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
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3.2 Additional Representations and Warranties of the Alter Entities............................29
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3.3 Additional Representations and Warranties of Xxxxxxxxx.....................................31
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3.4 Representations and Warranties of the Xxxxxxxxx Entities...................................33
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3.5 Representations and Warranties of SHP......................................................34
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3.6 Survival of Representations and Warranties.................................................35
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3.7 Exclusion of Lessee/Manager Agreement......................................................36
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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
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5.4 Conditions Precedent to Obligations of Xxxxxxxxx. .........................................45
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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
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9.9 GOVERNING LAW...............................................................................58
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9.10 Enforcement.................................................................................59
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9.11 Counterparts................................................................................59
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9.12 Cumulative Remedies.........................................................................59
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9.13 Bulk Sales Law Waiver.......................................................................59
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9.14 Consent of Xxxxxx Xxxxxxxxx.................................................................59
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9.15 Alternative Transaction.....................................................................60
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9.16 Operating Leases............................................................................60
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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 19, 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
2
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
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1.1 Definitions. (a) Capitalized terms used and not defined in this
Agreement shall have the meanings set forth in the Merger Agreement. The
following terms shall have the following meanings:
"Advance Booking Agreement" means any agreement relating to advance
reservations and bookings of the Real Property or any facilities therein taken
from guests, groups, conventions or others.
"Affiliate" means with respect to a specified Person, any Person that
directly or indirectly, through one or more intermediaries, Controls, is
Controlled by, or is under common Control with, the specified Person.
"Alter Entities" means Alter, Riverside and Alter Investment Group.
"Basis Assets" means assets of Management Sub set forth on Schedule
1.1(a) that have previously been contributed by Management.
"Business Day" means a day, other than Saturday or Sunday, on which
commercial banks in New York City are open for the general transaction of
business.
3
"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.
"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,
4
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).
"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.
5
"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 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
6
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.
"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.
7
"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)
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)
8
Term Section
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)
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,
9
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
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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.
(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
10
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 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
11
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 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
12
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.
(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 provided in this Section
13
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 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.
14
(c) No Government Approvals or Notices Required; No Conflict with
Instruments. Except as described in Schedule 3.1(c), the execution, delivery and
performance of this Agreement by Management, Management Sub and Lessee and the
consummation by each of them of the Transactions will not (i) violate, conflict
with or result in a breach of any provision of the Certificate of Incorporation,
Bylaws or limited liability company agreement of such Person, as applicable,
(ii) except for any filings required under the HSR Act, require any consent,
approval, authorization or permit of, or filing with or notification to, any
Governmental Authority, (iii) require the consent or approval of any Person
(other than a Governmental Authority), violate, conflict with or result in a
breach of any provision of, constitute a default (or an event which with notice
or lapse of time or both would become a default) under, or give to any Person
any right of termination, cancellation, amendment, purchase, sale or
acceleration under, or result in the creation of a Lien on any of the assets,
properties or stock of Management, Management Sub, Lessee, any Lessee
Subsidiary, Sunstone or any of Sunstone's Subsidiaries under, any of the
provisions of any contract, lease, note, permit, franchise, license or other
instrument or agreement to which such Person is a party or by which it or its
assets or properties are bound, or (iv) violate or conflict with any order,
writ, injunction, decree, statute, rule or regulation of any Governmental
Authority or arbitrator applicable to Management, Management Sub, Lessee, any
Lessee Subsidiary, Sunstone or any of Sunstone's Subsidiaries, or any of their
respective assets or properties; other than any consents and approvals the
failure of which to obtain and any violations, conflicts, breaches and defaults
set forth pursuant to clauses (ii), (iii) and (iv) above which, individually or
in the aggregate, would not reasonably be expected to have a Material Adverse
Effect.
(d) Capitalization. The authorized, issued and outstanding
capital stock of Management, Management Sub and Lessee (both before and after
giving effect to the Recapitalization), and the ownership thereof, is described
on Schedule 3.1(d). All such issued shares of Management, Management Sub and
Lessee have been duly authorized and validly issued, are fully paid and
non-assessable and have not been issued in violation of any preemptive rights.
With respect to Lessee, after giving effect to the Recapitalization, all issued
shares of Lessee will be duly authorized and validly issued, will be fully paid
and non-assessable and will not have been issued in violation of any preemptive
rights. There are no equity interests in Management, Management Sub or Lessee
reserved for issuance, and there are (i) no options, 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.
15
(ii) (A) Schedule 3.1(e) sets forth (x) each Subsidiary of
Lessee ("Lessee Subsidiary"), (y) the ownership interest therein
of Lessee and (z) if not wholly owned by Lessee, the identity and
ownership interest of each of the other owners of such Lessee
Subsidiary.
