.
By: Sunstone Hotel Investors, Inc., its general
partner
By:
---------------------------------------
Name:
Title:
cc: Steven L. Lichtenfeld
Battle Fowler LLP
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EXHIBIT 3.4
ASSUMPTION AGREEMENT
THIS ASSUMPTION AGREEMENT, dated as of ______, 1999, by and among
[___________________].
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Sunstone Hotel Investors, Inc., a Maryland corporation (the
"REIT") and Sunstone Hotel Investors, L.P., a Delaware limited partnership (the
"Operating Partnership," and together with the REIT the "Sunstone Parties") and
Robert A. Alter("Alter") and Charles L. Biederman ("Biederman") are parties to a
Lessee/Manager Agreement, dated as of July __, 1999 (the "Lessee/Manager
Agreement"), which provides, among other things, the Sunstone Parties with the
right to require Alter and Biederman to sell to the Sunstone Parties or the
Third Party Acquiror, under certain circumstances, all of the Lessee and
Management Equity owned by Alter and Biederman;
WHEREAS, the Lessee/Manager Agreement provides, among other things,
that as a condition precedent with the Sunstone Parties exercising their
Drag-Along Right, the Third Party Acquiror must assume and guarantee the
performance of all of the obligations of the Sunstone Parties under the
Lessee/Manager Agreement;
WHEREAS, the Sunstone Parties desire to exercise the Drag-Along Right;
NOW, THEREFORE, in consideration of the premises, the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
(i) The Third Party Acquiror hereby assumes, guarantees, and undertakes
to pay, perform and otherwise discharge, as the same shall become due in
accordance with their respective terms, all of the liabilities, duties, terms,
conditions, indemnities and obligations of the Sunstone Parties under the
Lessee/Manager Agreement;
(ii) The Third Party Acquiror on behalf of itself makes the same
representations and warranties and covenants as made by Sunstone Parties under
the Lessee/Manager Agreement;
(iii) The persons set forth on the attached Exhibit A are the persons
who have actual knowledge without due inquiry on behalf of the Third Party
Acquiror; and
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<PAGE> 122
(iv) The undersigned agree and acknowledge that this Assumption
Agreement does not relieve, discharge or otherwise release the Sunstone Parties
from any of their obligations existing and arising under the Lessee/Manager
Agreement.
IN WITNESS WHEREOF, the undersigned has caused this instrument to be
duly executed this __th day of _____, 1999.
THIRD PARTY ACQUIROR:
-------------------------------
Name:
Title:
[Controlling Persons]
-------------------------------
Name:
Title:
<PAGE> 123
EXHIBIT C
VOTING AGREEMENT
VOTING AGREEMENT, dated as of July 12, 1999 ("Agreement"), by and among
Westbrook Real Estate Fund I, L.P., a Delaware limited partnership
("Westbrook"), Robert A. Alter ("Alter") and Charles L. Biederman ("Biederman")
in their respective capacities as stockholders ("Stockholders") of Sunstone
Hotel Investors, Inc., a Maryland corporation (the "Company"), SHP Acquisition,
L.L.C., a Delaware limited liability company ("SHP"), and the Company.
WHEREAS, concurrently herewith, SHP, SHP Investors Sub, Inc., a
Maryland corporation, and the Company are entering into an Agreement and Plan of
Merger dated July 12, 1999 (the "Merger Agreement"; capitalized terms used
without definition herein having the meanings ascribed thereto in the Merger
Agreement);
WHEREAS, Stockholders are as of the date hereof the beneficial owners
of 2,088,815 shares of common stock, $0.01 par value per share, of the Company
("Common Stock") and 250,000 shares of 7.9% Class A Cumulative Convertible
Preferred Stock of the Company (collectively with the Common Stock, but
excluding any shares of Common Stock issuable (but not yet issued) upon
conversion of units in Sunstone Hotel Investors, L.P. or other securities
convertible into Common Stock or upon exercise of stock options, the "Shares");
WHEREAS, approval of the Merger Agreement by the Company's stockholders
is a condition to the consummation of the Merger;
WHEREAS, as a condition to its entering into the Merger Agreement, each
of the Company and SHP has required that Stockholders agree, and Stockholders
have agreed, to enter into this Agreement; and
WHEREAS, Stockholders have been informed that the Board of Directors of
the Company has approved the Merger Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements set forth herein, the parties hereto agree as follows:
Section 1. Agreement to Vote, Restrictions on Dispositions, Etc.
a. Each Stockholder hereby agrees to attend any stockholders
meeting of the Company, in person or by proxy, and to vote (or cause to
be voted) all Shares, and any other voting securities of the Company,
owned by such Stockholder whether issued heretofore or hereafter, that
such person owns or has the right to vote, for approval and adoption of
the Merger Agreement and the Merger, and the transactions contemplated
by the Merger Agreement, such agreement to vote to apply also to any
adjournment of such stockholder meeting of the Company. Each
Stockholder agrees not to grant any proxies or enter into any voting
agreement or arrangement inconsistent with this Agreement or the
Limited Irrevocable Proxy of even date herewith executed by
Stockholders in favor of the Company ("Irrevocable Proxy").
b. Each Stockholder hereby agrees that, without the prior
written consent of the
<PAGE> 124
Company, except as provided in the Contribution Agreement, such
Stockholder shall not, directly or indirectly, sell, offer to sell,
grant any option for the sale of or otherwise transfer or dispose of,
or enter into any agreement to sell, any Shares and any other voting
securities of the Company that such Stockholder owns beneficially or
otherwise. Each Stockholder agrees that the Company may enter stop
transfer orders with the transfer agent(s) and the registrar(s) of the
Shares against the transfer of Shares and any other voting securities
of the Company that Stockholder owns beneficially or otherwise.
c. Each Stockholder agrees to vote (or cause to be voted) all
Shares, and any other voting securities of the Company, owned by such
Stockholder whether issued heretofore or hereafter, that such person
owns or has the right to vote, against (i) any recapitalization,
merger, consolidation, sale of assets or other business combination or
similar transaction involving the Company or any of its Subsidiaries,
securities or assets other than the Merger or other transaction with
SHP and (ii) any other action or agreement that would result in a
breach of any covenant, representation or warranty or any other
obligation or agreement of the Company under the Merger Agreement or
which could result in any of the conditions to the Company's
obligations under the Merger Agreement not being fulfilled.
d. Each Stockholder agrees not, directly or indirectly, to
solicit or authorize any person to solicit, any inquiries or proposals
from any person other than SHP relating to the merger or consolidation
of the Company with any person other than SHP or its Affiliates, or the
acquisition of the Company's or any of its significant subsidiaries'
voting securities by, or the direct or indirect acquisition or
disposition of a significant amount of assets of the Company or any of
its significant subsidiaries otherwise than in the ordinary course of
business of the Company or such significant subsidiary, from or to any
person other than SHP or its Affiliates or directly or indirectly enter
into or continue any discussions, negotiations or agreements relating
to, or vote (or cause to be voted) in favor of, any such transaction.
Nothing contained herein shall be construed to limit or otherwise
affect each Stockholder, any Affiliate or representative of Stockholder
who shall serve as a director of the Company from taking any action
permitted by Section 4.1 of the Merger Agreement in his or her capacity
as such director.
e. Each Stockholder agrees to promptly notify the Company and
SHP in writing of the nature and amount of any acquisition by
Stockholder after the date hereof of any voting securities of the
Company.
Section 2. Additional Representations and Warranties of Stockholder.
Each Stockholder represents and warrants, severally and not jointly, to the
Company and SHP as follows: Stockholder has all necessary power and authority to
execute and deliver this Agreement, to perform its obligations hereunder and to
consummate the transactions contemplated hereby. This Agreement has been duly
executed and delivered by Stockholder. Assuming the due authorization, execution
and delivery of this Agreement by the Company, this Agreement constitutes the
valid and binding agreement of Stockholder enforceable against Stockholder in
accordance with its terms, except as may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium and other similar laws of general
application which may affect the enforcement of creditors' rights generally and
by general equitable principles. The Shares of Stockholder are the only voting
securities of the Company owned (beneficially or of record) by Stockholder and
are owned free and clear of all liens, charges, encumbrances, restrictions and
commitments of any kind other than the Contribution Agreement, this Agreement
and shares pledged as margin stock. Other than the Irrevocable Proxy,
Stockholder has not appointed or granted any irrevocable proxy, which
appointment or grant is still effective, with respect to the Shares. The
<PAGE> 125
execution and delivery of this Agreement by Stockholder does not (a) conflict
with or violate any agreement, law, rule, regulation, order, judgment or
decision or other instrument binding upon it, nor require any consent,
notification, regulatory filing or approval which has not been obtained or (b)
result in any breach of or constitute a default (or an event that with notice or
lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of, or result in
the creation of a lien or encumbrance on any of the Shares owned by Stockholder
pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease,
license, permit, franchise or other instrument or obligation to which
Stockholder is a party or by which Stockholder or the Shares owned by
Stockholder are bound or affected. Stockholder acknowledges that the
restrictions imposed upon it are so imposed only in Stockholder's capacity as a
stockholder of the Company.
Section 3. Representations and Warranties of the Company. The Company
represents and warrants to the Stockholders as follows: each of this Agreement
and the Merger Agreement has been approved by the Board of Directors of the
Company. Each of this Agreement and the Merger Agreement has been duly executed
and delivered by a duly authorized officer of the Company. Assuming the due
authorization, execution and delivery of this Agreement by the Stockholders,
each of this Agreement and the Merger Agreement constitutes a valid and binding
agreement of the Company, enforceable against the Company in accordance with its
terms, except as may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium and other similar laws of general application which
may affect the enforcement of creditors' rights generally and by general
equitable principles.
Section 4. Further Assurances. Each party shall execute and deliver
such additional instruments and other documents and shall take such further
actions as may be necessary or appropriate to effectuate, carry out and comply
with all of their obligations under this Agreement. Without limiting the
generality of the foregoing, neither of the parties hereto shall enter into any
agreement or arrangement (or alter, amend or terminate any existing agreement or
arrangement) if such action would materially impair the ability of either party
to effectuate, carry out or comply with all the terms of this Agreement.
Section 5. Effectiveness and Termination. It is a condition precedent
to the effectiveness of this Agreement that the Merger Agreement shall have been
executed and delivered and be in full force and effect. This Agreement shall
automatically terminate and be of no further force or effect upon the earlier
termination of the Merger Agreement in accordance with its terms. Upon any
termination of this Agreement, except for any rights either party may have in
respect of any breach by either party of its obligations hereunder, none of the
parties hereto shall have any further obligation or liability hereunder. The
provisions of Section 1 of this Agreement shall terminate and be of no further
force or effect from and after the Effective Time of the Merger.
Section 6. Covenants of Stockholder Not to Enter Into Inconsistent
Agreements. Each Stockholder hereby agrees that, except as contemplated by this
Agreement, the Irrevocable Proxy and the Merger Agreement, each Stockholder
shall not enter into any voting agreement or grant an irrevocable proxy or power
of attorney with respect to the Shares which is inconsistent with this
Agreement.
Section 7. Miscellaneous.
a. Notices, Etc. All notices, requests, demands or other communications
required by or otherwise given with respect to this Agreement shall be in
writing and shall be deemed to have been duly given to either party when
delivered personally (by courier service or otherwise), when delivered by
telecopy and confirmed by return telecopy, or seven days after being mailed by
first-class mail, postage
<PAGE> 126
prepaid in each case to the applicable addresses set forth below:
If to the Company:
Sunstone Hotel Investors, Inc.
903 Calle Amanecer
San Clemente, CA 92673-6212
Attention: Chief Operating Officer
Facsimile: 949-369-4230
with a copy to:
Altheimer & Gray
10 South Wacker Drive
Suite 4000
Chicago, Illinois 60606
Attention: Phillip Gordon
Facsimile: 312-715-4800
If to Westbrook or SHP:
Westbrook Real Estate Partners L.L.C.
599 Lexington Avenue
Suite 3800
New York, New York 10022
Attention: Jonathan H. Paul
Facsimile: 212-849-8801
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017-3954
Attention: Richard Capelouto
Brian Stadler
Facsimile: 212-455-2502
If to Alter and Biederman:
c/o Sunstone Hotel Properties, Inc.
903 Calle Amanecer
San Clemente, California 92673-6212
Attention: Robert A. Alter
Facsimile: 949-369-4210
with a copy to:
Battle Fowler LLP
Park Avenue Tower
75 East 55th Street
<PAGE> 127
New York, NY 10022
Attention: Steven L. Lichtenfeld
Facsimile: 212-856-7808
or to such other address as such party shall have designated by notice so given
to each other party.
b. Amendments, Waivers, Etc. This Agreement may not be amended,
changed, supplemented, waived or otherwise modified or terminated except by an
instrument in writing signed by the Company, SHP and the affected Stockholder.
c. Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of and be enforceable by the parties and their
respective successors and assigns, including without limitation any corporate
successor by merger or otherwise. Notwithstanding any transfer of Shares, the
transferor shall remain liable for the performance of all obligations of the
transferor under this Agreement.
d. Entire Agreement. This Agreement (together with the Merger Agreement
and the documents referred to therein and the Irrevocable Proxy dated July 12,
1999) embodies the entire agreement and understanding among the parties
relating to the subject matter hereof and supersedes all prior agreements and
understandings relating to such subject matter. There are no representations,
warranties or covenants by the parties hereto relating to such subject matter
other than those expressly set forth in this Agreement, the Merger Agreement and
the documents referred to therein and the Irrevocable Proxy.
e. Severability. If any term of this Agreement or the application
thereof to either party or circumstance shall be held invalid or unenforceable
to any extent, the remainder of this Agreement and the application of such term
to the other parties or circumstances shall not be affected thereby and shall be
enforced to the greatest extent permitted by applicable law; provided that in
such event the parties shall negotiate in good faith in an attempt to agree to
another provision (in lieu of the term or application held to be invalid or
unenforceable) that will be valid and enforceable and will carry out the
parties' intentions hereunder.
f. Specific Performance. The parties acknowledge that money damages are
not an adequate remedy for violations of this Agreement and that either party
may, in its sole discretion, apply to a court of competent jurisdiction for
specific performance or injunction or such other relief as such court may deem
just and proper in order to enforce this Agreement or prevent any violation
hereof and, to the extent permitted by applicable law, each party waives any
objection to the imposition of such relief.
g. Remedies Cumulative. All rights, powers and remedies provided under
this Agreement or otherwise available in respect hereof at law or in equity
shall be cumulative and not alternative, and the exercise or beginning of the
exercise of any thereof by either party shall not preclude the simultaneous or
later exercise of any other such rights, power or remedy by such party.
h. No Waiver. The failure of either party hereto to exercise any right,
power or remedy provided under this Agreement or otherwise available in respect
hereof at law or in equity, or to insist upon compliance by the other party
hereto with its obligations hereunder, and any custom or practice of the parties
at variance with the terms hereof, shall not constitute a waiver by such party
of its right to exercise any such or other right, power or remedy or to demand
such compliance.
<PAGE> 128
i. No Third Party Beneficiaries. This Agreement is not intended to be
for the benefit of and shall not be enforceable by any person or entity who or
which is not a party hereto.
j. Jurisdiction. Each party hereby irrevocably submits to the exclusive
jurisdiction of the Court of Chancery in the State of Delaware in any action,
suit or proceeding arising in connection with this Agreement, and agrees that
any such action, suit or proceeding shall be brought only in such court (and
waives any objection based on forum non conveniens or any other objection to
venue therein) provided, however, that such consent to jurisdiction is solely
for the purpose referred to in this paragraph (j) and shall not be deemed to be
in general submission to the jurisdiction of said Court or in the State of
Delaware other than for such purposes. Each party hereto waives any right to a
trial by jury in connection with any such action, suit or proceeding.
k. Governing Law. This Agreement and all disputes hereunder shall be
governed by and construed and enforced in accordance with the laws of the State
of Delaware.
l. Name, Captions, Gender. The name assigned this Agreement and the
section captions used herein are for convenience of reference only and shall not
affect the interpretation or construction hereof. Whenever the context may
require, any pronoun used herein shall include the corresponding masculine,
feminine or neuter forms.
m. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one instrument. Each counterpart may consist of a
number of copies each signed by less than all, but together signed by all, the
parties hereto.
n. Expenses. Each party shall bear its own expenses incurred in
connection with this Agreement and the transactions contemplated hereby.
o. Beneficial Ownership. For purposes of this Voting Agreement,
beneficial ownership shall be determined as set forth in Rule 13d-3 under the
Securities Exchange Act of 1934, as amended.
<PAGE> 129
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first above written.
WESTBROOK REAL ESTATE FUND I, L.P.
By: /s/ Jonathan H. Paul
--------------------------------------
Name: Jonathan H. Paul
Title: Authorized Signatory
/s/ Robert A. Alter
--------------------------------------------
Robert A. Alter
/s/ Charles L. Biederman
--------------------------------------------
Charles L. Biederman
SHP ACQUISITION, L.L.C.
By: /s/ Paul Kazilionis
--------------------------------------
Name: Paul Kazilionis
Title: Manager
SUNSTONE HOTEL INVESTORS, INC.
By: /s/ R. Terrence Crowley
--------------------------------------
Name: R. Terrence Crowley
Title: Chief Operating Officer
<PAGE> 130
LIMITED IRREVOCABLE PROXY
The undersigned stockholders of Sunstone Hotel Investors, Inc., a
Maryland corporation (the "Company"), hereby irrevocably appoint the Company,
the attorney-in-fact and proxy of the undersigned, within the limitations of
this Proxy, with respect to shares of common stock, $0.01 par value per share,
of the Company and 250,000 shares of 7.9% Class A Cumulative Convertible
Preferred Stock of the Company owned of record or beneficially by the
undersigned (but excluding any shares of Common Stock issuable (but not yet
issued) upon conversion of units in Sunstone Hotel Investors, L.P. or other
securities convertible into Common Stock of exercise of stock options, the
"Shares"). Upon the execution hereof, all prior proxies given by the
undersigned with respect to the Shares are hereby revoked and no subsequent
proxies will be given. This Proxy is irrevocable (to the extent permitted
under Maryland law), and coupled with an interest and is granted in
consideration of the Company entering into the Agreement and Plan of Merger
dated July 12, 1999 among SHP Acquisition, L.L.C., a Delaware limited liability
company ("SHP"), SHP Investors Sub, Inc., a Maryland corporation, and the
Company (the "Merger Agreement"). The attorney and proxy named above will be
empowered at any time prior to the earliest of (i) the effectiveness of the
Merger as defined in the Merger Agreement or (ii) the termination of the Voting
Agreement among the Company, SHP and the undersigned in accordance with its
terms, to exercise all voting and other rights to the extent specified in the
succeeding paragraph. Upon the occurrence of the earliest of the foregoing
events described in clauses (i) or (ii) above, this Proxy shall expire and be
of no further force or effect.
The attorney and proxy named above may only exercise this proxy to vote
the Shares subject hereto as set forth in Section 1(a) and 1(c) of the Voting
Agreement at any annual, special or other meeting of the holders of capital
stock of the Company and any adjournments thereof (including, without
limitation, the power to execute and deliver written consents with respect to
the Shares) and may not exercise this Proxy on any other matters. The
undersigned stockholder may vote the Shares on all other matters. The
undersigned will, upon request, execute and deliver any additional documents
deemed by the above-named attorney-in-fact and proxy to be necessary or
desirable to effect the limited irrevocable proxy created hereby.
Dated: July 12, 1999
/s/ Robert A. Alter
--------------------------------
Robert A. Alter
Shares Owned: Zero (0)
/s/ Charles L. Biederman
--------------------------------
Charles L. Biederman
Shares Owned: 39,680
WESTBROOK REAL ESTATE FUND I, L.P.
By: /s/ Jonathan Paul
----------------------------
Name: Jonathan Paul
Title: Authorized Signatory
Shares Owned: 2,049,135
<PAGE> 131
Exhibit D
SUNSTONE HOTEL INVESTORS, INC.
CHARTER AMENDMENTS
1. Article III of the Charter is to be amended by deleting in its entirety
the second sentence of said Article III.
2. The words "Section 5 of Article V" at the end of the first sentence of
Section 1(a) of Article V are to be deleted in their entirety and
"Section 3 of Article V" inserted in lieu thereof.
3. The words "Section 6 of Article V" at the end of the third sentence of
Section 1(a) of Article V are to be deleted in their entirety and
"Section 4 of Article V" inserted in lieu thereof.
4. Sections 2, 4 and 7 of Article V of the Charter are to be deleted in
their entirety.
5. The initial phrase of the first sentence of Section 3 of Article V of
the Charter is to be deleted in its entirety and the following inserted
in lieu thereof:
Subject to the provisions of Sections 3 and 4 of this Article
V, the Common Shares shall have the following preferences,
conversion and other rights, voting powers, restrictions,
limitations as to dividends, qualifications and terms and
conditions of the redemption and such other rights as may be
afforded by law:.
6. The initial phrase of the first sentence of Section 6 of Article V of
the Charter is to be deleted in its entirety and the following inserted
in lieu thereof:
The power of the Board of Directors to classify and reclassify
any of the shares of capital stock shall include, without
limitation, subject to the provisions of the Charter,
authority to classify or reclassify any unissued shares of
such stock into a class or classes of preferenced stock,
special stock or other stock, by determining, fixing or
altering one or more of the following:.
7. Section 1 of Article VII of the Charter is to be deleted in its
entirety and the following inserted in lieu thereof:
The Corporation shall be authorized to act as the general
partner of the Partnership. In addition, the Corporation shall
be permitted to exchange Common Shares for partnership
interests in the Partnership pursuant to the provisions
contained in the Partnership Agreement and without any action
by the stockholders.
8. Section 3 of Article VII of the Charter is to be deleted in its
entirety and the following inserted in lieu thereof:
Except as provided by the Board of Directors in authorizing
the issuance of
<PAGE> 132
2
Preferred Shares pursuant to Section 3 of Article V, no holder
of any stock or any securities of the Corporation, whether now
or hereafter authorized, shall have any preemptive right to
subscribe to or purchase (i) any shares of capital stock of
the Corporation, (ii) any warrants, rights or options to
purchase any such shares, or (iii) any other securities of the
Corporation or obligations convertible into any shares of
capital stock of the Corporation or such other securities or
into warrants, rights or options to purchase any such shares
or other securities.
9. Section 3 of Article IX of the Charter is to be amended by deleting in
its entirety the last sentence of subsection (a) of said Section 3 of
Article IX.
10. Section 3 of Article IX of the Charter is to be amended by deleting in
its entirety subsection (b) of said Section 3 of Article IX and by
redesignating subsection (c) of said Section 3 of Article IX as
subsection (b) of said Section 3.
11. Sections 3, 5 and 6 of Article V of the Charter are to be renumbered as
Sections 2, 3 and 4, respectively of Article V of the Charter.
<PAGE> 133
Exhibit E
PARTNER CONSENT
Action Taken by the Written Consent of
Partners of Sunstone Hotel Investors, L.P.
July 12, 1999
The undersigned partner of Sunstone Hotel Investors, L.P., a
Delaware limited partnership ("Seller Partnership"), acting by written consent
in lieu of a meeting pursuant to Section 17-302(e) of the Delaware Revised
Uniform Limited Partnership Act, as amended, hereby irrevocably consents to the
adoption of and adopts the following resolution with respect to the partnership
units in Seller Partnership owned of record by such partner on the date hereof:
RESOLVED, that the Agreement and Plan of Merger, dated as of
July 12, 1999 (the "Merger Agreement"), among Seller Partnership, SHP
Acquisition, L.L.C., a Delaware limited liability company ("SHP"), and SHP OP,
L.L.C., an indirect wholly-owned subsidiary of SHP, a copy of which has been
furnished to the undersigned partner, and the transactions contemplated
thereunder, be, and hereby are, adopted and approved by the undersigned partner.
Sunstone Hotel Investors, Inc.
---------------------------------------
(Print Name)
By: /s/ R. Terrence Crowley
-----------------------------------
Name: R. Terrence Crowley
-----------------------------
Title: Chief Operating Officer
----------------------------
Partnership Interest: 37,929,477 Units
-----------------
Address of the partner:
---------------------------------------
---------------------------------------
---------------------------------------
Date of Execution:
--------------------
<PAGE> 134
PARTNER CONSENT
Action Taken by the Written Consent of
Partners of Sunstone Hotel Investors, L.P.
July 12, 1999
The undersigned partner of Sunstone Hotel Investors, L.P., a
Delaware limited partnership ("Seller Partnership"), acting by written consent
in lieu of a meeting pursuant to Section 17-302(e) of the Delaware Revised
Uniform Limited Partnership Act, as amended, hereby irrevocably consents to the
adoption of and adopts the following resolution with respect to the partnership
units in Seller Partnership owned of record by such partner on the date hereof:
RESOLVED, that the amendments to the Second Amended and
Restated Agreement of Limited Partnership of Seller Partnership, dated as of
October 14, 1997, attached as Exhibit A hereto, be, and hereby are, adopted and
approved by the undersigned partner.
Sunstone Hotel Investors, Inc.
---------------------------------------
(Print Name)
By: /s/ R. Terrence Crowley
-----------------------------------
Name: R. Terrence Crowley
-----------------------------
Title: Chief Operating Officer
----------------------------
Partnership Interest: 37,929,477 Units
------------------
Address of the partner:
---------------------------------------
---------------------------------------
---------------------------------------
Date of Execution:
--------------------
<PAGE> 135
PARTNER CONSENT
Action Taken by the Written Consent of
Partners of Sunstone Hotel Investors, L.P.
July 12, 1999
The undersigned partner of Sunstone Hotel Investors, L.P., a
Delaware limited partnership ("Seller Partnership"), acting by written consent
in lieu of a meeting pursuant to Section 17-302(e) of the Delaware Revised
Uniform Limited Partnership Act, as amended, hereby irrevocably consents to the
adoption of and adopts the following resolution with respect to the partnership
units in Seller Partnership owned of record by such partner on the date hereof:
RESOLVED, that the Agreement and Plan of Merger, dated as of
July 12, 1999 (the "Merger Agreement"), among Seller Partnership, SHP
Acquisition, L.L.C., a Delaware limited liability company ("SHP"), and SHP OP,
L.L.C., an indirect wholly-owned subsidiary of SHP, a copy of which has been
furnished to the undersigned partner, and the transactions contemplated
thereunder, be, and hereby are, adopted and approved by the undersigned partner.
ALTER INVESTMENT GROUP, LTD.
By: /s/ Robert A. Alter
-----------------------------------
Robert A. Alter, as general partner
Partnership Interest: 99,251 Units
Address of the partner:
________________________________________
________________________________________
________________________________________
Date of Execution: July 12, 1999
<PAGE> 136
PARTNER CONSENT
Action Taken by the Written Consent of
Partners of Sunstone Hotel Investors, L.P.
July 12, 1999
The undersigned partner of Sunstone Hotel Investors, L.P., a
Delaware limited partnership ("Seller Partnership"), acting by written consent
in lieu of a meeting pursuant to Section 17-302(e) of the Delaware Revised
Uniform Limited Partnership Act, as amended, hereby irrevocably consents to the
adoption of and adopts the following resolution with respect to the partnership
units in Seller Partnership owned of record by such partner on the date hereof:
RESOLVED, that the amendments to the Second Amended and
Restated Agreement of Limited Partnership of Seller Partnership, dated as of
October 14, 1997, attached as Exhibit A hereto, be, and hereby are, adopted and
approved by the undersigned partner.
RIVERSIDE HOTEL PARTNERS, INC.
By: /s/ Robert A. Alter
-------------------------------------
Name: Robert A. Alter
Title: President
Partnership Interest: 80,000 Units
Address of the partner:
________________________________________
________________________________________
________________________________________
Date of Execution: July 12, 1999
<PAGE> 137
PARTNER CONSENT
Action Taken by the Written Consent of
Partners of Sunstone Hotel Investors, L.P.
July 12, 1999
The undersigned partner of Sunstone Hotel Investors, L.P., a
Delaware limited partnership ("Seller Partnership"), acting by written consent
in lieu of a meeting pursuant to Section 17-302(e) of the Delaware Revised
Uniform Limited Partnership Act, as amended, hereby irrevocably consents to the
adoption of and adopts the following resolution with respect to the partnership
units in Seller Partnership owned of record by such partner on the date hereof:
RESOLVED, that the Agreement and Plan of Merger, dated as of
July 12, 1999 (the "Merger Agreement"), among Seller Partnership, SHP
Acquisition, L.L.C., a Delaware limited liability company ("SHP"), and SHP OP,
L.L.C., an indirect wholly-owned subsidiary of SHP, a copy of which has been
furnished to the undersigned partner, and the transactions contemplated
thereunder, be, and hereby are, adopted and approved by the undersigned partner.
/s/ Robert A. Alter
---------------------------------------
Robert A. Alter
Partnership Interest: 318,961 Units
Address of the partner:
________________________________________
________________________________________
________________________________________
Date of Execution: July 12, 1999
<PAGE> 138
PARTNER CONSENT
Action Taken by the Written Consent of
Partners of Sunstone Hotel Investors, L.P.
July 12, 1999
The undersigned partner of Sunstone Hotel Investors, L.P., a
Delaware limited partnership ("Seller Partnership"), acting by written consent
in lieu of a meeting pursuant to Section 17-302(e) of the Delaware Revised
Uniform Limited Partnership Act, as amended, hereby irrevocably consents to the
adoption of and adopts the following resolution with respect to the partnership
units in Seller Partnership owned of record by such partner on the date hereof:
RESOLVED, that the amendments to the Second Amended and
Restated Agreement of Limited Partnership of Seller Partnership, dated as of
October 14, 1997, attached as Exhibit A hereto, be, and hereby are, adopted and
approved by the undersigned partner.
/s/ Charles L. Biederman
----------------------------------------
Charles L. Biederman
Partnership Interest: 382,647
Address of the partner:
________________________________________
________________________________________
________________________________________
Date of Execution: July 12, 1999
<PAGE> 139
PARTNER CONSENT
Action Taken by the Written Consent of
Partners of Sunstone Hotel Investors, L.P.
July 12, 1999
The undersigned partner of Sunstone Hotel Investors, L.P., a
Delaware limited partnership ("Seller Partnership"), acting by written consent
in lieu of a meeting pursuant to Section 17-302(e) of the Delaware Revised
Uniform Limited Partnership Act, as amended, hereby irrevocably consents to the
adoption of and adopts the following resolution with respect to the partnership
units in Seller Partnership owned of record by such partner on the date hereof:
RESOLVED, that the Agreement and Plan of Merger, dated as of
July 12, 1999 (the "Merger Agreement"), among Seller Partnership, SHP
Acquisition, L.L.C., a Delaware limited liability company ("SHP"), and SHP OP,
L.L.C., an indirect wholly-owned subsidiary of SHP, a copy of which has been
furnished to the undersigned partner, and the transactions contemplated
thereunder, be, and hereby are, adopted and approved by the undersigned partner.
/s/ Audrey Enever
----------------------------------------
Audrey Enever
Partnership Interest: 20,799 Units
Address of the partner:
________________________________________
________________________________________
________________________________________
Date of Execution: July 12, 1999
<PAGE> 140
PARTNER CONSENT
Action Taken by the Written Consent of
Partners of Sunstone Hotel Investors, L.P.
July 12, 1999
The undersigned partner of Sunstone Hotel Investors, L.P., a
Delaware limited partnership ("Seller Partnership"), acting by written consent
in lieu of a meeting pursuant to Section 17-302(e) of the Delaware Revised
Uniform Limited Partnership Act, as amended, hereby irrevocably consents to the
adoption of and adopts the following resolution with respect to the partnership
units in Seller Partnership owned of record by such partner on the date hereof:
RESOLVED, that the amendments to the Second Amended and
Restated Agreement of Limited Partnership of Seller Partnership, dated as of
October 14, 1997, attached as Exhibit A hereto, be, and hereby are, adopted and
approved by the undersigned partner.
ENEVER ROUTT INVESTMENT GROUP LTD
By: /s/ Robert Enever
------------------------------------
Name: Robert Enever
Title: General Partner
Partnership Interest: 100,254
Address of the partner:
________________________________________
________________________________________
________________________________________
Date of Execution: July 12, 1999
<PAGE> 141
PARTNER CONSENT
Action Taken by the Written Consent of
Partners of Sunstone Hotel Investors, L.P.
July 12, 1999
The undersigned partner of Sunstone Hotel Investors, L.P., a
Delaware limited partnership ("Seller Partnership"), acting by written consent
in lieu of a meeting pursuant to Section 17-302(e) of the Delaware Revised
Uniform Limited Partnership Act, as amended, hereby irrevocably consents to the
adoption of and adopts the following resolution with respect to the partnership
units in Seller Partnership owned of record by such partner on the date hereof:
RESOLVED, that the Agreement and Plan of Merger, dated as of
July 12, 1999 (the "Merger Agreement"), among Seller Partnership, SHP
Acquisition, L.L.C., a Delaware limited liability company ("SHP"), and SHP OP,
L.L.C., an indirect wholly-owned subsidiary of SHP, a copy of which has been
furnished to the undersigned partner, and the transactions contemplated
thereunder, be, and hereby are, adopted and approved by the undersigned partner.
/s/ Robert Enever
----------------------------------------
Robert Enever
Partnership Interest: 26,148 Units
Address of the partner:
________________________________________
________________________________________
________________________________________
Date of Execution: July 12, 1999
<PAGE> 142
PARTNER CONSENT
Action Taken by the Written Consent of
Partners of Sunstone Hotel Investors, L.P.
July 12, 1999
The undersigned joint partners of Sunstone Hotel Investors,
L.P., a Delaware limited partnership ("Seller Partnership"), acting by written
consent in lieu of a meeting pursuant to Section 17-302(e) of the Delaware
Revised Uniform Limited Partnership Act, as amended, hereby irrevocably consents
to the adoption of and adopts the following resolution with respect to the
partnership units in Seller Partnership owned of record by such partner on the
date hereof:
RESOLVED, that the amendments to the Second Amended and
Restated Agreement of Limited Partnership of Seller Partnership, dated as of
October 14, 1997, attached as Exhibit A hereto, be, and hereby are, adopted and
approved by the undersigned partner.
/s/ Robert Enever
---------------------------------------
Robert Enever
/s/ Audrey Enever
---------------------------------------
Audrey Enever
Partnership Interest: 34,901 Units
Address of the partner:
________________________________________
________________________________________
________________________________________
Date of Execution: July 12, 1999
<PAGE> 143
VOTING AGREEMENT
VOTING AGREEMENT, dated as of July 12, 1999 ("Agreement"), by and
among Robert A. Alter in his capacity as a partner ("Partner") of Sunstone Hotel
Investors, L.P., a Delaware partnership (the "Seller Partnership"), SHP
Acquisition, L.L.C., a Delaware limited liability company ("SHP"), and the
Seller Partnership.
WHEREAS, concurrently herewith, SHP, SHP OP, LLC, a Delaware limited
liability company, and the Seller Partnership are entering into an Agreement and
Plan of Merger dated July 12, 1999 (the "Partnership Merger Agreement";
capitalized terms used without definition herein having the meanings ascribed
thereto in the Partnership Merger Agreement);
WHEREAS, Partner is as of the date hereof the beneficial owner of
318,961 common partnership units of Seller Partnership ("Common Units") and 0
units of 7.9% Class A Cumulative Convertible Preferred Partnership Units of the
Seller Partnership ("Preferred Units" and, collectively with the Common Units,
but excluding any Common Units or Preferred Units issuable (but not yet issued)
upon conversion of any securities convertible into Common Units or Preferred
Units, the "Units");
WHEREAS, approval of the Partnership Merger Agreement by the Seller
Partnership's partners is a condition to the consummation of the Partnership
Merger;
WHEREAS, as a condition to its entering into the Partnership Merger
Agreement, each of the Seller Partnership and SHP has required that Partner
agrees, and Partner has agreed, to enter into this Agreement; and
WHEREAS, Partner has been informed that the Board of Directors of the
general partner of Seller Partnership has approved the Partnership Merger
Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements set forth herein, the parties hereto agree as follows:
Section 1. Agreement to Vote, Restrictions on Dispositions, Etc.
a. Partner hereby agrees to attend any partners meeting of the Seller
Partnership, in person or by proxy, and to vote (or cause to be voted) all
Units, and any other voting securities of the Seller Partnership, owned by
Partner whether issued heretofore or hereafter, that such person owns or has the
right to vote, (i) for approval and adoption of the Partnership Merger Agreement
and the Partnership Merger, and the transactions contemplated by the Partnership
Merger Agreement and (ii) for approval and adoption of the amendments to the
Second Amended and Restated Agreement of Limited Partnership of Seller
Partnership attached as Exhibit A to the Consents (as defined below) (the
"Amendments"), such agreements to vote to apply also to any adjournment of such
partner meeting of the Seller Partnership.
<PAGE> 144
Partner agrees not to grant any proxies or enter into any voting agreement or
arrangement inconsistent with this Agreement or the two consents of even date
herewith executed by Partner (the "Consents"). Partner agrees to deliver the
executed Consents to SHP, at the request of SHP, and Partner agrees not to
rescind, modify or withdraw the Consents.
b. Partner hereby agrees that, without the prior written consent of the
Seller Partnership, except as provided in the Contribution Agreement, Partner
shall not, directly or indirectly, sell, offer to sell, grant any option for the
sale of or otherwise transfer or dispose of, or enter into any agreement to
sell, any Units and any other voting securities of the Seller Partnership that
Partner owns beneficially or otherwise. Partner agrees that the Seller
Partnership may enter stop transfer orders with the transfer agent(s) and the
registrar(s) of the Units against the transfer of Units and any other voting
securities of the Seller Partnership that Partner owns beneficially or
otherwise. Partner agrees to vote (or cause to be voted) all Units, and any
other voting securities of the Seller Partnership, owned by Partner whether
issued heretofore or hereafter, that such person owns or has the right to vote,
against (i) any recapitalization, merger, consolidation, sale of assets or other
business combination or similar transaction involving the Seller Partnership or
any of its Subsidiaries, securities or assets other than the Partnership Merger
or other transaction with SHP and (ii) any other action or agreement that would
result in a breach of any covenant, representation or warranty or any other
obligation or agreement of the Seller Partnership under the Partnership Merger
Agreement or which could result in any of the conditions to the Seller
Partnership's obligations under the Partnership Merger Agreement not being
fulfilled.
c. Partner agrees not, directly or indirectly, to solicit or authorize
any person to solicit, any inquiries or proposals from any person other than SHP
relating to the merger or consolidation of the Seller Partnership with any
person other than SHP or its Affiliates, or the acquisition of the Seller
Partnership's or any of its significant subsidiaries' voting securities by, or
the direct or indirect acquisition or disposition of a significant amount of
assets of the Seller Partnership or any of its significant subsidiaries
otherwise than in the ordinary course of business of the Seller Partnership or
such significant subsidiary, from or to any person other than SHP or its
Affiliates or directly or indirectly enter into or continue any discussions,
negotiations or agreements relating to, or vote (or cause to be voted) in favor
of, any such transaction.
d. Partner agrees to promptly notify the Seller Partnership and SHP in
writing of the nature and amount of any acquisition by Partner after the date
hereof of any voting securities of the Seller Partnership.
Section 2. Additional Representations and Warranties of Partner.
Partner represents and warrants to the Seller Partnership and SHP as follows:
Partner has all necessary power and authority to execute and deliver this
Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by Partner. Assuming the due authorization,
<PAGE> 145
execution and delivery of this Agreement by the Seller Partnership, this
Agreement constitutes the valid and binding agreement of Partner enforceable
against Partner in accordance with its terms, except as may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium and other similar
laws of general application which may affect the enforcement of creditors'
rights generally and by general equitable principles. The Units of Partner are
the only voting securities of the Seller Partnership owned (beneficially or of
record) by Partner and are owned free and clear of all liens, charges,
encumbrances, restrictions and commitments of any kind other than the
Contribution Agreement, this Agreement and the Consents. Partner has not
appointed or granted any irrevocable proxy, which appointment or grant is still
effective, with respect to the Units. The execution and delivery of this
Agreement by Partner does not (a) conflict with or violate any agreement, law,
rule, regulation, order, judgment or decision or other instrument binding upon
it, nor require any consent, notification, regulatory filing or approval which
has not been obtained or (b) result in any breach of or constitute a default (or
an event that with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of a lien or encumbrance on any of
the Units owned by Partner pursuant to, any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument or
obligation to which Partner is a party or by which Partner or the Units owned by
Partner are bound or affected. Partner acknowledges that the restrictions
imposed upon it are so imposed only in Partner's capacity as a partner of the
Seller Partnership.
Section 3. Representations and Warranties of the Seller Partnership.
The Seller Partnership represents and warrants to Partner as follows: each of
(i) this Agreement, (ii) the Partnership Merger Agreement and (iii) the
Amendments has been approved by the Board of Directors of the general partner of
Seller Partnership. Each of this Agreement and the Partnership Merger Agreement
has been duly executed and delivered by a duly authorized officer of the Seller
Partnership. Assuming the due authorization, execution and delivery of this
Agreement by Partner, each of this Agreement and the Partnership Merger
Agreement constitutes a valid and binding agreement of the Seller Partnership,
enforceable against the Seller Partnership in accordance with its terms, except
as may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium and other similar laws of general application which may affect the
enforcement of creditors' rights generally and by general equitable principles.
Section 4. Further Assurances. Each party shall execute and deliver
such additional instruments and other documents and shall take such further
actions as may be necessary or appropriate to effectuate, carry out and comply
with all of their obligations under this Agreement. Without limiting the
generality of the foregoing, neither of the parties hereto shall enter into any
agreement or arrangement (or alter, amend or terminate any existing agreement or
arrangement) if such action would materially impair the ability of either party
to effectuate, carry out or comply with all the terms of this Agreement.
<PAGE> 146
Section 5. Effectiveness and Termination. It is a condition precedent
to the effectiveness of this Agreement that the Partnership Merger Agreement
shall have been executed and delivered and be in full force and effect. This
Agreement shall automatically terminate and be of no further force or effect
upon the earlier termination of the Partnership Merger Agreement in accordance
with its terms. Upon any termination of this Agreement, except for any rights
either party may have in respect of any breach by either party of its
obligations hereunder, none of the parties hereto shall have any further
obligation or liability hereunder. The provisions of Section 1 of this Agreement
shall terminate and be of no further force or effect from and after the
Effective Time of the Partnership Merger.
Section 6. Covenants of Partner Not to Enter Into Inconsistent
Agreements. Partner hereby agrees that, except as contemplated by this
Agreement, the Consents and the Partnership Merger Agreement, Partner shall not
enter into any voting agreement or grant an irrevocable proxy or power of
attorney with respect to the Units which is inconsistent with this Agreement.
Section 7. Miscellaneous.
a. Notices, Etc. All notices, requests, demands or other communications
required by or otherwise given with respect to this Agreement shall be in
writing and shall be deemed to have been duly given to either party when
delivered personally (by courier service or otherwise), when delivered by
telecopy and confirmed by return telecopy, or seven days after being mailed by
first-class mail, postage prepaid in each case to the applicable addresses set
forth below:
If to the Seller Partnership:
Sunstone Hotel Investors, L.P.
903 Calle Amanecer
San Clemente, CA 92673-6212
Attention: Chief Operating Officer
Facsimile: 949-369-4230
with a copy to:
Altheimer & Gray
10 South Wacker Drive
Suite 4000
Chicago, Illinois 60606
Attention: Phillip Gordon
Facsimile: 312-715-4800
If to Westbrook or SHP:
<PAGE> 147
Westbrook Real Estate Partners L.L.C.
599 Lexington Avenue
Suite 3800
New York, New York 10022
Attention: Jonathan H. Paul
Facsimile: 212-849-8801
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017-3954
Attention: Richard Capelouto
Brian Stadler
Facsimile: 212-455-2502
If to Partner, at its address set forth on the unitholder ledger maintained by
the transfer agent of Seller Partnership with respect to the Seller Partnership;
or to such other address as such party shall have designated by notice so given
to each other party.
b. Amendments, Waivers, Etc. This Agreement may not be amended,
changed, supplemented, waived or otherwise modified or terminated except by an
instrument in writing signed by the Seller Partnership, SHP and Partner.
c. Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of and be enforceable by the parties and their
respective successors and assigns, including without limitation any corporate
successor by merger or otherwise. Notwithstanding any transfer of Units, the
transferor shall remain liable for the performance of all obligations of the
transferor under this Agreement.
d. Entire Agreement. This Agreement (together with the Partnership
Merger Agreement and the documents referred to therein and the Consents)
embodies the entire agreement and understanding among the parties relating to
the subject matter hereof and supersedes all prior agreements and understandings
relating to such subject matter. There are no representations, warranties or
covenants by the parties hereto relating to such subject matter other than those
expressly set forth in this Agreement, the Partnership Merger Agreement and the
documents referred to therein.
<PAGE> 148
e. Severability. If any term of this Agreement or the application
thereof to either party or circumstance shall be held invalid or unenforceable
to any extent, the remainder of this Agreement and the application of such term
to the other parties or circumstances shall not be affected thereby and shall be
enforced to the greatest extent permitted by applicable law; provided that in
such event the parties shall negotiate in good faith in an attempt to agree to
another provision (in lieu of the term or application held to be invalid or
unenforceable) that will be valid and enforceable and will carry out the
parties' intentions hereunder.
f. Specific Performance. The parties acknowledge that money damages are
not an adequate remedy for violations of this Agreement and that either party
may, in its sole discretion, apply to a court of competent jurisdiction for
specific performance or injunction or such other relief as such court may deem
just and proper in order to enforce this Agreement or prevent any violation
hereof and, to the extent permitted by applicable law, each party waives any
objection to the imposition of such relief.
g. Remedies Cumulative. All rights, powers and remedies provided under
this Agreement or otherwise available in respect hereof at law or in equity
shall be cumulative and not alternative, and the exercise or beginning of the
exercise of any thereof by either party shall not preclude the simultaneous or
later exercise of any other such rights, power or remedy by such party.
h. No Waiver. The failure of either party hereto to exercise any right,
power or remedy provided under this Agreement or otherwise available in respect
hereof at law or in equity, or to insist upon compliance by the other party
hereto with its obligations hereunder, and any custom or practice of the parties
at variance with the terms hereof, shall not constitute a waiver by such party
of its right to exercise any such or other right, power or remedy or to demand
such compliance.
i. No Third Party Beneficiaries. This Agreement is not intended to be
for the benefit of and shall not be enforceable by any person or entity who or
which is not a party hereto.
j. Jurisdiction. Each party hereby irrevocably submits to the exclusive
jurisdiction of the Court of Chancery in the State of Delaware in any action,
suit or proceeding arising in connection with this Agreement, and agrees that
any such action, suit or proceeding shall be brought only in such court (and
waives any objection based on forum non conveniens or any other objection to
venue therein) provided, however, that such consent to jurisdiction is solely
for the purpose referred to in this paragraph (j) and shall not be deemed to be
in general submission to the jurisdiction of said Court or in the State of
Delaware other than for such purposes. Each party hereto waives any right to a
trial by jury in connection with any such action, suit or proceeding.
<PAGE> 149
k. Governing Law. This Agreement and all disputes hereunder shall be
governed by and construed and enforced in accordance with the laws of the State
of Delaware.
l. Name, Captions, Gender. The name assigned this Agreement and the
section captions used herein are for convenience of reference only and shall not
affect the interpretation or construction hereof. Whenever the context may
require, any pronoun used herein shall include the corresponding masculine,
feminine or neuter forms.
m. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one instrument. Each counterpart may consist of a
number of copies each signed by less than all, but together signed by all, the
parties hereto.
n. Expenses. Each party shall bear its own expenses incurred in
connection with this Agreement and the transactions contemplated hereby.
o. Beneficial Ownership. For purposes of this Voting Agreement,
beneficial ownership shall be determined as set forth in Rule 13d-3 under the
Securities Exchange Act of 1934, as amended.
<PAGE> 150
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first above written.
/s/ Robert A. Alter
--------------------------------------
Robert A. Alter
SHP ACQUISITION, L.L.C.
By: /s/ Paul Kazilionis
--------------------------------------
Name: Paul Kazilionis
Title: Manager
SUNSTONE HOTEL INVESTORS, L.P.
By: /s/ R. Terrence Crowley
--------------------------------------
Name: R. Terrence Crowley
Title: Authorized Signatory
<PAGE> 151
VOTING AGREEMENT
VOTING AGREEMENT, dated as of July 12, 1999 ("Agreement"), by and among
Charles L. Biederman in his capacity as a partner ("Partner") of Sunstone Hotel
Investors, L.P., a Delaware partnership (the "Seller Partnership"), SHP
Acquisition, L.L.C., a Delaware limited liability company ("SHP"), and the
Seller Partnership.
WHEREAS, concurrently herewith, SHP, SHP OP, LLC, a Delaware limited
liability company, and the Seller Partnership are entering into an Agreement and
Plan of Merger dated July 12, 1999 (the "Partnership Merger Agreement";
capitalized terms used without definition herein having the meanings ascribed
thereto in the Partnership Merger Agreement);
WHEREAS, Partner is as of the date hereof the beneficial owner of
382,647 common partnership units of Seller Partnership ("Common Units") and 0
units of 7.9% Class A Cumulative Convertible Preferred Partnership Units of the
Seller Partnership ("Preferred Units" and, collectively with the Common Units,
but excluding any Common Units or Preferred Units issuable (but not yet issued)
upon conversion of any securities convertible into Common Units or Preferred
Units, the "Units");
WHEREAS, approval of the Partnership Merger Agreement by the Seller
Partnership's partners is a condition to the consummation of the Partnership
Merger;
WHEREAS, as a condition to its entering into the Partnership Merger
Agreement, each of the Seller Partnership and SHP has required that Partner
agrees, and Partner has agreed, to enter into this Agreement; and
WHEREAS, Partner has been informed that the Board of Directors of the
general partner of Seller Partnership has approved the Partnership Merger
Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements set forth herein, the parties hereto agree as follows:
Section 1. Agreement to Vote, Restrictions on Dispositions, Etc.
a. Partner hereby agrees to attend any partners meeting of the Seller
Partnership, in person or by proxy, and to vote (or cause to be voted) all
Units, and any other voting securities of the Seller Partnership, owned by
Partner whether issued heretofore or hereafter, that such person owns or has the
right to vote, (i) for approval and adoption of the Partnership Merger Agreement
and the Partnership Merger, and the transactions contemplated by the Partnership
Merger Agreement and (ii) for approval and adoption of the amendments to the
Second Amended and Restated Agreement of Limited Partnership of Seller
Partnership attached as Exhibit A to the Consents (as defined below) (the
"Amendments"), such agreements to vote to apply also to any adjournment of such
partner meeting of the Seller Partnership.
<PAGE> 152
Partner agrees not to grant any proxies or enter into any voting agreement or
arrangement inconsistent with this Agreement or the two consents of even date
herewith executed by Partner (the "Consents"). Partner agrees to deliver the
executed Consents to SHP, at the request of SHP, and Partner agrees not to
rescind, modify or withdraw the Consents.
b. Partner hereby agrees that, without the prior written consent of the
Seller Partnership, except as provided in the Contribution Agreement, Partner
shall not, directly or indirectly, sell, offer to sell, grant any option for the
sale of or otherwise transfer or dispose of, or enter into any agreement to
sell, any Units and any other voting securities of the Seller Partnership that
Partner owns beneficially or otherwise. Partner agrees that the Seller
Partnership may enter stop transfer orders with the transfer agent(s) and the
registrar(s) of the Units against the transfer of Units and any other voting
securities of the Seller Partnership that Partner owns beneficially or
otherwise. Partner agrees to vote (or cause to be voted) all Units, and any
other voting securities of the Seller Partnership, owned by Partner whether
issued heretofore or hereafter, that such person owns or has the right to vote,
against (i) any recapitalization, merger, consolidation, sale of assets or other
business combination or similar transaction involving the Seller Partnership or
any of its Subsidiaries, securities or assets other than the Partnership Merger
or other transaction with SHP and (ii) any other action or agreement that would
result in a breach of any covenant, representation or warranty or any other
obligation or agreement of the Seller Partnership under the Partnership Merger
Agreement or which could result in any of the conditions to the Seller
Partnership's obligations under the Partnership Merger Agreement not being
fulfilled.
c. Partner agrees not, directly or indirectly, to solicit or authorize
any person to solicit, any inquiries or proposals from any person other than SHP
relating to the merger or consolidation of the Seller Partnership with any
person other than SHP or its Affiliates, or the acquisition of the Seller
Partnership's or any of its significant subsidiaries' voting securities by, or
the direct or indirect acquisition or disposition of a significant amount of
assets of the Seller Partnership or any of its significant subsidiaries
otherwise than in the ordinary course of business of the Seller Partnership or
such significant subsidiary, from or to any person other than SHP or its
Affiliates or directly or indirectly enter into or continue any discussions,
negotiations or agreements relating to, or vote (or cause to be voted) in favor
of, any such transaction.
d. Partner agrees to promptly notify the Seller Partnership and SHP in
writing of the nature and amount of any acquisition by Partner after the date
hereof of any voting securities of the Seller Partnership.
Section 2. Additional Representations and Warranties of Partner.
Partner represents and warrants to the Seller Partnership and SHP as follows:
Partner has all necessary power and authority to execute and deliver this
Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by Partner. Assuming the due authorization,
<PAGE> 153
execution and delivery of this Agreement by the Seller Partnership, this
Agreement constitutes the valid and binding agreement of Partner enforceable
against Partner in accordance with its terms, except as may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium and other similar
laws of general application which may affect the enforcement of creditors'
rights generally and by general equitable principles. The Units of Partner are
the only voting securities of the Seller Partnership owned (beneficially or of
record) by Partner and are owned free and clear of all liens, charges,
encumbrances, restrictions and commitments of any kind other than the
Contribution Agreement, this Agreement and the Consents. Partner has not
appointed or granted any irrevocable proxy, which appointment or grant is still
effective, with respect to the Units. The execution and delivery of this
Agreement by Partner does not (a) conflict with or violate any agreement, law,
rule, regulation, order, judgment or decision or other instrument binding upon
it, nor require any consent, notification, regulatory filing or approval which
has not been obtained or (b) result in any breach of or constitute a default (or
an event that with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of a lien or encumbrance on any of
the Units owned by Partner pursuant to, any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument or
obligation to which Partner is a party or by which Partner or the Units owned by
Partner are bound or affected. Partner acknowledges that the restrictions
imposed upon it are so imposed only in Partner's capacity as a partner of the
Seller Partnership.
Section 3. Representations and Warranties of the Seller Partnership.
The Seller Partnership represents and warrants to Partner as follows: each of
(i) this Agreement, (ii) the Partnership Merger Agreement and (iii) the
Amendments has been approved by the Board of Directors of the general partner of
Seller Partnership. Each of this Agreement and the Partnership Merger Agreement
has been duly executed and delivered by a duly authorized officer of the Seller
Partnership. Assuming the due authorization, execution and delivery of this
Agreement by Partner, each of this Agreement and the Partnership Merger
Agreement constitutes a valid and binding agreement of the Seller Partnership,
enforceable against the Seller Partnership in accordance with its terms, except
as may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium and other similar laws of general application which may affect the
enforcement of creditors' rights generally and by general equitable principles.
Section 4. Further Assurances. Each party shall execute and deliver
such additional instruments and other documents and shall take such further
actions as may be necessary or appropriate to effectuate, carry out and comply
with all of their obligations under this Agreement. Without limiting the
generality of the foregoing, neither of the parties hereto shall enter into any
agreement or arrangement (or alter, amend or terminate any existing agreement or
arrangement) if such action would materially impair the ability of either party
to effectuate, carry out or comply with all the terms of this Agreement.
<PAGE> 154
Section 5. Effectiveness and Termination. It is a condition precedent
to the effectiveness of this Agreement that the Partnership Merger Agreement
shall have been executed and delivered and be in full force and effect. This
Agreement shall automatically terminate and be of no further force or effect
upon the earlier termination of the Partnership Merger Agreement in accordance
with its terms. Upon any termination of this Agreement, except for any rights
either party may have in respect of any breach by either party of its
obligations hereunder, none of the parties hereto shall have any further
obligation or liability hereunder. The provisions of Section 1 of this Agreement
shall terminate and be of no further force or effect from and after the
Effective Time of the Partnership Merger.
Section 6. Covenants of Partner Not to Enter Into Inconsistent
Agreements. Partner hereby agrees that, except as contemplated by this
Agreement, the Consents and the Partnership Merger Agreement, Partner shall not
enter into any voting agreement or grant an irrevocable proxy or power of
attorney with respect to the Units which is inconsistent with this Agreement.
Section 7. Miscellaneous.
a. Notices, Etc. All notices, requests, demands or other communications
required by or otherwise given with respect to this Agreement shall be in
writing and shall be deemed to have been duly given to either party when
delivered personally (by courier service or otherwise), when delivered by
telecopy and confirmed by return telecopy, or seven days after being mailed by
first-class mail, postage prepaid in each case to the applicable addresses set
forth below:
If to the Seller Partnership:
Sunstone Hotel Investors, L.P.
903 Calle Amanecer
San Clemente, CA 92673-6212
Attention: Chief Operating Officer
Facsimile: 949-369-4230
with a copy to:
Altheimer & Gray
10 South Wacker Drive
Suite 4000
Chicago, Illinois 60606
Attention: Phillip Gordon
Facsimile: 312-715-4800
If to Westbrook or SHP:
<PAGE> 155
Westbrook Real Estate Partners L.L.C.
599 Lexington Avenue
Suite 3800
New York, New York 10022
Attention: Jonathan H. Paul
Facsimile: 212-849-8801
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017-3954
Attention: Richard Capelouto
Brian Stadler
Facsimile: 212-455-2502
If to Partner, at its address set forth on the unitholder ledger maintained by
the transfer agent of Seller Partnership with respect to the Seller Partnership;
or to such other address as such party shall have designated by notice so given
to each other party.
b. Amendments, Waivers, Etc. This Agreement may not be amended,
changed, supplemented, waived or otherwise modified or terminated except by an
instrument in writing signed by the Seller Partnership, SHP and Partner.
c. Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of and be enforceable by the parties and their
respective successors and assigns, including without limitation any corporate
successor by merger or otherwise. Notwithstanding any transfer of Units, the
transferor shall remain liable for the performance of all obligations of the
transferor under this Agreement.
d. Entire Agreement. This Agreement (together with the Partnership
Merger Agreement and the documents referred to therein and the Consents)
embodies the entire agreement and understanding among the parties relating to
the subject matter hereof and supersedes all prior agreements and understandings
relating to such subject matter. There are no representations, warranties or
covenants by the parties hereto relating to such subject matter other than those
expressly set forth in this Agreement, the Partnership Merger Agreement and the
documents referred to therein.
<PAGE> 156
e. Severability. If any term of this Agreement or the application
thereof to either party or circumstance shall be held invalid or unenforceable
to any extent, the remainder of this Agreement and the application of such term
to the other parties or circumstances shall not be affected thereby and shall be
enforced to the greatest extent permitted by applicable law; provided that in
such event the parties shall negotiate in good faith in an attempt to agree to
another provision (in lieu of the term or application held to be invalid or
unenforceable) that will be valid and enforceable and will carry out the
parties' intentions hereunder.
f. Specific Performance. The parties acknowledge that money damages are
not an adequate remedy for violations of this Agreement and that either party
may, in its sole discretion, apply to a court of competent jurisdiction for
specific performance or injunction or such other relief as such court may deem
just and proper in order to enforce this Agreement or prevent any violation
hereof and, to the extent permitted by applicable law, each party waives any
objection to the imposition of such relief.
g. Remedies Cumulative. All rights, powers and remedies provided under
this Agreement or otherwise available in respect hereof at law or in equity
shall be cumulative and not alternative, and the exercise or beginning of the
exercise of any thereof by either party shall not preclude the simultaneous or
later exercise of any other such rights, power or remedy by such party.
h. No Waiver. The failure of either party hereto to exercise any right,
power or remedy provided under this Agreement or otherwise available in respect
hereof at law or in equity, or to insist upon compliance by the other party
hereto with its obligations hereunder, and any custom or practice of the parties
at variance with the terms hereof, shall not constitute a waiver by such party
of its right to exercise any such or other right, power or remedy or to demand
such compliance.
i. No Third Party Beneficiaries. This Agreement is not intended to be
for the benefit of and shall not be enforceable by any person or entity who or
which is not a party hereto.
j. Jurisdiction. Each party hereby irrevocably submits to the exclusive
jurisdiction of the Court of Chancery in the State of Delaware in any action,
suit or proceeding arising in connection with this Agreement, and agrees that
any such action, suit or proceeding shall be brought only in such court (and
waives any objection based on forum non conveniens or any other objection to
venue therein) provided, however, that such consent to jurisdiction is solely
for the purpose referred to in this paragraph (j) and shall not be deemed to be
in general submission to the jurisdiction of said Court or in the State of
Delaware other than for such purposes. Each party hereto waives any right to a
trial by jury in connection with any such action, suit or proceeding.
<PAGE> 157
k. Governing Law. This Agreement and all disputes hereunder shall be
governed by and construed and enforced in accordance with the laws of the State
of Delaware.
l. Name, Captions, Gender. The name assigned this Agreement and the
section captions used herein are for convenience of reference only and shall not
affect the interpretation or construction hereof. Whenever the context may
require, any pronoun used herein shall include the corresponding masculine,
feminine or neuter forms.
m. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one instrument. Each counterpart may consist of a
number of copies each signed by less than all, but together signed by all, the
parties hereto.
n. Expenses. Each party shall bear its own expenses incurred in
connection with this Agreement and the transactions contemplated hereby.
o. Beneficial Ownership. For purposes of this Voting Agreement,
beneficial ownership shall be determined as set forth in Rule 13d-3 under the
Securities Exchange Act of 1934, as amended.
<PAGE> 158
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first above written.
/s/ Charles L. Biederman
---------------------------------------
Charles L. Biederman
SHP ACQUISITION, L.L.C.
By: /s/ Paul Kazilionis
---------------------------------------
Name: Paul Kazilionis
Title: Manager
SUNSTONE HOTEL INVESTORS, L.P.
By: /s/ R. Terrence Crowley
---------------------------------------
Name: R. Terrence Crowley
Title: Authorized Signatory
<PAGE> 159
VOTING AGREEMENT
VOTING AGREEMENT, dated as of July 12, 1999 ("Agreement"), by and among
Riverside Hotel Partners, Inc., a California corporation, in its capacity as a
partner ("Partner") of Sunstone Hotel Investors, L.P., a Delaware partnership
(the "Seller Partnership"), SHP Acquisition, L.L.C., a Delaware limited
liability company ("SHP"), and the Seller Partnership.
WHEREAS, concurrently herewith, SHP, SHP OP, LLC, a Delaware limited
liability company, and the Seller Partnership are entering into an Agreement and
Plan of Merger dated July 12, 1999 (the "Partnership Merger Agreement";
capitalized terms used without definition herein having the meanings ascribed
thereto in the Partnership Merger Agreement);
WHEREAS, Partner is as of the date hereof the beneficial owner of
80,000 common partnership units of Seller Partnership ("Common Units") and 0
units of 7.9% Class A Cumulative Convertible Preferred Partnership Units of the
Seller Partnership ("Preferred Units" and, collectively with the Common Units,
but excluding any Common Units or Preferred Units issuable (but not yet issued)
upon conversion of any securities convertible into Common Units or Preferred
Units, the "Units");
WHEREAS, approval of the Partnership Merger Agreement by the Seller
Partnership's partners is a condition to the consummation of the Partnership
Merger;
WHEREAS, as a condition to its entering into the Partnership Merger
Agreement, each of the Seller Partnership and SHP has required that Partner
agrees, and Partner has agreed, to enter into this Agreement; and
WHEREAS, Partner has been informed that the Board of Directors of the
general partner of Seller Partnership has approved the Partnership Merger
Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements set forth herein, the parties hereto agree as follows:
Section 1. Agreement to Vote, Restrictions on Dispositions, Etc.
a. Partner hereby agrees to attend any partners meeting of the Seller
Partnership, in person or by proxy, and to vote (or cause to be voted) all
Units, and any other voting securities of the Seller Partnership, owned by
Partner whether issued heretofore or hereafter, that such person owns or has the
right to vote, (i) for approval and adoption of the Partnership Merger Agreement
and the Partnership Merger, and the transactions contemplated by the Partnership
Merger Agreement and (ii) for approval and adoption of the amendments to the
Second Amended and Restated Agreement of Limited Partnership of Seller
Partnership attached as Exhibit A to the Consents (as defined below) (the
"Amendments"), such agreements to vote to apply also to any adjournment of such
partner meeting of the Seller Partnership.
<PAGE> 160
Partner agrees not to grant any proxies or enter into any voting agreement or
arrangement inconsistent with this Agreement or the two consents of even date
herewith executed by Partner (the "Consents"). Partner agrees to deliver the
executed Consents to SHP, at the request of SHP, and Partner agrees not to
rescind, modify or withdraw the Consents.
b. Partner hereby agrees that, without the prior written consent of the
Seller Partnership, except as provided in the Contribution Agreement, Partner
shall not, directly or indirectly, sell, offer to sell, grant any option for the
sale of or otherwise transfer or dispose of, or enter into any agreement to
sell, any Units and any other voting securities of the Seller Partnership that
Partner owns beneficially or otherwise. Partner agrees that the Seller
Partnership may enter stop transfer orders with the transfer agent(s) and the
registrar(s) of the Units against the transfer of Units and any other voting
securities of the Seller Partnership that Partner owns beneficially or
otherwise. Partner agrees to vote (or cause to be voted) all Units, and any
other voting securities of the Seller Partnership, owned by Partner whether
issued heretofore or hereafter, that such person owns or has the right to vote,
against (i) any recapitalization, merger, consolidation, sale of assets or other
business combination or similar transaction involving the Seller Partnership or
any of its Subsidiaries, securities or assets other than the Partnership Merger
or other transaction with SHP and (ii) any other action or agreement that would
result in a breach of any covenant, representation or warranty or any other
obligation or agreement of the Seller Partnership under the Partnership Merger
Agreement or which could result in any of the conditions to the Seller
Partnership's obligations under the Partnership Merger Agreement not being
fulfilled.
c. Partner agrees not, directly or indirectly, to solicit or authorize
any person to solicit, any inquiries or proposals from any person other than SHP
relating to the merger or consolidation of the Seller Partnership with any
person other than SHP or its Affiliates, or the acquisition of the Seller
Partnership's or any of its significant subsidiaries' voting securities by, or
the direct or indirect acquisition or disposition of a significant amount of
assets of the Seller Partnership or any of its significant subsidiaries
otherwise than in the ordinary course of business of the Seller Partnership or
such significant subsidiary, from or to any person other than SHP or its
Affiliates or directly or indirectly enter into or continue any discussions,
negotiations or agreements relating to, or vote (or cause to be voted) in favor
of, any such transaction.
d. Partner agrees to promptly notify the Seller Partnership and SHP in
writing of the nature and amount of any acquisition by Partner after the date
hereof of any voting securities of the Seller Partnership.
Section 2. Additional Representations and Warranties of Partner.
Partner represents and warrants to the Seller Partnership and SHP as follows:
Partner has all necessary power and authority to execute and deliver this
Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by Partner. Assuming the due authorization,
<PAGE> 161
execution and delivery of this Agreement by the Seller Partnership, this
Agreement constitutes the valid and binding agreement of Partner enforceable
against Partner in accordance with its terms, except as may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium and other similar
laws of general application which may affect the enforcement of creditors'
rights generally and by general equitable principles. The Units of Partner are
the only voting securities of the Seller Partnership owned (beneficially or of
record) by Partner and are owned free and clear of all liens, charges,
encumbrances, restrictions and commitments of any kind other than the
Contribution Agreement, this Agreement and the Consents. Partner has not
appointed or granted any irrevocable proxy, which appointment or grant is still
effective, with respect to the Units. The execution and delivery of this
Agreement by Partner does not (a) conflict with or violate any agreement, law,
rule, regulation, order, judgment or decision or other instrument binding upon
it, nor require any consent, notification, regulatory filing or approval which
has not been obtained or (b) result in any breach of or constitute a default (or
an event that with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of a lien or encumbrance on any of
the Units owned by Partner pursuant to, any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument or
obligation to which Partner is a party or by which Partner or the Units owned by
Partner are bound or affected. Partner acknowledges that the restrictions
imposed upon it are so imposed only in Partner's capacity as a partner of the
Seller Partnership.
Section 3. Representations and Warranties of the Seller Partnership.
The Seller Partnership represents and warrants to Partner as follows: each of
(i) this Agreement, (ii) the Partnership Merger Agreement and (iii) the
Amendments has been approved by the Board of Directors of the general partner of
Seller Partnership. Each of this Agreement and the Partnership Merger Agreement
has been duly executed and delivered by a duly authorized officer of the Seller
Partnership. Assuming the due authorization, execution and delivery of this
Agreement by Partner, each of this Agreement and the Partnership Merger
Agreement constitutes a valid and binding agreement of the Seller Partnership,
enforceable against the Seller Partnership in accordance with its terms, except
as may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium and other similar laws of general application which may affect the
enforcement of creditors' rights generally and by general equitable principles.
Section 4. Further Assurances. Each party shall execute and deliver
such additional instruments and other documents and shall take such further
actions as may be necessary or appropriate to effectuate, carry out and comply
with all of their obligations under this Agreement. Without limiting the
generality of the foregoing, neither of the parties hereto shall enter into any
agreement or arrangement (or alter, amend or terminate any existing agreement or
arrangement) if such action would materially impair the ability of either party
to effectuate, carry out or comply with all the terms of this Agreement.
<PAGE> 162
Section 5. Effectiveness and Termination. It is a condition precedent
to the effectiveness of this Agreement that the Partnership Merger Agreement
shall have been executed and delivered and be in full force and effect. This
Agreement shall automatically terminate and be of no further force or effect
upon the earlier termination of the Partnership Merger Agreement in accordance
with its terms. Upon any termination of this Agreement, except for any rights
either party may have in respect of any breach by either party of its
obligations hereunder, none of the parties hereto shall have any further
obligation or liability hereunder. The provisions of Section 1 of this Agreement
shall terminate and be of no further force or effect from and after the
Effective Time of the Partnership Merger.
Section 6. Covenants of Partner Not to Enter Into Inconsistent
Agreements. Partner hereby agrees that, except as contemplated by this
Agreement, the Consents and the Partnership Merger Agreement, Partner shall not
enter into any voting agreement or grant an irrevocable proxy or power of
attorney with respect to the Units which is inconsistent with this Agreement.
Section 7. Miscellaneous.
a. Notices, Etc. All notices, requests, demands or other communications
required by or otherwise given with respect to this Agreement shall be in
writing and shall be deemed to have been duly given to either party when
delivered personally (by courier service or otherwise), when delivered by
telecopy and confirmed by return telecopy, or seven days after being mailed by
first-class mail, postage prepaid in each case to the applicable addresses set
forth below:
If to the Seller Partnership:
Sunstone Hotel Investors, L.P.
903 Calle Amanecer
San Clemente, CA 92673-6212
Attention: Chief Operating Officer
Facsimile: 949-369-4230
with a copy to:
Altheimer & Gray
10 South Wacker Drive
Suite 4000
Chicago, Illinois 60606
Attention: Phillip Gordon
Facsimile: 312-715-4800
If to Westbrook or SHP:
<PAGE> 163
Westbrook Real Estate Partners L.L.C.
599 Lexington Avenue
Suite 3800
New York, New York 10022
Attention: Jonathan H. Paul
Facsimile: 212-849-8801
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017-3954
Attention: Richard Capelouto
Brian Stadler
Facsimile: 212-455- 2502
If to Partner, at its address set forth on the unitholder ledger maintained by
the transfer agent of Seller Partnership with respect to the Seller Partnership;
or to such other address as such party shall have designated by notice so given
to each other party.
b. Amendments, Waivers, Etc. This Agreement may not be amended,
changed, supplemented, waived or otherwise modified or terminated except by an
instrument in writing signed by the Seller Partnership, SHP and Partner.
c. Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of and be enforceable by the parties and their
respective successors and assigns, including without limitation any corporate
successor by merger or otherwise. Notwithstanding any transfer of Units, the
transferor shall remain liable for the performance of all obligations of the
transferor under this Agreement.
d. Entire Agreement. This Agreement (together with the Partnership
Merger Agreement and the documents referred to therein and the Consents)
embodies the entire agreement and understanding among the parties relating to
the subject matter hereof and supersedes all prior agreements and understandings
relating to such subject matter. There are no representations, warranties or
covenants by the parties hereto relating to such subject matter other than those
expressly set forth in this Agreement, the Partnership Merger Agreement and the
documents referred to therein.
<PAGE> 164
e. Severability. If any term of this Agreement or the application
thereof to either party or circumstance shall be held invalid or unenforceable
to any extent, the remainder of this Agreement and the application of such term
to the other parties or circumstances shall not be affected thereby and shall be
enforced to the greatest extent permitted by applicable law; provided that in
such event the parties shall negotiate in good faith in an attempt to agree to
another provision (in lieu of the term or application held to be invalid or
unenforceable) that will be valid and enforceable and will carry out the
parties' intentions hereunder.
f. Specific Performance. The parties acknowledge that money damages are
not an adequate remedy for violations of this Agreement and that either party
may, in its sole discretion, apply to a court of competent jurisdiction for
specific performance or injunction or such other relief as such court may deem
just and proper in order to enforce this Agreement or prevent any violation
hereof and, to the extent permitted by applicable law, each party waives any
objection to the imposition of such relief.
g. Remedies Cumulative. All rights, powers and remedies provided under
this Agreement or otherwise available in respect hereof at law or in equity
shall be cumulative and not alternative, and the exercise or beginning of the
exercise of any thereof by either party shall not preclude the simultaneous or
later exercise of any other such rights, power or remedy by such party.
h. No Waiver. The failure of either party hereto to exercise any right,
power or remedy provided under this Agreement or otherwise available in respect
hereof at law or in equity, or to insist upon compliance by the other party
hereto with its obligations hereunder, and any custom or practice of the parties
at variance with the terms hereof, shall not constitute a waiver by such party
of its right to exercise any such or other right, power or remedy or to demand
such compliance.
i. No Third Party Beneficiaries. This Agreement is not intended to be
for the benefit of and shall not be enforceable by any person or entity who or
which is not a party hereto.
j. Jurisdiction. Each party hereby irrevocably submits to the exclusive
jurisdiction of the Court of Chancery in the State of Delaware in any action,
suit or proceeding arising in connection with this Agreement, and agrees that
any such action, suit or proceeding shall be brought only in such court (and
waives any objection based on forum non conveniens or any other objection to
venue therein) provided, however, that such consent to jurisdiction is solely
for the purpose referred to in this paragraph (j) and shall not be deemed to be
in general submission to the jurisdiction of said Court or in the State of
Delaware other than for such purposes. Each party hereto waives any right to a
trial by jury in connection with any such action, suit or proceeding.
<PAGE> 165
k. Governing Law. This Agreement and all disputes hereunder shall be
governed by and construed and enforced in accordance with the laws of the State
of Delaware.
l. Name, Captions, Gender. The name assigned this Agreement and the
section captions used herein are for convenience of reference only and shall not
affect the interpretation or construction hereof. Whenever the context may
require, any pronoun used herein shall include the corresponding masculine,
feminine or neuter forms.
m. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one instrument. Each counterpart may consist of a
number of copies each signed by less than all, but together signed by all, the
parties hereto.
n. Expenses. Each party shall bear its own expenses incurred in
connection with this Agreement and the transactions contemplated hereby.
o. Beneficial Ownership. For purposes of this Voting Agreement,
beneficial ownership shall be determined as set forth in Rule 13d-3 under the
Securities Exchange Act of 1934, as amended.
<PAGE> 166
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first above written.
RIVERSIDE HOTEL PARTNERS, INC.
By:/s/ Robert A. Alter
------------------------------------
Name: Robert A. Alter
Title: President
SHP ACQUISITION, L.L.C.
By:/s/ Paul Kazilionis
------------------------------------
Name: Paul Kazilionis
Title: Manager
SUNSTONE HOTEL INVESTORS, L.P.
By:/s/ R. Terrence Crowley
------------------------------------
Name: R. Terrence Crowley
Title: Authorized Signatory
<PAGE> 167
VOTING AGREEMENT
VOTING AGREEMENT, dated as of July 12, 1999 ("Agreement"), by and among
Enever Routt Investment Group Ltd., a Colorado limited partnership, in its
capacity as a partner ("Partner") of Sunstone Hotel Investors, L.P., a Delaware
partnership (the "Seller Partnership"), SHP Acquisition, L.L.C., a Delaware
limited liability company ("SHP"), and the Seller Partnership.
WHEREAS, concurrently herewith, SHP, SHP OP, LLC, a Delaware limited
liability company, and the Seller Partnership are entering into an Agreement and
Plan of Merger dated July, 12, 1999 (the "Partnership Merger Agreement";
capitalized terms used without definition herein having the meanings ascribed
thereto in the Partnership Merger Agreement);
WHEREAS, Partner is as of the date hereof the beneficial owner of
100,254 common partnership units of Seller Partnership ("Common Units") and 0
units of 7.9% Class A Cumulative Convertible Preferred Partnership Units of the
Seller Partnership ("Preferred Units" and, collectively with the Common Units,
but excluding any Common Units or Preferred Units issuable (but not yet issued)
upon conversion of any securities convertible into Common Units or Preferred
Units, the "Units");
WHEREAS, approval of the Partnership Merger Agreement by the Seller
Partnership's partners is a condition to the consummation of the Partnership
Merger;
WHEREAS, as a condition to its entering into the Partnership Merger
Agreement, each of the Seller Partnership and SHP has required that Partner
agrees, and Partner has agreed, to enter into this Agreement; and
WHEREAS, Partner has been informed that the Board of Directors of the
general partner of Seller Partnership has approved the Partnership Merger
Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements set forth herein, the parties hereto agree as follows:
Section 1. Agreement to Vote, Restrictions on Dispositions, Etc.
a. Partner hereby agrees to attend any partners meeting of the Seller
Partnership, in person or by proxy, and to vote (or cause to be voted) all
Units, and any other voting securities of the Seller Partnership, owned by
Partner whether issued heretofore or hereafter, that such person owns or has the
right to vote, (i) for approval and adoption of the Partnership Merger Agreement
and the Partnership Merger, and the transactions contemplated by the Partnership
Merger Agreement and (ii) for approval and adoption of the amendments to the
Second Amended and Restated Agreement of Limited Partnership of Seller
Partnership attached as Exhibit A to the Consents (as defined below) (the
"Amendments"), such agreements to vote to apply also to any adjournment of such
partner meeting of the Seller Partnership.
<PAGE> 168
Partner agrees not to grant any proxies or enter into any voting agreement or
arrangement inconsistent with this Agreement or the two consents of even date
herewith executed by Partner (the "Consents"). Partner agrees to deliver the
executed Consents to SHP, at the request of SHP, and Partner agrees not to
rescind, modify or withdraw the Consents.
b. Partner hereby agrees that, without the prior written consent of the
Seller Partnership, except as provided in the Contribution Agreement, Partner
shall not, directly or indirectly, sell, offer to sell, grant any option for the
sale of or otherwise transfer or dispose of, or enter into any agreement to
sell, any Units and any other voting securities of the Seller Partnership that
Partner owns beneficially or otherwise. Partner agrees that the Seller
Partnership may enter stop transfer orders with the transfer agent(s) and the
registrar(s) of the Units against the transfer of Units and any other voting
securities of the Seller Partnership that Partner owns beneficially or
otherwise. Partner agrees to vote (or cause to be voted) all Units, and any
other voting securities of the Seller Partnership, owned by Partner whether
issued heretofore or hereafter, that such person owns or has the right to vote,
against (i) any recapitalization, merger, consolidation, sale of assets or other
business combination or similar transaction involving the Seller Partnership or
any of its Subsidiaries, securities or assets other than the Partnership Merger
or other transaction with SHP and (ii) any other action or agreement that would
result in a breach of any covenant, representation or warranty or any other
obligation or agreement of the Seller Partnership under the Partnership Merger
Agreement or which could result in any of the conditions to the Seller
Partnership's obligations under the Partnership Merger Agreement not being
fulfilled.
c. Partner agrees not, directly or indirectly, to solicit or authorize
any person to solicit, any inquiries or proposals from any person other than SHP
relating to the merger or consolidation of the Seller Partnership with any
person other than SHP or its Affiliates, or the acquisition of the Seller
Partnership's or any of its significant subsidiaries' voting securities by, or
the direct or indirect acquisition or disposition of a significant amount of
assets of the Seller Partnership or any of its significant subsidiaries
otherwise than in the ordinary course of business of the Seller Partnership or
such significant subsidiary, from or to any person other than SHP or its
Affiliates or directly or indirectly enter into or continue any discussions,
negotiations or agreements relating to, or vote (or cause to be voted) in favor
of, any such transaction.
d. Partner agrees to promptly notify the Seller Partnership and SHP in
writing of the nature and amount of any acquisition by Partner after the date
hereof of any voting securities of the Seller Partnership.
Section 2. Additional Representations and Warranties of Partner.
