Exhibit 10
AMENDED AND RESTATED CONTRIBUTION AND SALE AGREEMENT
among
XXXXXXXXX SHP L.L.C.,
XXXXXXXXX REAL ESTATE FUND III, X.X.
XXXXXXXXX REAL ESTATE CO-INVESTMENT PARTNERSHIP III, L.P.,
XXXXXX X. ALTER,
RIVERSIDE HOTEL PARTNERS, INC.,
ALTER INVESTMENT GROUP LTD.,
XXXXXXX X. XXXXXXXXX,
XXXXXX XXXXXXXXX
SUNSTONE HOTEL MANAGEMENT, INC.,
MANAGEMENT SUB SHP L.L.C.,
SUNSTONE HOTEL PROPERTIES, INC.,
SHP ACQUISITION, L.L.C.,
and
XXXXXXXXX REAL ESTATE FUND I, L.P.
TABLE OF CONTENTS
Page
ARTICLE I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . 2
1.2 Other Interpretive Provisions . . . . . . . . . . . . . . 8
ARTICLE II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
CONTRIBUTIONS AND SALE TO SHP AND OTHER CLOSING EVENTS . . . . . . 9
2.1 Time and Place of Closing . . . . . . . . . . . . . . . . 9
ARTICLE III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
REPRESENTATIONS AND WARRANTIES OF THE PARTIES . . . . . . . . . . 13
3.1 Representations and Warranties of the Alter Entities,
Management, Management Sub, Lessee and Xxxxxxxxx. . . . . 13
3.2 Additional Representations and Warranties of the Alter
Entities. . . . . . . . . . . . . . . . . . . . . . . . . 29
3.3 Additional Representations and Warranties of Xxxxxxxxx. . 31
3.4 Representations and Warranties of the Xxxxxxxxx Entities. 33
3.5 Representations and Warranties of SHP . . . . . . . . . . 34
3.6 Survival of Representations and Warranties . . . . . . . . 35
3.7 Exclusion of Lessee/Manager Agreement . . . . . . . . . . 36
ARTICLE IV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
4.1 Conduct of Business Pending the Closing. . . . . . . . . . 36
4.2 Transfers and Voting of Equity Interests. . . . . . . . . 38
4.3 Access to Information . . . . . . . . . . . . . . . . . . 38
4.4 Agreement to Cooperate; Further Assurances . . . . . . . . 39
4.5 Consents . . . . . . . . . . . . . . . . . . . . . . . . . 39
4.6 Public Statements . . . . . . . . . . . . . . . . . . . . 39
4.7 Notification of Certain Matters . . . . . . . . . . . . . 40
4.8 Employee Matters . . . . . . . . . . . . . . . . . . . . . 40
4.9 Transfer Taxes . . . . . . . . . . . . . . . . . . . . . . 41
4.10 Injunctions or Restraints . . . . . . . . . . . . . . . . 41
4.11 Certification of United States Status of Alter
and Xxxxxxxxx. . . . . . . . . . . . . . . . . . . . . . . 41
4.12 Spousal Claims . . . . . . . . . . . . . . . . . . . . . . 41
4.13 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . 41
4.14 Tax Filing . . . . . . . . . . . . . . . . . . . . . . . . 42
4.15 Certain Obligations . . . . . . . . . . . . . . . . . . . 42
ARTICLE V . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
CONDITIONS TO CLOSING . . . . . . . . . . . . . . . . . . . . . . 43
5.1 Conditions Precedent to Obligations of Each Party . . . . 43
5.2 Conditions Precedent to Obligation of the Xxxxxxxxx
Entities . . . . . . . . . . . . . . . . . . . . . . . . 44
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5.3 Conditions Precedent to Obligations of the Alter Entities. 45
5.4 Conditions Precedent to Obligations of Xxxxxxxxx . . . . . 45
5.5 Conditions Precedent to Obligations of Management,
Management Sub and Lessee . . . . . . . . . . . . . . . . 46
ARTICLE VI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
COVENANTS AND AGREEMENTS WITH RESPECT TO LESSEE . . . . . . . . . 46
6.1 Recapitalization of Lessee . . . . . . . . . . . . . . . . 46
6.2 Governance . . . . . . . . . . . . . . . . . . . . . . . . 47
6.3 Restrictions on Transfers and Issuances . . . . . . . . . 47
6.4 Option . . . . . . . . . . . . . . . . . . . . . . . . . . 48
6.5 Additional Securities Subject to Agreement . . . . . . . . 48
6.6 No Conflicting Agreements . . . . . . . . . . . . . . . . 49
6.7 Survival . . . . . . . . . . . . . . . . . . . . . . . . . 49
ARTICLE VII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
7.1 Termination Events . . . . . . . . . . . . . . . . . . . . 49
7.2 Fees and Expenses . . . . . . . . . . . . . . . . . . . . 50
7.3 Effect of Termination . . . . . . . . . . . . . . . . . . 51
ARTICLE VIII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . 51
8.1 Indemnification by Xxxxxxxxx LLC . . . . . . . . . . . . . 51
8.2 Indemnification by Alter, Management and Management Sub . 51
8.3 Indemnification by Xxxxxxxxx . . . . . . . . . . . . . . . 51
