Exhibit 4
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INVESTOR RIGHTS AGREEMENT
AMONG
STARWOOD FINANCIAL INC.,
X. XXXXX LODGE III,
R. XXXXXXX XXXXXX III,
XXXXXXX X. XXXXX III,
D. C. CAPITAL-ACRE, LLC,
XXX X. XXXXXX,
XXXXX X. XXXXXXX,
XXXXXXX X. XXXXX,
AND
TINICUM ENTERPRISES, G.P.
March 17, 2000
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TABLE OF CONTENTS
PAGE
Section 1. Definitions and Usage 1
Section 2. Registration 4
Section 3. Registration Procedures and Termination 6
Section 4. Holder's Obligations 7
Section 5. Expenses of Registration 7
Section 6. Indemnification; Contribution 8
Section 7. Holdback 11
Section 8. Election of Directors 11
Section 9. Transfers 12
Section 10. Amendment, Modification and Waivers; Further Assurances 12
Section 11. Assignment; Benefit 13
Section 12. Miscellaneous 13
Section 13. Representative 14
INVESTOR RIGHTS AGREEMENT
This Investor Rights Agreement (this "AGREEMENT") is made and entered into
this 17th day of March 2000, among Starwood Financial Inc., a Maryland
corporation (the "COMPANY"), and the investors listed on SCHEDULE I hereto (the
"INVESTORS"). Each of the Investors is referred to herein as an "INVESTOR".
Unless otherwise indicated, capitalized terms used herein are defined in SECTION
1.1.
RECITALS
WHEREAS, pursuant to that certain Agreement and Plan of Merger, dated as
of the date hereof, among the Company, Starwood Merger Co. I, American Corporate
Real Estate, LLC, and certain members therein and that certain Agreement and
Plan of Merger dated the date hereof among the Company, Starwood Merger Co. II,
American Corporate Real Estate, Inc. and the stockholders therein (together, the
"MERGER AGREEMENTS"), the Investors are purchasing up to an aggregate of 500,000
shares of Common Stock, $.00l par value per share, of the Company (together with
any other securities issued as (or issuable upon the conversion or exercise of
any warrant, right or other security which is issued as) a dividend or other
distribution with respect to, or in exchange by the Company for, or in
replacement by the Company of, such shares, the "SHARES"); and
WHEREAS, the parties hereto desire to set forth the rights and the
obligations of the parties hereto with respect to the Shares;
NOW THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
Section 1. DEFINITIONS AND USAGE.
1.1. DEFINITIONS. As used in this Agreement:
"AFFILIATE" of any Person means a Person which directly or indirectly
through one or more intermediaries controls, or is controlled by, or is under
common control with, such Person.
"BENEFICIALLY OWNING" and "BENEFICIALLY OWN" shall mean owning Shares,
directly, indirectly or constructively by a Person through the application of
Section 318(a) of the Code, as modified by Section 856(d)(5) of the Code, or
Section 544 of the Code, as modified by Section 856(h) of the Code.
"BUSINESS DAY" shall mean any day other than a Saturday, Sunday or a day
on which all U.S. securities exchanges or any recognized trading market on which
any securities of the
Company are listed or included for quotation, are authorized or required to
close.
"CHANGE OF CONTROL" means that the common shareholders of the Company
immediately prior to the consummation of a merger, consolidation, acquisition of
assets or securities or a disposition of assets or securities (other than a
public offering of common stock), own less than 50% of the equity of the
surviving or successor entity resulting from such transaction.
"CLOSING SHARES" shall mean the Shares issued to the Holders on the date
hereof.
"CODE" shall mean the Internal Revenue Code of 1986, as amended, and the
rules and regulations thereunder.
"COMMISSION" shall mean the Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act.
"CONTROL" of a Person shall mean the power, direct or indirect, (i) to
vote or direct the voting of more than 50% of the outstanding shares of voting
stock or voting units of such Person, or (ii) to direct or cause the direction
of the management and policies of such Person, whether by contract or otherwise
(and correlative words shall have correlative meanings).
"DESIGNATED COUNSEL" shall have the meaning set forth in SECTION 3-2.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended,
and the rules and regulations of the Commission thereunder.
"HOLDERS" means each Investor and its permitted assignees, but only if
such Person has agreed in writing to be bound by the terms of this Agreement.
"INVESTOR DIRECTOR" shall have the meaning set forth in SECTION 8.
"INVESTOR MEMBER" shall have the meaning set forth in SECTION 8.
"LOCK-UP PERIOD" shall mean, with respect to each Share, the period
beginning the date hereof and ending on the later of (i) January 31, 2001 and
(ii) six months following the date on which such Share is issued pursuant to the
Merger Agreement, if ever.
"MERGER AGREEMENTS" shall have the meaning set forth in the Recitals.
"PERSON" means an individual, a partnership, a joint venture, a
corporation, a limited liability company, a trust, an unincorporated
organization and a government or any department or agency thereof.
"QUALIFIED INVESTMENTS" has the meaning set forth in the Merger
Agreements.
"REGISTER", "REGISTERED", and "REGISTRATION" shall refer to a registration
effected by preparing and filing a registration statement or similar document in
compliance with the Securities Act, and the declaration or ordering by the
Commission of effectiveness of such registration statement or document.
"REGISTRABLE SECURITIES" shall mean: (i) the Shares issued or to be issued
to a Holder pursuant to the Merger Agreement; and (ii) any securities issued in
exchange for such Shares or other securities that are Registrable Securities in
any merger, reorganization, recapitalization or combination of the Company;
PROVIDED, HOWEVER, that Registrable Securities shall not include any securities
which have theretofore been Transferred in an offering registered under the
Securities Act or which have been Transferred pursuant to Rule 144 or any
similar rule promulgated by the Commission pursuant to the Securities Act.
"REGISTRATION EXPENSES" shall have the meaning set forth in SECTION 5.
"REIT" means a real estate investment trust.
"REIT REQUIREMENTS" shall mean the requirements for the Company to qualify
as a REIT under the Code.
"REPRESENTATIVE" means a Person designated by the Holders from time to
time to receive notices, grant approvals, waivers and consents and otherwise act
on behalf of the Holders pursuant to this Agreement as set forth in SECTION 13.
"REPRESENTATIVE REPLACEMENT INSTRUMENT" shall have the meaning set forth
in Section 13.2.
"SHARES" shall have the meaning set forth in the Recitals.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended, and
the rules and regulations of the Commission thereunder, all as the same may be
in effect at the time.
"SHELF REGISTRATION" shall have the meaning set forth in SECTION 2.1.
"STARWOOD HOLDERS" means SOFI-IV SMT Holdings, L.L.C. or Starwood
Mezzanine Investors, L.P., or the direct or indirect managing members and
general partners of each.
"TRANSFER" shall mean and include the act of selling, giving, pledging,
transferring, creating a trust (voting or otherwise), assigning or otherwise
disposing of (and correlative words shall have correlative meanings).
"VIOLATION" shall have the meaning set forth in SECTION 6.1.
1.2. USAGE.
(i) References to Registrable Securities "owned" by the Holder shall
include Registrable Securities beneficially owned by such Person but which are
held of record in the name of a nominee, trustee, custodian, or other agent.
(ii) Unless this Agreement specifically provides otherwise, references to
a document are to it as amended, waived and otherwise modified from time to time
in accordance with the terms thereof and references to a statute or other
governmental rule are to it as amended and otherwise modified from time to time
(and references to any provision thereof shall include references to any
successor provision).
(iii) References to Sections are to sections hereof, unless the context
otherwise requires.
(iv) The definitions set forth herein are equally applicable both to the
singular and plural forms and the feminine, masculine and neuter forms of the
terms defined.
(v) The term "including" and correlative terms shall be deemed to be
followed by "without limitation" whether or not followed by such words or words
of like import.
(vi) The term "hereof" and similar terms refer to this Agreement as a
whole.
(vii) The "date of" any notice or request given pursuant to this Agreement
shall be determined in accordance with SECTION 12.2.
Section 2. REGISTRATION.
2.1. The Company shall use its reasonable efforts promptly, but in no
event later than forty-five (45) days, after January 31, 2001 to: (a) file a
registration statement covering resales of the Registrable Securities in
accordance with the Securities Act for an offering on a delayed or continuous
basis pursuant to Rule 415 under the Securities Act (the "SHELF REGISTRATION");
or (b) amend any Shelf Registration then in existence to cover the Registrable
Securities. The Company shall deliver to the Representative written notice of
the filing of any Shelf Registration or amendment to any Shelf Registration
contemplated under SECTION 2.1(a) or SECTION 2.1(b) immediately after filing
such amendment.
2.2. Each Holder will provide at least five (5) Business Days notice of
its intention to effect a resale of any Registrable Securities pursuant to the
Shelf Registration to the Company and the Company's transfer agent. In no event
will any Holder be permitted to Transfer any
Registrable Securities prior to the expiration of the Lock-Up Period with
respect to such Registrable Securities or in violation of federal and state
securities laws, including pursuant to the Shelf Registration if such
registration has been suspended pursuant to SECTION 2.3 or prior to delivery by
the Company of the requested number of prospectuses. Any notice given pursuant
to this SECTION 2.2 shall be addressed to the attention of the Secretary of the
Company and the Company's transfer agent, and shall specify the maximum number
of Registrable Securities to be sold, the intended methods of disposition
thereof and the number of copies of the prospectus included in the Shelf
Registration, as the Holder requests.