Partner represents and warrants to the Seller Partnership and SHP as follows:
Partner has all necessary power and authority to execute and deliver this
Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by Partner. Assuming the due authorization,
<PAGE> 169
execution and delivery of this Agreement by the Seller Partnership, this
Agreement constitutes the valid and binding agreement of Partner enforceable
against Partner in accordance with its terms, except as may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium and other similar
laws of general application which may affect the enforcement of creditors'
rights generally and by general equitable principles. The Units of Partner are
the only voting securities of the Seller Partnership owned (beneficially or of
record) by Partner and are owned free and clear of all liens, charges,
encumbrances, restrictions and commitments of any kind other than the
Contribution Agreement, this Agreement and the Consents. Partner has not
appointed or granted any irrevocable proxy, which appointment or grant is still
effective, with respect to the Units. The execution and delivery of this
Agreement by Partner does not (a) conflict with or violate any agreement, law,
rule, regulation, order, judgment or decision or other instrument binding upon
it, nor require any consent, notification, regulatory filing or approval which
has not been obtained or (b) result in any breach of or constitute a default (or
an event that with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of a lien or encumbrance on any of
the Units owned by Partner pursuant to, any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument or
obligation to which Partner is a party or by which Partner or the Units owned by
Partner are bound or affected. Partner acknowledges that the restrictions
imposed upon it are so imposed only in Partner's capacity as a partner of the
Seller Partnership.
Section 3. Representations and Warranties of the Seller Partnership.
The Seller Partnership represents and warrants to Partner as follows: each of
(i) this Agreement, (ii) the Partnership Merger Agreement and (iii) the
Amendments has been approved by the Board of Directors of the general partner of
Seller Partnership. Each of this Agreement and the Partnership Merger Agreement
has been duly executed and delivered by a duly authorized officer of the Seller
Partnership. Assuming the due authorization, execution and delivery of this
Agreement by Partner, each of this Agreement and the Partnership Merger
Agreement constitutes a valid and binding agreement of the Seller Partnership,
enforceable against the Seller Partnership in accordance with its terms, except
as may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium and other similar laws of general application which may affect the
enforcement of creditors' rights generally and by general equitable principles.
Section 4. Further Assurances. Each party shall execute and deliver
such additional instruments and other documents and shall take such further
actions as may be necessary or appropriate to effectuate, carry out and comply
with all of their obligations under this Agreement. Without limiting the
generality of the foregoing, neither of the parties hereto shall enter into any
agreement or arrangement (or alter, amend or terminate any existing agreement or
arrangement) if such action would materially impair the ability of either party
to effectuate, carry out or comply with all the terms of this Agreement.
<PAGE> 170
Section 5. Effectiveness and Termination. It is a condition precedent
to the effectiveness of this Agreement that the Partnership Merger Agreement
shall have been executed and delivered and be in full force and effect. This
Agreement shall automatically terminate and be of no further force or effect
upon the earlier termination of the Partnership Merger Agreement in accordance
with its terms. Upon any termination of this Agreement, except for any rights
either party may have in respect of any breach by either party of its
obligations hereunder, none of the parties hereto shall have any further
obligation or liability hereunder. The provisions of Section 1 of this Agreement
shall terminate and be of no further force or effect from and after the
Effective Time of the Partnership Merger.
Section 6. Covenants of Partner Not to Enter Into Inconsistent
Agreements. Partner hereby agrees that, except as contemplated by this
Agreement, the Consents and the Partnership Merger Agreement, Partner shall not
enter into any voting agreement or grant an irrevocable proxy or power of
attorney with respect to the Units which is inconsistent with this Agreement.
Section 7. Miscellaneous.
a. Notices, Etc. All notices, requests, demands or other communications
required by or otherwise given with respect to this Agreement shall be in
writing and shall be deemed to have been duly given to either party when
delivered personally (by courier service or otherwise), when delivered by
telecopy and confirmed by return telecopy, or seven days after being mailed by
first-class mail, postage prepaid in each case to the applicable addresses set
forth below:
If to the Seller Partnership:
Sunstone Hotel Investors, L.P.
903 Calle Amanecer
San Clemente, CA 92673-6212
Attention: Chief Operating Officer
Facsimile: 949-369-4230
with a copy to:
Altheimer & Gray
10 South Wacker Drive
Suite 4000
Chicago, Illinois 60606
Attention: Phillip Gordon
Facsimile: 312-715-4800
If to Westbrook or SHP:
<PAGE> 171
Westbrook Real Estate Partners L.L.C.
599 Lexington Avenue
Suite 3800
New York, New York 10022
Attention: Jonathan H. Paul
Facsimile: 212-849-8801
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017-3954
Attention: Richard Capelouto
Brian Stadler
Facsimile: 212-455- 2502
If to Partner, at its address set forth on the unitholder ledger maintained by
the transfer agent of Seller Partnership with respect to the Seller Partnership;
or to such other address as such party shall have designated by notice so given
to each other party.
b. Amendments, Waivers, Etc. This Agreement may not be amended,
changed, supplemented, waived or otherwise modified or terminated except by an
instrument in writing signed by the Seller Partnership, SHP and Partner.
c. Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of and be enforceable by the parties and their
respective successors and assigns, including without limitation any corporate
successor by merger or otherwise. Notwithstanding any transfer of Units, the
transferor shall remain liable for the performance of all obligations of the
transferor under this Agreement.
d. Entire Agreement. This Agreement (together with the Partnership
Merger Agreement and the documents referred to therein and the Consents)
embodies the entire agreement and understanding among the parties relating to
the subject matter hereof and supersedes all prior agreements and understandings
relating to such subject matter. There are no representations, warranties or
covenants by the parties hereto relating to such subject matter other than those
expressly set forth in this Agreement, the Partnership Merger Agreement and the
documents referred to therein.
<PAGE> 172
e. Severability. If any term of this Agreement or the application
thereof to either party or circumstance shall be held invalid or unenforceable
to any extent, the remainder of this Agreement and the application of such term
to the other parties or circumstances shall not be affected thereby and shall be
enforced to the greatest extent permitted by applicable law; provided that in
such event the parties shall negotiate in good faith in an attempt to agree to
another provision (in lieu of the term or application held to be invalid or
unenforceable) that will be valid and enforceable and will carry out the
parties' intentions hereunder.
f. Specific Performance. The parties acknowledge that money damages are
not an adequate remedy for violations of this Agreement and that either party
may, in its sole discretion, apply to a court of competent jurisdiction for
specific performance or injunction or such other relief as such court may deem
just and proper in order to enforce this Agreement or prevent any violation
hereof and, to the extent permitted by applicable law, each party waives any
objection to the imposition of such relief.
g. Remedies Cumulative. All rights, powers and remedies provided under
this Agreement or otherwise available in respect hereof at law or in equity
shall be cumulative and not alternative, and the exercise or beginning of the
exercise of any thereof by either party shall not preclude the simultaneous or
later exercise of any other such rights, power or remedy by such party.
h. No Waiver. The failure of either party hereto to exercise any right,
power or remedy provided under this Agreement or otherwise available in respect
hereof at law or in equity, or to insist upon compliance by the other party
hereto with its obligations hereunder, and any custom or practice of the parties
at variance with the terms hereof, shall not constitute a waiver by such party
of its right to exercise any such or other right, power or remedy or to demand
such compliance.
i. No Third Party Beneficiaries. This Agreement is not intended to be
for the benefit of and shall not be enforceable by any person or entity who or
which is not a party hereto.
j. Jurisdiction. Each party hereby irrevocably submits to the exclusive
jurisdiction of the Court of Chancery in the State of Delaware in any action,
suit or proceeding arising in connection with this Agreement, and agrees that
any such action, suit or proceeding shall be brought only in such court (and
waives any objection based on forum non conveniens or any other objection to
venue therein) provided, however, that such consent to jurisdiction is solely
for the purpose referred to in this paragraph (j) and shall not be deemed to be
in general submission to the jurisdiction of said Court or in the State of
Delaware other than for such purposes. Each party hereto waives any right to a
trial by jury in connection with any such action, suit or proceeding.
<PAGE> 173
k. Governing Law. This Agreement and all disputes hereunder shall be
governed by and construed and enforced in accordance with the laws of the State
of Delaware.
l. Name, Captions, Gender. The name assigned this Agreement and the
section captions used herein are for convenience of reference only and shall not
affect the interpretation or construction hereof. Whenever the context may
require, any pronoun used herein shall include the corresponding masculine,
feminine or neuter forms.
m. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one instrument. Each counterpart may consist of a
number of copies each signed by less than all, but together signed by all, the
parties hereto.
n. Expenses. Each party shall bear its own expenses incurred in
connection with this Agreement and the transactions contemplated hereby.
o. Beneficial Ownership. For purposes of this Voting Agreement,
beneficial ownership shall be determined as set forth in Rule 13d-3 under the
Securities Exchange Act of 1934, as amended.
<PAGE> 174
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first above written.
ENEVER ROUTT INVESTMENT GROUP LTD
By:/s/ Robert Enever
------------------------------------
Name: Robert Enever
Title: General Partner
SHP ACQUISITION, L.L.C.
By:/s/ Paul Kazilionis
------------------------------------
Name: Paul Kazilionis
Title: Manager
SUNSTONE HOTEL INVESTORS, L.P.
By:/s/ R. Terrence Crowley
------------------------------------
Name: R. Terrence Crowley
Title: Authorized Signatory
<PAGE> 175
VOTING AGREEMENT
VOTING AGREEMENT, dated as of July 12, 1999 ("Agreement"), by and
among Robert Enever and Audrey Enever jointly in their capacity as a partner
("Partner") of Sunstone Hotel Investors, L.P., a Delaware partnership (the
"Seller Partnership"), SHP Acquisition, L.L.C., a Delaware limited liability
company ("SHP"), and the Seller Partnership.
WHEREAS, concurrently herewith, SHP, SHP OP, LLC, a Delaware limited
liability company, and the Seller Partnership are entering into an Agreement and
Plan of Merger dated July, 12, 1999 (the "Partnership Merger Agreement";
capitalized terms used without definition herein having the meanings ascribed
thereto in the Partnership Merger Agreement);
WHEREAS, Partner is as of the date hereof the beneficial owner of
34,901 common partnership units of Seller Partnership ("Common Units") and 0
units of 7.9% Class A Cumulative Convertible Preferred Partnership Units of the
Seller Partnership ("Preferred Units" and, collectively with the Common Units,
but excluding any Common Units or Preferred Units issuable (but not yet issued)
upon conversion of any securities convertible into Common Units or Preferred
Units, the "Units");
WHEREAS, approval of the Partnership Merger Agreement by the Seller
Partnership's partners is a condition to the consummation of the Partnership
Merger;
WHEREAS, as a condition to its entering into the Partnership Merger
Agreement, each of the Seller Partnership and SHP has required that Partner
agrees, and Partner has agreed, to enter into this Agreement; and
WHEREAS, Partner has been informed that the Board of Directors of the
general partner of Seller Partnership has approved the Partnership Merger
Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements set forth herein, the parties hereto agree as follows:
Section 1. Agreement to Vote, Restrictions on Dispositions, Etc.
a. Partner hereby agrees to attend any partners meeting of the Seller
Partnership, in person or by proxy, and to vote (or cause to be voted) all
Units, and any other voting securities of the Seller Partnership, owned by
Partner whether issued heretofore or hereafter, that such person owns or has the
right to vote, (i) for approval and adoption of the Partnership Merger Agreement
and the Partnership Merger, and the transactions contemplated by the Partnership
Merger Agreement and (ii) for approval and adoption of the amendments to the
Second Amended and Restated Agreement of Limited Partnership of Seller
Partnership attached as Exhibit A to the Consents (as defined below) (the
"Amendments"), such agreements to vote to apply also to any adjournment of such
partner meeting of the Seller Partnership.
<PAGE> 176
Partner agrees not to grant any proxies or enter into any voting agreement or
arrangement inconsistent with this Agreement or the two consents of even date
herewith executed by Partner (the "Consents"). Partner agrees to deliver the
executed Consents to SHP, at the request of SHP, and Partner agrees not to
rescind, modify or withdraw the Consents.
b. Partner hereby agrees that, without the prior written consent of the
Seller Partnership, except as provided in the Contribution Agreement, Partner
shall not, directly or indirectly, sell, offer to sell, grant any option for the
sale of or otherwise transfer or dispose of, or enter into any agreement to
sell, any Units and any other voting securities of the Seller Partnership that
Partner owns beneficially or otherwise. Partner agrees that the Seller
Partnership may enter stop transfer orders with the transfer agent(s) and the
registrar(s) of the Units against the transfer of Units and any other voting
securities of the Seller Partnership that Partner owns beneficially or
otherwise. Partner agrees to vote (or cause to be voted) all Units, and any
other voting securities of the Seller Partnership, owned by Partner whether
issued heretofore or hereafter, that such person owns or has the right to vote,
against (i) any recapitalization, merger, consolidation, sale of assets or other
business combination or similar transaction involving the Seller Partnership or
any of its Subsidiaries, securities or assets other than the Partnership Merger
or other transaction with SHP and (ii) any other action or agreement that would
result in a breach of any covenant, representation or warranty or any other
obligation or agreement of the Seller Partnership under the Partnership Merger
Agreement or which could result in any of the conditions to the Seller
Partnership's obligations under the Partnership Merger Agreement not being
fulfilled.
c. Partner agrees not, directly or indirectly, to solicit or authorize
any person to solicit, any inquiries or proposals from any person other than SHP
relating to the merger or consolidation of the Seller Partnership with any
person other than SHP or its Affiliates, or the acquisition of the Seller
Partnership's or any of its significant subsidiaries' voting securities by, or
the direct or indirect acquisition or disposition of a significant amount of
assets of the Seller Partnership or any of its significant subsidiaries
otherwise than in the ordinary course of business of the Seller Partnership or
such significant subsidiary, from or to any person other than SHP or its
Affiliates or directly or indirectly enter into or continue any discussions,
negotiations or agreements relating to, or vote (or cause to be voted) in favor
of, any such transaction.
d. Partner agrees to promptly notify the Seller Partnership and SHP in
writing of the nature and amount of any acquisition by Partner after the date
hereof of any voting securities of the Seller Partnership.
Section 2. Additional Representations and Warranties of Partner.
Partner represents and warrants to the Seller Partnership and SHP as follows:
Partner has all necessary power and authority to execute and deliver this
Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by Partner. Assuming the due authorization,
<PAGE> 177
execution and delivery of this Agreement by the Seller Partnership, this
Agreement constitutes the valid and binding agreement of Partner enforceable
against Partner in accordance with its terms, except as may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium and other similar
laws of general application which may affect the enforcement of creditors'
rights generally and by general equitable principles. The Units of Partner are
the only voting securities of the Seller Partnership owned (beneficially or of
record) by Partner and are owned free and clear of all liens, charges,
encumbrances, restrictions and commitments of any kind other than the
Contribution Agreement, this Agreement and the Consents. Partner has not
appointed or granted any irrevocable proxy, which appointment or grant is still
effective, with respect to the Units. The execution and delivery of this
Agreement by Partner does not (a) conflict with or violate any agreement, law,
rule, regulation, order, judgment or decision or other instrument binding upon
it, nor require any consent, notification, regulatory filing or approval which
has not been obtained or (b) result in any breach of or constitute a default (or
an event that with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of a lien or encumbrance on any of
the Units owned by Partner pursuant to, any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument or
obligation to which Partner is a party or by which Partner or the Units owned by
Partner are bound or affected. Partner acknowledges that the restrictions
imposed upon it are so imposed only in Partner's capacity as a partner of the
Seller Partnership.
Section 3. Representations and Warranties of the Seller Partnership.
The Seller Partnership represents and warrants to Partner as follows: each of
(i) this Agreement, (ii) the Partnership Merger Agreement and (iii) the
Amendments has been approved by the Board of Directors of the general partner of
Seller Partnership. Each of this Agreement and the Partnership Merger Agreement
has been duly executed and delivered by a duly authorized officer of the Seller
Partnership. Assuming the due authorization, execution and delivery of this
Agreement by Partner, each of this Agreement and the Partnership Merger
Agreement constitutes a valid and binding agreement of the Seller Partnership,
enforceable against the Seller Partnership in accordance with its terms, except
as may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium and other similar laws of general application which may affect the
enforcement of creditors' rights generally and by general equitable principles.
Section 4. Further Assurances. Each party shall execute and deliver
such additional instruments and other documents and shall take such further
actions as may be necessary or appropriate to effectuate, carry out and comply
with all of their obligations under this Agreement. Without limiting the
generality of the foregoing, neither of the parties hereto shall enter into any
agreement or arrangement (or alter, amend or terminate any existing agreement or
arrangement) if such action would materially impair the ability of either party
to effectuate, carry out or comply with all the terms of this Agreement.
<PAGE> 178
Section 5. Effectiveness and Termination. It is a condition precedent
to the effectiveness of this Agreement that the Partnership Merger Agreement
shall have been executed and delivered and be in full force and effect. This
Agreement shall automatically terminate and be of no further force or effect
upon the earlier termination of the Partnership Merger Agreement in accordance
with its terms. Upon any termination of this Agreement, except for any rights
either party may have in respect of any breach by either party of its
obligations hereunder, none of the parties hereto shall have any further
obligation or liability hereunder. The provisions of Section 1 of this Agreement
shall terminate and be of no further force or effect from and after the
Effective Time of the Partnership Merger.
Section 6. Covenants of Partner Not to Enter Into Inconsistent
Agreements. Partner hereby agrees that, except as contemplated by this
Agreement, the Consents and the Partnership Merger Agreement, Partner shall not
enter into any voting agreement or grant an irrevocable proxy or power of
attorney with respect to the Units which is inconsistent with this Agreement.
Section 7. Miscellaneous.
a. Notices, Etc. All notices, requests, demands or other communications
required by or otherwise given with respect to this Agreement shall be in
writing and shall be deemed to have been duly given to either party when
delivered personally (by courier service or otherwise), when delivered by
telecopy and confirmed by return telecopy, or seven days after being mailed by
first-class mail, postage prepaid in each case to the applicable addresses set
forth below:
If to the Seller Partnership:
Sunstone Hotel Investors, L.P.
903 Calle Amanecer
San Clemente, CA 92673-6212
Attention: Chief Operating Officer
Facsimile: 949-369-4230
with a copy to:
Altheimer & Gray
10 South Wacker Drive
Suite 4000
Chicago, Illinois 60606
Attention: Phillip Gordon
Facsimile: 312-715-4800
If to Westbrook or SHP:
<PAGE> 179
Westbrook Real Estate Partners L.L.C.
599 Lexington Avenue
Suite 3800
New York, New York 10022
Attention: Jonathan H. Paul
Facsimile: 212-849-8801
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017-3954
Attention: Richard Capelouto
Brian Stadler
Facsimile: 212-455- 2502
If to Partner, at its address set forth on the unitholder ledger maintained by
the transfer agent of Seller Partnership with respect to the Seller Partnership;
or to such other address as such party shall have designated by notice so given
to each other party.
b. Amendments, Waivers, Etc. This Agreement may not be amended,
changed, supplemented, waived or otherwise modified or terminated except by an
instrument in writing signed by the Seller Partnership, SHP and Partner.
c. Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of and be enforceable by the parties and their
respective successors and assigns, including without limitation any corporate
successor by merger or otherwise. Notwithstanding any transfer of Units, the
transferor shall remain liable for the performance of all obligations of the
transferor under this Agreement.
d. Entire Agreement. This Agreement (together with the Partnership
Merger Agreement and the documents referred to therein and the Consents)
embodies the entire agreement and understanding among the parties relating to
the subject matter hereof and supersedes all prior agreements and understandings
relating to such subject matter. There are no representations, warranties or
covenants by the parties hereto relating to such subject matter other than those
expressly set forth in this Agreement, the Partnership Merger Agreement and the
documents referred to therein.
<PAGE> 180
e. Severability. If any term of this Agreement or the application
thereof to either party or circumstance shall be held invalid or unenforceable
to any extent, the remainder of this Agreement and the application of such term
to the other parties or circumstances shall not be affected thereby and shall be
enforced to the greatest extent permitted by applicable law; provided that in
such event the parties shall negotiate in good faith in an attempt to agree to
another provision (in lieu of the term or application held to be invalid or
unenforceable) that will be valid and enforceable and will carry out the
parties' intentions hereunder.
f. Specific Performance. The parties acknowledge that money damages are
not an adequate remedy for violations of this Agreement and that either party
may, in its sole discretion, apply to a court of competent jurisdiction for
specific performance or injunction or such other relief as such court may deem
just and proper in order to enforce this Agreement or prevent any violation
hereof and, to the extent permitted by applicable law, each party waives any
objection to the imposition of such relief.
g. Remedies Cumulative. All rights, powers and remedies provided under
this Agreement or otherwise available in respect hereof at law or in equity
shall be cumulative and not alternative, and the exercise or beginning of the
exercise of any thereof by either party shall not preclude the simultaneous or
later exercise of any other such rights, power or remedy by such party.
h. No Waiver. The failure of either party hereto to exercise any right,
power or remedy provided under this Agreement or otherwise available in respect
hereof at law or in equity, or to insist upon compliance by the other party
hereto with its obligations hereunder, and any custom or practice of the parties
at variance with the terms hereof, shall not constitute a waiver by such party
of its right to exercise any such or other right, power or remedy or to demand
such compliance.
i. No Third Party Beneficiaries. This Agreement is not intended to be
for the benefit of and shall not be enforceable by any person or entity who or
which is not a party hereto.
j. Jurisdiction. Each party hereby irrevocably submits to the exclusive
jurisdiction of the Court of Chancery in the State of Delaware in any action,
suit or proceeding arising in connection with this Agreement, and agrees that
any such action, suit or proceeding shall be brought only in such court (and
waives any objection based on forum non conveniens or any other objection to
venue therein) provided, however, that such consent to jurisdiction is solely
for the purpose referred to in this paragraph (j) and shall not be deemed to be
in general submission to the jurisdiction of said Court or in the State of
Delaware other than for such purposes. Each party hereto waives any right to a
trial by jury in connection with any such action, suit or proceeding.
<PAGE> 181
k. Governing Law. This Agreement and all disputes hereunder shall be
governed by and construed and enforced in accordance with the laws of the State
of Delaware.
l. Name, Captions, Gender. The name assigned this Agreement and the
section captions used herein are for convenience of reference only and shall not
affect the interpretation or construction hereof. Whenever the context may
require, any pronoun used herein shall include the corresponding masculine,
feminine or neuter forms.
m. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one instrument. Each counterpart may consist of a
number of copies each signed by less than all, but together signed by all, the
parties hereto.
n. Expenses. Each party shall bear its own expenses incurred in
connection with this Agreement and the transactions contemplated hereby.
o. Beneficial Ownership. For purposes of this Voting Agreement,
beneficial ownership shall be determined as set forth in Rule 13d-3 under the
Securities Exchange Act of 1934, as amended.
<PAGE> 182
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first above written.
/s/ Robert Enever
-----------------------------------
Robert Enever
/s/ Audrey Enever
-----------------------------------
Audrey Enever
SHP ACQUISITION, L.L.C.
By:/s/ Paul Kazilionis
------------------------------------
Name: Paul Kazilionis
Title: Manager
SUNSTONE HOTEL INVESTORS, L.P.
By:/s/ R. Terrence Crowley
------------------------------------
Name: R. Terrence Crowley
Title: Authorized Person
<PAGE> 183
VOTING AGREEMENT
VOTING AGREEMENT, dated as of July 12, 1999 ("Agreement"), by and
among Robert Enever in his capacity as a partner ("Partner") of Sunstone Hotel
Investors, L.P., a Delaware partnership (the "Seller Partnership"), SHP
Acquisition, L.L.C., a Delaware limited liability company ("SHP"), and the
Seller Partnership.
WHEREAS, concurrently herewith, SHP, SHP OP, LLC, a Delaware limited
liability company, and the Seller Partnership are entering into an Agreement and
Plan of Merger dated July 12, 1999 (the "Partnership Merger Agreement";
capitalized terms used without definition herein having the meanings ascribed
thereto in the Partnership Merger Agreement);
WHEREAS, Partner is as of the date hereof the beneficial owner of
26,148 common partnership units of Seller Partnership ("Common Units") and 0
units of 7.9% Class A Cumulative Convertible Preferred Partnership Units of the
Seller Partnership ("Preferred Units" and, collectively with the Common Units,
but excluding any Common Units or Preferred Units issuable (but not yet issued)
upon conversion of any securities convertible into Common Units or Preferred
Units, the "Units");
WHEREAS, approval of the Partnership Merger Agreement by the Seller
Partnership's partners is a condition to the consummation of the Partnership
Merger;
WHEREAS, as a condition to its entering into the Partnership Merger
Agreement, each of the Seller Partnership and SHP has required that Partner
agrees, and Partner has agreed, to enter into this Agreement; and
WHEREAS, Partner has been informed that the Board of Directors of the
general partner of Seller Partnership has approved the Partnership Merger
Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements set forth herein, the parties hereto agree as follows:
Section 1. Agreement to Vote, Restrictions on Dispositions, Etc.
a. Partner hereby agrees to attend any partners meeting of the Seller
Partnership, in person or by proxy, and to vote (or cause to be voted) all
Units, and any other voting securities of the Seller Partnership, owned by
Partner whether issued heretofore or hereafter, that such person owns or has the
right to vote, (i) for approval and adoption of the Partnership Merger Agreement
and the Partnership Merger, and the transactions contemplated by the Partnership
Merger Agreement and (ii) for approval and adoption of the amendments to the
Second Amended and Restated Agreement of Limited Partnership of Seller
Partnership attached as Exhibit A to the Consents (as defined below) (the
"Amendments"), such agreements to vote to apply also to any adjournment of such
partner meeting of the Seller Partnership.
<PAGE> 184
Partner agrees not to grant any proxies or enter into any voting agreement or
arrangement inconsistent with this Agreement or the two consents of even date
herewith executed by Partner (the "Consents"). Partner agrees to deliver the
executed Consents to SHP, at the request of SHP, and Partner agrees not to
rescind, modify or withdraw the Consents.
b. Partner hereby agrees that, without the prior written consent of the
Seller Partnership, except as provided in the Contribution Agreement, Partner
shall not, directly or indirectly, sell, offer to sell, grant any option for the
sale of or otherwise transfer or dispose of, or enter into any agreement to
sell, any Units and any other voting securities of the Seller Partnership that
Partner owns beneficially or otherwise. Partner agrees that the Seller
Partnership may enter stop transfer orders with the transfer agent(s) and the
registrar(s) of the Units against the transfer of Units and any other voting
securities of the Seller Partnership that Partner owns beneficially or
otherwise. Partner agrees to vote (or cause to be voted) all Units, and any
other voting securities of the Seller Partnership, owned by Partner whether
issued heretofore or hereafter, that such person owns or has the right to vote,
against (i) any recapitalization, merger, consolidation, sale of assets or other
business combination or similar transaction involving the Seller Partnership or
any of its Subsidiaries, securities or assets other than the Partnership Merger
or other transaction with SHP and (ii) any other action or agreement that would
result in a breach of any covenant, representation or warranty or any other
obligation or agreement of the Seller Partnership under the Partnership Merger
Agreement or which could result in any of the conditions to the Seller
Partnership's obligations under the Partnership Merger Agreement not being
fulfilled.
c. Partner agrees not, directly or indirectly, to solicit or authorize
any person to solicit, any inquiries or proposals from any person other than SHP
relating to the merger or consolidation of the Seller Partnership with any
person other than SHP or its Affiliates, or the acquisition of the Seller
Partnership's or any of its significant subsidiaries' voting securities by, or
the direct or indirect acquisition or disposition of a significant amount of
assets of the Seller Partnership or any of its significant subsidiaries
otherwise than in the ordinary course of business of the Seller Partnership or
such significant subsidiary, from or to any person other than SHP or its
Affiliates or directly or indirectly enter into or continue any discussions,
negotiations or agreements relating to, or vote (or cause to be voted) in favor
of, any such transaction.
d. Partner agrees to promptly notify the Seller Partnership and SHP in
writing of the nature and amount of any acquisition by Partner after the date
hereof of any voting securities of the Seller Partnership.
Section 2. Additional Representations and Warranties of Partner.
Partner represents and warrants to the Seller Partnership and SHP as follows:
Partner has all necessary power and authority to execute and deliver this
Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by Partner. Assuming the due authorization,
<PAGE> 185
execution and delivery of this Agreement by the Seller Partnership, this
Agreement constitutes the valid and binding agreement of Partner enforceable
against Partner in accordance with its terms, except as may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium and other similar
laws of general application which may affect the enforcement of creditors'
rights generally and by general equitable principles. The Units of Partner are
the only voting securities of the Seller Partnership owned (beneficially or of
record) by Partner and are owned free and clear of all liens, charges,
encumbrances, restrictions and commitments of any kind other than the
Contribution Agreement, this Agreement and the Consents. Partner has not
appointed or granted any irrevocable proxy, which appointment or grant is still
effective, with respect to the Units. The execution and delivery of this
Agreement by Partner does not (a) conflict with or violate any agreement, law,
rule, regulation, order, judgment or decision or other instrument binding upon
it, nor require any consent, notification, regulatory filing or approval which
has not been obtained or (b) result in any breach of or constitute a default (or
an event that with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of a lien or encumbrance on any of
the Units owned by Partner pursuant to, any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument or
obligation to which Partner is a party or by which Partner or the Units owned by
Partner are bound or affected. Partner acknowledges that the restrictions
imposed upon it are so imposed only in Partner's capacity as a partner of the
Seller Partnership.
Section 3. Representations and Warranties of the Seller Partnership.
The Seller Partnership represents and warrants to Partner as follows: each of
(i) this Agreement, (ii) the Partnership Merger Agreement and (iii) the
Amendments has been approved by the Board of Directors of the general partner of
Seller Partnership. Each of this Agreement and the Partnership Merger Agreement
has been duly executed and delivered by a duly authorized officer of the Seller
Partnership. Assuming the due authorization, execution and delivery of this
Agreement by Partner, each of this Agreement and the Partnership Merger
Agreement constitutes a valid and binding agreement of the Seller Partnership,
enforceable against the Seller Partnership in accordance with its terms, except
as may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium and other similar laws of general application which may affect the
enforcement of creditors' rights generally and by general equitable principles.
Section 4. Further Assurances. Each party shall execute and deliver
such additional instruments and other documents and shall take such further
actions as may be necessary or appropriate to effectuate, carry out and comply
with all of their obligations under this Agreement. Without limiting the
generality of the foregoing, neither of the parties hereto shall enter into any
agreement or arrangement (or alter, amend or terminate any existing agreement or
arrangement) if such action would materially impair the ability of either party
to effectuate, carry out or comply with all the terms of this Agreement.
<PAGE> 186
Section 5. Effectiveness and Termination. It is a condition precedent
to the effectiveness of this Agreement that the Partnership Merger Agreement
shall have been executed and delivered and be in full force and effect. This
Agreement shall automatically terminate and be of no further force or effect
upon the earlier termination of the Partnership Merger Agreement in accordance
with its terms. Upon any termination of this Agreement, except for any rights
either party may have in respect of any breach by either party of its
obligations hereunder, none of the parties hereto shall have any further
obligation or liability hereunder. The provisions of Section 1 of this Agreement
shall terminate and be of no further force or effect from and after the
Effective Time of the Partnership Merger.
Section 6. Covenants of Partner Not to Enter Into Inconsistent
Agreements. Partner hereby agrees that, except as contemplated by this
Agreement, the Consents and the Partnership Merger Agreement, Partner shall not
enter into any voting agreement or grant an irrevocable proxy or power of
attorney with respect to the Units which is inconsistent with this Agreement.
Section 7. Miscellaneous.
a. Notices, Etc. All notices, requests, demands or other communications
required by or otherwise given with respect to this Agreement shall be in
writing and shall be deemed to have been duly given to either party when
delivered personally (by courier service or otherwise), when delivered by
telecopy and confirmed by return telecopy, or seven days after being mailed by
first-class mail, postage prepaid in each case to the applicable addresses set
forth below:
If to the Seller Partnership:
Sunstone Hotel Investors, L.P.
903 Calle Amanecer
San Clemente, CA 92673-6212
Attention: Chief Operating Officer
Facsimile: 949-369-4230
with a copy to:
Altheimer & Gray
10 South Wacker Drive
Suite 4000
Chicago, Illinois 60606
Attention: Phillip Gordon
Facsimile: 312-715-4800
If to Westbrook or SHP:
<PAGE> 187
Westbrook Real Estate Partners L.L.C.
599 Lexington Avenue
Suite 3800
New York, New York 10022
Attention: Jonathan H. Paul
Facsimile: 212-849-8801
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017-3954
Attention: Richard Capelouto
Brian Stadler
Facsimile: 212-455- 2502
If to Partner, at its address set forth on the unitholder ledger maintained by
the transfer agent of Seller Partnership with respect to the Seller Partnership;
or to such other address as such party shall have designated by notice so given
to each other party.
b. Amendments, Waivers, Etc. This Agreement may not be amended,
changed, supplemented, waived or otherwise modified or terminated except by an
instrument in writing signed by the Seller Partnership, SHP and Partner.
c. Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of and be enforceable by the parties and their
respective successors and assigns, including without limitation any corporate
successor by merger or otherwise. Notwithstanding any transfer of Units, the
transferor shall remain liable for the performance of all obligations of the
transferor under this Agreement.
d. Entire Agreement. This Agreement (together with the Partnership
Merger Agreement and the documents referred to therein and the Consents)
embodies the entire agreement and understanding among the parties relating to
the subject matter hereof and supersedes all prior agreements and understandings
relating to such subject matter. There are no representations, warranties or
covenants by the parties hereto relating to such subject matter other than those
expressly set forth in this Agreement, the Partnership Merger Agreement and the
documents referred to therein.
<PAGE> 188
e. Severability. If any term of this Agreement or the application
thereof to either party or circumstance shall be held invalid or unenforceable
to any extent, the remainder of this Agreement and the application of such term
to the other parties or circumstances shall not be affected thereby and shall be
enforced to the greatest extent permitted by applicable law; provided that in
such event the parties shall negotiate in good faith in an attempt to agree to
another provision (in lieu of the term or application held to be invalid or
unenforceable) that will be valid and enforceable and will carry out the
parties' intentions hereunder.
f. Specific Performance. The parties acknowledge that money damages are
not an adequate remedy for violations of this Agreement and that either party
may, in its sole discretion, apply to a court of competent jurisdiction for
specific performance or injunction or such other relief as such court may deem
just and proper in order to enforce this Agreement or prevent any violation
hereof and, to the extent permitted by applicable law, each party waives any
objection to the imposition of such relief.
g. Remedies Cumulative. All rights, powers and remedies provided under
this Agreement or otherwise available in respect hereof at law or in equity
shall be cumulative and not alternative, and the exercise or beginning of the
exercise of any thereof by either party shall not preclude the simultaneous or
later exercise of any other such rights, power or remedy by such party.
h. No Waiver. The failure of either party hereto to exercise any right,
power or remedy provided under this Agreement or otherwise available in respect
hereof at law or in equity, or to insist upon compliance by the other party
hereto with its obligations hereunder, and any custom or practice of the parties
at variance with the terms hereof, shall not constitute a waiver by such party
of its right to exercise any such or other right, power or remedy or to demand
such compliance.
i. No Third Party Beneficiaries. This Agreement is not intended to be
for the benefit of and shall not be enforceable by any person or entity who or
which is not a party hereto.
j. Jurisdiction. Each party hereby irrevocably submits to the exclusive
jurisdiction of the Court of Chancery in the State of Delaware in any action,
suit or proceeding arising in connection with this Agreement, and agrees that
any such action, suit or proceeding shall be brought only in such court (and
waives any objection based on forum non conveniens or any other objection to
venue therein) provided, however, that such consent to jurisdiction is solely
for the purpose referred to in this paragraph (j) and shall not be deemed to be
in general submission to the jurisdiction of said Court or in the State of
Delaware other than for such purposes. Each party hereto waives any right to a
trial by jury in connection with any such action, suit or proceeding.
<PAGE> 189
k. Governing Law. This Agreement and all disputes hereunder shall be
governed by and construed and enforced in accordance with the laws of the State
of Delaware.
l. Name, Captions, Gender. The name assigned this Agreement and the
section captions used herein are for convenience of reference only and shall not
affect the interpretation or construction hereof. Whenever the context may
require, any pronoun used herein shall include the corresponding masculine,
feminine or neuter forms.
m. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one instrument. Each counterpart may consist of a
number of copies each signed by less than all, but together signed by all, the
parties hereto.
n. Expenses. Each party shall bear its own expenses incurred in
connection with this Agreement and the transactions contemplated hereby.
o. Beneficial Ownership. For purposes of this Voting Agreement,
beneficial ownership shall be determined as set forth in Rule 13d-3 under the
Securities Exchange Act of 1934, as amended.
<PAGE> 190
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first above written.
/s/ Robert Enever
-----------------------------------
Robert Enever
SHP ACQUISITION, L.L.C.
By:/s/ Paul Kazilionis
------------------------------------
Name: Paul Kazilionis
Title: Manager
SUNSTONE HOTEL INVESTORS, L.P.
By:/s/ R. Terrence Crowley
------------------------------------
Name: R. Terrence Crowley
Title: Authorized Signatory
<PAGE> 191
VOTING AGREEMENT
VOTING AGREEMENT, dated as of July 12, 1999 ("Agreement"), by and
among Audrey Enever in her capacity as a partner ("Partner") of
Sunstone Hotel Investors, L.P., a Delaware partnership (the "Seller
Partnership"), SHP Acquisition, L.L.C., a Delaware limited liability company
("SHP"), and the Seller Partnership.
WHEREAS, concurrently herewith, SHP, SHP OP, LLC, a Delaware limited
liability company, and the Seller Partnership are entering into an Agreement and
Plan of Merger dated July, 12, 1999 (the "Partnership Merger Agreement";
capitalized terms used without definition herein having the meanings ascribed
thereto in the Partnership Merger Agreement);
WHEREAS, Partner is as of the date hereof the beneficial owner of
20,799 common partnership units of Seller Partnership ("Common Units") and 0
units of 7.9% Class A Cumulative Convertible Preferred Partnership Units of the
Seller Partnership ("Preferred Units" and, collectively with the Common Units,
but excluding any Common Units or Preferred Units issuable (but not yet issued)
upon conversion of any securities convertible into Common Units or Preferred
Units, the "Units");
WHEREAS, approval of the Partnership Merger Agreement by the Seller
Partnership's partners is a condition to the consummation of the Partnership
Merger;
WHEREAS, as a condition to its entering into the Partnership Merger
Agreement, each of the Seller Partnership and SHP has required that Partner
agrees, and Partner has agreed, to enter into this Agreement; and
WHEREAS, Partner has been informed that the Board of Directors of the
general partner of Seller Partnership has approved the Partnership Merger
Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements set forth herein, the parties hereto agree as follows:
Section 1. Agreement to Vote, Restrictions on Dispositions, Etc.
a. Partner hereby agrees to attend any partners meeting of the Seller
Partnership, in person or by proxy, and to vote (or cause to be voted) all
Units, and any other voting securities of the Seller Partnership, owned by
Partner whether issued heretofore or hereafter, that such person owns or has the
right to vote, (i) for approval and adoption of the Partnership Merger Agreement
and the Partnership Merger, and the transactions contemplated by the Partnership
Merger Agreement and (ii) for approval and adoption of the amendments to the
Second Amended and Restated Agreement of Limited Partnership of Seller
Partnership attached as Exhibit A to the Consents (as defined below) (the
"Amendments"), such agreements to vote to apply also to any adjournment of such
partner meeting of the Seller Partnership.
<PAGE> 192
Partner agrees not to grant any proxies or enter into any voting agreement or
arrangement inconsistent with this Agreement or the two consents of even date
herewith executed by Partner (the "Consents"). Partner agrees to deliver the
executed Consents to SHP, at the request of SHP, and Partner agrees not to
rescind, modify or withdraw the Consents.
b. Partner hereby agrees that, without the prior written consent of the
Seller Partnership, except as provided in the Contribution Agreement, Partner
shall not, directly or indirectly, sell, offer to sell, grant any option for the
sale of or otherwise transfer or dispose of, or enter into any agreement to
sell, any Units and any other voting securities of the Seller Partnership that
Partner owns beneficially or otherwise. Partner agrees that the Seller
Partnership may enter stop transfer orders with the transfer agent(s) and the
registrar(s) of the Units against the transfer of Units and any other voting
securities of the Seller Partnership that Partner owns beneficially or
otherwise. Partner agrees to vote (or cause to be voted) all Units, and any
other voting securities of the Seller Partnership, owned by Partner whether
issued heretofore or hereafter, that such person owns or has the right to vote,
against (i) any recapitalization, merger, consolidation, sale of assets or other
business combination or similar transaction involving the Seller Partnership or
any of its Subsidiaries, securities or assets other than the Partnership Merger
or other transaction with SHP and (ii) any other action or agreement that would
result in a breach of any covenant, representation or warranty or any other
obligation or agreement of the Seller Partnership under the Partnership Merger
Agreement or which could result in any of the conditions to the Seller
Partnership's obligations under the Partnership Merger Agreement not being
fulfilled.
c. Partner agrees not, directly or indirectly, to solicit or authorize
any person to solicit, any inquiries or proposals from any person other than SHP
relating to the merger or consolidation of the Seller Partnership with any
person other than SHP or its Affiliates, or the acquisition of the Seller
Partnership's or any of its significant subsidiaries' voting securities by, or
the direct or indirect acquisition or disposition of a significant amount of
assets of the Seller Partnership or any of its significant subsidiaries
otherwise than in the ordinary course of business of the Seller Partnership or
such significant subsidiary, from or to any person other than SHP or its
Affiliates or directly or indirectly enter into or continue any discussions,
negotiations or agreements relating to, or vote (or cause to be voted) in favor
of, any such transaction.
d. Partner agrees to promptly notify the Seller Partnership and SHP in
writing of the nature and amount of any acquisition by Partner after the date
hereof of any voting securities of the Seller Partnership.
Section 2. Additional Representations and Warranties of Partner.
Partner represents and warrants to the Seller Partnership and SHP as follows:
Partner has all necessary power and authority to execute and deliver this
Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by Partner. Assuming the due authorization,
<PAGE> 193
execution and delivery of this Agreement by the Seller Partnership, this
Agreement constitutes the valid and binding agreement of Partner enforceable
against Partner in accordance with its terms, except as may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium and other similar
laws of general application which may affect the enforcement of creditors'
rights generally and by general equitable principles. The Units of Partner are
the only voting securities of the Seller Partnership owned (beneficially or of
record) by Partner and are owned free and clear of all liens, charges,
encumbrances, restrictions and commitments of any kind other than the
Contribution Agreement, this Agreement and the Consents. Partner has not
appointed or granted any irrevocable proxy, which appointment or grant is still
effective, with respect to the Units. The execution and delivery of this
Agreement by Partner does not (a) conflict with or violate any agreement, law,
rule, regulation, order, judgment or decision or other instrument binding upon
it, nor require any consent, notification, regulatory filing or approval which
has not been obtained or (b) result in any breach of or constitute a default (or
an event that with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of a lien or encumbrance on any of
the Units owned by Partner pursuant to, any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument or
obligation to which Partner is a party or by which Partner or the Units owned by
Partner are bound or affected. Partner acknowledges that the restrictions
imposed upon it are so imposed only in Partner's capacity as a partner of the
Seller Partnership.
Section 3. Representations and Warranties of the Seller Partnership.
The Seller Partnership represents and warrants to Partner as follows: each of
(i) this Agreement, (ii) the Partnership Merger Agreement and (iii) the
Amendments has been approved by the Board of Directors of the general partner of
Seller Partnership. Each of this Agreement and the Partnership Merger Agreement
has been duly executed and delivered by a duly authorized officer of the Seller
Partnership. Assuming the due authorization, execution and delivery of this
Agreement by Partner, each of this Agreement and the Partnership Merger
Agreement constitutes a valid and binding agreement of the Seller Partnership,
enforceable against the Seller Partnership in accordance with its terms, except
as may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium and other similar laws of general application which may affect the
enforcement of creditors' rights generally and by general equitable principles.
Section 4. Further Assurances. Each party shall execute and deliver
such additional instruments and other documents and shall take such further
actions as may be necessary or appropriate to effectuate, carry out and comply
with all of their obligations under this Agreement. Without limiting the
generality of the foregoing, neither of the parties hereto shall enter into any
agreement or arrangement (or alter, amend or terminate any existing agreement or
arrangement) if such action would materially impair the ability of either party
to effectuate, carry out or comply with all the terms of this Agreement.
<PAGE> 194
Section 5. Effectiveness and Termination. It is a condition precedent
to the effectiveness of this Agreement that the Partnership Merger Agreement
shall have been executed and delivered and be in full force and effect. This
Agreement shall automatically terminate and be of no further force or effect
upon the earlier termination of the Partnership Merger Agreement in accordance
with its terms. Upon any termination of this Agreement, except for any rights
either party may have in respect of any breach by either party of its
obligations hereunder, none of the parties hereto shall have any further
obligation or liability hereunder. The provisions of Section 1 of this Agreement
shall terminate and be of no further force or effect from and after the
Effective Time of the Partnership Merger.
Section 6. Covenants of Partner Not to Enter Into Inconsistent
Agreements. Partner hereby agrees that, except as contemplated by this
Agreement, the Consents and the Partnership Merger Agreement, Partner shall not
enter into any voting agreement or grant an irrevocable proxy or power of
attorney with respect to the Units which is inconsistent with this Agreement.
Section 7. Miscellaneous.
a. Notices, Etc. All notices, requests, demands or other communications
required by or otherwise given with respect to this Agreement shall be in
writing and shall be deemed to have been duly given to either party when
delivered personally (by courier service or otherwise), when delivered by
telecopy and confirmed by return telecopy, or seven days after being mailed by
first-class mail, postage prepaid in each case to the applicable addresses set
forth below:
If to the Seller Partnership:
Sunstone Hotel Investors, L.P.
903 Calle Amanecer
San Clemente, CA 92673-6212
Attention: Chief Operating Officer
Facsimile: 949-369-4230
with a copy to:
Altheimer & Gray
10 South Wacker Drive
Suite 4000
Chicago, Illinois 60606
Attention: Phillip Gordon
Facsimile: 312-715-4800
If to Westbrook or SHP:
<PAGE> 195
Westbrook Real Estate Partners L.L.C.
599 Lexington Avenue
Suite 3800
New York, New York 10022
Attention: Jonathan H. Paul
Facsimile: 212-849-8801
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017-3954
Attention: Richard Capelouto
Brian Stadler
Facsimile: 212-455- 2502
If to Partner, at its address set forth on the unitholder ledger maintained by
the transfer agent of Seller Partnership with respect to the Seller Partnership;
or to such other address as such party shall have designated by notice so given
to each other party.
b. Amendments, Waivers, Etc. This Agreement may not be amended,
changed, supplemented, waived or otherwise modified or terminated except by an
instrument in writing signed by the Seller Partnership, SHP and Partner.
c. Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of and be enforceable by the parties and their
respective successors and assigns, including without limitation any corporate
successor by merger or otherwise. Notwithstanding any transfer of Units, the
transferor shall remain liable for the performance of all obligations of the
transferor under this Agreement.
d. Entire Agreement. This Agreement (together with the Partnership
Merger Agreement and the documents referred to therein and the Consents)
embodies the entire agreement and understanding among the parties relating to
the subject matter hereof and supersedes all prior agreements and understandings
relating to such subject matter. There are no representations, warranties or
covenants by the parties hereto relating to such subject matter other than those
expressly set forth in this Agreement, the Partnership Merger Agreement and the
documents referred to therein.
<PAGE> 196
e. Severability. If any term of this Agreement or the application
thereof to either party or circumstance shall be held invalid or unenforceable
to any extent, the remainder of this Agreement and the application of such term
to the other parties or circumstances shall not be affected thereby and shall be
enforced to the greatest extent permitted by applicable law; provided that in
such event the parties shall negotiate in good faith in an attempt to agree to
another provision (in lieu of the term or application held to be invalid or
unenforceable) that will be valid and enforceable and will carry out the
parties' intentions hereunder.
f. Specific Performance. The parties acknowledge that money damages are
not an adequate remedy for violations of this Agreement and that either party
may, in its sole discretion, apply to a court of competent jurisdiction for
specific performance or injunction or such other relief as such court may deem
just and proper in order to enforce this Agreement or prevent any violation
hereof and, to the extent permitted by applicable law, each party waives any
objection to the imposition of such relief.
g. Remedies Cumulative. All rights, powers and remedies provided under
this Agreement or otherwise available in respect hereof at law or in equity
shall be cumulative and not alternative, and the exercise or beginning of the
exercise of any thereof by either party shall not preclude the simultaneous or
later exercise of any other such rights, power or remedy by such party.
h. No Waiver. The failure of either party hereto to exercise any right,
power or remedy provided under this Agreement or otherwise available in respect
hereof at law or in equity, or to insist upon compliance by the other party
hereto with its obligations hereunder, and any custom or practice of the parties
at variance with the terms hereof, shall not constitute a waiver by such party
of its right to exercise any such or other right, power or remedy or to demand
such compliance.
i. No Third Party Beneficiaries. This Agreement is not intended to be
for the benefit of and shall not be enforceable by any person or entity who or
which is not a party hereto.
j. Jurisdiction. Each party hereby irrevocably submits to the exclusive
jurisdiction of the Court of Chancery in the State of Delaware in any action,
suit or proceeding arising in connection with this Agreement, and agrees that
any such action, suit or proceeding shall be brought only in such court (and
waives any objection based on forum non conveniens or any other objection to
venue therein) provided, however, that such consent to jurisdiction is solely
for the purpose referred to in this paragraph (j) and shall not be deemed to be
in general submission to the jurisdiction of said Court or in the State of
Delaware other than for such purposes. Each party hereto waives any right to a
trial by jury in connection with any such action, suit or proceeding.
<PAGE> 197
k. Governing Law. This Agreement and all disputes hereunder shall be
governed by and construed and enforced in accordance with the laws of the State
of Delaware.
l. Name, Captions, Gender. The name assigned this Agreement and the
section captions used herein are for convenience of reference only and shall not
affect the interpretation or construction hereof. Whenever the context may
require, any pronoun used herein shall include the corresponding masculine,
feminine or neuter forms.
m. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one instrument. Each counterpart may consist of a
number of copies each signed by less than all, but together signed by all, the
parties hereto.
n. Expenses. Each party shall bear its own expenses incurred in
connection with this Agreement and the transactions contemplated hereby.
o. Beneficial Ownership. For purposes of this Voting Agreement,
beneficial ownership shall be determined as set forth in Rule 13d-3 under the
Securities Exchange Act of 1934, as amended.
<PAGE> 198
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first above written.
/s/ Audrey Enever
---------------------------------------
Audrey Enever
SHP ACQUISITION, L.L.C.
By: /s/ Paul Kazilionis
---------------------------------------
Name: Paul Kazilionis
Title: Manager
SUNSTONE HOTEL INVESTORS, L.P.
By: /s/ R. Terrence Crowley
---------------------------------------
Name: R. Terrence Crowley
Title: Authorized Signatory
<PAGE> 199
VOTING AGREEMENT
VOTING AGREEMENT, dated as of July 12, 1999 ("Agreement"), by and
among Alter Investment Group, Ltd. in its capacity as a partner
("Partner") of Sunstone Hotel Investors, L.P., a Delaware partnership (the
"Seller Partnership"), SHP Acquisition, L.L.C., a Delaware limited liability
company ("SHP"), and the Seller Partnership.
WHEREAS, concurrently herewith, SHP, SHP OP, LLC, a Delaware limited
liability company, and the Seller Partnership are entering into an Agreement and
Plan of Merger dated July, 12, 1999 (the "Partnership Merger Agreement";
capitalized terms used without definition herein having the meanings ascribed
thereto in the Partnership Merger Agreement);
WHEREAS, Partner is as of the date hereof the beneficial owner of
99,251 common partnership units of Seller Partnership ("Common Units") and 0
units of 7.9% Class A Cumulative Convertible Preferred Partnership Units of the
Seller Partnership ("Preferred Units" and, collectively with the Common Units,
but excluding any Common Units or Preferred Units issuable (but not yet issued)
upon conversion of any securities convertible into Common Units or Preferred
Units, the "Units");
WHEREAS, approval of the Partnership Merger Agreement by the Seller
Partnership's partners is a condition to the consummation of the Partnership
Merger;
WHEREAS, as a condition to its entering into the Partnership Merger
Agreement, each of the Seller Partnership and SHP has required that Partner
agrees, and Partner has agreed, to enter into this Agreement; and
WHEREAS, Partner has been informed that the Board of Directors of the
general partner of Seller Partnership has approved the Partnership Merger
Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements set forth herein, the parties hereto agree as follows:
Section 1. Agreement to Vote, Restrictions on Dispositions, Etc.
a. Partner hereby agrees to attend any partners meeting of the Seller
Partnership, in person or by proxy, and to vote (or cause to be voted) all
Units, and any other voting securities of the Seller Partnership, owned by
Partner whether issued heretofore or hereafter, that such person owns or has the
right to vote, (i) for approval and adoption of the Partnership Merger Agreement
and the Partnership Merger, and the transactions contemplated by the Partnership
Merger Agreement and (ii) for approval and adoption of the amendments to the
Second Amended and Restated Agreement of Limited Partnership of Seller
Partnership attached as Exhibit A to the Consents (as defined below) (the
"Amendments"), such agreements to vote
<PAGE> 200
to vote to apply also to any adjournment of such partner meeting of the Seller
Partnership. Partner agrees not to grant any proxies or enter into any voting
agreement or arrangement inconsistent with this Agreement or the two consents of
even date herewith executed by Partner (the "Consents"). Partner agrees to
deliver the executed Consents to SHP, at the request of SHP, and Partner agrees
not to rescind, modify or withdraw the Consents.
b. Partner hereby agrees that, without the prior written consent of the
Seller Partnership, except as provided in the Contribution Agreement, Partner
shall not, directly or indirectly, sell, offer to sell, grant any option for the
sale of or otherwise transfer or dispose of, or enter into any agreement to
sell, any Units and any other voting securities of the Seller Partnership that
Partner owns beneficially or otherwise. Partner agrees that the Seller
Partnership may enter stop transfer orders with the transfer agent(s) and the
registrar(s) of the Units against the transfer of Units and any other voting
securities of the Seller Partnership that Partner owns beneficially or
otherwise. Partner agrees to vote (or cause to be voted) all Units, and any
other voting securities of the Seller Partnership, owned by Partner whether
issued heretofore or hereafter, that such person owns or has the right to vote,
against (i) any recapitalization, merger, consolidation, sale of assets or other
business combination or similar transaction involving the Seller Partnership or
any of its Subsidiaries, securities or assets other than the Partnership Merger
or other transaction with SHP and (ii) any other action or agreement that would
result in a breach of any covenant, representation or warranty or any other
obligation or agreement of the Seller Partnership under the Partnership Merger
Agreement or which could result in any of the conditions to the Seller
Partnership's obligations under the Partnership Merger Agreement not being
fulfilled.
c. Partner agrees not, directly or indirectly, to solicit or authorize
any person to solicit, any inquiries or proposals from any person other than SHP
relating to the merger or consolidation of the Seller Partnership with any
person other than SHP or its Affiliates, or the acquisition of the Seller
Partnership's or any of its significant subsidiaries' voting securities by, or
the direct or indirect acquisition or disposition of a significant amount of
assets of the Seller Partnership or any of its significant subsidiaries
otherwise than in the ordinary course of business of the Seller Partnership or
such significant subsidiary, from or to any person other than SHP or its
Affiliates or directly or indirectly enter into or continue any discussions,
negotiations or agreements relating to, or vote (or cause to be voted) in favor
of, any such transaction.
d. Partner agrees to promptly notify the Seller Partnership and SHP in
writing of the nature and amount of any acquisition by Partner after the date
hereof of any voting securities of the Seller Partnership.
Section 2. Additional Representations and Warranties of Partner.
Partner represents and warrants to the Seller Partnership and SHP as follows:
Partner has all necessary power and authority to execute and deliver this
Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby. This
<PAGE> 201
Agreement has been duly executed and delivered by Partner. Assuming the due
authorization, execution and delivery of this Agreement by the Seller
Partnership, this Agreement constitutes the valid and binding agreement of
Partner enforceable against Partner in accordance with its terms, except as may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium and
other similar laws of general application which may affect the enforcement of
creditors' rights generally and by general equitable principles. The Units of
Partner are the only voting securities of the Seller Partnership owned
(beneficially or of record) by Partner and are owned free and clear of all
liens, charges, encumbrances, restrictions and commitments of any kind other
than the Contribution Agreement, this Agreement and the Consents. Partner has
not appointed or granted any irrevocable proxy, which appointment or grant is
still effective, with respect to the Units. The execution and delivery of this
Agreement by Partner does not (a) conflict with or violate any agreement, law,
rule, regulation, order, judgment or decision or other instrument binding upon
it, nor require any consent, notification, regulatory filing or approval which
has not been obtained or (b) result in any breach of or constitute a default (or
an event that with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of a lien or encumbrance on any of
the Units owned by Partner pursuant to, any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument or
obligation to which Partner is a party or by which Partner or the Units owned by
Partner are bound or affected. Partner acknowledges that the restrictions
imposed upon it are so imposed only in Partner's capacity as a partner of the
Seller Partnership.
Section 3. Representations and Warranties of the Seller Partnership.
The Seller Partnership represents and warrants to Partner as follows: each of
(i) this Agreement, (ii) the Partnership Merger Agreement and (iii) the
Amendments has been approved by the Board of Directors of the general partner of
Seller Partnership. Each of this Agreement and the Partnership Merger Agreement
has been duly executed and delivered by a duly authorized officer of the Seller
Partnership. Assuming the due authorization, execution and delivery of this
Agreement by Partner, each of this Agreement and the Partnership Merger
Agreement constitutes a valid and binding agreement of the Seller Partnership,
enforceable against the Seller Partnership in accordance with its terms, except
as may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium and other similar laws of general application which may affect the
enforcement of creditors' rights generally and by general equitable principles.
Section 4. Further Assurances. Each party shall execute and deliver
such additional instruments and other documents and shall take such further
actions as may be necessary or appropriate to effectuate, carry out and comply
with all of their obligations under this Agreement. Without limiting the
generality of the foregoing, neither of the parties hereto shall enter into any
agreement or arrangement (or alter, amend or terminate any existing agreement or
arrangement) if such action would materially impair the ability of either party
to effectuate, carry out or comply with all the terms of this Agreement.
<PAGE> 202
Section 5. Effectiveness and Termination. It is a condition precedent
to the effectiveness of this Agreement that the Partnership Merger Agreement
shall have been executed and delivered and be in full force and effect. This
Agreement shall automatically terminate and be of no further force or effect
upon the earlier termination of the Partnership Merger Agreement in accordance
with its terms. Upon any termination of this Agreement, except for any rights
either party may have in respect of any breach by either party of its
obligations hereunder, none of the parties hereto shall have any further
obligation or liability hereunder. The provisions of Section 1 of this Agreement
shall terminate and be of no further force or effect from and after the
Effective Time of the Partnership Merger.
Section 6. Covenants of Partner Not to Enter Into Inconsistent
Agreements. Partner hereby agrees that, except as contemplated by this
Agreement, the Consents and the Partnership Merger Agreement, Partner shall not
enter into any voting agreement or grant an irrevocable proxy or power of
attorney with respect to the Units which is inconsistent with this Agreement.
Section 7. Miscellaneous.
a. Notices, Etc. All notices, requests, demands or other communications
required by or otherwise given with respect to this Agreement shall be in
writing and shall be deemed to have been duly given to either party when
delivered personally (by courier service or otherwise), when delivered by
telecopy and confirmed by return telecopy, or seven days after being mailed by
first-class mail, postage prepaid in each case to the applicable addresses set
forth below:
If to the Seller Partnership:
Sunstone Hotel Investors, L.P.
903 Calle Amanecer
San Clemente, CA 92673-6212
Attention: Chief Operating Officer
Facsimile: 949-369-4230
with a copy to:
Altheimer & Gray
10 South Wacker Drive
Suite 4000
Chicago, Illinois 60606
Attention: Phillip Gordon
Facsimile: 312-715-4800
If to Westbrook or SHP:
<PAGE> 203
Westbrook Real Estate Partners L.L.C.
599 Lexington Avenue
Suite 3800
New York, New York 10022
Attention: Jonathan H. Paul
Facsimile: 212-849-8801
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017-3954
Attention: Richard Capelouto
Brian Stadler
Facsimile: 212-455- 2502
If to Partner, at its address set forth on the unitholder ledger maintained by
the transfer agent of Seller Partnership with respect to the Seller Partnership;
or to such other address as such party shall have designated by notice so given
to each other party.
b. Amendments, Waivers, Etc. This Agreement may not be amended,
changed, supplemented, waived or otherwise modified or terminated except by an
instrument in writing signed by the Seller Partnership, SHP and Partner.
c. Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of and be enforceable by the parties and their
respective successors and assigns, including without limitation any corporate
successor by merger or otherwise. Notwithstanding any transfer of Units, the
transferor shall remain liable for the performance of all obligations of the
transferor under this Agreement.
d. Entire Agreement. This Agreement (together with the Partnership
Merger Agreement and the documents referred to therein and the Consents)
embodies the entire agreement and understanding among the parties relating to
the subject matter hereof and supersedes all prior agreements and understandings
relating to such subject matter. There are no representations, warranties or
covenants by the parties hereto relating to such subject matter other than those
expressly set forth in this Agreement, the Partnership Merger Agreement and the
documents referred to therein.
<PAGE> 204
e. Severability. If any term of this Agreement or the application
thereof to either party or circumstance shall be held invalid or unenforceable
to any extent, the remainder of this Agreement and the application of such term
to the other parties or circumstances shall not be affected thereby and shall be
enforced to the greatest extent permitted by applicable law; provided that in
such event the parties shall negotiate in good faith in an attempt to agree to
another provision (in lieu of the term or application held to be invalid or
unenforceable) that will be valid and enforceable and will carry out the
parties' intentions hereunder.
f. Specific Performance. The parties acknowledge that money damages are
not an adequate remedy for violations of this Agreement and that either party
may, in its sole discretion, apply to a court of competent jurisdiction for
specific performance or injunction or such other relief as such court may deem
just and proper in order to enforce this Agreement or prevent any violation
hereof and, to the extent permitted by applicable law, each party waives any
objection to the imposition of such relief.
g. Remedies Cumulative. All rights, powers and remedies provided under
this Agreement or otherwise available in respect hereof at law or in equity
shall be cumulative and not alternative, and the exercise or beginning of the
exercise of any thereof by either party shall not preclude the simultaneous or
later exercise of any other such rights, power or remedy by such party.
h. No Waiver. The failure of either party hereto to exercise any right,
power or remedy provided under this Agreement or otherwise available in respect
hereof at law or in equity, or to insist upon compliance by the other party
hereto with its obligations hereunder, and any custom or practice of the parties
at variance with the terms hereof, shall not constitute a waiver by such party
of its right to exercise any such or other right, power or remedy or to demand
such compliance.
i. No Third Party Beneficiaries. This Agreement is not intended to be
for the benefit of and shall not be enforceable by any person or entity who or
which is not a party hereto.
j. Jurisdiction. Each party hereby irrevocably submits to the exclusive
jurisdiction of the Court of Chancery in the State of Delaware in any action,
suit or proceeding arising in connection with this Agreement, and agrees that
any such action, suit or proceeding shall be brought only in such court (and
waives any objection based on forum non conveniens or any other objection to
venue therein) provided, however, that such consent to jurisdiction is solely
for the purpose referred to in this paragraph (j) and shall not be deemed to be
in general submission to the jurisdiction of said Court or in the State of
Delaware other than for such purposes. Each party hereto waives any right to a
trial by jury in connection with any such action, suit or proceeding.
<PAGE> 205
k. Governing Law. This Agreement and all disputes hereunder shall be
governed by and construed and enforced in accordance with the laws of the State
of Delaware.
l. Name, Captions, Gender. The name assigned this Agreement and the
section captions used herein are for convenience of reference only and shall not
affect the interpretation or construction hereof. Whenever the context may
require, any pronoun used herein shall include the corresponding masculine,
feminine or neuter forms.
m. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one instrument. Each counterpart may consist of a
number of copies each signed by less than all, but together signed by all, the
parties hereto.
n. Expenses. Each party shall bear its own expenses incurred in
connection with this Agreement and the transactions contemplated hereby.
o. Beneficial Ownership. For purposes of this Voting Agreement,
beneficial ownership shall be determined as set forth in Rule 13d-3 under the
Securities Exchange Act of 1934, as amended.
<PAGE> 206
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first above written.
ALTER INVESTMENT GROUP, LTD.
By: /s/ Robert A Alter
-----------------------------------
Robert A. Alter, as general partner
SHP ACQUISITION, L.L.C.
By: /s/ Paul Kazilionis
-----------------------------------
Name: Paul Kazilionis
Title: Manager
SUNSTONE HOTEL INVESTORS, L.P.
By: /s/ R. Terrence Crowley
-----------------------------------
Name: R. Terrence Crowley
Title: Authorized Person
<PAGE> 207
EXHIBIT F
---------
Amendments Effective Immediately. The following amendment of the Second
Amended and Restated Agreement of Limited Partnership (the "Original Agreement")
of Sunstone Hotel Investors, L.P. (the "Partnership") shall be effective as of
the date of approval:
(a) The Original Agreement is hereby amended to add a new Section
8.5(i) reading as follows:
"(i) Notwithstanding any other provision or this Section 8.5 to
the contrary, or any other provision of this Agreement to the
contrary, but subject to Section 17-607 of the Act, the
Partnership, acting by and through the General Partner (who shall
act in its sole discretion on behalf of the Partnership), may at
any time and from time to time redeem from the General Partner
any or all of the Preferred Units or Common Units held by the
General Partner in its capacity as a Preferred Unitholder or
Common Unitholder, as the case may be, in exchange for the
Partnership's distributing to the General Partner certain assets
of the Partnership consisting of any or all of the assets of the
Partnership the disposition of which would be subject to rules
similar to Section 1374 of the Internal Revenue Code of 1986, as
amended, as a result of an election under Internal Revenue
Service Notice 88-19 (the "Kahler Assets"). The Kahler Assets
distributed to the General Partner pursuant to this Section
8.5(i) shall be valued, as of the Business Day immediately
preceding such distribution, at fair market value, and such
number of the Preferred Units and Common Units held by the
General Partner as are equal in value, as of the Business Day
immediately preceding such distribution, at Market Price to the
Kahler Assets to be conveyed to the General Partner in
consideration of the Preferred Units and Common Units to be
redeemed from the General Partner, shall be redeemed by the
Partnership from the General Partner in exchange for such
distribution and shall upon any such redemption be canceled. In
no event shall any redemption by the Partnership pursuant to this
Section 8.5(i) cause the General Partner to lose its status as a
general partner and as a limited partner of the Partnership."
<PAGE> 208
2
Amendments Effective Upon Merger Approval. The following amendments of the
Second Amended and Restated Agreement of Limited Partnership (the "Original
Agreement") of Sunstone Hotel Investors, L.P. (the "Partnership") shall be
effective as of the date that the merger of SHP Acquisition Sub, L.P., a
Delaware limited partnership, with and into the Partnership is approved by the
Limited Partners or, following such Limited Partner approval, when implemented
by the General Partner, in its sole discretion, pursuant to authority granted to
the General Partner as part of the Limited Partner approval vote:
(a) The introductory paragraph of the Original Agreement is
hereby amended by deleting the words ", in its individual capacity (the
"Company") and in its capacity as the general partner of the Partnership (the
"General Partner")", and by inserting in lieu thereof the words "(the "General
Partner"),".
(b) Article I of the Original Agreement is hereby amended by
deleting the term "Company" and the definition thereof in its entirety from the
DEFINED TERMS of Article I.
(c) Article I of the Original Agreement is hereby amended by
adding the following words immediately prior to the period at the end of the
definition of "REIT PREFERRED SHARE" in the DEFINED TERMS of Article I:
", but shall not mean a share of preferred stock of any
substitute general partner of the Partnership admitted pursuant
to Section 7.1(e) of this Agreement"
(d) Article I of the Original Agreement is hereby amended by
adding the following words immediately prior to the period at the end of the
definition of "REIT SHARE" in the DEFINED TERMS of Article I:
", but shall not mean a share of common stock of any substitute
general partner of the Partnership admitted pursuant to Section
7.1(e) of this Agreement"
(e) The Original Agreement is hereby amended by deleting the word
"Company" wherever it appears in the Original Agreement, and by inserting in
lieu thereof the words "General Partner", so that all references to the
"Company" in the Original Agreement shall now refer to the "General Partner".
(f) The first and second sentences of Section 2.4(a) of the
Original Agreement are hereby deleted in their entirety.
(g) The second sentence of Section 4.3 of the Original Agreement
is hereby deleted in its entirety.
<PAGE> 209
3
(h) Section 6.1(b) of the Original Agreement is hereby deleted
and replaced in its entirety by the following:
"[Intentionally omitted.]"
(i) Section 6.6 of the Original Agreement is hereby amended by
deleting the words "Subject to Section 6.8 hereof, the Articles of Incorporation
and any agreements entered into by the General Partner or its Affiliates with
the Partnership or a Subsidiary," from the first sentence of Section 6.6, and by
inserting in lieu thereof the words "The General Partner and".
(j) Section 6.8 of the Original Agreement is hereby deleted in
its entirety.
(k) Section 7.1(a) of the Original Agreement is hereby amended by
adding the following words immediately prior to the period at the end of Section
7.1(a):
"or Section 7.1(e)"
(l) Section 7.1(b) of the Original Agreement is hereby deleted
and replaced in its entirety by the following:
"[Intentionally omitted.]"
(m) Section 7.1(c) of the Original Agreement is hereby amended by
deleting the words "or Section 7.1(d)" from the first clause of Section 7.1(c),
and by inserting in lieu thereof the words "Section 7.1(d) or Section 7.1(e)".
(n) The Original Agreement is hereby amended to add a new Section
7.1(e) reading as follows:
"(e) Notwithstanding Section 7.1(c) or Section 7.1(d) or any
other provision of this Agreement to the contrary, SHP Investors
Sub, Inc., a Maryland corporation, and Sunstone Hotel Investors,
Inc., a Maryland corporation, may merge, with Sunstone Hotel
Investors, Inc. surviving the said merger. In connection with
such merger, Sunstone Hotel Investors, Inc., may transfer any or
all of the Partnership Interests held by Sunstone Hotel
Investors, Inc., in any capacity, to any Person, including to SHP
Properties Corp., a Delaware corporation, and may withdraw as a
Partner of the Partnership, including as the general partner of
the Partnership. Upon the occurrence of any of the
<PAGE> 210
4
events described above in this Section 7.1(e), and upon the
satisfaction by SHP Properties Corp. of the conditions for
becoming a substitute general partner as set forth in Section
7.2(b) below, including its filing of an amendment of the
Certificate, SHP Properties Corp. shall be, and hereby is deemed,
admitted to the Partnership as a substitute general partner of
the Partnership, effective immediately prior to the withdrawal of
Sunstone Hotel Investors, Inc., from the Partnership as the
general partner of the Partnership, and SHP Properties Corp.
shall have the rights and duties of a Surviving General Partner
as described in the second, third and fourth full sentences of
Section 7.1(d)(ii) above, along with any other rights and duties
of a general partner of the Partnership under this Agreement. To
the fullest extent permitted by law, all of the mergers,
transfers, withdrawals, admissions, activities and events
described in this Section 7.1(e), and anything contemplated
thereby and related thereto, may, and shall, take place without
any further act, vote or approval of any Partner or other Person,
notwithstanding any other provision of this Agreement to the
contrary, the Act or other applicable law, rule or regulation."
(o) Section 7.2 of the Original Agreement is hereby amended by
deleting the word "A" as the first word of the opening sentence of Section 7.2,
and by inserting in lieu thereof the words "Except as provided in Section 7.1(e)
above, a".
<PAGE> 211
Exhibit G
PW REAL ESTATE INVESTMENTS INC.
1285 Avenue of the Americas
New York, New York 10019
July 12, 1999
WESTBROOK REAL ESTATE FUND III, L.P.
c/o Westbrook Real Estate Partners, L.L.C.
599 Lexington Avenue
Suite 3800
New York, New York 10022
Attention: Jonathan H. Paul, Managing Principal
re Senior Mortgage Financing
Gentlemen:
You have requested that PW Real Estate Investments Inc. ("PWREI")
provide the Mortgage Loan defined and described in Exhibit A (the "Term Sheet")
attached to this letter (this "Commitment") and made a part hereof. All
capitalized terms used in this Commitment without definition shall have the
respective meanings ascribed to them in the Term Sheet. You have requested that
PWREI provide the Mortgage Loan to finance a portion of the purchase price to be
paid by your affiliates to acquire the assets, business and operations
(including the management company and interests in the operating lessee) of
Sunstone Hotel Investors, Inc. and its affiliates (whether such transaction is
effected through a merger, stock acquisition, asset acquisition or other
acquisition transaction, the "Acquisition"). PWREI hereby commits to provide the
Mortgage Loan in accordance with this Commitment and the Term Sheet, subject to
satisfaction of all conditions set forth in this Commitment and the Term Sheet.
You, on behalf of the Borrower (as defined in the Term Sheet), hereby agree to
accept the Mortgage Loan in accordance with this Commitment and the Term Sheet.
As a material inducement for PWREI to provide the Mortgage Loan, you
hereby agree:
(a) to indemnify PWREI and any other Indemnified Person (as
hereinafter defined) and hold each Indemnified Person harmless against any and
all losses, claims, damages, liabilities or expenses (including any and all
investigative, legal and other expenses reasonably incurred in connection with
any action, suit or proceeding or any claim asserted) to which PWREI or any
other Indemnified Person may become subject insofar as such losses, claims,
damages, liabilities or expenses (A) are related to or arise in any manner out
of or in connection
<PAGE> 212
with (i) actions taken or omitted to be taken (including without limitation any
untrue statements made or any statements omitted to be made in a preliminary or
final prospectus circulated with respect to the Securitization) by you or any of
your affiliates or (ii) actions taken or omitted to be taken by any Indemnified
Person with the consent of, or in conformity with the instruction, action or
omission of, you or any of your affiliates, in each case, in connection with
matters contemplated by this Commitment or the Term Sheet or (B) are otherwise
related to, or arise in any manner out of or in connection with the transactions
contemplated by this Commitment or the Term Sheet or the rendering of services
by PWREI hereunder and thereunder, unless and to the extent it is finally
judicially determined that such losses, claims, damages, liabilities or expenses
resulted solely and directly from the gross negligence, willful misconduct or
breach of this Commitment by such Indemnified Person; and
(b) subject to the provisions of the following paragraph, to
reimburse PWREI and each other Indemnified Person promptly for any reasonable
legal or other expenses incurred by it in connection with investigating,
preparing to defend or defending, or providing evidence in or preparing to serve
or serving as a witness with respect to, any lawsuits, investigations, claims or
other proceedings related to or arising in any manner out of or in connection
with the transactions contemplated by this Commitment or the Term Sheet or the
rendering of services by PWREI hereunder and thereunder (including, without
limitation, in connection with the enforcement of this Commitment and the
indemnification obligations set forth herein) whether or not any Indemnified
Person is named as a party in a proceeding and whether or not any liability
results therefrom. All such legal fees, disbursements and other expenses shall
be reimbursed by the indemnifying party promptly as they are incurred. In the
event a final judicial determination is made to the effect specified in
subparagraph (a) above, PWREI will promptly remit to you any amounts reimbursed
under this subparagraph (b).
You also agree that no Indemnified Person shall have any liability
to you or any of your affiliates for or in connection with the transactions
contemplated by this Commitment or the Term Sheet or the rendering of services
by PWREI hereunder and thereunder unless and to the extent that it is finally
judicially determined that liability for losses, claims, damages, liabilities or
expenses incurred by you or such affiliates resulted from the gross negligence,
willful misconduct or breach of this Commitment by such Indemnified Person.
Promptly after receipt by an Indemnified Person of notice of any
claim or the commencement of any action, the Indemnified Person shall, if a
claim in respect thereof is to be made against you, notify you in writing of the
claim or the commencement of that action; provided, however, that the failure to
notify you shall not relieve you from any liability which you may have under the
indemnification provisions of this Commitment except to the extent that you have
been materially prejudiced by such failure; and, provided further, that the
failure to notify you shall not relieve you from any liability which you may
have to an Indemnified Person otherwise than under the indemnification
provisions of this Commitment. If any such claim or action shall be brought
against an Indemnified Person, and it shall notify you thereof, you shall be
entitled to participate therein and, to the extent that you wish, to assume the
defense thereof with counsel reasonably satisfactory to the Indemnified Person.
After notice from you to the Indemnified Person of your election to assume the
defense of such claim or action, you shall not be liable to the Indemnified
Person under the indemnification provisions of this Commitment for
-2-
<PAGE> 213
any legal or other expenses subsequently incurred by the Indemnified Person in
connection with the defense thereof except as provided in the following
sentence. The Indemnified Person shall have the right to employ separate counsel
in any such action and to participate in the defense thereof, but the fees and
expenses of such counsel shall be at the expense of such Indemnified Person
unless: (i) the employment thereof has been specifically authorized by you in
writing; or (ii) in such claims or action there is, in the opinion of
independent counsel, a conflict concerning any material issue between the
positions of you and such Indemnified Person, in which case if such Indemnified
Person notifies you in writing that it elects to employ separate counsel at your
expense, you shall not have the right to assume the defense of such action on
behalf of such Indemnified Person; provided, however, that unless an actual or
potential conflict exists between two or more Indemnified Persons, you shall not
be required to pay the fees and disbursements of more than one separate counsel
for all Indemnified Persons. Nothing set forth herein is intended to or shall
impair the right of any Indemnified Person to retain separate counsel at its own
expense.
Without the prior written consent of PWREI, neither you nor any of
your affiliates will settle or compromise or consent to the entry of any
judgment in any pending or threatened claim, action, suit or proceeding in
respect of which indemnification may be sought hereunder (whether or not any
Indemnified Person is an actual or potential party to such claim, action, suit
or proceeding) unless (a) you shall have given PWREI reasonable prior written
notice thereof and used all reasonable efforts, after consultation with PWREI,
to obtain an unconditional release of PWREI and each other Indemnified Person
hereunder from all liability arising out of such claim, action, suit or
proceedings, or (b) you reaffirm in writing your indemnity and contribution
obligations hereunder regardless of any common, federal or state statutory law
to the contrary. As long as you have complied with your obligations to defend
and indemnify hereunder, you shall not be liable for any settlement made by
PWREI or any other Indemnified Person without your consent.
You and PWREI agree that if any indemnification or reimbursement
sought pursuant to the foregoing provisions of this Commitment is finally
judicially determined to be unavailable for a reason other than the gross
negligence, willful misconduct or breach of the provisions of this Commitment by
any Indemnified Person or is otherwise unavailable or insufficient to hold an
Indemnified Person harmless, then, whether or not PWREI is the Indemnified
Person, you and PWREI shall contribute to the losses, claims, damages,
liabilities and expense for which such indemnification or reimbursement is held
unavailable: (x) in such proportion as is appropriate to reflect the relative
benefits to you, on the one hand, and PWREI, on the other hand, from the
transactions to which such indemnification or reimbursement relates; or (y) if
the allocation provided by clause (x) above is not permitted by applicable law,
in such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (x) but also the relative faults of you, on the one hand,
and all Indemnified Persons, on the other hand, as well as any other equitable
considerations. Notwithstanding the provisions of this paragraph, or any other
provisions of this Commitment or the Term Sheet, you and PWREI agree that in no
event shall the amount to be contributed by PWREI pursuant to this paragraph
exceed the amount of the fees actually received by PWREI hereunder.
You agree that the indemnification, contribution and reimbursement
obligations
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<PAGE> 214
set forth in this Commitment shall apply whether or not PWREI or any other
Indemnified Person is a formal party to any such lawsuits, claims or other
proceedings, and that such obligations shall extend upon the terms set forth in
this Commitment to any controlling person, affiliate (including, without
limitation, PaineWebber Incorporated), director, officer, employee,
representative or agent of PWREI (each, with PWREI, an "Indemnified Person").
You further agree that your indemnification, contribution and reimbursement
obligations set forth in this Commitment shall be in addition to any liability
which you may otherwise have and shall extend, upon the same terms and
conditions, to each person, if any, who controls any Indemnified Persons within
the meaning of the Securities Act of 1933, as amended. The indemnification,
contribution and reimbursement provisions of this Commitment shall survive any
termination of this Commitment, but simultaneous with the closing of the
Acquisition and the Mortgage Loan, all of your rights and all of your
obligations under this Commitment, including without limitation, all of your
indemnification, contribution and reimbursement obligations hereunder, may be
assigned by you to the Holding Company (as defined in the Term Sheet), provided,
that (i) the Holding Company shall have a net worth of not less than
$250,000,000 after giving effect to the Acquisition and (ii) the Holding Company
shall assume all of your rights and obligations hereunder simultaneous with such
assignment. Upon such assignment and assumption, you shall have no further
obligations under this Commitment ab initio, and PWREI and all other Indemnified
Persons shall look solely to the Holding Company for performance of your
obligations hereunder, regardless of the date from which such obligations
accrued. The provisions of the two immediately preceding sentences of this
paragraph shall survive closing of the Mortgage Loan.