(B) (1) All the outstanding shares of capital stock
owned by Lessee of each Lessee Subsidiary that is a
corporation have been validly issued and are (x) fully
paid, nonassessable and free of any preemptive rights, (y)
owned by Lessee or by another Lessee Subsidiary and (z)
owned free and clear of all Liens or any other limitation
or restriction (including any contractual restriction on
the right to vote or sell the same) other than restrictions
under applicable securities laws; and (2) all equity
interests in each Lessee Subsidiary that is a partnership,
joint venture, limited liability company or trust which are
owned by Lessee, by another Lessee Subsidiary or by Lessee
and another Lessee Subsidiary are owned free and clear of
all Liens or any other limitation or restriction (including
any contractual restriction on the right to vote or sell
the same) other than restrictions under applicable
securities laws. Each Lessee Subsidiary that is a
corporation is duly incorporated and validly existing under
the Laws of its jurisdiction of incorporation and has the
requisite corporate power and authority to carry on its
business as now being conducted, and each Lessee Subsidiary
that is a partnership, limited liability company or trust
is duly organized and validly existing under the laws of
its jurisdiction of organization and has the requisite
power and authority to carry on its business as now being
conducted. Each Lessee Subsidiary is duly qualified or
licensed to do business and is in good standing in each
jurisdiction in which the nature of its business or the
ownership or leasing of its properties makes such
qualification or licensing necessary, other than in such
jurisdictions where the failure to be so qualified or
licensed, individually or in the aggregate, would not have
a Material Adverse Effect. True and correct copies of the
charter, by-laws, organizational documents and partnership,
joint venture and operating agreements of each Lessee
Subsidiary, and all amendments to the date of this
Agreement, have been made available to the 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.
16
(ii) Attached as Schedule 3.1(f)(ii) are the unaudited
consolidated balance sheets of each of (i) Management and
Management Sub, and (ii) Lessee and its Subsidiaries as at March
31, 1999 (the "March 31 Balance Sheets") and the accompanying
unaudited consolidated statements of operations and cash flows
for the three months then ended (together with the March 31
Balance Sheet, the "March 31 Financial Statements"). The March 31
Financial Statements have been prepared in a manner consistent
with that employed in the December 31 Financial Statements except
as disclosed in the notes to such financial statements. The March
31 Financial Statements have been prepared in accordance with
GAAP and fairly present (subject to normal year-end adjustments,
which adjustments are not material) in all material respects the
financial positions of each of Management and Lessee as at March
31, 1999 and the results of operations of each of Management and
Lessee for the three months then ended.
(iii) None of Management, Management Sub, Lessee or any of
the Lessee Subsidiaries has any Liabilities except: (A) as set forth
on Schedule 3.1(f)(iii); (B) Liabilities disclosed on the applicable
March 31, 1999 Balance Sheet; (C) Liabilities under all contracts and
agreements set forth on the schedules hereto, other than any such
Liabilities in respect of indebtedness for borrowed money; (D)
Liabilities incurred subsequent to March 31, 1999 in the ordinary
course of business consistent with past practice and in compliance
with the provisions of this Agreement; (E) Liabilities arising from
litigation relating to the Transactions; (F) Liabilities under all
contracts and agreements entered into by such Person after the date
of this Agreement so long as such contract or agreement was entered
into in compliance with this Agreement; and (G) Liabilities in
connection with bonuses contemplated by the proviso in clause (i) of
Section 4.1.
(iv) As of March 31, 1999 except as set forth on the March
31, 1999 Balance Sheet or reserved against on such balance sheet,
Lessee and its Subsidiaries do not have Liabilities of the type
required to be reflected as Liabilities on a balance sheet
prepared in accordance with GAAP.
(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:
17
(i) increased the compensation or benefits payable by it to
its Employees except for increases in compensation or benefits in
the ordinary course of business consistent with past practice;
(ii) incurred, assumed or guaranteed any (i) indebtedness
for borrowed money or (ii) other than in the ordinary course of
business consistent with past practice, any other indebtedness;
(iii) made any loan or advance to any Person, except in the
ordinary course of business consistent with past practice;
(iv) made any capital expenditure or commitment for any
capital expenditure in excess of $20,000 individually or $200,000
in the aggregate;
(v) merged or consolidated with, or acquired an interest
in, any Person or otherwise acquired any material assets, except
for acquisitions in the ordinary course of business consistent
with past practice;
(vi) sold or otherwise disposed of any material properties
or assets, except for dispositions in the ordinary course of
business consistent with past practice;
(vii) mortgaged, pledged or encumbered any material assets,
other than pursuant to Permitted Liens;
(viii) issued, sold or redeemed any capital stock or other
equity interests, notes, bonds or other securities, or any
option, warrant or other right to acquire the same;
(ix) amended its Certificate of Incorporation or Bylaws;
(x) made any change in the financial or accounting
practices or policies customarily followed by it (other than
changes required by GAAP); or
(xi) entered into any contract or other agreement to do any
of the foregoing.