2.3. Subject to the provisions of this SECTION 2.3, the Company shall be
entitled to postpone or suspend the filing, effectiveness, supplementing or
amending of any registration statement otherwise required to be prepared and
filed pursuant to this SECTION 2, if the Board of Directors of the Company
reasonably determines that such registration and the Transfer of Registrable
Securities contemplated thereby would materially interfere with, or require
premature disclosure of, any material financing, acquisition, disposition,
reorganization or other transaction involving the Company, including the filing
of a registration statement covering primary sales of securities by the Company,
as to which, in each instance of the Company determining that the registration
and Transfer would require premature disclosure, the Company has a bonafide
business purpose for preserving the confidentiality thereof and the Company
promptly gives the Representative notice of such determination, provided that
the Company shall not suspend or postpone the filing, effectiveness,
supplementing or amending of the shelf registration statement on more than two
occasions during any 12-month period or for any period longer than 120 days.
Upon receipt of such notice, each Holder agrees to cease making offers or
Transfers of Registrable Securities pursuant to such registration statement
during such suspension period. The Representative and each Holder hereby
acknowledge that any notice given by the Company pursuant to this SECTION 2.3
may constitute material non-public information and that the United States
securities laws prohibit any Person who has material non-public information
about a company from purchasing or selling securities of such company or from
communicating such information to any other Person under circumstances in which
it is reasonably foreseeable that such Person is likely to purchase or sell such
securities.
2.4. Subject to SECTIONS 2.3 AND 3.9, the Company shall use its reasonable
efforts to keep any Shelf Registration filed pursuant to SECTION 2.1
continuously effective until the Holders no longer hold any Registrable
Securities.
2.5. Notwithstanding anything in this Agreement to the contrary, no
Transfer of Registrable Securities may be effected if as a result thereof in the
reasonable judgment of the Company, the Company would not satisfy the REIT
Requirements in any respect or if such Transfer would result in any Person
Beneficially Owning Shares in excess of the ownership limitation provisions of
the REIT Requirements or the Amended and Restated Charter of the Company, as
amended from time to time.
2.6. A registration pursuant to this SECTION 2 shall be on such
appropriate registration form of the Commission as shall be selected by the
Company and shall permit the disposition of the Registrable Securities in
accordance with the intended method or methods of disposition specified in each
notice given pursuant to SECTION 2.1.
Section 3. REGISTRATION PROCEDURES AND TERMINATION. Whenever required
under SECTION 2 to effect the registration of any Registrable Securities
(subject to SECTION 2.3), the Company shall, as promptly as practicable:
3.1. Prepare and file with the Commission a registration statement with
respect to such Registrable Securities and use reasonable efforts to cause such
registration statement to become effective and to notify the Representative of
such effectiveness in a timely manner.
3.2. Prepare and file with the Commission such amendments and supplements
to such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Securities Act and rules thereunder with respect to the disposition of all
securities covered by such registration statement. The Company shall amend the
registration statement or supplement the prospectus so that it will remain
current and in compliance with the requirements of the Securities Act for the
period specified in SECTION 2.4, and if during such period any event or
development occurs as a result of which the registration statement or prospectus
contains a misstatement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading, the Company shall promptly (i) notify the Representative and one
counsel to all Holders identified in writing by the Representative (the
"DESIGNATED COUNSEL") of such event or development; and (ii) promptly amend the
registration statement or supplement the prospectus in a prompt manner so that
each will thereafter comply with the Securities Act and promptly furnish to the
Representative and the Designated Counsel such amended or supplemented
prospectus, which each Holder shall thereafter use in the Transfer of
Registrable Securities covered by such registration statement. Following receipt
of such notice and pending any such amendment or supplement described in this
SECTION 3.2, each Holder shall cease making offers or Transfers of Registrable
Securities pursuant to the prior prospectus.
3.3. Furnish promptly to the Representative on behalf of each Holder of
Registrable Securities, without charge, such numbers of copies of the
registration statement, any pre-effective or post-effective amendment thereto,
the prospectus, including each preliminary prospectus and any amendments or
supplements thereto, in each case in conformity with the requirements of the
Securities Act and the rules thereunder, and such other related documents as the
Representative may reasonably request in order to facilitate the disposition of
Registrable Securities owned by such Holder.
3.4. Use best efforts to obtain the withdrawal of any order suspending the
effectiveness of a registration statement.
3.5. Promptly notify the Representative of any stop order issued or
threatened to be issued by the Commission in connection therewith and take all
reasonable actions required to prevent the entry of such stop order or to
promptly remove it if entered.
3.6. Use best efforts to cause the Registrable Securities covered by such
registration statement: (i) if the Shares are then listed on a securities
exchange or included for quotation in a recognized trading market, to be so
listed or included for a reasonable period of time after the offering and, in
any event, so long as any Shares are otherwise listed; and (ii) to be registered
with or approved by such other United States or state governmental agencies or
authorities as may be necessary by virtue of the business and operations of the
Company or the securities laws of the states in which such Registrable
Securities are to be offered and sold to enable each Holder of Registrable
Securities to consummate the disposition of such Registrable Securities.
3.7. Take such other actions as are reasonably required in order to
expedite or facilitate the disposition of Registrable Securities included in
each such registration.
3.8 Register and qualify the Registrable Securities under such blue sky
laws as shall be reasonably requested by the Holders.
3.9. The Company shall have no obligation under this Agreement to register
or keep effective any registration statement covering any Registrable Securities
after the later of (i) the third anniversary of this Agreement and (ii) the
second anniversary of the termination of the Lock-Up Period applicable to such
Registrable Securities.
Section 4. HOLDER'S OBLIGATIONS.
4.1. It shall be a condition precedent to the obligations of the Company
to take any action pursuant to this Agreement with respect to the Registrable
Securities of any Holder of Registrable Securities that the Holder shall:
(a) furnish to the Company in writing such information regarding the
Holder, the number of the Registrable Securities owned by it, and the
intended method of disposition of such securities as shall be required
under the Securities Act to effect the registration of the Holder's
Registrable Securities and to keep such information current; and
(b) cooperate fully with the Company in preparing any registration
statement.
4.2. Each Holder shall notify the Company within 5 Business Days of any
sale of Registrable Securities.
Section 5. EXPENSES OF REGISTRATION. The Company shall bear and pay all
expenses
incurred by the Company in connection with any registration, filing, or
qualification of Registrable Securities with respect to such registration for
each Holder, including all registration, filing and National Association of
Securities Dealers, Inc. fees, listing fees, all fees and expenses of complying
with securities or blue sky laws, all printing expenses, messenger and delivery
expenses, the reasonable fees and disbursements of counsel for the Company and
the reasonable fees and disbursements of one counsel for the Holders not to
exceed $5,000 (the "REGISTRATION EXPENSES"), but excluding underwriting
discounts and commissions relating to Registrable Securities (which shall be
paid by the Holders) and, except as specifically set forth herein, all other
fees and expenses of the Holders including counsel for the Holders.
Notwithstanding the foregoing, the Company shall not be required to bear the
expenses of any underwritten offering under the Shelf Registration Statement to
the extent such expenses are greater than they would otherwise have been if such
offering had not been underwritten, including excess printing costs, accounting
and legal fees, and the other Registration Expenses.
Section 6. Indemnification; Contribution. If any Registrable Securities
are included in a registration statement under this Agreement:
6.1. To the extent permitted by applicable law, the Company shall
indemnify and hold harmless each Holder, each Person, if any, who controls any
Holder within the meaning of the Securities Act, and each officer, director,
trustee, partner and employee of any Holder and such controlling Person, against
any and all losses, claims, damages, liabilities and expenses (joint or
several), including reasonable attorneys' fees and disbursements and reasonable
expenses of investigation, incurred by such party pursuant to any actual or
threatened action, suit, proceeding or investigation, or to which any of the
foregoing Persons may become subject under the Securities Act, the Exchange Act
or other federal or state laws, insofar as such losses, claims, damages,
liabilities and expenses arise out of or are based upon any of the following
statements, omissions or violations (collectively, a "VIOLATION"):
(a) Any untrue statement or alleged untrue statement of a material
fact contained in such registration statement, including any preliminary
prospectus or final prospectus contained therein, or any amendments
thereof or supplements thereto; or
(b) The omission or alleged omission to state therein a material
fact required to be stated therein, or necessary to make the statements
therein not misleading; PROVIDED, HOWEVER, that the indemnification
required by this SECTION 6.1 shall not apply to amounts paid in settlement
of any such loss, claim, damage, liability or expense if such settlement
is effected without the consent of the Company (which consent shall not be
unreasonably withheld), nor shall the Company be liable in any such case
for any such loss, claim, damage, liability or expense to the extent that
it arises out of or is based upon a Violation which occurs in reliance
upon and in conformity with information related to the indemnified party
furnished to the Company by the indemnified party in writing expressly for
use in connection with such registration statement; and PROVIDED, FURTHER,
that the indemnity agreement contained in this SECTION 6 shall not apply
to the extent that any such loss is based on or arises out of (A) any
matter covered by SECTION 6.2 for which the Selling Holders are required
to indemnify the Company, (B) an untrue statement or alleged untrue
statement of a material fact, or an omission or alleged omission to state
a material fact, contained in or omitted from any preliminary prospectus
if the final prospectus shall correct such untrue statement or alleged
untrue statement, or such omission or alleged omission, and a copy of the
final prospectus has not been sent or given to such Person at or prior to
the confirmation of sale to such Person if an underwriter was under an
obligation to deliver such final prospectus and failed to do so or (C) the
Holders' failure to comply with applicable prospectus delivery
requirements.