8.4 Tax Indemnification . . . . . . . . . . . . . . . . . . . 52
8.5 Indemnification by SHP and Management Newco . . . . . . . 52
8.6 Third-Party Claims . . . . . . . . . . . . . . . . . . . . 52
8.7 Termination of Indemnification . . . . . . . . . . . . . . 53
8.8 Limitations on Indemnity Obligations . . . . . . . . . . . 53
8.9 Allocation of Certain Indemnity Obligations . . . . . . . 54
8.10 Exclusive Remedy . . . . . . . . . . . . . . . . . . . . . 55
ARTICLE IX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
MISCELLANEOUS AGREEMENTS OF THE PARTIES . . . . . . . . . . . . . 55
9.1 Notices . . . . . . . . . . . . . . . . . . . . . . . . . 55
9.2 Integration; Amendments . . . . . . . . . . . . . . . . . 57
9.3 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . 57
9.4 No Assignment; Successors and Assigns . . . . . . . . . . 58
9.5 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . 58
9.6 Severability . . . . . . . . . . . . . . . . . . . . . . . 58
9.7 Section Headings and Table of Contents; Interpretation . . 58
9.8 Third Parties . . . . . . . . . . . . . . . . . . . . . . 58
9.9 GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . 58
9.10 Enforcement . . . . . . . . . . . . . . . . . . . . . . . 59
9.11 Counterparts . . . . . . . . . . . . . . . . . . . . . . . 59
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9.12 Cumulative Remedies . . . . . . . . . . . . . . . . . . . 59
9.13 Bulk Sales Law Waiver . . . . . . . . . . . . . . . . . . 59
9.14 Consent of Xxxxxx Xxxxxxxxx . . . . . . . . . . . . . . . 59
9.15 Alternative Transaction . . . . . . . . . . . . . . . . . 60
9.16 Operating Leases . . . . . . . . . . . . . . . . . . . . . 60
9.17 Exclusivity . . . . . . . . . . . . . . . . . . . . . . . 60
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AMENDED AND RESTATED CONTRIBUTION AND SALE AGREEMENT
This Amended and Restated Contribution and Sale Agreement
(hereinafter, this "Agreement") is made as of October 15, 1999, by and among
Xxxxxxxxx SHP L.L.C., a Delaware limited liability company ("Xxxxxxxxx LLC"),
Xxxxxxxxx Real Estate Fund III, L.P., a Delaware limited partnership ("WREF
III"), Xxxxxxxxx Real Estate Co-Investment Partnership III, L.P., a Delaware
limited partnership ("Xxxxxxxxx Co-Investment"), Xxxxxx X. Alter ("Alter"),
Riverside Hotel Partners, Inc., a California corporation ("Riverside"), Alter
Investment Group Ltd., a Colorado limited partnership ("Alter Investment
Group"), Xxxxxxx X. Xxxxxxxxx ("Xxxxxxxxx"), 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, Xxxxxxxxx Real Estate Fund I, L.P., a Delaware limited partnership
("WREF I"), and, solely for the purposes of Xxxxxxx 0.00, Xxxxxx Xxxxxxxxx.
W I T N E S S E T H:
WHEREAS, Xxxxxxxxx LLC, WREF III, Xxxxxxxxx Co-Investment, Alter,
Riverside, Alter Investment Group, Xxxxxxxxx, Management, Management Sub,
Lessee, SHP, WREF I and Xxxxxx Xxxxxxxxx entered into a Contribution and Sale
Agreement (the "Original Agreement") dated as of July 12, 1999. The parties
desire to amend and restate the Original Agreement to reflect changes to the
Original Agreement agreed to among the parties effective as of the date of
the Original Agreement;
WHEREAS, concurrently with the execution and delivery of the
Original Agreement, SHP entered into a Merger Agreement (the "Merger
Agreement") dated as of July 12, 1999 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 the
Original Agreement, SHP entered into a Merger Agreement (the "Partnership
Merger Agreement") dated as of July 12, 1999 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 the
Original Agreement, Xxxxxxxxx LLC, WREF III, Alter, Xxxxxxxxx Fund III
Acquisitions, L.L.C., a Delaware limited liability company ("WF III"), and
certain other Persons entered into an Amended and Restated Limited Liability
Company Agreement (the "LLC Agreement") dated as July 12, 1999 pursuant to
which, among other things, (i) Xxxxxxxxx LLC will cause WF III to withdraw
from SHP, (ii) Alter will withdraw from SHP and (iii) Xxxxxxxxx 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 the
Original Agreement, SHP and Alter entered into an Employment Agreement (the
"Employment Agreement") dated as of July 12, 1999 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;
WHEREAS, prior to the execution of the Original 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.