In addition to the fees described in the Term Sheet, and regardless
of whether or not the Mortgage Loan is funded, you will promptly pay to PWREI
upon request all reasonable out-of-pocket expenses incurred by PWREI in
connection with the Mortgage Loan and the performance of its services hereunder
or under the Term Sheet, including, without limitation, the costs of title,
survey and lien searches, the fees and disbursements of legal counsel,
accountants, environmental experts, engineers, appraisers, due diligence
contractors and travel expenses and rating agency fees and expenses. PWREI will
keep you reasonably informed of its ongoing out-of-pocket expenses, and will
advise you as to the estimated cost of any material third party due diligence
(including reports prepared by third parties) prior to contracting for services
and incurring such costs. Your obligations with respect to expenses set forth in
this paragraph shall survive any termination of this Commitment, but may be
assigned to, and assumed by, the Holding Company in accordance with the
foregoing provisions hereof.
This Commitment and the Term Sheet are delivered to you with the
understanding that, whether or not this or any other commitment is accepted from
PWREI relating to any aspect of the transactions outlined herein, this
Commitment and the terms outlined herein and in the Term Sheet will be kept
confidential by you and your affiliates and not disclosed to any third party
(including, without limitation, other sources of financing) without the express
prior written consent of PWREI, except that (a) you and your affiliates may
disclose this Commitment and the Term Sheet, and the contents hereof and thereof
(i) to the seller in the Acquisition and to investors in the Acquisition
(including their beneficial owners) on a confidential basis in connection with
the Acquisition, (ii) to your respective partners, shareholders, officers,
directors, employees, accountants, attorneys and other advisors on a
confidential basis in connection with
-4-
<PAGE> 215
the transactions contemplated hereby or thereby or (iii) as required by law, and
(b) after acceptance of this Commitment by you, you may disclose this
Commitment, the Term Sheet and the contents hereof and thereof (as well as a
summary of the principal terms and conditions of PWREI's commitments and
obligations hereunder or thereunder) in any public filings whether in connection
with the transactions contemplated hereby or otherwise (provided that any such
summary written disclosure shall be subject to PWREI's reasonable review and
approval). The provisions of this paragraph shall survive any termination of
this Commitment.
You represent and warrant that neither you nor any person acting on
your behalf has employed or used a broker in connection with the transactions
contemplated herein, and you agree to indemnify and hold harmless PWREI and each
other Indemnified Person from and against all loss, cost, damage or expense
arising by reason of any claim made by any such broker. PWREI represents and
warrants that neither it nor any person acting on its behalf has employed or
used a broker in connection with the transactions contemplated herein, and PWREI
agrees to indemnify and hold harmless you and your affiliates from and against
all loss, cost, damage or expense arising by reason of any claim made by any
such broker. The provisions of this paragraph shall survive any termination of
this Commitment.
You are hereby advised (and hereby agree) that other entities with
conflicting interests may also be (or become at any time in the future)
customers of PWREI or any of its affiliates, and, subject to the section of the
Term Sheet entitled "Exclusivity", that PWREI or any of its affiliates may be
providing financing or other services to such other customers. PWREI agrees to
disclose to you the existence of any such conflicting interests as and when they
arise, provided that PWREI shall only be required to make such disclosure if and
to the extent (x) that the existence of such conflicting interests is actually
known by one of Steven Baum, John Taylor or James Glasgow, (y) such disclosure
is not prohibited by law or any rule, regulation or policy of any governmental
authority having jurisdiction over PWREI or any of its affiliates, and (z) such
disclosure will not cause PWREI or any of its affiliates to be in breach of any
agreement (including, without limitation, any confidentiality agreement) to
which PWREI or any of its affiliates is a party. The foregoing provisions of
this paragraph have been reviewed and approved by your counsel.
You recognize that PWREI has issued this Commitment only for your
benefit, and that the agreements set forth herein and in the Term Sheet are not
intended to confer rights upon any of your shareholders, owners or partners or
any other person not a party hereto as against PWREI or any of its affiliates or
the respective directors, officers, agents, employees or representatives of
PWREI or its affiliates. No one other than you is authorized to rely upon the
agreements set forth herein and in the Term Sheet or any statements or conduct
by PWREI.
This Commitment and the rights and obligations of the parties set
forth herein and in the Term Sheet shall terminate and be of no further force or
effect (other than those obligations set forth in this Commitment which are
expressly stated to survive termination of this Commitment) if the Mortgage Loan
has not been funded by November 23, 1999.
THIS COMMITMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND
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<PAGE> 216
GOVERNED BY THE LAW OF THE STATE OF NEW YORK. THE PARTIES HERETO AGREE NOT TO
ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY JURY, AND WAIVE ANY RIGHT
TO TRIAL BY JURY FULLY TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER
EXIST WITH REGARD TO THIS COMMITMENT, THE TERM SHEET, OR ANY CLAIM, COUNTERCLAIM
OR OTHER ACTION ARISING IN CONNECTION HEREWITH OR THEREWITH. THE FOREGOING
WAIVER OF RIGHT TO TRIAL BY JURY IS GIVEN KNOWINGLY AND VOLUNTARILY BY EACH
PARTY HERETO, AND IS INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH
ISSUE AS TO WHICH THE RIGHT TO TRIAL BY JURY WOULD OTHERWISE ACCRUE. EACH PARTY
HERETO IS HEREBY AUTHORIZED TO FILE A COPY OF THIS PARAGRAPH IN ANY PROCEEDING
AS CONCLUSIVE EVIDENCE OF THIS WAIVER BY BOTH PARTIES HERETO.
This Commitment shall be of no force or effect until executed and
delivered by both parties hereto. This Commitment may not be amended except by
written instrument executed by both parties hereto. This Commitment may be
executed in multiple counterparts, each of which shall be deemed an original and
all of which, taken together, shall constitute one instrument.
This Commitment, the Term Sheet and the letter regarding fees, dated
the date hereof (the "Fee Letter"), between you and us contain all of the
agreements and understandings of the parties hereto relating to the transactions
described herein and therein, and the respective obligations of PWREI and its
affiliates and you and your affiliates in connection therewith. All prior
negotiations, proposals, agreements and understandings relating to the subject
matter of this Commitment, the Term Sheet and the Fee Letter are null and void.
If you are in agreement with the foregoing, please sign and return
to PWREI the enclosed copy of each of this Commitment and the Fee Letter by no
later than 11:00 p.m., New York time on July 12, 1999. This Commitment shall
terminate at such time unless you accept this Commitment as provided above.
-6-
<PAGE> 217
Each signatory hereto represents and warrants that he or she is duly
authorized and empowered to execute this Commitment and the Fee Letter on behalf
of the relevant party hereto.
Very truly yours,
PW REAL ESTATE INVESTMENTS INC.
By: /s/ John A. Taylor
------------------------------
Name: John A. Taylor
Title: President
Agreed to and Accepted this
12 day of July, 1999
WESTBROOK REAL ESTATE FUND III, L.P.,
a Delaware limited partnership
By: Westbrook Real Estate Management III, L.L.C., its
general partner
By: Westbrook Real Estate Partners, L.L.C., its
managing member
By: /s/ Jonathan H. Paul
--------------------------------
Name: Jonathan H. Paul
Title: Authorized Person
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<PAGE> 218
EXHIBIT A
TERM SHEET
FOR
FLOATING RATE SENIOR MORTGAGE FINANCING
This is the Term Sheet referred to in that certain letter agreement dated
July 12, 1999 (the "Commitment") between PW Real Estate Investments Inc. and
Westbrook Real Estate Fund III, L.P. All capitalized terms used in this Term
Sheet without definition shall have the meanings ascribed to them in the
Commitment.
CLIENT: Westbrook Real Estate Fund III, L.P. and its affiliates
(collectively, the "Client"), including, without
limitation, the surviving holding company following
consummation of the Acquisition (such surviving company,
the "Holding Company").
BORROWER: The entities listed in Schedule I attached hereto and
the lessee under the operating lease (collectively, the
"Borrower"), which entities shall be (i) special purpose
and bankruptcy remote, (ii) owned by the Client and
Robert A. Alter and other minority owners, (iii)
controlled by the Client, (iv) engaged only in the fee
or leasehold ownership of the Properties (hereinafter
defined) and (v) otherwise reasonably satisfactory to
Lender.
LENDER: PW Real Estate Investments Inc., a wholly-owned
subsidiary of Paine Webber Real Estate Securities Inc.,
or any affiliate.
MORTGAGE LOAN: The proposed loan (the "Mortgage Loan") will be fully
cross-collateralized and cross-defaulted.
SECURITY: The Mortgage Loan will be secured by (i) first mortgage
liens on the properties listed on Exhibit B attached
hereto (collectively, the "Properties", and
individually, a "Property"), (ii) a first priority
assignment of all leases and rents attributable to the
Properties, (iii) a first priority assignment of all
Security Accounts and other reserves and escrows
described below for the Properties, and (iv) a first
priority assignment of all rights of the Borrower or the
operating lessee, as applicable, under operating leases,
management agreements, franchise agreements, licensing
agreements and other licenses, permits and agreements
relating to the ownership and/or operation of the
Properties. The items of security described in clauses
(i) through (iv) of the preceding sentence are referred
to collectively herein as the
<PAGE> 219
EXHIBIT A
Page 2
"Collateral". All management agreements and leases
(including operating leases but excluding any land
leases which by their terms do not require such
subordination) are required to be subordinated to the
Mortgage Loan. All franchise agreements and land leases
must be satisfactory to Lender and meet rating agency
requirements. The Collateral must be free and clear of
all liens, claims and encumbrances of any kind or nature
whatsoever other than those reasonably approved by
Lender.
TERM: The Mortgage Loan will have a term (the "Term") of four
(4) years with one, one (1) year extension option to be
granted to Borrower, subject to satisfaction of the
extension conditions described below.
EXTENSION CONDITIONS: The one (1) year extension option will be
conditioned upon: (i) no monetary or material non-monetary
event of default existing with respect to the Mortgage
Loan at the time of the extension, (ii) Borrower having
requested the Term extension not less than 60 days nor
more than 150 days prior to the then existing maturity
date, (iii) Borrower paying an extension fee at the time
of the extension in the amount of 1.0% of the outstanding
principal amount of the Mortgage Loan at the time of the
extension, and (iv) the debt service coverage ratio for
the Mortgage Loan, calculated based on the trailing twelve
month Actual Net Cash Flow (subject to a 4% FF&E and
replacement reserve) of the Properties and a 10.5%
underwriting constant (the "DSCR") being not less than
1.35 times, which DSCR will be calculated 30 days after
Lender's receipt of Borrower's extension request. To the
extent the DSCR test is not met, Borrower will be
permitted to pay down the Mortgage Loan to bring it into
compliance. The term "Actual Net Cash Flow" when used
herein shall mean, for the relevant calculation period,
the aggregate gross revenues of the Properties minus the
aggregate operating expenses, fixed expenses and fees
attributable to the management and operation of the
Properties. For purposes of calculating Actual Net Cash
Flow, "gross revenues" shall mean actual revenues received
from hotel departments, including but not limited to room
rental, food and beverage operations, telecommunications,
health club, golf, tennis, business center activities,
retail, parking and any other related activities.
Non-recurring revenues will not be included in gross
revenues. For purposes of calculating Actual Net Cash
Flow, "operating expenses", "fixed expenses" and "fees"
shall include all expenses paid in connection with the
operation and management of
<PAGE> 220
EXHIBIT A
Page 3
the Properties, and will additionally include all
accrued but unpaid expenses associated with real estate
taxes and insurance. For purposes of calculating
operating expenses, fixed expenses and fees, franchise
and management fees will be included at the higher of
the actual amount paid or the contractual amount.
LOAN AMOUNT: The original principal amount of the Mortgage
Loan (the "Original Loan Amount") is currently
estimated to be $502 million. The Original Loan
Amount shall in no event exceed $502 million, nor
shall it exceed 64.5% of the total purchase price
paid in the Acquisition (inclusive of $69.2
million of Existing Debt (as defined below)),
including customary closing costs, the purchase
price paid to acquire a minimum 49% interest in
the operating lessee (together with rights to
100% of the net cash flow from the leasehold
interests), and the purchase price paid to
acquire the management company. Lender's
approval shall be required with respect to (x)
Fees (as hereinafter defined) in the event that
the actual aggregate amount thereof exceeds $10.8
million; (y) closing costs other than Fees in the
event that the actual aggregate amount thereof
exceeds $12.5 million; and (z) the aggregate
price to acquire the management company and the
interests in the operating lessee in the event
that such amount exceeds $30 million. The actual
Original Loan Amount will be determined by Lender
upon the completion of Lender's underwriting
analysis and in accordance with the DSCR and LTV
Parameters described below. The term "Existing
Debt" when used herein refers to $69.2 million of
existing first mortgage debt encumbering the
properties listed on Exhibit C. The term "Fees"
when used herein refers to the structuring fee
payable hereunder to Lender, the fees and
disbursements payable by Lender to
PriceWaterhouse Coopers in connection herewith,
the fees and disbursements payable by Lender to
its attorneys in connection herewith, and the
purchase price of the interest rate cap described
below.
AMORTIZATION: Lender will receive 27% of Actual Net Cash Flow
(subject to a 4% FF&E and replacement reserve),
determined and payable monthly after the payment
of debt service on the Mortgage Loan and other
required reserves, to amortize the principal
balance of the Mortgage Loan by 3.4% of the
Original Loan Amount (the "Amortization Amount").
If the principal balance of the Mortgage Loan is
not reduced by the Amortization Amount through
application of such Actual Net Cash Flow by March
31, 2001, the Borrower will be
<PAGE> 221
EXHIBIT A
Page 4
obligated to provide additional funds to reduce the
principal balance of the Mortgage Loan by the
Amortization Amount at that time. Notwithstanding the
foregoing, if the DSCR is less than 1.50 times on the
Final Test Date (as defined below), additional
amortization in an amount equal to 2.26% of the Original
Loan Amount (the "Additional Amortization Amount") will
be required by March 31, 2001, and Lender will continue
to collect 27% of Actual Net Cash Flow for application
to this additional amortization obligation. If the
principal balance of the Mortgage Loan is not reduced by
the Amortization Amount and, if required, the Additional
Amortization Amount through application of such Actual
Net Cash Flow by March 31, 2001, the Borrower will be
obligated to provide additional funds to reduce the
principal balance of the Mortgage Loan by the
Amortization Amount and, if required, the Additional
Amortization Amount at that time.
If the DSCR is equal to or greater than 1.50 times on the
Final Test Date, the Reserved Interest Amount (as defined
below) will be applied to amortize the principal balance
of the Mortgage Loan as provided in the section hereof
entitled "Interest Rate", and such amortization shall be
credited toward the foregoing amortization requirements.
Prepayments of the Mortgage Loan made in connection with
Property releases or in connection with the occurrence of
any casualty or condemnation at a Property will not be
deemed to satisfy the Borrower's obligations to amortize
the principal balance of the Mortgage Loan set forth in
this section; provided, however, in the event of a
Property release, the aggregate principal amount of the
required amortization under this section shall be reduced
in the same proportion as the portion of the Mortgage Loan
originally allocated to such Property bears to the
Original Loan Amount.
After the principal amortization required by this section
has been paid, the Mortgage Loan will be interest only
during the remainder of the Term.
INTEREST RATE: The Mortgage Loan will bear interest at a per
annum rate determined by Lender which shall be
equal to the one month LIBOR rate plus ____%,
subject to the provisions of the last paragraph
of this section. If, as of ____________ (the
"First Test Date") or ____________ (the "Final
Test Date"), the following DSCR tests are met,
the interest rate
<PAGE> 222
EXHIBIT A
Page 5
spread for the Mortgage Loan will be adjusted
prospectively, effective as of the applicable test date,
as follows:
<TABLE>
<CAPTION>
Trailing 12-month DSCR Spread to one (1)
("Test Coverage") month LIBOR
----------------- -----------
<S> <C> <C>
____ times up to (but ____%
excluding) ____
____ times up to (but ____%
excluding) ____
____ times or greater ____%
</TABLE>
Notwithstanding the foregoing, prior to the Final Test
Date, a portion of the interest payable by the Borrower
equal to ____ basis points (the "Reserved Interest
Amount") shall be deposited into a Security Account (as
defined below) for application on the Final Test Date in
accordance with this section and the section hereof
entitled "Amortization". If the DSCR is equal to or
greater than ____ times on the First Test Date, (x) the
Reserved Interest Amount will no longer be collected and
deposited in the Security Account, and (y) the Reserved
Interest Amount theretofore collected and deposited in the
Security Account will be applied on the Final Test Date to
amortize the principal balance of the Mortgage Loan as
provided in the section hereof entitled "Amortization". If
the DSCR is equal to or greater than ____ times on the
Final Test Date, the Reserved Interest Amount will be
applied on the Final Test Date to amortize the principal
balance of the Mortgage Loan as provided in the section
hereof entitled "Amortization". If the foregoing DSCR test
is not met on the Final Test Date, then the Reserved
Interest Amount shall be released to Lender from the
Security Account on the Final Test Date and applied to the
payment of interest on the Mortgage Loan for the period
for which such Reserve Interest Amount was collected.
INTEREST PAYMENTS: Interest payments will be due monthly on the
first business day of each month, in arrears.
Interest will be calculated on an actual/360 day
basis.
DSCR PARAMETERS: The minimum debt service coverage ratio for the Mortgage
Loan at closing will be 1.30 times, calculated based upon
Lender's underwriting analysis and an underwriting
constant anticipated to be 10.5%.
<PAGE> 223
EXHIBIT A
Page 6
LTV PARAMETERS: MAI Appraisals of the Properties satisfactory in
form and content to the Lender, prepared by duly
licensed MAI Appraisers, will be required prior
to closing. Once appraisal reports have been
received and approved by Lender in its sole
discretion, Lender will review the Original Loan
Amount to ensure that it does not exceed at
closing a loan-to-value ("LTV") of 67%, based
upon Lender's underwriting analysis in respect of
the Mortgage Loan.
DUE DILIGENCE: Based on the financial due diligence Lender has
done to date for the limited purpose of
determining compliance with the DSCR Parameters
and the LTV Parameters, Lender hereby commits to
fund an Original Loan Amount at least equal to
$454,600,000 less the Sale Reduction Amount on
the Closing Date, subject to (i) satisfaction of
all other conditions set forth in the Commitment
and this Term Sheet as of the Closing Date,
including, without limitation, those set forth in
the section hereof entitled "Credit Underwriting"
and (ii) there not occurring prior to the Closing
Date a material adverse change in the condition,
financial or otherwise, of the Borrower, the
Client or the Properties; provided, however, that
a change or changes in the financial performance
of the Properties shall be deemed to be a
material adverse change in the financial
condition of the Properties only if such change
or changes result in the Bench Mark Cash Flow
Amount (as defined below) as of the last day of
any month after May, 1999 being less than 98.5%
of the Bench Mark Cash Flow Amount as of May 31,
1999. In addition to the foregoing, with respect
to the DSCR Parameters and LTV Parameters
described above, provided that Client and
Borrower cooperate in all respects with Lender,
Lender shall, not later than July 20, 1999,
complete a sufficient amount of its financial due
diligence for the limited purpose of determining
compliance with the DSCR Parameters and the LTV
Parameters, and shall notify Client on July 20,
1999 of the Original Loan Amount that Lender will
commit to fund on the Closing Date and the Bench
Mark Cash Flow Amount as of May 31, 1999, subject
to (i) satisfaction of all other conditions set
forth in the Commitment and this Term Sheet as of
the Closing Date, including, without limitation,
those set forth in the section hereof entitled
"Credit Underwriting", (ii) the Bench Mark Cash
Flow Amount as of the last day of any month after
May, 1999 being not less than the Bench Mark Cash
Flow Amount as of May 31, 1999, and (iii) there
not occurring prior to the Closing Date a
material adverse change in the condition,
financial or otherwise, of the
<PAGE> 224
EXHIBIT A
Page 7
Borrower, the Client or the Properties. Borrower and
Client agree that their lack of cooperation will
automatically extend the July 20, 1999 date. The term
"Bench Mark Cash Flow Amount" when used herein means the
trailing 12 month Actual Net Cash Flow for the Properties
as determined as of any determination date; provided,
however, that in the event that any of the Properties
listed on Exhibit D attached hereto are sold prior to a
determination date the trailing 12 month Actual Net Cash
Flow for such Property shall be excluded from the Bench
Mark Cash Flow Amounts as of May 31, 1999 and as of such
determination date.
Client shall notify Lender in writing of the anticipated
date of the mailing of the Proxy Statement and the Consent
Solicitation Statement (as such terms are defined in the
Merger Agreement (as defined below)) not more than
fourteen (14) days and not less than ten (10) days prior
to such anticipated date. Within seven (7) days following
receipt of such notice, Lender shall deliver to Client a
written report (the "Status Report") with respect to the
status of Lender's due diligence. The Status Report shall
describe as of a date three (3) days prior to its date (a)
the extent to which Lender has completed its due diligence
(the "Completed Due Diligence"); and (b) any issues
identified by Lender as a result of the Completed Due
Diligence.
PREPAYMENT
PROVISION: The Mortgage Loan will be prepayable in whole or
in part during its Term in accordance with the
provisions of this paragraph. The Mortgage Loan
will have a prepayment fee of ____% of the
principal amount prepaid in loan years one and
two and ____% of the principal amount prepaid in
loan years three and four; provided, however,
that there will be a right to prepay up to a
portion of the principal of the Mortgage Loan
equal to $100 million less the Sale Reduction
Amount as of the Closing Date within the first
nine (9) months of the Term, but in no event
later than May 31, 2000, with a prepayment fee of
____% of the principal amount prepaid. No
prepayment fee shall be payable in connection
with (i) the payments required pursuant to the
section hereof entitled "Amortization", (ii)
involuntary prepayments due to casualty or
condemnation or (iii) prepayments made to obtain
an extension of the Term of the Mortgage Loan
pursuant to the section hereof entitled
"Extension Conditions".
<PAGE> 225
EXHIBIT A
Page 8
RELEASE: Borrower may obtain the release of a Property
from the liens and security interests securing
the Mortgage Loan in connection with a sale or
refinancing of such Property, subject to the
Prepayment Provision set forth above and subject
to certain customary release provisions,
including, but not limited to, the following:
(i) no monetary or material non-monetary default shall
have occurred and be continuing on the date of the
release;
(ii) in connection with any release of a Property during
the period from the Closing Date to (but excluding)
the Final Test Date, the Borrower shall make a
prepayment of the Mortgage Loan in an amount not less
than the greatest of (a) an amount sufficient to
cause the DSCR (after giving effect to the release
and prepayment) to equal the DSCR on the Closing
Date, (b) an amount sufficient to cause the DSCR
(after giving effect to the release and prepayment)
to equal the average of the DSCR existing immediately
prior to such release and the DSCR on the Closing
Date, and (c) an amount equal to (x) ____ times the
original principal amount of the Mortgage Loan
allocated by Lender to the Property being released if
such Property was previously identified and deemed by
Lender to be a limited service hotel (which aggregate
allocable loan amount shall equal approximately $____
million), (y) ____ times the original principal
amount of the Mortgage Loan allocated by Lender to
the Property being released if such Property was
previously identified and deemed by Lender to be an
early disposition hotel (which aggregate allocable
loan amount shall equal approximately $____ million),
or (z) ____ times the original principal amount of
the Mortgage Loan allocated by Lender to any other
Property being released;
(iii)in connection with any release of a Property
occurring during the Period from the Final Test Date
to the Maturity Date, the Borrower shall make a
prepayment of the Mortgage Loan in an amount not less
than the greatest of (a) an amount sufficient to
cause the DSCR (after giving effect to the release
and prepayment) to equal the DSCR on the Final Test
Date, (b) an amount sufficient to cause the DSCR
(after giving effect to the release and prepayment)
to equal the average of the DSCR existing immediately
prior to such release and the DSCR on the
<PAGE> 226
EXHIBIT A
Page 9
Final Test Date, (c) an amount sufficient to cause
the DSCR (after giving effect to the release and
prepayment) to equal the DSCR on the Closing Date,
and (d) an amount equal to ____ times the original
principal amount of the Mortgage Loan allocated by
Lender to the Property being released; and
(iv) if the Property being released is being refinanced,
such Property must be transferred to an entity that
is not a subsidiary of the Borrower and otherwise
satisfies all rating agency requirements.
Notwithstanding the foregoing, the Borrower shall make a
prepayment of the Mortgage Loan in connection with each
release of any of the Properties identified on Exhibit B
as Building Pads or a Development Land in an amount to be
agreed by the parties; provided, however, that the
aggregate of such prepayment amounts shall equal
$1,000,000.
The parties understand that some or all of the Properties
listed on Exhibit D attached hereto may be sold prior to
the Closing Date. In such event (x) any of such Properties
which are sold shall not constitute Collateral, (y) the
Original Loan Amount shall be reduced on account of each
of such Properties which is sold by an amount equal to the
amount specified in clause (ii) (c) above which would be
payable in connection with the release of such Property
(the aggregate of such reduction amounts as of any
relevant date being referred to herein as the "Sale
Reduction Amount"), and (z) Lender shall be entitled in
its reasonable discretion to reallocate the Original Loan
Amount as so reduced among the remaining Properties.
ACQUISITION; EQUITY
PORTION OF
PURCHASE PRICE: The Acquisition shall not include a tender offer
and shall be consummated on the Closing Date
pursuant to a structure which shall be in
accordance with the terms of the forms of merger
agreement (the "Merger Agreement")and
contribution agreement annexed hereto as Exhibits
E and F, respectively, and shall otherwise be on
terms that do not conflict with the terms hereof
and of the Commitment and which are satisfactory
to the Lender. The Acquisition shall include,
without limitation, acquisition of the management
and leasing companies affiliated with Sunstone
Hotel Investors, Inc. Prior to the Closing
<PAGE> 227
EXHIBIT A
Page 10
Date, the Client and Borrower will provide evidence
satisfactory to Lender, in its sole discretion, that the
total equity provided by Client and Borrower (without
duplication) is not less than 35.5% of an amount equal
to the total purchase price paid in the Acquisition less
$69.2 million of Existing Debt (or, if greater, the net
proceeds of any refinancing of the Existing Debt),
including customary closing costs, the purchase price
paid to acquire the interests in the operating lessee
and the purchase price paid to acquire the management
company.
INTEREST RATE CAP: The Borrower shall be obligated to purchase an
interest rate cap reasonably satisfactory to
Lender from a provider whose identity and credit
worthiness are satisfactory to Lender in its sole
discretion as soon as one (1) month LIBOR reaches
____% but in no event later than the earlier of
____________ or Securitization of the Mortgage
Loan. The cap shall have a ____% one (1) month
LIBOR strike price. The principal that is
required to be repaid by March 31, 2001 under the
terms of the first paragraph of the section
hereof entitled "Amortization" may have an
interest rate cap that expires on March 31, 2001.
SECURITY ACCOUNTS: One or more security accounts shall be
established in the name of, and under the sole
dominion and control of, the Lender or its
designated representatives (the "Security
Accounts"), and all income from the Properties
shall be deposited directly into such Security
Accounts. At the discretion of Lender, such
Security Accounts may include (but may not be
limited to) the following:
(i) Debt Service Account - A replenishable
account in an amount equal to the sum of
(a) one month's interest payment, which
amount will be collected during the term
of the Mortgage Loan over the course of
each month and deposited into the debt
service account and applied as described
more fully in the loan documents; and (b)
$2,000,000, which amount will be deposited
in the debt service account on the Closing
Date and maintained therein at all times
in addition to the amount collected
monthly;
(ii) Basic Carrying Cost Account - An annual
budget for monthly payments to be made on
account of the real estate taxes and
assessments, insurance premiums and land
lease rental payments for the Properties
(in an amount sufficient to pay
<PAGE> 228
EXHIBIT A
Page 11
these costs) shall be submitted to Lender for
approval each year. Once such budget is
approved, the amounts therein shall be
reserved in monthly installments to be
mutually agreed from the revenues
deposited in the Security Accounts. The
budget for each year of the Term will be
at least 3% in excess of the actual amount
of the previous year's real estate taxes
and assessments and insurance premiums for
the Properties;
(iii) FF&E Reserve Account/Replacement Reserve
Account - An amount, subject (as to
replacement reserves) to an engineering
report for each Property, to be escrowed
monthly in increments equal to 4.0% of the
prior month's total gross revenues for
such Property. At closing, such amount
will be equal to 1/12th of 4.0% of
year-end Pro Forma 1999 gross revenues of
the Properties;
(iv) Deferred Maintenance Account and Environmental
Remediation Account - Such accounts to be
established as recommended in the relevant third
party reports and such additional amounts as
mutually agreed between the parties;
(v) Reserved Interest Account - An account for purposes
of holding the Reserved Interest Amount until its
application on the Final Test Date in accordance
with the section hereof entitled "Interest Rate";
and
(vi) Net Cash Flow Reserve Account - An account to be
established in accordance with the section hereof
entitled "Net Cash Flow
Reserve Account".
NET CASH FLOW
RESERVE ACCOUNT: If the DSCR drops below _____ times for any
trailing twelve month period during the Term of
the Mortgage Loan, all cash flow after debt
service, reserves, income taxes, non-affiliate
fees, approved affiliate management fees, and
operating expenses will be collected and held in
a reserve account (the "Net Cash Flow Reserve
Account") as part of the Collateral. Funds will
be released from the Net Cash Flow Reserve
Account when the DSCR is equal to or greater than
_____times for a trailing twelve-month period.
In addition to the foregoing, from and after the
Final Test Date, if the DSCR is less than ____
times
<PAGE> 229
EXHIBIT A
Page 12
but greater than or equal to ____ times for any trailing
twelve month period, ___% of all cash flow after debt
service, reserves, income taxes, non-affiliate fees,
approved affiliate management fees, and operating
expenses will be collected and held in the Net Cash Flow
Reserve Account, and the funds therein will be released
when the DSCR is equal to or greater than _____ times for
a trailing twelve-month period. Provided no default then
exists on the Mortgage Loan, Lender shall, from time to
time, release funds from the Net Cash Flow Reserve
Account to the Borrower for the purpose of paying
operating expenses that have been approved by Lender in
its sole discretion, if and to the extent the Borrower
has insufficient funds to pay such operating expenses at
the time such payment is due. At Borrower's option,
funds in the Net Cash Flow Reserve Account may be
applied to prepay principal of the Mortgage Loan;
provided, however, that such prepayment will be deemed
voluntary and will be subject to the prepayment fee
described above.
REQUIRED LENDER
APPROVALS: Lender's approval, which shall not be
unreasonably withheld, is required for changes in
a Property flag if (i) there is a proposed flag
downgrade, (ii) the Property in question is one
of the largest ten assets in allocated loan
amount, or (iii) if, after giving effect to such
flag change there have been flag changes in
respect of more than seven (7) Properties during
the Term. Lender's approval is required for the
management agreement and the operating lease and
any change in the property manager or operating
lessee , as well as any change in the form and
content of the management agreement or the
operating lease.
PROPERTY MANAGEMENT
REPLACEMENT: Lender reserves the right to replace the property
manager if (i) the Actual Net Cash Flow (adjusted
for a 4% FF&E and replacement reserve) for any
trailing 12-month period during the Term of the
Mortgage Loan is insufficient to cause the debt
service coverage ratio for the Mortgage Loan to
be at least equal to 1.10 times (using the then
current interest rate on the Mortgage Loan), (ii)
there is a material default under the management
agreement by the property manager, or (iii) the
property manager becomes insolvent.
RECOURSE: The Mortgage Loan will be non-recourse to the
Borrower and the Holding Company, except for
losses sustained by Lender with regard to (i)
fraud, (ii) misappropriation of funds, (iii)
breach of
<PAGE> 230
EXHIBIT A
Page 13
representations or warranties, provided such breach is
intentional or if unintentional, involved information
that a similarly situated borrower in similar
circumstances should have known assuming due inquiry,
(iv) violation of restrictions against transfer and/or
encumbrances, and (v) any other matters upon which
Borrower and Lender may agree. The Mortgage Loan shall
in all events be recourse to the Borrower and the
Holding Company in the case of voluntary bankruptcy or
failure to contest involuntary bankruptcy. The Mortgage
Loan will be non-recourse to the Client except for
losses sustained by Lender with regard to fraud or
misappropriation of funds by the Client or of which the
Client has actual knowledge. Up to $10.5 million of the
senior-most (i.e., least risky) portion of the Mortgage
Loan may be guaranteed on a recourse basis by the direct
or indirect owners of Borrower but only if such guaranty
does not impair the bankruptcy remote nature of Borrower
or cause Borrower not to meet the requirements of the
rating agencies involved in any Securitization of the
Mortgage Loan (including, without limitation, the
requirement for the delivery by Borrower's counsel of a
satisfactory non-consolidation opinion).
CLOSING: The Client and Lender currently anticipate that the
Mortgage Loan will close by no later than November 19,
1999, subject to Client's timely delivery of information
satisfactory to Lender, and subject to the satisfaction of
all of the conditions of the Commitment and this Term
Sheet.
CREDIT UNDERWRITING: Lender will perform credit underwriting of the
Mortgage Loan in accordance with the standards of
prudent institutional investors, which will
include, among other things, environmental
reviews, engineering reports (which for all
Properties identified by Lender must include a
seismic assessment), title reports, appraisal
reports, NOI audits, assessments of casualty and
liability insurance coverages (which coverages
shall be satisfactory to Lender and shall include
earthquake insurance for all properties in an
earthquake zone), and a full legal documentation
review. The bankruptcy remote nature of the
Borrower must be satisfactory to Lender's counsel
and must meet the requirements of the rating
agencies involved in any Securitization of the
Mortgage Loan. Origination of the Mortgage Loan
is contingent upon and subject to Lender's
complete satisfaction, in its sole and absolute
discretion, with the result of its credit
underwriting; provided, however, that if such
credit underwriting causes Lender to
<PAGE> 231
EXHIBIT A
Page 14
require cash reserves in order to include any of the
Properties as Collateral or if Lender rejects any of the
Properties as Collateral because cash reserves are
insufficient, no such rejection or reserve requirement
shall entitle Lender to refuse to make the Mortgage Loan
as a result of its credit underwriting unless the sum of
(a) the principal amount of the Mortgage Loan allocated
by Lender to the Properties so rejected and (b) the
amount of cash reserves so required by Lender, exceeds
$25 million. Additionally, earthquake insurance and/or
seismic upgrades may be required. Notwithstanding the
foregoing, Lender shall determine compliance with the
DSCR Parameters and LTV Parameters by July 20, 1999 as
provided in the section hereof entitled "Due Diligence
in Respect of DSCR and LTV".
ADDITIONAL FINANCING: Borrower will not be permitted to incur, directly or
indirectly, any additional indebtedness other than the
Mortgage Loan, except for de minimus amounts of short
term unsecured trade debt incurred in the ordinary
course of business. The parent of Borrower (the
"Parent") will not be permitted to incur, directly or
indirectly, any additional indebtedness other than
mezzanine financing after December 31, 2000, provided
the following criteria are met with respect thereto: (i)
the total indebtedness of the Parent shall not exceed
the lesser of (x) ____% of the portion of the purchase
price paid in the Acquisition for the Properties which
constitute the Collateral for the Mortgage Loan and (y)
___% of the then current fair market value of such
Properties, (ii) the rating agencies affirm that there
will be no downgrades of the ratings given to any
securities issued in a securitization of the Mortgage
Loan, and (iii) the mezzanine debt may be secured by a
pledge of equity interests in the Borrower.
ADVERTISING: Lender and Client and their respective affiliates
do not intend to advertise the Mortgage Loan.
However, either party will be entitled to
advertise the Mortgage Loan, at its own expense,
subject to the prior written consent of the other
party, such consent to be granted in the sole
discretion of such other party.
DOCUMENTATION: All documents relating to the Mortgage Loan must
be mutually satisfactory to the parties.
SERVICER: Lender or its designee will originate the
Mortgage Loan and may engage a third party loan
servicer (the "Servicer") to administer the
Mortgage Loan. The Client will be responsible
for reasonable initial
<PAGE> 232
EXHIBIT A
Page 15
setup fees of the Servicer and any direct bank charges
of the Servicer. Client will not incur any on-going
servicing fees.
REPRESENTATIONS AND
WARRANTIES: It is a condition of Lender's origination of the
Mortgage Loan that the Borrower provide satisfactory
representations and warranties. In addition, the Mortgage
Loan must contain indemnities from the Borrower which are
satisfactory to Lender.
COOPERATION: Lender's funding is not contingent upon any rating or
subordination levels being obtained from any rating
agencies for the Mortgage Loan. However, Client
acknowledges and agrees that Lender has the absolute
right to securitize, sell or otherwise dispose of all or
any portion of the Mortgage Loan (each, a
"Securitization"), and Client agrees that it and its
affiliates (including Borrower) shall cooperate in all
respects at Lender's request in connection with any such
Securitization of the Mortgage Loan by Lender, including
in connection with any documentation changes (which
result in no material economic adverse changes to
Borrower), the preparation, completion, execution and
delivery (including as issuer and/or registrant, as
applicable) of all necessary registration statements,
prospectuses and/or private placement memoranda, site
inspections, updated appraisals, or other diligence
requested or conducted by any investors, and/or any
rating agency, whether before or after funding.
Lender's Securitization of the Mortgage Loan may include a
syndication of all or a portion of the Mortgage Loan to
other lenders, to be accomplished through one or more
Mortgage Loan assignments and/or participations. Client
agrees that it and its affiliates (including Borrower)
shall cooperate in all respects at Lender's request in
connection with any such syndication of the Mortgage Loan
by Lender, including in connection with any documentation
changes requested by Lender (which result in no material
economic adverse changes to Borrower).
In order to implement a Securitization, Lender may, in its
sole discretion, determine to (i) reconstitute the
Mortgage Loan such that it is recast into multiple senior
and subordinate loan tranches, (ii) reallocate the
Collateral among the various tranches of the Mortgage Loan
and/or (iii) sever the Mortgage Loan or any tranche
thereof into two or more self-contained, internally
cross-collateralized
<PAGE> 233
EXHIBIT A
Page 16
mortgage loan financings (any or all of the foregoing, a
"Loan Reconstitution"). Client agrees that it and its
affiliates (including Borrower) shall cooperate in all
respects at Lender's request in connection with any such
Loan Reconstitution by Lender, including in connection
with any documentation changes and any changes to the
structure of the Mortgage Loan or the ownership of the
Properties requested by Lender (which result in no
material economic adverse changes to Borrower).
Borrower shall pay all Securitization costs and expenses;
provided, however, that Borrower shall not be obligated to
pay any third party out of pocket costs and expenses which
accrue after the Closing Date.
EXCLUSIVITY: From the date of the Commitment until its expiration or
termination, (i) Lender shall have the exclusive right
to arrange for the financing of the Acquisition and
Client shall not enter into discussions with any other
source in respect of, or procure from any other source,
financing for the Acquisition, and (ii) neither Lender
nor any of its affiliates shall provide financing to any
third party competing with the Client to acquire
Sunstone Hotel Investors, Inc. or its assets, business
and operations.
Notwithstanding the first paragraph of this section, if
the Original Loan Amount specified by Lender on July 20,
1999 is less than an amount equal to $478,300,000 less the
Sale Reduction Amount as of such date, then Client will
have thirty (30) days to notify Lender whether or not
Client will accept the specified Original Loan Amount. If
Client accepts the specified Original Loan Amount, this
Commitment will remain in full force and effect. If Client
rejects the specified Original Loan Amount or does not
respond within such 30-day period, this Commitment shall
terminate at the expiration of such 30-day period.
Lender shall have (i) an exclusive right of first offer to
provide mortgage or entity financing for any Properties
that are refinanced by Borrower, Client or any of their
respective affiliates (and Lender's refinancing offer must
be accepted unless an alternative bid for the same loan is
accepted from a third party on terms that are materially
more favorable to Client, Borrower or their relevant
affiliate, as applicable), (ii) the right to serve as lead
manager in connection with
<PAGE> 234
EXHIBIT A
Page 17
any public or private debt offering by Client or any of
its affiliates, the proceeds of which are to be used, in
whole or in part, to repay all or any portion of the
Mortgage Loan, (iii) the right to serve as co-lead
manager on equal economic terms with any other co-lead
manager in connection with any equity offering made by
Client or any of its affiliates, the proceeds of which
are to be used, in whole or in part, to repay all or any
portion of the Mortgage Loan, and (iv) the right to
serve as dealer/manager for the Client in the event the
Acquisition takes the form of a tender offer.
ATTORNEY'S FEES: In the event of any litigation, arbitration or other
dispute resolution proceedings between the parties
hereto arising out of or relating to the Commitment,
this Term Sheet or the transactions contemplated hereby
and thereby, the party prevailing in such litigation,
arbitration or proceeding shall be entitled to recover
from the other party the reasonable attorney's fees and
disbursements incurred by such prevailing party in
connection with such litigation, arbitration or
proceeding.
NO JOINT VENTURE: Nothing contained herein or in the Commitment (i) shall
constitute Lender or any of its affiliates as members of
any partnership, joint venture, association or other
separate entity with the Client, the Borrower, their
respective affiliates or any other entities, (ii) shall
be construed to impose any liability as such on Lender,
or (iii) shall constitute a general or limited agency or
be deemed to confer on either party hereto any express,
implied or apparent authority to incur any obligation or
liability on behalf of the other.
<PAGE> 235
Schedule I
LIST OF BORROWERS
- Sunstone Hotel Properties, Inc.
- Sunstone Hotel Investors, L.P.
- Kahler E&P Partners, L.P.
- Sunstone Hotels, LLC
- Park Hotels, LLC
- Sunstone Kent Associates, L.P.
<PAGE> 236
EXHIBIT B
<TABLE>
<CAPTION>
PROPERTY CITY STATE FEE/LEASEHOLD ROOMS
- -------- ---- ----- ------------- -----
<S> <C> <C> <C> <C>
Residence Inn Provo UT Fee 114
Marriott Provo Park UT Fee 333
Economy Inn Rochester MN Fee 266
Holiday Inn Rochester MN Fee 170
Marriott Rochester MN Fee 194
Hilton Salt Lake City UT Fee 362
Courtyard by Marriott Cypress CA Fee 180
Holiday Inn Flagstaff AZ Fee 156
Marriott Courtyard Fresno CA Fee 116
Residence Inn High. Ranch CO Fee 117
Hawthorn Suites Kent WA Fee 152
Marriott Napa CA Fee 192
Hampton Inn Oakland CA Fee 152
Residence Inn Oxnard CA Fee 252
Holiday Inn Express Poulsbo WA Fee 63
Holiday Inn Price UT Fee 151
Holiday Inn Provo UT Fee 78
Marriott Courtyard Riverside CA Fee 163
Residence Inn Sacramento CA Fee 126
Holiday Inn San Diego (Harbor) CA Fee 202
Holiday Inn San Diego (Stadium) CA Leasehold 175
Fairfield Inn Santa Clarita CA Fee 66
Residence Inn Santa Clarita CA Fee 90
Comfort Suites South San Francisco CA Fee 165
Holiday Inn Steamboat CO Fee 82
Hampton Inn Clackamas OR Leasehold 114
Holiday Inn Kent WA Fee 122
Holiday Inn Express Starks OR Fee 85
Hampton Inn Tucson AZ Fee 125
Hampton Inn Silverthorne CO Fee 160
Hilton Carson CA Fee 224
Holiday Inn La Mirada CA Fee 289
Marriott Courtyard Los Angeles (LAX) CA Leasehold 180
Holiday Inn Mesa AZ Fee 246
Hampton Inn Mesa AZ Fee 118
Marriott Pueblo CO Leasehold 164
Hawthorn Suites Sacramento CA Fee 272
</TABLE>
<PAGE> 237
EXHIBIT B
(Continued)
<TABLE>
<CAPTION>
PROPERTY CITY STATE FEE/LEASEHOLD ROOMS
- -------- ---- ----- ------------- -----
<S> <C> <C> <C> <C>
Holiday Inn San Diego (Old Town) CA Fee 175
Residence Inn San Diego CA Fee/Leasehold 144
Ramada Inn San Diego (Vacation CA Fee 125
Inn)
Hawthorn Suites Anaheim CA Leasehold 130
Holiday Inn Craig UT Fee 152
Best Western Lynnwood WA Fee 103
Marriott Courtyard Lynnwood WA Fee 164
Radisson Oxnard CA Fee 160
Holiday Inn Select Renton CA Fee 226
Hilton Garden Inn Sacramento CA Fee 153
Residence Inn San Diego CA Fee 121
Holiday Inn Santa Clara CA Fee 168
Hampton Inn Santa Clarita CA Fee 130
Pacific Shores Santa Monica CA Leasehold 164
Marriott Courtyard Sante Fe NM Fee 213
Building Pads San Clemente CA Fee ___
Development Land Napa CA Fee ___
Development Land Cypress CA Fee ___
Development Land Rochester Minn Fee ___
</TABLE>
<PAGE> 238
EXHIBIT C
<TABLE>
<CAPTION>
PROPERTY CITY STATE FEE/LEASEHOLD ROOMS
- -------- ---- ----- ------------- -----
<S> <C> <C> <C> <C>
Sheraton Chandler AZ Fee 295
University Marriott Salt Lake City UT Fee 218
Kahler Hotel Rochester MN Fee 699
Marriott Park City UT Fee 200
Marriott Ogden UT Fee 288
Two (2) Laundry
facilities
</TABLE>
<PAGE> 239
Exhibit D
PROPERTIES WHICH MAY
BE SOLD PRIOR TO
CLOSING DATE
<TABLE>
<CAPTION>
Property City State Property Type
- -------- ---- ----- -------------
<S> <C> <C> <C>
Hampton Inn Clackamas OR Limited Service
Holiday Inn Express Starks OR Limited Service
Hawthorne Suites Kent WA Other
Holiday Inn Kent WA Other
</TABLE>
<PAGE> 240
Exhibit E
FORM OF MERGER
AGREEMENT
<PAGE> 241
Exhibit F
FORM OF CONTRIBUTION
AGREEMENT
<PAGE> 242
Exhibit H
Bank of America
IRREVOCABLE STANDBY LETTER OF CREDIT
ISSUING BANK:
NATIONSBANK, N.A.
ISSUE DATE: 08JUL99 EXPIRY DATE: 31JAN00
LETTER OF CREDIT NUMBER: 941648 PLACE: DALLAS, TEXAS
AMOUNT: USD 25,000,000.00
TWENTY FIVE MILLION AND 00/100
BENEFICIARY:
FIDELITY NATIONAL TITLE INSURANCE
COMPANY, AS ESCROW AGENT, OR ANY
SUCCESSOR AS ESCROW AGENT UNDER THE
ESCROW AGREEMENT DATED JULY __,1999
BY AND AMONG SUNSTONE HOTEL ****
APPLICANT:
WESTBROOK REAL ESTATE FUND III, LP
13155 NOEL RD., LB 54, STE 2300
DALLAS, TX 75240
WE HEREBY ISSUE THIS IRREVOCABLE STANDBY LETTER OF CREDIT IN BENEFICIARY'S FAVOR
WHICH IS AVAILABLE BY PAYMENT AGAINST DRAFTS DRAWN AT SIGHT ON NATIONSBANK, N.A.
BEARING THE CLAUSE: QUOTE DRAWN UNDER IRREVOCABLE LETTER OF CREDIT NO. 941648
CLOSE QUOTE ACCOMPANIED BY THE FOLLOWING DOCUMENTS:
1. A WRITTEN STATEMENT PURPORTEDLY SIGNED BY AN AUTHORIZED REPRESENTATIVE
OF THE BENEFICIARY IN THE FORM OF EXHIBIT "A" ATTACHED HERETO.
2. THE ORIGINAL OF THIS LETTER OF CREDIT AND ANY AMENDMENTS HERETO.
SPECIAL CONDITIONS:-
**** INVESTORS, L.P.,
SUNSTONE HOTEL INVESTORS, INC.
SHP ACQUISITION, L.L.C. AND
FIDELITY NATIONAL TITLE INSURANCE COMPANY
AS ESCROW AGENT
1300 DOVE ST., STE 310
NEWPORT BEACH, CA 92660
ATTN: PATTY BEVERLY
IRREVOCABLE STANDBY LETTER OF CREDIT NO. 941648, PAGE 1
<PAGE> 243
2
Bank of America
PRESENT DOCUMENTS TO BANK OF AMERICA, N.A., ATTN: LETTER OF CREDIT DEPARTMENT,
901 MAIN STREET, 9TH FLOOR, TX1-492-09-01, DALLAS, TEXAS 75202.
UNLESS OTHERWISE SPECIFICALLY STATED, THIS CREDIT IS SUBJECT TO THE UNIFORM
CUSTOMS AND PRACTICE FOR DOCUMENTARY CREDITS 1993 REVISION. THE INTERNATIONAL
CHAMBER OF COMMERCE PUBLICATION NO. 500.
FOR ASSISTANCE PLEASE CALL BARBARA TEAGUE AT 214-209-3097.
- ------------------------
AUTHORIZED SIGNATURE
NATIONSBANK, N.A.
IRREVOCABLE STANDBY LETTER OF CREDIT NO. 941648, PAGE 2
<PAGE> 244
3
Bank of America
EXHIBIT A TO IRREVOCABLE LETTER OF CREDIT NO. 941648
CERTIFICATE
THE UNDERSIGNED, A DULY AUTHORIZED OFFICER OF FIDELITY NATIONAL TITLE INSURANCE
COMPANY, AS ESCROW AGENT (THE "ESCROW AGENT"), HEREBY CERTIFIES TO NATIONSBANK,
N.A. (THE "ISSUER") WITH REFERENCE TO LETTER OF CREDIT NO. 941648 (THE "LETTER
OF CREDIT") HELD BY THE ESCROW AGENT UNDER THE ESCROW AGREEMENT DATED JULY __,
1999 BY AND AMONG SUNSTONE HOTEL INVESTORS, L.P., SUNSTONE HOTEL INVESTORS,
INC., SHP ACQUISITION, L.L.C. AND THE ESCROW AGENT, AS AMENDED THROUGH THE DATE
OF THIS CERTIFICATE (AS SO AMENDED, THE "ESCROW AGREEMENT") THAT:
1. THE UNDERSIGNED IS A DULY AUTHORIZED OFFICER OF FIDELITY
NATIONAL TITLE INSURANCE COMPANY.
2. THE UNDERSIGNED IS AUTHORIZED TO DRAW ON, AND DISBURSE THE
PROCEEDS OF, THE LETTER OF CREDIT PURSUANT TO SECTION 4 OF THE
ESCROW AGREEMENT.
PLEASE WIRE THE FUNDS AS FOLLOWS:
ABA NO.:.....................
ACCOUNT NO.:.................
ACCOUNT NAME:................
BANK:........................
AMOUNT:......................
REFERENCE:...................
IN WITNESS WHEREOF, THE UNDERSIGNED HAS EXECUTED AND DELIVERED THIS CERTIFICATE
AS OF THE ____ DAY OF____, ____.
FIDELITY NATIONAL TITLE
INSURANCE COMPANY, AS ESCROW
AGENT
BY:_________________________
PATTY BEVERLY
VICE PRESIDENT AND
ESCROW MANAGER
<PAGE> 245
Exhibit I
[BROBECK PHLEGER & HARRISON LETTERHEAD]
RE: SUNSTONE HOTEL INVESTORS, INC./TAX OPINION
Ladies and Gentlemen:
This opinion is being delivered to you in connection with the Agreement
and Plan of Merger dated as of July 12, 1999 (the "Merger Agreement") by
and among SHP Acquisition, Inc., a Delaware limited liability company
("Parent"), SHP Acquisition Corp., a Maryland corporation and indirect
subsidiary of Parent ("Buyer") and Sunstone Hotel Investors, Inc., a Maryland
corporation (the "Company"). Except as otherwise provided, capitalized terms not
defined herein shall have the meanings set forth in the Merger Agreement and the
exhibits thereto. All section references, unless otherwise indicated, are to the
Internal Revenue Code of 1986, as amended (the "Code").
The Company currently owns more than a 90% general partner interest in
Sunstone Hotel Investors, L.P. (the "Partnership"). The Partnership currently
owns, either directly or indirectly through subsidiary entities, several hotels
and associated personal property (the "Hotels"). Each of the Hotels is leased to
Sunstone Hotel Properties, Inc., a Colorado corporation (the "Lessee"), pursuant
to a percentage lease (collectively, the "Leases"). Sunstone Hotel Management,
Inc. (the "Management Company") is managing the Hotels. Robert A. Alter and
Charles L. Biederman are 80% and 20% shareholders, respectively, of the Lessee
and Mr. Alter is the sole shareholder of the Management Company.
In 1997, the Company acquired all of the stock of Kahler Realty
Corporation ("Kahler"). (This transaction is referred to herein as the
"Acquisition".) Kahler adopted a plan of liquidation after the Acquisition and
all of its assets, subject to all of its outstanding liabilities, were
transferred to the Company during 1997. The Company in turn contributed all such
assets to the Partnership.
<PAGE> 246
Page 2
In our capacity as counsel to the Company in connection with the
opinions rendered below, we have examined the following:
1. The Articles of Incorporation of the Company, as amended to
date.
2. The Company's By-Laws, as amended to date.
3. The Merger Agreement.
4. The Limited Partnership Agreement of the Partnership, as
amended to date (the "Partnership Agreement").
5. The cost segmentation analysis dated August 15, 1995, the
cost segmentation analysis as of December 31, 1995, the cost segmentation
analysis as of May 31, 1996, and the cost segmentation analysis as of December
31, 1996, prepared by Coopers & Lybrand L.L.P., and the cost segmentation
analysis prepared by Ernst & Young LLP ("Ernst & Young") in connection with the
Acquisition. (The foregoing analyses and information are referred to herein as
the "Cost Segmentation Analyses.")
6. An analysis dated June 25, 1999, of the Company's
satisfaction of the tests for qualification as a REIT for income tax purposes
prepared by Ernst & Young (the "REIT Qualification Analysis").
7. The analysis of Kahler's pre-Acquisition earnings and
profits prepared by KPMG Peat Marwick LLP in connection with the Acquisition
(the "KPMG E&P Analysis").
8. The review of the KPMG E&P Analysis prepared by Ernst &
Young in connection with the Acquisition (the "Ernst & Young E&P Review").
9. A representation certificate from the Company as to certain
factual matters (the "Representation Certificate," a copy of which is attached
to this letter).
10. Such other documents and data as we have deemed necessary
or appropriate for purposes of this opinion.
In connection with the opinions rendered below, we have assumed or
obtained representations that:
A. Each of the documents referred to above has been duly
authorized, executed, and delivered, is authentic if an original or accurate if
a copy, and has not been amended.
<PAGE> 247
Page 3
B. The Company will not make any amendments to its
organizational documents, or in its operations or the Leases, after the date of
this opinion that would affect its qualification as a REIT for any taxable
period prior to the Effective Time.
C. No actions will be taken by the Company, the shareholders
of the Company, the Partnership, the partners of the Partnership or any other
entity in which the Company owns an interest (either directly or indirectly)
after the date hereof that would have the effect of materially altering the
facts upon which we have relied in rendering our opinion, including those facts
set forth in the Representation Certificate.
D. The Cost Segmentation Analyses and the REIT Qualification
Analysis are accurate in all material respects and there have been no material
changes in the information reflected in the Ernst & Young REIT Qualification
Analysis since the date thereof that would adversely affect the Company's
qualification as a REIT.
E. The information and conclusions reflected in the KPMG E&P
Analysis and the Ernst & Young E&P Review are accurate in all material respects.
F. All projections that have been provided to us by the
Company regarding the expected financial performance of the Company, the Lessee
and the Management Company represented reasonable projections when prepared.
G. All representations made by the Company in the Merger
Agreement and other agreements to which the Company is a party related to the
Merger are true and correct in all material respects.
H. The Company's taxable year that commenced on January 1,
1999, will end on the date of the Effective Time and the Company will be
included in the consolidated return of _______________ from the day after the
date of the Effective Time.
I. The Company is a validly organized and duly incorporated
corporation under the laws of the State of Maryland.
J. The Partnership is a duly organized and validly existing
partnership under the laws of the State of Delaware.
K. Each partnership, limited liability company or joint
venture in which the Company or the Partnership has an interest was properly
treated as a partnership for federal income tax purposes for all relevant
periods.
<PAGE> 248
Page 4
We are of the opinion that, if all of the representations and
assumptions upon which we have relied are accurate in all material respects:
1. Since the inception of its taxable year ended December 31,
1995, through its taxable year ended December 31, 1998, the Company was
organized and operated in conformity with the requirements for qualification and
taxation as a REIT under the Code and qualified as a REIT under the Code.
2. For the period that commenced on January 1, 1999, and
continuing through the Effective Time of the Merger, the Company was organized
and operated in conformity with the requirements for qualification and taxation
as a REIT under the Code and qualified as a REIT under the Code.
3. For all periods commencing upon the formation of the
Partnership on September 22, 1994, and ending at the Effective Time of the
Merger, for United States federal income tax purposes, the Partnership has been
classified as a partnership, rather than as an association taxable as a
corporation, and has not been a "publicly traded partnership" taxable as a
corporation pursuant to Section 7704 of the Code.
If any of the representations upon which we have relied is inaccurate
in any material respect, you may not rely on the foregoing opinions. In that
event, our opinion could be different (e.g., that the Company was not organized
and operated in conformity with the requirements for qualification as a REIT
under the Code and did not qualify as a REIT under the Code for the pertinent
portion or all periods prior to the Effective Time). Inasmuch as a failure of
the Company to qualify as REIT for all periods or a loss of REIT status at a
particular point in time prior to the Merger could result in substantial taxes,
interest and penalties to the Company, Parent should assure itself prior to the
closing of the Merger that the factual representations and information referred
to above (including, without limitation, each of the representations set forth
in the attached representation certificate) are accurate in all material
respects. We have undertaken no independent investigation of these factual
representations and we express no opinion as to the accuracy of any such factual
representations or information. Therefore, we cannot provide certainty that the
Company actually qualified as a REIT during the periods in question or that the
Partnership was treated as a partnership for federal income tax purposes during
the periods in question.
Furthermore, inasmuch as we are acting as counsel for the Company and
not as Parent's counsel, Parent should consult with its own tax advisers to
satisfy itself with regard to the opinion set forth in this letter.
<PAGE> 249
Page 5
The foregoing opinions are based on current provisions of the Code, the
Treasury Regulations, published administrative interpretations thereof, and
published court decisions. The Internal Revenue Service (the "Service") has not
issued Regulations or administrative interpretations with respect to various
provisions of the Code relating to REITs. The foregoing opinion is not binding
on the Service or the courts, and no assurance can be given that the Service
will not successfully challenge our opinion upon audit. Furthermore, no
assurance can be given that the tax law will not change in a way that will
adversely affect the Company and its shareholders.
The foregoing opinion is limited to the federal income tax matters
specifically addressed herein, and no other opinion is rendered with respect to
other federal tax matters or to any issues arising under the tax laws of any
state or locality. We undertake no obligation to update the opinion expressed
herein after the date of this letter. This opinion letter is solely for the
information and use of the addressees and may not be relied upon for any purpose
by any other person without our express written consent.
Very truly yours,
BROBECK, PHLEGER & HARRISON LLP
<PAGE> 250
REPRESENTATION CERTIFICATE
FOR
TAX OPINION
This certificate is delivered in connection with the tax opinion
(the "Tax Opinion") to be rendered by Brobeck, Phleger & Harrison LLP as a
condition to the closing of the merger (the "Merger") pursuant to that certain
Agreement and Plan of Merger dated as of the 12th day of July, 1999 (the "Merger
Agreement") by and among SHP Acquisition, Inc., a Delaware corporation, SHP
Acquisition Corp., a Maryland corporation, and Sunstone Hotel Investors, Inc., a
Maryland corporation (the "Company").
The undersigned is aware that the Tax Opinion will contain as a
material premise the truthfulness and accuracy of the representations set forth
in this certificate.
Terms not defined in this certificate have the meaning ascribed
to them in the Merger Agreement filed with respect to the issuance of the
Warrants and Common Stock. Particular sections of the Internal Revenue Code of
1986, as amended (the "Code") referred to in this Certificate are explained in
the Appendix attached hereto.
The undersigned, to the best of his actual knowledge and belief
with respect to each of the following representations, on behalf of the Company
and Sunstone Hotel Investors, L.P. (the "Partnership"), represents and certifies
as follows:
1. Commencing with its 1995 taxable year and in all subsequent
taxable years through the Effective Time of the Merger, the Company has been and
will be operated in such a manner that will make the representations set forth
below true for all such years. The Company's taxable year commencing January 1,
1999, will end on the date of the closing of the Merger, and the Company will
file a consolidated return with _______________ as the common parent commencing
the day after the closing.
2. The Company will not make any amendments to its
organizational documents through the Effective Time of the Merger, or in its
operations or the Leases, after the date of the Tax Opinion that would affect
its qualification as a REIT for any taxable year.
3. No actions will be taken by the Company, the Partnership or
any other entity in which the Company owns an interest after the date hereof
that would have the effect of materially altering the facts upon which the Tax
Opinion is based, including the representations set forth in this Certificate.
Neither the Merger nor any transaction related to the Merger will have the
effect of materially altering the representations set forth in this Certificate
(including, without limitation, the representations relating to the Company's
sources of income, distributions and composition of assets).
4. The cost segmentation analysis dated August 15, 1995, the
cost segmentation analysis as of December 31, 1995, the cost segmentation
analysis as of May 31, 1996, and
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the cost segmentation analysis as of December 31, 1996, prepared by Coopers &
Lybrand, L.L.P., and the cost segmentation analysis prepared by Ernst & Young
LLP ("Ernst & Young") in connection with the offering of the Company's stock
incident to the acquisition (the "Acquisition") of Kahler Realty Corporation
("Kahler") are accurate in all material respects.
5. The analysis dated June 25, 1999, prepared by Ernst & Young
with respect to, among other things, the Company's assets and sources of income
is accurate in all material respects, and there have been no material changes in
the information reflected in the Ernst & Young analysis since the date thereof
that would adversely affect the Company's qualification as a REIT.
6. All projections that the Company has provided to Brobeck,
Phleger & Harrison LLP regarding the expected financial performance of the
Company, the Lessee (as defined below) and the Management Company have
represented good faith estimates when prepared.
7. The following requirements have been and will be met by the
Lessee, the Management Company and any other person who leases, manages, or
operates the hotels presently owned directly or indirectly by the Partnership
(the "Hotels") or other hotel properties ("Other Hotel Properties") or non-hotel
properties ("Non-Hotel Properties") in which the Company owns, or may in the
future own, an interest, either directly, through a qualified REIT subsidiary (a
"QRS") within the meaning of Section 856(i) of the Code, or through a limited
liability company or a partnership:
(a) Such person will not own, directly or indirectly (within
the meaning of Section 856(d)(5) of the Code), more than 35% of the
shares of the Company.
(b) If such person is a corporation, not more than 35% of its
stock, measured by voting power or number of shares, or, if such person
is a noncorporate entity, not more than 35% of the interest in its
assets or net profits will be owned, directly or indirectly (within the
meaning of Section 856(d)(5) of the Code), by one or more persons who
own 35% or more of the shares of the Company.
(c) The Company and any QRS of the Company will not derive or
receive any income, directly or indirectly, from such person, other
than rents from the Hotels, Other Hotel Properties or Non-Hotel
Properties.
(d) Such person will be adequately compensated for its
services.
(e) If such person is an individual, he or she will not be an
officer or employee of the Company.
(f) If such person is a corporation, none of its officers or
employees will be officers or employees of the Company.
(g) If an individual serves as both (i) one of such person's
directors and (ii) a director and officer or employee of the Company,
that individual will not receive any compensation for serving as one of
such person's directors.
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(h) If an individual serves as both (i) one of such person's
directors and officers (or employees) and (ii) a director of the
Company, that individual will not receive any compensation for serving
as a director of the Company.
(i) If an individual serves as a director, officer or employee
of the Company, such person will not be engaged in the day-to-day
management of the Hotels, Other Hotel Properties or Non-Hotel
Properties and will confine his or her activities as a shareholder or
director of any corporate entity which leases or manages the Hotels,
Other Hotel Properties or Non-Hotel Properties to such activities as
are consistent with his or her status as a shareholder and/or director
(as opposed to an officer or employee) of such entity.
8. The Company (and any QRS of the Company and any partnership
or limited liability company in which the Company owns an interest) have not
furnished or rendered, and will not furnish or render, or bear the cost of
furnishing or rendering, any services to tenants (including the Lessee) of the
Hotels or Other Hotel Properties, other than the payment of real and personal
property taxes, ground lease rent (where applicable), insurance (other than
workers' compensation insurance), capital improvements, and the cost of
repairing, replacing or refurbishing furniture, fixtures and equipment with
respect to such hotel property (to the extent prescribed in the Leases). The
costs and services described in the preceding sentences are usually or
customarily borne or provided by lessors of hotel properties in the geographic
areas in which the Hotels or Other Hotel Properties are located. The Company
(and any QRS of the Company and any partnership or limited liability company in
which the Company owns an interest) has not rendered, and will not render, or
bear the cost of furnishing or rendering, any services to tenants (including the
Lessee) of any Non-Hotel Properties.
9. The following requirements have been and will be met by the
Lessee, the Management Company and any other person who furnishes or renders
services ("Noncustomary Services") to the tenants of the Hotels or Other Hotel
Properties, other than services that are usually or customarily rendered in
connection with the rental of space for occupancy only and are not otherwise
considered rendered to the occupant:
(a) The Lessee, the Management Company and each such other
person will satisfy the requirements described in paragraph 7 above.
(b) The cost of the Noncustomary Services will be borne by the
Lessee, the Management Company or such other person.
(c) Any charge for such Noncustomary Services will be made,
received and retained by the Lessee, the Management Company or such
other person.
10. The Company has not been and is not chartered or
supervised as a bank, savings and loan, or similar association under state or
federal law.
11. The Company has not and will not operate as a small
business investment company under the Small Business Investment Act of 1958.
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12. The Company was not created by or pursuant to an act of a
state legislature for the purpose of promoting, maintaining, and assisting the
economy within the state by making loans that generally would not be made by
banks.
13. The Company has not and will not engage in the business of
issuing life insurance, annuity contracts, or contracts of health or accident
insurance.
14. Beginning with the Company's 1996 taxable year, beneficial
ownership of the Company has been and will be held by 100 or more persons for at
least 335 days of each taxable year or during a proportionate part of the short
taxable year commenced January 1, 1999, and ending on the closing date of the
Merger. During the entire 1995 through 1999 taxable years, the Company has been
managed by one or more directors and the beneficial ownership of the Company has
been represented by transferable shares.
15. At all times during the last half of each taxable year
beginning with the Company's 1996 taxable year and ending with the Company's
1999 taxable year (which will end on the closing date of the Merger) no more
than 50% in value of the Company's outstanding shares has been or will be
(during such period of time) owned, directly or indirectly (within the meaning
of Section 544 of the Code, as modified by Section 856(h)(i)(B) of the Code), by
or for five or fewer individuals. For this purpose, a qualified stock bonus,
pension, or profit-sharing plan (as described in Section 401(a) of the Code), a
supplemental unemployment compensation benefits plan (as described in Section
501(c)(17) of the Code), a private foundation (as described in Section 509(a) of
the Code), or a portion of a trust permanently set aside or to be used
exclusively for charitable purposes (as described in Section 642(c) of the Code)
generally is considered an individual. However, stock held by a trust described
in Section 401(a) of the Code and exempt from tax under Section 501(a) of the
Code (a "Qualified Trust") generally is treated as held directly by the
Qualified Trust's beneficiaries in proportion to their actuarial interests in
the Qualified Trust.
16. The Company was organized on September 23, 1994. The
Company has not at any time been a party to a tax-free reorganization with
another corporation and, except for assets acquired upon the liquidation of
Kahler, has not held any asset the disposition of which could be subject to
Section 1374 of the Code. The assets received upon the liquidation of Kahler are
assets subject to Section 1374 of the Code.
17. The Company elected to be a REIT for its taxable year
ended December 31, 1995, by computing its taxable income as a REIT on its
federal income tax return for that taxable year (i.e., IRS Form 1120-REIT). The
Company has also computed and reported, or will compute and report its taxable
income as a REIT for the taxable years ended December 31, 1996, December 31,
1997, December 31, 1998, and the taxable year commenced January 1, 1999, and
ending on the closing date of the Merger. The Company has revoked and will not
terminate or revoke its REIT election prior to the closing of the Merger.
18. The Company has not had, and will not have, at the end of
any taxable year, and will not succeed to, any earnings and profits accumulated
during a non-REIT year of the Company or any other corporation.
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19. During 1995 and each subsequent taxable year, at least 95%
of the Company's gross income, including any gross income of any QRS of the
Company and excluding gross income from the sale of property held as inventory
or held primarily for sale to customers in the ordinary course of the Company's
(or any QRS's) trade or business ("Prohibited Income"), has been and will be
(for such period of time) derived from:
(a) Dividends.
(b) Interest.
(c) "Rents from real property" within the meaning of Section
856(d) of the Code.
(d) Gain from the sale or other disposition of stock,
securities, and real property (including interests in real property and
interests in mortgages on real property) that is not Prohibited Income.
(e) Abatements and refunds of taxes on real property.
(f) Income and gain derived from real property acquired
directly by foreclosure or deed in lieu thereof ("Foreclosure
Property"), not including property acquired as a result of indebtedness
arising from the sale of property held as inventory or primarily for
sale to customers in the ordinary course of the Company's business.
(g) Amounts (other than amounts based on the income or profits
of any person within the meaning of Section 856 of the Code) received
or accrued as consideration for entering into agreements (i) to make
loans secured by mortgages on real property or on interests in real
property or (ii) to purchase or lease real property (including
interests in real property and interests in mortgages on real
property).
(h) Gain from the sale or other disposition of real estate
assets that is not Prohibited Income.
(i) Payments under bona fide interest rate swap or cap
agreements, options, futures contracts, forward rate agreement, or any
similar financial instrument, entered into by the Company (or any QRS
of the Company) in a transaction to reduce the interest rate risks with
respect to any indebtedness incurred or to be incurred by the Company
to acquire or carry real estate assets ("Qualified Hedging Contracts").
(j) Gain from the sale or other disposition of Qualified
Hedging Contracts.
20. During 1995 and each subsequent taxable year, at least 75%
of the Company's gross income (including any gross income of any QRS of the
Company, but excluding Prohibited Income) has been and will be (for such period
of time) derived from:
(a) "Rents from real property" within the meaning of Section
856(d) of the Code.
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(b) Interest (as defined in Section 856(f) of the Code) on
obligations secured by mortgages on real property or on interests in
real property.
(c) Gain from the sale or other disposition of real property
(including interests in real property and interests in mortgages on
real property) that is not Prohibited Income.
(d) Dividends or other distributions on, and gain (other than
Prohibited Income) from the sale or other disposition of, transferable
shares in other REITs.
(e) Abatements and refunds of taxes on real property.
(f) Income and gain (other than Prohibited Income) derived
from Foreclosure Property.
(g) Amounts (other than amounts based on the income or profits
of any person) received or accrued as consideration for entering into
agreements (i) to make loans secured by mortgages on real property or
on interests in real property or (ii) to purchase or lease real
property (including interests in real property and interests in
mortgages on real property).
(h) Income that was (i) attributable to stock or a debt
instrument (with a maturity date of at least five years), (ii)
attributable to the temporary investment of new capital, and (iii)
received or accrued during the one-year period beginning on the date on
which the Company received such capital.
21. For purposes of this representation, the term "Adjusted
Basis Ratio" means the ratio of (i) the average of the adjusted bases of the
personal property contained in a Hotel (or other property) at the beginning and
at the end of such taxable year to (ii) the average of the aggregate adjusted
bases of both the real property and personal property comprising the Hotel (or
other property) at the beginning and at the end of such taxable year. To the
extent that the Adjusted Basis Ratio for each Hotel, Other Hotel Property or
Non-Hotel Property of the Company, a QRS of the Company or the Partnership (or
any partnership or limited liability company in which the Partnership, the
Company or a QRS of the Company owns an interest) has exceeded or in the future
exceeds 15% for any taxable year, the percentage-of-gross-income tests set forth
in the two immediately preceding representations has been and will be satisfied
notwithstanding that the gross income of the Company properly attributable to
the subject personal property is disqualified income not constituting "rents
from real property."
22. The Leases provide that rent is the greater of a fixed
amount or a percentage amount that is calculated by multiplying specified
percentages by the gross room revenues for each of the Hotels in excess of
certain levels (the "Rent"). The lease terms, base rent and percentages used to
compute the Rent (i) have not been and will not be renegotiated during the term
of the Leases in a manner that bases the Rent on income or profits of any person
and (ii) have and will at all times conform with normal business practices. In
this regard, any rent abatements under the Leases (and any subsequent Leases)
have and will conform with normal business practices, have been and will be
based and calculated on objective factors other than the Lessee's net income
from the particular Hotel (or other property) involved and have not
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been and will not be administered in a manner such that any rent abatement is
determined with reference to the Lessee's net income from the particular Hotel
(or other property) involved.
23. At all times since 1995, the Company's and the Lessee's
financial projections have indicated that the Lessee will have sufficient future
revenue to enable the Lessee to satisfy all of its liabilities and obligations
(including payments under the Leases and payments to the Management Company) and
generate a reasonable profit to the Lessee.
24. The stock of the Lessee has been ascribed an approximate
value of $___________ in connection with the Merger.
25. The Company has leased and will lease any Non-Hotel
Properties to the Lessee (or another lessee) for fixed rental payments on
commercially reasonable terms or for rental payments which comply with the
requirements in the immediately following representation and conform with normal
business practices.
26. The Company has not received and will not receive or
accrue, directly or indirectly (including through any QRS of the Company, the
Partnership or any other partnership or limited liability company), any rent,
interest, contingency fees, or other amounts that were or are determined in
whole or in part with reference to the income or profits derived by any person
(excluding amounts received (i) as rents from Hotels that are (A) based solely
on a percentage or percentages of receipts or sales and the percentage or
percentages are fixed at the time the leases are entered into, are not
renegotiated during the term of the leases in a manner that has the effect of
basing rent on income or profits, and conform with normal business practices or
(B) attributable to qualified rents from subtenants as provided by Section
856(d)(6) of the Code and (ii) as interest that is (A) based solely on a fixed
percentage or percentages of receipts or sales or (B) attributable to qualified
rents received or accrued by debtors as provided by Section 856(f)(2) of the
Code).
27. The Company (and any QRS of the Company) has not owned and
will not own, directly or indirectly (within the meaning of Section 856(d)(5) of
the Code), 10% or more of the stock, by voting power or number of shares, of the
Lessee, any other lessee of its properties, the Management Company or any other
manager of its properties. The Company (and any QRS of the Company) will not
receive or accrue, directly or indirectly, any rents from any of the following
parties:
(a) A corporation of which the Company (or any QRS of the
Company) owns, directly or indirectly (within the meaning of Section
856(d)(5) of the Code), 10% or more of the stock, by voting power or
number of shares.
(b) A noncorporate entity in which the Company (or any QRS of
the Company) owns, directly or indirectly (within the meaning of
Section 856(d)(5) of the Code), an interest of 10% or more of the
assets or net profits.
28. During each taxable year through 1997, less than 30% of
the Company's gross income (including any gross income of any QRS of the
Company) was derived from the sale or other disposition of:
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(a) Stock, Qualified Hedging Contracts or other securities
held for less than one year.
(b) Property in a transaction that generated Prohibited
income.
(c) Real property (including interests in real property
interests in mortgages on real property) held for less than four years
other than (i) property compulsorily or involuntarily converted to
another form as a result of its destruction (in whole or in part),
seizure, requisition, or condemnation (or the threat or imminence
thereof) and (ii) Foreclosure Property.
29. At the close of each quarter of each taxable year of the
Company (including the taxable year commenced January 1, 1995) through the
closing date of the Merger, (i) at least 75% of the value of the Company's total
assets (including the assets of any QRS of the Company) have and will be
represented by real estate assets, cash and cash items, and government
securities (the "75% Basket") and (ii) with respect to securities not included
in the 75% Basket, (A) not more than 5% of the value of the Company's total
assets have or will consist of the securities of any one issuer (excluding QRS's
of the Company) and (B) the Company has not and will not hold more than 10% of
the outstanding voting securities of any one issuer (excluding QRS's of the
Company). For purposes of this representation, (i) the term "securities" does
not include the Company's interest in the Partnership (or any other partnership
or limited liability company in which the Company or the Partnership owns an
interest if such entity is not taxable as a corporation), (ii) the Company's
proportionate share of the assets of the Partnership (and any other partnership
or limited liability company in which the Company or the Partnership owns an
interest if such entity is not taxable as a corporation) are treated as assets
of the Company, and (iii) the term "value" means (A) fair value as determined in
good faith by the Board of Directors of the Company or (B) in the case of
securities for which market quotations are readily available, the market value
of such securities.
30. The Company has and will maintain sufficient records as to
its investments to be able to show that it complies with the diversification
requirements described in the preceding paragraph.
31. For each taxable year (including the taxable year
commenced on January 1, 1999, and ending on the closing date), the deduction for
dividends paid by the Company (as defined in Section 561 of the Code, but
without regard to capital gain dividends, as defined in Section 857(b)(3)(C) of
the Code) has and will equal or exceed (i) the sum of (A) 95% of the Company's
real estate investment trust taxable income (as defined in Section 857(b)(2) of
the Code, but without regard to the deduction for dividends paid and excluding
any net capital gain) and (B) 95% of the excess of its net income from
Foreclosure Property over the tax imposed on such income by Section 857(b)(4)(A)
of the Code, minus (ii) any excess noncash income (as defined in Section 857(e)
of the Code).
32. The dividends paid by the Company (including dividends
deemed paid under any dividend reinvestment plan or optional cash purchase plan)
have been and will be made pro rata, with no preference to any share as compared
with other shares of the same class. The Company has not sold and will not sell
any shares under any dividend reinvestment plan
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(including optional cash purchases) at a discount in excess of Internal Revenue
Service ("IRS") published guide-lines, in a manner that is preferential with
respect to any purchaser as compared to another purchaser or in a manner
inconsistent with the IRS private letter ruling issued to the Company with
respect to its dividend reinvestment plan and optional cash purchase plan.
33. Within 30 days after the end of each of the 1995 through
1998 taxable years the Company demanded, and within 30 days after the end of its
taxable year commenced January 1, 1999, and ending on the closing date of the
Merger, the Company will demand, written statements from its shareholders that,
at any time during the last six months of the taxable year, owned 5% or more of
its shares (or if the Company has less than 2,000 and more than 200 shareholders
of record of its shares on any dividend record date, 1% or more of its shares,
or if the Company has 200 or less shareholders of record on any dividend record
date, one-half of 1% or more of its shares) setting forth the following
information:
(a) The actual owners of the Company's stock (i.e., the
persons who are required to include in gross income in their returns
the dividends received on the stock).
(b) The maximum number of shares of the Company (including the
number and face value of securities convertible into shares of the
Company) that were considered owned, directly or indirectly (within the
meaning of Section 544 of the Code, as modified by Section 856
(h)(1)(B) of the Code), by each of the actual owners of any of the
Company's shares at any time during the last half of the Company's
taxable year.
34. The Company has maintained and will maintain the written
statements described in the preceding paragraph (and other information required
by Section 1.857-8(d) of the Regulations) in its principal office, and the
statements (and such other information) will be available for inspection by the
IRS.
35. The Company has and will use the calendar year as its
taxable year (provided that the 1999 taxable year will end on the closing date
of the Merger).
36. The Partnership has been duly formed as a limited
partnership under Delaware law and has been and will be operated in accordance
with applicable Delaware law and the Partnership Agreement.
37. The Partnership Agreement will remain in substantially the
same form as its current form and will not be amended in any respect that could
adversely affect the Company's qualification as a REIT.
38. No Limited Partner (nor any affiliate of any Limited
Partner) has owned or will own at any time, directly, indirectly or by
attribution (as defined in Section 856(d)(5) of the Code), 10% or more of the
Company. For purposes of this representation, beneficial ownership of the
interests in the Partnership is taken into account.
39. A majority of the Company's Board of Directors at all
times has been and, through the closing of the Merger, will be independent
directors.
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40. The Partnership has since its formation satisfied the
private placement "safe harbor" from publicly traded partnership status under
Notice 88-75 issued by the Service (including the requirement that the
Partnership not have more than 500 partners). If the Partnership should fail to
satisfy at least one of the safe harbors set forth in Notice 88-75 or the
Regulations under Section 7704 of the Code, whichever is applicable, in any
taxable year, the Partnership will satisfy the gross income test to avoid
corporate treatment, as set forth in Section 7704(c)(2) of the Code, for such
taxable year and all taxable years thereafter.
41. The interests in the Partnership have not been and will
not be traded on an established securities market.
42. The Partnership has not issued and will not issue any
Units in a transaction required to be registered under the Securities Act of
1933 (the "1933 Act").
43. The Partnership has not elected and will not elect to be
taxable as a corporation under the Code.
44. No partnership or limited liability company in which the
Company, the Partnership or a QRS of the Company owns an interest has elected or
will elect to be treated as a corporation for tax purposes or will otherwise be
treated as a corporation for tax purposes.
45. The Company has owned all of the stock of its corporate
subsidiaries at all times since the incorporation of those subsidiaries and will
continue to own all such stock.
46. The Company has not made, and will not make, an election
under Section 338 of the Code.
47. The Company has elected pursuant to Notice 88-19, 1988-1
C.B. 486, to be subject to rules similar to those in Section 1374 of the Code
with respect to the net built-in gain in properties acquired from Kahler and its
subsidiaries.
The undersigned recognizes that (a) the Tax Opinion will be
based on the representations set forth herein and on the statements contained in
the Merger Agreement and other documents relating to Merger and (b) the Tax
Opinion will be subject to certain limitations and qualifications, including
that it may not be relied upon if any such representations are not accurate in
all material respects.