(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:
18
(i) contracts containing covenants limiting the freedom of
Management, Lessee or any Lessee Subsidiary after the date hereof
(A) to engage in any line of business or to compete with any
Person or (B) to incur indebtedness for borrowed money;
(ii) partnership, limited liability company, or joint
venture or shareholder agreements;
(iii) hotel franchise agreements;
(iv) Equipment Leases (excluding any such agreements
providing for payment of less than $20,000 per annum on an
individual basis or terminable without penalty upon 90 days or
less prior written notice);
(v) Service Contracts (excluding any such agreements
providing for payment of less than $20,000 per annum on an
individual basis or terminable without penalty of more than
$5,000 upon 90 days or less prior written notice);
(vi) Management Agreements;
(vii) any Advance Booking Agreements (excluding any such
agreements providing for payment of less than $600,000 per annum
on an individual basis or terminable without penalty of more than
$60,000 upon 90 days or less prior written notice);
(viii) employment agreements;
(ix) contracts which provide for payments after the date
hereof in excess of $100,000 during any one-year period and which
are not otherwise listed on Schedule 3.1(i) or Schedules
3.1(j)(ii) through (vi);
(x) mortgages, pledges, security agreements, deeds of trust
or other instruments creating or, to the Knowledge of Lessee,
Management or Management Sub, as applicable, purporting to create
Liens; or
(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
19
of Lessee, Management or Management Sub, as applicable, each other party
thereto, enforceable in accordance with their terms, except for such failures to
be enforceable that would not, individually or in the aggregate, have a Material
Adverse Effect. None of Lessee, any Lessee Subsidiary, Management or Management
Sub or, to the Knowledge of Lessee, Management or Management Sub, any other
party, is in breach or default in the performance of any obligation thereunder
and no event has occurred or has failed to occur whereby any of the other
parties thereto have been or will be released therefrom or will be entitled to
refuse to perform thereunder, in any case which would have, either individually
or in the aggregate, a Material Adverse Effect.
(j) Properties.
(i) Owned Real Property. None of Management, Management
Sub, Lessee or any Lessee Subsidiary owns a fee interest in any
real property, and none Management, Management Sub or Lessee has
owned a fee interest in any real property since April 1, 1989.
(ii) Leased Real Property. Schedule 3.1(j)(ii) sets forth
as of the date hereof, by address, each Leased Real Property, all
of which are leased from Sunstone OP or its Subsidiaries
(collectively, the "Real Property Leases"). Except as set forth
on Schedule 3.1(i), as of the date hereof, none of Lessee, any
Lessee Subsidiary, Management or Management Sub is a lessor under
any ground lease or Space Lease. Pursuant to the Real Property
Leases, Management, Management Sub or Lessee holds good and valid
leasehold title to the Leased Real Property, in each case in
accordance with the provisions of the applicable Real Property
Lease and free of all Liens except for Permitted Liens. Other
than such exceptions which would not, individually or in the
aggregate, have a Material Adverse Effect, all Real Property
Leases (i) are legal, valid and binding obligations of Lessee,
Management or Management Sub, as applicable, and to the Knowledge
of Lessee, Management or Management Sub, as applicable, each
other party thereto, enforceable in accordance with their terms,
and (ii) to the Knowledge of Lessee, Management or Management
Sub, grant in all respects the leasehold estates or rights of
occupancy or use they purport to grant. Except as set forth on
Schedule 3.1(j)(ii), as of the date hereof, there are no existing
defaults (either on the part of Management, Management Sub or
Lessee or, to the Knowledge of Management, Management Sub or
Lessee, as applicable, any other party thereto) under any Real
Property Lease and no event has occurred which, with notice or
the lapse of time, or both, would constitute a default (either on
the part of Management, Management Sub or Lessee or, to the
Knowledge of Management, Management Sub or Lessee, as applicable,
any other party thereto) under any of the Real Property Leases,
except for any of the foregoing which, individually or in the
aggregate, would not have a Material Adverse Effect. The
consummation of the Transactions will not result in any payment
obligations under any of the Real Property Leases (whether
pursuant to a "change in control" provision in the Real Property
Leases or otherwise) to any Person other than Sunstone OP or its
Subsidiaries, except as set forth on Schedule 3.1(j)(ii).
20
(iii) No Transfer Agreements. Except as set forth on
Schedule 3.1(j)(iii), as of the date hereof, none of Management,
Lessee or any Lessee Subsidiary has entered into any agreement to
sell, transfer, mortgage, lease, grant any preferential right to
purchase (including but not limited to any option, right of first
refusal or right of first negotiation) with respect to, or
otherwise dispose of or encumber all or any portion of their
respective interest in, the Leased Real Property.
(iv) Space Leases. Except as set forth on Schedule
3.1(j)(iv), as of the date hereof, there are no Space Leases, nor
are there any other tenants or occupants (other than transient
guests and as otherwise contemplated in the Hotel Management
Agreements) with rights to occupy all or any portion of the Real
Property. A copy of each Space Lease described on Schedule
3.1(j)(iv) has been provided to SHP and is a true and accurate
copy, including all amendments to date, and constitutes the
entire agreement between Management, Management Sub or Lessee, as
the case may be, and the other party or parties named therein.