6.2. To the extent permitted by applicable law, each Holder, severally and
not jointly, shall indemnify and hold harmless the Company, and each of the
officers, employees and directors of the Company who shall have signed the
registration statement, and each Person, if any, who controls the Company within
the meaning of the Securities Act, against any and all losses, claims, damages,
liabilities and expenses, including reasonable attorneys' fees and disbursements
and reasonable expenses of investigation, incurred by such party pursuant to any
actual or threatened action, suit, proceeding an investigation, or to which any
of the foregoing Persons may otherwise become subject under the Securities Act,
the Exchange Act or other federal or state laws, but only insofar as such
losses, claims, damages, liabilities and expenses arise out of or are based upon
any Violation, in each case to the extent that such Violation occurs in reliance
upon and in conformity with information related to such Holder and furnished by
such Holder in writing expressly for use in connection with such registration;
PROVIDED, HOWEVER, that in no event shall the aggregate amount of any indemnity
obligation of any Holder under this SECTION 6.2 together with any contribution
obligation under SECTION 6.4 exceed the proceeds (net of any underwriting
discounts or commissions) from the applicable offering received by such Holder.
6.3. Promptly after receipt by an indemnified party under this SECTION 6
of notice of the commencement of any action, suit, proceeding, investigation or
threat thereof made in writing for which such indemnified party may make a claim
under this SECTION 6, such indemnified party shall deliver to the indemnifying
party a written notice thereof and the indemnifying party shall have the right
to participate in, and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, to assume the defense
thereof with counsel mutually satisfactory to the parties; PROVIDED, HOWEVER,
that an indemnified party shall have the right to retain its own counsel if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential conflicts
or differing interests between such indemnified party and any other party
represented by such counsel in such proceeding. The failure to deliver written
notice to the indemnifying party within a reasonable time following the
commencement of any such action, if prejudicial to its ability to defend such
action, shall relieve such indemnifying party of any liability to the
indemnified party under this SECTION 6 to the extent of such prejudice but shall
not relieve the indemnifying party of any
liability that it may have to any indemnified party otherwise than pursuant to
this SECTION 6. Any fees and expenses incurred by the indemnified party
(including any fees and expenses incurred in connection with investigating or
preparing to defend such action or proceeding) shall be paid to the indemnified
party, as incurred, within thirty (30) days of written notice thereof to the
indemnifying party (regardless of whether it is ultimately determined that an
indemnified party is not entitled to indemnification hereunder). Except as set
forth above, any such indemnified party shall have the right to employ separate
counsel in any such action, claim or proceeding and to participate in the
defense thereof, but the fees and expenses of such counsel shall be the expenses
of such indemnified party unless: (i) the indemnifying party has agreed to pay
such fees and expenses, or (ii) the indemnifying party shall have failed to
promptly assume the defense of such action, claim or proceeding; or (iii) the
named parties to any such action, claim or proceeding (including any impleaded
parties) include both such indemnified party and the indemnifying party, and
such indemnified party shall have been advised by counsel that there may be one
or more legal defenses available to it which are different from or in addition
to those available to the indemnifying party and that the assertion of such
defenses would create a conflict of interest such that counsel employed by the
indemnifying party could not faithfully represent the indemnified parry, it
being understood, however, that the indemnifying party shall not, in connection
with any one such action, claim or proceeding separate but substantially similar
or related actions, claims or proceedings in the same jurisdiction arising out
of the same general allegations or circumstances, be liable for the reasonable
fees and expenses of more than one separate firm of attorneys (together with
appropriate local counsel) at any time for all such indemnified parties.
6.4. If the indemnification required by this SECTION 6 from the
indemnifying party is unavailable to an indemnified party hereunder in respect
of any losses, claims, damages, liabilities or expenses referred to in this
SECTION 6:
(a) The indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified
party as a result of such losses, claims, damages, liabilities or expenses
in such proportion as is appropriate to reflect the relative fault of the
indemnifying party and indemnified parties in connection with the actions
which resulted in such losses, claims, damages, liabilities or expenses.
The relative fault of such indemnifying party and indemnified parties
shall be determined by reference to, among other things, whether any
Violation has been committed by, or relates to information supplied by,
such indemnifying party or indemnified parties, and the parties' relative
intent, knowledge, access to information and opportunity to correct or
prevent such Violation. The amount paid or payable by a party as a result
of the losses, claims, damages, liabilities and expenses referred to above
shall be deemed to include, subject to the limitations set forth in
SECTION 6.1 and SECTION 6.2. any legal or other fees or expenses
reasonably incurred by such party in connection with any investigation or
proceeding.
(b) The parties hereto agree that it would not be just and equitable
if contribution pursuant to this SECTION 6.4 were determined by pro rata
allocation or by any other method of allocation which does not take into
account the relative fault referred to in SECTION 6.4(a). No Person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any Person who
was not guilty of such fraudulent misrepresentation.
(c) In no event shall the aggregate amount of any contribution
obligation from any Selling Holder under this SECTION 6.4 together with
any indemnification obligation under SECTION 6.2 exceed the proceeds (net
of any underwriting commissions or discounts) from the applicable offering
received by such Holder.
6.5. If indemnification is available under this SECTION 6. the
indemnifying parties shall indemnify each indemnified party to the full extent
provided in this SECTION 6 without regard to the relative fault of such
indemnifying party or indemnified party or any other equitable consideration
referred to in SECTION 6.4.
6.6. The obligations of the Company and the Holders under this SECTION 6
shall survive the completion of any offering of Registrable Securities pursuant
to a registration statement under this Agreement, and otherwise.
Section 7. HOLDBACK.
7.1. In connection with an underwritten offering by the Company of any
Shares (or any securities convertible into or exchangeable or exercisable for
Shares) covered by a registration statement filed by Company, each Holder,
whether or not its Registrable Securities are included in the registration
statement, if so requested by the underwriters of such offering shall not effect
any public sale or distribution of Shares (except as part of such underwritten
registration), during any such lock up periods requested by the underwriter, not
to exceed the 10-day period prior to, and during the 90-day period beginning on,
the date such registration statement is declared effective under the Securities
Act by the Commission. In order to enforce the foregoing covenant, the Company
shall be entitled to impose stop-transfer instructions with respect to the
Registrable Securities of the Holders until the end of such period.
7.2. In the event of a merger or similar transaction which is accounted
for by the Company as a pooling of interests, each Holder further agrees that it
will, if it is advised by the Company's counsel that it may be deemed an
"affiliate" of the Company, at such time enter into a customary "affiliate
agreement" restricting its ability to effect any public sale or distribution of
Shares in any manner that would cause the Company to not be able to account for
the transaction as a pooling of interest if and to the same extent that Starwood
Holders are subject to identical restrictions.
Section 8. ELECTION OF DIRECTORS. The Company shall use its best efforts
to cause (a) X. Xxxxx Lodge III (the "INVESTOR DIRECTOR") to be elected to the
Board of Directors of the Company; and (b) R. Xxxxxxx Xxxxxx III and Xxxxxxx X.
Xxxxx III (the "INVESTOR MEMBERS") to be appointed to the Company's Management
Investment Committee.
Section 9. TRANSFERS.
9.1. Except as provided in SECTION 9.2 hereof:
(a) Prior to the expiration of the Lock-Up Period with respect to
any Shares, no Holder shall Transfer or enter into any agreement or series
of agreements to Transfer, any such Shares. For the avoidance of doubt,
the term "Transfer" shall not include any conversion or exchange occurring
by operation of law.
(b) Following the termination of the applicable Lock-Up Period for a
Share or Shares, a Holder may Transfer such Share of Shares.
(c) The restrictions set forth in SECTIONS 9.1(a) hereof shall not
apply to (i) a Transfer of Shares that is made by the Holder in response
to a "tender offer" with respect to which the completion of such tender
offer is conditioned upon such completion resulting in a Change of
Control; (ii) a Transfer of Shares that is made to the Person (or any
Affiliate of such Person) receiving control of the Company as a result of
a Change of Control; (iii) a Transfer that occurs because of entry by the
Holders into a voting agreement, proxy or other arrangement deemed
reasonably necessary by the Board of Directors of the Company to
effectuate a merger, consolidation, amalgamation or other business
combination that has been approved by the Board of Directors of the
Company; and (iv) the granting of a proxy with respect to any annual or
special meeting of the shareholders of the Company. For the avoidance of
doubt, all Shares Transferred pursuant to exceptions (i) and (ii) listed
in this SECTION 9.1(c) shall no longer be deemed to be Shares subsequent
to such Transfer.
