EXHIBIT 4.2
OBSERVER AGREEMENT
THIS OBSERVER AGREEMENT (this "Agreement"), dated as of ____________,
2004, by and among THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, a New Jersey
corporation, PIC REALTY CORPORATION, a Delaware corporation, STRATEGIC VALUE
INVESTORS, LLC, a Delaware limited liability company, PRUDENTIAL ASSETS, LLC, a
Delaware limited liability company, PRUDENTIAL INVESTMENT MANAGEMENT, INC., a
Delaware corporation, (SHC/OLAYAN) REDEMPTION VEHICLE, LLC, a Delaware limited
liability company and SVI (SHC/HOUSTON) REDEMPTION VEHICLE, LLC, a Delaware
limited liability company (sometimes referred to individually as a "Stockholder"
and collectively as the "Stockholders") and Strategic Hotel Capital, Inc., a
Maryland corporation (the "Company").
WHEREAS, the Company is undertaking an initial public offering of
shares of common stock, par value $0.01 per share ("Common Stock");
WHEREAS, the Company and the Stockholders desire to provide herein for
certain matters relating to the corporate governance of the Company.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Definitions.
As used in this Agreement, the following terms shall have the meanings
ascribed to them below:
1.1. Affiliate. The term "Affiliate" shall mean, with respect to a
Person (as hereinafter defined), any other Person that, directly or indirectly
through one or more intermediaries, controls, or is controlled by, or is under
common control with such Person.
1.2. Board of Directors or Board. The term "Board of Directors" or
"Board" shall mean the Board of Directors of the Company in office at the
applicable time as elected in accordance with the provisions of the Maryland
General Corporation Law, the Charter and the Bylaws.
1.3. Bylaws. The term "Bylaws" shall mean the bylaws of the Company, as
amended from time to time.
1.4. Charter. The term "Charter" shall mean the charter of the Company,
as amended from time to time.
1.5. Common Stock Deemed Outstanding. The term "Common Stock Deemed
Outstanding" shall mean, as of any date, the total number of shares of Common
Stock outstanding as of such date plus the total number of shares of Common
Stock which may be acquired upon exercise or conversion of all options, warrants
or other securities or rights convertible into or exercisable for shares of
Common Stock which were outstanding as of such date, whether or not convertible
or exercisable within 60 days of such date.
1.6. Confidential Information. The term "Confidential Information"
shall have the meaning set forth in Section 3.11 of this Agreement.
1.7. Deemed Beneficial Ownership. The term "Deemed Beneficial
Ownership" shall mean, with respect to the Stockholders as of any date, the
percentage obtained by dividing (a) the total number of shares of Common Stock
owned of record or beneficially by the Stockholders as of such date plus the
total number of shares of Common Stock which may be acquired by the Stockholders
upon exercise or conversion of all options, warrants or other securities or
rights convertible into or exercisable for shares of Common Stock which were
held by the Stockholders as of such date, whether or not convertible or
exercisable within 60 days of such date, by (b) the Common Stock Deemed
Outstanding as of such date.
1.8. Observer. The term "Observer" shall mean an observer to the Board
of Directors pursuant to the provisions of Section 2 of this Agreement.
1.9. Person. The term "Person" shall mean an individual, corporation,
partnership, trust, joint venture, limited liability company, unincorporated
organization or other legal entity, or a government or any agency or political
subdivision thereof.
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2. Observer Rights.
2.1. Right to Appoint Observer. The Stockholders shall have the right
to appoint (i) two Observers, so long as the Deemed Beneficial Ownership of the
Stockholders is not less than 10% in the aggregate, and (ii) one Observer, so
long as the Deemed Beneficial Ownership of the Stockholders is not less than 5%
in the aggregate. The right to appoint an Observer shall terminate as soon as
the Deemed Beneficial Ownership of the Stockholders falls below 5%. Subject to
the provisions of Sections 2.3 and 2.4 hereof, an Observer shall have the right
to receive and shall be provided concurrently with its delivery to the members
of the Board of Directors all notices of meetings, all information related
thereto, all information distributed to the members of the Board in connection
with such meetings and all other information provided to members of the Board of
Directors. Subject to the provisions of Sections 2.2, 2.3 and 2.4 hereof, the
Observer shall have the right to attend any meetings of the Board of Directors.
Failure to deliver notice to an Observer in connection with an Observer's right
to attend any meeting of the Board of Directors shall not, of itself, impair the
validity of any action taken by the Board at such meeting.