Each such Space Lease is a legal, valid and binding obligation of
Lessee, Management or Management Sub, as applicable, and to the
Knowledge of Lessee, Management or Management Sub, as applicable,
each other party thereto, enforceable in accordance with its
terms, and, to the Knowledge of Management, Management Sub or
Lessee, as applicable, free of any default by any party thereto,
nor has Management, Management Sub or Lessee received any written
or verbal notice or other communication of any alleged breach or
default thereunder. As of the date hereof, none of Management,
Management Sub, Lessee or any Lessee Subsidiary is required to
pay for any alterations in excess of $20,000 for any tenant which
alterations have not been completed as required pursuant to the
relevant lease, except as set forth on Schedule 3.1(j)(iv). To
the Knowledge of Lessee, Management or Management Sub, as
applicable, no brokerage commissions or finder's fees that
Lessee, Management or Management Sub is required to pay in excess
of $20,000 with respect to the negotiation, renewal, extension or
modification of any Space Lease set forth on Schedule 3.1(i)(iv)
will be owing on the Closing Date. To the Knowledge of Lessee,
Management or Management Sub, as applicable, there are no pending
actions or proceedings instituted against Management, Management
Sub, Lessee or any Lessee Subsidiary by any tenant under any
Space Lease.
(v) Equipment Leases, Service Contracts, Advance Booking
Agreements. Schedule 3.1(j)(v), as of the date hereof, sets forth
a list of all of the Equipment Leases, Service Contracts and
Advance Booking Agreements which involve the payment or 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
21
have a Material Adverse Effect by any Person exists under any
Section (v) Contract and none of Management, Management Sub or
Lessee has received any written notice from any party to any
Section (v) Contract claiming the existence of any default under
such Section (v) Contract and no such Section (v) Contract has
been assigned, transferred, hypothecated, pledged or encumbered
by Management, Management Sub, Lessee or any Lessee Subsidiary.
None of Management, Management Sub, Lessee, any Lessee Subsidiary
or any of their Affiliates has any direct or indirect ownership
interests in any Person providing goods or services under the
Section (v) Contracts. To the Knowledge of Management, Management
Sub or Lessee, as applicable, there are no pending actions or
proceedings instituted against Management, Management Sub, Lessee
or any Lessee Subsidiary by any party under any Section (v)
Contracts. Each Section (v) Contract to be transferred to SHP and
Management Newco pursuant to this Agreement is transferable
without consent, other than as set forth on Schedule 3.1(j)(v)
attached hereto.
(vi) Liquor Licenses. Schedule 3.1(j)(vi) sets forth, as of
the date hereof, the Liquor Licenses for the businesses conducted
by Management, Management Sub, Lessee and any Lessee Subsidiary,
all of which are held in the names as set forth on Schedule
3.1(j)(vi). The Liquor Licenses are legal, valid and binding
obligations of Lessee, each Lessee Subsidiary, Management and
Management Sub, as applicable, and to the Knowledge of Lessee,
Management or Management Sub, as applicable, each other party
thereto, enforceable in accordance with their terms. To the
Knowledge of Management, Management Sub or Lessee, as applicable,
no default except for defaults that would not have a Material
Adverse Effect by any Person exists under the Liquor Licenses,
and none of Management, Management Sub or Lessee has received any
written notification of any material violation or alleged
material violation of any applicable laws or regulations relating
to the sale and service of alcoholic beverages which are
outstanding and which have not been remedied. The Liquor Licenses
are adequate for the operation of the business conducted by
Management, Management Sub, Lessee and each Lessee Subsidiary
consistent with past practice. All applicable state and federal
liquor stamp taxes have been paid in full or will be paid in full
on or prior to the Closing Date.
(vii) Other Matters. Schedule 3.1(j)(vii), as of the date
hereof, is a true, correct and complete list of (A) all
properties which Management, Management Sub, Lessee or any Lessee
Subsidiary are obligated, or have the right, to purchase or
lease, which are now not owned or leased by Management,
Management Sub, Lessee or any Lessee Subsidiary, (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
22
Knowledge of Management, Management Sub or Lessee, as applicable, threatened
against Management, Management Sub, Lessee or any Lessee Subsidiary or relating
to any of the assets of Management, Management Sub, Lessee or any Lessee
Subsidiary or the Transactions which, either individually or in the aggregate,
would reasonably be expected to have a Material Adverse Effect or which seeks to
restrain or enjoin the consummation of any of the Transactions. None of
Management, Management Sub, Lessee or any Lessee Subsidiary as of the date
hereof is party to nor are any of the assets of Management, Management Sub,
Lessee or any Lessee Subsidiary subject to any judgment, writ, decree,
injunction or order entered by any court, governmental authority or arbitrator.