9.2. The parties declare and agree it is impossible to measure in money
the damages that would be suffered by a party by reason of the failure by any
other party to perform any of its obligations under this Agreement. Therefore,
if any party institutes any action or proceeding to enforce the provisions of
this Agreement, any party against whom such action or proceeding is brought
hereby waives any claim or defense therein that the other party has an adequate
remedy at law and, consequently, the parties hereby agree that the parties shall
be entitled to an injunction or injunctions to prevent breaches of this
Agreement and to enforce specifically the terms and provisions of this
Agreement.
9.3. Unless earlier terminated by a writing executed by all parties,
SECTIONS 9.1 and 9.2 shall terminate upon termination of the Lock-Up Period for
all Shares.
9.4. In addition to the restrictions in SECTION 9.1 and SECTION 9.2, each
Holder who becomes an employee or director of the Company or any Affiliate of
the Company shall be subject to the restrictions of the Company's Statement of
Policy Concerning Trading Policies and Conflicts of Interest attached hereto as
EXHIBIT A.
Section 10. AMENDMENT, MODIFICATION AND WAIVERS: FURTHER ASSURANCES.
10.1. This Agreement may be amended with the consent of the Company and
the Company may take any action herein prohibited, or omit to perform any act
herein required to be performed by it, only if the Company shall have obtained
the prior written consent to such amendment, action or omission to act of: (i)
in the ease of SECTIONS 2 through 7 (including all applicable defined terms) the
Holders of a majority of the then outstanding Registrable Securities; (ii) in
the case of SECTIONS 9, 10, 11, 12 and 13 (including all applicable defined
terms), the Representative; and (iii) in the case of SECTION 8 (including all
applicable defined terms) and all other Sections, the Holder that is affected.
10.2. No waiver of any terms or conditions of this Agreement shall operate
as a waiver of any other breach of such terms and conditions or any other term
or condition, nor shall any failure to enforce any provision hereof operate as a
waiver of such provision or of any other provision hereof. No written waiver
hereunder, unless it by its own terms explicitly provides to the contrary, shall
be construed to effect a continuing waiver of the provisions being waived and no
such waiver in any instance shall constitute a waiver in any other instance or
for any other purpose or impair the right of the party against whom such waiver
is claimed in all other instances or for ail other purposes to require full
compliance with such provision.
10.3. Each of the parties hereto shall execute all such further
instruments and documents and take all such further action as any other party
hereto may reasonably require in order to effectuate the terms and purposes of
this Agreement.
Section 11. ASSIGNMENT; BENEFIT. This Agreement and all of the provisions
hereof shall be binding upon and shall inure to the benefit of the parties
hereto, the Holders (PROVIDED that a provision shall only be binding on a Holder
if the Holder has direct rights or obligations relating to the Shares that were
acquired by the Investors pursuant to the Merger Agreement that are now held by
such Holder) and each indemnified party under SECTION 6 hereof and their
respective heirs, permitted assigns, executors, administrators or successors.
The rights of the Holders shall not be assigned without the consent of the
Company.
Section 12. MISCELLANEOUS.
12.1. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without giving regard to the
conflict of laws principles thereof
12.2. NOTICES. All notices and requests given pursuant to this Agreement
shall be in writing and shall be made by hand-delivery, first-class mail
(registered or certified, return receipt requested), confirmed facsimile or
overnight air courier guaranteeing next business day delivery to the relevant
address specified on SCHEDULE II, as otherwise specified to the Company in
writing or to the address set forth in the stock record books of the Company.
Except as otherwise provided in this Agreement, the date of each such notice and
request shall be deemed to be, and the date on which each such notice and
request shall be deemed given shall be: at the time delivered, if personally
delivered or mailed; when receipt is acknowledged, if sent by facsimile; and the
next Business Day after timely delivery to the courier, if sent by overnight air
courier guaranteeing next business day delivery.
12.3. ENTIRE AGREEMENT; INTEGRATION. This Agreement supersedes all prior
agreements between or among any of the parties hereto with respect to the
subject matter contained herein, and this agreement embodies the entire
understanding among the parties relating to such subject matter.
12.4. SECTION HEADINGS. Section headings are for convenience of reference
only and shall not affect the meaning of any provision of this Agreement.
12.5. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, and all of which shall
together constitute one and the same instrument. All signatures need not be on
the same counterpart.
12.6. SEVERABILITY. If any provision of this Agreement shall be invalid or
unenforceable, such invalidity or unenforceability shall not affect the validity
and enforceability of the remaining provisions of this Agreement, unless the
result thereof would be unreasonable, in which case the parties hereto shall
negotiate in good faith as to appropriate amendments hereto.
12.7. TERMINATION. Unless sooner terminated in accordance with the
preceding sentence or the other provisions of this Agreement; SECTIONS 2, 3, 4,
5, 6 and 7 of this Agreement shall terminate in their entirety on such date as
there shall be no Registrable Securities outstanding; PROVIDED that any Shares
previously subject to this Agreement shall not be Registrable Securities
following the date such Shares no longer meet the definition of Registrable
Securities.
12.8. SUBMISSION TO JURISDICTION. Each of the parties hereto and the
Holders irrevocably submits and consents to the jurisdiction of the United
States District Court for the Southern District of New York in connection with
any action or proceeding arising out of or relating to this Agreement, and
irrevocably waives any immunity from jurisdiction thereof and any claim of
improper venue, FORUM NON CONVENIENS or any similar basis to which it might
otherwise be entitled in any such action or proceeding.
Section 13. REPRESENTATIVE.
13.1. Notwithstanding any statement to the contrary contained herein, each
Holder irrevocably authorizes and appoints X. Xxxxx Lodge III or his/its
successor appointed pursuant to this SECTION 13 (the "REPRESENTATIVE") as its
true and lawful attorney and representative with full power and authority to
take any and all actions and execute any and all documents and agreements in
such Person's name, place and stead, with the same effect as if such action were
taken or such document or agreement were executed by such Person, in connection
with any matter or thing relating to any provision of this Agreement that states
that the Representative shall act or execute and X. Xxxxx Lodge III hereby
accepts his/its appointment as the Representative and agrees to perform all of
the duties of the Representative hereunder.
13.2. The Representative cannot resign or be removed by the Holders,
except upon delivery to the Company of a written instrument signed by the
successor Representative in which the successor Representative agrees to serve
as Representative and the Holders consent thereto (such instrument being
referred to as a "REPRESENTATIVE REPLACEMENT INSTRUMENT").
13.3. The signature of the Representative that purports to be on behalf of
one or more of the Holders shall be deemed to be the signature of such Holders
and they shall be bound by the terms of any documents and agreements executed
and delivered by the Representative pursuant to this Agreement as though they
were actual signatories thereto. The Company shall be entitled to rely, without
any investigation or inquiry by the Company, upon all action by the
Representative as having been taken upon the authority of such Holders. Any
action by the Representative taken on behalf of the Holders shall be
conclusively deemed to be the action of the Holders, and the Company shall not
have any liability or responsibility to the Holders for any action taken in
reliance thereon.
13.4. The appointment of the Representative hereunder is irrevocable and
coupled with an interest and any action taken by the Representative pursuant to
the authority granted in this SECTION 13 shall be effective and absolutely
binding on each Holder, notwithstanding any contrary action of or direction from
a Holder; and
13.5. As among the Holders, a Representative may resign at any time by
giving notice to the Holders, and, if there does not exist any previously
designated successor thereto, upon the appointment and qualification of a
successor. A Representative may be discharged, and replaced by another person to
act as successor, in accordance with SECTION 13.2.
13.6.(a) The Representative shall not be liable to the Holders for
any mistake of fact or error of judgment or any acts or omissions of any
kind unless caused by his willful misconduct. The Representative shall be
entitled to rely on any instrument or signature believed by him to be
genuine and may assume that any person purporting to give any writing,
notice of instrument in connection with this Agreement is duly authorized
to do so by the party on whose behalf such writing, notice or instruction
is given.
(b) The Holders, jointly and severally, shall indemnify the
Representative for and hold the Representatives harmless against, any
loss, liability or expense incurred by the Representative arising out of
or in connection with the acceptance of, or the performance of its duties
under this Agreement, as well as the costs and expenses of defending
against any claim or liability arising under this Agreement or any of the
Merger Agreements.
IN WITNESS WHEREOF, this Agreement has been duly executed by the parties
hereto as of the date first written above.