The undersigned recognizes that the Tax Opinion will not address
any tax consequences except as expressly set forth in such opinion.
SUNSTONE HOTEL INVESTORS, INC.
Dated: By
----------------- --------------------------------------
Title
--------------------------------------
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Exhibit 12
AGREEMENT AND PLAN OF MERGER
by and among
SHP ACQUISITION, L.L.C.,
SHP OP, L.L.C.,
SHP PROPERTIES CORP.,
SUNSTONE HOTEL INVESTORS, INC.
and
SUNSTONE HOTEL INVESTORS, L.P.
July 12, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE 1 THE MERGER .............................................................................................. 1
Section 1.1 The Partnership Merger ........................................................ 1
Section 1.2 Closing; Effective Time ....................................................... 2
Section 1.3 Certificate and Agreement of Limited Partnership; Officers .................... 2
Section 1.4 Conversion of Seller Common OP Units .......................................... 2
Section 1.5 Conversion of Units Owned by Seller General Partner ........................... 3
Section 1.6 Seller-Owned Interests ........................................................ 3
Section 1.7 Conversion of Interests in Buyer Operating LLC ................................ 3
Section 1.8 Cancellation and Retirement of Seller Common OP Units ......................... 4
Section 1.9 Interest Elections ............................................................ 4
Section 1.10 Payment for Seller Common OP Units ............................................ 5
Section 1.11 Further Assurances ............................................................ 6
ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF SELLER GENERAL PARTNER AND THE SELLER PARTNERSHIP ..................... 6
Section 2.1 Organization, Standing and Power .............................................. 6
Section 2.2 Authority; Noncontravention; Consents ......................................... 6
Section 2.3 Information Supplied .......................................................... 8
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF PARENT AND BUYER OPERATING PARTNERSHIP ................................ 8
Section 3.1 Organization, Standing and Power .............................................. 8
Section 3.2 Authority; Noncontravention; Consents ......................................... 8
Section 3.3 Information Supplied .......................................................... 9
ARTICLE 4 COVENANTS ............................................................................................... 10
Section 4.1 Reasonable Best Efforts; Additional Actions ................................... 10
Section 4.2 Notification of Certain Matters ............................................... 10
Section 4.3 Information Statement; Securities Filings ..................................... 10
ARTICLE 5 CONDITIONS TO CONSUMMATION OF THE PARTNERSHIP MERGER .................................................... 11
Section 5.1 Conditions to Each Party's Obligations to Effect the Partnership
Merger ........................................................................ 11
Section 5.2 Conditions to Seller General Partner's and the Seller Partnership's
Obligations to Effect the Partnership Merger .................................. 12
Section 5.3 Conditions to Parent's, Sub's and Buyer Operating LLC's
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
Obligations to Effect the Partnership ......................................... 12
ARTICLE 6 TERMINATION ............................................................................................. 13
Section 6.1 Termination ................................................................... 13
Section 6.2 Procedure for and Effect of Termination ....................................... 13
ARTICLE 7 MISCELLANEOUS ........................................................................................... 14
Section 7.1 Amendment and Modification .................................................... 14
Section 7.2 Waiver of Compliance; Consents ................................................ 14
Section 7.3 Survival ...................................................................... 14
Section 7.4 Notices ....................................................................... 14
Section 7.5 Assignment .................................................................... 15
Section 7.6 GOVERNING LAW ................................................................. 16
Section 7.7 Counterparts .................................................................. 16
Section 7.8 Enforcement ................................................................... 16
Section 7.9 Interpretation ................................................................ 16
Section 7.10 Entire Agreement .............................................................. 16
Section 7.11 No Third Party Beneficiaries .................................................. 17
Section 7.12 Severability .................................................................. 17
Section 7.13 Tax Election .................................................................. 17
</TABLE>
EXHIBITS
Exhibit A LLC Agreement
Exhibit B Partnership Agreement
<PAGE> 4
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of July 12, 1999, by and among
SHP Acquisition, L.L.C., a Delaware limited liability company ("Parent"), SHP
OP, L.L.C., a Delaware limited liability company ("Buyer Operating LLC"), SHP
PROPERTIES CORP., a Delaware corporation ("Sub"), SUNSTONE HOTEL INVESTORS,
INC., a Maryland corporation ("Seller General Partner" or "Seller"), and
SUNSTONE HOTEL INVESTORS, L.P., a Delaware limited partnership (the "Seller
Partnership").
WHEREAS, the respective Boards of Directors (or comparable body or
entity) of Parent, SHP Investors Sub, Inc., a Maryland corporation ("Buyer") and
Seller General Partner have approved the acquisition of the Seller and its
assets (including without limitation the Seller's interest in the Seller
Partnership) by Parent on the terms and subject to the conditions set forth in
the Agreement and Plan of Merger of even date herewith (the "Merger Agreement"),
by and among Parent, Buyer and Seller;
WHEREAS, it is proposed that, immediately prior to the merger of the
Buyer and Seller as contemplated by the Merger Agreement (the "Merger"), Buyer
Operating LLC will merge with and into the Seller Partnership (the "Partnership
Merger") on the terms and subject to the conditions of this Agreement;
WHEREAS, the Board of Directors of Seller General Partner, in light of
and subject to the terms and conditions set forth herein, (i) approved this
Agreement and (ii) resolved to recommend that the holders of Seller Common OP
Units adopt this Agreement and approve the Partnership Merger;
WHEREAS, Parent, Buyer Operating LLC, Sub, Seller General Partner and
the Seller Partnership desire to make certain representations, warranties,
covenants and agreements in connection with the Partnership Merger and also to
prescribe various conditions thereto; and
WHEREAS, capitalized terms used herein and not otherwise defined have
the respective meanings given them in the Merger Agreement.
NOW THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained herein, and intending to be legally bound
hereby, the parties hereto agree as follows:
ARTICLE 1
THE MERGER
<PAGE> 5
Section 1.1 The Partnership Merger. Upon the terms and subject to the
conditions of this Agreement, at the Effective Time (as defined in Section 1.2)
and in accordance with the Revised Uniform Limited Partnership Act of the State
of Delaware (the "DRULPA") and the Limited Liability Company Act of the State of
Delaware (the "DLLCA"), Buyer Operating LLC shall be merged with and into the
Seller Partnership, with the Seller Partnership as the surviving partnership in
the Partnership Merger (the "Surviving Operating Partnership"). At the Effective
Time, the separate existence of Buyer Operating LLC shall cease and the other
effects of the Partnership Merger shall be as set forth in Section 17-211 of the
DRULPA and Section 18-209 of the DLLCA.
Section 1.2 Closing; Effective Time. Provided that the conditions set
forth in Article 5 have been satisfied (or waived by the appropriate party), the
closing of the Partnership Merger (the "Closing") shall take place at the place
of the closing of the Merger set forth in Section 1.2(a) of the Merger
Agreement, on the Closing Date immediately prior to the closing of the Merger,
or at such other place, at such other time or on such other date as the parties
hereto may mutually agree. At the Closing, the parties hereto shall cause a
certificate of merger (the "Certificate of Merger") to be executed and filed
with the Secretary of State of the State of Delaware in accordance with the
DRULPA and the DLLCA. The Partnership Merger shall become effective as of the
date and time of such filing, or such other time within 24 hours after such
filing as the parties hereto shall agree to be set forth in the Certificate of
Merger (the "Effective Time"), which, in either case, shall be immediately prior
to the effective time of the Merger.
Section 1.3 Certificate and Agreement of Limited Partnership;
Officers. At the Effective Time, and without any further action on the part of
Buyer Operating LLC or the Seller Partnership, the agreement of limited
partnership as amended by the Partnership Agreement Amendments and the
certificate of limited partnership of the Seller Partnership, as in effect
immediately prior to the Effective Time, shall become, from and after the
Effective Time, the agreement of limited partnership and the certificate of
limited partnership of the Surviving Operating Partnership, until thereafter
amended as provided therein and under applicable law.
Section 1.4 Conversion of Seller Common OP Units. The Seller Common OP
Units issued and outstanding immediately prior to the Effective Time (including
the Seller Common OP Units owned by Seller General Partner) shall, at the
Effective Time, be converted into the following (the consideration set forth in
clauses (a) through (c) below being collectively referred to as the "OP Merger
Consideration"):
(a) for each Seller Common OP Unit with respect to which an
election to receive a Class A Unit (as defined below) has been effectively made
pursuant to Section 1.9 and not revoked or lost ("Class A Electing Units"), the
right to receive one fully paid and nonassessable "Class A Preferred Unit"
(each, a "Class A Unit") as provided in the Amended and Restated Limited
Liability Company Agreement of Parent attached hereto as Exhibit A (as amended,
supplemented or otherwise modified in accordance with the terms thereof and
hereof, the "LLC Agreement");
(b) for each Seller Common OP Unit with respect to which an
election to receive a Class B Unit (as defined below) has been effectively made
pursuant to Section 1.9 and not revoked or lost ("Class B Electing Units"), the
right to receive one fully paid and
<PAGE> 6
nonassessable "Class B Common Unit" (each, a "Class B Unit") as provided in the
LLC Agreement; and
(c) for each Seller Common OP Unit, other than Class A
Electing Units and Class B Electing Units, the right to receive in cash, without
interest, an amount equal to the Common Merger Consideration (the "Cash Election
Price").
Notwithstanding the foregoing, if between the date of this Agreement
and the Effective Time the outstanding Seller Common OP Units or the Class A
Units (if any) or Class B Units (if any) shall have been changed into a
different number of units or a different class by reason of any distribution,
dividend, subdivision, reclassification, recapitalization, split, combination or
exchange of Seller Common OP Units, Class A Units (if any) or Class B Units (if
any), the Merger Consideration shall be correspondingly adjusted to reflect such
distribution, dividend, subdivision, reclassification, recapitalization, split,
combination or exchange. The Seller shall elect to receive the Cash Election
Price as OP Merger Consideration in exchange for its OP Units.
Section 1.5 Conversion of Units Owned by Seller General Partner. The
units of Seller Partnership that are deemed to be owned by Seller General
Partner in its capacity as the general partner of the Seller Partnership shall
immediately prior to the Effective Time (collectively, the "Seller GP
Interest"), at the Effective Time, by virtue of the Partnership Merger and
without any action on the part of Seller General Partner, also be converted into
the right to receive the Cash Election Price.
Section 1.6 Seller-Owned Interests. (a) Each Seller Common OP Unit that
is owned by Parent immediately prior to the Effective Time shall, at the
Effective Time, by virtue of the Partnership Merger and without any action on
the part of Parent or the Seller, automatically be canceled and retired and
cease to exist, and no consideration shall be delivered in exchange therefor.
(b) Each 7.9% Class A Cumulative Preferred Partnership Unit of
Seller Partnership (the "Seller Preferred Units") shall be redeemed prior to the
Partnership Merger in exchange for certain assets of the Seller Partnership as
described in Exhibit A to the Merger Agreement, and any such Seller Preferred
Units owned by Seller (if any) immediately prior to the Effective Time shall, at
the Effective Time, by virtue of the Partnership Merger and without any action
on the part of Seller, shall be converted into the right to receive the
"Liquidation Preference" (as such term is defined in the Articles Supplementary
of the Seller Preferred Units).
Section 1.7 Conversion of Interests in Buyer Operating LLC. The
aggregate interests in Buyer Operating LLC owned by Parent immediately prior to
the Effective Time shall, at the Effective Time, by virtue of the Partnership
Merger and without any action on the part of Surviving Operating Partnership or
Buyer Operating LLC, be converted into a 99% limited partnership interest in the
Surviving Operating Partnership. The aggregate interest in Buyer
<PAGE> 7
Operating LLC owned by Sub immediately prior to the Effective time shall, at the
Effective Time, by virtue of the Partnership Merger and without any action on
the part of Buyer be converted into a 1% general partnership interest in the
Surviving Operating Partnership.
Section 1.8 Cancellation and Retirement of Seller Common OP Units. Each
Seller Common OP Unit converted into the right to receive the Merger
Consideration pursuant to Section 1.4 shall no longer be outstanding and shall
automatically be canceled and retired and shall cease to exist, and each holder
of a Seller Common OP Unit shall cease to have any rights with respect thereto,
except for the right to receive the Merger Consideration, if any, applicable
thereto.
Section 1.9 Interest Elections. (a) Subject to Section 1.9(e), each
holder of a Seller Common OP Unit shall be entitled, with respect to all, but
not less than all, of such holder's Seller Common OP Units, to make an
unconditional election, on or prior to the Election Date (as defined in Section
1.9(b)), to receive (i) Class A Units or Class B Units (a "Non-Cash Election")
or (ii) the Cash Election Price (a "Cash Election"), on the basis hereinafter
set forth, provided that any holder making a Non-Cash Election must be an
"accredited investor" as defined in Rule 501 promulgated under the Securities
Act and must not be an "interested stockholder" of Seller or an "affiliate" of
an "interested stockholder" of Seller, in each case as defined in subtitle 6 of
Title 3 of the Maryland General Corporation Law ("MGCL").
(b) Buyer Operating LLC shall prepare, and the Seller
Partnership shall mail pursuant to Section 4.3(a), a form of election, which
form shall be subject to the reasonable approval of Seller General Partner (the
"Form of Election"). The Form of Election shall be used by each holder of a
Seller Common OP Unit to designate such holder's election to exchange all, but
not less than all, of the Seller Common OP Units held by such holder into either
Class A Units, Class B Units or the Cash Election Price. Any such holder's
election to receive Class A Units, Class B Units or the Cash Election Price
shall be deemed to have been properly made only if Parent shall have received at
its principal executive office, not later than 5:00 p.m., New York City time on
the date that is five business days before the scheduled date of the Seller
Stockholders Meeting (the "Election Date"), a Form of Election specifying
whether such holder elects to receive Class A Units, Class B Units or the Cash
Election Price and otherwise properly completed and signed. The Form of Election
shall state therein the date that constitutes the Election Date.
(c) A Form of Election may be revoked by any holder of a
Seller Common OP Unit only by written notice received by Parent prior to 5:00
p.m., New York City time, on the Election Date. In addition, all Forms of
Election shall automatically be revoked if the Partnership Merger has been
abandoned.
(d) The reasonable determination of Parent shall be binding as
to whether or not elections to receive Class A Units, Class B Units or the Cash
Election Price have been properly made or revoked pursuant to this Section 1.9
and when elections and revocations were received by it. If Parent determines
that any election to receive Class A Units, Class B Units or the Cash Election
Price was not properly made (including, without limitation, because a Form of
Election was not properly delivered by the time specified in Section 1.9(b)),
the Seller Common OP Units with respect to which such election was not properly
made shall be treated by Parent as Seller Common OP Units for which a Cash
Election was made, and such Seller Common OP
<PAGE> 8
Units shall be converted in accordance with Section 1.4(c). Parent may, with the
agreement of Seller General Partner, make such rules as are consistent with this
Section 1.9 for the implementation of the elections provided for herein as shall
be necessary or desirable fully to effect such elections.
(e) Parent reserves the right to require any holder of Seller
Common OP Units, as a condition to making a Non-Cash Election with respect to
such holder's Seller Common OP Units, to (i) represent to Parent that such
holder (x) is an "Accredited Investor" (as such term is defined under Rule 501
promulgated under the Securities Act) and (y) is not an "interested stockholder"
of Seller or an "affiliate" of an "interested stockholder" of Seller, in each
case as defined in Subtitle 6 of Title 3 of the MGCL and (ii) agree to abide by
the terms of the LLC Agreement and to become a party thereto.
Section 1.10 Payment for Seller Common OP Units. (a) Promptly after the
Effective Time, Surviving Operating Partnership shall pay the Merger
Consideration to which holders of Seller Common OP Units shall be entitled at
the Effective Time pursuant to Section 1.4(c). Holders of Seller OP Units being
paid the Cash Election Price shall be paid in accordance with the procedures and
provisions set forth in Section 1.9 of the Merger Agreement. Surviving Operating
Partnership shall be entitled to deduct and withhold, from the consideration
otherwise payable pursuant to Section 1.4(c) to any former holder of Seller
Common OP Units, such amounts as Surviving Operating Partnership 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 Surviving Operating Partnership, such withheld amounts shall be
treated for all purposes of this Agreement as having been paid to the former
holder of Seller Common OP Units in respect of which such deduction and
withholding was made by Surviving Operating Partnership.
(b) Each outstanding agreement for the issuance of warrants
with respect to Seller Common OP Units and the Seller Common OP Units which
would be issuable upon the exercise of such warrants (such OP Units, "OP Unit
Warrants") shall be subject to the terms of this Agreement. Seller shall use its
reasonable best efforts to cause each such OP Unit Warrant to be converted into
the right to receive from the Surviving Operating Partnership an amount of cash
equal to the excess, if any, of the Merger Consideration over the exercise price
for such OP Unit Warrant (the "Warrant Consideration"). Prior to the Effective
Time, Sellers shall take all steps necessary to give written notice to each
holder of a warrant with respect to Seller Common OP Units that each OP Unit
Warrant shall expire effective as of the Effective Time and be converted into
the right to receive the Warrant Consideration for such Seller Common OP Unit.
Any amounts payable pursuant to this Section 1.10(b) shall be subject to any
required withholding of taxes and shall be paid without interest.
(c) The Merger Consideration delivered in accordance with the
terms of Article 1 shall be deemed to have been issued (or paid, as applicable)
in full satisfaction of all rights pertaining to the Seller Common OP Units or
OP Unit Warrants.
(d) No interest shall be paid with respect to the Partnership
Merger or payment of the OP Merger Consideration or Warrant Consideration
thereunder.
Section 1.11 Further Assurances. If, at any time after the Effective
Time, the Surviving Operating Partnership shall determine or be advised that any
deeds, bills of sale, assignments,
<PAGE> 9
assurances or any other actions or things are necessary or desirable to vest,
perfect or confirm of record or otherwise in the Surviving Operating Partnership
the right, title or interest in, to or under any of the rights, properties or
assets of the Seller Partnership acquired or to be acquired by the Surviving
Operating Partnership as a result of, or in connection with, the Redemption, the
Partnership Merger or otherwise to carry out this Agreement, the Surviving
Operating Partnership shall be authorized to execute and deliver, in the name
and on behalf of each of Buyer Operating LLC and the Seller Partnership or
otherwise, all such deeds, bills of sale, assignments and assurances and to take
and do, in the name and on behalf of each of Buyer Operating LLC and the Seller
Partnership or otherwise, all such other actions and things as may be necessary
or desirable to vest, perfect or confirm any and all right, title and interest
in, to and under such rights, properties or assets in the Surviving Operating
Partnership or otherwise to carry out this Agreement.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
OF SELLER GENERAL PARTNER AND THE SELLER PARTNERSHIP
Each of Seller General Partner and the Seller Partnership represents
and warrants to Buyer Operating LLC, Sub and Parent as follows:
Section 2.1 Organization, Standing and Power. Seller Partnership is
duly organized and validly existing under the Laws of Delaware. Seller
Partnership has the requisite limited partnership power and authority to carry
on its business as now being conducted. Seller Partnership is duly qualified or
licensed to do business as a foreign corporation or limited partnership and is
in good standing in each jurisdiction in which the nature of its business or the
ownership or leasing of its properties makes such qualification or licensing
necessary, other than in such jurisdictions where the failure to be so qualified
or licensed, individually or in the aggregate, would not have a Seller Material
Adverse Effect. Seller Partnership has delivered to Surviving Operating
Partnership complete and correct copies of its organizational documents, in each
case, as amended to the date of this Agreement. Attached hereto as Exhibit B is
a complete and correct copy of Seller Partnership's Second Amended and Restated
Agreement of Limited Partnership ("the Partnership Agreement"). The Partnership
Agreement has not been amended subsequent to the date hereof, except for such
amendments as are permitted and referred to in Section 4.3(a) of this Agreement.
Section 2.2 Authority; Noncontravention; Consents. (a) Each of Seller
General Partner and Seller Partnership has the requisite corporate or limited
partnership power and authority to enter into this Agreement and, subject to the
Seller Partner Approval, to consummate the transactions contemplated by this
Agreement to which it is a party. The execution and delivery of this Agreement
by Seller General Partner and Seller Partnership and the consummation by Seller
General Partner and Seller Partnership of the transactions contemplated by this
Agreement to which Seller General Partner and/or Seller Partnership is a party
have been duly authorized by all necessary corporate or limited partnership
action on the part of Seller General Partner and Seller Partnership, except for
the Seller Partner Approval. This Agreement has been duly executed and delivered
by Seller General Partner and Seller Partnership and constitutes a valid and
binding obligation of each of Seller General Partner and Seller Partnership,
enforceable against each of Seller General Partner and Seller Partnership in
<PAGE> 10
accordance with and subject to its terms, subject to applicable bankruptcy,
insolvency, moratorium or other similar Laws relating to creditors' rights and
general principles of equity.
(b) Except as disclosed in the Seller Disclosure Letter, the
execution and delivery of this Agreement by each of Seller General Partner and
Seller Partnership does not, and the consummation by Seller Partnership of the
transactions contemplated by this Agreement to which it is a party and
compliance by it with the provisions of this Agreement will not, require any
consent, approval or notice under, or conflict with, or result in any violation
of, or default (with or without notice or lapse of time, or both) under, or give
rise to a right of termination, cancellation or acceleration of any obligation
or to loss of a benefit under, or result in the creation of any Lien upon any of
the properties or assets of Seller General Partner, Seller Partnership or any
Seller Subsidiary, under, (i) the certificate or articles of incorporation or
the by-laws or organizational documents or partnership or similar agreement (as
the case may be) of Seller General Partner, Seller Partnership or any Seller
Subsidiary, each as amended or supplemented to the date hereof, (ii) any loan or
credit agreement, note, bond, mortgage or indenture to which Seller General
Partner, Seller Partnership or any Seller Subsidiary is a party; (iii) any
reciprocal easement agreement, lease, joint venture agreement, development
agreement, benefit plan or other agreement, instrument, permit, concession,
franchise or license applicable to Seller General Partner, Seller Partnership or
any Seller Subsidiary or their respective properties or assets; or (iv) subject
to the governmental filings and other matters referred to in the following
sentence, any Laws applicable to Seller General Partner, Seller Partnership or
any Seller Subsidiary, or their respective properties or assets, other than in
the case of clauses (iii) or (iv), any such conflicts, violations, defaults,
rights, loss or Liens that individually or in the aggregate would not reasonably
be expected to (x) have a Seller Material Adverse Effect or (y) prevent or delay
beyond the Outside Date the consummation of the transactions contemplated by
this Agreement, provided that no representation or warranty is made in this
sentence as to any agreement with Lessee, Manager or any of their Affiliates. No
consent, approval, order or authorization of, or registration, declaration or
filing with, any Governmental Entity is required by or with respect to Seller
General Partner, Seller Partnership or any Seller Subsidiary in connection with
the execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby except for (i) the filing of the Certificate of
Merger with the Secretary of State of the State of Delaware, (ii) any filings
required under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), (iii) the filing of a Form D with the SEC and (iv) such
other consents, approvals, orders, authorizations, registrations, declarations
and filings (A) as are set forth in Section 2.4 of the Merger Agreement or
Section 2.4 of the Seller Disclosure Letter, (B) as required by the "blue sky"
laws of various states, to the extent applicable or (C) those which, if not
obtained or made, would not prevent or delay beyond the Outside Date the
consummation of any of the transactions contemplated by this Agreement or
otherwise prevent or delay beyond the Outside Date Seller Partnership from
performing its obligations under this Agreement in any material respect or have,
individually or in the aggregate, a Seller Material Adverse Effect.
Section 2.3 Information Supplied. None of the information supplied by
Seller General Partner or the Seller Partnership for inclusion or incorporation
by reference in the Information Statement (as defined in Section 4.3), any
Additional Filings (as defined Section 4.3) or Solicitation Documents (as
defined in Section 4.3), the Consent Solicitation Statement (as defined Section
4.3) or the Solicitation Documents shall, at the time of mailing thereof and at
the Closing Date, contain any untrue statement of material fact or omit to state
any material fact necessary in order to make the statements therein, in light of
the circumstances under which they
<PAGE> 11
were made, not misleading.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
OF PARENT AND BUYER OPERATING PARTNERSHIP
Each of Parent, Sub and Buyer Operating LLC represents and warrants to
Seller General Partner and the Seller Partnership as follows:
Section 3.1 Organization, Standing and Power. (a) Buyer Operating LLC
is a limited liability company and Sub is a corporation, in each case duly
organized and validly existing under the Laws of Delaware and each has the
requisite power and authority to carry on its business as now being conducted.
Each of Buyer Operating LLC and Sub is duly qualified or licensed to do business
as a foreign limited liability company, in the case of Buyer Operating LLC, or a
foreign corporation, in the case of Sub, and is in good standing in each
jurisdiction in which the nature of its business or the ownership or leasing of
its properties makes such qualifications or licensing necessary, other than in
such jurisdictions where the failure to be so qualified or licensed,
individually or in the aggregate, would not have a Parent Material Adverse
Effect. Each of Buyer Operating LLC and Sub has delivered to Seller complete and
correct copies of its organizational documents as amended or supplemented to the
date of this Agreement. Attached hereto as Exhibit A is a true and complete copy
of the LLC Agreement. The LLC Agreement has not been amended subsequent to the
date hereof except for such amendments which could be made without the approval
of the holders of the Seller Common OP Units who make a Non-Cash Election had
such amendment been made immediately after the Effective Time.
(b) Buyer Operating LLC is newly formed and, except for
activities incident to the acquisition of Seller Partnership, Buyer Operating
LLC has not (i) engaged in any business activities of any type or kind
whatsoever or (ii) acquired any property of any type or kind whatsoever.
Section 3.2 Authority; Noncontravention; Consents. (a) Each of Parent,
Sub and Buyer Operating LLC has the requisite power and authority to enter into
this Agreement and to consummate the transactions contemplated by this Agreement
to which it is a party. The execution and delivery of this Agreement by Parent,
Sub and Buyer Operating LLC and the consummation by Parent, Sub and Buyer
Operating LLC of the transactions contemplated by this Agreement to which
Parent, Sub and/or Buyer Operating LLC is a party have been duly authorized by
all necessary action on the part of Parent, Sub and Buyer Operating LLC
(including, without limitation, the issuance of the Class A Units and the Class
B Units in the Partnership Merger). This Agreement has been duly executed and
delivered by Parent, Sub and Buyer Operating LLC, enforceable against each of
them in accordance with and subject to their respective terms, subject to
applicable bankruptcy, insolvency, moratorium or other similar Laws relating to
creditors' rights and general principles of equity.
(b) Except as disclosed in the Buyer Disclosure Letter, the
execution and delivery of this Agreement by each of Parent, Sub and Buyer
Operating LLC does not, and the consummation of the transactions contemplated by
this Agreement by Buyer Operating LLC to
<PAGE> 12
which it is a party and compliance by it with the provisions of this Agreement
will not, conflict with, or result in any violation of or default (with or
without notice or lapse of time, or both) under, or give rise to a right of
termination, cancellation or acceleration of any material obligation or to loss
of a material benefit under, or result in the creation of any Lien upon any of
the properties or assets of Parent, Sub, Buyer Operating LLC or any of its other
Subsidiaries under, (i) the organizational or governing documents of Parent, Sub
or Buyer Operating LLC or the comparable certificate of incorporation or
organizational documents or partnership or similar agreement (as the case may
be) of any other Subsidiary of Parent, each as amended or supplemented to the
date of this Agreement, (ii) any loan or credit agreement, note, bond, mortgage,
indenture, reciprocal easement agreement, lease or other agreement, instrument,
permit, concession, franchise or license applicable to Surviving Operating
Partnership or any of its Subsidiaries or their respective properties or assets
or (iii) subject to the governmental filings and other matters referred to in
the following sentence, any Laws applicable to Parent or any of its Subsidiaries
or their respective properties or assets, other than, in the case of clause (ii)
or (iii), any such conflicts, violations, defaults, rights, loss or Liens that
individually or in the aggregate would not reasonably be expected to (x) have a
Parent Material Adverse Effect or (y) prevent the consummation of the
transactions contemplated by this Agreement. No consent, approval, order or
authorization of, or registration, declaration or filing with, any Governmental
Entity is required by or with respect to Parent, Sub, Buyer Operating LLC or any
of its other Subsidiaries in connection with the execution and delivery of this
Agreement by Parent, Sub or Buyer Operating LLC or the consummation of the
transactions contemplated hereby, except for (i) the filing of the Certificate
of Merger with the Secretary of State of the State of Delaware, (ii) any filings
required under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), (iii) the filing of a Form D with the SEC and (iv) such
other consents, approvals, orders, authorizations, registrations, declarations
and filings (A) as are Required Consents (as defined in the Merger Agreement) or
are set forth in Section 3.3 of the Merger Agreement, (B) as required by the
"blue sky" laws of various states, to the extent applicable or (C) those which,
if not obtained or made, would not prevent or delay beyond the Outside Date the
consummation of any of the transactions contemplated by this Agreement or
otherwise prevent Parent, Sub or Buyer Operating LLC from performing its
obligations under this Agreement in any material respect or have, individually
or in the aggregate, a Parent Material Adverse Effect.
Section 3.3 Information Supplied. None of the information supplied by
Parent, Sub or Buyer Operating LLC for inclusion or incorporation by reference
in the Information Statement, any Additional Filings, the Consent Solicitation
Statement or other Solicitation Documents shall, at the time of mailing thereof
and at the Closing Date, contain any untrue statement of material fact or omit
to state any material fact necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading.
ARTICLE 4
COVENANTS
<PAGE> 13
Section 4.1 Reasonable Best Efforts; Additional Actions. Upon the terms
and subject to the conditions of this Agreement, each of the parties hereto
shall use all reasonable best 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 parties in doing, all things necessary, proper or advisable to consummate
and make effective as promptly as practicable the transactions contemplated by,
and in connection with, this Agreement. In connection with and without limiting
the foregoing, Seller General Partner shall take all necessary action to obtain
the requisite consent of the holders of Seller Common OP Units with respect to
the Seller Partner Approval, including the delivery contemporaneously with the
execution of this Agreement of an executed voting agreement and consents in the
form attached as Exhibit E to the Merger Agreement with respect to the adoption
of this Agreement, approval of the Partnership Merger and approval of the
Partnership Agreement Amendments.
Section 4.2 Notification of Certain Matters. Each of Seller General
Partner and the Seller Partnership shall give notice to Parent, Sub and Buyer
Operating LLC, and each of Parent, Sub and Buyer Operating LLC shall give notice
to Seller General Partner and the Seller Partnership, promptly upon becoming
aware of (a) any occurrence, or failure to occur, of any event, which occurrence
or failure to occur has caused or would reasonably be expected to cause any
representation or warranty that is qualified as to materiality in this Agreement
to be untrue or inaccurate or any representation or warranty that is not so
qualified to be untrue or inaccurate in any material respect at any time after
the date hereof and prior to the Closing Date and (b) any material failure on
its part to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it hereunder; provided that the delivery of any
notice pursuant to this Section 4.2 shall not limit or otherwise affect the
remedies available hereunder to the party receiving such notice.
Section 4.3 Information Statement; Securities Filings. (a) To the
extent the Seller Partnership has received the Seller Partner Approval in the
form of valid written consents executed by partners of the Seller Partnership
promptly after the date hereof, Seller Partnership and Parent shall jointly
promptly prepare an Information Statement of Seller Partnership and Parent for
use in connection with the offering of units of limited liability company
interest in Parent (the "Information Statement). The Information Statement shall
comply as to form in all material respects with the requirements of the
Securities Act and the rules and regulations thereunder applicable to an
offering of securities exempt from registration under the Securities Act
pursuant to Rule 506 thereunder. The parties shall cooperate and promptly
prepare and the appropriate party shall file with the SEC as soon as practicable
any other filings required under the Exchange Act ("Additional Filings") with
respect to the transactions contemplated hereby. Parent shall take all actions
required to be taken under any applicable federal and state securities laws in
connection with the issuance of the Class A Units and the Class B Units in the
Partnership Merger pursuant to this Agreement, including but not limited to the
filing with the SEC of a "Notice of Sale of Securities Pursuant to Regulation D"
on Form D.
(b) To the extent the Seller Partnership has not received the
Seller Partner Approval in the form of valid written consents executed by
partners of the Seller Partnership promptly after the date hereof, Seller
Partnership and Parent shall jointly and promptly prepare a Consent Solicitation
Statement soliciting the written consent of the holders of Seller OP Units to
the adoption of this Agreement and the approval of the Partnership Merger (the
"Consent
<PAGE> 14
Solicitation Statement"), which Consent Solicitation Statement shall contain a
description of the terms of the Class A Preferred Units and the Class B Units
and the recommendation of Seller General Partner's Board of Directors that the
holders of Seller OP Units consent to the adoption of this Agreement and the
approval of the Partnership Merger. The Consent Solicitation Statement shall
comply as to form in all material respects with the requirements of the
Securities Act and the rules and regulations thereunder applicable to an
offering of securities exempt from registration under the Securities Act
pursuant to Rule 506 thereunder. As soon as practicable following the mailing of
the Proxy Statement in connection with the Merger, Seller Partnership shall mail
the Consent Solicitation Statement, together with a form of written consent, a
Form of Election and any other documents relating thereto (collectively, the
"Solicitation Documents"), to the holders of Seller OP Units. Seller Partnership
and Parent shall consult and cooperate with each other in the preparation of the
Solicitation Documents. All mailings to the holders of Seller OP Units in
connection with the Partnership Merger, including the Solicitation Documents,
shall be subject to the prior review, comment and approval of Parent (such
approval not to be unreasonably withheld or delayed).
(c) Parent on the one hand, and Seller Partnership, on the
other hand, shall each advise the other promptly if, prior to the Closing Date,
it obtains knowledge of any facts that would make it necessary to amend the
Information Statement, Consent Solicitation Statement or any of the Additional
Filings or Solicitation Documents in order to render the statements therein not
false or misleading or to comply with applicable law. Seller Partnership and
Parent shall promptly amend or supplement any information in such documents if
and to the extent that such information has become false or misleading, and
Seller Partnership shall take all steps necessary to disseminate the amended
documents or supplements to the holders of Seller Common OP Units, in each case,
as and to the extent required by applicable law.
ARTICLE 5
CONDITIONS TO CONSUMMATION OF THE PARTNERSHIP MERGER
Section 5.1 Conditions to Each Party's Obligations to Effect the
Partnership Merger. The respective obligations of each party hereto to effect
the Partnership Merger is subject to the satisfaction on or prior to the Closing
Date of each of the following conditions, any and all of which may be waived in
whole or in part by the parties hereto with respect to such party's conditions,
to the extent permitted by applicable law:
(a) Conditions to the Merger. All of the conditions to the
closing of the Merger shall have been satisfied or waived in accordance with the
terms of the Merger Agreement (other than those set forth in Section 6.2(h) of
the Merger Agreement).
(b) Unitholders' Consent. The Seller Partner Approval shall
have been obtained;
<PAGE> 15
(c) 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 Partnership Merger or any of the other transactions
contemplated hereby shall be in effect; and
(d) HSR Act. All applicable waiting periods (and any
extensions thereof) under the HSR Act shall have expired or otherwise been
terminated.
Section 5.2 Conditions to Seller General Partner's and the Seller
Partnership's Obligations to Effect the Partnership Merger. The obligation of
Seller General Partner and the Seller Partnership to effect the Partnership
Merger is also subject to the satisfaction (or waiver by Seller General Partner
and the Seller Partnership) on or prior to the Closing Date of each of the
following additional conditions:
(a) Accuracy of Representations and Warranties. The
representations and warranties of each of Parent, Sub and Buyer Operating LLC
set forth in this Agreement (i) that are qualified as to Parent Material Adverse
Effect shall be true and correct and (ii) that are not so qualified shall be
true and correct in all material respects, as of the date of this Agreement and
as of the Closing Date, in each case as though made on and as of the Closing
Date, except to the extent the representation or warranty is expressly limited
by its terms to another date, in which case such representation or warranty
shall be true and correct (if qualified as to Parent Material Adverse Effect) or
true and correct in all material respects (if not so qualified) only as of such
specific date.
(b) Compliance with Covenants. Each of Parent, Sub and Buyer
Operating LLC shall have performed in all material respects all obligations and
agreements, and complied in all material respects with covenants, contained in
this Agreement to be performed or complied with by it prior to or as of the
Closing Date.
(c) Officer's Certificate. Seller General Partner and the
Seller Partnership shall have received a certificate of Parent, dated as of the
Closing Date, signed by an executive officer of Parent to evidence satisfaction
of the conditions set forth in Sections 5.2(a) and (b).
Section 5.3 Conditions to Parent's, Sub's and Buyer Operating LLC's
Obligations to Effect the Partnership. The obligation of Parent, Sub and Buyer
Operating LLC to effect the Partnership Merger is also subject to the
satisfaction (or waiver by Parent, Sub and Buyer Operating LLC) at or prior to
the Closing Date of each of the following additional conditions:
(a) Accuracy of Representations and Warranties. The
representations and warranties of each of Seller General Partner and the Seller
Partnership set forth in this Agreement (i) that are qualified as to Seller
Material Adverse Effect shall be true and correct and (ii) that are not so
qualified shall be true and correct in all material respects, as of the date of
this Agreement and as of the Closing Date, in each case as though made on and as
of the Closing Date, except to the extent the representation or warranty is
expressly limited by its terms to another date, in which case such
representation or warranty shall be true and correct (if qualified as to Seller
Material Adverse Effect) or true and correct in all material respects (if not so
qualified) only as of such specific date.
<PAGE> 16
(b) Compliance with Covenants. Each of Seller General Partner
and the Seller Partnership shall have performed in all material respects all
obligations and agreements, and complied in all material respects with
covenants, contained in this Agreement to be performed or complied with by it
prior to or as of the Closing Date.
(c) Officer's Certificate. Parent, Sub and Buyer Operating LLC
shall have received a certificate of Seller General Partner, dated as of the
Closing Date, signed by an executive officer of Seller General Partner to
evidence satisfaction of the conditions set forth in Sections 5.3(a) and (b).
(d) Seller Partnership Redemption. Seller Partnership shall
have redeemed from Seller certain outstanding Seller OP Units in exchange for
certain assets held by the Seller Partnership in accordance with the terms set
forth on Exhibit A to the Merger Agreement.
ARTICLE 6
TERMINATION
Section 6.1 Termination. This Agreement shall terminate, without any
further action on the part of the parties hereto, upon the termination of the
Merger Agreement in accordance with its terms. This Agreement may be terminated
and the transactions contemplated hereby may be abandoned at any time prior to
the Closing Date by the mutual written consent of the parties hereto.
Section 6.2 Procedure for and Effect of Termination. If this Agreement
is terminated as provided herein, no party hereto shall have any liability or
further obligation to any other party under the terms of this Agreement.
ARTICLE 7
MISCELLANEOUS
Section 7.1 Amendment and Modification. Subject to applicable law, this
Agreement may be amended, modified or supplemented only by a written agreement
signed by each of the parties hereto at any time prior to the Closing Date with
respect to any of the terms contained herein; provided, however, that after this
Agreement is adopted by the holders of Seller Common OP Units, no such amendment
shall be made which requires the approval of such holders.
Section 7.2 Waiver of Compliance; Consents. Any failure of Parent, Sub
or Buyer Operating LLC, on the one hand, or Seller General Partner or the Seller
Partnership, on the other hand, to comply with any obligation, covenant,
agreement or condition herein may, subject to Section 7.1, be waived by Parent,
Sub and Buyer Operating LLC or Seller General Partner and the Seller
Partnership, respectively, only by a written instrument signed by the party
granting such waiver, but such waiver or failure to insist upon strict
compliance with such obligation, covenant, agreement or condition shall not
operate as a waiver of, or estoppel with respect to, any subsequent or other
failure. Whenever this Agreement requires or permits consent by or on behalf of
any party hereto, such consent shall be given in writing in a manner consistent
with the
<PAGE> 17
requirements for a waiver of compliance as set forth in this Section 7.2 and in
Section 7.1.
Section 7.3 Survival. The respective representations and warranties of
Parent, Sub and Buyer Operating LLC and Seller General Partner and the Seller
Partnership contained herein shall not survive the Closing hereunder.
Section 7.4 Notices. All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be delivered
personally, sent by overnight courier (providing proof of delivery) to the
parties or sent by telecopy (providing confirmation of transmission) at the
following addresses or telecopy numbers (or at such other address or telecopy
number for a party as shall be specified by like notice):
(a) if to Parent, Sub or Buyer Operating LLC, to:
SHP Acquisition, L.L.C. or SHP OP, L.L.C.
c/o Sunstone Hotel Properties, Inc.
903 Calle Amanecer
San Clemente, CA 92673
Attention: Robert A. Alter
Fax: (949) 369-4210
and to:
SHP Acquisition, L.L.C. or SHP OP, L.L.C.
c/o Westbrook Real Estate Partners
599 Lexington Avenue
Suite 3800
New York, New York 10022
Attention: Jonathan Paul
Fax: (212) 849-8801
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017-3954
Attention: Richard Capelouto, Esq.
Brian M. Stadler, Esq.
Fax: (212) 455-2502
and
Battle Fowler LLP
<PAGE> 18
75 East 55th Street
New York, NY 10022
Attention: Martin L. Edelman, Esq.
Steve Lichtenfeld, Esq.
Fax: (212) 856-7808
(b) if to Seller General Partner or Seller Partnership,
to:
Sunstone Hotel Investors, Inc.
903 Calle Amanecer
San Clemente, CA 92673
Attention: Chief Operating Officer
Fax: (949) 369-4230
with a copy to:
Altheimer & Gray
Ten South Wacker Drive
Suite 4000
Chicago, IL 60603
Attention: Phillip Gordon, Esq.
Fax: (312) 715-4800
All notices shall be deemed given only when actually received.
Section 7.5 Assignment. This Agreement and all of the provisions hereof
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns, but neither this Agreement nor any
of the rights, interests or obligations hereunder shall be assigned by any of
the parties hereto without the prior written consent of the other parties.
Section 7.6 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE, REGARDLESS OF
THE LAWS THAT MIGHT OTHERWISE GOVERN UNDER APPLICABLE PRINCIPLES OF CONFLICT OF
LAWS THEREOF.
Section 7.7 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Section 7.8 Enforcement. The parties agree that irreparable harm would
occur in the event that any of the provisions of this Agreement were not
performed by any party in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that any party shall be entitled to an
injunction or injunctions to prevent or redress breaches of this Agreement by
any other party and to enforce specifically the terms and provisions of this
Agreement in any federal court located in Delaware or in Chancery Court in
Delaware, this being in addition to any other remedy to which they are entitled
at law or in equity. Notwithstanding the foregoing, the parties agree that no
party shall be entitled to a judgment specifically enforcing
<PAGE> 19
the obligations of any other party to consummate the Partnership Merger. The
parties agree that the provisions of Section 7.2 of the Merger Agreement
constitute the exclusive remedy of any party for the loss suffered by such party
as a result of the failure of the Partnership Merger to be consummated, and no
party shall have any liability to any other party as a result of the failure of
the Partnership Merger to be consummated, any breach of this Agreement or
otherwise except as provided in Section 7.2 of the Merger Agreement. In
addition, each of the parties hereto (a) consents to submit itself (without
making such submission exclusive) to the personal jurisdiction of any federal
court located in Delaware or Chancery Court located in Delaware in the event any
dispute arises out of this Agreement or any of the transactions contemplated by
this Agreement and (b) agrees that it will not attempt to deny or defeat such
personal jurisdiction by motion or other request for leave from any such court.
Section 7.9 Interpretation. The article and Section headings contained
in this Agreement are solely for the purpose of reference, are not part of the
agreement of the parties and shall not in any way affect the meaning or
interpretation of this Agreement.
Section 7.10 Entire Agreement. The Merger Agreement (including the
schedules, exhibits, documents or instruments referred to herein), this
Agreement, the Seller Disclosure Letter and the Parent Disclosure Letter
together embody the entire agreement and understanding of the parties hereto in
respect of the subject matter hereof and thereof and supersede all prior
agreements and understandings, both written and oral, among the parties, or
between any of them, with respect to the subject matter hereof and thereof.
Section 7.11 No Third Party Beneficiaries. This Agreement is not
intended to, and does not, create any rights or benefits of any party other than
the parties hereto.
Section 7.12 Severability. In the event that any one or more of the
provisions contained in this Agreement or in any other instrument referred to
herein, shall, for any reason, be held to be invalid, illegal or unenforceable
in any respect, such invalidity, illegality or unenforceability shall not affect
any other provision of this Agreement or any other such instrument.
Section 7.13 Tax Election. The parties hereby agree that an election
pursuant to Section 754 of the Internal Revenue Code shall be made for the
Seller Partnership and each partnership which is a subsidiary of the Seller
Partnership (or shall be in effect) with respect to any transfers of interests
in the Seller Partnership pursuant to the Merger and the Partnership Merger.
<PAGE> 20
IN WITNESS WHEREOF, Parent, Sub, Buyer Operating LLC, Seller General
Partner and the Seller Partnership have caused this Agreement and Plan of Merger
to be signed by a person duly authorized to do so as of the date first above
written.
SHP ACQUISITION L.L.C.
By: /s/ Paul Kazilionis
-----------------------------
Name: /s/ Paul Kazilionis
Title: Manager
SHP OP, L.L.C.
By: /s/ Jonathan H. Paul
------------------------------
Name: Jonathan H. Paul
Title: Authorized Person
SHP PROPERTIES CORP.
By: /s/ Jonathan H. Paul
-------------------------------
Name: Jonathan H. Paul
Title: Authorized Person
SUNSTONE HOTEL INVESTORS, INC.
By: /s/ R. Terrence Crowley
--------------------------------
Name: R. Terrence Crowley
Title: Chief Operating Officer
SUNSTONE HOTEL INVESTORS, L.P.
By: SUNSTONE HOTEL INVESTORS, INC.
By: /s/ R. Terrence Crowley
----------------------------------
Name: R. Terrence Crowley
Title: Auhorized Person
<PAGE> 21
Exhibit A
LIMITED LIABILITY COMPANY AGREEMENT
OF
SHP OP, L.L.C.
This LIMITED LIABILITY COMPANY AGREEMENT (this "Agreement") of SHP
OP, L.L.C. is made as of June 12, 1999 by SHP Acquisition, L.L.C., a Delaware
limited liability company ("SHP Acquisition") and SHP Properties Corp., a
Delaware corporation ("SHP Properties" and, collectively with SHP Acquisition,
the "Original Members").
The Original Member hereby duly adopts this Agreement pursuant to
and in accordance with the Delaware Limited Liability Company Act (6 Del.C.
Section 18-101, et seq.), as amended from time to time (the "Act"), and hereby
agrees as follows:
1. Name; Certificate of Formation. The name of the limited liability
company is SHP OP, LLC. (the "Company"). The Certificate of Formation of the
Company dated June 29, 1999 was filed in the office of the Secretary of State of
the State of Delaware on June 29, 1999.
2. Purpose. The Company is formed for the object and purpose of, and
the nature of the business to be conducted and promoted by the Company is,
engaging in any lawful act or activity for which limited liability companies may
be formed under the Act and engaging in any and all activities necessary or
incidental to the foregoing.
3. Member Percentages. The percentage interest of each of the
Original Members as of the date of this Agreement is set forth on Schedule A
hereto. If one or more new members are admitted in accordance with the terms
hereof, or if there are any other changes this Agreement will be amended and the
percentage interest of each Member (the "Membership Percentage") set forth on a
schedule hereto.
4. Designated Agent for Service of Process. The Company shall
maintain a registered office and a designated and duly qualified agent for the
service of process on the Company in the State of Delaware.
5. Managers. The Original Members hereby appoint the following named
persons to be managers of the Company (the "Managers") and to serve with the
title indicated:
<PAGE> 22
<TABLE>
<CAPTION>
NAME TITLE
---- -----
<S> <C>
Robert A. Alter Manager
Paul Kazilionis Manager
Mark Mance Manager
Jonathan H. Paul Manager
</TABLE>
6. Powers. The business and affairs of the Company shall be managed
by the Original Members and such other persons as may become members of the
Company from time to time in accordance with the provisions of this Agreement
(together with the Original Members, the "Members"). The Members shall have the
power to do any and all acts necessary or convenient to or for the furtherance
of the purposes described herein, including all powers, statutory or otherwise,
possessed by members under the laws of the State of Delaware. Each of the
Managers is hereby each designated as an authorized person, within the meaning
of the Act, to execute, deliver and file the certificate of formation of the
Company (and any amendments and/or restatements thereof) and any other
certificates (and any amendments and/or restatements thereof) necessary for the
Company to qualify to do business in a jurisdiction in which the Company may
wish to conduct business.
7. Management. The Managers shall have the sole and exclusive power
and authority to act for and bind the Company. The Original Members shall have
the exclusive right to manage the business and affairs of the Company and may
delegate such management rights, powers, duties and responsibilities to one or
more Managers or such other person or persons designated by them as they may
determine, provided that such delegation by the Original Members shall not cause
either of the Original Members to cease being a Member. Pursuant to its
discretion to do so under this Section 7, the Original Members hereby delegate
to the Managers the nonexclusive power and authority to act as an agent of the
Company and, in such capacity, to bind the Company in the ordinary course of the
Company's business and to execute any and all documents to be signed by the
Company. Notwithstanding the foregoing delegation of power, no Manager shall
have the authority to make any distributions or sell any assets of the Company
without the consent of each of the Original Members.
8. Dissolution. The Company shall dissolve, and its affairs shall be
wound up upon the first to occur of the following: (a) the written consent of
the Original Members, (b) December 31, 2049, (c) the retirement, resignation,
expulsion, insolvency, bankruptcy or dissolution of any Member or the occurrence
of any other event which terminates the continued membership of any of the
Original Members in the Company unless the business of the Company is continued
by consent of each of the Original Members within 90 days following the
occurrence of any such event, or (d) the entry of a decree of judicial
dissolution under Section 18-802 of the Act.
<PAGE> 23
9. Capital Contributions. The Members shall make capital
contributions to the Company from time to time, in cash, securities or other
property, in amounts and at times as determined by the Original Members, and in
proportion to their respective Membership Percentages.
10. Allocation of Profits and Losses. The Company's profits and
losses shall be allocated among the Members in proportion to their respective
Membership Percentages.
11. Distributions. Distributions shall be made to the Members at the
times and in the amounts determined by the Original Members. Such distributions
shall be allocated among the Members in proportion to their respective
Membership Percentages.
12. Assignments; New Members. No Member may assign in whole or in
part its limited liability company interest without the consent of each other
Member, which consent may be granted or withheld in such Member's sole and
absolute discretion. The Members may admit one or more new Members at any time
upon such terms and conditions as they shall unanimously agree.
13. Resignation. No Member may resign from the Company without the
consent of each of the Original Members; provided, however, that each of the
Original Members may resign from the Company, thereby causing its dissolution,
without the consent of any other Member.
14. Liability of Member; Indemnification. The Members shall not have
any liability to the Company, any other Members or any third party for the
obligations or liabilities of the Company except to the extent required by the
Act. The Company shall, to the full extent permitted by applicable law,
indemnify and hold harmless each Member and each Manager against liabilities
incurred by it in connection with any action, suit or proceeding to which it may
be made a party or otherwise involved or with which such Member or such Manager
shall be threatened by reason of its being a Member or Manager or while acting
as a Member or Manager on behalf of the Company or in its interest.
15. Governing Law. This Agreement shall be governed by, and
construed under, the laws of the State of Delaware, all rights and remedies
being governed by said laws.
16. Proposed Transactions. (a) The Original Members hereby deem it
advisable and in the best interest of the Company that the Company enter into
the Merger Agreement, dated as of July 12, 1999, among the Company, SHP
Acquisition, SHP Properties and Sunstone Hotel Investors, L.P., a Delaware
limited partnership (the "Merger Agreement"), a form of which has been presented
to the Members, and the transactions contemplated thereby, be, and each of them
hereby is, in all respects authorized and approved; and the Managers are, and
each of them hereby is, authorized to execute and deliver on behalf of the
Company the Merger Agreement with such changes therein and additions or
amendments thereto, and any and all ancillary documents (collectively with the
Merger Agreement, the "Transaction Agreements"), in
<PAGE> 24
such form as the Manager or Manager executing any of the Transaction Agreements
shall approve, such Manager's execution thereof to be conclusive evidence of
such approval.
(b) All actions heretofore taken by any Member, any Manager or an
authorized person within the meaning of the Act in connection with any matter
referred to herein are hereby approved, ratified and confirmed in all respects.
(c) The Managers are, and each of them hereby is, authorized, and
directed to do and perform, or cause to be done and performed, all such acts,
deeds and things and to make, execute and deliver, or cause to be made, executed
and delivered, all such agreements, undertakings, documents, instruments,
certificates and other papers and instruments, in the name and on behalf of the
Company or otherwise as each such Manager may deem necessary or appropriate to
effectuate or carry out fully the purpose and intent of the Transaction
Agreements and any of the transactions contemplated thereby.
17. Amendment. This Agreement may only be amended by a writing duly signed
by each of the Original Members, except that any such amendment which directly
and materially affects any Member shall require the consent of each such Member
so affected.
18. Counterparts. This Agreement may be executed in any number of
counterparts, and each such counterpart shall for all purposes be deemed an
original, and all such counterparts shall together constitute but one and the
same agreement.
19. Entire Agreement. This Agreement constitutes the entire agreement
among the Members and supersedes all prior agreements and understandings among
the Members with respect to the matters contemplated hereby. There are no
restrictions, warranties, covenants, agreements, promises or undertakings other
than those expressly set forth in this Agreement.
<PAGE> 25
IN WITNESS WHEREOF, the undersigned, intending to be legally bound
hereby, have duly executed this Limited Liability Company Agreement as of the
date first written above.
SHP ACQUISITION, L.L.C.
By /s/ Paul Kazilionis
------------------------------
Name: Paul Kazilionis
---------------------
Title: Manager
---------------------
SHP PROPERTIES CORP.
By /s/ Jonathan H. Paul
----------------------------
Name: Jonathan H. Paul
--------------------
Title: Authorized Person
--------------------
<PAGE> 26
SCHEDULE A
<TABLE>
<CAPTION>
Member Percentage Interest
- ------ -------------------
<S> <C>
SHP Acquisition, L.L.C. 99%
SHP Properties Corp. 1%
</TABLE>
<PAGE> 27
EXHIBIT B
SECOND AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
SUNSTONE HOTEL INVESTORS, L.P.
<PAGE> 28
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I - DEFINED TERMS.................................................................. 1
ARTICLE II - PARTNERSHIP CONTINUATION AND IDENTIFICATION................................... 11
2.1 Organization................................................................ 11
2.2 Name........................................................................ 11
2.3 Registered Office and Agent; Principal Office............................... 12
2.4 Partners.................................................................... 12
2.5 Term and Dissolution........................................................ 12
2.6 Filing of Certificate and Perfection of Limited Partnership................. 13
ARTICLE III - PURPOSE OF THE PARTNERSHIP................................................... 13
3.1 Business.................................................................... 13
3.2 Powers...................................................................... 14
3.3 Partnership Only for Purposes Specified..................................... 14
ARTICLE IV - CAPITAL CONTRIBUTIONS AND ACCOUNTS............................................ 14
4.1 Capital Contributions....................................................... 14
4.2 Additional Capital Contributions and Issuances of Additional Partnership
Interests................................................................... 15
4.3 Company Loans............................................................... 20
4.4 Capital Accounts............................................................ 21
4.5 Percentage Interests........................................................ 21
4.6 No Interest on Contributions................................................ 21
4.7 Return of Capital Contributions............................................. 21
4.8 No Third Party Beneficiary.................................................. 22
4.9 No Preemptive Rights........................................................ 22
ARTICLE V - PROFITS AND LOSSES: DISTRIBUTIONS.............................................. 22
5.1 Allocation of Profit and Loss............................................... 22
5.2 Distribution of Cash........................................................ 25
5.3 REIT Distribution Requirements.............................................. 25
5.4 No Right to Distributions in Kind........................................... 25
5.5 Limitations on Return of Capital Contributions.............................. 25
5.6 Distributions upon Liquidation.............................................. 25
5.7 Substantial Economic Effect................................................. 26
5.8 Amounts Withheld............................................................ 26
ARTICLE VI - RIGHTS, OBLIGATIONS AND POWERS OF THE GENERAL
PARTNERSHIP........................................................................ 27
6.1 Management of the Partnership............................................... 27
6.2 Delegation of Authority..................................................... 30
6.3 Indemnification and Exculpation of Indemnitees.............................. 30
</TABLE>
i
<PAGE> 29
<TABLE>
<S> <C> <C>
6.4 Liability of the General Partner............................................ 31
6.5 Expenditures by Partnership................................................. 32
6.6 Outside Activities; Redemption Tender Offer of REIT Shares.................. 32
6.7 Employment or Retention of Affiliates....................................... 32
6.8 Company Participation....................................................... 33
ARTICLE VII - CHANGES IN GENERAL PARTNER................................................... 33
7.1 Transfer of the General Partner's Partnership Interest...................... 33
7.2 Admission of a Substitute or Successor General Partner...................... 34
7.3 Effect of Bankruptcy, Withdrawal, Death or Dissolution of a General
Partner..................................................................... 35
7.4 Purchase of Partnership Units............................................... 36
ARTICLE VIII - RIGHTS AND OBLIGATIONS OF THE LIMITED PARTNERS.............................. 36
8.1 Management of the Partnership............................................... 36
8.2 Power of Attorney........................................................... 36
8.3 Limitation on Liability of Limited Partners................................. 37
8.4 Ownership by Limited Partner of Corporate General Partner or Affiliate...... 37
8.5 Redemption Right............................................................ 38
8.6 Registration................................................................ 41
8.7 Meetings of the Partners.................................................... 45
ARTICLE IX - TRANSFERS OF LIMITED PARTNERSHIP INTERESTS.................................... 46
9.1 Purchase for Investment..................................................... 46
9.2 Restrictions on Transfer of Limited Partnership Interests and Redemption
Shares...................................................................... 47
9.3 Admission of Substitute Limited Partner..................................... 49
9.4 Rights of Assignees of Partnership Interests................................ 50
9.5 Effect of Bankruptcy, Death, Incompetence or Termination of a Limited
Partner..................................................................... 50
9.6 Joint Ownership of Interests................................................ 51
9.7 Assignment of all Partnership Units......................................... 51
9.8 Limitation on Transfer of Partnership Units and Other Rights to Avoid
Adverse Tax Effects......................................................... 51
ARTICLE X - BOOKS AND RECORDS: ACCOUNTING: TAX MATTERS..................................... 52
10.1 Books and Records........................................................... 52
10.2 Custody of Partnership Funds: Bank Accounts................................. 52
10.3 Fiscal and Taxable Year..................................................... 53
10.4 Annual Tax Information and Report........................................... 53
10.5 Tax Matters Partner; Tax Elections; Special Basis Adjustments............... 53
10.6 Reports to Limited Partners................................................. 53
10.7 Title to Partnership Assets................................................. 54
10.8 Reliance by Third Parties................................................... 54
10.9 Withholding................................................................. 55
</TABLE>
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<TABLE>
<S> <C> <C>
ARTICLE XI - AMENDMENT OF AGREEMENT........................................................ 56
ARTICLE XII - GENERAL PROVISIONS........................................................... 56
12.1 Notices..................................................................... 56
12.2 Survival of Rights.......................................................... 57
12.3 Additional Documents........................................................ 57
12.4 Severability................................................................ 57
12.5 Entire Agreement............................................................ 57
12.6 Pronouns and Plurals........................................................ 57
12.7 Headings.................................................................... 57
12.8 Counterparts................................................................ 57
12.9 Waiver...................................................................... 57
12.10 Applicable Law.............................................................. 57
12.11 Invalidity of Provisions.................................................... 58
12.12 No Rights as Stockholders................................................... 58
12.13 Partition................................................................... 58
12.14 No Third-Party Rights Created Hereby........................................ 58
</TABLE>
EXHIBITS
EXHIBIT A - Notice of Exercise of Redemption Right
EXHIBIT B - Certificate(s) of Designation of Preferred Partnership Units
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<PAGE> 31
SECOND AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF SUNSTONE HOTEL INVESTORS, L.P.
This Second Amended and Restated Agreement of Limited Partnership
(this "Agreement") of Sunstone Hotel Investors, L.P. dated as of October 14,
1997, is entered into by and among Sunstone Hotel Investors, Inc., a Maryland
corporation, in its individual capacity (the "Company") and in its capacity as
the general partner of the Partnership (the "General Partner") and each of the
limited partners of the Partnership (the "Limited Partners"), together with any
other Persons who become Partners in the Partnership as provided herein.
R E C I T A L S:
A. WHEREAS, the General Partner and certain Limited Partners executed
that certain First Amended and Restated Agreement of Limited Partnership dated
as of October 16, 1995 (the "First Restated Agreement"), amending and restating
that certain Limited Partnership Agreement dated as of September 22, 1994 (the
"Original Agreement").
B. WHEREAS, the First Restated Agreement was amended by fourteen
amendments thereto.
C. WHEREAS, the parties hereto have determined it to be in their mutual
best interests to amend and restate the First Restated Agreement to incorporate
the fourteen amendments thereto and to make certain other changes to the First
Restated Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing, of mutual covenants
between the parties hereto, and of other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree to amend the First Restated Agreement to read in its entirety as follows:
ARTICLE I
DEFINED TERMS
The following defined terms used in this Agreement shall have the
meanings specified below:
"ACT" means the Delaware Revised Uniform Limited Partnership Act, as it
may be amended from time to time, and any successor to such statute.
"ADDITIONAL LIMITED PARTNER" means a Person admitted to this Partnership
as a Limited Partner pursuant to Section 4.2 hereof and who is shown as such on
the Unitholder Ledger.
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"ADMINISTRATIVE EXPENSES" means (i) all administrative and operating
costs and expenses incurred by the Partnership, (ii) those administrative costs
and expenses of the General Partner, including any salaries or other payments to
directors, officers and/or employees of the General Partner, and any accounting
and legal expenses of the General Partner, which expenses, the Partners have
agreed, are expenses of the Partnership and not the General Partner, and (iii)
to the extent not included in clause (ii) above, REIT Expenses; provided,
however, that Administrative Expenses shall not include any administrative costs
and expenses incurred by the Company that are attributable to Properties owned
by the Company directly, if any.
"AFFILIATE" means (i) any Person that, directly or indirectly, controls
or is controlled by or is under common control with such Person, (ii) any other
Person that owns, beneficially, directly or indirectly, 5% or more of the
outstanding capital stock, shares or equity interests of such Person, or (iii)
any officer, director, employee, partner or trustee of such Person or any Person
controlling, controlled by or under common control with such Person (excluding
trustees and persons serving in similar capacities who are not otherwise an
Affiliate of such Person). For the purposes of this definition, "control"
(including the correlative meanings of the terms "controlled by" and "under
common control with"), as used with respect to any Person, shall mean the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, through the ownership
of voting securities, partnership interests or other equity interests.
"AGREED VALUE" means the fair market value of a Partner's non-cash
Capital Contribution as of the date of such contribution as agreed to by the
Partners making such contribution and the General Partner. For purposes of this
Partnership Agreement, the Agreed Value of a Partner's non-cash Capital
Contribution shall be equal to the number of Partnership Units received by such
Partner in consideration for the conveyance or exchange of a Hotel or an
interest in a Hotel, or in connection with the merger of a limited liability
company, corporation or a partnership of which such Person is a member,
shareholder or partner with and into the Partnership, or for any other non-cash
asset so contributed, multiplied by the Public Offering Price or, if the
contribution is or was made after the date of the closing of the Initial
Offering, the Market Price; provided, that if there is no Market Price, the
price agreed to by the Partners making such contribution and the General
Partner. For Partners who contributed assets to the Partnership prior to the use
of the Unitholder Ledger, the names and addresses of such Partners, number of
Partnership Units issued to each Partner and the Agreed Value of non-cash
Capital Contributions was as set forth on Exhibit "A" to the First Restated
Agreement. After the introduction of the Unitholder Ledger, the names and
addresses of the Partners and the number of Partnership Units issued to each
Partner in exchange for assets contributed have been recorded in the Unitholder
Ledger.
"AGREEMENT" means this Second Amended and Restated Agreement of Limited
Partnership, as it may be further amended, supplemented or restated from time to
time.
"ARTICLES OF INCORPORATION" means the Articles of Incorporation of the
General Partner originally filed in the State of Maryland on September 21, 1994,
as amended and restated on September 23, 1994, as amended on November 9, 1994,
June 19, 1995, August 14, 1995 and May 2, 1997, and as further amended or
restated from time to time.
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<PAGE> 33
"ASSIGNEE" means a Person to whom one or more Partnership Units have
been transferred in a manner permitted under this Agreement, but who has not
become a Substituted Limited Partner.
"BOOK VALUE" means, with respect to any asset, the asset's adjusted
basis for federal income tax purposes, except as follows:
(a) The initial Book Value of any asset contributed by a Partner
to the Partnership shall be the gross fair market value of such asset (not
reduced by any associated liabilities), as agreed to by the Partners;
(b) The Book Value of the Properties of the Partnership shall be
adjusted to equal their respective gross fair market values as provided in
Section 4.4 hereof; and
(c) The Book Value of any Property distributed to a Partner shall
be adjusted to equal the gross fair market value of such asset on the date of
distribution as determined by the General Partner.
The Book Value of any Property which has been established or adjusted to reflect
gross fair market value hereunder shall thereafter be adjusted by the
Depreciation taken into account with respect to such asset for purposes of
computing net income or net loss.
"BUSINESS DAY" means any day except a Saturday, Sunday or other day on
which commercial banks in New York, New York or Orange County, California are
authorized or required by law to close.
"CAPITAL ACCOUNT" has the meaning provided in Section 4.4 hereof.
"CAPITAL CONTRIBUTION" means the total amount of capital contributed or
agreed to be contributed, as the context requires, to the Partnership by each
Partner pursuant to the terms of the Agreement. Any reference to the Capital
Contribution of a Partner shall include the Capital Contribution made by a
predecessor holder of the Partnership Interest of such Partner. The paid-in
Capital Contribution shall mean the cash amount or the Agreed Value of other
assets actually contributed by each Partner to the capital of the Partnership.
"CASH AMOUNT" means an amount of cash per Partnership Unit equal to the
value of the REIT Shares Amount on the date of receipt by the General Partner of
a Notice of Redemption or, if such date is not a Business Day, the first
Business Day thereafter. The value of the REIT Shares Amount shall be the Market
Price.
"CERTIFICATE" means the Certificate of Limited Partnership relating to
the Partnership together with any instrument or document that is required under
the laws of Delaware or any other jurisdiction in which the Partnership conducts
business, to be signed by the Partners of the Partnership (either by themselves
or pursuant to the power-of-attorney granted to the General Partner in Section
8.2 hereof) and filed for recording in the appropriate public offices within
Delaware or such other jurisdiction to perfect or maintain the Partnership as a
limited partnership, to effect the
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<PAGE> 34
admission, withdrawal, or substitution of any Partner of the Partnership, or to
protect the limited liability of the Limited Partners as limited partners under
the laws of Delaware or such other jurisdiction.
"CERTIFICATE OF DESIGNATION" means, for a particular class of Preferred
Partnership Units, the description of the rights, preferences and privileges to
which the holders of Preferred Partnership Units of such class are entitled. For
each class of Preferred Partnership Units that may be issued, a Certificate of
Designation shall be attached hereto as Exhibit "B" and shall be incorporated by
reference herein.
"CODE" means the Internal Revenue Code of 1986, as amended and in effect
from time to time, or any successor statute thereto, as interpreted by the
applicable regulations thereunder. Any reference herein to a specific section or
sections of the Code shall be deemed to include a reference to any corresponding
provision of future law.
"COMMISSION" means the U.S. Securities and Exchange Commission.
"COMMON PARTNERSHIP UNITS" means a fractional, undivided share of the
Partnership Interests of all Partners issued hereunder, excluding any Preferred
Partnership Units.
"COMMON UNITHOLDER" means a holder of Common Partnership Units.
"COMPANY" means Sunstone Hotel Investors, Inc., a Delaware corporation,
in its capacity other than as the General Partner or Limited Partner.
"COMPANY CONTRIBUTION" has the meaning provided in Section 4.2(a)(ii)
hereof.
"CONVERSION FACTOR" means one (1), provided that in the event that the
General Partner (i) declares or pays a dividend on its outstanding REIT Shares
in REIT Shares or makes a distribution to all holders of its outstanding REIT
Shares in REIT Shares, (ii) subdivides its outstanding REIT Shares, or (iii)
combines its outstanding REIT Shares into a smaller number of REIT Shares, the
Conversion Factor shall be adjusted by multiplying the Conversion Factor by a
fraction, the numerator of which shall be the number of REIT Shares issued and
outstanding on the record date for such dividend, distribution, subdivision or
combination (assuming for such purposes that such dividend, distribution,
subdivision or combination has occurred as of such time), and the denominator of
which shall be the actual number of REIT Shares (determined without the above
assumption) issued and outstanding on such date. Any adjustment to the
Conversion Factor shall become effective immediately after the effective date of
such event retroactive to the record date, if any, for such event.
"DEPRECIATION" means, for each accounting period, an amount equal to the
depreciation, amortization or other cost recovery deduction allowable with
respect to an asset for such period, except that if the Book Value of an asset
differs from its adjusted basis for federal income tax purposes during such
accounting period, Depreciation shall be an amount which bears the same ratio to
Book Value as the federal income tax depreciation, amortization, or other cost
recovery deduction
4
<PAGE> 35
for such period bears to such beginning adjusted tax basis; provided, however,
that if the adjusted basis for federal income tax purposes of an asset at the
beginning of such accounting period is zero, Depreciation shall be determined
with reference to such asset as if the adjusted basis of the asset for federal
income tax purposes were equal to the Book Value and using any reasonable method
of cost recovery selected by the General Partner.
"DIRECTORS' PLAN" means the 1994 Directors' Plan of the Company relating
to the issuance of REIT shares and the grant of options to acquire REIT Shares
and similar rights to directors of the Company.
"DIVIDEND REINVESTMENT PLAN" means the Dividend Reinvestment and Stock
Purchase Plan of the Company pursuant to which certain eligible persons may
purchase REIT Shares directly from the Company, and holders of REIT Shares may
elect to have some or all of their dividends on their REIT Shares reinvested to
purchase additional REIT Shares from the Company.
"ELIGIBLE PERSON" has the meaning provided in Section 4.2(f) hereof.
"EVENT OF BANKRUPTCY" as to any Person means the filing of a petition
for relief as to such Person as debtor or bankrupt under the Bankruptcy Code of
1978 or similar provision of law of any jurisdiction (except if such petition is
contested by such Person and has been dismissed within ninety (90) days of
filing); insolvency or bankruptcy of such Person as finally determined by a
court proceeding; filing by such Person of a petition or application to
accomplish the same or for the appointment of a receiver or a trustee for such
Person or a substantial part of his assets; commencement of any proceedings
relating to such Person as a debtor under any other reorganization, arrangement,
insolvency, adjustment of debt or liquidation law of any jurisdiction, whether
now in existence or hereinafter in effect, either by such Person or by another,
provided that if such proceeding is commenced by another, such Person indicates
his approval of such proceeding, consents thereto or acquiesces therein, or such
proceeding is contested by such Person and has not been finally dismissed within
ninety (90) days of filing.
"FINANCIAL STATEMENTS" has the meaning provided in Section 10.6(a)
hereof.
"FUNDING LOAN" has the meaning provided in Section 4.3 hereof.
"GENERAL PARTNER" means Sunstone Hotel Investors, Inc., a Maryland
corporation and any Person who becomes a substitute or additional General
Partner as provided herein, and any of their successors as General Partner.
"GENERAL PARTNERSHIP INTEREST" means the Partnership Interest held by
the General Partner that is a general partnership interest representing a
fractional part of the Partnership Interests at any particular time, including
the right of such limited partner to any and all benefits to which such limited
partner may be entitled as provided in this Agreement and in the Act, together
with the obligations of such general partner to comply with provisions of this
Agreement and Act. A General Partner Interest may be expressed as a number of
Partnership Units.
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<PAGE> 36
"IMMEDIATE FAMILY MEMBER" has the meaning provided in Section
9.2(d)(iii) hereof.
"INCENTIVE RIGHTS" has the meaning provided in Section 4.2(f)(iii)
hereof.
"INDEMNIFIED PARTY" has the meaning provided in Section 8.6(e) hereof.
"INDEMNIFYING PARTY" has the meaning provided in Section 8.6(e) hereof.
"INDEMNITEE" means (i) any Person made a party to a proceeding by reason
of his status as (A) the General Partner or (B) a director or officer of the
Partnership or the General Partner, or (C) a party liable, pursuant to a loan
guarantee or otherwise, for any indebtedness of the Partnership or any
Subsidiary of the Partnership (including, without limitation, any indebtedness
which the Partnership or any Subsidiary of the Partnership has assumed or taken
assets subject to), and (ii) such other Persons (including Affiliates of the
General Partner or the Partnership) as the General Partner may designate from
time to time (whether before or after the event giving rise to potential
liability), in its sole and absolute discretion.
"INDEPENDENT DIRECTOR" has the meaning provided in the Articles of
Incorporation.
"INITIAL HOTELS" means the Hampton Inn-Denver (S.W.), the Hampton
Inn-Pueblo, Colorado, the Hampton Inn-Mesa, Arizona, the Hampton Inn,
Silverthorne, Colorado, the Hampton Inn, Arcadia, California, the Best Western,
Santa Fe, New Mexico, the Holiday Inn-Craig, Colorado, the Holiday Inn-Steamboat
Springs, Colorado, the Holiday Inn-Provo, Utah, and the Courtyard by
Marriott-Fresno, California, and any other hotel contributed by an Additional
Limited Partner prior to the date of this Agreement.
"INITIAL OFFERING" means the initial offer and sale by the General
Partner and the purchase by the Underwriters (as defined in the prospectus for
such offering) of the shares of common stock of the General Partner for sale to
the public.
"LIMITED PARTNER" means any Person named as a Limited Partner on the
Unitholder Ledger, and any Person who becomes a Substitute or Additional Limited
Partner, in such Person's capacity as a Limited Partner in the Partnership.
"LIMITED PARTNERSHIP INTEREST" means a Partnership Interest of a Limited
Partner in the Partnership representing a fractional part of the Partnership
Interests at any particular time, including the right of such Limited Partner to
any and all benefits to which such Limited Partner may be entitled as provided
in this Agreement and in the Act, together with the obligations of such Limited
Partner to comply with all the provisions of this Agreement and of the Act. A
Limited Partner Interest may be expressed as a number of Partnership Units.
"LIQUIDATOR" has the meaning provided in Section 8.2 hereof.
"LOSS" has the meaning provided in Section 5.1(f) hereof.
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<PAGE> 37
"MARKET PRICE" on any date shall mean the average of the Closing Price
for the five consecutive Trading Days ending on such date. The "Closing Price"
on any day shall mean the last reported sale price, regular way, or, in case no
such sale takes place on such day, the average of the closing bid and asked
prices, regular way, in either case as reported in the principal consolidated
transaction reporting system with respect to securities listed or admitted to
trading on the New York Stock Exchange, of the class of REIT Shares or REIT
Preferred Shares, or, if not, then listed or admitted to trading on the New York
Stock Exchange, as reported in the principal consolidated transaction reporting
system with respect to securities listed on the principal national securities
exchange on which such shares are listed or admitted to trading or, if such
shares are not then listed or admitted to trading on any national securities
exchange, the last quoted price, or if not so quoted, the average of the high
bid and low asked prices in the over-the-counter market, as reported by the
National Association of Securities Dealers, Inc. Automated Quotation System or,
if such system is no longer in use, the principal other automated quotations
system that may then be in use or, if such shares are not quoted by any such
organization, the average of the closing bid and asked prices as furnished by a
professional market marker making a market in such shares as selected in good
faith by the Board of Directors of the Company. "Trading Day" shall mean a day
on which the principal national securities exchange on which such REIT Shares or
REIT Preferred Shares are listed or admitted to trading is open for the
transaction of business or, if such shares are not listed or admitted to trading
on any national securities exchange, shall mean any day other than a Saturday, a
Sunday or a day on which banking institutions in the State of New York are
authorized or obligated by law or executive order to close.
"MINIMUM LIMITED PARTNERSHIP INTEREST" means the lesser of (i) 1 % or
(ii) if the total Capital Contributions to the Partnership exceeds $50 million,
1% divided by the ratio of the total Capital Contributions to the Partnership to
$50 million; provided, however, that the Minimum Limited Partnership Interest
shall not be less than 0.2% at any time.
"NEW SECURITIES" has the meaning provided in Section 4.2(a)(ii) hereof.
"NOTICE OF REDEMPTION" means the Notice of Exercise of Redemption Right
substantially in the form attached as Exhibit "A" hereto.
"OFFER" has the meaning provided in Section 7.1(c) hereof.
"PARTNER" means any General Partner or any Limited Partner, and
"PARTNERS" means collectively the General Partner and all of the Limited
Partners.
"PARTNER NONRECOURSE DEBT MINIMUM GAIN" has the meaning set forth in
Regulations Section 1.704-2(i). A Partner's share of Partner Nonrecourse Debt
Minimum Gain shall be determined in accordance with Regulations Section
1.704-2(i)(5).
"PARTNERSHIP" means the limited partnership formed under the Act and
pursuant to the Original Agreement, as amended and restated pursuant to the
First Restated Agreement and this Agreement and any successor partnership
thereto.
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<PAGE> 38
"PARTNERSHIP INTEREST" means an ownership interest in the Partnership
representing a Capital Contribution by either a Limited Partner or the General
Partner and includes any and all benefits to which the holder of such a
Partnership Interest may be entitled as provided in this Agreement, together
with all obligations of such Person to comply with the terms and provisions of
this Agreement or the Act. A Partnership Interest may be expressed as a number
of Partnership Units.
"PARTNERSHIP MINIMUM GAIN" has the meaning set forth in Regulations
Section 1.704- 2(d). In accordance with Regulations Section 1.704-2(d), the
amount of Partnership Minimum Gain is determined by first computing, for each
Partnership nonrecourse liability, any gain the Partnership would realize if it
disposed of the property subject to that liability for no consideration other
than full satisfaction of the liability, and then aggregating the separately
computed gains. A Partner's share of Partnership Minimum Gain shall be
determined in accordance with Regulations Section 1.704-2(g)(1).
"PARTNERSHIP RECORD DATE" means the record date established by the
General Partner for the distribution of Distributable Cash pursuant to Section
5.2 hereof, which record date shall be the same as the record date established
by the General Partner for a distribution to its stockholders of some or all of
its portion of such distribution.
"PARTNERSHIP UNIT" means a fractional, undivided share of the
Partnership Interests of all Partners issued at any time and from time to time
by the Partnership, consisting of either Common Partnership Units or Preferred
Partnership Units. The ownership of Partnership Units shall be evidenced by book
entry on the Unitholder Ledger maintained by the Transfer Agent that reflects
the issuance, redemption, exchange or conversion of Partnership Units. In the
absence of manifest error, the Unitholder Ledger shall be final, conclusive and
binding on all Limited Partners.
"PERCENTAGE INTEREST" means the percentage ownership interest in the
Partnership that each Partner, as determined by dividing the Partnership Units
owned by a Partner as of the date of determination by the total number of
Partnership Units then outstanding, as may be adjusted by Section 4.2 hereof.
The Percentage Interest of each Partner is set forth opposite its respective
name on the Unitholder Ledger.
"PERSON" means any individual, partnership, limited liability company,
corporation, joint venture, trust, association or other entity.
"PLEDGE" has the meaning provided in Section 9.2(a) hereof.
"PREFERRED UNIT" means a fractional, undivided share of the Partnership
interest of all Partners issued at any time and from time to time by the
Partnership, which has the rights, preferences and other privileges designated
in the Certificate of Designation related to a particular class of Preferred
Partnership Units. With respect to any class of Preferred Partnership Units, the
allocation of Preferred Partnership Units among the Partners holding units of
such class shall be as set forth on the Unitholder Ledger.
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<PAGE> 39
"PREFERRED UNITHOLDER" means a Partner holding one or more Preferred
Partnership Units.
"PROFIT" has the meaning provided in Section 5.1(f) hereof.
"PROPERTIES" means the Initial Hotels together with any other hotel
property or other investment in which the Partnership holds an ownership or
ground lessee interest, including collectively real and personal property.
"PROSPECTUS" means the final prospectus delivered to purchasers of
shares of the General Partner's common stock in the most recent public offering
of securities of the Company.
"PUBLIC OFFERING PRICE" shall mean the initial public offering price set
forth in the Prospectus for the Initial Offering.
"REDEEMING PARTNER" has the meaning provided in Section 8.5(a) hereof.
"REDEMPTION AMOUNT" means the Cash Amount, or the REIT Shares Amount, as
selected by the General Partner in its sole discretion pursuant to Section 8.5
hereof, subject to the obligation under Section 8.5(c) hereof in certain cases
to pay the Cash Amount.
"REDEMPTION RIGHT" has the meaning provided in Section 8.5(a) hereof.
"REDEMPTION SHARES" means all of the REIT Shares issued or to be issued
upon the redemption of Partnership Units under Section 8.5 hereof.
"REGISTERED REDEMPTION SHARES" means any Redemption Shares covered by a
Shelf Registration.