(l) Labor Controversies. Except as set forth on Schedule 3.1(l),
as of the date hereof, (i) there have been no labor strikes, slow-downs, work
stoppages, lock-outs or other material labor controversies or disputes during
the past two years, nor is any such strike, slow- down, work stoppage or other
material labor controversy or dispute pending or, to the Knowledge of
Management, Management Sub or Lessee, as applicable, threatened, in each case
with respect to the current or former employees of Management, Management Sub,
Lessee or any Lessee Subsidiary, (ii) none of Management, Management Sub, Lessee
or any Lessee Subsidiary is a party to any labor contract, collective bargaining
agreement, contract, letter of understanding or, to the Knowledge of Management,
Management Sub or Lessee, as applicable, any other agreement, formal or
informal, with any labor union or organization, nor are any of the employees of
Management, Management Sub, Lessee or any Lessee Subsidiary represented by any
labor union or organization, and (iii) none of Management, Management Sub,
Lessee or any Lessee Subsidiary has closed any facility, effectuated any layoffs
of employees or implemented any early retirement, separation or window program
within the past three years nor has Management, Management Sub or Lessee planned
or announced any such action or program for the future except for any of the
foregoing which, individually or in the aggregate, would not have a Material
Adverse Effect.
(m) Intellectual Property and Technology. Management, Management
Sub, Lessee and each Lessee Subsidiary own, or are licensed or otherwise have
the right to use in the manner currently being used, all patents, patent
registrations, patent applications, trademarks, trademark registrations,
trademark applications, tradenames, copyrights, copyright applications,
copyright registrations, franchises, URLs, domain names, permits and licenses
("Intellectual Property") used by Management, Management Sub and Lessee and
necessary to the operation of their respective businesses (the "Business
Intellectual Property"), subject to the terms of the 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
23
third party. Except as would not, individually or in the aggregate, reasonably
be expected to have a Material Adverse Effect, all trademark registrations of
each of Management, Management Sub, Lessee and Lessee Subsidiary are valid and
subsisting and in full force and effect. Each of Management, Management Sub,
Lessee or each Lessee Subsidiary owns or is licensed or otherwise has the right
to use all of the processes, formulae, proprietary technology, inventions, trade
secrets, know-how, product descriptions and specifications ("Technology") in the
manner currently used by Management, Management Sub, Lessee or each Lessee
Subsidiary, except as would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect. Except as would not, individually or
in the aggregate, reasonably be expected to have a Material Adverse Effect,
there have been no written claims (whether private or governmental) against
Management, Management Sub or Lessee asserting the invalidity or
unenforceability of its ownership, license or other right to use any of the
Technology. Except as would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect, none of the rights of Management,
Management Sub, Lessee or any Lessee Subsidiary to the Business Intellectual
Property or the Technology will be impaired in any way by any of the
Transactions, except with respect to off-the-shelf software and with respect to
Intellectual Property licensed under franchise agreements, such exception being
applicable only if Management, Management Sub, Lessee or such Lessee Subsidiary,
as the case may be, shall not be in violation of the Intellectual Property
provisions of the applicable franchise agreement, and all of the rights of
Management and Management Sub to the Business Intellectual Property and
Technology included in the Management Assets and the Basis Assets will be fully
enforceable by Management Newco after the Closing Date to the same extent as
such rights would have been enforceable by Management or Management Sub, as the
case may be, before the Closing.
(n) Conduct of Business in Compliance with Laws.
(i) Each of Management, Management Sub, Lessee and each
Lessee Subsidiary has complied with all applicable laws,
ordinances, regulations or orders or other requirements of any
Governmental Authority applicable to it, except where the failure
to be in such compliance would not have, either individually or
in the aggregate, a Material Adverse Effect.
(ii) Each of Management, Management Sub, Lessee and each
Lessee Subsidiary has all licenses, permits, consents, approvals,
authorizations, qualifications and orders of Governmental
Authorities required for the conduct of its respective businesses
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
24
Management, Management Sub, Lessee or any Lessee Subsidiary that could
reasonably be expected to give rise to any liability under any Environmental Law
or result in costs arising out of any Environmental Law; (iii) no judicial,
administrative, or arbitral proceeding (including any notice of violation or
alleged violation) under any Environmental Law to which Management, Management
Sub, Lessee or any Lessee Subsidiary is, or to the Knowledge of Management,
Management Sub or Lessee, as applicable, will be, named as a party is pending
or, to the Knowledge of Management, Management Sub or Lessee, as applicable,
threatened, with respect to Management, Management Sub, Lessee or any Lessee
Subsidiary nor to the Knowledge of Management, Management Sub or Lessee, as
applicable, is Management, Management Sub, Lessee or any Lessee Subsidiary the
subject of any investigation in connection with any such proceeding or potential
proceeding; (iv) to Management's, Management Sub's and Lessee's Knowledge, there
are no past, present, or anticipated future events, conditions, circumstances,
practices, plans, or legal requirements that could be expected to prevent, or
materially increase the burden on Management, Management Sub, Lessee or any
Lessee Subsidiary of complying with applicable Environmental Laws or of
obtaining, renewing, or complying with all permits required under Environmental
Laws required under such laws; and (v) Management, Management Sub, Lessee, Alter
and 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 Section 4980B of the Code, or
25
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:
(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;
26
(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;
(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.
27
(v) Except as disclosed on Schedule 3.1(p) hereto, no
Controlled Group Member has maintained or been obligated to
contribute to any plan subject to Code Section 412 or Title IV of
ERISA (other than a Multiemployer Plan).