STARWOOD FINANCIAL INC.
a Maryland corporation
By: /s/ Xxx Xxxxxxxx
-------------------------------------
Name: Xxx Xxxxxxxx
Title: CEO and President
INVESTORS:
/s/ X. Xxxxx Lodge III
----------------------------------------
X. Xxxxx Lodge III
/s/ R. Xxxxxxx Xxxxxx III
----------------------------------------
R. Xxxxxxx Xxxxxx III
/s/ Xxxxxxx X. Xxxxx III
----------------------------------------
Xxxxxxx X. Xxxxx III
D.C. CAPITAL-ACRE, LLC
By: /s/ Xxxxxxx X. Xxxxx
------------------------------------
Name: Xxxxxxx X. Xxxxx
Title: Member
By: /s/ Xxxxxxx X. Xxxxxx
------------------------------------
Name: Xxxxxxx X. Xxxxxx
Title: Member
/s/ Xxx X. Xxxxxx
---------------------------------------
Xxx X. Xxxxxx
/s/ Xxxxx X. Xxxxxxx
---------------------------------------
Xxxxx X. Xxxxxxx
/s/ Xxxxxxx X. Xxxxx
---------------------------------------
Xxxxxxx X. Xxxxx
TINICUM ENTERPRISES, G.P.
By: /s/ Xxxx Xxxxxxxxxx
-------------------------------------
Name: Xxxx Xxxxxxxxxx
The Representative (Solely limited to
his rights and obligations as the
representative pursuant to SECTION 13
hereof)
By: /s/ X. Xxxxx Lodge
-------------------------------------
Name: X. Xxxxx Lodge III, in his
capacity as the Representative
18
SCHEDULE I
INVESTORS
X. Xxxxx Lodge III
R. Xxxxxxx Xxxxxx III
Xxxxxxx X. Xxxxx III
D.C. Capital-Acre, LLC
Xxx X. Xxxxxx
Xxxxx X. Xxxxxxx
Xxxxxxx X. Xxxxx
Tinicum Enterprises, G.P.
SCHEDULE II
ADDRESSES FOR NOTICE
If to the Company to:
1114 Avenue of the Xxxxxxxx
00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxxx Xxxxx
Phone: (000) 000-0000
Fax No.: (000) 000-0000
with a copy to:
Xxxxx, Xxxxx & Xxxxx
0000 Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxx X. Xxxxxxx
Phone: (000) 000-0000
Fax No.: (000)000-0000
and
Katten, Muchin & Zavis
000 Xxxx Xxxxxx Xxxxxx - Xxxxx 0000
Xxxxxxx, Xxxxxxxx 00000
Attention: Xxxx Xxxxxx
Phone: (000) 000-0000
Fax No.: (000) 000-0000
If to the Representative to:
X. Xxxxx Lodge III
000 Xxxx Xxxxx Xxxx
Xxxxxxx, Xxx Xxxx 00000
Phone: (000) 000-0000
Fax No.: (000) 000-0000
with a copy to:
Loeb & Loeb
000 Xxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000-0000
Attention: Xxxxxxxxxxx Xxxxx
Phone: (000) 000-0000
Fax No.: (000) 000-0000
EXHIBIT A
STARWOOD FINANCIAL INC.
STATEMENT OF POLICY
CONCERNING
TRADING POLICIES
AND
CONFLICTS OF INTEREST
DATED
APRIL 1, 1996(1)
----------
(1) Updated for name change and revisions to holding period under Rule 144 in
November 1999.
TABLE OF CONTENTS
Page
----
I. SUMMARY OF THE COMPANY POLICY CONCERNING
TRADING POLICIES AND CONFLICTS OF INTEREST ........................... 1
A. Compliance with Laws .............................................. 1
B. Avoidance of Conflicts of Interest ................................ 1
II. THE USE OF INSIDE INFORMATION IN CONNECTION WITH TRADING IN
SECURITIES ........................................................... 2
A. General Rule ...................................................... 2
B. Who Does the Policy Apply To? ..................................... 3
C. Other Companies' Stocks ........................................... 4
D. Trading in Options ................................................ 4
E. Margin Accounts ................................................... 4
F. Guidelines ........................................................ 4
1. Nondisclosure .................................................. 5
2. Trading in the Company's Securities............................. 5
3. Avoid Speculation .............................................. 5
4. Trading in Other Securities .................................... 6
G. Xxxxxxx Xxxxxxx Compliance Officer ................................ 6
H. Procedures for Approving Trades ................................... 7
1. All Director and Employee Trades ............................... 7
2. Additional Restrictions on the Window Group .................... 7
3. Hardship Trades ................................................ 8
4. No Obligation to Approve Trades ................................ 8
III. OTHER LIMITATIONS ON SECURITIES TRANSACTIONS ......................... 9
A. Public Resales - Rule 144 ......................................... 9
B. Private Resales ................................................... 10
C. Restrictions on Purchases of Company Securities ................... 10
D. Disgorgement of Profits on Short-Swing Transactions ............... 10
E. Prohibition of Short Sales ........................................ 11
F. Filing Requirements ............................................... 12
1. Forms 3, 4 and 5 ............................................... 12
2. Schedule 13D and 13G ........................................... 13
3. Form l44 ....................................................... 14
IV. CONFLICTS OF INTEREST ................................................ 14
- i -
I.
SUMMARY OF THE COMPANY POLICY CONCERNING
TRADING POLICIES AND CONFLICTS OF INTEREST
This Statement covers two fundamental principles which each employee and
director must follow:
A. COMPLIANCE WITH LAWS.
It is the policy of Starwood Financial Inc. (the "Company") that it will,
without exception, comply with all applicable laws and regulations in conducting
its business. Each employee and each director is expected to abide by this
policy. When carrying out Company business, employees and directors must avoid
any activity that violates applicable laws or regulations.
B. AVOIDANCE OF CONFLICTS OF INTEREST.
Each employee and each director must avoid any activity or interest which
conflicts with, or even appears to conflict with, the best interests of the
Company. In other words, each employee and each director has a duty of utmost
loyalty to the Company.
The foregoing principles are described in more detail below. A description
of certain applicable laws and related policies is set forth in Sections II and
III of the Statement and conflicts of interest and general policies for avoiding
them are discussed in Section IV. The Statement does not describe every law or
regulation which will affect the Company and its business, but attempts to
familiarize employees and directors with the laws which they must pay particular
attention to in an effort to assure the Company's compliance. Of course,
employees and directors are expected to comply with all applicable laws.
In meeting the standards set out in this Statement, it is essential that
each employee and director conduct the Company's business with honesty and
integrity. Each employee and each director contributes to the Company's overall
reputation. Therefore, each employee and each director must accept individual
responsibility for ensuring that these standards are implemented.
II.
THE USE OF INSIDE INFORMATION IN CONNECTION
WITH TRADING IN SECURITIES
A. GENERAL RULE.
The U.S. securities laws regulate the sale and purchase of securities in
the interest of protecting the investing public. U.S. securities laws give the
Company, its officers and directors, and other employees the responsibility to
ensure that information about the Company is not used unlawfully in the purchase
and sale of securities.
All employees and directors should pay particularly close attention to the
laws against trading on "inside" information. These laws are based upon the
belief that all persons trading in a company's securities should have equal
access to all "material" information about that company. For example, if an
employee or a director of a company knows material non-public financial
information, that employee or director is prohibited from buying or selling
stock in the company until the information has been disclosed to the public:
This is because the employee or director knows information that will probably
cause the stock price to change, and it would be unfair for the employee or
director to have an advantage (knowledge that the stock price will change) that
the rest of the investing public does not have. In fact, it is more than unfair.
It is considered to be fraudulent and illegal. Civil and criminal penalties for
this kind of activity are severe.
THE GENERAL RULE can be stated as follows: It is a violation of the
federal securities laws for any person to buy or sell securities if he or she is
in possession of material inside information. Information is material if it
could affect a person's decision whether to buy, sell or hold the securities. It
is INSIDE information if it has not been publicly disclosed. Furthermore, it is
illegal for any person in possession of material inside information to provide
other people with such information or to recommend that they buy or sell the
securities. (This is called "tipping".) In that case, they may both be held
liable. While it is not possible to identify all information that would be
deemed "material," the following types of information ordinarily would be
considered material:
- Financial performance, especially quarterly and year-end
results of operations, and significant changes in financial
performance, conditions or liquidity.
- Company projections and strategic plans.
- Potential mergers and acquisitions or the sale of Company
assets or subsidiaries.
- 2 -
- New major contracts, collaborations, or finance sources, or
the loss thereof.
- Stock splits, public or private securities/debt offerings, or
changes in Company dividend policies or amounts.
- Significant changes in senior management.
- Actual or threatened major litigation, or the resolution of
such litigation.
The rule applies to any and all transactions in the Company's securities,
including its common stock and options and warrants to purchase common stock
(other than the exercise of employee stock options or warrants), and any other
type of securities that the Company may issue, such as preferred stock,
convertible debentures, warrants and exchange-traded options or other derivative
securities.
The Securities and Exchange Commission (the "SEC"), the stock exchanges
and plaintiffs' lawyers focus on uncovering xxxxxxx xxxxxxx. A breach of the
xxxxxxx xxxxxxx laws could expose the insider to criminal fines up to three
times the profits earned and imprisonment of up to ten years, in addition to
civil penalties (up to three times the profits earned), and injunctive actions.
In addition, punitive damages may be imposed under applicable state laws.