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"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.
"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 Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of
1976, as amended.
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"Implementing Agreements" means the Merger Agreement, the
Partnership Merger Agreement, the LLC Agreement and the Employment Agreement.
"Knowledge" means (i) as to Xxxxxxxxx, that Xxxxxxxxx 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 Xxxxxxxxx has actual knowledge without due
inquiry; (iv) as to Lessee, that either Alter, Biederman, Xxxxxxx Xxxxxx,
Xxxxx Xxxxx or Xxxx Xxxxxx has actual knowledge without due inquiry, (v) as
to Management and Management Sub, that Alter, Biederman, Xxxxxxx Xxxxxx,
Xxxxx Xxxxx or Xxxx Xxxxxx has actual knowledge without due inquiry and (vi)
as to the Xxxxxxxxx Entities, that Xxxx Xxxxxxxxxx, Xxxxxxxx Xxxx or Xxxx
Xxxxx 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.
"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).
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"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, L.L.C., a Delaware limited
liability company and a wholly-owned subsidiary of SHP Investors.
"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, Xxxxxxxxx, 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, 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
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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.
"SHP Investors" means SHP Investors, Inc., a Delaware corporation
and a wholly-owned subsidiary of SHP.
"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.
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"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.
"Xxxxxxxxx Entities" means Xxxxxxxxx LLC, WREF III, WREF I and
Xxxxxxxxx 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:
Term Section
Aggregate Xxxxxxxxx Capital 2.1(a)
Agreement Preamble
Alter Preamble
Alter/Xxxxxxxxx Parties 4.15(b)
Alter Director 6.2(a)
Alter Investment Group Preamble
Alter SHP LLC 2.1(c)
Assumed Management Liabilities 2.1(d)
Xxxxxxxxx Preamble
Xxxxxxxxx SHP 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)
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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)
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)
-8-
Termination 6.4
Term Sheet Letter 9.2
Vacation Policy 4.8(c)
Welfare Plan 3.1(p)
Xxxxx Fargo 2.1(s)
Xxxxx Fargo Lien 3.2(g)
Xxxxxxxxx Co-Investment Preamble
Xxxxxxxxx Co-Investment I 2.1(n)
Xxxxxxxxx LLC Preamble
Xxxxxxxxx Payment 7.2(a)
WF III Recitals
WREF I Preamble
WREF III Preamble
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 by clauses
(a) through (o) of this Section 2.1 (the "Closing") shall take place at the
offices of Xxxxxxx Xxxxxxx & Xxxxxxxx, 000 Xxxxxxxxx Xxxxxx, Xxx Xxxx, Xxx
Xxxx 00000, immediately prior to 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) 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) and Management Sub shall deliver
to SHP an executed xxxx of sale in form and substance reasonably satisfactory
to SHP and Management to evidence such transfer of the Basis Assets.
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(b) Contribution by Management. Management will
contribute the Management Assets (subject to the Assumed Management
Liabilities, as defined) 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")).
(c) Contribution by the Xxxxxxxxx Entities. Xxxxxxxxx
LLC, WREF III and/or Xxxxxxxxx Co-Investment will make aggregate cash
contributions to SHP of $3.0 million and each will receive a credit to its
respective Capital Account equal to the amount contributed by it. In
connection with such contributions, Xxxxxxxxx LLC, WREF III and/or Xxxxxxxxx
Co-Investment will receive an amount of Class B Units as described in Section
3.4 of the LLC Agreement.
(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 such transfer; (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 date of transfer 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 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) Contribution by the Xxxxxxxxx Entities. Following
the Partnership Merger but prior to the Merger, Xxxxxxxxx LLC, WREF III and
Xxxxxxxxx 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
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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 Xxxxxxxxx
Entities, including pursuant to clause (c) above (the "Aggregate Xxxxxxxxx
Capital"), is currently estimated not to exceed $375 million and (ii) the
capital contribution of Xxxxxxxxx LLC shall be at least the greater of (x)
10% of the Aggregate Xxxxxxxxx Capital and (y) the Aggregate Xxxxxxxxx
Capital less $310 million.