"REGULATIONS" means the Federal Income Tax Regulations promulgated under
the Code, as amended and as hereafter amended from time to time. Reference to
any particular provision of the Regulations shall mean that provision of the
Regulations on the date hereof and any succeeding provision of the Regulations.
"REIT" means a real estate investment trust under Sections 856 through
860 of the Code.
"REIT EXPENSES" means (i) all of the costs and expenses relating to the
formation and continuity of existence of the Company (as a General Partner and
Limited Partner) and any Subsidiaries thereof (which Subsidiaries shall, for
purposes of this definition, be included within the definition of Company),
including taxes, fees and assessments associated therewith, any and all costs,
expenses or fees payable to any director, officer, or employee of the Company,
(ii) costs and expenses relating to the public offering and registration of
securities from time to time by the Company and all statements, reports, fees
and expenses incidental thereto, including underwriting discounts and selling
commissions applicable to any such offering of securities by the Company, (iii)
costs and expenses associated with the preparation and filing of any periodic
reports by the Company under federal, state or local laws or regulations,
including filings with the Commission, (iv) costs
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<PAGE> 40
and expenses associated with compliance by the Company with laws, rules and
regulations promulgated by any regulatory body, including the Commission, and
(v) all other operating or administrative costs of the Company incurred in the
ordinary course of its business on behalf of the Partnership.
"REIT PREFERRED SHARE" means a share of preferred stock of the Company.
"REIT SHARE" means a share of common stock of the Company.
"REIT SHARES AMOUNT" shall mean a whole number of REIT Shares equal to
the product of the number of Partnership Units offered for redemption by a
Redeeming Partner, multiplied by the Conversion Factor (rounded down to the
nearest whole number in the event such product is not a whole number); provided
that in the event the Company issues to all holders of REIT Shares rights,
options, warrants or convertible or exchangeable securities entitling the
shareholders to subscribe for or purchase REIT Shares, or any other securities
or property (collectively, the "Rights"), then the REIT Shares Amount for such
Redeeming Parties shall also include the Rights that a holder of that number of
REIT Shares would be entitled to receive at the time of such redemption.
"SECURITIES ACT" shall have the meaning provided in Section 8.6(a)
hereof.
"SERVICE" means the Internal Revenue Service.
"SHELF REGISTRATION" has the meaning provided in Section 8.6(a) hereof.
"SHELF REGISTRATION PERIOD" has the meaning provided in Section 8.6(a)
hereof.
"SPECIFIED REDEMPTION DATE" means the first business day of the month
that is at least ten (10) Business Days after the receipt by the General Partner
of the Notice of Redemption; provided that if the General Partner enters into a
merger, combination or other transaction with another Person to combine its
outstanding REIT Shares, then no Specified Redemption Date shall occur after the
record date and prior to the effective date of such combination.
"STOCK INCENTIVE PLAN" means the 1994 Stock Incentive Plan of the
Company relating to the issuance of REIT Shares and grant of options to acquire
REIT Shares and similar rights to employees of the Company and other eligible
persons.
"SUBSIDIARY" means, with respect to any Person, any corporation or other
entity of which a majority of (i) the voting power of the voting equity
securities or (ii) the outstanding equity interests is owned, directly or
indirectly, by such Person.
"SUBSTITUTE LIMITED PARTNER" means any Person admitted to the
Partnership as a Limited Partner pursuant to Section 9.3 hereof.
"SURVIVING GENERAL PARTNER" has the meaning provided in Section 7.1(d)
hereof.
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<PAGE> 41
"TARGET CAPITAL ACCOUNT" means, with respect to any Partner, the amount
which such Partner would be entitled to receive if all of the assets of the
Partnership were sold at their Book Value and the proceeds distributed in
accordance with Section 5.6 hereof.
"THRESHOLD CASH AMOUNT" has the meaning provided in Section 8.5(a)
hereof.
"TRANSACTION" has the meaning provided in Section 7.1(c) hereof.
"TRANSFER" has the meaning provided in Section 9.2(a) hereof.
"TRANSFER AGENT" shall mean the transfer agent or agents engaged by the
General Partner in its sole discretion with respect to the common or preferred
stock of the General Partner or Partnership Units.
"UNITHOLDER LEDGER" shall mean the ledger maintained by the Transfer
Agent which reflects the ownership of the Partnership Units and shall be revised
from time to time pursuant to the instructions by the General Partner to the
Transfer Agent to reflect the issuance, redemption, exchange, or conversion of
Partnership Units.
"WARRANTS" means in the aggregate (i) the Warrants to Purchase
Partnership Units dated as of August 16, 1995, to be issued by the Partnership
to Robert A. Alter covering Partnership Units; (ii) the Warrants to Purchase
Partnership Units dated as of August 16, 1995, to be issued by the Partnership
to Charles L. Biederman covering Partnership Units; (iii) the Warrants to
Purchase Partnership Units dated as of August 16, 1995, to be issued by the
Partnership to C. Robert Enever covering Partnership Units; and (iv) the
Warrants to Purchase Partnership Units dated as of August 16, 1995, to be issued
by the Partnership to MYPC covering Partnership Units.
ARTICLE II
PARTNERSHIP CONTINUATION AND IDENTIFICATION
2.1 ORGANIZATION. The Partnership is a limited partnership organized
pursuant to the provisions of the Act and upon the terms and conditions set
forth in the First Restated Agreement. The Partners hereby amend and restate the
First Restated Agreement in its entirety as of the date first hereinabove
written. Except as expressly provided herein to the contrary, the rights and
obligations of the Partners and the administration and termination of the
Partnership shall be governed by the Act. The Partnership Interest of each
Partner shall be personal property for all purposes. The Partners hereby agree
to continue the Partnership pursuant to the Act and upon the terms and
conditions set forth in this Agreement.
2.2 NAME. The name of the Partnership shall be Sunstone Hotel Investors,
L.P. The Partnership's business may be conducted under any other name or names
deemed advisable by the General Partner, including the name of the General
Partner or any Affiliate thereof. The words "Limited Partnership," "L.P.,"
"Ltd." or similar words or letters shall be included in the Partnership's
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name where necessary for the purposes of complying with the laws of any
jurisdiction that so requires. The General Partner in its sole and absolute
discretion may change the name of the Partnership at any time and from time to
time and shall notify the Limited Partners of such change in the next regular
communication to the Limited Partners.
2.3 REGISTERED OFFICE AND AGENT; PRINCIPAL OFFICE. The address of the
registered office of the Partnership in the State of Delaware shall be located
at 32 Loockerman Square, Suite L-100, Dover, Delaware 19901, and the registered
agent for service of process on the Partnership in the State of Delaware at such
registered office shall be The Prentice-Hall Corporation System, Inc. The
principal office of the Partnership shall be 115 Calle de Industrias, Suite 203,
San Clemente, California 92672 or such other place as the General Partner may
from time to time designate by notice to the Limited Partners. The Partnership
may maintain offices at such other place or places within or outside the State
of Delaware as the General Partner deems advisable.
2.4 PARTNERS.
(a) The General Partner of the Partnership is Sunstone Hotel
Investors, Inc., a Maryland corporation. Its principal place of business shall
be the same as that of the Partnership. The Partnership Units that are owned by
the Company from time to time shall be deemed held by it in its capacity as the
General Partner, up to the number of Partnership Units required to give it a one
percent (1%) Percentage Interest, and the balance of such Partnership Units
shall be deemed Partnership Units held by the Company in its capacity as a
Limited Partner.
(b) The Limited Partners shall be those Persons identified as
Limited Partners on the Unitholder Ledger, as modified from time to time.
Additional Limited Partners may be admitted to the Partnership through the
issuance of Partnership Units as provided in Section 4.2, and Substitute Limited
Partners may be admitted to the Partnership through the assignment or other
disposition of Partnership Units as provided in Section 9.3. Limited Partners
may withdraw from the Partnership upon the redemption or transfer of all of
their Limited Partnership interests as provided in Section 9.7.
2.5 TERM AND DISSOLUTION.
(a) The term of the Partnership shall continue in full force and
effect until December 31, 2050, except that the Partnership shall be dissolved
upon the happening of any of the following events:
(i) The occurrence of an Event of Bankruptcy as to a
General Partner or the dissolution, death or withdrawal of a General
Partner unless the business of the Partnership is continued pursuant to
Section 7.3(b) hereof; provided if a General Partner is on the date of
such occurrence a partnership, the dissolution of such General Partner
as a result of the dissolution, death, withdrawal, removal or Event of
Bankruptcy of a partner in such partnership shall not be an event of
dissolution of the Partnership if the business of such General Partner
is continued by the remaining partner or partners, either alone or with
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additional partners, and such General Partner and such partners comply
with any other applicable requirements of this Agreement;
(ii) The passage of ninety (90) days after the sale or
other disposition of all or substantially all the assets of the
Partnership (provided that if the Partnership receives an installment
obligation as consideration for such sale or other disposition, the
Partnership shall continue, unless sooner dissolved under the provisions
of this Agreement, until such time as such installment obligation or
obligations are paid in full);
(iii) The redemption of all Limited Partnership Interests
(other than any of such interests held by the General Partner); or
(iv) The election by the General Partner that the
Partnership should be dissolved.
(b) Upon dissolution of the Partnership (unless the business of
the Partnership is continued pursuant to Section 7.3(b) hereof), the General
Partner (or its trustee, receiver, successor or legal representative, including
the Liquidator) shall amend or cancel the Certificate and liquidate the
Partnership's assets and apply and distribute the proceeds thereof in accordance
with Section 5.6 hereof. Notwithstanding the foregoing, the liquidating General
Partner may either (i) defer liquidation of, or withhold from distribution for a
reasonable time, any assets of the Partnership (including those necessary to
satisfy the Partnership's debts and obligations), or (ii) distribute the assets
to the Partners in kind.
2.6 FILING OF CERTIFICATE AND PERFECTION OF LIMITED PARTNERSHIP. The
General Partner shall execute, acknowledge, record and file at the expense of
the Partnership, the Certificate and any and all amendments thereto and all
requisite fictitious name statements and notices in such places and
jurisdictions as may be necessary to cause the Partnership to be treated as a
limited partnership under, and otherwise to comply with, the laws of each state
or other jurisdiction in which the Partnership conducts business.
ARTICLE III
PURPOSE OF THE PARTNERSHIP
3.1 BUSINESS. The purpose and nature of the business to be conducted by
the Partnership is (i) to conduct any business that may be lawfully conducted by
a limited partnership organized pursuant to the Act, provided, however, that
such business shall be limited to and conducted in such a manner as to permit
the Company at all times to qualify as a REIT, unless the Company otherwise
ceases to qualify as a REIT, (ii) to enter into any partnership, joint venture
or other similar arrangement to engage in any of the foregoing or the ownership
of interests in any entity engaged in any of the foregoing and (iii) to do
anything necessary or incidental to the foregoing. The General Partner shall
also be empowered to do any and all acts and things necessary or prudent to
ensure that the Partnership will not be classified as a "publicly traded
partnership" for the purposes of Section
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7704(a) of the Code. In connection with the foregoing, and without limiting the
General Partner's right in its sole discretion to cease qualifying as a REIT,
the Partners acknowledge that the General Partner's current status as a REIT
inures to the benefit of all the Partners and not solely to the General Partner.
3.2 POWERS. The Partnership is empowered to do any and all acts and
things necessary, appropriate, proper, advisable, incidental to or convenient
for the furtherance and accomplishment of the purposes and business described
herein and for the protection and benefit of the Partnership, provided that the
Partnership shall not take, or refrain from taking, any action which, in the
judg ment of the General Partner, in its sole and absolute discretion, (i) could
adversely affect the ability of the Company to continue to qualify as a REIT,
(ii) could subject the General Partner to any additional taxes under Section 857
or Section 4981 of the Code, or (iii) could violate any law or regulation of any
governmental body or agency having jurisdiction over the Company or its
securities, unless such action (or inaction) shall have been specifically
consented to by the General Partner in writing.
3.3 PARTNERSHIP ONLY FOR PURPOSES SPECIFIED. The Partnership shall be a
partnership only for the purposes specified in Section 3.1 hereof, and this
Agreement shall not be deemed to create a partnership among the Partners with
respect to any activities whatsoever other than the activities within the
purposes of the Partnership as specified in Section 3.1 hereof. Except as
otherwise provided in this Agreement, no Partner shall have any authority to act
for, bind, commit or assume any obligation or responsibility on behalf of the
Partnership, its properties or any other Partner. No Partner, in its capacity as
a Partner under this Agreement, shall be responsible or liable for any
indebtedness or obligation of another Partner, nor shall the Partnership be
responsible or liable for any indebtedness or obligation of any Partner,
incurred either before or after the execution and delivery of this Agreement by
such Partner, except as to those responsibilities, liabilities, indebtedness or
obligations incurred pursuant to and as limited by the terms of this Agreement
and the Act.
ARTICLE IV
CAPITAL CONTRIBUTIONS AND ACCOUNTS
4.1 CAPITAL CONTRIBUTIONS. The Company, as a General Partner and Limited
Partner, initially contributed to the capital of the Partnership cash in an
amount set forth opposite its name on Exhibit "A" to the First Restated
Agreement. The Limited Partners (or their predecessors-in-interest) contributed
prior to the date of this Agreement to the Capital of the Partnership interests
in one or more of the Initial Hotels pursuant to the Purchase Agreements or
Contribution Agreements. The Agreed Value of each Limited Partner's ownership
interest in the Initial Hotels (other than the Company) that were contributed to
the Partnership were set forth opposite such Limited Partner's names on Exhibit
"A" to the First Restated Agreement for contributions made prior to the
introduction of the Unitholder Ledger; or, for contributions made after the
introduction of the Unitholder Ledger, such Agreed Value is established by
reference to the number of Partnership Units issued in exchange for such
contribution as evidenced on the Unitholder Ledger and calculating the value of
such units in accordance with the definition of "Agreed Value."
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4.2 ADDITIONAL CAPITAL CONTRIBUTIONS AND ISSUANCES OF ADDITIONAL
PARTNERSHIP INTERESTS. Except as provided in this Section 4.2 or in Section 4.3,
the Partners shall have no right or obligation to make any additional Capital
Contributions or loans to the Partnership. The General Partner may contribute
additional capital to the Partnership, from time to time, and receive additional
Partnership Interests in respect thereof, in the manner contemplated in this
Section 4.2.
(a) Issuances of Additional Partnership Interests.
(i) General. The General Partner is hereby authorized to
cause the Partnership to issue such additional Partnership Interests in
the form of Partnership Units for any Partnership purpose at any time or
from time to time, to the Partners (including the General Partner) or to
other Persons for such consideration and on such terms and conditions as
shall be established by the General Partner in its sole and absolute
discretion, all without the approval of any Limited Partners. The
Partnership issued Partnership Units in the number set forth on Exhibit
"A" to the First Restated Agreement or on the Unitholder Ledger to each
of the Limited Partners who contributed an Initial Hotel to the
Partnership. Any additional Partnership Interests issued by the General
Partner have been and may be issued in one or more classes, or one or
more series of any of such classes, with such designations, preferences
and relative, participating, optional or other special rights, powers
and duties, including rights, powers and duties senior, equal or
subordinate to Limited Partnership Interests, all as shall be determined
by the General Partner in its sole and absolute discretion and without
the approval of any Limited Partner, subject to only to mandatory
provisions of applicable Delaware law, including, without limitation,
(i) the allocations of items of Partnership income, gain, loss,
deduction and credit to each such class or series of Partnership
Interests; (ii) the rights of each such class or series of Partnership
Interests to share in Partnership allocations and distributions; and
(iii) the rights of each such class or series of Partnership Interests
upon dissolution and liquidation of the Partnership. The General Partner
may issue additional Partnership Interests to any Person (including the
General Partner) as full or partial consideration for the contribution
of a hotel or other asset from such Person to the Partnership in which
case such Person's resultant Capital Contribution to the Partnership
shall equal the Agreed Value of the hotel or other asset contributed. In
addition to the foregoing, no additional Partnership Interests shall be
issued to the Company (as a General and Limited Partner) unless either:
(1)(A) the additional Partnership Interests are issued in
connection with an issuance of shares of or other debt or equity
interests in the Company, which shares or interests have
designations, preferences and other rights, all such that the
economic interests are substantially similar to the designations,
preferences and other rights of the additional Partnership
Interests issued to the Company by the Partnership in accordance
with this Section 4.2 and (B) the Company shall make a Capital
Contribution to the Partnership in cash in an amount equal to the
net proceeds raised in connection with the issuance of such
shares of or other interests in the Company or of assets acquired
by the Company with such net proceeds or a combination of such
cash and assets, or
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(2) the additional Partnership Interests are issued to all
Partners in proportion to their respective Percentage Interests.
Without limiting the foregoing, the General Partner is expressly
authorized to cause the Partnership to issue Partnership Units (i) for
less than fair market value, so long as the General Partner concludes in
good faith that such issuance is in the best interests of the General
Partner and the Partnership, (ii) upon the exercise of any of the
Warrants from time to time, and (iii) upon the exercise of any rights,
options, warrants or convertible or exchangeable securities containing
the right to subscribe for, purchase or receive in an exchange
Partnership Units.
(ii) Upon Issuance of New Securities. After the Initial
Offering, the Company shall not grant, award or issue any (i) REIT
Shares (other than REIT Shares issued in connection with a redemption
pursuant to Section 8.5 hereof), (ii) REIT Preferred Shares, (iii)
rights, options, warrants or convertible or exchangeable securities
containing the right to subscribe for or purchase REIT Shares or REIT
Preferred Shares, or (iv) debt securities (the securities described in
(i), (ii), (iii) and (iv), collectively, "New Securities") unless:
(1) the General Partner shall cause the Partnership to
issue to the Company, Partnership Interests or rights, options,
warrants or convertible or exchangeable securities of the
Partnership having designations, preferences and other rights,
all such that the economic interests of such Partnership
Interests or securities are substantially similar to those of the
New Securities, and
(2) the Company contributes to the Partnership (A) the
cash proceeds from the issuance of such New Securities and from
the exercise of rights contained in such New Securities, (B) the
assets acquired by the Company from a third party with the cash
proceeds from the issuance of New Securities or in exchange for
the New Securities issued to such third party (which includes
assets of businesses whose equity interests are acquired by the
Company where the business is then dissolved by or merged into
the Company), or (C) a combination of (A) and (B) as determined
in the sole discretion of the Company (the contributions referred
to in (A), (B) and (C) collectively, a "Company Contribution").
The assets referred to in (B), which must be contributed by the
Company to the Partnership, need not consist of the assets
directly acquired by the Company (or the assets of businesses
whose equity interests are acquired by the Company where the
business is then dissolved by or merged into the Company).
Rather, the Company may first acquire such assets and sell all or
any part thereof to a third party (which may include Sunstone
Hotel Properties, Inc. or any successor thereto) in exchange for
any type and amount of consideration agreed upon by the Company
in its sole discretion and the third party, and the Company may
then contribute to the Partnership the consideration the Company
received in such sale. Notwithstanding the foregoing, the
Partnership shall (i) have no legal, equitable or beneficial
ownership of any cash or other assets of the Company unless and
until the Company contributes such cash or other assets to the
Partnership; (ii) shall have no obligation to the transferor of
assets to the Company; and (iii) shall not be
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obligated to accept any stock of a corporation as a contribution
if the Partnership would have to liquidate or recapitalize such
corporation in order for the Company to maintain its REIT
status.
Notwithstanding anything in this Section 4.2(a) to the
contrary, the Company is allowed to issue New Securities in connection with an
acquisition of assets to be held directly by the Company if such direct
acquisition and issuance of New Securities has been approved and determined to
be in the best interests of the Company and the Partnership by a majority of the
Independent Directors. Without limiting the foregoing, the Company is expressly
authorized to issue New Securities for less than fair market value, and to cause
the Partnership to issue to the Company corresponding Partnership Interests, so
long as (x) the Company concludes in good faith that such issuance is in the
best interests of the Company and the Partnership (for example, and not by way
of limitation, the issuance of REIT Shares and corresponding Partnership Units
pursuant to an employee stock purchase plan providing for employee purchases of
REIT Shares at a discount from fair market value or employee stock options that
have an exercise price that is less than the fair market value of the REIT
Shares, either at the time of issuance or at the time of exercise), and (y) the
Company contributes the Company Contribution to the Partnership. By way of
example, in the event the Company issues REIT Shares for a cash purchase price
and contributes all of the proceeds of such issuance to the Partnership as
required hereunder, the Company shall be issued a number of additional
Partnership Units equal to the product of (A) the number of such REIT Shares
issued by the Company the proceeds of which were so contributed, multiplied by
(B) a fraction, the numerator of which is one hundred percent (100%), and the
denominator of which is the Conversion Factor in effect on the date of such
contribution.
(b) Value of Company Contribution; Certain Deemed Contributions.
In connection with any and all issuances of New Securities the Company shall
contribute the resultant Company Contribution to the Partnership as a Capital
Contribution. For purposes of determining the number of Partnership Units to be
issued to the Company in exchange for such Capital Contribution, the value of
the Capital Contribution shall be deemed to equal the gross proceeds of all New
Securities issued in connection with such contribution. The value of the gross
proceeds shall be deemed to equal the sum of (i) the gross cash proceeds of any
issuance of New Securities for cash (even though the proceeds actually received
by the Company are less than the gross proceeds of such issuance as a result of
any underwriter's commission or discount or other expenses paid or incurred in
connection with such issuance), and (ii) the aggregate value, as agreed upon by
the Company and the party or parties selling assets to the Company which are
included in a Company Contribution, of all REIT Shares, REIT Preferred Shares
and debt securities of the Company issued to such party or parties in exchange
for such assets. If, pursuant to clause (i) in the preceding sentence, the
Company is deemed to have contributed gross cash proceeds from the issuance of
New Securities for cash when the actual contribution of cash is less than the
gross proceeds as a result of an underwriter's commission or discount or other
expenses paid or incurred in connection with such issuance, then the Partnership
shall be deemed simultaneously to have incurred such offering expenses in
connection with the issuance of additional Partnership Units to the Company for
its required Company Contribution pursuant to Section 4.2(a).
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(c) Adjustment of Value of Company Contribution for Contingent
Payment. In the event all or a portion of a particular Company Contribution to
the Partnership includes assets acquired from a third party and the Company's
agreement with such third party requires that the Company make a contingent
payment to such third party for such assets on a date subsequent to the date on
which the Company purchased the assets from the third party and contributed the
assets to the Partnership (e.g., an earn-out payment to be made on a future date
based on the performance of assets acquired from the third party), then
immediately following payment by the Company of such contingent purchase price
to the third party (whether in cash or New Securities, or a combination of cash
and New Securities), the value of the assets acquired from the third party and
previously contributed by the Company to the Partnership shall be deemed to be
increased by an amount equal to the contingent payment made by the Company to
such third party, and the Partnership shall make an equivalent cash payment or
corresponding issuance of Partnership Units to the Company, as follows:
(i) The Partnership shall pay to the Company cash in an
amount equal to the cash portion, if any, of the contingent payment;
(ii) The Partnership shall issue to the Company a number
of Common Partnership Units equal to the number of REIT Shares, if any,
included in the contingent payment; and
(iii) The Partnership shall issue to the Company a number
of Preferred Partnership Units equal to the number of REIT Preferred
Shares, if any, included in the contingent payment, which Preferred
Partnership Units shall have rights, preferences and privileges that
mirror the rights, preferences and privileges of such REIT Preferred
Shares and which Preferred Partnership Units shall be designated by
attaching as Exhibit "B" hereto an appropriate Certificate of
Designation at the time of issuance.
(d) Classes of Partnership Units to be Issued to the Company in
Exchange for Company Contribution. As provided in Section 4.2(a)(ii), in
exchange for a Company Contribution, the Partnership shall issue to the Company
Partnership Units having the rights, preferences and privileges equivalent to
the rights, preferences and privileges of the New Securities issued by the
Company to fund the Company Contribution. Specifically, the Partnership shall
issue to the Company (i) Common Partnership Units corresponding to REIT Shares
issued by the Company (whether such REIT Shares were issued for cash or in
exchange for assets), and (ii) Preferred Partnership Units corresponding to any
Preferred REIT Shares issued by the Company (whether such Preferred REIT Shares
were issued for cash or for assets). Whenever the Company issues a class of
Preferred REIT Shares not previously issued by the Company, the Partnership
shall attach as Exhibit "B" to this Agreement a Certificate of Designation for
the corresponding Preferred Partnership Units, setting forth rights, preferences
and privileges mirroring those of the corresponding REIT Preferred Shares.
(e) Minimum Limited Partnership Interest. In the event that
either a redemption pursuant to Section 8.5 hereof or an additional Capital
Contribution by the Company would result in the Limited Partners (other than the
General Partner), in the aggregate, owning less than the
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Minimum Limited Partnership Interest, the General Partner and the Limited
Partners shall form another partnership and contribute sufficient Limited
Partnership Interests together with such other Limited Partners so that such
partnership owns at least the Minimum Limited Partnership Interest
(f) Stock Incentive Plan, Directors' Plan and Dividend
Reinvestment Plan. The General Partner has established the Stock Incentive Plan
and Directors' Plan and may from time to time establish other compensation or
other incentive plans to provide incentives to its Directors, executive officers
and certain key employees and consultants. The Company has also established the
Dividend Reinvestment Plan to permit certain persons to purchase REIT Shares
directly from the Company and to allow holders of REIT Shares to reinvest all or
a portion of their dividends on their REIT Shares in the purchase of additional
REIT Shares from the Company. The following examples are illustrative of the
operation of the provisions of Section 4.2(a)(ii) with respect to issuances of
New Securities to such Directors, officers, employees and consultants under the
Stock Incentive Plan and Directors' Plan, and the other persons under the
Dividend Reinvestment Plan (each, an "Eligible Person"):
(i) If the Company awards REIT Shares to any such Eligible
Person (A) the Company shall, as soon as practicable, contribute to the
Partnership (to be thereafter taken into account for the purposes of
calculating any cash distributable to the Partners) an amount equal to
the price, if any, paid to the Company by such party for such REIT
Shares, and (B) the Company shall be issued by the Partnership a number
of additional Partnership Units equal to the product of (1) the number
of such REIT Shares issued by the Company to such Eligible Person,
multiplied by (2) a fraction, the numerator of which is one hundred
percent (100%), and the denominator of which is the Conversion Factor in
effect on the date of such contribution;
(ii) If the Company awards an option or warrant relating
to REIT Shares pursuant to the Stock Incentive Plan, the Director's Plan
or otherwise to any Eligible Person, then the Partnership shall grant to
the Company a corresponding option or warrant to acquire Partnership
Units. Upon the exercise of such option or warrant to purchase REIT
Shares, (A) the Company shall, as soon as practicable after such
exercise, contribute to the capital of the Partnership (to be thereafter
taken into account for the purposes of calculating distributable cash)
an amount equal to the exercise price, if any, paid to the General
Partner by such exercising party in connection with the exercise of the
option or warrant, and (B) the Company shall be issued by the
Partnership a number of additional Partnership Units equal to the
product of (1) the number of REIT Shares issued by the Company in
satisfaction of such exercised option or warrant, multiplied by (2) a
fraction, the numerator of which is one hundred percent (100%), and the
denominator of which is the Conversion Factor in effect on the date of
such contribution; and
(iii) If the Company grants any director, officer or
employee share appreciation rights, performance share awards or other
similar rights ("Incentive Rights"), then simultaneously, the
Partnership shall grant the Company corresponding and economically
equivalent rights. Consequently, upon the cash payment by the Company to
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its directors, officers or employees pursuant to such Incentive Rights,
the Partnership shall make an equal cash payment to the Company.
(g) Automatic Adjustments in Percentage Interests. In lieu of
issuing any rights, options, warrants, convertible or exchangeable securities to
purchase Partnership Units as contemplated by Sections 4.2(a)(ii), 4.2(f)(ii) or
4.2(f)(iii), the Partnership may at its election cause the Company's Partnership
Interests set forth on the Unitholder Ledger to be revised to reflect the
exercise of any such rights, options, warrants or convertible or exchangeable
securities.
(h) Admission of Additional Limited Partners; Pro Rata First
Quarter Distributions; Lock-Up. Any Person who receives Partnership Units
pursuant to this Section 4.2 who does not already hold Partnership Units shall
upon execution of a counterpart to this Agreement, by which such Person agrees
to be bound by all of the provisions hereof, become a Limited Partner of the
Partnership; provided that the General Partner may in its sole discretion
require that an amendment to this Agreement be effected in order to add a Person
as a new Limited Partner in order to address the specific terms of such
admission. Notwithstanding any provision in this Agreement to the contrary, any
Person who becomes a Limited Partner pursuant to this Section 4.2 shall not be
entitled to a full quarter's distributions on such Partnership Units for the
quarter in which such Partnership Units were issued to such Partner, but shall
only be entitled to a pro rata distribution on such Partnership Units for such
quarter based upon the number of days in such quarter such Partner held such
Partnership Units, unless the General Partner has waived this restriction in
writing for a particular Partner for a particular quarter. In addition, the
Limited Partners listed below and any person who becomes a Limited Partner after
the date of this Agreement shall execute a lock-up agreement at the request of
the managing underwriter in connection with any public underwritten securities
offering by the General Partner on the same terms and conditions as any such
agreement executed by Mr. Robert A. Alter, but in no event shall such lock-up
exceed 120 days after the first date that any shares are released for sale to
the public from such offering, and as a condition to any transfer of any
Partnership Units or Redemption Shares otherwise permitted under this Agreement
such Limited Partners shall cause any shareholder or other affiliate who
receives any Partnership Units from such Limited Partners to agree to be subject
to the obligation to execute such a lock-up agreement. The enumerated Limited
Partners referenced in the preceding sentence are: (i) Flagstaff Hotel Assets,
Inc.; (ii) Tucson Desert Assets, Inc.; (iii) Shivani, LLC; (iv) O.T. Hill, LLC;
and (v) Peacock, LLC.
4.3 COMPANY LOANS. The Company may from time to time advance funds to
the Partnership for any proper Partnership purpose as a loan ("Funding Loan"),
provided that the funds for any such Funding Loans must first be obtained by the
Company from a third party lender, and then all of such funds must be loaned by
the Company to the Partnership on the same terms and conditions, including
principal amount, interest rate, repayment schedule and costs and expenses, as
shall be applicable with respect to or incurred in connection with such loan
with such third party lender. Except for Funding Loans, the Company shall not
incur any indebtedness for borrowed funds; provided, however, that upon a
majority vote of the Independent Directors, any loan proceeds received by the
Company may be distributed to its shareholders or other equity holders if such
loan and distribution have been approved and determined by a majority of the
Independent Directors to be necessary to enable the Company to maintain its
status as a REIT under Sections 856-860 of the
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Code. The Company may agree in its sole discretion to subordinate the repayment
of the Funding Loan to any other loan by an institutional lender to the
Partnership.
4.4 CAPITAL ACCOUNTS. A separate capital account (a "Capital Account")
shall be established and maintained for each Partner in accordance with
Regulations Section 1.704- 1(b)(2)(iv). If (i) a new or existing Partner
acquires an additional Partnership Interest in exchange for more than a de
minimis Capital Contribution, (ii) the Partnership distributes to a Partner more
than a de minimis amount of Partnership property as consideration for a
Partnership Interest, or (iii) the Partnership is liquidated within the meaning
of Regulation Section 1.704-1(b)(2)(ii)(g), the General Partner shall revalue
the property of the Partnership to its fair market value (taking into account
Section 7701(g) of the Code) in accordance with Regulations Section
1.704-1(b)(2)(iv)(f). When the Partnership's property is revalued by the General
Partner, the Capital Accounts of the Partners shall be adjusted in accordance
with Regulations Sections 1.704-1(b)(2)(iv)(f) and (g), which generally require
such Capital Accounts to be adjusted to reflect the manner in which the
unrealized gain or loss inherent in such property (that has not been reflected
in the Capital Accounts previously) would be allocated among the Partners
pursuant to Section 5.1 if there were a taxable disposition of such property for
its fair market value (taking into account Section 7701(g) of the Code) on the
date of the revaluation.
4.5 PERCENTAGE INTERESTS. If the number of outstanding Partnership Units
increases or decreases during a taxable year, each Partner's Percentage Interest
shall be adjusted to a percentage equal to the number of Partnership Units held
by such Partner divided by the aggregate number of outstanding Partnership
Units. If the Partners' Percentage Interests are adjusted pursuant to this
Section 4.5, the Profits and Losses for the taxable year in which the adjustment
occurs shall be allocated between the part of the year ending on the day when
the Partnership's property is revalued by the General Partner and the part of
the year beginning on the following day either (i) as if the taxable year had
ended on the date of the adjustment or (ii) based on the number of days in each
part. The General Partner, in its sole discretion, shall determine which method
shall be used to allocate Profits and Losses for the taxable year in which the
adjustment occurs. The allocation of Profits and Losses for the earlier part of
the year shall be based on the Percentage Interests before adjustment, and the
allocation of Profits and Losses for the later part shall be based on the
adjusted Percentage Interests.
4.6 NO INTEREST ON CONTRIBUTIONS. No Partner shall be entitled to
interest on its Capital Contribution.
4.7 RETURN OF CAPITAL CONTRIBUTIONS. No Partner shall be entitled to
withdraw any part of its Capital Contribution or its Capital Account or to
receive any distribution from the
Company, except as specifically provided in this Agreement. Except as otherwise
provided herein, there shall be no obligation to return to any Partner or
withdrawn Partner any part of such Partner's Capital Contribution for so long as
the Partnership continues in existence.
4.8 NO THIRD PARTY BENEFICIARY. No creditor or other third party having
dealings with the Partnership shall have the right to enforce the right or
obligation of any Partner to make Capital Contributions or loans or to pursue
any other right or remedy hereunder or at law or in equity, it
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being understood and agreed that the provisions of this Agreement shall be
solely for the benefit of, and may be enforced solely by, the parties hereto and
their respective successors and assigns. None of the rights or obligations of
the Partners herein set forth to make Capital Contributions or loans to the
Partnership shall be deemed an asset of the Partnership for any purpose by any
creditor or other third party, nor may such rights or obligations be sold,
transferred or assigned by the Partnership or pledged or encumbered by the
Partnership to secure any debt or other obligation of the Partnership or of any
of the Partners. In addition, it is the intent of the parties hereto that no
distribution to any Limited Partner shall be deemed a return of money or other
property in violation of the Act. The payment of any such money or distribution
of any such property to a Limited Partner shall be deemed to be a compromise
within the meaning of Section 17-502(b) of the Act, and the Limited Partner
receiving any such money or property shall not be required to return any such
money or property to any Person, the Partnership or any creditor of the
Partnership. However, if any court of competent jurisdiction holds that,
notwithstanding the provisions of this Agreement, any Limited Partner is
obligated to return such money or property, such obligation shall be the
obligation of such Limited Partner and not of the General Partner. Without
limiting the generality of the foregoing, a deficit Capital Account of a Partner
shall not be deemed to be a liability of such Partner nor an asset or property
of the Partnership.
4.9 NO PREEMPTIVE RIGHTS. No Person shall have any preemptive,
preferential or other similar right with respect to (i) additional Capital
Contributions or loans to the Partnership; or (ii) issuance or sale of any
Partnership Units or other Partnership Interests.
ARTICLE V
PROFITS AND LOSSES: DISTRIBUTIONS
5.1 ALLOCATION OF PROFIT AND LOSS.
(a) General. After giving effect to the special allocations set
forth in the other provisions of this Section 5.1, Profit or Loss, or items of
income, gain, loss or deduction included in the determination of Profit or Loss,
for each accounting period shall be allocated to the Partners as follows:
(i) Profit, or items of income or gain to the extent
necessary, shall be allocated to each Partner in an amount equal to the excess
of (i) the sum of (A) such Partner's Target Capital Account as of the last day
of the accounting period, and (B) any distributions made by the Partnership to
such Partner during the accounting period, over (ii) the sum of such Partner's
(X) Capital Account as of the beginning of the accounting period, (Y) any
Capital Contributions made by such Partner during the accounting period, and (Z)
any income or gain (or minus any deduction or loss) allocated to the Partner
under any other provision of this Section 5.1; and
(ii) Loss, or items of deduction or loss to the extent
necessary, shall be allocated to each Partner in an amount equal to the excess,
if any, of (i) the sum of (A) such Partner's Capital Account as of the beginning
of the accounting period, (B) any Capital Contributions made
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by such Partner during the accounting period, and (C) any income or gain (or
minus any deduction or loss) allocated to the Partner under any other provisions
of this Section 5.1, over (ii) the sum of (X) such Partner's Target Capital
Account as of the last day of the accounting period, and (Y) any distributions
made by the Partnership to such Partner during the accounting period.
(b) Minimum Gain Chargeback. Notwithstanding any provision to the
contrary, (i) any expense of the Partnership that is a "nonrecourse deduction"
within the meaning of Regulations Section 1.704-2(b)(1) shall be allocated in
accordance with the Partners' respective Percentage Interests, (ii) any expense
of the Partnership that is a "partner nonrecourse deduction" within the meaning
of Regulations Section 1.704-2(i)(2) shall be allocated in accordance with
Regulations Section 1 .704-2(i)(1), (iii) if there is a net decrease in
Partnership Minimum Gain within the meaning of Regulations Section 1.704-2(f)(1)
for any Partnership taxable year, items of gain and income shall be allocated
among the Partners in accordance with Regulations Section 1.704-2(f) and the
ordering rules contained in Regulations Section 1.704-2(j), and (iv) if there is
a net decrease in Partner Nonrecourse Debt Minimum Gain within the meaning of
Regulations Section 1.704-2(i)(4) for any Partnership taxable year, items of
gain and income shall be allocated among the Partners in accordance with
Regulations Section 1.704-2(i)(4) and the ordering rules contained in
Regulations Section 1.704-2(j). A Partner's "interest in partnership profits"
for purposes of determining its share of the nonrecourse liabilities of the
Partnership within the meaning of Regulations Section 1.752-3(a)(3) shall be
such Partner's Percentage Interest.
(c) Qualified Income Offset. If a Limited Partner receives in any
taxable year an adjustment, allocation, or distribution described in
subparagraphs (4), (5), or (6) of Regulations Section 1.704-1(b)(2)(ii)(d) that
causes or increases a negative balance in such Partner's Capital Account that
exceeds the sum of such Partner's shares of Partnership Minimum Gain and Partner
Nonrecourse Debt Minimum Gain, as determined in accordance with Regulations
Sections 1.704- 2(g) and 1.704-2(i), such Partner shall be allocated specially
for such taxable year (and, if necessary, later taxable years) items of income
and gain in an amount and manner sufficient to eliminate such negative Capital
Account balance as quickly as possible as provided in Regulations Section
1.704-1(b)(2)(ii)(d). After the occurrence of an allocation of income or gain to
a Limited Partner in accordance with this Section 5.1(c), to the extent
permitted by Regulations Section 1.704-1(b), items of expense or loss shall be
allocated to such Partner in an amount necessary to offset the income or gain
previously allocated to such Partner under this Section 5.1(c).
(d) Capital Account Deficits. Loss shall not be allocated to a
Limited Partner to the extent that such allocation would cause a deficit in such
Partner's Capital Account (after reduction to reflect the items described in
Regulations Section 1.704-1(b)(2)(ii)(d)(4), (5) and (6)) to exceed the sum of
such Partner's shares of Partnership Minimum Gain and Partner Nonrecourse Debt
Minimum Gain. Any Loss in excess of that limitation shall be allocated to the
General Partner. After the occurrence of an allocation of Loss to the General
Partner in accordance with this Section 5.1(d), to the extent permitted by
Regulations Section 1.704-1(b), Profit shall be allocated to the General Partner
in an amount necessary to offset the Loss previously allocated to the General
Partner under this Section 5.1(d).
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(e) Allocations Between Transferor and Transferee. If a Partner
transfers any part or all of its Partnership Interest, and the transferee is
admitted as a substitute Partner as provided herein, the distributive shares of
the various items of Profit and Loss allocable among the Partners during such
fiscal year of the Partnership shall be allocated between the transferor and the
substitute Partner either (i) as if the Partnership's fiscal year had ended on
the date of the transfer, or (ii) based on the number of days of such fiscal
year that each was a Partner without regard to the results of Partnership
activities in the respective portions of such fiscal year in which the
transferor and the transferee were Partners. The General Partner, in its sole
discretion, shall determine which method shall be used to allocate the
distributive shares of the various items of Profit and Loss between the
transferor and the substitute Partner.
(f) Definition of Profit and Loss. "Profit" or "Loss" means for
any accounting period, the amount, computed as of the last day thereof, of the
net income or loss of the Partnership determined in accordance with federal
income tax principles (but without requiring any items to be stated separately
pursuant to Code Section 703), but with the following adjustments:
(i) Any income of the Partnership that is exempt from
federal income tax shall be included in the computation of Profit or Loss;
(ii) Any expenditures of the Partnership described in Code
Section 705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures
pursuant to Regulations Section 1.704-1(b)(2)(iv)(1) shall be included in the
computation of Profit or Loss;
(iii) In any situation in which an item of income, gain,
loss or deduction is affected by the adjusted basis of property, the Book Value
of the Property shall be used in lieu of adjusted basis.
(g) Tax Allocations. Except as otherwise provided in this Section
5.1, items of income, gain, loss or deduction recognized for income tax purposes
shall be allocated in the same manner that the corresponding items entering into
the calculation of Profit or Loss are allocated pursuant to this Agreement.
(h) Section 704(c) Adjustments. In accordance with Code Section
704(c) and the Treasury Regulations thereunder and notwithstanding Section
5.1(g), items of income, gain, loss and deduction with respect to an asset, if
any, which has a Book Value different from its adjusted basis for federal income
tax purposes shall, solely for tax purposes, be allocated between the Partners
so as to take account of any such variation in the manner required by Code
Section 704(c) and Regulations Section 1.704-3(b). The allocation of such items
shall be made pursuant to the "Traditional Method" of Regulation Section
1.704-3(b). The assets of the Partnership (and the Limited Partners who
contributed such assets) that may be affected by this Section 5.1(h) include,
without limitation, (i) the Hampton Inn Hotel, Oakland, California (Inns
Properties and Westpac Shelter Corporation); and (ii) the Courtyard by Marriott
Hotel, Riverside, California (Riverside Hotel Partners, Inc.).
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5.2 DISTRIBUTION OF CASH.
(a) Except as otherwise provided in Section 5.6, cash available
for distribution by the Partnership shall be distributed as follows:
(1) First, for any class of Preferred Partnership Units,
if there are any Preferred Partnership Units of such class outstanding on any
record date set forth in the applicable Certificate of Designation for payment
of a distribution to the holders thereof, the General Partner shall distribute
on the distribution date set forth in the Certificate of Designation to such
Preferred Unitholder(s) an amount per Preferred Partnership Unit required to be
paid pursuant to the Certificate of Designation. If there is more than one class
of Preferred Partnership Units, the priority of payment of distributions as
among the classes shall be governed by the Certificates of Designation for such
classes.
(2) Second, the General Partner shall distribute cash on a
quarterly (or, at the election of the General Partner, more frequent) basis, in
an amount determined by the General Partner in its sole discretion, to the
Partners who are Partners on the Partnership Record Date with respect to such
quarter (or other distribution period) in accordance with their respective
Percentage Interests on the Partnership Record Date.
(b) In no event may a Partner receive a distribution of cash with
respect to a Partnership Unit if such Partner is entitled to receive a dividend
with respect to a REIT Share for which all or part of such Partnership Unit has
been or will be exchanged.
5.3 REIT DISTRIBUTION REQUIREMENTS. The General Partner shall use its
reasonable efforts to cause the Partnership to distribute amounts sufficient to
enable the General Partner (i) to meet its distribution requirement for
qualification as a REIT as set forth in Section 857(a)(1) of the Code and (ii)
to avoid any federal income or excise tax liability imposed by the Code.
5.4 NO RIGHT TO DISTRIBUTIONS IN KIND. No Partner shall be entitled to
demand property other than cash in connection with any distributions by the
Partnership.
5.5 LIMITATIONS ON RETURN OF CAPITAL CONTRIBUTIONS. Notwithstanding any
of the provisions of this Article V, no Partner shall have the right to receive
and the General Partner shall not have the right to make, a distribution which
includes a return of all or part of a Partner's Capital Contributions, unless
after giving effect to the return of a Capital Contribution, the sum of all
Partnership liabilities, other than the liabilities to a Partner for the return
of his Capital Contribution, does not exceed the fair market value of the
Partnership's assets.
5.6 DISTRIBUTIONS UPON LIQUIDATION.
(a) Upon liquidation of the Partnership, after payment of, or
adequate provision for, debts and obligations of the Partnership, including any
Partner loans, any remaining assets of the Partnership shall be distributed in
the following order of priority:
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(i) First, if there are any Preferred Partnership Units
outstanding, to the Preferred Unitholder(s) of each class of Preferred
Partnership Units, an amount per Preferred Partnership Unit of a particular
class of Preferred Partnership Units required to be paid upon liquidation as set
forth in the Certificate of Designation for such class. If there is more than
one class of Preferred Partnership Units, the priority of liquidation
distributions among the classes shall be governed by the Certificates of
Designation for such classes.
(ii) Thereafter, to the Common Unitholders with positive
Capital Accounts in accordance with their respective Percentage Interests.
For purposes of the preceding sentence, the Capital
Account of each Partner shall be determined after all adjustments made in
accordance with Sections 5.1 and 5.2 resulting from Partnership operations and
from all sales and dispositions of all or any part of the Partnership's assets.
Any distributions pursuant to this Section 5.6 should be made by the end of the
Partnership's taxable year in which the liquidation occurs (or, if later, within
ninety (90) days after the date of the liquidation). To the extent deemed
advisable by the General Partner, appropriate arrangements (including the use of
a liquidating trust) may be made to assure that adequate funds are available to
pay any contingent debts or obligations.
(b) If the General Partner has a negative balance in its Capital
Account following a liquidation of the Partnership, as determined after taking
into account all Capital Account adjustments in accordance with Sections 5.1 and
5.2 resulting from Partnership operations and from all sales and dispositions of
all or any part of the Partnership's assets, the General Partner shall
contribute to the Partnership an amount of cash equal to the negative balance in
its Capital Account and such cash shall be paid or distributed by the
Partnership to creditors, if any, and then to the Limited Partners in accordance
with Section 5.6(a). Such contribution by the General Partner shall be made by
the end of the Partnership's taxable year in which the liquidation occurs (or,
if later, within ninety (90) days after the date of the liquidation).
5.7 SUBSTANTIAL ECONOMIC EFFECT. It is the intent of the Partners that
the allocations of Profit and Loss under the Agreement have substantial economic
effect (or be consistent with the Partners' interests in the Partnership in the
case of the allocation of losses attributable to nonrecourse debt) within the
meaning of Section 704(b) of the Code as interpreted by the Regulations
promulgated pursuant thereto. Article V and other relevant provisions of this
Agreement shall be interpreted in a manner consistent with such intent.
5.8 AMOUNTS WITHHELD. All amounts withheld pursuant to the Code or any
provisions of any state or local tax law and Section 10.9 hereof with respect to
any allocation, payment or distribution to the General Partner, the Limited
Partners or Assignees shall be treated as amounts distributed to the General
Partner, Limited Partners, or Assignees pursuant to Section 5.1 for all purposes
under this Agreement.
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ARTICLE VI
RIGHTS, OBLIGATIONS AND
POWERS OF THE GENERAL PARTNERSHIP
6.1 MANAGEMENT OF THE PARTNERSHIP.
(a) Except as otherwise expressly provided in this Agreement, the
General Partner shall have full, complete and exclusive discretion to manage and
control the business of the Partnership for the purposes herein stated, and
shall make all decisions affecting the business and assets of the Partnership.
The General Partner may not be removed by the Limited Partners with or without
cause. In addition to the powers now or hereafter granted a general partner of a
limited partnership under applicable law or which are granted to the General
Partner under any other provision of this Agreement, the General Partner,
subject to Section 7.1 hereof, shall have full power and authority to do all
things deemed necessary or desirable by it to conduct the business of the
Partnership, to exercise all powers set forth in Section 3.2 hereof and to
effectuate the purposes set forth in Section 3.1 hereof, including, without
limitation:
(i) to acquire, purchase, own, lease and dispose of any
real property and any other property or assets that the General Partner
determines are necessary or appropriate or in the best interests of the
business of the Partnership;
(ii) to landscape, renovate, reconstruct, remodel or
construct buildings, including without limitation hotels, and make other
improvements on the properties now or hereafter owned or leased by the
Partnership or any Subsidiary of the Partnership;
(iii) to borrow money for the Partnership, issue evidences
of indebtedness in connection therewith, refinance, guarantee, increase
the amount of, modify, amend or change the terms of, or extend the time
for the payment of, any indebtedness or obligation to the Partnership,
and secure such indebtedness by mortgage, deed of trust, pledge or other
lien on the Partnership's assets;
(iv) to pay, either directly or by reimbursement, for all
operating costs and general administrative expenses of the General
Partner or the Partnership, to third parties or to the General Partner
as set forth in this Agreement;
(v) to lease all or any portion of any of the
Partnership's assets, whether or not the terms of such leases extend
beyond the termination date of the Partnership and whether or not any
portion of the Partnership's assets so leased are to be occupied by the
lessee, or, in turn, subleased in whole or in part to others, for such
consideration and on such terms as the General Partner may determine;
(vi) to prosecute, defend, arbitrate, or compromise any
and all claims or liabilities in favor of or against the Partnership, on
such terms and in such manner as the General Partner may reasonably
determine, and similarly to prosecute, settle or defend
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litigation with respect to the Partners, the Partnership, or the
Partnership's assets; provided, however, that the General Partner may
not, without the consent of all of the Partners, confess a judgment
against the Partnership;
(vii) to file applications, communicate, and otherwise
deal with any and all governmental agencies having jurisdiction over, or
in any way affecting, the Partnership's assets or any other aspect of
the Partnership business;
(viii) to make or revoke any election permitted or
required of the Partnership by any taxing authority;
(ix) to maintain such insurance coverage for public
liability, fire and casualty, and any and all other insurance for the
protection of the Partnership, for the conservation of Partnership
assets, or for any other purpose convenient or beneficial to the
Partnership, in such amounts and such types, as it shall determine from
time to time;
(x) to determine whether or not to apply any insurance
proceeds for any property to the restoration of such property or to
distribute the same;
(xi) to retain legal counsel, accountants, consultants,
real estate brokers, and such other persons as the General Partner may
deem necessary or appropriate in connection with the Partnership
business and to pay therefor such reasonable remuneration as the General
Partner may deem reasonable and proper;
(xii) to retain other services of any kind or nature in
connection with the Partnership business, and to pay therefor such
remuneration as the General Partner may deem reasonable and proper;
(xiii) to negotiate and conclude agreements on behalf of
the Partnership with respect to any of the rights, powers and authority
conferred upon the General Partner;
(xiv) to maintain accurate accounting records and to file
promptly all federal, state and local income tax returns on behalf of
the Partnership;
(xv) to distribute Partnership cash or other partnership
assets in accordance with this Agreement;
(xvi) to form or acquire an interest in, and contribute
property to, any further limited or general partnerships, joint ventures
or other relationships that it deems desirable (including, without
limitation, the acquisition of interests in, and the contributions of
properly to, its Subsidiaries and any other Person in which it has an
equity interest from time to time);
(xvii) to establish Partnership reserves for working
capital, capital expenditures, contingent liabilities, or any other
valid Partnership purpose;
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(xviii) to negotiate, execute, and perform any contracts,
conveyances or other instruments that the General Partner considers
useful or necessary to the conduct of the Partnership's operations or
the implementation of the General Partner's powers under this Agreement,
including contracting with contractors, developers, consultants,
accountants, legal counsel, other professional advisors and other agents
and the payment of their expenses and compensation out of the
Partnership's assets;
(xix) to establish one or more divisions of the
Partnership, the selection and dismissal of employees of the
Partnership, any division of the Partnership, or the General Partner
(including, without limitation, employees having titles such as
"president," "vice president," "secretary" and "treasurer" of the
Partnership, any division of the Partnership or the General Partner),
and agents, outside attorneys, accountants, consultants and contractors
of the General Partner, the Partnership or any division of the
Partnership, and the determination of their compensation and other terms
of employment or hiring;
(xx) to issue REIT Shares to acquire Partnership Units
held by a Limited Partner in connection with such Limited Partner's
exercise of its Redemption Right under Section 8.5; and
(xxi) to take such other action, execute, acknowledge,
swear to or deliver such other documents and instruments, and perform
any and all other acts the General Partner deems necessary or
appropriate for the formation, continuation and conduct of the business
and affairs of the Partnership and to possess and enjoy all of the
rights and powers of a general partner as provided by the Act.
Except as otherwise provided herein, to the extent the duties of
the General Partner require expenditures of funds to be paid to third parties,
the General Partner shall not have any obligations hereunder except to the
extent that partnership funds are reasonably available to it for the performance
of such duties, and nothing herein contained shall be deemed to require the
General Partner, in its capacity as such, to expend its individual funds for
payment to third parties or to undertake any individual liability or obligation
on behalf of the Partnership.
(b) The Partnership shall not incur or allow to exist
Indebtedness (as defined in the Articles of Incorporation) in excess of the
limitations contained in the Articles of Incorporation.
(c) The General Partner is expressly authorized to enter into, in
the name and on behalf of the Partnership, a right of first opportunity
arrangement and other conflict avoidance agreements with various Affiliates of
the Partnership and the General Partner, on such terms as the General Partner,
in its sole and absolute discretion, believes are advisable.
6.2 DELEGATION OF AUTHORITY. The General Partner may delegate any or all
of its powers, rights and obligations hereunder, and may appoint, employ,
contract or otherwise deal with any Person for the transaction of the business
of the Partnership, which Person may, under supervision of the General Partner,
perform any acts or services for the Partnership as the General Partner may
approve.
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6.3 INDEMNIFICATION AND EXCULPATION OF INDEMNITEES.
(a) The Partnership shall indemnify each Indemnitee from and
against any and all losses, claims, damages, (joint or several) liabilities,
expenses (including reasonable legal fees and expenses), judgments, fines,
settlements, and other amounts arising from any and all claims, demands,
actions, suits or proceedings, civil, criminal, administrative or investigative,
that relate to the operations of the Partnership as set forth in this Agreement
in which any Indemnitee may be involved, or is threatened to be involved, as a
party or otherwise, unless it is established that: (i) the act or omission of
the Indemnitee was material to the matter giving rise to the proceeding and
either was committed in bad faith or was the result of active and deliberate
dishonesty; (ii) the Indemnitee actually received an improper personal benefit
in money, property or services; or (iii) in the case of any criminal proceeding,
the Indemnitee had reasonable cause to believe that the act or omission was
unlawful. The termination of any proceeding by judgment, order or settlement
does not create a presumption that the Indemnitee did not meet the requisite
standard of conduct set forth in this Section 6.3(a). The termination of any
proceeding by conviction or upon a plea of nolo contendere or its equivalent, or
an entry of an order of probation prior to judgment, creates a rebuttable
presumption that the Indemnitee acted in a manner contrary to that specified in
this Section 6.3(a). Any indemnification pursuant to this Section 6.3 shall be
made only out of the assets of the Partnership.
(b) The Partnership may reimburse an Indemnitee for reasonable
expenses incurred by an Indemnitee who is a party to a proceeding in advance of
the final disposition of the proceeding upon receipt by the Partnership of (i) a
written affirmation by the Indemnitee of the Indemnitee's good faith belief that
the standard of conduct necessary for indemnification by the Partnership as
authorized in this Section 6.3 has been met, and (ii) a written undertaking by
or on behalf of the Indemnitee to repay the amount if it shall ultimately be
determined that the standard of conduct has not been met.
(c) The indemnification provided by this Section 6.3 shall be in
addition to any other rights to which an Indemnitee or any other Person may be
entitled under any agreement, pursuant to any vote of the Partners, as a matter
of law or otherwise, and shall continue as to an Indemnitee who has ceased to
serve in such capacity.
(d) The Partnership may purchase and maintain insurance, on
behalf of the Indemnitees and such other Persons as the General Partner shall
determine, against any liability that may be asserted against or expenses that
may be incurred by such Person in connection with the Partnership's activities,
regardless of whether the Partnership would have the power to indemnify such
Person against such liability under the provisions of this Agreement.
(e) For purposes of this Section 6.3, the Partnership shall be
deemed to have requested an Indemnitee to serve as fiduciary of an employee
benefit plan whenever the performance by it of its duties to the Partnership
also imposes duties on, or otherwise involves services by, it to the plan or
participants or beneficiaries of the plan; excise taxes assessed on an
Indemnitee with respect to an employee benefit plan pursuant to applicable law
shall constitute fines within the meaning of this Section 6.3; and actions taken
or omitted by the Indemnitee with respect to an
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employee benefit plan in the performance of its duties for a purpose reasonably
believed by it to be in the interest of the participants and beneficiaries of
the plan shall be deemed to be for a purpose which is not opposed to the best
interests of the Partnership.
(f) In no event may an Indemnitee subject the Limited Partners to
personal liability by reason of the indemnification provisions set forth in this
Agreement.
(g) An Indemnitee shall not be denied indemnification in whole or
in part under this Section 6.3 because the Indemnitee had an interest in the
transaction with respect to which the indemnification applies if the transaction
was otherwise permitted by the terms of this Agreement.
(h) The provisions of this Section 6.3 are for the benefit of the
Indemnitees, their heirs, successors, assigns and administrators and shall not
be deemed to create any rights for the benefit of any other Persons.
6.4 LIABILITY OF THE GENERAL PARTNER.
(a) Notwithstanding anything to the contrary set forth in this
Agreement, the General Partner shall not be liable for monetary damages to the
Partnership or any Partners for losses sustained or liabilities incurred as a
result of errors in judgment or of any act or omission if the General Partner
acted in good faith.
(b) The Limited Partners expressly acknowledge that the General
Partner is acting on behalf of the Partnership and the General Partner's
shareholders collectively, that the General Partner is under no obligation to
consider the separate interests of the Limited Partners (including, without
limitation, the tax consequences to Limited Partners) in deciding whether to
cause the Partnership to take (or decline to take) any actions, and that the
General Partner shall not be liable for monetary damages for losses sustained,
liabilities incurred, or benefits not derived by Limited Partners in connection
with such decisions, provided that the General Partner has acted in good faith.
(c) Subject to its obligations and duties as General Partner set
forth in Section 6.1 hereof, the General Partner may exercise any of the powers
granted to it under this
Agreement and perform any of the duties imposed upon it hereunder either
directly or by or through its agents. The General Partner shall not be
responsible for any misconduct or negligence on the part of any such agent
appointed by it in good faith.
(d) Notwithstanding any other provisions of this Agreement or the
Act, any action of the General Partner on behalf of the Partnership or any
decision of the General Partner to refrain from acting on behalf of the
Partnership, undertaken in the good faith belief that such action or omission is
necessary or advisable in order (i) to protect the ability of the General
Partner to continue to qualify as a REIT or (ii) to prevent the General Partner
from incurring any taxes under Section 857, Section 4981, or any other provision
of the Code, is expressly authorized under this Agreement and is deemed approved
by all of the Limited Partners.
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(e) Any amendment, modification or repeal of this Section 6.4 or
any provision hereof shall be prospective only and shall not in any way affect
the limitations on the General Partner's liability to the Partnership and the
Limited Partners under this Section 6.4 as in effect immediately prior to such
amendment, modification or repeal with respect to matters occurring, in whole or
in part, prior to such amendment, modification or repeal, regardless of when
claims relating to such matters may arise or be asserted.
6.5 EXPENDITURES BY PARTNERSHIP. The General Partner is hereby
authorized to pay compensation for accounting, administrative, legal, technical,
management and other services rendered to the Partnership. All of the aforesaid
expenditures (including Administrative Expenses) shall be made on behalf of the
Partnership, and the General Partner shall be entitled to reimbursement by the
Partnership for any expenditure (including Administrative Expenses) incurred by
it on behalf of the Partnership which shall be made other than out of the funds
of the Partnership. The Partnership shall also assume, and pay when due, all
Administrative Expenses.
6.6 OUTSIDE ACTIVITIES; REDEMPTION TENDER OFFER OF REIT SHARES.
Subject to Section 6.8 hereof, the Articles of Incorporation and
any agreements entered into by the General Partner or its Affiliates with the
Partnership or a Subsidiary, any officer, director, employee, agent, trustee,
Affiliate or shareholder of the General Partner shall be entitled to and may
have business interests and engage in business activities in addition to those
relating to the Partnership, including business interests and activities
substantially similar or identical to those of the Partnership. Neither the
Partnership nor any of the Limited Partners shall have any rights by virtue of
this Agreement in any such business ventures, interest or activities. None of
the Limited Partners nor any other Person shall have any rights by virtue of
this Agreement or the partnership relationship established hereby in any such
business ventures, interests or activities, and the General Partner shall have
no obligation pursuant to this Agreement to offer any interest in any such
business ventures, interests and activities to the Partnership or any Limited
Partner, even if such opportunity is of a character which, if presented to the
Partnership or any Limited Partner, could be taken by such Person.
6.7 EMPLOYMENT OR RETENTION OF AFFILIATES.
(a) Any Affiliate of the General Partner may be employed or
retained by the Partnership and may otherwise deal with the Partnership (whether
as a buyer, lessor, lessee, manager, furnisher of goods or services, broker,
agent, lender or otherwise) and may receive from the Partnership any
compensation, price, or other payment therefor which the General Partner
determines to be fair and reasonable.
(b) The Partnership may lend or contribute to its Subsidiaries or
other Persons in which it has an equity investment, and such Persons may borrow
funds from the Partnership, on terms and conditions established in the sole and
absolute discretion of the General Partner. The foregoing authority shall not
create any right or benefit in favor of any Subsidiary or any other Person.
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(c) The Partnership may transfer assets to joint ventures, other
partnerships, corporations or other business entities in which it is or thereby
becomes a participant upon such terms and subject to such conditions as the
General Partner deems are consistent with this Agreement and applicable law.
(d) Except as expressly permitted by this Agreement, neither the
General Partner nor any of its Affiliates shall sell, transfer or convey any
property to, or purchase any property from, the Partnership, directly or
indirectly, except pursuant to transactions that are on terms that are fair and
reasonable to the Partnership.
6.8 COMPANY PARTICIPATION. The General Partner agrees that all business
activities of the General Partner, including activities pertaining to the
acquisition, development and/or ownership of hotels or other property, shall be
conducted through the Partnership; provided, however, that the Company is
allowed to make a direct acquisition, but if and only if, such acquisition is
made in connection with the issuance of New Securities, which direct acquisition
and issuance have been approved and determined to be in the best interests of
the Company and the Partnership by a majority of the Independent Directors. The
Company also agrees that all borrowings of the Company shall constitute Funding
Loans, subject to the exception set forth in Section 4.3 hereof.
ARTICLE VII
CHANGES IN GENERAL PARTNER
7.1 TRANSFER OF THE GENERAL PARTNER'S PARTNERSHIP INTEREST.
(a) The General Partner may not transfer any of its General
Partnership Interest or Limited Partnership Interests or withdraw as General
Partner except as provided in Article 9, Section 7.1(c) or in connection with a
transaction described in Section 7.1(d).
(b) The General Partner agrees that it will at all times own (as
a general or limited partner) at least a 20% Percentage Interest.
(c) Except as otherwise provided in Section 6.8 or Section 7.1(d)
hereof, the General Partner shall not engage in any merger, consolidation or
other combination with or into another Person or sale of all or substantially
all of its assets, or any reclassification, or any recapitalization or change of
outstanding REIT Shares (other than a change in par value, or from par value to
no par value, or as a result of a subdivision or combination of REIT Shares)
(each a "Transaction"), unless (i) the Transaction also includes a merger of the
Partnership or sale of substantially all of the assets of the Partnership as a
result of which all Limited Partners will receive for each Partnership Unit an
amount of cash, securities, or other property equal to the product of the
Conversion Factor and the greatest amount of cash, securities or other property
paid in the Transaction to a holder of one REIT Share in consideration of one
REIT Share, provided that if, in connection with the Transaction, a purchase,
tender or exchange offer ("Offer") shall have been made to and accepted by the
holders of more than 50 percent of the outstanding REIT Shares, each holder
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of Partnership Units shall be given the option to exchange its Partnership Units
for the greatest amount of cash, securities, or other property which a Limited
Partner would have received had it (A) exercised its Redemption Right and (B)
sold, tendered or exchanged pursuant to the Offer the REIT Shares received upon
exercise of the Redemption Right immediately prior to the expiration of the
Offer; and (ii) no more than 75 percent of the equity securities of the
acquiring Person in such Transaction shall be owned, after consummation of such
Transaction, by the General Partner or Persons who were Affiliates of the
Partnership or the General Partner immediately prior to the date on which the
Transaction is consummated.
(d) Notwithstanding Section 7.1(c), the General Partner may merge
into or consolidate with another entity if immediately after such merger or
consolidation (i) substantially all of the assets of the successor or surviving
entity (the "Surviving General Partner"), other than Partnership Units held by
the General Partner, are contributed to the Partnership as a Capital
Contribution in exchange for Partnership Units with a fair market value equal to
the value of the assets so contributed as determined by the Surviving General
Partner in good faith and (ii) the Surviving General Partner expressly agrees to
assume all obligations of the General Partner hereunder. Upon such contribution
and assumption, the Surviving General Partner shall have the right and duty to
amend this Agreement as set forth in this Section 7.1(d). The Surviving General
Partner shall in good faith arrive at a new method for the calculation of the
Cash Amount and Conversion Factor for a Partnership Unit after any such merger
or consolidation so as to approximate the existing method for such calculation
as closely as reasonably possible. Such calculation shall take into account,
among other things, the kind and amount of securities, cash and other property
that was receivable upon such merger or consolidation by a holder of REIT Shares
and/or options, warrants or other rights relating thereto, and which a holder of
Partnership Units could have acquired had such Partnership Units been redeemed
immediately prior to such merger or consolidation. Such amendment to this
Agreement shall provide for adjustment to such method of calculation which shall
be as nearly equivalent as may be practicable to the adjustments provided for
with respect to the Conversion Factor. The above provisions of this Section
7.1(d) shall similarly apply to successive mergers or consolidations permitted
hereunder.
7.2 ADMISSION OF A SUBSTITUTE OR SUCCESSOR GENERAL PARTNER. A Person
shall be admitted as a substitute or successor General Partner of the
Partnership only if the following terms and conditions are satisfied:
(a) a majority-in-interest of the Limited Partners (other than
the General Partner) shall have consented in writing to the admission of the
substitute or successor General Partner, which consent may be withheld in the
sole discretion of such Limited Partners;
(b) the Person to be admitted as a substitute or additional
General Partner shall have accepted and agreed to be bound by all the terms and
provisions of this Agreement by executing a counterpart thereof and such other
documents or instruments as may be required or appropriate in order to effect
the admission of such Person as a General Partner, and a certificate evidencing
the admission of such Person as a General Partner shall have been filed for
recordation and all other actions required by Section 2.6 hereof in connection
with such admission shall have been performed;
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(c) if the Person to be admitted as a substitute or additional
General Partner is a corporation or a partnership it shall have provided the
Partnership with evidence satisfactory to counsel for the Partnership of such
Person's authority to become a General Partner and to be bound by the terms and
provisions of this Agreement; and
(d) counsel for the Partnership shall have rendered an opinion
(relying on such opinions from other counsel and the state or any other
jurisdiction as may be necessary) that the admission of the person to be
admitted as a substitute or additional General Partner is in conformity with the
Act, that none of the actions taken in connection with the admission of such
Person as a substitute or additional General Partner will cause (i) the
Partnership to be classified other than as a partnership for federal income tax
purposes, or (ii) the loss of any Limited Partner's limited liability.
7.3 EFFECT OF BANKRUPTCY, WITHDRAWAL, DEATH OR DISSOLUTION OF A GENERAL
PARTNER.
(a) Upon the occurrence of an Event of Bankruptcy as to a General
Partner or the withdrawal, removal or dissolution of a General Partner (except
that, if a General Partner is on the date of such occurrence a partnership, the
withdrawal, death, dissolution, Event of Bankruptcy as to, or removal of a
partner in, such partnership shall be deemed not to be a dissolution of such
General Partner if the business of such General Partner is continued by the
remaining partner or partners), the Partnership shall be dissolved and
terminated unless the Partnership is continued pursuant to Section 7.3(b)
hereof.
(b) Following the occurrence of an Event of Bankruptcy as to a
General Partner or the withdrawal, removal or dissolution of a General Partner
(except that, if a General Partner is on the date of such occurrence a
partnership, the withdrawal, death, dissolution, Event of Bankruptcy as to, or
removal of a partner in, such partnership shall be deemed not to be a
dissolution of such General Partner if the business of such General Partner is
continued by the remaining partner or partners), the Limited Partners, within
ninety (90) days after such occurrence, may elect to reconstitute the
Partnership and continue the business of the Partnership for the balance of the
term specified in Section 2.5 hereof by selecting, subject to Section 7.2 hereof
and any other provisions of this Agreement, a substitute General Partner by
unanimous consent of the Limited Partners. If the Limited Partners elect to
reconstitute the Partnership and admit a substitute General Partner, the
relationship with the Partners and of any Person who has acquired an interest of
a Partner in the Partnership shall be governed by this Agreement.
7.4 PURCHASE OF PARTNERSHIP UNITS. In the event the General Partner
exercises any right it has under the Articles of Incorporation or otherwise to
purchase REIT Shares, REIT Preferred Shares or debt securities of the Company,
or to otherwise redeem REIT Shares, REIT Preferred Shares or debt securities of
the Company (whether pursuant to a tender offer or otherwise), then the General
Partner shall cause the Partnership to purchase from it that number and type of
Partnership Units corresponding to the REIT Shares, REIT Preferred Shares or
debt securities of the Company, on the same terms and for the same aggregate
price that the General Partner purchased such REIT Shares, REIT Preferred Shares
or debt securities of the Company.
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ARTICLE VIII
RIGHTS AND OBLIGATIONS
OF THE LIMITED PARTNERS
8.1 MANAGEMENT OF THE PARTNERSHIP. The Limited Partners shall not
participate in the management or control of Partnership business nor shall they
transact any business for the Partnership, nor shall they have the power to sign
for or bind the Partnership, such powers being vested solely and exclusively in
the General Partner.
8.2 POWER OF ATTORNEY.
(a) Each Limited Partner and each Assignee hereby irrevocably
constitutes and appoints the General Partner, any Liquidator (as defined below),
and authorized officers and attorneys-in-fact of each, and each of those acting
singly, in each case with full power of substi tution, as its true and lawful
agent and attorney-in-fact, with full power and authority in its name, place and
stead to:
(i) execute, swear to, acknowledge, deliver, file and
record in the appropriate public offices (a) all certificates, documents
and other instruments (including, without limitation, this Agreement and
the Certificate and all amendments or restatements thereof) that the
General Partner or any liquidator of the Partnership's assets (the
"Liquidator") deems appropriate or necessary to form, qualify or
continue the existence or qualification of the Partnership as a limited
partnership (or a partnership in which the Limited Partners have limited
liability) in the State of Delaware and in all other jurisdictions in
which the Partnership may or plans to conduct business or own property;
(b) all instruments that the General Partner or the Liquidator deems
appropriate or necessary to reflect any amendment, change, modification
or restatement of this Agreement in accordance with its terms; (c) all
conveyances and other instruments or documents that the General Partner
deems appropriate or necessary to reflect the dissolution and
liquidation of the Partnership pursuant to the terms of this Agreement,
including, without limitation, a certificate of cancellation; (d) all
instruments relating to the admission, withdrawal, removal or
substitution of any Partner pursuant to, or other events described
herein or the Capital Contribution of any Partner; and (e) all
certificates, documents and other instruments relating to the
determination of the rights, preferences and privileges of Partnership
Interests; and
(ii) execute, swear to, seal, acknowledge and file all
ballots, consents, approvals, waivers, certificates and other
instruments appropriate or necessary, in the sole and absolute
discretion of the General Partner or the Liquidator, to make, evidence,
give, confirm or ratify any vote, consent, approval, agreement or other
action which is made or given by the Partners hereunder or is consistent
with the terms of this Agreement or appropriate or necessary, in the
sole discretion of the General Partner or any Liquidator, to effectuate
the terms or intent of this Agreement.
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Nothing contained herein shall be construed as authorizing the General Partner
or any Liquidator to amend this Agreement except as may be otherwise expressly
provided for in this Agreement.
(b) The foregoing power of attorney is hereby declared to be
irrevocable and a special power coupled with an interest, in recognition of the
fact that each of the Partners will be relying upon the power of the General
Partner and any Liquidator to act as contemplated by this Agreement in any
filing or other action by it on behalf of the Partnership, and it shall survive
and not be affected by the subsequent incapacity of any Limited Partner or
Assignee and the transfer of all or any portion of such Limited Partner's or
Assignee's Partnership Units and shall extend to such Limited Partner's or
Assignee's heirs, successors, assigns and personal representatives. Each such
Limited Partner or Assignee hereby agrees to be bound by any representation made
by the General Partner or any Liquidator, acting in good faith pursuant to such
power of attorney, and each such Limited Partner or Assignee hereby waives any
and all defenses which may be available to contest, negate or disaffirm the
action of the General Partner or any Liquidator, taken in good faith under such
power of attorney. Each Limited Partner or Assignee shall execute and deliver to
the General Partner or the Liquidator, within fifteen (15) days after receipt of
the General Partner's or Liquidator's request therefor, such further
designation, powers of attorney and other instruments as the General Partner or
the Liquidator, as the case may be, deems necessary to effectuate this Agreement
and the purposes of the Partnership.
8.3 LIMITATION ON LIABILITY OF LIMITED PARTNERS. No Limited Partner
shall be liable for any debts, liabilities, contracts or obligations of the
Partnership. A Limited Partner shall be liable to the Partnership only to make
payments of his Capital Contribution, if any, as and when due hereunder. After
his Capital Contribution is fully paid, no Limited Partner shall, except as
otherwise required by the Act, be required to make any further Capital
Contributions or other payments or lend any funds to the Partnership.
8.4 OWNERSHIP BY LIMITED PARTNER OF CORPORATE GENERAL PARTNER OR
AFFILIATE. No Limited Partner shall at any time, either directly or indirectly,
own any stock or other interest in the General Partner or in any Affiliate
thereof, if such ownership by itself or in conjunction with other stock or other
interests owned by other Limited Partners would, in the opinion of counsel for
the Partnership, jeopardize the classification of the Partnership as a
partnership for federal income tax purposes. The General Partner shall be
entitled to make such reasonable inquiry of the Limited Partners as is required
to establish compliance by the Limited Partners with the provisions of this
Section.
8.5 REDEMPTION RIGHT.
(a) Subject to Section 8.5(c) and Section 9.8, each Limited
Partner who holds Common Partnership Units (including Limited Partners who have
obtained Common Partnership Units through the exercise of conversion rights, if
any, applicable to their Preferred Partnership Units), other than the General
Partner, shall have the right (the "Redemption Right") to require the
Partnership on a Specified Redemption Date to either (i) redeem all or a portion
of the Common Partnership Units held by such Limited Partner at a redemption
price equal to Cash Amount or (ii) to exchange all or a portion of the Common
Partnership Units held by such Limited Partner for REIT
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Shares at a ratio equal to the Conversion Factor. The Redemption Right shall be
exercised pursuant to a Notice of Redemption delivered to the General Partner by
the Limited Partner who is exercising the Redemption Right (the "Redeeming
Partner"), provided that no more than two (2) Notices of Redemption from any
single Limited Partner may be delivered to the General Partner during each
calendar year. No such Limited Partner may exercise the Redemption Right for
less than five hundred (500) Common Partnership Units or, if such Limited
Partner holds less than five hundred (500) Common Partnership Units, all of the
Common Partnership Units held by such Limited Partner. The Redeeming Partner
shall have no right, with respect to any Common Partnership Units so redeemed,
to receive any distribution paid with respect to Common Partnership Units if the
record date for such distribution is on or after the Specified Redemption Date.
Notwithstanding the preceding sentence to the contrary, if the Partnership or
the General Partner elects under Section 8.5(c) to extend the payment date for
the Cash Amount, then to the extent a Partnership Record Date occurs between the
Specified Redemption Date and the date such Cash Amount is paid, the Redeeming
Partner shall receive the distribution relating to such Partnership Record Date
with respect to such Common Partnership Units being redeemed.
(b) Notwithstanding the provisions of Section 8.5(a), the General
Partner may, in its sole and absolute discretion, assume directly and satisfy a
Redemption Right by paying to the Redeeming Partner the Redemption Amount on the
Specified Redemption Date, whereupon the General Partner shall acquire the
Common Partnership Units offered for redemption by the Redeeming Partner and
shall be treated for all purposes of this Agreement as the owner of such Common
Partnership Units. In the event the General Partner shall exercise its right to
satisfy the Redemption Right in the manner described in the preceding sentence,
the Partnership shall have no obligation to pay any amount to the Redeeming
Partner with respect to such Redeeming Partner's exercise of the Redemption
Right, and each of the Redeeming Partner, the Partnership, and the General
Partner shall treat the transaction between the General Partner and the
Redeeming Partner as a sale of the Redeeming Partner's Common Partnership Units
to the General Partner for federal income tax purposes. Each Redeeming Partner
agrees to execute such documents and take such other actions as the General
Partner may reasonably require in connection with the issuance of REIT Shares
upon exercise of the Redemption Right.
(c) The Partnership or the General Partner, as the case may be,
shall pay the Cash Amount to a Redeeming Partner as the Redemption Amount for
such Limited Partner if:
(i) the acquisition of REIT Shares by such Limited Partner
on the Specified Redemption Date would (A) result in such Limited
Partner or any other person owning, directly or indirectly REIT Shares
in excess of the "Ownership Limit," as defined in the Articles of
Incorporation, (B) result in REIT Shares being owned by fewer than one
hundred (100) persons (determined as provided by Section 856(a)(5) of
the Code), except as provided in the Articles of Incorporation, (C)
result in the General Partner being "closely held" within the meaning of
Section 856(h) of the Code, (D) cause the Company to own, directly or
constructively, ten percent (10%) or more of the ownership interests in
a tenant of the Company's or the Partnership's real property, within the
meaning of Section 856(d)(2)(B) of the Code, or (E) cause the
acquisition of REIT Shares by such Partner to be "integrated" with
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any other distribution of REIT Shares or other securities of the Company
for purposes of complying with the registration provisions of the
Securities Act;
(ii) there is not an effective registration statement on
file with the Commission covering the Redemption Shares to be issued
upon the redemption of the Partnership Units described in the Notice of
Redemption for such Redeeming Partner (a) as of the Specified Redemption
Date, if the Cash Amount is less than the Threshold Cash Amount, and (b)
within 45 days of the Specified Redemption Date (and if such date is not
a Business Day, then the next Business Day) if the Cash Amount is more
than the Threshold Cash Amount; or
(iii) the Partnership or the General Partner, as the case
may be, so elects in its sole discretion.
Any Cash Amount to be paid to a Redeeming Partner pursuant to
this Section 8.5 shall be paid on the Specified Redemption Date; provided,
however, that if the Cash Amount to be paid to all Limited Partners who have
sent a Notice of Redemption during the period from the date of receipt of the
initial Notice of Redemption triggering a Specified Redemption Date and such
Specified Redemption Date exceeds $500,000 (the "Threshold Cash Amount"), then
such payment date may be extended for up to an additional one hundred eighty
(180) days to the extent required for the General Partner to cause additional
REIT Shares to be issued to provide financing to be used to make such payment of
the Cash Amount. Notwithstanding the foregoing, the General Partner and the
Partnership agree to use their best efforts to cause the closing of the
acquisition of redeemed Partnership Units hereunder to occur as quickly as
reasonably possible without incurring unreasonable expense.
(d) Each certificate, if any, evidencing REIT Shares that may be
issued in redemption of Partnership Units under Section 8.5 above (the
"Redemption Shares") shall bear a restrictive legend in substantially the
following form:
"The shares represented by this certificate have not been registered
under the Securities Act of 1933, as amended (the "Act"), or any state
securities law. No transfer of the Shares represented by this
certificate shall be valid or effective unless (A) such transfer is made
pursuant to an effective registration statement under the Act, or (B)
the holder of the securities proposed to be transferred shall have
delivered to the company either a no-action letter from the Securities
and Exchange Commission or an opinion of counsel (who may be an employee
of such holder) experienced in securities matters to the effect that
such proposed transfer is exempt from the registration requirements of
the act which opinion shall be reasonably satisfactory to the company."
(e) The Assignee of any Limited Partner may exercise the rights
of such Limited Partner pursuant to this Section 8.5, and such Limited Partner
shall be deemed to have assigned such rights to such Assignee and shall be bound
by the exercise of such rights by such Limited Partner's Assignee. In connection
with any exercise of such rights by such Assignee on behalf of such Limited
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Partner, the Cash Amount or REIT Shares Amount shall be paid by the Partnership
directly to such Assignee and not to such Limited Partner. Neither the Redeeming
Partner nor any Assignee of any Limited Partner shall have any right, with
respect to any Part nership Units so redeemed, to receive any distributions paid
after the Effective Date or the Specified Redemption Date.
(f) Each Limited Partner covenants and agrees with the General
Partner that all Partnership Units delivered for redemption shall be delivered
to the Partnership or the General Partner, as the case may be, free and clear of
all liens and, notwithstanding anything herein contained to the contrary,
neither the General Partner nor the Partnership shall be under any obligation to
acquire Partnership Units which are or may be subject to any liens. Each Limited
Partner further agrees that, in the event any state or local property transfer
tax is payable as a result of the transfer of its Partnership Units to the
Partnership or the General Partner, such Limited Partner shall assume and pay
such transfer tax.