(vi) As of the date hereof, Management, Management Sub,
Lessee and the Lessee Subsidiaries have approximately 4,700
employees in the aggregate, and no demand for recognition made by
any labor organization is pending with respect to any such
employees. Schedule 3.1(p)(vi) sets forth all collective
bargaining agreements to which the Company is a party as of the
date hereof and any pending grievances thereunder. None of
Management, Management Sub or Lessee has at any time during the
last two years (A) had, nor, to the Knowledge of Management,
Management Sub or Lessee, as applicable, is there now threatened,
a material strike, picketing, work stoppage, work slowdown,
lockout or other labor trouble or dispute or grievance under any
collective bargaining agreement or (B) engaged in any unfair
labor practice or discriminated on the basis of age or other
discrimination prohibited by applicable law in their employment
conditions or practices. There are no representation petitions,
unfair labor practice or age discrimination charges or
complaints, or other charges or complaints alleging illegal
discriminatory practices by Management, Management Sub, Lessee or
any Lessee Subsidiary, pending or, to the Knowledge of
Management, Management Sub or Lessee, as applicable, threatened
before the National Labor Relations Board or any other
governmental body. Neither Management, Management Sub, Lessee nor
any ERISA Affiliate has incurred any liability or obligation
under the Worker Adjustment and Retaining Notification Act or
similar state laws which remains unpaid or unsatisfied.
(vii) All insurance premiums required to be paid with
respect to Employee Plans as of the Effective Time have been or
will be paid prior thereto and adequate reserves have been
provided for on the balance sheets of Management and Lessee for
any premiums (or portions thereof) attributable to service on or
prior to the Closing Date.
(q) Entire Business. The properties, assets and other rights of
Lessee constitute all of the properties, assets and other rights necessary for
the conduct of the business of Lessee as currently conducted. As of the Closing,
Management and Management Sub will have transferred or caused to be transferred
to SHP all of the properties, assets and other rights of Management and
Management Sub used in the conduct of their business as currently conducted.
(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
28
collect have been duly withheld or collected and, to the extent
required, have been paid to the appropriate governmental
authority.
(ii) Except as set forth on Schedule 3.1(r)(ii), as of the
date hereof, to the Knowledge of Lessee, Management or Management
Sub, as applicable, no action, suit, proceeding, investigation,
claim or audit has been commenced, or is threatened in writing,
with respect to Lessee, any Lessee Subsidiary, Management or
Management Sub in respect of any Taxes. Any deficiency proposed
as a result of such action, suit, proceeding, investigation,
claim or audit has been paid or, as described on Schedule
3.1(r)(ii), are being contested in good faith by appropriate
proceedings.
(iii) Except as set forth on Schedule 3.1(r)(iii) or as
would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect, none of Lessee, any
Lessee Subsidiary, Management or Management Sub will be required
to include any amount in income for any taxable period ending
after the Closing Date by reason of a change in method of
accounting, any closing or similar agreement with a governmental
authority, any installment sale or any other item which
economically accrued prior to the Closing Date.
(iv) Lessee and Management have at all times qualified as,
and have elected to be treated as, "S Corporations" as defined in
section 1361 of the Code and no assets of Lessee or Management
are subject to section 1374 of the Code.
(v) None of Lessee, any Lessee Subsidiary, Management or
Management Sub could be responsible to pay the Taxes of any other
Person under any agreement or otherwise.
(s) Year 2000 Compliance. To the Knowledge of Lessee, Management
or Management Sub, as applicable, all of the computer programs, computer
firmware, computer hardware (whether general or special purpose) and other
similar or related items of automated, computerized and/or software system(s)
that are used or relied on by Management, Management Sub Lessee or any Lessee
Subsidiary in the conduct of their respective businesses will not malfunction,
will not cease to function, will not generate incorrect data, and will not
provide incorrect results when processing, providing, and/or receiving
date-related data into and between 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
29
insurance in such amounts, with such deductibles and against such risks and
losses as are reasonable for the businesses, properties and assets of
Management, Management Sub, Lessee and the Lessee Subsidiaries. As of the date
hereof, the insurance policies maintained with respect to each of Management,
Management Sub, Lessee and each Lessee Subsidiary and their respective
businesses, assets and properties (the "Insurance Policies") are listed in
Schedule 3.1(u). All such Insurance Policies are in full force and effect, and
all premiums due and payable thereon have been paid except for any of the
foregoing which, individually or in the aggregate, would not have a Material
Adverse Effect. To the Knowledge of Lessee, Management or Management Sub, as
applicable, no insurer under any such policy has canceled or generally
disclaimed liability under any such policy or indicated any intent to do so or
to materially increase the premiums payable under or not renew any such policy
except for any of the foregoing which, individually or in the aggregate, would
not have a Material Adverse Effect.
(v) Certain Fees. Except as set forth on Schedule 3.1(v), none of
Management, Management Sub, Lessee or any Lessee Subsidiary nor the officers,
directors or employees thereof have employed any broker or finder or incurred
any other Liability for any brokerage fees, commissions or finders' fees in
connection with the Transactions.
3.2 Additional Representations and Warranties of the Alter Entities.
Each of the Alter Entities jointly and severally represents and warrants to
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 and legally
binding obligation of such Alter Entity, enforceable against it in accordance
with its terms.
30
(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.
(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)
31
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 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
32
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 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:
33
(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 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
34
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 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) except for any
35
filings required under the HSR Act, require any consent, approval, authorization
or permit of, or filing with or notification to, any Governmental Authority,
(iii) require the consent or approval of any Person (other than a Governmental
Authority), violate, conflict with or result in a breach of any provision of,
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to any Person any right of termination,
cancellation, amendment or acceleration under, or result in the creation of a
Lien on any of the assets, properties or limited liability interests of SHP,
under, any of the provisions of any contract, lease, note, permit, franchise,
license or other instrument or agreement to which SHP is a party or by which it
or its assets or properties are bound, or (iv) violate or conflict with any
order, writ, injunction, decree, statute, rule or regulation of any Governmental
Authority or arbitrator applicable to SHP or its assets or properties; other
than any consents and approvals the failure of which to obtain and any
violations, conflicts, breaches and defaults set forth pursuant to clauses (ii),
(iii) and (iv) above which, individually or in the aggregate, would not
materially adversely affect the ability of SHP to perform its obligations
hereunder or under the Implementing Agreements to which it is a party.
(d) Legal Proceedings. Except as described in Schedule 3.5(d), as
of the date hereof, there is no litigation, claim, arbitration, proceeding or
investigation to which SHP is a party pending or, to the Knowledge of SHP,
threatened against SHP or relating to any of the assets of SHP or the
Transactions which, either individually or in the aggregate, would reasonably be
expected to restrain or enjoin the consummation of any of the Transactions
beyond December 31, 1999. As of the date hereof, SHP is not party to nor are any
of the assets of SHP subject to any judgment, writ, decree, injunction or order
entered by any court, governmental authority or arbitrator.
3.6 Survival of Representations and Warranties. Each of the
representations and warranties given by the parties in Article III shall be
deemed repeated and remade at the Closing as if made at such time and shall,
notwithstanding any investigation on the part of any other party, survive the
Closing until the two year anniversary thereof, at which time such
representations and warranties will terminate, provided that the representations
and warranties contained in Sections 3.1(d), 3.1(h), 3.2(g), 3.2(h), 3.3(g) and
3.3(h) shall survive the Closing and shall not terminate, and the
representations and warranties contained in Sections 3.1(p) and 3.1(r) shall
survive until the expiration of the statute of limitations with respect thereto.
3.7 Exclusion of Lessee/Manager Agreement. The parties hereto
acknowledge that Alter, Biederman, Lessee and Management are parties to the
Lessee/Manager Agreement, dated the date hereof (the "Lessee/Manager
Agreement"), which, among other things, grants Sunstone, Sunstone OP and certain
other parties the right, under certain circumstances, following the 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.
36
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;
(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
37
development of hotels by Sunstone or any Subsidiary thereof but only to the
extent that (x) such acquisition or development is in compliance with the Merger
Agreement and (y) any such agreement is of the type and contains terms that are
in the ordinary course of business consistent with past practice of Lessee or
Management, as applicable; provided further, that Lessee may pay reasonable
legal fees and expenses incurred in connection with the Transactions;
(g) except as provided in Section 4.1(f), terminate or amend in
any material respect any agreement listed or required to be listed on Schedule
3.1(i), 3.1(j)(ii) through (v) or 3.1(t)
(h) file any voluntary petition for bankruptcy or receivership or
fail to oppose any other Person's petition for bankruptcy of, or action to
appoint a receiver regarding, it;
(i) except as required by applicable law or to the extent
required under existing employee benefit plans, agreements or arrangements as in
effect on the date of this Agreement, (A) increase the compensation or fringe
benefits of any employee, except for increases, in the ordinary course of
business, in salary or wages of employees who are not directors or officers, (B)
grant any severance or termination pay to any employee or (C) enter into or
amend or terminate any collective bargaining, bonus, profit sharing, thrift,
compensation, pension, retirement, deferred compensation, employment,
termination, severance or other plan, agreement, trust, fund, policy or
arrangement for the benefit of any employee; provided that Lessee (on behalf of
SHP) shall be permitted to make or agree to make payments as described on
Schedule 2.1(m) hereto;
(j) change any accounting principle except as required by GAAP;
(k) make any election with respect to Taxes;
(l) cancel any indebtedness payable to it in excess of $10,000;
(m) make any loan or other advance to any Person other than
advances to wholly-owned Subsidiaries in existence on the date hereof;
(n) take any willful action which would cause any representation
or warranty of Alter or 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
38
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.