In connection with such contributions, Xxxxxxxxx LLC, WREF
III and Xxxxxxxxx Co-Investment will receive an amount of Class B Units as
described in Section 3.4 of the LLC Agreement.
(f) [Intentionally omitted.]
(g) Purchase by Alter of Xxxxxxxxx'x Interest in
Riverside. Xxxxxxxxx will transfer to Alter Xxxxxxxxx'x 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 Xxxxxxxxx of OP Units. Xxxxxxxxx
will contribute his 382,647 OP Units to SHP as a capital contribution and
Xxxxxxxxx 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
Xxxxxxxxx SHP L.L.C., a Delaware limited liability company wholly-owned by
Xxxxxxxxx ("Xxxxxxxxx SHP LLC"), at the Closing). The Capital Account of
Xxxxxxxxx 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.
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
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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.
(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(l)(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(l)(i) hereto; and
(ii) Xxxxxxxxx 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(l)(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(l)(ii)
hereto.
(m) Additional Consideration for Services. As
additional consideration, Xxxxxxxxx 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) Purchase of WREF I Preferred Stock and Common Stock.
Prior to the Partnership Merger, SHP Investors will purchase from WREF I and
Xxxxxxxxx Real Estate Co-Investment Partnership I, L.P., a Delaware limited
partnership ("Xxxxxxxxx Co-Investment I"), (i) all of WREF I's and Xxxxxxxxx
Co-Investment 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), and (ii) all of WREF I's and Xxxxxxxxx Co-Investment I's
shares of Sunstone Stock in exchange for a payment of the Common Merger
Consideration per share for such shares.
(o) Sunstone OP Transactions. Pursuant to the
Partnership Merger Agreement, prior to the Partnership Merger, 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.
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(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.
(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(o) 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) Xxxxx 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 Xxxxx 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 Xxxxx Fargo Bank, N.A. ("Xxxxx Fargo") or its designee in order to
terminate the Xxxxx Fargo Lien, and Alter will obtain releases from Xxxxx
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 Xxxxxxxxx Entities).
(t) SHP Investors Merger. After the Merger, Sunstone
will be merged into SHP Investors with SHP Investors as the surviving
entity. After this merger, Sunstone will not survive, and SHP Investors will
remain a wholly-owned subsidiary of SHP.
(u) Sale by Xxxxxxxxx of Lessee Stock. On the date
following, and conditioned on, the merger of Sunstone into SHP Investors,
Xxxxxxxxx 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
Xxxxxxxxx'x right, title and interest in Lessee Stock), free and clear of all
Liens, in exchange for a payment of $2.15 million in cash;
(v) Contribution by Alter of Lessee Stock. On the date
following, and conditioned on, the merger of Sunstone into SHP Investors,
Alter will contribute 470 shares of Lessee Class A Voting Stock and 226
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
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provided in this Section 2.1(v) 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 such time following the
Closing as the contribution is made). The Capital Account of Alter SHP LLC
created by the contributions described in Sections 2.1(b), 2.1(i), 2.1(j),
2.1(k) and 2.1(v) will be represented by an amount of Class B Units as
described in Section 3.4 of the LLC Agreement;
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PARTIES
3.1 Representations and Warranties of the Alter Entities,
Management, Management Sub, Lessee and Xxxxxxxxx. The Alter Entities jointly
and severally represent and warrant to SHP and the Xxxxxxxxx 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 Xxxxxxxxx Entities with
respect to Management and Management Sub only, Xxxxxxxxx represents and
warrants to SHP and the Xxxxxxxxx Entities with respect to Lessee and each
Lessee Subsidiary only, and Lessee severally represents and warrants to SHP
and the Xxxxxxxxx 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 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
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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
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equity interests in Management, Management Sub 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, 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
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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 Xxxxxxxxx Entities
and SHP at the data room established by Sunstone and examined by
representatives of the Xxxxxxxxx Entities and SHP on or prior to June
15, 1999.
(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
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Xxxxx 00, 0000 Xxxxxxx 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.
(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;
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(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) 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;
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(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
(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
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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 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
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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
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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 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
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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, (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
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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
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
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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 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
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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 Xxxxxxxxx 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 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
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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:
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(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 Xxxxxxxxx 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;
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(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 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,
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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.
(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.
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(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 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
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(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 Xxxxxxxxx, SHP and the Xxxxxxxxx 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 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
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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.
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(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 "Xxxxx 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. After giving effect to the
consummation of the transactions described in Section 2.1, SHP will acquire
from the Alter Entities good title to 498,212 OP Xxxxx, 000 shares of Lessee
Class A Voting Stock and 226 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 Xxxxxxxxx.