(g) Notwithstanding anything to the contrary herein, and, unless
otherwise indicated, with respect to the Redemption Right pursuant to this
Section 8.5:
(i) The consummation of such redemption shall be subject
to the expiration and termination of the applicable waiting period, if
any, under the Hart-Scott-Rodino Antitrust Improvement Act of 1976, as
amended.
(ii) The consummation of such redemption shall be subject
to and effected in compliance with all federal and state securities
laws.
(iii) The Redeeming Partner shall continue to own all
Partnership Units subject to any redemption for REIT Shares or the Cash
Amount and be treated as a Limited Partner with respect to such
Partnership Units for all purposes (other than as provided in Section
8.5(e) above) of this Agreement until such Partnership Units are
transferred to the Partnership or General Partner and the consideration
provided by this Section 8.5 is delivered in full on the Specified
Redemption Date. Until the issuance of the Redemption Shares the
Redeeming Partner shall have no rights as stockholder of the General
Partner.
(h) Notwithstanding any other provision of this Section 8.5,
unless Preferred Unitholders shall have converted their Preferred Partnership
Units into Common Partnership Units pursuant to conversion rights set forth in
the Certificate of Designation for their respective class of Preferred
Partnership Units, Preferred Unitholders shall not have the Redemption Rights
specified in this Section 8.5, but rather shall have such redemption rights, if
any, as are set forth in the Certificate of Designation for a particular class
of Preferred Partnership Units. In addition, the rights, if any, of the General
Partner to redeem a particular class of Preferred Partnership Units shall be set
forth in the Certificate of Designation applicable to such Preferred Partnership
Units.
8.6 REGISTRATION.
(a) Shelf Registration. In lieu of paying the Cash Amount to a
Redeeming Partner as the Redemption Amount pursuant to Section 8.5(c)(ii)
hereof, the General Partner may file within
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the applicable time period required pursuant to Section 8.5(c)(ii) hereof a
shelf registration statement under Rule 415 of the Securities Act, or any
similar rule that may be adopted by the Commission (the "Shelf Registration"),
with respect to all of the Redemption Shares to be issued upon the redemption of
the Partnership Units described in the Notice of Redemption provided by the
Redeeming Partner entitled to payment under Section 8.5(c)(ii) hereof. The
General Partner may elect in its sole discretion to register any other
Redemption Shares pursuant to the Shelf Registration or any pre or
post-effective amendment thereto. The General Partner will use its best efforts
to have the Shelf Registration declared effective under the Securities Act as
soon as practicable after filing in order to permit the disposition of the
Registered Redemption Shares by the holders thereof in accordance with the
method or methods of disposition specified by the holders, and to keep the Shelf
Registration continuously effective until the earlier of (i) the second
anniversary of the date the Shelf Registration is declared effective by the
Commission (the "Shelf Registration Period"); (ii) the date when all of the
Registered Redemption Shares are sold thereunder, or (iii) the date on which all
of the holders of Registered Redemption Shares, pursuant to Rule 144(k) under
the Securities Act, may sell the Registered Redemption Shares without
registration under the Securities Act. The General Partner further agrees to
supplement or make amendments to the Shelf Registration, if required by the
rules, regulations or instructions applicable to the registration form utilized
by the Company or by the Securities Act or rules and regulations thereunder for
the Shelf Registration. Notwithstanding the foregoing, if for any reason the
effectiveness of the Shelf Registration is delayed or suspended or it ceases to
be available for sales of Registered Redemption Shares thereunder, the Shelf
Registration Period shall be extended by the aggregate number of days of such
delay, suspension or unavailability.
(b) Registration and Qualification Procedures. If and to the
extent the General Partner files the Shelf Registration pursuant to the
provisions of Section 8.6(a) above in lieu of making a payment of the Cash
Amount pursuant to Section 8.5(c)(ii) hereof, then the General Partner will,
subject to the provisions of Section 9.8 below:
(i) prepare and file with the Commission a registration
statement, including amendments thereof and supplements relating
thereto, with respect to the Redemption Shares, in connection with which
the General Partner will give each holder of Redemption Shares, their
underwriters, if any, and their counsel and accountants a reasonable
opportunity to participate in the preparation thereof and will give such
persons reasonable access to its books, records, officers and
independent public accountants;
(ii) use its best efforts to cause the registration
statement to be declared effective by the Commission;
(iii) keep the registration statement effective and the
related prospectus current throughout the Shelf Registration Period;
provided, however, that the General Partner shall have no obligation to
file any amendment or supplement at its own expense or the Partnership's
expense at any time in connection with any underwritten public offering;
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(iv) furnish to each holder of Redemption Shares such
number of copies of prospectuses, and supplements or amendments thereto,
and such other documents as such holder reasonably requests;
(v) register or qualify the Redemption Shares covered by
the registration statement under the securities or blue sky laws of such
jurisdictions within the United States as any holder whose Redemption
Shares are covered by such registration statement shall reasonably
request, and do such other reasonable acts and things as may be required
of it to enable such holders to consummate the sale or other disposition
in such jurisdictions of the Redemption Shares; provided, however, that
the General Partner shall not be required to (i) qualify as a foreign
corporation or consent to a general and unlimited service or process in
any jurisdictions in which it would not otherwise be required to be
qualified or so consent or (ii) qualify as a dealer in securities;
(vi) furnish, at the request of the holders of Redemption
Shares, on the date Redemption Shares are delivered to the underwriters
for sale pursuant to such registration, or, if such Shares are not being
sold through underwriters, on the date the Shelf Registration with
respect to such Redemption Shares becomes effective, (A) a securities
opinion of counsel representing the General Partner for the purposes of
such registration covering such legal matters as are customarily
included in such opinions and (B) letters of the firm of independent
public accountants that certified the financial statements included in
the registration statement, addressed to the underwriters, covering
substantially the same matters as are customarily covered in
accountant's letters delivered to underwriters in underwritten public
offerings of securities and such other financial matters as such holders
(or the underwriters, if any) may reasonably request;
(vii) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make available
to its stockholders as soon as reasonably practicable, but not later
than sixteen (16) months after the effective date of the Shelf
Registration, an earnings statement covering a period of at least twelve
(12) months beginning after the effective date of the Shelf
Registration, which earnings statement shall satisfy the provisions of
Section 11(a) of the Securities Act;
(viii) enter into and perform an underwriting agreement
with the managing underwriter, if any, selected as provided herein,
containing customary (A) terms of offer and sale of the securities,
payment provisions, underwriting discounts and commissions and (B)
representations, warranties, covenants, indemnities, terms and
conditions; and
(ix) keep the holders of Redemption Shares whose Shares
are included in such Shelf Registration advised as to the initiation and
progress of the registration.
(a) Allocation of Expenses. The Partnership shall pay all
expenses in connection with the Shelf Registration, including without limitation
(i) all expenses incident to filing with the National Association of Securities
Dealers, Inc., (ii) registration fees, (iii) printing expenses, (iv) accounting
and legal fees and expenses, except to the extent holders of Redemption Shares
whose
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Shares are included in such Shelf Registration elect to engage accountants or
attorneys in addition to the accountants and attorneys engaged by the General
Partner, (v) accounting expenses incident to or required by any such
registration or qualification and (vi) expenses of complying with the securities
or blue sky laws of any jurisdictions in connection with such registration or
qualification; provided, however, the Partnership shall not be liable for (A)
any discounts or commissions to any underwriter or broker attributable to the
sale of Redemption Shares, or (B) any fees or expenses incurred by holders of
Redemption Shares in connection with such registration which, according to the
written instructions of any regulatory authority, the Partnership is not
permitted to pay. The Partnership shall not be required to pay any of the
expenses set forth in this Section 8.6(c)(i) through (vi) in connection with any
underwritten public offering after the Shelf Registration has been declared
effective, except to the extent that such underwritten public offering occurs
concurrently with the declaration of effectiveness of the Shelf Registration;
provided, however, that this sentence shall not affect the Partnership's
obligation to cooperate in connection with any such underwritten public
offering.
(b) Indemnification.
(i) In connection with the Shelf Registration, the
Partnership agrees to indemnify holders of Redemption Shares within the
meaning of Section 15 of the Securities Act, against all losses, claims,
damages, liabilities and expenses (including reasonable costs of
investigation) caused by any untrue, or alleged untrue, statement of a
material fact contained in the Shelf Registration, preliminary
prospectus or prospectus (as amended or supplemented if the General
Partner shall have furnished any amendments or supplements thereto) or
caused by any omission, or alleged omission, to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading, except insofar as such losses, claims, damages,
liabilities or expenses are caused by any untrue statement, alleged
untrue statement, omission, or alleged omission based upon information
furnished to the General Partner expressly for use therein. The General
Partner and each officer, director and controlling person of the General
Partner shall be indemnified by each holder of Redemption Shares covered
by the Shelf Registration for all such losses, claims, damages,
liabilities and expenses (including reasonable costs of investigation)
caused by any such untrue, or alleged untrue, statement or any such
omission, or alleged omission, based upon information furnished to the
General Partner expressly for use therein in a writing signed by the
holder.
(ii) Promptly upon receipt by a party indemnified under
this Section 8.6(d) of notice of the commencement of any action against
such indemnified party in respect of which indemnity or reimbursement
may be sought against any indemnifying party under this Section 8.6(d),
such indemnified party shall notify the Partnership in writing of the
commencement of such action, but the failure to so notify the
Partnership shall not relieve it of any liability which it may have to
any indemnified party otherwise than under this Section 8.6(d) unless
such failure shall materially adversely affect the defense of such
action. In case notice of commencement of any such action shall be given
to the Partnership as above provided, the Partnership shall be entitled
to participate in and, to the extent it may wish, jointly with any other
indemnifying party similarly notified, to assume the defense of
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such action at its own expense, with counsel chosen by it and reasonably
satisfactory to such indemnified party. The indemnified party shall have
the right to employ separate counsel in any such action and participate
in the defense thereof, but the fees and expenses of such counsel (other
than reasonable costs of investigation) shall be paid by the indemnified
party unless (i) the Partnership agrees to pay the same, (ii) the
General Partner fails to assume the defense of such action with counsel
reasonably satisfactory to the indemnified party or (iii) the named
parties to any such action (including any impleaded parties) have been
advised by such counsel that representation of such indemnified party
and the General Partner by the same counsel would be inappropriate under
applicable standards of professional conduct (in which case the General
Partner shall not have the right to assume the defense of such action on
behalf of such indemnified party). No indemnifying party shall be liable
for any settlement entered into without its consent.
(c) Contribution.
(i) If for any reason the indemnification provisions
contemplated by Section 8.6(d) are either unavailable or insufficient to
hold harmless an indemnified party in respect of any losses, claims,
damages or liabilities referred to therein, then the party that would
otherwise be required to provide indemnification or the indemnifying
party (in either case, for purposes of this Section 8.6(e), the
"Indemnifying Party") in respect of such losses, claims, damages or
liabilities, shall contribute to the amount paid or payable by the party
that would otherwise be entitled to indemnification or the indemnified
party (in either case, for purposes of this Section 8.6(e), the
"Indemnified Party") as a result of such losses, claims, damages,
liabilities or expense, in such proportion as is appropriate to reflect
the relative fault of the Indemnifying Party and the Indemnified Party,
as well as any other relevant equitable considerations. The relative
fault of the Indemnifying Party and Indemnified Party shall be
determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or omission or alleged
omission to state a material fact related to information supplied by the
Indemnifying Party or Indemnified Party, and the parties' relative
intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The amount paid or payable by a
party as a result of the losses, claims, damages, liabilities and
expenses referred to above shall be deemed to include any legal or other
fees or expenses reasonably incurred by such party. In no event shall
any holder of Redemption Shares covered by the Shelf Registration be
required to contribute an amount greater than the dollar amount of the
proceeds received by such holder from the sale of Redemption Shares
pursuant to the registration giving rise to the liability.
(ii) The parties hereto agree that it would not be just
and equitable if contribution pursuant to this Section 8.6(e) were
determined by pro rata allocation (even if the holders or any
underwriters or all of them were treated as one entity for such purpose)
or by any other method of allocation which does not take account of the
equitable considerations referred to in the immediately preceding
paragraph. No person or entity determined to have committed a fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities
Act) shall be entitled to contribution from any person or entity who was
not guilty of such fraudulent misrepresentation.
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(iii) The contribution provided for in this Section 8.6(e)
shall survive the termination of this Agreement and shall remain in full
force and effect regardless of any investigation made by or on behalf of
any Indemnified Party.
(d) Listing on Securities Exchange. If the General Partner shall
list or maintain the listing of any shares of its common stock on any securities
exchange or national market system, it will at its expense and as necessary to
permit the registration and sale of the Redemption Shares hereunder, list
thereon, maintain and, when necessary, increase such listing to include such
Redemption Shares.
8.7 MEETINGS OF THE PARTNERS.
(a) Meetings of the Partners may be called by the General Partner
and shall be called upon the receipt by the General Partner of a written request
by Limited Partners holding ten percent (10%) or more of the Limited Partner
Interests, taking into account any Preferred Partnership Units that are
convertible into Common Partnership Units and are required by the Certificate of
Designation for the particular class of Preferred Partnership Units to be
counted for such purposes on an as-converted basis. Upon request in writing to
the General Partner by any person(s) entitled to call a meeting, the General
Partner shall cause notice to be given (not less than fifteen (15) nor more than
sixty (60) days after receipt of request) to the Limited Partners that a meeting
will be held at a time requested by the person(s) calling the meeting. The call
shall state the nature of the business to be transacted. Notice of any such
meeting shall be given to all Partners not less than ten (10) days nor more than
sixty (60) days prior to the date of such meeting. Partners may vote in person
or by proxy at such meeting. Whenever the vote or consent of the Partners is
permitted or required under this Agreement, such vote or consent may be given at
a meeting of the Partners or may be given in accordance with the procedure
prescribed in Section 8.7 hereof. Except as otherwise expressly provided in this
Agreement, the consent of holders of a majority of the Percentage Interests held
by Limited Partners (including Limited Partnership Interests held by the General
Partner) shall control.
(b) Any action required or permitted to be taken at a meeting of
the Partners may be taken without a meeting if a written consent setting forth
the action so taken is signed by a majority of the Percentage Interests of the
Partners (or such other percentage as is expressly required by this Agreement),
taking into account any Preferred Partnership Units that are convertible into
Common Partnership Units and are required by the Certificate of Designation for
the particular class of Preferred Partnership Units to be counted for such
purposes on an as-converted basis. Such consent may be in one instrument or in
several instruments, and shall have the same force and effect as a vote of a
majority of the Percentage Interests of the Partners (or such other percentage
as is expressly required by this Agreement). Such consent shall be filed with
the General Partner. An action so taken shall be deemed to have been taken at a
meeting held on the effective date so certified.
(c) Each Limited Partner may authorize any Person or Persons to
act for him by proxy on all matters in which a Limited Partner is entitled to
participate, including waiving notice of any meeting, or voting or participating
at a meeting. Every proxy must be signed by the Limited
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Partner or his attorney-in-fact. No proxy shall be valid after the expiration of
eleven (11) months from the date thereof unless otherwise provided in the proxy.
Every proxy shall be revocable at the pleasure of the Limited Partner executing
it, such revocation to be effective upon the Partnership's receipt of or written
notice of such revocation from the Limited Partner executing such proxy.
(d) Each meeting of Partners shall be conducted by the General
Partner or such other Person as the General Partner may appoint pursuant to such
rules for the conduct of the meeting as the General Partner or such other Person
deems appropriate in its sole discretion. Without limitation, meetings of
Partners may be conducted in the same manner as meetings of the stockholders of
the General Partner and may be held at the same time as, and as part of,
meetings of the stockholders of the General Partner.
ARTICLE IX
TRANSFERS OF LIMITED PARTNERSHIP INTERESTS
9.1 PURCHASE FOR INVESTMENT.
(a) Each Limited Partner hereby represents and warrants to the
General Partner and to the Partnership that the acquisition of his Partnership
Interest is made as a principal for his account for investment purposes only and
not with a view to the resale or distribution of such Partnership Interest.
(b) Each Limited Partner agrees that he will not sell, assign or
otherwise transfer his Partnership Interest or any fraction thereof, whether
voluntarily or by operation of law or at judicial sale or otherwise, to any
Person who does not make the representations and warranties to the General
Partner set forth in Section 9.1(a) above and similarly agree not to sell,
assign or transfer such Partnership Interest or fraction thereof to any Person
who does not similarly represent, warrant and agree.
9.2 RESTRICTIONS ON TRANSFER OF LIMITED PARTNERSHIP INTERESTS AND
REDEMPTION SHARES.
(a) Except as otherwise provided in Section 9.2(d) hereof, no
Limited Partner other than the General Partner may offer, sell, assign,
hypothecate, pledge or otherwise transfer his Limited Partnership Interest, in
whole or in part, whether voluntarily or by operation of law or at judicial sale
or otherwise (collectively, a "Transfer") without the written consent of the
General Partner, which consent may be withheld in the sole discretion of the
General Partner. The General Partner may require, as a condition of any
Transfer, that the transferor assume all costs incurred by the Partnership in
connection therewith.
(b) No Limited Partner may effect a Transfer of his Limited
Partnership Interest, in whole or in part, if, in the opinion of legal counsel
for the Partnership, such proposed Transfer would require the registration of
the Limited Partnership Interest under the Securities Act, or would
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otherwise violate any applicable federal or state securities or "Blue Sky" law
(including investment suitability standards).
(c) No transfer by a Limited Partner of his or its Partnership
Units, in whole or in part, may be made to any Person if: (i) in the opinion of
legal counsel for the Partnership, the transfer would result in the
Partnership's being treated as an association taxable as a corporation (other
than a qualified REIT subsidiary within the meaning of Section 856(i) of the
Code); (ii) such transfer is effectuated through an "established securities
market" or a "secondary market (or the substantial equivalent thereof)" within
the meaning of Section 7704 of the Code; (iii) such transfer would cause the
Partnership to become, with respect to any employee benefit plan subject to
Title I of ERISA, a "party-in-interest" (as defined in Section 3(14) of ERISA)
or a "disqualified person" (as defined in Section 4975(c) of the Code); or (iv)
if such transfer would, in the opinion of counsel to the Partnership, cause any
portion of the assets of the Partnership to constitute assets of any employee
benefit plan pursuant to Department of Labor Regulations Section 2510.2-101.
(d) Section 9.2(a) shall not apply to the following transactions,
except as they may be prohibited by Section 9.2(h) and except that the General
Partner may require that the transferor assume all costs incurred by the
Partnership in connection therewith:
(i) any Transfer by a Limited Partner pursuant to the
exercise of its Redemption Right under Section 8.5 hereof;
(ii) any Transfer by a Limited Partner that is a
corporation or other business entity to any of its Affiliates or
subsidiaries or to any successor in interest of such Limited Partner;
(iii) any donative Transfer by an individual Limited
Partner to his immediate family members or any trust in which the
individual or his immediate family members own, collectively, one
hundred percent (100%) of the beneficial interests. For purposes of this
Section 9.2(d)(iii), the term "immediate family member" shall be deemed
to include only an individual Limited Partner's spouse, children and
grandchildren;
(iv) any Transfer described in Section 9.3(a)(vii); or
(v) any Transfer of Preferred Partnership Units that is
expressly permitted under the Certificate of Designation for a
particular class of Preferred Partnership Units.
(e) Notwithstanding Section 9.2(a) to the contrary, any Limited
Partner (including the Additional Limited Partners) may pledge, encumber or
hypothecate ("Pledge") all or any portion of his Limited Partnership Interest
upon satisfaction of each of the following conditions:
(i) the General Partner shall have determined in the
exercise of its reasonable judgment that such Pledge will not either
jeopardize the status of the Partnership as a partnership for federal or
state income tax purposes or otherwise create any adverse tax
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consequences to the Partnership or result in a transfer that might
jeopardize any exemption from registration under federal or state
securities laws;
(ii) the pledgee of the Pledge shall either be (i) an
institutional lender; or (ii) a non-institutional lender reasonably
acceptable to the General Partner; and
(iii) the Limited Partner making the Pledge shall provide
a copy of all documents evidencing the Pledge or relating to the Pledge
transaction and reimburse the Partnership for all reasonable costs and
expenses incurred by the Partnership in connection with such Pledge.
(f) Any Transfer in contravention of any of the provisions of
this Article IX shall be void ab initio and ineffectual and shall not be binding
upon, or recognized by, the Partnership.
(g) Transfers pursuant to this Article IX may only be made on the
first Business Day of a fiscal quarter of the Partnership, unless the General
Partner otherwise agrees.
(h) Notwithstanding anything in this Agreement to the contrary:
(i) Flagstaff Hotel Assets, Inc. and Tucson Desert Assets,
Inc. in their capacity as a Limited Partner and any successors thereto
or assignees thereof, as well as any Person who becomes a Limited
Partner after the effective date of this Agreement, shall not sell any
Redemption Shares at any time if such sale could reasonably be expected
to result in a violation of any applicable law or regulation due to any
other securities offering or transaction by the General Partner or any
administrator or agent for the General Partner's Dividend Reinvestment
Plan;
(ii) any Person who becomes a Limited Partner after the
effective date of this Agreement shall not, unless the General Partner
in its sole discretion consents in writing, convey, assign, distribute
or otherwise voluntarily or involuntarily transfer (other than a Pledge
permitted by Section 9.2(e)) to any Person, including any shareholder,
any of the Partnership Units (or any other substitute securities or
other securities received on account of such Partnership Units) held by
any such Limited Partners, for a period of one year from the date such
Partnership Units were issued to such Limited Partners; and
(iii) the following Limited Partners shall not, unless the
General Partner in its sole discretion consents in writing, convey,
assign, distribute or otherwise voluntarily or involuntarily transfer
(other than a Pledge permitted by Section 9.2(e)) to any Person,
including any other Partner, any of the Partnership Units (or any other
substitute securities or other securities received on account of such
Partnership Units) held by such Limited Partners, at any time prior to
the date listed next to each such Limited Partner's name, as follows:
(1) Flagstaff Hotel Assets, Inc. and Tucson Desert Assets, Inc. (October
29, 1997), (2) Shivani, LLC (January 17, 1998), and (3) O.T. Hill, LLC
(November 28, 1997).
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9.3 ADMISSION OF SUBSTITUTE LIMITED PARTNER.
(a) Subject to the other provisions of this Article IX, an
assignee of the Limited Partnership Interest of a Limited Partner (which shall
be understood to include any purchaser, transferee, donee, or other recipient of
any disposition of such Limited Partnership Interest) shall be deemed admitted
as a Limited Partner of the Partnership only upon the satisfactory completion of
the following:
(i) The assignee shall have accepted and agreed to be
bound by the terms and provisions of this Agreement by executing a
counterpart or an amendment thereof, and such other documents or
instruments as the General Partner may require in order to effect the
admission of such Person as a Limited Partner.
(ii) To the extent required, an amended Certificate
evidencing the admission of such Person as a Limited Partner shall have
been signed, acknowledged and filed for record in accordance with the
Act.
(iii) The assignee shall have delivered a letter
containing the representation set forth in Section 9.1(a) hereof and the
agreement set forth in Section 9.1(b) hereof.
(iv) If the assignee is a corporation, partnership or
trust, the assignee shall have provided the General Partner with
evidence satisfactory to counsel for the Partnership of the assignee's
authority to become a Limited Partner under the terms and provisions of
this Agreement.
(v) The assignee shall have executed a power of attorney
containing the terms and provisions set forth in Section 8.2 hereof.
(vi) The assignee shall have paid all reasonable legal
fees of the Partnership and the General Partner and filing and
publication costs in connection with his substitution as a Limited
Partner.
(vii) The assignee has obtained the prior written consent
of the General Partner to its admission as a Substitute Limited Partner,
which consent may be given or denied in the exercise of the General
Partner's sole and absolute discretion; provided, however, that subject
to Section 9.8 below, the General Partner hereby agrees to consent to
the admission of any Assignee of any Limited Partner who was a party to
this Agreement as of August 16, 1995 described in Section 9.2(f) (by
distribution in accordance with the terms of the partnership agreement
or other applicable governing agreement of such Limited Partner), which
consent shall be effective with no further action by the General Partner
upon the execution of such assignment by such Limited Partner to such
Assignee.
(b) For the purpose of allocating profits and losses and
distributing cash received by the Partnership, a Substitute Limited Partner
shall be treated as having become, and appearing in the records of the
Partnership as, a Partner upon the filing of the Certificate described in
Section
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9.3(a)(ii) hereof or, if no such filing is required, the later of the date
specified in the transfer documents or the date on which the General Partner has
received all necessary instruments of transfer and substitution.
(c) The General Partner shall cooperate with the Person seeking
to become a Substitute Limited Partner by preparing the documentation required
by this Section and making all official filings and publications. The
Partnership shall take all such action as promptly as practicable after the
satisfaction of the conditions in this Article IX to the admission of such
Person as a Limited Partner of the Partnership.
9.4 RIGHTS OF ASSIGNEES OF PARTNERSHIP INTERESTS.
(a) Subject to the provisions of Sections 9.1 and 9.2 hereof,
except as required by operation of law, the Partnership shall not be obligated
for any purposes whatsoever to recognize the assignment by any Limited Partner
of his Partnership Interest until the Partnership has received notice thereof.
(b) Any Person who is the assignee of all or any portion of a
Limited Partner's Limited Partnership Interest, but does not become a Substitute
Limited Partner and desires to make a further assignment of such Limited
Partnership Interest, shall be subject to all the provisions of this Article IX
to the same extent and in the same manner as any Limited Partner desiring to
make an assignment of his Limited Partnership Interest.
9.5 EFFECT OF BANKRUPTCY, DEATH, INCOMPETENCE OR TERMINATION OF A
LIMITED PARTNER. The occurrence of an Event of Bankruptcy as to a Limited
Partner, the death of a Limited Partner or a final adjudication that a Limited
Partner is incompetent (which term shall include, but not be limited to,
insanity) shall not cause the termination or dissolution of the Partnership, and
the business of the Partnership shall continue if an order for relief in a
bankruptcy proceeding is entered against a Limited Partner, the trustee or
receiver of his estate or, if he dies, his executor, administrator or trustee,
or, if he is finally adjudicated incompetent, his committee, guardian or
conservator, shall have the rights of such Limited Partner for the purpose of
settling or managing his estate property and such power as the bankrupt,
deceased or incompetent Limited Partner possessed to assign all or any part of
his Partnership Interest and to join with the assignee in satisfying conditions
precedent to the admission of the assignee as a Substitute Limited Partner.
9.6 JOINT OWNERSHIP OF INTERESTS. A Partnership Interest may be acquired
by two individuals as joint tenants with right of survivorship, provided that
such individuals either are married or are related and share the same home as
tenants in common. The written consent o vote of both owners of any such jointly
held Partnership Interest shall be required to constitute the action of the
owners of such Partnership Interest; provided, however, that the written consent
of only one joint owner will be required if the Partnership has been provided
with evidence satisfactory to the counsel for the Partnership that the actions
of a single joint owner can bind both owners under the applicable laws of the
state of residence of such joint owners. Upon the death of one owner of a
Partnership Interest held in a joint tenancy with a right of survivorship, the
Partnership Interest shall become owned solely by the survivor as a Limited
Partner and not as an Assignee. The Partnership
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need not recognize the death of one of the owners of a jointly-held Partnership
Interest until it shall have received notice of such death. Upon notice to the
General Partner from either owner, the General Partner shall cause the
Partnership Interest to be divided into two equal Partnership Interests, which
shall thereafter be owned separately by each of the former owners.
9.7 ASSIGNMENT OF ALL PARTNERSHIP UNITS. Any Limited Partner who shall
transfer all of his Partnership Units in a transfer permitted pursuant to this
Article IX shall cease to be a Limited Partner upon the admission of all
Assignees of such Partnership Units as Substitute Limited Partners. Similarly,
any Limited Partner who shall transfer all of his Partnership Units pursuant to
a redemption of all of his Partnership Units under Section 8.5 shall cease to be
a Limited Partner.
9.8 LIMITATION ON TRANSFER OF PARTNERSHIP UNITS AND OTHER RIGHTS TO
AVOID ADVERSE TAX EFFECTS. Notwithstanding any provision in this Agreement to
the contrary, no transfer or purported transfer by any Limited Partner of any
Partnership Interest or Partnership Units, nor exercise of any redemption right
under Section 8.5, nor exercise of any registration rights under Section 8.5,
nor exercise of any other right or benefit provided under this Agreement shall
be effective or of any force or effect if as a result of the exercise or
purported exercise of any such right, the Partnership will be taxed as a
corporation, association or publicly traded partnership, rather than as a
limited partnership, under the Code, any Regulations, or any administrative
pronouncements of the Internal Revenue Service. The General Partner's
determination as to whether a particular transfer, exercise of redemption
rights, exercise of registration rights, or exercise of any other right or
benefit will or may cause an adverse tax treatment to the Partnership shall be
conclusive and binding on the Limited Partners.
ARTICLE X
BOOKS AND RECORDS: ACCOUNTING: TAX MATTERS
10.1 BOOKS AND RECORDS. At all times during the continuance of the
Partnership, the Partners shall keep or cause to be kept at the Partnership's
specified office true and complete books of account in accordance with generally
accepted accounting principles, including: (a) a current list of the full name
and last known business address of each Partner, (b) a copy of the Certificate
of Limited Partnership and all certificates of amendment thereto, (c) copies of
the Partnership's federal, state and local income tax returns and reports, (d)
copies of the Agreement and any financial statements of the Partnership for the
three most recent years and (e) all documents and information required under the
Act. Any Partner or his duly authorized representative, upon paying the costs of
collection, duplication and mailing, shall be entitled to inspect or copy such
records during ordinary business hours.
10.2 CUSTODY OF PARTNERSHIP FUNDS: BANK ACCOUNTS.
(a) All funds of the Partnership not otherwise invested under
Section 10.2(b) below shall be deposited in one or more accounts maintained in
such banking or brokerage
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institutions as the General Partner shall determine, and withdrawals shall be
made only on such signature or signatures as the General Partner may, from time
to time, determine.
(b) All deposits and other funds not needed in the operation of
the business of the Partnership and deposited in accordance with Section 10.2(a)
above, shall be invested by the General Partner in any of the following dollar
denominated investments: (i) marketable direct obligations issued or
unconditionally guaranteed by the United States government or issued by any
agency thereof and backed by the full faith and credit of the United States;
(ii) marketable direct obligations issued by any state of the United States or
any political subdivision of any such state or any public instrumentality
thereof and, at the time of acquisition, having an investment grade rating from
either Standard & Poor's Corporation ("S&P") or Moody's Investors Service, Inc.
("Moody's"); (iii) publicly traded commercial paper bearing at the time of
acquisition an investment grade rating either of S&P or Moody's issued by United
States, Australian, Canadian, European or Japanese bank holding companies or
industrial or financial companies; (iv) certificates of deposit issued by and
bankers acceptances of and interest bearing deposits with any United States,
Canadian, European or Japanese commercial banks either (x) is the lender of
Non-discharged Indebtedness but only up to 125% of the amount of such Lender's
Non-discharged indebtedness or (y) having capital and surplus of at least
$100,000,000 or the equivalent and which issues (or the parent of which issues)
commercial paper or other short term securities bearing an investment grade
rating from either S&P or Moody's; and (v) money market funds organized under
the laws of the United States or any state thereof that invest solely in any of
the foregoing investments permitted under clauses (i), (ii), (iii), and (iv).
The funds of the Partnership shall not be commingled with the funds of any other
Person except for such commingling as may necessarily result from an investment
in those investment companies permitted by this Section 10.2(b).
10.3 FISCAL AND TAXABLE YEAR. The fiscal and taxable year of the
Partnership shall be the calendar year.
10.4 ANNUAL TAX INFORMATION AND REPORT. Within seventy-five (75) days
after the end of each fiscal year of the Partnership, the General Partner shall
furnish to each Person who was a Limited Partner at any time during such year
the tax information necessary to file such Limited Partner's individual tax
returns as shall be reasonably required by law.
10.5 TAX MATTERS PARTNER; TAX ELECTIONS; SPECIAL BASIS ADJUSTMENTS.
(a) The General Partner shall be the "Tax Matters Partner" of the
Partnership within the meaning of Section 6231(a)(7) of the Code. As Tax Matters
Partner, the General Partner shall have the right and obligation to take all
actions authorized and required, respectively, by the Code for the Tax Matters
Partner. The General Partner shall have the right to retain professional
assistance in respect of any audit of the Partnership by the Service and all
out-of-pocket expenses and fees incurred by the General Partner on behalf of the
Partnership as Tax Matters Partner shall constitute Administrative Expenses. In
the event the General Partner receives notice of a final Partnership adjustment
under Section 6223(a)(2) of the Code, the General Partner shall either (i) file
a court petition for judicial review of such final adjustment within the period
provided under Section 6226(a) of the Code, a copy of which petition shall be
mailed to all Limited Partners on the date such
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petition is filed, or (ii) mail a written notice to all Limited Partners, within
such period, that describes the General Partner's reasons for determining not to
file such a petition.
(b) All elections required or permitted to be made by the
Partnership under the Code shall be made by the General Partner in its sole
discretion.
(c) In the event of a transfer of all or any part of the
Partnership Interest of any Partner, the Partnership, at the option of the
General Partner, may elect pursuant to Section 754 of the Code to adjust the
basis of the Properties. Notwithstanding anything contained in Article V of this
Agreement, any adjustments made pursuant to Section 754 shall affect only the
successor in interest to the transferring Partner and in no event shall be taken
into account in establishing, maintaining or computing Capital Accounts for the
other Partners for any purpose under this Agreement. Each Partner will furnish
the Partnership with all information necessary to give effect to such election.
10.6 REPORTS TO LIMITED PARTNERS.
(a) The books of the Partnership shall be audited annually as of
the end of each fiscal year of the Partnership by accountants selected by the
General Partner, who shall be the same accountants responsible for the
examination of the General Partner's books. The General Partner shall determine
and prepare an annual balance sheet, a statement of partners' capital as of the
end of such year, as well as statements of cash flow and income, all in
accordance with generally accepted accounting principles and accompanied by an
independent auditor's report (collectively, the "Financial Statements"),
together with all supplementary schedules and information prepared by the
accountants related thereto. As a note to such Financial Statements, the General
Partner shall prepare a schedule of all loans to the Partnership. Such schedule
shall demonstrate that loans have been made, used, carried on the books of the
Partnership (and repaid, if applicable) in accordance with the provisions of
this Agreement.
As soon as practicable, but in no event later than one hundred
five (105) days after the close of each fiscal year, or such later date as they
are filed with the Commission by the General Partner, the General Partner shall
cause to be mailed to each Limited Partner as of the close of the fiscal year,
an annual report containing Financial Statements of the Partnership, or of the
General Partner if such statements are prepared solely on a consolidated basis
with the General Partner, for such year. As soon as practicable, but in no event
later than forty-five (45) days after the close of each calendar quarter (except
the last calendar quarter of each year), or such later date as they are filed
with the Commission by the General Partner, the General Partner shall cause to
be mailed to each Limited Partner as of the last day of the calendar quarter, a
report containing unaudited financial statements of the Partnership, or of the
General Partner, if such statements are prepared solely on a consolidated basis
with the General Partner, and such other information as may be required by
applicable law or regulation, or as the General Partner determines to be
appropriate.
(b) Any Partner shall further have the right to a private audit
of the books and records of the Partnership, provided such audit is made for
Partnership purposes, at the expense of the Partner desiring it and is made
during normal business hours.
53
<PAGE> 84
10.7 TITLE TO PARTNERSHIP ASSETS. Title to Partnership assets, whether
real, personal or mixed and whether tangible or intangible, shall be deemed to
be owned by the Partnership as an entity, and no Partner, individually or
collectively, shall have any ownership interest in such Partnership assets or
any portion thereof. Title to any or all of the Partnership assets may be held
in the name of the Partnership, the General Partner or one or more nominees, as
the General Partner may determine, including Affiliates of the General Partner.
The General Partner hereby declares and warrants that any Partnership assets for
which legal title is held in the name of the General Partner or any nominee or
Affiliate of the General Partner shall be held by the General Partner for the
use and benefit of the Partnership in accordance with the provisions of this
Agreement; provided, however, that the General Partner shall use its best
efforts to cause beneficial and record title to such assets to be vested in the
Partnership as soon as reasonably practicable. All Partnership assets shall be
recorded as the property of the Partnership in its books and records,
irrespective of the name in which legal title to such Partnership assets is
held.
10.8 RELIANCE BY THIRD PARTIES. Notwithstanding anything to the contrary
in this Agreement, any Person dealing with the Partnership shall be entitled to
assume that the General Partner has full power and authority, without consent or
approval of any other Partner or Person, to encumber, sell or otherwise use in
any manner any and all assets of the Partnership and to enter into any contracts
on behalf of the Partnership, and take any and all actions on behalf of the
Partnership and such Person shall be entitled to deal with the General Partner
as if the General Partner were the Partnership's sole party in interest, both
legally and beneficially. Each Limited Partner hereby waives any and all
defenses or other remedies which may be available against such Person to
contest, negate or disaffirm any action of the General Partner in connection
with any such dealing. In no event shall any Person dealing with the General
Partner or its representatives be obligated to ascertain that the terms of this
Agreement have been complied with or to inquire into the necessity or expedience
of any act or action of the General Partner or its representatives. Each and
every certificate, document, or other instrument executed on behalf of the
Partnership by the General Partner or its representatives shall be conclusive
evidence in favor of any and every Person relying thereon or claiming thereunder
that (i) at the time of the execution and delivery of such certificate, document
or instrument, this Agreement was in full force and effect, (ii) the Person
executing and delivering such certificate, document or instrument was duly
authorized and empowered to do so for and on behalf of the Partnership and (iii)
such certificate, document or instrument was duly executed and delivered in
accordance with the terms and provisions of this Agreement and is binding upon
the Partnership.
10.9 WITHHOLDING. Each Limited Partner hereby authorizes the Partnership
to withhold from or pay on behalf of or with respect to such Limited Partner any
amount of federal, state, local, or foreign taxes that the General Partner
determines that the Partnership is required to withhold or pay with respect to
any amount distributable or allocable to such Limited Partner pursuant to this
Agreement, including, without limitation, any taxes required to be withheld or
paid by the Partnership pursuant to Sections 1441, 1442, 1445, or 1446 of the
Code. Any amount paid on behalf of or with respect to a Limited Partner shall
constitute a loan by the Partnership to such Limited Partner, which loan shall
be repaid by such Limited Partner within fifteen (15) days after notice from the
General Partner that such payment must be made unless (i) the Partnership
withholds such payment from a distribution which would otherwise be made to the
Limited Partner or (ii) the
54
<PAGE> 85
General Partner determines, in its sole and absolute discretion, that such
payment may be satisfied out of the available funds of the Partnership which
would, but for such payment, be distributed to the Limited Partner. Any amounts
withheld pursuant to the foregoing clauses (i) or (ii) shall be treated as
having been distributed to such Limited Partner. Each Limited Partner hereby
unconditionally and irrevocably grants to the Partnership a security interest in
such Limited Partner's Partnership Interest to secure such Limited Partner's
obligation to pay to the Partnership any amounts required to be paid pursuant to
this Section 10.9. Any amounts payable by a Limited Partner hereunder shall bear
interest at the lesser of (A) the base rate on corporate loans at large United
States money center commercial banks, as published from time to time in the Wall
Street Journal, plus one (1) percentage points, or (B) the maximum lawful rate
of interest on such obligation, such interest to accrue from the date such
amount is due (i.e., fifteen (15) days after demand) until such amount is paid
in full. Each Limited Partner shall take such actions as the Partnership or the
General Partner shall request in order to perfect or enforce the security
interest created hereunder.
ARTICLE XI
AMENDMENT OF AGREEMENT
The General Partner, without the consent of the Limited Partners, may
amend this Agreement in any respect; provided, however, that the following
amendments shall require the consent of Limited Partners holding more than
sixty-six and two-thirds percent (66-2/3%) of the Percentage Interests of the
Limited Partners (excluding the Percentage Interests held in the name of the
General Partner of the Partnership, or held by any entity which is controlled by
the General Partner, whether as the General Partner or a Limited Partner):
(a) any amendment affecting the operation of the Conversion
Factor, the Redemption Rights, or the Shelf Registration under Section 8.6
hereof;
(b) any amendment that would adversely affect the rights of the
Limited Partners to receive the distributions payable to them hereunder.
(c) any amendment that would alter the Partnership's allocations
of Profit and Loss to the Limited Partners, other than (i) an amendment
(including attaching a new Certificate of Designation hereto) to issue a new
class of Preferred Partnership Units or (ii) an amendment to admit a new Limited
Partner provided such amendment to the allocations of Profit and Loss did not
have an adverse effect on the existing Limited Partners; or
(d) any amendment that would impose on the Limited Partners any
obligation to make additional Capital Contributions to the Partnership.
In determining what number of Partnership Units constitutes the
requisite 66-2/3% consent for any of the amendments enumerated above, Preferred
Partnership Units (other than those held in the name of the General Partner or
an entity controlled by the General Partner, whether as the General Partner or a
limited partner) shall be taken into account to the extent that, with respect to
55
<PAGE> 86
a particular purpose enumerated above, the Certificate of Designation for a
particular class of Preferred Partnership Units provides for conversion of such
units into Common Partnership Units and provides that such Preferred Partnership
Units shall vote on an as-converted basis. In addition to any of the voting
rights that Preferred Unitholders may have under this Article X, Preferred
Unitholders shall have such other voting rights, protective rights or similar
rights as set forth in the Certificate of Designation for a particular class of
Preferred Partnership Units.
ARTICLE XII
GENERAL PROVISIONS
12.1 NOTICES. All communications required or permitted under this
Agreement shall be in writing and shall be deemed to have been given when
delivered personally or upon deposit in the United States mail, registered,
postage prepaid return receipt requested, to the Partners at the addresses set
forth in the Unitholder Ledger; provided, however, that any Partner may specify
a different address by notifying the General Partner in writing of such
different address. Notices to the Partnership shall be delivered at or mailed to
its specified office.
12.2 SURVIVAL OF RIGHTS. Subject to the provisions hereof limiting
transfers, this Agreement shall be binding upon and inure to the benefit of the
Partners and the Partnership and their respective legal representatives,
successors, transferees and assigns.
12.3 ADDITIONAL DOCUMENTS. Each Partner agrees to perform all further
acts and execute, swear to, acknowledge and deliver all further documents which
may be reasonable, necessary, appropriate or desirable to carry out the
provisions of this Agreement or the Act.
12.4 SEVERABILITY. If any provision of this Agreement shall be declared
illegal, invalid, or unenforceable in any jurisdiction, then such provision
shall be deemed to be severable from this Agreement (to the extent permitted by
law) and in any event such illegality, invalidity or unenforceability shall not
affect the remainder hereof.
12.5 ENTIRE AGREEMENT. This Agreement and exhibits attached hereto
constitute the entire Agreement of the Partners and supersede all prior written
agreements and prior and contemporaneous oral agreements, understandings and
negotiations with respect to the subject matter hereof.
12.6 PRONOUNS AND PLURALS. When the context in which words are used in
the Agreement indicates that such is the intent, words in the singular number
shall include the plural and the masculine gender shall include the neuter or
female gender as the context may require.
12.7 HEADINGS. The Article headings or sections in this Agreement are
for convenience only and shall not be used in construing the scope of this
Agreement or any particular Article.
12.8 COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original copy and all of
which together shall constitute one and the
56
<PAGE> 87
same instrument binding on all parties hereto, notwithstanding that all parties
shall not have signed the same counterpart.
12.9 WAIVER. No failure by any party to insist upon the strict
performance of any covenant, duty, agreement or condition of this Agreement or
to exercise any right or remedy consequent upon a breach thereof shall
constitute waiver of any such breach or any other covenant, duty, agreement or
condition.
12.10 APPLICABLE LAW. This Agreement shall be construed and enforced in
accordance with and governed by the laws of the State of Delaware (other than
the law governing the choice of law), without regard to the principles of
conflicts of law. In the event of a conflict between the provisions of this
Agreement and any nonmandatory provision of the Act, the provisions of this
Agreement shall control and take precedence.
12.11 INVALIDITY OF PROVISIONS. If any provision of this Agreement is or
becomes invalid, illegal or unenforceable in any respect, the validity, legality
and enforceability of the remaining provisions contained herein shall not be
affected thereby.
12.12 NO RIGHTS AS STOCKHOLDERS. Nothing contained in this Agreement
shall be construed as conferring upon the holders of the Partnership Units any
rights whatsoever as stockholders of the General Partner, including, without
limitation, any right to receive dividends or other distributions made to
stockholders of the General Partner or to vote or to consent or to receive
notice as stockholders in respect of any meeting of stockholders for the
election of directors of the General Partner or any other matter.
12.13 PARTITION. No Partner nor any successor-in-interest to a Partner
shall have the right while this Agreement remains in effect to have any property
of the Partnership partitioned, or to file a complaint or to institute any
proceeding at law or in equity to have such property of the Partnership
partitioned, and each Partner, on behalf of itself and its successors and
assigns hereby waives any such right. It is the intention of the Partners that
the rights of the parties hereto and their successors-in-interest to Partnership
property, as among themselves, shall be governed by the terms of this Agreement,
and that the rights of the Partners and their successors-in-interest shall be
subject to the limitations and restrictions as set forth in this Agreement.
12.14 NO THIRD-PARTY RIGHTS CREATED HEREBY. The provisions of this
Agreement are solely for the purpose of defining the interests of the partners,
inter se; and no other person, firm or entity (i.e., a party who is not a
signatory hereto or a permitted successor to such signatory hereto) shall have
any right, power, title or interest by way of subrogation or otherwise, in and
to the rights, powers, title and provisions of this Agreement.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
57
<PAGE> 88
IN WITNESS WHEREOF, the parties hereto have hereunder affixed their
signatures to this Agreement, all as of the date first hereinabove written.
GENERAL PARTNER LIMITED PARTNERS
SUNSTONE HOTEL INVESTORS, INC., SUNSTONE HOTEL INVESTORS, INC.,
a Maryland corporation and the sole a Maryland corporation, as a Limited
General Partner Partner
By: /s/ ROBERT A. ALTER By: /s/ ROBERT A. ALTER
----------------------------- -------------------------------
Robert A. Alter Robert A. Alter
Its: President Its: President
/s/ ROBERT A. ALTER
------------------------------------
ROBERT A. ALTER
/s/ C. ROBERT ENEVER
------------------------------------
C. ROBERT ENEVER
/s/ CHARLES L. BIEDERMAN
------------------------------------
CHARLES L. BIEDERMAN
MYPC PARTNERS,
a general partnership
By: /s/ KARL MATTHIES
------------------------------------
Karl Matthies
Its: General Partner
------------------------------------
ANTHONY E. VAN BAAK
/s/ LES LIMAN
------------------------------------
LES LIMAN
<PAGE> 89
/s/ THOMAS R. SHARP
------------------------------------
THOMAS R. SHARP, TRUSTEE
/s/ THOMAS R. SHARP
------------------------------------
THOMAS R. SHARP
TRUST COMPANY OF AMERICA,
for the benefit of Patrick E. Barney
By: /s/ Trust Company of America
------------------------------------
Name:
Its:
ENEVER ROUTT INVESTMENT
GROUP, LTD, a limited partnership
By: /s/ C. ROBERT ENEVER
------------------------------------
C. Robert Enever
Its: General Partner
ALTER INVESTMENT GROUP, LTD, a
limited partnership
By: /s/ ROBERT A. ALTER
------------------------------------
Robert A. Alter
Its: General Partner
INNS PROPERTIES, a California limited
partnership, formerly known as Inns
Properties I, a California limited
partnership
By INSPAC, LTD., a Delaware corporation,
formerly (and, in California, still
known as) INSCO, LTD., a General Partner
By:
------------------------------------
Richard M. Moss
Its: President
<PAGE> 90
RIVERSIDE HOTEL PARTNERS, INC.,
a California Corporation
By: /s/ ROBERT A. ALTER
------------------------------------
Robert A. Alter
Its: President
FLAGSTAFF HOTEL ASSETS, INC.,
an Arizona corporation
By: /s/ LOURIN KOONIN
------------------------------------
Lourin Koonin
Its: President
TUCSON DESERT ASSETS, INC.,
an Arizona corporation
By: /s/ LOURIN KOONIN
------------------------------------
Lourin Koonin
Its: President
LINDA HAMLET & KENNETH HAMLET,
as Joint Tenants
------------------------------------
Linda Hamlet
------------------------------------
Kenneth Hamlet
CHANING DARRTEN HAMLET TRUST
By:
------------------------------------
, TRUSTEE
---------------------------
BRENDAN HUNTER HAMLET TRUST
By:
------------------------------------
, TRUSTEE
---------------------------
<PAGE> 91
TYLER JENSEN HAMLET TRUST
By:
------------------------------------
, TRUSTEE
---------------------------
SKLAR FAMILY PARTNERSHIP
By: /s/ GERALD A. SKLAR
------------------------------------
Gerald A. Sklar
Its: Partner
------------------------------------
SHARON DRUEHL
------------------------------------
GORDON E. DRUEHL
/s/ MARGOT GASCH
------------------------------------
MARGOT GASCH
O.T. HILL, LLC,
a Delaware limited liability company
By: /s/ GARY V. CHENSOFF
------------------------------------
Gary V. Chensoff
Its: President
ANDRA M. PALMROS, Personal
Representative of the Estate of
Alexander Palmros II a/k/a
Alex Palmros II deceased
/s/ PETER B. AYRES
------------------------------------
PETER B. AYRES, TRUSTEE
<PAGE> 92
/s/ DANIEL E. CARSELLO
------------------------------------
DANIEL E. CARSELLO, TRUSTEE
/s/ DANIEL E. CARSELLO
------------------------------------
DANIEL E. CARSELLO
/s/ JEANNE H. CARSELLO
------------------------------------
JEANNE H. CARSELLO, TRUSTEE
/s/ GERALD N. CLARK
------------------------------------
GERALD N. CLARK
/s/ GAREY H. COONEN
------------------------------------
GAREY H. COONEN
------------------------------------
SHERMAN B. CORNELL
/s/ AUDREY W. ENEVER
------------------------------------
AUDREY W. ENEVER
C. ROBERT ENEVER & AUDREY W.
ENEVER, as Joint Tenants
/s/ C. ROBERT ENEVER
------------------------------------
C. Robert Enever
/s/ AUDREY W. ENEVER
------------------------------------
Audrey W. Enever
/s/ TERRY H. HILSON
------------------------------------
TERRY H. HILSON, TRUSTEE
<PAGE> 93
JAMES HIVELY & SANDRA HIVELY,
as Joint Tenants
/s/ JAMES HIVELY
------------------------------------
James Hively
/s/ SANDRA HIVELY
------------------------------------
Sandra Hively
EUGENE O. HOGENSON &
CHRISTINE M. LEICK, as Joint Tenants
------------------------------------
Eugene O. Hogenson
------------------------------------
Christine M. Leick
EDGAR R. JOHNSON & JUNE A.
JOHNSON, as Joint Tenants
------------------------------------
Edgar R. Johnson
------------------------------------
June A. Johnson
SHIVANI LLC, a California Limited
Liability Company
By: /s/ TUSHAR PATEL
------------------------------------
Tushar Patel
Its: Member
PEACOCK LLC, a California Limited
Liability Company
By: /s/ TUSHAR PATEL
------------------------------------
Tushar Patel
Its: Member
<PAGE> 94
/s/ EVE E. POTH
------------------------------------
TRUSTEE FOR EDWARD C. POTH
REVOCABLE TRUST
/s/ RICHARD E. PYLE
------------------------------------
RICHARD E. PYLE, TRUSTEE
/s/ DOUGLAS A. SLANSKY
------------------------------------
DOUGLAS A. SLANSKY
RICHARD F. WEHRLI & JUDITH J.
WEHRLI, as Joint Tenants
------------------------------------
Richard F. Wehrli
------------------------------------
Judith J. Wehrli
/s/ H. DAVID ZABEL
------------------------------------
H. DAVID ZABEL
DEAN A. SAMMONS & SARAH B.
SAMMONS, as Joint Tenants
/s/ DEAN A. SAMMONS
------------------------------------
Dean A. Sammon
/s/ SARAH B. SAMMONS
------------------------------------
Sarah B. Sammons
<PAGE> 95
EXHIBIT A
NOTICE OF EXERCISE OF REDEMPTION RIGHT
In accordance with Section ___ of the Second Amended and Restated
Agreement of Limited Partnership of Sunstone Hotel Investors, Limited
Partnership (the "Agreement"), the undersigned hereby irrevocably (i) presents
for redemption _______ Partnership Units in Sunstone Hotel Investors, L.P. in
accordance with the terms of the Agreement and the Redemption Right referred to
in Section 8.5 thereof, (ii) surrenders such Partnership Units and all right,
title and interest therein, and (iii) directs that the Cash Amount or REIT
Shares (as defined in the Agreement) as determined by the General Partner
deliverable upon exercise of the Redemption Right be delivered to the address
specified below, and if REIT Shares are to be delivered, such REIT shares be
registered or placed in the name(s) and at the address(es) specified below.
Dated:__________ __, _____
Name of Limited Partner:
----------------------------------------
(Signature of Limited Partner)
----------------------------------------
(Mailing Address)
----------------------------------------
(City) (State) (Zip Code)
Signature Guaranteed by:
----------------------------------------
If REIT Shares are to be issued, issue to:
Please insert social security or identifying number:
Name:
A-1
<PAGE> 96
EXHIBIT B
SUNSTONE HOTEL INVESTORS, L.P.
CERTIFICATE OF DESIGNATION CLASSIFYING
7.9% CLASS A CUMULATIVE CONVERTIBLE PREFERRED PARTNERSHIP UNITS
This Certificate of Designation establishes the powers, rights,
preferences, qualifications, limitations and restrictions, as to distributions,
voting rights, conversion, terms and conditions of redemption, liquidation and
other terms and conditions of the 250,000 7.9% Class A Cumulative Preferred
Partnership Units (the "Series A Preferred Partnership Units") of Limited
Partnership interest of the Partnership to be issued to the Company. All
capitalized terms used but not defined herein shall have the meaning ascribed to
them in the Second Amended and Restated Agreement of Limited Partnership (the
"Agreement") of the Partnership. The Series A Preferred Partnership Units are
being issued by the Partnership to the General Partner in connection with the
issuance by the Company of 250,000 shares in the aggregate of its 7.9% Class A
Cumulative Preferred Stock (the "Series A Preferred Stock") to Westbrook Real
Estate Investment Fund I, L.P. and Westbrook Co-Investment Real Estate Fund I,
L.P. (collectively, "Westbrook") in connection with the Company's acquisition
from Westbrook of all of the capital stock of Kahler Realty Corporation
("Kahler"). The terms of the Units are intended to mirror those of the Series A
Preferred Stock.
1. Designation and Number. The Series A Preferred Partnership Units
shall consist of 250,000 Partnership Units which shall be issued to the Company
when the Company issues the corresponding 250,000 shares of Series A Preferred
Stock to Westbrook. Subject to compliance with applicable protective voting
rights which may be granted to any class of Preferred Partnership Units
("Protective Provisions"), but notwithstanding any other rights of holders of
any class of Preferred Partnership Units or the powers, rights, designations,
preferences, qualifications, limitations and restrictions of any additional
class may be subordinated to, pari passu with (including, without limitation,
provisions with respect to liquidation and acquisition preferences, redemption
and/or approval of matters by vote or written consent), or senior to any of
those of any present or future class of Preferred or Common Partnership Units.
2. Distribution Provisions. Immediately prior to the Company's payment
of dividends to holders of the Series A Preferred Stock, the holder(s) of Series
A Preferred Partnership Units shall be entitled to receive for each outstanding
Series A Preferred Partnership Unit a cash distribution, prior and in preference
to any payment of any cash distribution on the Common Partnership Units, in an
amount equal to the payment to be made on each outstanding share of the Series A
Preferred Stock.
B-1
<PAGE> 97
3. Liquidation Preference.
(a) In the event of any liquidation, dissolution or winding up of
the Partnership, either voluntary or involuntary, subject to the rights of
classes of Preferred Partnership Units that may from time to time come into
existence, the holder(s) of Series A Preferred Partnership Units shall (unless
such Partnership Units of Series A Preferred Partnership Units are converted
into Common Partnership Units pursuant to Section 5 hereof) be entitled to
receive, prior and in preference to any distribution of any of the assets of the
Partnership to the holders of Common Partnership Units by reason of their
ownership thereof, an amount per Unit equal to the amount that must be paid to
the holders of Series A Preferred Stock upon liquidation of the Company
(including any and all events constituting a liquidation under Section 3 of the
Articles Supplementary clarifying the Series A Preferred Stock) (the
"Liquidation Preference"). If the assets and funds thus distributed among the
holders of the Series A Preferred Partnership Units shall be insufficient to
permit the payment to such holder(s) of the full aforesaid amount, then, subject
to the rights of classes of Preferred Partnership Units that may from time to
time come into existence, the entire assets and funds of the Partnership legally
available for distribution shall be distributed ratably among the holders of the
Series A Preferred Partnership Units in proportion to the amount of such
Partnership Units owned by each such holder.
(b) Upon the completion of the distribution required by
subsection (a) of this Section 3 and any other distribution that may be required
with respect to classes of Preferred Partnership Units that may from time to
time come into existence, if assets remain in the Partnership, the holders of
the Common Partnership Units of the Partnership shall receive all of the
remaining assets of the Partnership.
4. Redemption.
(a) Subject to the rights of classes of Preferred Partnership
Units which may from time to time come into existence immediately prior to a
redemption of Series A Preferred Stock, the Company may redeem at its option a
number of Series A Preferred Units equal to the number of shares of Series A
Preferred Stock to be redeemed by the holder(s) thereof, and shall immediately
receive from the Partnership an amount of cash equal to the cash to be paid by
the Company to the redeeming holder(s) of shares of Series A Preferred Stock.
(b) From and after the redemption of Series A Preferred Units,
unless there shall have been a default in payment of the redemption price, all
rights of the holders of the Series A Preferred Partnership Units redeemed shall
cease with respect to such Partnership Units, and such Partnership Units shall
not thereafter be transferred on the Unitholder Ledger of the Partnership or be
deemed to be outstanding for any purpose whatsoever. Subject to the rights of
classes of Preferred Partnership Units which may from time to time come into
existence, if the funds of the Partnership legally available for redemption of
Partnership Units of Series A Preferred Partnership Units on any redemption date
are insufficient to redeem the total number of Partnership Units of Series A
Preferred Partnership Units to be redeemed on such date, those funds which are
legally available will be used to redeem the maximum possible number of such
Partnership Units ratably among the holders of such Partnership Units to be
redeemed based upon their holdings of
B-2
<PAGE> 98
Series A Preferred Partnership Units. The Partnership Units of Series A
Preferred Partnership Units not redeemed shall remain outstanding and entitled
to all the rights and preferences provided herein. Subject to the rights of
classes of Preferred Partnership Units which may from time to time come into
existence, at any time thereafter when additional funds of the Partnership are
legally available for the redemption of Partnership Units of Series A Preferred
Partnership Units, such funds will immediately be used to redeem the balance of
the Partnership Units which the Partnership has become obliged to redeem but
which it has not redeemed.
5. Conversion. On the date on which shares of Series A Preferred Stock
are converted into Common Stock of the Company, Series A Preferred Partnership
Units shall automatically be converted into Common Partnership Units, such that
the number of Series A Preferred Partnership Units so converted shall equal the
number of shares of Series A Preferred Stock converted and the number of Common
Partnership Units received from such conversion will equal the number of shares
of Common Stock of the Company received from the conversion of the shares of
Series A Preferred Stock. Upon such conversion of Series A Preferred Stock, the
Unitholder Ledger shall be amended to reflect such conversion.
6. Voting Rights. Except as to matters upon which the General Partner is
not entitled to vote under the Agreement, the holder(s) of each Series A
Preferred Partnership Unit shall have Partner consent and approval rights equal
to such rights as would a holder of Common Partnership Units into which such
holder's Partnership Series A Preferred Partnership Units could then be
converted.
This Certificate of Designation has been approved by the General
Partner in the manner and required by law and is incorporated into the Agreement
by reference. In the event of a conflict between the provisions of this
Certificate of Designation and the provisions of the Agreement, the provisions
of this Certificate of Designation shall govern.
IN WITNESS WHEREOF, SUNSTONE HOTEL INVESTORS, L.P. has caused
this Certificate of Designation to be executed on its behalf on this 14th day of
October 1997.
SUNSTONE HOTEL INVESTORS, L.P.
By: SUNSTONE HOTEL INVESTORS, INC.,
its General Partner
By: /s/ ROBERT A. ALTER
----------------------------
Robert A. Alter,
President
B-3
<PAGE> 1
Exhibit 13
SHP ACQUISITION, L.L.C.
AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
Dated as of July 12, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I
DEFINITIONS................................................................ 2
SECTION 1.1 Definitions.................................................... 2
SECTION 1.2 Terms Generally................................................ 16
ARTICLE II
GENERAL PROVISIONS......................................................... 16
SECTION 2.1 Formation...................................................... 16
SECTION 2.2 Name........................................................... 17
SECTION 2.3 Term........................................................... 17
SECTION 2.4 Purpose; Powers................................................ 17
SECTION 2.5 Registered Office; Place of Business........................... 18
SECTION 2.6 Alternative Investment Structure............................... 18
ARTICLE III
MEMBERS AND INTERESTS...................................................... 21
SECTION 3.1 Units.......................................................... 21
SECTION 3.2 Members........................................................ 21
SECTION 3.3 Class A Units.................................................. 21
SECTION 3.4 Class B Units.................................................. 22
SECTION 3.5 Class C and D Units............................................ 22
SECTION 3.6 Additional Issuance of New Class of Units...................... 23
ARTICLE IV
MANAGEMENT AND OPERATION OF THE COMPANY.................................... 23
SECTION 4.1 Management..................................................... 23
SECTION 4.2 Officers....................................................... 25
SECTION 4.3 Executive Committee Approval Requirements and Other
Limitations on Actions............................................... 26
SECTION 4.4 Budget......................................................... 29
SECTION 4.5 Certain Duties and Obligations of the Members.................. 29
SECTION 4.6 UBTI........................................................... 32
SECTION 4.7 Consent of Alter Member........................................ 32
SECTION 4.8 Non-Voting Members............................................. 32
ARTICLE V
OTHER ACTIVITIES........................................................... 32
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SECTION 5.1 Other Activities............................................... 32
SECTION 5.2 Transactions With the Company.................................. 32
ARTICLE VI
CAPITAL CONTRIBUTIONS; DISTRIBUTIONS....................................... 33
SECTION 6.1 Capital Contributions.......................................... 33
SECTION 6.2 Loans for Additional Capital Contributions; Other
Loans to the Company................................................. 34
SECTION 6.3 Distributions Generally........................................ 35
SECTION 6.4 Distributions of Available Cash................................ 35
SECTION 6.5 Restricted Payments............................................ 39
SECTION 6.6 Organizational Expenses........................................ 39
ARTICLE VII
BOOKS; REPORTS; TAX MATTERS; CAPITAL ACCOUNTS; ALLOCATIONS................. 40
SECTION 7.1 General Accounting Matters..................................... 40
SECTION 7.2 Certain Tax Matters............................................ 42
SECTION 7.3 Capital Accounts............................................... 43
SECTION 7.4 Allocations.................................................... 43
ARTICLE VIII
DISSOLUTION................................................................ 46
SECTION 8.1 Dissolution.................................................... 46
SECTION 8.2 Winding-up..................................................... 46
SECTION 8.3 Final Distribution............................................. 46
ARTICLE IX
TRANSFER OF MEMBERS' INTERESTS............................................. 47
SECTION 9.1 Restrictions on Transfer of Units.............................. 47
SECTION 9.2 Tag-Along and Drag-Along Rights................................ 49
SECTION 9.3 Required Sale or Purchase of Alter Member or
Biederman Member Units............................................... 51
SECTION 9.5 Sale of Company................................................ 54
SECTION 9.6 Required Sale or Purchase of Class A Units..................... 56
SECTION 9.7 Other Transfer Provisions...................................... 57
ARTICLE X
MISCELLANEOUS.............................................................. 59
SECTION 10.1 No Brokers.................................................... 59
SECTION 10.2 Equitable Relief.............................................. 59
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SECTION 10.3 Governing Law................................................. 59
SECTION 10.4 Mediation; Submission to Jurisdiction; Waiver of
Trial By Jury........................................................ 59
SECTION 10.5 Successors and Assigns........................................ 60
SECTION 10.6 Confidentiality............................................... 60
SECTION 10.7 Notices....................................................... 60
SECTION 10.8 Counterparts.................................................. 60
SECTION 10.9 Entire Agreement.............................................. 61
SECTION 10.10 Amendments................................................... 61
SECTION 10.11 Section Titles............................................... 61
SECTION 10.12 Representations and Warranties............................... 61
SECTION 10.13 Waiver of Partition.......................................... 62
SECTION 10.14 Bonus........................................................ 62
SECTION 10.15 No Third Party Beneficiaries................................. 63
SECTION 10.16 Consent to Merger and Related Transactions................... 63
</TABLE>
SCHEDULES AND EXHIBITS
SCHEDULE A Name, Address and Units of Members
SCHEDULE B Class C Units and Class D Units
SCHEDULE 3.1 Designated Alter Member Alternative Managers
SCHEDULE 10.1 Brokers
EXHIBIT A Initial Approved Budget
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<PAGE> 5
SHP ACQUISITION, L.L.C.
AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT dated
as of July 12, 1999 by and between WESTBROOK SHP L.L.C., a Delaware limited
liability company (together with its successors and permitted assigns,
"Westbrook Co-Invest"), WESTBROOK REAL ESTATE FUND III, L.P., a Delaware limited
partnership (together with its successors and permitted assigns, the "Westbrook
Fund"), WESTBROOK REAL ESTATE CO-INVESTMENT PARTNERSHIP III, L.P., a Delaware
limited partnership (together with its successors and permitted assigns, "WRECIP
III"), ALTER SHP LLC, a Delaware limited liability company (together with its
successors and permitted assigns, "Alter LLC"), BIEDERMAN SHP LLC, a Delaware
limited liability company (together with its successors and permitted assigns,
"Biederman LLC"), and, solely for purposes of withdrawing as Member of the
Company and Section 10.12 hereof, ROBERT A. ALTER ("Alter") and WESTBROOK FUND
III ACQUISITIONS, L.L.C., a Delaware limited liability company ("Westbrook
Acquisitions" and, together with Alter, the "Original Members").
Preliminary Statement
A Certificate of Formation was filed on April 5, 1999 for this
limited liability company pursuant to the provisions of the Delaware Limited
Liability Company Act.
A Limited Liability Company Agreement for this limited
liability company was duly adopted by the Original Members pursuant to and in
accordance with the Delaware Limited Liability Company Act on April 5, 1999 (the
"Original Agreement").
The Original Members wish to amend and restate in its entirety
the Original Agreement and admit Westbrook Co-Invest, the Westbrook Fund, WRECIP
III, Biederman LLC and Alter LLC as new Members and the Original Members wish to
withdraw as Members in accordance with the further provisions of this Agreement.
Concurrently with the execution and delivery of this
Agreement, this limited liability company has entered into a Merger Agreement
(the "Merger Agreement") dated as of the date hereof with Sunstone Hotel
Investors, Inc., a Maryland corporation ("Sunstone") and SHP Investors Sub,
Inc., a Maryland corporation and a subsidiary of SHP ("Investors Sub"), pursuant
to which and subject to the terms and conditions thereof, Investors Sub shall
merge into Sunstone.
Concurrently with the execution and delivery of this
Agreement, this limited liability company has entered into a Merger Agreement
(the "OP Merger Agreement") dated as the date hereof with Sunstone Hotel
Properties, L.P., a Delaware limited partnership ("Sunstone OP") and SHP
Properties, L.L.C., a Delaware limited liability company and a subsidiary of SHP
("SHP Properties") pursuant to which and subject to the terms and conditions
thereof, SHP Properties shall merge into Sunstone OP (the "OP Merger").
<PAGE> 6
2
Concurrently with the execution and delivery of this
Agreement, this limited liability company has entered into a Contribution
Agreement (the "Contribution Agreement") dated the date hereof with Westbrook
Fund, WRECIP III, Westbrook Co-Invest, Alter, Charles L. Biederman
("Biederman"), Sunstone Hotel Management, Inc., a Colorado corporation, and
Sunstone Hotel Properties, Inc., a Colorado corporation, and the other parties
identified therein pursuant to which certain parties shall contribute certain
assets, equity interests and cash to this limited liability company as provided
therein.
Concurrently with the execution and delivery of this
Agreement, this limited liability company has entered into an Employment
Agreement (the "Alter Employment Agreement") with Alter dated as of the date
hereof pursuant to which and subject to the terms and conditions thereof, this
limited liability company shall employ Alter as Chief Executive Officer of this
limited liability company as of the Closing Date as provided therein.
Agreement
Accordingly, in consideration of the mutual promises and
agreements herein made and intending to be legally bound hereby, the parties
hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 Definitions. (a) Unless the context otherwise
requires, the following terms shall have the following meanings for purposes of
this Agreement:
"Act" shall mean the Delaware Limited Liability Company Act, 6
Del. C. Sections 18-101 et seq., as it may be amended from time
to time, and any successor to such statute.
"Additional Capital Expenditures" shall mean any capital
expenditure of the Company or any of its Subsidiaries in excess of 6%
of FF&E relating to hotel properties owned or leased by the Company or
any of its Subsidiaries approved by the Executive Committee other than
an Emergency Expense.
"Additional Capital Contributions" shall mean all capital
contributions required to be made by, and made by, any Member pursuant
to, and to the extent provided in, Section 6.1(b) and to the extent
such capital contributions are not Initial Capital Contributions.
"Adjusted Capital Account Balance" shall mean, with respect to
any Member, the balance in such Member's Capital Account adjusted (i)
by taking into account the adjustments, allocations and distributions
described in Regulations section 1.704-1(b)(2)(ii)(d)(4), (5), and
(6); and (ii) by adding to such balance such Member's share of
<PAGE> 7
3
Minimum Gain and Member Nonrecourse Debt Minimum Gain, determined
pursuant to Regulations section 1.704-2(g)(1) and 1.704-2(i)(5).
"Affiliate" with respect to any Person shall mean (i) any
other Person who controls, is controlled by or is under common control
with such Person (whether directly or through one or more
intermediaries), (ii) any director, officer, partner or employee of
such Person or any Person specified in clause (i) above or (iii) any
immediate family member of any Person specified in clause (i) or (ii)
above. For purposes of this definition, "control" of a Person includes
the possession, directly or indirectly, of the power to (i) vote 10% or
more of the voting securities of such Person and (ii) direct or cause
the direction of the management and policies of such Person, whether by
contract or otherwise.
"Agreement" shall mean this Amended and Restated Limited
Liability Company Agreement, as it may be amended, supplemented,
modified or restated from time to time.
"Alter Cause" shall mean "Cause" as such term is defined in
Section 8(a)(ii) of the Alter Employment Agreement.
"Alter Good Reason" shall mean "Good Reason" as such term is
defined in Section 8(c)(iii) of the Alter Employment Agreement.
"Alter Member" shall mean, collectively, Alter LLC and any
Alter Transferee admitted as an additional or substitute Member of the
Company in accordance with the provisions of this Agreement and any
other transferee of Alter LLC by operation of law, until such time as
such Person ceases to be a Member of the Company as provided herein;
provided that each Alter Member shall be a Subsidiary of Alter of which
Alter directly or indirectly directs or causes the direction of the
management and policies; and provided further that the assignment to
any Person of any Class D Units as provided in Section 6.4(g) hereof
does not make that Person an "Alter Member".
"Alter Transferees" shall mean (i) any corporation,
partnership, limited liability company or other legal entity of which
Alter (A) has a 50% direct or indirect economic interest and owns,
directly or indirectly, 50% or more of the capital stock or other
equity interests, the holders of which are generally entitled to vote
for the election of the board of directors or other governing body of
such corporation or other legal entity and (B) directly or indirectly
directs or causes the direction of the management and policies, and
(ii) any trust or custodianship the beneficiaries of which include only
Alter, his present, former or future spouse or his lineal descendants
and their present, former or future spouses, provided that in each case
the transferee agrees in writing to be bound by the terms and
conditions of this Agreement in a writing in form and substance
reasonably satisfactory to the Company.
"Available Cash" shall mean, for any quarterly period or such
other period for which computation may be appropriate, the excess, if
any, of (A) the sum of (i) the
<PAGE> 8
4
amount of all cash receipts of the Company and its Subsidiaries during
such period from whatever source (including all Capital Contributions
and all loans from any Person, including any Member or its Affiliates)
and (ii) any reduction in the Reserves existing at the start of such
period, less (B) the sum of (i) all cash amounts paid or payable
(without duplication) in such period on account of expenses and capital
expenditures incurred in connection with the business of the Company
and its Subsidiaries and approved in accordance with the provisions
hereof (including, without limitation, general operating expenses,
taxes, required amortization or interest on any debt of the Company and
its Subsidiaries (including on any Priority Loan, Tax Loan or other
loan made by a Member or an Affiliate of a Member) and expenses
incurred in connection with the satisfaction of any refinancing of any
of the properties acquired by the Company and its Affiliates), (ii)
Reserves necessary as of the end of such period and (iii) any Bonus.
"Biederman Member" shall mean, collectively, Biederman LLC and
any Biederman Transferee admitted as an additional or substitute Member
of the Company in accordance with the provisions of this Agreement and
any other transferee of Biederman LLC by operation of law, until such
time as such Person ceases to be a Member of the Company as provided
herein; provided that each Biederman Member shall be a Subsidiary of
Biederman of which Biederman directly or indirectly directs or causes
the direction of the management and policies.
"Biederman Transferees" shall mean (i) any corporation,
partnership, limited liability company or other legal entity of which
Biederman (A) has a 50% direct or indirect economic interest and owns,
directly or indirectly, 50% or more of the capital stock or other
equity interests, the holders of which are generally entitled to vote
for the election of the board of directors or other governing body of
such corporation or other legal entity and (B) directly or indirectly
directs or causes the direction of the management and policies, and
(ii) any trust or custodianship the beneficiaries of which include only
Biederman, his present, former or future spouse or his lineal
descendants and their present, former or future spouses, provided that
in each case the transferee agrees in writing to be bound by the terms
and conditions of this Agreement in a writing in form and substance
reasonably satisfactory to the Company.
"Business Day" shall mean any day on which commercial banks
are authorized to do business and are not required by law or executive
order to close in either New York, New York or Los Angeles, California.
"Capital Contributions" shall mean, with respect to a Member
at any time, the aggregate of all Initial Capital Contributions and
Additional Capital Contributions made by such Member to the Company as
of such time.
"Carrying Value" shall mean, with respect to any Company
Asset, the asset's adjusted basis for U.S. federal income tax purposes,
except that the Carrying Values of all Company Assets shall be adjusted
to equal their respective fair market values, in accordance with the
rules set forth in Regulations Section 1.704-1(b)(2)(iv)(f), except as
<PAGE> 9
5
otherwise provided herein, as of: (a) the date of the acquisition of
any additional Units by any new or existing Member in exchange for more
than a de minimis capital contribution, other than pursuant to the
initial formation of the Company; (b) the date of the distribution of
more than a de minimis amount of Company property other than cash to a
Member; (c) the date that all or a portion of Units are is redeemed by
the Company or (d) the date of the termination of the Company under
Section 708(b)(1)(A) of the Code; provided, however, that adjustments
pursuant to subsections (a), (b) and (c) above shall be made only if
the Managing Member determines that such adjustments are necessary or
appropriate to reflect the relative economic interests of the Members.
The Carrying Value of any Company Asset distributed to any Member shall
be adjusted immediately prior to such distribution to equal its fair
market value, as determined by the Members. Depreciation shall be
calculated by reference to Carrying Value, instead of tax basis once
Carrying Value differs from tax basis. The Carrying Value of any
Initial Contributions other than cash shall be determined as provided
in Article II of the Contribution Agreement.
"Class" means the classes of Units into which the Interests in
the Company may be classified or divided from time to time pursuant to
the provisions of this Agreement.
"Class A Member" means any Member holding one or more Class A
Units in its capacity as such.
"Class A Unit" means any Class A Preferred Unit classified as
such pursuant to the provisions of this Agreement.
"Class B Member" means any Member holding one or more Class B
Units in its capacity as such.
"Class B Unit" means any Class B Common Unit classified as
such pursuant to the provisions of this Agreement.
"Class C Member" means any Member holding one or more Class C
Units in its capacity as such.
"Class C Unit" means any Class C Common Unit classified as
such pursuant to the provisions of this Agreement.
"Class D Member" means any Member holding one or more Class D
Units in its capacity as such.
"Class D Unit" means any Class D Common Unit classified as
such pursuant to the provisions of this Agreement.
"Closing" shall have the meaning set forth in the Contribution
Agreement.
<PAGE> 10
6
"Closing Date" shall have the meaning set forth in the
Contribution Agreement.
"Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time, or any successor statute. Any reference
herein to a particular provision of the Code shall mean, where
appropriate, the corresponding provision in any successor statute.
"Common Cash Consideration" has the meaning set forth in the
OP Merger Agreement.
"Company" shall mean SHP Acquisition, L.L.C., the Delaware
limited liability company being operated pursuant to this Agreement.
"Company Assets" shall mean all right, title and interest of
the Company and its Subsidiaries in and to all or any portion of their
respective assets (including the interest of the Company in each of its
Subsidiaries).
"Dissolution Event" shall mean an event causing a dissolution
of the Company under Section 18-801 of the Act, including the
bankruptcy of any Voting Member as provided under Section 18-801(b) of
the Act but excluding (i) the death, retirement, resignation,
expulsion, bankruptcy or dissolution of any Non-Voting Member and (ii)
the event specified in Section 18-801(a)(3).
"Emergency Expenses" shall mean any expenditure of the Company
or any of its Subsidiaries necessary with respect to required
non-discretionary debt service payments, the payment of taxes,
operating deficits and insurance premiums or similar matters reasonably
required to avert or mitigate an emergency that threatens imminent
injury to persons or material damage to property; provided that
"Emergency Expenses" shall not include any portion of any operating
deficit attributable to capital expenditures relating to hotel
properties owned or leased by the Company or any of its Subsidiaries in
excess of 6% of FF&E, except to the extent such capital expenditure is
to repair damage or destruction to hotel properties of the Company and
its Subsidiaries not covered by insurance proceeds (which shall in all
cases constitute "Emergency Expenses"); and provided further that in no
event shall "Emergency Expenses" include any amounts required to fund
direct or indirect expenses of the Company or its Subsidiaries unless
the contract, agreement or other obligation that gives rise to any such
expense was approved pursuant to the terms of this Agreement to the
extent such contract, agreement or other obligation was required to be
approved hereunder.
"Employee Cause" shall mean, with respect to any employee of
the Company or its Subsidiaries, "Cause" as such term is defined in any
then-effective employment agreement of such employee with the Company
or its Subsidiary, provided that in the event "Cause" is not defined in
such employment agreement or such employee does not have such an
employment agreement, "Employee Cause" shall mean "Cause" as reasonably
determined by the Chief Executive Officer.
<PAGE> 11
7
"Employee Good Reason" shall mean, with respect to any
employee of the Company or its Subsidiaries, "Good Reason" as such term
is defined in any then-effective employment agreement of such employee
with the Company or its Subsidiary, provided that in the event "Good
Reason" is not defined in such employment agreement or such employee
does not have such an employment agreement, "Employee Good Reason"
shall mean "Good Reason" as reasonably determined by the Chief
Executive Officer.
"Employee Members" shall mean (i) each New Employee Member and
(ii) any Affiliate of (i) admitted as an additional or substitute
Employee Member of the Company in accordance with the provisions of
this Agreement, until such time as such Person ceases to be a Member of
the Company as provided herein.
"Employment Agreement" means, with respect to any Employee
Member, any then-effective employment agreement of such Employee Member
or the parent of such Employee Member with the Company or any
Subsidiary; provided that nothing in any Employment Agreement shall
contravene any provision of this Agreement and in the event of any
conflicts, this Agreement shall govern.