Securities laws also subject controlling persons to civil penalties or illegal
xxxxxxx xxxxxxx by employees, including employees located outside the United
States. Controlling persons include directors, officers, and supervisors. These
persons may be subject to fines up to the greater of $1,000,000 or three times
the profit (or loss avoided) by the insider trader. Inside information does not
belong to the individual directors, officers or other employees who may handle
it or otherwise become knowledgeable about it. It is an asset of the Company.
For any person to use such information for personal benefit or to disclose it to
others outside the Company violates the Company's interests. More particularly,
in connection with trading in the Company securities, it is a fraud against
members of the investing public and against the Company.
B. WHO DOES THE POLICY APPLY TO?
The prohibition against trading on inside information applies to
directors, officers and all other employees, and to other people who gain access
to that information. All employees and officers must obtain the prior approval
of all trades in Company securities from the Xxxxxxx Xxxxxxx Compliance Officer
in accordance with the procedures set forth in Section H below. Because of their
access to confidential information on a regular basis, Company policy subjects
its directors, executive officers and certain other employees (the "Window
Group" as defined below) to additional restrictions on trading in the Company
securities. The additional restrictions for the Window Group are discussed in
Section H below. In addition, directors
- 3 -
and certain employees with inside knowledge of material information may be
subject to ad hoc restrictions on trading from time to time.
C. OTHER COMPANIES STOCKS.
The same rules apply to other companies' stocks. Employees and directors
who learn material information about suppliers, customers, or competitors
through their work at the Company should keep it confidential and not buy or
sell stock in such companies until the information becomes public. Employees and
directors should not give tips about such stocks.
D. TRADING IN OPTIONS.
The xxxxxxx xxxxxxx prohibition also applies to trading in exchange traded
options, such as put and call options. Options trading is highly speculative and
very risky. People who buy options are betting that the stock price will move
rapidly. For that reason, when a person trades in options in his or her
employer's stock, it will arouse suspicion in the eyes of the SEC that the
person was trading on the basis of inside information, particularly where the
trading occurs before a Company announcement or major event. It is difficult for
an employee or director to prove that he or she did know about the announcement
or event.
If the SEC or the stock exchanges were to notice active options trading by
one or more employees or directors of the Company prior to an announcement, they
would investigate. Such an investigation could be embarrassing to the Company
(as well as expensive), and could result in severe penalties and expense for the
persons involved. For all of these reasons, the Company prohibits its employees
and directors from trading in options on the Company stock. This policy does not
pertain to the exercise of stock options or warrants granted by the Company to
its employees, which cannot be traded.
E. MARGIN ACCOUNTS.
Securities held in a margin account may be sold by the broker without the
customer's consent if the customer fails to meet a margin call. Because such a
sale may occur at a time when an employee or a director had material inside
information or is otherwise not permitted to trade in Company securities, the
Company prohibits employees and directors from purchasing Company securities on
margin or holding Company securities in a margin account.
F. GUIDELINES.
The following guidelines should be followed in order to ensure compliance
with applicable antifraud laws and with the Company's policies:
- 4 -
1. NONDISCLOSURE. Material inside information must not be disclosed
to anyone, except to persons within the Company whose positions require
them to know it. No one may "tip" or disclose material nonpublic
information concerning the Company to any outside person (including, but
not limited to family members, analysts, individual investors, and members
of the investment community and news media), unless required as part of
that person's regular duties for the Company and authorized by the
Compliance Officer and/or the Board of Directors. In any instance in which
such information is disclosed to outsiders, the Company will take such
steps as are necessary to preserve the confidentiality of the information,
including requiring the outsider to agree in writing to comply with the
terms of this policy and/or to sign a confidentiality agreement. All
inquiries from outsiders regarding material nonpublic information about
the Company must be forwarded to the Compliance Officer.
No one may give trading advice of any kind about the Company to
anyone while possessing material nonpublic information about the Company,
except to advise others not to trade if doing so might violate the law or
this policy. The Company strongly discourages all directors and officers
from giving trading advice concerning the Company to third parties even
when the director or officer does not possess material nonpublic
information about the Company.
2. TRADING IN THE COMPANY'S SECURITIES. No employee or director
should place a purchase or sale order, or recommend that another person
place a purchase or sale order in the Company's securities, when he or she
has knowledge of material information concerning the Company that has not
been disclosed to the public. This includes orders for purchases and sales
of stock and convertible securities. The exercise of employee stock
options and warrants is not subject to this policy. However, stock that
was acquired upon exercise of a stock option or warrant will be treated
like any other stock, and may not be sold by an employee who is in
possession of material inside information. Employees or directors who
possess material inside information should wait until the start of the
third business day after the information has been publicly released before
trading.
3. AVOID SPECULATION. Investing in the Company's Common Stock
provides an opportunity to share in the future growth of the Company. But
investment in the Company and sharing in the growth of the Company does
not mean short range speculation based on fluctuations in the market. Such
activities put the personal gain of the employee or director in conflict
with the best interests of the Company and its stockholders. Although this
policy does not mean that employees or directors may never sell shares,
the Company encourages employees and directors to avoid frequent trading
in Company stock. Speculating in Company stock is not part of the Company
culture.
- 5 -
4. TRADING IN OTHER SECURITIES. No employee or director should place
a purchase or sale order, or recommend that another person place a
purchase or sale order, in the securities of another corporation, if the
employee or director learns in the course of his or her employment
confidential information about the other corporation that is likely to
affect the value of those securities. For example, it would be a violation
of the securities laws if an employee or director learned through Company
sources that the Company intended to purchase assets from a company, and
then bought or sold stock in that other company because of the likely
increase or decrease in the value of its securities.
G. XXXXXXX XXXXXXX COMPLIANCE OFFICER.
The Company has designated Xxxx X. Xxxxx, the Company's General Counsel,
as its Xxxxxxx Xxxxxxx Compliance Officer (the "Compliance Officer"). The
Compliance Officer will review and either approve or prohibit all proposed
trades by Section 16 Individuals and Key Employees in accordance with the
procedures set forth in Section H below.
In addition to the trading approval duties described in Section H below,
the duties of the Compliance Officer will include the following:
1. Administering this policy and monitoring and enforcing compliance
with all policy provisions and procedures.
2. Responding to all inquiries relating to this policy and its
procedures.
3. Designating and announcing special trading blackout periods
during which no Window Group members may trade in Company securities.
4. Providing copies of this policy and other appropriate materials
to all current and new directors, officers and employees, and such other
persons who the Compliance Officer determines have access to material
nonpublic information concerning the Company.
5. Administering, monitoring and enforcing compliance with all
federal and state xxxxxxx xxxxxxx laws and regulations, including without
limitation Sections 10(b), 16, 20A and 21A of the Exchange Act and the
rules and regulations promulgated thereunder, and Rule 144 under the
Securities Act of 1933 (the "Securities Act"); and assisting in the
preparation and filing of all required SEC reports relating to xxxxxxx
xxxxxxx in Company securities, including without limitation, Forms 3, 4, 5
and 144 and Schedules 13D and 13G.
- 6 -
6. Revising the policy as necessary to reflect changes in federal or
state xxxxxxx xxxxxxx laws and regulations.
7. Maintaining as Company records originals or copies of all
documents required by the provisions of this policy or the procedures set
forth herein, and copies of all required SEC reports relating to xxxxxxx
xxxxxxx, including without limitation, Forms 3, 4, 5 and 144 and Schedules
13D and 13G.
The Compliance Officer may designate one or more individuals who may
perform the Compliance Officer's duties.
H. PROCEDURES FOR APPROVING TRADES.
1. ALL DIRECTOR AND EMPLOYEE TRADES. No member of the Window Group
or any other employee of the Company may trade in Company securities until
a. the person trading has notified the Compliance Officer
in writing of the amount and nature of the proposed
trade(s),
b. the person trading has certified to the Compliance
Officer that (i) he or she is not in possession of
material nonpublic information concerning the Company
and (ii) the proposed trade(s) do not violate the
trading restrictions of Section 16 of the Exchange Act
or Rule 144 of the Securities Act, and
c. the Compliance Officer has approved the trade(s), and
has certified the approval in writing.
2. ADDITIONAL RESTRICTIONS ON THE WINDOW GROUP. The Window Group
consists of (i) directors and executive officers of the Company and their
secretaries, (ii) officers of the Company with the title Vice President or
above and their secretaries and (iii) such other persons as may be
designated from time to time and informed of such status by Xxxx X. Xxxxx,
the Company's General Counsel. In addition to the restrictions set forth
in Section H.1 above, the Window Group is subject to the following
restrictions on trading in Company securities:
a. trading is permitted from the close of the second
business day following an earnings release `with respect
to the preceding fiscal period until the close of
trading on the twenty-second day of the third month of
the current fiscal quarter (the "Window"), subject to
the restrictions below;
- 7 -
b. no trading in Company securities even during applicable
trading Windows while in the possession of material
inside information. Persons possessing such information
may trade during a trading Window only after the close
of trading on the second full trading day following the
Company's widespread public release of such material
inside information;
c. no trading in Company securities outside of the
applicable trading windows or during any special
blackout periods that the Compliance Officer may
designate. No one may disclose to any outside third
party that a special blackout period has been
designated; and
d. the Compliance Officer may, on a case-by-case basis,
authorize trading in Company securities outside of the
applicable trading Windows (but not during special
blackout periods) due to financial hardship or other
hardships.