Xxxxxxxxx represents and warrants to the Alter Entities, SHP and the
Xxxxxxxxx Entities as follows:
(a) Power and Authority. Xxxxxxxxx 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 Xxxxxxxxx is a party will on the
Closing Date be, duly executed and delivered by Xxxxxxxxx, and constitutes
or, in the case of the Implementing Agreements, upon execution thereof will
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constitute, a valid and legally binding obligation of Xxxxxxxxx, 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 Xxxxxxxxx is a party in his individual capacity by him,
and the consummation by Xxxxxxxxx of the Transactions will not (i) 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, (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 Xxxxxxxxx, 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 Xxxxxxxxx is a party pending or, to the
Knowledge of Xxxxxxxxx, threatened against Xxxxxxxxx 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), Xxxxxxxxx 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. Xxxxxxxxx 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
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intention of distributing or reselling any part thereof. Xxxxxxxxx will not
so distribute or resell any of such interest in violation of any such law.
(g) Equity Ownership. Xxxxxxxxx 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, Xxxxxxxxx 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. After giving effect to the
consummation of the transactions described in Section 2.1, SHP will acquire
from Xxxxxxxxx good title to 382,647 OP Xxxxx, 000 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 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 Xxxxxxxxx Entities.
Each of the Xxxxxxxxx Entities jointly and severally represents and warrants
to SHP, the Alter Entities, Xxxxxxxxx, Management and Management Sub as
follows:
(a) Due Organization; Power and Good Standing. Each
Xxxxxxxxx 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 Xxxxxxxxx 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 Xxxxxxxxx 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 Xxxxxxxxx Entity of this
Agreement and the Implementing Agreements to which it is a party and the
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consummation by such Xxxxxxxxx Entity of the Transactions have been duly
authorized by all necessary action on the part of such Xxxxxxxxx Entity.
This Agreement and each of the Implementing Agreements to which each
Xxxxxxxxx Entity is a party have been duly executed and delivered by such
Xxxxxxxxx Entity and constitutes a valid and legally binding obligation of
such Xxxxxxxxx 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 Xxxxxxxxx Entity is a
party and the consummation by each Xxxxxxxxx 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 Xxxxxxxxx
Entity, under, any of the provisions of any contract, lease, note, permit,
franchise, license or other instrument or agreement to which such Xxxxxxxxx
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 Xxxxxxxxx Entities 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 Xxxxxxxxx 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 Xxxxxxxxx Entity is a party pending
or, to the Knowledge of each Xxxxxxxxx Entity, threatened against such
Xxxxxxxxx Entity or relating to any of the assets of such Xxxxxxxxx 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 Xxxxxxxxx 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
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for any brokerage fees, commissions or finders' fees in connection with the
Transactions.
(f) Investment Intent. Xxxxxxxxx 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. Xxxxxxxxx LLC will
not so distribute or resell any of such interest in violation of any such
law.
(g) Control. Xxxxxxxxx Real Estate Partners III, L.L.C.
controls each of the Xxxxxxxxx Entities.
3.5 Representations and Warranties of SHP. SHP represents and
warrants to the Alter Entities, the Xxxxxxxxx Entities, Xxxxxxxxx, 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
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)
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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
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certain other parties the right, under certain circumstances, following the
termination of the Merger Agreement, to acquire all of the Lessee Stock and
Management Stock owned by Alter and Xxxxxxxxx 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 Xxxxxxxxx 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 Xxxxxxxxx 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 Xxxxxxxxx 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;
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(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;
(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;
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(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 Xxxxxxxxx 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.
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 Xxxxxxxxx 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 Xxxxxxxxx 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.
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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 Xxxxxxxxx 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 Xxxxxxxxx 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 Xxxxxxxxx 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 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 Xxxxxxxxx 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
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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 Xxxxxxxxx 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 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.
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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 Xxxxxxxxx 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 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.
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(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
Xxxxxxxxx. Each of Alter and Xxxxxxxxx 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 Xxxxxxxxx (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
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Contributors as 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 Xxxxxxxxx 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 Xxxxxxxxx
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, Xxxxxxxxx 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 Xxxxxxxxx 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 Xxxxxxxxx are not released from such post-Closing
obligations, SHP and Management Newco shall, jointly and severally, indemnify
and hold Alter and Xxxxxxxxx, 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, Xxxxxxxxx, Lessee, Management or Management Sub or
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any Affiliate of the foregoing, other than Sunstone and Sunstone's
Subsidiaries (collectively the "Alter/Xxxxxxxxx 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/Xxxxxxxxx Parties severally represents to SHP 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/Xxxxxxxxx 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/Xxxxxxxxx Parties shall retain all obligations and Liabilities to
Sunstone and its Subsidiaries under all agreements and arrangements between
the Alter/Xxxxxxxxx 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/Xxxxxxxxx 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/Xxxxxxxxx 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.
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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.
5.2 Conditions Precedent to Obligation of the Xxxxxxxxx
Entities. The obligation of each of the Xxxxxxxxx Entities to consummate the
Transactions shall be subject to the satisfaction of each of the following
conditions (unless waived by Xxxxxxxxx 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 Xxxxxxxxx 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 Xxxxxxxxx LLC shall have received from each of Alter and Xxxxxxxxx,
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
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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 Xxxxxxxxx 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 Xxxxxxxxx LLC shall have received
from each of Alter and Xxxxxxxxx, 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 Xxxxxxxxx LLC shall have received from each of
Alter and Xxxxxxxxx, 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 Xxxxxxxxx Entity and Xxxxxxxxx
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 the Xxxxxxxxx Entities and Xxxxxxxxx a certificate to such
effect dated as of the Closing Date and signed by an officer thereof in the
case of each Xxxxxxxxx Entity and by Xxxxxxxxx in the case of Xxxxxxxxx.
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(b) Covenants. Each of the Xxxxxxxxx Entities and
Xxxxxxxxx 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 Xxxxxxxxx Entities
and Xxxxxxxxx a certificate to such effect dated as of the Closing Date and
signed by an officer thereof in the case of each Xxxxxxxxx Entity and by
Xxxxxxxxx in the case of Xxxxxxxxx.
5.4 Conditions Precedent to Obligations of Xxxxxxxxx. The
obligation of Xxxxxxxxx to consummate the Transactions shall be subject to
the satisfaction of each of the following conditions (unless waived by
Xxxxxxxxx) at or prior to the Closing:
(a) Accuracy of Representations and Warranties. The
representations and warranties of each Xxxxxxxxx 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 Xxxxxxxxx shall have
received from each of the Xxxxxxxxx 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 Xxxxxxxxx Entities, and by Alter in the
case of the Alter Entities.
(b) Covenants. Each of the Xxxxxxxxx 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 Xxxxxxxxx shall have received from each of the Xxxxxxxxx
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 Xxxxxxxxx
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 Xxxxxxxxx Entities, the Alter Entities
and Xxxxxxxxx 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
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have received from each of the Xxxxxxxxx Entities, the Alter Entities and
Xxxxxxxxx a certificate to such effect dated as of the Closing Date and
signed by an officer thereof in the case of the Xxxxxxxxx Entities, by Alter
in the case of the Alter Entities and by Xxxxxxxxx in the case of Xxxxxxxxx.
(b) Covenants. Each of the Xxxxxxxxx Entities, the
Alter Entities and Xxxxxxxxx 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 Xxxxxxxxx Entities, the Alter Entities and
Xxxxxxxxx a certificate to such effect dated as of the Closing Date and
signed by an officer thereof in the case of the Xxxxxxxxx Entities, by Alter
in the case of the Alter Entities and by Xxxxxxxxx in the case of Xxxxxxxxx.
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 Xxxxxxxxx. All such actions (and documentation
related thereto) shall be reasonably satisfactory to the Xxxxxxxxx Entities.
(b) Each of Alter and Xxxxxxxxx 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
Xxxxxxxxx Entities.
(c) To the extent the Recapitalization shall not be
effected on terms and in a manner reasonably satisfactory to the Xxxxxxxxx
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 Xxxxxxxxx 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:
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(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 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
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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.
(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
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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
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 Xxxxxxxxx
LLC;
(b) by Xxxxxxxxx LLC, upon a breach of any
representation, warranty, covenant, obligation or agreement on the part of
Management, Lessee, any Alter Entity or Xxxxxxxxx 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
Xxxxxxxxx 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 Xxxxxxxxx LLC; or by Xxxxxxxxx,
upon a breach of any representation, warranty, covenant, obligation or
agreement on the part of any of the Xxxxxxxxx Entities, such that the
conditions set forth in 5.4(a) or 5.4(b) are not satisfied or would be
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incapable of being satisfied within 30 days after the giving of written
notice to Xxxxxxxxx LLC;
(d) by any of Alter or Xxxxxxxxx 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, Xxxxxxxxx or Xxxxxxxxx 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, Xxxxxxxxx, the Xxxxxxxxx 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, Xxxxxxxxx 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 actual Expenses incurred by the
Xxxxxxxxx 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 Xxxxxxxxx Entities
(the "Xxxxxxxxx Payment") and 11.5% to Alter.
(b) Subject to the terms and conditions of this Section
7.2(b), to the extent the Xxxxxxxxx Entities receive a Xxxxxxxxx Payment, the
Xxxxxxxxx Entities, jointly and severally, agree to use 30% of the Xxxxxxxxx
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 Xxxxxxxxx Payment by the Xxxxxxxxx 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,
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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 "Xxxxxxxxx" 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 Xxxxxxxxx LLC, (i) any Merger Agreement Payment
will be distributed entirely to Xxxxxxxxx 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 Xxxxxxxxx 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 Xxxxxxxxx Entity shall have any
Liability to any of the Alter Entities, Xxxxxxxxx, 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 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.
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ARTICLE VIII
INDEMNIFICATION
8.1 Indemnification by Xxxxxxxxx LLC. From and after the
Closing, Xxxxxxxxx LLC shall indemnify and hold harmless each of the Alter
Entities, Xxxxxxxxx, 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 Xxxxxxxxx Entity
contained in this Agreement and (b) any breach of any covenant of any
Xxxxxxxxx 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 Xxxxxxxxx
Entities, SHP and Xxxxxxxxx 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 Xxxxxxxxx. From and after the Closing,
Xxxxxxxxx shall indemnify and hold harmless each of the Alter Entities and
the Xxxxxxxxx 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 Xxxxxxxxx contained in this Agreement or (b)
any breach of any covenant of Xxxxxxxxx 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 Xxxxxxxxx shall indemnify and hold harmless
each of the Xxxxxxxxx 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
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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).
(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
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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.
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
Xxxxxxxxx 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, Xxxxxxxxx, 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, Xxxxxxxxx, 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.
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(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);
(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 Xxxxxxxxx under this Agreement shall be satisfied only to the extent
that Alter or Xxxxxxxxx, 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
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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
Xxxxxxxxx, as the case may be, until all such accrued but unpaid
indemnification obligations are satisfied.
8.9 Allocation of Certain Indemnity Obligations. Xxxxxxxxx LLC,
Alter, Xxxxxxxxx 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 Xxxxxxxxx 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 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 Xxxxxxxxx LLC, WREF III or Xxxxxxxxx Co-Investment:
c/x Xxxxxxxxx Real Estate Partners, L.L.C.
000 Xxxxxxxxx Xxxxxx, Xxxxx 0000
Xxx Xxxx, Xxx Xxxx 00000
Attn.: Xxxxxxxx Xxxx
Facsimile: (000) 000-0000
c/x Xxxxxxxxx Real Estate Partners, L.L.C.
000 Xxxxxxxxxx Xxxxxx, Xxxxx 0000
Xxx Xxxxxxxxx, Xxxxxxxxxx 00000
Attn.: Xxxx Xxxxx
Facsimile: (000) 000-0000
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x/x Xxxxxxxxx Xxxx Xxxxxx Partners, L.L.C.
00000 Xxxx Xxxx
Xxxxxx, Xxxxx 00000
Attn.: Xxxxxxx Xxx
Facsimile: (000) 000-0000
with a copy to:
Xxxxxxx Xxxxxxx & Xxxxxxxx
000 Xxxxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn.: Xxxxxxx Xxxxxxxxx
Xxxxx X. Xxxxxxx
Facsimile: (000) 000-0000
If to Alter, Riverside or Alter Investment Group:
c/o Sunstone Hotel Investors, Inc.
000 Xxxxx Xxxxxxxx
Xxx Xxxxxxxx, Xxxxxxxxxx 00000-0000
Attn.: Xxxxxx X. Alter
Facsimile: (000) 000-0000
with a copy to:
Battle Xxxxxx LLP
00 Xxxx 00xx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn.: Xxxxxx Xxxxxxxxxxx
Facsimile: (000) 000-0000
If to Xxxxxxxxx:
c/o Sunstone Hotel Investors, Inc.
000 Xxxxx Xxxxxxxx
Xxx Xxxxxxxx, Xxxxxxxxxx 00000-0000
Attn.: Xxxxxx X. Alter
Facsimile: (000) 000-0000
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with a copy to:
Battle Xxxxxx LLP
00 Xxxx 00xx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn.: Xxxxxx Xxxxxxxxxxx
Facsimile: (000) 000-0000
If to SHP:
x/x Xxxxxxxxx Xxxx Xxxxxx Xxxxxxxx, X.X.X.
000 Xxxxxxxxx Xxxxxx, Xxxxx 0000
Xxx Xxxx, Xxx Xxxx 00000
Attn.: Xxxxxxxx Xxxx
Facsimile: (000) 000-0000
c/x Xxxxxxxxx Real Estate Partners, L.L.C.