"Executive Committee Decisions" shall mean each of the
following decisions affecting the Company or any Subsidiary thereof:
(i) (A) entering into, modifying or terminating any
management, franchise or similar agreement for any hotel or (B) taking
any action not in compliance with any management, franchise or similar
agreement for any hotel;
(ii) modifying or terminating, or taking any action not in
compliance with the Alter Employment Agreement, any New Alter
Employment Agreement or any other employment agreement between Alter
and the Company;
(iii) purchasing or leasing assets, or making capital
expenditures;
(iv) selling, exchanging, leasing or otherwise transferring
any assets other than in the ordinary course of business;
(v) entering into, modifying or terminating any contract which
provides for payments in excess of $75,000 during any one-year period
or $500,000 over the term of the contract;
(vi) dissolving, terminating and winding up the Company or any
of its Subsidiaries, or filing a petition under any bankruptcy or other
insolvency law, or admitting in writing the bankruptcy, insolvency or
general inability to pay its debts of the Company or its Subsidiaries;
(vii) (A) entering into or amending any financing agreements
or incurring, guaranteeing, assuming, renewing, refinancing or paying
any indebtedness for borrowed
<PAGE> 12
8
money, and (B) any other decisions or actions with respect to any
outstanding indebtedness (other than the payment of regularly scheduled
mandatory payments under such loans) other than in the ordinary course
of business;
(viii) commencing, terminating or settling any litigation or
claim which would reasonably be expected to result in liability to the
Company or any of its Subsidiaries in excess of $75,000;
(ix) issuing any Units or admitting any new or substitute
Members to the Company except as otherwise provided in Article IX
hereof and except as provided in Sections 3.3, 3.4(b) or 6.1(b);
(x) changing the business of the Company or any of its
Subsidiaries;
(xi) merging or consolidating the Company or any of its
Subsidiaries with any other entity;
(xii) authorizing a Member to disclose confidential
information;
(xiii) making or accepting any loan or advance (excluding
advances under any loan previously approved by the Executive
Committee);
(xiv) hiring, firing or renewing the employment agreement of
the Chief Executive Officer;
(xv) forming any Subsidiary or entering into any partnership,
limited liability company or other joint venture, or acquiring any
equity interests in or otherwise making any equity investment in any
other entity;
(xvi) (A) causing the Company or any Subsidiary to employ any
individual, or otherwise engage any Person outside of the ordinary
course of business, if such employment or engagement is material or (B)
entering into any employment agreement with any Person for employment
with the Company or any Subsidiary or, except as otherwise permitted by
Section 3.5(b) or 6.4(g), any other agreement providing for the
assignment of Units;
(xvii) engaging any accountant, counsel or consultant for the
Company and its Subsidiaries, or any change in or termination of any
such accountant, counsel or consultant except in the ordinary course of
business;
(xviii) taking or committing to take any other action
expressly requiring approval of the Executive Committee under this
Agreement; and
(xix) taking or committing to take any other action or making
any decision of the Company or its Subsidiaries other than normal and
customary day to day actions and
<PAGE> 13
9
decisions in operating the Company or any of its Subsidiaries or
otherwise in the ordinary course of business in accordance with the
Approved Budget then in effect.
Notwithstanding anything to the contrary in clauses (i)(A), (iii),
(iv), (v) or (xiii) of this definition, decisions taken in accordance
with specific provisions of the applicable Approved Budget (after
giving effect to the provisions of the last sentence of Section 4.4)
and listed as a line-item in such Approved Budget shall not be
"Executive Committee Decisions".
"Expenses" shall mean expenses of the Company and its
Subsidiaries incurred in connection with the normal and customary
day-to-day operation thereof and Emergency Expenses.
"Fair Market Value" shall mean, with respect to any security
listed on Nasdaq or another principal securities exchange, the average
closing prices of such securities quoted on Nasdaq or such other
principal securities exchange on which such securities are listed, for
the ten (10) trading days prior to the date of determination. "Fair
Market Value" shall mean, with respect to any security not listed on a
principal securities exchange or any Company Asset or other asset
(other than cash or a cash equivalent), the "fair market value" as
agreed upon in good faith by the relevant parties or, if the relevant
parties cannot so agree within ten (10) days, then each party shall,
within ten (10) days, submit in writing to a nationally recognized
investment banking firm not having any substantial relation with either
party and reasonably acceptable to each party (an "Independent Firm"),
a proposed "Fair Market Value" together with documentation supporting
such Fair Market Value (each such submission, a "Proposed FMV"). The
Independent Firm shall determine, within ten (10) days of receipt of
the Proposed FMVs and supporting documentation, a fair market value for
the relevant assets, and the Proposed FMV closest to such fair market
value determined by the Independent Firm shall be the "Fair Market
Value" and shall be final and binding on the parties for all purposes
hereof; provided that the Independent Firm's determination of such fair
market value shall not exceed the highest of the Proposed FMVs and not
be less than the lowest of the Proposed FMVs. In the event that the
parties fail to promptly agree on an Independent Firm, each of the
parties shall select a nationally-recognized investment banking firm,
and the two investment banking firms proposed by the parties shall
select a third nationally-recognized investment banking firm to serve
as the Independent Firm, and the relevant Members shall be required to
submit their Proposed FMV's to such Independent Firm within ten (10)
days thereafter. Failure by either party to submit a Proposed FMV to
the Independent Firm (or failure to propose an investment banking firm
as the Independent Firm) shall, following receipt of written notice by
the failing Member and a 15-day cure period thereafter, be deemed to
result in the selection of the Proposed FMV or the proposed Independent
Firm, as the case may be, of the non-defaulting party.
"FF&E" means the gross revenues for any year with respect to
the hotel properties of the Company and its Subsidiaries as such amount
appears in the consolidated financial statements of the Company.
<PAGE> 14
10
"Fiscal Year" shall mean the calendar year ending on December
31 of each year, unless a different fiscal year shall be required by
the Code; provided that the first Fiscal Year of the Company shall
commence on the Closing Date and end on December 31, 1999 (or such
shorter period for which a determination is being made).
"Funding Members" shall mean the Westbrook Members, Alter
Member and Biederman Member.
"Initial Capital Contributions" shall mean the Initial Capital
Contributions made by the Members pursuant to the Contribution
Agreement, in the amounts provided in Article II of the Contribution
Agreement.
"Interest" means a limited liability company interest in the
Company as provided in this Agreement and under the Act and includes
any and all rights and benefits to which the holder of such Interest
may be provided under this Agreement, together with all obligations of
such Person to comply with the terms and provisions of this Agreement.
Interests shall be expressed as a number of Units.
"Managing Member" shall mean Westbrook Co-Invest or any other
Westbrook Member designated by Westbrook Co-Invest, until such time as
such Person ceases to be a Member of the Company as provided herein.
"Member Nonrecourse Debt" shall have the meaning ascribed to
such term in Regulations section 1.704-2(b)(4).
"Member Nonrecourse Debt Minimum Gain" shall have the meaning
ascribed to such term in Regulations section 1.704-2(i)(2).
"Member Nonrecourse Deductions" shall mean any item of Company
loss, deduction, or expenditure under section 705(a)(2)(B) of the Code
that is attributable to a Member Nonrecourse Debt, as determined
pursuant to Regulations section 1.704-2(i)(2).
"Members" shall mean the Westbrook Members, the Alter Member,
the Non-Voting Members and any other Person admitted to the Company as
an additional or substitute Member of the Company in accordance with
the provisions of this Agreement, until such time as such Person ceases
to be a Member of the Company as provided herein and "Member" means any
one such Person.
"Minimum Gain" shall have the meaning set forth in Regulations
section 1.704-2(d)(1) and shall mean the amount determined by (i)
computing for each nonrecourse liability of the Company any gain the
Company would realize if it disposed of the property subject to that
liability for no consideration other than full satisfaction of the
liability and (ii) aggregating the separately computed gains. If the
Carrying Value of any Company Asset differs from the adjusted tax basis
of such property, the calculation of Minimum Gain pursuant to the
preceding sentence shall be made by reference to the Carrying Value.
<PAGE> 15
11
For purposes hereof, a liability of the Company is a nonrecourse
liability to the extent that no Member or related Person bears the
economic risk of loss for that liability within the meaning of
Regulations section 1.752-1.
"Net Income (Loss)" shall mean for each Fiscal Year or other
period, the taxable income or loss of the Company, or particular items
thereof, determined in accordance with the accounting method used by
the Company for U.S. federal income tax purposes with the following
adjustments: (i) all items of income, gain, loss or deduction allocated
pursuant to Section 7.4(c) through (f) shall not be taken into account
in computing such taxable income or loss; (ii) any income of the
Company that is exempt from U.S. federal income taxation and not
otherwise taken into account in computing Net Income and Net Loss shall
be added to such taxable income or loss; (iii) if the Carrying Value of
any asset differs from its adjusted tax basis for U.S. federal income
tax purposes, any depreciation, amortization or gain resulting from a
disposition of such asset shall be calculated with reference to such
Carrying Value; (iv) upon an adjustment to the Carrying Value of any
asset, pursuant to the definition of Carrying Value, the amount of the
adjustment shall be included as gain or loss in computing such taxable
income or loss; and (v) except for items in (i) above, any expenditures
of the Company not deductible in computing taxable income or loss, not
properly capitalizable and not otherwise taken into account in
computing Net Income and Net Loss pursuant to this definition shall be
treated as deductible items.
"New Employee Member" shall mean each employee or Subsidiary
of such employee admitted as a Member after the date hereof pursuant to
the provisions of Section 9.1(b)(x), until such time as such Person
ceases to be a Member of the Company as provided herein; provided that
the engagement by the Company or its Subsidiary of such employee must
be approved by the Executive Committee hereunder prior to the admission
of such Person as a Member hereunder.
"New Alter Employment Agreement" shall mean an employment
agreement for employment of Alter with the Company with a term
commencing on the date after the date of expiration of the initial
Alter Employment Agreement, having the same terms and conditions as the
Alter Employment Agreement, provided that the base salary in such "New
Alter Employment Agreement" shall equal the base salary of Alter under
the Alter Employment Agreement as of the date of expiration thereof.
"Non-Voting Members" shall mean each of the Biederman Member,
each Employee Member, each Class A Member and each Class B Member other
than the Alter Member and Westbrook Member.
"Nonrecourse Deductions" shall have the meaning ascribed to
such term in Regulations section 1.704-2(b)(1).
"OP Units" shall mean the common and preferred limited
partnership units in Sunstone OP.
<PAGE> 16
12
"Organizational Expenses" shall mean the actual third-party
costs and expenses (excluding overhead or other internal costs) of the
Company or any Initial Member arising out of or relating to the
organization of the Company (including the negotiation of this
Agreement), the negotiation of the Merger Agreement and the agreements
referred to therein (including any merger agreement with respect to
Sunstone OP, any financing agreements, the Alter Employment Agreement,
the Contribution Agreement and the Term Sheet dated April 5, 1999
relating thereto) and the consummation of the transactions contemplated
thereby (including the financing thereof), including fees and expenses
of counsel to the Company and the Alter Member and the Westbrook
Members.
"Person" shall mean an individual, partnership, joint venture,
corporation, business trust, limited liability company, trust,
unincorporated organization, governments (or agencies or political
subdivisions thereof) and other associations and entities.
"Pre-Liquidation Target Account" means, with respect to any
Member at the close of any period for which Net Income or Net Loss is
being determined, an amount (which may be either a positive balance or
a negative balance to the extent a contribution is required) equal to
the hypothetical distribution (or contribution) such Member would
receive (or contribute) if all assets of the Company, including cash
that has not been distributed (whether held in Reserves or otherwise),
were sold for cash equal to their Carrying Value (taking into account
any adjustments to Carrying Value for such year), all liabilities of
the Company were then satisfied according to their terms (limited, with
respect to each nonrecourse liability, to the Carrying Value of the
assets securing such liability) and all remaining proceeds from such
sale were distributed to the Members in the order of priority set forth
in Section 6.4.
"Rate of Return" shall mean, with respect to any Class A Units
or Class B Units, a return of all Capital Contributions made in respect
of such Class A Units or Class B Units held by the holder of such Units
(or by any previous holder of such Class A Units or Class B Units) plus
a cumulative, quarterly compounded return on such Capital Contributions
(and accrued but unpaid return at the specified rate outstanding from
time to time) as made from time to time at a rate per annum equal to
the applicable percentage specified herein. For purposes of computing
such Rate of Return, the periods used to measure capital inflows and
outflows shall be monthly and any Capital Contribution made, or deemed
made, by such Member, any forfeiture of any Capital Contribution and
any distribution of funds received by such Member at any time during a
month shall be deemed to be made, forfeited or received on the date
actually made. Any calculations shall be based on a 12-month year based
on thirty (30) day months.
"Regulations" shall mean the regulations promulgated under the
Code.
"Renewal Date" shall mean the effective date of a New Alter
Employment Agreement.
<PAGE> 17
13
"Reserves" shall mean reserves of the Company reasonably
established in good faith by the Executive Committee, (including in
connection with any Emergency Expenses), as necessary for the operation
of the Company and its Subsidiaries, in light of the anticipated cash
receipts, including the timing thereof, of the Company and its
Subsidiaries as of the end of the period for which such reserves are
established; provided that in no event shall "Reserves" include any
amounts required to fund direct or indirect expenses of the Company or
its Subsidiaries unless the contract, agreement or other obligation
that gives rise to any such Expense was approved pursuant to the terms
of this Agreement to the extent such contract, agreement or other
obligation was required to be approved hereunder; and provided,
further, that "Reserves" may include amounts relating to future
required debt payments, but shall not include amounts relating to
discretionary debt payments or to acquisitions or major expansions of
hotels to the extent the Company or any Subsidiary does not then have a
contractual obligation entered into in compliance with the terms of
this Agreement to make any such acquisition or expansion.
"Residual Share" shall mean for each Class B Member, a
fraction, the numerator of which is the aggregate of the Initial
Capital Contributions of such Class B Member (and by any previous
holder of the Class B Units then held by such Member) in respect of the
Class B Units held by such Member plus all Capital Contributions made
(and required to be made) by a Class B Member pursuant to Section
6.1(b) (or by any previous holder of the Class B Units then held by
such Class B Member) (not reduced by distributions thereof) in respect
of the Class B Units held by such Member plus the outstanding principal
amount of, and accrued interest on, any Priority Loans made by such
Class B Member under Section 6.2(b) (or by any previous holder of the
Class B Units then held by such Class B Member) (not reduced by
repayments thereof) in respect of the Class B Units held by such Member
plus any amounts distributed to such Class B Member under Section
6.4(d) (or to any previous holder of the Class B Units then held by
such Member), and the denominator of which is the aggregate of all such
amounts for all Class B Members.
"Subsidiary" or "Subsidiaries" of any Person means any
corporation, partnership, limited liability company, joint venture or
other legal entity of which such Person (either alone or through or
together with any other wholly-owned subsidiary) owns, directly or
indirectly, more than 50% of the stock or other equity interests, the
holders of which are generally entitled to vote for the election of the
board of directors or other governing body of such corporation or other
legal entity, and any partnership of which such Person serves as
general partner. In addition, Sunstone Hotel Properties, Inc., a
Colorado corporation or any successor entity thereto ("Lessee"), shall
be a "Subsidiary" of the Company for purposes of this Agreement as long
as the Company holds, directly or indirectly, at least a 49% equity
interest in Lessee.
"Unit" means a fractional share of the Interests of all
Members. The number of Units outstanding and the holders thereof are
set forth on Schedule A, as Schedule A may be amended from time to time
pursuant to Section 3.2.
<PAGE> 18
14
"Voting Members" shall mean the Alter Member and the Westbrook
Members.
"Westbrook Members" shall mean Westbrook Co-Invest, Westbrook
Fund, WRECIP III and any Westbrook Transferee admitted as an additional
or substitute Member of the Company in accordance with the provisions
of this Agreement, until such time as such Person ceases to be a Member
of the Company as provided herein.
"Westbrook Transferees" shall mean (i) any investment fund of
which Westbrook Real Estate Partners, L.L.C, a Delaware limited
liability company ("WREP"), or a Subsidiary of WREP of which WREP
directly or indirectly directs or causes the direction of the
management and policies, is the general partner (a "Westbrook
Investment Fund"); provided that such general partner continues to be a
Subsidiary of WREP and so directed by WREP as long as such investment
fund is a Member or (ii) any entity in which any Westbrook Investment
Fund (A) has a 50% direct or indirect economic interest or owns,
directly or indirectly, 50% or more of the capital stock or other
equity interests, the holders of which are generally entitled to vote
for the election of the board of directors or other governing body of
such corporation or other legal entity and (B) directly or indirectly
directs or causes the direction of the management and policies;
provided that in each case the transferee agrees in writing to be bound
by the terms and conditions of this Agreement in a writing in form and
substance reasonably satisfactory to the Company.
(b) As used in this Agreement, each of the following
capitalized terms shall have the meaning ascribed to them in the Section set
forth opposite such term:
<TABLE>
<CAPTION>
Term Section
---- -------
<S> <C>
Adverse Change 2.6(a)
Alter Preamble
Alter Call 9.3(b)
Alter Employment Agreement Recitals
Alter LLC Preamble
Alter Price 9.3(a)
Alter Put 9.3(a)
Approved Budget 4.4
Biederman Recitals
Biederman Call 9.3(d)
Biederman LLC Preamble
Biederman Price 9.3(c)
Biederman Put 9.3(c)
Bonus 10.14
CapEx Loan 6.2(c)
Capital Account 7.3
Chief Executive Officer 4.2
Company Accountant 7.1(f)
Company Sale 9.5(a)
</TABLE>
<PAGE> 19
15
<TABLE>
<CAPTION>
Term Section
---- -------
<S> <C>
Contributing Member 6.2(b)
Contribution Agreement Recitals
Contribution Loan 6.2(a)
Drag-Along Rights 9.2(b)
Employee Call 9.4(a)
Employee Price 9.4(a)
Executive Committee 4.1(a)
Indemnitees 4.5(e)(iii)
Initial Members 3.2
Investors Sub Recitals
Liquidator 8.2
Managers 4.1(a)
Merger Agreement Recitals
Net Income Excess 6.4(j)
Noncontributing Member 6.2(b)
Notified Member 9.5(b)
Notifying Member 9.5(b)
Offer Notice 4.3(c)
Officers 4.2
OP Merger Recitals
OP Merger Agreement Recitals
OP Unitholder 3.3
Original Agreement Recitals
Original Members Preamble
Other Employees 6.4(g)
Other Members 9.2(b)
Permitted Transfer 9.1(b)
Plan Asset Rules 2.6
Preferred Call 9.6(b)
Preferred Price 9.6(a)
Preferred Put 9.6(a)
Principal Agreements 10.16
Priority Loan 6.2(b)
Sale Proposal 9.5(a)
SHP Properties Recitals
Stand Alone Sale 4.3(c)
Sunstone Recitals
Sunstone OP Recitals
Tag-Along Rights 9.2(a)
Tagging Members 9.2(a)
Tax Loan 6.4(j)
Tax Matters Member 7.2
Termination Notice 9.5(b)
</TABLE>
<PAGE> 20
16
<TABLE>
<CAPTION>
Term Section
---- -------
<S> <C>
Transfer 9.1(a)
Transferee 9.1(b)
UBTI 2.6(a)
Valuation Agent 2.6(b)
Westbrook Acquisitions Preamble
Westbrook Co-Invest Preamble
Westbrook Fund Preamble
WRECIP III Preamble
</TABLE>
SECTION 1.2 Terms Generally. The definitions in Section 1.1
shall apply equally to both the singular and plural forms of the terms defined.
Whenever the context may require, any pronoun shall include the corresponding
masculine, feminine and neuter forms. Unless the context requires otherwise, the
words "include", "includes" and "including" shall be deemed to be followed by
the phrase "without limitation". The term "hereunder" shall mean this entire
Agreement as a whole unless reference to a specific section of this Agreement is
made.
ARTICLE II
GENERAL PROVISIONS
SECTION 2.1 Formation. The Original Members have formed the
Company under the provisions of the Act for the limited purposes set forth and
on the other terms and conditions set forth in this Agreement.
SECTION 2.2 Name. The Company shall conduct its activities
under the name of SHP Acquisition, L.L.C. The Executive Committee shall have the
power at any time to change the name of the Company; provided, that the name
shall always contain the words "Limited Liability Company" or the abbreviation
"L.L.C.". The Executive Committee shall give prompt notice of any such change to
each Member.
SECTION 2.3 Term. The term of the Company commenced April 5,
1999 and shall continue until December 31, 2049, unless sooner dissolved, wound
up and terminated in accordance with Article VIII of this Agreement.
SECTION 2.4 Purpose; Powers. (a) The purpose of the Company
shall be, directly or through ownership of equity interests in other entities,
(i) to own, acquire, manage and reposition primarily full service hotel
properties in the United States and (ii) to do all things permitted by law that
are necessary or incidental to any of the foregoing.
(b) In furtherance of its purposes, the Company shall have all
powers necessary, suitable or convenient for the accomplishment of its purposes,
alone or with others, including the following:
<PAGE> 21
17
(i) to invest and reinvest the cash assets of the Company and
its Subsidiaries in money-market or other short-term investments;
(ii) to have and maintain one or more offices within or
without the State of Delaware, and, in connection therewith, to rent or
acquire office space, engage personnel and compensate them and do such
other acts and things as may be advisable or necessary in connection
with the maintenance of such office or offices;
(iii) to open, maintain and close bank accounts and draw
checks and other orders for the payment of moneys;
(iv) to form or cause to be formed and to own the stock of one
or more corporations, whether foreign or domestic, and to form or cause
to be formed and to participate in and own equity interests in
partnerships, joint ventures and limited liability companies, whether
foreign or domestic;
(v) to enter into, make and perform all contracts, agreements
and other undertakings as may be necessary or advisable or incident to
carrying out its purposes;
(vi) to sue, prosecute, settle or compromise all claims
against third parties, to compromise, settle or accept judgment of
claims against the Company and its Subsidiaries, and to execute all
documents and make all representations, admissions and waivers in
connection therewith;
(vii) to distribute, subject to the terms of this Agreement,
at any time and from time to time to Members cash or investments or
other property of the Company or its Subsidiaries, or any combination
thereof;
(viii) to borrow money, whether secured or unsecured, and to
make, issue, accept, endorse and execute promissory notes, drafts,
bills of exchange and other instruments and evidences of indebtedness,
all without limit as to amount, and to guarantee the payment thereof,
and to secure the payment thereof by mortgage, pledge, or assignment
of, or security interest in, the assets then owned or thereafter
acquired by the Company or its Subsidiaries;
(ix) to buy, sell, own, operate and otherwise deal with assets
of any nature, including real estate assets;
(x) to hold, receive, mortgage, pledge, lease, transfer,
exchange or otherwise dispose of, grant options with respect to, and
otherwise deal in and exercise all rights, powers, privileges and other
incidents of ownership or possession with respect to, all property held
or owned by the Company or any of its Subsidiaries; and
(xi) to take such other actions necessary or incidental
thereto as may be permitted under applicable law.
<PAGE> 22
18
SECTION 2.5 Registered Office; Place of Business; Registered
Agent. The Company shall maintain a registered office at The Corporation Trust
Company, 1209 Orange Street, Wilmington, New Castle County, Delaware 19801, or
such other office within the State of Delaware as is chosen by the Executive
Committee. The Company shall maintain an office and principal place of business
at 903 Calle Amanecer, San Clemente, California 9273-6212, or at such other
place as may from time to time be determined as its principal place of business
by the Executive Committee; provided, that the Executive Committee shall give
notice to the other Members of any change in the Company's principal place of
business. The name and address of the Company's registered agent as of the date
of this Agreement is The Corporation Trust Company, 1209 Orange Street,
Wilmington, New Castle County, Delaware 19801. The name and address of the
Company's registered agent in California as of the date of this Agreement is CT
Corporation System, 818 West Seventh Street, Los Angeles, California 90017.
SECTION 2.6 Alternative Investment Structure. (a) In order (i)
to qualify and/or preserve the status of (x) the Company, (y) any entity which
owns an interest in any Westbrook Member or (z) any entity in which any Member
and/or the Company owns an interest and which owns any Units as an "operating
company" as defined in the United States Department of Labor regulations 29
C.F.R. Section 2510.3-101 (the "Plan Asset Rules"), or (ii) to minimize the
effects of any "unrelated business taxable income" as described in sections 512
and 514 of the Code ("UBTI") on any entity which owns an interest in any
Westbrook Member and their respective Affiliates, each Member agrees to consent
to modifications reasonably proposed from time to time by any Westbrook Member
to the structure of the Company and/or the Company's investments in, and
ownership of, its assets and properties and/or to the terms of this Agreement,
including, without limitation, the capital contribution and allocation and
distribution provisions set forth in Articles VI and VII, if in any such case
the modifications will not adversely affect to any degree the aggregate amount
or timing of capital contributions, payment of fees, distributions of Available
Cash and liquidation proceeds or the aggregate allocations of Net Income and Net
Loss to any Other Member or any other economic rights of any Other Member
hereunder or any management rights or other control rights of any Other Member
hereunder; provided, however, that if such modifications adversely affect to any
degree the aggregate amount or timing of capital contributions, fees payable or
distribution of Available Cash and liquidation proceeds or the aggregate
allocations of Net Income and Net Loss or any other economic rights of any Other
Member hereunder or any rights of management or other control rights hereunder
to any Other Member (an "Adverse Change"), the provisions of Section 2.6(b)
shall apply. Subject to and specifically limited by the foregoing, any such
modification may include, without limitation, the formation by the Members of
other entities (including, without limitation, corporations and trusts that
qualify as real estate investment trusts under Section 856 of the Code) to be
owned by the Members or their Affiliates and which will own a portion of the
assets and properties to be included in the Initial Capital Contributions to the
Company. In any such event the Company and such other entities shall be treated
as a single partnership for federal income tax purposes and the fees payable to,
the amounts distributable to, the Net Income and Net Loss allocable to, the
capital contributions required to be contributed by, the maintenance of Capital
Accounts, and the buy-sell rights and obligations pursuant to this Agreement and
the organizational documents governing such other entities shall be calculated,
determined and applied on an aggregate basis as if the property and assets to be
included in the Initial Capital Contribution were owned by the
<PAGE> 23
19
Company pursuant to this Agreement as in effect as of the Closing unless the
Managing Member determines in its sole discretion that such provisions must be
calculated, determined and applied on an entity by entity basis and not on an
aggregate basis to qualify or preserve the status of the Managing Member, any
entity which owns an interest in any Westbrook Member, the Company or any entity
in which the Members and/or the Company owns an interest and which owns any
Units as an "operating company" under the Plan Asset Rules. If the Managing
Member determines that such provisions must be calculated, determined and
applied on an entity by entity basis and not an aggregate basis, the Members
agree to negotiate in good faith modifications to the terms of this Agreement
and to the organic documents governing such other entities so as to preserve as
nearly as possible without any material adverse affect to any Other Member the
same overall economic benefits and burdens relating to the property and assets
to be included in the Initial Capital Contribution as exist under this Agreement
as in effect as of the Closing; provided, however, that if such modifications
cause any Adverse Change, the provisions of Section 2.6(b) shall apply. Each
Member agrees to execute, acknowledge, deliver, file, record and publish all
such documents, agreements and instruments and to do all such other acts and
things as are reasonably necessary to implement the foregoing, subject to the
limitations set forth in the first sentence of this Section 2.6. The Westbrook
Members shall bear (directly, and not as a capital contribution or a loan to the
Company) all costs and expenses of the Company and the Members (and shall be
allocated all of the deductions associated with such costs and expenses which
shall be treated as deductions of the Westbrook Members and not deductions of
the Company) incurred in connection with any transfers of the property and
assets included in the Initial Capital Contribution and the formation of any
additional entities to own any portion of the property and assets included in
the Initial Capital Contribution in connection with any of the foregoing,
including the reasonable fees and expenses of the legal counsel, accountants and
other advisors of each Other Member in connection with any modification
consummated pursuant to this Section 2.6 and all costs relating to the process
described in Section 2.6(b) below, including the cost relating to the engagement
of any Valuation Agent. The Westbrook Members shall reimburse each Other Member
for all such costs within ten (10) Business Days after such Other Member
delivers to the Westbrook Member written notice that is has incurred any such
costs and reasonable supporting documentation relating thereto. If the Westbrook
Members fail to reimburse any Other Member within such time period, the Company
shall pay (and such Other Member shall have the authority to cause the Company
to so pay) all such amounts to such Other Member.
(b) In the event of any Adverse Change, the Managing Member
shall notify each Member and calculate and provide each Member with a
calculation of an estimate of the economic value of such Adverse Change incurred
by such Member. If the Members are unable to mutually agree upon the amount
thereof within 30 days, the Members shall, within 10 days after the expiration
of the foregoing 30-day period, mutually agree on an independent third party
(the "Valuation Agent") to determine the economic value of the Adverse Change to
the Alter Member arising from the Adverse Change resulting from a modification
described in Section 2.6(a). If the parties are unable to agree on a Valuation
Agent within such 10-day period, the Valuation Agent shall be appointed by the
Chief Judge of the District Court of the United States of America for the
Southern District of New York acting as an individual. In making its
determination of the economic value of the Adverse Change, the Valuation Agent
shall only consider the impact of the
<PAGE> 24
20
modifications to the amounts and timing of capital contributions, fees payable
and distributions of Available Cash and liquidation proceeds and the allocation
of Net Income and Net Loss to any Other Member. Any Valuation Agent selected
shall be independent and shall not have performed any appraisal or valuation
services for the Company, the Managing Member, any other Member, any entity
owning an interest in any Member or their Affiliates at any time prior to its
selection unless approved in writing by the Alter Member. Within 60 days after
the selection or appointment of the Valuation Agent, the Valuation Agent shall
deliver to the Members a written report of the foregoing valuation, and the
determination of the Valuation Agent thereon shall be conclusive and binding
upon the Members. Within 30 days after the receipt of such report, the Westbrook
Members shall pay in cash (in such proportion as they shall agree) to each Other
Member the amount of the economic value of the Adverse Change with respect to
such Member determined by the Valuation Agent. Such payment shall not be
considered or deemed a transaction of the Company and shall not be treated
Capital Contribution or loan by any Westbrook Member or a distribution or
borrowing by any Other Member.
ARTICLE III
MEMBERS AND INTERESTS
SECTION 3.1 Units. Each Member's Interest shall be represented
by Units. The Units initially shall be divided into four Classes, "Class A
Preferred Units", "Class B Common Units", "Class C Common Units" and "Class D
Common Units". Except as expressly provided in this Agreement to the contrary,
(a) any reference to "Units" shall include the Class A Units, Class B Units,
Class C Units and Class D Units and any other Classes of Units that may be
established pursuant to Section 3.6 and (b) any reference to "Members" shall
include the Class A Members, Class B Members, Class C Members and Class D
Members and any other Member holding any other Class of Units. At the Closing,
Class A Units will be issued to one or more OP Unitholders to the extent any
such OP Unitholder elects to receive Class A Units (in lieu of Class B Units or
Common Cash Consideration), as further provided in Section 3.3. At the Closing,
Class B Units will be issued to (i) the Westbrook Members, Alter Member and
Biederman Member in exchange for their Initial Capital Contributions made
pursuant to Section 6.1(a) as set forth in Article II of the Contribution
Agreement, as further provided in Section 3.4(a) and (ii) one or more OP
Unitholders to the extent any such OP Unitholder elects to receive Class B Units
(in lieu of Class A Units or Common Cash Consideration), as further provided in
Section 3.4(b). Class B Units will also be issued to the Funding Members as
provided in Section 3.4(c) to the extent such Funding Members make any
Additional Capital Contributions to the Company as provided in Section 6.1(b).
At the Closing, Class C Units and Class D Units, which represent limited rights
as provided in Section 3.5(a), will be issued to the Initial Members as further
provided in Section 3.5(b), subject to the transfer of such Units pursuant to
Section 3.5(b) or the assignment of such Units pursuant to Section 6.4(g).
SECTION 3.2 Members. Schedule A hereto contains the name and
address of each Member of the Company as of the date of this Agreement. Each of
Alter LLC, Biederman LLC, Westbrook Fund, WRECIP III and Westbrook Co-Invest is
hereby admitted as a Member
<PAGE> 25
21
as of the date of this Agreement (collectively, the "Initial Members") and each
of Westbrook Acquisitions and Alter hereby resigns as a Member as of the date of
this Agreement. Schedule A shall be revised by the Managing Member from time to
time to reflect the admission, resignation, substitution, expulsion, bankruptcy
or dissolution of a Member and the issuance, transfer, assignment or other
changes in ownership of Units in accordance with the terms of this Agreement and
other modifications to or changes in the information set forth therein.
SECTION 3.3 Class A Units. At the Closing, pursuant to the
terms of the OP Merger Agreement, each Person who is a registered holder of OP
Units (an "OP Unitholder") may receive, as consideration for such OP Units under
the OP Merger Agreement, either Class A Units or Class B Units, at the election
of such OP Unitholder. Each OP Unitholder electing to receive Class A Units
shall receive a number of Class A Units equal to the number of OP Units
exchanged for such Class A Units and shall have an agreed-upon value of its
Capital Contribution as of the Closing for purposes of its initial Capital
Account equal to (a) the number of OP Units exchanged for Class A Units
multiplied by (b) the amount of the Common Cash Consideration. Any such OP
Unitholder shall, after agreeing in writing to be bound by the terms and
conditions of this Agreement in a writing in form and substance reasonably
satisfactory to the Company, be admitted as a Class A Member without the consent
of any other Member.
SECTION 3.4 Class B Units. (a) Upon making the Initial Capital
Contributions provided in Section 6.1(a)(i), there will be issued (i) to each
Westbrook Member a number of Class B Units that equals (A) the Initial Capital
Contribution of such Westbrook Member divided by (B) the amount of the Common
Cash Consideration, (ii) to the Alter Member a number of Class B Units that
equals (A) the Initial Capital Contribution of the Alter Member divided by (B)
the amount of the Common Cash Consideration and (iii) to the Biederman Member a
number of Class B Units that equals (A) the Initial Capital Contribution of the
Biederman Member divided by (B) the amount of the Common Cash Consideration.
(b) At the Closing, pursuant to the terms of the OP Merger
Agreement, each OP Unitholder electing to receive Class B Units as consideration
for such OP Units under the OP Merger Agreement shall receive a number of Class
B Units equal to the number of OP Units exchanged for such Class B Units, and
shall have an agreed-upon value of its Capital Contribution as of the Closing
for purposes of its initial Capital Account equal to (i) the number of OP Units
exchanged for Class B Units multiplied by (ii) the amount of the Common Cash
Consideration. Any such OP Unitholder shall, after agreeing in writing to be
bound by the terms and conditions of this Agreement in a writing in form and
substance reasonably satisfactory to the Company, be admitted as a Class B
Member without the consent of any other Member.
(c) In the event any additional Class B Units are issued after
the Closing Date, the number of Class B Units to be issued will equal the number
determined by multiplying (i) the number of then-outstanding Class B Units by
(ii) a fraction, the numerator of which is the total Capital Contributions being
made to acquire such new Class B Units and the denominator of which is the
aggregate Capital Contributions previously made in respect of all the
then-outstanding Class B Units.
<PAGE> 26
22
SECTION 3.5 Class C and D Units. (a) The Class C Units and the
Class D Units shall be special Classes of Interests representing only (i) the
right to participate in allocations of Net Income and Losses of the Company and
to receive distributions from the Company in accordance with the terms of this
Agreement and (ii) such other rights as expressly provided to the Class C Units
and/or the Class D Units under this Agreement.
(b) As of the Closing, there will be issued and outstanding to
the Initial Members 1,207,730 Class C Units and 1,000 Class D Units, which Class
C Units and Class D Units will be owned by the Initial Members as set forth on
Schedule B. Subject to the terms of any Employment Agreement, the Alter Member
will have the right, in its sole discretion, to transfer Class C Units and Class
D Units at any time from any Employee Member to the Alter Member, any other
Employee Member or any Other Employee without the prior consent of such Employee
Member (or any other Member, including any Westbrook Member) and the Alter
Member will amend Schedule B from time to time to reflect any such transfers.
The Employment Agreements of the Employee Members may contain additional
provisions with respect to the ownership of the Class C Units and Class D Units,
including provisions providing for vesting of ownership over time and forfeiture
of ownership under certain circumstances; provided that the provisions of such
Employment Agreements must not contravene any provisions of this Agreement and
in the event of a conflict this Agreement shall govern.
SECTION 3.6 Additional Issuance of New Class of Units. Subject
to the provisions of this Agreement, including Articles IV and IX, after the
Closing, for any purpose specified in Section 2.4, the Executive Committee is
authorized to cause the Company to issue one or more new Classes of Units
representing additional Interests (in addition to the Class A Units, the Class B
Units, the Class C Units and the Class D Units) at any time or from time to time
to existing Members or to other Persons and to admit such other Persons as
Members subject to the terms and conditions of this Agreement. Subject to the
provisions of this Agreement, including Articles IV and IX, the Executive
Committee Board shall have sole and complete discretion to determine whether to
cause the Company to issue a new Class or Classes of Units and in determining
the consideration and terms and conditions with respect to any future issuance
of a new Class of Units, and the designations, preferences and relative,
participating, optional or other special rights, powers and duties of any such
Class or Classes; provided that any such new Class or Classes of Units may be
pari passu with, but shall not have any distribution or other rights hereunder
senior in priority to, the Class A Units.
ARTICLE IV
MANAGEMENT AND OPERATION OF THE COMPANY
SECTION 4.1 Management. (a) The Company shall have an
Executive Committee (the "Executive Committee") which shall initially consist of
four individuals (each, a "Manager") or such other number (but in no event fewer
than four) as may be established by agreement of the Managing Member and the
Alter Member, of whom one shall be appointed by the Alter Member, one by the
Westbrook Fund, one by WRECIP III and one by Westbrook Co-
<PAGE> 27
23
Invest; provided that in the event the number of Managers is adjusted, the
Westbrook Members, collectively, shall in all cases have the right to appoint a
majority of the Managers; and provided, further that the Westbrook Members,
collectively, shall have the right to appoint all of the Managers, and any
Manager appointed by the Alter Member shall cease to be a Manager, in the event
either (i) the employment of Alter with the Company is terminated by the Company
for Alter Cause pursuant to the Alter Employment Agreement or the New Alter
Employment Agreement or (ii) the Alter Member ceases to hold any Units. For so
long as Alter is employed by the Company or any Subsidiary thereof, Alter shall
be appointed by the Alter Member as a Manager; thereafter, an individual listed
on Schedule 4.1 or another individual reasonably acceptable to the Managing
Member may be selected by the Alter Member to serve instead of Alter as the
Manager to be appointed by the Alter Member pursuant to this Section 4.1.
Subject to the immediately preceding sentence, each of the Alter Member and each
Westbrook Member shall have the right to remove and designate replacements of
those Managers appointed by it. In acting in the capacity as a Manager, an
individual shall not be required to consider the interests of, or have any duty
stated or implied by law or equity to, any Member other than the Member that
appointed such Manager. None of the Non-Voting Members shall have any right to
appoint a Manager hereunder. The Managers shall appoint by majority vote one of
the Managers to preside at meetings of the Executive Committee.
(b) The Executive Committee shall have general supervision,
direction and control of the business of the Company. The normal and customary
day-to-day operations of the Company shall be managed by officers of the Company
in accordance with Section 4.2 and subject to Sections 4.3 and 4.4.
(c) Except as provided in Section 4.3(a), (i) an action or
decision of the Executive Committee shall require the consent or vote of a
majority of the Managers and (ii) a majority of the total number of incumbent
Managers shall be necessary to constitute a quorum for the transaction of
business at any meeting of the Executive Committee. Except as otherwise provided
in this Agreement or by the Act, the action of a majority of the Managers
present at any meeting at which there is a quorum, when duly assembled, is
valid. A meeting at which a quorum is initially present may continue to transact
business, notwithstanding the withdrawal of Managers, if any action taken is
approved by a majority of the required quorum for such meeting. No Member,
acting solely in its capacity as a Member, shall have the power and authority to
act for and bind the Company unless such matter has been approved by the
Managers as set forth herein.
(d) Meetings of the Executive Committee shall be held at the
principal office of the Company, unless some other place is designated in the
notice of the meeting. Any Manager may participate in a meeting through use of a
conference telephone, video conference or similar communication equipment so
long as all Managers participating in such a meeting can hear one another.
Accurate minutes of any meeting of the Executive Committee shall be maintained
by the Officer designated by the Executive Committee for that purpose.
(e) Special meetings of the Executive Committee for any
purpose may be called at any time by the person selected to preside at meetings
of the Executive Committee. Unless waived by the Executive Committee, at least
two business days notice of the time and
<PAGE> 28
24
place of any meeting of the Executive Committee shall be delivered personally to
each of the Managers, communicated to them by facsimile, or communicated by
Federal Express or other comparable overnight courier service. Notice shall be
transmitted to the last known facsimile number or address of the Manager as
shown on the records of the Company. Such notice as above provided shall be
considered due, legal and personal notice to such Manager. With respect to a
special meeting which has not been duly called or noticed pursuant to the
foregoing provisions, all transactions carried out at the meeting are as valid
as if had at a meeting regularly called and noticed if: (i) all Managers are
present at the meeting, and sign a written consent to the holding of such
meeting, (ii) if a majority of the Managers are present and if those not present
sign a waiver of notice of such meeting and a written consent to the matters
approved therein, whether prior to or after the holding of such meeting, which
waiver, consent or approval shall be filed with the other records of the Company
or (iii) if a Manager attends a meeting without notice and does not protest
prior to the meeting or at its commencement that notice was not given to him or
her.
(f) Any action required or permitted to be taken by the
Managers may be taken without a meeting and will have the same force and effect
as if taken by a vote of Managers at a meeting properly called and noticed, if
authorized by a writing signed individually or collectively by all, but not less
than all, the Managers. Such consent shall be filed with the records of the
Company.
(g) The Members hereby delegate to each and any one of the
Managers the nonexclusive power and authority to act as an agent of Company and,
in such capacity, to bind the Company in the ordinary course of the Company's
business and to execute any and all documents to be signed by the Company,
subject to the limitations on the authority of the Managers.
(h) Notwithstanding anything to the contrary contained in this
Agreement, the Managers appointed by the Original Members in the Original
Agreement (which Managers are Alter, Paul Kazilionis and Jonathan H. Paul) shall
continue as Managers designated by the Members as of the date of this Agreement.
Alter shall be deemed appointed by Alter Member, Paul Kazilionis by Westbrook
Co-Invest and Jonathan H. Paul by Westbrook Fund for purposes of Section 4.1(a)
hereof. In addition, Mark Mance shall be appointed as Manager by WRECIP III for
purposes of Section 4.1(a) hereof. The delegation by the Original Members to the
Managers of nonexclusive power and authority to act as an agent of the Company
and, in such capacity, to bind the Company in the ordinary course of the
Company's business and to execute any and all documents to be signed by the
Company shall continue in full force and effect.
SECTION 4.2 Officers. The Members agree that the Company shall
not have, and the Executive Committee shall not appoint, any officers of the
Company (the "Officers") prior to the Closing Date (other than pursuant to the
Alter Employment Agreement pursuant to which Alter shall become Chief Executive
Officer as of (but not prior to) the Closing). As of the Closing, the Officers
shall include a chief executive officer (the "Chief Executive Officer"). The
Company may also have such other Officers as the Executive Committee in its
discretion may appoint or whom may be appointed by the other Officers if
specifically authorized to do so by the Executive Committee. Following the
Closing, the Chief Executive Officer shall, subject to the
<PAGE> 29
25
general direction and control of the Executive Committee, have overall
responsibility for the management of the normal and customary day-to-day
operations of the Company, subject to Sections 4.1, 4.3 and 4.4, and will be
empowered to and will engage in all appropriate and necessary activities to
accomplish the purposes of the Company as set forth herein. Notwithstanding the
foregoing, all Executive Committee Decisions shall be approved by a majority of
the Executive Committee (or all of the Managers to the extent required by
Section 4.3). The initial Chief Executive Officer will be Alter, and as of the
date hereof the Company has entered into the Alter Employment Agreement
providing the terms of Alter's employment with the Company effective as of the
Closing. The Members hereby delegate to each of the Officers the nonexclusive
power and authority to act as an agent of the Company and, in such capacity, to
bind the Company in the ordinary course of the Company's business and to execute
any and all documents to be signed by the Company, subject to the limitations on
the authority of the Officers set forth herein and under the Act. The Officers
and other key employees of the Company will be compensated in accordance with
this Agreement, their respective employment agreements, if any, and, if
applicable, the compensation guidelines agreed to by the Alter Member and the
Westbrook Members.
SECTION 4.3 Executive Committee Approval Requirements and
Other Limitations on Actions. (a) Prior to the Closing, the Executive Committee
will not authorize and the Company will not take, and will cause each of its
Subsidiaries not to take, any of actions set forth in clauses (i), (ii), (iii)
or (vii) below and after the Closing, the Executive Committee will not authorize
and the Company will not take, and will cause each of its Subsidiaries not to
take, any of the following actions without the prior approval of all the
Managers at a meeting of the Executive Committee or action by written consent of
the Executive Committee pursuant to Section 4.1, except that the Company shall
have the right to do such of the following as is necessary to permit it to
fulfill its obligations under Section 9.3 and 9.4 hereof:
(i) amending the Merger Agreement, provided that approval of
the Manager appointed by the Alter Member shall not be required to
terminate the Merger Agreement or to waive any condition precedent
under the Merger Agreement;
(ii) changing the interest rate or principal amount, reducing
the maturity to a period of less than three years or making any
material change in the mandatory amortization schedule under any debt
financing agreements relating to the Merger Agreement, provided that
approval of the Manager appointed by the Alter Member shall not be
required to terminate any such agreements prior to the termination of
the Merger Agreement or to waive any condition precedent under such
agreements;
(iii) conducting any business prior to the Closing other than
that necessary or incidental to the consummation of the transactions
contemplated by the Merger Agreement and the agreements referred to
therein (including any merger agreement with respect to Sunstone OP,
any financing agreements, the Alter Employment Agreement, the
Contribution Agreement and the Term Sheet dated April 5, 1999 relating
thereto);
<PAGE> 30
26
(iv) acquiring all or any portion of any hotel property or any
direct or indirect interest therein or entering into any contract to
acquire any hotel properties, directly or indirectly;
(v) funding any capital expenditure in any fiscal year for
renovations of hotel properties in excess of 6% of FF&E other than as
provided in Section 6.2(c) (except to the extent such capital
expenditure is to repair damage or destruction to hotel properties of
the Company and its Subsidiaries not covered by insurance proceeds);
(vi) entering into any transaction with any Affiliate of any
Westbrook Member unless such affiliation is disclosed in writing to all
of the Managers and such transaction is on terms no less favorable to
the Company or any of its Subsidiaries than it would obtain in a
comparable arm's length transaction with a third party that is not an
Affiliate of any Westbrook Member and otherwise complies with Section
4.5(d);
(vii) issuing any Units or admitting any Person as a
substitute or additional Member (other than in connection with a
Permitted Transfer) except as provided in Sections 3.3, 3.4, 3.5 or
6.1(b);
(viii) amending this Agreement or otherwise taking any act in
contravention of this Agreement;
(ix) making any distribution to the Members other than cash;
(x) retaining (and not distribute as contemplated by Section
6.3) any Available Cash;
(xi) requiring or making any Additional Capital Contributions
other than pursuant to Section 6.1(b);
(xii) paying any discretionary bonus to Alter (which does not
include the Bonus) or any other Officer;
(xiii) taking any action which would cause the Partnership to
become an entity other than a Delaware limited partnership;
(xiv) establishing or adjusting the adjusted basis of any
asset for federal income tax purposes, provided that approval of a
Manager shall not be required if the Member which appointed such
Manager is not adversely affected by such action;
(xv) entering into any agreement (A) which would cause any
Member to become personally liable on or in respect of or to guarantee
any indebtedness of the Company or any Subsidiary thereof or (B) which
is not nonrecourse to such Member;
<PAGE> 31
27
(xvi) performing any act which would make it impossible to
carry on the ordinary business of the Company, except in connection
with the involuntary dissolution, winding up and termination of the
Company as provided by Sections 8.1 and 8.2;
(xvii) possessing Company Assets, or assigning, transferring
or pledging the Company's rights in specific Company Assets, for other
than a Company purpose; or
(xviii) employing, or permitting to be employed, the funds or
assets of the Company or any Subsidiary for other than a Company
purpose.
(b) Prior to the eighteen-month anniversary of the Closing
Date, the Company shall not (and the Members shall not permit the Company to),
and shall not permit any Subsidiary to, voluntarily sell or otherwise transfer,
in one transaction or in a series of transactions (whether or not related),
Company Assets which, in the aggregate, include more than 30% of (x) the
aggregate number of guest rooms owned (directly or indirectly) by the Company
and its Subsidiaries as of the Closing Date plus (y) the number of guest rooms
subsequently acquired by them, unless the aggregate sale price for such Company
Assets exceeds the aggregate cost basis of the assets sold for purposes of the
Company's financial statements, excluding depreciation and amortization of the
Company and its Subsidiaries in such Company Assets, but including the aggregate
of all capital improvements made thereto as of the date of such proposed sale to
the extent such improvements exceed 4% of the aggregate investment in fixtures,
furniture and equipment of the Company and its Subsidiaries in such Company
Assets as of such date. In addition, prior to the eighteen-month anniversary of
the Closing Date, the Company shall not (and the Members shall not permit the
Company to), and shall not permit any Subsidiary to, voluntarily liquidate the
Company or sell all or substantially all the Company Assets unless the aggregate
proceeds to the Company and its Subsidiaries resulting from such liquidation or
sale are sufficient to pay Alter (and/or any employees he has designated to
receive a portion of the Bonus pursuant to Section 10.14 hereof) the Bonus and
to distribute to the Alter Member, the Biederman Member and the Employee
Members, collectively, $12.5 million pursuant to Section 6.4(d).
(c) If prior to the four-year anniversary of the Closing Date,
the Company or any of its Subsidiaries proposes to sell, transfer or otherwise
dispose (by merger or otherwise) to any Person any equity interest in or all or
a significant portion of the assets (including the management contracts) of SHP
Management, Inc. (or any successor thereto) without also simultaneously selling
or leasing (for a term of not less than five years) to such Person related hotel
assets or any interest in any Affiliate of the Company that directly or
indirectly owns related hotel assets (a "Stand-Alone Sale"), the Company will
first provide the Alter Member with a written notice setting forth the equity
interest or assets to be offered for sale and the material terms and conditions
of the proposed sale, including the price (the "Offer Notice"). Within thirty
(30) days following the receipt of the Offer Notice, the Alter Member shall have
the opportunity and right to elect to purchase, and the Company shall have the
obligation to agree to sell to the Alter Member, such equity interest or assets
on the terms set forth in the Offer Notice, and the Alter Member shall exercise
such right of election by delivering written notice of acceptance to the Company
within such 30-day period. If the Alter Member exercises its right pursuant to
this Section 4.3(c), the closing of such purchase by the Alter Member of the
equity interest or assets
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with respect to which such rights have been exercised shall occur at the offices
of the Company on the date which is 60 days after the delivery of the notice of
acceptance by the Alter Member to the Company (or, if such date is not a
Business Day, on the next succeeding Business Day). If the Alter Member does not
deliver such an acceptance notice within such 30-day period, the right of the
Alter Member to purchase such equity interest or assets pursuant to the Offer
Notice shall terminate and the Company shall have the right to sell such equity
interest or assets described in the Offer Notice to any third party on terms
which are not materially less favorable to the Company than those set forth in
the Offer Notice; provided that if an agreement to sell such equity interest or
assets has not been entered into within 120 days after termination of such
30-day period, the rights of the Alter Member as described above shall be
reinstated and the Company will be required to deliver another Offer Notice to
the Alter Member with respect to such proposed sale before such sale can occur.
(d) Commencing on the four-year anniversary of the Closing
Date, the rights of the Alter Member described in Section 4.3(c) shall not apply
to any Stand-Alone Sale unless, as of the date of the Offer Notice that would be
required pursuant to Section 4.3(c), the Units held by the Westbrook Members
would receive a Rate of Return of at least 17.5%, calculated by taking into
account (i) all prior distributions of Available Cash to the Westbrook Members
pursuant to Section 6.4, (ii) the aggregate gross proceeds (net of transaction
expenses) received by the Westbrook Members on any sale by any Westbrook Member
(to any Person other than another Westbrook Member) of all or any portion of its
Units, (iii) the aggregate amount that would be distributed to each Westbrook
Member if the Company were liquidated (not including the amount to be
distributed pursuant to clause (iv) below) as of the date of such Offer Notice
(assuming Company Assets were sold at Fair Market Value) and (iv) the amount
that would be distributed to the Westbrook Members, collectively, as a result of
such Stand-Alone Sale.
SECTION 4.4 Budget. The Members have agreed upon an initial
budget for the Company for the period commencing on the Closing Date and ending
on December 31, 1999, a copy of which is attached as Exhibit A, which shall be
the budget for the Company for such period in the event the Alter Member and
Westbrook Members do not agree upon another budget for such period prior to the
Closing Date. Not less than thirty (30) days prior to the end of each fiscal
quarter and not less than sixty (60) days prior to the end of each fiscal year,
the Chief Executive Officer shall submit to the Executive Committee a proposed
budget for the next such fiscal period, which shall be prepared at the expense
of the Company. Prior to the commencement of the fiscal period to which such
budget applies, the Executive Committee (by majority vote) shall either approve
such budget as presented or modify the proposed budget following consultation
with the Chief Executive Officer (such budget, as approved, whether or not with
modification, by the Executive Committee, the "Approved Budget"), provided that
if the Executive Committee does not modify any such proposed budget within 20
days (in the case of any quarterly budget) or 45 days (in the case of any annual
budget) after its submission by the Chief Executive Officer, such proposed
budget shall be deemed approved by the Executive Committee. No Member, Manager,
Officer (including the Chief Executive Officer) or any other employee of the
Company shall authorize (i) with respect to all expenditures of the Company in
any fiscal period, expenditures of more than 105% of total amount allocated for
all expenditures in the Approved Budget (including any contingency amounts in
such Approved Budget) for such
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29
fiscal period, and (ii) with respect to any individual line-item set forth in
the Approved Budget for any fiscal period, expenditures of more than 110% of the
amount allocated to such individual line-item in such Approved Budget (including
any contingency amounts in such Approved Budget) for such fiscal period.
SECTION 4.5 Certain Duties and Obligations of the Members. (a)
Subject to the terms of this Agreement, the Members shall take all action which
may be reasonably necessary or appropriate for the formation and continuation of
the Company as a limited liability company under the laws of the State of
Delaware.
(b) No Member shall take any action so as to cause the Company
to be classified for Federal income tax purposes as an association taxable as a
corporation and not as a partnership.
(c) The Company shall take all action which is necessary to
form or qualify the Company and to conduct the business in which the Company is
engaged under the laws of any jurisdiction in which the Company is doing
business and to continue in effect such formation or qualification.
(d) Except as otherwise permitted hereunder, no Member shall
take, or cause to be taken, any action that would result in any Member having
any personal liability for the obligations of the Company. Neither any Member
nor any Affiliate of any Member shall enter into any transaction with the
Company unless the transaction (i) is expressly permitted hereunder, (ii) with
respect to services, the fees for such services must be no greater than the fees
charged generally by qualified, unaffiliated third-parties performing similar
services in the geographical area in which the services are to be performed and
the other terms of the agreement pursuant to which such services will be
performed shall generally be no more onerous to the Company than the terms of
agreements used by qualified, unaffiliated third-parties performing similar
services in the geographical area in which the particular services are to be
rendered, (iii) with respect to purchases and sales of property, the price paid
for such property must be no greater than the price that an unaffiliated
third-party would pay for such property and the other terms of the agreement
pursuant to which such property is purchased or sold shall generally be no more
onerous to the Company than the terms of agreements used by unaffiliated
third-parties purchasing or selling similar property in the geographical area in
which such property is located or (iv) is approved by all the Managers upon
disclosure of any direct or indirect interest such Member or any Affiliate
thereof may have in the transaction. Each Member hereby agrees that it shall not
recommend that the Company or any Subsidiary enter into, or otherwise permit the
Company or any Subsidiary to enter into any, an agreement with any Person that
is an Affiliate of such Member without first disclosing to the other Member in
writing that such Person is an Affiliate of such Member.
(e) (i) Except as otherwise expressly provided in the Act, the
debts, obligations and liabilities of the Company, whether arising in contract,
tort or otherwise, shall be solely the debts, obligations and liabilities of the
Company, and no Member shall be obligated for any such debt, obligation or
liability of the Company solely by reason of being a Member of the Company.
Except as otherwise expressly provided in the Act or in this Agreement, the
liability of
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each Member shall be limited to the amount of Capital Contributions made (or
required to be made) by such Member in accordance with the provisions of this
Agreement.
(ii) No Manager, Member and no partner, shareholder or member
or other holder of an equity interest in any Member or any officer of
director of any of the foregoing shall be liable, responsible or
accountable to the Company or to any Member for monetary damages for
any losses, claims, damages or liabilities arising from any act or
omission performed or omitted by it and arising out of or in connection
with (A) any act performed within the scope of the authority conferred
on it by this Agreement, (B) its failure or refusal to perform any act,
(C) its performance of, or failure to perform, any act on the
reasonable reliance on advice of legal counsel to the Company or (D)
the negligence, dishonesty or bad faith of any agent, consultant or
broker of the Company, except, in each case described in clauses (A)
through (D), to the extent the action or failure to act of such party
(but not of such legal counsel, agent, consultant or broker)
constituted fraud, willful misconduct or gross negligence. No Manager,
partner, shareholder, member or other holder of an equity interest in
any Member or officer or director of any of the foregoing shall be
personally liable for the performance of such Member's obligations
under this Agreement, but the foregoing shall not relieve any partner
or member of any Member from its obligations to such Member.
(iii) The Company shall, to the fullest extent permitted by
applicable law, indemnify, defend and hold harmless each Member and
each general or limited partner of any Member or such Member's
Affiliates, shareholder, members or other holder of any equity interest
in such Member or its Affiliate, or any officer or director of any of
the foregoing and each and every Manager or Officer (collectively, the
"Indemnitees"), from and against any losses, claims, demands,
liabilities, costs, damages, expenses and causes of action to which
such Indemnitee may become subject in connection with any matter
arising out of or incidental to this Agreement, including the formation
hereof, the making of the Initial Capital Contributions and any matter
for which such Indemnitee is exculpated under Section 4.5(e)(ii) or any
other act performed or omitted to be performed by any such Indemnitee
in connection with this Agreement or the Company's business or affairs;
provided, however, that such act or omission was not attributable to
such Indemnitee's fraud, willful misconduct or gross negligence or its
breach of the representation set forth in Section 10.1. Any indemnity
under this Section shall be paid solely out of and to the extent of
Company Assets and shall not be a personal obligation of any Member and
in no event will any Member be required, or permitted without the
consent of all of the Members, to contribute additional capital to
enable the Company to satisfy any obligation under this Section. The
Company shall indemnify, defend and hold harmless each Member from and
against any losses, claims, demands, liabilities, costs, damages,
expenses with respect to any cause of action arising from the Merger
Agreement and the transactions contemplated thereby to the extent such
Member acted in its capacity as a Member of the Company.
(iv) The Company, each Manager and the other Members shall be
indemnified and held harmless by each Member from and against any and
all claims, demands,
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31
liabilities, costs, damages, expenses and causes of action of any
nature whatsoever arising out of or attributable to the fraud, willful
misconduct or gross negligence of such Member.
(f) No Member shall be required to consider the interests of,
or have any duty stated or implied by law or equity to (including any fiduciary
duty), any other Member.
SECTION 4.6 UBTI. Subject to the obligations of the Westbrook
Members pursuant to Section 2.6, the Company will use its best efforts to avoid
the incurrence of any UBTI by any Member.
SECTION 4.7 Consent of Alter Member. To the extent the Alter
Member is required to grant any consent or take any other action under any
provision of this Agreement, such consent or other action shall be taken or made
on behalf of the Alter Member by the Manager appointed by the Alter Member.
SECTION 4.8 Non-Voting Members. Anything in this Agreement to
the contrary notwithstanding, none of the Non-Voting Members shall have any
voting, management or other rights with respect to the Company under this
Agreement except for the right of such Non-Voting Members to receive
distributions as provided in Section 6.4 hereof. Without limiting the foregoing,
(a) none of the Non-Voting Members will have any right to vote on and their
consent shall not be required for any amendment, supplement or other
modification to this Agreement or for the Company to take any action or to vote
on or approve of any matters requiring the consent or approval of the Members,
including any matter requiring the unanimous consent of the Members under the
Act and (b) neither the Company, any Manager or any Member will have any
fiduciary or other duties or obligation to the Non-Voting Members.
ARTICLE V
OTHER ACTIVITIES
SECTION 5.1 Other Activities. Except as expressly provided
hereunder, this Agreement shall not be construed in any manner to preclude any
Member or any of its Affiliates from engaging in any activity whatsoever
permitted by applicable law (whether or not such activity might compete, or
constitute a conflict of interest, with the Company or any of its Subsidiaries),
including, without limitation, engaging in other real estate investments and
related ventures. No Member or any of its Affiliates will have any obligation to
present or otherwise make available to the Company any business opportunity
which such Member or any of its Affiliates may become aware of.
SECTION 5.2 Transactions With the Company. This Agreement
shall not be construed in any manner to preclude any Member (or Affiliate of any
Member) from (a) lending money to, (b) borrowing money from, (c) acting as a
surety, guarantor or endorser for, (d) guaranteeing or assuming one or more
obligations of, (e) providing collateral for or (f) transacting other businesses
with, the Company or its Subsidiaries, to the extent approved by the Executive
<PAGE> 36
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Committee and not in violation of Section 4.3(a)(vi) or 4.5(d). Any Member
performing any of the transactions set forth in this Section 5.2 with the
approval of the Executive Committee (or all the Managers) to the extent required
by the provisions of Section 4.3(a) hereof) shall have the same rights and
obligations with respect to any such transaction as a Person who is not a
Member.
ARTICLE VI
CAPITAL CONTRIBUTIONS; DISTRIBUTIONS
SECTION 6.1 Capital Contributions. (a) (i) Immediately prior
to the Closing, the Initial Members (other than the Employee Members)
shall make Initial Capital Contributions to the Company solely as
provided in the Contribution Agreement. Each of the Members hereby
acknowledges and agrees that the agreed-upon value of the respective
Initial Capital Contributions of the Initial Members for purposes of
their initial Capital Account shall be determined as set forth in
Article II of the Contribution Agreement.
(ii) At the Closing, the OP Unitholders being admitted as
Class A Members or Class B Members shall make Capital Contributions as
set forth in Section 3.3 or 3.4(b) hereof.
(b) The Funding Members shall make Additional Capital
Contributions to the Company as directed by either the Alter Member or any
Westbrook Member only to the extent additional funds are required by the Company
in connection with Emergency Expenses. Each Funding Member shall be given
written notice of any Additional Capital Contribution required by the Member
directing such Additional Capital Contribution to be made at least 20 Business
Days prior to the date on which such Additional Capital Contribution is required
to be made. Each Funding Member shall make all Additional Capital Contributions
in the same proportion as their Residual Shares. The Company shall issue Class B
Units as consideration for Additional Capital Contributions in accordance with
the provisions of Section 3.4(c).
(c) No Member shall be required or permitted to make Capital
Contributions to the Company except as provided in Section 6.1(a) or (b).
(d) No Member shall have any obligation to restore any
negative balance in the Member's Capital Account, whether to the Company, any
Member or any other Person. A deficit balance in any Member's Capital Account
shall not be deemed to be a liability of such Member (or of such Member's
members or partners) or an asset or property of the Company (or any Member). No
Member shall be entitled to withdraw all or any part of its Capital
Contributions except as expressly provided in this Agreement. No interest shall
be payable by the Company on the Capital Contributions of any Member except as
otherwise provided herein. In no event shall any Member be entitled to demand
any property from the Company other than cash.
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(e) If any Westbrook Member or the Alter Member require
Additional Capital Contributions in accordance with Section 6.1(b), such Member
shall give notice to all of the other Funding Members of the amount of funds
required and the date such funds shall be due; provided that unless otherwise
expressly provided herein, (i) such notice must provide at least 15 business
days prior written notice for any Additional Capital Contributions, and (ii) the
date such Capital Contributions shall be required shall be a Business Day.
SECTION 6.2 Loans for Additional Capital Contributions; Other
Loans to the Company. (a) In the event an Additional Capital Contribution to the
Company is required pursuant to Section 6.1(b), and such Additional Capital
Contribution is required by the Company in connection with Emergency Expenses
attributable to capital expenditures relating to hotel properties owned or
leased by the Company or any of its Subsidiaries in excess of 4% of FF&E, each
of the Alter Member, Biederman Member and Westbrook Co-Invest shall have the
right to borrow the amount needed to fund its Additional Capital Contribution in
the form of a recourse loan made by the Company to such Funding Member, which
shall bear interest at an annual rate equal to the lesser of (i) 15% compounded
quarterly and (ii) the maximum rate permitted by applicable law, shall be
payable by set-off against any payments or distributions to be made by the
Company to the Funding Member pursuant to this Agreement, and shall be secured
by the Units of such Funding Member (each such loan, a "Contribution Loan"). In
the event any of the Alter Member, Biederman Member or Westbrook Co-Invest
wishes to exercise its right to receive a Contribution Loan, the Westbrook
Members agree to lend to the Company an amount equal to the aggregate amount of
all such Contribution Loans to be made by the Company, which loan by the
Westbrook Members shall be made to the Company immediately prior to the making
of such Contribution Loans, shall bear interest at a rate equal to that with
respect to such Contribution Loans, shall be payable with the proceeds of any
set-off made or other payments received by the Company with respect to such
Contribution Loans and shall be secured by the Units held as security under such
Contribution Loans.
(b) If any Funding Member shall fail to make an Additional
Capital Contribution to the Company as required in Section 6.1(b) above for a
reason other than the failure of the Company or the Westbrook Members to make
the loans contemplated by Section 6.2(a) (a "Noncontributing Member"), the
Executive Committee shall promptly notify such Noncontributing Member in writing
and if such default is not cured within 10 days after receipt of such notice of
such default, then any other Funding Member (a "Contributing Member") may fund
all or part of the Noncontributing Member's Additional Capital Contribution in
the form of a nonrecourse demand loan (a "Priority Loan") made by the
Contributing Member to the Company, and such Priority Loan with respect to the
Noncontributing Member's Additional Capital Contribution shall bear interest at
an annual rate equal to the lesser of (i) 15% compounded quarterly and (ii) the
maximum rate permitted by applicable law.
(c) The Westbrook Members shall have the right to fund any
Additional Capital Expenditures in whole or in part in the form of a nonrecourse
demand loan (a "CapEx Loan") made by one or more Westbrook Members to the
Company. Any such CapEx Loan shall bear interest at an annual rate equal to the
lesser of (i) 15% compounded quarterly and (ii) the maximum rate permitted by
applicable law. Notwithstanding the foregoing, the Company shall
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use reasonable commercial efforts to obtain alternative financing less expensive
to the Company than a CapEx Loan for any Additional Capital Expenditures.
SECTION 6.3 Distributions Generally. Available Cash shall be
distributed from time to time as determined by the Executive Committee for each
fiscal quarter, but no later than 45 days following the end of such quarter. The
Company shall make such distributions in cash among the Members in accordance
with Section 6.4, and all distributions shall be subject to any restrictions
contained in any agreement between the Company and any lender.
SECTION 6.4 Distributions of Available Cash. Each distribution
of Available Cash hereunder shall be made to the Members as follows and the
calculations described in the following clauses shall be made as of the date of
each distribution, on a cumulative basis:
(a) First, to the Class A Members pro rata in accordance with
the number of Class A Units held by each Class A Member until such time as the
Class A Members have received a cumulative compounded quarterly (to the extent
not paid on a quarterly basis) return of 8.5% on the Class A Members' Capital
Contributions attributable to the Class A Units (without any return of Capital
Contributions);
(b) Second, to the Class B Members pro rata in accordance with
the number of Class B Units held by each Class B Member until such time as the
Class B Members have received a cumulative compounded quarterly (to the extent
not paid on a quarterly basis) return of 15% on the Class B Members' Capital
Contribution attributable to the Class B Units (without any return of Capital
Contributions);
(c) Third, pro rata among the Class A Members and Class B
Members in accordance with their respective Capital Contributions until such
time as the Class A Members and Class B Members have received a return of their
Capital Contributions attributable to the Class A Units and Class B Units; and
thereafter each such Class A Member shall no longer be entitled to receive any
distributions of Available Cash hereunder, such Class A Units shall no longer be
considered outstanding for purposes of this Agreement and each such Class A
Member shall cease to be a Member;
(d) Fourth, 100% to the Class C Members, collectively, pro
rata in accordance with the number of Class C Units held by each Class C Member,
until such time as the Class C Members have received an aggregate of $12.5
million pursuant to this Section 6.4(d); and
(e) Thereafter, (i) 12.5% to the Class D Members collectively,
pro rata in accordance with the number of Class D Units held by each Class D
Member, provided that in the event any Class D Units are forfeited and retained
by the Company pursuant to Section 6.4(f)(i), 6.4(f)(ii) or 6.4(f)(iii), such
percentage will be reduced pro rata based on the number of Class D Units which
remain outstanding; and (ii) 87.5% to the Class B Members in proportion to each
Class B Member's Residual Share; provided that in the event any Class D Units
are forfeited and retained by the Company pursuant to Section 6.4(f)(i),
6.4(f)(ii) or 6.4(f)(iii), such percentage will be increased in proportion to
each Class B Member's Residual Share.
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35
(f) (i) Notwithstanding the provisions of Section 6.4(e) and
subject to the provisions of Section 6.4(g), (A) in the event that
during the term of the Alter Employment Agreement the employment of
Alter is terminated by the Company for Alter Cause or by Alter without
Alter Good Reason, the Alter Member shall forfeit 86.9% of its Class D
Units and such forfeited Class D Units shall be retained by the
Company; (B) in the event that prior to the expiration of the term of
the Alter Employment Agreement Alter is offered a New Alter Employment
Agreement by the Company but Alter does not execute and deliver to
Company such New Alter Employment Agreement with the Company (for any
reason other than Alter's death or Disability (as defined in the Alter
Employment Agreement) or his prior termination of employment other than
by the Company for Alter Cause or by Alter without Alter Good Reason)
prior to the later of (x) the expiration of the term of the Alter
Employment Agreement or (y) fifteen (15) Business Days after receipt of
such New Alter Employment Agreement by Alter, the Alter Member will
forfeit 86.9% of its Class D Units and such forfeited Class D Units
shall be retained by the Company; and (C) in the event that during the
term of the New Alter Employment Agreement the employment of Alter is
terminated by the Company for Alter Cause or by Alter without Alter
Good Reason, the Alter Member will forfeit the percentage of Class D
Units set forth below and such forfeited Class D Units shall be
retained by the Company: (1) 43.5% of its Class D Units if such
termination occurs prior to the first anniversary of the Renewal Date;
(2) 34.8% of its Class D Units if such termination occurs on or after
the first anniversary of the Renewal Date and prior to the second
anniversary of the Renewal Date; (3) 26.1% of its Class D Units if such
termination occurs on or after the second anniversary of the Renewal
Date and prior to the third anniversary of the Renewal Date; (4) 17.4%
of its Class D Units if such termination occurs on or after the third
anniversary of the Renewal Date and prior to the fourth anniversary of
the Renewal Date; and (5) 8.7% of its Class D Units if such termination
occurs on or after the fourth anniversary of the Renewal Date and prior
to the fifth anniversary of the Renewal Date. In the event that prior
to the expiration of the term of the Alter Employment Agreement, Alter
is not offered a New Alter Employment Agreement by the Company, the
Class D Units of the Alter Member shall no longer be subject to
forfeiture.
(ii) Notwithstanding the provisions of Section 6.4(e), the
Class D Units of any Employee Member shall be subject to forfeiture as
provided in any Employment Agreement or other written agreement among
the Company, the Alter Member and the Employee Member, and any such
forfeited Class D Units shall be immediately transferred to the Alter
Member, except that any Class D Units that would have been previously
forfeited by the Alter Member pursuant to this Section 6.4(f) had the
Alter Member owned such Class D Units prior to the date of such
forfeiture shall be retained by the Company.
(iii) Notwithstanding the provisions of Section 6.4(e), (A) in
the event that prior to the fifth anniversary of the Closing Date, the
employment of Biederman with the Company (or its Subsidiary) is
terminated by the Company (or its Subsidiary) for Cause or by Biederman
without Good Reason, the Biederman Member shall forfeit 86.9% of its
Class D Units and such forfeited Class D Units shall be retained by the
Company; and (B)
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36
in the event that prior to the fifth anniversary of the Closing Date,
Biederman is offered the opportunity to continue his employment with
the Company (or its Subsidiary) after the fifth anniversary of the
Closing Date on the same terms and conditions and with a base salary
not less than the base salary paid to Biederman immediately prior to
the fifth anniversary of the Closing Date, and the employment of
Biederman is terminated thereafter (for any reason other than
Biederman's death or disability or his prior termination of employment
other than by the Company for Cause or by Biederman without Good
Reason), the Biederman Member will forfeit the percentage of Class D
Units set forth below and such forfeited Class D Units shall be
retained by the Company: (1) 43.5% of its Class D Units if such
termination occurs prior to the sixth anniversary of the Closing Date;
(2) 34.8% of its Class D Units if such termination occurs on or after
the sixth anniversary of the Closing Date and prior to the seventh
anniversary of the Closing Date; (3) 26.1% of its Class D Units if such
termination occurs on or after the seventh anniversary of the Closing
Date and prior to the eighth anniversary of the Closing Date; (4) 17.4%
of its Class D Units if such termination occurs on or after the eighth
anniversary of the Closing Date and prior to the ninth anniversary of
the Closing Date; and (5) 8.7% of its Class D Units if such termination
occurs on or after the ninth anniversary of the Closing Date and prior
to the tenth anniversary of the Closing Date. In the event that prior
to the fifth anniversary of the Closing Date, Biederman is not offered
the opportunity to continue his employment with the Company (or its
Subsidiary) after the fifth anniversary of the Closing Date on the same
terms and conditions and with a base salary not less than the base
salary paid to Biederman immediately prior to the fifth anniversary of
the Closing Date, the Class D Units of the Biederman Member shall no
longer be subject to forfeiture.
(g) As long as Alter remains the Chief Executive Officer, the
Alter Member shall assign Class D Units to one or more key employees of the
Company or its Subsidiaries (other than Alter, the Biederman Member and the
Employee Members), which employees may or may not have an Employment Agreement
(the "Other Employees") as determined by the Alter Member in its sole
discretion; provided that the Class D Units assigned to the Other Employees plus
the Class D Units held by the Biederman Member and the Employee Members shall
equal not less than 28.7% of the total outstanding Class D Units; and provided
further that in the event Alter is no longer the Chief Executive Officer, the
Alter Member shall no longer have the right to make such assignment and the
Company shall have the right to assign such 28.7% of the outstanding Class D
Units. Any assignment of any Class D Units to any Other Employee shall
automatically terminate (and the right to Class D Units shall be automatically
assigned to the Company without any consideration) at the time any such Other
Employee to whom such an assignment has been made ceases to be an employee of
the Company or its Subsidiary as a result of such Other Employee's termination
for Employee Cause by the Company or its Subsidiary or by such Other Employee
without Employee Good Reason. Any Class D Units assigned to the
Company as described in the immediately preceding sentence may be assigned by
the Alter Member to one or more Other Employees as determined by the Alter
Member in its sole discretion as long as Alter remains the Chief Executive
Officer (and must be so assigned by the Alter Member if the total Class D Units
so assigned by the Alter Member to such Other Employees plus the total Class D
Units held by the Biederman Member and the Employee
<PAGE> 41
37
Members is less than 28.7% of the total outstanding Class D Units), provided
that in the event Alter is no longer the Chief Executive Officer, the Alter
Member shall no longer have the right to make such assignment and the Company
shall have the right to reassign any Class D Units required to be assigned
pursuant to this Section 6.4(g). Persons to whom Class D Units are assigned
pursuant to this Section 6.4(g) shall not become Members or receive any rights
under this Agreement solely by virtue of such assignment, but Class D Units may
be assigned by the Alter Member to key employees who are Members. In the event
of the forfeiture of any Class D Units by the Alter Member pursuant to Section
6.4(f), those Class D Units which the Alter Member has assigned to Other
Employees pursuant to this Section 6.4(g) shall not be forfeited and the
assignment to such Other Employees shall continue until such time as such Other
Employee ceases to be an employee of the Company or its Subsidiary as a result
of such Other Employee's termination for Employee Cause by the Company or its
Subsidiary or by such Other Employee without Employee Good Reason (at which time
any such assignment shall automatically terminate and the right to such Class D
Units shall be automatically assigned to the Company).
(h) Notwithstanding any provision of this Section 6.4, all
amounts distributed in connection with a liquidation of the Company or the sale
or other disposition of all or substantially all the assets of the Company that
leads to a liquidation of the Company will be distributed to the Members in
accordance with their respective Capital Account balances with respect to the
Units held by such Members, as adjusted for all Company operations up to and
including the date of such distribution. The parties intend that such final
Capital Account balances shall be determined after allocating all income and
loss for all purposes taking into account Section 7.4(g)(vi) and making the
adjustments to fair market value as described in the definition of Carrying
Value.
(i) For purposes of determining the distributions under this
Section 6.4, the Company shall be deemed to have made distributions to each
Member in an amount equal to all taxes paid by the Company (or the Company's
share of taxes paid by any entity owned, directly or indirectly, in whole or in
part, by the Company) attributable solely to such Member; such distributions
shall be deemed made on the later of (i) the date upon which the distributions
related thereto are made or (ii) the date upon which such taxes are paid. This
Section 6.4(i) shall not apply with respect to the amounts of any Tax Loans to
the Alter Member, Biederman Member or any Employee Member.
(j) If, as of the end of the Fiscal Year, the cumulative Net
Income plus items of income and gain (for tax purposes or book purposes)
allocated to the Alter Member, Biederman Member or any Employee Member exceeds
the cumulative Net Loss plus items of deduction and loss (for tax purposes or
book purposes) allocated to the Alter Member, Biederman Member or any Employee
Member for all Fiscal Years (on a cumulative basis taking into account the
principal amount of any earlier Tax Loan) (a "Net Income Excess"), the Company
shall make or continue a tax loan, within 10 Business Days after a request
therefor (a "Tax Loan") to the Alter Member, Biederman Member or such Employee
Member equal to (i) such Net Income Excess multiplied by the actual income tax
rates (taking into account the federal deduction for state and local taxes)
applicable to the Alter Member, Biederman Member or such
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38
Employee Member from time to time reduced by (ii) the cumulative distributions
to the Alter Member, Biederman Member or such Employee Member under Section 6.4
for all Fiscal Years. The Tax Loan shall bear interest at the prime rate of The
Chase Manhattan Bank as adjusted from time to time, and shall be repaid out (A)
out of distributions to the Alter Member, Biederman Member or such Employee
Member, (B) to the extent of any reduction in the amount of the Tax Loan by
reason of a reduction in the Net Income Excess and (C) if not repaid earlier, on
the termination of the Company. In the event of the assignment or Transfer by
the Alter Member, Biederman Member or any Employee Member of any Units, any
outstanding Tax Loans with respect to such Units shall be repaid by the Alter
Member, Biederman Member or such Employee Member to the Company at the time of
such transfer.
SECTION 6.5 Restricted Payments. Notwithstanding any
provisions to the contrary in this Agreement, neither the Company nor any Member
on behalf of the Company shall make a distribution or Tax Loan if such
distribution or Tax Loan would violate the Act or violate any contractual
obligations of the Company that is entered into pursuant to the terms of this
Agreement (provided, however, the Members shall use reasonable efforts, and
shall cause the Executive Committee to do so, to not permit the Company to enter
into loan documents or other agreements that prohibit the Company from making
tax loans to the Alter Member).
SECTION 6.6 Organizational Expenses. (a) Promptly after the
Closing Date, the Company, to the extent it does not pay such costs and expenses
directly and to the extent previously approved by the Executive Committee, will
reimburse each Initial Member for Organizational Expenses incurred by such
Member. Any Organizational Expenses incurred by a Member shall not be included
as a Capital Contribution and any reimbursement by the Company shall not be
treated as a distribution. In the event this Agreement is terminated by its
terms prior to the Closing, the Company shall have no obligation to reimburse
any Member for any Organizational Expenses hereunder except to the extent
provided in the Contribution Agreement.
(b) The Company shall pay (or reimburse each Member to the
extent incurred by such Member) all third-party expenses actually incurred by
any Member in the operation and business of the Company to the extent approved
by the Executive Committee and provided for in an Approved Budget, including the
acquiring, holding, owning, developing, servicing, collecting upon and operating
the Company or the Company Assets, any taxes imposed on the Company, fees and
expenses for attorneys and accountants, the costs and expenses of any insurance
purchased by the Company, the costs and expenses of any litigation involving the
Company and the amount of any judgments or settlements paid in connection
therewith, and any diligence expenses in connection with investments being
considered by the Company.
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ARTICLE VII
BOOKS; REPORTS; TAX MATTERS; CAPITAL ACCOUNTS; ALLOCATIONS
SECTION 7.1 General Accounting Matters; Books and Records. (a)
Allocations of Net Income (Loss) pursuant to Section 7.4 shall be made by or
under the reasonable direction of the Managing Member at the end of each Fiscal
Year.
(b) Except as otherwise provided herein, all determinations,
valuations and other matters of judgment required to be made for accounting and
tax purposes under this Agreement shall be made by or under the reasonable
direction of the Managing Member in a reasonable manner after consultation with
the Alter Member.
(c) The Chief Executive Officer shall cause the Company
through the Company's accountants to maintain, at the expense of the Company, in
a manner customary and consistent with good accounting principles, practices and
procedures, a comprehensive system of office records, books and accounts (which
records, books and accounts shall be and remain the property of the Company) in
which shall be entered fully and accurately each and every financial transaction
with respect to the ownership and operation of the Company Assets. Bills,
receipts and vouchers shall be maintained on file by the Company. Said books and
accounts shall be maintained in a safe manner and separate from any records not
having to do directly with the Company or any Company Assets. The Chief
Executive Officer shall cause audits to be performed and audited statements and
income tax returns to be prepared at the expense of the Company as required by
Section 7.1(e) below. Such books and records of account shall be prepared by the
Company's accountants and maintained at the principal place of business of the
Company or such other place or places as may from time to time be determined by
the Voting Members. Each Member or its duly authorized representative shall have
the right to inspect, examine and copy such books and records of account at the
Company's office during reasonable business hours. A reasonable charge
(approximating the cost thereof) for copying books and records may be charged by
the Company.