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
39
in an aggregate amount in excess of $200,000 in connection with the obtaining of
all consents required to effect the Transactions. In case at any time after the
Closing Date any further action is necessary or desirable to transfer any of the
Management Assets, Basis Assets, Sunstone Stock or OP Units pursuant to the
terms of this Agreement, or to otherwise to carry out the terms of this
Agreement, the parties hereto and their respective Affiliates shall execute such
further documents (including assignments, acknowledgments and consents and other
instruments of transfer) and shall take such further action as shall be
necessary or desirable to effect such transfer and to otherwise carry out the
terms of this Agreement, in each case to the extent not inconsistent with
applicable law provided that Alter, Management and Management Sub are not
required to make any payments thereby and are reimbursed for all expenses and
costs incurred.
4.5 Consents. Notwithstanding anything to the contrary contained in
this Agreement, to the extent that the sale, conveyance, transfer, assignment or
delivery or attempted sale, conveyance, transfer, assignment or delivery to SHP
or Management Newco of any Management Asset (including any assumed contract,
license or other agreement) is prohibited by applicable law or would require any
governmental or third-party authorization, approval, consent or waiver and such
authorization, approval, consent or waiver shall not have been obtained prior to
the Closing, this Agreement shall not constitute a sale, conveyance, transfer,
assignment or delivery, or an attempted sale, conveyance, transfer, assignment
or delivery thereof if any of the foregoing would constitute a breach of
applicable law or the rights of any third party; provided, however, that, except
to the extent that a condition to closing set forth herein, if any, relating to
the foregoing shall not be satisfied (in which case the Closing shall not occur
unless waived by 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
40
in this Agreement to be untrue or inaccurate at or prior to the Closing Date and
(ii) any failure of such party to comply with or satisfy any covenant, condition
or agreement to be complied with or satisfied by it hereunder; provided,
however, that the delivery of any notice pursuant to this Section 4.7 shall not
limit or otherwise affect any remedies available to the party receiving such
notice. No disclosure by any party pursuant to this Section 4.7 shall be deemed
to amend or supplement the disclosures set forth on the Schedules hereto or
prevent or cure any misrepresentations, breach of warranty or breach of
covenant.
4.8 Employee Matters. (a) SHP shall cause Management Newco and Lessee
to promptly pay or provide when due all compensation and benefits earned or
accrued through or prior to the Closing Date as provided pursuant to the terms
of any compensation arrangements, employment agreements and employee or director
pension, welfare benefit or employee benefit plans, programs, arrangements and
policies in existence as of the date hereof for all employees (and former
employees) and directors (and former directors) of Management Newco and Lessee
and listed on any Schedule to this Agreement. SHP shall cause Management Newco
and Lessee to pay promptly or provide when due all compensation and benefits
required to be paid pursuant to the terms of any individual agreement with any
current or former employee or director in effect and listed on Schedule 4.8(a)
to this Agreement. Nothing in this Agreement shall require the continued
employment of any Person or prevent SHP and/or Management Newco or Lessee from
taking any action or refraining from taking any action which Management or
Lessee could take or refrain from taking prior to the Closing Date.
Notwithstanding the above, except as set forth on Schedule 4.8(a), SHP shall
cause Management Newco and Lessee to pay compensation to any key employee in
accordance with compensation parameters agreed to by Alter and 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.
41
(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 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.
42
(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. ss.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.
ss.ss.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 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
43
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.
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.
44
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 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
45
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.
(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
46
to the extent such representations and warranties by their terms speak as of a
specified date, in which case they shall be so true and correct as of such date;
and Management and Lessee shall have received from each of the 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:
(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
47
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 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.
48
(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 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.
49
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 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.
50
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, 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
51
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.
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.
52
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 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
53
the defense of a claim, the fees of any separate counsel retained by the
indemnified Person shall be borne by such indemnified Person unless there exists
or is reasonably likely to exist a conflict of interest between them as to their
respective legal defenses (other than one that is of a monetary nature) in the
reasonable judgment of the indemnified Person, in which case the indemnified
Person shall be entitled to retain one law firm as its separate counsel, the
reasonable fees and expenses of which shall be reimbursed as they are incurred
by the indemnifying Person. If the indemnifying Person does not notify the
indemnified Person within 20 days after the receipt of the indemnified Person's
notice of a claim of indemnity hereunder that it elects to undertake the defense
thereof and that it acknowledges its obligation to indemnify the indemnified
Person against any Losses that may result from such claim, the indemnified
Person shall have the right to contest, settle or compromise the claim in a
reasonable manner, and the indemnifying Person shall cooperate with in
connection therewith, but the indemnified Person shall not thereby waive any
right to indemnity therefor pursuant to this Agreement.
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.
(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);
54
(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 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.
55
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
c/x Xxxxxxxxx Real Estate 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
56
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
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
57
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
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
58
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 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
59
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.
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
60
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 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).
61
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
62
ALTER INVESTMENT GROUP LTD.
By: /s/ Xxxxxx X. Alter
-------------------
Name: Xxxxxx X. Alter
Title: General Partner
/s/ Xxxxxxx X. Xxxxxxxxx
Xxxxxxx X. Xxxxxxxxx
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
63
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