000 Xxxxxxxxxx Xxxxxx, Xxxxx 0000
Xxx Xxxxxxxxx, Xxxxxxxxxx 00000
Attn.: Xxxx Xxxxx
Facsimile: (000) 000-0000
with copies to:
Sunstone Hotel Investors, Inc.
000 Xxxxx Xxxxxxxx
Xxx Xxxxxxxx, Xxxxxxxxxx 00000-0000
Attn.: Xxxxxx X. Alter
Facsimile: (000) 000-0000
Xxxxxxx Xxxxxxx & Xxxxxxxx
000 Xxxxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn.: Xxxxxxx Xxxxxxxxx
Xxxxx X. Xxxxxxx
Facsimile: (000) 000-0000
Battle Xxxxxx LLP
00 Xxxx 00xx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn.: Xxxxxx Xxxxxxxxxxx
Facsimile: (000) 000-0000
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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
Xxxxxxxxx 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 Xxxxxxxxx
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 death,
disability or incapacity of Alter or Xxxxxxxxx, 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
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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 and Table of Contents; Interpretation. 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. Except as the context otherwise
specifically requires, references to "as of the date hereof" and words of
similar import shall mean as of the date of the Original 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 Xxxxxxxxx in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the Xxxxxxxxx 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 Xxxxxxxxx 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 Xxxxxxxxx
Entities or SHP is entitled at law or in equity. In addition, each of
Lessee, Management, Management Sub, the Alter Entities and Xxxxxxxxx (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.
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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 Xxxxxx Xxxxxxxxx. Xxxxxx Xxxxxxxxx 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 Xxxxxxxxx
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 Xxxxxxxxx Entities arising from, relating to or
otherwise in respect of any breach of, or inaccuracy in, any representation
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or warranty or any breach of any covenant of any Alter Entity, Management,
Management Sub or Xxxxxxxxx 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
Xxxxxxxxx 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
Xxxxxxxxx agree that the Xxxxxxxxx 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 Xxxxxxxxx (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 Xxxxxxxxx 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 Xxxxxxxxx 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 Xxxxxxxxx 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).
-69-
IN WITNESS WHEREOF, the parties have caused this Agreement
to be duly executed as of the date first above written.
XXXXXXXXX SHP L.L.C.
By: /s/ Xxxxxxxx X. Xxxx
-------------------------
Name: Xxxxxxxx X. Xxxx
Title: Authorized Person
XXXXXXXXX REAL ESTATE FUND III, L.P.
By: /s/ Xxxxxxxx X. Xxxx
-------------------------
Name: Xxxxxxxx X. Xxxx
Title: Authorized Person
XXXXXXXXX REAL ESTATE CO-INVESTMENT
PARTNERSHIP III
By: /s/ Xxxxxxxx X. Xxxx
-------------------------
Name: Xxxxxxxx X. Xxxx
Title: Authorized Person
/s/ Xxxxxx X. Alter
-----------------------------
Xxxxxx X. Alter
RIVERSIDE HOTEL PARTNERS
By: /s/ Xxxxxx X. Alter
-------------------------
Name: Xxxxxx X. Alter
Title: President
ALTER INVESTMENT GROUP LTD.
By: /s/ Xxxxxx X. Alter
-------------------------
Name: Xxxxxx X. Alter
Title: General Partner
/s/ Xxxxxxx X. Xxxxxxxxx
--------------------------
Xxxxxxx X. Xxxxxxxxx
-70-
SUNSTONE HOTEL MANAGEMENT, INC.
By: /s/ Xxxxxx X. Alter
------------------------
Name: Xxxxxx X. Alter
Title: Chairman
SUNSTONE HOTEL PROPERTIES, INC.
By: /s/ Xxxxxx X. Alter
------------------------
Name: Xxxxxx X. Alter
Title: Chairman
MANAGEMENT SUB SHP L.L.C.
By: /s/ Xxxxxx X. Alter
------------------------
Name: Xxxxxx X. Alter
Title: Manager
SHP ACQUISITION, L.L.C.
By: /s/ Xxxx X. Xxxxxxxxxx
---------------------------
Name: Xxxx X. Xxxxxxxxxx
Title: Manager
Solely with respect to Section 4.2(c):
XXXXXXXXX REAL ESTATE FUND I, L.P.
By: /s/ Xxxxxxxx X. Xxxx
--------------------------
Name: Xxxxxxxx X. Xxxx
Title: Authorized Person
Solely with respect to Section 9.14:
/s/ Xxxxxx Xxxxxxxxx
-----------------------
XXXXXX XXXXXXXXX
-71-