(d) The books of the Company shall be kept on the accrual
basis in accordance with GAAP and on a tax basis (in accordance with United
States tax requirements) and the Company shall report its operations for tax
purposes on the accrual method, provided that the Company shall not be required
to keep separate books on a tax basis as long as the books that are maintained
on a GAAP basis are sufficient to permit the Chief Executive Officer to make all
quarterly tax adjustments and to prepare all of the reports described in Section
7.1(e).
(e) (i) The Chief Executive Officer will prepare, or will
cause the Company Accountant to prepare, at the expense of the Company, and
furnish to each Member within 21 calendar days after the end of each fiscal
quarter of the Company (unless, except in the case of clause (E) which shall be
required for every fiscal quarter, such fiscal quarter is the last fiscal
quarter of any fiscal year of the Company) (A) an unaudited balance sheet of the
Company dated as of the end of such fiscal quarter, (B) an unaudited related
income statement of the Company for such fiscal quarter, (C) an unaudited
statement of each Member's capital account for such
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fiscal quarter, (D) an unaudited statement of cash flows for such fiscal
quarter, and (E) a status report of the Company's activities during such fiscal
quarter, including summary descriptions of additions to, dispositions of and
leasing and occupancy of the Company Assets during such fiscal quarter, all of
which shall be certified by the Chief Executive Officer as being, to the best of
his knowledge, true and correct.
(ii) The Chief Executive Officer will prepare, or will cause
the Company Accountant to prepare, at the expense of the Company, and
furnish to each Member within 30 calendar days after the end of each
Fiscal Year, the final audited amount of net income of the Company for
such Fiscal Year and, within 30 calendar days after the end of each
Fiscal Year (1) an audited balance sheet of the Company prepared on a
GAAP basis dated as of the end of such Fiscal Year, (2) an audited
related income statement of the Company prepared on a GAAP basis for
such Fiscal Year, (3) an audited statement of cash flows for such
Fiscal Year and (4) an audited statement of each Member's Capital
Account for such Fiscal Year, all of which shall be certified by the
Chief Executive Officer as being, to the best of its knowledge, true
and correct and all of which shall be certified in the customary manner
by the Company Accountant (which firm shall provide such balance sheet,
income statement and statement of Capital Account in draft form to the
Members for review prior to finalization and certification thereof).
(iii) The Chief Executive Officer will furnish to each Member,
at the expense of the Company, copies of all reports required to be
furnished to any lender of the Company.
(iv) When requested, the Company Accountant shall prepare a
reasonable estimate of the taxable income of the Company. All schedules
of book income shall be prepared on a GAAP basis. Promptly after the
end of each Fiscal Year, the Chief Executive Officer will use
reasonable efforts to cause the Company Accountant to prepare and
deliver to each Member a report setting forth in sufficient detail all
such additional information and data with respect to business
transaction effected by or involving the Company during the Fiscal Year
as will enable the Company and each Member to timely prepare its
federal, state and local income tax returns in accordance with
applicable laws, rules and regulations. The Chief Executive Officer
will use reasonable efforts to cause the Company Accountant to prepare
all federal, state and local tax returns required of the Company,
submit those returns to the Voting Members for their approval no later
than February 1 of the year following such Fiscal Year and will file
the tax returns after they have been approved by each of the Voting
Members. If each of the Voting Members shall not have approved any such
tax return prior to the date required for the filing thereof (including
any extensions granted), the Chief Executive Officer will timely obtain
an extension of such date to the extent such an extension is available.
Each Member shall give prompt notice to each Voting Member of any and
all notices or other communications it receives from the Internal
Revenue Service concerning the Company, including any notice of audit,
any notice of action with respect to a revenue agent's report, any
notice of a 30-day appeal letter and any notice of a deficiency in tax
concerning any Company tax return. Upon request, the Tax Matters Member
shall furnish each Voting Member with status reports
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41
regarding any negotiation between the Internal Revenue Service or any
other taxing authority and the Company.
(v) The Chief Executive Officer shall prepare, or shall cause
the Company Accountant to prepare, at Company expense, such additional
financial reports and other information as the Managing Member may
determine are appropriate.
(vi) All decisions as to accounting principles shall be made
by the Managing Member subject to the provisions of this Agreement,
including Section 7.2 hereof.
(f) The Company shall retain as the regular accountant and
auditor of the Company (the "Company Accountant") a nationally-recognized
accounting firm agreed upon by the Westbrook Members and the Alter Member, or a
different nationally-recognized accounting firm as may be selected by all the
Managers at any time. The fees and expenses of the Company Accountant shall be a
Company expense.
SECTION 7.2 Certain Tax Matters. The taxable year of the
Company shall be the same as its Fiscal Year. The Chief Executive Officer shall
cause to be prepared all Federal, state and local tax returns of the Company for
each year for which such returns are required to be filed and, after approval of
such returns by the Executive Committee, shall cause such returns to be timely
filed, provided, however, that extensions shall be applied for unless otherwise
approved by the Westbrook Members and the Alter Member. The Managing Member
shall determine the appropriate treatment of each item of income, gain, loss,
deduction and credit of the Company and the accounting methods and conventions
under the tax laws of the United States, the several states and other relevant
jurisdictions as to the treatment of any such item or any other method or
procedure related to the preparation of such tax returns. The Tax Matters Member
shall make the election provided for in Section 754 of the Code, if, and only if
the Member who or which has acquired any Units or a distribution of Company
property with respect to which the election is made will have provided to the
Tax Matters Member concurrently, or within 30 days after the Transfer of such
Units, its undertaking to the effect that it, and its successors in interest
hereunder, will reimburse the Company annually for its additional administrative
costs incurred by reason of such election as determined by the auditor of the
Company. The Tax Matters Member shall also make the election to amortize
Organizational Expenses pursuant to Code Section 709 and the regulation
promulgated thereunder. In addition, the Managing Member may cause the Company
to make or refrain from making any and all other elections permitted by the tax
laws of the United States, the several states and other relevant jurisdictions.
The Company shall be treated as a partnership for tax purposes. The "Tax Matters
Partner" for purposes of Section 6231(a)(7) of the Code (the "Tax Matters
Member") shall be the Managing Member, subject to the right of the Alter Member
to participate in all negotiations with respect to settlements. If a dispute as
to the content of a tax return cannot be resolved to the reasonable satisfaction
of all Voting Members prior to the required filing date therefor, the Managing
Member shall have the right to direct the Chief Executive Officer to cause the
Company's tax return to be filed as reasonably approved by the Managing Member.
The Tax Matters Member shall have all of the rights, duties, powers and
obligations provided for in Sections 6221 through 6232 of the Code with respect
to the Company.
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SECTION 7.3 Capital Accounts. There shall be established for
each Member on the books of the Company as of the date hereof, or such later
date on which such Member is admitted to the Company, a capital account (each
being a "Capital Account"). Each Capital Contribution shall be credited to the
Capital Account of such Member on the date such contribution of capital is paid
to the Company. In addition, each Member's Capital Account shall be (a) credited
with such Member's allocable share of any Net Income of the Company as well as
items of income specifically allocated pursuant to Sections 7.4(c), 7.4(d) and
7.4(f), (b) debited with (i) distributions to such Member of cash or the fair
market value of other property and (ii) such Member's allocable share of Net
Loss of the Company as well as items of loss or deduction specifically allocated
for book purposes pursuant to Section 7.4(f), and (c) otherwise maintained in
accordance with the provisions of the Code. Any other item which is required to
be reflected in a Member's Capital Account under Section 704(b) of the Code or
otherwise under this Agreement shall be so reflected. Capital Accounts shall be
appropriately adjusted to reflect transfers of part (but not all) of a Member's
Units. Interest shall not be payable on Capital Account balances.
Notwithstanding anything to the contrary contained in this Agreement, the
Company shall maintain the Capital Accounts of the Members in accordance with
the principles and requirements set forth in section 704(b) of the Code and
Regulations section 1.704-1(b)(2)(iv).
SECTION 7.4 Allocations. For purposes of determining Capital
Account balances under this Section 7.4, a Member's Capital Account balance
shall be deemed to be increased by such Member's share of Minimum Gain and
Member Nonrecourse Debt Minimum Gain remaining at the close of such Fiscal Year
as determined under the Regulations under Code Section 704(b):
(a) For each Fiscal Year, Net Loss shall be allocated among
the Members in the following order of priority:
(i) First, among the Members as necessary to cause each
Member's Capital Account balance to equal such Member's Pre-Liquidation
Target Account, and
(ii) Second, after giving effect to the allocations made
pursuant to Section 7.4(a)(i), among the Class B Members in proportion
to the Class B Members' then respective Capital Contributions.
(b) For each Fiscal Year, Net Income shall be allocated among
the Members as necessary to cause each Member's Capital Account balance to equal
such Member's Pre-Liquidation Target Account.
(c) Notwithstanding the foregoing, Net Loss shall be allocated
to the Alter Member, Biederman Member and Employee Members in a percentage
greater than their share of Capital Contributions only to reverse prior
allocations of Net Income in the same percentage and the same order previously
allocated to the Alter Member, Biederman Member and Employee Members. The
allocations of Net Income and Net Loss pursuant to this Section 7.4 are intended
to satisfy the "fractions" and "substantial economic effect" rules contained in
Section 514(c)(9)(E)
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43
of the Code, and Net Income and Net Loss shall be allocated among the Members
only to the extent that such allocations would not violate such rules.
(d) Notwithstanding anything herein to the contrary, in the
event any Member unexpectedly receives any adjustments, allocations or
distributions described in paragraphs (b)(2)(ii)(d)(4), (5) or (6) of Section
1.704-1 of the regulations under the Code, there shall be specially allocated to
such Member such items of Company income and gain, at such times and in such
amounts as will eliminate as quickly as possible that portion of any deficit in
its Capital Account caused or increased by such adjustments, allocations or
distributions.
(e) Notwithstanding any other provision of this Agreement,
taxable loss (or items of deduction) as computed for book purposes shall not be
allocated to a Member to the extent that the Member has or would have, as a
result of such allocations, a deficit Adjusted Capital Account Balance. Any
taxable loss (or items of deduction) as computed for book purposes which
otherwise would be allocated to a Member, but which cannot be allocated to such
Member because of the application of the immediately preceding sentence, shall
instead be allocated to the other Members. In the event any Member has a deficit
Adjusted Capital Account Balance at the end of any Fiscal Year, each such Member
shall be specially allocated items of Company income and gain in the amount of
such excess as quickly as possible, provided, that an allocation pursuant to
this paragraph Section 7.4(e) shall be made only if and to the extent that a
Member would have a deficit Adjusted Capital Account Balance after all other
allocations provided for in this Article VII have been tentatively made as if
Section 7.4(d) and 7.4(e) were not in this Agreement.
(f) All items of income, gain, loss, deduction and credit of
the Company shall be allocated among the Members for Federal, state and local
income tax purposes consistent with the manner that the corresponding
constituent items of Net Income (Loss) shall be allocated among the Members
pursuant to this Agreement, except as may otherwise be provided herein or by the
Code.
(g) Notwithstanding the provisions of this Section 7.4, net
income, net gain, and net loss of the Company (or items of income, gain, loss,
deduction, or credit, as the case may be) shall be allocated in accordance with
the following provisions of this Section 7.4 to the extent such provisions shall
be applicable.
(i) Nonrecourse Deductions of the Company for any Fiscal Year
shall be specially allocated to the Members in proportion to each such
Member's Capital Contributions. Member Nonrecourse Deductions of the
Company for any Fiscal Year shall be specially allocated to the Member
who bears the economic risk of loss for the liability in question. The
provisions of this Section 7.4(g)(i) are intended to satisfy the
requirements of Regulations sections 1.704-2(e)(2) and 1.704-2(i)(1)
and shall be interpreted in accordance therewith for all purposes under
this Agreement.
(ii) If there is a net decrease in the Minimum Gain of the
Company during any Company Fiscal Year, each Member shall be specially
allocated items of Company income
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44
and gain for such year equal to that Member's share of the net decrease
in Minimum Gain, within the meaning of Regulations section
1.704-2(g)(2), to the extent required by the Regulations. The
provisions of this Section 7.4(g)(ii) are intended to comply with the
Minimum Gain chargeback requirements of Regulations section 1.704-2(e)
and shall be interpreted in accordance therewith for all purposes under
this Agreement.
(iii) If there is a net decrease in Member Nonrecourse Debt
Minimum Gain during any Fiscal Year, each Member that has a share of
such Member Nonrecourse Debt Minimum Gain, determined in accordance
with Regulations section 1.704-2(i)(5), as of the beginning of such
year shall be specially allocated items of Company income and gain for
such year (and, if necessary, for succeeding years) equal to such
Member's share of the net decrease in Member Nonrecourse Debt Minimum
Gain, to the extent required by the Regulations. The provisions of this
Section 7.4(g)(iii) are intended to comply with the Member Nonrecourse
Debt Minimum Gain chargeback requirement of Regulations section
1.704-2(i)(4) and shall be interpreted in accordance therewith for all
purposes under this Agreement.
(iv) Notwithstanding the foregoing, if any special allocation
otherwise required pursuant to this Section 7.4(g) would cause the
Company's allocations to violate Section 514(c)(9)(B)(iv) of the Code
(taking into account its incorporation by reference of the "substantial
economic effect" requirement of Section 704(b)(2) of the Code), then
the special allocation shall not be made.
(v) Any item of income, gain, loss and deduction with respect
to any property (other than cash) that has been contributed by a Member
to the capital of the Company or which has been revalued for Capital
Account purposes pursuant to Regulations Section 1.704-1(b)(2)(iv)
shall be allocated among the Members for income tax purposes under Code
Section 704(c) so as to take into account the variation between the tax
basis of such property and its fair market value at the time of its
contribution or at the time of its revaluation for Capital Account
purposes pursuant to the "traditional method" under Regulations Section
1.704-3(b) (or any successor Regulation). Allocations under this
Section 7.4(g)(v) are solely for purposes of federal, state and local
taxes and shall not affect, or in any way be taken into account in
computing, any Member's Capital Account or share of Net Income or Net
Loss or other items or distributions under any provision of this
Agreement.
(vi) The parties intend that the foregoing tax allocation
provisions of this Article VII, as applied for book purposes, shall be
interpreted so as to produce final Capital Account balances of the
Members that would permit liquidating distributions made in accordance
with final Capital Account balances under Section 8.3 to be made (after
unpaid loans and interest thereon, including those owed to Members have
been paid) in a manner identical to the order of priorities set forth
in Section 6.4.
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ARTICLE VIII
DISSOLUTION
SECTION 8.1 Dissolution. The Company shall be dissolved and
subsequently terminated upon the occurrence of the first of the following
events:
(a) subject to Section 9.4(b), after the ten-year anniversary
of the Closing Date, upon the determination of either the Alter Member
or any Westbrook Member, in its sole discretion, to dissolve the
Company;
(b) December 31, 2049;
(c) upon the written determination of all the Voting Members
to dissolve the Company; or
(d) the occurrence of a Dissolution Event, except the Company
shall not be dissolved upon the occurrence of a Dissolution Event that
terminates the continued membership of a Member in the Company if
within 90 days after the occurrence of such Dissolution Event, any
remaining Voting Members consent to the continuation of the Company.
SECTION 8.2 Winding-up. When the Company is dissolved, the
business and property of the Company shall be wound up and liquidated by such
party appointed by the Executive Committee (the party conducting the liquidation
being hereinafter referred to as the "Liquidator"), which party shall not
receive any fee from the Company for acting as Liquidator hereunder. The
Liquidator shall use its best efforts to reduce to cash and cash equivalent
items such assets of the Company as the Liquidator shall deem it advisable to
sell, subject to obtaining fair value for such assets and any tax or other legal
considerations.
SECTION 8.3 Final Distribution. Within 270 calendar days after
the effective date of dissolution of the Company, the assets of the Company
shall be distributed in the following manner and order:
(a) to the payment of the expenses of the winding-up,
liquidation and dissolution of the Company;
(b) to pay all creditors of the Company, other than Members,
either by the payment thereof or the making of reasonable provision
therefor;
(c) to establish reserves, in amounts reasonably established
by the Liquidator, to meet other liabilities of the Company for a
period of up to 18 months after the date on which the liquidation is
consummated; and
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46
(d) to pay, in accordance with the provisions of this
Agreement applicable to such loans or in accordance with the terms
agreed among them and otherwise on a pro rata basis, all creditors of
the Company that are Members, either by the payment thereof or the
making of reasonable provision therefor.
The remaining assets of the Company shall be applied and distributed in
accordance with the positive balances of the Members' Capital Accounts, as
determined after taking into account all adjustments to Capital Accounts for the
Company taxable year during which the liquidation occurs.
ARTICLE IX
TRANSFER OF MEMBERS' INTERESTS
SECTION 9.1 Restrictions on Transfer of Units. (a) No Member
may, directly or indirectly, assign, sell, exchange, transfer, pledge, mortgage,
hypothecate or otherwise encumber or dispose of all or any part of its Units (a
"Transfer") to any Person, other than in accordance with this Article IX.
(b) Any Member may Transfer its Units as follows:
(i) all or part of such Units to any Person after obtaining
the prior written consent of the Alter Member and each Westbrook
Member, which Transfer shall be subject to the Tag-Along Rights and the
Drag-Along Rights to the extent, if any, provided in such consent;
(ii) solely in the case of the Alter Member and each Westbrook
Member, all or part of such Units to an Alter Transferee or a Westbrook
Transferee, which Transfer shall not be subject to any Tag-Along Rights
or Drag-Along Rights under Section 9.2 except in the case of a transfer
from a Westbrook Member to a Westbrook Transferee for any cash
consideration in excess of the basis of the Westbrook Member in such
Units, which shall be subject to Tag-Along Rights and Drag-Along Rights
under Section 9.2;
(iii) all (but not part) of such Units by operation of law,
including death or bankruptcy, which Transfer shall not be subject to
any Tag-Along Rights or Drag-Along Rights under Section 9.2;
(iv) solely in the case of each Westbrook Member, in one or
more transactions (A) at any time, up to 50% of the aggregate Units of
all Westbrook Members as of the Closing Date or (B) after the 18-month
anniversary of the Closing Date, all of its Units, each of which
Transfers shall be subject to the Tag-Along Rights and the Drag-Along
Rights under Section 9.2;
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47
(v) (A) solely in the case of the Alter Member, Biederman
Member or any Employee Member any Units pursuant to an exercise by such
Member of the Tag-Along Rights of such Member under Section 9.2(a) or
(B) solely in the case of any Other Member any Units pursuant to an
exercise by any Westbrook Member of the Drag-Along Rights of such
Westbrook Member under Section 9.2(b) with respect to such Other
Member;
(vi) solely in the case of each Westbrook Member, in one or
more transactions prior to the one-year anniversary of the Closing
Date, less than 50% of the aggregate Units of all Westbrook Members as
of the Closing Date, which Transfer shall not be subject to any
Tag-Along Rights or Drag-Along Rights under Section 9.2, as long as
such Units transferred by the Westbrook Member have not received any
positive Rate of Return, provided that receipt of a carry, promote or
profit interest with respect to the transferred Units or a right to
receive future payments upon the attainment of certain financial or
other measurements shall not be disregarded in determining whether
there has been a positive Rate of Return;
(vii) (A) solely in the case of the Alter Member, all of such
Units as required by an exercise of the Alter Put or Alter Call, (B)
solely in the case of the Biederman Member, all of such Units as
required by an exercise of the Biederman Put or Biederman Call, (C)
solely in the case of each Employee Member, all of such Units as
required by an exercise of an Employee Call with respect to such
Employee Member, and (D) solely in the case of each Class A Member, all
of such Units as required by an exercise of the Preferred Put or
Preferred Call; none of which Transfers shall be subject to any
Tag-Along Rights or Drag-Along Rights under Section 9.2;
(viii) all of such Units as required by a Company Sale or
exercise of a Notified Member of the right of such Notified Member to
purchase such Units, which Transfer shall not be subject to any
Tag-Along Rights or Drag-Along Rights under Section 9.2;
(ix) solely in the case of the Alter Member, part (but not
all) of the Class D Units to any employee of the Company or its
Subsidiaries pursuant to Section 6.4(g), which Transfer shall not be
subject to any Tag-Along Rights or Drag-Along Rights under Section 9.2;
(x) solely in the case of the Alter Member, part (but not all)
of the Class B Units, Class C Units or Class D Units to any New
Employee Member, which Transfer shall not be subject to any Tag-Along
Rights or Drag-Along Rights under Section 9.2; or
(xi) solely in the case of each Employee Member, all or part
of the Class C Units or Class D Units to the Alter Member, any other
Employee Member or any Other Employee pursuant to the provisions of
Section 3.5(b), which Transfer shall not be subject to any Tag-Along
Rights or Drag-Along Rights under Section 9.2;
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48
(xii) solely in the case of each Class A Member, all or part
of its Units to any Affiliate of such Class A Member, which Transfer
shall not be subject to any Tag-Along Rights or Drag-Along Rights under
Section 9.2; or
(xiii) as provided in Article II of the Contribution
Agreement.
provided that in the case of any Transfer pursuant to clause (i), (ii), (iv),
(v), (vi), (ix), (x), (xi) or (xii) above of this Section 9.1(b), the Person
(the "Transferee") to whom the Member's Units was Transferred shall not be
admitted as a substitute Member until the Transferee has delivered to the
Company written acceptance and adoption of all of the terms and provisions of
this Agreement in form and substance reasonably satisfactory to the Company; and
provided further that in the case of any Transfer pursuant to clause (iv)(A) or
(vi) above of this Section 9.1(b), the Westbrook Member shall retain the right
to appoint a majority of the Executive Committee. Each Transfer pursuant to
clause (ii) through (xii) above of this Section 9.1(b) shall be a "Permitted
Transfer" hereunder. Except as provided in this Section 9.1(b), no Member may
Transfer any Units.
(c) No Member may mortgage, pledge, hypothecate or otherwise
encumber all or any portion of such Member's Units or such Member's rights to
receive a portion of the Available Cash, Net Income and Net Losses except that a
Member may pledge or hypothecate its right to receive distributions hereunder as
long as such pledge or hypothecation does not provide the pledgee with any
voting or other rights with respect to the Company either upon such pledge or
hypothecation or upon foreclosure thereof.
SECTION 9.2 Tag-Along and Drag-Along Rights. (a) With respect
to any proposed Transfer subject to Tag-Along Rights pursuant to Section 9.1(b)
hereof by one or more of the Westbrook Members of part (but not all) of the
Units held by the Westbrook Members, each Westbrook Member shall have the
obligation, and each of the Alter Member, Biederman Member and each Employee
Member (the "Tagging Members") shall have the right, to require the proposed
transferee to purchase from any Tagging Member, at the same price and upon the
same terms and conditions as to be paid and given to such Westbrook Member, a
number of Class B Units equal to the number of Class B Units owned by such
Tagging Member multiplied by a fraction, the numerator of which is the number of
Class B Units being sold by the Westbrook Members and the denominator of which
is the total number of Class B Units held by all the Westbrook Members. With
respect to any proposed Transfer subject to Tag-Along Rights pursuant to Section
9.1(b) hereof by the Westbrook Members of all the Units held by the Westbrook
Members, each Westbrook Member shall have the obligation, and each Tagging
Member shall have the right, to require the proposed transferee to purchase from
such Tagging Member all Class B Units, Class C Units and Class D Units held by
such Tagging Member in each case for the consideration described in the
following sentence and upon the same terms and conditions as to be given to the
Westbrook Members. The gross proceeds to be paid to the Members as consideration
in the event of a Transfer of all the Units in accordance with the preceding
sentence shall be distributed among the Members in accordance with the
provisions of Section 6.4, in the same manner as if such proceeds were
distributed as Available Cash hereunder. In the event some but not all of the
Tagging Members exercise their Tag-Along Rights with respect to a Transfer by
the Westbrook Members of all the Units held by the Westbrook
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49
Members, the proceeds will be distributed to the Westbrook Members and the
Tagging Members exercising their Tag-Along Rights using an implied valuation of
the Company determined by the Executive Committee in good faith. The rights of
the Tagging Members to require a purchase of any of their Units pursuant to this
Section 9.2(a) are collectively referred to herein, as applicable, as the
"Tag-Along Rights". In order to be entitled to exercise its Tag-Along Rights, a
Tagging Member must agree to make, severally but not jointly, the same
representations, warranties, covenants and indemnities and other similar
agreements as the Westbrook Member agrees to make in connection with the
proposed Transfer of its Units. Each Westbrook Member shall give notice to each
Tagging Member of each proposed Transfer by such Westbrook Member giving rise to
the Tag-Along Rights of such Tagging Member at least 20 days prior to the
proposed consummation of such Transfer, setting forth the name and address of
the proposed transferee, the proposed amount of consideration therefor and terms
and conditions agreed to by the proposed transferee, and the number of Units
such Tagging Member may sell to such proposed transferee (in accordance with the
first two sentences of this Section 9.2(a)). The Tag-Along Rights must be
exercised by each Tagging Member within 15 days following receipt of the notice
required by the preceding sentence, by delivery of a written irrevocable notice
to the relevant Westbrook Member indicating the exercise by such Tagging Member
of its rights and specifying the Units it desires to sell. If the proposed
transferee fails to purchase the interest of any Tagging Member after it has
properly exercised its Tag-Along Rights, then such Westbrook Member shall not be
permitted to make the proposed Transfer, and any such attempted Transfer shall
be void and of no effect. If any Tagging Member exercises its Tag-Along Rights,
the closing of the purchase of its Units with respect to which such Tag-Along
Rights have been exercised shall take place concurrently with the closing of the
sale of the Westbrook Member's Units.
(b) With respect to any proposed Transfer by the Westbrook
Members of all their Units, each Westbrook Member shall have the right to
require each Member other than the Westbrook Members (collectively, the "Other
Members") to sell to the proposed transferee all the Units of such Other Member,
and all of any Class D Units assigned to any Other Employee, in each case for
the consideration described in the following sentence and upon the same terms
and conditions as given to the Westbrook Members, provided that no Other Member
or Other Employee shall make any representations and warranties other than with
respect to ownership and title, but each Other Member shall be liable, severally
but not jointly, for a pro rata portion (determined by reference to the relative
gross proceeds received by each transferring Member in such transaction) of any
indemnities which the Westbrook Members agree to make in connection with the
proposed Transfer of its Units (and the parent of the Alter Member may be
required to guarantee such indemnification obligations of the Alter Member),
provided further that in no event shall the indemnification obligations of the
Alter Member to any proposed transferee exceed the consideration (whether cash
or non-cash) paid to such Alter Member for its Units, and provided further that
any such indemnification obligation of the Alter Member may be satisfied by use
of any non-cash consideration that the Alter Member received as such
consideration. The gross proceeds to be paid to Members as consideration for the
Transfers of all the Units shall be distributed among the Members in accordance
with the provisions of Section 6.4, in the same manner as if such proceeds were
distributed as Available Cash hereunder. The rights of the Westbrook Members to
require a sale of all the Units of each Other Member pursuant to this Section
9.2(b) are referred to herein as the "Drag-Along Rights". The Westbrook Members
shall
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give notice to each Other Member and each Other Employee of each proposed
Transfer by the Westbrook Members giving rise to the Drag-Along Rights at least
20 days prior to the proposed consummation of such Transfer, setting forth the
name and address of the proposed transferee, the proposed amount of
consideration therefor and terms and conditions agreed to by the proposed
transferee. Each Other Member and each Other Employee shall consent to and raise
no objections to the proposed transaction and will take all other actions
necessary or desirable to cause the consummation of such sale on the terms
proposed by the Westbrook Members. If the Westbrook Members exercises their
Drag-Along Rights, the closing of the purchase of the Units with respect to
which such rights have been exercised shall take place concurrently with the
closing of the sale of the Westbrook Members' Units. Notwithstanding the
foregoing, no Westbrook Member shall have the right to exercise any Drag-Along
Rights with respect to any Transfer by the Westbrook Members prior to the
eighteen-month anniversary of the Closing Date unless the Alter Member
(collectively with any transferees or assignees of the Bonus pursuant to Section
10.14 and any transferees or assignees of any Units initially issued to the
Alter Member) will receive as consideration in connection with the Transfer of
the Alter Member's Units as a result of the exercise by the Westbrook Members of
such Drag-Along Rights, together with all prior distributions of Available Cash,
an amount equal to the sum of (i) the Initial Capital Contribution of the Alter
Member plus (ii) any accrued but unpaid Bonus plus (iii) $12.5 million.
(c) In the event any Other Member fails to deliver the
assignments reasonably requested by the Westbrook Member as set forth in this
Section 9.2, the Company may deliver the applicable purchase price pursuant to
the provisions of this Section 9.2 to such Other Member and upon such delivery
execute and deliver, as the attorney in fact for such Other Member, such
required assignments. Such power of attorney is coupled with an interest and
shall survive the insolvency, bankruptcy and dissolution of the Company. Each of
the Company, and any Member shall each pay its own legal fees in connection with
the exercise of any of its rights under this Section 9.2.
SECTION 9.3 Required Sale or Purchase of Alter Member or
Biederman Member Units. (a) In the event that Alter's employment with the
Company is terminated by the Company without Alter Cause, terminated by Alter
with Alter Good Reason, or terminated by reason of Alter's death or Disability
(as defined in the Alter Employment Agreement), or in the event the Company does
not offer to enter into a New Alter Employment Agreement with Alter not less
than fifteen (15) Business Days prior to the expiration of the term of the Alter
Employment Agreement, the Alter Member shall have the right to sell to the
Company, and the Company shall be required to purchase, all of the Alter
Member's Units (the "Alter Put") at a cash price equal to the Fair Market Value
of such Units as of the date of such event (the "Alter Price"), calculated by
assuming the Company were liquidated as of the date of such event and assuming
all the Company Assets were sold as of such date for their Fair Market Value and
taking into account any forfeiture of the Class D Units pursuant to Section
6.4(f), if any. The Alter Put may be exercised by the Alter Member at any time
within ninety (90) days after, as applicable, any such termination of his
employment with the Company or the failure of the Company to offer to enter into
a New Alter Employment Agreement within such time period by delivery of written
notice to the Company. If the Alter Member does not deliver an exercise notice
with respect to the Alter Put within such 90-day period, the right of the Alter
Member to cause the Company to purchase
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51
its Units shall terminate and the Company shall have no further obligation with
respect to the Alter Put.
(b) In the event that Alter's employment with the Company is
terminated for any reason, each Westbrook Member shall have the right to cause
the Company to purchase, and upon exercise of such right, the Alter Member shall
be required to sell, all the Alter Member's Units (the "Alter Call") at a cash
price equal to the Alter Price. The Alter Call may be exercised by the Company
at any time within ninety (90) days after the termination of Alter's employment
with the Company by delivery of written notice to the Alter Member. If the
Company does not deliver an exercise notice with respect to the Alter Call
within such 90-day period, the right of the Company to purchase the Alter
Member's Units shall terminate and the Alter Member shall have no further
obligation with respect to the Alter Call.
(c) In the event that Biederman's employment with the Company
is terminated by the Company without Employee Cause, terminated by Biederman
with Employee Good Reason, or terminated by reason of Biederman's death or
"disability" (as such term is defined in the Employment Agreement between
Biederman and the Company), the Biederman Member shall have the right to sell to
the Company, and the Company shall be required to purchase, all of the Biederman
Member's Units (the "Biederman Put") at a cash price equal to the Fair Market
Value of such Units as of the date of such event (the "Biederman Price"),
calculated by assuming the Company were liquidated as of the date of such event
and assuming all the Company Assets were sold as of such date for their Fair
Market Value and taking into account any forfeiture of the Class D Units
pursuant to the provisions of Section 6.4(f)(iii)). The Biederman Put may be
exercised by the Biederman Member at any time within ninety (90) days after any
such termination of his employment with the Company within such time period by
delivery of written notice to the Company. If the Biederman Member does not
deliver an exercise notice with respect to the Biederman Put within such 90-day
period, the right of the Biederman Member to cause the Company to purchase its
Units shall terminate and the Company shall have no further obligation with
respect to the Biederman Put.
(d) In the event that Biederman's employment with the Company
is terminated for any reason, each Westbrook Member shall have the right to
cause the Company to purchase, and upon exercise of such right the Biederman
Member shall be required to sell, all the Biederman Member's Units (the
"Biederman Call") at a cash price equal to the Biederman Price. The Biederman
Call may be exercised by the Company at any time within ninety (90) days after
the termination of Biederman's employment with the Company by delivery of
written notice to the Biederman Member. If the Company does not deliver an
exercise notice with respect to the Biederman Call within such 90-day period,
the right of the Company to purchase the Biederman Member's Units shall
terminate and the Biederman Member shall have no further obligation with respect
to the Biederman Call.
(e) Unless otherwise agreed upon by the Company and the Alter
Member or the Biederman Member, as the case may be, the closing of the purchase
of the Alter Member's Units under Section 9.3(a) or 9.3(b) or the Biederman
Member's Units under Section 9.3(c) or 9.3(d), shall occur at the offices of the
Company on the date which is 30 days after final
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determination of the Alter Price or Biederman Price, as applicable (or, if such
date is not a Business Day, on the next succeeding Business Day). At the
closing, the selling Member shall deliver to the Company such assignments and
other documents as reasonably requested by the Company, and the Company shall
deliver to the selling Member the Alter Price or Biederman Price, as applicable.
The selling Member shall not be required to make any representations or
warranties except with respect to the title of the selling Member to the Units
being transferred and the absence of liens on such Units and shall not be
required to make any indemnifications or otherwise incur any obligations with
respect to such representations and warranties. Each of the Alter Member, the
Biederman Member and the Company shall be entitled to enforce its rights under
this Section 9.3 by specific performance. In addition, in the event the selling
Member fails to deliver the assignments reasonably requested by the Company as
set forth herein, the Company may deliver the Alter Price or Biederman Price, as
applicable, to the selling Member and upon such delivery, execute and deliver,
as the attorney in fact for the selling Member, such required assignments. Such
power of attorney is coupled with an interest and shall survive the insolvency,
bankruptcy and dissolution of the Company. The Company, the Biederman Member and
the Alter Member shall each pay its own legal fees in connection with the
exercise of its rights under this Section 9.3. In the event the Alter Member or
Biederman Member exercises the Alter Put or Biederman Put or the Company
exercises the Alter Call or Biederman Call, the Company shall cause the selling
Member to be removed as guarantor from any debt obligations of the Company no
later than 30 days after the date of the closing of the purchase and sale
pursuant to this Section 9.3(e). The Company shall have the right to assign its
rights (but not its obligations) under this Section 9.3 to any other Person.
SECTION 9.4 Required Sale or Purchase of Employee Member
Units. (a) In the event that the employment of any Employee Member (or the
parent of any Employee Member) with the Company is terminated for any reason,
the Alter Member shall have the right, in addition to its right to assign the
Units of such Employee Member pursuant to Section 3.5(b), to purchase, and, if
such right is exercised by the Alter Member, the Employee Member shall be
required to sell, all the Units of such Employee (after giving effect to any
forfeiture of Units pursuant to the terms of the Employment Agreement of such
Employee Member) (the "Employee Call") at a cash price equal to the fair market
value of such Units as of the date of such event (the "Employee Price"),
calculated by assuming the Company were liquidated as of the date of such event
and assuming all the Company Assets were sold as of such date for their Fair
Market Value, and after giving effect to any forfeiture of Units pursuant to the
terms of the Employment Agreement of such Employee Member. The Employee Call may
be exercised by the Alter Member at any time within ninety (90) days after the
termination of employment of the Employee Member (or its parent) with the
Company by delivery of written notice to the Employee Member. If the Alter
Member does not deliver an exercise notice with respect to the Employee Call
within such 90-day period, then each Westbrook Member shall have the right to
Exercise the Employee Call by causing the Company to purchase, and, if such
right is exercised by the Westbrook Member, the Employee Member shall be
required to sell, all its Units at the Employee Price. The Employee Call may be
exercised by the Company at any time commencing ninety (90) days after the
termination of employment of the Employee Member (or its parent) with the
Company until 180 days after such termination by delivery of written notice to
the Employee Member. If the Company does not deliver an exercise notice with
respect to the Employee Call within such
<PAGE> 57
53
period, the right of the Company to purchase the Employee Member's Units shall
terminate and the Employee Member shall have no further obligation with respect
to the Employee Call.
(b) Unless otherwise agreed upon by the Alter Member or
Company, as the case may be, and the Employee Member, the closing of the
purchase of the Employee Member's Units under Section 9.4(a), shall occur at the
offices of the Company on the date which is 30 days after final determination of
the Employee Price (or, if such date is not a Business Day, on the next
succeeding Business Day). At the closing, the Employee Member shall deliver to
the Alter Member or the Company, as the case may be, such assignments and other
documents as reasonably requested by the Alter Member or the Company, as the
case may be, and the Alter Member or the Company, as the case may be, shall
deliver to the Employee Member the Employee Price. Each of the Alter Member,
Employee Member and the Company shall be entitled to enforce its rights under
this Section 9.4 by specific performance. In addition, in the event the Employee
Member fails to deliver the assignments reasonably requested by the Alter Member
or the Company, as the case may be, as set forth herein, the Alter Member or the
Company, as the case may be, may deliver the Employee Price to the Employee
Member and upon such delivery, execute and deliver, as the attorney in fact for
the Employee Member, such required assignments. Such power of attorney is
coupled with an interest and shall survive the insolvency, bankruptcy and
dissolution of the Company. The Alter Member, the Company and the Employee
Member shall each pay its own legal fees in connection with the exercise of its
rights under this Section 9.4. The Company shall have the right to assign its
rights (but not its obligations) under this Section 9.4 to any other Person.
SECTION 9.5 Sale of Company. (a) At any time after the
ten-year anniversary of the Closing Date, subject to Section 9.5(b), either the
Alter Member or any Westbrook Member may, in its sole discretion request the
Executive Committee in writing (a "Sale Proposal") to cause the sale of all of
the Company Assets or all of the Units of the Members (a "Company Sale"). In the
event of a request for Company Sale, the Executive Committee shall have the
obligation to identify prospective purchasers of such Company Assets or Units,
determine the terms on which such prospective purchasers would engage in a
Company Sale and negotiate the terms of such Company Sale. The Executive
Committee shall have an obligation to conduct the Company Sale in good faith and
use reasonable commercial efforts to effect the Company Sale as promptly as
reasonably practical. Each Member shall be required to agree to sell such
Company Assets or to sell its Units on the terms and conditions as agreed upon
by Executive Committee, and each Member shall consent to and raise no objections
to the proposed transaction and will take all other actions necessary or
desirable to cause the consummation of such sale on such terms; provided that
the provisions of this Section 9.5(a) shall not apply with respect to any sale
to any Westbrook Transferee or Alter Transferee.
(b) Prior to requesting a Company Sale pursuant to Section
9.5(a) or taking any action to dissolve the Company pursuant to Section 8.1(a),
the Member proposing such Sale Proposal or dissolution (the "Notifying Member")
shall first provide the Alter Member, if any Westbrook Member is the Notifying
Member, or each Westbrook Member, if the Alter Member is the Notifying Member
(the "Notified Member") with a written notice notifying each Notified Member of
the intended dissolution or Sale Proposal (and certain proposed terms, including
a
<PAGE> 58
54
minimum purchase price for all the Units of such Notifying Member, in the case
of a proposed Sale Proposal) (the "Termination Notice"). Within thirty (30) days
following the delivery of the Termination Notice, the Notified Members shall
have the opportunity and right (i) to elect to purchase the assets or Units
proposed to be sold on the terms set forth in the Termination Notice or (ii) in
the case of a proposed dissolution, to elect to purchase all (but not part) of
the Notifying Member's Units for Fair Market Value and in each case the
Notifying Member shall have the obligation to sell such Units to the Notified
Members. Each Notified Member shall exercise such right by delivering written
notice of acceptance to the Notifying Member within such 30-day period. If any
Notified Member does not deliver an acceptance notice within such 30-day period,
the right of such Notified Member to purchase such Units pursuant to the
Termination Notice shall terminate and the Notifying Member shall have the right
to cause such dissolution of the Company to take place in accordance with the
provisions of Article VIII hereof or to submit a Sale Proposal to the Executive
Committee. Notwithstanding the foregoing, if such dissolution has not occurred
or an agreement for such Company Sale, the terms of which include a purchase
price for the Notifying Member's Units not less than the minimum purchase price
set forth in the Termination Notice, has not been entered into within 120 days
after delivery of the Termination Notice, the rights of each Notified Member as
described above shall be reinstated and the Notifying Member will have to
deliver another Termination Notice to each Notified Member with respect to such
dissolution or sale before such dissolution or sale can occur. If any Notified
Member exercises its right to purchase pursuant to this Section 9.5(b), the
closing of such purchase by such Notified Member of the Units with respect to
which such rights have been exercised shall occur at the offices of the Company
(i) on the date which is 60 days after the delivery of the notice of acceptance
by such Notified Member in the case of a dissolution or agreement of the
Executive Committee as to the purchase price in the case of a proposed Sale
Proposal (or, if such date is not a Business Day, on the next succeeding
Business Day) or (ii) on the date agreed to by the Executive Committee and the
purchaser in the case of any Company Sale. In addition, in the event the
Notifying Member fails to deliver the transfer documents and assignments
reasonably requested by any Notified Member to effect the purchase pursuant to
this Section 9.5(b), such Notified Member may deliver the consideration to be
paid to the Notifying Member pursuant to this Section 9.5(b) to the Notifying
Member and upon such delivery, execute and deliver, as the attorney in fact for
the Notifying Member, such required assignments. Such power of attorney is
coupled with an interest and shall survive the insolvency, bankruptcy and
dissolution of the Notifying Member.
SECTION 9.6 Required Sale or Purchase of Class A Units. (a) At
any time after the fifth anniversary of the Closing Date, each Class A Member
shall have the right to sell to the Company, and the Company shall be required
to purchase, all the Class A Units held by such Class A Member (the "Preferred
Put") at a cash price equal to (i) the amount of the Capital Account of such
Class A Member relating the Class A Units held by such Class A Member plus (ii)
an amount necessary to cause such Class A Units to have received a 8.5% Rate of
Return minus (iii) any amounts distributed to such Class A Member pursuant to
Section 6.4(a) or 6.4(c) hereof with respect to such Class A Units prior to the
date of such purchase (the "Preferred Price"). The Preferred Put may be
exercised by any Class A Member at any time after the fifth anniversary of the
Closing Date by delivery of written notice to the Company; provided that in the
event the purchase by the Company of Class A Units required by the exercise of
the Preferred Put
<PAGE> 59
55
would result in a default or an event of default on the part of the Company or
any Subsidiary under any loan or other agreement under which the Company or any
of its Subsidiaries has borrowed money, the Company shall not be obligated to
purchase such Class A Units until the tenth day (or, if such date is not a
Business Day, on the next succeeding Business Day) after the date that exercise
of the Preferred Put would no longer result in such a default or event of
default.
(b) At any time after the third anniversary of the Closing
Date, the Company shall have the right to purchase, and upon exercise of such
right, each Class A Member shall be required to sell, all or part of the Class A
Units held by such Class A Member (the "Preferred Call") at a cash price equal
to the Preferred Price (as of the date of purchase) with respect to the portion
of the Class A Units held by such Class A Member to be purchased. The Preferred
Call may be exercised by the Company with respect to the Class A Units held by
such Class A Member at any time after the third anniversary of the Closing Date
by delivery of written notice to such Class A Member.
(c) Unless otherwise agreed upon by the Company and the
selling Class A Member, the closing of the purchase of any Class A Units held by
such Class A Member under Section 9.6(a) or 9.6(b) shall occur at the offices of
the Company on the date which is 30 days after delivery of the exercise notice
with respect to the Preferred Put or the Preferred Call, as applicable (or, if
such date is not a Business Day, on the next succeeding Business Day). At the
closing, each Class A Member shall deliver to the Company such assignments and
other documents as reasonably requested by the Company, and the Company shall
deliver to each Class A Member the Preferred Price for the purchased Class A
Units held by such Class A Member. No Class A Member shall be required to make
any representations or warranties except with respect to the title of such Class
A Member to the Units being transferred and the absence of liens on such Units.
Each of the Company and each Class A Member shall be entitled to enforce its
rights under this Section 9.6 by specific performance. In addition, in the event
any Class A Member fails to deliver the assignments reasonably requested by the
Company as set forth herein, the Company may deliver the Preferred Price to such
Class A Member and upon such delivery, execute and deliver, as the attorney in
fact for such Class A Member, such required assignments. Such power of attorney
is coupled with an interest and shall survive the insolvency, bankruptcy and
dissolution of the Company. The Company and each Class A Member shall each pay
its own legal fees in connection with the exercise of its rights under this
Section 9.6.
SECTION 9.7 Other Transfer Provisions. (a) Any purported
Transfer by a Member of all or any part of its Units in violation of this
Article IX shall be null and void and of no force or effect.
(b) Except as provided in this Article IX, no Member shall
have the right to resign from the Company prior to its termination and no
additional Member may be admitted to the Company without the prior written
consent of the Managing Member and the Alter Member.
(c) Notwithstanding any provision of this Agreement to the
contrary, a Member may not Transfer all or any part of its Units if such
Transfer would jeopardize the status of the Company as a partnership for federal
income tax purposes, cause a dissolution of the
<PAGE> 60
56
Company under the Act or would violate, or would cause the Company to violate,
any applicable law or regulation (including any applicable federal or state
securities laws) or contract to which the Company or any of its Subsidiaries is
a party.
(d) Concurrently with the admission of any substitute or
additional Member, the Managing Member shall forthwith cause any necessary
papers to be filed and recorded and notice to be given wherever and to the
extent required showing the substitution of a Transferee as a substitute Member
in place of the Member Transferring its Units, or the admission of an additional
Member, all at the expense, including payment of any professional and filing
fees incurred, of such substituted or additional Member. The admission of any
Person as a substitute or additional Member shall be conditioned upon such
Person's written acceptance and adoption of all the terms and provisions of this
Agreement.
(e) If any Units are Transferred during any accounting period
in compliance with the provisions of this Article IX, each item of income, gain,
loss, expense, deduction and credit and all other items attributable to such
Units for such period shall be divided and allocated between the transferor and
the transferee by taking into account their varying Interests during such period
in accordance with Section 706(d) of the Code, using any conventions permitted
by law and selected by the Managing Member. All distributions on or before the
date of such Transfer shall be made to the transferor, and all distributions
thereafter shall be made to the transferee. Solely for purposes of making such
allocations and distributions, the Company shall recognize a Transfer on the
date that the Managing Member receives notice of the Transfer which complies
with this Article IX from the Member Transferring its Units.
(f) Without limiting the foregoing and notwithstanding any of
other provision of this Agreement to the contrary, a Member's ability to
Transfer all or any portion of its Units shall be subject to the following
additional restrictions, and any purported transfer or any other action taken in
violation of this Section 9.7(f) shall be void:
(i) no Transfer of all or any portion of such Units shall be
effective unless (A) such Transfer complies with the Transfer
restrictions in all agreements to which the Company or such Member is a
party, and (B) such Units are registered under the Securities Act and
any applicable state securities laws, or an exemption from registration
is available, and the Company shall (if reasonably requested by the
non-Transferring Members) have received an opinion of counsel
reasonably acceptable to such non-Transferring Members to such effect;
(ii) no Member shall be permitted to Transfer any portion of
its Units or take any other action which would cause the Company to be
(a) treated as a "publicly traded partnership" within the meaning of
Code Section 7704 or (b) classified as a corporation (or as an
association taxable as a corporation) within the meaning of Code
Section 7701(a);
(iii) unless arrangements concerning withholding are
reasonably acceptable to such non-Transferring Members, if such
withholding is required of the Company, no
<PAGE> 61
57
Member shall be permitted to Transfer all or any portion of its Units
to any Person, unless such Person is a United States Person as defined
in Code Section 7701(a)(30) and is not subject to withholding of any
federal tax; and
(iv) no Member shall be permitted to Transfer all or any
portion of its Units if such Transfer will (A) cause the assets of the
Company to be deemed to be "plan assets" under ERISA or its
accompanying regulations or the Code, (B) result in any "prohibited
transaction" under ERISA or its accompanying regulations affecting the
Company or (C) cause the Company or any Member to incur any UBTI.
(g) The Members acknowledge that the relationship of each
Member to the other Members is a personal relationship and that the restrictions
on the power of each Member to withdraw or Transfer its Units, and the remedies
with respect thereto, that are set forth herein (i) are necessary to preserve
such personal relationship and safeguard the investment of the other Members in
the Company, (ii) were a material inducement to the other Members entering into
this Agreement, and (iii) shall be enforceable notwithstanding the Bankruptcy of
any Member or any applicable prohibition against restraints on alienation.
(h) Each Alter Member agrees not to permit any transfer of any
interests in such Alter Member or any taking of any other action with respect to
the direct or indirect ownership thereof to the extent such transfer or other
action would result in the Alter Member failing to satisfy the definition of
"Alter Transferee" at any time while it is a Member. Each Westbrook Member
agrees not to permit any transfer of any interests in such Westbrook Member or
any taking of any other action with respect to the direct or indirect ownership
thereof to the extent such transfer or other action would result in such
Westbrook Member failing to satisfy the definition of "Westbrook Transferee" at
any time while it is a Member.
ARTICLE X
MISCELLANEOUS
SECTION 10.1 No Brokers. Except as set forth on Schedule 10.1
attached hereto, each Member hereby represents to the Company and the other
Members that it has dealt with no real estate agent, broker, salesman or finder
with respect to this Agreement or the transactions contemplated hereby. Each
Member shall indemnify the Company and the other Members and protect, defend and
hold the Company and the other Members harmless from and against all claims,
losses, damages, liabilities, costs, expenses (including reasonable attorneys'
fees and disbursements) and charges resulting from a breach by such Member of
the representation contained in this Section 10.1.
SECTION 10.2 Equitable Relief. The Members hereby confirm that
damages at law may be an inadequate remedy for a breach or threatened breach of
this Agreement and agree that, in the event of a breach or threatened breach of
any provision hereof, the respective rights and obligations hereunder shall be
enforceable by specific performance, injunction or other
<PAGE> 62
58
equitable remedy, but, nothing herein contained is intended to, nor shall it,
limit or affect any right or rights at law or by statute or otherwise of a
Member aggrieved as against the other for a breach or threatened breach of any
provision hereof, it being the intention by this Section 10.2 to make clear the
agreement of the Members that the respective rights and obligations of the
Members hereunder shall be enforceable in equity as well as at law or otherwise
and that the mention herein of any particular remedy shall not preclude a Member
from any other remedy it or he might have, either in law or in equity.
SECTION 10.3 Governing Law. This Agreement shall be governed
by and construed in accordance with the laws of the State of Delaware. In
particular, the Company is formed pursuant to the Act, and the rights and
liabilities of the Members shall be as provided therein, except as herein
otherwise expressly provided.
SECTION 10.4 Mediation; Submission to Jurisdiction; Waiver of
Trial By Jury. (a) In the event any dispute or difference of opinion arises
under this Agreement, the parties hereto shall endeavor to resolve such dispute
or difference of opinion by negotiation or mediation. If, for any reason, such
mediation or negotiation fails to result promptly in an amicable resolution, the
parties agree to be bound by their consent to the jurisdiction pursuant to
Section 10.4(b).
(b) Each Member unconditionally and irrevocably submits to and
accepts the jurisdiction of any state or federal court of competent jurisdiction
located in the State of Delaware for the purposes of any suit, action or other
proceeding arising out of this Agreement or any transaction contemplated hereby,
and each Member unconditionally and irrevocably agrees to be bound by any final
judgment rendered thereby in connection therewith. Each Member further agrees
that service of any process, summons, notice or document by U.S. registered mail
to such party's respective address set forth on Schedule A shall be effective
service of process for any action, suit or proceeding in any state or federal
court located in the State of Delaware with respect to any matters to which it
has submitted to jurisdiction as set forth above in the immediately preceding
sentence. Each Member irrevocably and unconditionally waives trial by jury and
irrevocably and unconditionally waives any objections, including the laying of
venue or based on the grounds of forum non conveniens, which it may have to the
bringing of any action, suit or proceeding arising out of this Agreement or the
transactions contemplated hereby in any state or federal courts located in the
State of Delaware, and hereby further irrevocably and unconditionally waives and
agrees not to plead or claim in any such court that any such action, suit or
proceeding brought in any such court has been brought in an inconvenient forum.
Each Member acknowledges that a final, nonappealable judgment against it in any
action, suit or proceeding referred to in this Section shall be conclusive and
may be enforced in any other jurisdiction, by suit on the judgment, a certified
or exemplified copy of which shall be conclusive evidence of the fact and of the
amount of the judgment.
SECTION 10.5 Successors and Assigns. This Agreement shall be
binding upon and shall inure to the benefit of the parties hereto, their
respective successors and assigns.
SECTION 10.6 Confidentiality. By executing this Agreement,
each Member expressly agrees, at all times during the term of the Company and
thereafter and whether or not at
<PAGE> 63
59
the time a Member of the Company, (a) not to issue any press release or
advertisement or take any similar action concerning the Company's business or
affairs without the consent of all of the Members, (b) not to publicize
financial information concerning the Company without the consent of the Managing
Member and (c) not to disclose the Company's affairs generally, including
without limitation the terms of this Agreement, without the consent of the other
Member; provided that each Member shall have the right to disclose information
as necessary to its legal, accounting and financial advisors who need to know
such information for the purpose of advising such Member and who are informed on
the confidential nature of such information and agree not to disclose such
information; and provided further that each Member shall have the right to
disclose such information as required by applicable law, regulation or legal
process.
SECTION 10.7 Notices. Whenever notice is required or permitted
by this Agreement to be given, such notice shall be in writing. Such notice
shall be given to any Member at its address or facsimile number shown in the
Company's books and records (including Schedule A hereto). Each such notice
shall be effective (a) if given by facsimile, upon confirmation of receipt, (b)
if given by air courier, when recorded on the records of the air courier as
received by the receiving party and (c) if given by any other means, when
delivered to and receipted for at the address of such Member specified as
aforesaid. The time to respond to any notice given shall commence to run upon
the date of delivery at the correct address (or the date of attempted delivery
if delivery is refused during normal business hours).
SECTION 10.8 Counterparts. This Agreement may be executed in
any number of counterparts, all of which together shall constitute a single
instrument.
SECTION 10.9 Entire Agreement. This Agreement and the
Contribution Agreement (including in each case the exhibits and schedules
thereto) embody the entire agreement and understanding of the parties hereto in
respect of the subject matter contained herein. There are no restrictions,
promises, representations, warranties, covenants or undertakings, other than
those expressly set forth or referred to herein or in the Contribution
Agreement. This Agreement supersedes all prior agreements and understandings
between the parties with respect to the subject matter hereof other than the
Contribution Agreement.
SECTION 10.10 Amendments. Subject to the provisions of Section
4.3(a) hereof, any amendment to this Agreement shall be in writing and shall be
effective upon execution by the Alter Member and each of the Westbrook Members
and delivery to each of the Members. Notwithstanding the foregoing, as long as
the Alter Member has not forfeited all of the right of such Alter Member to its
Class D Units, the Alter Member shall have the right, in its sole discretion, to
amend at any time Schedule B and such amendments shall be in writing and
effective upon execution by the Alter Member and delivery to each of the other
Members.
SECTION 10.11 Section Titles. Section titles are for
descriptive purposes only and shall not control or alter the meaning of this
Agreement as set forth in the text hereof.
<PAGE> 64
60
SECTION 10.12 Representations and Warranties. Each Member
(including each Original Member) represents, warrants and covenants to each
other Member and to the Company, as of the date hereof and during the term of
this Agreement, that:
(a) such Member, if not a natural Person, is duly formed and
validly existing under the laws of the jurisdiction of its organization with
full power and authority to conduct its business to the extent contemplated in
this Agreement;
(b) this Agreement has been duly authorized, executed and
delivered by such Member and constitutes the valid and legally binding agreement
of such Member enforceable in accordance with its terms against such Member
except as enforceability hereof may be limited by bankruptcy, insolvency,
moratorium and other similar laws relating to creditors' rights generally and by
general equitable principles;
(c) the execution and delivery of this Agreement by such
Member does not, and the performance of its duties and obligations hereunder
will not, result in a breach of any of the terms, conditions or provisions of,
or constitute a default under, or give rise to a right to terminate, cancel or
accelerate under, or the creation of lien, pledge or other encumbrance pursuant
to, any indenture, mortgage, deed of trust, credit agreement, note or other
evidence of indebtedness, or any material lease or other agreement, or any
material license, permit, franchise or certificate, to which such Member is a
party or by which it is bound or to which its properties are subject, or require
any authorization or approval under or pursuant to any of the foregoing, or
violate any statute, regulation, law, order, writ, injunction, judgment or
decree to which such Member or its property is subject;
(d) such Member is not in default (nor has any event occurred
which with notice, lapse of time, or both, would constitute a default) in the
performance of any material obligation, agreement or condition contained in any
indenture, mortgage, deed of trust, credit agreement, note or other evidence of
indebtedness or any lease or other agreement (including the Original Agreement),
or any license, permit, franchise or certificate, to which it is a party or by
which it is bound or to which the properties of it are subject, nor is it in
violation of any statute, regulation, law, order, writ, injunction, judgment or
decree to which it or its property is subject, which default or violation would
adversely affect such Member's ability to carry out its obligations under this
Agreement;
(e) there is no litigation, investigation or other proceeding
pending or, to the knowledge of such Member, threatened against such Member or
any of its Affiliates or their property which, if adversely determined, would
materially adversely affect such Member's ability to carry out its obligations
under this Agreement;
(f) no consent, approval or authorization of, or filing,
registration or qualification with, any court or governmental authority on the
part of such Member is required for the execution and delivery of this Agreement
by such Member and the performance of its obligations and duties hereunder; and
<PAGE> 65
61
(g) No amounts are due and owing to the Company from any
Original Member and no tax allocations have been made with respect to any
Original Member, in each case in its capacity as Original Member, and no
Original Member has an Capital Account its capacity as Original Member which has
not been repaid.
SECTION 10.13 Waiver of Partition. Each of the Members hereby
irrevocably waive any rights such Member may have under any applicable law to
partition.
SECTION 10.14 Bonus. After each Unit initially issued to a
Westbrook Member has received a cumulative compounded quarterly (to the extent
not paid on a quarterly basis) return of 12% (without any return of Capital
Contributions), the Company shall accrue out of Available Cash (a) an amount
equal to $230,000 per calendar quarter (which will be cumulative and compound
quarterly at a rate of 12%) as a bonus to the Alter Member (a designated portion
of which shall be paid to any other senior employees of the Company or its
Subsidiaries, if any, as designated by the Alter Member in its sole discretion
as long as Alter is Chief Executive Officer) and (b) an amount equal to $20,000
per calendar quarter (which will be cumulative and compound quarterly at a rate
of 12%) as a bonus to the Biederman Member (collectively, the "Bonus"). The
Company shall, or shall cause a Subsidiary to, pay and the Executive Committee
shall authorize the payment to the Alter Member or any other senior employee as
may be designated by the Alter Member (as long as Alter is Chief Executive
Officer) and the Biederman Member of the Bonus within 10 days following the end
of any fiscal year of the Company for which a Bonus has accrued, provided that
the Executive Committee shall have the right to reduce the Bonus to the Alter
Member or the Biederman Member with respect to any then-current fiscal year (but
not any then-prior or then-future fiscal year) to the extent (and only to the
extent) that any Available Cash has been or is to be distributed to the Alter
Member or the Biederman Member, as the case may be, with respect to such
then-current fiscal year (but not any then-prior or then-future fiscal year)
(whether or not yet paid) pursuant to Section 6.4(d).
SECTION 10.15 No Third Party Beneficiaries. Except for the
beneficiaries of the indemnification provided herein, this Agreement does not
create any rights, claims or benefits inuring to any Person that is not a party
hereto nor create or establish any third party beneficiary hereto.
SECTION 10.16 Consent to Merger and Related Transactions. The
Members hereby deem it advisable and in the best interest of the Company that
the Company enter into the Merger Agreement, the OP Merger Agreement, the
Contribution Agreement, the Alter Employment Agreement and the commitment letter
with respect to the financing of the Merger and the OP Merger (collectively, the
"Principal Agreements"), a form of each of which has been presented to the
Members, and the transactions contemplated thereby, be, and each of them hereby
is, in all respects authorized and approved, and the Managers are, and each of
them hereby is, authorized to execute and deliver on behalf of the Company each
of the Principal Agreements, and any and all ancillary documents, in such form
as the Manager executing any of the Principal Agreements or such ancillary
documents shall approve, such Manager's execution thereof to be conclusive
evidence of such approval.
<PAGE> 66
62
IN WITNESS WHEREOF, the parties have executed this Amended and
Restated Limited Liability Company Agreement as of the day and year first above
written.
MEMBERS:
WESTBROOK SHP L.L.C.
By: /s/ Jonathan H. Paul
-----------------------
Name: Jonathan H. Paul
Title: Authorized Person
ALTER SHP L.L.C.
By: /s/ Robert A. Alter
-----------------------
Name: Robert A. Alter
Title: Manager
BIEDERMAN SHP L.L.C.
By: /s/ Charles L. Biederman
---------------------------
Name: Charles L. Biederman
Title: Manager
WITHDRAWING MEMBERS:
/s/ Robert A. Alter
----------------------------
Robert A. Alter
WESTBROOK FUND III ACQUISITIONS, L.L.C.
By: /s/ Jonathan H. Paul
--------------------------
Name: Jonathan H. Paul
Title: Authorized Person
<PAGE> 67
SCHEDULE A
Members of the Company
<TABLE>
<CAPTION>
======================================================================================================================
Member Address Class of Units Number of Units
======================================================================================================================
<S> <C> <C> <C>
Westbrook SHP L.L.C. 599 Lexington Avenue Class B
Suite 3800
New York, New York 10022
Attention: Jonathan Paul
for notices, with a copy to
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Attention: Richard Capelouto
Brian M. Stadler
- ----------------------------------------------------------------------------------------------------------------------
Westbrook Real Estate Fund III, L.P. Same as Westbrook SHP L.L.C. Class B
- ----------------------------------------------------------------------------------------------------------------------
Westbrook Real Estate Co-Investment Same as Westbrook SHP L.L.C. Class B
Partnership III, L.P.
- ----------------------------------------------------------------------------------------------------------------------
Alter SHP L.L.C. c/o Sunstone Hotel Investors, Inc. Class B
903 Calle Amanecer
San Clemente, California 92673-6212 Class C 1,111,112
for notices, with a copy to: Class D 900
Battle Fowler LLP
75 East 55th Street
New York, New York 10022
Attention: Steven Lichtenfeld
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 68
<TABLE>
<CAPTION>
======================================================================================================================
Member Address Class of Units Number of Units
======================================================================================================================
<S> <C> <C> <C>
Biederman SHP LLC c/o Charles L. Biederman Class B
5 Sunset Drive
Englewood, Colorado 80110 Class C 96,618
for notices, with a copy to: Class D 100
Battle Fowler LLP
75 East 55th Street
New York, New York 10022
Attention: Steven Lichtenfeld
- ----------------------------------------------------------------------------------------------------------------------
======================================================================================================================
</TABLE>
<PAGE> 69
SCHEDULE B
CLASS C UNITS AND CLASS D UNITS
<PAGE> 70
SCHEDULE 3.1
DESIGNATED ALTER MEMBER ALTERNATIVE MANAGERS
Charles Biederman
<PAGE> 71
SCHEDULE 10.1
BROKERS
Letter Agreement dated September 25, 1998 among Sunstone Hotel Properties,
Sunstone Hotel Management Company and NationsBanc Montgomery Securities LLC, as
amended.
<PAGE> 1
Exhibit 14
ESCROW AGREEMENT
This Escrow Agreement (this "Agreement") is made and entered
into as of July 12, 1999, by and among SUNSTONE HOTEL INVESTORS, L.P., a
Delaware limited partnership ("Seller Partnership"), SUNSTONE HOTEL INVESTORS,
INC., a Maryland corporation ("Seller"), SHP ACQUISITION, L.L.C., a Delaware
limited liability company ("Parent"), and FIDELITY NATIONAL TITLE INSURANCE
COMPANY, a California corporation, as escrow agent (the "Escrow Agent").
Each of Seller, Seller Partnership, Parent and the Escrow Agent are referred to
individually herein as a "Party" and are referred to together herein as the
"Parties".
WITNESSETH:
WHEREAS, Seller, SHP Investors Sub, Inc., a Maryland
corporation and a wholly-owned subsidiary of Parent (the "Buyer"), and Parent
have entered into an Agreement and Plan of Merger dated of even date herewith
(the "Merger Agreement") pursuant to which Buyer will be merged into Seller;
WHEREAS, Seller conducts substantially all of its operations
through Seller Partnership, and Seller Partnership, Parent and SHP Acquisition
Sub, LP, a Delaware limited partnership and a wholly-owned subsidiary of Parent,
have entered into an Agreement and Plan of Merger of even date herewith (the
"Partnership Merger Agreement") pursuant to which SHP Acquisition Sub, L.P. will
be merged into Seller Partnership;
WHEREAS, Section 4.7 of the Merger Agreement requires the
Buyer to deliver cash in the amount of $25,000,000 (the "Cash Collateral") to
the Escrow Agent, to be held as security for the payment of liquidated damages
which may become payable by Buyer under certain circumstances set forth in
Section 7.2 of the Merger Agreement;
WHEREAS, Section 4.7 of the Merger Agreement provides that the
Buyer, at its election, may provide to Escrow Agent, in lieu of or in
substitution for the Cash Collateral, a letter of credit substantially in the
form of Attachment A (the "Letter of Credit") with the Escrow Agent as the
beneficiary thereof, with such changes
<PAGE> 2
2
as shall be reasonably satisfactory to Seller, from Nationsbank, N.A., or
another bank reasonably satisfactory to Seller, in substitution of the Cash
Collateral; and
WHEREAS, Parent, Seller and Seller Partnership wish to appoint
the Escrow Agent as escrow agent to hold, invest and disburse the Cash
Collateral and to deliver and/or draw upon the Letter of Credit, and the Escrow
Agent wishes to accept such appointment, upon the terms and conditions set forth
below.
NOW, THEREFORE, the Parties hereto hereby agree as follows:
1. Defined Terms. Capitalized terms used in this Agreement and
not otherwise defined shall have the meanings given them in the Merger
Agreement.
2. Collateral. The Escrow Agent hereby acknowledges receipt of
the Letter of Credit and shall hold the Letter of Credit in accordance with the
terms of this Agreement. In the event Cash Collateral is substituted for the
Letter of Credit, the Escrow Agent shall hold the Cash Collateral in accordance
with the terms of this Agreement in a segregated trust account designated as the
"SHI Cash Collateral Account" or in an account having a similar designation, and
shall invest the Cash Collateral in accordance with Section 5 hereof pursuant to
the written instruction of Parent.
3. Intentionally Omitted.
4. Release. (a) The Escrow Agent shall distribute the Cash
Collateral, deliver the Letter of Credit (in cases where the Letter of Credit is
to be delivered to Parent), or draw on the Letter of Credit and distribute the
proceeds thereof (in cases where the proceeds of the Letter of Credit is to be
delivered to Seller), as applicable and as directed, only as follows:
(i) to such party or parties as directed in a joint written
certificate executed by both Seller and Parent; or
(ii) to such party or parties as directed in a unilateral
written certificate executed by Seller or Parent (each, a "Unilateral
Certificate"), provided that the Escrow Agent has complied with the
terms of Section 4(b)
<PAGE> 3
3
below and has not received a Notice of Dispute (as defined below)
within the time period set forth in Section 4(b) below. Any Unilateral
Certificate shall state the amount to be distributed and the Section of
the Merger Agreement under which such distribution is authorized.
(b) Promptly after receipt of a Unilateral Certificate
delivered to the Escrow Agent under Section 4(a)(ii) above, the Escrow Agent
shall deliver to (i) Seller in the case of a Unilateral Certificate delivered by
Parent or (ii) Parent in the case of a Unilateral Certificate delivered by
Seller, a copy of the Unilateral Certificate. Seller or Parent, as applicable,
shall have a period of ten (10) days after its receipt of such copy of the
Unilateral Certificate within which to deliver to the Escrow Agent a notice (a
"Notice of Dispute") disputing distribution as provided in the Unilateral
Certificate. If Seller or Parent, as applicable, fails to deliver a Notice of
Dispute within such ten (10) day period, such party shall be deemed to have
consented to the distribution provided in the applicable Unilateral Certificate.
If Seller or Parent, as applicable, timely delivers a Notice of Dispute to the
Escrow Agent, the Escrow Agent, upon receipt of such Notice of Dispute, shall
give prompt notice thereof to the party which had delivered the applicable
Unilateral Certificate, and the Escrow Agent shall not make any disbursements
except upon receipt of the joint written instruction of Seller and Parent or a
final, nonappealable order of a court of competent jurisdiction.
(c) Notwithstanding anything to the contrary herein, in the
event that the Escrow Agent is holding the Letter of Credit in escrow by the
date which is 15 days prior to the expiry date of the Letter of Credit (or the
first business day thereafter if such date is not a business day), Escrow Agent
shall draw on the full amount of the Letter of Credit and hold the proceeds
thereof in escrow as Cash Collateral unless otherwise directed in a joint
written certificate by Seller and Parent, and neither Seller nor Parent shall
seek to enjoin either (i) a draw on the Letter of Credit made in accordance with
this Section 4(c) or (ii) payment by the issuer on the Letter of Credit with
respect to such draw.
5. Investment of Cash Collateral. (a) Any monies held as Cash
Collateral shall be invested by the Escrow Agent, to the extent permitted by law
and as directed in writing by Parent, in (i) obligations having a maturity date
of 30 days or less issued or guaranteed by the United States of America or any
agency or instrumentality thereof, (ii) obligations having a maturity date of 30
days or less
<PAGE> 4
4
(including certificates of deposit and bankers' acceptances) of banks
which at the date of their last public reporting had total assets in
excess of $500 million, (iii) commercial paper having a maturity date
of 30 days or less rated at least A-1 or P-1 or, if not rated, issued
by companies having outstanding debt rated at least AA or Aa, and/or
(iv) money market mutual funds invested primarily in the securities
described in the foregoing clauses (i), (ii) and (iii).
(b) Escrow Agent shall pay to Parent, on the first day of each
calendar month and on the date of disbursement of all of the Cash Collateral,
any interest earned on the Cash Collateral.
6. Fees and Expenses. Seller and Seller Partnership shall be
jointly and severally liable for the fees of the Escrow Agent, including, but
not limited to, reasonable legal fees and expenses for the services rendered by
the Escrow Agent hereunder and for its attorney's fees and expenses incurred in
connection with the preparation of this Agreement. In furtherance of the
foregoing, Seller and Seller Partnership agree to pay or reimburse the Escrow
Agent for the Escrow Agent's reasonable compensation for its normal services
hereunder and the preparation of this Agreement in accordance with the fee
schedule attached hereto as Attachment B. The Escrow Agent shall be entitled to
reimbursement on demand for all expenses incurred in connection with the
administration of the escrow created hereby that are in excess of its
compensation for normal services hereunder, including, without limitation,
payment of any legal fees and expenses incurred by the Escrow Agent in
connection with the resolution of any claim by any Party hereunder.
7. Limitation of Escrow Agent's Liability. (a) Neither the
Escrow Agent nor any of its directors, officers or employees shall incur
liability with respect to any action taken or suffered by it in reliance upon
any notice, direction, instruction, consent, statement or other documents
believed by it to be genuine and duly authorized, nor for other action or
inaction except its own willful misconduct or gross negligence; provided, that
with respect to the custody of the Cash Collateral, the Escrow Agent shall use
the standard care of customarily used by custodians of funds. The Escrow Agent
shall not be responsible for the validity or sufficiency of this Agreement and
shall not be responsible for any of the agreements referred to herein, including
the Merger Agreement and the Partnership Merger Agreement, but shall be
obligated only for the performance of such duties as are specifically set forth
in this
<PAGE> 5
5
Escrow Agreement. Without limiting the foregoing, the Escrow Agent (i) shall not
be obligated to inquire as to the accuracy of any calculations used in preparing
the Disbursement Certificate and (ii) shall have no obligation to inquire
whether Seller Partnership has the right to liquidated damages pursuant to the
Merger Agreement. In all questions arising under this Agreement, the Escrow
Agent may rely on the advice of counsel, including in-house counsel, and for
anything done, omitted or suffered in good faith by the Escrow Agent based on
such advice the Escrow Agent shall not be liable to anyone. The Escrow Agent
shall not be required to take any action hereunder involving any expense unless
the payment of such expense is made or provided for in a manner reasonably
satisfactory to it. The Escrow Agent shall not be liable for any losses
resulting from the investments made in accordance with this Agreement. In no
event shall the Escrow Agent be liable for indirect, punitive, special or
consequential damages.
(b) Seller and Seller Partnership shall jointly and severally
indemnify the Escrow Agent for, and hold it harmless against, any loss,
liability or expense (including reasonable attorneys' fees and expenses)
incurred without gross negligence or willful misconduct on the part of the
Escrow Agent, arising out of or in connection with its carrying out of its
duties hereunder, including without limitation drawing on the Letter of Credit.
(c) Seller and Seller Partnership jointly and severally hereby
agree to assume any and all obligations imposed now or hereafter by any
applicable tax law with respect to the payment of amounts to be distributed
under this Agreement, and to indemnify and hold the Escrow Agent harmless from
and against any taxes, additions for late payment, interest, penalties and other
expenses, that may be assessed against the Escrow Agent in any such payment or
other activities under this Agreement (other than taxes on the net income of the
Escrow Agent attributable to the payment of fees hereunder). Seller and Seller
Partnership undertake to instruct the Escrow Agent in writing with respect to
the Escrow Agent's responsibility for withholding and other taxes, assessments
or other governmental charges, certifications and governmental reporting in
connection with its acting as Escrow Agent under this Agreement. Seller and
Seller Partnership jointly and severally hereby agree to indemnify and hold the
Escrow Agent harmless from any liability on account of taxes, assessments or
other governmental charges, including without limitation the withholding or
deduction or the failure to withhold or deduct the same, and any liability for
failure to obtain proper
<PAGE> 6
6
certifications or to properly report to governmental authorities, to which the
Escrow Agent may be or become subject in connection with or which arises out of
this Agreement, including costs and expenses (including reasonable legal fees
and expenses), interest and penalties.
8. Termination. This Agreement shall terminate upon the
disbursement by the Escrow Agent of all of the Cash Collateral or the full
amount of the Letter of Credit (except in accordance with Section 4(a)) in
accordance with this Agreement; provided, however, that the provisions of
Sections 6 and 7 shall survive such termination.
9. Notices. All notices, instructions and other communications
given hereunder or in connection herewith shall be in writing. Any such notice,
instruction or communication shall be sent either (i) by registered or certified
mail, return receipt requested, postage prepaid or (ii) via a reputable
nationwide overnight courier service, in each case to the address set forth
below. Any such notice, instruction or communication shall be deemed to have
been delivered four business days after it is sent by registered or certified
mail, return receipt requested, postage prepaid; or one business day after it is
sent via a reputable nationwide overnight courier service.
If to Seller or Seller Partnership: Sunstone Hotel Investors, Inc.
903 Calle Amanecer
San Clemente, CA 92673
Attention: Chief Operating Officer
Fax: (949) 369-4230
Copy to: Altheimer & Gray
10 South Wacker Drive
Chicago, Illinois 60606-7482
Attention: Andrew W. McCune
Fax: (312-715-4800
<PAGE> 7
7
If to Parent: SHP Acquisition, L.L.C.
c/o Westbrook Real Estate Partners, L.L.C.
599 Lexington Avenue
New York, NY 10022
Attention: Jonathan H. Paul
Fax: (312) 715-4800
Copies to: Battle Fowler LLP
75 East 55th Street
New York, NY 10022
Attention: Steven L. Lichtenfeld, Esq.
Fax: (212) 856-7802
and Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017-3954
Attention: Richard Capelouto, Esq.
Brian M. Stadler, Esq.
Fax: (212) 455-2502
and Westbrook Partners L.L.C.
13155 Noel Road -- LB54
Suite 2300
Dallas, Texas 75240
Attention: Patrick K. Fox, Esq.
Fax: (972) 934-8333
Fidelity National Title Insurance
If to the Escrow Agent: Company
1300 Dove Street, Suite 310,
Newport Beach, California 92660
Attention: Patty Beverly
Fax: (949) 477-6835
<PAGE> 8
8
Any Party may give any notice, instruction or communication in connection with
this Agreement using any other means (including personal delivery, telecopy or
ordinary mail), but no such notice, instruction or communication shall be deemed
to have been delivered unless and until it is actually received by the Party to
whom it was sent. Any Party may change the address to which notices,
instructions or communications are to be delivered by giving the other Parties
to this Agreement notice thereof in the manner set forth in this Section 9.
10. Successor Escrow Agent. In the event the Escrow Agent
becomes unavailable or unwilling to continue in its capacity hereunder, the
Escrow Agent may resign and be discharged from its duties or obligations
hereunder by delivering a resignation to the Parties to this Escrow Agreement,
not less than 60 days' prior to the date when such resignation shall take
effect. Seller may, upon three business days prior written notice to Parent,
appoint a successor Escrow Agent so long as such successor is a bank with assets
of at least $500 million. If, within such 60-day notice period, Seller provides
to the Escrow Agent written instructions with respect to the appointment of a
successor Escrow Agent and directions for the transfer of the Letter of Credit
or the Cash Collateral then held by the Escrow Agent to such successor, the
Escrow Agent shall act in accordance with such instructions and promptly
transfer the Letter of Credit or the Cash Collateral to such designated
successor. If no successor escrow agent is named by Seller within such notice
period, the Escrow Agent may apply to a court of competent jurisdiction for
appointment of a successor escrow agent.
11. General.
(a) Governing Law. This Agreement shall be governed by,
enforced under and construed in accordance with the laws of the State of New
York without regard to conflict-of-law principles.
(b) Counterparts. This Agreement may be executed in two or
more counterparts (which need not each be signed by all of the Parties hereto),
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
<PAGE> 9
9
(c) Entire Agreement. This Agreement constitutes the entire
understanding and agreement of the Parties with respect to the subject matter
hereof and supersedes all prior agreements or understandings, written or oral,
between the Parties with respect to the subject matter hereof.
(d) Waivers. No waiver by any Party hereto of any condition or
of any breach of any provision of this Escrow Agreement shall be effective
unless in writing. No waiver by any Party of any such condition or breach, in
any one instance, shall be deemed to be a further or continuing waiver of any
such condition or breach or a waiver of any other condition or breach of any
other provision contained herein.
(e) Amendment. This Agreement may be amended only by a written
instrument signed by the Parties hereto.
(f) Consent to Jurisdiction and Service. Each Party hereby
absolutely and irrevocably consents and submits to the jurisdiction of the
courts in the State of New York and of any federal court located in the state of
New York in connection with any actions or proceedings brought against such
Party by the Escrow Agent arising out of or relating to this Escrow Agreement.
In any such action or proceeding, each Party hereby absolutely and irrevocably
waives personal service of any summons, complaint, declaration or other process
and hereby absolutely and irrevocably agrees that the service thereof may be
made in accordance with the notice provisions of Section 9 hereof, directed to
such Party at its address set forth in Section 9 hereof.
(g) Force Majeure. No Party shall be responsible for delays or
failures in performance resulting from acts beyond its, his or her control. Such
acts shall include but not be limited to acts of God, strikes, lockouts, riots,
acts of wars, epidemics, governmental regulations superimposed after the fact,
fire, communication line failures, computer viruses, power failures, earthquakes
or other disasters.
(h) Binding Effect, Assigns. This Agreement shall be binding
upon and inure to the benefit of the respective Parties hereto and their heirs,
executors, successors and assigns.
<PAGE> 10
10
(i) Reproduction of Documents. This Agreement and all
documents relating thereto, including, without limitation, (i) consents, waivers
and modifications which may hereafter be executed, and (ii) certificates and
other information previously or hereafter furnished, may be reproduced by any
photographic, photostatic, microfilm, optical disk, micro-card, miniature
photographic or other similar process. The Parties agree that any such
reproduction shall be admissible in evidence as the original itself in any
judicial or administrative proceeding, whether or not the original is in
existence and whether or not such reproduction was made by a Party in the
regular course of business, and that any enlargement, facsimile or further
reproduction of such reproduction shall likewise be admissible in evidence.
<PAGE> 11
11
IN WITNESS WHEREOF, the Parties have duly executed this
Agreement as of the day and year first above written.
SUNSTONE HOTEL INVESTORS, INC.
By: /s/ R. Terrence Crowley
-----------------------------
Name: R. Terrence Crowley
Title: Chief Operating Officer
SUNSTONE HOTEL INVESTORS, L.P.
By: /s/ R. Terrence Crowley
-----------------------------
Name: R. Terrence Crowley
Title: Authorized
Representative
SHP ACQUISITION, L.L.C.
By: /s/ Paul Kazilionis
-----------------------------
Name: Paul Kazilionis
Title: Manager
FIDELITY NATIONAL TITLE
INSURANCE COMPANY, as Escrow
Agent
By: /s/ P. Beverly
-----------------------------
Name: P. Beverly
Title: Vice President