2.2. Actions in Lieu of a Meeting. Subject to the provisions of
Sections 2.3 and 2.4 hereof, the Observer shall be entitled to receive copies of
any action taken by a consent in lieu of a meeting of the Board within ten (10)
days after the date of such consent. No prior notice of such consent shall be
required hereunder and failure to deliver a copy of any such consent to an
Observer shall not, of itself, impair the validity of any action taken by the
Board pursuant to such consent.
2.3. Exceptions. Notwithstanding the provisions of Section 2.1 above,
the Company shall not deliver materials or portions of materials with respect to
any meeting of the Board to an Observer, and the Company may ask an Observer to
recuse himself or herself, if the Company determines, in its sole discretion,
that the Observer's access to such information (i) presents a potential conflict
of interest with the Stockholders, including any conflict resulting from the
Board's consideration of issues relating to this Agreement, any other
contractual arrangement with the Stockholders or any transaction in which the
Stockholders may have any interest other than as investors in the Company, (ii)
could jeopardize an attorney-client privilege, which determination is made after
the Company's consultation with its outside counsel, or (iii) is necessary or
appropriate in furtherance of discharging the Board's fiduciary duties to the
Company's shareholders. If the Board requests that an Observer be recused from
any meeting of the Board, or portion thereof, in accordance with the foregoing,
such Observer shall be so recused and not entitled to be present, participate or
receive any materials or portions of materials with respect thereto.
Notwithstanding the provisions of Section 2.2 above, an Observer shall not be
entitled to receive copies of any consent, if the Board determines, in its sole
discretion, that providing the consent (i) presents a potential conflict of
interest with the Stockholders, including any conflict resulting from the
Board's consideration of issues relating to this Agreement, any other
contractual arrangement with the Stockholders or any transaction in which the
Stockholders may have any interest other than as investors in the Company, (ii)
could jeopardize an attorney-client privilege, which determination is made after
the Company's consultation with its outside counsel, or (iii) is necessary or
appropriate in furtherance of discharging the Board's fiduciary duties to the
Company's shareholders.
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2.4. Confidentiality. A Person appointed by the Stockholders as an
Observer pursuant to Section 2.1 shall be required to enter into a
Confidentiality Agreement, which Confidentiality Agreement shall contain
provisions with respect to Confidential Information substantially similar to the
provisions set forth in Section 3.11 hereof and containing such other provisions
as the Board may reasonably require.
3. Miscellaneous.
3.1 Binding Effect. The provisions of this Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective heirs,
legal representatives, successors and assigns.
3.2 Amendments. This Agreement may be amended, modified or supplemented
but only in writing signed by each of the parties hereto.
3.3 Notices. Any notice and other communication provided for herein
shall be dated and in writing and shall be deemed to have been duly given, (a)
when received if given in person or by courier or a courier service, (b) on the
date of transmission if sent by telex, facsimile or other wire transmission or
(c) three business days after being deposited in the U.S. mail, certified or
registered mail, postage prepaid, directed at the following addresses:
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(a) If to any of the Stockholders, to it at the following address:
c/o The Prudential Insurance Company of America
0 Xxxxxx Xxxxx, 0xx Xxxxx
Xxxxxxxxxx, Xxx Xxxxxx 00000
Attention: SVI Portfolio Manager
(b) If to the Company, to it at the following address:
Strategic Hotel Capital, Inc.
Attn: General Counsel
00 Xxxx Xxxxxx Xxxxx, Xxxxx 0000
Xxxxxxx, Xxxxxxxx 00000
3.4 Applicable Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York.
3.5 Section Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning of terms contained herein.
3.6 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same instrument, and it shall not be necessary in making
proof of this Agreement to produce or account for more than one such
counterpart.
3.7 Termination. This Agreement shall terminate (i) on the first date
upon which the Deemed Beneficial Ownership of the Stockholders is less than 5%
or (ii) immediately upon delivery of written notice of termination by the
Stockholders to the Company, which notice may be given at any time at the sole
discretion of the Stockholders.
3.8 Entire Agreement. This Agreement sets forth the entire agreement
and understanding of the parties hereto with respect to the matters set forth
herein and supersedes any and all prior agreements, arrangements and
understandings among the parties.