3. HARDSHIP TRADES. The Compliance Officer may, on a case-by-case basis,
authorize trading in Company securities outside of the applicable trading
windows due to financial hardship or other hardships only after
a. the person trading has notified the Compliance Officer
in writing of the circumstances of the hardship and the
amount and nature of the proposed trade(s),
b. the person trading has certified to the Compliance
Officer in writing no earlier than two business days
prior to the proposed trades(s) that he or she is not in
possession of material nonpublic information concerning
the Company, and
c. the Compliance Officer has approved the trade(s) and has
certified the approval in writing.
4. NO OBLIGATION TO APPROVE TRADES. The existence of the foregoing
approval procedures does not in any way obligate the Compliance Officer to
approve any trades requested by members of the Window Group or other employees
or hardship applicants. The Compliance Officer may reject any trading requests
at his/her sole discretion.
- 8 -
III.
OTHER LIMITATIONS ON SECURITIES TRANSACTIONS
A. PUBLIC RESALES - RULE 144.
The Securities Act requires every person who offers or sells a security to
register such transaction with the SEC unless an exemption from registration is
available. Rule 144 under the Securities Act is the exemption typically relied
upon (i) for public resales by any person of "restricted securities" (i.e.,
securities acquired in a private offering) and (ii) for public resales by
officers, directors and other control persons of a company (known as
"affiliates") of any of the Company's securities, whether restricted or
unrestricted. All outstanding shares of the Company's Common Stock, other than
(i) those sold to the public in the Company's initial public offering and (ii)
the shares of common stock received upon the exercise of options granted under
the Company's 1996 Long-Term Incentive Plan (assuming Form S-8 Registration
Statements with respect to such plans have been filed and remain effective), are
"restricted securities."
Rule 144 contains five conditions, although the applicability of some of
these conditions will depend on the circumstances of the sale:
1. CURRENT PUBLIC INFORMATION. Current information about the Company
must be publicly available at the time of sale. The Company's periodic
reports filed with the SEC ordinarily satisfy this requirement.
2. HOLDING PERIOD. Restricted securities must be held and fully paid
for by the seller for a period of one year prior to the sale. The holding
period requirement, however, does not apply to securities held by
affiliates that were acquired either in the open market or in a public
offering of securities registered under the Securities Act. If the seller
acquired the securities from someone other than the Company or an
affiliate of the Company, the holding period of the person from whom the
seller acquired such securities can be "tacked" to the seller's holding
period in determining if the two-year requirement has been satisfied.
3. VOLUME LIMITATIONS. The amount of securities which can be sold
during any three month period cannot exceed the greater of (i) one percent
of the outstanding shares of the class or (ii) the average weekly reported
trading volume for shares of the class during the four calendar weeks
preceding the filing of the notice of sale referred to below.
4. MANNER OF SALE. The securities must be sold in unsolicited
brokers' transactions or directly to a market-maker.
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5. NOTICE OF SALE. The seller must file a notice of the proposed
sale with the SEC at the time the order to sell is placed with the broker,
unless the amount to be sold neither exceeds 500 shares nor involves sale
proceeds greater than $10,000. See "Filing Requirements."
The foregoing conditions do not have to be complied with by holders of
restricted securities who have held (and fully paid for) their restricted shares
for at least three years and who were not affiliates during the three months
preceding the sale under the rule.
Bona fide gifts are not deemed to involve sales of stock for purposes of
Rule 144, so they can be made at any time without limitation on the amount of
the gift. Donors who receive restricted securities from an affiliate generally
will be subject to the same restrictions under Rule 144 that would have applied
to the donor for a period of up to two years following the gift, depending on
the circumstances.
B. PRIVATE RESALES.
Directors and officers also may sell securities in a private transaction
without registration. Although there is no statutory provision or SEC rule
expressly dealing with private sales, the general view is that such sales can
safely be made by affiliates if the party acquiring the securities understands
he is acquiring restricted securities that must be held for at least two years
before the securities will be eligible for resale to the public under Rule 144.
Private resales raise certain documentation and other issues and must be
reviewed in advance by Xxxx X. Xxxxx, the Company's General Counsel.
C. RESTRICTIONS ON PURCHASES OF COMPANY SECURITIES.
In order to prevent market manipulation, the SEC has adopted Rules 10b-6
and 10b-18 under the Exchange Act. Rule 10b-6 generally prohibits the Company or
any of its affiliates from buying Company stock in the open market during
certain periods while a public offering is taking place. Rule 10b-18 sets forth
guidelines for purchases of Company stock by the Company or its affiliates while
a stock buyback program is occurring. While the guidelines are optional,
compliance with them provides immunity from a stock manipulation charge. You
should consult with Xxxx X. Xxxxx, the Company's General Counsel, if you desire
to make purchases of Company stock during any period that the Company is making
a public offering or buying stock from the public.
D. DISGORGEMENT OF PROFITS ON SHORT-SWING TRANSACTIONS.
Section 16 of the Exchange Act applies to directors and officers of the
Company and to any person owning more than ten percent of any registered class
of the Company's equity securities. The section is intended to deter such
persons (collectively referred to below as
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"insiders") from misusing confidential information about their companies for
personal trading gain. Section 16(a) requires insiders to publicly disclose any
changes in their beneficial ownership of the Company's equity securities (see
"Filing Requirements," below). Section 16(b) requires insiders to disgorge to
the Company any "profit" resulting from "short-swing" trades, as discussed more
fully below. Section 16(c) effectively prohibits insiders from engaging in short
sales (see "Prohibition of Short Sales," below).
Under Section 16(b), any profit realized by an insider on a "short-swing"
transaction (i.e., a purchase and sale, or sale and purchase, of the Company's
equity securities within a period of less than six months) must be disgorged to
the Company upon demand by the Company or a stockholder acting on its behalf. By
law, the Company cannot waive or release any claim it may have under Section
16(b), or enter into an enforceable agreement to provide indemnification for
amounts recovered under the section.
Liability under Section 16(b) is imposed in a mechanical fashion without
regard to whether the insider intended to violate the section. Good faith,
therefore, is not a defense. All that is necessary for a successful claim is to
show that the insider realized "profits" on a short-swing transaction; however,
profit, for this purpose, is calculated as the difference between the sale price
and the purchase price in the matching transactions, and may be unrelated to the
actual gain on the shares sold. When computing recoverable profits on multiple
purchases and sales within a six month period, the courts maximize the recovery
by matching the lowest purchase price with the highest sale price, the next
lowest purchase price with the next highest sale price, and so on. The use of
this method makes it possible for an insider to sustain a net loss on a series
of transactions while having recoverable profits. The terms "purchase" and
"sale" are construed under Section 16(b) to cover a broad range of transactions,
including acquisitions and dispositions in tender offers and certain corporate
reorganizations. Moreover, purchases and sales by an insider may be matched with
transactions by any person (such as certain family members) whose securities are
deemed to be beneficially owned by the insider.
The Section 16 rules are complicated and present ample opportunity for
inadvertent error. To avoid unnecessary costs and potential embarrassment for
insiders and the Company, Officers and directors are strongly urged to consult
with Xxxx X. Xxxxx, the Company's General Counsel, prior to engaging in any
transaction or other transfer of Company equity securities regarding the
potential applicability of Section 16(b).
E. PROHIBITION OF SHORT SALES.
Under Section 16(c), insiders are prohibited from effecting "short sales"
of the Company's equity securities. A "short sale" is one involving securities
which the seller does not own at the time of sale, or, if owned, are not
delivered within 20 days after the sale or deposited in the mail or other usual
channels of transportation within five days after the sale.
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Wholly apart from Section 16(c), the Company prohibits directors and employees
from selling the Company's stock short. This type of activity is inherently
speculative in nature and is contrary to the best interests of the Company and
its shareholders.
F. FILING REQUIREMENTS.
1. FORM 3, 4 AND 5. Under Section 16(a) of the Exchange Act,
insiders must file with the SEC and any stock exchange on which the
Company's equity securities are quoted (i.e., the New York Stock Exchange)
public reports disclosing their holdings of and transactions involving,
the Company's equity securities. Copies of these reports must also be
submitted to the Company. An initial report on Form 3 must be filed by
every insider within 10 days after election or appointment disclosing all
equity securities of the Company beneficially owned by the reporting
person on the date he became an insider. Even if no securities were owned
on that date, the insider must file a report. Any subsequent change in the
nature or amount of beneficial ownership by the insider must be reported
on Form 4 and filed within ten days after the close of the month in which
the change occurred. Certain exempt transactions may be reported on Form 5
within 45 days after the end of the fiscal year. The fact that an
insider's transactions during the month resulted in no net change, or the
fact that no securities were owned after the transactions were completed,
does not provide a basis for failing to report. All changes in the amount
or the form (i.e., direct or indirect) of beneficial ownership (not just
purchases and sales) must be reported. Thus, such transactions as gifts
and stock dividends ordinarily are reportable. Moreover, an officer or
director who has ceased to be an officer or director must report any
transactions after termination which occurred within six months of a
transaction that occurred while the person was an insider.
The reports under Section 16(a) are intended to cover all securities
beneficially owned either directly by the insider or indirectly through
others. An insider is considered the direct owner of all Company equity
securities held in his or her own name or held jointly with others. An
insider is considered the indirect owner of any securities from which be
obtains benefits substantially equivalent to those of ownership. Thus,
equity securities of the Company beneficially owned through partnerships,
corporations, trusts, estates, and by family members generally are subject
to reporting. Absent countervailing facts, an insider is presumed to be
the beneficial owner of securities held by his or her spouse and other
family members sharing the same home. But an insider is free to disclaim
beneficial ownership of these or any other securities being reported if
the insider believes there is a reasonable basis for doing so.
It is important that reports under Section 16(a) be prepared
properly and filed on a timely basis. The reports must be received at the
SEC by the filing deadline. There is no provision for an extension of the
filing deadlines, and the SEC can take
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enforcement action against insiders who do not comply fully with the
filing requirements. In addition, the Company is required to disclose in
its annual proxy statement the names of insiders who failed to file
Section 16(a) reports properly during the fiscal year, along with the
particulars of such instances of noncompliance. Accordingly, the Company
strongly urges all directors and officers to notify Xxxx X. Xxxxx, the
Company's General Counsel, prior to any transactions or changes in their
or their family members' beneficial ownership involving Company stock and
to avail themselves of the assistance available from Xxxxx, Xxxxx & Xxxxx
in satisfying the reporting requirements.
2. SCHEDULE 13D AND 13G. Section 13(d) of the 1934 Act requires the
filing of a statement on Schedule 13D (or on Schedule 13G, in certain
circumstances) by any person or group which acquires beneficial ownership
of more than (i) five percent of a class of equity securities registered
under the 1934 Act and is not a Passive Investor (as defined below) or
(ii) twenty percent of a class of equity securities. The threshold for
reporting is met if the stock owned, when coupled with the amount of stock
subject to options exercisable within 60 days, exceeds the five percent
limit.
A report on Schedule 13D is required to be filed with the SEC and NYSE and
submitted to the Company within ten days after the reporting threshold is
reached. If a material change occurs in the facts set forth in the Schedule 13D,
such as an increase or decrease of one percent or more in the percentage of
stock beneficially owned, an amendment disclosing the change must be filed
promptly. A decrease in beneficial ownership to less than five percent is PER SE
material and must be reported.
A report on Schedule 13G is an abbreviated form required to be filed with
the SEC, AMEX and submitted to the Company yearly or monthly by certain holders
that acquire over 5% but not less than 20% of the Company's equity securities in
the ordinary course of business and which do not hold such stock for the purpose
or with the effect of changing or influencing control ("Passive Investors"). A
Passive Investor must file a Schedule 13G within 10 days after acquisition of
more than 5% of the Company's equity securities. Passive Investors must file
amendments promptly upon exceeding 10% of a class of securities and thereafter
promptly upon the Passive Investor's beneficial ownership increasing or
decreasing by more than 5%.
A person is deemed the beneficial owner of securities for purposes of
Section 13(d) if such person has or shares voting power (i.e., the power to vote
or direct the voting of the securities) or dispositive power (i.e., the power to
sell or direct the sale of the securities). As is true under Section 16(a) of
the 1934 Act, a person filing a Schedule 13D or a Schedule 13G may disclaim
beneficial ownership of any securities attributed to him or her if he or she
believes there is a reasonable basis for doing so.
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It should be noted that the Form 3/Form 4/Form 5 Reports and the Schedule
13D/Schedule 13G requirements are independent of each other, and compliance with
one section of the 1934 Act will not satisfy the other.
3. FORM 144. As described above under the discussion of Rule 144, a
seller relying on Rule 144 must file a notice of proposed sale with the
SEC at the time the order to sell is placed with the broker unless (x) the
amount to be sold neither exceeds 500 shares nor involves sale proceeds
greater than $10,000 or (y) the seller is not at the time of the sale, and
has not been for the three months preceding such date, an affiliate of the
Company and, if the securities to be sold are restricted securities, such
restricted securities have been held (and fully paid for) for at least
three years.
IV.
CONFLICTS OF INTEREST
The Company relies on the integrity and undivided loyalty of its employees
to maintain the highest level of objectivity in performing their duties. Each
employee is expected to avoid engaging in activities that conflict with, or have
the appearance of conflicting with, the best interests of the Company and its
stockholders. Any personal activities or interests of an employee that could
negatively influence, or which could have the appearance of negatively
influencing, his or her judgment, decisions or actions must be disclosed to Xxxx
X. Xxxxx, the Company's General Counsel, who will determine if there is a
conflict and, if so, how to resolve it without compromising the Company's
interests. PROMPT AND FULL DISCLOSURE IS ALWAYS THE CORRECT FIRST STEP TOWARDS
IDENTIFYING AND RESOLVING ANY POTENTIAL CONFLICT OF INTEREST.
This policy applies not only to each employee but also to members of the
employee's immediate family, any trust in which an employee (or a member of the
employee's immediate family) has a beneficial interest, and any person with whom
the employee (or a member of the employee's immediate family) has a substantial
business relationship. Immediate family includes any relatives of the employee
or the employee's spouse who live in the same household as the employee.
This policy applies to officers and directors to the same extent as
employees. Conflicts involving officers will be reviewed by the Audit Committee
of the Board. Conflicts involving the Chief Executive Officer and directors will
be reviewed by the Board.
In certain limited cases, activities giving rise to potential conflicts of
interest may be permitted if they are determined not to be harmful to the
Company. That determination will be made by the Board in the case of the Chief
Executive Officer or directors, by the Audit
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Committee in the case of other officers, and by Xxxx X. Xxxxx, the Company's
General Counsel, in the case of other employees.
The following discussion sets out some of the more common conflicts that
an employee may confront and is intended to serve as a guide to the standards to
which all employees are expected to adhere. The list is unavoidably incomplete.
It is the special responsibility of each employee to use his or her best
judgement to assess objectively whether a conflict or the appearance of a
conflict exists and to engage in open and candid communication with the Company
about the conflict. In addition, an employee should be prudent in his or her
personal investments and other activities to ensure that they do not put the
employee in a position - financial or otherwise - which might influence or give
the appearance of influencing his or her actions as a Company employee.
No employee may have any direct or indirect financial interest in, or any
business relationship with, a private company, partnership, or other
privately-held entity that currently is or becomes a supplier of materials to
the Company, a provider of services to the Company or a competitor of the
Company. A financial interest includes any ownership or creditor interest. This
policy does not apply to either an employee's arms-length purchases of goods and
services for personal or familial use or an employee's normal arms-length
dealings with companies, banks, insurance companies and utilities that have a
relationship with the Company that are merely incidental to the Company's
operations. Any employee or director that has a direct or indirect MATERIAL
financial interest in, or business relationship with, a public company that
currently is or becomes a supplier of materials to the Company, a provider of
services to the Company or a competitor of the Company must disclose such
interest to Xxxx X. Xxxxx, the Company's General Counsel, who will determine if
there is a conflict and, if so, how to resolve it without compromising the
Company's interests. A financial interest includes any ownership or creditor
interest. This policy does not apply to either an employee's arms-length
purchases of goods and services for personal or familial use or an employee's
normal arms-length dealings with companies, banks, insurance companies and
utilities that have a relationship with the Company that is merely incidental to
the Company's operations.
No employee should accept gifts, credits, payments, services, excessive
entertainment or anything else of value from an actual or potential competitor,
supplier or customer unless such gift is of insubstantial value and a refusal to
accept it would be discourteous or otherwise harmful to the Company. In
addition, receiving advertising novelties such as calendars does not violate
this policy. Permitting a supplier's or customer's employee to pick up the check
at a meal is not inappropriate so long as business was discussed at arms- length
and there is no suggestion of undue or unfair influence. If a gift or other
service or object of value is offered to an employee, he or she should
immediately report the offer to a responsible Company manager so that an
appropriate response can be made to the offeror. Please remember, however, that
local, state and federal laws often impose special rules on relations with
government customers and suppliers which may differ from commercial relations.
Payments
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for expenses of government representatives should be reviewed by Xxxx X. Xxxxx,
the Company's General Counsel, prior to making the payment.
No employee may use Company information for personal gain (i) if it would
harm the Company's interests or (ii) if the information has not been previously
disclosed to the public. For example, if the employee is aware that the Company
intends to purchase or is considering the purchase of a specific parcel of land,
it would be a breach of the employee's duty of loyalty to the Company to
purchase that property or inform others of the Company's intent. Any
confidential or proprietary information concerning the Company belongs to the
Company and should not be disclosed or used by the employee. Any unauthorized
disclosure of such information would be a breach of the employee's duty of
loyalty. See Section II of this Statement for a discussion of federal securities
laws prohibiting the trading in securities based on non-public Company
information.
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