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3.9 Severability of Provisions. If any provision of this Agreement
shall be held invalid, illegal or unenforceable, the validity, legality or
enforceability of the other provisions hereof shall not be affected thereby, and
there shall be deemed substituted for the provision at issue a valid, legal and
enforceable provision as similar as possible to the provision at issue.
3.10 Specific Performance. Each of the parties acknowledges that the
obligations undertaken by it pursuant to this Agreement are unique and that the
other parties will not have an adequate remedy at law if it shall fail to
perform any of its obligations hereunder, and each party therefore confirms that
the right of each other party hereto to specific performance of the terms of
this Agreement is essential to protect the rights and interests of such parties.
Accordingly, in addition to any other remedies that the parties may have at law
or in equity, each party shall have the right to have all obligations,
covenants, agreements and other provisions of this Agreement specifically
performed by each other party, and shall have the right to obtain preliminary
and permanent injunctive relief to secure specific performance and to prevent a
breach or contemplated breach of this Agreement by each other party.
3.11 Confidentiality. Except with the prior written consent of the
Company and except as otherwise required by law, the listing requirements of any
securities exchange on which the securities of a Stockholder are then traded or
any reporting obligations under the Securities Act or the Securities Exchange
Act of 1934, as amended (the "1934 Act"), each Stockholder shall, and shall
cause each of its Affiliates and each Observer appointed by it to (a) hold in
strict confidence and trust and to act in a fiduciary manner with respect to all
confidential, proprietary or other non-public information or trade secrets
relating to the Company or its subsidiaries or their respective assets or
operations (the "Confidential Information"), and (b) not release or disclose in
any manner whatsoever to any other Person any Confidential Information; provided
that (i) the foregoing provisions shall not apply to any disclosure, to the
extent reasonably required, to those of the Stockholder's auditors, attorneys
and other representatives who agree to be bound by the provisions of this
Section 3.11, (ii) the foregoing provisions shall not apply where the
Stockholder or any of its Affiliates or Observers appointed by it is compelled
to disclose Confidential Information, by judicial or administrative process or,
in the reasonable opinion of its counsel, by other requirements of law (provided
that, if legally permissible, prior written notice of such disclosure is given
to the Company so that the Company may take action to prevent such disclosure
and any such disclosure is limited to only that portion of the Confidential
Information which such Person is compelled to disclose), (iii) the term
"Confidential Information" shall not include information (A) which is or becomes
generally available to the public other than as a result of disclosure of such
information by the Stockholder or any of its Affiliates, (B) becomes available
to the recipient of such information on a non-confidential basis from a source
which is not, to the recipient's knowledge, bound by a confidentiality or other
similar agreement, or by any other legal, contractual or fiduciary obligation
which prohibits disclosure of such information to the other parties hereto, or
(C) which can be demonstrated to have been developed independently by the
representatives of such recipient which representatives have not had any access
to any information which would otherwise be deemed to be "Confidential
Information" pursuant to the provisions of this Section 3.11, and (iv) each of
the Stockholders acknowledges and agrees that any information they may receive
from an Observer appointed by the Stockholders or from the Company pursuant to
this Agreement or any provisions hereunder is confidential, proprietary and
non-public in nature.
[Signature page follows]
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
THE PRUDENTIAL INSURANCE COMPANY OF
AMERICA
By: Prudential Investment Management,
Inc., its Attorney-in-Fact
By:
---------------------------------
Name:
Title:
PIC REALTY CORPORATION
By: Prudential Investment Management,
Inc., its Attorney-in-Fact
By:
---------------------------------
Name:
Title:
STRATEGIC VALUE INVESTORS, LLC
By: Prudential Investment Management,
Inc., its Attorney-in-Fact
By:
----------------------------
Name:
Title:
PRUDENTIAL ASSETS, LLC
By: Prudential Investment Management,
Inc., its Attorney-in-Fact
By:
---------------------------------
Name:
Title:
PRUDENTIAL INVESTMENT MANAGEMENT, INC.
By:
------------------------------------
Name:
Title:
(SHC/OLAYAN) REDEMPTION VEHICLE, LLC
By: Prudential Investment Management,
Inc., its Attorney-in-Fact
By:
-------------------------------
Name:
Title:
SVI (SHC/HOUSTON) REDEMPTION VEHICLE, LLC
By: Prudential Investment Management,
Inc., its Attorney-in-Fact
By:
------------------------------
Name:
Title:
STRATEGIC HOTEL CAPITAL, INC.
By:
--------------------------
Name:
Title:
